For-Profits Are Focus for a New Iraq

By Nancy Cleeland and Mark Fineman, Times Staff Writers,1,7366567.story
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Note: "Sixty Minutes" also presented a segment on this topic, Sunday, April 27, 2003

The issue recalls  the huge development contract between Greece and (I recall) Litton Industries or General Dynamics 30 years ago or more.  It was felt that a coordinated development contract would be more effective than relying on traditional (NGO, and national and multi-national government) providers in a large scale coordinated development effort.  My recollection is that Litton? lost this contract, due to disputes over methodology and effectiveness, but I do not recall seeing an independent evaluation of their effectiveness.

The U.S. Agency for International Development is expected to rely almost exclusively on for-profit corporations to rebuild Iraq's social institutions, angering nonprofit organizations that claim they can do the work more effectively.

Several hundred million dollars are at stake in three development contracts, covering health care, education and governance, that are expected to soon be awarded by USAID. Tasks will range from helping build democratic institutions to publishing textbooks and training teachers.

Bidding for the contracts was by invitation only. People familiar with the process said only one nonprofit was contacted, and that it refused the invitation because it didn't think the contract goals could be met within the one-year time period specified. In international development, nonprofits are known as nongovernmental organizations, or NGOs.

"They seem to have turned to just a small pool of preselected, large firms for these activities, despite decades of experience that NGOs can bring," said Mary McClymont, chief executive of InterAction, an association of nonprofit groups.

USAID director Andrew Natsios confirmed that the agency will rely for the most part on for-profit companies to oversee the social rebuilding effort, saying the projects in Iraq are simply too large and ambitious for a nonprofit to handle.

"We want to rebuild 6,000 schools in a year. If you took all the NGOs in the world they wouldn't have the ability to do that," he said.

Natsios added that consulting firms are more capable than nonprofit organizations of putting together thorough documentation of their work. "The president and the Congress want measurable results," he said.

Nonprofit officials said that although their documentation might not be as polished, their approach is more effective in the long run.

They expressed concern that the bidding process signals a new direction at USAID. One referred to it as "the corporatization of overseas assistance".

Indeed, consultants specializing in international development have had healthy growth recently. Creative Associates, a Washington area for-profit that depends primarily on USAID funding and has bid for the Iraq education contract, saw its revenue grow 25% to $50 million last year. International development has also been a bright spot for BearingPoint, a global consulting firm that last month won a USAID contract for government institution-building in Afghanistan and may be a contender for the Iraq governance contract.

"It's a terrific cushion to have when other parts of your business, like technology, is really suffering," said BearingPoint spokesman John Schneidawind.

But Natsios noted that a burst of international development, particularly after the Sept. 11 terror attacks, has helped nonprofits grow as well. In fact, he said, their share of agency money increased from 62.3% in 2001 to 71.5% last year.

Nonprofits are heavily involved in USAID relief efforts in Iraq, such as providing emergency food and water.

They also might take part in development projects as subcontractors.

But they won't be involved in the overall planning and administration of the social rebuilding efforts, which are the largest in the agency's history.

Officials from several nonprofits, from the venerable CARE to Relief International, a small Los Angeles-based group running health clinics in Iraq, said the one-year timeline set by USAID is overly ambitious and driven by the Bush administration's desire to have the work wrapped up before the next election cycle.

To be sustainable, institutions and systems must be built slowly, from the ground up, these people said.

"Sending private contractors into a country they are not familiar with to spend a huge amount of money in a short amount of time is a classic recipe for a waste of taxpayer funds," said Kevin Henry, advocacy director at CARE.

Farshad Rastegar, CEO of Relief International, which operates mobile health clinics in Iraq, said there is room for all types of aid groups in a project as large as the one at hand.

"There's a balance to be struck, but I think the pendulum has shifted too far to the other side," he said. "Ultimately, the argument comes down to which is the most effective means of assistance. In development, you've got to get the farmers and tradesmen to turn into a middle class. It requires changing behavior, building on traditional coping mechanisms.

"The Halliburtons of this world are not up to this kind of work," he added, referring to the Houston company whose subsidiary has a Defense Department contract in Iraq.

Rastegar and representatives of 24 other nonprofit groups confronted Natsios at a meeting in late March, after learning that the bidding for contracts had opened in secret and had already closed.

"His view is clear: For these important, high-profile initiatives they are going to continue to go with people who aren't going to ask questions," said one participant, who asked that his name be withheld to protect his group's chance of getting future contracts. "What he said was, 'When this president wants to do something quick, we're not going to turn to NGOs.' "

Natsios disputed that characterization, emphasizing that the agency is allocating more resources than ever to nonprofits. "We are now spending the highest percentage of the AID budget on NGOs in the history of AID," he said.

The clash underscores the deep differences of opinion over the most effective approach for building institutions and economic capacity .

"The work has shifted to nation building, and that requires managing projects on a very large scale," said Derish Wolff, chairman of global engineering firm Louis Berger Group Inc., which also is involved in creating democratic institutions in Afghanistan. Nonprofits "have their own agenda, to be loving and caring, and that's very effective in relief work. But it doesn't work for building institutions on a national scale."

Each side argued it can do the work more cheaply than the other, with nonprofits noting they use many volunteers and for-profits claiming greater efficiencies.

For-profits noted the profit margins for USAID work are typically small. Creative Associates said its margin is no more than 2%, and that it puts what it makes back into the company or into the communities it serves. "If you're in this business to make money, you're in the wrong business," said company spokesman Stephen Horblitt.

The vice president of one small for-profit development firm, who once worked for a nonprofit, said NGOs aren't as effective on a large scale -- that they are good at building schools, but not school systems.

"I think they saw that in Afghanistan," the executive said. Small-scale projects "didn't create the kind of change that AID ultimately was looking for, and they're clearly going in a different direction in Iraq."

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