Water Industry News
Saturday, September 10, 2005
Private sector is poised to reap a windfall of business in
By John M. Broder / New York Times
BATON ROUGE, La. -- Private contractors, guided by two former directors of the Federal Emergency Management Agency and other well-connected lobbyists and consultants, are rushing to cash in on the unprecedented sums to be spent on Hurricane Katrina relief and reconstruction.
From global engineering and construction firms like Fluor Corp. and Halliburton, to local trash removal and road-building concerns, the private sector is poised to reap a windfall of business in the largest domestic rebuilding effort ever undertaken.
Normal federal contracting rules are largely suspended in the rush to help people displaced by the storm and reopen New Orleans and the Gulf Coast. Hundreds of millions of dollars in no-bid contracts have already been let, and billions more will flow to the private sector in the weeks and months to come. Congress has already appropriated more than $62 billion for an effort that is projected to cost well over $100 billion.
Some experts warn that the crisis atmosphere and the open federal purse are a bonanza for lobbyists and private companies and are likely to lead to the contract abuses, cronyism and waste that numerous investigations have uncovered in postwar Iraq.
"They are throwing money out, they are shoveling it out the door," said James Albertine, a Washington lobbyist and past president of the American League of Lobbyists. "I'm sure every lobbyist's phone in Washington is ringing off the hook from his clients. Sixty-two billion dollars is a lot of money -- and it's only a down payment."
Joe M. Allbaugh, a close friend of President Bush's, the president's 2000 campaign manager and the FEMA director from 2001 to 2003, and James Lee Witt, an Arkansan close to former President Bill Clinton and a former FEMA director, are now high-priced consultants, and they have been offering their services to companies seeking or holding federal contracts in the post-Katrina gold rush.
Allbaugh said that he was helping private companies, including his clients, cut through federal red tape to speed provision of services and supplies to the storm-wracked region. Two of his major clients, Kellogg Brown & Root, a subsidiary of Halliburton, and The Shaw Group, already are at work on disaster response efforts. Cars with their logos were seen Friday at the Baton Rouge headquarters of FEMA.
Allbaugh said that he had played no role in helping Shaw or Kellogg get the work, insisting that help with federal contracts is not a service he offers to clients.
"A lot of people want to connect the dots, but the dots don't exist," he said, in a telephone interview from Texas. "I don't do federal contracts, end of story."
However, one of the first things Shaw did after the storm was to invite Allbaugh to Louisiana, where he helped the company assemble its disaster team, giving advice on how to match the company's efforts to those of the government agencies it serves. He later helped other companies provide assistance.
Allbaugh said he was not paid for these efforts and that he did not sign up any new clients in Louisiana. He did acknowledge that he suggested to UltraStrip Systems Inc., a client that markets water filtration products through a subsidiary, that it send representatives to Louisiana.
"Given the situation in the hospitals and nursing homes, I called them up," he said. "I said, 'You've got to get your unit down there, I'm sure they can put it to use."'
Clients of Witt, who is advising Louisiana Gov. Kathleen Babineaux Blanco on managing the crisis, are also in position to profit. Among the clients are Nextel Communications, Whelen Engineering, a manufacturer of warning systems, and Harris Corp., a telecommunications equipment company.
Witt said in a brief interview here on Thursday that it is critical to move quickly after a disaster to restore basic services and that government often gets in the way rather than speeds such efforts.
"Time is of the essence here, and we have to make sure it's fast and smooth and works well," he said at the Louisiana emergency operations center here. He said that FEMA has been bureaucratically and financially hobbled since it was absorbed by the new Department of Homeland Security after the Sept. 11 terrorist attacks.
Witt's company, James Lee Witt Associates, also employs Wesley Clark, the former NATO commander and Democratic presidential candidate, and Rodney Slater, a secretary of transportation in the Clinton administration. The firm's Web site says it provides "advice, counsel and assistance with strategic introductions primarily in the area of homeland security."
Witt did not respond to a request to comment specifically on the role of his clients in reconstruction projects.
