Despite the presence of the U.S. military, armed bandits still roam the streets. And patchy electricity, poor water quality and periodic looting still plague many parts of the country.
But that’s done little to deter foreign companies from wanting to work there. More than 5,000 companies have gone through the registration process on Bechtel Corp.’s Web site since April 17, when the San Francisco-based company was awarded a multimillion-dollar contract from the U.S. Agency for International Development to oversee emergency infrastructure repairs and reconstruction in Iraq. In the last two months, the site has received more than 100,000 hits–more than it usually gets in one year.
While the risks of working in Iraq have not kept companies from bidding for projects, they have created an unprecedented demand for private corporate security services, ranging from armed guards and 24-hour crisis hotlines to full-scale risk assessments and evacuation plans. The costs of such services can reach hundreds of thousands of dollars, depending on the scope of the project. And that could mean big bucks for security services companies, which had already benefited from a spike in demand after the September 11 attacks.
Swedish-based Securitas, the world’s largest security services group, saw a 50 percent jump in revenues between 2000 and 2001 and nearly 10 percent growth the following year before sales began to flatten out. Meanwhile, privately owned Guardsmark, which employs more former FBI agents than any other company in the world, reported record revenues of $348.5 million for the first nine months of its fiscal year, which ended March 31–a 3.6 percent increase over the same period a year ago. And Kroll Inc., a risk-consulting firm with operations in Iraq, saw revenues rise a whopping 87 percent to nearly $105 million in the first quarter of this year. Those numbers may continue to climb as more companies join the rebuilding effort in Iraq.
Bechtel’s initial contract to help rebuild Iraqi’s infrastructure is valued at $34.6 million, though it provides for funding of up to $680 million over 18 months. “We think it will take every bit of that money to do this project,” says Bechtel spokesman Howard Menaker. “There is so much to be done.”
And so many dangers in getting it done. Bechtel has already subcontracted at least two dozen security personnel in Iraq–about one for every two employees it now has working or traveling frequently in the country, says Menaker. At the end of May, it awarded ArmorGroup Services Security Consulting (part of Florida-based Armor Holdings) a contract for general security services. It also set up two separate contracts with London-based Olive Security for “expanded emergency security” and other additional security services.
“One of the challenges is that we’ll go in and do an assessment of power lines or a power plant, for example, and then we go back 24 hours later and things have changed drastically. Everything to the wire is being looted and sold,” says Menaker. “It’s really difficult to even determine what the requirements are when they are constantly changing. It’s an unusual challenge.”
The security situation in southern Iraq is actually worsening, says USAID, which is overseeing the rebuilding of Iraq. Five World Food Program trucks were hijacked in recent days on the major supply route between Safwan and An Narsiriya. Military police have since stepped up efforts to secure the route, but the agency says that security remains a “top concern” for operations in other areas of the country, as well.
The agency has handed out $90.9 million in reconstruction-related contracts to companies, including the $34.6 million award to Bechtel (the largest), $10 million to Massachusetts-based ABT Associates to restore health services, $7.9 million to the Research Triangle Institute to help establish local governance and $7.1 million to International Resources Group for personnel support.
Security has also been a concern for oil services companies, causing delays in the resumption of oil production and exports, maybe by several weeks–a delay that OPEC noted at its meeting last week, when it opted not to consider lowering its production quota until its next meeting in July. The U.S. Army Corps of Engineers’ contract with Halliburton subsidiary KBR to help repair and restart Iraq’s oil production has already more than doubled in cost from a month ago to $184 million (from $76.8 million in the first week of May). And there are indications that the Houston company’s work may now take longer than the few months initially expected–something that has angered some members of Congress who question the rising costs of the contract with Vice President Dick Cheney’s former company.
One of the contracts most vocal critics is California Democratic Rep. Henry Waxman, who has complained in writing to Army and administration officials. In a recent response, Army Lt. Gen. Robert B. Flowers blamed security issues in part for the likely extension of the project timetable. “The ability of the Iraqi people to fully operate all aspects of the oil industry is severely hampered by significant problems, including the need to establish a secure operating environment,” he wrote. “Until these problems are resolved, the U.S. government will continue to make available oil infrastructure assistance through the KBR contract, as well as the follow-on competitively awarded contracts.”
