    Rebuilding Iraq: Actions Needed To Improve Use of Private
    Security Providers (28-JUL-05, GAO-05-737).

    The United States is spending billions of dollars to reconstruct
    Iraq while combating an insurgency that has targeted military and
    contractor personnel and the Iraqi people. This environment
    created a need for those rebuilding Iraq to obtain security
    services. GAO evaluated the extent to which (1) U.S. agencies and
    contractors acquired security services from private providers,
    (2) the U.S. military and private security providers developed a
    working relationship, and (3) U.S. agencies assessed the costs of
    using private security providers on reconstruction contracts.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-737
        ACCNO:   A31397
      TITLE:     Rebuilding Iraq: Actions Needed To Improve Use of Private
    Security Providers
         DATE:   07/28/2005
      SUBJECT:   Americans employed abroad
    	     Construction contracts
    	     Contract performance
    	     Contractor personnel
    	     Federal agencies
    	     Federal aid to foreign countries
    	     Federal employees
    	     Federal procurement
    	     Performance measures
    	     Personnel security policies
    	     Security services contracts
    	     Iraq

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    GAO-05-737

                     United States Government Accountability Office

                         GAO Report to Congressional Committees

    July 2005

    REBUILDING IRAQ

              Actions Needed to Improve Use of Private Security Providers

     On August 5, 2005, the PDF file was revised to correct the graphic in Figure 7
    of the report. The right-most bar was increased to represent 4 contracts instead
                                    of 3 contracts.

                                           a

    GAO-05-737

    [IMG]

    July 2005

    REBUILDING IRAQ

    Actions Needed to Improve Use of Private Security Providers

      What GAO Found

    The civilian U.S. government agencies and reconstruction contractors in
    Iraq that GAO evaluated have obtained security services, such as personal
    and convoy security, from private security providers because providing
    security to them is not the U.S. military's stated mission. U.S. military
    forces provide security for those Department of Defense (DOD) civilians
    and contractors who directly support the combat mission. In Iraq, the
    Department of State and other federal agencies contract with several
    private security providers to protect their employees. Under their
    contracts, contractors rebuilding Iraq are responsible for providing their
    own security and have done so by awarding subcontracts to private security
    providers. As of December 2004, the agencies and contractors we reviewed
    had obligated more than $766 million for private security providers. The
    contractors' efforts to obtain suitable security providers met with mixed
    results, as they often found that their security provider could not meet
    their needs. Overall, GAO found that contractors replaced their initial
    security providers on more than half the 2003 contracts it reviewed.
    Contractor officials attributed this turnover to various factors,
    including the absence of useful agency guidance.

    While the U.S. military and private security providers have developed a
    cooperative working relationship, actions should be taken to improve its
    effectiveness. The relationship between the military and private security
    providers is one of coordination, not control. Prior to October 2004
    coordination was informal, based on personal contacts, and was
    inconsistent. In October 2004 a Reconstruction Operations Center was
    opened to share intelligence and coordinate military-contractor
    interactions. While military and security providers agreed that
    coordination has improved, two problems remain. First, private security
    providers continue to report incidents between themselves and the military
    when approaching military convoys and checkpoints. Second, military units
    deploying to Iraq are not fully aware of the parties operating on the
    complex battle space in Iraq and what responsibility they have to those
    parties.

    Despite the significant role played by private security providers in
    enabling reconstruction efforts, neither the Department of State, nor DOD
    nor the U.S. Agency for International Development (USAID) have complete
    data on the costs of using private security providers. Even at the
    contract level, the agencies generally had only limited information
    readily available, even though agency and contractor officials
    acknowledged that these costs had diverted a considerable amount of
    reconstruction resources and led to canceling or reducing the scope of
    some projects. For example, in March 2005, two task orders for
    reconstruction worth nearly $15 million were cancelled to help pay for
    security at a power plant. GAO found that the cost to obtain private
    security providers and security-related equipment accounted for more than
    15 percent of contract costs on 8 of the 15 reconstruction contracts it
    reviewed.

    United States Government Accountability Office

    Contents

      Letter

    Results in Brief
    Background
    Security for Civilians and Contractors in Iraq Is Provided by a Mix of

    Military Forces, State Department Security Personnel, and Private Security
    Providers

    While the Relationship between Security Providers and the Military Has
    Improved, Actions Should Be Taken to Further Improve Effectiveness

    Agencies Have Limited Capabilities to Assess the Cost Impact of Using
    Private Security Providers Expanded Use of Private Security Providers Does
    Not Appear to Be

    Increasing Attrition among Military Personnel Conclusions Recommendations
    for Executive Action Agency Comments and Our Evaluation

    1 3 6

    10

    20

    29

    35 43 43 45

    Appendixes
                      Appendix I:            Scope and Methodology             49
                     Appendix II:   Comments from the Department of Defense    58
                   Appendix III:     Comments from the Department of State     61
                   Appendix IV:   Comments from U.S. Agency for International
                                                  Development                  64
                      Appendix V:   GAO Contacts and Staff Acknowledgements    65

    Table Table 1: Occupational Stop Loss Dates for the Military Services

    Figures	Figure 1: Figure 2:

    Figure 3:

    Figure 4: Figure 5:

    The Complex Battle Space in Iraq 8
    Incidence of Attacks against Civilians and Infrastructure
    Targets between June 2003 and April 2005 15
    Number of Security Providers Employed on
    ReconstructionContracts Awarded in 2003 and Reviewed
    by GAO 17
    National Reconstruction Operations Center, Baghdad,
    Iraq 23
    Locations of the Regional Reconstruction Operations
    Centers in Iraq 24

    Contents

    Figure 6: Process for Requesting Assistance through the ROC 26

    Figure 7:	Percentage of Total Contract Billings Accounted for by Security
    Subcontractor Expenses as of December 31, 2004 33

    Figure 8:	Average Attrition Rates for Military Occupational Specialties
    Preferred by Private Security Providers which Experienced Increased
    Attrition in Fiscal Year 2004 39

    Figure 9: Army Special Forces Attrition Rates 41

    Figure 10: Continuation Rates for Army Enlisted Special Operations
    Personnel with 14 through 19 Years of Service for Fiscal Years 2000
    through 2004 42

    Abbreviations

    CENTCOM U.S. Central Command
    CPA Coalitional Provisional Authority
    DFARS Defense Federal Acquisition Regulation Supplement
    DMDC Defense Manpower Data Center
    DOD Department of Defense
    GAO Government Accountability Office
    MNC-I Multi-National Corps-Iraq
    MNF-I Multi-National Force-Iraq
    PCO Project and Contracting Office
    ROC Reconstruction Operations Center
    USAID U.S. Agency for International Development

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    A

    United States Government Accountability Office Washington, D.C. 20548

    July 28, 2005

    Congressional Committees

    The United States is spending billions of dollars to reconstruct Iraq
    while at the same time is engaged in combating an insurgency that has
    targeted military personnel, contractors, and the Iraqi people. According
    to the Department of Defense (DOD) and other sources, as of June 1, 2005,
    more than 1,600 U.S. and coalition military forces and 200 contractor
    personnel have been killed since major combat operations ended in May
    2003. This uncertain security environment created a need for U.S.
    government agencies and contractors involved in rebuilding Iraq to obtain
    substantially more security services than is normally the case when
    operating in other countries. Creating a democratic Iraq and rebuilding
    its infrastructure is a U.S. national security and foreign policy
    priority, and, even without the need for enhanced security, is a
    challenging and complex effort.

    Prior to the conflict, DOD and the U.S. government agencies responsible
    for the reconstruction of Iraq believed that reconstruction would take
    place in an environment with little threat from insurgents or terrorists.
    By June 2003 the security situation in Iraq began to worsen and it became
    clear in August 2003, with the bombing of the United Nations complex, that
    insurgents were targeting nonmilitary targets. The killings of four U.S.
    citizens working for a U.S. security provider in Iraq in March 2004 and
    the allegations of prisoner abuse at Abu Ghraib prison1 resulted in
    significant congressional concern2 over the use of private security
    providers in Iraq and raised a number of operational, legal, and
    contracting questions.

    1 We recently discussed breakdowns in the procurement process when
    contracting for interrogators and other services in Iraq. See GAO,
    Interagency Contracting: Problems with DOD's and Interior's Orders to
    Support Military Operations, GAO-05-201 (Washington, D.C.: Apr. 29, 2005).

    2 These concerns have been expressed in requests from numerous members of
    Congress that the Comptroller General review the operational, legal, and
    contracting issues involving the use of private security providers in
    Iraq. Congress has subsequently included several provisions in legislation
    designed to improve the management of and support and protection provided
    to contractor personnel who support deployed forces or who are in a
    combatant commander's area of responsibility. See Ronald W. Reagan
    National Defense Authorization Act for Fiscal Year 2005, Pub. L. No.
    108-375, section 1205 and 1206 (Oct. 28, 2004) and H.R. 1815, 109th Cong.
    title XVI (2005).

    Because of the broad level of interest by Congress in issues dealing with
    Iraq, the Comptroller General initiated this review under his statutory
    authority. Specifically, we evaluated the extent to which (1) U.S.
    government agencies and contractors working in Iraq have acquired security
    services from private providers; (2) the U.S. military and private
    security providers in Iraq have developed a cooperative working
    relationship; and (3) U.S. government agencies assessed the costs
    associated with using private security providers on reconstruction
    contracts. Additionally, we assessed the impact of the increased use of
    private security providers on attrition in key military skills.

    To identify the rules and regulations governing and assigning
    responsibility for protecting government and contractor personnel working
    in Iraq, we reviewed policies, regulations, instructions, guidance, and
    orders issued by DOD, the U.S. Central Command (CENTCOM),3 and other DOD
    components relating to the use of contractors during wartime; orders and
    policies issued by the Coalition Provisional Authority (CPA) regarding
    contractor operations in Iraq; and Department of State policies regarding
    the protection of U.S. government employees working abroad, including the
    Foreign Affairs Manual. We also interviewed military officials who had
    been stationed in Iraq as well as selected private security providers to
    understand their responsibilities and collaborative working relationship
    in Iraq. To understand the process by which contractors obtained private
    security providers, we selected 16 reconstruction contracts using a
    nonprobabilistic methodology that considered such factors as the awarding
    agency; the year awarded; the contract's expected dollar value; and the
    type, nature and location of the reconstruction activity. These 16
    contracts were awarded by various DOD components, including the U.S. Army
    Corps of Engineers; the Department of State; and the U.S. Agency for
    International Development (USAID). Nine of these contracts were awarded in
    2003 and 7 were awarded in 2004. As of December 2004, the agencies had
    obligated about $8.6 billion on these contracts. We also obtained and
    reviewed six contracts that had been awarded the U.S. Army Corps of
    Engineers, the Department of State, USAID, and by Army activities on
    behalf of the CPA for the protection of their personnel and facilities in
    Iraq. We then compared the type of security-related requirements
    incorporated within U.S. government contracts with those incorporated into
    contracts awarded to prime reconstruction contractors and, in turn, to
    subcontracts with security providers. We interviewed

    3 CENTCOM is the U.S. military command responsible for prosecuting the war
    in Iraq.

    agency and contractor officials, reviewed agency guidance provided to the
    contractors, reviewed the reconstruction contracts and security
    subcontracts, and analyzed the vouchers and other billing information
    submitted by the reconstruction contractors and security providers. To
    assess the impact on military attrition caused by the use of private
    security providers we obtained and analyzed DOD attrition data and spoke
    with private security providers and representatives of the U.S. Special
    Operations Command and the military services. We determined that the
    information and data discussed in this report were sufficiently reliable
    for the purposes of the report. Appendix I contains more detail on our
    scope and methodology. We conducted our review from May 2004 to June 2005
    in accordance with generally accepted government auditing standards.

