Rebuilding Iraq: Status of Competition for Iraq Reconstruction Contracts
Released: 2006-10-06T00:00:00

Letter

Background

The United States, along with its coalition partners and various international organizations and donors, has embarked on a significant effort to rebuild Iraq following multiple wars and years of neglect. In April 2003, Congress passed the Emergency Wartime Supplemental Appropriations Act, which created the Iraq Relief and Reconstruction Fund and appropriated approximately $2.48 billion for reconstruction activities. These funds—referred to as IRRF I—were to be used by USAID, State, DOD, Treasury, and Health and Human Services for a broad range of humanitarian and reconstruction efforts. In November 2003, Congress enacted an additional emergency supplemental appropriations act, which provided approximately $18.4 billion for reconstruction activities in Iraq. This appropriation—referred to as IRRF II—focused on security and infrastructure, and the funding was allocated across multiple sectors. Additionally, the November 2003 act required that full and open competition be used to enter into contracts using IRRF funds unless the use of an authorized statutory exception was properly documented and approved, and the specified congressional committees notified. As of August 29, 2006, about 94 percent, or approximately $20 billion, of all IRRF funds had been obligated by all agencies.

The Competition in Contracting Act of 1984 (CICA) generally requires that federal contracts be awarded on the basis of full and open competition. This process is intended to permit the government to rely on competitive market forces to obtain needed goods and services at fair and reasonable prices. However, 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 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 without providing for full and open competition (e.g., using limited competition or on a sole-source basis), provided that the proposed approach is appropriately justified, approved, and documented. Additionally, regarding task orders issued 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.

Vast Majority of Reported Contract Obligations Were for Competitive Awards

While no single, comprehensive system currently tracks governmentwide Iraq reconstruction contract data, we obtained competition information on $10 billion of the total $11.6 billion in obligations for Iraq reconstruction contracts collectively awarded by DOD, USAID, and State from October 1, 2003, through March 31, 2006, and found that about $9.1 billion, or 91 percent, of the obligations was for competitive awards. We obtained information on approximately $7 billion of the $8.55 billion DOD obligated and found that competition occurred for nearly all of the obligations. Both USAID and State provided information on all of their IRRF obligations made during the period of our review. However, where USAID information showed that almost all of its Iraq reconstruction contract obligations were for competitive awards, State information showed that few of its contract action obligations were for competitive awards. Figure 1 shows a breakdown of the three agencies’ competed and noncompeted contract actions based on available data.

Most DOD Obligations Were for Competitively Awarded Contract Actions

Based on available data, we found that the majority of DOD’s IRRF contract obligations incurred during the period we reviewed were for competitive awards. Competition information was available for approximately 82 percent of DOD’s total $8.55 billion in Iraq reconstruction contract obligations. Of this, we found that DOD competitively awarded about $6.83 billion, and noncompetitively awarded about $189 million. Most of the DOD offices we spoke with reported that, when possible, contract actions were competed.

JCC-I/A—the office performing the majority of Iraq contracting for the DOD offices we reviewed—and its predecessor organizations, including the Project and Contracting Office and Program Management Office, obligated $3.82 billion, of which $3.81 billion was obligated for competitive awards. Additionally, the other DOD offices we reviewed, including the Army Corps of Engineers’ Gulf Region Division and Transatlantic Programs Center; the Army’s TACOM Life Cycle Management Command; and the Air Force Center for Environmental Excellence obligated approximately $2.25 billion, and of these obligations, approximately $2.08 billion were for competitive awards and $177 million for noncompetitive awards. Furthermore, the Army Corps of Engineers’ Southwestern Division competitively awarded two contracts to rebuild Iraqi oil infrastructure with obligations totaling $941 million.

