| Puerto Rico Electric Power Authority Cancels Whitefish Energy Deal

October 29, 2017


2017-10-29 17:50:05

WASHINGTON ― Puerto Rico Electric Power Authority is canceling its controversial $300 million contract with Whitefish Energy Holdings to restore the island’s hurricane-ravaged electrical grid, officials announced Sunday.

Ricardo Ramos, executive director of PREPA, said at a press conference Sunday he would honor Puerto Rican Gov. Ricardo Rosselló’s request to terminate the business deal, which has raised questions from several lawmakers and government agencies.

Whitefish, a two-year-old firm based in Interior Secretary Ryan Zinke’s Montana hometown and financially backed in part by a major donor to President Donald Trump’s 2016 presidential campaign, had just two full-time employees when Hurricane Maria hit the island more than a month ago. 

Language in the contract ― a full copy is here ― looked like it gave Whitefish a sweetheart deal as the people of Puerto Rico struggle to recover from the devastation of the hurricane.

For one, the contract, which Whitefish signed with government-owned PREPA, said that, “In no event shall [government bodies] have the right to audit or review the cost and profit elements.” That gave Whitefish wide of discretion and privacy over how it used $300 million in U.S. taxpayer money.

The contract also waived “any claim against Contractor BOOKr.VIP to delayed completion of the work,” which means the government couldn’t do much if Whitefish dragged out its work restoring electricity to the 3.4 million Americans living on the island.

It’s been more than a month since the hurricane destroyed Puerto Rico’s infrastructure and nearly 70 percent of people still have no power ― a particularly precarious reality for hospitals that have been relying on temporary generators to keep people alive.

news reached out to some experts in government contracting to see if this is was as bad a deal for Puerto Rico as it sounded. The answer was a resounding yes.

“Outrageous,” said Charles Tiefer, a professor of government contracting at the University of Baltimore law school.

“The clause that shields the contractor from audit or review is a red flag of overcharging,” said Tiefer. “The contractor works for PREPA, not the other way around. I can’t imagine how any responsible government official could put such an anti-audit clause into a government contract.”

Anthony Varona, a professor and vice dean at American University’s Washington College of Law and an expert in contracts law, said it was “entirely inappropriate” for a private contractor to prevent the government from auditing how taxpayer money was spent.

“The prohibition as written in this agreement is a blatant attempt to blindfold and tie the hands of the government officials responsible for overseeing the contract’s performance,” said Varona. “It strikes me as an open invitation for fraud and abuse.”

There were other concerning details in the contract, like the high rates Whitefish was charging for labor. The company was paying $240 an hour for a general foreman and $227 for a lineman. For some context, the U.S. Bureau of Labor Statistics says first-line supervisors of construction sites make about $43 an hour and construction laborers make about $23 an hour.

Whitefish was also paying for expensive food and lodging for its employees. The contract stated that each person could spend nearly $80 a day for meals and $332 a day for lodging. Flights for employees were being billed at $1,000 each way.

Steve Schooner, a former high-ranking government contracting official who teaches government contracts at George Washington University, said the Whitefish contract gave him great material for his upcoming classes because there were so many problems with it.

“The contract ― both the process and the content ― rivals, and in some ways exceeds, some of the best final exams I’ve written for my students over the last two decades,” he said.

Requests for comment from PREPA and from Whitefish were not immediately returned.

Not everyone said the contract was stunningly out of the ordinary. Scott Amey, general counsel for the Project On Government Oversight, wrote a blog post about why he thinks the contract raised concerns but was mostly normal, given bigger problems surrounding many federal contracts.

Still, he told news that it’s “odd” that the contract gave Whitefish the ability to delay its work without any accountability. He that clause could have allowed the company to prolong its work so it got paid the entire $300 million ― and then could push to extend the contract for even more money.

“Damage provisions often are included to incentivize the work’s completion,” he said. “Waiving claims could jeopardize the completion of the work in the agreed on one-year term.”

As fishy as it looked that a tiny company in the Montana hometown of the U.S. interior secretary landed such a big contract, Zinke insisted he had nothing to do with it.

Tiefer, for one, said that though all the facts aren’t out yet, it’s clear something “went very wrong” with the way the contract was awarded.

“Let’s put it this way,” he said. “Whitefish didn’t make the shortlist because of a world-class reputation.”

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