The most vulnerable firms, many in industry say, may be those who have relied on ongoing U.S. military work that is now drying up as the Pentagon “Operational Contingency Allowance” – the additional funding earmarked for the wars – tapers off.
At its peak, the U.S. Commission on Wartime Contracting, a bipartisan legislative commission established to study wartime contracting in Iraq and Afghanistan, estimated there might have been as many as 260,000 contractors in the two countries...
“At the moment, everyone is looking for work that is not OCA-funded,” one industry executive told Reuters on condition of anonymity, saying he expected an era of mergers and even bankruptcies. “It’s going to be like when the tide goes out at the beach and you suddenly find out who has been naked.”

With this post I wanted to identify some trends in the industry that I am seeing as the wars wind down and budgets get tighter. I have posted a couple of articles below that will give you an idea as to what companies are doing and what their strategies are for survival or for growth.

What is interesting with DynCorp and EODT, is their focus on maintaining dominance as to what they are good at. DynCorp is all about aviation and EODT is all about mine clearing. Although both companies do other things in the industry, it is obvious in the posts below that they are taking actions in the market that position them as leaders in these niches.

EODT merging with Sterling International, to form a new company called Sterling Global International is an example of the kind of mergers the top quote was referring too. What is interesting with this move is that for mine clearing operations in the worst parts of the world, you need all sorts of folks to make that happen. From the security to protect those mine clearing technicians to the logistics tail to support an operation. These are all things that EODT did in Iraq and Afghanistan, and by joining forces with SI, they are able to reach other markets. Here is a hint to what they are looking at.

The release said Sterling manages a $175 million weapons removal and abatement program for the State Department, and Kaye said that in comparison to EODT, the Virginia firm is more involved in the work of nonproliferation.
“While the activities that (EODT does) are nonproliferation, they’re much more in a mass-quantity stockpile reduction,” he said. “Sterling is on the forefront of … assisting countries with treaty compliance (and) establishing mine action centers.”
Kaye said Sterling has approximately 150 employees, and the new company will have about 3,500 employees.
After a round of layoffs earlier this year, EODT said it had 250 American employees and 3,000 foreign nationals.
Kaye said Sterling International’s program manager for conventional weapons destruction will remain in that position with the new company……The release said the combined companies will continue to serve existing customers, but will also expand into markets including energy exploration and development and judicial and criminal justice support.

So this new mega mine clearing company will continue to pursue munitions destruction and assist countries in compliance with treaties. I also imagine the Arab Spring is leaving a lot of unexploded munitions all over the place, which if investors want to do business in some of these places, someone needs to remove this dangerous trash of war.

But the big one that perked me up is the mention of energy exploration that was talked about in the next article. One company mentioned was Garda World and their work in Iraq.

Even with U.S. troops gone from Iraq and the number of government contractors down, some companies say they are finding strong demand from energy firms for protection, particularly around Basra in southern Iraq.
“We are as busy as ever and the need has never been greater,” said Pete Dordal, senior vice president at GardaWorld, a global risk management and security services firm. “I don’t want to say it’s a gold rush, but business is very good.”

A gold rush? Interesting, and I imagine that with unrest in the middle east, all energy companies are looking hard at their security and hardening up.  Iraq is just one example of the kind of risk that energy companies are willing to make when it comes to resource extraction in really bad places. Libya is another example, and capable PMSC’s that can protect these energy companies are essential. (11 plus years of war have definitely produced companies that are certainly capable of providing protection in war zones and third world countries)

Another area mentioned was maritime security and the demand for that. Although I am seeing that market getting extremely saturated with companies, all fighting over contracts. But it is an area to get into and I do not see piracy going away any time soon. An example of that is that piracy increased off the west coast of Africa.

The article made a mention of the whole private navies thing, and they are right. I have not seen this get off the ground yet. It’s close, and we will see if it ever sets sail.

One area of business that was brought up in the article was evacuation of clients from countries that have fallen due to the Arab Spring or other disasters. Check out the contract Control Risks had in Libya, and I imagine the company they did this for, paid a pretty penny.

