OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

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SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

January 29, 2007 

MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ 

MISSION DIRECTOR-IRAQ, U.S. AGENCY FOR 

INTERNATIONAL DEVELOPMENT 

DIRECTOR, IRAQ RECONSTRUCTION MANAGEMENT OFFICE 

 

SUBJECT: Review of USAID/Bechtel National, Inc., Property Management Controls for 

Contract SPU-C-00-04-00001-00 (SIGIR-06-039) 

The Special Inspector General for Iraq Reconstruction (SIGIR) performed this audit in 

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

which requires that we provide for the independent and objective conduct of audits, as 

well as leadership and coordination of, and recommendations on, policies designed to 

promote economy, efficiency, and effectiveness in the administration of programs and 

operations and to prevent and detect waste, fraud, and abuse. This report discusses our 

review of government property management controls by the U.S. Agency for 

International Development (USAID) and its contractor, Bechtel National, Inc.,1

(Bechtel), for contract SPU-C-00-04-00001-00. 

Objectives 

 

This review was announced on September 7, 2006, with the objective of determining 

whether USAID and Bechtel had established and implemented adequate management 

controls over government property acquired for Iraq reconstruction projects. The review 

announcement identified these questions: 

• Was the property accurately documented, especially from purchase authorization to 

disposition?2

400 Army Navy Drive • Arlington, Virginia 22202 

 

1

 Bechtel National, Inc., specializes in large, complex projects related to defense, energy, security, and the 

environment. Bechtel is a leading provider of services to the U.S. government. 

2

 The word disposition is broadly defined to cover various categories: transferred, lost, damaged, stolen, or 

destroyed (scrapped) property. 
• Was the property accurately inventoried and safeguarded? 

• Was the property controlled and disposed of in accordance with relevant regulations? 

In performing our review, we learned that in 2005, the Defense Contract Audit Agency 

(DCAA) reviewed Bechtel’s management controls for the purchase and inventorying of 

government property and reported no significant deficiencies. Therefore, we 

concentrated our audit efforts on USAID’s and Bechtel’s property management controls 

over the disposition of government property under the contract. 

Background 

The Emergency Wartime Supplemental Appropriations Act, Public Law 108-11, created 

the Iraq Relief and Reconstruction Fund (referred to as IRRF 1) and appropriated 

approximately $2.5 billion to be used for a broad range of humanitarian and 

reconstruction activities by USAID and the Departments of State, Defense, the Treasury, 

and Health and Human Services in Iraq. The Emergency Supplemental Appropriations 

Act for Defense and for the Reconstruction of Iraq and Afghanistan, Public Law 108-106, 

appropriated an additional $18.4 billion, referred to as IRRF 2, for the rebuilding of Iraq. 

As of September 30, 2006, USAID has been apportioned $4.7 billion, or 22.5 %, of the 

$20.9 billion IRRF 1 and IRRF 2 funds. The USAID Mission-Iraq, established on July 

27, 2003, oversees USAID’s efforts by carrying out a variety of nation-building projects 

in Iraq. The projects support the reconstruction of Iraq’s vital infrastructure, including its 

power generation facilities, water and sewage systems, telecommunications, 

transportation links, and healthcare facilities. 

To support its mission and related infrastructure reconstruction efforts in Iraq, USAID 

awarded Bechtel two successive contracts, referred to as Phase I and II: 

• The Phase I contract, EEE-C-00-03-00018-00, was a cost-plus-fixed-fee contract 

awarded on April 17, 2003, for $680 million. On September 30, 2003, the contract 

was modified and increased to a total of approximately $1.03 billion. It expired 

December 31, 2004. 

• The Phase II contract, SPU-C-00-04-00001-00, also a cost-plus-fixed-fee contract, 

was awarded on January 5, 2004, for about $1.82 billion. In July 2006, the contract 

amount was decreased to about $1.26 billion. On January 7, 2007, the contract was 

modified and further reduced to approximately $1.24 billion. The contract is 

scheduled to expire on January 31, 2007. 

