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No-bid Katrina Contract Led to $7.8M in Waste, GAO Says

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 Alaskan Native-owned firm, said the government wasted at least $7.8 million. 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., where auditors determined that 10,777 manufactured homes costing $301.7 million were sitting unused in runways and open fields.

"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 stated. "We believe the Corps could have, but failed to, negotiate a lower price."

The Army Corps did not have an immediate comment Thursday. 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, which was 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 even 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 the $301.7 million trailer waste in Hope, Ark.; $3 million that FEMA spent 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 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.

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.