Complete information on DOD’s contract actions and competition type for the period of our review was not available, in part because not all offices consistently tracked or reported this information. Currently, DOD is transitioning its contract-writing systems to interface with the Federal Procurement Data System-Next Generation (FPDS-NG). Until this transition is completed, the majority of DOD components are expected to use DD Form 350s to report contract actions. However, we found that while the DD 350 system tracks competition information by contract, not all offices report their contracts to the system. For example, the JCC-I/A and its predecessor organizations did not fully input detailed, individual contract action information into DOD-wide systems including DD 350, which would provide information on competition. Furthermore, according to JCC-I/A officials, JCC-I/A did not track competition information until after May 2005. Consequently, we relied on multiple sources in order to obtain competition information for the DOD components within our review.

Almost All USAID Contract Obligations Were for Competitive Awards

USAID provided competition information for 100 percent of the $2.27 billion in IRRF contract obligations that the agency reported incurring between October 1, 2003, and March 31, 2006. These data indicated that USAID competitively awarded contract actions for about $2.25 billion, or 99 percent, of the approximately $2.27 billion it obligated; approximately $20.4 million, or about 1 percent, of these obligations were noncompetitively awarded. Agency contracting staff reported that USAID has pursued competition with very few exceptions when awarding contracts and issuing task orders for Iraq reconstruction.

During our contract file review, we identified three instances in which the competition information provided by USAID was inaccurate. In two cases, USAID reported contracts as being awarded competitively when they were actually awarded under limited competition. In the third case, USAID reported a contract as “not competed,” when it was actually awarded competitively. In each of these instances, we used corrected competition information for our analysis.

Only Small Percentage of State Contract Obligations Were for Competitive Awards

State obligated the smallest portion of IRRF funding among the three agencies, however, it incurred most if its obligations for noncompetitive awards. State provided competition information for 100 percent of the $762 million in IRRF contract obligations that the agency reported incurring between October 1, 2003, and March 31, 2006. These data indicated that State incurred obligations of approximately $73 million in competitive awards, or approximately 10 percent, of the approximate $762 million it obligated for IRRF contract actions; approximately $688 million, or about 90 percent, of these obligations were incurred under noncompetitive awards. In several of these cases, State cited urgency as the reason for awarding the contract actions noncompetitively. Specifically, justifications in two of the contract files we reviewed cited FAR § 6.302-2, unusual and compelling urgency, as the basis for using other than full and open competitive procedures. Additionally, one task order we reviewed was an unauthorized commitment that had to be ratified by State. The ratification amounted to the issuance of a noncompetitive task order to the contractor.

During our contract file review, we identified three instances in which the competition information provided by State was inaccurate. In two of these cases, we found that contracts that were reported as awarded competitively were actually awarded noncompetitively. In the third case, State misclassified the competition type reported for a contract that was awarded competitively. In each of these instances, we used corrected competition information for our analysis.

Agencies Generally Provided Necessary Documentation but Did Not Always Comply with Congressional Notification Requirements

We reviewed 51 contract actions totaling $1.55 billion—35 at DOD, 11 at USAID, and 5 at State. We found that the agencies generally followed the FAR and the applicable agency supplements regarding documentation requirements for contract actions but did not always comply with congressional notification requirements. Of the 51 contract actions that we reviewed, 22 were awarded noncompetitively, while 29 were awarded competitively. Only 1 of the 22 noncompetitive contract action files did not contain justifications or other documentation as required in the FAR or agency supplements. Of the 29 competed contract actions, DOD was unable to provide documentation that competition had occurred, such as evidence of bidders or price negotiation memos, in 4 cases. Additionally, of the 22 noncompeted contract actions, State should have notified Congress of 2 actions it awarded using other than full and open competition in accordance with the notification requirements. While State failed to provide the required notifications, State officials told us that they have taken steps to address the problem for future awards. Within our sample, we did not find any additional instances where DOD, USAID, and State should have notified Congress of a noncompeted award but did not.

