Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures and Management Challenges
Published: 2004-06-01T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congress has appropriated more than $20 billion since April 2003 to support rebuilding efforts in Iraq. This complex undertaking, which is occurring in an unstable security environment and under significant time constraints, is being carried out largely through contracts with private-sector companies. As of September 2003, agencies had obligated nearly $3.7 billion on 100 contracts or task orders under existing contracts. Given widespread congressional interest in ensuring that reconstruction contracts are awarded properly and administered effectively, GAO reviewed 25 contract actions that represented about 97 percent of the obligated funds. GAO determined whether agencies had complied with competition requirements in awarding new contracts and issuing task orders and evaluated agencies' initial efforts in carrying out contract administration tasks.
section_title: What GAO Found
paragraphs: Agencies used sole-source or limited competition approaches to issue new reconstruction contracts, and when doing so, generally complied with applicable laws and regulations. Agencies did not, however, always comply with requirements when issuing task orders under existing contracts. For new contracts, the law generally requires the use of full and open competition, where all responsible prospective contractors are allowed to compete, but permits sole-source or limited competition awards in specified circumstances, such as when only one source is available or to meet urgent requirements. All of the 14 new contracts GAO examined were awarded without full and open competition, but each involved circumstances that the law recognizes as permitting such awards. For example, the Army Corps of Engineers properly awarded a sole-source contract for rebuilding Iraq's oil infrastructure to the only contractor that was determined to be in a position to provide the services within the required time frame. The Corps documented the rationale in a written justification, which was approved by the appropriate official. The U.S. Agency for International Development properly awarded seven contracts using limited competition. The Department of State, however, justified the use of limited competition by citing an authority that may not be a recognized exception to competition requirements, although a recognized exception could have been used. There was a lesser degree of compliance when agencies issued 11 task orders under existing contracts. Task orders are deemed by law to satisfy competition requirements if they are within the scope, period of performance, and maximum value of a properly awarded underlying contract. GAO found several instances where contracting officers issued task orders for work that was not within the scope of the underlying contracts. For example, to obtain media development services and various subject matter experts, the Defense Contracting Command-Washington placed two orders using a management improvement contract awarded under the General Services Administration's schedule program. But neither of the two orders involved management improvement activities. Work under these and other orders should have been awarded using competitive procedures or, due to the exigent circumstances, supported by a justification for other than full and open competition. The agencies encountered various contract administration challenges during the early stages of the reconstruction effort, stemming in part from inadequate staffing, lack of clearly defined roles and responsibilities, changing requirements, and security constraints. While some of these issues have been addressed, staffing and security remain major concerns. Additionally, the Army and its contractors have yet to agree on key terms and conditions, including the projected cost, on nearly $1.8 billion worth of reconstruction work that either has been completed or is well under way. Until contract terms are defined, cost risks for the government remain and contract cost control incentives are likely to be less effective.

section_title: Letter
paragraphs: The United States, along with its coalition partners and various  international organizations and donors, has embarked on a significant  effort to rebuild Iraq in the aftermath of the war that replaced that  country’s regime. Since April 2003, Congress has appropriated more than  $20 billion to support rebuilding efforts such as restoring Iraq’s oil and  electric infrastructures; reconstituting Iraq’s national army and local police  forces; assisting in developing a market-based economy; and improving  the country’s health, education, and medical services. The Coalition  Provisional Authority (CPA), an entity established to manage Iraqi affairs  on a temporary basis, is overseeing the rebuilding effort. This complex  undertaking, which is occurring in an unstable security environment and  under significant time constraints, is being carried out largely through  contracts with private-sector companies.
Given the widespread congressional interest in ensuring that  reconstruction contracts are awarded properly and administered  effectively, we initiated a review of the contracts awarded to rebuild Iraq.  Our review focused on reconstruction-related contract actions by the  Department of Defense (DOD) (primarily the U.S. Army, including the  Army Corps of Engineers), the U.S. Agency for International Development  (USAID), and the Department of State through September 30, 2003. Many  of these contract actions were awarded on behalf of the CPA, especially by  the Army, which acted as the CPA’s executive agent. Our objectives were  to (1) determine whether agencies had complied with applicable laws and  regulations governing competition in awarding new contracts and issuing  task orders under existing contracts, and (2) evaluate agencies’ initial  efforts in carrying out contract administration tasks.
subsections: section_title: Scope and Methodology
paragraphs: We reviewed reconstruction contracts that had been funded, in whole or  in part, with U.S. appropriated funds. We focused our review on new  contracts, modifications, task orders under existing contracts, and  contract actions using the General Services Administration’s (GSA) federal  supply schedule program as of September 30, 2003. We did not review  contracts that were funded entirely with international or Iraqi national  funds, such as funds seized after the 1991 Gulf War or funds that were  discovered during Operation Iraqi Freedom in 2003. We also did not  review contracts or task orders that were used only for support of military  operations or grants and cooperative agreements awarded to international  or nongovernmental organizations. We continue to evaluate various issues  related to military operations and the progress in rebuilding Iraq under  separate reviews.
To determine the number of reconstruction contract actions, the types of  contract actions, the procedures used to make the awards, and the funding  sources, we requested information from each of the principal  organizations responsible for rebuilding activities in Iraq: the CPA, the  Office of the Secretary of Defense, the Department of the Army, the Army  Corps of Engineers, USAID, and the Departments of State and Justice. To  verify the information provided, we requested copies of each contract  action issued as of September 30, 2003, and corrected the information  provided as appropriate. Agency officials could not provide the contract  files for a limited number of small-dollar contracts awarded during the  early stages of the reconstruction effort. To determine the amount  obligated for reconstruction, we primarily used the obligation data  recorded in the contracts. We also reviewed the data maintained by the  agencies’ budget offices and information reflected in the Office of  Management and Budget’s (OMB) quarterly status reports. To obtain  information on contract activities since September 2003, we interviewed  CPA and agency officials, attended industry day conferences, and  reviewed solicitations and other relevant agency documents.
