Are Private Contractors Really Cheaper?

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The Washington Post

Insurgents attack a contractor convoy hauling supplies for U.S. troops in Afghanistan last year.

Those who support using private military and security contractors often claim that a major reason for doing so is that it is more cost-effective than using regular military forces.

While there hasn’t been a whole lot of rigorous evidence put forward to substantiate the claim, especially considering the decades the argument has been forward, basic fairness dictates that we have to say it is possible.

But, as the saying goes: be careful what you ask for, because you might just get it.

Perhaps the reason contractors are more effective than regular military forces is that they are more prone to getting shafted by their employers. Naturally, that is not the argument a pro-private-military-and-security-contractor advocate might want to cite, but a paper written in 2012 provides some compelling evidence that it is the case.

Last year, Jimmy I. Wise, a U.S. Navy lieutenant commander, wrote a paper published by the Naval Postgraduate School in Monterey, California. Outsourcing Wars: Comparing Risk, Benefits and Motivation of Contractors and Military Personnel in Iraq and Afghanistan (2009–2011) compared risk, insurance benefits, and motivation factors for contractors and U.S military personnel serving in Iraq and Afghanistan from 2009 to 2011.

He found that while contractors’ medical insurance benefits were equitable to U.S. military personnel, real inequity existed between contractor disability compensation insurance and the military personnel’s benefits, and real inequity existed between a contractor’s death benefits and the U.S. military personnel’s death benefits.

Speaking as a Navy veteran, and having witnessed my share of horror stories when it comes to applying for and receiving benefits one is entitled to, I was initially reluctant to think anything could be worse than dealing with the Department of Veterans Affairs. But after reading Wise’s paper it seems that the private sector rose to the challenge.

This is bad, and not just from a moral or ethical perspective. Wise writes that “if contractors are exposed to an excessive level of risk without equitable insurance benefits, they may not be motivated to serve in future warzones without receiving sizeable increases in pay and benefits. ” Of course, such an increase would weaken the supposed cost-effectiveness argument for contractor use.

However, given that contractor casualties, as a percentage of overall contractor personnel in Iraq and Afghanistan, have been rising the past few years, it make a certain kind of cold-blooded business sense, at least in the short term, to stiff contractors on their benefits. Wise estimates that in 2009 the contractor-casualty percentage was 1.7%. In 2009 it was 2.9% and in 2011 it was 2.7%. In terms of overall casualties, that works out, body-wise, to 353, 541, and 420 for 2009, 2010 and 2011, respectively. In terms of deaths it is 280, 426, and 414 for those years.

And if you a contractor working in Afghanistan, your likelihood of survival is far lower than a contractor working in Iraq. By 2011 the chance of dying there had increased to nine times the chance of dying in Iraq.

Wise does some yeoman labor in comparing injuries among contractors and military personnel and the compensation they are entitled to receive. By the way, if you are a contractor you should note that if you suffer an injury, such as a loss of a hand, you will initially receive temporary total disability or temporary partial disability until the injury is healed enough for a contractor to go back to work at a reduced capability, i.e., using a prosthetic.

You will then receive permanent partial disability compensation of 66 2/3% of your average weekly wages for a defined period based on a schedule of injuries that do not constitute a permanent total disability, but not to exceed the maximum national average weekly wage rate which is currently $1,295.20.

The longest period of time on the schedule of disabilities is 312 weeks of compensation for the loss of an arm, then 288 weeks for the loss of a leg down to the shortest of 15 weeks for the loss of a fourth finger.

Wise found that contractors have about a two-thirds chance of being treated unfairly. The good news is that when it comes to medical treatment they are treated equitably:

The data shows that all contractors receive the same medical care that other contractors and military personnel receive, regardless of their wages. Companies provide contractors with similar medical care provided to the military personnel. If the company cannot provide the care in a remote operational environment or if the contractor requires emergent care, the contractor can receive the same medical care troops receive at a military treatment facility. Medical treatment is thus “absolutely” equitable.

The bad news is that a contractor’s compensation for disabilities is not equitable:

When comparing workers’ compensation for contractors against compensation for the military, the contractor’s system would be equitable due to the similarity of the military member’s compensation, but the maximum amount of the compensation for contractors is capped at the maximum national average weekly wage of $1,295.20. This cap makes the contractor compensation inequitable between contractors (i.e., all contractors do not receive the same relative percentage) and between contractors and military personnel (i.e., because they have no cap reduction). If a contractor was earning $10,000 per month or a weekly wage of $2,500 per week, his normal compensation would be 66 2/3% of his average weekly wage or $1,666.67 but he would only receive $1,295.20, the maximum allowed under the cap limit regardless of the severity of his injury but a military member would receive compensation based on the severity of his injury with the possibility of receiving up to 75% of his basic pay with no cap to reduce this amount.

And, when it comes to death benefits the contractor’s survivors get, well, reamed, compared to the benefits the survivors of regular military personnel:

A TCN from Nepal hired to work as a cook may receive $120 in average weekly wages. The TCN’s death benefits would be 66 2/3% of $120 per week for life. His life would possibly be only worth $80 per week ($4,160 per year) to his spouse and child for life. If an American contractor earning $3,000 per week gets killed, his family would receive the maximum payment of $1,295.20 per week. This system makes the life of an American or higher paid contractor more valuable than the life of a lower wage contractor and the compensation system penalizes the family of the contractor that earns a higher wage by placing a cap on his benefits, instead of receiving 66 2/3% of the contractor’s average weekly wage, the beneficiaries would only receive 43%. The maximum limit on benefits makes the workers’ compensation system no longer relatively equitable as all contractors do not receive the same relative portion of their wages. Contractors may perceive that the compensation system provides benefits that are not equitable between contractors and even less equitable when compared to the U.S. Military personnel. Contractors may not be as motivated to serve in war zones if they face the same risks as the military but the contractors’ families may have to struggle to make ends meet if the contractor gets killed, while the military family receives a perceived income windfall.

 The military death benefits are allocated using logic consistent with absolute equity, the compensation for beneficiaries of military personnel are all the same for each member, regardless of rank or wages. A military member’s family would receive a lump sum payment up to $500,000 ($100,000 in death indemnity compensation and up to $400,000 in service group life insurance, depending upon the level of coverage selected by the member). The United Nations International Children’s Education Fund (UNICEF) website ( lists the average life expectancy in Nepal at 68 years. Assuming the beneficiaries for the TCN from Nepal live another 68 years, the TCN’s beneficiaries would receive about $241,280. The military member’s life is worth almost twice the value of a TCN’s life, even if both people are potentially exposed to the same danger. Absolute equity suggests that this is a real inequity.

David Isenberg is the author of Shadow Force: Private Security Contractors in Iraq, and blogs at The PMSC Observer. He is a senior analyst at Wikistrat and a Navy veteran.