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.

Congress Targets PSCs, Potentially Ruins Iraq Efforts

Congress may be on its way to hamstringing our efforts in Iraq, the Politico reports. A new bill shepherded through the Senate Armed Services Committee by Chairman Carl Levin (D-MI, pictured left) would could allow Congress to cut off existing contracts made by the executive and would also allow the government and private security contractors to be sued. And that, the Politico argues, could do serious damage to the government's attempts to stabilize the region.

"Interpreted broadly, the measure could slash the number of private security contractors now operating legally in Iraq.... Even if getting rid of the security contractors in Iraq would fix a problem of adequate oversight, it would widen personnel gaps at the State Department and the Pentagon. The agencies don't have enough personnel to take over the security for officials, installations and reconstruction zones that contractors currently provide.... In a recent Senate hearing, P. Jackson Bell, the Pentagon's deputy under secretary for logistics and materiel readiness [pictured right], said a broad policy against private security contractors could affect up to 9,000 individuals. Replacing that many contractors would require even more soldiers and Marines, due to a demanding rotation schedule."

Part of the problem with the new legislation is its use of some ambiguous terms, such as "inherently governmental function" and "highly hazardous." Would mundane missions such as guarding mail fall into this category?

A Pentagon official familiar with the issue reiterated these concerns about unclear terminology: "Contractors are not supposed to do things like combat," the official said. "So the question comes in, 'What is combat?' And there is no easy answer to that."

"Alan Chvotkin, executive vice president and counsel of the Professional Services Council," which represents a number of government service contractors, including Blackwater, "said that the security industry is not averse to regulations but that the regulations need to be clear. For example, if Congress wants to prohibit contractors from firing the first shot, it should spell that out. Bogging down regulations with catchphrases can create more confusion, Chvotkin said."