The $20 billion a year “stability operations” market is expected to drop off as the United States scales back its involvement in Afghanistan and Congress calls for reductions in U.S. spending on international development.
The outlook is uncertain for hundreds of support contractors, which toiled in obscurity before 9/11 and whose business grew rapidly over the past decade as military spending soared. Some might exit the market, while others are likely to return to their roots, working in peacekeeping operations and State Department soft-power initiatives.
Before Afghanistan and Iraq, companies that specialize in peacekeeping and international development focused on United Nations and African Union missions, disaster relief and post-war stability operations. The wars spurred a spending spree and a huge demand for warzone support contractors. That surge has ended and war contracts have begun to wind down.
The industry is prepared for the downturn, says Doug Brooks, president of the International Stability Operations Association.
Future work will most likely focus on “security cooperation” projects such as training foreign militaries and peacekeepers. The U.N. Department of Peacekeeping Operations, with 16 deployments currently in four continents, still needs help, Brooks says. Although international peacekeeping jobs are nowhere as lucrative as supporting the U.S. military in war zones, the industry will adjust to the new environment, Brooks says.
One bright spot for companies is a State Department program, the African Contingency Operations Training Assistance, which educates and trains peacekeepers, he says. The project dates back to the Rwandan genocide, when it became clear that there was no political will in the United States to put troops in Africa, Brooks says.
“Congress loves ACOTA, and has consistently funded it,” he says.
There will be long-term stability operations in Congo, Somalia, possibly Syria, in addition to development work in places such as Haiti and unpredictable crises like natural disaster relief. Even in Afghanistan, where the U.S. military is expected to leave by 2014, new opportunities could emerge for contractors, Brooks says. “There is a debate within the industry. As the military draws down, does that mean less services in the field or possibly more military jobs being replaced by contractors?” he asks. “So far it’s a guessing game.”
Brooks speculates that after 2014, the Pentagon and State Department might hire more contractors to take over training of Afghan forces and development.
Although American firms are not welcome in many countries, they manage to go unnoticed because most of the workers are local nationals, Brooks says. The bad news for U.S. contractors, however, is that one of their key government customers, the U.S. Agency for International Development, has given industry the cold shoulder, according to Brooks.
“We’re a bit disappointed,” he says. USAID Administrator Rajiv Shah “has not been particularly friendly to our side."
Shah soured on contractors following a series of failed projects and embarrassing accounts of procurement waste, Brooks says. Shah has said that he prefers to work directly with local governments. But Brooks says the government still needs industry's help. “Shah is correct in that the money has to go to local economy to stimulate development. Perhaps he’s taken it too far,” he says. “We’ve seen in the past.”
Industry used to have a “partnership with the government,” says Brooks. “Now we see the opposite: a vindictive environment, vindictive contract management. The focus isn’t on the mission. It’s on finding all the waste fraud and abuse. Catch people filling out the paperwork the wrong way,” he says. “It’s counterproductive to U.S. policy.”
The anti-industry mood deepened following the release of a damning report by the U.S. Commission on Wartime Contracting, which documented $60 billion of wasted funds in warzones. Brooks notes that much of that waste resulted from a shortage of qualified contracting officers and incompetent management rather than criminal behavior by contractors. “They couldn’t keep up,” he says. Waste also comes from duplication of efforts, he says. USAID and the Army Corps of Engineers at times are working on overlapping projects. “Don’t get angry at the contractor for a project that should not have been done. We need to figure out this coordination issue,” Brooks says. “We needed better oversight too. … The real issue is that we are doing stuff that doesn’t have long-term value.”
USAID faces budget cuts, which will affect industry, Brooks says. Republican lawmakers have been unfriendly to international development and foreign aid.
The Obama administration requested $56.3 billion for international affairs for fiscal year 2013. That is $5.1 billion below last year's request. Although this represents only 1 percent of the overall federal budget — development and humanitarian programs are less than half of that amount — foreign aid is a political football and a consistent target for budget cutters.
“The Defense Department can drop billions of dollars on new airplanes with just modest level of oversight. But for USAID to spend $10,000 to buy a well, the amount of paperwork and oversight makes that well a heck of a lot more expensive and more difficult to build,” Brooks says. “And Congress cares more about that than they do about the billions spent on airplanes.”
Brooks would like to see industry and USAID mend fences. “Shah has been very critical in speeches of the contracting community, and that’s a problem,” he says. “The better the relationships with USAID the better product the taxpayers are going to get.”
USAID officials could not be reached for comment. In recent public statements, Shah has called for the agency to make better use of its funds by investing directly in a country’s infrastructure, instead of spending on contractors.
In a March speech at the Council on Foreign Relations, Shah notes that in Afghanistan, by investing directly in the health ministry instead of foreign contractors, the U.S. government saved more than $6 million last year.
“We’re fundamentally changing the way we do business,” he says. “By 2015, we will drive 30 percent of our funding to local governments, business and non-governmental organizations — a rate higher than any other development agency.”
In the speech, Shah did call for improved relationships with the private sector. “Many in our community still have a bad taste in their mouths from early corporate activity that caused great harm in poor countries,” he says.
“We have to get past our mistrust and shift our focus. … Today, the best corporations have a much more enlightened understanding of the interests they share with the development community."
In an earlier speech at The Brookings Institution, Shah says USAID has changed the way it oversees contracts. “Rather than renew billion-dollar-plus contracts that are difficult to manage and difficult to have visibility on, we've created a review board that essentially breaks them down into smaller, more manageable pieces, pieces that can be more transparent and more efficient,” he says. “Rather than pay Beltway firms to provide vaccines in Liberia, we're shifting global health spending directly to the health ministry there, saving us $1 million.”