
Four no-bid contracts awarded by the Federal Emergency Management Agency (FEMA) to house Hurricane Katrina victims have ballooned in value from $400 million to more then $3.4 billion. This increase has prompted renewed scrutiny from Congress and auditors about the disaster agency’s management (or lack there of) of the aftermath of Katrina.
The Department of Homeland Security’s inspector general is, for at least a second time, reviewing the contracts with construction and engineering firms Bechtel Corp., CH2M Hill Inc., Fluor Corp., and the Shaw Group Inc. to provide 150,000 trailers for hurricane victims, even as FEMA still expects to competitively award at least $1 billion for similar work in future contingencies within days.
A review is underway into how the contracts were awarded, the parties involved and their support materials. The concern is the dollars and risks associated with sole source contracts of this manner.
The contracts, which were quickly awarded as Katrina approached and hit the Gulf Coast, have been repeatedly faulted by congressional auditors and a Senate investigation for poor safeguards and high costs. FEMA valued the contracts at $2 billion last fall and winter, but the agency has raised the limit for each firm over the past several months time and time again.
Lets look at the background and the numbers in more detail.
The initial contracts began under murky circumstances to say the least. Two FEMA officials have told the New York Times (behind their subscription wall) that the four firms were tapped even before Hurricane Katrina made landfall.
The Shaw Group announced on Aug. 30, one day after Katrina hit, that it was in contact with FEMA to mobilize assistance. Its stock rose 21 percent in two days and 32 percent the week after their news release.
FEMA didn’t publicly announced contracting with these firms for housing until September 8th, in what company and government officials have said were letter contracts or agreements worth as much as $100 million. FEMA has said recently that the initial contracts had a ceiling of $500 million each, and were awarded Sept. 3 to Fluor and Sept. 30 to the other three companies.
FEMA then raised the ceilings of the contracts to $950 million for Shaw in February ‘06, to $1.4 billion for Fluor in March ‘06 and to $575 million for Bechtel just last month. It expects to raise the CH2M Hill contract to $530 million. FEMA has already paid the firms $1.9 billion, and obligated $1 billion based on new company charges, whose payment is subject to negotiation.
Now, FEMA Director R. David Paulison and Homeland Security Secretary Michael Chertoff promised Congress last October to re-bid the pacts and spun off $3.6 billion in maintenance and future dismantling of the trailers to 36 small and minority-owned firms in March ‘06, but the agency’s critics say that has not addressed the entire problem.
As a person that did procurement research for a firm for the better part of a few years, no-bid contracts are a bad thing. At times they are required of course. And this would be an instance where they are. But the question that needs to be asked is what were the terms of the contracts? How fast did the trailer need to be in place and how fast did they get their. From everything I read it took months, not days or weeks, which then begs the question, why was a quick, none competitive no-bid process!