Hurricane Katrina
Ineffective FEMA Oversight of Housing Maintenance Contracts in Mississippi Resulted in Millions of Dollars of Waste and Potential Fraud Gao ID: GAO-08-106 November 16, 2007Hurricane 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.
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. 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. 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.
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Director: Team: Phone:GAO-08-106, Hurricane Katrina: Ineffective FEMA Oversight of Housing Maintenance Contracts in Mississippi Resulted in Millions of Dollars of Waste and Potential Fraud
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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:
GAO Highlights:
Highlights of GAO-08-106, a report to the Committee on Homeland
Security and Governmental Affairs, U.S. Senate.
Why GAO Did This Study:
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.
What GAO Found:
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.
Figure: Comparison of Projected Trailer Costs at Private and Group
Sites:
This figure is an illustrated comparison of projected trailer costs at
private and group sites:
Trailer purchase: $14,000;
Trailer maintenance costs: $4,000;
Haul and install: $12,000;
$30,000: Cost for lifecycle of a private site trailer.
Trailer purchase: $14,000;
Group site maintenance: $174,000;
Trailer maintenance costs: $3,000;
GSM Phase-in: $600;
Site construction: $25,000;
Site layout: $750;
Haul and install: $12,000;
$229,000: Cost for lifecycle of a Bienville Park trailer.
[See PDF for image]
Source: GAO analysis of FEMA data.
[End of figure]
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.
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.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-106]. For more information, contact
Gregory D. Kutz at (202) 512-6722 or kutzg@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
FEMA's Issuance of Task Orders under MD Contracts Resulted in as Much
as $16 Million in Waste:
Breakdowns in FEMA's Invoice Review Process Led to about $16 Million in
Improper or Potentially Fraudulent Payments:
Case Studies Illustrate Excessive Costs at Group and Commercial Sites:
Evidence of Improper Activity Related to Contract Award Process:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology38:
Appendix II: FEMA Preventative Maintenance Inspection Sheet42:
Appendix III: Comments from FEMA43:
Appendix IV: GAO Contact and Staff Acknowledgments52:
Tables:
Table 1: Total Bid Prices Submitted by 10 MD Contractors in
Mississippi:
Table 2: Range of Bids for the Five Most Expensive Line Items in the MD
Contract:
Table 3: Results of Statistical Sample of Paid Preventative Maintenance
Inspections:
Table 4: Estimated Trailer Costs at Three Case Study Group Sites in
Mississippi through March 2009:
Table 5: Estimated Trailer Costs at Commercial Site in Mississippi
through March 2009:
Figures:
Figure 1: Potential FEMA MD Contract Savings Using Least Expensive
Contractors:
Figure 2: FEMA's Reported Invoice Approval and Payment Process:
Figure 3: Estimated Costs for a Trailer at a Private Site through March
2009:
Figure 4: Estimated Life-cycle Trailer Costs at Bienville through March
2009:
Figure 5: Estimated Life-cycle Trailer Costs at Sunset Ingalls through
March 2009:
Figure 6: Estimated Trailer Costs at Ellzey Parcel through March 2009:
Figure 7: Estimated Life-cycle Trailer Costs at McLeod through March
2009:
Figure 8: Timeline of UFAS Award and Subsequent Modifications:
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.[Footnote 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.[Footnote 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.[Footnote 3]
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 million[Footnote 4] 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.
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,[Footnote 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 million[Footnote 6] 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.
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.[Footnote 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.
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.
* 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. §1001. In response to our referral, Justice has decided
to open an investigation of this matter.
* 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)[Footnote 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.[Footnote
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
$800,000[Footnote 10]--about one-fifth of what FEMA ultimately paid.
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.[Footnote 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,[Footnote 12] FEMA solicited proposals for new contracts
for the maintenance and deactivation (MD) of mobile homes and trailers
and for group site maintenance (GSM).
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.
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.[Footnote 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.
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,[Footnote 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.
Table 1: Total Bid Prices Submitted by 10 MD Contractors in
Mississippi:
Contractor: 1;
Total bid price: $89,856,470.
Contractor: 2;
Total bid price: 89,959,952.
Contractor: 3;
Total bid price: 94,989,890.
Contractor: 4;
Total bid price: 177,312,545.
Contractor: 5;
Total bid price: 177,312,545.
