Iraq contracts' shroud of secrecy has its dangers

April 21, 2003|By Rena Steinzor

WITH THE WAR in Iraq nearing its inevitable conclusion, billions of dollars in reconstruction contracts are beginning to flow. Not surprisingly, big American corporations are lining up to compete for what could prove to be lucrative deals.

Much of this effort is being administered by the Pentagon and, in its traditional zeal for secrecy, it has established a process so secretive that it practically invites abuse.

According to published reports, Pentagon officials are warning companies invited to bid on rebuilding contracts that they must withhold information about postwar plans from the media, and therefore the public.

That extends, apparently, even to whether a company is involved in a bidding process. Vice President Dick Cheney's former employer, Halliburton Co., found itself the subject of unwanted media attention in March when it was incorrectly reported that it had bid on a $600 million-plus reconstruction contract. The company refused to comment on the initial news accounts, then watched its stock price fall when it "lost" a bidding process it says it never entered.

It's not just stock prices at issue. The bigger concern is that the Pentagon's blanket of secrecy could end up obscuring wrongdoing or incompetence by government and corporate officials.

Complicating the matter is a law passed in the waning hours of the last Congress, the Homeland Security Act, that in part invites companies to protect all manner of corporate information from disclosure to the public simply by labeling it "critical infrastructure information" essential to homeland security.

In extreme circumstances, the designation could prevent information from being used to impose civil liability for fraud or negligence if the company acts improperly in winning the bid or fails to deliver the services and products it promised.

As a result, we face the likely scenario that every time a corporation submits a proposal for work to the Pentagon or the newly created Department of Homeland Security, it will work hard to keep the details from the public, its investors, the media, securities dealers and participants in the stock market. Once the contract is awarded, the good news may leak, bolstering the company's stock price. But we will never know how the contract was really won or whether illegal transactions were part of obtaining it.

Moreover, if companies fail to deliver on their contracts, or provide defective goods and services, they have the inviting opportunity to defend against any effort to hold them accountable by insisting that the information needed to prove the wrongdoing must be kept confidential. The morass of postwar contracts will be large enough and difficult enough to handle under normal circumstances.

The confounding factor of secret negotiations and contract implementation could produce the most corrupt expenditures of government funds in memory.

The United States became the strongest nation in the history of the world largely by embracing democratic government and free enterprise. Open competition is fundamental to both institutions, but it's easy to forget that the capitalist system does not operate in a vacuum.

To be sure, we do not regulate how companies develop business plans and achieve profits for their investors. But we do require that all of these affairs occur in a marketplace where investors have ready access to the information they need to judge corporate performance.

The destructive scandals that engulfed Enron, WorldCom and their ilk are only the most recent reminders of what happens when corporations manage to escape the scrutiny of informed investors and the rigorous competition made possible by the free flow of information.

Those principles also affect the health of the democracy. If corporate bidders are allowed to seek postwar contracts behind closed doors, we will never know how much influence was peddled and at what price. And if the winners are shielded from public scrutiny in the execution of their contracts, we may never be able to hold them accountable for their performance.

The tragedies of Sept. 11 demonstrate that our open society is vulnerable to terrorism in ways we never imagined. The impulse to circle the wagons and keep our vulnerabilities secret is understandable. But allowing secrecy to be the guiding principle of governance provides only false comfort.

Rena Steinzor is a member of the board of the Center for Progressive Regulation and a law professor at the University of Maryland School of Law in Baltimore.

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