One Certainty of Trump's Wall: Big Money
An earlier attempt tried cameras and radar but ran over budget. The project was a loss for taxpayers. But for contractors, it was a big win.
By DANIELLE IVORY and JULIE CRESWELL
JAN. 28, 2017
It was the border wall that didn't get built.
In 2006, Boeing and a team of other companies won a federal contract to construct a wall to protect the United States border with Mexico, which stretches roughly 2,000 miles, from California to Texas.
Five years and about $1 billion later, the government threw in the towel. Costs had ballooned, and the surveillance systems suffered from technical difficulties. Nearly all of the money had been spent on just 53 miles of the border in Arizona.
The project was a loss for taxpayers. But for contractors, it was a big win.
Today, as President Trump declares his intention to move forward with plans to build a barrier along the Mexican border, many of the details remain little more than a guessing game. Does Mr. Trump intend to build miles of concrete blocks, or fencing? Could parts of the wall be virtual, using technology like cameras and sensors to monitor the border, or be manned by drones? Will Mexico, as Mr. Trump has promised repeatedly, pay for it?
There is no doubt that if the United States moves ahead with plans for an ambitious border wall — one of the biggest infrastructure projects in decades, perhaps running in the tens of billions of dollars — it will be a boon for contractors.
An examination of failed efforts from the past highlights the potential gains for companies and potential pitfalls for taxpayers. Among the possible winners are construction firms, high-tech surveillance companies and cement manufacturers including, in what would be an ironic turn, one of Mexico's largest materials companies.
"There's no question that, when the government spends money on a big project like this, companies are going to make a lot of money," said Joe Hornyak, a partner with the law firm Holland and Knight, who specializes in government contracting law. "There's no question about that."
In the past week, the Senate majority leader, Mitch McConnell of Kentucky, said Congress would move ahead with plans to build the wall, estimating that it would cost $12 billion to $15 billion.
Researchers at M.I.T. said last year that a 1,000-mile, 50-foot-high steel-and-concrete wall would run taxpayers about $40 billion.
Whether the number ends up on the low or high end of these ranges, it has already caught the eye of companies and investors eager to get a piece of the construction action, despite the myriad political and social battles that will surround it. The stocks of several construction companies and cement and concrete manufacturers jumped after the latest talk from Mr. Trump, as investors bet not only on a payday coming from a Mexican border wall but also from proposals floated for about $1 trillion in infrastructure projects.
Border Patrol agents at the end of the fence separating Nogales, Ariz., from Mexico.
The White House did not immediately respond to an inquiry. In 2011, when the Department of Homeland Security canceled the fence project, it said the effort was ineffective and too costly.
History would suggest that such efforts can have problematic results. Past attempts at a wall have favored companies with decades of government contracting experience. From 2007 to 2012, the federal government paid contractors more than $1.5 billion for border protection, according to a New York Times analysis of spending under the Department of Homeland Security's Secure Border Initiative.
The initiative, started in 2005, has been one of the most aggressive attempts to protect the border. An office at Customs and Border Protection was assigned to develop and construct a virtual and physical wall along the border with Mexico, to reduce illegal immigration.
The company that won the biggest contract through that office was Boeing, which is best known for building aircraft but also performs a variety of tasks for the government, making it the nation's second-largest federal contractor. Boeing was paid more than $20 billion in contracts during the last fiscal year.
Boeing was not the only winner. The security company Wackenhut Corporation, now known as G4S Secure Solutions, received more than $119 million. I.B.M. won more than $56 million, and ManTech International, the technology company, received upward of $43 million.
The project with Boeing, though, ran into snags almost immediately. Boeing and its team had built a complicated system consisting of sensors, radar and cameras mounted on towers to help border agents find people crossing into the country illegally. But the system worked inconsistently in some rough terrain.
The project became the subject of multiple, and scathing, Government Accountability Office reports, some of which cited poor fiscal oversight. And after about $1 billion had been spent, the Obama administration canceled the project.
In recent days, Boeing's chief executive, Dennis Muilenburg, has been asked whether the company had discussed border security with the president, and whether it could harvest any information from its earlier project for the new wall. He said the company was not actively pursuing anything in that area but was open to working with the government. The company, otherwise, did not comment on its scrapped project.
