Hurricane Katrina: Improving Federal Contracting Practices in Disaster Recovery Operations
Published: 2006-05-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The devastation experienced throughout the Gulf Coast region in the wake of Hurricanes Katrina and Rita has called into question the government's ability to effectively respond to such disasters. The government needs to understand what went right and what went wrong, and to apply these lessons to strengthen its disaster response and recovery operations. The federal government relies on partnerships across the public and private sectors to achieve critical results in preparing for and responding to natural disasters, with an increasing reliance on contractors to carry out specific aspects of its missions. This testimony discusses how three agencies--the General Services Administration, the Federal Emergency Management Agency (FEMA), and the U.S. Army Corps of Engineers (the Corps)--conducted oversight of 13 key contracts awarded to 12 contractors for hurricane response, as well as public and private sector practices GAO identified that provide examples of how the federal government could better manage its disaster-related procurements.
section_title: What GAO Found
paragraphs: Agency acquisition and contractor personnel have been recognized for their hard work in providing the goods and services required to be responsive. The response efforts nonetheless suffered from three primary deficiencies. First, there was inadequate planning and preparation in anticipating requirements for needed goods and services. Some key agencies did not always have adequate plans for contracting in a major contingency situation. For example, FEMA did not adequately anticipate needs for temporary housing and public buildings. Tensions also existed between selecting national contractors and the Stafford Act requirement for a preference for contractors from the affected area. Second, there was a lack of clearly communicated responsibilities for contracting activities across agencies and jurisdictions. When disasters occur, local or state officials sometimes determine contract requirements and send them to FEMA, which writes and awards the contract or passes that responsibility on to another agency. FEMA or another agency may then oversee contract performance. Although this process requires clear alignment of responsibilities and good communications, our fieldwork found examples that did not meet that standard. Although the process for ordering and delivering ice depends on good communications between FEMA and the Corps, for example, Corps officials said FEMA did not fully understand the contracting approach they used and ordered at least double the amount of ice required, resulting in an oversupply of ice and a lack of distribution sites to handle the volume ordered. Third, there were insufficient numbers and inadequate deployment of personnel to provide for effective contractor oversight. For example, FEMA's contracts to install temporary housing in four states had only 17 of the 27 technical monitors that were needed for oversight. GAO has identified practices in the public and private sectors that provide insight into how federal agencies can better manage their disaster-related procurements, including: developing knowledge of contractor capabilities and prices by identifying commodities and services and establishing vendor relationships before they are needed; establishing a scalable operations plan to adjust the level of capacity required to effectively respond to needs; formally assigning and communicating disaster-related responsibilities, with joint training for government and contractor personnel; and providing sufficient numbers of field-level contracting staff with the authority needed to meet mission requirements.

section_title: Letter
paragraphs: Thank you for inviting me here today to discuss the practices for managing  federal disaster recovery contracts related to Hurricanes Katrina and Rita  and how these practices can be improved. The size and strength of  Hurricane Katrina resulted in one of the largest natural disasters in our  nation’s history, and in its aftermath major questions have been raised  about our nation’s readiness and ability to respond to catastrophic  disasters. Hurricane Rita increased demands on an already stressed  response and recovery effort at all levels of government.
GAO has a large body of ongoing work on a range of issues relating to all  phases of the preparation, response, recovery, and rebuilding efforts  related to Hurricanes Katrina and Rita. GAO’s work has been coordinated  with the rest of the accountability community at the federal, state, and  local levels to ensure that all significant issues associated with relief and  recovery, including contracting, are addressed while avoiding unnecessary  duplication of efforts.
Comptroller General Walker recently testified on GAO’s preliminary  observations on the challenges encountered in the response to Hurricane  Katrina, and he identified four themes that are similar to lessons learned  from past catastrophic disasters. These include the central importance of  (1) clearly defining and communicating leadership roles, responsibilities,  and lines of authority for response in advance of a catastrophic disaster;  (2) clarifying the procedures for activating the National Response Plan and  applying them to emerging catastrophic disasters; (3) conducting strong  advance planning and robust training and exercise programs; and   (4) strengthening response and recovery capabilities for a catastrophic  disaster.
