The contract, awarded to US construction giant Parsons in the flush, early days of reconstruction, was to lay the foundation of a health-care system, putting quality medical care within reach of all Iraqis.

Parsons, according to the US Army Corps of Engineers, will walk away from more than 120 clinics that on average are two-thirds finished. Auditors say its failure serves as a warning for other efforts due this year.

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The Corps of Engineers commander overseeing reconstruction, Brigadier General William McCoy, said he still hoped to complete all 142 clinics and is seeking emergency funds.

The clinic shortfall dismayed the World Health Organization representative. "That's shocking," Naeema al- Gasseer said. "We're not sending the right message here. That's affecting people's expectations and trust."

The US$18.4 billion Washington allocated for Iraq's reconstruction runs out at the end of 2006. All remaining projects in the program, including electricity, water, sewer, health care and the justice system, are due for completion.

As a result, the next nine months are crunch time for the easy-term contracts that were awarded to US contractors early on, before surging violence drove up security costs and idled workers.

Stuart Bowen, the US inspector- general for reconstruction, warned that shortfalls like the one involving Parsons may be seen in other reconstruction efforts. "I've been consumed for a year with the fear we would run out of money to finish projects," he said.

The reconstruction campaign in Iraq is the largest such American undertaking since World War II. The efforts have remained a point of pride for American troops and leaders as they struggle with an insurgency and sectarian conflict.

The Corps of Engineers says the campaign so far has renovated or built 3,000 schools, upgraded 13 hospitals and created hundreds of border forts and police stations. Major projects this summer, it says, should improve services such as electricity, which have fallen below pre-war levels despite billions of dollars the United States has spent.

Violence has consumed up to half the US$18.4 billion through higher costs to guard sites and workers and through direct shifts of billions of dollars to ramp up Iraq's police and military. In January, Bowen's office calculated the reconstruction effort would be able to finish only 300 of 425 promised electricity projects and 49 of 136 water and sanitation projects.

US authorities say they made a special effort to preserve the more than US$700 million of work for health care, which fell into decay after two decades of war and international sanctions.

Doctors in Baghdad's hospitals still cite dirty water as a major killer of infants. The city's hospitals place medically troubled newborns two to an incubator - when incubators work at all.

Early in the occupation, US officials mapped out the construction of 300 primary-care clinics, said the WHO's Gasseer. In addition to taking basic health care to small towns, the clinics were meant to provide training for Iraq's medical professionals.

In April 2004, the project was awarded to Pasadena-based Parsons, which has been awarded about US$1 billion in projects in Iraq.

Like much US government work in 2003 and 2004, the clinics contract was awarded on terms known as "cost- plus," Parsons said, meaning that it could bill the government for its actual cost - rather than a cost agreed to at the start - and add a profit margin.

The deal was also classed as "design-build," when the contractor oversees a project from design to completion. Generous terms were meant to encourage firms to take on projects in a dangerous environment and complete them quickly.

THE WASHINGTON POST