Katrina Contracts Will Be Reopened

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By Jonathan Weisman and Griff Witte
Washington Post Staff Writers
Friday, October 7, 2005

Lawmakers from both parties sharply questioned nearly every aspect of the Bush administration's response to Hurricane Katrina yesterday, focusing their discontent on suspect contracts and eliciting a pledge that hundreds of millions of dollars in deals awarded with no competition would soon be put up for bid.

Nine House and Senate panels held hearings on hurricane relief, with a sense of frustration frequently bursting to the surface. Several members chastised administration officials, citing tales of small businesses in the Gulf states losing work to giants such as Halliburton Co. Others challenged administration stances on tax breaks and health care for the displaced.

Under questioning about the agency's reliance on contracts that lacked full and open bidding, R. David Paulison, the acting director of the Federal Emergency Management Agency, said, "I've been in public service a long time, and I've never been a fan of no-bid contracts."

Asked by Sen. Joseph I. Lieberman (D-Conn.) why the agency did not hold competitions before Katrina struck, Paulison replied that "all of those no-bid contracts, we are going to go back and rebid. We're in the process of re-bidding them already."

A FEMA spokeswoman later said the new bidding process affects only the four largest no-bid deals. Those are $100 million contracts awarded to the Shaw Group, Bechtel Corp., CH2M Hill Inc. and Fluor Corp. to find and engineer sites for temporary housing for displaced residents.

Paulison told the panels that his agency had delivered nearly 85 million liters of water, more than 4 million meals and nearly 176 million pounds of ice by Oct. 3, while registering more than 1.7 million victims for disaster assistance. He also announced a higher estimate of Katrina homeless, from 300,000 to "between 400,000 and 600,000 households."

Sen. Susan Collins (R-Maine), chairman of the Homeland Security and Governmental Affairs Committee, decried "a trail of missteps that calls into question what has been done during the last four years and that continues to plague the recovery even today."

Paulison's pledge to rebid some Katrina contracts showed a willingness to reexamine some of those decisions, though the actual impact of the move could prove limited.

The agency said yesterday that it has no plans to compete numerous other deals signed in the wake of Katrina with little or no competition. Also, FEMA has already committed a large amount of money to the four firms doing the housing site work -- $49.2 million in the case of Bechtel. And there is no timeline for how quickly the competition will proceed. All of the firms said yesterday that they will continue to work in the meantime.

The day's events indicated the administration has yet to regain its footing since its slow response to the hurricane's initial onslaught more than a month ago.

In a House Appropriations subcommittee hearing, Rep. David R. Obey (D-Wis.) called the Department of Homeland Security "dysfunctional" and suggested that Congress should rescind half the more than $60 billion it has provided for the relief effort unless FEMA can better document how it is spent.

Deputy Homeland Security Secretary Michael P. Jackson responded that the department will be watching the money closely. "The opportunity to go awry here is large, and we must be extremely diligent in preventing fraud and waste," he said.

Members of both parties raised doubts that President Bush's proposed business tax breaks would lure employers and employees back to the Gulf Coast. Meanwhile, a continuing dispute over health care for Katrina evacuees led Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) to sharply rebuke Treasury Secretary John W. Snow. For weeks, the administration has blocked legislation that would temporarily expand Medicaid eligibility rules and raise federal health care reimbursement rates to states affected by the hurricane.

"Tell the White House to back off our bill," Grassley told Snow. "There are people hurting down there, and we want to get them help."

Lawmakers indicated they would also challenge Bush's proposal to create a vast, tax-favored Gulf Opportunity Zone, stretching from Louisiana to parts of Florida. Under the proposal, much of the cost of business investments would be tax-deductible.

"The energy of the private sector will be unleashed and ignited" by the plan, Snow told the Senate Finance Committee. "These are tried and true measures. They've worked. We've seen them work."

But a Congressional Research Service study presented to the committee appeared to indicate otherwise.

A "significant body of empirical studies focused mainly on state enterprise zones" in large part "have not found evidence of effects on growth or employment," the CRS found.

The Gulf Coast's situation is unique, said Sen. Jim Bunning (R-Ky.), since much of the workforce has simply left. "You can incentivize all the businesses you want to relocate in a depressed area, but you have to have a workforce to make those businesses work," he said.

Meanwhile, the incentives working now appear to be favoring large contractors at the expense of local companies, lawmakers charged.

Sen. Carl M. Levin (D-Mich.) said union maintenance workers at New Orleans's Superdome and convention center have been replaced with out-of-state workers earning lower wages without benefits. And he charged that a Mississippi modular classroom maker was rebuffed in its bid to supply 300 classrooms when the Army Corps of Engineers turned to an Alaska firm charging more than twice the price.

Sen. Tom Coburn (R-Okla.) again assailed FEMA's $236 million contract with Carnival Cruise Lines, which has provided three ships to house evacuees and relief workers. Under that contract, Senate investigators have determined that Carnival will earn nearly 50 percent more per berth than the company would have normally.

Carnival spokeswoman Jennifer de la Cruz said Carnival's contract price includes the cost of canceling the cruises of more than 120,000 passengers; paying travel agents' commissions on those lost cruises; loss of onboard revenues such as shore excursions, casinos, spas, alcoholic beverages and gift shops; loss of tips for crew members; and the cost of income taxes that otherwise would not have been paid.

Paulison defended the Carnival contract, saying the ships are now "almost completely full" and, at a cost of $168 a day per person, are proving "very cost-effective."


© 2005 The Washington Post Company

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