On March 31, 2004, an enraged mob attacked and overturned a vehicle in the streets of Fallujah, Iraq. Four men were dragged from the wreck and beaten with sticks and stones. All four men were US citizens with Special Forces backgrounds. Their training and skills were of little help to them as they were dragged through the streets by an ecstatic crowd, shot and dozed with gasoline and burned. Their charred bodies were hung from a bridge for all to see, including international news media. This violent tragedy would be the first time that most Americans heard about the men’s employer, a relatively unknown Virginia-based security firm, and the new and controversial world of private military contractors.
In 2010, private military companies (PMCs) invoices accounted for more than $50,000,000,000 annually, or about a third of the US defense budget for military personnel. Blackwater, the employer of the four Fallujah victims, is the most successful security contractor to have been in existence, but also also the most controversial. Its story teaches us more about the economic and political benefits and pitfalls of outsourcing security than any other company. At the peak of its activity in the late 2000s, Blackwater ran thriving operations in the US, Afghanistan, Pakistan and Iraq, offering a wide array of services ranging from close-quarter combat training to personal protection of US Diplomats and airlift support for the Department of Defense. The company also provided security services at fixed locations for some of the CIA’s most sensitive, and sold security intelligence and risk management services to government agencies and corporations alike.
The background and philosophy of Blackwater rests almost entirely on a man who, in the late 90s, had made it his mission to pursue aggressive and lucrative private-sector solutions to some of the world’s stickiest problems. His name is Erik Prince. In his 20s, Prince trained and served in the elite US Navy SEALs. The corps had been conceived by President John F. Kennedy in the 60s in response to the changing nature of warfare that called for increasingly unconventional solutions to replace traditional large-army military operations. Inspired by this principle and his own experience with the armed forces, Prince left the SEALs at age 29 when his father died and left his family a $1.35 billion inheritance. He started to work on his own company, and in 1997 incorporated Blackwater.
Prince used his military connections both to staff his new start-up and also to win the government contracts that would become the foundation of the business. The company initially operated a state-of-the art training facility for military and law enforcement. The September 11 attacks on the World Trade Center and the ensuing War on Terror, however, soon afforded the growing business much more lucrative opportunities in the field of private security contracting.
Prince’s strategy was for Blackwater to be to the Pentagon what FedEx was to the Postal Service, and save everyone money and time by providing one-stop shopping solutions to whatever issues the US armed forces and diplomacy would encounter in unfamiliar, high-risk territories. And Prince may have had a point. In 2005, Blackwater was called upon to assist with humanitarian and crowd control efforts after Hurricane Katrina had struck New Orleans. The Blackwater personnel arrived two days before FEMA.
The CIA-led operation in Afghanistan that launched in late 2001 was in dire need of protective security details for its staff and operations, and Prince was ready to look through Blackwater’s Rolodex of some 40,000 former elite military forces and law enforcement personnel to find the right men in a matter of days.
Then came Iraq. In the spring of 2003, the old-fashioned land invasion was over and had given way to a huge and complicated political mission. The Department of Defense, the CIA and State Department were all in need of security services which landed Blackwater numerous contracts for a variety of services ranging from guarding facilities to escorting diplomat convoys. Whatever the government needed, Blackwater could provide. And quickly.
As the war decade unfolded, Prince took great pride in his ability to “look over his skis” and foresee the next security need, then figure out how Blackwater could accommodate. At the same time, once the company had a foot in the door, it was easy to spot 10 other regional offices that needed the same solution. This helped Blackwater quickly spread its influence and increase its revenue, which was more than $1.5 billion in government contracts alone between 2001 and 2009.
But why hire a private security contractor in the first place?
Ambassador John D. Negroponte served as a client of Blackwater’s in three different capacities: as US ambassador to Iraq in 2004, as the first ever Director of National Intelligence from 2005 to 2007 and as Deputy Secretary of State from 2007 to 2009. He explains that in the 90s, Vice President Al Gore was responsible for utilizing the ‘peace dividend’ that was expected to result from the end of the Cold War. Defense expenditures would be cut reducing the budgets of many agencies by as much as 40%. When the US found itself in a ‘war decade’, after the attacks on 9/11 and the subsequent invasions of Afghanistan and Iraq, , neither the Pentagon nor the CIA or State Department had the personnel required to meet these new endeavors of the Bush Administration. In need of man power, they turned to the marketplace.