    Results in Brief	All but one of the civilian U.S. government agencies and
    reconstruction contractors we evaluated that are operating in Iraq have
    obtained security services from private security providers. As of December
    2004, the agencies and contractors we reviewed had obligated more than
    $766 million for private security providers. The use of private security
    providers reflects the uncertain security environment that was, and is
    still being encountered in Iraq, as well as the fact that providing
    security for agencies and contractors is not part of the U.S. military's
    stated mission. U.S. military forces in Iraq provide security only for
    those DOD civilians and contractors who directly support the military's
    mission. In Iraq, as elsewhere, the U.S. Ambassador, as Chief of Mission,
    has overall responsibility for the security of U.S. government executive
    branch employees, except for those under the force protection of the
    combatant commander. However, individual U.S. government agencies have had
    to arrange for their own security services. As neither DOD nor the
    Department of State is responsible for providing security to
    reconstruction contractors, the terms of their contracts require
    reconstruction contractors to provide for their own security; and, they
    typically have done so by awarding subcontracts to private security
    providers. The contractors' efforts to obtain suitable security providers
    met with mixed results, as many subsequently found that their initial
    security providers could not meet their needs. Overall, we found that
    contractors replaced their security providers on five of the eight
    reconstruction contracts awarded in 2003 that we reviewed.4 Contractor
    officials attributed this turnover to

    4 On one additional 2003 contract, the contractor provided its own
    security.

    various factors, including their lack of knowledge of the security market
    and of the potential security providers, and the absence of useful agency
    guidance.

    Although the U.S. military and private security providers generally have
    developed a cooperative working relationship, actions can be taken to
    further improve its effectiveness. The relationship between the military
    in Iraq and employees of private security providers is one of coordination
    and cooperation, not control. Both U.S. Central Command officials and
    military personnel previously stationed in Iraq told us that there is no
    command and control relationship between the military and private security
    provider employees. At the same time, military and private security
    provider employees recognize the need to coordinate their actions. Prior
    to October 2004, coordination was informal, based on personal contacts
    often initiated by the contractors, and it was inconsistent. In October
    2004, the Project and Contracting Office opened the Reconstruction
    Operations Center to share intelligence and coordinate military contractor
    interactions. While providers and the military agree that coordination has
    improved since the advent of the operations center, some problems remain.
    First, private security providers continue to report incidents occurring
    between themselves and the military when they approach military convoys
    and checkpoints. Second, the military may not have a clear understanding
    of the role of contractors, including private security providers, in Iraq
    and of the implications of having private security providers on the battle
    space.

    Despite the significant role played by private security providers in
    enabling reconstruction efforts to proceed, neither the Department of
    State, nor DOD, nor USAID-the principal agencies responsible for Iraq
    reconstruction efforts-have complete data on the costs associated with
    using private security providers. In turn, the Department of State's
    quarterly report to Congress, which describes the status of projects,
    initiatives, and funding dedicated to Iraq reconstruction, does not
    provide information on the costs associated with using private security
    providers. Our discussions with agency officials found that the financial
    management and information systems used to prepare the reports are not set
    up to track security costs that are incurred under reconstruction
    contracts. Even at the contract level, the agencies generally had only
    limited information readily available on the costs associated with private
    security providers. While agencies do not specifically track such costs,
    both agency and contractor officials acknowledged that security costs had
    diverted a considerable amount of reconstruction resources and led to
    canceling or reducing the scope of certain reconstruction projects. For
    example, in

    March 2005, USAID cancelled two electrical power generation-related task
    orders totaling nearly $15 million to help pay for increased security
    costs being incurred at another power generation project in southern
    Baghdad.

    Our review of 16 reconstruction contracts found that the cost to obtain
    private security providers and security-related equipment can be
    considerable. Overall, these costs accounted for more than 15 percent on 8
    of the 15 reconstruction contracts for which data were available. On only
    4 of those 8 contracts, however, did the agencies receive security cost
    information. Agency officials noted that increased costs or delays in
    reconstruction projects also reflect non-security-related factors, such as
    changes in planned funding levels or higher material costs.

    While both Special Forces and military police officials believe that
    attrition is increasing in their military specialties, partially because
    of increased employment opportunities with private security providers, our
    review of DOD data shows that the attrition levels in fiscal year 2004
    increased compared to fiscal years 2002 and 2003, but are similar to the
    levels seen in fiscal years 2000 and 2001, prior to the establishment of
    stop loss.5 This similarity indicates that former military members in the
    Special Forces and military police communities are leaving in the same
    proportions as before the attacks of September 11, 2001 but, according to
    Army officials, have a wider range of employment opportunities today.
    However, given that stop loss policies depress attrition rates, we are
    unable to determine whether the increase in attrition rates in fiscal year
    2004 compared to fiscal years 2002 and 2003 was due to the end of stop
    loss or to actual increases in attrition. Moreover, DOD data does not
    indicate why personnel are leaving the military-only the fact that they
    are doing so.

    We are making recommendations to the Secretary of Defense to enhance
    military procedures to reduce incidences of the military firing on private
    security providers and provide training to U.S. military forces on the
    role of private security providers in Iraq. Additionally, we are making
    recommendations to the Secretary of Defense, the Secretary of State and
    the Administrator, USAID, which would enable contractors to obtain
    adequate security services, as well as enable government agencies to more
    efficiently plan for security costs in future reconstruction efforts.

    5 Stop loss prevents servicemembers from leaving the service even though
    they may have reached the end of their enlistment or service obligation.

    DOD agreed with each of the recommendations, noting that it welcomed our
    assistance in improving how DOD and its contractors can plan for and
    effectively execute contracts in a complex and changeable security
    environment. DOD's comments appear in appendix II.

    The Department of State disagreed with our recommendation to explore
    options to assist contractors in obtaining private security services,
    citing concerns that the government could be held liable for performance
    failures and noting it was unclear that a government-managed security
    contractor program would result in enhanced contractor security. While our
    work found that contractors had difficulty in obtaining security providers
    that met their needs and that they would have benefited from the agencies'
    assistance, we did not recommend a particular course of action nor
    recommend a government-managed security program. Rather, we recommended
    that the Department, working jointly with DOD and USAID, explore options
    to assist contractors that are unfamiliar with obtaining the type of
    security services needed in Iraq. Such an effort would necessarily entail
    a thorough assessment of the advantages, disadvantages and risk mitigation
    strategies of the potential options. The Department did not indicate
    whether it agreed with our recommendation to establish a means to account
    and plan for security costs. The Department's comments appear in appendix
    III.

    USAID found the report factually correct, but did not comment on the
    recommendations. USAID's letter appears in appendix IV.

    Background	The United States, along with its coalition partners and
    various international organizations and donors, has continued to support
    efforts to rebuild Iraq in the aftermath of the war that replaced Iraq's
    previous regime. From April 2003 to June 28, 2004, the CPA served as
    Iraq's interim government and was responsible for overseeing, directing,
    coordinating, and approving rebuilding efforts. With the establishment of
    Iraq's interim government, the CPA ceased to exist and its
    responsibilities were transferred to the Iraqi government or to other U.S.
    agencies. The Department of State is now responsible for overseeing U.S.
    efforts to

    rebuild Iraq. DOD's Project and Contracting Office (PCO)6 and the U.S.
    Army Corps of Engineers have played a significant role in awarding and
    managing reconstruction contracts. USAID has been responsible for various
    reconstruction and developmental assistance efforts, including those
    related to capital construction projects, local governance, economic
    development, education, and public health.

    As figure 1 demonstrates, the battle space in Iraq can best be described
    as complex. A complex battle space is one where military forces, civilian
    U.S. government agencies, international organizations, contractors,
    nongovernmental organizations, and the local population share the same
    geographical area.

    6 In May 2004, the President signed National Security Presidential
    Directive 36, which established the PCO as a temporary organization within
    DOD. The PCO provides acquisition and project management support for the
    reconstruction effort in Iraq. PCO personnel in Iraq are permanently or
    temporarily assigned under the Chief of Mission authority.

    include Kurds and Arabs from Iraq. Generally, private security providers
    provide the following services:

    o  Static security - security for housing areas and work sites.

    o  Personal security details - security for high-ranking U.S. officials.

    o 	Security escorts - security for government employees, contractor
    employees, or others as they move through Iraq.

    o 	Convoy security - security for vehicles and their occupants as they
    make their way into Iraq or within Iraq.

    o  Security advice and planning.

    The CPA issued a number of orders or memoranda to regulate private
    security providers and their employees working in Iraq. Among these are
    CPA Order number 3, (Revised)(Amended) which described the types of
    weapons that can be used by private security providers; CPA Order number
    17 (Revised), which stated that contractors (including private security
    providers) will generally be immune from the Iraqi legal process for acts
    performed in accordance with the terms and conditions of their contracts;
    and CPA memorandum number 17, which stated that private security providers
    and their employees must be registered and licensed by the government of
    Iraq.

    According to security industry representatives we contacted, there are no
    established U.S. or international standards that identify security
    provider qualifications in such areas as training and experience
    requirements, weapons qualifications, and similar skills that are
    applicable for the type of security needed in Iraq. Some security industry
    associations and companies have discussed the need for and desirability of
    establishing standards, but as of March 2005 such efforts are only in the
    preliminary stages of development.

      Security for Civilians and Contractors in Iraq Is Provided by a Mix of
      Military Forces, State Department Security Personnel, and Private Security
      Providers

    U.S. civilian government agencies and reconstruction contractors have had
    to contract with private security providers because it is not part of the
    U.S. military's stated mission to provide security to these organizations.
    U.S. forces in Iraq provide security to contractors and DOD civilians who
    support military operations. The Ambassador is charged with generally
    ensuring the security of most executive branch employees in Iraq.
    Government agencies have contracted with a number of private security
    providers to provide personnel, escort, and site security. Reconstruction
    contractors are generally responsible for providing for their own security
    according to the terms of their contracts, and they have generally done so
    by contracting with private security providers. The contractors' efforts
    to obtain suitable security providers have met with mixed results. More
    than half of the contractors awarded contracts in 2003 replaced their
    security providers. Contractor officials attributed this turnover to
    various factors, including the contractors' need to acquire security
    services quickly, their lack of knowledge of the security market and
    potential security providers available to provide the type of security
    services required in Iraq, and the absence of useful agency guidance.
    Finally, while the U.S. military is not responsible for providing security
    for civilian agencies and reconstruction contractors, it does provide some
    services, such as emergency medical support, to U.S. government-funded
    contractors.

        The U.S. Military Provides Security for Civilians and Contractors Who Deploy
        with the Force

    The stated mission of U.S. military forces in Iraq is to establish and
    maintain a secure environment, allow the continuance of relief and
    reconstruction efforts, and improve the training and capabilities of the
    Iraq Security Forces. As part of this mission, U.S. forces in Iraq provide
    security for DOD civilians who deploy with the force, non-DOD U.S.
    government employees who are embedded with the combat forces and
    contractors who deploy with the combat force. Among the contractors who
    deploy with the force are those that provide maintenance for weapon
    systems, those who provide linguistic and intelligence support to combat
    forces, and those who provide logistics support. Contractors who deploy
    with the force generally live with and directly support U.S. military
    forces and receive governmentfurnished support similar to that provided to
    DOD civilians.

    According to CENTCOM officials, the military uses soldiers rather than
    private security providers to provide security to contractors, civilians,
    facilities, or convoys which support combat operations because of concerns
    regarding the status of security personnel under the law of international
    armed conflict. This body of law considers contractors who

    deploy with the force generally to be noncombatant civilians accompanying
    the force who may not take a direct part in hostilities. CENTCOM is
    concerned that using armed private security employees to protect clearly
    military activities would risk a change in status for these contractors
    from noncombatants to illegal combatants. Thus, the private security
    employees could lose the protections otherwise granted contractors
    accompanying the force under international law.

    At the time we published our report, DOD was in the process of
    establishing its first departmentwide policy on the military's security
    responsibilities for contractor personnel. The draft directive and
    instruction specify that the military shall develop a security plan for
    protection of contractor personnel and the contracting officer shall
    include in the contract the level of protection to be provided to
    contractor personnel. In appropriate cases, the combatant commander shall
    provide security through military means, commensurate with security
    provided DOD civilians. In May 2005, DOD also issued a new standard
    contract clause in the Defense Federal Acquisition Regulation Supplement
    (DFARS), to be included in all DOD contracts involving support to deployed
    forces stating that the Combatant Commander (for example, the CENTCOM
    Commander) will develop a security plan to provide protection, through
    military means, of contractor personnel engaged in the theater of
    operations unless the terms of the contract place the responsibility with
    another party.7 Prior to the issuance of the new contract clause, the
    Army's policy expressly required Army commanders to provide security for
    deployed contractors, while the Air Force's policy gave the Air Force the
    option of whether or not to provide force protection to Air Force
    contractors. It is important to note, however, that the proposed DOD
    departmentwide policy, procedures and standard contract clause do not
    cover non-DOD government contractors who may be in a military theater of
    operations. As discussed in the following, these contractors are
    responsible for providing their own security.8

    7 DFARS Subpart 225.74.

    8 In response to public comments on the proposed new DFARS clause for
    contractor personnel supporting a force outside the United States, DOD
    stated that the new clause does not apply to nation building efforts such
    as the reconstruction of Iraq. See 70 Fed. Reg. 23791.

