Hurricane Katrina: Ineffective FEMA Oversight of Housing
Maintenance Contracts in Mississippi Resulted in Millions of
Dollars of Waste and Potential Fraud (16-NOV-07, GAO-08-106).
Hurricane Katrina destroyed or damaged 134,000 homes and 10,000
rental units in Mississippi alone. The Federal Emergency
Management Agency (FEMA) in part responded by providing displaced
individuals with temporary housing in the form of mobile homes
and travel trailers, placed on both private property and at
FEMA-constructed group sites. In 2006, FEMA awarded 10 contracts
in Mississippi to maintain and deactivate (MD) the housing units
and 5 for group site maintenance (GSM). GAO was asked to
investigate whether there were indications of fraud, waste, and
abuse related to FEMA's oversight of these 15 contracts. GAO
analyzed FEMA's issuance of task orders, tested a representative
sample of monthly maintenance inspections payments, prepared case
studies detailing the costs related to trailers placed at group
sites, and investigated improper activity related to the
contracts.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-106
ACCNO: A78228
TITLE: Hurricane Katrina: Ineffective FEMA Oversight of Housing
Maintenance Contracts in Mississippi Resulted in Millions of
Dollars of Waste and Potential Fraud
DATE: 11/16/2007
SUBJECT: Contract administration
Contract oversight
Contractor payments
Cost analysis
Cost control
Erroneous payments
Government contracts
Housing
Housing repairs
Hurricane Katrina
Improper award of contract
Maintenance (upkeep)
Maintenance services contracts
Replacement housing
Government agency oversight
Waste, fraud, and abuse
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GAO-08-106
* [1]Results in Brief
* [2]Background
* [3]FEMA's Issuance of Task Orders under MD Contracts Resulted i
* [4]Breakdowns in FEMA's Invoice Review Process Led to about $16
* [5]FEMA Improperly Paid Contractors about
* [6]$15 Million for Preventative Maintenance Inspections
* [7]FEMA Requires Monthly Inspections and Documentation of
Work
* [8]FEMA's Reported Payment Process Requires Review of Invoices
* [9]Review of Contractor Billing Records Reveals $2.2 Million
in
* [10]Statistical Sample Results Indicate about $13 Million in
Imp
* [11]Cases Provide Additional Examples of Improper or
Potentially
* [12]FEMA Improperly Paid Contractors over $600,000 for After-Hou
* [13]Case Studies Illustrate Excessive Costs at Group and Commerc
* [14]Evidence of Improper Activity Related to Contract Award Proc
* [15]FEMA Awarded GSM Contracts to Companies That May Not Have Bi
* [16]FEMA's Potentially Improper Award of UFAS Contract Results i
* [17]$3 Million of Unnecessary Expenses
* [18]Conclusion
* [19]Recommendations for Executive Action
* [20]Agency Comments and Our Evaluation
* [21]GAO Contact
* [22]Staff Acknowledgments
* [23]GAO's Mission
* [24]Obtaining Copies of GAO Reports and Testimony
* [25]Order by Mail or Phone
* [26]To Report Fraud, Waste, and Abuse in Federal Programs
* [27]Congressional Relations
* [28]Public Affairs
Report to the Committee on Homeland Security and Governmental Affairs,
U.S. Senate
United States Government Accountability Office
GAO
November 2007
HURRICANE KATRINA
Ineffective FEMA Oversight of Housing Maintenance Contracts in Mississippi
Resulted in Millions of Dollars of Waste and Potential Fraud
GAO-08-106
Contents
Letter 1
Results in Brief 3
Background 8
FEMA's Issuance of Task Orders under MD Contracts Resulted in as Much as
$16 Million in Waste 11
Breakdowns in FEMA's Invoice Review Process Led to about $16 Million in
Improper or Potentially Fraudulent Payments 15
Case Studies Illustrate Excessive Costs at Group and Commercial Sites 23
Evidence of Improper Activity Related to Contract Award Process 30
Conclusion 34
Recommendations for Executive Action 35
Agency Comments and Our Evaluation 36
Appendix I Objectives, Scope, and Methodology 38
Appendix II FEMA Preventative Maintenance Inspection Sheet 42
Appendix III Comments from FEMA 43
Appendix IV GAO Contact and Staff Acknowledgments 52
Tables
Table 1: Total Bid Prices Submitted by 10 MD Contractors in Mississippi 12
Table 2: Range of Bids for the Five Most Expensive Line Items in the MD
Contract 13
Table 3: Results of Statistical Sample of Paid Preventative Maintenance
Inspections 20
Table 4: Estimated Trailer Costs at Three Case Study Group Sites in
Mississippi through March 2009 25
Table 5: Estimated Trailer Costs at Commercial Site in Mississippi through
March 2009 29
Figures
Figure 1: Potential FEMA MD Contract Savings Using Least Expensive
Contractors 14
Figure 2: FEMA's Reported Invoice Approval and Payment Process 18
Figure 3: Estimated Costs for a Trailer at a Private Site through March
2009 24
Figure 4: Estimated Life-cycle Trailer Costs at Bienville through March
2009 26
Figure 5: Estimated Life-cycle Trailer Costs at Sunset Ingalls through
March 2009 27
Figure 6: Estimated Trailer Costs at Ellzey Parcel through March 2009 27
Figure 7: Estimated Life-cycle Trailer Costs at McLeod through March 2009
29
Figure 8: Timeline of UFAS Award and Subsequent Modifications 34
This is a work of the U.S. government and is not subject to copyright
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separately.
United States Government Accountability Office
Washington, DC 20548
November 16, 2007
The Honorable Joseph I. Lieberman
Chairman
The Honorable Susan M. Collins
Ranking Member
Committee on Homeland Security and Governmental Affairs
United States Senate
In August 2005, Hurricane Katrina caused catastrophic damage to the Gulf
Coast, killing over 1,000 people and obliterating homes and entire towns
through wind and rain damage, flooding, and the destruction of roads,
bridges, and water and sewer lines. In Mississippi alone, reports estimate
that Katrina destroyed or damaged approximately 134,000 homes and 10,000
rental units.1 As part of the federal response, the Federal Emergency
Management Agency (FEMA) provided many of these displaced individuals with
temporary housing in the form of travel trailers and mobile homes.2
According to FEMA, 17,608 households in Mississippi were still residing in
travel trailers and mobile homes as of August 2007. These households will
be allowed to continue this occupancy through March 2009.3
1See Mississippi Home Corporation, Estimate of Homes Destroyed or Damaged
by Hurricane Katrina in Mississippi (Oct. 7, 2005) and Mississippi Center
for Justice, Mississippi Center for Justice Rental Unit Survey of the
Mississippi Gulf Coast (2006).
2According to FEMA, a travel trailer is a recreational vehicle that is
designed for short, temporary habitation, not housing. In contrast, a
mobile (or manufactured) home is a structure, transportable in one or more
sections, which is built on a permanent chassis and is designed for use
with or without a permanent foundation when attached to the required
utilities. The term manufactured home does not include a recreational
vehicle. Generally, manufactured homes must meet the same requirements as
stick built or conventional housing.
3Beginning in March 2008, individuals residing in these units will pay a
portion of the cost for rent, which will begin at $50 per month and
incrementally increase each month thereafter until the program concludes
on March 1, 2009. FEMA also began allowing residents of its mobile homes
and travel trailers to purchase their dwellings at a fair and equitable
price; however, on August 1, 2007, FEMA temporarily suspended sales while
the agency works with health and environmental experts to assess
health-related concerns raised by occupants.
In the aftermath of the storm, FEMA placed the temporary housing units on
private properties where individuals were rebuilding their homes. For
predisaster renters, FEMA also placed housing units at preexisting
commercial sites (e.g., trailer parks) and at FEMA-constructed group sites
at leased locations, such as stadium grounds and school fields. To support
the temporary housing, FEMA originally awarded sole source contracts to
four major firms and paid these firms billions of dollars to set up and
maintain the units and sites. According to FEMA, it awarded these
contracts noncompetitively because of the urgent need for a rapid
emergency response. After much public criticism and investigations of the
costs claimed by the four contractors, FEMA solicited proposals for new
contracts for the maintenance and deactivation (MD) of mobile homes and
trailers and for group site maintenance (GSM). The MD contracts are
primarily for monthly preventative trailer maintenance, emergency repairs,
and unit deactivation and removal, while the GSM contracts cover
maintenance of the grounds facilities at the site, lawn care, and road and
fence repair. In Mississippi, FEMA awarded 10 MD contracts in May 2006 to
maintain approximately 30,000 housing units and 5 GSM contracts in
September 2006 to maintain 39 group sites.
Both the MD and GSM awards have a 5-year term and FEMA guaranteed each
contractor a minimum amount for the first year: $50,000 for MD contracts
and $100,000 for GSM contracts. FEMA has subsequently decided to issue
task orders under only five of the MD contracts for the second year;
however, the 5 remaining contractors are still eligible to have task
orders issued against their existing contracts. According to FEMA, it paid
the 10 MD contractors almost $63 million from May 2006 through May 2007
and paid the 5 GSM contractors about $9 million from September 2006
through May 2007. In addition, FEMA data shows it has spent over $13
million on site leases, $6.5 million for security services at the sites,
and $4.4 million on utilities. FEMA data also shows it spent over $4
million to lay asphalt around 150 travel trailers in group sites to make
them accessible to disabled individuals in compliance with Uniform Federal
Accessibility Standards (UFAS).
You asked us to investigate whether there were indications of fraud,
waste, and abuse related to FEMA's oversight of the 10 MD and 5 GSM
contracts in Mississippi. We focused our efforts on investigating (1)
FEMA's issuance of task orders to the MD contractors and (2) FEMA's
invoice review process. We also prepared case studies to assess the costs
associated with the placement of travel trailers at group sites and
investigated allegations of criminal and improper activity related to the
contracts.
To conduct our investigation, we analyzed FEMA's issuance of task orders
under the contracts and the costs associated with the most expensive
contract line items from June 2006 through January 2007. In addition, we
selected and tested a representative sample of payments made to the MD
contractors for monthly preventative maintenance inspections from June
2006 to January 2007. To prepare our case studies, we reviewed specific
costs associated with a nonrepresentative selection of 3 group sites and 1
commercial site in Mississippi. We did not conduct a comprehensive
evaluation of whether FEMA adhered to its own solicitation requirements
and other laws or regulations when awarding the 10 MD and 5 GSM contracts.
