How better regulation can make Private Military Contractors work


To Adam Smith, the first duty of the sovereign is the task of “protecting the society from the violence and invasion of other independent societies”. Smith did not specify how the end might be achieved, writing, “preparing this military force…is very different in the different states of society.” Libertarians debate whether defence is a public good. I am of the opinion that it is; national defence seems a true collective action problem and, like Smith, I believe that whatever government exists has a duty to provide it. However, I read Smith’s latter statement as acknowledging that this responsibility to provide does not confer an obligation to in-source.

The military should not be taken as sacrosanct, and immune to privatisation. Defence contracting is a legitimate complement to national militaries. In recent years, governments have failed to properly manage private military contractors (PMCs). Defence departments need to reform the way that they deal with contractors. With better oversight, competitive bidding, and clearer legislation, though, Britain and other nations can contract out more functions to cut defence spending while maintaining defence standards.

A discussion of defence contracting is timely because of the host of private military contractors (PMCs) in Afghanistan and Iraq. The United States is the single largest client. That country now has 15 times more contracts with PMCs than it did during the Balkan wars, and has more than doubled its spending on military contracts since 2001, reaching $500bn in 2008. According to Graham Binns, a retired British Army officer and current CEO of Aegis Defence Services, the UK has been “more reluctant” to outsource, but has increasingly done so since entering Afghanistan and Iraq. A 2009 report estimated that the Foreign Office had spent £51m on PMC contracts in Afghanistan and Iraq in 2008. Last year, it spent £29m on contracts in Afghanistan. Britain is also important on the supply side. At the height of the two wars, the UK was home to approximately 60 PMCs.

Why the sudden increase? One of the chief advantages of contractors is their flexibility. Unlike the military, which is slowed by its own bureaucracy and that of its civilian masters, streamlined PMCs can quickly adapt to meet new needs. The rise in military contracting might therefore be the consequence of more involved technology of war. It might be that the supply chain needed to support far-flung military operations has become more complex. It might be that new programmes are needed to meet the demands of counterinsurgency strategy; Iraq and Afghanistan are not the first far-off lands that the U.S. and UK have fought in, but they are remarkable for their “hearts-and-minds” state building mandate. Additionally, contractors fill gaps in modern militaries left by low recruitment rates in all-volunteer professional forces. Peter W. Singer of Brookings writes that private security firms “have been essential to the U.S. effort.” The U.S. is nowdependent upon contractors, and the UK seems to be heading in this direction.

Politics also makes PMCs more attractive, at least in the U.S.. Singer claims that governments have turned to PMCs to limit the growth of their payrolls and keep troop – and casualty – levels lower than they would otherwise be. The unpopularity of the wars in Afghanistan and Iraq also encourage PMC use. Domestic political pressures mean that British and American troops must leave Afghanistan and Iraq. The uncomfortable reality, though, is that neither country is yet stable. To advise on state building, President Obamahas announced that “a civilian effort led by our diplomats” will replace departing troops. Someone will have to protect these people, and with a skeleton crew of soldiers, that “someone” will be a throng of contractors. The U.S. State Department plans to doublethe number of private guards in Iraq to protect this civilian detachment, to around 7,000. Far from heralding the end of the modern condottiere, the draw-downs may create a void for contractors to fill.

What is a PMC?

Before continuing, some dissection of the catch-all term “private military contractor” would be useful. I would roughly divide PMCs into support services (cooking, truck driving, etc.), military technology and equipment (weapons making, building fighter jets), training, security (guarding compounds and officials), and intelligence (risk management and political analysis). Many of these functions are uncontroversial: few would think it strange that the RAF uses the Lockheed Hercules as transport aircraft or object to private truck drivers and cooks. Private firms with core competencies and private sector incentives can do the supply and R&D work more efficiently than can quartermasters and government bureaucrats.

More at issue is contracting with private security firms. One main objection seems to be that it is somehow inappropriate to contract out security. A second objection is the belief that contractors hinder rather than help war efforts. Neither of these things is true.

Let us begin with the charge that it is inappropriate to contract out security. This would be true if professional volunteer soldiers were the only people capable of properly providing security – if all security work were “inherently military.” What does inherently military mean, though? Are there even inherently military functions?

There are. Some may disagree, but defence seems a rare, perhaps unique, area where some government monopoly is a good idea. If defence is a pure public good, as I claim, then it requires a force whose loyalty is assured and which civilian leadership can control. This is more likely to go awry with private contractors than with volunteer soldiers. People whose services are bought should not handle sensitive information, as their loyalties might be bought as well. Hired personnel should not create policy in the stead of elected representatives, as this is undemocratic and potentially dangerous.

