Iraq: Frequently Asked Questions About Contracting

CRS Report for Congress
Iraq: Frequently Asked Questions
About Contracting
Updated March 18, 2005
Valerie Bailey Grasso, Coordinator,
Rhoda Margesson, and Curt Tarnoff
Foreign Affairs, Defense, and Trade Division
Lawrence Kumins and Kyna Powers
Resources, Science, and Industry
Carolyn C. Smith and Michael Waterhouse
Knowledge Services Group

Congressional Research Service ˜ The Library of Congress

Iraq: Frequently Asked Questions
About Contracting
This report provides answers to frequently asked questions about contracts for
the reconstruction and recovery in Iraq after Operation Iraqi Freedom (OIF), and
questions about contracts for providing support services to the U.S. military during
and after OIF. The report describes the governing authorities for federal government
contracting policy in general, and Iraqi contracting policy in particular; the
contracting process, issues, and challenges; the authority of individual federal
agencies; contract awards and the identity of major prime contractors; the business
procurement process, congressional oversight, and resources for additional
Due to the transfer of sovereignty on June 30, 2004, this report will not be
updated again. For a more comprehensive discussion of Iraq, activities since the
transfer of sovereignty, and overall Iraqi reconstruction issues, see CRS Report
RL31339, Iraq: U.S. Regime Change Efforts and Post-Saddam Governance, and
CRS Report RL31833, Iraq: Recent Developments in Reconstruction Assistance. For
a fact sheet on the application of federal procurement statutes to contracts for the
reconstruction of Iraq, refer to CRS Report RS21546, Iraq Reconstruction
Resources: Fact Sheet. For a detailed discussion on the application of federal
procurement statutes to reconstruction contracts in Iraq, refer to CRS Report
RS21555, Iraq Reconstruction: Frequently Asked Questions Concerning the
Application of Federal Procurement Statutes.

Key Policy Staff
Area of ExpertiseNameCRSTelephone and E-mail
Army Corp ofKyna PowersRSI7-0854
E ngi ne e r s kpowers@crs.loc.go v
Defense AcquisitionValerie Bailey GrassoFDT7-7617
Energy PolicyLawrence KuminsRSI7-7250
lkumins@cr s.lo c.go v
HumanitarianRhoda Margesson FDT7-0425
Conflict Affairs
Civilian ProcurementCarolyn SmithKSG7-7798
Resourcesto FDT
ReconstructionCurt TarnoffFDT7-7656
and Programs
Military ContractingMike Waterhouse KSG7-1817
Reco nstr uc tio n c o nsul t a nc y mwaterho use@crs. loc.go v
Policy Researchto FDT
Ab b r eviatio ns:
FDT = Foreign Affairs, Defense, and Trade
KSG = Knowledge Services Group

Frequently Asked Questions.........................................1
Contracting Authority and Eligibility..............................1
What Are the Statutory, Regulatory, and Other Controlling Authorities
for How Federal Government Contracts Are Awarded?........1
What Countries’ Businesses Are Eligible to Compete for Contracts
Funded with U.S. Appropriated Reconstruction Funds?........3
Will Israeli Businesses Be Eligible to Participate in Iraqi Contracts?..3
Contracting Agencies...............................................4
What Federal Agencies or Governing Bodies Are Involved in
Contracting for the Reconstruction of Iraq?.................4
Under the Broader Question of Different Authorities, What Is the
USAID Contracting Role in Iraq?.........................4
Contractor and Contract Programs.................................5
Who are the Major Contractors Involved in the Iraq Reconstruction
Effort? ..............................................5
What is LOGCAP, and What Contracts Have Been Awarded
under LOGCAP?......................................6
Was Halliburton Awarded a Sole-source Contract (A Contract
Awarded Without Full and Open Competition)?..............8
As a Result of Questions Raised over the Awarding of the
Halliburton Sole-Source Contract, What Action Did the Army
Corps of Engineers (Corps) Take?.........................9
What Has Replaced the Oil-for-Food Program (OFFP) Structure?
Who Is Providing Oversight Authority?....................9
What Can Explain the Cost Differential in Halliburton/KBR Oil
Fuel Purchases from Kuwait and Turkey?..................11
Have Halliburton/KBR Fuel Purchases Had an Undue Impact on the
Spot Market Price of Gasoline in the Persian Gulf Area?......13
Procuring New Contracts.......................................13
Which Product Areas and Sectors Are the Focus of Future
U.S. Contracts?......................................13
How Can U.S. Businesses Get Federal Government Contracts for
Work in Iraq?........................................17
Are There Additional Resources for Business Opportunities in Iraq?.17
Congressional Oversight .......................................18
What Are the Potential Congressional Oversight Actions to Address
the Iraqi Contracting Situation?..........................18
For Additional Reading............................................20

List of Tables
Table 1. The Top 20 Contractors, Ranked by Total Contract Value, for
Activities in Iraq and Afghanistan.................................5
Table 2. FY2004 Contracts Awarded for Iraq Infrastructure Reconstruction,
by Sector...................................................14
Table 3. Other FY2004 Contracts Awarded for Iraq Infrastructure
Reconstruction ...............................................16

Iraq: Frequently Asked Questions
About Contracting
This report providesThis report describes contracting issues raised
answers to key questions aboutduring the United States’ occupation of Iraq.
contracts for reconstruction andFor a more comprehensive discussion of Iraqi
recovery in Iraq, in the wake ofactivities since the transfer of sovereignty as
Operation Iraqi Freedom (OIF)well as overall Iraqi reconstruction issues, see
and questions about contractsCRS Report RL31339, Iraq: U.S. Regime
for providing support servicesChange Efforts and Post-Saddam Governance,
to the U.S. military during andand CRS Report RL31833, Iraq: Recent
after OIF. Given the multipleDevelopments in Reconstruction Assistance;
agencies, various contractingfor a fact sheet on the application of federal
authorities, and the multipleprocurement statutes to contracts for the
congressional appropriationsreconstruction of Iraq, refer to CRS Report
enacted into law for IraqiRS21546, Iraq Reconstruction Resources: Fact
reconstruction and recoverySheet; and for a detailed discussion on the
operations, as well as questionsapplication of federal procurement statutes to
about laws governing contractorreconstruction contracts in Iraq, refer to CRS
integrity in the face ofReport RS21555, Iraq Reconstruction:
allegations of questionableFrequently Asked Questions Concerning the
contractor behavior, someApplication of Federal Procurement Statutes,
Members of Congress haveor contact the individual authors as listed in
raised questions about the sizethis report.

