Canada’s frontline contractors
When the military needed help running its Afghan bases, it turned to Bay Street
IKANDAHAR AIRFIELD, Afghanistan t has become an iconic image of Canada’s wartime experience here: a slow procession of soldiers carrying the Maple Leafdraped casket of a fallen comrade into a Hercules transport plane. Less obvious is the small group of men and women, usually clad in khaki, brown and red, who come to pay tribute.
Not military personnel, they are nonetheless an indispensable part of Canada’s war effort: they are civilian employees of SNC-Lavalin PAE, the biggest private contractor to the Canadian mission in Afghanistan.
“It’s not a military farewell; it’s a Canadian farewell,” one SNC employee said of the ramp ceremonies. “It’s hard as well when you know the guys, and they would do the same for us.”
SNC-PAE remains a faceless entity to most of the public, even though the company receives hundreds of millions of tax dollars for a host of services, from delivering supplies to Canadian troops to meeting their information-technology needs.
But as private military firms in Iraq and Afghanistan come under greater scrutiny, critics question whether the company is subject to adequate oversight and whether the government is getting value for money. There are also questions about the growing reliance on civilian contractors and the potential implications for the way the military operates.
David Perry, deputy director at Dalhousie University’s Centre for Foreign Policy Studies, says the government should conduct a thorough public audit of the use of private contractors.
“One way or another, we should know what we’re experiencing in terms of financial burden and whether or not that’s something we’re willing to accept,” said Mr. Perry, who has published a study of private contractors.
Donald Chynoweth, a senior vicepresident of SNC-Lavalin ProFac, which oversees the Kandahar operation, gave broad assurances that Canadians are getting value for their tax dollars because the company has been audited by Crown agencies, government departments and private sector firms and has emerged with “flying colours.”
Even so, he would not share a copy of monthly government audits of its invoices. The company also barred any employees at Kandahar Airfield from speaking on the record to CanWest News Service.
The Defence Department has also blocked requests under Access to Information to release its contract with SNC-PAE. The military says the mountain of information associated with the contract is so vast that it would take 210 working days to respond. However, a defence spokeswoman said the contract has so far met the desired objective of freeing up military personnel to fill “roles where their specialized skills are required.” The military has also taken steps to improve oversight by producing a “revised program governance document,” Capt. Carole Brown said in an e-mail. “Every element of the contractor proposed level of effort, for each mission, is scrutinized.”
SNC-PAE is employed under the Canadian Forces Contractor Augmentation Program, or CANCAP. The company is a joint venture between SNC-Lavalin Group and PAE Government Services, a subsidiary of U.S. aerospace and defence giant Lockheed Martin.
With revenues of $5.2 billion in its last fiscal year, SNC-Lavalin is one of the biggest engineering companies in the world and a blue-chip listing on the Toronto Stock Exchange.
CANCAP was born out of the military’s preparations for the Y2K computer crash that never came on Jan. 1, 2000. The military wanted a contractor to provide food, transportation, fuel and other tasks to facilities across Canada, and awarded a $10-million contract to Calgary-based Atco Frontec. At the time, the Forces was recovering from a massive downsizing in the 1990s that put the squeeze on military support staff.
In 2002, when the military went looking for a company to support its international deployments, SNC-PAE became the prime contractor. Under the initial contract, the company was to be paid a maximum of $200 million over five years. The government also has options to extend the contract for five years at another $200 million. The company built Camp Julien in Kabul, a well-equipped base that included its own water purification system and power plant, setting a new standard for western forces in Afghanistan.
As the military juggled missions in Bosnia and Kabul, the government raised the cost ceiling on the first phase of the program to $500 million, bringing the total potential value of the contract to $700 million over a decade. The government estimates that it will have spent $295 million on the program by year’s end.
In 2005, SNC-PAE shut down its operations in Kabul and relocated to Kandahar with the Canadian troops. About 200 SNC-PAE employees work on the base.
Along the way, the company recruited one of the heavyweights of Canada’s business elite: Gwyn Morgan, former CEO of Alberta energy giant Encana. Mr. Morgan was Prime Minister Stephen Harper’s choice to head a federal public appointments commission last year, until the opposition blocked his appointment.
