The Hidden Costs of Contracting: Private Law, Commercial Imperatives and the Privatized Military Industry

| December 2008


This paper resulted from research conducted during the author's International Security Program fellowship.

"On September 16, 2007, a group of contractors working for the firm Blackwater USA engaged in a chaotic and bloody firefight in Baghdad's Nisoour Square that left 17 Iraqi civilians dead, Blackwater's $500 million in government contracts in jeopardy and the future of the privatized security industry in question. What exactly happened in Nisoour Square remains in dispute. Blackwater alleges that its contractors came under small arms fire and lawfully engaged to stop the threat. The Iraqi government and the US military both argue that Blackwater opened fire unprovoked and used excessive force — including machine guns, grenade launchers and helicopter fire. The FBI, which is conducting a formal investigation into the shootings on behalf of the Department of Justice, argues that 14 of the 17 deaths were unjustified killings and finds no evidence, thus far, that Blackwater was justified in shooting at civilians.

The Nisoour Square incident was broadly proclaimed to be the final straw that would force the White House, Congress and the courts to come to terms with the complex and often fraught relationship between the U.S. military and the increasingly ubiquitous, increasingly interoperable private military contractors that it hires. The FBI investigation marks the first time since the end of the Cold War that the US government is attempting to hold a private security company criminally liable for extraterritorial crimes committed in the course of a government contract.

However, while the episode has subjected the privatized military industry to heightened scrutiny from the Iraqi government, the US military, Congress, and the public, the Department of State and the Department of Justice contend that despite recent efforts to the close the legal loopholes through which private military contractors have slipped in the past, there remain considerable, perhaps insurmountable, hurdles to prosecution.

Meanwhile, at the time the grand jury investigation into the Nisour Square shootings was opened, a civil lawsuit was filed by the New York based Center for Constitutional Rights on behalf of the Iraqi families who lost loved ones in the incident. These families are suing Blackwater in tort, under causes of action including assault and battery, intentional and negligent infliction of emotional distress, negligent hiring and wrongful death. While the jurisdictional challenges faced by the Department of Justice may ensure that Blackwater never faces criminal liability, the barriers to entry for a civil suit are far lower. The Blackwater litigation is one of a handful of civil lawsuits that have been filed against private military contractors since the inception of the Iraq war, and it is one of the many ways that corporate law and commercial imperatives have begun to impact the conduct of war due to the burgeoning of the privatized military industry.

After all, private military companies are by definition products of the elaborate civil laws and regulatory structures that shape all corporations, and they are subject to corporate pressures that the military does not face. Accompanying the use of PMCs are costly externalities associated with their private-sector status — not only tort and contract liability to employees and shareholders, but also compliance with corporate statutes and regulations, insurance costs, and the incentive structure created by the government contracting regime. These constraints have begun to impose acute limitations, both financial and operational, on the PM industry — and by extension on its clients. In short, the government's use of PMCs has caused corporate and commercial law to profoundly affect the conduct of war, and the consequences remain unstudied.

This paper will apply a market-based analysis to the PM industry, focusing on PMCs not as rogue mercenaries, but as a case study in the unintended consequences of privatization. In particular, it will take up three structural constraints on the PMC-military relationship: the civil liability regime, the insurance regime, and the government contracting regime. While the conventional critique of the PM industry focuses on its lack of accountability, this paper will argue that the most significant liability of PMCs may turn out to be what is claimed as their primary advantage: efficiency.

After a brief introduction to the origins and organization of the privatized military (PM) industry, Part I of this paper presents an overview of the regulatory and prosecutorial challenges facing the legal system with regard to holding PMCs accountable for criminal misconduct. Part II takes up in turn each of the three primary structural constraints on the PMC-military relationship: the civil liability regime, the insurance regime, and the government contracting regime. Part III concludes with a series of steps that stakeholders might take to mitigate the operational and financial inefficiencies caused by these constraints while increasing accountability, in order that this increasingly common mode of conducting warfare may begin to safely and securely generate the advantages upon which it was predicated...."

For more information on this publication: Please contact International Security
For Academic Citation: Weiner, Rebecca Ulam. “The Hidden Costs of Contracting: Private Law, Commercial Imperatives and the Privatized Military Industry.” Paper, December 2008.