More Bad News on the Iraq Contracting Front

It's Halloween today, and taxpayers should be afraid--VERY afraid. On Monday, the Special Inspector General for Iraq Reconstruction (SIGIR) released another report guaranteed to make you scream in terror.

SIGIR reviewed 195 Department of Defense (DoD) Iraq reconstruction projects that have been terminated. The vast majority--135--were terminated for the convenience of the government, often due to changes in scope or requirements, security problems, because the project was no longer needed, or because the government of Iraq did not provide the expected support.

However, 56 projects were terminated for default on the part of the contractor, mostly due to poor contractor or subcontractor performance. The kicker: SIGIR found no records of action taken by the DoD to suspend or debar those contractors from future government business, and some that had been suspended or debarred for fraud and responsibility issues were awarded new contracts.

The law, as stated under Federal Acquisition Regulation subpart 9.4, does not require the government to suspend or debar contractors for poor performance, although it does authorize it to suspend or debar contractors for failure or refusal to perform on a contract, unsatisfactory performance, or for any other action of a “serious or compelling” nature affecting responsibility. What is more troubling is the fact that poorly performing or suspended/debarred Iraq reconstruction contractors are being awarded new contracts.

According to the report, contractors suspended for fraud and other criminal problems received new reconstruction contracts despite being placed on the Excluded Parties List System (EPLS), which makes them ineligible to receive new contracts. Lee Dynamics, Inc. was awarded a contract despite having been suspended for allegations of bribing government officials and money laundering. AEY, Inc.--better known to readers of this blog as the company run by a 22-year-old--was debarred for allegations of product substitution and placed on the EPLS, but was allowed to continue performing under 13 existing supply contracts. This is perfectly legal since suspension and debarment only bar the award of future contracts, but consider the fact that five of those 13 AEY supply contracts were later terminated for default.

The report concludes that millions of dollars might have been wasted as a result of terminated Iraq reconstruction projects. As of June 2008, over 1,200 DoD Iraq reconstruction projects have been terminated, about 40 percent due to default on the part of contractors. These contractors were paid about $90 million for the abandoned projects such as Parsons Corporation's $40 million contract to build the now-abandoned Kahn Bani Saad prison. The true amount of waste could be much higher, as the report notes the “numerous instances” when contracts that incur problems are modified to change or reduce the scope of work rather than terminated.