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Testimony: 

Before the Senate Committee on Small Business and Entrepreneurship: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EST: 

Tuesday, November 8, 2005: 

Hurricanes Katrina and Rita: 

Preliminary Observations on Contracting for Response and Recovery 
Efforts: 

Statement of David E. Cooper, Director, Acquisition and Sourcing 
Management: 

GAO-06-246T: 

GAO Highlights: 

Highlights of GAO-06-246T, a report to the Committee on Small Business 
and Entrepreneurship, United States Senate: 

Why GAO Did This Study: 

The devastation experienced by those throughout the Gulf Coast in 
Louisiana, Mississippi, Alabama, and Texas in the wake of Hurricanes 
Katrina and Rita has called into question the government’s ability to 
effectively respond to such disasters. The government needs to 
understand what went right and what went wrong, and to apply these 
lessons to strengthen its disaster response and recovery operations. 

The federal government relies on partnerships across the public and 
private sectors to achieve critical results in preparing for and 
responding to natural disasters, with an increasing reliance on 
contractors to carry out specific aspects of its missions. At the same 
time, the acquisition functions at several agencies are on GAO’s high-
risk list, indicating a vulnerability to fraud, waste, abuse, and 
mismanagement. 

GAO was asked to provide an overview of (1) its role in evaluating the 
contracting community with regard to disaster preparedness and 
response, (2) GAO’s plans for reviewing the performance of the federal 
government and its contractors in preparing for and responding to the 
hurricanes, and (3) what GAO has learned so far about the performance 
of the federal government and its contractors in preparing for and 
responding to the hurricanes. 

What GAO Found: 

The private sector is an important partner with the government in 
responding to and recovering from natural disasters such as Hurricanes 
Katrina and Rita. Such partnerships can include multiple federal 
agencies; for-profit contractors, including small businesses and local 
firms; not-for-profit organizations; and state and local governments. 
Importantly, federal agencies are relying increasingly on contractors 
to carry out specific aspects of their missions. The government’s 
response to Katrina and Rita, for example, depended heavily on 
contractors to deliver ice, water, and food supplies as well as the 
effort to patch rooftops and supply temporary housing to displaced 
residents and evacuees. GAO can draw on its large body of knowledge to 
evaluate the procurement and contracting community’s preparation for 
and response to Katrina, Rita, and other disasters. GAO’s past work has 
shown that far too often, poorly planned and executed acquisitions have 
resulted in the government’s inability to obtain quality goods and 
services on time and at a fair price—an outcome that is unacceptable, 
particularly in the current fiscal environment. 

GAO’s work on contracting issues related to Hurricanes Katrina and Rita 
will focus on agency planning, contract execution, and monitoring of 
contractor performance. To ensure good contracting outcomes, agencies 
must have sound acquisition plans, sufficient knowledge to make good 
business decisions, and the means to monitor contractor performance and 
ensure accountability. These components are critical to successfully 
managing contracts following any disaster, especially catastrophic 
disasters such as Hurricanes Katrina and Rita. The fact that natural 
disasters are not precisely predictable must not be an excuse for 
careless contracting practices. 

GAO’s preliminary observations about the purchase of classrooms by the 
Army Corps of Engineers (Corps) illustrate what can happen when sound 
contracting practices are not followed. The Corps was faced with a 
significant challenge in this acquisition because the classrooms were 
purchased in a short time frame and negotiations were compressed. GAO 
has concerns that the government may be paying more than necessary and 
questions whether Corps contracting officials had sufficient knowledge 
to ensure a good acquisition outcome. As a part of our ongoing work on 
Katrina and Rita, we will continue to review the facts and 
circumstances of this particular contract and other contracts 
supporting hurricane recovery efforts as we assess the overall 
contracting environment and practices in place. 

www.gao.gov/cgi-bin/getrpt?GAO-06-246T. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact David E. Cooper at (202) 
512-4841 or cooperd@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Select Committee: 

Thank you for inviting me here today to discuss the nation's response 
to Hurricanes Katrina and Rita. We have witnessed many heroic efforts 
by dedicated public servants and volunteers working long hours to 
reduce the pain and suffering of those affected and to restore some 
sense of normalcy to the affected regions. Yet as you know, the 
devastation experienced by those throughout the Gulf Coast in 
Louisiana, Mississippi, Alabama, and Texas has undermined the nation's 
confidence in its government's ability to effectively respond to such 
disasters. Ultimately, we need to understand what went right and what 
went wrong, and to apply these lessons to strengthen the government's 
response and recovery operations as we look toward our long-range 21st 
century challenges. 

GAO has already had teams in the hurricane-stricken areas, which have 
begun collecting information and gaining the insight that will be 
necessary to identify lessons learned and improvements needed for 
future emergencies. Our work is being coordinated with the rest of the 
accountability community at the federal, state, and local levels to 
ensure that all significant issues associated with relief and recovery 
are addressed while avoiding unnecessary duplication of efforts. The 
Comptroller General is personally involved in GAO's efforts and is 
working closely with other accountability organizations. While the 
inspectors general are expected to be on the front lines of reviewing 
agencies' response and recovery efforts, GAO plans to take a more 
systemic, crosscutting look at a broad range of issues, including how 
agencies provided for the use of small businesses and local firms in 
their acquisition decisions. As provided for in our congressional 
protocols, we are conducting hurricane-related work under the 
Comptroller General's statutory authority since it is an issue of 
interest to the entire Congress and numerous committees in both houses. 
We plan to review the use of Katrina-and Rita-related funds by various 
federal agencies. 

