Printer
Friendly Version
DORGAN, WYDEN, WAXMAN, DINGELL CALL TO
END OUTSOURCING OF OVERSIGHT FOR IRAQ RECONSTRUCTION
Pentagon hires contractors to watch contractors
at cost of $130 million
May 5, 2004
Washington, DC - U.S. Senators
Byron Dorgan (D-N.D.) and Ron Wyden (D-Ore.) and U.S. Representatives
Henry A. Waxman (D-Calif.) and John Dingell (D-Mich.) today called
on the Pentagon to stop outsourcing the oversight of large Iraq
reconstruction contracts to private companies. They said the arrangement
is rife with potential conflicts of interest and opens the door
to significant additional waste of taxpayer dollars in Iraq.
In a joint report issued by
the House Government Affairs Committee and the Senate Democratic
Policy Committee, the Members of Congress detailed nearly $130
million in spending on reconstruction oversight contracts for
seven private contractors. A letter from the four lawmakers to
Defense Secretary Donald Rumsfeld today objects to the Pentagon’s
oversight structure and points out numerous conflicts of interest
among the contracted companies. It also makes the Secretary aware
of amendments they intend to offer to the upcoming Department
of Defense authorization bill that would require the Pentagon
to resume direct oversight of its reconstruction contracts in
Iraq within 90 days.
“I’ve heard of cutting
out the middle man to get more bang for your buck, but adding
more middle men and millions of dollars of cost is a dubious strategy
whether you are running a business or a government,” said
Wyden. “Oversight of these contracts should rest with an
impartial advocate for the taxpayer – not with these companies.”
“We’re talking about
the expenditure of billions of taxpayer dollars, in a system in
which we already know waste and fraud exist,” said Senator
Byron Dorgan. “How does the Administration want to oversee
the expenditures of those funds? They want to hire private contractors
to oversee other private contractors, including contractors with
interlocking financial interests and arrangements with each other
and who have their own reconstruction contracts in Iraq. We need
to tighten oversight of how tax dollars are spent, not farm it
out, and certainly not farm it out this way.”
“Whether by design or
incompetence the Administration is failing in its responsibility
to oversee the reconstruction effort and to protect the taxpayer
from waste, fraud, and abuse,” said Rep. Waxman. “The
Administration should not be outsourcing this essential government
function.”
“Our latest investigation
focuses on a particularly dangerous contracting practice: putting
the management of Iraqi reconstruction contracts in the hands
of other contractors,” said Congressman John D. Dingell,
Ranking Member of the Committee on Energy and Commerce. “We
are not charging wrongdoing, but we are saying this situation
sets the stage for wrongdoing to flourish because of the close
relationships between the contractors.”
The joint report, which can
be found online at http://www.house.gov/reform/min/
and at http://www.democrats.senate.gov,
details the conflicts of interest among contractors including
Parsons, Fluor, and CH2M Hill. It also reports the fee structure
of the contracts and sheds light on the potential for waste, fraud
and abuse. The letter to the Secretary of Defense reiterates concerns
about the contractors “being asked to carry out essential
government oversight functions, including defining and prioritizing
project requirements and actually overseeing the work of construction
contractors.” The full text of the letter, which immediately
follows this release, also requests the Defense Department’s
support of proposed amendments to the Defense authorization bill
that would end the outsourcing of oversight.
The proposed amendments to the
Department of Defense Authorization bill, similar versions of
which will be introduced in both the House and Senate, seek to
force the Pentagon to resume responsibility for oversight of Iraq
reconstruction contracts. Specifically, the amendments will require
the Defense Department to terminate within 90 days the seven oversight
contracts awarded earlier this year and assume responsibility
for all Iraq reconstruction contract oversight. The Senate amendment
will also prohibit the Defense Department from contracting out
any future oversight activities in Iraq to non-governmental entities.
Senators Wyden and Dorgan expect
to file their amendment this week. Representatives Waxman and
Dingell submitted their amendment to the Rules Committee for its
consideration Monday.
The text of the Senators’ letter follows:
The Honorable Donald H. Rumsfeld
Secretary of Defense
The Pentagon
Washington DC, 20301
Dear Secretary Rumsfeld:
We are writing to object to
the Administration’s decision to outsource its oversight
of Iraq reconstruction contracts. By its decision, the Administration
has abdicated its responsibility to ensure that U.S. taxpayers’
dollars are spent wisely. In effect, the Administration is allowing
the major contractors in Iraq to police themselves.
