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Outsourcing the War

View part one of this article, "Warriors for Hire in Iraq."

The killing of four American military contractors in Fallujah last week not only touched off a growing wave of violence but also raised concern about just how much of the mission has been outsourced to private firms. Private military contractors in Iraq are present in unprecedented numbers, more than 15,000, and they engage in a range of mission-critical activities—often armed combat—contrary to the U.S. military's own doctrine of how civilians should be employed in the field. Everything from handling military logistics and training the local army, to protecting key installations and escorting convoys has been turned over to a literal small army's worth of private troops.

This expansion arose not out of a well-planned strategy, but from a process that can at best be described as ad hoc. The public and Congress remain largely unaware, and the senior military leadership is in denial about the size and scope of such firms, but many in the military's junior and field ranks have begun to ask questions about what such outsourcing will mean in the long term. Papers within the professional war college system have asked: How does such outsourcing so many of its core tasks affect the health of the military institution? Does dependence on the marketplace bring new vulnerabilities in war zones? What is the exact legal status of the contracting firms and their employees, not just within outdated international law, but also within U.S. military regulations that consider contractors to be "civilians accompanying the force," not integral to its very operations? Is the military even equipped to be a business-savvy client and an efficient regulator?

Iraq is the largest private military market in modern history and also a testing ground for just how far the outsourcing trend will play out for the U.S. military. While vast areas within the operation have been turned over to private firms, helping to minimize the political costs of the war, the killings in Fallujah illustrate that outsourcing is never without cost. Indeed, the tragic deaths have raised two more key issues that continue to trouble the broader military-contractor relationship in Iraq: 1) private military firms, or PMFs, are integral to, but not within, the military operation, and 2) there are no universally established standards or even operating procedures, leaving too much to market discretion. In an era when "jointness" (the ability of the armed services to work with and depend on each other) is the dominant buzzword for transforming the Pentagon, the U.S. military is ignoring a critical disconnect.

Although PMFs take on the full range of military roles within Iraq, at the end of the day they are not part of the force. As Nigel Churton, chief executive officer of Control Risks, a firm that has about 500 personnel in Iraq, notes, "I think the key points one has to start from [are] we're not now military. We cannot pretend that we have the ability to respond like a military force can."

The consequence is that PMFs are independent entities, responsible for their own operations, safety and security. They do not receive full or timely access to the military and CIA's complete intelligence picture, do not have full access to the military's communications net, and, when out in the field on their own, do not have access to the same weapons, established systems of rapid reaction and response, or protection.

The lack of formally shared information on current threats and ongoing or planned operations is a crucial missing link. Military officers question why or how exactly the military should share confidential information with entities that not only lie outside their chain of command but also often hire local Iraqi and third-party nationals. But, according to one firm executive, the lack of information means that contractors are "flying blind, often guessing about places that they shouldn't go." For example, before the Fallujah killings, Marines were preparing their own operations in the vicinity as a follow-up to fighting in the city a week earlier, and the intelligence was that insurgents in the town were prepped for ambush.

These contradictions carry over to critical differences in the field. When contractor units are attacked, they must deal with the situation, in the words of one executive, "completely on their own." The difficulty is compounded in Iraq. One of the very few restrictions that the CPA applies to the firms is an upper threshold on their armaments, limiting them to small arms. So, while contractors in other war zones wield heavy weaponry and call in air strikes from contractor-manned jet fighters and attack helicopters, in Iraq, where they face the greatest risks, they are often outgunned by local insurgents. For instance, while Fallujah was a city that U.S. military units were allowed to enter only if accompanied by an up-armored vehicle equipped with heavy machine guns or more, the contractors were limited to SUVs armed only with automatic rifles.

The United States has put civilians in a war zone, asked them to carry out key military tasks, but restricted their ability to accomplish those tasks, let alone protect themselves. However, loosening the rules and allowing contractors to bring in heavy weaponry would further call into question the lack of sufficient U.S. forces on the ground, besides raising all sorts of legal and political red flags. But not allowing contractors to do so, particularly when they are singled out for attack because of their greater vulnerability, is costing lives—and hostages.