and scope of Iraqi contract
awards, as well as the policies
that govern how the contracting process works.
This report describes the governing authorities for federal government
contracting policy in general, and Iraqi contracting policy in particular; the issues and
challenges of the federal contracting process; federal agency authorities; past,
present, and anticipatory contract awards, and major prime contractors; business
problems, including oil fuel procurement; congressional oversight; and resources for
additional information.
Frequently Asked Questions
Contracting Authority and Eligibility
What Are the Statutory, Regulatory, and Other Controlling
Authorities for How Federal Government Contracts Are Awarded? In
general, the authority for awarding federal government contracts can be found in the
United States Code (U.S.C.) and the Federal Acquisition Regulation (FAR). The

statute in the U.S. Code for the Competition in Contracting Act of 19841 explicitly
states that the federal government “shall obtain full and open competition through use
of the competitive procedures in accordance with the requirements of this title and
the Federal Acquisition Regulation.”2
The FAR, the Defense Federal Acquisition Regulation Supplement (DFARS),3
and the United States Agency for International Development (USAID) Acquisition
Regulation (AIDAR) outline seven different circumstances which permit DOD and
USAID to use other than full and open competition in the awarding of federal
government contracts. The Competition in Contracting Act cites the following
exceptions to the use of full and open competition.

1. There is only one responsible source available to fulfill the contract requirements.

2. The federal agency’s need for these goods or services is of such an unusual and
compelling urgency that the federal government would be seriously injured if
this contract were not awarded.
3. The federal government needs to ensure that suppliers are maintained in the event
of a national emergency, or to achieve industrial mobilization, or to establish or
achieve or maintain an engineering, development, or research capability.
4. The federal government has an international agreement to make this acquisition
through means other than through full and open competition.
5. A statute specifically authorizes or requires that the contract be made through a
specific source.

6. The use of full and open competition may compromise national security.

7. The public interest would be better served by use of other than full and open
competition. 4
The procedures for submitting written justifications to use other than full and
open competition, including review requirements and delegation of authority, are
outlined in DFARS, Subparts 206.303-1 and 206.304, and AIDAR 706.3.
The Bush Administration has set additional criteria for eligibility for contracting
in Iraq. A memorandum issued by Deputy Secretary of Defense Paul Wolfowitz on
December 5, 2003, states that he has determined that it is in the public interest to
limit competitive bidding for the procurement of certain Iraqi Relief and
Reconstruction prime contracts awarded by the Coalition Provisional Authority

1 41U.S.C. 253. CICA can also be found in Title 10 U.S.C., Chapter 137, and was included
in Section 805 of the FY2004 National Defense Authorization Act (P.L. 108-136).
2 41 U.S.C. 253 (a)(1)(A).
3 The Defense Federal Acquisition Regulation and AIDAR are supplements to the FAR. See
DFARS, Subpart 206.3, and AIDAR, Subpart 706.3, Other Than Full and Open
4 For a more detailed discussion on the seven exceptions to the use of full and open
competition, as outlined in the Competition in Contracting Act, see CRS Report RS21555,
Iraq Reconstruction: Frequently Asked Questions Concerning the Application of Federal
Procurement Statutes, by John R. Luckey.

(CPA) and DOD, on behalf of the CPA.5 (See the next question for the rationale.)
The statement can be viewed at [].
What Countries’ Businesses Are Eligible to Compete for Contracts
Funded with U.S. Appropriated Reconstruction Funds? Contracts issued
utilizing FY2003 appropriations were provided under sole source or limited
competition procedures that ultimately benefitted U.S. firms. The national security
interest was a key justification for excluding competition, domestic as well as
foreign. However, as most contracts were then provided by USAID and treated as
foreign assistance, they became subject to “buy America” provisions of law under the
Foreign Assistance Act of 1961, and exempt from international procurement
agreements.6 Foreign countries could, however, participate as sub-contractors to the
selected American firms, and are estimated to compose half or more of the total cost
of these contracts.
Most FY2004 appropriations — managed by the CPA — are being treated
somewhat differently. Under a previously mentioned December 5, 2003
“Determination and Findings” report issued by Deputy Secretary of Defense Paul
Wolfowitz, prime contracts are subject to full and open competition only among U.S.
firms and those of 62 other eligible countries, including Iraq, coalition partners, and
force contributing nations. The rationale for barring other countries’ firms is that it
is “necessary for the protection of the essential security interests of the United
States.” Countries ineligible to compete for prime contracts may still participate as
Some excluded countries, such as Germany and France, have protested the
decision on the grounds that it may violate the WTO’s Government Procurement
Agreement (GPA). Some U.S. officials suggest that the contracting organization,
CPA, is not covered by the GPA and need not allow open competition. Others point
out that GPA rules and existing practice exempt much foreign assistance from their
requirements. The strength of these arguments has been questioned. On January 13,
2004, President Bush announced that Canada — previously excluded as an opponent
of the war, but a significant financial contributor — could compete for contracts that
have not yet been open for bids.7
Will Israeli Businesses Be Eligible to Participate in Iraqi Contracts?
Reflecting political sensitivities in the Middle East, Israeli businesses are not eligible
for prime contracts resulting from FY2004 appropriations. Although it has
consistently backed U.S. policy in Iraq, Israel did not express official support at the
request of the Bush Administration. Israeli firms, however, are eligible to participate

5 The memo cites the authority as contained in 41 U.S.C. 253 (c)(7) and 10 U.S.C.(c)(7),
as implemented by FAR 6.302-7.
6 Section 604 of P.L. 87-195, as amended.
7 “Pentagon Bars Three Nations from Iraqi Bids,” New York Times, Dec. 10, 2003. “Trade
Lawyers Pick Over Small Print in Treaty,” Financial Times, Dec. 11, 2003. “Allies Angered
at Exclusion From Bidding,” New York Times, Dec. 11, 2003. “U.S. Pressed Over Iraq
Contracts Ban,” Financial Times, Dec. 12, 2003. “Iraq Contracts Open to Canadians,”
Washington Post, Jan. 14, 2004.

