OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

OOUUTTCCOOMMEE,, CCOOSSTT,, AANNDD OOVVEERRSSIIGGHHTT OOFF

EELLEECCTTRRIICCIITTYY--SSEECCTTOORR

RREECCOONNSSTTRRUUCCTTIIOONN CCOONNTTRRAACCTT WWIITTHH

PPEERRIINNII CCOORRPPOORRAATTIIOONN

SSIIGGIIRR--0088--001111 AAAPPPRRRIIILLL222999,,,222000000888

 
SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

April 29, 2008 

MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ 

DIRECTOR, IRAQ TRANSITION ASSISTANCE OFFICE 

COMMANDING GENERAL, GULF REGION DIVISION, U.S. ARMY 

CORPS OF ENGINEERS 

COMMANDER, JOINT CONTRACTING COMMANDIRAQ/AFGHANISTAN 

SUBJECT: Review of Outcome, Cost, and Oversight of Electricity-Sector Reconstruction 

Contract with Perini Corporation (SIGIR-08-011) 

We are providing this audit report for your information and use. We performed this audit in 

accordance with our statutory responsibilities contained in Public Law 108-106, as amended. 

This law provides for independent and objective audits of policies designed to promote economy, 

efficiency, and effectiveness of programs and operations and to prevent and detect fraud, waste, 

and abuse. This report discusses the results of our review of Perini Corporation contract 

W914NS-04-D-0011 for reconstruction efforts in Iraq. The review was conducted as SIGIR 

project 7027. 

We considered comments from the U.S. Army Corps of Engineers Gulf Region Division when 

preparing the final report. The comments are addressed in the report, where applicable, and a 

copy is included in the Management Comments section of this report. 

We appreciate the courtesies extended to the staff. For additional information on this report, 

please contact Glenn Furbish (glenn.furbish@sigir.mil/703-428-1058); or Walt Keays 

(walt.keays@iraq.centcom.mil/703-343-7926). 

 

Stuart W. Bowen, Jr. 

Inspector General 

400 Army Navy Drive • Arlington, Virginia 22202
Table of Contents 

Executive Summary i

Introduction 1

Construction Outcome and Cost 3

Contract Administration and Oversight 13

Conclusion and Lessons Learned 18

Appendices 

A. Scope and Methodology 20 

B. Task Order History and Outcome 23 

C. Contract Solicitation and Award 30 

D. Perini Subcontractors 31 

E. Acronyms 32 

F. Audit Team Members 33 

Management Comments 

U. S. Army Corps of Engineers GRD 34 
Review of Outcome, Cost, and Oversight of 

Electricity-Sector Reconstruction Contract with 

Perini Corporation 

SIGIR-08-011 April 29, 2008

Executive Summary 

Introduction 

On March 24, 2008, Mr. Paul Converse, an auditor serving with the Special Inspector General 

for Iraq Reconstruction and a member of the audit team responsible for this report died of 

wounds sustained in Baghdad, Iraq, while performing his official duties. Paul provided excellent 

support to the research and writing that went into the produciton of this audit. This report is 

issued in his memory and with gratitude for his outstanding service to SIGIR. 

The December 2006 amendment to the Special Inspector General for Iraq Reconstruction’s 

(SIGIR) enabling legislation required that, before its termination, SIGIR must prepare a final 

forensic audit report on funds made available to the Iraq Relief and Reconstruction Fund. This 

mandate was expanded in the 2008 National Defense Authorization Act, P.L. 110-181, to require 

preparation of a final forensic audit report “on all amounts appropriated or otherwise made 

available for the reconstruction of Iraq.” To meet this requirement, SIGIR has undertaken a 

series of focused contract reviews examining major Iraq reconstruction contracts. The objective 

of these audits is to examine contract outcome, cost, and management oversight, emphasizing 

issues related to vulnerabilities to fraud, waste, and abuse. 

This report, the fifth in the series of focused contract reviews, examines reconstruction work 

contracted by the U.S. government and performed by Perini Corporation. Specifically, this 

report discusses work performed under a major design-build contract in the electricity sector 

awarded in 2004. In March 2004, at the request of the Coalition Provisional Authority, the U.S. 

Army Corps of Engineers awarded contract W914NS-04-D-0011, an indefinite-delivery 

indefinite-quantity cost-plus-award-fee contract, to Perini Corporation to provide design-build 

services in the electricity sector. The objective was to construct electrical transmission and 

distribution facilities in the southern region of Iraq, and it had a not-to-exceed amount of $500 

million. The contract had a base period of two years plus three option years. The objectives 

were to be accomplished by issuing task orders against the basic contract. 

The government subsequently issued 11 task orders; one for contractor mobilization and ten for 

the construction of electricity distribution networks and the rehabilitation or construction of 

substations. The task orders required Perini to submit a site-assessment report, generally 30 days 

after issuance of the task order, and a cost proposal for agreed-upon work, generally 15 days 

after submission of the site assessment report. 

i
Initially, the Coalition Provisional Authority’s Program Management Office had programmanagement responsibilities. In May 2004, the Project and Contracting Office (PCO) replaced 

the PMO. In November 2004, the Joint Contracting Command-Iraq/Afghanistan (JCC-I/A) 

assumed management of all CPA contracts. The U.S. Army Corps of Engineers Gulf Region 

Division (GRD) provided quality assurance services. 

Under terms of the contract, the contractor submits periodic invoices to the government for 

payment. PCO procedures required that the contracting office review and approve the invoices 

and that a contracting officer representative certify of the receipt of goods or services. 

Limitation of Assessment 

Our assessment was constrained by incomplete documentation. The missing documents were 

important to a more complete evaluation of GRD’s quality assurance program. GRD officials 

made extra efforts to provide additional documentation following our exit conference at the 

conclusion of our fieldwork. Despite remaining data limitations, we believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions based on our audit 

objectives. 

Results in Brief 

Of the ten task orders under this contract, five were completed, but several were significantly 

descoped, and five were terminated for the convenience of the government. In general, PCO 

terminated the task orders because it believed Perini’s proposed costs to be too high and its 

decision to terminate the task orders appears to have protected the government’s interests. In all 

cases the decision to reduce task order scope or terminate a task order was made after a site 

assessment was completed but prior to the start of construction. No projects that were started 

were left unfinished by Perini. Nonetheless, SIGIR identified areas where we believe the 

government’s management of the contract could have been improved with relation to quality 

assurance responsibilities, award-fee decisions, and control of personnel turnover among key 

contracting officials. 

Construction Outcome and Costs 

The U.S. government paid almost $123 million to Perini on the contract, including $668,476 for 

Task Order 1 (mobilization). Approximately $8 million in award fees were authorized. One task 

order was completed, and the others were either reduced in scope or terminated for convenience. 

According to PCO officials, the quality of Perini’s construction was very good, but the U.S. 

government often judged the company’s cost proposals to be too high, largely due to its indirect 

costs, and the government elected not to continue the work with Perini. Also, for some projects 

that were started the government was displeased with Perini’s delays and extension requests. 

Security issues also affected several task orders. 

Approximately one year into the contract, the government officials decided to remove work from 

the Perini contract and complete it through firm-fixed-price contracts awarded to other 

international contracting companies. As discussed earlier, the task orders required Perini to 

conduct a site-assessment, and then submit a cost proposal for agreed-upon work. All 

ii
descopings or project terminations occurred after the site assessments were completed but prior 

to the start of construction generally because the government and Perini could not come to terms 

on cost. The results of these task orders are shown in Table 1, summarized in the body of the 

report, and discussed in detail in Appendix B. 

Table 1—Construction Task Order Outcomes 

Completed 

Task Orders Outcome Problems 

Task Order 2 Completed 5 of 8 projects; the other 3 

projects are removed from the task order 

prior to the start of construction. 

High cost estimates, delays and 

security concerns are cited 

Task Order 3 Completed 7 of 12 projects; the other 5 

projects are removed from the task order 

prior to the start of construction. 

High cost estimate is cited as a 

reason for removing 1 project from 

the task order, but no reasons are 

identified for removing the other 4. 

Task Order 6 Perini is directed to complete engineering 

and procurement for 4 projects and deliver 

the equipment to a government warehouse. 

Eleven projects are removed from the task 

order prior to the start of construction. 

High cost estimates are cited. 

Task Order 7 Completed 3 of 6 projects. Three projects 

are removed from the task order prior to 

construction. 

Concerns about management of 

construction milestone schedule. 

Task Order 8 Completed 3 of 4 projects. One project is 

removed from the task order prior to 

construction. 

Concerns about management of 

construction milestone schedule 

Terminated 

Task Orders Outcome Problems 

Task Order 4 Terminated for convenience prior to 

construction. 

High cost estimates, delays and 

security 

Task Order 5 Terminated for convenience prior to 

construction 

Security 

Task Order 9 Terminated for convenience prior to 

construction 

High cost estimates and delays 

Task Order 10 Terminated for convenience prior to 

construction 

Local Iraqis living at the site 

Task Order 11 Terminated for convenience prior to 

construction 

High cost estimates and delays 

Note: Task order 1, not shown above, was a non-construction task order used for capturing mobilization costs associated with assembling people 

and equipment in Iraq to begin the construction work. 

Source: SIGIR analysis of contract data

SIGIR’s review of contract documents generally identifies three primary reasons for reducing the 

scope of work on these task orders: (1) Perini cost proposals that significantly exceeded budgets 

iii
and available funding, (2) concerns about the company’s management of project schedules, and 

(3) security issues. 

Former PCO officials cited Perini’s high indirect cost estimates as a major contributing factor to 

its high cost estimates. The high indirect costs also created difficulties for the government and 

Perini in coming to agreement and definitizing the five partially completed task orders. 

Modification 5 to the contract was issued in April 2005 to require Perini to provide a detailed 

indirect-cost report, but the first report arrived in June 2005 after most task orders had already 

been de-scoped or terminated. (SIGIR has previously reported that delays in beginning 

construction work under the design build contracts contributed to high indirect costs.1

) 

There is little information in the contract file that addresses project delays. There are requests 

for excusable delays from Perini and correspondence from the contracting officer complaining 

about delays. However, there is little information about why the contracting officer considered 

Perini’s requests unreasonable. The contractor’s requests cite security issues, Iraqi religious 

observances, land ownership issues, and the inability to access some sites. Without more 

information it is not possible for SIGIR to make a judgment about the reasonableness of these 

requests. 

As a result of the high costs and delays, the government, in March 2005, elected to reduce the 

scope of the work under the contract and to try to achieve the same results through direct 

contracting. Former PCO officials stated that this delayed completion of the projects but allowed 

the program to stay within budget and accomplish more in the way of reconstruction. The option 

years on the Perini contract were not exercised. 

