The NewStandard ceased publishing on April 27, 2007.

Katrina Recovery Funds Wasted by Contractors, Govt.

by Justin Park

A scathing report by a progressive watchdog organization details the myriad ways big contractors have hogged government funds for profit and defrauded taxpayers in post-Katrina reconstruction.

Aug. 21, 2006 – Taxpayers around the nation who urged the federal government to pay for relief and reconstruction after Hurricane Katrina probably didn’t expect their money to be spent on $279 meals and $2,500 tarps. But according to a newly released report, corporations hired by the federal government have not only inflated costs but committed labor abuses and delayed the reconstruction process, making millions while local companies and workers have been left behind.

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The report, released last week by the Oakland-based non-profit CorpWatch, which investigates the private sector, details corporate price gouging, contracting pyramid schemes, labor abuses and unnecessary delays in the wake of last year’s hurricane season. The "disaster profiteers," as CorpWatch calls them, include Halliburton, Blackwater, Fluor, CH2M Hill and Bechtel – all of which have also received federal contracts for work in Iraq.

"What we found is that rampant disaster profiteering abuses are needlessly slowing down the reconstruction of New Orleans and the rest of the stricken Gulf Coast region after Katrina," CorpWatch director Pratap Chatterjee told reporters. Chatterjee, who is author of the book Iraq Inc. about contractor abuses in halfway around the world, compared the situation along the Gulf Coast to that of the Middle East.

According to the report, the clearest instances of waste in Gulf Coast reconstruction are the contracting pyramids schemes – layers of subcontracting that turn an easy profit for the many middlemen. This layering creates distance between corporations such as Halliburton subsidiary Kellogg, Brown & Root (KBR) and the subcontractor that ultimately performs the work. It allows KBR, for example, to plead ignorance when labor abuses are uncovered, as happened when a subcontractor was caught employing undocumented immigrants late last year and accused of mistreating them.

This layering creates distance between corporations such as Halliburton subsidiary Kellogg, Brown & Root (KBR) and the subcontractor that ultimately performs the work.

The report also alleges that many workers, both undocumented and otherwise, remain unpaid. As also reported by The NewStandard, immigrant workers – many of them undocumented – were drawn to the disaster zone by promises of high wages and plentiful work. When they arrive, many face hazardous work conditions and often are stiffed out of pay.

Chatterjee said the redundant levels of subcontracting are "a system under which the companies doing the actual reconstruction work often get just a tiny – and insufficient – fraction of the taxpayer money awarded for the project."

For instance, report author Rita J. King cited an NBC news investigation exposing how Florida-based Ashbritt received a $500 million government contract to remove debris – or about $23 for every cubic yard of debris removed. The company then turned around and hired C&B Enterprises, paying the subcontractor $9 per cubic yard. C&B hired Amlee Transportation at the price of $8 per cubic yard, which hired Chris Hessler Inc. at $7 per cubic yard, which hired Les Nirdlinger for $3 per cubic yard, according to the report.

When she attempted to confirm contract amounts with FEMA, the agency referred her to the corporations and that the corporations refused to give out information, citing competitive reasons.

The CorpWatch report detailed another example in which the several layers of subcontractors drove the average price of tarp instillation on damaged roofs to almost $2,500.

Under pressure from congressional critics, in December 2005, the US Army Corps of Engineers announced it would open Ashbritt's $500 million debris contract to bidding by local companies. Ashbritt appealed to the Government Accountability Office. The delay put the clean-up on hold until March, when the GAO denied the appeal and local contractors took over.

Christopher Yukins, a law professor at George Washington University who has testified to Congress about contract abuses in the Gulf, told TNS that the desire to keep supply costs low provides a rationale for using larger contractors. But, he said, "there is a problem [with the type of contracting used] across the government in that it's largely non-transparent. There's no reason in the electronic age to be non-transparent."

King, the report's author, agrees. She told TNS that when she attempted to confirm contract amounts with FEMA, the agency referred her to the corporations and that the corporations refused to give out information, citing competitive reasons. "When I was going through 300 pages of tiny print, no one [would] confirm anything," she said. "It's a shocking system."

Federal procurement laws require that at least 23 percent of contracts go to small businesses, and according to CorpWatch, the Federal Emergency Management Agency has far exceeded that requirement. However, only 13 percent of FEMA dollars went to smaller firms. To date, only 16.6 percent of reconstruction funding has gone to businesses headquartered in the three states most damaged by hurricanes Katrina and Rita, according to the report.

In one prominent example of local-contractor exclusion, the Army Corps of Engineers chose an Alaskan firm with ties to former Department of Homeland Security Secretary Tom Ridge over local bidders to build portable classrooms in Mississippi, 3,500 miles from the company’s headquarters.

Countless other abuses are detailed in the report, but King finds some glimmers of hope as well, including in the billions still left to be awarded in the clean-up and reconstruction process.

"I have to believe there's always potential for reform, but the way democracy is set up requires citizen participation," King said. "People have to realize what's being wasted down there."

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The NewStandard ceased publishing on April 27, 2007.


Justin Park is a contributing journalist.