Audit: WV unlawfully executed flood relief contracts worth millions and helped no one

CHARLESTON, W.Va. — As West Virginia recognizes the two-year anniversary of a deadly flood, legislative investigators have issued a scathing report about contracts that were supposed to provide the framework for the state’s long-term response.

West Virginia has been operating under multiple long-term flood relief contracts worth millions of federal dollars unlawfully, a report from the Legislative Auditor’s office has concluded.

The conclusion applies not only to a highly-scrutinized contract with a consultant meant to manage flood relief but also for contracts for millions of dollars more with construction companies that are supposed to be doing the work.

What’s worse, the Legislative Auditor questions whether any homes actually have been completed under the Rise West Virginia housing reconstruction program, according to the report presented to state lawmakers on Sunday.

Lawmakers seemed stunned by the findings.

“No homes have been rebuilt?” asked Senate Minority Leader Roman Prezioso, D-Marion.

Senate President Mitch Carmichael, R-Jackson, gave a dismal assessment.

“This has been a horribly mismanaged program, in my opinion,” he said. “I mean we’re two years post flood, and we still have all these issues.”

The revelations occurred during the two-year anniversary of flooding that resulted in 23 deaths and an estimated 1,200 destroyed homes. Ten inches of rain fell over 24 hours in some areas, damaging businesses, roads and water and sewer systems.

The former Tomblin administration, late in its term, made an emergency request to start working with a consultant to administer federal relief funds. But controversy about the state’s response to long-term flood relief has all been over decisions made during the Justice administration.

No one from Gov. Jim Justice’s Office or from the state Department of Commerce was present to appear before the Post Audits Committee of the Legislature. The administration also provided no formal written response to the audit. “I’m disappointed that there’s no one here,” Carmichael said.

Shortly after 9 p.m., the Governor’s Office sent out a statement headlined “Legislative Auditor is Wrong on RISE.”

The statement said 18 families have received homes, although it did not elaborate on whether that was through Rise funding or through West Virginia Voluntary Organizations Active in Disaster, which had gone ahead with housing efforts while Rise West Virginia sputtered.

Gov. Jim Justice

Governor Justice has said he had no way of knowing until recently about the problems West Virginia was having with long-term flood relief. That’s despite the many constituents who called for months about Rise and its red tape.

As controversy has grown, the administration forced out Commerce Secretary Woody Thrasher and the agency’s general counsel, Josh Jarrell, whose signature was on the contracts.

In late May, the Governor’s Office distributed a statement in which Justice said “There’s a new sheriff in town, and people need to realize that Jim Justice will see to it that West Virginia is not going to be on the short end of the stick.”

The statement, referring to Jarrell, said “Those people that weren’t doing their jobs have been held accountable.”

Justice has placed Gen. James Hoyer of the West Virginia National Guard in charge of the long-term flood relief effort. In recent weeks, Hoyer has described greater progress in getting a handle on West Virginians who still need help.

This spring, the Governor’s Office put a halt on a contract for a consultant to manage long-term flood relief activities, saying the agreement had not gone through appropriate purchasing procedures.

Even before that, the U.S. Department of Housing and Urban Development had labeled West Virginia a slow spender for the millions of dollars that became available for long-term flood relief on Feb. 20. HUD has sent a letter raising concerns over several aspects of West Virginia’s approach.

Long-term flood relief was run through West Virginia Rise and the state Department of Commerce, where Mary Jo Thompson, a niece of Sen. Joe Manchin and his constituent services director when he was governor, is director of community development.

West Virginia has $149 million available in Community Development Block Grants for disaster relief.

West Virginians who expected government help with long-term housing months ago have still been waiting.

Behind the scenes, the Legislative Auditor has concluded, there have been serious problems with the contracts for the consultants and construction companies that are supposed to handle that work.

The contract that has gotten the most attention up to this point is one with Horne LLP, a Mississippi-based company that has grown into a national presence on disaster relief.

In West Virginia, Horne’s lobbyist is Mike Basile, a former general counsel to the state Development Office and a former staffer for Gov. Gaston Caperton who later assisted in the transitions of Gov. Bob Wise and Gov. Joe Manchin. Horne’s local counsel is Jason Pizatella, who worked for multiple administrations.

The agreement  with Horne began with a $900,000 scope of work to develop a required Action Plan to submit to HUD and then to provide general project management services. No one disputes that part.

But between May 2017 and February 2018, the state Development Office and Horne executed six more task order agreements related to the original contract.

“The result of these additional Task Order Agreements increased the total value of the Development Office’s contractual relationship with Horne from $900,000 to approximately $18 million, an increase of nearly 1,900 percent,” the Legislative Auditor concluded.

Commerce officials and Horne representatives contended that the additional work was an aspect of the original contract that had been bid out competitively and appropriately.

But legislative lawyers concluded the additional task orders did not appropriately go through the appropriate bidding process, saying they constitute new contracts because each contains separate and distinct terms and compensation.

To date, the Legislative Auditor wrote, Horne has received $703,692 in payments and has invoiced for — but not yet received — about $1.4 million under the disputed task orders.

The Governor’s Office indicated during a June 15 press conference that a new contract with Horne was in the process of being finalized.

“Therefore the Legislative Auditor would expect the new contract to have been procured through the Purchasing Division’s competitive bidding process, bu as of today has not seen this new contract. In addition, this new contract should not contain payments for any of the services that have already been rendered under the invalid Task Order Agreements Three through Eight.”

This was another stunner, Prezioso indicated today.

“So we’re going to continue to do business with Horne even though they didn’t complete the requirements of their contract?” Prezioso asked.

Millions more in federal dollars are under scrutiny for construction contractors that won bids for West Virginia’s rebuilding.

Four contractors won bids worth $71,430,000, almost half the total federal dollars available.

The largest was Thompson Construction, a regional company that provides rehabilitation, reconstruction and manufactured housing. That work totals $49 million. Thompson’s lobbyist is Larry Puccio, Gov. Jim Justice’s transition team leader and now senior adviser to Senator Manchin’s re-election campaign.

The trouble with these contracts is that the state started paying for work before Housing and Urban Development officially made the money available.

The money from HUD was approved Feb. 20. All seven of the construction contracts have an effective date of July 1, 2017.

The Legislative Auditor contends the West Virginia Development Office violated federal law.

The Development Office has issued almost $800,000 in payments under invalid contracts, the Legislative Auditor concluded. More than $400,000 of that was paid prior to HUD’s release of the funds.

Thompson Construction has received the lion’s share of that money, $604,407.

An additional problem is that these contracts, too, did not go through proper purchasing procedures, the Legislative Auditor concluded.

The state is required to demonstrate to Housing and Urban Development that it has sufficient financial controls in place.

“By not using the Purchasing Division’s competitive bidding requirements, the Development Office’s process to award the grant funds is not in compliance with federal regulations,” the Legislative Auditor wrote.

The Legislative Auditor recommends that the  state cease all payments under the contracts, immediately terminate the contracts and execute new ones that comply with state and federal laws.

Although the Governor’s Office has repeatedly and publicly criticized the agreement with Horne, it has said nothing publicly about the agreements with the contractors.

The Legislative Auditor is questioning whether any homes have been completed under the contracts.

It raised the question after an examination of the payments. Boiled down, the invoices don’t add up to indicate completion of any single home.

“The Legislative Auditor concludes that none of these payments represent a full home reconstruction.

“As such, the Legislative Auditor questions whether any individual homeowner has received full assistance from the Rise West Virginia flood recovery program.”

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