Contract Administration and Oversight 

SIGIR identified various issues relating to oversight that had a negative impact on completion of 

the projects. Primary observations are identified below: 

• Available information indicates that GRD did not effectively execute its quality 

assurance (QA) responsibilities. PCO contracted with GRD to provide QA services for a 

fee of 4 percent of contract cost. PCO procedures require the submission of a QA report 

for every inspection at a work site. As noted earlier, we requested copies of the QA 

reports from GRD, and received reports on only four substations (39 reports on one, 36 

reports on one, and five reports on each of two others). While this may be a 

recordkeeping issue, it seems to support the contention of former PCO officials who were 

responsible for the contract that PCO received limited value for the funds paid to GRD 

for QA. According to PCO officials, they had to rely on their program-management 

contractor to supplement the QA effort.2

• Insufficient documentation was maintained to adequately support the award-fee process 

and decisions. Further, the metrics for cost control under the award-fee plan were mostly 

for administrative compliance and did not include quantifiable metrics of sufficient 

weight to create incentive for Perini to control costs. We also found that the government 

 

1

 SIGIR Report 2, Iraq Reconstruction: Lessons in Contracting and Procurement, Jul. 2006. 2

 A contract was awarded in each sector to provide program management support to the Program Management 

Office. The contractor in the electricity sector was Iraq Power Alliance Joint Venture. 

iv
did not use an effective award-fee conversion scale to create incentives for superior 

contractor performance. The government awarded over 70 percent of the award-fee pool 

to Perini for the entire period of its work, although the company’s performance scores 

were “average” or “above average.” 

• There was high turnover of key contract-administration personnel. For example, based 

on a review of relevant documentation, we determined that at least 14 contracting officers 

were involved in the contract in the approximately two and a half years after its award. 

This averages out to a new contracting officer every 65 days. According to a former 

senior PCO official, the turnover rate hampered progress. 

While we initially had difficulty locating many documents related to quality assurance 

inspections and others supporting contract payments, GRD officials made extra efforts to locate 

many of these documents from multiple locations in Iraq as well as the U.S. as our field work 

was nearing completion. Ultimately, we were able to obtain and reconcile documentation to 

support the 188 payments the U.S. government made to Perini on the contract. 

Our findings relating to oversight reflect processes that were in place at the time of contract 

award and execution, mostly between 2004 and 2006. A senior GRD official stated that the 

agency has recently hired local Iraqi nationals to enhance its quality assurance efforts. In 

addition, a senior JCC-I/A official stated that the government has shifted its contracting strategy 

in Iraq away from cost-plus-award-fee type contracts and now focuses on achieving results 

through firm-fixed-price contracts. The scope of our audit did not include an assessment of the 

impact of current processes. 

Recommendation 

In April 2004, contract administration was transferred to the CPA Contracting Activity office in 

Iraq. In May 2004, the Project and Contracting Office (PCO) replaced the PMO. In November 

2004, the Joint Contracting Command–Iraq/Afghanistan (JCC-I/A) was established to centralize 

contracting, and administration of all CPA contracts was transferred to JCC-I/A. As a result, 

JCC-I/A assumed responsibility for contracts that originated with other contracting entities. This 

limits JCC-I/A’s accountability for problems in contract file management that they inherited. 

However, SIGIR believes that it is incumbent upon JCC-I/A—the current contract manager—to 

ensure that contract files contain sufficient documentation to support the validity of contract 

payments made. Accordingly, SIGIR recommends that the Commander, JCC-I/A, direct that 

actions be taken to ensure that all contract files, including contracts transferred from other 

entities, contain documents to support key contract management and payment actions and that 

such files be retained in a central location to the extent practical. 

Lessons Learned 

SIGIR identified lessons learned that may be applicable to future contract-management strategies 

in environments like those characterizing Iraq reconstruction. When using large, indefinitedelivery indefinite-quantity cost-plus type contracts: 

v
• Require the prime contractor to provide detailed project-level indirect cost reports under 

the contract to facilitate strategic decision-making. 

• Ensure the provision of proper quality-assurance inspections, including sufficient 

numbers of trained personnel. 

• Incorporate control of indirect costs as a quantifiable metric in the award-fee plan, and 

give the metric enough weight to motivate the contractor to scrutinize and control those 

costs. 

• Explore alternative strategies for managing contracts to achieve stability in the 

contracting-officer workforce. 

Management Comments and Audit Response 

In our draft report, we identified a material management-control weakness resulting from a lack 

of documentation to support payments on the contract. We included a draft recommendation that 

GRD determine if the documents are on file or report the material weakness as prescribed by 

Army Regulation 11-2. GRD subsequently provided copies of Perini invoices and pay vouchers 

to support all payments on the contract. We also recognized that processes changed as a result of 

the transition of program management from PCO to GRD. Accordingly, in preparing the final 

report we deleted the draft recommendation related to the material weakness. However, we 

added a new recommendation to this report, addressing the need for JCC-I/A to establish 

accountability over the contract files that they inherited from other entities. GRD also provided 

technical comments that are addressed in the report where appropriate. GRD also commented 

that we had not made sufficient effort to obtain documents from the finance center in Millington, 

Tennessee. We initiated a request to the finance center to travel to Millington to review the pay 

documents, but chose not to go because we believed the data had already been provided in 

response to an earlier data request. Later, a list of the missing documents was provided to GRD 

who eventually accounted for all 188 invoices and pay vouchers. 

GRD also commented that we had not requested copies of QA reports until the exit conference in 

February. However, we have emails showing that the audit team had made multiple requests for 

the reports, starting more than two months prior to the exit conference. 

vi
Introduction 

A December 2006 amendment to the Special Inspector General for Iraq Reconstruction’s 

(SIGIR) enabling legislation required that prior to its termination, SIGIR prepare a final forensic 

audit report on funds made available to the Iraq Relief and Reconstruction Fund. This mandate 

was expanded in the 2008 National Defense Authorization Act, Public Law 110-181, to require 

preparation of a final forensic audit report “on all amounts appropriated or otherwise made 

available for the reconstruction of Iraq.” To help meet the forensic-audit requirement, SIGIR is 

undertaking a series of focused contract reviews examining major Iraq reconstruction contracts. 

The audits are to examine contract outcomes and oversight of cost and contract management, 

with emphasis on issues related to fraud, waste, and abuse. This report, the fifth in the series of 

such reviews, examines reconstruction work contracted for by the U.S. government and 

performed by the Perini Corporation of Framingham, Massachusetts. 

Background 

In March 2004, at the request of the Coalition Provisional Authority (CPA), the U.S. Army 

Corps of Engineers awarded an indefinite-delivery, indefinite-quantity, cost-plus award-fee 

contract,3 to the Perini Corporation to perform design-build services in the electricity sector.4 

The contract was to construct electric transmission and distribution facilities in the southern 

region of Iraq for a maximum of $500 million. Specific projects were to be identified through 

task orders. The contract had a base period of two years and three option years. Contractor costs 

were to be reimbursed. Perini was to receive a base fee of 3 percent of budgeted costs and was 

to be eligible for an award fee of up to 12 percent of budgeted costs. The contract was funded 

with money from the Iraq Relief and Reconstruction Fund. For more information on the 

solicitation and awarding of the contract, see Appendix C. 

According to the design-build approach, the prime contractor receives a task order from the 

government to design and build a specific project or projects. The contractor conducts an initial 

field survey, develops a cost estimate, and provides the estimate to the government for review. 

Upon the government’s approval, the contractor does the necessary design work, procures the 

materials, and manages the construction. Although the prime contractor usually performs the 

survey, design, and procurement work, much of the construction work is carried out by subcontractors (during Iraq reconstruction, this frequently involved Iraqi or Middle Eastern firms). 

Eleven task orders were awarded under the contract; a contractor-mobilization task order5 and 

ten task orders for constructing and rehabilitating projects. Each project was to begin with a site 

assessment, and based on the assessment, Perini was to rehabilitate or construct new components 

 

3

 Contract W914NS-04-D-0011 was awarded March 12, 2004. 

4

 Perini is a diversified construction, construction management, and design-build company serving public and 

private clients. 

5

 Mobilization involves assembling people and equipment in Iraq to begin the construction work. Task order 1 was 

awarded March 12, 2004. 

1
for the distribution network, including substations,6

 lines, transformers, conductors, and other 

components. Perini’s work did not include connecting homes and businesses to the distribution 

system. 

The solicitation and award of the contract was performed at the Corps of Engineers contracting 

office in Louisville, Kentucky. In April 2004, contract administration was transferred to the 

CPA Contracting Activity office in Iraq. The CPA Program Management Office (PMO) had 

overall responsibility and was assisted by the Iraq Power Alliance Joint Venture (IPA JV), a 

private company under contract to the PMO to provide management support in the electricity 

sector. In May 2004, the Project and Contracting Office (PCO) replaced the PMO. In 

November 2004, the Joint Contracting Command–Iraq/Afghanistan (JCC-I/A) was established to 

centralize contracting, and administration of all CPA contracts was transferred to JCC-I/A. The 

U.S. Army Corps of Engineers Gulf Region Division (GRD) provided quality assurance services. 

Throughout this period, the IPA JV continued to provide program management support. 

Objectives 

Our audit objectives were to review the outcomes, costs, and management oversight design-build 

contract awarded to the Perini Corporation and its subsidiaries and joint-venture partners. 

Data Limitation. Consistent with government audit standards, we note that during the course of 

this review there were certain documents requested from GRD that were not received by the end 

of our field work. The lack of those limited the scope of our review. These documents were 

GRD’s daily quality assurance reports. The absence of these documents limited our ability to 

fully assess quality assurance activities. Consequently, to complete our review, we discussed 

GRD quality assurance efforts with former PCO officials who worked in the electricity sector. 

GRD officials made extra efforts to locate and provide additional documentation following our 

exit conference at the conclusion of our fieldwork. Quality assurance inspection reports for four 

substations were eventually provided, but this did not allow time for a complete review. 

 

6

 A substation converts high voltage transmission electricity to lower voltage electricity. For example, the Basrah 

distribution network substations convert 33 kilovolt (kV) transmission electricity to 11 kV distribution electricity 

2
Construction Outcome and Cost 

Of ten construction and rehabilitation task orders, five were completed but several were reduced 

in scope, and five were terminated for the convenience of the government. No projects that were 

started were left incomplete. All decisions to descope or terminate the task orders were made 

after the site assessments were completed but prior to the start of construction. In lieu of 

completing the work under the Perini contract, PCO chose to award the work to other contractors 

under direct contracts. As of January 29, 2008, a total of $122,701,070, including approximately 

$8 million in award fees, had been disbursed to Perini on the contract, which was nearing 

closeout. Former PCO officials said that direct contracting saved money, but they were unable 

to provide evidence for those savings. 

