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

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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