OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

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SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

January 29, 2008 

MEMORANDUM FOR SECRETARY OF DEFENSE 

UNDER SECRETARY OF DEFENSE, ACQUISITION, 

TECHNOLOGY, AND LOGISTICS 

COMMANDING GENERAL, MULTI-NATIONAL FORCE-IRAQ 

COMMANDING GENERAL, U.S. ARMY CORPS OF ENGINEERS 

DIRECTOR, IRAQ TRANSITION ASSISTANCE OFFICE 

COMMANDING GENERAL, GULF REGION DIVISION, U.S. 

ARMY CORPS OF ENGINEERS 

COMMANDER, JOINT CONTRACTING COMMANDIRAQ/AFGHANISTAN 

AIR FORCE CIVIL ENGINEER 

DIRECTOR, AIR FORCE CENTER FOR ENGINEERING AND THE 

ENVIRONMENT 

SUBJECT: Audit Report on Differences in Services and Fees for Management and 

Administration of Iraq Reconstruction Contracts (SIGIR-08-005) 

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 management and administration of Iraq reconstruction 

contracts by the U. S. Army Corps of Engineers-Gulf Region Division (USACE-GRD) and the 

Air Force Center for Engineering and the Environment (AFCEE). These organizations play a 

major role in Iraq reconstruction project management and contract administration. This review 

was conducted as SIGIR project 7016. 

We considered comments from the Office of the Under Secretary of Defense and USACE-GRD, 

and informal comments from AFCEE 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 Mr. Barry Holman at 703-604-0942 or (barry.holman@sigir.mil). 

 

Stuart W. Bowen, Jr. 

Inspector General 

 

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

Executive Summary i

Background 1 

Responsible Organizations 1

USACE-GRD 1

AFCEE 2

Objective 4 

USACE-GRD and AFCEE Differ in 

Approaches, Services, and Fees 5 

USACE-GRD 6

AFCEE 10 

DoD Has Not Assessed the Differences 14 

Conclusion and Recommendation 17

Appendices 

A. Scope and Methodology 19

B. Acronyms 21

C. Audit Team Members 22 

Management Comments 

Office of the Under Secretary of Defense 23 

USACE-GRD 25 
Differences in Services and Fees for Management and 

Administration of Iraq Reconstruction Contracts 

SIGIR-08-005 January 29, 2008

Executive Summary

Introduction 

After the U.S. government discovered that Iraq’s infrastructure was in far worse condition than 

pre-war assessments had indicated, billions of dollars were appropriated to assist in reviving the 

infrastructure and economy. Early on a number of different organizations were involved in 

managing and administering the reconstruction contracts awarded under the U.S. programs. 

However, the Gulf Region Division (GRD) of the U.S. Army Corps of Engineers (USACE) and 

the Air Force Center for Engineering and the Environment (AFCEE), a field operating agency of 

the Air Force Civil Engineer, are two primary organizations providing project management and 

contract administration services for major Iraq reconstruction projects. Officials involved in 

reconstruction efforts have expressed interest in an analysis of the two organizations’ 

management and administration procedures, particularly the fees they charged. 

The SIGIR reporting objective was to (1) compare and contrast GRD and AFCEE management 

and administration of Iraq reconstruction projects, including the services provided and fees 

charged, and (2) determine the extent to which DoD has assessed the efficiency and cost 

effectiveness of these activities. 

Results in Brief 

Collectively, as of September 30, 2007, USACE-GRD and AFCEE have managed and 

administered over $10.3 billion of Iraq reconstruction contracts and charged about $535 million 

in fees for their services. GRD managed and administered about $6.3 billion, or over 60 percent, 

of the total amount and charged about $418 million in fees. AFCEE had about $4.0 billion of 

reconstruction contracts and charged about $117 million in fees. 

Both USACE-GRD and AFCEE provided construction services that included project 

management and design, contract administration, fiscal and administrative management, and 

quality assurance; however, they used differing approaches to managing and administering U.S.-

funded reconstruction projects. A major difference was GRD’s work on design-build contracts 

that required more direct and extensive involvement in the design and construction phases, and 

AFCEE’s use of an approach that did not include detailed design. Another distinction between 

the organizations’ business models is that GRD primarily depended on its military and civilian 

employees for quality assurance and other management and administrative services, while 

AFCEE relied on contractors to provide many of its services. 

i
SIGIR’s ability to make a full comparative analysis was limited by insufficient data regarding the 

differences in fee structures and services provided and a lack of comparability and transparency 

in the fees and services. At the same time, SIGIR found that no DoD analysis of the two 

organizations’ business models, services provided, and fee structures has been made and that 

such an analysis could provide the basis for enhanced policy guidance. 

USACE-GRD and AFCEE Differ in Approaches, Services, and Fees 

Most of GRD’s early project management and contract administration work involved major 

design-build,1 cost-plus contracts that were awarded by its predecessor organization and 

employed large multi-national firms. In 2004, USACE-GRD began to move away from these 

types of contracts to ones with local and regional firms for smaller, shorter–term projects. With 

the shift, GRD began to engage more directly in reconstruction contracting, as opposed to its 

previous role that was largely confined to project management and quality assurance. As of 

September 29, 2007, GRD Reconstruction Snapshot reported 3,641 projects completed, including 

424 projects in the electricity sector, 76 in the oil sector, 667 in the water sector , and others in 

the transportation and communication, health and education, and security and justice sectors. 

Initially, AFCEE’s role in Iraq reconstruction was to meet an urgent reconstruction 

requirement—estimated at $238.6 million—for the New Iraqi Army. Later, AFCEE took on an 

expanded role and began awarding task orders for reconstruction of schools, government office 

buildings, and other projects. A 2004 SIGIR report2 addressed this expanded scope and, based 

on the report’s recommendation, AFCEE revised the agreement governing this work. As of 

September 30, 2007, AFCEE had awarded a total of 245 task orders for 590 projects (a task 

order may involve multiple projects) and completed over 4,217 facilities—including barracks, 

schools, border forts, and police stations—with more than 60 million total square feet. 

Both GRD and AFCEE provided such services as project and cost management, contract 

administration, construction quality assurance, and construction fiscal and administrative 

management. However, the specific services provided varied based on customer needs, and the 

project and contract type. Those variances made side-by-side comparison between GRD and 

AFCEE difficult. However, major differences in management and administration of Iraq 

reconstruction projects were most evident in the pre-design and construction phases of their 

projects. GRD’s initial work involved design-build contracts that required more direct and 

extensive involvement in the design and construction phases. AFCEE, on the other hand, 

provided none of the detailed design services, and used Indefinite Delivery, Indefinite Quantity 

(IDIQ) contracts and cost-plus fixed-fee task orders to expedite reconstruction projects. It 

accomplished the construction through the use of conceptual work plans without detailed design 

packages. Also, for quality assurance efforts, AFCEE used contractor services, while GRD 

relied on its military and civilian employees. 

In a gross comparison, GRD’s fees appeared much higher than AFCEE’s. GRD’s fees ranged 

from 4% to 9.2% depending on the program and the required work. For full contract supervision 

and administrative services, it generally charged 6.5%. AFCEE’s initial fee for comparable 

 

1

 A design-build contract makes one contractor responsible for both the design and construction of a project, 

although the selected contractor may use others to complete the work. 2

 SIGIR 04-004, Task Orders Awarded by the Air Force Center For Environmental Excellence, July 28, 2004 

ii
services was 1.5% of project cost, but its fee in the past year has increased to just over 3%. In 

general, (1) both charged fees intended to recover costs, (2) both recognized that costs would be 

higher than the fee on some projects and lower on others, with total fees adjusted to recover 

costs, (3) neither recorded actual costs on individual projects, and (4) neither recovered security 

and life support costs in their fees. However, there is little comparability and transparency of the 

fees charged and services provided by the two organizations. 

