Cashing In On The Katrina Cleanup
The Mississippi Choctaw Indians are looking for another way to work Washington -- this time, through the Pentagon. You remember the Choctaws: The wealthy tribe got national notice last year as one of Jack Abramoff's biggest clients, paying the disgraced Republican lobbyist and his business partners more than $27.6 million to sway lawmakers on gaming issues. In Abramoff's recent plea agreement, he admitted to bribing members of Congress by funneling millions from the Choctaws and other tribes through charities.
Now the Choctaws are poised to receive a $300 million no-bid federal contract for post-Katrina cleanup in Mississippi. They are bereft of Abramoff's counsel: He was sentenced on Mar. 29 to nearly six years in prison and faces up to 30 more years for the charges involving the Choctaws. Yet the tribe has capitalized on contracting laws that favor Native Americans and on Congress' political pressure to steer Hurricane Katrina cleanup cash to home state companies. According to e-mails and documents reviewed by BusinessWeek, top Republicans led by Mississippi Senator Trent Lott have been leaning on the Army Corps of Engineers to replace AshBritt Inc., the big cleanup contractor based in Pompano Beach, Fla., with smaller home state firms.
The Corps thinks it has found the answer: IKBI Inc., the Choctaws' federal contracting subsidiary. A wrinkle in federal procurement rules designed to help Native Americans lets the Army forgo the usual competitive bidding process to award all $300 million in work to the Choctaws as a sole-source contract.
The downside? The Choctaws' new contracting company has just seven employees and has never won a federal contract, according to the Small Business Administration. What's more, IKBI plans to subcontract much of the work to a large white-owned outfit in Tennessee.
Neither the Choctaws nor IKBI would comment for this story. The tribe is one of Mississippi's largest employers, operating casinos and other businesses, including a company that makes automotive wiring for Ford Motor (F ) Co. The Choctaws are the second-largest donor to federal campaigns among Indian tribes. But their direct gifts to Lott, $27,000 since 1999, are relatively small.
Controversy has clouded the federal cleanup ever since Katrina and Rita landed their one-two punch on the Gulf Coast. Mississippi politicians were quick to criticize AshBritt, a company with ties to the Bush Administration and Mississippi Governor Haley Barbour's former lobbying firm, which won a $500 million emergency job to remove debris in the state.
Mississippi lawmakers, led by Lott and Representative Charles W. Pickering Jr. (R-Miss.), urged federal agencies to steer money to in-state companies. Some 72% of AshBritt's subcontractors are based in Mississippi. But less than 6% of the prime contracts had gone to local firms.
Steering the prime contracts to in-state companies helps lawmakers in two ways. First, prime contractors make more money. "The difference in profit between the prime contractor and subcontractor is significant," said Brian Perry, spokesman for Pickering. Neither AshBritt nor the Corps would discuss the company's profits. But Pickering's staff estimates that AshBritt's profit margin could be as much as 25% -- money that an in-state contractor could keep. Second, subcontracts don't reap the same attention as prime contracts.
The Corps began looking for ways to rebid AshBritt's contract soon after it was awarded in September. E-mails between the Pentagon and the Engineering Corps' contracting office in Vicksburg, Miss., cited intense pressure from local lawmakers. Colonel Norbert Doyle, the Corps' top contracting official, noted in an Oct. 20 e-mail, "The [Mississippi] staffers raked us over the coals."
The Army decided to pursue an aggressive plan to cut out AshBritt and divert the remaining Mississippi cleanup money to local outfits. "The reason we are separating it out is because of the political pressure to get rid of the 'big' out-of-state contractors and award contracts to smaller firms," a top procurement officer told Doyle in an e-mail dated Oct. 25.
The Corps dusted off a little-used law called the Stafford Act to prohibit out-of-state contractors from bidding. AshBritt CEO Randy Perkins filed a legal challenge. "This procurement in itself was nothing but charades," Perkins says. The Government Accountability Office rejected AshBritt's protest on Mar. 20; the company plans to appeal. But under special rules for companies owned by tribes, the Corps can place a contract of any size with IKBI without competitive bidding. It created a so-called bridge contract worth up to $300 million for IKBI, according to sources familiar with the contract.
Indian-owned companies can place the work -- and the money -- with whatever subcontractors they want. Knoxville-based Phillips & Jordan Inc. confirms that it is the lead subcontractor on IKBI's bid. Corps officials note that no contract has yet been awarded. "Right now we're trying to figure out what our options are," says Corps spokesman Michael Logue. He wouldn't confirm or deny that IKBI is the leading contender.
The Mississippi companies hired by AshBritt to do the actual cleanup work expect to be bumped. "This Indian company is just going to sub the whole contract to an outsider, which defeats the whole purpose," said Richard Rula, president of Hemphill Construction Inc. in Florence, Miss. "Out-of-state is out-of-state, last time I checked."
By Dawn Kopecki, with Eamon Javers in Washington