US embassy cable - 05BAGHDAD3035

UNCLAS SECTION 01 OF 02 BAGHDAD 003035 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/I PASS GRAMAGLIA, SILVERMAN, EB/TRA 
 
TAGS: EAIR, EAID, ECON, PGOV, IZ, ETRA, POL MIL 
SUBJECT: AIRPORT CONTRACT DISPUTE COULD LEAD TO BIAP 
CLOSURE 
 
SENSITIVE BUT UNCLASSIFIED  USG DISTRIBUTION ONLY, 
NOT FOR INTERNET DISTRIBUTION 
 
REF:  A) BAGHDAD 2822, B) BAGHDAD 2804 and previous 
 
1. (SBU) Summary.  Despite Embassy consultations with the 
Iraqi Ministry of Transportation (MOT) and two contractors 
(Global Risk Strategies (Global) and Raytheon), it appears 
likely that the Baghdad International Airport (BIAP) will 
close as a result of the parties' inability to resolve two 
disputes hindering the operation of the airport. Should 
Raytheon follow in Global's footsteps and walk away from 
its project, BIAP will be without a functioning radar 
system.  We do not know when the closure may occur. End 
summary. 
 
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Global Contract Dispute 
----------------------- 
 
2. (SBU) A dispute continues between the Ministry of 
Transportation (MOT) and Global Risk Strategies, a private 
contractor providing security services at BIAP. Global is 
claiming $15.8 million from the ministry for services 
provided between March 1, 2005 and June 31, 2005.  The 
dispute may again lead to the airport's closure (reftel and 
previous) if unresolved soon. 
 
3. (SBU) The two parties met again July 17, 2005 to discuss 
the back payment issue and a new service contract.  At the 
meeting, MOT representatives rejected Global's request for 
full ($15.8 million) payment of the arrears.  MOT also 
refused to approve Global's proposed twelve month contract: 
one beginning July 1, 2005 and backed by an irrevocable 
letter of credit (L/C) for six months at a cost of about 
$3.6 million/month. 
 
4. (SBU) In previous discussions, MOT representatives had 
indicated their willingness to pay up to $7.5 million of 
the arrears and had proposed a three-month contract from 
the beginning of July 1 through the end of September 2005. 
In discussions with the Embassy, Global informed us of its 
intention to submit a counteroffer to the MOT by July 19. 
In it, Global proposed to accept $14.7 million as back 
payment and a new twelve-month contract at $3.7 million a 
month including the irrevocable L/C requirement. 
 
5. (SBU) Our discussions with MOT Deputy Minister Atta 
Nabeil indicate that MOT will reject Global's new proposal 
(reftels). In June 2005, Global walked off the job for two 
days because of this unresolved dispute, during which 
civilian operations ceased at BIAP.  (Comment. We believe 
it probable that Global and MOT will not resolve this 
issue.  In that event, Global will halt its operations at 
BIAP thus causing a shutdown.  End comment.) 
 
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Raytheon Contract Dispute 
------------------------- 
 
6. (SBU) Raytheon's Vice-President for International 
business development met with the deputy minister of 
transportation July 19.  Raytheon has a contract with the 
Ministry of Transportation (MOT) for $27.5 million to build 
and install a radar system and navigational aid equipment 
at BIAP.  Raytheon's project expenditures have exceeded the 
contract amount by $5.8 million, however.  Although the 
contract had a "cost-plus" provision allowing for cost 
overruns, certain notifications were to have been made by 
Raytheon as it spent the original $27.5 million. Raytheon 
did not do this to MoT's satisfaction; consequently, MoT 
has not approved the invoices for the overruns and contests 
that MoT is not responsible for the additional costs. This 
contract, which originated with the CPA, was signed over to 
the MoT and has been under its management and direction 
ever since. 
 
7. (SBU) Raytheon has proposed scaling back the radar 
project as a means to reduce the cost overruns under $3 
million.  If these were below $3 million, the contract 
would not require the Iraqi Cabinet's approval.  Raytheon 
is looking for the MoT to pay that amount and for the U.S. 
Government to pick up the balance either on another 
contract or an outright payment. (The U.S. Government will 
not pay overruns since this is a contract between the MoT 
and Raytheon.)  The MOT has rejected this proposal. 
8. (SBU) Raytheon is threatening to leave the project 
unfinished (and the radar system inoperable) if it isn't 
given a commitment by MoT to pay the overage charges. 
Raytheon has refused to make any concession.  (The company 
has offered to install a similar system at the Basra 
Airport, and its offer is being considered.  The U.S. 
Government will pay for the work. But the project hasn't 
been awarded, as the parties are negotiating contract 
details.) 
 
9. (SBU) It is unlikely that the Ministry will find common 
ground with Global or Raytheon.  Minister Al-Maliki often 
cites budget pressures precluding him from resolving these 
issues.   The Prime Minister is aware of the Global issue. 
He delegated the matter to Deputy Prime Minster Chalabi 
who, in turn, delegated it to the Ministry of 
Transportation for resolution. 
 
10. REO HILLAH, REO BASRAH, REO MOSUL, REO KIRKUK, minimize 
considered.