Outsourcing the Fight: Private Contractors and the U.S military.

This is from Forbes. It is an excellent analytical article that shows some of the many problems with outsourcing functions and services that have traditionally been provided by the military itself to private contractors. In Iraq especially private contractors have been notorious for over-charging for services and being able to get contracts without any real competition.


Supply LinesOutsourcing The FightP.W. Singer 06.05.08, 6:00 PM ET
In 1992 a relatively little-known, Texas-based oil services firm called Halliburton was awarded a $3.9 million Pentagon contract. Its task was to write a classified report on how private companies, like itself, could support the logistics of U.S. military deployments into countries with poor infrastructure. Conspiracy theories aside, it is hard to imagine that either the company or the client realized that 15 years later this contract (now called the Logistics Civilian Augmentation Program or LOGCAP) would be worth as much as $150 billion.
The use of private contractors in U.S wars dates back to the sutlers, merchants who followed behind Revolutionary and Civil War armies selling incidentals to the troops like jam or whiskey. But the size and scope of the private military industry today is unprecedented. In Iraq alone, there are some 180,000 private military contractors performing functions that once would have been handled by soldiers in uniform.
The vast bulk of these contractors handle military support functions: building and operating military bases, maintaining and repairing military equipment and vehicles, and moving massive convoys of supplies that are both vital to the operation's survival (like gas and ammunition) and not so vital (like Pizza Hut Personal Pan Pizza). Getting those jobs done has incurred a great cost, both financial and human; according to Department of Labor insurance claims, 1,292 contractors have been killed and 9,610 wounded as of April 2008.
Contracting out logistics has brought the skills and resources of hundreds of companies from around the world to support the war effort. But, much like when a business outsources too much of its supply chain, this process has caused a loss of control. While companies only perform the jobs specified in their contract, war is an environment in which flexibility is needed most.
Take for example the recent news that at least 12 U.S. soldiers have been accidentally electrocuted inside their bases in Iraq. Staff Sgt. Ryan Maseth, a highly decorated Green Beret, was killed while taking a shower 11 months after KBR contractors had first found potentially serious electrical problems in the facility's construction. But KBR's contract didn't cover "fixing potential hazards." It only required them to repair items that were already broken.
Handing over control to contractors has also lead to allegations of war-profiteering. Almost all of today's logistics firms are operating under "cost-plus" contracts--a structure that is ripe for abuse. Examples in Iraq range from billing for soldiers' meals that were never cooked or served to convoys shipping "sailboat fuel" (as Halliburton -KBR truck drivers laughingly termed charging the government for moving empty pallets from site to site). According to testimony before the House Committee on Oversight and Government and Reform, the Defense Contract Audit Agency has identified more than $10 billion in unsupported or questionable costs from battlefield contractors--and it has barely scratched the surface.
Such losses don't just represent misspent funds; they represent lost opportunities to actually support our diplomatic and military goals. The situation has gotten so bad that the special inspector general for Iraq reconstruction dubbed corruption as the "second insurgency" in Iraq.
Many worry that the lack of control due to outsourcing could weigh even heavier and even put an entire military operation at risk. Consider what happened during the 2004 Sadr uprising, where a spike in attacks on convoys caused many companies to either withdraw or suspend operations, causing fuel and ammunition stocks to dwindle.
It is important to remember that private contractors are not bound by the same codes, structures and obligations as those in public service. As Tom Crum, then the chief operating officer for KBR's logistics operations, wrote in an internal memo, "We cannot allow the Army to push us to put our people in harm's way. ... If we in management believe the Army is asking us to put our KBR employees in danger that we are not willing to accept, then we will refuse to go."
As civilians, this choice is their right to make. But as retired Army Major Gen. Barry McCaffery testified to Congress in 2007, the consequence of turning over so much of the supply system to private civilian firms, which have this right to decide when and where they deploy, makes our logistics system "a house of cards."
In the same way that companies such as Cisco were forced to reconsider their outsourcing policies in the late 1990s, after they lost the ability to deliver on core functions, the military (with a push from Congress) needs to reevaluate what is appropriate to outsource and what is not. If a task is critical to the mission's ultimate success or failure, then perhaps it should be kept in-house. In other words: Feel free to outsource the Burger Kings, laundries and base construction, but maybe we ought to keep roles like military interrogators, armed troops and movement of critical supplies (all now outsourced) inside the system.
The Pentagon also has to do a much better job of being a smart client. Far too few contracts get any true competition to drive down prices. Instead, they tend to be bundled together into massive structures, where a few prime contractors (just three in the new version of LOGCAP) are the ones that dole out sub-contracts. Add in the largely cost-plus contract structure, and savings tend not to accrue.
There also aren't enough eyes and ears working on behalf of the government client to monitor contractor performance. In 1998, there was one financial auditor for every $642 million in Pentagon contracts. Today, there is one auditor for every $2.03 billion in contracts.
These auditors aren't just required to catch false billings and cost overruns, but also to ensure quality. That soldier's electrocution didn't happen because of malice; it happened, as an internal Pentagon e-mail revealed, because KBR's inspections were never reviewed by a "qualified government employee," and the Army wasn't aware of "the extent of the severity of the electrical problems."
Finally, the Pentagon needs to use its massive buying power to shape and sanction the market, much like Wal-Mart does to wring out efficiencies and send warnings to any vendors that think to cross it. For example, the new LOGCAP contract, potentially worth up to $150 billion, went to KBR, DynCorp and Fluor. Yet, as the Project on Government Oversight found, these same three companies have been cited for 29 cases of serious misconduct in the last decade--a category of allegations that includes false claims against the government, violations of the Anti-Kickback Act, fraud and conspiracy to launder money.
There's no doubt that demand for outsourced logistics has grown, and that private military contractors are bigger than ever. But we've yet to see whether the government will advance equally in its efforts to become a smart regulator and customer of this marketplace.
P.W. Singer is director of the 21st Century Defense Initiative at the Brookings Institutions, a non-partisan think tank in Washington, D.C. He is the author of Corporate Warriors: The Rise of the Privatized Military Industry and the forthcoming book Wired for War: The Science Fiction and Political Reality of Robotics on the 21st Century Battlefield.

