[Senate Hearing 109-743] [From the U.S. Government Publishing Office] S. Hrg. 109-743 KATRINA AND CONTRACTING: BLUE ROOF, DEBRIS REMOVAL, TRAVEL TRAILER CASE STUDIES ======================================================================= HEARING before the FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY SUBCOMMITTEE of the COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS SECOND SESSION __________ FIELD HEARING IN NEW ORLEANS, LA __________ APRIL 10, 2006 __________ Printed for the use of the Committee on Homeland Security and Governmental Affairs _______ U.S. GOVERNMENT PRINTING OFFICE 28-237 PDF WASHINGTON : 2007 ------------------------------------------------------------------ For sale by Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250. Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS SUSAN M. COLLINS, Maine, Chairman TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas JOHN W. WARNER, Virginia Michael D. Bopp, Staff Director and Chief Counsel Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel Trina Driessnack Tyrer, Chief Clerk FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY SUBCOMMITTEE TOM COBURN, Oklahoma, Chairman TED STEVENS, Alaska THOMAS CARPER, Delaware GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey JOHN W. WARNER, Virginia MARK PRYOR, Arkansas Katy French, Staff Director Sheila Murphy, Minority Staff Director John Kilvington, Minority Deputy Staff Director Liz Scranton, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Coburn............................................... 1 Senator Carper............................................... 4 WITNESSES Monday, April 10, 2006 Tina Burnette, Deputy Director Acquisitions for Katrina, Department of Homeland Security................................ 5 Lieutenant General Carl A. Strock, Chief of Engineers, U.S. Army Corps of Engineers............................................. 7 Matthew Jadacki, Inspector General of Hurricane Katrina Oversight, Department of Homeland Security..................... 9 Patrick J. Fitzgerald, Auditor General, U.S. Army Audit Agency... 11 Thomas F. Gimble, Principal Deputy Inspector General, Department of Defense..................................................... 12 Hon. David Vitter, a U.S. Senator from the State of Louisiana.... 17 Hon. Mary L. Landrieu, a U.S. Senator from the State of Louisiana 19 Hon. Bobby Jindal, a Representative in Congress from the State of Louisiana...................................................... 20 Hon. Steve Scalise, Representative, Louisiana State Legislature.. 30 Bill Woods, Director of Acquisition and Sourcing Management Team, U.S. Government Accountability Office.......................... 32 Derrell Cohoon, Chief Executive Officer, Louisiana Associated General Contractors............................................ 34 Kevin Davis, President, St. Tammany Parish....................... 35 Alphabetical List of Witnesses Burnette, Tina: Testimony.................................................... 5 Prepared statement........................................... 51 Cohoon, Derrell: Testimony.................................................... 54 Prepared statement........................................... 113 Davis, Kevin: Testimony.................................................... 35 Fitzgerald, Patrick J.: Testimony.................................................... 11 Prepared statement........................................... 69 Gimble, Thomas F.: Testimony.................................................... 12 Prepared statement with an attachment........................ 73 Jadacki, Matthew: Testimony.................................................... 9 Prepared statement........................................... 59 Jindal, Hon. Bobby: Testimony.................................................... 20 Prepared statement with attachments.......................... 97 Landrieu, Hon. Mary L.: Testimony.................................................... 19 Scalise, Hon. Steve: Testimony.................................................... 30 Strock, Lieutenant General Carl A.: Testimony.................................................... 7 Prepared statement........................................... 55 Vitter, Hon. David: Testimony.................................................... 17 Prepared statement with attachments.......................... 80 Woods, Bill: Testimony.................................................... 32 Prepared statement........................................... 103 APPENDIX Charts and pictures submitted by Senator Coburn for the Record: ``Hurricane-Related Spending,'' Source: Senate Budget Committee.................................................. 47 ``Costs of Legislative Response to Domestic Emergencies,'' Source: Senate Budget Committee............................ 48 Picture of trash being loaded submitted by Senator Coburn.... 49 Picture of Wrangler trailer submitted by Senator Coburn...... 50 Questions and responses for the Record from: Ms. Burnette................................................. 120 Lt. Gen. Strock.............................................. 132 Mr. Jadacki.................................................. 140 Letter from CRS, dated March 29, 2006, submitted by Senator Coburn......................................................... 143 KATRINA AND CONTRACTING: BLUE ROOF, DEBRIS REMOVAL, TRAVEL TRAILER CASE STUDIES ---------- MONDAY, APRIL 10, 2006 U.S. Senate, Subcommittee on Federal Financial Management, Government Information, and International Security, of the Committee on Homeland Security and Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 11:30 a.m., at the Louisiana Supreme Court Building, 400 Royal Street, New Orleans, Louisiana, Hon. Tom Coburn, Chairman of the Subcommittee, presiding. Present: Senators Coburn, and Carper. Also Present: Senators Vitter, Landrieu, and Representative Jindal. OPENING STATEMENT OF SENATOR COBURN Senator Coburn. The Subcommittee on Federal Financial Management, Government Information, and International Security will come to order. We will dispense with opening statements other than that I will summarize, and I think Senator Carper will, and I ask unanimous consent that my opening statement be made a part of the record, as well as other members of the panel. We're here not to put blame on any individual. We recognize the hard work of most of the people involved in the Hurricane Katrina and Rita disasters and we praise your effort and your dedication. What we are here to find out is what went wrong, why it cost more than it should, what can we change so we know what to do in the future so that we're more responsive or more efficient with our responsiveness and accountability that can be tracked at every level. We have in front of us today, in our first panel, Tina Burnette, Deputy Director of Acquisitions for Hurricanes Katrina and Rita at the Federal Emergency Management Association (FEMA). Previously Ms. Burnette served as the Deputy Assistant Commissioner of Commercial Acquisitions at the General Services Administration's Federal Supply Services. Lieutenant General Carl Strock is Commander in Chief of Engineers at the U.S. Army Corps of Engineers. Previously, Lieutenant General Strock served as Director of Civil Works at the U.S. Army Corps headquarters. Matthew Jadacki is the Special Inspector General for the Gulf Coast Recovery of the Department of Homeland Security. He has previously served as the Chief Financial Officer for the National Weather Service and before that, he was acting CFO with FEMA. Patrick Fitzgerald is Auditor General of the U.S. Army Audit Agency. Mr. Fitzgerald joined the Army Audit in 1980 and has held a variety of key positions in the agency field offices and operations. Thomas Gimble is the principal Inspector General of the Department of Defense. He began his Federal civilian career with the Air Force Audit Agency when it was created in 1976. Since then, he has worked in several key positions within the Department of Defense. I might note that Senator Carper and myself, along with Senator Obama, asked the President or Chief Financial Officer when this occurred. We were not successful in that. My hindsight is 20/20 and now says we should have had that because the effect of not receiving it means that the tracing of the accountability and responsibility is going to be more difficult. We are now looking at things after the fact instead of before we signed the check or signed the contract. [The prepared statement of Senator Coburn follows:] PREPARED STATEMENT OF SENATOR COBURN Last August, Hurricane Katrina wreaked havoc upon the Gulf Coast. A few short months later, Hurricane Rita pounded the Gulf Coast, exacerbating the challenges of reconstruction. As you can see from the chart Congress has already appropriated $100.9 billion for the recovery efforts. Between recent approval of $3 billion by the Senate and a request by the President of $20 billion, we are looking at $123 billion dollars to date. As you can see from the graph, the money spent on this recovery effort is the most expensive rebuilding effort of all-time. To put this into perspective, Hurricane Katrina recovery funding will be over eight times the amount of Federal hurricane recovery aid for the entire 2004 hurricane season. Now, perhaps, Katrina was eight times worse than the previous year's season. There's a valid argument to be made. But with this level of disaster, it is all the more important that the money Americans have provided for their neighbors in the Gulf Coast not be wasted. The Congress has held extensive hearings on Hurricane Katrina back in Washington. We're not here to assign blame and reconstructed a minute-by-minute account of failure. Rather, we're dealing here with a few case studies of financial management that I believe are symptomatic of government's inherent limitations. A Federal bureaucracy based in Washington is always going to come up short when it is trying to watch billions of dollars far from Washington. But the nature of this disaster is that the Federal Government will be spending money here for years to come. So let's take a look at a few specific cases and see if we can learn something that we might apply not only across the rest of the recovery effort, but across other disasters in the future. Today, we will explore Federal contracting and management of three programs: The ``Blue Roof'' Program, debris removal, and the travel trailer program. While the audits of these programs have only just begun, initial reports from the media, the Government Accountability Office, and local officials paint a disappointing picture. We've heard about unreasonably inflated prices, excessive layers of subcontracting, and inadequate oversight for these three programs. Last year, Senator Carper and I introduced with Senator Obama, a bill that would have created an independent chief financial officer. This CFO would be in charge of every penny that goes out the door. With the huge opportunity costs associated with wasted tax dollars, I know the American public and the people of the Gulf Coast deserve no less. The CFO would have been responsible for the efficient and effective use of Federal funds in all activities relating to the recovery from Hurricane Katrina. Unlike an inspector general which audits money after it has been spent, the CFO would have been responsible for preventing problems. Unlike the so-called ``IG Council'' that was put in charge of financial management for recovery, a CFO would have been a single accountable point of reference. In other words, the CFO's motto would be ``the buck stops here.'' We were promised that a CFO wasn't necessary. We were promised that every dollar would be tracked. When the Senate was presented with the first supplemental appropriations request for tens of billions of dollars, we were assured that the expenditure of this money would be accountable and responsible and the American people would not be embarrassed. After months of hearings and investigation, it seems that we had the oh-so-predictable waste and fraud that always accompanies huge money rolling out fast and unwatched by Washington. As reported in recent news articles, there are cases where the price for putting a blue tarp on a roof costs close to the price of hiring a roofing company to install a new roof. We also hear reports of travel trailers that retail around $16,000 to $20,000 costing FEMA up to $60,000 for purchasing, hauling, installing, and removing. Two thirds overhead seems awfully high to me. There are reports of FEMA spending up to $400,000 to prepare lots for these travel trailers only to find out after the fact that local authorities either did not give authorization to build at those locations or communities weren't properly consulted. With debris removal, there are cases where top contractors are reportedly charging up to $30 per cubic yard while five sub-contractors deep, the workers actually doing the work receives sometimes as little as $6 per cubic yard. Some may argue that inflated prices and multi-layering of contracts is to be expected due to the downsizing of Federal procurement staff. They say that it takes five layers of middle-men, each taking his cut, in order to get money from Washington to Biloxi. I'm not buying it. And Americans shouldn't stand for it. The Government Accountability Office--that's Congress' investigation operation--has recently issued a report highlighting the systematic failures that are creating these types of problems: Inadequate planning and preparation, lack of clearly communicated responsibilities, and insufficient numbers and inadequate deployment of personnel. FEMA is only at 73 percent of its authorized staffing levels. In addition, FEMA still does not have a permanent director, four of the ten division chiefs and four of the ten regional directors are serving in an acting capacity. In another example, GAO reports that a contract worth $120 million was tasked to the General Services Administration by FEMA, and it took FEMA three weeks to pinpoint the person responsible for oversight on the contract. There have been all kinds of new task forces, councils, and coordination models that have been born as reports of problems keep surfacing, but the problem with each is the same. You can't fix it after the fact. As former Secretary of State Colin Powell famously noted with respect to recovery of devastated regions: ``You break it, you buy it.'' He wasn't talking about domestic disaster recovery, but the principle is the same. When we have funneled money through a broken system, Americans are on the hook to pay for the consequences of that system throughout the life of the reconstruction. But it's not just today's taxpayers who are on that hook. We have mortgaged this recovery on the backs of our children and grandchildren. Their future quality of life is in further jeopardy every time we fritter away another dollar. Today we'll be looking at the following questions:How extensive is the problem of mismanagement and waste that is reported both by GAO and the media? What steps are FEMA and the U.S. Army Corps of Engineering taking for current and future contracts to ensure reasonable prices before a contract is signed? Is it possible to cut out some of the layers of sub- contracting that, in some cases, is over six levels deep? Is the Federal Government getting the oversight and management out of the prime contractors that we are paying for? What are we to expect from the Inspector General community regarding ongoing audits of the blue roof, debris removal, and the travel trailer program? Is the Inspector General community receiving adequate funding to handle the burden of the additional Katrina audits as well as audits for normal agency programs? I want to thank all the witnesses for being with us here today, some of them taking time away from tireless and thankless work to answer our questions. I know that good people with good hearts are running these operations and we are not here to question anyone's motives. Thank you very much for your service to the region's recovery and to our country. Senator Coburn. Senator Carper. OPENING STATEMENT OF SENATOR CARPER Senator Carper. Thanks Mr. Chairman. Let me just say to our witnesses welcome, it's nice to see some of you again and to see others for the first time. We want to express our thanks to the staff here at this facility for the warm welcome that's been extended to us. It's great to be with our colleagues Senator Landrieu and Senator Vitter, and we thank you and your staff for your hospitality. I have a statement I'd like to ask to be entered into the record. Let me just say very briefly when Senator Coburn and I hold hearings in Washington or actually around the country, and we do a fair amount of that, what we're looking for is not so much to pin blame or to assign blame, we're looking to find out how to learn from whatever mistakes we're making and to make sure that we won't make the same mistakes over and over and over again. We all know that Katrina was well telegraphed and is not the last hurricane we're going to see in our country and certainly this part of the country and we need to be prepared whether, it's in New Orleans or some other place, Pensacola, or Corpus Christi. We need to be prepared for it to make sure that when we turn to the taxpayer and ask them to pay large sums of money to help those communities get back on their feet that they know their dollars are being well spent. So we look forward to learning a lot here and the other thing we look forward to doing is learning some lessons so that when this happens again, hopefully not here but some other place, we won't make the same mistakes. Thank you. [The prepared statement of Senator Carper follows:] PREPARED STATEMENT OF SENATOR CARPER Thank you, Mr. Chairman, for taking the time to focus on these issues. More importantly, thank you for holding this hearing in New Orleans so that we can see first hand the progress that has been made and the work still to be done in bringing this city back. I'll start off by saying that I truly believe that FEMA and the agencies and contractors on the ground here and in Mississippi and Alabama following Hurricane Katrina worked as hard as they possibly could to provide goods and services to those in need following the storm. Anyone who turned on their television set the week of the storm, however, could see that the Federal Government's overall response to Katrina was confused and ineffective. Poor planning at FEMA and elsewhere before the storm contributed, in all likelihood, to a tragic loss of life and property. While there are still audits and investigations underway, it's clear from the evidence before us today that poor planning contributed to a tragic waste of taxpayer dollars as well. The people of