Small Businesses Need Not Apply

By Christopher Hayes, In These Times — March 15, 2004

So the Vice President’s former employer has been in the news a lot lately. Bilking the U.S. government for millions in Kuwaiti oil imports to Iraq, turning the other way as employees take bribes, overcharging the Army for food served in mess halls. It gets to feeling like the whole “reconstruction effort” is just some bloated, corrupt muddle of patronage and war profiteering.

But then comes February’s “Rebuilding Iraq: Small Business Subcontracting Opportunities,” convened near O’Hare Airport outside Chicago. Sponsored by the Small Business Administration (SBA) and featuring speakers from – you guessed it – Halliburton, among others, the daylong seminar was intended to show that profiting from the Bush administration’s foreign policy is anyone’s game.

“We are literally here at the direction of the president of the United States to make sure that each and every one of you has the opportunity to be involved in one of the truly major business undertakings of this century,” said Gen. Patrick Rea, regional administrator of the SBA. And it’s some undertaking. The total value of contracts, Rea assured, “could move to the figure of a half a trillion dollars.”

Reducing the Iraq war and subsequent occupation to a business opportunity is disconcerting enough, but far more bizarre was the subtle yet consistent message that Iraqi reconstruction constitutes a comprehensive domestic economic policy agenda. “We’re all looking for what are those 21st Century jobs,” Rea told the crowd. “You’re sitting in a room where they’re going to unfold by the thousands.”

Rea’s right – there’s an awfully large potential for profit. Both the conquest and occupation of Iraq have been the most heavily privatized military ventures in U.S. history. Thanks to an initiative implemented in the early ’90s by then-Secretary of Defense Dick Cheney, the U.S. military now contracts out almost every possible aspect of its work, from food preparation to janitorial services to camp design and construction.

Now this very same approach is being applied to reconstruction, as the government bids out contracts on everything from school construction to power plant design to water treatment. In the last round of contracts alone, $18.6 billion was awarded to about two dozen companies, the majority of which are American mega-firms – only companies from “coalition member” nations are allowed to bid.

But the Bush administration is committed to spreading around the wealth. It requires that all subcontractors partner with Iraqi firms for work on the ground. And the policy seems to be working. Newsday recently reported that firms associated with Iraqi exile Ahmed Chalabi, the administration's bag man in Baghdad, have raked in $400 million in contracts.

So while big-time entities like Halliburton may get the massive original contracts, they don't do most or even much of the work. “We don’t intend to swing the hammers ourselves,” Halliburton KBR Small Business Liaison’s Kimberla Fairley told the crowd. “We’re going to subcontract out all the work.”

This is where small businesses come in, at least in theory. Under the Coalition Provisional Authority’s (CPA) procurement guidelines, 10 percent of contract dollars must go to certified small business subcontractors. The CPA’s guidelines are modeled largely on the Federal Acquisition Regulation (FAR), an 1,800-page volume that details the statutes guiding federal government procurement: issuing requests for proposals, evaluating competitive bids and auditing performance. For anyone who hasn’t negotiated this terrain, the process can be daunting. And as Jeannie Houston, program manager for Bechtel’s Supplier Development and Diversity Program noted, competition is fierce.

During the first phase of reconstruction, she said, Bechtel put up a Web portal for businesses interested in subcontracting. The response crashed the servers. “We had 11,000 people in two months register online,” she said.

The ostensible purpose of the conference, then, was to give attendees the inside scoop on beating out the competition. But representatives from Bechtel, Halliburton, Parsons, et al. had precious little in the way of advice to offer, outside of suggesting that firms register on a centralized database, encouraging owners to be persistent and instructing that they partner with Iraqi firms if they seek to complete work on the ground.

It was beginning to look like the Iraqi reconstruction contracts were structured exactly like the Bush tax cuts: While the wealth redounds overwhelmingly to the very richest recipients, the administration argues they’re dealing everybody in.

With panelists offering the same warmed-over advice, it was hard, in fact, not to think the conference was just another cynical ruse by the Bush administration to obscure its ties to corporate friends even as it works directly on their behalf.

Now to be fair, the conference did accomplish two key goals: By delivering a group of 500 eager beavers to Halliburton and Bechtel, it made it easier for the prime contractors to fulfill the mandated small business quota, and by increasing the number of small businesses competing for the same pool of contracts it likely drove down the price of winning bids.

At some level, the crowd suspected they were being taken for a ride.
When Sam Artis, the small business liaison for Washington Group International, mentioned during the afternoon panel that Iraqi contracts are exempt from the Buy American Act – meaning businesses could buy products overseas and ship them directly into the Middle East – he was met with a hostile response. “Doesn't that sort of undermine U.S. manufacturing?” asked one woman. “I came into this thinking it was to help U.S. small businesses.”

“Well,” Artis stammered. “I think that they’ve carved it out fairly equitably among a number of different players.”

With Iraqi reconstruction representing one of the only signs of life in an otherwise dead economy, desperate small business owners, these walk-on players not already selected for Team Bush were frantic to be drafted.

After Bechtel’s presentation, Sal Hassanien, an Arab American small-business owner from Detroit, stormed to the mike as representative for a group of exile engineers who moved back to Baghdad to take part in reconstruction. “I’ve been trying to contact Bechtel. I’ve been trying to contact Parsons and it’s impossible,” he said. “[We] send e-mail, they never respond, call them by phone, they never respond.”

Outside the conference hall, Hassanien voiced frustration with the trivial amount of money trickling down to small firms. “You get a contract that is worth, I don’t know, let’s say $100,” he said. “You know by the time you give it to the Kuwaiti companies, it’s $50. By the time you get to the real guys, the Iraqis who are actually doing the work, they get about $10 out of that. Everything else, $90, is going to administration, subcontracting and subcontracting and so on. It’s really screwed.”

Referring to prime contractors like Halliburton that participated in the day, Hassanien laughed and continued, “The big boys, yes, have put up a dog and pony show.”

Christopher Hayes is a freelance writer based in Chicago.

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