Syria drawdown increases contractor risk

President Trump ordered the withdrawal of 2,000 troops from Syria on Dec. 19, 2018. The following day, he announced the draw down of 7,000 of the remaining 14,000 troops in Afghanistan. 

When there is any shift in troop size there is a commensurate shift for their contracting companies. As pointed out at the Center for Strategic and International Studies event on the drawdowns, they were announced without input from foreign advisers. The consequence is that we are losing our ability to control the negotiations for how we manage that process.

What are some “Lessons Learned” out of President Obama’s disengagement from Iraq in 2011 and the drawdown of troops in Afghanistan? 

In Afghanistan, the U.S. had 108,000 people (troops and contractors) in 2013 and reduced those numbers to approximately 10,000 by 2015. This had an unanticipated and expensive impact on contractors, their labor force, and for the federally-mandated insurance for those employees under the Defense Base Act (DBA).

Here is what worked -- and what didn’t.

We call this “Base Closure Syndrome.”

What contractors should be concerned about and what to do about it

EVACUATION PLANS

Be clear what the agreement is with the U.S. government for supporting the troops and communicate it to all employees in theater. Are there limitations for when contractor employees can leave? Contractors can’t always rely on military transport to extricate them.

Have a written plan with your evacuation company in the event employees, both American and foreign nationals, are not able to leave by way of military or commercial transport.

Insurance policies may have limitations on how many employees can travel in one transport at one time or they may require notification to the insurer before traveling.

PLAN FOR LOST INCOME

Just when it looked like there was full funding for defense with the $684 billion bill that was passed for fiscal 2019, companies with operations in Syria and Afghanistan must consider “not for them.”

Historically, contractors were able to win by focusing on internal efficiencies such as trimming costs, reallocating capital, investing in resources and varying their contract mix. This was also a driver for continued consolidation in the government contracting space.

EMPLOYEE CLAIMS UNDER DEFENSE BASE ACT

The Defense Base Act (DBA) provides broad benefits for injured expatriate personnel. Insurance companies provide coverage in accordance with the Act. This industry ramped up when the U.S. first went into Iraq in 2003. Since then employees have become well-educated in how to game this system.

Additionally, personal injury attorneys will use any means possible to help returning employees learn how to file DBA claims, including putting representatives on planes coming out of theater.

DBA premiums are important because they are the third most expensive cost for government contractors. First are fixed assets, second are general & administrative expenses and third are premiums for complying with the Defense Base Act. This is the one expense that contractors have the most control over.

MORE DBA CLAIMS

Faced with returning home without a job, employees were more open to risky behavior and they were more likely to file claims for injuries under the Act. Once they returned home, they could choose their own doctor so there was a lack of oversight in the integrity of those doctors.

Often these valued employees were former military and they were trained that their body was a commodity. It was not unheard of for an individual to be willing to have five surgeries on the same knee.

Be sure to have pre-deployment and “pre-after” screenings. I use the term “pre-after” because it should be done while the employee is in theater and before arriving back in their home country. This is a bookends approach to measuring the health and fitness of an employee.

Retain all employee records in a place where they can be found years later. There is no statute of limitations for DBA claims. Many contractors changed their HR systems and lost vital data that could protect them in the event of a claim. Changing systems is especially common in mergers and acquisitions. Have a plan for housing this information.

Returning employees need to know there are opportunities for them. The best outcome is to have internal transfer options available. This means you retain their intellectual capital and have a valued and committed employee. Also consider out-placement services.

One of the worst things is having them watch daytime TV and seeing ad after ad of attorneys offering to help them file a claim.

IMPACT OF REDUCED PAYROLL ON PREMIUMS

In 2011 in Iraq, followed by the drawdown in Afghanistan, the insurance industry experienced claims going up (expenses) and premiums going down because of declining payroll (income). Insurers were paying out $2 (or more) for every $1 they took in. That is not sustainable for any business and some insurers did withdraw from the market.

Those insurers who stayed in the market, had to increase their rates to cover their losses. This caught both the contractors and the government by surprise because it blew their budgets, which were based on pre-downsizing rates. 

Contractors should have a continuous and open dialogue with their insurers so that all parties can plan for the changing needs of the mission to support the troops and the associated costs.

Most “Lessons Learned” from prior drawdowns revolve around personnel. Engaging and supporting contractor employees should be a top priority for every contractor. Putting plans in place and communicating them is key to managing the changeable nature of being a government contractor.