Rebuilding Iraq--Status of DOD's Reconstruction Program
Gao ID: GAO-07-30R December 15, 2006Of the $18.4 billion that Congress appropriated for Iraq relief and reconstruction in fiscal year 2004, the Department of Defense (DOD) received the largest share--$13.5 billion. As of September 30, 2006, DOD had obligated about $13.1 billion and disbursed about $9.7 billion--$5.6 billion for construction, $3.6 billion for nonconstruction (e.g., engineering, procurement, and the delivery of equipment), and about $480 million for related overhead costs. Among the many contracts DOD uses in Iraq, DOD has obligated about $3.7 billion for 12 large-scale, multiple-year design-build contracts for major construction projects. The design-build contracting approach makes one award for both the design and construction of a project, thus eliminating the need for a separate bidding process for the construction phase. To help Congress monitor the current progress and costs of DOD's reconstruction activities in Iraq, this report discusses (1) the status of the current construction work and targeted completion dates and (2) the support costs incurred by the design-build contractors in DOD's construction program.
While financial data show that DOD has obligated most (97 percent) of its $13.5 billion in fiscal year 2004 reconstruction funds, work-in-place data show that about 29 percent, or $2.3 billion, of DOD's construction program is incomplete, as of October 8, 2006. Continued congressional oversight of these activities will be needed since DOD estimates that this work will not be completed until mid- to late 2008. The incomplete work varies by sector, with 10 percent of planned construction remaining in the security and justice sector and 38 percent remaining in the communications and transportation sector. Activities in the public works and water sector; the buildings, education, and health sector; and the transportation and communications sector will not be completed until mid- to late 2008. Although the United States has generally not met its goals for reconstruction activities in Iraq, DOD projects that its remaining construction projects will enable Iraq to increase its production of oil, electricity, and clean water and treated sewerage. As GAO's past work has shown, the challenging security environment, persistent attacks on U.S.-funded infrastructure projects, and sustainment challenges could make it difficult for DOD to achieve this progress. DOD's design-build contractors will incur estimated support costs of about $1.2 billion or about 33 percent of projected completion costs of $3.7 billion. The support costs include estimated security costs of about $359.6 million. In response to higher-than-anticipated support costs, DOD officials have pursued alternative contracting strategies. For example, DOD officials have contracted directly with Iraqi firms in the electricity and transportation sectors rather than relying exclusively on U.S. design-build contractors to complete the work. U.S. officials state that the transition to direct contracting with local Iraqi and international contractors could lead to cost reductions. Due to the lack of available information on the costs of direct contracts, we were not able to establish the extent to which support costs could be avoided at the time of our review. The direct contracting approach also has the potential of increasing Iraqi ownership of reconstruction efforts and employing more local Iraqis.
GAO-07-30R, Rebuilding Iraq--Status of DOD's Reconstruction Program
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December 15, 2006:
Congressional Committees:
Subject: Rebuilding Iraq--Status of DOD's Reconstruction Program:
Of the $18.4 billion that Congress appropriated for Iraq relief and
reconstruction in fiscal year 2004, the Department of Defense (DOD)
received the largest share--$13.5 billion.[Footnote 1] As of September
30, 2006, DOD had obligated[Footnote 2] about $13.1 billion and
disbursed about $9.7 billion--$5.6 billion for construction, $3.6
billion for nonconstruction (e.g., engineering, procurement, and the
delivery of equipment), and about $480 million for related overhead
costs. Among the many contracts DOD uses in Iraq, DOD has obligated
about $3.7 billion for 12 large-scale, multiple-year design-build
contracts for major construction projects. The design-build contracting
approach makes one award for both the design and construction of a
project, thus eliminating the need for a separate bidding process for
the construction phase.
To help Congress monitor the current progress and costs of DOD's
reconstruction activities in Iraq, this report discusses (1) the status
of the current construction work and targeted completion dates and (2)
the support costs incurred by the design-build contractors in DOD's
construction program.
To identify the status of DOD's current construction work, we
summarized DOD's work-in-place metrics provided by the Army Corps of
Engineers' Gulf Region Division/Project and Contracting Office (GRD/
PCO) in Iraq.[Footnote 3] DOD uses this metric to compare the value of
completed and planned work for its contractors, including the design-
build contractors. This metric is a rudimentary measure of earned
value, a measure of total value against individual contract amounts,
including design and procurements made. The work does not necessarily
have to be "in place" or constructed.[Footnote 4] To identify the
support costs[Footnote 5] incurred by DOD's design-build contractors in
Iraq, we analyzed the financial data provided by the Joint Contracting
Command-Iraq/Afghanistan (JCC-I/A) for each design-build contractor.
