The Master Builder

Abdul Halim crossed his arms and listened skeptically to a few more American promises. The construction executive was sitting in a harshly lit room in the Baghdad Convention Center last Wednesday with a few dozen other unhappy Iraqi business-people. The 41 men and two women, representing telecom, engineering and construction firms from all over the city, had come to find out why the fruits of Iraq's reconstruction have so far eluded them. Two months ago, Halim says, he approached Kellogg Brown & Root (KBR), a unit of the Houston company Halliburton, hoping that his construction and engineering firm, Gulf Bank, could be part of the massive effort to rehabilitate Iraq's oil industry. He couldn't even get his call returned. "We are angry," he says. "They always say the priority is Iraqi companies, but as a matter of fact, in the land of the truth, that is not the case."

"I'm sympathetic to the challenges you all face," Stephen Orr, an adviser to the Iraqi Business Center, told the assembled group last week. The Coalition Provisional Authority and the Iraqi Ministry of Trade organize the weekly meeting for Iraqi companies hoping to find work as subcontractors to firms such as Halliburton, the biggest contractor in Iraq. "Our goal is to help you make contact with the prime contractors," Orr said. Halim, like the others, sat stone-faced and unconvinced. Orr tried to be encouraging but gave few answers for what a growing number of disaffected Iraqis say is a system designed to shut them out of their own country's economic recovery.

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The reconstruction of Iraq, that grand effort of goodwill intended to win over the hearts and minds of Iraq's citizens, is America's other war, and it is not going quite according to plan. You could say that Halliburton, which holds an exclusive deal to support U.S. soldiers and by far the largest share of contracts for rebuilding Iraq's crippled infrastructure, is command central in the battle to rebuild the country. But the firm has become a lightning rod for criticism of the U.S. presence in Iraq. Thanks in part to Vice President Dick Cheney's five-year tenure as the company's CEO, Halliburton's contract with the U.S. government has been unable to escape the whiff of cronyism — even though Cheney says he has no connection to the company today other than the $178,437 he received last year, one of five annual deferred-compensation payments (see box). The firm is a constant target of violence and the subject of persistent rumors of corruption. As the June 30 handover to an Iraqi government approaches, Iraq's citizens are beginning to question why American companies like Halliburton are still running the show. Halliburton's role in Iraq is much more than just chief cook and bottle washer for the troops. In fact, the success of the whole U.S. enterprise in Iraq depends in many ways on how well Halliburton does its job.

It's a big one. Work in Iraq is parceled out among a handful of companies, but Halliburton has by far the largest share--$17 billion from the U.S. and British governments, several times as much as its closest competitor, Bechtel. Halliburton and the other large contractors work on a cost-plus basis — the cost of its work (negotiated in advance) plus a defined profit of up to 3%. The entire 2004 budget for the Coalition Provisional Authority is $13 billion and pays for about 2,300 much smaller reconstruction projects, separate from Halliburton's, none of which are subject to competitive bidding rules. Halliburton's initial no-bid contract to restore Iraq's oil supply came under intense criticism last year from Democratic lawmakers, but it did have to submit a bid for the second phase of the work, which it won in January.