OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

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400 Army Navy Drive • Arlington, Virginia 22202

 

SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

 

 July 24, 2007 

 

MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ 

DIRECTOR, IRAQ TRANSITION ASSISTANCE OFFICE 

MISSION DIRECTOR-IRAQ, U.S. AGENCY FOR INTERNATIONAL 

DEVELOPMENT 

SUBJECT: Review of Bechtel’s Spending under Its Phase II Iraq Reconstruction 

 Contract (SIGIR-07-009) 

We are providing this audit report for your information and use. This audit is a first in a 

series of focused financial reviews of the Iraq Relief and Reconstruction Fund (IRRF). 

Our intent is to perform individual contract reviews of the larger contractors and, at the 

end of the series, identify lessons learned and any leading practices for future reference. 

This audit specifically sought to identify the costs incurred and the results of the work 

performed by Bechtel that was funded by the IRRF under the direction of the U.S. 

Agency for International Development. We also identified the methods used to record 

and report associated costs. 

This report identifies lessons learned but does not contain any recommendations. We 

considered technical comments received from the U.S. Agency for International 

Development and the Iraq Transition Assistance Office on the draft of this report when 

preparing the final report. Written responses received are 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. James Pollard (james.pollard@iraq.centcom.mil or 703-343-

7923) in Baghdad, Iraq; or Mr. Glenn Furbish (glenn.furbish@sigir.mil or 703-428-1058) 

in Arlington, Virginia. For the report distribution, see Appendix E. 

Stuart W. Bowen, Jr. 

 Special Inspector General for Iraq Reconstruction 

cc: See Distribution 
Table of Contents 

Executive Summary i 

Introduction 1 

Contractual Arrangement Between USAID and Bechtel 6 

Contract Administration 13 

Bechtel's Costs 18 

USAID Costs in Managing Bechtel’s Work 27

Conclusion and Lessons Learned 28 

Appendices 

A. Scope and Methodology 31 

B. Job Order Summaries 36 

C. Sample Invoice Form 65 

D. Acronyms 66 

E. Report Distribution 67 

F. Audit Team Members 69 

 

Management Technical Comments 

U.S. Agency for International Development 70 

Iraq Transition Assistance Office 79 
i 

Review of Bechtel’s Spending under Its Phase II 

Iraq Reconstruction Contract 

SIGIR-07-009 July 24, 2007

Executive Summary

Introduction 

One of the principal U.S. government agencies involved in Iraq reconstruction is the U.S. 

Agency for International Development (USAID), which received $4.6 billion of the funds 

that the Congress appropriated for Iraq relief and reconstruction. Under its Iraq 

Infrastructure Reconstruction Program, USAID awarded two successive Iraq 

reconstruction contracts—referred to as Phase I and Phase II—to Bechtel National, Inc. 

(Bechtel). The Phase I contract (EEE-C-00-03-00018-00) was designed to repair, 

rehabilitate, or rebuild vital elements of Iraq’s infrastructure. This contract was funded 

with part of the $2.5 billion that the Congress appropriated in the Emergency Wartime 

Supplemental Appropriations Act, Public Law 108-11, which created the Iraq Relief and 

Reconstruction Fund (referred to as IRRF I) to be used for a broad range of humanitarian 

and reconstruction activities in Iraq. On April 17, 2003, the contract was awarded for 

$680 million; on September 30, 2003, it was modified and increased, to approximately 

$1.03 billion. The contract ended on February 28, 2006. 

To expand the reconstruction effort, USAID awarded to Bechtel the competitively bid 

Phase II contract (SPU-C-00-04-00001-00). This contract was funded with part of the 

$18.4 billion appropriated in the Emergency Supplemental Appropriations Act for 

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

security, relief, rehabilitation, and reconstruction of Iraq (IRRF 2). Under the cost-plus 

fixed-fee Phase II contract, Bechtel was to provide engineering, procurement, and 

construction services. To obtain technical expertise, USAID and the U.S. Army Corps of 

Engineers (USACE) signed a Participating Agency Service Agreement to have USACE 

provide construction oversight of Bechtel. 

The Phase II contract was awarded on January 5, 2004, for $1.8 billion. On March 31, 

2007, the contract ended, and the total estimated cost reported was $1.33 billion1

. This 

report focuses on the Phase II contract and the 24 job orders through which the contracted 

work was accomplished. The 24 job orders were allocated to sectors as follows: 14 in 

water and sanitation, 8 in power, 1 in telecommunications, and 1 in buildings. 

 

1

 On July 20, 2007, USAID told us that they cannot determine the final cost of the contract at this time, as 

Bechtel has not yet submitted its final invoice and the contract costs have not been audited. 
ii 

Objectives 

This is the first in a series of focused financial reviews of large contractors funded by 

IRRF. The objectives of this audit were to determine the costs that Bechtel incurred 

performing work funded by the IRRF, as well as the methods used to record and report 

associated costs. Specifically, we addressed these questions: 

• What cost detail is contained in the invoices and supporting documentation 

submitted to the government by Bechtel? 

• What costs did Bechtel incur in carrying out its contracted tasks, including cost of 

material, labor, overhead, security, subcontracts, and all other costs? 

• How many layers of subcontracts did Bechtel have in performing the contracted 

work? 

• What types of contracts (firm-fixed-price, cost-plus, or other arrangement) were 

used for subcontracts; at each layer of subcontracting, what costs were billed to 

the next level of subcontractor? 

• What were USAID’s administrative fees? 

Subsequently, in the January 30, 2007 Quarterly Report and Semiannual Report, SIGIR 

further elaborated on the objectives to include a discussion of contract outcomes, contract 

administration, and other items. For more details, see Appendix A. 

To cover all of the objectives, we organized the report into four sections: 

• the contractual arrangement between USAID and Bechtel pertaining to this 

contract and its outcomes 

• contract administration 

• Bechtel’s costs 

• USAID’s cost in managing Bechtel’s work 

Results 

Overall, the Phase II contract accomplished a substantial amount of work that contributed 

to the reconstruction of Iraq, particularly in the electricity and water and sanitation 

sectors. However, the results on individual projects were mixed: some were completed as 

originally envisioned, others were cancelled, and still others were partially completed and 

were transferred to other organizations for completion. 

We analyzed the 24 job orders to determine if the original objectives were achieved, and 

determined that: 

• 11 of the job orders clearly met their original objectives. 
iii 

• 10 did not achieve their original objectives as stated in the original scope of 

work. 

• For 3 job orders, we were either unable to determine what their original 

objectives were or the achievements were unclear. 

We believe that the experience gained in the course of the Phase II contract provides 

important insights into Iraq reconstruction and lessons for future reconstruction in Iraq 

and elsewhere. 

We encountered many obstacles in trying to measure the relationship between 

requirements, cost, and output/outcomes, including these: 

• The requirements or deliverables were not always specific in the job orders. 

• The scope of work and funds available changed over time. 

• The budget estimates in the job orders did not include all costs. 

• Unanticipated delays, such as land ownership issues, delayed schedules. 

• The ever-changing security situation in Iraq caused schedule delays, resulting in 

increases to support and direct construction costs. 

We also determined that USAID and USACE staffing was considerably below authorized 

levels. As of April 5, 2006, in the middle of contract execution, USAID Mission-Iraq had 

filled only 170 of 251 total authorized positions, and USACE had filled only 18 of 37 

authorized positions to provide the agreed-on assistance to USAID. 

More specifically, USAID had only two people directly involved in the contract 

administration of the Phase II contract—the administrative contracting officer and the 

cognizant technical officer. According to USAID’s July 20, 2007 response to our draft of 

this report, others also provided contract management assistance, including U.S. 

contractors and locally engaged engineers. However, during our review, USAID officials 

also told us that contract administration was under-staffed, which limited site visits to 

corroborate conditions claimed by contractors. USAID contract administration officials in 

Iraq stated that they would have preferred to have two full-time contracting officers, 

supported by two seasoned negotiators—one for document control, one for 

administration. 

Another factor that limited USAID’s oversight was that USAID had agreed in its contract 

with Bechtel to review and pay Bechtel’s vouchers within 10 days of submittal. Based on 

our discussions with USAID comptroller officials involved in the voucher review 

process, it appeared that USAID did not perform a detailed analysis of the costs being 

incurred because of the limited time available for review. Also, under the Phase II 

contract, cost analysis was not a task specifically assigned to the administrative 

contracting officer or the cognizant technical officer. Furthermore, the task of thoroughly 

examining Bechtel’s summary cost schedules—which sometimes comprised hundreds of 

pages of documentation—would have required a significant amount of time. 
iv 

However, to balance the limited review time and staff shortage, USAID also had an 

agreement with the Defense Contract Audit Agency (DCAA) to conduct reimbursable 

cost incurred audits of Bechtel’s contract costs to determine their reasonableness, 

allowability, and allocability. DCAA audited Bechtel’s accounting system and reported 

that Bechtel had in place adequate systems and controls to accurately capture costs. As of 

March 2007, DCAA reviewed about $1 billion in Bechtel’s recorded costs incurred from 

January 5, 2004, through October 31, 2006, and questioned less than 1% of the costs 

claimed. The purpose of the DCAA incurred cost audits are to determine whether costs 

claimed are allowable, allocable, and reasonable in accordance with the contract and 

applicable government acquisition regulations. 

Bechtel’s direct physical reconstruction costs were about 59% of overall costs; as a result, 

the remainder would be support costs of about 41%. According to reporting by SIGIR 

and the U.S. Government Accountability Office (GAO), this support-cost percentage is in 

line with the support costs incurred by other major contractors—both in Iraq and in the 

United States. We determined that support costs are important to reconstruction, as are 

the direct physical reconstruction costs, because they provide the management framework 

and life support within which reconstruction occurs. However, all costs should be 

incurred in an efficient and effective manner. 

Bechtel’s contract was geared toward the use of subcontractors as indicated in its 

USAID-approved subcontracting plan, which stated that Bechtel would subcontract 

approximately 90% of the direct reconstruction costs. Of Bechtel’s subcontracts, 39% 

were awarded to Iraqi firms. We identified a total of 168 subcontracts—66 awarded by 

Bechtel and 102 awarded in turn by some of Bechtel’s subcontractors. All but two of 

these subcontracts were fixed-price contracts. Bechtel had procedures that it used to 

manage its subcontractors, but multiple layers of subcontract management made 

oversight complex, and neither USAID nor Bechtel had information on all subcontracts 

down to the lowest tier. 

USAID’s administrative costs were funded directly from IRRF, not taken from Bechtel 

contract funds. According to the agency’s accounting records, USAID has obligated 

$157 million from IRRF 2 to fund its overall administrative expenses for the entire 

USAID Mission-Iraq. USAID did not segregate its overall administrative costs by 

individual contract. Further, through November 30, 2006, USAID paid $23.5 million to 

the USACE for assistance in managing the Bechtel contract. 

Lessons Learned 

This report contains no recommendations, but we have identified three important lessons 

to be learned from the contracting, execution, and oversight of the Phase II contract for 

future reconstruction in Iraq and elsewhere. 

• Strong contract administration and adequate staffing are critical to success. In 

the Phase II contract, the clarity of job orders was mixed: some were clearly 
v 

written, and others were vague, potentially causing costs to rise. USAID had a 

relatively small contract administration staff—two full-time, in-country staff—to 

oversee a contract valued at more than $1 billion, with 24 job orders throughout 

Iraq. Bechtel provided USAID with voluminous detailed information on the status 

of work, but USAID and USACE were staffed substantially below authorized 

levels. We have previously reported in a review of one of the projects under the 

Phase II contract that although USAID had an effective process in place for 

tracking the project, the information it received was not adequately analyzed and 

reported. It is essential that agencies provide enough staff to monitor contracts 

commensurate with their size and complexity and to ensure that there is strong 

contract administration and project management. 

• A clear understanding and review of costs is also important to contract 

management. USAID contractually committed itself to processing invoices within 

10 days of receipt, which limited its ability to thoroughly review them before 

payment. Although Bechtel captured detailed cost data in its accounting system 

and provided it to USAID, there was still a large miscellaneous category, 

amounting to $250 million, categorized as Other within the largest cost category. 

Other was for subcontracts and other services. Miscellaneous or other costs 

should not be allowed to exceed a contractually defined ceiling—such as 10% of 

costs—to prevent the loss of visibility that accompanies large miscellaneous 

categories, and contractors should be directed to develop additional cost 

categories to capture costs in accounting systems when miscellaneous costs 

exceed that set ceiling. 

• Minimizing support costs makes more money available for reconstruction. In 

future contracts, managers need to determine how heavily to rely on primes or 

subcontractors that do little of the actual work but represent more than a quarter of 

the costs. Also, it is important to achieve a clear understanding of how they add to 

costs and what is the value-added. Government contract managers and 

program/project managers need to be attentive to the support-costs aspects of any 

contract and to remain vigilant for opportunities to reduce this cost. 

Management Comments and Audit Response 

This report contained no recommendations; therefore no written response was required. 

We provided a draft of this report to DoS and USAID. Each provided technical 

comments, which were considered and addressed, where appropriate, in the final report. 

Future SIGIR Work 

We plan to conduct a series of focused financial reviews of contractors receiving funds 

for Iraq relief and reconstruction. Consequently, we plan to identify systemic issues and 

report at the end of the series on the challenges of relief and reconstruction in Iraq and 

lessons learned that address systemic issues and leading practices across these multiple 

contracts. 
1 

Introduction

Background 

The Congress appropriated $20.9 billion for security, relief, rehabilitation, and 

reconstruction of Iraq in two separate appropriations: 

• April 2003, IRRF 1: $2.5 billion in the Emergency Wartime Supplemental 

Appropriations Act, Public Law 108-11, for the Iraq Relief and Reconstruction 

Fund 1 

• November 2003, IRRF 2: an additional $18.4 billion in the Emergency 

Supplemental Appropriations Act for Defense and for the Reconstruction of Iraq 

and Afghanistan, Public Law 108-106 

USAID is one of the principal U.S. government agencies involved in Iraq reconstruction 

Established on July 27, 2003 to oversee the agency’s efforts in Iraq, the USAID MissionIraq carries out programs in education, health care, food security, infrastructure 

reconstruction, airport and seaport management, economic growth community 

development, local governance, and transition initiatives. USAID has received 

$4.6 billion in IRRF funds for Iraq relief and reconstruction. 

Within ten months, Bechtel was competitively awarded two successive Iraq 

reconstruction contracts—Phase I and Phase II—under USAID’s Iraq Infrastructure 

Reconstruction Program. The Phase I contract (EEE-C-00-03-00018-00) was awarded on 

April 17, 2003, for $680 million (increased on September 30, 2003, to approximately 

$1.03 billion) to repair, rehabilitate, and rebuild vital elements of Iraq’s infrastructure. 

The Phase I contract ended on February 28, 2006. 

To expand the reconstruction effort, USAID awarded to Bechtel the competitively bid 

Phase II contract (SPU-C-00-04-00001-00) on January 5, 2004, for $1.8 billion. Under 

this cost-plus fixed-fee contract funded by IRRF 2, Bechtel was responsible for the 

design, rehabilitation, reconstruction, and construction of infrastructure projects in 

support of U.S. assistance to Iraq in electric power, water and sanitation services, 

telecommunications, and selected public buildings. USAID provided the oversight of this 

contract, and also signed a Participating Agency Service Agreement with the U.S. Army 

Corps of Engineers (USACE) to obtain additional support to provide construction 

oversight of Bechtel. This report focuses on the Phase II contract. On March 31, 2007, 

the contract ended and the total estimated cost reported was $1.33 billion2

. 

