Some Highlights From This Interview

Outsourcing military services is in vogue. Why?

I think that the main reason that we're seeing this aggressive push to outsource military services is there's a tremendous amount of pressure to have a smaller military. As a general rule, when we talk about a smaller military, people think of having more war fighters or more trigger pullers.

So what that means is anything that isn't associated with more fighting … is deemed to be something that the private sector can provide. And there's been a tremendous amount of pressure on that as we downsized the military since the Berlin Wall came down.

But if you're downsizing the military by outsourcing the functions, are you really downsizing the military, or are you just hiring other people to do the jobs that soldiers used to do?

I don't think that there's any question that the military is not smaller today. It's just that the composition is very different. … [I]nstead of having people in uniform, we have contractors performing the same tasks today.

So what does it accomplish?

Well, one thing theoretically that it accomplishes is it gives you more flexibility. It gives you greater surge capacity. You don't have to have a tremendous number of troops stationed at installations all over North America waiting for the next big military action.

So if we decide we need to invade Iraq, we can go out and hire contractors very, very quickly at a rate we'd never be able to recruit otherwise. And then after we successfully quell an insurgency, we should be able to draw it down to a much less expensive troop level, because we simply tell the contractors to let the people go. It's much easier than doing the decline of reduction forces we saw, for example, after the Vietnam War.

Does it work?

It's an interesting question. Let's think: So does it work? There are some things that outsourcing does very effectively -- for example, provid[ing] surge capacity gives the military the ability to move more quickly, potentially gives the military the ability to do certain things they couldn't otherwise do.

For example, the military has a limited amount of transport capacity. There's only so many planes and so many ships. And moving troops and equipment can be very, very slow. But if you only have to move the troops, and you have contractors moving the equipment or contractors taking care of the food and the water and the other essential services, you can move your troops more quickly and, more importantly, be ready to fight, and fight more effectively much more quickly if you can rely on the private sector to fulfill all your needs.

And why is the [private sector] more able to gear up with these support services than the military?

… One of the problems is the way that we typically recruit. We recruit in the military and we train in a very formalistic manner, so that we have a very long lag time from the point that we identify someone who we expect to see in uniform. We bring them on active duty. We train them, and we assign them to a unit.

Conversely, in the [private sector], they have access to an unlimited public. And particularly by paying recruiting bonuses or using perhaps incentives, you can get literally unlimited potential to do any task that needs to be done anywhere in the world.

[Don't you have to pay them] more money?

Typically, yes. Paying more money is one very effective way to move people quickly.

But eventually the cost comes back to the taxpayer.

Right. I think the one thing that people frequently forget when they talk about the outsourcing is that there's two separate issues. Many people think about outsourcing primarily as a tool to save money.

The other way to think about it is sometimes the government pays more money for greater flexibility or greater capacity or better services or services that could be provided more quickly. And I think that particularly with the LOGCAP [Logistics Civil Augmentation Program] contracts, it's important to keep in mind --

That's the big logistics contract that [KBR (Halliburton subsidiary Kellogg, Brown and Root)] has?

Yes. With the LOGCAP contract, it's important to keep in mind that whether or not it saved money, there's no question that KBR was able to provide more services more quickly to the battle area than the United States military was capable of providing when we went into Iraq or today.

They claim it's cheaper.

I'm waiting to see the empirical research on that.

Isn't the truth that nobody quite knows whether it's cheaper or not? Does the Pentagon have a handle on this?

I don't think there's any question that no one knows whether it's cheaper or not. One of the best studies we've seen on whether outsourcing saves money is the RAND study, which is now a few years old. And what the RAND study says is there's the potential for immense cost-saving in outsourcing. But it hasn't been proven yet.

There's a number of episodic studies since, but there has not been a compelling case made that government outsourcing, particularly this type of outsourcing, saves money.

Help me out. It seems to me it would cost a lot more money if you hire truck drivers, for instance, that are getting two, three, four times as much. You hire security guards and you subcontract with a security company that provides security, they're going to get a lot more than soldiers would get doing the same [job]. How can it possibly not cost a lot more money?

