Hurricane Katrina: Army Corps of Engineers Contract for
Mississippi Classrooms (01-MAY-06, GAO-06-454).
In the wake of Hurricane Katrina, the Federal Emergency
Management Agency (FEMA) tasked the Army Corps of Engineers (the
Corps) to purchase temporary classrooms for Mississippi schools.
To accomplish its task, the Corps placed a $39.5 million order
with Akima Site Operations for the purchase and delivery of 450
such classrooms. GAO received an allegation on its Fraud Hotline
that the Corps paid inflated prices for the classrooms, and in
response, we reviewed the facts and circumstances related to the
Corps' issuance of the order.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-454
ACCNO: A52840
TITLE: Hurricane Katrina: Army Corps of Engineers Contract for
Mississippi Classrooms
DATE: 05/01/2006
SUBJECT: Disaster recovery
Educational facilities
Federal procurement
Fraud
Hurricane Katrina
Limited procurement
Overpayments
Procurement evaluation
Questionable procurement charges
Schools
SBA 8(a) Business Development Program
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GAO-06-454
* Results in Brief
* Background
* Circumstances Surrounding the Purchase of the Classrooms Res
* Late Assignment of Classroom Mission Hampered the Corps' Abi
* Corps Did Not Use Available Information to Negotiate a Lower
* Conclusion
* Agency Comments and Our Evaluation
* GAO Contact
* Staff Acknowledgments
* GAO's Mission
* Obtaining Copies of GAO Reports and Testimony
* Order by Mail or Phone
* To Report Fraud, Waste, and Abuse in Federal Programs
* Congressional Relations
* Public Affairs
United States Government Accountability Office
Report to Congressional Committees
GAO
May 2006
HURRICANE KATRINA
Army Corps of Engineers Contract for Mississippi Classrooms
GAO-06-454
HURRICANE KATRINA
Army Corps of Engineers Contract for Mississippi Classrooms
What GAO Found
Corps contracting officials did not expect to be buying classrooms and, in
fact, were not assigned the task until after Hurricane Katrina had struck.
With no prior experience, no advance notice, and the need to buy the
classrooms as quickly as possible, Corps contracting officials lacked
knowledge of the industry and information about classroom suppliers,
inventories, and prices that would have been useful in negotiating a good
deal. Faced with these circumstances, they chose to purchase the
classrooms by placing an order, noncompetitively, on an existing agreement
with Akima Site Operations, LLC. Because of Akima's special status as a
subsidiary of an Alaska Native corporation certified under the Small
Business Administration's 8(a) business development program, the Corps
could make the award without competition.
The Corps accepted Akima's proposed price of $39.5 million although it had
information that the cost for the classrooms was significantly less than
what Akima was charging. Based on our analysis of a quote obtained by
Akima from a local Mississippi business, the price that Akima actually
paid for the classrooms, and prices for similar units from GSA schedule
contracts, we believe the Corps could have, but failed to, negotiate a
lower price.
Classroom units being transported
Source: Akima.
United States Government Accountability Office
Contents
Letter 1
Results in Brief 1 Background 2 Circumstances Surrounding the Purchase of
the Classrooms
Resulted in the Corps Paying High Prices 4 Conclusion 7 Agency Comments
and Our Evaluation 8
Appendix I Scope and Methodology
Appendix II Comments from the Army Corps of Engineers
Appendix III Comments from Akima
Appendix IV GAO Contact and Staff Acknowledgments
Table
Table 1: Classroom Price Increases
Figures
Figure 1: Classroom Units at Staging Area and Units Being
Transported. 3 Figure 2: Timeline for Corps' acquisition of classrooms 4
Abbreviations
ANC Alaska Native corporation
BOA basic ordering agreement
FEMA Federal Emergency Management Agency
GSA General Services Administration
MEMA Mississippi Emergency Management Agency
SBA Small Business Administration
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United States Government Accountability Office Washington, DC 20548
May 1, 2006
Congressional Committees:
In the wake of Hurricane Katrina, the Federal Emergency Management Agency
(FEMA) tasked the Army Corps of Engineers (the Corps) to purchase
temporary classrooms for Mississippi schools. 1 To accomplish its mission,
the Corps awarded a $39.5 million order to Akima Site Operations, LLC
(Akima) for the purchase and delivery of 450 temporary classrooms. GAO
received a tip on its Fraud Hotline alleging that the Corps paid inflated
prices for the classrooms. 2
In response to the allegation, we reviewed the facts and circumstances
surrounding the Corps' acquisition of the classrooms to determine how the
Corps selected Akima and negotiated the price of the classrooms. We
reviewed government contract files and obtained pricing information on the
classrooms from several sources, including the Corps, Akima, suppliers
involved in the transaction, and the General Services Administration
(GSA). The results of our review follow. Further details on the scope and
methodology of our review are in appendix I. We conducted our review from
September 2005 to March 2006 in accordance with generally accepted
government auditing standards.