 

2

 On July 20, 2007, USAID told us that they cannot determine the final cost of the contract at this time, as 

Bechtel has not yet submitted its final invoice and the contract costs have not been audited. 
2 

Phase II Job Orders 

For the Phase II contract, USAID issued 24 job orders, which had actual job order costs 

of $761,272,537, exclusive of fees and indirect costs, as of January 5, 2007. A job order 

is a written contractual agreement between USAID and Bechtel concerning work to be 

accomplished for a given amount of money. As shown in Table 1, Bechtel’s job orders 

covered a wide array of projects including new and rehabilitated electric power facilities, 

irrigation, water supply, sewage lines, and health care. 
3 

Table 1: Phase II Job Orders 

# Job 

Order 

Start 

Date 

Description Actual Job 

Order Costs 

1 04-501 02/12/04 Baghdad South New Generation, Equipment $173,551,845 

2 04-502 02/22/04 Baghdad Governorate Municipal Solid Waste 

Landfill Facility 

$3,764,850 

3 04-503 03/04/04 Power Plant Maintenance Program $88,403,052 

4 04-504 03/05/04 Mussayib Thermal Power Station $6,060,422 

5 04-505 03/04/04 Conceptual Design for Rural Water Supply Project $259,123 

6 04-506 03/01/04 Baghdad Distribution Substations $126,538,218 

7 04-507 05/30/04 Irrigation and Drainage Pump Station 

Rehabilitation 

$5,107,136 

8 04-508 06/06/04 Wadha No. 1, 2, & 3 Pump Station Restoration $5,918,317 

9 04-509 06/13/04 Rural Water Supply Project Implementation $57,641,731 

10 04-510 06/21/04 Sadr City Treatment Plant $24,495,838 

11 04-511 08/03/04 Basrah Children’s Hospital $20,725,168 

12 04-512 06/26/04 Bayji Thermal Power Station $2,021,904 

13 04-513 06/23/04 Mansuria Natural Gas Development Power 

Generation 

$62,056,137 

14 04-514 06/21/04 Shark Diljah Water Treatment Plant Expansion $20,901,013 

15 04-515 0612/04 Zafaranyah Sewer Trunk Line $20,715,864 

16 04-516 06/08/04 Kadhamiya Sewage Collection System Cleaning & 

Refurbishment 

$4,480,476 

17 04-517 06/08/04 Rehabilitation of Baghdad Potable Water 

Distribution Mains & Hydraulic Modeling & 

Monitoring 

$14,184,995 

18 04-518 09/30/04 Karbala Wastewater Treatment Plant 

Refurbishment 

$7,388,818 

19 04-519 09/30/04 Karbala Al Hussien Water Treatment Plant 

Refurbishment 

$3,769,458 

20 04-520 08/27/04 North East Sewer Trunk Line Study $828,721 

21 04-521 01/15/05 Consolidated Fiber Network $29,714,725 

22 04-522 04/01/05 Start Up Services for Daura Thermal Units 5 & 6 

Rehabilitation 

$33,917,587 

23 04-523 05/30/05 Kirkuk Power Station $28,710,579 

 No job order 524, numbering skipped to 525 

24 04-525 05/05/05 Water Sector Institutional Strengthening $20,116,561 

Total $761,272,537 

 Source: SIGIR analysis of Bechtel’s Phase II submitted invoices (Cost Vouchers) 1-69, through January 5, 2007. 
4 

Reconstruction Costs 

Contractors incur both direct and indirect costs. The Federal Acquisition Regulation 

(FAR) does not specifically define direct and indirect costs. The FAR states that after 

direct costs have been determined and charged directly to the contract, indirect costs are 

those remaining costs to be allocated to intermediate or two or more final cost objectives. 

(See FAR, Part 31, Contract Costs Principles and Procedures, section 31.203, Indirect 

Costs). The FAR directs the contractor to accumulate indirect costs by logical cost 

groupings. 

Because the FAR does not clearly define job costs, we used the Internal Revenue 

Service’s (IRS) definitions of job costs as direct and indirect costs: 

Direct job costs—such as labor, materials, and subcontractors’ expenses—can be 

traced directly to the construction project. 

Indirect job costs are all of the costs necessary for the performance of the contract 

other than direct costs. 

Indirect costs often involve expenses that benefit more than one job and must be allocated 

among all the jobs that received benefit. Indirect costs are as important to reconstruction 

as the direct costs because they provide the overall management framework and life 

support within which reconstruction occurs. At the same time, by minimizing indirect 

costs, more money is made available for reconstruction. 

Our review of Bechtel’s invoices and accounting system identified examples of direct and 

indirect costs. Bechtel’s direct costs included construction materials and supplies and 

subcontracts (Bechtel subcontracted almost all direct physical reconstruction). Bechtel’s 

indirect costs included security, facilities, communications, life support, and such 

administrative expenses as accounting, human resources management, and information 

technology. 

Objectives 

The audit was announced on July 24, 2006. The objectives were to determine, in detail, 

the costs incurred by Bechtel in performing work under its Phase II USAID contract as 

well as the methods used to record and report associated costs. Specifically, we addressed 

these questions: 

• What cost detail is contained in the invoices and supporting documentation that 

Bechtel submitted to the government? 

• What costs did Bechtel incur in carrying out its contracted tasks, including cost of 

material, labor, overhead, security, subcontracts, and all other costs? 

• How many layers of subcontracts did Bechtel have in performing the contracted 

work? 
5 

• What types of contracts (firm-fixed-price, cost-plus, or other arrangement) were 

used for subcontracts; at each layer of subcontracting, what costs were billed to 

the next level of subcontractor? 

• What were USAID’s administrative fees? 

Subsequently, in the January 30, 2007 Quarterly Report and Semiannual Report, we 

further expanded our objectives to include contract outcomes and contract administration, 

and other items. (For details, see Appendix A.) 

 To cover all of the objectives, we organized the report into four sections: 

• the contractual arrangement between USAID and Bechtel pertaining to this 

contract and its outcomes 

• contract administration 

• Bechtel’s costs 

• USAID’s cost in managing Bechtel’s work 

Further Reference 

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

see Appendix A. 

For a summary of the work to be done under each of the 24 job orders and the results 

achieved, see Appendix B. 

For a sample of the U.S. government form for invoicing, see Appendix C. 

For a list of acronyms and abbreviations, see Appendix D. 

For the report distribution, see Appendix E. 

For the audit team members, see Appendix F. 
6 

Contractual Arrangement Between USAID and Bechtel 

On January 5, 2004, USAID awarded to Bechtel the competitively bid Phase II contract 

for $1.8 billion for engineering, procurement, and construction services. Work under the 

Phase II contract was accomplished through a series of 24 job orders—14 in the water 

and sanitation sector, 8 in the power sector, 1 in telecommunications, and 1 in the 

buildings sector. We analyzed the 24 job orders in an effort to determine if they achieved 

their original objectives and determined that: 

• 11 of the job orders clearly met their original objectives. 

• 10 did not achieve their original objectives as stated in the original scope of work. 

• For 3 job orders, we were either unable to determine what their original objectives 

were or the achievements were unclear. 

In some instances, millions of dollars were spent for seemingly little results. For example, 

one job order to design and construct a regional municipal solid waste landfill was 

ultimately cancelled after no acceptable sites could be found. Expenditures totaled $3.8 

million, of which approximately $2.6 million in equipment was transferred to another 

landfill operation at the Kirkuk Air Force Base. 

However, we did find it challenging to form an opinion on the value of the work 

accomplished for several reasons, including a challenging operating environment, 

infrastructure challenges, and limited documentation supporting changes in the scope of 

work, budget, and project delays. 

Bechtel’s Phase II Contract 

According to the USAID Principal Contracting Officer, USAID received three proposals 

for the Phase II contract in response to its Request for Proposals, as amended. Under the 

FAR Section 305(1), competition normally establishes price reasonableness. When 

contracting on a cost-reimbursement basis, evaluations shall include a cost-realism 

analysis to determine how much the Government should realistically expect to pay for the 

proposed effort, the offeror's understanding of the work, and the offeror's ability to 

perform the contract. USAID performed the cost realism analysis for all three of the 

proposals. 

Under this cost-plus fixed-fee contract, Bechtel was responsible for the design, 

rehabilitation, reconstruction, and construction of infrastructure projects in support of 

U.S. assistance to Iraq in a number of areas, including electric power, water and 

sanitation services, telecommunications, and selected public buildings. A secondary 

objective of this contract was to provide employment opportunities for Iraqis and Iraqi 

firms, thereby injecting much-needed capital into the economy. The contract ended on 

March 31, 2007. As of February 28, 2007, contract Modification 32 showed the total 

estimated cost to be $1.33 billion. 
7 

Specific Work Was Directed Through a Series of Job Orders 

The Phase II contract called for engineering, procurement, and construction services and 

did not specify projects. Work was accomplished through a series of 24 job orders—14 in 

water and sanitation sector, 8 in the power sector, 1 in telecommunications, and 1 in the 

buildings sector. These job orders were written communications signed by the warranted 

Administrative Contracting Officer, with the technical concurrence of the Cognizant 

Technical Officer, which contractually authorized Bechtel to undertake the specified 

work. The job order is not an obligating document and therefore does not add funding to 

the contract, but it does budget the funds from the overall Phase II contract obligations 

for a particular infrastructure project. Each job order was required to include among other 

things a job description, benchmarks, a detailed budget, anticipated subcontracts, and 

level of technical capacity building. USAID told us that the budgets for job orders are 

stated in terms of rough orders of magnitude and are USAID’s best estimates at a given 

point of time. 

The scope of the job orders varied: some were defined very specifically although others 

were somewhat vague. For example, Job Order 04-515 specifically directed the 

rehabilitation of the sewer collection system for the Zafaranyah District of Baghdad, Iraq. 

The job order specified the construction of approximately 5.7 miles of new gravity and 

pressurized sewage trunk lines and a minimum of two pump stations. Another Job Order 

04-509, lacked specifics; it included conducting site assessments and assisting USAID 

and the Ministry of Municipalities and Public Works in selecting sites to build new 

potable water supply facilities in rural areas throughout Iraq. Insight into the scope of 

work disappeared when the deliverables for the job order were modified from a specific 

number of plants and facilities to a single “Lot” of facilities, which was not defined. This 

change potentially obscured the cost per facility because one lot did not necessarily 

equate to the specified plants and facilities in the original scope of work. 

There were wide swings in job order budgets that formed the basis for authorized 

spending amounts. (For details, see Table 2.) Specifically, 10 job orders had direct cost 

increases (exclusive of support costs and fee) totaling in excess of $273 million, and 14 

job orders (including cancelled projects) had direct cost decreases totaling $190 million. 

For example, the budget for Job Order 04-501 increased six-fold, from $31 million to 

$189.4 million, because of changes in the scope of work, as shown in Table 2. 
8 

Table 2: Phase II Job Order Budget Analysis 

Job Order Original Budget Number of 

Contract 

Amendments 

Difference 

Between Original 

and Final Budget 

Final 

Approved Budget 

Original 

Objective 

Achieved 

04-501 $31,000,000 7 $158,380,788 $189,380,788 Yes 

04-502 $14,200,000 2 (10,092,593) $4,107,407 No 

04-503 $80,000,000 12 $12,704,533 $92,704,533 Yes 

04-504 $22,857,000 4 ($16,243,319) $6,613,681 Unknown 

04-505 $390,000 2 ($128,923) $261,077 Yes 

04-506 $64,632,000 5 $72,565,000 $137,197,000 Yes 

04-507 $10,406,000 3 ($5,019,000) $5,387,000 No 

04-508 $5,948,000 4 $96,000 $6,044,000 No 

04-509 $84,735,000 6 ($22,751,598) $61,983,402 

. 

No 

04-510 $14,087,546 3 $15,313,454 $29,401,000 No 

04-511 $37,000,000 2 ($10,590,000) $26,410,000 No 

04-512 $100,640,000 2 ($98,551,283) $2,088,717 No 

04-513 $78,363,000 3 ($8,921,000) $69,442,000 Yes 

04-514 $26,674,000 3 ($3,984,000) $22,690,000 Yes 

04-515 $21,288,000 2 $1,000,000 $22,288,000 Yes 

04-516 $3,272,000 3 $1,370,000 $4,642,000 Yes 

04-517 $19,812,000 2 ($5,462,000) $14,350,000 Unknown 

04-518 $6,260,000 1 $2,350,000 $8,610,000 Unclear 

04-519 $4,800,000 1 ($869,000) $3,931,000 Yes 

04-520 $2,000,000 None ($1,162,000) $838,000 Yes 

05-521 $51,851,852 2 ($4,891,852) $46,960,000 No 

05-522 $30,315,000 2 $4,685,000 $35,000,000 No 

05-523 $21,400,000 2 $4,916,000 $29,316,000 Yes 

05-525 $23,100,000 3 ($2,724,067) $20,375,933 No 

Source: SIGIR analysis of job orders and job order amendments as of March 2007. 
9 

Although most were direct costs, millions of dollars in indirect costs allocable to the 

individual job orders were not visible to USAID at this level because each job order 

contained only limited information on indirect costs. Separate from the job orders, 

Bechtel provided USAID with data on indirect costs through a subsector total burdened 

cost allocation and further identified which indirect costs were allocable to individual job 

orders when this could be done. In July 2006, 30 months after the contract award, 

Modification 26 to the Phase II contract directed Bechtel to develop a sub sector total 

burdened cost-allocation model. Bechtel’s cost-allocation data show that allocated 

indirect costs raised some job order costs by tens of millions of dollars. Bechtel identifies 

the specifics as business sensitive; therefore, they are not discussed in this report. 

Job Order Outcomes Were Mixed 

The outcomes on individual projects were mixed: some were completed as originally 

envisioned, others were cancelled, and still others were partially completed and 

transferred to other organizations for completion. We analyzed the 24 job orders to 

determine if they achieved their original objectives. Our analysis showed mixed results: 

• 11 of the job orders clearly met their original requirements. 

• 10 did not achieve their original objectives as stated in the original scope of work. 

• For 3 job orders, we were either unable to determine what their original objectives 

were or the achievements were unclear. 

Further, for the job orders that met their original requirements, 6 exceeded (ranging 

between $1 million to $158 million), and 5 were below (ranging $.128 million to 

$3.9 million) anticipated cost. For example, two that exceeded were: 

• Job Order 04-501, which was created to increase electrical generation capacity to 

the electrical grid by adding a 106 megawatt combustion turbine to the existing 

Baghdad South power plant, a mid-sized thermal power plant. The turbine was 

added and additional work transferred from Bechtel’s Phase I contract was 

completed, but at a much higher cost than originally expected—$173.6 million 

versus the original budget estimate of $31 million. Based on USACE estimates 

that 1 MW of electricity can power 3,000 homes in Iraq, we estimate that the 

turbines provided under Job Order 04-501 should be able to power 636,000 

homes. This outcome, however, was not defined in the job order. 

• Job Order, 04-515, which was created to rehabilitate the sewer collection system 

for the Zafaranyah District of Baghdad, was also substantially completed as 

originally defined at a cost of $20.7 million—an increase of $1 million above the 

original budget estimate. 

An example of one that was completed below cost estimate was Job Order 04-514, which 

was for the refurbishment of the Shark Diljah Water Treatment Plant Expansion. This job 

was amended three times. Although Amendment 1 (April 28, 2005) reduced the scope of 

the job, it appears from the paperwork and the two additional amendments that the 
10 

project was completed $3.9 million below its rough order of magnitude estimate of 

$26.7 million. 

In other instances, however, millions of dollars were spent and requirements were not 

met, reduced, or clearly established. For example, under Job Order 04-504, much of the 

original work requirements of assessing, providing parts and specialty technical services, 

and providing outage management support for the Mussayib Thermal Power Station were 

subsequently changed to supplying materials to support work by the Iraqi Ministry of 

Electricity. Of the $6.1 million final cost, about half was for jobsite camps and offices. 

Three other job orders had significant scope reductions. For example, Job Order 04-502 

initially was issued to design and construct a regional municipal solid waste landfill for 

Baghdad and the surrounding area. This job order was ultimately cancelled after the 

contractor investigated three sites for the landfill and found none acceptable because of 

land ownership issues and security concerns. Expenditures totaled $3.8 million, of which 

approximately $2.6 million in equipment was transferred to a landfill operation in 

Kirkuk. Three other job orders were not completed as originally established; one was 

cancelled outright, and the other two were partially completed and subsequently 

transferred to the USACE Gulf Region Division (GRD) for completion. 

