2006Public Service

From blue tarps to debris removal, layers of contractors drive up the cost of recovery, critics say.

Top-tier contractors say it's the only way to get the work done.
By: 
Gordon Russell and James Varney
Staff writers
December 29, 2005

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The blue-tarp roof, a symbol of hurricane damage in south Louisiana and Mississippi as recognizable as curbside debris, may wind up as a post-Katrina emblem of government waste reminiscent of the Pentagon's fabled $435 hammers and $640 toilet seats.

Depending on the extent of damage and the size of the roof, the federal government is paying anywhere from a few hundred dollars to $5,000 to install a typical tarp. The cost to taxpayers to tack up a covering of blue vinyl is roughly the same, on a per-square-foot basis, as what a homeowner would pay to install a basic asphalt- shingle roof.

Yet the laborer putting nail to tarp typically earns only a fraction of that. The cost is driven up by layers of subcontractors, an expensive flowchart that sometimes produces the sub-sub-sub-sub- subcontractor, known in post-Katrina parlance as a "fifth-tier sub."

front-end loader removing debris

A front-end loader removes trash Wednesday from the 6600 block of Colbert Street in Lakeview. While vast sums of money are being dumped into the hurricane recovery, because of the number of hands the money must pass through, subcontractors at the bottom of the pile say they struggle to earn a living. (Staff photo by Eliot Kamentz)

The arrangement isn't unique to roofing. On almost any contract let by either the Federal Emergency Management Agency or the Army Corps of Engineers, who together control most of the more than $60 billion earmarked by Congress for hurricane aid, a similar system of tiering exists. Nor are such contractual layers indigenous to a universe shattered by Katrina and Rita. Those involved in the work say similar arrangements are commonplace after natural disasters throughout the United States.

Temporary housing, for example, provides another area in which contract nesting proliferates. FEMA buys trailers from brokers, who bump up the price per unit by thousands of dollars. And on New Orleans' housing inspection contract, the federal government paid The Shaw Group nearly $80 an hour, city officials said, for building inspectors who earn about a quarter of that amount, according to city inspectors.

In other words, the guy spinning a Bobcat choked with tree limbs on a residential street may be earning as little as $1 per cubic yard of debris, although the prime contractor may be billing 20 times that amount for the service.

Federal regulators and prime contractors defend the arrangements, saying the big companies that land mammoth contracts furnish resources and oversight smaller companies couldn't possibly match. It simply wouldn't work, they say, for the government to try to cut out the middleman and hire building inspectors or roofers directly. Moreover, the emergency nature of the work -- the need to bring in thousands of workers and truckloads of provisions in a hurry -- also drives up costs.

"This is not what most people think of as a typical contract, with sealed bids for a very specific job and a one-time, specific amount of money," said Jim Pogue, a corps spokesman. "These are task- order contracts. What we basically are awarding the big contracts for is someone's ability to do a lot of different kinds of tasks."

What's more, federal contracts often require huge insurance requirements and credit lines, business costs that can only be handled promptly by bigger companies. Those companies are fewer in number, and thus are, in many cases, already known to FEMA and other federal agencies for their work on previous disasters.

For example, contractor Paul Loupe has worked with Ceres Environmental Services, one of the major contractors the corps hired to collect storm debris, and became Ceres' top subcontractor in Jefferson Parish debris-removal contracts. Loupe said his company's experience and size made it an obvious choice for the work.

"In order to do what we're doing you have to have an insurance policy that costs $7,000 to $8,000 up front, plus the premiums, and most of the small guys just can't carry that," he said.

Critics acknowledge some administration is needed, and that the sheer scale of the various jobs leads to increased overhead costs. Still, the difference between the price of the contract and the money collected by those doing the work appalls them, they say.

"When you have this nesting, or tiering, you're losing a lot of money to friction as it goes from sub to sub down to the worker bee who's actually turning a wrench or putting on a blue tarp," said Steve Ellis, vice president of programs at the watchdog group Taxpayers for Common Sense.

Keith Ashdown, a colleague of Ellis', decried the "blank-check mentality" that he said often results in overspending in the wake of disasters. "I guarantee we're going to come back to this after everything has been reviewed and find we paid (upscale retailer) Nordstrom prices when we should have been paying Wal-Mart costs," he said.

Not everyone collecting federal dollars turns a huge profit. While vast sums of money are being dumped into the recovery, because of the number of hands the money must pass, the subcontractors at the bottom say they struggle to earn a living. Some have decided to head home, or to go to Florida, where some say they've heard there is less layering and thus more money for the man on the ground.

