BETTER INFORMING SPANISH ON IRAQ RECONSTRUCTION

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