For a description of each job order’s results and our assessment of whether it met its 

original objective, see Table 3. The actual job order costs in this table are based on 

Bechtel’s invoiced costs; they differ from the budgeted costs in Table 2. For SIGIR’s 

detailed analyses of the individual job orders, see Appendix B. 
11 

Table 3: Phase II Job Order Results 

# Job 

Order 

Description Actual Job 

Order Costs 

Results Original 

Objective 

Achieved 

1 04-501 Baghdad South New 

Generation Equipment $173,551,845 

Increased electrical generation capacity 

by 106 megawatts, enough to power 

636,000 homes 

Yes 

2 04-502 Baghdad Governorate 

Municipal Solid Waste 

Landfill Facility 

$3,764,850 

Cancelled, acquired $2.6 million in 

equipment that was transferred to 

another landfill 

No 

3 04-503 Power Plant Maintenance 

Program 

$88,403,052 Completed six assessments and 

provided spare parts as needed 

Yes 

4 04-504 Mussayib Thermal Power 

Station 

$6,060,422 Supplied indeterminate amount of 

materials 

Unknown 

5 04-505 Conceptual Design for Rural 

Water Supply Project 

$259,123 Completed sample designs Yes 

6 04-506 Baghdad Distribution 

Substations 

$126,538,218 Constructed 12 electrical substations 

and refurbished 13 existing substations 

Yes 

7 04-507 Irrigation and Drainage Pump 

Station Rehabilitation 

$5,107,136 Supplied materials and equipment No 

8 04-508 Wadha No. 1, 2, & 3 Pump 

Station Restoration 

$5,918,317 Prepared site assessments of 3 

irrigation pumps stations and provided 

equipment for their refurbishment 

No 

9 04-509 Rural Water Supply Project 

Implementation 

$57,641,731 Conducted site assessments and built 

an indeterminable number of potable 

water supply facilities 

No 

10 04-510 Sadr City Treatment Plant $24,495,838 Transferred construction of a new 

water treatment plant that was 88% 

complete to USACE for completion 

No 

11 04-511 Basrah Children’s Hospital $20,725,168 Transferred construction of a hospital 

that was 45% complete to USACE for 

completion 

No 

12 04-512 Bayji Thermal Power Station $2,021,904 Assessed thermal power station and 

acquired specified equipment and 

material 

No 

13 04-513 Mansuria Natural Gas 

Development Power 

Generation 

$62,056,137 Assessed 3 natural gas fields to support 

power generation and procured 2 large 

turbines 

Yes 

14 04-514 Shark Diljah Water Treatment 

Plant Expansion 

$20,901,013 Refurbished water treatment plant and 

added additional capacity 

Yes 

15 04-515 Zafaranyah Sewer Trunk Line $20,715,864 Rehabilitated 5.7 miles of sewage trunk 

lines and added 2 pump stations 

Yes 

16 04-516 Kadhamiya Sewage Collection 

System Cleaning & 

Refurbishment 

$4,480,476 Cleaned and replaced existing sewage 

lines and refurbished 11 pump stations 

Yes 

17 04-517 Rehabilitation of Baghdad 

Potable Water Distribution 

Mains & Hydraulic Modeling 

& Monitoring 

$14,184,995 Refurbished or replaced unspecified 

amount of water distribution lines and 

developed a hydraulic model of 

Baghdad Water Authority’s 

transmission and distribution system 

Unknown 

18 04-518 Karbala Wastewater Treatment 

Plant Refurbishment 

$7,388,818 Refurbished wastewater treatment plant 

to the extent possible with funds 

provided 

Unclear 
12 

# Job 

Order 

Description Actual Job 

Order Costs 

Results Original 

Objective 

Achieved 

19 04-519 Karbala Al Hussien Water 

Treatment Plant 

Refurbishment 

$3,769,458 Completed plant refurbishment using 

equipment purchased under an earlier 

contract 

Yes 

20 04-520 North East Sewer Trunk Line 

Study 

$828,721 Prepared design report Yes 

21 04-521 Consolidated Fiber Network $29,714,725 Provided fiber-optic equipment to the 

Ministry of Communication and 

Ministry of Electricity and provided, 

installed and tested equipment at 42 

Ministry of Electricity sites 

No 

22 04-522 Start Up Services for Daura 

Thermal Units 5 & 6 

Rehabilitation 

$33,917,587 Provided management services, 

technical support, and procured parts 

and equipment critical to power 

generation startup 

No 

23 04-523 Kirkuk Power Station $28,710,579 Completed construction, 

commissioning, and startup of a large 

turbine at the Kirkuk Power Station 

Yes

 No Job Order 524, numbering 

skipped to 525 

 

24 04-525 Water Sector Institutional 

Strengthening 

$20,116,561 Provided startup, commissioning, 

decommissioning, O&M, essential 

inventory, and training at 11 facilities 

No 

Total $761,272,537 

Source: Bechtel Phase II Cost Vouchers 1-69, through January 5, 2007 and SIGIR Analysis of USAID Job Orders and 

Amendments. 
13 

Contract Administration 

USAID was provided voluminous information on the status of Bechtel’s work on a 

continuing basis. However, USAID did not have enough staff to adequately administer a 

contract the size of the Phase II contract, which entailed more than $1 billion in work in 

24 job orders and projects throughout Iraq. Further, USAID contractually committed 

itself to process invoices within 10 days of receipt, which limited its ability to thoroughly 

review the invoices before payment or to corroborate conditions claimed by the 

contractors. 

Although it had little time to review Bechtel’s vouchers before payment as a result of 

time limits imposed in the contract, USAID had an agreement with the Defense Contract 

Audit Agency (DCAA) to conduct reimbursable cost incurred audits of Bechtel’s contract 

costs. The purpose of the DCAA incurred cost audits were to determine whether costs 

claimed are allowable, allocable, and reasonable in accordance with the contract and 

applicable government acquisition regulations. DCAA reviewed about $1 billion in 

Bechtel’s recorded costs and questioned less than 1%. 

Information Provided USAID on the Status of Bechtel’s Work 

Throughout the life of the contract, Bechtel provided USAID with detailed information 

on the status of work and related financial information. The contract required that Bechtel 

provide USAID with weekly and monthly reports on job status. These reports contained 

detailed information on the status of work under each job order, including job order 

status, significant events, and financial information—such as current budget and forecast 

costs. USAID and Bechtel held weekly sector meetings followed by the “Sunday 

meetings” to discuss overall work status. Consequently, USAID was kept informed on 

the work status under each job order. 

However, in an earlier audit of Job Order 04-511 for the Basrah Children’s Hospital, we 

reported that although USAID had an effective process in place for tracking the project, 

USAID did not adequately analyze and report the information it received to either the 

U.S. Ambassador to Iraq or the Congress.3

 Since our report, USAID officials indicated 

that they use weekly, monthly, and trend reports to monitor and manage job order 

completion, budget, and schedule. In our review of USAID’s database, the Iraq 

Reconstruction Tracking System, we found examples in which USAID provided 

guidance to Bechtel based on these reports. 

Adequacy of Staffing Levels 

We believe neither USAID nor USACE, which assisted USAID with the Bechtel 

contract, had sufficient personnel in Iraq. USAID is responsible and accountable for the 

 

3 Review of the U.S. Agency for International Development’s Management of the Basrah Children’s 

Hospital Project, SIGIR-06-026 (July 31, 2006).
14 

overall implementation of all of its reconstruction activities and for providing technical 

and management oversight of the work to be performed by Bechtel. To help accomplish 

these responsibilities, USAID and USACE signed a Participating Agency Service 

Agreement for USACE to provide construction oversight of Bechtel. Through November 

30, 2006, USAID had obligated $28.1 million to fund the agreement and subsequently 

deobligated $4 million on January 8, 2007. Under the agreement, USACE was to provide 

technical assistance to USAID and be responsible for monitoring the quality control, 

quality assurance, schedule, performance, environmental issues, de-mining unexploded 

ordnance, and safety programs of Bechtel, and report exceptions or problems to the 

USAID contracting officer and cognizant technical officer. Correspondence among 

USAID officials makes it clear that USACE charter was technical oversight—not 

management—of the contract. According to the USAID April 5, 2006 roster, just under 

half—18 of 37—of USACE’s authorized positions were filled at about the mid-point of 

contract execution. 

While USAID had the agreement with USACE to provide on-site monitoring, its contract 

administration team was largely understaffed. In fact, within USAID-Mission-Iraq, as of 

April 5, 2006, or about the mid-point in contract execution, 170 of the 251 total 

authorized positions were filled, leaving 81 vacancies across the total Mission. 

During a previous SIGIR review4

, USAID contracting officials in Iraq stated that USAID 

construction contracting staff was limited at the time to 3 people for the Phase II contract. 

They further stated that they would have preferred to have two full time contracting 

officers, supported by 2 seasoned negotiators—1 for document control, and 1 for 

administration. The USAID officials commented that contract administration was understaffed and had limited ability to conduct site visits to corroborate conditions claimed by 

contractors. 

To administer the Phase II contract, the contracting officer, who is not in Iraq, appointed 

1 administrative contracting officer in Baghdad to oversee the contract. The 

administrative contracting officer was assisted in Baghdad by 1 cognizant technical 

officer. It should be noted that USAID had the same administrative contracting officer 

appointed to the Bechtel contract since it was awarded in January 2004. We believe this 

added important continuity of control; nevertheless, these 2 individuals were responsible 

for the in country contract oversight of this very large, complex contract with 

construction projects covering facilities and subprojects located throughout Iraq. The 

team was assisted by a Senior Contract Specialist, a trainee Contract Specialist, USAID’s 

Sector Managers, and the USAID-Iraq Financial Management Office. However, based on 

the job responsibilities of the administrative contracting officer and cognizant technical 

officer that are partially described below, we do not believe USAID had sufficient staff to 

oversee and monitor a construction program of this magnitude. 

 

4

 Ibid. 
15 

Administrative Contracting Officer: Job Responsibilities 

• Determine the allowability of costs suspended or disapproved, direct the 

suspension or disapproval of costs when there is reason to believe they should be 

suspended or disapproved, and approve final vouchers. 

• Review and approve or disapprove the contractor’s request for payments. 

• Ensure timely notification by the contractor of any anticipated overrun or underrun of the estimated cost under cost reimbursement contracts. 

• Negotiate prices and execute supplemental agreements for spare parts and other 

items. 

• Perform property administration. 

• Perform necessary screening, redistribution, and disposal of contractor inventory. 

• Ensure contractor compliance with quality assurance requirements. 

• Ensure contractor compliance with contractual safety requirements. 

• Perform engineering surveillance to assess compliance with contractual terms for 

schedule, cost, and technical performance in the areas of design, development, 

and production. 

Cognizant Technical Officer: Job Responsibilities 

• Assure that the contractor performs the technical requirements of the contract in 

accordance with the contract terms, conditions, and specifications. 

• Perform, or cause to be performed, inspections necessary to ensure the 

contractor performs the technical requirements of the contract. 

• Issue written interpretation of technical requirements of government drawings, 

designs, and specifications. 

• Monitor the contractor’s production or performance progress and notify the 

contractor in writing of deficiencies observed during surveillance, and direct 

appropriate action to effect correction. 

In February 2007 testimony before the House Committee on Government Oversight and 

Reform, the U.S. Comptroller General testified that among the conditions conducive for 

success in using contractors was the capacity to manage and assess contractor 

performance.5

 Both SIGIR6 and the Comptroller General have reported on the adverse 

impact of inadequate numbers of properly trained acquisition personnel and high turnover 

rates on reconstruction efforts. We believe that the limited number of USAID personnel 

available to manage the Bechtel Phase II contract was illustrative of these problems. 

 

5

 U.S. Government Accountability Office, Rebuilding Iraq: Reconstruction Progress Hindered by 

Contracting, Security, and Capacity Challenges, GAO-07-426T (February 15, 2007). 6

 Special Inspector General for Iraq Reconstruction, Iraq Reconstruction: Lessons in Human Capital

Management, January 2006 and Lessons in Contracting and Procurement, July 2006. 
16 

Review of Bechtel Payment Vouchers

USAID personnel had little time to review Bechtel’s vouchers because the contract states 

that Bechtel is to be paid within 10 days after the designated billing office receives a 

proper billing request. USAID voucher examiners reviewed the vouchers and validated 

totals to the detailed information included with the voucher. As of January 31, 2007, 

USAID had processed 70 voucher payments to Bechtel. Of these vouchers, 61 (87%) 

were processed for payment within 10 days or less. Table 4 contains examples of 

vouchers valued in the tens of millions of dollars that were received by USAID and paid 

within the 10 days. 

Table 4: Examples of USAID Processing Time of Bechtel Vouchers 

Voucher # Date Received or 

Prepared 

Date Paid (Check or 

Certification Date) 

No. of 

Days 

Elapsed 

Amount Paid 

24964-0016 October 20, 2004 October 22, 2004 2 $11,386,237.27 

24964-0022 January 18, 2005 January 24, 2005 6 $55,469,238.17 

24964-0026 May 20, 2005 March 25, 2005 5 $38,428,651.11 

24964-0033 July 10, 2005 July 14, 2005 4 $25,344,336.15 

24964-0037 September 7, 2005 September 13, 2005 6 $40,747,483.30 

24964-0041 November 7, 2005 November 7, 2005 0 $22,058,346.38 

24964-0062 September 20, 2006 September 27, 2006 7 $47,387,009.23 

24964-0067 December 10, 2006 December 13, 2006 3 $27,330,432.95 

Source: SIGIR analysis of USAID data, March 2007. 

USAID had an agreement with DCAA to provide contract audit services. DCAA is 

responsible for performing all contract audits for the Department of Defense (DoD), and 

providing accounting and financial advisory services on contracts and subcontracts to all 

DoD components responsible for procurement and contract administration. These 

services are provided in connection with negotiation, administration, and settlement of 

contracts and subcontracts. DCAA also provides contract audit services to some other 

government agencies. At the request of USAID, DCAA has performed several audits of 

the Bechtel Phase II contract.

Between 2000 and 2005, DCAA issued a series of audit reports on Bechtel Systems & 

Infrastructure, Inc. and its subsidiary, Bechtel National, Inc. In 2000, 2002, and 2004, 

DCAA reported that Bechtel had an adequate accounting system. (For a list of these 

reports, see Appendix A.) In these audits of the various facets of Bechtel’s accounting 

system, DCAA found that Bechtel had in place adequate systems and controls to 
17 

accurately capture costs.7

 In reviewing Bechtel’s recorded reimbursable direct costs for, 

allocability, allowability, and reasonableness, DCAA questioned less than 1% of 

Bechtel’s costs. DCAA questioned: 

• $34,000 of $71 million in costs recorded between January 5, 2004, and September 

30, 2004. 

• $140,000 of $464 million in costs recorded between October 1, 2004, and 

September 30, 2005. 

• $75,000 of $463 million in costs recorded between October 1, 2005 and October 

31, 2006. 

While DCAA conducted audits of Bechtel’s costs, USAID appeared to have little insight 

into the costs being incurred by Bechtel. Based on our discussions with USAID 

comptroller officials involved in the voucher review process, it did not appear to us that 

USAID performed much analysis of the costs being incurred, nor was there much time to 

do so. Cost analysis was not a task specifically assigned to the administrative contracting 

officer or the cognizant technical officer under the Phase II contract. Furthermore, it 

would have required considerable time to thoroughly examine Bechtel’s summary cost 

schedules, sub-codes, and natural accounting classifications. We examined 4 of the 70 

vouchers submitted for payment, which were supported with hundreds of pages of 

documentation. For example, one voucher we examined comprised more than 300 pages 

of supporting material. Further, we were told by USAID officials that because of the 

limitations of time and staff that they were limited in performing site visits to corroborate 

conditions claimed by contractors. DCAA also does not review costs to corroborate 

conditions claimed by contractors. The purpose of the DCAA incurred cost audits are to 

determine whether costs claimed are allowable, allocable, and reasonable in accordance 

with the contract and applicable government acquisition regulations. DCAA does not 

review performance or assess the value of quality versus cost. 

 

7

DCAA reviewed the control environment and overall accounting controls, labor accounting system and 

related internal controls, and indirect and other direct costs system and related internal control policies, 

procedures, and practices. 
18 

Bechtel’s Costs 

Through January 5, 2007, Bechtel submitted invoices to USAID for $1.15 billion, 

including direct and indirect costs. We calculated Bechtel’s direct and indirect costs to be 

about 97% and 3%, respectively, of its overall costs. We also determined that the direct 

physical reconstruction costs are only about 59% of its overall costs. As a result, we 

calculated that about 41% of its overall costs represent support costs. However, these 

support costs are in line with the support costs incurred by other major contractors—both 

in Iraq and in the United States. 

Bechtel subcontracted most of the work according to its USAID-approved subcontracting 

plan, which stated that Bechtel would subcontract approximately 90% of the direct 

reconstruction costs. Bechtel used a “modified” full and open process in awarding 

subcontracts, which restricted competition to pre-qualified bidders. We identified a total 

of 168 subcontracts—66 awarded by Bechtel and 102 awarded in turn by Bechtel’s 

subcontractors. Bechtel had procedures that it used to manage its subcontractors, but 

multiple layers of subcontract management made oversight complex. 

Bechtel’s Accounting System Captures Costs in Detail 

As required under its Phase II contract, Bechtel submitted invoices to USAID for 

expenses incurred by contract line item number (CLIN), as well as submitting both 

summary schedules and detailed invoices as supporting documentation. The CLINs under 

the Bechtel contract were: 

• CLIN 0001: program and construction management services not associated with 

a specific job order 

• CLIN 0002: fixed fee on CLIN 0001 

• CLIN 0003: program management costs associated with specific job orders for 

design, rehabilitation, upgrading, reconstruction, and construction 

projects 

• CLIN 0004: fixed fee on CLIN 0003 

Bechtel’s accounting system reported costs in great detail in 84 “natural classes,” which 

are in turn aggregated into the following summary groups: 

• salaries 

• payroll additives 

• materials, supplies, tools, and office expenses 

• equipment and facilities 

• communications 

• travel, subsistence, and entertainment 
19 

• other employee-related expenses 

• subcontract and outside services 

• data processing and other costs 

• allowance for indirect costs 

The Phase II contract specified how Bechtel was to submit invoices and to report costs. 