In May, Mr. Morgan became the chairman of SNC-Lavalin’s board of directors, which also includes Conservative Senator Hugh Segal.
This spring, the government exercised its option to extend the program for two years until the end of 2009. The original contract allows extensions until 2012.
SNC-PAE is now looking to expand into medical services and possibly even support work “outside the wire” — beyond the relatively safe confines of Kandahar Airfield.
The company is considering work at Camp Nathan Smith, the base for Canada’s provincial reconstruction team in Kandahar City, a senior company source said.
Mr. Chynoweth, however, said SNCPAE has not been “officially asked” by the military to work at Nathan Smith, the provincial reconstruction team base.
“Is there always discussion? The answer is we do talk back and forth about whether or not it does make any sense from both the security side and the labour provisioning side. At this point in time, the answer is no, we are not in the outside zones. And do we anticipate in the near future? The answer is no.”
Security is a key factor in determining what the company’s employees do, he added.
Last summer, shortly before SNCPAE began operations in Kandahar, the Defence Department’s chief of review services published one of the only analyses of the CANCAP program. In the United States, by contrast, civilian contracting has come under intense scrutiny from several government agencies, notably the Government Accountability Office, the investigative arm of Congress.
The Canadian review notes that CANCAP was intended for “mature, low-risk theatres.” In “hostile environments,” support services are supposed to be provided by “military professionals,” according to the military’s own description of the program.
The review raised other questions about CANCAP, such as confusion over contract terms, lack of flexibility compared with military operations, and a shortage of well-trained military personnel to oversee the program. For example, the Forces lacked senior officers with experience in quality control, including auditing an invoice.
Although the program was never intended to be a money saver, hiring contractors costs roughly 10 times more than using soldiers as support staff, says Mr. Perry.
He estimates CANCAP costs to date at about $1.34 billion, accounting for slightly more than 22 per cent of the military’s total cost of operations. In the U.S., private logistics contracts amount to less than five per cent of expenditures.
While it is not clear how much SNCLavalin earns from the CANCAP program, the venture appears to be less profitable than most of its other business lines. Under CANCAP, the company is reimbursed for all its incurred costs. It is paid two to three per cent in general and administrative expenses and one per cent in profit, and is eligible for an eight-per-cent “performance incentive fee.”
Financial analysts recognize that big companies don’t necessarily make big profits in war zones. “This used to be of interest 10 years ago or so when they got into it, but then they never made any money, so no one ever mentions it,” said Richard Stoneman, an analyst for Dundee Securities. “What’s attractive is that you don’t have to have a lot of capital tied up in something like this.”
Mr. Chynoweth wouldn’t discuss the company’s profit margins in Kandahar, or details of the eight-per-cent performance fee. He suggested the fee was designed to cover the extraordinary costs of doing business in a war zone, such as employee insurance and danger pay.
SNC-PAE is just one corporate player on the base. When NATO took over the base last year from the U.S., it brought most civilian contracts under the NATO Maintenance and Supply Agency (NAMSA). Many support services were previously provided by Kellogg Brown and Root, the American military’s prime contractor.
It is the biggest, most complex multinational logistics project NATO has ever undertaken, said André Hansen, chief of section with NAMSA’s logistics support office. To save costs for its member states, the agency has been consolidating as many contracts as possible. Instead of each nation hiring its own contractors, NAMSA can now handle the tendering process and oversee the contract.
Individual countries can still hire contractors to meet their specific needs, as Canada has done with SNCPAE. But NAMSA is taking over the lead on core “life support” services. Food and bulk fuel services are provided under a NAMSA contract with Supreme Foodservice, based in Switzerland. A German company called Ecolog International is responsible for laundry, portable toilets and cleaning services.
Atco Frontec handles sewage treatment and waste management. But it also has contracts for pest control and a range of airfield services.
For some civilian employees, money is a prime motivation. Like soldiers, many employees work rotations of six months or more, enabling them to claim generous tax exemptions back home.
“They’re all here to kill their mortgages,” said Ken Morey, country manager of IAP Worldwide Services, which manages the base’s power grid. “I’ve already paid off one of mine, and now I’m working on my daughter’s.”