Iraq Reconstruction Spells Opportunity

Small businesses are lining up to win contracts for the rebuilding of Iraq. Have you taken a number yet?

By Joshua Kurlantzick • Apr 14, 2003

Opinions expressed by Entrepreneur contributors are their own.

Though the war in Iraq is still raging in parts of the country,the battle among companies to rebuild the shattered nation hasalready begun. And while the war riveted the world over a span ofseveral weeks, the rebuilding will take much longer, and cost muchmore, than the conflict itself. At the same time, since thereconstruction will be an extremely costly and time-consumingaffair, it could prove a boon to American companies that securecontracts to rebuild Iraq.

Although the United States has contributed in recent years tothe reconstruction of several other shatteredcountries--Afghanistan, Cambodia and East Timor, for example--theIraq reconstruction probably will dwarf these former efforts. TheBush administration has announced that rebuilding Afghanistan willtake 10 years and roughly $20 billion. In contrast, a study by theCouncil on Foreign Relations, a leading U.S. think tank, estimatesit'll cost nearly $100 billion to rebuild Iraq, while theCenter for Strategic and Budgetary Assessments, a researchorganization, has calculated that the nonmilitary rebuilding costscould near $500 billion. "This is going to be an effort thatdoesn't really compare to any recent nation-building,"says Steve Kosiak, director of budget studies at the Center for Strategic andBudgetary Assessments in Washington, DC. "You'd haveto go back to the Marshall Plan [the post-WWII reconstruction ofEurope] to find a comparable example. ...The Bush administrationhas very ambitious goals for Iraq, which means an expensivereconstruction."

This rebuilding will result in contracts for companies in arange of industries. Most likely, the U.S. and a few other nationswill put money into a pool of funds to be used for reconstructingIraq. Then, while America sets up an interim administration to runIraq, headed by a leading U.S. official, a U.S. government agencylike the Pentagon or the U.S. Agency for International Development(USAID) probably will launch a bidding process to select companiesthat can fulfill specific rebuilding tasks.

What's more, though some foreign nations may complain aboutbeing excluded, the Bush administration seems likely to keep mostrebuilding contracts for U.S. firms, in part to punish othercountries that opposed the war in Iraq. Working with American firmsalso is simply easier for an agency like the Pentagon or USAID,Kosiak says, because it takes less time for U.S. companies to winsecurity clearances needed to take on federal contracts.

These contracts could be a gold mine. As several newspapers havereported, in the Iraq rebuilding, contracts will be paid in amanner known as "cost plus fixed fee." In other words,the U.S. government will establish how much a project will cost andpromise a contractor that it will pay them this cost plus a fixedprofit--normally 8 to 10 percent. In so doing, the governmentbasically guarantees contractors make money.

And once American firms win the initial contracts in Iraq, theywould have a leg up on foreign companies in establishing long-termrelationships with the new Iraqi government and with the Iraqipeople, who are richer and better-educated than their counterpartsin Afghanistan or Cambodia. (Iraq has the world'ssecond-largest proven oil reserves, after Saudi Arabia.)"Companies that position themselves to win contracts could putthemselves in place to win billions of dollars in more future dealsfrom a free Iraqi government," says Mark Baxter, director ofthe Maguire Energy Institute at Southern MethodistUniversity in Dallas.

What's the Current Climate?
Despite the war in Iraq and afaltering economy, business owners remain fairly optimistic aboutthe hopes for a recovery, according to an Entrepreneur.com surveyconducted the week of April 7. More than half of the 523respondents indicated that they had no plans to change theirbusiness investment strategy as a result of the war. In addition,52 percent said their customers had not scaled back on theirpurchases since the start of the year, and a full 68 percent saidthey think conditions for their businesses will be better 12 monthsfrom now. We may just see a recovery yet. --Karen E.Spaeder

Subcontracting Is the Key

In some areas, large companies will dominate the bidding forcontracts to rebuild Iraq. "When you're a small company,it might seem like a daunting risk to handle a large project onanother continent, in a place that's probably not going to bethat secure for a long time," Baxter says.

Indeed, large corporations have already won several bigreconstruction contracts. Seattle-based Stevedoring Services ofAmerica, a shipping and marine cargo company, has landed a $4.8million deal from the U.S. government to upgrade Iraq'sdeep-water port of Umm Qasr, which was damaged by fighting early inthe war and is a vital sea lifeline for Iraq. And USAID has askedsix major construction conglomerates--Bechtel, Fluor, Halliburton,Louis Berger Group, Parsons Corp and Washington Group--to competefor the first major infrastructure reconstruction contract.

