OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

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July 15, 2008 

MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ 

DIRECTOR, IRAQ TRANSITION ASSISTANCE OFFICE 

 COMMANDING GENERAL, U.S. CENTRAL COMMAND 

 COMMANDING GENERAL, MULTI-NATIONAL FORCE-IRAQ 

 COMMANDING GENERAL, U.S. ARMY CORPS OF ENGINEERS 

COMMANDER, JOINT CONTRACTING COMMAND–

IRAQ/AFGHANISTAN 

COMMANDING GENERAL, GULF REGION DIVISION, U.S. 

ARMY CORPS OF ENGINEERS 

SUBJECT: Review of Outcome, Cost, and Oversight of Water Sector Reconstruction 

Contract with FluorAMEC, LLC (SIGIR-08-018) 

This report is provided for your information and use. It includes the results of the Special 

Inspector General for Iraq Reconstruction (SIGIR) audit of FluorAMEC, LLC contract 

W914NS-04-D-0022 for water sector reconstruction projects. The report is part of a series of 

focused contract audits conducted to comply with a December 2006 amendment to SIGIR’s 

enabling legislation that requires SIGIR to prepare a report “on all amounts appropriated or 

otherwise made available for the reconstruction of Iraq.” The objective of these audits is to 

examine contract outcome, cost, and management oversight, emphasizing issues related to 

vulnerabilities to fraud, waste, and abuse. This report also addresses issues associated with 

transferring completed projects to the Government of Iraq. This audit was conducted as project 

7022. 

We considered written comments from the Multi-National Force-Iraq and the U.S. Army Corps 

of Engineers, Gulf Region Division, when preparing this report. The comments are addressed in 

the report, where applicable, and a copy is included in the Management Comments section of 

this report. 

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

please contact Glenn Furbish (703-428-1058) (glenn.furbish@sigir.mil). 

 

Stuart W. Bowen, Jr. 

Inspector General 
Table of Contents 

Executive Summary i 

Introduction 1 

Contract Outcome and Cost 4

Contract Management and Oversight 14 

Transferring Projects to the Government of Iraq 24

Conclusions, Recommendation, and Lessons Learned 26 

Appendices 

A. Scope and Methodology 29 

B. Nassriya and Basrah Task Order Summaries 31 

C. Acronyms 37 

D. Audit Team Members 38 

Management Comments

 Multi-National Force-Iraq 39 

 U.S. Army Corps of Engineers, Gulf Region Division 40
Outcome, Cost, and Oversight of Water Sector 

Reconstruction Contract with FluorAMEC, LLC 

SIGIR-08-018 July 15, 2008

Executive Summary 

Introduction 

Public Law 108-106, as amended, requires that the Special Inspector General for Iraq 

Reconstruction (SIGIR) prepare a final forensic audit report “on all amounts appropriated or 

otherwise made available for the reconstruction of Iraq.” To fulfill this requirement, SIGIR has 

undertaken a series of audits examining major Iraq reconstruction contracts. The objective of 

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

issues related to vulnerabilities to fraud, waste, and abuse. This report also focuses on the 

problems associated with the transfer of completed projects to the Government of Iraq (GOI). 

This report, the sixth in the series of focused contract audits, examines reconstruction work 

contracted by the U.S. government and performed by FluorAMEC, LLC. In March 2004, at the 

request of the Coalition Provisional Authority (CPA), the Naval Facilities Engineering 

Command awarded FluorAMEC a cost-plus award-fee indefinite-delivery/indefinite-quantity 

contract (W914NS-04-D-0022) to provide design-build projects in the water sector in southern 

Iraq. In addition to a task order for mobilization into Iraq, FluorAMEC was issued four 

construction-project task orders: 

• Nassriya Water Supply (Nassriya Project) 

• Basrah Sewage (Basrah Project) 

• Diwaniya and Daghara Water Supply Project (Diwaniya Project) 

• Najaf and Kufa Water Supply Project (Najaf Project) 

Initially, the CPA’s Program Management Office (PMO) had program management 

responsibilities; in May 2004, the Project and Contracting Office replaced the PMO and assumed 

program management responsibilities. The U.S. Army Corps of Engineers, Gulf Region 

Division, assumed the Project and Contracting Office’s responsibilities in October 2006. In 

November 2004, the Joint Contracting Command-Iraq/Afghanistan (JCC-I/A) assumed contract 

management responsibilities. 

Results 

Work on this contract was deemed generally successful; however, less was accomplished under 

the contract than expected for two reasons. First, the funding planned for water-sector projects 

was reduced. Second, water-sector projects proved to be significantly more costly than initially 

estimated. More than $2 billion of the $4.2 billion originally allocated for the water sector 

i
projects was redirected to other sectors. Of four construction task orders issued, two were 

completed (Nassriya and Basrah), and two were terminated for the convenience of the 

government because of funding constraints (Diwaniya and Najaf). SIGIR identified these key 

facts and issues related to contract outcome and cost: 

• As of May 5, 2008, $318.51 million had been disbursed against the contract’s $500 

million ceiling—97% of these expenditures was associated with the two completed task 

orders. Most of the funds were spent on the expanded Nassriya Project. 

• A number of factors negatively impacted work on the two completed construction task 

orders: funding constraints, increased costs, schedule slippages related to the unstable 

security environment, and changes in the planned scope of work. 

• Of the two completed task orders, the Nassriya water-treatment facility was the largest 

and most ambitious project. The project ultimately consolidating planned water 

treatment facilities at three towns into one larger capacity facility and also extended 

pipelines to the two other towns. SIGIR identified deficiencies in cost estimates as a 

significant factor in the U.S. government’s inability to predict the 51% cost increase for 

the Nassriya Project after definitization. 

• The Basrah Project included multiple tasks related to upgrading the wastewater collection 

and treatment system, but numerous design and scope changes were made over the first 

months of the project to reflect evolving priorities and budget constraints. 

• Task orders for water supply projects at Diwaniya and Najaf were terminated at the 60% 

design stage, about six months after the task orders were issued because of water sector 

funding constraints. As of May 2008, $6.89 million had been spent on these two 

projects. Funds expended on such terminated projects could be viewed as wasted if the 

designs are not used. 

SIGIR’s review identified extensive efforts on the part of U.S. government organizations to carry 

out contract management tasks, including oversight, quality assurance, contract administration, 

and reporting. The U.S. government substantially relied on a contractor to provide assistance in 

managing and overseeing the projects. SIGIR noted the following management issues that 

adversely affected the projects: 

• Inappropriate payment of award fees: Paying $1.24 million in award fees on the 

terminated task orders—including $573,605 that was inappropriately paid for a period 

after termination, an action contrary to the award fee plan. On the completed task orders, 

the award fees were structured and administered to provide an incentive for improved 

contractor performance. 

• Insufficiently defined scope of work: The initial contract specified the broad mission to 

restore, rebuild, and develop water, wastewater, and solid waste projects, and the 

subsequent task orders did little to define the required work. The Nassriya Project task 

order required a preliminary technical study of alternatives, and the Basrah Project task 

order required an assessment and coordination study. 

• Inadequate preparation of detailed and independent estimates: For the Nassriya Project, 

the initial estimate and the definitized estimate were both considered unrealistic and the 

ii
required independent government estimate was not a good predictor of future costs. 

Realistic estimates are needed for effective management and oversight and to minimize 

the potential for fraud, waste, and abuse. 

• Not initiating timely action to close out task orders: Failing to close out task orders 

resulted in increased costs and administrative burdens. This is most evident with Task 

Orders 4 and 5; which were terminated in July 2005, but only recently submitted to a 

termination contracting officer for closeout. 

SIGIR has previously reported1

 on difficulties in transferring completed U.S.-funded projects to 

the GOI, along with concerns about the long-term sustainment of transferred facilities. The 

completed Nassriya and Basrah Projects were examples of that problem, despite contract tasks to 

help ensure successful transfer and operation. For example, the Nassriya task order required 

FluorAMEC to provide classroom and hands-on training for Iraqi plant operators and staff. 

However, a lack of qualified trainees severely hampered training progress, and the GOI was 

reluctant to assume responsibility for the completed plant. Since the transfer, the plant has 

operated below capacity. SIGIR identified these problems in an April 2008 Inspection Report2

and recommended actions to increase operational output and avert further deterioration. The 

GOI’s current and anticipated lack of capacity to operate and maintain the plant raises serious 

concerns about its long-term sustainability and places the investment at risk of being wasted. 

Because SIGIR’s reports on transferring completed projects and the SIGIR Inspection Report on 

Nassriya contained recommendations, this report makes no recommendations on these issues. 

Recommendation 

SIGIR recommends that JCC-I/A establish timeframes for closing task orders to minimize costs 

and administrative expenses. As Task Orders 4 and 5 are closed out, JCC-I/A should ensure that 

excessive award fees paid are recovered. 

Lessons Learned 

U.S. reconstruction projects in Iraq were hampered by the unstable security environment, 

funding uncertainties, and time constraints. These conditions created difficulties in 

accomplishing pre-award planning, defining project requirements, and overseeing contractor 

performance. Nevertheless, fundamental elements of contract and project management and 

oversight should be accomplished to the extent possible. SIGIR identified a number of lessons 

that U.S. government organizations could apply to future reconstruction projects in a 

contingency environment. They include the need to: 

• Recognize in planning assumptions and budget estimates that undertaking reconstruction 

activities before security conditions have been stabilized will increase the cost of security 

and decrease the likelihood that cost, schedule, and performance goals will be met. 

 

1 Transferring Reconstruction Projects to the Government of Iraq: Some Progress Made but Further Improvements 

Needed to Avoid Waste. SIGIR Audit 08-017, April 28, 2008 2 Sustainment of the Nassriya Water Plant, Nassriya, Iraq. SIGIR PA 07-116, April 28, 2008 

iii
• Complete comprehensive pre-award planning, including realistic and well-defined work 

scopes and estimates of costs and schedules. These are needed for effective government 

management and oversight of reconstruction projects and to minimize the potential for 

fraud, waste, and abuse. 

• To the extent possible, ensure that needed funds will be available to complete projects 

before awarding contracts/task orders. This will reduce the likelihood of potentially 

wasteful terminations caused by funding reductions. 

• Definitize contracts/task orders after complete and supportable cost and schedule 

information is available. Premature definitization based on limited design and 

construction information, especially in a contingency environment, can result in 

unanticipated project cost increases, schedule delays, and potential waste. 

• Prepare independent and comprehensive government cost and schedule estimates before 

major contract actions such as definitization. Without such estimates to evaluate 

contractor proposals, unanticipated costs increases, schedule delays, and potential waste 

can result. 

• Take early action to address project transfer and sustainment issues with the host 

government. Expectations of future project performance could be overstated unless longterm operation and maintenance issues are resolved. 

• Take timely actions to close out task orders to help reduce costs and avoid administrative 

burdens. 

Management Comments and Audit Response 

In preparing this report, SIGIR considered written comments from the Multi-National Force-Iraq 

and the U.S. Army Corps of Engineers, Gulf Region Division. Their complete comments are 

included in the Management Comments section of this report. 

Multi-National Force-Iraq responded that JCC-I/A concurs with the recommendation and the 

specific findings supporting it. To address that portion of the recommendation related to contract 

closeout timeframes, JCC-I/A plans to examine personnel constraints and the potential for 

additional resources. To address that portion of the recommendation related to excessive award 

fees, JCC-I/A will use final closeout audits through the Defense Contract Audit Agency to 

resolve award-fee discrepancies. SIGIR supports the plans and will follow up on the progress 

made to complete these actions at the appropriate time. 

U.S. Army Corps of Engineers, Gulf Region Division, comments correctly cite a paragraph in 

SIGIR’s draft report that raised questions about the adequacy of the independent government 

estimate for the Nassriya Project. However, the comments then stated that SIGIR’s position is 

that using any materials provided by the design-build contractor is not appropriate when 

developing an independent government estimate. This is not correct. As noted in this report, 

SIGIR’s position is that the independent government estimate for this project—based largely on 

the same limited design information as the FluorAMEC proposal—was neither comprehensive 

nor independent. As a result, it was not a good predictor of the growth in costs that occurred 

over the next few months. 

iv
Introduction 

Public Law 108-106, as amended, requires that the Special Inspector General for Iraq 

Reconstruction (SIGIR) prepare a final forensic audit report “on all amounts appropriated or 

otherwise made available for the reconstruction of Iraq.” To help meet this requirement, we are 

undertaking a series of audits of major Iraq reconstruction contracts. These audits include 

contract cost and outcome and the U.S. government’s program and contract management and 

oversight, with emphasis on issues related to fraud, waste, and abuse. This report, the sixth in 

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

performed by FluorAMEC, LLC. 

