OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

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SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION 

400 Army Navy Drive • Arlington, Virginia 22202

October 24, 2005 

MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ 

COMMANDING GENERAL, MULTI-NATIONAL FORCE - IRAQ 

DIRECTOR, IRAQ RECONSTRUCTION MANAGEMENT OFFICE 

SUBJECT: Managing Sustainment for Iraq Relief and Reconstruction Fund Programs (Report 

No. SIGIR-05-022) 

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

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

mandates the independent and objective conduct of audits relating to the programs and 

operations funded with amounts appropriated or otherwise made available to the Iraq Relief and 

Reconstruction Fund. Public Law 108-106, as amended, requires that we provide for the 

independent and objective leadership and coordination of, and recommendations on, policies 

designed to promote economy, efficiency, and effectiveness in the administration of such 

programs and operations and to prevent and detect waste, fraud, and abuse. 

The Chief of Mission of the United States Embassy Baghdad and the Commanding General, 

Multi-National Force - Iraq did not respond to the draft report. However, we considered 

comments from the Iraq Reconstruction Management Office on a draft of this report when 

preparing the final report. 

We request comments on the final report from the Chief of Mission of the United States 

Embassy Baghdad and the Commanding General, Multi-National Force - Iraq by November 14, 

2005. Please send management comments in electronic format (Adobe Acrobat file only) to 

SIGIRAuditReports@sigir.mil. Copies of the management comments must contain the actual 

signature of the authorized official. 

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

please contact Mr. Joseph T. McDermott by email at joseph.mcdermott@sigir.mil or at 

(703) 428-1100, or Mr. Glenn Furbish by email at glenn.furbish@iraq.centcom.mil or at 

(703) 343-8817. See Appendix C for the report distribution. 

Stuart W. Bowen, Jr. 

Inspector General 
Special Inspector General for Iraq Reconstruction 

Report No. SIGIR-05-022 October 24, 2005 

 (Project No. SIGIR-2005-11) 

Managing Sustainment for Iraq Relief and 

Reconstruction Fund Programs 

Executive Summary 

Introduction. In November 2003, the United States Congress appropriated $18.4 billion 

for the Iraq Relief and Reconstruction Fund (IRRF) to support security, relief, 

rehabilitation, and reconstruction projects in post-war Iraq. As of September 2005, 

approximately $14.3 billion of this funding had been obligated and over 2,500 projects 

and facilities had been completed and turned over to the Iraqis. Although most IRRF 

projects provide some level of operations and maintenance training, along with supplies 

sufficient to maintain the projects for approximately 90 days, it was expected that upon 

transition of completed facilities, the Iraqis would be responsible for operating the 

facilities and providing for their long-term maintenance. Some early projects failed after 

transition, creating a concern that Iraq may lack the resources and skills to sustain the 

long-term operation of complex facilities. These concerns generated this audit, which 

addresses the issues of sustainment and capacity development. 

For the purposes of this report, sustainment is defined as the ability of the Iraqi 

government to support IRRF-funded projects and facilities for an extended period of time 

after U.S. financial, managerial, and technical assistance is terminated. Capacity 

development is defined as the strengthening of human and technical capabilities to 

support a society in its development of a more secure and sustainable economy, 

government, and infrastructure. 

Objectives. The objectives of this audit were to determine whether: 

• adequate plans and programs for the transition and sustainment of construction 

and non-construction projects have been established by the U.S. organizations 

responsible for the management of IRRF 

• budgets, funding sources, and detailed transitional guidelines have been 

established to ensure that adequate training, materials, and supplies are provided 

to the Iraqi government and its citizens to enable them to perform operations and 

maintenance on construction and non-construction projects placed under their 

control 

Results. Progress has been made in identifying the challenges of sustaining the IRRF 

projects, which directly affects the larger challenges of sustaining a democratic and 

viable government in Iraq. There is, however, a growing recognition that the Iraqi 

government is not yet prepared to take over the near- or long-term management and 

funding of the infrastructure developed through IRRF projects. Millions of dollars in 

sustainment efforts have been initiated by the Coalition and the Iraqi government. But 

U.S. funding is limited and the amounts budgeted by the Iraqi government do not appear 

to be sufficient to ensure the near- and long-term sustainment of completed 

reconstruction projects. 
We also believe that progress has been hampered by the absence of a centralized 

sustainment office with the authority and responsibility to manage this effort across the 

jurisdictional boundaries of the operating agency organizations. We identified the Iraq 

Reconstruction Management Office (IRMO) as the primary Department of State entity 

involved in managing IRRF projects and deemed it responsible for coordinating 

sustainment. 

We estimate that the Iraqi government would need between $650 and $750 million 

annually to operate and maintain the current projects the U.S has provided or plans to 

provide through IRRF funding. This estimate rises another 20 to 25 percent if one 

includes security, salaries, or fuel (to a range of annual requirements for sustainment of 

between $750 and $950 million). To date, Department of State budget officials have 

identified $350 million in IRRF funds that could be used to pay for some sustainment 

costs. The Department of State is also considering deferring some planned IRRF projects 

to free additional funds for sustainment. 

