A $6.68 million question for the Corps
Imagine you are a person, made of flesh and blood. You have hopes and dreams, likes and dislikes, needs and desires. Imagine further that you lived in the greater New Orleans area on August 29, 2005. Perhaps you lost your home, or your business, or worst of all, someone you loved. Before the levees failed you had a relationship of "protected" to the Corps of Engineers' "protector." Afterward, you struggled for months or years to return and then rebuild, and during that process you came to understand the Corps bore ultimate responsibility for your losses, since their storm protection failed well below their design limits. While you sweated, and cried, and laughed, and stressed through the rebuilding, you maybe - no, definitely - signed up for a class action lawsuit against the Corps.
As your personal recovery - and that of your neighbors and your city or parish - dragged on, you occasionally took note of the legal cases wending their way through the courts. Never was there talk of a global settlement; it was always the Corps fighting tooth and nail. Even when the head of the Corps, Carl Strock, admitted on June 1, 2006 they screwed up (but notably did not apologize), it didn't make a difference in the courts. Eventually all the cases died, leaving the Corps untouched. As a real flesh and blood person, you wondered how such a thing could happen.
Now imagine you are a person of a different sort - a corporation. Imagine further you're a corporation specializing in infrastructure construction with a lot of money coming in from government contracts. You too have hopes and dreams (beating analyst projections and having your patron agencies get large congressional appropriations), likes and dislikes (profits and costs), needs and desires (cash and more cash). Before the levee failures you had a similar relationship to the Corps as flesh and blood people. The Corps - and other federal agencies - protected you from the vicissitudes of the free market with a constant stream of contracts.
If you're big enough, the losses suffered by the unprotected human persons on August 29, 2005 turned out to be terrific opportunities to fulfill your desires. Unlike the flesh-and-bloods, your "recovery" began almost immediately, with four massive no-bid contracts going out two weeks after the levees failed. Those contracts got bigger and bigger, and if some of those millions of dollars were later deemed "wasteful," so be it. You stayed protected while you recovered.
So when - over four years after August 29, 2005 - another opportunity to enhance your "recovery" presented itself in the form of the permanent pumps project, you assumed you would remain safe under the watchful gaze of your protectors, the Corps. But when they inevitably screwed up and hurt you, you were sad. So like the flesh-and-bloods, you too went to court. But you're a better person than the puny humans, so of course you won. Repeatedly. And also unlike the flesh-and-bloods, the Corps felt bad about their mistakes and made up for your troubles in the form of taxpayers' cash. And you felt better and safe again.
Meanwhile the flesh and blood people again wondered how such a thing could happen. How could the Corps make mistakes that destroyed a city and its actual inhabitants, and not be found financially liable even a decade later, while when they made mistakes that harmed contractors' bottom lines, they chose to help out those contractors within months? Let's examine that.
First a little background...
The bid process for the permanent pump stations now under construction took place in two stages. In the first stage that ran from March, 2010 to June, 2010, anyone could submit a bid. At the end of that process, the Corps shortlisted five of the seven bidders (I know - not a very short list), who proceeded to the second stage where an eventual winner was chosen.
The five bidders chosen for the second round were:
This group included CDM Smith, Brasfield and Gorrie, and Yates Construction. According to Engineering News-Record, the three firms combined reported $3.1 billion in contracting revenue in 2011, the year the permanent pumps were originally awarded.
Bechtel partnered with New Orleans-area engineering firms Waldemar S. Nelson; Brown, Cunningham and Gannuch (aka "BCG"); N-Y Associates; and Eustis Engineering. During the bidding process, Bechtel had a website up at http://www.nops-pccp.com, but it went away after the contract was awarded. It's still visible at the Internet Archive.
Bechtel is the largest contractor in the nation, reporting over $25 billion in 2011 contracting revenue according to ENR. They are a behemoth astride the planet. Fun fact: they hired the head of the Corps at the time of the Federal Flood, Carl Strock.
PCCP Constructors is made up of Kiewit, Traylor Brothers, and the New Orleans-area based M.R. Pittman group. This is the same set of companies that made up the joint venture "Gulf Intracoastal Constructors," who had the prime contract for building the West Closure Complex. Kiewit and Traylor Brothers are national firms with a very large footprint. According to ENR, Kiewit - the number 3 contractor in the country in 2011, behind only Fluor and Bechtel - brought in $8.4 billion in contracting revenue that year, and Traylor Brothers generated an additional $470 million.