DoD Has Not Assessed Differences 

The Under Secretary of Defense, Acquisition, Technology and Logistics (USD, AT&L) is 

responsible for monitoring the execution of military, emergency, and contingency construction 

programs to ensure their efficient, expeditious, and cost-effective accomplishment. However, 

SIGIR found that no analysis exists at that level to determine the merits of the differing USACEGRD and AFCEE approaches, services, and fees. 

USACE and AFCEE each made limited and incomplete assessments highlighting the benefits of 

their approaches. But these comparisons, for the most part, were based on generalizations rather 

than specific analysis, and SIGIR found each contained unsubstantiated claims and did not fully 

resolve questions related to differences in approaches, services, and fees. 

A more thorough analysis could provide lessons learned to improve the efficiency of project 

management and administration, reduce costs, and make more efficient and effective use of 

reconstruction funds. It could also provide the basis for enhanced policy guidance concerning 

the use of the organizations and their approaches. The issues that could be addressed go beyond 

a comparison of services and fees, and extend to the business models used by the organizations 

to award, manage, and administer construction contracts, and to account for and report on costs 

and fees. A comparative analysis could also consider the benefits of a managed degree of 

competition between the organizations. Competition serves as an effective incentive to improve 

performance and reduce costs. 

Recommendation 

Because of the potential for involvement and interest of several organizations within DoD and 

the Military Departments, SIGIR recommends that the Secretary of Defense direct a thorough 

and detailed comparative analysis of the construction administrative and management services 

provided by USACE-GRD and AFCEE. The analysis should examine the business models used, 

types of services provided and means by which they are provided, the fees charged and means by 

which costs are recovered and accounted for, and the elements of costs that are being recovered. 

Management Comments and Audit Response 

The Office of the Under Secretary of Defense for Acquisition Technology, and Logistics and 

USACE-GRD provided written comments on a draft of this report, and AFCEE provided 

informal comments. The Office of the Under Secretary of Defense stated that the SIGIR effort 

justified further study of how best to meet reconstruction and contingency construction 

requirements and that a “best practice” approach will be undertaken. The Office non-concurred 

with the overall report, suggesting it lacked a comparative analysis to support the report’s 

recommendation. SIGIR reported that a full comparative analysis was not done, but believed the 

iii
work completed and the issues identified justified a recommendation for further DoD analysis. 

DoD agreed with the need for further analysis. USACE-GRD’s comments contained suggestions 

for technical changes in the report. SIGIR considered these comments in preparing this final 

report and made changes as appropriate. AFCEE, in informal comments, generally concurred 

with the report. 

iv
Background 

Pre-war relief and reconstruction planning for Iraq focused chiefly on preparing for humanitarian 

assistance and the restoration of essential services. The contracting and procurement efforts 

during that phase reflected this focus. After the Iraqi government collapsed in 2003, the shape of 

these efforts began to shift. The U.S. government discovered that Iraq’s infrastructure was in far 

worse condition than some pre-war assessments had indicated and that reconstruction would be 

far more extensive and costly than originally anticipated. 

The U.S. government responded to this challenge by appropriating billions of dollars to assist 

Iraq in reviving its infrastructure and economy. Early on, a number of different organizations 

were involved in efforts to administer and manage the contracts awarded. The efforts engaged 

multiple U.S. government agencies with overlapping jurisdictions and diverse capacities. These 

agencies applied a variety of approaches to similar contracting and procurement requirements, 

resulting in methodologies and outcomes that occasionally came into conflict. However, the two 

primary U.S. military organizations providing management and administration of reconstruction 

contracts were the Gulf Region Division (GRD) of the U.S. Army Corps of Engineers (USACE) 

and the Air Force Center for Engineering and the Environment (AFCEE), a field operating 

agency of the Air Force Civil Engineer. Officials involved in reconstruction efforts, including 

those of USACE-GRD, AFCEE, and their customers, have raised questions about the 

organizations’ management and administration of reconstruction contracts, particularly the fees 

they charge. 

Responsible Organizations 

USACE-GRD 

USACE has been involved in Iraq reconstruction efforts since March 2003, providing 

contingency engineering support through the deployment of field engineering teams and 

electricity/oil-restoration task forces. To consolidate its Iraq operations under a single general 

officer and to provide long-term engineering support for military operations, the USACE 

activated GRD in January 2004. 

GRD initially served as construction manager for the Program Management Office (PMO) that 

was created in August 2003 by the Coalition Provisional Authority (CPA) Administrator to 

execute the Iraq reconstruction program. In May 2004, National Security Presidential Directive 

36, United States Government Operations in Iraq, established the Project and Contracting Office 

(PCO) to provide acquisition and project management support for activities in Iraq. In June 

2004, the Deputy Secretary of Defense established the PCO within the Department of the Army 

and directed the new office to provide support to the Chief of the U.S. Mission in Iraq for all 

activities associated with financial, program, and project management for both construction and 

non-construction activities. 

In February 2005, the Assistant Secretary of the Army for Acquisition, Logistics and Technology 

requested a business plan to consolidate PCO and GRD. A month later, the PCO provided a 

plan that recognized GRD’s increasing role in the reconstruction program and helped streamline 

1
management of the overall reconstruction effort. For efficiency purposes, the two agencies 

merged on December 4, 2005, and subsequently GRD assumed full responsibility for providing 

engineering services and construction capabilities. GRD’s mission is to provide full-spectrum, 

high-quality, sustainable, and responsive engineering and logistical services in support of the 

civil/military reconstruction. In addition, it is assisting the Government of Iraq to assume full 

responsibility for national infrastructure. 

Throughout the country, GRD is responsible for executing a wide variety of infrastructure 

reconstruction projects. It manages them from GRD Headquarters in Baghdad and its three Iraq 

Districts—Gulf Region North, Central, and South. To keep GRD’s size to a workable minimum, 

the Corps of Engineers’ Transatlantic Program Center, in Virginia, provides support—including 

administration services, contracting, design and technical assistance—on a cost-reimbursable 

basis. GRD has operated without specified authorized positions; uniformed military personnel 

and civilian volunteers were diverted from other USACE divisions and districts, as well as 

Army, Navy, and Air Force commands, to staff the organization. 

During FY 2005, GRD had 115 military personnel and 383 civilian employees. As of September 

2007, GRD had a total staff of over 1,000, including 178 military personnel, 333 civilian 

employees, and about 500 contract employees. At that time, the organization’s stated 

requirement was for 190 military personnel—93 for Headquarters and the remaining 97 for the 

Districts—and for 442 civilian employees, with 131 for Headquarters and 311 for the Districts. 

GRD personnel are primarily providing the construction management and quality assurance for 

Iraq reconstruction projects, but they do not work exclusively in that area. Additional 

responsibilities involve them in U.S. military construction, logistics operations, and other 

military operations and maintenance efforts in Iraq. 

AFCEE 

In 1991, AFCEE—known as the Air Force Center for Environmental Excellence until June 

2007—was created as a Field Operating Agency of the Air Force Civil Engineer, headquartered 

in Texas. AFCEE’s mission is to provide military housing construction and privatization as well 

as technical and professional services in environmental and installation planning and 

engineering. Throughout the 1990’s, construction became a larger part of its mission. 

