Executive Summary

1.  Poor Planning – To make every effort to get the best results for taxpayers, the government must have an acquisition strategy based on informed market research. 

2.  Inadequate Competition – To better evaluate goods and services and get the lowest practical cost, the government must promote aggressive arm’s–length negotiations with contractors and encourage competition, correcting the current trend of entering into non-competitive contracts in nearly 50 percent of government dollars spent. 

3.  Lack of Accountability – To ensure that taxpayer dollars are being spent responsibly, the government must regularly monitor and audit contracts. 

4.  Minimal Transparency – To regain public faith in the contracting system, the government must ensure that the contracting process is open to the public, including requests for proposals, contract data, and contracting officers’ decisions and justifications.

As a case study demonstrating the impact of how these failures in the federal contracting system impacts the public, POGO researched and analyzed Hurricane Katrina-related federal contracting.  POGO has reviewed the vast majority of Katrina-related federal reports, and has compiled a comprehensive analysis of contracting problems, as well as recommendations to address those problems.  The intent of this report is to present lessons that need to be learned both from the mistakes made by the federal government, as well as from the occasional successes. POGO’s findings and recommendations are primarily based on government reports that have been published publicly. 

The Federal Emergency Management Agency (FEMA), as the federal agency primarily responsible for relief and recovery, has issued tasks and mission assignments to at least 57 federal agencies and programs to respond to Hurricane Katrina.1 These agencies and programs include the Army Corps of Engineers (ACE), NASA, the Department of Health and Human Services (HHS), the Department of Housing and Urban Development (HUD), and even the Farm Service Agency.  All of these entities had a defined role as outlined in the National Response Plan.2 It was FEMA’s responsibility to manage the national disaster response, but many of FEMA’s partners in the federal government share the blame for the failures of Hurricane Katrina relief efforts.

Overall, the federal government has struggled to track all of its Katrina relief-related spending.  The White House Office of Management and Budget told The National Journal that it is the responsibility of each agency to track its own spending, but “Spokesmen at several federal agencies said they could only track ‘obligations’—what the agency has promised to pay—and not the money that had actually been dispensed.” 3 The GAO also complained of the challenges of tracking all of the federal spending when documentation is not centralized.4 In fact, this problem is indicative of the federal government’s general failure to adequately track and report its spending.

The scale of Hurricane Katrina contracting becomes clear by reading the most recent FEMA numbers: nearly 100,000 roofs damaged by Hurricane Katrina have been temporarily covered by FEMA’s “Blue Roof” program; more than 99 million cubic yards of debris have been removed in Alabama, Louisiana, and Mississippi; more than $6 billion has been paid directly to Hurricane Katrina victims from FEMA for housing and other needs; and more than $15.3 billion has been paid out to National Flood Insurance Program policy holders.5 (Attachment A).

The federal government must do everything it can to ensure that relief money reaches Hurricane Katrina victims and is not exploited by disaster profiteers. Some of the government’s determinations that contracts were “appropriate” and costs and/or prices were “reasonable” most likely were based on the emergency situation and the restrictions that situation imposed.  Mistakes will be made because of the urgency to conduct the relief effort, but POGO believes that following these recommendations will help to minimize waste and fraud and ensure that as much money as possible goes to the victims.

For more information about Hurricane Katrina and government contracting, please visit POGO’s Katrina Contracting Resources page.

• Nearly 500 government staffers are investigating hurricane-related spending
• 239 arrests were made
• 283 indictments were handed down
• 80 people were convicted for hurricane-related crimes

These oversight efforts, and their results, are a step in the right direction, but they do not reveal a complete picture of the government’s failure in its response to Hurricane Katrina or the overall lack of oversight of federal spending.  The majority of the indictments, arrests, and convictions have been against individuals who defrauded the government in petty crimes, rather than contractors caught exploiting the system on a large scale.23  In other words, so far the government has picked the low-hanging fruit from the tree.  Even these small cases of fraud have accrued -- GAO estimated that the “range of improper and potentially fraudulent payments is from $600 million to $1.4 billion.”24  Investigations of contractor waste and fraud are ongoing -- the government has only been able to review approximately one third of the money that has been awarded to contractors, and billions more have yet to be spent.25

The causes of these breakdowns must be well understood and addressed in order to strengthen the nation’s ability to prepare for, respond to, and recover from major catastrophic events in the future—whether natural or man-made.  Unfortunately, many of the lessons emerging from Hurricanes Katrina and Rita are similar to those we identified more than a decade ago, in the aftermath of Hurricane Andrew in 1992, which leveled much of South Florida. The experience of Hurricane Andrew raised questions about whether and how national disaster response efforts had incorporated lessons from experiences with Hurricane Hugo in 1989. All critical players must do much more to learn from past mistakes and actually implement recommendations that address prior deficiencies in preparing for and responding to catastrophic disasters. However, these actions will not be cost-free—posing a range of challenges in determining the priority of various action steps and how they will be funded.26  (Emphasis added.)

Although the federal government’s response to Katrina and Rita partially addressed short-term needs such as ice, food, and shelter, and is continuing to address long-term capital reconstruction projects, the revelation of numerous abuses has shed light on weaknesses in the federal government’s contracting systems that allowed for such problems as excessive no-bid contracts, unreasonable prices and costs, and questionable expenses. The end result is that hurricane and other disaster victims do not receive the assistance they need during a time of crisis.  Additionally, federal taxpayers are left paying inflated bills.

Before Hurricane Katrina, Hurricane Andrew in 1992 was the most destructive United States hurricane on record, with gusts reaching 164 miles per hour at the National Oceanic and Atmospheric Administration’s (NOAA’s) National Hurricane Center, and 177 miles per hour at a private home.27 At the time, Andrew caused over $26.5 billion ($43.7 billion when adjusted for inflation) in damage to Louisiana and South Florida.28  Andrew was also responsible for the loss of 23 lives in the United States.

Post-disaster reports for both Andrew and Katrina complained that state and local authorities needed more flexibility in contingency planning, and clearer statutory authorization through the Stafford Act to assess the needs and the federal resources available to address them after an emergency event.29  In essence, federal agencies -- mostly FEMA -- are limited in spending money and assisting victims because they do not have legal authority to dispense funds without the President’s authorization. Additional comments in response to these disasters expressed concern that federal officials were inadequately trained, due largely to FEMA’s poor oversight.  A 1993 GAO report pointed out that while FEMA had established training programs, the agency’s headquarters failed to establish performance standards or an evaluating program to monitor state performance.30 

In fact, the GAO stated that “many of the lessons emerging from Hurricanes Katrina and Rita are similar to those we identified more than a decade ago, in the aftermath of Hurricane Andrew in 1992, which leveled much of South Florida.”31  (Attachment E).