Disaster Recovery: Federal Contracting in the Aftermath of Hurricanes Katrina and Rita
Published: 2011-09-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony discusses small business participation in Gulf Coast rebuilding after Hurricanes Katrina and Rita. Federal agencies directly awarded $20.5 billion in contracts nationwide between fiscal years 2005 and 2011 for recovery efforts related to these hurricanes. These contracts are subject to federal procurement regulations and, in most cases, are generally subject to certain goals to increase participation by small businesses. This statement is based on a report we issued in July 2010, which discussed the extent to which Gulf Coast small businesses received federal contract funds for recovery efforts, with data on contract funds updated through fiscal year 2011 where possible. More specifically, the statement discusses (1) the amounts that small businesses nationwide and small businesses in four Gulf Coast states received directly from federal agencies through contracts for relief and recovery efforts related to Hurricanes Katrina and Rita; and (2) the extent to which four agencies--the U.S. Army Corps of Engineers (Corps), Department of Homeland Security (DHS), Department of Defense (DOD) excluding the Corps, and General Services Administration (GSA)--monitored subcontracting accomplishment information as required for selected contracts.
section_title: What GAO Found
paragraphs: Small businesses located in four Gulf Coast states (Alabama, Florida, Louisiana, and Texas) received about $2.7 billion (13.3 percent) of the $20.5 billion federal agencies directly awarded nationwide in contracts for hurricane recovery between fiscal years 2005 and 2011. Small businesses in the rest of the United States received about $2.6 billion (12.9 percent). The Corps and the rest of DOD--two of four agencies that awarded the most in federal contracts for hurricane recovery--could not demonstrate that they consistently were monitoring subcontracting accomplishment data for 13 of the 43 construction contracts for which subcontracting plans were required. We recommended that the Secretary of Defense take steps to ensure that contracting officials with the Corps and other DOD departments consistently comply with requirements to monitor the extent to which contractors were meeting subcontracting plan goals. DOD did not concur with the implication that its contracting personnel did not enforce requirements. We recently received information from both DOD and the Corps that indicates that they have initiated actions to address our recommendation.

section_title: Letter
paragraphs: I am pleased to be here to discuss small business participation in Gulf  Coast rebuilding after Hurricanes Katrina and Rita. Federal agencies  directly awarded $20.5 billion in contracts nationwide between fiscal years  2005 and 2011 for recovery efforts related to these hurricanes. These  contracts are subject to federal procurement regulations and, in most  cases, are generally subject to certain goals to increase participation by  small businesses.
My statement today is based on a report we issued in July 2010, which  discussed the extent to which Gulf Coast small businesses received  federal contract funds for recovery efforts, with data on contract funds  updated through fiscal year 2011 where possible. More specifically, I will  discuss (1) the amounts that small businesses nationwide and small  businesses in four Gulf Coast states received directly from federal  agencies through contracts for relief and recovery efforts related to  Hurricanes Katrina and Rita; and (2) the extent to which four agencies— the U.S. Army Corps of Engineers (Corps), Department of Homeland  Security (DHS), Department of Defense (DOD) excluding the Corps, and  General Services Administration (GSA)—monitored subcontracting  accomplishment information as required for selected contracts.
Small businesses located in four Gulf Coast states (Alabama, Florida,  Louisiana, and Texas) received about $2.7 billion (13.3 percent) of the  $20.5 billion federal agencies directly awarded nationwide in contracts  for hurricane recovery between fiscal years 2005 and 2011. Small  businesses in the rest of the United States received about $2.6 billion  (12.9 percent).
The Corps and the rest of DOD—two of four agencies that awarded  the most in federal contracts for hurricane recovery—could not  demonstrate that they consistently were monitoring subcontracting  accomplishment data for 13 of the 43 construction contracts for which  subcontracting plans were required. We recommended that the  Secretary of Defense take steps to ensure that contracting officials  with the Corps and other DOD departments consistently comply with  requirements to monitor the extent to which contractors were meeting  subcontracting plan goals. DOD did not concur with the implication  that its contracting personnel did not enforce requirements. We  recently received information from both DOD and the Corps that  indicates that they have initiated actions to address our  recommendation.
