The state's Road Home program has been under a cloud of controversy from the moment ICF International was awarded a landmark $756 million contract.
Sean Reilly leans back on a conference table and straightens his tie. He watches people file into the meeting room at Baton Rouge Community College, then crosses his arms and stares at nothing in particular. Although he has been asked about the subject numerous times, he answers cautiously. Who can blame him? Anything with regards to ICF International and the Road Home program these days is controversial.
"Their performance has just been miserable," Reilly says, waiting for the May meeting of the Louisiana Recovery Authority to begin. "They have totally dropped the ball and are not performing as originally agreed. But most of our discussions on the board have not been about getting out of the contract. It has been about placing stiffer teeth into it."
In June 2006, ICF won a landmark $756 million contract to manage the state's Road Home program, which Gov. Kathleen Blanco created to disburse federal housing dollars in the wake of hurricanes Katrina and Rita. Housing grants have been delivered at an excruciatingly slow pace, confusion over buyout options is plaguing the program, and ICF recently estimated a $2.9 billion shortfall. The LRA, charged with overseeing all recovery efforts, has been trying to distance itself from the mess.
Walter Leger, who lost his St. Bernard Parish home and business to Katrina's storm surge, drove the point home once the meeting convened. "It sends chills up my spine when people connect Road Home or ICF to the LRA," he says. "ICF was selected by a committee that we were not involved with. The governor only gave us oversight on this. The (Office of Community Development in the Division of Administration) is the entity that awarded the contract."
And so a web of political intrigue is spun, and it's a virtual alphabet soup of players ' the OCD, with authority from the DOA, hired ICF, which runs the housing program overseen by the LRA.
But the drama doesn't stop there. A legislative auditor attended this month's meeting as well, preparing for the first of six audits the development office will receive in coming weeks. Across town, lawmakers were debating whether the LRA should be abolished altogether, and ICF and Road Home were cited as contributing factors.
None of the groups mentioned, however, are prepared to take full responsibility for the aches and pains now associated with the historic agreement. But one thing is for sure: They're all stuck together until the end. Terminating ICF's contract could jeopardize ongoing homeowner negotiations and have other repercussions for the state, supporters argue. Besides, the publicly traded company is barely one year into its 36-month contract and, while homeowners could suffer because of the estimated shortfall, ICF is already guaranteed a fixed payment no matter what goes awry ' and there has already been plenty.
Hundreds of pages of documents that were made available reveal instances where problems could have been avoided from the beginning. For starters, a selection committee was rushed through the vetting process and then kept separate during contract discussions. The state also was slow to react to concerns over contract language, relaxed oversight and a lack of staff.
The only winner thus far appears to be ICF, who jump-started its initial public offering to shareholders last fall on the heels of signing on with Louisiana. To paint an even rosier picture, the company reported a record $152 million income earlier this month for the first quarter of the year, representing a 33 percent jump from the previous quarter and a monumental leap past the $1.1 million reported during the same period in 2006.
The day after the LRA meeting, Commissioner of Administration Jerry Luke LeBlanc is carving a footpath around the Claiborne Office Building. Louisiana lost out on a lucrative German steel mill to Alabama earlier in the morning, and he was on defense. But during a brief ride down the elevator, LeBlanc ignores the setback and reflects on the committee that ultimately picked ICF as Louisiana's moderator. "We selected a group of qualified individuals, and they made the appropriate choice," he says.
While LeBlanc never permitted a follow-up interview, all trails lead back to him on the ICF contract as evidenced by his numerous signatures. His deal-maker was Susan Elkins, OCD director. A self-proclaimed civil servant, Elkins and her agency have taken the lion's share of blame for the ICF fiasco, although it was a 10-member committee that actually made the final call. For her part, Elkins says she oversaw the selection of that panel, which she also sat on, based largely on advice from U.S. Department of Housing and Urban Development. "I didn't know most of them from Adam," she says.