Construction Task Orders Were Reduced in Scope or Terminated 

One task order was completed, and the others were either reduced in scope or terminated for 

convenience. A former PCO official stated that all of the planned work that was not completed 

by Perini under the original scopes of work was subsequently direct-contracted to others. The 

following table summarizes the key dates, events, and outcomes for the 10 construction task 

orders. Task Order 1, the mobilization task order, is not shown. However, mobilization costs 

were $668,476.

3
Table 1—Key Dates and Events for Construction Task Orders

Task Order 

Issue 

Date ---Key Events--- 

2-Basrah 

Distribution 

Network 

(8 projects) 

5/1/2004 8/3/2004 

Scope 

reduced to 5 

projects 

9/21/2005 

GRD accepts 

5 projects 

3-Babylon 

Distribution 

Network 

(12 projects) 

6/24/2004 10/30/2004 

Scope 

reduced to 8 

projects 

9/2005 to 

10/2005 GRD 

accepts 3 

projects 

11/7/2005 

Stop Work 

Order on 1 

project 

1/5/2006 

Work 

completed 

on 4 

projects 

4-Anbar 

Substation 

Rehabilitation 

(4 projects) 

9/23/2004 1/23/2005 

Stop Work 

Order 

3/21/2005 

Terminated 

for 

Convenience 

5-Rasheed 

Substation 

Rehabilitation 

(1 project) 

9/24/2004 1/23/2005 

Stop Work 

Order 

3/21/2005 

Terminated 

for 

Convenience 

6-Anbar 

Distribution 

Network 

(15 projects) 

9/26/2004 11/13/2004 

Scope 

reduced to 6 

projects 

1/23/2005 

Stop Work 

Order 

2/25/2005 

Stop Order 

Release 

3/6/2005 

Scope 

reduced to 4 

projects 

6/29/2005 

Order to end 

work at 

engineering 

and 

equipment 

procurement 

7-Thi Quar 

Distribution 

Network 

(6 projects) 

10/24/2004 1/23/2005 

Stop Work 

Order 

2/25/2005 

Stop Order 

Release 

3/6/2005 

Scope 

reduced 

from 6 to 3 

projects 

11/18/2005 

Stop Work 

Order 

11/19/2005 

Cancel Stop 

Work Order 

6/2006 

GRD 

accepts 3 

projects 

8-Najaf 

Distribution 

Network 

(4 projects) 

10/30/2004 1/23/2005 

Stop Work 

Order 

2/25/2005 

Stop Order 

Release 

3/6/2005 

Scope 

reduced 

from 4 to 3 

projects 

11/18/2005 

Stop Work 

Order 

11/19/2005 

Cancel Stop 

Work Order 

5/16/2006 

GRD 

accepts 3 

projects 

9-Basrah 

Governate 

Rehabilitation 

(10 projects) 

10/27/2004 1/23/2005 

Stop Work 

Order 

3/21/2005 

Terminated 

for 

Convenience 

10-Hartha Khor 

Substation 

Rehabilitation 

(1 project) 

10/27/2004 1/23/2005 

Stop Work 

Order 

3/15/2005 

Terminated 

for 

Convenience 

11-Umm Qasr 

Rehabilitation 

(1 project) 

10/27/2004 1/23/2005 

Stop Work 

Order 

3/21/2005 

Terminated 

for 

Convenience 

Source: SIGIR analysis of GRD and JCC-I/A documentation.

4
Reasons for Modifying or Terminating Contract Work 

The work under the contract was modified or terminated for several reasons. Those reasons 

centered primarily on cost proposals deemed to be too high, the government’s displeasure with 

delays and extension requests on some projects, and security. The following summarizes our 

findings for each of the construction task orders. 

Task Order 2, issued in May 2004, was to improve the reliability of the Basrah power 

distribution network and identified eight projects, including five substations, a secondary 

substation, power factor correction capacitors, and the rehabilitation of the distribution network. 

In June 2004, the Perini program director requested additional time to complete the site 

assessments due to security concerns. In July 2004, Perini submitted a cost proposal for the task 

order of $105,130,870, which was far in excess of the $36 million budgeted amount. In August 

2004, three projects were removed from the task order, and Perini submitted a proposal of 

$43,914,080. Through negotiations over a period of two month, Perini’s proposal was reduced 

to $23,748,675, which was very close to the independent government estimate of $23,676,975. 

Design changes and other factors increased cost to $28,809,476. In September 2005, the 

remaining five projects were accepted and transferred to GRD. As of January 29, 2008, 

$28,113,805 had been disbursed on the task order. 

5
Al Seraji Substation, July 2005 

Source: SIGIR Inspections 

On January 10, 2007, SIGIR Inspections issued a report that found that “The substations should 

achieve their stated objective when transmission lines are connected to the Shut Al Arab 

substation and transmission capacity is increased to provide adequate power to energize 

distribution feeders to meet local demand.”7 On October 31, 2007 the, IPA JV program director 

stated that the feeder lines were installed and the distribution network projects were complete. 

Task Order 3, issued in June 2004, was to improve the reliability of the Babylon power 

distribution network. The order identified 12 projects: five substations, five distribution 

networks, overhead lines, and power-factor correction capacitors. Four projects were deleted 

from the task order by modification prior to the start of construction and a stop work order was 

issued for one task order. Modification 5 definitizes the scope of work at a total cost of 

$30,232,188. Contract documents cite cost concerns. Seven projects were delivered. As of 

January 29, 2008, $31,957,453 had been disbursed on the task order. The other projects were 

awarded to international contractors through direct contracting. 

 

7

 SIGIR Inspection Report PA-06-082, 083, 084, 085, 086, Electrical Substation Sustainment, Basrah, Iraq, Jan. 10, 

2007. 

6
Task Order 4, issued in September 2004, was to improve the security and reliability of the 

Anbar transmission network and identified four projects, all substations. The contract file cites 

delays and cost estimates that exceeded the allotted project funds. In March 2005, the order was 

terminated for the convenience of the government after the site assessment was completed but 

prior to the start of construction. As of January 29, 2008, $2,869,968 had been disbursed to 

Perini for its incurred costs. 

Task Order 5, issued in September 2004, was to complete construction of the partially 

completed substation at Rasheed at an estimated cost of $34,869,292. In October 2004, a stopwork order was issued for projects in Ramadi and Fallujah because the military did not want 

civilians working in the area at the time. In March 2005, the government terminated the task 

order after the site assessment was completed but prior to the start of construction because the 

government did not have the funds to continue the work. As of January 29, 2008, $2,963,832 

had been disbursed to Perini for its incurred costs. 

Task Order 6, issued in September 2004, was to improve the existing power distribution system 

in Anbar. The order identified 15 projects. In November 2004, nine projects were deleted. In 

March 2005, two more were deleted. Perini was directed to stop the four remaining projects 

after engineering and procurement were completed. According to a Perini official, security 

conditions in Anbar prohibited work in that area. As of January 29, 2008, $14,893,869 had been 

disbursed on the task order for engineering and equipment procurement costs. 

Task Order 7, issued in October 2004, identified six construction projects, all substations, to 

improve the reliability of the existing power distribution system in Thi Qar. In February 2005, 

the task order was modified to construct three substations. In March 2005, the task order was 

definitized at a cost of $14,337,791. In November 2005, the contracting officer issued a Letter of 

Intent for an interim performance rating of unsatisfactory. The letter states that the evaluation is 

being considered because of Perini’s failure to perform in a number of critical areas, including 

managing the construction-milestone schedule. The letter projected that the delivery of facilities 

would be months behind schedule, making the cost of the substations prohibitive. PCO 

subsequently increased the obligated amount on the task order. In June 2006, GRD accepted the 

three substations as complete. As of January 29, 2008, total disbursements on the task order 

were $16,767,051. 

Task Order 8, issued in October 2004, aimed at improving the reliability of the existing power 

distribution system in Najaf. The order identified the renovation or construction of three 

substations, and the installation of power factor correction capacitors. In March 2005, the power 

factor correction capacitors were dropped and the cost for the three substations definitized at 

$14,422,921. The contract file cites requests for extensions and concerns about management of 

the construction-milestone schedule. Three substations were delivered. As of January 29, 2008, 

total disbursements on the task order were $16,508,498. 

Task Order 9, issued in October 2004, was to improve the reliability of the transmission 

network in Basrah. The order involved ten projects, all substation rehabilitation. In January 

2005, the government issued a stop-work order because of delays in conducting the site 

assessments and because Perini’s cost proposal exceeded the funds allotted for the projects. In 

March 2005, the task order was terminated for the convenience of the government after the site 

7
assessment was completed but prior to the start of construction. As of January 29, 2008, total 

disbursements on the task order were $4,287,582, primarily site assessment costs. The projects 

were awarded to other contractors. 

Task Order 10, issued in October 2004, was to improve the security and reliability of the 

transmission network in Hartha Khor. The task order covered one project: to provide 

construction support and labor to the Ministry of Electricity for the rehabilitation of a 

transmission line. In March 2005, the government terminated the task order for convenience. 

There was no information in the contract file specifying why, although correspondence between 

Perini and the government indicated that Iraqis living at the site constituted an issue impeding 

progress. As of January 29, 2008, a total of $2,942,990 had been disbursed on the task order. 

Task Order 11, issued in October 2004, was to improve the security and reliability of the 

transmission network in Umm Qasr. The task order identified one project: rehabilitation of the 

substation. In March 2005, the task order was terminated for the convenience of the government 

after the site assessment but prior to the start of construction. The task order was terminated due 

to Perini’s high cost proposals and project delays. As of January 29, 2008, a total of $727,546 

had been disbursed on the task order. 

For more details on the above task orders, see Appendix B. 

High Cost Proposals Linked to Contractor’s Indirect Costs 

By April 2005, PCO officials had concluded that a major reason for Perini’s high cost proposals 

were its indirect costs. The major indirect costs were security, vehicles, and costs associated 

with company’s home office in the United States and its other offices in Baghdad, Basrah, and 

Kuwait. In April 2005, JCC-I/A issued Modification 5 to the contract requiring Perini to submit 

a detailed indirect-cost report in a format defined in the modification. In May of that year, the 

PCO electricity sector lead sent an e-mail to the contracting officer and other government 

officials stating, “I can’t express enough how critical it is for us to get these indirect-cost reports 

from the DB [design-build] contractors. Although we have expressed our upper leadership’s 

concern that we have these reports so that we have viz [visibility] on where the DBs are 

incurring their costs and therefore ‘discuss’ with them the reasonableness of their staffing and 

charges, we are now seeing interest from the different audit teams that are coming through.” The 

sector lead further stated in the e-mail, “I have just signed the Perini MOD [modification] for TO 

[task order] 2 for the $5M per our agreement even though we can not tell whether or not these 

overhead costs that they claim are substantiated. This will require an audit to verify in absence 

of the indirect cost information.” 

