Couldn't find anything else on the recent DynCorp story, but I did come across this interesting business article from the Philippines that does discuss DynCorp, as well as the overall involvement of thes kind of corporations in military operations (focuses a lot on the Philippines, for obvious reasons).
Copyright 2003 Financial Times Information
All rights reserved
Global News Wire - Asia Africa Intelligence Wire
Copyright 2003 BusinessWorld (Philippines)
BusinessWorld (Philippines)
April 14, 2003
LENGTH: 1827 words
HEADLINE: CORPORATE WATCH
BYLINE: Amelia H. C. Ylagan
BODY:
In America's first encounter with Saddam Hussein in 1991, the US Armed Forces had about 700,000 active-duty troops. Now it has an estimated 480,000, close to one-third less in ten or so years.
Does this mean the military has less to do nowadays? It would seem not, considering America's increasing involvement with peace and order around the world. Who has taken over the slack? Companies providing services for the military called "PMCs" (private military companies) have.
US Defense Secretary Donald Rumsfeld's policy is that "only functions that must be performed by the Defense Department should be kept by the Defense Department. Any function that can be provided by the private sector is not a government function." The erstwhile "critical first-contact" process of recruitment is now outsourced to selected mega-manpower agencies. The brains and brawn-deep selection of young men and women who join the now more elitist armed forces are not wasted on KP (kitchen) duty and laundry detail because these chores are farmed out to accredited private service providers.
DynCorp, a company with US $ 2.3 billion in 2002 revenues maintains planes and choppers, installs software, mows lawns, hauls garbage, and contracts special "jobs" as the need arises. The company won a contract last year to protect Afghan leader Hamid Kharzai from assassination.
Airscan, Northrop Grumman and Dyncorp have been hired to fly planes on drug and smuggling operations. Cubic Corporation supplies explosives and electronics, enjoying 41% increase in profits and tripling its stock from doing business with the armed forces in 2002. One company, Halliburton, earned about US $ 3 billion for serving meals and doing the laundry for soldiers in the previous Gulf war. Companies like MPRI and Dyncorp do training programs, including teaching leadership and formulation of military doctrine.
A study in Fortune summarized the extent of private business with the US military: US $ 171 million to recruit soldiers in ten states; US $ 191 million to take over storage and shipping at seven supply depots, US $ 35 billion information technology contracts awarded to the private sector, growing at 10-15% annually; and US $ 4 billion for training.
If Yale University economist William Norhaus's projections on US expenditures for the Iraq war are accurate, there's even much more for the PMCs. Dr. Norhaus saw two scenarios: a "low-cost/quick war" situation costing the US some US $ 99 billion and megabucks worth of opportunities for the PMCs, or a mind-boggling US $ 1.924 trillion (!) on a "high- cost/protracted war" possible saga providing much more generous business opportunities for those dealing with the military.
The idea of the military keeping to its core business of defending the country from external aggression and preserving internal peace and order seems apropos in these times of political and economic uncertainty.
Even in a small developing country like the Philippines we strive for efficiency in the conduct of day-to-day duties and responsibilities. It is also propitious to spread the opportunities and scarce resources to provide gainful activity to a greater number.
The Armed Forces of the Philippines (AFP) has likewise been "right- sizing" its organization, along the basic efficiency principle of keeping a lean organization that concentrates on its core activity of protecting the people and the country. The no-extension policy of retiring after completing 30 years of service has kept the manning numbers under control by natural attrition. (As an aside, the retirees convert to pensioners who are likewise still supported by the government with generous pensions, so the net effect is smaller than the administrative costs saved.)
What is a more significant contribution to the reduction of costs is the outsourcing of some supplies, materials, and the services that hitherto have been provided by non-commissioned officers (enlisted personnel) in various ranks.
Recruitment for the entry positions that usually do the "non-military" jobs like janitorial services, maintenance, kitchen and laundry, carpentry and the auxiliary health services has gradually declined. The new hires are for the more "soldierly" activities, mostly for the Mindanao area.
The model for this shift in policy is the American PMC concept earlier described. The "Commercial Support Program" (CSP) of the AFP prescribes outsourcing of supplies, materials and services guided by procurement guidelines in the Revised Administrative Code of 1992, and the companion Administrative Order dated April, 1996, establishing authority levels for local procurements.
A civilian maintenance shop in Clark Air Base, Pampanga, is now doing the maintenance of C-130 aircraft owned and operated by the AFP. When this facility is not available, the aircraft and engines are sent to Malaysia or Singapore, and sometimes to Canada.
