Multiple Layers Of Contractors Drive Up Cost of Katrina Cleanup
Monday, March 20, 2006
NEW ORLEANS -- How many contractors does it take to haul a pile of tree branches? If it's government work, at least four: a contractor, his subcontractor, the subcontractor's subcontractor, and finally, the local man with a truck and chainsaw.
If the job is patching a leaking roof, the answer may be five contractors, or even six. At the bottom tier is a Spanish-speaking crew earning less than 10 cents for every square foot of blue tarp installed. At the top, the prime contractor bills the government 15 times as much for the same job.
For the thousands of contractors in the Katrina recovery business, this is the way the system works -- a system that federal officials say is the same after every major disaster but that local government officials, watchdog groups and the contractors themselves say is one reason that costs for the hurricane cleanup continue to swell.
"If this is 'normal,' we have a serious problem in this country," said Benny Rousselle, president of Plaquemines Parish, a hurricane-ravaged district downriver from New Orleans. "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."
Federal agencies in charge of Katrina cleanup have been repeatedly criticized for lapses in managing the legions of contractors who perform tasks ranging from delivering ice to rebuilding schools. Last Thursday, Congress's independent auditor, the Government Accountability Office, said inadequate oversight had cost taxpayers tens of millions of dollars, by allowing contractors to build shelters in the wrong places or to purchase supplies that were not needed.
But each week, many more millions are paid to contractors who get a cut of the profits from a job performed by someone else. 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.
Consider the task of cleaning up storm debris. Just after the hurricane, the Army Corps of Engineers awarded contracts for removing 62 million cubic yards of debris to four companies: Ashbritt Inc., Ceres Environmental Services Inc., Environmental Chemical Corp. and Phillips and Jordan Inc.
Each of the four contracts was authorized for a maximum of $500 million. Corps officials have declined to reveal specific payment rates, citing a court decision barring such disclosures. But local officials and businesspeople knowledgeable about the contracts say the companies are paid $28 to $30 a cubic yard.
Below the first tier, the arrangements vary. But in a typical case in Louisiana's Jefferson Parish, top contractor Ceres occupied the first rung, followed by three layers of smaller companies: Loupe Construction Co., then a company based in Reserve, La., which hired another subcontractor called McGee, which hired Troy Hebert, a hauler from New Iberia, La. Hebert, who is also a member of the state legislature, says his pay ranged from $10 to $6 for each cubic yard of debris.
"Every time it passes through another layer, $4 or $5 is taken off the top," Hebert said. "These others are taking out money, and some of them aren't doing anything."
Defenders of the multi-tiered system say it is a normal and even necessary part of doing business in the aftermath of a major disaster. The prime contracts are usually awarded by FEMA or other government agencies well in advance, so relief services can be brought in quickly after the crisis eases. These companies often must expand rapidly to meet the need, and they do so by subcontracting work to other firms.
The two federal agencies that administer most disaster-related contracts, FEMA and the Army Corps of Engineers, say the system benefits small and local companies that do not have the resources to bid for large federal contracts. At the top end, prime contractors must be large enough to carry the heavy insurance burdens and administrative requirements of overseeing thousands of workers dispersed across a wide area, agency officials say. They also note that contractors have a legal right to hire subcontractors as they need them.