Also, in May 2005 the contracting officer sent a letter to Perini stating, “Based on the PCO’s 

latest forecast projections, which were verified by recent cost data provided by Perini, it is 

anticipated that Perini is going to exceed the total definitized cost estimate of all Perini projects 

by approximately $20-25 million on an estimated $100 million program budget.” The letter 

discussed cost overruns on individual task orders, and stated, “A PCO analysis indicates that 

Perini’s indirect costs are the largest contributing factor to the considerable overrun and they are 

estimated to be approximately 50 percent of the total budgeted project costs. Comparing this 

against other Design–Build contactors’[sic] costs, Perini’s indirect costs are approximately 20%+ 

8
higher.” The government, the contracting officer said, understood that the factors affecting 

indirect costing are not equal across all contractors, but the large variation in Perini’s indirect 

costs compared to other design-build contractors was nonetheless difficult to substantiate. The 

letter further states, “It is the government’s intent for Perini to reveal and support their costs so 

that corrective measures can be taken to avoid cost overruns.” 

The Perini program director responded two days later in a lengthy letter taking issue with some 

of the contracting officer’s statements. The director stated that the total value of all task orders 

awarded on the contract was $118,465,861, 18.4 percent higher than the government’s number. 

The director questioned the merits and accuracy of the comparison with other design-build 

contractors. The director stated that the government effectively increased Perini’s indirect-cost 

rate by terminating five task orders previously awarded, since there was less work to charge the 

indirect costs against. The director also stated that while the government reduced the work on 

the contract, it did not reduce all of the latter’s requirements and, in fact, actually increased those 

involving security and reporting. The Perini program director stated that the total budgeted costs 

on the 11 task orders had been decreased 61 percent as a result of the terminations. Therefore, 

Perini was incurring higher costs on a much smaller amount of work. 

SIGIR has previously written about the problem of high indirect costs for the design-build 

contracts. In a July 2006 report, we reported that, after the award of the design-build contracts, 

the prime contractors were pressured to move personnel and resources to Iraq rapidly to prepare 

for the flow of task orders that they expected would soon begin. But the task orders arrived more 

slowly than anticipated. Contractors charged their “waiting costs” against their contracts; thus, 

delays in task order issuance resulted in charges for overhead with no work being carried out.8 

In the same manner, descoping and terminating task orders adds to the overhead cost of all 

remaining task orders. Perini officials expressed these concerns to PCO, but we could not 

determine if any action resulted. 

On May 29, 2005, the PCO electricity sector issued an action plan to reduce Perini’s indirect 

costs. The plan stated two objectives: 

1. Perini must comply with indirect-cost reporting requirements. 

2. Perini must reduce indirect costs to a cost-competitive level commensurate with their current 

program. 

The action plan stated that the contracting officer would direct Perini to provide the required 

information as part of the May 2005 monthly report to be submitted on June 15. The information 

would enable the electricity sector to identify where Perini’s indirect costs were in excess of 

requirements and recommend through the contracting officer that they be reduced. Under the 

plan, Perini was to be informed through a series of meetings and teleconferences of any changes 

required in its indirect costs. The company would then be directed to present proposals on how it 

could bring its estimated remaining cost down to a cost-competitive number. The plan said the 

sector would perform an analysis of Perini’s remaining work and determine at what stage current 

task orders could be descoped to reduce the firm’s requirement to operate in Iraq. On June 23, 

the contracting officer directed Perini to solidify its cost proposals through such moves as 

 

8

 SIGIR Report 2; Iraq Reconstruction: Lessons in Contracting and Procurement, Jul. 2006. 

9
reducing the number of security teams; descoping Task Orders 3 and 6, which would eliminate 

the need for the Baghdad office; turning over the management of the Basrah camp; and 

providing a cost analysis of managing Task Orders 7 and 8. 

Unlike most of the other design-build contractors, Perini was required to report its indirect costs 

at the task order level rather than through a separate administrative task order (ATO). ATOs are 

task orders by which indirect costs are directly charged in total rather than apportioned to orders 

for individual projects. Instead, a Perini senior official explained that it applied its indirect costs 

to each individual task order; for example, if security costs were incurred at the Basrah camp, the 

company would apply those costs to task orders for projects in the region. When Perini learned 

that some design-build contractors had ATOs on their contracts, it requested one on its contract. 

Former PCO and electricity sector officials stated that the electricity-sector management elected 

not to provide ATOs on the design-build contracts in that sector, although the reasons for this are 

not clear. 

In February 2005, the contract was modified to require indirect cost reporting in the cost 

proposals in place of an ATO. In a letter to the contracting officer in May 2005, the Perini 

program director stated that PCO had explained that design-build contractors would have an 

ATO so that task orders awarded early in the contract period would not be arbitrarily 

overburdened with these indirect costs. The director pointed out that since PCO had not issued 

an ATO to Perini and PCO had been slow to issue task orders, Perini’s Task Orders 2 and 3 had 

been overburdened with indirect costs. The Perini official we spoke to stated that the lack of an 

ATO did not impact construction but did make budgeting and reporting costs more difficult and 

time-consuming. 

Another factor contributing to the indirect cost problem is the lack of a requirement in the 

original contract to provide detailed indirect-cost reports. PCO directed that Perini submit 

indirect cost information in an April 2005 contract modification. Perini submitted its first 

indirect cost report in June 2005. By then, PCO had already made the strategic decision to pull 

work away from Perini and to achieve program objectives through direct contracting. Use of an 

ATO would have simplified the reporting of indirect costs at a contract level, but an ATO by 

itself would not have provided sufficient transparency as to indirect costs on a task order level to 

enable PCO management to make strategic decisions relating to the scope-of-work on task 

orders. 

10
Task Order Delays 

There is little information in the contract file that addresses project delays. There are requests 

for excusable delays from Perini and correspondence from the contracting officer complaining 

about delays. However, there is little information about why the contracting officer considered 

Perini’s requests unreasonable. The contractor’s requests cite security issues, Iraqi religious 

observances, land ownership issues, and the inability to access some sites. Without more 

information it is not possible for SIGIR to make a judgment about the reasonableness of these 

requests. 

Contract Costs 

As of January 2007, Perini had completed work, and the contract was being closed-out. The 

total amount obligated was $125,227,757, and the total amount paid to Perini $122,701,070, 

including $668,476 for Task Order 1 and approximately $8 million in award fees. 

Table 2 shows the cumulative cost of work by cost element as reported in Perini’s required cost 

reports. 

Table 2—Cumulative Cost of Work Allocated to Cost Elements as of June 

30, 2006 

Cost Element Amount Percentage 

Subcontracts $50,727,743 42.7% 

Security and Safety 17,792,543 15.0% 

Construction Management 16,549,597 13.9% 

Equipment 7,775,725 6.5% 

Housing 3,847,166 3.2% 

Construction Indirect Costs 6,729,146 5.7% 

Overhead and Base Fee 6,592,985 5.5% 

Award Fee 5,932,2969 5.0% 

Other Costs 2,992,232 2.5% 

Total $118,939,434 100.0% 

Source: SIGIR analysis of Perini cost report. 

According to the IPA JV program director, contractors individually determine what cost 

elements should be included in their indirect costs. For example, security costs may be either a 

direct project cost or an indirect project cost depending on how a contractor chooses to classify 

them. Consequently, SIGIR did not try to calculate an indirect cost rate for the Perini contract. 

 

9

 Perini was authorized to receive another $2.1 million in award fees in September, 2006. 

11
Approximately $14.8 million was disbursed on the five terminated task orders for Perini’s 

incurred costs up to the time of termination. Documentation was not available for all terminated 

task orders that identified the incurred costs, but for those task orders where data was available 

the costs were for construction management, security and safety, and base camp construction. 

Officials indicated that the terminated task orders were subsequently completed by other 

contractors; however, data were not available to indicate the extent to which this $14.8 million 

investment was utilized during the follow-on construction process. However, it is likely that due 

to the inefficiencies associated with the termination and restart process that some waste occurred. 

PCO officials said that direct contracting saved money, but they were unable to provide evidence 

for those savings. Also, data were not available to show the comparability of the projects and 

costs. For example, performance work statements are frequently modified making a comparison 

with the original baseline project difficult.

A senior Perini official explained the company’s process for selecting subcontractors for work in 

Iraq. When Perini receives a scope of work, the company solicits offers from subcontractors 

through Perini’s home or Kuwait office and sends requests for proposals to companies based on 

Perini’s prior histories with them. Perini looks at the companies’ technical capabilities and 

makes a final decision considering cost. The official stated that all of the construction 

subcontracts were firm-fixed-price. The official explained that the subcontractors hired local 

Iraqis to work at the sites. Americans working for Perini would travel from local camps in Iraq 

to project sites to determine if work had been properly done. For more information relating to 

Perini subcontracts, see Appendix D. 

12
Contract Administration and Oversight 

In the course of our review, we identified issues relating to government oversight of the contract 

that adversely affected its execution. These issues relate to the quality assurance, turnover of 

personnel, and award fees. Our findings relating to oversight reflect processes that were in place 

at the time of contract award and execution, mostly between 2004 and 2006. The scope of this 

audit did not include actions that may have been taken subsequently by GRD and JCC-I/A to 

improve management processes. 

Quality Assurance 

As noted earlier, data limitations restricted our ability to fully assess quality assurance practices. 

However, insights provided by former PCO officials suggested that GRD did not effectively 

execute its quality assurance responsibilities. 

PCO issued Standard Operating Procedure CN-100 in June 2004 to provide guidelines for the 

inspection of in-progress construction by the contractor’s quality-control organization and its 

reporting and documentation. CN-100 also provides guidelines for the inspection of in-progress 

construction by GRD to ascertain if the contractor’s quality-control system was functioning and 

if the specified level of construction quality is being attained. According to the guidelines, a 

preparatory meeting should be scheduled prior to the start of work to review relevant documents. 