in Iraq reconstruction programs as sub-contractors. Reportedly, some are currently
acting as sub-contractors in communications, water, security, and agriculture
programs. 8
Contracting Agencies
What Federal Agencies or Governing Bodies Are Involved in
Contracting for the Reconstruction of Iraq? Primary authority for the
awarding and administration of Iraq reconstruction contracts has been transferred to
the U.S.-led Coalition Provisional Authority (CPA) []. The
CPA Program Management Office (PMO) [] is
responsible for selecting projects and overseeing 25 Iraq reconstruction prime
contracts worth up to $18.6 billion that were originally to be awarded by February
2004. However, slipped deadlines and the accelerated sovereignty schedule have led
to a re-evaluation of the PMO’s needs and capabilities. By the end of March 2004,
only about $2.2 billion of the original $18.6 billion had been obligated. As of May,
contracts potentially worth nearly $8 billion of the $18.6 billion in FY2004
supplemental funding had been awarded. Among recent reasons for the slow progress
are the requirement for open and competitive bidding for most of the new
reconstruction contracts and inter-agency disputes over control of the funds. Security
concerns, escalating since March, have also delayed reconstruction further.
Previously, major contract awards and management for postwar Iraq
reconstruction projects were administered by USAID [
activities.html]. Other federal agencies have taken steps in the awarding and/or
disseminating of information on contracts and the contracting process, including the
U.S. Army Corps of Engineers [
htm] and the U.S. Department of State [
north_africa/iraq/iraq.html]. It is anticipated that USAID and the other federal
agencies involved with Iraq’s reconstruction will continue their roles in the
contracting process as a complement to CPA’s efforts. For additional information on
federal agency solicitations, application procedures, and contact information, see
CRS Report RS21546, Iraq Reconstruction Resources: Fact Sheet.
Under the Broader Question of Different Authorities, What Is the
USAID Contracting Role in Iraq? USAID has been responsible for contracting
the majority of FY2003 reconstruction appropriations in Iraq and the widest range of
economic, social, and political development programs. To date, USAID has awarded
contracts in seaport and airport administration, capital construction, theater logistical
support, public health, primary and secondary education, personnel support, local
governance, agricultural development, and higher education.

8 “Israel Hopes for Role in Iraq Deals Despite Snub,” Jerusalem Post, Dec. 11, 2003. “Israel
Working Behind Scenes to Get Iraq Contracts,” Globes [online], Dec. 11, 2003. “Israeli
Firms to Participate in Iraq Reconstruction as Subcontractors,” BBC Worldwide Monitoring,
Dec. 15, 2003.

Although USAID was responsible for the FY2003-funded $1 billion
construction contract awarded to Bechtel and an FY2004-funded $1.8 billion follow-
on project, the CPA has control over most of the funding available for reconstruction-
related activities, particularly in the infrastructure and security sectors. USAID
appears likely to continue to carry out many of the non-construction development
programs supported by FY2004 appropriations in areas such as education and
democratization. As of May 18, 2004, USAID had obligated more than $3.5 billion
in Iraq aid contracts and grants.9
Contractor and Contract Programs
Who are the Major Contractors Involved in the Iraq Reconstruction
Effort? The Center for Public Integrity has completed an investigation of contract
awards in Iraq and Afghanistan made by DOD, Department of State, and USAID; in
the course of their inquiry, Center for Public Integrity officials filed Freedom of
Information Act requests and agency appeals, studied Security and Exchange
Commission filings and other news sources, studied contract award histories
compiled by a database through the United States General Services Administration
of unclassified contracts worth more than $25,000, and made contact with
government and non-government officials who awarded and received contracts. The
following information was excerpted from the Center for Public Integrity’s website.
Table 1. The Top 20 Contractors, Ranked by Total Contract
Value, for Activities in Iraq and Afghanistan
(from 2002 through May 20, 2004)
ContractorHeadquartersEst. Contract value
Kellogg, Brown & RootHouston, TX$4.678 billion
Bechtel Group Inc.San Francisco, CA$2.829 billion
Parsons Corp.Pasadena, CA$2.311 billion
Fluor Corp.Aliso Viejo, CA$2.254 billion
Washington GroupArlington, VA$1.633 billion
Stanley Baker Hill L.L.C.Muscatine, IA$1.200 billion
Perini CorporationFramingham, MA$1.025 billion
Contrack International Inc.Arlington, VA$825 million

9 U.S. Agency for International Development, Iraq Reconstruction and Humanitarian Relief
Weekly Update #32, May 18, 2004.

ContractorHeadquartersEst. Contract value
International AmericanColumbia, SC$528.4 million
Products Inc.
Research Triangle InstituteResearch Triangle Park, NC$466 million
Louis Berger GroupWashington, DC$327.6 million
BearingPoint Inc.McLean, VA$304.2 million
Creative AssociatesWashington, DC$217.1 million
International Inc.
Chemonics InternationalWashington, DC$167.7 million
Harris CorporationMelbourne, FLA$165 million
Readiness ManagementPanama City, FL$111.9 million
Support LC (Johnson
Controls Inc.)
DynCorp (ComputerEl Segundo, CA$93.6 million
Sciences Corp.)
Shaw Environmental &Baton Rouge, LA$75.7 million
Infrastructure Inc.
Lucent TechnologiesMurray Hill, NJ$75 million
World Services, Inc.
EOD Technology Inc.Lenoir City, TN$71.9 million
Source: The Center for Public Integritys website, at [], viewed on
June 8, 2004. According to the Center’s website, a total of 13 new companies have received contract
awards (since the websites last update on March 31, 2004), and nine companies previously awarded
contracts have seen contract increases totaling $5.8 billion.
The CPA Program Management Office announced on May 12, 2004, that no
protests have been filed against the $5.1 billion in construction contracts awarded in
March 2004.10
What is LOGCAP, and What Contracts Have Been Awarded under
LOGCAP? The United States Army’s Logistics Civil Augmentation Program
(LOGCAP)11 is an initiative to manage the use of civilian contractors who perform