Contractor: 6;
Total bid price: 184,128,937.
Contractor: 7;
Total bid price: 197,513,516.
Contractor: 8;
Total bid price: 254,448,373.
Contractor: 9;
Total bid price: 268,027,263.
Contractor: 10;
Total bid price: 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.
[End of table]
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,[Footnote 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.
Table 2: Range of Bids for the Five Most Expensive Line Items in the MD
Contract:
Line item: Phase-in;
High bid: $6,111,000[A];
Low bid: $23,220.
Line item: Monthly preventative maintenance[B] per unit;
High bid: 244;
Low bid: 38.
Line item: Emergency after-hours repairs per call;
High bid: 495;
Low bid: 85.
Line item: Septic cleaning per service;
High bid: 260;
Low bid: 97.
Line item: Deactivation per unit;
High bid: 1,000;
Low bid: 267.
Source: GAO analysis of FEMA data.
[A] Subsequent to the award, this amount was reduced. However, the
contractor and FEMA are still in dispute over the actual phase-in
price.
[B] The range of bids for monthly preventative maintenance includes the
bids for both the travel trailer and mobile home maintenance line
items.
[End of table]
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.[Footnote 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 detail[Footnote
17] 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.
Figure 1: Potential FEMA MD Contract Savings Using Least Expensive
Contractors:
This figure is a bar chart showing potential FEMA MD contract savings
using least expensive contractors:
What FEMA could have paid: Preventative maintenance: 18.3;
What FEMA paid: Preventative maintenance: 28.5.
What FEMA could have paid: Phase-in costs: 3.2;
What FEMA paid: Phase-in costs: 6.5.
What FEMA could have paid: Deactivation: 6.1;
What FEMA paid: Deactivation: 7.0.
What FEMA could have paid: Emergency maintenance: 1.6;
What FEMA paid: Emergency maintenance: 2.2.
What FEMA could have paid: Septic cleaning: 3.3;
What FEMA paid: Septic cleaning: 4.0.
What FEMA could have paid: Total: 32.5;
What FEMA paid: Total: 48.2.
[See PDF for image]
Source: GAO analysis of FEMA data.
[End of figure]
As detailed in the figure, had FEMA made contract awards to only the
five lowest bidders, it could have saved as much as:
* $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.
* $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.
* $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.
* $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.
* $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 million[Footnote 18]
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 million[Footnote 19] 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.[Footnote 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:
* 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.
* A checklist of interior components inspected.
* A checklist of exterior components inspected.
* 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:
This figure is an flowchart with illustrations showing FEMA's reported
invoice approval and payment process.
[See PDF for image]
Source: GAO analysis of FEMA data.
[End of figure]
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.[Footnote 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 million[Footnote 22] 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.[Footnote 23]
Table 3: Results of Statistical Sample of Paid Preventative Maintenance
Inspections:
Total paid inspections selected in sample: Total inspection sheets
meeting criteria;
250: 120.
Total paid inspections selected in sample: Total improper or
potentially fraudulent inspections;
250: 130.
Total paid inspections selected in sample: Travel trailer or mobile
home not found in FEMA's database;
250: 20.
Total paid inspections selected in sample: Inspection sheet did not
exist;
250: 43.
Total paid inspections selected in sample: Inspection sheet did not
contain occupant signature or notation that three inspection attempts
had been made;
250: 67.
Source: GAO analysis of FEMA data.
[End of table]
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.
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. [Footnote
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:
* 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.
* 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.
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:
This figure is a chart with illustrations showing estimated cost for a
trailer at a private site through March 2009:
$30,000;
Trailer purchase: $14,000;
Maintenance costs: $4,000;
Haul and install: $12,000.
[See PDF for image]
Source: GAO analysis of FEMA data.
[End of figure]
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:
Site: Port of Bienville Industrial Park;
Number of pads: 8;
Projected cost per trailer through March 2009: $229,000;
Case details: Costs almost $72,000 per year per trailer for GSM
services;
FEMA could have saved over $576,000 by placing trailer pads at a
different location.
Site: Sunset Ingalls Park;
Number of pads: 102;
Projected cost per trailer through March 2009: $83,000;
Case details: Classified as a large park even though it is just two
pads over the medium park limit;
FEMA could have saved $260,000 by having two fewer pads.