        Civilian U.S. Government Agencies Provide for Their Own Security in Iraq

    The State Department is responsible for the security of most of the
    executive-branch U.S. Government employees located in Iraq.9 According to
    the President's Letter of Instruction, the U.S. Ambassador, as Chief of
    Mission, is tasked by the President with full responsibility for the
    safety of all United States government personnel on official duty abroad
    except those under the security protection of a combatant commander or on
    the staff of an international organization. The embassy's Regional
    Security Officer is the Chief of Mission's focal point for security issues
    and as such establishes specific security policies and procedures for all
    executive branch personnel who fall under the Chief of Mission's security
    responsibility.

    In June 2004, representatives10 from the Department of State and DOD
    signed two memoranda of agreement to clarify each department's security
    responsibilities in Iraq. Among other things the agreements specify that

    o 	In general, the Chief of Mission is responsible for the physical
    security, equipment, and personnel protective services for U.S. Mission
    Iraq;11

    o 	The Commander, CENTCOM is responsible for providing for the security of
    the International Zone as well as regional embassy branch offices
    throughout Iraq;

    o 	Military capabilities may be requested by the Chief of Mission to
    provide physical security, equipment, and personal protective services
    only when security requirements exceed available Marine Security Guard
    Detachment, Department of State Diplomatic Security Service, and
    Department of State contracted security support capabilities;

    9 We recently discussed the Department's efforts to protect U.S. officials
    working abroad. See GAO, Overseas Security: State Department Has Not Fully
    Implemented Key Measures to Protect U.S. Officials from Terrorist Attacks
    Outside of Embassies, GAO-05-642 (Washington, D.C.: May 9, 2005).

    10 One memorandum was signed by the Deputy Secretary of Defense and the
    Deputy Secretary of State, the second was signed by the Ambassador to Iraq
    and the Combatant Commander, U.S. Central Command. The first memorandum
    deals with security assistance, the second with security responsibilities.

    11 All executive branch agencies in Iraq are part of U.S. Mission Iraq
    except those which fall under the command of the CENTCOM commander.

    o 	U.S. forces will provide force protection and Quick Reaction Force
    support outside the International Zone, to the extent possible, for
    Embassy personnel and activities; and

    o 	The Ambassador has security responsibility for DOD personnel under the
    authority of the Chief of Mission. This includes the Marine Security
    Detachment and personnel working for the PCO.

    In Iraq, the State Department, USAID, the U.S. Army Corps of Engineers,
    and the CPA12 contracted with commercial firms to provide security. Our
    review of six agency-awarded security contracts, awarded between August
    2003 and May 2004, showed that as of December 31, 2004, the agencies had
    obligated nearly $456 million on these contracts. In turn, the private
    security providers had billed the agencies about $315 million by that date
    for providing various services, including personal security details;
    security guards; communications; and security management. The companies
    providing security for U.S. government agencies may be U.S. or foreign.
    For example, while USAID contracted with a U.S. firm, the U.S. Army Corps
    of Engineers and the PCO are using British companies to meet their
    security requirements. Security for the Ambassador is provided by a U.S.
    company, and only U.S. citizens are used to provide protection.

    Security providers who provide security for executive branch employees
    follow the procedures and policies established by the Regional Security
    Officer. For example, one security provider told us that the Regional
    Security Officer recently increased the number of cars required for moving
    people within Iraq. The provider's representative told us that they were
    obligated to comply with the Regional Security Officer's instructions even
    though the contract was not awarded by the State Department and the
    company does not provide security for State Department personnel.

        Contractors Rebuilding Iraq Obtained Their Own Security with Little
        Assistance from the Agencies

    Contractors engaged in reconstruction efforts were generally required to
    provide for their own security, and they have done so by awarding
    subcontracts to private security providers. Contractors did not anticipate
    the level of violence eventually encountered in Iraq and found themselves
    needing to quickly obtain security for their personnel, lodgings, and work
    sites. As of December 31, 2004, our review of 15 reconstruction contracts

    12 A U.S. Army contracting activity awarded several security contracts on
    behalf of the CPA.

    for which we had data found that the contractors had obligated more than
    $310 million on security subcontracts, and in turn, the security providers
    had billed the contractors more than $287 million. The contractors'
    efforts to obtain suitable security providers met with mixed results, as
    many subsequently found that their security provider could not meet their
    needs. Overall, we found that contractors replaced their security
    providers on five of the eight reconstruction contracts awarded in 2003
    that we reviewed.13 This was attributable, in part, to the contractors'
    need to acquire security services quickly, their lack of knowledge of the
    security market and potential security providers available for the type of
    security services required for Iraq, and the absence of useful agency
    guidance. Information reflected in the agencies' own contracts for
    security, such as training and weapons qualifications requirements, could
    have assisted the contractors in identifying potential criteria for
    evaluating security providers and in structuring their subcontracts.

    Agency officials expected that the post-conflict environment in Iraq would
    be relatively benign and would allow for the almost immediate beginning of
    reconstruction efforts. During a discussion with DOD we were told that
    this expectation was based on determinations made at the most senior
    levels of the executive branch and the contracting officials were bound to
    reflect that expectation in their requests for proposals. Consequently,
    they made few or no plans for any other condition. Reconstruction
    contractors shared this perspective, relying upon the language in the
    agency requests for proposals and the comments of agency representatives
    at pre-proposal and other meetings. Our discussions with contractor
    officials found that they anticipated providing for only a minimal level
    of security under their contracts, such as hiring guards to prevent theft
    and looting at residential and work sites. In one case, the contractor
    expected that the military would provide security for its personnel.

    Our review of the agencies' request for proposals and other documents
    found that they were consistent with this expectation. For example, our
    review of five contracts awarded by late July 2003, including four awarded
    by USAID and one awarded by the U.S. Army Corps of Engineers, found that

    o 	USAID's requests for proposals instructed the contractors that work was
    to begin only when a permissive environment existed. Contractors

    13 On one additional 2003 contract, the contractor provided its own
    security.

    were given little guidance concerning security for their personnel and
    facilities and were not asked to estimate security costs as part of their
    proposals.

    o 	The U.S. Army Corps of Engineers' request for proposal noted that the
    military was expected to provide security for the contractor and, thus,
    the contractor was not required to propose any security costs.

    According to agency and contractor officials, the Iraqi security
    environment began to deteriorate by June 2003, although two contractors
    noted that the bombing of the United Nations compound in August 2003 made
    it apparent that the insurgency was beginning to target nonmilitary
    targets (see figure 2).

    Figure 2: Incidence of Attacks against Civilians and Infrastructure
    Targets between June 2003 and April 2005 Number of reported incidences

    Jun. Jul.

     Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov.
                                Dec. Jan. Feb. Mar. Apr.

    2003 2004 2005 Year

    Infrastructure Civilians Source: GAO Analysis of data supplied by DOD.

    Contractor officials told us that as the security environment worsened
    they unexpectedly found themselves in immediate need of enhanced security
    services. These officials told us that they received little guidance from
    the agencies relative to possible security providers. We found that the
    contractors' efforts to obtain security providers often met with mixed
    results. For example:

    o 	One contractor, awarded a contract by the U.S. Army Corps of Engineers,
    expected that the U.S. military would provide security for its personnel.
    That contractor expressed concern, however, that the military protection
    being provided was insufficient to ensure its employees' safety and to
    allow for the performance of its mission and subsequently stopped work at
    one of its locations. In June 2003, the Army finally told the contractor
    that it did not have adequate forces to continue to provide security as
    promised, and advised the contractor to acquire its own security.
    Following a limited competition,14 the contractor awarded a subcontract to
    a security provider in June 2003. In this case, the contractor has been
    satisfied with the services provided and retained the security provider
    when the contractor was subsequently awarded another reconstruction
    contract in June 2004.

    o 	One USAID reconstruction contractor told us it quickly awarded a
    noncompetitive subcontract to a security provider in July 2003. Within
    three months, the security company notified the reconstruction contractor
    that it was pulling its employees out of the country. As a former
    prisoner-transport service firm trying to expand into the protective
    services area, it discovered it lacked sufficient capacity to fulfill its
    contract requirements in Iraq. The reconstruction contractor subsequently
    conducted a competition among security providers already operating in Iraq
    to meet its needs.

    o 	Another reconstruction contractor initially hired a security service
    provider in October 2003. A contractor official stated that it soon became
    apparent that the security provider did not have the capacity to meet its
    security needs. As a result, the contractor awarded another subcontract,
    on a sole-source basis, to a security provider to augment the security
    services provided to its personnel.

    14 Pursuant to FAR Part 44, subcontracts are generally required to be
    awarded competitively, to the maximum practicable extent. The contractor
    prepared a justification, which was, in turn, approved by the contracting
    office.

    o 	Three of the reconstruction contractors we reviewed hired a newly
    established security provider company that was marketing itself in Iraq in
    mid-to late 2003. Officials representing one contractor told us that the
    provider was the only known provider capable of meeting their needs;
    officials for another contractor told us that they selected the provider
    based, in part, on its reputation. Each of the contractors, however, for
    various reasons, replaced the security provider. Subsequently, this
    security provider has been suspended from receiving further government
    contracts due to allegations of fraudulent billing practices.

    Overall, we found that five of the eight reconstruction contractors that
    were awarded contracts in 2003 that we reviewed replaced their initial or
    second security provider with another company, while in other cases, the
    contractors needed to augment the security services provided by their
    initial provider. As shown in figure 3, two contractors have awarded up to
    four contracts for security services.

    Figure 3: Number of Security Providers Employed on Reconstruction
    Contracts Awarded in 2003 and Reviewed by GAO

    Providers 5

    4

    3

    2

    1

    0 A BCDEF GH Contract

    Security providers retained Security providers not retained

    Source: GAO analysis of security provider subcontracts provided by
    reconstruction contractors.

    Contractor officials attributed this turnover to various factors,
    including the urgent need to obtain security, the increasing threat level,
    their lack of knowledge of potential sources and the security market, and
    the absence of useful agency guidance. In this latter regard, the detailed
    standards and requirements in their own agency security contracts may have
    provided useful assistance to reconstruction contractors in identifying
    potential criteria for evaluating security providers and in structuring
    their subcontracts. For example, the USAID security services contract,
    awarded in August 2003, contained

    o 	a detailed and required organization structure to be used by the
    contractor, with titles, duties and responsibilities of various levels of
    security providers specified;

    o 	requirements for background checks on potential employees and
    provisions for agency approval and acceptance of those employees;

    o  detailed standards of conduct for contractor employees;

    o  language, health, and training requirements;

    o  weapons capability requirements; and

    o  instructions regarding providing armored vehicles.15

    Our review of five other agency security contracts awarded directly to
    private security providers from December 2003 through May 2004 for the
    protection of agency personnel in Iraq found that, to varying degrees,
    most of the cited areas were addressed. Conversely, our review of the
    subcontracts awarded by the reconstruction contractors to their security
    providers generally contained far less information.

    According to most contractor officials with whom we spoke, information
    similar to that included in the agency's contracts would have assisted
    them in defining their security needs and structuring their security
    subcontracts.

    15 USAID awarded its security contract on a sole-source basis citing an
    urgent and compelling need. In January 2005, the USAID Inspector General
    found, however, that in its efforts to award the contract quickly, USAID
    failed to adequately document the selection of the security provider and
    the purchase of armored vehicles that did not meet U.S. government
    standards. USAID generally agreed with the Inspector General's findings
    and is taking corrective actions.

    Some contractor officials also noted that agency assistance with
    identifying and vetting potential security provider companies would have
    been very useful or would be useful in future similar situations. They
    discussed the possibility of a qualified vendors list, or, if time
    permitted, the establishment of a multiple award schedule of qualified
    security providers, which contractors could use to quickly contract for
    their security needs through competitive task orders.16

    Agency officials believed that information regarding personnel
    qualifications and competent providers could be made available to
    contractor personnel in future efforts, especially if the information was
    provided for the contractor's consideration, rather than being a contract
    requirement. For example, one agency official noted that his agency's
    requests for proposals for security services are publicly available. Some
    officials believed that making information a contractual requirement would
    infringe upon the contractor's privity of contract with its subcontractors
    and might pose a potential government liability should such requirements
    later prove inadequate. Other officials believed that it should be the
    contractor's responsibility to research and decide for itself its own
    needs and sources of security services without assistance from the
    government.