10 Press Release from the Coalition Provisional Authority, Program Management Office,
Baghdad, Iraq, May 12, 2004. According to federal government contracting regulations,
there is a 10-day period following the award debriefing for unsuccessful bidders to file a
formal protest. See [].
11 Department of the Army. Logistics Civil Augmentation Program (LOGCAP). Army

services in support of DOD missions during times of war and other military
mobilizations. It was established on December 6, 1985, with the publication of Army
Regulation 700-137. LOGCAP is administered through the Army Materiel
Command (AMC), Operations Support Command, and is a centrally managed
program to coordinate efforts to negotiate pre-existing (such as contingency)
contracts with vendors from the United States. LOGCAP has been used in a variety
of military contingency operations, and provides for the awarding of contingency, or
bridging contracts, or for the inclusion of contingency clauses in peacetime contracts.
LOGCAP contracts have been previously awarded for work in Rwanda, Haiti, Saudi
Arabia, Kosovo, Ecuador, Qatar, Italy, southeastern Europe, Bosnia, South Korea,
and Kuwait.
LOGCAP contracts are “costs-plus award fee” contracts, meaning that there is
a fee paid based on contract costs, in addition to the potential for incentive fees based
on performance. Tasks administered under LOGCAP contracts are executed through
“task orders.” Task orders outline the specific actions that the contractor needs to
perform. The scope and breadth of the tasks to be performed by the contractor are
determined by the base commander. LOGCAP contracts allow task orders to be
approved as needed, without having to compete. Tasks orders have the effect of
acting as small contracts, are awarded without benefit of competition, and can be
quite large. Reportedly, three of the LOGCAP task orders given to Halliburton/KBR
under the LOGCAP III contract were each worth at least $60 million.12 In an audit
of several task orders issued under the Halliburton/KBR LOGCAP III contract, the
Defense Contract Audit Agency found a number of deficiencies, such as pointing out
that four task orders, totaling $227 million, did not show evidence of current,
accurate and complete cost or pricing data. The report concluded that ...
“Collectively, the deficiencies described above bring into question BRS’13 ability to
consistently produce well-supported proposals that are acceptable as a basis for
negotiation of fair and reasonable prices. We recommend you contact us to ascertain
the status of the BRS’ estimating system prior to entering into future negotiations.”14
The first LOGCAP contract (LOGCAP I) was awarded by the Army Corps of
Engineers to Kellogg, Brown, and Root (KBR) in1992. The contract was used to
support the United States military services and the United Nations military forces in
Somalia. The second LOGCAP contract (LOGCAP II) was awarded to DynCorp in

1994. The third LOGCAP contract was awarded to KBR (now a subsidiary of

11 (...continued)
Regulation (AR) 700-137, Introduction, 1-1. Purpose, p. 1.
12 See the OMB Watch website, at [].
The article, “Iraq Contracts Shrouded in Secrecy,” was published on September 10, 2003.
13 BRS is Halliburton subsidiary Kellogg, Brown and Root, or Halliburton/KBR.
14 Status of Brown & Root Services (BRS) Estimating System Internal Controls.
Memorandum For Corporate Administrative Contracting Officer, Defense Contract
Management Agency San Antonio (DCMAW-GEHC), 4100 Clinton Drive, Mail Drop 01-
660, Houston, TX 77020, Defense Contract Audit Agency, January 13, 2004, p. 3. The
audit can be viewed on Rep. Henry Waxman’s website.

Halliburton) in 2001. According to the LOGCAP Program Manager,15 each of the
three LOGCAP contracts was awarded competitively.
The third LOGCAP contract (LOGCAP III), a ten-year contract (one base year,
followed by nine option years), was awarded in 2001 to Halliburton/KBR to perform
a variety of tasks. Initial press reports indicated that this LOGCAP III contract would
be for the development of a contingency plan for extinguishing oil well fires in Iraq;
however, subsequent press reports include such tasks as providing housing for troops,
preparing food, supplying water, and collecting trash. This contract was awarded
under a cost-plus-award-fee, indefinite delivery/indefinite quantity contract.16 The
2001 contract is based on specific task orders which are issued individually, and only
for those services that DOD feels are necessary to support the mission in the near
term. During 2003, the Halliburton/KBR LOGCAP III contract rose to more than
$3.5 billion. According to one press account, Halliburton/KBR earns a fixed 1%
profit above costs on LOGCAP III, with the possibility of an additional 2% as an
incentive bonus,17 while another press account reports that the Halliburton/KBR
LOGCAP III contract is a cost-plus, award fee contract that earns a 2% fixed fee with
the potential for an extra 5% incentive fee.18
In accordance with the Freedom of Information Act, the Center for Public
Integrity has obtained portions of the LOGCAP III Iraqi oil repair contract, and such
portions can be viewed on the Center’s website, [].
Was Halliburton Awarded a Sole-source Contract (A Contract
Awarded Without Full and Open Competition)? On March 24, 2003, the
Army publically announced that Halliburton’s subsidiary Kellogg, Brown and Root
(KBR) had signed a contract with the Army Corp of Engineers to extinguish oil well
fires in Iraq as well as provide an assessment of the necessary repairs to the Iraqi oil19
infrastructure. This contract was a sole-source contract to repair and operate oil
wells in Iraq. According to the Army Corps of Engineers, KBR was selected for this
contract because KBR was judged to be the only contractor that could begin
implementing the contingency plan on such extremely short notice. DOD has
asserted that KBR had equipment and personnel in the region, and requiring
competition for the work would have delayed the response to the oil well fires in

15 CRS verified this information in a telephone conversation with Mr. Don Trautner, DOD’s
LOGCAP Program Manager.
16 Indefinite delivery/indefinite quantity contracts, also known as IDIQ contracts, supply an
indefinite quantity of supplies, goods, or materials, for an indefinite period of time. See
FAR, Part 16, Types of Contracts.
17 Jaffe, Greg and King, Neil, Jr. U.S. General Criticizes Halliburton. Wall Street Journal,
March 15, 2004.
18 See Center for Public Integrity’s website at [] under
the section for Kellogg, Brown & Root (Halliburton), last updated on March 31, 2004.
19 York, Byron. “All Smoke, No Fire: The Administration’s Critics Are Wrong About
Halliburton and Iraq.” National Review, Vol. LV, No. 13, July 14, 2003, p. 32.

