Big, Easy Money: Disaster Profiteering on the American Gulf Coast

CorpWatch.org
Thursday 17 August 2006

On the first anniversary of Hurricane Katrina, "disaster profiteers" have made millions while local companies and laborers in New Orleans and the rest of the devastated Gulf Coast region are systematically getting the short end of the stick, according to a major new report from the nonprofit CorpWatch.

A CorpWatch analysis of FEMA's records shows that "fully 90 percent of the first wave of (the post-Katrina reconstruction) contracts awarded - including some of the biggest no-bid contracts to date - went to companies from outside the three worst-affected states. As of July 2006, after months of controversy and Congressional hearings, companies from Louisiana, Mississippi and Alabama had increased their share of the total contracts to a combined 16.6 percent." The CorpWatch analysis shows that more federal reconstruction contracts have gone to Virginia and Indiana - usually large, politically connected corporations - than to any of the three Katrina-devastated states.

The CorpWatch report also exposes abusive "contracting charge pyramids" where the companies doing the actual reconstruction work often get only a tiny (and insufficient) fraction of the taxpayer money awarded for projects and widespread non-payment of local companies and laborers, including what has been alleged to be the deliberate and systematic exploitation of immigrant workers, including undocumented individuals.

"One year after disaster struck, the slow-motion rebuilding of the Gulf Coast region looks identical to what has happened to date in Afghanistan and Iraq. We see a pattern of profiteering, waste and failure - due to the same flawed contracting system and even many of the same players" says CorpWatch Director Pratap Chatterjee. "The process of getting Katrina-stricken areas back on their feet is needlessly behind schedule, in part, due to the shunning of local business people in favor of politically connected corporations from elsewhere in the U.S. that have used their clout to win lucrative no-bid contracts with little or no accountability and who have done little or no work while ripping off the taxpayer."

"Big, Easy Money" report author Rita J. King said: "The devastation of the Gulf Coast is tragic enough, but the scope of the corporate greed that followed, facilitated by government incompetence and complicity, is downright criminal. Sadly, disaster profiteering has become commonplace in America. Well connected corporations are growing rich off of no-bid contracts while the sub-contractors - the people who actually perform the work - often do so for peanuts, if they get paid at all."

Key Report Findings

• A familiar (and disturbing) cast of characters: Many of the same "disaster profiteers" and government agencies that mishandled the reconstruction of Afghanistan and Iraq are responsible for the failure of "reconstruction" of the Gulf Coast region. The Army Corps, Bechtel and Halliburton are using the very same "contract vehicles" in the Gulf Coast as they did in Afghanistan and Iraq. These are "indefinite delivery, indefinite quantity" open-ended "contingency" contracts that are being abused by the contractors on the Gulf Coast to squeeze out local companies. These are also "cost-plus" contracts that allow them to collect a profit on everything they spend, which is an incentive to overspend.
  
• The report lays out these astronomical charges in details. Using non-local companies means that the job is expensive and often botched, as happened in Iraq. Bechtel's reconstruction of schools in Iraq in the summer of 2003 was a case study in unfinished work and overcharging. Also in the summer of 2006, the Pentagon canceled a Bechtel contract to build a hospital in Basra because it was hopelessly behind schedule and had tripled in price. It is perhaps less than surprising that the person in charge of the Army Corps of Engineers today, Lieutenant General Carl A. Strock, is the very man who was in charge of the Halliburton contracts in Iraq. The Army Corps has a less than impressive record in the Mississippi Delta; they are after all, the agency that masterminded the system of levees that have ruined the Delta and failed one year ago to protect area residents.
  
