What I did was put up two perspectives on contractor cost effectiveness with one article written by Doug Brooks and the other one by David Isenberg. Check it out and tell me what you guys think. Both Doug and David have a lot to say about the subject.
My take away on all of it, is that the true cost effectiveness should be determined by the ones that are actually paying for the product or service. Until then, folks on both sides of the debate of contractor cost effectiveness will continue to argue and debate over who is right or wrong. My take away on all of it, is that governments will do whatever serves them best both politically and militarily, and not necessarily what is most cost effective. –Matt
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Journal of International Peace Operations
Nov/Dec 2009
by Doug Brooks
The Benefits of Employing Local Nationals in Conflict And Post-Conflict Operations
LOCAL nationals make up the majority of the personnel on the ground in the stability operations industry, a fact too often overlooked by media and pundits. Not only do these locals offer enormous advantages to our industry in terms of costs, language capabilities, local knowledge and skills, but at the policy level they contribute to rebuilding the economy and vastly benefit larger stability policies. Nevertheless, some important concerns and caveats remain when hiring locals; and thus certain essential policies should be adopted by all companies setting up business in conflict and post-conflict operations.
Personnel working for the stability operations industry are generally divided into three categories:
* Local Nationals (LNs, also known as Host Country Nationals, or HCNs) who originate from the country of the operation.
* Third Country Nationals (TCNs) who come from a country not involved in the intervention or peace operation. Most TCNs are from developing countries, attracted by salaries far above what they could earn at home. Some, however, are drawn from developed countries as well.
* Finally, Western expatriates, who are usually hired for management, contractual compliance or oversight tasks; although for some contracts they may be engaged in work from security to truck driving.
LNs represent the bulk of this industry’s personnel. For example, as of June 30, 2009, LNs made up 69 percent of U.S. Department of Defense contractor personnel operating in Afghanistan – and 95 percent of security contractors in the operation. TCNs account for most of the remainder, with citizens of Western nations making up a relatively small minority. The LN proportion can be even higher for contractors supporting UN operations, and that number only increases with the duration of the operation as local hires learn new skills, gain the trust of companies and clients and earn management positions.
The benefits of widespread utilization of LNs – the least expensive employees in stability operations – makes companies in our industry more competitive in winning contracts. Their salaries are good by local standards, where unemployment is usually high, and their benefits are generally far better than those available locally. However, it is important that LN salaries not be set too high, as disproportionately elevated salaries can attract highskilled personnel from other vocations. Local doctors and lawyers taking higherpaid jobs as cooks and gate guards are not advantageous to a stability operation. LNs usually live in their own homes with their families, use local transportation and cook their own meals, whereas imported labor requires expensive housing, transportation arrangements and catering facilities. All of which means that LNs are enormously cost effective for companies, clients and ultimately the larger stability mission, freeing resources to be allocated to other peace-building tasks.
LNs provide other advantages as well. They bring local knowledge of the operation’s areas, local languages, customs and norms – wisdom that foreign nationals can only acquire with time, significant effort and often a fair amount of risk. Also, local guards are less likely to be targeted for their nationality. In conflicts such as Afghanistan and Iraq, putting a Western soldier out in front of a valuable facility is the equivalent of using a golden goose to guard a second, albeit larger, golden goose. LNs are lower profile, which minimizes risk, allowing them to complete routine tasks with light or nonexistent security arrangements. Similarly, they can also use their knowledge to source necessary equipment and bargain for competitive price. While these positives easily outweigh the negatives, some cautions remain when utilizing LNs as well.
Some clients, especially governments, may be concerned that certain LNs have connections to insurgent forces, creating intelligence leaks or even active threats. LN support for military operations is usually a sensible practice, but in Iraq we have seen some instances of LNs providing target and military information to insurgent forces attacks, or even being used by insurgents for suicide attacks themselves. Even loyal LNs can find themselves and their families manipulated by insurgents seeking vulnerable and defenseless prey with which they can undermine international stabilization efforts. For these reasons, clients may specifically state in contracts that LNs cannot be hired for certain jobs.
Other drawbacks exist as well. In some less developed or post-conflict countries, LNs may not possess useful skill sets, or even basic literacy. In those cases they must receive extensive – and expensive – training prior to useful employment. Medical requirements can also be costly; in some societies it is possible that LNs have never been examined by a doctor in their lives. Business practices can be quite different and require specific instruction – everything from the use of receipts and record keeping, to laws, rules and regulations against bribery and sexual harassment. In the case of armed security, specific care must be taken to ensure that companies are not effectively rearming a demobilized militia force or gang, and that their LNs have proper discipline and thorough understanding of the strict requirements followed by international security companies for the use of force. Cultural clashes can be significant as well. The best companies ensure that their supervisors, trainers and staff are prepared to work with the LNs as colleagues who have their own unique cultural foibles, diverse ethnic and religious norms, and sometimes detrimental prejudices – just as we do ours.