Regardless of the policy, many contractors feel they have to respond. As Malcolm Nance, the head of one firm in Baghdad, notes, "We are going to have to get heavy now, although discreetly. Some people already carry grenades, although I wouldn't do it because it's not permitted by the coalition. But in markets in Baghdad, you can pick them for $1 apiece, and I suspect a lot of people will be shopping there soon ... It's not just the coalition armies who are fighting this war now."

The rights and responsibilities between the military and its contractors also constitute an uncertain, gray zone. As opposed to what happens with a U.S. soldier, the military is under no compulsion to launch a full-scale search when a contractor goes missing. For instance, the U.S. military has spent 13 years searching for Navy Capt. Scott Speicher, whose plane crashed during the 1991 Gulf War. But when Kirk von Ackermann, a former Air Force captain working for Istanbul-based Ultra Services, disappeared outside Tikrit in November, the response was not a frantic mobilization or house-to-house hunt. Instead, von Ackerman's photo was given to local Iraqi police, and little has been heard of the incident since. Indeed, the difference carries all the way to when PMFs employees are killed; the firms are responsible for notifying the families, deciding what level of grief counseling to provide, and shipping the bodies home. A PMF executive I spoke with grumbled that when one of his employees was killed in western Iraq, the only support he got from the U.S. military unit in his sector "was a free body bag."

The obligations of the military when contractors are under attack is another area where the disconnect surfaces. One of the most disturbing aspects of the fighting in Kut was how all three outnumbered contractor contingents requested coalition military assistance, but received none. All were forced to "self-evacuate," to the detriment of their safety, their missions, and the overall operation. The Hart Group unit, which had one contractor bleed to death while stranded on the rooftop, made so many fruitless calls for help that its mobile phone batteries ran out during the night.

Private contractors complain that in this area they give more than they get. Scott Custer, a principal with Custer Battles, comments, "We've responded to the military at least half a dozen times, but not once have they responded to our emergencies. We have our own quick-reaction force now." For instance, when an Army helicopter crashed in Fallujah in November, nearby PMF forces rushed to defend the crash site. By contrast, many contractors ask whether the Marines would have intervened more rapidly in Fallujah if the corpses treated in such a barbaric manner had been those of Marines; instead, the Marines waited six hours only to send in Iraqi security to retrieve the bodies. (Marine officers respond that to have rushed in would only have inflamed the situation and that, because of they and the PMFs were not in communication, they only learned of the mutilations from the media.)

The problems of this PMF-military disconnect also deeply concern serving military officers. Clarified command and control is essential for commanders in the field. Military officers say that it is "so important it is one of the observed [that is, most fundamental] principles of war." One officer notes, "Not to be overly dramatic, but the centrality of having clear command and control in our profession relates to the obvious and direct impact it has on lives when we engage in combat. Doctrinally, every written/formal order we produce has a section that deals with command and control."

Unity of command may be a fundamental concept, but in Iraq, it is already lost. Officers must worry about armed forces operating within their sector of responsibility but outside the bounds of their authority. Many of these contractors work directly for the CPA, which coordinates and communicates only on a limited basis with the normal U.S. military chain of command. Others work for entities other than the CPA, such as construction firms and media companies. Thus, local military commanders are often unaware of the daily actions of firms in their zones of responsibility. This disconnect is not just a simple point of discomfort for officers: "Friendly fire" incidents have even broken out between contractor and coalition convoys.

Failures of command and control can have great consequences for the mission. Local populations are generally unable to distinguish between public and private forces, and as journalist David Wood of the Newhouse News Service writes, in Iraq, "a single misstep can ignite a spiral of political violence." Retired Army Col. Robert Killebrew describes the predicament as follows: "You want very, very tight control. The issue is not so much their safety, although we worry about them. The question is: What does this [private contingents getting into firefights] do to American legitimacy in the country?"

Military jurists are equally concerned that by ignoring the well-thought-out doctrine on civilians' role in warfare, contractors now operate in a legal no man's land, beyond established boundaries of military or international law. If a U.S. soldier is suspected of committing a crime, there are the military criminal investigations, judge advocate, and court-martial system set up to investigate, prosecute and punish if appropriate. But contractors do not fall under this system and thus are generally self-policing entities. Rumors abound about PMF friendly-fire incidents, drunken firefights, and accidental discharges of weapons, but there is little that a firm can do other than fire its employees. Dismissal is even less likely when firm executives are implicated.