To determine whether agencies had complied with applicable laws and  regulations governing competition when awarding contracts and issuing  task orders, we reviewed the requirements of the Competition in  Contracting Act (CICA) of 1984 and other relevant laws and regulations.  We judgmentally selected 25 contract actions, consisting of 14 new  contracts awarded using other than full and open competition and 11 task  orders issued under existing contracts. These 25 contract actions  represented about 97 percent of the total dollars obligated for  reconstruction through September 30, 2003. New contracts accounted for  nearly 80 percent of this spending.
We selected the 25 contracts or task orders based on various factors. We  focused on high-dollar value contracts and task orders, and on contracts  awarded using other than full and open competitive procedures. We also  considered whether audits by the DOD or USAID Inspectors General were  under way. Overall, the 25 contracts or task orders consisted of the  following:  the largest contract awarded and the 4 largest task orders, by dollar  value, issued to support CPA operations;    9 contracts awarded and 1 task order issued by USAID, as well as           1 task order issued under an Air Force contract to provide logistical  support for USAID-managed efforts;    2 contracts awarded and 4 task orders issued by the Army Corps of  Engineers and the Army Field Support Command to help restore Iraq’s  oil or electrical infrastructure;    1 contract awarded and 1 task order issued by the Army to train or  equip the New Iraqi Army; and    1 contract awarded by the Department of State to support Iraqi law  enforcement efforts.
For new contract awards, we determined whether agency officials  followed appropriate procedures in using other than full and open  competition and assessed the agency’s justification for its contracting  approach. For task orders issued under existing contracts, we determined  whether the task orders were within the scope of the existing contracts,  and if not, whether the agencies had followed proper procedures to add  the work. To do so, we obtained the contracts or task orders and  associated modifications, justification and approval documentation,  negotiation memoranda, audit reports, and other relevant documents. We  discussed the award and issuance process with agency procurement  personnel, including contracting officers, program managers, and, in some  cases, agency counsel. We also reviewed audit reports on various  procurement issues prepared by the DOD and USAID Inspectors General  and the Defense Contract Audit Agency (DCAA).
To assess agencies’ initial contract administration efforts, we interviewed  procurement officials to determine how contract administration for their  contracts was initially staffed, including the use of support contracts to  assist in administering the contracts. We obtained information on plans for  reaching agreement on key contract terms and conditions. We also  reviewed the 25 contracts or task orders to determine whether they  included provisions related to contract administration, such as quality  assurance plans, requirements for monthly status reports, and  subcontractor management plans. As part of our monitoring of  reconstruction activities, we conducted field visits in October 2003 in  Baghdad and in other areas in Iraq, including Al Hillal and Al Basrah.  During these visits, we held discussions with officials and visited project  sites, including power plants, oil wells, oil processing facilities, water and  sewage systems, schools, and many other reconstruction activities. During  these visits, we observed the challenges faced in carrying out  reconstruction efforts, including the hostile security environment, poor  communications, and unsettled working conditions.
Appendix I lists the agencies visited during our review. We conducted our  work between May 2003 and April 2004 in accordance with generally  accepted government auditing standards.
section_title: Background
paragraphs: During the latter part of 2002, as diplomatic efforts to convince the former  Iraqi regime to comply with United Nations Security Council resolutions  continued, discussions took place within the administration about the  need to rebuild Iraq should combat operations become necessary. In  October 2002, OMB established a senior interagency team to establish a  baseline assessment of conditions in Iraq and to develop relief and  reconstruction plans. According to an OMB official, the team developed  plans for immediate relief operations and longer-term reconstruction in    10 sectors: health, education, water and sanitation, electricity, shelter,  transportation, governance and the rule of law, agriculture and rural  development, telecommunications, and economic and financial policy.
Though high-level planning continued through the fall of 2002, most of the  agencies involved in the planning were not requested to initiate  procurement actions for the rebuilding efforts until early in 2003. Once  assigned the responsibilities, agency procurement personnel were  instructed to be ready to award the initial contracts within a relatively  short time period, often within weeks. During 2003, several agencies  played a role in awarding or managing reconstruction contracts, most  notably USAID and the Army Corps of Engineers. Various agencies  awarded contracts on behalf of the CPA and its predecessor organization,  the Office of Reconstruction and Humanitarian Assistance. Table 1 shows  the principal areas of responsibility assigned to the CPA and other  agencies.
As of September 30, 2003, the agencies had obligated nearly $3.7 billion on  100 contracts or task orders for reconstruction efforts (see table 2). These  obligations came from various funding sources, including U.S.  appropriated funds and Iraqi assets. The Army Corps of Engineers and  USAID together obligated about $3.2 billion, or nearly 86 percent of this  total. The majority of these funds were used to rebuild Iraq’s oil  infrastructure and to fund other capital-improvement projects, such as  repairing schools, hospitals, and bridges. This spending reflects a  relatively small part of the total amount that may be required to rebuild  Iraq, with estimates ranging from $50 billion to $100 billion. Appendix II  lists the 100 reconstruction contracts and task orders we identified and the  associated obligations as of September 30, 2003.
In November 2003, Congress appropriated an additional $18.4 billion for  rebuilding activities. The CPA’s projected uses for the funds reflect a  continued emphasis on rebuilding Iraq’s infrastructure and on providing  improved security and law enforcement capabilities (see table 3). In  appropriating these funds, Congress required that the CPA Administrator  or the head of a federal agency notify Congress no later than 7 calendar  days before awarding a contract, with these funds, valued at $5 million or  more for reconstruction using other than full and open competition  procedures.
