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Iraq Reconstruction – Shifting Strategies …a Contractor’s Perspective

Kathye A. Johnson Hill International, Inc. November 5, 2004

Who we are • Hill International, Inc. – International Program / Construction Management Consulting Firm – Headquartered in Marlton, New Jersey

• Member of Stanley Baker Hill, LLC (SBH) – Stanley Consultants, Inc. (Muscatine, IA) – Michael Baker Jr., Corp. (Pittsburgh, PA) – Hill International, Inc. (Marlton, NJ)

• Construction Management and General Architect / Engineering Services Contractor supporting the U.S. Army Corps of Engineers in Iraq

Iraq Reconstruction – Shifting Strategies

Basic Elements of Good Strategy 1. Establish A Clear Mission / Definition Of Success 2. Understand Your Starting Point 3. Recognize Key Challenges 4. Develop A Sound Strategy & Implementation Plan 5. Align Personal Objectives 6. Allocate Resources To Achieve Success 7. Manage Stakeholder Expectations 8. Measure Performance

9. Adjust the Strategy…!!!

Strategic Objectives in Iraq ‘Our goal is to give the Iraqis a country based on democracy, freedom, individual rights of men and women, a free market system; an Iraq that will live in peace with its neighbors and with the world community.’

—Secretary Colin L. Powell— March 19, 2004

Democracy/ Freedoms

Economic Development

Security

Outcomes

Exit When: • Secure Environment • Economic Stability Achieved • Democratic Processes In Place

Four Steps to Iraqi Freedom Step

`

Mission

Overthrow

Oust Saddam

Liberate

Rebuild Iraq

Partner

Nation Building

Exit

Diplomacy

Rebuilding Iraq • Means rebuilding the Infrastructure – 2800 projects spread over six sectors • Electricity • Public Works & Water • Oil • Buildings, Health and Education • Transportation and Communications • Security and Justice

• Exit when infrastructure rebuilt

Strategy for Implementation • Private Sector Driven • Schedule Driven; Focus on Speed – Pay for Contractor Mobilization – ID/IQ Task Order Contracts – Cost Plus Award Fee

• Baghdad Centric – Iraqi Ministries are the customer, i.e. set priorities

Implementation Organization CPA Program Management Office (PMO) The Project and

Within the Scope of the SOO

CPA Governing Contracting Office Council Iraqi Ministries

Needs

Needs

PM Office

Regional Governates

International Comm.

Donors IO’s NGO’s

Iraqi Donor Coordination Mechanism

Implementation

Sector PM Offices*

Oil

Electricity

Public Works/ Water

Security/ Justice

*PMO and Sector PM Offices Federal/Coalition Employees Sector PM Contractor Iraqis (capacity bldg) Iraqi Ministry Sector Rep

Trans/ Comm

Bldgs/ Housing/ Health

Director of Construction

North

Central

South

Regional Constr.

Mgmt. Offices

Project and Contracting Office and Construction Contracts Project and Contracting Office (PCO) Services (Up to $50M) AWARDED 10 Mar 04 to AECOM (CA-USA) $21,610,501

PCO Services Electrical Sector (Up to $55M )

AWARDED 10 Mar 04 $43,361,340 to

Iraq Power Alliance JV (Parsons Energy and Chemical Group (PA-USA) & Parsons Brinckerhoff (UK )

PCO Services Public Works/Water (Up to $55M )

AWARDED 10 Mar 04 $28,494,672 to CH2M Hill and PWI JV (CH2M Hill (CO) & Parsons Water Infrastructure, Inc (CA)

PCO Services Comm/Transp (Up to $15M )

AWARDED 10 Mar 04

$8,458,350.05 to Berger/URS JV (Louis Berger Group (DC) & URS Group, Inc (CA)

PCO Services Bldgs/Edu/Health (Up to $15M)

AWARDED 10 Mar 04 $10,754,664.07 to Berger/URS JV Louis Berger Group (DC) & URS Group, Inc (CA)

PCO Services Security/Justice (Up to $30M)

AWARDED 10 Mar 04 $8,458,350.05 to Berger/URS JV Louis Berger Group (DC) & URS Group, Inc (CA)

PCO Services Oil (Up to $30M )

AWARDED 10 Mar 04 $8,416,985 to Foster Wheeler (U.K.)