Iraq.20 This contract was expected to be used for an interim period, until the Army
Corps of Engineers had an opportunity to award additional contracts to provide a
broader range of services to execute more of the contingency plan. It appears that
DOD justified the awarding of this contract based on an “unusual and compelling
urgency” (see DFARS 206.302-2).
As a Result of Questions Raised over the Awarding of the
Halliburton Sole-Source Contract, What Action Did the Army Corps of
Engineers (Corps) Take? The Army Corps of Engineers made the decision to
conduct a competition to award two new contracts to replace the sole-source
Halliburton contract. The Corps conducted a competition for two new costs-plus-
award fee, indefinite delivery/indefinite quantity contracts for a full range of services
to assist the continued recovery operations in Iraq. The Request for Proposal (RFP)
was issued on July 9, 2003, and closed on August 14, 2003. The Corps held a
conference with all interested parties on July 14, 2003. The solicitation (Solicitation
DACA63-03-R-0021, for the Repair and Continuity Operations of Iraq Oil
Infrastructure) called for a total of two (2) contracts to be awarded, and that work
under each of these two contracts could range from a minimum amount of $500,000
to not more than $500,000,000, during the life of the contracts. On Friday, January
16, 2004, the Corps awarded Halliburton subsidiary KBR the first of the two
contracts, a competitive bid to rebuild the oil industry in Southern Iraq. Soon after,
USAID announced that Bechtel had been awarded the second of the two contracts,
a contract to repair bridges and roads, electrical power generators and grids, water
and sewage systems, and airport facilities; the contract also calls for Bechtel to
rebuild up to100 hospitals and 6,000 schools and may be worth up to $1.8 billion
dollars over two years. The contract award information can be accessed from the21
Federal Business Opportunities website at [].
What Has Replaced the Oil-for-Food Program (OFFP) Structure?
Who Is Providing Oversight Authority? Security Council Resolution 1483,
adopted on May 22, 2003, extended the OFFP for six months beyond its original
expiration date of June 3, 2003, during which time the program was phased out. For
information about the OFFP operations under the United Nations (U.N.), see
[] and CRS Report RL30472, Iraq:
Oil-For-Food Program, Sanctions, and Illicit Trade, by Kenneth Katzman. The
resolution ended sanctions against Iraq and permitted the CPA to use oil reserves for
more long-term reconstruction purposes. It also shifted responsibility for oil profits
from the U.N. to the United States by establishing the Development Fund for Iraq,
which is held by the Central Bank of Iraq.22

20 Becker, Elizabeth. “Contract to Fight Oil-Well Fires Disputed; U.S. Vice-President
Repeatedly Questioned About His Ties to Firm Where He Once Worked.” Hamilton
Spectator, Apr. 14, 2003, p. D09; David Pace. “Halliburton’s Contracts in Iraq, Afghanistan
at $600 Million and Growing.” The Associated Press State & Local Wire, Business News,
Washington Dateline (Online), May 30, 2003.
21 Harris, Shane. U.S. Awards Second Iraq Reconstruction Contract. Government
Executive. Jan. 6, 2004, 2 p.
22 For a more detailed background discussion, see CRS Report RL31339, Iraq: U.S. Regime

The OFFP was phased out on November 21, 2003 when the U.N. officially
transferred operational responsibilities to the CPA. For information about the transfer
and related links, see []. Of the
overall $46 billion allocated to the OFFP during the life of the program, $39 billion
was in humanitarian assistance. The $8.2 billion of remaining assets and funds in the
pipeline when the OFFP terminated were to be transferred to the Development Fund
for Iraq. The CPA took over responsibility for the management of the multi-billion
dollars’ worth of supplies and equipment already designated for Iraq through the
OFFP delivery system and for the authentication and payment of suppliers. As of
March 31, $7.6 billion of these assets and funds had been transferred.
The CPA established a coordination center in Baghdad that took over issues
previously handled by the OFFP. The website [
for_food] offers a section on frequently asked questions that is useful for contact
information and details on contract funding, amendments, and prioritization.
Terminating the OFFP also put a limit on contract applications for the export of
goods to Iraq. With consideration of Iraqi views and needs, a priority system was
developed. Categories of eligible and ineligible contracts are provided on the CPA
website with details about specific suppliers listed in tables arranged by country.
Press reports in February and March 2004, apparently based on material released
by the Iraqi Governing Council and in other news briefs attributed to documents
found in Iraq by the CPA, refer to allegations of abuse of the OFFP by the Hussein
government (and when the OFFP was under U.N. authority) including a list of
individuals, companies, and organizations that may have received kickbacks.23 Since
nearly the beginning of the OFFP there have been allegations of program abuses, and
audits have been conducted at different points over the life of the program.
Apparently, U.S. officials were particularly concerned about whether Iraq was using
the additional revenue to buy prohibited military and WMD technology.24
In March 2004, Secretary-General Koffi Annan suggested to the Security
Council that an independent investigation into the allegations of corruption and fraud
within the OFFP be undertaken.25 This action was later endorsed by the Security
Council. On April 21, Mr. Annan announced that the members of an independent

22 (...continued)
Change Efforts and Post-Saddam Governance, by Kenneth Katzman; CRS Report RL31833,
Iraq: Recent Developments in Reconstruction Assistance, by Curt Tarnoff.
23 See for example, “Hussein’s Regime Skimmed Billions From Aid Program,” New York
Times, February 29, 2004; “U.N.’s Statement on Iraq Oil-for-Food Funds, Letter to the
Editor,” Wall Street Journal, Feb. 18, 2004; “The Cash-for-Saddam Program,” Wall Street
Journal, Mar. 8, 2004.
24 For more detail on the alleged program abuses see CRS Report RL30472, Iraq: Oil-For-
Food Program, Sanctions, and Illicit Trade, by Kenneth Katzman. See also, US GAO
Report United Nations Observations on the Oil for Food Program, Statement of Joseph A.
Christoff, Director, International Affairs and Trade, Testimony Before the Committee on
Foreign Relations, U.S. Senate, April 7, 2004.
25 “Annan Sends Letter to Security Council on Oil-for-Food Programme,” U.N. News
Service, Mar. 19, 2004.