(See app. 1 for details on our scope and methodology.) As part of our
work, we interviewed U.S. government personnel in the United States and
Iraq and traveled to Iraq in November 2005 and March 2006 to meet with
U.S. government officials overseeing DOD construction activities. We
conducted our review from November 2005 to December 2006 in accordance
with generally accepted government auditing standards. We prepared this
report under the Comptroller General's authority to conduct evaluations
on his own initiative for Congress.
Results in Brief:
While financial data show that DOD has obligated most (97 percent) of
its $13.5 billion in fiscal year 2004 reconstruction funds, work-in-
place data show that about 29 percent, or $2.3 billion, of DOD's
construction program is incomplete, as of October 8, 2006. Continued
congressional oversight of these activities will be needed since DOD
estimates that this work will not be completed until mid-to late 2008.
The incomplete work varies by sector, with 10 percent of planned
construction remaining in the security and justice sector and 38
percent remaining in the communications and transportation sector.
Activities in the public works and water sector; the buildings,
education, and health sector; and the transportation and communications
sector will not be completed until mid-to late 2008. Although the
United States has generally not met its goals for reconstruction
activities in Iraq, DOD projects that its remaining construction
projects will enable Iraq to increase its production of oil,
electricity, and clean water and treated sewerage. As GAO's past work
has shown, the challenging security environment, persistent attacks on
U.S.-funded infrastructure projects, and sustainment challenges could
make it difficult for DOD to achieve this progress.[Footnote 6]
DOD's design-build contractors will incur estimated support costs of
about $1.2 billion or about 33 percent of projected completion costs of
$3.7 billion. The support costs include estimated security costs of
about $359.6 million. In response to higher-than-anticipated support
costs, DOD officials have pursued alternative contracting strategies.
For example, DOD officials have contracted directly with Iraqi firms in
the electricity and transportation sectors rather than relying
exclusively on U.S. design-build contractors to complete the work. U.S.
officials state that the transition to direct contracting with local
Iraqi and international contractors could lead to cost reductions. Due
to the lack of available information on the costs of direct contracts,
we were not able to establish the extent to which support costs could
be avoided at the time of our review. The direct contracting approach
also has the potential of increasing Iraqi ownership of reconstruction
efforts and employing more local Iraqis.
The Department of Defense provided technical comments on our draft
report that we incorporated, where appropriate. In its comments,
Defense stated that it appreciated the balanced report that GAO has
developed. Defense also clarified that the work-in-place measure used
in our report is a rudimentary measure of earned value and measures
total value against individual contract amounts, including design and
procurements made. The measure does not only apply to work that is "in
place" or constructed.
Background:
From May 2003 through June 2004, the Coalition Provisional Authority
(CPA), led by the United States and the United Kingdom, was the United
Nations-recognized authority responsible for the temporary governance
of Iraq and for overseeing, directing, and coordinating the
reconstruction effort. The CPA used a multitiered contracting approach
for Iraq reconstruction activities. The CPA, through various military
organizations, awarded 1 lead contract, 6 sector contracts, and 12
design-build contracts in early 2004 (see fig. 1). Under this approach,
the CPA used one lead contract to provide overall coordination and
direction for the rebuilding program. Six sector contractors helped
define sector priorities and project requirements, and assisted DOD in
managing the 12 design-build contractors used to perform the on-the-
ground construction work.
Figure 1: DOD Construction Program Carried Out through a Multitiered
Contracting Approach:
[See PDF for Image]
Source: GAO.
[End of Figure]
On June 28, 2004, the CPA transferred power to an interim sovereign
Iraqi government, the CPA was dissolved, and Iraq's transitional period
began. After the transfer, National Security Presidential Directive 36
(NSPD 36) passed responsibility for the supervision and general
direction of U.S. reconstruction assistance in Iraq to the Secretary of
State. The directive also established a temporary organization within
the department called the Iraq Reconstruction Management Office to
facilitate the transition in Iraq. The Project and Contracting Office
(PCO), a temporary organization in the Department of Defense, was
tasked under NSPD 36 with providing acquisition and project management
support. In late 2005, DOD merged PCO with the Army Corps of Engineer's
Gulf Region Division, which now supervises DOD reconstruction
activities in Iraq.