Background 

In March 2004, at the request of the Coalition Provisional Authority (CPA), which was initially 

responsible for overseeing, directing, and coordinating the Iraq reconstruction effort, the Naval 

Facilities Engineering Command awarded FluorAMEC, LLC, a cost-plus award-fee indefinite 

delivery/indefinite quantity (IDIQ) contract3

 (W914NS-04-D-0022). The contract was for 

design-build construction services for projects associated with the rehabilitation of existing and 

construction of new potable water distribution and treatment systems, municipal sewer collection 

and treatment systems, and solid-waste management systems in the southern region of Iraq. This 

was one of 12 design-build construction contracts approved by the Deputy Assistant Secretary of 

the Army (Policy and Procurement) to provide an overarching framework of construction 

projects to restore the Iraqi infrastructure. The contracts were issued in defined work sectors, 

such as water, oil, transportation, and electricity.

FluorAMEC, a limited liability company comprised of Fluor Middle East, LLC, and AMEC 

Holdings, Incorporated, was formed in April 2003, specifically to bid on these contracts. The 

company was awarded three reconstruction contracts: two in the water sector—one for northern 

Iraq and one for southern Iraq—and one in the electricity sector. Under the water sector contract 

for southern Iraq, which is the subject of this report, five task orders were issued. The first was 

to mobilize the resources necessary to begin to restore, rebuild, and develop water, wastewater, 

and solid waste plants. The statement of work called for the contractor to provide the Iraqi 

people with (1) necessary basic public facilities and infrastructure that would be easy to 

maintain, upgrade, and repair and (2) employment opportunities and important skills, as well as 

instill personal pride. After the mobilization task order, four construction project task orders 

were issued: Nassriya Water Supply (Nassriya Project); Basrah Sewage (Basrah Project); 

Diwaniya and Daghara Water Supply Project (Diwaniya Project); and Najaf and Kufa Water 

Supply Project (Najaf Project). Key dates and events for the contract are listed in Table 1. 

 

3

 In an IDIQ contract, a base contract containing the key clauses and overall requirements is awarded. Subsequently, 

task orders are issued under the base contract for the performance of services during the contract period. 

1
Table 1—Key Dates and Events for Contract W914NS-04-D-0022 

Date Contract Event 

2004 

March Contract awarded and Task Order 1 issued for mobilization. 

April Task Order 2 issued for Nassriya Project. 

June Task Order 3 issued for Basrah Project. 

September Department of State (DoS) shifted $1.9 billion from the funds allocated to water 

sector to other sectors. 

2005 

January Task Order 4 issued for Diwaniya Project. 

January Task Order 5 issued for Najaf Project. 

January Task Order 2 definitized. 

February Task Order 3 definitized. 

March DoS shifted additional funds from the water sector to other sectors. 

July Task Orders 4 and 5 terminated for convenience of the U.S. government 

because of reduced water sector funding. 

October Task Order 2–Cure Notice issued to FluorAMEC for failure to perform 

contractual requirements. 

2006 

September Task Order 3–Basrah Project turned over to Iraq ministry. 

December Task Order 2–Nassriya plant construction substantially completed. 

2007 

September Task Order 2–Nassriya Project turned over to Iraq ministry. 

December Task Order 2–Nassriya Project operational monitoring completed. 

Source: SIGIR analysis of contract documents. 

Responsible Organizations 

From May 2003 through June 2004, CPA was responsible for overseeing, directing, and 

coordinating the relief and reconstruction effort in Iraq. In early 2004, when FluorAMEC was 

awarded contract W914NS-04-D-0022, CPA had a two-tier process in place to manage and 

implement the Iraq reconstruction program. To administer the program, CPA established the 

Program Management Office (PMO) to prioritize and manage projects and provide contract 

support. To assist in managing projects, PMO established six sector program management 

offices (SPMO) organized by work sector, such as electricity and public works/water. These 

offices were staffed by U.S. government employees or military personnel. However, to provide 

2
program-management support services for the offices, seven contractors were selected in March 

2004–one for PMO and one for each sector office. These contractors were known as Sector 

Program Management Office Contractors. 

When the CPA was dissolved in June 2004, two new offices were created. The PMO was 

replaced by the supplanted by two organizations, the Project and Contracting Office (PCO)—

responsible for project construction/execution responsibilities—and the Iraq Reconstruction 

Management Office (IRMO)—responsible for coordinating the reconstruction effort. As a 

result, SPMO became the Sector Project and Contracting Office (SPCO) and the supporting 

contractors became known as Sector Project and Contracting Office Contractors (SPCOC). The 

SPCOC for water sector contracts was CH2M Hill/Parsons, a joint venture between CH2M Hill 

International Services and Parsons Delaware, Inc. SPCOC provided planning, oversight, 

requirements definition, construction expertise, contract administration, and reporting throughout 

the term of its contract.4 This report refers to the U.S. government offices responsible for 

contract management and administration as SPCO, and the contractor as SPCOC, regardless of 

the timeframe. 

Over the next three years, there were additional changes in the organizations responsible for 

project management and contract administration. In November 2004, the Joint Contracting 

Command-Iraq/Afghanistan (JCC-I/A) was created. It provided contracting support and the 

contracting officer—the U.S. government’s authorized agent for dealing with FluorAMEC on the 

contract and for soliciting change proposals and negotiating, awarding, and modifying the 

contract. In October 2006, U.S. Army Corps of Engineers (USACE) Gulf Region Division 

(GRD) replaced PCO as the sector lead and project manager, and it managed projects from 

headquarters in Baghdad and three district offices—Gulf Region North, Central, and South. The 

Gulf Region South (GRS) provided construction management direction and quality assurance for 

the projects under this contract. Also, in May 2007 the Iraq Transition Assistance Office (ITAO) 

was created as the successor organization to IRMO. In this report, we refer to the office 

responsible for coordinating the reconstruction effort as ITAO, regardless of the timeframe. 

Other U.S. government organizations having responsibilities over contract W914NS-04-D-0022 

include the Naval Facilities Engineering Command, which was responsible for soliciting and 

evaluating proposals and awarding the contract, and the Defense Contract Audit Agency 

(DCAA), which provided support in auditing proposals and other contract actions. 

Objective 

Our reporting objective for this audit was to examine contract outcome, cost, and management 

oversight, with an emphasis on vulnerabilities to fraud, waste, and abuse. This report also 

addresses issues associated with transfer of completed projects to the Government of Iraq (GOI). 

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

Appendix A. For a detailed summary of the Nassriya and Basrah task orders, see Appendix B. 

For acronyms used, see Appendix C. For the audit team members, see Appendix D. 

 

4

A SIGIR report, Use of Contractors in Managing Iraq Relief and Reconstruction Projects, SIGIR Audit 08-003, 

October 29, 2007, includes an assessment of these contractors’ performance. 

3
Contract Outcome and Cost 

In March 2004, FluorAMEC was awarded contract W914NS-04-D-0022, with a $500 million 

ceiling for reconstruction of water projects in the south of Iraq. Over the next ten months, 

FluorAMEC was issued five separate task orders under the contract, an initial mobilization task 

order and task orders for four construction projects: (1) the Nassriya Project, (2) the Basrah 

Project, (3) the Diwaniya Project, and (4) the Najaf Project. The first two construction task 

orders were completed and the last two were terminated for the convenience of the government. 

From most accounts, the completed projects were considered successful, and the U.S. 

government’s overall evaluations of the contractor were generally positive—although as 

discussed more fully later, we identified management issues impacting the projects. However, 

the Nassriya Project cost significantly more than planned and took longer than expected. Under 

the Basrah Project, the scope of work was reduced to what could be done within the existing 

budget because of funding constraints in the water sector. Delays on the completed projects 

were the result of security problems, scope changes, and the GOI’s lack of preparation and 

reluctance to assume control of the completed projects. 

As of May 5, 2008, $318.51 million had been disbursed against the contract’s $500 million 

ceiling. Table 2 shows the estimated costs of the task orders at definitization, disbursements, and 

status. Final contract costs are pending required incurred cost audits of the contractor’s work by 

DCAA and settlement of the contractor’s claims. 

Table 2—Task Order Definitized Cost Estimates, Disbursements, and 

Status as of May 5, 2008 ($ millions) 

Task 

Order Project 

Definitized

Cost Estimates Disbursements Status 

1 Mobilization $1.53 $1.60 Completed 

2 Nassriya Project $172.39 $259.51 Completed 

3 Basrah Project $53.11 $50.51 Completed 

4 Diwaniya Project Not definitized $3.63 Terminated 

5 Najaf Project Not definitized $3.26 Terminated 

 Total $318.51

Source: SIGIR analysis of USACE and contract file documents. 

The Nassriya Project had the highest disbursements, accounting for about 81% of the total. As 

shown, Task Orders 4 and 5 were never officially definitized and were terminated for the 

convenience of the government. When the first three task orders were issued, about $4.2 billion 

of Iraq Relief and Reconstruction Funds were allocated for Iraq water sector reconstruction 

projects that would have been accomplished under this and other water sector contracts. 

However, in September 2004, DoS shifted $1.9 billion away from water sector projects for 

higher priority projects in other sectors, especially those in security and law enforcement. With 

4
this shift, controlling costs on ongoing water projects became a critical concern. Despite these 

recognized funding problems, in January 2005, Task Orders 4 and 5 were issued. Funding 

pressures continued and DoS took additional funds from the water sector. By July 2005, only 

about $2.2 billion of the original $4.2 billion remained. As a result of these funding changes and 

increasing costs for water sector projects, Task Orders 4 and 5 were terminated in July 2005 for 

the convenience of the government. 

Task Orders Completed 

Task Order 1—Mobilization: FluorAMEC was issued this task order in March 2004 to 

mobilize all necessary supplies, services, transportation, security, and staff to cover the first 60 

days of operations as described in its final revised proposal submitted just prior to contract 

award. The objective of this task order was for the contractor to be in a position to start work 

immediately as construction tasks orders were issued. As shown in Table 3, the amount 

disbursed is slightly more than the definitized amount. 

Table 3—Financial and Schedule Summary of Task Order 1 ($ millions)

Initial 

Funding 

Definitization 

Date

Definitized 

Cost

Estimate 

Definitized 

Completion 

Date

Actual 

Completion 

Date

Disbursements 

(as of 05/05/08) 

$1.53 March 2004 $1.53 N/A February 2006 $1.60 

Source: SIGIR analysis of USACE and contract file documents. 

In February 2006, FluorAMEC informed the contracting officer that the task order had been 

physically completed. It also requested timely closeout of the task order to avoid costs required 

to keep the task order active. However, as of June 2008, this task order had not been closed out. 

Task Order 2—Nassriya Project: In April 2004, one month after contract award, FluorAMEC 

was issued this task order to design and construct a water supply system consisting of a new 

water treatment plant capable of producing a current constructed flow of 5,000 cubic meters per 

hour of treated water and to place approximately 55 kilometers of transmission piping. The 

products the contractor was tasked to produce included: a technical study of alternatives; a draft 

and final report; a site survey; and preliminary designs for Phase 1 of the water project. 

The project was divided into several phases in order to supply the main population of the city 

first and the outlying area as funds became available. The project design was to allow future 

expansion of the new water treatment plant and transmission pipeline. Under the task order, 

FluorAMEC was also to provide a logistical plan for key project supplies and materials. The 

initial estimated cost of services to be provided under the task order was between $90 million 

and $120 million, but the not-to-exceed limit placed on the task order at issuance was $42.81 

million. 

In July 2004, FluorAMEC was given notice to proceed with the 30% design package and 

directed to submit the design and updated cost estimates by September 2004. Construction on 

5
the Nassriya Project started in early August 2004. That same month, however, SPCO recognized 

that the cost estimate for the project would exceed the available project budget and 

recommended combining the Nassriya water plant and two other proposed smaller water plants 

into one larger project. This would make additional funds available for the Nassriya Project, but 

would require increasing the capacity of the new plant to 10,000 cubic meters per hour and 

extending pipelines to the other two towns. 

In September 2004, FluorAMEC submitted its 30% design package and the next month 

submitted a contract cost proposal for the combined Nassriya Project. In January 2005, the task 

order for the combined project was definitized at $172.39 million. This included $155.05 

million for the Nassriya plant and pipelines to four towns (with a completion date of February 

27, 2007) and an optional $17.34 million for pipelines to a fifth town, Suq Al-Shoyokh (with a 

completion date of August 27, 2007). Over the next year, five separate financial modifications 

increased funding for the project to $244.83 million. 

On September 11, 2007, FluorAMEC and GRD signed completion documents certifying that all 

work required by the task order (1) had been performed and (2) had been inspected and was in 

accordance with contract requirements. Turnover of the plant to the Iraqi Ministry occurred on 

September 12, 2007, and FluorAMEC’s work was finished on December 10, 2007, when it 

completed plant oversight responsibilities. Although the construction project was successfully 

completed, it cost more and took longer than expected. As of May 5, 2008, $259.51 million—

about $87.12 million (51%) more than the definitized cost estimate—had been expended for the 

project. Also, completion took about 36 months from the definitization date, four months longer 

than planned, mostly due to security issues, scope changes, and project transfer problems. This 

task order is awaiting closeout. Table 4 provides summary data on the task order. 