AFCEE began operations in Iraq early in the reconstruction process, when the CPA started to 

look for ways to quickly renovate facilities for the New Iraqi Army. Because of urgent 

reconstruction requirements and limited time—six months—to meet its June 2004 construction 

targets, the CPA sought faster ways to execute contracts than doing it through USACE. In 

December 2003, the CPA requested, with the Joint Chief of Staff’s approval, that AFCEE be 

authorized to use its existing Worldwide Environmental Restoration and Construction (WERC) 

Indefinite Delivery, Indefinite Quantity (IDIQ) contracts as a temporary vehicle to begin this 

work. 

The WERC contracts were the fifth in a series of worldwide environmental/construction 

contracts that began in the early 1990’s. They were awarded after a two-tiered competition 

process. At first, 40 contractors submitted proposals, and in November and December 2003, 

contracts were awarded to 27, including 16 small businesses. The 27 awarded contracts were 

2
identical, with the exception of the contractor’s rate structure and its various partners and 

subcontractors. A second level of competition began when an individual task order was issued. 

Any of the 27 contractors could submit proposals. AFCEE officials awarded the task order after 

evaluating the contractors’ proposals using technical and cost selection criteria. 

The WERC contracts were followed by Heavy Engineering Repair and Construction (HERC) 

contracts that were awarded in April 2006 and remain active today. The same two-level 

competition process that existed for WERC contracts exists for HERC contracts. For the latter, 

20 contractors, including six small businesses, were awarded contracts. Each of the contracts has 

a five-year basic ordering period plus up to three one-year options.

AFCEE, as of September 2007, employed 401 civilians and 34 military personnel. However, 

only a small portion of them are involved in Iraq reconstruction, which is under AFCEE’s 

Capital Investment Execution Division, Contingency Operations Branch. The Branch has offices 

located in Baghdad and Texas. As of September 2007, the Branch had 21 government 

employees and 20 on-site contractors provided by two Global Engineering, Integration, and 

Technical Assistance (GEITA) firms. (GEITA is an IDIQ contract maintained by AFCEE to 

provide program- and project-level technical support to AFCEE and its customers.) Although 

AFCEE has no contracting officers in Iraq, it maintains, on a rotating basis, two military and four 

civilian personnel there. The civilian positions are assigned on a four-month rotation basis, with 

military rotations for a longer period. Some of the GEITA contractors’ employees are also based 

in Iraq.

Most of AFCEE’s services, including construction quality assurance, are provided by 

professional-services contractors. As of September 2007, the organization’s quality assurance 

contractor, Versar, was providing 336 quality assurance personnel, including expatriate, thirdcountry, and Iraqi nationals to support the Iraq program. According to AFCEE, these 

contractors’ quality assurance personnel act as the “eyes and ears” for its contracting officer. 

They are to provide conventional Title II (quality assurance) services for Iraq construction 

projects. The services include, but are not limited to, contractor- performance monitoring, 

management and inspection services, job-site evaluations, contractor-payment reviews, submittal 

reviews, plan reviews, and construction documentation. Inspection services include routine, prefinal, and final walk-through assessments of the projects. 

AFCEE operates on the concept that government staffing can be kept to a minimum by 

leveraging the contracting officer representative with contractor support and quality assurance 

personnel. AFCEE officials state that contractor staffing is continually assessed and adjusted as 

needed. Even though AFCEE does not have a set number of projects assigned to a contracting 

officer representative on a formula basis (i.e., one for 25 projects), it does expect its contracting 

officer representative to manage many task orders when augmented by support and quality 

assurance personnel. In general, AFCEE plans to have a minimum of two quality assurance 

inspectors at each site, but, depending on the size of the site and level/complexity of the work, as 

many as six inspectors could be required. 

3
Objective 

The SIGIR reporting objective was to (1) compare and contrast GRD and AFCEE management 

and administration of Iraq reconstruction projects, including the services provided and fees 

charged, and (2) determine the extent to which DoD has assessed the efficiency and cost 

effectiveness of these activities. 

For a discussion of the audit scope and methodology and a summary of prior audit coverage, see 

Appendix A; Appendix B identifies the acronyms used in this report; and Appendix C lists the 

audit team members. 

4
USACE-GRD and AFCEE Differ in Approaches, 

Services, and Fees 

USACE-GRD and AFCEE combined have managed and administered over $10.3 billion of Iraq 

reconstruction contracts and charged about $535 million in fees for their services. As of 

September 30, 2007, GRD had managed and administered about $6.3 billion, or over 60 percent 

of the total amount, and charged about $418 million in fees; the corresponding numbers for 

AFCEE were about $4.0 billion and about $117 million. GRD’s primary customers were the 

PMO and the PCO, its predecessor organizations. GRD customers have also included the MultiNational Force-Iraq (MNF-I), the U.S. Agency for International Development (USAID), and 

other organizations. AFCEE has performed almost all of its work for the Multi-National 

Security Transition Command-Iraq (MNSTC-I), which was established by the MNF-I to help 

build the New Iraq Army. 

Both USACE-GRD and AFCEE have provided construction services that included project 

management and design, contract administration, fiscal and administrative management, and 

quality assurance. Specific services varied according to such factors as type of project and 

contract, and customer needs. In providing these services, the organizations must comply with 

the myriad of laws and regulations that govern DoD contracting and construction activities. 

The major differences in GRD’s and AFCEE’s initial responsibility for construction projects in 

Iraq were most evident in the pre-design and construction phases of their projects. At the 

beginning of reconstruction, GRD’s work involved design-build contracts, awarded by PMO, 

that required more direct and extensive involvement in the design and construction phases. 

AFCEE, on the other hand, provided no pre-design services for any of its contracts and did not 

include detailed design in its approach. Also, because AFCEE was able to use its existing IDIQ 

awards as a vehicle to begin approving reconstruction projects, it was able to minimize 

procurement activities. Another distinction between the organizations business models is that 

GRD primarily depended on its military and civilian employees for quality assurance and other 

management and administrative services, while AFCEE relied on contractors to provide many of 

its services. 

In a gross comparison, GRD’s fees appeared much higher than AFCEE’s. GRD’s fees ranged 

from 4% to 9.2% depending on the program and the required work. For full contract supervision 

and administrative services, it generally charged 6.5%. AFCEE’s initial fee for comparable 

services was 1.5% of project cost, but its fee in the past year has increased to just over 3%. In 

general, (1) both charge fees intended to recover costs, (2) neither recorded actual costs on 

individual projects, and (3) both recognized that costs would be higher than the fee on some 

projects and lower on others, with total fees adjusted to recover costs. However, there is little 

comparability and transparency of the fees charged and services provided by the two 

organizations. 

The following sections provide additional details on USACE-GRD and AFCEE projects, 

services, and fees. 

5
USACE-GRD 

USACE-GRD uses a number of options to solicit and award new contracts–from the traditional 

design-build contracts to awarding a task order on an existing IDIQ contract. For the Iraq 

reconstruction program, many of the projects managed by GRD were done under contracts 

awarded by Joint Contracting Command–Iraq/Afghanistan (JCC-I/A), which was created in 

November 2004 to centralize contracting in the region, or its predecessor organizations. 

