[StBernard] Katrina fraud costs could top $2 billion

[Westley Annis]

Katrina fraud costs could top $2 billion 
GAO says its initial estimate of $1 billion in waste was 'likely
understated'
The Associated Press
Updated: 1:46 p.m. CT Dec 25, 2006

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 (PDF). 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.

'Laziness, ineptitude ... nefarious'
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.

$1B estimate 'likely understated'
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 who you know'
"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.

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