Nation Builders and Low Bidders in Iraq

From the abuses at Abu Ghraib prison to the mutilation of American civilians at Falluja, many of the worst moments of the Iraqi occupation have involved private military contractors “outsourced” by the Pentagon. With no public or Congressional oversight, the Pentagon has paid billions of dollars to companies that now have as many as 20,000 employees carrying out military functions ranging from logistics and troop training to convoy escort and interrogations. Yet despite the problems and the widespread accusations of overbilling, it appears the civilian leadership at the Pentagon has learned absolutely nothing from the whole experience.

Last month the Pentagon awarded a $293 million contract for coordination of security support to a British firm called Aegis Defense Services. The huge contract has two aspects: Aegis will be the coordination and management hub for the more than 50 other private security companies in Iraq, and it will provide its own force of up to 75 “close protection teams,” each made up of eight armed civilians who are to protect staff members of the United States Project Management Office.

The contract is a case study in what not to do. To begin with, a core problem of the military outsourcing experience has been the lack of coordination, oversight and management from the government side. So outsourcing that very problem to another private company has a logic that would do only Kafka proud. In addition, it moves these companies further outside the bounds of public oversight.

Moreover, with the handover of Iraqi sovereignty in just weeks, why is the Pentagon, rather than the Iraqis themselves, making this decision? Indeed, it seems contrary to the overall American strategic goal of handing over the responsibilities for security to the Iraqis as a prelude to getting out of the business ourselves.

The contract also repeats the “cost plus” arrangement that has proved problematic in the past. In effect, this deal rewards companies with higher profits the more they spend, and thus is ripe for abuse and inefficiency (as we have seen with the accusations of overbilling that have swirled around Halliburton). It has no parallel in the best practices of the business world, for the very reason that it runs counter to everything Adam Smith wrote about free markets.

Finally, the usual mechanisms that increase efficiency in contracting—like choosing, rewarding and punishing firms based on their experience and reputation—have again been short-circuited. One would think such a major contract would go to a company that has a long operating history, or experience in such roles, or other major activities on the ground in Iraq. Instead, Aegis has been in existence for little more than a year, has worked primarily on antipiracy efforts rather than security coordination, and has never before had a major contract in Iraq. (Aegis is not even on the State Department’s list of recommended security companies in Iraq.)

The chief executive of Aegis, Tim Spicer, is a former British Army officer turned private warrior who titled his memoir “An Unorthodox Soldier.” He is infamous in Britain for his role in the Sandline affair of 1998, in which a company he founded shipped 30 tons of arms to Sierra Leone in contravention of a United Nations arms embargo. His client in the case was described by Robin Cook, the British foreign minister, as “an Indian businessman, traveling on the passport of a dead Serb, awaiting extradition from Canada for alleged embezzlement from a bank in Thailand.” When Mr. Spicer told the press that the British government had encouraged his operation, it nearly brought down Prime Minister Tony Blair.

Mr. Spicer also was a key character in a 1997 army mutiny in Papua New Guinea. The local army, upset that Mr. Spicer had received a $36 million contract to eradicate a rebellion there, instead toppled the government and put him in jail.

It seems hard to believe that the people awarding the Iraq contract had any knowledge of this history. But it may actually be the case, considering the skewed way in which responsibility for private military contracts is spread out over the government to some of the strangest of places. (Recall that the private military interrogators at Abu Ghraib prison were originally hired through a computer services contract overseen by an Interior Department office in Arizona.) The Aegis deal was awarded by the Army transportation command in Fort Eustis, Va., an office with no apparent experience in dealing with the private military industry.

The strength of systems of democracy and capitalism are that they are supposed to be self-correcting and self-improving. When mistakes are made, lessons are learned so that the errors are not repeated. When it comes to the private military world, though, our government seems to be doing its utmost to learn nothing. It repeatedly ignores not just the basic lessons of better business, but also those of smart public policy.