Faced with a compressed time frame for acquiring classrooms and no
Results in Brief
prior knowledge about the classroom mission they were assigned by FEMA
after Hurricane Katrina struck the Gulf Coast, Corps contracting officials
chose to use an existing agreement and placed an order with Akima. Because
of Akima's special status as a subsidiary of an Alaska Native corporation
under the Small Business Administration's 8(a)
1
We are using the term "temporary classrooms" in this report. The
classrooms were also referred to as relocatable, modular, and portable.
2
The purpose of GAO's FraudNET is to facilitate reporting of allegations of
fraud, waste, abuse, or mismanagement of federal funds. Allegations are
received via e-mail at [email protected]. The allegation we reviewed
concerned the price paid by the government, not the contractor's
performance under the contract. Accordingly, we did not review contract
performance. Both the Corps and Akima represent that Akima performed in
accordance with the terms of the contract by delivering the required
quantities of classrooms within the time frames agreed to by the Corps.
Background
Business Development Program, the Corps was able to make the award without
competition even though the dollar amount of the award would have normally
required competition under the program. 3
The Corps accepted Akima's proposed price of $39.5 million although it had
information that the cost for the classrooms was significantly less than
what Akima was charging. Based on our analysis of a quote obtained by
Akima from a local Mississippi business, the price that Akima actually
paid for the classrooms, and prices for similar units from GSA schedule
contracts, we believe the Corps could have, but failed to, negotiate a
lower price.
We are not making recommendations in this report. In written comments on a
draft of this report, the Department of the Army recognized that under
trying conditions mistakes are possible and plans to include the temporary
classroom procurement in its remedial action program review. The Army did
not endorse our findings, but did not provide any specific concerns. In
written comments, Akima believes that the report does not provide a
complete picture of the circumstances related to the contract for the
classrooms. Our findings are based on information relevant to the review
objective. The comments from DOD and Akima, and our responses to them are
discussed beginning on page 8 and are reproduced in their entirety in
appendices II and III, respectively.
On August 29, 2005, Hurricane Katrina made landfall along the Gulf Coast,
causing severe damage and destruction. In addition to damaging areas in
Louisiana and Alabama, the hurricane wreaked havoc along the entire
Mississippi Gulf Coast. In response, the Mississippi Emergency Management
Agency, on September 8, 2005, asked for federal assistance in providing
temporary classrooms. On September 10, FEMA delegated the mission for
buying the classrooms to the Corps.
3
Alaska Native corporations (ANCs), created under the Alaska Native Claims
Settlement Act to help settle Alaska Native land claims and to foster
economic development for Alaska Natives, have been accorded special
advantages under SBA's 8(a) Business Development Program. ANC 8(a) firms
are considered small disadvantaged businesses, and as long as they meet
relevant size standards for the procurement and other eligibility
requirements, they can be awarded contracts noncompetitively for any
dollar amount (see 13 C.F.R. S: 124.506(b)). Generally, acquisitions
offered to other 8(a) businesses where the contract value is more than $3
million or $5 million (for manufacturing) must be competitively awarded.
Figure 1: Classroom Units at Staging Area and Units Being Transported.
Source: Akima.
Upon accepting the mission, the Corps proceeded to acquire the classrooms.
A chronology of key events surrounding the Corps efforts is shown in the
following timeline.
Figure 2: Timeline for Corps' acquisition of classrooms
Sat.,Sept. 17th Sat.,Sept. 10th Akima providesFri.,Sept. 23rd FEMA tasking
to the Corpsabid First classroomsFri., Oct. 7th
Corps of EngineersThurs.,Sept. 15th schedule in itsTue.,Sept. 20th arrive
in Gulfport, Modification 3 (Corps) Army contracting basis of estimate
Corps issuesMSstaging areafor substitution agency modification
order to Akima
to the basic ordering
to purchase 450 agreement (BOA)
classrooms for to clarify use
$39.5 million
Mon., Aug. 29th
Hurricane Katrinamakes landfall
Wed., Sept. 14th
Corps contract specialist contacts Akima
Sun.,Sept. 18th
Wed., Oct. 5th
Corpsand Akima
Modification 2 agree, in principle,
to substitute to contract price.
unitsand delay
Corps provides
shipping Thurs.,Sept. 8th Fri.,Sept. 16th Akima with the Wed.,Sept. 21th
FEMA action request form Akima provides Corpsnotice to proceed
Modification 1 to signed by Mississippi a rough order of mag-move 200
Emergency Management nitude estimate. CorpsclassroomsAgency (MEMA)
Vicksburg provideslegal okay to use the basic ordering agreement
Source: GAO analysis.