In turn, the worst that the combatant commander can do if a crime is presented to him is suspend the firm's contract and expel the individual employee from the theater, again clearly insufficient punishment for felony offenses. The 2000 Military Extraterritorial Jurisdiction Act does not provide legal recourse, because it applies only to U.S. citizens working directly for the Defense Department on U.S. military installations, not to those working for other government agencies or private entities, or to other nationalities. Moreover, military jurists describe the "dearth of doctrine, policy and procedure" about when and how to apply the act, and no PMF employee in Iraq—American or foreign—has been held accountable under it.

Thus regulation is left to the local government, the irony being of course that the collapse of the local state is usually the very reason the firm is there in the first place. In Iraq, just as it was unlikely we would turn contractors suspected of crimes over to Saddam Hussein's regime during the war, so it is equally unlikely we would turn them over to the Iraqi interim council. In turn, it is unlikely the council would have either the interest or capacity to deal with contractor issues.

The second key dilemma results from the fact that private military operations are carried out by competing firms operating in a fluctuating and sometimes unpredictable marketplace. Contractors thus have no common standard for recruitment, vetting, training, weapons, appearance, tactics. As one former Special Forces veteran said, "The military really can't tell you how to do your job—they can advise you, but they really have no control over you."

The result is that, as in any other industry, the companies diverge in the information they collect, the quality of their personnel and recruiting, their methods for evaluating risk, and their operational procedures. Knowledge of the battlefield means not just power but profits. Yet the firms not only do not have ready access to the military's intelligence, getting only a delayed and "sanitized" version from the CPA, but also do not have any formal procedures or institutionalized incentives for sharing the local knowledge they have gathered. While there are certainly informal information transfers among clusters of firms, there is no central repository of intelligence or systemized threat analysis across the industry. Indeed, such a system would denude the leading firms of their very competitive advantage.

Many soldiers and analysts express admiration for the professionalism of and the difficult jobs carried out by firms such as Blackwater and others. But all realize that not every firm can be the best and that, at the lower end of the market space, some are barely competent, if that. This has become a particular concern in what executives term the Iraqi "gold rush." The firms in Iraq range from well-established firms with thousands of years of collective experience in war zones, to start-ups that did not exist before the war. As Scott Custer of Custer Battles notes, "You've got a whole host of fly-by-night and disreputable companies. They're terrible. They get people killed."

Because of this loose and lethal environment, some of the best-respected firms in the industry have avoided Iraq altogether. For example, ICI is a firm with a strong operating history in some of the world's worst war zones, including Sierra Leone and Liberia. In 1998, the State Department named it small contractor of the year. Its president, Brian Boquist, is a former Green Beret. "In Iraq it is the Wild West," Boquist writes. "Almost none of them [the security firms in Iraq] have any real experience in war zones. We have stayed out of the place as it disintegrates from an insurgency to a civil war."

One of the challenges of the booming PMF market in Iraq is that demand is now outpacing supply, and the once tight-knit community, where every employee knew and had worked with every other, has been cracked wide open. David Claridge, head of Janusian, said, "There is a shortage of quality labor. Hiring people takes time now, whereas before we had a database of people we could just call up. Now we have to wait for people to come off other jobs." Claridge added, in an interview with NPR: "We are aware as an industry that perhaps some of the people being employed in Iraq—because of the massive demand for labor—some are perhaps not up to the task. As I say and I reiterate that this is not referring specifically to the individuals here [those killed in Fallujah], but we have seen a number of security operatives die during the last seven days, and we have to make sure that everyone providing services there is professionally trained and up to the task."

Firm seek to meet this labor shortage in different ways. Some continue the practice of hiring only personnel that are personally vetted and known by the company leaders beforehand. But this comes at the cost of lower employee rolls and lost revenue opportunities. Others pull in a grab bag of skill sets and backgrounds as they multiplied their numbers. What it means to be "Ghurka," "commando," or even "Special Forces" has a looser standard. But now, as Paul Rees, the managing director of Centurion, noted to Knight Ridder News, the labor market is so tight that firms are hiring people who don't know when to fire at attackers and when not to.