Private security firms, insiders say, evacuated the vast majority of the thousands of foreign nationals plucked from Libya as its civil war erupted early last year. Most were contracted by other private firms, although governments also used them heavily. London-based Control Risks told Reuters last year that China hired it directly to fly hundreds of its nationals out by airliner.

Other areas mentioned or business that I think will add to the market is supporting UN missions like AMISOM, or supporting the post-reconstruction efforts in countries after wars or disasters. Yet again, thanks to the Arab Spring and the wars, and the destruction that has come out of that struggle, there are plenty of places requiring the services of capable companies.

The article ended with an excellent point by Edmond Mulet.

“In some places, contractors might be more effective than some of the troops from contributing nations,” said Edmond Mulet, U.N. Assistant Secretary General for Peacekeeping Operations.
“But the U.N. is simply the sum of its member states and some of them are opposed to the use of contractors in some roles,” he told the conference.

For companies to be marketable, they will have to continue to fight this poor image that the industry is painted with–thanks to the actions of the few. Things like the ISO standards or the ICoC are great for promoting the idea that the industry is trying to correct itself, but there is one thing missing in the industry that I have been hammering on since the beginning of this blog. Leadership.

I believe the secret sauce to the success for all companies, is a focus on fielding good sound leadership to support contracts. It is the leader that will ensure the contract is followed and that operations are sound. It is the leader that will work hard to take care of his people and prevent any actions that might embarrass the company or client. And it is the act of a smart company that supports or grows or hunts down outstanding leaders–and rewards these folks. Leadership, leadership, leadership, and I cannot say it enough.

Clients need good capable contracting leaders as well. Someone that actually cares about constructing a sound contract and cares more about best value and less about what is cheapest. You need a contracting officer who cares–who acts like they are constructing a contract for a doctor who would be assigned to their mother–or a body guard who would be assigned to their mother. Budget constraints will be difficult, but folks must have the courage to do what is right with this stuff.

So the final article is about Dyncorp’s Steven F. Gaffney and his thoughts on the future. I always like hearing what the leaders of companies say, and you can get a real feel sometimes as to what they are optimistic about or concerned about. Here are his thoughts on leadership and what is working in his company.

What have you been focusing on?
It really comes down to: Do you have the right people doing the right things? Are you organized the right way? And the business systems that you have in place — are they strong enough to support the pressures of the business? About 90 percent of our top three levels of leadership are either new to the company or they’re new in position. In two years, we’ve restructured twice around getting to the right market-focused, customer-focused type of organization. We stood up a new business development organization, and we were able to move our win rates from the low teens to close to 50 percent of everything that we bid.

This is very interesting, because he has identified a weakness of the company (I imagine it applies to other companies as well). 90 percent of your top three levels of leadership being new to the company or new in position is not something to cheer about. That is great that the company has re-organized and has achieved a higher ‘win’ rate for contracts, but how can these leaders possibly be effective in carrying out policy if they haven’t a clue about the company’s history or lacks any memory or experience working for the company?

I would also be curious as to why so many new leaders? Is that because of high attrition or is this because of expansion? That is great that the company is winning so many contracts, but if you do not have capable and experienced leaders to implement that stuff, the company is going to have problems.

The other part of interest was the future of the company as the wars wind down?

What’s your strategy as the wars in Iraq and Afghanistan wind down?
I joined the company knowing full well that the changes were going to happen in Iraq and Afghanistan. In fact, many of the programs that we have today — the goal is really to put yourself out of a job. In 2003, when we became one of the largest trainers of police in the Middle East, we knew that the goal was to train a country so that they could perform the function themselves. We’ve been thinking about this issue around what’s next for some time, and that’s why we’ve been working to rebalance our portfolio since I got here. Our aviation business, for instance — today it’s a third of our revenues and half of our earnings. That wasn’t the case two short years ago. A couple months ago, we made a small acquisition in the aviation business to fill a gap that we had, not for the business that we have today but to compete for business two years from now and also get us into the commercial space.

That’s their plan–to rally around aviation. Which is their ‘bread and butter’ and totally makes sense to me, but it would have been nice to hear the other areas of interest.

