Showing, or Is That Showering, the PMC Money

06/02/2011 01:57 pm ET | Updated Aug 02, 2011

Continuing on the theme of my last post, tracking the money in the PMSC sector I'd be remiss if I did not point out a very useful report published last month by the Congressional Research Service. It is "Department of Defense Trends in Overseas Contract Obligations."

Bear in mind that this is just a report on DOD contracts, so it is far from the governmental total. But if you are wondering why anybody would want to be a federal contractor just consider this: in FY2010, the U.S. government obligated $535 billion for contracts for the acquisition of goods, services, and research and development. The $535 billion obligated on contracts is equal to 15% of the entire FY2010 U.S. budget of nearly $3.6 trillion.

Now it is hardly a secret that Pentagon contract expenditures, both on its own and as a share of overall DOD expenditures, have increased significantly in recent years. For example, from FY1999 to FY2008, DOD contract obligations increased from $165 billion (in FY2010 dollars) to $414 billion (in FY2010 dollars).

And contract obligations increased from 50% of total obligations in FY2003 to 60% in FY2008. Although in FY2009 and FY2010, DOD contract obligations decreased. Interestingly, the report notes that "DOD's overall decreased reliance on overseas contractors is not a result of a policy to use fewer contractors in Afghanistan and Iraq. Contract obligations to support operations in Afghanistan and Iraq have remained relatively stable over the past two years." Hmm, perhaps, in shades of Mark Twain's famous saying on his reported demise, reports of the bursting of the Baghdad bubble are premature.

But, as the saying goes, if you really want to know the truth about how things work, follow the money. We all know that private military contractors are critical to U.S. military operations in Iraq and Afghanistan. But those are hardly the only regions in which PMC play a significant role.

DOD obligated $45 billion for contracts performed overseas in FY2010. Although much of this went to support operations in Afghanistan and Iraq, a significant portion -- $18 billion, or 40% -- was spent to support DOD operations in other parts of the world.

DOD contractors working abroad performed their remaining work in the geographic regions that fall under U.S. European Command (21%), U.S. Pacific Command (7%), U.S. Northern Command (7%), U.S. Southern Command (1%), and U.S. African Command (1%). Combined, Central Command and European Command represent over 80% of all overseas contract obligations and approximately 85% of all U.S. troops deployed overseas. Altogether these other areas represent approximately 5% to 6% of all DOD contract obligations.

In terms of dollars in FY 2010 the contract obligations for these various commands break out as follows

CENTCOM $27,618,890,372
EUCOM $9,652,423,800
PACCOM $3,381,097,568
NORTHCOM $3,095,378,614
AFRICOM $526,775,708
SOUTHCOM $490,057,648

In FY 2010 the top 10 countries where DOD contractors perform work abroad are:

1 Afghanistan $11,388,984,141 CENTCOM
2 Iraq $6,951,316,839 CENTCOM
3 Kuwait $4,491,779,115 CENTCOM
4 Canada $2,979,078,000 NORTHCOM
5 Germany $2,455,331,525 EUCOM
6 UAE $2,368,843,593 CENTCOM
7 United Kingdom $311,271,319 EUCOM
8 Sweden $2,089,727,880 EUCOM
9 Japan $1,832,346,842 PACCOM
10 South Korea $1,240,436,061 PACCOM

Although the precise proportions vary according to time and place the vast majority of contract expenditures are for logistics work. As of December 2010, base support functions (such as maintaining the grounds, running dining facilities, and performing laundry services) and security combined to represent almost 80% of DOD contractor personnel in Iraq. Although from June 2008 to December 2010, contractors providing base support and construction services in Iraq declined by 53% and 97%, respectively, whereas the number of contractors providing security actually increased by 39%.