The Federal Acquisition Regulation (FAR), Part 45, titled “Government Property”, 

prescribes policies and procedures for providing government property to contractors; 

contractors’ use and management of government property; and reporting, redistributing, 

and disposing of that property. The FAR defines government property as all property 

owned by or leased to the government or acquired by the government under the terms of 

2
the contract to include government-furnished property and contractor-acquired property.3

 

The FAR requires contractors to be responsible and accountable for, and keep the 

government’s official records of government property in their possession or control 

unless the contract provides for the contracting office to maintain the government’s 

official property records. 

Under the contracts, Bechtel was required to maintain the official property records. On 

July 18, 2005, USAID authorized the transfer of all IRRF-funded property—either 

supplied to or acquired by Bechtel or its subcontractors—from Bechtel’s Phase I to Phase 

II property records. Thus all government property was consolidated in the Phase II 

contract property records. 

DCAA Audit and Report 

On January 10, 2005, the USAID Regional Inspector General requested that the DCAA 

Iraq Branch Office perform audits to verify the physical existence (receipt, storage, and 

use) of the materials, supplies, and equipment purchased under Bechtel’s Phase I and 

Phase II contracts. Additionally, DCAA was to evaluate if the government property was 

(1) received, stored, or consumed; (2) required for the contract; and (3) accounted for in 

the proper manner. Specifically, DCAA reviewed:

• compliance with established government purchasing policy and procedures 

• the adequacy of Bechtel’s internal control policies and procedures for purchasing 

and inventorying supplies and equipment 

• the existence and accuracy of inventory records for materials 

• the adequacy of internal controls relating to the management of purchased 

services 

• purchased services to determine if they were performed as purchased or 

contracted

• material and purchased services to determine if they were charged to the proper 

cost objective

In performing its audit of purchasing policies and procedures, DCAA selected property 

and services valued at $52.4 million from total purchases during January and February 

2005. 

 

3

 Government-furnished property is property in the possession of, or directly acquired by, the government 

and subsequently made available to the contractor. Contractor-acquired property is property acquired or 

otherwise provided by the contactor for performing a contract and to which the government has title. 

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In September 2005 DCAA issued two audit reports,4

 which disclosed no significant 

deficiencies in Bechtel’s purchasing practices or property controls in performing the 

USAID contracts. DCAA was able to verify the existence of the property and trace the 

received property back to the respective purchase invoices. DCAA found no significant 

noncompliance with Bechtel’s internal policies and procedures. DCAA also reviewed the 

subcontractors’ controls and found them to be in compliance with the terms of the 

subcontracts. 

Results

Because of the DCAA audits, we concentrated our audit efforts on property management 

controls by USAID and Bechtel over the disposition of government property under the 

contract. Our tests of those controls found that USAID and Bechtel provided adequate 

accountability over the disposition of government property. 

Controls Over Property Disposal

In addition to the guidance in Part 45 of the FAR, Part 52.245-5 of the FAR, titled 

“Government Property (Cost-Reimbursement, Time-and-Material, or Labor-Hour 

Contracts)”, provides further guidance on the disposal of government property. 

Specifically, Part 52.245-5 states the contractor shall use Standard Form 1428, Inventory 

Disposal Schedule, to identity government property that is no longer required for the 

performance of the contract and shall not dispose of government property until authorized 

by the Government Property Administrator (GPA). In July 2005, the USAID contracting 

officer provided further guidance on the disposal of government property under the Phase 

II contract by providing Bechtel with the preferred order for disposing of property. That 

order is as follows: 

• Reuse by USAID programs in Iraq 

• Grants to Iraqi governmental organizations 

• Transfer to USAID for administrative use or redistribution 

• Transfer to other U.S. government agencies

• Donations to eligible organizations 

• Sale 

• Abandonment/Destruction

 

4 Report on Material Existence performed at Bechtel National, Inc. (BNI) on Iraq Infrastructure 

Reconstruction Phase I Contract No. EEE-C-00-03-00018-00 and Phase II Contract No. SPU-C-00-04-

00001-00 (DCAA Report No. 2131-2005R10320003, September 11, 2005); Report on Purchases Existence 

and Consumption—FY 2005 Bechtel National, Inc.—Iraq Infrastructure Reconstruction Contract USAID 

Prime Contract Nos. EEE-C-00-03-00018-00 and SPU-C-00-04-00001-00 (DCAA Report No. 4281-

2005D10320002, Revised; September 23, 2005). 