Even though state officials like to brag about the national experts included, only four members were from outside of Louisiana: Les Warner of Ohio, Andy Scott of North Carolina, Anne-Berry O'Brien of Wisconsin and Stephen D. Gartrell of Massachusetts, all of whom have impeccable housing credentials. The rest of the committee was filled with legislative staffers and political insiders linked to the burgeoning recovery process. The committee met three times over four days, sometimes without its national members present.
Those involved with the process complained even then that it was hurried and rushed. In one e-mail to the development office, committee member John Carpenter, fiscal director for the House of Representatives, described it as "very aggressive," an assertion Elkins doesn't shy away from. "This was done right, and it may have been rushed, but we had several conference calls, and the decision was unanimous," she says. "At the time (in spring 2006), we were already six months behind Mississippi's program, and we were told to get it done, and that's what we did."
Jerry Reaux, the vice chairman of Tri-Parish Bank in Lafayette who became chairman of the Road Home Corporation after serving on the selection committee, says hindsight allows everyone to second guess, but ICF's nearest competitors had their own problems ' BearingPoint Management and Technology Consultants of Virginia suffered from financial woes, and ACS State and Local Solutions of Texas had recently under-performed on another state contract. "With the information that was available to the selection committee, I don't think there was any question ICF was the choice," Reaux says. (Reaux is chairman of the board for the Independent Weekly.)
Each committee member used a matrix diagram to score the competing companies, but they weren't bound to the final tally. For instance, Kim Robinson, who was appointed special counsel to Blanco following her service on the committee, scored ICF and BearingPoint equally on her matrix, but voted for ICF. Dominique Duval-Diop, a former reporting manager for the OCD now doing private recovery work, scored ICF and ACS equally before voting for ICF.
Jay Lueckel, a senior budget analyst tapped for his experience with the Division of Administration, reported a discrepancy in his own personal scores versus what the state released, but it didn't alter any outcomes. He says the whole process was a "whirlwind experience," and the deal was really sealed for most participants when ICF CEO Sudhakar Kesavan delivered the company's pitch in person. "He was a really good communicator, had a grasp for the topic and was cognizant to the fact that this was a people issue," Lueckel says. "He seemed to have a balanced approach to management."
Most everyone who was interviewed agrees that, in retrospect, neither ICF nor the state knew what they were getting into. That's why Lueckel and others were initially drawn to BearingPoint's proposal for a full-blown pilot program. Nonetheless, a choice had to be made, and ICF became the unfortunate poster boy. The back story of how the company came onboard, though, sheds new light on just how desperate the state was to sign ICF and put its hurricane-ravaged communities back together.
Even before the bidding began, Elkins and her staff were worried about ethical conflicts of interest. On March 31, 2006, Elkins urged Duval-Diop to add $80,000 to the price of the Road Home design contract to guard the program from a "waste management, fraud standpoint." The careful approach permeated the entire system, Elkins recalls, and various conflicts were discovered in all of the top-tier companies, including ICF International.
Most notably, Liberty Bank was a team member and LRA chairman Norman Francis also chaired the bank's board. State Sen. Ann Duplessis, D-New Orleans, was likewise employed in the bank's retail and marketing division. ICF eliminated the problem by severing ties with Liberty Bank, but another issue cropped up when the ethics board uncovered that the company was already contracted with the state to design the Road Home program. In short, the designer of the public program in question was actually bidding to manage the same program.
Opponents argued that ICF had insider information, and the ethics board agreed. It recommended that the company drop the original design and ICF did just that ' sort of. "We just rolled the existing contract into the new one," Elkins says. "We were a lot stricter on this than we usually are. We went to ethics, and they told us what to do."
The company was also able to skirt a few of the contract requirements, such as having managed a project at $400 million or more. Elkins says that provision was changed well before the closing deadline, and it came down to a difference of interpretations. By early summer 2006, the political writing was already on the wall, says a lawyer close to the selection process who requested anonymity due to his continued work in securing state contracts. "By the time the ethics board even ruled on the conflicts, ICF had already enjoyed all their influence," he says. "The process for selection was a joke."
