Citing national security reasons, U.S. Deputy Defense Secretary Paul Wolfowitz has ruled that prime contracts to rebuild Iraq will exclude firms from nations such as France and Germany that opposed the U.S. war.

US Deputy Defense Secretary Paul Wolfowitz has ruled that lucrative, prime contracts to rebuild Iraq must exclude firms from nations such as France and Germany that opposed the U.S. war effort, according to a document released Dec. 8, 2003. [Reuters]

In a policy document released on Tuesday, Wolfowitz said he was limiting competition for 26 reconstruction contracts worth up to $18.6 billion that will be advertised in coming days.

"It is necessary for the protection of the essential security interests of the United States to limit competition for the prime contracts of these procurements to companies from the United States, Iraq, coalition partners and force contributing nations," Wolfowitz said in a notice published on the web site www.rebuilding-iraq.net.

The move is likely to anger France and Germany and other traditional allies in NATO and the U.N. Security Council who are being blocked out of prime contracts after their opposition to the war. They may bid for sub-contracts.

But the decision will placate countries such as Britain, Italy and Spain, which provided troops to Iraq but whose companies were excluded from the first round of deals that went to U.S. firms.

The contracts cover electricity, communications, public buildings, transportation, public works and security and justice. Additional contracts are also being awarded to oversee those projects.

TIT FOR TAT RESPONSES

U.S. trade lawyer Clark McFadden questioned the administration's criterion for the contracts. "Is this going to set a precedent where national security can be used to justify limiting competition?" he asked.

Procurement specialist Prof. Steven Schooner from George Washington University said it was "disingenuous" to use national security as an excuse and predicted an angry reaction from those nations excluded.

"This kind of decision just begs for retaliation and a tit-for-tat response from countries (such as Germany, France and Russia)," said Schooner.

But a defense official said NATO partners had known for weeks they would not get prime Iraq business. "This is not a slight. We still have many agreements with those countries and good working relationships with them."

Wolfowitz is hoping that excluded companies will put pressure on their governments to join the post-war effort.

"Limiting competition for prime contracts will encourage the expansion of international cooperation in Iraq and in future efforts," wrote Wolfowitz.

The document, dated Dec. 5, listed more than 60 countries eligible for contracts funded by the $18.6 billion appropriated by Congress to rebuild Iraq.

The list included Britain, Australia, Poland, Japan, Italy, Norway, Spain, Turkey, Jordan, Egypt, South Korea, the Philippines, Romania and Saudi Arabia.

Some officials had argued privately the United States should not limit international competition to rebuild Iraq, where the infrastructure has been shattered by years of neglect, war and post-conflict looting and attacks.

The roll-out of tenders to rebuild Iraq has been delayed in recent days while "high-level" policy decisions were being taken on Iraqi reconstruction and as lawyers checked that the final wording complied with U.S. procurement laws.

A defense official said he expected the new contracts to be advertised on government Web sites later on Tuesday or on Wednesday.

U.S. trade lawyer Roger Schagrin told Reuters non-coalition firms could still get business from selling material and equipment to the lead contractors.

"Much of the money is expended on materials. A British or U.S. company could get a prime contract and then buy 100 percent French materials," said Schagrin.

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