These themes directly relate to what I will discuss today, namely how  three agencies planned for and conducted oversight of several key  contracts in support of Katrina and Rita response and recovery efforts: the  General Services Administration (GSA), the Federal Emergency  Management Agency (FEMA), and the U.S. Army Corps of Engineers (the  Corps).  For those areas where we identified deficiencies, I will also  discuss public and private sector practices that provide examples of how  the federal government could better manage its disaster-related  procurements. In doing our review, we selected 13 mission-critical  contracts, each with a dollar value in excess of $5 million, that were  awarded to 12 contractors performing work for the three agencies. We  analyzed how monitoring policies and processes were put into practice.  We also reviewed the practices of selected federal agencies, state  emergency management agencies, commercial businesses, and a major  utility that responded to Hurricane Katrina, analyzing their policies and  procedures to identify successful practices and alternative approaches for  managing disaster-related procurements. We conducted our work from  October 2005 through March 2006 in accordance with generally accepted  government auditing standards.
subsections: section_title: Contractor Roles in Emergency Response Operations Are Increasing
paragraphs: The private sector is an important partner with the government in  responding to and recovering from natural disasters such as Hurricanes  Katrina and Rita. As we recently noted, such partnerships increasingly  underlie critical government operations. With hundreds of billions of tax  dollars spent each year on goods and services, it is essential that federal  agency acquisitions be handled in an efficient, effective, and accountable  manner.
Over $87 billion of federal funding has been appropriated in response to  the recent hurricanes. In responding to Hurricanes Katrina and Rita, the  government depended heavily on contractors to deliver ice, water, and  food supplies; patch rooftops; and provide housing to displaced residents  and temporary facilities to local government agencies. Overall, the  circumstances caused by the hurricanes created a difficult environment in  which agencies had to balance the need to deliver goods and services  quickly with the need for appropriate controls. Although achieving that  balance is sometimes hard to accomplish, that fact must not be allowed to  serve as an excuse for poor contracting practices.
section_title: There Was Inadequate Planning and Preparation in Anticipating Requirements for Needed Goods and Services
paragraphs: The need for strong planning is one of the themes identified by the  Comptroller General in regard to the government’s overall response to the  hurricanes. Planning also must explicitly address the need for and  management of the contractor community. In previous work we said that  for federal agencies to be effective they need to develop the knowledge  necessary to identify, select, and manage contractors, including having  competitively awarded contracts in place prior to a disaster. We found that  some key agencies did not always have adequate plans for contracting in a  major contingency situation. We also noted the competing tensions  between the selection of national contractors and the requirement under  the Stafford Act for a preference for contractors from the affected area.  Better planning could have alleviated those tensions.
While contracts for some items were in place prior to the storm, FEMA did  not adequately anticipate needs for such services as providing temporary  housing and public buildings.
The practice of the Corps is to establish Planning and Response Teams for  various missions assigned to it by FEMA prior to an event, with specific  responsibilities assigned to team members. However, the Corps indicated  it did not know prior to the hurricane that it would be tasked by FEMA  with some of the mission assignments it received. In one case, faced with a  compressed time frame for acquiring portable classrooms and with no  prior knowledge about the classroom mission they were assigned, Corps  contracting officials placed an order, under an existing agreement, with a  subsidiary of an Alaska Native Corporation under the Small Business  Administration’s section 8(a) Business Development Program. The Corps  accepted the contractor’s proposed price of $39.5 million even though it  had information that the cost for the classrooms was significantly less  than that. Based on our analysis of a quote obtained by the contractor  from a local Mississippi business, the price the contractor actually paid for  the classrooms, and prices for similar units from GSA schedule contracts,  our conclusion is that the Corps could have, but failed to, negotiate a  lower price.
Similarly, better management of requirements development could have  avoided costs to house workers and victims. Based on information  provided by local officials, FEMA spent $3 million for 4,000 base camp  beds that were never used.
Preparation was also lacking in implementation of the Stafford Act  preference for contractors residing or doing business in the affected area.  The Corps staff expressed uncertainty regarding how to apply preferences  or determine if a company was in an affected area. Several GSA and  FEMA officials indicated they were aware of the Stafford Act, but stated it  is difficult to immediately factor in local businesses in such a catastrophic  event. GSA officials stated they plan to review the Federal Acquisition  Regulation (FAR) to see if additional Stafford Act guidance is necessary.
