WAR BENEFITS THE PRIVATE SECTOR

When the next president takes office he will find that private contractors have not only benefited from the war on terror and the wars in Afghanistan and Iraq but they have become an integral and expanding part of America’s military-industrial structure.
While it is difficult to determine the exact amount of tax payer dollars that flow annually into the coffers of corporate contractors, the GAO – Government Accountability Office – says there has been a 78% increase in Department of Defense spending on private sector services since 2001. The money spent has exceeded by a wide margin DOD spending on supplies, equipment and weapons systems. This expanding role of the private sector has led to a diminishing government-employee workforce and less oversight of contracts, resulting in numerous examples of fraud and wasteful spending. Since 2003, the Army’s hiring body, the CCE - Contracting Center of Excellence – has begun to rely on contractor specialists, with the result that contractor employees now represent more than 42% of the CCE workforce. That reality has worried many in Congress, who fear contractor employees within the CCE may too often be perceived to be speaking for government. They are also paid considerably more than their government counterparts.
A major concern for those investigating fraud is that contractor employees are frequently the point of contact for the DOD when dealing with private sector contracts. According to a GAO report in July 2007, the DOD’s growing dependence on private sector goods and services has doubled in seven years and is a trend likely to increase over time. In 2007, the DOD signed $270 billion in contracts and, according to the GAO, “faced vulnerabilities to contracting fraud, waste and abuse due to weaknesses.”
A critical weakness was the growing lack of government control over the massive dollar amount paid private companies. In many instances, the specialists determining the value and terms of contracts were specialists hired from the private sector. One of the most egregious examples of waste was the way the DOD used a technique offering financial incentives to improve the performance of private companies. In effect, the technique resembled rewarding a child for an excellent school project but in this case it wasn’t a matter of a star attached to a project but billions of dollars paid out as performance awards. As a result, an estimated $8 billion in awards was shared among contractors.
“Furthermore, the DOD gave contractors a second opportunity to earn an estimated $669 million of initially unearned or deferred fees on approximately half of the award-fee contracts,” said a GAO report.
The problems of waste and the unregulated growth of the private sector in relation to defense spending has been an issue for decades but the sharp spike in the expansion of the contractor work force, and the shrinking numbers of government employees, were particularly striking in the 1999. From 1992 until 1999, DOD contracts with the private sector expanded from $39.9 billion to $51.8 billion. The services provided included repair to equipment, medical care, technical and clerical support and management oversight. As a consequence, the government workforce declined from 966,000 in 1996 to 682,000 by 2000 but even then it was almost impossible to get accurate figures for the value of contracts awarded to private companies. In 1999, a figure of $96.5 billion was reported by several Government employees’ unions but was not confirmed by government.
In subsequent years, the role of the private sector has increased beyond anyone’s expectations. In 2007, $254 billion was funneled directly to approximately one hundred companies with ten of those companies awarded the lion’s share, estimated at approximately $130 billion. The smallest contract awarded to any company was approximately $500 million.
The GAO has softened its stance on the DOD’s growing reliance on the private sector, telling Congress earlier this year that the services provided have helped the ongoing missions in Iraq and Afghanistan. For example, there are now 196,000 contractors in those two war zones. In Iraq alone, there are three brigades of security contractors with another brigade providing them with support. Other contractors work as interpreters, weapons systems analysts, depot-level maintenance crews, communication specialists and food and housing suppliers. Contractors are also working for the DOD in parts of South East Asia. In essence, GAO reports and statements tend to imply that the modern US military cannot function adequately without a massive private sector input.
Nonetheless, the GAO has admitted it may be time to examine whether the Pentagon needs to be so dependent on contractors to provide essential services. It may also be an opportune time to improve the surveillance of the contracting system because the DOD, in the words of the GAO, “will continue to be vulnerable to contracting fraud, waste and abuse.”
In May 2008, Mary Ungone, Deputy Inspector General of Defense, admitted in evidence to Congress that the DOD “did not maintain adequate internal controls over commercial payments and that $7.2 billion out of a pool of $8.2 billion “did not meet all statutory regulations.” She conceded that approximately $1.4 billion “lacked the minimum documentation for a valid payment” and 28 transactions worth $35 million appeared to involve criminal activity. The Congressional Oversight and Government Reform Committee chaired by Rep. Henry Waxman, (D. Calif.), was not satisfied with her evidence and suggested there were probably 7,000 potentially criminal cases of fraud to be examined. Waxman also claimed that the IOTC – International Oil Company Ltd - was charging the Pentagon $1.08 over the market price of each gallon of jet fuel delivered to the U.S. military in Iraq.
In the public mind, the most striking examples of fraud have involved companies like Kellogg Brown and Root, which was a subsidiary of Halliburton when Vice President Dick Cheney was its CEO. KBR has made huge profits with no-bid contracts that were negotiated without definite time frames and on the basis that cost overruns would be met no matter how high they were. In other words, if KBR were to bill for tens of millions beyond the initial estimate of a contract the DOD would pay up. In one instance, KBR was judged to have fraudulently billed for $1 billion, yet attempts to stop the payment were thwarted with approval from the White House.
Critics of the growing role of contractors argue that the use of a massive private sector army and the expenditure of hundreds of billions for other services are creating a new, out of control military-industrial juggernaut. They point to the late general and president, Dwight Eisenhower, who warned when leaving office in 1961 that Americans should be alert to the growing influence of the arms industry within the military. It was the Cold War and an arms race was under way yet he saw the danger of private weapons companies acquiring what he called “unwarranted influence” on America’s political and military policy making. He became the first person to use the term, “military industrial complex,” suggesting that its growth could impact not only the military but the spiritual and economic life of the nation.
Some members of Congress are deeply concerned about the growing privatization of the DOD and argue it is a trend that could have the outcome President Eisenhower spoke about. Any decisions on whether to change course on how the U.S. military functions, and how it is financed, will be a task for the next White House incumbent. Ultimately, accountability lies at the heart of the matter, following a decade when there has been little oversight of the hundreds of billions of tax dollars that have flowed into the coffers of private corporations, some of whom continue to outsource work to hundreds of companies abroad and rarely provide their books for scrutiny. At the apex of government there is a need for transparency that will allow the American public to learn the true financial cost of the expanding contractor phenomenon. Only then can a debate be launched to examine whether this is the right course for the future of our military.