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Companies that helped N.O. getting paid 2 years later
by Michelle Krupa, The Times-Picayune
Saturday March 29, 2008, 10:27 PM
Courtesy MWH
More than two years after more than 30 companies sent vacuum trucks and other support crews to New Orleans to clean out the drainage system, many are only now on the verge of getting paid in full.
After more than two years, Richard Navert finally may be heading to the bank.
The owner of RNR Enterprises of Boise, Idaho, Navert signed on in the chaotic weeks after Hurricane Katrina as a third-tier vendor on a City Hall contract to clear hundreds of miles of debris-clogged storm drains in New Orleans.
Motivated in part by a desire to help the ravaged city, Navert said he dispatched two vacuum trucks -- half his fleet -- and ultimately billed $189,000 for the work.
"We're a small business," he said recently. "We couldn't afford to make a donation of that size. Altruism to a small businessman is: 'If I can do good while I make money, great.'¤"
But 28 months after Navert and more than 30 other private contractors finished the job, many are only now on the verge of getting paid in full. This week, city officials secured from the Federal Emergency Management Agency the final installment of $10.3 million for the cost of cleaning the storm drains.
Though the long-awaited money represents a tiny fraction of the hundreds of millions of dollars the city eventually expects from Washington to restore public assets, word of the payment brought smiles to the faces of city leaders who spent hundreds of hours in tedious negotiations over how much FEMA should pay.
In the end, New Orleans got every penny city leaders said was owed, even as federal officials refused to concede major points of dispute. The saga neatly illustrates the complexities and frustrations of FEMA's Public Assistance program, designed to give local governments the cash they need to rebuild -- but within rigid guidelines set by federal law.
It also highlights an unintended consequence of an exhaustive review process that has drawn complaints from local leaders: As FEMA analyses drag on, contractors and subcontractors waiting to be paid from the federal disbursement grow frustrated, threatening to sue cash-strapped local governments, or even walk off the job.
Mayor Ray Nagin has long claimed that as reports spread about delays in the Public Assistance program, City Hall has struggled to attract bidders for other projects that depend on FEMA reimbursements.
Even with full payment now assured for the drain-cleaning deal, several vendors said the wait for money so strained their bottom lines that they will never again take on a federal disaster contract.
"If there's another disaster and FEMA says, 'Will you mobilize trucks and come down?' I'm going to give them my competitor's name," Navert said.
Katrina causes big project
Besides ruining virtually everything in sight, the flood that followed Katrina caused a subterranean mess. As murky water rushed through the city streets, it forced wind-swept debris and mud into catch basins, clogging the 2- and 3-foot-wide pipes that carry rainwater to drainage canals.
As crews worked in September 2005 to pump the city dry, it became clear that underground storm drains needed a major purging, not only to facilitate the pumping but to prevent flash flooding in the streets during future rainstorms. That, officials agreed, could sabotage the nascent recovery.
Operating without computers and with spotty cell phone service, officials with the Public Works Department, which maintains the drainage system near street level, contacted executives from three companies to pitch the drain-cleaning job.
Global engineering giant MWH, formerly called Montgomery Watson Harza, agreed to head up the 36-day, $24.7 million effort. Compliance EnviroSystems of Baton Rouge and Hard Rock Construction of Metairie did not have the manpower or equipment to take on the full load but signed on as the principal subcontractors, Public Works Director Robert Mendoza and company executives said.
MWH Vice President Sal Mansour said that, while his company had inked a contract with City Hall, he knew getting paid would hinge on whether FEMA would agree to reimburse the spending. Nagin at the time had made no secret of the city's fiscal straits; weeks after Katrina, he laid off 3,000 workers to avoid bankrupting the government.
Jeff Young, owner of Hard Rock Construction, said that early in the drain-cleaning project, he did not dwell on when or how payment would be rendered. Based on an average lag time of about 90 days for an invoice to be paid under ordinary circumstances, he figured the firm's wait would not exceed six months.
"You really didn't know what the rules were," Young said. "It was just: secure contracts and go to work."