To date, the Administration
has awarded billions of dollars to a small group of private contractors
for reconstruction projects in Iraq. Already, in numerous instances,
well-documented by the Department of Defense Inspector General,
these contracts have been plagued by fraud, waste, and abuse.
In view of this, the Pentagon should have redoubled its own oversight
efforts.
Instead, on March 10, 2004,
the Coalition Provisional Authority (CPA) announced that it was
outsourcing the oversight of these contracts – by awarding
$129 million worth of new “management” contracts to
the same reconstruction work in Iraq. These contractors are being
asked to carry out essential government oversight functions, including
defining and prioritizing project requirements and actually overseeing
the work of construction contractors. It is not appropriate for
contractors to exercise these functions – particularly in
view of significant conflicts of interest among these companies.
A prime example involves Parsons,
a major construction firm. On March 10, the company’s joint
venture with CH2M Hill was awarded a $28.5 million contract to
oversee the expenditure of $1.7 billion in taxpayer funds by four
other contractors charged with restoring and improving Iraq’s
public works and water sector. The four other contractors are
Fluor, Washington Group International, AMEC, and Black & Veatch.
A separate Parsons joint venture with Parsons-Brinckerhoff was
awarded a $43 million contract to oversee $1.5 billion in electricity
reconstruction work to be completed by Fluor, Washington Group
International, AMEC, and Perini.
Even if it made sense for one
major contractor to oversee another – which it does not
– Parsons could not act as an independent watchdog with
respect to Fluor’s water or electricity work, because of
the close business ties between the two companies. Most notably,
Fluor and Parsons are 50-50 partners in a $2.6 billion joint venture
to develop oil fields in Kazakhstan. This project dwarfs the value
of Parson’s share of its oversight contracts in Iraq.
How can anyone expect Parsons
to be an aggressive overseer of a company with which it is a partner
in a major joint venture?
Indeed, actions that Parsons
takes under the two oversight contracts could directly affect
its own reconstruction contracts. Parsons is teamed with Bechtel
on USAID’s Iraq Infrastructure II contract. This contract,
which has a value of $1.8 billion, covers a range of sectors,
including power generation, electrical grids, and municipal water
and sewage systems. The prioritization and scheduling of work
under the CPA contracts could affect the value and type of water
and electricity work available for Parsons to do under the USAID
contract. Parsons also has an $800 million contract for the restoration
of the oil infrastructure in northern Iraq, which could also be
affected by how it exercises its oversight powers.
Another instance of a conflict
of interest involves Parson’s partner on the contract to
oversee the public works and water projects, CH2M Hill, a global
engineering and construction firm. CH2M Hill has ongoing domestic
contractual relationships with Washington Group International,
Fluor, and AMEC – three of the firms that it and Parsons
are supposed to oversee. For example, CH2M Hill and Washington
Group International are “integrated partners” on a
$314 million Department of Energy contract in the United States.
Yet another instance of a conflict
of interest involves Parsons Brinckerhoff, which is now supposed
to oversee Fluor’s electrical work in conjunction with Parsons
Corp.
In January of this year, Robert
Prieto, the former chairman of Parsons Brinckerhoff became senior
vice president of Fluor. Such crossover in management is common
among major contractors – and an obvious reason why it makes
no sense to have these companies overseeing each other.
We understand that it can sometimes
be necessary for government contractors to have business relationships
with each other. But in this case, these companies have been given
the specific responsibility to provide “oversight”
of their business partners. Arthur Andersen’s disastrous
relationship with Enron illustrates what can go wrong when a supposedly
independent company has multiple business relationships with the
companies it is overseeing.
To make matters worse, we have
learned that the CPA has made the value of each “oversight”
contract dependent on high “scores” based largely
on an assessment of the contractor’s performance. So, for
example, if Parsons is “overseeing” Fluor, there is
a financial incentive for Parsons to make Fluor’s performance
appear as rosy as possible. The bottom line is that this kind
of oversight system cannot work – and that the Pentagon
should not abdicate its oversight responsibilities over multi-billion
dollar contracts.
This week, we will be offering
amendments to the Defense authorization bills in the Senate and
House of Representatives, which would require that these contracts
be terminated, and that the Pentagon carry out its own oversight
responsibilities.
We have enclosed a staff report
that provides more detail about these conflicts of interest. We
hope that you will review this letter and report carefully and
will reconsider the wisdom of these contracting decisions. We
also urge you to support our contracting amendments.
Sincerely,
Byron Dorgan
U.S. Senator
Ron Wyden
U.S. Senator
Henry Waxman
U.S. Rep.
John Dingell
U.S. Rep.
# # #