Then, after a sample of the work has been completed, an initial inspection was to verify that the 

work was performed in compliance with the contract requirements. The contractor’s qualitycontrol personnel were to conduct daily inspections of the work, perform required tests, and 

provide the GRD quality assurance representative with the contractor’s quality-control 

management report. The GRD representative was expected to conduct periodic inspections of 

the work, to determine if the contractor’s quality-control system was functioning properly, and to 

review each daily quality-control report. If the report was complete and accurate, the 

representative was expected to forward it to the project engineer or resident engineer, and to 

enter the necessary information for the quality assurance (QA) report in the Resident 

Management System quality-assurance report module. GRD received 4 percent of the cost of the 

contract to perform quality assurance on Perini’s project construction. This cost was paid with 

IRRF funds and is not included in the costs reported as paid to Perini. 

We asked GRD to provide us with copies of the daily QA reports. After the exit conference, we 

were provided with QA reports for four substations (39 reports on one, 36 reports on one, and 

five reports on each of two others). While this may be a recordkeeping issue, it seems to 

substantiate the dissatisfaction expressed by former PCO officials in the electricity sector about 

GRD’s quality-assurance services. In addition to concerns over the amount of oversight, PCO 

officials also expressed concerns about the quality of oversight. For example, they stated that the 

electricity projects were very technical and that they did not believe the GRD QA personnel had 

the expertise to effectively inspect the sites. One PCO official also said that QA inspections 

were affected by staffing shortages at GRD and by a dangerous security environment that 

precluded GRD personnel from traveling to the project sites. To compensate, former PCO 

officials said, PCO sometimes used IPA JV employees to supplement the quality assurance 

effort. 

13
Supporting Documentation for Contract Payments 

Our review found that U.S. government agencies maintained documentation to support all 

payments on the contract. 

In June 2004, PCO issued Standard Operating Procedure CM-101, which provided guidelines for 

reviewing and approving contractor invoices. Section 6 of the Standard Operating Procedure 

directed all contractors to follow the established invoice schedule according to their specific 

contract terms. The Corps of Engineers Finance Office was to enter details of the invoice into 

the Corps’ Engineers Financial Management System (CEFMS). The DCAA was to receive a 

copy of the invoice for review, and the contracting office a copy of the original invoice. PCO 

was also to obtain the necessary receiving signatures on the Department of Defense Form 250 

(DD250), a document indicating receipt of services. Usually, DCAA signed the Standard Form 

1034 (SF1034), a pay voucher authorizing payment. These documents were then to be 

forwarded to the PCO finance office in Baghdad for input into the Corps’ financial management 

system. Upon approval, payments would be released per terms of the contract. 

Perini submitted invoices for payment on a biweekly basis. A senior official at the Corps’ 

finance office stated that its office released payment based on an electronic record generated by 

the PCO finance office in Iraq. The official stated that the Corps of Engineers finance office, in 

order to release payment, needed to see an electronic payable with scans of a valid invoice and a 

properly signed public voucher (SF 1034). The PCO electricity sector lead was responsible for 

reviewing the invoice and signing the DD250 to affirm that the services were received. The 

senior official at the Corps’ finance office also stated that their office did not initially require 

DD250s to release payment on this contract but later required the forms to assure that the 

payment would go to the right place. Section 7 of the Standard Operating Procedure CM-101 

required that the original invoice and all accompanying back-up be maintained in the records. 

We reviewed invoices and payment documentation gathered from JCC-I/A, GRD, and the Corps’ 

finance office and compared those documents to payments made to Perini as recorded in the 

Corps’ financial system. Our review included 188 contract payments totaling $122,701,070. We 

found that U.S. government agencies maintained Perini invoices and pay vouchers (SF1034s) for 

all 188 payments. We found that 34 payments were not supported by a signed receiving 

document (DD250). However, GRD officials explained that the CEFMS properly provides the 

option of electronic signature by authorized personnel; therefore, a hand-signed DD250 would 

not be necessary to certify that a Perini invoice was properly reviewed by an authorized official 

in Iraq. 

Turnover of Contracting Officers 

As we previously reported, high turnover rates among contracting personnel throughout the Iraq 

reconstruction effort resulted in lapses in contract oversight that increased costs and contributed 

to delays.10 We reviewed relevant documentation, including contract modifications and 

correspondence for the Perini design-build contract to determine the number of contracting 

officers, and found that from March 2004 when the contract was issued to September 2006, there 

 

10 Iraq Reconstruction: Lessons in Contracting and Procurement, SIGIR Lessons Learned Report, July 2006. 

14
were at least 14 contracting officers assigned. This averages out to a new contracting officer 

every 65 days. There is no record of the number of contracting officer representatives. As we 

previously reported, the causes of high reconstruction-program turnover included the uncertain 

length of rotations, high work volume, intense operational tempo, limited incentives, high-risk 

environment, and shortfalls in qualified personnel.11

A former PCO electricity sector official stated that the turnover of contracting officers and 

contracting officer representatives negatively impacted the Perini design-build contract because 

it undercut the effectiveness and efficiency of contract administration tasks. A former PCO 

program director in the sector stated that the turnover of contracting officers and of government 

personnel in general, slowed everything down. He added contracting officers needed time to 

learn the program before they could effectively execute their duties. 

Award Fee 

The contract provided an award-fee plan under which Perini could receive a fee of up to a 

maximum of 12 percent of the budgeted cost for the relevant period. According to the plan, at 

the end of each period, an award fee board meets and develops a performance score based on 

criteria in the plan. The performance scores are associated with an adjectival rating and an 

award-fee percentage based on the following scale from the plan: 

Table 3—Perini Award-Fee Ratings Scale

Adjectival Rating Point Value Award Fee Percentage

Excellent 90 – 100 points 90 – 100%

Above Average 75 – 89 points 75 – 89%

Average 50 – 74 points 50 – 74%

Below Average Under 70 points12 0%

Source: Award Fee Plan for Contract W914NS-04-D-0011

According to the award fee plan, “The average point value equates to the percentage of award 

fee earned by the contractor.” This indicates that a performance score of 70, for example, would 

result in a recommended award fee of 70 percent of the award-fee pool. An Award-Fee 

Determining Official, who has final say, considers the recommended score and then sends a 

letter to the contractor identifying the fee to be awarded. The plan in the Perini contract 

prescribed six-month award-fee periods; however, the first and last award-fee periods were 

extended. The award-fee pools, amounts, and performance scores authorized for Perini are listed 

in the following table:

 

11 SIGIR report, Iraq Reconstruction: Lessons in Human Capital Management, January 2006. 12 The “Average” and “Below Average” ranges in the scale overlap, which seems to indicate an error in the awardfee plan table, possibly the result of a misprint. 

15
Table 4—Award Fees Authorized for Perini

Performance Period Award-Fee Pool

Performance 

Score Award Fee

$1,666,771.9813 March 12, 2004 – March 11, 2005 $2,475,491.00 68.4

March 12, 2005 – September 11, 2005 5,218,135.00 79.8 4,162,072.00

September 12, 2005 – June 15, 2006 3,051,696.00 70.0 2,139,239.00

Total $10,745,322.00 $7,968,082.98

Source: SIGIR Analysis of JCC-I/A and PCO Award Fee Documentation

As we previously reported, effective use of an award-fee conversion scale is important for 

providing an incentive for the contractor to achieve superior results.14 Although the contracting 

officer has discretion in determining which conversion scale to incorporate into the plan, Perini 

received approximately 70 percent of the available award-fee pool for “Average” performance 

during two periods and approximately 80 percent of the pool for “Above Average” performance 

during the other period. A conversion scale that awarded more of the fee for excellent 

performance might have spurred the company to achieve superior results. 

Award Fee Metrics. Based on our review of the factors to evaluate performance in the awardfee plan, the Perini contract’s award-fee plan did not place enough emphasis on controlling costs. 

Attachments to the award-fee plan identified the factors by which Perini would be evaluated. 

The evaluation criteria comprised two groups of factors as shown in the following table: 

Table 5—Evaluation Criteria for Contract W914NS-04-D-0011

Factors and Sub-factors Weight of Sub-factor

Technical Criteria (60 percent)

A. Schedule Adherence 30 percent

B. Cost Control 30 percent

C. Technical Services/Quality Control 30 percent

D. Health & Safety (Contractor and Public) 10 percent

Management Criteria (40 percent)

A. Program Execution/Quality Management 40 percent

B. Training, Development, and Transition 40 percent

C. Subcontractor Goals 20 percent

Source: Attachments 2 and 3 of the Award Fee Plan

 

13 The award fee amount is lower than expected, based upon the performance score. The amount was adjusted 

downward by the Award Fee Determining Official. 

14 SIGIR 08-009, “Appropriate Award-Fee Conversion Scales Can Enhance Incentive for Contractor Performance,” 

January 24, 2008 

16
The technical criteria represent 60 percent of the award-fee performance score and the 

management criteria 40 percent of the score. Therefore, the cost control sub-factor is only 30 

percent of 60 percent (or 18 percent) of the total performance score. The award-fee plan lists the 

seven elements of the cost-control sub-factor to be scored, as follows: 

1. Development and maintenance of accurate cost reports that reflect committed-cost-to-date 

and estimate-at-completion, for each task order item of work, analysis of variance, and 

earned-value analysis for the task order. 

2. Timeliness, accuracy, and completeness of invoices. 

3. Timely submission of accurate and complete work variance notifications reflecting cost 

impact of changed conditions of over/under runs. 

4. Maintenance of effective cost-control measures, including subcontractor change control and 

subcontractor negotiations. 

5. Effectiveness of contractor’s purchasing system, including maximizing competition and 

submitting thorough, timely subcontract-consent requests. 

6. Timely notification to government when 75 percent of authorized cost will be reached.

7. Management and control of inventory, materials, and resources, including government 

furnished property.

Each of the seven elements was given equal weight. Most of them pertain to administrative 

compliance and timeliness, rather than actual cost control. We could not find documentation to 

indicate how many points Perini received for the cost control sub-factor for period one. Perini 

received 22.4 out of 30 points for cost control in period two and 21.6 out of 30 points for cost 

control in period three. Those are fairly high scores, despite the fact that PCO was unhappy with 

Perini’s high cost proposals and the difficulty in definitizing task orders. Since cost control was 

only 18 percent of the total evaluation and since most of the elements in the cost control factor 

required only administrative compliance for a good score, the award-fee plan did not sufficiently 

emphasize cost control to effectively motivate Perini to achieve it. 