Prices unknown

Billions of American taxpayer dollars are being spent on the various emergency relief efforts, but the government has declined, at the request of the companies receiving the most money, to detail the spending. The corps has refused to provide breakdowns on tarping and debris removal requested by The Times-Picayune through various public-records requests, citing contractor objections that releasing the information could cause them "competitive harm."

"The only thing I can address is what we are paying our primes," said Jean Todd, a contracting officer for the corps. "From there, there are contractual agreements between the primes and the subs."

But, Todd conceded, "I can't release (verbally) how much we're paying our primes because that is subject to (requests under the) Freedom of Information" Act, or FOIA. Such requests have been filed by The Times-Picayune and others, but have yet to be honored. The corps recently posted online a list of its tarping and debris- removal contracts, but the prices were omitted.

Local government officials have been similarly frustrated in efforts to find out what contractors are being paid, particularly for debris collection. A succession of local figures -- including Plaquemines Parish President Benny Rousselle and officials from New Orleans and Jefferson and St. Bernard parishes -- complained at a recent legislative hearing that they had filed FOIA requests and gotten no response.

The information could affect local governments because FEMA has told local officials that they'll be responsible for 10 percent of the cost of debris removal after June 30, and perhaps a larger share in the future. The work is not expected to be completed until December 2006.

Despite the feds' unwillingness to disclose costs, ballpark figures -- and even some specific ones -- have leaked out. For example, The Shaw Group of Baton Rouge, one of three companies in charge of the tarping program dubbed "Operation Blue Roof," earns $175 per "square" for each tarping job, according to a report by the Knight-Ridder news service that neither the government nor the contractors have challenged. A roofing "square" is equal to 100 square feet.

Two other prime contractors, Simon Roofing of Ohio and LJC Construction Co. of Alabama, take home $172 and $149 per "square" respectively, according to the same report. The report did not include a per-square-foot price for the fourth prime contractor doing work in Louisiana, Ystueta Inc. of Alabama. Those figures omit the cost of the tarps and other materials, which are provided by the federal government. Prime contractors do supply other materials, including furring strips and fasteners.

Todd Woods, owner of A-1 Construction and Roofing, a subcontractor to Shaw, said Shaw pays him $75 for each square laid by subcontractors who report to him. Further down the chain, Erik Larsen, whose Wescon Construction is a subcontractor to A-1, said he gets $30 a square for tarps that he and his subcontractors lay.

But Larsen said his subcontractors also have subs, who in some cases have subs themselves. Those at the bottom sometimes earn as little as $2 per square, Larsen said.

Craig Stone, a salesman with Ace Roofing, which has been doing business in southern Louisiana for 40 years, was shocked to hear the costs associated with the government programs compared with replacing the roof. Ace, which is not involved in any FEMA contracts, generally charges between $170 and $180 a square for a basic, "three-tab" asphalt-shingle roof, he said -- about the same as what Shaw collects for a tarp job.

Charging that price for a tarp, Stone said, amounts to "gouging, pure and simple."

While government and company officials defend the arrangements, saying they were competitively bid, the corps' own contracts reveal the government doesn't always pay the same rate for a service . . For example, the feds are paying Shaw 17 percent more for precisely the same work provided by LJC, according to the Knight-Ridder report.

Hauling in the basics

Shaw officials declined to address specific questions about their prices or what services they provide to justify them. Stephanie Dixon, a spokeswoman for the firm, said some of the information that has been published regarding Shaw's contract terms was "grossly inaccurate," but she declined to specify the inaccuracies.

She added that Shaw officials are "confident that we follow all rules and guidelines" and that the company is "committed to the rebuilding of our home state and to upholding the highest level of integrity in all of our business activities."

Allan Buchanan, vice president of operations for LJC, one of the other prime blue roof contractors, agreed that under ideal conditions, tarps could be installed for less. But he said conditions are anything but ideal in southeast Louisiana.

He said his firm has had to bring in food, water, ice, fuel and housing, and that hundreds of crews under LJC's supervision have worked 18-hour days during "weeks of chaos." In addition, he said the workmanship on corps-supervised tarp jobs is "far superior to that of the private contractor."

Buchanan said his firm is profiting, but added that the government, insurers, homeowners and taxpayers are saving far more than he's earning.

"How much is too much when this service is essentially preserving, in some cases, the only thing (homeowners) have left after such an event?" he said in an e-mail. "Also, how much in additional insurance claims have been saved through this service? Let's say hundreds of millions perhaps."

Officials from Simon Roofing and Ystueta Inc. did not return phone calls.

The contracts posted online lay out a multitude of services the prime contractors must provide and regulations they must follow.