New Orleans and the other communities affected by Katrina deserve every penny we've provided them as they've worked to pick up the pieces. At the same time, however, they also deserve to know that the money coming down here is spent appropriately and effectively. I believe it's been a little over 7 months now since Katrina made landfall. The 2006 hurricane season is now right around the corner. we're going to learn a lot more today about what went wrong post- Katrina but, as a Senator from a State that's seen its fair share of hurricanes in the past, I'm also interested in learning what FEMA and the other agencies involved have done to set things right. I believe this is the third time in the past year or so that we've heard testimony about FEMA waste. The full Committee held hearings following a 2004 hurricane in Florida and again during its Katrina investigation showing that the agency lacked the basic internal controls necessary to ensure that its post-disaster assistance funding goes only to those who are eligible to receive it. Now we hear that, while residents of New Orleans and other communities are still struggling to find the resources to get their lives and their business back together, FEMA and the Corps have been wasting money on needless bureaucracy and to compensate for the fact that they just didn't plan ahead. I look forward to hearing from our witnesses and from our colleagues from Louisiana about how we can do things better next time. Senator Coburn. Before we get started, Ms. Burnette I noted that we didn't get your testimony until 5 p.m. Friday. I have a routine habit of hoping that we can expect compliance out of agencies. That undermines our effectiveness because I didn't get to read your testimony until this morning and I hope that would be communicated again to OMB because I know those testimonies have to go through them and if you would send that signal, I'd very much appreciate it. Each of you will be given 5 minutes. Your complete statement will be made a part of the record and then we'll have questions from both ourselves, Senator Vitter, and Senator Landrieu. Ms. Burnette. TESTIMONY OF TINA BURNETTE,\1\ DEPUTY DIRECTOR ACQUISITIONS FOR KATRINA, DEPARTMENT OF HOMELAND SECURITY Ms. Burnette. I apologize for that. Mr. Chairman and Members of the Subcommittee, My name is Tina Burnette and I've been the Deputy Director of Acquisitions for Gulf Coast Recovery of FEMA since January of this year. Thank you for the opportunity to appear here today to discuss the successes of the Agency as well as the challenges and response to Hurricane Katrina. Prior to being named to my current position, I spent 90 days in Louisiana as the On Site Acquisition Support to the Katrina Recovery Office headed by Vice Admiral Thad Allen. I'm a career Federal executive and spent 16 years of Federal service in the procurement profession. As the Deputy Director, I supply oversight and support for those acquisitions issued in support of the Gulf Coast Recovery. In the days immediately following the disaster, the primary goal was meeting urgent and humanitarian needs. Clearly, an equally important responsibility in our office then and now is to stewardship of taxpayer dollars and insure integrity of the contracting process. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. Burnette appears in the Appendix on page 51. --------------------------------------------------------------------------- To insure integrity and transparency, the Department of Homeland Security established an Oversight Board which is chaired by the Under Secretary for Management and oversees hurricane funding that the Department receives. The Board recently established an Oversight group responsible for reviewing high risk Katrina contract actions which includes verifying what was purchased, the reasonableness of the price, and the extent of competition. Special attention is being paid to the individual assistants technical assistance contracts that were sole sourced to four companies: Fluor, Shaw, CH2MHill, and Bechtel. FEMA is preparing for the next hurricane season and has established a priority list of acquisitions that will enable a more responsive ordering process for the goods and services while ensuring a fair and reasonable price. FEMA is also working with the Defense Logistics Agency on assisting with commodity contracts and with the General Services Administration on the better utilization of their Agency's services. I know that there has been much stated about the recompeted of the IA-TAC. Let me be clear. It is being recompeted. First, maintenance and deactivation of the temporary housing units will be assumed by approximately 36 small and small disadvantaged businesses, some of which have already been awarded. Other efforts are also being recompeted such as group site maintenance and infrastructure support. The new IA-TAC for the upcoming hurricane season will be awarded competitively on a national basis. We have already sent out for this requirement and a request for proposal will be issued very soon. FEMA is also in the process of increasing its Acquisition Corps to handle post-Katrina work by adding 60 positions that will include procurement and program management personnel. As of last week, we have hired 45. I know that you're particularly interested in debris removal, the Blue Roof Program, and temporary housing. FEMA supports debris removal through the mission assignment issued to the U.S. Army Corps of Engineers, and also reimburses State and local government that contract with local debris contractors through the public assistance grants program. The Blue Roof Program is also supported through the U.S. Army Corps. FEMA's primary support of the program last year was through the purchase of blue tarps awards that were made to multiple vendors that could meet our required delivery date and the prices were consistent with past purchases. To provide timing housing assistance and meet one of FEMA's top mission goals of moving applicants out of shelters and into houses, we purchased temporary housing units from manufacturers and from dealer inventories. We purchased over 140,000 temporary housing units and expended approximately $2.7 million dollars. These costs included delivery to the logistical staging area but they do not include installation. We anticipate that 151,000 temporary housing units will be installed by the time this effort is complete. Currently, we have over 110,000 that are either occupied or are ready to be occupied. We've established a Program Management Office to ensure that funds are being expended appropriately and we use the Defense Contract Audit Agency to review proposals and make recommendations prior to final negotiations. Sub-contractual relationships are an integral part of this effort and are good for local businesses and for small businesses. As a result of these sub-contracts, FEMA now has a much larger pool of highly qualified small businesses that can compete directly for future disaster response efforts. Mr. Chairman, in the days immediately following Hurricane Katrina, the primary focus of FEMA's procurement office and of the entire procurement community was to act as quickly as possible within the parameters of acquisition law and regulation and to obtain the materials and support desperately needed in the devastated areas. FEMA procurement professionals also recognize their responsibility and worked within the system to ensure that contracts were awarded correctly. Currently, DHS is reviewing transactions to ensure that proper procedures were followed and that appropriate decisions were made. We are using the reviews, the results of those reviews, to help us understand how to do better next time. Thank you Mr. Chairman and I look forward to the Subcommittee's questions. TESTIMONY OF LIEUTENANT GENERAL CARL A. STROCK,\1\ CHIEF OF ENGINEERS, U.S. ARMY CORPS OF ENGINEERS General Strock. Mr. Chairman and Members of the Subcommittee, I'm Lieutenant General Carl A. Strock. I'm the Chief of Engineers. I thank you for the opportunity to testify before you today concerning the Corps' disaster relief contact procedures. With your permission, I'll summarize my statement here and provide my full statement for the record. --------------------------------------------------------------------------- \1\ The prepared statement of General Strock appears in the Appendix on page 55. --------------------------------------------------------------------------- Senator Coburn. Without objection. General Strock. Under the National Response Plan, the Corps is assigned as the coordinator for Emergency Support Function or ESF-3, Public Works and Engineering. During disasters, the Corps is the primary agency for response activities such as ice, water, and temporary power. FEMA is the primary agency for ESF-3 recovery activities and assigns the Corps to assist in the execution of debris missions. The Corps is also a support agency to other ESFs such as ESF-6, which is mass care and housing by executing missions to provide temporary roofs. The Corps has started a program called the Advance Contracting Initiative or ACI under which we competitively award contracts for future use in the areas of water, ice, power, temporary roofing, and debris removal. Having these contracts in place allows the Corps to rapidly respond to emergency situations. We did, in fact, use our ACI contracts to support the Hurricane Katrina recovery and also in those areas impacted by Hurricanes Rita and Wilma. The Federal procurement system is based on the principle of full and open competition. Congress also realized that emergency situations sometimes require emergency actions. The Federal Acquisition Regulation known as the FAR is the implementing regulation for government-wide procurement. In most cases, the FAR mandates a 15-day advertising period and a 30-day proposal period. If you follow these usual rules for full and open competition, we would not have been able to award the contract to get the flood waters out of New Orleans until the end of October. The FAR allowed us to considerably shorten the time period for the award under the urgency exception and a contract was awarded on September 2, 2005. The scope of the damage of Hurricanes Katrina, Rita, and Wilma was unprecedented with 90 thousand square miles of land significantly impacted. That's greater than the area of Great Britain. There is over 100 million cubic yards of debris that is eligible for Federal assistance. Tremendous progress has been made in removing debris over the last 7 months. The Corps is responsible for the removal and disposal of debris in 54 counties and parishes in four States totaling about 60 million cubic yards. In the first 7 months, 45 million cubic yards of this debris were removed. Due to the unprecedented and widespread devastation, the Corps needed to award additional debris removal contracts. We awarded four additional contracts for debris removal in Mississippi and Louisiana. Each contract valued at $500 million has a $500 million dollar option. This was open to any company and the Corps received 22 proposals. The contracts were awarded on the basis of the best value to the government. The Army Audit Agency is currently reviewing the award and the administration of these four contracts. The hurricanes of 2005 also had an enormous impact on homes to include damages to thousands of roofs. FEMA tasked the Corps to provide temporary roofs for over 194,000 homes in Florida, Louisiana, Mississippi, and Texas. This tremendous undertaking was completed over a few months and allowed thousands of disaster victims to return to their homes. The temporary roofs should not be confused with self-help tarps that are provided to homeowners. The temporary roofs installed by the Corps use sturdy plastic sheets, professionally installed and securely fastened, to provide an important degree of protection from the elements. Before plastic can be installed, roofs usually require some repair to roof the structure. There may also be a requirement to furnish and install joists and rafters. The Corps awarded several ACI contracts for temporary roofs in the Gulf region. Given the magnitude of the damage during the 2005 hurricane season, four additional contracts were awarded under urgency procedures utilizing the ranked proposals of the original competition. The Corps makes extensive use of standard authorities granted to us under the various small business set aside programs, especially in the area of the Small Business Administration registered 8(a) firms. We have instituted high goals for small business sub-contracting and include a reporting requirement that keeps focus on achieving results in these areas. We have been following an acquisition strategy for the continued mission from FEMA that includes opportunities at the prime level for local disadvantaged companies and a geographic set aside for the unrestricted portion of the strategy. Competition was limited to Mississippi companies for the Mississippi aspect of the mission and will be limited to Louisiana for the Louisiana mission. The Corps of Engineers takes great pride in being a learning organization and every event is different. Mistakes can and do occur. There is also opportunity for unscrupulous individuals to take advantage of the system and we work hard to strike a balance between expeditiously providing relief to those in need while doing so in the most efficient and effective manner. One solution is to immediately deploy Corps internal auditors, teamed with the Defense Contract Audit Agency and the U.S. Army Criminal Investigation Command, to oversee all emergency response efforts to note actual or potential mistakes, help mission managers comply with their fiscal stewardship responsibilities, and to detect instances of fraud, waste, and abuse. Corrective actions are implemented immediately. I welcome the reviews conducted by the external audit and investigative activities as they are also a valuable tool for us to identify potential vulnerabilities and weaknesses in the processes and procedures. Several years ago, the Corps instituted a formal procedure, our Remedial Action Program, to capture lessons learned and to adjust our processes for future events. To close, I'd like to thank you again Mr. Chairman for allowing the Corps of Engineers the opportunity to appear before this Subcommittee to discuss contracting procedures during times of emergencies. Many Corps personnel have served our Nation by helping in the response to natural disasters in Texas, Louisiana, Mississippi, Alabama, and Florida, or elsewhere in the Nation and the world. We are proud to do so and I'd be happy to answer any questions the Members of the Subcommittee may have. Thank you. Senator Coburn. Thank you, General. TESTIMONY OF MATTHEW JADACKI,\1\ INSPECTOR GENERAL OF HURRICANE KATRINA OVERSIGHT, DEPARTMENT OF HOMELAND SECURITY Mr. Jadacki. Good morning Mr. Chairman, Members of the Subcommittee, and guests. Thank you for the opportunity to be here today to discuss our overseeing of Federal pre-disaster planning and contract management issues in response and recovery efforts after Hurricane Katrina. In the aftermath of a major disaster such as Hurricane Katrina, the Federal Government is obligated to ensure that immediate steps are taken to protect the lives and property of its citizens and to mitigate any further damage or harm, to make sure that roads are clear of debris to allow emergency workers access to affected areas, to provide temporary shelter or housing to disaster victims who lose their homes, and to provide interim repair to buildings to enable victims to remain or return to their homes and prevent further damage. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Jadacki appears in the Appendix on page 59. --------------------------------------------------------------------------- As my testimony indicates, there are many weaknesses in the Federal Government's pre-disaster planning and contract management oversight efforts. We are still in the process of fully evaluating the overall contracting efforts related to Hurricane Katrina, however, our work thus far has disclosed that FEMA either purchased supplies, commodities, equipment, or other resources to support emergency and disasters response efforts in insufficient quantities or over purchased commodities because of requirement planning prior to Katrina was inadequate. The government, in many instances, did not pay reasonable prices for goods and services because competition was limited or non-existent and costs and prices were not always controlled because of the government's contract oversight and monitoring was inadequate. FEMA's core mission is to respond to emergencies and procure emergency supplies and equipment on a recurring basis. Therefore, planning for these procurements would represent sound business practice. Because of the unpredictable nature of emergency operations, such planning cannot always be used to select specific sources in advance of disasters. However, for each major type of procurement pre-disaster planning can address the following: Identify prospective sources of supplies and services, delineate how competition will be sought, promoted, and sustained during emergency operations, describe how Stafford Act requirements for preferences of firms affected by the disaster will be made, lay out source selection procedures for each type of procurement, and establish communications systems and processes and publicize them in order to have prospective sources know how to contact FEMA procurement personnel. The above pre-disaster planning did not take place, therefore FEMA found itself in an untenable position and hastily entered in contracts with little to no contract competition for disaster commodities. We are currently reviewing the entire process for accountability for the travel trailers from additional orders received by FEMA to final delivery to an evacuee. We have reviewed various reports all with the different sets of numbers as to what has been ordered, received, and occupied. These discrepancies suggest that FEMA and its contractors did not have sufficient controls or systems in place for the trailers and their ultimate disposition. Under the Stafford Act, States have the option of either using the Corps of Engineers to provide debris removal or enter into direct contracts and get reimbursed through the Public Assistance Program under the Stafford Act. We are in the process of auditing debris removal contracts awarded to the States. In the past, we have waited until all or most of the work has been completed before starting our reviews. The amount of destruction and resulting debris from Hurricanes Katrina, Rita, and Wilma created unprecedented debris removal operations estimated at several billion dollars. As a result of