Contractors: the hundred billion dollar temporary fix

Way back when, before most people were paying attention, there were warnings on the failure to provide adequate oversight over contractor expenses and action. Before he warned of the military-industrial-Congressional complex, President Eisenhower committed the U.S. government to increasingly “rely on commercial sources” started the outsourcing ball rolling. In 1966, Office of Management and Budget Circular A-76 formalized the preference for the private sector over the public sector provided the private sector could provide the service or product more economically.

In the decades since A-76, outsourcing by the U.S. government increased. In the post-Cold War era, the pace quickened without a comparable growth in monitoring and oversight. In the 1980’s, overpriced hammers and toilet seats created a public and Congressional furor. Just twenty years later, with more outsourcing and higher prices, barely an eyebrow was in Congress as questionable services and prices were bought with taxpayer money.

By the time of the Iraq War in 2003, the Government Accountability Office (GAO) was issuing frequent warnings on the failure to provide adequate oversight over contractor expenses and actions. The lack of oversight in the unpredictable environment of a war zone has resulted in several high-profile problems in Iraq, ranging from rules on use of force (RUF) and rules of engagement (ROE) to equipment and transport availability. 

The most common reasons for increased use of private military companies circa 2003 were remarkably similar to the historical reasons behind their use: surge capacity or availability, short-term cost, deniable accountability, and diplomacy by proxy. However, the rules of war have changed. Today, perceptions carry more weight than in the past and sometimes have a greater and longer lasting impact than bullets, and yet private forces are deployed with often little guidance and connection back to the core mission resulting in a situation similar to the environment that marginalized them one hundred and fifty years ago.

The downsizing of the post-Cold War period put a focus on “core competencies” and more “tooth” less “tail” in a variation of the Abrams Doctrine, except without the public support element. General Creighton Abrams sought to create a link between deploying the Army and public support for military operations. In practice, it was Secretary of Defense Melvin Laird who initiated Total Force to provide sufficient troops without the costly burden of maintaining a large standing army. Over time, instead of using Reserve and National Guard components to round out the force, the military was made more “lean” and the private sector was looked at to be the fat when necessary.

As this practice took hold, the government was slow to realize what the private sector had experienced in the 1990’s: overzealous outsourcing can result in a loss of control over critical functions and less favorable contract terms and higher per unit costs when factoring in all of the hidden costs. The government, not heeding the lessons of the private sector saw advantages in short-term access of expensive skill sets and a perceived lower unit cost.

Using slick marketing words and reacting to social constraints of military spending, mission selection, and accountability, PMCs promote themselves as a “low-risk, low-cost, low-visibility way to exert military influence in a time of diminished budgets and shrinking armed forces” while providing flexible and professional solutions to clients with marketing language similar to information technology companies providing outsourcing.

The availability of additional guns that private security companies provide, or “surge” capacity, is one argument for going to the private sector. Based on the idea that it is politically or economically unfeasible to pay for increasing the size of the armed forces, its underlying assumption is the conflict will be short in duration.

This key argument has proven to be empty with the passage of time. Seven years after the invasion of Afghanistan and over five after the invasion of Iraq, many recruiting cycles have passed since the war began and it is hard to argue that the ad hoc surge capability continues to provide a benefit to the strategic interests of the United States. The “private sector efficiencies” have actually increased costs in terms of hard dollars, institutional knowledge, and military-to-military connections and a failure to integrate private resources into missions increasingly focused on the struggle for minds and wills. The focus on the short-term ignores the real costs and real benefits associated with the outsourced services and skills.

Dollar-for-dollar comparisons, while frequently used, are misleading. At the macro level, there is the impact on the economy, including reduced investment in pensions and healthcare. At a lower level, These dollar-for-dollar comparisons oversimplify long-term costs of private markets that fail to be truly competitive while hiding substantial transaction costs that include higher finance costs of the private sector compared to the government’s ability to borrow money at lower rates, vendor incentives to skimp on quality or adhere to the letter of the contract not the spirit, future public costs to return outsourced skills in-house, and transactional costs of writing, enforcing, and monitoring contracts. In the aftermath of the expensive toilet seats and hammers in the Reagan Administration, the Federal Acquisitions Regulations (FAR) were strengthened in an effort to make sure the government received a fair product at a fair price. However, in the fast-paced post-9/11 environment FAR was frequently bypassed. The end result is questionable cost effectiveness of the practice of outsourcing security services.

So what? James Risen reported today on the recent Congressional Budget Office report, Contractors’ Support of U.S. Operations in Iraq:

The United States this year will have spent $100 billion on contractors in Iraq since the invasion in 2003, a milestone that reflects the Bush administration’s unprecedented level of dependence on private firms for help in the war, according to a government report to be released Tuesday.

The report, by the Congressional Budget Office, according to people with knowledge of its contents, will say that one out of every five dollars spent on the war in Iraq has gone to contractors for the United States military and other government agencies, in a war zone where employees of private contractors now outnumber American troops.

The Pentagon’s reliance on outside contractors in Iraq is proportionately far larger than in any previous conflict, and it has fueled charges that this outsourcing has led to overbilling, fraud and shoddy and unsafe work that has endangered and even killed American troops. The role of armed security contractors has also raised new legal and political questions about whether the United States has become too dependent on private armed forces on the 21st-century battlefield.

Outsourcing America’s national security can have dire consequences if not properly managed and watched over. This is a recurring theme found not only in “hard power” but “soft power” elements of national security. One the reasons for Smith-Mundt were the ridiculous (but well-intentioned) programming NBC was providing to Voice of America in the 1940s. No one, not even NBC, was monitoring the product. In terms of effect and shear dollars, that’s nothing compared to the wasted time and resources in a struggle of minds and wills in the Iraq theater.

Get on the ball Congress. You have the role of oversight. Do some oversight.