Louisiana Canal Constructors
"Louisiana Canal Constructors" appeared to be Alberici and Archer-Western (a subsidiary of Chicago-based Walsh Group), the same team that worked levee project LPV-111 along the Gulf Intracoastal Waterway in New Orleans East. Parsons was also involved. We know this because all three firms are listed on the Louisiana Secretary of State entry on LCC. Combined, Alberici and Parsons had just under $2 billion in contracting revenues in 2011.
Weston Solutions group
The Weston group also included design heavyweight HNTB. Weston brought in $338 million in 2011 contracting revenue
Altogether, the five bidders had over $39.2 billion in contracting revenue in 2011 alone. That is, all the bidders were national heavyweights used to going after huge projects, including two of the top three contractors in the country. They were used to getting their way.
A long and winding road
After almost a year of review and back and forth, the Corps made an initial $675 million award of the permanent pumps project to CBY in April, 2011. Nearly instantly, it was protested by two of the losing bidders - PCCP and Bechtel (Weston and LCC sat out the protest process). On a project this large, bid protests were almost a given. But the Corps didn't do themselves any favors. Through published rulings during the various protests, we learned a bunch about the inner workings of the bid process. Included in those documents were the following findings:
- A top civilian with intimate knowledge of the permanent pump project by virtue of being in charge of it, Richmond Kendrick, retired from the Corps and took a job with CBY during the bid process. The Corps - not an independent outsider - investigated themselves three times to determine whether there was a conflict of interest in Kendrick's move. Unsurprisingly, they exonerated themselves each time.
- The Corps review of the foundation engineering of the various bids appears to have been done with no engineering expertise whatsoever. A Corps witness at one bid protest hearing said the conversation about the bidders' foundation proposals took up no more than five minutes. More telling was the fact the Corps presented absolutely no contemporaneous documentary evidence at that protest hearing on how they arrived at their decision on who should get the job during their initial awarding. There were apparently no notes kept during the discussions, and the Corps could not come up with a structural engineer as a witness.
After a relatively brief protest process, and then a federal legal process that dragged on through the rest of 2011 and into 2012, the original award to CBY was thrown out and the bidding process restarted in May, 2012. This time, PCCP won in September, 2012. The new contract cost was revised downward to $629.5 million. This second award begat protests from CBY and Bechtel in October, 2012.
Now the good stuff
And this is where our story actually gets started. We know very little about what exactly happened after the September, 2012 award to PCCP. We can surmise there must have been deeper problems with the second round of bidding, because CBY's and Bechtel's October, 2012 protests resulted in the Corps very quickly agreeing to redo the bid process yet again, starting in November, 2012.
The activity in early 2013 is even murkier. All we know is that the Corps received yet another set of proposals from the bidders in February, 2013, and announced two months later that PCCP had won once again, albeit for a slightly smaller sum: $614 million. We'll get to the sequence of events surrounding the final award in a bit. But first some background on the dollars floating around this process before even the first shovel of dirt was turned.
Before the final award was announced in April, 2013, the Corps had already been paying bidders. Unmentioned in all the articles and press releases about the permanent pump project was a provision in the original solicitation which promised a $500,000 "stipend" to each of the bidders that made it to the second round but didn't win. Since there were five bids in the second round, and four of the bids would belong to the losers, $2 million total was promised to be sent out before construction began. However, that was not the only money transferred to bidders for non-construction reasons.
The Corps New Orleans District paid the legal costs for all the successful bid protests too. On January 15, 2013, the New Orleans District wrote a check for $244,179.06 to Bechtel (corrected downward on January 23 to $239,205.52 due to a clerical error). The Corps then cut another check, this time to PCCP (i.e. Kiewit) for $312,056.28 on February 23, 2013. And then they cut yet another check to PCCP - after awarding the $614 million contract to them - for more protest costs, this one for $134,679.27 on July 18, 2013. Altogether that's another $685,000 sent out to contracting firms as compensation for the Corps' errors, all before anything was built. To be clear, it appears successful protestors can file a claim to recover legal costs from protests, though the Corps is under no obligation to pay such costs, even if GAO recommends it (as they did for the 2011 round of protests). It is galling that the Corps chose to be more generous paying for their errors to well heeled contractors than to the hundreds of thousands of New Orleans, Jefferson, Plaquemines and St Bernard residents who suffered from much more significant mistakes in 2005.