However, our interviews with FEMA officials, contractor personnel, and
confidential informants led us to identify potentially improper activity
associated with the award process. To further investigate this activity,
we reviewed and compared the contract proposals, total bid prices, line
item bids, and government estimates for work. We conducted our work from
October 2006 to September 2007. We conducted our investigative work in
accordance with the standards prescribed by the Presidents Council on
Integrity and Efficiency and conducted our audit work in accordance with
generally accepted government auditing standards. For more information on
our scope and methodology, see appendix I.
Results in Brief
Overall, we estimate that FEMA's ineffective management resulted in about
$30 million4 in wasteful and improper or potentially fraudulent payments
to the contractors from June 2006 through January 2007 and likely led to
millions more in unnecessary spending beyond this period. We found that
(1) FEMA's failure to issue task orders under the MD contracts in a
cost-effective manner led to as much as $16 million in waste and (2)
breakdowns in FEMA's invoice review process led to an estimated $16
million in improper or potentially fraudulent payments. Furthermore, our
case studies demonstrate how FEMA's placement of travel trailers at group
and commercial sites can lead to excessive costs, when compared to
trailers placed at private sites. We also found evidence of potentially
improper activity related to FEMA's contract award process.
4The estimated $30 million in wasteful and improper or potentially
fraudulent payments is the sum of the $16 million FEMA wasted by not
allocating task orders to the MD contractors with the lowest estimated
costs and an additional $16 million in improper or potentially fraudulent
payments made to the contractors for work for which that have no evidence
that they performed. If FEMA had allocated the work to the MD contractors
based on cost, the magnitude of improper and potentially fraudulent
payments likely would have been reduced.
FEMA wasted as much as $16 million because it did not allocate task orders
under the MD contracts to the companies with the lowest prices. Instead of
including cost as a key decision factor when assigning task orders, FEMA
considered "geographic locations and transportation concerns." As a
result, despite extraordinary pricing differences for the same services
among the 10 MD contractors, FEMA issued task orders to all 10, spending
about $48.2 million from June 2006 through January 2007 on the five
contract line items that generate the most cost. These line items include
monthly preventative maintenance,5 contractor phase-ins, deactivations,
emergency after-hours repairs, and septic cleaning services. If FEMA had
instead issued task orders to the five contractors with the lowest overall
bid prices, it would have only spent about $32.5 million on these five
line items during the same period and could have saved millions more
through May 2007. In addition to having the lowest overall prices, FEMA
determined that these five contractors would have been capable of
collectively maintaining the estimated 30,000 trailers and mobile homes in
Mississippi at the time of the award.
We estimate that FEMA spent an additional $16 million because it approved
improper or potentially fraudulent invoices submitted by the MD
contractors. This amount includes about $15 million in payments made for
preventative maintenance--which includes a required monthly
inspection--and over $600,000 in payments for emergency after-hours
repairs. Although FEMA was supposed to systematically review invoices to
provide reasonable assurance that these payments were being made for work
actually performed, our work shows that FEMA was not adhering to this
process. For example, of the $28.5 million paid to the contractors for
maintenance inspections from June 2006 through January 2007, we estimate
that FEMA spent about $15 million6 even though (1) it had no evidence that
FEMA owned the trailers being inspected; (2) the contractors provided no
evidence that an inspection took place; or (3) the contractors could not
prove that they had conducted an interior inspection of the units, as
required. But even when proper inspection documentation existed, there is
still no guarantee that the work was actually performed. For example, we
confirmed allegations that contractors received payments for monthly
preventative maintenance even though their inspectors falsified inspection
documentation. Although we also intended to test the $2.2 million in
payments FEMA made for emergency after-hours repairs, we could not conduct
this work because the data we received from FEMA concerning these calls
were incomplete. However, we were able to determine that FEMA spent over
$600,000 for emergency repairs even though the invoices for these repairs
should not have been approved because the housing units do not exist in
FEMA's inventory.
5For purposes of our analysis, "monthly preventative maintenance" includes
two line items: mobile home preventative maintenance and travel trailer
preventative maintenance.
In addition, our case studies illustrate how FEMA's placement of travel
trailers at group and commercial sites can lead to excessive costs. It is
reasonable to expect that the overall expenses at these sites would be
higher than for the trailers at the private sites, given that FEMA has had
to pay extra for site construction and maintenance, security, leases, and
utilities. However, our case studies show that these expenses can become
exorbitant. For example, FEMA will have spent on average about $30,000 on
each 280 square foot trailer at a private site through the March 2009
temporary housing extension. In contrast, expenses associated with a
trailer at our Port of Bienville Industrial Park case study group site
during the same period could end up costing taxpayers about $229,000--or
about the same as the cost of a five bedroom, 2,000 square foot home in
Jackson, Mississippi. Part of the reason for this extreme expense is that
FEMA did not allocate work at these sites in a cost-effective manner and
did not reevaluate this allocation after the sites were established. For
example, FEMA placed only eight trailer pads at the Bienville site. FEMA
wastes money when it operates sites with such a small number of trailer
pads because GSM costs are fixed whether a site contains 1 or 50 pads.7 In
this case, FEMA spends over $576,000 per year--or $72,000 per
trailer--just for grounds facilities maintenance, lawn care, and road and
fence repair. At another case study site, we found that FEMA's
mismanagement led to wasteful spending for septic cleanings. The MD
contractor at this commercial site charged FEMA $245 per service to
provide septic cleanings to the approximately 61 trailers at the park. In
total, FEMA paid the contractor about $1.8 million for this service
because the cleanings were provided 3 times per week per trailer over the
course of a year. However, this contractor made a profit of almost $1.5
million because it paid a subcontractor just $45 per service to actually
perform the work. According to the terms of the contract, FEMA could have
saved this $1.5 million by reassigning the septic cleaning services to a
cheaper company, but it did not exercise this option.
6This $15 million includes payments identified through a review of
contractor billing records and through estimates calculated from a
statistical sample. From June 2006 through January 2007, FEMA made about
$28.5 million in preventative maintenance payments for over 180,000
inspections. Our initial review of contractor billing records related to
12,000 of these inspections confirmed that FEMA made about $2.2 million in
payments even though there was no documentation to support that the
required monthly inspection had occurred. Based on this finding, we also
selected a random sample from the remaining 170,000 inspections, totaling
about $26 million in preventative maintenance payments, to determine the
magnitude of potentially fraudulent and improper payments. Based on these
calculations, we estimate that FEMA made an additional $13 million in
payments for preventative maintenance based on invoices that should not
have been approved. For this $13 million, we are 95 percent confident that
the actual dollar amount is between $11 and $15 million. By adding the
$2.2 million that we calculated from reviewing contractor invoices to the
estimated $13 million derived from the statistical sample, we estimate
that FEMA made $15 million in payments for preventative maintenance based
on potentially fraudulent invoices.
Finally, we found evidence of potentially improper activity related to the
contract award process, as described in the two cases below. We have
referred both of these matters to the Department of Justice and the
Department of Homeland Security (DHS) Inspector General (IG) for further
investigation and we have notified the Katrina Fraud Task Force about our
findings.
o FEMA awarded GSM contracts to two companies that did not appear
to have submitted independent bids and that also made false
statements on proposals submitted to FEMA. As previously
indicated, FEMA awarded the Mississippi GSM contracts to five
businesses. In actuality, FEMA awarded one of these businesses two
contracts: one contract as a "single entity" and one as part of a
"joint venture" with another firm. Although making this type of
award is not prohibited, both the single entity and the joint
venture were required to sign a certification affirming that they
had each arrived at their price proposal independently and had not
disclosed their bid to competitors. Even though both companies
signed this certification, we found that they shared bid
information prior to submitting their proposals. The companies
also shared the same individuals in key officer positions, making
it difficult to understand how their proposals could have been
truly independent. In addition, some of the key personnel at both
companies misrepresented their job titles and functions in the
final offers submitted to FEMA, a potential violation of the False
Statements Act, 18 U.S.C. S1001. In response to our referral,
Justice has decided to open an investigation of this matter.
o We also found that one of FEMA's contracting officers may have
improperly awarded the UFAS contract to lay asphalt to make 150
units accessible to individuals with disabilities, leading to over
$3 million in unnecessary expenses. Unlike the MD and GSM
contracts, FEMA awarded this UFAS contract as a set-aside for sole
source negotiation with a local 8(a)8 firm. According to the
Federal Acquisition Regulations, an 8(a) contract may not be
awarded if the cost to the agency exceeds a fair market price.
FEMA's records show that the government estimate to complete the
work was just under the $3 million threshold for awarding this
type of noncompetitive contract.9 The company that received the
award initially bid over $3 million to perform the work, but the
contracting officer, who allegedly had a previous personal
relationship with the 8(a) company's subcontractor, dropped four
of the bid items so that the award amount was under $3 million.
During the next 3 months, the contracting officer added back two
of the dropped bid items and further modified the award several
times, ultimately making the total value of the contract about $4
million. The contracting officer refused to speak with our
investigators about the circumstances surrounding this award, and
FEMA said that it was not able locate any documentation to support
how the original government estimate was derived. Therefore, we
asked licensed GAO engineers with over 30 years experience to
provide an estimate of the costs associated with laying asphalt at
the sites in order determine whether FEMA received a fair market
price for the work performed. Using the limited information
available from the contractor's price proposals, they estimated
that, in the Biloxi, Mississippi, region, this work should have
only cost about $800,00010--about one-fifth of what FEMA
ultimately paid.
7Group site maintenance costs are dependent on the size of the site--small
sites contain 50 trailer pads or less, medium sites have 51 to 100, and
large sites have 101 to 300.
8A firm owned and operated by socially and economically disadvantaged
individuals and eligible to receive federal contracts under the Small
Business Administration's 8(a) Business Development Program. An 8(a) firm
must be a small business unconditionally owned and controlled by one or
more socially and economically disadvantaged individuals who are of good
character and citizens of the United States, and must demonstrate
potential for success.
