MWH Accused of Overcharging in New Orleans – Is Los Osos the Next Victim, Again?

Los Osos has been compared before to New Orleans, and Los Osos’ historical lack of infrastructure to a man-made Hurricane Katrina. Los Osos has also been compared to New Orleans because of San Luis Obispo County’s long track record of government corruption and New Orleans’ legendary and lingering struggles with it. Now the twin disasters have something else in common that ties them and all the corruption that envelops them together: MWH.

According to The Associated Press and The New Orleans Times-Picayune, an internal draft review by the city of New Orleans’ Inspector General has accused engineering giant MWH Americas Inc. – hired by the city to oversee large-scale reconstruction of city buildings and infrastructure damaged in 2005 by Hurricane Katrina – of overbilling the city for theater tickets and a flight to Las Vegas and seeking reimbursement for what The AP called “questionable expenses” such as Christmas presents and the rental of a corporate apartment, among other items “with no apparent connection to New Orleans,” the Inspector General said.

City employees and elected officials may have violated ethics laws by accepting gifts or meals from MWH, according to the report.

The Inspector General’s report declared that “the flawed contract with MWH Americas Inc. has hurt the city’s recovery” and places blame on both MWH and city officials for overpaying MWH through an onerous contract and escalating costs that, according to the internal report, “will have profound consequences for the recovery program.”

In its exclusive article on the internal draft report, which has yet to be reviewed by the city, The Times-Picayune called MWH “controversial” and the procurement process that led to its hiring “bizarre… exposing major flaws with the MWH deal.”

“MWH has racked up fees far faster than its rate of progress on capital projects,” wrote The Times-Picayune on March 1o, “(having) billed for approximately 118% of the actual value of its work, through July (2009), accounting for nearly $3 million in billing overages.”

A New Orleans college professor accused engineering giant MWH of practicing “disaster capitalism” and the city’s loaded contract favoring MWH new evidence of post-Katrina profiteering.

The report also criticized the city’s process of selecting MWH. According to The AP, the report found the city “didn’t give other firms a fair shot and gave the company excessively favorable contract terms.” The Times-Picayune characterized the report’s view of MWH’s rebuilding contract as “a privatized … arrangement” that, said the article, “included developing city policies, project planning, procurement and contract management.”

Among other perks, their contract with the city allows MWH to add 23% onto the cost of expenses, which, according to The Times-Picayune, “by June 30, 2009, accounted for nearly $250,000 of $1.3 million in billed expenses.”

According to the report, as of February 2010, MWH had already been paid $29 million and billed the city for $36 million.  

For the past year Los Osos citizens have been trying to call San Luis Obispo County Supervisors’ attention to MWH’s “red-flag” business practices in Cape Coral, Florida, and New Orleans, as well as to MWH’s prior dubious history in Los Osos, where a complaint was filed against them by the Los Osos Community Services District for overbilling and false billing in 2005.  (The pro-County LOCSD recently settled the complaint to clear the way for MWH’s selection by the County.)

Former LOCSD president Lisa Schicker filed a formal complaint against MWH bid-rigging practices last March and tried to warn the recalcitrant Board of Supervisors to leave MWH out of the Los Osos Wastewater Project, only to be kicked to the curb along with her documentation. The Board of Supervisors continues to stand unanimously behind Public Works’ top choice, despite the County’s costly practice of sole-sourcing to companies connected by a small circle of former and current County and MWH employees charged with selecting the contractors for the $165 million Los Osos Wastewater Project – and despite MWH’s freshly exposed history as a powerful inside operator for whom overcharging by the millions is standard business practice.

MWH is the No. 1 firm on the County’s two short lists – for collection system and treatment facility – for the excessively overpriced Los Osos Wastewater Project, and has been defended and promoted in public by San Luis Obispo Public Works Director Paavo Ogren, who himself has been the target of conflict of interest charges involving MWH that were quickly discredited and quashed by the County as 100% baseless.

The total amount overbilled by MWH in New Orleans was not disclosed. In addition to overbilling the city for theater tickets and a flight from Salt Lake City to Las Vegas., some of the gray-area expenses for which MWH has sought reimbursement include, according to the report, $93,289 for telecommunications services (and) gifts for city employees “with no apparent connection to New Orleans,” said the Inspector General. MWH business cards, polo shirts and memberships in professional organizations were also billed. The report also stated, according to The AP, that “the company reimbursed the city $3,646 for gift and meal expenses.”

In the 28-page draft report, first made public March 11 by The Times-Picayune, New Orleans’ Inspector General recommends ditching the city’s two-year-old contract with the Broomfield, Colorado-based firm and seeking a new management services contract that includes “terms that protect the city’s interest and provide incentives for containing costs.” He also advises ethics training for all city employees and elected officials.

MWH was hired in New Orleans in December 2007 to manage the extensive rebuilding of city infrastructure following the storm and destruction. MWH was selected from among seven final bidders – after months of private negotiations between the city and the firm -- and awarded “a major contract estimated at the time to be worth up to $48 million,” said the report. After MWH was awarded the contract, the Inspector General found the city “improperly” paid MWH employees almost $48,000 – up to $275 an hour for some workers – f or negotiating their contract with the city.

Under the contract, MWH could claim 8% of the total design and construction costs. Based on city and MWH projected costs as high as $600 million, the contract allowed MWH to bill up to $48 million. The Inspector General called those projections “unrealistically high.” By late 2007, city officials only expected to receive about $315 million in rebuilding funds from FEMA, bond sales and other sources, and 8% of $315 million is about $25 million, or about $11 million less than what MWH has already billed the city. The city's former capital projects administrator had previously told top city aides that excessive billing and payments to MWH could reduce the amount of state loan funding to pay for construction and, the report concurs, “could jeopardize FEMA reimbursement ... by prohibited compensation terms in the contract."

According to The AP, Gary Clark, a professor of politics at Dillard University in New Orleans, referred to MWH as a new breed of profiteer. "There is a whole area called disaster capitalism: There are entire groups that accrue wealth through natural disasters. It's taking place in Haiti, it's taking place in Chile, and it took place here," he told The AP.

The slow progress of the city's rebuilding program has angered residents and was a major issue in the New Orleans’ mayoral campaign and last month’s election.

The Inspector General “cited a host of other problems” with MWH contract terms, according to The Times-Picayune. To read The Times-Picayune news articles about the Inspector General’s report on MWH, along with details of MWH’s long history with the city, click here:

http://www.nola.com/politics/index.ssf/2010/03/recovery_oversight_contract_al.html

http://www.nola.com/politics/index.ssf/2010/03/capital_projects_director_left.html

To read the Inspector General's draft report on New Orleans' contract with MWH, click here:

http://media.nola.com/politics/other/oigdraft.pdf

This report is a digest of Los Osos-related news gathered from articles that recently appeared in The New Orleans Times-Picayune, USA Today and Huffingtonpost.com.