Business as usual: crony contractors cash in after Katrina.

On the surface, everything was fine. Federally contracted cleanup workers, hired by a Halliburton subsidiary at $8 an hour, were busily cleaning up the Belle Chasse Naval Base near New Orleans. But look a little closer, according to the German magazine Def Spiegel, and the picture darkens. The workers were illegal immigrants from Mexico, they were irregularly fed and forced to live in hovels, and on top of that they were never paid. The charges were similar to those that dogged Halliburton's work in Iraq, where its "third country nationals" (from the Philippines, among other places) are paid a fraction of their U.S. counterparts.

The "hierarchy of needs" that the Federal Emergency Management Agency (FEMA) and the White House say they have followed since Hurricane Katrina devastated the Gulf region has provided more relief to crony contractors than it has to thousands of displaced residents who still do not have basic housing or electricity.

At least that is the view of watchdogs and congressional critics, who have witnessed a feeding frenzy of FEMA and Army Corps contractors who expect the $200 billion spent by taxpayers on cleanup and reconstruction will bring them a significant windfall. "You are likely to see the equivalent of war profiteering--disaster profiteering" says Danielle Brian, director of the Project on Government Oversight.

The incompetence of FEMA glaringly evident during the disaster has been followed by the massive outsourcing of recovery work, largely through no-bid contracts that have put local and minority-owned businesses at a disadvantage. Critics say it also sets up a multi-tiered subcontracting system that makes it difficult to monitor costs and ferret out fraud.

Indeed, by early December the Department of Homeland Security's Inspector General had already opened 188 investigations of potential misconduct and filed 41 indictments, leading to 29 arrests and three convictions.

While most of these cases involve individuals and small businesses, abuses committed by the big contractors seem to fall into the gray areas of government rules that experienced contractors know how to exploit with impunity. Their work is made easier by the considerable pressure to get things done quickly, and the many exemptions to competitive bidding and cost accountability rules provided to speed the process along.

Just weeks after Katrina hit, congressional watchdogs began to question FEMA's decision to pay Carnival Cruise Lines up to $236 million to house 7,000 people in three cruise liners, especially when the government of Greece was ready to provide two ships free. Senate investigators say U.S. taxpayers could end up paying four times the amount per person that vacation cruise passengers would have paid, although Carnival's overhead costs are far lower than during normal cruises.

"Finding out after the fact that we're spending taxpayer money on no-bid contracts and sweetheart deals for cruise lines is no way to run a recovery effort" Senator Tom Coburn (ROK) complained.

"It should be remembered that the federal government sought us out," responded Terry Thornton, a Carnival vice president, adding that the contracts were competitively bid.

In early October, acting FEMA director R. David Paulison pledged in front of the Senate Homeland Security Committee to "go back and rebid" various no-bid contracts. Yet months later, no action has been taken.

Outsourcing Relief

Apologists say FEMA cannot be expected to maintain the kind of large bureaucracy necessary to abide by every contracting requirement when a sudden emergency such as Katrina occurs, yet the agency is supposed to be prepared for large disasters.

Part of the problem, critics say, is structural. Not only has the agency shifted its focus to terrorism, but the agency's acquisition workforce was gutted as the result of cost-cutting reforms in the 1990s. Yet with little contract expertise left, FEMA has had to farm out much of the procurement process to prime contractors like Acquisition Solutions, while using existing contracting vehicles negotiated by other agencies to fill the gaps. Where some see this as a formula for flexibility, others say it's a recipe for chaos, waste and fraud.

One of the Bush administration's first responses to Katrina was to issue a series of waivers and exemptions from federal contracting regulations, including lifting the limit for small federal credit card purchases requiring cost comparisons from $2,500 to $250,000. The Department of Labor waived a rule requiring contractors to pay employees the prevailing wage, while providing payroll reports to federal overseers.

"Absent a wage floor and reporting, the door is open to fraud of various kinds" says lames Hale, vice president of the Laborers International Union. This waiver was also reversed last October, after a subcontractor hired by Halliburton was caught using 100 undocumented immigrants to replace union electricians working on a Louisiana Navy base.

Nineteen members of the congressional Progressive Caucus have also demanded the Bush administration suspend Halliburton from any Katrina-related contracts based upon its record of violations, but have yet to receive a response.