When it came time to draft the actual contract, the original selection committee was cut out of the loop and more than 10 lawyers representing different divisions of state government went to work mixing original text into a "boiler-plate agreement," says Thomas Brennan, assistant director of the OCD. Elkins adds that the contract was passed through many hands and drafted to suit the state's needs.
But there were warning signs early on pointing to shortcomings. In her review of a draft of the contract last year, Susan Smith, director of the state Office of Contractual Review, identified a number of loopholes, particularly in the areas of performances and goals. "None of these measures are time-bound," she wrote on a copy of the draft that was reviewed by the Office of Community Development. "There is no incentive to produce results on the state's schedule."
Brenda B. Williams of Harvey, a member of the Jeremiah Group, a New Orleans faith-based nonprofit that has advocated and inserted changes into ICF's contract, says the community development office didn't start exploring stronger standards and larger fines for underperformance until her group approached them in the late fall. "Had they addressed the weaker parts of the contract up front, this situation would not have been as bad, and ICF would have had a better idea of what was expected," says Williams, now a member of the LRA's housing task force.
The contract also instructed the state and ICF to develop "performance measures," but Elkins admits that didn't happen until about a month ago, which is roughly the same time her office finally created a central coordinator to oversee contractual reviews. Other issues, such as problems with the communications portal used by ICF and OCD, will be addressed in an upcoming state-sponsored audit. "It took us a while to become accustomed with the program and to define its needs," Elkins says. "This was a precedent-setting event, and it took us time to adjust."
The most distinctive battle line drawn in the aftermath of ICF's contract resides between the LRA and OCD. That much was made certain at the May meeting as one board member after another tried to disassociate the LRA from the selection of ICF, the drafting of its contract and the actual management of Road Home. "The problem is (the community development office) does not want to take the blame on this," says David Richard, a Lake Charles biologist.
Leger, chairman of LRA's housing task force, chimed in as well. "I think the ICF or someone is training their staff to tell angry people calling in to blame the LRA. I mean, really, we already get enough heat for this high-paying job," he quipped.
Reilly, a former state legislator and LRA's public face, says the authority was never involved with the procurement process because there were too many ethical conflicts on the board. With all the corporate acumen on the panel, though, some exceptions should have been made ' at least on the contract. If his family's business, Lamar Advertising Company, Louisiana's only NASDAQ 100 corporation, had been faced with a similar agreement, Reilly says it would have hit the shredder. "If I was letting that contract, it would have been more rigorous up front."
The LRA, however, can only slide off so much blame. There is ample correspondence on file with the OCD to and from LRA officials on various situations regarding ICF's contract and performance. Members of the original selection committee also confirmed that at least one LRA member ' health care and insurance policy analyst Miles Bruder, who asked questions, but didn't vote ' was in attendance during one of the final presentations. "The LRA's attorney was also involved," Elkins says.
The LRA is now exploring the possibility of an independent, third-party review of the Road Home program and ICF, and it recently approved a resolution calling for more performance penalties in the contract. State officials contend they have simply grown weary of being surprised. ICF originally anticipated 123,000 applicants, but 135,000 people applied. About 73,500 storm victims were scheduled for grants, but only 15,567 have closed. To top it all off, the program's $2.9 billion anticipated deficit could grow to $4.1 billion if the federal government doesn't allow Road Home to use hazard mitigation funds.
During all the turmoil, ICF has defended itself only through prepared statements and financial filings. When the Legislature voted on a non-binding resolution in December to terminate ICF's role in the Road Home program, Kesavan, ICF's CEO, stayed on message. "Our focus now, as it has been all along, is on helping the people of Louisiana and delivering a successful program," he said in a news release. "Nothing is more important to us than ensuring that every affected homeowner gets the opportunity to participate in this program."