U.S.-funded reconstruction efforts were undertaken through numerous  contracts awarded by various U.S. agencies. CICA generally requires that  federal contracts be awarded on the basis of full and open competition— that is, all responsible prospective contractors must be afforded the  opportunity to compete. The process is intended to permit the  government to rely on competitive market forces to obtain needed goods  and services at fair and reasonable prices. Within this overall framework,  agencies can use various procurement approaches to obtain goods and  services. Each approach, as listed in table 4, involves different  requirements with which agencies must comply. In some cases, agency  officials may determine that a contractor working under an existing  contract may be able to provide the required goods or services through  issuance of a task order, thus obviating the need to award a new contract.  Before awarding a task order under an existing contract, however, the  agency must determine that the work to be added is within the scope of  that contract (i.e., that the work fits within the statement of work,  performance period, and maximum value of the existing contract). In  making this determination, the contracting officer must decide whether  the new work is encompassed by the existing contract’s statement of work  and the original competition for that contract.
section_title: New Contract Awards Generally Complied with Competition Requirements, but Task Orders Were Less Compliant
paragraphs: Agencies generally complied with applicable laws and regulations  governing competition when using sole-source or limited competition  approaches to award the initial reconstruction contracts we reviewed. The  exigent circumstances that existed immediately prior to, during, and  following the war led agency officials to conclude that the use of full and  open competitive procedures for new contracts would not be feasible. We  found these decisions to be within the authority provided by law. We  found several instances, however, in which agencies had issued task  orders for work that was outside the scope of existing contracts. Such task  orders do not satisfy legal requirements for competition. In these cases,  the out-of-scope work should have been awarded using competitive  procedures or supported with a Justification and Approval for other than  full and open competition in accordance with legal requirements. Given  the urgent need for reconstruction efforts, the authorities under the  competition laws for using noncompetitive procedures provided agencies  ample latitude to justify other than full and open competition to satisfy  their needs.
subsections: section_title: Agencies Properly Justified Use of Other Than Full and Open Competition in Awarding New Contracts
paragraphs: The agencies responsible for rebuilding Iraq generally complied with  applicable requirements governing competition when awarding new  contracts. While CICA requires that federal contracts be awarded on the  basis of full and open competition, the law and implementing regulations  recognize that there may be circumstances under which full and open  competition would be impracticable, such as when contracts need to be  awarded quickly to respond to unforeseen and urgent needs or when there  is only one source for the required product or service. In such cases,  agencies are given authority by law to award contracts under limited  competition or on a sole-source basis, provided that the proposed actions  are appropriately justified and approved.
We reviewed 14 new contracts that were awarded using other than full and  open competition: a total of 5 sole-source contracts awarded by the Army  Corps of Engineers, the Army Field Support Command, and USAID and      9 limited competition contracts awarded by the Department of State, the  Army Contracting Agency, and USAID (see table 5). Because of the limited  time available to plan and commence reconstruction efforts, agency  officials concluded that the use of full and open competitive procedures in  awarding new contracts would not be feasible. For 13 of these new  contracts, agency officials adequately justified their decisions and  complied with the statutory and regulatory competition requirements. In  the remaining case, the Department of State justified and approved the use  of limited competition under a unique authority that, in our opinion, may  not be a recognized exception to the competition requirements. State  took steps to obtain competition, however, by inviting offers from four  firms. State could have justified and approved its limited competition  under recognized exceptions to the competition requirements.
section_title: Agencies Did Not Always Satisfy Competition Requirements When Issuing Task Orders under Existing Contracts
paragraphs: We found a lesser degree of compliance when agencies issued task orders  under existing contracts. When issuing a task order under an existing  contract, the competition law does not require competition beyond that  obtained for the initial contract award, provided the task order does not  increase the scope of the work, period of performance, or maximum value  of the contract under which the order is issued. The scope, period, or  maximum value may be increased only by modification of the contract,  and competitive procedures are required to be used for any such increase  unless an authorized exception applies.
Determining whether work is within the scope of an existing task order  contract is primarily an issue of contract interpretation and judgment by  the contracting officer (in contrast to the contract’s maximum value and  performance period, which are explicitly stated in the contract). Other  than the basic requirement that task orders be within scope, there are no  statutory or regulatory criteria or procedures that guide a contracting  officer in making this determination. Instead, guiding principles for scope  of contract determinations are established in case law, such as bid protest  decisions of the Comptroller General. These decisions establish that the  key factor is whether there is a material difference between the new work  and the contract that was originally awarded—in other words, whether  new work is something potential offerors reasonably could have  anticipated in the competition for the underlying contract.
Of the 11 task orders we reviewed, 2 were within the scope of the  underlying contract and 7 were, in whole or part, not within scope; we  have reservations concerning whether 2 others were within scope (see  table 6).
The seven instances in which agencies issued task orders for work that  was, in whole or in part, outside the scope of an existing contract are  described on the following pages. In each of these cases, the out-of-scope  work should have been awarded using competitive procedures or  supported with a Justification and Approval for other than full and open  competition in accordance with legal requirements. Given the urgent need  for reconstruction efforts, the authorities under the competition laws for  using noncompetitive procedures provided agencies ample latitude to  justify other than full and open competition to satisfy their needs.
DCC-W improperly used a GSA schedule contract to issue two task  orders with a combined value of over $107 million for work that was  outside the scope of the schedule contract.