For both our July 2010 report and the updates included in this statement,  we analyzed data on contracts directly awarded by federal agencies for  Katrina- and Rita-related recovery efforts between fiscal years 2005 and  2011. Although we could not independently verify the reliability of these  data, we reviewed system documentation, conducted electronic data  testing, and compared the data with supporting documentation when  available. On the basis of these efforts, we determined the data on the  amount of federal contract dollars received directly for Hurricanes Katrina  and Rita recovery efforts to be sufficiently reliable for purposes of our  review. We identified all construction-related contracts that had  subcontracting plans for the four agencies that awarded the greatest  amount of Katrina- and Rita-related contract dollars in fiscal years 2005– 2009 (Corps, DHS, DOD, and GSA). We interviewed officials from the  four agencies to gather additional information on subcontracting award  reports. The work on which this statement is based was performed from  September 2009 to September 2011 in accordance with generally  accepted government auditing standards. Those standards require that  we plan and perform the audit to obtain sufficient, appropriate evidence to  provide a reasonable basis for our findings and conclusions based on our  audit objectives. We believe that the evidence obtained provides a  reasonable basis for our findings and conclusions based on our audit  objectives.
subsections: section_title: Background
paragraphs: When the President declares a state of emergency after a natural or other  major disaster, the declaration gives the federal government the authority  to engage in various emergency response activities, many of which  federal agencies provide through contracts with private businesses,  including those for debris removal, reconstruction, and the provision of  supplies. Federal agencies’ contracts with private businesses, whether  made in the normal course of agency operations or specifically related to  a natural disaster declaration, in most cases, are subject to certain goals  to increase participation by various types of small businesses. The Small  Business Act requires that the President set a governmentwide goal each  fiscal year for small business participation for the total value of all prime  contracts awarded directly by an agency. Additionally, the Small  Business Act sets annual prime contract dollar goals for participation by  five specific types of small businesses: small businesses, small  disadvantaged businesses, businesses owned by women, businesses  owned by service-disabled veterans, and businesses located in  historically underutilized business zones (HUBZone). The Stafford Act  also requires federal agencies to give contracting preferences, to the  extent feasible and practicable, to organizations, firms, and individuals  residing in or doing business primarily in the area affected by a major  disaster or emergency.
The Federal Acquisition Regulation (FAR) implements many federal  procurement statutes and provides executive agencies with uniform  policies and procedures for acquisition. For example, the FAR generally  requires that executive agencies report information about procurements  directly to the Federal Procurement Data System-Next Generation  (FPDS-NG), a governmentwide contracting database that collects,  processes, and disseminates official statistical data on all federal  contracting activities that are greater than the micro-purchase threshold  (generally $3,000). This system automatically obtains from other  systems or online resources additional information that is importan procurement, such as the contractor’s location.
The FAR also requires agencies to measure small business participation  in their acquisition programs. A small business may participate via prime  contracts—which are contracts awarded directly by a federal agency—or  through subcontracts. Any business receiving a contract directly from a  federal executive agency for more than the simplified acquisition  threshold must agree in the contract that small businesses will be given  the “maximum practicable opportunity” to participate in the contract  “consistent with its efficient performance.” Additionally, in general, for  acquisitions (or modifications to contracts) that (1) are individually  expected to exceed $650,000 ($1.5 million for construction contracts) and  (2) have subcontracting possibilities, the solicitation shall require the  apparently successful offeror in a negotiated acquisition to negotiate a  subcontracting plan that is acceptable to the contracting officer, and each  invitation for bid shall require the bidder selected for award to submit a  subcontracting plan to be eligible for award. The subcontracting plan  must include certain information, such as a description of the types of  work the prime contractor believes it is likely to award to subcontractors,  as well as goals, expressed as a percentage of total planned  subcontracting dollars, for the use of small businesses. Generally,  contracts that offer subcontracting possibilities and are expected to  exceed the monetary thresholds that we have previously mentioned are  to include certain clauses. These clauses require that for contracts that  have individual subcontracting plans, prime contractors generally must  semiannually and at project completion report on their progress toward  reaching the goals in their subcontracting plans. Generally, contractors  that have individual subcontracting plans are required to report on their  subcontracting goals and accomplishments twice a year to the federal  government through the Electronic Subcontracting Reporting System  (eSRS), which is a governmentwide database for capturing this  information. Furthermore, the agencies’ administrative contracting officers  are responsible for monitoring the prime contractors’ activities and  evaluating and documenting contractor performance under any  subcontracting plan included in the contract. The contracting officer is  tasked with acknowledging receipt of the reports submitted to eSRS.
