Technologies of functioning of the private military services market and features of Customer-Private Military Company interaction

Sokolov Roman ORCID: 0000-0002-8626-5629 Student, research assistant, International Interdisciplinary Research Laboratory "Study of global and Regional socio-political processes", Nizhny Novgorod State Linguistic University named after N.A. Dobrolyubov. 603095, Russia, Nizhegorodskaya oblast', g. Nizhnii Novgorod, ul. Minina, 31a romasokolov777@gmail.com Other publications by this author     Rogozhina Evgeniya Mikhailovna ORCID: 0000-0003-3515-2699 PhD in Politics Associate Professor, Department of International Relations and World Political Processes, Federal State Budgetary Educational Institution of Higher Education "Nizhny Novgorod State Linguistic University named after N.A. Dobrolyubov" 603155, Russia, Nizhegorodskaya oblast', g. Nizhnii Novgorod, ul. Minina, 31a evgenia-amiga@yandex.ru Other publications by this author

Ryzhov Igor' Doctor of History Associate Professor, Head of the Department of History and Politics of Russia, N.I. Lobachevsky National Research Nizhny Novgorod State University Senior Researcher, International Interdisciplinary Research Laboratory "Study of World and Socio-Political Processes" Federal State Budgetary Educational Institution of Higher Education "Nizhny Novgorod State Linguistic University named after N.A. Dobrolyubov" (NGLU) 603155, Russia, Nizhegorodskaya oblast', g. Nizhnii Novgorod, ul. Ul. Ul'yanova, 2 ivr@fmo.unn.ru Other publications by this author

Private military services market: definition and features

In order to form a general idea of the private military services market, it is necessary first of all to define the concept of a private military company.

Based on the synthesis of various approaches to the definition of this phenomenon, the systematization of Western sources, we have synthesized the author's definition of Private Military Companies (PMCs), which more fully reflects their nature and therefore can be used in the scientific field.

Private Military Companies are legal entities specializing in the provision of military services, including armed and non-armed combat support, strategic planning, intelligence, risk assessment, operational support, technical support, equipment operation and supply of military operations.

From this definition, it is possible to synthesize the concept of the private military services market, which is defined as a set of private companies providing services in the military sphere at the global and regional level.

The PMCs market has several key features:

1. Globality - despite the fact that there are private military companies that provide their services exclusively within one region (such as Executive Outcomes, which at the dawn of its existence offered its services exclusively on the African continent.) ^[4] in modern realities, major market players offer their services to customers around the world and conduct military operations in all regions of the world.

2.      Acceptance of any type of client - principal/customer in the market of private military services can have any form of organization, such as states, individual territorial entities, private companies, multinational corporations, non-profit organizations, rebel groups and even terrorist/extremist organizations. Moreover, there are separate PMCs that provide services only to a certain type of clients, for example, terrorist organizations. For example, Malhama Tactical, which is located in Uzbekistan and it works exclusively for jihadist extremists. All the mercenaries of this company are Sunnis, but not all of them are representatives of radical trends of religious ideology, like their clients.^[5] Major industry players, such as International Defense and Security (IDAS), actively helped undemocratic regimes and rebels not only in training units, but also in the supply of weapons, including military aircraft^[6]. Private military companies have also been involved in training rebel forces in Senegal and Namibia. In Burundi, Hutu rebels received weapons and unarmed support from South African PMCs, including Spoornet. At the same time, Dyncorp was offering logistical support to the rebel alliance in Sudan.

3.      High diversification of companies - a study of private military companies showed a high level of distribution of their functions. In fact, every major PMCs is capable of performing all operations within any mission related to the military sphere. The offer of only Sandline companies is relatively unique (Private military and security company operation: Sandline. Retrieved from: https://sandline.ro ), provides cyber security and intelligence services using technical means using its own unique software and hardware developments and G4S (Private military and security company operation: G4s. Retrieved from: https://www.g4s.com ), which specializes in risk management, emergency management and the construction of military facilities. Indeed, there is an industry specialization within the framework of the market, but it remains conditional, since for successful military operations it is required to perform the entire possible range of tasks from planning and supply to direct armed support on the battlefield, which prevents the company from concentrating on one or more services

