Having recently completed my Ph.D. at King’s College London on the US government’s use of contractors to train partner militaries, my interest was piqued when I saw “How Private Contractors Disguise the Real Costs of War” by William Hartung, who is also an esteemed colleague via the Forum on the Arms Trade.
Hartung’s argument is centered on the “waste, fraud, and abuse” that was “widespread among contractors working for the US government in Iraq and Afghanistan.” While he is not wrong, the framing of the argument that “contractors disguise the real cost of war” misses the mark in that it puts the fault of shortcomings on the implementers of contract(s), rather than accurately attributing the blame to the contract itself. Indeed, the issue of waste should not be ignored when evaluating America’s endless wars, but in order to conduct critical analysis, one also can’t ignore other ongoing problems, such as inefficient contract design, oversight, and conclusion of government contracts, all of which impact the responsibilities and capacity of contractors in war zones.
Putting the onus of waste, fraud, and corruption in Afghanistan and Iraq on the contracting industry is not accurate, especially when it is the US government that has structured the parameters in which these take place.
It’s important to note that there is a substantial difference between weapons contractors and service ones that are responsible for “everything from laundry and food supply, building military bases, maintaining weapons systems, to training police and military forces.” While Hartung’s criticism of the top five weapons contractors is on point, when criticizing contractors it is essential to note the differences within the contracting industry, especially with regards to profit margins. For example, weapons systems have much higher profit margins and opportunities for follow-on work, such as sustainment and upgrades, whereas contracts for services, such as life support and training, tend to have much smaller margins, all of which impact the actual contracts and services provided.
More importantly, Hartung’s main assertion, that contractors prolong war, ignores a key player: The government. Putting the onus of waste, fraud, and corruption in Afghanistan and Iraq on the contracting industry, therefore, is not accurate, especially when it is the US government that has structured the parameters in which such “waste, fraud, and abuse” could take place. Waste is always combined with “fraud” and “abuse,” but tends to be the majority of the category. It is also largely client-driven in terms of projects that are redundant or poorly designed, wherein contractors must carry out tasks that are specified by their contracts even if they are not responsive or appropriate to environmental conditions on the ground.
THE INCENTIVES FOR USING CONTRACTORS
In order to understand the incentives that the US government has to contract out work to the private sector, it is useful to apply the Principal-Agent (P-A) theory. The central focus of P-A theory is the process of structuring incentives for the agent (in this case, contracting firms), through which the principal (the US government sponsor) can make decisions that affect the incentives of the agent to act in one way or another.
Differing types of P-A models can be categorized as those dealing with either a moral hazard/hidden action, or those encompassing adverse selection/hidden information. In moral hazard problems, the agent has taken an action that affects the principal’s utility, where the principal and agent have different interests and preferences over the agent’s actions — and the principal may no longer be able to directly control the agent’s actions. In this context, this dilemma could manifest as the contractor engaging in risky behavior or failing to act in good faith due to knowledge that the sponsor would bear the economic consequences of their behavior. (However, the response to that particular hazard has led to the preponderance of “LPTA” or lowest price technically acceptable contracts, the shortcomings which are a topic for an entirely separate column!)
In information problems, there is asymmetric access to information between the principal and the agent. Herein, agents may pursue opportunistic strategies to increase their own benefits. This manifests itself in multiple ways across contracting — especially in complex environments — wherein the US government often doesn’t clearly communicate how they desire the contracted program outcomes to tie to strategic goals. Inversely, the agent may not be sharing the “ground truth” they observe with US government representatives in order to further their own interests or preserve unique access, rather than fully pursuing the best interests of the US. These hazards are critical for US government contracting authorities to understand and avoid, although there has been unremarkable success in doing so to date.
IT’S NOT THE CONTRACTORS’ FAULT
Is the industry exemplary? Very few large enterprises are in their totality, and many would emphatically dispute that such an assertion could be taken seriously after two decades of public media reporting have focused on the flaws, rather than unsung successes, of an industry which provided “contractors [who] often accounted for 50% or more of the total DOD presence in country” in Iraq and Afghanistan, yet which the “DoD does not systematically record the deaths or injuries of.”
Communities of practice within the contracting industry, however, have taken notable steps. For example, the International Code of Conduct Association (ICoCA) and the Montreux Document on Private Military and Security Companies among others are providing opportunities for good faith actors to excel by certifying adherence with best business guidance and ethical practices. At the urging of these communities, clients across all sectors now require ICoCA certification in the selection of their private security providers and recognize signatories of the Montreux Document as being compliant with relevant international legal obligations and good practices.
There has also been extensive private sector regulation of human trafficking efforts as well as the establishment of a standard of quality created by the American National Standards Institute/ASIS International (ANSI/ASIS). Global initiatives such as a certification on Women, Peace, and Security in support of the UN Security Council Resolution 1325 where companies can self-select to earn via the International Stability Operations Association have also been positive developments. Furthermore, both ICoCA and ISOA have public complaint mechanisms, wherein problematic activities can be flagged for further investigation. These efforts are not contractually mandated or directed by the US government (and therefore not resourced or financially supported by the customer) and so exemplify the good faith efforts of contracting firms to provide services above and beyond requirements without expectation for remuneration for their efforts.
There is no doubt that the Pentagon should improve contract design, procurement, and oversight. Improving contracts and their contents would not only curb waste but also make the costs and benefits of the use of contractors more efficient while providing the ability to hold the US government more accountable to the American public.
Whitney Grespin is Director at Sloan Manor Consulting and a founding member of the Forum for Private Security Research at King’s College London.