9Shortly around the time of the contract award, this threshold was raised
to $3.5 million. FAR 19.805-1(2).
Given these findings, the Secretary of Homeland Security should direct
FEMA to take six actions to improve the oversight of temporary housing
maintenance contracts, including collecting any overpayments made to the
contractors we investigated, placing a greater emphasis on issuing task
orders to companies that can perform the most work at the lowest cost,
conducting an inventory of housing units, designing controls to enforce
the existing method of testing invoices, and reevaluating the allocation
of work at the group sites. FEMA should also consider the suspension or
debarment of any contractor found to have committed fraud.
FEMA provided written comments on a draft of this report in which it
concurred with all six of our recommendations and outlined actions it has
taken that are designed to address each of these recommendations. These
comments are reprinted in appendix III. As part of its response, FEMA also
provided background of the events leading up to the award of the MD and
GSM contracts and detailed some of the overall improvements the agency
states it has made since Hurricane Katrina.
Background
Under the Stafford Act, FEMA may provide temporary housing units (such as
travel trailers and mobile homes) directly to disaster victims who are
unable to make use of financial assistance to rent alternate housing
accommodations because of a lack of available housing resources. The act
limits this direct assistance to an 18-month period, after which FEMA may
charge fair market rent for the housing unless it extends the 18-month
free-of-charge period due to extraordinary circumstances.11 To manage this
post-disaster housing, FEMA typically has in place a contingency technical
assistance contract. However, when Katrina made landfall in August 2005,
FEMA was in the process of competing this contract--bids had been
solicited and evaluated, but no contract was in place. Therefore, FEMA
awarded "no-bid" contracts to four major engineering firms (Bechtel
Corporation, Fluor Corporation, the Shaw Group Incorporated, and CH2M Hill
Incorporated) for, among other things, the support of staging areas for
housing units, installation of housing units, maintenance and upkeep, site
inspections and preparations, site restoration, group site design, group
site construction, site assessments, property and facility management, as
well as housing unit deactivation and rehabilitation. In total, FEMA made
almost $3 billion in payments to Bechtel, Fluor, Shaw, and CH2M Hill from
September 2005 to January 2007. After much public criticism and
investigations of the costs claimed by the four contractors,12 FEMA
solicited proposals for new contracts for the maintenance and deactivation
(MD) of mobile homes and trailers and for group site maintenance (GSM).
10The GAO engineers did not visit the sites where the work was performed.
However, they provided an order of magnitude estimate based on RS Means--a
widely used guide for estimating construction costs--and the limited scope
of work that was available from the contractor's proposals. This order of
magnitude estimate showed there was a significant difference
(approximately 400 percent) between what the work should have cost and the
contractor's proposed price of $3.2 million.
1142 U.S.C. S 5174(c)(1)(B). For more information on the types of housing
assistance awarded to disaster victims, see GAO, Disaster Assistance:
Better Planning Needed for Housing Victims of Catastrophic Disasters,
[29]GAO-07-88 (Washington: D.C.: Feb. 28, 2007).
Mississippi Maintenance and Deactivation Contracts: In November 2005, FEMA
posted two solicitations indicating its intent to award multiple contracts
for the maintenance and deactivation of manufactured homes and travel
trailers. One solicitation was set aside for small businesses and the
other was designated for 8(a) business development concerns (small
businesses owned by socially and economically disadvantaged individuals).
The solicitations for the small business and 8(a) awards were essentially
the same, with each requiring prospective bidders to submit a technical
and a business proposal listing their price for each of 37 contract line
items. Additionally, in order to provide preference to local businesses,
FEMA notified bidders that the proposed total price for any nonlocal
business would be increased by 30 percent for price evaluation purposes.
In May 2006, FEMA awarded five contracts to small businesses and five to
8(a) business development concerns. Each award was an indefinite
delivery/indefinite quantity fixed price type contract with a 5-year term
and each had a guaranteed minimum of $50,000 and a maximum funding
limitation of $100 million. In total, nine businesses received these
awards because one business received two awards-one as a small business
and one as an 8(a) business concern. In addition, of the 10 awards, 8 went
to businesses classified as local for price competition purposes and 2
went to companies that FEMA deemed nonlocal. FEMA also awarded similar
maintenance and deactivation contracts in Louisiana, Alabama, and Texas.
12Department of Homeland Security Inspector General, Management Advisory
Report on the Major Technical Assistance Contracts (Nov. 2005) (OIG-06-02)
and Defense Contract Audit Agency, Application of Agreed-Upon Procedures
to Evaluate Bechtel National, Inc.'s Proposal for Contract No.
HSFEHQ-05-D-0572, Task Order HSFEHQ-05-J-004, Revision 2, Site Maintenance
and Food Services (Rept. No. 4281-2006D28000002) (Nov. 10, 2005).
In May 2006, following award of the Mississippi MD contracts, FEMA issued
two task orders to each of the 10 awardees. The initial task order for
each contractor initiated a phase-in period for contract ramp-up. The cost
of each contractor's phase-in period was based on the amount agreed to in
their contract. FEMA obligated the amount for the initial phase-in cost
proposed by each MD contractor, which ranged from a low of $23,220 to a
high of $6,111,000. The second task order provided an estimated quantity
and projected dollar amount for each of the contract line items for the
first 11 months of performance. Those task orders stated that the
estimated usage was a "good faith estimate on the part of the government
and was developed solely to arrive at an estimated total for the task
order." The amount obligated for each of those "good faith estimates" was
between $19.2 million and $20.6 million, for a total obligation amount of
over $200 million. FEMA elected not to compete the task orders among the
10 contractors nor did they consider price or cost under each task order
as a factor in their source selection decision. However, both the MD
contract and the FAR state that a contracting officer must provide each
contractor with a fair opportunity to be considered for each order issued
under multiple task order contracts. The FAR further states that the
contracting officer may exercise "broad discretion" in developing task
order issuance procedures, as long as these procedures are fair, included
in the solicitation, and factor in price or cost.13
Mississippi Group Site Maintenance Contracts: In May 2006, FEMA posted its
intent to award multiple contracts for group site maintenance. These
contracts were set aside exclusively for service disabled veteran-owned
small businesses and were further limited to proposing firms residing in
or primarily doing business in Mississippi. The solicitation required each
submitter to provide a price for maintaining group sites at various
threshold sizes, including sites with less than 50 trailer pads, 51 to
100, 101 to 300, 301 to 600, and 601 or more. FEMA awarded these contracts
in September 2006 and also awarded similar group site maintenance
contracts in Louisiana.
13FAR 16.505. The FAR also lists exceptions to this fair opportunity
process, including, among others, that need for supplies and services is
so urgent that providing a fair opportunity would result in unacceptable
delays and that only one awardee is capable of providing the supplies or
services required at the level of quality required.
Temporary Housing Occupancy Extension: In April 2007, FEMA extended the
temporary housing assistance program for hurricane victims living in
trailers and mobile homes until March 2009. Beginning in March 2008,
individuals residing in these units will pay a portion of the cost for
rent, which will begin at $50 per month and incrementally increase each
month thereafter until the program concludes on March 1, 2009. FEMA also
began allowing residents of its mobile homes and travel trailers to
purchase their dwellings at a fair and equitable price; however, on August
1, 2007, FEMA temporarily suspended sales while the agency works with
health and environmental experts to assess health-related concerns raised
by occupants.
FEMA's Issuance of Task Orders under MD Contracts Resulted in as Much as $16
Million in Waste
FEMA wasted as much as $16 million because it did not allocate task orders
under the MD contracts to the companies with the lowest prices. Despite
extraordinary pricing differences for the same services among the 10 MD
contractors,14 FEMA issued task orders to all 10, spending $48.2 million
from June 2006 through January 2007 on the five contract line items that
generate the most cost. If FEMA had instead issued task orders to only the
five contractors with the lowest overall bid prices, it would have only
spent an estimated $32.5 million on these five line items.
The scope of the work under the MD contracts primarily covered monthly
trailer preventative maintenance, emergency repair, and unit deactivation
and removal. Further, as stipulated in the contracts, each company
receiving an award "must be prepared to perform th[is] work anywhere in
the region." In response to FEMA's solicitations, the contractors provided
a wide range of price proposals for identical services--from about $90
million to $300 million--as shown in table 1.
14In a report issued in March 2007, the DHS IG criticized FEMA's
acceptance of a wide disparity in bids, noting that "FEMA contracting
officials exposed the agency to an unacceptable level of risk." FEMA
disagreed, stating that it believed that the "level of risk was necessary
and acceptable."
Table 1: Total Bid Prices Submitted by 10 MD Contractors in Mississippi
Contractor Total bid price
1 $89,856,470
2 89,959,952
3 94,989,890
4 177,312,545
5 177,312,545
6 184,128,937
7 197,513,516
8 254,448,373
9 268,027,263
10 299,376,647
Source: FEMA.
Note: Contractors 4 and 5 are the same company. This company received two
awards--one as a small business and one as an 8(a) business concern.
FEMA issued task orders to all 10 contractors for the first year of the
contract, assigning each about 3,000 trailers. FEMA paid these 10
contractors about $51.2 million from June 2006 through January 2007,
spending 94 percent of that amount---$48.2 million---on just five of the
37 line items in the contract. These line items include monthly
preventative maintenance,15 contractor phase-ins, deactivations, emergency
after-hours repairs, and septic cleaning services. The contractors' bids
for these specific line items also varied widely. Table 2 shows the high
and low bids for each line item.
15For purposes of our analysis, "monthly preventative maintenance"
includes two line items: mobile home preventative maintenance and travel
trailer preventative maintenance.
Table 2: Range of Bids for the Five Most Expensive Line Items in the MD
Contract
Line item High bid Low bid
Phase-in $6,111,000a $23,220
Monthly preventative maintenanceb per unit 244 38
Emergency after-hours repairs per call 495 85
Septic cleaning per service 260 97
Deactivation per unit 1,000 267
Source: GAO analysis of FEMA data.
aSubsequent to the award, this amount was reduced. However, the contractor
and FEMA are still in dispute over the actual phase-in price.
bThe range of bids for monthly preventative maintenance includes the bids
for both the travel trailer and mobile home maintenance line items.
