The Real Winners

A rogue's gallery of war profiteers.

TODD TAVARES

This article is from the July/August 2003 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/2003/0703tavares.html


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This article is from the July/August 2003 issue of Dollars & Sense magazine.

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Even as bombs were raining down on Baghdad, a short list of private beneficiaries was being drawn up behind closed doors. As the invasion entered its final phase, the United States Agency for International Development (USAID) and the Army Corps of Engineers (funded through the Pentagon) began doling out contracts. Citing security concerns and time constraints, they hand picked the companies that would be allowed to bid for the contracts (American firms only, thank you), and in some cases they awarded colossal sums with no bidding at all.

USAID, whose mission is to further "America's foreign policy interests in expanding democracy and free markets while improving the lives of the citizens of the developing world," invited 21 firms to bid on eight contracts worth $1.7 billion. Many of the contract details have not been revealed to American taxpayers or the Iraqi people. A look at the past records of the companies that received contracts reveals that most have long histories of project work with USAID, specialize in privatization, and maintain strong political connections. These are the firms that benefited most from the reconstruction largesse. In fact, they may be the war's real winners.

Where two figures are given for award amount, the low number is money allocated to begin work and the high number is the estimated final cost.


STEVEDORING SERVICES OF AMERICA (SSA)


Seattle-based private operator of port facilities.

Awarded: $4.8 million (initially)

For: Seaport Administration (to assess Umm Qasr port facilities; develop improvement plan; hire port pilots; facilitate cargo-handling services; coordinate transport shipments from Umm Qasr)

Stevedoring Services of America is the largest marine and rail-cargo handler in the United States and the largest terminal operator in the world, with annual revenue of $1 billion. A notorious union-buster, SSA is the dominant member of the Pacific Maritime Association (PMA), the stevedoring trade association responsible for paying longshore workers. Joseph Miniace, the PMA president alleged to have been installed by SSA, worked for years to break union power by outsourcing and automating the ports. It was the International Longshore and Warehouse Union's (ILWU) effort to resist his changes and maintain full unionization that prompted the PMA to lock out port workers in September 2002.

After USAID gave SSA the Iraq contract, its security office discovered that the firm did not have the necessary security clearance. Instead of revoking the contract and awarding it to a company with the correct clearance credentials, USAID waived the requirement.


INTERNATIONAL RESOURCES GROUP (IRG)


Washington, D.C.-based private consulting firm.

Awarded: $7.1 million minimum (90 day initial contract, renewable for two additional 1-year terms)

For: Personnel Support (to provide technical expertise for reconstruction)

USAID contacted International Resources Group to discuss the post-war reconstruction contract in January 2003, well before the U.S. and allied invasion began, according to the Washington Post. Granted, the agency and the consulting conglomerate have a longstanding relationship—since 1978, USAID has awarded IRG over 200 contracts amounting to hundreds of millions of dollars. About one-third of the company's total business is done for USAID. Its other projects are funded by government agencies, foreign states, the World Bank, and the Asian Development Bank. IRG also does extensive energy-related consulting work in the private sector, notably for large oil firms. Its contract to provide personnel services for the reconstruction of Iraq was "sole sourced," meaning the job was simply handed to IRG. No other bids were solicited.


ABT ASSOCIATES, INC.


Cambridge, Massachusetts-based government and business consulting firm; employee owned and for-profit.

Awarded: $10 million to $43.8 million (12 month contract)

For: Public Health (supporting the Iraqi Ministry of Health; delivering health services; providing medical equipment and supplies; training and recruiting health staff; providing health education and information; and determining the specific needs of the health sector and vulnerable populations such as women and children)

One of the largest for-profit research and consulting firms in the world, Abt's clients include governments, international organizations, business and industry, foundations, and nonprofit associations. One of its specialty areas is privatization. The firm offers client states "technical assistance to facilitate policy reforms in countries moving from command economies to market-oriented economies." The firm helped privatize government-owned pharmaceutical industries in Kazakhstan and worked on other privatization efforts in the former Soviet Union involving health, financing, and service delivery activities. Abt has also undertaken privatization projects in Central America, the Caribbean, African and Asia. USAID has a history of funding these "market-based reforms."


CREATIVE ASSOCIATES INTERNATIONAL, INC. (CAII)


Washington, D.C.-based private for-profit international consulting firm.

