US: No-Bid Contracts Win Katrina Work

From CorpWatch:


White House uses practices criticized in Iraq rebuilding for hurricane-related jobs.
by Yochi J. Dreazen, The Wall Street Journal
September 12th, 2005

WASHINGTON -- The Bush administration is importing many of the contracting practices blamed for spending abuses in Iraq as it begins the largest and costliest rebuilding effort in U.S. history.
The first large-scale contracts related to Hurricane Katrina, as in Iraq, were awarded without competitive bidding, and using so-called cost-plus provisions that guarantee contractors a certain profit regardless of how much they spend.

Contracts for temporary housing have been awarded to politically connected companies like Fluor Corp. and Bechtel National Inc., a unit of Bechtel Group Inc., leading congressional Democrats to renew charges of cronyism they first leveled when the firms won lucrative work in Iraq.

In response, there have been bipartisan calls in Congress to establish a new government agency to manage the Louisiana rebuilding, and possibly have it run by a prominent figure such as former New York Mayor Rudolph Giuliani or former Secretary of State Colin Powell.

Separately, House Minority Leader Nancy Pelosi (D., Calif.) yesterday said she supported the creation of an "antifraud commission" to oversee government contracts issued in response to the disaster.

Some are questioning as well whether the Federal Emergency Management Agency -- which has a small procurement staff responsible for spending a relatively tiny amount of federal money each year -- is capable of effectively disbursing tens of billions of dollars.

In Iraq, several audits found that contracting problems were exacerbated by overworked and inexperienced government procurement officers who weren't up to the difficult work they were entrusted to carry out.
"You can easily compare FEMA's internal resources to what you saw in the early days of the Coalition Provisional Authority in Iraq: a small, underfunded organization taking on a Herculean task under tremendous time pressure," said Steven Schooner, a contracting expert at George Washington University law school in Washington. "That is almost by definition a recipe for disaster."

FEMA already is under fire for its poor initial response to Katrina. Its chief, Michael Brown, was removed on Friday as head of the direct relief effort. (See related article.)

Officials at the agency, a division of the sprawling Department of Homeland Security, said they are up to the task of ensuring that the money will be spent efficiently. "FEMA has extensive experience in acquiring the products and services required to make sure that the support needed in response and recovery operations is secured quickly to meet the needs of disaster victims," said James McIntyre, a spokesman for the agency.

In Iraq, audits have uncovered evidence that hundreds of millions of dollars were misspent by some contractors willing to stretch or break rules, while government officials were unwilling or unable to prevent abuses. Government reports have detailed systemic management failings, lax or nonexistent oversight and alleged fraud and embezzlement by officials charged with administering the rebuilding, as well as questionable activities by the contractors they employed. For example, audits have found evidence of procurement officers paying contractors twice for the same work and spending tens of millions of dollars with little to no documentation.

Officials from Bechtel and Fluor declined to discuss comparisons between their work in Iraq and the Gulf Coast. Bechtel spokesman Howard Menaker said the company's deal with the government was still being finalized and declined to comment further. A Fluor spokesman referred questions to FEMA.

The administration has allocated more than $62 billion to the regions hit by Katrina, and the final price tag is expected to soar to more than $100 billion. Already, at least seven contracts have been awarded for the post-Katrina effort. The Army Corps of Engineers late last week announced a $100 million deal with Shaw Group Inc. of Baton Rouge, La., for relief operations including the pumping of flood water out of New Orleans. Halliburton Co.'s Kellogg, Brown & Root unit, also prominent in the Iraq reconstruction effort, is doing repair work at three U.S. Navy facilities in Mississippi as part of an existing Pentagon contract.

FEMA, meanwhile, has announced four major contracts with firms charged with providing emergency housing relief in storm-battered areas of Louisiana, Alabama and Mississippi. The $100 million contracts with Bechtel, Fluor, Shaw Group and Denver-based CH2M Hill Cos. were awarded after what FEMA described as "limited competition." FEMA also recently hired Houston-based Kenyon Worldwide Disaster Management to collect human remains in the disaster zone. FEMA didn't announce the total of that contract, and Kenyon didn't respond to requests to comment.
All the deals include cost-plus language, which means the companies can pass along all their costs -- plus a predetermined profit -- to the government. Similar provisions were routinely used in Iraq. Critics said they encouraged waste by removing any incentive to control costs.

FEMA officials and outside contracting experts said no-bid contracting and cost-plus language have been used in prior disasters to speed the government's ability to get contractors on the ground and in place as fast as possible. They said cost-plus, in particular, is required after disasters like Katrina because it is difficult, if not impossible, for the government to know exactly how big the relief and rebuilding efforts ultimately will be.

FEMA has been given primary responsibility for spending the more than $50 billion in aid approved by lawmakers last week, which means it will be the lead contracting agency for months to come. That gives it a responsibility well beyond its normal role in past disasters. The agency has never before been asked to disburse money at the level that it will for Katrina. Of the $305 billion spent on federal-government procurement in fiscal year 2003, FEMA accounted for $87 million. The agency already has spent many times that in the Katrina aftermath.

Unlike in Iraq, where an inspector general is tasked solely with probing reconstruction contracts, FEMA has said oversight for the Katrina relief effort will be provided by the Department of Homeland Security's inspector general.
Several Democrats and outside experts have raised additional questions about how the government spends the money allocated for Katrina relief. A provision in the latest Katrina relief bill temporarily raised the spending limit on government credit cards used for Katrina-related purchases to $250,000 from $15,000 per transaction, to allow officials to buy needed supplies more quickly than if they went through normal procurement channels.

Numerous audits have found that the government lacks adequate controls to prevent misuse of such cards. In 2000, for instance, a probe by the General Accounting Office, now the Government Accountability Office, found that government credit cards in two California Navy units had been used for more than $660,000 in fraudulent or questionable purchases of personal goods ranging from jewelry to pizza. The report by Congress's investigative arm found that government employees bought numerous objects of "questionable government need" like $2,500 flat-panel computer monitors.