According to the contract, claims for reimbursement or payment had to be submitted to 

the office indicated on the contract schedule. Invoices were to be submitted on a standard 

U.S. government form—Standard Form 1034: Public Voucher for Purchases and Services 

Other Than Personal—on paper or faxed, giving the appropriate USAID contract number 

and the amount of dollar expenditures made during the period covered, by CLIN. For a 

sample Standard Form 1034, see Appendix C. 

Within the largest summary group—subcontracts and other services—there is a 

substantial amount of costs in the natural class, Other. We identified more than 

$250 million in Other in this summary group. When we asked senior Bechtel officials 

responsible for the Phase II contract on whether it was possible to obtain more detail on 

the makeup of costs in the Other natural class, they told us it would take considerable 

review of the underlying cost data to do so. Therefore, we did not ask Bechtel for these 

details. 

Bechtel incurred both direct and indirect costs as do all contractors. Through January 5, 

2007, Bechtel has submitted invoices totaling $1.15 billion, including direct and indirect 

costs. We considered direct costs to be those invoiced against specific job orders. Indirect 

costs are important because they provide the management framework and life support 

within which reconstruction occurs. 

In further analysis, we determined that of the $1.15 billion of Bechtel’s Phase II contract 

costs about 59% or $683.1 million were direct physical construction costs and about 41% 

or $470.6 million were support costs, including fees and all security costs. We previously 

reported that for several major reconstruction contracts, support costs represented as 

much as 55% of overall contract costs.8

 In September 2002, GAO reported that between 

fiscal years 1999 and 2002 the Department of Energy’s major contractors spent about 

$6 billion per year on what GAO termed support-related costs, which represented about 

40% of all these contractors’ annual costs.9

 In December 2006,10 GAO also reported that 

the average support costs incurred by design-build contractors for DoD construction 

programs in Iraq was 33% of estimated completion costs. GAO defined support costs to 

include transportation and mobilization, life support, management, administration, and 

 

8

 Review of Administrative Task Orders for Iraq Reconstruction Contracts, SIGIR-06-028 (October 23, 

2006). 

9 DOE Contractor Management: Opportunities to Promote Initiatives That Could Reduce Support-Related 

Costs, GAO-02-1000 (September 20, 2002) 10 Rebuilding Iraq: Status of DoD’s Reconstruction Program, GAO-07-30R (December 15, 2006). 
20 

security. Based on these analyses, we determined that Bechtel’s support costs were in line 

with the support-related costs incurred by major contractors in Iraq and the United States. 

Although in line with other contractors’ cost, minimizing support costs makes more 

money available for reconstruction. To determine how Bechtel captured and reported its 

costs, we examined the Phase II costs by CLIN and by the Bechtel accounting system’s 

natural classes. 

CLIN Analysis 

We analyzed the invoices by CLIN and determined for each the total invoice cost in 

dollars and percentage. As shown in Table 5, CLIN 0003 contained most of the costs. For 

reporting as opposed to invoicing purposes, USAID split CLIN 0003 into two parts— 

0003A and 0003B. Thirty months into the contract, USAID directed Bechtel to 

retroactively apportion its CLIN 0003 costs between CLINs 0003A and 0003B. CLIN 

0003A was to include Bechtel’s project management costs that can be attributed to a job 

order; CLIN 0003B was to include direct job order costs that relate to physical 

reconstruction. Security costs were to be charged to both CLIN 0003A and 0003B, 

depending on the specific cost. 

Table 5: Direct and Indirect Costs through January 5, 2007 

CLIN Dollars Percent

Direct Costs 

0003A project management costs 

 exclusive of security costs 

$187,553,824 16%

 0003A security costs $60,600,000 5%

0003B physical construction costs 

 exclusive of security costs 

$683,117,537 59%

 0003B security costs $78,155,000 7%

 0004 fixed-fee for CLIN 0003 $105,677,876 9%

Subtotal 1,115,104,237 97%

Indirect Costs 

 0001 program management cost $36,430,143 3%

 0002 fixed-fee for CLIN 0001 $2,182,233 <1%

Subtotal $38,612,376 3%a 

Grand Total $1,153,716,613 100%

Source: SIGIR analysis of Bechtel invoices 

Notes 

a Totals do not add due to rounding 

Security costs accounted for a significant portion of Bechtel’s support costs. As Table 5 

shows, the security costs included in CLIN 0003A were about $60.6 million and in CLIN 

0003B were $78.2 million; for a total of $138.7 million,11 or 12% of Bechtel’s total costs. 

In July 2005, GAO reported and in June 2006 testified that before the war in Iraq, the 

 

11 Totals do not add because of rounding. 
21 

DoD and other U.S. government agencies in Iraq believed that reconstruction would not 

be threatened by insurgents or terrorists.12 GAO further reported that the use of private 

security providers reflected the uncertain security environment that was, and is still being 

encountered in Iraq, as well as the fact that providing security for reconstruction 

contractors is not part of the military’s stated mission. 

Security was just one cause of the increase in overall costs of projects. As we reported in 

our March 2007 report on Lessons in Program and Project Management, USAID’s delay 

in issuing job orders was another factor that affected Bechtel’s costs.13 We reported that 

when the Phase II contract was awarded, Bechtel established its organization and 

mobilized its staff to begin work on the $1.8 billion contract, but Bechtel’s work was 

delayed because job orders were not issued as quickly as Bechtel anticipated. These 

delays increased Bechtel’s overhead costs and reduced the dollars available for actual 

construction. USAID officials told us, and the USAID Office of Inspector General 

confirmed in its June 29, 2005 report,14 that some of the delay to direct Bechtel to start 

selected work was caused by the failure of IRMO to provide adequate and timely funds at 

the time of the award and to release funds during 2004. 

Costs by Natural Classes 

To gain greater insight into the types of costs that Bechtel incurred under the Phase II 

contract, we further analyzed CLINs 0003A (support) and 0003B (physical 

reconstruction) costs by natural class summary groups. Bechtel’s accounting system used 

84 natural classes, which were aggregated into 10 summary groups. We discussed the 

results of our analysis with senior Bechtel officials in November 2006, and they agreed 

that it accurately depicted their direct physical reconstruction and support costs. 

As shown in Table 6, almost two-thirds of the costs under CLIN 0003A were recorded in 

Bechtel’s subcontract and outside services natural class summary group. We then 

performed a more detailed analysis of the natural class data within this summary group 

and determined that 97% of the expenses were recorded in the Other natural class. This 

class included the cost of operating the work camps (life support) and a portion of 

security costs. 

 

12 Rebuilding Iraq: Actions Still Needed to Improve the Use of Private Security Providers, GAO-06-865T, 

(June 13, 2006); and Rebuilding Iraq: Actions Needed to Improve Use of Private Security Providers, GAO05-737 (July 28, 2005). 

13 Special Inspector General for Iraq Reconstruction, Lessons In Program And Project Management, March 

2007. 

14 USAID Audit Report: Audit of USAID/Iraq’s Electrical Power Sector Activities, E-267-05-003-P, (June 

29, 2005). 
22 

Table 6: Analysis of CLIN 0003A Costs by Natural Class Summary 

Group Through January 5, 2007 

Natural Class Summary Group Dollars Percent 

Salaries $30,741,030 12.4% 

Payroll Additives $9,637,493 3.9% 

Materials, Supplies, Tools, Office Expenses $5,890,356 2.4% 

Equipment & Facilities $5,109,628 2.1% 

Communications $834,255 0.3% 

Travel, Subsistence, Entertainment $13,467,480 5.4% 

Other Employee-related Expenses $48,306 <0.1%

Subcontract & Outside Services $161,718,705 65.2% 

Data Processing & Other Costs $4,933,350 2.0% 

Allowance for Indirect Costs $15,773,222 6.4% 

Total $248,153,825 100.0% 

Source: SIGIR analysis of Bechtel invoices 

As shown in Table 7, most of Bechtel’s costs for CLIN 0003B—82.5%—were recorded 

in Bechtel’s subcontract and other services natural class summary group. 

Table 7: CLIN 0003B Costs Through January 5, 2007 

Natural Class Summary Group Dollars Percent

Salaries $6,881,049.07 0.9% 

Payroll Additives $2,305,849.38 0.3% 

Materials, Supplies, Tools, Office Expenses $113,436,539.07 14.9% 

Equipment & Facilities $1,480,710.88 0.2% 

Communications $69,746.09 <0.1%

Travel, Subsistence, Entertainment $1,914,018.57 0.3 

Other Employee-related Expenses $6,031.06 <0.1%

Subcontract & Outside Services $627,770,922.64 82.5% 

Data Processing & Other Costs $3,218,967.60 0.4% 

Allowance for Indirect Costs $4,188,702.41 0.6% 

Total $761,272,536.77 100.0% 

Source: Bechtel accounting system data 
23 

The costs recorded in the Subcontract and Outside Services summary group are large 

because Bechtel subcontracted almost all its physical reconstruction work in Iraq. Bechtel 

invited firms selected on the basis of past performance to bid on the job orders and 

awarded the subcontract based on its evaluation of the bids. A secondary objective of 

Bechtel’s contract was to provide employment opportunities for Iraqis and Iraqi firms, 

thereby injecting much-needed capital into the economy. Of Bechtel’s subcontracts, 39% 

were awarded to Iraqi firms. Bechtel provided us with information showing that it 

directly employed 536 Iraqis under its Phase II contract and paid them for a total of 

1.5 million hours of work. In addition, its subcontractors had a maximum Iraqi employee 

head count of between 5,183 in June 2004 and 3,309 in May 2006 comprising both its 

Phase I and II contracts and under its Phase II contract Bechtel’s subcontractors paid their 

Iraqi employees for a total of 15.2 million hours. 

Role of Subcontractors 

The Bechtel Phase II contract was geared toward the use of subcontractors according to 

its USAID-approved subcontracting plan, which stated that Bechtel would subcontract 

approximately 90% of the direct reconstruction costs. Bechtel as discussed earlier used a 

“modified” full and open process, which restricted competition to prequalified bidders. 

According to firm officials, Bechtel made a combined technical and commercial 

evaluation of received proposals Bechtel typically made the award to the bidder offering 

the lowest-priced technically acceptable offer. Under fixed pricing, the contractor relies 

on the competitive process to obtain a fair price and does not have access to bidders’ 

pricing information. 

Bechtel awarded 66 subcontracts—64 fixed price and 2 cost-plus fixed-fee. Of the 66 

subcontracts, 11 were further subcontracted to 102 lower-tier subcontractors. Thus, we 

were able to identify a total of 168 subcontractors. Bechtel officials also told us that there 

were probably other subcontractors that were not specifically identified. This practice is 

part of the normal business of construction trade. Construction companies normally 

contract for specially skills, such as carpenters, bricklayers, plumbers, etc. The control of 

the costs of these additional workers is included in the negotiated firm-fixed-price 

contract with the contractor they are working for. 

Subcontracts were used to provide a variety of support, including construction, security, 

and life support: Details on Bechtel’s subcontractors and their subcontracts follow: 

• Parsons Global Services, Bechtel’s teaming partner in the Phase II contract, 

awarded 36 subcontracts for a wide range of water and sanitation services, such as 

civil/mechanical/electrical work, pipeline replacement, well drilling, and 

construction. 

• MID-Contracting, a subcontractor for the Basrah Children’s Hospital, awarded 11 

subcontracts for civil/structural work, concrete supply, and security 
24 

• General Electric International, a subcontractor for the Baghdad South Power 

Station, awarded 16 subcontracts for the main power transformer, water 

treatment, fuel treatment, and storage tanks. 

• General Electric Company, another subcontractor for the Baghdad South Power 

Station (separate from General Electric International), awarded 10 subcontracts 

for mechanical/electrical/tank fabrication and erection services, piling and civil 

work, security, and camp catering services. 

• Kuehne and Nagel, a freight forwarding subcontractor, awarded 11 subcontracts 

for inland transportation and security. 

• Asea Brown Boveri, a subcontractor for the Baghdad Karkh Districts substations, 

awarded 5 subcontracts for site electrical work and security services. 

• Schneider Electric-Square D, a subcontractor for the Baghdad Rusafa Districts 

substations, also awarded 5 subcontracts for site electrical work, transformer 

work, and security services. 

• Al-Bahar and Bardawil Specialties, a subcontractor for Basrah camp services, 

awarded 3 subcontracts, for catering, security services, and garbage disposal. 

• General Electric International, a subcontractor on another subcontract for 

operations and maintenance (O&M) assessment and training for power stations 

awarded 3 subcontracts, for security, local labor supply, and medical services. 

• Weir Engineering Services, a subcontractor for general pump and valve 

refurbishment, awarded one subcontract for security. 

• Applied Control System, a subcontractor for technical support, awarded one 

subcontract for design and engineering consulting. 

There were additional tiers of subcontractors below the subcontracts discussed above. 

However, neither USAID nor Bechtel had information on all subcontracts down to the 

lowest tier. We sought to ascertain if there were lower-tier subcontractors for one of 

Bechtel’s major subcontractors, Parsons Global Services (Parsons), Bechtel’s teaming 

subcontractor. Parsons had a contractual requirement with its subcontractors that they 

provide Parsons with a list of all lower-tier subcontracts down to the lowest tier. 

According to a Parsons official involved in contracting in Iraq, just one Parsons 

subcontractor formally identified a lower-tier subcontractor. According to this official, 

who had three years experience in subcontracting in Iraq, many subcontractors do not 

perform 100% of the work themselves unless the job is very small. They seem to have 

loosely organized cooperatives that perform the work because there are few large 

construction companies in Iraq. They also do not disclose who they are partnering with or 

where their workforce is from for a variety of reasons, particularly security. According to 

Parsons, monitoring of the subcontractors was very challenging because of the difficulty 

visiting the work sites. 
25 

Subcontractors Added Layers of Support Costs 

As stated earlier, 64 of 66 Bechtel subcontracts were for fixed prices. As a result, Bechtel 

had no detailed information on the 64 subcontractors’ costs because there is no 

requirement under fixed-price contracts for a contractor or subcontractor to provide 

detailed cost data. Bechtel estimated that support costs for its non-Iraqi subcontractors 

were probably less than 20%; for its Iraqi subcontractors, less than 10%. Lower-tier 

subcontractors would have added further layers of support costs. 

Bechtel had a cost-plus fixed-fee contract with Parsons and, therefore, more detailed cost 

data is available. Parsons provided us with a copy of their cumulative invoices submitted 

to Bechtel through September 29, 2006, which we were able to review to gain some 

insight into its costs.15 Parsons officials told us that it subcontracted all the physical 

reconstruction work under its Bechtel contract. Based on our analysis of costs billed by 

Parsons, we estimated that about 27% of its costs were for support. Parsons’ support costs 

were lower than Bechtel’s: (1) at least partly because Parsons’ fee was a portion of the 

fee USAID paid Bechtel, and (2) because Bechtel paid for some of Parsons’ life support 

costs and provided security for Parsons in Iraq. 

Subcontractor Management 

Bechtel took a variety of steps to manage its subcontracts. Upon awarding subcontracts, 

Bechtel officials held kick-off meetings with key subcontractor personnel. The agenda for 

the meetings was specific to meet subcontract requirements, but always included safety, 

quality, technical and commercial items. Before a subcontractor mobilized to a specific 

site, it had to provide all pre-mobilization deliverables identified in the contract such as 

insurances, performance bank guarantee, environmental safety and health plan, and a 

quality plan. 

Bechtel also exercised jobsite oversight. Bechtel officials told us that its subcontract 

technical representative was either an expatriate or Iraqi national depending on 

complexity of the subcontract. Bechtel used its own criteria to determine the complexity 

factor. If an expatriate technical representative was assigned, there were generally 1 or 2 

full-time Iraqi national engineers to monitor progress at the site. Depending on the 

complexity of the subcontract, weekly progress meetings occurred with subcontractors to 

discuss technical issues—such as safety, quality, schedule, progress, and others—and 

commercial issues. Subcontractors and Bechtel technical representatives independently 

prepared daily reports as project records. Finally, Bechtel followed a documented job 

order closeout procedure at the completion of the job order. 