USAID Iraq Infrastructure II – up to $1.8b Bechtel -USA, Parsons-USA, Horne Engineering-USA

Electrical

Capacity Contracts $500K Minimum Up to $1,500M Generation $500M Ceiling AWARDED 11 Mar 04 Fluor-AMEC JV (Fluor: CA/SC in USA & AMEC in UK)

Transmission & Distribution NORTH $500M Ceiling AWARDED 12 Mar 04 Washington Intl Inc

Public Works/Water Capacity Contracts $500K Minimum Up to $1,700M

Public Works NORTH $600M Ceiling AWARDED 23 Mar 04 Fluor-AMEC JV (Fluor: CA/SC-USA & AMEC (UK)

Public Works SOUTH $500M Ceiling AWARDED 23 Mar 04 Fluor-AMEC JV

(ID –USA)

(Fluor: CA/SC in USA & AMEC in UK)

Transmission & Distribution SOUTH $500M Ceiling AWARDED 12 Mar 04 Perini Corp

Water Resources $600M Ceiling AWARDED 11 Mar 04

(MA-USA)

AFCEE

Wash Intl (ID in USA) & Black & Veatch (KS in USA)

PenRen

Comm/Transp Capacity Contracts $500K Minimum Up to $ 400M

Communications $75M Ceiling AWARDED 23 Mar 04 Lucent Technologies World Services, Inc. (VA-USA)

Transportation $325M Ceiling AWARDED 23 Mar 04 Contrack/AICI/OCI/ Archirodon JV (VA-USA) JV Partner Members: Contrack: DC-USA AICI: MD-USA OCI: Egypt Archirodon: Netherlands/ Panama/UAE

Army

Bldgs/Educ/ Health

Capacity Contract $500K Minimum Up to $500M

Bldgs/Educ/Health $500M Ceiling AWARDED 25 Mar 04 Parsons Delaware, Inc. (CA-USA)

Security/Justice Capacity Contract $500K Minimum Up to $900M

Security/Justice $900M Ceiling AWARDED 26 Mar 04 Parsons Delaware, Inc. (CA-USA)

Iraqi Military Bases $239M AWARDED 29 Jan 04 EarthTech (CA-USA) Parsons Infrastructure Tech Group (CA-USA) Shaw Environmental (LA-USA) Weston Solutions (PA-USA)

Navy

USAID

Oil*

Capacity Contract Up to $827M NORTH $415M Ceiling Awarded: 16 Jan 04 Parsons Iraq JV (Parsons CA,USA Worley – Australia)

SOUTH $412M Ceiling Awarded 16 Jan 04 KBR Inc. (VA-USA) *Total contracts are for up to $800M and $1.2B respectively, but only $827 can currently be funded from the Fiscal Year 2004 Supplemental appropriation

27-Mar-04

Manage Stakeholder Expectations Stakeholder

Interest

Iraqi Ministries

Set Priorities; Our Customer

Local Politicians

Want To Be Part Of The Process

Coalition Forces

Achieve The Peace

Department of State

Guide The Program; Interface With Iraqi National And State Governments

Corps Of Engineers

Provide Construction Management

Iraqi People

“You Can Put A Man On The Moon; You Can Fix Iraq”

Understand Your Starting Point • Dilapidated Infrastructure • War Torn; Worse than we expected • Electricity • Rolling availability; 5,000,000 people without electricity • Post War: 4200 MW Available; Demand 6500 MW

• Water • 40% without potable water • 94% of sewage untreated • Infant and child mortality greater than 10%

• Open Borders…

Sadr City Road Side Junk \Yard

Sadr City Street

Raw Sewage

Raw Sewage Back up

Sweet water Canal

Mosul Dam

Illegal Taps

Water Pipe With Bullet Holes

Iraq Flares Enough Gas to Produce 9000MW of Power

Key Challenges • Increased Insurgency / Security Requirements – Campaign of Intimidation – Delayed Definitization of D/B Task Orders

• Escalating Costs – Security & Housing 16%+ of Construction Budgets – Construction Costs 25-50% over Budget

• Difficult Communications Infrastructure • Growing Impatience – Military – Iraqi Population

• Communicating the “Good News”

New Allocation of Resources ($ Billions) Initial

Reprogrammed

Current

Buildings, Health & Education

1.1

+0.1

1.2

Electricity

5.5

-1.1

4.4

Oil

1.7

Public Works & Water

4.2

-1.9

2.2

Security and Justice

4.7

+2.2

6.9

Transportation and Communications

0.9

Private Sector Development

0.2

Admin Expense (USAID, State)

0.2

Sector

Iraqi Debt Relief

Total

18.4

1.7

0.9 +0.3

0.5 0.2

+0.4

0.4

0.0

18.4

Dealing With Key Challenges • Managing Our Own Moving & Changing Parts – 6+ Military Commands / Eliminating the Insurgents – 10 D/B Contractors / 6 Engineering Contractors – Multiple IT Support Contractors – 200+ Security / Life Support Contractors

• Securing the Borders – MNSTC-I – Iraqi National Guard

• Communicating the “Good News” – Success stories become “targets”

Is The Private Sector More Efficient?

A Few Thoughts • Private Sector Implementation – Western or Local?

– Cost Plus Contracts – Follow Regs?

– Interface Costs Between Moving Parts

• Government / Military – Experience – Politically Driven – Rules, Regs, & Audits

Is The Private Sector More Efficient?

