Overcoming Katrina

The Federal Emergency Management Agency says its contracting problems are solved- the next huge disaster will be the true test.

For nearly two years, the Federal Emergency Management Agency has resembled a punch-drunk prizefighter, withstanding a ferocious barrage of testy congressional hearings, negative auditors' reports and unflattering media investigations. The aftermath of Hurricane Katrina exposed the nation's emergency response agency to charges of cronyism, incompetence and mismanagement. FEMA acquired a malignant reputation it has found difficult to shake.

Much of the criticism focused on FEMA's inability to rapidly and cost-effectively deliver emergency supplies and services to storm victims. With almost no contracts in place before the hurricane, agency employees struck dozens of deals on the fly, often without full and open competition. Investigators found that scores of hefty contracts lacked price controls or adequate oversight, wasting millions of taxpayer dollars.

But an overhauled management team and an improved contracting structure finally might have turned the tide, ushering in a new era of effective and considered procurement.

Coming Back

Immediately after Katrina, FEMA acquisition officers had almost unlimited spending authority, especially for temporary housing. For example, in early September, FEMA awarded a $10 million contract to renovate the vacant Fort McClellan Army barracks in northeast Alabama. The contractor spruced up the shelter, adding a fresh coat of paint, installing new electrical wiring and upgrading the heating and air conditioning. Within weeks, 160 rooms had been renovated and another 80 had been furnished. The facility could have been a cozy new home for displaced Katrina residents but only a handful showed up. The vacancies came as no surprise to FEMA officials in Alabama, who had advised headquarters against signing the contract because of a lack of interest from evacuees. When FEMA finally shuttered the barracks a few weeks after the storm, it had just six occupants.

The barracks contract was one of myriad embarrassing missteps that focused the attention of federal investigators on FEMA's emergency contracting capabilities. Some cited the dearth of pre-positioned contracts; others bemoaned the woefully understaffed acquisition corps. But they all came to the same conclusion-FEMA's logistics and procurement system had broken down and needed massive repairs. In the words of the late Eric Tolbert, the agency's disaster response chief until early 2005, "The procurement capability in FEMA . . . is dead."

Resuscitating FEMA would be a massive job, one that required new blood and a fresh approach. Officials concentrated on two key issues: improving how-and to whom-contracts are awarded and expanding the procurement workforce. While meaningful progress has been made on both fronts, questions linger about how the system will hold up under the stress and chaos of the next great disaster. "[FEMA has] attempted to adopt new procedures," says Larry Allen, executive vice president of the Coalition for Government Procurement, an industry group in Washington that represents contractors. "How successful it's been, well, only the next disaster will tell us."

FEMA's acquisition staff has been stressed beyond its limits for years. In early 2005, a Homeland Security Department study classified FEMA's procurement office as "red," or understaffed, finding that a staff of 95 to 125 was needed for a normal year. When Katrina struck, just months after the report was issued, FEMA had fewer than 50 contracting officers.

Congress authorized 40 new acquisition slots. After filling many of its vacancies, FEMA's acquisitions department now has grown to 220, including 123 contracting specialists. And, more help could be on the way, if needed. Last year, FEMA trained and certified 60 contracting officers from outside DHS to assist during the next major disaster. The initiative-think the Army Reserve for procurement-will be tested this summer in a series of drills. Elaine Duke, DHS' chief procurement officer, says the key is "training them to be prepared for whatever they need."

Lining Up Contracts

While an augmented acquisition force could prevent the recurrence of some post-Katrina mistakes, agency officials admit the root of the problems was the lack of pre-competed contracts.

In the immediate aftermath of the monster storm, contracting officers faced the inevitable speed vs. competition conflict. Not surprisingly, speed won. In the weeks after Katrina, House investigators found that 80 percent of FEMA contracts were awarded on a sole-source basis or through limited competition. Many contracts were incomplete and used open-ended language that failed to cap costs or clearly define parameters. In some dire cases, FEMA had to "start buying off the street to meet the demand," Michael Brown, the agency's former director, told a Senate panel in September 2005.

Experts contend that for too long FEMA was an acquisition dinosaur, using outdated purchasing models that failed to take advantage of streamlined procurement vehicles, such as indefinite-delivery, indefinite-quantity contracts. "The most parsimonious account of what went wrong was that they had a contracting organization in place that was stuck in the 1980s and they never took advantage of the reforms from the '90s," says Steven Kelman, former federal procurement chief and now a professor at Harvard University. "FEMA was a very backwards contracting organization."

Deidre Lee was brought on to bury that reputation. A respected contracting veteran, she came in April 2006 as deputy director of FEMA operations and later took over as director of management and chief acquisition officer.

It didn't take her long to identify the source of FEMA's contracting woes. In the past, she says, the agency managed its contracts on a year-by-year basis. The approach seemed to work because the need for certain products and services was always in flux-one year the need could be building materials, the next, information technology. The strategy was burdensome, however, and, as Katrina illustrated, severely limited in scope. Lee's approach is to sign longer contracts with multiple option years. The key, she says, is to stagger the deals so only a third of the contracts have to be rebid each year.

