In a report made public on October 3, 2019, the U.S. Department of Defense (DoD) Office of Inspector General (OIG) announced that the U.S. Army Corps of Engineers (USACE or Corps) failed to properly monitor Puerto Rico power grid restoration contractors following Hurricane Maria, leading to more than $50 million in potentially unallowable claims. 1 During the Hurricane Maria emergency response, two USACE offices awarded a type of contract that fails to encourage contractors to keep their costs down, and then failed to properly monitor the labor costs claimed by contractors to ensure those invoices were accurate.
The USACE is a U.S. federal agency under the DoD and a major Army command made up of some 37,000 civilian and military personnel, making it one of the world’s largest public engineering, design, and construction management agencies. 2 One of the Corps’ main functions is to offer support to federal relief efforts following a disaster. The USACE’s federal response missions are aligned along three pillars:support to the Department of Defense, support to states using existing USACE authorities and funding, and support to FEMA. 3 Providing support to FEMA in Puerto Rico following Hurricane Maria comprised the majority of the Corps’ emergency response efforts in 2017. 4 On September 20, 2017, Hurricane Maria severely damaged Puerto Rico’s power grid and left nearly all of Puerto Rico’s 1.5 million electric customers without power. Two USACE offices – Huntsville and Jacksonville – became responsible for awarding and overseeing contracts in the disaster relief efforts. 5
USACE Huntsville awarded two time-and-materials contracts to one contractor for the repair and restoration of the Puerto Rico power grid. Contract W912DY-18-F-0003 (F-0003), awarded on October 15, 2017, was valued at $505.8 million. Contract W912DY-18-F-0032 (F-0032), awarded on December 1, 2017, was valued at $276.4 million.
USACE Jacksonville awarded a time‑and-materials contract to a second contractor for the repair and restoration of the Puerto Rico power grid. Contract W912EP‑18-C-0003 (C‑0003), awarded on October 18, 2017, was valued at $523 million following a contract modification in May 2018.
Office of Inspector General Audit
In its Audit Report, the OIG detailed the failures of the two responsible USACE offices, noting that despite “Federal and DoD guidance,” the Corps awarded time-and-materials contracts, which “are the least favorable government contract type because they provide no positive profit incentive to the contractor for cost control or labor efficiency.” Additionally, the Federal Acquisition Regulation requires appropriate government surveillance of contractor performance under time-and-materials contracts to give reasonable assurance that efficient methods and effective cost controls are being used by the contractor. 6 Furthermore, the Federal Acquisition Regulation states that a contractor is responsible for maintaining records and providing documentation in order to account for claimed costs. 7
Despite the guidance and regulations provided by the appropriate federal entities, “USACE Huntsville did not adequately monitor contractor labor hours worked or accurately review invoices to ensure contractor invoices corresponded to actual work performed on its two power grid repair and restoration contracts.” 8 As a result, USACE Huntsville was unable to determine “whether contractor labor costs paid on eleven invoices, valued at $258.9 million, were allowable in accordance with the terms of the contracts.” The OIG ultimately identified “at least $20.9 million paid by USACE that was unsupported and potentially unallowable.” 9
USACE Jacksonville also failed to abide by federal regulations as it did not “adequately monitor contractor labor hours worked or accurately review invoices to ensure contractor invoices corresponded to actual work performed on a third power grid repair and restoration contract.” 10
This negligence can be attributed to USACE Jacksonville omitting key and required elements from the time-and-materials contracts they awarded before approving payment invoices. As a result of this error in judgment, USACE Jacksonville “did not know whether contractor labor costs paid on seven invoices, valued at $61.3 million, were allowable in accordance with Federal regulations or terms of the contract.” 11 The OIG identified “$29.2 million paid by USACE that was unsupported and potentially unallowable.” 12
The USACE Commanding General defended his agency’s response to the Hurricane Maria disaster, stating that “the magnitude of the destruction, complexity of the mission, urgency for Federal action, and degree of human suffering could not be overstated, and that Hurricane Maria in Puerto Rico was not business as usual.” 13 While the OIG recognized the challenges Hurricane Maria presented to the USACE,it emphasized a need for better oversight and implementation in order to ensure the “proper use of taxpayer dollars” and prevent the “opportunities for fraud, abuse, and mismanagement” that disasters such as Hurricane Maria uniquely provide. 14
The OIG recommended that the USACE Commanding General “develop, implement, and require training on standard operating procedures for time-and-materials contracts,” in addition to reviewing the contracts awarded during Hurricane Maria to determine whether the contractors’ actions and costs billed can be accounted for and supported by the necessary documentation. 15 The OIG further expressed that it’s the USACE’s responsibility to seek help from the Defense Contract Audit Agency in order to recoup unallowable costs and reduce the costs of remaining contractual duties.
Issues Still Need To Be Addressed
While the USACE Commanding General agreed with the OIG’s recommendations, he only partially addressed them, meaning the recommendations are left unresolved.
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1 Audit of U.S. Army Corps of Engineers Oversight of Contracts for Repair and Restoration of the Electric Power Grid in Puerto Rico, DEPARTMENT OF DEFENSE OFFICE OF INSPECTOR GENERAL (2019), https://www.dodig.mil/reports.html/Article/1978684/audit-of-us-army-corps-of-engineers-oversight-of-contracts-for-repair-and-resto/.
3 Brig. Gen. Diana M. Holland, Responding to the Perfect Storm, ARMY UNIVERSITY PRESS (2019).
5 See Audit.