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entitled 'Rebuilding Iraq: U.S. Water and Sanitation Efforts Need 
Improved Measures for Assessing Impact and Sustained Resources for 
Maintaining Facilities' which was released on September 7, 2005. 

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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

September 2005: 

Rebuilding Iraq: 

U.S. Water and Sanitation Efforts Need Improved Measures for Assessing 
Impact and Sustained Resources for Maintaining Facilities: 

GAO-05-872: 

GAO Highlights: 

Highlights of GAO-05-872, a report to Congressional Committees: 

Why GAO Did This Study: 

After security conditions in Iraq began to deteriorate in June 2003, 
the U.S.-led Coalition Provisional Authority (CPA) included restoring 
essential services in Iraq, such as water and sanitation, as part of 
its strategy for establishing a secure, peaceful, and democratic Iraq. 
From 1991 to 2003, a decreasing number of Iraqis had access to safe 
drinking water and sanitation services, and water-borne disease rates 
rose. The United States has made available $2.6 billion for rebuilding 
the water and sanitation sector. 

As part of GAO’s review of Iraq reconstruction under the Comptroller 
General’s authority, we assessed U.S. activities in the water and 
sanitation sector, including (1) the funding and status of U.S. 
activities, (2) U.S. efforts to measure progress, (3) the factors 
affecting the implementation of reconstruction activities, and (4) the 
sustainability of U.S.-funded projects. 

What GAO Found: 

The United States has made some progress in rebuilding Iraq’s water and 
sanitation sector. As of July 2005, State had allocated $2.6 billion; 
of this amount, agencies had obligated $1.8 billion and disbursed an 
estimated $450 million, mostly to support large-scale water and 
wastewater treatment projects. In addition, about $384 million in Iraqi 
and international funds had been obligated for the sector—about 21 
percent of U.S. obligations. As of June 2005, 18 of 54 task orders for 
projects under five major U.S. contracts had been completed. For 
example, USAID’s contractor repaired six sewage treatment plants, two 
water treatment plants, and an urban water supply in southern Iraq. 

State has set broad goals for providing essential services in Iraq, but 
the lack of sound performance data and measures for the water and 
sanitation sector present challenges in determining the impact of U.S. 
projects. State’s ability to measure the provision of essential 
services, such as access to water and sanitation, is limited by a lack 
of water metering and measures of water quality in Iraq. In the absence 
of such measures, State tracks the number of projects started and 
completed, but State was unable to substantiate which projects were 
included in its reported numbers. Moreover, because these data do not 
measure the availability or quality of water and sanitation services, 
it is difficult to determine how U.S. efforts are contributing to the 
goal of improving access to essential services. However, USAID-funded 
surveys report that Iraqis experience low levels of access and 
satisfaction with water and sanitation services. These surveys 
demonstrate the potential for gathering data over time that could be 
used to gauge the progress of U.S. reconstruction efforts. 

Poor security and management challenges have adversely affected the 
U.S. water and sanitation reconstruction program, leading to project 
delays and increased costs. One U.S. agency estimated that the security 
environment has added an average of about 7 percent to its water sector 
project costs. Initial cost estimates of 25 to 50 percent below actual 
costs and delays in funding and awarding task orders also led to a 
reduced program scope and delays in starting projects. Other factors 
that impede progress and increase cost include lack of agreement on 
project scope, staffing turnover, inflation, unanticipated site 
conditions, and uncertain ownership of project sites. 

As of June 2005, projects costing about $52 million and turned over to 
Iraqi management were not operating as intended due to looting, 
unreliable electricity, or inadequate Iraqi staff and supplies. In 
March 2005, State reallocated $25 million for additional support at 
USAID’s completed projects, and agencies have begun risk forecasting 
and planning to address sustainability issues. However, these efforts 
are in their early stages, and it is unclear if they will address the 
long-term ability of the Iraqi government to support, staff, and equip 
remaining large-scale water and sanitation projects for which the 
United States has obligated more than a billion dollars. 

What GAO Recommends: 

We recommend that the Secretary of State (1) establish and monitor 
improved indicators and measures that assess how U.S. efforts are 
improving water and sanitation services in Iraq and (2) work with Iraqi 
ministries to assess and obtain the resources needed to operate and 
maintain facilities. State agreed with our findings and recommendations 
and stated that it has begun taking steps to implement them. 

www.gao.gov/cgi-bin/getrpt?GAO-05-872. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Joseph Christoff at (202) 
512-8979 or christoffj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

The United States Has Completed Some Projects, but Many Large Scale 
Efforts Were Delayed: 

Limited Performance Data and Measurements Make It Difficult to 
Determine Impact: 

Security and Management Challenges Have Adversely Affected 
Implementation of Water and Sanitation Projects: 

Iraq's Lack of Capacity to Operate and Maintain U.S.-Funded Projects 
Led to Inoperable Facilities and Greater U.S. Focus on Improving 
Project Sustainability: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Objectives, Scope & Methodology: 

Appendix II: Comments from the Department of State: 

Appendix III: Comments from the U.S. Agency for International 
Development: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1. Status of Major Contractors' Water and Sanitation Task Orders, 
June 2005: 

Figures: 

Figure 1. Available Fiscal Year 2004 IRRF Funds Allocated for Water and 
Sanitation: 

Figure 2. Iraqi Satisfaction with Water Supply by Governorate, February 
2005: 

Figure 3. Iraqi Satisfaction with Adequacy of Sewerage and Wastewater 
Disposal by Governorate, February 2005: 

Abbreviations: 

AIRP: Accelerated Iraq Reconstruction Program: 

CERP: Commanders' Emergency Response Program: 

CH2M Hill/PWI: CH2M Hill and Parsons Water Infrastructure: 

CHRRP: Commanders' Humanitarian Relief and Reconstruction Program: 

CPA: Coalition Provisional Authority: 

DFI: Development Fund for Iraq: 

DOD: Department of Defense: 

FluorAMEC: Fluor (U.S. company) and AMEC (British company): 

IRMO: Iraq Reconstruction and Management Office: 

IRRF: Iraq Relief and Reconstruction Fund: 

IRFFI: International Reconstruction Fund Facility for Iraq: 

PCO: Project and Contracting Office: 

PMO: Project Management Office: 

UN: United Nations: 

USAID: U.S. Agency for International Development: 

WGI/B&V: Washington Group International/Black & Veatch: 

United States Government Accountability Office: 

Washington, DC 20548: 

September 7, 2005: 

Congressional Committees: 

After security conditions in Iraq began to deteriorate in June 2003, 
the U.S.-led Coalition Provisional Authority (CPA) included restoring 
essential services, such as water and sanitation, as part of their 
strategy for establishing a secure, peaceful, and democratic Iraq. 
According to a 2003 UN/World Bank assessment,[Footnote 1] years of 
conflict, international sanctions, and mismanagement by the prior 
regime led to deterioration in the infrastructure providing essential 
services. From 1991 to 2003, a decreasing number of Iraqis had access 
to safe drinking water and sanitation, and water-borne disease rates 
rose. As of July 2005, the United States had appropriated about $24 
billion for relief and reconstruction in Iraq, including nearly $2.6 
billion for rebuilding the water and sanitation sector. 

As part of GAO's review of reconstruction efforts in Iraq initiated 
under the Comptroller General's authority, we examined U.S. activities 
directed at rebuilding the water and sanitation sector. Specifically, 
we assessed (1) the funding and status of U.S. activities, (2) U.S. 
efforts to measure progress, (3) the factors affecting the 
implementation of reconstruction activities, and (4) the sustainability 
of U.S.-funded projects. 

To accomplish our objectives, we reviewed and analyzed U.S. government 
agency documents and contractor reports. We also met with officials 
from the Department of State, the U.S. Agency for International 
Development (USAID), the Department of Defense (DOD) Project and 
Contracting Office (PCO), and contractors undertaking reconstruction 
efforts. Although we did not travel to Iraq due to security concerns, 
we interviewed U.S. officials based in Iraq by telephone and exchanged 
information through e-mail. We also met with officials from contractors 
and U.S. agencies in the United States who had returned after tours of 
duty in Iraq. In addition, we reviewed U.S. government-funded surveys 
that document Iraqi perceptions of the quality and quantity of water 
and sanitation services. Appendix I contains a more detailed 
description of our scope and methodology. 

We conducted our review from September 2004 through August 2005 in 
accordance with generally accepted government auditing standards. 

Results in Brief: 

The United States has allocated resources and made some progress in 
undertaking and completing activities to rebuild Iraq's water and 
sanitation infrastructure. U.S. appropriations for this sector were as 
high as $4.6 billion in 2004, but this level was subsequently reduced 
to $2.6 billion to address other priorities, such as improving security 
and increasing employment. Of this amount, U.S. agencies had obligated 
$1.8 billion and disbursed an estimated $450 million as of June 2005. 
U.S. funding was not sufficient--nor was it intended--to address all of 
Iraq's water and sanitation needs as identified in 2003 condition 
assessments. As of June 2005, about $251 million in Iraqi funds and 
$133 million in international funds had been obligated for the sector-
-about 21 percent of U.S. obligations. USAID had awarded 30 task orders 
for project activities and PCO had awarded 24 task orders.[Footnote 2] 
USAID's contractor had completed 18 task orders, including the repair 
of six sewage treatment plants, two water treatment plants, and a 
primary urban water supply in southern Iraq. However, 12 of the 
completed task orders had been delayed by 6 months or more. PCO's 
contractors had not completed any task orders, but they plan to 
complete 9 task orders by the end of 2005 and the remaining 15 by 2008. 
PCO task orders include the repair of municipal water supplies, sewage 
collection systems, dams, and a major irrigation project. 

It is difficult to determine the overall progress and impact of U.S. 
efforts because of inadequate performance data and measures. According 
to State officials, the CPA's April 2004 goal to increase potable water 
to 90 percent of the population was unrealistic because it was set 
without baseline data. A senior State official expects U.S. efforts to 
increase water service access to about 50 or 60 percent. U.S. agencies 
track progress through the numbers of projects under way and completed 
and expected gains in water and sewage treatment capacity. However, 
these measurements are limited in providing a complete picture of 
progress and the impact of U.S. projects in improving access to water 
and sanitation services. For example, although State reported that 143 
projects[Footnote 3] were complete as of early July 2005, it could not 
document the location, scope, and cost of these projects. Moreover, 
reporting only the number of projects completed or under way provides 
little information on how U.S. efforts are improving the amount and 
quality of water reaching Iraqi households or their access to 
sanitation services. The availability of data is limited by the lack of 
water metering and water quality measurements. For example, due to 
problems in the distribution network, water that is potable at the 
treatment plant may be lost through leakage or contaminated by the time 
it reaches users. However, a recent USAID survey found that just under 
half of respondents rated their water supply as good to very good and 
fewer than 20 percent rated their sewerage and wastewater disposal as 
good to very good. These surveys demonstrate the potential for 
gathering data to gauge the progress of U.S. reconstruction efforts. 