Beyond these red flags, though, defining “inherently military” is difficult. The U.S., where the debate has been had with greater vigour than in the UK, may prove an illustrative case. In the U.S., only federal employees may perform “inherently governmental” functions. Last year, the Obama administration defined the term as activities “that [are] so intimately related to the public interest as to require performance by Federal Government employees.”

Of course, this is circular logic. There are tests for it – judging whether the function requires the direct exercise of sovereign power and whether the discretion of the contractor could preempt government decision-making – but the definition is still open to interpretation. According to its understanding of the term, the U.S. Army has identified2,357 contractors as being paid to perform inherently governmental jobs. The U.S. Departments of State and Defence, who hired these people, clearly disagree.

Governments need to clarify what contractors may do and what they may not. If there really are 2,357 people doing work that taxpayers would consider inherently military, this must end. Most security work, though, should be included in the list of acceptable contracts. Security work is certainly not as benign as staffing a mess hall. Private security contractors are allowed to carry weapons, something forbidden logistics staff. They may engage in combat operations against the enemy. This merits caution, but it does not make private security mercenary work. Security contractors guard compounds and officials. But they do not hunt terrorists or make military policy.

Whatever Erik Prince is up to in Abu Dhabi, his Blackwater security contractors were not under contract with the U.S. State Department for the same service in Afghanistan and Iraq. Using the Justice Potter Stewart test – “I know it when I see it” – guarding convoys of political analysts and their translators simply does not seem the same as operating a Predator drone or advising the Ministry of Defence.

The second objection to private security is the claim that it harms the war effort. Detractors point to the scandals in which some private security contractors have been implicated. In 2007, Blackwater guards shot and killed 17 Iraqi civilians in Nisour Square. In 2005, “trophy videos” allegedly showed British contractors shooting indiscriminately at Iraqi civilian vehicles. To point to these incidents as damning of all security firms is unfair, though. Military units have also been involved in scandals (Abu Ghraib, anyone? Friendly fire?) and not all security firms have seen controversy. At the same time, there have been serious issues regarding the regulation of security contractors, and this merits some discussion.

Regulating PMCs

A 2010 U.S. Senate Armed Services Committee inquiry into PMCs in Afghanistan found that security personnel were so inadequately vetted and trained that their operations seldom met Department of Defense contractor standards. In some cases, contractors had not supplied their personnel with sufficient ammunition to defend the compounds they were hired to guard. A lengthy section of the report is dedicated to a case where contractors hired known Taliban sympathisers who actively worked against NATO and U.S. interests. The committee concluded, “The proliferation of private security personnel in Afghanistan is inconsistent with the counterinsurgency strategy.” One wonders, though, if the problem is inherent in the private security industry or rather a matter of inadequate oversight on the part of the client.

The advantage of a contractor is that he or she has profit-based incentives to perform well and be cost-effective, as well as core competencies that mean more value for money. These advantages only materialise when clients are demanding and when there is competition amongst contractors, though. That neither of these conditions has been met is a failure on the part of government, not an innate weakness of defence contracting. Ensuring that everyone’s incentives line up requires that the client be clear on what the contractor is to do and how. Commercial outsourcing contracts contain what are called “statements of work” (SOWs) which list the services to be rendered. The contractor is to meet these contractual commitments, and failing this, will usually face financial penalties.

It is up to the government, as the client, to monitor compliance and ensure that the SOWs are met. If the contractors listed in the SASC inquiry were operating below Department of Defense standards, then this is because of inadequate monitoring, poor auditing of performance, and insufficient penalties for failures to perform to standard. The government was unclear on its standards or neglected to enforce these, thus providing insufficient incentives to perform properly. There have been egregious failures on the part of some contractors, but there have been equally egregious examples of failures of oversight. Taxpayers should be furious about both.

Some of the trouble also seems to be a lack of transparency. Many contracts have not been awarded through competitive procurement processes. A 2007 New York Times report showed that while 79% of contract actions were competitive in 2001, only 48% were in 2005. Some of the contracts let in 2005 may have been renewals of previous contracts, which are often subject to less scrutiny than the initial award. Regardless, there has been a marked decrease in the openness and fairness of the contract procurement process. Halliburton won its $7bn Iraqi oil and infrastructure contract after it bid against…no one. There may have been firms that could have done the job better and for less, but we will never know this as the Department of Defense chose to sole source the contract, or not put it to competitive tender. David Isenberg of the CATO Institute claims that frequent sole sourcing has resulted in situations that are “quasi-monopolistic,” and therefore stifling of innovation and cost-effectiveness. The government must entertain open bidding and cease its wastefulness and favouritism.