• Abusive "contracting pyramids" that leave the actual subcontractors doing the work with only a tiny amount of the money paid by the federal government. AshBritt's $500 million contract for debris removal amounted to about $23 for every cubic yard of debris removed, according to an NBC News investigation. Ashbritt, in turn hired C&B Enterprises, which was paid $9 per cubic yard. That company hired Amlee Transportation, which was paid $8 per cubic yard. Amlee hired Chris Hessler Inc, which received $7 per cubic yard. Hessler, in turn, hired Les Nirdlinger, a debris hauler from New Jersey, who was paid $3 per cubic yard - less than the cost of doing the work. "Operation Blue Roof" another example; FEMA paid $6.6 million to All American Poly to make the blue tarps that cover so many storm-damaged roofs in the worst-hit areas. FEMA then gave the tarps and the contracts to install them to Shaw Group and Simon Roofing and Sheetmetal of Ohio. Those companies then subcontracted much of the actual work, and those subcontractors further subcontracted. The final cost for each tarp averaged out to almost $2,500 per tarp - almost enough to pay for a new roof in many cases - even tough the tarps were only designed to last 3 months! The workers who actually tacked the tarp onto the roof (a two-hour job) were making closer to minimum wage.
  
• Local companies go unpaid - or are frozen out of the process altogether. Even if a contract is awarded to a small local business, that does not necessarily mean the company ever got paid. Coastal Environments, Inc. (CEI) was paid $150,000 on a $3.1 million contract. In another case, the Army Corps of Engineers awarded a no-bid $39.5 million contract to Alaska-based Akima Site Operations, a firm based more than 3,500 miles from where Katrina made landfall, to provide 450 portable classrooms to Mississippi. A local businessman suing the federal government and Akima has filed papers claiming that he submitted a bid at half the price but was rejected by the Corps of Engineers.
  
• Laborers - particularly immigrant workers - are not getting paid. Victoria Cintra of the Mississippi Immigrants Rights Association (MIRA) said that her small volunteer organization has successfully fought for over $300,000 in pay owed to workers, but the battle is unending. The subcontracting layers are a major part of the problem, each can't pay the next until it gets paid, meaning the laborers on the bottom rung get paid last - if at all. In one case, a contract was granted to Kellogg Brown & Root in Mississippi to rehab the Seabee Naval Base. KBR subcontracted with a company called Tipton Friendly Rollins, which subbed the work to Kansas City Tree, who passed the duties on to a small construction company. The small firm finally hired the workers, many of whom were immigrants, to do the job. The owner of the firm promised food and board, in rickety trailers "not fit for rats," according to Cintra. But after paying her employees for one week's work, the owner of the construction company claimed that she couldn't pay or feed the laborers until she was paid by Kansas City Tree. In the dead of night, she reportedly entered the trailers and awakened the laborers and warned them that immigration agents were on their way. Many of the workers fled. MIRA traced the chain of contracts back to Halliburton and delivered its research to the U.S. Department of Labor (Mississippi does not have a department of labor). Eventually MIRA won the $141,000 in back pay for the construction company's laborers, but many fear deportation or have no permanent addresses, and cannot be found. Rosana Cruz, Gulf Coast field coordinator for the National Immigration Law Center, said: "The level of assault against workers feels like war. There's vulnerability in each successive layer of subcontracting. ... It's shocking that there aren't millions of people across the United States demanding accountability. This is a microcosm of what's happening around the world. If you're poor and you're brown, we can do whatever we want with you."
  
• No good local deed seems to go unpunished. The Vietnamese neighborhood in New Orleans once known as Versailles (for the nearby housing project) has struggled to its feet, with little help from any government agencies. Of the community's 53 businesses, an estimated 45 have opened their doors. Ninety-five percent of the homes have been gutted. The remarkable transformation of the neighborhood was so astonishing that a group affected by the tsunami came from Thailand in June 2006 to find out how it was accomplished so they could put those skills to work at home. The community was so focused on the rebuilding effort that news of a landfill between them and the largest urban wildlife refuge in the nation, Bayou Sauvage, was an unwelcome disruption-but not a complete shock. "If you look around the country," said local pastor Vien thé Nguyen said, "every landfill is near minority people."