In discussing our findings and observations with FEMA officials, they said  they are taking steps to improve in areas such as staffing and  premobilization capabilities. However, they also stated that such pre- planning and preparedness has a cost. The Corps commented that  contracting staff need to have defined requirements in order to get the  right type of contracts put in place, and the contracting staff did not  always get defined requirements in a timely manner. Additionally, a Corps  official commented that until funding for a particular mission is secured,  preparation for it cannot go forward and this also delayed contracting  efforts. Finally, both GSA and the Corps noted that they tried to reach out  to local and small businesses through forums and other means to make  them aware of opportunities to contract with the federal government.
subsections: section_title: Examples of Federal, State, and Private Sector Practices for Improving Planning and Preparation
paragraphs: Officials that we talked to in the public and private sectors considered pre- identification of commodities, scalable operations, and pre-established  vendor relationships to be essential for ensuring adequate planning and  preparation for providing needed goods and services following a disaster.  For example:    Florida’s Division of Emergency Management developed a database that  pre-identifies over 200 supplies and services that may be needed to  respond to a disaster. Florida also pre-qualifies vendors, recording  quantities and locations of vendor supplies, and establishes rates before  each hurricane season, giving it the knowledge it needs to quickly procure  supplies and services at a reasonable price. Similarly, Wal-Mart uses a  database to review historical buying trends to identify what goods will be  in demand both before and after a hurricane, and to stock the merchandise  in its stores accordingly.
The Corps awards Advanced Contracting Initiative (ACI) contracts to  fulfill its anticipated disaster response missions. ACI contracts are used to  jump start the missions following a disaster, with the Corps bringing in  other contracts as necessary to complete the work.
Part of Mississippi Power’s operations plan is to identify multiple potential  staging areas, and multiple housing and food supply options for its own  and outside workers, which enables the company to expand or reduce its  operations depending on the size of the disaster. After Hurricane Katrina,  Mississippi Power’s scalable operations plan enabled it to shelter and  manage more than twice the number of outside personnel it had planned  for, but that were needed to restore service as quickly as possible to all  customers able to receive power.
section_title: There Was a Lack of Clearly Communicated Responsibilities across Agencies and Jurisdictions
paragraphs: We also found that processes for executing contracts were hindered by  poor communication of responsibilities. As envisioned under the National  Response Plan (NRP), federal agencies responding to a disaster carry out  their acquisition functions through a network of federal, state, and local  agencies. In some instances, the local or state officials determine the  requirements and communicate them to FEMA; FEMA may write and  award the contract or communicate the requirements to another agency  that writes and awards the contract; and then FEMA or another agency  oversees contract performance. This approach puts a premium on aligning  roles and responsibilities clearly and maintaining good communications to  ensure effective execution of the contract.
Our fieldwork identified examples where unclear responsibilities and poor  communications resulted in poor acquisition outcomes. For example:    FEMA officials stated that a contractor spent approximately   $10 million to renovate 160 rooms and furnish another 80 rooms in military  barracks in Alabama that a FEMA survey team identified for use as  temporary housing. To renovate the facility, FEMA headquarters awarded  a contract without consulting local FEMA officials in Alabama. According  to FEMA officials in Alabama, however, the facility was not needed and  they tried to stop the renovation. These same FEMA officials stated that  few evacuees agreed to live at the facility, and when officials decided to  close the facility, it had only six occupants.
The process for ordering and delivering ice heavily depends on effective  communications between FEMA and the Corps. However, according to  Corps officials, FEMA did not fully understand the contracting approach  used by the Corps and ordered at least double the amount of ice required,  resulting in an oversupply of ice and a lack of distribution sites available to  handle the volume ordered. Additionally, the local Corps personnel were  not always aware of where ice might be delivered and did not have the  authority to redirect ice as shipments arrived, resulting in inefficient  distribution and receipt at the state level.
FEMA tasked GSA to write three contracts in Louisiana for base camps,  hotel rooms, and ambulances, with a total value of over   $120 million. GSA contracting officers awarded the contracts, but could  not tell us which FEMA officials would be responsible for overseeing  contractor performance. The FEMA official identified as the main point of  contact by GSA did not have any knowledge of these contracts or who was  responsible for oversight. Only after contacting multiple FEMA officials  over a 3-week period were we able to determine the agency officials  responsible for contract oversight.