There have been other attempts at a barrier that also ran into financial trouble. As a result of the various projects, hundreds of miles of wall already exist along the border, though in a form — wire mesh, chain link, sheet piling, concrete vehicle barriers, post and rails and X-shaped beams — that Mr. Trump may not have envisioned.
In 2005, one border project was harshly criticized by lawmakers after it was reported that cameras broke down frequently. In another, the Department of Homeland Security's Office of the Inspector General reported in 2011 that officials had wasted $69 million in taxpayer dollars on an effort to build border walls, including the purchase of $44 million worth of extra steel that it did not need.
An employee of Cemex, Mexico's largest cement manufacturer. The company has a United States-based subsidiary that could bid to be a contractor if plans for the wall proceed. Credit Susana Gonzalez/Bloomberg
In 2006, President George W. Bush signed the Secure Fence Act into law, requiring 700 miles of double-layered reinforced fencing to protect the border. The law was altered later to give the Department of Homeland Security more discretion to decide what kind of fencing was needed. Much of that wall consists of vehicle barriers, which do not stop people on foot.
None of this history seems to have tempered Mr. Trump's enthusiasm. But it comes at a time when a construction boom across much of the country has created a significant shortage of legal labor to build the wall, according to construction executives and others in Texas. Separately, a study released in 2012 estimated that half the construction workers in Texas were undocumented workers. Which means that many of the laborers on the wall could be illegal immigrants.
"If this wall gets built in Texas, there is a high likelihood that a significant bit of the work force will be undocumented," said Jose P. Garza, the executive director of the Workers Defense Project, which supports low-income workers.
In another twist, money may flow to Mexicans or Mexican companies. Analysts say it is basically cost prohibitive to ship heavy rock or concrete more than 70 miles, or cement more than several hundred miles. That means manufacturers closest to the border may prove to be the most economical. That could be a big win for Cemex, Mexico's largest cement manufacturer, which has a United States-based subsidiary that could bid for the project and several plants dotting the border, analysts note. The company could also potentially receive hard-to-trace subcontracts that even government agencies sometimes have a difficult time tracking.
Also, the government already gives preferences to contractors that supply American-made construction materials when it awards such contracts, said Mr. Hornyak, but for certain large construction projects, the Trade Agreements Act waives requirements for materials made in countries that have entered into trade agreements with the United States.
So, Mr. Hornyak added, the president would most likely need Congress to change the law if he wanted to dictate that agencies, for instance, buy only American-made cement.
All of which means that, in an almost subversive inversion of the running debate over who will pay for what, the United States could ultimately wind up paying Mexican citizens and Mexican-owned businesses to construct the wall.
An infrastructure build-out could also increase the cost of cement and other materials, say analysts. Currently, the United States is operating at 90 percent of its capacity levels, estimates Garik Shmois, an analyst at Longbow Research in Independence, Ohio. "We're going to be effectively sold out by 2018, based on current projects," Mr. Shmois said. "So any additional period of growth, such as an infrastructure cycle, will put upward pressure on prices."
That is good news for cement and materials companies with significant operations in the United States, including Vulcan Materials, Martin Marietta Materials and German-based HeidelbergCement Group, as well as Mexico's Cemex and Grupo Cementos de Chihuahua.
Companies that specialize in surveillance technology or even "virtual" barriers could also benefit. Elbit Systems of America, whose parent company is based in Israel, won a contract in 2014 with Customs and Border Protection to build a set of towers with radar and cameras covering 170 to 200 miles along the Arizona border. When the radar detects movement, cameras zoom in and send images to command centers.
"When looking at the border, there is not a one-size-fits-all approach," said Gordon Kesting, vice president for homeland security solutions for Elbit Systems of America. "But if you look at the costs associated with some of the approaches, they are quite different. There is a discussion to be had on the most effective and efficient use of taxpayer dollars."
Neither the TSP Strategy group, nor individual members, are licensed or authorized to provide investment advice. Any statements made herein merely reflect the personal opinions of the individual group member. Please make your own investment decisions based upon your personal circumstances.
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