panel, to be chaired by Paul Volcker, is expected to conduct a comprehensive
investigation.26 The Iraqis may be organizing an investigation of the allegations as
The latest potential scandal refers to dealings that may have happened during
President Saddam Hussein’s rule and is separate from the current contract
management under the CPA. It appears that the number of Iraqis (roughly 60%)
dependent on food assistance provided by the public distribution system has not
changed since the termination of the OFFP. It is expected that the new Iraqi interim
government will take responsibility for continuing the process of closing out the
program and for managing food distribution, but specific details are not yet
avai l abl e. 27
What Can Explain the Cost Differential in Halliburton/KBR Oil Fuel
Purchases from Kuwait and Turkey? Halliburton/KBR, on behalf of the CPA,
has purchased oil fuels for consumption by the Iraqi population. Gasoline has been
purchased from Kuwait and Turkey, and delivered into Iraq by truck. While roughly
75% of the gasoline has come from Turkey, both the commodity cost of the fuel and
the cost of transport from Kuwait are each more than twice as high as the
corresponding charges associated with Turkish supplies. What can explain the cost
differential in each element of this transaction? In most cases, fuels for Iraq were
purchased in two geographically separate markets. Supplies came from both Turkish
suppliers and international spot markets in the Mediterranean oil trading area.
Offshore purchases were imported into the Mediterranean ports of Iskenderum and
Mersin, and shipped overland by Turkish truckers to Iraq. In other cases, fuels were
purchased from a Kuwaiti supplier not directly in the oil business, who also made
transport arrangements.
Between May and October 2003, Halliburton imported about 179 million
gallons from Turkey and 61 million gallons from Kuwait. Turkish supplies averaged
$1.24 per gallon delivered; those from Kuwait averaged $2.64, including $1.21 for
the fuel and the remainder transport and KBR fees.28 This is the most recent price
data available, despite purchases continuing through the end of March 2004.
Information on the quantities of gasoline obtained for Iraq were provided to the
House Government Reform Committee by the Corps of Engineers for the whole

26 “Allegations on Oil-for-Food will be Probed ‘Very Seriously,’ Annan Says,” U.N. News
Service, Apr. 13, 2004. For details on the scope of the panel’s authority see “Secretary-
General Names Independent Panel to Probe ‘Oil-for-Food’ Allegations,” U.N. Secretary-
General, Apr. 21, 2004; and “Independent Inquiry will Yield Facts on Iraq Oil-for-Food
Programme — Annan,” U.N. News Service, Apr. 22, 2004. For further response to the
allegations, see “Annan says Some Oil-for-Food Charges ‘outrageous’, Probe will Clarify
Issues,” U.N. News Service, Apr. 28, 2004; and “Probe Iraq Oil-for-Food Programme but
Don’t Forget Its Successes - U.N. Official,” U.N. News Service, May 3, 2004.
27 “Text of Draft U.N. Resolution Submitted by the United States to the Security Council,”
Paragraph 16, The Associated Press, May 24, 2004.
28 Van Natta Jr., Dan. “High Payments To Halliburton For Fuel In Iraq.” The New York
Times, Dec. 10, 2003, Section A, p.1.

period of Halliburton fuel procurement management. The cheaper Turkish purchases
— which comprised about 75% of a total of 464 billion gallons acquired29 — may
well have comprised all the available supply in that trading area; hence, perhaps the
need for the higher priced supplies from nearby Kuwait.
However, certain factors might have contributed to higher Kuwaiti prices:
!Dealing with Dangerous Transportation. Over 60 vehicles have
been destroyed or damaged, at least 3 people killed, and several
more injured.
!Using Short-term Supply Contracts. The 30-day supply contract
specified in the supply arrangement with Kuwait may have been too
short to line-up additional trucks, which are apparently in short
!The Nature of the Existing Kuwaiti Supply Contract. According to
Platts Oilgram News, the Kuwait Petroleum Corp. refused to grant
KBR permission to deal with any other supplier than the Altanmia
Commercial Marketing Company to procure and deliver petroleum
products from Kuwait to Iraq. Altanmia’s main shareholder is
Najeeb al-Humaizi, part of a prominent Kuwait family closely linked
to the Kuwaiti government. Altanmia refuses to provide cost
information, contending it is prohibited from doing so by Kuwaiti
Reacting to the fuel price controversy, the Pentagon decided, on December 30,
2003, to give the Iraqi fuel procurement job to the Defense Energy Support Center
(DESC). DESC solicited bids for 6.6 million barrels of fuel on January 21, 2004; a
contract is expected to be in place by April 1, 2004. KBR is also eligible to bid on
new contracts.
Meanwhile, KBR supplied fuel while being under investigation for wrongdoing
under the supply contract. The investigation continues, although no new
developments have been announced. The Pentagon Inspector General made a
preliminary finding that KBR had overcharged $61 million. On January 23, 2004, the
Wall Street Journal reported that two Halliburton employees had admitted taking $6
million in kickbacks.30 The company confirmed this. The Wall Street Journal went
on to note specifically, that the kickbacks did not involve the gasoline purchases
under scrutiny, although the employees involved worked in the same office in Kuwait
that handled the gasoline contract. The Defense Contract Audit Agency (DCAA) has
requested that the Inspector General findings be forwarded to Pentagon criminal

29 From an e-mail communication with the U.S. Army Corps of Engineers, April 13, 2004.
30 King, Jr. Neil. “Halliburton Tells the Pentagon Workers Took Iraq-Deal Kickbacks.”
Wall Street Journal, Jan. 23, 2004, p. A1.

Have Halliburton/KBR Fuel Purchases Had an Undue Impact on the
Spot Market Price of Gasoline in the Persian Gulf Area? Between October
and December 2003, the spot market price of gasoline in the Persian Gulf area, as
quoted in Platts Oilgram Price Report, increased from 71 cents per gallon to over31
$1.00 per gallon. Has this thinly traded spot market been unduly affected by
Halliburton/KBR fuel purchases? Spot market gasoline prices in the Persian Gulf
trading area have risen from about $30 per barrel at the beginning of October, 2003
to about $44 per barrel in mid-January 2004. That $14 increase — the equivalent of
33 cents per gallon — represents a substantial hike, well exceeding that which might
be attributable to crude oil increases.
Higher gasoline prices beyond increases in crude oil costs were likely caused by
increased demand in the limited regional market where fuel is purchased for Iraq.
After several months of unusual demand pressure from continuous short-term
purchases, markets have responded in a way suggesting that local conditions could
not support the Iraqi demand without escalating the cost of the Kuwait-Iraq
procurement. As DESC prepares to take over this program, one clear consideration
is to source future petroleum product purchases in more robust markets better able
to accommodate the greater demand without such price increase.
In a December 30, 2003, press release, DESC announced it would support the
Task Force-Restore Iraqi Oil (TF-RIO) through the Defense Logistics Agency.
Requests for Proposals (RFPs) were initiated, and supply contracts were signed. On
April 1, 2004, the DESC assumed sole responsibility for civilian fuel supplied to Iraq
and procured from both Turkey and Kuwait. Halliburton/KBR loaded its last truck
shipment in Kuwait on March 31, 2004, ending its involvement in fuel supply32.
Procuring New Contracts
Which Product Areas and Sectors Are the Focus of Future U.S.
Contracts? The Coalition Provisional Authority’s Program Management Office
has announced that, based on the awarding of over $5 billion during March 2004
alone, the United States has used up to approximately $8 billion of its 2004
supplemental appropriation for Iraqi reconstruction activities. Separate solicitations
from the Pentagon Renovation Program for program management support are also
anticipated. Table 2 and Table 3 provide information on CPA’s awarded
reconstruction contracts. The information from both tables was extracted from the
April 2, 2004, press release issued by CPA-PMO and can be viewed at
[ h ttp://] .

