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Big, Easy Iraqi-Style Contracts Flood New Orleans

by Pratap ChatterjeeSpecial to CorpWatch
September 20th, 2005

cartoon by Khalil Bendib

The day Hurricane Katrina struck Louisiana, Robert Boh watched the dramatic pictures of the unfolding disaster on television at his in-law's house in Jonesboro, Arkansas, where his family had taken shelter. As president of the biggest construction company in New Orleans, he was confident that the hundreds of miles of levees that he and his rivals have built over the decades would hold. "It never occurred to me," he said, that the 17th street canal would gave way. "I was shocked."

The next day the phones started ringing off the hook. One of the calls was offering work to repair the levees and drain the city from the Army Corps of Engineers, a federal agency run by the US military. Unable to access his New Orleans offices, which had six feet of water on the first floor, Boh drove down to work in nearby Baton Rouge, to help save the city where his grandfather had founded a construction business 96 years before.

Military Blackhawk and Chinook helicopters dropped sandbags into the breached levees in New Orleans, as Boh Brothers crews worked around the clock for a week. The work was a financial boost for the civil engineering company that had been $2 million in debt just over a year prior, because the Army Corps of Engineers had no money to pay them for installing floodgates for New Orleans’ Harvey Canal.

Before Katrina struck, Boh was starting to question if he really wanted to apply for more work from the Corps, which oversees the levees. "In 2004 and 2005, funding for our work has been cut," he told CorpWatch. Indeed, earlier this year, New Orleans district projected that it would get just $82 million in flood and hurricane protection projects, a 44.2 percent drop from the $147 million spent in 2001.

Today state and federal money and contracts are flowing into the stricken area and Boh Brothers is one of the key local beneficiaries. Right after completing the emergency repairs, Boh was sub-contracted to help pump water from the flooded city by the Shaw Group, a politically well-connected contractor that had worked on reconstruction in Iraq. Then the state of Louisiana awarded the company a new $30.9 million contract to fix the hurricane-damaged twin-span bridge that carries Interstate 10 traffic over Lake Pontchartrain.

Boh’s contract is tiny compared to the billions that will flow to the giants of the industry: Halliburton, Bechtel and Flour. "The construction industry has stood up and is saying we are standing ready for your call," Lieutenant General Carl Strock told a September 2 Defense Department briefing. The Federal Emergency Management Agency and the Army have budgeted at least $62.5 billion in emergency aid for Alabama, Louisiana, and Mississippi, (not including rebuilding the levees), creating a boom for construction companies.

"They are throwing money out, they are shoveling it out the door," said James Albertine, a Washington lobbyist and past president of the American League of Lobbyists, told the New York Times. "I'm sure every lobbyist's phone in Washington is ringing off the hook from his clients. Sixty-two billion dollars is a lot of money -- and it's only a down payment."

"You are likely to see the equivalent of war profiteering -- disaster profiteering," said Danielle Brian, director of the Project on Government Oversight, a nonprofit government spending watchdog group. She notes that Joe Allbaugh, President Bush's former campaign manager and a former head of FEMA is now a lobbyist and consultant to both the Shaw Group and Halliburton. (Melissa Norcross, a Halliburton spokeswoman, said Allbaugh has not, since he was hired, "consulted on any specific contracts that the company is considering pursuing, nor has he been tasked by the company with any lobbying responsibilities.")

Many, including Senator Richard Durbin, "are worried because we hear about no-bid contracts in the Katrina areas going to the same companies that they went to in Iraq without the kind of accountability that we have to demand," the Illinois Democrat told National Public Radio, a public radio network in the US. "

Building Bonanza

Boh Brothers, a $250 million company in New Orleans, was probably the first company to get a post-Katrina federal contract from the Army Corps of Engineers to patch the broken levees. Robert Boh says that he still has no idea how many people worked on the job and how much it cost, because all work was tracked on paper rather than by computer. "Last week we managed to get our computers out of our offices with the help of a crane on a nearby overpass," he told CorpWatch.

Normally contracts are supposed to be openly advertised for 30 days, but in an emergency government officials can cut this process to just two to three days through a limited bidding system to a few selected companies.

For example, the Boh Brothers contract for the repairing the I-10 "Twin Span" bridge over Lake Pontchartrain was bid, reviewed, and signed in record time. On Sept. 9, bids were opened at 1 p.m., reviewed and approved by 3:30 p.m. and the contract was signed by 5:15 p.m.