That brings us to the very end of the bidding process. The chronology of the final award is of great interest, because it marks the high water mark of the Corps New Orleans District's largesse toward contractors. It's also typical of how the New Orleans District attempts to engage in image upkeep. So I've reconstructed the narrative after each bit of information was revealed, working from the most publicized chronology to the least publicized one.
Chronology 1, published in the Times-Picayune May 6, 2013
The official final contract award to PCCP Constructors came on April 17, 2013. The Corps announced it in a press release, and a corresponding article was written by the Times-Picayune's Mark Schleifstein.
On May 6, 2013, another Corps press release was issued announcing that the Corps had issued a Notice to Proceed to PCCP Constructors, the official green flag to start work. Schleifstein's companion article the same day had this to say about events between April 17 and that day:
"The Army Corps of Engineers has approved the start of construction of the $614.8 million permanent canal closures and pump stations at the mouths of the 17th Street, Orleans Avenue and London Avenue canals in New Orleans, after no objections were filed to the corps' April 17 award of the construction contract to PCCP Constructors... CBY and Bechtel had 10 days to appeal this latest corps contract decision."
Chronology 2, published by the Corps May 7, 2013
The next day, the Corps issued a much less noticed statement on the permanent pumps. In their May 7, 2013 Task Force Hope newsletter, they provided a chronology of the permanent pump bidding process. The next to last entry of that chronology reads,
"April 2013: Following the completion of corrective action procedures, the Corps reaffirms the award to PCCP JV, and their contract, previously awarded in Sept. 2012, is modified to incorporate the new PCCP JV Feb. 2013 revised proposal, and the sole Agency protest is voluntarily withdrawn."
[To clarify, there are two levels of protests bidders can file on contracts. They can go to the Government Accountability Office (GAO), which has a very formal, independent process and will publish notifications and decisions for all the public to see. Or they can also go to the Agency - the Corps in this case - where the protest is decided behind closed doors in a very informal process without any publication of results or even a notification a protest exists. In fact, even the protestors and other bidders themselves might be kept in the dark by the agency during an agency protest.]
This was the first indication there had been a protest of the final award, which contradicted the story given the Times-Picayune just one day earlier. Given the tenacity and infinitely deep pockets of the bidders throughout the two year long protest and rebid process, it seemed extremely unlikely one of them would "voluntarily" withdraw that same protest within days without receiving something in exchange.
Chronology 3, derived from FPDS-NG on August 1, 2013
We learned what that "something" was three months later. Due to the 90 day FPDS-NG publication hold on all Pentagon contracting actions, the public did not discover until early August that losing bidder Bechtel had been paid exactly $4 million on May 2, 2013, just four days before the Notice to Proceed was issued to PCCP Constructors. The description for the $4 million on FPDS was "PCCP Stipend Settlement for Unsuccessful Offeror." The use of the word "settlement" indicated something besides the standard $500,000 stipend was involved.
It seemed a good bet Bechtel was paid $3.5 million on top of their previously promised $500,000 in order to drop a protest, allowing the project to proceed more than three years after the original bid solicitation was issued. But without knowing what had happened with the other losing bidders, we could not confirm Bechtel was the bidder mentioned in the Corps May 7, 2013 newsletter who "voluntarily" withdrew a protest.
Chronology 4, derived from FPDS-NG on August 26, 2013
The final pieces of the puzzle were placed August 26, 2013, when the transactions from May 28, 2013 became public on FPDS-NG. Both CBY and Louisiana Canal Constructors had been paid their standard $500,000 stipends on May 28, 2013. With the already known information that Weston had gotten their $500,000 all the way back in January, 2012, this left Bechtel as the only firm that could have been the protestor. The only thing left was to get the documentation.
Which is what I did. It's here. The document confirms Bechtel was paid $4 million to "to settle and amicably resolve all differences, to avoid the uncertainties and expenses of litigation associated with the filing of its Agency Protest and any other litigation arising out of or related to the solicitation."
So, to summarize:
- The Corps appears to have withheld information from a reporter about how the final days of the permanent pumps bid process played out
- Then in their own newsletter, while revealing the protest, they claimed the firm (still unnamed) voluntarily dropped the protest without mentioning any recompense for the firm.