DOD Has Made Some Progress, but Significant Reconstruction Work
Remains:
Although DOD has made some progress in restoring Iraq's essential
services, it has not met program goals and estimates that it will not
complete the remainder of its work until mid-to late 2008. While
financial data show that DOD has obligated 97 percent of its $13.5
billion fiscal year 2004 reconstruction funds, work-in-place data show
that about 29 percent, or $2.3 billion, of DOD's planned construction
activities valued at $8 billion are incomplete, as of October 8, 2006.
This metric applies to DOD's Iraq construction activities using these
funds and is not exclusive to design-build contractors. Work-in-place
data are a measure of progress and compare completed to planned
construction work. According to DOD, the remaining work will enable
Iraq to increase the production of oil, electricity, clean water, and
treated sewerage, among other outcomes. However, the challenging
security environment, persistent attacks on U.S.-funded infrastructure
projects, and sustainment challenges could make it difficult for DOD to
achieve this progress.
Of the $18.4 billion that Congress appropriated for Iraq relief and
reconstruction in fiscal year 2004, DOD received the largest share--
$13.5 billion. As of September 30, 2006, DOD had obligated $13.1
billion--97 percent. DOD obligated $8.2 billion of these funds on
construction activities, including those of the design-build
contractors; $4.4 billion on nonconstruction items (e.g., engineering,
procurement, and delivery of equipment); and about $520 million in DOD-
related overhead costs.
One way DOD measures progress is to use work-in-place data for its
construction contractors, including the design-build contractors. These
data are reported by the GRD/PCO to the Secretary of the Army every two
weeks. Work-in-place measures indicate that about 71 percent of all of
DOD's planned work has been completed as of October 8, 2006, including
90 percent in the security and justice sectors, 73 percent of the work
in the oil sector, and 64 percent of the work in the electricity sector
(see table 1).
Table 1: Comparison of Planned and Completed Work by Sector Using All
DOD Acquisition Strategies, as of October 8, 2006:
Dollars in billions:
Sector: Security and justice;
Planned work: $1.46;
Estimated work-in-place (completed work): $1.31;
Completed work relative to planned work (percent): 90.
Sector: Electricity;
Planned work: 3.00;
Estimated work-in-place (completed work): 1.92;
Completed work relative to planned work (percent): 64.
Sector: Oil infrastructure;
Planned work: 1.30;
Estimated work-in-place (completed work): 0.95;
Completed work relative to planned work (percent): 73.
Sector: Public works and water;
Planned work: 1.36;
Estimated work-in-place (completed work): 0.93;
Completed work relative to planned work (percent): 69.
Sector: Buildings, education, and health;
Planned work: 0.50;
Estimated work-in-place (completed work): 0.36;
Completed work relative to planned work (percent): 72.
Sector: Transportation and communications;
Planned work: 0.42;
Estimated work-in-place (completed work): 0.26;
Completed work relative to planned work (percent): 62.
Total;
Planned work: $8.04;
Estimated work-in-place (completed work): $5.73;
Completed work relative to planned work (percent): 71.
Source: GRD/PCO.
Note: This measure includes DOD construction activities using Iraq
relief and reconstruction funds in these sectors and is not exclusive
to design-build contractor activities.
[End of table]
DOD reports that it has increased electricity generation, oil
production, and water treatment capacity, and built or renovated
schools, hospitals, border forts, post offices, and railway stations.
Table 2 shows by sector the planned completion dates and selected
reconstruction goals for all DOD reconstruction activity, including the
design-build and all other contracts.
Table 2: DOD Reconstruction Goals, Achievements, and Remaining Work,
Funded by Iraq Relief and Reconstruction Funds, as of October 2006:
Sector (estimated completion date): Security and justice[A] (Dec.
2007);
Program product: Border posts;
DOD goals: Program target: 252;
DOD goals: Current achieved: 245;
DOD goals: Remaining: 7.
Sector (estimated completion date): Security and justice[A] (Dec.
2007);
Program product: Points of entry;
DOD goals: Program target: 13;
DOD goals: Current achieved: 9;
DOD goals: Remaining: 4.
Sector (estimated completion date): Security and justice[A] (Dec.
2007);
Program product: Military facilities;
DOD goals: Program target: 204;
DOD goals: Current achieved: 120;
DOD goals: Remaining: 84.