KBR now has about 100 employees working to make emergency repairs to the country’s oil infrastructure, including extinguishing oil-well fires, capping oil-well blowouts and responding to oil spills. “The safety and security of all employees is the company’s top priority,” says Halliburton spokeswoman Wendy Hall. She adds that hostilities in Iraq “have resulted in damage to the Iraqi oil infrastructure, have interrupted and degraded the operational control of the country’s oil systems and have caused a shortage of fuels and the ability to distribute those fuels.”
Control Risks Group, a London-based international business-risk consulting company, has issued an alert to foreign companies in Iraq, warning that recent flare-ups between local Iraqis and U.S. and British soldiers, as well as continued looting and other security problems, has severely disrupted business there and presented “a critical risk” to companies trying to operate there. Andreas Carleton-Smith, CRG’s president and CEO for North America, says some companies he has spoken with have had to delay plans for at least a couple more months. “And it’s not beyond the realms of imagination that it gets pushed past that,” he adds. “The U.S.-led authority has failed to restore law and order to most of Iraq and as a result … it’s a very dangerous situation. Plus, there is a continued absence of water and electricity and other basic needs. Until they can address those basic needs, then there will be a continued security concern for businesses wishing to operate there.”
Kroll is already working with more than two dozen companies in Iraq, providing security personnel and risk-assessment services, says Jeff Schlanger, COO of Kroll’s security-services group. And it is likely to take on more clients in the coming months. CRG has about two dozen consultants on the ground in Iraq, Bahrain, Kuwait, Saudi Arabia and Afghanistan and will probably send more to the region over the next few months. “Iraq is going to be a rough and pretty complex area to operate in for the foreseeable future,” says Carleton-Smith. “There wasn’t really a terrorism problem there before the war, but the confusion in the war and postwar period has increased the risk. The absence of security control in most of the country also allows an ideal environment for Islamic extremists.”
For large multinational companies, security has always been a consideration in doing business overseas. But since the September 11 attacks–and the more recent string of bombings in Saudi Arabia, Morocco and Indonesia since–it has become a much more complex and costly issue for corporations. “In the past, companies had to worry about their executives being taken hostage, but often there was a political goal. Now there is a holy war against America and anything it represents, so if they can cause damage and destruction they have met their goal–that is the goal now,” says former naval officer Bill Lahneman, program coordinator at the Center for International and Security Studies at the University of Maryland.
And terrorism is just one of the risks facing foreign companies in Iraq. Kroll’s Schlanger says some of his colleagues have described Iraq as the Wild West. “There are certainly places not to go, things not to do, and that’s just the beginning of the process,” he says. “As companies bring more and more assets into the country and start building an infrastructure there will be additional potential pitfalls. Protection of property becomes very important, as well as protection of records and protection of personnel working in.”
While corporate security spending in the United States and Europe has leveled off after a post-9-11 spike, companies doing business in Iraq or the Middle East are an exception. “There is a huge upswing for companies looking to work there,” Schlanger says. That’s meant a jump in the number of security consultants offering their services, as well. In addition to the consultants working for major security services firms, 1,000 ex-soldiers, police officers, prison guards and other civilians are being assembled by DynCorp International (now part of Computer Sciences Corp.) to serve as law-enforcement advisers in Iraq.
The demand has also given rise to some less scrupulous–or, at least, less qualified–consultants. “I would caution that there are a lot of people that take generic State Department information and repackage it and sell stuff that’s not really valuable,” warns Tom Patterson, director of Deloitte & Touche’s security practice in Europe, the Middle East and Africa–though he declined to name specific companies.
Still, Patterson adds, that doesn’t mean companies shouldn’t hire a consultant. He recommends seeking out security consultants with on-the-ground knowledge of the specific region and local contacts or employees. “There are tactics that businessmen just don’t have a clue about,” adds Lahneman, the program coordinator at the University of Maryland’s Center for International and Security Studies. “If businesses think they don’t need a security consultant, they need to rethink that attitude.”
That was made evident again last week when two explosions damaged an oil pipeline in northern Iraq that connects to Turkey, further hindering efforts to resume oil production and exportation. But it’s unlikely that such attacks will do much more to deter outside companies from operating in Iraq. They may just drum up more business for security firms.
