Global Policy Forum

By Steve Fainaru

The U.S. military has paid $548 million over the past three years to two British security firms that protect the U.S. Army Corps of Engineers on reconstruction projects, more than $200 million over the original budget, according to previously undisclosed data that show how the cost of private security in Iraq has mushroomed.

The two companies, Aegis Defence Services and Erinys Iraq, signed their original Defense Department contracts in May 2004. By July of this year, the contracts supported a private force that had grown to about 2,000 employees serving the Corps of Engineers. The force is about the size of three military battalions. U.S. officials and company representatives attributed the overruns to the cost of protecting a largely civilian workforce amid an escalating insurgency, as Corps of Engineers commanders demanded more manpower and increasingly expensive armor to guard their field staff.

"To pay a man or a woman to come over here, put the vest on every day and escort military and civilians around the theater, knowing that people want to blow them up and kill them, you gotta pay to get that level of dedication," said Col. Douglas P. Gorgoni, senior finance officer for the Corps of Engineers in Iraq.

Months ago, the military recognized that the two overlapping contracts were costing millions of dollars in duplicate spending and sought to consolidate them. The result is still the single largest security contract in Iraq. The new contract will save $7 million a month, according to the Corps of Engineers, but will still be worth up to $475 million to the winning bidder. The Army eliminated Erinys from the competition, but the company has held up the award by filing three separate protests against what it described as a "fundamentally flawed" procurement process. The protests have forced the military to extend Erinys's contract. The company has received $169.4 million since the beginning of that contract, $120 million more than originally budgeted. "Quite frankly, they are very extensive, very lucrative contracts. Why would they not try to protest them?" Gorgoni said, adding that he could not comment on the merits of the protests. Aegis is a finalist for the new contract, according to sources familiar with the bidding process.

The private security industry has surged in Iraq because of troop shortages and growing violence. After the March 2003 invasion, hundreds of foreign and Iraqi companies, many of them new, signed contracts with the U.S. and British militaries, the State Department, the Iraqi government, media and humanitarian organizations and other private companies.

The size of this force and its cost have never been documented. The Pentagon has said that about 20,000 security contractors operate in Iraq, although some estimates are considerably higher. Private security contractors have been used in previous wars, but not on this scale, according to military experts. Several lawmakers have recently sought to regulate the private security industry and account for billions of dollars spent on outsourcing military and intelligence tasks that once were handled exclusively by the government.

Rep. Marcy Kaptur (D-Ohio), a member of the House Appropriations defense subcommittee who was briefed by Aegis and the Corps of Engineers during a February visit to Iraq, said lawmakers are only now realizing the scope of private security there. "We're in the wake of this speedboat. We can't even catch up to the contracts," said Kaptur, who opposes the use of private forces and initiated an audit of Aegis by the Special Inspector General for Iraq Reconstruction, the second the agency has conducted.

The payments to Aegis and Erinys "are immense and probably shocking to a lot of people, but they represent just two companies within one sector," said Peter W. Singer, a Brookings Institution senior fellow who wrote a book on private security and has advocated greater oversight of the industry. "We're talking tip-of-the-iceberg stuff here. That's pretty disturbing when you begin to extrapolate it out."

Company representatives said the contracts were expanded to confront the escalating insurgent threat. "We're fulfilling the need as directed by the client," said Kristi M. Clemens, Aegis's Washington-based executive vice president. She said costs rose in line with the Corps of Engineers' security demands, including a request for additional armored vehicles that cost roughly $150,000 and are manned by guards who earn $15,000 a month. "It's expensive to operate in a high-risk area," Clemens said. The chairman of Erinys, Jonathan Garratt, wrote in an e-mail that "the Army has increased the volume of services in response to the security situation in Iraq" since the company was awarded its contract. "Erinys has provided the increased services as requested by the Army in properly-documented change orders," he wrote.

Aegis and Erinys work side-by-side in Baghdad's Green Zone. The Corps of Engineers is made up primarily of civilians and does not have enough resources to provide its own security, officials said. The military has said the use of private security forces ultimately saves money and frees up troops for more urgent tasks, such as fighting the insurgency. Aegis signed its original contract in May 2004 with the Iraq Project and Contracting Office, a Defense Department agency created to manage reconstruction projects. The initial contract was for $92.3 million, according to Aegis and the Corps of Engineers, and included options for two additional years that raised the total to $293 million. Because of the additional workload and extensions, the military has paid Aegis $378.5 million, or $85.5 million more than originally budgeted.

In October 2006, according to the Corps of Engineers, the project office was folded into the Gulf Region Division of the Corps of Engineers, which had an existing security contract with Erinys also dating to May 2004. That contract was initially worth $15.2 million in the first year and included options for two additional years that raised the total to nearly $49 million, according to Erinys. Through July, the military had paid Erinys $169.4 million, or $120 million more than originally budgeted. "The disbursements are larger than the base contracts because over time the security mission requirements expanded and the contract has spanned a total of three-plus years," Gorgoni said. "Both contracts were correctly written in such a manner to allow rapid expansion to meet the insurgent threat."

The merger left the Corps of Engineers with two private security firms. Erinys continues to provide personal protection for several Corps officials involved in reconstruction. Aegis runs security details for other Corps personnel and operates more than a dozen reconstruction liaison teams, in which guards armed with assault rifles assess rebuilding projects throughout the country. Aegis also operates the Reconstruction Operations Center, an information hub in the Green Zone that provides intelligence and tracks the movements of security details across Iraq. Corps of Engineers officials said both companies have been essential to the reconstruction effort. "Without private security, our mission would be much more difficult and would require coalition forces to be diverted from their assigned combat missions," said Col. Robert Walton, who oversees security operations for the Corps in Iraq.

The military has paid more than $150 million to both companies -- $106.8 million to Aegis and $48.3 million to Erinys -- since the merger, according to the Corps of Engineers. Together, the contracts have a monthly "burn rate" of $18 million. By consolidating, military planners have calculated, the cost could be reduced to $11 million a month. "Right now, you have two human resources offices, one for Aegis and one for Erinys. It's in the government's best interests that we have one," Gorgoni said. "They have two sets of logistics offices. Each has overhead and administration and management. We're economizing that into one."

The companies' mission is as dangerous as it is expensive. According to the Labor Department, which tallies contractor casualties based on insurance claims, at least 181 private security contractors have died in Iraq since the beginning of the war. Aegis has lost 16 employees in Iraq. Erinys has lost at least 10, according to published accounts that were not disputed by the company. No Corps of Engineers employees have been killed while under the protection of either Aegis or Erinys, the companies said.

The Aegis and Erinys contracts were scheduled to expire last spring. Erinys filed its first complaint in June after the Army determined that its bid for the new contract failed to fall within the "competitive range." After a judge filed a temporary restraining order to prevent the military from awarding the contract, the military reappraised the bidding, including Erinys's proposal, then eliminated the company again. Erinys filed another protest, which is under review by the U.S. Court of Federal Claims. Garratt, the Erinys chairman, wrote that the contract includes provisions allowing the military to continue using Erinys as late as February 2008. "Accordingly, the current bid protests are not in any way impacting the level of security services that the Army is receiving," Garratt wrote. Gorgoni said that the delays are preventing the military from realizing the projected savings under the new contract. However, he said, the cost is insignificant when it comes to saving lives. "I can tell you, the last thing I think about when I'm taking indirect fire and a team is protecting me is how much it costs," he said. "If you're on the receiving end, no price is too high."

Staff writer Alec Klein and staff researcher Julie Tate in Washington contributed to this report.