Thursday, February 4, 2010

Contracting Maritime Security

It’s not just the pirates that you need to look out for. Consider this; the goal of your shipping industry is the movement of persons and goods to an intended destination on time, in the right condition, and for a reasonable cost. While the threat associated with piracy is reasonably clear, there are some side issues that ship owners and operators should be aware of. This is the first of three that we want to make sure that ship owners are aware of before they find themselves in challenging positions.

The first shark in the water is the unethical broker. The unethical broker is little more than an opportunist who causes damage to both parties in the contracting process. For the client, this begins with an exorbitant fee on top of the contract—sometimes as high as 25% of the gross. For the ship operator, this means that on a $100K contract for ship security, it can lose $25K just on this one step. Security companies, like shipping companies, are in this as a business. This means that the security company will make one of two decisions—reduce the costs associated with delivering the same level of service or increase the price. The former represents less value in the contract and less assurance that the ship can be protected appropriately. The second is a financial pressure that can be ill-afforded in the shipping industry.

This kind of practice might be considered reasonable if it was honest. It is not. Many represent themselves as actual security companies that are delivering the services directly.

The first way that these unethical brokers operate is to gather a number of bids from security companies and then inflate them all with a “service fee” or “professional fee” –sometimes as high as 25% of the gross value of the contract. In short, the bid that you receive may be inflated significantly from what you should be paying. The second part of this is that the unethical broker may actually be presenting bids from several different companies, deliberately manipulating the bid to put them all into the same price range. The end result, you pay a lot more than you need to.

The second way is for the broker to disguise himself as a security service provider. This is one of those half-truths. In these cases, the unethical broker will offer a low-ball cost and will then cast about into the security provider community to see if anyone is willing to pick up the contract. Of course, the individual communicates that the contract is worth so much after his or her cut is removed—offering the remainder to the company. The end result is that the client receives significantly less value for his or her dollars.

So what can a company do about this? There are some easy steps that you can follow:
• First, require that the total cost be broken down into itemized costs;
• Second, require that any work that is not being done by the person you are dealing with is clearly identified and require the ability to meet directly with any subcontractors; and
• Third, require that bids clearly and concisely communicate the total costs to you—or at least clearly list those items that might be considered “additional” costs.
These simple steps are intended to ensure that you are receiving value for your dollars. Credible security companies are willing to be reasonably transparent about what they are billing you for. If they are vague or evasive, take a cue from their investigations manual and demand a straight answer to the question.

There are, of course, times when a good broker is invaluable. This value generally falls into two categories. First, the broker can save a great deal of time in the search and vetting processes. Good brokers treat unethical security companies the same way that security companies treat unethical brokers—they stay far apart. Second, the good broker can also provide an indication of price ranges and other information that can keep a company from either being pillaged by a security company or accepting a bid that is “too good to be true” and likely to fail. The key here is to understand that they are both in the market and to make sure you take a few steps to protect your own organization from the unethical ones.

This is a Guest Post by: Allan McDougal,
Of, Evolutionary Security Management, Inc.

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