Table 4—Financial and Schedule Summary of Task Order 2 ($ millions)

Initial 

Funding 

Definitization 

Date

Definitized 

Cost

Estimate 

Definitized 

Completion 

Date

Actual 

Completion 

Date

Disbursements 

(as of 05/05/08) 

$42.81 January 2005 $172.39 August 2007 December 

2007 

$259.51 

Note: Definitized and actual completion dates refer to the completion of operation and oversight. 

Source: SIGIR analysis of USACE and contract file documents. 

Task Order 3—Basrah Project: In June 2004, FluorAMEC was issued this task order to 

improve the wastewater collection and treatment system in the city of Basrah. The contractor 

was to (1) investigate and assess the existing conditions of the sewage system and ongoing work, 

(2) recommend repairs and new installations that could be completed within the task order 

budget, and (3) complete the repairs and installations. The initial project description was very 

general, calling for the contractor to study existing treatment facilities, define city needs, 

purchase new equipment, and begin repair of the partially built sewer system. The first detailed 

statement of work specified: 

• purchasing sewer operation and maintenance equipment 

6
• cleaning and rehabilitating sewers in 13 neighborhoods 

• refurbishing five existing pump stations 

• constructing sewer collection systems and pump stations in six areas without service 

The statement of work indicated a projected start date of July 1, 2004, and a “desired completion 

date” within one year. Over the following months, numerous scope and design changes were 

made to reflect budget and schedule constraints and changing project priorities on the part of 

SPCO, ITAO, and the GOI. Table 5, which provides summary data on the task order, shows that 

the project was not completed until September 2006. This task order is awaiting closeout. 

Table 5—Financial and Schedule Summary of Task Order 3 ($ millions)

Initial 

Funding 

Definitization 

Date

Definitized 

Cost

Estimate 

Definitized 

Completion 

Date

Actual 

Completion 

Date

Disbursements 

(as of 05/05/08) 

$51.49 February 2005 $53.11 March 2006 September 

2006 

$50.51 

Source: SIGIR analysis of USACE and contract file documents. 

As shown above, work under Task Order 3 cost $2.60 million less than the final definitized cost 

estimate but took about six months longer than planned. While the cost was under the 

definitized estimate, this was due, in large part, to the changed scope of work. For example, 

rather than constructing eight new pump stations as originally planned, five were completed with 

additional work beyond the original requirement. Also, the planned installation of some sewer 

lines was removed from the statement of work. Sector budget constraints and transfer problems 

also impacted the timely delivery. According to SPCOC, the lack of a clearly defined scope of 

work for the Basrah Project precluded an independent government estimate (IGE).5

Task Orders Terminated 

Task Order 4—Diwaniya Project: In January 2005, FluorAMEC was issued a task order to 

increase the quantity and quality of potable water available to the towns of Diwaniya, Daghara, 

Shafeeya, and Sunyah through the construction of a new water treatment plant and transmission 

system. The new system, estimated to cost $68 million and to be completed by January 2007, 

was to be capable of pumping 4,000 cubic meters per hour of treated water to an additional 

270,000 people. Before issuing the task order, U.S. government officials, as a part of their 

evaluation of the priorities of projects, weighed whether sufficient funds would be available for 

the project; they did not want to start an effort that could not be completed. 

Although the task order called for the contractor to begin work as soon as possible, subsequent 

site visits and discussions with the local officials resulted in a new location for the proposed 

plant and some minor schedule delays. In February 2005, FluorAMEC was directed to proceed 

 

5

 An IGE is an estimate of labor, equipment, materials, and subcontractor costs prepared independent of a 

contractor’s proposal to the U.S. government. 

7
with the 30% design for the project and authorized a not-to-exceed amount of $3.50 million. By 

the end of March, FluorAMEC submitted its cost proposal, and in April 2005, the task order was 

modified to increase the total funding to $68.26 million. In May 2005, FluorAMEC requested 

authorization to proceed with mobilization, subcontracting, and equipment purchases, and asked 

for increased funding. At this time, JCC-I/A directed that the design be developed to the 90% 

stage but limited funding to $6.50 million. However, in July 2005, six months after issuance, the 

U.S. government terminated the task order for convenience because of water sector funding 

constraints, instructing the contractor to terminate all activity at the 60% design stage. Prior to 

the termination, the U.S. government and FluorAMEC had been negotiating to definitize the 

costs and schedules, but a modification to definitize cost and schedule was not issued. Table 6 

provides summary data on the task order. 

Table 6—Financial and Schedule Summary of Task Order 4 ($ millions)

Initial 

Funding 

Definitization 

Date

Definitized 

Cost

Estimate 

Definitized 

Completion 

Date

Actual 

Completion 

Date

Disbursements 

(as of 05/05/08) 

$4.02 Not Done Not Done Not Done Terminated in 

July 2005 

$3.63 

Source: SIGIR analysis of USACE and contract file documents. 

In February 2006, FluorAMEC informed the government that its work on the task order was 

complete, and it requested “the timely close-out of this task order to reduce costs required to 

keep the task order active resulting in cost avoidance to the government.” According to a June 

2007 GRD memorandum, this project was deemed closed out for all intents and purposes in that 

it had been completed for some time, the majority of obligated funds had been expended, and no 

actions were outstanding. In March 2008, FluorAMEC submitted a closeout proposal on this 

task order, which is undergoing review; however, as of June 2008, it had not been closed out. 

Subsequent to the termination of this task order with FluorAMEC, a contract was awarded to 

another company to complete project design. According to GRD and ITAO officials, the project 

design was completed and turned over to the GOI for future use. In May 2008, these officials 

stated that they did not know whether GOI had used the design. If the design is not used, the 

funds and associated efforts could be considered wasted. 

Task Order 5—Najaf Project: In January 2005, FluorAMEC was issued a task order to 

increase the quantity and quality of potable water available to the cities of Najaf and Kufa 

through the construction of a new water treatment plant and major transmission system to 

complement the existing system. It was expected that the new system—capable of producing a 

flow of 2,000 cubic meters per hour of treated water and including about 10 kilometers of 

transmission piping—would provide potable water to an additional 120,000 people in the area. 

When the task order was issued, the estimated project cost was $47 million and completion was 

expected by January 2007. As with Task Order 4, U.S. government officials deliberated whether 

sufficient funds would be available for the project before issuing the task order. 

8
In February 2005, JCC-I/A issued a notice to proceed with a not-to-exceed amount of $3.5 

million. The task order called for FluorAMEC to begin work as soon as possible and to prepare 

a cost proposal and definitization plan through the 30% design stage. The design was to allow 

for future expansion of the water treatment plant and transmission pipeline. In March, 

FluorAMEC submitted a cost estimate totaling $66.50 million (including award fees), and in 

May, it was authorized to develop the design to the 90% stage. However, in July, six months 

after issuance, the U.S. government terminated the task order for convenience because of water 

sector funding constraints, instructing the contractor to terminate all activity at the 60% design 

stage. As with Task Order 4, the U.S. government and FluorAMEC, prior to the termination, had 

been negotiating to definitize the costs and schedules, but a modification to definitize cost and 

schedule was not issued. Table 7 provides summary data on the task order. 

Table 7—Financial and Schedule Summary of Task Order 5 ($ in millions)

Initial 

Funding 

Definitization 

Date

Definitized 

Cost

Estimate 

Definitized 

Completion 

Date

Actual 

Completion 

Date

Disbursements 

(as of 05/05/08) 

$4.02 Not Done Not Done Not Done Terminated in 

July 2005 

$3.26 

Source: SIGIR analysis of USACE and contract file documents. 

In October 2005, FluorAMEC submitted a firm-fixed-price proposal for final settlement, 

including termination and closeout. It stated that this settlement would eliminate additional costs 

that would result if the task order remained open. However, JCC-I/A rejected this proposal. In 

April 2008, FluorAMEC submitted a revised closeout proposal on this task order, and the 

revision is undergoing review; however, as of June 2008, this task order had not been closed out. 

Subsequent to the termination of this task order with FluorAMEC, a contract was awarded to 

another company to complete project design. According to GRD and ITAO officials, the project 

design was completed and turned over to the GOI for future use. In May 2008, these officials 

stated they did not know whether the GOI had used the design. If the design is not used, the 

funds and associated efforts could be considered wasted. 

Cost Growth for Nassriya Project 

As noted on Task Order 2, significant cost growth occurred on the Nassriya Project. Our 

analysis below shows that the project’s cost estimates were not realistic predictors of final cost, 

even while project costs were being definitized. Various factors resulted in the cost increases. 

Analysis of Cost Estimates 

The first estimate, prepared before task order issuance, projected costs to be between $90 million 

and $120 million. We found no documentation that described either the basis for this estimate or 

the required scope of work. Additionally, U.S. government, FluorAMEC, and SPCOC officials 

did not believe that the estimate had much credibility. Officials stated that this estimate was 

developed by a contractor who prepared initial budget planning estimates for a wide range of 

9
projects within a short time period. One government official referred to it as “pie in the sky.” A 

September 2005 Government Accountability Office (GAO) report6

 stated that PCO officials 

found the initial estimates for water sector projects to be 25% to 50% below actual cost. 

One certainty is that this first estimate did not accurately capture the project transferred to the 

GOI in September 2007. The estimate was for a water supply project with a capacity to 

primarily serve Nassriya as opposed to the completed project that is to serve four additional 

towns in the region. Soon after the task order was issued, PCO recognized that the cost estimate 

for the project would exceed the available budget and recommended combining the proposed 

water projects for Nassriya, Al-Shatra, and Dawayah. The combined budgets for those three was 

$173 million—$105 million for Nassriya, $48 million for Al-Shatra, and $20 million for 

Dawayah. Eventually, the Nassriya Project was expanded to serve five towns, but the funds 

needed for connections to those towns were not identified until October 2006. 

The second significant cost estimate for the project was $172.39 million agreed to by the U.S. 

government and FluorAMEC in January 2005 at definitization. This estimate was based on the 

30% design completed by FluorAMEC and reviewed by the SPCO and SPCOC. However, 

concerns related to this estimate were raised at an August 2004 meeting in which definitization 

plans were presented. According to the meeting minutes, SPCO stated that (1) task orders 

needed to be finalized as soon as possible, (2) rough-order-of-magnitude estimates were to be 

submitted within 45 days, and (3) cost proposals were due in 60 days. The decision to definitize 

the task order at the 30% design phase was apparently driven by Defense Federal Acquisition 

Regulation (DFAR) Supplement, Subpart 217.74, which calls for definitization within 180 days. 

With definitization at 30% design, meeting participants expressed concern that insufficient 

design and engineering data would be available to provide support for cost and schedule 

estimates. The contracting officer acknowledged this concern but stated that with cost-plus 

contracts, the contractor would be reimbursed for costs, which would not be known until contract 

completion. 

According to FluorAMEC, the 30% design was preliminary, conceptual, and largely incomplete, 

and the pricing proposal based on it was accordingly flawed. It stated there was simply not 

enough information to produce an accurate contract pricing proposal, and it requested that 

definitization be based on the 90% design. FluorAMEC further noted that by definitizing at 30% 

design with a limited work statement, an unstable security environment, and rapidly changing 

and perilous work conditions in Iraq, any expectation that costs would not change during the 

project was “a wholly unrealistic and untenable expectation.” 

An IGE was prepared for this project to provide additional insight into expected costs to be 

incurred. PCO Standard Operating Procedure PR-105 required that the contracting officer 

request an IGE prior to contract negotiations. Although SPCOC prepared an IGE for this 

project, it was neither comprehensive nor independent of the contractor’s proposal. SPCOC 

officials stated that the IGE used FluorAMEC’s 30% design drawings, took the majority of the 

material quantities from them, used SPCOC templates for items such as security and travel, and 

used FluorAMEC labor and associated general and administrative expense rates. The IGE was 

 

6 U.S. Water and Sanitation Efforts Need Improved Measures for Assessing Impact and Sustained Resources for 

Maintaining Facilities, GAO-05-872, September 7, 2005. 

10
based on the same limited design information as the FluorAMEC proposal and did not identify 

areas of cost growth that were encountered over the next few months. The IGE documents in the 

contract files are better described as analyses of the contractor’s proposal. 

Analysis of Cost Increases 

While the prepared cost estimates were poor predictors of the final project costs, a FluorAMEC 

analysis, prepared in response to the contract officer’s request, provides additional insights into 

the reasons for cost increases. In November 2005, FluorAMEC identified nine cost categories 

that represented about $51 million of a $53 million cost increase (excluding general and 

administrative expenses and fees). According to FluorAMEC, the two contributing factors that 

led to the cost increase are as follows: 

• Definitization based on 30% design that resulted in an incomplete list of needed bulk 

materials and optimistic assumptions on (1) subcontractors’ capabilities and (2) skilled 

labor available in the vicinity. According to FluorAMEC, in the normal cycle, such 

assumptions would have become more firm with development of detailed execution 

plans. 