Poor security and a variety of management challenges have affected U.S. 
efforts to improve the water and sanitation sector in Iraq. Security 
conditions have led to project delays and increased costs for security 
services. For example, work was suspended at a sewer repair project in 
central Iraq for 4 months in 2004 due to security concerns. PCO has 
estimated that the deteriorated security environment has increased 
water and sanitation project costs by 7 percent. In addition, PCO found 
initial CPA cost estimates to be 25 to 50 percent below actual costs, 
contributing to a reduced scope for the water and sanitation program. 
Agency and contractor officials cited other factors that impeded 
progress and increased program cost, including a lack of agreement 
among U.S. agencies, contractors, and Iraqi authorities on project 
issues; staffing turnover; an inflationary environment that made it 
difficult for contractors to submit accurate cost estimates; 
unanticipated project site conditions; and uncertain ownership of 
project sites. 

As of June 2005, U.S.-funded water and sanitation projects representing 
about $52 million of the $200 million in completed projects were either 
not operating or were operating at lower capacity. One repaired 
wastewater plant was partially shut down due to the looting of key 
electrical equipment. In addition, two projects lacked a reliable power 
supply, one lacked sufficient staff to operate properly, and one lacked 
both adequate power supply and staff. Repaired water plants in one 
southern governorate lacked adequate electricity and necessary water 
treatment chemicals. In late August 2004, USAID's contractor began to 
identify potential sustainability problems, such as poor operations and 
maintenance procedures. In late March 2005, nearly 7 months after the 
initial report of these concerns, State reallocated $25 million to 
USAID for up to 1 year of additional on-site operating assistance and 
supplies at USAID's completed projects. In proposing the reallocation, 
the U.S. embassy in Iraq stated that it was moving from the previous 
model of building and turning over projects to Iraqi management toward 
a "build-train-turnover" system to protect the U.S. investment in 
Iraq's infrastructure. In March 2005, PCO provided $10.3 million for a 
12-month capacity development initiative that includes baseline service 
assessments, operations and maintenance planning and other efforts in 
eight governorates. However, U.S. assistance efforts do not address the 
long-term ability of the Iraqi government to support, staff, and equip 
these facilities. Iraqi ministry capacity remains an obstacle to the 
success of more than $1 billion in U.S. projects expected to be 
complete between mid-2005 and 2008. 

This report recommends that the Secretary of State should, within the 
limitations and difficulties of working in an unstable security 
environment, establish and implement improved indicators and measures 
that assess how U.S. efforts are improving the quality and quantity of 
water and sanitation services in Iraq. The report also recommends that 
the Secretary work with Iraqi ministries to assess the resources needed 
to operate and maintain new and repaired water and sanitation 
facilities after they are turned over to Iraqi management and work with 
the Iraqi government to ensure that Iraq has these resources. 

In commenting on a draft of this report, the Department of State and 
USAID agreed with our findings and conclusions. State concurred with 
our recommendations and stated that it is taking steps to begin 
implementing them. The Departments of Defense and State also provided 
technical comments, which we incorporated where appropriate. 

Background: 

Water and sanitation services in Iraq deteriorated after the 1991 Gulf 
War due to lack of maintenance, inadequate skilled manpower, 
international sanctions, and war damage. In 2003, looting at the 
outbreak of Operation Iraqi Freedom destroyed the equipment and 
materials needed to operate water treatment and sewerage 
facilities.[Footnote 4] According to the 2003 UN/World Bank Joint Iraq 
Needs Assessment, Iraq produced enough water before the 1991 Gulf War 
to supply more than 95 percent of urban Iraqis and 75 percent of rural 
Iraqis. By 2003, these production levels had fallen to about 60 percent 
and 50 percent, respectively. At both times, however, the percentage of 
Iraqis actually receiving an adequate amount of potable water was much 
lower due to heavy leakage and contamination from the delivery network. 
The assessment also found that, although 80 percent of Baghdad's 
population had sewerage access, power outages caused shutdowns and 
blockages of the sewage system, leading to backups of raw sewage in the 
streets. Less than 10 percent of the urban population outside Baghdad 
was served by sewage systems, and rural areas and northern Iraq had no 
access to piped sewerage. Diseases related to unsafe water and poor 
sanitation increased significantly between 1990 and 2000. At the time 
of the 2003 assessment, no sewage treatment plants were operational, 
and raw sewage was discharged into rivers and waterways. Furthermore, 
sewage leaked into the water network, which was too damaged to keep 
contaminants out. These sources of contamination caused levels of water-
related diseases to escalate. According to a UN Children's Fund report, 
the number of typhoid cases rose from 2,240 in the pre-1991 period to 
27,000 in 1996.[Footnote 5]

According to the official who led the 2003 UN/World Bank assessment, 
steady attrition of human and physical capital was the principal cause 
of the decline in Iraq's water and sanitation services. Through most of 
the 1990s, Iraq's water and sanitation sector lacked the funding, 
staff, equipment, and spare parts needed to keep facilities running. 
The sector did not have a steady source of operating funds, and 
salaries were too low to retain trained and educated staff, many of 
whom left the country. International isolation prevented exposure to 
outside knowledge and the development of necessary skills and led to 
spare parts shortages that made routine maintenance difficult. 

Two 2003 studies, based on limited assessments extrapolated to cover 
the entire country, provided cost estimates for repairing Iraq's 
deteriorated water and sanitation infrastructure. The UN/World Bank 
assessment estimated that more than $4 billion would be needed through 
2007 to restore and expand the water and sanitation infrastructure past 
pre-1991 levels. Additional capital investments of nearly $2.8 billion 
would be required to increase service coverage and reduce water losses. 
A USAID-funded assessment by Bechtel National, Inc., identified short- 
, intermediate-, and long-term projects that could address Iraq's water 
and sanitation needs at a potential cost of $6.5 billion over the next 
10 to 20 years. 

From May 2003 until the end of June 2004, the CPA was the UN-recognized 
coalition authority led by the United States and United Kingdom that 
was responsible for the temporary governance of Iraq and for 
overseeing, directing, and coordinating the reconstruction effort. 
Within the CPA, the Project Management Office (PMO) was established to 
provide project management, prioritizing, and contract support for U.S.-
funded reconstruction projects. The CPA identified the initial U.S. 
efforts for rebuilding Iraq's water and sanitation, which USAID managed 
and executed with fiscal year 2003 funds. In May 2004, the President 
issued a National Security Presidential Directive which stated that 
after the transition of power to the Iraqi government, the State 
Department would be responsible for all U.S. activities in Iraq, except 
for U.S. efforts relating to security and military operations. These 
efforts would be DOD's responsibility. On June 28, 2004, the CPA 
transferred power to a sovereign Iraqi interim government, and the CPA 
was officially dissolved. 

To replace the CPA's PMO, the Presidential Directive established two 
temporary offices: (1) the Iraq Reconstruction and Management Office 
(IRMO) to facilitate the transition of reconstruction projects to Iraq 
and (2) PCO to facilitate acquisition and project management support 
for U.S.-funded reconstruction projects in various sectors, including 
water and sanitation. IRMO is a State Department organization 
responsible for strategic planning and for prioritizing requirements, 
monitoring spending, and coordinating with the military commander. Iraq-
based personnel from both offices are under the authority of the U.S. 
chief of mission in Baghdad, although the U.S. Department of the Army 
funds, staffs, and oversees the operations of the PCO. 

USAID and PCO administer the large-scale projects funded in fiscal year 
2004. USAID and PMO awarded five contracts representing the majority of 
U.S. funds obligated for water and sanitation reconstruction to three 
firms. USAID awarded the first of these contracts to Bechtel National, 
Inc. in April 2003 with fiscal year 2003 funds for work across multiple 
reconstruction sectors. In January 2004, USAID awarded a second, 
competitively bid, multi-sector reconstruction contract to Bechtel with 
fiscal year 2004 funds. In March 2004, PMO used fiscal year 2004 
appropriated funds to competitively award three contracts for water and 
sanitation reconstruction. PMO awarded one contract for improving water 
resources nationwide to a joint venture between the U.S. companies 
Washington Group International and Black & Veatch (WGI/B&V). PMO 
awarded two other contracts to a joint venture between the U.S. firm 
Fluor and the British company AMEC (FluorAMEC), one each for public 
works projects in northern and southern Iraq. PMO also awarded a 
contract in March 2004 to a joint venture between CH2M Hill and Parsons 
Water Infrastructure (CH2M Hill/PWI) for program management services 
for water sector activities. For PCO activities, CH2M Hill/PWI performs 
such duties as developing project task orders, preparing government 
cost estimates, and preparing reports on water sector status. 

The United States Has Completed Some Projects, but Many Large Scale 
Efforts Were Delayed: 

As of July 2005, State Department reallocations to other priorities in 
Iraq had reduced funding designated for water and sanitation by almost 
half, to about $2.6 billion, of which U.S. agencies had obligated about 
$1.8 billion and disbursed an estimated $450 million. International and 
Iraqi funds allocated for this sector totaled at least $384 million. 
Most U.S. obligations have gone to long-term, large-scale water and 
wastewater treatment projects that can take months or years to 
complete. As of June 2005, USAID's contractor had completed 18 task 
orders, although with many delays. USAID and PCO expect to complete an 
additional 36 task orders from 2005 through 2008. 