One area that was not talked about too much in all of these articles was the future of government service contracts as the war winds down. The US government still has a presence in places like Iraq and Afghanistan, and embassies and consulates there and around the world will still require armed security services and logistics. These contracts will continue to be highly competitive as the US continues to reduce involvement in those countries and the available re-construction/COIN related contracts decrease. Training gigs will still be present, but as budgets get tighter and involvement in those countries continues to be politically difficult, eventually that will go away. But we will see how it goes, and there will still be investments in those countries, and the US and it’s partners will still have interest there.

Pretty interesting stuff and we will see how it goes. If anyone has any other ideas or things that I have missed here, by all means please add to the post by commenting below. -Matt

 

Peruvian private security guard, Green Zone Iraq. -Artist Steve Mumford

 

EOD Technology merges with Sterling International
By Josh Flory
October 24, 2012
An East Tennessee defense contractor has joined forces with a Virginia firm.
Lenoir City-based EOD Technology announced Wednesday that it has merged with Reston, Va.-based Sterling International to form Sterling Global Operations.
The new company will be based in Lenoir City, and EODT CEO Matt Kaye will serve as president and CEO of the new venture.
Kaye said Wednesday that the combined companies form “the world’s preeminent conventional munitions disposal organization.”
Asked about the benefits of the deal to EODT, Kaye said that “it really diversifies our customer base. It strengthens our footprint around the world and provides us greater breadth and depth of resources.”
EODT got its start in 1987 as a company specializing in explosive ordnance disposal, and for years specialized in cleaning up contamination at former U.S. military sites. During the George W. Bush administration, EODT branched out into security operations and eventually became a major player in that market.
The company has also received some unwelcome scrutiny in connection with that work, though. In 2010, a U.S. Senate committee criticized EODT for its hiring practices in Afghanistan, and the following year it was revealed that the U.S. State Department had fired the company from a contract to guard the U.S. Embassy in Kabul.
EODT was raided by federal agents in 2010, although no charges have been filed in connection with that episode.
According to a news release, EODT’s employee stock ownership plan acquired Sterling International. Terms of the deal were not disclosed.
The release said Sterling manages a $175 million weapons removal and abatement program for the State Department, and Kaye said that in comparison to EODT, the Virginia firm is more involved in the work of nonproliferation.
“While the activities that (EODT does) are nonproliferation, they’re much more in a mass-quantity stockpile reduction,” he said. “Sterling is on the forefront of … assisting countries with treaty compliance (and) establishing mine action centers.”
Kaye said Sterling has approximately 150 employees, and the new company will have about 3,500 employees.
After a round of layoffs earlier this year, EODT said it had 250 American employees and 3,000 foreign nationals.
Kaye said Sterling International’s program manager for conventional weapons destruction will remain in that position with the new company.
Sterling’s website does not identify the company’s top executives, and Kaye declined to identify the founder or CEO of the company. “He’s asked not to be named,” Kaye said, adding that the individual would stay on as an executive adviser.
The release said the combined companies will continue to serve existing customers, but will also expand into markets including energy exploration and development and judicial and criminal justice support.
The new company will have annual revenues of $150 million.
Story here.
—————————————————————-
As Iraq, Afghan wars end, private security firms adapt
Sun, Oct 21 2012
By Peter Apps
On a rooftop terrace blocks from the White House, a collection of former soldiers and intelligence officers, executives and contractors drink to the international private security industry.
The past decade – particularly the U.S.-led wars in Iraq and Afghanistan – provided rich pickings for firms providing private armed guards, drivers and other services that would once have been performed by uniformed soldiers.
But as the conflicts that helped create the modern industry wind down, firms are having to adapt to survive. They must also, industry insiders say, work to banish the controversial image of mercenary “dogs of war” that bedevil many firms, particularly in Iraq.