With no planning and a limited staff, as one senior Defense Department official comments, "the CPA has let all kinds of contracts to all kinds of people. It's blindsided us." At times, not only the lesser skilled but also some particularly disturbing characters have made it through the limited vetting, which can involve little more than sending in one's résumé. For example, British forces were not pleased to learn that a former soldier convicted of working with Irish terrorists had been hired by the ArmorGroup firm (which has a reported 600 personnel in Iraq) and granted clearance to enter U.S. and British bases in Iraq. (After an Irish newspaper reported the story, the employee was suspended.) South African political activists have identified a number of the contractors in Iraq from appearances before the Truth and Reconciliation Commission, including one who admitted to firebombing more than 60 homes for the apartheid regime.

Where the billing is done by the day in a madly expanding market, the labor crunch also affects preparation. Experienced employees complain that pre-deployment briefing and training, important not only for honing sometimes rusty skills, but also for building small-unit cohesion in combat, have been shortened and in some cases even eliminated. It is important to note that some skills needed in the private military world, such as evasive-driving tactics, are not regularly taught in the military, so private contractors cannot exclusively rely on past training. As one PMF executive says, "Just because you used to be a SEAL doesn't mean you'll know how to handle every problem in a place like Iraq."

Each firm determines its own standards and procedures, and there is no formal regulation or even an industry self-regulatory mechanism to establish them or to police and punish those who fall below standards. While the best firms will blackball rogue or incapable employees, the industry has grown so huge and the clients remain so clueless that such tagging offers minimal recourse. For instance, industry insiders could only shake their heads when one firm invited CNN "Crossfire" talk-show host Tucker Carlson to ride along on a mission into Iraq. Not only did the firm's personnel give the conservative pundit an AK-47 to wield in the middle of a volatile war zone, but when they needed gas, Carlson and crew took over an Iraqi gas station by holding local civilians waiting in line at gunpoint. (One hopes he wasn't wearing his trademark bowtie, which would have only added to the local insult.) Carlson described the incident with proud delight in Esquire magazine, apparently not understanding the multiple industry sins that had been committed. Firms also greatly vary in their tactics and operations. For example, in the role of escort and protection, some firms opt to stay under the radar of potential adversaries. They purchase local vehicles, grow beards to blend in, and keep weapons hidden until needed. Others "cowboy up" and attempt to deter threats through posturing. They are recognizable by their web gear, Oakley sunglasses, cradled submachine guns, and brand-new black or white SUVs that can act as magnets for ambush: a mode of operation that is a huge point of contention in the industry.

Risk evaluation, likewise, differs by firm. In the PMF realm, risk incorporates battlefield threats as well as investment hazards. With differing intelligence collection and analysis capabilities (some create an in-house cell; others don't), each firm weighs the risks using all sorts of metrics. The Monday morning quarterbacking of the Fallujah decisions has already begun, illustrating how various firms evaluate situations. Jonathan Garratt, the group managing director of Erinys, has publicly noted that he would have insisted his clients avoid Fallujah altogether. "It's very dangerous. As a generalization, Fallujah is out of bounds on our map. We would only go through there in armored vehicles and a significant security force to defeat all threats." Military officers have even suggested that if the decision to go into a "no go" area like Fallujah without the required up-armored vehicles and heavy weapons had been made within the military, the officer in charge "could expect a court-martial hearing." In response, Blackwater officials have said that their units may have been tricked into entering the town by turncoat Iraqi security forces, leaving aside the point that they didn't have access to such weapons in the first place.

The blame casting will likely continue, and may even result in civil suits, but the underlying point holds true that firms evaluate risks differently. This carries over to their life insurance packages—a complaint of the Chilean hired unit is that their contracting firm chose a poor one without their understanding—or the backup support they guarantee—some firms pay the cost of having a quick-reaction force in place, ready to rush to the rescue, while others save money by hoping for the best.

Another important difference between the PMFs and the military is that even individual members of firms can weigh the risks in deciding their own involvement. In the wake of last week's killings, many employees decided it was best to change their job locales, regardless of the heady pay. As one Halliburton employee departing Iraq commented, after his truck blew up underneath him in a convoy attack, "It was time to come home." Similarly, Michael Cherkasky, the president of Kroll, may have 100 employees on the ground in Iraq, but admits that he has chosen not to go. When asked why, he replied, "Are you kidding? I will fly into Kuwait. I will fly into Jordan. I will not fly into Iraq."

