The Executive Summary of WRRDA Legislation
(Showing Part 3 of 3 parts) Requesting several USACE STUDIES.
Build the ½ mile locks and dams in the Carquinez Straits at the Benicia State Park to stop the salt water intrusion into the Bay Delta area and to stop the flooding of cities like Stockton California within the Delta.
The surplus fresh water accumulated in the Bay Delta area is pumped to new reservoirs including the Strategic Water Reserve Canals adjacent the Salton Sea.
Create a scalable and synergistic Waters West project that transfers water
850 to 1200 miles from flooded Mississippi areas to Lake Havasu using water canals or 4 foot diameter tubes with solar covers where necessary.
The WatersWest program will help:
a. Bring water west through Texas, Oklahoma, New Mexico to Arizona.
b. Create water storage lakes and villages along the way.
c. Creates solar powered low cost RV – Modular Home villages.
d. Recharges some of the depleted waters for the Ogallala High Plains
aquifer using the water storages lakes listed in b.
e. Reduces severe flooding along the Mississippi, Missouri, Arkansas
Rivers and Low lands.
f. This pumping is based on the USACE success during Hurricane
Barry where the maximum pumping was 19,000+ cubic feet per
second. Giant portable pumping systems could be used on 85 foot
long rail cars and barges to bring water westward in scalable segments.
Must prove economically viable within the
first 200 miles of length. System uses a
combination of existing rivers, canals,
4 foot diameter water tubing.
Viability is based on potential revenues from : agriculture, manufacturing, and
Village housing and replenishment of parts of the Ogallala high plains Aquifer. See picture on left.
from Gerald Chernick author CalFed Home-Water SA2001RF0008 Water Agency Act #21336
Using the Success formula from Hollands Sea Dams
and apply to the Bay Delta areas salt water intrusion battle!
With Global Warming and rising sea levels, salt water incursion ( see Chart)
has been increasing in the bay delta with the following negative results:
1. Requires more fresh water to reduce salinity levels.
2. The volume of sea water is so great that it is flowing into underground aquifers.
3. The sustainability of quality water is compromised!
4. So called experts with the DWP want to build giant 30 plus mile concrete tunnels below the
Delta saying :
it will ensure clean water, but will not add a drop of extra water
Costs 20 to 60 Billion and Increases the cost to all water users.
Prior to this when Arnold was governor he told us that the Bay Delta
needs 2000 miles of new levees.
The Water Education Foundation has always advocated a peripheral canal.
With Delta-Ladclad locks and dams would cross the Carquinez Straits at
by Benicia State Park . This system that would be about ½ mile wide
would cost about $700,000 million a lot less than the DWPs $20 billion + mistake.
With Delta- Ladclad :
1. Billions would be saved.
2. We would have 20% more fresh water that would not run out to the sea.
3. Fresh water fishing would substantially increase.
4. NO More SALT WATER INTRUSION.
5. No more Salt Water entering underground aquifers.
6. Substantially more water storage reservoirs could be used
preferably further south or possibly around the Salton Sea for USACE water storage.
7. Additional funding could be through the USACE WRRDA7001 Proposal Program.
Summary by Elaine Howle
the Calif State Auditor.
The California WaterFix Project (WaterFix) is intended to address environmental and water supply reliability issues related to pumping water from the Sacramento San Joaquin Delta (the Delta). The Department of Water Resources (DWR) began collaborating with state and federal entities as well as local water agencies (water contractors) in 2006 to develop an approach to restoring the Delta and improving water reliability, referred to as the Bay Delta Conservation Plan (BDCP). In conjunction with developing the BDCP, DWR also initiated the Delta Habitat Conservation and Conveyance Program (conservation and conveyance program) to evaluate how to implement the BDCP, which included considering alternatives to the BDCP, performing preliminary design, and assessing environmental impacts. Through this evaluation, DWR identified one of the alternatives—referred to as WaterFix—as its preferred approach. WaterFix focuses on the construction of a new water conveyance facility to improve water reliability and separates the large scale Delta restoration effort originally included in the BDCP into a separate program called California EcoRestore. Water contractors of the State Water Project and the Central Valley Project, and the U.S. Bureau of Reclamation have primarily funded the project planning efforts that began with the BDCP and that have now shifted to WaterFix. This audit report concludes the following:
Because of the Unexpected Complexity of the Project, the Planning Phase Has Experienced Significant Cost Increases and Schedule Delays
• The costs and timeline for preparing the BDCP increased because of the scale and unexpected complexity of the project.
