Agency officials could not provide the contract  files for a limited number of small-dollar contracts awarded during the  early stages of the reconstruction effort. These 25 contract actions  represented about 97 percent of the total dollars obligated for  reconstruction through September 30, 2003. Overall, the 25 contracts or task orders consisted of the  following:  the largest contract awarded and the 4 largest task orders, by dollar  value, issued to support CPA operations;    9 contracts awarded and 1 task order issued by USAID, as well as           1 task order issued under an Air Force contract to provide logistical  support for USAID-managed efforts;    2 contracts awarded and 4 task orders issued by the Army Corps of  Engineers and the Army Field Support Command to help restore Iraq’s  oil or electrical infrastructure;    1 contract awarded and 1 task order issued by the Army to train or  equip the New Iraqi Army; and    1 contract awarded by the Department of State to support Iraqi law  enforcement efforts. As of September 30, 2003, the agencies had obligated nearly $3.7 billion on  100 contracts or task orders for reconstruction efforts (see table 2). These  obligations came from various funding sources, including U.S.  appropriated funds and Iraqi assets. In November 2003, Congress appropriated an additional $18.4 billion for  rebuilding activities. Before awarding a task order under an existing contract, however, the  agency must determine that the work to be added is within the scope of  that contract (i.e., that the work fits within the statement of work,  performance period, and maximum value of the existing contract). New Contract Awards Generally Complied with Competition Requirements, but Task Orders Were Less Compliant

Agencies generally complied with applicable laws and regulations  governing competition when using sole-source or limited competition  approaches to award the initial reconstruction contracts we reviewed. We  found several instances, however, in which agencies had issued task  orders for work that was outside the scope of existing contracts. Agencies Properly Justified Use of Other Than Full and Open Competition in Awarding New Contracts

The agencies responsible for rebuilding Iraq generally complied with  applicable requirements governing competition when awarding new  contracts. While CICA requires that federal contracts be awarded on the  basis of full and open competition, the law and implementing regulations  recognize that there may be circumstances under which full and open  competition would be impracticable, such as when contracts need to be  awarded quickly to respond to unforeseen and urgent needs or when there  is only one source for the required product or service. In  the remaining case, the Department of State justified and approved the use  of limited competition under a unique authority that, in our opinion, may  not be a recognized exception to the competition requirements. State could have justified and approved its limited competition  under recognized exceptions to the competition requirements. Agencies Did Not Always Satisfy Competition Requirements When Issuing Task Orders under Existing Contracts

We found a lesser degree of compliance when agencies issued task orders  under existing contracts. In each of these cases, the out-of-scope  work should have been awarded using competitive procedures or  supported with a Justification and Approval for other than full and open  competition in accordance with legal requirements. Consequently, the orders are  outside the scope of the underlying contracts. Until agreement is reached, contract  incentives to control costs are likely to be less effective. Staffing  constraints and security concerns posed further challenges. Reaching Agreement on Key Contract Terms and Conditions

To meet urgent operational needs, as is the case in Iraq’s reconstruction,  agencies are permitted to authorize contractors to begin work before  contracts or task orders have been definitized—that is, before key terms  and conditions, including price, have been defined and agreed upon. Given the high cost involved,  particularly for the Iraq oil mission (over $2.5 billion), any reduction in  cost control incentives potentially involves a significant contract cost risk.
Why GAO Did This Study

Congress has appropriated more than $20 billion since April 2003 to support rebuilding efforts in Iraq. This complex undertaking, which is occurring in an unstable security environment and under significant time constraints, is being carried out largely through contracts with private-sector companies. As of September 2003, agencies had obligated nearly $3.7 billion on 100 contracts or task orders under existing contracts. Given widespread congressional interest in ensuring that reconstruction contracts are awarded properly and administered effectively, GAO reviewed 25 contract actions that represented about 97 percent of the obligated funds. GAO determined whether agencies had complied with competition requirements in awarding new contracts and issuing task orders and evaluated agencies' initial efforts in carrying out contract administration tasks.

What GAO Found

Agencies used sole-source or limited competition approaches to issue new reconstruction contracts, and when doing so, generally complied with applicable laws and regulations. Agencies did not, however, always comply with requirements when issuing task orders under existing contracts. For new contracts, the law generally requires the use of full and open competition, where all responsible prospective contractors are allowed to compete, but permits sole-source or limited competition awards in specified circumstances, such as when only one source is available or to meet urgent requirements. All of the 14 new contracts GAO examined were awarded without full and open competition, but each involved circumstances that the law recognizes as permitting such awards. For example, the Army Corps of Engineers properly awarded a sole-source contract for rebuilding Iraq's oil infrastructure to the only contractor that was determined to be in a position to provide the services within the required time frame. The Corps documented the rationale in a written justification, which was approved by the appropriate official. The U.S. Agency for International Development properly awarded seven contracts using limited competition. The Department of State, however, justified the use of limited competition by citing an authority that may not be a recognized exception to competition requirements, although a recognized exception could have been used. There was a lesser degree of compliance when agencies issued 11 task orders under existing contracts. Task orders are deemed by law to satisfy competition requirements if they are within the scope, period of performance, and maximum value of a properly awarded underlying contract. GAO found several instances where contracting officers issued task orders for work that was not within the scope of the underlying contracts. For example, to obtain media development services and various subject matter experts, the Defense Contracting Command-Washington placed two orders using a management improvement contract awarded under the General Services Administration's schedule program. But neither of the two orders involved management improvement activities. Work under these and other orders should have been awarded using competitive procedures or, due to the exigent circumstances, supported by a justification for other than full and open competition. The agencies encountered various contract administration challenges during the early stages of the reconstruction effort, stemming in part from inadequate staffing, lack of clearly defined roles and responsibilities, changing requirements, and security constraints. While some of these issues have been addressed, staffing and security remain major concerns. Additionally, the Army and its contractors have yet to agree on key terms and conditions, including the projected cost, on nearly $1.8 billion worth of reconstruction work that either has been completed or is well under way. Until contract terms are defined, cost risks for the government remain and contract cost control incentives are likely to be less effective.