Rebuilding Iraq
Fiscal Year 2003 Contract Award Procedures and Management Challenges Gao ID: GAO-04-605 June 1, 2004Congress has appropriated more than $20 billion since April 2003 to support rebuilding efforts in Iraq. This complex undertaking, which is occurring in an unstable security environment and under significant time constraints, is being carried out largely through contracts with private-sector companies. As of September 2003, agencies had obligated nearly $3.7 billion on 100 contracts or task orders under existing contracts. Given widespread congressional interest in ensuring that reconstruction contracts are awarded properly and administered effectively, GAO reviewed 25 contract actions that represented about 97 percent of the obligated funds. GAO determined whether agencies had complied with competition requirements in awarding new contracts and issuing task orders and evaluated agencies' initial efforts in carrying out contract administration tasks.
Agencies used sole-source or limited competition approaches to issue new reconstruction contracts, and when doing so, generally complied with applicable laws and regulations. Agencies did not, however, always comply with requirements when issuing task orders under existing contracts. For new contracts, the law generally requires the use of full and open competition, where all responsible prospective contractors are allowed to compete, but permits sole-source or limited competition awards in specified circumstances, such as when only one source is available or to meet urgent requirements. All of the 14 new contracts GAO examined were awarded without full and open competition, but each involved circumstances that the law recognizes as permitting such awards. For example, the Army Corps of Engineers properly awarded a sole-source contract for rebuilding Iraq's oil infrastructure to the only contractor that was determined to be in a position to provide the services within the required time frame. The Corps documented the rationale in a written justification, which was approved by the appropriate official. The U.S. Agency for International Development properly awarded seven contracts using limited competition. The Department of State, however, justified the use of limited competition by citing an authority that may not be a recognized exception to competition requirements, although a recognized exception could have been used. There was a lesser degree of compliance when agencies issued 11 task orders under existing contracts. Task orders are deemed by law to satisfy competition requirements if they are within the scope, period of performance, and maximum value of a properly awarded underlying contract. GAO found several instances where contracting officers issued task orders for work that was not within the scope of the underlying contracts. For example, to obtain media development services and various subject matter experts, the Defense Contracting Command-Washington placed two orders using a management improvement contract awarded under the General Services Administration's schedule program. But neither of the two orders involved management improvement activities. Work under these and other orders should have been awarded using competitive procedures or, due to the exigent circumstances, supported by a justification for other than full and open competition. The agencies encountered various contract administration challenges during the early stages of the reconstruction effort, stemming in part from inadequate staffing, lack of clearly defined roles and responsibilities, changing requirements, and security constraints. While some of these issues have been addressed, staffing and security remain major concerns. Additionally, the Army and its contractors have yet to agree on key terms and conditions, including the projected cost, on nearly $1.8 billion worth of reconstruction work that either has been completed or is well under way. Until contract terms are defined, cost risks for the government remain and contract cost control incentives are likely to be less effective.
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Director: Team: Phone:GAO-04-605, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures and Management Challenges
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Report to Congressional Committees:
United States General Accounting Office:
GAO:
June 2004:
REBUILDING IRAQ:
Fiscal Year 2003 Contract Award Procedures and Management Challenges:
Iraq Reconstruction Contracting:
GAO-04-605:
GAO Highlights:
Highlights of GAO-04-605, a report to congressional committees.
Why GAO Did This Study:
Congress has appropriated more than $20 billion since April 2003 to
support rebuilding efforts in Iraq. This complex undertaking, which is
occurring in an unstable security environment and under significant
time constraints, is being carried out largely through contracts with
private-sector companies. As of September 2003, agencies had obligated
nearly $3.7 billion on 100 contracts or task orders under existing
contracts.
Given widespread congressional interest in ensuring that reconstruction
contracts are awarded properly and administered effectively, GAO
reviewed 25 contract actions that represented about 97 percent of the
obligated funds. GAO determined whether agencies had complied with
competition requirements in awarding new contracts and issuing task
orders and evaluated agencies‘ initial efforts in carrying out contract
administration tasks.