Well, it's easy to see a number of ways that it might end up being worth it to pay individuals a tremendous amount of money for a short period of time. Consider, for example, the government isn't going to pay pensions for anyone working for a contractor in Iraq.

In addition, the government didn't have to have these people on its payroll before we went to war in Iraq. So if you think about the old model, particularly before the end of the Cold War, the United States military had thousands and thousands of troops sitting around and training, but basically waiting in military installations all over the world.

Now, with this leaner, meaner fighting force, the military doesn't have that capacity sitting around, so the private sector can bring these people in. The government hasn't been paying in advance. They don't have to pay the pensions later. And they don't have to pay the types of buyouts that we've typically seen when there's been aggressive reductions in force in the military. …

There's this notion out there, certainly publicly -- comedians talk about it all the time -- that KBR and Halliburton is getting away with gouging. The taxpayers are paying a huge burden. … Is Halliburton getting away with murder?

No. First of all, while the comedians may have a lot of fun with it, I think there's some important things to keep in mind. First of all, nobody actually believes Halliburton's making any money on the contract, and [it] is probably losing money. The guaranteed profit margin was very, very low. And even with the incentive bonuses that have been paid, the number of unallowable costs in the contract are such that they're probably losing a tremendous amount of money.

But it's [a cost-plus contract, meaning the company would get reimbursed for what it spent, plus an additional percentage as profit].

The fact that a contractor can be reimbursed for allowable costs doesn't mean that it recovers all the money that it spends. Now, part of this is just the nuance of the way government contracts operate. But it is perfectly feasible, and it happens all the time, for contractors to lose money on cost-reimbursement contracts.

Let's also not lose sight of the fact that KBR's employees have not only been injured but have been killed in large numbers in Iraq, and it's very difficult to put a price tag on that type of activity or that type of loss.

Is there any danger of the military becoming overly dependent on the private sector?

There's no question that the military has become overly dependent on the private sector. When I was a young Army officer, as I learned the military doctrine, … the military relied on contractors on the battlefield only to the extent that they could fight without the contractors.

That's simply no longer the case in the United States military. The United States military can no longer fight effectively without contractors on the battlefield, and that has to be an item of great concern both to commanders and to the public. If we are faced with a legitimate foe that could in fact compete with us in terms of competence on the battlefield … this pervasive presence … of contractors could be potentially disastrous.

When you say that we are overly dependent, in which services? Where do you draw the line?

Well, I think that particularly in terms of ground warfare, the military, the Army, is totally dependent upon contractors. They're dependent upon them for food; they're dependent upon them for water, housing, laundry, the basic services.

But in addition, we have contractors ferrying ammunition to the battle area at this point. That's pretty significant. Also, if we look at almost every high-technology weapon that we're employing on the battlefield, we do not have sufficient numbers of skilled operators to operate many of these systems without contractor assistance. Very, very scary situation.

Have you seen this play out in Iraq?

Well, I think there's no more dramatic example than some of the situations where we've seen large numbers of contractor personnel be killed. We're now at the point where over 200 contractor personnel have been killed in the battle area in Iraq.

There is this issue of whether or not it's not about economic cost savings but political cost savings.

Right. It seems to me politically, there's two major concerns with having this staggering number of contractors in the battle area. First, in the court of public opinion, the government has artificially deflated the military's involvement in Iraq. For example, the military would love to say that we have fewer than 100,000 troops on the ground in Iraq. But if we do get below that 100,000 number again, it will only be because we have tens of thousands of contractors supporting the military.

Many of them armed security guards.

Indeed, tens of thousands of armed security guards. But in addition, while the public reads about military fatalities on a regular basis in the newspaper, there's almost no coverage whatsoever on contractor fatalities. And I believe the numbers show that something on the order of 10 percent of the fatalities in terms of the allied forces in Iraq have been contractor personnel, and I believe that that artificially deflates the human cost of our involvement in Iraq.