4. Limited market participants - registration and licensing of private military companies is comparable in complexity to licensing the activities of pharmaceutical and medical organizations. The main centers of registration of PMCs in the modern world are the United States of America, the United Kingdom of Great Britain and Northern Ireland, Germany, France, South Africa and Singapore. The high concentration of PMCs in these countries is due to the existence of a system of regulation of the activities of private military companies, which legalizes their business. Despite the fact that each specific country sets its own terms and rules for registration and regulation of the operational activities of private military, a common feature is the desire of States to clearly identify the activities permitted and establish responsibility for violations of international law in the field of military conflicts and national laws governing public-private cooperation in the military sphere and ratified international treaties regulating military interference, trade in arms and dual-use goods and related areas. There are also other restrictions on the number of companies in various national markets, for example, only American PMCs are allowed to work with orders from the US government and private American companies that are in contractual relations with the US government. The length of the registration process, strict restrictions on activities and an increased level of state control ^[8] lead to the fact that the creation of private military companies, as well as ensuring their operational activities, requires large expenditures of finance and other resources, which constrains the growth of the number of players in the market of private military services.

5. Market laws of supply and demand have a limited impact on the situation in the market of private military services.  The price of the service provided by PMCs rarely depends on the actual cost of the mission and on the offer of competitors. Often, up to three private military companies can perform some specific services in full. Given the legal restrictions for a number of employers in choosing a contractor, the choice of a specific service provider is limited.^[9] In fact, almost all companies in the military services market are able to function effectively at various stages of the military mission, but specialization exists, which generates competition. Competition within the specialization, according to the University of Denver, has an average of 3-5 companies, while competition outside the specialization between PMCs is practically absent.^[1] It follows from this important observation that the effectiveness of military services depends on competition among PMCs, which leads to better quality of services and lower cost, and not on the fact that military services are provided by a private company.^[10] Often, the cost of each specific mission is formed not on the basis of the potential costs of PMCs plus a percentage of them as profit, but from the desire of the company's management. In other words, the price for the principal will increase as long as he agrees to pay it. Traditional contracts assume that the company's profit depends on market conditions of competition and its ability to reduce the cost of producing its product, which also reduces the price for the buyer, in the market of military services, the company's profit is directly dependent on the cost of the mission, the higher the cost, the higher the profit ^[11].

6. The complexity of monitoring and forecasting the behavior of market participants. Private military companies are primarily private entities organized primarily on the model of limited liability companies (LLC) or closed joint stock companies (CJSC). Such forms of organization not only limit the possibility of influencing the company's development by third parties (for example, ordinary shareholders), but also abolishes the obligation of owners to publish reports on the company's operating activities, the actual number of staff and current contracts in the public domain. Since public opinion regarding the activities of private military companies remains ambiguous, in a number of countries there is an openly negative attitude of the press and society towards PMCs (for example, the United Kingdom, the United States) ^[12], a decrease in mass awareness about the circumstances of the activities of companies of this type seems necessary for their continued existence. At the same time, the limited primary data negatively affects the research of the phenomenon of private military companies, reduces the accuracy of forecasts regarding the development of the industry, which significantly negatively affects the state and public control of the activities of PMCs. Modern research of private military personnel is largely based on the analysis of factors indirectly indicating certain types of activities of private military companies, eyewitness accounts, statements of international organizations and international NGOs, while the study of the economic component of their activities has greater accuracy and reliability, since most customers of PMCs services among states lay out details and the cost of government contracts in the military sphere and indicate the direct contractor, i.e. PMCs.^[13]

The characteristic features of the private military services market are the basis for the study of the essence of contractual relations between the principal (employer) and the agent (private military company). In fact, despite the specific goods and services freely sold and bought on the PMCs market, the fundamental needs of the two parties to the transaction practically do not differ from the needs of the seller and buyer in any other market, with only one caveat that the price of the inability to find a balance between these needs has huge economic and political consequences.

Contractual relations in the private military services market are built on the confrontation between the principal or employer of the PMCs and the agent itself, which is a private military company. An error on the part of an agent leads to his immediate replacement, which affects both the authority and the financial condition of a private military company. The actions of the agent are also of key importance for the security and prosperity of the principal, thus, fierce competition is formed in the market and, at the same time, a kind of regular customers. In the PMCs market, only companies that are able to efficiently and efficiently perform their tasks survive, while the principal does not need to turn to another PMCs if the quality of work of his current contractor is quite satisfied. Unlike other markets, where the cost of services is a determining factor, in the military services market, the balance of service quality, authority and cost is of primary importance.

