Congress called to expand oversight of Iraq rebuilding

The Providence Journal, August 4 – A federal auditor says that the case of Rhode Island-based Custer-Battles illustrates some of the pitfalls of insufficient planning for postwar reconstruction.

A top federal auditor yesterday called for the creation of standby reconstruction units to avoid the kind of "fragmented" wartime contracting system that companies such as Rhode Island-based Custer-Battles exploited for profit after the invasion of Iraq.

Stuart W. Bowen Jr., the special inspector general for Iraq, made that and other recommendations as he delivered his latest reports to Congress, including a history of the troubled, $20 billion effort to rebuild Iraq’s public works.

"It is a story of mistakes made, plans poorly conceived or overwhelmed by ongoing violence, and of waste, greed and corruption that drained dollars that should have been used to build schools, improve the electrical grid, and repair the oil infrastructure," said Susan Collins, R-Maine, chairwoman of the Senate Homeland Security Committee, which heard Bowen’s testimony.

After dozens of audits of the massive crash program to repair Iraq’s infrastructure — from power plants and oil pipelines to schools and sewer systems — Bowen offered this assessment:

"The mismanagement of the entire effort" stemmed from the creation from scratch of "a wholly new" contracting office, under chaotic wartime conditions and without enough resources.

Bowen’s testimony and his exchanges with senators reprised familiar contracting horror stories large and small. One of the large ones was a project to build a children’s hospital in the southern port of Basra. "The project was supposed to cost $50 million and it was supposed to be done last December," Bowen said. "It’s going to cost $150 million and it won’t be done until a year from today."

Bowen attributed much of the cost to continuing violence, but said mismanagement was also a major factor.

Bowen did not single out the Custer-Battles case during his testimony but he said during an interview later that it illustrated some of the pitfalls of insufficient planning for postwar reconstruction.

Bowen stressed, however, that he does not believe that fraud in Iraqi contracting is nearly as big a problem as waste and mismanagement. Of Custer-Battles, Bowen said, "Are they emblematic of the overall problem? No. Custer-Battles is an exception" in that they have been accused of fraud by whistleblowers. "Fraud is not a pervasive component of the Iraqi reconstruction," Bowen said.

Custer-Battles was a relatively small player in Iraq but its war-profiteering case is the first one to have been tried in court.

Last March a federal jury in Virginia found Custer-Battles liable for $10 million in damages and penalties for a war profiteering scheme involving phony invoices and backdated leases on a project to create a new Iraqi currency system after the fall of Saddam Hussein.

Former Army officers Scott Custer and Michael J. Battles took advantage of an improvised wartime contracting system that was vulnerable to fraud, according to testimony during the trial of civil charges brought by whistleblowers once associated with Custer-Battles. The trial record is fraught with evidence of confusion about the terms and value of contracts hurriedly executed by an overtaxed, understaffed corps of administrators.

Bowen said Custer-Battles was among the firms that "did take advantage of the lack of oversight" in the first year or more of the Iraqi reconstruction effort. He said Custer-Battles also took advantage of "understaffing and lack of planning."

According to Bowen, "There really was no oversight entity" auditing contracts or scrutinizing the massive rebuilding effort for more than a year after the invasion. During that key period after the fall of Saddam, Custer-Battles won contracts worth tens of millions of dollars and several huge corporations — including Bechtel and Halliburton’s Kellogg, Brown & Root subsidiary — undertook multi-billion-dollar jobs.

As Collins noted, "while billions have been spent, reconstruction has fallen far short."

Bowen made several recommendations that would require action by the executive branch and, in some cases, Congress, including:

The institutionalization of a military public works program modeled after efforts that U.S. Army commanders have improvised in Iraq. Bowen said that effort has produced dozens of small-scale projects that have put Iraqis to work and shown results to Iraqi communities. He called it one of "the great success stories" of the rebuilding effort, echoing a persistent observation by Sen. Jack Reed, who has made eight visits to Iraq.

The creation of a "deployable reserve corps" of federal contracting experts trained for "rapid relief and reconstruction" jobs. Such jobs could include not only postwar rebuilding but also relief after disasters such as Hurricane Katrina.

The drafting of uniform rules for contracting under conditions — such as postwar rebuilding — that require speedier action than the regular federal purchasing rules permit.

The recruitment of "a diverse group of contractors" skilled in handling emergency rebuilding work.

"The purpose of that recommendation is to identify quality entities that are ready to go to work at the time the operations start, so that you don’t have new companies created just for the purpose" of seeking the new reconstruction work, Bowen said.

Custer-Battles existed before the invasion of Iraq as perhaps four employees without many contracts. Within months, it became a $70-million concern with 1,000 workers, according to the trial record.