"The aftermath of Hurricane Katrina demonstrated the tragic consequences of having an administration where cronyism trumps competence" says Caucus co-chair Representative Barbara Lee (D-CA). "The fact that the president would cut wages for impacted workers, while handing out millions in no-bid contracts to well-connected firms is a perfect snapshot to this administration's priorities."

At a time when scandals, indictments and charges of cronyism are beginning to pile up against the Bush White House, its silence is perhaps not surprising. The administration's chief of procurement policy, David Safavian, was himself indicted in September for obstructing an ongoing investigation of disgraced Republican lobbyist lack Abramoff.

Critics say the most effective oversight so far has been provided by the Department of Homeland Security's inspector general, whose team has responded aggressively to blatant cases of fraud encountered in the ongoing work. Payments to Alabama-based Clearbrook LLC were suspended in mid-November after the inspector general's auditors discovered $3 million in overcharges.

Nevertheless, other companies with dubious track records have been allowed into the cleanup windfall. Consider Circle B Enterprises, which received a $287.5 million FEMA contract to supply temporary housing. The company's president, Jackie G. Williams, formerly ran a now-defunct Georgia company called Sweetwater Homes that residents say constructed shoddy houses. In 2003, the state refused Williams a building license until he fixed old warranty claims. FEMA officials defend Circle B based on work it did in Florida after the 2004 hurricanes, but Circle B has already gone through a bankruptcy filing (as has Williams himself).

Another case is Texas-based Goldstar EMS, which was hired as a subcontractor by Henderson Consulting to provide 45 ambulances at $800 a day. Goldstar was raided by the FBI in association with a Medicaid fraud investigation earlier this year.

FEMA officials say they use the General Services Administration's (GSA) suspension and debarment list (as well as their own database) to screen companies applying for federal contracts. But these background checks are rarely comprehensive. And since the latest earmark for Katrina recovery was attached to the Department of Defense funding bill, there has been little opportunity to debate ways to plug the loopholes.

Contracting Out Contracting Out

Nevertheless, some contractors say their critics are off-base and fail to understand the exigencies of disaster planning and response. Randal Perkins, the founder of Florida-based Ashbritt, which received one of the largest cleanup contracts for debris removal in Mississippi, says anyone who knows how the disaster contracting game works knows that the contracts are secured long before the storms hit shore and have nothing to do with lobbying on the Hill or campaign contributions.

Ashbritt's contract was, in fact, awarded through a competitive process involving 22 bidders. Yet government watchdogs maintain that there's much more to the game than pure merit-based competition. Companies like Ashbritt are able to anticipate potentially lucrative opportunities because they have hired former FEMA and Corps officials who can guide them through the process. Ashbritt employs former Representative lames A. Hayes (D-LA) and Barbour, Griffith and Rogers, the former firm of Mississippi Governor Haley Barbour (once head of the Republican National Committee).

Perkins says it would be "naive" to expect businesses to restrain themselves from hiring lobbyists who can help them navigate the maze of bureaucracy in Washington. "We hired [former Army Corps of Engineers Director] Mike Parker to work with us on this Corps project" he says. "I went out and found the best person available. We play by the rules"

Yet minority and small business groups have complained that the pre-existing contracts put companies like Ashbritt at an advantage over local businesses hardest hit by the storm, many of whom are eager to get in on the action. More than 90 percent of the $2 billion in initial contracts was awarded to companies based outside of the three primary affected states. Minority businesses received just 1.5 percent of the first $1.6 billion.

One of the contracts set aside for small disadvantaged businesses in Mississippi went to Rosemary Barbour, wife of Barhour's nephew. Her company, Alcatec, won contracts totaling $6.4 million to provide showers, tents and laundry equipment for relief workers. Both Barbours deny politics played a role.

As global warming intensifies, so will damage from future hurricanes. And with federal agencies increasingly relying upon private contractors to manage the fallout, the new disaster profiteers know which way the wind is blowing. CONTACT: Center for Corporate Policy, [phone], www.corporatepolicy.org; Project on Government Oversight, (202)3471122, www.pogo.org.

CHARLIE CRAY is the director of the Center for Corporate Policy and co-founder of Halliburton Watch.org. He is the co-author of The People's Business: Controlling Corporations and Restoring Democracy (2004). A version of this story originally appeared in Multinational Monitor.