Danger money

The bright white lights of the RAF's Hercules turn dark blue. A minute later, they go out altogether, throwing the 60 or so passengers into total darkness 24,000 ft above Iraq. Lights beaming out of rows of small oval windows marks the Hercules as a target to those unhappy with the occupation.

The aircraft descends steeply into Basra, the UK-run capital of southern Iraq. It lands hard, bouncing several passengers off their seats. One by one the lights come back on; the aircraft comes to a stop at Basra International airport. This plane is carrying a group of officials from the Department for International Development on a visit to Basra one year after Operation Iraqi Freedom was launched.

The DfID is spending £259m on humanitarian and reconstruction projects. Building was invited to the group in order to discover what life is like for those struggling to rebuild the country.

As we will reveal over the next five pages, the harsh reality of life in southern Iraq is that this is anything but easy money. Armed guards, Kalashnikov rifles, armoured cars, threats, bombs, curfews and kidnappings are all part of everyday existence for the British and Iraqi construction workers operating in this residual war …

Dick Trimble seems fairly calm for a man about to take delivery of $3.3m in cash in downtown Basra. A security guard called Jocky is bringing the loot to Trimble's dingy hotel, the Diafa, later that afternoon.

There is no banking system in Iraq and so no electronic transfer of money. Trimble, head of Iraqi operations at consulting engineer Halcrow, has to pay his subcontractors in cash. Every week a stash comes over the border, after Halcrow's client, the DfID, has transferred it to a Kuwaiti account. This has happened since Halcrow started work on 48 reconstruction projects last year. The $3.3m is the final tranche of the $8.9m construction budget for these schemes, which have a value of between $1800 and $908,000 each. More than 30 of the projects have been completed, with the final 17 due to be handed over by the end of next month.

Trimble is preparing to go through the same routine that afternoon he and his team have gone through nearly every week since December. He climbs into an armoured Land Cruiser, accompanied by two Klashnikov-armed security guards. A second armoured vehicle follows, also with two close protection gunmen.

The security team drive Trimble to a safe in Saddam's Basra palace. From here, Halcrow pays subcontractors in dollar bills twice a week, to ensure that they have adequate cash flow. Trimble says: "Without a banking system you can't let normal commercial contracts – for example, you can't get bank or parent company guarantees."

These banking problems are one reason why so few British companies are working out here. Trimble estimates that overheads and insurance premiums are higher than they are in Britain by a factor of 10. "British companies aren't based here because the overheads are too expensive to set up speculatively."

The private security teams are another major cost. One guard says that it is not unusual for security firms to charge $1000 a day for these highly trained close protection gunmen, and that is before equipment costs and expenses.

There are nine guards looking after Halcrow's six senior staff. When Halcrow first arrived last July its team had no security. But Trimble says the security situation is deteriorating. "In the past nine months, things have got steadily worse. We were driving ourselves around at first; then we got guards; then we got armoured vehicles."

There have been several incidences of violence towards British firms in recent months. Mott MacDonald is project managing the DfID's £20m emergency infrastructure projects. In November, Graham Hopps, an employee, had his upper arm shattered by a roadside bomb; he still have problems moving it. His Iraqi colleague was killed.

Things have got steadily worse. Now we have armoured vehicles

Dick Trimble, head of Iraq operations, Halcrow

These bombs, officially known as "improvised explosive devices" are usually hidden in dog carcasses or bins and detonated remotely. They are still the most common forms of violent activity in Basra. Last month a South African engineer working for Mott MacDonald was badly shaken by an IED in Basra.

  Halcrow, too, has first-hand experience of this type of violence. One of its subcontractors was transporting a generator from Baghdad for a distribution project when dissidents hijacked his truck. A woman and child in a nearby taxi were killed.

Iraqi contractors are not safe either, as their earning power has given them a high profile. Halcrow pays unskilled labourers $3, skilled workers $10 and highly skilled site workers $15 a day. The 18 Iraqi engineers it employs through lists of qualified professionals drawn up by the local engineers society and contractors union are even better paid. As a result of their relative wealth, many senior contractors have become targets for the criminal element.

A local contractor, who did not wished to be named, appeared on television shaking hands with Paul Bremer, the top US official in Iraq. He was being commended for his work on the $75,000 upgrade of Ham Dan sewage works to the south-east of Basra. He had previously kept a low profile in his neighbourhood. However, satellite television is widespread in Basra, even among the very poor, and the images marked him out as a rich man. Shortly after, his son was kidnapped, and $30,000 was demanded for his return. A source close to the Coalition Provisional Authority South says that a settlement of about $5000 was agreed.

Halcrow ensures that its subcontractors have guards, drawn from the local Iraqi labour pool, on site. Security work is one of the reasons that unemployment in Basra is down from 80% before the war to 25% today. Factored into the contracts with its subbies, Halcrow pays the guards $70 to $100 a month, which compares to a policeman's salary of $120. The company also applies to the CPA for gun permits. A typical building site will have two or three AK-47 assault rifles and up to six guards.

Despite all the safety measures, even senior staff at Halcrow have been endangered. Samir Fattah, Baghdad-born but a British citizen, is Halcrow's business development manager. He sits with us as Trimble waits for his cash and relates the story of a terrifying incident.

Halcrow was holding a meeting in the lobby of the Diafa Hotel. Several contractors were invited to bid for a particular project. About 600 local firms applied last year to prequalify for such projects. Most were accepted, despite most of their recent history being more likely to have been in Saddam's semi-legal smuggling sector than construction. However, it is understood that there is a blacklist of nearly 100 contractors who the CPA and Halcrow have barred from bidding for any contract.

The intruder told all the contractors in the room they were potential targets: ‘especially you Samir Fattah’

At the meeting the contractors bidding for this project, the $79,000 central library refurbishment, had placed their tenders into a sealed box. Samir was about to evaluate the prices and quality of bids when two men burst through the door, despite the presence of the hotel's private Iraqi guards outside, shouting at the contractors.

The more senior of the duo told the stunned contractors that the library was the property of the Constitution Party, which had squatted in the building since the war. He added that the party would refurbish the library and split any profits among its members. Samir intervened, saying that if the party wanted to bid for the contract it would have to prequalify. The party leader told each person in the room that they were potential targets, before pointing at Samir: "Especially you, Samir Fattah." To this day, Samir does not know how these people knew his name.

Samir's gunman had the intruders in his sights, and so they decided to leave. Later, some of Samir's friends went to the library, quietly suggested to the 20-odd people occupying it that Samir was not a man to mess with.

The warning did the trick, but the Constitution Party still has not left the building. It squats in one half, while the other has been almost entirely refurbished by a local contractor called Sagban Abdul Kareem. The police should soon evict the party, allowing Sagban to complete the project by the end of April.

By the summer, Samir will be the only senior Halcrow man still working in Basra – the office will be staffed by Iraqis. The company last week won a large subcontract in Baghdad as part of the $28.5m water contract picked up by CH2M Hill/Parsons, but will effectively pull out of Basra when the CPA South hands over authority to the Iraqi people at the end of June.

Having established connections with local contractors, Halcrow will pitch for fresh work with the new governing class.

Having relayed these tales, Samir and Trimble are still waiting for the £3.3m to arrive. Trimble gets up from his seat and points out a bullet hole in the door leading to the balcony.