        DOD Provides Emergency Quick Reaction Forces and Other Services to
        Contractors in Iraq

    According to U.S. officials and contractor personnel we interviewed, U.S.
    military forces in Iraq will provide, when assets are available, emergency
    quick reaction forces to assist contractors who are engaged in hostile
    fire situations. The military is also providing other support services to
    U.S. government-funded contractors, to include private security providers.
    For example, U.S. military forces will assist with the recovery and return
    of contractor personnel who have been kidnapped or held hostage.
    Additionally, the U.S. military also provides medical services above the
    primary care level to contractors. These services include hospitalization,
    as well as laboratory and pharmaceutical services, dental services, and
    evacuation services, should the patient require them. In addition, the
    military is providing medical support to private citizens, third country
    nationals, and foreign nationals when necessary to save life, limb, or
    eyesight. Finally, contractors are entitled to receive mortuary affairs
    services. DOD is providing these services pursuant to authorities under
    Title 10,

    16 For example, the General Services Administration currently maintains a
    multiple award schedule that federal agencies can use to obtain various
    types of security services within the United States.

    United States Code, as well as a variety of DOD Directives, a June 2004
    support agreement between DOD and the Department of State, National
    Security Presidential Directive 36 (which governs the operations of the
    U.S. government in Iraq) and specific contract provisions.

      While the Relationship between Security Providers and the Military Has
      Improved, Actions Should Be Taken to Further Improve Effectiveness

    The military and the private security providers in Iraq have an evolving
    relationship based on cooperation and coordination of activities and the
    desire to work from a common operating picture. However, U.S. forces in
    Iraq do not have a command and control relationship with private security
    providers or their employees. Initially, coordination between the military
    and private security providers was informal. However, since the advent of
    the Reconstruction Operations Center in October 2004, coordination has
    evolved into a structured and formalized process. While contractors and
    the military agree that coordination has improved, some problems remain.
    First, private security providers continue to report incidents between
    themselves and the military when approaching military convoys and
    checkpoints. Second, military units may not have a clear understanding of
    the role of contractors, including private security providers, in Iraq or
    of the implications of having private security providers in the battle
    space.

        U.S. Forces Do Not Have Command and Control over Private Security Providers
        Working In Iraq

    According to CENTCOM officials and military personnel who have been
    stationed in Iraq, U.S. military forces in Iraq do not have a command and
    control relationship with private security providers or their employees.
    According to a DOD report17 on private security providers working in Iraq,
    U.S. military forces in Iraq have no command and control over private
    security providers because neither the combatant commander nor his

    17 DOD report to Congressional Defense Committees as required by the
    Ronald W. Reagan National Defense Authorization Act for fiscal year 2005,
    Pub. L. No. 108-375, section 1206 (Oct. 28, 2004).

    forces have a contractual relationship with the security providers.18
    Instead, military and security provider personnel who served in Iraq
    described a relationship of informal coordination, where the military and
    private security providers meet periodically to share information and
    coordinate and resolve conflicts in operations.

    Despite a lack of command and control over private security providers and
    their employees, commanders always have authority over contractor
    personnel, including private security provider personnel, when they enter
    a U.S. military installation. Commanders are considered to have inherent
    authority to protect the health and safety, welfare, and discipline of
    their troops and installation.19 This authority allows the commander to
    establish the rules and regulations in effect at each installation. For
    example, an installation commander may determine traffic regulations,
    weapons policies, force protection procedures, and visitor escort
    policies. Contractors, including private security providers, who fail to
    follow the military's rules and regulations while they are on the
    installation can be prohibited from entering the installation and using
    its facilities. As an example, one Army official told us that his unit had
    barred some private security employees from using the unit's dining
    facilities because the private security employees insisted on carrying
    loaded weapons into the dining facility. The unit did not allow loaded
    weapons in the dining facility for safety reasons.

    18 Although DOD does not have an explicit command and control relationship
    with private security providers, there are sanctions that can be imposed
    in response to acts of misconduct. DOD points out in its report to
    Congress that private security providers, in the absence of a formal
    declaration of war by Congress, are generally not subject to prosecution
    under the Uniform Code of Military Justice, but they remain subject to
    prosecution by the Department of Justice under applicable U.S. federal
    laws, to include the Military Extraterritorial Jurisdiction Act (18 U.S.C.
    3261), the special maritime and territorial jurisdiction provisions of 18
    U.S.C. 7(9), and the War Crimes Act (18 U.S.C. 2441). To date, DOD reports
    that there have been no disciplinary actions brought against private
    security providers for acts of criminal misconduct.

    19 See Department of Defense Directive 5200.8, Security of DOD
    Installations and Resources (Apr. 25, 1991).

        Coordination Between the Military and Private Security Providers in Iraq Has
        Evolved Since the Beginning of Reconstruction

    Coordination between the military and the private security providers has
    evolved from an informal coordination based on personal relationships to a
    more structured, although voluntary, mechanism established by the Project
    and Contracting Office (PCO). According to military officials,
    contractors, and security providers coordination between the military and
    security providers was initially done informally. When a private security
    provider arrived in a unit's area of operation, the security provider
    would try to meet with key officials of the unit and establish a
    relationship. A private security provider we spoke with told us that the
    results of this informal coordination varied based on the individual
    personalities of the military and provider personnel. According to some
    security providers, although many military commanders were very interested
    in establishing a relationship with the security providers, others were
    not. Additionally, coordination was inconsistent. For example, one officer
    who had served with the 4th Infantry Division in Iraq told us that
    coordination in his area was mixed. According to the officer, some
    security providers, such as the one providing security for the Iraqi
    currency exchange program, would always coordinate with the division
    before moving through the division's area of operations but another
    contractor rarely coordinated with the division. This is similar to
    information we obtained from officials of the 2nd Armored Cavalry
    Regiment. One officer from one of the regiment's squadrons told us that
    contractors that worked within the unit's area of operation generally
    coordinated with the regiment while those who were traveling in or through
    his unit's area of operation generally did not coordinate with the
    regiment. He also told us that on one occasion security providers escorted
    the CPA administrator into their area of operation without the squadron's
    knowledge and while the squadron was conducting an operation in Najaf.
    According to the officer, a fire fight broke out at the CPA
    administrator's location and the squadron had to send troops to rescue the
    CPA administrator and his party. This had a significant impact on its
    operation, according to the officer. Another officer, who served on the
    Combined Joint Task Force-720 staff, told of instances when contractors
    died and the division commander did not know that the contractors were
    operating in his area of operations until he was instructed to recover the
    bodies. Finally, according to a military officer serving with the PCO at
    the time of our review, the genesis of the Reconstruction Operations
    Center

    20 Combined Joint Task Force-7 was a subordinate command of CENTCOM and
    was responsible for the daily prosecution of the war. It was succeeded by
    Multi National Force-Iraq (MNF-I) in May 2004.

    (ROC) (discussed next) was the need to improve coordination between
    contractors and the major subordinate commanders.

    The ROC serves as the interface between the military and the contractors
    in Iraq and is located within the PCO. In May 2004, the Army awarded a
    contract to a private security provider to provide security for PCO
    personnel and to operate the ROC, shown in figure 4. The goal of the ROC,
    which became operational in October 2004, is to provide situational
    awareness, develop a common operating picture for contractors and the
    military, and facilitate coordination between the military and
    contractors.

    Figure 4: National Reconstruction Operations Center, Baghdad, Iraq

    Source: Used with permission of the ROC contractor and the PCO.

    The national ROC is located in Baghdad and six regional centers are
    colocated with the military's major subordinate commands, to enhance
    coordination between the military and the private security providers.
    Figure 5 shows the locations of the regional centers.

    Figure 5: Locations of the Regional Reconstruction Operations Centers in
    Iraq

                                      Source: DOD.

    Participation in the ROC is voluntary (although some DOD officials told us
    that participation should be mandatory) and is open (at no cost) to all
    U.S. government agencies, contractors, and nongovernmental organizations
    operating in Iraq. The ROC and the regional centers are staffed with a
    combination of military, U.S. government civilian, and contractor
    personnel who provide a number of services for private security providers
    and others. Among the services the ROC provides are:

    o 	Intelligence information. The military provides unclassified
    intelligence information to the ROC for dissemination to contractors.
    Intelligence information is updated daily and information is available on
    a passwordprotected Web site and through daily intelligence briefings. In
    addition, contractors can request specific threat assessments on future
    building sites and planned vehicle routes. Contractors use the ROC to pass
    on information about incidents and threats to coalition forces as well.

    o 	Military assistance. The ROC serves as the 911 for contractors who need
    military assistance. Contractors who need assistance contact either the
    national ROC or the regional ROCs and ROC personnel contact the closest
    military unit and ask it to provide assistance. Assistance, such as a
    quick reaction force or medical assistance, is provided if military assets
    are available. Security providers we spoke with said that they rarely call
    for a quick reaction force because incidents with insurgents are usually
    over within a matter of minutes but on some occasions the quick reaction
    forces have proved to be very helpful. For example, one after action
    report described an incident in February 2005 in which a private security
    team was ambushed by 20 insurgents and attacked by small arms fire and
    three rocket-propelled grenades. The contractors contacted both the
    regional ROC in Mosul and the national ROC in Baghdad. The military
    responded with fixed wing assets within 15 minutes and a rotary wing quick
    reaction force escorted the team safely back to Mosul. Contractors more
    frequently receive medical assistance from the military and described the
    assistance they received as excellent. Figure 6 depicts the process used
    to request assistance through the ROC or the regional ROCs.

              Figure 6: Process for Requesting Assistance through the ROC

                   Source: GAO from data provided by ROC contractor.

    o 	Improved communications. Communications with the military can be
    difficult in Iraq because of a lack of radio interoperability between the
    military and contractors. The ROC facilitates communications between the
    military and contractors. First, the ROC provides contact numbers for the
    military to private security providers to use when they are moving around
    in Iraq. Second, the ROC will ensure that the military is aware of
    contractor movements. Security providers who so choose can provide the ROC
    with information on convoy movements, which the ROC will forward to the
    appropriate military commands. Third, the ROC can contact the military to
    provide assistance to contractors, and finally, the ROC can track convoys
    through a real-time tracking system that uses the global positioning
    system and includes a communications link with the ROC if assistance is
    needed.

    Some Coordination While security providers, reconstruction contractors,
    and military Problems Remain between representatives of the PCO believe
    that the ROC has improved Private Security Providers coordination on the
    complex battle space in Iraq, both the private security

    providers and the military believe that several coordination issues remain

    and the U.S. Military	to be resolved. Security providers and military
    officials expressed continuing concern about incidents between security
    providers and the military when approaching military convoys and
    checkpoints and the need

    Blue on White Incidents Are of Major Concern to the Military and Private
    Security Providers

    for a better understanding of the complex battle space by both private
    security providers and the military.

    One of the coordination issues that contractors and the military continued
    to be concerned about is blue on white violence. Blue on white violence is
    the term used by contractors and the military to describe situations when
    the military fires at friendly forces (such as contractors) or, as happens
    less frequently, when private security employees fire at military forces.
    An analysis of incident reports completed by the ROC indicates that these
    incidents happen most frequently when contractors encounter a military
    checkpoint or a military convoy. Private security providers have told us
    that they are fired upon by U.S. forces so frequently that incident
    reports are not always filed with the ROC. According to some incident
    reports filed with the ROC, some contractors believe that U.S. forces have
    fired on private security provider vehicles without provocation. For
    example, one security company official reported that his convoy was
    traveling on a route in Iraq when a U.S. military convoy approached.
    According to the report, the security convoy identified itself using
    generally recognized identification procedures and pulled off the road to
    allow the military convoy to pass. After about half of the 20-vehicle
    convoy had passed, a gunner in the military convoy began firing at the
    security convoy. According to the after incident report filed with the
    ROC, no injuries or damage resulted from this incident. A similar incident
    happened on the road from the International Zone to the Baghdad airport.
    As in the previous incident, part of a U.S. military convoy passed the
    private security convoy without incident when a gunner in the fourth
    vehicle of the convoy began to fire at the lead vehicle in the private
    security convoy. After this incident, the private security team leader
    received an apology from the servicemember who had fired on the security
    company vehicle. As a result of this incident, the company's vehicle was
    rendered unserviceable.