Outsourcers and skilled worker visas (US)

No doubt US firms involved do not mind this use of H-1B visas since it will reduce their costs.



Outsourcers corner market for U.S. skilled worker visas
By Anand Giridharadas
Thursday, April 12, 2007

MUMBAI: After four years at Harvard, many foreign students there will
have to leave the United States this summer. Some of them, wielding
lucrative offers from Wall Street investment banks and other American
businesses, will have to start at those companies' overseas offices
thousands of miles away.

Few may think to blame far-off foreign companies for their plight, but
India's thriving outsourcing industry is guzzling ever more of the
coveted H-1B visas that the Harvard graduates and thousands of others
would need to stay in the United States.

Enacted in 1990, the H-1B visa law allows skilled, specialized
foreigners to work in America for up to six years and then pursue
permanent residency.

The visa has been championed as a way to attract the world's best and
brightest to America to study, work, start families and, like Sergey
Brin, co-founder of Google, stumble upon innovations that generate
vast wealth and jobs.

"Where innovation and innovators go," Bill Gates, the Microsoft
chairman, said recently, "jobs are soon to follow."

But the H-1B visa is being put to a starkly different use: It is now a
critical tool for Indian outsourcing vendors to gain expertise and win
contracts from Western companies to transfer critical operations to
places like Bangalore.

"It has become the outsourcing visa," the Indian commerce minister,
Kamal Nath, said by telephone this week while attending global trade
talks in New Delhi, at which India is pushing the United States for a
larger H-1B quota.

"If at one point you had X amount of outsourcing," he said, "and now
you have a much higher quantum of outsourcing, you need that many more
visas."

This month, the annual quota of 65,000 H-1B visas evaporated in a
single day after U.S. officials received more than 133,000
applications. Last year, the quota lasted nearly 60 days.

If the past is any guide, many of those applications were for people
with no intention of staying in the United States for the long term.
Eight of the 10 largest H-1B applicants last year were outsourcing
firms with major operations in India, according to a tabulation of
U.S. Labor Department statistics by Ronil Hira, a professor at the
Rochester Institute of Technology in Rochester, New York, and a critic
of the visas. A year earlier, the figure was four in ten.