Under GSA’s federal supply schedule program, GSA negotiates  contracts with multiple firms for various commercial goods and  services and makes those contracts available for other agencies to use.  In March 2003, DCC-W placed two orders with Science Applications  International Corporation (SAIC) under SAIC’s schedule contract. One  order involved development of a news media capability—including  radio and television programming and broadcasting—in Iraq. The other  required SAIC to recruit people identified by DOD as subject matter  experts, enter into subcontracts with them, and provide them with  travel and logistical support within the United States and Iraq. The  schedule contract, however, was for management, organizational, and  business improvement services for federal agencies. In our view, the  statements of work for both task orders were outside the scope of the  schedule contract, which typically would encompass work such as  consultation, facilitation, and survey services. The period of  performance for the media services task order has expired, and the  task order for subject matter experts was extended through   April 30, 2004.
Over $91 million was obligated under an Air Force Contract  Augmentation Program contract for delivery of commodities to USAID  for reconstruction activities and logistical support for USAID’s mission  in Iraq. The contract is intended primarily to provide base-level  logistical and operational support for Air Force deployments. Under an  interagency agreement, the Air Force used the contract to provide  USAID a variety of support tasks related to storage, inventory control  and management, and other logistical and operational support. Some of  these funds, however, had been obligated for services such as building  materials for Iraqi schools and planning for fixing electrical power  generation for Baghdad water treatment plants. Because these types of  services—though related to USAID’s foreign assistance mission—are  not related to support for a deployment, they appear to be outside the  scope of the contract. When we brought this issue to the attention of  Air Force officials, they agreed that some of the work was outside the  scope of the contract, and they are issuing guidance to ensure that  logistical support for USAID does not go beyond the scope of the  contract.
The Army Field Support Command issued a $1.9 million task order for  contingency planning for the Iraqi oil infrastructure mission under its  LOGCAP contract with Kellogg Brown & Root. The task order was not  within the scope of that contract. This task order, issued in November  2002, required the contractor to develop a plan to repair and restore  Iraq’s oil infrastructure should Iraqi forces damage or destroy it.  Because the contractor was knowledgeable about the U.S. Central  Command’s planning for conducting military operations, DOD officials  determined the contractor was uniquely positioned to develop the  contingency support plan. DOD determined that planning for the  missions was within the scope of the LOGCAP contract, but it also  determined that the actual execution of the Iraq oil mission, including  prepositioning of fire-fighting equipment and teams, was beyond its  scope.
We agree with the DOD conclusion that repairing and continuing the  operations of the Iraqi oil infrastructure are not within the scope of the  contract. But unlike DOD, we conclude that preparation of the  contingency support plan for this mission was beyond the scope of the  contract. We read the LOGCAP statement of work as contemplating  planning efforts for missions designated for possible contractor  execution under the contract. Consequently, the Army Field Support  Command should have prepared a written justification to authorize the  work without competition. The resulting contingency plan was used as  justification for subsequently awarding a sole-source contract to  Kellogg Brown & Root for restoring the oil infrastructure, for which  nearly $1.4 billion was obligated during fiscal year 2003. As noted in  table 5, we found that the award of this contract generally complied  with applicable legal standards.
In March 2003, the Army Corps of Engineers conducted a limited  competition resulting in multiple-award contracts with three firms— Washington International, Inc., Fluor Intercontinental, Inc., and Perini  Corporation—for construction-related activities in the Central  Command’s area of responsibility. These contracts had a maximum  value of $100 million each. In the latter part of August 2003, as efforts  to restore electricity throughout Iraq lagged and amid concerns that the  electrical shortages presented social unrest and security threats to the  CPA and the military forces, the Central Command tasked the Army  Corps of Engineers with taking steps to rebuild the electrical  infrastructure as quickly as possible. In response, the Army Corps of  Engineers issued task orders under each of these contracts causing  them to exceed their maximum value. Consequently, the orders are  outside the scope of the underlying contracts.
The Army Corps of Engineers prepared a justification for award of the  underlying contracts in August 2003 and a subsequent justification in  September 2003 to increase the maximum value of each contract from  $100 million to $500 million. Neither justification had been approved as  of March 31, 2004.
Finally, we note that section 803 of the National Defense Authorization  Act for Fiscal Year 2002 (Pub. L. No. 107-107) requires that an order for  services in excess of $100,000 issued under a multiple-award contact by  or on behalf of a DOD agency be made on a competitive basis, unless a  contracting officer justifies an exception in writing. The Army Corps of  Engineers did not compete these task orders among the three multiple- award contractors. Rather, the agency and the contractors collectively  decided to allocate the electrical infrastructure work based on  geographical sectors and the capabilities of the contractors in the  theater. We found that the contracting officer had not prepared a  justification for these noncompetitive task orders. After we raised this  issue with agency officials, the contracting officer prepared the  required documentation in April 2004.
As described in table 6, we also have reservations about whether work  ordered under two other Army task orders was within the scope of an  underlying contract for combat support. These task orders were issued by  the Army Field Support Command for the CPA’s logistical support and for  a base camp used in training the New Iraqi Army. In these, as in the other  cases, the competition laws provided agencies ample latitude to justify  using other than full and open competition to satisfy their needs.
section_title: Effective Contract Administration Remains a Key Challenge as Contracting Activity Increases
paragraphs: The need to award contracts and begin reconstruction efforts quickly—the  factors that led agencies to use other than full and open competition—also  contributed to initial contract administration challenges. Faced with  uncertainty as to the full extent of the rebuilding effort, agencies often  authorized contractors to begin work before key terms and conditions,  including the statement of work to be performed and the projected cost  for that work, were fully defined. Until agreement is reached, contract  incentives to control costs are likely to be less effective. Staffing  constraints and security concerns posed further challenges. Agencies have  made progress in addressing these issues, but there remains a backlog of  contracts for which final agreement has not yet been reached. The CPA  has created a new office to better manage and coordinate reconstruction  efforts to be conducted over the next year.
subsections: section_title: Reaching Agreement on Key Contract Terms and Conditions
paragraphs: To meet urgent operational needs, as is the case in Iraq’s reconstruction,  agencies are permitted to authorize contractors to begin work before  contracts or task orders have been definitized—that is, before key terms  and conditions, including price, have been defined and agreed upon. While  this approach allows agencies to initiate needed work quickly, it also can  result in potentially significant additional costs and risks being imposed on  the government. Agencies generally are required to definitize contractual  actions within 180 days.