Multiple layers of subcontracts, however, made subcontract management complex. In 

SIGIR’s previously cited March 2007 report on Lessons in Program and Project 

Management, we also discussed how the layered structure typical of design-build 

 

15 The other cost-plus contract was with Horne Engineering Services and was much smaller than the 

Parsons contract. 
26 

contractors in Iraq affected oversight. For Bechtel’s Job Order 04-511, the Basrah 

Children’s Hospital, Bechtel hired a consortium of three contractors to design and build 

the hospital. These subcontractors were responsible for providing on-site project 

management and supervision but hired additional local subcontractors and laborers to 

complete the work. In this instance, there were at least four layers of management, and 

each relied on the next to provide appropriate oversight. 
27 

USAID Costs in Managing Bechtel’s Work 

We could not determine the USAID costs of managing Bechtel’s work. However, we did 

determine selected aspects of costs and the overall administrative costs of the USAID 

Mission-Iraq. 

On May 25, 2003, USAID and USACE signed a Participating Agency Service 

Agreement, to have USACE provide construction oversight of Bechtel. USAID had 

obligated $28.1 million to fund the agreement through November 30, 2006, and had paid 

$23.5 million to USACE as of the same date. Subsequently, on January 8, 2007, USAID 

deobligated $4 million. Under the agreement, USACE was to provide technical assistance 

to USAID and was to be responsible for monitoring the quality control, quality assurance, 

schedule, performance monitoring, safety, environmental issues, de-mining/unexploded 

ordnance, and safety programs of Bechtel, and report exceptions or problems to the 

USAID contracting officer and cognizant technical officer. Correspondence among 

USAID officials makes it clear that the USACE’s charter was technical oversight—not 

management—of the contract. 

USAID did not segregate its overall administrative costs by contract or job order because 

it did not allocate or capture its overall administrative costs in this manner. Therefore, we 

can not report on USAID’s cost to administer the Bechtel contracts and specifically by 

job order. USAID’s administrative costs, including funds paid to USACE, were funded 

directly from IRRF, and were not charged against the Bechtel contract funds. The 

Congress authorized agencies administering IRRF funds to use up to 10% of those funds 

to pay for its administrative expenses. According to its accounting records, USAID has 

obligated $157 million in IRRF 2 funds for IRRF-related administrative expenses for the 

entire USAID Mission-Iraq. 
28 

Conclusion and Lessons Learned 

Conclusion 

Overall, the Phase II contract accomplished a substantial amount of work that contributed 

to the reconstruction of Iraq, particularly in the electricity and water and sanitation 

sectors. However, the outcomes on individual projects were mixed: some were completed 

as originally envisioned, others were cancelled, and still others were partially completed 

and transferred to other organizations for completion. We found that it was difficult to 

measure the relationship between cost and output/outcomes because of these and other 

factors: 

• The deliverables were not always specific in the job orders 

• The scope of work in the job orders changed over time 

• The budget estimates in the job orders did not include all costs 

• The budgeted amounts of the job orders changed over time 

• The ever-changing security situation in Iraq caused schedule delays resulting in 

increases to support costs. 

We conducted an analysis of the 24 job orders in an effort to determine if the original 

objectives were achieved. We determined that the original objectives were achieved for 

11 job orders; the original objectives were not achieved as stated in the original scope of 

work for 10 job orders; and for 3 job orders, we were either unable to determine what 

their original objectives were or the achievements were unclear. We believe that the 

experience gained in the course of the Phase II contract provides important insights into 

Iraq reconstruction and lessons for future reconstruction in Iraq and elsewhere. 

Bechtel provided USAID voluminous amounts of information on the status of the 

projects on a continuing basis. However, we believe, USAID did not have enough 

contract administration staff to adequately administer a contract the size of the Phase II 

contract, which entailed more than $1 billion and over 150 contractors performing work 

on 24 job orders and projects throughout Iraq. Further, USACE—which had an 

agreement to assist USAID—had substantial shortfalls in authorized manning levels that 

also impacted government oversight. 

Bechtel’s accounting system provides considerable detail on the types of costs that were 

incurred. Bechtel reported detailed cost data in its accounting system for most expenses 

and provided it to USAID. However, at the same time, it categorized approximately 

$250 million in expenses (about 20%) as Other with little detail as to what these costs 

entailed. 
29 

We determined that Bechtel’s support costs are in line with the support costs incurred by 

other major contractors in the United States and Iraq. Bechtel’s contract was geared 

toward the use of subcontractors according to its USAID-approved subcontracting plan, 

which stated that Bechtel would subcontract approximately 90% of the direct 

reconstruction costs. We identified a total of 168 subcontracts—66 awarded by Bechtel 

and 102 awarded by some of Bechtel’s subcontractors. All but two of these were fixedprice contracts, which did not require detailed cost data. 

Lessons Learned 

Based on our review, we are not making recommendations, but have identified three 

important lessons to be learned from the contracting, execution, and oversight of the 

Phase II contract for future reconstruction in Iraq and elsewhere. 

• Strong contract administration and adequate staffing are critical to success. In 

the Phase II contract, the clarity of job orders was mixed; some were clearly 

written, and others were vague, potentially causing costs to rise. USAID had a 

relatively small contract administration staff—two full-time, in-country staff—to 

oversee a contract valued at more than $1 billion, with 24 job orders throughout 

Iraq. Bechtel provided USAID with voluminous detailed information on the status 

of work, but USAID and USACE were staffed substantially below authorized 

manning levels. We have previously reported in a review of one of the projects 

under the Phase II contract that although USAID had an effective process in place 

for tracking the project, the information it received was not adequately analyzed 

and reported. It is essential that agencies provide enough staff to monitor 

contracts commensurate with their size and complexity and to ensure that there is 

strong contract administration and project management. 

• A clear understanding and review of costs is also important to contract 

management. USAID contractually committed itself to processing invoices 

within 10 days of receipt, which limited its ability to thoroughly review them 

before payment. Although Bechtel captured detailed cost data in its accounting 

system and provided it to USAID, there was still a large miscellaneous category, 

amounting to $250 million, categorized as Other within the largest cost category. 

Other was for subcontracts and other services. Miscellaneous or other costs 

should not be allowed to exceed a contractually defined ceiling—such as 10% of 

costs—to prevent the loss of visibility that accompanies large miscellaneous 

categories, and contractors should be directed to develop additional cost 

categories to capture costs in accounting systems when miscellaneous costs 

exceed that set ceiling. 

• Minimizing support costs makes more money available for reconstruction. In 

future contracts, managers need to determine how heavily to rely on primes or 

subcontractors that do little of the actual work but represent more than a quarter of 

the costs. Also, it is important to achieve a clear understanding of how they add to 

costs and what is the value-added. Government contract managers and 
30 

program/project managers need to be attentive to the support-costs aspects of any 

contract and to remain vigilant for opportunities to reduce this cost. 

Management Comments and Audit Response 

This report contains no recommendations; therefore no written response was required. 

We provided a draft of this report to DoS and USAID. Each provided technical 

comments, which were considered and addressed, where appropriate, in the final report. 

During the review, USAID stated that competition was relied upon to establish price 

reasonableness and the Phase II contract was competed, with Bechtel being low bidder. 

USAID further stated that this complied with the intent of the FAR. In responding to the 

draft of this report, USAID and Bechtel officials noted that in Iraq’s challenging 

operational environment, it is difficult to judge the value provided through the work 

accomplished under individual job orders, and that the value provided should be 

measured against the work accomplished by the total contract. We measured 

accomplishments by individual job orders because that was how USAID communicated 

with Bechtel on what the overall contract was to achieve. 

Future SIGIR Work 

We plan to conduct a series of focused financial reviews of contractors receiving funds 

for Iraq relief and reconstruction. Consequently, we plan to identify systemic issues and 

report at the end of the series on the challenges of relief and reconstruction in Iraq and 

lessons learned that address systemic issues and leading practices across these multiple 

contracts. 
31 

Appendix A—Scope and Methodology 

On July 24, 2006, SIGIR initiated this audit (Project No. 6028) to determine, in detail, the 

costs incurred by Bechtel in performing work under its USAID Phase II contract (SPU-C00-04-00001-00), as well as the methods used to record and report associated costs. 

Specifically, we addressed these questions: 

• What cost detail is contained in the invoices and supporting documentation that 

Bechtel submitted to the government? 

• What costs did Bechtel incur in carrying out its contracted tasks, including the 

cost of material, labor, overhead, security, subcontracts, and all other costs? 

• How many layers of subcontracts did Bechtel have in performing the contracted 

work? 

• What types of contracts (firm-fixed-price, cost-plus, or other arrangement) were 

used for subcontracts; at each layer of subcontracting, what costs were billed to 

the next level of subcontractor? 

• What were USAID’s administrative fees? 

Subsequently, in the January 30, 2007 Quarterly Report and Semiannual Report to the 

Congress, we expanded our objectives to include contract outcomes and contract 

administration, and other areas: 

• What was the original objective of the contract? 

• What was accomplished? Were projects completed or changed? 

• Was each project completed within its original budget estimate? 

• What controls were established to monitor the contractor and the execution of the 

contract? 

• What reports were used to monitor the contract, and what reports were required 

by the contract? 

• Is there visibility over costs incurred—by task order, job order, project, etc.? 

• What review process is in place by the government to ensure accuracy of billings?

• What are the subcontracting provisions in the contract and to what extent was the 

work subcontracted?

• What cost detail is contained in the invoices and supporting documentation that 

Bechtel submitted to the government?

In accordance with generally accepted government auditing standards, we conducted this 

audit from July 2006 to June 2007 in Baghdad, Iraq; Kuwait City, Kuwait; Arlington, 

Virginia; and San Francisco and Pasadena, California. To cover our objectives, we 
32 

organized the report into four sections: the contractual arrangement between USAID and 

Bechtel pertaining to this contract and its outcomes, contract administration, Bechtel’s 

costs, and, USAID’s cost in managing Bechtel’s work. 

 To describe the contractual arrangement between USAID and Bechtel pertaining to this 

contract and contract outcomes: 

• We reviewed the history of the contract as well as the Phase I contract. 

• We read the contract and related documents. 

• We reviewed each of the 24 job orders, prepared summaries of each job order 

documenting the original objective and cost and how it was modified by 

amendments, and compared the final outcome with the original stated objective. 

To assess contract administration: 

• We reviewed the kinds of documentation available to USAID on Bechtel’s 

activities under the contract and discussed with USAID and Bechtel officials how 

work under the contract was monitored. 

• We reviewed the contract requirements for invoicing, the invoices submitted by 

Bechtel, and USAID’s processing of the invoices. 

• We reviewed the terms, cost, and contract line item number requirements of the 

contract. 

• We developed spreadsheets and charts to determine job order projects, project 

status, and spending and recording of cost. 

• Because USAID had an agreement with the Defense Contract Audit Agency 

(DCAA) to audit Bechtel’s incurred costs, we reviewed the DCAA audits of 

Bechtel’s FY 2004 through FY 2007 incurred costs (the latest completed), as well 

as DCAA reports on Bechtel’s accounting system and internal controls. 

We met with DCAA officials at Bechtel’s headquarters in San Francisco, California, for 

Bechtel’s contract; we met with DCAA officials in Pasadena, California, for Bechtel’s 

subcontractor Parsons Global Services. We met with Parsons officials in Baghdad, Iraq, 

and California. We also met with Bechtel officials in California and Maryland. 

To assess whether USAID had adequate staff to administer the contract, we reviewed its 

staffing roster to ascertain whether it had vacant positions and discussed with USAID 

officials what an adequate staffing level should be. 

To analyze costs incurred by Bechtel for the Phase II contract, we obtained and reviewed 

Bechtel’s invoices for the period between February 24, 2004 (invoice 1) and January 5, 

2007, (invoice 69), totaling $1.15 billion. Of this amount, we divided the invoiced costs 

by contract line item number into those that we categorized by the terms physical 

reconstruction costs and support costs. To determine criteria on how to characterize job 
33 

costs as direct, indirect, and support costs, we reviewed the applicable sections of the 

FAR, prior SIGIR and GAO reports, and the IRS definitions. We also discussed our 

categorization with Bechtel officials, who agreed that it was reasonable as long as we 

were clear as to what we considered to be direct and support costs. Because the contract 

line item numbers alone provide little insight into the costs incurred under the contract, 

we also analyzed Bechtel’s costs by their placement in Bechtel’s accounting system’s 

natural classes and summary natural classes. Bechtel used 84 natural classes, which in 

turn aggregate into 10 summary classes. To understand how Bechtel records costs, we 

held discussions with Bechtel officials and reviewed material provided us. This facilitated 

our understanding of how Bechtel captures its cost information in its accounting system 

and the accounting codes used to identify the type of cost. 

Because subcontractors performed almost all of the reconstruction work under the Phase 

II contract, Bechtel provided us with a list of its subcontracts—all but two were fixed 

price contracts—and any information it had on the subcontractors’ subcontracts with 

others. We then tallied the number of subcontracts. To better understand costs incurred 

by the subcontractors, we obtained information on the costs incurred by one of Bechtel’s 

subcontractors, Parsons Global Services in Pasadena, California, which had a cost-plus 

fixed-fee subcontract with Bechtel. We also discussed subcontract administration with 

Bechtel officials and reviewed relevant documents. 

To determine the administrative expenses incurred by USAID, we reviewed USAID’s 

accounting records to document the funds obligated and disbursed to fund its agreement 

with USACE for assistance in monitoring work under the contract. We also analyzed 

USAID’s accounting records to determine the IRRF funds used for its administrative 

support. In the course of our work, we interviewed the USAID Comptroller and 

contracting officials, as well as the Iraq Reconstruction Management Office (IRMO) 

budget officer, legal advisers, and senior consultants. 

Use of Computer-processed Data 

We analyzed various computer-generated database reports to verify cost. We did not 

review the controls over the Bechtel accounting systems, but relied on DCAA’s reports. 

Iraq Reconstruction Tracking System 

The Iraq Reconstruction Tracking System, developed and maintained by USACE based 

on its interagency agreement with USAID, is an archival data system that records 

individual job orders for the Phase II contract under USAID’s Iraq Infrastructure 

Reconstruction Program. Although the Iraq Reconstruction Tracking System contains 

some Bechtel contract and job order data, it is not part of an official USAID database or 

repository for contract and/or financial data. Because USAID’s contracting and financial 

management offices are not involved in data processing operations, neither is responsible 

for the accuracy of data that USACE inputs into the system. 
34 

USAID Phoenix Accounting System 

We reviewed Bechtel invoices as entered for payment into the USAID Phoenix 

Accounting System to determine the actual payments made to Bechtel. We also reviewed 

cost-to-complete reports compiled by USAID cognizant technical officer, as well as 

various funds status reports provided by the IRMO budget team and USAID financial 

management office. 

We did not audit the controls of these systems, but recognize that USAID and IRMO 

relied on the same information to provide oversight of the Bechtel work. 

Prior Coverage 

We reviewed applicable reports issued by SIGIR, USAID Office of Inspector General, 

DCAA, and GAO. 

Special Inspector General for Iraq Reconstruction 

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

23, 2006)

Review of the U.S. Agency for International Development’s Management of the Basrah 

Children’s Hospital Project, SIGIR-06-026 (July 31, 2006)

Review of Administrative Task Orders for Iraq Reconstruction Contracts, 

SIGIR-06-028 (October 23, 2006) 

Iraq Reconstruction: Lessons in Program and Project Management 

(March 2007) 

U.S. Agency for International Development Office of Inspector General 

Audit of USAID/Iraq’s Electrical Power Sector Activities, E-267-05-003-P 

(June 29, 2005) 

Audit of USAID/Iraq’s Water and Sanitation Rehabilitation Activities, 

E-267-05-004-P (June 30, 2005) 

Defense Contract Audit Agency 

Report on Audit of Incurred Direct Costs Under Iraq Infrastructure Reconstruction 

Phase I and Phase II Contracts From October 1, 2005 through October 31, 2006, 

4281-2007D10180001 (February 28, 2007)

Report on Audit of PGSI Subcontractors Costs Billed Under Subcontract No. 24964-000-

ESU-W000-001, 4901-2006B17900036 (August 11, 2006) 
35 

Report on Audit of Incurred Direct Costs Under Iraq Infrastructure Reconstruction 

Phase I and Phase II Contracts From October 1, 2004 through September 30, 2005, 

4281-2006D10180001 (September 1, 2006) 

Report on Audit of Incurred Direct Costs Under Iraq Infrastructure Reconstruction 

Phase I and Phase II Contracts From March 1, 2004 and January 5, 2004, to September 

30, 2004, Respectively, 4281-2005D17900001 (Revised, June 16, 2005) 

Bechtel Systems and Infrastructure, Inc. (Functions & Services) Accounting System 

Audit, 4281-2001D11070001 (January 29, 2004) 

Report on Audit of Labor Accounting Internal Controls 

4281-2001D13010001 (December 11, 2002) 

Report on Indirect and Other Direct Costs System Follow-up Review 

4281-1999D14980001 (August 28, 2000) 

U.S. Government Accountability Office 

Rebuilding Iraq: Reconstruction Progress Hindered by Contracting, Security, and 

Capacity Challenges, GAO-07-426T (February 15, 2007) 

Rebuilding Iraq: Status of DoD’s Reconstruction Program, GAO-07-30R (December 15, 

2006)

Rebuilding Iraq: Actions Still Needed to Improve the Use of Private Security Providers, 

GAO-06-865T (June 13, 2006) 

Rebuilding Iraq: Actions Needed to Improve Use of Private Security Providers, 

GAO-05-737 (July 28, 2005)

DOE Contractor Management: Opportunities to Promote Initiatives That Could Reduce 

Support-Related Costs, GAO-02-1000 (September 20, 2002) 

Future Coverage 

This audit is a first in a series of focused financial reviews of the Iraq Relief and 

Reconstruction Fund. Our intent is to perform individual contract reviews of the larger 

contractors. We plan to issue a final report next year identifying any lessons learned and 

leading practices for future reference. 
36 

Appendix B—Job Order Summaries 

Job Order Number: 04-501 

Description: Baghdad South New Generation Equipment

Start Date: February 12, 2004 

Original Planned Completion Date: October 1, 2004 

Date Completed: August 14, 2006

Original Budget: $31,000,000 

Final Budget: $189,380,788 (based on Bechtel’s October 25, 2006 Subcontractor’s 

Request for Equitable Adjustments) 

Job Order Objective: This job order continued work that began under Bechtel Phase I 

contract Job Order 04-005 to increase electrical generation capacity to the electrical grid 

by adding two combustion turbines (Frame 9E GE gas turbines) to the existing Baghdad 

South power plant, a mid-sized thermal power plant. This job order provided for the 

second gas turbine; the first turbine was acquired under the Phase I contract. 

