$3,700 Generators and $666 Sinks: FEMA Contractors Charged Steep Markups on Puerto Rico Repairs

SAN JUAN, P.R. — Juan F. 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 billion-dollar 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 A. 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. Contracts establishing prices for goods and services were not within the scope of his company’s management oversight, but were handled directly by the housing department, he said.

Craig’s company was not the only one with connections. One of the seven major contractors doing the repairs for Tu Hogar Renace — Excel Construction, based in Baton Rouge, Louisiana — donated $100,000 in 2016 to Trump Victory, a joint fundraising committee set up by the Trump campaign and the Republican National Committee. The bureaucracy around the housing repairs was so complex that the first repairs did not begin until more than five months after the hurricane. A full year after the September 2017 storm, a New York Times review found that thousands of Puerto Ricans were still living in ruined houses. For many of them, the FEMA money left over after trickling down through so many middlemen hardly made a dent in what they needed.

Lisandra Oquendo, who lives in Punta Santiago on Puerto Rico’s eastern coast, was told that her house had been approved for $18,000 in FEMA repair funds, and she was stunned at how little was accomplished with the money. The contractors patched up her roof, gave her a generator, replaced more than a dozen broken window crank operators, installed several appliances, two windows and a door, and cleaned mold off the walls. But because her roof is made of concrete, she said, they told her they could not repair it.

“They said, ‘We don’t do paint, we don’t do floors, we don’t work with cement,'” she said. “So what do you do?”

Contractors have said that the rates they collect cover a variety of expenses, including shipping fees, workers’ compensation insurance, vehicle and warehouse rental, taxes and profit. But prices charged for equipment and appliances often bore little relation to what was charged on the retail market, even in storm-ravaged Puerto Rico.

According to Department of Housing records, FEMA paid for about 12,400 people to receive generators at a cost of $3,700 each. The 5,500-watt portable devices and supplies they came with cost the contractors about $800 each, other documents show. FEMA paid $666 apiece for new bathroom sinks, but the contractors who actually bought and installed them paid $260 apiece. FEMA paid almost $4 a square foot to repair roofs; the work was done by subcontractors for $1.64 a foot.

The deal the Department of Housing signed required smoke detectors in every sleeping area, so each of the 122,000 houses in the program was equipped with the devices, for which FEMA was billed $82 apiece. A receipt reviewed by The New York Times showed that one subcontractor ordered them in bulk from an Ace Hardware store in the city of Aguadilla for $6.99 each.

“Fifty-eight percent is being taken off the top as overhead and profit from the two contractors above us,” said Brandon Padgett, owner of BVP Construction in Houston, which conducted repairs on 52 houses under the program. “Is there 58 percent overhead and profit needed to implement this? No, because we are doing 90 percent of the work.”

Several smaller companies, including Padgett’s, which were required to buy their materials from the middlemen, registered complaints with FEMA and with Puerto Rico’s consumer affairs agency, saying that the markups amounted to illegal price gouging.

James Little, who owns J & G Construction in Texas, a company hired as a subcontractor to carry out repairs, said that a lot of the markup was legitimate, because the principal contractors who split up the work had to rent vehicles, pay for warehouses and fly hundreds of people to the island. But some of it, he said, was just greed.

Both Little and Padgett are involved in payment disputes with LionsGate Disaster Relief, the Louisiana subcontractor that hired them.

A LionsGate official said prices charged for repairs were reasonable, given the constraints under which companies were operating in the aftermath of the storm, which left large areas of the island facing fuel and supply shortages. “The prices in Puerto Rico are a little bit higher than what we are used to,” said Kristopher Clark, chief operations officer for LionsGate. “It’s not a crazy high price. It’s enough for us to make a little bit of money and enough for the subs to make a little bit of money.”

He said he paid a markup on materials to the two larger companies that hired him. He also charged markups and service fees to the smaller companies that he brought on. But he denied that the prices were unreasonable.

“I know our margin is stiff,” he said. “It’s a difficult margin to navigate if we are not doing volume.”

One of the prime contractors that hired Clark, J.W. Turner Construction, is a veteran disaster relief company that has worked on a number of previous disaster relief programs managed by FEMA. The owner, James W. Turner, said that in several of those cases, the prices charged were even higher. In Puerto Rico, he said, it was insurance and local taxes that brought up the rates.

“The profit percentage is going to be lower in each house in Puerto Rico than any house we have ever done,” Turner said.

Francisco Díaz-Masso, owner of a Puerto Rico construction firm that is another one of the prime contractors, said he had to fly in materials because of the urgency of the project, which drove up costs.

“That rate doesn’t show in that price all that’s behind it, all the logistics, the amount of effort, the amount of people putting all this together, the prepurchasing of most of this,” Díaz-Masso said.

The Department of Housing said Tu Hogar Renace guidelines for awarding contracts and setting prices were approved by FEMA. The prices charged for equipment and services were opened to bidding and then chosen by a process called “interquartile range,” where the low and high outlier bids for each item are eliminated and all the companies agree to be paid the middle price.

A Department of Housing evaluation committee awarded contracts to all seven companies that submitted bids on time.

When asked about the high prices, FEMA referred questions to the Department of Housing.

In an interview with the local Telemundo station, Fernando Gil Enseñat, the housing secretary, suggested that the high prices did not matter because FEMA was paying them.

“The people, the beneficiaries, don’t have to pay a single cent — these are federal funds,” Gil said. “If the person had to pay that, obviously that would worry me a lot.”

The housing department declined to make Gil available for an interview. Craig, the ex-FEMA official managing the program, emphasized that Tu Hogar Renace will be the largest undertaking ever attempted under FEMA’s emergency shelter program. He said the program has delivered what it set out to do during a year when much of the island was without electricity and transportation connections were extraordinarily difficult.

“It has been done very efficiently,” he said. “Costwise, for the island of Puerto Rico to get that many people back in their homes that quickly is an incredible undertaking for the program itself, the government of Puerto Rico and the Department of Housing of Puerto Rico.”