In commenting on our findings, GSA officials stated that their role is to  provide resource support in the response phase of a disaster, meaning  they are responsible for executing contracts under the NRP, and FEMA is  responsible for monitoring the contracts. FEMA officials commented that  there needs to be more clarity regarding procurement roles and indicated  one of their goals is to work with GSA to clarify procurement  responsibilities for the future. GSA officials indicated that the current  memorandum of understanding between GSA and FEMA is being updated  to reflect the standards of the new NRP as well.
subsections: section_title: Examples of State and Private Sector Practices for Establishing and Communicating Responsibilities
paragraphs: To clearly establish and communicate disaster-related responsibilities,  public and private sector officials told us they use such practices as  conducting joint disaster response training for agency employees and  contractors and formally assigning their employees specific disaster- related responsibilities. For example:    The employees at CSX Transportation Railroad and their suppliers  participate jointly in both disaster planning and training exercises. This  allows each supplier to know its responsibilities and the railroad’s  expectations in the event of a natural disaster.  As a part of its preparation  for disaster response, the Florida Division of Emergency Management  holds joint state-wide training exercises every year with suppliers.
Management-level personnel at Mississippi Power are assigned disaster  director roles aligned to their day-to-day functions, which they assume  during the company’s storm preparation phase. Each disaster director has  a designated backup and directs all disaster-related activities within his or  her functional areas. Each functional area has a specific disaster plan that  is integral to the overall corporate disaster recovery plan. Each Mississippi  Power employee also has a storm assignment and receives annual training  on that assignment.
section_title: There Were Insufficient Numbers and Inadequate Deployment of Personnel to Provide for Effective Contractor Oversight
paragraphs: The purpose of agencies’ monitoring processes is to ensure that  contracted goods and services are delivered in accordance with the  agreed-upon schedule, cost, quality, and quantity provisions stated in the  contract. Without sufficient numbers of trained people properly deployed,  however, effective monitoring is hampered and agencies may not be able  to identify and correct poor contractor performance in a timely manner.  Furthermore, agencies can be at risk of paying contractors more than the  value of the services performed.
Our work indicated that while monitoring was occurring on the contracts  we reviewed, the number of monitoring staff available was not always  sufficient, and staff were not always effectively deployed. For example:    FEMA’s contracts for installing temporary housing in four states had only  17 of the 27 technical monitors that had been determined necessary to  oversee contractor performance.
Corps officials responsible for overseeing the “blue roof” program’s field  operations told us it was slowed down due to the lack of sufficient  monitors.
Deployment practices did not always provide for appropriate notification  of responsibilities or overlap of rotating contracting officers and oversight  personnel, thus making knowledge transfer and continuity of contract  management operations difficult. For example:    For four of the contracts we reviewed, officials were either unaware or not  notified by FEMA of their oversight responsibilities.
The lack of overlap between oversight personnel for a large temporary  housing contract left the most recent contract administrator with no  knowledge or documentation of who had authorized the contractor to  perform certain activities or why the activities were being performed.
While discussing our findings and observations with FEMA officials, they  emphasized that they lacked adequate staffing, but said they have made  efforts to fill staffing gaps. Additionally, FEMA officials stated they  recognize the need for continuity in contract oversight and indicated they  are implementing a process to ensure workload and knowledge sharing  among rotating personnel. However, they also believe that fewer transition  difficulties exist now as a result of hiring more people and having more  oversight officials staying in the affected areas. GSA officials indicated  there may also be other alternatives for ensuring adequate contract  oversight, such as designating GSA employees to conduct oversight on  some contracts. Corps officials stated their policy is to rotate certain  personnel every 29 days to keep personnel costs to a minimum because of  regulations under the Fair Labor Standards Act.
subsections: section_title: Examples of Federal and Private Sector Practices for Improving the Deployment of the Contracting Workforce
paragraphs: Practices we identified to better ensure sufficient numbers and adequate  deployment of personnel in a disaster situation include establishing  response structures that employees can be “plugged” into and moving  employees from routine service into disaster response. For example:    The Corps and the Forest Service deploy pre-established trained teams to  disaster locations to manage specific missions, such as debris removal and  base camp support. These teams include specialists with the authority  needed to provide on the ground procurement support to meet mission  needs.
In response to Katrina, Landstar, a transportation services company under  contract to the U.S. Department of Transportation, diverted agents from  routine customer service activities to emergency response activities,  including staffing logistics staging areas, while continuing to meet the  basic needs of commercial clients. Similarly, Wal-Mart reassigned  employees from their regular duties in the corporate office to serve as  operators in the company’s call center for associates affected by the  hurricane.
In closing, in any acquisition agencies must have in place sound  acquisition plans, processes to make and communicate good business  decisions, and a capable acquisition workforce to monitor contractor  performance so that the government receives good value for the money  spent. These components are critical to successfully managing contracts in  any environment—even in contingency situations such as those presented  by Hurricanes Katrina and Rita.
Mr. Chairman, this concludes my statement. I would be happy to respond  to any questions you or other Members of the Committee may have at this  time.
