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Ex-FEMA chief profiteering on Katrina?

An NBC News investigation into the performance and billing practices of a firm run by former FEMA Director James Lee Witt raises questions about profiteering, cronyism and possible falsification of records in Louisiana’s recovery from Hurricane Katrina.
US President Bill Clinton, (R), along with Federal
James Lee Witt, left, then the head of the Federal Emergency Management Agency, toured tornado destruction in Alabama with President Bill Clinton in 1998.Stephen Jaffe / AFP/Getty Images
/ Source: NBC News Investigative Unit

In the traumatic days after Hurricane Katrina, Louisiana Gov. Kathleen Babineaux Blanco turned to one of the most respected names in emergency management: James Lee Witt, the so-called Master of Disaster. But an eight-month investigation by NBC News into the performance and billing practices of Witt’s firm, James Lee Witt Associates, raises questions about profiteering, cronyism and possible falsification of records by one of Witt Associates’ subcontractors.

As director of the Federal Emergency Management Agency during the Clinton administration, Witt won widespread praise for his handling of crises such as the 1995 Oklahoma City bombing and the 1993 Midwest floods. At the same time, he was credited with turning a moribund federal bureaucracy into an efficient and proactive agency.

By the time Witt started his own disaster recovery firm, James Lee Witt Associates, in 2001, his name and reputation were known internationally.

Blanco hired Witt Associates to help Louisiana’s stricken communities work through federal red tape and to help manage storm debris removal. The governor’s move was praised as a necessary step to getting the overwhelmed state on the road to recovery.

But the state’s open-ended no-bid contract with Witt Associates also raised concerns about the financial implications of privatizing disaster relief.

In an October 2005 New York Times article, Witt was clearly sensitive to the notion that he might prosper from the Katrina disaster. “I just don’t want anyone to say that we used this as a way to profit or to try to get new business,” he said. “I just don’t want that.”

And during a taped forum at the National Press Club the following month, Witt said emphatically, “I’m not charging Louisiana anything if I’m not doing something for Louisiana.”

Nevertheless, according to information obtained by NBC News through public records, internal documents and interviews, Witt’s company has made millions of dollars from sizable markups on work performed by its subcontractors.

Sizable fee and markups
Witt Associates’ initial estimate for the job was about $26 million. Records show the bill is now more than $40 million and rising. Given that Witt Associates’ reported total revenue was about $7 million in 2004, the Louisiana contract has clearly been a financial boon to the company.

An analysis by NBC News of Witt Associates invoices contained in state records show that the company’s top manager in Louisiana, Mark Merritt, tallied $506,000 in billable hours over the 10-month span from September 2005 through June 2006. One of bills totaled $92,675 for a single month’s work by Merritt — nearly as much as the state pays Gov. Blanco for the entire year. (Other monthly bills for Merritt’s work include $78,375, $80,850 and $63,800.)

Witt himself recorded only a small fraction of the hours put in by Merritt. Both billed the state $275 an hour. (Witt has said that is half his normal hourly rate.) Some of Witt’s charges were only tangentially related to Katrina recovery operations. He billed the state $550 for a brief interview he conducted with CNN and $4,125 for helping to coordinate a day trip to Louisiana by his old boss Bill Clinton.

Witt Associates reaps its biggest windfall, however, from billing the state double what it actually pays its subcontractors. Those 100 percent markups yield millions of dollars for Witt Associates for doing what insiders say is little more than clerical work.

For instance, Witt Associates subcontracted an Indiana-based company called PinPoint Resources to manage government grants for Katrina recovery. Public records and internal company documents show that PinPoint workers were paid $19 to $20 an hour. Pinpoint billed Witt Associates $37.50 an hour, and Witt Associates billed the state $75 an hour for doing little more than processing the paperwork with the state, sources say.

Witt’s most lucrative subcontract is with Arkansas-based Recovery Management Inc. (RMI). RMI hired workers like Wendell LaFosse to monitor debris removal and disposal. LaFosse, a stocky, plain-spoken Cameron, La., native, worked seven months for RMI before quitting in May 2006.

“I got a paycheck. I thought the paycheck was pretty good,” he says.

LaFosse says RMI paid him $18 an hour. Records show that RMI then billed Witt Associates about $50 an hour. Witt Associates subsequently billed the state $100 for that same hour of work.

“That’s what makes me angry,” LaFosse now says. “If you’re going to do a job, do it at a fair price — not at the taxpayers’ expense.”