Funding IRRF project sustainment is just one piece of a larger Iraq funding challenge 

facing the U.S. government. The current Iraqi government does not have a culture of 

sound operations and maintenance practices; and, according to senior U.S. advisors to the 

Iraqi ministries, funding for existing infrastructure support is a fraction of what is 

necessary. In the Ministries of Defense and Interior, for example, the combined gap 

between requirements and anticipated funding has been estimated at $7 billion for 

calendar year 2006. Failure of a sufficient sustainment program within any infrastructure 

sector will affect the stability of the new Iraqi government. 

Management Actions. During the course of our audit, we notified IRMO of our 

concerns about the absence of a central office to coordinate sustainment. To its credit, 

IRMO responded by taking the important step of creating a coordinating sustainment 

office. This centralizes leadership for sustainment; but to succeed, the coordinator must 

be vested with the necessary authority to provide direction for a common sustainment 

vision and to plan and manage sustainment activities. 

Recommendations. We recommend that the U.S. Ambassador to Iraq, in coordination 

with the Commanding General, Multi-National Force-Iraq, direct the new sustainment 

office to take these actions: 

1. Formulate and implement a plan, with clear goals and objectives for the 

sustainment of IRRF projects. 

2. Work with the Director of IRMO and the Senior Sector Leads to determine 

the capacity of the Iraq government to maintain the IRRF projects. 

3. Develop supportable cost estimates for sustaining Iraqi infrastructure for both 

the near- and long-term and to develop a proposed funding plan that supports 

these estimates. 

4. Review any guidance that the Iraq government’s leadership is receiving on 

sustainment, determine its adequacy, and shore up any shortfalls. 

ii 
Management Comments and Audit Response. IRMO officials concurred with the 

finding and recommendations. The comments received are fully responsive. 

We provided a draft of this report on October 7, 2005, to the Chief of Mission of the 

United States Embassy Baghdad and the Commanding General, Multi-National Force - 

Iraq. No management comments to the draft of this report were received. Therefore, we 

request that the Chief of Mission and the Commanding General provide comments on 

this final report by November 14, 2005.

iii
Table of Contents 

Executive Summary i 

Introduction 

Background 1 

Objectives 3 

Finding 

 Sustainment Plans, Programs, and Funding 4 

Appendixes 

A. Scope and Methodology 12 

B. Acronyms 13 

C. Report Distribution 14 

D. Audit Team Members 16 
1

Introduction 

Background 

On November 6, 2003, the U.S. Congress appropriated $18.4 billion, through Public Law 

108-106, for the Iraq Relief and Reconstruction Fund (IRRF) to fund Iraq reconstruction 

requirements that had been identified by the Coalition Provisional Authority (CPA) 

during the summer and fall of 2003. The CPA identified thousands of projects within 

various infrastructure sectors in Iraq, such as electricity, water, oil, health care, 

transportation, and education. As of September 20, 2005, approximately $14.3 billion 

has been obligated for over 2,500 projects. The majority of projects have been 

completed, but the largest projects will not be finished until 2006-2007. 

IRRF funding covers both construction projects and non-construction requirements. 

Non-construction requirements include equipment, supplies, training, and materials to 

support the reconstruction of Iraq’s infrastructure. For example, computers are needed to 

monitor and control electrical and water systems, vehicles are needed to transport 

materials or to support system maintenance and supplies are needed to transport materials 

and support system maintenance. Approximately $5.8 billion in IRRF funding is 

committed for non-construction items. 

Sustainment and Capacity Development. In our July 2005 Quarterly Report to the 

United States Congress, we defined sustainability as a program’s ability to deliver its 

intended benefits for an extended period of time after major financial, managerial, and 

technical assistance from an external donor is terminated. There is a related term-- 

capacity development -- which means the provision of structures, systems, tools, 

capabilities, and training necessary to operate and maintain infrastructure improvements. 

This includes activities that range from the highest levels of the Iraqi government to the 

training of operations and maintenance staff at local facilities. 

Sustainable capacity development takes place at five levels and involves a number of 

different organizations.1

 These levels, in descending order, are: 

Level 5- Infrastructure: Providing targeted training and mentoring to Iraqis at 

the plant or facility level to enable the Iraqis to operate and maintain new or 

renovated facilities, systems, and processes in accordance with design 

requirements. Contractors lead Level 5 capacity development activities under the 

supervision and direction of the contract customer (Project and Contracting Office 

(PCO), Multi-National Security Transition Command – Iraq (MNSTC-I), or U.S. 

Agency for International Development (USAID). 

Level 4- Iraqi Ministries: Establishing functional business and organizational 

systems within each ministry/sector necessary to support a sustainable 

infrastructure. USAID, with the support of the Department of State, would have 

the lead for Level 4 capacity development actions since many of the Level 4 

activities are longer-term actions. 