• A shift in execution strategy precipitated by the multitude of risks inherent in executing 

work in Iraq’s contingency environment. More direct control over the work elements 

was required because of (1) a lack of qualified subcontractors, (2) a lack of skilled labor, 

(3) tribal influences, (4) inflated subcontractor bids, and (5) reliance on remote 

management. 

Table 8 summarizes FluorAMEC’s analysis of increase in nine cost elements. 

Table 8—Analysis of Nassriya Project Cost Increases ($ millions)

Cost 

Element Reason for increase Amount

Freight Material not available regionally plus freight cost increases $24.5

Subcontracts Underestimation of subcontractors’ costs $5.3

Affiliate labor Schedule extension, added resources for procurement, and unit rate 

increases resulting from reduced workload $4.0

Concrete Quality problems plus poor subcontractor performance $3.6

Materials Quantities underestimated plus cost increases caused by subcontractors’ 

inability to procure $3.5

G&A Same as affiliate labor $2.9

Equipment Higher costs for gravity filters and other items $2.8

Elevated Unavailable in the region $2.5

Procurement Inability of subcontractors to procure equipment and materials $1.9

Total $51.0

Source: SIGIR synopsis of FluorAMEC provided data 

11
FluorAMEC provided details related to the increases in each element. For example, it reported 

that freight costs were understated because the 30% design budget assumed that (1) most process 

equipment would be procured regionally, (2) pipe valves and fittings would be shipped from 

India and the United States, and (3) other items such as fabricated pipe spools and bulk material 

would be purchased locally. However, only 1 of 22 equipment packages was assembled and 

tested in the region (resulting in a cost increase of more than $2 million), a significant amount of 

pipe procurement was shifted from India to China to better meet construction schedules (an 

increase of more than $14 million), and the items anticipated from Iraq subcontractors were not 

available (an increase of more than $7 million). 

SPCO and SPCOC examined the information provided and concluded that no costs or cost 

increases appeared to be unreasonable. At this time in December 2005, SPCO recommended 

increasing project funding to $252.8 million, including the contractor’s estimate at completion of 

$229.1 million, the contractor’s identified risks of $15.7 million, and SPCO’s own probable case 

for additional risks of $8 million. Accordingly, most of the cost increases on the Nassriya 

Project were recognized during 2005. 

In June 2007, FluorAMEC submitted a request for equitable adjustment (REA) that it claimed 

was the direct result of the U.S. government’s requirement for early definitization and its failure 

to act on a number of earlier requests for contract change orders. The request was for an increase 

in the base fee of $1.54 million and in the award fee of $5.07 million due to added work, 

different site conditions, and higher costs. As a result of negotiations, the U.S. government and 

FluorAMEC agreed in April 2008 on a payment of $3.39 million as full satisfaction of all claims 

under the task order. 

Schedule Slippages for Nassriya and Basrah Projects 

In addition to the significant Nassriya Project cost increases, SIGIR noted schedule slippages on 

the Nassriya and Basrah Projects. Our analysis of these slippages shows that they were caused 

mostly by security problems, scope changes, and the GOI’s reluctance to assume operational 

responsibility for the completed projects. 

Nassriya Project Schedule Changes 

The Nassriya task order issued in April 2004 called for the system to be “fully operational, 

including all construction, testing and commissioning with operator training completed by 1 

October 05.” When the task order was definitized in January 2005, the construction completion 

date was moved to February 2007 and project transfer to the GOI was moved to August 2007. 

By the end of 2005, SPCOC reported that FluorAMEC planned to “complete construction by 

March 2006 and commission in June 2006.” FluorAMEC concluded its oversight at the plant in 

December 2007. 

The Nassriya Project delays occurred most notably during the first year and, according to 

contract file documents, were principally due to interruptions caused by conflict with the local 

tribe, criminal activities, the national election, and holidays. Other causes of delays included the 

GOI’s difficulties in removing squatters from the work site due to land disputes, Iraqi 

subcontractors’ inability to perform, and project scope changes. 

12
Basrah Project Schedule Changes 

The Basrah Project was completed in September 2006 and turned over to the GOI in the next 

month, about six months later than the definitized estimated completion date of March 2006; the 

project took about 29 months from task order issuance to completion. According to contract 

documents, delays in official completion resulted mostly because the GOI (1) did not start the 

agreed-on preliminary work and (2) delayed acceptance of the completed project because the 

pump stations did not have permanent power. Scope changes also impacted the schedule of 

work. In July 2005, SPCO raised concerns about the lack of progress and the commensurate 

level of incurred costs. FluorAMEC addressed these concerns, and in June 2006, SPCO’s final 

progress review determined that all work was essentially complete, with only some limited 

additional efforts needed. 

At project commencement, the GOI had agreed that installation of mechanical and electrical 

equipment on the pumping stations would be completed by its own contractor before 

FluorAMEC started work. This was not done, however, and FluorAMEC was authorized to 

complete this work. When the project work was completed, SPCOC correspondence noted 

difficulties in getting the GOI to take on responsibility for operating and maintaining the 

facilities that were constructed or rehabilitated. According to GRD, the GOI would not fully 

accept the electrical installation until the connections to the main power supply were made. 

FluorAMEC believed that the Iraqi authorities were withholding acceptance as leverage to 

extract more work from the U.S. government. To allow project turnover, the U.S. government 

contracted with an Iraqi firm to complete the permanent power work at a cost of $13,376. 

13
Contract Management and Oversight 

The U.S. government’s responsibilities for this design-build contract included establishing a 

contractor competition process and selecting a contractor; defining work to be performed through 

statements of work and task orders; and managing cost, schedule, and performance throughout 

the contract period. Our review of the U.S. government’s oversight and management of these 

task orders showed that a number of organizations—primarily SPCO, GRS, SPCOC and JCCI/A—were actively involved in day-to-day oversight of contractor performance. Although these 

organizations were often not on site because of security concerns, extensive documentary 

evidence shows that they were involved in quality control and quality assurance efforts. We also 

noted considerable correspondence and frequent negotiations with the contractor on performance 

and cost issues. In addition, DCAA audits were a key element in contract oversight. 

Notwithstanding the extensive contract management efforts, our review identified a number of 

problems significantly impacting cost and schedule. The contract’s scope of work was not well 

defined and the task orders, as initially issued, did little to further identify the work to be 

completed. Deficiencies in initial CPA cost estimates also led to unrealistic expectations of what 

could be done within existing budgets. The required IGE for the Basrah Project was not 

prepared, and the one prepared for the Nassriya Project was a poor predictor of costs. The 

definitization of costs and schedules based on 30% design proved to be inadequate in Iraq’s 

unstable security environment. On the Nassriya Project, early definitization was a factor in the 

U.S. government’s inability to predict and define significant cost and schedule changes. Also, 

while award fees were used to incentivize contractor performance, we identified inappropriately 

paid award fees. 

Full Benefits of Competition Not Achieved 

The selection of FluorAMEC as the contractor for water sector projects in southern Iraq was 

carried out according to the plan established by the Deputy Assistant Secretary of the Army 

(Policy and Procurement) for selecting design-build contactors for Iraq reconstruction. Before 

the selection, the Army determined that an IDIQ contract was most appropriate as it provided for 

issuing task orders on either a cost-reimbursement or fixed-price basis. Technical and schedule 

risks were considered to be moderate, while cost risk was considered to be high. It was 

anticipated that task orders would initially be issued on a cost-plus award-fee basis. 

In awarding contract W914NS-04-D-0022 to FluorAMEC, the U.S. government used 

competitive procedures as required by the Federal Acquisition Regulation (FAR). 7

 We 

determined that the U.S. government properly advertised the requirements, developed source 

selection plans, and had sufficient controls to ensure the plans were followed. In addition, the 12 

on-time proposals received for this contract were evaluated according to the established 

evaluation factors, and the source selection authority decided on the best value to the 

 

7 Award of Sector Design-Build Construction Contracts, SIGIR-04-005, July 23, 2004, addresses the procedures 

used to award this and other sector contracts. 

14
government. The evaluation factors included compliance with solicitation requirements, past 

performance, technical excellence, management capability, personnel qualifications, prior 

experience, and cost. 

Although competitive procedures were used to award this contract, the U.S. government could 

not obtain the full benefits of competitive contracting, including timely delivery of quality 

products and services at reasonable cost. As discussed more fully below, the contract statement 

of work lacked specificity, and as a result, FluorAMEC and the other offerors did not compete to 

construct or repair specific facilities or to complete specific tasks. Without such specificity, the 

full benefits of competition could not be achieved. PCO acknowledged this and said that the 

strategy to meet the challenges included 

• using award fee contracts to motivate contractor performance, 

• using contractors to assist in monitoring the design-build construction contractors, 

• monitoring and controlling costs and schedule performance by using earned value 

management systems.8

Throughout the contract performance period, award fees were used to motivate FluorAMEC. 

Also, SPCOC assisted in monitoring and overseeing the contract. However, earned value 

management systems were not used. According to FluorAMEC, the contracting officer 

requested a cost analysis during the summer of 2004 to implement a planning and scheduling and 

earned value management system. FluorAMEC submitted a cost proposal, and the government 

determined that a changeover would not be cost-effective and shelved the proposal. In a letter 

discussing cost and schedule reporting, the contracting officer recognized that earned value 

reporting was not required. 

Work To Be Performed Not Well Defined 

The scope of work in this contract did not identify the specific projects or tasks to be completed, 

and the subsequent issuance of individual task orders did little to further define the work that 

would be performed. The stated scope of work was the broad mission to restore, rebuild, and 

develop water, wastewater, and solid waste projects to support the CPA’s mission. It added that 

the contractor must be capable of providing a full range of services and support to include study, 

inspection, design, demolition, remediation, renovation, rehabilitation, construction, warranty 

service, and operations and maintenance training. 

For the mobilization effort, the contract did require specificity. The contractor’s proposals were 

to include a plan for providing the management staff and necessary resources to initiate 

operations. The mobilization plan was to cover the initial 60 calendar days of contractor 

operations. The objective defined for the mobilization plan was for the contractor to be in a 

position to start work on construction tasks when issued. Task Order 1, the mobilization task 

order, was issued on March 23, 2004, the same day the contract was awarded. 

 

8

 A management system for measuring project progress, including technical, schedule, and cost performance and 

providing early warning of potential problems. 

15
The task order for the Nassriya Project was issued about one month later. While the project was 

specific, the work to be performed was not. The notice to proceed directed such efforts as (1) a 

technical study of alternatives, (2) a site survey, (3) site preparation, (4) security preparations, 

and (5) preliminary designs. A modification three months after the task order was issued 

highlighted the undefined work scope. The modification added a new contract option to 

combine the Nassriya Project with two other planned projects—Al-Shatra and Dawayah. The 

option was to construct a larger Nassriya plant, eliminating plans for separate plants at Al-Shatra 

and Dawayah and connecting these cities by pipelines to the Nassriya plant. While FluorAMEC 

was authorized in July 2004 to proceed with a 30% design package, its cost proposal submitted 

in October 2004 outlined plans for a base project and two additional options. In December 2004, 

SPCO, SPCOC, and others were still considering options to reduce potential costs by descoping 

the project or reducing the amount of transmission pipelines. Accordingly, the scope of work 

was not yet defined. 

Task Order 3 for the Basrah Project, issued in June 2004, was even less specific as to the 

expected work. It directed FluorAMEC to (1) perform an assessment and coordination study and 

(2) identify and recommend any immediate work to be performed. The SPCOC, in response to a 

request for an IGE on the task order, stated that the lack of defined scope made it impossible to 

produce a meaningful IGE. FluorAMEC, in an October 2004 assessment, noted that proposed 

work items and priorities were substantially different from those originally specified, but the 

proposed program had been agreed to by the SPCOC and accepted by the contracting officer. In 

February 2005, the task order was definitized in a contract modification and nine work packages 

were identified. However, in April 2005, the scope of work was further revised by deleting 

planned work on three pumping stations—not needed because sewers were not connected—and 

adding the mechanical and electrical work on five other pumping stations—work that was to be 

done by a GOI contractor but was not being performed. According to FluorAMEC, throughout 

the summer of 2005, FluorAMEC, SPCOC, GRS, and the GOI staff identified more fully the 

sewage pipe areas to be cleaned and repaired, and design work progressed for the new sewage 

collection areas. A September 2006 FluorAMEC report noted, “The undefined, fluid scope, as 

well as security issues, made it difficult to plan construction and maintain a schedule.” It 

reported that the general scope of work set forth was accomplished, but more was accomplished 

under certain work elements than planned, with less accomplished under others. 

As previously stated, Task Orders 4 and 5 were terminated at the 60% design phase about six 

months after issuance. 

Oversight of Contractor Performance Shared by the U.S. 

Government and Contractor 

U.S. government oversight of FluorAMEC’s performance on contract W914NS-04-D-0022 was 

primarily performed by three U.S. government organizations—SPCO, GRS, and JCC-I/A—and 

by the SPCOC, a contractor. The concept was that these primary implementing organizations 

would work as an integrated team in a seamless manner to deliver high quality reconstruction 

projects. 