Erik Prince suggests another reason when he delivers his no-nonsense sales pitch that Blackwater does it “cheaper and better”.. Blackwater charged $1,500 per day for the security services of an operative with Special Forces background (who would receive about $550 in daily salary). $1,500 is roughly equal to the government’s daily expenditure for a similar operative employed internally. But the government must also account for the additional costs of paid leave, medical, insurance and pension funding, and the total life time cost of an army operative; even divided by the number of days in active service, these costs far exceed the daily Blackwater rate. Moreover, external contractors are a variable cost that can be put on hold or terminated on short notice, providing greater flexibility over that of a US officer. In the government’s view, contracting also outsourced the political risk in the event of a screw-up or fatality. The contractor, not the client, would take the heat — and the bullets.
With government willing to staff out responsibilities for security that had traditionally been its exclusive domain, the opportunity proved perfect for an individual with the experiences and worldview of someone like Prince. Raised a die-hard libertarian, Prince declared,“I’m a very free market guy. I’m not a huge believer that government provides a whole lot of solutions. Some think that government can solve society’s problems. I tend to think private charities and private organizations are better solutions.” He also refuses to label Blackwater operatives as ‘mercenaries’. Mercenaries, to Prince, are people who have no loyalty and will work for the highest bidder. Blackwater has only employed US citizens with a strong track record of patriotic duty, and the company will only work for the US and its allies. He believes the sky is the limit with respect to what can and should be outsourced, and that private corporations can leverage their profit motive to do things in better, faster and more cost-efficient ways, a privilege that government agencies do not enjoy because their performance metrics are not centered on profit.
These factors help explain why Blackwater was doing so well in Afghanistan in Iraq. The department received the services they needed and were satisfied. Blackwater made a ton of money, and landed more and more contracts, ever eying new opportunities to help the government.
In September 2007, the number of contractors in Iraq reached a one-to-one ratio with US troops. On Sunday the 16th, a Blackwater convoy on contract for the State Department came to a halt at a Baghdad intersection called Nisour Square. Operatives emerged from the four vehicles and started opening fire on a perceived threat. When the smoke cleared, 17 Iraqi civilians lay dead.
The scandal spawned a number of investigations and congressional hearings. After 15 months of investigation, the Justice Department charged six Blackwater operatives with voluntary manslaughter, stating the use of force was not only unjustified but unprovoked. Now, the world wanted to know more about who these contractors were, and so did lawmakers, democratic leaders in particular.
How could things have done so wrong? The heightened focus quickly showed that the current model for employing contractor might have been a ticking bomb. Analysis made it apparent that contractors operated in a soup of legal grey zones and that it was dangerously unclear which jurisdiction they should answer to when on mission abroad, or if their actions need comply with the Geneva Convention and so on. The question boiled down to: if contractors made mistakes, like in Nisour Square, who could punish them? Moreover, oversight and management of contractors was so complicated that it, too, was outsourced to another contractor, Aegis Defense Systems, which had existed for less than a year when it was awarded a $293 million contract to manage other contractors. The State Department’s own limited staff of contracting officers would rotate every six months, making it impossible for individuals to grasp processes and requirements, and intricacies of the contracts. Finally, there was the problem that personal relationships seemed a little too close between private contractor executives and government bureaucrats, especially because companies like Blackwater hired aggressively among military and government officials, offering drastically increased paychecks, leading to numerous conflicts of interest.
In the end, Congress called for various reforms and increased oversight and accountability. Jurisdiction and immunity processes were clarified as the heated debate went on, and CIA and Pentagon officials would have to wait 18 months after resigning before they could go work for a contractor. Furthermore, by January 2008, a Memorandum of Agreement had been issued by the State Department and the Pentagon that would better coordinate future work by contractors, and also imposed strict limitations on their use of force. At tbe same time, contracting data would be tracked more closely, and uniformed personnel would receive training in how to cooperate with contractors. From now on, things would be different.
