(Bloomberg) -- The Federal Emergency Management Agency is investigating a controversial $300 million contract to rebuild Puerto Rico’s power grid, a no-bid award that has spotlighted the agency’s poor record of policing similar grants and drawn scrutiny from its watchdog.
Whitefish Energy Holdings LLC, a Montana-based company that had just two full-time employees prior to beginning its work in Puerto Rico, was selected last week by the Puerto Rico Electric Power Authority to lead the rebuilding of Puerto Rico’s hurricane-ravaged electrical grid with the expectation that the money would come from FEMA.
“FEMA has significant concerns with how PREPA procured this contract and has not confirmed whether the contract prices are reasonable,” FEMA said in a statement Friday, noting that it hasn’t reimbursed Puerto Rico yet for the contract and that it can withhold payments procurement procedures aren’t followed.
Meanwhile, the office of inspector general of FEMA’s parent agency, the Department of Homeland Security, says it is investigating the contract.
“We plan to cooperate with any and all information requests,” Whitefish said in a statement released Friday. “We are very proud of the work we are doing to restore power to the people of Puerto Rico under very difficult circumstances, and we respectfully ask that others await the facts before jumping to misinformed conclusions.”
The inspector general’s office has repeatedly criticized FEMA for lax oversight of grants. The office frequently recommends that FEMA withhold or claw back payments that didn’t follow federal regulations, Bloomberg News reported Thursday.
Earlier: San Juan Mayor Wants $300m No-Bid Power Repair Contract Voided
In June, Inspector General John Roth sent a letter to the chairman of the Senate Committee on Homeland Security and Governmental Affairs, Ron Johnson of Wisconsin. That letter, which hasn’t previously been reported, warned of FEMA’s “continued failure to manage disaster relief funds adequately."
Almost one-third of the grants reviewed by Roth’s office were improper, unauthorized or otherwise problematic, indicating “the potential for a much larger problem" with the $10 billion in such assistance that FEMA typically awards each year, Roth wrote.
Johnson’s office didn’t respond to requests for comment.
Roth, in an interview Thursday, said congress had taken no action on the warnings. That may change as a result of the Whitefish controversy. Democratic Representatives Peter DeFazio, of Oregon, and Raul Grijalva of Arizona, asked Roth on Friday to examine FEMA’s role in the contract, whether the costs are reasonable and appropriate, and whether there was any "political consideration" involved.
Whitefish is based in Whitefish, Montana, hometown of Interior Secretary Ryan Zinke. In an interview earlier this month, Andy Techmanski, Whitefish’s chief executive officer, said he knew Zinke but said the cabinet member had no role in the company or its work in Puerto Rico. Neither Zinke nor anyone in his office have met with or taken action on behalf of the company and played no role in the contract, a department spokesman said.
Related: House Committee Requests Whitefish Documents from Puerto Rico
The fact that Zinke and Techmanski hail from the same Montana town is a “coincidence," Chris Chiames, a recently hired Whitefish spokesman, said in a phone interview from Puerto Rico. He said Techmanski forged a relationship with the Puerto Rican utility while visiting the island on vacation before Maria struck.
White House Press Secretary Sarah Sanders said Zinke assured President Donald Trump in a meeting Friday that he had no role in the selection of Whitefish. "This was a state and local decision made by the Puerto Rico authorities," she said during a press briefing.
Zinke tweeted on Friday that he “had absolutely nothing to do with Whitefish Energy receiving a contract in Puerto Rico. I welcome all investigations into the allegations.”
He said he was contacted by the company after the contract was awarded, but that he “took no action.” In a statement, Zinke said that “only in elitist Washington, D.C., would being from a small town be considered a crime.”
Among Whitefish’s investors is the Dallas-based HBC Investments LLC. Joseph Colonnetta, founding and general partner of HBC, is a backer of President Donald Trump. Colonnetta donated $5,400 to Trump’s campaign and $14,600 to the Republican National Committee via a joint fundraising vehicle, Trump Victory, set up to raise money from big donors. In December, Colonnetta gave another $16,100 to the RNC, while his wife, Kimberly Colonnetta, donated $33,400 on the same day, according to Federal Election Commission records.
The inspector general’s office will look for "the presence of inappropriate relationships" as it reviews the contract, said Arlen Morales, a spokeswoman.
The Whitefish contract is among the biggest yet awarded in the wake of Hurricane Maria, which slammed the U.S. territory on Sept. 20 and knocked out electrical power. Prepa spokesman Carlos Monroig said Whitefish was expected to be paid through the Federal Emergency Management Agency.