16
• SPCO, staffed by U.S. government employees or military personnel, was responsible for 

program management, including the overall program cost, scope, and schedule; program 

reviews; liaison with ITAO and the GOI; and oversight and evaluation of SPCOC. 

• SPCOC, staffed by CH2M Hill/Parsons employees, supported SPCO in overseeing 

contractor performance, monitoring compliance and performance reviews, managing 

project schedules, developing cost estimates for budgets and negotiations, and serving as 

the contact point for the contracting officer. The U.S. government placed substantial 

reliance on SPCOC, but inherently governmental functions were to be accomplished by 

SPCO or the contracting officer. 

• GRS was the U.S. government representative on site at the construction project and 

provided quality assurance support and other project execution responsibilities such as 

property management, safety, and construction progress reporting. 

• JCC-I/A provided contracting support. The contracting officer was responsible for 

contract administration, including issuing task orders, definitizing task orders, issuing 

modifications, and implementing the award fee plan. 

Our examination of contract files, including contract modifications, project scope changes, 

invoices, and other documents provided extensive evidence of how involved the organizations 

were in carrying out their contract responsibilities. The following sections discuss two areas of 

management and oversight. 

Providing Quality Control and Quality Assurance in an Unstable Security Environment 

Our review identified quality control and quality assurance efforts from all involved 

organizations. Contractually, FluorAMEC was responsible for quality control from design and 

construction through commissioning and for establishing and maintaining plans, procedures, and 

organizational capacity to ensure that work complied with construction requirements. 

Documents show that FluorAMEC prepared the (1) general Site Quality Control Plan; (2) Iraq 

Reconstruction—Weekly Report; (3) Monthly Task Order Status Report, which included work 

activities completed, site and progress photographs, and construction and testing inspection 

reports; (4) Interim Assessment Reports, which included program execution and quality 

management assessments; and (5) daily reports on all major construction activities and changes. 

However, because of security concerns that limited non-Iraqi access to work sites (especially on 

the Basrah Project), FluorAMEC officials depended on on-site, Iraqi engineers to provide most 

daily assessment reports. Because quality assurance and other management functions were 

mostly done remotely, cell phones, photographs, and subcontractor meetings were the primary 

means of overseeing, assessing, and reporting on construction status and subcontractors’ work. 

Ultimately, GRS was responsible for U.S. government quality assurance, including property 

management and safety. While this function would normally have been done on site, GRS 

officials also had limited access to the work area. As a result, GRS’ Daily Inspection Quality 

Assurance Reports were prepared by Iraqi engineers, who served as its quality assurance 

representatives. These multi-page documents identified the subcontractors and engineers doing 

the work and included information on the construction done, tests performed, security and safety 

issues, and progress and problems. Site engineers also prepared weekly reports that included 

summaries of significant accomplishments and problems. 

17
SPCOC also played a role in overseeing quality assurance and quality control by providing 

expertise regarding program risks, contractor quality, and performance. Although not 

maintaining an on-site presence, it was responsible for the Sector Consolidated Results Update 

Meetings, which included discussion of the status of all public works and water sector projects. 

Security conditions limited on-site presence by U.S. government and SPCOC officials at project 

sites. However, according to officials interviewed and documents reviewed, the use of Iraqi 

engineers to add an on-site element to the quality control system provided an acceptable level of 

quality assurance under the circumstances. 

Definitizing Task Order for Nassriya Project 

Extensive documentation showed that SPCOC exercised oversight of the contractor’s activities 

and performance and worked directly with the contracting officer, who authorized and approved 

contract changes. The following discussion illustrates their respective roles and responsibilities 

in definitizing the Nassriya Project task order. Definitization is the process by which the U.S. 

government and contractor reach agreement on the terms, specifications, and price of the task 

order. Through definitization, the government attempts to control contract results by formalizing 

key terms and conditions, including the estimated cost, duration, and scope of work. 

The task order for the Nassriya Project was issued in April 2004 and definitized in January 

2005—about 280 days later. As previously stated, the DFAR Supplement generally provides for 

definitization within the earlier of these dates: 180 days after the issuance of an undefinitized 

contract action, or the date on which the amount of funds obligated under the contract action is 

equal to more than 50% of the not-to-exceed price. While this task order was not definitized 

within 180 days, definitization was initiated in July 2004 when the contracting officer required 

the submission of design packages and cost estimates. At a subsequent meeting, SPCO and the 

contracting officer notified FluorAMEC of the need to definitize the task order as soon as 

possible. Even as definitization was starting, SPCO, SPCOC, and the contracting officer were 

considering for the Nassriya Project a changed scope that would combine the original plan for 

three water plants into one large plant at Nassriya. 

In September 2004, FluorAMEC submitted its 30% design package for the project and a month 

later submitted its pricing proposal, steps in definitizing the project’s scope of work and costs. It 

identified the proposal’s scope of work as that identified by the contracting officer in 

consultation with SPCOC and the GOI. Before these submissions, SPCOC had been reviewing 

and commenting on FluorAMEC estimates and other cost information. In October, SPCOC 

provided detailed comments on the design package, and FluorAMEC responded. In November, 

SPCO and SPCOC officials met to consider options for addressing the shortfall between the 

available budget and the FluorAMEC price proposal. Three options for solving the shortfall 

were discussed: providing additional funds, descoping the project to fit existing budget, and 

using an alternative procurement for part of the project. 

In December, the contracting officer and SPCOC began fact-finding discussions to clarify 

questions with respect to the FluorAMEC pricing proposal. These discussions provided the basis 

for the U.S. government’s position as SPCO, SPCOC, and the contracting officer joined with 

FluorAMEC for definitization negotiations in January 2005. The government’s position in the 

negotiations was based on SPCOC’s technical analysis of FluorAMEC’s proposal. In its 

18
analysis, SPCOC had identified an opportunity to address funding constraints by reducing funds 

for FluorAMEC’s operations and oversight training. The contracting officer accepted this 

recommendation, and the contracting officer and FluorAMEC negotiated a $652,345 reduction in 

estimated costs. According to the contracting officer’s memorandum, all parties reached 

agreement on the revised baseline scope for the project, and estimated costs, fixed fees, and the 

maximum award fee were negotiated. 

Contractor’s Accounting, Purchasing, and Billing Systems Were 

Adequate 

A key step in ensuring that a contractor is reimbursed only for costs incurred under a contract is 

determining the adequacy of the contractor’s accounting, purchasing, and billing systems. For 

FluorAMEC, DCAA examined these systems and determined that they were adequate. In 

addition, DCAA performed semiannual verifications of a sample of vouchers of direct cost 

submitted by FluorAMEC under its Iraq reconstruction contracts, including contract W914-04-

D-0022. The following sections further discuss these areas. 

Accounting System: FluorAMEC used the Fluor Corporate accounting system for its Iraq 

reconstruction contracts. In a July 2003 audit, DCAA examined this accounting system and 

related internal controls and procedures and found them to be adequate. DCAA reported that (1) 

the FluorAMEC accounting system was maintained on the job order basis in accordance with 

generally accepted accounting principles; (2) the cost accounting system was fully integrated in 

the overall accounting system with contracts assigned individual project numbers and direct costs 

identified and charged to those project numbers; (3) indirect costs were identified and 

accumulated under individual departments, which in turn were related to indirect cost pools with 

indirect costs being billed to projects using predetermined rates; and (4) the predetermined rates 

were adjusted to actual rates at year end. 

Purchasing System: FluorAMEC’s purchasing system was determined to be adequate by 

DCAA in September 2005. DCAA found that Fluor and AMEC dedicated certain employees to 

the FluorAMEC system for issuing purchasing orders and subcontracts for task orders and billed 

FluorAMEC for these employees at government-approved rates. The purchasing organization 

reported to a Fluor executive to help ensure organizational independence and objectivity in 

making purchasing decisions. Also, an internal self-assessment program reviewed and 

monitored the degree to which purchasing and contracting actions complied with established 

policies and procedures. 

Billing System: FluorAMEC’s billing system was determined to be adequate by DCAA in 

March 2005. As with the purchasing system, Fluor and AMEC dedicated certain employees to 

FluorAMEC and billed the company for these employees at government-approved rates. DCAA 

had previously examined both the Fluor and AMEC billing systems and found them to be 

adequate. 

In addition to these system reviews, DCAA performed audits of the direct costs billed to the 

government by FluorAMEC under its Iraq reconstruction contracts. The purpose of the audits 

was to determine whether the billed amounts were allowable, allocable, and reasonable and in 

accordance with contract terms and conditions. For FluorAMEC, DCAA performed audits for 

19
three different periods—from contract award through October 30, 2004; November 1, 2004, 

through January 31, 2005; and January 1, 2005, through July 3, 2005. Each audit included a 

review of randomly selected vouchers. In all three audits, DCAA concluded that the direct costs 

submitted under contract billings were allowable, allocable, and reasonable. 

In March 2007, DCAA also performed a review to determine whether the vouchers submitted to 

the government under FluorAMEC’s Iraq reconstruction contracts were current, accurate, and 

complete. The process in each case included verifying the indirect rates used, verifying 

mathematical accuracy, and determining compliance with contract terms. Based upon its review 

of a randomly selected sample of vouchers submitted from February 2006 to February 2007, 

DCAA determined that (1) the vouchers were current, accurate, and complete; (2) continued 

reliance could be placed on FluorAMEC’s procedures for the preparation of interim vouchers; 

and (3) FluorAMEC had met the criteria for continued participation in the direct submittal 

program. 

Our review of contract files showed that, as authorized, FluorAMEC was submitting vouchers 

for payments without DCAA’s advance approval. DCAA had authorized this direct submission 

because FluorAMEC maintained an adequate billing system and submitted its incurred cost 

vouchers in accordance with the FAR requirement. Also, the files showed that FluorAMEC 

vouchers and U.S. Government receiving reports (DD Form 250) were being reviewed by the 

SPCOC before submittal. That review was to ensure that the vouchers and receiving reports 

were for the correct contract and payment period and that they related to ongoing work and 

activities involving contract projects. 

Award Fees Used as Incentives but Some Award Fees Not 

Appropriate 

The U.S. government used award fees to provide FluorAMEC with incentives for high quality 

performance; the contractor received excellent or above average ratings and was paid $22.12 

million in award fees throughout the contract period. According to government and contract 

officials involved in evaluating the contractor and administering the award fees, the process was 

complicated and laborious but did result in improved contractor performance. Our review of the 

award fee documentation corroborated these observations but identified the inappropriate 

payment of award fees on the two terminated task orders. 

The contract provided for a base fee of 3% (the maximum allowable amount) and an award fee 

of up to 12% of the amount of the “negotiated, estimated costs” of the task orders issued. Award 

fee plans and other provisions of the contract were intended to motivate the contractor toward 

superior performance and provide the U.S. government the flexibility needed to evaluate both the 

contractor’s performance and the conditions under which it was achieved. The award fees were 

governed by the contract plan, which provided for judging contractor performance based on a set 

of factors (metrics) including program and technical management; capacity development; 

schedule adherence and cost control; promotion of health and safety; and participation of small 

businesses, coalition partners, Iraqi companies, and Iraqi women-owned businesses. The total 

award fee was divided into amounts for evaluation periods covering the period of performance. 

20
Award fee determinations were based on subjective performance evaluations made by an Award 

Fee Determination Official, supported by an Award Fee Evaluation Board. The evaluations were 

of FluorAMEC performance on both water sector contracts.9

 Evaluations of performance levels 

and allocations of award fee rating percentages were based on the following criteria: 

Performance Level Evaluation 

Rating10

Excellent 90% - 100% 

Above Average 75% - 89% 

Average 50% - 74% 

Below Average / Unsatisfactory 0% - 49% 

FluorAMEC received the following percentage ratings during the evaluation periods. As can be 

seen, the ratings were either excellent or above average. 

Evaluation Period Evaluation Rating 

1st March 2004 – September 2004 93.8% 

2nd September 2004 – March 2005 93.8% 

3rd March 2005 – September 2005 80.2% 

4th September 2005 – March 2006 84.6% 

5th March 2006 – September 2006 86.2% 

6th September 2006 – March 2007 94.1% 

The contract and award fee plan did not specify an allocation of award fees among the individual 

task orders. For most evaluation periods, the total earned award fee was allocated by applying 

the same percentage rating to each individual task order. Only during the third period did the 

Board evaluate and assign different rates to individual task orders. During this period, 

FluorAMEC received its lowest rating (but still above average) when it was issued a cure notice 

(citing failures to perform in accordance with contract requirements) on the Nassriya Project. In 

addition to the lower rating, award fees were adjusted on individual projects so that no award fee 

was provided for the Nassriya Project during that period. JCC-I/A officials believe that this 

lower rating served as a catalyst for improved performance. 

From contract award in March 2004 through May 2008, the U.S. government paid about $22.12 

million in award fees. This amount includes an award of $3.39 million for the Nassriya Project 

made in April 2008 as a result of a negotiated settlement of a FluorAMEC request for equitable 

adjustment. Table 9 shows the estimated budget on which award fee pools were calculated and 

the amount paid under each task order. 