 

1

 Iraq Capacity Development; PCO Management and Interface Plan, Project and Contracting Office, 

November 22, 2005. 
2

Level 3- Inter-Organizational: Developing and instituting the systems and 

processes by which all public and private sector Iraqi stakeholders work toward 

the common goal of creating a sustainable infrastructure. The Department of 

State, with the support of USAID, would take the lead for Level 3 actions. 

Level 2- Laws and Regulations: Establishing drivers and requirements that 

support a sustainable infrastructure. Organizations can function effectively only 

if the appropriate laws, regulations, and policies are in place at the appropriate 

level of government. The Department of State, with the support of USAID would 

take the lead for Level 2 actions. 

Level 1- Policy: Establishing the strategic policy, vision, and commitment at the 

highest levels of the Iraqi government structure to enable, facilitate, and promote 

sustainable capacity development frameworks and activities at the implementation 

level. The lead for this level of intervention would come primarily from the 

Department of State. 

Requirements. The requirement to sustain completed IRRF-funded projects was 

established in the Public Law that created the IRRF fund. The Act “encourages the 

United States organizations that receive funds made available by this Act to provide 

significant financial resources, technical assistance, and capacity building to counterpart 

organizations led by Afghans and Iraqis respectively.” This requirement was also in 

Coalition Provisional Authority (CPA) Regulation Number 1, which required the CPA to 

“exercise the powers of government temporarily to provide for the effective 

administration of Iraq during the period of transitional administration, to restore 

conditions of security and stability, to create conditions in which the Iraqi people can 

freely determine their own political future, including by advancing efforts to restore and 

establish national and local institutions for representative governance and facilitating 

economic recovery and sustainable reconstruction and development.” 

Responsibilities. According to National Security Presidential Directive 36, titled United 

States Government Operations in Iraq, the Chief of the U.S. Mission in Iraq, under 

guidance from the Secretary of State, is responsible for the direction, coordination, and 

supervision of all United States government employees, policies, and activities incountry, except those under the command of an area military commander. This includes 

the continuous supervision and general direction of all assistance for Iraq. The Directive 

also creates a temporary organization within the Department of State, called the Iraq 

Reconstruction Management Office (IRMO), to manage the reconstruction in Iraq. 

The Department of State has three implementing agencies responsible for providing 

acquisition and project management support: the PCO (in conjunction with the US Corps 

of Engineers); MNSTC-I; and USAID. 

The PCO was created by the same Presidential directive that assigned responsibility for 

IRRF projects to the Department of State. It is a temporary Department of Defense 

(DoD) organization whose staff is assigned under Chief of Mission authority, and it 

provides engineering, auditing, and other contract-related services for DoD contracts and 

for contracts managed by the Department of State and other departments and agencies. 

MNSTC-I is a DoD entity, reporting through Multi-National Force-Iraq to the United 

States Central Command. Along with DoD, the Department of State, and other U.S. 

agencies, MNSTC-I provides support in training police and other security forces. 

MNSTC-I’s mission is to organize, equip, and mentor Iraqi security forces in order to 
3

support Iraq’s ultimate goal of a unified, stable, and democratic Iraq, which provides a 

representative government for the Iraqi people. 

The USAID manages projects to restore Iraq’s vital infrastructure in the areas of 

electricity, water/sewage, health care, education, communications, and transportation. 

It also has thousands of small to medium sized projects designed to build civil society 

and improve the quality of life in Iraq. 

Objectives 

The objectives of this audit were to determine whether: 

• adequate plans and programs for the transition and sustainment of construction 

and non-construction projects have been established by U.S. organizations 

responsible for the management of IRRF, and 

• budgets, funding sources, and detailed transitional guidelines have been 

established to ensure that adequate training, materials, and supplies are provided 

to the Iraqi government and its citizens to effectively enable them to perform 

operations and maintenance on construction and non-construction projects placed 

under their control. 

For a discussion of the audit scope and methodology see Appendix A. For definitions of 

the acronyms used in this report, see Appendix B. For a list of the audit team members, 

see Appendix D. 
4

Sustainment Plans, Programs, and Funding 

Sustainment Plans and Programs 

SIGIR is concerned about the sufficiency of the plans to sustain Iraq’s infrastructure. 

The Iraqi government is not yet prepared to assume the near- and long-term management 

and funding of U.S.-constructed IRRF projects. Developing an effective sustainment 

capability for Iraq requires carefully focused efforts from both a legacy and an operations 

and maintenance perspective. SIGIR defines legacy sustainment as the burden to secure 

a plan for the long term coordination and maintenance of Iraq’s entire infrastructure. 

And it defines operations and maintenance sustainment as the burden to ensure the nearterm funding and management of U.S. constructed projects after transition of those 

projects to Iraqi control. U.S. plans to address these issues are rapidly evolving. The 

Department of State has directed its two implementing agencies (the PCO and USAID) to 

develop sustainment programs for infrastructure facilities and to promote capacitybuilding initiatives within Iraqi ministries. 