And I find that quite troubling. To some extent, I find that analogous to the government's decision not to release the photographs of the caskets returning to the United States. It's about painting a prettier picture for the American public about what the human cost of our involvement in Iraq is.

So you think contractors are seen as expendable?

I don't think that there's any question that they're seen as expendable. I don't know that that was necessarily the intent of the Defense Department, but in practice, it's proved to be a very convenient topic --

What about vulnerability? You say that we've made ourselves overly dependent. Have you seen examples in Iraq on the battlefield where our ability to fight the war effectively has been drawn down because of our dependence on [private contractors]?

Maybe the best example I could give you is the consistent concern we hear from the private security companies in Iraq that they're not really part of the tactical operations group. So, for example, we have tens of thousands of armed contractors in Iraq defending the Green Zone, defending military, defending contractors in and around the area.

But they're not part of the military command structure. They don't communicate in the same networks. They don't get the same intelligence information. And so when things begin to develop quickly, there's an awful lot of people around with weapons who have important tactical responsibilities who don't have the same information and aren't getting the same messages from the tactical leadership. …

Describe if you can the scale of the … private contracting work. …

There's a number of examples that you could use. For example, with the oil rehabilitation work, what you might want to think of as an analog would be to basically say: "Assume that you had one or two contractors who are basically going to rehabilitate or completely rebuild the entire oil infrastructure in the state of Texas. And while you're doing it, we're going to basically give weapons to most of the people in the state and incentivize them to kill you if the opportunity arises." That's a pretty daunting task, if you think about it. So if you look at the map, he might be able to bring that home a little bit.

And what about historically the amount of logistics being provided to the military? How does this [compare]?

If we were to compare our two experiences in Iraq in the last 20 years, what you'd find is a much heavier level of contractor involvement this time than the last time around. It's particularly true with regard to the breadth and the extent of services.

For example, if you talk to troops who are over in Kuwait and Iraq for Desert Shield and Desert Storm, they ate what we call MREs, Meals Ready to Eat, for many more months than troops have been exposed to this time around. So a lot of it is just the basic services: housing, food, water, showers and the like. But in addition, the fact that we have all of this construction, or what we might call reconstruction work, going on just completely changes the very nature of what's going on in the theater.

You've said they've won the hearts and minds and stomachs of the military; they're doing a fabulous job, and our troops are better for it. Why does having large bases like Anaconda with four dining halls, a huge rec center, a kind of permanent base structure like you'd find in Germany during the Cold War, why does that help us better to fight insurgents?

I think if you look at it from a very personal standpoint, it might help. People are shooting at you. You're away from home; you're away from your family. And for the most part, you're probably being paid less than the minimum wage.

Now, in that situation, you could be living out of a tent. You could be eating freeze-dried food. You could be cold, and you could be wearing filthy clothes. In the alternative, you might be sleeping with a roof over your head, getting clean laundry on a regular basis, getting a hot shower once a week or maybe even every day, getting at least one hot meal a day or if you're very lucky, as many as two hot meals a day.

It doesn't take a rocket scientist to figure out that in the latter situation, you're going to be a much more effective, cohesive and rational fighting force if you're taken care of and treated like a human being.

But at the same time, you're creating a huge footprint in the country. You're creating more targets for insurgents. And you multiply the convoys that have to supply these large bases and provide all the food and provide all the amenities, so you've made yourself a larger target.

I don't think that there's any question that we've made a much, much larger target over there, and a more vulnerable target. Just a generation ago, where, for example, the people serving the food were people in the military who had gone through basic training, these were all people who themselves could handle a weapon.

So not only is our footprint much larger, but a significant number of the contractors on the ground are not only unarmed, but they're prohibited from carrying arms. And they're not trained to deal with arms. So we have a much larger, far more vulnerable force on the ground. It's just an easier target.

I'm not sure how to evaluate that pro and con. Seems to me you've created a lot of vulnerability. You're creating a lot of targets out on the roads, all those convoys carrying food to the bases. Doesn't seem like until the situation is secured that we really need to have that kind of base structure.