Site: Ellzey Parcel;
Number of pads: 170;
Projected cost per trailer through March 2009: $69,000;
Case details: FEMA pays $204,000 per year for site lease.
Source: GAO analysis of FEMA data.
[End of table]
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:
This figure is a chart with illustrations showing estimated life-cycle
trailer costs at Bienville through March 2009:
$229,000;
Trailer purchase: $14,000;
Group site maintenance: $174,000;
Trailer maintenance costs: $3,000;
GSM phase-in: $600;
Site construction: $25,000;
Site layout: $750;
Haul and install: $12,000.
[See PDF for image]
Source: GAO analysis of FEMA data.
[End of figure]
* 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:
This figure is a chart with illustrations showing estimated life-cycle
trailer costs as Sunset Ingalls through March 2009:
$83,000;
Trailer purchase: $14,000;
Group site maintenance: $12,000;
Trailer maintenance costs: $2,000;
GSM phase-in: $350;
Site construction: $25,000;
Site layout: $750;
Haul and Install: $12,000;
Lease: $560;
UFAS: $1,000;
Security: $15,000.
[See PDF for image]
Source: GAO analysis of FEMA data.
[End of figure]
* 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:
$69,000;
Trailer purchase: $14,000;
Group site maintenance: $2,300;
Trailer maintenance costs: $4,500;
GSM phase-in: $560;
Site construction: $25,000;
Site layout: $750;
Haul and install: $12,000;
Lease: $3,300;
UFAS: $1,300;
Security: $5,300.
[See PDF for image]
Source: GAO analysis of FEMA data.
[End of figure]
* 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.[Footnote 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.
Table 5: Estimated Trailer Costs at Commercial Site in Mississippi
through March 2009:
Site: McLeod Water Park;
Number of trailers: 61;
Projected cost per trailer: $126,000;
Case details: Contractor made $1.5 million per year profit by
subcontracting septic services;
FEMA could have used cheaper sources to complete septic work.
Source: GAO.
[End of table]
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:
This figure is a chart with illustrations showing estimated life-cycle
trailer costs at McLeod through March 2009:
$126,000;
Trailer purchase: $14,000;
Park tent: $15,000;
Trailer Maintenance: $1,500;
Septic cleaning: $83,500;
Haul and install: $12,000.
[See PDF for image]
Source: GAO analysis of FEMA data.
[End of figure]
* 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.[Footnote 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.[Footnote 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.[Footnote 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. §1001. Details of the case follow:
* 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.
* The single entity and the joint venture submitted line items bids
that were frequently identical or within a few hundred dollars.
* 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."
* 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.
* In response to our referral, Justice has decided to open an
investigation of this matter.
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.[Footnote 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.
* 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.[Footnote 30]
* 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.
Figure 8: Timeline of UFAS Award and Subsequent Modifications:
This figure is a timeline of UFAS Award and subsequent modifications:
9/26/06: Legal settlement: FEMA reaches legal settlement with disabled
trailer occupants to pave areas around 150 trailers;
10/2/06: Contract solicitation: FEMA solicits bid for non-competitive,
sole source paving contract and sets government estimate at $2.9
million, below the 8(a) $3 million threshold on sole source contracts;
10/4/06: $3.2 million: Bid submitted: Contractor submits $3.2 million
contracts bid to perform paving services;
10/4/06: $2.9 million: Bid modified: Contract officer drops 4 items
from contract so aware amount is 42.9 million, and below 8(a)
threshold;
10/4/06: $2.9 million: Contract awarded: 2 days after soliciting bids,
contract is awarded for $2,9 million;
11/1/06: $3.6 million: Contract modified: 27 days after contract award,
contract officer modifies contract to increase total award by $750,000,
to $3,6 million, above 8(a) threshold;
12/21/06: $3.8 million: Contract modified: 50 days after previous
modification, contract is modified again, and total award is increase
by $111,000 to $3.8 million;
1/31/07: $4.0 million: Contract modified: Two months later, contract is
modified again, and total award is increase by $217,000 to $4.0
million.
[See PDF for image]
Source: GAO analysis of FEMA data.
[End of figure]
* 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:
* place a greater emphasis on issuing task orders to the companies with
the capability to perform the most work at the lowest cost.
* 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.
* 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
[hyperlink, http://www.gao.gov].