As of September 2005, approximately $425 million in IRRF funds had been spent or 

programmed for PCO and USAID efforts. However, SIGIR was unable to determine 

how these efforts were supporting sustainment goals. For example, many PCO activities 

are associated with basic operations, maintenance, and management of the delivered 

facilities. A decision to provide sustainment support would require more focused 

activities. We were unable to obtain information on sustainment costs for the defense 

and security sectors. Acquisition and project management support for defense projects is 

provided by MNSTC-I, and it has just initiated an effort to identify its sustainment costs 

for IRRF-funded projects. 

During the course of this audit, SIGIR recommended that IRMO establish a coordinating 

office for sustainment. To his credit, the Director of IRMO agreed with this 

recommendation and immediately issued an order establishing just such an office. This 

kind of responsive management signals agility within the reconstruction program’s 

management that bodes well for the rapid development of a meaningful sustainment 

program. 

IRMO is the primary Department of State entity involved with IRRF projects and is thus 

inherently responsible for the coordinative supervision and general direction of the 

sustainment effort. We were concerned that IRMO intended to manage sustainment 

through bi-weekly coordination meetings on sustainment. We identified the need for 

explicit centralized leadership to provide a common vision and approach on sustainment. 

SIGIR expects that this new office and its coordinator will have the authority to direct the 

planning, coordination, and management of IRRF-related sustainment activities. 

Plans and Programs

According to a senior Department of State and IRMO officials, plans for sustaining 

IRRF-funded projects are still evolving. While sustainment is one of the U.S. 

Government’s top priorities, it is fundamentally shaped by a more pervasive issue 

namely, Iraq’s need to plan for and fund infrastructure sustainment requirements on a 

nation-wide basis. The shortcomings in Iraq’s approach to infrastructure sustainment 

stems from years of neglect by a totalitarian regime devoted to patronage rather than 

planning. The Department of State’s concern is that the Iraqis will not move toward self 

sufficiency as long as they believe the U.S. is prepared to step in and support them. 

Changing this disposition may take several years. Consequently, the IRMO believes that 
5

a more comprehensive solution must go beyond simply funding the continued operation 

of U.S. Government projects for some set period. 

The Department of State and its implementing agencies have undertaken a large number 

of individual sustainment initiatives and projects to address immediate problems that 

arose when USAID water projects failed almost immediately after turnover. IRMO, 

USAID, and PCO took action to ensure that Iraqis were better prepared to sustain 

projects slated for subsequent transition. For example, $25 million was reprogrammed 

from USAID’s electrical sector for operations, maintenance, and training assistance at 

water and sewerage facilities; and $103 million was reprogrammed to fund operations 

and maintenance contract services in the electricity sector. 

In April 2005, the Department of State dispatched a team to Iraq to assess IRRF projects 

and provide an in-depth assessment of the sustainment needs. The team also raised 

concerns about sustainment of projects and recommended that IRMO develop an estimate 

for post-transfer operations and maintenance expenses for IRRF projects. The underlying 

impetus for this initiative was to provide Iraqi ministries and specifically the Iraqi 

Ministry of Finance with a defined cost basis for sustainment so that the Iraqi fiscal year 

budget could be adjusted to account for this inevitable expense. Based on the initiative’s 

recommendation, IRMO began collecting operations and maintenance cost data. 

The PCO and USAID have taken steps towards preparing their projects and facilities for 

turnover to the Iraqi Government, and they report a combined $425 million in 

sustainment and capacity building activities. In November 2004, the PCO issued an Iraq 

Capacity Development Management and Interface Plan that defines PCO’s roles and 

responsibilities and describes its interaction with other organizations involved in Iraq 

reconstruction. According to the PCO plan, the PCO sees its role as limited to what is 

needed for successful transition of its infrastructure projects to the Iraqis at the system or 

facilities level (Level 5) (although it has some Level 4 activities). PCO’s policy is to 

ensure that capacity development is properly planned into facilities, equipment, and 

systems at the time of turnover. 

The PCO also has written standard operating procedures that outline responsibilities and 

identify 12 capacity development deliverables that are required for each PCO contract. 

These include workforce development plans, operation and maintenance manuals, 

preventive maintenance plans, approved spare parts lists, management training plans, and 

on-call service and warranty service. In general, PCO’s activities are intended to support 

the project or facility for up to one year after turnover. PCO has some elements of Level 

4 capacity development activities specified in contract task orders. For example, in the 

electricity sector it provides quality assurance systems as required; and in the oil sector, it 

provides oil industry technical consulting expertise. 