Despite these extreme price variances, FEMA did not establish procedures
for the most cost-efficient distribution of work. Both the MD contract and
the FAR state that a contracting officer must provide each contractor with
a fair opportunity to be considered for each order issued under multiple
task order contracts. The FAR further states that the contracting officer
may exercise "broad discretion" in developing task order issuance
procedures, as long as these procedures are fair, included in the
solicitation, and factor in price or cost.16 According to the MD
solicitation and contract, FEMA considered "geographic locations and
transportation concerns" when assigning work, but FEMA did not include
procedures for factoring in cost in either of these documents. We asked
FEMA to provide us with more detail17 about their task issuance
procedures, but they did not respond, except to reiterate during an
interview that it was were primarily concerned with who was already
performing the work (some of the MD contractors had previously
subcontracted with the original four firms) and the contractors'
transportation issues and office locations.
Absent any other information from FEMA regarding the procedures it used to
issue task orders to the 10 MD contractors, we concluded that FEMA did not
adequately consider cost, resulting in as much as $16 million in waste. As
shown in figure 1, if FEMA had instead issued task orders to the five
contractors with the lowest overall bid prices, it would only have spent
about $32.5 million on the five most expensive line items. Because FEMA
did not reassign task orders under the MD contracts until June 2007--the
second year of the contract, it likely wasted millions more on these line
items from February through May 2007.
16FAR 16.505. The FAR also lists exceptions to this fair opportunity
process, including, among others, that need for supplies and services is
so urgent that providing a fair opportunity would result in unacceptable
delays and that only one awardee is capable of providing the supplies or
services required at the level of quality required.
17Specifically, we asked FEMA to provide documentation to support the
decision to issue task orders to all 10, including cost analyses,
assessment of contractor ability to perform, and logistical and location
considerations.
Figure 1: Potential FEMA MD Contract Savings Using Least Expensive
Contractors
As detailed in the figure, had FEMA made contract awards to only the five
lowest bidders, it could have saved as much as
o $10.2 million in preventative maintenance costs. FEMA spent
about $28.5 million for preventative maintenance on all the units
in Mississippi from June 2006 through January 2007. If FEMA had
awarded the MD contracts to the five companies with the lowest
overall bid price, the cost for trailer and mobile home
maintenance would have been approximately $18.3 million.
o $3.2 million on phase-in costs. FEMA spent $6.5 million on
one-time phase-in costs for all 10 MD contracts. However, if FEMA
used only the five companies with the least expensive bids, the
total cost for phase in would have been over $3.2 million.
o $930,000 on unit deactivations. FEMA spent just over $7 million
on about 10,000 deactivations from June 2006 through January 2007.
If FEMA had awarded the MD contracts to the least expensive
companies, the cost for these deactivations would have been
approximately $6.1 million.
o $620,000 in after-hours emergency repairs. FEMA spent almost
$2.2 million on emergency after hour service calls. If FEMA
awarded the contract to the five most inexpensive companies, it
would have spent approximately $1.6 million.
o $690,000 in septic cleaning costs. FEMA spent almost $4 million
on septic cleanings from June 2006 through January 2007, but would
have spent about $3.3 million if it had awarded the contracts to
the less expensive companies.
In addition to having the lowest prices, these five contractors also had
the ability to maintain more than the 3,000 trailers they were originally
assigned. Specifically, FEMA required companies to submit bids for the MD
contracts based on the premise that they could each be assigned about
6,700 units that could have been located throughout the entire state.
Prior to awarding the contracts, FEMA determined that each of these five
companies did in fact have the technical ability to maintain at least
6,700 temporary housing units. Therefore, these five would have been
capable of collectively performing maintenance for the estimated 30,000
trailers and mobile homes in Mississippi at the time of the award.
Breakdowns in FEMA's Invoice Review Process Led to about $16 Million in Improper
or Potentially Fraudulent Payments
From June 2006 through January 2007, we estimate that FEMA made
approximately $16 million in improper or potentially fraudulent payments
to the MD contractors based on invoices that should not have been
approved, according to its own payment process. This amount includes about
$15 million in payments made for preventative maintenance--which includes
a required monthly inspection--and over $600,000 in payments for emergency
after-hours repairs. With regard to preventative maintenance, we estimate
that FEMA paid the MD contractors about $15 million even when the trailers
being inspected could not be located in FEMA's own databases, the
supporting inspection documentation required by the contract did not
exist, or the documentation showed that the contractor did not perform a
complete inspection. This $15 million includes $2.2 million identified
through a review of contractor billing records and $13 million18
identified through estimates calculated from a statistical sample. With
regard to emergency after-hours repairs, we found that FEMA spent over
$600,000 on these repairs even though the invoices should not have been
approved because the housing units do not exist in FEMA's inventory. We
could not conduct any additional tests concerning the validity of payments
FEMA made for these emergency repairs because the data we received were
incomplete.
FEMA Improperly Paid Contractors about
$15 Million for Preventative Maintenance Inspections
Because of FEMA's failure to adequately review inspection documentation
submitted by the MD contractors, we estimate that about 50 percent of the
$28.5 million in payments FEMA made for preventative maintenance were
based on improper or potentially fraudulent invoices that should not have
been approved. Specifically, based on a review of contractor billing
records, we found that FEMA spent $2.2 million for preventative
maintenance even though there was no documentation to support that the
required monthly inspections had occurred. Further, as a result of our
testing of a statistical sample of inspection documentation associated
with the remaining $26 million in payments, we estimate that FEMA spent an
additional $13 million19 based on invoices that should not have been
approved. We also confirmed allegations that contractors received payments
for monthly preventative maintenance even though their inspectors
falsified inspection documentation.
FEMA Requires Monthly Inspections and Documentation of Work Performed
According to the terms of the contract and inspection forms provided by
FEMA, MD contractors are responsible for routine repairs and for
inspecting interior and exterior unit components. These components include
the plumbing, electrical, and heating and cooling systems; panels, siding,
windows, screens, and doors; and all appliances.20 According to FEMA, MD
contractors must perform one preventative maintenance inspection per month
in order to submit a valid invoice for unit maintenance. Furthermore, as
specified by the terms of the contract, contractors must maintain records
to document that the inspection was performed. After the contract awards,
FEMA provided the contractors with a temporary housing unit inspection
sheet (see app. II). Once completed, this inspection sheet should contain
the following:
18We are 95 percent confident that the actual dollar amount is between $11
and $15 million.
19We are 95 percent confident that the actual dollar amount is between $11
and $15 million.
20Most of the housing units in FEMA's inventory were not designed or
constructed to be used continuously, as they have been for the past 2
years. As such, we support FEMA's decision to require these monthly
interior and exterior inspections to ensure that the trailers are safe and
habitable. However, when inspections are not performed or conducted only
on the exterior of the unit, the risk for health and safety problems could
increase.
o The trailer's FEMA-issued barcode (noted as "temporary housing
unit no." on the form). It should be noted that MD contractors
told us that the barcode information they received from the
original contractors was incomplete and they had trouble figuring
out which trailers they were assigned.
o A checklist of interior components inspected.
o A checklist of exterior components inspected.
o The trailer occupant's signature verifying that both interior
and exterior inspection occurred. According to our discussions
with FEMA, if a unit occupant is not home to sign the inspection
sheet (and therefore the inspector does not have access to the
interior components of the unit), the inspector is required to
make at least two additional attempts to conduct a complete
inspection. If the occupant is still not available to sign the
inspection sheet or allow access to the interior of the unit, the
inspector must note on the sheet that three attempts were made to
complete the work in order to submit a valid invoice for payment.
All of the contractors confirmed that FEMA told them to make three
attempts to inspect a unit prior to submitting an invoice for
payment, even though this requirement is not stated in the
contract.
FEMA's Reported Payment Process Requires Review of Invoices and Supporting
Documentation
As shown in figure 2, FEMA's payment process is well designed and, if
followed, provides reasonable assurance that payments are being made for
work actually performed.
Figure 2: FEMA's Reported Invoice Approval and Payment Process
As detailed in the figure, the Contracting Officer's Technical
Representative (COTR) is supposed to check the accuracy of both the
contractors' calculations and the supporting documentation associated with
a "random sample" of barcodes. If the COTR finds any errors as a result of
this sample, he or she must conduct accuracy checks on all of the invoices
submitted by the contractor for that particular line item. Prior to
submitting the invoice to FEMA's Disaster Finance Center for processing,
the COTR is to check for duplicate billings and verify that work was not
performed on trailers that had been deactivated. During the course of our
investigation, we found instances where FEMA's COTRs adhered to this
process and did not approve payments because they identified inaccurate
calculations or duplicate invoices.21 However, our review of contractor
billing records and testing of a statistical sample of inspections also
shows that FEMA paid the MD contractors even though there was insufficient
documentation that work had been performed, making it difficult to believe
that the COTRs were consistently conducting the accuracy checks specified
in figure 2.
Review of Contractor Billing Records Reveals $2.2 Million in Improper or
Potentially Fraudulent Maintenance Payments
From June 2006 through January 2007, available records indicate that FEMA
made about $28.5 million in preventative maintenance payments for over
180,000 inspections. Based on our initial analysis of billing records
related to 12,000 of these inspections, we confirmed that FEMA should not
have approved about $2.2 million in payments. Specifically, we reviewed
approximately 90 preventative maintenance invoices submitted by the MD
contractors from June 2006 through January 2007. Most of these invoices
contained approximately 1,000 to 3,000 monthly inspection billings. As a
result of this review, we identified billings for about 12,000 inspections
that did not contain any documentation to support that an inspection had
actually occurred. Despite this lack of supporting documentation, FEMA
paid the contractors for these inspections. Using the contractors' pricing
information, we determined that the payments for these 12,000 inspections
totaled approximately $2.2 million.