From the moment the contract is concluded, the confrontation between the principal and the agent begins. The method of solving the task assigned to the agent largely depends on the desire of the agent (PMCs) to maximize their own profit. To do this, he strives to allow the least interference on the part of the principal in the decision-making process, so that during the execution of the customer does not receive additional requirements for the method of solving problems, which always leads to a decrease in the profit of the PMCs. The Principal strives to obtain the most objective data on the progress of the set goal in order to monitor the expenditure of financial resources, as well as to make sure that the company operates within the framework of existing laws in order to avoid potential international liability.

Moreover, the business of private military companies works in the context of military operations, because contracts between the principal and the PMCs are prescribed according to the standards of the most difficult conditions and strive to cover all possible force majeure circumstances, which makes their analysis almost impossible without the help of an experienced lawyer, because war, according to one of the greatest generals Karl von Clausewitz, can It can be characterized as a series of unique events, limited by many ambiguities.

Next, we will look at the main problems in the relationship between the principal and the agents.

The problem of incompleteness of information in the activities of PMCs

When a principal enters into a contract with an agent, there is always such a problem as the lack of complete, reliable information. Without taking direct part in a mission for which a private military company is hired, the principal cannot control the course of the operation in detail and has to rely only on the information provided to him by the agent. In fact, one of the consequences of the general privatization was the awareness of the need for methods and methods of monitoring the actions of the contractor, so that the principal retains the ability to make decisions independently of the agent.^[14] The success of contractual interaction also requires the presence of mechanisms for awarding and depreming the agent, the use of terms and concepts that exclude different interpretations of contractual obligations, as well as the presence of clear and generally accepted standards of behavior and performance of contractual obligations.^[15]

Contracts between a principal and a private military company rarely meet these criteria.

Problems of monitoring the activities of PMCs

In the current market situation, many principals find themselves in a situation of a lack of competent firms to perform their tasks, some services are offered by only one or two companies.^[9] Strange as it may seem, but constant monitoring of the implementation of contractual obligations has negative consequences. This not only increases the cost of the contract, but also leads to a blurring of the chain of command and strategic management, and also shifts responsibility, in other words, not only the employees of the PMCs are responsible for the success of the mission, but also the body that controls and makes changes in the course of the operation on the part of the principal.

The contracts between states and PMCs analyzed by us assume minimal supervision over the company's actions, as well as a minimum set of mandatory conditions for the implementation of the set goal. The problem lies not so much in the minimal right of the principal to intervene, but in the absence of an effective mechanism for monitoring the contractor's activities, its incorporation into the principal's armed forces, and the organization of their interaction. According to reports on the activities of the PMCs in the Balkans (operation in Yugoslavia), as part of the logistical support of the army, the American mission command lacked a structure for monitoring the activities of private contractors that could evaluate their work and coordinate their actions. ^[16] Thus, the interaction of the PMCs-principal at the local level, at the level of individual commanders of the armed forces led to significant budget overruns, since the commanders did not fully realize the cost and mechanisms for the provision of services by the PMCs ^[17].

At the same time, the contracts are drawn up in such a way that only general criteria for mission performance are described, often omitting methods and standards for evaluating effectiveness, which leaves the agent with the right to inform the principal about the progress of the mission and the proposed next steps.

In addition to these structural features, monitoring of PMCs contracts causes particular difficulties.  The traditional principle of the relationship between the seller and the buyer of services in the military industry is violated. The provision of the service often does not take place on the territory of the buyer, rather even on the territory of third countries, because the customer cannot always fully verify that the service has been provided in full. Thus, the agent has an immediate opportunity to provide a service in a smaller volume and at the same time avoid sanctions. ^[18] An example of this is the reduced contingent of PMCs forces, where possible, despite the fact that the principal pays for more soldiers and equipment(although companies put up the required number of employees with a reserve, which is paid by the principal)

Another problem is related to the personnel who work with private military companies on the part of the principal. In the field of commerce and in the states, there is an erroneous judgment that monitoring the activities of private military companies is a fairly simple task, because training in specific mechanisms of this monitoring is usually not carried out. This task is considered a low priority, because highly qualified employees are rarely involved in this work.^[15]