• The costs to evaluate and plan for the potential implementation of the BDCP and its alternatives, which eventually included WaterFix, also increased.
The Costs and the Timeline for Preparing the BDCP Increased Because of the Unexpected Complexity of the Project
In a June 2006 steering committee meeting, the finance subcommittee presented a $13 million budget for preparation of the BDCP, which included budgeted consultant costs for completing all tasks except public outreach. The budget consisted of $6 million to provide for the participation of fishery agencies and $7 million for consultant costs and other costs related to the BDCP. As stated in the Introduction, fishery agency costs were to be split evenly between DWR and Reclamation and the consultant and other costs were to be split among DWR, the Authority, and Mirant Corporation. Following the establishment of the budget, DWR entered into a $1.6 million contract with Alameda County Flood Control and Water Conservation District Zone 7 (Zone 7) to cover its share of consultant costs for December 2006 through June 2008. The contract states that Zone 7 possessed special expertise related to the unique environmental compliance process that would guide the BDCP process. The scope of work in the contract included engaging the services of a BDCP consultant, the preparation of the BDCP, and the services of Zone 7 to manage the contract with the BDCP consultant. However, the parties subsequently discovered that the $1.6 million budgeted over the 19 month term of the contract was insufficient to allow the consultant to successfully complete the BDCP. The parties first amended the contract in June 2008 to add an additional year, extending the term through June 30, 2009. In the spring of 2009, the parties agreed to amend the contract a second time, increasing the contract by $3.5 million and the term by another two years, thus extending the contract through June 30, 2011. The parties amended the contract a third time in March 2010 to increase the contract by another $2.6 million. These three amendments collectively increased the cost of this contract from $1.6 million to $7.7 million, nearly five times the original amount, and they extended its term by three years. DWR’s financial records indicate that it spent $7.5 million on this contract, and according to the chief of its enterprise accounting branch, the funding for these payments came from State Water Project contractors. However, DWR did not fully track BDCP funding or spending. Documentation provided by the Authority indicates that it contributed $5.2 million toward these costs, but we do not have any data on Mirant Corporation’s share of BDCP costs.
According to contract documents justifying the amendments, the BDCP was being developed with a greater level of stakeholder involvement than was customary in most conservation plans; consequently, development of the plan was proving to be more complicated, time consuming, and expensive than originally anticipated. For example, the justification included in DWR’s second amendment to its contract with Zone 7 states that the BDCP process called for a more extensive independent science advisory effort—the process of including independent scientific input to assist with plan development—than is typically the case with conservation plans, and this effort increased the cost of preparing the conservation strategy beyond the original estimate.
The science advisors for the project also recommended expanding the scope of the plan to include a larger share of terrestrial species and habitat, and this recommendation further increased projected costs. The cost increase contained in the third contract amendment was primarily due to the decision to have the BDCP consultant take on portions of the EIR that were not originally included in the scope of work. Specifically, according to the contract documents justifying this amendment, the parties decided that part of the environmental impact evaluation could be conducted most efficiently by the same consultants that were preparing the BDCP.
The organizational and decision making structure of the BDCP effort presented another challenge to the timely and efficient completion of the plan. In particular, the documented justifications for the second and third contract amendments explained that the time and cost of preparing the BDCP increased substantially because the BDCP consultant, while designing the plan, engaged directly with the steering committee, which consisted of several dozen members representing state and federal water and resource agencies, water contractors, and other organizations—a unique departure from the customary process in which a consultant team primarily develops the conservation plan elements that are then endorsed by a single advisory committee. For example, according to the justification for the second amendment, the consultant spent a significant amount of time and resources developing a report that evaluated conservation strategy options, but it subsequently received requests from members of the steering committee that required the consultant to develop and model various operational scenarios repeatedly, and these efforts were costly and time consuming. However, the justification for the contract amendment also defended the time consuming stakeholder process, stating that it would help ensure the plan’s stability and likelihood of implementation. Nevertheless, the project’s costs increased significantly.