Contract Action Files Generally Contained Required Documentation

Of the 35 DOD IRRF contract actions we reviewed, 15 were indicated as noncompeted and 20 indicated as competed. The files for the 15 noncompeted contract actions contained documentation required by the FAR, Defense Federal Acquisition Regulation Supplement and the Army Federal Acquisition Regulation Supplement. Of the 15 noncompeted actions, 4 were sole source contract awards; 4 were awarded using limited competition; 3 were noncompeted task orders under a multiple award IDIQ contract; 3 were sole source awards under the 8(a) program; and 1 was an out of scope modification. Based on our review, all of the contract actions that were awarded non-competitively had justification and approval documentation citing the reason for either limiting competition or using a sole source award when required. For example, JCC-I/A partially terminated an IDIQ contract used to rebuild hospitals in Iraq. In order to complete the remaining work, JCC-I/A awarded a series of sole source contracts to the remaining Iraqi subcontractors to complete the work. In another example, the Project and Contracting Office awarded a series of contracts using limited competition to pave roads in 13 governorates in Iraq, citing unusual and compelling urgent circumstances due to security concerns and limited manpower to evaluate all submissions from Iraqi firms. For the 20 competed DOD contract actions, 16 files included documentation that competition occurred, such as evidence of bidders or price negotiation memos when required. However, DOD was unable to provide supporting evidence for the remaining 4 contract actions that were indicated as competed.

Of the 11 USAID contract actions we reviewed, 3 were indicated as noncompeted and 8 indicated as competed. The files for all 3 noncompeted actions included the documentation required by the FAR and the Agency for International Development Acquisition Regulation (AIDAR) regarding competition. Two of these contracts were awarded under limited competition—one for catering services and one for armored vehicles—providing an opportunity for multiple vendors to submit bids. For both of these contracts, USAID used a blanket waiver authority provided by the USAID Administrator pursuant to section 706.302- 70(b)(3)(ii) of the AIDAR. This waiver was originally signed in January of 2003, later renewed in June 2004, and again in August 2005, and the agency is currently working on a 2006 version. The third noncompeted action was a modification extending the performance period and increasing the total award amount for a contract for facility security. The files for the 8 competed USAID contract actions included documentation that competition occurred, such as evidence of bidders or price negotiation memos.

Finally, of the 5 State contract actions we reviewed, 4 were indicated as noncompeted and 1 indicated as competed. Of the 4 noncompeted actions, 2 were single-award contracts for protective services, and 2 were task orders for police and guard services off of 1 IDIQ contract. The files for the 2 single-award contracts and one of the task orders included all of the documentation required by the FAR and the Department of State Acquisition Regulation (DOSAR) regarding competition. However, the file for one of the task orders for construction of a police training facility did not include documentation regarding the basis for using an exception to the fair opportunity process, as required in FAR § 16.505. The file for the 1 competed contract action included documentation that competition occurred, such as evidence of bidders or price negotiation memos.

State Did Not Always Provide Required Congressional Notifications

Of the 22 noncompeted contract actions in our review, State should have notified Congress of 2 actions it awarded using other than full and open competition in accordance with the congressional notification requirement in section 2202 of Public Law 108-106 but did not.

State failed to notify Congress when awarding 2 letter contracts for personal protective services noncompetitively. State indicated that the department failed to comply with the notification requirement in these two cases because the Office of Acquisitions Management, which is responsible for awarding and administering contracts at State, was not notified that IRRF funds were applied to these contracts by the relevant program office. State officials told us they have coordinated with program office staff to ensure that they communicate funding types to contracting staff in the future. We did not identify any USAID or DOD contract actions within our sample that required congressional notification.

Agency Comments

We requested comments from DOD, USAID, and State on a draft of this report. DOD provided only one technical comment, which was incorporated into the report. USAID reviewed the report and found it to be factually correct. State acknowledged our findings and provided additional information regarding steps taken to address the section 2202 reporting requirement. Comments from State and USAID appear in appendixes IV and V.

We are sending copies of this report to the Secretaries of Defense and State; the Administrator, U.S. Agency for International Development; and the Commanding General and Chief of Engineers, U.S. Army Corps of Engineers. 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 VI. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. If you have any questions about this report, please contact me at (202)-512-4841.

