A Pattern of Contract Oversight Problems at the State Department?

A new Inspector General (IG) audit has recommended that the Department of State (DoS) seek a $132 million rebate from a contractor for a host of construction deficiencies at the American embassy in Baghdad. The contractor, First Kuwaiti Trading and Contracting, received $470 million in no-bid contracts for construction of the embassy (referred to in the report as NEC Baghdad).  Specific flaws that figure into the $132 million sum include:

• "$4.6 million to repair safe areas, which are vital to protecting staff in emergency situations but which were not constructed according to con­tract specifications;"

• "$14 million to install seismic bracing, which is required for safeguard­ing fire protection lines and other critical mechanical systems that First Kuwaiti had not completed;"

• "$4.4 million to repair the NEC’s power distribution system because First Kuwaiti substituted a less reliable system, including using nonstandard wiring;"

• "$4.6 million to correct fire protection systems because the walls in the housing units were not compliant with code and fire protection water mains were improperly constructed;" and

• "$1.5 million to correct plumbing deficiencies at over 200 locations at the NEC."

This isn't the first time we've heard about First Kuwaiti's problems working on NEC Baghdad: back in July 2007, two whistleblowers accused the company of engaging in human trafficking, and in a letter to the State Department later that year, the House Committee on Oversight and Government Reform cataloged the numerous construction problems already manifesting themselves in the project, and even implicated a managing partner from the firm in an illegal kickback scheme. 

But the IG report does shed new light on a problem we've seen recently at another key American embassy: contract oversight deficiencies at the State Department.  In this case, DoS' Bureau of Overseas Buildings Operations created a special new group to administer the project: the Emergency Project Coordination Office (EPCO).  Unfortunately, as the IG reports, EPCO was rife with problems and was "managed by an individual who did not enforce contract provisions, most notably design and construction require­ments, which resulted in many of the construction deficiencies listed." Specifically, the IG found that: 

• "...the EPCO organizational structure was created with techni­cal and contract administration positions that were 'staffed by inexperienced and untrained people;'"

• "EPCO approved contractor invoices without adequate documentation, as required by the [Federal Acquisition Regulation] FAR, and did not require First Kuwaiti to comply with reporting requirements of the Cargo Preference Act;"

• "EPCO approved $69.1 million in advance mobilization payments that were not authorized by the contracts but did not require First Kuwaiti to pay approximate­ly $3.3 million in interest charges for the use of those funds;" and
  

• "Even though First Kuwaiti did not meet the required contract comple­tion dates for three contracts, covering housing, infrastructure, and support facili­ties, EPCO did not require First Kuwaiti to pay $10.9 million in liquidated damages."

Ultimately, the IG concludes "EPCO did not ensure that the contractor met the terms and conditions of the contract as they related to general workmanship of the NEC Baghdad." 

In response to the report, DoS acknowledged that creating EPCO was a mistake, but sadly, wasn't sure if it was worth the time and effort

to attempt to recover the money.  Whether it decides to pursue the IG recommendations or not, hopefully the findings will jolt the Department into taking contract oversight issues seriously. 

You may view the report here.

-- Bryan Rahija