Changes to the Job Order: Work was expanded through seven job order amendments: 

• Amendment 1 (April 7, 2004) transferred work from the Phase I contract to this 

Phase II job order and added materials and transfers of service to the second 105-

MW combustion turbine. Funding was increased by $32,620,000 to $63,620,000. 

• Amendment 2 (September 29, 2004) incorporated costs relating to additional 

security requirements, implementing an accelerated schedule, removing 

hazardous materials and underground concrete, and costs for Risk of Loss 

Insurance. Funding was increased by $54,329,000 to $117,949,000. 

• Amendment 3 (November 12, 2004) incorporated additional costs for camp 

hardening and increased transportation, insurance and storage costs for 

equipment. No funding adjustments were made. 

• Amendment 4 (May 1, 2005) added additional security costs, revised major 

milestone dates, and deleted the Baghdad South camp budget. Funding was 

increased by $83,161,000 to $137,490,000. 

• Amendment 5 (August 30, 2005) covered additional costs caused by impacts upon 

construction productivity, switchyard changed conditions, filtered water system 

interface connections, and other activities. Funding was increased by $21,445,134 

to $158,935,134. 
37 

• Amendment 6 (February 14, 2006) covered the design, supply, shipping and 

installation of Heavy Fuel Oil (HFO) pre-treatment skid and all associated civil, 

electrical, mechanical and piping work for the Baghdad South Power Station, and 

the purchase of two crude oil neutralizing chemical pumps for the Daura refinery. 

It also extended the completion date to June 30, 2006 and increased funding by 

$822,326 to $159,757,460. 

• Amendment 7 (March 30, 2006) covered the removal of the extended warranty 

options for several activities. Funding was increased by $4,720,000 to 

$164,477,460. 

Final Job Order Outcome: Bechtel added the combustion turbine to the existing 

Baghdad South power plant as called for in the original job order. On September 25, 

2006, USAID issued Bechtel a letter confirming that Bechtel had met the contract 

deliverables and that the job order was considered closed out with the exception of 

Bechtel providing the Final Cost Summary and any adjustments to it. On October 25, 

2006, Bechtel notified USAID of a New Forecast Job Order budget increase of 

$24,903,328 to $189,380,788, attributed to final settlement of outstanding subcontractor 

Request for Equitable Adjustments.
38 

Job Order Number: 04-502 

Description: Baghdad Governate Municipal Solid Waste Landfill Facility

Start Date: February 22, 2004 

Original Planned Completion Date: January 1, 2005 

Date Completed: July 30, 2005

Original Budget: $14,200,000 

Final Budget: $4,107,407 

Job Order Objective: This job order was to (1) design and construct a regional solid 

waste landfill (2) provide Iraqi personnel with management and operations training, and 

(3) design an operation plan for an initial 3-5 year capacity landfill and a master plan for 

a 20-year landfill. 

 

Changes to the Job Order: Work was altered through two job order amendments: 

• Amendment 1 (May 4, 2004) changed operational equipment to support the 

landfill operation. The type and quantities of equipment had been optimized for 

the original landfill design and had to be changed when the landfill site changed. 

In addition, the amendment addressed the changes in landfill site and associated 

assessments, design rework, and unexploded ordnance survey and assessments. 

The job order budget did not change, but the period of performance was modified 

to March 23, 2005. 

• Amendment 2 (May 19, 2005) extended the schedule to July 30, 2005, and 

deleted the items that were not completed before the job order was cancelled. 

Land ownership problems and severe security concerns caused Bechtel and its 

subcontractor to relocate the landfill to two new sites and start work all over each 

time. The job order was descoped after the investigation of a third site. On April 

9, 2005, the USAID cognizant technical officer received direction by email to 

perform this job order amendment. Bechtel demobilized from the site on March 

19, 2005. As requested by U.S. and Iraqi officials in Kirkuk, $2.6 million in 

operating equipment from this job order was transferred to support a landfill 

operation in Kirkuk. The job order budget was decreased by $10,092,593 to 

$4,107,407. 

Final Job Order Outcome: The job order was cancelled after the contractor investigated 

three sites for the landfill and found none acceptable because of land ownership issues 

and security concerns. The final revised completion date was July 30, 2005. 
39 

Job Order Number: 04-503 

Description: Power Plant Maintenance Program 

Start Date: March 4, 2004 

Original Planned Completion Date: December 31, 2004 

Date Completed: March 22, 2007

Original Budget: $80,000,000 

Final Budget: $92,704,533 

Job Order Objective: This job order comprised facility condition assessments, 

preparation and supervision of an O&M plan to improve plant output availability and 

reliability, and the provision of O&M training for thermal and combustion turbine power 

plants throughout Iraq. A total of 109 thermal and combustion turbine power plant units 

located at 19 different sites (facilities) were included in this Power Plant O&M Program. 

The job order also included the implementation of a computerized Maintenance 

Management System, O&M training for Ministry of Electricity staff, and an allowance 

for other materials and services to address critical maintenance needs identified in the 

assessments. 

Changes to the Job Order: Work was changed through 12 job order amendments: 

• Amendment 1 (October 24, 2004) extended the completion date to coincide with 

providing support for the Spring 2005 maintenance outages, revised the scope of 

the assessments, modified the training program, and increased the allocation for 

parts and services to be provided. The job order budget did not change, but the 

period-of-performance was amended to May 31, 2005. 

• Amendment 2 (February 3, 2005) extended the schedule to August 31, 2005 to 

accommodate revisions to the training schedule. 

• Amendments 3 (July 3, 2005), 4 (December 21, 2005), 5 (April 4, 2006), and 6 

(August 11, 2006) extended the schedule to purchase and deliver required spare 

parts. 

• Amendments 7 (September 27, 2006), 9 (December 16, 2006), 10 (January 1, 

2007), 11 (February 1, 2007), and 12 (March 7, 2007) extended the schedule to 

perform needed work on the Kirkuk V.94 generator, including final resolution of 

the Root Cause Analysis. 

• Amendment 8 (October 3, 2006) reduced the number of planned assessments 

from the originally planned 19 facilities down to 6 facilities, as directed by 

USAID. The remaining 6 facilities were reduced to supply of spare parts on an asneeded basis. As of Amendment 12, the completion date was March 31, 2007, and 

the job order budget was $92,704,533. 

Final Job Order Outcome: The scope of the Job Order was reduced from 19 to 6 

facilities; the scheduled completion date slipped by 27 months from December 31, 2004, 

to March 31, 2007; and the job order budget increased $12,704, 533. A Substantial 

Completion Letter was signed on March 22, 2007. 
40 

Job Order Number: 04-504

Description: Mussayib Thermal Power Station 

Start Date: March 5, 2004 

Original Planned Completion Date: August 31, 2004 

Date Completed: February 28, 2006

Original Budget: $22,857,000 

Final Budget: $6,613,681 

Job Order Objective: This job order provided technical and management oversight and 

assistance to the Ministry of Electricity and provided parts, equipment, and specialty 

technical services for the partial rehabilitation of the Mussayib Thermal Power Station 

with a targeted increase of 240 MW of electrical output by May15, 2004. 

Changes to the Job Order: Work was changed through four job order amendments. 

• Amendment 1 (June 15, 2004) extended the completion date to February 1, 2005, 

because of the time period required to re-blade two low-pressure steam turbines. 

• Amendment 2 (October 23, 2004) extended the completion date to May 31, 2005, 

to continue plant refurbishment support through the Spring 2005 outage. 

• Amendment 3 (March 15, 2005) reduced the scope of the work. The reductions 

included refurbishment of steam turbine generator rotors, water treatment 

systems, fire and cooling water processes, and boiler elevators. Also deleted were 

additional plant outage support services for the Spring 2005 maintenance outage. 

Added was the requirement to supply materials to support the work of others. The 

job order budget was decreased by $16,243,319 to $6,613,681. 

• Amendment 4 (April 28, 2005) deleted the installation of the boiler feed water 

pump recirculation valves. According to USAID documentation (April 22, 2005), 

there was no change in the job order budget “because this scope was not 

previously included”. 

Final Job Order Outcome: Over the lifecycle of this job order, the scope was increased 

through Amendments 1 and 2 and then decreased in Amendments 3 and 4. Because the 

original scope of work seemed to focus primarily on assessments, it is difficult to 

determine the product that remained after the descoping actions of Amendments 3 and 4. 

For example, there is no description of an increase in the electrical output relative to the 

target of 240 MW. Thus, it is difficult to establish the value of the product received for 

the $6.6 million cost of this job order.
41 

Job Order Number: 04-505

Description: Conceptual Design for Rural Water Supply Project 

Start Date: March 3, 2004 

Original Planned Completion Date: April 17, 2004 

Date Completed: July 30, 2005

Original Budget: $390,000 

Final Budget: $261,077 

Job Order Objective: This job order included providing sample designs and a report for 

the supply of improved potable water systems to serve small rural communities of up to 

5,000 people throughout Iraq. It did not include site-specific detailed designs, site 

selection, or furnishing and installing potable water systems. 

Changes to the Job Order: Work was altered through two job order amendments: 

• Amendment 1 (May 1, 2004) adjusted the completion date to allow Bechtel to 

address comments received from the Iraqi Ministry of Municipal Public Works. 

The job order budget did not change, but the period of performance was extended 

to April 30, 2004. 

• Amendment 2 (September 27, 2005) reflected the final completion date of May 

10, 2004, changes in the scope of work, job order budget decreases, and the final 

inspection and acceptance date of the work. The job order budget was decreased 

by $128,923 to $261,077. 

Final Job Order Outcome: The deliverables on this job order comprised of sample 

designs for potable water systems to service small communities and a report addressing 

the supply of improved potable water systems. USAID acknowledged final inspection 

and acceptance of the product.
42 

Job Order Number: 04-506

Description: Baghdad Distribution Substations 

Start Date: March 1, 2004 

Original Planned Completion Date: June 15, 2005 

Date Completed: February 28, 2006

Original Budget: $64,632,000 

Final Budget: $137,197,000 

Job Order Objective: This job order covered performing condition assessments and 

rehabilitating four existing electrical distribution substations and constructing ten new 

33kV–11kV electrical distribution substations in the greater Baghdad area to improve 

reliability of electrical distribution in Baghdad. Further, as part of this job order, Bechtel 

was to provide equipment, install, and test, and was also to provide training to the 

Ministry of Electricity staff. 

Changes to the Job Order: Work was changed through five job order Amendments. 

• Amendment 1 (June 22, 2004) increased the number of refurbished substations 

from 4 to 14 and increased the number of new substations from 10 to 24. The job 

order budget was increased by $68,069,000 to $132,701,000, and the completion 

date was extended to October 15, 2005. 

• Amendment 2 (August 10, 2004) decreased the number of distribution substations 

from 38 to 37 (by deletion of one refurbished substation) and incorporated 

Ministry of Electricity design preferences. The schedule was revised to reflect a 

completion date of December 15, 2005, because of security conditions and the 

revised design of the substations. 

• Amendment 3 (November 13, 2004) adjusted the job order budget to re-allocate 

the approved budget of $132,701,000 and added a reserve of $8,000,000. Also, 

trips outside Iraq for Ministry of Electricity personnel were added so they could 

witness test substation components. The supply of 33kV and/or 11kV feeder 

cables and termination materials was included in the scope. This amendment 

increased the job order budget by $14,800,000 to $147,501,000. 

• Amendment 4 (April 7, 2005) decreased the construction of new distribution 

substations from 24 to 12. The job order budget was decreased $10,304,000 to 

$137,197,000. The completion date remained December 15, 2005. 

• Amendment 5 (December 24, 2005) revised the completion date to February 28, 

2006, to accommodate delays caused by security impacts, late performance by the 

Ministry of Electricity to include the late identification and subsequent 

replacement of sites, and scope changes. The job order budget remained at 

$137,197,000. 
43 

Final Job Order Outcome: Over the lifecycle of this job order: 

• The number of new substations increased from 10 to 24, and then decreased to 12. 

• The number of refurbished substations increased from 4 to 14 and then decreased 

to 13. 

• The scheduled completion date slipped by 8-1/2 months, from June 15, 2005, to 

February 28, 2006. 

• The job order budget increased by $72,565,000 for two additional new substations 

and nine additional refurbished substations. 
44 

Job Order Number: 04-507

Description: Irrigation and Drainage Pump Station Rehabilitation

Start Date: May 30, 2004

Original Planned Completion Date: July 24, 2005 

Date Completed: January 8, 2006

Original Budget: $10,406,000 

Final Budget: $5,387,000 

Job Order Objective: This job order included conducting site assessments and 

refurbishing seven existing irrigation and drainage water pumping stations located in 

various regions of Iraq. The scope also included designing, furnishing, constructing, 

commissioning, and testing the water pumping stations, as well as, providing training on 

new equipment. 

Changes to the Job Order: Work was altered through three job order amendments: 

• Amendment 1 (April 7, 2005) extended the completion date and reduced the 

number of pump stations from seven to five because of additional work being 

required that was identified in the assessment report. The scope at the five pump 

stations was reduced to only supplying materials and equipment. The extension 

was needed because of delays in the procurement cycle. Design information was 

received late from the Ministry of Water Resources, which caused delays in 

preparing a suitable bid package. The lack of technically acceptable bids 

necessitated a second round of bidding, causing further delay. Security concerns 

also added to the delay. The job order budget was decreased by $5,317,000 to 

$5,089,000. The period-of performance was amended to December 15, 2005. 

• Amendment 2 (August 24, 2005) accounted for increases related to the cost of 

freight (previously underestimated) and transit security costs (omitted). The job 

order budget was increased by $548,000 to $5,637,000. 

• Amendment 3 (May 14, 2006) provided spare parts for two years instead of one 

year and also decreased the job order budget by $250,000 to $5,387,000. 

Final Job Order Outcome: The scope of work was changed to reflect up to five sites 

instead of seven, and the deliverables shifted from designing, furnishing, constructing, 

commissioning, testing, and providing training for new equipment and other 

refurbishment of these facilities to only supplying materials and equipment. The period of 

performance was extended by just more than 5 months. According to a USAID audit16 in 

January 2005, Bechtel reported that the construction sites at four of the seven pump 

stations were deemed non-permissive for security reasons. A USACE report confirmed 

that security conditions at the project sites have made them non-permissive areas. 

Consequently, USAID Mission-Iraq directed Bechtel to discontinue work at those sites. 

 

16 Audit of USAID/Iraq’s Water and Sanitation Rehabilitation Activities (E-267-05-004-P) June 30, 2005. 
45 

Job Order Number: 04-508

Description: Wadha Number 1, 2, and 3 Pump Station Restoration

Start Date: June 6, 2004 

Original Planned Completion Date: July 30, 2005 

Date Completed: January 8, 2006

Original Budget: $5,948,000 

Final Budget: $6,044,000 

Job Order Objective: This job order included conducting site assessments, submitting 

an assessment report, and rehabilitating 3 irrigation water-pumping stations in the Wadha 

Irrigation Project area. Existing equipment and materials were to be replaced as necessary 

to restore proper operation and pumping capacity of the pumping stations. New 

equipment was to be furnished, installed, and tested, and training was to be provided for 

the Ministry of Water Resources staff. 

