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Auditors Keep Watch Over Katrina Contracts

Government auditors are questioning whether several multimillion-dollar Katrina contracts — including one involving a Halliburton Co. (search) subsidiary — invite abuse because they are open-ended and not clearly defined.

The contracts, for services such as levee repair and emergency housing, were granted to companies based on their pre-existing business relationships with the government. Critics say the arrangements foster cronyism because a few repeat players typically get the best deals.

The Government Accountability Office and the Homeland Security Department, which has primary responsibility for reviewing the billions of dollars worth of Katrina contracts, said they will focus on the agreements that were awarded with little or no competition.

They include "indefinite delivery-indefinite quantity" contracts such as those involving Halliburton subsidiary Kellogg, Brown & Root Services Inc. of Arlington, Va., and San-Francisco-based Bechtel Corp. Both firms have strong ties to the Bush administration.

"We've been looking at all the contracts from day one," said Richard Skinner (search), the Homeland Security Department's inspector general. "One concern is whether you are getting the fair market value. The second is whether the people we are giving contracts to are the best qualified."

Of the 22 contracts awarded so far by the Army Corps of Engineers, 11 are so-called ID-IQs; so are several granted by the Federal Emergency Management Agency.

One such contract is a $16 million government work order given to the subsidiary of Halliburton, the company headed by Vice President Dick Cheney (search) from 1995 to 2000 that has been cited for overcharging the government for work in Iraq. The deal, to plug levee breaches, was awarded as part of a pre-existing Navy construction contract.

Previous government audits have cited these type of contracts as highly vulnerable to abuse because government officials and companies can exploit their terms, which tend to be broadly defined, such as services as for "management improvement."

In the past, an ID-IQ contract for information technology was improperly used to justify hiring contract interrogators from Virginia-based CACI International for Iraq's Abu Ghraib (search) prison. A Pentagon audit later found that and poor Army oversight contributed to problems, leading to allegations of torture.

"We want to make sure agencies have processes and procedures in place to ensure contracts are performed as required," said Bill Woods, a director at the GAO, the investigative arm of Congress. "Things can slip through the cracks."

Other targets include an agreement with Bechtel Corp. (search) for short-term housing that was awarded without competition. The company, whose CEO Riley Bechtel served on President Bush's Export Council from 2003-04, began providing work even though a formal contract with cost and payment provisions has yet to be signed.

Bechtel spokesman Howard Menaker (search) said the company was asked to provide an immediate supply of trailers and mobile homes in the Gulf Coast based on Bechtel's "long and accomplished history in emergency response." The company previously provided government services in Iraq.

Companies typically compete for an ID-IQ contract in a broad area, such as "information technology in Iraq." The deals give the government flexibility to act quickly in a crisis by granting work to a preapproved set of contractors, who then charge the government for the tasks they perform up to the maximum amount.

In recent years, however, GAO reports have found that ID-IQs can be prone to abuse.

For example, the GAO determined in June 2004 that the Pentagon went beyond the scope of an ID-IQ contract when it awarded work to KBR for Iraqi reconstruction efforts. It also said government officials routinely bypassed normal competition rules — often improperly — to reward repeat players based partly on comfort level than merit.

As a result, even when the government allowed competing bids, newer companies often didn't bother to submit time-consuming proposals. That's because the firms assumed there was little chance of winning, the GAO report said.

"You have to be careful what ID-IQs are used for, what gets tucked into them," said James Mitchell, spokesman for Stuart Bowen (search), the special inspector general for Iraq reconstruction.

The concerns have prompted a flurry of bills that would create additional oversight and fuller disclosure of Katrina contracts.

One, proposed by Senate Homeland Security Committee Chairwoman Susan Collins, R-Maine, would expand Bowen's authority to review Katrina spending.

House Democratic Leader Nancy Pelosi (search), D-Calif., meanwhile, has called for an independent antifraud panel modeled after the Sept. 11 commission. The bill by Rep. Henry Waxman, D-Calif., would ban "monopoly contracts" awarded to repeat players such as Halliburton and ensure deals are awarded "on merit as opposed to relationships."