Awarded: $1 million to $62.6 million (12-month contract)

For: Primary and Secondary Education (to increase enrollment and quality; provide necessary supplies; retain students and increase baseline indicators)

Since 1977, Creative Associates International has assisted "the stabilization of post-conflict environments" in many countries—including such casualties of U.S.-sponsored conflict as Angola, El Salvador, Guatemala, and Nicaragua, according to its website. Ninety percent of its business is funded by USAID. In March, CAII snagged an agency grant of $6 million to produce textbooks for students in Afghanistan. It won the bid over the previous bid-holder, the University of Nebraska at Omaha (UNO). UNO had insisted the textbooks be produced by Afghans themselves in order to employ residents of Kabul and provide a small measure of self-sufficiency to the Afghan people. CAII promptly transferred the printing to Indonesia, resulting in job losses in Kabul.


RESEARCH TRIANGLE INSTITUTE (RTI)


Research Triangle Park, North Carolina-based nonprofit research and development organization.

Awarded: $7.9 million to $167.9 million (12 month contract)

For: Local Governance (strengthening of management skills and capacity of local administrations and civic institutions; training programs in communications, conflict resolution, leadership skills and political analysis)

Research Triangle Institute does a strange mix of business through its 12 offices. The 2,100-person firm helps transfer NASA research to the private sector, "commercializing" NASA's technologies and "bringing them to markets." It also receives Defense Department funding. RTI was recently awarded a USAID grant for $60 million to implement Pakistan's "Education Sector Reform Action," a plan for reforming Pakistan's education system, increasing literacy, and increasing public-private partnerships in the education sector. In Iraq the firm will provide local governance support through a project dubbed the "Iraq Sub-National Governance and Civic Institution Support Program." Little detailed information about the program has been made public.


BECHTEL GROUP


San Francisco-based, private for-profit engineering and construction firm; one of the largest in the world.

Awarded: $34.6 million to $680 million (18 month contract)

For: Capital Construction (to repair and rehabilitate water, power, and sewage infrastructure; repair and upgrade Umm Qasr seaport; repair hospitals, schools, ministry buildings, irrigation and transportation links)

The construction giant now in control of repairing the water and irrigation systems of Iraq is a renown water privatizer. A Bechtel subsidiary privatized the water of Cochabamba, Bolivia in the late 1990s, making it unaffordable to the poor. Massive protests ensued, in which at least six people were killed and hundreds injured by the police. When the Bolivian government canceled the company's contract, the firm sued for loss of potential profit.

The $13.3 billion family-owned conglomerate has strong connections to the current and previous Republican administrations. In fact, a revolving door between Bechtel and Washington has been spinning around for decades. Caspar Weinberger was a Bechtel executive before he became Secretary of Defense under Reagan. Former CIA Director William Casey also rose from the Bechtel ranks.

Current Bechtel board member George Shultz was president and director of the company from 1974 until he became Secretary of State under Reagan in 1982. Earlier this year, the good Mr. Schultz cheered loudly for the Iraq war, not only in op-ed pieces, but also as a member of the Committee for the Liberation for Iraq (CLI), an eclectic mix of warmongers—Democrat and Republican—lobbying for combat. The CLI included former Senator Bob Kerrey, former House speaker Newt Gingrich, and Senators John McCain (R-Ariz.) and Joseph Lieberman (D-Conn.).

In February 2003, President Bush appointed company CEO (and Republican Party loyalist) Riley Bechtel to the Export Council, a group dedicated to expanding the U.S. export market. Other senior executives of Bechtel who double as government advisors include Senior Vice President Jack Sheehan, who advises the Pentagon through the Defense Policy Board, and Senior Vice President Daniel Chao, who serves on the advisory committee of the U.S. Export-Import Bank.

Bechtel is also a major campaign contributor—its employees gave $1.3 million to federal candidates and party committees between 1999 and 2002 (59% to Republicans, 41% to Democrats).

