MidEast Times Explains Economics of Contracting

When Blackwater recently announced that it was pulling back from the personal protection business, many people were (wrongly) surprised. What else do contractors do, they wonder, if not pull triggers? Well, it turns out there's a great deal more to contracting. The Middle East Times explains:

It has long been a myth, albeit a popular one, that the majority of private military contractors are gun shooters. In fact, the reverse is true, as has been pointed out, largely in vain, by trade groups such as the Professional Services Council and the International Peace Operations Association.

According to estimates from the IPOA, the total value of what it calls the global peace and stability operations industry is about $20 billion for all companies providing services in the field. Of that number, private security contractors make up only about 5 percent to 10 percent, or a maximum of $2 billion annually. The normal peacetime number would be closer to 5 percent for PSCs, but Iraq has driven it up.

Moreover, contrary to popular perception, the Middle East Times reports that security does not pay better than other forms of contracting:

To understand the difference, one has only to follow the money. For example, compare two major contracts in Iraq, the World Wide Personal Protective Services and the Logistics Civil Augmentation Program. The current WPPS contract, the second, was awarded in July 2005. The State Department utilizes it as an umbrella contract under which it issues task orders to the three contracting companies -- Blackwater USA, DynCorp and Triple Canopy. The bulk of the personnel come from Blackwater. The contract has a ceiling of $1.2 billion per contractor over five years -- one base year and four option years. That works out to $240 million per contractor per year.

LOGCAP, an Army program first established in 1985, is an initiative for the use of civilian contractors in wartime and other contingencies. It includes all pre-planned logistics and engineering/construction-oriented contingency contracts. It does everything from fixing trucks to warehousing ammunition to doing the laundry, running mess halls and building whole bases abroad. When the Army announced the awarding of the fourth and latest LOGCAP contract back in April to DynCorp International LLC; Fluor Intercontinental Inc.; and Kellogg, Brown and Root Services, the total annual maximum value was $15 billion and the lifetime maximum value was $150 billion. That works out to $5 billion per contractor per year.

You don't need a Ph.D. to figure out which is the market segment with the greatest profit-making opportunities.