For many of the contracts we reviewed, agencies authorized the  contractors to begin work before terms were fully defined, and later  reached final agreement on the scope and price of the work. There remain  six DOD contracts or tasks orders, however, that had yet to be definitized  as of March 2004, two involved work that had been completed more than a  year earlier (see table 7). In total, nearly $1.8 billion had been obligated on  these contracts or task orders as of September 30, 2003. These contracts  or task orders had been awarded or issued by either the Army Corps of  Engineers or the Army Field Support Command, and they include efforts  to restore Iraq’s oil and electrical infrastructures and to provide logistical  support to the CPA.
Agency officials attribute much of the delay in reaching agreement to  continued growth in reconstruction efforts, which in turn have required  numerous revisions to contract statements of work. The continued growth  in requirements has resulted in an increase in both contractor costs and  administrative workload on both contractor and agency procurement  personnel. For example, the Army Corps of Engineers’ contract to restore  Iraq’s oil infrastructure had individual task orders placed in March and  May 2003 that were supposed to be definitized within 180 days. Similarly,  the Army Field Support Command has four task orders that have to be  definitized. For example, the Army Field Support Command’s task order to  support the CPA was originally issued in March 2003, at an estimated cost  of $858,503. As of September 30, the Army had obligated $204.1 million,  and the statement of work had been modified a total of nine times. With  each change, the contractor had to revise its cost and technical proposals,  which also increased the workload for agency procurement personnel.
The Army Field Support Command’s revised schedule now calls for  definitizing the task orders between June and October 2004.
Some of the delays reflect concerns over the adequacy of the contractors’  proposals. For example, on the task order awarded to restore Iraq’s  electrical infrastructure, DCAA found a significant amount of proposed  costs for which the contractor had not provided adequate support.  Consequently, DCAA believed that the proposal was inadequate for the  purposes of negotiating a fair and reasonable price. As of March 2004,  negotiations between the contractor and the Army Corps of Engineers  were still ongoing. To reduce risks, the Army Corps of Engineers has  proposed paying the contractor only 85 percent of incurred costs until the  contractor has adequately fulfilled its contract closeout responsibilities  and acceptable business systems were in place.
The lack of timely contract definitization potentially can have a significant  impact on total contract costs and related risks. Specifically, the major  reconstruction efforts have used cost-reimbursement type contracts under  which the government has agreed, subject to cost ceilings, to reimburse  the contractor for all reasonable and allowable costs incurred in  performing the work. In two of the largest contract actions—the contract  to repair and maintain Iraq’s oil infrastructure and the task order to  support the CPA operations—the agencies have included an award fee  provision under which the contractor can earn additional profit for  meeting set targets in specified areas, such as cost control. As long as  work continues to be performed under an undefinitized contract, however,  the award fee incentive is likely to be less effective as a cost control tool  since there is less work remaining to be accomplished and therefore less  costs to be controlled by the contractor. Given the high cost involved,  particularly for the Iraq oil mission (over $2.5 billion), any reduction in  cost control incentives potentially involves a significant contract cost risk.
section_title: Providing Adequate Staff to Oversee Contracts
paragraphs: The lack of adequate staffing presented challenges to several agencies  involved in reconstruction efforts and, at times, resulted in inadequate  oversight of the contractors’ activities. While agencies have taken actions,  some of these early contract administration issues have yet to be fully  resolved.
When the CPA’s predecessor organization—Office of Reconstruction and  Humanitarian Assistance---was established in mid-January 2003, it lacked  an in-house contracting capability. It was not until February 27, 2003, that  the Defense Contract Management Agency (DCMA) was asked to provide  contracting support, including providing acquisition planning assistance  and awarding and administering contracts. DOD officials noted that this  tasking was unusual for DCMA, as it is typically responsible for  administering, rather than awarding, contracts.
According to DOD officials, they found that the Office of Reconstruction  and Humanitarian Assistance did not have an official responsible for  authorizing contract actions and supervising contracting officers and  others performing procurement-related duties. Further, DOD had  authorized positions for only two contracting officers, who had yet to  arrive. In addition, DCMA officials reported that the lack of an  organizational structure led to contractors providing draft statements of  work and cost estimates to the contracting officers so that contracts could  be awarded more quickly. Normally, it is the government’s responsibility  to provide statements of work and develop independent cost estimates.
We found that there were not always sufficient in-country personnel to  administer the contracts or task orders when they were initially awarded  or issued. For example, for the federal supply schedule order issued in  March 2003 by DCC-W to establish an Iraqi media capability, contractor  personnel purchased property that was not part of the task order,  including purchases that may not have been necessary or appropriate.  According to DOD officials, contractor personnel purchased about            $7 million in equipment and services not authorized under the contract,  including a H-2 Hummer and a pickup truck, and then chartered a flight to  have them delivered to Iraq. According to DCMA officials, these actions  were primarily due to inadequate government property management to  control or monitor the contractor’s purchases. DCMA officials decided in  May 2003 that it was in the best interests of the government to modify the  approved equipment list, and include the materials purchased by the  contractor.
