Washington Post

Thursday, October 9, 2003; Page A01

Spending On Iraq Sets Off Gold Rush

Lawmakers Fear U.S. Is Losing Control of Funds

Authors: JONATHAN WEISMAN and ANITHA REDDY, Washington Post Staff Writers 

As the House today takes up President Bush's $87 billion spending request for Iraq and Afghanistan, the debate over the bill is increasingly focused not just on the amount of money but also on who will get it.

Of the $4 billion a month already being spent in Iraq, as much as a third is going to the private contractors who have flooded into the country, said Deborah D. Avant, a political scientist at George Washington University and an expert in the new breed of private military companies. The flow of money will increase greatly if Congress approves Bush's request.

Many of the services being sought -- including police training, crimes-against-humanity investigations and prison-construction expertise -- are highly specialized. Conditions are dangerous. Experts say American taxpayers can expect to pay a hefty premium to contractors in a classic seller's market.

Among the dozens of projects in the proposal is a State Department plan to spend $800 million to build a large training facility for a new Iraqi police force. Management fees alone would run $26 million a month, while 1,500 police trainers would cost $240,000 each per year, or $20,000 each per month. DynCorp of Reston is likely to get the contract.

"All I can say is it's mind-boggling," James Lyons, a former military subcontractor in Bosnia, said of the opportunities for private contractors. "People must be drooling."

Avant said that as many as 1 in 10 Americans deployed in Iraq and Kuwait -- perhaps 20,000 -- are contractors, a group larger than any of the military forces fielded there by Britain or other U.S. allies. Kellogg, Brown & Root, a subsidiary of Vice President Cheney's former firm, Houston-based Halliburton Corp., has an exclusive contract to rebuild Iraq's oil infrastructure. San Francisco-based Bechtel Corp. is the prime contractor for much of the infrastructure reconstruction.

The Iraqi gold rush has raised concerns on Capitol Hill that the administration may be losing control of the taxpayers' money. As the task of rebuilding shifts from government employees to for-profit contractors, members of Congress are worried that their oversight will diminish, cost controls will weaken and decisions about security, training and the shape of the new Iraqi government will be in the hands of people with financial stakes in the outcome. Avant calls it "the commercialization of foreign policy."

The Coalition Provisional Authority is bolstering its contracting operations to keep up with the flow of money from Washington, congressional aides said, but lawmakers still complain that the process of bidding out and awarding contracts and subcontracts needs to be far more transparent and organized.

"What we're seeing is waste and gold-plating that's enriching Halliburton and Bechtel while costing taxpayers billions of dollars and actually holding back the pace of reconstruction in Iraq," said Rep. Henry A. Waxman (D-Calif.), a leading critic of the administration's handling of Iraq. "We need greater transparency."

Driven by those concerns, the Senate last week added provisions to its version of the president's request that would increase penalties for war profiteering and demand a more open and competitive bidding system.

House Appropriations Committee Chairman C.W. Bill Young (R-Fla.) included a provision to limit noncompetitive bidding in the House version of the war-spending bill.

Dan Senor, a senior adviser to Coalition Provisional Authority administrator L. Paul Bremer, said such concerns are misplaced. He said competition among contractors would keep costs down.

"We are confident that there will be an enormous supply of contractors and subcontractors interested in these projects," he said. "That's what our experience has shown."

But Senor also emphasized that the authority's primary contracting concerns right now are speed and reducing the pressure on U.S. troops by replacing them with contractors wherever possible.

For example, Fairfax-based Vinnell Corp., a subsidiary of Northrop Grumman Corp., won a $48 million contract in July to begin training a new Iraqi army, a sum that would be dwarfed by the $164 million for military contract training contained in Bush's $87 billion request. Vinnell, in turn, subcontracted with Alexandria-based Military Professional Resources Inc. and several other companies.

Erinys, a British company with offices in the Middle East and South Africa, is guarding oil fields and pipelines that are in danger from saboteurs.

Custer Battles LLC, another Fairfax company, is providing security for Baghdad International Airport, guarding ground convoys and protecting other contractors with 250 employees who served in the U.S., Nepalese, British, French and Australian military, joined by 300 to 400 Iraqis, said Scott Custer, a principal of the firm. Those numbers, he said, are "expanding exponentially."

"Iraqi operations are now the majority of our business," Custer said yesterday.

Those contracts are only the beginning. Edwin E. Brockway, a manager in the defense and federal products division of the construction-equipment company Caterpillar Inc., said 500 to 600 of his company's machines are already in Iraq. He said he expects Caterpillar to receive many more orders for bulldozers and pipe layers as private companies win contracts to rebuild Iraq's sewer systems, water-purification plants and roads. The bulldozers used by soldiers in Iraq range in price from $100,000 to nearly $1 million, and the Army hires service companies to repair and maintain the equipment.

Engineered Support Systems Inc. estimated that the military is using 4,000 of its gigantic portable air conditioners and heaters in tents and portable shelters in Iraq. Each unit costs $11,000 and can heat or cool a few thousand square feet.

"The Army and Air Force have said, 'How many more can you build? How quickly can you build them?' " said Bruce Gibbens, director of field marketing for the St. Louis company.

Congressional aides from both parties point to the police-training program to illustrate their concerns. DynCorp, a subsidiary of California-based Computer Sciences Corp., landed the initial police-training contract this summer, a contract that is likely to expand greatly if all $800 million is approved. The State Department envisions establishing a training camp capable of handling 3,000 recruits and 1,000 trainers and support staff at any given time. The camp would turn out 35,000 Iraqi police officers in just two years.

DynCorp has begun recruiting 1,000 "police advisors" with at least 10 years of experience in law enforcement or corrections, an "unblemished background" and "excellent health." The draw? DynCorp plans to pay salaries as high as $153,600, with minimum pay of $75,076.92.

DynCorp declined to comment on the contract, referring calls to the State Department.

"The money is pretty good," said Doug Brooks, president of the International Peace Operations Association, an Alexandria-based trade group of private military companies. "But the risk is there, too."

Brooks said fears of price gouging are overblown. Erinys, the British firm guarding oil facilities, won its $30 million security contract by underbidding its competition by $10 million, he said.

"Yes, there are a lot of security companies there," he said. "But I know quite a few that are still waiting for contracts. If one company asks a gouging price, there's going to be another in line."