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US: No-Bid Contracts Win Katrina Work

White House uses practices criticized in Iraq rebuilding for hurricane-related jobs.

by Yochi J. DreazenThe 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.





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