During the initial reconstruction phase of Operation Iraqi freedom, design-build, cost-plus 

award-fee contracts were determined to be the appropriate acquisition vehicle, given the 

magnitude of the program, the high levels of technical, schedule, and cost uncertainties, and the 

need for flexibility in a changing security environment. Eleven design-build, cost-plus contracts 

were awarded in March 2004 using full and open competition. These contracts allowed USACEGRD to issue both cost-plus and fixed-price type task orders. The majority of task orders were 

issued on a cost-plus basis. USACE-GRD officials noted that issuing fixed-price orders is 

contrary to Federal Acquisition Policy if high levels of risk and uncertainties exist. Fixed-price 

orders, they noted, can drive contractors to factor in costs to cover high levels of risks and to 

submit prices that cover all potential costs related to mitigating these risks, resulting in 

unreasonably high prices. 

In the summer of 2004, USACE-GRD began to move away from contracts with large multinational firms for design-build projects to contracts with local and regional firms for smaller, 

shorter–term projects. With the shift, USACE-GRD engaged more directly in reconstruction 

contracting, as opposed to a previous role that was largely confined to project management and 

quality assurance. According to USACE-GRD, the current reconstruction program relies almost 

exclusively on direct, fixed-price contracts using full and open competition. GRD notes that in 

September 2007, about 90% of its construction contracts were awarded to Iraqi firms. As new 

construction requirements arise, awards can be made by GRD, the JCC–I/A, or other USACE 

contracting offices. 

Numbers and Types of Projects 

Of GRD’s funding for reconstruction projects, about 40% has been directed toward the 

electricity sector for projects involving generation, transmission, and distribution. GRD’s

Reconstruction Snapshot as of September 29, 2007 reported 3,641 projects completed and 

summarized projects by sector: 

Electricity 

• A total of 581 planned projects, 424 completed with 113 ongoing 

• Of the 1,983 megawatts planned, 1,520 megawatts had been added and restored, 

increasing electrical capacity to serve 1.3 million households. 

• Electrical transmission grid strengthened and stabilized through the completion of 26 

132/400 kilovolt substations and one overhead-line project. 

• Construction of 68 33/11 kilovolt substations completed. 

6
Oil 

• A total of 102 projects were planned, 76 completed, and 14 ongoing. 

• Production-capacity goals for natural gas and liquefied petroleum gas had been met. 

Water 

• A total of 883 projects planned, 667 completed, and 165 ongoing. 

• Of those, 581 were water treatment and sewage projects, with 462 completed and 105 

on-going. 

• Of the 1.1 million cubic meters per day of potable water planned, 537,000 cubic 

meters per day of water treatment capacity had been achieved, with the remaining 

capacity under construction. 

Facilities 

• A total of 2,785 projects were planned, with 2,474 completed and 224 ongoing. 

Transportation and Communication

• 1,032 village road projects completed. An additional 88 village road projects were 

ongoing. 

• 100 railroad-renovation projects completed. 

• 15 of 25 aviation projects, affecting three airports, completed. 

• 8 port projects completed. 

Health and Education

• 63 Primary Healthcare Centers turned over to the Iraq Minister of Health, with 57 

projects ongoing. 

• Of 26 hospital-renovation projects planned, 16 completed and 10 ongoing. 

• Renovation or construction of 1,004 schools completed. 

Security and Justice

• Construction of 155 border forts and 10 point-of-entry facilities completed (includes 

MNSTC-I projects). 

• Renovation of 97 fire stations completed. 

• Work on 40 courthouses completed, with 10 others ongoing. 

• Construction/rehabilitation of five correctional facilities—to provide 8,000 beds and

improve conditions in the facilities—in progress. 

7
Basis for and Amount of Fees 

When GRD was being established, USACE proposed, and the Principal Deputy, Office of the 

Secretary of Defense, Comptroller approved, charging for GRD construction management 

services on an actual-cost basis and using target rates for budgeting purposes; each project was to 

be charged the same flat rate, with the rate adjusted periodically to match actual costs incurred. 

Except for those relating to security, GRD planned to recover all construction management costs 

incurred by its Districts. USACE recognized that security-related costs would be additional and 

need to be funded from other sources. Also, recognizing that receipts from established rates and 

actual costs would not always be equal, USACE anticipated recovering actual costs by increasing 

or reducing rates according to the actual costs. However, under the USACE business model, 

costs were not charged against individual projects, but are charged against program accounts. 

For that reason, there is no basis for readily determining costs incurred on specific projects. 

The rate structure used for Iraq reconstruction projects was based on traditional USACE rates 

used for military construction and operation and maintenance projects outside the continental 

United States. GRD charged a fee of fee of 4% of construction placement if it did not award and 

administer the contract, but provided supervision, inspection and overhead (SIOH). If GRD 

awarded and administered the contract and provided the full range of project management and 

contract supervision and administrative (S&A) services, it usually charged a fee of 6.5% of 

construction placement. However, for Commanders Emergency Response Program (CERP) 

projects, GRD charged its Operation & Maintenance (O&M) fee of 9.2% instead of the 6.5% fee. 

USACE used its 9.2% fee because it views CERP projects as smaller than reconstruction projects 

and more like O&M projects. 

If contract management or administrative services for reconstruction projects were not provided 

by GRD’s Districts, but by GRD Headquarters or JCC-I/A, the costs were paid from Global War 

on Terrorism (GWOT)3

 funds and not recovered through fees. For example, USACE planned to 

recover actual costs when GRD Districts provided planning and design for a project and to 

budget the planning and design at about 3%. However, USACE and GRD officials stated that 

most planning and design work was done not by the Districts but by its Headquarters, with the 

costs paid from GWOT funds. USACE and GRD officials said that in addition to planning and 

design, GRD Headquarters was involved in other aspects of managing and administering 

reconstruction projects. For these projects, costs were paid with GWOT funds, not from charged 

fees. 

USACE did not have data on the amount of construction and/or GWOT funds involved in these 

GRD Headquarters projects. Officials stated that this was not the traditional USACE model for 

division/district operations, but was based on the PCO business processes in place before 

construction management was transferred to GRD. They added that efforts had been made to 

move all project related efforts from Headquarters to its Districts and to recover costs through 

charged fees and that by June 2007 virtually all project activities were moved to the Districts. 

 

3

 GWOT includes various military, political, legal, and personnel actions taken to curb the spread of terrorism. 

Funds were appropriated primarily to support military operations and maintenance, procurement, construction, and 

military personnel. 

8
USACE charged actual costs for services on projects that did not directly support U. S. forces, 

such as those involving other U. S. government agencies. For example, GRD charged USAID 

for actual costs for oversight and assistance on an Iraq reconstruction contract with Bechtel. At 

the end of the contract, in February 2007, total costs reported were $1.33 billion, and physical 

construction costs were about $700 million; GRD was paid about $24 million for construction 

quality assurance, or about 3.4% of physical construction costs. 

As shown in Table 1, a major portion of GRD’s fees were for its supervision, inspection, and 

overhead services charged at the 4% rate. The FY 2007 amounts for construction placement and 

fees include obligations at the end of the fiscal year. 

Table 1: GRD Construction Placement and Fees Charged by Fiscal Year 

as of September 30, 2007 (dollars in millions) 

2004 2005 2006 2007 Total

Construction Placement $479.5 $2,021.0 $1,772.8 $2,020.7 $6,294.0

Fees (including “at cost” income) 

 Planning & Design (At Cost) 6.7 6.4 34.8 22.8 70.7

 Supervision & Administration (6.5%) 0 32.1 19.9 30.0 82.0

 Supervision & Administration (9.2%) 0 0 0.7 19.8 20.5

 Supervision, Inspection & Overhead (4%) 4.0 53.2 54.2 50.8 162.2

 Other than U.S. Forces (At Cost) 9.0 11.7 8.0 54.0 82.7

Totals Fees $19.7 $103.4 $117.6 $177.4 $418.1

Source: SIGIR table compiled from USACE-provided data. 