Within days, some 100 vacuum trucks and support teams from 22 states arrived to begin work. The vendors provided food and drinking water, bathrooms and lodging for workers who spent 12-hour shifts mucking out manholes, catch basins and underground pipes in flooded and dry neighborhoods.
Crews tallied their work on daily logs, and MWH tracked the progress using computer maps of the city's drainage network. With many street signs swept away, workers unfamiliar with New Orleans sometimes drew maps to show where they had worked. In other cases, they counted up the manholes, catch basins and linear feet of pipe they had cleared, Mendoza and Mansour said.
"Back then, even finding a piece of paper was a chore," Mendoza recalled.
With more work to do after five weeks, city officials extended the operation 30 days, boosting the value of the MWH deal to $34.3 million. The additional work increased CES' bottom line to about $17 million and Hard Rock's portion to $7 million, company executives said.
FEMA, city disagree
When the job ended on Dec. 16, 2005, crews had cleared about 63,000 catch basins, 22,000 manhole covers and 5 million linear feet of drain pipe, city records show.
Seeking to get reimbursed quickly, the city within a month submitted to FEMA 20 boxes of work logs and signed off on an initial request for reimbursement, known as a "project worksheet," Mendoza said. The document had been filled out by FEMA staffers with access to the contract records, he said.
Conflicts arose early.
FEMA claimed from the start, with objections from City Hall, that New Orleans officials ran afoul of federal rules with contract language affecting how much money contractors could make and skirted public bid laws in awarding the deal. City officials defend the contract language and say they did their best under difficult circumstances to solicit bids.
City officials also said FEMA low-balled by nearly one-third the number of catch basins and feet of pipe cleared, while ignoring the manhole work entirely. And in figuring its own cost estimate -- a step required whenever procurement methods are disputed -- FEMA used outdated rates and failed to factor in the overhead associated with working in a wrecked city, the city argued.
In March 2006, FEMA recommended paying $19.5 million for the MWH contract, about 57 percent of the city-calculated value. Eight months later, the agency committed an additional $4.6 million for project management but gave no ground on other issues.
Arguments dragged on for the next 18 months, according to letters by city, state and federal officials that detail the dispute.
John Connolly, FEMA's Public Assistance chief in Louisiana, said the problems -- and the protracted resolution -- hinged on an error the city made in the original project worksheet. Instead of covering the entire city drainage system, the document showed that the contract was limited to flooded areas only, he said.
He said the error went unnoticed for so long in part because of a lack of "executive oversight" on the city's part.
Meanwhile, Mendoza blamed the delay on FEMA errors in interpreting work logs and on its repeated refusal to meet with the city and MWH.
Finally, in December -- two years after the job was finished -- employees of FEMA, the city and MWH spent a week at the contractor's Poydras Street offices. They pored over the original computer mapping system, now enhanced to better match work logs with the drainage system.
The parties arrived at numbers that matched the city's claim, and FEMA authorized the final $10.3 million payment six weeks later.
Connolly said FEMA was convinced, belatedly, that the work had been done for a reasonable price, though the agency never backed off its position that the contract was improperly written and awarded.
"We still completely disagree," Mendoza said, "but let's be honest, what really matters is what gets us paid."
Delay tough on companies
City officials received the final payment Tuesday and plan to cut a check to MWH after the mayor signs off on the expenditure, Mendoza said. Mansour said his company, following its usual practice, will wire payment within two days to the two main subcontractors, who said they will quickly compensate their subcontractors.
For Young, the wait has been rough. After trying to convince bankers and bond insurance agents that Hard Rock Construction would still be paid for the drain-cleaning contract and should not be docked credit or coverage, he considered suing City Hall.
"It's a good thought: 'I'm going to go sue them,'¤" he said. "But the truth, in reality, is that they can't give you the money until they get it."
Meanwhile, Young and Trey Horne, CES' operations manager, said they have fielded countless calls during the past two years from irate subcontractors who want their money.
The executives said they would have liked to have put checks in the mail long ago, but could not sacrifice millions of dollars from their own bottom lines without knowing when money would arrive from MWH.