Statistical Sample Results Indicate about $13 Million in Improper or
Potentially Fraudulent Preventative Maintenance Payments
Based on our testing of a statistical sample of the remaining $26 million
in preventative maintenance payments, we estimate that FEMA made $13
million22 in payments even though the trailer barcode listed on the
inspection sheet did not match a barcode listed in FEMA's tracking system
or the required inspection sheet did not exist. This amount also includes
payments for incomplete inspections, i.e., when the inspection sheet did
not contain the trailer occupant's signature to document that an interior
and exterior inspection had been performed or the sheet showed no
indication that the contractor had made three attempts to perform a
complete inspection. We analyzed a statistical sample of 250 from a
population of about 170,000 inspections submitted by the MD contractors
and paid for by FEMA from June 2006 through January 2007. Table 3 shows
the results of our sample.23
21In contrast, we also found some instances where the COTRs approved
payments for duplicate invoices and for work done on deactivated trailers,
although we did not conduct any further investigations as to the magnitude
of such payments.
22We are 95 percent confident that the actual dollar amount is between $11
and $15 million.
Table 3: Results of Statistical Sample of Paid Preventative Maintenance
Inspections
Total paid inspections selected in sample 250
Total inspection sheets meeting criteria 120
Total improper or potentially fraudulent inspections 130
Travel trailer or mobile home not found in FEMA's database 20
Inspection sheet did not exist 43
Inspection sheet did not contain occupant signature or notation that 67
three inspection attempts had been made
Source: GAO analysis of FEMA data.
Cases Provide Additional Examples of Improper or Potentially Fraudulent
Inspections
Even if payments were supported by proper inspection documentation, we
found indications that the paid-for inspections were not always performed.
As shown by the following three cases, we confirmed allegations that
inspectors performed impossibly large numbers of inspections in 1 day or
otherwise falsified maintenance inspection documentation. We have referred
all three of these matters to the Department of Justice and the DHS IG for
further investigation and we have notified the Katrina Fraud Task Force
about our findings.
Case 1: We confirmed that inspectors for one contractor billed and were
paid for excessive numbers of inspections that supposedly took place
during the course of 1 work day. As previously stated, MD contractors are
responsible for interior and exterior unit inspections. These inspections
include checking the plumbing, electrical, and heating and cooling
systems; panels, siding, windows, screens, and doors; and all appliances.
According to several contractors we interviewed, the number of inspections
that an inspector can reasonably complete during the course of 1 day is
about 25---approximately 1 every 20 minutes during an 8-hour work day.
This number assumes that the units are in good condition, located fairly
close together, and that the inspector does not have to make any repairs
or experience any other delays related to occupant issues. However, we
identified numerous cases where individual inspectors billed for around 50
inspections during the course of 1 day. In order to complete 50
inspections during an 8 hour work day, these inspectors would have had to
perform one inspection every 10 minutes, without factoring in driving
time, meals, or restroom breaks. In another case, an inspector claimed to
have conducted 80 inspections in 1 day, or the equivalent of 1 inspection
every 6 minutes. When we interviewed the contractor, he acknowledged that
that were "many problems" with the subcontractor who performed these
excessive inspections and he also stated that he fired this subcontractor.
At the time of our interview, this contractor had not returned to FEMA any
of the payments he received for these inspections.
23Consistent with the findings issued in our December 2006 testimony, we
also discovered that FEMA potentially made improper rental assistance
payments to some of the residents of the trailers that were part of our
statistical sample. Specifically, the Stafford Act prohibits FEMA from
providing rental assistance payments under IHP if temporary housing has
been provided by any other source. However, we found that FEMA approved
payments for rental assistance to 31 households after they had already
moved into the trailers. We found an additional 11 households who did not
return excess rental assistance to FEMA before moving into a trailer. The
improper payments associated with these 42 occupants totals $54,608. See
GAO, Hurricanes Katrina and Rita Disaster Relief: Continued Findings of
Fraud, Waste, and Abuse, [30]GAO-07-252T (Washington, D.C.: Dec. 6, 2007).
Case 2: Another MD contractor's inspectors falsified inspection reports by
signing for work they had not completed. Three inspectors employed by this
contractor told our investigators that their supervisor asked them to fill
out or sign blank inspection forms. According to the inspectors, their
supervisor told them that the inspections had actually been performed, but
that the paperwork documenting the inspections needed to be redone.
However, the inspectors told our investigators that they had not performed
the work on any of the inspections. When we spoke with the attorney
representing the contractor about these claims, he stated that there were
about 30 trailers that were inspected but no documentation had been filled
out at the time of the inspection. He then admitted that some inspectors
had been asked to recreate this documentation. During the course of our
interview with the attorney, he also claimed that FEMA instructed his
client to bill for the number of trailers that they had been assigned,
regardless of whether an inspection had been performed. None of the other
contractors stated that they billed for units assigned instead of work
performed. When we asked the contracting officer in charge of the
Mississippi MDs about this issue, she told us that a contractor must
perform at least one preventative inspection per month on each trailer
that it has been assigned in order to submit a valid bill for preventative
maintenance.
Case 3: An inspector employed by a different MD contractor told our
investigators that she left the company after finding several maintenance
inspections that had her name signed to them by another employee. The
inspector provided our investigators with three inspection sheets that she
insisted she did not sign. When our investigators confronted the
supervisor with these allegations, she admitted that she had forged the
inspection sheets.
FEMA Improperly Paid Contractors over $600,000 for After-Hours Emergency Repairs
Although we initially intended to test the $2.2 million in payments FEMA
made for after-hours emergency repairs, we could not conduct this work
because the data we received concerning these calls did not contain
complete information. However, we were able to determine that FEMA spent
over $600,000 for emergency repairs even though the invoices for these
repairs should not have been approved because the housing units do not
exist in FEMA's databases.
FEMA's records show that it paid for 12,045 after-hours emergency calls on
7,310 housing units from June 2006 to January 2007, for a total of $2.2
million in emergency repair payments. As part of our work, we attempted to
test whether these payments were made for valid emergencies. To qualify as
an emergency during the period of our review, a call had to have been
received by FEMA's call center between 5:00 p.m. and 8:00 a.m. Monday
through Friday or on weekends. 24 In addition, according to the FEMA call
center instructions, emergency maintenance involves, but is not limited
to, requests to repair gas leaks, major water leaks, sewage leaks, major
electrical malfunctions, lack of heat when the outside temperature is
under 50 degrees, or lack or air conditioning when the outside temperature
is over 85 degrees. The call center was supposed to document relevant
requests, verify the emergency, and then forward the request to the MD
contractor responsible for the unit. However, when we reviewed the call
center data, we found that the records related to emergency calls were not
complete and therefore we could not determine whether the contractors
submitted billings for valid emergency calls or whether FEMA made payments
for calls that met its emergency criteria. Specifically, FEMA's database
did not identify
o the time and date the call was received. Although FEMA's call
center received 46,000 emergency calls from June 2006 through
January 2007, over 21,000 of these call records lacked a time
designation. Therefore, we could not ascertain whether calls
should have been billed and paid for as emergency repairs.
o which contractor was assigned the call and which calls resulted
in billable services. Although FEMA's call center received 46,000
emergency calls, data we received from the contractors show that
they only billed FEMA for about 12, 045 emergency repairs.
Therefore, although we have FEMA's records on calls received and
payments made, we cannot reconcile this payment information with
the contractors' invoices.
24FEMA subsequently eliminated this time requirement.
Despite these discrepancies, we were able to determine that FEMA spent
over $600,000 for emergency after-hours repairs on units that cannot be
found in FEMA's inventory. As previously stated, FEMA paid for 12,045
after-hours emergency calls on 7,310 housing units from June 2006 through
January 2007. When we compared the unit barcodes associated with these
7,310 units with the barcodes listed in FEMA's main database for tracking
the assignment and location of mobile homes and trailers, we were unable
to identify records for 1,732 of the 7,310 units. Records show that FEMA
made 2,780 improper or potentially fraudulent emergency repair payments
related to these 1,732 trailers. Using the contractors pricing
information, we calculated that these 2,780 payments totaled over
$600,000.
Case Studies Illustrate Excessive Costs at Group and Commercial Sites
Our four case studies show that FEMA's placement of travel trailers at
group and commercial sites can lead to excessive costs. FEMA placed the
temporary housing units on private properties to shelter individuals who
were rebuilding their homes; at FEMA-constructed group sites at leased
locations, such as stadium grounds and school fields; and at preexisting
commercial sites (e.g., trailer parks). With regard to the private sites,
FEMA only has to pay for installation, maintenance, and deactivation; the
trailer can be hooked up to the property's existing utilities, so no
trailer pad is required. With regard to the group sites, FEMA
understandably has had to pay extra for site construction and maintenance,
security, leases, and utilities. However, our case studies show that these
expenses are exacerbated by the fact that FEMA did not allocate work at
the sites in a cost-effective manner and has not reevaluated this
allocation since the sites were established. With regard to the commercial
sites, FEMA has not incurred the same operational expenses that it has at
the group sites because FEMA did not have to pay for pad construction and
design and does not have to pay the GSM contractors for site maintenance.
However, we found that FEMA's mismanagement of the commercial site we
investigated has lead to substantial waste.
The majority of FEMA housing units in Mississippi are located on private
properties where individuals are rebuilding their homes. According to
FEMA, almost 14,000 of the 17,608 units currently in Mississippi are
located on private sites, while the remainder are located at group or
commercial sites. We estimate that, on average, FEMA will spend
approximately $30,000 for the life cycle of a trailer placed at one of
these private sites. As shown in figure 3, FEMA paid about $14,000 to
purchase each 280 square foot trailer and $12,000 to haul the trailer to
the site and install it, and will spend an additional $4,000 to maintain a
private site trailer through the March 2009 temporary housing occupancy
extension. Our estimate is likely understated because we did not have
access to the trailer maintenance and group site maintenance payments made
to the original four contractors. We also could not calculate MD phase-in
costs, nor could we project deactivation expenses because it is not
certain which of the current MD contractors will be responsible for
deactivating the trailers in 2009.
Figure 3: Estimated Costs for a Trailer at a Private Site through March
2009
In contrast, as shown in table 4 and the subsequent figures, FEMA could
spend from about $69,000 to $229,000 for trailers at the three group sites
we investigated, when factoring in all known expenses, including costs
incurred by the original four contractors for site design and construction
and unit installation. Part of the reason for these extreme expenses is
that FEMA failed to efficiently allocate work at the sites. For example,
FEMA wasted about $800,000 by inefficiently allocating trailers and pads
and also could not explain why it spent over $204,000 per year to lease
one group site when most of the other parks only cost about $30,000 per
year to lease.