Note: Numbers may not add due to rounding.

While GRD’s fees have not been revised since their establishment in 2004, some security and 

life support costs that were initially being charged against construction projects are now being 

centrally funded by U. S. Army Operation and Maintenance (O&M) appropriations. GRD 

officials did not intend the fees to cover project-related security charges for its District offices. 

USACE initially planned that U. S. Army Central Command (CENTCOM) would provide 

security for all GRD operations. 

However, in FY2004 and FY2005, only GRD Headquarters’ security costs were centrally paid, 

with the security costs at the Districts being charged against construction projects. Then, in June 

2004, when the Department of Army advised that security costs for the Districts must be paid 

from project funds, a policy decision was made to establish a security surcharge rate of 9% 

beginning in October 2004. However, the surcharge was implemented for only a short period, 

and a deficit was incurred through the end of FY 2005. The PCO provided funds to eliminate the 

deficit for security and life support, and subsequently, all such costs have been paid by 

9
CENTCOM. For GRD projects, therefore, neither fees nor total construction cost includes the 

expenditures for security and life support.

Table 2 shows the amounts and types of GRD costs incurred—as of September 30, 2007—on 

reconstruction projects and charged against the 4% SIOH fee and 6.5% S&A fee. The costs 

covered under these two fee categories are provided to illustrate the amounts and types of GRD 

costs. As can be seen in the table, the bulk of these costs were for services provided by private 

contractors and for employee salaries and benefits. The costs do not include salaries and benefits 

for military personnel, which are paid from military personnel appropriations and not recovered 

by fees. USACE officials report that GRD’s income from these two fees, as of September 2007, 

exceeded costs by about $25 million. However, the officials note that reconstruction projects are 

not finished, and that GRD will incur additional costs. If funds remain, USACE will use the 

balance to pay audit, and contract and program close-out costs. 

Table 2: GRD’s Project Management and Administrative Costs for 

Selected Fees as of September 30, 2007 (dollars in thousands) 

2004 2005 2006 2007 Total

SIOH (4%) 

 Labor/Salaries $2,056 $17,262 $10,374 $7,516 $37,208

 Employee Benefits 381 3,197 1,842 1,472 6,892

 Overhead (includes travel & training) 503 4,223 2 4,376 9,104

 Private-Sector Construction Services 3,950 33,168 26,478 7,897 71,493

Total SIOH Costs $6,890 $57,850 $38,696 $21,261 $124,697

S&A (6.5%) 

 Labor/Salaries 32 7,792 5,728 6,311 19,863

 Employee Benefits 6 1,461 1,027 1,231 3,725

 Overhead (includes travel & training) 20 4,838 4,077 3,399 12,334

 Private-Sector Construction Services 37 9,134 5,582 8,531 23,284

Total S&A Costs $95 $23,225 $16,414 $19,472 $59,206

Source: SIGIR table compiled from USACE-provided data. 

Note: Numbers may not add due to rounding.

AFCEE 

After receiving a requirement for Iraq’s reconstruction, AFCEE provided contract and project 

management services by using government and contractor personnel. All contracting actions 

were conducted from its Texas headquarters. AFCEE lists 18 contracting services that it 

10
provides, including releasing requests for and receiving proposals, conducting negotiations, 

making awards, and managing day-to-day oversight of task orders. 

AFCEE’s business model for managing its Iraq projects was initially set forth in a November 

2005 draft concept of operations that was finalized in January 2007. The concept provides for 

using task orders that involve cost-plus fixed-fee awards, to allow greater flexibility in 

accomplishing the scope of the work on schedule and to avoid work stoppages to renegotiate the 

orders. AFCEE officials reported that construction contracts and task orders are awarded to 

companies that subcontract predominantly to Iraqi firms, which in turn employ local workers. 

AFCEE reports that for its Iraq contracts, 90% of the construction labor and 72% of the 

construction management labor was provided by Iraqis. 

AFCEE’s business model also uses its Conceptual Work Plan (CWP)/Implementation Work Plan 

(IWP) approach to streamline the start of work by allowing the modification and updating of 

construction plans as revisions are approved. Under AFCEE’s approach, a contractor, upon 

receiving notice to proceed, initiates planning activities, site preparation, and subcontracting 

activities as part of developing the CWP. The latter is to include simple diagrams and 

preliminary schedules laying out how the work will be accomplished. After CWP approval, the 

contractor begins construction and transitions into the IWP. 

AFCEE describes the IWP as a living document that is modified and updated as needed to reflect 

changes in project-completion requirements. The work plans are to provide sufficient details to 

enable the customer to determine the acceptability of the construction product and to facilitate 

local subcontractor bids and construction. AFCEE states that this business model requires 

customer teamwork to provide for faster delivery while maintaining quality and providing 

flexibility. 

Numbers and Types of Projects 

Initially, AFCEE’s role in the reconstructions of Iraq was to meet an urgent CPA reconstruction 

requirement—estimated at $238.6 million—for the New Iraqi Army. In January 2004, AFCEE 

made the first four awards, valued at $191 million, for the reconstruction of facilities. The next 

group of eight task orders, valued at $247.8 million, also for reconstruction of facilities, was 

awarded in March and April. However, in May, AFCEE began awarding task orders for 

reconstruction of schools, government office buildings, and other projects beyond the scope of 

the original requirement. A prior SIGIR report4

 addressed this expanded scope and 

recommended that an agreement be made to clarify the extent and nature of AFCEE’s support. 

In June 2005, AFCEE signed a Memorandum of Agreement (MOA) with MNSTC-I to detail 

their respective contract responsibilities. 

From the initial four task orders in January 2004 through September 2007, AFCEE has awarded 

a total of 245 task orders for 590 projects and obligated over $4.0 billion for reconstruction. It 

reports that 125 of the task orders, for 348 projects costing about $2.2 billion, have been 

completed. In addition, 33 task orders and modifications for $301 million are identified as 

pending. AFCEE summarizes its construction accomplishments as 4,217 facilities totaling over 

60 million square feet. The construction includes 

 

4

 SIGIR 04-004, Task Orders Awarded by the Air Force Center For Environmental Excellence, July 28, 2004 

11
• barracks, dinning halls, offices, etc., 

• schools (457 repaired), 

• medical facilities (11 clinics), 

• a ministry building, 

• airports (3 repaired and expanded), 

• roads (534 miles), 

• fence (174 miles), 

• water and sewer lines (179 miles), 

• border forts (14), and 

• police stations (230). 

Basis for and Amount of Fees 

In December 2003, when CPA requested AFCEE to use its competitively awarded contracts, it 

transferred $2 million to cover AFCEE’s initial costs. Later, an additional $500,000 was 

transferred. However, no agreement existed as to the financial arrangements or the basis for 

reimbursement. When it became apparent that AFCEE involvement in Iraq reconstruction would 

continue for a number of years, AFCEE officials recognized the need to establish a set fee to 

cover their incremental costs. The June 2005 MOA that AFCEE signed with MNSTC-I provided 

for “reimbursable orders at an adjustable percentage rate (FY 05 rate is 1.5%; herein referred to 

as “fee”) of the total program contracted for MNSTC-I.” 

