Canada’s front­line con­trac­tors

When the mil­i­tary needed help run­ning its Afghan bases, it turned to Bay Street

Ottawa Citizen - - The Business Of War - BY ANDREW MAYEDA AND MIKE BLANCHFIEL­D

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.”

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