The human factor also manifests itself in the thirst for benefits. Assessment of the potential for conflict, especially in the area of recommendations to the principal and military "advice", which could potentially lead to the signing of additional contracts. PMCs declare that they act in the national interests of the customer, however, in the "gray areas" where PMCs mainly operate, where the interest of the principal is not clear or obvious, companies seek to increase profits and hide the true picture of operations, demanding more and more injections. PMCs employees have completely different motives compared to regular army soldiers. They are driven by a financial incentive, another explanation of their activities is not consistent in nature. Thus, additional obstacles are created for viewing the activities of PMCs so that the company gets its profit.

Prosperity through profit

Making a profit is the main motive and incentive for the activities of private military companies. They take every opportunity to increase their profits at the expense of their customers, which is typical for a fierce modern corporation. This implies the thesis that all the activities of the PMCs are strictly limited by the available financial resources, which affects both the choice of means and methods of implementing the task, and the volume of military intervention in general.

The fundamental problem of the interaction of the Principal-PMCs in this area is the desire of the latter to deceive the principal or artificially inflate the price of services. In a market economy, almost any accidental inefficiency of a company or the state leads to additional costs, when the provision of services by private companies leads to a direct interest in distorting actual costs. ^[10]

Private Military Companies do not have a clear price list.           Moreover, contracts in the military sphere are of a long-term nature, including lifetime maintenance of certain types of weapons and equipment. After signing, these contracts create a situation of complete monopoly. The client rarely knows the final cost of PMCs services, since it is common practice to underestimate the initial cost of services, after which additional contracts are concluded, which can be ten times higher than the initial cost of the service. As soon as the project is under implementation, additional costs arise, which the principal is not able to refuse in order to incur even greater losses, although the cost of the mission increases only slightly.^[10] If the payment amount is determined by the duration of the company's work, then most likely the company will issue an invoice for the maximum allowable period.

Striving for the least effort

Another contractual problem that arises in the relationship between the principal and the PMCs is the risk that the agent will not complete the mission to the end.

The principal cannot physically control the progress of the mission every minute, in this case, all the advantages of transferring work to a private company are leveled, therefore he must rely on the integrity of the agent. The interests of the agent are directly opposite to the interests of the principal: the agent seeks to avoid excessive risk in order to protect his resources, both human and equipment, while he seeks to extend the mission under any pretexts, since often the agent's profit increases every day of the operation.

Given the specifics of the environment in which private military companies operate, the assessment of the effectiveness of their activities cannot be highly accurate, since the success and failure of a combat operation depends equally on the activities of the PMCs and on the actions of the enemy, therefore it is quite difficult to determine the causes of defeats within a military company.

In order for the effectiveness to be measured, certain quantitative indicators are used, which are prescribed in the contract between the PMCs and the principal. This practice, however, creates an opportunity for the agent to focus his activities on meeting these indicators, instead of ensuring the overall success of the combat operation. As an example of this trend, we can cite the standard practice of hiring PMCs to mine the territory. PMCs seek to secure only the main roads and highways, thus fulfilling the formal criterion for receiving payment for their servants, when as little attention is paid to clearing country roads and the area around schools from mines.^[2]

This scenario is most dangerous for the security of the principal when working with military service providers. In a war on the side of the principal, the company can both strengthen his position, which will become a reason for extending the contract, and create new risks for his security and turn out to be, in fact, useless.

An example of such a situation is the conflict between Ethiopia and Eritrea in the period from 1997-1999. ^[19] and the conflict in Baifra. In the latter, the hired Nigerian Air Force could not destroy the only Baifra airport for months, since the salary of pilots directly depended on the number of months of service, instead of achieving the goal. In the conflict between Ethiopia and Eritrea, the Ethiopian-hired air forces from the Russian Sukhoi PMCs actively participated in the bombing of civilian targets, but were extremely reluctant to engage the Eritrean Air Force, since they consisted mainly of Russian and Ukrainian pilots hired in several PMCs. ^[20]

Situations in which PMCs employees refused to fight (they were extremely reluctant to fight)  against their compatriots on the other side of the barricades also arose in the Democratic Republic of the Congo (Zaire), Yemen, Congo, Brazzaville.^[21]

