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No-Bid Contracts Win Katrina Work

      White House Uses Practices Criticized in Iraq Rebuilding For Hurricane-Related Jobs
      By YOCHI J. DREAZEN
      Staff Reporter of THE WALL STREET JOURNAL
      September 12, 2005; Page A3

      WASHINGTON -- The Bush administration is importing many of the
contracting practices blamed for spending abuses in Iraq as it begins the
largest and costliest rebuilding effort in U.S. history.

      The first large-scale contracts related to Hurricane Katrina, as in
Iraq, were awarded without competitive bidding, and using so-called
cost-plus provisions that guarantee contractors a certain profit regardless
of how much they spend.

      Contracts for temporary housing have been awarded to politically
connected companies like Fluor Corp. and Bechtel National Inc., a unit of
Bechtel Group Inc., leading congressional Democrats to renew charges of
cronyism they first leveled when the firms won lucrative work in Iraq.

      In response, there have been bipartisan calls in Congress to establish
a new government agency to manage the Louisiana rebuilding, and possibly
have it run by a prominent figure such as former New York Mayor Rudolph
Giuliani or former Secretary of State Colin Powell.

      Separately, House Minority Leader Nancy Pelosi (D., Calif.) yesterday
said she supported the creation of an "antifraud commission" to oversee
government contracts issued in response to the disaster.

      Some are questioning as well whether the Federal Emergency Management
Agency -- which has a small procurement staff responsible for spending a
relatively tiny amount of federal money each year -- is capable of
effectively disbursing tens of billions of dollars.

      In Iraq, several audits found that contracting problems were
exacerbated by overworked and inexperienced government procurement officers
who weren't up to the difficult work they were entrusted to carry out.

      "You can easily compare FEMA's internal resources to what you saw in
the early days of the Coalition Provisional Authority in Iraq: a small,
underfunded organization taking on a Herculean task under tremendous time
pressure," said Steven Schooner, a contracting expert at George Washington
University law school in Washington. "That is almost by definition a recipe
for disaster."

      FEMA already is under fire for its poor initial response to Katrina.
Its chief, Michael Brown, was removed on Friday as head of the direct relief
effort. (See related article.3)

      Officials at the agency, a division of the sprawling Department of
Homeland Security, said they are up to the task of ensuring that the money
will be spent efficiently. "FEMA has extensive experience in acquiring the
products and services required to make sure that the support needed in
response and recovery operations is secured quickly to meet the needs of
disaster victims," said James McIntyre, a spokesman for the agency.

      In Iraq, audits have uncovered evidence that hundreds of millions of
dollars were misspent by some contractors willing to stretch or break rules,
while government officials were unwilling or unable to prevent abuses.
Government reports have detailed systemic management failings, lax or
nonexistent oversight and alleged fraud and embezzlement by officials
charged with administering the rebuilding, as well as questionable
activities by the contractors they employed. For example, audits have found
evidence of procurement officers paying contractors twice for the same work
and spending tens of millions of dollars with little to no documentation.

      Officials from Bechtel and Fluor declined to discuss comparisons
between their work in Iraq and the Gulf Coast. Bechtel spokesman Howard
Menaker said the company's deal with the government was still being
finalized and declined to comment further. A Fluor spokesman referred
questions to FEMA.

      The administration has allocated more than $62 billion to the regions
hit by Katrina, and the final price tag is expected to soar to more than
$100 billion. Already, at least seven contracts have been awarded for the
post-Katrina effort. The Army Corps of Engineers late last week announced a
$100 million deal with Shaw Group Inc. of Baton Rouge, La., for relief
operations including the pumping of flood water out of New Orleans.
Halliburton Co.'s Kellogg, Brown & Root unit, also prominent in the Iraq
reconstruction effort, is doing repair work at three U.S. Navy facilities in
Mississippi as part of an existing Pentagon contract.

      FEMA, meanwhile, has announced four major contracts with firms charged
with providing emergency housing relief in storm-battered areas of
Louisiana, Alabama and Mississippi. The $100 million contracts with Bechtel,
Fluor, Shaw Group and Denver-based CH2M Hill Cos. were awarded after what
FEMA described as "limited competition." FEMA also recently hired
Houston-based Kenyon Worldwide Disaster Management to collect human remains
in the disaster zone. FEMA didn't announce the total of that contract, and
Kenyon didn't respond to requests to comment.

      All the deals include cost-plus language, which means the companies
can pass along all their costs -- plus a predetermined profit -- to the
government. Similar provisions were routinely used in Iraq. Critics said
they encouraged waste by removing any incentive to control costs.

      FEMA officials and outside contracting experts said no-bid contracting
and cost-plus language have been used in prior disasters to speed the
government's ability to get contractors on the ground and in place as fast
as possible. They said cost-plus, in particular, is required after disasters
like Katrina because it is difficult, if not impossible, for the government
to know exactly how big the relief and rebuilding efforts ultimately will
be.

      FEMA has been given primary responsibility for spending the more than
$50 billion in aid approved by lawmakers last week, which means it will be
the lead contracting agency for months to come. That gives it a
responsibility well beyond its normal role in past disasters. The agency has
never before been asked to disburse money at the level that it will for
Katrina. Of the $305 billion spent on federal-government procurement in
fiscal year 2003, FEMA accounted for $87 million. The agency already has
spent many times that in the Katrina aftermath.

      Unlike in Iraq, where an inspector general is tasked solely with
probing reconstruction contracts, FEMA has said oversight for the Katrina
relief effort will be provided by the Department of Homeland Security's
inspector general.

      Several Democrats and outside experts have raised additional questions
about how the government spends the money allocated for Katrina relief. A
provision in the latest Katrina relief bill temporarily raised the spending
limit on government credit cards used for Katrina-related purchases to
$250,000 from $15,000 per transaction, to allow officials to buy needed
supplies more quickly than if they went through normal procurement channels.

      Numerous audits have found that the government lacks adequate controls
to prevent misuse of such cards. In 2000, for instance, a probe by the
General Accounting Office, now the Government Accountability Office, found
that government credit cards in two California Navy units had been used for
more than $660,000 in fraudulent or questionable purchases of personal goods
ranging from jewelry to pizza. The report by Congress's investigative arm
found that government employees bought numerous objects of "questionable
government need" like $2,500 flat-panel computer monitors.

      Write to Yochi J. Dreazen at

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