US embassy cable - 04MADRID756

C O N F I D E N T I A L SECTION 01 OF 02 MADRID 000756 
 
SIPDIS 
 
FOR EB/ODF, EB/IRAQ, NEA/NGA, EUR/WE 
 
E.O. 12958: DECL: 03/04/2014 
TAGS: EAID, ECON, EFIN, ETRD, IZ, SP 
SUBJECT: BETTER INFORMING SPANISH ON IRAQ RECONSTRUCTION 
CONTRACTING PROCESS 
 
REF: A. MADRID 520 
     B. PRAGUE 145 
     C. GARBER-ZIMMERMAN E-MAILS 
 
Classified By: Economic Counselor Judy Garber: Reasons 1.4 (b) and (d). 
 
1. (C) Summary: Following up on our February 12 meeting with 
Ministry of Economy contacts (ref A), we met March 4 with 
Enrique Navarro, who is spear-heading Ministry of Defense 
efforts to help Spanish business get Iraq reconstruction 
contracts.  We shared lessons learned from the January 2004 
Czech business delegation to Iraq (ref B) and encouraged the 
Spanish to strongly consider a similar visit.  Navarro 
confirmed that a political decision had been made to turn 
down the proposed visit to Madrid by CPA Private Sector 
Development Director Tom Foley until after the March 14 
general election, but said the Spanish are keen to have the 
Foley team come to Spain as soon as possible thereafter. 
Navarro emphasized Spanish government and business bitterness 
over the decision to award a $327 million contract to equip 
the Iraqi Armed Forces to U.S. company Nour (ref A).  Navarro 
believes, however, that the USG's subsequent suspension and 
current review could open the door for a decision in favor of 
a Polish-led consortium to include Spanish, Romanian and 
Ukrainian firms (see para 5).  We recommend that CPA consider 
sending a team to Madrid in late March/early April and 
encourage prime contractors to hold briefing sessions in 
Madrid for Spanish companies interested in subcontracting 
opportunities.  End summary. 
 
2. (U) Econoffs met March 4 with Enrique Navarro of Isdefe, a 
group created by the Ministry of Defense to help Spanish 
firms compete for military-related contracts.  Navarro was 
selected by Spanish Commissioner for Iraq and State Secretary 
of Defense Fernando Diez Moreno as the point-person for 
pursuing contracting opportunities in Iraq. 
 
Helping Businesses Get into Iraq 
 
3. (C) We related the positive experience and lessons learned 
from the Czech business delegation to Baghdad and suggested 
the Spanish consider doing something similar to improve the 
chances of winning Iraq contracts.  Navarro agreed a trip 
would be useful, particularly prior to the handover of 
authority at the end of June. We also mentioned our 
understanding that CPA Private Sector Development Director 
Tom Foley was still prepared to come to Spain to brief 
Spanish business on contracting opportunities and procedures, 
as he did recently in Warsaw and Rome.  Navarro acknowledged 
that the GOS decision not to accept a Foley team visit before 
the elections was political, but was enthusiastic about a 
visit as soon as possible after the elections (note: when 
pressed, Navarro averred that a visit could take place even 
before a new political team is formed, and regardless of 
which party leads the new government).  We suggested that 
Navarro contact Foley as soon as possible to discuss 
potential dates and arrangements.  We also undertook to give 
Navarro more information about how the Foley team visits were 
organized in Poland and Italy.  Finally, Navarro requested 
that at least one of the companies allocated prime contracts 
later this month under the next $8.2 million tranche of 
pledged aid hold a session in Madrid for possible 
subcontractors, similar to what Bechtel did in London last 
November. 
 
Spanish Still Hope to Get Contract to Equip Iraqi Forces 
 
4. (SBU) Navarro related strong Spanish government and 
business disillusionment with the contracting process so far. 
 Not only have Spanish companies been largely unsuccessful in 
getting contracts, but in one of the few cases in which a 
Spanish firm won (Defex, awarded a contract in November 2003 
to equip Iraqi police), the contract has yet to be formally 
signed. 
 
5. (C) But the crowning glory for the Spanish was the 
February 2004 decision to award the contract for equipping 
the Iraqi armed forces to U.S. group Nour.  As made clear in 
letters Fernando Diez Moreno sent to both DOD Comptroller Dov 
Zakheim and the Ambassador (ref C), the Spanish feel that 
their bid (organized by Isdefe) was right on the mark, and 
that the contract bidding and evaluation process was 
seriously flawed.  Navarro recognized that the U.S. had since 
suspended the contract for review.  He compared favorably the 
Spanish approach of mildly protesting the contract decision 
to Zakheim and the Ambassador versus the vociferous public 
and more formal complaints of the Polish and Jordanian 
bidders.  He reported he is in close contact with the Polish 
Bumar Group, and that Bumar and the Spanish consortium were 
joining forces, perhaps to include Romanian and Ukrainian 
groups, in the hopes of winning the contract under review 
when re-bid.  Navarro argued that a contract as important as 
the equipping of the Iraqi forces could not be left solely to 
private firms, and a consortium led by two state-run 
consortiums (Bumar and Isdefe) would ensure the job was done, 
and done well. 
 
6. (C) Navarro reiterated the now familiar complaint that 
working over the Internet was impractical and difficult for 
Spanish companies.  He also claimed that the time between RPF 
publication and bid due dates was implausibly short.  He 
raised the problem businesses face during the interim 
administration of Iraq concerning the legal continuity of 
contracts they may sign.  Navarro also admitted that overly 
optimistic initial GOS messages helped create the false 
impression that Spanish companies would get preferential 
treatment in the contracting process, acknowledging that the 
Spanish private sector's malaise vis-a-vis Iraq was partially 
of the GOS' own making.  In his own view, however, a 
continued lack of Spanish business in Iraq would likely 
weaken Spain's long-term political commitment to Iraq. 
 
Comment and Recommendation 
 
7. (C) Navarro and the GOS are under pressure to "show the 
beef" to both Spanish business and the public in concrete 
Spanish contracts for Iraq reconstruction.  Spanish officials 
are frustrated with what they see as a difficult and flawed 
contracting process, Spanish firms' lack of success to date, 
and their own inability to manage public expectations. 
Election politics have complicated the picture further. 
 
8. (C) Our recommendation is that CPA strongly consider 
sending a team to Madrid following the March 14 elections to 
further explain contracting opportunities.  We also support 
Navarro's call for one or more prime contractors to visit 
Spain to present subcontracting options, as well as a 
subcontracting presentation CPA/PMO may organize in Madrid. 
While we clearly cannot pull a rabbit out of the hat for the 
GOS (or Spanish business), we can do our best to make sure 
they receive the information that will aid their quest for 
reconstruction contracts. 
ARGYROS