Independent contracting and the Iraq War

I had a conversation with a friend today. He raised a few questions in my mind, which I had no answers. The next series of articles should answer them.

This article deals with gross spending for independent contractors in Iraq.

http://www.thestreet.com/story/10433225/3/opinion-us-contracts-in-iraq-at-what-cost.html

How much money has the U.S. government poured into private companies' coffers to support military operations in Iraq? According to a new study by Congressional Budget Office (CBO), from 2003 to 2007, the U.S. spent $85 billion on private contractors in Iraq. Expenses in 2008 are expected to exceed $15 billion. Based on that projection, more than a $100 billion will have gone to private companies and their subsidiaries over a five-year period.

With so much taxpayer money on the online, it bears asking: What services does the government get for this money? And are they worth the price we taxpayers pay?

The U.S. government has reached an all-time high in using private contractors to support military operations in Iraq. The CBO says the U.S. has more than roughly two-and-a-half times the amount of private contractors in the Iraqi theater than in any prior conflict. In fact, the number of private contractors outnumbers U.S. troops in Iraq. Private contractors are estimated to total 190,000 in the country, while U.S. troops there number roughly 160,000.

Private contracts provide a wide variety of services. They include security details for the military and State Department, logistics support, food, construction and petroleum products. Because of private contractors, the U.S. military can deploy more troops to Iraq and other military bases around the world, instead of instituting a draft.

The freedom of flexibility with troops comes at a high price. The Center for Public Integrity studied the issuance of contracts from 2004 to 2006 and found some disturbing information. The amount of money going to unidentified foreign subcontracts has surged with little or no ability for government watchdog groups to determine who has been given money.

Worse still, the CBO study breaks down whom contractors actually hire to complete services: 20% U.S. nationals, 40% Iraqi nationals and 40% third-party nations. The number of foreign subcontractors and third-party nation employers should come as a concern. These are U.S. taxpayer dollars going neither to U.S. citizens nor helping to employ Iraqis suffering from high rates of unemployment.

Sen. Kent Conrad (D., N.D.), chair of the Senate Budget Committee that requested the study, on Tuesday issued a statement warning against outsourcing contractors to ambiguous foreign sources. He said:

"There are billions of taxpayer dollars being funneled to both American and foreign companies, often through no-bid contracts. Ongoing Pentagon audits have revealed that vast sums of this money have been misspent or improperly recorded. The American people deserve a better accounting from this Administration of who these contractors are, why they are being used instead of U.S. troops, how they are being monitored, and whether they represent a cost-effective use of American resources."

Private contractors bring other baggage to Iraq. The military has less control of private contractors than they would of military personnel, and these private contractors don't fall under the military code of justice. This has led to several high-profile cases of both murder and rape involving private contractors for whom no criminal charges or punishments were ever dealt in response to serious crimes.

Several examples have come from the now-infamous firm Blackwater USA. Four Blackwater personnel were involved in a confrontation in Fallujah and were murdered. The U.S. was forced to react severely, attacking the city for days and resulting in the mass exodus of residents to escape the violence.

Finally, the cost of private contractors comes much higher than military personnel. The U.S. government offers many contracts on a no-bid basis and almost no scrutiny. Many of these contracts are so-called "cost-plus," meaning the firms recoup their costs and earn a guaranteed profit. There's no guaranteed profit coming to any soldier who serves the U.S. military.

This costs the U.S. a significant premium in certain areas such as security. Security firms in particular, such as Blackwater, compete with the U.S. military for resources. Former soldiers can make much more by leaving military life behind and working for private military firms. This drives up the cost to the U.S. taxpayer. Not only do we lose needed personnel, but we also wind up paying almost six times as much for private security vs. military personnel, according to the House Committee on Government Oversight.

Some of the public companies that reap the rewards of the current contract system include KBR (KBR - Cramer's Take - Stockpickr), L-3 Communications (LLL - Cramer's Take - Stockpickr), Fluor (FLR - Cramer's Take - Stockpickr), Perini (PCR - Cramer's Take - Stockpickr), TetraTech(TTEK - Cramer's Take - Stockpickr) and Lockheed Martin (LMT - Cramer's Take - Stockpickr).

Sen. Conrad also offered this warning:

"The Bush Administration's move to outsource large portions of the Iraq war effort sets a dangerous precedent. The increasing use of private contractors restricts accountability and oversight; opens the door to corruption and abuse; and, in some instances, may significantly increase the cost to American taxpayers."

The time has come for greater scrutiny of the expanding number of U.S. taxpayer dollars that are getting paid out to private companies.