USAID has also engaged in capacity development initiatives, but its actions are not as 

formalized as PCO’s. According to a senior USAID official, capacity development 

activities similar to those undertaken by PCO are a part of many USAID projects but 

there is no formal USAID guidance on capacity development and the activities vary by 

project. USAID does, however, recognize the importance of operations and maintenance 

training activities and has instituted a number of near- and long-term training and 

institution strengthening programs. These include a: 
6

• Ministry of Electricity program to train ministry employees and create teams of 

subject matter experts to assist plant managers. The program also procured a 

significant number of spare parts. 

• Ministry of Electricity program to develop new tariffs, enhance billing and 

metering, develop regulatory expertise, and enhance financial management 

systems. 

• Ministry of Water and Public Works program to provide operations and 

maintenance and training assistance at water and sewerage treatment facilities. 

USAID has also written a draft Iraq Transition Strategic Plan that identifies USAID’s 

strategy for transforming Iraq from an authoritarian economic state to a market-driven 

economy. However, the plan does not address the near-term sustainment of IRRF 

projects (Level 5) until Iraqi government capabilities mature. Rather, it focuses on 

Levels 1 through 3. 

New Emphasis on Sustainment and Capacity Development

Sustainment and capacity development are receiving significant attention from the new 

U.S. Ambassador to Iraq and the Director of IRMO, both of whom arrived in midSummer 2005. The Ambassador requested and received briefings from each ministry on 

its programs, including sustainment, and continues to receive regular updates. On July 7, 

2005, the IRMO Director issued a memo directing each senior consultant to provide a 

subjective assessment by August 1, 2005, of their ministries’ budgetary and sustainment 

capacity, including whether the ministry can: (1) plan a budget accurately reflecting 

required operations and maintenance; (2) deliver the required operations and maintenance 

funds from the national budget; and (3) if plants (within each ministry) can perform 

operations and maintenance if properly funded. All of the Ministries provided the 

requested information except for the Ministry of Defense, the largest ministry. Finally, 

IRMO recently created an Asset Recognition and Transfer Team to deal with the legal, 

financial, and logistical problems with transition and close-out. 

While we recognize the importance and merit of the efforts made thus far by US agencies 

in Iraq to support completed projects, we cannot assess their ultimate effectiveness until 

decisions are finalized as to the scope and role the new sustainment office will play in 

ensuring the long-term viability of the facilities. At present, the bulk of projects 

completed or underway are at the facility or system level, with few focused on longer 

term capacity development. For example, of the $425 million spent or planned on IRRF 

sustainment activities through September 2005, only $31.5 million has been for capacity 

development activities at the Iraq ministry level. IRMO recently formed a Public Sector 

Working Group whose mandate, in part, is to improve knowledge of capacity 

development activities occurring above the system or facility level. The group also aims 

to coordinate support to the ministries and to coordinate capacity building initiatives. 

Management 

The creation of a single sustainment office, with the authority and responsibility to lead 

the sustainment effort, will greatly contribute to the execution of a common vision of 

sustainment in Iraq. We believe IRMO, as the primary Department of State office 

involved with IRRF projects, is properly responsible for the supervision and direction of 

this effort. National Security Presidential Directive #36 assigns the Iraq Chief of 

Mission, under the guidance of the Secretary of State, the responsibility to direct, 

coordinate, and supervise all United States Government employees, policies, and 
7

activities in-country, except those under the command of an area military commander. 

The Directive also assigns the Secretary of State responsibility for the continuous 

supervision and general direction of all assistance for Iraq. Since IRMO is the primary 

Department of State entity involved directly in IRRF projects, we believe that 

sustainment responsibilities properly rest with IRMO. 

Sustainment Funding

The U.S. must develop a sustainment plan with clear goals for IRRF projects and the 

plan’s funding must be defined. The estimated funding for all IRRF project operations 

and maintenance costs for calendar years 2006 and 2007 (in the electricity, oil, health 

care, transportation, communications, and water resources and sanitation sectors) would 

cost from $550 to $650 million annually, not including security, salaries, or fuel. If 

included, these estimated costs could increase overall project costs by 20 to 25 percent. 

The U.S. portion of these sustainment costs will vary depending on how much 

operational support we choose to provide (a key decision for the new sustainment office). 

We also estimate that, at a minimum, an additional $90 million annually will be needed 

for operations and support costs in the security and law enforcement sector. Department 

of State budget officials have identified $350 million in IRRF funds that could be used to 

pay for some sustainment costs, and there is approximately $1.2 billion identified as 

uncommitted IRRF funds. But using uncommitted funds to pay additional sustainment 

costs would require canceling planned projects. Senior U.S. advisors to the Iraqi 

ministries also believe it is unlikely that the Iraqi government can or will take on a larger 

funding burden at the present time for sustainment or any other activity. 

Funding the sustainment of IRRF projects is just one of the Iraq funding challenges 

facing the U.S. The current Iraqi government does not have a budgeting program that 

properly addresses sound operations and maintenance practices; and, according to senior 

U.S. advisors to the Iraqi ministries, funding for existing infrastructure support is a 

fraction of what is necessary. In the Ministries of Defense and Interior, for example, the 

gap between requirements and anticipated funding has been estimated at $7 billion for 

calendar year 2006. Failure of sustainment within any infrastructure sector would likely 

affect the stability of the new Iraqi Government and would be perceived by the Iraqis as a 

U.S.-caused problem. 

