Reconstruction of Iraq: Overview of Contracting Process and Resource Guide


April 21, 2003

By Jon T. Anderson and Paul W. Berning
Thelen Reid Brown Raysman & Steiner LLP

With the fighting winding down, federal agencies are providing more information about business opportunities for contractors, design professionals and consultants in the reconstruction of Iraq and about contracting procedures for the work.

On Thursday, the U.S. Agency for International Development (USAID) announced that it had chosen Bechtel Corporation as prime contractor for reconstruction of Iraq's infrastructure.

The U.S. Army Corps of Engineers (USACE) has been designated lead agency to extinguish oil well fires and to assess damage to Iraqi oil facilities. It has signed contracts with Kellogg, Brown & Root, Washington Group International, Fluor Intercontinental and Perini Corporation.

Even so, other procurement opportunities are pending or are yet to be issued, according to both agencies.

At this stage, it appears that the Corps will be the lead contracting agency for tactically-related damage limitation and reconstruction. USAID will be the lead for the major program to reconstruct Iraq's infrastructure, which apparently will extend beyond repair of war-related damage.

USAID Contracts and Projects

According to USAID, its assistance will:

• Restore Iraq's infrastructure.
  
  
• Support its health and education services.
  
  
• Expand economic opportunity there by promoting a competitive private sector, generating job opportunities and improving agriculture productivity.
  
  
• Improve the efficiency and accountability of its government.

USAID says it has awarded five contracts and issued RFPs for three others since January 31. The awarded contracts and the amount of work now authorized under them are:

• Capital Construction: Initially for $34.6 million but for up to $680 million over 18 months to Bechtel Corporation of San Francisco for emergency repair of electrical supplies, water and sewage systems, roads and bridges, schools and hospitals, irrigation systems, and ports. Funding is subject to congressional authorization and availability of funds, USAID said.
  
  
• Seaport Administration: For $4.8 million to Stevedoring Services of America, based in Seattle, for assessment of the port at Umm Qasr, Iraq, and management of activities there, such as warehousing, cargo storage, freight forwarding, that involve food and humanitarian aid.
  
  
• Primary and Secondary Education: For $2 million to Creative Associates International, Inc. of Washington, D.C., to implement an education assistance program, including measuring educational progress, distributing school materials and increasing enrollment. (The New York Times reported on Tuesday that the value of the contract could reach $62 million.)
  
  
• Local Governance: For $7.9 million to Research Triangle Institute, a non-profit organization based in Research Triangle Park, North Carolina, to increase management skills, knowledge and capacity of Iraqi administrators who provide water, health, public sanitation and related services and economic governance.
  
  
• Personnel Support: For approximately $7 million to International Resources Group of Arlington, Virginia, to provide key support personnel to USAID's Asia Near East Bureau for a 90-day base period, according to IRG. The award also provides for two one-year option periods, IRG said. It will provide planning, management, monitoring and coordination assistance for the reconstruction.

USAID said the pending RFPs are for:

• Airport Administration: Management of humanitarian air shipments.
  
  
• Theater Logistical Support: Warehousing, customs clearance, trucking, provision of bottled water.
  
  
• Public Health: Restoring public health services.

Two additional contracts are expected, according to USAID. They have not been issued:

• Monitoring and Evaluation of the Capital Construction Contract.
  
  
• Agriculture.

USAID has issued a Request for Applications from governmental and non-governmental non-profit organizations (other than colleges) to operate a community action program. It would promote citizen participation in impoverished communities and identify and address reconstruction and development needs. USAID said it anticipates issuing a Request for Applications for a program to create linkages between U.S. and Iraqi universities in areas such as science, technology and teacher training.

USAID said it has made more than $300 million in aid awards to U.S., U.N. and international agencies and non-governmental organizations and expects there will be more awards in the future.

Of these RFPs and RFAs, the major one - for Capital Construction just awarded to Bechtel - was issued by USAID on February 12, 2003. It provided for a negotiated procurement, with initial responses due on February 27, 2003. The program period for the planned contract is to December 31, 2004, with two option years. The RFP described the scope of work as:

To rebuild ports, airports, the electrical power systems, roads, bridges, railroad infrastructure, potable water and waste water treatment facilities, solid waste management services, schools and health facilities, irrigation systems, and selected local government buildings in Iraq in order to restore functioning of Iraq's infrastructure.

This RFP can be viewed at www.usaid.gov/iraq/pdf/web_capital_construction.pdf.

USAID said the prime contracts it issues will be awarded to U.S. companies because U.S. foreign assistance law gives a preference to U.S. firms. USAID's contracting programs for Iraq will be funded by the U.S. government, it said. President Bush has requested $2.4 billion from Congress to pay for the reconstruction and humanitarian aid.