Circumstances Surrounding the Purchase of the Classrooms Resulted in the
Corps Paying High Prices
Corps contracting officials did not expect to be buying classrooms and, in
fact, were not assigned the task until after Hurricane Katrina had struck.
With no prior experience, no advance notice, and the need to buy the
classrooms as quickly as possible, Corps contracting officials lacked
knowledge of the industry and information about classroom suppliers,
inventories, and prices that would have been useful in negotiating a good
deal. Faced with the urgent need for classrooms, they chose to purchase
them by placing an order, noncompetitively, on an existing agreement with
Akima.
Based on our analysis of a price quote obtained by Akima from a local
Mississippi classroom supplier, the price that Akima actually paid for the
Late Assignment of Classroom Mission Hampered the Corps' Ability to Get a
Good Price
classrooms, and prices for similar units from GSA Schedule contracts, we
believe the Corps could have, but failed to, negotiate lower prices.
Once Hurricane Katrina had struck, the Mississippi Emergency Management
Agency, on September 8, 2005, identified a need for temporary classrooms.
FEMA accepted the requirement. On September 10, FEMA assigned the Corps
the mission of acquiring the classrooms and two days later set November 1,
2005, as the deadline for completing the Corps' mission. According to
Corps officials, the short completion date drove their decisions about how
to acquire the classrooms and did not allow them to follow normal
contracting procedures.
To accomplish this task, the Corps awarded an order to Akima through an
existing basic ordering agreement established by the Army Contracting
Agency intended for acquiring and installing modular buildings. 4
According to Corps officials, the agreement was selected because it could
be used to quickly procure the classrooms. Akima is a subsidiary of an
Alaskan Native corporation certified under the Small Business
Administration's 8(a) Business Development Program. 5 Due to its status as
an Alaska Native corporation under the 8(a) program, the company could be
awarded contracts-without competition-for any dollar value. 6 While the
agreement used by the Corps was already in place, it contained no prices,
specifications, or other information the Corps could have used in
negotiating the order.
4
A basic ordering agreement is a written instrument of understanding
between the government and a contractor that contains (1) terms and
clauses for future contracts (orders) between the parties during its term;
(2) a description, as specific as possible, of supplies or services to be
provided; and (3) methods for pricing, issuing, and delivering future
orders under the agreement. A basic ordering agreement is not a contract
but is used to expedite contracting for supplies or services when specific
items, quantities, and prices are not known but a substantial number of
requirements are anticipated.
5
This program, established by section 8(a) of the Small Business Act, 15
U.S.C. S: 637(a), authorizes the Small Business Administration to enter
into contracts with procuring agencies and award subcontracts for
performing those contracts to eligible firms. These subcontractors, known
as 8(a) contractors, must be small disadvantaged business concerns. SBA
has delegated to DOD its authority to enter into 8(a) prime contracts and
to award the performance of those contracts to eligible 8(a) program
participants.
6
SBA may accept, on a sole-source basis, a requirement into the 8(a)
program on behalf of an Alaska Native corporation even if the value of the
acquisition exceeds the normal threshold for competitive 8(a) awards.
Corps Did Not Use Available Information to Negotiate a Lower Price
According to Akima officials, they were contacted by the Corps on
September 14 to see if they could provide 450 classrooms. In response,
Akima provided the Corps several estimates over the next few days,
including an "order of magnitude" estimate on September 16, 2005, and a
formal proposal for $39.5 million on September 17 (which became the
contract price). The estimates included classroom prices, freight costs,
project management charges, general and administrative expenses, and
profit. The price proposal of September 17 was significantly higher than
the "order of magnitude" from the day before. While we believe the
increase in Akima's price should have raised questions among Corps
contracting officials, we found no evidence they conducted any analysis to
determine why the prices had increased. Instead, the Corps' contracting
files attribute the increase to the need to expedite delivery of the
classrooms to meet FEMA's requirements. On the basis of a comparison of
Akima's September 16 and 17 estimates, though, we found the increase could
not be attributed to expedited delivery-since we found freight costs
remained roughly the same in both estimates. The increase was in the price
of the classrooms, as shown in the following table.
