A plan by the Army Corps of Engineers to complete significant work under two new Iraqi oil services contracts even before they are awarded has raised industry eyebrows and caused at least one bidder to drop out of the competition. Bechtel Group Inc. announced Aug. 7 that it would pull out of the competition for the two indefinite-delivery, indefinite-quantity contracts worth up to $500 million each, one week before bids are due, claiming that most of the work in the plan will be completed before a replacement contractor could effectively get started.

(Photo by Tom Armistead for ENR)

The contracts will replace the bridge contract awarded to Kellogg Brown & Root (KBR), Houston, as sole source before the war with Iraq began. "The Army Corps of Engineers’ final work plan for Iraqi oil services work details their intent to accelerate the transition of responsibility to the Iraqi Oil Ministry, effectively minimizing the scope of any new contracts," says San Francisco-based Bechtel in a statement.

Corps officials take issue with the assumption that the work on the oil fields was accelerated under the new work plan. "We’re just trying to get the job done. Our mission is to restore production to prewar levels as quickly as possible," a spokesman says. From the beginning of the war in Iraq, the coalition’s reconstruction plans have relied heavily on revenue from oil exports for their funding.

The final work plan was submitted to prospective bidders by the Corps less than two weeks before the August 14 bid due date. Under the plan, $716 million of the work would be completed by Sept. 30, weeks before a contract is to be awarded. "Given this plan, Bechtel has decided to focus our efforts on future opportunities with the ministry," the statement says.

Another $250 million of work would be completed by Dec. 31, close to the date when the transition from KBR to another contractor would be complete.

KBR, which would complete the accelerated work, participated in a meeting held in early July to develop the plan (ENR 7/21 p. 13). Industry observers question whether that was a conflict of interest, giving KBR an inside track to both the accelerated work and the new contract. "They don’t just have an inside track, they’ve got the work," one source says.

KBR would not say whether it plans to bid on the contracts.

"This changes the dynamic," says Ron Oakley, president of Aliso Viejo, Calif.-based Fluor Corp.’s government services business. The company is assessing the situation and will decide whether to submit its bid. "We’re analyzing what it truly is, taking the emotion out of it and we’ll make a business decision," he says.

The Corps says KBR will not have an unfair advantage over other bidders because it was in on the planning of the scope of the oil services contracts or because it is already mobilized in Iraq. "KBR does not have an advantage because the acquisition strategy has checks and balances to discount any potential KBR advantage," a Corps spokesman says. The acquisition strategy is not public.

Even with work completed early, the amount remaining for the contract winners falls within the range that the Corps gave to bidders, between $50,000 and $500 million each. "And whether they can meet those accelerated goals is another story," Oakley says.

The Corps may award both contracts to one company or to separate companies.

Parsons Corp., Pasadena, Calif., has no plans to drop out of the bidding, a spokeswoman says.