Award-Fee Documentation. The agencies did not maintain sufficient documentation to 

adequately support the award-fee process and decisions. Although we were able to find memos 

and the Award-Fee Determining Official’s letters that identified the recommended evaluation 

score and the amount of award fee authorized for all three periods, we could not find sufficient 

documentation to determine how the recommended score was compiled. For the first award-fee 

period, we found some scoring sheets compiled by individuals, but the scores on those sheets do 

not support the final recommended score. For periods two and three, we found memos from the 

award-fee board chairman providing a recommended score, supported with scores for each 

evaluation sub-factor. However, we did not find scoring sheets compiled by individual awardfee board members to support the recommended score. Without evidence of participation by 

multiple board members, the award-fee process lacks adequate data to support the award fees 

that were authorized. 

17
Conclusion and Lessons Learned 

Conclusion 

Less was accomplished under this contract than expected because the contractor’s projected 

costs for the projects were perceived by the U.S. government to be too high, primarily due to its 

indirect costs. To PCO’s credit, as projected and actual project costs escalated it reduced the 

scope of its projects to remain within budget, and finally made the strategic decision to abandon 

its design-build concept and complete the remaining work through direct contracting. While this 

delayed completion of the projects, it kept the program within budget and accomplished more 

reconstruction to benefit the Iraqi people. 

High indirect costs are cited as the reason for Perini’s high estimates, and this generally follows 

the pattern of other design-build contracts SIGIR has examined in its reviews of Iraq relief and 

reconstruction activities. The government wanted to create a reconstruction capacity in Iraq 

through the hiring of large design-build contractors to undertake a large number of projects that 

had not been definitized or shaped. Under the indefinite delivery/indefinite quantity philosophy, 

it was thought that capacity in different areas of expertise could be created quickly. Once a 

requirement was definitized, the government would then be able to tap the contractors that had 

been selected in each of the reconstruction sectors. The design-build contractors were mobilized, 

however, the start-up of projects lagged and the contractors charged their “waiting costs” against 

their contracts, resulting in high indirect costs. While contractors are generally responsible for 

their indirect costs, the government must share some of the blame for this situation. Nonetheless, 

PCO’s decision to terminate work under the contract appears to have protected the government’s 

interest. 

Although PCO appeared to make a good business decision on this contract, U.S. government 

recordkeeping is problematic and its oversight of this contract uncertain. Some QA reports and 

award fee documentation were initially unavailable, making it difficult to determine if the 

government carried out its oversight responsibilities effectively. Some documents were located 

during the course of our field work but additional efforts were made by GRD officials to locate 

many additional documents from multiple locations in Iraq as well as the U.S. as our fieldwork 

was nearing completion. Ultimately, we were able to obtain and reconcile documentation to 

support the 188 payments the U.S. government made to Perini on the contract. Nevertheless, this 

still raises an issue regarding the adequacy of file maintenance practices for contracts originating 

under other entities but whose management now resides with JCC-I/A. 

Recommendation 

In April 2004, contract administration was transferred to the CPA Contracting Activity office in 

Iraq. In May 2004, the Project and Contracting Office (PCO) replaced the PMO. In November 

2004, the Joint Contracting Command–Iraq/Afghanistan (JCC-I/A) was established to centralize 

contracting, and administration of all CPA contracts was transferred to JCC-I/A. As a result, 

JCC-I/A assumed responsibility for contracts that originated with other contracting entities. This 

limits JCC-I/A’s accountability for problems in contract file management that they inherited. 

However, SIGIR believes that it is incumbent upon JCC-I/A—the current contract manager—to 

18
ensure that contract files contain sufficient documentation to support the validity of contract 

payments made. Accordingly, SIGIR recommends that the Commander, JCC-I/A, direct that 

actions be taken to ensure that all contract files, including contracts transferred from other 

entities, contain documents to support key contract management and payment actions and that 

such files be retained in a central location to the extent practical. 

Lessons Learned 

SIGIR identified lessons learned that may be applicable to future contract-management strategies 

in environments like those characterizing Iraq reconstruction. When using large, indefinitedelivery indefinite-quantity cost-plus type contracts: 

• Require the prime contractor to provide detailed project-level indirect cost reports under 

the contract to facilitate strategic decision-making. 

• Ensure the provision of proper quality-assurance inspections, including sufficient 

numbers of trained personnel. 

• Incorporate control of indirect costs as a quantifiable metric in the award-fee plan, and 

give the metric enough weight to motivate the contractor to scrutinize and control those 

costs. 

• Explore alternative strategies for managing contracts to achieve stability in the 

contracting-officer workforce. 

Management Comments and Audit Response 

In the draft report, we identified a material management-control weakness resulting from a lack 

of documentation to support payments on the contract. We included a draft recommendation that 

GRD determine if the documents are on file or report the material weakness as prescribed by 

Army Regulation 11-2. GRD subsequently provided copies of Perini invoices and pay vouchers 

to support all payments on the contract. We also recognized that processes changed as a result of 

the transition of program management from PCO to GRD. Accordingly, in preparing the final 

report we deleted the draft recommendation related to the material weakness. However, we 

added a new recommendation to this report, addressing the need for JCC-I/A to establish 

accountability over the contract files that they inherited from other entities. GRD also provided 

technical comments that are addressed in the report where appropriate. GRD also commented 

that we had not made sufficient effort to obtain documents from the finance center in Millington, 

Tennessee. We initiated a request to the finance center to travel to Millington to review the pay 

documents, but chose not to go because we believed that the data had already been provided in 

response to an earlier data request. Later, a list of the missing documents was provided to GRD 

who eventually accounted for all 188 invoices and pay vouchers. 

GRD also commented that we had not requested copies of QA reports until the exit conference in 

February. However, we have emails showing that the audit team had made multiple requests for 

the reports, starting more than two months prior to the exit conference. 

19
Appendix A—Scope and Methodology 

In July 2007, we initiated the audit (Project No. 7027) to review the outcome, cost, and 

management oversight of Perini Corp, and/or their subsidiaries/joint venture partners, on Iraq 

Relief and Reconstruction Fund contracts with the U.S. government. We elected to limit the 

scope of the audit to Perini contract W914NS-04-D-0011, the design-build contract in the 

electricity sector awarded in March 2004. 

We obtained copies of the contract, 11 task orders, the associated modifications, and other 

relevant documentation from the electronic contract files and the hard-copy contract files from 

JCC-I/A. 

To determine the solicitation and award process, we obtained and reviewed the solicitation, 

Perini’s proposal, source-selection evaluations, correspondence, the Memorandum of Source 

Selection Decision, and other relevant documentation. We also interviewed the original 

contracting officer and other knowledgeable staff at the Corps of Engineers’ contracting office. 

To determine the cost and funding of the contract, we reviewed the contract and financial data 

obtained from the Corps’ financial management system. We relied on this system as the official 

source for such data. Since this was considered the most complete source of information, we 

relied upon it without further testing, considering appropriate for the purposes of this review. 

We looked at the system of management controls as it applied to contract administration and 

oversight activities to include such things as implementation of the quality assurance process, 

invoice review procedures, and records retention. 

To determine the accomplishments and oversight of the contract, we obtained and reviewed the 

relevant task orders, modifications, correspondence, the award-fee plan, award-fee performance 

evaluations, other documents relating to award fees, invoices, receiving documents, and pay 

documents. We also reviewed relevant guidelines. We interviewed former PCO officials, as 

well as knowledgeable officials from GRD, IPA JV, and Perini. 

To determine the status of some projects formerly under the Perini contract following recontracting, we reviewed records in the Iraq Reconstruction Management System, the principal 

source for such information. 

This audit was performed under the authority of Public Law 108-106, as amended, which also 

incorporates the duties and responsibilities of the inspector general under the Inspectors General 

Act of 1978. 

We conducted this performance audit from July 12, 2007, through February 29, 2008, in 

accordance with generally accepted government-auditing standards. Those standards require that 

we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. Our assessment was 

constrained by a lack of available QA inspection reports. The documents that were not available 

were important to a more complete evaluation of GRD’s quality assurance program. Despite 

20
those data limitations, we believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

Use of Computer-Processed Data 

We reviewed financial data relating to contract costs that were derived from the Corps of 

Engineers Financial Management System. While time did not permit us to fully validate 

information in the system, we did compare data used from the system with data available from 

other sources that supported its validity. We also reviewed project data derived from the Iraq 

Reconstruction Management System, a unified management information system. We did not test 

the data for completeness. They were not material to our findings but did provide limited 

insights regarded selected projects. The Iraq Reconstruction Management System was the best 

available source for this project information. 

Internal Controls 

We did not assess the overall system of management controls related to contract administration. 

However, we reviewed the effectiveness and implementation of internal controls related to 

contract administration as they were applied to the Perini contract. This included reviewing 

controls related to the contract award, contract oversight, and award-fee decisions. 

Prior Coverage 

We also reviewed prior reports related to program management and award fees issued by SIGIR 

and the Government Accountability Office. SIGIR reports can be accessed at: 

http://www.sigir.mil. 

• “Appropriate Award Fee Conversion Scales Can Enhance Contractor Performance” 

(SIGIR 08-009, January 24, 2008) included a review of the award-fee conversion scale 

used for certain cost-plus award-fee contracts in Iraq. The report found that use of a 

different, more-appropriate scale might have increased the incentive for contractors to 

achieve superior results--perhaps at less cost to the U.S. government. 

• “Electrical Substation Sustainment, Basrah, Iraq” (SIGIR PA-06-082-083-084-085-086, 

January 10, 2007) included a project assessment of electrical substations in Basrah. It 

found that the facilities were secured and in good repair, and that four of the five 

substations were operational while the fifth was waiting completion of the incoming 

transmission-line connection. 

• “Iraq Reconstruction: Lessons in Contracting and Procurement” (SIGIR, July 2006) 

included a history of contracting during Iraq reconstruction and found that the contracting 

and procurement effort in Iraq substantially improved over the course of the Coalition’s 

relief and reconstruction program. 

• “Iraq Reconstruction: Lessons in Human Capital Management” (SIGIR, January 2006) 

included a history of human-capital management during Iraq reconstruction and found 

that there was insufficient systematic planning for human capital management in Iraq 

before and during U.S.-directed stabilization and reconstruction operations. 

21
• “Award Fee Process for Contractors Involved in Iraq Reconstruction” (SIGIR 05-017, 

October 25, 2005) included a review of 18 cost-plus award-fee type contracts funded with 

Iraq Relief and Reconstruction Fund and found that the award-fee plans did not include 

required criteria with definable metrics. The review also found that the Award-Fee 

Evaluation Board recommendations and determinations of fees were not documented in 

sufficient detail to show that the integrity of the process was maintained. 

• “Rebuilding Iraq: Integrated Strategic Plan Needed to Help Restore Iraq’s Oil and 

Electricity Sector” (GAO-07-677, May 2007) included a review of funding available to 

rebuild Iraq’s oil and electricity sectors plus a review of U.S. goals for the sectors and 

progress towards achieving the goals. The report found that a variety of security, 

corruption, legal, and planning challenges have impeded U.S. and Iraqi efforts to restore 

the sectors. 

