Lieberman Cites Poor Planning, Execution, Oversight of Iraqi Reconstruction Contracts

Homeland Security and Governmental Affairs Committee Ranking Member Joe Lieberman, D-Conn., Wednesday entered the following statement into the record following a Committee hearing on waste, fraud, and abuse in the Iraqi reconstruction contracting process:

I thank the Chairman for holding this essential hearing examining our reconstruction contracts in Iraq.

In virtually every past war, shameless profiteers have swindled the government for an easy buck. Investigations led to shocking revelations after both World Wars. It is the federal government’s job to do its utmost to prevent these abuses, to detect them when they occur, to punish the guilty, and to shed light on the offenses so that we can learn from them. Already, the Administration’s failure to ensure the integrity of the contracting process in Iraq has caused immeasurable harm, and gross neglect by contractors and by agencies responsible for overseeing them has undermined our war effort.

I supported our war in Iraq but I have always questioned the way it was being executed. From the beginning, I have called on the Administration to engage in better advance planning and to commit resources more effectively to ensure a successful reconstruction and transition to democracy. Instead, it has been a much rockier road than it had to be – a just cause marred by poor planning and implementation. For years I and others in Congress have criticized the Administration’s failure to ensure sound contracting practices with respect to Iraq reconstruction, but the problems continue. Our hearing today is focusing on lessons we can learn for the future, and our witness, the Special Inspector General for Iraqi Reconstruction, has provided a valuable set of recommendations that this Committee should seriously consider.

Waste, mismanagement, and fraud have occurred on a massive scale. Billions of taxpayer dollars have been squandered. Our soldiers in the field have been shortchanged, and the war effort impeded. And the only beneficiaries of waste and fraud are the same bad apples who are responsible for it. Halliburton, for one, has overcharged the government over $1 billion, with the apparent approval of the agency responsible for overseeing the contracts. U.S. government employees have colluded with contractors in flagrant embezzlement schemes. Some have been prosecuted, but how many other crimes have gone unpunished?
The Special Inspector General has done an exceptional job bringing to light many of the abuses we do know about. Stuart Bowen quickly established a large office in Baghdad, and he and his staff courageously travel throughout Iraq to inspect projects large and small. In one report he documented that the Coalition Provisional Authority could not account for nearly $9 billion dollars it distributed to Iraqi ministries. He documented how Halliburton wasted $75 million on a failed pipeline river crossing project, after the company and the Army Corps of Engineers ignored the determination of its engineering consultant that the complex soil conditions required further study. Just this week, the IG released a damning report describing how the United States Agency for International Development resorted to accounting tricks to hide huge cost overruns from Congress.

Unfortunately oversight has been lacking elsewhere, and the IG has found few allies in this Administration. The Department of Defense Inspector General has never maintained a permanent presence in Iraq. Although the Department of Justice established a task force and announced a zero tolerance policy with respect to Katrina fraud, the Department’s investigative work on Iraqi contracts fraud has been less than zealous. I’m unaware of DOJ having initiated any criminal prosecutions other than those cases it received from the Special Inspector General. And the Administration has been attempting to phase out the office of the Special Inspector General for some time.

Poor policies and practices have marred every aspect of the contracting process in Iraq. In many instances U.S. agencies awarded contracts without using competitive procedures at great expense to the Treasury and, ultimately, the American taxpayers. For example, the Department of Defense improperly awarded Halliburton a $7 billion contract for reconstructing Iraq’s oil sector, without first opening the award to competitive bidding. Similarly, USAID waived regulations requiring competition in its reconstruction contracts, an action it could have avoided with better planning. Our government contracting system relies on fair and open competition to ensure the best products and services will be provided at the best price, and in Iraq that principle was too readily abandoned.

Agencies also have failed to oversee contracts they awarded. The CPA lacked contracting regulations or trained contract officers, and the contracting environment there remained chaotic until the CPA’s dissolution. More inexcusable, established agencies sometimes seemed more interested in protecting their contractors than exercising their responsibility to oversee them.

The collusive relationship between the Army Corps of Engineers and Halliburton provides a telling example of this phenomenon. In December of 2003, a DOD auditing agency made a preliminary finding that Halliburton was overcharging the U.S. and the Iraqi people tens of millions, if not hundreds of millions of dollars, for importing fuel into Iraq; the final audits determined that the contractor’s overcharges amounted to $263 million. The Army Corps went to great lengths to suppress the results of the audits and to ignore their findings. First, the Corps waived the regulatory requirement that Halliburton justify its prices with supporting data, in a transparent effort to negate the auditors’ findings. When the U.N. oversight board responsible for safeguarding Iraqi funds requested a copy of the final DOD audits, the Pentagon allowed Halliburton to redact all of the audits’ negative findings before turning them over. Finally, the Corps rejected the audits’ findings and paid Halliburton for 96 percent of the costs that had been challenged by DOD auditors.

This incident and similar ones starkly illustrate a central problem that has plagued the contracting environment in Iraq. The combination of lack of competitive bidding, poor oversight, and absence of accountability eliminated the safeguards designed to prevent waste and fraud by contractors. These safeguards are doubly important in time of war, as poor contractor performance can imperil our troops and undermine the war effort.

Committing troops to battle is the most consequential decision our government can make. When it does so, it must take no shortcuts in formulating and executing its strategy. When it came to planning and implementing the reconstruction of Iraq, this Administration took far too many shortcuts. We continue to suffer the consequences, as do the Iraqi people. Thank you.