For companies in the disaster business, 2005 was a very good year. And if preseason predictions are correct, it could be the first in a series of profitable years for a rapidly growing industry that encompasses engineering firms, debris haulers and logistical specialists who rush in whenever disaster strikes.
In addition to being the largest natural disaster in U.S. history, Hurricane Katrina was a boon for companies that specialize in recovering from such devastation. It opened the spigot to billions of dollars in federal contracts to haul debris, make emergency repairs to damaged homes and buildings, and provide temporary housing and other structures.
The scope of the government aid and the private sector's degree of involvement was eye-opening to those on the receiving end.
"There is big money in disasters," New Orleans Mayor Ray Nagin said recently at a conference of mayors. "Huge money."
Although the contracts went to more than 1,200 businesses, including some small and minority-owned firms, most of the biggest deals were awarded to the giant construction and engineering companies that dominate the disaster-recovery business. These companies, including well-known names like Halliburton and Bechtel, tend to have deep political connections and long histories doing business with the government.
But the growth of the sector is best illustrated by an emerging group of companies even more intensely focused on specialized aspects of post-disaster work. These firms, including Beck Disaster Recovery and AshBritt, typically spring into action after disasters strike by tapping networks of affiliated contractors to quickly dispatch personnel, heavy equipment and other specialized gear to the scene.
Many of the companies are privately held and release only limited financial figures, but some of the public companies have shown strong financial results this year, reflecting, at least in part, the Katrina effect.
Shaw Group, for example, a Louisiana-based company that responds to an average of 300 emergencies a year, posted revenue of $2.4 billion in the latest six-month period, up more than 50 percent from a year earlier, while profits nearly tripled. At Fluor Corp. revenue was up 27 percent and profits rose 88 percent in the latest quarter, although the company cautioned that government-related business would likely be "materially lower" in the second half of 2006.
Halliburton also has seen revenue and profits surge and is planning a spin-off of its Kellogg, Brown and Root subsidiary, which handles much of the company's government contracting.
But where there is big money pouring rapidly out of government coffers, there is a good chance some of it will be wasted, or worse, especially when 70 percent of the federal contracts are awarded on a no-bid or limited-competition basis, as was the case after Katrina.
The monster storm and the contracting practices that followed it opened the floodgates to "widespread mismanagement, waste and fraud," Rep. Henry Waxman, D-Calif., said May 4 after reviewing thousands of pages of audits and other documents.
Officials of the Federal Emergency Management Agency and other agencies say they have corrected many problems and tightened oversight.
Among other steps, they say, they have more advance contingency contracts in place to avoid the overpayment caused by the billions of dollars in no-bid contracts awarded after Katrina. Deidre Lee, a federal procurement specialist recently hired as a FEMA deputy director, said the agency also is considering the use of online "reverse auctions," in which contractors vie to provide the lowest bid on a project.
'Just a bunch of promises'
But as the 2006 hurricane season begins on Thursday, critics are skeptical.
"All we have so far is just a bunch of promises from government agencies that they have learned their lesson from Hurricane Katrina and have improved their system for the next national emergency that comes our way," said Scott Amey, general counsel for the Project on Government Oversight, a watchdog group.
Some $88 billion has been allocated for Katrina relief and rebuilding to date, according to the Department of Homeland Security, and about $10 billion of that has been handed out to private firms.
In general it is the biggest firms, some of whom who have gotten contracts worth more than $500 million, that have taken much of the heat for systemic failures including poor planning, lack of communication and weak oversight.
There have been a few isolated instances of graft. Of the 261 people arrested on Katrina-related fraud charges as of mid-May, at least one was a contractor who pleaded guilty to bribery. Another was sued and ordered to repay $1.5 million for failing to deliver promised services, according to the Justice Department.
But for the most part, the main complaint has been taxpayer dollars wasted as government agencies, caught unprepared by the biggest natural disaster in U.S. history, were forced to pay top dollar for cleanup and recovery services and failed to sufficiently monitor the service providers.
"Based on timing it was easier for federal agencies to turn to the usual suspects rather than get out and have a competitive bidding process that may have been able to provide better value for services," said Amey of the Project on Government Oversight.
'Incompetence and lack of oversight'
David Williams, vice president of policy for another watchdog group, Citizens Against Government Waste, agreed with that assessment.
"I don't think it's as nefarious as people think," he said. "I think it's really incompetence and lack of oversight. There are no mechanisms in place for oversight."
Among the excesses highlighted by Waxman and drawn from reports by the non-partisan Government Accountability Office, an investigative arm of Congress:
â¢ Improper billing for debris removal. Some haulers have been paid twice for the same debris by failing to unload their trucks completely at the disposal site. Other haulers have been paid for ineligible debris, such as lower-value vegetation mixed in with construction and demolition debris.