- Three months later the truth came out: It was largest U.S. contractor Bechtel that had protested, and the Corps had paid an extra $3.5 million above the standard $500,000 to make Bechtel drop its protest.
- In total, the Corps chose to pay out over $6.68 million in losing and winning bidders' protest costs, losing bidders' stipends, and losing bidders' settlement costs to companies whose combined annual contracting revenue was at least $39 billion.
For perspective on what $6.68 million can buy, each of the 54 rusting temporary pumps at the canals costs about $170,000 to refit for about two years' service. Given the Corps still has $3 million left in pump repair funds sitting unused, all of the existing pumps could have been made ready for the two extra years they must now serve with $6.68 million, with cash left over. Since the permanent pumps bid process took three years (two years longer than originally scheduled), that would have been the right thing to do to ensure proper storm protection. Instead, the Corps ensured contractor protection.
Did you think no one would notice?
Did you think no one would notice nearly $7 million going out to bidders on the permanent pumps project - over $6 million of it to losing bidders - to cover legal bills, bidding incentives, and payoffs to make some of them just go away? Did you not think such grandiose treatment of multibillion dollar contractors was distasteful in light of your fighting against any compensation for those hundreds of thousands of actual human beings harmed due to your monumental screwups in 2005? Or did you think you could just hide the whole thing?
The Times-Picayune's Mark Schleifstein wrote about this on July 22, 2015. Schleifstein got statements from Bechtel and the Corps. The Corps' statement was literally a copy-and-paste from the $4 million contract action, so that's useless. Bechtel's statement wasn't much better:
"Bechtel spokesman Warren Getler said Tuesday that the company challenged the award 'because of lingering concerns about the bid process.'
'Following discussion with the corps and to avoid further delay in this critical project, Bechtel accepted a stipend of $4,000,000, which included $500,000 for submitting a responsive bid and granting the corps the rights to all of Bechtel's work products in preparing its bid proposal,' Getler said in an email message responding to questions about the bid appeal.
Getler pointed out that a corps financial settlement with Bechtel was listed as one of a number of recommendations made by the Government Accountability Office in a 2011 report that recommended the corps throw out its first decision to award a $675 million contract to CBY Design Builders to build the pump stations.
'We also recommend that PCCP and Bechtel be reimbursed for the reasonable costs of filing and pursuing the protests, including reasonable attorneys' fees,' said the GAO opinion."
I call BS on Bechtel trying to characterize the $4 million as the same thing as the protest fee reimbursement. For one thing, Bechtel was already reimbursed $239,205.52 for those fees four months before the $4 million payoff. For another, the GAO caps the costs for legal fees at $150/hr. If we were to take Bechtel's statement at face value, this would mean Bechtel's lawyers had expended almost 27,000 hours on a protest which was filed on April 26, 2011 and decided 100 days later on August 4, 2011. That is, they would have had 11 attorneys working around the clock with no break for 100 days straight. Unlikely.
In an email exchange I had with Mr. Getler following the publication of the article, he did indeed backtrack from the linkage between the protest fees and the stipend:
"Thanks for asking for clarification on the reimbursement of legal fees. I did not mean to imply that the reimbursement was related to the $4 million stipend. As you know, it was a separate issue associated with the protest of the initial award of the contract. The reimbursement was recommended by the Government Accountability Office (GAO) in its decision sustaining Bechtel and PCCP’s protest."
When I asked for more detail regarding the $4 million payment, Mr. Getler demurred:
"Regarding Bechtel’s agency protest of the April 17, 2013, contract award, I don’t have anything to add to the information found in the government form that describes the terms of the stipend payment. If you have further questions, please direct them to the U.S. Army Corp [sic] of Engineers."
Finally, Schleifstein notes the most important detail: the extra $3.5 million came out of the money budgeted for the permanent pumps. Nice to know money meant to provide vital storm protection instead went to a multibillion dollar corporation that built no storm protection.
[end 7/24/15 update]
Overall, I think Jeffrey over at Library Chronicles put it best when reacting to all this:
"Maybe there's stuff going on that I don't quite get. That does happen on a regular basis. But I swear it looks here like Bechtel had been holding the city's safety hostage and the Corps finally decided just to pay the ransom. But, again, this is all complicated engineering stuff and maybe I don't quite get it."
I think he got it just right.