The Good, and Bad, News on Contractors

April 28, 2009 • Commentary
This article appeared on Asia Times Online on April 28, 2009.

A United States government report released last week is a classic good news, bad news story on private security contractors (PSCs) operating in Iraq.

The audit report, by the Special Inspector General for Iraq (SIGIR), looked at five Theater‐​Wide Internal Services (TWIIS) contracts awarded to five PSCs for static, or fixed security, services, in Iraq, at a maximum value of US$450 million. The TWISS contract was created to streamline the contracting process for static security around bases and other installations in anticipation of an increased need for those services in Iraq.

The winning PSCs were Aegis Defense Services Ltd; EOD Technology Inc; Sabre International Security; Special Operations Consulting‐​Security Management Group; and Triple Canopy Inc. These five are among the seven largest PSC providers in Iraq.

The audit showed that most awards were conducted under full and open competition, and the decision‐​making process was well supported. The five contracts, and 47 of the 50 task orders, were competitively awarded. Three non‐​competitively awarded task orders, worth $15.1 million, were appropriately justified as sole‐​source awards.

Forty of the task orders were justified on the need to replace troops, that is, to substitute PSCs for soldiers who were needed elsewhere or to incorporate an existing PSC contract into TWISS. In 19 of the 40, PSCs replaced soldiers performing static security at an installation. The other 21 task orders involved using contractor personnel in lieu of soldiers to meet increased security requirements or to incorporate an existing PSC contract into TWISS.

At forward operating base Hussaniyah, additional static security personnel were required when the installation size quadrupled. Without PSCs to fill this additional requirement, the base would have had to provide military personnel, jeopardizing its mission to train and develop the Iraqi Army

It is also clear that the military will be increasing its dependence on contractors in the future in Iraq. The Multi‐​National Force — Iraq plans to add installations in Iraq to future TWIIS new contracts, including Victory Base Camp, which has a requirement for about 2,600 security personnel.

But the report “Need To Enhance Oversight of Theater‐​Wide Internal Security Services Contracts” released on April 24 also identified vulnerabilities in the government’s oversight.

The most significant was that the experience and training of the contracting officer representatives (COR) were limited, and the time they will have available to devote to their oversight responsibilities for these contracts was insufficient.

For example, of 27 CORs responding to SIGIR questions, only four said that they had previous contracting experience, 11 said that their training was insufficient to meet their job requirements, and six said that other duties prevented them from conducting adequate oversight.

The SIGIR report found that the US military lacks the capacity to manage its contractors in a contingency environment. Selecting CORs with limited or no direct contract management experience, providing them on the job training and then assigning them other principal duties, increases the government’s vulnerability.

CORs are critical for oversight. They provide day‐​to‐​day oversight of the contractors’ performance and compliance with contract requirements. They are “the eyes and ears of the installation commander and the contracting officer”. They have significant responsibilities. They must monitor the contractor’s performance and compliance with contractual requirements, including compliance with all applicable laws, regulations, orders, and directives. Furthermore, the COR is responsible for validating invoices for payment submitted by the contractor.

In addition to the above COR duties, TWISS CORs are also responsible for ensuring that PSCs adhere to arming requirements, personnel reporting systems, serious incident reporting systems, badging (identification tasks), and compliance with MNF-I fragmentary orders (brief oral or written orders that provide timely changes to existing orders).

SIGIR provided questions to all 50 TWISS CORs and received responses from 27. Based on the 27 responses:

Prior experience: Four had previous contracting experience. Twenty‐​seven CORs received their training on COR duties after they arrived in Iraq.

Training: Eleven stated that the training provided did not fully prepare them for their responsibilities in overseeing PSCs. Eight CORs stated that training specific to private security contractors would be helpful. Fifteen CORs stated that they learned their duties from on the job training from their predecessor when available, the Defense Contract Management Agency quality assurance representative, or even the contractor that they are overseeing.

Additional duties: Six CORs assigned to oversee the task orders have additional duties and contracts that prevent them from conducting adequate oversight of the TWISS contractors. While MNF-I requires that CORs have contract oversight as their primary function, this is not necessarily the case. For example, one COR noted that his primary duty is that of a platoon leader. In addition, he is responsible for overseeing other contracts.