 

9

 FluorAMEC was also awarded contract W914NS-04-D-0008 for water sector projects in the north of Iraq. 

10 Award fees were calculated by multiplying the percentage rating times the amount of the award pool. However, if 

the contractor received a rating of less than 50%, it would receive no award fee. 

21
Table 9—Estimated Budget and Award Fees Paid Under Each 

Task Order ($ millions)

Estimated Budget Award Fees Paid 

Completed Task Orders 

TO 1 - Mobilization $1.53 $0.11 

TO 2 - Nassriya Project $172.39 $16.38 

TO 3 - Basrah Project $53.11 $4.39 

Subtotal $227.03 $20.88 

Terminated Task Orders 

TO 4 - Diwaniya Project $5.65 $0.62 

TO 5 - Najaf Project $5.65 $0.62 

Subtotal $11.30 $1.24 

Total Award Fees Paid $22.12 

Source: SIGIR analysis of contract file documents. 

We identified issues related to the award fees paid for Task Orders 4 and 5, which were 

terminated for convenience of the government. According to the contract award fee plan, if a 

task order is terminated after the start of an award fee period, the contractor is entitled to a fee 

based on the established evaluation process. However, after termination, the remaining award 

fee pool cannot be earned by the contractor. When Task Orders 4 and 5 were terminated—

during the contract’s third award period—an official definitized cost estimate had not been 

established. While FluorAMEC, SPCO, and the contracting officer held definitization 

discussions, modifications definitizing cost estimates and schedules were not issued. According 

to contract documents, for each project, the not-to-exceed estimate of $6.50 million was used to 

calculate estimated costs of $5.65 million and a maximum award fee pool. The pool was divided 

between two evaluation periods—Period 3, when the contract was terminated, and Period 4, after 

termination. 

FluorAMEC was paid an award fee of $619,960 for each project—$333,157 for Period 3 and 

$286,803 for Period 4. For these projects, FluorAMEC received $573,605 in award fees for 

Period 4—payments that are not appropriate based on the award fee plan. Also, actual costs 

incurred on the projects were significantly less than the costs used in calculating the award fee 

pools. As of May 5, 2008, actual project costs (excluding award fees) were only $3.01 million 

for the Diwaniya Project and $2.64 million for the Najaf Project, instead of the $5.65 million 

used to calculate the award fee pools. Accordingly, the $1.24 million in award fees for these two 

terminated projects was 22% of project costs, contrasted with the maximum of 12% authorized 

under the award fee plan. 

22
Task Orders Not Closed Out 

All work on the five task orders under contract W914NS-04-D-0022 has been completed, but 

none of the task orders have been officially closed out. While closeout is not a high priority, 

both JCC-I/A and contractor officials agree that timely closeout can save the government money. 

JCC-I/A has not taken timely actions to close out the task orders. Task Orders 4 and 5, which 

were terminated for the convenience of the government in July 2005, could have been closed out 

years ago. Task Order 1 for mobilization—work completed in February 2006—and Task Order 

3 for the Basrah Project—work completed and the project turned over to the GOI in October 

2006—could also have been closed out. On Task Order 2, the Nassriya Project, FluorAMEC 

submitted in June 2007 a request for equitable adjustment that was not settled until April 2008. 

The following section provides additional details on the closeout status of Task Orders 4 and 5. 

Task Orders 4 and 5—Diwaniya and Najaf Projects: In July 2005, the contracting officer 

specified in the termination notice for these task orders that final cost proposals were to be 

submitted with 30 days. FluorAMEC responded that more time was required to accumulate 

outstanding costs against an ongoing construction project and that the FAR allows up to one year 

for submission of a certified final settlement proposal. 

On Task Order 5, FluorAMEC submitted a firm fixed-price proposal for final settlement in 

October 2005. FluorAMEC proposed a settlement of $3.93 million, including a profit of $0.51 

million, and requested the earliest possible settlement to avoid additional costs. It stated that 

negotiating a timely fixed-price settlement would avoid the administrative costs associated with 

continued reporting as well as the delay of settling final overhead rates. On Task Order 4, 

FluorAMEC notified the contracting officer in February 2006 that all contract performance was 

completed and requested the timely closeout of the task order. 

JCC-I/A made no significant effort to close out these two task orders until early 2008, when 

FluorAMEC questioned why they had not been assigned to a termination contracting officer 

(TCO) at the Defense Contract Management Agency (DCMA) Terminations Center. DCMA 

maintains a cadre of TCOs whose only mission is to settle contracts terminated for the 

convenience of the government. The Terminations Center provides “cradle to grave” service 

after the termination notice is issued. Not until February 2008 did JCC-I/A assign the task orders 

to the Terminations Center. In March and April, FluorAMEC submitted its settlement proposals 

for the task orders—$3.65 million to settle Task Order 4 and $3.26 million to settle Task Order 

5. The TCO reported to SIGIR that these proposals were undergoing DCAA audit and that final 

settlement and closeout could occur in June 2008. 

In response to our questions as to why timely actions had not been taken to close out these task 

orders, a former contracting officer stated that JCC-I/A had “marked time” rather than moving 

aggressively on closing these projects because the projects could have been reinstated. He also 

stated that the terminated task orders were not assigned to DCMA because that agency was 

scheduled to leave Iraq. According to this official, the closeouts were given a low priority. 

23
Transferring Projects to the Government of Iraq 

When the water sector design-build contracts were awarded in 2004, the U.S. government 

recognized the need to prepare for eventual transfer to the GOI responsibility for the projects’ 

operations, security, and sustainability. This was to be accomplished by having the ITAO and 

GRD work with the appropriate Iraqi ministries to prepare for the transfers and by having 

contractors include training and capacity development requirements in their contracts. However, 

the transfer of the Nassriya water treatment plant to the GOI was plagued with problems, and as 

a result, the long-term maintenance and sustainability of the plant remains in jeopardy. Also, 

problems were encountered in transferring the Basrah Project. 

Nassriya Project: ITAO and GRD experienced difficulties in transferring the Nassriya plant 

and facilities to the GOI, which according to contract file documents was unprepared and 

reluctant to assume responsibility. Specifically, the GOI did not (1) provide the agreed-to 

permanent power for the pump stations, (2) make needed repairs to the distribution systems, and 

(3) provide qualified staff to operate and maintain the plant. While progress had been made in 

some areas, a SIGIR Inspections Report11 in April 2008 identified continuing maintenance and 

operational problems, especially a lack of qualified Iraqi staff to operate the plant. 

According to the task order, FluorAMEC was to provide three sessions of classroom and handson training for Iraqi operators and plant staff. Because about 100 skilled staff were needed to 

operate and maintain the plant, both FluorAMEC and ITAO, beginning in mid-2006, worked 

with the GOI to identify and train the required number of staff. A lack of qualified trainees 

severely hampered progress. According to FluorAMEC, many of those who attended the 

training were not motivated to participate in actual operations and refused to take part in any 

hands-on activities. April 2007 ITAO documents cite frustration with the lack of progress on 

training and an apparent lack of interest on the part of the GOI in taking over the treatment plant. 

In late June, SPCOC reported that to operate the plant “for short-operating periods,” a minimum 

of 32 qualified operators would be required, but at that time, only nine individuals were 

independently functioning as operators. The government clearly recognized that the final 

success of the plant depended on the GOI’s ability to provide qualified and motivated staff for 

plant operation and maintenance. 

In August 2007, ITAO informed the GOI that the U.S. government would transfer responsibility 

for the Nassriya plant on September 12, 2007. It also noted that FluorAMEC would complete its 

training requirements by December and that the U.S. government would then no longer provide 

any operation and maintenance workers. Thus, the GOI would need to have in place a cadre of 

trained workers capable of during the required work with limited guidance. 

The SIGIR Inspection Report, based on plant inspections in December 2007 and February 2008, 

noted that steps necessary to run the plant had not been taken, and as a result, the plant was 

operating only one eight-hour shift per day and pumping water at significantly less than capacity. 

 

11 Sustainment of the Nassriya Water Plant, Nassriya, Iraq, SIGIR PA -07-116, April 28, 2008. 

24
The report also noted that the plant did not function on some days due to lack of fuel, the old 

distribution system was in disrepair, and the large number of illegal taps into the system had not 

been dealt with. An ITAO briefing memorandum to the U.S. Ambassador in May 2008 reported 

the following: 

• The treatment plant was operating 24 hours per day, 7 days per week, at a capacity of 

4,000 cubic meters per hour instead of the designed 10,000 cubic meters. 

• Water was being delivered to Nassriya every day, but two other towns were being served 

on an intermittent basis due to excessive leakage in their distribution networks. One 

town was not being served at all due to illegal connections to its water main, and the fifth 

town had never been served due to the very poor condition of its distribution network. 

The memorandum noted that unless steps were taken to improve the operations and maintenance 

practices, the project would continue to deteriorate. In its Inspection Report, SIGIR 

recommended that the U.S. government act to avert further deterioration of plant equipment. 

Basrah Project — While construction on the Basrah Project was mostly completed in August 

2006, serious problems surfaced in getting the Iraqi Basrah Sewerage Directorate to accept 

responsibility for the completed facilities and to take on required operation and maintenance. A 

September 2006 SPCOC memo stated that all construction activities had been substantially 

completed with the exception of final asphalt repairs but that the GOI would not sign the 

acceptance letters for significant work elements because of the power supply issue noted earlier. 

During this period, the transfer was plagued by the lack of a permanent power supply, generator 

and other equipment failures, and the inability of the Sewage Directorate to provide needed 

corrections. To allow for full acceptance by the Sewage Directorate, GRD descoped the work 

and issued a separate contract for $13,376 to provide electrical service to the pumping stations. 

In October 2006, the GOI accepted control of the Basrah project. 

Overall Transfer Concerns — Both SIGIR and the GAO have addressed systemic issues in 

transferring projects to the GOI. Our most recent report12 on transferring assets indicates the 

need for an effective capital project transfer process to ensure that the billions of dollars in U.S. 

reconstruction assistance is ultimately not wasted because capital assets are not adequately 

maintained and utilized. A 2005 GAO report13 noted that the outlook for sustaining facilities 

was unclear and that the lack of Iraqi ministerial capacity remained an obstacle to program 

success. It also noted that poor security conditions and management challenges—including 

problematic staffing, unreliable power to run treatment plants, insufficient spare parts, and poor 

operating procedures—had resulted in many projects’ failure to operate as intended. Because the 

report on transferring reconstruction projects and the Nassriya inspection report contain 

recommendations, this report makes no further recommendations on this issue. 

 

12 Transferring Reconstruction Projects to the Government of Iraq: Some Progress Made but Further Improvements 

Needed to Avoid Waste, SIGIR Audit 08-017, April 28, 2008. 13 U.S. Water and Sanitation Efforts Need Improved Measures for Assessing Impact and Sustained Resources for 

Maintaining Facilities, GAO-05-872, September 7, 2005. 

25
Conclusions, Recommendation, and Lessons Learned 

Conclusions 

The two completed projects—Nassriya and Basrah—are generally considered successful, 

although the Nassriya Project cost more and took longer than expected and the scope of the 

Basrah Project was reduced to match the available budget. Overall, U.S. government 

organizations and selected contractors were actively carrying out management and oversight 

responsibilities for the work performed under this contract, which was done under exceedingly 

difficult conditions, included funding uncertainties, time constraints, and security problems. All 

adversely affected the government’s ability to do preconstruction planning, define project 

requirements, and provide quality assurance. 

While the completed projects are considered successful, less was accomplished under the 

contract than expected because planned funding for water projects was reduced. Also, water 

sector projects proved to be significantly more costly than estimated. The underestimation of 

costs resulted from not fully defining the required work and not preparing independent and 

comprehensive cost estimates. Furthermore, the lack of up-front management planning led to 

higher than anticipated costs, schedule delays, and potentially wasteful project terminations. 

Despite concerns about changing funding priorities and escalating costs, additional task orders 

were issued on this contract and then terminated shortly thereafter. The issuance, design startup, and sudden termination resulted in unnecessary project costs. 

JCC-I/A has not taken timely action to close out task orders, and as a result has incurred 

additional costs and administrative burdens. While closeout is not a high priority, delay only 

adds to the eventual costs and can result in additional administrative issues as events become 

further removed. In closing out the terminated task orders under this contract, the U.S. 

government can reexamine excessive award fees made contrary to the plan. 

Obtaining full benefit and value from the U.S. investment in reconstruction projects in Iraq 

remains problematic. In undertaking these water sector projects, the U.S. government was alert 

to the need to prepare for the eventual transfer of completed projects to the GOI. Throughout the 

Nassriya Project, efforts were taken to address possible transfer issues. However, the GOI’s 

current and anticipated lack of capacity to operate and maintain the plant raises serious concerns 

about its long-term sustainability and places the investment at risk of being wasted. There is a 

demonstrated, continuing need for U.S. government attention to obtain the maximum benefit and 

value from its reconstruction investments. 