â¢ Overbilling on the "blue roof" program. In the immediate aftermath of the storm, the U.S. Army Corps of Engineers issued contracts worth $300 million for temporary roof repairs using blue plastic sheeting. Due to lax oversight and inadequate supervision, auditors estimate the government was overbilled more than $12 million, Waxman said. One report estimated the government was paying paying nearly $2,500 to cover each damaged roof - about 10 times the normal rate.
â¢ Double-billing for trailer maintenance. Bechtel made a "computation error" that could have cost taxpayers $48 million in excess costs for maintaining FEMA trailers if it hadn't been caught by the Defense Contract Audit Agency.
â¢ Overpricing temporary classrooms. The Army Corps of Engineers awarded a no-bid contract to Akima Site Operations for $39.5 million last year but should have been able to negotiate a lower price, according to the GAO. The company's bid on the project rose $8 million overnight but the rationale for the price hike was never questioned by the Corps, the GAO found.
â¢ Doing unnecessary work. One contractor was paid $10 million to renovate or furnish 240 rooms in military barracks in Alabama, even though officials on the ground said the facilities were not needed to house evacuees. When the facility was closed, it had only six occupants.
Troubling response from the Corps
The Akima contract was particularly troubling to many observers because the Army Corps did not give any indication it plans to change its procedures. In a written response to the GAO report, Army Assistant Secretary John Paul Woodley Jr. acknowledged that "under trying conditions, mistakes are possible."
"The Corps will take steps to address deficiencies, if any, that are identified so that future operations can be improved," Woodley said.
"We were hoping for a different kind of response," said David Cooper, director for acquisition and sourcing management at the GAO.
Questions also have been raised about work done by AshBritt, the Pompano Beach, Fla., company which won a contract in September worth more than $500 million to remove debris in Mississippi for the Army Corps of Engineers. Within weeks the Corps had issued a "cure notice" threatening to terminate it due to poor quality of work.
"On a contract of this size, and with thousands of contractors working and the magnitude of work that was taking place, it's routine to get letters, maybe weekly, on certain areas that they would like us to perform in a better way, if you will. It's normal," AshBritt President Randal Perkins said May 4 in testimony before the House Government Reform Committee.
Referring to the deficiencies found by the Corps, he said, "We addressed them, we corrected them, and we moved on."
But mention the name of AshBritt to locals in southern Mississippi and you are likely to get a cold stare. Many local contractors feel they have been shut out of the lucrative debris-removal business and claim they could do the job for half the price of AshBritt.
'Garbage is garbage'
"There is no difference doing what we're doing for $12.90 (per cubic yard) and what they're getting $36 for," said James Necaise, vice president of Necaise Bros. Construction in Gulfport. "I mean, you compare apples to apples, and apples to freight trains, garbage is garbage. You pick it up, you put it in the dump, you get rid of it. There's no difference here."
For the record, Ashbritt's Perkins said his company gets an average $23 a cubic yard for its Mississippi work, while an Army Corps official puts the figure at $26. Some contractors in Louisiana have made upwards of $35 a cubic yard, according to published reports. By contrast private contractors working in Mississippi dispose of debris "from cradle to grave" for about $17 a cubic yard, according to local officials.
AshBritt's Perkins said his company deserves a premium because it complies with a stricter set of regulations established well in advance of the storm.
Critics of AshBritt are fond of pointing to the privately held - and highly secretive - company's powerful political connections, including contracts with lobbyists like Barbour Griffith & Rogers, the firm founded by Mississippi's Republican Gov. Haley Barbour. Perkins and his wife also have personally donated $50,000 to the Republican National Committee, according to a Miami Herald profile.
But such political connections are hardly limited to Republicans. In Louisiana, Democratic Party Chairman Jim Bernhard resigned three weeks after Katrina's staggering blow to focus on his other job - as chairman of engineering giant Shaw Group.
Bernhard said he needed to focus on his engineering and construction company, but some critics contended he had to resign mainly to avoid the appearance of favoritism as the company received post-hurricane rebuilding contracts worth well over $300 million, according to an accounting by Taxpayers for Common Sense.
For Bernhard, it looks like it was a smart decision. Shaw Group revenues have soared, and the company's stock is up 63 percent since Katrina roared ashore in late August. The company's "backlog" of business has risen by about $1 billion, partly because of federal contracts associated with disaster recovery, and Bernhard's personal stake has risen in value by about $30 million, according to the latest available ownership figures.
- 124 War & Disaster Profiteering