State Reallocated a Portion of Its Water and Sanitation Funds to 
Address Other Iraq Needs: 

At its highest level, total U.S. appropriated funding for 
reconstruction of Iraq's water and sanitation sector was about $4.6 
billion; however, by July 2005, State Department reallocations had 
reduced funding to about $2.6 billion, a 44 percent decrease. As of the 
end of June 2005, agencies had obligated $1.8 billion and disbursed an 
estimated $450 million.[Footnote 6] Even at the level of $4.6 billion, 
U.S. funding would not have been sufficient--nor was it intended--to 
address all of Iraq's water and sanitation needs as identified by the 
UN/World Bank and Bechtel assessments. After State's reallocations, 
U.S. obligations are almost five times greater than Iraqi and 
international obligations for rebuilding Iraq's water and sanitation 
sector. 

Congress initially appropriated funding for Iraq reconstruction in 
fiscal year 2003, and in fiscal year 2004, appropriated an additional, 
larger amount. In April 2003, Congress passed the Emergency Wartime 
Supplemental Appropriations Act.[Footnote 7] This legislation created 
the Iraq Relief and Reconstruction Fund (IRRF) and appropriated about 
$2.48 billion in fiscal year 2003 funds to the Fund for reconstruction 
activities in multiple sectors. Of this amount, as of June 2005, USAID 
had obligated approximately $270 million to water and sanitation 
projects. In November 2003, Congress enacted an additional emergency 
wartime supplemental act, in which $18.4 billion was provided for the 
IRRF.[Footnote 8] From this $18.4 billion, Congress specifically 
allocated about $4.33 billion for reconstruction of Iraq's water and 
sanitation sector. However, the Act also permitted limited reallocation 
of fiscal year 2004 IRRF funds with congressional notification. This 
$270 million in fiscal year 2003 funds and $4.33 billion in fiscal year 
2004 funds total the peak U.S. appropriation for the water and 
sanitation sector of $4.6 billion. 

As of July 5, 2005, the State Department had conducted a series of 
fiscal year 2004 IRRF reallocations to address other priorities, 
thereby reducing total IRRF funding for water and sanitation by about 
44 percent, from $4.6 billion to $2.6 billion. The single largest 
reduction occurred in September 2004, when State shifted $1.9 billion 
in fiscal year 2004 IRRF funds from water and sanitation to increase 
support for security and law enforcement, oil infrastructure 
enhancements, economic development, debt forgiveness, Iraqi employment, 
and democracy and governance. Although State's September 2004 
reallocation did not cause cancellation of any water sector projects 
already in progress, PCO cancelled some projects--most of which were 
planned to start in mid-2005. Over the next 9 months, State made 
additional reallocations, transferring a total of $160 million in 
fiscal year 2004 IRRF water and sanitation funds to support efforts 
such as job creation and electrical distribution. Figure 1 shows the 
overall reduction in available fiscal year 2004 IRRF funds allocated 
for water and sanitation. As of June 2005, U.S. agencies had obligated 
$1.8 billion of the reduced total of $2.6 billion. Of the allocated 
amount, about $450 million--17 percent--had been disbursed. 

Figure 1: Available Fiscal Year 2004 IRRF Funds Allocated for Water and 
Sanitation: 

[See PDF for image]

[End of figure]

According to a senior PCO official, U.S. funding was not meant to 
rebuild Iraq's entire infrastructure but to lay the groundwork for a 
longer-term reconstruction effort with anticipated significant 
assistance from international donors. As of the end of June 2005, at 
least $384 million in Iraqi and international funds had been obligated 
for rebuilding Iraq's water and sanitation sector, slightly more than 
21 percent of the $1.8 billion in U.S. obligations. Iraqi funding 
includes at least $239 million from the Development Fund for Iraq (DFI) 
and about $12 million in seized assets from the former regime.[Footnote 
9] In addition, the International Reconstruction Fund Facility for Iraq 
obligated about $133 million in international donations for water and 
sanitation projects as of May 2005. [Footnote 10]

Funding Has Been Directed Primarily to Large-Scale Efforts that Are in 
Progress: 

Water and sanitation construction projects funded by U.S. agencies in 
Iraq generally fall into two categories: large-scale projects and 
smaller-scale, quick-impact projects.[Footnote 11] As of June 2005, 
five contracts issued by USAID and PCO, representing about 73 percent 
of all U.S. water and sanitation obligations, supported a variety of 
large-scale efforts that mostly remain in progress. By the end of June, 
USAID and PCO contractors had completed 18 of their 54 task orders for 
large-scale projects; however, these completed projects experienced 
delays. Smaller-scale, quick-impact efforts are typically less complex, 
less costly, and have received a smaller share of available U.S. funds. 
These projects are designed to address local needs and create 
employment. Iraqi funds have also been used for other water and 
sanitation projects. 

Some Large-Scale Water and Sanitation Projects Have Been Completed but 
Delayed; Others Are Under Way: 

As of June 2005, U.S. agencies had obligated about $1.3 billion of the 
total $1.8 billion in available U.S. appropriated funding for large- 
scale water and sanitation projects performed by USAID contractor 
Bechtel and PCO contractors WGI/B&V and FluorAMEC. Some task orders 
have been completed, but most work is still in progress. Table 1 shows 
the status of these contracts as of June 2005. 

Table 1: Status of Major Contractors' Water and Sanitation Task Orders, 
June 2005: 

USAID: 

Contract: Bechtel Phase I; 
Date of Contract: 4/17/03; 
Total Task Orders[A]: 17; 
Task Orders in Progress[A]: 0; 
Completed Task Orders: 17; 
Obligations for Task Orders in Progress: $0; 
Obligations for Completed Task Orders: $199 million. 

Contract: Bechtel Phase II; 
Date of Contract: 1/05/04; 
Total Task Orders[A]: 13; 
Task Orders in Progress[A]: 12; 
Completed Task Orders: 1; 
Obligations for Task Orders in Progress: $365 million; 
Obligations for Completed Task Orders: $0.7 million. 

PCO: 

Contract: WGI/B&V; 
Date of Contract: 3/11/04; 
Total Task Orders[A]: 10; 
Task Orders in Progress[A]: 10; 
Completed Task Orders: 0; 
Obligations for Task Orders in Progress: $234 million[B]; 
Obligations for Completed Task Orders: $0. 

Contract: FluorAMEC - North and South Contracts; 
Date of Contract: 3/23/04; 
Total Task Orders[A]: 14; 
Task Orders in Progress[A]: 14; 
Completed Task Orders: 0; 
Obligations for Task Orders in Progress: $639 million[C]; 
Obligations for Completed Task Orders: $0. 

Totals; 
Total Task Orders[A]: 54; 
Task Orders in Progress[A]: 36; 
Completed Task Orders: 18; 
Obligations for Task Orders in Progress: $1.2 billion; 
Obligations for Completed Task Orders: $200 million. 

Sources: USAID, PCO, and contractor reporting. 

[A] Excludes 2 cancelled USAID Phase I task orders, 3 USAID Phase I 
task orders that were combined with other task orders in Phase I or 
Phase II, 2 cancelled PCO task orders and 3 PCO mobilization task 
orders. 

[B] Includes task orders awarded with both U.S. appropriations ($169 
million) and DFI funds ($65 million). 

[C] Includes task orders awarded with both U.S. appropriations ($566 
million) and DFI funds ($73 million). 

Note: Numbers may not add due to rounding. Status information is as of 
the end of June 2005; funding information is as of the end of March 
2005 for USAID and end of June for PCO. 

[End of table]

As of June 2005, Bechtel had completed 18 of its total 30 task orders, 
but most of these completed task orders experienced delays. Large-scale 
efforts completed by Bechtel included the repair of six sewage 
treatment plants, two water treatment plants, and the primary water 
supply for a city in southern Iraq. Bechtel has completed one task 
order under its Phase II contract, a design task costing about 
$700,000. Twelve task orders remain under the second Bechtel contract, 
including water treatment plants, sewer line construction, and a rural 
water supply project. Six of these task orders are expected to be 
completed in 2005 and six in 2006. Although USAID/Bechtel has completed 
18 task orders, all 17 completed Phase I task orders were delayed 
beyond the original completion date by between 1 and 13 months. Twelve 
were delayed by 6 months or more. 

PCO contractors WGI/B&V and FluorAMEC were awarded contracts nearly 1 
year after the initial Bechtel contract, and they had not completed any 
of their 24 task orders as of June 2005. The contractors expect to 
complete 9 task orders by the end of 2005, 10 in 2006, 4 in 2007, and 1 
in 2008. WGI/B&V's task orders include four dam facilities and a major 
irrigation project; FluorAMEC's include several municipal water 
supplies and three sewage collection systems. PCO contractors have also 
faced some delays in completing work under the task orders. 

U.S. Funds Small-Scale, Quick-Impact Projects: 

U.S. agencies have also undertaken small-scale, quick-impact water and 
sanitation projects. DOD, State, and PCO have conducted this work under 
the following three programs: 

* Under the Commanders' Emergency Response Program (CERP), military 
commanders have undertaken urgent humanitarian relief and 
reconstruction projects in Iraqi communities in their areas of 
responsibility. Agency data as of June 30, 2005 indicated that about 
$56.1 million in Iraqi and fiscal year 2004 U.S. funds had been 
obligated to more than 2,800 CERP water and sanitation projects. CERP 
projects have helped to repair and augment water and sanitation systems 
and include canal cleanups, well construction, and water purification. 

* State established the Commanders' Humanitarian Relief and 
Reconstruction Program (CHRRP) in September 2004 with $86 million in 
response to the perceived effectiveness of the CERP, according to a 
senior State official. A major CHRRP initiative was to connect large 
water and sewer infrastructure projects to homes in central Iraq. 
Agency data as of June 30, 2005 indicated that about $74.3 million in 
fiscal year 2004 U.S. funds had been obligated for 60 CHRRP water and 
sanitation projects in central Iraq. Other planned projects include 
rehabilitation of irrigation canals and procurement of landfill 
equipment. 

* PCO has provided funds for contracting directly with Iraqi 
construction firms to conduct small water system repairs. According to 
PCO reporting from April 2005, PCO has budgeted about $70 million for 
this effort and plans to undertake 145 projects. 

USAID also has funded small-scale, quick-impact water and sanitation 
projects. According to our analysis of USAID and contractor data, more 
than 1,900 projects with an average value of about $100,000 had been 
funded as of May 2005. These projects include neighborhood trash 
cleanups, provision of irrigation pumps, sewer cleanouts, and 
installation of potable water networks. USAID has implemented this work 
through contracting partners and nongovernmental organizations. The 
goals of USAID's quick-impact projects include employing Iraqis and 
satisfying local needs as identified by community members. 

