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Study: Most federal contracts to rebuild Puerto Rico awarded to stateside firms

By on September 26, 2018

SAN JUAN – The bulk of the federal funds for contracts to rebuild Puerto Rico has been awarded to stateside firms, with very few awarded to local contractors.

That is the conclusion of a study conducted by the Center for a New Economy (CNE)–a San Juan-based nonprofit, independent think-tank–that was revealed Wednesday, which confirms Caribbean Business reporting.

CNE researchers Deepak Lamba-Nieves and Raúl Santiago-Bartolomei found that federal disaster response has been thought of as the “silver lining” of a catastrophic event, given the millions of U.S. government dollars that are pumped into the local economy.

“Federal funding for recovery, the logic goes, will help jumpstart a depressed and battered economy through investments that will have a multiplying effect and potentially steer Puerto Rico’s economic growth rate into positive territory. But almost a year after the hurricane’s passing, disbursements of appropriated funds from the federal government to the Government of Puerto Rico have been few and far between,” they said.

The lion’s share of related federal spending thus far has targeted immediate relief efforts, with substantial investments in long-term recovery activities still pending federal approval.

When awarding emergency response contracts during a major disaster or emergency declaration by the president of the United States under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, preference is given, “to the extent feasible and practicable,” to local firms. Preference may be given through a “local area set-aside or an evaluation preference,” according to the law.

However, lack of transparency, “poor” internal controls and the “dismal” fiscal track record of successive local administrations have prompted a “strings attached” approach to federal reconstruction funding efforts, they said.

Their examination of accumulated expenditures revealed that as of Aug. 22, almost $5 billion have been obligated by federal agencies for work conducted in Puerto Rico through contract spending.

“However, almost $4.3 billion has been awarded to firms based in the mainland U.S., while a little over $490 million—barely 10% of the total—has been awarded to companies based in Puerto Rico The data show that, thus far, the gap in funding between local and mainland firms is increasing,” they said.

Breaking down contract spending data by federal agency showed that the bulk of federal dollars awarded have been obligated by the Department of the Army, which includes the U.S. Army Corps of Engineers and the Federal Emergency Management Agency (FEMA).

“These two agencies account for 91% of total expenditures—which amounts to 93% of funds procured by U.S. mainland contractors, and 85% of expenditures among contractors from Puerto Rico. It should be noted that while the Department of the Army has allocated around 10.8% of total awards to Puerto Rico contractors, FEMA’s share is less than 8%. In fact, of the 45 federal agencies that have contracted recovery work pertaining to Hurricane María, 24 did not award any contracts to Puerto Rico-based firms,” the researchers said.

Awards by six-digit North American Industry Classification System (NAICS) business categories shows that federal spending for post Hurricane María work covered 252 industry sectors. Sorting through the top-20 six-digit NAICS sectors showed a “clearer trend” on the type of works that are being contracted.

The largest share of funds has been allocated for construction work, particularly in building construction, electric power and roofing. Other sectors include construction-related services such as engineering services, facility management, inspection services and equipment wholesale. Other noteworthy activities include food manufacturing, scientific research and remediation services. The “seemingly higher value-added” activities, “with the likely exception of roofing services,” are mostly contracted to U.S. mainland firms, according to the study.

“Puerto Rico-based firms have been mostly hired to perform lower value-added (although not unimportant) activities such as: waste collection, security services, roofing, and petroleum wholesale,” the CNE said.

The study also found that Puerto Rico’s pattern of contracting is similar to Louisiana’s experience following Hurricane Katrina.

“The running total for Federal expenditure in contracts for the first 336 days demonstrates, similar to the Puerto Rico case, that barely 11% of the total awards went to Louisiana contractors, while off-state contractors accounted for the remaining 89%. A notable difference is the total Federal procurement spending of almost $12 billion, which is more than double the amount spent in Federal contracts for post-María work during the same length of time,” the study found.

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