The $87 Billion Money Pit

Even all those precautions won't make you completely safe. On Sunday, at least five rockets were fired into the side of the 14-story Al-Rashid Hotel, where American officials stay. Some rooms took direct hits, killing at least one and wounding 15. The 400-room hotel was evacuated. Among the Americans fleeing was Deputy Secretary of Defense Paul Wolfowitz, in town on a four-day review of reconstruction efforts. No wonder meetings with Iraqi subcontractors must take place outside the Green Zone, and in person: only foreigners as yet have mobile phones provided by an early MCI contract. And as religiously as tourists might consult their guidebooks, contractors are expected to peruse the CPA Operational Threat Update, which has useful pieces of advice, such as how to drive in a convoy ("avoid having more than one vehicle in the kill zone at a time"). Most of Baghdad is zoned "red," or dangerous.

Such is the life of a U.S. contractor in Iraq, and one reason U.S. taxpayers are forking over top dollar to have them there. Despite the allegations about expensive fuel imports that have made headlines recently, there may be little outright price gouging. Much of what companies are charging is for hazardous duty (at major engineering companies, that means 45 percent extra, taking engineers up to nearly $900 for a 10-hour day). Air freight is expensive because of the high insurance premiums. Land freight has to contend with highway robbery on a massive scale; no major highway can be considered safe. And while so far no American contractors have been attacked except when they were traveling with a military convoy, they're hardly considered off-limits by opposition guerrillas and terrorists. While some foreign businessmen go out without escorts, most do not; normally they'll travel with a PSD (personal security detail) of at least two and sometimes more expatriate armed guards. PSDs are staffed with "operatives" who normally bill $1,200 a day for their services. The security problem hampers accountability as well: USAID's own inspector general refuses to send its auditors to "a combat zone," as spokesman Rob Perkins describes Iraq.

Iraqis have their own hurdles. Baghdad has a weekly job fair for companies that want to make tender bids, but Iraqis who attend find enormously long lines, and little to repay the effort. "This is ridiculous," said Hesham Barbary, an American-Egyptian who is the representative for H & K Ltd., a large Egyptian company, as he waited at one such Kellogg Brown & Root tender meeting. "The time it took to get in this place was longer than the meeting. All of the tenders they're offering are things you can walk into any shop and buy," like paper clips.

The bottom line is that danger sows distrust. The new Iraqi minister of telecommunications, Haider Jawad al-Ibadi, told NEWSWEEK that his technicians, who are desperately trying to repair the Iraqi telephone system, keep getting detained by the U.S. military. Soldiers, he says, recently came and arrested his own bodyguards without explanation. He said this sort of harassment is repeated at all levels of society every day, "and there's no one you can go to complain to. If this continues as it is, this can end in disaster. The Americans are losing their integrity in Iraqi eyes."

Waste, Fraud And Abuse

American companies are barred by law from paying bribes or taking kickbacks abroad. But Iraq is still largely a lawless place. And one company director for a British firm doing business in Baghdad says that makes all the difference. "I've never seen corruption like this by expatriate businessmen. It's like a feeding frenzy," he says. One prominent Iraqi businessman said he was told he'd have to raise his bid by $750,000 to get a major contract, so long as he kicked back that amount to the contractor's rep. The businessman refused to identify the contractor, but did say, "No Iraqi would ask for a bribe that big." NEWSWEEK witnessed such behavior directly: An Iraqi-Anglo joint venture did a relatively small job in the magazine's Baghdad bureau. When a final price had been agreed, the company's Iraqi manager said, "Shall we add a commission of 10 percent?" Commission? "Well, you would keep that of course," he said. In other words, a kickback. When NEWSWEEK declined, he said, "You're the first one who didn't want a commission."