Wish You Were There — U.S. Disputes $3.9 Billion of Pakistani “War on Terror” Invoices

Spend Matters is pleased to present a guest post from Verian Technologies.

The other day, the Wall Street Journal ran the headline "U.S. Balks at Pakistani Bills." As I read the article I thought of you, supply chain professionals, and how I wish one of you could have been there when the U.S. struck its deal with Pakistan for "services" it required for the war on terror.

In 2004, Osama bin Laden claimed responsibility for the 9/11 attacks and the United Stated wanted to find him immediately. I am sure many of you faced a similar situation. When there is a crisis, people want action. The desire for a clear course of action is intense, and people want to see immediate results.

The United States knew Osama was hiding in the barren and mountainous tribal lands that lay on both sides of the Afghanistan and Pakistan border. We invaded Afghanistan, but dealing with a nuclear-weapon-packing Pakistan was a little more problematic. We decided to procure the services of the Pakistani army as a tangible action to take in our steps to catch Bin Laden.

No "scope of work" for the services was discussed, just a firm commitment that the U.S. would compensate Pakistan for gear, food, water, housing and other expenses associated with their activities. It seemed fair, and my bet is that no one had the patience to discuss either the types of expenses and assets for which we would reimburse them or our performance expectations. That is why I wish you all were there.

According to the article, the United States approved 98.4% of the invoices submitted by this cash-strapped country in 2004. Predictably, the problem with choosing speed-of-action over clarity of expectations did not show itself until two years later. In 2006, the Pakistanis sent a $70 million invoice for radar maintenance. Fortunately, someone in AP asked a really good question: "Why are we paying for Pakistani radar maintenance when there is no enemy air threat related to the war on terror?" Eyebrows raised and the State Department took a closer look. Nothing was disclosed, but they must not have liked what they saw.

The U.S. tried to renegotiate the agreement and amend it to be performance, behavior and operations-based rather than simply requiring Pakistani Army presence. For any of us who have been involved in renegotiating a loose contract into a tight one, you can imagine how well it went. The compromise was predictable, and should have been automated! Rather than agree to specific results, the two governments agreed to a new invoice approval processes that linked expenses to specific military actions. The process has been full of disputes and invoices now take 6-12 months to be paid.

Our Islamabad-based vendor is hurt. It had deployed 145,000 troops to the tribal lands and suffered many casualties supporting US military operations. Now they are being asked to submit a receipt for "every cup of tea!" The Pakistani military says the scrutiny is understandable, but hurts the level of trust and cooperation between the two organizations -- sounds like one unhappy vendor. So you can imagine what happened when the new invoice approval process really kicked into high gear. In 2007 and 2008 the United States rejected $3.2 billion of Pakistani invoices. The rejection rate jumped to 44% in 2009. Suspicious invoices are still being discovered and vendor relations have steadily declined.

Senator John Kerry's visit to Pakistan reminds me of an executive making a visit to a critical but problematic vendor. He does a lot of shaking his head, wondering aloud how it ever got to this point and pleads to "reset" the relationship. This all could have been avoided if supply chain professionals had been there to set the right expectations at the beginning. I think most of us would have chosen clarity of expectations over speed of action. It's not a popular position, but a prudent one -- after all, I doubt taking the time to discuss a clear scope of work would have added much time to the decade it took us to catch Bin Laden.

Besides, the supply chain professional approach would of maintained better vendor relations -- which I think is really important when your vendor possess nuclear capabilities. Maybe it's just me and how I see it. What do you think?

-- Mark Schaffner, VP of Marketing, Verian Technologies

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