• “Report on Audit of the Cost and Schedule Performance Reporting for the Six Months 

ended September 30, 2005 for Task Orders 1 Through 6 of Contract No. W914NS-04-D0011”, (Defense Contract Audit Agency Report 2131-2006N17850001, February 15, 

2006) included an evaluation of Perini’s internal controls relating to cost and schedule 

reporting and found that Perini did not have written policies and procedures for the 

preparation of the cost-and-schedule performance reports. 

22
Appendix B—Task Order History and Outcome 

Task Order 2—Basrah Distribution Network 

In May 2004, Task Order 2 was issued with an overall objective of improving the reliability of 

the distribution system in Basrah that included: 33/11 kiloVolt (kV) substations; 33kV and 11kV 

lines; 11 kV-230 volt (V)/400V distribution transformers; 230V/400V service conductors; and 

associated equipment. Perini was to conduct a site assessment and, based on that assessment, 

decide together with the U.S. government on the work to be accomplished. The task order 

identified eight projects. However, the number of projects and the project sites changed several 

times without a task order modification or explanation in the contract records. 

Significant Events: 

June 2004 – Task order is modified to extend the period of performance for the site assessment 

because of security concerns that prevented Perini staff and subcontractors from accessing or 

staying at site locations and because subcontractors were unable to locate, develop or gain access 

to critical site information, including maps and drawings. 

 June 2004 – Task order is modified again to extend the period of performance for the site 

assessment. 

July 2004 - Perini submits a cost proposal for $105,130,870, which is far in excess of the 

government’s budget of $36,143,589, prompting an extended negotiation between the company 

and the government regarding the scope of work and cost. 

August 2004 – Modification 6 removes one project; installation of power factor correction 

equipment and feeders. 

October 2004 – The government and Perini come to agreement, and Modification 7 definitizes 

the scope of work and the cost at $23,748,675. The modification definitizes the cost of the 

original eight projects, including the power factor correction equipment removed by 

Modification 6. A Memorandum for Record from PCO issued two days before the Modification 

7 states that power factor correction equipment and three substation projects are removed from 

the task order to remain within budget. This reduced the total number of projects to four. 

March 2005 – Perini sends a letter informing the contracting officer that task order costs would 

exceed definitized costs because cancellation of other task orders had increased indirect costs. 

May 2005 – Perini requested an additional 54 days to complete the project because of design 

changes, delays in site delivery, Iraqi holidays, and Iraqi elections. 

June 2005 – Modification 8 increases the funding by $5,060,801 to a total of $28,809,476. 

Outcome: 

In September 2005, five substation projects are accepted and transferred to GRD. There is 

nothing in the contract folder explaining the origin of the fifth substation project. The final 

definitized cost of the work is $28,809,476, and as of January 29, 2008, the government has 

23
disbursed $28,113,805. On January 10, 2007 SIGIR Inspections issued a report that found that 

“The substations should achieve their stated objective when transmission lines are connected to 

the Shut Al Arab substation and transmission capacity is increased to provide adequate power to 

energize distribution feeders to meet local demand.”15 On October 31, 2007, the IPA JV 

program director stated that the feeder lines were installed and the distribution network projects 

were complete. 

Task Order 3—Babylon Distribution Network 

In June 2004, Task Order 3 was issued to improve the reliability of the existing Babylon 

distribution system, comprised of substations and feeders. The initial phase was to conduct an 

assessment of new project sites and/or existing substations and associated 33 kV feeders, in order 

to determine their condition. Based on the site assessment, Perini was to rehabilitate or construct 

new distribution substations and associated feeders. The task order identified twelve projects. 

Significant Events: 

September 2004- The task order is modified to provide a limited notice-to-proceed on the 

construction component, and one project is deleted. 

October 2004 - Modification 5 to the task order to definitize the scope of work at a total cost of 

$30,232,188. The number of projects is reduced to eight plus site assessments on the three 

descoped projects. 

May 2005 - Modification 6 extends the delivery date to November 15, 2005. 

August 2005 - The contracting officer directs Perini to provide static security at the substations 

until the feeder element is completed by another contractor. 

November 2005 – A stop work order for one project is issued because the costs outweighed the 

benefits of continuing. 

Outcome: 

In September and October 2005 three substations are completed and transferred to GRD. A 

January 2006 letter in the contract file states that Perini has completed construction and 

commissioning of the 11 kV portions of four power networks in the Babel governorate. As of 

October 2004 the task order was definitized at $30,232,188, and as of January 29, 2008, the 

government has disbursed $31,957,453 on the task order. Under a cost plus contract, payments 

may exceed definitized costs as long as the costs are related to work under the contract. 

Task Order 4—Anbar Substation Rehabilitation 

In September 2004, Task Order 4 was issued to improve the security and reliability of the Anbar 

transmission network. The initial phase was to conduct an assessment of the proposed project 

sites and the existing transmission lines and substations. Perini was then to rehabilitate the 

 

15 SIGIR Inspection Report PA-06-082, 083, 084, 085, 086), Electrical Substation Sustainment, Basrah, Iraq, Jan. 

2007. 

24
existing installations or construct new transmission substations and associated overhead line and 

cable circuits. The scope of work identified four projects. 

Significant Events: 

December 2004 - Perini requests a 14-day extension for submission of the cost proposal and final 

site assessment report. The contracting officer approves the request. 

January 2005 - The contracting officer issues a Letter of Concern and Stop Work Order “Due to 

the delays already experienced on these projects by your extension requests, and the fact that 

Perini’s auditable cost proposals significantly exceeded the allotted project funds, we will not be 

proceeding further with Perini on these projects.” 

March 2005 - The contracting officer issues a memorandum of record following a meeting with 

Perini regarding various task orders under the contract. The memo states that the government 

has decided that the security risk in Anbar was too great to award work in that area. 

March 2005 - Task Order 4 is terminated for convenience. 

Outcome: 

The task order is terminated and, as of January 29, 2008, the government has disbursed 

$2,869,968 to Perini for its incurred costs. 

Task Order 5—400kV Substation Rehabilitation at Rasheed 

In September 2004, Task Order 5 was issued with the objective of completing the partially 

constructed substation at Rasheed. The task order stated that this might require rehabilitation of 

installed equipment and that that the site assessment would determine what equipment could be 

reused and what would have to be ordered new. Perini was also to determine if an alternative 

supplier would be desirable. 

Significant Events: 

October 2004 – The contracting officer grants Perini an extension to complete the site 

assessment. 

October 2004 – The contracting officer issues a stop-work on the project because the U.S. 

military did not want civilians working in the area at the time. 

March 2005 – The contracting officer terminates the task order for convenience because the U.S. 

government did not have the budget to press forward with work 

Outcome: 

The task order is terminated for convenience. As of January 29, 2008, the government has 

disbursed $2,963,832 for incurred expenses prior to termination. 

Task Order 6—Anbar Distribution Network 

In September 2004, PCO issued Task Order 6 with the overall objective of improving the 

existing power distribution system in Anbar. The initial phase of the order was to conduct an 

25
assessment of the project sites, and their new and existing distribution substations and associated 

feeders, to determine their present condition and operability. Based on the result of the site 

assessments, Perini was to rehabilitate existing or construct new distribution substations or 

associated feeders. The scope of work identified 15 projects. 

Significant Events: 

November 2004 – Modification 1 to the task order reduces the number of projects to six. 

January 2005 – The contracting officer issues a stop-work order because funding was removed 

for use on another project. 

February 2005 - The contracting officer lifts the stop-work order because Perini’s pricing had 

changed and the officer anticipates definitizing the task order. 

March 2005 - Modification 3 definitizes the task order at a cost of $20,025,050, and reduces the 

number of projects to four. 

June 2005 – The contracting officer directs Perini to stop work on Task Order 6 after engineering 

and procurement are complete. The letter further states that “Perini shall not undertake, along 

with their subcontractors, any installation or construction of the 4 substations” and that Perini 

should complete substation engineering and procurement and proceed to deliver equipment to a 

government warehouse. 

October 2005 - Modification 5 de-obligates funds as a result of a new estimate-at-completion of 

$15,176,498. 

September 2006 - Modification 6 further reduces the obligated amount to $15,155,173. That 

modification also incorporated the changes in the June stop-work order. 

Outcome: 

Engineering and procurement were completed on four substations. Final estimated costs are 

$15,155,173 and as of January 29, 2008 a total of $14,893,869 had been disbursed on the task 

order. 

Task Order 7—Thi Qar Distribution Network 

In October 2004, Task Order 7 was issued with the overall objective of improving the reliability 

of the existing power distribution system in Thi Qar, which is comprised of distribution 

substations and feeders rated at 33kV. The initial phase of the task order was to conduct a site 

assessment of the project sites, including existing distribution substations and associated feeders, 

to determine their present condition and operability. Based upon the results of the site 

assessment, Perini was to rehabilitate the existing, or construct new substations and associated 

feeders. The task order identified six projects. 

26
Significant Events: 

March 2005 – Modification 1 changes the scope of the task order from rehabilitation of six 

substations to construction of three new substations. The cost of the project is definitized at 

$14,337,791. 

August 2005 - Modification 4 extends the performance period. 

November 2005 - The contracting officer issues a Letter of Intent to issue an interim 

performance rating of unsatisfactory for Task Orders 7 and 8. The letter states that the 

evaluation is being considered because of Perini’s failure to perform in a number of critical 

areas, including the management of a construction-milestone schedule for substation 

construction. The letter states that the delays would make the cost of the substations prohibitive. 

December 2005 - Modification 5 increases the obligated amount on the task order to 

$17,201,335. 

September 2006 – Modification 6 decreases the obligated amount on the task order to 

$17,177,167. 

Outcome: 

In June 2006, three substations are completed and transferred to GRD. The final obligated 

amount on the task order is $17,177,167 and as of January 29, 2008, $16,767,051 has been 

disbursed. 

Task Order 8—Najaf Distribution Network. 

In October 2004, Task Order 8 was issued with the overall objective of improving the reliability 

of the existing power distribution system in Najaf, which is made up of distribution substations 

and feeders rates at 33 kV. The initial phase of the task order was to conduct a site assessment of 

the project sites, to determine whether they were operable. Based upon the result of the site 

assessment, Perini was to rehabilitate the existing or construct new distribution substations and 

the associated feeders. The task order identifies four projects. 

Significant Events: 

December 2004 – Perini requests a 60 day extension to complete its auditable cost proposal 

because the scope of work needs clarification. The contracting officer grants the extension. 