My statement today will highlight GAO's role in evaluating the federal 
contracting community with regard to disaster preparedness, response, 
and recovery; our plans for conducting hurricane-related work in the 
future; and what we have learned so far about the performance of the 
federal government and its contractors in their preparations for and 
response to Hurricanes Katrina and Rita. 

GAO's Approach to Assessing the Impact of Hurricanes Katrina and Rita: 

GAO has a broad and deep reservoir of knowledge, which we will draw on 
to conduct our work. Much of our response and recovery work was done in 
the aftermath of the terrorist attacks of September 11, 2001, and the 
subsequent creation of the Department of Homeland Security in March 
2003. In all, we have published over 120 reports on disaster 
preparedness and response and other issues raised by the 
hurricanes.[Footnote 1] 

Our framework of analysis for this work will be based on the National 
Response Plan.[Footnote 2] We will draw on our large body of knowledge 
to address several crosscutting issues, one of which is contracting. 
Our past work on preparedness--programs to prevent disasters or prepare 
in advance to respond--has identified needed improvements in a number 
of areas, including balancing efforts to prepare for terrorism with 
efforts related to natural disasters; providing training, exercises, 
evaluations, and lessons learned to first responders; providing flood 
control and protection; and improving public health preparedness. Our 
prior work on disaster response also has identified needed 
improvements, including coordination of federal, state, and local 
responses; the role of the military; and the medical and public health 
response capabilities. Finally, our work on recovery--programs to help 
affected communities get back to normal--has identified challenges 
related to federal assistance to recovery areas, private nongovernment 
assistance efforts, and lessons from overseas recovery programs. In 
many of these areas we have made a number of recommendations, some of 
which have yet to be implemented. 

Contractors Play a Key Role in Response and Recovery: 

The private sector is an important partner with the government in 
responding to and recovering from natural disasters such as Hurricanes 
Katrina and Rita. As we noted early this year, such partnerships 
increasingly underlie more and more government operations and 
missions.[Footnote 3] Networks that are being created often include 
multiple federal agencies, for-profit contractors and not-for-profit 
organizations, and state and local governments. Importantly, federal 
agencies are relying increasingly on contractors to carry out specific 
aspects of their missions. The government's response to Katrina and 
Rita, for example, depended heavily on contractors to deliver ice, 
water, and food supplies, as well as the effort to patch rooftops and 
supply temporary housing to displaced residents and evacuees. 

With hundreds of billions of tax dollars spent each year on goods and 
services, it is essential that federal agency acquisitions be handled 
in an efficient, effective, and accountable manner. However, as the 
government increases its reliance on contractors, GAO and other 
accountability organizations, inspectors general, and agencies continue 
to identify systemwide weaknesses in key areas of acquisition. The 
acquisition function at several agencies has been on GAO's high- risk 
list for over a decade,[Footnote 4] and in January 2005, we added 
interagency contracting to this list.[Footnote 5] For Katrina relief 
alone, Congress has appropriated over $62 billion--over 95 percent of 
which is being administered through the Department of Homeland 
Security. In January 2003, we designated DHS's formation through the 
merger of 22 agencies as high-risk because of the size and complexity 
of the effort and the wide array of existing challenges faced by the 
components being merged into the department.[Footnote 6] 

Far too often, the result of poorly planned and executed acquisitions 
has been an inability to obtain quality goods and services on time and 
at a fair price. Given the fiscal challenges we currently face and are 
likely to continue to face for decades to come, the federal government 
must improve its ability to acquire goods and services in a cost- 
effective manner. 

Key elements must be in place to manage risks and achieve successful 
contract outcomes. To ensure good contracting outcomes, agencies must 
have sound acquisition plans, sufficient knowledge to make good 
business decisions, and the means to monitor contractor performance and 
ensure accountability. These components are critical to successfully 
managing contracts following any disaster--especially catastrophic 
disasters, such as Hurricanes Katrina and Rita. The fact that these 
disasters are not precisely predictable must not be an excuse for 
careless contracting practices. 

Achieving Successful Contracting Outcomes Will Be the Focus of GAO's 
Work on Katrina and Rita Contracting Practices: 

Our preliminary fieldwork indicates that agency contracting practices 
in preparing for and responding to natural disasters are in need of 
review and revision. GAO's work on contracting issues related to 
Hurricanes Katrina and Rita in both the near and the long term will 
focus on agency planning, execution, and monitoring of contractor 
performance. 

Among the issues that warrant consideration in assessing agency 
approaches to emergency contract planning are: 

* the strategies and flexibilities agencies used to plan their 
procurements to avoid the risks associated with undefined contracts; 

* the knowledge agencies used to identify, select, and manage 
contractors, including small businesses and local firms, to achieve 
successful outcomes; 

* the foresight to have competitively awarded contracts in place prior 
to the event against which orders can be placed as needed; and: 

* the trade-offs agencies made in deciding to use national or local 
contractors. 

