Report: Katrina Contractors Bilk Taxpayers

By Larry Margasak
The Associated Press

Thursday 04 May 2006

Washington - While removing enough debris to cover Britain, contractors working on hurricane recovery have overbilled the government in a $63 billion operation that only will get more expensive, according to a House report Thursday.

Mileage claims were overstated to get extra fees, debris was mixed improperly to inflate prices and companies sent bills twice for removing the same loads, Democrats on the GOP-controlled House Government Reform Committee found.

Rep. Henry Waxman, D-Calif., who compiled the report for the hearing on Katrina contracting, also complained about layers of subcontractors that drove up costs.

A major contractor would take a large cut and pay smaller amounts to the subcontractors, down to the company with the truck hauling debris to the dump.

"It seems you get more than half," Waxman told Randall Perkins, president of AshBritt Inc. in Pompano Beach, Fla., after Perkins said his company received $23 a cubic yard in a debris removal contract but paid a subcontractor $10 to haul the material.

"We outsource to companies like yours and they go out and subcontract," Waxman said. "It's a higher overhead."

Perkins said some cleanup contractors did hire many subcontractors, but he only hired a few. He said the prices he charged were determined partially by US Army Corps of Engineers rules he had to follow.

In a story last October, The Associated Press reported of instances in which the Katrina debris cleanup involved five layers of subcontractors. Some haulers reported they were being paid just $6 a cubic yard. Many of those interviewed at the time said they believed the prime contractors were being paid $26 to $28 a yard. The corps refused to provide the cost figures specified in the master contracts and last month denied the AP's request for those figures, made under the Freedom of Information Act.

The committee chairman, Rep. Tom Davis, R-Va., said Congress approved more than $63 billion for disaster relief and that recovery expenses may top $200 billion.

Davis said many contracts were awarded without competition. Government officials at the hearing said these contracts are being replaced with competitive awards.

Davis said the sole-source contracts allowed an "unprecedented opportunity for fraud and mismanagement."

The corps said hurricanes Katrina and Rita left 87,000 square miles of debris in parts of Louisiana, Alabama, Arkansas, Texas, Mississippi and Florida, roughly the size of Britain.

Waxman said the corps was lax in allowing fraud, waste and abuse in removing that debris. A corps official disputed that.

Waxman cited audit findings that corps officials "regularly credited contractors with hauling more debris to dumps than they actually carried." Auditors found that the corps' assessments of contractor performance were "overly generous," "unusually high," "more on the liberal side," "often very liberal" and "consistently on the high side."

The corps also was blamed for allowing inflated charges in more than $300 million in contracts for temporary roof repairs using blue plastic sheeting, Waxman said, citing audit reports.

The corps' director of civil works, Maj. Gen. Don Riley, told the committee his agency sent out the auditors who found the problems and are trying to recoup the money.

Riley said the instances of contractor fraud were "exactly what I asked our auditors to find." He said payments were withheld until the charges could be verified and the government has indicted several contractors on fraud charges.

Waxman asked Matt Jadacki, special inspector general for Gulf Coast Hurricane Recovery, whether corps officials were doing their jobs to prevent fraud.

"We found some cases where there were no monitors," Jadacki said.

Waxman's report said contractors sometimes billed twice for removing the same debris and, in other cases, took advantage of extra payments of $2 per cubic yard for debris carried more than 15 miles. Auditors found mileage was overstated in more than 50 percent of the 303 trips they examined.

Contractors fraudulently mixed green waste with construction and demolition debris to inflate their billings by $2.84 per cubic yard, the report said.

Other instances of fraud found by auditors, Waxman's report said, included double billing for housing trailers and abuse of government-issued credit cards.