Marking Up The Reconstruction: Part 1
IraqSlogger Takes You Inside The Profits of War
By DAVID PHINNEY 03/23/2007 11:55 AM ET
One day, not so long ago, the US State Department handpicked Texas-based DynCorp for an $800-million contract to train over 100,000 Iraqi police officers, a top-priority project of the Bush administration’s effort to stabilize the war-torn country and strengthen the fragile civilian government there. But State Department wanted a contractor with strong ties in Iraq, so DynCorp obligingly teamed up in 2004 with a company known as Corporate Bank Financial Service, a Washington-based business better known as The Sandi Group.
It seemed to have the makings of a winning partnership. DynCorp had a track record for building police forces in Haiti, Bosnia and other trouble spots around the Globe for the State Department since the early 1990s, so it easily won the contract with little competition and supplied 700 or so trainers largely recruited from police departments in the United States and other coalition allies.
The Sandi Group, run by Rubar Sandi, an Iraqi who immigrated to the United States in the late 1970s, would perform the logistics, provide security, hire interpreters, and perform other services as required. The 54-year-old Sandi, a member of a wealthy Kurdish family, had the well-established political and social connections in Iraq. Those connections and his entrepreneurial know-how served Sandi very well, not only in Iraq, but at the State Department where he had been an influential advisor to the “Future of Iraq Project”, a pre-war planning effort,
After the toppling of Saddam Hussein’s regime in 2003, Sandi immediately opened shop in Iraq where he took control of major Baghdad hotels, a newspaper, and several banks. The one-time Kurdish resistance fighter also recruited an armed private security force with a payroll of 7,500, laid plans for establishing an Iraqi airline, and positioned himself for US-administered contracts in the reconstruction effort. Those contracts included dozens with DynCorp for construction projects, leases on posh hotels, security, logistics and other support services as needed.
“Could You Determine Any Value Added?”
All the while, The Sandi Group kept a low profile in Washington until its affiliate, Corporate Bank, was singled out in a February 7 Congressional hearing for its controversial handling of a multimillion-dollar DynCorp contract to build an Iraqi police training camp in Baghdad near parade grounds of Adnan Palace, a once luxurious domed castle used by Saddam Hussein’s family.
Two weeks after receiving the $55.1-million DynCorp contract in August 15, 2004, Sandi’s Corporate Bank hired an Italian company, Cogim SpA, for $47.1 million to do all the work in the contract, which included providing 1,048 living trailers and building an Olympic-sized swimming pool. On paper, the deal had the look of an effortless $8-million profit for Sandi at the US taxpayers expense — just for being the middleman and flipping the contract to Cogim.
A skeptical Rep. Stephen Lynch, D-Mass., laid out the arrangement before the crowded House congressional hearing teeming with scribbling reporters and TV cameras.
“The problem is the tiering of all these contracts. You have a general contractor, a subcontractor and a sub-subcontractor and a sub-sub-sub contractor,” Lynch noted to witness Stuart Bowen, the leading investigator of the US-funded reconstruction efforts in Iraq.
Chances are there could be plenty of sub-sub-sub-subs in the final mix, but Lynch was especially keen on Corporate Bank’s $8 million handling fee. His eyes widened with the puzzled look of a straight man setting up the punch line: “I just want to understand, is that right?”
Bowen didn’t crack a smile. Sitting with hands calmly folded on the witness desk during his testimony before the House Government Oversight and Reform Committee, the special inspector general for Iraq Reconstruction cascaded into what is now a familiar, but still opaque, explanation for deciphering the contracting chaos in Iraq. The mess squandered $10 billion in taxpayer money through sloppy bookkeeping, job delays, bloated expenses and work that was paid for, but never performed.
“Quality assurance,” Bowen said, “expects that the contractor execute a quality control program over his subcontractors and the lack of visibility by the operational overseer of the government doing the program results in the loss of visibility and cost control.”
(Translation: The government tossed cost control and job performance issues to DynCorp. The government didn’t have a clue to what was going on except for what it learned from DynCorp.)
Lynch reframed his question about the $8 million flip: “Could you determine any value added?”
“No we didn’t,” Bowen said, but stopped short of singling out a possible bad guy.
Someone using the screen name %u201CNancy Pelosi%u201D instantly uploaded the C-SPAN video of Bowen%u2019s testimony on to youtube.com, but Lynch may have had his curiosity more satisfied by catching a short cab ride to The Sandi Group’s elegant office just 1 ½ miles away on Connecticut Avenue in the fashionable DuPont Circle neighborhood of Washington, DC.
After passing a wall-sized collage of folded dollar bills portraying an American flag near the front door, Lynch may have found a digital trail littered with dozens of contracts and agreements of Sandi’s work for Dyncorp with apparently even larger paper profits.
‘Corporate Stuff’: Cash Margins and Profit
According to Adnan Palace agreements leaked out on the Internet more than a year ago, Sandi indeed planned to make $8 million on the Adnan Palace while giving the work to Cogim. That was the charge to DynCorp an — 11 percent for general administration costs, known as G&A, and 6 percent profit for an exact total of just over $8 million. The contracts between DynCorp and Corporate Bank and Corporate Bank and Cogim read almost exactly the same. An administrative assistant sitting at a computer could have easily employed a copy-and-paste approach and just replaced a few words with “Cogim.”
Tim Crawley, who left DynCorp as vice president of contracting last June to join The Sandi Group as executive vice president and general manager of The Sandi Group, defends the standard G&A and profit included in the contract as an industry standard. The G&A reimburses the back office administration; it keeps the office lights on, pays for health insurance, payroll systems, legal advice, business development, “thought processes” and operational “guidance.”
“There’s a lot of confusion about this,” he said. “It pays for the corporate stuff.”
Meanwhile, the profit is, well, profit. “Six percent is pretty low, especially in Iraq,” he said, before concluding his interview at The Sandi Group’s office. “There was a large cash outlay and it took 90 days from the first notice to proceed to the time of reimbursement.”