State Funding Agencies Freeze Payments to MWH in New Orleans

Despite a contentious rebuttal from the Nagin administration to the city Inspector General’s “scathing” report on construction giant MWH America's business practices in New Orleans, the state agency administrating the SRF loan and the state agency doling out FEMA reimbursements to local governments have halted MWH-related payments and begun tightening future loan disbursement rules and billing requirements.

This won’t help San Luis Obispo County Public Works in its all-out effort to select favored MWH to construct the Los Osos Wastewater Project, and could potentially reignite last year’s formal complaint to the County against MWH for similar charges previously rejected in their entirety by a defiant County Counsel.

New Orleans Mayor Nagin’s administration calls the Inspector General’s (IG’s) report on the city’s business relationship with MWH “flawed and incomplete,” but according to the Times-Picayune, some parts of the city’s rebuttal “don’t exactly align with the city's position.” Public confidence in city government and MWH’s pace of progress in rebuilding New Orleans from Hurricane Katrina is at a low point.

Despite the Nagin administration’s and MWH’s responses to the IG’s report, state administrators of the revolving loan fund suspended payments to MWH last month, according to the Times-Picayune, quoting a spokesman for the State Division of Administration, “in direct response to claims contained in a draft report by the city’s inspector general.”

State revolving fund administrators stopped reimbursements to MWH claiming that city officials used the state loan fund to pay MWH “without regard to whether expenditures will be reimbursed,” jeopardizing the flow of funds from the state loan and FEMA to the massive rebuilding effort.

New Orleans City Council members have also raised concerns, according to the Times-Picayune, “about whether payments to MWH and other project managers could deplete the loan fund, leaving City Hall without enough cash to maintain rebuilding progress.”

The state funding agency has, said the paper, “begun tightening regulations on how the fund can be used.”

The Times-Picayune also reported that the Governor's Office of Homeland Security and Emergency Preparedness (GOHSEP), the state agency that processes FEMA reimbursements to local governments for hurricane-related recovery projects, halted payments for the city's MWH-related costs in January. As a result of the IG’s report, city officials – and MWH -- will be required in the future to provide more detailed invoices and logs of project costs to be covered with state loan funds.

MWH is the only firm doing reconstruction work in New Orleans to have loan-fund payouts suspended by state officials, but, according to a GOHSEP spokesperson, “strengthening of their procedures and documentation, obviously that would apply to everybody.” Nevertheless, GOHSEP “has begun a special review of New Orleans' project management costs beyond its normal procedures,” according to a Times-Picayune source.

The IG’s report was also critical of the city for “using a controversial recovery management contract with MWH Americas to dole out no-bid deals to other firms.”

“In at least two instances,” the IG’s report stated, “the city procured services from other firms by instructing MWH to enter into subcontracts with the firms and act as a pass-through for billing purposes. This practice circumvents the requirement for competitive procurement of services through an advertised request for proposals.”

The 2007 deal with MWH resulted from the city’s search for a single person who would be paid $150,000 a year to oversee large capital projects, according to the IG. However, after four months of private negotiations with MWH, which was selected from among seven bidders, the firm landed “a major contract estimated at the time to be worth up to $48 million,” the report said.

In Louisiana, professional services contracts do not have to go to the lowest bidder, and in New Orleans the mayor has sole authority to issue contracts. “The city does not address the massive increase in the contract ceiling compared with the initial solicitation,” wrote the Times-Picayune last week. MWH addressed that point in simple terms in a memo stating that the city's request for proposals did not limit the contract to $150,000, (and had) “no cost estimate whatsoever." MWH said it will publicly address the IG’s findings within the allowed 30 business days.

The Nagin administration’s adversarial rebuttal to the IG’s report will do little to ease the high level of concern in Los Osos over MWH’s checkered history there and its inside track as top contender for both the construction of the collection system and treatment facility for the project. The County has never publicly explained how MWH came to be ranked #1 on its short list of builders competing for the two largest, multi-million-dollar contracts for the project -- even before all options had been considered.

A formal complaint against MWH and Public Works Director Paavo Ogren, filed by former LOCSD president Lisa Schicker in March and April 2009, was summarily dismissed by County Counsel Warren Jensen who found the complaint – hundreds of pages -- without any merit whatsoever.

However, when the Times-Picayune released the IG’s draft report last month, citing MWH for excessive billing among other concerns, Schicker’s year-old complaint gained new relevance in Los Osos.

Said Schicker in a recent email, “In Los Osos, as a board member investigating suspicious early payments from the federal SRF loan to MWH -- this is the same program involved in payment to MWH in New Orleans -- I discovered that MWH collected money before submitting proper invoices to the SRF and State. This was included in the materials that I submitted to County in 2009, asking for an investigation, and almost identical to the New Orleans finding by the IG.”

Schicker, denigrated by the County Board of Supervisors (BOS) when she brought up similar charges last year, has been encouraged by the revelations in New Orleans, which, for the first time, are shedding light on MWH’s suspicious business practices from coast to coast. In turn this could lend some fresh credence – and new life -- to Schicker’s discredited claims.

“I plan to encourage our BOS to address this serious matter as soon as possible,” Schicker said, “as it directly relates to the improper contract procurement process that occurred last year with this same firm.”

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