“This industry has always gone up and down,” Doug Brooks, president of the International Stability Operations Association (ISOA), told Reuters on the sidelines of its annual conference in Washington. “What we’re seeing now is that it is becoming much more mature – and much more responsible.”
The free-for-all atmosphere that pervaded the industry, particularly in the early years of the war in Iraq, insiders say, appears gone for good. A string of high profile incidents – often involving armed private guards firing on sometimes unarmed Iraqis – trashed the reputation of firms such as Blackwater, a Virginia-based firm since renamed several times, as well as the wider industry.
Members of the ISOA – which include some but not all of the major contracting firms as well as smaller players – subscribe to a code of conduct that they say helps identify responsible firms.
Despite these efforts, industry insiders and other observers say quality remains mixed. Some firms providing armed guards for merchant ships passing through the Somali pirate-infested Indian Ocean, for example, only hire elite personnel who have served in the Marines or special forces. Others, however, have a reputation for being less discriminating and for unreliable staff and weapons.
In the aftermath of last month’s attack on the U.S. diplomatic mission in Benghazi, which killed the U.S. ambassador to Libya and three other Americans, critics have seized on the hiring of a little-known British private security firm now accused of providing inadequate protection at the mission.
The clear industry aim is to distance itself from groups such as that led by former British soldier Simon Mann, who was captured in 2004 by authorities in Zimbabwe as they apparently headed to Equatorial Guinea to mount a coup.
The word “mercenary,” Brooks makes clear, is simply taboo.
“Calling private security contractors mercenaries is clearly derogatory and serious journalists and academics don’t use the term,” he says.
The most vulnerable firms, many in industry say, may be those who have relied on ongoing U.S. military work that is now drying up as the Pentagon “Operational Contingency Allowance” – the additional funding earmarked for the wars – tapers off.
At its peak, the U.S. Commission on Wartime Contracting, a bipartisan legislative commission established to study wartime contracting in Iraq and Afghanistan, estimated there might have been as many as 260,000 contractors in the two countries.
TIDE GOING OUT?
“At the moment, everyone is looking for work that is not OCA-funded,” one industry executive told Reuters on condition of anonymity, saying he expected an era of mergers and even bankruptcies. “It’s going to be like when the tide goes out at the beach and you suddenly find out who has been naked.”
New Pentagon priorities, many believe, will provide fewer openings for traditional private military contractors. Washington’s strategic “pivot” to the Asia-Pacific region will involve mainly warships or uniformed Marines, with little need for extra hired muscle.
Companies that take a broader approach and also provide logistic, intelligence and other functions, however, could have a much better decade.
“If your definition of a private security contractor is only someone with a gun at a checkpoint in Afghanistan, then yes, you may be seeing a decline,” says David Isenberg, an adjunct scholar at the Cato Institute in Washington.
“But if your definition is of private contractors performing tasks that would once have been done almost exclusively by government and military, it’s a very different picture.”
When it comes to conventional security, many in the industry believe the real growth will come from serving the private sector – particularly the oil, gas and mining industries.
Even with U.S. troops gone from Iraq and the number of government contractors down, some companies say they are finding strong demand from energy firms for protection, particularly around Basra in southern Iraq.
“We are as busy as ever and the need has never been greater,” said Pete Dordal, senior vice president at GardaWorld, a global risk management and security services firm. “I don’t want to say it’s a gold rush, but business is very good.”
Private security firms, insiders say, evacuated the vast majority of the thousands of foreign nationals plucked from Libya as its civil war erupted early last year. Most were contracted by other private firms, although governments also used them heavily. London-based Control Risks told Reuters last year that China hired it directly to fly hundreds of its nationals out by airliner.
STILL CONTROVERSIAL
Some in the industry believe the number of contractors in Afghanistan could even rise with the planned departure of all U.S. combat troops in 2014, as mining companies exploit largely untapped mineral resources.
It’s a similar picture in Africa, where even in war-torn Somalia, a handful of companies are setting up shop. They often work with local tribes and other groups to safeguard visiting journalists, business representatives and prospectors.
Focusing on finding reliable local staff, some say, may ultimately prove both cheaper and more reliable than foreign hired guns. In Libya, some energy firms long turned to local desert tribes to protect their facilities – a tactic that proved remarkably effective during last year’s civil war after foreign security staff were swiftly withdrawn.
The trick may be to avoid having grandiose ambitions.
A handful of British firms in particular have made millions from providing on-board protection teams for Indian Ocean shipping. But those who have tried to go a step further and start their own private navies – hoping to escort merchant ships for cash – have struggled to find sufficient funding.
Within Somalia some credit the hiring of private contractors with Gulf state money to bolster the Coast Guard of the independent enclave of Puntland as being behind recent drops in pirate attacks. But it proved so controversial that funding was eventually pulled, leaving behind half-trained local fighters that some worry could prove a regional security threat in their own right.
Private contractors are increasingly central to operations such as the African Union’s AMISOM peacekeeping mission in Somalia, performing roles such as bomb disposal, logistics and technical support. ISOA and some experts argued they could do much, much more.
The few dozen foreign contractors from the now-defunct British firm “Executive Outcomes,” together with the hundreds of local fighters they trained, are often credited with turning the tide in Sierra Leone’s 2001 civil war.
But after years of discussions at the United Nations, few of the world’s governments appear enthusiastic about the idea of private security firms becoming the norm.
“In some places, contractors might be more effective than some of the troops from contributing nations,” said Edmond Mulet, U.N. Assistant Secretary General for Peacekeeping Operations.
“But the U.N. is simply the sum of its member states and some of them are opposed to the use of contractors in some roles,” he told the conference.
Story here.