January 2005 - The contracting officer issues a stop-work order because of delays. 

February 2005 - The contracting officer lifted the stop-work order because Perini’s pricing had 

changed and the contracting officer anticipates definitizing the task order. 

March 2005 - Modification 2 definitizes the task order at a cost of $14,422,921. The scope of 

work is reduced to three projects. 

August 2005 - Modification 5 extends the performance period by 30 days. 

August 2005 - Perini advised the contracting officer by letter of a potential cost and schedule 

impact due to poor site conditions at each of the three substation locations. 

27
September 2005 - Perini requests an extension of 51 days because all three locations contained 

high gypsum content. 

November 2005 - The contracting officer issues a Letter of Intent to issue an interim 

performance rating of unsatisfactory for Task Orders 7 and 8 because of Perini’s failure to 

perform in a number of critical areas, including effective management of the constructionmilestone schedule. The letter states that the delays would effectively make the cost of the 

substations prohibitive. 

December 2005 - Modification 6 increases the obligated amount on the task order to 

$16,974,297. 

Outcome: 

In May 2006 GRD accepts three substations as complete. The final obligated amount on the task 

order is $16,974,297 and as of January 29, 2008, $16,508,498 has been disbursed. 

Task Order 9—Basrah Governate Rehabilitation 132kV 

In October 2004, the contracting officer issued Task Order 9 with the overall objective of 

improving the reliability of the transmission network in Basrah. The initial phase of the task 

order was to conduct an assessment of the proposed project sites of the existing substations to 

determine their present condition and operability. Based upon the results of the site assessment, 

Perini was to rehabilitate the existing installations or construct new transmission substations and 

associated overhead line and cable circuits. The task order identified ten projects. 

Significant Events: 

January 2005 – The contracting officer issues a Letter of Concern and stop-work order because 

of Perini’s extension requests and because the company’s cost proposal exceeded the funds 

allotted for the projects. 

March 2005 – The task order is terminated for convenience. 

June 2005 - Perini and the government settle the task order for $4,673,872 based on Perini’s 

incurred costs. 

Outcome: 

The task order is terminated for convenience. Perini and the government agree to settle the task 

order based on Perini’s incurred costs.. As of January 29, 2008, a total of $4,287,582 has been 

disbursed. 

Task Order 10—Substation Rehabilitation Hartha Khor 

In October 2004, Task Order 10 was issued with the overall objective of improving the security 

and reliability of the transmission network in Hartha Khor. The initial phase was to conduct an 

assessment of the project sites and the existing transmission line and substation, to determine 

their present condition and operability. Based upon the results of the site assessment, Perini was 

to rehabilitate the existing substation and to provide construction support and labor to the 

Ministry of Electricity for the rehabilitation of 400kV transmission line Hartha Khor No.2. 

28
On November 5, in a letter to Perini responding to a question about the scope of work on the 

second part of the task order, PCO explained that the company was to “provide rental 

construction equipment and labor to assist the Ministry of Transmission Southern Region to reinstall the 400kV line.” 

Significant Events: 

November 2004 – Correspondence between Perini and the government indicates that local Iraqis 

living at the substation posed a problem that needed to be resolved before commencing work. 

March 2005 – The contracting officer terminates the task order for convenience. 

June 2005 – Modification 3 reduces the obligated amount to $3,474,887. 

Outcome: 

The task order was terminated for convenience. Perini and the government agreed to settle the 

task order for $3,474,887 based on Perini’s incurred costs. As of January 29, 2008, $2,942,990 

was disbursed to Perini. 

Task Order 11—Rehabilitation Umm Qasr 123kv-ET-046 

In October 2004, PCO issued Task Order 11 with an overall objective of improving the security 

and reliability of the transmission network at Umm Qasr. The initial phase was to conduct an 

assessment of the proposed project site to determine the required work. Based upon the results 

of the assessment, Perini was to rehabilitate the existing substation. The task order identified 

only one project, rehabilitation of the new 132kV substation at Umm Qasr. 

Significant Events: 

January 2005 – The contracting officer issues a stop work order because of delays and excessive 

project costs. 

March 2005 - The contracting officer terminates the task order for convenience. 

April 2005 - Perini and the government agree to settle the task order for $802,319. 

June 2005 - Modification 3 reduces the obligated amount on the task order to $802,319. 

Outcome: 

The task order is terminated for convenience. Perini and the government settle the task order for 

$802,319 based on Perini’s incurred costs. Perini’s incurred costs are primarily for construction 

management, security and safety, and base camp construction. As of January 29, 2008 the total 

amount disbursed on the task order was $727,546. 

29
Appendix C—Contract Solicitation and Award 

Contract solicitation and award was conducted by the Corps of Engineers. The advertised 

solicitation, for three contracts in the electricity sector, was issued on January 6, 2004, with 

proposals due on February 5. Six companies, including Perini, submitted proposals for a 

contract to perform design-build services covering transmission/distribution projects in the 

southern part of Iraq. Each of the proposals was evaluated by a Source Selection Evaluation 

Board convened by the Corps of Engineers’ Louisville District. Within the board, four subboards– in the technical, cost, management, and past–performance areas–were established to 

evaluate the proposals. These sub-boards evaluated Perini as follows: 

• Technical and Management–Perini was rated “Outstanding,” only one of two 

companies submitting proposals to receive that rating in all technical and management 

factors. 

• Past Performance–The sub-board noted some underperformance in the company’s 

ongoing work in the Restore Iraq Electricity program but concluded that was due, in part 

to the challenging security situation in the southern region. Overall, the sub-board rated 

Perini’s proposal as “Low Risk,” which means that–based on the company’s performance 

record–little doubt existed about Perini’s ability to perform the work involved. 

• Cost–Perini was judged to have the second-lowest most-probable cost, based on 

submissions from each bidding company in response to a hypothetical cost model 

provided in the solicitation. 

In the Memorandum of Source Selection Decision, the Source Selection Authority’s officer 

stated, “I find that the proposal of Perini Corp. represents the best overall value and is the most 

advantageous to the government under Request for Proposals (RFP) W914NS-04-R-0003.” In 

November, 2007 the contracting officer who awarded the contract stated that the solicitation 

process was very thorough, with full and open competition. He stated that the Source Selection 

Evaluation Board was satisfied that it had awarded the contracts to the right bidders. There were 

a sufficient number of bidders, and the evaluators were experienced and well-qualified. The 

past-performance sub-board appropriately considered information from interviews with Corps of 

Engineers personnel regarding Perini’s work in the Restore Iraqi Electricity program. 

30
Appendix D—Perini Subcontractors 

Perini Subcontractors for Contract W914NS-04-D-0011 

Subcontractor 

Name Nationality 

Subcontract Quantity 

and Type 

Subcontracts 

Aggregate Value 

Subcontractor A USA 1 – Fixed Price $882,705 

Subcontractor B USA 1 – Fixed Price 3,100 

Subcontractor C Tortola, British 

Virgin Islands 

2 – Fixed Price 17,199,867 

Subcontractor D USA 1 – Fixed Price 205,774 

Subcontractor E USA 1 – Fixed Price 187,890 

Subcontractor F USA 1 – Fixed Price 1,094,181 

Subcontractor G Kuwait 1 – Fixed Price 3,782,172 

Subcontractor H Kuwait 1 – Fixed Price 1,890 

Subcontractor I Kuwait 3 – Fixed Price 6,848,434 

Subcontractor J Kuwait 1 – Fixed Price 944,990 

Subcontractor K USA 2 – Fixed Price 2,036,842 

Subcontractor L Iraq 1 – Fixed Price 200,000 

Subcontractor M USA 1 – Fixed Price 2,244 

Subcontractor N Kuwait 1 – Fixed Price 58,344 

Subcontractor O USA 1 – Fixed Price 11,454,315 

Subcontractor P Italy 1 – Fixed Price 15,744,000 

Subcontractor Q USA 1 – Fixed Price 577,058 

Subcontractor R Kuwait 1 – Fixed Price 27,540 

Subcontractor S France 1 – Fixed Price 95,160 

Subcontractor T USA 1 – Fixed Price 188,059 

Subcontractor U USA 1 – Fixed Price 126,875 

Subcontractor V USA 1 – Fixed Price 1,215,800 

Subcontractor W Belgium 1 – Fixed Price 26,130,914 

Total $89,008,15416

Source: Perini Corporation 

 

16 The total does not match the amount listed for subcontracting in table 2 because this table includes subcontract 

amounts for expense elements other than construction, such as security. 

31
Appendix E—Acronyms 

ATO Administrative Task Order 

DB Design Build

DCAA Defense Contract Audit Agency 

DD250 Department of Defense Form 250 

GRD Gulf Region Division, U.S. Army Corps of Engineers 

JCC-I/A Joint Contracting Command – Iraq/Afghanistan 

IPA JV Iraq Power Alliance Joint Venture 

kV Kilovolt 

PCO Project and Contracting Office 

PMO Project Management Office 

QA Quality Assurance 

SF1034 Standard Form 1034 

SIGIR Special Inspector General for Iraq Reconstruction 

V Volt 

32
Appendix F—Audit Team Members 

This report was prepared, and the review conducted, under the direction of David R. Warren, 

Assistant Inspector General for Audit, Office of the Special Inspector General for Iraq 

Reconstruction. The staff members who contributed to this report include: 

Benjamin Comfort 

Paul Converse 

Walt Franzen 

William Shimp 

Frank Slayton 

33
Management Comments 

U. S. Army Corps of Engineers GRD 

34
35
36
37
38
SIGIR’s Mission Regarding the U.S. reconstruction plans, programs, 

and operations in Iraq, the Special Inspector General 

for Iraq Reconstruction provides independent and 

objective: 

• oversight and review through comprehensive 

audits, inspections, and investigations 

• advice and recommendations on policies to 

promote economy, efficiency, and effectiveness 

• deterrence of malfeasance through the prevention 

and detection of fraud, waste, and abuse 

• information and analysis to the Secretary of 

State, the Secretary of Defense, the Congress, 

and the American people through Quarterly 

Reports 

Obtaining Copies of SIGIR 

Reports and Testimonies 

To obtain copies of SIGIR documents at no cost, go 

to SIGIR’s Web site (www.sigir.mil). 

To Report Fraud, Waste, 

and Abuse in Iraq Relief and 

Reconstruction Programs 

Help prevent fraud, waste, and abuse by reporting 

suspicious or illegal activities to the SIGIR Hotline: 

• Web: www.sigir.mil/submit_fraud.html 

• Phone: 703-602-4063 

• Toll Free: 866-301-2003

39