The lack of in-country procurement staff proved problematic in another  task order issued by the DCC-W to help recruit and support subject matter  experts to assist the CPA and Iraqi ministries. According to DCC-W and  DCMA officials, there was initially neither contractor staff nor government  officials to monitor the subject matter experts once they arrived in Iraq.  DCMA officials indicated that some experts failed to report to duty or  perform their responsibilities as expected or were no longer performing  work under the task order.
Staffing concerns affected other agencies as well. For example, USAID  recognized early that its resources were insufficient to administer and  oversee the contracts it expected to award. Consequently, USAID arranged  for the Army Corps of Engineers to provide oversight on its $1.0 billion  infrastructure contract, arranged to have DCAA audit contractors, and  made plans to augment its mission in Iraq. As of January 2004, however, a  senior USAID procurement official stated that its Iraq mission remained  understaffed to provide adequate contract oversight in Iraq. USAID stated  it has four full-time procurement staff that will be assigned to work in Iraq  for 3 years. According to the senior official, this long-term commitment is  essential to establishing the institutional knowledge needed to monitor  and administer the contracts effectively. However, USAID indicated that  given the workload, providing an appropriate degree of oversight would  require at least seven additional personnel. Consequently, USAID found it  necessary to augment the mission staff with personnel on temporary  assignment from other USAID missions, who will serve between 1 and 3  months.
Similarly, State Department officials noted that the Bureau of International  Narcotics and Law Enforcement Affairs—the bureau responsible for  monitoring State’s law enforcement support contract—is understaffed. For  example, the department official responsible for contract oversight had  multiple, time-consuming roles. This official currently serves as both the  program manager and the contracting officer’s representative for the law  enforcement support contract. As such, the official approves the  contractor’s monthly vouchers along with carrying out other detailed  procurement tasks. The same official also had responsibilities for the  department’s efforts to recompete a $1.3 billion effort to provide  worldwide law enforcement support and for law enforcement support  efforts in Liberia and Haiti. To address the workload issue, the bureau has  assigned two additional staff to assist in overseeing contract activities in  Iraq and is exploring options for reorganizing the bureau to use resources  more efficiently.
Providing adequate oversight on reconstruction efforts is challenging  given the uncertain security environment and harsh working conditions.  During site visits to Iraq in October 2003, we observed the considerable  degree to which these factors were affecting reconstruction efforts. For  example, travel outside secure compounds occurred only in convoys of  armored vehicles with armed security forces. Flak jackets and helmets  were required to be worn or, at a minimum, carried. Communications  were generally difficult and unreliable. In addition, the living and working  environment afforded individuals little privacy or time to rest. We  observed that personnel generally worked 12 to 15 hour days and often  shared cramped living and working quarters. In Al Hillah, for example, five  USAID personnel shared two small offices with their security team.
section_title: Revised Approach Planned for Fiscal Year 2004 Reconstruction Efforts
paragraphs: To better coordinate and manage the $18.4 billion in reconstruction  funding provided for fiscal year 2004, the CPA established a program  management office that is responsible for infrastructure-related programs.  The office, which includes representatives from USAID and the Army  Corps of Engineers, is responsible for coordinating the efforts of the CPA,  the Iraqi ministries, and other coalition partners.
The office’s acquisition strategy reflects a plan to award    1 program management support contract to support the program  management office and to oversee reconstruction efforts of specific  sectors—electricity, oil, public works and water, security and justice,  transportation and communications, and buildings and health;    6 program management contracts to coordinate reconstruction efforts  specific to each sector; and    15 to 20 design-build contracts to execute specific tasks.
In March 2004, various DOD components, on behalf of the CPA, awarded        17 contracts—the program management support contract, the 6 sector- specific program management and the 10 design-build contracts. These  contracts were awarded pursuant to a DOD decision to limit competition  to firms from the United States, Iraq, coalition partners, and force  contributing nations.
In addition to these contracts, other agencies will continue to award and  manage contracts for areas within their assigned area of responsibility.  For example, in January 2004, USAID competitively awarded a $1.8 billion  contract to enable further reconstruction efforts, while the Army Corps of  Engineers competitively awarded two contracts with a combined value of  $2.0 billion to further repair and rehabilitate Iraq’s oil infrastructure.  USAID announced its intent to solicit bids on at least seven new contracts.  One of these contracts is intended to provide USAID with an enhanced  capability to carry out data collection, performance monitoring, and  evaluation of USAID’s ongoing work in Iraq.
section_title: Conclusions
paragraphs: The United States, along with its coalition partners and various  international organizations and donors, has undertaken an enormously  complex, costly, and challenging effort to rebuild Iraq. At the early stages  of these efforts, agency procurement officials were confronted with little  advance warning on which to plan and execute competitive procurement  actions, an urgent need to begin reconstruction efforts quickly, and  uncertainty as to the magnitude of work required. Their actions, in large  part, reflected proper use of the flexibilities provided under procurement  laws and regulations to award new contracts using other than full and  open competitive procedures.
With respect to several task orders issued under existing contracts,  however, some agency officials overstepped the latitude provided by  competition laws by ordering work outside the scope of the underlying  contracts. This work should have been separately competed, or justified  and approved at the required official level for performance by the existing  contractor. Given the war in Iraq, the urgent need for reconstruction  efforts, and the latitude allowed by the competition law, these task orders  reasonably could have been supported by justifications for other than full  and open competition. In some cases, such as the task order for the Iraqi  media capability, the work has been completed so there is no practical  remedy available. In several other cases, however, the opportunity exists  to bring task orders into compliance with requirements, as well as to  ensure that future task orders are issued properly.