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We tested management controls over property disposal as of September 19, 2006, and 

found that USAID and Bechtel provided adequate accountability over the disposition of 

government property under the Phase I and II contracts. Our test consisted of 96 disposal 

actions valued at $28.2 million from a universe of 2,569 disposals over the life of the 

Phase I and II contracts. Our tests and interviews revealed that: 

1. Government property no longer needed for the performance of the Phase I and II 

contracts was listed on Standard Form 1428 (Inventory Disposal Schedule). 

2. Bechtel requested disposition instruction from the USAID GPA. 

3. After determining the most appropriate disposition method, the GPA issued 

disposition instructions to Bechtel in writing (generally via electronic mail). 

4. Following the GPA’s directions, Bechtel disposed of the property and 

documented the disposition on Department of Defense Form 1149 (Requisition 

and Invoice/Shipping Document). 

5. Although property was generally disposed (through transfers, donations and other 

means) without ever being physically turned over to USAID, the GPA was 

present for disposition, when possible. 

6. The GPA signed the transfer documents, acknowledging and approving the 

disposition of property. 

Additional Observation Concerning Property Transferred to United 

Nations Assistance Mission for Iraq 

With the Phase II contract coming to a close, Bechtel will no longer require the 

compound used for its administrative project management offices and housing in the 

International Zone in Baghdad. The United Nations Assistance Mission for Iraq 

(UNAMI) sent a letter on February 16, 2006, to the U.S. Mission-Iraq’s management 

counselor, requesting that the Bechtel compound be transferred to UNAMI when no 

longer needed. The management counselor, who oversees U.S. Mission affairs, 

coordinated the release of the compound among USAID, Bechtel, and UNAMI. 

With the exception of permanent fixtures, such as storage containers encased in concrete 

and protective walls, barriers, and sandbags, all other government equipment was 

removed and will be disposed according to the preferred order of disposition. The total 

depreciated value of the permanent fixtures that remained in the compound was $106,364 

as of August 21, 2006, according to USAID’s depreciation analysis schedule. According 

to USAID, the cost to dismantle and relocate the permanent fixtures was estimated to be 

over $100,000. Because the cost to dismantle was about the same as the depreciated 

value of the permanent fixtures located in the compound, USAID agreed to donate the 

items to UNAMI upon transfer of the compound from Bechtel. 

 5
Recommendation 

Because the USAID and Bechtel property disposition controls appear to be adequate, we 

make no recommendations. 

Management Comments and Audit Response 

We received a written response from USAID on the draft of this report. The response is 

considered to be fully responsive. USAID concurred with the results of this report and 

provided no additional comments. 

Scope and Methodology

This review was announced on September 7, 2006 (Project No. 6033), with the objective 

of determine whether USAID and Bechtel had established and implemented adequate 

management controls over government property supplied or acquired for reconstruction 

projects in Iraq. Because DCAA had reviewed Bechtel’s management controls pertaining 

to the purchase and inventorying of government property under the Phase I and II 

contracts and had reported no significant deficiencies, we concentrated our audit efforts 

on property management controls by USAID and Bechtel over the disposition of 

government property under the Phase II contract. 

Review Methodology 

To determine the effectiveness of USAID’s and Bechtel’s management controls over 

government property, we obtained and reviewed relevant government policies and 

procedures. We also interviewed current and former USAID contracting and 

management officials responsible for issuing and administering the Phase II contract, as 

well as Bechtel contract and administration officials. Moreover, we reviewed the 

government’s property management records (maintained by Bechtel) and supporting 

documentation associated with the Phase II contract. Furthermore, we performed tests of 

the computer-processed property management records. To perform our tests, Bechtel 

provided an Excel spreadsheet-generated property book record, as of September 19, 

2006, from its property management system. We used that record to select a sample of 

disposition actions for further review. 

