The U.S. government’s primary auditing agency for Afghanistan has found that subcontractors on U.S.-funded projects in that country frequently aren’t paid, resulting in a litany of problems that include delayed and unfinished jobs, death threats to company workers and allegations of corruption among Afghan police and judicial officials.
Primary contractors are responsible for the failure, but because the nonpayments leave the impression that the U.S. government and coalition forces aren’t fulfilling their obligations, they undermine support for the coalition among the Afghan people and put at risk multimillion-dollar projects that are intended to promote stability, the Special Inspector General for Afghanistan Reconstruction said in a letter to U.S. diplomatic, defense and aid officials warning them of what it called “serious problems” of nonpayments.
The letter, which SIGAR also released publicly, said that one project funded by the U.S. Army Corp of Engineers to build police stations in northern Afghanistan was reduced in size after unpaid subcontractors walked away with equipment that belonged to the prime contractor.
"The prime contractor was removed from the project in May 2010, six months past the completion date with only an estimated 40 percent of the work completed," the letter said.
Nearly a quarter of the complaints – 183 – that SIGAR received via its hotline here from 2009 to October 2012 regarded unpaid subcontracts, SIGAR said.
The agency has opened 52 investigations into allegations of nonpayment that involve $69 million. SIGAR said that a separate oversight office, the Inspector General for the Department of Defense, had received 44 such complaints in the past six years.
One case that SIGAR is investigating involves a prime contractor who allegedly owes 33 subcontractors more than $13 million.
"While a subcontractor may always face the risk of nonpayment by its prime contractor, Afghan subcontractors may be particularly at risk due to a lack of adequate legal protections and limitations placed on the U.S. government’s ability to intervene on their behalf," the letter said.
Among the allegations, it said, were reports that the Afghan Attorney General’s Office and national police had improperly intervened on behalf of one side or the other in payment disputes.
The letter described a Wild West atmosphere swirling around contract and subcontracts. There are predatory companies that win contracts without any intention of doing the work or of paying their subcontractors or suppliers, and subcontractors that threaten to use bombs to force payment.
"In one example reported to SIGAR, after the prime contractor offered mediation and arbitration to solve a contract dispute, the subcontractor threatened to use a suicide bomb to blow up himself and the prime contractor’s offices," the letter said. "In another case, a prime contractor told SIGAR that a subcontractor threatened to blow up a compound of U.S. contractors and government agencies and another subcontractor threatened to kill the attorney for the prime contractor over nonpayment issues."
One unpaid subcontractor was so distraught he couldn’t pay his workers that he threatened to set himself on fire in front of the U.S. Embassy in protest. Others described threats of violence from their own workers, suppliers and second-tier subcontractors when they couldn’t pay their bills because they themselves hadn’t been paid by the prime contractors.
In one case, an Afghan security company’s workers reportedly threatened the company’s management at gunpoint "and the company’s management later reported to SIGAR that assault rifles, ammunition and uniforms were missing from the worksite," the letter said. "According to the employee, the incident was directly attributable to the prime contractor’s failure to pay."
SIGAR suggested that the various agencies that received the letter – including the State Department, the U.S. Agency for International Development and the Defense Department – provide closer supervision of contracts to ensure that subcontractors are paid promptly and that disputes are settled properly. It also suggested a number of other remedies to use more aggressively, including barring companies that don’t properly pay subcontractors or otherwise act dishonestly from further contracts.