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I'm with RL on financial services being an example of a high-performing highly regulated industry. If you look at the major investment banks, even those that took huge hits in terms of one-off payments, reputation, and then corporate restructuring costs (ie: Merrill Lynch) are still turning over huge profits and at least one of those banks is represented in basically every large scale financial transaction in the world (taking the Bank of China public, for example).
There is a neat little relation between these investment banks and private military contractors (all of them, not just the guys with guns and mirrored oakleys). For one, both industries are entirely profit motivated, and have massive profit margins. While in both industries there certainly exist people who love banking or soldiering, or love their company or country, these companies exist to maximise profit.
Of course, this profit motive presents something of a problem when it comes to interacting with the USG. These guys aren't going to take pay cuts to protect their country. Furthermore, the companies have a giant incentive to find 'legal' ways of expanding their profit margins.
While the long-standing technical/logistical provision GSP realm is certainly regulated (the DOD has an entire office dedicated to it), many of these companies are still able to nab extra funding by fudging numbers, and I know of several projects which failed to deliver according to time tables. Of course, there are legitimate excuses for many of these problems- R&D costs, for example, are hard to ballpark, as are timeframes when operating in unstable AOs- but still, some companies push for the extra cash simply because they can.
For a 'tip of the spoon' contractor, especially those who are subcontracting to another contractor (like KBR), it seems that budget inflation is a little bit easier because these costs are simply pushed up the hill to the USG's doorstep. While I've seen the USG challenge these costs, in at least one case the challenge was shot down using the argument 'we're protecting lives here'.
To sum up my point- while the PMC/GSP arena is regulated, and grows increasingly so, the fact that these companies are profit motivated means that they will always be looking to find those 'legal' loopholes to profit maximize at the cost of the tax payers. With increased regulation, is seems possible that these companies will still be able to perform efficiently (based on the financial sector analogy). However, the somewhat chaotic nature of the Iraq AO means that for now, there are many more loopholes through which to profit max, and the USG may be fighting an uphill battle to close them up.
JMO,
Solid
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