Sector (estimated completion date): Security and justice[A] (Dec.
2007);
Program product: Police facilities;
DOD goals: Program target: 398;
DOD goals: Current achieved: 348;
DOD goals: Remaining: 50.
Sector (estimated completion date): Security and justice[A] (Dec.
2007);
Program product: Fire facilities;
DOD goals: Program target: 94;
DOD goals: Current achieved: 86;
DOD goals: Remaining: 8.
Sector (estimated completion date): Security and justice[A] (Dec.
2007);
Program product: Prisons/courts;
DOD goals: Program target: 46;
DOD goals: Current achieved: 29;
DOD goals: Remaining: 17.
Sector (estimated completion date): Security and justice[A] (Dec.
2007);
Program product: Miscellaneous facilities;
DOD goals: Program target: 58;
DOD goals: Current achieved: 33;
DOD goals: Remaining: 25.
Sector (estimated completion date): Electricity (Dec. 2007);
Program product: Contributed peak generation capacity (megawatts);
DOD goals: Program target: 1,879;
DOD goals: Current achieved: 1,420;
DOD goals: Remaining: 459.
Sector (estimated completion date): Electricity (Dec. 2007);
Program product: Hours of power per day (U.S. goal);
DOD goals: Program target: 10-12 Iraq and Baghdad;
DOD goals: Current achieved: 10.8 Iraq and 5.1 Baghdad;
DOD goals: Remaining: N/A.
Sector (estimated completion date): Electricity (Dec. 2007);
Program product: Transmission capacity (megawatts);
DOD goals: Program target: 6,000;
DOD goals: Current achieved: 5,500;
DOD goals: Remaining: 500.
Sector (estimated completion date): Electricity (Dec. 2007);
Program product: Distribution substations;
DOD goals: Program target: 89;
DOD goals: Current achieved: 48;
DOD goals: Remaining: 41.
Sector (estimated completion date): Oil (April 2007);
Program product: Crude oil capacity (million barrels per day);
DOD goals: Program target: 3;
DOD goals: Current achieved: 2.5;
DOD goals: Remaining: 0.5.
Sector (estimated completion date): Oil (April 2007);
Program product: Natural gas production (million standard cubic feet
per day);
DOD goals: Program target: 800;
DOD goals: Current achieved: 600;
DOD goals: Remaining: 200.
Sector (estimated completion date): Oil (April 2007);
Program product: Liquefied petroleum gas (LPG) production capacity
(tons per day);
DOD goals: Program target: 3,000;
DOD goals: Current achieved: 1,200;
DOD goals: Remaining: 1,800.
Sector (estimated completion date): Public works and water (July 2008);
Program product: Potable water (delivery capacity added) (thousand
cubic meters per day);
DOD goals: Program target: 1,150;
DOD goals: Current achieved: 419;
DOD goals: Remaining: 731.
Sector (estimated completion date): Public works and water (July 2008);
Program product: Sewerage treatment capacity added (thousand cubic
meters per day);
DOD goals: Program target: 48;
DOD goals: Current achieved: 0;
DOD goals: Remaining: 48.
Sector (estimated completion date): Public works and water (July 2008);
Program product: Repair dams, barrages, and canals (number repaired);
DOD goals: Program target: 2;
DOD goals: Current achieved: 1;
DOD goals: Remaining: 1.
Sector (estimated completion date): Public works and water (July 2008);
Program product: Irrigates land (hectares);
DOD goals: Program target: 387k;
DOD goals: Current achieved: 31k;
DOD goals: Remaining: 356k.
Sector (estimated completion date): Buildings, education, and health
(July 2008);
Program product: Government building projects;
DOD goals: Program target: 6;
DOD goals: Current achieved: 5;
DOD goals: Remaining: 1.
Sector (estimated completion date): Buildings, education, and health
(July 2008);
Program product: Hospital projects/public health centers/other
significant health projects;
DOD goals: Program target: 25/142/2;
DOD goals: Current achieved: 14/7/0;
DOD goals: Remaining: 11/135/2.
Sector (estimated completion date): Buildings, education, and health
(July 2008);
Program product: School built or renovated;
DOD goals: Program target: 810;
DOD goals: Current achieved: 806;
DOD goals: Remaining: 4.
Sector (estimated completion date): Transportation and communications
(Dec. 2008);
Program product: Railway station renovations;
DOD goals: Program target: 99;
DOD goals: Current achieved: 85;
DOD goals: Remaining: 14.