As Indian outsourcing companies have become the leading consumers of
the visa, they have used it to further their primary mission, which is
to gain the expertise necessary to take on critical tasks performed by
Western companies, and perform them in India at a fraction of the
cost. Thousands of H-1B visas every year are being won by individuals
acting as outsourcing ambassadors. Highly skilled and easily meeting
the objective standards for excellence that the law requires, the
employees interact with U.S. companies like Morgan Stanley and Boeing,
gathering an outsourcing mandate and lubricating the flow of tasks to
an Indian back office.

"To deliver the solutions from a remote environment," said B.
Ramalinga Raju, chairman of Satyam Computer Services, a leading Indian
vendor, "you need a certain number of people being with a customer,
understanding his needs and collecting the requirements."

Indian vendors have helped lift the proportion of H-1Bs going to
Indian nationals to more than half in 2006 from 7.5 percent in 1992.
Last year, Indians received 43,167 of the 65,000 visas allotted.

Many Indian vendors now itemize the cost of visa fees in their annual
reports. Infosys Technologies, a vendor based in Bangalore, noted last
year that it had doubled spending on visas over the previous year, to
$15 million - more than it spends on fiber optic and satellite
connections to the West.

Filings with the U.S. Securities and Exchange Commission reveal that
Infosys had 6,800 U.S. employees on H-1Bs as of last September. In
1998, the figure was 231.

The H-1B's metamorphosis into "the outsourcing visa," which was first
reported by The Harvard Crimson, the university's newspaper, is a
principal reason why American lawmakers have resisted raising the
quota above 65,000.

"Our immigration policy should seek to complement our U.S. work force,
not replace it," Senator Richard Durbin, an Illinois Democrat, said in
a recent statement as he proposed legislation to restrict use of the
visas.

Because it was designed to create jobs, firms with 15 percent or more
of their U.S. work force on H-1Bs must attest in legal filings that
they have not displaced a U.S. worker. But Hira, the academic, said he
believed that most of the Indian outsourcing firms, by the intrinsic
nature of their business, were violating those attestations.

"Rather than preventing the outsourcing of jobs, the H-1B program acts
in just the opposite way, by accelerating the outsourcing of
high-wage, high-skill jobs to low-cost countries," Hira wrote in a
paper published last month by the Economic Policy Institute, a
left-leaning research group in Washington.

With the exception of Satyam, leading Indian vendors - including
Infosys, Wipro, Tata Consultancy Services and HCL Technologies -
declined to comment for this article.

U.S. and Indian companies, as well as the Indian government, have been
lobbying hard for a larger H-1B quota, arguing that U.S. immigration
restrictions are smothering the innovative synergies needed to sustain
a modern knowledge economy.

"America should be doing all it can to attract the world's best and
brightest," Gates, of Microsoft, told a U.S. Senate hearing last
month. "Instead, we are shutting them out and discouraging those
already here from staying and contributing to our economic
prosperity."

Indian vendors cast their fight in similar terms. A visa shortage "is
detrimental not only to the interests of companies established in
India," said Raju, of Satyam, "but even more so for companies,
consumers and investors in the United States." But critics argue that
Indian vendors have motives antithetical to those behind the
congressional authorization of the H-1B legislation.

Rather than building a thriving community of experts and innovators in
the United States, the Indian firms seek to funnel work - and
expertise - away from the country. While Gates, in his Senate
testimony, argued that the goal for H-1B holders should be permanent
U.S. residency, the option means little to Indian outsourcing firms,
which usually rotate their H-1B workers in and out of the country
every few years.

Consider the deployment of Atul Pevekar, a 29-year-old Indian engineer
for Tata Consultancy Services, an outsourcing vendor. A year ago, and
five years out of college, he was sent to Minnesota on an H-1B. His
assignment: to work with a U.S. retailer to relay its information
technology needs back to TCS's Indian staff, to which the retailer has
outsourced scores of jobs.

"I am a link between the people who are doing coding in India and the
client," Pevekar said by telephone.

He earns $60,000 a year, five times his pay in India. But he must
leave the country within a year or two. Like many Indian vendors, TCS
does not seek permanent residency for most employees, even though the
H-1B lets companies do so.

And so he will not join, at least not now, that narrative of the
industrious outsider who makes a fresh start in the United States,
brings his zeal and drive, invents something grand, creates jobs and
pays taxes. Instead, he will empty his bank account, take his savings
home and vanish from the country as quietly as he arrived.

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