What GAO Found:
Agencies used sole-source or limited competition approaches to issue
new reconstruction contracts, and when doing so, generally complied
with applicable laws and regulations. Agencies did not, however, always
comply with requirements when issuing task orders under existing
contracts. For new contracts, the law generally requires the use of
full and open competition, where all responsible prospective
contractors are allowed to compete, but permits sole-source or limited
competition awards in specified circumstances, such as when only one
source is available or to meet urgent requirements. All of the 14 new
contracts GAO examined were awarded without full and open competition,
but each involved circumstances that the law recognizes as permitting
such awards. For example, the Army Corps of Engineers properly awarded
a sole-source contract for rebuilding Iraq‘s oil infrastructure to the
only contractor that was determined to be in a position to provide the
services within the required time frame. The Corps documented the
rationale in a written justification, which was approved by the
appropriate official. The U.S. Agency for International Development
properly awarded seven contracts using limited competition. The
Department of State, however, justified the use of limited competition
by citing an authority that may not be a recognized exception to
competition requirements, although a recognized exception could have
been used.
There was a lesser degree of compliance when agencies issued 11 task
orders under existing contracts. Task orders are deemed by law to
satisfy competition requirements if they are within the scope, period
of performance, and maximum value of a properly awarded underlying
contract. GAO found several instances where contracting officers issued
task orders for work that was not within the scope of the underlying
contracts. For example, to obtain media development services and
various subject matter experts, the Defense Contracting Command-
Washington placed two orders using a management improvement contract
awarded under the General Services Administration‘s schedule program.
But neither of the two orders involved management improvement
activities. Work under these and other orders should have been awarded
using competitive procedures or, due to the exigent circumstances,
supported by a justification for other than full and open competition.
The agencies encountered various contract administration challenges
during the early stages of the reconstruction effort, stemming in part
from inadequate staffing, lack of clearly defined roles and
responsibilities, changing requirements, and security constraints.
While some of these issues have been addressed, staffing and security
remain major concerns. Additionally, the Army and its contractors have
yet to agree on key terms and conditions, including the projected cost,
on nearly $1.8 billion worth of reconstruction work that either has
been completed or is well under way. Until contract terms are defined,
cost risks for the government remain and contract cost control
incentives are likely to be less effective.
What GAO Recommends:
GAO is making several recommendations to the Secretary of the Army to
ensure compliance with requirements when issuing task orders to rebuild
Iraq and to reduce cost risk for the government. GAO also is
recommending that the Secretary of Defense develop a strategy to
improve the delivery of acquisition support in any future operations.
DOD generally concurred with the recommendations and said it is
resolving the contracting issues.
www.gao.gov/cgi-bin/getrpt?GAO-04-605.