Boh is now working on a sub-contract with the Shaw Group of Baton Rouge, a $3 billion engineering company, which has a $100 million contract with the Corps to pump floodwaters out of New Orleans. Shaw also has a $100 million contract named "Operation Blue Roof" (after the blue-colored plastic tarpaulins used for temporary shelters) that was awarded by the Federal Emergency Management Agency (FEMA) to provide housing and support services for displaced residents. (The Shaw Group has won at least $135.7 million in work in Iraq)

A similar fast-track system gave contracts for work in New Orleans to Kellogg, Brown and Root (KBR), a subsidiary of Halliburton, a $20 billion company based in Houston, to "assess pumps and infrastructure in the city and construct a facility to support recovery efforts." In addition KBR has been asked to repair three Navy facilities in Mississippi including the Stennis Space Center. The work so far has included damage assessments, repairing roofs, and restoring power.The KBR contract, worth approximately $30 million, is part of a larger $500 million naval contract that was bid well in advance of the disaster. Signed in July 2004, this contract, called CONCAP (construction capabilities), is issued by the Naval Facilities Engineering Command. This is KBR second CONCAP contract; the first included constructing prisons in Guantanamo Bay. CONCAP is very similar to the better known Army contract called Logistics Civilian Augmentation Program (LOGCAP) under which Halliburton has done the bulk of its work in Afghanistan and Iraq.

Although CONCAP is a Navy contract, the Corps has taken advantage of it in the last two weeks to hire Halliburton to build a temporary morgue and to pump water from Plaquemines Parish (south of New Orleans).

Asked why the Corps was using Halliburton for this work without competitive bidding, Carol Sanders, a Corps spokeswoman, said: "Due to the magnitude of Hurricane Katrina and the urgent requirements for emergency response, the Corps was authorized to tap into the existing contracts of sister services."

Likewise a system of pre-bidding followed by limited bidding allowed AshBritt and Philips & Jordan to be dispatched right after the hurricane to clean up debris in the Gulf States: AshBritt of Pompano Beach, Florida, was hired to clean up Louisiana and Mississippi under a $150 million contract issued by the Corps in 2003. Phillips & Jordan of Nashville, Tennessee, holds a similar 2003 Corps contract for debris removal in Alabama and Florida. (Phillips & Jordan was also hired to remove debris from the World Trade Center, under a Corps program called "Advanced Contracting Initiatives")

These pre-existing contracts were replaced on Sept. 15 by the winners of a new limited bid competition the Corps conducted for debris removal. Each of these new contracts is worth up to $500 million, with an option to increase the ceiling another $500 million.

Not surprisingly, out of a pool of 22 candidates, the very same companies won the contracts. Ashbritt has been hired to clean up Mississippi, and Phillips & Jordan to remove debris in Louisiana. California-based Environmental Chemical Corporation and Ceres Environmental Services of Minnesota also won contracts in Louisiana.

Bechtel, a $17.4 billion San Francisco-based privately owned company, has also been selected by FEMA to provide short-term housing for people displaced by the hurricane. The company also worked on removing World Trade Center debris in New York and was the beneficiary of $2.8 billion in reconstruction contracts in Iraq.

Other well-connected companies include Fluor, of Aliso Viejo, California. Its work to set up a new Housing Area Command was approved under long-standing FEMA contracts that allow the agency to turn to Flour during disasters.

Fluor's team in the Gulf states is run by the same manager who was in charge of the company’s $1.5 billion in contracts in Iraq. "Our rebuilding work in Iraq is slowing down and this has made some people available to respond to our work in Louisiana," Fluor chief Alan Boeckmann told Reuters. The Los Angeles Times reports that the Fluor board member Suzanne Woolsey, wife of a former CIA director, is a trustee of Institute for Defense Analyses, a nonprofit corporation paid by the government to do research for the Pentagon.

Another engineering company working in the Gulf States under a pre-existing arrangement with FEMA is CH2MHill. The Denver, Colorado company also had a $28.5 million reconstruction contract in Iraq in 2004 and joint contract on a $12.7 million electrical power generation deal in Iraq.

While the contractors rake in the money, it is likely that the cash bonanza might not trickle down to their workers. On September 8, 2005, in the aftermath of Hurricane Katrina, President Bush issued an executive order suspending 1931 Davis-Bacon law that requires federal contractors to pay prevailing wage.

Prioritizing the Budget

In Iraq, limited accountability, corruption, massive cost overruns, and devastating failures fed the chaotic mess that has followed the 2003 fall of Baghdad. Nonetheless, the largest Katrina contracts have been won by many of the same politically connected companies that oversaw that failed reconstruction. And it is perhaps no coincidence, since many of the same people in the Army Corps of Engineers are awarding them–and in much the same manner: as open-ended, no- or hastily bid contracts with guaranteed profit margins.

But before we look at the flawed contracting process that followed the destruction in the Gulf states, let's go back the decisions that made the flooding not only possible but inevitable. Let’s start with who decided what to spend on levees and waterworks around the country and what monies to cut from projects in Louisiana since 2001. The ultimate responsibility lies with the president who signed the national budget and with the members of Congress who debated and rewrote the plan that the White House draws up for them every February.