Well, I think that you get back to the point that I hope many people would agree with, and that is what we ought to do as a country, if we decide to go to war, is go to war and project military might with an aggressive, success-oriented attitude.

And the bottom line is we should go and fight and we should get the job done. And then if we're going to do reconstruction or something like that, then we should begin that process. But it's very difficult to try to be all things to all people or do all things at one time. And I think that that's one of the major problems we have in Iraq. Overall, this is a poorly-planned enterprise that was incredibly ambitious and, frankly, unbelievably naive. And it has been shown time and time again in almost every sphere of consideration in the area. …

So why not continue to privatize?

I think there's a number of problems with trying to privatize. First of all, there's just basic capacity. If we, in fact, continue to rely more and more on private military, there will come a time when as a country, we lack sufficiently trained professional military soldiers, and I think we have to be troubled by that.

There's also always the concern -- and this is one that might sound a little bit hyperbolic, but it's still something we need to think about -- the fact that if you have a private military, someone may be willing to pay more for those services. Now, we don't like to describe the private military firms in Iraq as mercenaries, but there is some history on this planet of mercenaries going to work for the highest bidder. And I think it's a legitimate concern.

There's a tremendous number of contractors [in Iraq]. It [dwarfs] previous engagements, correct?

Right. The United States military hasn't had this percentage, this type of reliance on contractors in the battlefield in conventional memory.

That creates a need for managing all these different contracts, and each of these contacts then has subcontracts. How well does the military do at managing all these contracts?

It's been an unmitigated disaster to the extent that the United States military and the government generally has refused to invest in the required amount of contract management resources needed to get the job done. To say that another way, there are not enough trained professionals in the government to manage the contractors that the government needs every day.

What you're saying is that you've decided to privatize, [but] decided to underman those departments of the Pentagon that need to monitor and manage these contracts?

Absolutely.

And that makes no sense.

… No. It makes no sense whatsoever. The way that we got there is particularly disturbing. From the late 1980s until well into 2000, as part of the reduction and the size of the government, procurement professionals, professional buyers and contract managers were slashed dramatically as a matter of policy. I think that was a bad idea.

But in addition to that, assuming that we didn't have enough procurement professionals left in the government on Sept. 11, 2001, you have to keep in mind that after Sept. 11, the United States has increased by 50 percent the amount of procurement, the amount of buying it does every year.

So all these guys that are there, men and women who are supposed to go over the contracts and make sure that the private contractors hold to the terms of the contract, there are not enough of them?

Indeed. … During the 1990s, we gave buyers more flexibility. We gave them more discretion. But the trade-off was we basically gave up bodies, so there's not enough people left.

So what happens?

Here's the scariest thing to think about. If the government's requirements don't decrease and you have insufficient number of buyers, what ends up happening is --

Buyers meaning procurement officers?

Or contracting officers.

The people who manage the private contracts for the military.

Exactly. The problem that you have is the government must keep buying so the resources that remain spend all of their time buying. But once the contracts are rewarded, no one manages the contracts.

The best analogy that I can give you is if you were having your kitchen or bathroom renovated, you would choose a contractor and then basically say to them, "Go ahead and renovate my kitchen, and I'll be back in six months."

And it's a cost-plus contract?

Oftentimes it is, because we don't have enough people to basically figure out what the risks are in advance so that we can quantify them and monitor returns.

There's no better anecdote on that than the small number of contractors who were involved in the atrocities at the Abu Ghraib prison. It wasn't that there wasn't a contract manager in the prison managing them, and it wasn't that there wasn't a contracting officer or a contracting officer's representative in Baghdad supervising them. There was no one in the country managing the contractors that were working in the prison. It's a very, very scary situation when you have that many service contractors in the battle area.

There's also quite a number of layers of contracts. It's not just a prime contractor and the military. There's, in many cases, four, five, six layers deep.

Right. And this is another byproduct of not having enough acquisition professionals in the government. If you have enough procurement professionals in the government, you would award smaller, more discrete contracts, and then manage them effectively.

