Audit: $7.8M Wasted On Katrina

The government overpaid by 20 percent on a $39.5 million, no-bid Hurricane Katrina contract for portable classrooms because the Army Corps of Engineers passed up chances to negotiate a lower price, a federal audit says.

The draft Government Accountability Office report on the contract with Akima Site Operations LLC, a subsidiary of an Alaska Native-owned firm, said the government wasted at least $7.8 million on the classrooms in Mississippi. It's the latest in a series of audits detailing waste of hundreds of millions of taxpayer dollars in the hurricane recovery effort.

It comes as several congressional panels plan hearings to examine fraud and waste in federal contracting, including the Katrina effort. On Friday, the Senate Homeland Security Committee is to examine FEMA housing waste in Hope, Ark.

"The Corps accepted Akima's proposed price of $39.5 million although they had information that the cost for the classrooms was significantly less than what Akima was charging," the report said. "We believe the Corps could have, but failed to, negotiate a lower price."

Some lawmakers were immediately critical.

"The administration has some explaining to do," said Sen. John Kerry of Massachusetts, the top Democrat on the Senate Committee on Small Business and Entrepreneurship. "We can't allow this to become an excuse for not awarding small firms their fair share of contracts."

A spokesman for the Army Corps, Doug Garman, said Thursday the agency was reviewing the draft and would submit a response to the GAO for the final report. John Wood, CEO of Akima Management Services, defended the deal as fair given the extraordinary circumstances following the hurricane.

"We did everything the Army Corps asked us to," Wood said. "It was a very successful contract. Mississippi kids got back in school and we saved their school year. There were a lot of risks in the contract terms."

The report found that in its rush to get classrooms after the Aug. 29 storm, the Army Corps wasted at least $7.8 million by failing to seek a lower price after Akima suddenly raised its price one day after submitting a lower initial estimate.

The Corps justified the price increase with the need for quick delivery of the classrooms in Mississippi, even though freight costs were roughly the same in both proposals, according to the draft GAO report. The report, obtained Thursday, was scheduled to be released in the coming weeks.

The draft audit concludes that the Army Corps was put in a tough situation in the days after the hurricane after FEMA tasked it with buying classrooms in a hurry. But it said the agency failed to ask basic questions about pricing.

"Faced with the urgent need for classrooms, they chose to purchase them by placing an order, noncompetitively, on an existing agreement with Akima," the report said.

In recent weeks, auditors have concluded that the government wasted hundreds of millions of dollars in the Katrina response effort, due mostly to poor planning, fraud or miscommunication.

They have included $301.7 million FEMA used to purchase 10,777 manufactured homes in Hope, Ark., which sit unoccupied; $3 million for 4,000 base camp beds that were never used; and $10 million to renovate and furnish 240 rooms in Alabama that housed only six occupants before being closed.

Earlier this month, a draft GAO report obtained by The Associated Press also concluded that poor contracting oversight enabled Alaska Native corporations to capitalize on multimillion-dollar no-bid deals — including a $60 million-dollar Akima contract with NASA — at a potential cost to taxpayers and small businesses.

The report said agencies routinely picked Alaskan firms — which can be designated legally as "small and disadvantaged," regardless of their size — to bypass burdensome competition requirements and fill small business quotas.

In the coming weeks, a House panel chaired by Rep. Tom Davis, R-Va., will hold hearings on Katrina contracting as well as potential waste and fraud in Alaska Native contracts.