—————————————————————

DynCorp chief remaking the services contractor
By Marjorie Censer
October 15, 2012
Since going private more than two years ago, Falls Church-based DynCorp International has kept a low profile.
Purchased by Cerberus Capital Management, the contractor is based in Fairview Park, home to well-known companies like Northrop Grumman and General Dynamics. But as a contractor that works closely with the military on the battlefield, DynCorp has shied from the spotlight.
Steven F. Gaffney, who became chairman, chief executive and president shortly after DynCorp went private, recently spoke with Capital Business. What follows are excerpts from that conversation.
How has going private changed DynCorp?
Instead of trying to satisfy the investors on a quarterly basis, we can actually talk to them about our long-term plans. What that allows us to do is be patient and invest in the things that we need to invest in versus trying to satisfy the short-term view of the markets. That sometimes causes bad behaviors [and] wrong decisions. There are types of companies that should be private, and services companies are one of them.
Why should they?
Services companies basically have a portfolio of government programs. Programs start up, programs end, programs have transition points, so the various puts and takes cause the business to be generally lumpy. If you were a factory just producing widgets out the back door, it’s very consistent output. But our programs start and stop and peak and valley. All normal and all expected, but hard to explain to analysts.
What have you been focusing on?
It really comes down to: Do you have the right people doing the right things? Are you organized the right way? And the business systems that you have in place — are they strong enough to support the pressures of the business? About 90 percent of our top three levels of leadership are either new to the company or they’re new in position. In two years, we’ve restructured twice around getting to the right market-focused, customer-focused type of organization. We stood up a new business development organization, and we were able to move our win rates from the low teens to close to 50 percent of everything that we bid.
What did you change in business development?
The [company] had a distributed business development function down into the two operating divisions that we reported. You generally use that technique when you’re a multi-industry type of organization servicing different markets with different needs. We are pretty much a pure-play services company so a common business development process should be used. In the services world, winning new business probably outranks just about everything we do. We bid on over 200 proposals a year; we’re literally looking at four proposals a week. We put in a very structured process. I chair a weekly business development meeting that lasts pretty much the entire morning, and we go through every element of the new business pipeline to make sure we have the right teammates, the right strategy.
What’s your strategy as the wars in Iraq and Afghanistan wind down?
I joined the company knowing full well that the changes were going to happen in Iraq and Afghanistan. In fact, many of the programs that we have today — the goal is really to put yourself out of a job. In 2003, when we became one of the largest trainers of police in the Middle East, we knew that the goal was to train a country so that they could perform the function themselves. We’ve been thinking about this issue around what’s next for some time, and that’s why we’ve been working to rebalance our portfolio since I got here. Our aviation business, for instance — today it’s a third of our revenues and half of our earnings. That wasn’t the case two short years ago. A couple months ago, we made a small acquisition in the aviation business to fill a gap that we had, not for the business that we have today but to compete for business two years from now and also get us into the commercial space.
Story here.