Fortunes of war: privatizing the conflict in Iraq creates opportunity--and controversy--for North Carolina companies.

• Author: Martin, Edward
• Position: Cover Story

At 6 o'clock on a spring Saturday evening in Shelbyville, high-school kids in Hondas and Toyotas would be circling Hardee's and McDonald's on Madison Street, the main drag. But this palm-lined street half a world away bears no resemblance to Rick Blanchard's hometown in eastern Tennessee. Peering out the rear window of a white Ford F-350 Crew Cab, the stocky ex-Marine and former French Foreign Legionnaire clutches his M-4 rifle.

There's a name here for men like him. "They call us shooters," he says. The convoy of five trucks and a sport utility vehicle snakes through the traffic. Nearby, 14 months earlier, a Sunni mob killed four employees of another North Carolina company, dismembered them, set their bodies on fire and dangled two of the smoldering corpses from a bridge. Fallujah, 40 miles west of Baghdad, is a deadly place. Suicide bombers strike almost daily.

A sudden movement startles Blanchard and the others. An Iraqi truck bears down on the convoy from the rear. "Go! Go!" somebody screams. Frenchie, as his buddies call Blanchard, braces. In the last truck in the convoy, another shooter leans out, curls his fingers against his palm and pumps his hand: the sign to back off. He motions again. Nothing. He raises his rifle. Warning shots ricochet in front of the Iraqi vehicle. The gap between the trucks widens.

That much about the events of May 28 is undisputed. What happened next, though, would sweep a Charlotte company and its founder, a Chilean immigrant who used all the right stuff to crack the Queen City's power structure, into an unfamiliar arena of international conflict and intrigue.

Near a Marine checkpoint, one of the trucks runs over a stop strip, a board with upturned spikes. Blanchard and others leap out, rifles ready, and surround the truck as its crew sweats in 95-degree heat to change the tire. Within seconds, they're surrounded by armed men: U.S. Marines, who take prisoner the 19 men--16 employees of Zapata Engineering PA and three Iraqis.

Three days later, Manuel Zapata's employees would be released and expelled from the country, but the finger pointing persists. The Marines say Zapata's men fired at them and civilians. Zapata's men deny it. They say their Marine captors abused them and taunted them about their high pay. Blanchard, for example, says he was making $15,000 a month as a guard. Overlooked in the heat of the debate are larger national-policy issues.

To a degree never before known, private companies are going to war, doing the same work the military once did. The corporate warriors make far more money--some Zapata demolition supervisors, sources say, were paid at a rate that annualized would have exceeded $500,000 a year--and with far fewer regulations.

Military experts, politicians and scholars say ramifications of the confrontation could linger longer than the bruised feelings of jostled contractors or jealous gyrenes. Or the jumpiness of executives concerned that a slip of the tongue or an impolitic remark might jeopardize multimillion-dollar government contracts. After granting BUSINESS NORTH CAROLINA a lengthy interview, Zapata later demanded that the magazine drop plans to publish this story when he learned that the writer had asked military officials for their side of the incident.

Zapata Engineering is one of many Tar Heel connections to private-sector military work. Former members of Fort Bragg's top-secret Delta Force commandos and the base's Special Forces units, plus ex-Marines from Camp Lejeune, provide many of the employees hired by private contractors. Zapata estimates that at least 75% of his people in Iraq were former members of the military. About 35 private American companies operate legally in Iraq and, along with an estimated 50 illegal ones, employ up to 50,000 people there. The U.S. has about...