Additional Water and Sanitation Projects Have Been Funded from Iraqi 
Revenues: 

In April 2004, the CPA created the Accelerated Iraq Reconstruction 
Program (AIRP), which, as of mid-June 2005, included 125 quick-impact 
and large-scale projects funded with a total of $211 million in Iraqi 
DFI funds. The AIRP is a "legacy" program of DFI-funded projects that 
CPA had awarded but not completed before its dissolution in June 2004. 
PCO administers the AIRP on behalf of the State Department. Although 
AIRP includes nearly 25 times as many quick-impact water sector 
projects as it does large-scale water sector projects, the larger 
projects have received nearly twice as much funding.[Footnote 12] As of 
June 2005, Iraqi contractors had received about $73 million in DFI 
obligations for 120 water and sanitation projects under the AIRP, and 
PCO contractors WGI/B&V and FluorAMEC had received about $139 million 
for 5 projects. The cost of AIRP projects done by Iraqi contractors 
ranges considerably, with the lowest at $5,000, the highest at $5.6 
million, and the median at $250,000. AIRP projects were developed 
through consultations with Iraqi governors, engineering teams, and 
members of local councils, who were asked to identify quick-impact 
projects that would benefit the local population. 

Limited Performance Data and Measurements Make It Difficult to 
Determine Impact: 

State has set broad goals for providing essential services in Iraq, but 
the lack of sound performance data and measures for the water and 
sanitation sector present challenges in determining the impact of U.S. 
projects. State's ability to measure the provision of essential 
services, such as access to water and sanitation, is limited by a lack 
of water metering and measures of water quality in Iraq. In the absence 
of such measures, State tracks the number of projects started and 
completed, but State was unable to substantiate which projects were 
included in its reported numbers. Moreover, because these data do not 
measure the availability or quality of water and sanitation services, 
it is difficult to determine how U.S. efforts are contributing to the 
goal of improving access to essential services. However, USAID-funded 
surveys demonstrate the potential for gathering data over time that 
could be used to gauge progress of U.S. reconstruction efforts. These 
surveys report that Iraqis experience low levels of access and 
satisfaction with water and sanitation services. 

U.S. Goals for Improving Iraq's Water and Sanitation Sector Are Broad: 

In April 2004, the CPA strategic plan quantified targets for increasing 
Iraqi access to water and sanitation services. The CPA's goals at that 
time were to increase potable water access to 90 percent of Iraqis, to 
increase sewerage access to 15 percent of Iraqis, and to reduce water 
losses from 60 percent to 40 percent. The CPA expected that these 
targets would be met at the completion of PMO projects in 2 to 3 years. 
According to State and IRMO officials, however, the CPA goals were 
unrealistic because they were set without having baseline data on the 
condition of Iraq's water and sanitation infrastructure and the lack of 
water metering. According to a State official, the baseline data is not 
reliable, even if it is available. 

State assumed responsibility for managing the U.S. reconstruction 
effort following the CPA's dissolution and the transfer of power to an 
interim Iraqi government. The Iraq Reconstruction and Management Office 
(IRMO), a temporary office within the State Department, is responsible 
for strategic planning, setting priorities, and monitoring spending. 
State has set forth seven strategic objectives for Iraq reconstruction 
in the national security strategy for Iraq. One of these objectives is 
providing essential services, such as water and sanitation, but details 
of the water and sanitation objectives are classified. A senior IRMO 
official expected completion of the U.S. program to increase water 
access to about 50 or 60 percent of the Iraqi population, far less than 
the 90 percent CPA initially outlined. 

Challenges in Measuring Water and Sanitation Access and Quality: 

The absence of water metering in Iraq greatly hinders the ability of 
the United States to assess progress toward the broader goal of 
providing essential services and improving Iraq's water and sanitation 
sector. Iraq does not have a comprehensive system of area meters or 
residential meters that would help determine how much water in the 
distribution network reaches intended users. Water distribution 
networks are subject to some water loss or undocumented water usage, 
which can occur through leakage, unmetered but legitimate use such as 
in government buildings, or illegal connections. PCO and State 
officials have estimated water losses in Iraq to be about 60 percent 
for the country as a whole. By comparison, a 1991 survey cited by the 
World Health Organization found losses of 25 to 45 percent in 
developing countries. In the absence of metering, it is difficult to 
quantify the amount of water reaching users. 

Data on treatment capacity and sanitation access do not encompass 
quality measures and also hinder U.S. ability to gauge progress toward 
its goal of providing essential services. For example, because of 
problems with the distribution network, water that is potable at the 
treatment plants may be contaminated by the time it reaches users. 
According to the PCO water sector lead, potable water and sewage lines 
in Iraq are sometimes adjacent to each other, allowing leaking sewage 
to enter the water mains when there is insufficient pressure in the 
lines. Furthermore, while Iraqis in some urban areas may be connected 
to a public sewer, according to a recent report,[Footnote 13] the 
sewage network may not be sufficient to safely transport waste away 
from the home and streets. 

In the absence of metering and quality measures, State and other U.S. 
agencies track reconstruction progress using other performance data, 
but these data have limitations. State tracks and reports the number of 
projects in progress and the number of projects completed. As of July 
3, 2005, State reported that 143 projects were complete. However, State 
could not document the location, scope, or cost of the projects 
included in this reporting, thereby limiting an evaluation of the 
significance of completed projects. We also could not reconcile State's 
figures with other data from PCO and USAID. For example, as of June 28, 
2005, PCO reported that it had completed 43 small projects, and USAID 
reported the completion of 18 larger-scale task orders and many more 
small projects. It is unclear how many projects may be included in 
these task orders. Furthermore, even if these data could be 
substantiated and reconciled, this type of reporting does not provide 
information on how U.S. efforts are improving Iraqi access to water and 
sanitation services or the quality of those services. 

Increases in water treatment capacity may help gauge progress, but this 
measure also has limitations when it comes to understanding the level 
of access provided. Currently, PCO expects to provide just over a 
million cubic meters per day of additional water treatment capacity as 
part of the PCO reconstruction program. PCO has estimated the number of 
expected beneficiaries from the added capacity by dividing the 
increased capacity by the estimated volume of water used by the average 
Iraqi. Although PCO uses what it believes is a conservative demand 
estimate that attempts to take into account water losses, plant 
efficiency, and industrial usage, the actual ultimate benefit to Iraqis 
is uncertain. 

Surveys Can Provide Information on Access to Water and Sanitation 
Services and Satisfaction with Service Quality: 

USAID has funded four Iraq Quality of Life Survey Reports through its 
Local Governance Program that provide important information about the 
level of access to water and sanitation services and Iraqi satisfaction 
with those services.[Footnote 14] Contractors, working with local 
Iraqis as survey enumerators, surveyed Iraqis about a number of issues, 
including their access to and satisfaction with essential services. 
Although certain areas could not be surveyed due to security 
constraints, the survey reports provide data for each of Iraq's 18 
governorates, as well as nationwide data. 

The most recent survey report, completed in February 2005, found that 
just under half of respondents rated their level of water supply as 
good to very good. Fewer than 20 percent of respondents rated the 
quality of sewerage and wastewater disposal as good to very good. 
Governorates in southern Iraq in particular showed particularly low 
levels of satisfaction with the water supply. See figures 2 and 3 for 
the most recent survey data on satisfaction with water supply and 
adequacy of sewerage and wastewater disposal at the governorate 
level.[Footnote 15]

Figure 2: Iraqi Satisfaction with Water Supply by Governorate, February 
2005: 

[See PDF for image]

[End of figure]

Figure 3: Iraqi Satisfaction with Adequacy of Sewerage and Wastewater 
Disposal by Governorate, February 2005: 

[See PDF for image]

[End of figure]

These data provide insight into Iraqi satisfaction with the level of 
access to water and sanitation services and demonstrate the potential 
for gathering data over time that could be used to gauge progress of 
U.S. reconstruction efforts. In commenting on our July 2005 report on 
Iraq reconstruction, the State Department stated that it has not 
allocated money for satisfaction surveys because the surveys are 
expensive and difficult and dangerous to complete in a wartime 
environment.[Footnote 16] In contrast, USAID has included surveys as 
part of the agency's efforts to assess the quality of a variety of 
essential services provided to the Iraqi people. USAID has completed 
four surveys since October 2003 and intends to continue periodic 
surveys. 

Security and Management Challenges Have Adversely Affected 
Implementation of Water and Sanitation Projects: 

Poor security and a variety of management challenges have adversely 
affected the implementation of the U.S. water and sanitation 
reconstruction program in Iraq. Security conditions have led to project 
delays and increased costs for security services. Management challenges 
such as low initial cost estimates and delays in funding and awarding 
task orders have also led to the reduced scope of the water and 
sanitation program and delays in starting projects. In addition, U.S. 
agency and contractor officials have cited difficulties in initially 
defining project scope, schedule, and cost, as well as concerns with 
project execution, as further impeding progress and increasing program 
costs. These difficulties include lack of agreement among U.S. 
agencies, contractors, and Iraqi authorities; high staffing turnover; 
an inflationary environment that makes it difficult to submit accurate 
pricing; unanticipated project site conditions; and uncertain ownership 
of project sites. 

Poor Security Conditions Have Slowed Reconstruction and Increased 
Costs: 

According to agency officials and documentation, the ongoing insurgency 
in Iraq has delayed the U.S. water and sanitation reconstruction 
program and increased its cost. Attacks, threats, and intimidation 
against project contractors and subcontractors have led to temporary 
project shutdowns and disrupted the movement of materials and personnel 
to and from project sites. The amount of work included in some projects 
has also decreased due to the poor security conditions. 

Although it is difficult to quantify the costs in time and money 
resulting from poor security conditions, agency and contractor 
documents and interviews with agency officials cite numerous security- 
related issues that have resulted in delays in the design and execution 
of projects and reduced scopes of work.[Footnote 17] For example: 

* Security conditions have limited the ability of contractors to get to 
project sites and perform site assessments, thus delaying project 
design. At one project site in northern Iraq, for instance, the 
contractor cancelled its assessment when its convoy came under attack. 

* Work at a wastewater plant in central Iraq was halted for 
approximately 2 months in early 2005 because insurgent threats drove 
subcontractors away and made the work too hazardous to perform. 