Although many of its problems were unforeseeable, ICF International was fully aware that it was landing a legacy-building contract. When the company was constructing the Road Home program under the agreement that was eventually canceled (back when it was still carrying ethical conflicts yet to be discovered by the state), it changed its name from ICF Consulting to ICF International. That was enough to get the ball rolling.
In May, it informed the Securities and Exchange Commission of its intent to issue an IPO and go public. About a month later, ICF signed on to become the official administrator of the Road Home program and interest peaked nationwide. But because it waited to go public until after the contract was complete, ICF did not have to disclose certain ownership and shareholder information to the state before bidding on the job, and so those connections ' if they even exist ' could always remain a mystery.
When the company finally went public in October, roughly 4.3 million shares were issued at an offering price of $12. After ICF reported a $98 million increase in revenue for the first quarter of 2007, the same shares more than doubled to a high of $25.58 this month. About 64 percent of that first-quarter tally comes directly from the Road Home contract. Additionally, of the $902 million worth of projects backlogged, Louisiana accounts for $554 million on the list.
The Louisiana contract has also placed ICF in an enviable position to grow its share of federal work. The company successfully integrated two acquisitions last year ' Synergy Inc., which adds significantly to its presence in the U.S. Air Force market, and Caliber Associates, which provides them with a noticeable footprint in the federal departments of health, education and justice. In January, ICF likewise negotiated the acquisition of Advanced Performance Consulting Group, a firm already providing strategic planning to a bevy of government agencies. Prior to the Louisiana contract, ICF derived 72 percent of its revenues from such federal work. Today, the figure is closer to 49 percent.
The dramatic growth has drawn criticism from many, including U.S. Sen. Mary Landrieu, D-New Orleans, who met with ICF's Kesavan and organized a hearing of the Disaster Recovery Subcommittee to investigate the budget shortfall and other obstacles. That meeting, held last week, devolved into a predictable round of acronym finger-pointing, with FEMA, HUD, LRA and ICF all defending their actions while questioning their counterparts.
In particular, Landrieu has found fault with ICF's decision to pay its executives hefty bonuses for scoring the Louisiana recovery contract, among other accomplishments. According to an SEC filing on April 30, 2006, the company gave Kesavan a $1.7 million bonus ' in addition to his $367,501 salary. Another $1.85 million in bonuses were also handed down to officers and vice presidents. ICF issued a prepared statement describing the compensation as "fair within accepted comparable standards," but Landrieu says bonuses five times larger than any others before are excessive.
She also says the upcoming congressional hearing will "hold all accountable" and could even provide suggestions for moving forward. "I remain concerned about the slow pace of rewards and closings, and question the contract award amount granted to ICF, especially in light of possible funding shortfalls in the Road Home," Landrieu says. "It is particularly disturbing that at the same time, ICF's executives were being rewarded with outrageous bonuses."
The Road Home contract, originally valued at $756 million, will yield considerably less for ICF, especially if the program deficit grows and operations are halted. The state is paying the company in part by an hourly rate, and there "can be no assurance that we can profitably perform these services for such rates," ICF's annual report states. There also are fixed costs, meaning ICF is guaranteed money no matter what happens.
As of the first week of this month, Louisiana had already paid ICF $132 million on the contract, according to OCD's Brennan. If the agreement remains open through 2009, the company receives another $10.3 million for management costs and $17.2 million for travel expenses, based on amendments to the original agreement. "We don't plan on spending anything close to what we originally thought," Brennan says. "All of the Road Home money will likely be disbursed by the end of 2007, but ICF will be sticking around to manage the rental housing portion and other long-term initiatives."
As with most similar agreements, the state can cancel the ICF contract anytime it chooses, with or without a reason, using a 30-day notice. Brennan and others argue, though, that firing ICF at this point would only complicate matters. Still, all the additional media scrutiny and political pressure has caused minds to wonder if it wouldn't be easier to just close the file. "Oh, yeah. All the time," Brennan says, laughing. "But not seriously. That could stop production, and no one wants to start this thing all over again at this point."
A version of this story first appeared in Baton Rouge Business Report.