Wartime contracting – a necessary service, unnecessarily wasteful

Saad Mustafa of Transparency International’s Defence and Security Programme takes a closer look at American wartime and reconstruction contracting in conflict zones.

“Criminal behaviour and blatant corruption sap dollars from what could otherwise be successful project outcomes and, more disturbingly, contribute to a climate in which huge amounts of waste are accepted as the norm”

photo: TI Defence and Security Programme

A blunt and sobering message delivered by the independent and bipartisan Wartime Contracting Commission established by the US Congress to look into contracting in Iraq and Afghanistan. In their final report to Congress, the Commission concludes that at least US $31 billion, and possibly as much as US $60 billion, has been lost to contracting fraud and waste. The International Contract Corruption Task Force (ICCTF) further adds that, as of June this year, it has 876 open cases relating to misconduct in wartime contracting.

Increased foreign aid, without strict monitoring and oversight, can fuel corruption and distort the very same local labour and goods market which it tries to strengthen. Corruption risks are significantly magnified when aid is injected into a country such as Afghanistan, where a weak central government lacks the means to coordinate and oversee results as well as to punish transgressors.

For example,US involvement in police training shows how poor planning, oversight and supervision of intra-government contracts can lead to unnecessary waste. Police training in Afghanistan is already a treacherous exercise, with corruption, illiteracy and high attrition rates making for a very difficult atmosphere. The US State and Defence Department’s initial decision to divide training responsibilities into three contracts – training conventional police, training border guards, and building capacity at the Afghan Ministry of Interior, only added to the disarray.

In 2009, the US Department of Defence haphazardly put into place efforts to consolidate the three contracts into a single program. However, rather than collaborating with other government departments to ensure relevance, value and cost-efficiency, the Department took it upon itself to solely manage and execute this new programme. The decision was quite puzzling given that the Department had earlier admitted to lacking capabilities in nation building and civil governance – a job they had delegated to the State Department in the past.

Non-competitive procurement can lead to corruption

Unless multiple contractors compete for orders, it is also difficult to obtain best pricing and performance. A recent report by the Center for Public Integrity highlighted that non-competitive contracts have almost tripled since 9/11. The value of Pentagon contracts awarded in 2010 without a competitive bidding process was US $140 billion, up from US $50 billion in 2001.

Contrary to popular belief, single-source procurement is not driven by a lack of qualified companies. Only around 25 percent of such contracts were justified as mere extensions of existing contracts.

It is important to understand that an end to non-competitive contracts was one of President Barack Obama’s campaign pledges in 2008. Back then, not only did he identify such contracts as wasting taxpayer money, he also promised to initiate a comprehensive review, and to reign in such reckless spending. However, after nearly three years in office, his administration has done little to address the issue. In fact the figures above show that the situation has only gotten worse.

Nevertheless, there are a number of practical reforms that countries such as the US can implement to limit waste, fraud and corruption in wartime contracting. The Commission’s report lists 15 worthy suggestions. They range from establishing audits and oversight requirements in mission countries such as Iraq and Afghanistan, to creating a permanent organisation with extensive powers to investigate corruption in international contracts.

However, one question that remains unanswered is what countries should do when single-source procurement is actually necessary. In this case, clearly defined measures to reduce the risk of corruption need to be introduced. These should include:

• Creation of multiple levels of oversight and approval
• Requirement for personal asset declarations
• Rotation of staff in key positions
• Rigorous internal and external audits focused on restricting undue external influences
• Benchmarking and open-book pricing of contracts to ensure costs are not inflated

The United States and other countries engaged in operations in conflict zones have a key role to play in the transition to peace. Therefore, donor countries must reform the way they handle their financial flows and award their contracts, especially because they owe it to their own tax paying citizens to be responsible stewards of public resources.