* Work was suspended at another sewer repair project in central Iraq 
from early August to early November 2004, and PCO reported that a 
sanitation project in central Iraq was halted for the entire month of 
March 2005 due to poor security conditions. 

* At the time of the Iraqi national election in January, project sites 
in Iraq were shut down for at least 3 days. 

* Iraqi employees and subcontractors working on water and sanitation 
projects countrywide have been subject to hostility, violence, and 
intimidation. At one project, a lead employee received a life- 
threatening e-mail. The employee was subsequently chased by two armed 
men and fled the country. The balance of the 12-member team refused to 
go back to the site for some time. At another location in northern 
Iraq, a subcontractor withdrew from the job site after receiving 
threats. It took nearly 2 months for a qualified replacement 
subcontractor to begin work. 

* A wastewater plant project in central Iraq was subject to looting and 
to attacks with improvised explosive devices. Iraqi employees sabotaged 
this plant in November 2004 to protest U.S. operations in Fallujah by 
walking off the job and leaving the plant running. The untended plant 
stagnated, leading to damaged equipment and the need for a substantial 
clean-up operation. As of July 2005, this plant remains closed. 

* Insurgents have destroyed deliveries of needed materials to job 
sites. At one water project in southern Iraq, death threats against key 
employees have delayed construction and deliveries to the project site. 
The same site was subjected to threats of violence and extortion 
attempts by local tribesmen. 

* USAID greatly reduced the scope of work for two pump station projects 
due to security concerns and lack of site access permission from the 
Iraqi ministry. In April 2005, the contractor reported that these 
projects would be limited to design work, minor repairs, and delivery 
of equipment, instead of the originally planned full construction. U.S 
officials stated that Iraqi ministries would complete construction 
using materials provided by the United States. 

Poor security conditions also have increased the cost of providing 
security services for contractors and sites. For example, when a 
project is shut down or delayed due to security conditions, the fixed 
costs of contractor camps and salaries continue to accrue even though 
contractors in the field are unable to continue their work. USAID, PCO, 
and GAO have each quantified some aspect of increased security 
requirements affecting reconstruction costs; however, none has 
quantified a cost estimate for the water sector as a whole. The USAID 
Inspector General found that costs for security subcontractors as a 
percentage of the costs for USAID's reconstruction effort in multiple 
sectors went from 4.2 percent of contractor billings between March 2003 
and February 2004 to 22.3 percent between March and December 2004. 
Based on an analysis of a sample of water projects, PCO estimated that 
the deteriorated security environment added about 7 percent to project 
costs in the water sector. We have also analyzed the security expenses 
of multiple reconstruction contracts and found that cost to obtain 
private security providers and security-related equipment accounted for 
more than 15 percent of contract costs on 8 of the 15 reconstruction 
contracts analyzed.[Footnote 18]

Management Challenges Have Adversely Affected Project Implementation: 

Several management challenges in executing water and sanitation 
projects have resulted in reduced scopes of work, project delays, and 
increased costs. Factors affecting the scope and pace of reconstruction 
have included understated initial cost estimates and delays in 
receiving allocated funding and awarding task orders. U.S. agencies and 
contractors have also faced difficulties in completing scopes of work, 
finalizing associated costs, and executing projects in an unpredictable 
environment. These difficulties include lack of agreement among U.S. 
agencies, contractors, and Iraqi authorities; staff turnover; an 
inflationary environment that makes it difficult to submit accurate 
pricing; unanticipated project site conditions; and uncertain ownership 
of project sites. 

Underestimated Costs and Funding Delays: 

According to PCO, initial assessments prepared by the CPA 
underestimated project costs and contributed to reductions in the scope 
of U.S. reconstruction efforts. These initial assessments gave rough 
budget estimates for repairing or constructing water and sanitation 
facilities and, according to PCO, assumed more benign operating 
conditions. The CPA relied on these estimates in putting together its 
proposed list of 137 projects to be executed with the original fiscal 
year 2004 IRRF allocation of $4.33 billion. Because the estimates were 
low, the $4.33 billion allocation was never sufficient to complete the 
original CPA list of projects. According to a senior PCO official, 
these estimates were usually very low in comparison to the estimates 
that contractors developed after more thorough field assessments of 
project sites. In general, PCO found these initial estimates to be 25 
to 50 percent below actual costs. According to a PCO water sector 
official, the low estimates meant that the PCO construction program was 
underfunded from the start. 

Contractors and agency officials cited delays in receiving funding as 
challenges to awarding and completing task orders and staying within 
budgets. PCO reported that the receipt of fiscal year 2005 funding for 
the sector was delayed by at least 3 months, affecting its ability to 
award projects in a timely manner. In addition, according to a PCO 
official, as of June 2005, PCO had not yet received the apportionment 
for two task orders awarded in January 2005. These task orders are not 
only delayed and limited in the amount of work that can be done, but 
they are still accruing overhead costs that may put the projects over 
budget. One contractor stated that increased overhead costs resulted 
from delays in receiving task orders from the government immediately 
after contract award and again following the June 2004 dissolution of 
the CPA. PCO contractors WGI/B&V and FluorAMEC stated that they began 
mobilizing staff after receiving their contracts in March 2004 based on 
the expectation that they would receive close to their maximum contract 
awards totaling $1.7 billion.[Footnote 19] As of June 2005, PCO had 
obligated about $873 million in task orders to these 
contractors.[Footnote 20] Because of the lower amount of funding, 
mobilized staff who were no longer needed were withdrawn from Iraq. 

Challenges in Finalizing Work Terms and Costs and Executing Projects: 

Following the award of task orders, PCO projects have been subject to 
delays in the process of developing a final cost, schedule, and scope 
of work, a process called definitization, and in overall project 
execution. For 18 of the 24 PCO task orders, the time from initial 
issuance of a task order to definitization has ranged from 6 to 10 
months, with the scope of one task issued in June 2004 for work in Al 
Anbar province still not finalized as of June 2005. The Federal 
Acquisition Regulation states that the process should be completed 
within 6 months of signing the contract, or before completion of 40 
percent of the work to be performed, although a contracting officer may 
extend this time in extreme cases and according to agency 
procedures.[Footnote 21] Without a definitized task order, DOD may 
generally obligate only up to 50 percent of the project's negotiated 
overall ceiling price.[Footnote 22] PCO has made some funds available 
to its contractors prior to definitization, enabling limited efforts 
such as planning and defining the scope of work. However, if the 
definitization process does not keep pace with the cost of these 
preliminary efforts, a project may come to a halt once these limited 
funds are exhausted. Agency and contractor officials cited the 
following factors as affecting both the definitization process and the 
overall pace and cost of the U.S. water and sanitation reconstruction 
effort: 

* Lack of agreement between U.S. agencies and Iraqi authorities: Agency 
and contractor officials and reports have cited difficulty in getting 
agreement among Iraqi authorities, U.S. agencies, and contractors on 
scopes of work and construction details. For example, at one site, 
Iraqi officials wanted to repair a water treatment plant whereas the 
U.S. agency had planned to replace it. At another site, local 
authorities disagreed with the pipe specified for a particular project. 
Another project was delayed when local Iraqi officials insisted on 
using brick instead of concrete block for construction. At a wastewater 
project, local officials wanted a certain type of sewer design that 
increased the project's cost. In addition, U.S. agencies and Iraqi 
staff have had to overcome security and communication constraints to 
coordinate agreement on the scope of work. For example, one PCO 
official stated that only half of the Iraqis invited to a scheduled 
project meeting were able to attend--the others were absent due to the 
danger of traveling, being stopped in traffic, or for other reasons. 

* Frequent Staff Turnover: One PCO contractor cited discontinuity in 
key U.S. government contacts, such as new contracting officers rotating 
in and out of Iraq, as disrupting both cost and schedule. New 
contracting officers had to be brought up to speed on work and issues 
and would sometimes ask the contractor to resubmit information in 
formats different from those previously required. A PCO official agreed 
that turnover in contract staff impacted project progress, and another 
noted that the contracting office in Iraq lacked sufficient staff and 
equipment, including computers, contract-writing software, and filing 
cabinets. This official also noted that some of the staff assigned as 
contracting officers lacked experience with the type of projects PCO 
awarded. 

* Unpredictable costs: According to PCO officials, inflation in Iraq 
has led to a situation where local labor and materials are in high 
demand and short supply. Contractors have stated that the number of 
qualified Iraqi contractors capable of undertaking some reconstruction 
work is limited. Additionally, PCO officials noted that inflation in 
the cost of labor and basic materials such as concrete and pipe had 
raised projected project costs. For example, a U.S. contractor cited 
increases in the cost of camps, transportation, and specialized labor 
such as experts in unexploded ordnance investigation and disposal. The 
contractor expected costs to increase because the demand for these 
specialized services likely exceeded the supply. 

* Poor site conditions: Contractors found some project sites inadequate 
or unusable. For example, one proposed site in northern Iraq for a new 
water treatment plant was flooded as a result of a break in a nearby 
irrigation dike. The project was delayed while the site was drained. 
One contractor had to redesign a proposed project when it found newly 
constructed houses and a school near the proposed project's right of 
way. Contractors also encountered unanticipated sewer blockages and 
additional treatment equipment requiring repair. 

* Unclear site ownership: Unclear ownership has delayed projects. In 
some cases, Iraqi ministries have proposed sites where contractors 
subsequently found squatters with competing property claims. In these 
situations, U.S. contractors halted work until the ministry could 
provide a usable site. For example, a water treatment plant in central 
Iraq was delayed until a junkyard and squatters were removed. In 
southern Iraq in March 2005, a PCO contractor was working to relocate 
families living in water pump stations. A landfill project in central 
Iraq encountered site selection difficulties stemming from both unclear 
land ownership and environmental concerns. Two proposed sites had 
ownership issues, and the third proposed site was environmentally 
infeasible due to a high groundwater level. USAID cancelled the 
project, estimated to cost $20 million if completed, as a result of 
these site issues. In all, about $4.1 million was budgeted for this 
project as of June 2005. These funds include costs to design the 
landfill for the ultimately unusable site, but were also used for 
equipment that will be stored and used at other projects. 

