defense watch

December 2007

For Contractors in War Zones, Business Will Keep Growing

By Sandra I. Erwin

The constant sniping in Washington about military contractors — particularly those doing business in Iraq — ignores the inescapable conclusion that the privatization of government functions not only is here to stay, but is going to get bigger.

By the government’s own estimates, of the Pentagon’s $300 billion annual procurement outlays, half is for private-sector service contracts.

The reasons why the Defense Department is highly dependent on the private sector have been well documented. A dramatic rise in the privatization of military functions started nearly two decades ago as the Defense Department began to downsize. The Pentagon reversed course after the 9/11 attacks and has since added more civilians and military personnel to its payroll. But that did not in any way slow down the hiring of contractors, which surged noticeably after the invasion of Iraq.

During the past year, a string of government and independent investigations have raised serious questions about the Defense Department’s ability to supervise contractors, and have sparked calls for the Pentagon to exercise more oversight.

Of most concern is the shortage of contracting officers in the field. A commission led by former Pentagon acquisition chief Jacques Gansler confirmed what had been suspected for a long time: lax government administration of war zone contracts created a climate of corruption, resulting in fraud, waste and abuse.

The Defense Department should fix this sooner than later, because the demand for contractors is not going away, at least as long as U.S. troops are expected to fight wars. In Iraq, there is one contractor for every 1.5 soldiers. While the media spotlight has focused on private security, logistics contractors — currently about 50,000 — comprise the largest population of private sector workers deployed in Iraq. Another 20,000 provide support and maintenance services for weapon systems.

The Industrial College of the Armed Forces recently completed a comprehensive study of “privatized military operations” and concludes that, even after the United States leaves Iraq, contractors will remain a constant presence any place where U.S. forces might go.

The study was the product of extensive research by a group of military and civilian students at ICAF.

Contracted services in support of military operations is “likely to be an enduring reality of modern U.S. warfare,” said the ICAF report. For that reason, “the Defense Department must assess whether or not it has neared or crossed the line that divides commercial activities from those deemed inherently governmental.”

The rush in contractor hiring for Iraq operations may lead casual observers to believe that once the war is over, business will dry up. But that is not likely.

The demand for battlefield contract work will remain high, principally for three reasons, according to the ICAF study. One is the expectation that the Pentagon will face financial pressures to reduce the size of the military after the war. Another is a projected increase in the number of deployments related to the war on terrorism. And the third factor is the military’s use of increasingly sophisticated weapons systems that require specialized contractor support for maintenance and repairs.

“Unless the U.S. government adopts a radically different and more isolationist foreign policy, or chooses to increase significantly the size of its active duty force, the conditions and drivers that make outsourcing necessary are likely to remain unchanged in the near to mid term,” the study said. “Consequently, the future of contractor-provided expeditionary support is secure in that contractors have locked in a niche that may be too costly, fiscally and politically, for the Defense Department to fill with existing military capabilities and forces.”

In addition to logistics and maintenance contractors, consulting companies also will be sought in future conflicts for intelligence, communications and training roles.

There will be much business for security firms in the future, despite the Blackwater troubles, the ICAF report said. These companies already are taking steps to secure new opportunities post-Iraq.

Security firms, for example, are actively pursuing consulting and training contracts in Africa as the U.S. government stands up its new Africa Command.

“Africa may do for the privatized military operations industry in the next 20 years what Iraq has done in the past four, provide a significant growth engine,” the study said. “The continent is beset with circumstances that create a vibrant market for privatized military operations.”

The industry also is diversifying into the commercial market, particularly as private companies seek to do business in unstable areas of the world, said the report. “The positive outlook for the industry is largely driven by the global environment, which increasingly is characterized as unstable.”

As projections show greater demand for battlefield contractors, the government should heed the lessons from Iraq and consider carefully how it will employ, monitor and control the industry, the ICAF report said. It agrees with the Gansler study in that the military services need “expeditionary” contracting officers deployed forward.

That could be a problem considering that 97 percent of the Army’s acquisition corps are civilians. The service’s senior procurement advisor, Lt. Gen. N. Ross Thompson, is expected to begin an aggressive effort to expand the ranks of uniformed acquisition officers.

Contractors on the battlefield may be as old as warfare itself, but the conflict in Iraq certainly has guaranteed that suppliers who typically have labored in the shadows will not go unnoticed.

Please email your comments to SErwin@ndia.org

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