Summary: Of the $18.4 billion that Congress appropriated for Iraq relief and reconstruction in fiscal year 2004, the Department of Defense (DOD) received the largest share--$13.5 billion. As of September 30, 2006, DOD had obligated about $13.1 billion and disbursed about $9.7 billion--$5.6 billion for construction, $3.6 billion for nonconstruction (e.g., engineering, procurement, and the delivery of equipment), and about $480 million for related overhead costs. Among the many contracts DOD uses in Iraq, DOD has obligated about $3.7 billion for 12 large-scale, multiple-year design-build contracts for major construction projects. The design-build contracting approach makes one award for both the design and construction of a project, thus eliminating the need for a separate bidding process for the construction phase. To help Congress monitor the current progress and costs of DOD's reconstruction activities in Iraq, this report discusses (1) the status of the current construction work and targeted completion dates and (2) the support costs incurred by the design-build contractors in DOD's construction program.
While financial data show that DOD has obligated most (97 percent) of its $13.5 billion in fiscal year 2004 reconstruction funds, work-in-place data show that about 29 percent, or $2.3 billion, of DOD's construction program is incomplete, as of October 8, 2006. Continued congressional oversight of these activities will be needed since DOD estimates that this work will not be completed until mid- to late 2008. The incomplete work varies by sector, with 10 percent of planned construction remaining in the security and justice sector and 38 percent remaining in the communications and transportation sector. Activities in the public works and water sector; the buildings, education, and health sector; and the transportation and communications sector will not be completed until mid- to late 2008. Although the United States has generally not met its goals for reconstruction activities in Iraq, DOD projects that its remaining construction projects will enable Iraq to increase its production of oil, electricity, and clean water and treated sewerage. As GAO's past work has shown, the challenging security environment, persistent attacks on U.S.-funded infrastructure projects, and sustainment challenges could make it difficult for DOD to achieve this progress. DOD's design-build contractors will incur estimated support costs of about $1.2 billion or about 33 percent of projected completion costs of $3.7 billion. The support costs include estimated security costs of about $359.6 million. In response to higher-than-anticipated support costs, DOD officials have pursued alternative contracting strategies. For example, DOD officials have contracted directly with Iraqi firms in the electricity and transportation sectors rather than relying exclusively on U.S. design-build contractors to complete the work. U.S. officials state that the transition to direct contracting with local Iraqi and international contractors could lead to cost reductions. Due to the lack of available information on the costs of direct contracts, we were not able to establish the extent to which support costs could be avoided at the time of our review. The direct contracting approach also has the potential of increasing Iraqi ownership of reconstruction efforts and employing more local Iraqis.