As a result, he is able to devote about 40% of his time to overseeing the TWISS task order. Another COR, who is in charge of one of the largest TWISS task orders, stated that he spends about 50% of his time on TWISS and six other services’ contracts. In both cases, the CORs felt that their additional duties prevented them from dedicating the necessary time to oversee the PSCs.

Three of the TWISS contractors stated that CORs are often ill‐​prepared for their tasks. For example, one contractor stated that in the majority of cases, CORs’ knowledge of contracting and responsibilities has been limited. In addition, two contractors noted that CORs are often late in signing the invoices or filled them out incorrectly, leading to up to three‐​months delay in payment to the contractor.

Considering that the inadequate performance of CORs was identified as a significant failure in the report of the independent Commission on Army Acquisition and Program Management in Expeditionary Operations released in November 2007, the SIGIR report confirms how difficult it is to get adequately trained and resourced government personnel into the field to monitor private contractors.

It found that the situation might well get worse in the future as difficulties in managing these contracts could easily be exacerbated as the US military draws down its presence in Iraq and this affects its pool of experienced personnel.

With the addition of the upcoming TWISS II, the TWISS contracts will grow in size to a potential $935 million. Such a situation would make these contracts even more vulnerable to fraud, waste, and abuse.

There was also information in the report that called into doubt some of the PSC industry’s claims of cost effectiveness. One of the gospels of the industry is that it is cheaper to hire them than having a regular soldier doing the same job, such as guarding bases, when the soldiers have more important priorities, such as actual combat. The reasoning is that it makes no sense for a highly trained soldier to be manning a checkpoint when a civilian could do the same thing.

While the priority part makes sense, the audit report contained some numbers that makes one wonder how cheap it is to replace soldiers with civilians. It is not the expense of the civilians but their numbers which drive costs up.

For example, at Camp Bucca it took 417 PSC to free up approximately 350 soldiers for combat operations. At Camp Taji, the Department of Defense (DoD) issued a task order for over 900 personnel to replace 400 soldiers and to address deficiencies in existing site security. At forward operating base Hammer, the DoD issued a task order for 124 personnel to free up 102 soldiers for combat operations. At Camp Taji, the DoD issued a task order for over 900 personnel to replace 400 soldiers as well as to address deficiencies in existing site security.

Overall, the number of estimated personnel in the TWIIS contracts totaled 8,580. The vast majority, 7,399, or 86.2%, were guards. Another 885, 10.3%, were supervisors and management personnel. The rest were handlers of explosive ordnance detection dogs and screeners and interpreters. That means there was one management official for every 8.6 workers. That is a lot of management for an industry that often claims that its success is due to its lean and flat organizational structure.

Another interesting point made in the audit is that the actual cost of the contracts is higher than the stated cost. This is because in most cases, life‐​support costs for contractor personnel such as food, water and shelter are not included in contract costs and are paid by the DoD. SIGIR estimates these costs for the current five contracts at more than $250 million per year.

The industry also claims that the costs of contractor personnel, especially the salaries paid to contractors, have been exaggerated in past news coverage, While it is true that much of the news reporting has been exaggerated, and doesn’t take into account benefits and compensation regular military personnel receive which contractors do not, it is obvious that someone is being paid well as personnel costs account for 81% of $252.7 million obligated to date on contract task orders.

But it is not expatriate guards or supervisors on whom lots of money is being spent. The SIGIR audit noted that the use of competition has helped drive down the costs of security services. It found that the rates for expatriate guards and expatriate supervisors have been reduced over time and that average costs have been significantly reduced over the course of the contracts, especially when compared to the rates agreed upon at contract award.

For example, the average rate for an expatriate security guard decreased 26% between the time the contract was awarded and the award of the first task order. In the most recent task order, the rate decreased an additional 29% for a total decrease of 55%. How much the expatriate guards and supervisors are paid can’t be determined as the companies consider that proprietary information.

Perhaps the most interesting fact in the audit, which is also pertinent to the cost effectiveness debate, dealt with how contract proposals were evaluated. As the industry, if not the public, has long understood when it comes to winning an award, the price of their bid is not the most important factor.

The audit noted, “According to the Request for Proposal, past performance and past experience were approximately equal in weight and significantly more important than technical capability and Iraqi participation, which were equal in weight. The four factors combined were significantly more important than price.”

In other words, when the military is considering awarding a contract it is as much concerned whether the services it is looking for will absolutely, positively be there as it is about the cost.

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