Appendix I: Scope and Methodology

The fiscal year 2006 National Defense Authorization Act conference report required that GAO update its 2004 report on the extent of competition for Iraq reconstruction contracts. In response, we focused our review on reconstruction contract actions funded solely with the Iraq Relief and Reconstruction Fund (IRRF). IRRF represents the largest amount of U.S. appropriated funds for reconstruction purposes. Other sources of U.S. funding for Iraq military, reconstruction, and stabilization efforts that are not included in our review are the Iraq Security Forces Fund, the Commander’s Emergency Response Program, and the Commander’s Humanitarian Relief and Reconstruction Program. Additionally, the congressional notification requirement in section 2202 of Public Law 108- 106 that was included in our review applies only to contract awards funded with IRRF.

We included the Departments of Defense (DOD) and State (State) and the U.S. Agency for International Development (USAID), as these agencies are responsible for 98 percent of the total obligations made with IRRF through June 2006. Additionally, within DOD, we used the Corps of Engineers Financial Management System (CEFMS) data to select individual components to include in our review that were responsible for the majority of IRRF II contracting during the time period of our review. The components we selected included the Joint Contracting Command- Iraq/Afghanistan, Army Corps of Engineers’ Gulf Region Division and Transatlantic Programs Center, Army’s TACOM Life Cycle Management Command, and the Air Force Center for Environmental Excellence.

To determine the approximate number of reconstruction contract actions, the types of actions, the funding sources, and the competition type of such actions, we found that no single source of information contained suitable amounts of both contracting actions issued using IRRF monies and competition information. Therefore, to obtain DOD data, CEFMS was selected as the basis for DOD’s IRRF contract universe due to the fact that it is the payment system for most of the major offices performing DOD contracting and presented the most complete contract action list. Using CEFMS, we identified DOD components based on the Department of Defense Activity Address Code, and selected offices to include in our review based on total obligations under IRRF II. Since CEFMS does not capture competition information, however, we attempted to cross- reference contracts found in CEFMS with DOD’s DD Form 350 Individual Contracting Action Report database. However, at the time of our review, we found that DD 350 did not include fiscal year 2006 data and not all DOD components fully reported contract actions to DD 350. As a result, we contacted the individual DOD components selected for inclusion in our review and requested competition information for the offices’ contracting actions funded with IRRF monies.

To obtain IRRF-funded contract actions from USAID and State, we relied on agency-provided data, since the Federal Procurement Data System- Next Generation (FPDS-NG) did not contain any of USAID’s contracting actions at the time we began our review. Although State’s contracting actions were contained within FPDS-NG, the system did not indicate which actions were funded using IRRF money and other criteria needed for our review.

We judgmentally selected 51 contract actions for further review to determine compliance with documentation requirements as prescribed in statutes, regulations, and other guidance, such as justification and approval documentation for noncompeted actions, and synopses of proposed contract actions, price negotiation memos, and evidence of bidder’s lists for competed actions. To determine the applicable documentation requirements and policies governing competition when awarding contract actions, we reviewed the requirements of the Competition in Contracting Act of 1984 and the Federal Acquisition Regulation, and additional agency regulations including the Defense Federal Acquisition Regulation Supplement, Army Federal Acquisitions Regulation Supplement, Agency for International Development Acquisition Regulation, Department of State Acquisition Regulation, and other guidance. The contract actions were selected based on the following criteria: reconstruction contract actions funded with IRRF monies; actions awarded from October 1, 2003, through March 31, 2006; current obligations of $1 million or more; represented both competed and noncompeted actions; selected more actions from DOD than USAID and State based on volume of contract actions obtained; included a variety of contracts, task orders, and modifications; and included a variety of goods and services provided.

Our findings regarding documentation are specific to these selected contract actions and are not projectable to the agencies’ total contract action universe. Of the 51 contract actions selected, 22 were indicated as awarded noncompetitively and 29 were indicated as awarded competitively. We included competitively awarded actions in our review to verify the accuracy of reported actions and confirm evidence of competition. In the few cases noted where actions were incorrectly reported as competed or noncompeted by USAID and State, we corrected the errors as appropriate for use in our analysis. Given that our actions to corroborate the data contained within agency systems or provided by the agencies identified only a few errors, which we corrected, we believe the data to be sufficiently reliable for our purposes.

