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Whitefish’s No-Bid Puerto Rico Contract Spotlights Troubled FEMA Grants – Bloomberg

The federal agency paying for a controversial no-bid, $300 million contract to rebuild Puerto Rico’s power grid has for years received scathing reports from government auditors for how it oversees the management of similar grants.
 
Members of Congress from both parties have raised questions about the selection last week of Whitefish Energy Holdings LLC to lead the rebuilding of Puerto Rico’s hurricane-ravaged electrical grid. The two-year-old Montana-based company had just two employees prior to beginning its work in Puerto Rico.

The contract with the Puerto Rico Electric Power Authority is among the biggest yet awarded in the wake of Hurricane Maria, which slammed the U.S. territory Sept. 20 and knocked out electrical power. Prepa spokesman Carlos Monroig said Whitefish is getting paid through the Federal Emergency Management Agency.

A woman walks down a darkened street in Old San Juan neighborhood on Oct. 13.

The inspector general of FEMA’s parent agency, the Department of Homeland Security, has repeatedly criticized the agency for lax oversight of grants. The office frequently recommends that FEMA withhold or claw back payments that didn’t follow federal regulations.

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. 

Related: Puerto Rico Board Hires Manager to Oversee Damaged Utility

In June, Department of Homeland Security Inspector General John Roth sent a letter to the chairman of the Senate Committee on Homeland Security and Governmental Affairs, Ron Johnson. 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.

The 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 an interview Thursday. 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.

Earlier: Lawmakers Vow to Examine Puerto Rico’s Electricity Contract

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.

A spokeswoman for FEMA, 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.

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 announced 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.

Whitefish is based in Whitefish, Montana, the hometown of Interior Secretary Ryan Zinke. 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. 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.

The fact that Zinke and Techmanksi hail from the same Montana town is just 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.

Workers repair electrical infrastructure damaged from Hurricane Maria in Puerto Rico on Oct. 10.

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.

Related: Trump Tweet Hits Sore Spot: Puerto Rico Recovery’s Slow Pace

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?”

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 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.

Is Puerto Rico Part of U.S.? That’s Complicated: QuickTake Q&A

Whitefish’s No-Bid Puerto Rico Contract Spotlights Troubled FEMA Grants – Bloomberg

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