British firms battle for Iraq security deals

LONDON, Oct 1 (Reuters) The US government quietly gave a 485 mln dollars security contract for Iraq to a private British firm within the week that US contractors were accused of opening fire on and killing Iraqi civilians.

The highly contested deal, the largest security contract awarded in Iraq, was won by Aegis Defence Services, a 5-year-old company run by a former British army officer one of whose previous companies helped put down coups in Africa.

Industry experts say the deal shows just how well positioned British firms are in the battle to make money amid Iraq's chaos, as US companies, particularly in the wake of last month's shooting, come under increasing scrutiny.

The deal was not awarded without controversy -- Erinys, a rival bidder, has filed a lawsuit to try to block it and another has said it is ''considering its options'' -- but Aegis was expected to retain the contract.

Aegis, which employs about 1,200 people, has now attracted nearly 800 mln dollars in US government contracts, making it one of the most financially successful firms operating in Iraq.

Aegis said it won the contract days before the reputation of one of its top competitors, US group Blackwater, was tarnished by the shooting in Baghdad. Witnesses said the firm's employees opened fire on civilians, killing 8. Blackwater has said they returned fire after being attacked.

Either way, the security landscape appears to be shifting, with US operators regarded, rightly or wrongly, as ''gung-ho'' and British contractors seen as more restrained -- even if some of them, including Aegis, have been criticised in the past.

''We come from very different cultural backgrounds with very different support networks,'' said Amyas Godfrey, an associate of the Royal United Services Institute, a British defence think tank, who also consults to Blue Hackle, a security firm.

''STRICT'' ''Every company makes a decision about how they operate.

British military companies tend to hire ex-British military...

We are very strict about how free we are with our weapons.

''Any private security company worth its salt will always look to be defensive. It's not an offensive industry.'' Aegis is run by Tim Spicer, a retired lieutenant colonel who set up Sandline International after leaving the army. That company helped put down insurgencies in Papua New Guinea and Sierra Leone, drawing accusations of hiring ''mercenaries''.

As well as the larger groups such as Aegis, Control Risks and ArmorGroup, there are about 20 smaller British firms competing for the estimated 1.5 bln dollars being spent each year on security in Iraq, from convoy escorting to close protection.

As the industry becomes more regulated -- two dozen firms got together in 2006 to form the British Association of Private Security Companies -- less transparent outfits have dropped away, leaving fewer, larger companies to compete for the funds.

More consolidation is expected in the years ahead with firms either shutting up shop completely because there are no more contracts to be won in Iraq, or changing their focus to try to win business in Afghanistan, Africa and other hotspots.

''I think we would expect to see some of the smaller or mid-size companies going,'' said Patrick Toyne-Sewell, the director of communications at ArmorGroup, a UK-listed firm.

''There is a general trend to try to diversify outside of Iraq, particularly for those who started there'' and don't yet have operations elsewhere in the global 2.5 billion dollars industry.

While some, including Andy Bearpark, the head of the BAPSC, believe the Iraq security market will shrink in the years ahead as military operations wind down, others see it as a long-term play, particularly as the oil industry strengthens.

Any pull-out of U.S. forces will also give a boost to security firms, they say, with convoys needing protection and military equipment needing transporting out of the country. Mine clearance and training will also be money spinners.

''The more the military pull out or start handing over, the bigger rush of reconstruction projects there are going to be, and certainly opportunities for contracts,'' said Godfrey.

REUTERS SKS KP1953