Contractors rake it in as they clean it up

Martin Wolk Chief economics correspondent • Profile • E-mail

For companies in the disaster business, 2005 was a very good year. And if preseason predictions are correct, it could be the first in a series of profitable years for a rapidly growing industry that encompasses engineering firms, debris haulers and logistical specialists who rush in whenever disaster strikes.

In addition to being the largest natural disaster in U.S. history, Hurricane Katrina was a boon for companies that specialize in recovering from such devastation. It opened the spigot to billions of dollars in federal contracts to haul debris, make emergency repairs to damaged homes and buildings, and provide temporary housing and other structures.

The scope of the government aid and the private sector's degree of involvement was eye-opening to those on the receiving end.

“There is big money in disasters,” New Orleans Mayor Ray Nagin said recently at a conference of mayors. “Huge money."

Although the contracts went to more than 1,200 businesses, including some small and minority-owned firms, most of the biggest deals were awarded to the giant construction and engineering companies that dominate the disaster-recovery business. These companies, including well-known names like Halliburton and Bechtel, tend to have deep political connections and long histories doing business with the government.

But the growth of the sector is best illustrated by an emerging group of companies even more intensely focused on specialized aspects of post-disaster work. These firms, including Beck Disaster Recovery and AshBritt, typically spring into action after disasters strike by tapping networks of affiliated contractors to quickly dispatch personnel, heavy equipment and other specialized gear to the scene.

Soaring profits
Many of the companies are privately held and release only limited financial figures, but some of the public companies have shown strong financial results this year, reflecting, at least in part, the Katrina effect.

Shaw Group, for example, a Louisiana-based company that responds to an average of 300 emergencies a year, posted revenue of $2.4 billion in the latest six-month period, up more than 50 percent from a year earlier, while profits nearly tripled. At Fluor Corp. revenue was up 27 percent and profits rose 88 percent in the latest quarter, although the company cautioned that government-related business would likely be "materially lower" in the second half of 2006.

Halliburton also has seen revenue and profits surge and is planning a spin-off of its Kellogg, Brown and Root subsidiary, which handles much of the company's government contracting.

But where there is big money pouring rapidly out of government coffers, there is a good chance some of it will be wasted, or worse, especially when 70 percent of the federal contracts are awarded on a no-bid or limited-competition basis, as was the case after Katrina.

The monster storm and the contracting practices that followed it opened the floodgates to "widespread mismanagement, waste and fraud,” Rep. Henry Waxman, D-Calif., said May 4 after reviewing thousands of pages of audits and other documents.

Officials of the Federal Emergency Management Agency and other agencies say they have corrected many problems and tightened oversight.

Among other steps, they say, they have more advance contingency contracts in place to avoid the overpayment caused by the billions of dollars in no-bid contracts awarded after Katrina. Deidre Lee, a federal procurement specialist recently hired as a FEMA deputy director, said the agency also is considering the use of online "reverse auctions," in which contractors vie to provide the lowest bid on a project.

‘Just a bunch of promises’
But as the 2006 hurricane season begins on Thursday, critics are skeptical.

“All we have so far is just a bunch of promises from government agencies that they have learned their lesson from Hurricane Katrina and have improved their system for the next national emergency that comes our way,” said Scott Amey, general counsel for the Project on Government Oversight, a watchdog group.

Some $88 billion has been allocated for Katrina relief and rebuilding to date, according to the Department of Homeland Security, and about $10 billion of that has been handed out to private firms.

In general it is the biggest firms, some of whom who have gotten contracts worth more than $500 million, that have taken much of the heat for systemic failures including poor planning, lack of communication and weak oversight.

There have been a few isolated instances of graft. Of the 261 people arrested on Katrina-related fraud charges as of mid-May, at least one was a contractor who pleaded guilty to bribery. Another was sued and ordered to repay $1.5 million for failing to deliver promised services, according to the Justice Department.

But for the most part, the main complaint has been taxpayer dollars wasted as government agencies, caught unprepared by the biggest natural disaster in U.S. history, were forced to pay top dollar for cleanup and recovery services and failed to sufficiently monitor the service providers.

"Based on timing it was easier for federal agencies to turn to the usual suspects rather than get out and have a competitive bidding process that may have been able to provide better value for services,” said Amey of the Project on Government Oversight.

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