But three high-ranking men in Washington, DC, play a key role in presenting options to the White House and Congress. Until about a year ago, they were Marcus Peacock, associate director of the Office of Management and Budget (OMB) for natural resource programs, John Woodley, assistant secretary of the Army for civil works and Lieutenant General Robert Flowers, then commander of the Army Corps of Engineers.

On April 28, 2004, the two senators from Louisiana met with Woodley and Peacock and asked them for more money for the state’s environmental restoration and water projects.

There are two major pools of money from which the Army Corps of Engineers draws for flood prevention in Louisiana. The first is the Southeast Louisiana Urban Flood Control Project, or SELA, which was approved following a massive rainstorm in May 1995 that killed six people. The second is the Louisiana Coastal Area Comprehensive Coastwide Ecosystem Restoration Study (LCA).

SELA has spent $430 million on shoring up levees and building pumping stations, with $50 million in local aid. Another $250 million in crucial projects remains unspent.

LCA, on the other hand, is only just getting started. It will ultimately take $1.9 billion over ten years to reverse the 30 percent loss in coastal lands that is making the southern Louisiana increasingly more vulnerable to floods. (This plan is significantly scaled back from the original proposal to spend $14 billion over 30 years.)

"The senators emphasized a need for support from the administration, not just passive inaction," said Sidney Coffee, who heads the Governor's Office of Coastal Activities in Louisiana. "They emphasized the need for financial support, and none came during this meeting."

Woodley himself acknowledged the necessity to cut costs-- and why--when he presented the budget earlier in the year. "This is a frugal budget that reflects the priorities of a nation at war," he stated.

The lack of support for these crucial waterworks was predictable. Woodley and Peacock are both political appointees tasked with implementing the White House priorities of cutting budgets and regulations rather than supporting environmentalists or engineers.

In a prior job at the Army, Woodley opposed environmental regulations on military bases. And Peacock was responsible for cutting money to Environmental Protection Agency (EPA) and instrumental in the Bush administration's decisions to freeze more than a dozen Clinton-era rules related to environment, health, and safety, including regulations on arsenic in drinking water, snowmobiles in national parks, and protections for roadless areas of national forests.

Diverted to Iraq

White House priorities were also reflected in the government’s failure to pay sufficient attention to the well-document danger of hurricanes to Louisiana. One possible reason that Gen. Flowers and his colleagues, were unable to focus on either SELA or LCA in 2003 and 2004, was because their attention was diverted to a more urgent White House request: the reconstruction of Iraq's oil fields, which involved everything from putting out oil fires during the invasion to trucking gasoline into Baghdad from Kuwait and Turkey.

When Katrina struck, resources were stretched. First there was the matter of the money. "It appears that the money has been moved in the president's budget to handle homeland security and the war in Iraq, and I suppose that's the price we pay," Walter Maestri, emergency management chief for Jefferson Parish, Louisiana, told the Times-Picayune newspaper on June 8, 2004. "Nobody locally is happy that the levees can't be finished, and we are doing everything we can to make the case that this is a security issue for us."

Corps commander Lieutenant General Carl Strock acknowledged that disaster was inevitable. In a Defense Department briefing on September 2, he said that "if a Category 4 or 5 hurricane were to strike New Orleans, this levee system could not be relied upon." Secondly, there was the matter of personnel. Two of Flowers' most senior staff were in Iraq: Brigadier-General Robert Crear and Strock (who went on to head the Corp after Flowers retired in 2004) spent a good chunk of 2003 working on Project Restore Iraqi Oil, Halliburton’s now-infamous no-bid contract.

As the chair of the February 26, 2003 Pentagon meeting at which this contract was drawn up, Strock attracted some notoriety. Less than three weeks after it was signed, he and Crear posed with Halliburton crews for photo-ops at the Al Zubair oil fields in southern Iraq. For most of the rest of the year the two men worked in Baghdad and Basra, rather than Baton Rouge and Vicksburg.

Strock was one of the five people who voted at a September 1, 2003 secret meeting in Baghdad to pay Halliburton $500 million out of Iraq's own funds for the no-bid RIO project. No Iraqis were present for the vote despite the fact that the money came from their own coffers.

When whistleblower Bunnatine Greenhouse revealed the details behind the no-bid contracts that Halliburton had won in Iraq, Strock arranged to have her demoted, despite a string of excellent performance reviews in her 23 years of service. "Ms. Greenhouse's removal from the SES is based on her performance," Strock said, "and not in retaliation for any disclosures of alleged improprieties that she may have made."

(All told, Halliburton has earned more than $12 billion in Iraq. Pentagon audits released by Democratic party in June showed $1.03 billion in "questioned" costs and $422 million in "unsupported" costs for Halliburton's work in Iraq.)

