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Katrina waste: $1 billion just a beginning?
Auditors expect figure to balloon when no-bid contracts get scrutiny

By Hope Yen
Associated Press Writer

WASHINGTON — Already at $1 billion, the tally for Hurricane Katrina waste will balloon next year as investigators shift their attention from fraudulent aid to the lucrative government contracts awarded with little competition.

Several of the contracts were hastily given to politically connected firms in the aftermath of the 2005 storm and were extended without warning months later. Critics say the arrangements promote waste and unfairly hurt small companies.

In January, federal investigators will release the first of several audits examining abuse in 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.

Currently, half of the government’s contracts valued at $500,000 or greater are no-bid.

“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, noting that auditors and Federal Emergency Management Agency director David Paulison himself have said they are prime areas for waste.

“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.”

Katrina swept ashore on Aug. 29, 2005, 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 inundated the city. The hurricane 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.

A study earlier this year by Rep. Henry Waxman, D-Calif., estimates that hundreds of millions of dollars were likely wasted on contracting, citing instances of double-billing and thousands of trailers meant as emergency housing sitting empty in Arkansas.

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.

    Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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