However, because data provided by FEMA contained numerous discrepancies,
we could not account for all the expenses incurred at these sites. In
particular, although we were able to determine the number of trailer pads
at each site, FEMA could not provide us with an accurate trailer count.
For purposes of our analysis, we assumed that the parks were operating
with a trailer on each available pad. We also did not have accurate
information about utility payments FEMA made for these specific sites and
the trailers. As with the trailers at the private sites, our estimate is
likely understated because we did not have access to the trailer and site
maintenance payments made to the original four contractors and because we
could not calculate MD phase-in and deactivation expenses. In addition, we
do not know how much it will cost to return the group sites to their
original condition, as required by the terms of the group site leases.
Table 4: Estimated Trailer Costs at Three Case Study Group Sites in
Mississippi through March 2009
Projected cost
per trailer
Number of through March
Site pads 2009 Case details
Port of Bienville 8 $229,000 Costs almost $72,000 per year
Industrial Park per trailer for GSM services
FEMA could have saved over
$576,000 by placing trailer
pads at a different location
Sunset Ingalls 102 $83,000 Classified as a large park
Park even though it is just two
pads over the medium park
limit
FEMA could have saved $260,000
by having two fewer pads
Ellzey Parcel 170 $69,000 FEMA pays $204,000 per year
for site lease
Source: GAO analysis of FEMA data.
Port of Bienville Industrial Park in Hancock County: Figure 4 shows the
breakdown of expenses per trailer at this park through March 2009.
Figure 4: Estimated Life-cycle Trailer Costs at Bienville through March
2009
o Because there are only eight pads at Bienville, FEMA will spend
about $229,000 for each trailer at the park through the March 2009
occupancy extension. Group site maintenance costs are dependent on
the size of the site--"small" sites contain 50 trailer pads or
less. In other words, FEMA wastes money by operating sites with
very few pads because the GSM costs will be the same if a park has
1 trailer pad or 50. In this case, FEMA spends over $576,000 per
year--$72,000 per trailer--for site maintenance. To save on this
expense, FEMA could have assigned this park to the GSM contractor
with the lowest bid price to service a small park. This contractor
would only have charged FEMA about $76,000 per year to service
Bienville--$9,500 per trailer. When we asked FEMA officials about
the distribution of work at the sites, they told us that they
"grasped" what pads they could get in the aftermath of the storm.
FEMA did not indicate that it has reevaluated the distribution of
work at the sites since that time.
Sunset Ingalls Park in Jackson County: Figure 5 shows the breakdown of
expenses per trailer at this park through March 2009.
Figure 5: Estimated Life-cycle Trailer Costs at Sunset Ingalls through
March 2009
o Sunset Ingalls has 102 trailer pads and is therefore classified
as a large park (101 to 300 pads) for GSM purposes. FEMA pays the
GSM contractor about $500,000 per year for maintenance at a large
park, as opposed to $244,000 to service a medium sized park with
100 pads or less. Therefore, the additional two pads increase the
GSM costs for this park by almost $260,000 per year. To save on
this yearly cost, FEMA could have originally placed these two pads
at another site with available space---there are five group sites
and one commercial site located near Sunset Ingalls. When we asked
FEMA officials about the distribution of work at the sites, they
told us that they "grasped" what pads they could get in the
aftermath of the storm. FEMA did not indicate that it has
reevaluated the distribution of work at the sites since that time.
Ellzey Parcel in Harrison County: Figure 6 shows the breakdown of expenses
per trailer at this park through March 2009.
Figure 6: Estimated Trailer Costs at Ellzey Parcel through March 2009
o FEMA pays the landowner $17,000 per month, or $204,000 annually,
to lease the property for this large group site, which contains
170 trailer pads. This lease amount is significantly higher than
at the other 38 group sites, which typically range in cost from
$250 to $7,500 per month.25 We asked FEMA why they were spending
so much to lease this property in comparison to the other sites,
they told us that did not evaluate costs associated with group
site leasing because the General Services Administration (GSA) set
up the leases. When we asked representatives from GSA about the
Ellzey lease, they told us that $204,000 per year was a reasonable
price because the site was located on industrial property, but
they could not tell us if a less expensive option was considered.
With regard to the commercial sites, table 5 shows the estimated
cost per trailer at one commercial park in Mississippi. FEMA could
have saved $1.5 million at this site if it had exercised an option
to reassign or contract separately for septic cleaning services.
25Only one other site has a lease costing over $7,500 per month.
Table 5: Estimated Trailer Costs at Commercial Site in Mississippi through
March 2009
Number of Projected cost
Site trailers per trailer Case details
McLeod Water 61 $126,000 Contractor made $1.5 million per
Park year profit by subcontracting
septic services
FEMA could have used cheaper
sources to complete septic work
Source: GAO.
McLeod Water Park in Hancock County: Figure 7 shows the breakdown of
expenses per trailer at this park through March 2009.
Figure 7: Estimated Life-cycle Trailer Costs at McLeod through March 2009
o The MD contractor at this park charged FEMA $245 per septic
service, or more than 500 percent of what FEMA could have paid, to
provide septic cleanings to the approximately 61 trailers at the
park. In total, FEMA paid the contractor about $1.8 million for
this service because the cleanings were provided 3 times per week
per trailer over the course of a year. However, this contractor
made a profit of almost $1.5 million on these cleanings because it
paid a subcontractor just $45 per cleaning to actually perform the
work. FEMA could have saved this $1.5 million by awarding a
separate contract for the septic cleaning services with the less
expensive subcontractor; the septic bladder line item specifies
that "FEMA reserves the right to use other sources to complete the
work." However, FEMA did not exercise this option. When we asked
the MD contractor about this high profit margin, he said that
officials from FEMA were aware of the situation but told him they
"did not care about the profit margin."
According to an August 2007 report, FEMA's current "exit strategy" for
residents at the group and commercial sites involves partnering with the
Department of Housing and Urban Development (HUD) to assist in locating
rental properties for applicants through HUD's National Housing Locator
System (NHLS). In addition, Congress has provided $400 million for the
Alternative Housing Pilot Program (AHPP) to develop and evaluate
alternatives to travel trailers and mobile homes.26 However, it is still
uncertain what will happen to those residents who continue to need housing
assistance beyond the March 2009 trailer and mobile home occupancy
extension.
Evidence of Improper Activity Related to Contract Award Process
During the course of our work on the MD and GSM contracts, we found that
FEMA awarded GSM contracts to two companies that did not appear to have
submitted independent bids and also made false statements on proposals
submitted to FEMA. We also found that a FEMA contracting officer may have
improperly awarded the UFAS contract to make the housing units accessible
to individuals with disabilities, resulting in $3 million in unnecessary
expenses. We have referred both of these matters to the Department of
Justice and the DHS IG for further investigation and we have notified the
Katrina Fraud Task Force about our findings.
FEMA Awarded GSM Contracts to Companies That May Not Have Bid Independently
FEMA awarded GSM contracts to two companies that did not appear to have
submitted independent bids and that also made false statements on
proposals submitted to FEMA. As previously discussed, FEMA awarded five
GSM contracts in Mississippi. In reality, FEMA awarded one business two
contracts: one contract as a "single entity" and one as part of a "joint
venture" with another firm. Although making this type of award is not
prohibited, the circumstances surrounding this case merit further
investigation. Specifically, both the "single entity" and the "joint
venture" are required to adhere to the Certificate of Independent Price
Determination, as set forth in the contract solicitation. By signing the
certificate, each bidder affirms that it has arrived at its price
independently and has not disclosed its bid to competitors.27 Despite the
fact that the single entity and the joint venture both signed this
certification, our evidence shows that the companies may not have been
truly independent, as might be expected given their common employees and
business relationships.28 We also found that key personnel at both
companies admitted to misrepresenting their job titles and functions in
final offers submitted to FEMA, a potential violation of the False
Statements Act, 18 U.S.C. S1001. Details of the case follow:
26FEMA states that it awarded $275 million to Mississippi for alternative
housing---the Park Model and Mississippi Cottage project. According to
FEMA, Mississippi has started installing these units and moving families
into the new housing alternatives.
o Both proposals contained identical language. We found that both
companies hired the same individual to prepare their proposals.
This individual admitted that he "cut and pasted" language between
the two submissions and also that he provided the single entity a
copy of the joint venture's bids prior to the submissions to FEMA.
In addition, the joint venture's chief operating officer admitted
that he discussed the joint venture's bids with the president of
the single entity prior to submission.
o The single entity and the joint venture submitted line items
bids that were frequently identical or within a few hundred
dollars.
o In their initial proposals, the single entity and the joint
venture provided organizational charts with nearly identical
personnel. For example, both companies had the same president,
executive vice president, and accountant. After FEMA received the
initial proposals, the contracting officer told both companies
that he was concerned with the overlapping personnel and the
similar pricing in the submissions. In their best and final
offers, the companies submitted new organizational charts on which
the president and executive vice president roles were now filled
by different people. However, the president of the single entity
admitted that she was president of both companies, despite being
removed from the joint venture's initial organizational chart. In
addition, the individual listed as "operations manager" for the
single entity admitted that he does not really act in that
capacity and then remarked to our investigator that, with regard
to the new organizational structure, "it's obvious that we just
reshuffled the deck."
o The contracting officer stated that the submission of the new
organizational charts in the best and final offers submitted by
the companies allayed his concerns about whether the companies
were operating independently. He also indicated that it is not
FEMA's job to "police" whether organizational charts are accurate
or to investigate whether companies adhered to the certificate of
independent price determination.
o In response to our referral, Justice has decided to open an
investigation of this matter.
27Specifically, the certificate requires each bidder to affirm that "it
has arrived at its price independently, has not disclosed its price to
other competitors before bid opening, and has not attempted to induce
another concern either to submit or not submit a bid for the purpose of
restricting competition."
28 The determination regarding whether the businesses submitted their
offers for purposes of restricting competition is a matter within the
purview of the Department of Justice, Antitrust Division.
