Security contracting in Iraq likely to thrive despite Blackwater probe

The private security contractor Blackwater said on Oct. 13 that it welcomed the FBI’s investigation of its activities in Iraq, and vowed to punish any employees that were implicated in wrongdoing.

Despite the Blackwater investigation, the economic prospects for the private security contracting industry remain high. Both government agencies and private sector firms operating in conflict zones depend on the industry to protect their personnel.

The end of the Cold War allowed states to downsize their military forces. This, coupled with a deliberate decision to outsource many jobs previously considered inherently governmental, led to a structural dependence on private security contractors (PSCs) by both defense and foreign affairs ministries. This was especially true with regard to humanitarian and reconstruction contingencies. The intellectual hold of governmental down-sizing and free market philosophy is such that governments have increasingly turned to the private sector in search of services traditionally provided by the public sector. This trend is unlikely to reverse in the near term.

‘Capacity gap’

In moving away from an emphasis on personnel and towards technology from the 1980s onward — a process that has only just begun to reverse due to the Iraq experience — the State Department and U.S. military have developed a “capacity gap” that will take at least a decade to close. This capacity “refill” is only possible if the governments find the political will to increase overhead and government personnel costs and positions, as well as the ability to retain employees. As this is far from assured, the dependence on security contractors will continue.

Leading players

There are at least 200 foreign and domestic private security companies in Iraq. They include major international firms such as Aegis Defense Services, ArmorGroup, Blackwater USA, Control Risks Group, DynCorp International, Hart Security, Janusian Security Risk Management, Kroll Security Group and Triple Canopy. They mostly offer similar services, such as providing personal, convoy and static security work, as well as performing various consultancy services:

• State Department contractors. Blackwater, along with DynCorp and Triple Canopy, share the Worldwide Personal Protective Services contract, awarded by the State Department in 2004. This is a contract for the protection of U.S. diplomats — and certain high-level foreign government officials — whenever the need arises. The contractors doing this work are considered as State Department employees and thus enjoy the same immunity from prosecution as any other State Department employee in a foreign country. This may explain what has been seen as an overly aggressive approach by Blackwater contractors.

• DoD contractors. Aegis Defense is known for running the operational coordination mission in Iraq for the Department of Defense (DoD), and for providing security support services to the Project and Contracting Office (PCO), responsible for managing the reconstruction program. These services include:

• providing static and mobile security for the PCO and United States Army Corps of Engineers;

• maintaining situational awareness of logistical movement and reconstruction security operations;

• facilitating intelligence-sharing between security forces and reconstruction contractors; and

• providing continuous information on the viability of road movement throughout the country.

Business models

Iraq is proving to be a showcase for two different business models for the PSC industry. The first is employed by the Global Strategies Group. It is chiefly growing new service lines via acquisition. The other model’s chief exponent is Blackwater, which is growing organically via the standard professional services model — i.e., growth via offering new service to new markets (rather than continuing to mine long-established markets with existing services).

Cost-benefit analysis

It is commonly asserted that the use of PSCs has grown because they are far more cost-effective than regular military forces. However, their attendant overhead costs (recruiting, retention, training, equipping and benefits) are such that there is little empirical evidence to confirm this notion:

• Cost questions. At a hearing before the House Oversight and Government Reform Committee on Oct. 2, Blackwater Chief Executive Officer Erik Prince said that he did not “know what the numbers are” in terms of a cost-benefit analysis of the industry, and called on Congress to sponsor a study.

• Beyond economics. What little cost-benefit analysis there has been to date has focused on narrow economic cost comparisons. It has generally avoided addressing equally important political factors, such as how contractors may help governments avoid tough political choices concerning military needs, reserve call-ups and the human consequences of war.

• Advantages of control. Moreover, providing security “in-house” is often easier and quicker for governments in many areas. Governments avoid the administrative expense and hassle of haggling over pricing, and retain operational reliability and control, which is especially important to the military services.

Controversies

The killing of some 17 Iraqi civilians in Baghdad by Blackwater contractors on Sept. 16 has occasioned much denunciation of the industry in the U.S. media. However, thus far, the real consequences for PSC companies have been mild:

• The House has passed legislation that would strengthen the Military Extraterritorial Jurisdiction Act (MEJA), providing for greater control over those security contractors who are working for clients other than the Department of Defense.

• Other legislation, such as the Transparency and Accountability in Security Contracting bill or proposed provisions in the National Defense Authorization Act, were already in the works and are seen by industry trade groups as legislation they welcome and can live with.

Prospects for regulation

While the United States had enacted some new legislation regulating PSCs, with more to come, it is unlikely that many other countries will follow Washington’s lead. Very few countries depend on private security companies as much as the United States. Some form of international regulatory regime, possibly led by the industry, is more likely:

• International regulatory regime? Proponents of regulation have long understood that, given the ease with which companies can dissolve and re-register in different countries, any effective regulatory scheme would have to be internationally based. While the industry would seek to shape the details of any such regulation, it would not necessarily oppose it. Many of the larger, more established firms support licensing, for example, on the grounds that it will help drive out the smaller, less professional firms — which helps reduce competition.

• Industry receptiveness. Industry groups such as the International Peace Operations Association, Private Security Company Association of Iraq, and the British Association of Private Security Companies have codes of conduct and strive to ensure compliance with the rules and principles of international humanitarian law and human rights standards. However, they recognize that in the long run, those measures may be insufficient to quell public doubts about security contractors. Therefore, they may be willing to work to harmonize differing national standards and laws.

• Industry ‘shake-out.’ To date, PSCs have relied on self-regulation as a measure of last resort, because government regulators largely failed to address the industry. This situation is likely to change over the next decade. The experience of security contractors in Iraq to date represents a “shaking-out” of what was a cottage industry, eliminating smaller, less well-organized operators, stimulating regulation and perhaps precipitating consolidation.

Oxford Analytica is an international consulting firm providing strategic analysis on world events for business and government leaders. See www.oxan.com.