Sustainment and Capacity Development Funding

The $550 to $650 million sustainment estimate referred to above is based on the shortterm operations and maintenance costs for spare parts, consumables, and contracted 

support. It will also fund other activities related to the performance of routine, 

preventive, predictive, scheduled, and unscheduled actions aimed at preventing 

equipment failure or decline. It does not, however, include estimated costs for capacitybuilding activities at Levels 1 through 3. The estimates for the electricity, oil, health 

care, transportation, communications, and water resources sectors were developed by the 

senior U.S. advisors to the respective Iraqi Ministries and are of varying quality. For 

example, the estimates for the transportation and oil sectors are detailed, bottom-up 

analyses of operating costs, while other sectors’ estimates are based on industry averages 

of annual operations and maintenance costs in the sector. 

MNSTC-I, which manages all projects in the Security and Law Enforcement Sector, has 

not provided sustainment costs for its projects. At the time IRMO made its information 

request, MNSTC-I reported that it did not intend to ask for more funds for sustainment; 

consequently, no report was necessary. MNSTC-I, however, has since started an effort to 
8

determine what those costs may be and expects to have an estimate by approximately 

October 1, 2005. We estimate MNSTC-I’s sustainment costs at approximately $90 

million annually using an IRMO estimating methodology. This methodology estimates 

annual operations and maintenance costs by adjusting project costs to remove nonrecurring costs, such as security, and then applies an industry operations and maintenance 

average. For security and law enforcement, IRMO has identified the operations and 

maintenance average as 3 percent. Applied against an estimated $3 billion in adjusted 

project costs, we estimate sustainment costs of $90 million per year. Table 1: Estimated 

annual operations and maintenance costs for IRRF projects by sector, shows our estimate 

of sustainment costs for calendar years 2006 and 2007 by sector. 

Table 1: Estimated annual operations and maintenance (O&M) costs for IRRF 

projects by sector 

Sector 

O&M/Sustainment 

Costs Calendar Year 

2006 

O&M/Sustainment 

Costs Calendar Year 

2007

Total Cost for 

Sustainment 

Electricity Sector* $360,000,000 $360,000,000 $720,000,000 

Oil Infrastructure 61,000,000 117,000,000 178,000,000 

Justice, Public Safety and 

Civil Society 13,000,000 26,000,000 39,000,000 

Roads, Bridges and 

Construction 765,000 765,000 1,530,000 

Health Care 3,300,000 10,000,000 13,300,000 

Transportation and 

Communications 3,825,000 5,950,000 9,775,000 

Water Resources and 

Sanitation** 110,000,000 125,000,000 235,000,000 

Total IRMO Costs $551,890,000 $644,715,000 $1,196,605,000 

Law Enforcement and 

Security $90,000,000 $90,000,000 $180,000,000 

TOTAL $641,890,000 $734,715,000 $1,376,605,000 

*Electricity Includes IRRF I & II 

** Water includes Fuels & Employee Costs 

Challenges in Identifying Sustainment Funding and Costs 

One of the objectives of our review was to specify sustainment costs for IRRF-funded 

projects. However, funding IRRF projects is just one piece of a larger funding challenge 
9

facing the U.S. government. IRRF, for example, is just one of several U.S.-funded or 

directed projects devoted to Iraq relief and reconstruction. Public Law 108-11, also 

known as IRRF-1, provided $2.5 billion, much of which was used for the rehabilitation of 

Iraqi infrastructure, primarily oil production and electricity generation. Military 

assistance programs, such as the Commanders’ Emergency Response Program (CERP), 

also have initiated infrastructure projects, such as repairing and refurbishing water and 

sewer lines and upgrading schools and clinics. About $1.4 billion has been expended for 

CERP program activities. We did not assess sustainment costs associated with these 

projects. However, some estimates in Table 1 include IRRF-1 projects. 

The sustainment of U.S.-funded projects is just one piece of the total sustainment burden 

facing the Iraqi Government. As mentioned, the Iraqi operations and maintenance culture 

has been severely affected by many years under a totalitarian regime, in which there were 

actual disincentives to strategic and long-term operations and maintenance practices. 

Several U.S. senior advisors to the Iraqi ministries told us their ministries have billions of 

dollars of unfunded support requirements beyond those imposed by the IRRF. Perhaps 

the biggest gap is in the Ministry of Interior, where budget analysts estimate the gap 

between requirements and anticipated funding at approximately $7 billion for calendar 

year 2006. While the responsibility to sustain existing infrastructure belongs to the 

Iraqis, an infrastructure failure within any sector, regardless of whether that failure is the 

responsibility of an Iraqi or U.S. project, will affect the stability of the new Iraqi 

Government and will be perceived by the average Iraqi citizen as a U.S.-caused problem. 

