Global Policy Forum

Sweetheart Deal for Iraq Contract

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By Seth Borenstein

Knight Ridder
March 27, 2004

A Virginia company that was awarded a $240 million government contract to develop "a competitive private sector" in Iraq helped write the specifications for the work that knocked its competitors out of the running, a federal investigation found. A draft memo by the inspector general at the U.S. Agency for International Development blasts the agency for giving a competitive advantage to BearingPoint, a consulting company that's in court defending itself against allegations of other contracting irregularities and disclosures that its officials inaccurately stated its profits in 2003.


BearingPoint, of McLean, Va., spent five months helping USAID write the job specifications and got permission to spend money to train employees to work in Iraq long before the contract went out for public bid. The firm's competitors had only a week to come up with their own bids for the complicated program after final revisions were made, the inspector general found. "BearingPoint's extensive involvement in the development of the Iraq economic reform program creates the appearance of unfair competitive advantage in the contract award process," Assistant Inspector General Bruce Crandlemire wrote in the report dated Monday.

It also creates a "significant appearance of conflict of interest," but seems to be legal, Crandlemire said. It's an example of the government ignoring contracting rules that are designed to get good deals and good services for taxpayers, said Pete Singer, an expert in government contracting at the Brookings Institute, a moderate research center. "We've basically abandoned the best of a free market and created the worst of a monopoly for ourselves," Singer said Friday.

Others agreed. "No company who gets to write a contract should get the contract," said Keith Ashdown, the vice president of the liberal fiscal watchdog group Taxpayers for Common Sense. "It's akin to bringing Babe Ruth to a Little League baseball game."

BearingPoint, formerly KPMG Consulting, and its employees have given more than $117,000 to the 2000 and 2004 Bush election campaigns, more than any other major Iraqi contractor, according to research by the Center for Responsive Politics, a watchdog group that tracks campaign contributions. The company disputes the inspector general's conclusions.

"BearingPoint was selected through a transparent and competitive bidding process to undertake the challenging economic governance project in Iraq," spokesman John Schneidwind wrote in an e-mail to Knight Ridder. He noted that the company did similar work for USAID in Afghanistan, in Montenegro and in Serbia's province of Kosovo.

A senior USAID official said Friday that the inspector general hadn't considered how the changing situation in Iraq was affecting contracting there. In addition, the final specifications for the contract bore little resemblance to those BearingPoint had written. "We tried to make it as fair as humanly possible," said the official, who spoke only on condition of anonymity. "I think we did a tremendous job as an agency."

At the start, USAID intended to give BearingPoint a no-bid contract because it had used the company for most of its economic-reform contracts in the past, according to the inspector general. From January through May 2003, USAID and BearingPoint officials worked on 16 versions of what the work and the budget would look like. Last April, USAID reversed itself and decided to put the contract up for public bidding.

The agency's attorneys decided the bidding process would have "substantial fairness," even with BearingPoint's earlier work, if competitors had four weeks to prepare their proposals, the inspector general wrote. But that's not what happened.

On May 28, USAID sent draft specifications to 10 potential contractors, then issued a final request for proposals June 6. The deadline was June 30. A week before the deadline, USAID added an amendment to its specifications that required much more work from potential bidders, the inspector general found. Only one other company, Booz Allen Hamilton, bid on the contract. "Allowing competitors one week to complete their proposals after receiving this amendment does not appear to be giving the contractors adequate time to respond," wrote Crandlemire, the assistant inspector general.

BearingPoint told the Securities and Exchange Commission on Aug. 14 that it had overstated its net income by $10.8 million for the first three quarters of its fiscal year 2003. Last March, an $80 million BearingPoint computer information-services contract in Florida was withdrawn after critics complained about the company's close ties to Gov. Jeb Bush, President Bush's brother. Another BearingPoint contract in Florida, worth $3 million, was challenged by competitors, who charged that the company helped write the state's bid specifications.


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