An important problem of the interaction of the principal-PMCs is the presence of the influence of third actors (private companies) on a private military company. In other words, a PMCs may act not so much in the interests of its principal as in the interests of third firms, while indirectly satisfying the principal's request. For example, in the operation in Sierra Leone, employees of the EO private security company, after ensuring security in the capital, were transferred to diamond mines to ensure the work of the private firm Diamondworks.^[22] It is noted that the correct strategy would be to further pursue the rebels in the jungle in order to completely demilitarize them, but the PMCs preferred to fix diamond spears in the area to ensure “increased security”.^[23]

One of the most obvious disadvantages of cooperation with private military companies, which has not yet been disclosed in this work, is that private military companies can work for both sides of the conflict. The theoretical reasoning under this paragraph boils down to the fact that PMCs know that they will get away with such cooperation. Their private nature does not allow them to force them to cooperate with only one specific actor within the conflict, but it is problematic to prove assistance to all parties to the principal and no sanctions can follow this. An example of such work for two camps is Sky Air Cargo, which provided air supplies to the government of Sierra Leone under a contract with Sandline, it also supplied weapons to the insurgents in the region.

As we have already found out, there are not many ways to force an agent to perform his functions in good faith and without increasing the initial cost of the contract. It is impossible to apply sanctions to them within the framework of the current legislation. Political pressure on the company and a ban on operating under its own flag will also not bring much results, since companies can restore their registration in other countries as soon as possible with minimal reputational losses. While no other methods of influencing private military companies have been invented, the most effective remains the financial incentive. At the same time, the classical mechanism of increasing payment when key indicators are achieved is not suitable here, since the indicators themselves are not objective, as is the assessment of their implementation. Constant monitoring of the PMCs' activities is a costly matter and completely negates the advantages of transferring the mission or functions in the mission into the hands of a private contractor, since the principal still needs to place his employees in the immediate area of the operation, make strategic decisions, and the agent, as a result, in order to ensure full transparency of financial expenses, it is required to spend twice as much on monitoring these expenses.

Peter Singer, the author of probably the most detailed scientific study of private military companies to date, cites several ways to ensure stronger ties between the PMCs and the principal, which could guarantee the agent's efforts to perform his functions without additional financial or political incentives.^[7]

Methods of resolving contractual contradictions between PMCs and their employers

"The Deal with Faust"

This is a profit-sharing mechanism that acts as an economic incentive for the company, it allows you to benefit in the present without taking into account future tomorrow and consequences. The essence of this mechanism is that the PMCs becomes a residual contender for the assets of their client, which is akin to the practice of paying the CEO's salary only in shares in order to maintain his high motivation for the development of the company. The loyalty of PMCs, as well as their services, is bought through the transfer of state assets and bonds to the company, often through "gray" privatization programs^[24]. Thus. PMC strives to fulfill its contractual obligations in good faith and in full, because the security of the assets received depends on the success of its activities.

This results in a triangle system of profit redistribution. The state provides shares and bonds to one of the private or state-owned companies, this company pays money to the PMCs as interest on its assets owned by the PMCs, while the latter is extremely interested in the prosperity of the company. The state ensures the legitimacy of the activities of the PMCs on its territory, while not spending its budget to pay for the activities of the PMCs. In countries with a low level of public finances, for example, Sierra Leone, Angola, PMCs or related firms are often given exclusive rights to use mineral and oil deposits as payment for military services^[25].

The deal with Faust also implies long-term financial losses for the principal, which in many ways will exceed the possible cost of PMC services with a one-time payment. The principal is forced to “pawn” valuable state property or resources of the PMCs, which in turn tries to maximize the amount of this property in its hands. By transferring such capital to the ownership of PMCs, the state potentially reduces budget revenues, which will affect the welfare of its citizens in the medium term.