section_title: Federal Agencies Awarded a Significant Amount of Contract Dollars Directly to Small Businesses in Gulf Coast and Other States
paragraphs: Federal agencies directly awarded $20.5 billion in contracts nationwide  between fiscal years 2005 and 2011 for recovery efforts related to  Hurricanes Katrina and Rita. Of this $20.5 billion, small businesses  located in four Gulf Coast states received approximately $2.7 billion (13.3  percent), and small businesses in the rest of the United States received  United States received  about $2.6 billion (see fig. 1).  about $2.6 billion (see fig. 1).
Among the four Gulf Coast states in our review, Louisiana small  businesses directly received the greatest amount of federal contract  funds, about $1.4 billion. However, Alabama had the highest proportion  (47 percent) of total prime contract dollars awarded to small businesses  (see fig. 2).
In the four states, the amount of federal contract funds directly awarded to  specific types of small businesses for Hurricanes Katrina- and Rita- related recovery efforts varied (see fig. 3).
Small disadvantaged businesses: Of the approximately $2.7 billion  that went directly to small businesses, about $804 million (29 percent)  went to small disadvantaged businesses. Small disadvantaged  businesses in Louisiana received the greatest amount of federal  contract funds awarded to this category (more than $420 million).
HUBZones: Small businesses in HUBZones directly received about  $560 million (20 percent of federal contract funds directly awarded to  Gulf Coast small businesses). Small businesses in HUBZones in  Louisiana received the greatest amount (about $292 million).
Women-owned small businesses: About $381 million were directly  awarded to women-owned small businesses (14 percent of all federal  contract funds directly awarded to Gulf Coast small businesses).  Women-owned small businesses in Louisiana received the greatest  amount (approximately $182 million).
Veteran-owned small businesses: About $270 million (or 10 percent of  federal contracts directly awarded to Gulf Coast small businesses)  went to this category. Veteran-owned small businesses in Louisiana  received about $180 million, the most in the Gulf Coast states.
section_title: Corps of Engineers and DOD Could Not Demonstrate Consistent Monitoring of Subcontracting Information for Selected Contracts
paragraphs: The Corps and DOD could not demonstrate that they consistently were  monitoring subcontracting accomplishment information as required. As  we have previously discussed, subcontracting plans are generally  required for construction contracts (or modifications to contracts) that are  expected to exceed $1.5 million and that have subcontracting  possibilities. The FAR states that subcontracting plans must include  assurances that prime contractors will report on their progress toward  reaching their subcontracting goals. Generally, contracts that offer  subcontracting possibilities and are expected to exceed the monetary  thresholds above are to include certain clauses. In general, these clauses  require contractors to submit these reports semiannually and at project  completion. The Corps and DOD use these reports to monitor contractor  performance under subcontracting plans. We reviewed the 57  construction contracts that the Corps, DHS, DOD, and GSA awarded  directly to large businesses in fiscal years 2005– 2009 for hurricane- related recovery and that were listed in FPDS-NG as having  subcontracting plans. The Corps awarded 29 of these contracts but could  not provide subcontracting accomplishment report information for 11.  DOD awarded 14 contracts and could not provide information for 2 (see  table 1). Without these reports, either in eSRS or paper form, contracting  officials lacked a key tool for monitoring contractors’ performance under  subcontracting plans.