USAID said it anticipated that the companies awarded prime contracts will employ subcontractors. Prime contractors may subcontract with both U.S. and foreign companies, USAID said. Prime contractors will have "decision-making authority" for choosing subcontractors and "will be free" to choose their subcontractors, according to USAID.

Foreign subcontractors can come from coalition partner countries in the Iraq war and from other countries, USAID said. It has waived its normal "source and origin" rule to open subcontracting to more countries. Foreign contractors can compete on equal terms with U.S. contractors so long as they do not come from restricted countries (i.e., countries that harbor terrorists), according to USAID.

The Capital Construction RFP expresses a preference for subcontracting with private companies but allows subcontracting with foreign-government owned organizations on a case-by-case basis when private subcontractors are not available or qualified for the task. It also permits grants to non-government organizations (NGOs) as part of the effort. USAID said Bechtel also would use Iraqi workers.

The RFP requires U.S. citizenship and security clearance for "key personnel" performing the Capital Construction contract. The RFP incorporates the Buy America Act regarding construction materials.

Some of the RFPs issued so far required that small business subcontracting plans be included in responses, USAID said.

The names of the prime contractors chosen will be posted on USAID's Web site so companies interested in subcontracting can contact them directly, USAID said. It also is offering seminars on reconstruction plans for potential subcontractors.

The U.S. government also will continue to work through partnerships with non-governmental organizations, international relief agencies and U.S. universities on community development programs and expects them to play "a substantial" role in Iraq, USAID said.

USAID described the contracts awarded so far as "contingency contracts" that will be implemented only if the work is required. They were awarded under an "expedited procurement process" that, USAID said, was permitted by the Federal Acquisition Regulation (FAR) and the USAID Acquisition Regulations (AIDAR). Such a process was permitted because of "the urgent need for these contracts," according to USAID.

USAID said only companies meeting its specific criteria were invited to apply. The criteria included:

[D]emonstrated technical capabilities; proven accounting mechanisms; ability to field a qualified technical team on short notice; and[,] where applicable, clearance to handle classified information.

Some 21 companies were invited to propose on the Seaport Administration, Primary and Secondary Education, Capital Construction, Airport Administration, Theater Logistical Support, Public Health and Community Action RFPs, according to USAID. The personnel support contract was awarded on a sole source basis to a contractor with 20 years of experience with USAID, the agency said.

Halliburton Co., Parsons Corp., Washington Group International, Inc., Louis Berger Group and Fluor Corp. also sought the Capital Construction contract, either individually or as part of a team, according to CNN.

USAID stated that it had complied with the Federal Acquisition Regulation (FAR) in limiting competition for the contracts. USAID justified the process on the basis of the need to deliver assistance rapidly yet to not interfere with diplomatic efforts to avoid war. As a matter of policy, according to USAID, it seeks maximum competition even when it limits the number of competitors. USAID said it had not decided whether to limit competition for its remaining contracts.

USAID said it uses two panels and a Contracting Officer to evaluate proposals for technical merit and cost. Offerors also are checked regarding audit findings, legal judgments and past performance, according to USAID. Then:

The procurement official reviews the recommendations of the technical and cost evaluation panels and determines which offerors are most highly qualified based on technical and cost factors combined. Discussions are then held with each offeror determined to be within the competitive range pointing out any weaknesses and deficiencies in their proposals. Offerors are then provided the opportunity to revise their proposals based upon the discussions and a final ranking of proposals is made by the Contracting Officer.

USAID offers debriefings to unsuccessful proposers.

Army Corps of Engineers Projects and Contracts

So far, the Corps has awarded four contracts - one that is being performed and three that are contingency contracts. The Corps says it is not currently seeking contractors but promises to post all future solicitations valued at more than $25,000 on the Federal Business Opportunities Web site (www.fedbizopps.gov).

The Corps' mission is to support the Central Command in restoring Iraq's oil production, oil refining and gas processing in order to help fund reconstruction. The mission includes extinguishing oil fires and environmental clean-up. The Corps said it has no authority "at this time" to distribute, market or sell oil.

The Corps said it intends to use private contractors to perform "all work" necessary to accomplish its mission. It anticipates issuing RFPs to major oilfield service companies, both U.S. and non-U.S, but has not set a date for issuance. The scope of follow-on contracts and their number will depend on the extent of the damage to the Iraqi oil system, the Corps said. The contracts will be competitively procured, according to the Corps. Work will not begin until work sites are safe from fighting, unexploded ordinance and booby traps, the Corps said.

The Corps said the Army Material Command "competitively procured" a contract with Kellogg, Brown & Root, a subsidiary of Halliburton Co. of Houston, to prepare contingency plans for the Iraqi oilfields under the Army Field Support Command's Logistics Civil Augmentation Program (LOGCAP). The contract was secretly negotiated and was awarded on December 14, 2001, the Corps said. Besides developing the plan for fighting oil fires and assessing damage to oil facilities, KBR pre-positioned workers and equipment to provide an emergency response under LOGCAP, the Corps said.