The September 19, 2006, property record consisted of 4,234 items (computers, 

generators, trailers, vehicles, and other equipment) of government property, valued at 

$75.7 million. From that universe of items, we identified and excluded items valued less 

than $500 and those listed as lost, stolen, damaged, destroyed (scrapped), or pending 

disposition. This resulted in a new universe totaling 2,569 items. From this new 

universe, we divided the remaining property items into four major categories, as follows: 

category one included property valued over $500,000; categories two and three included 

vehicles and generators, items having a high potential for pilferage or theft; and category 

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four included all other disposed property with an average dollar value of $248. Our 

sample consisted of 96 items, valued at $28.2 million, drawn from the four categories as 

follows: 100% of category one items; 10% judgmentally selected sample from categories 

two and three, resulting in sample sizes of 22 and 9 items respectively; and 2% 

judgmentally selected sample from category four, resulting in 44 items.5 The following 

table shows the universe of property items for each category, the number of items 

sampled, and the dollar value of the items sampled. 

Table 1—Universe of Selected and Disposed Property and Sample Size 

Property 

Type Category 

Universe 

Size 

% of Universe 

Sampled 

Number 

Sampled 

Total Value of 

Sampled Items 

Greater than 

$500,000 

 21 100% 21 $25,314,416

Vehicles 222 10% 22 1,884,026

Generators 92 10% 9 407,913

All Other Disposed 

Property 

2,234 2% 44 552,960

 Total 2,569 NA 96 $28,159,315

Source: SIGIR analysis based on Bechtel’s property book as of September 19, 2006 

 

For the 96 items selected, we traced them from the Bechtel-provided government 

property records to various disposition documents, including Standard Form 1428 

(Inventory Disposal Schedule) and Department of Defense Form 1149 (Requisition and 

Invoice/Shipping Document). In addition, we reviewed Bechtel’s photographs showing 

scrapped property removed from service. 

Use of Computer-Processed Data 

To perform this audit, we used computer generated data from the Bechtel-maintained 

government property records, which we did not audit. We relied on the DCAA 

conducted audit, which disclosed no significant issues with Bechtel’s inventory records 

for government property under the Phase I and II contracts. 

Prior Coverage 

We reviewed applicable reports issued by SIGIR and DCAA: 

• Management of the Mansuria Electrical Reconstruction Project (SIGIR-05-024, 

January 23, 2006) 

 

5 We used the software Easy Sample, downloaded from the Internet, to identify the random numbers for 

selecting the items to be sampled in categories two, three, and four.

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• Report on Material Existence Performed at Bechtel National Inc. (BNI) on Iraq 

Infrastructure Reconstruction Phase I Contract No. EEE-C-00-03-00018-00 and 

Phase II Contract No. SPU-C-00-04-00001-00 (DCAA Report No. 2131-

2005R10320003, September 11, 2005) 

• Report on Purchases Existence and Consumption—FY 2005 Bechtel National 

Inc.—Iraq Infrastructure Reconstruction Contract USAID Prime Contract Nos. 

EEE-C-00-03-00018-00 and SPU-C-00-04-00001-00 (DCAA Report No. 4281-

2005D10320002, Revised; September 23, 2005) 

 - - - - 

We performed this review from September 2006 to January 2007 in accordance with 

generally accepted government auditing standards. 

This report is provided for your information and use. This report does not contain any 

recommendations; therefore, no written response to this report is required. A draft of this 

report was provided to the U.S. Embassy-Baghdad, the Iraq Reconstruction Management 

Office, and USAID Mission-Iraq. We received a written response from USAID MissionIraq officials, who agreed with the finding of this report and had no additional comments. 

Their response letter 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 Mr. Joseph T. McDermott, Assistant Inspector General for Audit, 

(703-604-0982 / joseph.mcdermott@sigir.mil); or Mr. Glenn Furbish (914-360-3573 / 

glenn.furbish@iraq.centcom.mil). For the report distribution, see Appendix A. For a list 

of the audit team members, see Appendix B. 

Stuart W. Bowen, Jr. 