Challenges to Sources of Sustainment Funding

At present, few new sources for sustainment funding have been identified. According to 

IRMO, USAID, and MNSTC-I budget officials, there is nothing in their Fiscal Year 2006 

budgets for new sustainment spending, and they received no budget guidance directing 

them to plan for sustainment. At the request of the U.S. Ambassador to Iraq, the IRMO 

budget office identified $350 million that could be applied to sustainment in calendar 

year 2006. Additionally, it has identified $1.2 billion in uncommitted funds. However, 

using additional IRRF funds for sustainment will probably require canceling planned 

projects. 

Additional sustainment funding by the Iraqi Government appears unlikely. We 

interviewed senior U.S. advisors to the Iraqi ministries to discuss the ability of their 

respective ministries to take on the sustainment of IRRF projects. They stated that the 

Iraqi calendar year 2005 budget contains little or no funding for operations and 

maintenance activities for existing infrastructure. Consequently, the core sustainment 

issue on the Iraqi side of the ledger goes beyond merely supporting new IRRF projects 

and facilities and cuts to the need for a fundamental change in budgeting perspective. 

The ministries’ calendar year 2006 budgets are due October 15, 2005, but the senior U.S. 

advisors we spoke with were not optimistic that these budgets would include additional 

operations and maintenance funds for sustainment. 

Oil revenues are the primary source of funding for Iraqi Government operations, and 

recent increases in oil prices have the potential to offer some relief. Unofficial estimates 

of Iraqi oil revenues indicate that the Iraqi government’s calendar year 2006 budget could 

increase by as much as $10 billion because of oil price increases. According to the senior 

U.S. consultant to the Iraqi Ministry of Finance, Iraq intends to spend any revenue 

increases on revenue producing activities, such as increasing oil production. 

Consequently, the amount available for sustainment remains in question. Internal 

reforms within the Iraqi Government could also increase the funding available for 

sustainment activities. At present, food, fuel, water, and electricity are all subsidized by 

the Iraqi Government. Reducing subsidies and charging fees for basic government 
10

services such as water, electricity, and trash removal could ease some of the financial 

stress the new Iraqi Government is facing and open up funding streams for infrastructure 

sustainment. 

Management Actions 

During the course of our audit, we notified IRMO of our concerns about the absence of a 

central office to coordinate sustainment. To its credit, IRMO responded by taking the 

important step of creating a coordinating sustainment office. This centralizes leadership 

for sustainment; but to succeed, it must be vested with the necessary authority to provide 

directive coordination of a common sustainment vision affecting the planning and 

management of sustainment activities. 

Conclusion

The PCO’s Capacity Development Management and Interface Plan correctly pointed out 

that strong leadership and guidance is required for effective implementation of capacity 

development activities conducted by all U.S.-funded sources, including USAID, the 

PCO, and the MNSTC-I. We commend the Department of State for addressing this 

responsibility to lead by creating the sustainment coordination office. We are cautiously 

optimistic that this first step will energize the US program to secure an effective 

sustainment plan for Iraq’s infrastructure. This office must have the power to coordinate 

sustainment among the diverse entities and systematically address the individual sector 

requirements so as to achieve consistently positive results. 

To succeed, a common vision will need to disseminate from the top, followed by 

extensive coordination between the parties and the identification of financial resources to 

fund the initiative. Regardless of source, funding will be necessary to cover the direct 

operating expenses of IRRF projects until Iraqi Government capabilities mature to the 

point that the individual ministries can budget, manage, and direct operations and 

maintenance resources. Further, a clear understanding of each ministry’s total operations 

and maintenance support requirements is needed along with a budget forecast to clearly 

identify the risks to the current U.S. investment. Where gaps exist, a sound strategy 

needs to be in place that is supported by a budget. Delays in identifying these funding 

gaps and confirming sources for this funding only add to the risk of an already fragile 

infrastructure. 

Recommendations, Management Comments, and Audit 

Response

We recommend that the U.S. Ambassador to Iraq, in coordination with the 

Commanding General, Multi-National Force-Iraq, direct the new sustainment office 

to take these actions: 

1. Formulate and implement a plan, with clear goals and objectives for the 

sustainment of IRRF projects. 
11

2. Work with the Director of IRMO and the Senior Sector Leads to 

determine the capacity of the Iraq government to maintain the IRRF 

projects. 

3. Develop supportable cost estimates for sustaining Iraqi infrastructure for 

both the near- and long-term and to develop a proposed funding plan 

that supports these estimates. 

4. Review any guidance that the Iraq government’s leadership is receiving 

on sustainment, determine its adequacy, and shore up any shortfalls. 

Management Comments and Audit Response. 

IRMO officials concurred with the finding and recommendations. The comments 

received are fully responsive. 