Please contact me at (202) 512-6722 or kutzg@gao.gov 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.
Signed by:
Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
[End of section]
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.
[End of section]
Appendix II: FEMA Preventative Maintenance Inspection Sheet:
Figure:
This figure is a FEMA preventative maintenance inspection sheet.
[See PDF for image]
Source: FEMA.
[End of figure]
[End of section]
Appendix III Comments from FEMA:
U.S. Department of Homeland Security:
Washington, DC 20528:
November 14, 2007:
Mr. Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
United States Government Accountability Office:
Washington, DC 20548:
Thank you for the opportunity to review and comment on the Government
Accountability Office's (GAO's) draft report GAO-08-106 entitled
Hurricane Katrina: Ineffective FEMA Oversight of Housing Maintenance
Contracts in Mississippi Resulted in Millions of Dollars of Waste and
Potential Fraud. The Federal Emergency Management Agency's (FEMA's)
response is structured with a brief background of the events leading up
to the Maintenance and Deactivation (MD) and Group Site Maintenance
(GSM) contracts, improvements FEMA has made since Hurricane Katrina,
and the Agency's responses to your recommendations. Technical comments
and clarifications to various sections of the draft report are being
provided under separate cover.
Background:
In August 2005, Hurricane Katrina struck the Gulf Coast and caused
disastrous and unprecedented damage to much of the area. Over 90,000
square miles were hit by the storm -- an area the size of Great Britain
and more than three times the size of the area affected by the Great
Flood of 1927. More than 204,000 homes were severely damaged or
destroyed; about seven times as many as in Hurricane Andrew. As a
consequence, thousands of families were forced to live in congregate
shelters or hotels and motels because housing units, including single
family, multi-family, and rental units, along the Gulf Coast were
virtually destroyed. Housing assistance authorized under the Robert T.
Stafford Disaster Relief and Emergency Assistance Act (Stafford Act)
included financial rental assistance, home repair assistance, home
replacement assistance, and direct housing assistance, the latter
usually provided in the form of transportable, manufactured housing.
Direct temporary housing was only provided as a last resort, when other
means of providing housing were either unavailable or practically
unworkable. Developing direct housing options was a significant
challenge, as much of the local infrastructure was destroyed. The
building materials required for temporary relief and rebuilding efforts
had to be transported in from unaffected regions outside the disaster
area, which caused a significant increase in the cost of these
resources. Many local contractors suffered damage to their facilities
and equipment as a result of the storms and flooding and also suffered
a loss of skilled and experienced workers. As a result, FEMA found it
necessary to work with larger national contractors who had the
capability and resources to adequately respond to the enormous task of
housing an unprecedented number of disaster victims in the shortest
possible time frame. To assist in these efforts, the Agency
subsequently awarded four large, non-competitive Individual Assistance-
Technical Assistance Contracts (IA-TACs) to Bechtel, CH2M Hill, Shaw,
and Fluor.
Once recovery efforts had become more stabilized, the Agency had
intended to replace these large contracts with competitively-awarded
agreements which utilized small and local businesses. This transition
would enable FEMA to continue meeting requirements, but in a firm-
fixed price manner, while stimulating the local economy with increased
Gulf Coast vendor participation as prime contractors. In April-May of
2006, after reviewing and evaluating the 258 proposals it received,
FEMA awarded 37 MD contracts[Footnote 31] in the four Gulf Coast States
of Alabama, Louisiana, Mississippi, and Texas. Of these 37 contracts,
ten were awarded to firms in Mississippi[Footnote 32]. In September
2006, 19 awards were made for GSM requirements to Service- Disabled
Veteran-Owned Businesses who were residing primarily or doing business
in Louisiana or Mississippi. Five of these awards were made for
Mississippi requirements. While the economic situation in the area had
improved by the time the MD and GSM contracts were issued, economic
conditions in the area have, nonetheless, continued to impact the cost
and efficiency of recovery efforts.
In response to Hurricanes Katrina and Rita, FEMA has provided over $7
billion in financial assistance to over 1 million households through
its IA programs. This figure includes over $5.3 billion in housing
assistance and $1.7 billion in other needs assistance. These numbers
include the following types of assistance:
* Approximately $2.30 billion of rental assistance, distributed to over
870,000 households. As of October 2007, 30,733 households continue to
receive some form of rental assistance payment;
* Over $436 million in home repair payments, helping make more than
185,000 Katrina- or Rita-damaged homes habitable across the Gulf
Region;
* More than $339 million to over 33,000 households to assist them with
the purchase of replacement housing.