this massive effort, we initiated audits of a number of debris removal grants with the goal of identifying and preventing problems before they occur. Specifically, we're looking at the reasonableness of debris removal contracts, types of awards, and terms and conditions. In the past, we've found cases of price gouging, non-arms length transactions, bribery, and false or padded billings. Some of our work resulted in arrests and convictions, other work identified significant, ineligible, or questionable costs that required reimbursement to the government. The Blue Roof Program provides roof tarps to homes that sustained some but not major roof damage. Additionally, FEMA asked the Corps of Engineers to install the roofs in mission assignments under a Presidential Disaster Declaration. FEMA purchases and stockpiles the tarps using its specifications for grade and quality. The Corps of Engineers is responsible for hire crews for tarp installation. I would like to note some of the activities of the Inspectors General. As a community, the Inspectors General throughout the Federal Government have committed to providing effective contract oversight and established a Hurricane Katrina contract audit task force to coordinate those efforts under my office. This group includes auditors from DHS, GAO, and the Department of Defense, including the service-oriented agencies from the Army and Navy, HUD, HHS, the Department of Energy, GSA, and the Environmental Protection Agency. One of the objectives of the contract audit task force is to provide consistent contract oversight across all government agencies involved Katrina. In closing, through our oversight efforts, we have learned the following: FEMA scrambled to purchase supplies, commodities, and equipment and other resources to support emergency and disaster response efforts from numerous vendors because requirement planning prior to Katrina was inadequate. In many instances, the government did not pay a reasonable price for its purchases because competition was limited and the government's contract oversight and monitoring was inadequate resulting in cost and price variations. Because of the nature of disaster operations, we understand that acquisition planning has to be sufficiently flexible to address the impact of the disaster and the production capabilities and available onsite inventory. However, pre-disaster acquisition planning can balance the capabilities of distributors, wholesalers, retailers, and manufacturers, and call or standby contracts with pre-negotiated prices, quantities, terms and conditions, and specifications could have greatly facilitated procurement operations. As I pointed out, there are many weaknesses in the Federal Government's pre-disaster planning and contract management efforts. We hope that the lessons learned from our findings will help address weaknesses and be better prepared for future disasters. Mr. Chairman, this concludes my prepared remarks. I'll be happy to answer any questions. Senator Coburn. Thank you General. We look forward to your report. TESTIMONY OF PATRICK J. FITZGERALD,\1\ AUDITOR GENERAL, U.S. ARMY AUDIT AGENCY Mr. Fitzgerald. Mr. Chairman and distinguished Members, thank you for the opportunity to be here today to discuss with you our oversight work related to the Hurricane. As the Army's Auditor General, I'm responsible for the worldwide operations of the U.S. Army Audit Agency. Army Audit is the internal audit organization and we provide objective, independent audit services to the Army and to the Corps of Engineers in its disaster relief role. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Fitzgerald appears in the Appendix on page 69. --------------------------------------------------------------------------- After Hurricane Katrina, we met with the DOD and the GAO to design a plan to provide oversight for DOD funds for relief and recovery efforts. As part of the plan, we assumed the responsibility for the Corps' mission assignments for debris removal, demolition, and repair of hurricane protection systems. Today I'm going to focus my statement on debris removal and our audit results to date. We began field work last October and are nearing completion of our initial audits. The scope coverage is debris contracts and the pending solicitations for the demolition contracts. In response to Hurricane Katrina, FEMA provided the Corps with the mission assignment of debris removal. The Corps has contracts in Mississippi and Louisiana. The first contract was awarded in November 2002 as an ACI contract. However, immediately after the hurricane, the Corps officially recognized that this contract did not have the capacity to handle the widespread destruction and cleanup. Within days, the Corps, prepared solicitations to award four indefinite delivery and indefinite quantity contracts, each with a $500 million limit and an option for an additional $500 million. The Corps awarded four contracts on September 15, 2005 and as of March 28, 2006, the Corps has obligated about $1.6 billion. The Corps' decision to award four large contracts of $500 million each led to multiple tiers of subcontractors. The private contractors did very little debris hauling. As a result, they sub-contracted a large majority of their work with most sub-contracts going to small and disadvantaged businesses located in the hurricane affected areas. We reviewed the costs proposals submitted by the private contractors that showed markups for management, overhead, and profit ranging from about 17 to 47 percent of the subcontractor's costs. During the audit, we recommended that the Corps award future contracts in smaller amounts. The Corps has agreed and has scaled back the scope of the new contracts for the demolition work to $150 million or less. Another area we reviewed was contract pricing. Although fixed price contracts were awarded, the Corps contracting officials negotiated higher prices for most of the tasks orders issued under three of the four contracts. Our analysis of the individual task orders showed that the negotiated prices were higher than both the initial bids and the government's independent estimate. We recommended, and the Corps has agreed, that the Defense Contracting Audit Agency review these negotiated task orders to determine the reasonableness of the prices. If defective pricing is found, the government would have an opportunity to recoup any overstated costs. We also looked at the Corps process for monitoring contractor performance. Although we found it adequate, we did identify some quality control practices that could be done more efficiently. We recommended that the Corps standardize its quality control requirements that it made with the contractors and that the Corps' quality assurance plans be fully developed and synchronized for both existing contracts and implemented for all future debris and demolition contracts. In conclusion, we have been working closely with the Corps to develop solutions to these issues. The Corps' management has addressed our concerns promptly and has been very responsive to our recommendations. I appreciate the opportunity to testify before you today and will be glad to respond to any of your questions. Thank you. Senator Coburn. Thank you Mr. Fitzgerald. Mr. Gimble. TESTIMONY OF THOMAS F. GIMBLE,\1\ PRINCIPAL DEPUTY INSPECTOR GENERAL, DEPARTMENT OF DEFENSE Mr. Gimble. Mr. Chairman and distinguished Members, thanks for the opportunity to appear before the Subcommittee today to address our ongoing oversight work regarding Operation Blue Roof. My testimony today also describes the oversight activities within the Department of Defense regarding hurricane relief and recovery efforts. I should also note that I'm working in close coordination with other Federal inspectors general to ensure effective use of DOD resources in the relief and recovery efforts. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Gimble appears in the Appendix on page 73. --------------------------------------------------------------------------- In total, my office, the service audit agencies, the Defense Contract Audit Agency and the defense criminal investigative organizations have employed a cadre of about 150 investigators, auditors, and inspectors to provide oversight of the contracts and operations. The DOD office of Inspector General also provided the facilities and personnel to stand up the hurricane fraud hotline. My office has currently 11 ongoing audits related to Hurricane Katrina. The service audit agencies have 14 additional ongoing audits projects. The audit projects are listed in the appendix of my prepared statement and cover the following areas: Contracting, contract data reporting, purchase card transactions, effects on information technology in the areas affected, accounting and oversight of obligations and expenditures, and use of DOD's resources supporting recovery and relief efforts. In addition, my investigators from the Defense Criminal Investigative Service (DCIS) received 21 criminal allegations related to Hurricane Katrina. At this time, the DCIS has opened six cases involving bribery, kickbacks, and possible product substitution. Three of those relate to debris removal and one relates to blue roofs. The Defense Contract Audit Agency (DCAA) is supporting both FEMA and the Corps of Engineers in their Hurricane Katrina recovery efforts. The DCAA has assisted the Corps with the blue roof and debris missions by verifying contractor compliance with terms and conditions of the contract. Regarding the blue roof mission. DCAA findings included a lack of initial estimates on Right of Entry forms, claimed quantities in excess of the actual physical roof area, incomplete certified payroll records, and safety violations. Regarding the debris mission, the DCAA findings included the need for improved observation tower locations at the dump sites, a lack of standard procedures for determining the amount of debris hauled to the dump sites, a lack of controls over the billing process and safety violations. The Corps of Engineers has taken or is in the process of taking corrective actions with responsible contractors. Operation Blue Roof is a priority mission managed by the Corps of Engineers for FEMA. The program provides free temporary roofing for residential structures, schools, daycare centers, and all publicly owned facilities. On November 9, 2005, we announced an audit of the Army Corps of Engineers Operation Blue Roof Project. This audit is in response to a request we received from the House Committee on Homeland Security and also the Senate Committee on Homeland Security and Governmental Affairs. The objective of the audit is to determine whether the Corps properly awarded and administered the contracts for Operation Blue Roof. We're currently reviewing all seven contracts with 29 delivery orders for a total obligated dollar value of $277.5 million for temporary roofing work done in Louisiana and Mississippi. We plan to issue a draft audit report in June 2006. Also, in preparation for the 2006 hurricane season, the Corps is planning to award new Operation Blue Roof contracts. On November 30, the Corps Mobile District posted a solicitation for Indefinite Delivery/Indefinite Quality (IDIQ) contracts for temporary roof repairs in 10 Gulf and East Coast States. The responses are currently in and are going through the source selection process. It is our understanding that the Corps plans to make multiple contract awards, both unrestricted and set- aside. This June, in response to concerns related to subcontracting and contract pricing for Hurricane Katrina relief and recovery efforts, we plan to initiate an audit of the Corp's Blue Roof Mission to examine the costs contractors used to establish pricing, the percent of contract cost for overhead, and how many layers of subcontractors were used. This concludes my statement and I'll be happy to answer any questions. Senator Coburn. Mr. Gimble, thank you very much. We'll start out with a round of questions of 5 minutes apiece. Ms. Burnette, what limits on overhead will be on the new recompeted contracts and can you document for this Subcommittee a reason ability analysis you perform before signing those new contracts? Ms. Burnette. I'm sorry Mr. Chairman, are you referring to the recent maintenance and deactivation contracts? Senator Coburn. Yes. Ms. Burnette. The maintenance and deactivation contracts were a competitive acquisition and the majority of the work that was competed under them were from fixed price. And so in those situations you don't typically negotiate overhead or you do an elements of cost-type breakdown. It's just based on a scenario. Senator Coburn. And how about the contracts that had no bids that are to be rebid? Ms. Burnette. Mr. Chairman, we are in process of working with DCAA to ensure that the overhead costs are consistent with their best business practices that they charge to other customers. We have put a provision in each of the task orders that states that no final negotiated contracts, no final negotiated prices will be allowable until after DCAA has confirmed that both their overhead rates and their general administrative fees are confirmed to be reasonable. Senator Coburn. General Strock, I know you're here on one of your days off. I appreciate your being here. Thank you. It is my understanding that the Army Corps offers local parishes two choices in Louisiana: One, allow the Army Corps to do the debris removal or, two, allow the parishes to do the work but pay 10 percent of the cost while the Army Corps pays 90 percent of the cost. Tell me why it's set up that way. What are the laws? Do we need to change something under the Stafford Act? What is it that we should be doing so that we can have more of the work done? My understanding is that we have a large number of community contractors in place that were not available for some of this contracting. General Strock. Sir, it was previously the policy that we would charge 90 percent Federal and ten percent local if locals went their own way on that. That has now been changed and FEMA no longer follows that process. They do go to a 90/10 percent cost share at some point following a disaster but when that kicks in, it will apply to both the work done by the Corps as well as by the locals. Senator Coburn. So there wasn't necessarily an inhibitant 10 percent fee that we weren't working under that or we were but we changed our mind? General Strock. Sir, it was that way for a time. That was the understanding but given the magnitude of this disaster, that policy was changed so everything that is judged to be 100 percent Federal will be applied whether you do it locally or with the Corps of Engineers responsible. Senator Coburn. I'd like to ask consent from the Subcommittee to introduce into the record a letter we received from the Congressional Research Service \1\ on the Corp's contracting with the major contractors on debris removal and the fact that many of them were told not to give interviews, not to divulge their pricing. Is there any contract that the people of this country should not know what we're paying for and where the money went? Other than defense intelligence and national security issues, is there a reason why somebody should not have their contract exposed to sunshine as to what they're getting paid, what the details of the contract are? --------------------------------------------------------------------------- \1\ Letter from CRS, dated March 29, 2006, submitted by Senator Coburn appears in the Appendix on page 143. --------------------------------------------------------------------------- General Strock. Sir, I think there are some situations in which there are proprietary processes involved and the cost of which give that contract a competitive advantage and they're reluctant to divulge those. Senator Coburn. In debris removal? General Strock. Sir, I don't know to answer to that, whether the specific cost breakdown in the contract is something we can share. I don't believe we can. I think that's proprietary information but we can certainly share the overall---- Senator Coburn. That's something I assure you we're going to change. The people of this country have the right to know what we're paying and what we're getting. The fact that we would in the Federal Government contract then say we can't tell the American people what we're paying, or have an assessment of how we value it, has got to change. We cannot get what your actual contract's were when we talk to local contractors, and we can't find out whether or not they could have competitively bid it. We have anywhere from $27 to $32 per cubic yard and if you have 100 million cubic yards, you're talking $3.2 billion dollars. That ought to be in the sunshine. People ought to know. They ought to be able to see what we're paying and what we're getting and I would hope, I would think the Members of this panel would agree with that and that if we need to change some type of legislation, then that's what we will do here. That's one of the things that creates a competitive equality out there. Is there a law somewhere or a regulation that says you can't do that or is that part of your contract agreement that you won't? General Strock. No, it's certainly contained in the Federal Acquisition Regulation and I'm not sure whether that's statutory or policy. Perhaps I could get a head nod. It is the policy, sir. Senator Coburn. It's the policy and not statutory? All right, thank you. General Strock. Sir, if I may comment also on the statement that some of our people were told not to talk and not to be interviewed. If that did occur, that's absolutely contrary to our policy. We believe in talking to anybody and explaining anything that they want to talk about. Senator Coburn. It was not your people. The Corps of Engineers asked ECC not to give interviews. This is a direct quote from the CRS bulletin, page 4 issued to us March 29, 2006. General Strock. Then I'll need to look into that, sir, because that's certainly something we wouldn't do, normally. Senator Coburn. Thank you. Senator Carper. Senator Carper. When I was a kid growing up, my father used to say to my sister and me, we have a job to do and we wouldn't do it very well. He was always saying if a job is worth doing, it's worth doing well. He was an old Chief Petty Officer in the Navy. We must have screwed up a lot because he said it a lot. My father would also say to my sister and me if we did some bone-headed stunt, he'd say just use some common sense. Just use some common sense. Everything I do, I know I can do better. I suspect the same is true with you in the jobs that you lead and the people you work with. I want to ask you to be thinking. I think what is a real value to me is a hearing like this. We have a lot of smart people here who thought and worked hard on