Iraq's Lack of Capacity to Operate and Maintain U.S.-Funded Projects 
Led to Inoperable Facilities and Greater U.S. Focus on Improving 
Project Sustainability: 

As of June 2005, U.S.-funded water and sanitation projects representing 
about $52 million of the approximately $200 million in completed 
projects were either not operating or were operating at lower capacity. 
In late August 2004, U.S. contractors and agencies identified several 
areas in which Iraqi capacity to maintain and operate reconstructed 
facilities needed improvement. U.S. concerns included problems with 
staffing, unreliable power to run treatment plants, insufficient spare 
parts, and poor operations and maintenance procedures. In late March 
2005, State allocated $25 million for up to 1 year of additional on 
site operations assistance and supply procurement at USAID's completed 
projects. In addition, U.S. agencies have begun risk forecasting and 
interagency planning efforts to address current and potential problem 
areas. However, the large-scale construction projects yet to be 
completed remain at risk due to staff and resource shortages. 

Completed Projects Lack the Resources to Operate at Intended Capacity: 

As of June 2005, USAID's contractor Bechtel had completed approximately 
$200 million in projects under its two contracts; however, projects 
costing about $52 million could not be commissioned or their capacity 
had been diminished due to the theft of key equipment, inadequate Iraqi 
staff, or inadequate supplies of electricity and treatment chemicals. 
For example, one wastewater plant repaired at a cost of $5.8 million 
was partially shut down due to the theft of key electrical equipment 
from the plant. Two wastewater treatment plants costing about $11 
million lacked reliable supplies of electricity and diesel fuel for 
generators. These two plants had lacked these supplies since December 
2004. An additional two wastewater plants, for which about $24 million 
had been obligated, lacked adequate Iraqi staff to function 
continuously or had inadequate supplies of reliable electricity. 
Finally, all the water plants repaired in one southern Iraq governorate 
lacked the water treatment chemicals and supplies needed for proper 
operation. The United States obligated $10.4 million for repairs to 
these plants in southern Iraq. 

U.S. Agencies Included Training and Capacity Development Requirements 
in Contracts and Identified Sustainability Issues: 

The United States incorporated training programs and capacity 
development into its reconstruction program beginning in 2003. USAID's 
Phase I reconstruction contract required Bechtel to involve government 
ministries in implementing reconstruction projects and to provide 
technical assistance and training to build Iraqi capacity. In addition, 
PCO contract provisions require WGI/B&V and FluorAMEC to provide 
operations and maintenance training and manuals and be available for 
additional support for 90 days following project completion. PCO also 
awarded two task orders that more explicitly include capacity 
development efforts. In July 2004, PCO awarded a task order for water 
conservation and network repair to address the numerous leaks in Iraq's 
water mains. As part of this effort, the contractor is surveying 
training needs, providing on-the-job and classroom training to Iraqi 
ministry staff, and improving management tools and systems. In January 
2005, PCO awarded another task order to provide systems development, 
professional mentoring, and technical training to the Iraqi Ministry of 
Municipalities and Public Works in eight governorates. 

Bechtel began to report concerns about institutional strengthening in 
Iraq beginning in August 2004 and provided a detailed assessment of the 
issue in December 2004. In August 2004, Bechtel noted to USAID that the 
sustainability of water projects was a critical concern in its 
reconstruction efforts. In December 2004, Bechtel submitted a paper to 
USAID that provided detailed information on areas it considered crucial 
to ensuring the sustainability of water and sanitation projects being 
completed under its Phase I contract. These include: 

* Staffing: Bechtel estimated that water and wastewater plants had only 
about one third of the staff needed. These plants lacked the staff to 
operate 24 hours per day and were shut down at night. Day staff 
included a significant number of temporary employees and "day laborers."

* Lack of electrical power and diesel fuel: The unreliable Iraqi 
electrical grid required some plants to run on backup generators. 
However, generators needed diesel fuel to power them, and the fuel was 
not always available. 

* Spare parts: Bechtel's Phase I contract with USAID did not provide 
funding for spare parts for rehabilitated plants. Without these spares 
or the funds to buy them, Iraqi staff would likely have to cannibalize 
parts of the facility, borrowing parts from one machine to repair 
others. 

* Poor operating practices: Equipment was not being operated or 
maintained correctly. For example, filters were not cleaned, and 
chlorine and alum dosing equipment was available but not used. 

* Lack of maintenance programs: Iraqi staff did not undertake repairs 
until a situation became critical. One facility, a key pumping station 
for a city in southern Iraq, had to be taken completely offline to 
allow for repairs. 

In early 2005, a working group of State, USAID, PCO, and U.S. Army 
Corps of Engineers officials assessed operations and maintenance 
problems in the water sector. According to the group, much of the Iraqi 
workforce was comprised of day laborers with little operations 
capability, and operations managers were often political appointees 
with little or no water sector experience. According to the working 
group's assessment, most water and sewage treatment plants were the 
joint responsibility of the Ministry of Municipalities and Public Works 
and the local municipalities or governorates, which complicated the 
division of responsibility for the plants. Further, procurement and 
supply issues led to severe capacity limitations due to shortages of 
electricity, diesel fuel, and chemical supplies. 

U.S Agencies Have Increased Efforts to Support Iraqi Operations and 
Management, but Future Sustainability Is Unclear: 

In response to problems with completed water and sanitation projects, 
U.S. agencies undertook efforts to provide additional support for Iraqi 
operations and management. First, State increased funds to support the 
operation of water and sanitation facilities after their turnover to 
Iraqi authorities. In late March 2005, nearly 7 months after the 
initial USAID contractor report of sustainability concerns, State 
reallocated funding from an electrical generation project and provided 
$25 million to USAID to support the operations, maintenance, and 
logistics at USAID's recently completed water and sanitation projects 
for up to 1 year. According to USAID, Bechtel will hire local Iraqi 
companies to provide these services. In proposing the reallocation, the 
U.S. embassy in Iraq noted that it was moving from the previous model 
of building projects and turning them over to Iraqi management toward a 
"build-train-turnover" system to protect the U.S. investment in Iraq's 
infrastructure. State has not committed funds for similar support at 
other USAID and PCO water and sanitation projects. 

Second, in March 2005, PCO provided $10.3 million to CH2M Hill/PWI for 
a capacity development initiative, a 12-month effort in eight 
governorates that will include workshops, courses, and hands-on 
training. Areas addressed will include baseline service assessments, 
operations and maintenance planning and budgeting, project management, 
planning and design, finance and administration, water quality, and 
communications. The initiative also requires CH2M Hill/PWI to work with 
Iraqi ministry staff on management efforts such as strategic planning, 
facility design processes and standards, and international donor 
coordination. 

Third, in April 2005, PCO began using a formal risk matrix to evaluate 
the potential risk of failure for strategic and high-cost projects 
after their handover to Iraqi management and to direct support to where 
it is needed. Prior to project completion, PCO's sector contractors 
will assess five factors and calculate a score that estimates the 
probability a reconstruction project will not function as intended. Two 
of the five factors are the quality of PCO's construction activities 
and the completion of PCO's required operations and maintenance 
training and documentation. PCO officials consider these factors to be 
under their direct influence and therefore the least susceptible to 
failure. According to PCO officials, the remaining three factors 
present the greater risks: (1) the ability and commitment of Iraqi 
facility operators and management to perform required operations and 
maintenance procedures, (2) management support of operations and 
maintenance efforts, and (3) adequate funding and direction from Iraqi 
ministries. PCO has not set a threshold score whereby a high risk 
factor would delay the handover. 

Finally, in May 2005, State/IRMO, USAID, PCO, and the U.S. Army Corps 
of Engineers formed an interagency working group to identify ways of 
addressing Iraq's capacity development needs. The working group is in 
its early stages, and it is unknown what direction their 
recommendations may take. PCO has identified potential future steps: 
(1) provide a year of additional operations and maintenance support 
similar to what USAID will provide for its Phase I projects, (2) expand 
its training effort with the Iraqi Ministry of Municipalities and 
Public Works to all Iraqi governorates, and (3) extend the capacity 
development initiative beyond the 12 months currently planned. 

Despite these efforts, the long-term outlook for sustaining 
reconstructed Iraqi facilities remains unclear. USAID's $25 million 
program provides initial support for capacity development, but many of 
these efforts are in their early stages. In addition, facilities at 
risk of failure could still be handed over to Iraqi management. The 
initial U.S. experience with projects completed under USAID's Phase I 
contract and PCO's risk assessment have shown that Iraqi ministry 
capacity remains an obstacle to program success. U.S. agencies have 
obligated about $1.2 billion in U.S. appropriated funds for projects 
they expect to complete between mid-2005 and 2008. These projects will 
require more trained staff, skilled managers, spare parts, and supplies 
to function effectively. 

Conclusion: 

The United States has obligated about $1.8 billion in appropriated 
funds to restore Iraq's water and sanitation infrastructure and has 
made some progress in a challenging security environment. However, it 
is difficult to determine the overall progress and impact of U.S. 
efforts because of limited performance data and measurements. These 
limited performance data and measurements in turn make it difficult to 
assess the effectiveness of U.S. water and sanitation reconstruction 
efforts. State has primarily reported on the numbers of projects 
completed and the expected capacity of reconstructed treatment plants. 
However, these data do not provide information on the scope and cost of 
individual projects nor do they indicate how much clean water is 
reaching intended users as a result of these projects. Information on 
access to water and its quality is difficult to obtain in an insecure 
environment and without water metering facilities. However, opinion 
surveys assessing Iraqis' access and satisfaction with water and 
sanitation services have the potential for providing important data to 
measure the impact of U.S. reconstruction efforts. Moreover, the United 
States has funded most water and sanitation reconstruction assistance 
in Iraq to date. As a result, progress and benefits measured through 
the use of surveys and other data collection methods are more easily 
attributed to U.S. efforts. 

Iraqis have been unable to operate and maintain U.S.-funded water and 
sanitation facilities due to a lack of reliable power, trained Iraqi 
staff, and required chemicals and supplies. In response, U.S. agencies 
have taken initial steps to improve Iraqi capacity to operate and 
maintain water and sanitation facilities. However, these efforts are 
just beginning. It is unclear whether the Iraqis will be able to 
maintain and operate both completed projects and projects expected to 
be completed through 2008 for which the U.S. has obligated more than a 
billion dollars. Without assurance that Iraqis have adequate resources 
to maintain and operate completed projects, the U.S. water and 
sanitation reconstruction program risks expending program funds on 
projects with limited long-term impact. 

