Confusion about the Stafford Act
Inadequate Competition Lack of competition and re-competingCompetitive awards were not used for the vast majority of large contracts, causing the government to buy goods and services at non-competitive prices.
The most glaring example of the negative impacts of non-competitive contracting was the four no-bid contract awarded to Fluor, CH2M Hill, Bechtel, and the Shaw Group. Awarded after Katrina hit land, FEMA awarded each company a contract with a ceiling price of $500 million. On October 6, 2005, FEMA Director Paulison testified before the Senate Homeland Security and Governmental Affairs Committee that he has “never been a fan of no-bid contracts” and that FEMA would “re-bid all of those no-bid contracts.” Re-bidding did not occur, however, until August 2006. In fact, FEMA actually raised the ceilings on those contracts, authorizing more than $3.3 billion to the four companies.65 To off-set the public criticism, FEMA awarded up to $3.6 billion in temporary hurricane-victim housing contracts to small and minority-owned firms.66
In another case, a sole-source printing services contract for $200,000 was awarded without any evidence of competition or justification of urgency. For one order placed under the contract, the contracting officer did not obtain a price quote for printing 60,000 brochures. The $34,015 billed for this printing service was paid without evidence of a prior agreement on price.67
While emergency circumstances give the government some leeway in entering into contracts that lack full and open competition,68 FEMA did not consistently re-compete contracts once the emergency period ended.69 For example, while FEMA’s decision to hire the paramilitary security firm Blackwater to provide law enforcement assistance in the area was questionable, the government found the contract terms “appropriate” and the contract price ($950 per security officer per day) “reasonable.” However, the changing security requirements from the emergency response period meant that the government could have “reduce[d] costs by soliciting competitive proposals using a mix of armed and unarmed security personnel.”70 There were many out-of-work local law enforcement officers who have could been employed, and therefore the government could have saved hundreds of dollars per person each day.
Federal agencies use the excuse that because they need to buy goods and services quickly, they cannot wait to solicit competitive bids from prospective vendors. One example that disproves that myth was the Military Sealift Command’s effort to procure cruise ships to be used as temporary housing for FEMA. Although the results of this effort have met with ridicule, because the low occupancy rates caused the per person cost to skyrocket, the government did conduct a competition in 19.5 hours and received offers for 13 vessels from seven contractors.71
Lack of Accountability
To ensure that taxpayer dollars are being spent responsibly the government must regularly monitor and audit contracts.
Poor Oversight of Contracts
Poor oversight in the award and monitoring stages of contracting is one of the most recurrent problems in the federal government’s response to Hurricane Katrina. Adequate staffing was a huge problem for FEMA. According to one Department of Homeland Security official, FEMA was authorized to hire approximately 60 contracting officers before Hurricane Katrina hit U.S. land72-- some government reports have stated that 172 acquisition officials were needed.73 The agency, however, was severely understaffed – with only 36 contracting officers on staff.74 Director Paulison has stated that FEMA is now getting the resources it needs and that he is working with Congress to increase the size of the agency.75
In addition to the lack of personnel was the lack of institutional memory. Many government reports attributed the lack of oversight to the frequent rotation of officials in and out of the areas, and other acquisition officials being “borrowed” from other agencies. All too often, there was no overlap in the rotation, allowing valuable institutional memory and scenario-specific information to be lost.76
As a result of inadequate contracting staff, mistakes were multiplied, some of which have been detected by post-award audits. Members of the House Government Reform Committee found that mileage claims were overstated and duplicate bills were submitted for debris removal and other services.77 Additional examples of problems includes the arrest of two temporary FEMA employees for soliciting a $20,000 bribe in return for inflating a catering contract.78 One of the most costly mistakes was an alleged computation error missed by FEMA officials that would have resulted in Bechtel double-billing the federal government $48 million, if it had not been found by the Defense Contract Audit Agency.79 These mistakes were only caught because of the tremendous emphasis on after-the-fact review. They might never have been made had the necessary oversight of government contracts been in place during the duration of the contract.80
Poor contract oversight is exacerbated by the lack of communication among agencies that delegated acquisition functions. For instance, FEMA tasked GSA to write three contracts in Louisiana for base camps, hotel rooms, and ambulances, worth over $120 million. GSA contracting officers awarded the contracts, but FEMA did not perform its oversight mission and the FEMA officials listed as the points of contact had no knowledge of the contracts. The GAO reported that “only after contacting multiple FEMA officials over a 3-week period were we able to determine the agency officials responsible for contract oversight.” 81
In another case, the government overpaid Clearbrook $3 million because of a mathematical error.82 That contract was riddled with other problems, as well, including the payment of $4.9 million prior to the effective date of the contract, billing the government as if the government were a “time and material plus fixed per diem rate contract” rather than the contract’s fixed price provision, 83 the absence of details about the scope of work to be done, and a lack of documentation supporting price reasonableness.84
In some cases, oversight suffered due to inadequate documentation necessary to track government spending. For example, the Department of Transportation Inspector General (DOT IG) reviewed the Federal Aviation Administration (FAA) contract with Landstar Express America for the transportation of commodities such as water, ice, and food. The IG found that “better internal controls over the emergency disaster relief transportation services contract are needed to ensure that the Government receives the transportation services it pays for….The contracting officers were relying on documentation provided by the contractor to verify that transportation services had been provided as billed.”85 In other words, the government relied on contractors to support their own invoices – an example of contractor self-policing. Landstar had submitted 570 invoices for its services. When the DOT IG arrived to perform audits, only six of them had been paid – but those few invoices alone had resulted in $33 million in overcharges.86 Imagine the magnitude of overpayment likely to have been discovered if all 570 invoices had been paid.