Changes to the Job Order: Work was altered through four job order amendments: 

• Amendment 1 (December 11, 2004) increased the budget for rehabilitating the 

three pump stations, decreased the budget for the vertical turbine pumps, included 

the actual cost of line items, and also included additional mechanical, electrical, 

civil, and structural scope. The amendment extended the completion date to 

include actual fabrication and delivery schedules for the vertical turbine pumps. 

The period of performance was amended to November 15, 2005. 

• Amendment 2 (April 19, 2005) extended the completion date to December 15, 

2005, removed the installation scope and included additional mechanical and 

electrical equipment based on assessment information. The job order budget was 

decreased by $620,000 to $5,328,000. 

• Amendment 3 (August 24, 2005) increased the job order budget to account for 

increases related to the cost of freight, which had been previously underestimated, 

and transit security costs, which had been omitted. The amendment also required 

testing and materials beyond the amount budgeted in the original job order. Under 

the original job order, one rotor dynamic test and one set of O&M manuals were 

required for two similar pumps. Because of differing site conditions, pump 

specifications were revised to procure two pumps of different capacities. This job 

order amendment accounted for one additional rotor test and one additional set of 

O&M manuals which were now required for each of two different pumps. The job 

order budget was increased by $716,000 to $6,044,000. 

• Amendment 4 (June 1, 2006) increased the supply of operational spare parts from 

one to two years and updated the Statement of Work accordingly. The final 

completion date was noted as January 8, 2006. 

Final Job Order Outcome: The scope of work was changed to remove the installation of 

equipment, to increase the amount of mechanical and electrical equipment based on the 
46 

assessment, and to increase the supply of spare parts from one to two years. The net 

increase in the job order budget was $96,000. The period of performance was extended 

by just more than five months. According to a USAID audit17, in January 2005, Bechtel 

reported that a number of factors were causing performance delays including security 

conditions. This caused delays in traveling to and from the sites for the Bechtel staff. 

USAID and USACE officials added that, because of precarious security conditions, the 

project sites were deemed dangerous. In addition, at times, the local ministry did not 

allow access to the sites, thus hindering the completion of the civil work on site. 

Consequently, in April 2005, the USAID contracting officer approved an amendment to 

the job order reducing the scope of work to include site assessments, development of an 

assessment report, and procurement of equipment and their delivery to the Ministry of 

Water Resources, which would then be responsible for their installation. The project 

failed to restore the three irrigation pump stations in the Wadha region.

 

17 Audit of USAID/Iraq’s Water and Sanitation Rehabilitation Activities (E-267-05-004-P) June 30, 2005. 
47 

Job Order Number: 04-509

Description: Rural Water Supply Project Implementation 

Start Date: June 13, 2004 

Original Planned Completion Date: November 1, 2005 

Date Completed: September 15, 2006

Original Budget: $84,735,000 

Final Budget: $61,983,402 

Job Order Objective: This job order included conducting site assessments and assisting 

USAID and the Ministry of Municipalities and Public Works in selecting sites to build 

new potable water supply facilities in rural areas throughout Iraq. The scope also 

included designing, furnishing, constructing, commissioning, testing, and providing 

training for the new facilities. 

Changes to the Job Order: Work was altered through six job order amendments: 

• Amendment 1 (February 5, 2005) extended the completion date to March 31, 

2006, and included a Hygiene Training Program. The amendment also included 

increased camp and unexploded ordinance survey costs and a reduction in the 

estimated number of water treatment facilities to be constructed to an undefined 

number. The completion date was extended because of delays in completing 

negotiations between USAID and the various governorates to obtain approved 

sites. The job order budget was decreased by $11,701,000 to $73,034,000. 

• Amendment 2 (April 4, 2005) extended the completion date to April 30, 2006, 

added a fully staffed Kuwait warehouse to manage the free-issue materials to the 

various job sites, revised the base design to provide 35-110 liters of potable water 

per day per person, added testing of the source water for chlorinated 

hydrocarbons, added miscellaneous equipment needed because of the 

geographically dispersed nature of this project, and transferred savings from 

reducing the required equipment to Allocated Reserves. The job order budget was 

unchanged. 

• Amendment 3 (January 19, 2006) addressed changes to the rural water project 

including allocation of budget, number and location of sites. The original table in 

the job order showed numbers of sites and plants; this amendment reduced the 

sites and plants to one per lot, design and constructability of sites, treatment unit 

type, project milestones, and O&M sustainability. The amendment did not detail 

the adjustments and, as a result, we were unable to quantify the reduced number 

and location of sites. 

• Amendment 4 (June 8, 2006) extended the completion date to June 20, 2006, 

changed the number of sites being constructed, and incorporated shifts in line 

items to reflect actual project implementation. The amendment did not contain 

any detail about the changes. As a result, we were unable to quantify the reduced 

number and location of sites. The job order budget was decreased by $5,000,000 

to $68,034,000. 
48 

• Amendment 5 (August 11, 2006) extended the completion date to September 15, 

2006, to allow USAID adequate time to approve remaining field close-out items 

(Pre-final Inspections and Partial Substantial Completions). The job order budget 

was decreased by $4,892,000 to $63,142,000. 

• Amendment 6 (January 31, 2007) modified the list of sites found in the original 

job order documentation, which outlined the types and numbers of facilities to be 

built. It also reduced the job order budget by $1,158,598 by releasing allocated 

reserve, which decreased the total job order budget to $61,983,402. 

Final Job Order Outcome: Insight into sites and plants delivered disappeared when the 

job order was modified from a specific number of plants and facilities to be delivered to a 

count of one lot per facility type. This change potentially obscured the cost per facility, as 

it should not be assumed that the cost per original unit remained constant when the count 

changed to one lot. Amendment 6 attempted to re-introduce the ability to track facilities 

to the job order, but because it was in a different format from the original information in 

the baseline job order, we found it difficult to understand what was delivered versus what 

was descoped. Net decrease in the job order budget was $22,751,598. The period of 

performance was extended by 9-1/2 months, with concurrent increases in life-support 

costs. According to a USAID audit18, in May 2005, USAID informed Bechtel that of the 

69 sites that were considered active, only 35 sites were actually providing water through 

wells. Of the remaining 34 sites, according to USACE personnel, the contractor was 

working in only 22. Consequently, on May 24, 2005, the USAID contracting officer 

officially directed Bechtel to suspend work until further directed by USAID and 

requested Bechtel to develop alternatives that would put the project back on track. 

 

18 Audit of USAID/Iraq’s Water and Sanitation Rehabilitation Activities (E-267-05-004-P) June 30, 2005. 
49 

Job Order Number: 04-510

Description: Sadr City Treatment Plant 

Start Date: June 21, 2004 

Original Planned Completion Date: February 26, 2006 

Date Completed: October 6, 2006

Original Budget: $14,087,546 

Final Budget: $29,401,400 

Job Order Objective: This job order was to supply a new potable water treatment plant 

with tie-ins to existing raw water supply (inlet to water treatment plant) and treated water 

discharge line to an existing distribution system to Sadr City and surrounding areas of 

Baghdad. 

Changes to the Job Order: Work was altered through three job order amendments: 

• Amendment 1 (July 31, 2004) tripled the capacity of the equipment from 1000 

cubic meters per hour to 3000 cubic meters per hour. The scope, completion date, 

and job order budget were revised to reflect this change. The job order budget was 

increased by $16,893,854 to $30,981,400. The period of performance was 

extended to March 22, 2006. 

• Amendment 2 (April 4, 2005) added the cost of pilings required at the new site. 

The length of the raw-water transmission pipe was increased from 1,200 to 2,200 

meters, and the treated water storage volume was reduced from 24,000 cubic 

meters to 8,000 cubic meters. The cost savings from decreasing the tank volume 

and the chlorine contact tank was included in the job order budget as a separate 

line item—“Gaseous Chlorine Disinfection,” which increased the plant capacity 

to 4,000 cubic meters per hour. It deleted the on-site solids processing, deleted the 

use of sodium hypochlorite and replaced it with chlorine gas for disinfection, and 

included the cost of an unexploded ordnance survey and the Allocated Reserves 

as a separate line item. Amendment 2 extended the completion date to August 22, 

2006. 

• Amendment 3 (October 13, 2006) addressed changes to the Sadr City Water 

Treatment Plant scope of work, project schedule, and job order budget to reflect 

work completed and the transfer of the balance of work to the USACE for 

completion. This revision was in accordance with direction received from USAID 

on July 30, 2006. This amendment included specific changes in the scope of 

work, including de-scoping remaining activities and providing for development of 

a transition package, changing the project schedule to reflect transfer of the 

balance of work, and updating line items in the job order budget to align with the 

actual cost incurred to perform the revised scope of work. The total budget of the 

job order was also decreased to reflect the combination of scope reductions and 

the higher cost of pilings (higher than anticipated in Amendment 2). The 

completion date was revised to October 6, 2006, and the job order budget was 

decreased by $1,580,000 to $29,401,400. 
50 

Final Job Order Outcome: The project was transferred to another agency for 

completion. Net increase in the job order budget was $15,313,854. The period-ofperformance was extended by just more than seven months. USAID contract documents 

show the project was 88% complete when transferred to the USACE for completion. 
51 

Job Order Number: 04-511

Description: Basrah Children’s Hospital 

Start Date: August 3, 2004 

Original Planned Completion Date: December 31, 2005 

Date Completed: October 31, 2006

Original Budget: $37,000,000 

Final Budget: $26,410,000 

Job Order Objective: This job order included the design and construction of a pediatric 

teaching hospital in the city of Basrah. 

Changes to the Job Order: Work was expanded through two job order amendments: 

• Amendment 1 (July 7, 2005) extended the completion date and included 

additional costs caused by revised design and schedule requirements. The 

completion date was extended to October 31, 2006 and the job order budget was 

increased by $4,050,000 to $41,050,000. 

• Amendment 2 (October 9, 2006) clarified that a total of $49 million had been 

made available by USAID for construction of the hospital. This amendment 

further terminated the design-build subcontract and cancelled the services, 

materials, and equipment that cannot be delivered and accepted before the job 

order completion date. Although the amendment identified that $49 million had 

been made available, the job order budget was decreased by $14,640,000 to 

$26,410,000. 

Final Job Order Outcome: This project suffered from numerous schedule changes and 

project management issues including security. It was transferred to the USACE Gulf 

Region Division (GRD) for completion. According to USAID documents, the project 

was 45% complete when transferred.
52 

Job Order Number: 04-512

Description: Bayji Thermal Power Station

Start Date: June 26,, 2004 

Original Planned Completion Date: December 15, 2005 

Date Completed: December 12, 2004

Original Budget: $100,640,000 

Final Budget: $2,088,717 

Job Order Objective: This job order comprised a detailed assessment of the existing 

condition of Units 4 and 5 at the Bayji Thermal Power Station and, as necessary, the 

refurbishment or replacement of components to maximize the output and reliability of the 

units. 

Changes to the Job Order: Work was modified through two job order amendments: 

• Amendment 1 (December 19, 2004) deleted scope items that were not completed 

before the job order was cancelled. Bechtel withdrew from the site on October 24, 

2004. The completion date was modified to October 24, 2004, and the job order 

budget was decreased by $98,741,590 to $1,898,410. 

• Amendment 2 (February 16, 2006) increased the job order budget to include the 

increased cost of the jobsite camp. USAID accepted the as-built conditions at 

final inspection. The job order budget increased by $190,307 to $2,088,717. 

Final Job Order Outcome: This project was descoped and the original objective was not 

achieved because of the security situation in the area. Assessments were completed 

September 12, 2004; assessment reports were submitted December 15, 2004.
53 

Job Order Number: 04-513

Description: Mansuria Natural Gas Development Power Generation

Start Date: June 23, 2004 

Original Planned Completion Date: July 6, 2005 

Date Completed: January 31, 2006

Original Budget: $78,363,000 

Final Budget: $62,669,959 

Job Order Objective: This job order was to study the development of the natural gas 

resources of the Mansuria, Baghdad East, and Naft Khaneh gas fields to support power 

generation. 

Changes to the Job Order: Work was modified through three job order amendments: 

• Amendment 1 (November 27, 2004) extended the completion date and 

incorporated the cost of rework on the existing gas wells and the procurement and 

construction of gas-gathering and processing facilities, power-generation 

facilities, and switchyards. The completion date was extended to December 31, 

2005, and the job order budget increased by $303,000,000 to $381,363,000. 

• Amendment 2 (March 31, 2005) deleted all work associated with the gas-field 

development and any further design and procurement work on the gas-gathering 

system, gas-treatment plant, and power plant. The job order budget was decreased 

by $311,921,000 to $69,442,000, and the completion date was reduced to 

November 15, 2005. 

• Amendment 3 (January 12, 2006) extended the scheduled completion date to 

January 31, 2006 because of the delay in delivering two generator step-up 

transformers. The job order budget was decreased by $6,772,041 to $62,669,959. 

Final Job Order Outcome: The scope grew from providing assessments of the natural 

gas fields at three locations to include developing turn-key production and power 

generation facilities, but was later reduced to the assessment of the three fields and 

procurement of two 250 MW combustion turbine generators and ancillary equipment. In 

the end, the original objectives were achieved since the job order outcome reflected the 

original objective of providing an overall assessment of the three sites.
54 

Job Order Number: 04-514

Description: Shark Diljah Water Treatment Plant Expansion

Start Date: June 21, 2004 

Original Planned Completion Date: July 15, 2005 

Date Completed: September 10, 2006

Original Budget: $26,674,000 

Final Budget: $22,690,000 

Job Order Objective: This job order was for the refurbishment of the existing Shark 

Diljah Water Treatment Plant (current capacity of 22,500 cubic meters per hour of 

throughput) and the addition of new water-treatment capacity, up to a maximum of 7900 

cubic meters per hour (depending upon the job order budget), at the existing site. 

Changes to the Job Order: Work was modified through three job order amendments: 

• Amendment 1 (April 28, 2005) added the unexploded ordinance survey costs, the 

purchase of two treated water-pump motors, the design of a raw-water intake 

structure (100 million gallons per day); and the construction of a raw-water intake 

structure (60 million gallons per day), pump station, and associated water 

transmission line. The amendment deleted the inspection and overhaul of 

generators, installation of a new control system, and construction of an expanded 

plant. It revised the completion date to June 8, 2006, and decreased the job order 

budget by $6,448,000 to $20,226,000. 

• Amendment 2 (December 6, 2005) added the purchase and delivery of four 

magnetic flow meters and the refurbishment of five existing meters. The job order 

budget was increased by $2,464,000 to $22,690,000. 

• Amendment 3 (June 5, 2006) revised the job order completion and interim 

milestone for commissioning the existing treatment plant. It extended the 

scheduled completion date to September 10, 2006. 

Final Job Order Outcome: The completion date slipped 14 months, but the project was 

completed.
55 

Job Order Number: 04-515

Description: Zafaranyah Sewer Trunk Line 

Start Date: June 12, 2004 

Original Planned Completion Date: December 10, 2005 

Date Completed: August 1, 2006

Original Budget: $21,288,000 

Final Budget: $22,288,000 

Job Order Objective: This job order was for the rehabilitation of the sewer collection 

system for the Zafaranyah District of Baghdad, Iraq. Approximately 5.7 miles of new 

gravity and pressurized sewage trunk lines and a minimum of two pump stations were to 

be constructed. 

Changes to the Job Order: Work was changed through two job order amendments: 

• Amendment 1 (September 28, 2005) extended the completion date because of 

delays associated with the relocation of one of the pump stations twice as a result 

of land ownership issues. The amendment included the cost and schedule impacts 

for dealing with an underground utility conflict involving two oil lines in the same 

area as trunk lines and also updated pipe lengths and diameters to reflect actual 

measurements. Individual line items were adjusted with no change in the overall 

job order budget. The completion date was extended to February 9, 2006. 

• Amendment 2 (February 18, 2006) changed the scope of work to allow for 

additional construction work needed as a result of unexpected excess ground 

water encountered at two pump stations and the unexpected conflicts with 

existing/damaged underground utilities. The job order budget was increased by 

$1,000,000 to $22,288,000. The schedule was revised to reflect a completion date 

of August 1, 2006. 

Final Job Order Outcome: The scope of this job order appears to have been 

substantially completed as originally defined. The job order budget was increased by 

$1,000,000, and the completion date slipped approximately nine months. Reasons cited 

for the cost increase and slippage included unexpected conflicts with existing/damaged 

underground utilities.
56 

Job Order Number: 04-516

Description: Kadhamiya Sewage Collection System Cleaning & Refurbishment 

Start Date: June 8, 2004 

Original Planned Completion Date: June 30, 2005 

Date Completed: February 13, 2006

Original Budget: $3,272,000 

Final Budget: $4,642,000 

Job Order Objective: This job order was for cleaning and replacing existing sewage 

lines and refurbishing pump stations that serve the Kadhamiya area of Baghdad. 

