Two companies earning tens of millions of dollars to unearth waste in Iraq (search) rebuilding projects have major business deals with the contractors they're monitoring, a report by congressional Democrats concluded Tuesday.

The report said neither watchdog company, Parsons (search) and CH2m Hill (search), can be "the neutral and independent watchdog needed to provide rigorous oversight over substantial expenditures of taxpayer funds."

The contracts the overseers are supervising are noncompetitive, open-ended arrangements that allow the government to give the reconstruction firms continuing orders for goods and services.

The report studied two contracts: $28.5 million awarded to a joint venture of Parsons, of Pasadena, Calif. and CH2M Hill, of Englewood, Colo. to oversee $1.7 billion in public works and water construction projects; and $43 million awarded to a joint venture of Parsons and Parsons-Brinckerhoff, of New York City, to watch over $1.6 billion in work on power generation, transmission and distribution.

The two Parsons firms are not related.

Congressional Democrats have made the Bush administration's contracting practices in Iraq a major issue in an election year. They have accused the Republicans of giving noncompetitive contracts to favored companies, especially Vice President Dick Cheney's former firm, Halliburton (search).

The attack has been led by the same four lawmakers who issued the new report: Sens. Byron Dorgan of South Dakota and Ron Wyden of Oregon; and Reps. John Dingell of Michigan and Henry Waxman of California.

According to the findings:

—Parsons is the business partner of Fluor Corp. (search), one of the firms it oversees, in a $2.6 billion joint venture to develop oil fields in Kazakhstan. Fluor, headquartered in Aliso Viejo, Calif., announced the venture in a news release in March, 2003.

—CH2M Hill and a company it monitors, Boise, Idaho-based Washington Group International, are collaborating on a $314 million contract for environmental cleanup work in Miamisburg, Ohio. Washington Group International announced its role in the project on December, 2002.

—CH2M Hill is the Department of Energy's prime contractor for storing and retrieving 53 million gallons of radioactive and hazardous waste at the Hanford nuclear site in Washington state. Iraq contractor AMEC (search), of London, is a subcontractor on the Hanford project along with Fluor and Washington Group International, according to Internet sites of the Energy Department and the companies.

The report also contended that actions that Parsons takes as an overseer could affect its own Iraq reconstruction projects.

Parsons and Bechtel National Inc. (search), of Frederick, Md. have a $1.8 billion contract to rebuild Iraq's infrastructure, including electricity and water projects. Parsons' decisions as an overseer can affect the work available in those areas for the Parsons-Bechtel partnership, the report said.

The Iraq reconstruction and watchdog projects in question were awarded by the Coalition Provisional Authority (search), the U.S.-run governing body in Iraq.

The decision by CPA to turn monitoring over to private contractors, with conflicts of interest, "casts doubt on the effectiveness of this contract oversight," the report said.

It also found that the overseers' fees increase if the companies they're monitoring perform well, creating a financial incentive for the supervising firms to give reconstruction firms high marks.

The lawmakers said they would offer amendments to defense spending bills that would require the watchdog contracts be terminated, allowing the Pentagon to monitor the contracts.

"The bottom line is that this kind of oversight system cannot work — and that the Pentagon should not abdicate its oversight responsibilities over multibillion dollar contracts," the lawmakers wrote Defense Secretary Donald H. Rumsfeld.