For further information regarding this testimony, please contact   William T. Woods at (202) 512-4841 or woodsw@gao.gov. Individuals  making key contributions to this testimony included Penny Augustine,  James Kim, John Needham, Kenneth Patton, Matthew Saradjian, David  Schilling, Shannon Simpson, and Katherine Trimble.
section_title: Appendix I: Recent GAO Products on Hurricanes Katrina and Rita
paragraphs: Hurricane Katrina: Planning for and Management of Federal Disaster  Recovery Contracts. GAO-06-622T.  (Washington, D.C.: April 10, 2006).
Hurricane Katrina: Comprehensive Policies and Procedures Are Needed  to Ensure Appropriate Use of and Accountability for International  Assistance. GAO-06-460. (Washington, D.C.: April 6, 2006)
Hurricane Katrina: Policies and Procedures Are Needed to Ensure  Appropriate Use of and Accountability for International Assistance.  GAO-06-600T.  (Washington, D.C.: April 6, 2006).
Hurricane Katrina: Status of the Health Care System in New Orleans  and Difficult Decisions Related to Efforts to Rebuild It Approximately 6  Months After Hurricane Katrina. GAO-06-576R.  (Washington, D.C.:   March 28, 2006).
Agency Management of Contractors Responding to Hurricanes Katrina  and Rita. GAO-06-461R. (Washington, D.C.: March 16, 2006).
Hurricane Katrina: GAO’s Preliminary Observations Regarding  Preparedness, Response, and Recovery. GAO-06-442T.  (Washington D.C.:  March 8, 2006).
Emergency Preparedness and Response: Some Issues and Challenges  Associated with Major Emergency Incidents. GAO-06-467T.  (Washington:  D.C.: February 23, 2006).
Disaster Preparedness: Preliminary Observations on the Evacuation of  Hospitals and Nursing Homes Due to Hurricanes. GAO-06-443R.  (Washington: D.C.: February 16, 2006).
Investigation: Military Meals, Ready-To-Eat Sold on eBay. GAO-06-410R.  (Washington: D.C.: February 13, 2006).
Expedited Assistance for Victims of Hurricanes Katrina and Rita:  FEMA’s Control Weaknesses Exposed the Government to Significant  Fraud and Abuse. GAO-06-403T.  (Washington: D.C.: February 13, 2006).
Statement by Comptroller General David M. Walker on GAO’s  Preliminary Observations Regarding Preparedness and Response to  Hurricanes Katrina and Rita. GAO-06-365R.  (Washington, D.C.:  February 1, 2006).
Federal Emergency Management Agency: Challenges for the National  Flood Insurance Program. GAO-06-335T.  (Washington, D.C.: January 25,  2006).
Hurricane Protection: Statutory and Regulatory Framework for Levee  Maintenance and Emergency Response for the Lake Pontchartrain  Project. GAO-06-322T.  (Washington, D.C.: December 15, 2005).
Hurricanes Katrina and Rita: Provision of Charitable Assistance.   GAO-06-297T.  (Washington, D.C.: December 13, 2005).
Army Corps of Engineers: History of the Lake Pontchartrain and  Vicinity Hurricane Protection Project. GAO-06-244T.  (Washington, D.C.:  November 9, 2005).
Hurricanes Katrina and Rita: Preliminary Observations on Contracting  for Response and Recovery Efforts. GAO-06-246T.  (Washington, D.C.:  November 8, 2005).
Hurricanes Katrina and Rita: Contracting for Response and Recovery  Efforts. GAO-06-235T.  (Washington, D.C.: November 2, 2005).
Federal Emergency Management Agency: Oversight and Management of  the National Flood Insurance Program. GAO-06-183T.  (Washington, D.C.:  October 20, 2005).
Federal Emergency Management Agency: Challenges Facing the National  Flood Insurance Program. GAO-06-174T.  (Washington, D.C.: October 18,  2005).
Federal Emergency Management Agency: Improvements Needed to  Enhance Oversight and Management of the National Flood Insurance  Program. GAO-06-119.  (Washington, D.C.: October 18, 2005).
Army Corps of Engineers: Lake Pontchartrain and Vicinity Hurricane  Projection Project. GAO-05-1050T.  (Washington, D.C.: September 28,  2005).
Hurricane Katrina: Providing Oversight of the Nation’s Preparedness,  Response, and Recovery Activities. GAO-05-1053T.  (Washington, D.C.:  September 28, 2005).
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