Landstar contract part of probe into DOT Katrina spending

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U.S. inspectors are examining Department of Transportation spending in the aftermath of Hurricane Katrina, including a contract with trucking company Landstar System valued at as much as $400 million this year, according to Bloomberg News.

Landstar, based in Jacksonville, Fla., won a contract in October 2002 valued at as much as $400 million over four years for emergency logistics services, said agency spokesman Robert Johnson and Phyllis Scheinberg, the department’s chief financial officer. The contract was raised to $400 million for 2005 after Katrina, Scheinberg said.

The company also has an Express America unit that arranges shipments using trucks and planes. A “significant portion” of the $367 million the Transportation Department will spend on hurricane relief is going to Landstar, said the department’s inspector general, Kenneth Mead, in a memo posted recently on the DOT website.

Landstar Chief Executive Henry Gerkens told Bloomberg News that there’s no question about his company’s performance.

“With the scrutiny that everything is getting, it doesn’t surprise me that this is being looked at,” Gerkens said. “This is a reference to an internal review at the DOT. We have performed very well. The DOT gave us great marks for the way we responded.”

According to Bloomberg, Mead in the Oct. 7 memo said he “plans to conduct a series of audits and investigations” into the department’s relief and recovery efforts. “This work is directed towards preventing fraud, waste and abuse, and detecting and prosecuting fraud,” he wrote.

Transportation Secretary Norman Mineta told a House Appropriations Committee panel on Oct. 6 that Landstar “performed properly” while the Federal Emergency Management Agency performed “not well.”

Mineta created a “financial integrity team” to oversee Katrina-related spending and is working with Mead, the department said in a statement Oct. 6. The department also took the “extra precaution” of hiring the Defense Contract Auditing Agency to help oversee the spending, the statement said.

Landstar’s contract with the Transportation Department was modified Sept. 12, the company said in a Securities and Exchange Commission filing on Sept. 15. Landstar said as of Sept. 14 it received orders under the contract that it expects will result in $125 million to $160 million in revenue.

Landstar said Thursday, Oct. 13 that profit in the fiscal third quarter was lifted by a sharp increase in hurricane cleanup contracts. The company said it earned $35.6 million, or 60 cents a share, on revenue of $676.1 million in the quarter ended Sept. 24. In the previous year, it earned $21.6 million, or 35 cents a share, on revenue of $526.9 million. Landstar said third-quarter revenue was boosted by $129.8 million from federal contracts for hurricane relief. In the previous year, disaster cleanup added $27.9 million in revenue.

The company also said fourth-quarter revenue would rise by 10 percent to 14 percent, with profit pegged at 46 cents to 51 cents a share; analysts are expecting earnings of 49 cents a share. Additional emergency transportation services under the contract would add $40 million to $50 million in revenue in the fourth quarter, Landstar said.