US War Funding: Lessons Not Learned

A US commission provides insights into the fundamental failure to address corruption and waste in Iraq and Afghanistan reconstruction and security funding writes Dr Dominic Moran for ISN Security Watch.

In its interim external pagereport, the independent Commission on Wartime Contracting in Iraq and Afghanistan (CWC) has identified deep-seated dysfunction in the US government's handling and oversight of reconstruction and service contracting in Iraq and Afghanistan.

external pageReporting to Congress on 10 June, CWC commissioners noted that Defense Department auditors had identified a staggering US$13 billion in "questioned and unsupported" costs through the 2008 fiscal year.

Such failures have been the subject of numerous reports and were covered extensively in a study released by the Special Inspector General for Iraq Reconstruction (SIGIR) in December. This charted a history of ad hoc planning and constantly shifting priorities that has contributed to mass misappropriations, waste and inappropriate and failed development.

In the CWC report, ongoing problems are confirmed in the planning, management and auditing of contracts with a lack of provisions for accountability; the poor definition and execution of contracts; unnecessary and expensive rework; and a dearth of federal acquisitions staff identified as key issues.
 
Institute for Policy Studies Fellow Phyllis Bennis told ISN Security Watch, "Corruption has been a huge problem." She noted that in "the very beginning both the military and contractors were given literally truckloads of cash in brick-sized packages of dollars to distribute with no accountability, no record keeping, nothing."

The CWC found that the process of designating and training those directly responsible for monitoring project work was "essentially broken," with a severe shortage of trained officers, inadequate training and impossible workloads undermining effective contract monitoring.

Ofra Bengio, Iraq specialist at Tel Aviv's Moshe Dayan Center, told ISN Security Watch that the dearth of trained staff is, in part, a function of the lack of business experience in the military.

The impact of these inbuilt inadequacies on Iraq and Afghan reconstruction has been profound, establishing the environment for system abuses that have affected the disbursement of a significant percentage of the US$830 billion earmarked by Congress to date for US operations.

The CWC revelations have had little apparent political impact. Under intense White House pressure, Congress gave its backing Thursday to a bill mandating US$80 billion in further security disbursements in Iraq and Afghanistan, with US$10.4 billion slated for economic development. The bill had been held up by the insertion of IMF and flu spending and not by extant concern at the failure to address systemic dysfunction in Iraq and Afghan funding.

Noting the opportunity for a shift in US spending priorities inherent in the current economic crisis, Bennis cautioned: "There is not the same willingness among some of these [Democratic] members of Congress to challenge their own party, their own president even though he has said that he supports a very different approach."

Shareholder revolt

Despite a long history of contractor malfeasances, the CWC found that little has been done to address issues identified in the past, with 50 percent of contractor billing systems and 42 percent of those used to provide project estimates showing "serious deficiencies."

In May, the Policemen and Firemen Retirement System of Detroit, an institutional investor in Halliburton and former subsidiary KBR (the largest services contractor in Iraq), external pageannounced it was suing the companies over a string of alleged malfeasances that includes the purported over-billing of services provided to US forces in Iraq.

According to the plaintiffs, 32 former and current members of the Halliburton and KBR boards, including former vice president Dick Cheney, should be held accountable for purported breaches of fiduciary duty in failing to rein in faulty business practices in the Middle East and elsewhere.

The two companies have already reportedly chalked up over US$650 million in fines, settlements and penalties paid to the federal authorities.

KBR was again singled out in the CWC report as having an inadequate purchasing system. As with other companies, this prevents the precise monitoring of subcontractor work, increasing the chances for "waste, fraud and abuse." This is crucial as around 70 percent of work overall is conducted by subcontractors.

KBR has defended its record against the CWC charge, accusing the commission of bias. The company also denies fault in the electrocution deaths of four US servicemen, covered in a New York Times external pageeditorial in May.

Asked why the US had persisted in rehiring companies with a poor track record, Bennis said, "Some of them clearly had longstanding ties with high-ranking officials of the Bush administration."

"The other problem is one of scale," she explained. "Once you decide that you are not going to allow Iraqis to rebuild their own country […] there are very few companies that have the capacity to operate on the scale of the US military.

High stakes

The commissioners external pagefound that billions in "wasteful spending" may still be occurring in the transition between two massive logistics contracts, LOGCAP III (KBR, 2001) and LOGCAP IV (KBR, DynCorp, Fluor, 2008).

The CWC established that the slow pace of transition from LOGCAP III meant that the full benefits of competition were yet to be realized. This is highly problematic given that they determined that numerous fraud referrals under KBR's LOGCAP III had yet to be dealt with.

The stakes are high. LOGCAP contracts could be worth up to US$150 billion over the next 10 years with over US$31 billion already spent.

Transferring problems

With the US turning its attention to Afghanistan, few impediments appear to exist to the parallel development of the endemic problems staggering the Iraq contracting and reconstruction effort. This despite repeated legislative attempts to address these issues, including the establishment of the CWC last year.

Tellingly, the commissioners external pagefound that "the effectiveness of contractor support to expanded US operations in Afghanistan is compromised by the failure to extract and apply lessons learned from Iraq." Here interagency coordination was again identified as a primary concern.

With the reinforcement of US forces in Afghanistan already under way, the report found that "massive confusion and loss" are set to take place given a lack of documentation and knowledge of billions of dollars worth of materiel and properties on Iraqi bases that must be dealt with in the transfer.

According to external pageSIGIR, $32 billion had been spent on Afghan reconstruction by March with little to no oversight.

Asked if parallel systems of corruption and mismanagement mirroring the Iraq experience are likely to be elaborated in Afghanistan, Bennis said, "If it proceeds without challenge, absolutely. Having good intentions among a few high-ranking officials is simply not enough to overcome that."

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