    In another incident report, a private security provider documented an
    incident at a U.S. military checkpoint. According to the report, a
    security convoy had slowed to approach the checkpoint, and was then fired
    on by a U.S. soldier. The report went on to say that no verbal or hand
    warnings were given and no reason was given for the shooting. According to
    representatives of the security providers and the former director of
    security for the PCO, many of these incidents happen because of the
    military's concerns over insurgents using vehicle-borne improvised
    explosive devices, as well as the inexperience of some U.S. troops.

    Reducing the number of blue on white incidents is a high priority for the
    U.S. military, the PCO, private security providers, and the Private
    Security Company Association of Iraq, a Baghdad--based association that
    works with both the U.S. government and the Iraqi government to resolve
    issues related to private security providers. In late December 2004, in an
    effort to reduce the number of blue on white incidents, the Multi National
    Corps-Iraq (MNC-I) issued an order to major subordinate commands in Iraq
    establishing procedures for private security providers to use when
    approaching military convoys and military checkpoints. MNC-I directed the
    subordinate commanders to implement the procedures detailed in the order
    and to educate all private security providers and military on the
    procedures. Among the procedures were (1) a prohibition on nontactical
    vehicles (such as the vehicles used by private security providers) passing
    moving military convoys; (2) a requirement that warning shots, when fired,
    be aimed away from a vehicle and demonstrate a clear intention to do harm
    if directions are not obeyed; and (3) a requirement that vehicles should
    maintain a distance of a least 200 meters from a military convoy.

    In early 2005, MNC-I completed an analysis of friendly-fire incidents that
    occurred between November 1, 2004 and January 25, 2005 to determine the
    top 10 lessons learned from such incidents. Among the top 10 lessons was
    the need for U.S. forces to comply with the rules of engagement, which
    require that U.S. troops determine that a person's intent is hostile
    before the military uses deadly force. The other lessons learned were
    similar to the procedures included in the order. According to a PCO
    official, the top 10 list was provided to the private security providers.

    Despite the MNC-I order, blue on white incidents continue to occur and
    security providers remain concerned about the frequency of the attacks. In
    the 5 months (January to May 2005) since the order was issued, the ROC has
    received reports on 20 blue on white incidents and the number of actual
    incidents is likely to be higher since, as we noted previously, some
    providers no longer report these types of incidents. Data on the number of
    incidents for the 5 months before the order was issued was not available
    because the ROC did not start collecting information on blue on white
    incidents until November 2004. A ROC official noted that blue on white
    incidents had decreased in April 2005. He believed that the reduction was
    due, in part, to the adoption of the procedures outlined in the order.
    However, he also noted that the number of incidents could increase again
    as troops rotate in and out of Iraq or if terrorist attacks increase.

    Units Do Not Receive Specific Training or Guidance about Working with
    Private Security Providers before Deploying

    Military units that deployed to Iraq received no guidance or training
    regarding the relationship between private security providers and the
    military prior to deploying. Representatives from the 2nd Armored Cavalry
    Regiment, the 82nd Airborne Division, and the 1st Marine Expeditionary
    Force all told us that they received no guidance from either CENTCOM or
    Combined Joint Task Force-7 and that their units had not developed any
    written procedures for dealing with private security providers.
    Furthermore, a representative of a unit that is preparing to deploy, the
    101st Airborne Division, told us that it had not received any guidance on
    how to work with private security providers nor had it been directed to
    include information on private security providers, the PCO, or the ROC in
    its predeployment training, even though the 101st will be co-located with
    a regional ROC. To highlight the lack of training and guidance,
    representatives from one unit told us that they did not know there were
    private security providers in their battle space until the providers began
    calling for assistance. They also noted that any information about who
    would be in the battle space and the support the military should be
    providing would be useful.

    Several private security providers we spoke with told us that they
    believed it would be helpful if U.S. forces who deployed to Iraq received
    information on private security providers in Iraq. For example, the
    providers believed that U.S. troops needed more information on why private
    security providers are in Iraq, the impact of having private security
    providers there, and the operational styles of the private security
    providers. Army officials we spoke with believed that this type of
    information would be helpful and suggested that private security providers
    could use additional information about working with the U.S. military as
    well.

      Agencies Have Limited Capabilities to Assess the Cost Impact of Using Private
      Security Providers

    Despite the significant role played by private security providers in
    enabling reconstruction efforts to proceed, neither the Department of
    State, DOD, nor USAID has complete data on the cost associated with using
    private security providers. For example, the quarterly report submitted by
    the Department of State to Congress on the status of reconstruction
    projects and funding does not provide information on security costs that
    are incurred under reconstruction contracts. Even at the contract level,
    the agencies generally had varying degrees of information on the costs
    associated with private security providers. On 15 reconstruction contracts
    we found that the cost to obtain private security providers and
    securityrelated equipment at the reconstruction contract level can be
    considerable, as it accounted for 15 percent or more on 8 of the 15
    contracts we

    reviewed; on only 4 of those 8 contracts, however, did the agencies
    formally track security costs under a separate task order or contract line
    item. Agency and contractor officials acknowledged that security costs had
    diverted planned reconstruction resources and led to canceling or reducing
    the scope of certain reconstruction projects, though they also noted that
    other factors have affected reconstruction projects.

        Agencies Do Not Comprehensively Track Costs Associated with Private Security
        Providers

    The Secretary of State is responsible for submitting a quarterly report to
    Congress that outlines the current status of programs, initiatives, and
    funds dedicated to the Iraq reconstruction efforts.21 These quarterly
    reports provide information at the project and sector level-such as oil or
    electricity-and acknowledge the challenges and costs associated with the
    security environment in Iraq. For example, in its April 2005 report, the
    State Department noted that nearly $1.3 billion in funding has been, or
    will be, used in part to (1) cover unanticipated post-battle
    reconstruction costs, (2) cover indirect cost increases of contractors
    operating on cost-plus contracts that allow them to continue billing even
    during delays, and (3) account for increased security costs. The reports,
    however, do not identify the magnitude or impact of the costs associated
    with security providers on reconstruction efforts or available funding.
    Discussions with DOD and USAID personnel found that the financial and
    management information systems used to help prepare the report are not
    able to track costs incurred by reconstruction contractors for security
    services. Agency officials noted that to obtain such information would
    currently require the agencies to request such information from the
    contractors and manually prepare the information. Agency officials noted
    they have made inquiries on an ad hoc basis in the past, but cautioned
    that such requests can be burdensome for both the contractors and agency
    officials.

    Contractor officials acknowledge that the cost of private security
    services and security-related equipment, such as armored vehicles, has
    exceeded what they originally envisioned. In some cases, increased
    security costs resulted in reducing or canceling the scope of some
    reconstruction projects. For example:

    21 Emergency Supplemental Appropriations Act for Defense and for the
    Reconstruction of Iraq and Afghanistan for FY 2004, Pub. L. No. 108-106,
    section 2207 (Nov. 6, 2004) as amended by Pub. L. No. 108-309, section 135
    (Sep. 30, 2004).

    o 	Contractor officials noted they were originally tasked to rehabilitate
    23 electrical substations and had conducted site surveys and procured
    equipment for all 23 substations. According to contractor officials,
    however, the U.S. Army Corps of Engineers concluded that securing 14 of
    the substations would not be cost effective, and therefore reduced the
    scope to 9 substations. Contractor officials indicated that the equipment
    and materials procured for the 14 substations have been or will be turned
    over to the Iraqi Ministry of Electricity.

    o 	In February 2004, USAID obligated an additional $33 million on one of
    its contracts to pay for unanticipated increases in security costs that
    left it short of funds to pay for construction oversight and quality
    assurance, as well as fund administrative costs.

    o 	In March 2005, USAID cancelled two electrical power generation-related
    task orders totaling nearly $15 million to help pay for increased security
    costs being incurred at another power generation project in southern
    Baghdad.

    Contractor officials noted, however, that other factors also affected
    reconstruction progress, such as changes in priorities or higher material
    costs. For example, officials at one contractor noted that security had
    not been a significant factor delaying their work; rather, they pointed to
    delays in reviewing and approving projects and slower than anticipated
    release of funding. Similarly, USAID officials noted that, among other
    materials, the cost of concrete is significantly higher than anticipated,
    driving up the cost of many reconstruction projects.

    We found that at the contract level, agency personnel did not have
    consistent insight into security costs and their impact on reconstruction
    efforts. For example, agencies often did not require prospective bidders
    to propose meaningful security costs as part of their contract cost
    proposal nor require contractors to prepare a baseline security cost
    estimate at the time of contract award. Many of the contracts, including
    those awarded after the security environment began to deteriorate, were
    indefinite delivery contracts, in which the work to be accomplished was
    often described in general terms, with the specific work to be
    accomplished determined as task orders are issued. In several cases,
    agency personnel provided prospective contractors a sample task order to
    use in preparing their proposals. While the contractors' cost and
    technical proposals described how they would approach security issues and
    provided an associated cost estimate, such estimates were only for
    evaluation purposes

    and did not reflect meaningful security costs. Overall, in only 3 of the
    16 contracts we reviewed did contractors prepare an initial security cost
    estimate for the entire contract.

    Further, we found that in only 7 of the 16 contracts did the contractors
    regularly provide security-related cost information in either monthly
    progress reports or in separate contract line items or task orders. The
    level of information and insight provided varied greatly depending on the
    approach taken. For example, on three contracts, the contractor provided
    security cost-related information for each of its projects, but did not
    provide information at the total contract level. In one contract, security
    costs were reported on both the task order and contract level. In one
    contract, the security cost information was reported under a separate
    contract line item with other expenses, and visibility was more limited.
    In the remaining two contracts, the agency established separate task
    orders specifically to track security-related expenses at the contract
    level.

    In 15 of the 16 reconstruction contracts that we reviewed, we were able to
    obtain data on the costs of acquiring private security services and
    related security equipment22 by reviewing invoices that private security
    providers and security equipment providers submitted to contractors. Our
    analysis of this data found that at the reconstruction contract level
    there was considerable variation in estimated security costs as a
    percentage of total contract billings (see figure 7).23 Eight of the 15
    contracts had security costs that exceeded 15 percent of total contract
    billings as of December 31, 2004; on 4 contracts, the percentage of
    contract billings accounted for by the cost of security subcontractors was
    more than 25 percent.24 On only 2 of those 8 contracts in which security
    costs exceeded 15 percent did agency personnel require the contractors to
    formally track and report security costs under a separate task order or
    contract line item. Though

    22 One contractor did not specifically track or report the security costs
    it incurred under the contract.

    23 Overall, the costs to obtain private security services and related
    security equipment for the 15 reconstruction contracts that we were able
    to obtain and review were about $334 million, or about 7 percent of total
    contract billings as of December 31, 2004.

    24 Several contractor officials noted the cost of security relative to
    total contract costs can vary over time. For example, they noted that
    initial security costs, such as for mobilizing and equipping security
    personnel and purchasing armored vehicles, can be considerable in relation
    to the amount of reconstruction work authorized. As additional work is
    authorized, the relative percentage accounted for by security costs could
    decrease considerably.

    not required, one contractor reported incurred security costs on two
    contracts on its own initiative.

    Figure 7: Percentage of Total Contract Billings Accounted for by Security
    Subcontractor Expenses as of December 31, 2004

    Number of contracts

    5

    4

    3

    2

    1

    0 <5 5<10 10<15 15<20 20<25 >25

    In percent

    Source: GAO analysis of contractor supplied information.

    While our analysis indicates that at the reconstruction contract level the
    cost of obtaining private security services can account for a significant
    percentage of the contract's total cost, it does not reflect total private
    security costs. For example, reconstruction contractors did not always
    specifically track security-related costs incurred by their subcontractors
    or lower tier suppliers. According to contractor officials, in seven of
    the sixteen reconstruction contracts that we reviewed, at least one of
    their subcontractors provided for their own private security; in five of
    those seven contracts, all of the subcontractors were required to provide
    for their own security.25 The cost for a subcontractor to obtain private
    security

    25 In three other contracts, the contractors indicated that they provided
    security for their subcontractors; one contractor did not hire
    subcontractors; and in the five remaining contracts, the contractor did
    not know about or did not provide information on subcontractor security
    needs.

    services can be considerable. For example, in one case, the costs incurred
    by a major subcontractor amounted to almost $10 million, or nearly
    onethird of what the reconstruction contractor was paying for security. In
    another case, the costs incurred by a major subcontractor exceeded $3.5
    million, or about 8 percent of what the reconstruction contractor was
    paying for security.