Providing effective contract administration and oversight remains  challenging, in part due to the continued expansion of reconstruction  efforts, the staffing constraints, and the need to operate in an unsecure  and threatening environment. Indeed, the magnitude of work that remains  undefinitized is symptomatic of changing requirements and the lack of  sufficient agency and contractor resources. Nevertheless, timely  definitization of outstanding contracts and task orders is needed to  promote effective cost control. More broadly, these challenges suggest the  need to assess the lessons learned from the contract award and  administration processes in Iraq to identify ways to improve similar  activities in the future.
It is too early to gauge whether the CPA approach to improving its ability  to monitor and coordinate reconstruction efforts through the use of a new  program management office and the planned award of various types of  construction and management support contracts will be effective.  However, recent congressional action requiring the CPA Administrator  and heads of federal agencies to report on contracts awarded using other  than full and open competition will provide more transparency and  accountability in the award of new Iraq reconstruction contracts.
section_title: Recommendations for Executive Action
paragraphs: To ensure that task orders issued to rebuild Iraq comply with applicable  requirements, and to maximize incentives for the contractors to ensure  effective cost control, we recommend that the Secretary of the Army take  the following four actions:    Review the out-of-scope task orders for Iraqi media and subject matter  experts issued by the Defense Contracting Command-Washington and  take any necessary remedial actions.
Ensure that any future task orders under the LOGCAP contract for Iraq  reconstruction activities are within the scope of that contract.
Address and resolve all outstanding issues in connection with the  pending Justifications and Approvals for the contracts and related task  orders used by the Army Corps of Engineers to restore Iraq’s electricity  infrastructure.
Direct the Commanding General, Army Field Support Command, and  the Commanding General and Chief of Engineers, U.S. Army Corps of  Engineers, to definitize outstanding contracts and task orders as soon  as possible.
To improve the delivery of acquisition support in future operations, we  recommend that the Secretary of Defense, in consultation with the  Administrator, U.S. Agency for International Development, evaluate the  lessons learned in Iraq and develop a strategy for assuring that adequate  acquisition staff and other resources can be made available in a timely  manner.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD and the Department of State provided written comments on a draft of  this report.  Their comments are discussed below and are reprinted in  appendixes III and IV.  USAID concurred with the draft report as written.   USAID’s response is reprinted in appendix V.  GSA also provided  comments regarding its efforts to ensure that agencies properly use the  federal supply schedule program.  GSA’s comments are reprinted in  appendix VI.
DOD generally concurred with our recommendations.  DOD noted that it is  in the process of taking appropriate remedial actions on the task orders  issued by the Defense Contracting Command-Washington, and is resolving  outstanding issues related to the task orders issued by the Army Corps of  Engineers to restore Iraq’s electrical infrastructure.  As part of its efforts  to definitize contracts, DOD noted that the Army Field Support Command  has, among other things, established firm dates for the submission of  contractor proposals and to complete negotiations.  DOD also noted that  progress on these efforts is being reviewed by senior Command officials  on at least a weekly basis.  DOD did not indicate, however, what steps the  Army Corps of Engineers is taking to definitize the actions for which they  are responsible. As we noted in the report, the Army Corps of Engineers  had two undefinitized contracts on which they had obligated more than  $1.5 billion as of March 2004.  Lastly, DOD reported that efforts are already  underway to conduct a study to evaluate the lessons learned in Iraq and  develop a strategy for assuring that adequate staff and other resources can  be made available.
DOD partially concurred with our recommendation to ensure that future  task orders issued on the LOGCAP contract are within the scope of that  contract.  DOD noted that the LOGCAP contracting officer reviews each  proposed scope of work and determines whether the action is within the  scope of the contract, and obtains legal advice as needed.  DOD also noted  that the recommendation appeared to be based on only one action, namely  the task order for contingency planning for the Iraq oil infrastructure  mission.  We also expressed concern, however, about whether the task  orders to provide logistical support for the CPA and to the New Iraqi Army  training program were within the scope of the underlying LOGCAP  contract.  Consequently, the steps taken by the contracting officer—while  necessary and appropriate—may not be sufficient to ensure that work  outside the scope of the LOGCAP contract is either competed or properly  justified.
DOD provided two comments on our findings.  First, DOD took exception  to our observations on the manner by which the Deputy Secretary limited  competition for contracts awarded in fiscal year 2004 to firms from the  United States, Iraq, coalition partners and force contributing nations.   DOD noted that the Deputy Secretary has broad authority from the  Secretary to act on his behalf, which we do not dispute.  We note,  however, that the plain language of the law provides that authority to  approve public interest exceptions may not be delegated. While the  Deputy Secretary may have broad authority to act on the Secretary’s  behalf, he was not authorized to do so in this case.  Second, regarding our  conclusion that the LOGCAP contingency planning order was not within  the scope of the contract, DOD commented that our conclusion should be  couched in terms of opinion.  While legal analysis by its nature reflects  opinion, we remain convinced of our conclusion and emphasize the need  for more analytical rigor in the review of LOGCAP task orders.
The Department of State disagreed with our assessment that the authority  it cited to limit competition may not be a recognized exception to  competition requirements.  The department believed that the authority it  cited—section 481 of the Foreign Assistance Act of 1961, as amended— was used appropriately.  The specific section of the Act cited by the  department—section 481(a)(4)—speaks to the authority of the President  to furnish assistance to a country or international organization, but does  not provide relief from statutory competition requirements.  In its  comments and in earlier discussions, State did not provide us with a  persuasive basis to conclude that the authority is a recognized exception  to the competition requirements.  However, we did not need to resolve the  issue because State appears to have maximized competition under the  circumstances, and we believe State could have used other recognized  exceptions, such as 40 U.S.C. §113(e), to meets its requirements. This  authority permits the waiver of competitive contracting procedures when  use of those procedures would impair foreign aid programs.