The fee of 1.5% was established to cover expected incremental expenses that AFCEE projected 

based on the volume of work to be contracted. From early 2005 until April 2006, each purchase 

request included this fee as part of the project. However, due to the growth in number of projects 

and the need to lessen administrative burdens, the fee structure changed from a percentage of 

each project to a percentage of the entire program. In April 2006, MNSTC-I began sending fees 

as a lump sum covering the expected volume of the annual obligation. 

The initial AFCEE construction task orders—issued from January 2004 to September 2004—did 

not include costs for quality assurance, which was being done by GRD. In October 2004, as the 

number of both AFCEE and GRD projects increased, AFCEE turned to Versar, a private 

company, to provide the needed quality assurance oversight. According to AFCEE, GRD had 

been responsible for quality assurance on the first 29 task orders, valued at about $655 million, 

and Versar assumed responsible for quality assurances on the subsequent 16 task orders. As a 

result of this transition, quality assurance oversight became the largest single cost paid from the 

AFCEE fee. Of its 1.5% fee, AFCEE officials reported that about two thirds, or 1%, was for 

quality assurance oversight. 

As the number of construction sites increased, the need for additional quality assurance 

inspectors forced an increase in AFCEE’s fee to 2.5%. Subsequently, in May 2007, AFCEE’s 

agreement with MNSTC-I was revised to eliminate the percentage fee and provide for full 

recovery of all incremental costs. AFCEE data shows that the fee for FY 2007 was 3.1% and 

12
officials estimated the fee for FY 2008 could be between 3% and 4% of project amounts, 

depending on the size of the reconstruction program and costs incurred. They further pointed out 

that the fees being collected would not meet out-year funding needs. They stated that even if 

task orders were not issued after the fall of 2007, construction and warranty oversight costs could 

extend through 2009 and contract closeout costs through 2012. Therefore, AFCEE officials 

acknowledge that funds will be needed from MNSTC-I in future years to meet these costs. 

Table 3 shows by fiscal year, as of September 30, 2007, the amounts AFCEE obligated for 

construction and for management and administrative costs. AFCEE officials reported that some 

of the funds, as shown by the table, were unobligated as of September 30, 2007, and available for 

FY 2008 costs. Except for these funds, AFCEE costs incurred and fee charged are the same. 

AFCEE’s management and administrative costs include those (1) initially paid by AFCEE but 

then reimbursed—civilian pay, travel, contracts, supplies, and (2) directly paid from funds 

transferred to AFCEE—quality assurance and technical assistance. AFCEE’s fee does not 

recover security and life support costs. These costs are included in the contractor’s costs. 

Table 3: AFCEE’s Construction Obligations and Costs and Fees by Fiscal 

Year as of September 30, 2007 (dollars in thousands) 

FY 2004 FY 2005 FY 2006 FY 2007 Total

Construction Obligations $530,584 $1,111,051 $1,345,532 $1,035,625 $4,022,791

Costs 

 Civilian Pay 547 1,460 1,928 2,782 6,716

 Travel 76 190 290 351 906

 Contracts 1,737 164 19 52 1,972

 Supply/Miscellaneous. 25 9 21 138 194

 Title II (Quality Assurance) 0 5,162 19,351 57,917 82,430

 GEITA (Technical Assistance) 0 3,433 6,637 11,624 21,693

 Miscellaneous 0 17 20 0 37

Total Costs $2,385 $10,435 $28,265 $72,863 $113,948

 Funds available for FY 2008 0 0 0 0 2,744

Total Fees $2,385 $10,435 $28,265 $72,863 $116,692

Source: SIGIR table compiled from AFCEE-provided data. 

Note: Numbers may not add due to rounding.

13
DoD Has Not Assessed the Differences 

SIGIR found that no analysis had been made by the Office of the Secretary of Defense to 

determine (1) the merits of the differing business models, approaches, and practices employed by 

USACE-GRD and AFCEE and (2) the circumstances under which one or the other might most 

effectively be employed to ensure the most efficient, expeditious, and cost-effect approaches and 

practices in meeting reconstruction needs. Both USACE-GRD and AFCEE have made limited 

comparisons highlighting the benefits of their approaches. But these comparisons, for the most 

part, were based on generalizations rather that specific analysis, and SIGIR found each of them 

to be incomplete. The Under Secretary of Defense, Acquisition, Technology and Logistics 

(USD, AT&L) is responsible for monitoring the execution of the military construction program 

to include emergency, contingency, and other un-programmed construction projects, in order to 

ensure the most efficient, expeditious, and cost-effective accomplishment of the construction 

program. A more thorough analysis at the Office of the Secretary of Defense level could provide 

the basis for enhanced policy guidance to facilitate decisions concerning the use of the 

organizations and their approaches. 

Over the past two years, both USACE and AFCEE have compared the two agencies’ specific 

reconstruction-management approaches and practices and have attempted to highlight their 

respective benefits. In January 2006, in response to a request from the Office of Security 

Cooperation-Afghanistan, USACE prepared a briefing document that compared engineering 

options available from USACE and AFCEE for project development and execution in 

Afghanistan. SIGIR found that the document contained limited detailed data and, for the most 

part, presented generalizations rather than specifics developed through detailed analysis. 

Subsequently, an AFCEE official prepared briefing points intended to show that AFCEE’s 

project development and execution capabilities were better suited for reconstruction projects than 

those of USACE. The briefing points depicted AFCEE as being able to provide as full a range of 

services and capabilities as USACE while achieving faster project execution, higher-quality 

contractor performance, and lower management and contractor costs. However, AFCEE lacked 

analytical data to substantiate its briefing points and conclusions. Furthermore, during SIGIR’s 

review, AFCEE officials stated that these points did not represent the official AFCEE position. 

USACE responded in March 2006 that the AFCEE comparison contained “substantive 

inaccuracies and misleading characterizations regarding USACE capabilities and practices.” 

USACE’s briefing listed the AFCEE points, but went on to present additional information that 

tended to emphasize USACE capabilities, approach, and performance and counter those of 

AFCEE. The USACE briefing clarified some information presented by AFCEE; however, 

SIGIR found that it also contained unsubstantiated claims and did not fully resolve questions 

related to differences in approaches, services, and fees. For example, data and analysis were not 

available to support the claim that “USACE costs are competitive or lower when considering the 

full cost of management and execution, placing less of a burden on the customer.” 

Both GRD’s and AFCEE’s comparisons provided limited details on a comparative basis 

regarding business models, services provided, and fees charged. Therefore, based on available 

information, SIGIR compiled Table 4 to summarize the services provided by GRD and AFCEE 

for their reconstruction projects in Iraq and the related fees charged and costs recovered. 

14
Table 4 – GRD and AFCEE Services Provided for Iraq Reconstruction Projects 

Services GRD AFCEE 

Not provided directly by AFCEE, but it 

does assist the customer with project 

planning and requirements definition. 

Project design is accomplished as part 

of its CWP/IWP process, and project 

design costs are included in contract 

costs. 

Project Planning and 

Design 

Done by GRD Districts with costs 

budgeted at about 3%, but actual costs 

recovered, or

Done by GRD Headquarters with actual 

costs paid from GWOT funds or 

performed by contractor in design-build 

contracts, with the costs included in 

overall contract costs. These costs are 

not included in GRD fees. 

Procurement Done by GRD Districts with costs 

recovered by fees of 6.5% or 9.2%, or

Done by GRD Headquarters or JCC-I/A 

with GWOT funds. These costs not 

included in GRD fees. 