    Our analysis and discussions with agency and contractor officials
    identified several factors that influenced security costs, including (1)
    the nature and location of the work; (2) the type of security required and
    the security approach taken; and (3) the degree to which the military
    provided the contractor security services. For example, projects that took
    place in a fixed, static location were generally less expensive to secure
    than a project that extended over a large geographic location, such as
    electrical transmission lines. In other cases, contractors relied on
    former military personnel or other highly-trained professionals to provide
    security to their employees. Conversely, some contractors made more
    extensive use of local Iraqi labor and employed less costly Iraqi security
    guards. Lastly, some contractors were able to make use of security
    provided by the U.S. military or coalition forces. For example, several
    contractors had facilities within or near U.S.-controlled locations, such
    as Baghdad's International Zone or on military bases, which reduced their
    need to obtain private security services. In another case, the contractor
    was provided a limited degree of protection by the U.S. Army.

    Agency and contractor officials had mixed opinions on the value of
    establishing separate reporting or tracking mechanisms. For example, some
    agency officials believed that having visibility into security-related
    costs enabled them to provide more effective contract oversight, and
    identify security cost trends and their impact on the project. Other
    officials noted that many factors affect the cost and progress of
    reconstruction efforts, including changes in planned funding or projects,
    material costs, and the inability to find qualified workers willing to
    work in Iraq. Consequently, they indicated that they generally try to
    manage the projects at a total project level, rather than by individual
    elements, such as security. For example, they noted that when reviewing
    project status reports with the contractors, they will question the
    contractors on the factors causing delays or cost increases. They were not
    certain that having specific insight into security costs would help them
    better manage or oversee their projects. Agency program and financial
    management officials noted that from a budgeting perspective, tracking
    security cost information could enable staff to provide better estimates
    of future funding requirements.

    Contractor officials generally indicated that establishing a separate task
    order or contract line item for security enabled them to more efficiently
    account for and bill security costs and to more accurately report
    reconstruction progress. For example, officials at one contractor noted
    that they often had several projects under way which required security.
    Prior to establishing a separate task order, the security provider would
    be required to allocate costs to each of the projects even though the
    security was provided for a given location, often resulting in lengthy and
    complex vouchers, higher potential for error, and increased administrative
    expenses. Once a separate task order was established, its security
    provider charged the costs incurred for providing security to the
    location, rather than each project, simplifying the billing and review
    process. Other contractor officials noted that the need to obtain security
    providers and security-related equipment often occurred during the early
    stages of the contract when the agencies had issued only a few task orders
    for specific reconstruction projects. Consequently, contractor officials
    told us they found themselves incurring considerable security-related
    expenses during the mobilization phase that had to be allocated to
    subsequent task orders, thereby increasing costs. These officials noted
    that allocating security costs to existing task orders would have resulted
    in the task's cost exceeding the government's estimate. Contractor
    officials indicated that a separate task order for security would have
    enabled them to better explain to agency personnel the cost of the
    reconstruction effort and the impact of security costs and enable them to
    account for and bill security costs more efficiently.

    Data from the Defense Manpower Data Center (DMDC) 26 show that in fiscal
    year 2004, the attrition rates for the occupational specialties preferred
    by private security providers returned to the same or slightly lower
    levels than those seen prior to the institution of occupational stop

    26 DMDC collects and maintains an archive of DOD's automated manpower,
    training, and financial databases.

      Expanded Use of Private Security Providers Does Not Appear to Be Increasing
      Attrition among Military Personnel

    losses27 in September 2001 despite the increased use of private security
    providers. Private security providers working in Iraq are hiring former
    servicemembers with a variety of skills, including servicemembers with
    military police or Special Operations experience. Military officials told
    us that they believe that servicemembers with these skills are separating
    from the military earlier than in prior years. We are unable to determine
    from this data whether servicemembers are leaving the military for
    positions with private security providers as the data can only demonstrate
    trends in attrition, not explain why people are leaving the military or
    what they intend to do after leaving the military.

    Private security providers prefer to hire former military members,
    particularly Special Operations forces, for their unique skills and
    experience. Servicemembers with Special Operations background are often
    hired to fill key positions, such as security advisors and project
    managers, and to provide personal security to high ranking government
    officials. These positions may pay as much as $33,000 a month. Other
    servicemembers may be hired to provide security to civilians in vehicle
    convoys with salaries between $12,000 and $13,000 per month, while some
    may be hired to provide site security for buildings and construction
    projects at somewhat lower salaries. For the most part, employees only
    receive these salaries when they are working in Iraq, typically 2 to 3
    months at a time. All of the U.S.-based private security providers we
    spoke with told us that they do not actively recruit current
    servicemembers; however, they do recruit at military-sponsored transition
    job fairs, through the Internet, and with advertisements in military
    magazines and newspapers.

        Officials from the Special Operations Command and Army Military
        PoliceBelieve Attrition Is Increasing Due, in Part, to Security-Related Job
        Opportunities

    Both Special Forces and military police personnel officials believe that
    attrition is increasing in their military specialties. For example, during
    a July 2004 hearing before the House Armed Services Committee,
    Subcommittee on Terrorism, Unconventional Threats and Capabilities,
    representatives from the U.S. Special Operations Command and the military
    services' Special Operations commands noted that the number of Special
    Forces enlisted personnel retiring at 20 years (the first time they are
    eligible) has been increasing due, in part, to the increased opportunities
    available in civilian government and with contractors. In addition,
    representatives of the Naval Special Operations Command and the Air

    27 Stop losses are short-term measures that increase force availability by
    retaining active or reserve component members on active duty beyond the
    end of their obligated service.

    Force Special Operations Command also noted that they were seeing
    increased attrition rates among those servicemembers with 8 to 12 years of
    service. According to these representatives, servicemembers leaving at
    this point in their careers are also leaving for opportunities with
    contractors.

    Army officials have also expressed concerns about attrition in the
    military police force. For example, officials from the military police
    personnel office at the Army's Human Resources Command told us that they
    have seen a significant number of senior noncommissioned officers leave
    the military police for positions with private security providers. These
    officials also told us they have seen the average length of service for
    colonels in the military police branch decrease from 28 to 25 years.
    Furthermore, in an email provided by the Army's Human Resources Command, a
    senior noncommissioned officer at the 16th Military Police Brigade noted
    that the brigade did not meet its reenlistment targets in fiscal year
    2004. Finally, the Army Central Command's Provost Marshall in July 2004
    told us that he had lost four of his eight senior noncommissioned officers
    to higher paying private security providers within the last year and was
    expecting to lose two more senior noncommissioned officers. He also noted
    that he had lost more than half of his company grade officers as well.

    Efforts are being taken by both the military police and Special Forces
    communities to address retention concerns. For example, the Army plans to
    double the size of its military police force from 15,500 to 30,000 by 2006
    and the Special Operations Command plans to increase its force size from
    13,200 to 15,900 over the next 5 to 6 years. Increasing the size of the
    Army military police and Special Operations will decrease the high
    operational tempo28 and relieve some of the stress on military personnel,
    which these communities believe contributed to higher attrition. In
    addition, DOD recently began to offer reenlistment bonuses to Special
    Operations personnel with 19 or more years of experience which range from
    $8,000 to those who reenlist for one year to as much as $150,000 for those
    who reenlist for an additional 6 years.

    28 In this report, operational tempo refers to the total days military
    personnel spend participating in normal drills, training, and exercises,
    as well as domestic and overseas operational missions.

    Attrition Rates for 2004 While data from several sources indicate
    increased attrition in fiscal year Returned to Level Seen 2004 compared to
    fiscal years 2002 and 2003 in the military skills sought by Prior to Stop
    Loss Issuance private security providers, these data also showed that
    attrition rates in

    fiscal year 2004 had returned to the levels seen in fiscal years 2000 and
    2001, prior to the majority of the stop loss policies that have been
    instituted by the services at various times since September 2001. Table 1
    shows the dates of occupational stop losses for each of the services.

    Table 1: Occupational Stop Loss Dates for the Military Services

                                Service   Stop Loss Began         Stop Loss Ended
                                   Army    December 2001           November 2003a
                                   Navy    September 2001        August 2002
                              Air Force    September 2001         June 2003
                           Marine Corps     January 2002           May 2003

    Source: GAO from DOD data.

    aAlthough the Army terminated its occupational stop loss program, at the
    time we issued this report the Army had a unit stop loss program in
    effect. The Army's unit stop loss policy applies to soldiers in units
    preparing to deploy. It applies to all soldiers in a unit and prevents
    soldiers from leaving the Army within 90 days of their unit's deployment,
    during the unit's deployment, and 90 days after the unit has returned from
    its deployment.

    Each of the services added and released occupations from stop loss as the
    needs of the service dictated. For example, the Air Force placed all
    occupational specialties under a stop loss in September 2001 and then
    released a number of occupations from the stop loss in January and June
    2002. As we noted, the Air Force ended all stop loss activities in June
    2003. In the Army, Special Operations forces were placed under stop loss
    in December 2001 and were released from the stop loss in June 2003, while
    enlisted servicemembers who served as military police were placed under
    stop loss in February 2002 and were released from the stop loss in July
    2003. Army officers serving as military police were placed under the stop
    loss in February 2002 and were released from the stop loss in June 2003.

    Data obtained from DMDC on the military occupational specialties preferred
    by private security providers revealed that several of these specialties
    show increased attrition in fiscal year 2004 over the attrition rates in
    fiscal year 2003. These specialties include:

    o  Air Force: Officer military police

    o  Army: Enlisted and Officer Infantry, military police, and Special
    Forces

    o  Marine Corps: Enlisted and Officer Infantry and military police

    o 	Navy: Enlisted military police, Officer Special Forces, and Enlisted
    SEALs.

    For the specialties listed, the average attrition rates for each fiscal
    year are shown in figure 8. As seen in figure 8, the attrition rates for
    these specialties decreased in fiscal year 2002 and 2003 from their 2000
    and 2001 levels and showed an increase in attrition in fiscal year 2004.
    These data also show that the levels of attrition seen in fiscal year 2004
    were actually lower than those seen in fiscal years 2000 and 2001.

    Figure 8: Average Attrition Rates for Military Occupational Specialties
    Preferred by Private Security Providers which Experienced Increased
    Attrition in Fiscal Year 2004

    Average attrition rate (by percent)

    25

    20

    15

    10

    5

    0 2000 2001 2002 2003 2004

    Fiscal year

    Enlisted Officer

                           Source: GAO analysis of DOD data.

    The decrease in attrition rates seen in fiscal years 2002 and 2003 as
    compared to the rates seen in fiscal years 2000 and 2001 reflect attrition
    patterns that are seen during stop losses. Service officials told us that
    stop loss policies affect attrition rates; they can temporarily delay
    separations and artificially decrease attrition rates for the year of the
    stop loss. Officials at the Army Human Resources Command also found that
    stop loss policies can also increase attrition rates for the year
    preceding the stop loss. For example, the Army saw increased separations
    in 2002 for military police colonels in anticipation of their
    occupation-specific stop loss. Given the impact of stop loss policies on
    attrition, data may not accurately convey the typical personnel losses
    that would have occurred had the stop loss not been in effect as people
    left the military both in anticipation of stop loss and after stop loss
    was lifted. Thus, we are unable to determine whether the increase in
    attrition rates in fiscal year 2004 was due to the lifting of the stop
    loss policy or true increases in military attrition.

    Figure 9 shows a pattern of decline in attrition rates during the stop
    loss period followed by a rebound for Army Special Forces in fiscal year
    2004. Attrition rates for enlisted Army Special Forces were almost
    identical in fiscal years 2000 and 2001, and declined through 2003 during
    the Army Special Forces specific stop loss, which was in effect from
    December 2001 to June 2003. However, after the stop loss was lifted,
    attrition rates for the enlisted Army Special Forces almost doubled from
    6.5 percent in fiscal year 2003 to 12.9 percent in fiscal year 2004, a
    level which was about 25 percent higher than the fiscal year 2000 rate.
    Attrition rates for Army Special Forces officers also declined during the
    stop loss period and returned to just below the fiscal years 2000 and 2001
    levels in fiscal year 2004.

    Figure 9: Army Special Forces Attrition Rates

    Percent attrition rate 14

    12

    10

    8

    6

    4

    2

    0 2000 2001 2002 2003 2004 Fiscal year

    Army Special Forces enlisted attrition Army Special Forces officer
    attrition Source: GAO analysis of DOD data.