31 Landry, Cathy. “KBR Welcomes US Role in Iraq Fuel Supply.” Platts Oilgram News,
Jan. 7, 2004, p. 1.
32 From an E-mail communication with the Office of Legislative Affairs, Defense Logistics
Agency, April 15, 2004.

Table 2. FY2004 Contracts Awarded for Iraq Infrastructure
Reconstruction, by Sector
SectorContract ValueDate AwardedContractor
Public Works andup to $600 millionMarch 11, 2004Washington
Water ProjectsInternational/Black
& Veatch Joint
Venture, Idaho
Public Works andNorth (up to $600March 23, 2004Fluor AMEC, LLC,
Water North,million) and SouthSC;Fluor, SC/Ca;
Public Works and(up to $500 million)AMEC, United
Water SouthKingdom
Public Buildings,up to $500 millionMarch 25, 2004Parsons Delaware
Education, andInc., Pasadena, CA
Buildings,$10,754,664March 10, 2004Louis Berger
Education &Group, Inc., Wash.,
Health SectorDC; URS Group
ProgramInc., CA
Public Works &$28,494,672March 10, 2004CH2M Hill, CO;
Water SectorParsons Water
ProgramInfrastructure Inc.,
Electrical Powerup to $500 millionMarch 11, 2004Fluor AMEC,
GenerationLLC,SC; Fluor,
AMEC, United
Electrical Powerup to $600 millionMarch 23, 2004Washington
Distribution &International Inc.,
Electrical Powerup to $500 millionMarch 23, 2004Perini Corp., MA
Distribution &
Electrical Power$98,682,431February 6,Fluor
Generation2004Intercontinental, NC
Electrical Power$33,078,193February 6,Washington
Generation 2004 International/Black
& Veatch

SectorContract ValueDate AwardedContractor
Electrical Power$12,705,000February 6,CH2MHill/Dragado
Generation 2004 s/Soluzi ona,
Englewood, CO
Electrical Power$56,281,864February 6,Fluor
T r ansmission 2003 Intercontinental
Electrical Power$51,409,080February 27,Kellogg, Brown &
Transmission2004Root, VA
Electrical Services$43,361,340March 10, 2004Iraq Power Alliance
Sector ProgramJoint Venture
ManagementParsons Energy and
Checmicals Group,
PA; Parsons-
Brickerhoff, Ltd.,
United Kingdom
Transportationup to $325 millionMarch 23, 2004Contrack/AICI/OCI/
Archirodon Joint
Venture, Arlington,
VA; Contrack,
Wash., DC; OCI,
Egypt; Archirodon
Joint Venture,
Panama, United
Arab Emirates
Transportation &$8,458,350March 10, 2004Louis Berger
CommunicationsGroup, Inc., Wash.,
Sector ProgramDC; URS Group
ManagementInc., CA
Communicationsup to $75 millionMarch 23, 2004Lucent
Technologies World
Services Inc., New
Security, Justice,up to $900 millionMarch 26, 2004Laguna
and Safety Construction
Company Inc.,
Laguna, New
Security& Justice$8,458,350March 10, 2004Louis Berger Group
Sector ProgramInc., Wash., DC;
ManagementURS Group, Inc.,

Table 3. Other FY2004 Contracts Awarded for Iraq
Infrastructure Reconstruction
ContractContract ValueDate AwardedContractor
Iraq Infrastructureup to $1.8 billionJanuary 6, 2004Bechtel National
IIInc., CA
Oil Infrastructureup to $412 millionJanuary 19, 2004Parsons Texas,
NorthUSA, Worley
Group, Australia
Oil Infrastructureup to $412 millionJanuary 19, 2004Kellogg, Brown &
SouthRoot, VA
Oil Sector Program$8,416,985March 10, 2004Foster Wheeler,
ManagementCo., United
Renovation of An$65,449,155January 22, 2004Earth Tech Inc.,
Military Base
Renovation of Taji$31,136,252January 22, 2004Parsons
Military Base &Infrastructure &
Recruiting StationsTechnology Group
Inc., CA
Renovation of Al$75,749,910January 22, 2004Shaw
Kasik MilitaryEnvironmental
BaseInc., LA
Renovation of$16,279,724January 22, 2004Weston Solutions
Umm Qasr NavalInc., PA
Program$21,610,501March 10, 2004AECOM,
Manage me nt California
Ministry of$19,536,683March 26, 2004Laguna
Defense BuildingConstruction
Company, Inc.
Laguna, NM
Work on Iraqi$70,000,000March 31, 2004NANA Pacific,
Source: Extracted from data provided under the “News and Business section on the Iraq Program
Office website, at [].