a problem and see where you agree some things we ought to be doing differently. That's what I'm going to be asking. Where is some consensus on this panel to things we should be doing differently through legislation, through regulation, or just through policy that's within your own job. While you're thinking about that, let me go back to the issue the Chairman touched upon and that's debris removal stuff. I understand the States have the option of working with the local contractors themselves and then getting reimbursed by the Federal Government. It seems that States have the incentive to go with the Army Corps contractors because the Federal Government picks up 100 percent of the cost. As a recovering governor, if I could get somebody else to pick up 100 percent as opposed to 80 or 70 percent, I'd look for 100 percent. It seems there's an incentive that we have for States to go with the Army contracts because of this 100 percent policy and there's no State to match when the work is done in that way. In instances where the State is doing their own debris removal, do we see fewer of these multi tiered contracts? And, second, is the work done more cost effectively? General Strock. Sir, I can't comment directly on layers of tiering and local contracts. I don't know the answer to that but I can probably find out for the record, if you let me do that. In terms of the costs, I think intuitively there is a higher cost when you bring in our oversight. It's for many reasons. We have, well I hate to characterize us as more rigorous or stringent than locals in terms of things like safety or quantity. In audits, we bring in a full sweep of auditors and checkers when we come to the table. So I don't know that I can categorically state that our costs are higher but intuitively they may be a bit higher. We also had to bring in people from outside. We had over 3,000 people in the Corps of Engineers that had to come in from around the country and other agencies that responded so the rates we pay to our people are probably a bit higher than local people overseeing local work. But what we do bring is the ability to take that burden off the local population as they are trying to recover, that we can get the job done for them. They don't need to be subjected to audits and they don't need to worry about the safety of the operations. They can focus on other things and hand it off to us and certainly there was an incentive in the past when if locals did it, after a point they would pick up 10 percent of the cost so there are many incentives to using us. I think you have to look at all of that to make a full determination about the efficiency and effectiveness of the rates that the Corps charges. Senator Carper. Let me go back to my other question and that is where do you think you might agree as a panel on some things that we ought to do differently in terms of legislation, in terms of regulation, and just in terms of policies that you are aware of, and I'll just start here with Mr. Gimble because I like your first hand. Mr. Gimble. Thank you, Senator. I think what we have going, the body work we have going to do the ideas--we're in the process--I think we're in the position if you take this and look at, if you're talking about overall contracting procedures, we probably have some ideas on that but when you look at a disaster of this degree and you look at all the things that we've done, I think when we get to look at the lessons learned, what I think we are going to be doing is that we will come up with some recommendations to increase competition, to improve oversight, probably will be some pre- planning that everybody said can be improved. So I guess I'm not really ready to comment on legislation---- Senator Carper. When might you be? Mr. Gimble. Probably at the end of the summer. Senator Carper. End of when? Mr. Gimble. August time frame. As I said earlier, we have 11 audits ongoing dealing with contract issues and among other things, we've actually survived the audit's contract issues. We think it's going to give us a good basis to overall contracting and then some specific like ice water and the blue roof issue. We have some specific contracts on this. We ought to have a good array of what we think went wrong in terms of just overall contracting, contract negotiation, and pre-planning. At this point, based on just what happened with Hurricanes Katrina and Rita, we were not really firmed up on what the issues will end up being at this point. Senator Carper. And you won't be in a position to do that until the end of the summer? Mr. Gimble. Well, we'll be, in the August time-frame. Senator Carper. My time is expired. Will we come back for a second round? Senator Coburn. We'll try and do that. Senator Vitter. OPENING STATEMENT OF HON. DAVID VITTER,\1\ A U.S. SENATOR FROM THE STATE OF LOUISIANA Senator Vitter. Thank you Mr. Chairman. I want to thank you and the Ranking Member, Senator Carper, for bringing this field hearing to Louisiana. It's very important. We share your frustration with costs that are much higher than they have to be, waste of U.S. taxpayer dollars. In addition, we have two Louisiana frustrations. One, in the midst of this process, far fewer Louisiana firms are being used that could otherwise be used and that would help to do it differently and would help with our recovery, and two, it's really frustrating that all of this money, including this waste, is still being counted against us even though we're not seeing results or that waste here on the ground, so thank you for this hearing. --------------------------------------------------------------------------- \1\ The prepared statement of Senator Vitter with attachments appears in the Appendix on page 80. --------------------------------------------------------------------------- Ms. Burnette, I'm convinced from looking at this for months that the fundamental problem is the overall model which is used which is basically very large contracts under which grow layer upon layer upon layer of subcontractors. Blue roof contracts are the perfect example the prime getting between $150 to $175 per square foot and then six, seven, eight layers of subs underneath them and the person putting on the blue roof getting 10 cents or less per square foot. As you re-bid these contracts and move forward, what is going to change with regard to that basic model? Ms. Burnette. Thank you, Senator Vitter. The IA-TAC which is in the process of being re-computed that will be used during the upcoming hurricane season. We're implementing a different type of strategy that I think will alleviate some of your concerns. The initial strategy is to go out on a full and open competition and allow all companies to bid on it because we recognize that under an urgent situation, you may need a contractor that has a lot of experience in those areas. The idea is that once the contractors come in and they kind of get the situation under control, we're also setting up regional BPAs and we're doing this through our partnership with GSA and they will be mostly made up of small businesses in different regions. So each region, depending on where the disaster happens, will be offered an opportunity to participate through a blanket purchase agreement. And last, the last phase of the strategy is once we can isolate the problem, which is what we've done recently where we went out and re-computed the maintenance and the deactivation and we had local firms and I mean to date we've had 36 awards that we're in the process of awarding and 28 of them are from the affected States. It will be a similar situation. Senator Vitter. But you're still talking about very large prime contracts, correct? Ms. Burnette. Initially we're talking about very large prime contracts. Senator Vitter, we had 487 subcontractors, which equated to over 10,000 people. Senator Vitter. Let me throw this idea out in terms of further reform. Rather than a big traditional prime contract, why shouldn't we replace that with a project management contract so that the prime contractor gets a far smaller price to manage a lot of smaller subcontractors, including local contractors underneath them and has an incentive built in to save the government money? Right now, that prime has an enormous incentive to cut costs below him because he keeps all of that money. Under the new model, the government could keep most of that money. Ms. Burnette. I think that's an interesting concept and I'd like to explore that further with my colleagues back in Washington. Senator Vitter. General, I want to go back to this idea of the price of prime debris removal contracts because local government in this area has been trying to understand what you all are paying the primes for months and has done everything under the sun, including FOIA requests to get that information and still hasn't gotten it. Why can't the Corps release the basic contract prices? What could possibly be confidential about the basic contract price that you are paying to the prime? General Strock. You're speaking the price per cubic yard, sir? Senator Vitter. Correct. General Strock. Sir, I don't know that. I know that we have published on occasion what those prices are. I'm not sure which the Congress before you request, but typically here in Louisiana and local parishes we're paying $25 to $26 per cubic yard. I'm not sure why we wouldn't divulge that. Senator Coburn. Senator Landrieu. OPENING STATEMENT OF HON. MARY L. LANDRIEU, A U.S. SENATOR FROM THE STATE OF LOUISIANA Senator Landrieu. Thank you Mr. Chairman. Let me join my colleagues in thanking both of you all, you and Senator Carper, for conducting this hearing because it has been such a tremendous source of frustration as we try to do our best in really a unprecedented disaster in terms of our delegation and local officials to understand the Federal rules and regulations regarding the recovery and trying to manage through all of the different layers of challenges that you can imagine, not just with debris clean-up and blue roofs but re-building, building levees, re-building lives, building dreams, churches, business, homes, etc. It's been extremely frustrating, as Senator Vitter pointed out, to not only have that work well but also to have it charged against us when it doesn't and it truly is really the shortcomings of the Federal policies and Federal rules that are causing a lot of this money to be spent with very little to show for it, so I want to thank you for focusing on this, Senator, because I think there will be a great deal of good that comes out of this hearing and changes. Let me just follow up with the debris removal in this. I am very pleased to see that policy has been changed. It just has been a tremendous source of aggravation to our 19 coastal parishes and others throughout the State that had the challenge of this debris removal so I'm pleased that policy, General Strock, has been changed. I think it would be great to carry that policy on in the future so that 100 percent of the clean- up can be done by the local parish officials and their contractors that routinely are involved in clean-up, even without these large storms. We have all sorts of other smaller storms and problems that occur and they have local contractors that they are very used to working with that do good work and can do it for less so I want to encourage that. Second, I want to support Senator Vitter's suggestion for this project manager. He and I have talked a great deal about this, he's done a lot of good work on it and as we see the incentives as he's outlined, that adds to our frustration. So a project manager approach for some of this would be terrific. We've talked a lot about blue roofs and debris removal but maybe Ms. Burnette or Mr. Jadacki of Homeland Security, we had a policy on trailers, could you describe what it is and how we are evolving to a better policy on trailers relative to not just ordering but where they are going to be used, how we work with our local officials to provide adequate housing? Just be as short in your answer as you can. What have we learned and what are we changing right now about that? Mr. Jadacki. Well as far as the purchases are concerned, when we did our work we found that a lot of purchases--because there was no pre-disaster planning for temporary housing, there was really no idea how many travel trailers were really needed. We understand that people were told to buy until you're told to stop buying. I understand they bought about 120,000 travel trailers and they're still being used extensively. However, there are some manufacturers that providing the travel trailers that were purchased, but there were shortages. There was, I think, over 300 vendors contacted at some point. What do you have on your lot, what can you provide us, can you meet these specs? As a result the prices varied considerably between the price from the manufacturer versus the ones on the lots. Senator Landrieu. Can I ask you one thing? Mr. Jadacki. Sure. Senator Landrieu. Are you aware that there was a project, Operation PAM, conducted just 6 months before the storm where it was estimated that ``X'' number of people would be without homes? When that information got to Washington, did anybody read it? Senator Landrieu. I actually attended the Hurricane PAM exercise as my role as the FEMA CFO and I know specifically some of the scary scenarios that were described there such as 60,000 people possibly dying, hundreds of thousands of people, that would be homeless or displaced. I know that message did get back to Washington. I know for years FEMA had discussed the notion of catastrophic planning initiatives over the years and for whatever reason they just never followed it through to fruition. FEMA's been in and out of the travel trailer business and mobile home business for a number of years and it's just something that seems to reappear after every major disaster. Senator Landrieu. Well, Mr. Chairman, my time is short and it's expired. Just for the record, that operation predicted tens of thousands of people losing their lives and hundreds of thousands of people homeless 6 months before the hurricane and to think that when the hurricane hit there was no plan for shelter either in hotels, temporary housing, or trailers is something that I hope your Subcommittee will focus on. Thank you. Senator Coburn. I want to welcome Congressman Bobby Jindal to be here with us and we're going to afford you your time to do this. We're happy you're here and you have 5 minutes. OPENING STATEMENT OF HON. BOBBY JINDAL,\1\ A U.S. REPRESENTATIVE FROM THE STATE OF LOUISIANA Mr. Jindal. Thank you very much, Mr. Chairman. Senator Carper I want to thank you and Senators Vitter and Landrieu for not only coming but allowing me the privilege of sitting on this panel with you. If there are no objections, I have written a statement that I'd like to read. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Jindal with attachments appears in the Appendix on page 97. --------------------------------------------------------------------------- Senator Coburn. Without objection it may be made part of the record. Mr. Jindal. Thank you Mr. Chairman. Several of my colleagues have made several of the points I wanted to make. I know my time is going to run out before I get to ask all of my questions. I will tell the panelist that many of my questions are contained in two letters that I sent to the Department of Homeland Security. The first, on October 11 of last year, talked about Section 307 in preferences of contracting with local businesses. The second, March 27 of this year, with some suggestions on how we might save taxpayer money and help those dollars go further on the ground. I have not received a reply to either letter. As Senator Vitter said, we have two very strong reasons for being very concerned about the stories we've heard today and heard before today about not getting the best bang for the tax dollars being spent. First, not only as taxpayer but also as representatives many of our colleagues feel like almost $100 billion has been approved, they don't realize that there hasn't been $100 billion of relief on the ground and I think for every dollar that's not being spent effectively is another dollar that could have gone to help a family here in Louisiana or on the Gulf Coast. The second reason for concern is that June 1 is right around the corner. The next hurricane season is about to be upon us. We want to make sure that whatever lessons need to be learned are learned before the next hurricane season. Now, I've got several questions and I want to focus on one area that hasn't been touched upon. If we have a second round of questions, I will certainly come back to debris removal. I want to focus on the trailers for just a second. My understanding is that FEMA may have spent as much as $3 million on 4,000 base camp beds that were never used, $10 million dollars to renovate and furnish 240 rooms in Alabama that housed only six evacuees before that was closed. My understanding is that we're spending, as taxpayers, between $60,000, and maybe as much as $77,000, for each mobile home, for each travel trailer, to provide about 18 months of temporary housing. I also understand that there are at least 10,000 trailers in Arkansas and maybe as many 20,000 that have currently been purchased and haven't actually reached the residents who they're intended to help. If you look at the cost and look at the money that we've spent, it seems pretty self-evident that if you would have taken that money and been more flexible. For example, the local media reported that money could have easily paid for more than 18 months of rent, could have easily help owners repair their homes, and could easily paid for what are being called Katrina cottages and are more durable forms of housing. My question is two-fold. I guess I'll address it to Ms. Burnette to begin with. First, would you agree that if Congress were to change the regulations in the Stafford Act specifically to allow more flexibility to help residents use some of the money spent on their behalf to repair their homes instead of limiting those dollars to trailers, would you agree that the money would actually go further and maybe help more people? Second, would you explore the flexibilities you think you currently have to help break down the costs of those trailers so we're not spending that much money? What flexibilities do you think you currently have to help people either with more permanent housing or repairs to their housing? Ms. Burnette. Congressman Jindal, I actually, because of my experience and because of my background is in procurement, that is a policy question that does need to be debated and I understand that it is being debated amongst the senior leadership. Right now the way the legislation does read is that FEMA is to provide