Auditors raise more questions about FEMA trailer contracts

In the months following hurricanes Katrina and Rita, lucrative contracts to maintain and later deactivate thousands of temporary homes were awarded to companies in questionable financial standing, according new report from the Homeland Security Department's inspector general.

In reviewing 36 contracts, investigators found that Federal Emergency Management Agency acquisition officials exposed taxpayers to significant risk by signing agreements with at least three bidders who were found to have weak financial statements, incomplete and missing documentation and a negative net worth.

"FEMA allowed these contracts to go forward, in part because FEMA officials believed that the … low minimum purchase requirement of $50,000 protected [them] from contractor default or poor performance," said Matt Jadacki, the deputy inspector general for disaster assistance oversight.

Investigators also found that FEMA officials repeatedly accepted bids with unrealistically low prices -- offering the contractor virtually no profit -- without assessing if the company had the capacity to perform the work at the price offered. Other contracts included both disproportionately high prices and unrealistically low charges for individual line items -- known as unbalanced pricing.

FEMA officials dismissed the charges, arguing that financial assessments of the award winners were conducted by the Defense Contract Audit Agency and through analyzing the companies' past performance. Federal acquisition rules do not prevent the government from awarding contracts at below market rate, officials said.

The report, released Monday, is the latest indictment of FEMA's emergency housing contracts. The 2005 storms displaced more than 700,000 residents of Louisiana, Mississippi, Texas and Alabama, prompting the agency to purchase more than 145,000 travel trailers and mobile homes.

FEMA awarded no-bid contacts to four industry giants to install, maintain and then deactivate the units. The contracts originally had a ceiling of $400 million, but they quickly ballooned to roughly $3.4 billion. FEMA eventually re-competed a subset of the contracts with the awards going to six companies, including the original four.

Meanwhile, thousands of the trailers have never been used and sit idle at more than a dozen storage depots across the country. Among the waste was a $900 million purchase of 26,300 mobile and modular homes that FEMA later discovered could not be used in flood zones, where nearly all Katrina victims lived.

In a recent interview with Government Executive, Elaine Duke, procurement chief of DHS, said the agency is considering alternatives to trailers to respond to future disasters, but options could be limited.

"The big question is not just 'Are we buying the right numbers? but 'Are we buying the right things?' " Duke said.

Investigators also noted in Monday's report that four $100 million contracts that had been set aside for Louisiana and Mississippi companies were awarded to a joint venture with questionable small business credentials and with no history of working primarily in the affected states.

"This occurred because FEMA did not effectively design the solicitations to provide preference to those businesses 'residing or doing business primarily' in the disaster impacted areas, as required by the Stafford Act," the report found.

The four contracts went to the joint venture team of Project Resources Inc./Del-Jen Inc., the latter of which is a subsidiary of the Fluor Corp., one of the world's largest engineering and construction companies and one of the four winners of the original trailer contracts. Del-Jen was allowed to compete for the small business contract by partnering as a "mentor" with a smaller "protégé" company. The Small Business Administration program is designed to enhance smaller firms' ability to compete for federal contracts.

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