The U.S. Agency for International Development yesterday awarded San Francisco-based Bechtel National Inc. a contract worth as much as $680 million to build and restore Iraq's infrastructure, including roads and airports, sewage and irrigation systems, schools and power plants.

The contract is the biggest single chunk of an initial $2.5 billion approved by Congress last week for Iraqi humanitarian aid and reconstruction. Repairing the country from war damage and a decade of sanctions, as well as building what the Bush administration envisions as a modern, developed democracy, is expected to take years and cost many billions more.

The award, held up for weeks because bidders could not obtain commercial insurance, came after President Bush yesterday signed an executive order authorizing USAID to indemnify some losses and damages associated with the project, including those "arising out of or exposure to . . . chemical, biological, radiological or nuclear weapons or materials associated with the project;" land or sea mines, and unexploded ordnance. One expert described the indemnification as a "major sweetener" in the contract.

Bechtel, one of the world's largest engineering and construction companies, joins four other U.S. firms that were recently awarded much smaller contracts. All were selected under an expedited process that has been criticized by some members of Congress and others because it limited competition to six U.S. companies.

Democratic House members have asked the General Accounting Office to review the procedure, and a bipartisan Senate group has introduced legislation that would require the administration to provide public justification for the awarding of all Iraqi reconstruction contracts. There have been complaints from other countries that the bidding was limited to U.S. firms, although that is the norm for USAID development projects and some foreign firms are expected to be among the numerous subcontractors of Bechtel.

USAID has defended the limited competition, saying that it was necessary to move rapidly in "wartime conditions," and that the hand-picked companies still had to go through a rigorous bidding process.

"Restoration of [Iraq's] key infrastructure is a priority of the U.S. government's effort to strengthen Iraq's economy and ensure delivery of essential public services to the Iraqi population," said a USAID statement announcing the award. It said Bechtel will receive an initial $34.6 million in a contract that "provides for funding of up to $680 million over 18 months."

News of the award came as U.S. and British military forces struggled to restore order as well as the basic services that were damaged or otherwise stopped in most Iraqi cities during the war. Administration officials have acknowledged that a rapid improvement in security and living conditions is crucial to the larger effort of pacifying the country and beginning to rebuild it. Brig. Gen. Vincent K. Brooks, a U.S. Central Command spokesman, said yesterday that, despite persistent problems, "military, humanitarian actions and the reconstruction efforts are improving the conditions."

But the United Nations and humanitarian agencies yesterday described the situation in Baghdad as "horrible," and they said it was only slightly better in many other cities. In a briefing in Amman, Jordan, a U.N. spokesman said that "all civil services have essentially ceased to exist" in the Iraqi capital. There is little clean water and electricity and "there is no garbage collection," the spokesman said, "and this means that refuse is piling up all over the city, further adding to the risks of disease."

The International Committee of the Red Cross reported that "a certain degree of calm" had returned to Baghdad after days of looting and violence, but that "security remains volatile." Hospitals throughout the country were described as ransacked and only partially operable, at best.

Neither USAID nor major non-governmental aid agencies have entered Iraq in force because of security concerns, with the military continuing to battle pockets of resistance in Baghdad and other cities. But convoys of food-laden trucks began to move into the country this week from Kuwait, Jordan and Turkey, where they had been waiting for weeks.

Several countries have offered to send military and law enforcement personnel into Iraq, and the administration last night instructed U.S. embassies in "dozens" of countries to outline what is needed and to ask for assistance. NATO is in preliminary discussions on a possible peacekeeping force.

Bechtel National President Tom Hash issued a brief statement yesterday saying that the company is "honored to have been asked by USAID to bring humanitarian assistance, economic recovery and infrastructure reconstruction to the Iraqi people. We will now begin meeting with USAID to start detailed planning on this important effort."

Privately held Bechtel Group Inc., whose board includes former secretary of state George P. Shultz, has been involved in major projects throughout the world, including the Channel Tunnel between France and Britain, Hong Kong International Airport and a $20 billion industrial complex in Saudi Arabia. It also helped put out the fires and orchestrated the cleanup of the oil fields in Kuwait after the 1991 Persian Gulf War.

Broad indemnification authority already exists for some government entities, including the Treasury Department, the Government Printing Office and the Army Corps of Engineers. The government rarely grants it for other, specific contracts, however, because of potential taxpayer liability. "It's a major sweetener for the contractor," University of Baltimore law professor Charles Tiefer said of yesterday's award.

Beyond insurance issues, the contract has been surrounded by controversy since it was first opened for bids by USAID last month. Most of the six firms invited to bid have strong political connections. A subsidiary of Halliburton Co., which was formerly headed by Vice President Cheney, was on the invitation list, but it declined to bid. The company was awarded an early, sole-source oil cleanup contract by the Army Corps of Engineers.

In addition to Bechtel and Halliburton subsidiary Kellogg, Brown and Root, the other companies invited to bid were Parsons Corp., Fluor Corp., Lewis Berger Group Inc. and Washington Group International Inc.

Two Iraqi workers check the valves at a waterworks facility in downtown Baghdad for the first time in two weeks.