Recommendations for Executive Action: 

To more accurately report the results of U.S. reconstruction efforts in 
water and sanitation, we recommend that the Secretary of State 
establish indicators and measures to assess how the U.S. efforts are 
improving the quality and quantity of water and sanitation services in 
Iraq. For example, State could include information on project scope and 
cost in its reporting on numbers of projects under way and completed. 
State could also include surveys that measure Iraqis' access to water 
and sanitation facilities and their satisfaction with these services in 
selected geographic areas that are served by larger-scale U.S. 
reconstruction efforts. Efforts to develop performance measures should 
take into account the challenges in collecting data in a difficult 
security environment. 

To help ensure that projects funded by U.S. appropriations operate at 
their intended capacity and provide benefits to the Iraqi people after 
their completion, we recommend that the Secretary of State work with 
Iraqi ministries to assess the resources needed to operate and maintain 
new and repaired water and sanitation facilities before they are turned 
over to Iraqi management and, afterwards, work with the Iraqi 
government to ensure that Iraq has these resources. 

Agency Comments: 

We provided a draft of this report to the Departments of Defense and 
State and the U.S. Agency for International Development. 

The Department of State provided written comments, which are reprinted 
in appendix II. State agreed with our recommendations and stated that 
it is refining its performance metrics and working with the Iraqi 
government to assess the resources needed to sustain water and 
sanitation facilities. State also endorsed our main findings and 
provided additional comments to elaborate on its water and sanitation 
efforts in Iraq. State also provided technical comments, which we 
incorporated where appropriate. 

The U.S. Agency for International Development also provided a written 
response, which is reprinted in appendix III. The agency stated that it 
is pleased that the report prominently mentions the importance of 
operations and maintenance in the water sector. USAID added that the 
report contributes to the discussion of next steps in Iraq 
reconstruction by clarifying the economic and social context of the 
management of public utilities in Iraq. 

The Department of Defense did not provide written comments on our 
report; however, it provided technical comments, which we incorporated 
where appropriate. 

We are sending copies of this report to interested congressional 
committees. We will also make copies available to others on request. In 
addition, this report is available on GAO's Web site at 
http://www.gao.gov. If you or your staff have any questions, please 
contact me at (202) 512-8979 or christoffj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. Key contributors to this report are 
listed in appendix IV. 

Signed by: 

Joseph A. Christoff: 
Director, International Affairs and Trade: 

List of Committees: 

The Honorable Thad Cochran: 
Chairman: 
The Honorable Robert C. Byrd: 
Ranking Minority Member: 
Committee on Appropriations: 
United States Senate: 

The Honorable Mitch McConnell: 
Chairman: 
The Honorable Patrick J. Leahy: 
Ranking Minority Member: 
Subcommittee on State, Foreign Operations, and Related Programs: 
Committee on Appropriations: 
United States Senate: 

The Honorable Ted Stevens: 
Chairman: 
The Honorable Daniel K. Inouye: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate: 

The Honorable John Warner: 
Chairman: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Richard G. Lugar: 
Chairman: 
The Honorable Joseph R. Biden, Jr.: 
Ranking Minority Member: 
Committee on Foreign Relations: 
United States Senate: 

The Honorable Susan M. Collins: 
Chairman: 
The Honorable Joseph I. Lieberman: 
Ranking Minority Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable C. W. Bill Young: 
Chairman: 
The Honorable John P. Murtha: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Jim Kolbe: 
Chairman: 
The Honorable Nita M. Lowey: 
Ranking Minority Member: 
Subcommittee on Foreign Operations, Export Financing, and Related 
Programs: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Duncan L. Hunter: 
Chairman: 
The Honorable Ike Skelton: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Tom Davis: 
Chairman: 
The Honorable Henry A. Waxman: 
Ranking Minority Member: 
Committee on Government Reform: 
House of Representatives: 

The Honorable Christopher Shays: 
Chairman: 
Subcommittee on National Security, Emerging Threats, and International 
Relations: 
Committee on Government Reform: 
House of Representatives: 

The Honorable Henry J. Hyde: 
Chairman: 
The Honorable Tom Lantos: 
Ranking Minority Member: 
Committee on International Relations: 
House of Representatives: 

[End of section]

Appendix I: Objectives, Scope & Methodology: 

As part of GAO's review of reconstruction efforts in Iraq initiated 
under the Comptroller General's authority, we examined U.S. activities 
directed at rebuilding the water and sanitation sector. Specifically, 
we assessed (1) the funding and status of U.S. activities, (2) U.S. 
efforts to measure progress, (3) the factors affecting the 
implementation of reconstruction activities, and (4) the sustainability 
of U.S.-funded projects. To accomplish our objectives, we relied 
primarily on U.S. agency and contractor reporting. We also met with 
agency and contractor officials in the United States. Although we did 
not travel to Iraq, we interviewed U.S. officials based in Iraq by 
telephone, exchanged information through email, and met with contractor 
officials in the United States who had spent time in Iraq. We also 
reviewed U.S. government-funded surveys that document Iraqi perceptions 
of the quality and quantity of water and sanitation services. 

In assessing resources supporting the reconstruction of Iraq, we 
focused on the sources and uses of U.S., Iraqi, and international 
funding. U.S. agencies provided us with electronic data files for 
appropriated funds, the Development Fund for Iraq (DFI), vested assets, 
and seized assets. These files generally included objective or project 
descriptions with allocated, obligated, and disbursed amounts. We 
assigned each of the funding line items to broad categories based on 
the descriptive information available in the data files. To assign the 
data to a category, we relied on project descriptions from agency data 
files. 

In addressing the amount of U.S. funds that have been appropriated, 
obligated, and disbursed for the Iraq reconstruction effort, we 
collected funding information from contractors, the Department of 
Defense (DOD), including the Project and Contracting Office (PCO); 
Department of State; and the U.S. Agency for International Development 
(USAID). Data for U.S. appropriated funds are as of end June 2005. We 
also reviewed Special Inspector General for Iraq Reconstruction 
reports, and Office of Management and Budget documents. Although we 
have not audited the funding data and are not expressing our opinion on 
them, we discussed the sources and limitations of the data with the 
appropriate officials and checked them, when possible, with other 
information sources. We determined that the data were sufficiently 
reliable for characterizing water and sanitation projects. To address 
international assistance for rebuilding Iraq, we collected and analyzed 
information provided by the State Department's Bureau of Economic and 
Business Affairs. We also collected and reviewed reporting documents 
from the International Reconstruction Fund Facility for Iraq (IRFFI). 
To assess the reliability of the data on the pledges, commitments, and 
deposits made by international donors, we interviewed officials at 
State who are responsible for monitoring data provided by the IRFFI and 
donor nations. We determined that the data on donor commitments and 
deposits made to the IRFFI were sufficiently reliable for the purposes 
of reporting at the aggregate level. 

To determine the status of U.S. activities in the water and sanitation 
sector, we reviewed documents obtained from the former CPA, the State 
Department, PCO, USAID, and agency contractors. Specifically, we 
reviewed contracts, task orders, status reports, and planning documents 
prepared by USAID, the former CPA, State, PCO, and contractors. We also 
interviewed USAID, State, and PCO officials and their contractor 
representatives. We focused on the five major USAID and PCO contracts 
for water and sanitation implemented by U.S. contractors because they 
received the majority of U.S. appropriated funds. We report progress 
data as of the end of June 2005. Funding data for the major contracts 
has been reported as of the end of March for USAID contracts and end of 
June for PCO contracts. 

To assess U.S. efforts to measure progress we reviewed planning 
documents from the CPA and State, and agency reporting documents from 
PCO, USAID, and State. We also contacted agency officials for 
clarification of some of this data and further information in 
evaluating its effectiveness in determining the impact of the U.S. 
program. We reviewed the methodology of the Iraq Quality of Life Survey 
and contacted contractor officials to review the methodology and survey 
limitations. The USAID contractor did not conduct cross-checks for the 
internal consistency of responses on water supply, but the satisfaction 
data reported in the survey are analogous to the findings on access 
reported in the earlier UN/World Bank and USAID/Bechtel assessments. We 
determined that the survey data was sufficiently reliable to report in 
the quartile bands used in this report. 

To determine the factors affecting the implementation of reconstruction 
activities, we reviewed contractor and agency reporting and interviewed 
agency officials in the United States and Iraq. Specifically, we 
reviewed agency and contractor reports, and we interviewed USAID, 
State, and PCO officials and contractor representatives in the United 
States and in Iraq. We reviewed the data for discrepancies, interviewed 
officials familiar with the data collection, and determined that the 
information from these sources was sufficiently reliable to meet our 
reporting objectives. 

To determine the sustainability of U.S.-funded projects, we reviewed 
agency contracts, contractor reporting, and agency reporting. 
Specifically, we reviewed USAID, PCO, and contractor reports, and we 
interviewed USAID, State, and PCO officials and contractor 
representatives in the United States and in Iraq. We determined that 
the information from these sources was sufficiently corroborated and 
reliable to meet our reporting objectives. 

We conducted our review from September 2004 through August 2005 in 
accordance with generally accepted government auditing standards. 

[End of section]

Appendix II: Comments from the Department of State: 

United States Department of State: 
Assistant Secretary and Chief Financial Officer:
Washington, D. C. 20520: 

Ms. Jacquelyn Williams-Bridgers: 
Managing Director:
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, N.W.
Washington, D.C. 20548-0001: 

SEP 6 2005: 

Dear Ms. Williams-Bridgers: 

We appreciate the opportunity to review your draft report, "REBUILDING 
IRAQ: U.S. Water and Sanitation Efforts Need Improved Measures for 
Assessing Impact and Sustained Resources for Maintaining Facilities," 
GAO Job Code 320316. 

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report. 

If you have any questions concerning this response, please contact Tom 
Gramaglia, Desk Officer, Bureau of Near Eastern Affairs, at (202) 647-
4065. 

Sincerely,

Signed by: 

Sid Kaplan (Acting): 

cc: GAO - Michael Simon; 
NEA - David Welch; 
State/OIG - Mark Duda: 

Department of State Comments on GAO Draft Report REBUILDING IRAQ: U.S. 
Water and Sanitation Efforts Need Improved Measures for Assessing 
Impact and Sustained Resources for Maintaining Facilities (GAO-05-872, 
GAO Code 320316): 

Thank you for the opportunity to comment on your draft report entitled 
"REBUILDING IRAQ: U.S. Water and Sanitation Efforts Need Improved 
Measures for Assessing Impact and Sustained Resources for Maintaining 
Facilities."