Successful integration of LNs can have far reaching benefits beyond the original mission. Obviously, companies with existing ties to local contacts, diasporas and established procedures for preparing LNs for employment will naturally gain considerable advantages over their competitors. Furthermore, in a number of cases, relationships with LNs have been so successful that companies have subsequently used the same personnel as TCNs in other operations. This has been the case with Sierra Leoneans brought to support the African Union mission in Darfur, and Bosnians that support the coalition effort in Iraq. These LNs often have far more experience and a better grasp of what it takes to operate in a conflict, post-conflict or disaster relief environment – a capability that can be transplanted to other international stability missions.
Developing these kinds of relationships requires a high-level of professionalism towards employees of all backgrounds. Our own IPOA Code of Conduct has a section on !Personnel/ and while generally applied to industry personnel of all nationalities, it is important to emphasize the aspects that most relate to the employment of LNs. Among these are ensuring adequate training and preparation for their duties, conducting proper vetting and screening, and providing instruction on appropriate standards, humanitarian and human rights laws. The Code also highlights the importance of seeking personnel “broadly representative of the local population,” and the fact that personnel have a right to terminate their employment. Most importantly, “signatories shall act responsibly and ethically toward their personnel, including ensuring personnel are treated with respect and dignity, and responding appropriately if allegations of personnel misconduct arise.” In other words, companies need to be as professional towards their LNs as they are to their employees of other nationalities.
The benefits of employing locals far outweigh the risks, both to the industry and to the larger international stability operation. The industry should never forget that LNs are not just convenient bodies, but in a way ambassadors to the larger local population. The ultimate success of any stabilization policy relies on the favorable disposition of the LNs, their families and their fellow citizens. To maximize the value they offer to our industry and to the larger stability operation, it is imperative that we treat all LN personnel with the respect and dignity due any professional.
The author is President of IPOA.
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Contractors and Cost Effectiveness
by David Isenberg
December 23, 2009.
It is a fact that currently private contractors are the equivalent of an American Express card. The U.S. military’s literally can’t go to war without them.
However, this does not mean that all the reasons given for the use of such contractors are credible . Consider the main selling point that all such PMCs use when bidding for contracts. They all claim that using the private sector is more cost-effective than using their public sector counterparts.
At first glance it sounds reasonable. After all, private contracting companies don’t have to maintain standing forces, pay pensions, or provide benefits, to name just a few things that the public sector must do.
Typical is this statement by Doug Brooks, founder and president of the International Peace Operations Association trade association: “Contractors are cost effective. While the popular perception is of huge salaries for cushy jobs, the reality is that contractors live alongside military personnel and generally cost the government far less in the long run.”
In the interest of full disclosure I have known Doug Brooks since he was a grad student at the University of Pittsburgh. In all those years I have repeatedly asked him to point me to a single empirical, peer reviewed, methodologically sound, academic study confirming that private military or private sector contractors are more cost effective than their public sector counterparts. He has yet to do so.
This is a popular notion once adhered to only by diehard-free market advocates who believe that government is fundamentally inefficient and unproductive.
It also reflects the cumulative effect of military force reductions and the fashionable notion of “core competency,” i.e., that one should focus only on what one does best and pay someone else to do the rest. In the Pentagon’s case, the core competency is war-fighting.
But whether it’s true that contractors are cost effective is at best an open question, the answer to which depends, in part, on what you mean by cost.
While outsourcing can be effective, doing things in-house is often easier and quicker. You avoid the expense and hassle of haggling, and retain operational reliability and control, which is especially important to the military.
Then there is the fact that outsourcing works best when there’s genuine competition among suppliers. But while there may be hundreds of private security contractors in Iraq, not all of them are created equal. For really big contracts, like the U.S. State Department’s Worldwide Personal Protective Services Contract, shared by Blackwater, DynCorp and Triple Canopy, there are not that many alternatives. That is one reason the State Department was reluctant to fire Blackwater after the September 2007 shootings in Baghdad by Blackwater contractors.
In fact, despite all the claims of its advocated the free market ideology has hardly been confirmed by the evidence.