But small entrepreneurs also can compete for and win some ofthese contracts. "Where the opportunity lies for smallercompanies is in the subcontracts of the bigger contracts, where youonly have to handle a small aspect and don't have to take thehuge risks of sending tons of employees to Iraq," says Baxter."A big company like a Bechtel or a Halliburton gets a biginfrastructure rebuilding contract and then hires smaller companiesto handles certain aspects of the larger deal." Indeed,Halliburton last month was given an open-ended contract by the U.S.government to extinguish oil well fires in southern Iraq and torebuild some of southern Iraq's oil infrastructure. Afterreceiving the contract, Halliburton immediately hired smallTexas-based subcontractors Boots & Coots Well Control Inc. andWild Well Control Inc. to take charge of some of thefire-fighting.

In addition to repairing Iraq's oil infrastructure, somerebuilding tasks that could involve small companies include fixingand maintaining the deep-water port of Umm Qasr and rebuilding morethan 2,000 miles of Iraq's highways and secondary roads,especially in areas south of Baghdad that saw heavy fighting.Several U.S. officials also have mentioned the need for purifyingwater; and one small U.S. company, Moving Water Industries ofDeerfield Beach, Florida, has already begun jockeying to get waterpurification subcontracts. Moving Water Industries, a water-pumpmanufacturer, hopes to land a contract supplying drinking water toIraqis and restoring southern Iraq's badly damaged--butpotentially fertile--marsh wetlands, which were drained by Saddamduring the 1990s in an attempt to punish dissident southernersafter the first Gulf War.

Other American officials have highlighted the need to hand outcontracts to companies that can provide security for otherbusinesses operating in Iraq. There will be a need for privatemilitary companies (PMCs) to provide security and handle similartasks in Iraq, says Peter W. Singer, an expert on PMCs at theBrookingsInstitution in Washington, DC. Most of these PMCs arerelatively small firms.

Small service firms--finance firms, consulting groups and thelike--are also optimistic about their chances for Iraqsubcontracts. Ellerbe Becket, a Minneapolis-based architecture anddesign firm, believes it can win subcontracts to build hospitals,schools and even sports stadiums in Iraq. After all, USAID hasalready stated that the U.S. will help rebuild at least 6,000school buildings in Iraq.

Charlotte, North Carolina-based engineering firm Freeman White,which has experience working with hospitals and health-care firms,apparently shares Ellerbe Becket's belief--Freeman Whitereportedly is meeting with the Department of Defense to discussrebuilding Iraq's medical infrastructure. And many small andmidsized consulting groups in Washington, DC, think they can winsubcontracts to help teach the first free generation of Iraqiprofessionals how to utilize the new medical, financial, energy andeducational infrastructure that will be built for them. In fact,the U.S. has already announced that it will give a contract foremergency relief and near-term rehabilitation efforts in Iraq toInternational Resources Group, a Washington, DC, consultingfirm.

To win these subcontracts, entrepreneurs will need todemonstrate several skills, Iraq experts say. Having an establishedrelationship with the Pentagon or USAID, as well as some experienceworking in an unstable environment, will be vital, says Baxter.Experience working in dangerous places will be particularlyimportant for small companies that plan to compete for oil and gassubcontracts, since the petroleum industry could be a target ofIraqi militants.

International Resources Group, for example, has worked in manyother unstable environments, while Boots & Coots and Wild Wellhave previous experience putting out oil well fires in dangerouslocales. To lessen the dangers involved in working overseas, in apotentially unstable environment, small companies in one industrymay want to form a consortium and bid for subcontracts together,thereby sharing both profits and risks.

Having a regional presence in place can help as well."It's important to already have some presence in theMiddle East, so the people handing out the contracts realize thatyou understand and can adapt to foreign cultures," saysEllerbe Becket director of communications Stuart Smith. (Thecompany's CEO, Rick Lincicome, is in the Middle East presentlyand was unavailable for interview.) "We have two smalloffices, in Cairo and Dubai, so we can show we comprehend theregion."

Smith also notes that having an established name, even in asmall niche industry, helps in winning international contracts."When you compete for an international contract, it helps ifyou have some sort of global prestige, even if it's limited toone field--we're not big, but we're well-known globally forbuilding health-care facilities," Smith says. "There area lot of locally trained professionals you can draw on, and theyprefer to work with a company that has a globalreputation."

Stay Informed
Although the U.S. governmenthas not yet completely established how it will handle the post-warreconstruction of Iraq, which agency will take charge of thereconstruction or how most contracts will be bid upon,entrepreneurs interested in obtaining more information about theprocess should stay informed by repeatedly checking the governmentWeb site.

And while the plan for reconstruction has not been fully formed,the U.S. Agency for International Development has issued ninesolicitations to date for reconstruction activities in Iraq.Information about these solicitations is available at http://www.usaid.gov/iraq/activities.html.

Several of these contracts have already been won, but some arestill open, and entrepreneurs can bid for them. Plus, by constantlychecking on the progress of these contracts, entrepreneurs can findout if larger companies have won the bids and will then know who tocontact to try to win subcontracts.


Joshua Kurlantzick is a writer in Washington, DC, and afrequent contributor to Entrepreneur.com.

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