To view the full product, including the scope and methodology, click on
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[End of section]
Contents:
Letter:
Scope and Methodology:
Results in Brief:
Background:
New Contract Awards Generally Complied with Competition Requirements,
but Task Orders Were Less Compliant:
Effective Contract Administration Remains a Key Challenge as
Contracting Activity Increases:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: List of Organizations Contacted:
Appendix II: Iraq Reconstruction Contracts/Task Orders and Obligations
as of September 30, 2003:
Appendix III: Comments from the Department of Defense:
Appendix IV: Comments from the Department of State:
Appendix V: Comments from the U. S. Agency for International
Development:
Appendix IV: Comments from the General Services Administration:
Appendix VII: GAO Contacts and Acknowledgments:
Tables:
Table 1: Organizations and Principal Areas of Responsibility for
Rebuilding Iraq:
Table 2: Contract Activity by Organization, as of September 30, 2003:
Table 3: Projected Uses of Fiscal Year 2004 Appropriations for Iraq
Reconstruction Efforts:
Table 4: Principal Procurement Approaches Used to Rebuild Iraq:
Table 5: Agency Compliance with Requirements for Awarding New Contracts
Using Other Than Full and Open Competition:
Table 6: Agency Compliance with Requirements for Issuing Task Orders on
Existing Contracts:
Table 7: Undefinitized Contract Actions as of March 2004:
Abbreviations:
CICA: Competition in Contracting Act:
CPA: Coalition Provisional Authority:
DCAA: Defense Contract Audit Agency:
DCC-W: Defense Contracting Command-Washington:
DCMA: Defense Contract Management Agency:
DOD: Department of Defense:
FAR: Federal Acquisition Regulation:
GAO: General Accounting Office:
GSA: General Services Administration:
LOGCAP: Logistics Civil Augmentation Program:
OMB: Office of Management and Budget:
SAIC: Science Applications International Corporation:
USAID: U.S. Agency for International Development:
United States General Accounting Office:
Washington, DC 20548:
June 1, 2004:
Congressional Committees:
The United States, along with its coalition partners and various
international organizations and donors, has embarked on a significant
effort to rebuild Iraq in the aftermath of the war that replaced that
country's regime. Since April 2003, Congress has appropriated more than
$20 billion to support rebuilding efforts such as restoring Iraq's oil
and electric infrastructures; reconstituting Iraq's national army and
local police forces; assisting in developing a market-based economy;
and improving the country's health, education, and medical services.
The Coalition Provisional Authority (CPA), an entity established to
manage Iraqi affairs on a temporary basis, is overseeing the rebuilding
effort. This complex undertaking, which is occurring in an unstable
security environment and under significant time constraints, is being
carried out largely through contracts with private-sector companies.
Given the widespread congressional interest in ensuring that
reconstruction contracts are awarded properly and administered
effectively, we initiated a review of the contracts awarded to rebuild
Iraq. Our review focused on reconstruction-related contract actions by
the Department of Defense (DOD) (primarily the U.S. Army, including the
Army Corps of Engineers), the U.S. Agency for International Development
(USAID), and the Department of State through September 30, 2003. Many
of these contract actions were awarded on behalf of the CPA, especially
by the Army, which acted as the CPA's executive agent. Our objectives
were to (1) determine whether agencies had complied with applicable
laws and regulations governing competition in awarding new contracts
and issuing task orders under existing contracts, and (2) evaluate
agencies' initial efforts in carrying out contract administration
tasks.
Scope and Methodology:
We reviewed reconstruction contracts that had been funded, in whole or
in part, with U.S. appropriated funds. We focused our review on new
contracts, modifications, task orders under existing contracts, and
contract actions using the General Services Administration's (GSA)
federal supply schedule program as of September 30, 2003. We did not
review contracts that were funded entirely with international or Iraqi
national funds, such as funds seized after the 1991 Gulf War or funds
that were discovered during Operation Iraqi Freedom in 2003. We also
did not review contracts or task orders that were used only for support
of military operations or grants and cooperative agreements awarded to
international or nongovernmental organizations. We continue to evaluate
various issues related to military operations and the progress in
rebuilding Iraq under separate reviews.[Footnote 1]
To determine the number of reconstruction contract actions, the types
of contract actions, the procedures used to make the awards, and the
funding sources, we requested information from each of the principal
organizations responsible for rebuilding activities in Iraq: the CPA,
the Office of the Secretary of Defense, the Department of the Army, the
Army Corps of Engineers, USAID, and the Departments of State and
Justice. To verify the information provided, we requested copies of
each contract action issued as of September 30, 2003, and corrected the
information provided as appropriate. Agency officials could not provide
the contract files for a limited number of small-dollar contracts
awarded during the early stages of the reconstruction effort. To
determine the amount obligated for reconstruction, we primarily used
the obligation data recorded in the contracts. We also reviewed the
data maintained by the agencies' budget offices and information
reflected in the Office of Management and Budget's (OMB) quarterly
status reports. To obtain information on contract activities since
September 2003, we interviewed CPA and agency officials, attended
industry day conferences, and reviewed solicitations and other relevant
agency documents.