To determine whether agencies complied with the congressional notification requirement contained in section 2202 of Public Law 108-106, we reviewed agency contract data within our selected contract actions to identify instances where the reporting requirement would apply and followed up with officials where appropriate.

In order to review and understand the contract files selected, we interviewed DOD, USAID, and State contracting officers and other procurement officials in Washington, D.C.; Virginia; and Iraq. Where possible, we obtained electronic documentation from agency officials. Appendix II lists the Iraq reconstruction contract actions we reviewed.

We conducted our work between April 2006 and August 2006 in accordance with generally accepted government auditing standards.

Appendix II: Iraq Reconstruction Contract Actions and Obligations Reviewed

U.S. Air Force Center for Environmental Excellence

Names of Iraqi firms not listed.

Appendix III: Actions Taken in Response to GAO-04-605, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures and Management Challenges

GAO recommendations from GAO-04-605 Iraq reconstruction contracting

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, the Secretary of the Army should review the out-of-scope task orders for Iraqi media and subject matter experts issued by the Defense Contracting Command-Washington (DCC-W) and take any necessary remedial actions.

DCC-W agreed with the GAO findings concerning out-of-scope work for the orders awarded to SAIC for the Iraqi Media Network and the subject matter experts. Contracting officers ordering the out-of-scope work have been made aware that their actions were improper. DCC- W has instituted agencywide training in a number of topics, including the need to carefully review the scope of work of a contract to determine what may be legitimately ordered from that contract. This training will be periodically repeated. In addition, its postaward reviews will include an assessment of whether requiring work is within the scope of the basic contract.

GAO and DOD consider this recommendation closed.

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, the Secretary of the Army should ensure that any future task orders under the Logistics Civil Augmentation Program (LOGCAP) contract for Iraq reconstruction activities are within the scope of that contract.

According to DOD, the Procuring Contracting Officer for the LOGCAP contract reviews each proposed scope of work that will result in a task order and makes a determination whether the action is within the scope of the contract and obtains appropriate legal advice as necessary.

GAO and DOD consider this recommendation closed.

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, the Secretary of the Army should 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.

As of June 2006, the justifications and approvals were being processed for Assistant Secretary of the Army for Acquisition, Logistics and Technology, approval.

GAO considers this recommendation open, though Defense Procurement and Acquisition Policy has indicated that this recommendation will be closed in the near term.

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, the Secretary of the Army should 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.

DOD has definitized, or reached agreement on key terms and conditions for, all of the six contract actions identified in our June 2004 report. We noted in our March 2005 report entitled, High-Level DOD Coordination is Needed to Further Improve the Management of the Army’s LOGCAP Contract (GAO-05-328), that the Army had made improvements in definitizing task orders issued under the LOGCAP contract.

GAO and DOD consider this recommendation closed.

To improve the delivery of acquisition support in future operations, the Secretary of Defense, in consultation with the Administrator, U.S. Agency for International Development, should evaluate the lessons learned in Iraq and develop a strategy for ensuring that adequate acquisition staff and other resources can be made available in a timely manner.

In November 2005, DOD issued directive 3000.05, Military Support for Stability, Security, Transition, and Reconstruction Operations, which, in part, required that DOD ensure proper oversight of contracts in stability operations and ensure U.S. commanders deployed in foreign countries are able to secure contract support rapidly. DOD is also working on developing joint contingency contracting policy and doctrine and assessing DOD’s contract administration services capability for theater support contracts. The estimated completion data of the ongoing actions is fall 2006.

GAO considers this recommendation open.

Appendix IV: Comments from the Department of State

Appendix V: Comments from the U.S. Agency for International Development

Appendix VI: GAO Contacts and Acknowledgments

Acknowledgments

Major contributors to this report were John Neumann, Daniel Chen, Kate France, Julia Kennon, John Krump, Art James, Shannon Simpson, Karen Sloan, Adam Vodraska, and Aaron Young.