FEMA's Potentially Improper Award of UFAS Contract Results in
$3 Million of Unnecessary Expenses
We found that one of FEMA's contracting officers may have improperly
awarded the UFAS contract to lay asphalt to make the travel trailers
accessible to individuals with disabilities, leading to over $3 million in
unnecessary expenses. FEMA was required to make the trailers accessible as
part of a September 2006 settlement agreement stemming from a lawsuit
brought by disabled trailer occupants. Unlike the MD and GSM contracts,
the FEMA contract officer set aside this UFAS contract for sole-source
negotiation with a local 8(a) firm. At the time of the UFAS award process,
8(a) contracts could be awarded without competition if the anticipated
total value of the contract was less than $3 million.29 According the
Federal Acquisition Regulations (FAR), an 8(a) contract may not be awarded
if the cost to the agency exceeds a fair market price. Further, the FAR
provides that prior to making sole-source 8(a) awards, a contracting
officer must estimate and justify the fair market value of the contract,
using cost analyses or other available data. The FAR also states that the
appearance of conflicts of interest in government-contractor relationships
should be avoided. Given these criteria, the contracting officer may have
improperly awarded the contract, costing taxpayers over $3 million in
unnecessary expenses.
o The government estimate to complete the UFAS asphalt work for
about 150 trailers was $2.99 million, just under the $3 million
threshold for awarding 8(a) contracts noncompetitively. In
response to our request for additional information, FEMA said that
it was not able locate any documentation to support how this
estimate was derived. Therefore, we asked GAO engineers with over
30 years experience to estimate the costs associated with laying
asphalt at the sites. Although they did not visit these sites, the
engineers used the information available from the contractor's
price proposals, to estimate that, in the Biloxi, Mississippi,
region, this work should have only cost about $800,000.30
o The company's initial bid, submitted on October 4, 2006, was
around $3.2 million, just over the 8(a) competitive threshold and
four times the expert estimate of what the work should have cost.
FEMA awarded the contract the very same day for $2.9 million; it
appears that the contracting officer deleted 4 of the 33 bid items
in order to keep the award amount under $3 million. Then, on
November 1, 2006, less than a month after the award, the
contracting officer modified the contract to add back one of the
dropped line items and to increase the total award by almost
$750,000, 25 percent of the total value. Two more modifications
followed, on December 21, 2006, and January 31, 2007. The total
value of the contract ultimately reached just over $4 million,
five times the expert estimate to perform the work. Figure 9 shows
the timeline for the initial award and subsequent modifications.
29Shortly around the time of the contract award, this threshold was raised
to $3.5 million. FAR 19.805-1(a)(2).
30The GAO engineers provided an order of magnitude estimate based on RS
Means--a widely used guide for estimating construction costs--and the
limited scope of work that was available from the contractor's proposals.
This order of magnitude estimate showed there was a significant difference
(approximately 400 percent) between our estimate of what the work should
have cost and the contractor's proposed price of $3.2 million.
Figure 8: Timeline of UFAS Award and Subsequent Modifications
o Several sources told our investigators that the UFAS contracting
officer had a long-term friendship with the subcontractor used by
the company that received the contract. Our investigators
attempted to ask the contracting officer about the preparation of
the government estimate, the award and subsequent contract
modifications, and her relationship to the subcontractor, but she
refused to speak with them.
Conclusion
Due to the unprecedented nature of the disasters resulting from
the 2005 gulf coast hurricanes, it was understandable that FEMA
did not immediately have effective systems in place to efficiently
allocate work or to track the invoices submitted by the
contractors for maintaining thousands of mobile homes and travel
trailers. However, over 2 years have passed since the storms and
FEMA is still wasting tens of millions of taxpayer dollars as a
result of poor management and ineffective controls. It is critical
that FEMA address weaknesses in its task order issuance and
invoice review processes so that it can reduce the risk for
wasteful and potentially fraudulent expenses and provide assurance
that the government is getting what it pays for. Finally, while
the placement of travel trailers at group and commercial sites
might be necessary in the immediate aftermath of a disaster, going
forward, FEMA needs to minimize the expenses associated with this
type of temporary housing and to develop strategies to transition
disaster victims into more permanent housing.
Recommendations for Executive Action
We recommend that the Secretary of Homeland Security direct the
Director of FEMA to take the following six actions. With regard to
the 10 MD and 5 GSM contracts in Mississippi that we investigated
for this report, FEMA should assess whether the contractors were
overpaid and, if so, establish procedures to collect overpayments
or offset future payments.
For the current MD and GSM contracts in Mississippi and for any
temporary housing unit contracts arising from future disasters,
FEMA should
o place a greater emphasis on issuing task orders to
the companies with the capability to perform the most
work at the lowest cost.
o conduct a complete inventory of mobile homes and
trailers, create a comprehensive database, and
establish procedures to link work assigned to the
contractors with specific unit barcodes to provide
reasonable assurance that work is being performed on
FEMA-owned housing units.
o design and implement internal control procedures to
enforce the existing payment and invoice review
process to provide reasonable assurance that payments
are being made for work actually performed.
To alleviate the excessive costs associated with maintaining
travel trailers at group and commercial sites, FEMA should
reevaluate the allocation of trailers and work at the sites to
determine whether any savings can be achieved and explore creating
permanent partnerships with other agencies, such as the current
partnership with the Department of Housing and Urban Development,
to determine whether there are less expensive housing options that
meet the needs of disaster victims.
As previously indicated, we have referred all the alleged criminal
matters identified in our report to the Department of Justice and
the DHS IG for further investigation and we have notified the
Katrina Fraud Task Force about our findings. For these cases, FEMA
should consider the suspension or debarment of any contractor
found to have committed fraud or otherwise violated the law.
Agency Comments and Our Evaluation
FEMA provided written comments on a draft of this report in which
it concurred with all six of our recommendations and outlined
actions it has taken that are designed to address each of these
recommendations. As part of its response, FEMA also provided
background of the events leading up to the award of the MD and GSM
contracts and detailed some of the overall improvements the agency
stated it has made since Hurricane Katrina. These comments are
reprinted in appendix III.
Concerning our recommendation to collect overpayments from the
contractors, FEMA stated that it intends to assess whether it made
overpayments and, if so, plans to assert claims against the
contractors for the appropriate amount. In response to our
recommendation to issue task orders to companies at the lowest
cost, FEMA stated that has reallocated work under the GSM
contracts on a "low price basis per site" and under the MD
contracts on a "best value basis." In response to our
recommendation to inventory mobile homes and trailers, create a
database, and link work assigned to the contractors with specific
unit barcodes, FEMA states that it began an invoice-matching
project in March 2007 and is in the process of completing an
inventory count to ensure that all the temporary housing units at
the sites are recorded in the agency's existing management system.
Concerning our recommendation that FEMA enforce the existing
payment and invoice review process, FEMA states that it has
established an Acquisition Program Management Office (PMO) that is
in charge of enforcing the process. In addition, FEMA notes that
the PMO has developed guidance and training on what constitutes
proper invoice documentation and has also obtained the services of
a contractor to automate the payment process to provide automatic
calculation checks and line item tracking. FEMA states that it is
also implementing a COTR training program and initiatives aimed at
converting from paper to electronic files, developing a COTR
program policy, and creating a comprehensive database of COTR
information. With regard to our recommendation to evaluate the
allocation of trailers and work at the groups sites in order to
achieve savings, FEMA states that it is working to close and
consolidate the sites and that it has reallocated work under both
the GSM and MD contracts.
Finally, concerning our recommendation that FEMA create permanent
partnerships with other agencies to determine whether there are
less expensive options that meet the needs of disaster victims,
FEMA states that it has established a task force called the Joint
Housing Solutions Group to evaluate other methods of housing
disaster victims. In addition, as indicated in our report, FEMA
states that it has implemented the Alternative Housing Pilot
Program and has also entered into an interagency agreement with
HUD establishing a temporary housing rental assistance and case
management program for individuals displaced by the hurricanes.
According to FEMA, the program will be administered though HUD and
will include a needs assessment and individual development plan
for each family.
We are sending copies of this report to the Secretary of Homeland
Security and the Director of Federal Emergency Management Agency.
We will make copies available to others upon request. In addition,
the report will be available at no charge on the GAO Web site at
[31]http://www.gao.gov.
Please contact me at (202) 512-6722 or [32][email protected] if you
have any questions concerning this report. Contact points for our
Offices of Congressional Relations and Public Affairs may be found
on the last page of this testimony. Key contributors are listed in
appendix IV.
Gregory D. Kutz
Managing Director
Forensic Audits and Special Investigations
Appendix I: Objectives, Scope, and Methodology
The objective of our investigation was to determine whether there
were indications of fraud, waste, and abuse related to Federal
Emergency Management Agency (FEMA) oversight of the 10 MD and 5
GSM contracts in Mississippi. We focused our efforts on
investigating (1) FEMA's issuance of task orders to the MD
contractors and (2) FEMA's invoice review process. We also
prepared case studies to determine the costs associated with the
placement of travel trailers at group sites and investigated
allegations of criminal and improper activity related to the
contracts.
To investigate FEMA's issuance of task orders to the MD
contractors, we assessed whether the agency issued the task orders
in a cost-effective manner. We analyzed the costs associated with
the five most expensive contract line items. We analyzed MD
contractor invoices and FEMA receiving reports from June 2006
through January 2007 to find the total number of units paid for by
FEMA. For each of the 10 contractors, we totaled the number of
units paid for by FEMA for the preventative maintenance, phase in,
deactivation, septic bladder pumping, and emergency after-hours
repairs contract line items. We then totaled the number of units
and amount paid to all contractors for all listed contract line
items. To determine the five least expensive contractors, we
divided the total number of units for each line item by five, and
then multiplied that total by each contractor's line item cost. By
adding up the cost of all line items for each contractor, we were
able to determine the five least expensive contractors. Using
these five contractors, we determined what the total cost for each
line item would have been if FEMA had awarded these five the MD
task orders. We then compared the new cost to the original FEMA
payments to figure potential savings for the line items.