Sector (estimated completion date): Transportation and communications
(Dec. 2008);
Program product: Port projects/aviation projects;
DOD goals: Program target: 7/19;
DOD goals: Current achieved: 4/13;
DOD goals: Remaining: 3/6.
Sector (estimated completion date): Transportation and communications
(Dec. 2008);
Program product: Village roads and expressways (kilometers);
DOD goals: Program target: 427;
DOD goals: Current achieved: 239;
DOD goals: Remaining: 188.
Sector (estimated completion date): Transportation and communications
(Dec. 2008);
Program product: Advanced first responder network projects[B];
DOD goals: Program target: 3;
DOD goals: Current achieved: 3;
DOD goals: Remaining: 0.
Sector (estimated completion date): Transportation and communications
(Dec. 2008);
Program product: Post offices/major communications institutions;
DOD goals: Program target: 34/2;
DOD goals: Current achieved: 31/1;
DOD goals: Remaining: 3/1.
Source: GRD/PCO.
[A] Security and justice sector targets and achievements include
projects completed by the Multi-National Security Transition Command--
Iraq.
[B] For the purposes of analyzing work-in-place numbers, the Advanced
First Responder Network was included in the communications sector. The
network is also sometimes considered to be a part of the security and
justice sector.
[End of table]
DOD estimates, however, that the remaining 29 percent of the planned
work will not be completed until mid-to late 2008. According to DOD,
this remaining work will enable Iraq to increase the production of oil,
electricity, clean water, and treated sewerage by:
* adding 459 megawatts of peak generation capacity, 500 megawatts of
transmission capacity, and building 41 distribution substations in the
electricity sector;[Footnote 7]
* increasing crude oil production capacity by 0.5 million barrels per
day and increasing petroleum gas production by 1,800 tons per day; and:
* adding an additional 731,000 cubic meters of potable water delivery
capacity per day, and 48,000 cubic meters of sewage treatment capacity
per day, and 356,000 hectares of irrigated land.
However, the metrics used to report progress make it difficult to
determine the impact of the U.S. reconstruction effort. For example, we
reported previously that in the water resources and sanitation sector,
little was known about how U.S. efforts were improving the amount and
quality of water reaching Iraqi households or their access to the
sanitation services.[Footnote 8] Reported output measures overestimated
the amount of potable water reaching Iraqi households because U.S.
officials estimate that 60 percent of water treatment output is lost
due to leakage, contamination, and illegal connections.
The U.S. mission in Iraq reported in December 2005 that it had
developed a set of metrics to better estimate the potential impact that
U.S. water and sanitation reconstruction efforts were having on Iraqi
households. However, it acknowledges that it is difficult to measure
how much water the Iraqis actually receive or whether the water is
potable. The mission report notes that, without such comprehensive
data, mission efforts to accurately assess the impact of U.S.
reconstruction efforts on water and sanitation services are limited.
In addition, overall security conditions in Iraq have deteriorated
since June 2003, as evidenced by attack trends, growing sectarian
violence, and the growth and influence of militias. Enemy-initiated
attacks against the coalition, its Iraqi partners, and infrastructure
have continued to increase over time, complicating efforts to rebuild
and restore essential services. Overall, attacks increased by 23
percent from 2004 to 2005. After declining in the fall of 2005, the
number of attacks rose to the highest level ever in July 2006 (see fig.
2).[Footnote 9]
Figure 2: Enemy-Initiated Attacks against the Coalition and Its Iraqi
Partners, May 2003 through August 2006:
[See PDF for Image]
Sources: Multi-National Force-Iraq and DIA/J2.
[End of Figure]
In July 2006, the State Department reported to Congress that the recent
upturn in violence had hindered efforts to engage fully with Iraqi
partners and noted that a baseline of security was a prerequisite for
moving forward on the political and economic tasks essential to
achieving the conditions to withdraw U.S. forces. Unstable security
conditions will make it more difficult for DOD to achieve its planned
construction goals and targets.
DOD's Design-Build Contractors in Iraq Will Incur Support Costs of
about 33 Percent:
Our analysis shows that DOD's design-build contractors will incur
support costs of about $1.2 billion, or about 33 percent of projected
completion costs of $3.7 billion. According to agency officials, the
design-build contracting model used in Iraq entailed costs such as
mobilizing, feeding, housing, and protecting an expatriate workforce.