To determine whether agencies had complied with applicable laws and
regulations governing competition when awarding contracts and issuing
task orders, we reviewed the requirements of the Competition in
Contracting Act (CICA) of 1984 and other relevant laws and regulations.
We judgmentally selected 25 contract actions, consisting of 14 new
contracts awarded using other than full and open competition and 11
task orders issued under existing contracts. These 25 contract actions
represented about 97 percent of the total dollars obligated for
reconstruction through September 30, 2003. New contracts accounted for
nearly 80 percent of this spending.
We selected the 25 contracts or task orders based on various factors.
We focused on high-dollar value contracts and task orders, and on
contracts awarded using other than full and open competitive
procedures. We also considered whether audits by the DOD or USAID
Inspectors General were under way. Overall, the 25 contracts or task
orders consisted of the following:
* the largest contract awarded and the 4 largest task orders, by dollar
value, issued to support CPA operations;
* 9 contracts awarded and 1 task order issued by USAID, as well as 1
task order issued under an Air Force contract to provide logistical
support for USAID-managed efforts;
* 2 contracts awarded and 4 task orders issued by the Army Corps of
Engineers and the Army Field Support Command to help restore Iraq's oil
or electrical infrastructure;
* 1 contract awarded and 1 task order issued by the Army to train or
equip the New Iraqi Army; and:
* 1 contract awarded by the Department of State to support Iraqi law
enforcement efforts.
For new contract awards, we determined whether agency officials
followed appropriate procedures in using other than full and open
competition and assessed the agency's justification for its contracting
approach. For task orders issued under existing contracts, we
determined whether the task orders were within the scope of the
existing contracts, and if not, whether the agencies had followed
proper procedures to add the work. To do so, we obtained the contracts
or task orders and associated modifications, justification and approval
documentation, negotiation memoranda, audit reports, and other relevant
documents. We discussed the award and issuance process with agency
procurement personnel, including contracting officers, program
managers, and, in some cases, agency counsel. We also reviewed audit
reports on various procurement issues prepared by the DOD and USAID
Inspectors General and the Defense Contract Audit Agency (DCAA).
To assess agencies' initial contract administration efforts, we
interviewed procurement officials to determine how contract
administration for their contracts was initially staffed, including the
use of support contracts to assist in administering the contracts. We
obtained information on plans for reaching agreement on key contract
terms and conditions. We also reviewed the 25 contracts or task orders
to determine whether they included provisions related to contract
administration, such as quality assurance plans, requirements for
monthly status reports, and subcontractor management plans. As part of
our monitoring of reconstruction activities, we conducted field visits
in October 2003 in Baghdad and in other areas in Iraq, including Al
Hillal and Al Basrah. During these visits, we held discussions with
officials and visited project sites, including power plants, oil wells,
oil processing facilities, water and sewage systems, schools, and many
other reconstruction activities. During these visits, we observed the
challenges faced in carrying out reconstruction efforts, including the
hostile security environment, poor communications, and unsettled
working conditions.
Appendix I lists the agencies visited during our review. We conducted
our work between May 2003 and April 2004 in accordance with generally
accepted government auditing standards.
