Military Outsourcing = Outrageous Corruption

This article in Business Week describes the vast amounts of taxpayer dollars that are being lost to graft and corruption in Iraq:

The U.S. Military has lost billions to fraud and mismanagement by private contractors in Iraq who do everything from cooking soldiers’ meals to building hospitals to providing security. That raises a question: Does Pentagon outsourcing make sense?

“The presumption is that it is cheaper,” says Jerrold T. Lundquist, director of the defense and aerospace practice at the consulting firm McKinsey & Co. Competitive bidding can keep the price of services down. Contractors are, in theory, more nimble at mobilizing and paring back their forces than a huge military bureaucracy. A recent study by the nonpartisan Congressional Budget Office concluded that in 2004 the U.S. reduced its costs by one-third for feeding and housing troops by paying one contractor to do the work — a savings of nearly $3 billion. Such findings point to the conclusion that even with a lot of fraud and waste, outsourcing may still pay off.

But some experts on the topic aren’t convinced. Because no one has an authoritative overall estimate of how much has been lost in Iraq to contractor deceit and incompetence, and many investigations are just getting under way, the financial harm could in the end outstrip any savings. There’s also the intangible cost of taxpayers seeing their money wasted or stolen rather than spent to support troops risking their lives and dying. “What has happened in Iraq is just disgraceful,” says Jeffrey H. Smith, a former Central Intelligence Agency general counsel during the Clinton Administration who now represents military contractors in private law practice.

Instances of military outsourcing gone bad in Iraq are now legion. For example, Parsons Global Services Inc. of Pasadena, Calif., lost its contract to build 150 health centers after it completed just six centers and collected $190 million — $30 million over the project’s budget. The U.S. Special Inspector General for Iraq Reconstruction is now reviewing all of Parsons’ Iraq work. Officials at Parsons, which eventually completed an additional 13 centers, stand by their work, saying employees performed well under “extremely volatile conditions.” [full text]

The article goes on to discuss no-bid contracts such as those given to Halliburton subsidiary Kellogg, Brown & Root — contracts which have been charged by auditors as excessive, duplicative, or otherwise questionable. The author makes the obvious point that this problem could be addressed by stepping up contract procurement oversight, but instead, these quality control measures are being further reduced.

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2 responses

  1. Cheaper? Who cares if it’s cheaper? No one. The more expensive, the better.

    Check out the bonus paid to the CEO of Haliburton for 2005: about $11M worth of bonus on a $1M salary. Not bad. The bonus is 11 times the base salary. You don’t think that he earned that by cutting corners on billing the gov’t, do you?

    The theory is that it’s cheaper because of “market forces” that “create competition.” But, realistically, how many companies are competing with Haliburton on these contracts? “No-bid” means “zero.” So where are the magical market forces?

    No, this isn’t about saving money. It’s about taking tax dollars from middle-income people and giving it to corporate types, who will then whine if the gov’t actually funds a program that helps underprivileged kids: like HeadStart, for example.

    The name of the game is redistribution of wealth: take as much as possible from the lower strata of the pyramid and move it up, preferably to the pinnalce.

    You want to talk about sense of entitlement? Read some of the stuff these CEOs put out. (I’ve spent the last few years reading their books, btw.) Man,they think the world owes them. Big. After all, they’re globe-straddling titans who forged ahead on their bold initiatives–to milk the gov’t cow for all it’s worth.

    It would be pathetic if it weren’t so nauseating.

    Yes, this is class warfare. I won’t shy away from the term, because the other side doesn’t shy away from perpetrating it. Angry? Darn right I’m angry. These people are sucking away money that my kids–and yours, gentle readers–will be paying back for most of their lives. There have been no Bush Tax Cuts. What Bush has done is create Tax Deferments that push payment of the bills out for 10-20-30 years. It took about 10 to get rid of Ronnie Reagan’s deficits; how many more decades will it take to get rid of W’s? And it’s all so the coporate types can get a newer company jet, or a fifth house (read: mansion), or a couple of Bentleys.

    What will be interesting will be to see how these “titans” react in a couple of years when they find their businesses collapsing as a result of competition from companies in Brazil, or India, or China. The same issue of BusWeek has an article about the new multinationals have learned to do business in developing nations, digging out profit margins on commodity-style products. They manage by watching expenses; yes, a lack of gov’t regulation helps, but you can bet your sweet balance sheet that their CEOs aren’t siphoning off billions of dollars in compensation, either.

    But they still need more, so we need to repeal the Estate Tax, so my kids can pay for Mr Bush’s splendid little war.

  2. don’t forget rhode island’s own custer battles corp. a couple of guys without much experience who were handed buckets of money and are now facing charges of corruption and brutality.

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