How Can U.S. Businesses Get Federal Government Contracts for
Work in Iraq? Businesses and producers may bid for contracts to supply specific
goods or services to the federal government. The General Services Administration
(GSA) defines a “contract” as a mutually binding legal relationship with the seller
furnishing the supplies or services and the buyer paying for them. A longer definition
of a contract is found in the Federal Acquisition Regulation (FAR 2.101), with the
full text of the regulations available at [].
A federal contract may be so large that a small business would have difficulty
in providing the products or services required to meet the terms of the contract. In
some cases, a prime contractor (the company that received the contract) may need to
use subcontractors (other companies) to fulfill the contractual obligations of the
required products or services of the original contract with the government. The
primary contractor may hire subcontractors and pay these companies for their
products or services in fulfillment of the contract. Iraq reconstruction prime
contractors are responsible for choosing their own subcontractors. Companies are
encouraged to access the contractors’ websites for information on needs and bid
requirements for subcontracting opportunities.
The Federal Business Opportunities (FedBizOpps) website is the single
government location for posting federal procurement opportunities over $25,000, at
[]. Commercial vendors can search, monitor, and retrieve
information on solicitations posted by the entire federal contracting community.
Searches for contract information can be done under the button for “Find Business
Opportunities.” For example, a keyword search could be done for “Iraq.” The
searcher can select information on a contract award or a synopsis (a summary of a
solicitation). A more precise search for contract information could be done by
searching for a particular agency name, or for a product or service.
Aside from business opportunities with the federal government, there are other
kinds of business opportunities concerning Iraq, including the following: (1) CPA
and Iraqi Ministry solicitations; (2) working directly with Iraqi state-owned
enterprises; (3) international institutions, such as the World Bank, the United
Nations, and nongovernmental organizations; and (4) private enterprise.
For an overview of the contracts concerning Iraq, the Iraq Reconstruction Task
Force website provides a listing of contract awards at the website,
[]. The tables list “Awarded
Contracts and Grants,” for Fiscal Years 2003 and 2004, with the names of the prime
contractors and known subcontractors. A brief summary describes the scope of the
contract and the country of the prime contractor that received the contract award.
Are There Additional Resources for Business Opportunities in
Iraq? The Iraq Investment and Reconstruction Task Force website also provides the
following resources:
!“Business Guide for Iraq.” This frequently-updated document
discusses the following areas: (1) commercial environment in Iraq;
(2) existing laws and regulations; (3) international trade issues; and
(4) key industry sectors, including issues affecting agriculture, oil,

transportation, telecommunications, health, and energy sectors.
Information relating to these topics may be found at
[ h t t p ://www.ex s i n e s s g u i d e _ c u r r e n t . h
!“Doing Business in Iraq FAQs.” This document answers questions
regarding the following areas: (1) travel and security concerns; (2)
health issues; (3) international trade and investment issues; (4) job
opportunities; and (5) business counseling by federal agencies.
Information relating to these topics may be found at
[ http://ex] .
!“IraqAlert.” A company can register to get email alerts on
commercial developments and potential opportunities in Iraq,
according to industry sectors or activities of interest. Information
relating to these topics may be found at [http://ita-] .
For information on more business opportunities, the Iraq Investment and
Reconstruction Task Force website has links to other Iraq resources, including the
CPA-PMO, at []. This site encourages vendors to
register to receive more information, by email, on requests for proposals for Iraq
reconstruction projects.
The Iraq Reconstruction Task Force at the Department of Commerce can be
contacted by telephone at the Iraq Business Outreach Hotline, Tel: 1-866-352-4727,
Fax: 1-202-482-0980, or email at, or at the website,
[ h ttp://www.ex] .
For additional resources on exporting to Iraq, the website of the Export-Import
Bank of the United States (Ex-Im Bank) provides links to sources of information on
federal agencies, Iraqi organizations, and international organizations involved in Iraqi
activities, at []. At this site, it is possible to register to
receive future notifications of export opportunities to Iraq.
Congressional Oversight
What Are the Potential Congressional Oversight Actions to Address
the Iraqi Contracting Situation? Both S. 2400, the proposed Department of
Defense FY2005 Authorization Bill for Military Construction and the Department
of Energy, and S. 2401, the proposed Department of Defense FY2005 Authorization
Bill, would require the Secretary of Defense to (1) submit to Congress a report
detailing a management and oversight plan covering contractor personnel who are
managed by federal government personnel; and (2) submit to the House and Senate
defense committees a report that outlines the rationale for and nature of the security,
intelligence, law enforcement, and criminal justice activities performed by
contractors in Iraq.

P.L. 108-136 (H.R. 1588, the FY2004 National Defense Authorization Act)
requires DOD to fully comply with the Competition in Contracting Act33 and other
applicable procurement laws and regulations for any contract awarded for
reconstruction activities in Iraq, and to conduct full and open competitions for such
contracts (Section 805), and to require public disclosure of any contracts for the
repair, maintenance, or construction of Iraq infrastructure that are awarded non-
competitively or without full and open competition (Section 1442). The House and
Senate Armed Services Committees, the Senate Foreign Relations Committee, the
House International Relations Committee, the House Government Reform
Committee, and the Senate Government Affairs Committee may play an oversight
role on Iraqi issues, including contracting concerns.
On January 20, 2004, Representative James Leach introduced H.Res. 494. This
resolution is a proposal to create a select committee to investigate the awarding and
carrying out of contracts to conduct activities in Afghanistan and Iraq and to fight the
war on terrorism. The measure was referred to the House Rules Committee.
P.L. 108-106 (H.R. 3289, the FY2004 Emergency Supplemental Appropriations
for Defense and for the reconstruction of Iraq and Afghanistan) created the position
of Inspector General, Coalition Provisional Authority (CPA-IG). Stuart W. Bowen,
Jr. was appointed as CPA-IG on January 20, 2004, and reports directly to the CPA
Administrator. Under P.L. 108-106 and the Inspector General Act of 1978 (P.L. 95-
452), the CPA-IG has statutory duties to promote economy, efficiency, and
effectiveness in managing CPA/Iraq reconstruction activities.
In addition, Section 2001 of P.L. 108-106 requires the CPA-IG to submit to
Congress quarterly reports on the activities of the Inspector General and the CPA.
The first report was submitted during March 2004. In this report, which covers the
first 70 days of his appointment, the CPA-IG has requested that future quarterly
reporting dates be changed to July 30, October 30, and January 30. The report can
be viewed at the CPA-IG’s website, located at [].
Another bill that, if enacted, could potentially affect contracts for Iraqi
reconstruction activities was introduced in the House on October 8, 2003. H.R.
3275, the Clean Contracting in Iraq Act, would prohibit the awarding of sole-source
contracts unless the Director of the Office of Management and Budget (OMB)
approved a waiver under existing law; other provisions would required that larger
contracts would be awarded to a minimum of two different contractors, to promote
and ensure competition, and that each contracting agency could be required to
develop a plan to minimize costs, including the use of Iraqi contractors if lower in
costs. The measure, which has 25 co-sponsors, was referred to the House
Government Reform Committee.

33 10 U.S.C. 137.

For Additional Reading
CRS Report RL32017. Circular A-76 Revision 2003: Selected Issues.
CRS Report RS21489. OMB Circular A-76: Explanation and Discussion of the
Recently Revised Federal Outsourcing Policy.
CRS Report RL32079. Federal Contracting of Commercial Activities: Competitive
Sourcing Targets.
CRS Report RL31024. The Federal Activities Inventory Reform Act and Circular