Phony timesheets and cronyism?
Padding profits wasn’t the only thing going on, LaFosse says. He maintains that an RMI boss told him to falsify his timesheets. For the first several months after hurricanes Katrina and Rita hit, LaFosse says, there was nonstop work in Cameron Parish, where he was stationed. He says that for weeks after that, however, he informed his boss, in writing, that there was little or no work left to do.

“Every week, four to five times a week, I would write, you know, ‘very slow’ or ‘nothing going on,’ ” he recalls.

Yet, he says, his supervisor told him to report 11.5-hour workdays anyway.

“I was told by the supervisor that we had to do that or they would get somebody else to do it,” he says.

Family links Witt firm to subcontractor
RMI is a small firm operating out of a house in rural Dardanelle, Ark. It now has other Louisiana hurricane recovery contracts besides the one with Witt Associates. How did such a small out-of-state operation come to play such a big role in the Louisiana Katrina cleanup business?

RMI’s Arkansas headquarters happens to be the home of Martha and Ron Merritt, the parents of Mark Merritt — the same top manager running Witt Associates’ Louisiana operations. The Merritt and Witt families go back decades. Mark Merritt went to school with Witt’s sons and once worked for Witt at FEMA. After Witt Associates hired RMI, RMI hired Witt’s brother-in-law to work in Louisiana.

Mark Merritt plays no financial or operational role for RMI, according to the family. RMI referred other questions to Witt Associates. The company disputes any suggestion of cronyism, citing an opinion issued last year when the matter quietly came before the Louisiana Ethics Board.

The board’s advisory opinion, stated, in part: “Since [Mark Merritt] is not involved in the oversight of the subcontract with RMI, it does not appear that RMI is prohibited from providing the contractual services for the State.”

Scott Amey, an attorney for the Washington-based Project on Government Oversight, a federal spending watchdog group that is monitoring post-Katrina contracts, believes the board should revisit its decision.

“There’s a relationship here that’s just way too cozy,” he says.

Amey is equally troubled by Witt Associates’ markups.

“I have a huge problem with 100 percent markups when there’s being little or no work being performed on the contract. Because at that point the taxpayers are being taken advantage of,” he says. “The real question for me is: If this isn’t profiteering, what is?”

Louisiana State Treasurer John Kennedy had a similar reaction when NBC News shared its findings on Witt Associates’ markups.

“If it wasn’t necessary, if they didn’t earn it, if they’re profiteering off of the misfortune of the people in Louisiana, then we ought to do something about it,” says Kennedy, who is pushing for stronger ethics laws in state contracting.

Informed of LaFosse’s allegations that he was told to submit phony timesheets, Kennedy told NBC News Senior Investigative Correspondent Lisa Myers: “That’s wrong. If that happened, somebody ought to be prosecuted to the fullest extent of the law.”

Witt and Blanco respond
In a statement, Witt Associates disputed questions raised about its work and billing practices in Louisiana. Witt’s firm vigorously defends its record, saying taxpayers have gotten good value and that its markups are “reasonable” and in line with industry practice.

Of the 100 percent markups, the company says: “[T]he way we mark up costs is reasonable in the business environment” and less than what it would cost for the government to perform the same work.

As for the monthly bills submitted by Mark Merritt, the company states, in part: 

“There were MANY hours worked and we know that the amount of work was unprecedented. Even though the principles of the team worked 7 days a week averaging 16-20 hours a day, they NEVER billed for more than 12 hours even though they worked more. We have consistently been conscious of reducing costs wherever we could including shared lodging and accommodations saving the State more than half in expenses.”

The company also challenges LaFosse’s allegations of timesheet fraud. “Had this practice been done, JLWA would have immediately forwarded this allegation of fraud to the auditors for investigation,” the company wrote. “ JLWA only charges for the work that was performed.”

Asked for comment, Blanco said in a statement that Witt Associates should “take appropriate action if necessary,” adding, “We expect James Lee Witt to make sure work charged is work performed.”

But Kennedy, the state treasurer and a Democrat like Blanco, believes the state needs to do more than leave it to Witt Associates to take action. He is calling for a full investigation into all Katrina contract markups, including Witt Associates’.

“I think if you made a 100 percent markup, you damned well better have earned it,” he told Myers. “Because if you didn’t, that’s cheating the American taxpayer who’s given our people money to rebuild.

“And even worse, that’s cheating our people. They’re not trying to profiteer. They’re trying to get back their futures. They’re trying to get back into their homes and educate their kids and just survive. It’s our job to make sure that every single penny gets to the people who were hurt by these storms.”