A Few Thoughts • Less than 5% of Projects valued > $50M • Over 80% of Projects valued at < $1M – 1,400+ schools less than $100,000 – Local Village Roads – Train Station Repairs – Police and Fire Stations

• Trend toward fewer Renovations and more new Facilities • Combining Resources

Adjusting the Strategy • Increased Military Participation in the Reconstruction • Creating community based programs – AIRP (Accelerated Iraq Reconstruction Program – DFI) – CERP (Commanders Emergency Relief Program)

• Use of Local Contractors – SAP (Simplified Acquisition Process)

• Co-locate D/B contractor camps with Military / USACE • The 19 city plan drives security and economic development on a city by city basis – Najaf Example: State Department, PCO, and Military worked jointly together on a focused effort to restore Najaf

US Mission Iraq Ambassador

MNF-I Commander

John Negroponte

2

Area Spt Group

MNF-I DCG

DCMA

Legal Office Corin Stone

Deputy Chief of Mission

MNSTC-I

James Jeffrey

Executive Secretariat Lew Lukens

Resident in Embassy but not under CoM

MGT*

POL

ECON

Anne Derse

Robert Ford 6 Regional 14 Ops

Treasury Kevin Taecker

Security

Consular

POL-MIL

Steven Browning

Bill Miller

Paul Boyd (acting)

Ronald Neumann

Language Services

714 PAO** 6 6

Richard 14 Schmierer

IRMO ^ William Taylor

MSG TBD DET

DoL

(vacant)

FAS

DoT

ORA

Bob Kandra

DHS

James Smith (acting)

Christopher McMahon

Douglas Melvin

RCLO Gregory Kehoe

Justice Charles Larson ATF

USAID RIG

Christine Byrne

USAID

FCS

Spike Stephenson

HHS

(vacant)

Jeff Brinkley

ECON

DoS OIG TBD

CPA OIG Scott Bowen

PCO/ CSO

Charlie Hess

OPDAT FBI

DCAA

Jim Carrera

Legend: 1050

Number of US positions under CoM

DoS

Other DoS Unit

141

427

DoD 260

Other Agencies 222

*

Management: includes CLO, FMO, GSO, HR, IMO, MED, OBO

^

IRMO includes IRMO Exec., Ministry Consultants, Comm. Public Integrity, and Redirected Scientists Program.

ICITAP USM

Adjustments In Strategy

Organizing for Construction Success Director PCO Charlie Hess

Military Assts to the Deputy Directors

Chief of Staff COL Mayer

LTC Fran DeSirant USMC Executive Assistant to the Director – Bonnie Corbin

Facilities DCAA Maj Pacheco John Doherty

Deputy for Construction BG Bostick

Personnel LTC Stewart

Finance Colonel Marin

Special Assistant to the Director Mr. Marcus Sani

Counsel Maj Mink

Deputy for Operations (MG Chip Long)

Information Management / Technology Denny Plockmeyer

GRD TDA

Public Affairs Colonel Phillips

Deputy for Outreach Lars Jensen

GRD Program / Project Management Bob Slockbower

Logistics Jack Holly

Security Colonel Sinnott

Operations Center CAPT WRAY Lt Col Schweitzer

North COL Ubbelohde

Central COL Thompson

Project Management

RPCO

South

Construction Management

COL Gerber

Area Office

Liaison

Regional Coordinator

Not Shown: PCO Washington

HCA

( BG Seay )

Adjustments In Strategy

Organizing for Construction Success MSC / GRD / PCO “Connections”

GRD District

MNB-NW ( Mosul )

MND-NC

Area Office

RPCO

(Construction Management)

(Project Management)

• Mosul GRN ( Mosul )

( Tikrit )

• Tikrit • Kirkuk • Anaconda

MNF-W

• Ramadi *

( Ramadi )

GRC

+ 4 RCT ROs

MND-Baghdad

( Baghdad )

• Baghdad

( Baghdad )

( Hillah )

MND-SE ( Basrah )

GRS ( Basrah  Talil )

(Liaison)

Mosul Tikrit Kirkuk

Baghdad / Ramadi

Ramadi

Baghdad

Baghdad

• Hillah

Tallil / Hillah

Hillah

• Tallil • Basrah

Tallil / Basrah

Basrah

+ 5 BCT ROs

MND-CS

Mosul / Kirkuk / Tikrit

Regional Coordination

Path Forward – Near Term • Eliminate the Insurgents / Restore Security – Continuation of the 19 Cities Program – Secure the Borders

• Accelerate the Reconstruction Program – Military Led – Local Contractor Participation

• Increase Private Sector Investment – Currently underway in Northern Iraq

• Donor Nation Participation • World Bank and United Nations Funding • Communicate the Good News!!!

Summary 1.

Establish A Clear Mission / Definition Of Success

2.

Understand Your Starting Point

3.

Recognize Key Challenges

4.

Develop A Sound Strategy & Implementation Plan

5.

Align Personal Objectives

6.

Allocate Resources To Achieve Success

7.

Manage Stakeholder Expectations

8.

Measure Performance

9.

Adjust the Strategy…!!!

Final thoughts…

• We are there…

• There is No alternative to Success!

Q&A

Opportunity of a Lifetime…

Opportunity of a Lifetime…