DOT overpays Landstar $32 million

DOT overpays Landstar $32 million

A recent report by the Dept. of Transportation’s Office of Inspector General (OIG) suggests that the Federal Aviation Administration (FFA) needs to overhaul its emergency transportation contracting procedure

A recent report by the Dept. of Transportation’s Office of Inspector General (OIG) suggests that the Federal Aviation Administration (FFA) needs to overhaul its emergency transportation contracting procedure-- it reportedly overpaid Landstar Express America $32 million for providing buses to evacuate New Orleans residents following Hurricane Katrina. Landstar issued a $32 million check to FFA the day it provided the agency with documentation to support its invoices.

Landstar quoted the FAA $137 million to provide 1,105 buses each day at a cost of over $5,000 per bus for Katrina evacuations from Aug. 31, 2005 to Oct. 7. On Sept. 23, FAA paid Landstar a partial payment of $59 million based on bus services from Sept. 23 to Oct. 7.

An OIG request for documentation led to the discovery that the Federal Emergency Management Agency (FEMA) actually required an average of 400 buses per day and that the cost per bus was around $1,550. On Nov. 7—the day Landstar provided that documentation-- Landstar issued FFA a $32-million check, which represented the difference between the partial payment and the actual cost of bus services.

“The nature of those types of exigencies illustrates the need for careful and thorough review of all associated paperwork after an emergency has passed,” stated the OIG report, signed by David A. Dobbs, Assistant Inspector General for Aviation and Special Program Audits.

Landstar CEO Henry Gerkens said that a down payment was required to pay its contractors for accepting such a large task, adding, “to characterize that as an overpayment is a gross inaccuracy.” The government still owes Landstar about $200 million, Gerkens said.

The DOT Office of Inspector General said it was common for FAA to accept quotes without documentation from the contractor showing the prices were reasonable. During initial OIG investigations, only 6 of 570 tasks had invoices from Landstar.

Landstar had held an FFA Southern Region contract since 2002 to support the agency in national emergencies. The four-year competitively awarded contract covered nationwide transportation, logistical support, and other services. In the aftermath of Katrina, the Emergency Transportation Center and Landstar arranged for over 11,000 trucks to move over 14,000 truckloads of goods.

In another example, OIG pointed to a FEMA task requesting Landstar provide vehicles and drivers to move 1,443 trailers from Atlanta, GA to Baton Rouge, LA for $3 million. The contracting officer agreed to the price but requested no documentation showing the bids for services were competitively obtained.

“While Landstar may have done a price comparison through soliciting bids, no documentation was included with the price quotes submitted by the contractor,” OIG stated. The senior contracting officer told OIG that no market surveys had been done because there was insufficient time.

OIG called for new documentation requirements to allow contracting officers to determine whether a quote is “fair and reasonable.” FAA Southern Region responded to the OIG investigation by ensuring it receives copies from Landstar of its subcontractor price quotes for each service bid and Landstar’s justification for its selection. The agency fully implemented this procedure when handling Hurricane Wilma contracts.

The Office of the Secretary of Transportation (OST) agreed with OIG that additional information could be gathered for each contract. The FAA Southern Region is developing a system that tracks the cost of similar services actually provided as a benchmark for future contracts and for trend analysis. This differs from OIG’s recommendation that the department establishes a benchmark system for emergency services based on a detailed market survey.

“A market survey is of limited utility because it is not possible to know in advance of an emergency situation, its location, scope, the resulting needs created, the impact on the transportation infrastructure, or the availability of transportation providers,” OST stated in a memorandum signed by Roger Bohnert, Acting Director, Office of Intelligence, Security, and Emergency Response.

On Oct. 13 Landstar System reported third quarter record revenue and profit at $676 million and $35.6 million, respectively. The company noted this included $129.8 million of revenue related to hurricane disaster relief efforts, which translated to a $14 million profit.

Landstar will announce its fourth quarter earnings on Feb. 2.

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