But if you don't have enough people, there's a tremendous amount of pressure to award massive contracts to small numbers of contractors and let them subcontract. An excellent example would be the [Bechtel/Parsons] capital reconstruction contract that the USAID, the Agency for International Development, awarded.

So basically you have one contractor just doing in excess of $1 billion of reconstruction work all over the country of Iraq with as few as six government employees managing the entire operation. The contractor daily has to make discretionary decisions that should be made by government employees. But there's not enough people home to make those decisions.

Now, what do we make of [it] when we hear that KBR, for instance, has billed the government for $1.8 billion of unsupported costs?

I think that one of the realities with almost all of the overcharging allegations that you read about in the newspaper is that a certain mandate was unequivocally communicated to most of the contractors in the battle area.

They were told to do something?

They were told to provide essential services now, and that getting the services done were more important than cost control. I'm not saying that it's pretty, but it's the reality of the battlefield.

So they went out and spent a lot of money, didn't get receipts. And they come back and they say, "We need $1.8 billion; we have no receipts"?

Right. The other problem is, it's very, very common in cost-reimbursement work for the government and the contractor to estimate the work going forward, and then the contractor does the work, and then they reconcile after three or six months. Particularly with, for example, mess hall services, [it's] very difficult to estimate with accuracy when you have troops moving in and out. So it's not in the least surprising to see wild fluctuations like we see when the auditors come in.

Frankly, the other concern is it's not really fair to send auditors into the battle area and have them audit contractors' cost control the same way you do in Washington, D.C., or [in a] military installation in the United States. It's just a different area over there.

But there's no model for this, because it's all sort of first time. We haven't really done this before.

Right. Theoretically, if we had a little bit more planning and if we put some thought into this in advance, we'd manage it a little bit better. But the absence of planning is one of the pervasive themes throughout everything that's happened in Iraq.

So given that, you give KBR pretty good marks under the circumstances?

Under the circumstances, I give KBR unbelievable marks.

And the Pentagon?

I think that the Pentagon's incredibly happy with them. In fact, I'm actually a little bit disappointed with the Pentagon that they've not done better defending KBR in the court of public opinion.

Regardless of the marginal dollars involved, KBR has fed our troops, housed our troops, provided showers, water, laundry and the like. They've lost a staggering number of personnel. They have had a tremendous number of people injured. And the bottom line is, they've been slaughtered in the court of public opinion, and they haven't left. And if you had a son or a daughter who was over there in Iraq and they were feeding your son and daughter, my guess [is] you'd be awfully darn appreciative of what they're doing every day.

The LOGCAP contracts, as I understand them, logistic contract, stipulates that the security be provided … by the U.S. military.

Right. It's the only one.

Why is that?

I'm not sure if I can give you an articulate reason as to why. The very nature of the LOGCAP contract originally saw the contractors fully integrated into the base operation. So the military gets projected to a certain battle area; KBR comes to provide logistic support to them, and they would be considered part of the battle unit. And so, to the extent that the military would defend itself, the expectation would be that the LOGCAP contractor would be in that zone of protection.

So they're in the military bubble, security bubble, let's say, and some of the idea is that if you bring in the central supplies, whether it's food or ammunition, you should have military escorts?

Seems like a perfectly logical way to think about it. The problem for many of the other contractors that we've brought into Iraq is the United States military simply doesn't have the horses available to defend the contractors. In fact, the military doesn't have enough people left to defend the military, which is now -- we now have tens of thousands of arms-bearing contractors not only protecting other contractors, but also protecting, for example, political officers of the United States government, and in some cases, the United States military.

So we're subcontracting a central military function such as the protection of military facilities, military personnel, to private companies?

Right. The United States military is contracting out arms-bearing work, which includes many essential services such as protecting the military, protecting political officers, protecting contractors who are providing essential services.

Is that over the line in your view?

I think it's well over the line. …

We put a lot of people out there with guns. What's their legal status?

There's any number of issues related to the legal status of the contractors on the battlefield today. There are issues under the Geneva Convention, how they're going to be treated if in fact they become prisoners of war.