The market for private security services is only partially competitive, and in some cases (for example in certain areas of logistics) quasi-monopolistic. The champions of the virtues of privatization and outsourcing with respect to the military generally forget one thing: the Pentagon is as far away from a free market as one can possibly get.
While the free market is undoubtedly a good thing it is no insult to Adam Smith’s invisible hand to note that the market for military services is the closest thing to collectivism since the demise of the Soviet Union.In fact, as P.J. O’Rourke notes in his book on Adam Smith’s Wealth of Nations:
Smith understood the potential of privatization: Public services are never better
performed than when their reward comes only in consequence of their being performed, and is proportioned to the diligence employed in performing them. But his experience of the corporations that were contracted to perform British government services–such as the East India Company, the Halliburton of its day–left him too skeptical to suggest privatization: “These companies…have in the long-run proved, universally, either burdensome or useless.”
In general, the environment surrounding military interventions is not conducive to cost-savings and efficiency. Warfare is usually characterized by secrecy, heavy time constraints and the imperative of victory. There is hardly time for either complex bidding procedures; transparency is lacking, which makes it difficult to assess contract performance. Furthermore, military commanders prepare for worst case scenarios, thus always having a backup (or two or three) at hand. For the military commander the priority is accomplishing the mission, not saving money.
Indeed, even industry insiders acknowledge that the relative value of contracted servicesis indeterminate. In testimony before the U.S. House Oversight and Government ReformCommittee Erik Prince, the founder and head of Blackwater (now Xe Services) was asked about the cost-benefit of using private contractors:
MR. PRINCE: I don’t know what those numbers are, sir, but that would be a
great fully burdened cost study that Congress could sponsor. They don’t have to
do the whole thing, just take some key nodes and really study it.
Don’t take my word for it. Here is what Prof. Allison Stanger of Middlebury College wrote in her recent book One Nation Under Contract: The Outsourcing of American Power and the Future of Foreign Policy.
We begin by probing the assertion that the U.S. government is saving money on pensions by hiring private contractors. Some have argued that since the PMCs do not pay pensions but hire on a per-job basis, they generate significant costs saving. But on closer inspection, we find that American PMC employees have all served in the in the military prior to joining the private sector. The U.S. government prefers to employ U.S.-based firms, and most U.S.-based firms prefer to hire American citizens. Since the government will eventually pay a pension to the employees who are American citizens regardless of their employment status upon retirement, the savings in pension payments are not great. To reap any savings, Washington would have to encourage the private military sector to hire foreign nationals–but the conflicts of interests that emerge when non-U.S. citizens are asked to support the American army in a combat zone render this les than prudent. The idea that we save money on pension by relying on contracted security forces is thus difficult to sustain.
Another way for the federal government to save money through privatization is by exploiting the lower labor costs of outsourcing. But is Washington actually paying less money in labor costs for military services? While it is true that contractors do not receive a set annual salary but are hied on an as-needed basis, they also make double or triple what their uniformed counterparts make doing the same job. it is difficult to argue, even with contract personnel hired and let go as needed, that the U.S. government saves money by hiring labor at a significantly higher daily rate.
A third potential saving comes from the hiring of already trained employees. If the government does not have to pay to train private sector employees, it saves money. But again, when we look at the employment patterns for U.S.-based firms, this bargain too fails to materialize. If most PMC personnel come from the U.S. military this bargain too fails to materialize. If most PMC personnel come from the U.S. military, then the government bore cost of their training. A security clearance is a marketable asset, yet the American taxpayer paid the screening bill.
Adding it all up, a rough assessment of the market for force’s underlying structure reveals that the federal government is effectively paying for the training and retirement of the contractors it hires, all appearances to the contrary, as well as paying double or triple the daily rate for their services. In addition, the government must cover the firm’s profits. It is difficult to see where cost saving exist. (pp. 96. 96-97)
The existence and widespread use of private contractors reflect important underlying questions regarding the U.S. role in the world, which the public has chosen not to face, namely the mismatch between U.S. geopolitical ambitions and the resources provided for them. Putting aside all the arguments about presumed cost-effectiveness or organizational flexibility of the private sector, it seems likely that if a nation can’t summon public support for its policies, strategies and goals, it probably should revisit its goals. People who want to argue about the use of contractors should begin their critiques by examining the inescapable disconnect between ends and means.
David Isenberg is an analyst in national and international security affairs and a US Navy veteran. He is also a member of the Coalition for a Realistic Foreign Policy, an adjunct scholar with the Cato Institute, and the author of a new book, Shadow Force: Private Security Contractors in Iraq.
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