Another example of inadequate oversight involves FEMA’s transportation support services contracts, which lacked performance standards. As a result, those services were “unresponsive and unreliable” – complaints with transportation services ranged from drivers being slow to make deliveries, drivers who were quick to turn back due to poor road or weather conditions (even in instances when the roads were open), and in one instance, “a driver claimed to be en route but a tracking device indicated he was still in a parking lot where he was found asleep.” 87
The “blue roof” program is another example in which poor contract oversight resulted in wasted taxpayer dollars. FEMA and ACE entered into contracts to cover wind-damaged roofs with blue tarps. The main contractors—the Shaw Group, Simon Roofing, and LJC Construction—subcontracted the work out to contractors who in turn subcontracted the work. Due to the many levels of subcontractors, the multi-tiered contracts were sometimes inflated as much as 1,700% of the job’s actual cost; the taxpayer paid an average of $2,480 per roof for a job that should cost under $300, overbilling the government by $12.5 million. 88
Vague Contracts with Inadequate Cost Controls
FEMA currently lacks a contracting template that clearly defines the expected roles, responsibilities, deliverables, and performance measures for contractors implementing FEMA’s missions.89 As a result, many of FEMA’s contracts were incomplete and included open-ended or vague terms, which raised contractors’ concerns about liability and changing requirements.90 FEMA also did not use a standard contract specifications template for many of the products and services that it purchased, despite the fact that the same products and services were obtained on a regular basis.91 Ambiguous contractual terms often led to inefficiency and waste.
For instance, an “agreement” with Corporate Lodging Consultants, Inc. (CLC) for emergency lodging for evacuees failed to include any mechanisms to control lodging costs (i.e., incentives or penalties regarding lodging cost goals or a per night cap).92 In fact, the per-night room rate escalated from the task order estimated price of $60 to as high as $364 and, as late as December 2005 FEMA was still paying those relatively high prices because the contract did not clearly outline price expectations. FEMA also was charged room rates that were considerably higher rates than the hotels’ published rate -- discrepancies that ranged from $44.95 to $114.08.93
One of the most publicized example of inadequate cost controls was seen in FEMA’s portable classroom contract with Akima. Although the contract price increased nearly $8 million overnight, eventually bringing the final contract price to $39.5 million, 94 federal officials did not appear to question the higher amount or ask for any justification for the “inflated” price.95
Government investigations also found that many large contracts were awarded with pre-award cost authorizations without spending limits. Even by November 1, 2005, long after the need for urgent action had past, the verbal authorizations and letter contracts with Bechtel, CH2M Hill, Fluor and Shaw Environmental for temporary housing had not been converted to formal task orders with definitive pricing.96
Government Purchase Cards
In response to the immediate need to get goods and services to victims quickly, despite existing authority to do so,97 Congress and the President drastically raised government purchase card limits from $2,500 to $250,000 per purchase.98 The result of that increase was that competition requirements were waived for any purchases up to that extraordinarily-high limit, therefore placing taxpayer dollars at unnecessary risk.99 Government purchase cards have a history of being outrageously abused – with government employees buying escort services and a much-publicized breast implant operation for a Hooters waitress, among others.100 After much public outcry, the White House announced on October 3, 2005, that it was returning the government purchase card limit to $2,500, stating “the higher purchase limits are no longer needed and will be used only in ‘exceptional circumstances’ in order to guard against fraud and abuse.”101
Government purchase cards were intended to be used by government officials to buy everyday items such as cell phones, office supplies, construction equipment, computer products, clothing, sleeping bags, rental cars, lodging, refrigerators, coolers, syringes, and digital cameras. While a well-controlled purchase card program can reduce transaction processing costs and provide agencies with flexibility to achieve their mission objectives, government purchase cards in response to Hurricane Katrina were used in what GAO has described as a “weak control environment.”102