We provided a draft of this report on October 7, 2005, to the Chief of Mission of the 

United States Embassy Baghdad and the Commanding General, Multi-National Force - 

Iraq. No management comments to the draft of this report were received. Therefore, we 

request that the Chief of Mission and the Commanding General provide comments on 

this final report by November 14, 2005.
12

Appendix A. Scope and Methodology__________

To determine if the Department of State had adequate plans and programs for the 

transition and sustainment of construction and non-construction projects paid for with 

IRRF funds, we interviewed Iraq Reconstruction Management Office representatives 

including the Director of Strategic Sector Programs, and the Director of Development. 

We then interviewed senior U.S. advisors to the Iraqi ministries to discuss planning and 

any guidance they may have received. In addition, we discussed the capabilities of their 

respective ministries and their ability to deliver and support a budget. To gather 

additional information on planning, we also interviewed personnel from the three 

implementing agencies; the Project and Contracting Office, the U.S. Agency for 

International Development, and the Multi-National Security Transition Command – Iraq. 

We determined at each agency if they had received any guidance or instruction on 

planning for transition and sustainment of IRRF projects; and we discussed the efforts, if 

any, they were making to sustain their IRRF projects. 

To determine if budgets, and funding sources, have been established to ensure that 

adequate training, materials, and supplies are provided to the Iraqi government and its 

citizens to effectively enable them to perform operations and maintenance on 

construction and non-construction projects placed under their control, we conducted 

interviews with IRMO budget officials and with officials in the Office of Strategic Sector 

Programs. 

We conducted this performance audit from August 2005 through September 2005, in 

accordance with generally accepted government auditing standards. 

Use of Computer-Processed Data. We did not use computer-processed data to 

perform this audit. 

Prior Coverage. There have been no audits performed concerning the Iraq Relief and 

Reconstruction Fund with the same or similar objectives as this audit. 
13

Appendix B. Acronyms 

CERP Commanders’ Emergency Response Program 

CPA Coalition Provisional Authority 

DoD Department of Defense 

IRMO Iraq Reconstruction Management Office 

IRRF Iraq Relief and Reconstruction Fund 

MNSTC-I Multi-National Security Transition Command – Iraq 

PCO Project and Contracting Office 

USAID U.S. Agency for International Development 
14

Appendix C. Report Distribution 

Department of State 

Secretary of State 

Senior Advisor to the Secretary and Coordinator for Iraq 

U.S. Ambassador to Iraq 

Director, Iraq Reconstruction Management Office 

Inspector General, Department of State 

Department of Defense 

Secretary of Defense 

Deputy Secretary of Defense 

Director, Defense Reconstruction Support Office 

Under Secretary of Defense (Comptroller)/Chief Financial Officer 

 Deputy Chief Financial Officer 

 Deputy Comptroller (Program/Budget) 

Inspector General, Department of Defense 

Department of the Army 

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

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

Logistics, and Technology 

Deputy Assistant Secretary of the Army (Policy and Procurement) 

Director, Project and Contracting Office 

Commanding General, Joint Contracting Command – Iraq/Afghanistan 

Assistant Secretary of the Army for Financial Management and Comptroller 

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

 Commander, Gulf Region Division 

Auditor General of the Army 

U.S. Central Command

Commanding General, Multi-National Force – Iraq 

 Commanding General, Multi-National Security Transition Command – Iraq Commander, Joint Area Support Group – Central 

Other Defense Organizations

Director, Defense Contract Audit Agency 
15

Other Federal Government Organizations 

Director, Office of Management and Budget 

Comptroller General of the United States 

Inspector General, Department of the Treasury 

Inspector General, Department of Commerce 

Inspector General, Department of Health and Human Services 

Inspector General, U.S. Agency for International Development 

Mission Director – Iraq, U.S. Agency for International Development 

Congressional Committees and Subcommittees, Chairman and 

Ranking Minority Member 

U.S. Senate 

Senate Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on State, Foreign Operations and Related Programs 

Senate Committee on Armed Services 

Senate Committee on Foreign Relations 

Subcommittee on International Operations and Terrorism 

Subcommittee on Near Eastern and South Asian Affairs 

Senate Committee on Homeland Security and Governmental Affairs 

Subcommittee on Federal Financial Management, Government Information and 

International Security 

Subcommittee on Oversight of Government Management, the Federal 

Workforce, and the District of Columbia 

U.S. House of Representatives 

House Committee on Appropriations 

Subcommittee on Defense 

Subcommittee on Foreign Operations, Export Financing and Related Programs 

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

House Committee on Armed Services 

House Committee on Government Reform 

Subcommittee on Management, Finance and Accountability 

Subcommittee on National Security, Emerging Threats and International 

Relations 

House Committee on International Relations 

Subcommittee on Middle East and Central Asia 
16

Appendix D. Audit Team Members 

The Office of the Assistant Inspector General for Auditing, Office of the Special 

Inspector General for Iraq Reconstruction, prepared this audit report. The staff 

members who contributed to the report include: 

Glenn Furbish 

Robert Gabriel 

John Morrell