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[Westley Annis]

Katrina cleanup costs grow and grow 
Layers of contractors and subcontractors boost bill to taxpayers

By Joby Warrick
The Washington Post
Updated: 11:57 p.m. ET March 19, 2006


NEW ORLEANS - How many contractors does it take to haul a pile of tree
branches? If it's government work, at least four: a contractor, his
subcontractor, the subcontractor's subcontractor, and finally, the local man
with a truck and chainsaw.

If the job is patching a leaking roof, the answer may be five contractors,
or even six. At the bottom tier is a Spanish-speaking crew earning less than
10 cents for every square foot of blue tarp installed. At the top, the prime
contractor bills the government 15 times as much for the same job.

For the thousands of contractors in the Katrina recovery business, this is
the way the system works -- a system that federal officials say is the same
after every major disaster but that local government officials, watchdog
groups and the contractors themselves say is one reason that costs for the
hurricane cleanup continue to swell.

"If this is 'normal,' we have a serious problem in this country," said Benny
Rousselle, president of Plaquemines Parish, a hurricane-ravaged district
downriver from New Orleans. "The federal government ought to be embarrassed
about what is happening. If local governments tried to run things this way,
we'd be run out of town."

Federal agencies in charge of Katrina cleanup have been repeatedly
criticized for lapses in managing the legions of contractors who perform
tasks ranging from delivering ice to rebuilding schools. Last Thursday,
Congress's independent auditor, the Government Accountability Office, said
inadequate oversight had cost taxpayers tens of millions of dollars, by
allowing contractors to build shelters in the wrong places or to purchase
supplies that were not needed.

Cut of the profits
But each week, many more millions are paid to contractors who get a cut of
the profits from a job performed by someone else. In instances reviewed by
The Washington Post, the difference between the job's actual price and the
fee charged to taxpayers ranged from 40 percent to as high as 1,700 percent.

Consider the task of cleaning up storm debris. Just after the hurricane, the
Army Corps of Engineers awarded contracts for removing 62 million cubic
yards of debris to four companies: Ashbritt Inc., Ceres Environmental
Services Inc., Environmental Chemical Corp. and Phillips and Jordan Inc.

Each of the four contracts was authorized for a maximum of $500 million.
Corps officials have declined to reveal specific payment rates, citing a
court decision barring such disclosures. But local officials and
businesspeople knowledgeable about the contracts say the companies are paid
$28 to $30 a cubic yard.

Below the first tier, the arrangements vary. But in a typical case in
Louisiana's Jefferson Parish, top contractor Ceres occupied the first rung,
followed by three layers of smaller companies: Loupe Construction Co., then
a company based in Reserve, La., which hired another subcontractor called
McGee, which hired Troy Hebert, a hauler from New Iberia, La. Hebert, who is
also a member of the state legislature, says his pay ranged from $10 to $6
for each cubic yard of debris.

"Every time it passes through another layer, $4 or $5 is taken off the top,"
Hebert said. "These others are taking out money, and some of them aren't
doing anything."

Normal practice
Defenders of the multi-tiered system say it is a normal and even necessary
part of doing business in the aftermath of a major disaster. The prime
contracts are usually awarded by FEMA or other government agencies well in
advance, so relief services can be brought in quickly after the crisis
eases. These companies often must expand rapidly to meet the need, and they
do so by subcontracting work to other firms.

The two federal agencies that administer most disaster-related contracts,
FEMA and the Army Corps of Engineers, say the system benefits small and
local companies that do not have the resources to bid for large federal
contracts. At the top end, prime contractors must be large enough to carry
the heavy insurance burdens and administrative requirements of overseeing
thousands of workers dispersed across a wide area, agency officials say.
They also note that contractors have a legal right to hire subcontractors as
they need them.


"Our purview of a contract goes to the prime contractor only," said Jean
Todd, a Corps contracting officer.

But watchdog groups that monitor federal contracting say Katrina has taken
the contract tiering system to a new extreme, wasting tax dollars while
often cheating companies at the low end of the contracting ladder. In some
cases, the groups say, companies in the top and middle rungs contribute
little more than shuffling paperwork from one tier to the next.

"It's trickle-down contracting: You're paying a cut at every level, and it
makes the final cost exponentially more expensive than it needs to be," said
Keith Ashdown of the watchdog group Taxpayers for Common Sense. "And in
almost every case, the local people who really need to be making the money
are at the bottom of these upside-down pyramid schemes."

The gap is particularly large for roof repairs. Four large companies won
Army Corps contracts to cover damaged roofs with blue plastic tarp, under a
program known as "Operation Blue Roof." The rate paid to the prime
contractors ranged from $1.50 to $1.75 per square foot of tarp installed,
documents show.

The prime contractors' rate is nearly as much as local roofers charge to
install a roof of asphalt shingles, according to two roofing executives who
requested anonymity because they feared losing their contracts. Meanwhile,
at the bottom of the contractor heap, four to five rungs lower, some crews
are being paid less than 10 cents per square foot, the officials said.

At least the prime contractors for roofing and debris removal owned
equipment that could be immediately applied to the job at hand. In the world
of Katrina contracting, this has not always been the case.

Ice vendor with no ice-making equipment
For example, one company hired as an ice vendor owns no ice-making
equipment. Landstar Systems Inc., a $2 billion Florida company placed in
charge of the bus evacuation of New Orleans, is a transportation broker that
specializes in trucking and has no buses of its own. In 2002, the company
was awarded a $100 million contract to provide emergency transportation
services for the federal government during major disasters. The contract,
which is administered by the Federal Aviation Administration, was expanded
in the fall to a maximum $400 million. Landstar declined a request for an
interview.

Thousands of New Orleanians had been stranded in the Superdome for more than
48 hours by the time FEMA issued the first order for a bus evacuation early
on the morning of Aug. 31. The order was passed to Landstar, which then
turned to other companies to locate buses, according to an official
chronology prepared by the Department of Transportation. Landstar hired
Carey International Inc., of Washington, which then hired the BusBank, of
Chicago, and Transportation Management Systems of Columbia, Md. Bus Bank and
TMS called private charter-bus companies -- some from as far away as
California and Washington state -- asking them to send buses and drivers to
New Orleans.

More than 1,100 buses eventually responded, some arriving four days later,
after traveling hundreds of miles. Daily earnings averaged about $700 per
bus, according to bus company owners. Landstar's daily earnings were nearly
$1,200 per bus, government records show.

"A lot of that money is going to brokers who didn't have to do anything,"
said Jeff Polzien, owner of Red Carpet Charters, an Oklahoma bus company
that sent coaches to New Orleans as a fourth-tier subcontractor.

Lower pay is hardly the worst problem subcontractors face. With many tiers
to navigate, money trickles down slowly, delaying payment by weeks and
months, and frequently imposing hardships on the smallest firms.

'It's just not worth it'
Several bus company owners said they were still owed tens of thousands of
dollars for work they did in the fall. For some, the delays have been
ruinous.

Thomas Paige, owner of Coast to Coast Bus Line of Dillon, S.C., laid off
staff, and two of his four buses were repossessed by creditors after payment
for his New Orleans work fell behind by three months.

"I went to New Orleans to help people -- and hopefully to help myself -- but
now I feel like I've dug a ditch and fallen into it," Paige said. "If I
would have known what I know now, I never would have gotten involved. It's
just not worth it."

C 2006 The Washington Post Company

C 2006 MSNBC.com

URL: http://msnbc.msn.com/id/11917853/page/2/