Two-step procurement with IDIQ 

contracts and task orders. AFCEE’s 

fees did not recover the costs of 

awarding the IDIQ contracts because 

they were awarded in support of other 

requirements. AFCEE’S fees did 

recover the costs of awarding 

applicable task orders. 

Project Management Done by GRD Districts and costs 

recovered by fees of 6.5% or 9.2% after 

a GRD District or JCC-I/A provides 

contracting and procurement services, 

or 

Some program/project management 

done by GRD Headquarters with 

GWOT funds. These costs not included 

in GRD fees. 

Done by AFCEE and included in 

collected fees. Some project 

management costs were included in 

contract costs because, under 

AFCEE’s processes, design and 

construction are completed 

concurrently as projects advance. 

Project Supervision 

and Administration 

Done by GRD Districts and costs 

recovered by fees of 6.5% or 9.2% if full 

contract supervision and administrative 

services provided or by 4% fee if only 

supervision, inspection, and overhead 

provided, or

Some program/project management 

done by GRD Headquarters with 

GWOT funds. These costs not included 

in GRD fees. 

Under AFCEE’s first task orders, 

quality assurance was provided by 

GRD and charged separately at 4% to 

the customer. When AFCEE initially 

established its 1.5% fee, the fee 

recovered its quality assurance 

contractors’ costs of about 1%. Later, 

AFCEE increased its fee to recover the 

costs of additional quality assurance 

inspectors. In FY 2007 AFCEE 

charged 3.1% to cover all its costs. 

Post–Construction, 

including Closeout 

and Claims 

Adjudication 

Done by GRD when full contract 

management provided and the 6.5% or 

9.2% fee charged; but not done by GRD 

when only the 4% construction 

management fee charged. However, 

warranty costs are recovered under all 

GRD fees. 

Done by AFCEE. If incurred to date, 

these costs recovered by AFCEE’s 

fees. To the extent that such costs will 

be incurred in the future, they will be 

covered by future-year fees. 

Source: SIGIR table compiled from data provided by USACE-GRD and AFCEE. 

15
While Table 4 provides a comparison between GRD and AFCEE approaches, services, and fees, 

a more comprehensive and complete side-by-side comparison is difficult. Also, differences 

between the two models and approaches could depend on the facts and circumstances for any 

given reconstruction project and its accompanying requirements. Furthermore, neither USACEGRD nor AFCEE has readily available data that would permit a balanced and thorough 

assessment of the business practices, benefits, and costs of their management and administration 

of reconstruction contracts. Accordingly, SIGIR’s audit results do not provide the in-depth 

comparative analysis needed to identify lessons learned and address other issues related to 

business models, services, fees, cost recovery, business models, etc. While SIGIR’s audit results 

provide a foundation for such an analysis, a separate and more substantial effort is needed. 

Based on DoD Directive 4270.5, the responsibility for a comparative analysis of USACE-GRD 

and AFCEE could lie with the Under Secretary of Defense, Acquisition, Technology and 

Logistics (USD, AT&L). Under the Directive, USD, AT&L responsibilities include (1) general 

oversight over the military construction program and (2) ensuring that the Deputy Under 

Secretary of Defense, Installation and Environment (DUSD, I&E) monitors the execution of the 

military construction program to ensure the most efficient, expeditious, and cost-effective 

accomplishment of the program by DoD construction agents. Although the reconstruction in 

question is not military construction, the Directive also applies to DoD emergency, contingency, 

and other un-programmed construction projects. 

The lack of more detailed information regarding services and fees, as well as the need for a 

more-substantive comparative analysis, was discussed with DUSD, I&E officials and an Under 

Secretary of Defense for Policy official. DUSD, I&E officials said that a SIGIR report and 

potential recommendations on these matters would be of interest to several groups, but that the 

level of interest would depend on whether the report’s emphasis was on Iraq reconstruction or 

the broader military-construction program. If focused primarily on reconstruction in Iraq, they 

stated that the Joint Staff would have a vested interest in the report recommendations. From the 

broader policy perspective of military construction, according to DUSD, I&E officials, both their 

office and the Office of the Secretary of Defense, Program Analysis and Evaluation would have 

a vested interest. The officials believed that, in either case, the Military Departments would have 

a vested interest and should be included. The Under Secretary of Defense for Policy official 

stated that, in his view, the issues extended beyond Iraq reconstruction and included the overall 

business models of USACE-GRD and AFCEE. 

SIGIR’s work specifically addressed only the Iraq reconstruction effort. However, issues that 

surfaced, such as differences in business models, basis for fees, and accounting and reporting 

issues, extend to military construction in general. A comparative analysis, involving many 

different offices within DoD, could address reconstruction efforts specifically and the broader 

perspective of military construction in general. 

16
Conclusion and Recommendation 

Conclusion 

Both USACE-GRD and AFCEE are providing contract management and administrative services, 

and DoD needs to ensure that each organization is (1) being used to its best advantage, (2) 

charging fees that are appropriate for the services provided, and (3) recovering all costs that are 

appropriately included in fees. In addition, USACE and AFCEE play different roles within DoD 

and apply different business models in support of their respective missions. SIGIR believes that 

“best practices” can be identified and used by the DoD civil engineering community. Identifying 

these best practices could promote further cost efficiencies and process improvements. While 

costs and fees are an important point in a comparative analysis, other key points of comparison 

could include: 

• Services Needed—complexity and extent of design and engineering services 

• Speed of Execution—time required to award contracts and complete construction 

• Contractor Performance—incentives and other means used to reward high-quality 

performance 

• Management Costs—fees and other costs in awarding and managing projects 

• Contractor Costs—portion of contract cost that goes to construction versus security, 

overhead, etc. 

• Legal Analysis—laws and regulations that impede or limit efficient and effective 

performance. 

A comparative analysis also could consider whether a managed degree of competition between 

USACE and AFCEE—organizations with different business models, fees, and approaches for 

reconstruction efforts—would be beneficial. While both of these government organizations are 

expected to strive to execute work in a cost effective manner, competition serves as an effective 

incentive to improve performance and reduce costs. 

Recommendation 

Because of the potential for involvement and interest of several organizations within DoD and 

the military departments, SIGIR recommends that the Secretary of Defense direct a thorough and 

detailed comparative analysis of the construction administrative and management services 

provided by USACE-GRD and AFCEE. The analysis should examine the business models used, 

types of services provided and means by which they are provided, the fees charged and means by 

which costs are recovered and accounted for, and the elements of costs that are being recovered. 

Management Comments and Audit Response 

The Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics and 

USACE-GRD provided written comments on a draft of this report, and AFCEE provided 

informal comments. The comments are included at the end of this report. The Office of the 

17
Under Secretary of Defense stated that the SIGIR effort justified further study of how best to 

meet reconstruction and contingency construction requirements and that a “best practice “ 

approach will be referred for action to the Tri-Service Engineer Board. The Office nonconcurred with the overall report, suggesting it lacked a comparative analysis to support the 

report’s recommendation. Also, in response to a SIGIR conclusion that an analysis could 

consider whether a managed degree of competition would be beneficial, DoD responded that its 

policy does not consider competitive mechanisms within a contingency contracting environment 

to be desirable. It also expressed concern that the recommendation is not limited to Iraq 

reconstruction. SIGIR reported that a full comparative analysis was not done, but, as recognized 

by DoD, believes the work completed and the issues identified justified a recommendation for 

further DoD analysis. Also, SIGIR agrees that the DoD policy does not provide for managed 

competition by construction agents. However, the USACE-GRD and AFCEE comparisons 

discussed in this report show that some competition occurred and SIGIR believes that further 

analysis should consider how best to manage and benefit from this. Finally, SIGIR work was 

based on contracting in Iraq; however, its recommendation was not limited specifically to Iraq 

because the relevant issues, including USACE-GRD’s and AFCEE’s business models, basis for 

fees, and accounting and reporting, extend beyond Iraq reconstruction. 

