FEMA contractors in Puerto Rico have steep markups
SAN JUAN, Puerto Rico — Juan Rodríguez had substantial damage to his house in northeastern Puerto Rico after Hurricane Maria slammed through in September 2017, but he felt better when he was told that the Federal Emergency Management Agency would pay for $5,000 in repairs.
The contractor hired by Puerto Rico’s FEMA-financed housing recovery program treated the roof with sealant, replaced 4 feet of cabinets and installed smoke detectors around his house with Velcro.
“I looked around and said, ‘Wait a minute, that treatment costs $100, and I can buy those cabinets for $500,’ ” Rodríguez said. “I know. I worked construction. Let’s say they did $2,000 worth of work, because prices are high now and you have to pay for labor. But $5,000?”
Rodríguez was not the only homeowner who complained after the devastating storm — the worst to hit Puerto Rico in 89 years — that federal taxpayers were being charged far more for emergency home repairs than residents ever saw in improvements to their homes.
Extravagant markups, overhead and multiple levels of middlemen have helped lead to huge costs in the FEMA-financed repair program. Known as Tu Hogar Renace — Your Home Reborn — the program is spending $1.2 billion in Puerto Rico to repair up to 120,000 homes.
More than 60 percent of what FEMA is spending in the program, the largest emergency housing program in the agency’s history, is not paying for roofs, windows or doors, the New York Times found in a review of its expenditures. Instead, it is going toward overhead, profit and steep markups.
Homeowners, who were approved for up to $20,000 each in aid, in nearly every case received less than half of what they were approved for, while layers of contractors and middlemen took the rest, a review of hundreds of invoices and contracts associated with the program shows.
The significant costs of transportation, warehousing, insurance and other services that are built into the prices for repairs are not unusual for FEMA disaster relief programs, which reflect the substantial expense of operating in disaster zones. But in Puerto Rico those costs were often so much greater than what would have been possible if homeowners had done the work themselves that they caused a public uproar.
A local opposition legislator, Luis Vega Ramos, called the housing program, which is operated by the Puerto Rico Department of Housing with FEMA funding, a mixture of “incompetence and corruption.” He called for federal investigators to examine the contracts awarded to repair companies to make sure the government was getting what it paid for.
“The government’s responsibility is to watch out, to be custodians of the proper and effective use of those funds,” he said. “I don’t understand why they need to pay hundreds of millions of those dollars to middlemen who turn around and permit overpricing.”
The pricing issues and widespread complaints of long waits and shoddy work highlight the challenges of managing a billiondollar disaster aid program in a region that is far from the mainland, with institutions that historically have had limited outside oversight or accountability.
Puerto Rico housing officials said they were proud of the repair program and that prices were in many cases less than those paid in other disasters, including repairs after hurricanes Irma and Maria hit the Virgin Islands, which have similar transport challenges.
Michael Byrne, FEMA’s federal coordinating officer for Puerto Rico, said the housing department had done an impressive job of getting homes repaired quickly for people who had nowhere else to turn.
“By the end of November, I fully expect them to have repaired about 120,000 homes,” Byrne said. “That’s pretty impressive.”
Records show a large gap between the amounts FEMA contractors hired by the Department of Housing were paid and the actual cost of the work that was ultimately performed. Across the board, from removing debris and cleaning mold to repairing roofs and installing appliances, the amounts for labor and materials that were paid to the people who actually performed the work were only about 40 percent of what FEMA was assessed, meaning homeowners got less help than many of them expected.
In case after case, a door worth about $50 would be billed to FEMA at perhaps $700, with a succession of intermediary contractors passing along costs and profits along the way, according to María Elena Villalobos, who worked as both an inspector and an administrator for several companies in the housing repair program.
“A lot of the money went down the drain,” Villalobos said.
The Tu Hogar Renace program was intended for homes that were not damaged enough to be considered destroyed, and could be made habitable with relatively quick remedies like roof repairs, electrical work and the replacement of doors and windows, sinks, toilets and appliances.
The housing department hired seven major contractors to do the repair work and two more firms to manage the program. The job was so expansive and the timeline so tight that the companies hired subcontractors, who in turn hired smaller companies to carry out the actual repairs.
The private company that received a separate $202 million contract to manage the overall Tu Hogar Renace program, Adjusters International, was itself run by a former senior FEMA official, Daniel Craig, who worked at the agency during the Bush administration and was the Trump administration’s nominee to be deputy director of FEMA last year. He was forced to withdraw after the Project on Government Oversight let some members of Congress know that the inspector general’s office had investigated Craig for going on job interviews with companies that had received no-bid contracts after Hurricane Katrina.
The investigation found no evidence of wrongdoing, but Vega, the Puerto Rican opposition legislator, questioned how Craig’s company had come to be selected to run the program. Adjusters International was chosen by the housing department after a bidding process.
Craig, in an interview, said his company won the contract as a result of its capabilities, not because of any past connections to FEMA.