The Senate Finance Committee on Tuesday voted unanimously to subpoena prime recovery contractor AECOM after company representatives failed to show at a hearing meant to shed light on the persistent problem of delayed contractor payments in the FEMA-funded roof repair program.
Committee Chairwoman Sen. Donna Frett-Gregory (D-STT) did not hide her displeasure at the company’s absence, moving for the subpoena that requires AECOM representatives to appear on April 2 or at another time set by the Finance Committee.
“What is really troubling for us this evening … is the fact that a contractor who is receiving $150 million of the funds that has come into this territory did not see it fit to have a conversation, and it’s not for a lack of reaching out,” Frett-Gregory said, later noting that the contract has been amended to a maximum of $350 million.
“As a matter of fact, one of the responses that I got was, ‘Well, if you have questions for me, you can just send them and we’ll respond.’ We say unacceptable,” she said.
Representatives from AECOM, which holds a $150-million contract for the roofrepair program, were not present at Tuesday’s hearing. Randall K. Taylor of AECOM Caribe sent correspondence, saying the invitation to appear before the committee dated March 13 was too short of a notice for AECOM representatives to attend the hearing.
Frett-Gregory said the company also did not accept an offer to meet via conference call.
Other testifiers, including Witt O’Brien’s, APTIM and various government agencies were on hand, however, to speak about delayed payment issues plaguing the Federal Emergency Management Agency’s Sheltering and Temporary Essential Power program, which administers the temporary, and later permanent, roofing repairs for residents affected by the 2017 hurricanes. The FEMA funding goes through the Virgin Islands Territorial Emergency Manager Agency, as the grantee, to the V.I. Housing Finance Authority, the program applicant.
According to acting VITEMA Director Denise Lewis, FEMA has obligated more than $223 million to date for temporary and emergency roofing repair work under the STEP program. Of that amount, more than $204 million has been expended, Lewis said.
The program, however, is notorious for having an extensive inspections, review and approval process. Locally known as Emergency Home Repairs V.I., the program does not disburse FEMA funds until all work inspections have been done, pushing back by months the reimbursements due to contractors who, in turn, sometimes fail to pay their workers on time.
An Extensive Review Process
According to VIHFA Executive Director Daryl Griffith, AECOM and APTIM, the prime contractors contracted with the VIHFA, receive and review invoices from their subcontractors, then work with the subcontractors to address any issues identified with the invoices. The subcontractors then resubmit invoices to the prime contractors, a process that could vary based on level of errors and communication timeliness between the prime and subcontractor.
When the prime contractors have a FEMA-adherent invoice, the companies submit the invoice to the VIHFA. At this point, VIHFA’s project manager, Witt O’ Brien steps in, reviewing the invoices, from the scope of work to allowable expenses to technical and engineering compliance.
“This layer of review safeguards the territory from paying for invoiced work that has not been done and paying for any work done on ineligible homes such as rental units,” said Griffith.
After passing muster with Witt O’Brien’s, the invoices go through another round of reviews through the VIHFA’s internal auditor, which reviews the invoices for compliance with FEMA close-out standards. This includes photo documentation of the damage and repairs, and making sure homeowners and contractors have signed off on all work. The VIHFA review process takes approximately two weeks.
VIHFA staff then submits all documentation to VITEMA, which, along with its accountants from Ernst & Young, review the invoices to ensure that the entire package is eligible for FEMA reimbursement.
“As you can see, the review process, is very labor-intensive but the territory is safeguarding the use of hundreds of millions of dollars,” Griffith said. “The VIHFA, VITEMA, PFA and FEMA are working collaboratively to expedite the payment process.”
Griffith’s testimony shed light on the mechanisms behind months-long lag between work and reimbursement. EHRVI program, he said, is reimbursed through a FEMA Progress Worksheet, which reimburses the territory after FEMA gets proof of payment. Even though the contract with AECOM, the prime contractor, began in February 2018, it was not until May 16 that FEMA obligated $186.6 million for submitted Project Worksheet covering the repairs of an estimated 7,466 homes at a maximum of $25,000 per home.
The roughly $35.5 million for the Project Worksheet covering soft costs – construction safety inspections, program management, initial/final inspections – was not obligated until Oct. 2, 2018, according to Griffith.