One of the most immediate tasks after Katrina hit was repair of the breaches in the New Orleans levees. Three companies -- the Shaw Group, Kellogg Brown & Root and Boh Brothers Construction of New Orleans -- have been awarded no-bid contracts by the Army Corps of Engineers to perform the restoration work.
"After a disaster, we have certain authorities to execute contracts faster than we ordinarily would," Gene Pawlik, a Corps of Engineers spokesman in Baton Rouge, said Friday. "There is a pot of money that Congress gives us that lets us respond quickly to an emergency."
The Shaw Group, based in Baton Rouge, is a $3-billion-a-year construction and engineering firm. It announced this week that it had received two $100 million contracts, one from FEMA, the other from the Corps of Engineers, to work on levees and to pump water out of New Orleans. The one-year contracts are renewable, the company said.
Halliburton, Kellogg Brown & Root's parent company, has a $500 million, five-year contract with the Navy to provide emergency repairs at military installations damaged in the hurricane. The company won the contract by competitive bid in 2004 after several other hurricanes lashed the region. Under terms of the contract, Halliburton draws down on the money as it performs services for the military.
Vice President Dick Cheney was chief executive at Halliburton before Bush tapped him to be his running mate in 2000.
Halliburton is doing repair work at three Mississippi naval facilities, as well as at the Stennis Space Center. The company will also assess pump and infrastructure damage in New Orleans and construct a facility to support recovery efforts, it said.
To provide immediate housing in the region, FEMA says it suspended normal bidding rules in awarding contracts to the Shaw Group and CH2MHill, based in Denver. Fluor, of Aliso Viejo, Calif.; Bechtel National Inc., of San Francisco; and Dewberry Technologies, of Fairfax, Va.; are doing similar work under long-standing FEMA contracts that allow the agency to turn to them during disasters.
Several contracts are valued as high as $100 million.
John Corsi, a spokesman for CH2MHill, said that the contract could be the first of several and that it was awarded on a no-bid basis "because of unusual and compelling situation."
The sheer volume of the contracts and the speed at which they are being issued troubles some. At the moment, the government is drawing down on Hurricane Katrina relief money at a rate of more than $500 million a day.
Danielle Brian, director of the Project on Government Oversight, a nonprofit government spending watchdog group, said that Katrina, like Iraq before it, would bring the greedy and the self-interested out of the woodwork.
"This is very painful," she said. "You are likely to see the equivalent of war profiteering -- disaster profiteering."
In addition, a decision by the Bush administration to lift requirements that workers on federal contracts receive prevailing wages has drawn fire from both Democrats and union members.
Some of the contractors are already in the field. Fluor will be paid to select sites in Louisiana for temporary housing, surveying parks, campgrounds and farmland, said Lee Tashjan, a company spokesman.
Fluor already has identified some sites, including in Slidell, La., where the first 400 new homes will be installed, each of which can handle about five people, Tashjan said.
Bechtel, with $17.4 billion in annual revenue globally, is working under an informal agreement with no set payment terms, scope of work or designated total value. The company's zone is Mississippi, where it also has already started to install the first homes.
The company has 100 employees assigned to the task and it does not know how many will ultimately be working on it, said Howard Menaker, a Bechtel spokesman. It is also looking for subcontractors that can do everything from delivering portable water treatment, sewage and power plants, as well as mess halls, showers, even helicopters to move supplies quickly around.
Bechtel has a long pedigree in emergency response work, including helping remove the remains of the twin towers in New York, building refugee camps in Kosovo in 1999 and doing safety assessment after the 1989 Loma Prieta earthquake in San Francisco. It is performing reconstruction work in Iraq under a large federal contract.
Bechtel has for years had strong Republican ties. George P. Shultz, the former secretary of state under President Ronald Reagan, is on the corporation's board, and Riley P. Bechtel, the chief executive, is a member of Bush's Export Council. The company's political action committee contributed $170,000 to candidates and causes in the 2004 elections, of which $116,000 went to Republicans.
"Political contributions are not a factor," Menaker said. "It is the fact that we could get the job done."
Reporting for this article was contributed by Leslie Wayne in New York; Glen Justice in Washington; Eric Lipton in Baton Rouge, La.; Raymond Hernandez in Washington; and Ron Nixon in New York.