    The Special Operations Command also provided us with continuation rates
    calculated by DMDC for the Army, Navy, and Air Force Special Operations
    Commands. Continuation rates were calculated by determining which
    personnel remained on active duty from one year to the next and are an
    alternative method used to demonstrate retention and attrition. The
    continuation rates showed an increase in losses in 2004 for the Army
    Special Operations and Navy Special Warfare Commands senior
    noncommissioned officers, as well as Army Special Operations warrant
    officers. Similar to the DMDC data provided to us, these commands also saw
    a decrease in losses (or a decrease in attrition rates) in 2002 after a
    stop loss was issued and, with the exception of the Navy Special Warfare
    warrant officers, an increase in losses (or an increase in attrition
    rates) after the stop loss was lifted.

    Additionally, as shown in figure 10, the continuation data for Army
    Enlisted Special Operations personnel with 14 through 19 years of service
    separated at only a slightly higher rate in 2004 than in the pre-stop loss
    years - fiscal years 2000 and 2001. In the July 2004 hearing before the
    House Armed

    Services Committee, Subcommittee on Terrorism, Unconventional Threats and
    Capabilities, the Senior Enlisted Advisor for the United States Special
    Operations Command stated that the loss of these mature, operationally
    experienced personnel creates critical operational risk for the Special
    Forces. According to the Special Operations Command officials with whom we
    spoke, because the command is losing some of its most experienced
    personnel, younger less experienced servicemembers are being promoted to
    leadership positions more quickly than in the past. This need to rely on
    less experienced personnel has created some concerns for the command.

    Figure 10: Continuation Rates for Army Enlisted Special Operations
    Personnel with 14 through 19 Years of Service for Fiscal Years 2000
    through 2004

                 Total Personnel Continuation rate in percent 2,000 100

                                      80 1,500 60

                                           40

                                    20 0 1,000 500 0

    2000 2001 2002 2003 2004

                                 Loss 116 104 43 31 116

                          Con't 1,225 1,229 1,257 1,245 1,121

                             Con't 91.4 92.2 96.7 97.6 90.6

    Source: Special Operations Command.

    Note: Con't = continuation.

        Many Factors Influence the Decision to Separate from the Military

    While available data indicate that attrition, in almost all of the
    military specialties favored by private security providers, has returned
    to pre-September 11, 2001 levels, the data do not indicate why personnel
    are leaving the military and what they are doing after they leave. Exit
    surveys conducted with servicemembers leaving the military do not include
    questions on the servicemembers' future employment plans. Officials at the
    Army Human Resources Command told us that after September 11, 2001, the
    opportunities for employment in the security field became more widespread
    as government agencies as well as private companies and organizations
    recognized the need to improve their security. These officials as well as
    officials from the Special Operations Command noted that they are losing
    personnel not only to private security firms operating in Iraq but also to
    security management companies operating in the United States, and security
    operations in other government agencies. Service officials at these
    commands also attributed the attrition rates to other factors, such as the
    attraction of a strong civilian economy, high operational tempo, and
    concerns about various quality of life conditions.

    Conclusions	The reconstruction effort in Iraq is complex, costly, and
    challenging, in part, due to an urgent need to begin and execute
    reconstruction projects in an uncertain security environment. The
    extensive use of private security providers has raised a number of issues,
    particularly regarding how to facilitate methods contractors use to obtain
    capable providers. And, once security providers are actively working in an
    area, they must determine how best to establish effective coordination
    mechanisms with nearby military forces. While the experience in Iraq was
    certainly unique relative to historical reconstruction and assistance
    efforts, it is far less certain whether or not the future will find the
    United States engaged in reconstruction and assistance efforts in other
    hostile environments with costs that are likely to be significant. Much
    has been learned in Iraq over the past two years on this subject that can
    serve the United States and its contractors well in planning for and
    executing future reconstruction or assistance efforts.

    Recommendations for We are making four recommendations to address a number
    of immediate Executive Action and long term issues:

    o 	To assist contractors operating in hostile environments in obtaining
    security services required to ensure successful contract execution, we

    recommend that the Secretary of State, the Secretary of Defense, and the
    Administrator, U.S. Agency for International Development, explore options
    that would enable contractors to obtain such services quickly and
    efficiently. Such options may include, for example, identifying minimum
    standards for private security personnel qualifications, training
    requirements and other key performance characteristics that private
    security personnel should possess; establishing qualified vendor lists;
    and/or establishing contracting vehicles which contractors could be
    authorized to use.

    o 	To ensure that MNF-I has a clear understanding of the reasons for blue
    on white violence, we recommend that the Secretary of Defense direct the
    Combatant Commander, U.S. Central Command, to direct the Commander, MNF-I,
    to further assess all of the blue on white incidents to determine if the
    procedures outlined in the December 2004 order are sufficient.
    Furthermore, if the procedures have not proven to be effective, we
    recommend that the Commander, MNF-I, develop additional procedures to
    protect both U.S. military forces and private security providers.

    o 	To ensure that commanders deploying to Iraq have a clear understanding
    of the role of private security providers in Iraq and the support the
    military provides to them, we recommend that the Secretary of Defense
    develop a training package for units deploying to Iraq which provides
    information on the Reconstruction Operations Center, typical private
    security provider operating procedures, any guidance or procedures
    developed by MNF-I or MNC-I applicable to private security providers (such
    as procedures outlined in the December 2004 order to reduce blue on white
    incidents), and DOD support to private security provider employees. The
    training package should be re-evaluated periodically and updated as
    necessary to reflect the dynamic nature of the situation in Iraq.

    o 	To improve agencies' ability to assess the impact of and manage
    security costs in future reconstruction efforts, we recommend that the
    Secretary of State, the Secretary of Defense, and the Administrator, U.S.
    Agency for International Development, establish a means to track and
    account for security costs to develop more accurate budget estimates.

      Agency Comments and Our Evaluation

    DOD, the Department of State and USAID provided written comments on a
    draft of this report. Their comments are discussed below and are reprinted
    in appendixes II, III, and IV, respectively.

    DOD concurred with each of our recommendations, noting that it welcomed
    our assistance in improving how DOD and its contractors can plan for and
    effectively execute contracts in a complex and changeable security
    environment. Moreover, DOD described the steps it would take to implement
    some of our recommendations.

    The Department of State disagreed with our recommendation to explore
    options to assist contractors in obtaining private security services,
    citing concerns that the government could be held liable for performance
    failures. For example, while the Department noted that it could provide
    the criteria it utilizes to select its contractors on a non-mandatory
    basis, it expressed concern that contractors relying on government minimum
    standards could assert that performance failures were the result of the
    government establishing poor standards. The Department also noted it was
    unclear that a government-managed security contractor program would result
    in enhanced contractor security, compared to a contractor-managed security
    program. While our work found that contractors had difficulty in obtaining
    security providers that met their needs and that they would have benefited
    from the agencies' assistance, we did not recommend a particular course of
    action nor recommend a government-managed security program. Rather, we
    recommended that the Department, working jointly with DOD and USAID,
    explore options to assist contractors that are unfamiliar with obtaining
    the type of security services needed in Iraq. Such an effort would
    necessarily entail a thorough assessment of the advantages, disadvantages
    and risk mitigation strategies of the potential options. Given the
    significance of contractors in accomplishing reconstruction objectives and
    the mixed results that they encountered when selecting their security
    providers, we continue to believe that thoroughly exploring potential
    options would be prudent.

    The Department of State did not indicate whether it agreed with our
    recommendation to establish a means to track and account for security
    costs in order to develop more accurate budget estimates. It noted that it
    can capture costs associated with direct security providers and work with
    prime reconstruction contractors to determine the feasibility of providing
    subcontract security costs. It is not clear to us from the Department's
    comments how it intends to work with DOD and USAID to establish a

    uniform means to track and account for private security costs, which is
    essential given that DOD and USAID are the principal agencies responsible
    for awarding and managing the majority of reconstruction contracts.

    In written comments on a draft of this report, USAID found the report
    factually correct, but did not comment on the recommendations.

    We are sending copies of this report to the Chairman and Ranking Minority
    Member, House Committee on Government Reform; the Chairman and Ranking
    Minority Member, House Committee on Energy and Commerce; the Chairman and
    Ranking Minority Member, Senate Committee on Governmental Affairs; and
    other interested congressional committees. We are also sending a copy to
    the Secretary of Defense; the Secretary of State; the Administrator, U.S.
    Agency for International Development; and the Director, Office of
    Management and Budget, and will make copies available to others upon
    request. In addition, the report will be available at no charge on the GAO
    Web site at http://www.gao.gov.

    If you or your staff have any questions, please contact Bill Solis at
    202-512
    8365 or by e-mail at solisw@gao.gov. Contact points for our Offices of
    Congressional Relations and Public Affairs are found on the last page of
    this report. GAO staff who made major contributions to this report are
    included in appendix V.

    William Solis
    Director,
    Defense Capabilities and Management

    David Cooper
    Director,
    Acquisition and Sourcing Management

    List of Congressional Committees

    The Honorable Richard G. Lugar
    Chairman
    Joseph R. Biden, Jr.
    Ranking Minority Member
    Committee on Foreign Relations
    United States Senate

    The Honorable John Warner
    Chairman
    The Honorable Carl Levin
    Ranking Minority Member
    Committee on Armed Services
    United States Senate

    The Honorable Henry Hyde
    Chairman
    The Honorable Tom Lantos
    Ranking Minority Member
    Committee on International Relations
    House of Representatives

    The Honorable Duncan L. Hunter
    Chairman
    The Honorable Ike Skelton
    Ranking Minority Member
    Committee on Armed Services
    House of Representatives

    Appendix I

    Scope and Methodology

    To determine the extent to which U.S. government agencies and contractors
    working in Iraq at the behest of the U.S. government have acquired
    security services from private security providers, we reviewed a wide
    array of documents to determine who was responsible for providing security
    to those types of organizations, including

    o 	warning orders and fragmentary orders issued by the U.S. Central
    Command (CENTCOM), Combined Joint Task Force-7, Multi National
    Forces-Iraq, and Multi National Corps-Iraq to determine if any orders had
    been issued regarding providing security to U.S. government employees or
    contractors rebuilding Iraq;

    o 	contracting documents such as statements of work, requests for
    proposals and contracts and contact modifications;

    o 	Department of Defense (DOD) regulations and instructions that relate to
    the management of contractors during contingency operations;

    o 	Departments of State and Defense memoranda of understanding regarding
    security and support;

    o 	proposed guidance between the Department of State and the Department of
    Defense regarding contractor support;

    o 	guidance to contractors prepared by the Coalition Provisional Authority
    (CPA) regarding contractor operations in Iraq; and

    o 	Department of State rules and regulations, including the Foreign
    Affairs Manual.

    We also met with officials from CENTCOM to obtain the command's position
    on the extent of the military's responsibility to provide security to
    civilian government employees and contractors, including both contractors
    supporting military forces and those engaged in rebuilding Iraq. In
    addition, we met with or obtained information from Army and Marine Corps
    units that served in Iraq to discuss their understanding of the military's
    responsibility to provide security to contractors and civilian government
    employees and interviewed representatives of the State Department's Office
    of Diplomatic Security to discuss the State Department's use of private
    security providers in Iraq as well as representatives of other government
    agencies working in Iraq who have

    Appendix I Scope and Methodology

    contracted with private security providers to provide security to
    employees and facilities.

    To determine how agencies addressed security needs when planning for and
    awarding Iraq reconstruction contracts, we interviewed officials at the
    CPA; DOD, including the U.S. Army Corps of Engineers and the Project and
    Contracting Office (PCO); the Department of State; and the U.S. Agency for
    International Development (USAID). We discussed the guidance and direction
    they received prior to awarding contracts and how such information was
    provided to the contractors. We reviewed various acquisition documents,
    including agency acquisition plans, requests for proposals, price
    negotiation memoranda, correspondence between contractors, and other
    relevant documents. We met with agency and contractor officials to discuss
    the nature and type of guidance provided relative to the expected security
    environment, the need for obtaining security services, and requirements
    and standards for security personnel or security-related equipment.