GSA recognized that it has a responsibility to ensure that agency personnel  are adequately trained in the proper use of the federal supply schedule  program.  GSA noted that it has been working with DOD and other federal  agencies to ensure that their contracting officers are fully trained on the  proper use of the program and identified some of its ongoing and planned  efforts toward this objective.
We are sending copies of this report to the Director, Office of Management  and Budget; the Secretaries of Defense and State; the Administrator, U.S.  Agency for International Development; the Commanding General and  Chief of Engineers, U.S. Army Corps of Engineers; the Director, Defense  Contract Management Agency; and the Director, Defense Contract Audit  Agency. We will make copies available to others on request. In addition,  this report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
The major contributors to this report are listed in appendix VII. If you have  any questions about this report, please contact me on (202) 512-4841 or  Timothy DiNapoli on (202) 512-3665.
section_title: Appendix I: List of Organizations Contacted
paragraphs: During the course of the review, we contacted the following organizations:    Office of Management and Budget, Washington, D.C.;    Office of Reconstruction and Humanitarian Assistance, Washington,    Coalition Provisional Authority, Washington, D.C., and Baghdad, Iraq;    Department of Defense, the Comptroller, Pentagon, Washington, D.C.    Department of the Army, Pentagon, Washington, D.C;    Washington Headquarters Services, Pentagon, Washington, D.C.;    Defense Contracting Command-Washington, Pentagon, Washington,      Southern Region Contracting Center, Army Contracting Agency, Fort    Northern Region Contracting Center, Army Contracting Agency, Fort    Army Field Support Command, Rock Island, Illinois;    Headquarters, U.S. Army Corps of Engineers, Washington, D.C.; U.S.
Army Engineer Division, Southwestern, Dallas, Texas; U.S. Army  Engineer District, Fort Worth, Fort Worth, Texas; Engineering and  Support Center, Huntsville, Alabama; Transatlantic Program Center,  Winchester, Virginia; U.S. Army Engineer District, Philadelphia,  Philadelphia, Pennsylvania; and Vicksburg Consolidated Contracting  Office, Alexandria, Virginia;    Defense Information Systems Agency, Arlington, Virginia, and Scott Air  Force Base, Illinois;    Department of Defense, Inspector General, Arlington, Virginia;    Defense Contract Management Agency, Alexandria, Virginia;    Defense Contract Audit Agency, Fort Belvoir, Virginia;    U.S. Agency for International Development, Washington, D.C.;    U.S. Department of State, Washington, D.C.; and    U.S. Department of Justice, Washington, D.C.
section_title: Appendix II: Iraq Reconstruction Contracts/Task Orders and Obligations as of September 30, 2003
section_title: Appendix III: Comments from the Department of Defense
paragraphs: The following are GAO’s comments on the Department of Defense’s letter  dated May 13, 2004.
subsections: section_title: GAO Comments
paragraphs: 1. The Department of Defense (DOD) incorrectly noted that the  recommendation was based on only one instance.  In addition to the  example cited by DOD, we also expressed concern about whether the task  orders to provide logistical support for the Coalition Provisional Authority  (CPA) and to the New Iraqi Army training program were within the scope  of the underlying Logistics Civil Augmentation Program (LOGCAP)  contract.  2. The actions being taken by the Army Field Support Command are  positive steps to monitor progress in reaching agreement on the contracts’  key terms and conditions. DOD did not indicate, however, what steps the  Army Corps of Engineers was taking to definitize the actions for which the  Corps is responsible.  As noted in table 7, the Army Corps of Engineers  had two undefinitized contracts on which had obligated more than $1.5  billion as of March 2004.  3. DOD asserts that the determination and finding was not made on a class  basis because it included a common justification for 26 specifically  identified “particular procurements.”  The Federal Acquisition Regulation  (FAR) provides for determination and findings for individual contract  actions (FAR 1.702) and a class of contract actions (FAR 1.703).  Because  the determination and finding encompasses 26 contract actions, we  conclude that it is a class determination and finding.  Specifically  enumerating members of the class does not alter the fundamental fact that  it is for more than one action. Class determination and findings are  specifically prohibited by FAR 6.302-7(c)(4).  As to the question of  authority to execute the determination and finding, we do not dispute that  the Deputy Secretary has broad authority to act on behalf of the Secretary.   We note, however, that the plain language of the law provides that  authority to approve public interest exceptions may not be delegated and  conclude that the Deputy Secretary did not have authority in this instance.    4. Legal analysis by its nature reflects opinion.  In the opinion of GAO, the  Army, and DOD, the actual restoration of Iraqi oil infrastructure was not  within the scope of the LOGCAP contact.  We also noted that the LOGCAP  contract anticipates contingency planning for work that can be executed  under the contract.   In other words, contingency planning is within the  scope of the contract only if the actual work is also within the scope of the  contract.  In this instance, all parties agree that actual restoration of the oil  infrastructure was not within the scope of the contract. Consequently, we  conclude that planning the oil infrastructure restoration was also not  within the scope of the contract.
We would encourage the contracting officer to continue to obtain legal  assistance given the complexity of the LOGCAP contract, but we also  believe that DOD needs to ensure analytical rigor in its review of task  orders.
section_title: Appendix IV: Comments from the Department of State
section_title: Appendix V: Comments from the U.S. Agency for International Development
section_title: Appendix VI: Comments from the General Services Administration
section_title: Appendix VII: GAO Contacts and Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: Major contributors to this report were Robert Ackley, Ridge Bowman,  Carole Coffey, Muriel Forster, Glenn D. Furbish, Charles D. Groves,      John Heere, Chad Holmes, John Hutton, Ronald Salo, Karen Sloan,     Lillian Slodkowski, Steve Sternlieb, Susan Tindall, Adam Vodraska, and  Tim Wilson.