While temporary housing units, particularly travel trailers, do not
offer all the amenities of a fixed housing resource they nevertheless
allow disaster victims who lack alternative options to remain in their
communities, close to their jobs, families, and schools, while they
pursue a permanent housing solution. Since Katrina, FEMA has housed
more than 120,000 households in travel trailers and mobile homes across
the Gulf Coast. As of October 12, 2007, the total number of households
currently living in temporary housing has decreased to 53,140,
including 38,124 in Louisiana and 15,016 in Mississippi. Private sites,
where individuals are rebuilding their homes, account for about 78
percent of the Agency's temporary housing.
The report notes that FEMA's costs are higher for trailers on group
sites rather than private sites. Whenever possible, FEMA works to place
a travel trailer or mobile home on a private site. In order to house
the high number of pre-disaster renters and others without access to a
private site, FEMA constructed group sites or leased pads at existing
commercial sites. It should be noted that in Mississippi, FEMA placed
over 5,000 renters on private sites, in addition to the more than 7,400
homeowners that were placed on private sites.
Since Hurricane Katrina:
FEMA has learned many lessons from its experiences during Hurricane
Katrina and has implemented numerous changes in order to improve its
operations. Furthermore, post-Katrina legislation has enabled the
Agency to create a vision for a "New FEMA." Some of the improvements
include:
* Pre-Positioned Contracts - Pre-positioned contracts are negotiated
and awarded prior to disasters; they ensure reasonably priced and
competitive agreements. Furthermore, these contracts allow for a more
responsive industry focus; enabling quick mobilization of resources, as
well as ensure that regional operators have the right supplies and
services to respond to disasters.
* Emergency Acquisition Field Guide - This guide ensures that non-1102
contracting personnel can effectively and appropriately contract for
goods and services in an emergency situation. It is specifically
designed to define the critical elements of an emergency acquisition in
plain language so that any member of the disaster support team can
understand and apply proper procedures. The guide includes information
on purchase cards, program management, and contracting.
* COTR Training Curriculum - The training program ensures that
Contracting Officer Technical Representatives (COTRs) have their
requisite skills and competencies to perform required functions. The
refresher training includes key acquisition concepts such as Statements
of Work, Independent Government Cost Estimates, payment provisions,
etc. This training ensures that COTRs are better equipped to
effectively manage the Agency's many contracts.
* Disaster Training Course - This course is designed to ensure response
contracting professionals are trained on how to award contracts during
a disaster, to include compliance with recent legislation. The Agency
has required all acquisition personnel at Headquarters and in the
regions to take the course; of note is that the Federal Acquisition
Institute recently adopted the course and offers it throughout the
Federal government.
* Contract Administration Plans (CAPs) - CAPs are designed to
facilitate efficient and effective administration planning and often
outline required level of surveillance, contract terms and conditions
for contract administration, performance milestones, and reporting
requirements. FEMA's CAPs will improve the Agency's post-award
operations, to include providing a consistent guide on ordering,
competing, and administering procedures for task orders. They ensure
competition of individual task orders for the current IA contracts
while employing effective contract administration procedures. In
addition, these plans establish an enterprise-wide contract
administration process for the COTRs in various locations.
* New Contract Writing System (PRISM) ” When implemented, PRISM will
provide better workload tracking, more consistent and accurate
reporting, and improved contract writing and overall management of its
contracts. Furthermore, PRISM is utilized by approximately 60 percent
of agencies, allowing for FEMA to more effectively use other
contracting personnel during a major disaster should the need arise.
* Execution of an Interagency Agreement (IAA) with the Department of
Housing and Urban Development (HUD) establishing the Disaster Housing
Assistance Program (DHAP) - This program provides another housing
alternative for displaced citizens after Hurricanes Katrina and Rita.
DHAP is a temporary housing rental assistance and case management
program for identified individuals and households displaced by
Hurricanes Katrina and Rita. It will be administered through HUD's
existing infrastructure of Public Housing Agencies (PHAs), and
households receiving assistance under FEMA's Rental Assistance program
will be transitioned to HUD's DHAP program.