To investigate FEMA's invoice review process, we reviewed invoices
and backup documentation associated with the $28.5 million in
payments FEMA made for monthly preventative maintenance and the
$2.2 million in payments FEMA made for emergency after-hours
repairs. With regard to monthly preventative maintenance, we
initially reviewed approximately 90 preventative maintenance
invoices submitted by the MD contractors from June 2006 through
January 2007. Each of these invoices contained approximately 1,000
to 3,000 monthly inspection billings. As a result of this review,
we identified billings for 12,000 inspections, totaling $2.2
million, that did not contain any documentation to support that an
inspection had actually occurred.
To provide an estimate of improper or potentially fraudulent
payments related to the remaining $26 million in preventative
maintenance payments FEMA made to the MD contractors, we drew a
statistical sample of 250 units that were paid for by FEMA as
receiving a preventative maintenance inspection. We constructed
the population of preventative maintenance inspections using
contractor back-up invoice documentation and monthly contract
status reports as well as FEMA receiving reports confirming FEMA
payments for unit maintenance from June 2006 through January 2007.
We acquired preventative maintenance inspection forms from the MD
contractors and FEMA. Improper or potentially fraudulent payments
for unit maintenance include cases where the payment was made (1)
for preventative maintenance inspections on units not identified
in FEMA's database, (2) based on preventative maintenance
inspection forms that did not exist, and (3) based on inspection
forms that did not contain an occupant's signature denoting a full
inspection occurred or that three attempts to conduct an
inspection were made. To assess the reliability of the preventive
maintenance inspections documentation from June 2006 through
January 2007, we (1) reviewed existing documentation related to
the data sources and (2) examined the data to identify obvious
problems with completeness, accuracy, or duplicates. We determined
that the data were sufficiently reliable for the statistical
sample. Because we followed a probability procedure based on
random selections, our sample is only one of a large number of
samples that we might have drawn. Since each sample could have
provided different estimates, we express our confidence in the
precision of our particular sample's results as a 95 percent
confidence interval (e.g., plus or minus 5 percentage points).
This is the interval that would contain the actual population
value for 95 percent of the samples we could have drawn. As a
result, we are 95 percent confident that each of the confidence
intervals in this report will include the true values in the study
population.
With regard to emergency after-hours calls, we could not test the
$2.2 million in payments FEMA made because the data we received
concerning these calls did not contain complete information. To
determine whether FEMA made emergency after-hours repair payments
for units that do not exist in its inventory records, we compared
the barcodes on the 7,310 housing units that received emergency
repairs from June 2006 to January 2007 with the barcodes listed in
FEMA's main database for tracking the assignment and location of
mobile homes and trailers. We were unable to identify records for
1,732 of these 7,310 units. Using FEMA's payment records, we then
determined that FEMA made 2,780 improper or potentially fraudulent
emergency repair payments related to these 1,732 trailers.
To prepare case studies, we calculated the expenses associated
with a nonrepresentative selection of three group sites and one
commercial site in Mississippi. We used cost information issued by
FEMA to calculate expenses associated with trailer purchase, site
design and construction, and trailer installation. To identify the
specific trailer barcodes located at each case study site, we
searched several databases provided by FEMA, as well as data
provided by the contractors for park address or occupant name
matches. Because FEMA could not provide us with a definitive
number of trailers at each site, for purposes of our analysis, we
assumed a best case scenario for FEMA: that the parks were
operating with a trailer on each available pad. Using the list of
trailer barcodes we identified, we analyzed the invoices submitted
by the MDC contractor responsible for each site, and the
accompanying FEMA receiving reports to determine the number and
type of services performed on each trailer and paid for by FEMA.
The charges cover the period of June 2006 through January or
February 2007, depending upon each contractor's available data. We
also added in the following costs as provided by FEMA: group site
contractor costs for each site, including a portion of their
phase-in cost, and monthly security costs and monthly lease costs,
if applicable. The one-time and recurring costs were combined for
each park, resulting in a total cost for each park. To provide a
general lifecycle cost for a FEMA trailer, we estimated these
totals through March 2009, which is the date FEMA stated the
travel trailer rental assistance program will end. To determine
the general costs for a FEMA trailer located on a private site, we
identified trailers noted as "private" in the FEMA databases, and
selected the first three for each MDC contractor. We then searched
the contractor invoices, covering the period of June 2006 through
January 2007 and recorded and totaled the charges for each
barcode. The resulting totals were projected for 1 year, and used
as an estimate of the annual costs for maintaining a trailer on a
private site. We also projected the costs for these trailers
through March 2009.
Our estimates are likely understated because did not have access
to trailer maintenance and group site maintenance payments made to
the original four contractors. We also could not calculate MD
phase-in costs, nor could we calculate deactivation expenses
because it is not certain which of the current MD contractors will
be responsible for deactivating the trailers in 2009. In addition,
we do not know how much it will cost to return the group sites to
their original condition, as required by the terms of the group
site lease. Results from nonprobability samples (case studies)
cannot be used to make inferences about a population, because in a
nonprobability sample, some elements of the population have no
chance or an unknown chance of being selected as part of the
sample. Our findings cannot be generalized to all sites, but when
coupled with our other results they do provide useful insight into
FEMA's expenses.
Finally, our interviews with FEMA officials, contractor personnel,
and confidential informants led us to identify improper activity
associated with the contract award process. To further investigate
this activity, we reviewed and compared the contract proposals,
total bid prices, line item bids, and government estimates for
work. It is important to note that we did not conduct a
comprehensive evaluation of whether FEMA adhered to its own
solicitation requirements and other laws or regulations when
awarding the 10 MD or 5 group site maintenance contracts.
We conducted our work from October 2006 through July 2007. We
conducted our investigative work in accordance with the standards
prescribed by the Presidents Council on Integrity and Efficiency
and conducted our audit work in accordance with generally accepted
government auditing standards.
Appendix II: FEMA Preventative Maintenance Inspection Sheet
Appendix III: Comments from FEMA
Appendix IV: GAO Contact and Staff Acknowledgments
GAO Contact
Gregory D. Kutz, (202) 512-6722 or [33][email protected]
Staff Acknowledgments
In addition to the individual named above, the following made key
contributions to this report: Gary Bianchi, Bruce Causseaux,
Jennifer Costello, Randy Cole, George Depaoli, Terrell Dorn, Craig
Fischer, Janice Friedeborn, Matthew Harris, Adam Hatton, Brad
James, Jason Kelly, John Kelly, Barbara Lewis, James Madar, Megan
Maisel, Lisa Mirel, John Ryan, Barry Shillito, Nathaniel Taylor,
and Quan Thai.
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Highlights of [41]GAO-08-106 , a report to the Committee on Homeland
Security and Governmental Affairs, U.S. Senate
November 2007
HURRICANE KATRINA
Ineffective FEMA Oversight of Housing Maintenance Contracts in Mississippi
Resulted in Millions of Dollars of Waste and Potential Fraud
Hurricane Katrina destroyed or damaged 134,000 homes and 10,000 rental
units in Mississippi alone. The Federal Emergency Management Agency (FEMA)
in part responded by providing displaced individuals with temporary
housing in the form of mobile homes and travel trailers, placed on both
private property and at FEMA-constructed group sites. In 2006, FEMA
awarded 10 contracts in Mississippi to maintain and deactivate (MD) the
housing units and 5 for group site maintenance (GSM). GAO was asked to
investigate whether there were indications of fraud, waste, and abuse
related to FEMA's oversight of these 15 contracts. GAO analyzed FEMA's
issuance of task orders, tested a representative sample of monthly
maintenance inspections payments, prepared case studies detailing the
costs related to trailers placed at group sites, and investigated improper
activity related to the contracts.
[42]What GAO Recommends
FEMA should take six actions to improve the oversight of the contracts,
including placing a greater emphasis on issuing task orders to the
companies with the lowest costs, designing controls to test invoices, and
reevaluating the allocation of work at the group sites. GAO has also
referred all criminal matters identified to the Department of Justice for
further investigation. FEMA concurred with all six recommendations and
stated it had taken actions to address them.
FEMA's ineffective oversight resulted in an estimated $30 million in
wasteful and improper or potentially fraudulent payments to the MD
contractors from June 2006 through January 2007 and likely led to millions
more in unnecessary spending beyond this period. For example, FEMA wasted
as much as $16 million because it did not issue task orders to the
contractors with the lowest prices. In addition, GAO estimates that FEMA
paid the contractors almost $16 million because it approved improper or
potentially fraudulent invoices. This amount includes about $15 million
spent on maintenance inspections even though there was no evidence that
inspections occurred and about $600,000 for emergency repairs on housing
units that do not exist in FEMA's inventory.
Furthermore, FEMA's placement of trailers at group sites is leading to
excessive costs. As shown below, FEMA will spend on average about $30,000
on each 280 square foot trailer at a private site through March 2009, the
date when FEMA plans to end temporary housing occupancy. In contrast,
expenses for just one trailer at the Port of Bienville Park case study
site could escalate to about $229,000---the same as the cost of a five
bedroom, 2,000 square foot home in Jackson, Mississippi.
Comparison of Projected Trailer Costs at Private and Group Sites
Part of the reason for this expense is that FEMA placed only eight
trailers at the Bienville site. FEMA wastes money when it operates sites
with such a small number of trailers because GSM costs are fixed whether a
site contains 1 or 50 trailer pads. At Bienville, FEMA spends over
$576,000 per year--$72,000 per trailer--just for grounds maintenance and
road and fence repair.
GAO also found evidence of improper activity related to the contract award
process. For example, FEMA awarded GSM contracts to two companies that did
not appear to have submitted independent bids, as required. These
companies shared pricing information prior to submitting proposals to FEMA
and also shared the same president and accountant. Personnel at both
companies also misrepresented their job titles and functions, a potential
violation of the False Statements Act. In another case, FEMA's contracting
officer awarded a $4 million contract to make the temporary housing units
disabled-accessible; the contracting officer allegedly had a previous
relationship with the awardee's subcontractor. GAO licensed engineers
estimated that the work should have only cost about $800,000, or one-fifth
of what FEMA ultimately paid.
References
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40. http://www.gao.gov/cgi-bin/getrpt?GAO-08-106
41. http://www.gao.gov/cgi-bin/getrpt?GAO-08-106
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