While deep-pocketed MWH managed in 2006 to fully pay a handful of local subcontractors hired for minor jobs, Mansour said it could not manage similar payments to its two main subcontractors, opting instead to pay a combined $24 million to those firms in installments as payments arrived from the city.
Connolly said he recognizes the headaches that FEMA's protracted review process can cause, especially for subcontractors. He said subcontractors can protect themselves by refusing to participate in work unless the vendors above them agree to cover their invoices within a set number of days, regardless of whether FEMA has paid.
Writing contracts in compliance with federal law before disaster strikes also could ease the flow of money later, he said.
Mendoza expressed concern that after the long delays in payments vendors have abided since Katrina, few may rush to the next disaster scene. "There's a risk there that the next time you make that call, they're not coming."
Navert, for one, said he will not work on another FEMA project.
"As a small contractor, I paid my salaries (in 2005). I paid my fuel, lodging costs, so there was this giant sucking sound of cash leaving the business," he said. "As I get the payment now -- 27, 28 months later -- that doesn't make me whole."
Michelle Krupa can be reached at mkrupa@timespicayune.com or (504) 826-3312.
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COMMENTS (18)Post a comment
Posted by lolita4921 on 03/29/08 at 11:00PM
They got to be crazy. I am still waiting for rental property. I submitted an application last July and guest what July is almost here again. Are these people "mentally ill" or what, I mean people have put all that money in there houses what are they to do now. Then on top of that the IRS is still breathing down our necks.
Inappropriate? Alert us. Post a commentPosted by leveeleak on 03/29/08 at 11:13PM
SECOND TIME??
Lesson learned: If a Katrina ever hits New Orleans again don't plan on coming back. City screwed too many people from contractors, employees, homeowners, you name it. If it happens again, feds will drop the bomb on what's left and turn it into marsh land to protect Baton Rouge.
Inappropriate? Alert us. Post a commentPosted by grassy on 03/30/08 at 12:55AM
Oh yeah they'll be a second time too. The weakest tropical depression could be it,simply because we don't have any protection from the water. I can't deal with that again but if it does happen i'm out of here for good. I've never been a person to give up easily but another hurricane would take it's toll on me.
Inappropriate? Alert us. Post a commentPosted by kikiigirl on 03/30/08 at 1:23AM
Grassy you've held on and that was not at all easy. It's been too rough for lots of people, just look at how many people need mental help now. It's been a hard 2 1/2 years for most of us, but I don't believe 1/3 would do it again, it wouldn't be worth it. The quality of life is just about gone here with crime taking over and the insurance rates killing us.
New Orleans was so drained before the storm, I remember them talking about only having money to support itself for a couple months at a time over again & again. It was wonderful for so many to come help quickly, but people do need their money. Next time they won't want to respond.
Inappropriate? Alert us. Post a commentPosted by grassy on 03/30/08 at 1:35AM
Thanks kikiigirl ...it wasn't easy at all. We lost everything and it took a long time to get it back together. Infact we're finally able to relax now. Just thinking about the big H season around the corner and hopefully we'll be spared again. I really got more depressed recently when my husband got to the point where he could barely do the things he was so able to do at one time. Well it's no secret but we found out he's got cancer. So neither one of us could handle the stress of another hurricane.
Inappropriate? Alert us. Post a commentPosted by johnbgood on 03/30/08 at 6:39AM
Some politically connected subs got paid early. Guess its just who you knew when the contracts were being put out. The feds need look a little closer. (Hint - look at companies that never performed disaster recovery services and all of a sudden were disaster experts hiring hundreds of people to perform all sorts of tasks. Just because of political connections).
Inappropriate? Alert us. Post a commentPosted by ejkj245 on 03/30/08 at 8:25AM
A friend of mine has a company from another state who became a third party source of work in cleaning up New Orleans becasue he wanted to help the people in the area. He still has not been paid and is now on the verge of bankruptcy because the city won't pay him. He's talked to other similar companies and they all say that the next time New Orleans floods they will not get involved. They blame the city officials for being "completely stupid," but didn't those of us from this area already know that.