Lee says the new contracts "make us more ready, which makes us more responsive to our victims. And one of the emphases . . . is to make sure we do this competitively. And there's nothing like planning to help you be more competitive." FEMA has signed more than 100 contracts to pre-position commodities such as tarps, ice, water, radios and pharmaceuticals. And a $90 million inter-agency contract with the Pentagon's procurement shop, the Defense Logistics Agency, will supply thousands of ready-to-eat meals, fuel, construction equipment and clothes. Later this year, FEMA plans to award contracts for base camps, call centers and an individual validation office that will be used to verify a victim's identity before FEMA makes a payment-a vulnerability exposed by swindlers in the wake of Katrina.

Many of these contracts could go to smaller, locally owned companies. Changes to the 1984 Robert T. Stafford Disaster Relief and Emergency Assistance Act, which spells out how the federal government can distribute disaster aid, authorize FEMA to set aside contracts for businesses operating in the area affected by a disaster. In the past, contracting officers were directed to give preference only to those businesses.

Still, not everyone is convinced that FEMA can handle another Category 5 hurricane. Matt Jadacki, DHS deputy inspector general for disaster assistance oversight, told a House Homeland Security subcommittee in February that despite improvements to its contracting capabilities, FEMA's overall acquisition response continues to suffer from inadequate planning, a lack of clearly communicated responsibilities and insufficient personnel. "FEMA is not well prepared to provide the kind of acquisition support needed for a catastrophic disaster," Jadacki told the committee.

FEMA is not alone in needing to recalibrate its emergency contracting efforts. The General Services Administration and the Army Corps of Engineers, both of which were dinged by Katrina auditors, recently altered contracting protocols. GSA modified its Multiple Award Schedules program, allowing state and local governments access to the previously vetted contracts. Although the modifications are voluntary and apply only to preparation for or recovery from a natural disaster or terrorist attack, more than 6,600 schedule vendors have agreed to participate, agency officials say. Meanwhile, the Army Corps of Engineers, widely criticized for signing bloated contracts to patch rooftops and build portable classrooms, insists that enhanced oversight will allow better tracking of contractors' and subcontractors' work.

Trailing Behind

While recent contracting advancements appear to have transformed FEMA into a more flexible and systematic outfit-or as Administrator R. David Paulison often boasts, "a new and improved FEMA"-the remains of one particularly troublesome contract won't seem to go away.

When Katrina made landfall on Aug. 29, 2005, FEMA was in the process of re-competing its Individual Assistance-Technical Assistance Contracts, which include the purchase, installation and maintenance of travel trailers and mobile homes. Bids had been solicited and evaluated, contract negotiations had begun, but the process was not complete and no competitively awarded deals were in place. After the storm, FEMA scrapped the negotiations and awarded the contract to four companies, all industry goliaths. The deal could hardly have gone worse. Costs spiraled out of control. The contracts originally had a combined ceiling of $400 million, but that figure was quickly obliterated. By the summer of 2006, the contract had ballooned to roughly $3.4 billion. FEMA eventually re-competed a subset of the contract with the awards going to six companies, including the original four.

But the cost of the contract is merely one issue. More troubling is the fact that FEMA purchased too many trailers. And the price tag for this massive overbuy continues to rise.

FEMA bought more than 145,000 travel trailers and mobile homes for roughly $2.7 billion. That figure includes a $900 million purchase of 26,300 mobile and modular homes that FEMA later discovered could not be used in flood zones, where virtually all Katrina victims lived. It was a backbreaking error. "There's no rationale for that level of overage other than incompetence," says former DHS inspector general Clark Kent Ervin. Meanwhile, FEMA also awarded 36 contracts, worth $3.6 billion, for the maintenance and deactivation of the trailers. While the inspector general found that these negotiations were generally fair, investigators say three of the award winners had financial problems that should have raised red flags.

FEMA would not provide figures for exactly how many trailers were used by Katrina victims, but Jadacki says more than 63,000 mobile homes and travel trailers now sit unused, stored at 13 staging sites across the country. And storage doesn't come cheap. The IG estimates that maintaining those staging sites costs $36 million per year, but that's low. For example, FEMA paid $272,000 to construct an access road to a storage depot in Hope, Ark., not to mention $58,000 every three months to maintain the road.

"The government over-reacted and overbought," says Scott Amey, general counsel for the Project on Government Oversight, who has written extensively on the government's response to Katrina. "During the first stage of a disaster, you can almost be excused for overbuying or underbuying. But, the bigger question is, 'Are you still doing this, one or two years down the road?' "

FEMA now is beginning to unload its surplus trailers, creating a new set of problems. The agency is working with GSA to auction off as many 41,000 trailers previously used by Katrina evacuees, but the resale value appears to be limited. FEMA is netting on average roughly 40 cents on the dollar that it spent buying the trailers. Further complicating matters, the recreational vehicle industry opposes the mass auction, arguing it will annihilate the commercial trailer market.

FEMA insists that contracting reforms will prevent history from repeating itself. But the agency's track record is precarious and skeptics abound. "I am not confident that any of these promises for change will ultimately improve the system," Amey says. "The same language about what needs to be fixed was proposed after Hurricane Andrew, word for word. People can make promises, but it will take the next disaster to know for sure if they are able to handle it."