Todd of the corps described the primes' role thus: "The prime is responsible for overall management of the program," she said. "They manage a multitude of subs. They're ultimately responsible for quality control, and they're responsible for settling any claims that citizens may have because of damage to property."

Corps keeps it mum

Prices for debris removal, handled by the corps, are even harder to get a handle on. The government has refused to release the proposals it received before it awarded open-ended contracts to four large prime contractors -- Ashbritt, Phillips and Jordan, ECC and Ceres. Only the latter three are working in Louisiana. In addition, the proposals do not necessarily reflect the actual prices being paid.

Rather, each time a job is assigned -- say, the removal of debris from a defined neighborhood -- the corps negotiates a price for the specific task, using the original proposal as a starting point, Pogue said. The corps has refused to make the resulting task orders public.

"We might say, 'We've got a task for you to remove 100 million pounds of rotten chicken.' And we negotiate the price for them to do that," Pogue said. "And then there's 50 blocks of city debris for you to remove. That's kind of what we're dealing with here."

Pogue said the corps believes the government is getting a fair price and would have no objection to sharing the information with the public. But he said the companies have reason to keep the numbers private.

"When prime contractors submit their bids, it's a very competitive thing, in accordance with federal acquisition regulations," he said. "But they have an expectation because of competition that their bid is going to be confidential. That is their call."

Layers of padding

Many of those involved in the work, as well as outside observers, believe the layering is unnecessary and drives prices up.

"You're preaching to the choir there, I've been hollering about that," said state Rep. Troy Hebert, D-New Iberia. "The layers rip off the taxpayer."

Hebert, somewhat uniquely, wears two hats. In addition to his lawmaker duties, he has been a debris-removal contractor with the corps. He and fellow contractor Sean McGee joined forces because neither could afford the required $1 million liability insurance policy individually, Hebert said.

How much he was able to earn, he said, depended on what parish he worked in: roughly $9 or $10 per cubic yard in Jefferson, $7 in St. Tammany and just $6 in Calcasieu. "You see, they've got another layer in there in Calcasieu," Hebert said.

The situation was flawed from the start, Hebert believes, because the corps and FEMA essentially forced parishes to work through them. The feds pay the entire debris-removal bill only if they are allowed to handle the contracting; cities and parishes in general must pay a 10 percent share if they do it themselves and seek federal reimbursement later.

"You see, that's where the blackmail comes in," Hebert said.

The mammoth federal agencies tend to be unfamiliar with smaller, local firms, he said, making it hard for such companies to get a big piece of the action.

"FEMA went to the corps because FEMA doesn't know anything about debris cleanup," Hebert said. "But the corps doesn't know a thing about debris cleanup, either. So they turned to the big, major corporations they already know, the guys that follow the corps around all the time.

"Ceres, all they do is get the connection with the corps," Hebert said. "Why not just hire the guys who are actually doing the work and save the taxpayers all this money?"

Rousselle of Plaquemines Parish made a similar point this month in a tirade against the corps' system of contracting.

"They say they don't want to send money to Louisiana because of our reputation or whatever," he said. "I would ask them to look in the mirror. If they think this is a legitimate expense of federal money, they ought to be ashamed of themselves."

Rousselle claimed that if the corps turned oversight of the work over to local governments, unnecessary overhead could be cut dramatically, saving taxpayers 30 to 40 percent.

The legislators running the hearing seemed to agree with Rousselle.

"The bigger disaster (than Katrina) may be the rip-off," said state Rep. Ernest Wooton, R-Belle Chasse.

In the middle

Precisely what the various middle layers of subcontractors do -- in Hebert's case, the "top-tier subs" between big-firm Ceres and workers on the ground like McGee -- is unclear.

Some of the high-level subs are well-established haulers with trucks on the streets. But Hebert claims some of them are mere fronts, companies that got into the mix but don't have the assets to perform the job themselves. For example, he claimed Loupe Construction would pay him $9 or $10 and simply pocket $2 or $3.

"Loupe? They don't even have a dump truck," he said. "Loupe is totally a front guy, he don't have nothing."

Paul Loupe confirmed he does not have a truck on the streets in Jefferson Parish but said the company is using trucks and heavy equipment in other areas. He disputed the notion his outfit doesn't play an important role. In addition, Loupe said he pushed for the higher pay in Jefferson Parish that Hebert found attractive -- indeed, the two companies have had a profitable relationship, Loupe said.

"We decided to give the small guy a chance at the big money, the $10 a yard, out here," Loupe said, noting the smaller payments made by other parishes. "And I police my subs a lot and make sure my guys are getting paid."