One of the issues that hasn't been addressed very well -- and in fact we've been quite lucky in Iraq -- is the issue of friendly fire. Any military historian would tell you that a significant number of casualties on the battlefield derive from friendly fire, and I think we've been pretty lucky so far that we haven't had contractors killing other contractors or contractors killing members of the military.

How would we know that we haven't?

Well, if it's happened, it hasn't been widely reported. But it is eventually going to happen, and the legal issues associated with that have simply not been worked out yet.

There's also tremendous issues with regard to the commander's ability to control the battle area. Keep in mind that a decade ago or even a generation ago, the commander was in control of everyone in the battle area. Whether on the frontline or in the rear area, everybody worked for the commander. The commander does not actually have control over the contractors. They work for someone called the contracting officer, and it's quite clear that we've not fully resolved all of the abilities of the commander to take cognizance over and direct the behavior of everyone in the battle area.

What you're saying is, they don't even necessarily know who's in the region.

Well, they're doing a lot better now than they were a couple years ago, at least keeping track of who's in the battle area. But it is true that the commander is not fully aware of all of the people, particularly all of the arms-bearing people, who are part of the effort in the area. And that's quite dangerous. ...

What's the takeaway here? You think that KBR has done a wonderful job. The military has done not such a good job in terms of monitoring what's going on. You think we're overly dependent on the contractors. I'm not sure what I'm supposed to take away. You think KBR's doing a wonderful job, but yet you think that perhaps there's too much of it?

There's so many different categories of reliance on contractors in Iraq that it's very difficult to distill it down to a single point. So, for example, KBR is providing logistical support, a huge enterprise. KBR and other firms are now doing oil field rehabilitation. [Bechtel/Parsons] is doing capital construction around the country. And in addition, we have tens of thousands of security personnel providing various services.

I think that we have to look at each of these individually to try to decide what it is we're trying to achieve and whether we're achieving that goal. I think that in the main, we have too small of a fighting force. We have been unrealistic and somewhat naive about what we can achieve and how quickly we can achieve it. And as a result, we're having unreasonably high numbers of casualties and wasting a tremendous amount of money by not planning first and executing second in a reasonable manner.

Do you know anecdotally what the workload [is] on individual procurement officers in the Pentagon?

... The best statistic I could give you was that up until Sept. 11, federal procurement had stabilized at about $2 billion a year. And as a general rule, the Defense Department accounts for 60 percent to 65 percent of all procurement spending. So think about a scenario where the Defense Department is spending $115 billion or $120 billion a year.

Since Sept. 11, procurement spending in the United States has gone up by 50 percent, and some people think it's gone up more. When the next procurement data reports come out, many people expect government procurement for the federal government to be over $350 billion.

It's a good time to be a private contractor to the military?

Indeed. But at the same time, we had an inadequate acquisition workforce before Sept. 11. We've increased federal procurement spending by over 50 percent, and there has been effectively no reaction whatsoever by the federal government to first hire more people or get the right kind of people to manage the type of contractors that we're managing today.

We don't have enough contract professionals on the ground in Iraq. We don't have enough contract professionals in the United States government. And if we were merely to look at the private sector by any objective metric you could use, the government is inadequately staffed to spend money responsibly today.

Is there anybody in Washington who's looking at this?

There are a small number of people who, from time to time, look at it. But there does not appear to be one voice in the Congress, in the executive branch or almost anywhere in the federal government that is waving the flag and trying to draw attention to the fact that we simply don't have enough procurement professionals to responsibly spend the public's money today.

And are they waiting for some procurement officers to jump out the windows? It sounds like you've got some pretty stressed officers.

Well, if you combine the fact that over 50 percent of what we call the 1102s, or the contracting officers, in the federal government today are retirement-eligible; we've done, for all intents and purposes, no new hiring or new significant recruiting since the late 1980s; and we've increased the burden on purchasing by 50 percent in the last three to four years, I think it's pretty safe to conclude that's a crisis situation. And you'd like to assume at some point, somebody in the government would step up to the plate and do something about it. ...