In addition to the DHAP, FEMA has also implemented many policies
impacting the housing requirements in the Gulf Coast. A Gulf Coast
Housing Action Plan was developed which identifies the Agency's
priorities and initiatives for reducing the number for travel trailers.
It also addresses the closing of group sites; this plan has resulted in
the closure of 106 group sites thus far. A priority is placed on
quickly moving families who are affected or concerned about
formaldehyde, as well as moving families out of the group sites.
Another housing initiative is the use of rental resource teams. They
are identifying available rental units and working with landlords to
enroll them in FEMA's rental assistance programs. The Agency
caseworkers are working with each family to help transition them to
more permanent housing solutions. Housing policies have been
implemented to assist field caseworkers in transitioning families into
more permanent housing options with emphasis on moving families into
rental units.
The initiatives mentioned above as well as other changes made within
the Agency have enabled FEMA to become a more responsive and
coordinated emergency response organization. The improvements made in
FEMA since Hurricane Katrina are illustrated by the Agency's successes
in mobilizing and responding to the more recent disasters which have
occurred. Some of the more notable examples include the following:
* Hurricane Dean:
- Evacuation by Motorcoach:
* FEMA provided on-site presence at the bus contractor's headquarters
and one-on-one coordination with its Region 6 and Joint Field Office,
as well as the State of Texas on requirements for potential evacuation.
* Over 100 motor coaches were released from Federal control to the
State of Texas for potential evacuation.
- Within 12 hours of task orders being issued, the following resources
were mobilized to meet requirements:
* 275 ambulances in San Antonio from surrounding States for potential
evacuation of medical patients,
* 25 aircraft for potential medical air evacuation, and:
* 51 para-transit vehicles to transport up to 3,000 people.
- FEMA coordinated with various parties to prepare for a possible air
evacuation of 25,000 residents from the Rio Grande Valley.
- A contract was awarded within 12 hours of request for a 2,000-person
base camp for first responders -- the camp opened within 72 hours of
contract award.
* Midwestern disaster response (Greensburg tornado and Missouri
flooding):
- FEMA utilized small and local utility companies in order to restore
basic needs back to the affected communities.
- Many small and locally-owned businesses and franchises of national
companies provided a number of goods such as potable water, ice,
equipment rental, vehicles, box trucks, tents, gasoline and diesel
fuel, temporary toilets, pest control, copiers and many other goods.
- Electricians, plumbers, and carpenters based in the local area also
provided many services to assist in rebuilding efforts.
* Response to Central Florida tornadoes (February 2007):
- FEMA was able to use its IA-TAC II contractors to quickly and
effectively respond to tornadoes in Florida.
- Under IA-TAC II, task orders issued in response to a disaster under
these contracts require utilization of local firms to the maximum
extent practical for additional subcontracting opportunities.
A large amount of the subcontractor work related to recovery efforts
following the tornadoes in Florida's Lake, Seminole, Sumter, and
Volusia counties, was performed by Florida-based personnel and
companies.
Comments and Responses to Recommendations:
1. Recommendation: FEMA should assess whether contractors were overpaid
and, if so, establish procedures to collect overpayments or offset
future payments.
FEMA agrees with this recommendation and has taken the following
actions:
FEMA will assess whether or not it overpaid. If so, it will assert
claim against the contractor for the appropriate amount under the
Contract Disputes Act.
2. Recommendation: Place a greater emphasis on issuing task orders to
the companies with the capability to perform the most work at the
lowest cost.
FEMA agrees with this recommendation and has taken the following
actions:
FEMA completed a reallocation of work for the GSM requirements by
competing the task orders in the second year of the contracts. The Task
Order Proposal Request (TOPR) stipulated that after the first year,
option periods would be made on a low price basis per site. Each
contractor was determined to be technically acceptable due to overall
favorable performance during the base period. The competitive process
for ordering period I resulted in a total award price for the task
orders of $2,645,688.24 for grounds maintenance services. Had the
agency not changed its approach to assigning work, FEMA would have
spent approximately $12,101,432.64. Therefore, this task order re-
compete and reallocation of work saved approximately 73 percent, a cost
avoidance of $9,455,744.40.
FEMA also conducted a re-compete of the second year task orders for the
MD contracts. The selection of the second year task orders was made on
a best value basis, which considered technical and management approach,
past approach, past performance, and price. A similar approach is
planned for the third year of performance.
