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GAO: Katrina-Related Contracting Practices Reflect Waste, Layers of Byzantine Networks

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In an analysis of the $62 billion federal response to Hurricanes Katrina and Rita, the GAO reported last week that the Department of Homeland Security (DHS) lacked “adequate acquisition plans for contingency situations” as well as “[sufficient] numbers and deployment of oversight personnel.” In addition, coordination of response between DHS and the states was hampered by “unclear responsibilities and poor communications.”

It was another blow to planning and accounting practices at the agency, which received a similar critique for its handling of Iraq contracts. The GAO notes that a lack of event predictablity “must not be an excuse for poor contracting practices.”

In one example, we (taxpayers) paid $10 million to
renovate 160 rooms and furnish 80 rooms, for temporary housing, in an Alabama military barracks. FEMA did not consult with Alabama officials, who tried to stop the renovation after they learned of it, because it was “not needed… [W]hen officials decided to close the facility, it had only six occupants.” That’s $1.67 million per occupant. And we thought the cruise ship deal was expensive.

The Washington Post describes a Byzantine contracting system that inflates costs and rewards business for who they know. “In instances reviewed by The Washington Post, the difference between the job’s actual price and the fee charged to taxpayers ranged from 40 percent to as high as 1,700 percent.”

For example, the Army Corps of Engineers awarded four contracts for removing 62 million cubic yards of debris at about $28 to $30 per cubic yard. Joby Warrick describes the resulting Post analysis: “[I]n a typical case in Louisiana’s Jefferson Parish, top contractor Ceres occupied the first rung.” Ceres contracted with Loupe Construction Co. … which contracted with “a company based in Reserve, La.” …. which contracted with a firm “called McGee” … which (finally) hired Troy Hebert, a hauler from New Iberia. Hebert “says his pay ranged from $10 to $6 for each cubic yard of debris.”

Yet each company “in the middle” received $4-5 per cubic yard of debris …. for debris that they did not remove. They just passed along the contract, in an interlocking web of Friendster-like networks. The Post says the feds describe this as post-disaster business as usual.

I, on the other hand, flashed back to the 80s (the decade of greed), and Tom Wolfe’s description of how bond trader Sherman McCoy makes his living:

[Judy, Sherman’s wife] “Daddy doesn’t build roads or
hospitals, and he doesn’t help build them, but
he does handle the bonds for the people who
raise the money.”

[Campbell, Sherman’s daughter] “Bonds?”

[Judy] “Yes. Just imagine that a bond is a
slice of cake, and you didn’t bake the cake, but
every time you hand somebody a slice of the
cake a tiny little bit comes off, like a little
crumb, and you can keep that.”

Judy was smiling, and so was Campbell, who
seemed to realize that this was a joke, a kind of
fairy tale based on what her daddy did.

“Little crumbs?” she said encouragingly.

“Yes,” said Judy. “Or you have to imagine
little crumbs, but a lot of little crumbs. If you
pass around enough slices of cake, then pretty
soon you have enough crumbs to make a
gigantic cake.”

In this case, the “crumbs” represent that debris removal contract changing hands. The Post analysis suggests there are even more crumbs (layers of networks) in the roof repair/patch business. Four large firms got contracts of $1.50 to $1.75 per square foot of tarp, “nearly as much as local roofers charge to install a roof of asphalt shingles.” And at the bottom, some of those folks doing the work are getting “less than 10 cents per square foot.”

I concur with Benny Rousselle, president of a hurricane-ravaged district downriver from New Orleans, quoted in the Post:
“If this is ‘normal,’ we have a serious problem in this country. The federal government ought to be embarrassed about what is happening. If local governments tried to run things this way, we’d be run out of town.”

I’m also reminded of these prophetic words of wisdom from my late-mother: “Kathy, it’s not what you know, it’s who you know.” I rejected that (in my view, cynical) worldview at the time (my teens), perhaps because I was flush with libertarian philosophy a la Ayn Rand’s Atlas Shrugged. Rand, of course, could look at this example and say “I told you so.” Or, “I warned you.”

The small guy – the one doing the work – doesn’t have the staff (or need, generally) to identify and navigate our federal public contract process. If we want to reduce the cost of what most citizens believe are needed government services, it’s past time for dis-intermediation and simple contracts. Take the savings from the middle and use that money to boost the price paid to those doing the work and then hire the talent necessary for contract oversight. Here’s a case where technology can truly play a role: just think eBay.

Just say no to multiple levels of brokers. Do we really want a society where the big just keep getting bigger (and richer)?