temporary housing for applicants or evacuees when a catastrophic disaster hits. Mr. Jindal. Within temporary housing, do you think you have the ability to work with HUD, for example, instead of doing trailers if there were no other forms of temporary housing available? It's not that it has to be trailers. I mean, if there were more cost effective alternatives. Ms. Burnette. I think the idea that we've recently explored with just the apartments, where we've started to put people into apartments, I think that has been very favorable. I know in Houston that we're working to move 35,000 households out of the hotels and into those apartments and it is, in my mind, probably a better alternative. I certainly would prefer to be in an apartment rather than a trailer and it's certainly more of a long term solution. Mr. Jindal. And I would certainly encourage my colleagues for us to change the law. I would encourage FEMA to take as an expansive a view of the word temporary as possible? Again, I've got to reiterate for our constituents I strongly believe if they have access to those dollars they can make it go much further. If we gave them even a fraction of the $80,000 that is now being spent for 18 months--I believe and I'm certainly encouraged that if we bought these trailers that they would be used. Gentleman, I know my time has run out. I'll just make one comment on debris removal. I won't ask you a question, it wouldn't be fair to do that as my time runs out. I know that we've got a Parish President and other local officials here. I certainly appreciate that we would not have been able to move as much debris as we removed without the Corps' tremendous help. The point I do want to make is that not only the cost is a strain but the paperwork requirements is quite onerous for local officials, when they're told that if you use a local contractor you may be audited, you may not be reimbursed in addition to the cost versus if you let us handle it you don't have to worry about the paperwork, you don't have to worry about the audit. Many of them said simply out of fear that they chose the later approach and some believe if they have control, as I said to FEMA, if individuals felt like they had control over the dollars spent for housing that those dollars would go farther, many local officials feel like if they have greater control over the money spent on debris removal in their parishes and their communities, they could have certainly made those dollars go farther. I'm not asking a question because my time has run out but I'll simply say it's not just the cost, but the paperwork requirements are also very daunting for local officials. Thank you. Senator Coburn. Ms. Burnette, why do you all contract with the Corps? Why do you go through the Corps? Why have that extra layer? You all can't issue four contracts, five contracts, global contracts for debris removal and what are we paying for the Corps to do that? Ms. Burnette. The Corps, we believe that the Corps just as we partner with other Federal agencies, to support catastrophic events such as this. We believe that they have the requisite experience that we don't have internally at FEMA. FEMA is much smaller in size than other government agencies so we rely on our partnerships to support those efforts. Senator Coburn. FEMA is a big agency as far as I'm concerned. I still don't understand why you have to have the Corps to contract for debris removal, tarps, and everything else, and also I'm interested in something General Strock said is because the local governments are inadequately prepared for safety and oversight. I'm not sure that's the case. As a matter of fact, I think we're ill-prepared for oversight. As a matter of fact, this hearing actually, and the testimony of the Inspectors General that we've had, says that we're ill-prepared for oversight. So I'm going to come back again. What is the rationale for FEMA contracting with the Corps, creating a layer of bureaucracy, rather than contracting directly with these major national contractors which we contract almost everything? The Corps contracts almost everything through these people all the time, whether it's through FEMA or through the EPA for cleanups or whatever. Why is it we have to have the Corps do that and why should we pay for an additional layer of bureaucracy to get it done? Ms. Burnette. Mr. Chairman, we believe that there are advantages because of the expertise level that they bring to the table that we don't have. But we have recently started to explore what kinds of things would be better established with other agencies. Certainly housing, and the retooling issues that Secretary Chertoff has provided. He's looking at HUD as a possible alternative for providing housing which goes back to Congressman Jindal's question about apartments and partnering with them. So we are looking at those other alternatives. Senator Coburn. Let me go back again to Senator Vitter talking to you about project manager. Isn't that what the Corps is for you? That's why you're contracting--they're not actually doing direct cleanup work. Aren't they a project manager? So if that's the case, why do we need those huge super large contracts that end up four, five, six, seven, eight tiers down and what do we get for that? Again, if the Corps is the contract manager for the project, then why do we need the massive, large national companies to do that and why don't we go direct to the regional contractors, regional subcontractors, or local contractors? Why add the two layers? If you're going to use the Corps, then why does the Corps have to use the national contractors? Ms. Burnette. I, again, would go back to that we believe that the Corps has the requisite experience to do that. I think that the program management office is an interesting idea and is certainly something that we could explore. Senator Coburn. You have a program manager. That's the Corps. Ms. Burnette. Yes we do. Senator Coburn. You have a program manager. So, again, my question is why is it necessary, if the Corps is the program manager, for them to then contract with a significant higher overhead to the larger national companies rather than regional companies? Ms. Burnette. I think it's the staff that is involved in administering these contracts appropriately that is integral to ensure that it is done properly and meets all regulatory requirements and we believe that the Army Corps has the staff and the knowledge that they bring to the table to support this effort that we don't have internal to FEMA. Senator Coburn. What you will find if you talk to the local contractors around here is the national companies came in and got the big piles, got paid the big bucks. They left when all the profit was taken out. Now they're going to give it to the small companies here in Louisiana and give them the hard work and not give them an opportunity to make any money at it so the vast majority of the money got swept out of town, not into the local economy, and the details of the small debris removal is now left to the people to not make any money on it and to me, you can rationalize it. I don't think there's a rationalization. Either the Corps is the project manager and if they are, you don't need to pay a large corporation to do that. If they're not the project manager, then you don't need them. Senator Carper. I'm going to go back to my earlier question as far as Mr. Gimble who basically said that he thought he would be able to answer the question at the end of the summer. What I'm looking for from each of your guys and I would like to go to Mr. Fitzgerald next. When you look at the statues we have in place and when you look at some of the regulations that are in place at the relevant agencies and when you look at the policies that they are following, just in terms of common sense, saving money, what are a couple of major changes that you would bring to our attention for us as legislatures for the agencies themselves? Mr. Fitzgerald. Senator, I don't know if I have statutory changes to recommend but one of the lessons learned, I think we saw was when we awarded these contracts---- Senator Carper. I don't know that we can legislate common sense? Mr. Fitzgerald. The Corps awarded these debris contracts as firm fixed price competitively awarded contracts. The Corps then negotiated task orders after the initial bids were in. That is an area we took issue with from our standpoint in the sense that we got bids that were competitive bids but then subsequent to that, we had to negotiate higher prices for those task orders because of some unknowns. Documentation wasn't available to show how exactly we got from the initial bid or the independent government estimate to the higher bid. Without that support in the contract files, there's really no way to determine whether those prices that we paid were justified. There are some explanations we got during our audit about why those things happened but we really think it's important that it is supported and documented exactly why we went from a competitively bid price to a negotiated bid price and why the increase was justified or needed. That's why we made a recommendation for the Defense Contract and Audit Agency to come in and look at the pricing to make sure that the increase pricing was totally justified. So the lesson learned, I think, is to make sure that we have the support and justification for negotiating higher prices than what was initially bid or cited in the independent government estimate. That's the lesson learned. Senator Carper. Mr. Jadacki, same question. Mr. Jadacki. There was over 4,000 contracts that were let for over $5 billion dollars after the disaster occurred so the fact that there were a lot of negotiations going on and getting bids going in and out and lack of documentation makes it more difficult to contain costs. We're going to recommend that call or stand-by contracts. I agree with Ms. Burnette that the need for regional and possible local level are in place before these disasters occur. I know there's a lot of concern about June 1 is coming up and we're tracking, we're working closely with the DHS procurement folks about how they are coming along on some of these contracts. We're pleased to see that some of the local awards were made on some of the travel trailer maintenance and deactivation were made, but a lot more needs to be done before hurricane season which is quickly coming towards us. I also agree with Congressman Jindal about the cost of a travel trailer, the life cycle. We actually did some work in that and it does cost $50,000 to $70,000 to provide temporary housing for 18 months. Unfortunately, FEMA's hands are tied by the Stafford Act because they're not allowed to go out and build structures and things like that which could be cheaper. So, I think exploring some of those types of changes that would allow more flexibility would be something we should consider. Senator Carper. General Strock. General Strock. Certainly pre-planning needs to be improved. If I could just comment a bit on these negotiated prices. Certainly we do need to do a better job of documenting our decisions so we can follow that trail but this is a tough one when you have an advance contracting initiative. For example, it's based on--if it's for a region. You take the lowest labor price, in that demanded labor prices, in that region and you base your price on that. Then you get into a crisis situation and in a different part of the country you have to use different labor rates and that automatically drives the price up. We have things like hauling conditions. The contractor will bid on a general sense of what he's going to have to face and then you get into a situation where New Orleans is under water, and you're in tight streets where the work is much more difficult, than we should grant them the ability to come in and negotiate prices. In the early days, in response to New Orleans, every worker had to wear a tie-back suit because we weren't certain about the nature of the contaminants and so forth and that drives the prices up. So we have a mechanism that we can negotiate these prices and given the catastrophic nature of this disaster, the prices generally went up when we did that negotiation. But we did not document it as well as we could have and certainly we're working on that. Thank you. Senator Coburn. Senator Vitter. Senator Vitter. Thank you Mr. Chairman. Ms. Burnette, I want to go back to your answer about what's going to be different this next round because I'm not sure I understood it. I think one of the things you said is you're identifying local subcontractors ahead of time and having pools of those available or something like that. Are they still going to be employed under a mega--prime and if not, what will be the different arrangement? Ms. Burnette. Actually no, they're not going to be underneath a mega--prime. They are going to be their own prime contractor. What we will do is with GSA, we will identify companies in different areas because we don't know where the next catastrophic event will happen and we'll have contractors come in and tell us their expertise. They'll basically compete on a technical and price situation response plan and then they will have agreements with us so that when a catastrophic disaster happens in that particular region, we will have a pool of qualified contractors that can respond to it. Senator Vitter. And a negotiated price already? Ms. Burnette. That is correct, under negotiated prices. Now the disaster could vary but so the pricing that's established will be based on what we know today not by some of what will happen in the future. Senator Vitter. I also want to go back to Senator Coburn's question about the role of the Corps. What money does the Corps get to play the role that you're referring to in terms of these contracts which are ultimately FEMA's responsibility? Ms. Burnette. They have, they are participants in accordance with the National Response Plan. They participate with us and they are our partners in the disaster and they receive an overhead for the amount of contracts that they put in place for those different supplies and services that we ask them to accomplish in accordance with the National Response Plan. Senator Vitter. And how much is that? Ms. Burnette. I am not a technical person and since this is not a procurement issue, we're not procuring with another contractor, we'll have to get back to you Senator. Senator Vitter. And so it's a percentage of everything they put out? Ms. Burnette. It's my understanding that it's a percentage of the dollars that they award and we are looking at that Senator. Senator Vitter. OK. I think we would all like to know what the Corps makes by playing this role in the process, particularly when, from my vantage point, in the great majority of time they don't do significant work in that role, they push it on to mega--national contractors who essentially do that. So I think we would all like to know what the Corps makes in terms of dollars. Chairman, I also want to go back to the debris removal issue. I am very glad also that this disparity between the 90 percent reimbursement and 100 percent if locals use your contracts has been done away with but I think it's still not an even playing field and the reason it's not is that, as you know, it's fine to say you're going to be reimbursed 100 percent but when that happens after reams of paperwork, or doing it three or four times, or a year after the fact, that's a major cost and a major risk to local government so I still think we've got further to go to have a true even playing field. Let me also back up and say that I disagree with any suggestion that the Corps brings higher standards to the table. I think the ultimate, and I know you didn't mean to denigrate local government, but I think the ultimate test there is the fact that locals actually live in those communities day in and day out. They have every incentive in the world to make sure it's done right, quickly, and safely. I think that is far more powerful than the reams of Federal regulations. What would be wrong in telling local government you can do it either way? You could use us, you could use your own locals. If you do it yourself, you're not only reimbursed 100 percent, but every dollar you save compared to our price, you get to keep 20 percent. General Strock. Sir, that's certainly a policy call. It would be out of my lane to comment on that but that could be done. Sir, may I comment a bit on what the Corps brings to this thing. We have what are called Planning and Response Teams. These are pre-trained and ready teams that are ready to flow in. And as I mentioned on this thing of quality and safety and so forth, I said I'm reluctant to make any statements along those lines. We can flow, in fact, trained professionals into an area. We've flown over 3,000 people into this area when this disaster happened. They simply don't have the capacity at the local level. Where they do, then it should certainly be used. The State of Florida does not use the Corps for debris removal because they have a standing capacity. The way FEMA's or the National Response Plan works, locals use their capacity to the degree possible and then, and only then, turn to the Federal Government for assistance. So, really, it's in our best interests as an agency to help work with the locals to build their capacities so we're not required. But I think that the big challenge here was the catastrophic nature of this disaster and the need for a massive response. But we have professionals trained and ready to move it---- Senator Vitter. Let me say that I certainly agree that in this case all of the work could not have been done by purely local contractors but I still think its incumbent on us to go further to even the playing field. General Strock. Yes, sir, I agree with you that it should be local first and only as a last resort that the Feds are called in. Senator Coburn. If that's the case, why do you need Bechtel and CM2HILL? Why do you need them? General Strock. Sir, you need them, I think, because they expand the capacity. In the Federal Government, we're prohibited from competing or having the capability that can be provided by the private sector and our job, as professionals, is to leverage the capabilities of the private sector. So we go to them for our work. Senator Coburn. But they're going out and doing sub- contracting for 95 percent of this stuff so why can't you do it? If you have the professionals to do it, why do we need Bechtel? General Strock. We can do it when the situation allows that, sir, and we do that. In this case, we recognized the need for a massive mobilization of resources. There is no one contractor that can bring all of the capabilities to bear in a rapid way so we go to the larger ones that have industry connections