Recommendation 

SIGIR recommends that JCC-I/A establish timeframes for closing task orders to minimize costs 

and administrative expenses. As Task Orders 4 and 5 are closed out, JCC-I/A should ensure that 

excessive award fees paid are recovered. 

26
Lessons Learned 

U.S. reconstruction projects in Iraq were undertaken in an unstable security environment, with 

funding uncertainties and time constraints. These conditions created difficulties in 

accomplishing pre-award planning, defining project requirements, and overseeing contractor 

performance. Nevertheless, fundamental elements of contract and project management and 

oversight should be accomplished to the extent possible. SIGIR identified a number of lessons 

that U.S. government organizations could apply to future reconstruction projects in a 

contingency environment. They include the need to: 

• Recognize in planning assumptions and budget estimates that undertaking reconstruction 

activities before security conditions have been stabilized will increase the cost of security 

and decrease the likelihood that cost, schedule, and performance goals will be met. 

• Complete comprehensive pre-award planning, including realistic and well-defined work 

scopes and cost and schedule estimates. These are needed for effective government 

management and oversight of reconstruction projects and to minimize the potential for 

fraud, waste, and abuse. 

• Ensure, to the extent possible, that needed funds will be available to complete projects 

before awarding contracts/task orders. This will reduce the likelihood of potentially 

wasteful terminations due to funding reductions. 

• Definitize contracts/task orders after complete and supportable cost and schedule 

information is available. Premature definitization based on limited design and 

construction information, especially in a contingency environment, can result in 

unanticipated project cost increases, schedule delays, and potential waste. 

• Prepare independent and comprehensive government cost and schedule estimates prior to 

major contract actions such as definitization. Without such estimates to evaluate 

contractor proposals, unanticipated costs increases, schedule delays, and potential waste 

can result. 

• Take early actions to address project transfer and sustainment issues with the host 

government. Expectations of future project performance could be overstated unless longterm operation and maintenance issues are resolved. 

• Take timely actions to close out task orders to help reduce costs and avoid administrative 

burdens. 

Management Comments and Audit Response 

In preparing this report, SIGIR considered written comments from the Multi-National Force-Iraq 

and the U.S. Army Corps of Engineers, Gulf Region Division. Their complete comments are 

included in the Management Comments section of this report. 

Multi-National Force-Iraq responded that JCC-I/A concurs with the recommendation and the 

specific findings supporting it. To address that portion of the recommendation related to contract 

closeout timeframes, JCC-I/A plans to examine personnel constraints and the potential for 

additional resources. To address that portion of the recommendation related to excessive award 

27
fees, JCC-I/A will use final closeout audits through the Defense Contract Audit Agency to 

resolve award-fee discrepancies. SIGIR supports the plans and will follow up on the progress 

made to complete these actions at the appropriate time. 

U.S. Army Corps of Engineers, Gulf Region Division, comments correctly cite a paragraph in 

SIGIR’s draft report that raised questions about the adequacy of the independent government 

estimate for the Nassriya Project. However, the comments then stated that SIGIR’s position is 

that using any materials provided by the design-build contractor is not appropriate when 

developing an independent government estimate. This is not correct. As noted in this report, 

SIGIR’s position is that the independent government estimate for this project—based largely on 

the same limited design information as the FluorAMEC proposal—was neither comprehensive 

nor independent. As a result, it was not a good predictor of the growth in costs that occurred 

over the next few months.

28
Appendix A—Scope and Methodology 

In January 2008, SIGIR initiated the audit (Project No. 7022) to determine the outcomes, costs, 

and the U.S. government’s oversight of the contract awarded to FluorAMEC, W914NS-04-D0022, for reconstruction efforts in southern Iraq. FluorAMEC was awarded three reconstruction 

contracts: two in the water sector—one for northern Iraq and one for southern Iraq—and one in 

the electricity sector. 14 This report is limited to our audit of the FluorAMEC contract for water 

projects in southern Iraq. 

This audit was completed during the period January 2008 through May 2008. It was performed 

under the authority of Public Law 108-106, as amended, which also incorporates the duties and 

responsibilities of inspectors general under the Inspector General Act of 1978, as amended. We 

reviewed the contract, task orders, associated modifications, and other relevant documentation 

from the contract files maintained by JCC-I/A and GRD. For the solicitation and award process 

for this contract, we did not perform additional audit work but relied on the work that SIGIR had 

previously performed for its report “Award of Sector Design-Build Construction Contracts,” 

SIGIR 04-005, issued on July 23, 2004. To determine the cost and funding of the contract, we 

used data in the contract files and financial data obtained from USACE’s Financial Management 

System. To determine the outcome and oversight of the contract, we reviewed the relevant task 

orders, modifications, correspondence; the award-fee plan; award-fee performance evaluations; 

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

We also reviewed relevant documents related to transferring projects to the GOI. In addition to 

reviewing documents, we interviewed ITAO, SPCO/GRD, and JCC-I/A officials as well as 

officials with FluorAMEC and SPCOC. 

We conducted this audit in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions based on our audit 

objectives. Our assessment was constrained because most U.S. government officials involved 

with management and oversight of this contract were not readily available for interview and also 

because we did not visit project sites. Visits to the Nassriya Project were made by SIGIR 

inspectors, and their report is cited. Despite these constraints, we believe that the work 

performed and evidence obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

Use of Computer-Processed Data 

We reviewed financial data relating to contract costs maintained in the USACE’s Financial 

Management System. We relied on the financial system as the official source because it is the 

most complete source for such data. However, almost all of the key financial data used in this 

report was traced to and validated by supporting documentation in the contract files. 

 

14 The other 2 contracts awarded to FluorAMEC were W914NS-04-D-0008 for water projects in northern Iraq and 

the W914NS-04-D-0003 for electric sector projects. 

29
Accordingly, we determined that performing substantive testing of the reliability of Financial 

Management System data was not necessary. 

Internal Controls 

We reviewed the specific controls used in managing and administering the FluorAMEC contract. 

This included reviewing controls related to contract award, contract oversight, definitization of 

cost and schedule estimates, DCAA audit support, quality assurance processes, and award-fee 

decisions. 

Prior Coverage 

Prior SIGIR reports relevant to this audit are identified below and can be accessed at the SIGIR 

website http://www.sigir.mil. The first five reports identified are the previous reports in this 

series of focused contract audits. 

Review of Bechtel’s Spending Under Its Phase II Iraq Reconstruction Contract, SIGIR Audit 07-

009, July 24, 2007. 

Interim Review of DynCorp International, LLC, Spending Under Its Contract for the Iraqi Police 

Training Program, SIGIR Audit 07-016, October 23, 2007. 

Outcome, Cost, and Oversight of Reconstruction of Taji Military Base and Baghdad Recruiting 

Center, SIGIR Audit 08-004, January 15, 2008. 

Outcome, Cost, and Oversight of Iraq Reconstruction Contract W914NS-04-D-0006, SIGIR 

Audit 08-010, January 28, 2008. 

Outcome, Costs, and Oversight of Electricity-Sector Reconstruction Contract With Perini 

Corporation, SIGIR Audit 08-011, April 29, 2008. 

Review of the Use of Contractors in Managing Iraq Relief and Reconstruction Projects, SIGIR 

Audit 08-003, October 29, 2007.

Award of Sector Design-Build Construction Contracts, SIGIR Audit 04-005, July 23, 2004. 

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

Award Fee Process for Contractors Involved in Iraq Reconstruction, SIGIR Audit 05-017, 

October 25, 2005. 

30
Appendix B—Nassriya and Basrah Task Order 

Summaries

FluorAMEC completed two construction task orders issued under contract W914NS-04-D-0022 

for work in Iraq’s Public Works and Water Sector. Task Order 2, Nassriya Project, and Task 

Order 3, Basrah Project, accounted for over 97% of all expenditures under the contract. 

Following is a detailed summary of these two completed task orders. 

Task Order 2–Nassriya Project 

The overall objective of the Nassriya Project was to increase the quantity and quality of potable 

water available to citizens living in Nassriya and the surrounding area through the construction 

of a new water-supply system. When the task order was issued, FluorAMEC was to construct a 

new water treatment plant capable of producing 5,000 cubic meters per hour of treated water and 

install about 55 kilometers of transmission piping. The project was divided into several 

construction phases to supply the main population of Nassriya first and phase in the outlying area 

as funds became available. It was expected that the design would allow future expansion of the 

new plant and pipelines. 

The initial estimate for the project included costs between $90 million and $120 million. 

FluorAMEC was given a not-to-exceed amount of $42.81 million to do a technical study of 

alternatives, a site survey, and a preliminary design of the project. The requirements on this 

project were generally undefined. 

In July 2004, FluorAMEC was given notice to proceed with the 30% design package and 

directed to submit design and updated cost estimates by September 2004. However, as early as 

August 2004, SPCO recognized that the cost estimate for the project would exceed the available 

budget and recommended combining the proposed water projects for Nassriya and the towns of 

Al-Shatra and Dawayah. In combining the three projects, a single large treatment plant would be 

constructed at Nassriya, and pipelines would be laid to supply the other two towns. The 

combined budget for the three projects—$105 million for Nassriya, $48 million for Al-Shatra, 

and $20 million for Dawayah—totaled $173 million. SPCO concluded that there were technical 

advantages in building and operating a single large facility to supply all three towns rather than 

constructing three smaller ones. 

Construction started in August 2004 at the Nassriya treatment plant site, but work on the 

pipelines was awaiting completion of the 30% and the 60% designs. In October 2004, 

FluorAMEC, based on its 30% design package, prepared its contract cost-proposal estimates for 

a water treatment plant twice the size as the one originally planned and with a revised completion 

date of August 2006. It also identified potential cost reductions. During the following months, 

the design package was reviewed by SPCOC and others. In December, FluorAMEC’s cost 

proposal increased to $214 million, $41 million over the budget, and discussions were underway 

on how to descope the project and/or provide additional funds. 

In January 2005, the task order was definitized. Costs for the Nassriya project were $155.05 

million (with completion in February 2007), plus $17.34 million for pipelines to Suq Al31
Shoyokh (with completion in August 2007). In the following months, FluorAMEC noted that 

work was delayed on the project. FluorAMEC notified the contracting officer that, from January 

through March 2005, construction work and contracting activities were interrupted and delayed 

due to tribal conflicts, criminal activities, the national election, and unexpected holidays. It 

noted that armed squatters, who were to be cleared the previous summer by the GOI, were still in 

houses within the work site perimeter. Also, because of security problems, a subcontractor was 

unable to complete a portion of the project, and the start of work was further delayed. In 

response to the subcontractor’s inability to complete the work, FluorAMEC awarded a contract 

to the second lowest bidder; this award resulted in increased costs, but was deemed necessary for 

the project. 

While FluorAMEC continued to report increases in its estimate at completion, SPCOC noted that 

these increases were still within the 10% contingency amount reflected in government estimates. 

However, SPCOC also noted that the provision of power supply was not included in these 

project estimates and held meetings to identify options for cost reductions. The power supply 

situation was the subject of a July 2005 meeting because despite assurances that the GOI would 

provide power, no confirmation was received and mitigation actions were agreed to. 

Additional cost increases that occurred during the summer of 2005 became a matter of increasing 

concerns to U.S. government officials. In September, FluorAMEC, in response to the 

contracting officer’s request, provided clarifications of its estimated costs. It also notified the 

contracting officer that the current budget of $151.81 million would be exceeded by October 15 

and that without additional funding, it would have to begin demobilization and shut down. In 

October, SPCOC noted that a revised estimated cost at completion was the fourth increase since 

definitization. At an October meeting of SPCO, SPCOC, and FluorAMEC officials, the cost 

increases, project status, and options for moving forward were discussed. One option considered 

was notifying FluorAMEC that its work was complete. 

On October 21, 2005, the contracting officer issued FluorAMEC a “Cure Notice for Failure to 

Perform IAW Referenced Contractual Requirements.” Specific items noted were failure to 

• provide timely and usable cost/schedule data in the level of detail required, 

• provide timely estimates-at-completion with sufficiently detailed cost data and adequate 

basis for estimates, 

• execute the Contract Management Plan in an acceptable manner, and 

• adequately conduct and react to quality inspections. 

FluorAMEC was directed to submit a plan to cure the deficiencies within four days. To comply, 

the company provided a quick response and followed up with additional responses. In 

December, SPCO documented its complete analysis of the FluorAMEC response to the cure 

notice, the estimate at completion, and the project schedule. Options considered at this time 

included (1) stopping work, (2) reducing the project scope, (3) transferring responsibility for the 

work to GRD or the GOI, and (4) increasing funding for FluorAMEC. An increase in funding 

was the selected option. From November 2005 to February 2006, five separate modifications 

increased funding for the project by $72.44 million (42%), from $172.39 million to $244.83 

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million. However, as a strategy to control costs, the not-to-exceed amount was increased in 

several increments averaging about $15 million over a period of months. 