In addition, the Agency has awarded the IA-TAC II, the follow on to IA-
TAC I, utilizing full and open competitive procedures. Contractors are
issued a request for proposal to compete for individual task orders to
design, install, maintain, manage and deactivate housing units or group
housing sites and task orders are awarded with price as a major
consideration. Consistent with post-Katrina internal procedures, FEMA's
long-term housing strategy is to issue separate contracts to small and
local businesses to perform the long term maintenance and deactivation
requirements. This strategy will ensure that Federal funds are
assisting with rebuilding the local community.
3. Recommendation: Conduct a complete inventory of mobile homes and
travel 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.
FEMA agrees with this recommendation and has taken the following
actions:
FEMA will explore ways to implement this recommendation, including
modifications to its direct housing database used in the field. FEMA
began an invoice-matching project in March 2007 which has yielded
positive results. Approximately $75,000 in duplicate payments have been
identified and reported to the Disaster Finance Center. The Agency is
now matching existing database records with invoices to look for gaps
in the data. Furthermore, FEMA sites are now completing an inventory
count to ensure that all the temporary housing units at the sites are
recorded in the Agency's existing Logistics Information Management
System (LIMS).
4. Recommendation: 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.
FEMA agrees with this recommendation and has taken the following
actions:
FEMA has implemented internal control procedures to enforce the
existing invoice payment and review process. FEMA established an
Acquisition Program Management Office (PMO) in the GCRO that is charged
with enforcing the standardized invoice payment process across all of
the Total Recovery Offices (TROs), including the Mississippi TRO. In
order to enforce stronger internal controls, the PMO designed and
conducted multiple training events across the Gulf Region outlining and
providing guidance on "What is a proper invoice?"; "What constitutes
proper documentation for receipt of goods and services?"; "How should
invoices be reviewed and how can work be confirmed?"; and "What
justifications for partial payments are required?" In support of the
training effort, Standard Receiving Documents and Justification Forms
have been designed and are required for invoices that are to be
processed.
Additionally, the Office of Acquisition Management (OAM) has obtained
the services of a contractor to review, assess, improve and automate
the invoice approval and payment process. This review and changes will
result in automation of much that currently is a "paper pushing"
process open to human error. Automation will provide, among other
things, automatic calculation checks and proper line item tracking. It
will produce auditable tracking of each invoice.
The Acquisition Program & Planning Branch (AP&P) of OAM has also
developed a COTR Training Program designed to refresh COTRs on topics
such as Statements of Work, Independent Government Cost Estimates,
payment provisions, etc. The following additional initiatives will also
improve management of the COTR program:
* Creating an efficient COTR certification process by converting from
paper to electronic files;
* Developing COTR Program Policy;
* Creating a comprehensive database of COTR information;
* Designing a COTR Community Site/Knowledge Management Portal;
* Benchmarking FEMA's program against the Transportation Security
Administration COTR Program.
5. Recommendation: Evaluate the allocation of trailers and work at the
sites to determine whether any savings can be achieved.
FEMA agrees with this recommendation and has taken the following
actions: Regarding the allocation of trailers:
When a disaster occurs, FEMA works to house as many applicants as
quickly and efficiently as possible. The Agency works with local and
State governments to locate property within the affected areas for
Temporary Housing Units to be placed. Due to the fact that there was
not enough housing stock available in the areas impacted by Hurricane
Katrina, FEMA worked to place applicants close to their damaged
dwellings in their communities. Most applicants do not want to move
away from their community. As some of the disaster victims are renters,
the Agency does set up group sites and utilizes existing commercial
sites in order to house them in their pre-disaster community. However,
80 percent of the temporary housing units are currently placed on
private sites, so the applicant is able to repair their damaged
dwelling more effectively.
As applicants are moving back to their repaired homes or moving to
rental resources, FEMA is working to consolidate and close group sites.
FEMA also works with city and county officials to determine the closure
dates for these sites in order to move the applicants into more stable
housing.