In assessing the execution of these contracts, we will consider such 
issues as how effectively agencies: 

* communicated and coordinated among themselves and with contractors, 

* provided for the participation of small businesses and local firms in 
response and recovery contracts, 

* defined contract terms and conditions to avoid excessive costs and 
ensure desired performance, and: 

* monitored contractors. 

We will consider the possible underlying causes of the problems we 
identify in agency planning and execution, such as: 

* the capability of information systems to provide visibility into 
financial and contracting operations; 

* the skills and training of the acquisition workforce; 

* the alignment of responsibilities among the key officials in managing 
the award and oversight of contracts; and: 

* the policies, procedures, and guidance for managing contracts. 

Preliminary Observations from One GAO Review: 

To illustrate what can happen when sound contracting practices are not 
followed, I would like to discuss some preliminary observations about 
the purchase of portable classrooms for the state of Mississippi. In 
response to a tip received through GAO's hotline[Footnote 7] that the 
government is paying highly inflated prices, we are reviewing a 
contract the Army Corps of Engineers (Corps) awarded on behalf of the 
Federal Emergency Management Agency to purchase portable classrooms for 
Mississippi schools damaged along the Gulf Coast. 

The Corps faced a significant challenge in this acquisition. It was 
faced with acquiring the classrooms in a short time frame, and 
negotiations were compressed. To meet the requirement, the Corps placed 
a non-competitive order on a preexisting agreement established by the 
Army Contracting Agency in Fort Eustis, Virginia. The agreement was 
intended to be used to acquire and install portable buildings (not 
specifically classrooms) on Army installations. In negotiations, the 
contractor proposed to provide the classrooms for $39 million, and that 
amount was accepted. Since being awarded, the order has been amended 
several times to adjust the type and quantity of classrooms provided 
and other work required. 

We have concerns that the government may be paying more than necessary. 
We question whether Corps contracting officials had sufficient 
knowledge to ensure a good acquisition outcome. For example, we found 
information in the Corps' contract files and from other sources that 
suggest the negotiated prices were inflated. Further, we found the 
Corps modified the contract after it was awarded to allow the 
contractor to substitute a different mix of classrooms than required by 
the contract. However, we found little evidence that the Corps 
conducted a complete analysis to determine the impact of the 
modifications on the contract price. 

In this situation, the Corps was heavily dependent on information 
provided by the vendor and did not have the benefit of competition. 
These circumstances, as we have shown in prior work, increase risk and 
often result in poor outcomes. We will pursue the question of whether 
the contracting staff had sufficient information to make a sound 
business decision. 

As a part of our ongoing work on Katrina and Rita, we will continue to 
review the facts and circumstances of this particular contract and 
other contracts supporting hurricane recovery efforts as we assess the 
overall contracting environment and practices in place. 

In closing, as federal agencies prepare for and respond to unforeseen 
devastation that results from hurricanes and other natural disasters 
and terrorist attacks, they must be effective in planning and executing 
contracts with private firms to achieve critical mission outcomes and 
ensure accountability. We will continue to work with the accountability 
community and have already reached out to relevant congressional 
committees, federal inspectors general, and state and local auditors in 
the affected states to coordinate our efforts and most effectively 
utilize our resources. 

Mr. Chairman this concludes my statement. I would be happy to respond 
to any questions you or other members of the committee may have at this 
time. 

GAO Contact and Acknowledgments: 

For further information regarding this testimony, please contact David 
Cooper at (202) 512-4841 or cooperd@gao.gov. Individuals making key 
contributions to this testimony included William T. Woods, Penny 
Berrier, John Needham, Ralph Roffo, Karen Sloan, and Katherine Trimble. 

FOOTNOTES 

[1] GAO has posted on its Web site (www.gao.gov) more than 120 prior 
reports and testimonies related to preparedness, response and recovery 
from natural disasters and terrorist attacks. The list includes, for 
example, our reports on the federal government's response to Hurricane 
Andrew in 1992, including the military's role in South Florida. GAO's 
past work has noted a host of needed improvements in a variety of 
government programs related to Hurricane Katrina and other natural 
disasters. 

[2] The National Response Plan, prepared by the Department of Homeland 
Security, establishes a comprehensive all-hazards, both natural and man-
made, approach to enhance the ability of the United States to manage 
domestic incidents. 

[3] 21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C. February 2005). 

[4] GAO's High-Risk Series identifies areas in the federal government 
with vulnerability to fraud, waste, abuse, and mismanagement. 

[5] High-Risk Series: An Update, GAO-05-207 (Washington D.C. January 
2005). 

[6] Major Management Challenges and Program Risks: Department of 
Homeland Security, GAO-03-102 (Washington, D.C. January 2003). 

[7] The purpose of the Government Accountability Office's FraudNET is 
to facilitate the reporting of allegations of fraud, waste, abuse, or 
mismanagement of federal funds. Allegations are received via e-mail at 
fraudnet@gao.gov.