Security and insurance could eat up as much as a quarter of the US-funded reconstruction budget in Iraq, said America's chief inspector in Iraq where some projects have been delayed by surging violence.
Stuart Bowen, the US-led Coalition Provisional Authority's Inspector General, said his office and others were looking at how to trim security and insurance costs without jeopardising the safety of contractors on the ground.
In a report to Congress in March, Mr Bowen estimated security and insurance consumed 10-15 per cent of the total cost of Iraqi contracts but violence over the past month had likely pushed up this rate further.
"It (security and insurance costs) could go up to 25 per cent. April was a cruel month in terms of Fallujah... and attacks on contractors throughout the country," Mr Bowen told Reuters in a telephone interview from Baghdad.
"That naturally will exert upward pressure on security costs," he added. While security could not be compromised, Mr Bowen said he was looking at how to reduce insurance costs via a number of strategies, none of which has been agreed on yet.
"The goal is to try and preserve as much of the $18.4 billion appropriated for reconstruction for that use," said Mr Bowen, referring to money allocated by Congress for reconstruction.
One option was to introduce a government-sponsored centralised insurance plan as a means of getting away from current ad hoc purchases of insurance. No final details had been worked out.
"Right now, contractors as far as we know, are obtaining their insurance independently and an ad hoc basis like that is inevitably going to result in very high premiums," he said.
However, he stressed the message was not for contractors to compromise on security in any way.
"We are not at all implicating a need for scaling back on actual security protection. What we are merely trying to do is find efficiencies within that process which will provide cost-savings to the process," he said.
The US government does not officially track contractor deaths in Iraq but news reports indicate at least 50 civilian contractors have died so far and many more have been injured.
Heightened violence over the past month has delayed some reconstruction work, with contractors saying projects have ground to a halt in volatile areas as employees hunker down in fortified housing.
Mr Bowen said his auditors were looking at how delays because of security problems might add to the overall cost but said he had no estimates on this yet.
Some contractors have complained that funds have taken a long time to reach them in Baghdad but Mr Bowen said these delays seemed to have been resolved.
"The delays in the movement of funding for projects here in Iraq and the days of delay for approval of task orders are past," he said.
The contracting process in Iraq has come under fire from the outset, particularly early deals handed out without competition to companies such as Halliburton Co., the oil services firm once run by Vice President Dick Cheney.
Asked for his overall impression so far, Mr Bowen said: "It's a story of difficult circumstances that improved and has resulted in a high level of compliance in the second tranche of major contracting this spring," he said.
In March, the CPA's Programme Management Office awarded about $5 billion worth of major construction contracts and these are expected to go into full gear soon.