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KATRINA: FBI investigating Katrina contracts

St. Bernard deals involve debris, overtime, trailers

by Karen Turni BazileNew Orleans Times-Picayune
March 30th, 2006

The FBI has launched a multifaceted investigation into post-Hurricane Katrina spending in St. Bernard Parish, examining several public contracts including a $370 million debris pickup deal that parish officials granted without bids five days after the storm and gave again to the same firm later last year despite receiving lower offers, according to interviews with competitors and a parish official who have been questioned by federal agents.

Agents also are scrutinizing parish spending on temporary trailers, employee overtime and a no-bid contract for removal of hazardous waste and sewage, the interviews indicate.

Contractor Lamont "Whip" Murphy, whose Murphy Construction Inc. was one of 11 firms that unsuccessfully sought the debris contract, said the FBI questioned him and a business partner a few weeks ago, seeking details on the awarding of the debris contract.

Larry Ingargiola, director of the parish Office of Homeland Security and Emergency Preparedness, said three FBI agents interviewed him last week on a range of topics including the debris pickup deal, as well as parish spending on the trailers, overtime and the hazardous waste contract.

James Bernazzani, special agent in charge of the FBI's New Orleans office, said he could not comment "on a pending investigation." U.S. Attorney Jim Letten also declined to comment.

Word of the FBI investigation comes after months of public criticism from contractors and private questioning by some parish officials about how the parish awarded the contract to collect debris from public and private property. United Recovery Group, or URG, received the contract the same week Katrina flooded the entire parish.

Parish President Henry "Junior" Rodriguez, who signed that original contract as an emergency measure Sept. 3, said the FBI has not interviewed him and that he was unaware of the investigation.

"I don't give a f - - - if the FBI is investigating," Rodriguez said. "If an FBI investigation would clear up everything and get the progress started in St. Bernard, I would welcome it. The feds need to do their job, but please hurry it up so we can get moving."

Ingargiola said the parish has nothing to hide and did nothing wrong.

"They were on a fishing expedition for any information I had," Ingargiola said of the FBI agents who met with him at his temporary FEMA trailer in Chalmette. "Anytime you have this amount of money out, somebody is going to be looking at everybody. I actually watch my p's and q's."

J.S. Lawrence Green, United Recovery Group's chief operating officer, said the FBI has not contacted the firm and that the company has done nothing wrong.

"We would welcome them to come contact us," Green said. "I would hope the federal investigators would look into any contract where federal dollars are spent to this magnitude."

Going its own way

St. Bernard is one of two parishes in the New Orleans area that decided to hire its own debris removal company after Katrina instead of letting the Army Corps of Engineers handle the job. Plaquemines Parish is using a firm to collect debris in some parts of the parish and letting the corps pick up debris in the other areas.

St. Bernard officials said hiring a firm themselves gave them more control over the contract and would ensure efficiency. But seven months after the storm, United Recovery Group has amassed $70 million in mostly unpaid bills because the contract has been mired in controversy as the Federal Emergency Management Agency continues to haggle about specific charges. The company stopped debris pickup March 11, saying it could no longer afford to work while waiting for government reimbursement. Collections may resume, however, after the state Wednesday said it will pay some of the company's bills.

When Rodriguez signed United Recovery Group's no-bid contract four days after Katrina, most of the parish was still flooded. Parish officials said URG representatives arrived by helicopter, offering enough equipment and personnel to begin clearing streets.

URG executives who flew into St. Bernard after the storm were representing four firms: Cabal Industries and Compliance Envirosystems, both of Louisiana, and Alabama companies IED and McInnis Services, according to parish documents. Rodriguez signed the Sept. 3 contract with the four firms, which proceeded to register United Recovery Group as a joint venture Sept. 19, according to records of the Louisiana secretary of state.

Murphy said the FBI asked about that initial process. He declined to give more details but said his company also had approached parish officials shortly after the storm looking to help in the cleanup. No contract came out of that effort, he said.

Green said his group of business partners had no relationships with any St. Bernard officials before the hurricane. He said they came to St. Bernard immediately after Katrina "because that is where the water was."

Firm had a plan

Council Vice Chairman Joey DiFatta, who was then the council chairman, said he met with URG representatives in the harried days after the storm.

"They came in with a plan, with a map of St. Bernard to get the mud off the streets and to get the streets passable. They were the first people to offer to get our parish usable again. It made sense to us to jump the gun and gets things started as soon as possible," he said.

Councilman Craig Taffaro said: "If it weren't for them coming in to begin clearing the roadways of the sludge that settled on the streets from the storm surge and made it unsafe to drive on the streets, it would have taken a lot longer for the parish to become accessible to residents."

However, the initial awarding of the contract raised criticism in the following months from potential competitors and even from some council members who privately complained that they were not part of the initial process to award what will likely be one of the largest post-storm contracts in the parish.

Responding to the criticism, the Parish Council reopened the debris contract for competition, and 12 companies submitted proposals, including URG and Murphy Construction. Administrators who ranked the responses gave URG the top score, and in November the council, in a 6-1 vote, chose the firm and authorized Rodriguez to negotiate a new contract.

Only Councilman Lynn Dean voted against selecting URG, saying its offer was too costly.

"It was way too high a price, and when you don't go with the low bidder, you know there is something phony going on in there somewhere," Dean said.

Councilman Mark Madary said he opposed the contract at an emergency council meeting shortly after Rodriguez signed it, but that he supported it in November. Still, he said he has questions about the deal and that he is not surprised to hear the feds are investigating.

