Thursday, December 11, 2003

Over the last two days, I've heard lots of whining about certain non-coalition countries being barred from participating in US funded prime contracts. I've also read quite a bit of misinformation from people claiming that our government is engaging in cronyism by favoring US contractors, specifically a report from the Center for Public Integrity published in October. The following article from Slate blows some good holes in their report.

Fables of the Reconstruction
Bush isn't really favoring Halliburton and Bechtel.
By Daniel Drezner

A new report by the Center for Public Integrity attempts to prove something that many people simply assume to be true: that the Bush administration has strongly favored cronies and campaign contributors in awarding reconstruction contracts for Iraq and Afghanistan. The CPI devoted six months to research and filed more than 70 Freedom of Information Act requests and appeals to get to the bottom of the story. The conclusion of the report, "Windfalls of War," is that a clear quid pro quo exists between government procurement and campaign contributions to George W. Bush. Charles Lewis, the group's executive director, released a statement arguing that the report reveals "a stench of political favoritism and cronyism surrounding the contracting process in both Iraq and Afghanistan."

There's just one problem: The CPI has no evidence to support its allegations.

The basic hypothesis of the report is that campaign contributions must have affected the allocation of reconstruction contracts; Halliburton's and Bechtel's large reconstruction contracts and generous support of politicians hint at such a finding. However, a closer look at the guts of the CPI report—the list of contract winners and the list of campaign contributions—exposes the flimsiness of this charge.

Consider the top 10 U.S. contractors in Iraq and Afghanistan in terms of dollars. The Washington Post story on the CPI report suggests a sinister connection:

The winners of the top 10 contracts for work in Iraq and Afghanistan contributed about $1 million a year to national political parties, candidates and political action committees since 1990, according to the group, which studies the links between money and politics.

However, a glance at Table 1 shows that of the 10 largest contractors, only four firms made contributions greater than $250,000 over the entire 12-year span of the study. Another four firms among the top 10 averaged less than $1,000 per year in campaign contributions, a pittance by Beltway standards. The Post's statement is technically accurate but conceals the fact that over 85 percent of the total figure comes from only three firms.

Table 1: Top 10 U.S. Contractors in Iraq and Afghanistan

Company Size of reconstruction contracts (in dollars) Campaign contributions (in dollars)
Kellogg Brown & Root (Halliburton) $2,329,040,891 $2,379,792
Bechtel Group Inc. 1,029,833,000 3,310,102
International American Products Inc. 526,805,651 2,500
Perini Corp. 525,000,000 119,000
Contrack International Inc. 500,000,000 2,000
Fluor Corp. 500,000,000 3,624,173
Washington Group International 500,000,000 1,185,232
Research Triangle Institute 466,070,508 1,950
Louis Berger Group 300,000,000 212,456
Creative Associates International Inc. 217,139,368 10,300

On the other hand, if you look at Table 2, top 10 campaign contributors, you find that only four of them received more than $100 million in contracts—and none of those top four donors are in the top 10 for contracts. General Electric, the biggest campaign contributor, has actually spent more in contributions than it has received in reconstruction contracts. Bechtel and Halliburton have given millions in political contributions, but the top 10 lists don't support the notion that those campaign contributions were responsible for their winning bids.

Table 2: Top 10 Campaign Contributors Among Contractors for Iraq and Afghanistan

Company Size of reconstruction contracts (in dollars) Campaign contributions (in dollars)
General Electric Co. 5,927,870 8,843,884
Vinnell Corp. (Northrop Grumman) 48,074,442 8,517,247
BearingPoint Inc. 143,683,885 4,949,139
Science Applications International Corp. 38,000,000 4,704,909
Fluor Corp. 500,000,000 3,624,173
Bechtel Group Inc. 1,029,833,000 3,310,102
Kellogg Brown & Root (Halliburton) 2,329,040,891 2,379,792
American President Lines Ltd. 5,000,000 2,185,303
Dell Marketing LP 513,678 1,774,971
Parsons Corp. 89,000,000 1,403,508

The CPI report covers 70 firms that have received money for reconstruction in Afghanistan and Iraq from the State Department, the U.S. Agency for International Development, and the Department of Defense. That's a large enough sample to provide an imperfect test of the Center for Public Integrity's underlying argument that contributions lead to contracts. If the corruption argument is true, then the size of campaign contributions should be strongly and positively correlated with the size of government contracts.

Running the numbers, the good news for the Center for Public Integrity is that there is indeed a positive correlation between contributions and contracts. The bad news is, the correlation coefficient [What is the Correlation Coefficient? The correlation coefficient a concept from statistics is a measure of how well trends in the predicted values follow trends in the actual values in the past. It is a measure of how well the predicted values from a forecast model "fit" with the real-life data. The correlation coefficient is a number between 0 and 1. If there is no relationship between the predicted values and the actual values the correlation coefficient is 0 or very low (the predicted values are no better than random numbers). As the strength of the relationship between the predicted values and actual values increases so does the correlation coefficient. A perfect fit gives a coefficient of 1.0. Thus the higher the correlation coefficient the better.] turns out to be 0.192 and not statistically significant. To understand how weak those numbers are, go to this Web site and move your cursor to 0.2. An old joke among statistically minded social scientists is that "the world is correlated at 0.3."

A conscious effort to reward Bush cronies with lucrative government contracts would require a lot more coordination than the CPI uncovers.

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