The Department of State welcomes the GAO report on the U.S. 
reconstruction program in Iraq's water and sanitation sector and 
endorses its main findings. Over the past several months, the staff of 
the Iraq office in the Department's Bureau of Near Eastern Affairs 
(NEA/I) worked closely with the GAO team to assist in the latter's 
efforts to evaluate our progress in this sector. We are grateful for 
the cooperative relationship that resulted between the GAO team and 
NEA/I. 

The Iraq Relief and Reconstruction Funds ($20.9 billion) are designed 
to assist in the emergence of an independent, stable, and prosperous 
Iraq, with a freely-elected representative government, at peace with 
its neighbors, whose people can enjoy the freedoms denied under Saddam 
Hussein while benefiting from the rewards of a market economy. This 
strategy requires assistance to help Iraq develop the capability to 
provide for its own security, improve its economy and begin to 
establish justice and the rule of law. 

In the water and sanitation sector, the U.S. reconstruction program 
includes the following activities: 

* We are completing water treatment plants and sewage treatment plants 
to benefit millions of Iraqis, and we have begun training Iraqis to 
operate and maintain them. For example, USAID has completed 
rehabilitation or expansion on 5 large-scale water treatment plants and 
14 compact water treatment plants. 

* Prior to reconstruction, over 70% of all sewage flowed untreated into 
rivers and streets. USAID has rehabilitated all three sewage treatment 
plants in Baghdad and plants in Hillah, Najaf, Diwaniyah and Basrah, 
benefiting millions of Iraqis. We are also rehabilitating a major 
sewage treatment plant in Karbala. 

* USAID's Rural Water Supply Initiative will provide wells, treatment 
plants, or storage facilities for 550,000 Iraqis living in rural areas 
where water is scarce or brackish. 

* The U.S. is assisting Iraq's development of a national plan for the 
management of water resources for consumption, irrigation, 
hydroelectric power generation, and restoration of the Iraqi marshes, 
which were deliberately drained by Saddam. 

* Capacity development of the Iraqi water ministries is a priority. 
USAID has commenced a training program in operations and maintenance of 
reconstructed water treatment plants; in addition, the Department of 
Defense's Projects and Contracting Office has commenced two capacity 
development programs for ministry and plant personnel. 

Despite our progress in the water and sanitation sector, we agree with 
the GAO's recommendations and have already begun to implement them: 

Recommendation #1: The State Department is currently refining 
performance metrics in the water and sanitation, as well as other 
sectors, to track reconstruction progress in greater detail and 
accuracy. We are implementing several metrics especially related to how 
our projects affect the Iraqi population (such as access to potable 
water). 

Recommendation #2: The State Department is currently working with the 
Iraqi government to assess the additional resources needed to operate 
and maintain water and sanitation facilities that have been constructed 
or repaired by the U.S. 

As the GAO report illustrates, poor security, inflation, unanticipated 
site conditions, uncertain ownership of project sites and other factors 
have adversely affected the U.S. water and sanitation reconstruction 
program. Despite these challenges, the Department of State is committed 
to working closely with the Iraqi government for successful and 
sustainable implementation of the program. 

[End of section]

Appendix III: Comments from the U.S. Agency for International 
Development: 

USAID: 

FROM THE AMERICAN PEOPLE: 

August 30, 2005: 

Mr. Joseph A. Christoff:
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, N.W.
Washington, D.C. 20548: 

Dear Mr. Christoff: 

Thank you for this opportunity to provide the U.S. Agency for 
International Development's (USAID) formal response to the draft GAO 
report entitled Rebuilding Iraq: U.S. Water and Sanitation Efforts Need 
Improved Measures for Assessing Impact and Sustained Resources for 
Maintaining Facilities [GAO-05-872]. 

USAID is pleased that the report prominently mentions the importance of 
operations and maintenance (O&M) in the water sector. The resources 
required for O&M are indicative of the challenge of reconstruction in 
any country. The GAO report contributes to the discussion of next steps 
in Iraq reconstruction by clarifying the economic and social context 
around the management of Iraqi public utilities. 

We appreciate this opportunity to respond to the GAO draft report and 
for the courtesies extended by your staff in the conduct of this 
review. 

Sincerely,

Signed by: 

Steven G. Wisecarver:
Acting Assistant Administrator: 
Bureau for Management: 

U.S. Agency for International Development:
Office of Iraq Reconstruction: 
1300 Pennsylvannia Ave. N.W.:
Washington DC 20523: 

Tel: 202-712-0448:
Fax 202-216-3872: 

[End of section]

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Joseph A. Christoff, Director (202) 512-8979: 

Staff Acknowledgments: 

John Hutton (Assistant Director), Monica Brym, Aniruddha Dasgupta, 
Charles D. Groves, B. Patrick Hickey, Sarah Lynch, Michael Simon, and 
Audrey Solis made key contributions to this report. Sharron Candon, 
Lynn Cothern, Martin De Alteriis, Judy McCloskey, and Judith Williams 
provided technical assistance. 

FOOTNOTES

[1] United Nations Development Group and World Bank Group, United 
Nations/World Bank Joint Iraq Needs Assessment (October 2003). 

[2] Task orders are placed against established contracts for the 
performance of tasks during the period of the contracts. 

[3] We could not determine which of these projects were included in the 
task orders reported by contractors. 

[4] United Nations Development Group and World Bank Group, United 
Nations/World Bank Joint Iraq Needs Assessment (October 2003). 
Operation Iraqi Freedom largely spared water and wastewater treatment 
plants; however, water networks were seriously damaged. Baghdad's water 
network in particular was subject to severe bomb damage, causing acute 
water shortages that led residents to tap the network illegally. 

[5] UN Children's Fund, The Situation of Children in Iraq: An 
Assessment Based on the United Nations Convention on the Rights of the 
Child (New York: Reprinted March 2003). 

[6] The disbursement figure for water and sanitation activities is 
estimated due to limitations in agency reporting. For example, water 
and other reconstruction activities under USAID's Local Governance 
Program are reported in the democracy category, and DOD's reporting on 
some smaller programs stops at the obligation level. 

[7] Congress enacted Public Law 108-11, the Emergency Wartime 
Supplemental Appropriations Act, 2003 on April 16, 2003. 

[8] Congress enacted Public Law 108-106, the Emergency Supplemental 
Appropriations Act for Defense and for the Reconstruction of Iraq and 
Afghanistan, 2004, on November 6, 2003. 

[9] According to UN Security Council Resolution 1483, the funds 
deposited into the DFI were to be used to meet the costs of Iraqi 
civilian administration, humanitarian needs, infrastructure repairs, 
economic reconstruction, and other purposes benefiting the people of 
Iraq. The CPA used the term "allocation" to reflect DFI obligations. We 
used the term "obligations" for consistency of reporting. The 2005 
budgets for the Iraqi Ministries of Municipalities and Public Works, 
and of Water Resources also included funding for capital project costs; 
however, we were unable to determine the extent to which these funds 
have been made available. 

[10] The International Reconstruction Fund Facility for Iraq comprises 
two trust funds into which donors can make contributions--the World 
Bank Iraq Trust Fund and the UN Development Group Iraq Trust Fund. 
Members of the international community have also made bilateral 
donations for rebuilding Iraq. As we reported in June 2004, the United 
States had been working with the Iraqis to develop a database for 
tracking all bilateral commitments made to reconstruction activities in 
Iraq. One year later, this database for tracking all donor assistance 
projects in Iraq remains under development with U.S. and UN assistance 
and has been transferred to the Iraqis. 

[11] According to PCO reporting, in addition to obligating funds to 
water and sanitation construction projects, PCO has obligated about 
$127 million to nonconstruction activities in the sector as of June 26, 
2005. These activities include procurement of trash trailers, sewage 
trucks, and generators. 

[12] According to a PCO official, after the dissolution of the CPA, the 
United States, per agreement with the Iraqi Finance Minister, manages 
the AIRP projects but may not award new ones. 

[13] Iraq Ministry of Planning and Development Cooperation and UN 
Development Program, Iraq Living Conditions Survey 2004 (Baghdad, Iraq: 
April 2005). 

[14] Survey reports are dated October-November 2003, June 2004, 
September 2004, and February 2005. 

[15] The USAID contractor reported a good overall response rate to the 
survey. However, response rates per governorate and per question were 
not provided, and sampling errors were not calculated, so the margin of 
error for the responses is unknown. In addition, the responses were not 
weighted by governorate, although the samples by governorate were not 
strictly proportional. For example, while Baghdad contains about a 
third of Iraq's urban population, its sample represented only about a 
quarter of the entire sample for Iraq. As a result, it is possible that 
responses from some governorates are more influential than responses 
from others. 

[16] GAO, Rebuilding Iraq: Status of Funding and Reconstruction 
Efforts, GAO-05-876 (Washington, D.C.: July 28, 2005). 

[17] While it is apparent from these and other examples that security 
has affected the progress of reconstruction, it is not always possible 
to separate delays and cost increases caused by poor security 
conditions from delays and cost increases caused by other factors. For 
example, USAID task order amendments list the reasons why a job's 
schedule is being extended, but several factors may be cited as part of 
the same extension request. One project in southern Iraq received a 75- 
day extension due to delays in awarding subcontracts and receiving 
permits from highway department, issues with relocating illegal 
roadside markets, as well as deterioration in the overall security 
situation. 

[18] GAO, Rebuilding Iraq: Actions Needed to Improve Use of Private 
Security Providers, GAO-05-737 (Washington, D.C.: July 28, 2005). 

[19] The three PCO contracts had ceiling values of $500 million, $600 
million, and $600 million. 

[20] This figure includes obligations from appropriated funds and from 
the DFI. 

[21] Federal Acquisition Regulations 16.603-2. To meet urgent 
operational needs, as is the case in Iraq's reconstruction, agencies 
may authorize contractors to begin work before contracts or task orders 
have been definitized--that is, before key terms and conditions, 
including price, have been defined and agreed upon. While this approach 
allows agencies to initiate work quickly, it also can result in 
potentially significant additional costs and risks for the government. 

[22] See 10 U.S.C. § 2326; Defense Federal Acquisition Regulations 
Supplement subpart 217.74. 

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