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Audit: Feds wasted millions on Katrina work

The government wasted millions of dollars on four no-bid contracts it handed out for Hurricane Katrina work, investigators say.
/ Source: The Associated Press

The government wasted millions of dollars on four no-bid contracts it handed out for Hurricane Katrina work, including paying $20 million for a camp for evacuees that was never inspected and proved to be unusable, investigators say.

A report by the Homeland Security Department's office of inspector general, obtained Wednesday by The Associated Press, is the latest to detail mismanagement in the multibillion-dollar Katrina hurricane recovery effort, which investigators have said wasted at least $1 billion.

The review examined temporary housing contracts awarded without competition to Shaw Group Inc., Bechtel Group Inc., CH2M Hill Companies Ltd. and Fluor Corp. in the days immediately before and after the August 2005 storm that smashed into the U.S. Gulf Coast.

It found that FEMA wasted at least $45.9 million on the four contracts that together were initially worth $400 million. FEMA subsequently raised the total amounts for the four contracts twice, both times without competition, to $2 billion and then $3 billion.

FEMA did not always properly review the invoices submitted by the four companies, exposing taxpayers to significant waste and fraud, investigators wrote. In many cases, the agency also issued open-ended contract instructions for months without clear guidelines on what work was needed to be done and the appropriate charges.

"We question how FEMA determined that the amounts invoiced were allowable and reasonable," the IG report states, warning that its review was limited in scope so that additional waste and fraud might yet to be found.

Agency says improvement steps taken
Responding, FEMA said it generally agreed with the IG report and would further investigate the $45.9 million in questioned costs and recoup the money as necessary. FEMA said it has taken several steps to improve its disaster response since the 2005 storm, such as requiring a standard invoice form and better tracking inventory.

The agency also noted that the four no-bid contracts were rebid on a competitive basis in August 2006. The contracts were subsequently awarded to six companies, including Shaw, Bechtel, CH2M Hill and Fluor, which received the original no-bid agreements.

"As FEMA works toward refining its programs, the office of inspector general's independent analysis of program performance greatly benefits our ability to continuously improve our activities," wrote Marko Bourne, director of FEMA's office of policy and program analysis.

According to the report, FEMA tasked Fluor with arranging a "base camp" to house up to 300,000 Katrina evacuees as the hurricane neared the Gulf Coast. FEMA's request required Fluor to conduct a site inspection before ordering tents, but Fluor did not do so and FEMA subsequently found the site to be unusable.

Still, Fluor charged FEMA $20 million for the tents, which FEMA paid. The IG said that figure included $8.7 million to cancel the lease and for other questionable expenses despite Fluor's failure to perform its obligations. The report questioned FEMA's decision to pay the $8.7 million without further review.

Other findings:

  • Fluor did not always notify FEMA when it conducted emergency maintenance as required, such as replacing air-conditioning units, refrigerators and propane tanks. Fluor said it received approval from FEMA to perform the emergency work without notice, but no evidence exists that FEMA authorized it.
  • FEMA lacked a real-time inventory system to ensure that property attained and maintained by the four contractors, such as trailers, were properly accounted for.

Taxpayer dollars at stake
Sean Clancy, spokesman for the Baton Rouge, La.-based Shaw Group, said the company could not comment until it had received a copy of the audit and had "an opportunity to conduct our own review."

Fluor and Bechtel representatives did not have immediate comment Wednesday. A spokesman for CH2M Hill did not immediately return a request for comment.

In the months after Katrina, FEMA came under criticism for awarding the no-bid contracts to Shaw, Bechtel, CH2M Hill and Fluor, prompting a promise from FEMA Director David Paulison to rebid them.

Since then, FEMA competitively awarded portions of the no-bid contracts to small and minority-owned firms. But it also extended contracts for Shaw, Bechtel, CH2M Hill and Fluor. Those four companies, which have strong government and political ties, also were deemed among the most suitable for future disaster work.

Rep. Bennie Thompson, D-Miss., who chairs the House Homeland Security Committee, said the contract waste was unacceptable.

"Once again, we discover that FEMA has wasted tens of millions of taxpayer dollars on noncompetitive contracts and then failed to properly oversee the performance of those contracts," he said. "In human terms, this huge amount of money could have been used to provide safe and decent temporary housing for thousands of displaced people."