In contrast to military standardization, there is a simple market reality at play in Iraq: Each firm has its own approach (which each thinks is the best), but not every firm's recruiting, information and operating procedures can be the best, and some are not even optimal. Every industry has its winners and losers, but the price of establishing those in the private military world is different than in other marketplaces. This issue is compounded by the lack of formal weeding-out processes or the establishment of minimum capabilities, inherent needs in the military environment. One Special Forces veteran goes further: "How these contractors operate is determined by the individual companies. There's no such thing as a 'best practice.' It's a question of sheer economics—how much is the client willing to pay?"

Within the private military industry itself, the killings in Fallujah were shocking but not unexpected. As opposed to the first few months of the war, when contractor attrition was rumored to be as high as 30 percent (comparing quite poorly to the zero percent of U.S. soldiers that are able to decide to return home), those now going into Iraq know that it is an active war zone. Indeed, two contractors working for the Olive Security firm had been killed outside Mosul just days before the Fallujah incident, the main difference being that their deaths were not recorded on film. However, the Fallujah incident, followed so rapidly by the mass violence and the incidents in Najaf and Kut, caused most of the firms to reexamine their procedures, risk factors, and reliance on military support that may not be there. Christopher Bees, a director at ArmorGroup, says, "It'd be fair to say that anyone involved in the business in Iraq is bound to take a second look at what they do."

Disturbed by the upswing in violence and the lack of military backing and coordination, at least four military contractors (Halliburton, Triple Canopy, AKE and Control Risks) were reported by journalists and CPA officials to be reconsidering the extent of their presence in Iraq, and they suspended key parts of their operations as they waited for the situation to settle. However, most indicators are that Fallujah killings won't collapse the energetic PMF market in Iraq. The pay scale remains so high that those leaving will likely find ready replacements. In the days after the killings, I was contacted by two firms looking for advice on how they might crack the market, including one that had never operated in a war zone before.

So, while the boom for PMFs in Iraq certainly can't last forever, it bodes to be lucrative while it does. Duncan Bullivant of Henderson Risk notes, "I wouldn't give it more than another year at this level. The bubble will burst, but there's an immense drive to cash in while it lasts." U.S. plans for the transition to Iraqi sovereignty mean an even greater use of private contractors, such as a contract worth up to $1 billion to take over the responsibility for protecting the Green Zone, the four-square-mile area in central Baghdad where coalition officials live and work. Who knows, perhaps the PMF bubble may last longer than the dot.com one did.

The greater challenge looks to be how the broader business community responds to Fallujah and its aftermath. The cornerstone of the Bush administration's plan to turn the corner in Iraq is the transfer to local Iraqi sovereignty on June 30 and the simultaneous dump of some $18 billion in reconstruction contracts over the summer. It was hoped that the massive infusion of aid would draw in outside business and create an upsurge of employment that would dry out the insurgency.

But, instead, the Fallujah killings and the ensuing outbreak of fighting in six cities might have sucked the wind out of the corporate participation necessary to making the plan a reality. Those already on-site have restricted their movement and activity ("no go" areas have ballooned), while a number of other firms set to enter the country have cancelled. The head of the firm Meyer and Associates, which provides protection for a number of contractors, reports that "right now everything is at a standstill." Among the lesser-noticed victims of Fallujah was the Baghdad Expo, the largest conference planned by the Iraqi-American Chamber of Commerce. The meeting was to highlight business opportunities in postwar Iraq, with more than 200 companies scheduled to attend. The day after the killings, it was postponed.

So while the PMF industry has boomed, the accompanying investment needed to prop up the Iraqi economy has not (which could indirectly undercut the PMF industry in the long term). Companies know that the insurgents' strategy is to weaken the coalition by targeting them, and thus many firms are waiting on the sidelines for the situation to stabilize and a real, functional Iraqi government somehow to come into being. As one potential investor commented after a U.S. Commerce Department briefing on investment in Iraq, "The carrot that's being waved in front of everybody is that we should get involved on the ground floor. But this is below the ground floor. There are too many other markets now that are stable."