THE GLOVES COME OFF
Blackwater’s alleged responsibility in the Nisour Square shootings increased scrutiny on the company’s role in what was already a very public and politically controversial war.. In the aftermath of the shooting and subsequent hearings, The State Department curtailed Blackwater’s activities—most painfully for the company, its revenue dropped 40%. To his great frustration, Prince was unable to give his enterprise the public defense he wanted. A confidentiality clause in the State Department contract limited communication with the media to government representatives, who had little desire to shield Blackwater from the controversy that erupted.
With his security contracting business was under assault and rapidly becoming a household name in the worst way, Prince changed course. Hounded by public scrutiny, he doubled down on services where opacity was not merely tolerated, but encouraged: spycraft and assassinations. In 2004, the CIA had approached Prince to recruit him and, by extension, his wealth and his company, as an asset to help hunt down and assassinate terrorists in areas where the US could not ordinarily maneuver. Prince, in turn, hired the CIA, in shape of Mr. Cofer Black, a classically trained spy and head of the CIA’s Counterterrorism Center. Black, who right after 9/11 had promised President George W. Bush that when the CIA was through with al-Qaeda, they would have “flies walking across their eye-balls”, was hired and became vice chairman of Blackwater in 2005. He was put in charge of setting up Total Intelligence Solutions, a Blackwater subsidiary that would provide covert intelligence services, and remained part of the group until 2008.
Avoiding public scrutiny ultimately proved to be a futile effort. Art began to imitate life, and Prince’s exploits inspired increasingly sensational storylines. On the Fox show 24, a villainous character appeared as a thinly veiled version of Prince—in this case building a secret missile arsenal. In August 2010, details of the assassination program leaked to media, and the Washington Post reported that CIA HIRED FIRM FOR ASSASSIN PROGRAM. Prince, still battling with legal fallout from Nisour Square, had had enough: “I put myself and my company at the CIA’s disposal for some very risky missions. But when it became politically expedient to do so, someone threw me under the bus.” He resigned from his posts as Chairman and CEO, and later in 2010 sold Blackwater to a group of investors for an undisclosed sum.
THE FUTURE PHILOSOPHY
Ambassador Negroponte has a more nuanced view. He purports that the philosophical and moral intricacies are too many and too varied to give a definitive answer to how far one should go when outsourcing patriotic duties to private companies. It is, he says, “inevitably a political decision”. To figure out if a complicated concept will work in statecraft, much experimentation, evaluation and debate is required, as the past decade makes abundantly clear.
Many thought the Obama Administration would bring an end to the era of private military contractors, whose image and philosophy had become closely associated with neo-conservatism and the Bush Administration. For instance, in 2008, then Senator Hilary Clinton stated that “[these] private security contractors have been reckless and have compromised our mission in Iraq. The time to show these contractors the door is long past due.” But the opposite happened. The Obama Administration awarded Blackwater (which had re-incorporated and changed its name to Academi) contracts worth $220 million in 2010. As of late 2010, more than 7,000 private security guards were operational in Iraq alone, protecting amongst other places, the Vatican City-sized, $592 million US Embassy in Baghdad.
Meanwhile, Erik Prince, who is a top target on Al-Qaeda’s ‘hit list’, has moved to Abu Dhabi in the United Arab Emirates, where the crown prince Sheik Mohamed bin Zayed al-Nahyan is paying him $529 million to create an 800 person battalion. Trained by Prince and US Navy SEALs, the small army will serve as sort of Praetorian Guard for the crown prince’s own purposes, a useful tool during times of turmoil in the Middle East. It would not be the first time that a foreign player has patiently watched the US experiment – and struggle – with a concept before adopting it and all best practices as their own.
Despite seemingly endless controversy, it seems that private military contractors are here to stay.
 Interview with Ambassador John Negroponte, Yale University, Oct 3 2011
 Interview with Mr. Erik Prince, Virginia, August 26 2011
 Interview with Ambassador John Negroponte, Yale University, Oct 3 2011