Contractor fears for profits as security problems deter westerners, increase demand for local workers.

Contractor Amec has warned that it could be forced to scale back its ambitions in Iraq over local labour costs rises.

Western companies operating in Iraq are becoming increasingly reliant on local workers because of the acute security problems in the country. Employers now fear that wage demands could fuel a pay spiral that would make it uneconomic to remain.

An Amec spokesperson said that if the cost of hiring local labour rose too much, the company would have to reconsider its position in Iraq.

The spokesperson said: “We have no plans to pull out of Iraq. But if the rates the Iraqi people charge rise above market costs and become exorbitant, our situation there will have to be addressed. We can’t pay over the odds for a workforce.”

Amec is working in Iraq in a joint venture with US engineering contractor Fluor Corporation. The Amec–Fluor joint venture has secured a series of power and water infrastructure contracts.

Demand for Iraqi employees has risen in the wake of a spate of kidnappings of western workers, including that of civil engineer Kenneth Bigley.

Tim Siddons, partner at QS Baker Wilkins, said that his firm had placed an embargo on sending out British staff to Iraq because of the dangers. Other companies have adopted the same attitude.

Baker Wilkins employs a solely Iraqi workforce because they are considered to be less in danger from Iraqi insurgents who target foreign staff. Siddons said: “We are still applying for contracts, but that is only thanks to the fact we have good Iraqi ground staff. If we didn’t, we wouldn’t pursue projects.”

Siddons added that skilled local labour was difficult to find without business contacts.

He said: “An Iraqi friend I met in the country 15 years ago leads our surveying operation over there. The men he hires for us do everything we need doing. But without such contacts, it would be impossible to find a technical workforce. There are no agencies to introduce companies to the right people.”

Siddons said that unskilled labour was also becoming harder to find because of demand from would-be employers. He said: “At the moment, fees for unskilled workers, such as security staff, are very cheap. But that will change as unemployment problems subside. If demand is increasing, rates will go up, because the people will no longer be desperate for work.”

He added: “I won’t fly out there myself, and I wouldn’t expect my staff to either.”

Graham Hand, chief executive of the British Consultants and Construction Bureau, said: “If the risk is judged to be excessive, companies will not go out there. Those companies that are already there don’t seem to be pulling the plug unnecessarily, but firms want to minimise exposure of British staff.

“It is the nature of supply and demand that Iraqi workers are going to want what reward they can get, and while that is in many ways a positive thing, firms don’t want to be caught out making a bid for something they would not make a profit on.”