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SIGIR: Management Issues Dog Iraq Contracting
Water Projects "Generally Successful," but "Less Accomplished Than Expected"
07/15/2008 1:24 PM ET

The Pentagon's Special Inspector General for Iraq Reconstruction has released the latest in a series of audits of reconstruction contracting in Iraq after 2003. The most recent report focuses on water sector contracts held by FluorAMEC, LLC, covering four project task orders, in Nasiriya, Basra, Diwaniya, and Najaf-Kufa, respectively.

Here's an excerpt from the executive summary:

Work on this contract was deemed generally successful; however, less was accomplished under the contract than expected for two reasons. First, the funding planned for water-sector projects was reduced. Second, water-sector projects proved to be significantly more costly than initially estimated. More than $2 billion of the $4.2 billion originally allocated for the water sector projects was redirected to other sectors. Of four construction task orders issued, two were completed (Nassriya and Basrah), and two were terminated for the convenience of the government because of funding constraints (Diwaniya and Najaf). SIGIR identified these key facts and issues related to contract outcome and cost:

  • As of May 5, 2008, $318.51 million had been disbursed against the contract’s $500 million ceiling—97% of these expenditures was associated with the two completed task orders. Most of the funds were spent on the expanded Nassriya Project.
  • A number of factors negatively impacted work on the two completed construction task orders: funding constraints, increased costs, schedule slippages related to the unstable security environment, and changes in the planned scope of work.
  • Of the two completed task orders, the Nassriya water-treatment facility was the largest and most ambitious project. The project ultimately consolidating planned water treatment facilities at three towns into one larger capacity facility and also extended pipelines to the two other towns. SIGIR identified deficiencies in cost estimates as a significant factor in the U.S. government’s inability to predict the 51% cost increase for the Nassriya Project after definitization.
  • The Basrah Project included multiple tasks related to upgrading the wastewater collection and treatment system, but numerous design and scope changes were made over the first months of the project to reflect evolving priorities and budget constraints.
  • Task orders for water supply projects at Diwaniya and Najaf were terminated at the 60% design stage, about six months after the task orders were issued because of water sector funding constraints. As of May 2008, $6.89 million had been spent on these two projects. Funds expended on such terminated projects could be viewed as wasted if the designs are not used.

SIGIR’s review identified extensive efforts on the part of U.S. government organizations to carry out contract management tasks, including oversight, quality assurance, contract administration, and reporting. The U.S. government substantially relied on a contractor to provide assistance in managing and overseeing the projects. SIGIR noted the following management issues that adversely affected the projects:

  • Inappropriate payment of award fees: Paying $1.24 million in award fees on the terminated task orders—including $573,605 that was inappropriately paid for a period after termination, an action contrary to the award fee plan. On the completed task orders, the award fees were structured and administered to provide an incentive for improved contractor performance.
  • Insufficiently defined scope of work: The initial contract specified the broad mission to restore, rebuild, and develop water, wastewater, and solid waste projects, and the subsequent task orders did little to define the required work. The Nassriya Project task order required a preliminary technical study of alternatives, and the Basrah Project task order required an assessment and coordination study.
  • Inadequate preparation of detailed and independent estimates: For the Nassriya Project, the initial estimate and the definitized estimate were both considered unrealistic and the
  • required independent government estimate was not a good predictor of future costs. Realistic estimates are needed for effective management and oversight and to minimize the potential for fraud, waste, and abuse.
  • Not initiating timely action to close out task orders: Failing to close out task orders resulted in increased costs and administrative burdens. This is most evident with Task Orders 4 and 5; which were terminated in July 2005, but only recently submitted to a termination contracting officer for closeout.

Read the full 49-page document here: SIGIR_08_018.pdf

SIGIRs audit archive can be accessed here.

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