    We identified how security-related requirements were reflected in
    reconstruction contracts by selecting 16 contracts that were awarded to 10
    reconstruction contractors. We selected these contracts using a
    nonprobabilistic methodology that considered such factors as the awarding
    agency; the year awarded; the contract's expected dollar value; and the
    type, nature and location of the reconstruction activity. Nine of these
    contracts were awarded in 2003 and 7 were awarded in 2004. For each of
    these contracts, we obtained the contract and contract modifications
    issued as of December 31, 2004, totaling about $8.6 billion; relevant
    sections of the contractor's cost and technical proposal; security plans;
    security-related subcontracts; and other pertinent documents. We also
    obtained and reviewed 6 contracts that had been awarded by the U.S. Army
    Corps of Engineers, the Department of State, USAID and by an Army
    contracting agency for the CPA, for the protection of their personnel and
    facilities in Iraq to compare the type of security-related requirements
    incorporated within U.S. government contracts with those incorporated into
    contracts awarded to reconstruction contractors and, in turn, to
    subcontracts with security providers.

    We identified whether there are existing government or international
    standards relative to security providers that were applicable to the Iraqi
    security environment. We also spoke with agency security personnel,
    including the Department of State's Office of Diplomatic Security and the
    Overseas Security Advisory Council. We also contacted representatives

    Appendix I Scope and Methodology

    from relevant industry associations, including the International Peace
    Operations Association, International Security Management Association, and
    the American Society for Industrial Security. We also researched European
    security-provider standards and conducted a literature review of articles
    relating to the security provider industry.

    To assess the military's relationship with private security providers, we
    met with or spoke to representatives of CENTCOM, Army Central Command, and
    the PCO (at the Pentagon and in Baghdad) to discuss issues related to the
    military's authority over private security providers and reviewed a
    Department of Defense report to Congress addresses the use of private
    security providers in Iraq. We also met with or contacted representatives
    of Army and Marine Corps units that had been stationed in Iraq to
    determine if they had been provided guidance on working with private
    security providers and discussed issues related to command and control of
    private security providers.

    To assess the level of cooperation and coordination between the military
    and private security providers both before and after the advent of the
    Reconstruction Operations Center (ROC), we spoke with 9 private security
    providers working in Iraq as well as representatives of military units
    which had served in Iraq to determine the state of coordination prior to
    and after the ROC became operational. We spoke with representatives of the
    PCO to discuss the ROC's role in coordinating the interactions between the
    military and private security providers and any actions the PCO was taking
    to improve coordination between private security providers and U.S.
    military forces. We also discussed coordination issues with the executive
    director of the Private Security Company Association of Iraq and several
    reconstruction contractors. We also reviewed information posted on the ROC
    Web site related to security and reviewed documents developed by the ROC
    to explain its operations and functions.

    To determine the extent to which government agencies assessed the costs
    associated with using private security providers and security-related
    costs, we reviewed various contractual documents, including the 16
    reconstruction contracts and subsequent modifications, consent to
    subcontract requests, and monthly cost and progress reports submitted by
    the contractors we reviewed. We also met with agency and contractor
    officials to determine the means by which they maintained visibility over
    security providers and security-related expenses, as well as their general
    experiences in Iraq, the impact of security on reconstruction efforts, and
    the process by which they obtained security providers.

    Appendix I Scope and Methodology

    We collected data on the costs associated with acquiring and using private
    security providers or in-house security teams; and the cost associated
    with acquiring security-related equipment, such as armored vehicles, body
    armor, communication equipment, and other security-related costs. We did
    not attempt to quantify the impact of the security environment on
    increased transportation or administrative expenses, on the pace of
    reconstruction efforts caused by security-related work stoppages or
    delays, or the cost associated with repairing the damage caused by the
    insurgency on work previously completed. We also excluded the cost
    associated with the training and equipping of Iraqi security forces, or
    the costs borne by DOD in maintaining, equipping, and supporting U.S.
    troops in Iraq.

    For the 16 contracts we reviewed, we identified whether the agencies or
    the contractors had initially projected the cost of obtaining private
    security services. We reviewed various documents, including agency
    acquisition strategy plans and price negotiation memoranda; the
    contractor's cost proposals and security plans; and interviewed agency and
    contractor officials. We identified the actual costs incurred for security
    services and equipment by reviewing various cost documentation, including
    invoices, vouchers, and billing logs submitted by the contractors and
    their security provider(s) through the period ending December 31, 2004. We
    analyzed this information to determine

    o  the total amount billed by the contractor to the government;

    o  the amount billed by security subcontractors to the contractor; and

    o 	the amount billed for other security-related expenses, such as armored
    vehicles, body armor, communication, transportation costs, lodging, and
    other security-related equipment.

    We estimated the percentage of costs accounted for by private security
    providers and for security-related equipment by comparing the combined
    amount billed for these activities to the total amount billed by the
    reconstruction contractor to the government. We did not attempt to
    comprehensively identify costs that may have been incurred by
    subcontractors or lower tier contractors. We did, however, request
    information from the contractors as to whether their subcontractors
    required security above that which would typically be required, and if so,
    whether the subcontractor arranged for its own security or relied on
    security provided by the reconstruction contractor. We obtained examples

    Appendix I Scope and Methodology

    and cost information on selected cases in which subcontractors provided
    their own security.

    As part of our efforts, we reviewed pertinent sections of the Federal
    Acquisition Regulation, and in particular, the subcontractor competition
    and notification requirements provided for under Part 44; and relevant
    CPA, DOD, State Department, and USAID acquisition regulations, policy
    memoranda and guidance. We coordinated our work with and reviewed reports
    prepared by the Inspectors General for DOD, State, and USAID; the Special
    Inspector General for Iraq Reconstruction; and the Defense Contract Audit
    Agency.

    To determine whether private security providers were hiring former
    military servicemembers, we interviewed three private security providers
    from the United States that are working in Iraq and discussed the skill
    sets they hire. Additionally, we spoke with officials at the Marine Corps
    and Navy human resources commands; the Air Force's Deputy Chief of Staff,
    Personnel; the Army's Human Resources Command Military Police Branch and
    the Special Operations Command Personnel Division to ascertain whether
    certain military occupational specialties and ranks were seeing increased
    attrition and if private security providers were affecting military
    attrition. We also reviewed a transcript of a congressional hearing on
    Special Operations Forces personnel issues held in July 2004.

    To assess the extent to which military occupational specialties utilized
    by private security providers in Iraq are seeing increased attrition we
    obtained attrition information from the Defense Manpower Data Center's
    Active Duty Military Officer and Enlisted Master Files, which is an
    inventory of all individuals on active duty in the services. Our analysis
    was limited to active duty personnel and did not include reservists. The
    Center provided information on personnel numbers and losses for fiscal
    years 2000, 2001, 2002, 2003, and 2004. Attrition for the purposes of this
    report is an active duty member who is on active duty at the start of a
    given fiscal year and is no longer on active duty in the same service in
    the same pay category at the end of that fiscal year. An enlisted member
    who becomes a warrant or commissioned officer (or vice versa) or a member
    who changes services is considered to be a loss. The fiscal year lasts
    from October 1st of the previous year to September 30th of the named year.
    For example, fiscal year 2000 lasted from October 1, 1999 to September 30,
    2000. Personnel numbers were calculated as the total number of members at
    the start of the fiscal year (for example, October 1, 1999 for fiscal year
    2000). Losses are the endforce members who have attrited during the fiscal
    year (For

    Appendix I Scope and Methodology

    example, for fiscal year 2000, losses would be the number of personnel
    attrited from October 1, 1999 to September 30, 2000.).

    We received data from the Defense Manpower Data Center on active duty
    attrition rates for five military occupational specialties: special
    forces, military police, infantry, para-rescue, and combat controller.
    These military occupational groupings were selected because they
    represented military occupational skills most sought after by private
    security providers working in Iraq, as determined through interviews with
    officials at the human resources commands and private security companies.
    These data were then analyzed to determine whether attrition rates had
    increased in the past five years and whether servicemembers were
    separating from the military at increasing rates in certain ranks or
    number of years of service.

    We assessed the reliability of the Defense Manpower Data Center's Active
    Duty Military Personnel Master file by (1) reviewing existing information
    about the data and the system that produced them, and (2) interviewing
    agency officials knowledgeable about the data. We determined that the data
    were sufficiently reliable for the purpose of this report.

    We visited or interviewed officials from the following organizations
    during our review:

    Department of State

    o  Bureau of Diplomatic Security, Washington, D.C.;

    o  U.S. Embassy, Amman, Jordan;

    o 	The U.S. Agency for International Development, Washington, D.C.,
    Baghdad, Iraq; and Amman, Jordan.

    Department of Defense

    o 	Office of the Under Secretary of Defense, Personnel and Readiness,
    Military Personnel Policy, the Pentagon;

    o  The Defense Contract Audit Agency, Fort Belvoir, Virginia.

    Appendix I Scope and Methodology

    Department of the Air Force

    o 	Office of the Deputy Chief of Staff, Personnel, Force Management
    Division.

    Department of the Army

    o 	United States Army Human Resources Command Military Police Branch,
    Alexandria, Virginia;

    o  United States Army Central Command (Rear), Fort McPherson, Georgia;

    o  Project and Contracting Office (Rear), the Pentagon;

    o  U.S. Army Corps of Engineers, Washington, D.C.;

    o  Southwestern Division, Dallas, Texas;

    o  Transatlantic Program Center, Winchester, Virginia;

    o  Gulf Regional Division, Baghdad, Iraq;

    o  The Army Contracting Agency, Fort Eustis, Virginia;  o 1st Armored
    Division, Wiesbaden, Germany;  o 82nd Airborne Division, Fort Bragg, North
    Carolina;  o 2nd Armored Cavalry Regiment, Fort Polk, Louisiana;  o 1st
    Cavalry Division, Fort Hood, Texas. Department of the Navy

    o  Naval Personnel Command, Millington, Tennessee;

    o  Marine Corps Manpower Plans and Policy Division, Washington, D.C.;  o
    1st Marine Corps Expeditionary Force, Camp Pendleton, California.

    Appendix I Scope and Methodology

    Unified Combatant Commanders

    o  United States Central Command, MacDill Air Force Base, Florida;

    o 	United States Special Operations Command Personnel Division, MacDill
    Air Force Base, Florida.

    Contractors

    o  Aegis Defence Services, Ltd., London, United Kingdom;

    o  ArmorGroup, London, United Kingdom;

    o  BearingPoint Inc., McLean, Virginia;

    o  Bechtel National, Inc., San Francisco, California;

    o  Blackwater USA, Moyock, North Carolina;

    o  CONTRACK International, Inc., Arlington, Virginia;

    o  Control Risk Group, London, United Kingdom;

    o  Creative Associates International, Inc., Washington, D.C.;

    o  DynCorp International, Irving, Texas;

    o  Fluor Intercontinental, Inc., Greenville, South Carolina;

    o  General Electric, Atlanta, Georgia;

    o  Global Risk Strategies, London, United Kingdom;

    o  Kellogg Brown and Root Services, Inc., Houston, Texas;

    o  Olive Security, London, United Kingdom;

    o  Parsons Corporation, Pasadena, California;

    o  Perini Corporation, Framingham, Massachusetts;

    o  Research Triangle Institute, Research Triangle Park, North Carolina;

    Appendix I Scope and Methodology

    o  Triple Canopy, Lincolnshire, Illinois;

    o  The Hart Group, London, United Kingdom; and

    o 	Washington Group International, Inc., Boise, Idaho; and Princeton, New
    Jersey.

    Industry Associations

    o 	American Society for Industrial Security International, Alexandria,
    Virginia;

    o  International Peace Operations Association, Washington, D.C.;

    o  International Security Management Association, Buffalo, Iowa;

    o  Private Security Company Association of Iraq, Baghdad, Iraq;

    o  Professional Services Council, Arlington, Virginia.

    We conducted our review from May 2004 through June 2005 in accordance with
    generally accepted government auditing standards.

                                      Appendix II

                        Comments from the Department of Defense

    Appendix II
    Comments from the Department of Defense

    Appendix II
    Comments from the Department of Defense

                                      Appendix III

                         Comments from the Department of State

    Appendix III
    Comments from the Department of State

    Appendix III
    Comments from the Department of State

    Appendix IV

    Comments from U.S. Agency for International Development

    Appendix V

                        GAO Contacts and Staff Acknowledgements

    GAO Contacts 	William Solis (202) 512-8365 David Cooper (617) 788-0555

    Acknowledgments 	In addition to the contacts named above, Steve Sternlieb,
    Timothy DiNapoli, Carole Coffey, Gary Delaney, John Heere, William
    Petrick, Timothy Wilson, Moshe Schwartz, Kate Walker, Robert Ackley, David
    Mayfield, and Sylvia Schatz made key contributions to this report.

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