"Strategic privatization"

Even if the regime does not control the military sector of state assets (for example, a lucrative mine that is now owned by rebel forces), it, being recognized worldwide as a sovereign state, can still privatize legally. and sell them to PMCs or its corporate allies. In the previous scenario, the firm had only to protect the attacked assets. In strategic privatization, a military firm must actively seek out and attack an opponent of the government for a fee. If successful, the rebels are defeated and lose a valuable source of funding that the Government did not initially control. From a corporate point of view, this is a "debt capital exchange". The PMCs (or its corporate sponsor) assumes the calculated business risk of the military firm's superiority over local opponents, similar to the exchange of debt for shares, as in the ordinary business world. In political terms, this is a modern parallel with Michael Doyle's idea of "imperialism by invitation", when those who control ties with the international market gain more power over their local rivals.^[26]

 «Method of controlled competition"

By analogy with the system of parliamentary elections in the UK "First passed the post", the authors developed a method of strategic competition in the framework of working with private military companies.  The method involves hiring several private military companies to implement a certain armed mission, between which competition naturally arises. As a guarantee of the interest of private military companies in actively participating in this type of mission, they are paid a one-time payment covering up to 70 percent of the requested cost of their services. As payment for the remaining amount, it is proposed to perform the tasks efficiently and simultaneously ensure the safety of infrastructure and production facilities captured by the enemy, which, upon release and completion of the combat operation, will become the property of the PMCs or their comparative partners.(according to the model of strategic privatization). Getting these objects into ownership depends directly on the actions of the PMCs: in the conditions of the need to occupy and secure potential assets from the enemy of the employer, PMCs strive to act effectively.  In a situation of competition with an equal opponent (another PMCs), subject to a limited number of "bonus" assets, the intensity of the operation and its quality increase.

One of the arguments against this method may be the assumption of a direct armed confrontation between private military companies for potential property. The reality of this situation is doubtful. Firstly, PMCs are legal corporate structures that operate within the framework of international legislation: the fact of aggression against another PMCs will be resolved with serious consequences, including international court proceedings and, as a result, loss of time, financial resources, license and, more importantly, reputation. The loss of the latter is a guaranteed rapid decrease in the number of orders and even the termination of the company's existence.

The second most likely argument against using this method is the assumption of collusion between the participating PMCs, which will result in cooperation, which would seem to reduce the effectiveness of the mission. Cooperation between PMCs is even more advantageous for the customer - more PMCs and military equipment employees will participate in solving key tasks, and the overall command system will increase work efficiency. At the same time, the customer still verifies the property within the framework of the "strategic privatization" approach, the specific distribution between contractors is an issue beyond high priority. At the same time, the problem of low efficiency is solved by the condition of a mandatory one-time payment. PMCs do not receive a premium for the duration of the mission in the form of financial and other resources - only property that must first be freed from the enemy, then secured and restored. This condition is one of the factors accelerating the work, since a one-time payment covers the cost of the mission and the minimum level of profit. As in the framework of the "strategic privatization" approach, the location of the property to be transferred to the hands of the PMCs as payment is determined not so much by its real value or importance/not importance for the economic activity of the customer, as by the geostrategic position and relevance for the performance of the tasks. In other words, the object that pays for PMC services must be located in the place that the customer requires free from the enemy and/ or whose security is of strategic importance

This method allows to overcome in many ways the negative aspects of the activities of PMCs and limit the desire of these companies to maximize their own profits. Unlike the previous methods, the method of controlled competition requires large expenses for the payment of PMC services, however, when applied correctly, the author's method turns out to be more effective.

Conclusion

PMCs, like any tool, have certain disadvantages and limitations. The benefits of using this tool are great, because it allows you to conduct armed operations more effectively, reducing not only the costs of the employer of the PMCs, but also saving the lives of regular army soldiers. Due to the specifics of their activities, PMCs are able to provide the same high-level result in an armed conflict with fewer employees, which reduces its intensity. Like any private actor created for the purpose of making a profit, PMCs strive to optimize costs and receive new financial injections from the principal or any other sponsors. It is impossible to talk about the loyalty of the company to the principal in such conditions, but this cannot be blamed on private military companies, such behavior is dictated by the principles of the market, their violation threatens the collapse of the company. The final assessment of the activities of PMCs allows us to conclude that their application in the existing system of international and national law can potentially pose a threat to both regional and global security, while we would like to note that there are no bad or good tools or agents, here we are talking more about the quality of work, the criterion of which is compliance norms of IHL. This tool should be used with caution and subject to the conditions of extended monitoring of activities, which will prevent overpayment on the part of the principal, ensure compliance with international law and only slightly reduce the level of effectiveness of PMCs. However, it is not possible to entrust these companies with 100 percent state security both in the medium and long term.