USACE-GRD’s comments, for the most part, included (1) suggestions for technical changes to 

SIGIR’s comparison of USACE-GRD’s and AFCEE fees and costs for services, and (2) concerns 

as to the need for or benefits of USACE and AFCEE competition. SIGIR considered these 

comments in preparing this final report and made changes as we considered appropriate. 

USACE-GRD commented that services provided under its 6.5% fee and those provided by 

AFCEE under its fee—originally 1.5%, but subsequently increased to just over 3%—are not 

comparable. SIGIR recognizes that there is little comparability and transparency in the total 

services provided and fees charged by the two organizations, but it also found that the basic 

services provided by USACE-GRD and AFCEE under these fees are similar and include project 

management, contract administration, fiscal and administrative management, and quality 

assurance. Furthermore, our report discusses differences in the services and fees. USACE-GRD 

also states that its collected fees include all costs. Again, SIGIR found that USACE-GRD fees 

did not include all costs. As discussed in the report, GRD Headquarters costs or JCC-I/A costs 

related to some GRD reconstruction projects are paid from GWOT funds, not from GRD fees. 

Also, GRD’s fees do not recover expenditures by GRD Districts for security and life support 

costs related to reconstruction projects. These USACE-GRD comments further illustrate the 

need for the comparative analysis recommended by SIGIR. 

AFCEE, in informal comments, generally concurred with the report. 

18
Appendix A—Scope and Methodology 

The SIGIR reporting objective was to (1) compare and contrast GRD and AFCEE management 

and administration of Iraq reconstruction projects, including the services provided and fees 

charged, and (2) determine the extent to which DoD has assessed the efficiency and cost 

effectiveness of these activities. 

The audit was performed in accordance with generally accepted government auditing standards, 

with the primary auditing conducted between July and October 2007. The work was done at 

DoD and USACE offices in the Washington, DC, area and at the AFCEE office in Texas. In 

addition, data was obtained from USACE offices in Virginia and Tennessee and from U.S. 

government officials in Baghdad. 

To perform this audit, we used data from various databases, including the USACE Financial 

Management System and the AFCEE financial reporting and project tracking system. We did 

not test the general or application controls of these systems or perform detailed audit work on 

them. However, we believe the data were sufficiently reliable for the purposes of this report. 

SIGIR had discussions with USACE and AFCEE officials to identify the policies and procedures 

in place related to the management and administration of Iraq reconstruction projects. We 

reviewed numerous USACE and AFCEE documents, including historical construction studies, 

briefings, and audits; construction policies, procedures, and directives; construction progress 

reports; project and financial documents; internal correspondence; and congressional testimony. 

SIGIR obtained Memoranda of Agreements and other documents that described the relationships 

and responsibilities of USACE-GRD and AFCEE and the organizations to which they provided 

services. Also, the organizations and structure used for management and administration of Iraq 

reconstruction contracts were identified. To the extent data were available, SIGIR identified the 

number of personnel and contractors used in managing and administering the projects. SIGIR 

also obtained and analyzed other available data that discuss the approaches and methods used by 

GRD and AFCEE on Iraq reconstruction projects. 

To determine the processes that GRD and AFCEE use in establishing fees for management and 

administration services, SIGIR reviewed documents and held discussions with officials. We also 

reviewed financial reports and other relevant data to identify the number of reconstruction 

projects managed and administered by GRD and AFCEE, as well as the fees collected for these 

services. Additional data were obtained where required. 

SIGIR discussed with USD, AT&L officials, and others in the Office of the Secretary of 

Defense, the provisions of DoD Directive 4270.5 with regard to oversight and monitoring of 

construction programs. The views of these officials were also sought on the need for a 

comparative analysis of USACE-GRD and AFCEE and the appropriate DoD organization to 

direct or lead such an effort. 

19
Scope Limitation 

In planning for this audit, one segment of work considered was selecting a sample of 

“comparable” USACE-GRD and AFCEE projects to be used in analyzing and assessing the 

organizations’ business models, services provided, and fees charged. However, these 

organizations have administered and managed a diversity of construction projects throughout 

Iraq–each with its own set of requirements, fees, customers, time periods, size, location, use of 

U.S. military and Iraqi personnel, security considerations, and other unique conditions. SIGIR 

therefore concluded that (1) identifying truly comparable projects would be difficult, if not 

impossible and (2) needed data did not exist to accurately compare the quality of the services 

provided, work performed, costs incurred, and results achieved. As a result, SIGIR neither 

selected a sample of projects for a comparative analysis nor performed audit work related to the 

quality, timeliness, and cost of individual projects. 

Prior Coverage 

We reviewed applicable reports issued by SIGIR. 

• Task Orders Awarded by the Air Force Center for Environmental Excellence in 

Support of the Coalition Provisional Authority (SIGIR-04-004, July 28, 2004) 

• Iraq Reconstruction: Lessons in Contracting and Procurement (SIGIR Report Number 

2, July 2006) 

• Policies and Procedures Used for Iraq Relief and Reconstruction Fund Project 

Management-Construction Quality Assurance (SIGIR-05-012, July 22, 2005) 

20
Appendix B—Acronyms 

AFCEE Air Force Center for Engineering and the Environment 

CERP Commanders Emergency Response Program 

CENTCOM U.S. Army Central Command 

CPA Coalition Provisional Authority 

CWP/IWP Conceptual Work Plan/Implementation Work Plan 

DoD Department of Defense 

DUSD, I&E Deputy Under Secretary of Defense, Installation and Environment 

GEITA Global Engineering, Integration, and Technical Assistance 

GWOT Global War on Terrorism 

GRD Gulf Region Division 

HERC Heavy Engineering Repair and Construction 

IDIQ Indefinite Delivery, Indefinite Quantity 

JCC-I/A Joint Contracting Command-Iraq/Afghanistan 

MOA Memorandum of Agreement 

MNF-I Multi-National Force-Iraq 

MNSTC-I Multi-National Security Transition Command-Iraq 

O&M Operation and Maintenance 

PCO Project and Contracting Office 

PMO Program Management Office 

SIGIR Special Inspector General for Iraq Reconstruction 

SIOH Supervision, inspection, and overhead 

S&A Supervision and administration 

USAID U.S. Agency for International Development 

USACE U.S. Army Corps of Engineers 

USD, AT&L Under Secretary of Defense, Acquisition, Technology and Logistics 

WERC Worldwide Environmental Restoration and Construction 

21
Appendix C—Audit Team Members 

This report was prepared and the review was conducted under the direction of David Warren, 

Assistant Inspector General for Audit, Office of the Special Inspector General for Iraq 

Reconstruction. The staff members who contributed to the report include: 

David Childress 

George Salvatierra 

Chuck Thompson 

Roger M. Williams 

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Management Comments 

Office of the Under Secretary of Defense 

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Management Comments 

USACE-GRD 

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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 Hillel Weinberg 

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: hillel.weinberg@sigir.mil

Public Affairs Kristine Belisle 

Director 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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