It does not make economic sense to establish maintenance capabilities in the AFP for only four aircraft. Even in the larger armed forces, like the Australian Armed Forces, 50% of aircraft maintenance is done by Qantas, a commercial airline. The UK Air Force has "dry-leases," meaning they do not own the aircraft, nor do they maintain them. Only the pilots are integral to the military.
The Defense budget averages about Php38-40 billion per annum. Basing on the Air Force average procurement budget of about Php1 billion, and the total for the three branches of service is roughly Php3 billion a year to purchase supplies and parts.
There are thousands of accredited suppliers for common supplies like paper and office supplies, clothing, food and mess equipment, but the suppliers become less as the items are specialized.
All purchases have to go through public bidding, except emergency purchases, where justification for the "rush" nature of the purchase has to be approved by the proper authority, pursuant to the authority levels in Administrative Order 47.
Negotiated bids are allowed only for items sold by a sole distributor, usually for ammunition and firearms. The most procured are the 5.56 mm bullets for the M-16 armalite, and the 7.62 mm for the M-14 rifle. Purchases for the 105 mm Howitzer average Php100 million per transaction.
The President, Commander-in-Chief of the AFP, approves all defense purchases of Php50 million and above. The Secretary of National Defense has authority for Php1.8 million up to below Php50 million. The various Undersecretaries of National Defense can approve below Php1.8 million, and above the Chief of Staff's authority of Php1.5 million.
The gradation of approvals below the Chief of Staff diminish as ranks go down from the Vice Chief of Staff, the Deputy Chief of Staff, the Major Service Commanders, the Area Commanders, Division Commanders, and so on down the line until the level of the unit commanders.
Splitting of purchase orders (POs) is not allowed, to preclude going over the authority levels.
The procurement process starts all the way up at the level of the National Government where policies emanate. Through the Department of National Defense, the AFP (at the General Headquarters level) establishes the strategic objectives and fleshes out the plans and programs, and the corresponding budget.
These are incorporated into the national budget by the Department of Budget and Management (DBM) and submitted for appropriations by Congress. Once the national budget is approved, the defense budget is released to the Department of National Defense (DND) and the AFP.
The respective portions of the AFP budget are farmed out to four main groups: the major services - the Army, the Navy and the Air Force, and to General Headquarters (GHQ). Each group has its Logistics Office: Logistics Command (Log Com) for GHQ, ASCOM for the Army, Naval Support Command for the Navy, and the 425th Air Materiel Wing for the Air Force. These perform the procurement, supply, maintenance, and other command support functions.
Each logistics office buys what is needed in the budget year. It accredits its own suppliers, coordinating background check and other security processing with the intelligence units. Once accredited, suppliers can attend pre-bidding conferences and respond to published notice of bidding by submitting sealed bids to the Bid Committee.
Separate technical and financial evaluations are made and the PO is awarded to the lowest technically qualified bidder (for goods) or the highest rated bid (for services).
Unfortunately, the very bureaucratic procedure from the public bidding up to the award of PO takes about 260 days, often almost a year. From delivery of the goods or services, the seller has to wait about 60 days (optimistically) if the payment is approved before the fourth quarter of the year.
If delivery and payment falls on the fourth quarter of the year, the cash allocated by the National Treasury may have been used up, and the purchase will have to be revalidated in next year's budget and cash allocation, which is usually easier after the April tax collections.
"Realignment" or the transfer of budgeted amounts from one program to another more urgent is allowed, under the same ranking of authority levels in DND DO 47. This gives flexibility for situational shifting of priorities, like special missions and projects or emergency purchases that come up within the year.
Congress, at its twelfth session ended December, 2002, approved RA 9184 "providing for the modernization, standardization and regulation of the procurement activities of the government and for other purposes." It created the Government Procurement Policy Board (GPPB), which replaces the Procurement Policy Board created in 1989. The law sets severe civil, criminal and administrative sanctions for bidders and bid agencies, which includes imprisonment of "not less than six years and one day, but not more than fifteen years" for malicious delay and manipulation of bids, overpricing, under pricing, among other dishonest handling of transactions.
The implementing rules and regulations have not yet been made.
The added controls that are forthcoming in RA 9184 should be welcome, in the name of ethical business, but will this really shorten the one to two years that a seller to the AFP would have to suffer before receiving payment?
Some logistics personnel say that suppliers automatically factor in the cost of money to keep them whole as they wait to be paid.
This limits the number and quality of suppliers that the AFP can rely on for their needs. Consequently, the goods and services sold may suffer in competitive quality. Timeliness of deliveries may be jeopardized.
Not good for the soldiers.
The problem is macro. The DBM allots a budget but National Treasury has no cash, primarily because of shortfalls in tax collection. But that is altogether another long discussion!
ahcylagan@bworld.com.ph
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