Results in Brief:
Agencies generally complied with applicable laws and regulations
governing competition when using sole-source or limited competition
approaches to award new contracts for reconstruction. They did not
always comply with competition requirements, however, in issuing task
orders under existing contracts. For new contracts, the law generally
requires the use of full and open competition, where all responsible
prospective contractors are allowed to compete, but permits sole-source
or limited competition awards in specified circumstances, such as when
only one source is available or to meet urgent requirements. All of the
14 new contracts we examined were awarded without full and open
competition. Each of these contracts, however, involved circumstances
that the law recognizes as permitting other than full and open
competition, and agencies generally justified the use of sole-source or
limited competition awards in accordance with legal requirements. For
example, the Army Corps of Engineers properly awarded a sole-source
contract for rebuilding Iraq's oil infrastructure to the only
contractor DOD had determined was in a position to provide the services
within the required time frame given classified prewar planning
requirements. The Army Corps of Engineers documented the rationale in a
written justification and had the justification approved by the
appropriate official. Similarly, USAID properly awarded seven contracts
using limited competition procedures. In one instance, however, the
Department of State justified and approved the use of limited
competition by citing a unique authority that may not be a recognized
exception to the competition requirements, even though a recognized
exception to competition requirements was available.
Of the 11 task orders agencies issued under existing contracts, 2 were
within the scope of the underlying contracts and 7, in whole or part,
were not within scope; we have reservations about whether 2 others were
within scope. Task orders are deemed by law to satisfy competition
requirements if they are within the scope, period of performance, and
maximum value of a properly awarded underlying contract. Although the
maximum value and period of performance for a contract are almost
always objectively ascertainable, decisions concerning the scope of a
contract involve subjective analysis and judgment. Contracting officers
must decide whether the work described in a task order fits within the
work generally described in the contract. In several instances,
contracting officers issued task orders for work that was not within
the scope of the underlying contracts. For example, to obtain media
development services and various subject matter experts, the Defense
Contracting Command-Washington (DCC-W) placed two orders using a
management improvement contract awarded under GSA's federal supply
schedule program. But the two orders, both placed with the same
company, did not involve management improvement activities. The out-of-
scope work under these and other orders should have been awarded using
competitive procedures or, because of the exigent circumstances
involved, supported by a justification for other than full and open
competition in accordance with legal requirements. To ensure that task
orders issued to rebuild Iraq comply with applicable requirements, we
are making several recommendations to the Secretary of the Army to
review out-of-scope task orders to address outstanding issues and take
appropriate actions, as necessary.
The agencies encountered various contract administration challenges
during the early stages of the reconstruction effort, stemming in part
from inadequate staffing, lack of clearly defined roles and
responsibilities, changing requirements, and security constraints.
While some of these issues have been addressed, staffing, security, and
defining key terms and conditions of the contracts remain major
concerns. For example, USAID officials have found it necessary to
augment mission staff with personnel on temporary assignment from other
USAID missions, while the State Department is exploring options for
reorganizing the bureau overseeing its contract to use resources more
efficiently. In addition, the Army has nearly $1.8 billion worth of
reconstruction work that either has been completed or is well under
way, but the agency and the contractors have yet to agree on key terms
and conditions, including a projected cost. Until contract terms are
defined, contract cost control incentives are likely to be less
effective and risks to the government remain. To promote effective cost
control, we are recommending that the Secretary of Army definitize
outstanding contract actions as soon as possible. To improve the
delivery of acquisition support in future operations, we are also
recommending that the Secretary of Defense, in consultation with the
Administrator, USAID, evaluate the lessons learned in Iraq and develop
a strategy for assuring that adequate staff and other resources can be
made available in a timely manner.
For future reconstruction efforts in Iraq, the CPA has established a
program management office to provide better coordination and management
over activities to be conducted during the next year. To implement this
approach, in March 2004, DOD, on behalf of the CPA, awarded 17
contracts for overall program support and construction management
services in such areas as electricity and water. Other agencies, such
as USAID, will continue to award and manage contracts within their
areas of responsibilities.
We received written comments on a draft of this report from DOD, the
Department of State, USAID, and GSA. DOD generally concurred with our
recommendations and outlined a number of corrective actions it is
taking. The Department of State disagreed with our assessment that the
authority it cited to limit competition may not be a recognized
exception to competition requirements. State did not provide us,
however, with a persuasive basis to conclude that the authority is a
recognized exception. USAID concurred with the draft as written. GSA
noted it was working with DOD and other federal agencies to ensure that
their contracting officers are fully trained on the proper use of the
federal supply schedule program. The agencies' comments appear in
appendixes III, IV, V, and VI.
