Fraud, Katrina Contracts Could Waste $2B
Tally for Hurricane Katrina Waste, Fraud Could Top $2 Billion in 2007, Federal Auditors Say
By HOPE YEN
The Associated Press
WASHINGTON – The tally for Hurricane Katrina waste
could top $2 billion next year because half of the lucrative government
contracts valued at $500,000 or greater for cleanup work are being
awarded without little competition.
Federal investigators have already determined the Bush
administration squandered $1 billion on fraudulent disaster aid to
individuals after the 2005 storm. Now they are shifting their attention
to the multimillion dollar contracts to politically connected firms
that critics have long said are a prime area for abuse.
In January, investigators will release the first of several audits
examining more than $12 billion in Katrina contracts. The charges range
from political favoritism to limited opportunities for small and
minority-owned firms, which initially got only 1.5 percent of the total
work.
“Based on their track record, it wouldn’t surprise me if we saw
another billion more in waste,” said Clark Kent Ervin, the Homeland
Security Department’s inspector general from 2003-2004. “I don’t think
sufficient progress has been made.”
He called it inexcusable that the Bush administration would still
have so many no-bid contracts. Under pressure last year, Federal
Emergency Management Agency director David Paulison pledged to rebid
many of the agreements, only to backtrack months later and reopen only
a portion.
Investigators are now examining whether some of the agreements which
in some cases were extended without warning rather than rebid are still
unfairly benefiting large firms.
“It’s a combination of laziness, ineptitude and it may well be nefarious,” Ervin said.
FEMA spokesman James McIntyre said the agency was working to fix its
mistakes by awarding contracts for future disasters through competitive
bidding. Paulison has said he welcomes additional oversight but
cautioned against investigations that aren’t based on “new evidence and
allegations.”
“As always, FEMA will work with Congress in all aspects to ensure
that we are carrying out the agency’s responsibilities,” McIntyre said.
The Aug. 29, 2005, hurricane swept ashore in southern Louisiana,
Mississippi and Alabama, leveling homes and businesses along the Gulf
Coast. Its storm surge breached levees in New Orleans, unleashing a
flood that left more than 1,300 people dead, hundreds of thousands
homeless and tens of billions of dollars worth of damage.
A series of government investigations in the storm’s wake faulted
the Bush administration for underestimating the threat and failing to
prepare by pre-negotiating contracts for basic supplies in what has
become the nation’s costliest disaster.
Earlier this month, the Government Accountability Office said its
initial estimate of $1 billion in disaster aid waste was “likely
understated,” citing continuing problems in which FEMA doled out tens
of millions of dollars in fraudulent housing assistance.
Democrats in Congress called for more accountability. When they take
over in January, at least seven committees plan hearings or other
oversight from housing to disaster loans on how the $88 billion
approved for Katrina relief is being spent.
Among the current investigations:
The propriety of four no-bid contracts together worth $400 million
to Shaw Group Inc., Bechtel Group Inc., CH2M Hill Companies Ltd., and
Fluor Corp. that were awarded without competition.
The contracts drew immediate criticism because of the companies’
extensive political and government ties, prompting a promise last year
from Paulison to rebid them. Instead, FEMA rebid only a portion and
then extended their contracts once, if not twice to $3.4 billion total
so the firms could finish their remaining Katrina work.
The four companies, which have denied that connections played a
factor, were among six that also won new contracts after open bidding
in August. The latest contracts are worth up to $250 million each for
future disaster work.
The propriety of 36 trailer contract awards designated for small
and local businesses as part of Paulison’s promise to rebid large
contracts.
Homeland Security Inspector General Richard Skinner is reviewing
whether some small and local businesses were unfairly shut out in favor
of winners such as joint venture PRI-DJI. DJI stands for Del-Jen Inc.,
a subsidiary of Fluor, which has donated more than $930,000 to mostly
Republican candidates since 2000.
“It’s not what you know, what your expertise is. I don’t even
believe it’s got much to do with price. It’s who you know,” contends
Ken Edmonds, owner of River Parish RV Inc. in Louisiana, a company of 9
people whose application was rejected.
PRI, a minority-owned firm based in San Diego, said it is the
“majority partner” with Del-Jen as part of a federal mentoring program
offered by the Small Business Administration. The joint venture
received four Katrina contracts worth up to $100 million each based on
price and “knowledge of work with the federal government,” president
Frank Loscavio said.
Whether small and minority-owned businesses were unfairly hurt
after the Bush administration initially waived competition requirements.
For many weeks after the storm, minority firms received 1.5 percent
of the total work less than one-third of the 5 percent normally
required because they weren’t allowed to bid for many of the emergency
contracts.
The National Black Chamber of Commerce called the figure appalling
because of the disproportionate number of poor, black people in the
stricken Gulf Coast, prompting Sen. Olympia Snowe, R-Maine, and Rep.
Donald Manzullo, R-Ill., to request GAO to investigate.
FEMA has since restored many of its competition rules, and the
number of contracts given to minority firms is now about 8.8 percent,
according to the agency.
On the Net:
A copy of the semiannual report on Katrina spending by the agencies’ inspectors general:
http://www.dhs.gov/xoig/assets/katovrsght/OIG pcie sept06.pdf
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