Earlier, when the task order was definitized in January 2005, sufficient information was not 

available to define the technical requirements for the new pipeline connections to the towns 

being served by the Nassriya plant. As a result, these connections were not included in contract 

work requirements and the GOI agreed to assume responsibility for making the connections. 

Unfortunately, the GOI’s plans did not provide for completing these critical connections prior to 

commissioning. SPCO, of necessity, prepared another scope change to address the problem, and 

the contracting officer authorized FluorAMEC in July 2006 to proceed with the needed work. 

In September 2006, an additional project scope change was issued to address problems related to 

the power supply for the water treatment plant. SPCO noted that the task order was definitized 

without funding for the power supply connections to the plant or the booster stations in the 

surrounding towns. According to SPCO, the GOI had contracted for the work, but funding was 

not provided and the work had not progressed. SPCO recognized that the lack of power at plant 

commissioning would result in partial commissioning and operating with diesel generators at 

significant additional cost. In October, the task order was further modified to make the required 

city connections and provide generators to start precommissioning activities and operate 

processing equipment. The estimated cost of the modification was $18.04 million, including 

about $1.71 million for base and award fees. 

In early 2007, SPCOC again addressed problems resulting from the lack of a permanent power 

supply at the planned April completion of the treatment plant. Because of continual slippages in 

Iraqi projects to provide power, SPCOC recognized that the plant would have to run on backup 

diesel-powered generators, which could operate the plant at only 50% capacity. Also, it was 

recognized that the generators were not designed for continuous operations, and their continuous 

operation would result in frequent outages and overhauls. 

In April 2007, another modification increased the scope of the project by authorizing 

FluorAMEC to procure the necessary parts, small tools, and material and consumables, with 

enough consumables to be purchased for an additional three months of operations after the 

contracted operations and maintenance period ended. While this unilateral contract modification 

stated that funding would not increase for this effort, FluorAMEC responded that the additional 

scope would increase costs by about $3.2 million. 

At the same time, training and staffing issues at the Nassriya plant were becoming a more critical 

issue. Since mid-2006, the U.S. government, through ITAO, SPCO, GRD, and their contractors, 

worked with the GOI to identify and train the required number of staff. However, in an April 

2007 meeting with GOI officials, ITAO noted frustration over the lack of progress on training 

and GOI’s apparent lack of interest in taking over the treatment plant. 

FluorAMEC reported submitting in mid-2007 requests for task order modification totaling over 

$64 million for additional cost. Those included about $30 million for additional freight, $9 

million for construction quality increases, $7 million for forward-site camp 

establishment/extension, and $2 million for additional procurement support. In June 2007, 

FluorAMEC submitted a Request for Equitable Adjustment (REA), which it claimed was the 

33
direct result of the U.S. government’s requirement for early definitization and its failure to act on 

a number of earlier requests for contract change orders. The request was for an adjustment of 

base fee by $1.54 million and an increase in award fee by $5.07 million due to added work, 

different site conditions, and increased costs. As a result of negotiations, the U.S. government 

and FluorAMEC agreed in April 2008 on a payment of $3.39 million as full satisfaction of any 

and all claims under the task order. 

In June and July 2007, GRD, SPCOC, and FluorAMEC officials met to discuss the transition of 

the treatment plant to the GOI, including matters of site security, plant operations training, 

construction schedule, and status of consumables. Concerns were raised about the GOI’s 

capacity to operate and maintain the plant after the FluorAMEC contract expired (in September 

2007) without permanent power and a sufficient number of trained operators. Despite these 

concerns, requests for additional operation and training were not approved, and FluorAMEC’s 

efforts were limited to a mentoring and advisory role for 90 days after the contract expired. 

In an August 2, 2007, letter ITAO notified the GOI that on September 12, 2007, the U.S. 

government would transfer responsibility for operations and security at the Nassriya plant. On 

September 11, FluorAMEC and GRD signed completion documents certifying that all work had 

been inspected and accepted as being in accordance with contract requirements and that all work 

required by the task order had been performed except for identified punch-list items. Turnover 

of the plant to the Iraqi Ministry was finalized on December 10, 2007, when FluorAMEC 

completed its mentoring and advisory role. 

Task Order 3–Basrah Project 

In June 2004, FluorAMEC was awarded a task order totaling $51.49 million to improve the 

wastewater collection and treatment system in Basrah and was initially given authorization to 

incur obligations up to $1.00 million. The statement of work indicated a projected start date of 

July 1, 2004, and a “desired completion date” within one year. The city of Basrah suffered from 

a very poor sewer collection and treatment facilities. A study reported that large areas of the city 

were not served by any sewage collection system and that the existing wastewater treatment 

facilities were beyond economic repair. Also, most of the existing network was not connected to 

the treatment facility and had major leakage throughout the city. The SPCOC had been 

requested to prepare an IGE for this task order. In June, the SPCOC reported that it was “finding 

it impossible to produce a meaningful IGE for the Basrah Sewerage Project” because of the way 

it was defined and recommended that the government “issue the Task Order to the Contractor 

without a full IGE.” 

Within 60 days of receiving the notice to proceed, FluorAMEC was to ensure that work under 

the task order was coordinated with other sewer work in the city and to identify items of work 

that could be started immediately. Also, it was to submit a report that described the ongoing and 

planned sewer work and to recommend prioritized alternatives for the project. FluorAMEC 

proposed first working on projects that were substantially different than those suggested in the 

notice to proceed. According to a FluorAMEC report, the initial scope of work was very general 

and spoke only of the purchase of new equipment and replacement and repair of existing 

infrastructure. The first detailed scope of work was for the purchase of sewer operation and 

maintenance equipment, cleaning and rehabilitating the sewers in 13 neighborhoods, refurbishing 

34
5 existing pump stations, and constructing sewer collection systems and pump stations in 6 other 

areas without service. In September 2004, FluorAMEC’s recommendations for early works were 

approved and the contracting officer directed it to proceed. This work included purchasing 

sewer trucks, redirecting sewage that was being discharged at the site of the future Basrah 

Children’s Hospital, constructing a main sewer line into town, and completing eight unfinished 

pumping stations. At that time, FluorAMEC began mobilizing staff for the project, and the notto-exceed amount was increased to $12 million. 

Over the following months, numerous design and scope changes were made to reflect evolving 

priorities and budget and schedule constraints and the definitized completion date was set for 

March 2006. In the first phase of the work, to be done in consultation with the Basrah Sewage 

Directorate, the contractor was to (1) investigate and assess the existing conditions of the sewage 

system in the city, including the existing waste-collection system, pumping stations, and sewage 

treatment facilities; (2) prepare a study of the area’s existing water treatment system and of ways 

to rehabilitate the system, whose construction had begun five years earlier; and (3) recommend 

repairs and new installations that could be completed within the budget. 

In December 2004, FluorAMEC requested and received authority to proceed with sewer cleaning 

and repair, design of the sewer network, and completion of a cost proposal for the full project 

scope. The not-to-exceed amount was increased to $17 million, sufficient funding to allow the 

contractor to definitize the entire project. FluorAMEC submitted its full scope cost proposal. 

The proposal was reviewed by the SPCOC, which “corrected some errors and omissions” but 

identified no major concerns. DCAA also reviewed the pricing proposal and “took no 

exceptions” to any of the proposed costs. FluorAMEC’s statement of work, with an estimated 

cost of $56.25 million, was for (1) sewer cleaning, inspection, and data gathering and (2) designbuild construction of the Phase IV area of the new sewage collection network. At this time, 

FluorAMEC proposed to build seven new pumping stations and update five others that had been 

partially constructed; install 50 kilometers of underground pipe; and clean and repair 20 

kilometers of existing sewage line.

In early February 2005, the task order cost was first definitized at $51.10 million, including base 

and award fees. The negotiations summary shows that while FluorAMEC’s proposal was for 

$56.25 million, the U.S. government’s objective was for $53.10 million. However, the lower 

definitized amount was achieved by removing Phase IV—the installation of some new sewer 

lines—from the required work and making it a separate level-of-effort option. Later in February, 

Modification 1 redefinitized the task order cost at $53.10 million—$2.00 million more than the 

original amount—to provide additional funding for the installation of the new sewers. 

According to a subsequent SPCO document, the entire task order was definitized as a level of 

effort because it was not possible to define the scope of work. However, FluorAMEC officials 

stated that the work was not considered to be a level of effort requiring merely their best efforts 

but was considered instead an effort to submit mutually agreed to deliverables to the U.S. 

government. 

Modification 1 also set the completion date for all line items as March 2006. Two months later, 

however, SPCOC reported that “3 of the 8 pumping stations are not actually needed yet because 

there are no sewers connected to them.” As a result, the contracting officer deleted three pump 

stations and added structural repairs of the five remaining stations to the scope of work at no 

35
additional cost. During the following months, the U.S. government approved a number of other 

changes to the scope of work. According to FluorAMEC officials, these changes realigned scope 

elements and costs but did not materially change the magnitude or direction of the project. 

Work on the Basrah Project presented significant challenges, the primary one being a lack of 

security and its impact on direct oversight. According to a FluorAMEC report, because company 

officials were unable to oversee the project, local Iraqi engineering personnel were hired for 

daily work and inspections. The security concerns required employees and subcontractors to 

avoid being identified with the U.S. company. This lack of on-site presence also made it 

difficult to instill the desired level of quality control and safety procedures. 

Funding, schedule, and scope problems arose throughout the course of the work. In July 2005, 

for example, JCC-I/A and SPCOC began to raise concerns about the lack of construction 

progress on the task order. Subsequently, JCC-I/A issued a Letter of Concern to the contractor, 

noting that the project was behind schedule and that labor costs appeared high. In March 2006, 

SPCOC commented that the quality of FluorAMEC’s schedules is “sub-standard and there is 

minimal effort to resolve the basic fundamental schedule deficiencies.” In April 2006, a project 

scope change noted that the pumping stations had been equipped with diesel generators but not 

connected to the main electricity supply. SPCOC advised FluorAMEC that continued operation 

on diesel generators alone was not acceptable and asked that main power supply connections be 

included in its scope of work. The project scope change noted that FluorAMEC had not 

budgeted for this work and that additional funding would therefore be required. GRD cautioned 

that the GOI had recently advised that it would not agree to full handover of the plant until a 

connection to the main power supply was made. 

In June 2006, the notes of a final task order meeting reported that all work “on the five large 

pump stations was complete” except that limited efforts remained on the other pump stations. 

According to GRD, FluorAMEC was unable to complete the remaining 1 percent of work—

paving, fence reconstruction, and pipe repair—because its subcontractors were repeatedly 

threatened while working in the Basrah area and were unable to reach the site to finish the work. 

One month later, FluorAMEC requested that JCC-I/A provide task order closeout instructions, 

noting that the construction phase of the project was nearly complete and that all facilities had 

been turned over to the local Iraqi ministry to operate and maintain. While construction was 

completed in August 2005, problems surfaced in reaching agreement with the GOI to accept 

responsibility for the completed facilities and to take on the required operation and maintenance 

responsibilities. 

A September SPCOC memorandum acknowledged that all construction activities were 

substantially complete, with the exception of final paving work, but that acceptance letters had 

not been signed for significant work elements. During this period, the closeout was delayed by 

the lack of a permanent power supply, generator and other equipment failures, and the inability 

to transfer responsibility to the GOI. To allow for full handover to the GOI, GRD descoped the 

work and issued a separate contract for $13,376 to provide electrical service to the pumping 

stations. In October 2006, the GOI accepted control of the Basrah Project. 

36
Appendix C—Acronyms 

Acronym Description 

CPA Coalition Provisional Authority 

DCAA Defense Contract Audit Agency 

DCMA Defense Contract Management Agency 

DFAR Defense Federal Acquisition Regulation 

FAR Federal Acquisition Regulation 

GAO Government Accountability Office 

GOI Government of Iraq 

GRD Gulf Region Division 

GRS Gulf Region South 

IDIQ Indefinite Delivery/Indefinite Quantity 

IGE Independent Government Estimate 

IRMO Iraq Reconstruction Management Office 

ITAO Iraq Transition Assistance Office 

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

PCO Project Contracting Officer 

PMO Program Management Office 

REA Request for Equitable Adjustment 

SIGIR Special Inspector General for Iraq Reconstruction 

SPCO Sector Project and Contracting Office 

SPCOC Sector Project and Contracting Office Contractor 

SPMO Sector Project Management Office 

TCO Termination Contracting Officer 

USACE U.S. Army Corps of Engineers 

37
Appendix D—Audit Team Members 

This report was prepared, and the audit work conducted, under the direction of David R. Warren, 

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

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

David Childress 

George Salvatierra 

38
Management Comments 

Multi-National Force - Iraq 

39
Management Comments 

U.S. Army Corps of Engineers - GRD 

40
41
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 Kristine Belisle 

Director of Public Affairs 

Mail: Office of the Special Inspector General 

 for Iraq Reconstruction 

 400 Army Navy Drive 

 Arlington, VA 22202-4704 

Phone: 703-428-1217 

Fax: 703-428-0818 

Email: PublicAffairs@sigir.mil 

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