Changes to the Job Order: Work was changed through three job order amendments: 

• Amendment 1 (April 5, 2005) increased the number of discrete projects from 6 to 

12, added refurbishment of 11 existing vertical pump/motor assemblies, and 

deleted the installation of 11 new vertical pump/motor assemblies that were to be 

furnished by the U.S. Army, added replacement of a collapsed sewer line, and 

divided the project into two subcontracts (IA and IB). It further reduced the 

second subcontract from 10 to 8 projects. The job order budget was increased by 

$1,800,000 to $5,072,000, and the completion date was extended to August 30, 

2005. 

• Amendment 2 (October 13, 2005) changed the scope of work because of site 

security and accessibility issues in the Kadhamiya district. The job order budget 

did not change. The schedule was extended to reflect a completion date of 

December 30, 2005. 

• Amendment 3 (May 9, 2006) accounted for changes in the Statement of Work that 

took place in the final stages of performance and decreased the previously 

approved job order estimate based on actual experience to date. The job order 

budget was decreased by $430,000 to $4,642,000. The completion date was 

extended to February 13, 2006. 

Final Job Order Outcome: The scope of this job order increased the number of discrete 

projects from 6 to 12, substituted refurbishment of 11 new vertical pump/motor 

assemblies for installation of same, and added replacement of a collapsed sewer line. The 

job order budget increased $1,370,000, and the completion date changed from June 30, 

2005, to February 13, 2006. The reasons cited for the slippage included site security, 

accessibility issues, and national matters, such as elections, the trial of Saddam Hussein, 

and Ramadan.
57 

Job Order Number: 04-517 

Description: Rehabilitation of Baghdad Potable Water Distribution Mains and Hydraulic 

Modeling and Monitoring 

Start Date: June 8, 2004 

Original Planned Completion Date: December 30, 2005 

Date Completed: February 13, 2006

Original Budget: $19,812,000 

Final Budget: $14,350,000 

Job Order Objective: This job order included the replacement of portions of the potable 

water distribution mains within the city of Baghdad. Hydraulic modeling of the system 

was also to be completed to help identify priority improvements and increase water 

pressure within the system. 

 

Changes to the Job Order: Work was changed through two job order amendments: 

• Amendment 1 (February 16, 2006) changed the scope of work for the purchase 

and delivery of four flowmeters and the refurbishment of five flowmeters that 

were transferred to Job Order 04-514–Shark Diljah Water Treatment Plant 

Expansion for scope of work execution. The job order budget was decreased by 

$3,801,000 to $16,011,000. 

• Amendment 2 (May 29, 2006) clarified the scope of work for providing 

computers and plotters that were not specifically identified in the previous job 

order scope of work, but were part of the hydraulic modeling task. The 

amendment also decreased the job order budget by $1,661,000 to $14,350,000, 

based on experience to date. The schedule was also revised to reflect a completion 

date of February 13, 2006. 

Final Job Order Outcome: The final outcome of this job order is unclear; it seemed to 

be ancillary to Job Order 04-514 for the Shark Diljah Water Treatment Plant. The job 

order budget was decreased by $5,562,000, and the completion date slipped 

approximately two months. 
58 

Job Order Number: 04-518 

Description: Karbala Wastewater Treatment Plant Refurbishment 

Start Date: September 30, 2004 

Original Planned Completion Date: February 15, 2006 

Date Completed: February 15, 2006

Original Budget: $6,260,000 

Final Budget: $8,610,000 

Job Order Objective: This job order was to refurbish the Karbala Wastewater 

Treatment Plant within the limitation of the job order budget. The work to be done was 

transferred from the Phase I Bechtel contract Job Order 03-029. 

 

Changes to the Job Order: Work was changed through one job order amendment. 

• Amendment 1 (April 19, 2005) added cleaning the aeration lagoons and 

appurtenance piping, and design changes to the sedimentation tanks. It also 

included additional security and transportation and demurrage costs for equipment 

that was purchased under the Phase I contract and stored in Kuwait. This 

amendment also deleted all vehicles and extra tools and/or equipment that were 

originally to be acquired. The amendment increased the job order budget by 

$2,350,000 to $8,610,000. 

Final Job Order Outcome: The final outcome of this project is unclear because this job 

order was to complete work started under the Bechtel Phase I contract. The job order 

budget increased $2,350,000, but we could not identify the results of the work in the 

USAID files. 
59 

Job Order Number: 04-519 

Description: Karbala Al Hussien Water Treatment Plant Refurbishment 

Start Date: September 30, 2004 

Original Planned Completion Date: September 15, 2005 

Date Completed: November 9, 2005

Original Budget: $4,800,000 

Final Budget: $3,931,000 

Job Order Objective: This job order was to complete the refurbishment of the Karbala 

Water Treatment Plant; work started under the Bechtel Phase I contract job order 04-010. 

The Phase I contract completed only procurement tasks. 

Changes to the Job Order: Work was changed through one job order amendment: 

• Amendment 1 (May 9, 2006) accounted for the reductions in the scope of work 

that took place toward the final stages of performance The amendment also 

decreased the job order budget by $869,000 to $3,931,000, and extended the 

completion date to November 9, 2005. 

Final Job Order Outcome: The refurbishment of the Karbala Al Hussein was completed 

at less cost than budgeted, but two months later than planned. 
60 

Job Order Number: 04-520 

Description: North East Sewer Trunk Line Study

Start Date: August 27, 2004 

Original Planned Completion Date: February 25, 2005 

Date Completed: March 10, 2006

Original Budget: $2,000,000 

Final Budget: $838,000 

Job Order Objective: This job order was to prepare an Alternatives Analysis and 

Conceptual Design Report and a Basis of Design Report for a new sewer truck line 

system throughout the northeastern part of Baghdad (Sadr City). The scope of work for 

the job order was the production of design documentation on the Habibiya Storm Water 

Detention Basins. The design documents were to be provided to USAID for turnover to 

the Baghdad Amanat-Baghdad Sewage Board. 

Changes to the Job Order: Work was changed through two job order amendments: 

• Amendment 1 (April 7, 2005) included the design and construction of two new 

storm-water detention basins and associated pumping facilities to be installed 

within or adjacent to the existing Habibiya pump station. The job order budget 

was increased by $13,580,000 to $15,580,000, and the completion date was 

extended to April 15, 2006. 

• Amendment 2 (March 3, 2006) eliminated all construction activities included in 

Amendment 1 except for site assessment and initiation of site work for new 

facilities that had been completed before receiving USAID direction. The 

amendment reduced the job order budget by $14,742,000 to $838,000, and 

extended the completion date to March 10, 2006. 

Final Job Order Outcome: The design reports called for in the original job order were 

delivered to USAID. The scope as revised in Amendment 1 was apparently unachievable 

and the job order was closed out on March 10, 2006, with the original reports. According 

to USAID documents, this project as revised in the amendments was descoped by 95%.
61 

Job Order Number: 05-521 

Description: Consolidated Fiber Network 

Start Date: January 15, 2005 

Original Planned Completion Date: March 31, 2006 

Date Completed: June 30, 2006

Original Budget: $51,851,852 

Final Budget: $46,960,000 

Job Order Objective: This job order included the design, procurement, installation, and 

testing of a nationwide fiber-optic telecommunications network that would connect 

railroad, power, and telecommunications facilities across Iraq. Construction was to be 

completed to the maximum extent possible based on a list of more that 100 electricity, 

railroad, and communication sites included in the job order. Actual sites were to be 

selected from this list based on priorities established and agreed to with USAID. 

Changes to the Job Order: Work was changed through two job order amendments: 

• Amendment 1 (June 18, 2005) revised the scope to delete the railroad portion of 

the work, remove the Iraq Telephone Postal Company sites, reduce the number of 

Ministry of Electricity sites to 73, and evaluate the need for and provide as 

necessary PBX telephone equipment at 29 Ministry of Electricity sites. It also 

added items to be procured for the Iraq Telephone Postal Company portion of the 

work. The job order budget or completion date did not change. 

• Amendment 2 (November 22, 2005) included a cost reduction and extended the 

completion date of the job order. Significant revisions included increasing the 

number of Ministry of Electricity sites from 46 to 60. The job order history is not 

clear as to the number of earlier sites selected because the job order contained a 

list from which sites were to be selected, not the actual selected sites. Regarding 

the 60 sites, Bechtel would provide equipment for 60 sites but installation and 

testing for only 42 sites. The 18 sites that received only equipment were examined 

and judged to be non-accessible according to the overall environment. The 

amendment reduced the job order budget by $4,891,852 to $46,960,000 and 

extended the completion date to June 30, 2006. 

Final Job Order Outcome: Fiber-optic equipment was provided, installed, and tested at 

42 Ministry of Electricity sites and equipment was procured for other sites. A nationwide 

fiber-optic telecommunications network was not put in place. The scope of this job order 

changed, largely because of input from the Iraqi Ministry of Electricity and the security 

situation at various proposed sites. These changes affected the choice of sites, equipment 

used, and the period of performance. The results did not achieve the original objectives.
62 

Job Order Number: 05-522 

Description: Start Up Services for Daura Thermal Units 5 & 6 Rehabilitation 

Start Date: April 1, 2005 

Original Planned Completion Date: November 17, 2005 

Date Completed: April 30, 2006

Original Budget: $30,315,000 

Final Budget: $35,000,000 

Job Order Objective: This job order comprised providing managerial assistance and 

guidance services, technical start up, commissioning support, and parts and equipment 

required to support the start-up and commissioning of the Daura Power Plant Generating 

Units 5 and 6. This job order was a follow-on effort to work performed under the Bechtel 

Phase I contract Job Order 03-037. 

 

Changes to the Job Order: Work was changed through two job order amendments: 

• Amendment 1 (August 30, 2005) changed the completion date to February 7, 

2006, because of additional work performed by Bechtel on Unit 5 that was 

originally to be performed by the Ministry of Electricity, lack of access to the 

work site while other work was being done, lack of sufficient suitably qualified 

and experienced engineers and technicians to complete the work, and various 

other challenges ascribed to the Ministry of Electricity. The amendment increased 

the job order budget by $4,685,000 to $35,000,000. 

• Amendment 2 (April 26, 2006) extended the completion date of the job order to 

April 30, 2006, to allow sufficient time to complete the warranty work on the 

water-intake equipment and to provide advisory technical and operations support 

for Unit 5 on a level-of-effort basis. 

Final Job Order Outcome: The scope of this job order changed largely because of 

challenges imposed by the Iraqi Ministry of Electricity that affected the job order budget 

and the period of performance. The results did not achieve the original objectives. 
63 

Job Order Number: 05-523 

Description: Kirkuk Power Plant 

Start Date: May 30, 2005 

Original Planned Completion Date: November 15, 2005 

Date Completed: April 30, 2006

Original Budget: $21,400,000 

Final Budget: $29,316,000 

Job Order Objective: This job order, follow-on to the Phase I Job Order 03-060, was 

for completing the construction, commissioning, and startup of a large turbine at the 

Kirkuk Power Plant. 

 

Changes to the Job Order: Work was changed through two job order amendments: 

• Amendment 1 (November 7, 2005) extended the completion date to January 15, 

2006 to allow for a delay in the mechanical completion of the turbine, 

optimization of the turbine, and completion of other items associated with it and 

the auxiliary systems, and camp and staff mobilization. The amendment increased 

the job order budget by $3,921,000 to $25,321,000. 

• Amendment 2 (March 1, 2006) further extended the completion date to April 30, 

2006 to accommodate a 100-hour operations test that was terminated because a 

large amount of contaminated fuel gas reached the combustion turbine burners. 

Inspection and cleaning activities were required to ensure that no damage had 

occurred and to allow for unit restart when acceptable quality fuel gas was 

restored, as well as to allow for the warranty on the gas turbine and fuel gas 

system components to remain in effect. The schedule extension increased the job 

order budget by $3,995,000 to $29,316,000, to cover labor related costs, camp 

cost, and security cost. 

Final Job Order Outcome: The turbine was ultimately put into operation. 
64

Job Order Number: 05-525 

Description: Water Sector Institutional Strengthening 

Start Date: May 5, 2005 

Original Planned Completion Date: March 30, 2006 

Date Completed: April 30, 2006 (Plant Sustainability/Operation and Maintenance 

Services); September 30, 2006 (Procurement Deliveries)

Original Budget: $23,100,000 

Final Budget: $20,375,933 

Job Order Objective: This job order provided for startup, commissioning, 

decommissioning, O&M, essential inventory, and training at 11 facilities. These items 

were to be provided for a period not to exceed March 30, 2006 (subject to extension of 

the terminal date of the primary contract), or when funds were exhausted, whichever 

came first. 

Changes to the Job Order: Work was changed through three job order amendments: 

• Amendment 1 (January 14, 2006) defined the list of facilities and services to be 

provided at each facility. 

• Amendment 2 (March 23, 2006) extended the completion date to April 30, 2006, 

and increased the job order budget by $1,800,000 to $24,900,000. 

• Amendment 3 (September 24, 2006) updated the consumables supplied, 

operational equipment delivered, and training provided for plant sustainability and 

O&M services. The number of 50-ton mobile cranes to be delivered was reduced 

from five to one. The completion date for plant sustainability and O&M services 

remained at April 30, 2006; the completion date for procurement deliveries was 

extended to September 30, 2006. The amendment decreased the job order budget 

by $4,524,067 to $20,375,933. 

Final Job Order Outcome: USAID documents state that this project was 92% complete 

before descoping. The original job order scope was reduced by four cranes and related 

work. While this resulted in cost savings, there was a potential for more savings. 

Amendment 2 specified the number of training hours that would be delivered at each site. 

Actual hours delivered (as shown in Amendment 3) in many cases were triple the 

forecasted number. Given the cost-plus nature of the contract, it is reasonable to assume 

that these additional hours created additional costs. 
 

65

Appendix C—Sample Invoice Form 
 

66

Appendix D—Acronyms 

ATO administrative task order 

Bechtel Bechtel National, Inc. 

CLIN contract line item number 

CPA Coalition Provisional Authority 

DCAA Defense Contract Audit Agency 

DoD Department of Defense 

FAR Federal Acquisition Regulation 

GAO Government Accountability Office 

GRD Gulf Region Division 

IRRF Iraq Relief and Reconstruction Fund 

IRMO Iraq Reconstruction Management Office 

IRS Internal Revenue Service 

MW megawatt 

O&M operations and maintenance 

Parsons Parsons Global Services 

SIGIR Special Inspector General for Iraq Reconstruction 

USACE U.S. Army Corps of Engineers 

USAID U.S. Agency for International Development 
 

67

Appendix E—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 Transition Assistance Office* 

Coordinator, Office of Provincial Affairs 

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

Inspector General, Department of State 

Inspector General, U.S. Agency for International Development* 

Regional Inspector General-Iraq, U.S. Agency for International Development 

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) 

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 
 

68

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 

President, Overseas Private Investment Corporation 

President, U.S. Institute for Peace 

Congressional Committees and Subcommittees, Chairman and 

Ranking Minority Member 

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 Development and Foreign Assistance, Economic 

Affairs, and International Environmental Protection 

Subcommittee on International Operations and Organizations, Democracy and 

Human Rights 

Subcommittee on Near Eastern and South and Central Asian Affairs 

Senate Committee on Homeland Security and Governmental Affairs 

Subcommittee on Federal Financial Management, Government Information, 

Federal Services, and International Security 

Subcommittee on Oversight of Government Management, the Federal 

Workforce, and the District of Columbia 

Permanent Subcommittee on Investigations 

U.S. House of Representatives 

House Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on State, Foreign Operations, and Related Programs 

House Committee on Armed Services 

House Committee on Oversight and Government Reform 

Subcommittee on Government Management, Organization, and Procurement 

Subcommittee on National Security and Foreign Affairs 

House Committee on Foreign Affairs 

Subcommittee on International Organizations, Human Rights, and Oversight 

Subcommittee on the Middle East and South Asia 
 

69

Appendix F—Audit Team Members 

This report was prepared and the review 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 conducted the audit and contributed to the report include: 

Karen Bell 

Mark Comfort 

Glenn Furbish 

James Pollard 

Diane Recio 

Steven Sternlieb 
 

70

Management Technical Comments 

U.S. Agency for International Development 
 

71
 

72
 

73
 

74
 

75
 

76
 

77
 

78
 

79

Management Technical Comments 

Iraq Transition Assistance Office 
 

80
 

81

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: 703-428-1059 

Email: hillel.weinberg@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