Last month FEMA released areport (pdf) chronicling waste and fraud in FEMA trailer maintenance and deactivation contracts. The GAO estimated that almost $30 million in waste or potentially fraudulent payments were made to contractors between June 2006 to January 2007 and “likely led to millions more in unnecessary spending beyond this period.” GAO prepared and reported on several case studies of potentially fraudulent payments. Though the report does not name the companies involved in the case studies, my research suggests that one case involves PRI/DJI a joint venture with ties to Fluor Corp.

BACKGROUND

The maintenance and deactivation (MD) contracts were born from
controversy and have continued to be mired in more controvery since
their inception. After criticism of the Bush administration’s awarding
of no bid contracts to 4 national firms shortly after Katrina struck,
FEMA decided to bid out 36 MD contracts to“small, local companies.” However
FEMA came under fire from local companies when the winning bids were
announced and it appeared FEMA was to give“more than
half the work to out-of-state companies.” One such company, DJI or Del-Jen Industries, did
not appear to be local (out of CA) or small as it was a wholly owned
subsidiary of Fluor Corp–one of the 4 large national companies that
originally received no bid contracts and also a company“with
campaign contributions lopsidedly in favor of the Republican Party.”

DJI partnered with PRI, or Project Resources Inc., as“part of a special
mentoring program that allows large firms [like DJI] to pair with small,
minority-owned ones” like PRI which are referred to as 8(a) companies.
However it was reported the joint venture PRI/DJI was awarded“two [MD] contracts of as much
as $100 million each as an 8A company.”

Given what the GAO found this appears accurate and not surprising.

POTENTIAL FRUAD

The GAO summarized one case of potential fraud as such:

In reality, 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.

I would submit the 2 companies are PRI/DJI though the GAO report does
not identify the companies. Rather the report lists the 10 contractors
in question in the report by numbers 1 through 10. The report states
that Contractors 4 and 5 are the same company which received 2 contracts
priced at $177,312,545 each (p16 of pdf). Research yieldsthis document which shows that PRI/DJI
received a MD contract for $177,312,545 as an 8(a) which is designated
by 8A in the accompanying code–HSFEHQ-06-R-8AMS– in the document. In the body of the GAO
report where the potential fraud is detailed it states: “FEMA awarded
one business two contracts: one contract as a “single entity” and one as
part of a “joint venture” with another firm.” Further in itsown
response to a
DHS Office of the Inspector General investigation on the 36 MD
contracts, FEMA identified PRI/DJI in the matter and defended their contract award by
saying the company was determined to be local but interestingly went on
to say that even if it were not local“it still would have received the
awards based on the pricing evaluation methodology used.”

That may be some FEMA truthiness to focus on “pricing
evaluation methodology” but the GAO report raises far more serious
problems with the contracts and the details of what they found ought to
be read. They are quite astounding. …

From the GAO report:

FEMA awarded GSM [group site maintenance] contracts to two companies that did not appear to have submitted independent bids and that also made false statements on proposals submitted to FEMA. As previously discussed, FEMA awarded five GSM contracts in Mississippi. In reality, FEMA awarded one business two contracts: one contract as a “single entity” and one as part of a “joint venture” with another firm. Although making this type of award is not prohibited, the circumstances surrounding this case merit further investigation. Specifically, both the “single entity” and the “joint venture” are required to adhere to the Certificate of Independent Price Determination, as set forth in the contract solicitation. By signing the certificate, each bidder affirms that it has arrived at its price independently and has not disclosed its bid to competitors.27 Despite the fact that the single entity and the joint venture both signed this certification, our evidence shows that the companies may not have been truly independent, as might be expected given their common employees and business relationships.28 We also found that key personnel at both companies admitted to misrepresenting their job titles and functions in final offers submitted to FEMA, a potential violation of the False Statements Act, 18 U.S.C. §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.    

It would seem these 2 companies were thrown together to advantageously
position Fluor Corp to get a crack at contracts whose publicly stated
purpose were to go to small local firms, not companies like
Fluor Corp and would in effect help remove the taint of the no bid contracts gained by Fluor Corp and the 3 others. So that takes some balls on the part of Fluor/DJI/PRI, does it not? Perhaps they thought no
one would notice. (it would be no wonder given the lack of in-depth scrutiny of Katrina contracts) Howeverthis batch of contracts had not flown under the radar. Truly local
firms had complained immediately to various senators and also“lodged formal
protests” with the GAO. There has now been an IG investigation and this
GAO report. The big question…what if anything will come of the now opened DoJ investigation?

Yesterday
the Bush administration announced it is trying to recover nearly $500
million from individuals who improperly received Katrina aid. Individuals who in fact intentionally defrauded the government ought to be
prosecuted. The DoJ reports that they have prosecuted about 800 people.
However so should contractors be prosecuted. Yet I have seen little
evidence of a concerted effort to do such with them as like that aimed
at individuals.