Regarding the allocation of work:
FEMA completed a reallocation of work for the GSM requirements by
competing the task orders in the second year of the contracts. The TOPR
stipulated that after the first year, option periods would be made on a
low price basis per site. Each contractor was determined to be
technically acceptable due to overall favorable performance during the
base period. Had the agency not changed its approach to assigning work,
FEMA would have spent approximately $12,101,432.64. The competitive
process for ordering period I resulted in a total award price for the
task orders of $2,645,688.24 for grounds maintenance services. This
process saved approximately 73 percent, a cost avoidance of
$9,455,744.40.
FEMA also conducted a re-compete of the second year task orders for the
MD contracts. The selection of the second year task orders was made on
a best value basis, which considered technical and management approach,
past approach, past performance, and price. A similar approach is
planned for the third year of performance.
6. Recommendation: Explore creating permanent partnerships with other
agencies to determine whether there are less expensive housing options
that meet the needs of disaster victims.
FEMA agrees with this recommendation and has taken the following
actions:
FEMA has partnered with HUD to transition FEMA's rental assistance
caseload to HUD's DHAP. On July 26, 2007, FEMA and HUD executed an
Interagency Agreement (IAA) establishing the DHAP, a temporary housing
rental assistance and case management program for identified
individuals and households displaced by Hurricanes Katrina and Rita.
The program will be administered through HUD's existing infrastructure
of PHAs. Under the IAA, HUD will act as the servicing agency of the
DHAP. The designated PHAs will also provide case management services,
which will include a needs assessment and individual development plan
(IDP) for each family. The objective of HUD case management services is
to promote self- sufficiency for the participating family.
FEMA is also implementing the Alternative Housing Pilot Program in four
Gulf States (Alabama, Mississippi, Louisiana, and Texas) to explore
alternative forms of disaster housing. FEMA has established an IAA with
HUD for this program, as well. HUD will manage the evaluation of the
pilot projects. FEMA looks forward to learning from these pilot
projects.
In Mississippi, the TRO is working with State, local and voluntary
Agencies to provide applicants in Temporary Housing Units workshops
that bring all resources together and allow the applicants to access
the communities' housing, employment and support services.
FEMA also has established a task force, the Joint Housing Solutions
Group, which is evaluating other alternate housing methods for disaster
victims. This group researches other housing alternatives and documents
the benefits and drawbacks for each alternative. The research includes
locating formaldehyde-free units as well as cost effective mechanisms
and the feasibility of each unit in the different climates of the
United States.
Thank you again for the opportunity to comment on this draft report and
we look forward to working with you on future homeland security issues.
Sincerely,
Signed by:
Steven J. Pecinovsky:
Director:
Departmental Audit Liaison Office:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Gregory D. Kutz, (202) 512-6722 or kutzg@gao.gov:
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.
[End of section]
Footnotes:
[1] See 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).
[2] According 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.
[3] 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.
[4] The 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.
[5] For purposes of our analysis, "monthly preventative maintenance"
includes two line items: mobile home preventative maintenance and
travel trailer preventative maintenance.
[6] This $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.
[7] Group 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.
[8] A 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.
[9] Shortly around the time of the contract award, this threshold was
raised to $3.5 million. FAR 19.805-1(2).
[10] The 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.
[11] 42 U.S.C. § 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, GAO-07-88 (Washington: D.C.: Feb. 28, 2007).
[12] Department 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).
[13] FAR 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.
[14] In 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."
[15] For purposes of our analysis, "monthly preventative maintenance"
includes two line items: mobile home preventative maintenance and
travel trailer preventative maintenance.
[16] FAR 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.
[17] Specifically, 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.
[18] We are 95 percent confident that the actual dollar amount is
between $11 and $15 million.
[19] We are 95 percent confident that the actual dollar amount is
between $11 and $15 million.
[20] Most 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.
[21] In 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.
[22] We are 95 percent confident that the actual dollar amount is
between $11 and $15 million.
[23] Consistent 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,
GAO-07-252T (Washington, D.C.: Dec. 6, 2007).
[24] FEMA subsequently eliminated this time requirement.
[25] Only one other site has a lease costing over $7,500 per month.
[26] FEMA 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.
[27] Specifically, 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.
[29] Shortly around the time of the contract award, this threshold was
raised to $3.5 million. FAR 19.805-1(a)(2).
[30] The 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.
[31] One of the MD contracts was later terminated after award because
the contractor was determined to be other than a small business.
[32] There were two solicitations conducted in Mississippi for MD
requirements-one for Small Businesses and the other for 8(a) firms.
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