AIRPORT CONTRACT DISPUTE COULD LEAD TO BIAP

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
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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.