The GAO detailed “numerous examples of potentially fraudulent, improper, and abusive or questionable transactions,”103 including the purchase of a beer brewing kit for $230, a 63-inch plasma screen television costing $8,000 that was found unused in its original box six months after being purchased, training at a golf and tennis resort for $2,000, iPods for $7,000, dog booties costing $68,000, and expensive shower units that cost $71,000.104
To be effective, the purchase card program requires written authorization; independent documentation that items have been received; reconciling underlying receipts/sales slips to monthly purchase card statements and the identification of any invalid charges to prepare dispute forms; and a follow-up on any dispute forms.105
Unfortunately, the responsible official, the Department of Homeland Security’s Chief Financial Officer, did not make sure that these controls were consistently applied, and many organizational elements failed to follow up with cardholders who did not supply supporting documentation. The result was that 10,339 transactions between December 2003 and February 2006 were not audited.106
A statistical review of DHS purchase card transactions found that 45 percent of transactions did not have the recommended prior written authorization and approximately 63 percent of transactions lacked evidence that the goods or services were actually received.107
Another problem identified by GAO was the high number of cards that were open, but had not been used. As of December 2005, approximately 19 percent of purchase cards (2,468) had open accounts that had not been used since January 2005, despite the fact that OMB and GSA have clearly stated that purchase cards should only be issued to individuals who have a documented need to acquire items from the government with the purchase card.108
Additionally, GAO found that approving officials were frequently assigned more cardholders than they could effectively supervise. In one case, three Coast Guard approving officials managed over four times the number of cardholders that DHS has considered effective.109 In six instances, the cardholder and approving official was the same person, presenting a significant conflict of interest.110
Minimal Transparency
To regain public faith in the contracting system, the government must ensure that the contracting process is open to the public, including pre-award decisions, contract data, and contracting officers’ decisions and justifications. This means the process should be transparent, not only for the public to see which contractors are getting paid taxpayer dollars to provide goods or services, but also for government auditors to be able to access adequate documentation to do their work.
Unlike the contracting situation in Iraq, the government has posted some -- albeit limited -- Katrina and Rita contract information on the web. Although the federal government has a long way to go to catch up with technology by posting actual contracts and all task and delivery orders online, GSA, the Army Corps of Engineers, and FEMA posted spread sheets that provided insights into government spending.
For example, GSA, the Army Corps, and FEMA have publicly posted limited contract data.111 The information, however, did not include detailed information about the level of competition or specific cost or pricing data. One highlight was the Army Corps’s posting of links to some of its contracts.112 Although some of those contracts were redacted and line-item costs were not associated with the services being provided, that minimal level of transparency allowed the public to better understand the actions of the government.
Another transparency problem was that many contract files for the response to Hurricane Katrina did not contain any source selection information explaining why contracts were awarded to particular contractors, and often contained little or no documentation about “price reasonableness.”113 In some cases, contracting officers agreed to multi-million dollar price quotes without any documentation. Other contracts were awarded with limited terms, conditions, scope of work descriptions, and prices.114 In fact, it appears there was no source selection process for some contract awards.115 Simply stated, the contracting system for Hurricanes Katrina and Rita allowed payments to be made first and questions to be asked later, exposing taxpayers to large risks and wasting resources that could have directly aided Hurricane victims.
For more information on government contracts, please visit:
GSA’s lists of Katrina and Rita contracts – https://www.fpds.gov/.
Army Corps of Engineers contracts – http://www.hq.usace.army.mil/cepa/katrina/contracts.pdf and http://www.mvn.usace.army.mil/hps/contract_information.htm.
FEMA’s Katrina contracts – http://www.dhs.gov/interweb/assetlibrary/CPO-KatrinaContracts.pdf.
Recommendations Poor Government Planning Confusion about the Stafford Act Inadequate Competition Poor Oversight of Contracts Vague Contracts with Inadequate Cost Controls Government Purchase Cards Minimal Transparency
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© The Project On Government Oversight 2006
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