Background:
During the latter part of 2002, as diplomatic efforts to convince the
former Iraqi regime to comply with United Nations Security Council
resolutions continued, discussions took place within the administration
about the need to rebuild Iraq should combat operations become
necessary. In October 2002, OMB established a senior interagency team
to establish a baseline assessment of conditions in Iraq and to develop
relief and reconstruction plans. According to an OMB official, the team
developed plans for immediate relief operations and longer-term
reconstruction in 10 sectors: health, education, water and sanitation,
electricity, shelter, transportation, governance and the rule of law,
agriculture and rural development, telecommunications, and economic and
financial policy.
Though high-level planning continued through the fall of 2002, most of
the agencies involved in the planning were not requested to initiate
procurement actions for the rebuilding efforts until early in 2003.
Once assigned the responsibilities, agency procurement personnel were
instructed to be ready to award the initial contracts within a
relatively short time period, often within weeks. During 2003, several
agencies played a role in awarding or managing reconstruction
contracts, most notably USAID and the Army Corps of Engineers. Various
agencies awarded contracts on behalf of the CPA and its predecessor
organization, the Office of Reconstruction and Humanitarian Assistance.
Table 1 shows the principal areas of responsibility assigned to the CPA
and other agencies.
Table 1: Organizations and Principal Areas of Responsibility for
Rebuilding Iraq:
Organization: CPA;
Primary responsibilities: Acts as an interim government and oversees,
directs, coordinates, and approves rebuilding efforts. The CPA
Administrator reports to the President through the Secretary of
Defense.
Organization: Department of the Army;
Primary responsibilities: DOD executive agent for the CPA. Provides
administrative, logistics, and contracting support for the CPA and
training for the New Iraqi Army.
Organization: Army Corps of Engineers;
Primary responsibilities: Iraqi oil and electrical infrastructures, CPA
administrative support, and technical assistance on USAID capital
construction contracts.
Organization: USAID;
Primary responsibilities: Nonoil-related capital construction, seaport
and airport administration, local governance, economic development,
education, and public health.
Organization: Department of State;
Primary responsibilities: Civilian law enforcement, judicial, and
corrections support.
Organization: Department of Justice;
Primary responsibilities: Civilian law enforcement training and
support.
Source: GAO's analysis of agency data.
[End of table]
As of September 30, 2003, the agencies had obligated nearly $3.7
billion on 100 contracts or task orders for reconstruction efforts (see
table 2). These obligations came from various funding sources,
including U.S. appropriated funds and Iraqi assets.[Footnote 2] The
Army Corps of Engineers and USAID together obligated about $3.2
billion, or nearly 86 percent of this total. The majority of these
funds were used to rebuild Iraq's oil infrastructure and to fund other
capital-improvement projects, such as repairing schools, hospitals, and
bridges. This spending reflects a relatively small part of the total
amount that may be required to rebuild Iraq, with estimates ranging
from $50 billion to $100 billion.[Footnote 3] Appendix II lists the 100
reconstruction contracts and task orders we identified and the
associated obligations as of September 30, 2003.[Footnote 4]
Table 2: Contract Activity by Organization, as of September 30, 2003:
Organization: CPA[A]: Army Field Support Command;
Contracts awarded or task orders issued: 1;
Amount obligated: $204.1;
Percent of total obligations: 6.
Organization: CPA[A]: Defense Contracting Command- Washington;
Contracts awarded or task orders issued: 24;
Amount obligated: $127.9;
Percent of total obligations: 3.
Organization: CPA[A]: Army Corps of Engineers;
Contracts awarded or task orders issued: 3;
Amount obligated: $28.5;
Percent of total obligations:
