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12. Federal News Service, “HEARING OF THE SELECT BIPARTISAN COMMITTEE TO INVESTIGATE THE PREPARATION FOR AND RESPONSE TO HURRICANE KATRINA,” November 2, 2005

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Federal News Service

November 2, 2005 Wednesday

LENGTH: 35907 words

HEADLINE: HEARING OF THE SELECT BIPARTISAN COMMITTEE TO INVESTIGATE THE PREPARATION FOR AND RESPONSE TO HURRICANE KATRINA

SUBJECT: HURRICANE KATRINA: THE FEDERAL GOVERNMENT'S USE OF CONTRACTORS TO PREPARE AND RESPOND

CHAIRED BY: REPRESENTATIVE TOM DAVIS (R-VA)

WITNESSES PANEL I: GREG ROTHWELL, CHIEF PROCUREMENT OFFICER, U.S. DEPARTMENT OF HOMELAND SECURITY; PATRICIA ENGLISH, SENIOR PROCUREMENT EXECUTIVE, FEDERAL EMERGENCY MANAGEMENT AGENCY; COLONEL NORBERT DOYLE, PRINCIPAL ASSISTANT RESPONSIBLE FOR CONTRACTING (ACTING), U.S. ARMY CORPS OF ENGINEERS; RICHARD L. SKINNER, INSPECTOR GENERAL, U.S. DEPARTMENT OF HOMELAND SECURITY; DAVID E. COOPER, DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE;

PANEL II: TERRY THORNTON, VICE PRESIDENT, MARKETING-PLANNING, CARNIVAL CRUISE LINES; JIM BERNHARD, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, THE SHAW GROUP INC.; HENRY H. GERKENS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, LANDSTAR SYSTEMS, INC.;

TIM ZIMMERMAN, PRESIDENT, INNOTECH PRODUCTS LTD.

LOCATION: 2154 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

BODY:

REP. TOM DAVIS (R-VA): The select committee will come to order. Good afternoon, welcome to today's hearing to examine the role of government contractors in the preparation for and the response to Hurricane Katrina. Today we're going to look at the contracts in place prior to Katrina's landfall and planning efforts that took place in anticipation of a large-scale catastrophic event. We'll review the rationale and the process for awarding disaster relief and recovery contracts in the aftermath of Katrina. We'll ask about the internal controls that took place to ensure that federal acquisition laws were followed, the terms and performance of Katrina relief contracts and the ways in which the management and oversight of the disaster related contracting can be strengthened.

An awful lot of taxpayer money has gone out the door to private firms to help prepare for and respond to Katrina. Part of our job is to ask whether it's been money well spent and part of the inquiry is asking what contracts should have been in place before this storm arrived based on what everybody knew or should have known was possible. Was the contracting system up to the task? Were we able to get what we needed when and where we need it? We need to remember that this was a big, big storm. In the face of the massive destruction caused by Katrina acquisition personnel acted to meet pressing humanitarian needs, contacting firms in an effort to provide immediate relief to survivors and to protect life and property and thankfully a lot of firms responded.

It's true that many companies were called into action on a sole source basis under acquisition provisions that allowed the government to acquire urgently needed goods and services in emergency situations. It's also true, contrary to most media reports, some of the immediate response efforts were provided through existing contracts that had been previously awarded through full and open competition to prepare for such emergencies. Nevertheless, concerns have been raised with respect to how FEMA awarded its contracts to Katrina's aftermath and regarding what contract vehicle it had in place before landfall.

These are legitimate concerns that affect not only our findings relative to the preparation and response to Katrina, but also how well prepared we'll be the next time and how willing contractors will be to step to the plate the next time they're called on to do so. The indirect result of inefficient contracting and misdirected, even baseless charges against contractors could be a government left with more than it can manage in house. In the weeks following Katrina more than 80 percent of the $1.5 billion in contracts awarded by FEMA were awarded on a sole source basis or pursued subject to limited competition. Many of the contracts awarded were incomplete and include open-ended or vague terms.

In addition, numerous news reports have questioned the terms of disaster relief agreements that were made in haste. Under the Stafford Act prime contractors are to give preference to local subcontractors. The reports continue to indicate that not enough local businesses are being hired. Questions have also been raised about the Corps of engineers use of limited competition to award contracts for debris removal and clean up.

Undoubtedly FEMA, before Katrina, suffered from something I have cited government wide for many years, a lack of sufficiently trained procurement officials. Prior to Hurricane Katrina the DHS Office of Inspector General had repeatedly cited the lack of consistent contract management for large complex high cost procurement programs. DHS procurement continues to be decentralized and lacking in a uniformed approach. DHS has seven legacy procurement officers that continue to serve DHS components including FEMA.

Notably, FEMA has not been reporting attracting procurements undertaken by its disaster field offices and its procurement office remains understaffed given the volume and dollar amounts of the work. The chief procurement officer recently had established an eighth office called the Office of Procurement Operations to meet the procurement needs of the rest of DHS. After Katrina, however, the CPO reassigned its staff to assist FEMA's procurement office. FEMA remains understaffed for the number and size of the contracts it administers and oversees. Also familiar to me is the political atmosphere surrounding Katrina contracting discussions. To quote that great American philosopher Yogi Berra, "It's deja vu all over again."

Over the past two years the Government Reform Committee held four separate hearings on government contracting in Iraq. A lot of the critics' talking points have been recycled for Katrina. There's talk of cronyism, profiteering. There's widespread confusion over contract terms, processes and vehicles. The fact is large scale procurements are complex and difficult to understand in and of themselves. When it comes to procurement, if you're not confused you're not paying attention. In the chaos of contracting in the post-Katrina Gulf Coast and the challenges of acquiring urgently needed goods and services it becomes quite daunting.

Our acquisition laws have been carefully crafted to provide enough flexibility for the government to quickly get what it needs in emergency situations. I frankly can't think of a situation that would better fit within this flexibility than what we faced on the ground after Katrina.

Sometimes we just don't have the time to take our time. As was the case with our Iraq oversight, knee-jerk critics often contradict themselves lending credence to the thing that for every complex problem there's a simple solution that doesn't work. For example, we're hearing an awful of hurry up, no, wait, slow down.

On October 21 New Orleans Mayor Ray Nagin bemoaned the time consuming amount of federal oversight accompanying the federal dollars going to contractors and local governments. He told the Times- Picayune, quote, "The money is sitting in the doggone bank. We can't use it and as soon as they gave us the money they sent a team of auditors and said, 'If you spend this money, we'll be watching you real close.'" He said, "We're gun shy about how we use this money." The very next day he told the same newspaper that, quote, "We just got these huge multinational companies that are using the shield of we got to work quick versus trying to find local contractors." We'll undoubtedly learn that there have been mistakes.

The contract oversight process is not always pretty and decisions made under life and death pressures are not always as lucid as those made under less complicated conditions. But there will be disagreements with contractors. Over pricing and payment schedules should come as no surprise to anyone familiar with the administration of complex contracts in difficult circumstances. The good news is DHS appears to have established a rigorous oversight process for each and every federal contractor related to Katrina. Now, the process needs to be implemented.

Shortly after the emergency needs arose DHS's chief procurement officer asked the DHS Inspector General's Office to begin overseeing the acquisition process. The DHS IG assigned 60 auditors, investigators and inspectors and plans to hire 30 additional oversight personnel. The staff will review the award and administration of all major contracts including those let in the initial efforts. They will monitor all contracting activities if the government develops its requirements as the selection and award process unfolds. To further ensure that any payments made to contractors are proper and reasonable FEMA has engaged the Defense Contract Audit Agency, DCAA, to help it monitor and oversee any payments made and have pledged not to pay on any vouchers until each one is first audited and cleared.

Make no mistake, I have no patience for fraud and abuse. I expect that in any such instances that are proven, they will result in harsh punishment for all perpetrators. I also expect that if the conditions on the ground improve the next generation of contracts will be awarded and administered in accordance with our standard acquisition procedures. Emergency procedures are for emergencies only. FEMA understands this saying it will revisit non-competitive arrangements made immediately after the storm.

Under its plan FEMA will formalize the original emergency agreement to establish clearly terms and prices. FEMA will then review all the requirements and decide whether any particular contract needs to be completed in the short term. If there's a continuing need for the requirement, the initial contract will be left in place only so long enough for a competition to be held. The competitively awarded contracts will then replace the original arrangement. FEMA's two-pronged approach on this front could help address the understandable concerns that local firms have been under utilized.

First FEMA will competitively award multiple five-year technical assistance contracts to small disadvantaged businesses for recovery in the Gulf states. With evaluation preferences keyed to the location of both the prime contractor and subcontractors in the impacted areas. Second, FEMA plans a full and open competition for multiple five-year contracts to provide technical assistance support on a national basis for disaster response and recovery. Under this competition FEMA will require that these prime contractors meet significant small business subcontracting goals including the preferences for local businesses provided under the Stafford Act. Both strategies will emphasize the importance of using local businesses, a critical piece of successful economic recovery in a disaster ravaged area and one thus far lacking in the aftermath of Katrina.

The committee doesn't have detailed information on effort, if any. The US Army Corps of Engineers is planning for some long-term Katrina related acquisitions. These efforts will be explored at the hearing. We have two panels of distinguished witnesses to aid in our oversight this afternoon. On panel one procurement officials will provide an overview of the procurement process and a factual description of the acquisitions made before and after Katrina. The DHS IG and GAO witnesses will provide an overview of their Katrina related investigations and oversight efforts.

Panel two consists of representative companies that are contracted to provide immediate response and recovery requirements to the federal government. Carnival Cruise Lines provided temporary housing. The Shaw Group provided, among other services, blue roof emergency tarps to cover storm damaged homes. Landstar assistance provided transportation support including trucks for supplies and buses for evacuees. Innotech provided emergency packaged meals. Panel two witnesses are expected to provide an overview of the goods and services they provided, a review of their contracts with the federal government and the challenges they faced carrying out their missions. I look forward to hearing from them.

Finally, I want to comment on the lack of production of documents from various executive branch offices. We prioritized our September 30 request asking for communications within the office of the president, vice-president, secretary of Defense, secretary of Homeland Security, the secretary of Health and Human Services and the head of the Army Corps of Engineers. To date we have not received documents responsive to the specific prioritized requests although we have started to receive significant productions of other documents responsive to our broader requests, but only from DHS. I understand some of these documents will be produced later this week, we will wait and see. Our time is short for conducting our investigation. We're not going to be stonewalled here. I am going to continue to press the administration for full compliance with our request as quickly as possible.

Members will have seven days to submit written statements for the record. I ask unanimous consent, Mr. Taylor of Mississippi, Mr. Melancon of Louisiana, Mr. Jefferson of Louisiana, Ms. McKinney of Georgia, Mr. McCaul of Texas be permitted to participate in today's hearing and without objection it is so ordered. Anyone else wishing to make an opening statement? If not, we'll now recognize today's witnesses. Panel one we have the Honorable Greg Rothwell, chief procurement officer of the U.S. Department of Homeland Security --

REP. CHARLIE MELANCON (D-LA): Mr. Chairman, before we start, I wonder if I could --

REP. DAVIS: I'm sorry, Mr. Melancon.

REP. MELANCON: Thank you, Mr. Chairman. And you touched on it. Mr. Chairman, I'd like to be recognized to discuss the important issues of the document production. Key administration officials have failed to comply with a document request that was sent over a month ago. This is continuing to hinder our investigation. Mr. Chairman, as you know, in September you and I joined in sending several request letters to federal and state agencies asking them to provide documents regarding Hurricane Katrina. We sent these requests to the Department of Homeland Security, the White House, Department of Health and Human Services, the Defense Department and state governors.

When we sent these letters we listed the documents we wanted to review and that list was comprehensive. To narrow this request to make things easier on the agencies, we highlighted the specific documents that were of the highest priority for us and we asked for these high priority documents within two weeks. That was in September. But the agencies failed to comply with these requests and today, over a month later, we have yet to receive most of these documents.

With reference to Michael Brown's e-mail, there is one area where there have been some compliance and that is an e-mail from Michael Brown, the former FEMA director. The Homeland Security Department has produced some of these although not all of them. To understand what actions Mr. Brown took in response to Hurricane Katrina and to evaluate his testimony before the committee I asked staff to analyze Mr. Brown's e-mails and provide an assessment of these communications. The e-mails depict Mr. Brown in a much different light than he portrayed himself when he testified before the committee. The e-mail showed that Mr. Brown rarely made decisions. He delayed in responding to urgent requests for assistance and he often seemed out of touch.

One example was, we all heard the gripping testimony in the Senate last week about the catastrophic conditions that Mr. Marty Bahamonde, a FEMA official, encountered in the superdome after the hurricane, but no one knew until we got the e-mails how Mr. Brown responded. On 12.20 pm on August 31 Mr. Bahamonde sent Mr. Brown a desperate e-mail. He writes that, "The situation is past critical and that estimates are that many will die within hours," and here in its entirety is Mr. Browns' response, "Thanks for the update. Anything specific I need to do or tweak?" The difference is impalpable, the consequence were chilling. Two days later Mr. Brown received an e- mail informing him that urgently needed medical supplies were available for delivery, yet the e-mail showed that he waited for four days before taking any action.

In the e-mails Mr. Brown rarely exhibits leadership or issued directives to the FEMA personnel, yet he did find time to send e-mails about his appearance and reputation and other non-essential matters. On August 29, the morning Hurricane Katrina was striking Louisiana Mr. Brown e-mailed the FEMA public affairs staff about the shirt he was wearing. He wrote, "I got it at Nordstroms. Are you proud of it?" An hour later he sent a follow up message writing, "I'm a fashion god." The next day as New Orleans was flooding Mr. Brown's wife was apparently having trouble finding a sitter for their dog. Mr. Brown e-mailed his assistant at FEMA, "Do you know of anyone who dog sits? Bethany has backed out and Mary is looking. If you know of any responsible kids, let me know." This in the middle of a disaster.

Mr. Brown was the person handpicked by President Bush and Homeland Security secretary Michael Chertoff to lead the response to Hurricane Katrina, yet the e-mails portray and official who failed to provide leadership, was often out of touch and seemed distracted by concerns about his appearance and reputation.

Mr. Chairman, at my request minority staff has prepared analysis of these e-mails and their significance and I ask that this analysis and the e-mails themselves be made part of the hearings and the record. Additionally, Mr. Chairman --

REP. DAVIS: Just a second, without objection, so ordered.

REP. MELANCON: Additionally, Mr. Chairman, the e-mails from Mr. Brown underscores the importance of obtaining documentation from the various agencies involved rather than simply relying on their testimony before the committee. Unfortunately, apart from Mr. Brown's e-mails, you and I have received very little additional information in response to our request and this relates to my second issue. My intent today was to offer motions to subpoena each of the agencies to provide the high priority documents we identified in our letters in September based upon conversations our staff has had, I won't do that yet, but I would like to discuss the status of these requests and when we will get a complete response. I'm sure you will recall that Secretary Chertoff testified at the committee that he would abide by our schedule and produce the documents requested, but, as you know, we still don't have them.

We also have no communications from the White House even though Mr. Brown testified that he exchanged multiple e-mails with White House officials including chief of staff Andrew Card. We have nothing from HHS, we have nothing from the Pentagon, we have nothing from the Army Corps. Lack of compliance with congressional requests is always a problem, but is especially egregious when a committee goes out of business in just a few months like this one will. Mr. Chairman, I know you and your staff are also frustrated by this. Our staffs have talked and I understand that you want these documents as much as I do. I also understand that your staff has been pushing the agencies to produce the higher priority documents first so that we can begin with those.

I'd like to inquire, is there a specific date when we can expect these high priority documents from the agencies? Second, our understanding from your staff is that Homeland Security is supposed to produce the Chertoff documents at some point in the near future, that the White House may start on Thursday on a rolling basis and that other agencies also may be starting to see the light, but other agencies like the Pentagon have not even registered our request yet. As I understand it, the Defense Department hasn't even replied with a note saying they received our letter. They haven't produced one single document to this committee. Do you think we should issue subpoenas to the agencies that have not complied with the document request?

REP. DAVIS: Okay. Mr. Melancon, let me just say I share your concern that we haven't received the documents for which we've established a priority and I know that you've been assured we've worked hard with the other agencies and offices to get the documents. It's my understand that we'll be receiving on Thursday a substantial production from the White House responsive to that prioritized request. The requested documents aren't particularly hard to produce although they will require some additional review because they're from the highest levels of the executive branch.

Although I respect the need for them to review this and the executive branch still needs to make decisions about those documents, I just want to commit to you and the other members of the committee I'm going to seek a firm and final deadline on all the prioritized requests. We need to get those documents to continue our work and if they're not met -- and I'll work with those deadlines with all of you. If we don't get them, I won't hesitate to issue subpoenas. We have that power.

I also want to raise with you our effort to prioritize our document request by seeking the documents that relate to specific problems such as the situation at the superdome and the convention center and possible evacuation and shelter and food and water in the other states. We need to get those prioritized requests from the relevant federal agencies as well. We're working with the Louisiana State Government to focus their efforts. But I appreciate your point. Without the other documents we don't have a complete picture of the events. There are simply too many gaps in the picture that we have at this point from which we can't draw clear conclusions which is why we have this investigation. We just can't rely on them.

So if you'll continue to work with us, we will not hesitate to use whatever means possible to make sure we get them and we'll share the documents as they come.

REP. MELANCON: Thank you, Mr. Chairman. I understand your goal here and I totally support it. We should keep in mind that we already have a priority list. In our letters from September we listed what our priorities were. The communication between the top administration officials and their officers, Mr. Brown, Secretary Chertoff, Secretary Rumsfeld, General Strock, Secretary Levitt and the White House chief of staff, Andrew Card, but the agencies haven't complied with out requests. So before we start creating a new priority list, I think it makes good sense first to insist that these agencies comply with our number one priorities which we've already laid out clearly and I thank you, Mr. Chairman.

REP. STEVE BUYER (R-IN): Would the chairman yield?

REP. DAVIS: I would be happy to.

REP. BAYER: With regard to these requests to this discussion, I'm sure the gentleman of Louisiana is just as concerned at our last hearing whereby documents being requested from the state of Louisiana that not only is the Senate select committee but also this committee is being stiff armed. They said that they would get around to it within 90 days. So what they're doing is trying to wait out the jurisdiction of this committee. So I am quite positive that it is equally concerned and wants to work with us with regard to the prioritization on how we can get these documents from the local state and the federal government. With that I yield back.

REP. DAVIS: Mr. Melancon.

REP. MELANCON: With regard to the state of Louisiana, they wrote a letter specifically asking for a 90 day extension to gather all the information. We still haven't received anything even acknowledging receipt at the Pentagon and, as I appreciate it, we have not received any response from Mississippi, Alabama thus far.

REP. DAVIS: We're working to get them all as quickly as we can. We'll continue to work with members.

Our first panel: the Honorable Greg Rothwell, the chief procurement officer at the U.S. Department of Homeland Security; Ms. Patricia English, the senior procurement executive, Federal Emergency Management Agency; Colonel Norbert Doyle, the principal assistant responsible for contracting in the U.S. Army Corps of Engineers; the Honorable Richard L. Skinner, inspector general, U.S. Department of Homeland Security; and Mr. David Cooper, the director of acquisition and sourcing management, U.S. Government Accountability Office. It's our policy that all witnesses be sworn before they testify, so if you would rise with me and raise your right hand. So you solemnly swear that the testimony you are about to give will be the truth, the whole truth and nothing but the truth? Thank you.

Mr. Rothwell, we will start with you. Your entire statements that you have submitted are in the record, so we would like to take about five minutes to give kind of an overview of your remarks or stress the important points. There is a light in front of you that will be green when you start. It will turn orange after four minutes and red after five and I'd like you to keep as close to it as you can. I try to hold members to the same standard here. If it's real important, of course, we don't want to cut you off if you think it's really important, but, Mr. Rothwell, you are recognized. Thank you.

MR. GREG ROTHWELL: Thank you, Mr. Chairman and members of the committee. Thank you very much for the opportunity to discuss the Department of Homeland Security procurement actions taken just before and in response to Hurricane Katrina. My name is Greg Rothwell. I'm the chief procurement officer at the Department of Homeland Security. I'm a career executive and have spent nearly 33 years in this profession. As the chief procurement officer of Homeland Security I provide oversight and support to eight distinct procurement officers within Homeland Security including the procurement office within FEMA.

Normally these eight procurement offices obligate around $13 billion per year in supplies and services in support of the mission. Joining me at this hearing is Mrs. Patricia English. Mrs. English is the head of the contracting activity for FEMA and is the senior acquisition official responsible for the direct management of the acquisition functions with FEMA. Mrs. English has worked with FEMA for 25 years joining them shortly after their creation. She has a thorough understanding of disaster relief and recovery contracting and she joins me today to answer any specific questions that you might have concerning specific contracts that FEMA has in place.

Over the $63 billion that was provided to DHS FEMA has already obligated about $4 billion through the federal acquisition process in support of Hurricane Katrina relief. One concern that you may all recall right after the hurricane hit was whether or not the federal acquisition process would be responsive enough to actually stand up and be able to support the rescue and the recovery operations. That turned out not to be a concern. The acquisition process did work very, very quickly and was able to basically do whatever was necessary to support the pressing humanitarian needs to protect life and property and to provide support for survivors.

A lot was done in a very short amount of time with a lot of dollars. Interestingly enough, I believe that FEMA obligated more dollars within a three or four week period than the entire NASA Goddard space flight it does in a year. So a lot of dollars was obligated in a very short amount of time. It is very appropriate that this committee and, in fact, all of us take a careful look to see what was done, how it was done and take any necessary corrective actions and to adopt lessons learned.

In terms of contracts in place prior to Hurricane Katrina, there were some contracts in place. They were for building inspections, public assistance, technical assistance, hazard mitigation, geographic information systems and individual technical assistance support. These contracts were helpful, but were just simply not sufficient enough to handle the magnitude of the requirements that resulted as a result of the Hurricane Katrina.

These contracts and, in fact, every contract that Homeland Security has done in response to Hurricane Katrina is posted on our website and is available for anyone to look at. We do this for a couple of reasons. One of course is transparency and openness, but the other is to allow companies to see where the contracts are so that there is subcontracting opportunities. Also we put on our website future contracting opportunities so the companies can compete.

In terms of next steps, the chairman covered them very, very thoroughly and I won't to go into them in a lot of detail. We are in the process of reviewing everything that was done in the post-Katrina timeframe, meaning that I have created a procurement review board that is looking at every single action that is done. We will be looking at those actions, along with DCAA and in concert with our colleagues at the inspector general so that there is not duplication. We are in the processing of finalizing all of the contracts that were awarded verbally and again working closely with DCAA and the inspector general. We are re-competing contracts and we are using the two part strategy that the chairman articulated.

We have a strategy of doing a procurement set aside for 8(a) firms as well as one for small businesses and then we have a long-term strategy of doing another procurement for national contracts. Those have been described in press releases that the department has sent out. We are involving DCAA and the inspector general throughout the entire process. We are showing a very strong preference for small and disadvantaged businesses in the area impacted by the hurricane consistent with the Stafford Act. We are monitoring contractor performance again along with the inspector general and we're working to increase the FEMA acquisition workforce and have approval to hire 60 more people that will be deployed both in the Washington DC area, but also in the Gulf region.

In terms of contractor performance, the letter that came to us asked for my opinion on the contractor performance and so far I would say that the contractor performance has been very, very good. We've had no indication from our colleagues at the inspector general that there's anything that has been done that's improper. I have personally met with the four companies that received the largest contracts following award and we basically sat there and talked about critical issues such fair pricing, audits, the need to use local businesses in the devastated area and especially small businesses including minority owned businesses. These companies have shown thus far a commitment to support local, small and minority owned businesses in that area.

I guess I would just summarize by saying that the federal acquisition regulations provided sufficient flexibility to deal with the emergency. I think there will probably be some concern as to whether or not there needs to be changes in law, but I think that what we had was sufficient. It's very difficult given the magnitude of Hurricane Katrina to apply conventional business processes to such an unconventional situation. Basically in a procurement three separate stages normally occur. There is a requirement stage, there is an acquisition stage and then there is a post-award stage. When you have an emergency your requirement stage and your acquisition stage gets just simply very, very compressed which means you have to simply do more in that last stage which is the contract monitoring.

Basically I think, you know, as we go forward to making sure that there is integrity in everything we do, I would just like to emphasize, I guess, again in summary that procurement integrity doesn't just mean, you know, preventing things from going wrong, it also means doing things right and in that regard I talk about, I would think, I would include things such as assuring proper staffing, properly awarding contingency contracts, properly awarding contracts to local, small and disadvantaged businesses, and then properly managing the contracts after award, all of which are designed to assure successful mission accomplishment.

I want to thank the committee for your aid in this effort and I look forward to working with you. This completes my prepared statement and I will be happy to answer any questions when appropriate.

REP. DAVIS: Thank you very much.

Colonel Doyle.

COL. NORBERT DOYLE: Mr. Chairman and distinguished members of the committee, I am Colonel Norbert Doyle, acting principal assistant responsible for contracting for the U.S. Army Corps of Engineers. Thank you for the opportunity to testify before you today concerning the Corps disaster relief contracting procedures. We strive to maintain transparency in our contracting activities and welcome oversight of our activities.

From a contracting perspective, this visibility and transparency is best demonstrated by the publishing of our contract listing on our website where we give specific contract information to include the contractor, dollar value and purpose of the contracts for all to see. We have done this since very early in the operation.

I would like to divide my statement into four parts; pre-disaster planning, contracting during the emergency situation, a return to normalcy and small and local business utilization. In our pre- disaster planning the Corps has been assigned Emergency Support Function 3 under the National Response Plan. This is one of 15 assigned functions to various elements of the federal government. Under ESF3, public works and engineering, the Corps assumes the lead for delivery in the areas of water, ice, power, temporary roofing and debris removal. Having this responsibility, the Corps has created a program called the Advanced Contracting Initiative, or ACI. Under the ACI program we competitively award contracts for future use in those ESF3 areas. This allows the Corps to rapidly respond to emergency situations.

Turning to the emergency situation, the Federal Acquisition Regulation, or FAR, is based upon the principle of full and open competition. Drafters of the FAR, however, realize that emergency situations sometimes require emergency actions. As a general rule, the FAR mandates a 15-day advertisement period and a 30-day proposal period in most cases. What does this mean? Simply stated, if we were to follow the rules for full and open competition, we would not have awarded a contract to get the flood waters out of the city of New Orleans until the end of October. Clearly, the people of New Orleans could not wait. In fact, the FAR allowed us to considerably shorten the time period of the award under the urgency exception to the Competition and Contracting Act.

Oversight of corps contracts, especially in an emergency situation is important to the Corps. Within just a few days of the storm hitting the Gulf Coast our internal review staff teamed with the Defense Contract Audit Agency and the army's criminal investigation division and deployed to the area of operations. Their mission, which is still ongoing, is to provide oversight of the operation to include looking for instances of fraud, waste and abuse. This includes reviewing contracts.

As we're returning to normalcy in our efforts to assist in the recovery of the areas affected by Hurricane Katrina, we have concluded that it is not yet prudent to follow the full waiting periods that apply in normal circumstances before awarding contracts. It is our goal, however, to return to standard procurement operations as soon as possible. Accordingly, the Corps is moving in that direction. We are currently advertising our requirements for longer periods. We are giving prospective contractors as much time as possible to prepare their proposals and we are using FAR principles and competitive awards to the maximum extent possible.

Turning to the use of small and local businesses, the Corps has made extensive use of standard authorities granted to us under the various small business set aside programs, especially in area of 8(a) firms. Section 8(a) is a Small Business Administration Business Development Authority to benefit minority owned, socially and economically disadvantaged firms. Many of these small companies are local and quickly available to participate in recovery efforts. We have also held, and will continue to do so, 8(a) competitions in which only SBA registered 8(a) firms from designated areas can compete.

We are also developing our acquisition strategy for a newly assigned demolition mission from FEMA in which the Corps will raise structures determined to be uninhabitable. We will include opportunities at the prime level for local disadvantaged companies and possibly a geographic set aside for the unrestricted portion of the strategy. We are considering limiting competition to Mississippi companies for the Mississippi aspect of the mission and to Louisiana companies for the Louisiana aspect of the mission. Our estimates at this time are that the costs in Mississippi will be $500 million and $600 million in Louisiana. Award is tentatively planned for late December.

As I conclude my statement, I would like to thank you once, Mr. Chairman, for allowing the Corps of Engineers the opportunity to appear before this committee to discuss contracting procedures during times of emergencies. Many corps personnel serve our nation by helping in the response to natural disasters in Texas, Louisiana, Mississippi, Alabama, Florida and elsewhere in the nation and the world. We are proud to do so. I would be happy to answer any questions members of the committee may have. Thank you.

REP. DAVIS: Thank you very much.

Mr. Skinner, thanks for being with us.

MR. RICHARD L. SKINNER: Thank you, Mr. Chairman and members of the committee, thank you for having me here today. Needless to say, the costs associated with the federal government's Hurricane Katrina response and recovery initiatives are unprecedented. Under ideal conditions, the cost of response and recovery should not in itself be cause for alarm. However, the conditions associated with Hurricane Katrina are anything but ideal when you consider that obligations are being made at a rate of $275 million a day in an unstable environment, in an expedited manner, involving more than 50 federal agencies, 48 states not just those hit by the storm, hundreds of local governments, hundreds and hundreds of contractors and thousands and thousands of individual victims and evacuees scattered across the country using grants and contractors, the primary tools for the delivery of goods and services.

As we all know, the federal government does not have the most stellar reputation for managing its grants and contracts in an effective, efficient and economic manner. In fact, the IG community for years has reported grant and contract management as two of the top management challenges facing the federal government today. When you mix this altogether, what you have is a perfect recipe for potential fraud, waste and abuse. To mitigate this fall in ability, my office, the OIG community and the Department of Justice have come together and undertaken several initiatives to provide oversight of the millions being spent in the Gulf Coast region.

First, the OIG community through the President's Council on Integrity and Efficiency which is chaired by the deputy director of OMB and is co-chaired by the IG of the Energy Department formed a Hurricane Katrina Oversight Steering Group which I chair. This group incidentally mirrors H.R. 3810, the bill introduced by Congressman Platts and you, Mr. Chairman, to establish a special inspectors general council for Hurricane Katrina. We within the OIG community recognized early on that the magnitude of the damages caused by Hurricane Katrina and the associated response and recovery costs were bigger than any one IG office.

The overriding objective of the OIG Katrina Oversight Steering Group is to ensure accountability and prevent problems before they occur. I would like to emphasize that our focus is on prevention. This includes working hand in hand with department officials on a real time basis so that we can provide practical advice in precedent setting decisions and, of course, insofar as the bulk of the funds obligated to date have been or will be spent for contractor support, the OIGs are naturally focusing their attention on contract management. To date DHS has awarded over $3.9 billion in contracts and other federal agencies have awarded over $1.2 billion in contracts.

The OIGs currently are performing risk assessments of all large procurements particularly no bid or limited competition contracts and timely material and cost reimbursement contracts. Also in partnership with GAO the OIGs will be reviewing the use of the respective agencies expanded micro purchase authority, that is, credit card usage. Notwithstanding, however, our best efforts to prevent problems through an aggressive oversight program, history has shown that there are some who will try to beat the system through fraudulent means.

This brings me to our second major initiative. The OIGs, along with the FBI, U.S. Postal Service, U.S. Secret Service and others, have become active participants in the recently established Department of Justice Hurricane Fraud Taskforce which is chaired by the assistant attorney general of the criminal division. This taskforce is designed to investigate and prosecute disaster related crimes such as contractor fraud, government benefit fraud and insurance fraud. Through its joint command center in Baton Rouge the taskforce will track referrals of potential cases and complaints, coordinate with law enforcement agencies to initiate investigations, match referrals with the appropriate U.S. attorney and ensure timely and effective prosecution of cases.

In this regard we have created the OIG-wide hurricane relief fraud hotline which is being publicized throughout the Gulf Coast region. To date we have received over 2000 allegations through the hotline.

Also to date, the fraud taskforce has made 69 arrests, 23 of which were made by OIG investigators. We expect many more arrests in the days, weeks and months to come. All in all, 16 IGs have committed a total of over 300 auditors, investigators and inspectors to both the PCIE and DOJ initiatives. We expect this number will grow as we enter the reconstruction phase of the disaster relief effort.

Within DHS, OIG itself, my office, I have created an Office of Katrina Oversight which is headed by a newly appointed assistant inspector general with extensive FEMA and OIG experience. Based on my experiences as a deputy inspector general at FEMA I recognize that a disaster of this magnitude will require a long-term commitment of resources. Accordingly, to ensure that we remain focused not just on short term response operations, but also on long-term recovery initiatives I have created this office to focus solely on Hurricane Katrina relief activities. I have re-assigned 60 auditors, investigators and inspectors to this new office and will be hiring over 40 more, not 30, but over 40 more over the next three to six months. I'm prepared to add even more resources provided funding is made available as the need arises.

We now have auditors and investigators working at FEMA headquarters here in Washington, at FEMA's disaster finance center at Mt Weather Virginia, at FEMA's national processing center in Winchester Virginia, at the joint field offices in Baton Rouge Louisiana, Montgomery Alabama, Jackson Mississippi and Austin Texas and at DOJ's joint command center in Baton Rouge. In addition to this, we are continuing to work closely with GAO and other IGs on a daily basis to ensure that appropriate oversight is being provided for the many individual systems, temporary housing, public assistance and other disaster relief programs for which Congress appropriated funds.

This includes projects that are not necessarily under the Department of Homeland Security's jurisdiction such as the repairs being made to federal highways. Our goal was to ensure that there are no major gaps in oversight regardless of the funding source and, conversely, to mitigate the potential of duplication of effort. In this regard we are working to develop a standardized OIG wide bi- weekly progress report to Congress that is informative, but at the same time not too onerous to prepare. We issued our first report to Congress last week on October 28. Admittedly, the report format and content requires some tweaking and we are, as I speak, working to make it better.

Finally, I would like to point out that my office is also reviewing FEMA's preparedness for and response to the devastation caused by Hurricane Katrina. This review will be done in close coordination with GAO. We anticipate reporting on the results of our reviews sometime in late February or early March of next year. In conclusion, I would like to say that I am confident that collectively the initiatives of my office, the OIG community, and the DOJ Katrina Fraud Taskforce will provide the oversight that is needed to ensure that taxpayer dollars are being spent wisely today and in the years to come. You can be sure that the OIG community and the law enforcement community stand united in this effort. Mr. Chairman, that concludes my remarks and I will be pleased to answer any questions.

REP. DAVIS: Thank you very much.

Mr. Cooper.

MR. DAVID E. COOPER: Mr. Chairman and members of the committee, it's a pleasure to be here this afternoon and have the opportunity to talk with you about what GAO is planning to do and is doing to look at federal efforts to respond to the hurricanes. Clearly a lot of questions have been raised about whether the government has the ability to effectively respond to such disasters and whether moneys are being spent in a wise manner. GAO has already had teams in the hurricane stricken areas collecting information and gaining the insight that will be necessary to identify lessons learned and improvements needed for future emergencies.

GAO is working closely with the rest of the accountability organizations at the federal, state and local levels to ensure that all significant issues associated with the relief and recovery are addressed while avoiding duplication of effort in the area. The comptroller general is personally involved in GAO's efforts and is working closely with the accountability organizations. As provided for in our protocols, we plan to conduct all of our hurricane related work under the comptroller general's statutory authority since it's an issue of interest to the entire Congress and numerous committees in both Houses.

On the topic of this hearing, GAO will draw on its broad and deep reservoir of knowledge to evaluate the effectiveness of federal contracting efforts. 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 increasingly underlie more and more government operations and missions. The government's response to these and other disasters show how dependent federal agencies are on contractors to meet their missions.

As we've already heard, agencies turn to contractors to deliver ice, water, food supplies, fix rooftops and supply temporary housing to displaced residents and evacuees. While contracting is essential to accomplishing agencies' missions, GAO's past work and work of the IG community 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, key elements that must be in place to manage risk 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 contract performance and ensure accountability. These components are critical to successfully managing contracts following any disaster, especially catastrophic disasters like we've seen along the Gulf Coast. The fact that such disasters are not precisely predictable must not be an excuse for careless and hurried contracting practices that don't produce good outcomes. GAO's contracting work in the near term and long term will focus on how agencies are planning their acquisitions, awarding contracts and monitoring contractor performance.

I'd like to illustrate what can happen when sound contracting practices are not followed and provide some preliminary observations on some ongoing work that we're doing related to the purchase of classrooms for the state of Mississippi. In response to a tip we received on GAO's fraud hotline we've initiated work to look at a contract the Army Corps of Engineers awarded on behalf of FEMA to purchase portable classrooms. The tip that we got was that the prices the government was paying were highly inflated. The corps faced a significant challenge in this acquisition, was faced with acquiring the classrooms in a very short timeframe and negotiations were compressed in just a matter of a couple to three days.

To meet the requirement the Corps placed an order without competition on a pre-existing 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 selected proposed to provide the classrooms for $39 million and that amount was accepted by the contracting staff. We have concerns that the government may be paying more than necessary.

We questioned whether the Corps contracting officials had sufficient knowledge to ensure a good outcome. For example, we found information in the Corps contracting files and from other sources that suggest the negotiated price were in fact inflated. Further, we found the Corps modified the contract after it was awarded, the day after it was awarded, to allow the contractors to substitute a different mix of classrooms required by the contract. However, we found little evidence that the Corps conducted a complete analysis to determine the impact of substitutions and the work requirements 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.

As part of our work and federal efforts to respond to the hurricanes we will continue to review the facts and the circumstances of this particular contract award and others for other hurricane recovery efforts. We will also continue to work closely with the accountability community and have already reached out the relevant congressional committees, federal inspectors generals and state and local auditors n the affected states to coordinate our efforts and most efficiently utilize our resources. That concludes my statement.

I would be glad to answer any questions members have.

REP. DAVIS: Thank you. Let me start the questions. I'll start my five minutes. This is for the FEMA and DHS folks. On Friday, September 2, former FEMA director Michael Brown received an e-mail transmitting an offer to provide a -- and I'm getting copies of this here -- a 42 foot trailer full of beds, wheelchairs, oxygen concentrators and so on. This is on September 2, on Friday. He didn't reply until Tuesday when he e-mailed back, "Can we use these people?" Conceptually, when you get an unsolicited offer like this in the middle of a storm, how could FEMA have contracted to accept this offer of assistance? Procedurally, how would they do that? Are you aware of cases where offers were accepted and contracts entered for medical assistance or other kinds of assistance on that basis? How does that work?

MR. ROTHWELL: I'll answer it at a high level and then I'll ask Pat English to get to it at a lower level. Basically what happens with an unsolicited proposal is you would give it to your program people to say, do you need this? If they need that requirement, it is typically competed and then you would award based upon best price. So I don't know of this specific case, but again, that's typically what happens with unsolicited proposals, which is what this would be from a policy perspective. Do you know of this particular --

REP. DAVIS: Well, by the time you get best price, you could delay of a day or two or three, couldn't you?

MR. ROTHWELL: Absolutely, sir. In an emergency situation it would be a much quicker thing. I mean, you could find yourself determining that that's absolutely what you need and then making a justification to do that on a non-competitive basis if the emergency were great enough, absolutely.

REP. DAVIS: Did they have that authority to do that?

MR. ROTHWELL: Yes, they did.

REP. DAVIS: This wouldn't have been pretty big contracts. Let's just get the job done and we have to get it done right away?

MR. ROTHWELL: Yes, and again I don't know the details, but based on what you told me, that's exactly right.

REP. DAVIS: Ms. English, you've got a copy of the e-mail. Can you walk me through how they went about it?

MS. PATRICIA ENGLISH: Yes, I do, but I'm not familiar with this situation, so I'm not sure if we actually contracted with this company or not.

REP. DAVIS: I'm not asking you if you did. I'm just saying, how would you do that?

MS. ENGLISH: I would do exactly what Mr. Rothwell just said. REP. DAVIS: Okay.

MS. ENGLISH: We would send it and have it evaluated and then make a determination of the need.

REP. DAVIS: I have another e-mail under there from Friday, September 2, former FEMA Director Brown received an e-mail that showed that Mississippi would be getting 60 trucks of ice and 26 trucks of water, but their requirements were for 450 trucks of ice and 450 trucks of water. Why wouldn't they be getting their requirement, because some of this was -- we had everything ready, we knew what the need was and they just didn't get it. Did they not have contracts to get those kind of requirements? Could there have been operational difficulties? And are you aware of difficulties getting water and ice to Mississippi at that time -- this is September 2 -- in the efforts they had to overcome?

MR. ROTHWELL: I would defer.

MS. ENGLISH: We assigned the water, ice mission to the Corps of Engineers and I'm just not -- I can't answer that question.

REP. DAVIS: Well, let me ask you, Colonel Doyle.

COL. DOYLE: Sir, I'm not familiar with this specific instance, but I know we ordered and delivered literally thousands of truckloads of ice and water.

REP. DAVIS: But this is on Friday. Let me just give it to you again. This is September 2, before the storm, that they'd need 60 trucks of ice and 26 trucks of water were coming, but their requirements were for 450 each. Why wouldn't they have been able to get those requirements there early? Do you know what logistically could have happened or anything? And who is the contractor we were using at that point to get the ice and the water?

COL. DOYLE: Sir, the contractor for the ice mission, I believe, was IAP, but I would need to get back to the record to double check that.

REP. DAVIS: Then I'll let you get back to the record. And the same for water?

COL. DOYLE: I don't remember. Lipsey Company was the water company, sir.

REP. DAVIS: Okay.

COL. DOYLE: But as you mentioned, sir, it could have been an operational difficulty that early in the storm. I just don't know.

REP. DAVIS: This is September 2, okay. One of the e-mails also says, "We fully intend to take independent measures to address huge shortfalls." What are the independent measures that you'd take to address shortfalls? Were there existing contracts or, as you just said, they had the ability to enter into those contracts on an emergency basis? What legal authority do you have as a person on the scene to do that? Enter into whatever contract you need to get whatever you need.

MS. ENGLISH: We have contracting officers right on the scene that could help with procuring anything that's needed right then instantly.

REP. DAVIS: You had enough people with warrants and the appropriate amounts and everything else on the scene?

MS. ENGLISH: I'm not going to say we had enough people with warrants on the scene. We had what he had available to us on the scene, sir.

REP. DAVIS: Okay. We had a few days after that the CEO of a large company here. They had e-mailed an offer. Home Depot. I mean, their supply train and their logistics are excellent. They had been offering. They called everybody. Called the White House, they called DHS, they hadn't gotten a response back. They had plenty of everything at a time when Mississippi and Louisiana weren't able to get some real basics in there. In a case like that, what authority would you have had to act and reply to that and work out something very quickly?

MR. ROTHWELL: Yes, sir, basically what would happen is during that period a lot of companies were coming forward offering things. What would typically happen in that situation is a company would come forward, it would be again another unsolicited proposal, it would be reviewed ideally very, very quickly internal to the organization. There would be a decision that, yes, that is what is needed. Then there has to be another decision, is it needed in a non-competitive -- should we do this in a non-competitive way? Again, in an emergency, if some company came forward with something and someone within FEMA, you know, the programmatic organization, said, yes, this is exactly what we needed and we need it within a very short amount of time, there is the legal authority to go and get that.

REP. DAVIS: So you had the authority. I mean, what you're going to hear from some of the members from the affected state is nothing was getting down there that was needed in a timely manner. And I don't know if it's because everybody was frozen and afraid to act and afraid to enter into a contract.

To some extent we put these procurement officers in a position if they're charged too much or something somebody comes after them, they give it to the wrong company or something, on the other hand in emergency situations like that there seemed, in this case at least, up front to be a hesitancy to act when you had half the world offering to come in. And in some of these cases these large companies that have supply trains and things nearby, they could have gotten stuff in right away. Now, granted this was a huge storm, but there just seemed to be a hesitancy to act. I mean, would you agree with that?

MR. ROTHWELL: Yes, sir, I do. I mean, basically, as I testified, I think the fear, the very early on fear, was that the procurement process would be so laborious that it would not be able to respond to this mission. The reality was that was not the case. There are other factors in terms of logistics and other things that we can't really speak to, but once we get a bona fide or a valid request to go buy something and we're told that it has to be done in a certain amount of time by the proper authorities, we have a range of vehicles that can do that, including going non-competitively in an emergency situation. Even as I listen to the case that the gentleman from GAO talked about with the school rooms, I mean, the question really becomes in my mind as a procurement official, what was the requirement? Was the requirement to get classrooms down there in X number of days? If you have months to do a job properly, you tend to get a better deal, that's true.

REP. DAVIS: And your problem is no matter what you do, somebody is going to pick on you, you paid too much to be able to accomplish the mission on time or you didn't accomplish it on time because you were sifting through paperwork I guess. But in this particular case, as we step back from the crisis and look at it, you had a little bit of both it seems to me.

Mr. Taylor.

REP. GENE TAYLOR (D-MS): Thank you, Mr. Chairman.

Mr. Rothwell, let's jump forward to today. In South Mississippi alone there are 14,000 families waiting for a travel trailer to live in today. So 60 days after the storm less than half the people that have requested one have gotten one. What I see as kind of the worst of both worlds that the chairman just outlined, I think we're paying too much and there's no incentive for the contractor to do it quickly. Let me state a couple of facts. Congressman Peterson from Minnesota has told me that there are travel trailer manufacturers in his district that want to sell to FEMA that aren't even being considered. So please don't tell me there's not enough manufacturing capability.

The second thing that I see is, it's fairly simple to start a travel trailer. You only have to a sewer of some sort, a septic tank or a sewer hooked up, water of some sort normally supplied, all you need is a garden hose. The third thing is probably the most technical which is logistics. Well, what I keep scratching my head over is, you have a power company that's done I think a magnificent job of supplying electricity to the individual lot in very short order, something like 13 days from the day of the storm, but you don't ask that same power company to put a junction box with a standard RV hook up there which would eliminate the need for having to go out and find another electrician, train up those electricians. Again you've duplicated work right there.

And I see this hearing is too full. Number one, we want to solve the Katrina problem, but this isn't the last time there's going to be a storm and this isn't the last time the nation is going to be buying trailers. And so I would like to know, why is it for the most complicated of those three tasks you don't turn to the experts who are already on site, have the men and have the equipment? The second thing is, at today's rates we're looking at people in South Mississippi who are going to be living in igloo tents past January 1. Now, taking a shower with the garden hose in August is not so bad. I would invite you to come and live in a two-man igloo tent for a few nights and take a shower in garden tent and then go try to find a port-a-toilet and maybe somebody in this chain of command could get a sense of urgency down to Bechtel to get his job done. And I know Bechtel can do good work because I've seen them do good work in Bosnia.

But what really troubles me is we paid a lot per cubic yard to move debris. That turned out to be kind of good in a way in that there was a huge incentive for people to go out there and move debris because they got paid very well to remove it and there was almost a gold rush type mentality, the more stuff I gathered the more money I make. It's just the opposite with the spotting of the travel trailers. It's like these guys are going to paid by the career rather than by the task. They have absolutely no urgency to get it done and I've got 14,000 people begging for a place to stay. So what is going to happen hopefully in the near term to fix that?

MR. ROTHWELL: I want to defer to Mrs. English, but before I do I think that the range of the position I'm in is going to frustrate this committee. I mean, basically the position that we are in, and mostly Mrs. English because she's the procurement officer, is that somebody will come to her and say buy X number of thousands of trailers and have them delivered to a certain place at a certain time. Now, the person who determines how many to buy I think is in a FEMA housing department and then a lot of the things that you're concerned about just unfortunately do not really rest within her authority or my authority and to that extent I just apologize to the committee, but those are great questions. Let me ask Mrs. English if she has a different answer.

REP. TAYLOR: Mr. Rothwell, if I may, and again my purpose is not to browbeat you. My purpose is to identify a problem and solve a problem. Who's in a position to solve that problem? You've outlined that it's not you, but somebody in this nation ought to be in a position to say, yes, we ought to be contracting with the power company. The electricians are going to have lots of work for the next fives years, I don't mind if we ruffle some feathers there. Yes, we ought to be using every single manufacturer that's available in the States even if it means re-contracting this on short order. But I don't see that. And I see a lot of people who are willing to let this drag out past January and again, I really would invite you to come down and see the thousands of people who are still living in two-man igloo tents. And I think this nation ought to be able to do better than that for those folks. So if you're not in a position, I accept that, and Ms. English isn't in a position to fix that, then who is?

MR. ROTHWELL: Well, again, I'm going to ask Mrs. English to respond, but I will assure you that people are in this room taking notes on what is being asked and to the extent that we can answers back to you on these questions, we absolutely will.

MS. ENGLISH: Sir, Mr. Rothwell is absolutely right. It's not a procurement issue. Actually the housing authority on the ground is responsible for all of this. But I can address your issue as it relates to some degree setting up the trailers. Going forth what we're going to do is when we do the re-compete of these major contracts, the set up of the trailers, the maintenance of the trailers, the deactivation of the trailers, everything, will be on a fixed unit price. So that the contractors will -- we will negotiate a fixed price and this is what you will have to do and we'll also -- it's going to be performance based, but we will also have time standards in there and there will be penalties for non-performance. In the current contracts we don't have those. But what we did do under the current contracts --

REP. TAYLOR: Ms. English?

MS. ENGLISH: Yes?

REP. TAYLOR: Can we change the current contract to require that? Because again, I'm seeing too many folks who take a flush toilet for granted, who take electricity for granted, who take a bed to sleep on and not getting rained on, not being cold at night, I'm seeing a room full of people take all of those things for granted. Every weekend when I got home I'm seeing folks who would consider that a luxury, and aren't being told that this is going to get fixed over 60 days. So how do we change that? I understand what you just said, but is there room in that contract for this to be changed so that somebody will fix that?

MS. ENGLISH: Sir, there's room and we'll look into seeing what we can do to change it. I will work with our housing folks to see how we can change this and make things happen a little faster.

REP. TAYLOR: Okay. Can someone get back to me today?

MS. ENGLISH: I will try.

REP. TAYLOR: Okay.

REP. DAVIS: Thank you very much.

Mr. Rogers.

REP. HAROLD ROGERS (R-KY): Thank you, Mr. Chairman.

I'm referring to an October 25 story in the New York Times- Picayune newspaper that relates to the local contractors being allowed to have contracts for the removal of debris. Accordingly to this story, there are several New Orleans parishes that made contracts with local contractors to remove debris and they're paying, I think, around $14 or so a ton and the Corp of Engineers I'm told is being paid roughly $30 or so a ton, the contractors for the Corps of Engineers, and now the Corps, according to the story, is going to the local parishes saying you need to go through us and void your contracts with the local contractors. Well, the difference between $14 and $30 a ton ain't chickenfeed. Now, is this true or is it not true, colonel?

COL. DOYLE: Sir, I'm not familiar with that article, but we'll take it and check it to see if it's true or not.

REP. ROGERS: Well, surely you know. Don't you know?

COL. DOYLE: Well, sir, as you say, typically we pay by the cubic yard, so I don't know where the tonnage came from. But as for the other aspect of your question about corps people implying that local parishes needed to come through the Corps to get their debris removal, officially we are neutral on that position. If corps people have been doing that, that's not in accordance with our policy.

REP. ROGERS: Well, the local parishes were told, according to the story, and they quote several officials in the story, that the Corps was telling the parishes that if they did not go through the Corps that they would lose the 100 percent reimbursement for the costs of removal of debris. Is that right or not?

COL. DOYLE: Sir, that's not true. They already get 100 percent reimbursement for I believe October 27 and that's a FEMA policy actually. If I could refer to FEMA, do you know?

REP. ROGERS: I was going to come to that. I'll come to that. I want to know though, what is the difference between what you're paying contractors to remove debris compared to what the parishes are paying direct to contractors to remove debris?

COL. DOYLE: Sir, it's hard to answer that. I don't know what that story said and I don't know if those quotes are accurate.

REP. ROGERS: No, no, do you know what you're paying? What are you paying --

COL. DOYLE: Sir, what I know right now is we're paying our Mississippi debris contractor $17 a cubic yard. I don't know if that pertains to the debris contractors in Louisiana.

REP. ROGERS: Who does know?

COL. DOYLE: I'll have to get back to the contracting officers in the field and get back to you, sir.

REP. ROGERS: Thank you.

REP. DAVIS: Would the gentleman yield? You're paying $17 a cubic yard, does that also include -- that's pick up. Is it also disposal or is there an additional charge for disposal?

COL. DOYLE: No, sir, that includes disposal.

REP. ROGERS: Now, what does the Corps -- now, the Corps is not doing this for free. The corps is charging a certain amount of money to carry on this service, are you not?

COL. DOYLE: Sir, the Corps are district officers who do the larger amount of work in the field are project funded. That means for the labor we expend in supporting our customers we are reimbursed for that.

REP. ROGERS: Now let's turn to the FEMA, what say you about this, Ms. English?

COL. DOYLE: Sir, I'm not really familiar with the Corps operation as to the alleged debris removal.

REP. ROGERS: Well, the question is, does it cost us more, us taxpayers more, for the Corps to insist that all removal contracts go through the Corps and be reimbursed at 100 percent, or is it better that we let local parishes contract with local contractors who have their equipment on hand to remove this debris?

MS. ENGLISH: I really don't know if it's costing us more if we should use local contractors. I'm just not familiar with that.

REP. ROGERS: Is anybody at the table familiar with it?

COL. DOYLE: Sir, may I add, as I said, the Corps is officially neutral. I mean, counties and parishes are allowed to do their own debris removal. As for the cost I don't know.

REP. ROGERS: But they're only reimbursed at 75 percent after October or November 29, correct?

COL. DOYLE: There is a sunset clause on November 29.

REP. ROGERS: Yes, and the Corps is reimbursed at 100 percent. If you contract with the Corps you're reimbursed at 100 percent. So if you're a local contractor looking for a contract, are you wise to take a chance and contract directly with the parish and maybe only get 75 percent of your money, or would you go through the Corps and be assured of 100 percent.

REP. TAYLOR: Would the gentleman yield. And this is very much to the point. The gentleman asked a great question and makes a great observation.

REP. ROGERS: I'm running out of time as well.

REP. TAYLOR: Sure. The point I want to make is it's going to vary from place to place, county to county. My home county courthouse was flooded. Everything that used to work in that courthouse no longer worked. The corps said, we will come in and run this for you if you would like or you can do it yourself. My home county chose to let the Corps do it.

REP. ROGERS: Let me reclaim my time because it is running out.

REP. TAYLOR: I'm sorry, I will talk later.

REP. ROGERS: The FEMA policy I'm told is that the -- what I'm talking about is a result of a FEMA policy. Guidance number 4150-E 1995. I'm told that before the Katrina FEMA was in the process of modifying that policy to correct this what I consider discrepancy that I have mentioned here. Are you familiar with that, Mr. Rothwell? Ms. English?

MS. ENGLISH: No, sir.

MR. COOPER: Sir, can I respond to your question?

REP. ROGERS: Please, you'll be the first one.

MR. COOPER: I don't have the details on the debris, but the classroom situation that we looked at is very, very close to what you describe. In fact, we saw information being put together by local -- in fact, there are only two certified suppliers in the state of Mississippi for portable classrooms.

One of those suppliers went to the state and the Department of Education and was providing prices at what the classrooms could be bought for. At some point in that process FEMA stepped in and literally told them I think what that articles says, that if you want federal funding for your classrooms you do it through us. And at that point FEMA gave the Corps the mission to go buy the classrooms. So it's a very similar situation that you are describing. I don't know the policy letters or any of that, but the circumstances are the same.

REP. ROGERS: Yes, my time has expired, but, Mr. Chairman, I want to ask the FEMA people to respond, and all of you to respond, the Corps as well, to respond to the questions raised in the news account that I just cited to you and I'll be happy to give you a copy of the story. Could I ask that, Mr. Chairman?

REP. DAVIS: Without objection. Is there any problem with getting that?

REP. ROGERS: And finally, I want to ask the FEMA people as well, and I'll be talking to the director about it personally, I want to know if the policy is going to change and, if so, when? And why can't you change it for a disaster is beyond anyone's expectations. It's going to take two, three years. Normally you have a few days to clean out the debris of a regular storm, but this is extraordinary and we're talking about saving $4 or $5 billion by changing this crazy policy. Can you respond to that?

MR. ROTHWELL: No, sir. I think we will agree to get back to you and try to figure out how to respond to it.

REP. ROGERS: Is $4 or $5 billion a large number in your book?

MR. ROTHWELL: Yes, sir, it is.

REP. ROGERS: I assure you it's a large number in this appropriator's book.

REP. DAVIS: Thank you very much.

Mr. Melancon.

REP. MELANCON: This is to follow the same line as Mr. Rogers. In specific instances it's my understanding that the Corps takes an administrative fee off the top of all contracts that are let, is that a correct statement?

COL. DOYLE: No, sir, that's not a correct statement.

REP. MELANCON: What, administrative fee?

COL. DOYLE: Sir, we are reimbursed for our labor to support our customers and then --

REP. MELANCON: Is it a percentage of the cost of the contract?

COL. DOYLE: No, sir.

REP. MELANCON: How is that determined?

COL. DOYLE: Through labor rates for our district offices, administrative expenses that support those personnel.

REP. MELANCON: And do you know what the average of that cost is per district office?

COL. DOYLE: No, sir, but I can get it back to you with our resource management folks.

REP. MELANCON: If you could.

COL. DOYLE: Yes, sir.

REP. MELANCON: And in following through, there were several attempts, and I've had several attempts to try and understand what's been going on, particularly in St Bernard parish and I understand it's happened in other parishes, and Mr. Pickering, Mr. Taylor, Mr. Jindal and I wrote to FEMA -- of course this will go to the FEMA people too -- on October 24 to ask for clarification on the fact that the Corps or the FEMA people coming in and saying if you don't task the Corps for the clean up work, then you will have to pay a 90/10 share of the clean up after the date of the expiration of the extension that has just been done. Is that, in fact, the case? Is that written somewhere that those parishes, those counties that task their own contractors have been some -- and I can verify that Binto (ph) that their contractors will have to be paid 90 percent by the feds, 10 percent by the parish or the county after the extension if they don't task the Corps' prime contractor or Tier One contractor.

COL. DOYLE: Sir, while I'm not familiar with that percentage split, I believe that it is correct that there is a percentage of cost share applied after a certain date.

REP. MELANCON: We wrote this letter to FEMA asking specifically where that was in the law. If I remember correctly, and let's see if I've got it down here, I don't see it here, but they came back at first and said that it was a rule that had been promulgated pre- Katrina. So we asked for a copy of the rule. If I remember correctly, we were advised that the written rule didn't exist and that they couldn't show it to us. So I guess the question is, how can they continue to go in and browbeat local officials if they can't show the document that relates to that cost share?

MR. ROTHWELL: I guess I will have to get back to my prior comment is that many of our answers are going to frustrate this committee. The three of us are a group of professional procurement buyers. We basically don't set the policy, we don't define the requirement. Once the requirement is handed to us we basically typically buy things through the federal acquisition process and then administer those post-award. These questions are important, we're taking them down and we will promise to get back to Chairman Rogers after this hearing.

REP. ROGERS: Will the gentleman yield briefly?

REP. MELANCON: Yes.

REP. ROGERS: I have a copy of the guidance number 4150-E of FEMA issued September 26, 1995 which sets out this policy which I'm told was in the process of being changed as Katrina hit, to correct the discrepancy that I have described so that local counties, local officials could contract directly for debris removal or other things and be reimbursed equally as would the overall contractor of the Corps of Engineers. And all it would require changing would be to add four words which I can discuss with you, but those four words are worth $1 billion a piece and I don't see why you can't change that now. In fact, this policy, in my judgment, is contrary to the Stafford Act itself and therefore null and void. So if you want to get into a discussion of that, step outside.

(Laughter.)

MR. ROTHWELL: I sit intimidated, sir, thank you. No, I will just have to get back. This is a very important issue. We're just not the right panelists to be responding to it. But we have written this down. I've got it written right here 4150-E. We promise to get back to Chairman Rogers on it and to the rest of the committee.

REP. ROGERS: If the gentleman would yield. I fail to understand this. You're the chief -- Ms. English is, I gather, the chief procurement officer for FEMA and you're the chief procurement officer of DHS and you don't know the answer or even know what I'm talking about, and we're talking about $4 billion difference in cost here? Has that never occurred to you?

MR. ROTHWELL: This particular policy is not one I'm familiar with.

REP. DAVIS: Thank you.

Mr. Melancon.

REP. MELANCON: Thank you.

REP. DAVIS: I'll give you a couple of extra minutes.

REP. MELANCON: I appreciate that. Thank you, Mr. Rogers.

On another issue, in a similar situation where the parish officers or government officials were told if they didn't task the Corps they would have to pay a percentage of clean up, this particular parish for fear that they didn't have the money, which they don't, tasked the Corps and has consequently since the beginning been asking them for an accounting of what it is costing to dispose of and do the clean up, to which they have not gotten an answer. And to the extent that the parish president of one of my parishes had to, under the Freedom of Information Act, make a request to get that information and has still not received it, and that's several weeks old, why is it that we can't and they can't get simple information of how much it is costing. By now they know how many -- do you know how many trailers are coming in, do you know how many cubic yards of debris has gone out, do you know how much you've expended on those items? Isn't it possible even parish by parish to get that information? I throw that out like a basketball, whoever wants it.

MR. ROTHWELL: We will try to get you that information as quickly as possible.

REP. MELANCON: Thank you, sir.

Thank you, Mr. Chairman.

REP. DAVIS: Mr. Bonilla.

REP. HENRY BONILLA (R-TX): Thank you, chairman. Before I begin I just want to take a moment, having seen personally some of the destruction of the hurricane this last weekend and it does hit you harder when you see it with your own eyes, the massive effort to clean this place up and to help the people that are still without homes and wondering what their future holds, but it's a heck of a job that you all have. So while there are going to be problems, as are rightly so being pointed out here today with some of the contracts and the process, there's a lot of good going on down there and I know that it's greatly appreciated by the people in the three states affected by Katrina and I didn't want to let this hearing go by without acknowledging that I know that a lot of positive is coming out of your efforts and I wanted to acknowledge that.

But again, it is absolutely critical that accountability is the most important thing that is one the people's minds across the country, not just about Katrina, but about the federal government in general and that's what this is all about. Tell me, for example, in terms of that debris removal, because when you stand and you see that ninth ward, for example, or you fly over the homes between the naval airbase and the superdome, you know, the amount of debris that has to be displaced is just probably the greatest amount that this nation has ever seen if you talk about all the houses and buildings and playgrounds and schools and cars. And I know that in some cases there is already a plan in place on how to remove the organic debris, i.e., wood and things that are degradable, but then there is the elements that I think are called white debris which is stoves, refrigerators and things are not biodegradable. Is the Army Corps of Engineers responsible for all of that or is local government taking part of the responsibility on that?

COL. DOYLE: No, sir, again, per the earlier discussions, for those counties or parishes that choose to go with the Corps we are responsible not only the biodegradable type debris, but also the white-goods type aspect of things.

REP. BONILLA: So if a parish says, well, we don't want to be responsible for it, we want the Corps to be responsible, is that just it? Is that done that way?

COL. DOYLE: It could be that simple, yes, sir.

REP. BONILLA: That doesn't seem right. I mean, I understand those communities are hurting, but no matter what state or community you come from in this country, there's got to be some local responsibility. So you're in essence telling me that in some cases there's very little or none, is that correct?

COL. DOYLE: That would be my understanding, yes, sir. I mean, once they turn the mission over to us, it's our mission, we accept the mission.

REP. BONILLA: The blue roofs are especially impressive from the air when you're reviewing some of the work that's been going on there and my understanding is you've added like more than 100,000 blue roofs already repaired and solved covering the three state areas. Is that roughly correct?

COL. DOYLE: Yes, sir, it is.

REP. BONILLA: According to one report, the government is paying an average of $2480 for, in many cases, less than two hours of work even though the government is providing the blue sheeting for free. The government pays by the square foot. The Shaw Group is getting paid the most to install the tarp at $1.75 per square foot. The other two contractors are Simon Roofing getting $1.72 per square foot and LJC (ph) getting $1.49 per square foot. Shaw is also billing the government at $155 per hour for its operations manager while Simon bills at $150 and LJC at $65. Is that what it costs? It seems, I think especially to the average person, that this is an incredibly large amount of money per roof even again assuming, or recognizing that the government is supplying the material.

COL. DOYLE: Yes, sir, our contracting officers in the field are under an obligation to get with those contractors and they do have to verify their costs. As for those specifics, we would have to get back with the contracting officer to make sure those are the specifics that they have been told.

REP. BONILLA: So again for less than -- and I will yield to my colleague Mr. Buyer in just one second -- so it does then cost for, in many cases, less than two hours of work, supplies not even included, close to $2,500 in some cases, if you put a pencil to it, right?

COL. DOYLE: Sir, I've heard that number in the past, but I have not personally verified those numbers to see if that's what they are -- accurate.

REP. BONILLA: Something doesn't seem right here somehow.

Mr. Buyer.

REP. BUYER: Yes, I want to thank the gentleman. To my colleagues, I've been asked to go to the floor and I have two bills I have to manage, so if I may, I would like to put in two questions and permit Mr. Bonilla to expand his time that I am just now taking.

REP. DAVIS: Any objections? No objections.

REP. BUYER: Thank you. With regard to debris removal, I'd like someone to testify as to what is eligible right now under debris removal, and whether or not there is farming of debris that is going on out there under -- I guess we can ask the IG that question. We've had problems in the past with people who have contracts going out there and farming debris and I would like to know if that's been going on. And with regard to the Carnival Cruise Lines, I know they're coming up to testify next, there's a rumor that's been bouncing around out there that they had asked during the negotiations that 10 years of their fines be waived and I'd like to know whether or not that's true. So with that, I have to return and please allow those questions to be answered and expand Mr. Bonilla's time. I thank the chairman.

REP. DAVIS: Go right ahead.

COL. DOYLE: Well, sir, on the farming of debris, I've not heard that terminology, but if that's in essence going out and finding debris and turning products into debris where it might not have been debris by the traditional sense, that should not be going on and we don't advocate that in any way, shape or form.

REP. BONILLA: Getting back to the line of questioning that I began.

On the debris removal, are you having any trouble at all on where you're taking it, where you're putting it? I know there's also a possibility that you're going to look at incineration which -- they can take a large volume of debris and break it down to almost nothing, but are you having any trouble with any kind of environmental issues that are out there now?

COL. DOYLE: Sir, I have not heard of any trouble, but I do know we work closely with EPA and local and state environmental personnel to make sure that all debris disposal aspects are in accordance with the law, and contractors are under an obligation to follow both federal, state and local law in the removal process.

REP. BONILLA: And what about the incineration, has that started yet, or is that just being studied now?

COL. DOYLE: I don't know if it's officially started, sir. I know I've heard a lot of talk about the debris removal, whether it has specifically started or the incineration aspect of the debris removal, I don't know if it's started or not.

REP. BONILLA: Is that a logistical problem, if you're able to implement that incineration?

COL. DOYLE: I don't believe so, sir. I believe the Corps has used that method in the past.

REP. BONILLA: The only remaining question I have has to do with Davis-Bacon. As you know, the president under an emergency order waived Davis-Bacon for contracts, so perhaps the three of you on the left side of the table can just give me a simple answer as to whether or not waiving Davis-Bacon under an emergency like this saves taxpayers money, but while allowing for the work to be done efficiently?

MR. ROTHWELL: I appreciated the fact that it was waived. I don't think it really had any effect at all.

REP. BONILLA: Because I've heard reports both pro and con and so the prevailing wage had no effect on the bottom line?

MR. ROTHWELL: I think given the supply demand, I think what we're finding out that it did not have the impact that they thought it was going to have.

REP. BONILLA: Ms. English, would you concur with that?

MS. ENGLISH: Yes, sir.

REP. BONILLA: And the Corps sees it the same way as well?

COL. DOYLE: Sir, I'm neutral on that. I just don't know. I imagine the president had economic advisers that would direct that it -- it's probably not as simple just as a prevailing wage rate in the area. There's probably economic benefits that stem from the lower wage rates that I'm not aware of.

REP. BONILLA: Thank you all.

Thank you, chairman.

REP. DAVIS: Thank you very much.

Mr. Jefferson.

REP. WILLIAM J. JEFFERSON (D-LA): Thank you, Mr. Chairman.

Mr. Rothwell, the Department of Homeland Security in conjunction with some other agencies conducted a Hurricane Pam exercise, spent millions of dollars working on that and anticipating a mega disaster in the Gulf area, which is what we got, and predicted it would leave a million people homeless, without potable water, without power, all that. Yet when the hurricane struck there were very few contingency contracts in place to take care of the very dangers that they were warned of in the Hurricane Pam exercise. Why was that?

MR. ROTHWELL: If you don't mind, I'll ask Mrs. English, our procurement director from FEMA.

MS. ENGLISH: We had several contracts in place prior to the hurricane, we just didn't have enough capacity. We had contracts in place for housing inspection, we had contracts in place for GIS support, for our public assistance, technical assistance contracts. We had those contracts in place. What we didn't have in place is what we call individual assistance, technical assistance contracts. These are the contracts, the four big ones that's referred to. We didn't have those in place and they became key during this operation because the devastation was so massive. Those contracts are the ones that setting of the mobile homes, those contracts are the ones that are helping hopefully getting our victims back on their feet. We didn't have those contracts in place, but for the most part, we had contracts in place. Did we have them to the magnitude that we could have adequately responded to this disaster? No.

REP. JEFFERSON: Because you didn't, a lot of these had to be put in place in a hurry. Were a lot of these done by just the oral orders over the telephone and that sort of thing?

MS. ENGLISH: No, not really, sir. What happened is, we did put these contracts in place very quickly, but let me tell you how we did that. We were in the process of looking at putting individual technical assistance contracts in place. We were conducting market research. We were meeting with contractors, talking about the contracts, and we were well on the procurement process. Then the hurricane hit and we recognized immediately that we needed these type of contracts in place. What we did, the companies that we had conducted market research with, we were familiar with, we knew that they could do the work and we also knew that they could hit the ground running. So we did contact those companies, made arrangements for them to prepare themselves to hit the ground for us. We did not actually verbally tell them to go immediately. We gave them what was called pre-authorization notices. That way they had contract notices to proceed, go to the areas of devastation, work with our folks on the ground and define clearly what was needed to get the job done, to get it done immediately.

REP. JEFFERSON: Okay. For the ones that had to be put together in this way, how much of the work that was to be done was to be taken up by these sort of contracts? I mean, what percentage of the work had to be taken up on this emergency basis by contracts that weren't taken care of by the contingency contracts? More than half of the work or less than half of the work? What would you guess?

MS. ENGLISH: I would say less than half, but, you know, to be sure, let me check into that and I'll get back to you.

REP. JEFFERSON: One of the things we worry about back home, as you know, and the president said that it's important to have this work done by local people, put local folks to work and to help rebuild the region with local brains and brawn, local talent, yet it isn't happening back home now. I mean, all I get is complaints. All of us, we had meetings with Alabama, Mississippi, I think you might have been at one of those, I was there with you, we're still struggling with that whole set of issues. What progress is being made to ensure that we're going to get local folks doing the work for the rebuilding of the area, cleaning up of the area?

MS. ENGLISH: I think we're making a lot of progress in that area and let me tell you two things that's going on that relates to that. Right now, as you know, we have the four big contracts. Those contracts have a requirement to, one, use small business which, by the way, they have a 40 percent requirement to utilize small businesses, but for the most part they're all either meeting that or exceeding that. They also have a requirement to use local business to the extent that they can, which once again, the statistics show that they are using a lot of local subcontractors. The numbers look very good. The other thing that we're doing is we're re-competing those four contracts and in the re-competition strategy we're going to set aside that work for small business and 8(a) firms and preference will be given to --

REP. JEFFERSON: How much of that is going to be set aside?

MS. ENGLISH: $1.5 billion. That's our estimate right now. So $1.5 billion is being set aside for small 8(a)s with a local preference.

REP. JEFFERSON: Out of what size total? I'm sorry, my time is running out that's why I keep asking this. Out of what -- 1.5 billion out of what total amount?

MS. ENGLISH: That's the total. That's the total work that right now the big companies are getting and that's the amount of work that we're going to remove from those companies and give it to small local companies.

REP. JEFFERSON: And when is that going to happen?

MS. ENGLISH: We're working on that right now. We hope to have the advertisement out this week. We're striving for a early February date of award, but we're going to move as aggressively as we possibly can to beat that date.

REP. JEFFERSON: The president early on waived the Davis-Bacon requirement and the affirmative action requirements that were put in law by President Johnson years ago and while that was for a period of about three months or so, that can expire at any time and I understand Davis-Bacon will. Still, even if there aren't any affirmative action requirements, there's a requirement in the law that federal contracts are complied to are nonetheless complied with non-discrimination requirements and post-equal opportunity laws in the workplace and so on, and retaining records and listing available positions for local employment. To your knowledge, is this happening to make sure that not only small business, but minority business contractors get a chance to do work in this area?

MS. ENGLISH: As far as I know it's happening, sir, yes.

REP. JEFFERSON: That will be a part of the $1.5 billion procurement that's going to be left?

MS. ENGLISH: Yes.

REP. JEFFERSON: Thank you, ma'am.

REP. DAVIS: Mr. Jefferson, it seems that the only way you're going to bring the economy back down there, is get the minority contractor, you know. Getting the minority and the local contracting down there particularly in New Orleans where the economy is just dead, it's the only way you'll bring it back over the short term. It's a lot cheaper than direct federal aid, isn't it?

REP. JEFFERSON: It's extraordinarily important, I agree with you.

REP. DAVIS: Thank you.

Ms. Myrick.

REP. SUE WILKINS MYRICK (R-NC): Thank you, Mr. Chairman.

Thank you all for being here and we realize it was a big disaster, but I think the thing that scares all of us and what we're trying to figure out is, how do we avoid this from happening again? And some of the problems we're seeing now, very frankly, have been there in FEMA for 20 years and so it's like, how long does this go on and how long do we tolerate it and how long do we put up with it before something changes. I have a couple of questions. One for the FEMA people. Mr. Rothwell, you said that you don't make the policy decisions. You do the procurement. Who actually makes the policy decisions on some of these issues we were talking about within the department?

MR. ROTHWELL: It would be within FEMA and I'll just defer to Mrs. English.

MS. ENGLISH: We have various people within the organization that make policy decisions. It rests within our actual program office.

REP. MYRICK: So the program office --

MS. ENGLISH: So our divisions, the response division, our recovery division, our mitigation division, those are the organizations that make those policy issues, not procurement.

REP. MYRICK: Okay. The next question is, how do you justify almost $2,500 for two hours of work to put a blue tarp on a roof when the government furnishes the blue tarp anyway? I don't know if that's for the Corps or FEMA or who this is. I mean, doesn't it just ring a bell with somebody that this is an excessive amount of money. Who in the world at home would pay that kind of money to have two hours of work done? I mean, you know, putting on a tarp, yes, it's hard, but a lot of us have done it before and it isn't $2,500 hard. I mean, I'm just really -- the frustration I guess I'm expressing is, doesn't anybody look and say, "Hey, gee, this seems like it's a lot of money", other than the inspector general after the fact?

COL. DOYLE: No, ma'am, you're absolutely correct. That does seem like a lot of money and what I'm going to do is go back to our program people and our contracting people and have a paper put together to explain what we think the average cost per roof really is to verify that number that seems to be bantered about.

REP. MYRICK: Yes. The problem is, as Mr. Rogers said, the money is already spent because they've already done it. Yes, it will help for the next time. But my point is, it's just like we've got all this bureaucracy, if this person does this thing and this one does this thing and this one does another, nobody talks to anybody and so they don't seem to know what's going on and the frustration that is here in this panel, and how will we ever change this? I mean, how is it ever going to change if it keeps on? For the Corps I have a question for you, Colonel. The advance contacting initiative for quicker response, what kind of time requirement do you set out in the beginning for people who are supposed to provide the ice or the water or the roofing or whatever it is? Do you have specific requirements that they have to follow and if they don't follow them, are there any penalties for not following them?

COL. DOYLE: Ma'am, are you referring to like delivery times and how fast they have to be mobilized and working or deliver a truckload of ice?

REP. MYRICK: Right, to finish -- from start to finish.

COL. DOYLE: Yes, ma'am, I'm sure there are delivery times in each of those aspects, in mobilization ramp up times. What they are I don't know off the top of my head.

REP. MYRICK: Can you find that out, please?

COL. DOYLE: Yes, ma'am.

REP. MYRICK: And let me know as well as if there are any penalties if they don't do it.

COL. DOYLE: Ma'am, there would be penalties. Penalties could range all the way up to a termination for default. Unfortunately, that's probably in no one's best interests. I think it's in all of our interests to help the contractor succeed. In a termination for default type scenario, that contractor would actually stop delivering and we would have to go through and find another contractor who would then need time to ramp up to be able to deliver.

REP. MYRICK: Well, again, I yield back the rest of my time, Mr. Chairman.

REP. ROGERS: Let me ask --

REP. MYRICK: Yes, I will yield to Mr. Rogers, Mr. Chairman.

REP. ROGERS: I'm absolutely fascinated.

Where are these people who put the blue tarps on roofs paid $2,500?

REP. MYRICK: Well, he said he doesn't really know. He has to go check it.

COL. DOYLE: Right, I don't know, sir.

REP. ROGERS: You're in charge, aren't you? Aren't you the principal assistant responsible for contracting for the Corps of Engineers?

COL. DOYLE: That's correct, sir, I am.

REP. ROGERS: And you don't know an answer to a question like that? I mean, we're talking 100,000 blue roofs and if it's $2,500 a roof, I don't know right offhand what it is.

REP. MYRICK: 2.5 million, I don't know.

REP. DAVIS: Mr. Rogers, maybe he's got a staff member who can go out and make a phone call, welcome to use the committee, and see if we can get that.

REP. ROGERS: I'm amazed that you don't even know the answer to that.

REP. DAVIS: She has another minute. Go ahead, Mr. Taylor.

REP. TAYLOR: I think what you're going to find, based on experience, is a couple of things. In some instances you're just putting a small blue tarp over a small patch that lost its shingles. There will be other instances that actually involve putting the plywood down over what's left of the frame, patching a hole. The reason a lot of these roofs are gone is that a tree fell into someone's house. They've got the tree removal. It's certainly complicated whether it's a flat roof, got a slight pitch, or very steep pitch which makes it a heck of a lot harder to stay on there. So I would hope that the Corps has a sliding scale of pricing based on all these different possibilities. But I would hope the colonel would get back to us. But, again, we deserve to know. If it's just putting out an 8 by 12 tarp $2,500 obviously we as a nation have been taken advantage of. But if the instance you make reference to involves removing a tree, replacing the plywood, possibly even fixing the frame, then that might justify it. But hopefully the colonel will get back to us with all that.

COL. DOYLE: Sir, we will get back to you. I mean, that 2500 could be an average figure they use for planning purposes.

REP. DAVIS: Mr. Jefferson.

REP. JEFFERSON: Mr. Chairman, could I just follow up on the line of inquiry I had. Could Mr. Rothwell or Ms. English supply the committee with the percentage of workers from each state, Louisiana, Mississippi and Alabama, who are working on contracts down there now and the percentage of contractors from each state, Mississippi, Alabama and Louisiana working under the aegis of DHS?

MR. ROTHWELL: Yes, sir, we will. One of the things that we're trying to improve is the data. Typically data on a procurement doesn't follow till about six months after the action. We need that data almost daily because we actually believe when we have the data it will show a much better story than we're able to show. We think that these large contractors are actually hiring employees that go to work for them and yet when we spend money with those companies that gets coded as a large business when in fact, you know, a large percentage of their workforce may actually be local people from the different states. We know that they're doing a lot of work in terms of small business. We just need to figure out a way to get that data back to us more quickly so that we can see if things are actually on track or if there are shortcomings we need to address.

REP. JEFFERSON: Are you saying you're going to be unable to make that report to the committee?

MR. ROTHWELL: No, not at all. I'm just saying I agree with you. We'll have something --

REP. JEFFERSON: I would be very happy if you could do that. It will help you, it will help us.

MR. ROTHWELL: Absolutely. No, as I say, I think things are actually better if we could just get the data sooner and get it to people.

REP. JEFFERSON: How soon do you think you might be able to get us some information about these two matters?

MR. ROTHWELL: I believe by the end of next week we could probably get you the information.

REP. JEFFERSON: I would be grateful.

MR. ROTHWELL: I will tell you that we've actually started asking that information from our companies, so, you know, I'm sure we can get it to you by the end of next week.

REP. JEFFERSON: That would be great, thank you.

REP. DAVIS: Let me just reiterate that request. The data is important because right now we're operating anecdotally and the anecdotes are not that good in terms of some larger companies coming in bringing people from outside the area. And in some cases I understand people who have been found to be in the country illegally to do work while you have locals sitting there not being able to get a job, and that's not what the Stafford Act intends. It's not what federal procurement -- it's not what any of these laws intend and rather than try to sit up here and give reporting anecdotally, data would be very, very helpful to us. And I don't know if you have anybody on the ground to look at the penalties for companies that aren't complying with the local hiring practices of the Stafford Act, but there ought to be some.

I mean, again, just from a macro perspective, you want to bring these economies back on the coast without massive infusions of federal aid. The best place is to get the locals to work to repair their areas and get them back there. Right now they go back, but there's nothing for them to do. There's no job or anything else. If you have the jobs for them, that will help bring those areas back faster than anything else we can do. It's probably the most cost effective. I think I speak for the members from the affected areas as they have for themselves.

Mr. Pickering, five minutes.

REP. CHARLES W. PICKERING (R-MS): Thank you, Mr. Chairman.

What I'd like to do today is look at what we're doing to see what would be the most cost effective, what would help clean up most quickly, house most quickly, recover, rebuild most quickly and to do it in a way that restores the local economy. I think those would all be objectives and missions we'd agree upon. The problem is 60 days, over 60 days out of the storm I am concerned that each one of those objectives is being undercut by what we are now seeing put in place and administration and implementation of the clean up and recovery.

So what I want to do is just find out the facts because, as the chairman said, there is a lot of anecdotes out there and so if we can just establish where we are, I think it can help all of the leadership both within the department and the agencies, within the White House and here for us to do course corrections not for the next storm, but we need it immediately for this recovery, this clean up and this rebuilding. And so that's the objectives of my questions.

Colonel Doyle, as I read the Stafford Act it says, "Preference shall be given to the extent feasible and practicable to those organizations, firms and individuals residing or doing business primarily in the area affected by such major disaster or emergency." Right after the storm the Corps of Engineers through FEMA led a $500 million contract. In that $500 million contract there were 22 firms that competed. There were two firms from Mississippi, by all standards made all requirements, all criteria, well established, well experienced, their leaders not only regionally, but nationally, equipment, infrastructure, knowledge of the environment, knowledge of the people on the ground in each community.

Why did you not follow the Stafford Act and go with the Mississippi companies in that contract?

COL. DOYLE: Sir, one of the ongoing debates in reference to the Stafford Act is what exactly does preference mean? In this particular case I'm sure our contracting officer --

REP. PICKERING: Let me ask a question. Companies from Mississippi, from the declared disaster areas, companies from Florida, what does that mean to you? Preference shall be given to the extent feasible and practicable to those organizations, firms and individuals residing or doing business primarily in the area affected by such major disasters or emergency. Now, I don't know about you, but that's not very ambiguous. I don't see the problem in interpreting that. Do you have an attorney or a counsel with you that would explain how that is ambiguous?

COL. DOYLE: Well, sir --

REP. PICKERING: Let me just go a little bit further. Of the total contract dollars the Corps is doing in Mississippi, 5.6 percent, that means 94 percent of the contract dollars that the Corps has done has been to firms from outside the affected areas or from Mississippi. Well, let me correct that. There are some -- I think you have 20 percent going to Louisiana and to Alabama, which means 80 percent are from companies and firms outside of the region. With FEMA, their direct contracts to Mississippi, others, it was 1.4 when Secretary Chertoff testified. It has gone down since then. It is now 1.29 percent. How could you more flagrantly disobey and waive the Stafford Act? 1.9 percent in Mississippi.

REP. DAVIS: Well, let's see if they can answer that.

REP. PICKERING: Please do.

REP. DAVIS: What's the answer to that? That's clearly not the intention.

COL. DOYLE: Sir, if I may.

REP. DAVIS: Yes, please.

COL. DOYLE: I'd like to answer that in two ways. First, I'm sure with the debris contactors our contracting officer made a best value decision. As for the contractor, she selected in terms of price, the cost that they offered, the ability to respond and other technical performance measures to make a best value decision. We have implemented in those contracts Stafford Act like provisions were there incentivized were there to hire locals to the maximum extent possible.

REP. DAVIS: What kind of incentives do you have on that?

COL. DOYLE: I should not use the word "incentive", sir. That was a bad word.

REP. DAVIS: So you didn't incentivize?

COL. DOYLE: No, sir. There is in --

REP. PICKERING: In your contracts you really don't have any enforcement mechanisms, just like you don't have in the Bechtel housing you have no enforcement mechanism to make sure that people get their trailers before winter comes. So they're outside and sleeping on slabs and in tents in 40 and 50 degree weather and it's raining and Bechtel is just dragging out the housing supply on the trailers because you don't incentivize or you don't enforce Stafford Act requirements or give time performance. I'm telling you you're considering whether you do the next contract based on the Stafford Act, you're considering? It should be I commit to doing that. I commit that they will be firms from the affected areas.

REP. DAVIS: Mr. Pickering, will you yield for just a second and let me just emphasize that. I think I speak for the whole committee on this.

Either the government spends massive amounts of additional money to bring these economies back on the Gulf Coast or we hire local people which will hold government costs down. That's the macro decision. You can't just look at it in terms of how this affects one contract and we might be able to do it a little cheaper with outside immigrant labor as opposed to doing local people. The macro issue. And the reason the Stafford Act was passed is to help rebuild these economies. These people have nowhere else to go to work in some cases. These are the only jobs available to them. Let's put them to work. And that's why -- so, you know, considering is really not the answer we want to here or I think at the end of the day that Congress is going tolerate. I mean, can you be maybe a little bolder?

COL. DOYLE: Sir, the reason we chose to use the word we did "consider" is because ultimately it's not my authority to approve the geographic type set aside.

REP. DAVIS: Whose authority is it?

COL. DOYLE: It will probably be at the army level, sir. Because of the dollar value involved, this procurement would have to get approved at the army level. And there's not universal agreement on exactly whether or not we can do a geographic set aside like that based on the Stafford Act. But personally --

REP. DAVIS: The Stafford Act basically makes it a consideration.

COL. DOYLE: Sir, that's right. Our fallback position is there would be an evaluation -- one of several evaluation criterias and a best value type decision, location of the company. But what we're pressing to see --

REP. DAVIS: I don't care where the company is from. All these companies have to bring workers in. It's not like you -- they're bringing people in from all over the place and you have a ready-made labor pool there. This is not a highly skilled work picking up debris. I used to do it. That's how easy it is. This has got to go up a couple of notches and I hope you'll carry up the concerns of this committee as you go back and report to your superiors on this. This is an item I think that in our future appropriations -- Congressmen will probably put -- down the line, I'd ask that -- we have the chairman of the Homeland Security Appropriation Subcommittee, but I think that's a major concern. Would you agree, Mr. Chairman?

REP. ROGERS: I agree.

REP. DAVIS: Thank you very much.

REP. PICKERING: I think it's fair to say that this committee believes that 1.29 percent of FEMA direct contracts and 5.6 percent of corps contracts is insufficient and it does not meet the stated objectives and missions or the law, or the president's promise and commitment. And so I hope that instead of considering, we will soon have commitments and we will have change in this recovery, not in the next. So we've established that we're failing to live up to the Stafford Act. So the second thing, let's look at what's most cost effective.

Mr. Skinner and Mr. Cooper, in Florida, which probably has the most experience with FEMA and clean up debris, I understand that in the last storm local counties did the clean up of the debris and removal. Have you all looked at that? Have you studied that?

MR. SKINNER: I'm sorry. No, we have not studied that, but that's my understanding as well.

REP. PICKERING: And that was one of the reasons that the policy decision that has been working its way through the system for the past year that the local counties and the states and the cities would do clean up in debris, that policy change, and be treated exactly like the Corps and FEMA, that there be no bias. That's probably because it's more cost effective, isn't it?

MR. SKINNER: In the state of Florida -- I can't speak to this -- they do have a state wide debris removal plan which involves not only the state governments, but all the local counties and towns within the state of the Florida. So they're equipped, once a storm does in fact strike, to do it themselves.

REP. PICKERING: So if FEMA worked with each state in hurricane Gulf region, from Texas to Virginia, it'd probably give each state a plan. You either come out into the next storm with a more cost effective -- and what I've discovered is local counties hire local contractors.

MR. SKINNER: That's true. You're absolutely correct.

REP. PICKERING: And we wouldn't be fighting over who hires whom, how much if we just did it through the counties and the state, would that be correct?

MR. SKINNER: That's correct. If you take a look at the Gulf Coast, those that were affected by Katrina, Alabama, Mississippi and Louisiana, you will see in the state of Alabama, for example, it had plans in place. Approximately 90 percent involved debris removal contractors were done by the county, whereas in the state of Mississippi, which also there was -- I think it was approximately 50/50 percent. Then when you go into Louisiana it was 25/75 percent.

REP. PICKERING: Colonel Doyle, and this goes -- so we've got a policy change so that we do not disadvantage or prejudice whether locals do it or FEMA/corps does it. But I can tell you that you may be officially neutral, the Corps of Engineers, of who does what, but it is a prevalent practice that the Corps and the FEMA will show up, talk to the supervisors or mayor and it is not very subtle that it is better for them to go with the Corps and FEMA if they want reimbursement, if they want it done on a timely way, if they don't want to be audited and intimidated and if they want the same reimbursement. It is extensive practice. And I want the Corps, if they're officially neutral, to send out a memo to all of their employees and to the FEMA that this practice will cease and desist. Because local communities who are hiring local people to recover and rebuild and are doing it faster and cheaper should not face that in the midst of a storm. Thank you.

REP. DAVIS: The gentleman's time has expired.

Mr. McCaul, any questions?

REP. MICHAEL T. McCAUL: Thank you, Mr. Chairman. I appreciate your allowing me to participate in these important hearings.

My home state of Texas was impacted not only by Rita, but by the evacuees from Katrina. The biggest complaint I kept hearing was, who was in charge? In my view, your FEMA representatives needed to be empowered to make decisions on the ground without having to go through so many layers of bureaucracy. Has there been any effort at the policy level to expedite this decision-making process, particularly as it comes to contracting issues with respect to apartment, housing, with the debit cards and those sort of things?

MS. ENGLISH: The contracting people on the ground are empowered to make decisions and move out very quickly. As related to the debit cards and those other type of things, once again, so that's not a procurement issue. That's a policy issue that goes to other organizations within FEMA.

REP. McCAUL: We did have a lot of complaints about the contracting issues as well. I just wanted to call that to your attention. I want to briefly touch two points. One to go back to the operation blue roof issue. The news reports I've read suggest that the government was paying close to $3000 for these plastic blue tarps when the going rate, according to these news reports, was about $300. So it's about a tenth of what the government is paying. When you calculate that with 300,000 homes, you're looking at a cost differential of $900 million versus $90 million. That's extraordinary. And when I'm looking for you to tell me that that's not accurate, can you answer that question?

COL. DOYLE: Sir, I can't tell you whether that's accurate or not, but what I have committed to is we will do a paper that lays out how those costs are established and how we set that average cost or where that average cost number comes from.

REP. McCAUL: And, Mr. Skinner, you're the inspector general at the Department of Homeland Security, is your office looking into this matter?

MR. SKINNER: As a matter of fact we are. We are looking at these contracts. We've heard the same thing as well and it's perked our interest. I can say from a preliminary perspective, what we're seeing here is some of the newspaper articles are not always accurate. Yes, maybe the tarps themselves cost $300, but that's without installation, that is without the plywood and the other supplies necessary to secure them to the roof. But right now we're in a preliminary stage looking at these contracts.

REP. McCAUL: And what is your understanding as to the amount of money the government is paying per contract?

MR. SKINNER: Right now it's too premature to -- I don't want to offer an opinion that it's too much or too little. On the surface it appears like it is too much, but we have to look under the --

REP. McCAUL: Then I hope you'll report that back to this committee?

MR. SKINNER: Yes.

REP. McCAUL: One other criticism out there that I'd like for you to address, and I hope disapprove, is with respect to the Carnival Cruise Lines. The approximate cost is $120,000 for a family of four for six months. It's reported that an average house in New Orleans has a value of about $87,000. Also it was reported that the profit under the government contract is higher than what they actually receive per passenger on a regular cruise line. And then finally, it was reported the EU said that Greece had offered us, the United States, donate two cruise ships to deal with this, but that we turned that down. Could you perhaps, colonel, or whoever is in the best position to answer that -- actually Mr. Rothwell is probably in the best position to address those allegations.

MR. ROTHWELL: I guess I'm in the best position to respond. This was a contract negotiated by Navsea (ph), the Department of Navy negotiated that. We could probably -- you know, we'll commit to get you answers on that, but this was negotiated by Navsea and you do have the company actually going to be here in the following panel. So, I mean, we will get you an answer back.

REP. McCAUL: But you don't have an answer right now about that?

MR. ROTHWELL: No, sir, that, as I understand it, was a mission assignment given to the Department of Navy. They negotiated the contract and so I would not feel comfortable commenting on that right now.

REP. McCAUL: And do you have any idea what the occupancy level is for those ships?

MR. ROTHWELL: No, sir. I mean, I've been in meetings where I've heard the number, but I would just as soon give you correct information.

REP. McCAUL: Mr. Skinner, do you have any information?

MR. SKINNER: Congressman, we are in fact looking at that as well with the DOD IG. The DOD IG is looking at it from a compliance with federal acquisitions rates perspective. We're looking at it from a program perspective. We anticipate having those reports out within the next 30 to 45 days as to whether, one, was it a wise decision and, two, did we follow the proper procurement mechanisms to award that particular contract, and did we take into consideration such as the offer from the government of Greece to provide ships free of charge.

REP. McCAUL: Thank you, I look forward to reading those reports. Thank you, Mr. Chairman.

REP. DAVIS: Thank you. What I'm going to do now is, if you bear with us, just try to do 10 minutes on a side and then dismiss the panel. Let me just ask, I'm not sure who would know this, I'll ask you Ms. English, how many of the travel trailers have been delivered to FEMA but are at a staging area and not delivered to the hurricane victims? Do you have any idea?

MS. ENGLISH: No, sir, but I can get back to you on that.

REP. DAVIS: Okay. My understanding is that may be in the thousands, and if you could check back and get back to us that would be important. Secondly, if contracts are re-competed, doesn't the government have to pay the cancellation cost of the existing contract?

MS. ENGLISH: No, sir. These contracts will recall IDIQ contract. We had a minimum guarantee. Once we meet that minimum guarantee we have no further obligation with the contractor.

REP. DAVIS: All right. And let me ask you this, what does FEMA do to handle the surge of contracts necessary to address the effects of Katrina? You had your underlying contracts that were pre-bid, you had your bidders in line and then all of a sudden you need more than you initially ordered, did we pay more for the second stage of the orders when we need to get more shelters and more water and more ice? In terms of cost by not ordering enough initially, was there a surge in the costs? And maybe Mr. Skinner or Mr. Cooper can help us on that. Any idea? Have the auditors been through this at this point?

MR. SKINNER: No, I cannot help you, I'm sorry, congressman, on that particular issue. We haven't looked at that.

REP. DAVIS: Thank you.

MR. COOPER: The little bit of insight we have right now, again, when we used the classroom contract as an example, there was an additional requirement for more and it is going through a competitive process, has gone through a seven day open window for bids and they are lower than what was paid when we didn't have it.

REP. DAVIS: Okay. Which you're going to get in competition and that's fine and the fact that -- okay.

Mr. Pickering.

REP. PICKERING: Mr. Chairman, thank you. Just a couple of other questions.

I want to try to understand your overhead and this goes into what is most cost effective. Estimates that were provided in the joint cooperation with the state of Mississippi is they looked at total costs from public, private, you know, every category. It totaled right at $19 billion. Now, the FEMA projection for their overhead, administrative costs, as you go through the Corps, you go through the military and others, was around $4.1 billion of the total 19. Now, those numbers are changing as we get a better evaluation and more appropriate estimates. But it seems to me that there's about around a 20 percent overhead administrative cost being factored into most of these areas. Is that an accurate overhead figure? And if we looked at, say, clean up and debris in Mississippi with the Corps, would they be charging about a 20 percent overhead to the total cost of the clean up and recovery? Ms. English, you had told me earlier in a meeting that the Corps was charging 21 percent on clean up and debris?

MS. ENGLISH: Yes, sir.

REP. PICKERING: So should we expect, as we look at all of our numbers, that a government overhead is going to be somewhere between 20 and 25 percent?

MS. ENGLISH: I really can't address that. When you asked me about the Corps I only gave you that data because that was what we were getting from our financial folks, that it was around 21 percent, and I heard that just recently prior coming to a meeting. As far as our overhead is concerned, I really don't know, but I can certainly check into it and get back to you.

REP. PICKERING: Colonel Doyle, what is your -- as you look at the total price of the clean up and debris, for example, Ashbritt charges 17. They're just a prime, then the subcontract. Most of the prime I understand is around $9. So they're charging a $2.5 management fee, is that correct? That's what I'm hearing, but I don't understand the difference between 9 and 17. It's a big gap between the prime -- between the general contractor Ashbritt and then the prime subcontracts.

COL. DOYLE: Sir, if I may, I'd like to get with you privately or not in a public forum because the cost breakdown structure of a contract is proprietary information.

REP. PICKERING: And then for the Corps, if you're paying Ashbritt $17, well, then you add another 20 percent for the Corps administrative cost on top of the 17? The bottom line, what would be your total cost per cubic yard of clean up, corps, Ashbritt? From you to the end of the process, what is that cost?

COL. DOYLE: Sir, I think this gets back to the question I was asked earlier about if there's a percentage of each cost to contract tacked on and that's not the way the reimbursement happens. I'm out of my lane on the reimbursement on how the Corps project funding and the percentage involved and how that system actually works.

REP. PICKERING: But you're the man in charge of procurement. You're the contract officer. People work for you. Don't you get a percentage or a reimbursement based on the time that your people are putting in to doing these contracts?

COL. DOYLE: The districts in the field would get reimbursement for their labor and percentage of overhead is tied to that labor.

REP. PICKERING: And do they get a percentage of the dollar amount or a percentage of the time that they -- do they get a reimbursement based on their time and labor?

COL. DOYLE: They get reimbursement based on their time and labor I believe, sir.

REP. PICKERING: And that averages out to what percentage of the contract value?

COL. DOYLE: I have never seen it tied to the contract value, sir, so I don't know.

REP. PICKERING: Could all help me, Mr. Cooper, Mr. Skinner? What are you seeing on the average overhead administrative cost?

MR. SKINNER: I agree with you. The corps doesn't bill in a way that you can distinguish or add -- if you have a debris removal contract, how much the Corps costs are associated with that particular contract. The corps bills on a cost reimbursement basis and that would cover all their activities associated with the provision or the delivery of services and goods. It could be debris removal, it could be for the roofing, it could be for the ice and water, it could also be for their direct labor as well, providing contracting services on behalf of FEMA.

REP. PICKERING: Have you all ever done an assessment of the comparative costs between doing it direct to counties versus doing FEMA/corps overhead total costs?

MR. SKINNER: No, we haven't. But I can say that we have looked at -- after every disaster just about we do look very closely at debris removal activities, because there is great opportunity for fraud waste and abuse at the contractor level. One of the things that we focus on is the actual flow of the funds. When these debris removal funds flow -- let's say they go to the state, the state also clips off an administrative fee associated with that. It goes down to the local level. The locals will clip off an administrative fee associated with that grant. Then it goes to the contractor. The contractor may or may not sub. In many cases they will sub. That contractor will clip off an administrative fee. So there's administrative fees all the way up the line whether you go through the Corps or whether you go though the state. The FEMA does not award grants directly to contractors at the local level. They award grants to the state who in turn sub-grant it to the locals who in turn provide it to the contractors.

REP. PICKERING: There has got to be a better way to do this, don't you think?

MR. SKINNER: If you had a big reserve of trucks that the state or the locals owned themselves that you could use that --

REP. PICKERING: Let me ask one other question. Ms. English, you can renegotiate contracts. You currently do not have a time incentive, performance incentive with Bechtel on the housing. If you wanted to renegotiate that, how long would it take you to put in an incentive? And, Colonel Doyle, how long would it take you to make sure that all of the current contracts have incentives for local hirers with specific benchmark targets and enforcement mechanisms in those contracts? How long does that take you to do? Ms. English.

MS. ENGLISH: Right now we're in the process of negotiating with Bechtel. That's something we could try to incorporate into our current negotiations.

REP. PICKERING: And so you would complete that negotiation, change that and it could be done next week, two weeks, Christmas, January, February, past winter, spring, when?

MS. ENGLISH: No, I have to get back to you on that and the reason is, right now we have several task quotas outstanding with Bechtel that has to be negotiated. So I would have to go back and look at those task quotas, look at the ones that directly impact the housing list and see what we can do about those.

REP. PICKERING: Ms. English, let me just say this, and I'm speaking really to a broader audience, it's getting cold. You've got 14,000 people who don't have temporary housing, that are in tents or on slabs or somewhere else, and we're trying to rebuild our schools, rebuild our economy, and we need an urgency of having -- and I would also encourage others, go to Mississippi Power, as Congressman Taylor was talking about, they restored power to 200,000 people in 10 days. Ten days. U.S.A. Today, all business magazines, they have talked about what a tremendous job they did in the crisis. They managed 10,000 new people coming in with utility crews from around the country to restore that power. And I'm sure if you worked with the local companies and gave the right incentives that we could find a solution on the housing that would be compassionate, that would be cost effective and would restore credibility, and we all need to do that.

So I would encourage -- and on the policy decision of not having a bias between local and federal, those policy decisions need to be determined and decided quickly. Contracts need to be renegotiated with a sense of urgency and done quickly. And we can do a better job from here out and that's my objective in calling attention to all of these things today. Thank you.

REP. DAVIS: Thank you very much.

Mr. Taylor, 10 minutes.

REP. TAYLOR: Thank you.

Mr. Rothwell, one of the remaining unmet needs is both the Biloxi Bridge that links Biloxi and Ocean Springs and the bridge that links Bay of St Louis (ph) along U.S. route 90 were destroyed in the storm. Under ideal circumstances they will be replaced in two years. A question is, whose job is it to try to establish some sort of ferry service either for automobiles or passengers between those two points for the two years that will ensue. Does that fall under FEMA, does that fall under the United States Department of Transportation?

MR. ROTHWELL: Sir, I don't know. I mean, you're really asking a great question.

REP. TAYLOR: Could you get back to me?

MR. ROTHWELL: I will. I will try and find you an answer and get back to you, sir.

REP. TAYLOR: Mr. Skinner, my question to you is, I do appreciate that at least FEMA tried to be creative in getting a heck of a lot of people into housing in short order with the cruise contracts. It was way too expensive. What I'm told that is the most troubling to me is that the contracts were written in a way that automatically excluded American suppliers like the Delta Queen, Mississippi Queen, the American Queen, that the contracts were written to required that the ship had thousands of berths rather than hundreds of berths, and just that simply phrasing automatically excluded American flag, American owned, American crewed vessels in favor of foreign flag, foreign owned, foreign crews. Why is that?

MR. SKINNER: That's the answer -- we're looking at that as we speak.

REP. TAYLOR: Okay. Again, this isn't the last storm we're ever going to have.

MR. SKINNER: Yes, and we're aware of that and, yes, those terms were in those contracts and those are the questions that we're asking as well.

REP. TAYLOR: Second thing is, I remember in the first Gulf War going to I guess Saudi Arabia and seeing an ocean going barge that had about five decks on it an don each of those decks were probably 100 individual, if you want to use the word, trailers, self-contained living quarters, and it was brought in for temporary housing for the troops. So obviously that's not a new idea out there in the old patch. What, if anything, is FEMA or the Corps doing to -- you know, just in the last natural disaster our nation is going to face, what, if anything, are we doing to try to get at least that sort of an option in the inventory should there be a thermo, you know, catastrophic event in another part of the country in the near future? In the sense that approximately 80 percent of all Americans live within 50 miles of the coast getting something there by barge that could house a lot of people in short order would be, we think, a pretty good idea.

MR. SKINNER: I can say this, FEMA is exploring all of its options right now and I'm familiar with these cargo containers that were converted to temporary housing. As a matter of fact, I think FEMA has actually used those containers in past disasters, particularly out in the islands and in Guam and places of that nature. As we speak, FEMA is in fact exploring all of the housing options out there, vacant apartments, vacant condos, trailers, mobile homes, containers, trailers, it's not easy to breakdown. It's something bigger than FEMA has ever had to deal with before. They're very very good and adept at housing two to 5,000 people, now we're talking hundreds of thousands of people that are scattered out in 48 different states. So it's a very challenging initiative.

REP. TAYLOR: And the last thing I'd ask is, I have told -- and I would ask that you confirm this -- the navy has three large barracks barges at Norfolk that have not been brought into play. I think the smallest of which houses over 150, I think the largest of which houses over 300. And again, it's in the federal inventory, it's paid for, why wasn't it used, or why isn't it being used? And I yield to my colleagues for the remainder of the time.

REP. MELANCON: I just have one or two questions and I think probably Ms. English or Mr. Rothwell, dealing with the trailers. Earlier it was talked about -- I think Mr. Taylor did it, spoke about it, about the availability of trailers, the number of people that need them. My understanding is that we only, or FEMA only requested construction of new trailers for the Katrina disaster, is that correct? New manufactured trailers.

MR. ROTHWELL: Again, I'll defer to Mrs. English. I'm not really sure.

MS. ENGLISH: That's true -- no, it's not. Let me explain what we did. We did a lot of purchasing off lots, trailers that were already manufactured sitting on lots throughout the country. That was our initial attempt at getting trailers on the ground rapidly. Second phase of that is we did do manufacturing of new trailers according to specs approved by the Department of Housing and Urban Development. They're the trailers that we're using now that continue to hit the Gulf Coast area on a daily basis. But we did not buy any used trailers.

REP. MELANCON: Yes, you talked about buying from dealers. I know specifically of three dealers that asked about being able to sell, speaking with dealers from Ohio and Illinois that they knew were selling to FEMA and they're within 25 and 30 miles of the disaster areas and nobody would return their call, nobody would buy a trailer from them, nobody would place an order through them, it's quite frustrating. And I just wonder, I mean, we're talking about the Stafford Act and doing things through local dealers and local contractors, and yet what I'm hearing from my local people in Louisiana, I don't know if it's in Mississippi and Alabama, but that they weren't in play at all.

MS. ENGLISH: Right after the disaster when we started to buy the trailers very early in September it was very difficult to get through to a lot of vendors and so forth in the disaster prone area, so we did go outside of the area. Right now though we are only buying trailers from the disaster prone area. We are buying trailers in Mississippi and Louisiana and Texas. Just about a week ago we bought -- we had a requirement for over 3000 units. We bought all of those units out of the state of Louisiana.

REP. MELANCON: If I could get a list of the dealers that you dealt with.

MS. ENGLISH: Yes.

REP. MELANCON: And I know there was some communications problems, but two of the dealers that I talked with were able to get me on the phone and were able to get online and make phone calls into FEMA and register with FEMA on their online, so apparently there was ability for them to communicate. Just nobody seemed to communicate back with them. Was there ever, since we're hearing that all we can get is 1000 trailers a week manufactured nationally -- Congressman Peterson says he's had a call from a manufacturer in his state that says they hadn't called him, they hadn't asked him to produce any. He's inquired and nobody has called him back. I'm not sure of all the details, but I can find that out. There are thousands of trailers bought, I believe, last year from Florida. Is it true that we auction, FEMA auctioned off a number of those trailers after they were finished being used?

MS. ENGLISH: Yes, sir, that is true.

REP. MELANCON: Is there some reason we don't -- as I said earlier, this is not going to be a disaster every five or 10 years, we've got them every year. Is there some reason we don't clean them up and stockpile them, hold them, as they did with ice at some of the military bases? We probably auction them off and people would die for them right now.

MS. ENGLISH: We do stockpile a certain number, sir. I don't know that exact number. And why we don't stock more, I really don't know, but I can try to find out for you.

REP. MELANCON: If we could look at the policy and see that.

MS. ENGLISH: Sure.

REP. MELANCON: Because if they were brand new trailers last year and they were occupied for 10 months or less, heaven knows, they've got to still be in good enough condition to be reused. The other thing is that if we're having such a shortage, there are dealers throughout the United States that have used trailers that they've traded in or whatever. There's probably, I would think, because you can bid almost anything, you could have requirements or conditions. If we've got people that are out there that are in need of a home, I don't think they'll look to see whether it's a brand new trailer pulled up there or a trailer that's one year old, especially if you can just save five or $10,000 per unit and house these people.

Is there any reason that we don't ask for, especially when we've got a situation like this which is not the norm and I agree, but is there any reason why someone can't just say in the department let's see if there's some used trailers out there? I mean, you can survey the entire nation's dealerships probably in two or three days. They'd be happy to respond to conditions of the units that they've got and what's available that meets FEMA's guidelines.

MS. ENGLISH: Yes, sir, and that's an option that we will be considering in the future. In this particular disaster what we did is we tried to find all the new trailers out there because they in fact have warranties and so forth. There's certain risks associated with buying a used trailer, so we were trying to avoid that in our attempts to rapidly respond.

REP. MELANCON: I guess the question, you know, with warranties, do you call a dealer in Illinois to come down and service the trailer if he's got a problem, that you bought it from?

MS. ENGLISH: If it's under warranty, sir, that's --

REP. MELANCON: They'll show up.

MS. ENGLISH: They'll show up and they have been showing up. There have been some trailers delivered that have problems and we haven't had any problem with the vendor showing up to repair.

REP. MELANCON: I'm glad to hear that. Yes, if we're going to have warranties, and I think warranties go for more than a year -- yes, sir.

REP. TAYLOR: And again, folks are grateful for getting the trailers, believe me, but there have been apparently in the speed to build these there have been some quality problems. I'm hearing this quite often. Could you please get for me, for Congressman Melancon, Congressman Jefferson, all the other affected areas a list of those manufacturers so that if someone calls up and -- I won't name the name, but just a trailer X company that we can put the people in touch with them because there are more complaints along that I think any of us would like to hear.

MS. ENGLISH: Okay.

REP. TAYLOR: Thank you.

REP. DAVIS: Thank you very much. This concludes this panel. We'll take about a three minute recess and convene the next panel.

(Recess.)

REP. DAVIS: Thank you. We're going to move to our second panel. We appreciate your patience. We have Mr. Terry Thornton, vice president and market planning for Carnival Cruise Lines, Mr. Jim Bernhard, the chairman and chief executive officer of the Shaw Group. We have Mr. Henry Gerkens, the president and chief executive officer of Landstar Systems Inc. and Mr. Tim Zimmerman, the president of Innotech Products Limited. Finally, two contractor witnesses were unable to attend at the last minute, Ashbritt and Kenyon International. I will ask them to testify at future committee hearings focused on the individual state. I do have a letter from Randal Perkins, the CEO of Ashbritt and I would ask the unanimous consent that the letter and accompanying documents be submitted for the record. Hearing no objection, so ordered.

It's our policy we swear you in before you testify, so if you rise with me, raise your right hand. Do you solemnly swear the testimony you're about to give is the truth, the whole truth and nothing but the truth? Thank you. Thank you all very much. I also have a letter from Kenyon that I would ask be put in the record, from Robert Jensen, the president and chief executive officer of Kenyon International. Without objection, that will be put in the record. I think you know the rules on the lights and try to stick to it. Your total written statements are part of the record. We really appreciate you being here today and appreciate your stepping forward in this. Sometimes contractors step forward in a difficult environment and, you know, everybody takes a shot, but we appreciate the work that men and women working for you are doing down in the field. Mr. Thornton, we'll start with you and move right on down the line.

MR. TERRY THORNTON: Mr. Chairman, members of the committee, thank you for the opportunity to appear before you today regarding the charter by the federal government of Carnival passenger vessels in support of Hurricane Katrina relief efforts. The management of Carnival, along with the rest of the country, watched as Hurricane Katrina wreaked havoc along the Gulf Coast displacing many thousands of Americans. And so when we were approached by the federal government seeking assistance our a company agreed to make three of its vessels available to the government each capable of immediately moving to the disaster areas and providing much needed shelter, food, water and medical care.

Carnival Corporation owns the fleet and operates a fleet of 79 passenger vessels throughout the world. Carnival Cruise Lines itself operates 21 vessels, seven of which operate from ports in the Gulf Coast area. Because of this presence Carnival was able to quickly respond to the government's request for assistance. On the morning of Wednesday, August 31, the Center for Disease Control contacted Carnival on behalf of the secretary of Health and Human Services to ask if Carnival would be willing to make passenger vessels available for Katrina relief purposes. Reportedly, MSC approached 75 companies and brokers seeking vessels. This was our first contact with the government with respect to the vessels.

That same day later in the evening the president of Carnival Cruise Lines was called at home by a FEMA official again inquiring as to Carnival's willingness to make vessels available. On Thursday evening, September 1, the Military Sealift Command issued a request for proposals to Carnival and others.

To be eligible to bid an owner had to provide a vessel within 10 days that would meet MSC's minimum set of requirements that included berthing of a minimum of 1000 passengers, three meals per person per day, security services, medical services and pharmacy services. Time was of the essence and MSC required offers to submit proposals no later than 11 am the following morning.

That next morning, according to press reports, MSC received proposals for 13 vessels. MSC subsequently offered charters for four of these vessels including Carnival's Ecstasy, Holiday and Sensation, provided the terms of the charters were negotiated by the end of that day. Carnival went from creating a proposal to the execution of a fixture in approximately 26 hours. This was not easy. Carnival is not a government contractor. We have never chartered vessels to the government. The next day, September 3, Carnival began canceling and fully refunding the scheduled vacations for over 120,000 of our customers. This permitted the delivery of the Ecstasy and the Sensation to the government in Galveston on Monday, September 5 and the Holiday in Mobile on September 8.

Against this background I'd like to clarify a few issues that have been subjects of much discussion. First, the charters were competitively bid. Contrary to reports in the media, the charters were, in fact, competitively bid in a process managed by MSC using established procurement procedures under admittedly difficult situations, conditions, in which a reported 75 parties were approached by the government seeking competitive proposals. Second, Carnival has agreed to a profit neutral contract terms. From the outset Carnival informed the government that it's objective was to charge only what it would have otherwise earned from the vessels operating in a post- Katrina marketplace.

MSC standard past time charter party compensates vessel owners based on a per diem rate plus certain expenses. In Carnival's case our charters contain a profit neutrality clause whereby final charter payments will be adjusted to ensure that Carnival will not earn more from these charters than it would have earned from post-Katrina cruise operations. And if the government has any concerns about the implementation of this profit neutrality provision, we would welcome any reviews by the Defense Contract Audit Agency requested by MSC.

Third, the Carnival vessels are being utilized. Today two of our vessels are in New Orleans where they're sheltering primarily New Orleans police personnel, firefighters and relief workers along with their families. And the third is in Pascagoula, Mississippi housing displaced families. While contractor capacity is higher, the capacity of these vessels is based on two persons per cabin is 5556. There were as of October 31, 2005 5859 passengers aboard these ships. Based on two per cabin the Holiday was at 94 percent capacity and the Ecstasy and Sensation over 100 percent capacity meaning that some of the cabins hold more than two persons.

Carnival management, our employees and shareholders are very proud of our participation in the Katrina relief effort. The value of the capability of passenger vessels to provide relief in emergency situations has now been demonstrated. But it has also been demonstrated that there is room for improvement in the process of chartering such vessels for disaster relief. In this regard, Mr. Chairman, we recommend that the government have in place standard form agreements tailored for the use of vessels such as ours for domestic disaster relief operations and other appropriate procedures. This approach will streamline the process, reassure taxpayers that the dollars are being spent appropriately and companies willing to make vessels available would know exactly what to expect.

We appreciate the opportunity to discuss these issues with you as well as the opportunity to assist with the Katrina relief efforts. Thank you very much.

REP. DAVIS: Thank you very much.

Mr. Bernhard.

MR. JIM BERNHARD: Chairman Davis, members of the select committee, thank you for inviting me here to testify on our role as a federal contractor in disaster preparedness and response and, in particular, our activities in the recovery efforts after Hurricane Katrina. I have prepared a more detailed testimony which I requested to be included in the record today. I would now like to continue for the committee a few highlights. My name is Jim Bernhard. I am CEO, chairman of the board and I'm also founder of the Shaw Group. I come before this committee not only as a contractor, but as a native son of the great state of Louisiana. As a Louisianian I've seen my share of hurricanes to be sure, but Hurricanes Katrina and Rita have caused a level of devastation in this region that was unimaginable.

I am particularly proud of the response by the people of my home state and our standing team at Shaw. The Shaw Group is committed to this region and grateful for the opportunity to play a leadership role in the rebuilding of our state and our sister city New Orleans and the entire Gulf region. I founded the Shaw Group in 1987 in Baton Rouge, Louisiana. Shaw has steadily grown to be one of the largest public companies headquartered in the state of Louisiana. We have approximately 20,000 employees and 170 offices in strategic locations around the world.

Over the years Shaw has developed emergency preparedness and response services that are unparalleled. Shaw responds to approximately 300 emergency calls per year nationwide. Within hours of notification Shaw can deliver equipment, materials, professional response personnel, on site from any of our numerous facilities. Shaw's experience in hurricane recovery spans more than 15 years responding in the first days of each disaster to restore utilities and infrastructure, remove toxic and hazardous waste. Shaw played an integral role in responding to the anthrax attacks in the state of Florida, New Jersey and Washington DC and we have provided continuous emergency response services to the EPA.

Let me now turn to our efforts in the emergency response, recovery and rebuilding of the Gulf Coast areas affected by Hurricane Katrina and Rita. Within days of the hurricane and floods Shaw had mobilized more than 3000 people consisting of our own personnel and subcontractor forces many of whom who are local professionals displaced by the storm. We were immediately tasked by the Corps to provide temporary roof protection for homes damages by Katrina and Rita. Over the past eight weeks Shaw and its subcontractors have installed over 25,000 temporary roofs recently at a rate that exceed 1000 per day with as many as 500 crews in the field.

Shaw was also tasked by the Corps to pump the 56 billion gallons of floodwaters from the city of Orleans, St Bernard and Plaquemine parishes. Shaw pumped the main areas of New Orleans virtually dry in 17 days, an impossible accomplishment by many, an impressive accomplishment in light of the initial corps estimate of 80 days. Under a new FEMA contract Shaw is providing temporary housing for persons displaced by the hurricane and is also providing travel trailers at or near the home site of displaced residents.

As the committee may be aware, FEMA has increased the scope of the work and value of the original contract ceiling of $100 million to $500 million. Shaw was also able to respond quickly to the needs of numerous federal facilities in the region including Stennis Space Center, Keesler Air Force Base and the U.S. Postal Service. We are providing services for six railroads and have restored power lines, poles, electricity to tens of thousands of residential and business customers throughout the region. Additionally, we were contracted by the city of Orleans, Jefferson, Washington, St. Tammany parish, the archdiocese of New Orleans to support their recovery efforts.

From the earliest days of the recovery I personally provided clear direction to all Shaw employees involved in the hurricane recovery operations that in order to ensure that public funds entrusted to us in this effort are properly spent. Shaw personnel must be vigilant in complying with all government contract laws and regulations at all times, avoiding any real or even perceived conflicts of interests. Prior to Hurricane Katrina Shaw maintained a comprehensive compliance ethics program emphasizing the importance of full compliance in government contracting. We have hired highly respected outside auditors to review our cost accounting systems and outside legal counsel to further enhance and augment our government law compliance efforts.

I am also proud to tell you that Shaw has made extensive use of local contractors, small and minority owned enterprises from the Gulf Coast states. In fact, to date all subcontractors working under our response and recovery contracts in Louisiana, 75 percent are Louisiana based companies, 60 percent are small business of which 33 percent are disadvantaged or minority owned. Mr. Chairman, the state of Louisiana and the nation face a long and enormous challenge in the restoration and rebuilding of the entire Gulf Coast region, but I am confident the Gulf Coast and Louisiana will recover and rebuild stronger and better.

At Shaw we always say we're Louisiana committed, Louisiana proud. Those words are even more significant to us today. In closing I applaud this committee's efforts to investigate the preparedness for and response to Hurricane Katrina. We absolutely support the concept of fair competition and transparency. We are ready and willing to work with you and the committee to improve the process of preparing for and responding to disasters both natural and man made. I would like to take the opportunity to thank the committee for the opportunity to speak here today and I would be happy to answers any questions at the appropriate time.

REP. DAVIS: Thank you very much.

Mr. Gerkens.

MR. HENRY GERKENS: Good afternoon, Mr. Chairman and distinguished members. My name is Henry Gerkens and I am president and CEO of Landstar System Inc. Thank you for inviting Landstar to appear today. I am very proud of our company's work in the Hurricane Katrina relief effort. We face unprecedented demands and we responded by successfully coordinating the movement of thousands of people and many tons of goods in and out of the Gulf Coast. We have done this primarily by executing over 400 specific tasks referred to us by the U.S. Department of Transportation on the pre-existing contracts and, Mr. Chairman, a competitively bid contract.

I would like to give you some background about Landstar, our relationship with the DOT and our work on Katrina. Landstar System is the parent of a group of companies that provide transportation capacity and logistic services to a broad range of customers. We have about 1250 employees and our headquarters is located in Jacksonville, Florida. Landstar's business is connecting customers that have loads to move with independent contractors that have the capacity to move them. We are a non-asset based company, meaning that Landstar does not own the power or equipment that moves the goods. Instead we offer access to a large network of third party equipment providers such as truck owner/operators, independent trucking companies, railroads, buses, air cargo and passenger carriers and ocean cargo carriers.

In addition, Landstar has over 1000 locations nationwide that provide sales and operational support. It is this network all linked together by a technologically advanced platform that sets Landstar apart. In 2002 our subsidiary Landstar Express America won via competitive bidding a contract with the DOT to provide disaster relief transportation services. The DOT acts through the Federal Aviation Administration which refers specific tasks to Landstar. A written task order is absolutely central to our work for the DOT under this contract. The government needs to move people and goods to and from a disaster zone quickly, efficiently and reliably. Our mission is simple. When the DOT gives us a target in the form of a written task order, we hit that target.

With a written task order we have an instruction to move assets from point A to point B and a commitment from the federal government to pay for it. Typically we then choose a capacity provider for a specific task by obtaining competitive quotes from pre-approved capacity providers in our network. Without a written task order we have no authority to move assets. The DOT has made clear that we should not commit assets unless we are given a task order. For example, we would only pre-position assets before a storm in response to a task order instructing to do so.

In Katrina to date we have sourced the capacity to move more than 8000 shipments of water, ice, cots, ready-to-eat meals, generators, travel trailers and other supplies to destinations across the Gulf Coast. In addition, we have sourced approximately 50 aircraft and 60 helicopters that aided in evacuation efforts and in the transportation of emergency responders. Approximately 80 Landstar employees and agents have been involved in the disaster relief efforts. Before Katrina hit the DOT instructed us to pre-position trucks at a number of different staging areas. We were not instructed to pre-position buses.

After Katrina hit the DOT issued task orders for the delivery of buses to evacuate stranded residents. Within 24 hours of the first order we had over 400 buses committed and about 200 already staged in the New Orleans area. Over the next week we sourced and delivered over 1000 buses. I believe Landstar has done an excellent job and I'm very proud of our team. Mr. Chairman, we look forward to working with you and with the committee and thank you for your attention and I welcome your questions.

REP. DAVIS: Thank you very much.

Mr. Zimmerman.

MR. TIM ZIMMERMAN: Good afternoon, Mr. Chairman and select members of the House. Thank you for the opportunity to participate in this hearing by the House Select Bipartisan Committee to investigate the preparation for and the response to Hurricane Katrina. My name is Tim Zimmerman. I am the president of Innotech Products Limited, a small business in Cincinnati, Ohio.

Innotech Products specializes in the research and development, manufacture and marketing of portable electro-chemical heaters. We started our business in 1990 after our research efforts resulted in the development of a food heater which was approved by our U.S. government for use by our military. These flameless ration heaters, FRHs, are water activated, safe and non-toxic and are inserted into meals ready to eat for heating individual rations for our U.S. soldiers in the field. Since the introduction of the FRH our company, in combination with our parent company, TrueTech Inc. of Riverhead, New York, has provided over 800 million FRHs as a subcontractor to the Defense Supply Center, Philadelphia for use by our U.S. military.

About eight years ago we began marketing shelf-stable, self- heating meals for the general public use under the trademark HeaterMeals. Being shelf stable HeaterMeals require no refrigeration and because they incorporate our patented self-heating technology allow consumers to enjoy a hot meal anytime, any place. HeaterMeals are now sold across the country at truck stops, convenience stores nationally, as well as the hunters and fishermen and other outdoorsmen in national sporting good chains and other select retail outlets.

In 2000 we began marketing a new self-heating product for replacement food service situations under the trade name HeaterMeals Plus. These are directed to groups like world construction and oil drilling companies, national guard, army reserve and active military installations as well as emergency preparedness and response organizations like Homeland Security, FEMA, state emergency management agencies and the American Red Cross. This HeaterMeals Plus combines the ease and convenience of the original HeaterMeals as well as additional snacks and desserts and a beverage that make HeaterMeals a complete full course meal. Our HeaterMeals come in an assortment of eight different entrees, including two breakfasts and since introduction we've provided over 15 million self-heating meals for individual consumer, institutional, military and governmental use.

Innotech initially started providing emergency response and disaster support services to various federal, state, local and non- profit agencies in 1998 when Hurricane George hit Alabama and Florida. We have provided increased quantities of self-heating meals as relief support to the Carolinas in 1999 after Hurricanes Dennis and Floyd hit and flooded those states, to Galveston and Houston in 2001 when Tropical Storm Allison surprised Texas, and to an even greater extent for most, if not all, the Gulf south eastern states after the devastating 2004 hurricane season with Hurricanes Charley, Frances, Ivan and Jeanne.

While Innotech was able to provide almost a million meals for relief efforts in response to the hurricanes, our efforts were generally insufficient to meet the exponentially larger requirements of FEMA, the state EMAs and the south eastern part of the United States along with the Red Cross because of the increased severity and frequency of the storms in the 2004 hurricane season. With this forecast for the 2005 hurricane season being as severe or greater than the devastation we experienced in 2004, Innotech implemented several initiatives to improve our own company's ability to respond.

First we purchased additional equipment and more than doubled our plant effort and effective capacity to produce and ship HeaterMeals. Secondly, we more than doubled our finished goods inventory. Going into the hurricane season required our food and packaging partners to do the same. And lastly and most importantly, we proposed and sought the financial commitment of FEMA, the state EMAs and the American Red Cross to an inventory managements and automatic restocking program to acquire and warehouse a surplus of HeaterMeals and HeaterMeals Plus in their distribution centers or in our warehouse for preparedness purposes in advance of the 2005 hurricane season.

The American Red Cross took advantage of this preparedness proposal and acquired a large inventory of HeaterMeals and HeaterMeals Plus. They were warehoused in our Cincinnati facility in advance of the 2005 hurricane season and we provided a 24 hour response time. The program was deemed a success for the Red Cross emergency response objective to be considered the first responder as prior to Hurricanes Dennis, Emily, Katrina, Rita and Wilma each hitting the U.S. coastline. Hundreds of thousands of HeaterMeals and other emergency commodities were shipped to and staged in the various markets for emergency response.

In total, the Red Cross provided over 1.5 million HeaterMeals to hungry and displaced Americans during the 2005 hurricane season. It's important to note that an additional 1.5 million HeaterMeals were provided to other emergency response organizations like FEMA and other state EMAs after the hurricanes hit and to various national guards, state and local police and construction utility companies providing security and restoration services to the devastated area.

Finally, in response to this committee's specific interest about interaction with FEMA in a response to Hurricane Katrina Innotech was contacted by FEMA after the hurricane hit the Gulf states and asked our company to provide about $9 million of HeaterMeals on contract. Unfortunately, it was not a contract we could accept as our entire finished goods inventory was committed to other response agencies and disaster relief organizations at the time as well as our next three to four weeks of production. While we were able to provide FEMA with about 300,000 meals for Katrina relief, we were disappointed in our ability to meet the requirements after the storm had devastated Louisiana, Mississippi and Alabama.

Perhaps in 2006 the implementation of an inventory management and automatic restocking program, like we implemented with the Red Cross, would increase the preparedness and response capabilities of this important organization in the future. Personally I believe it's critical and a basic necessity that our country plan and implement these types of improvements now as the scientific likelihood of natural disasters is expected to increase in this next decade, and the unfortunate occurrence of man-made disasters forced on our country looms on the horizon. Thank you.

REP. DAVIS: Thank you all very much.

Let me start, Mr. Thornton, with you. You didn't seek the government, the government came to you basically, is that right?

MR. THORNTON: That's correct.

REP. DAVIS: There have been reports that the contract price amounts to $1275 a week per passenger, is that a correct number?

MR. THORNTON: Well, let me put it in the framework the way we were looking at it and I think this will give a better perspective than the rest of the published reports that are out there today. We contracted with the MSC for a total of 7116 berths and if you figure the math on that at the contract price of $236 million, which is the contract plus the estimated reimbursables, it works out to $184 per berth day and that is inclusive -- just so we're very clear on that -- that is inclusive of food and basic medical care.

REP. DAVIS: Okay. Well, this was competitively bid. I mean, any company could have come forward and bid on this and if they had a lower bid probably would have gotten it, correct?

MR. THORNTON: That's correct.

REP. DAVIS: And, in fact, you had to displace passengers. These clients, as you noted, were released. You had people that were waiting to take vacations on these ships and you had to cancel, is that right?

MR. THORNTON: That's right. These ships were at full occupancy and we displaced over 120,000 of our customers to make this happen.

REP. DAVIS: Basically, as I understand it, what you said is, we'll do this to help you with Katrina, but you just don't want to lose any money on the deal?

MR. THORNTON: That's correct. The concept of the -- the way we like to propose this is that we could come out whole from a financial standpoint. But we were very, very committed to providing the much needed assistance to make this happen.

REP. DAVIS: In addition to the loss of goodwill that you may receive from some of the people you had to cancel, what are some of the additional costs that Carnival will incur by participating in this response?

MR. THORNTON: Well, it was very disruptive at the time of the cancellation of the cruises for all the guests. We had to contact all the guests and advise them that their cruises had been cancelled. We had communications with their travel agents. So in addition to that, as the ships arrived and were delivered to the home ports that the MSC directed us to send the ships, we sent an entire special assistance team to get everything set up, to get the charters established, to make sure that the embarkation process of the guests went well. So all of those things combined for some higher cost structures just to get everything organized and to allow us to appropriately operate this program.

REP. DAVIS: So you didn't need this work, you already had these two ships basically leased up?

MR. THORNTON: All these three ships were at absolute revenue service and at full occupancy.

REP. DAVIS: And it was the government that decided to hold you revenue neutral and decided to enter into the contract basically?

MR. THORNTON: No, we insisted on the profit neutrality clause from the very beginning. It was part of our corporate policy that we wanted to do this and we wanted to do it in the right way. We did not want to make one dollar more than we would have made in normal service. We just wanted to become whole out of the transaction, but we very much wanted to assist in this very serious situation.

REP. DAVIS: All right.

Mr. Bernhard, did Shaw have any pre-existing emergency service contracts with FEMA?

MR. BERNHARD: Yes.

REP. DAVIS: All right. Does your blue roof contract, which is issued by USACE, but funded by FEMA, have the same terms and conditions as the blue roof contracts for the 2004 hurricanes?

MR. BERNHARD: I'm not aware if it's the exact same condition. It was a contract we bid in the summer and we were awarded on a competitive bid basis and we were awarded the states of Mississippi and Louisiana.

REP. DAVIS: But that was done at the federal level, not the state level?

MR. BERNHARD: Yes, sir.

REP. DAVIS: People have made a big deal about political involvement in Louisiana, but these are federal contracts and federal contracting agents that made the decision?

MR. BERNHARD: With the Corps of Engineers, yes, sir.

REP. DAVIS: Do your large prime contracts include small business and subcontract plans?

MR. BERNHARD: Yes, sir. We've been very focused.

I guess living in Louisiana we see the importance of employing people in the devastated areas, because, you know, a lot of our employees lost their houses as well. So we're trying our best to not only put our business in Louisiana, but small business and minority and disadvantaged business and I think by the results of 75 percent of the subcontracts that we've done has been to the state of Louisiana subcontractors, 60 percent has been small business and of that 33 percent has been minority and disadvantaged, I think we've done a pretty good job.

REP. DAVIS: Are you headquartered in Louisiana?

MR. BERNHARD: Yes, sir. I started the company about 18 years ago with three people in Louisiana.

REP. DAVIS: And you purchased Shaw which was a South Carolina company, right?

MR. BERNHARD: Well, it was just a building, we purchased the name, but we've grown over the years to a very large company and we're proud to call Louisiana home.

REP. DAVIS: Did you get additional contracts after Katrina hit? You had some pre-existing --

MR. BERNHARD: Yes, sir, we do. The major contracts we got was $100 million contract with a $100 million option for the Corps of Engineers to do the watering contract to pump out the city of New Orleans and I'm proud to say that on that particular contract 99 percent of the people who participated, contractors and that, were Louisiana contracts. I'd like to give special recognition to contractors, Boh Contractors, Cajun Contractors and TL James who accomplished the task in 17 days. We also received --

REP. DAVIS: That was way faster than was originally predicted, is that right?

MR. BERNHARD: The Corps of Engineers said it could be as long as 80 days, but that for sure would take at least 45 days. We accomplished the task in 17 days which is one of the most remarkable engineering construction feats that's ever been accomplished.

REP. DAVIS: Thank you very much. My time is up.

Mr. Taylor.

REP. TAYLOR: Mr. Bernhard, I'm curious, the army seems to have a contingency for almost everything. Did the Corps have a contingency in place for plugging a gap in a levee in New Orleans? I lived there for a while and what troubles me is I can't believe there was never a plan in place or pre-arranged contract in place that should the levee be breached that somebody would jump in and try to do something about earlier rather than later.

MR. BERNHARD: Yes, sir. I'm unaware if the Corps had any contract existing to repair a breach in the levee of that magnitude. I don't think so. But you'd have to ask them.

REP. TAYLOR: Okay. I want to compliment all of you gentlemen. I'm just curious because I -- what percentage of your Katrina related profits are subject to taxation? If I could go across the board.

MR. THORNTON: In Carnival's case, none of it.

MR. BERNHARD: I'm not a tax expert. I would assume all of it. You would have to -- to get a definitive estimate I'd have to get to our tax department, but I would assume all of it.

REP. TAYLOR: Okay. And I'm saying this as a matter of curiosity. So the Katrina relief efforts proposed by the president, you who obviously did a great job, but also got paid well I hope.

MR. BERNHARD: Not yet, sir.

REP. TAYLOR: Okay. But at least it will be subject to taxation?

MR. BERNHARD: Well, we haven't got paid anything yet.

REP. TAYLOR: Okay. We'll make sure that happens.

MR. THORNTON: Can I restate, in this particular situation the income from the -- or the profits from Carnival's operation would be subject to tax.

REP. TAYLOR: You're certain of that?

MR. THORNTON: Yes.

REP. TAYLOR: Okay.

MR. GERKENS: As are Landstar's.

REP. TAYLOR: What percentage would be subject to taxation? I know the actual percentage is going to vary based on a zillion factors.

MR. ZIMMERMAN: Our pricing for our product remains the same regardless of the time of the year so that we did not inflate our prices or inflate our fees to perform any of the services. Probably a third of our overall company's business was hurricane related relief.

REP. TAYLOR: And what percentage, and again you were sworn in, I'll accept rough numbers, what percentage of your employees were U.S. citizens involved, again, in Katrina relief?

MR. THORNTON: For employees on the shipboard side from Carnival Cruise Lines a very small percentage, less than 10 percent would be U.S. citizens.

MR. BERNHARD: I believe all were U.S. citizens.

MR. GERKENS: I believe all are U.S. citizens.

MR. ZIMMERMAN: All our full-time employees are U.S. citizens and our temporary employees we bring in for overtime work are required by the temporary agencies to be U.S. citizens as well.

REP. TAYLOR: Okay. Mr. Bernhard, I might be the only one on this panel who actually had the great fun of patching roofs after the storm and being on a fairly steep roof with a chainsaw trying to remove a rather large pine tree and trying to see to it that it lands outside the house and not in the living room, but maybe for the sake of some of my colleagues who put very fair questions about the costs of these blue tarps, maybe you as someone who's in the business might want to -- I'll give you this opportunity to walk them through that. Again, there's a bit more to it than just shimmying up there and putting out an 8 by 12 tarp.

MR. BERNHARD: Well, let me give you from my level of experience exactly what we do with some detail as best I can. You are correct that we charged $1.75 a square foot, which is about 99 percent of all the costs we charged on blue roof. The plastic that is supplied by FEMA is supplied in a designated area. We first must go assess the house that has a request to FEMA for what we commonly refer to as a blue roof to see if it's feasible to do a blue roof. The men and women who do the work have gone through a stringent safety program before we allow them to work on our projects. The roof is more than just putting a piece of plastic on the roof. It could do a lot of different things. It could actually be repairing rafters, putting plywood, putting plastic. It always includes putting wood furring to keep the plastic on.

The enormous amount of work is -- we've done over 25,000 roofs, just to give you an example. The furring placed on those particular roofs laid end to end would go from the Louisiana Superdome to Yankee Stadium in the Bronx. The amount of duct tape used would go from Mobile, Alabama to New Orleans and those costs are all borne as well by the one price of $1.75. You know, some contracts we win, some contracts we lose. These particular ones we won on a fixed price. I understand that the other states we lost. So, you know --

REP. TAYLOR: As a matter of curiosity, since we - my brother, where I'm staying, did not use a government contractor but let's say local labor.

Does tree removal fall into that as well?

MR. BERNHARD: I don't know.

REP. TAYLOR: Okay. Could you get back to the committee on that?

MR. BERNHARD: Sure.

REP. TAYLOR: Mr. Thornton, for clarification, you first said that you didn't pay U.S. tax on this, you later said you did. There's a third school of thought that might think that your contract included a provision to reimburse Carnival for the U.S. taxes that you would pay. Which of the three would most adequately describe what's going on with Carnival?

MR. THORNTON: Well, let me just backtrack. Carnival in its normal cruise operations is an international operation and operates as an international entity. This situation is different and since it's basically an all U.S. based operation it would be U.S. sourced income and subject to U.S. income tax. We have included in the price that we charged a provision for that tax cost and in the event that there was a different view of that tax that would be reimbursed to the government.

REP. TAYLOR: Okay. Now, not to belabor the point, but just to get something in my mind, if there was a tugboat tied up next to you, every member of that crew is going to pay U.S. income tax. I'm going to guess you've got several thousand employees on that cruise ship, are their wages while they're working in U.S. coastal waters subject to U.S. income tax?

MR. THORNTON: We believe that could be the interpretation and, again, in the contract and our price that we charged, there is a price that we built in our charter price to cover our crew in the event that U.S. income tax had to be paid. The concept behind this is very simple in terms of our overall concept of this charter as well as our crew. We're trying to come out whole in the transaction. So from our crew standpoint, if they were subject to U.S. income taxes we would look for that cost to be reimbursed as we would if any other situation caused us a difference in cost. This has to be a unique situation.

REP. TAYLOR: So the prolonged period of time -- and I realize this is an unusual situation for your ship to be at the dock for a long time, but for the prolonged period of time that your ship is at the dock, are your employees subject to the minimum wage laws, OSHA, all the other requirements that would be if there was an American flag vessel tied up next to you?

MR. THORNTON: We believe that could be the interpretation and there is a provision in the contract with MSC that says in the event that our wage levels are too low and we have to supplement the wages based on U.S. standards that there would be reimbursement to Carnival for that difference in cost. Again, the provision, though, that we're looking for here is profit neutrality and basically trying to come out whole in the transaction as if we would operate in our normal foreign trade.

REP. TAYLOR: And again, tough question, could you answer for the record, whether or not for the six months or so that your vessel is going to be tied up at either Galveston, New Orleans, Pascagoula, whether or not your employees will be subject to all the laws that an American would be on an adjacent vessel?

MR. THORNTON: We believe that could be the interpretation, yes.

REP. TAYLOR: Okay. So you're at least going to pay a minimum wage?

MR. THORNTON: If that's the evaluation and that is the requirement, then, yes, we will pay that.

REP. TAYLOR: Thank you.

Thank you, Mr. Chairman.

REP. DAVIS: Thank you.

Mr. Buyer.

REP. BUYER: Mr. Chairman, I just returned from the floor. I appreciate Ms. Myrick can go next.

REP. DAVIS: Ms. Myrick, you're recognized for five minutes.

REP. MYRICK: Well, actually you've asked the questions that I was going to ask so I don't have any others right at the moment. If I may come back.

REP. DAVIS: We'll keep going. We'll go to Mr. Pickering.

REP. PICKERING: Thank you, Mr. Chairman.

Mr. Bernhard, I want to commend you for the good job that you've done in your home state. I think it shows that if you hire a firm that is based in an affected state there is more passion, there's more urgency, there's more commitment and you get a better outcome. And so I hope that as we look at how we go forward that make sure in Mississippi and Louisiana and Alabama that we're hiring to the greatest extent possible local people because you do bring the sense of urgency to rebuilding and recovery. In your contract you talked about meeting it within 10 days on pumping the water out of New Orleans, is that correct?

MR. BERNHARD: No, sir. We pumped the New Orleans -- the Corps estimated that it would take a maximum of 80 days and minimum of 45 days. We accomplished the feat in 17.

REP. PICKERING: In 17.

MR. BERNHARD: That's right.

REP. PICKERING: Now, did you have a performance based contract?

MR. BERNHARD: No, sir, except that we live there.

REP. PICKERING: Do you believe in performance based contracts?

MR. BERNHARD: Absolutely.

REP. PICKERING: Any of your contracts currently, the blue roof, the trailers, any of those performance based?

MR. BERNHARD: No, sir. We always think if we do a good job we'll get the next one. But, you know, performance based contracts, we encourage it, we like to participate in it, but to this time to my knowledge, it's not there. But we do have federal contracting that is performance based contracting that we participate under.

REP. PICKERING: Your contracting was done pretty quickly, was it?

MR. BERNHARD: Yes, sir.

REP. PICKERING: How many days your contract with the Corps?

MR. BERNHARD: For the Corps --

REP. PICKERING: Well, I guess you've got a whole series of contracts.

MR. BERNHARD: We have a series of contracts, yes, sir.

REP. PICKERING: But in most of those, were they done pretty quickly?

MR. BERNHARD: Yes, well --

REP. PICKERING: On average, how long?

MR. BERNHARD: The ones that were sole solicitation, yes, sir, the ones that were not were over a period of time.

REP. PICKERING: If the Corps wanted to reopen contracts, or FEMA, for example, in Mississippi and give performance based standards, that could be done pretty quickly, couldn't it?

MR. BERNHARD: From my point of view, yes, sir.

REP. PICKERING: A day, two days, three days?

MR. BERNHARD: Depending on the scope, but --

REP. PICKERING: But a willing company that's committed to the rebuilding and recovery would work to meet -- for example, if we have 14,000 people without trailers and our experience so far has been those trailers are being delivered very slowly and that you have a lot of other support contracts for just getting the electricity, the water, the sewer, and it looks like that it will take us well into winter to get it done under the current method, seems to me that you would renegotiate performance based contracts to find another solution to get people who don't have any housing right now, something on a much more expedited basis?

MR. BERNHARD: That could be a possibility. I might suggest you do a two step approach with people who are living in tents. First you put them in the trailer, then you go back and hook up electricity because I believe it might be preferable obviously living in a tent to live in a trailer even though it didn't have electricity or water because a tent doesn't either. So I would -- you know, that would speed up the process enormously.

REP. PICKERING: They just need to say you can have these before you get power or sewer because it's a better place than a tent?

MR. BERNHARD: If the choice was living in a tent or living in a trailer without water or electricity I think I'll choose the trailer.

REP. PICKERING: The other thing that could be done is, instead of waiting until you have a whole sewer system constructed, you do have an ability to send in trucks that can drain septic tanks or sewer things. There are other solutions without having the longer construction of a complete sewer system, isn't there? There should be a way to expedite the infrastructure and allow the housing so that people who need that shelter can get it more quickly? What is your experience in Louisiana? I mean, you're providing travel trailers?

MR. BERNHARD: Yes, sir.

REP. PICKERING: How many are you doing a day?

MR. BERNHARD: In front of homes we're doing about on average about 75 a day.

REP. PICKERING: Seventy-five a day.

MR. BERNHARD: And the trailer is hooked up and the person is leased in, that includes hooking up the sewer, water, electricity. Then we have different programs as far as --

REP. PICKERING: And they cannot inhabit that until you do that, is that right?

MR. BERNHARD: That's correct.

REP. PICKERING: Same thing in Mississippi.

MR. BERNHARD: We have found substantial problems with the trailers. About 20 percent do not QC out which means they're missing a sink or missing a connection to hook up electricity or not for occupancy on these new trailers. So that we have to stop and fix the trailer that was supposed to be in a certain form to do that. So it's a lengthy process, especially in New Orleans because, you know, there's so much --

REP. TAYLOR: Would the gentleman yield?

REP. PICKERING: Yes.

REP. TAYLOR: I found it very interesting because we are hearing quality control problems with the trailers, that the previous panel said that the manufacturers in effect are jumping right on it. I have not seen that to be the case, so I'm going to ask you as someone who's actually spotting these trailers --

MR. BERNHARD: Sir, to my knowledge and belief we have done all the repairs on trailers. FEMA has asked us to keep track of those to send the bill or the cost or they're going to do something with the manufacturer of the trailer.

REP. TAYLOR: Will the gentleman further yield? Just one further question.

How long is it your responsibility to keep that trailer working? Is that a part of your contract?

MR. BERNHARD: Till the keys are in the hands of the individual. Our contract, I believe, stops when we hand the keys to the owner or the resident.

REP. PICKERING: Seventy-five a day under the current --

MR. BERNHARD: There's different programs. That program is putting the trailer in front of an existing home. We're also doing trailers which are kind of bulky where we have whole sites where we do 200, 600 sites a day and those -- we do them faster than the permitting process takes. It takes longer to get through the FEMA state permitting process than it does to do the --

REP. PICKERING: Wouldn't it be better to permit after the fact?

MR. BERNHARD: Absolutely.

REP. PICKERING: Okay. So if we change the -- instead of making it contingent upon permitting, make it permitting after the fact, letting people move in before they have water, power and sewer and you could expedite this pretty well, could you? The other thing is, who does the power, electrical contractors or are you working with Intergy or --

MR. BERNHARD: It depends. If the electricity is hooked up, we just hook it up, but if the electricity is a problem we have to call Intergy. But I'd like to let you know that in the state of Mississippi we did, I believe, about 30 percent of the work for Mississippi Power in restoring electricity. So I thank you for the compliment.

REP. PICKERING: You all did a tremendous job.

MR. BERNHARD: Thank you.

REP. PICKERING: It would make sense, wouldn't it, for FEMA to partner with Intergy and Mississippi Power to get the power? If they can restore 200,000 homes in Mississippi in 10 days, it seems like they could probably find a pretty good solution of hooking up 14,000 trailers in a more rapid way?

MR. BERNHARD: I can't speak to Mississippi, but in Louisiana it's problematic because of the damage of the floods. Some of these you don't know until you get there that the actual electricity is not available to that particular residence. So it's a difficult task on the residence by residence.

REP. PICKERING: And finally, Mr. Chairman, if we don't change the current way we're doing this, you're doing 75 a day, how many people are eligible to get those trailers?

MR. BERNHARD: We currently have a backlog of approximately 3000 trailers that we're working on.

REP. PICKERING: If you divide 75 into 3000, how long is that going to take you to deliver those trailers?

MR. BERNHARD: About 25 days.

REP. PICKERING: About 25 days.

MR. BERNHARD: Don't hold me to the math.

REP. DAVIS: You're under oath, but we won't hold you to the math.

MR. BERNHARD: But I believe that number is going to double in the next two or three days. So that's --

REP. PICKERING: You mean the 3000?

MR. BERNHARD: No, the 75. I believe it will be at 200 in a matter of four or five days.

REP. PICKERING: And why is that?

MR. BERNHARD: Because we're just ramping up. We haven't had this contract from the beginning. We've just been ramping up. We haven't been working on this eight weeks. We've been working on it about three or four weeks.

REP. PICKERING: If they gave you a performance based incentive to deliver those in a more rapid way as well as making the permitting changes and other things, you could do this pretty quickly, couldn't you?

MR. BERNHARD: I know the answer you're looking for, but I will tell that, you know, if they gave us performance based contracting that this company would not work any faster, any smarter or any harder. This is a special contract for us because, I mean --

REP. PICKERING: These are your neighbors?

MR. BERNHARD: Yes.

REP. PICKERING: It makes a difference. If you're, say, a company from way away and you're just looking at the profit instead of looking at your neighbors and you don't have any performance based standard of time based incentive, you'd drag it out, wouldn't you? You'd get more money? I'm not saying that you're not a bad person, but --

MR. BERNHARD: Thank you.

REP. PICKERING: I'm just saying that human nature is that you're going to -- in a business objective is to maximize profit?

MR. BERNHARD: Mr. Pickering, I worked on this project at least 35 continuous days, some days with two and three hours sleep personally. I cannot imagine this company, employees -- I'll give you an example. The head of our IT systems kept our phones operation, our IT system operation. His family lost 16 homes. He didn't know where his father or mother was for four days. As he kept our operations operating and worked literally with tears in his eyes. This company, performance based contracting is performance when we see a smile on somebody's face as he walks into one of our trailers.

REP. PICKERING: Mr. Chairman, let me just make one final observation. His story of what he's doing for his home, for his people, is the same story I hear from every Mississippi company, just heroic action, because they're committed to rebuilding home. That's why it offends me so much that as we get into it, 98 percent of FEMA contracts are from out of state or 95 percent of corps contracts are from out of state because they don't carry the same passion at rebuilding their home state as a company will if you comply with the Stafford Act. Thank you very much.

REP. DAVIS: Thank you. They also don't have the same economic ripple effect as employing local people and using locals.

Mr. Melancon.

REP. MELANCON: Thank you, Mr. Chairman.

Let me echo what Mr. Pickering said. Mr. Bernhard, for all the good press that you've gotten in recent times because you're a contractor and I know it's not very many lines, can you give us an idea about how much money you got up front while still not realizing money returned to the company, if that's not an imposition?

MR. BERNHARD: To this date, under all the FEMA contracting that we have, which includes -- this company checked in over 250,000 evacuees at centers across Texas to maintain life support, you know, we're doing what we call a home again program installing trailers, we've worked thousands of people. To this date, under the FEMA contract, we have received no money. Under the dewatering contract where we dewatered a city in 17 days we've received no money. On both of these contracts we have yet to see a dollar. And I will tell the gentleman here, unless the FEMA and the Corps procedures change, it will be impossible to give work to small business because they will be long out of funding.

REP. MELANCON: I have a caterer who would have wished to do some catering in the aftermath of Katrina in New Orleans and was approached by people with DOC. His problem was that it was going to take about a half a million dollars with no guarantee of repayment for about 90 days. He couldn't do it. Now, he's trying to just get some small pieces of business and nobody wants to call him back. So let me just say, and I don't really have any line of questioning for the gentleman, but I commend you and your company, Mr. Bernhard, I'm familiar with your operation, people within your operation and I commend you for the work that you've done. Thank you, Mr. Chairman.

MR. BERNHARD: Thank you.

REP. DAVIS: Thank you very much.

Mr. Buyer, do you have any questions?

REP. BUYER: Yes, I do, Mr. Chairman.

Mr. Thornton, I want to thank you for the recommendations that you gave and we will forward those. This committee, we're chartered with trying to figure out the facts and what's going on and not to make judgments, but your recommendations about the contingency agreement on what to do in regard to future emergencies is well advised. I have some questions about this. This is new and different. I want you to dispel some of the rumors out there and I've had some questions to ask, I don't even know if they answered.

Mr. Chairman, were my questions answered by the first panel?

REP. DAVIS: Yes, they were. I did ask your questions of the first panel.

REP. BUYER: Mr. Thornton, the question with regard to whether or not in negotiations on the contacts whether Carnival Cruise Lines requested from the government to waive 10 years of fines, is that true or not true?

MR. THORNTON: Early on in the negotiations, the very first day, Thursday before we got too far into this and based really on our lack of knowledge of how this was going to work from a contracting standpoint, we sent general business terms of what we constructed as the deal to official at FEMA without contract price at that point in time, just general business terms, and we did include in that a waiver of Jones Act fines. But as we went forward with the contract and with the official contract with the MSC that provision was never pursued.

REP. BUYER: What is your outstanding Jones Act fines?

MR. THORNTON: I'm not aware of that number on top of my head, but I can get back to you with that.

REP. BUYER: It must be a pretty big number?

MR. THORNTON: Well, we've had a couple of incidents specifically in the New Orleans area related to the river being closed and having to terminate cruises and different ports that we've left from. They've all been because of catastrophic kind of events where, you know, we had to move ships and technically violate the Jones Act to accommodate really getting people on and off the ships.

REP. BUYER: I recognize that this is the first time that the government has turned to cruise lines in the case of an emergency and that you're feeling your way through the darkness here and dealing with Military Sealift Command, there's another allegation that's been made out there that the request for proposal was really tailored toward your company because only your ships could provide the on board pharmacy. Would you agree or disagree with that?

MR. THORNTON: No, I would disagree with that. Many of our competitors have on board pharmacy capabilities so that would not be a limiter.

REP. BUYER: Okay. This is an opportunity for you to clean the record too, okay.

MR. THORNTON: Okay.

REP. BUYER: I'm also rather curious on this position that the company took, because I understand, you know, the new responsibilities that Congress placed on publicly traded companies under Sarbanes-Oxley and the charge that the board of directors and officers have with regard to fiduciary duties and responsibilities to shareholders. So as you entered a contract with the government I understand your goal is to be made as whole as possible, but in your definition to remain as whole, I'd like to know a few things. On your cruise line you do gaming, do you not?

MR. THORNTON: Yes, we do.

REP. BUYER: So in your considerations on what to charge the government, did you take gaming profits into consideration?

MR. THORNTON: We took all of our profitability streams and normal operations into consideration, so, yes.

REP. BUYER: And for how long are these ships to be contracted for?

MR. THORNTON: We contracted for a six month charter period on the three ships with an option --

REP. BUYER: Six months?

MR. THORNTON: Six months, yes, with an optional three month extension. That's the MSC's total discussion.

REP. BUYER: What is the approximate gaming profits off your three ships over a six month period?

MR. THORNTON: I'm not really at liberty to answer that. We would consider that very proprietary information and varies from a competitor's standpoint, just something that we would not want to discuss openly.

REP. BUYER: So you can negotiate --

REP. DAVIS: I was just going to intervene, if the gentleman could yield for a second, I won't take his time.

But when you go to final audit with the government, would you disclose that to the government auditors at the time?

MR. THORNTON: Yes, we will.

REP. DAVIS: Go ahead, Mr. Buyer. I'm sorry, I just wanted to get the --

REP. BUYER: So six month contract on three ships and it can be extended for an additional three months?

MR. THORNTON: That's correct.

REP. BUYER: Your three ships.

MR. THORNTON: At the MSC's full discussion.

REP. BUYER: I recognize that Carnival Cruise Lines, this is pretty extraordinary that you had scheduled cruise vacations that in your testimony that you had to contact 120,000 customers, provided full refunds to them and commissions. You may have lost some of the customer base, but you were willing to step up to help, right?

MR. THORNTON: Yes, we were very closely following the situation and because we operated two ships out of New Orleans in particular, we operate ships in Mobile, we knew the region well and we were watching just the total devastation and we felt very strongly that it was a situation where we were in a position to help and we very much wanted to help.

REP. BUYER: It is a curious matter for me that you would place in written testimony saying to us that it should be remembered that the federal government sought us out. Now, in your previous statement, why would you then have to put that in writing? Why is that even in your testimony that I am to remember that we sought you out, if, in fact, the contract was negotiated in good faith to make you whole?

MR. THORNTON: There had been media speculation at various points in time that we had sought after this contract, that we had aggressively pursued this contract, so it was in an effort really to just clear the air on how the transaction really occurred.

REP. BUYER: What is the present capacity, do you know, on the three ships?

MR. THORNTON: Yes, as of October 31 on the Holiday we're running at 94 percent capacity and the Sensation and the Ecstasy are running in excess of 100 percent capacity and that's assuming obviously that there's more than two people in each cabin. So right now there's over 5800 people on the ships.

REP. BUYER: Do you know who these 5800 people are predominantly, where they come from, who are they?

MR. THORNTON: Yes, on the two ships out of New Orleans they're primarily police officers, firefighters, local relief effort, local officials and on the ship that's moved to Pascagoula, Mississippi right now, they're displaced families in large numbers.

REP. BUYER: Two ships in New Orleans are predominantly first responders for the city of New Orleans?

MR. THORNTON: Yes, firefighters, police officers and relief workers and the ship that's now currently in Pascagoula, Mississippi it's primarily displaced families.

REP. BUYER: All right. I yield back. Thank you.

REP. DAVIS: Thank you.

Mr. Jefferson.

REP. JEFFERSON: Thank you, Mr. Chairman.

I'm impressed by the testimony of everyone who has spoken today and particularly by Mr. Thornton and Mr. Bernhard because I know the operations down in Louisiana and I appreciate the service you're providing to our country.

I know that if -- I've had a chance to look at the testimony of each one of you and I've had a chance to listen to our chairman as he inquired earlier on and I'm not sure that everyone on this panel would have made the same choice as FEMA made, but this is FEMA's choice as to how it wanted to house people and all the rest of it, and you simply said if you want us to do this, here's what the circumstances are and FEMA said that's okay with us, we accept that.

So that's FEMA's decision and the result is that you're doing some pretty important things with our local first responders who wouldn't have a place to stay because they're victims of this whole catastrophe like the rest of us down there and many of them were without homes and their families were put out. And so to get them back into a position where they could actually provide services it was important to have some houses put up there and this was in FEMA's judgment the best way to get out there and I'm appreciative and thankful for providing the service to us.

I look forward to the time when you'll be out of the business and back in the cruise business, that means our state is going to be back on its feet and we'll have our tourists coming back and that's what I'm looking forward to. I appreciate the work that Jim Bernhard did to get our city as dry as he could get it and to get our folks with a chance to see a future there. So I think this is an example of folks who are trying to do their best, to do the right thing, and you're having to weather some criticism for it, but I think our chairman has cleared up some of the issues and I hope that your testimony cleared up others. But in any event, I appreciate the testimony of both of you and I thank you for your work you've done for our area. I don't have any questions.

MR. THORNTON: Thank you, because honestly that's one of the few times that we've really been thanked for the effort and we appreciate your comments.

REP. DAVIS: Does anyone else have any further questions of this panel?

Mr. Taylor.

REP. TAYLOR: Mr. Zimmerman, I was in the affected area and it really had very serious concerns in the first three or four days that we would run out of food. Also served with a number of my colleagues on the Armed Services Committee and I got to admit in the back of my mind I'm thinking what if the Koreans or the Iranians or fill in the blank use this opportunity to catch the Americans flat-footed and decided this is when they're going to start a war. You mentioned at the very tail end of your testimony that you think we need to make some changes for the future as far as stocking the goods. I'm just curious, what is your daily -- three shifts a day, what's your daily maximum output, hot meals or MREs?

MR. ZIMMERMAN: We can make and assemble and ship, three shifts a day, seven days a week, 75,000 meals a day.

REP. TAYLOR: And to the best of your knowledge, what kind of an inventory did our nation have on hand prior to the storm?

MR. ZIMMERMAN: Our government had I think around 3 million MREs on hand.

REP. TAYLOR: Is that DOD and FEMA or --

MR. ZIMMERMAN: Just FEMA, access inventory from last year's hurricane season. That's what I was told when I met with them in February.

REP. TAYLOR: And that was MREs and hot meals?

MR. ZIMMERMAN: MREs primarily, not Rs.

REP. TAYLOR: Okay. From the taxpayer point of view I know an MRE costs a citizen somewhere between 6 and 7 bucks. From the taxpayer point of view -- but I also know that about half the stuff in that package -- (is less expensive ?).

MR. ZIMMERMAN: (You really don't need ?).

REP. TAYLOR: Okay, give me a ball park?

MR. ZIMMERMAN: We're at $5.49.

REP. TAYLOR: Okay. Mr. Zimmerman, I'm going to give your policy a soft pitch. What change would you make to the plans with reference to your last couple of sentences of your statement? What do you think we as a nation ought to do to be better prepared for the next catastrophic event?

MR. ZIMMERMAN: I think you have to look at how many meals -- in a meal specific answer -- I think you have to look at the number of meals that actually were purchased and handed out and calculate into that your forecast for the severity of the upcoming season or the minimum number of households you'd have to feed three meals a days. You know, FEMA has a four day plan, a seven day plan, a lot of other plans. I have talked with them about being able to feed 500,000 people, you know, three meals a day for four days as an emergency basis before you're able to get kitchens and other institutions up and running. You know, that's what you really need to have on hand, minimum.

The unfortunate occurrence of these hurricanes hitting in a frequent and severe nature deplete the food supply pretty quickly, so you actually have to have a reserve so to speak, like DOD has a war reserve, that's equal to an annual consumption. Our meals are shelf life of two years, you know, MREs for three years, you know, so that it's not unbelievable that if you don't use them one year that you wouldn't use them the next.

REP. TAYLOR: Just as a matter of curiosity, did you ramp up production in the first weeks of September to meet the need, or did you have that in inventory?

MR. ZIMMERMAN: We did both. Actually we started in June. The Red Cross required inventory by June and as Dennis and Emily hit, we shipped meals into those markets prior to the hurricanes actually hitting the coast and then rebuilt that inventory within four days for the Red Cross. That type of response can be calculated on a national level. They may require additional distribution centers or additional companies to provide these types of meals, but I believe that's what really is going to be required in a regional basis in the unforeseen occurrence of non-man or man made disasters.

REP. TAYLOR: Okay. Thank you very much.

REP. DAVIS: Well, thank you very much. Let me just ask, are HeaterMeals priced the same across the board for FEMA, the Red Cross?

MR. ZIMMERMAN: Yes. We have a published wholesale price list and we are GSA contract.

REP. DAVIS: You were able to supply FEMA with 300,000 meals for Katrina relief. If they'd entered into the inventory management and automatic restocking program, how many meals would you have been able to provide?

MR. ZIMMERMAN: That's really up to them to decide. As I said, over the hurricane season we supplied the Red Cross with 1.5 million HeaterMeals.

REP. DAVIS: Okay.

Mr. Gerkens, when you say Landstar completed over 400 specific tasks, does that mean 400 task orders from DOT?

MR. GERKENS: Yes.

REP. DAVIS: Okay. And Landstar only acts on written task orders from DOT. In the aftermath of Katrina there were a lot of verbal requests made. Did you receive any non-written requests?

MR. GERKENS: We don't act unless it's a written request that we get faxed over and that's the way we operate.

REP. DAVIS: You can start to work on it, but you won't produce basically?

MR. GERKENS: We can start to look and source, but we really can't position anything until we've gotten that order.

REP. DAVIS: Were you given a written task order to deliver buses?

MR. GERKENS: Yes, we were.

REP. DAVIS: Did you receive a verbal task order prior to the written one, do you know?

MR. GERKENS: The timeline is really important to understand here. We got a heads up on Sunday, Sunday before the storm hit. We went into action and basically contacted a number of bus firms. We had no idea, there was no instruction for us, how many buses, where, when. We got the written task order at 2 am Wednesday, 2 am Wednesday. By 6.30 we had the first buses on the ground and, as I said in my testimony, we had 200 there in 24 hours and within a five day period actually we had 1000 buses.

REP. DAVIS: Okay. Did you encounter difficulties with being told to have buses in one location to discover they were needed somewhere else? Was there a logistical issue in terms of --

MR. GERKENS: We take the buses where they tell us to take them. In other words, if they say to be at mile marker X on a highway, that's where they were. And at that point in time they're under the authority of either FEMA personnel or the national guard.

REP. DAVIS: Let me ask everybody, was it difficult agreeing to terms or difficult finalizing agreements? Are there barriers at the end to getting these things finalized? Mr. Thornton, yours might have been the most difficult because it was kind of a new type of contract. We all know that anybody had ever entered into something like that. You hadn't, I don't think the government had.

MR. THORNTON: Yes, it was a very difficult process in a very condensed time and a very different kind of operation than we do in normal operation.

REP. DAVIS: How Mr. Bernhard, did you have any trouble finalizing?

MR. BERNHARD: If finalizing includes getting paid, yes.

REP. DAVIS: You're very generous. Did you have any pay agreements?

MR. BERNHARD: You know, we used to --

REP. DAVIS: Did they tell you that you were going to be --

MR. BERNHARD: Standard government rates, you know, we do a lot of federal contracting over a billion a year, so we know the acceptable rate. Let me address Congressman Taylor. The information is given to me from my colleagues that the tree removal is not included in the price we do for blue roof.

REP. TAYLOR: As a curiosity, there's now a hole in the roof, do you all do the frame, do you do plywood, or again is someone else expected to do that?

MR. BERNHARD: We would do all of that if that's required.

REP. TAYLOR: But no tree removal?

MR. BERNHARD: No tree removal.

REP. TAYLOR: Okay, thank you.

MR. BERNHARD: But on the side, I don't know -- not officially anyway.

REP. DAVIS: Mr. Gerkens, was there any difficulty finalizing agreements once you'd get them?

MR. GERKENS: The contract that we signed back in 2002?

REP. DAVIS: How about the task orders?

MR. GERKENS: The task orders. Task orders were coming in quite sporadically. I mean, there was a lot that -- the task would build up and it would be cut back, but really not an issue.

REP. DAVIS: Okay. Mr. Zimmerman, how about from your perspective?

MR. ZIMMERMAN: No.

REP. DAVIS: Okay. I'll just say that I know that any time you step forward in a crisis like this somebody is going to sit back and question. If there's any problems, in my judgment, having been involved in the name of business for many years prior to coming to Congress, you've got to look to the government procurement officers. They're the ones that at the end of the day negotiate the deal. And businesses are going to come forward in a competitive environment obviously. It's better for the government. You get more choices. But in the case of Carnival, they solicited literally dozens of different companies to come forward and I guess you and maybe one other company came forward, is that --

MR. THORNTON: Well, we think that there was 13 proposals submitted and they selected four ships, three of which were ours.

REP. DAVIS: I think if there are any problems there we need to look to the contracting officers and the people that were in the procurement environment. This is probably new to them and we'll probably look at that downstream. I know the auditors will look at that.

Mr. Bernhard, you're looking to having to advance a half -- how much money are you advancing on this so far?

MR. BERNHARD: I'm not sure yet.

REP. DAVIS: But you've had to keep paying people and buying the stuff.

MR. BERNHARD: We've paid some subcontractors, not all. You know, we're hopeful, that --

REP. DAVIS: How long can you hang on doing this?

MR. BERNHARD: Well, we heard it's in the mail, but I've heard that many times before.

REP. DAVIS: Okay. Any other comments anybody want to make? Thank you all very much. Thank you for your services as well. Let me just ask this. Will everyone commit providing names, contacts and details in conjunction with the negotiations with federal, state and local personnel if we ask you to get back to us on that? Any problem with that? Okay.

Thank you. The hearing is adjourned.

LOAD-DATE: November 8, 2005