that could quickly build alliances and relationships that certainly sometimes run many tiers but they actually pull together teams to get the work done. And it's done with competitive pricing, best value in mind. Senator Coburn. I think we're going to find that when we're through the cost of debris removal was too high, the cost of blue roofing was too high, and the cost of trailers and their installation was too high compared to what common sense would dictate. I think that's what we're going to find. I'm not sure we're there yet, but I think that's where we're going. I've read all of the Inspector General's reports and that's where it looks like we're going to. So, if that's the case, then we didn't get good value. We may have got their services, we didn't get good value. Senator Landrieu. Senator Landrieu. Mr. Chairman, you have been so gracious. I'm going to submit my questions for the record because I'm anxious to hear the next panel and I thank you. Senator Coburn. Congressman Jindal. Mr. Jindal. Thank you Mr. Chairman. I want to just review because I haven't heard anyone dispute these facts. I want to review them and make some recommendations and see if the panel agrees with them. The numbers I want to submit for the record is that it is true that, and again, I'd love to be corrected. Is it true that FEMA spent $3 million dollars on 4,000 base camp beds that were never used? Is it true that FEMA spent $10 million dollars to renovate 240 rooms in Alabama that housed only six evacuees? I've heard confirmation we are spending $50,000 to $75,000 per trailer. I've heard confirmation that there may be as many as 20,000 trailers not currently being used. I've heard that we spent $175 per foot to put the blue plastic on roofs and yet in some cases, after five layers of subcontractors, only $2 is actually given to the front-line contractors, in some cases, $10, and some cases as little as $2. One of the numbers that troubles me is that I'm hearing that within FEMA, and this is not something maybe Ms. Burnette can actually answer, but within FEMA there are only 55 acquisitions staff members and of those only 36 are being filled whereas some think we need as many as 172 to oversee the contract work. One estimate says that there were over 1,000 contracts valued in excess of half a million dollars but only half were awarded under full and open competition, which may be part of the explanation for some of the numbers that I read before. One of the most disturbing numbers is $175 per square foot for the blue plastic and we have local workers saying they could have put up permanent roofs with the money that has been spending. It goes back to my previous point that with the $50,000 to $75,000, we could have made permanent repairs to people's homes and let them come back permanently. And the reason I emphasize that is housing is so critical to get people back into the greater New Orleans and Gulf Coast area and all of Louisiana. It's so critical to get our economy, our health care, and our education systems back and so I have focused quite a bit on housing. Those are some of the things that concern me greatly. As the Chairman said, I don't think that when the record is written on this that we will have gotten great value. I think if you survey local residents, local officials, they'll tell you over and over they could have done so much more with the money that's being spent down here. My suggestion is that as we go forward to June 1 and as we continue to recover from Hurricanes Katrina and Rita, is that we absolutely have greater financial transparency. Along with the Chairman, I don't understand why we wouldn't want taxpayers to know what they're paying. It took quite a lot for the local contractors to figure out what was being paid to put the blue plastic on roofs. It took a lot of effort to get those numbers out there. Second, let's explicitly limit the number of layers of subcontractors to reduce the overhead costs and let's publicly report how much is being spent at each layer of sub- contracting. Third, I understand the need right after a storm to spend more than market rates to respond in the middle of a disaster but certainly after the initial emergency period expires, there's no reason for us to be spending, at the most, 25 percent above the market value or it could even be better than that, and yet we have many reports where we're paying much above market rates long after the storm had passed and long after the emergency period had passed. Fourth, the point I made earlier, I certainly hope that we have greater flexibility as we spend these dollars. Given whether it's FEMA or the local homeowners greater flexibility on how the money is spent on their behalf. And, fifth, one thing we've not talked about as much and, again, it's not something that I expect Ms. Burnette to respond to, it's something I'd like FEMA to respond to, we'd like to have less turnover in the personnel on the ground. One of the things that is very frustrating to local officials and others is that as soon as a certain policy guidance is established, often times somebody new will come in and the person will rotate out and have to start all over again. And as Senator Vitter references when it came to debris removal, many local officials feel like after they've worked out the procedures for reimburse for using local contractors, as soon as a new local official shows up, they have to start back from square one. And then finally something that's been hinted at, certainly I think we need to do a better job before June 1 in terms of pre-positioning and partnering with the private sector. Knowing that this is going to be a busier than normal hurricane season. I don't think there was an excuse last year and I don't think there will be any excuse at all after Hurricanes Katrina and Rita for us to be unprepared next year. I know my time is short. I leave those suggestions with the panel. I've documented those in two letters.\1\ The first letter, which I think is still very important is the use of Louisiana contractors. I know the Stafford Act 307 requires that. I don't know the record has gotten better as time has gotten further away from the storm. I still don't think we're doing as well as we could. I'd like us to do more to keep those dollars in the economy to keep people working here. It's not fair to ask how we respond to so many suggestions in such a short period of time. I would ask you to take a look at those letters. If there are things that you can do administratively, I'd encourage you to do them. There's certainly no reason to have 20,000 trailers out there when people need housing but there are things that we need to do to statutorily to amend the Stafford Act. I hope you'll support those changes and report back to us and we can pursue those changes in a bipartisan manner. Thank you Mr. Chairman. --------------------------------------------------------------------------- \1\ The letters referred to appears in the Appendix on page 98. --------------------------------------------------------------------------- Senator Coburn. Well, Congressman, you just demonstrated you know how to be a senator because you took 5 minutes and didn't ask a question. I want to thank our panelists. You will receive multiple questions from us. From the time that you receive those, we would like those back in 2 weeks if you can. And I would emphasize again what is it that we didn't do right, what have we learned from it, when all these reports are coming out in the summer what do we change. You have an obligation to communicate with us what will make you more effective, more efficient, and also more transparent to the American people. So I want to thank you for your time that you have given today and General Strock I know you took time out from your own vacation to be here. I appreciate that. It certainly shows a level of dedication that is admirable and we will dismiss this panel and look forward to your replies from our written questions. The second panel can take seats, please. Our second panel consist of Steve Scalise. He's a third term Louisiana State Representative from the 82nd District of Louisiana. He was born and raised in the New Orleans area and serves on several committees including the Appropriations and Budget Committees. Welcome Representative Scalise. William Woods is Director with the Acquisition and Sourcing Management at the U.S. Government Accountability Office. Prior to assuming his current position, Mr. Woods served as Assistant General Counsel in GAO's Office of General Counsel. Derrell Cohoon is the CEO of Louisiana Associated General Contractors, welcome. And next is Kevin Davis who is the President of St. Tammany Parish. Hurricane Katrina's destruction to his parish includes 8 million cubic yards of debris, 3,000 miles of clogged drainage and 48,792 destroyed homes. Each of your statements will be made a part of the record. You're recognized for 5 minutes. We would appreciate it if you could stay within that time. TESTIMONY OF THE HON. STEVE SCALISE, REPRESENTATIVE, LOUISIANA STATE LEGISLATURE Mr. Scalise. Thank you, Mr. Chairman and Members, Senator Vitter, Congressman Jindal, and Senator Landrieu. I appreciate the opportunity as well as appreciate you coming down to New Orleans to hear this. For each of these three programs I would like to propose alternatives that could result in significant savings to the taxpayers while also providing better relief to the people that are most in need. Some of the things you've heard about already. On the Operation Blue Roof, the biggest problem that we've experienced is the multiple level of subcontractors and some of the numbers that they've thrown out are right where the top contractor would get $175 per square. Ultimately it works its way down to the person that's actually putting on the piece of blue tarp making about $2. By streamlining that process you can significantly reduce the savings while providing that same service. It's been pointed out as well that you can put a brand new roof on somebody's house for the price that has been spent by the taxpayer by putting a piece of blue vinyl on a house. For the public releasing of this information is also important because as we talk about the travel trailer program that's especially important to the State and local government because we are being asked to pay a percentage, a 10 percent match of the travel trailer program and it does have a lot of embedded cost. As we get into the overall cost. It's averaging about $75,000 of what we've been told a trailer to purchase, install and service. That housing alternative while the trailer itself costs about $20,000. The Federal Government is spending between $3,300 and $4,100 per month to keep a family in a trailer in front of their house or in a park. And obviously we feel that the taxpayer is not getting the best deal or the people that need temporary housing are not getting the best deal either for this expense. The coordination of subcontractors is also a big problem because too many times we hear complaints from people who have a trailer sitting in front of their house for months while they're waiting to either get electricity hooked up to get their key for the trailer. I've had calls to my office from people who have a trailer in front of their house for 2 months but couldn't get into it because they didn't have the key because it was a different subcontractor. So clearly that coordination needs to be worked a lot better too because that ends up becoming a bigger frustration than the devastation that the person has from the hurricane when they're trying to find relief and it's sitting there in front of them and they can't use it. Some alternatives may be to provide travel vouchers or credits to people who purchase their own. I've had a number of people who could not wait any longer for a FEMA trailer and they went out and bought their own and spent about $18,000, $20,000 hooked it up themselves instead of the $75,000 the Federal Government's spending yet they can't get any reimbursement. So they're out $20,000 whereas if they would have waited the Federal Government would have spent $75,000 for the same alternative. It just doesn't seem to make sense as well as the businesses could be allowed credits, too. A lot of businesses right after the storm stepped up to get their businesses back up and running but their big problem was they didn't have personnel. So many of them took it upon themselves to find ways to get their people back and if they were allowed to have some credits so that they could buy the trailers as long as it costs less than what the government was spending, I think you would have seen a much expedited manner of getting people back into their communities while also getting our economy back up and running by having businesses and that would help people get a sense of normalcy. Many people expressed that getting back and working was a big method of relief from all the devastation and yet some people still haven't come back because there is no housing. So if businesses would be involved in that process I think it would help us some, too. Regarding housing alternatives, modular housing, was brought up by Congressman Jindal. The Katrina cottages, I think you have a picture of one of those in your handouts that I gave you cost at most as much as FEMA is spending on trailers yet these are hurricane proof which the trailers are not and in many cases they can be made into permanent houses where you can actually turn them into a permanent house which provides a much better solution. There are some other alternatives that can be reviewed as well that would save money in this program, but also provide more relief because we're spending a lot of money on trailers and on hotels when there are other opportunities that are available. Finally, with debris removal the multiple layers of subcontracts are again a big problem. I am very encouraged to hear what General Strock mentioned about allowing the reimbursement because many local governments mayors have said they had a lower priced contractor to remove the debris yet because of the way that it was structured they had to go through the Corps of Engineers because of the 100 percent reimbursement because they simply could not afford to pay that 10 percent cost when they were cash strapped. And many communities were in that problem. What I would suggest that if that is in fact the policy that those local governments that did go on their own at a lower cost to the government have that 10 percent fee waived because many are still being told that they have to make that 10 percent payment and so hopefully we can get some of these improvements in place. I think your Subcommittee has started to point out and see some of the problems that we've been dealing with on the ground. I think there is a better way to do it. So I appreciate the opportunity to speak and would be happy to take any questions. Senator Coburn. I noticed that the Corps is still here. Is someone still here from FEMA? (No response.) Senator Coburn. Nobody's still here from FEMA to listen? No, General, you're not from FEMA, you're from the Corps. That's the problem. That is a big problem. Mr. Woods, you may proceed. TESTIMONY OF BILL WOODS,\1\ DIRECTOR OF ACQUISITION AND SOURCING MANAGEMENT TEAM, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Mr. Woods. Good afternoon, Mr. Chairman, Members of the Subcommittee. Thank you for inviting me here this afternoon to represent the Government Accountability Office and its work in this area. Before I get to my specific findings I would like to just touch on three overall points. First, to describe the breath of the work that the Government Accountability Office has underway. Some of it completed, most still to be completed. A number of reports to be issued this year across a number of areas involving, for example flood insurance, the voucher program, we worked on the levees, healthcare, many issues that we've been involved in. General Walker recently testified before the full Committee of Homeland Security and Governmental Affairs and outlined some of our preliminary observations in that area. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Woods appears in the Appendix on page 103. --------------------------------------------------------------------------- The second general point is the extent of coordination that the Government Accountability Office has done with the rest of the oversight community. You heard reference to that in the first panel but particularly in the area of contracting we made an early and earnest effort to touch base with our colleagues in the oversight community to make sure that there was no duplication. To make sure we were doing the right work and that all of the work was being covered. In the area of contracting the division of labor, if you will, that we decided on early on was that the other components of the oversight community would be looking at in the area of contracting at the award process and at the pricing of government contracts. We on the other hand, would be looking at contract execution. Sort of the back end of Federal contracting and asking ourselves the question, is the government, are the taxpayers getting a good value for the money saved? We are looking at contract monitoring, contract oversight, those sort of issues and those are the issues that I'd like to discuss with you today. And the third sort of overall comment that I wanted to make is to recognize the extraordinary hard work and dedication of the responders at all levels. We sent several teams down to this area. This is my second trip and I've been impressed with the enormous dedication of responders at all levels, the local, the State and the Federal and that's by Federal employees as well as by Federal contractors. There were heroic efforts and I think we all need to recognize that. We certainly do. In terms of our specific findings, they fall into three categories. No. 1 is planning and preparation. That can't be understated. It is enormously important. The Corps of Engineers has a program that you heard about earlier called ``Their Advanced Contracting Initiative.'' That enabled them to get, they were up and running and off the ground very quickly and they had contracts in place. The Federal Emergency Management Agency has some contracts in place, but not nearly enough and that's an area where they need to improve. Let me give you just a concrete example of where the advance contracting lead or the lack of advanced contracting lead to some unfortunate results. As you know, the Federal Emergency Management Agency task other agencies with contracting on their behalf. One particular case that we looked at, FEMA turned to the Corps of Engineers and asked them to contract for portable classrooms in Mississippi. They did that, but unfortunately that was a tasking that occurred after the event and the Corps did not have the opportunity to call on their advanced contract initiative to call on contracts already in place. They had to enter a market where it had very little experience, was facing a very tight time frame and as a result paid more than it probably should have and could have under normal circumstances. So that's a case where advanced planning could have helped save the taxpayer money. Another area where advanced planning can be helpful--we've heard reference to the Stafford Act and the preference for local contractors. When we did our work and asked agencies how they were implementing that, all of the agencies that we talked to were aware of that requirement. Very few knew how to operationalize that. There's very little guidance in the Federal acquisition regulation about how to make that happen. We recently issued a protest decision where we had the State of Mississippi issuing a set aside under the Stafford Act. Contractors came in and said that's not permitted, we protest. Well, GAO took a look at that and decided yes, that's within the discretion of the Corps of Engineers in this case to have a set aside and to reserve contracts or just for firms that are either located or does their principle amount of business in Mississippi. That's the kind of guidance that was not in the Federal acquisition regulations. It took a protest and actually delayed proceedings. Senator Coburn. Mr. Woods, can you summarize? Mr. Woods. The third area that we found could be improved is in the number of oversight personnel. We found in a number of incidents looking at blue roofs for example where they didn't have all of the monitors that they needed. In looking at the travel trailers, another example where agencies, FEMA in this case did not have all of the contract monitors that they needed to have in place. So in summary, it's planning, it's communications and it's having an adequate work force. Those are the three key ingredients to successful contracting. Senator Coburn. Mr. Cohoon. TESTIMONY OF DERRELL COHOON,\1\ CHIEF EXECUTIVE OFFICER, LOUISIANA ASSOCIATED GENERAL CONTRACTORS Mr. Cohoon. Thank you very much, Mr. Chairman, for the opportunity to come and address you. Thank you Senator Carper, and certainly Senators Landrieu, Vitter, and Congressman Jindal, for your continued help with this, if you will. For the record, I'm Derrell Cohoon. I'm CEO of Louisiana Association of General Contractors. We appreciate you doing a look back with respect to this issue, too, because we see a lot of things that we think need to be changed. In fact, we feel like we've been living the writing of the textbook for the last 7 months. We call it the new normal. For your information, the Louisiana Association of General Contractors represents 700 firms in the State of Louisiana. We've been in operation here since 1949. We represent contractors in the commercial, heavy, highway, and municipal utility areas as well as subcontractors and material suppliers. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Cohoon appears in the Appendix on page 113. --------------------------------------------------------------------------- Needless to say, the devastation that has been brought is large and obviously we need help within the construction industry from outside. We admit to that. However, when there are opportunities for some Louisiana firms to participate as subcontractors other firms have not had that opportunity or they've been offered prices so low that they can't afford to take that kind of work, something's wrong with the system. I think a lot of it relates to the nature, these very large primary contracts. We're relegated as Louisiana contractors to participate in these subcontracts through the websites of these primary contractors. It's very disheartening to go onto that website and find out we're number 3,422 of 9,722 and we never hear a response either. It's very disheartening. The appearance to us has to be that the storm chasers, those who follow these primary contractors, have an in. Obviously, they ended up as the first tier, second tier, third tier, and then on, and the Louisiana experience has been from the sixth tier on down. That's unfortunate. Obviously the difference between a hauling contract at $27 a yard and the $6 a yard we experience as a sixth-tier subcontractor is great, is very large. We saw other instances where subcontractors really only acted as brokers under this system with this multitude of vertical tiers for subcontracts. The press has collectively termed this vertical nature of these subcontracts the fifth-tier subcontractors and that's us. That's essentially what we are. The process allows the cost to be driven up. Ineffective management by the prime, decreased productivity, possibility of some subs only acting as brokers for other subs and the slow payment of bills as they pass down through subcontractors. Compounding the problem is our perception of the Federal Miller Act. As you go down the tiers of subcontractors if you're not being paid by the prime in a timely manner. The Miller Act doesn't allow us to collect on a performance bond, which is of much concern to us. There are people who aren't being paid. The absolute irony is these very businesses, most of which are small businesses that we represent that are familiar with the area in the needs of local government and are supposed to be assisted through the Stafford Act are, in fact placed in areas that are not meaningful and certainly are not profitable. We have some recommendations for you in an effort to resolve some of the issues. First, is that FEMA, the Corps of Engineers, the State and local government, whomever, give strong consideration to use of the project delivery method, construction management at risk, but with variations. Under this method, the owner, the Corps, FEMA, or whomever will maintain a contract with the CM-at risk primary contractor as a professional service. CM-at risk is to provide essential pre- construction services, over trade contract, take responsibility for the work and guarantee the construction cost and schedule. At the same time, strong consideration should be given to breaking these large contracts into smaller segments to afford more competition and they should be publicly bid. The Louisiana construction industry is accustomed to open competition and publicly bidding public contracts. We're comfortable with it. We should also consider requiring CM-at risk to break the subcontracts into horizontal tiers rather than vertical tiers. Again, vertical tiers make for people not being paid and inefficiency. Senator Coburn. I'm going to get you to summarize for me. Mr. Cohoon. Yes sir. Most importantly, the CM should be tasked in subcontracting debris removal, demolition, etc. on a horizontal basis rather than current vertical basis. That will afford open competition and thereby the use of Louisiana firms for disaster clean-up for that matter other firms. The system we're recommending certainly can be no worse than what we're experiencing today. In fact, we think it will assist you in better supporting taxpayers commitment to the reconstruction of Louisiana and certainly it would be more fair to the people who are trying to survive to participate in the rebuilding of the Louisiana that they built in the first place. I will be most pleased to answer any questions. Senator Coburn. Thank you, Mr. Davis. TESTIMONY OF KEVIN DAVIS, PRESIDENT, ST. TAMMANY PARISH Mr. Davis. Good afternoon. Thank you, Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to be here this afternoon. I want to just kind of go through a little bit of my statement for you so we can get to the questions and answers. Certainly I have to continue my dealings with the Corps and FEMA so they are going to be somewhat short in my discussion. But let me say from the outset that there are many fine people working for FEMA and I have had the opportunity to work with the JFO and others who I think are sincere and are really competent in trying to deal with the issues that we're dealing with. But there seems to be what I would call a great pillow in the middle from the top to those on the ground here with us. The FEMA employees and the FEMA contractors contract and in general they make our lives miserable, disrupt our attempts at recovery and ultimately require us to go to the FEMA managers that I just mentioned to get us moving again. Creativity and flexibility certainly are discouraged. And let me give you an example from the beginning. They commandeered fuel supplies that I had ordered from out-of-state; they commandeered generators donated by churches and faith-based organizations that I was able to get into my parish. Naturally FEMA was already frustrated in our efforts and our emotions before anyone from FEMA actually appeared on the scene to work with us. Debris: St. Tammany Parish is a large parish. It's 900 square miles; 216,000 pre-storm population; 300,000 approximately now. As of today we picked up over 6 million cubic yards of debris from roadways in the parish at a cost of $148 million. Our draining debris clean-up will be another $60 million. Draining debris pick up is a major problem. First FEMA said we don't want to pick it up; then it was multi-agency jurisdiction on the same natural drainage ways. Marsh grass issues: Marsh grass for those who aren't familiar it's out in our marshes. It actually was brought in about four miles inland and now because 7 months later it somehow attached itself to the ground it's not qualifying as debris pick up. So how do I help those citizens get that picked up. Now we'll go past the June 100 percent funding deadline if I continue on this course. My probably only saving grace at this time with the debris and drainage ways is our drought because I'd probably have a larger population of flooding than Hurricanes Katrina or Rita. Roadway debris already contracted prior to the storm, I heard the gentleman earlier. We do that every year. We're very accustomed to it in St. Tammany Parish. I give out a contract on a public bid process. We do it every February on our clean up. We had to do some minor amendments and at first FEMA was fine so we moved forward. But then they questioned the contractor while at the same time bring in the Corps of Engineers into my office and suggesting that I cancel that contract and use the Corps. Well, I believe that I made the right decision and I kept those contractors busy and I also believe that we saved the Federal Government close to about $42 million by using that contractor. Because our contractor's rates were $7 at the low end for C&D and $14 a yard on the high end for other debris. That's including hazardous materials. So it's $7 and $14. Finally let me say one of the most frustrating thing about dealing with FEMA is the constantly changing personnel. We all deal with that every day. They make a decision and then they change their mind. And I don't know whoever thought up the idea of requiring exact latitude and longitude of every tree stump in my parish and every leaner and hanger. While we went through that process I had five of my citizens die in St. Tammany from trees falling on them. This is 4 months after the storm. While we're going through this process of longitude and latitude on every leaner and hanger and every stump in my parish. I want to read to you today, I got a memo from one of my engineers, ``Stumps should remain in the ground. If they are removed then they are considered ineligible, detached stumps.'' That's what FEMA tells us now. So now I can't pick them up if they got moved. Travel trailers: We've had over 70 percent of the housing stock damaged by Katrina and over 20,000 houses had enough damage to require residents to ask for housing assistance. I have about 8,000 trailers on the ground right now. The same can be said about debris for travel trailers. We actually tried some pilot program and maybe you'll ask me that question when we get to that point, but we believe, again, that the local national contractors the way it was done. And then also if you asked me the questions about changing rules for locals versus national firms, I'd be happy to answer those because I have specific details that I can express to you. It has been a pleasure to be here with you this afternoon. Thank you. Senator Coburn. Thank you, Mr. Davis. I wanted to do a little housekeeping just because I failed to mention earlier. I want to thank the Louisiana Supreme Court for all of their assistance and their staff today and also Senators Landrieu and Vitter for their aides and their help force. They've been very gracious and we're very appreciative. Representative Scalise, I've heard all the testimony of everybody that's come to the table for this hearing and I'm certain when everything's said and done and has been looked at by all the inspectors general and the Government Accountability Office. The Government Accountability Office said there was terrible pre-planning. There are no lines of responsibility and accountability and transparency. There's a lack of clearly communicated responsibility and insufficient people put on the ground to provide for effective contractor oversight. I'm certain that we paid too much for debris removal; we used some of the wrong people. I'm certain that we paid way too much for the blue roofing and I'm certain that the travel trailers cost us about twice as what they should have. When you talk to people here and mention the number that you did a minute ago, I can't remember what it was, but the average is somewhere between $60,000 and $70,000. The average true cost for the same on average home, travel home is less than $20,000. So we're spending anywhere from $40,000 to $50,000 contracting to get something set up and I know part of that is bringing power and sewer and everything else, to it. In Oklahoma we can build a nice, little home for $70,000 that's permanent and hurricane or tornado proof is what we call it. We don't have much trouble with hurricanes. Give me a summary of those three areas of what you're hearing again and what you would think we should do with them. Mr. Scalise. And unfortunately to many people in this region FEMA is viewed more as the problem than a solution and when you look at the amount of money that's been appropriated, $100 billion. To a lot of people in the country they think that the Federal Government, the taxpayers, have sent $100 billion down here to help us. When in fact, the vast majority of that money has not made its way to the ground to actually help the people that are most in need. So the frustration with people is they're seeing all this money being spent. They're also seeing the results of it to them and their neighborhoods and their communities where they need relief and they're not getting that relief. So it ends up creating more problems than it solves because to a lot of people the transparency is a big issue. We cannot get numbers. Our State Legislative auditor has tried to get numbers. We got a $156 million bill from FEMA. It was the size of a water bill. And it says you owe this money as your percentage match for the amount of relief that's been sent already. We asked for a break down of that and when I get a credit card bill they list everything that's on that item before I submit my check. We cannot get that detail breakdown and so the transparency, and you talked about the sunshine, it's been a big problem because we really can't get a grasp of what we're being asked to pay or what the taxpayers have paid for because much of that information is being disclosed. Senator Coburn. Mr. Davis, I'd like for you to spend just a minute and talk to us about if you have been able to do what you would want to do outside of the bound of restrictions that have been placed on you. I'm looking at your numbers versus $27 to $32, which I can't find out for sure. As head of this Subcommittee, I can't find out what we contracted debris removal for, but I promise you I will find out. It sounds to me like you saved us about $10 a cubic yard, and if you can do it--and that goes back to Senator Vitter's point. We're not getting the value. We're getting charged for it but we're not getting the benefit of the dollars that are spent. What would you have us do? Mr. Davis. I think that's a great question. Your aides and I were discussing some of those issues about the brainstorming of storm and just FEMA and all these agencies. I know what we do. It's just like now what am I going to do with 10,000 trailers in a flood plane. I've asked FEMA that question and I also asked if I would help you find a solution and we don't seem to get an answer. So we're going to have to deal with it on the local level and we do that through our brainstorming sessions and then find all the negatives and how we're going to fix them. All I can do is submit to you that we publicly bid it. We had numerous bidders from around the country and also local contractors. It happened to be a local contractor who was the low bidder, and it's $7 to $14 depending on the type of debris. And I'll have it all picked up because it's my goal--I think a senator or congressman stated we--I want to get done by June because I've got hurricane season. I don't want this to drag on. I don't want any more Federal funds or the Nation to have to send us more. I want to get it over with. There just seems to be a lot of lack of brainstorming on finding solutions to all these answers. As I was hearing this morning from your earlier panelists not being able to even answer some of your direct questions. Maybe I didn't answer your question, sir, I'm sorry. Senator Coburn. Senator Carper. Senator Carper. To each of you thank you. Thanks for joining us today and for your testimony. A question if I could for you Mr. Woods. And I might ask some of the other witnesses to comment too, but let me just direct these to you first. In your review were there any contracting practices that you or your folks might have observed at other agencies that could be used to improve contracting operations during disasters like Hurricane Katrina? Mr. Woods. We've done a little bit of work looking at that, Senator Carper, and what comes to mind first is the forest service. They deal with similar situations in that we know every year there's going to be forest fires. We don't know exactly where or what intensity, but we know that they're going to occur and in roughly what geographic area. They do a much better job it seems to me in preparing for those and having advanced contracts in place and in getting base camps up and running in a very short period of time. Senator Carper. Why do you suppose they do a better job? Mr. Woods. I think it's the advanced planning aspect. They do advanced contracting and they have