Another interesting plotline in the story of Bechtel's contract coup is the company's relationship with the current head of USAID, Andrew Natsios. As chairman of the Massachusetts Turnpike Authority in 2000-2001, Natsios worked closely with Bechtel on Boston's "Big Dig" construction project—Bechtel was and is the project's principle contractor. In the 1980s, Bechtel estimated the Big Dig's price tag would be $2.5 billion. Since then the cost has ballooned by more than 560% to over $14 billion due in large part to Bechtel mismanagement and the lack of state oversight of its work. When Natsios took over the Turnpike Authority, he promised to rein in the overruns. He worked with Bechtel to renegotiate its Big Dig contract, and succeeded in reducing their management fees. But Natsios permitted the Bechtel team to continue to review and evaluate their own work, basically changing little. During Natsios' tenure, the cost estimate of the Big Dig continued to rise. A few months after he left for his post at USAID, $300 million more in cost overruns were announced. Natsios denies allegations that he gave preferential treatment to Bechtel for the Iraq reconstruction contract.


KELLOGG BROWN AND ROOT (KBR) (A HALLIBURTON SUBSIDIARY)


KBR is the engineering and construction wing of the Houston, Texas-based petroleum and gas service firm; Halliburton is publicly traded on NYSE (HAL).

Amount: Unlimited

For: Repair of Petroleum Infrastructure (putting out oil fires, contingency planning)

The contract to extinguish and repair the oil infrastructure of Iraq is the true gem of the reconstruction spoils. For starters it is a "cost plus" contract in which the government pays the total cost of work done, plus a profit. The Army Corps of Engineers predicts the total value will amount to $7 billion over two years with KBR taking 7% (about $490 million) as profit. The contract also gives KBR the right to produce and sell oil inside the country of Iraq. Remarkably, this was a closed-door handout granted to KBR without bidding.

It seems odd that the Halliburton subsidiary would be chosen for the plum contract, given that a recent KBR contract in the Balkans resulted in $2 million in fines to resolve claims the firm committed fraud. And KBR recently admitted to the SEC that they had bribed Nigerian officials to avoid paying their fair share of taxes. This is not exactly the type of organization you'd think the administration would want heading the "we're here to help you" parade in a newly occupied country.

But Halliburton is not only a darling of Republican fundraisers—95% of their $700,000 donations between 1999 and 2002 went to Republican candidates—the company also has an intimate relationship with vice president Dick Cheney, a relationship that helps explain the firm's good fortune. As Secretary of Defense under George H. W. Bush, Cheney hired then-Brown and Root to consult the army about privatizing army jobs. Brown and Root would later win a contract to provide worldwide logistics for the Army Corps of Engineers. When Cheney became Halliburton CEO (1995-2000), the company became the 18th largest Pentagon contractor, up from 73rd. Cheney also helped change tax payments of $302,000,000 in 1998 to tax refunds of $85,000,000 in 1999 in part by quintupling its offshore subsidiaries. Since he left Halliburton to run for vice president, Cheney has continued to receive deferred compensation from his former company of between $100,000 and $1,000,000 per year.


QUALCOMM, INC.


San Diego-based, publicly traded wireless-communications technology firm.

Awarded: Nothing

Although it has not yet been decided who will build the cell-phone network in post-war Iraq, it seems likely that it will be built to the specifications of GSM technology—the Middle East and European standard. For Qualcomm, which produces and collects royalties from chip sales of a rival system (CDMA), Iraq's adoption of GSM would represent a tremendous loss. Upon learning of the GSM plans, a Qualcomm lobbyist went to Rep. Darrel E. Issa (R-Calif.), the recipient of $5,500 in Qualcomm campaign contributions. Together the wireless technology firm and the congressman drafted a letter advocating use of CDMA technology in Iraq, had it signed by 41 lawmakers, and sent it to USAID and Defense Secretary Donald Rumsfeld.

The letter argued that CDMA is technologically superior and that the money spent on reconstruction should benefit American firms, not the European firms that developed GSM. Unfortunately for Qualcomm, the use of GSM would isolate Iraq from neighboring countries. And in terms of American benefits, many firms make GSM handsets and at least one owns royalty-gaining GSM patents. The only real beneficiary of a CDMA system in Iraq would be Qualcomm itself.

Rep. Issa introduced a bill that would mandate the use of Qualcomm's technology to the House of Representatives at the end of March. It is not expected to pass.

Todd Tavares is a Dollars & Sense intern and a student at Northeastern University.

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SOURCES Financial Times May 6, 2003; New York Times April 9, 2003, April 11, 2003; www.citizenworks.org; www.corpwatch.org;. Campaign contribution information is from Open Secrets. USAID contracts and updates can be found at www.usaid.goc/iraq/activities.html.