These officials further stated that these costs are typically incurred
on most large-scale international construction projects but were higher
due, in part, to the poor security environment and the difficulties in
managing contract costs in Iraq. In response to higher-than-anticipated
support costs, DOD officials have pursued alternative contracting
strategies. For example, DOD officials have contracted directly with
Iraqi firms in the electricity and transportation sectors rather than
relying exclusively on U.S. design-build contractors to complete the
work.
DOD's design-build contractors will incur estimated support costs of
about $1.2 billion, or about 33 percent of the projected completion
costs of $3.7 billion (see table 3).[Footnote 10] These costs ranged
from approximately 24 percent in the public works and water sector to
about 67 percent in the transportation sector. In the transportation
sector, the design-build contractor demobilized and left Iraq shortly
after award of the contract in March 2004 because DOD and the
contractor mutually agreed that the overall program costs were too
high. As a result, the majority of design-build costs for the
transportation sector accrued by the U.S. were support costs
accumulated during the contractor's brief stay in-country.
Table 3: Comparison of Design-Build Contractors' Support Costs by
Sector, as of October 2006:
Dollars in millions:
Sector: Security/justice;
Design-build contractors' estimated completion costs: $343.4;
Support costs, including security costs: $97.8;
Support costs as a percentage of estimated completion costs: 28.5%;
Security costs only: $29.6;
Security costs as a percentage of estimated completion costs: 8.6%.
Sector: Electricity;
Design-build contractors' estimated completion costs: 732.1;
Support costs, including security costs: 259.9;
Support costs as a percentage of estimated completion costs: 35.5;
Security costs only: 105.4;
Security costs as a percentage of estimated completion costs: 14.4.
Sector: Oil infrastructure;
Design-build contractors' estimated completion costs: 1,201.3;
Support costs, including security costs: 467.4;
Support costs as a percentage of estimated completion costs: 38.9;
Security costs only: 113.8;
Security costs as a percentage of estimated completion costs: 9.5.
Sector: Water resources;
Design-build contractors' estimated completion costs: 852.8;
Support costs, including security costs: 207.8;
Support costs as a percentage of estimated completion costs: 24.4;
Security costs only: 59.2;
Security costs as a percentage of estimated completion costs: 6.9.
Sector: Building, health, and education;
Design-build contractors' estimated completion costs: 369.2;
Support costs, including security costs: 124.6;
Support costs as a percentage of estimated completion costs: 33.7;
Security costs only: 27.6;
Security costs as a percentage of estimated completion costs: 7.5.
Sector: Communications;
Design-build contractors' estimated completion costs: 158.1;
Support costs, including security costs: 46.6;
Support costs as a percentage of estimated completion costs: 29.5;
Security costs only: 20.6;
Security costs as a percentage of estimated completion costs: 13.0.
Sector: Transportation;
Design-build contractors' estimated completion costs: 17.6;
Support costs, including security costs: 11.8;
Support costs as a percentage of estimated completion costs: 67.5;
Security costs only: 3.4;
Security costs as a percentage of estimated completion costs: 19.4.
Total;
Design-build contractors' estimated completion costs: $3,674.5;
Support costs, including security costs: $1,215.9;
Support costs as a percentage of estimated completion costs: 33.1%;
Security costs only: $359.6;
Security costs as a percentage of estimated completion costs: 9.8%.
Sources: JCC-I/A and design-build contractors.
Note: Support costs generally include transportation and mobilization,
life support, management, administration, and security.
[End of table]
Officials in the electricity and oil sectors encountered challenges
controlling support costs stemming from the level of contractors'
reconstruction efforts. In the electricity sector, high cost estimates
by one design-build contractor resulted in the termination of five task
orders and the resolicitation of that work. After the task orders were
canceled, the design-builder was slow to reduce overhead costs in
accordance with the reduced workload, according to agency officials and
documents. In the oil sector, DOD officials required the two design-
build contractors to reorganize their management structure and improve
their cost reporting as a result of concerns regarding high
costs.[Footnote 11]
DOD also estimates that, across all sectors, the design-build
contractors will incur security costs of about $360 million, or about
9.8 percent of estimated completion costs of $3.7 billion, during their
reconstruction activities in Iraq. According to U.S. officials, the
large number of project sites in remote locations and increased attacks
on infrastructure have contributed to increased security costs.
The security costs we identified are lower than those reported to
Congress by the Department of State in January 2006. State reported in
its January 2006 quarterly update to Congress that security remains a
critical concern to the reconstruction effort in Iraq. State's analysis
indicated that direct and indirect security costs represent 16 percent
to 22 percent of the overall cost of major infrastructure construction
projects in Iraq. According to the report, these costs included the
reprogramming of Iraq Relief and Reconstruction Fund money to the
security sector and to cover those costs stemming from schedule delays
and increased maintenance costs. The estimated security costs we
identified are unique to the design-build contractors and do not
include other broader security costs included in State's analysis.
In response to higher than anticipated support costs, DOD officials
have contracted directly with Iraqi firms in the electricity and
transportation, among other sectors, rather than relying exclusively on
the design-build contractors to complete the work. For example, in the
electricity sector, DOD directly contracted with Iraqi firms to reduce
the costs of reconstruction efforts not requiring advanced technical
and management expertise, such as erecting electrical distribution
projects. DOD officials estimate that the department may achieve a cost
savings of 20 percent to 50 percent in the electricity sector using
direct contracting rather than design-build contractors. In the
transportation sector, the design-build contractor demobilized and left
Iraq shortly after award of the contract in March 2004 because DOD and
the contractor mutually agreed that the overall program costs were too
high. DOD then made greater use of Iraqi contractors who were
experienced in building roads and bridges. However, due to the lack of
available data on direct contracts awarded by DOD, we were unable to
determine the level of actual cost avoidance achieved through these
contracting efforts.
Agency Comments:
We provided a draft of this report to the Department of Defense, which
provided technical comments that we incorporated, where appropriate.
Defense stated that it appreciated the balanced report that GAO has
developed. In its technical comments, the department also clarified
that the work-in-place measure used in our report is a rudimentary
measure of earned value and measures total value against individual
contract amounts, including design and procurements made. The measure
does not only apply to work that is "in place" or constructed as we
stated in our draft report.
Scope and Methodology:
To determine the construction work completed to date and targeted
completion dates for construction activities in Iraq, we reviewed
documents and obtained data from the Department of Defense (DOD),
including the Project and Contracting Office of the Gulf Region
Division (GRD/PCO). Data for U.S. appropriated funds and work-in-place
are as of September 30, 2006, and October 8, 2006, respectively. We
also reviewed Special Inspector General for Iraq Reconstruction and
other audit agency reports. Although we have not audited the funding
and work-in-place data and are not expressing our opinion on them, we
discussed the sources and limitations of the data with the appropriate
officials and checked them, when possible, against other information
sources. In March 2006, DOD standardized the use of its work-in-place
measures to serve as an indicator of construction progress across all
of Iraq's reconstruction sectors. We determined that the data were
sufficiently reliable for broad comparisons in the aggregate using the
category descriptions we have made.
To determine the support costs incurred by the design-build contractors
in DOD's construction program, we focused on design-build contractors'
efforts in the Iraqi security and justice; electricity; oil; water;
transportation and communications; and buildings, health and education
sectors. These costs include transportation and mobilization, life
support, management, administration, and security costs. We compared
the design-build contractor's projected support costs to their
estimated completion costs of $3.7 billion to estimate the level of
support costs that will be incurred by DOD's design-build contractors
in Iraq. We also used the Joint Contracting Command-Iraq/Afghanistan
(JCC-I/A) data to compare the security costs (one component of support
costs) to estimated completion costs to estimate the level of security
costs that will be incurred by the design-build contractors.
Specifically, we focused on the costs incurred by design-build
contractors participating in the construction program and how sectors
have adapted to meet these support costs. We obtained support costs
information directly from the design-build contractors to ensure
greater reliability of the support costs. We collected design-build
cost data from the JCC-I/A, including summaries of support costs by
sector. These data were based on design-build contractor cost reporting
to JCC-I/A and GRD/PCO officials. Although we did not audit the cost
data and are not expressing our opinion on them, we reviewed the data
for discrepancies and checked them against other sources, when
available. We determined that the data were sufficiently reliable to
report in aggregate for each sector.
We also reviewed contractor and agency reports and interviewed
contractors and agency officials in Iraq and the United States.
Specifically, we reviewed CPA, GRD/PCO, State, Army Corps of Engineers,
and other reports. We also interviewed agency officials from GRD/PCO,
Army Corps of Engineers, State, and State's Iraq Reconstruction
Management Office in Washington, D.C., and Iraq. In addition, our
analysis is based on our completed and ongoing reviews of efforts to
rebuild Iraq, which we have undertaken since 2004, and reports of other
inspector generals related to contract management, internal controls,
and oversight of U.S. reconstruction activities.