FEMA oversees a vast web of disaster relief work: in September, there was $68 billion of ongoing FEMA grants spread across 653,000 projects, and multiple audits and reports by the inspector general show a pattern of problems in how these funds were being spent.
Earlier: Puerto Rico Board Hires Manager to Oversee Damaged Utility
The June letter was the result of “a frustration in our lack of progress in getting FEMA or Congress to pay attention to this,” Roth said in the interview. The trigger, he said, was FEMA’s decision to give $2.1 billion in grant money to New Orleans, ostensibly to help it recover from hurricanes Katrina and Rita -- more than a decade after the fact.
An audit by the inspector general concluded that FEMA shouldn’t have awarded the grants because it was for rebuilding streets and water lines that were degraded by years of neglect, not the hurricanes. FEMA, the inspector general concluded in July, should halt or “disallow” all funding for the work in New Orleans.
FEMA, for its part, disagreed with the finding, arguing that extensive reviews showed the work would repair damage caused by the storms.
FEMA spokeswoman Jenny Burke said in an email Thursday that the agency “appreciates the insights and candid recommendations” from the inspector general, and that FEMA has taken steps to improve its grant management. She called the instances where the agency disputed the inspector general’s recommendations “rare."
“As with any relationship involving honest dialogue, there may on occasion be genuine disagreements," Burke said. “In every case, however, FEMA strives to make decisions based on the totality of all available information."
In the June letter, Roth painted the picture of an agency that is fundamentally unable to manage grant money, because of “both cultural and structural" problems.
For fiscal year 2015, which the inspector general called representative, 29 percent of the FEMA grants audited by his office showed problems such as “duplicated payments, unsupported costs, improper contract costs, and unauthorized expenditures."
Since then, audits have found flaws in multiple FEMA-funded projects, large and small. In June, for example, the inspector general recommended FEMA disallow funding for almost half the $3.2 million it approved for Hays County, Texas, to cover damage caused by severe storms and flooding in 2015. The audit found the county secured FEMA funding to remove 20 times as much debris as it actually needed to collect, and didn’t follow federal guidelines for other contracts. FEMA agreed with the findings.
Earlier: Lawmakers Vow to Examine Puerto Rico’s Electricity Contract
In September, the inspector general warned of a lack of basic controls in the $1 billion that FEMA expects to give Texas for temporary housing for victims of Hurricane Harvey. “We are concerned that without adequate controls in place the Federal funds may be at risk of fraud, waste, and abuse," states the Sept. 29 “Management Alert" report from the inspector general.
Puerto Rico’s federal oversight board said Wednesday it is appointing an emergency manager to run the island’s government-owned electric utility after complaints about the Whitefish contract and slow progress getting power restored. Prepa filed for bankruptcy in July after the federal board rejected a $9 billion debt-restructuring deal with Prepa’s creditors.
Prepa’s hiring of Whitefish contrasted with recovery efforts in the wake of other recent hurricanes, where utilities in Texas and Florida tapped into a mutual assistance network of other major utility companies.
After San Juan’s mayor raised questions about the contract, Whitefish fired back with a statement on Twitter, saying the mayor’s frustration was “misplaced” and noted that it has people on the island “doing work when others are not even here.”
“We’ve got 44 linemen rebuilding power lines in your city & 40 more men just arrived," the company wrote. "Do you want us to send them back or keep working?”
The inspector general’s June warning about FEMA contracting preceded a period of record spending for the agency. In September alone, the latest period for which it has released data about grant awards, FEMA obligated $6.7 billion from its Disaster Relief Fund. That’s almost as much as it awarded in the previous 12 months together, and more than it has awarded in a single month in at least five years, according to a review of FEMA records.
The letter also warned that FEMA has failed to use its authority to withhold or claw back grant awards to states and other grant recipients when they don’t follow the rules. During the six years ending in 2014, the inspector general’s office found that $352 million in FEMA grant costs didn’t follow federal procurement regulations. Nonetheless, FEMA waived its right to block those payments, reimbursing 91 percent of the costs anyway.
“FEMA’s wholesale, near blanket use of its waiver authority is one reason the questioned cost rate remains unacceptably high year after year," Roth wrote.
Congress has taken no action to address the concerns raised in the letter, according to Roth. “I haven’t seen any legislation or oversight," he said. FEMA has likewise taken no action, he said, adding that it’s too late to expect change for this hurricane season.
“Now FEMA is up to its ears in response activities," Roth said. “The time to fix the roof is when it’s not raining."
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