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Center For Public Integrity: $2.4 Billion in Hurricane Contracts Offer Profit Guarantees, Center Study Finds

FOR IMMEDIATE RELEASE
JUNE 22, 2007
11:25 AM

CONTACT: Center For Public Integrity  
Steve Carpinelli
Media Relations Coordinator
(202) 481-1225 (office)

 
$2.4 Billion in Hurricane Contracts Offer Profit Guarantees, Center Study Finds
 

WASHINGTON - JUNE 22 - Three federal agencies responding to Hurricanes Katrina and Rita awarded more than $2.4 billion in contracts using a controversial form of pricing that critics say offers no incentive for cost savings, according to an analysis by the Center for Public Integrity.

The Federal Emergency Management Agency (FEMA), the U.S. Air Force and the Environmental Protection Agency (EPA) were responsible for issuing the majority of cost-plus-fixed-fee contracts, which often are used when an agency needs to get work done quickly, but can't predict how much that work will cost. The contracts allowed vendors to bill the government for their costs, plus receive an extra profit based upon a guaranteed amount.

The Center's analysis found that 27 percent of FEMA's $8.4 billion in Katrina and Rita contracts were cost-plus-fixed-fee, accounting for nearly 21 percent of the EPA's $212 million and 36 percent of the Air Force's $167 million in contracts awarded through Jan. 31, 2007. In FEMA's case, these contracts were used well after the initial disaster and accounted for nearly 94 percent of all of the hurricane-related cost-plus-fixed-fee contracts, awarded primarily for arranging and installing emergency temporary trailers for evacuees in Louisiana, Mississippi and Alabama.

Industry officials counter that companies often make a practical decision to use cost-plus-fix-fee contracts when the costs are difficult to estimate for a disaster, especially one as devastating as Katrina. But critics, including the Government Accountability Office (GAO), contend that companies have little incentive to cut costs or improve efficiency under cost-plus-fixed-fee contracts. In the case of FEMA's $575 million contract with Bechtel National, Inc. to provide temporary trailers, the GAO criticized the agency and Bechtel for a delivery process that was "slow," "horribly inefficient" and offered "no incentives to improve efficiency."

The Center's analysis also includes an updated Katrina contracts database searchable by the name of the vendor, place of performance or name of the contracting agency.

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