More:
Agency Management of Contractors Responding to Hurricanes Katrina and Rita, GAO-06-461R, 15 March 2006.
More Katrina: GAO Reports Fraud; Trailers Languish in Arkansas, Katrina News Archive.

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  • Bliffle

    Well, it proves one thing: privatizing government corruption results in a much more efficient system: almost nothing filters down to the putative recipients of government largesse. The system efficiently absorbs every dollar of the grants, subsidies, endowments and even the overrun costs. In a delicious irony, as intended benefits are drained away, projects fall behind and require even more dollar input to handle overruns. Thus, with proper management, one simple program can drain every dollar out of the universal kitty.

  • RedTard

    Sixty billion for how many people? I say give them each a check and let the insurance companies battle it out. Of course, we’d have to hire a contractor to make the checks, then a security firm to check for fraud.

    The government is certainly corrupt, that’s why I vote to lower taxes every time. Eventually the low taxes will force them to scale back their spending. People should realize that taxes = money, and money = power. The more you taxes you pay the more power the governement has to control you.

    Natural disasters should be an insurance issue not an issue of everyone else paying so rich (and occasionally poor) folks along the gulf coast can have their houses rebuilt every other year.

  • http://uspolitics.about.com/ Kathy

    RedTard:

    Natural disasters should be an insurance issue not an issue of everyone else paying so rich (and occasionally poor) folks along the gulf coast can have their houses rebuilt every other year.

    I’d love to see your data to support this claim. The reason I’d love to see the data … is because I believe is this is an urban legend (rebuilding the same house over and over).

    Lowering taxes does nothing — Bush has lowered taxes (we can argue about what income group benefits more, but he has lowered taxes). This republican congress simply uses its credit card (raise the debt ceiling) to spend what it doesn’t have.

  • RedTard

    A link is here.

    Twenty five percent of government flood payouts go to 2% of properties that repeatedly get hit.

  • http://uspolitics.about.com/ Kathy

    Thanks for the link …. it doesn’t say what you said.

    you said:

    Natural disasters should be an insurance issue not an issue of everyone else paying so rich (and occasionally poor) folks along the gulf coast can have their houses rebuilt every other year.

    the article said:

    “Nationally, properties with multiple losses account for about 25 percent of the flood program’s losses while representing 2 percent of all insured property.”

    1) there’s nothing about “every-other-year”
    2) the quote is about *program losses*
    3) most of the property insured in the Flood Insurance program is not on the coast – but in river flood plains
    4) the flood insurance program is funded by property owners, not congress.

    You call for insurance and then quote data from … an insurance program. brilliant!

    The House of Representatives has blocked attempts to stop reinsuring “certain” repetitive loss properties, according to FEMA leadership.

    Data (from FEMA – 2001 speech)

    — elevated or flood-proofed property avoids about $1 billion in flood damages each year

    — There are 4.3 million flood insurance policies

    — 10,000 have had four or more flood losses, or two or three losses that cumulatively exceed the value of the building

    Just what percentage is 10,000 of 4.3 million?

    0.23 percent

    The 10K is a subset of this: there are 45,000 with two or more flood claims that exceed $1,000 in any ten-year period.

    And just what percentage is 45,000 of 4.3 million?

    1.04 percent

    According to a March 2003 GAO report, repetitive loss properties (two or more losses in a 10-year period) account for 38 percent of claims losses but only 2 percent of insured properties.

    That makes it look as though there has been an improvement between 2003 and 2005 (the date of your link)

    It also suggests that the hurricane seasons that have occurred in the last five years have increased the number of repetitive loss properties. (doh!)

    FEMA asked to increase its authorized mitigation budget in 2001: we’re authorized to spend $20 million under the Flood Mitigation Assistance Program on mitigation activities. We believe an annual budget of $100 million for the next four (4) years will remove the riskiest properties from flood exposure.

    [note: they are spending insurer money – not taxpayer money.]

    The House said no.

    President’s 2003 budget proposed a $300 million program of pre-disaster mitigation. No.
    http://www.fema.gov/nfip/leikin6.shtm

    HR2360
    Department of Homeland Security Appropriations Act, 2006 (Enrolled as Agreed to or Passed by Both House and Senate)

    National Flood Mitigation Fund
    $40,000,000 which shall be derived from the National Flood Insurance Fund.
    (which is $ paid in by those insured by the program)

    National Predisaster Mitigation Fund
    $50,000,000

    Don’t blame the Ds for this … Rs control both houses and don’t see this as a Big Issue.