We conducted our review from November 2005 to December 2006 in
accordance with generally accepted government auditing standards. In
addition to interviews with U.S. officials via teleconference and
videoconference, we traveled to Iraq in November 2005 and early April
2006 to interview U.S. officials in Baghdad. In addition, when
possible, we interviewed officials when these officials traveled to the
United States.
We are sending this report to interested congressional committees and
to the Secretaries of State and Defense. We will also make copies
available to others on request. In addition, the report will be
available at no charge on the GAO Web site at [Hyperlink,
http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-8979 or christoffj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report
include Stephen M. Lord, Assistant Director; Lynn Cothern; Tim
DiNapoli; Micah McMillan; Mary Moutsos; and Adam Vodraska.
Signed by:
Joseph A. Christoff:
Director, International Affairs and Trade:
List of Congressional Committees:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable Richard G. Lugar:
Chairman:
The Honorable Joseph R. Biden, Jr.
Ranking Minority Member:
Committee on Foreign Relations:
United States Senate:
The Honorable Susan M. Collins:
Chairman:
The Honorable Joseph I. Lieberman:
Ranking Minority Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Ted Stevens:
Chairman:
The Honorable Daniel K. Inouye:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Jerry Lewis:
Chairman:
The Honorable David R. Obey:
Ranking Minority Member:
Committee on Appropriations:
House of Representatives:
The Honorable C. W. Bill Young:
Chairman:
The Honorable John P. Murtha, Jr.
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
The Honorable Duncan L. Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:
The Honorable Henry J. Hyde:
Chairman:
The Honorable Tom Lantos:
Ranking Minority Member:
Committee on International Relations:
House of Representatives:
The Honorable Tom Davis:
Chairman:
The Honorable Henry A. Waxman:
Ranking Minority Member:
Committee on Government Reform:
House of Representatives:
The Honorable Christopher H. Shays:
Chairman:
The Honorable Dennis J. Kucinich:
Ranking Minority Member:
Subcommittee on National Security, Emerging Threats and International
Relations:
Committee on Government Reform:
House of Representatives:
(320402):
FOOTNOTES
[1] These funds were appropriated to the Iraq Relief and Reconstruction
Fund in the Emergency Supplemental Appropriations Act for Defense and
for the Reconstruction of Iraq and Afghanistan, 2004, P. L. 108-106.
[2] An obligation is a definite commitment that creates a legal
liability of the government for the payment of goods and services
ordered or received.
[3] DOD merged GRD and PCO in late 2005.
[4] For the purposes of this report, DOD's planned work is defined as
the total construction value of its projects and generally includes
design, construction, award fee, security, life support, and
administrative costs.
[5] Support costs include transportation and mobilization, life
support, management, administration, and security.
[6] GAO, Stabilizing Iraq: An Assessment of the Security Situation, GAO-
06-1094T (Washington, D.C.: Sept. 11, 2006); and Rebuilding Iraq:
Governance, Security, Reconstruction, and Financing Challenges, GAO- 06-
697T (Washington, D.C.: Apr. 25, 2006).
[7] In providing technical comments on the report, DOD stated that over
1,000 megawatts will be sustained by various projects in its generation
program.
[8] GAO, Rebuilding Iraq: U.S. Water and Sanitation Efforts Need
Improved Measures for Assessing Impact and Sustained Resources for
Maintaining Facilities, GAO-05-872 (Washington, D.C.: Sept. 7, 2005).
[9] GAO, Stabilizing Iraq: An Assessment of the Security Situation, GAO-
06-1094T (Washington, D.C.: Sept. 11, 2006). The attack data we used
provide the best overall assessment of Iraq's precarious security
environment and the ensuing challenges in completing reconstruction
projects. GAO has requested, but has yet to receive, unclassified
attack data for September through November 2006.
[10] In addition to these design-build contractor support costs, the
PCO, lead contractor, and sector contractors incurred additional costs
of $443 million for fiscal years 2004 through 2006 in managing the
activities of the design-build contractors in Iraq.
[11] To increase transparency over support costs, the oil sector
developed four administrative task orders that allowed the design-build
contractors to more easily report on transportation and mobilization,
management and administration, security, and life support costs.
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