This reluctance derives from more than a fear of going into a war zone; rather, it represents real financial calculations. As the situation has grown increasingly dangerous, insurance premiums have skyrocketed. Because the Defense Department had no policy on it beforehand, Bunny Greenhouse, chief contracting official for the Army Corps of Engineers, relates that for contractors in Iraq as much as 40 cents of every dollar is spent on insurance. "Why are we paying 40 percent? That's unbelievable ... Nobody foresaw that we were going to be in this kind of dilemma." While Greenhouse is wrong —the experts on Iraq did predict the current turmoil, just as industry analysts pointed out the dangers of such poor planning—the insurance problem is yet another illustration of the costs of an ad hoc approach to doing business in the realm of war.

In turn, security costs have escalated, which is a boon for the PMF industry, but not for the broader effort. Many construction firms, such as Washington Group International, now have to employ two security personnel for every one worker carrying out the actual contracted task. Just before Fallujah, Stuart W. Bowen Jr., the inspector general for the CPA, estimated that at least 10 cents of every reconstruction dollar in Iraq was spent for security, up from 7 cents in the fall of 2003. If the present spate of violence continues, industry insiders think it might grow to as much as 20 cents per dollar. As a point of comparison, security costs for oil operations in war-torn Colombia average about 6 cents per dollar.

These added costs mean that the reconstruction package funded by taxpayers may not go as far as hoped (Bowen contended that as much as $4 billion could be spent on security), perhaps requiring even more funding on top of the previous budget supplementals. Already, the CPA has had to transfer $184 million meant for clean-water projects, the kind of aid package that seeks to bolster local popularity, to cover spiraling security costs for its own installations. Additionally, these added costs mean that within firms' investment calculations, the threshold for turning a profit has been raised, further deterring outside investment. Bowen writes, "The inability to accurately predict the costs of security, including insurance, raises questions about the need for more funding—Iraqi, donor, or U.S.—to accomplish the reconstruction mission ... We are in this big gray area about how security concerns will affect reconstruction timelines."

In a recent campaign speech, President Bush proclaimed that "America must never outsource America's national security." Once again, the gap between rhetoric and reality is yawning.

While Bush was trying to make a point about U.S. relations with the international community, the fact is that the United States has indeed outsourced major portions of its effort in the war in Iraq. More important, it has done so in an ad hoc manner, without public awareness or discussion.

The private military industry is such a new phenomenon that most in Congress remain unaware of it. In turn, the issue is highly susceptible to partisan rancor, mainly because of the identity and political practices of some of the firms. For instance, simply mention the name Halliburton in a congressional hearing and the battle line is already drawn. Unfortunately, this ends rather than begins the inquiry, even though questions about the private military industry cut to the heart of national security and our soldiers' welfare.

In the wake of the shock over Fallujah, this may change. A group of senators led by former West Pointer Jack Reed, D-R.I., has requested that the Pentagon begin the basic accounting task of tallying the number of armed non-Iraqi private military personnel on the ground. They have also requested that the Pentagon begin to adopt written guidelines, with legal justifications, for the rules of engagement the firms must follow, as well as how they will be coordinated with U.S. and sovereign Iraqi forces. Defense Secretary Donald Rumsfeld has not yet responded.

Those are good first steps, but they do not go far enough. To put it in economic terms, privatization always comes with both positive and negative externalities. The onus is not on the contracting firm, but on the client, in this case the U.S. government, to guard its own interests and make sure the job is done right. We must set up the processes needed to maximize the positives and minimize the negatives.

A clear examination is needed to bring higher standards and greater clarity into our current and future military outsourcing decisions. This need goes beyond tracking the armed personnel. It includes a basic accounting of the broader realm of contractor forces, public transparency of contractor casualties, and an examination of what is being spent. The U.S. budget on the service side of war has tripled in the last decade. We need far better financial scrutiny of contract competitions, awards and oversight to ensure that money is being saved through outsourcing (no formal study has yet proven this). Serious thinking must take account of such fundamental military questions as command and control, rights and responsibilities for both the good and the bad times, legal status, and the establishment of industry standards on recruiting, procedures and intelligence.

We should also take a step back and examine the overall trend, rather than continue to breathlessly outsource. Just because we can turn something over to the private market does not always mean we should. Two basic questions must always be asked before handing over any public function, most particularly to private military firms: Is the function being privatized in symmetry with national security and the public interest? If so, how will this privatization save money and promote efficiency? Unfortunately, our CEO-filled defense leadership has forgotten Economics 101 and brushed aside basic issues of public accountability. Instead, it has outsourced first and not even bothered to ask questions later.