A student thesis paper published in March by the U.S. Naval Postgraduate School examines problems that states face when using private military companies (PMCs) and possible solutions for solving those problems. The paper is Regulation of Private Military Companies in Iraq by Nihat Dumlupinar.
Dumlupinar's argument is that the problems and their solutions are not the same for all states. They change mainly because of the capability of state institutions such as the Ministry of Defense, national laws, and public armed forces.
For that reason, the problems and solutions are examined from the aspect of two types of states: strong state and weak state. The use of PMC in Iraq represents both.
The goal of his thesis is to answer such questions as: Which theory of civil military relations can be a guide for regulating PMCs from the aspects of control, effectiveness and efficiency? What are the main challenges of the U.S. as a strong state and of Iraq as a weak state?
Echoing the work of academics such ad Deborah Avant he finds that the solutions for regulation mainly depend on the capabilities of national institutions, which affect the principal-agent relations between states and PMCs. Weak states, such as Iraq, are more vulnerable to the challenges PMCs cause than strong states such as the U.S. Moreover, weak states do not have sufficient capacity to solve the problems in the near future, except by putting limitations on foreign PMCs and operational functions. In contrast, strong states have the capacity for solving these problems. They need political will, however, to do so. Moreover, international regulation is an indispensible element for effective regulation over private military industry due to the industry's transnational feature.
Although his subject has been dealt with before he makes points worth considering.
First, in the literature, there is no clear definition of private military companies (PMCs).
Even in international legal documents, there are almost no definitions of PMCs. In
summer 2009, an international attempt to draft a convention on defining and regulating PMCs was made by a working group in the United Nations Commission on Human Rights.
Second, in addition to benefits, the use of PMC in Iraq also had costs for both the U.S. and Iraq.
The main challenges for the U.S. are:
(1) A decreasing international reputation due to the immunity of PMCs in Iraq.
(2) The unclear definition of "Inherently Governmental Functions" and non-transparent nature of private military contracts harm the legitimacy of outsourcing military functions, and in turn, this harms the values of democracy.
(3) Wasting of taxpayers' dollars due to uncompetitive contracting and cost-reimbursement contracts and also due to insufficient oversight on contracts.
(4) Negative effects on military functions due to the unreliability of PMCs.
As for Iraq, the main challenges are related to the survival of democratic Iraq.
(1) PMCs (especially operational functions) impose an important threat to the sovereignty of Iraq.
(2) The use of PMCs will be an obstacle in the development progress of Iraqi Security forces (ISF).
(3) PMCs may be a good opportunity for ethnic groups to be armed. And this, in turn, may create a security dilemma between the factions.
Third, in regard to regulation of PMC he finds that that neither self-regulation nor a complete ban can be a solution for the regulation of PMCs. They are so integrated into the military operations of states (especially strong states), that such states cannot give up using PMCs without experiencing significant difficulties. Dumlupinar's solution is
A registration and licensing system that is supported by national laws can be effective for all types of states. However, specific characteristics of a system must be different according to the types of states (strong or weak). Moreover, national regulations cannot be sufficient without international support because of the transnational nature of the PMI. An international institution under the command of an international organization must be established. The main activity of this institution should be to serve as a guide for all states on regulating and contracting. Moreover, international laws must support the regulation systems by organizing juridical responsibilities of states in cases of unlawful behavior of PMCs and their employees
On the issue of cost effectiveness:
Because of high level of uncertainties in the environment that PMCs function, their contracts are often cost-reimbursement contracts. For example, according to a Government Accountability Office (GAO) report, in Iraq, the U.S. government has primarily used cost-reimbursement type contracts in which the government has agreed to reimburse the companies for "all reasonable and allowable costs incurred in performing the work." Cost-reimbursement contracts include: cost contracts, cost-sharing contracts, cost-plus-incentive-fee contracts, cost-plus-award fee contracts and cost-plus fixed fee contracts. According to Grasso, in 2005, the U.S. government spent $110 billion dollars for cost-plus contracts of which nearly half ($52 billion) were cost-plus-award-fee contracts. In these contracts, the private contractors' fees increase with contract costs. As stated by Grasso, "Increased costs means increased fees to contractors. There is no incentive for the contractor to limit the government's costs."With regard to this point, Schreier and Caparini argue that "the contractor's profit is a percentage of their costs, thus giving them an incentive to keep those costs high - which is hardly a recipe for efficiency or rigor."
Finally, in his conclusion, Dumlupinar offers a recommendation I've not seen before. Speaking on options for the Iraq government:
First of all, due to an insufficient state capacity (weak institutions), Iraq must seek to limit the presence of PMCs, especially foreign PMCs, in Iraq. In particular, after the withdrawal of the United States, the first goal of the Iraqi government must be to limit the numbers of foreign PMCs operating in Iraq, because, as stated above, foreign PMCs impose an important threat to Iraq's sovereignty. There are two options for Iraq to limit the presence of foreign PMCs in Iraq: a complete ban of the functions of foreign PMCs in Iraq; and a fee or taxation system in which the amount can be changed according to the type of functions. The first option is not possible, because as mentioned above, the need for PMCs will be higher after the withdrawal of the U.S. troops, and because the numbers and capacities of local PMCs are insufficient by now. Thus, a fee or taxation system, as opposed to banning them, seems more feasible. Furthermore, a limit on individual non-Iraqi employees is also required in Iraq. Again, a defined fee for each non-Iraqi contractor can be an option for this purpose. A taxation system on foreign PMCs and foreign employees will have two positive results. First, potential clients of PMCs will tend to hire local PMCs because they can be controlled easier than foreign PMCs. Second PMCs, in turn, will tend to hire Iraqi contractors and this tendency will provide employment for Iraqis.