Top experts on water management from Army Corps were similarly unavailable for domestic programs. Dr. Eugene Stakhiv, Jerry Webb, and Dr. Edwin Theriot to the Middle East were dispatched to help the Iraqi Ministry of Water Resources, as part of the "New Eden" project to restore the Mesopotamian Marshlands, which Saddam Hussein had drained.

Back in the Bayou

While Strock and Crear were re-building pipelines and restoring marshes in Iraq, the effort to prevent a disaster in New Orleans was floundering for lack of federal money and commitment. The time to fix the levees and restore the coastal marshes was rapidly running out.

Strock had returned to the US in late 2003 to run the Corps’ civil works programs including flood control and navigation and became commander in 2004. Crear--who had been in charge of the day-to-day operations of Halliburton's work in Iraq-- would run the Mississippi Valley Division that includes the levees in New Orleans.

The clock was quietly ticking on January 31, when in a deja vu moment, Crear and Roberts were re-united for a photo-op in Baton Rouge to sign an agreement with Louisiana Gov. Kathleen Babineaux Blanco to finalize years of work on the Louisiana Coastal Area Comprehensive Coastwide Ecosystem Restoration Study.

The Corps inability to foresee and plan for problems in the wake of Katrina was deja vu all over again. After returning to the US, Crear testified to Congress on June 15, 2004 that when working with KBR in Iraq, it was his "mission in the Department of Defense to secure the oil. ... However, what we found was not oil well fires but significant damage due to looting. It was estimated to be about $1.4 billion overall damage and about 85 percent of that due to looting."

Two and a half years after Strock and Crear posed in the Iraqi oil fields, and seven months after the men posed for the Baton Rouge photo, the threat of Katrina again challenged the Army Corps of Engineers. And again it was slow off the mark. On August 29, as the federal government struggled to respond, Katrina destroyed New Orleans and devastated a massive area.

But putting aside the slow response to disaster, the question remains: Could the disaster have been predicted and prevented?

As for prevention, experts say that even if Louisiana had gotten full funding in 2003 and 2004, the levees would still have collapsed. The Corps' own engineering schemes over the last 70 years turned a "serpentine river into a straight one." The destruction of a natural landscape that could have checked the devastating floods increased the likelihood and severity of disaster.

Joe Ballard who ran the Corps from 1996 to 2000 and grew up in New Orleans does not blame it for failing to prevent the damage. The Corps, he says, has been struggling unsuccessfully to get more funding from the Congress and the White House to pay for corrective work. "It pains me to see the finger pointed because I know what a juggling act the Corps has to play," he said.

The failure to predict the disaster and prepare an effective evacuation plan is another matter. Despite President’s Bush statement that "I don't think anyone anticipated the breach of the levees," Ballard told CorpWatch that there was no way that the Corps did not know that a major flood was possible. "We were walking whistling past the graveyard." he said.

Today, Strock and Crear are back in the saddle at the Corps overseeing emergency contracts in the aftermath of Hurricane Katrina, in collaboration with the Federal Emergency Management Agency (FEMA) and the Navy. Chief among these contractors are companies such as Halliburton and Bechtel, which have been awarded pre-bid, limited bid, and sometimes no-bid contracts to assess the damage, provide emergency shelters and fix the infrastructure. (see box)

Marcus Peacock is no longer at OMB. He is now deputy administrator of the EPA, the very agency whose budget he helped slash in the early days of the Bush administration. And Robert Flowers has taken a job as chief executive officer of the federal contracts subsidiary of HNTB, an engineering company in Kansas City, Missouri, that builds airport facilities, bridges, and you guessed it: levees.

Will we see the same over-charging and failed projects that characterized Corps projects in Iraq? Only time will tell, but on September 15, an important step was taken to track the problem if it occurs: the creation of a special inspector general at the Department of Homeland Security to investigate corruption and fraud in post-Katrina contracts.

The same day Senators Joseph Lieberman of Connecticut and Susan Collins of Maine introduced a bill in Congress that calls for the expansion of the special inspector general for Iraq reconstruction to include oversight of the spending in the Gulf Coast recovery. The two senators said using an existing office was preferable because it would be able to begin work quickly.

In a September 15 speech to the nation, Bush said that Americans "have every right to expect a more effective response in a time of emergency."

But the track record of private contractors and federal agencies in Iraq and now in the Gulf states bodes ill for the likelyhood that the public will enjoy that right. The Corps contracts and those awarded FEMA replicate "the same flawed contracting strategy that produced disastrous results in Iraq," Conresssman Seny Hoyer wrote to the Government Accountability Office.

"Where the train runs off the tracks is when politics become part of the decision-making process," says Ballard.