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Risk Pathways

4. Corruption in sustainment and contracting

Introduction

Operational contracting and sustainment has traditionally been seen as a support function separate from the main business of conducting military operations. Recent experiences, however – especially that of ISAF in Afghanistan – have prompted a wholesale re-evaluation of these assumptions, as financial flows and political relations generated through sustainment activities strengthened adversaries and made it far more difficult for ISAF to achieve key goals related to security and stability.

Sustainment contracts with international forces tend to generate significant income for the contractors. When handled well, increased availability of work and injection of additional resources can provide an economic stimulus in the area of operations, help diversify the economic base, spur on competition, and widen access to opportunity for a wide range of stakeholders. But mission sustainment, from food delivery to large-scale outsourcing of transport services needed to supply international troops, also carries significant risks in fragile and conflict environments.

Revenues generated by contracting with international forces, as well as the political relationships they can help forge, are attractive to local providers and can prompt unscrupulous competition, sometimes including violence and illegal measures such as land grabs and extortion of material and access. If these revenues are monopolised by one ethnic, social, tribal or family group, their flow risks exacerbating pre-existing divisions, enable dominance of one group at the cost of others, and result in long-term grievances and potential destabilisation of the area.

Finally, operational contexts also often come with less stringent oversight. Due to large quantities of items needed, limited number of potential partners, weak governance in the area of operations, and short delivery timeframes, the usual due diligence procedures might either be skipped or become less effective. Lax oversight and operational pressures – it is difficult to threaten cancelling a contract if operational outcomes depend on it – create environments more susceptible to corruption risks at all stages of the sustainment process, from tenders to contract oversight and execution.

In Iraq, Custer Battles, a company which undertook to provide security, construction and operational services to support the Iraqi Currency Exchange (ICE), submitted apparently false invoices and used shell sub-contractors to artificially inflate its costs. During the tender process, Custer Battles was the only company whose bid undertook to complete the work at a low price and to the deadline specified by the Coalition Provisional Authority. However, after the bidding was completed, the contract was modified four times, and each time the price was increased. The changes in the contract; submission of false or ill-substantiated invoices; discrepancies between invoices submitted and reports of actual services provided; and other issues were all red flags that the international coalition officials did note, but felt powerless to act on due to operational pressures and the fear that terminating the contract would create significant knock-on effects.

“If an official were to try to cancel a meal-service contract, for example, some colonel is going to be on the phone to you ripping your lips off saying, ‘Why aren’t my troops being fed?’…The threat of cancelling a contract is normally the sharpest quiver in the bag of the contracting officer. But there’s no arrowhead on it any more…So the checks and balances are gone. The system is broken.”

Quoted in ‘Corruption in procurement processes,’ 2007

Consequences for the mission

Waste of resources

Strengthening of corrupt and criminal networks

Weakening of legitimate governance structures

Difficulty in achieving development- and security-related goals due to spoiler activity and lack of opportunities for the majority of the population

Increasing disenchantment among the host nation population

Increasing violence and insecurity levels

Adversaries using corruption as a way to discredit friendly government and/or in recruitment

Diminished force protection levels

Exit strategy more difficult to achieve

Risk Areas within Risk Pathway 4. Corruption in sustainment and contracting

These risk areas provide further information on specific corruption risks associated with sustainment and contracting, including specific guidance how to identify these risks and what measures can be implemented to mitigate them.

4.1 Divergence of mission resources to criminal networks and to adversaries

Contracting relationships not only create tangible financial flows, but also result in intangible, social and political links between mission forces and local service and goods providers. They can be an important resource for local stakeholders, who can use them to build up their own political and economic position.

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4.2 Collusion in the bidding process

Collusion – illegal cooperation or conspiracy aimed at distorting the tendering and procurement process – can create the appearance of competition while in fact directing resources to particular powerbrokers through a network of seemingly independent companies.

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4.3 Subcontractors, agents and intermediaries

The fragmentation of the supply chain to include significant numbers of subcontractors, agents and intermediaries has been identified as key a contributor to corruption risk. In 2013, more than 90 per cent of reported US Foreign Corrupt Practices Act (FCPA) cases were found to have involved third party intermediaries.

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4.4 Asset disposal

Disposal of mission assets, usually coming at a point when international forces are winding down, transitioning or withdrawing, poses significant corruption risks. While they might no longer be significant for the mission itself, these assets, if they make their way into the hands of malign networks, can prolong conflict and strengthen spoiler groups.

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Mitigations within Risk Pathway 4. Corruption in sustainment and contracting

11. Mitigating corruption in sustainment and contracting 11.1 Making sustainment and contracting ‘Commander’s business’ 11.2 Ensuring appropriate levels of expertise among mission personnel 11.3 Promoting competition: disseminating information about tenders 11.4 Promoting competition: merit- and integrity-based requirements 11.5 Performing supply chain due diligence 11.6 Limited reliance on and control of subcontractors, agents and intermediaries 11.7 Training and awareness raising for contractors and subcontractors 11.8 Transparency in contracting 11.9 Contract oversight 11.10 Sanctioning contractors: suspension and debarment (S&D) 11.11 Tracking and monitoring for asset disposal

These are specific measures that can help mitigate corruption risks in sustainment and other areas of activity that include contracting, such as humanitarian aid and reconstruction.

1. Getting your own house in order: anti-corruption for mission forces 1.3 Pre-deployment training and preparation 1.4 Whistleblowing and reporting channels 1.5 Internal investigations and sanctions

Promoting strong integrity standards among mission personnel can help set expectations for relations with the host nation, and prevent creation of new opportunities for corrupt networks.

5. Investing carefully and applying conditionality

Ensuring that financial flows do not exceed the host nation’s absorptive capacity will diminish the risk of diversion by corrupt networks; tying funding and assistance to improvements in governance can help create momentum for reform.

7. Working with civil society: from political inclusion to tactical cooperation 7.1 Formulating political strategies 7.2 Tactical cooperation: project oversight

Civil society organisations can be valuable allies in the fight against corruption: they can help set strategies, understand what could be improved and how, and oversee specific projects using mission funds.

9. Investing in monitoring and oversight 9.1 Overseeing donor funds: Inspector General systems 9.2 Overseeing donor funds: End-use monitoring of equipment 9.3 Strengthening host nation oversight 9.4 Supporting external oversight bodies

Stronger oversight of mission resources will help limit opportunities for corrupt networks, and helping develop host nation or civil society oversight mechanisms will help create longer-term accountability of host nation forces.

10. Focusing on investigations and protecting whistleblowers

Ensuring that the international mission is able to receive and process signals of wrongdoing from those familiar with the projects it finances increases the likelihood of detection and diminishes the appeal of corruption.

When designing anti-corruption measures to protect mission forces, take into consideration some of the general approaches to frame your plans:

2.2 Choosing your partners: marginalising spoilers, supporting change agents

2.3 Staying one step ahead: horizon scanning and iterative approaches

2.4 Planning and budgeting for the long term

2.5 Leading by example: demonstrating the importance of integrity

2.6 Communicating anti-corruption: the role of StratCom

3.1 Including corruption in mission threat assessment and mission analysis

3.2 Making anti-corruption someone’s job: the importance of ownership