Inappropriate? Alert us. Post a commentPosted by MizzTickle on 03/30/08 at 8:42AM
Darn shame. People try to help rebuild the New Orleans are, don't get paid when some scumbag homeowners were overpaid Road home money.
What is wrong with Louisiana and New Orleans in particular? Who elected that bald noggin Nagin again any way? What is he doing about the mess of a city called New Orleans?
Laughing stock of the nation if it weren't so sad.
Inappropriate? Alert us. Post a commentPosted by headcritter on 03/30/08 at 8:45AM
As the Special Man used to say: "Let 'em have it!"
Inappropriate? Alert us. Post a commentPosted by myresponseis on 03/30/08 at 9:04AM
Typical New Orleans response....blame Washington, DC. If the next big one comes in our lifetime they will never find anyone to respond. The scary thing is that Katrina wasn't even a direct hit. Some things tend to be forgotten with time but you have to assume people will not forget how the good samaritan's got screwed during such a critical time in this city's history. Just another sad story in a city that is actually within the borders of the continental US and quickly forgotten. The main reason is because the feds know our bumbling idiots we call leaders will squander any chance they can to assist the people.
Inappropriate? Alert us. Post a commentPosted by kikiigirl on 03/30/08 at 10:51AM
Grassy, I hope everything goes well with your Mr., I will send some of my prayers for both of you. Be strong!
Inappropriate? Alert us. Post a commentPosted by riversliver2 on 03/30/08 at 11:13AM
The land between I55 & I59 (and below) was given back to the Indians.
Inappropriate? Alert us. Post a commentPosted by gatorlawman on 03/30/08 at 12:35PM
One question that I have not seen answered is FEMA going to pay the LATE FEES and PENALTIES associated with the length of time they took to unravel this mess? The companies that did the work are surely entitled to late fees just as the IRS gets late fees and penalties on us regular folks when we owe the government money. These companies surely did not agree to wait over 2 years to get paid.
Inappropriate? Alert us. Post a commentPosted by 70114 on 03/30/08 at 1:20PM
Do on to others as you would like them to do onto you. New Orleans you have made your bed, hope your happy. The city is the blame for this mess.
Inappropriate? Alert us. Post a commentPosted by yoda3331 on 03/30/08 at 3:04PM
There is a statement in this article that I think is the "Root Cause" of the apparently "Fraudulent" issuance of an emergency contract by the City of New Orleans. It was:
"He said the error went unnoticed for so long in part because of a lack of "executive oversight" on the city's part."
The error was the issue of an unfunded contract and the improper application of required FEMA documentation.
What I think we have here are "Major Errors" by "Senior Management and Legal Council Representation" that seemingly does not know contract administration and contract procedures; nor how to justify the cleaning of the complete subsurface systems.
These Senior Management and Legal Council Representatives "Errors" have acted to lessen the creditability of the City’s reputation and fiduciary credence, These Senior Management and Legal Council Representatives are the same that have been recently awarded large salary increases for their good work.
Well done Ray Ray!!!
Inappropriate? Alert us. Post a commentPosted by heirlooms on 03/30/08 at 3:11PM
FEMA has the nerve to accuse another entity of writing an imperfect contract in a dire emergency?
It ought to take a good look in the nearest mirror.
Inappropriate? Alert us. Post a commentPosted by openbooktest on 03/30/08 at 3:51PM
Why don't we see this as part of the crime in New Orleans?
How long will it take Alphonso Jackson's friends to get their hundreds of millions to tear down the projects? Have they already gotten paid?
Inappropriate? Alert us. Post a commentPosted by xman20002000 on 03/30/08 at 4:49PM
I wonder if contractors in Iraq have to wait on their money. And, what was the condition of catch basins before the storm. Anyway, this was a completely disorganized effort from top to bottom and remains that way. A small business cannot wait to be paid. It's like Katrina did not happen in the U.S. BUSH forever....Please
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