U.S. contractors working in Iraq will be exempted from the legal processes of the country's new interim government when they are performing official duties and most reconstruction contracts will continue uninterrupted, U.S. officials said yesterday.

Under an order signed Sunday by L. Paul Bremer, the U.S. civilian administrator of Iraq, the contractors' immunity provision covers "official acts that they perform in contracts in support of the Iraq reconstruction effort," said Scott Castle, general counsel for the occupation authority. In matters unrelated to their contract work, they will be subject to Iraqi rules.

"From our standpoint, it hasn't really changed at all, and that's a good thing. It gives us a modicum of protection," said Robert L. Rubin, senior vice president of MVM Inc., a Vienna security company. "We do have to justify every shot fired, and even this doesn't change that."

The $18.6 billion allotted by the U.S. government for the reconstruction of Iraq, money that was previously administered by the occupation authority, will come under control of the State Department. Payments on those contracts are expected to continue without interruption.

Control of contracts funded by Iraqi funds, which include oil revenue and seized assets, will be shifted to the country's interim government. Occupation officials worked with the Iraqi Finance Ministry to establish processes for paying contractors. "The bottom line here is that steps have been taken to make sure that contractors will get paid in a timely fashion," Castle said.

The contracts using Iraqi funds include termination clauses, but U.S. officials said they do not expect their Iraqi counterparts to make abrupt changes to existing reconstruction deals, although changes eventually may occur.

"Iraqis assume control of their own budgets, and so they will decide what needs to be bought and when and in what priority," said Mark J. Lumer, a contracting official in the Army's policy and procurement office. Over time, "Iraqis will be issuing their own procurement procedures," which companies will have to follow to compete for contracts, he said.

Contractors working in the country said they have been briefed regularly on the implications of the handover. While most expect a smooth transition, several legal and logistical questions about the status of their employees remain unanswered.

The extension of a mandate that gave contractors immunity in Iraq came as a relief to most companies. Some Iraqi officials had questioned why foreign contractors should be exempt from their laws.

Contractors had argued that the already-high cost of insurance premiums required to do business in Iraq would skyrocket if immunity were repealed. Under the immunity provision, if an employee of a U.S. contractor commits a crime while not performing an official duty -- by getting into a fight, for example -- he or she would be subject to Iraqi law.

That leaves a significant gray area, said Steven L. Schooner, a professor at George Washington University who specializes in government contracting law. It is unclear, for instance, what would happen if a contractor injured an Iraqi while driving recklessly to a job.

"I think that the message contractors have to take away from this is, if their people act inappropriately," they could be held accountable, Schooner said.

In addition, companies have not been told whether their employees will need visas to continue working in Iraq, said James S. Cartner, Fluor Corp.'s vice president of operations for Iraq. Executives of the Aliso Viejo, Calif., company, which has contracts to help rebuild power and water facilities, are also trying to determine how the organizational changes will affect their operations.

"Any time you have a change, you have a new cast of characters . . . so we're waiting to see how that will play out," Cartner said. Lumer said that U.S. reconstruction spending will now be prioritized by the State Department, but "99 percent" of the reconstruction contracts will be issued by the Army.

The occupation authority's program management office, which has been overseeing most of the Iraqi contracts, will be transferred to the State Department unit to ease the transition, said Gordon H. West, acting assistant administrator for the Asia and Near East bureau of the U.S. Agency for International Development. This group will help the State Department make spending decisions.

"The reporting relationships really don't change in a direct measure. . . . It won't affect the overall scope or the selection of the contractors," West said. But he added, "My guess is, there will be a lot of questions. . . . There will be things that come up, but most of those issues have been handled."