Inspector General 

cc: See Distribution 

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Appendix A—Report Distribution 

Department of State 

Secretary of State 

Senior Advisor to the Secretary and Coordinator for Iraq 

Director of U.S. Foreign Assistance/Administrator, U.S. Agency for 

International Development 

 Director, Office of Iraq Reconstruction 

 Assistant Secretary for Resource Management/Chief Financial Officer, 

 Bureau of Resource Management 

U.S. Ambassador to Iraq* 

Director, Iraq Reconstruction Management Office* 

Mission Director-Iraq, U.S. Agency for International Development* 

Inspector General, Department of State 

Department of Defense 

Secretary of Defense 

Deputy Secretary of Defense 

Under Secretary of Defense (Comptroller)/Chief Financial Officer 

 Deputy Chief Financial Officer 

 Deputy Comptroller (Program/Budget) 

Deputy Assistant Secretary of Defense-Middle East, Office of Policy/International 

Security Affairs 

Inspector General, Department of Defense 

Director, Defense Contract Audit Agency 

Director, Defense Finance and Accounting Service 

Director, Defense Contract Management Agency 

Department of the Army 

Assistant Secretary of the Army for Acquisition, Logistics, and Technology 

Principal Deputy to the Assistant Secretary of the Army for Acquisition, 

Logistics, and Technology 

Deputy Assistant Secretary of the Army (Policy and Procurement) 

Director, Project and Contracting Office 

Commanding General, Joint Contracting Command-Iraq/Afghanistan 

Assistant Secretary of the Army for Financial Management and Comptroller 

Chief of Engineers and Commander, U.S. Army Corps of Engineers 

 Commanding General, Gulf Region Division 

Chief Financial Officer, U.S. Army Corps of Engineers 

Auditor General of the Army 

U.S. Central Command

Commanding General, Multi-National Force-Iraq 

Commanding General, Multi-National Corps-Iraq 

Commanding General, Multi-National Security Transition Command-Iraq 

Commander, Joint Area Support Group-Central 

*Recipient of the draft audit report 

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Other Federal Government Organizations 

Director, Office of Management and Budget 

Comptroller General of the United States 

Inspector General, Department of the Treasury 

Inspector General, Department of Commerce 

Inspector General, Department of Health and Human Services 

Inspector General, U.S. Agency for International Development 

President, Overseas Private Investment Corporation 

President, U.S. Institute for Peace 

Congressional Committees and Subcommittees, Chairman and 

Ranking Minority Member 

U.S. Senate 

Senate Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on State, Foreign Operations and Related Programs 

Senate Committee on Armed Services 

Senate Committee on Foreign Relations 

Subcommittee on International Operations and Terrorism 

Subcommittee on Near Eastern and South Asian Affairs 

Senate Committee on Homeland Security and Governmental Affairs 

Subcommittee on Federal Financial Management, Government Information and 

International Security 

Subcommittee on Oversight of Government Management, the Federal 

Workforce, and the District of Columbia 

U.S. House of Representatives 

House Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on Foreign Operations, Export Financing and Related Programs 

Subcommittee on Science, State, Justice and Commerce and Related Agencies 

House Committee on Armed Services 

House Committee on Government Reform 

Subcommittee on Management, Finance and Accountability 

Subcommittee on National Security, Emerging Threats and International 

Relations 

House Committee on International Relations 

Subcommittee on Middle East and Central Asia 

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Appendix B—Audit Team Members 

This report was prepared and the audit was conducted under the direction of Joseph 

T. McDermott, Assistant Inspector General for Audit, Office of the Special 

Inspector General for Iraq Reconstruction. The staff members who contributed to 

the report include: 

Karen D. Bell 

Frank W. Gulla 

W. Dan Haigler 

Michael R. Herbaugh 

Peter I. Lee 

Robert L. Pelletier 

Clifton E. Spruill 

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Management Comments 

USAID Mission-Iraq 

12
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 

Congressional Affairs Marthena Cowart 

Assistant Inspector General for Congressional 

 Affairs 

Mail: Office of the Special Inspector General 

 for Iraq Reconstruction 

 400 Army Navy Drive 

 Arlington, VA 22202-4704 

Phone: 703-604-0368 

Email: marthena.cowart@sigir.mil 

Public Affairs Denise Burgess 

Assistant Inspector General for Public Affairs 

Mail: Office of the Special Inspector General 

 for Iraq Reconstruction 

 400 Army Navy Drive 

 Arlington, VA 22202-4704 

Phone: 703-428-1217 

Fax: 703-428-0818 

Email: PublicAffairs@sigir.mil 

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