On March 8, KBR received a follow-on contract on a sole source basis to extinguish nine oil well fires in southern Iraq that were started in the early days of the war, the Corps said. KBR was chosen because it was "the only contractor that could satisfy the requirement for immediate execution of the plan" and because of its "extensive knowledge of the project," the Corps said, citing FAR 6.302-1. KBR was "responsible for subcontracting the fire fighting to qualified companies," the Corps said. This sole source contract will be replaced by competitively procured contracts for future projects, the Corps said.

The work is performed through task orders on a cost reimbursable basis. KBR is guaranteed a 2 percent fee and can earn up to a 5 percent fee, the Corps said. The fee is based on KBR's performance in managing the work, the quality of its work, safety performance and ability to control costs, the Corps said.

This sole source contract has stirred substantial controversy. The Corps conceded in a letter to congressmen that the contract could be worth up to $7 billion over two years to KBR, with a 7 percent profit, according to the April 11, 2003, New York Times. On Tuesday, Energy Intelligence Briefing reported that the Corps estimated the contract could generate $600 million in revenues.

Lt. Gen. Robert B. Flowers, commander of the Corps, told Congress that war plans and the need to fight oil fires in Iraq were classified information, justifying the sole source award, according to the April 11 New York Times. He promised "ample opportunity for competition" for future contracts to restore Iraq's oil infrastructure, the Times reported.

The Corps' Transatlantic Programs Center in Winchester, Virginia, also awarded three contracts "in anticipation of potential contingency contract requirements" in the U.S. Central Command's area of operations. No particular work or locations for work have been identified, according to the Corps. Those contracts were awarded to:

• Washington Group International of Boise, Idaho.
  
  
• Fluor Intercontinental of Greenville, South Carolina.
  
  
• Perini Corporation of Framingham, Massachusetts.

RFPs for the contingency contracts were sent to 13 U.S.-based companies on February 26, according to the Corps. The three were "competitively selected" based on their responses to the RFP, the Corps said.

All three are indefinite delivery / indefinite quantity (IDIQ) contracts. Each is for one year with a minimum guaranteed value of $500,000 and maximum value of $100 million.

No specific work or work location has been identified yet, the Corps said. Examples of potential work include design-build activities, construction (new work, renovation or repair) and short-term operations and maintenance. The contracts allow the Corps to call for rapid provision of services anywhere in the Central Command's area of operations, which encompasses 25 nations from the Horn of Africa to Central Asia, according to the Corps. The projects can involve supporting military operations, other U.S. government agencies or friendly foreign governments, the Corps said.

The Corps said the IDIQ contracts are authorized under FAR. Such contracts do not specify a firm quantity of services, other than a minimum and maximum. Rather, they provide for issuance of individual task orders. The Corps said the task orders may be cost reimbursable based on actual costs or fixed price, depending on whether the statement of work can be completely and accurately defined at the outset or can only be generally described.

The Corps said it had effectively set up a district office in Kuwait. It has 130-person team serving there and in two offices in Iraq to oversee work.

Subcontracting Opportunities

There is strong interest in subcontracting among both American and non-American companies. Companies from U.S. allies, such as Britain, Australia, Spain, Portugal and Poland, are particularly interested. The Washington Group placed Balfour Beatty and Costain of Britain on its list of subcontractors for Army Corps of Engineers projects. It also included Saudi Arabian and Kuwaiti subcontractors.

International Resources Group is reported to have subcontracted with Crown Agents, a British-based international development company, to assist with procurement, transport and warehouse management of goods in support of setting up USAID missions in Kuwait and Iraq.

More than 500 Polish companies have submitted bids for reconstruction work, Miroslaw Zielinski, Poland's deputy minister of labor and economy, said on Wednesday. Polish companies have worked extensively in Iraq since the 1980s, he said.

Manual Imson, the Philippines' Undersecretary of Labor and Employment, estimated that more than 100,000 Filipino construction workers would be needed in Iraq.

Trade Partners UK, a Web site sponsored by the British government that provides information on export opportunities, has created a Web page with information on contracting opportunities in Iraq. https://www.uktradeinvest.gov.uk/ukti/iraq

At the same time, the European Commission announced it intends to investigate the legality of the U.S. contracting process in Iraq. There have been no complaints from members of the European Union. But, the commission expressed concern that the United States is breaching World Trade Organization rules and discriminating against European companies in the award of contracts.

If you would like to receive legal reports and updates more quickly, by e-mail, click here and fill out the mailing list form.

For more information about the issues covered in this report, please contact Jon T. Anderson in our San Francisco office at 415-369-7220 or at jtanderson@thelen.com; Paul W. Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.





©2003 Thelen Reid Brown Raysman & Steiner LLP