This opacity in awarding contacts may also help to explain why there is something of a correlation between contractors who spend heavily on lobbying and those who are hired. Lockheed Martin has the greatest number and value of American government contracts of any PMC. It has also spent $105,967,413 to date on lobbying the American Congress since the War in Afghanistan began in 2001, according to American watchdog Open Secrets. The stuff investigative reporters’ dreams are made on, I’m sure.

Cronyism appears to be rampant as well. Ex-military and secret services men frequently assume lucrative posts at PMCs: Erik Prince, Blackwater’s founder, was a Navy SEAL; Binns ended his career as a Major General in the British Army; Cofer Black, the chairman of Total Intelligence Solutions, was once head of counterterrorism at the CIA. Former soldiers and analysts can make two to ten times more in the private sector than in the service. This raises suspicions about the efficacy of the oversight system; presumably, few would want to irritate a contractor for whom he or she wishes to work after retirement, on a generous government pension to boot. Some governments have adopted cooling off periods, periods following retirement during which officials cannot work for a company that does business with its department. This does little to stop the brain drain from the military, but may be a helpful good governance and anti-corruption effort with regards to the bureaucrats that monitor contracts. The devil is always in the details, though. Such restrictions are ineffective if they are too narrow, and only restrict someone from, say, working for contractors who dealt directly with their department and not with other departments.

Another issue is the overuse of the “cost-plus” model for contracts. Cost-plus and fixed price contracts are all about risk sharing: fixed price places the risk with the contractor, while cost-plus locates it squarely on the shoulders of the government—and taxpayers. Cost-plus contracts are appropriate where the scope of the project cannot be accurately estimated, and thus neither can the risk of cost overruns. The problem is using cost-plus as a default, without thinking what incentives and risk burdens it creates. As it stands, the cost-plus model seems in some cases to have encouraged companies to exceed limits and engage in profiteering. A 2004 U.S. Government Reform Committee report found that Halliburton had overcharged the Department of Defense for gasoline by over $165m.

There are also serious gaps in the law regulating the private security industry. Contractors are not quite civilians, yet they are still outside the military chain of command. International anti-mercenary agreements do not quite fit modern PMCs. The nature of the countries in which contractors do business is such that courts are weak, so trials there are largely a non-starter.

In the U.S., the Alien Tort Statute (Alien Tort Claims Act, ATCA) allows the court to hear human rights torts cases brought by foreign nationals related to acts committed abroad. The actual language reads, “The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” This does not include criminal liability. More to the point, no cases brought under ATCA against contractors have found in favour of plaintiffs. Two cases were brought by Abu Ghraib detainees against Titan Corporation and CACI, contractors allegedly involved in the prisoner abuse at Abu Ghraib. Both Ibrahim v. Titan and Saleh v. Titan were dismissed. This was despite a U.S. Army finding that contractors had participated in 36% of proven incidents. The petition for appeal at the Supreme Court on Saleh is pending, but the lower court found that claims for war crimes could not be brought against private actors under ATCA and that a “battlefield pre-emption” granting immunity extended to contractors as well as soldiers. A private act of torture does not a war crime make, apparently. No case against the guards involved in the Blackwater Nisour Square shootings has ever been successful, either.

The consequence of the legal grey area in which contractors exist may be to sometimes incentivise inappropriate risk-taking and, as with Abu Ghraib, serious wrongdoing. Contractors’ legal status must be clarified. The 2008 Montreux Document is an international agreement that gives recommendations for state regulation of PMCs. The UK and the U.S. are among the seventeen states that have ratified Montreux. This is movement, but the agreement has no real teeth. Courts must set a definite precedent, or legislatures in the U.S. and UK must pass acts regulating security contracting. Stronger international law would not go astray either.

Part of the problem may also be that there is very little public access to information on PMCs and their contracts, and thus little accountability to the public. Taxpayers fund the military and thus have access to non-classified information so that they may scrutinise the actions and spending of the armed forces. The same logic should be applied to PMCs. The American Freedom of Information Act has been interpreted as not applying to PMCs and their contracts. In the UK, the Freedom of Information Act has been used to force government disclosure of contract costs and awardees. The Act still includes an absolute exemption for information regarding security matters (Section 23), though. As with most other government documents, contracts that do not involve classified activities should be available to the public upon request.


There have been problems with the performance of some security contractors over the past decade. It would be foolish to continue to ignore these. It would be equally foolish to condemn private security, close one’s eyes, and hope that contractors merely go away. Private security contractors have the flexibility, manpower, and potential for cost-effectiveness that the military currently lacks. The military needs them.

Moreover, the issues with private security to date have been largely on account of government oversight failures. Privatisation of military functions can work, and work well, but the government has to tighten its standards as a consumer, free up bidding, and clarify the contractors’ legal status. The transition to a largely civilian presence in Iraq and Afghanistan may be just the chance to do this.