Cost Plus

Posted in Uncategorized by chamblee54 on May 25, 2008

The radio whiners were discussing the oil executives talking to congress about their profits recently. A congressman proposed a special excess profits tax, which upset the whiners. ( It has long been suspected that these radio talkers are on the oil industry payroll)
Your gentle reporter heard this talk, and a light bulb went off in his head. What about a special tax for the contractors in Babylon?
Before we get any further, I should say that I oppose a special tax for war profiteers. While the “Daddy Warbucks” tax would feel good to impose, it probably wouldn’t improve honesty or make the war less expensive. The companies would do some accounting magic, call the assets something else, and get the same return on their investment. In fact, this tax might even make the process more costly.
Money is a weapon in war. The ability to fight depends on the ability to finance. A robust at home economy is needed to pay for a war, and for the interest on the money that is borrowed to pay for it. Arguably, when you steal from the war effort, you are committing treason.
This war has been outsourced like no other. Many of the chores once done by conscripted soldiers are now performed by well paid contractors. Many of these contracts are “cost plus” which means that the contractor gets all of their money back plus a percentage of profit. Their is no incentive to be efficient.
As reports:

“What followed was a U.S. corporate invasion of Iraq.
While some 150 U.S. companies received contracts for work in Iraq following the invasion, the big reconstruction winners (after Halliburton) were: Parsons Corporation of Pasadena, Calif. ($5.3 billion); Fluor Corporation of Aliso Viejo, Calif. ($3.75 billion); Washington Group International of Boise, Idaho ($3.1 billion); Shaw Group of Baton Rouge, Louisiana ($3 billion); Bechtel Corporation of San Francisco, Calif. ($2.8 billion); Perini Corporation of Framingham, Mass. ($2.5 billion); and Contrack International, Inc. of Arlington, Va. ($2.3 billion).
These seven companies are responsible for virtually all reconstruction in Iraq, including water, electricity, bridges, roads, hospitals and sewers. One reason for their failure was that companies, such as Bechtel, came to Iraq with the hopes of ultimately winning contracts to privatize the services they were hired to rebuild. Because many U.S. contracts guaranteed that all of the companies’ costs would be covered, plus a set rate of profit—known as “cost-plus contracts”—they took their time, built expensive new facilities that showcased their skills and would serve their own needs were they to run the systems one day”

Another take is from a blogger nickleberry-huxtable:
“War is a gift from heaven for these corporations. Their everyday `peace-time’ activity is rampant enough, but the checks and balances on their activity still chafe. War provides a chance to avoid these checks, it releases massive amounts of money and creates a chaos of unaccountability and lack of regulation. In the midst of all this, money can leak away in bundles and be quietly directed towards those who desire it most – the greedy rich.
A warning though: This is not to say that this is the reason we went to the war in the first place, or even that it was a factor in the decision to go to war. Instead it is simply the case that war tends to throw up situations of chaos which can be easily exploited by the wealthy and powerful. When war is prosecuted by people who have a vested interest in maintaining this chaos (as is often the case) this exploitation increases”.
While doing research for this feature, I found an article at, about prostitution in Iraq.

“Another major change has been the reliance of the U.S. military on private contractors, who have now surpassed the number of soldiers in Iraq. … Less attention has been paid to how private contractors are changing the nature of military prostitution. In the best known example, DynCorp employees were caught trafficking women in Bosnia, and some indications suggest that similar acts may be taking place in Iraq.”
Getting back to the radio whiners, their silence on war profiteering is most curious. ( I can think of an exception. Laura Ingraham has said that Brown and Root is losing money feeding the troops in Iraq.)They would much rather lambast domestic critics of the war. The truth is that war profiteering is hurting the war effort. It makes the war much more expensive, and is costing America resources that could be used in the war effort. It hurts morale among our troops, who see the contractors growing rich while the soldiers risk their lives.

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