FEMA is accused of improperly awarding Katrina relief contracts

FEMA exposed taxpayers to significant waste -- and possibly violated federal law -- by awarding $3.6 billion worth of Hurricane Katrina contracts to companies with poor credit histories and bad paperwork, investigators say.

The new report by the Homeland Security Department’s office of inspector general, expected to be released this week, examines the propriety of 36 trailer contracts designated for small and local businesses in the stricken Gulf Coast region following the 2005 storm.

It found a haphazard competitive bidding process in which the winning contract prices were both unreasonably low and high.

Moreover, the report said FEMA did not take adequate steps to ensure that companies were small and locally operated, resulting in a questionable contract award to a large firm with ties to the Republican Party.

“Based on our analysis, we concluded that FEMA contracting officials exposed the agency to an unacceptable level of risk,” the report by the office of Inspector General Richard Skinner said.

The audit was requested by Sen. Byron L. Dorgan (D-N.D.), chairman of the Democratic Policy Committee, following complaints last year by some small-business owners that they were unfairly shut out of the process.

FEMA’s response was included in the report. The agency disagreed that wide price variations put taxpayers at risk. The agency contended that it was comfortable with bidders’ financial viability based in part on past performance. In cases where contract prices appeared unreasonably high, those costs would be offset by lower payments on subsequent work orders, FEMA officials said.

In the immediate aftermath of Katrina, FEMA handed out lucrative no-bid contracts for cleanup work to large, politically connected firms such as Shaw Group Inc. and Fluor Corp.

After heavy criticism, FEMA Director R. David Paulison pledged to rebid those contracts. He ultimately reopened only a portion, awarding 36 contracts that the agency said would be prioritized for small and local businesses.

Among the winners was PRI-DJI, a joint venture of San Diego-based Project Resources Inc. and Rolling Hills-based Del-Jen Inc., which received $400 million worth of contracts. Del-Jen is a subsidiary of Fluor, one of the original, no-bid winners. It has donated more than $930,000, mainly to Republican candidates, since 2000.