Loupe noted that, as part of his duties, he handles payrolls, the quality-control teams, the towers and other operations within the command center and dumping grounds at Lafreniere Park in Metairie. It's there, he said, that his trucks are on the job.

"When you look at how much we get, once you add up all we do it's not that huge a thing," he said. While Loupe declined to specify what he gets paid, he said the company enjoys a profit margin of between 15 and 20 percent on the debris-removal contracts.

That said, Hebert and some subcontractors beneath him in the Metairie pecking order concede they are still making good money. Hebert estimated he sometimes earns more than $1,000 a day.

At the end of the chain, like the tiny figurine in the middle of a Russian Matryoshka doll, are those working for even less.

"One dollar a cubic yard," said Timmy Guidry, a Bobcat operator in Metairie, when asked how much he is paid.

Guidry, a subcontractor to McGee, was working with a group on Martin Behrman Walk on a recent morning.

"I got this job because I got in touch with Troy Hebert and he's my state rep," Guidry said.

Guidry, working seven days a week and sleeping in a tent, said he is making as much money as he ever has, but when asked if taxpayers could save a bundle by simply paying him $2 and cutting out the other layers, he said, "Of course."

Chad Tulp, owner of a debris-hauling company from Minnesota, said he's been having trouble making ends meet because of his place on the subcontractor food chain.

He's a bit higher on the tier system than Guidry. Tulp's per- cubic-yard take ranges from $5.50 to $6.50, he said, about one- third of what the top firms are making. But given the cost of his equipment -- he said he brought in trucks and other items worth $300,000 -- the pay is not enough, he said.

"It's impossible for a guy like me to actually make a profit," Tulp said.

Similar complaints were lodged by a group of African-American contractors who recently held a news conference on the steps of City Hall to complain that they've been offered only low-level debris contracts.

"I'm looking to be a first-tier sub," said Adam Irvin of Commander Corp., who said he's been asked to haul debris for $6 per cubic yard as a fourth-tier sub. "By the time you get down there, it's nothing but crumbs."

Most of those doing the heavy lifting think the debris program is full of lard.

"I'm a taxpayer; you're a taxpayer," Tulp said. "Every one of us is flipping the bill for this. They're wasting the people's money."

Other subcontractors, speaking on condition of anonymity, were even more explicit about what they considered unnecessary middlemen.

"The amount of money that is totally wasted is astronomical," said a fourth-tier sub from Alabama. The subcontractor said that many of the companies above him in the pecking order do little for the money they get for the work of others.

"If I dump 5,000 cubic yards a week, they might need to enter 100 'skid tickets' (dumping receipts) for me," he said. "So it may cost them an hour of labor to do it. Say it costs them $25 an hour. Well, they just made $50,000. It's nothing. It's all clear profit."

But officials from the federal government and prime contracting firms say those who make such allegations don't understand the amount of oversight such firms provide. Asked to explain what ECC - - one of the four prime debris haulers -- does for its money, company spokesman Allan Katz offered a list of 22 services, ranging from truck inspection to mapping to community relations to "waste segregation."

Officials from Ceres, and Phillips and Jordan, did not return phone calls.

Cutting into relief

Local residents might not squawk about high costs because most of the work is being paid for by the federal government. But experts note that, in the long run, the fat edges of contracts will hurt the region more than it hurts the average American.

"The more money that's lost to seepage or friction is less money that's going to actually rebuild the area," said Ellis of Taxpayers for Common Sense. "There's less bang for the taxpayer's buck. People have talked about putting $200 billion into the relief effort. If we lose 5 percent to waste, fraud and abuse, that's about $10 billion we're losing."

Reducing the number of layers would be an easy way to save a colossal wad of cash, the nonprofit group said.

"Pyramid schemes may be OK on TV commercials, but they're not good when we're trying to rebuild a significant portion of our country," said Keith Ashdown, another member of Taxpayers for Common Sense.

"I don't think you should go beyond one subcontractor. There's no way we should be paying this."


SUBPAR RETURN ON THE DOLLAR?

The tiered system of sub-contracting prevalent in post-Katrina recovery tasks means that the cost to the taxpayer is far more than the company doing the work is actually paid.

$175. PER SQUARE = Amount Shaw Group of Baton Rouge is paid per square (100 square feet) of tarp laid on homes with roof damage in the Operation Blue Roof program.


$75 PER SQUARE -- Paid to Shaw subcontractor such as A-1 Construction.


$30 PER SQUARE - Paid to A-1 subcontractors such as Wescon Construction.


$2. PER SQUARE - Wescon, in turn has subcontractors, some of which also have subcontractors, who earn as little as $2. per square.

Public Service 2006