Table 1: Classroom Price Increases
September 16, 2005, estimate September 17, 2005, proposal
Percent
Classroom Quantity Unit Total Quantity Unit Total change
type price price
Single w/
bathroom 100 $59,750b $5,975,000 148 $84,395 $12,490,450
Single
w/o
bathroom 100 $55,750b $5,575,000 52 $89,956 $4,677,734
Subtotal 200 $11,550,000 200 $17,168,184 49%
Double w/
bathroom 125a $91,288 $11,411,000 125a $108,371 $13,546,336 19%
Total 450 $22,961,000 450 $30,714,520 34%
Source: GAO analysis.
Note: Numbers may not add due to rounding. Notea: 125 double classrooms
are the equivalent of 250 single classrooms. Noteb: As discussed below,
these unit prices reflect a quote Akima received from a local Mississippi
classroom supplier.
The increase in classroom estimates between September 16 and 17 was very
substantial and should have triggered further questions on the part of the
Corps as to the reason. For example, the increase in the price of single
Conclusion
classrooms was particularly significant, increasing about $5.6 million
dollars, or nearly 49 percent.
Akima's September 17 proposal reflected classroom prices substantially
higher than the quote Akima had received from a local Mississippi
classroom supplier for existing single classrooms that were available to
be transported from a supplier in Florida. On September 14, the local
Mississippi business received quotes for single classrooms with and
without bathrooms for $49,750 and $45,750, respectively. On the following
day, the local business provided a written quote to Akima reflecting the
quotes and its markup. Akima used the local Mississippi business' quote as
a basis for its September 16 "order of magnitude" estimate and provided
the Corps a copy of the quote. However, there is no evidence that Corps
contracting officials used the information to seek reductions during
negotiations.
Given that Akima's September 16 estimate was based on a quote for existing
single classrooms in Florida, we question why the Corps accepted the
higher classroom prices proposed by Akima on September 17 without price
negotiation. In addition, Akima purchased the classrooms in Florida
directly from the supplier identified by the local Mississippi business at
prices lower than the quote.
In addition, we found GSA Schedule contract prices for double classrooms
ranged from $30,000 to $54,000 each, or amounts considerably less than
proposed by Akima and included in the price accepted by the Corps.
Clearly, conditions post-Hurricane Katrina were anything but normal and
thus may not have allowed the classrooms to have been ordered from the
Schedule in the quantities and time frame required. Nevertheless, this
information could have been useful to Corps contracting officials in
analyzing Akima's prices and in negotiating a lower price.
Acquiring goods and services in any emergency situation can be difficult-
particularly in a situation where there is confusion about missions, roles
and responsibilities-but those difficulties should not provide an excuse
for poor pricing outcomes. By neither using information that was available
nor seeking out additional information which would have provided a sound
basis to negotiate price, we believe the Corps could have, but failed to,
negotiate lower prices.
Agency Comments and Our Evaluation
We provided a draft of this report to the Department of the Army and Akima
for review and comment. Their written comments are included as appendices
II and III, respectively.
In its comments, the Army recognized that under trying conditions mistakes
are possible and stated that it plans to include the temporary classroom
procurement in its remedial action program review. The Corps plans to take
steps to address deficiencies, if any, identified in after action reports
so that future operations can be improved. The Army did not endorse our
findings, but did not provide any specific concerns. In its comments, the
Army also stated that the Corps was tasked with providing 450 temporary
buildings, with approximately 350 of them to be used for classrooms. This
statement is not correct. The task order issued on September 20, 2005,
clearly states that the contract was for 450 classrooms. In fact Akima's
response to our report indicates that this was a fixed price contract to
deliver 450 classrooms.
Generally, Akima expressed concern that our report did not use appropriate
comparative data pertaining to pricing of the contract, did not recognize
the risks faced by Akima, did not recognize that requirements were
changing during the negotiations, and did not adequately recognize its
contract performance. We are not responding to every aspect of Akima's
comments, because our report focuses on the prices the Corp paid for the
classrooms and the Corp's actions in awarding the classroom contract to
Akima.
Our report recognizes other elements of cost under the contract, but
focuses on classroom costs because they comprise over three-quarters of
the price negotiated. The difference between Akima's "order of magnitude
estimate" and the proposal ultimately accepted by the Corps was
significant. We believe that the about $8 million difference should have
prompted an inquiry and price negotiation by the contracting officer. We
found no evidence that the contracting officer attempted to negotiate for
a better price.
