Several investigations already underway for $300 million contract that "raises every red flag in the book."
The Trump administration is distancing itself from a controversial contract aimed at rebuilding the power grid in hurricane-ravaged Puerto Rico, which procurement experts and lawmakers say has dubious origins and contains highly unusual provisions.
The contract in question was valued at $300 million and awarded to a small Montana firm, Whitefish Energy, by the Puerto Rico Electric Power Authority. The unusually high labor costs and language that prohibits government agencies from auditing certain aspects of the deal, as revealed in the leaked contract, sparked concern from members of Congress and government watchdogs. Sen. Claire McCaskill, D-Mo., the ranking member of the Senate Homeland Security and Governmental Affairs Committee, said the contract “raises every red flag in the book.”
Both the White House and the Federal Emergency Management Administration have distanced themselves from the contract.
“Based on initial review and information from PREPA, FEMA has significant concerns with how PREPA procured this contract and has not confirmed whether the contract prices are reasonable,” FEMA said in a statement on Friday. “FEMA is presently engaged with PREPA and its legal counsel to obtain information about the contract and contracting process, including how the contract was procured and how PREPA determined the contract prices were reasonable.”
One provision of the document stated “FEMA has reviewed and approved of this contract” and is “an acceptable form to qualify for funding from FEMA and other U.S. governmental agencies,” but FEMA said that characterization is “inaccurate.”
Another section of the contract states “the federal government is not a party to this contract and is not subject to any obligations or liabilities to PREPA” or anyone else party to the document. FEMA said it has yet to provide any reimbursement to Whitefish, adding any applicant for its public assistance grants must abide by federal requirements or “risk not being reimbursed.”
White House Press Secretary Sarah Sanders said at a briefing on Friday the contract was “not something the federal government played a role in” and declined to comment on its propriety until a proper audit is conducted.
Both the process for obtaining the contract and the subject of it are problematic, said Steven Schooner, a professor of government procurement law at The George Washington University and a former associate administrator for procurement law and legislation at the Office of Federal Procurement Policy in the Office of Management and Budget. Whitefish did not go through a competitive, open bidding process before receiving the contract. The attempt to limit transparency through restricting audits “jumps off the page” and is “highly irregular,” Schooner said.
The contract states that, “In no event shall PREPA, the Commonwealth of Puerto Rico, the FEMA administrator, the comptroller general of the United States, or any of their authorized representatives have the right to audit or review the cost and profit elements of the labor rates specified herein."
Scott Amey, general counsel at the Project on Government Oversight, said an audit clause used to be standard practice until sometime during the Clinton administration. He added that many contracts today still go out the door without requiring firms to “provide adequate support for costs or prices.” Amey found problematic another clause in the contract, in which PREPA waived “any claims against” Whitefish for any delays in completing work.
The waiver “raises concerns about whether Whitefish or its subcontractor workforce is prolonging the work to reach, and possibly extend, the contract’s $300 million ceiling,” Amey said.
Amey echoed Schooner in noting the contract highlighted the difficulties in negotiating relief contracts after a disaster strikes. Many observers faulted Puerto Rico for reaching an agreement with Whitefish rather than relying on a previously established mutual-aid network of public utilities that typically handle power restoration.
Several aspects of the billing have also raised concerns. A journeyman lineman on the contract, Schooner noted, would make about $228 per hour. Subcontracted journeyman linemen, who will provide the vast majority of the work for the contract, will earn $319 per hour. That provides a significant take off the top for Whitefish, Schooner said, in which “you’d have to be an idiot” to send your own employees to do the work rather than hiring subcontractors. Those employees will also earn a $400 per diem, according to the contract, meaning a subcontractor lineman working eight hours would bill at nearly $3,000 per day.
“That’s a jaw-dropping rate,” Schooner said. “How could somebody have agreed to these kinds of rates?”
Whitefish is also billing the government at an hourly rate for equipment, which Schooner called “unthinkable.”
“It’s so unbelievably nonsensical I don’t even know where to begin,” he said.
The contract initially came under scrutiny after reports surfaced that Whitefish is headquartered in the small town where Interior Department Secretary Ryan Zinke lives, and that Zinke’s son interned at the company. Interior has denied Zinke had any involvement with the contract, something Sanders said Zinke reiterated to Trump at a previously scheduled White House meeting on Friday.
"Any attempts by the dishonest media or political operatives to tie me to awarding or influencing any contract involving Whitefish are completely baseless," Zinke said in a statement Friday. "I welcome any and all investigations into these allegations, and encourage the Interior Department's inspector general to investigate this matter fully."
Two House committees, Energy and Commerce and well as Natural Resources, have launched probes into the contract. The Homeland Security Department’s inspector general is also investigating the contract. McCaskill and the chairman of her committee, Sen. Ron Johnson, R-Wis., wrote a letter to the IG requesting he determine whether the contract is eligible for reimbursement under FEMA’s Public Assistance Program. Their committee is holding a hearing on the federal government’s recent hurricane response efforts, and McCaskill said Trump administration officials “better be ready to answer tough questions on exactly what is happening with this contract.”
The no-audit clause in Whitefish’s contract, Amey noted, did not apply to the DHS IG or congressional committees.
Schooner praised the reviews underway, calling the contract a “travesty” and suggesting some major changes happen quickly.
“It would be an abomination if it isn’t very quickly terminated, modified or replaced,” he said.