capabilities. Usually in the western part of the country most predominately but they know that they're going to need certain capabilities and they plan for that? Senator Carper. Why would they do the advanced planning and contracting in those areas but we wouldn't do it in areas that we know we're going to have hurricanes? Mr. Woods. Some agencies do a better job of that than others. For example, when we look at the Corps of Engineers they seem to do a better job of advanced planning and advanced contracting than some of the other agencies that we've looked at. Senator Carper. What advice would you have for us as legislators to urge more of the kind of approach they're using in the forest area? Mr. Woods. To be honest, I'm not sure that it's a legislative issue quite frankly. Most of the issues that we identified come down to fundamental management issues and as you eluded to earlier you can't legislate common sense. But the deficiencies and weaknesses that we identified in the areas of advanced planning and better communication and a more capable and larger work force to monitor contracts. Those are not issues, in my judgment that are capable of being addressed legislatively, but are issues for the agencies to address greater management attention. Senator Carper. OK. I want to stick with you, if I could, Mr. Woods. Are there any contracting examples from other disasters where there were not as many levels of contractors, we've been talking about the nesting and the tiering. But, do you know of any other examples where there were not as many levels of contractors and subcontractors? They appear to have been with the Army Corps contracts I guess for the tarps and the debris removal and, if so, any idea if the work was done at a better price as a result? Mr. Woods. Well, just sticking with the area of Hurricane Katrina, the one contract that we looked at in some depth where we looked at the layering issue was the contract for the portable classrooms in Mississippi that I referenced earlier. And there too, we found the same sort of layering. Let me just give you a sketch of that. There was a prime contractor who was an Alaska native firm. That prime contractor had two subcontracts and just working down the tier of one of those subcontracts that was a Maryland based firm. That Maryland based firm subcontracted yet again with a Georgia firm for the classrooms and that Georgia firm then went to a Georgia manufacturer before actually getting the classrooms. So there's an example in Katrina where we have four layers. Now if you're looking at other disaster or contingency contracting situations, it struck us in doing our work that there were a lot of similarities to what happened with our contracting situation in Iraq where again there was a need for acting quickly and there we found that in a number of instances they did go to the larger contractors in order to get the work done. Senator Carper. I understand that GAO during the response to Hurricane Katrina that there was not always a clear understanding amongst the different agencies involved who is actually responsible for what. What kinds of problems did this lead to on the ground and I assume there is at least some discussion of agency responsibilities during a disaster and a National Response Plan. Does that document need to be changed in your view in some way so we have more clarity in this area? Mr. Woods. Well, I think across a broad range of issues we're going to have to look at the national response plan and to see whether it's adequate to address the many issues that we've identified. But if you're asking me for a specific instance and I would elude to one of the examples highlighted in my written statement that I haven't touched on yet and that is, the renovation of the barracks in Alabama where there was a total lack of communication between the FEMA officials in Washington who said let's renovate those barracks and the local FEMA officials who said, ``Hold off, we don't need it. That's going to be a waste of money.'' And it ended up that there were very few people who agreed to live in those renovated barracks and at the time they made the decision to close them there were only six people there. Senator Carper. Alright, thank you. Senator Coburn. Senator Vitter. Senator Vitter. Thank you, Mr. Chairman. Thank all of you for being here. Representative Scalise, thanks very much for your presentation. Just caught by one specific thing in your presentation I would like for you to quickly expound upon and that is the fact that in the present debris removal situation there really is no incentive to recycle recyclable material and actually save money in the process. Why don't you hit on that for a second. Mr. Scalise. Thank you. It's a good point because right now we're dealing with of course, we've had tons and tons, millions of tons of debris that have been deposited into local landfills. Because of Hurricane Katrina they've reopened some and it's a big NIVE issue. We have a limited space to place the debris and yet a lot of the recyclers, a lot of the debris haulers are carrying recyclable materials, steel, metal, even wood. I heard a story of a contractor that had a cypress stump that could have gotten a few thousand dollars on the market yet the way the policy works if they don't just go and haul it to the main site and they actually take the time and separate that material and take a separate trip to go somewhere where it's recyclable material, they have to turn over 100 percent of that money back over to FEMA. So it cost them money to separate the materials. It would reduce the load that they're actually dumping in the landfills so it would reduce the cost that you are paying as the Federal Government and yet because of the structure there is not only a disincentive for them to do it, but it would save money because if this was competitively bid they could factor that in, the fact that they could recycle. If that would not be remitted back to FEMA, they could build that savings into their price, charge a lower costs, they'll be putting less amount of debris in the landfills and then you get to recycle a lot of this material that's right now sitting in landfills being dumped. So it's a big issue and a big problem and as we run out of landfill space it only adds to that problem. Senator Vitter. Thank you. Mr. Cohoon, I wonder if you could outline a little bit more of your alternative model for the way we approach this work in general in terms of the structure of the contracting method? Mr. Cohoon. Certainly, I'd love to. Basically it's the same thing the Subcommittee has been talking about earlier today, a program manager. I don't care if it's the Corps of Engineers or one of these multi-national companies that are in here doing this stuff right now. The way it's working right now is an absolute travesty. When you have $500 million ceiling and they're trying to bump against it and folks down below are being driven down. What we would recommend is that this guy be a CM, a manager if you will, to oversee subcontracts but rather than a vertical structured subcontract method which ends up hurting the very people we're trying to help make all of them horizontal, publicly bid them which has the affect of driving down the costs to the taxpayers but also opening up competition for Louisiana companies and for that matter others. We can compete. Senator Vitter. Thank you. And President Davis, I really think the case of your parish with regard to debris removal gets to the core of this issue. Did you all take care of all of your needs within the parish with your pre-existing local contract? Mr. Davis. No, the problem was the debris in canals and drainage ways was not in the original bid package so then we had to go back to FEMA and we're in that process now of bidding those. Senator Vitter. Apart from canals and drainage ways was the capacity that your pre-existing local contract offered enough to get the job done in the parish? Mr. Davis. Yes sir. And we didn't pay every year. Senator Vitter. Right. And so in the case of your parish, and there was huge amounts of debris in your parish, you met your capacity need basically locally? Mr. Davis. Yes, sir. I didn't understand that when they were making recommendations I guess--I don't know why FEMA and others don't deal directly with parishes or counties chief executive officers. As you had stated elegantly earlier, we know the lay of the land, we publicly bid everything and I told that to the President of the United States in private meetings. I'll personally be responsible, send your auditing team with us, don't send all the other stuff that we have to deal with. I've requested $1 billion for my parish and I thought I could get everything done. Senator Vitter. In the case of your debris removal are you going to be stuck with the 10 percent bill for that period of time before they changed the policy? Mr. Davis. If I don't get it done by June. Again, the local guy, the pressure is on him to complete the project. Senator Vitter. But what about on the front end? In other words, they took a while until they changed that 10 percent match policy. Are you being forgiven that initial 10 percent? Mr. Davis. Yes, because I personally--And parish government didn't use the Corps of Engineers. So I didn't have that requirement. But I have about seven municipalities and five or six of them came to me and wanted me to help them get out of that contract. Senator Vitter. And the final question real quickly, am I to understand that there was a meeting at some point where the Federal agencies really pushed hard for you to abandon your pre-existing contract which ended up saving a lot of money and go with the Federal Government capability which by the way makes the Corps of Engineers money? Mr. Davis. Yes sir. And that was a very uncomfortable situation. I almost think that if that was to happen to any elected official you would want your legal department with you. I put them in two different rooms. We had publicly bid our contract. That's the numbers I have given you which I will submit as back up documents. Then FEMA came in with the Corps and they said we're not supposed to do this, but the Corps' with us and we'll let the Corps explain to you the process and they happened to have, if I may, the name was Cirus I believe, was the national contractor. They were in the other room and I said we already have our contract. And they said, ``Yes, but we can hire your local guys if you'll just give the contract to the Corps and I said I think we're getting into an area that's very gray and I don't want to be there.'' Senator Vitter. Thank you very much. Senator Coburn. Senator Landrieu. Senator Landrieu. Thank you. President Davis, I just want to thank you for your steady leadership and your responsible management from the earliest days. We worked very closely with you as you have worked with all of our delegation and you've been admirably with your dealings with your parish and I think you've set a fine example. I want to pursue a bit about this canal debris and waterway clean up because you have obviously done a good job getting the debris off your roads and your land. So for the record speak again about what some of these complications are and for the senators not from our area and I think both of you, not maybe so much from Oklahoma, Senator Coburn, but surely the Senator from Delaware understands waterways, water management, canals-- -- Senator Coburn. Hey, we have waterways, come on now. Senator Landrieu. You have some in Oklahoma, you got a few but maybe not as many as we have on the coast. But managing to keep those waterways open and clear of debris is absolutely critical for safety of the residents but also, Mr. Chairman, for the businesses. Our shrimpers need to get back into that water. Their nets. I mean, I don't have to explain all of this, but tell us for the record, Mr. Davis, just a minute more about how the overlapping of Federal agencies are hindering your ability to get those waterways cleared and we don't even know how much debris is there but we're estimating quite a bit. Mr. Davis. We're estimating about $60 million worth. At this point. I think--I get confused sometimes, we've been through 7 months of this, but I think it all goes back to the Stafford Act that creates a problem because that's where we get into this different agency and my understanding is, and I'm no expert, I'm just going by all these months of working with it, we have the NRCS who I want to tell you, and the Department of Agriculture, let them run this. Those folks have been super; NRCS, great; EPA, great; National Guard. Where we get into this conflict of these bayous and canals is, is it commercial, navigatable waterways because then FEMA says because of the Stafford Act another agency is tasked to do that. That would be the Coast Guard. But then you also have the Corps of Engineers; then we have NRCS who whenever I go to them they say, yes sir, we're going to take care of that. They have been great work. All of the other agencies can't figure out if it really is their responsibility. Senator Landrieu. So what your testimony is today for our panel, there seems to be some confusion about the jurisdiction of these canals based on the nature of what they are and if we can help you get this cleared up because your parish is very typical of many parishes in Louisiana that lie low have a lot of waterways in and around and surrounding them. One final question, Mr. Woods. You testified that you thought it wasn't necessarily the failing of the act or the law itself, but the management or lack of management therein that you have been finding as you investigate or look into. Would you elaborate on that? Did I misunderstand what you said because that's an issue I think this Subcommittee needs to look at. Being one thing, the law being insufficient or inadequate and the other is the law is fine, but the management is really short. Mr. Woods. I'm glad you gave me the opportunity to clarify. When I said that perhaps the law was sufficient in this area I'm referring to just in Federal contracting law and there we found that both the laws and the regulations provided sufficient flexibility for agencies to do the right thing. Senator Landrieu. But it's not being used? Mr. Woods. It was not being used appropriately. The existing law and existing regulations were not being used appropriately in many cases. But there's no question that the Stafford Act, the law generally that governs the Federal response in these areas is going to have to be looked at across a broad range of activities. My comment just referred to the contracting area that the Stafford Act really does not deal with. That's not a primary piece of legislation in the contracting area. Senator Landrieu. Thank you. Senator Coburn. Representative Jindal. Mr. Jindal. I promised the Chairman I'll be quick so I'll make two quick statements and ask to very targeted questions. Mr. Scalise, I want to thank you for your testimony and I think your suggestion are exactly right. If we went to residents and said you have a choice of getting a trailer or you can have this much money to spend on your behalf, I imagine they would be much more efficient at buying trailers, fixing their homes, renting apartments. I thank you for your very specific and helpful suggestions. Mr. Woods, I also want to thank you for being here. The comment that struck me the most out of the many good things you said was that you can't legislate common sense. That some of these come down to management issues and I know we have many bills that we need to vote on and amend the Stafford Act and at the end of the day we need better execution and I thank you for that perspective. Mr. Cohoon,, I've got a very quick question. I know one of the perceptions is that the government felt like it had to go to these large primary contractors. I believe they did a disservice to Louisiana contractors given their experience of handling large, industrial and other contracts even pre- Katrina. You may have heard FEMA talk about instead of doing $500 million no bid contracts, doing $150 million contracts. If you have the number at this time, in your mind what would be an ideal target number for the government to say we're going to try to break down the contracts to be no larger than this number to allow more competitive bidding. What would that number be that would allow local contractors to participate? Mr. Cohoon. Congressman Jindal, from my perspective if you're utilizing the services of a program manager, whether it's $500 million or $150 million or for that matter $20 million, it's irrelevant to me. What you've got to do is you've got to drive it down to the local level. Such as Mr. Davis said and you've got to bid it. Mr. Jindal. Thank you. And again I want to just reiterate we do have local contractors capable of doing very large projects. They built multi billion dollar plants. They're capable of doing this work. Mr. Davis, my last question of the day is for you and I'll ask you to be brief for the sake of the time of the panel. Thank you for the great work you've done. I know we worked hard to make sure you could use local contractors. We've worked hard on the waterways issue. My question is for you just to quickly--St. Tammany in terms of pre-contracting out some of this work versus what the Federal Government does is a great example. It's a contrast of black and white about how it should have been done and how it could have been done. Could you just quickly tell the panel what you all did even before the storms to get ready? Mr. Davis. From the debris standpoint? Mr. Jindal. Yes. Mr. Davis. As I heard someone say earlier wherever you live you are accustomed to some disasters that are pretty much going to happen and we know hurricanes. So when I took my administration 5 years ago we pre-bid everything. Publicly bid, as the gentleman said earlier. We advertised the bid and then the low bidder is awarded that. Then when a storm comes in the Gulf we go into emergency operations and at a certain latitude we call our contractors and we bring them in prior to the storm. So we can look at what their deployment abilities are going to be able to function for us and everything else and they're on standby. Then the storm comes through, they come meet with us within 24 hours because all that's in the bid and then we go out and start clearing roadways. Mr. Jindal. Thank you, Mr. Chairman. Senator Coburn. Let me thank each of you for spending the time here before us today. We will be submitting some additional questions if you will be so kind to respond to those within 2 weeks. The Subcommittee hearing is adjourned. [Whereupon, at 1:47 p.m., the Subcommittee was adjourned.] A P P E N D I X ---------- [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]