In its comments to our report, Akima has stated that its proposal reflects
the unknowns it faced at the time of contract award. We recognize, by
entering into a fixed price contract, a contractor assumes the risk of
contract performance. Furthermore, the report acknowledged that conditions
post-Hurricane Katrina were anything but normal. However, our review found
that in spite of these difficult conditions the Corps had available
information at the time of the contract award that quoted lower costs for
classrooms, but did not use the information to negotiate a lower price.
Finally, we recognize again, as we did in the report that the Corps and
Akima told us that Akima performed in accordance with the terms of the
contract by delivering the required quantities of classrooms within the
timeframes agreed to by the Corps.
We will make copies of this report available on request. In addition, the
report will be available at no charge on GAO's Web site at
http://www.gao.gov.
If you have any questions concerning this report, please contact me at
(202) 512-4841 or by e-mail at [email protected]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report.
Katherine V. Schinasi Managing Director Acquisition and Sourcing
Management
List of Committees
The Honorable John Warner Chairman The Honorable Carl Levin Ranking
Minority Member Committee on Armed Services United States Senate
The Honorable Susan M. Collins Chairman The Honorable Joseph I. Lieberman
Ranking Minority Member Committee on Homeland Security & Governmental
Affairs United States Senate
The Honorable Olympia J. Snowe Chair The Honorable John F. Kerry Ranking
Minority Member Committee on Small Business and Entrepreneurship United
States Senate
The Honorable Robert C. Byrd Ranking Minority Member Subcommittee on
Homeland Security Committee on Appropriations United States Senate
The Honorable Duncan L. Hunter Chairman The Honorable Ike Skelton Ranking
Minority Member Committee on Armed Services House of Representatives
The Honorable Peter T. King Chairman The Honorable Bennie G. Thompson
Ranking Minority Member Committee on Homeland Security House of
Representatives The Honorable Donald Manzullo Chairman Committee on Small
Business House of Representatives
The Honorable Tom Davis Chairman The Honorable Henry A. Waxman Ranking
Minority Member Committee on Government Reform House of Representatives
The Honorable Martin Olav Sabo Ranking Minority Member Subcommittee on
Homeland Security Committee on Appropriations House of Representatives
Appendix I: Scope and Methodology
GAO received a Fraud Hotline allegation that the Corps of Engineers (the
Corps) had paid an inflated price for temporary classrooms for Mississippi
in the aftermath of Hurricane Katrina. In response to the allegation, we
examined the facts and circumstances surrounding the acquisition to
determine how the Corps selected Akima and negotiated the price of the
classrooms.
To learn how the Corps selected Akima, we obtained information about the
Army Contracting Agency's basic ordering agreement and its intended uses.
We contacted the contracting officer who had established the agreement at
the Northern Region Contracting Center, Fort Eustis, Virginia. The Army
Contracting Agency official provided the agreement and modifications, and
described why and how the agreement was established.
We also obtained information about the steps taken by the Corps to meet
the requirements for acquisition of the classrooms. We obtained contract
and related documents from the Corps of Engineers, Vicksburg District, in
Vicksburg, Mississippi. We reviewed these documents to find out what
information the Corps had available to acquire the classrooms. We
interviewed Corps officials to discuss the available information and
ascertain how classroom acquisition-related decisions were made. We also
reviewed cost and price information included in the contract file.
We met with representatives of Akima Management Services, Inc., the
holding company for Akima Site Operations, LLC-the titular entity awarded
the classroom order. Akima representatives provided pertinent
documentation, including actual performance cost information. In addition,
we held discussions with and collected information from local Mississippi
businesses and some of the suppliers that eventually provided the
classrooms to Akima. Also, we identified pricing information available on
the General Service Administration's Schedule contracts for similar
classrooms and modular buildings.
We conducted our review from September 2005 to March 2006 in accordance
with generally accepted government auditing standards.
Appendix II: Comments from the Army Corps of Engineers
Appendix III: Comments from Akima
Appendix III: Comments from Akima
Appendix IV: GAO Contact and Staff Acknowledgments
Katherine Schinasi, (202) 512-4841or [email protected]
GAO Contact
In addition to the contact named above, Dave Cooper, Director,
Staff
Penny Berrier Augustine, Assistant Director, Ralph Roffo, Bob Swierczek,
Acknowledgments and Adam Vodraska made key contributions to this report.
(120500)
Page 16 GAO-06-454 Hurricane Katrina Contracting
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