As of 2005, all contractors with subcontracting reporting requirements  related to contracts with civilian agencies were generally required to  submit, with some exceptions, summary subcontract reports into eSRS, a  Web-based govermentwide subcontracting system that allows contractors  to submit and agency officials to review subcontracting accomplishment  reports electronically rather than using paper forms. DOD implemented  eSRS incrementally and began primarily relying on eSRS for subcontract  reporting as of 2009. The development of eSRS was intended to create  more visibility and transparency into the process of gathering information  on federal subcontracting accomplishments.
In addition to requirements for contractors to submit subcontracting  accomplishment information, the FAR requires that agency contracting  officers review subcontracting plans for adequacy and take action to  enforce the terms of the contract if notified that the contractor is failing to  meet its commitments under their subcontracting plan. Agency  administrative contracting officials are required to provide information to  the contracting officer on the extent to which the contractor is meeting  subcontracting plan goals and to notify the contracting officer if the  contractor is failing to comply in good faith with the subcontracting plan.  In determining whether a contractor failed to make a good-faith effort to  comply with its subcontracting plan, a contracting officer must look to the  totality of the contractor’s actions, consistent with the information and  assurances provided in its plan. When considered in the context of the  contractor’s total effort in accordance with its plan, failure to submit  contracting accomplishment reports may be considered an indicator of a  failure to make a good-faith effort. These requirements were in place  prior to the 2005 hurricanes and have continued in the eSRS  environment. New requirements were added to the FAR in April 2008 that  additionally require that contracting officers acknowledge receipt of or  reject the subcontracting accomplishment reports submitted by  contractors in eSRS. In addition, DHS, GSA, DOD, and the Corps have  agency guidance that spells out the contract administration duties  necessary to monitor contractor compliance with subcontracting plan  reporting requirements. Without subcontracting accomplishment  information, contracting officials at the Corps and DOD lack a key tool  used to monitor contractor performance under subcontracting plans. In  the absence of these reports, the Corps and DOD could not demonstrate  that they were consistently monitoring contractor performance under the  plans.
As we have previously noted, the Corps did not provide subcontracting  accomplishment report information for 11 contracts and could not explain  why the information was unavailable. DOD did not provide us with  subcontracting information on 2 of 14 construction contracts we reviewed.
DOD officials told us that after searching retained records, they could not  find any paper or electronic subcontracting accomplishment reports. We  concluded that without monitoring, the Corps and DOD were limited in  their ability to determine the extent to which their prime contractors  followed subcontracting plans. We recommended that the Secretary of  Defense take steps to ensure that contracting officials consistently comply  with requirements to monitor the extent to which contractors were  meeting subcontracting plan goals, including requirements for contractors  with subcontracting plans to submit subcontracting accomplishment  reports. Once these reports are submitted, contracting officials should  maintain and regularly review them to determine whether contractors  have been following subcontracting plans. To ensure consistent  compliance, DOD and the Corps small business offices should monitor  such actions by contracting officials, as deemed appropriate. DOD did not  concur with the implication that its contracting personnel did not enforce  requirements. We recently received information from both DOD and the  Corps that indicates that they have initiated actions to address our  recommendation.
Chair Landrieu, Ranking Member Snowe, this concludes my prepared  statement. I would be happy to answer any questions at this time.
section_title: Contacts and Acknowledgments
paragraphs: For further information on this testimony, please contact William T.  Woods at (202) 512-4841 or woodsw@gao.gov or William B. Shear at  (202) 512-8678 or shearw@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement. Individuals making key contributions to this testimony  included Marshall Hamlett, Assistant Director; Christine Houle; Julia  Kennon; Triana McNeil; Marc Molino; Barbara Roesmann, and Alyssa  Weir.
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