Witt O’Briens Chief Financial Officer Paul Murray explained that any Project Worksheet exceeding $100 million also has to go through FEMA headquarters, a process the agency put in place after the Sept. 11 terror attacks. According to Murray, one FEMA office handles these disaster-related projects, including those related to Hurricane Harvey, the California wildfires, Puerto Rico and, most recently, the Alabama tornadoes. The Department of Homeland Security and the U.S. Office of Management and Budget then step in, Murray said, and this is after the local FEMA team has already made the initial vetting.
In addition, the federal OMB under the Trump administration is also “more involved” in the funding process, said Murray. VIHFA, for instance, submitted the request for the next batch of funding but it is still going through the process in the FEMA headquarters, he said.
“There are layers of bureaucracy that have been put in place that makes this very challenging,” Murray said, adding that the expected four-to-six-week timeline for the STEP Project Worksheets to get through the federal OMB has now stretched to six months.
Adrianne Williams-Octalien, director of the Office of Disaster Recovery, also identified the reimbursement system as reason for payment delays. The territory’s precarious fiscal position, she said, makes it unable to front tens of millions of dollars in contractor payments, placing the contractors at the mercy of FEMA’s reimbursement process. According to Octalien, Finance Commissioner Nominee Kirk Callwood is exploring the possibility of establishing a line of credit to pay contractual payment obligations while the territory waits for reimbursement.
Prime Contractors Also Awaiting Payments
AECOM and APTIM also told lawmakers they are awaiting payments from VIHFA. In AECOM’s letter, read during the Senate Finance hearing, Taylor said that FEMA’s complex reimbursement process and various requirements for federal disaster aid “creates distinct and unique challenges.”
“These complexities, coupled with the extensive review and approval process required before funding is released, have contributed to the payment delays and challenges faced by all of us,” Taylor wrote.
According to Taylor, AECOM has advanced to date more than $100 million in cash and credit resources for both the housing program and and school repair programs to bridge the funding gap for construction operations. The money AECOM fronted also provided advance payments to contractors and subcontractors since the start of this program, Taylor said.
“This is despite AECOM having performed hundreds of millions of dollars of work on the projects for which we continue to await payment,” Taylor said. “As payments have been received by AECOM, we have immediately turned payment around to our contractors on their approved invoices.”
Michael Donnelly, president for government services of APTIM Corporation, reported that since joining the program, the company finished on approximately 700 homes, 500 of which have been inspected by the V.I. government. APTIM has also completed work in St. Croix on five schools and continues to work on the Juan F. Luis Hospital, he said.
According to Donnelly, the scale of work entailed mobilizing roughly 200 work crews totaling 1,200 workers, 200 of whom are local. Since the program started, however, Donnelly said APTIM has been paid “only a small fraction” of what the company has paid out, essentially paying subcontractors, material suppliers, local merchants, and employees from its own pocket while awaiting payments from FEMA through the V.I. government.
“Indeed, APTIM continues to pay subcontractors as invoices become due,” Donnelly said. “This is not the norm, and it is not a sustainable situation … Our willingness to operate in this manner is a reflection of our commitment to the project, and to the people of the U.S. Virgin Islands.”
Donnelly said his company is owed $27 million in outstanding invoices, and there are other costs that APTIM has not been able to invoice because of a delay in receiving the proper billing template.
Multiple Layers of Contractors
Octalien also identified the multiple layers of contractors and subcontractors, which she said “has led to slow payments, difficulty in establishing appropriate quality and accountability, resulting in significant schedule delays.” According to Griffith, latest data shows that AECOM alone has 89 subcontractors, six of them being the main subcontractors. Griffith said he does not know which AECOM subcontractors have been paid, even though VIHFA detailed which subcontractors should be paid in its last payment to AECOM.
Donnelly said APTIM has paid out $16 million in payments, but roof repair workers are still reporting non-payments from subcontractors working under APTIM. The Source has reported that in the rush to hire workers to complete work crews needed for the lucrative disaster recovery industry, some subcontractors on the lower levels of the contracting pyramid engage their workers in handshake agreements. This has resulted in workers running back and forth between contracting companies, unsure which companies to pursue for their delayed wages.
Octalien said that moving forward, the Office of Disaster recovery will work on proper structuring when it comes to subcontracts. The ODR will also require that prime contractor’s agreements with subcontractors govern these subcontractors’ payment arrangements, she said.
“All subs to the prime contractor should be reported to the applicant agency and agreements should be provided if required by the prime contract,” Octalien said. “Additionally, limitations should be placed and enforced on additional subcontracting below the first level as deemed prudent.”
The STEP program deadline arrives April 15, said Murray. After that date, no new costs can be incurred but the territory can still submit invoices for prior repair work done.