"I would think that they would be," he said. "Obviously there are problems with it. I always objected to the cost. They should adjust their costs to be more in line with the other areas. . . . FEMA should deduct those expenses they think are unrealistic and let us continue on. If URG is not happy with that arrangement, then they should bow out and let somebody else come in and take it up with FEMA."

Plenty of complaints

The council's decision to keep United Recovery Group also was mired in controversy. After the council vote, Murphy Construction filed a protest with the parish, saying URG's prices, when applied to the estimated volume of debris to be picked up, amounted to an offer as much as $150 million higher than Murphy's, according to the filing. URG officials dispute the figure.

Murphy officials also filed a complaint in December with U.S. Sen. Mary Landrieu, D-La., saying their offer would have saved taxpayers at least $137 million.

"It is criminal to allow FEMA and St. Bernard Parish to spend over $137,882,550 more than is required to clean up the storm debris in St. Bernard Parish," Murphy wrote to Landrieu. "With money being so tight in Washington, these millions could be a windfall for the residents of St. Bernard."

Landrieu's office did not return a call seeking comment.

Murphy officials said they also filed a complaint with the Metropolitan Crime Commission, a nonprofit government watchdog. Anthony Radosti, the commission's vice president, said he couldn't comment on a particular complaint but said his agency routinely refers such grievances to the FBI.

Murphy is not the only contractor complaining about the process. Bob Isakson, president of DRC Emergency Services of Mobile, Ala., another firm that sought the job, said he was dismayed about URG getting the debris contract, saying his firm's quote was lower for nearly every line item.

"I'm shocked that they would have selected a company that . . . had a higher price over us," Isakson said.

Green said he disagrees with Murphy's assertion that its contract was cheaper than URG's proposal and said that no wrongdoing occurred. He could not be reached Wednesday to comment on DRC's assertions.

"It's easy to Monday-morning-quarterback the situation," Green had said earlier. "I don't think anyone knocked on the parish's door for four weeks after the storm" to help with debris.

Questionable savings

Sources close to the investigation said the FBI took an interest in the case in part because United Recovery Group got the job in November despite not having the lowest bid.

Parish documents related to the offers received for the contract do not make it clear whether Murphy presented the lowest offer among the 12 firms competing. But the documents show the initial difference between offers from URG and Murphy was even higher than Murphy first calculated.

According to a parish analysis of the two offers that considers the volume of debris to be collected, URG's initial offer amounted to $806.6 million, while Murphy's totaled $426.5 million, parish documents show.

Rodriguez called URG's contract "fair." He signed a new contract with the firm Dec. 9 after the council's vote. But Rodriguez said the parish has since negotiated URG's prices down and reflected the changes in a March 7 amendment to the deal. Administrators said they also have lowered their estimates of the debris to be collected, resulting in more savings.

But the parish's own analysis shows that even URG's lower prices remain higher than Murphy's. According to the parish comparison of the two firms' offers, which incorporates the smaller debris volumes, URG's reduced contract is valued at $369.7 million. That's $22 million more than the $347 million Murphy would be charging for the same services, based on the firm's initial prices and the revised debris volume, according to parish records.

Murphy said the fact that URG's costs have been lowered doesn't justify the parish's decision to go with a company whose initial offer was millions of dollars more than many of its competitors.

"Why didn't they negotiate with us?" Murphy said. "We would have been a hell of lot more cheaper."

Parish officials said the debris contract is a professional service, and therefore they were not legally required to take the lowest price. They also said they had doubts about Murphy's capacity to do the work.

Other contracts probed

The federal investigation has extended to other parish contracts as well.

Ingargiola, who said he got a call last Thursday and met later in the day with three FBI agents, said the agents asked about the work being done by a hazardous waste contractor, ACTI of California, which also is responsible for hauling sewage from nonfunctioning lift stations to a processing plant. That contract also was awarded in a no-bid emergency process, but Ingargiola said the work now has been advertised for bid. He did not say when a new deal might be awarded.

ACTI operations manager James Karsten said the group stopped doing all parish work except sewage removal some time ago. Karsten said he didn't know the FBI had been looking into the contract and that he hasn't spoken to any investigators.

Ingargiola also said agents asked about the parish's procedures for approving employees' overtime since the storm, and that he directed the agents to another employee to address their questions about trailer purchases. The parish has ordered thousands of trailers for residents from Century Investment Group of Connecticut. Parish officials said the firm approached them after the storm with a proposal, and they called competitors seeking other offers before selecting Century.

Jim McGuire, a partner with Century, said he knows FBI agents questioned Ingargiola about the trailer purchases, but he thinks that is to be expected given the amount of federal aid flowing through the parish.

"I think they are questioning anything the parish did and how they did it and why they did it, which is understandable," McGuire said. "I don't think they are investigating the validity of our contract."

McGuire said he has not been contacted by the FBI.

Ingargiola said the parish faced extraordinary situations when it selected contractors after the storm.

"We were working our asses off during the storm," Ingargiola said. "I don't think anyone intentionally did anything wrong. All we were interested in is saving lives and evacuating people, and whatever we had to do, we did. . . . Anytime you have this amount of money out, somebody is going to be looking at everybody."

Rodriguez said he isn't worried about the FBI.

"As far as I'm concerned, they can look at everything," he said. "We have nothing to hide. We are doing the best we can. If anyone has done anything wrong, then that is their problem, not mine."




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