WASHINGTON, 30 June 2003 — Since hostilities in Iraq subsided, some $2 billion have, according to the US Agency for International Development (USAID) been earmarked for the reconstruction of Iraq. Tens, if not hundreds, of billions of dollars more will surely be needed to finish the job. As is widely reported, much of this money is — and likely enough will continue at least so for the next couple of years — in the form of large contracts issued in favor of prime contractors from coalition countries. Some of those companies, such as Bechtel and Halliburton’s Kellogg Brown & Root, are no strangers to the region. Others are newcomers. In almost all cases, the major prime contractors will require assistance from regionally experienced players to get the job done.
This scenario presents a significant opportunity to regional and Saudi contractors. While the early pace at which the primes have gotten regional subs involved has been frustrating, regional subs can expect a much accelerated demand for their services in the relatively near term. The key to their success will be proper planning and positioning. Here are three things Saudi contractors interested in subcontracting in Iraq should consider as they plan and position themselves to win subcontracts in Iraq.
1. Short-term, long-term. In the short-term, there will be numerous opportunities. Not all of them will be right for regional contractors. Regional contractors must consider how they will positioned in Iraq when the coalition forces are no longer there, whether this happens in two years or ten. Major contractors in the region will not want to lose sight of the long-term consequences of how they involve themselves in the reconstruction of Iraq. To succeed both now and in the future, Saudi contractors will need to act in the short-term, but think long-term.
2. Old game, new rules. In the short-term, regional contractors will need to deal with unfamiliar procurement rules and protocols. For example, US and other non-regional procurement laws and regulations will affect the way subcontracts are tendered and let. Also, many of the prime contractors, such as Bechtel, have complex contracting processes and procedures that will be unfamiliar and confusing to regional contractors. What is more, the entire reconstruction process will unavoidably link political forces to foreign to regional contractors. All contracting in Iraq will be potentially subject to imponderable influences of Iraqi, international and US domestic politics. To succeed in the short-term, Saudi contractors will need to come up to speed on these laws, regulations, processes, procedures and influences. They will have to learn the new — and constantly changing — rules of the game and figure out how to play by them and win. For many, this will mean using outside accounts, lawyers and consultants as never before.
3. Existing capacity, new alliances. Because of the damage to the Iraqi economy over decades of sanctions and then war, the number of Iraqi contractors ready, willing and able to provide local content will be somewhat limited. For obvious political reasons, prime-contractors will nevertheless be looking for ways to meet their contractual obligations while using local Iraqi contractors. At the same time, regional contractors concerned about risking their long-term prospects in Iraq for short-term subcontracting opportunities will be looking for ways to dress their subcontracting efforts in Iraqi clothing. The combination of these factors will likely result in the formation of teaming arrangements between regional contractors and Iraqi counterparts. Saudi contractors will have an advantage in this area given their proximity to Iraq and knowledge of Iraqi companies. Some Saudi companies have already forged alliances for this purpose. We can expect these alliances to take the form of contractual and, in time, incorporated joint ventures. In doing this, they have been, and will be, careful to think things through and choose Iraqi partners who will pose the minimum political risk to the success of the subcontracting endeavor.
Great opportunities are there for Saudi contractors in Iraq. Whatever one thinks about the wisdom of the coalition’s intervention in Iraq, a great opportunity to bless the lives of the Iraqi people, in terms of reconstruction and opportunity, lies ahead. Forward-looking Saudi contractors will play a major role in that effort.
(Jim Phipps is a senior associate at the Washington-based law firm of Wiley Rein & Fielding LLP.)
