Sunday, April 6, 2008

Road Home subcontractors make hundreds of millions

While ICF International's expanding Road Home contract has led to high-profile inquiries and lots of hand-wringing, there are also three dozen subcontractors that have made hundreds of millions of dollars off the program.

Sixty-two percent of the $592.7 million the state paid ICF as of March 10 was spread among 38 other companies or nonprofits, 22 of them identified as having a base of operations in Louisiana. They do most of the legwork in the state's $10.3 billion Road Home effort and, according to ICF's latest projections, could end up collecting $569 million. That equates to 6 percent of the money Congress sent to Louisiana for homeowner relief.

"We haven't been looking at payments to and performance of the subcontractors," said David Greer, director of performance auditing under Legislative Auditor Steve Theriot. "Now, we'll be looking globally at the Road Home contract to see how services are delivered, and that will get us, partially at least, to the subs issue."

The state Office of Community Development provides monthly updates of subcontractor pay to the Joint Legislative Budget Committee, but the documents were released to The Times-Picayune for the first time last week.

They show that, as of March 10, three of the 33 for-profit subcontractors had made 56 percent of the money, while two of five nonprofits or educational institutions had yet to see a dime for services they provided homeowners.

Shaw top moneymaker

The recipient of the most money is the Shaw Group, whose founder and chairman Jim Bernhard once led the state Democratic Party and who was a leading contributor to former Gov. Kathleen Blanco, architect of the Road Home program. Shaw has collected $84.9 million of a contract projected in February to total $127.6 million, by far the largest of the bunch.

The Baton Rouge company is in charge of equipment and facilities, supporting the Road Home headquarters and 12 housing assistance centers, including one in Texas. The company also runs a call center in Baton Rouge that Shaw bought out when another subcontractor, West Telecommunications, threatened to move it out of state.

Sean Clancy, a spokesman for Shaw, declined to comment about Bernhard's ties to Blanco. He said Shaw is in the third and final phase of its work, has been paid on time and is in the process of closing facilities and scaling back its Road Home work force of 200.

"Shaw is proud of the work it did in the program and believes it helped a considerable number of Louisiana residents through its efforts," Clancy said.

The second-highest paid firm is First American, a financial services company based in Powtay, Calif., that has a Louisiana subsidiary title company. ICF hired it to do $109.3 million worth of title searches, Road Home closings and appraisals, according to a February projection of the contract's value. It has been paid $62.3 million so far but has seen its pay slow during the past year as it has been replaced as the appraisal coordination firm and its allocation of title work has declined.

First American has been largely supplanted by HGI Catastrophe Services, a tiny LaPlace company ICF originally hired for a minor contract but turned into the third-highest earner with no-bid change orders. HGI, a subsidiary of Hammerman & Gainer, was brought on to do about $8 million worth of home damage inspections but has already been paid seven times that much because lucrative appraisal and title work was tacked on to its existing contract last spring. The assignment of additional work came even though the firm has just three years of experience in title work and struggled to pay appraisers in a timely manner.

Hammerman & Gainer's owner, Larry Oney, also contributed to Blanco. A spokesman for Oney declined to comment this week, referring all questions to ICF spokeswoman Gentry Brann.

Subcontractors get bulk

Brann has said decisions about how to distribute closing work between First American, a giant of the industry, and HGI, a relatively unknown firm, change based on the flow of files. A third title company, Bayou Title of Gretna, also was added to the mix, getting a contract estimated in February to be worth $1 million but collecting nearly three times that by March 10.

First American, which early on promoted its ability to handle hundreds of files a day but later had to lay off employees because of a downturn in workload, declined to comment, citing a section of its contract forbidding it to do so.

ICF chose which subcontractors to hire, generally using open bidding processes, although at times -- as with HGI -- the state ordered ICF to sign emergency, no-bid contracts to increase program capacity. Some subcontractors, including Shaw and First American, were part of ICF's original bid package to the state when it sought the full Road Home contract.

Brann said that when ICF's Road Home contract ends in June 2009, the company expects to pay subcontractors about two-thirds of the money ICF gets from the state. The other third of Road Home revenue should stay with ICF, although Brann has said the company expects only 3 to 5 percent will be profit. The rest must pay for ICF's 850 employees, computer systems, office equipment, utilities and insurance, Brann said.

The company's most recent projection that the subcontracts will be worth $569 million indicates that ICF would max out its own $912 million contract.

ICF has said the $912 million is a cap and that it may not have to bill for that much, and Brann said Friday that some subcontractors are not expected to bill for as much as the original projections. State auditors and legislators say they are scouring the contract for ways to reduce costs.

K.C. King, a Road Home applicant who sits on the Louisiana Recovery Authority's housing task force and has 16 years' experience designing computer systems for Boeing, has often criticized ICF for not following best practices, particularly with disclosure to stakeholders. He said the subcontractor pay reports are a step in the right direction, but still do not tell the whole story.

"This ability to outsource tasks reflects well on ICF's overall ability to define and organize its work," King said. "What I don't see, of course, are the outsourcing rationales that show that it saves money."

Greer says that is precisely why he and his auditing team will be looking at subcontractor pay, to see if billing is justifiable and if it properly reflects the performance of each company.

Greer said he could not comment about the performance of any subcontractor until he has had more time to review their billing and work.

Some remain unpaid

On the flip side of the large subcontracts are nonprofits and educational institutions. The Loyola University Law Clinic was hired to provide mediation services for applicants having problems with their construction contractors. ACORN Housing Services got a $600,000 contract to help low-income homeowners work through the grant process. Neither has been paid, according to the March 10 report.

"Many of these relationships are relatively new," Brann said, adding that ICF is current in paying all invoices.

Loyola Law Clinic director Majeeda Snead declined to comment about the lack of payment.

ACORN's contract began six months ago and the nonprofit has worked with applicants and mortgage lenders to stop 86 foreclosures, helping modify the homeowners' loans so they can fix their homes and keep them, said Bruce Dorpalen, ACORN Housing Services' director of housing counseling in Philadelphia. He said ACORN has one outstanding invoice, but he attributes that to confusion about some of the contract terms.

"I'm OK with it because we had some contract issues to sort out," Dorpalen said. "I'm not ready to say it isn't working."

A third nonprofit, Easter Seals of Louisiana, was hired to help disabled hurricane victims get their grants. It collected a fraction of its $1.1 million contract before being dismissed in February.

Richard Phelps, a blind homeowner from Lafayette, said Easter Seals was helping him by reading documents to him and processing his application, but when the contract ended he was back to square one, dealing with call center employees who did not understand his limitations and often asked him to do things he had already done.

"Had they not broken that chain, I'm sure I would have gotten my issues resolved about the estimate on the roof repair. Easter Seals is very well known and highly regarded when it comes to disability issues, and I don't understand why they'd cut off the contract," he said.

Dan Underwood, chief executive officer of Easter Seals, said ICF gave no explanation for terminating the contract. But he said the work was marred from the beginning by the changing nature of the program and a lack of clarity from ICF about what services it wanted.

"They kept making everything a moving target," Underwood said. "These were very difficult people to contract with and difficult people to get money from for work performed and on a timely basis. It was common that they would short us on the bill, and the decisions would be arbitrary because one month a service was approved and next month it was denied."

Brann said Easter Seals has been paid in full for its work. ICF personnel and another subcontractor, EAD & Associates of Brooklyn, N.Y., are handling special needs services, she said.