Who's Minding the Contractors?: If the Iraqi reconstruction is unprecedented for its scope and urgency, so, too, are its opportunities for corruption. With billions of dollars flowing around a country that was rife with corruption under its previous regime, and with civil projects being launched at a rate not seen since the end of World War II, keeping tabs on spending has proven a challenge.

Much of this responsibility has fallen on Stuart W. Bowen Jr., the special inspector general for Iraq reconstruction, and his staff. He reports to both the U.S. Secretary of Defense and the Secretary of State. Over the past two years, Bowen's group has won praise for discovering—sometimes in the face of tremendous danger—such lapses as the failure to keep track of $8.8 billion transferred to the fledgling Iraqi government in 2004. A large proportion of that sum appears to have been stolen, according to news accounts. Bowen's team has also uncovered schemes in which reconstruction officials misappropriated funds, demanded kickbacks, or rigged bids.

But to some watchdog groups, such as the Center for Public Integrity in Washington, D.C., the biggest contracting problem in Iraq is the prevailing contracting arrangement itself. In typical U.S. government contracts, government employees themselves administer the contracts: they oversee the work of the contractors, negotiating performance metrics and monitoring the contracted work as it goes along to make sure it meets deadlines and standards and includes all of the contractually specified features. In Iraq, however, the U.S. government chose a contracting approach in which the negotiation and oversight roles normally fulfilled by government agencies alone are being carried out by "program management" contractors—private companies, in other words—working with the U.S. Army Corps of Engineers and other government officials. Meanwhile, the role fulfilled in a typical contract by a prime contractor is being carried out in Iraq by a "design-build" contractor. Design-build contractors are concerned with the big picture and usually hire subcontractors to do specific tasks, like construction or detailed design.

The arrangement has been criticized for shifting some of the responsibility for oversight and accountability to private companies, for adding another costly layer of contracting, and for opening up opportunities for conflicts of interest when contractors find themselves supervising companies they must cooperate with—or even be supervised by—elsewhere. But Karen Durham-Aguilera, director of programs for the Iraq Project and Contracting Office, one of the main U.S. government agencies working in Iraq, noted that two particular issues convinced Army officials to go with the unusual arrangement.

One was the fact that most government workers are sent to Iraq for tours that last only 3, 6, or 12 months. Private contractors often stay for at least a year. So putting private contractors in a supervisory role, it was thought, would help foster continuity and stability in a tumultuous environment. Second, the expertise required of the program managers was sometimes so esoteric, especially in the oil-industry reconstruction, that the necessary expertise could not be found within the government.