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Insurance, security prove costly for contractors in Iraq

WASHINGTON—Wednesday's killings of four U.S. civilian contractors in Iraq are likely to worsen what's becoming the biggest cost for many foreign companies that work there: insurance and security.

For some contractors who work for the Defense Department, 40 cents out of every dollar spent goes for required insurance for workers, said Bunny Greenhouse, the chief contracting official for the Army Corps of Engineers. At least a dime to 15 cents of every dollar spent is for security, according to the inspector general for the Coalition Provisional Authority.

"Why are we paying 40 percent?" for insurance, Greenhouse asked in an interview Wednesday with Knight Ridder. "That's unbelievable. ... Nobody foresaw that we were going to be in this kind of dilemma."

The civilian officials in the Pentagon who planned the war foresaw a quick end to Iraqi resistance and a rapid reconstruction of the country.

In his report issued Tuesday, the provisional authority's inspector general said such "rapidly escalating" costs are hampering the government's efforts to rebuild the war-torn nation.

"The inability to accurately predict the costs of security including insurance raises questions about the need for more funding—Iraqi, donor, or U.S.—to accomplish the reconstruction mission," Inspector General Stuart W. Bowen Jr. wrote. So far the United States has awarded nearly $10 billion worth of contracts for Iraqi reconstruction.

"It's expensive," said Washington lawyer Robert Nichols, who represents several contractors in Iraq. "Security is the No. 1 concern for all contractors in Iraq right now."

The biggest contractor in Iraq, Halliburton's Kellogg Brown & Root, "is extremely concerned about security in the region and cost is just one aspect of this issue," company spokeswoman Wendy Hall said in an e-mail Wednesday.

So far at least 33 U.S. civilian contractors have been killed in Iraq. In Wednesday's killings in Fallujah, Iraqis dragged the burned bodies of the four dead contractors through the streets. The workers were employees of Blackwater Security Consulting LLC of Moyock, N.C.

"They are very clearly going after civilian contractors, and today is absolutely tragic; it's chilling," said Peter Singer, a contracting expert at the Washington research center the Brookings Institution and the author of the book "Corporate Warriors," about private contracting and the Defense Department.

"We weren't being realistic with ourselves about the role the contractors played and the potential risks," Singer said. "We best-case-scenarioed everything. There's a lot more dangers and a lot more costs."

Contractors are required by law to carry Defense Base Act insurance, which covers workers for deaths and injuries abroad, Greenhouse said.

How much contractors—and thus taxpayers—pay for the insurance depends on who hired them. The U.S. Agency for International Development negotiated a group insurance deal for its companies years before the Iraq war, allowing them to get a rate of $2.15 per each $100 of payroll.

Some experts estimate that Defense Department contractors pay as much as $25 to $50 per $100 of payroll.

With insurgents' attacks coming every day, insurance underwriters revise their rates often, said Anita Robinson, senior vice president of Marsh Inc., a New York-based company that arranges insurance for large firms. The insurance costs in Iraq, she said, are "the highest I've seen."

"In Bosnia you don't have the scale of danger we have in Iraq," Robinson said. "Looking at the situation I don't see (rates) going down."

Greenhouse said she'd been examining the concept of a large group-insurance plan for Defense Department contractors since Sept. 11, 2001, to save money, but was unable to put one into effect before the war. Bids are to be sought later this spring.

Greenhouse said she hoped to lower insurance costs by including coverage for workers in such low-risk locales as Germany.

Blackwater Security was formed last year and is part of an 8-year-old security training company. Last August, the Army awarded Blackwater a $21.3 million no-bid contract for security guards and two helicopters for U.S. Iraq civilian administrator L. Paul Bremer, according to the inspector general's report. The company also provides security for food shipments in the Fallujah area.


(Knight Ridder Newspapers researcher Tish Wells contributed to this report.)


(c) 2004, Knight Ridder/Tribune Information Services.