Although Zone 7 stopped managing the BDCP consultant in July 2010, costs for preparing the BDCP continued to increase when DWR entered into a direct contract with the consultant to continue preparing the BDCP. This new contract ultimately increased the BDCP costs by $41.4 million. Specifically, in June 2010, DWR and the consultant signed a two year, $11 million contract for tasks such as completing working drafts of the BDCP chapters, obtaining public feedback on the BDCP, and finalizing the BDCP. By the time DWR and Reclamation released the draft BDCP for public review and comment in December 2013, the contract had been amended several times increasing the maximum amount payable under the contract by a total of $20 million, in part because of unanticipated modifications to the project that resulted in the need for multiple revisions to the plan. After publishing the draft BDCP in December 2013, DWR further amended the contract three more times, increasing the contract amount by an additional $10.4 million.
These amendments cited the need for additional time and funds because of changes in the public draft of the BDCP resulting from a new permitting approach; the addition of three new alternatives to be analyzed, reviewed, and incorporated into the BDCP; and an extended public comment period. Notwithstanding, we estimate that the cost of preparing the BDCP rose to approximately $60 million.
Costs to Evaluate and Plan for the Potential Implementation of the BDCP and Other Alternatives Also Significantly Increased
DWR has so far spent roughly $260 million to evaluate and plan for the possible construction of alternative conveyance facilities and habitat restoration projects, including those that constitute the BDCP and, subsequently, WaterFix. In March 2009, DWR estimated the initial budget for these activities to be $140 million, including the costs of management, planning, administration, preliminary engineering, and environmental services. The budget was to cover the conservation and conveyance program’s evaluation and planning efforts starting in 2008 until its expected completion in 2010. Conservation and conveyance program funds were also used to pay for the $41.4 million direct contract that DWR entered into with the BDCP consultant, as mentioned previously.
However, DWR subsequently reassessed the scope, technical needs, and schedule for the conservation and conveyance program’s evaluation and planning efforts, which led to a substantial cost increase. Consequently, in October 2010, the steering committee discussed the need for an additional $100 million—a 71 percent increase to the initial budget of $140 million—to continue the planning process. In 2012 DWR signed agreements with water contractors for the supplemental funding of $100 million to pay the “actual” remaining costs of the planning phase. These supplemental funding agreements extended the term of the planning process through December 2014. A document prepared by the former chief of DWR’s division of engineering indicates that the $100 million was intended to fund remaining environmental and engineering activities as well as a contingency reserve. With the $100 million in supplemental funding, the total budget for the conservation and conveyance program’s evaluation and planning efforts had increased to $240 million.
DWR ultimately exhausted the $240 million budget and contributed $15 million in surplus revenue in 2015 and 2016 to fund additional planning costs. Reclamation and the Authority also together contributed an additional $6.8 million. Through June 2017, total contributions exceeded the planning phase budget by more than $21 million. Moreover, as of June 2017, DWR had spent 99 percent of the $261 million contributed to fund the conservation and conveyance program. As described previously, although DWR officials filed the Notice of Determination in July 2017, Reclamation has not filed the Record of Decision. Nevertheless, DWR officials stated that no additional funds would be needed to complete the planning phase for WaterFix, as approved.
As discussed in the Introduction, DWR has entered into water supply contracts with State Water Project contractors. Pursuant to these contracts, DWR collects payments from the contractors to recover all water supply related costs. DWR deposits this revenue in a special account. The text box shows the purposes for which this revenue can be used. According to DWR, surplus revenue is available to DWR to fund the acquisition and construction of the State Water Project, including WaterFix planning activities that are a necessary precursor to construction. When we researched the $15 million of surplus revenues that DWR used to fund project planning costs in 2015 and 2016, we discovered that the account in which DWR collects the revenues had an available cash balance that had grown from $10.7 million in December 2013 to $286 million by the end of April 2017. Furthermore, DWR projects the balance will increase to $293 million by the end of December 2017. According to DWRs’ chief of the State Water Project Analysis Office, a major factor contributing to the increase in the balance of this fund has been the decrease in outstanding debt resulting from the repayment of a California Water Fund loan and general obligation bonds initially used to finance the State Water Project. He further stated that DWR holds monthly meetings with the state water contractors, at their request, to provide transparency of State Water Project activities and financial information regarding State Water Project costs and revenues, including the surplus revenue balance. We reviewed the agenda and minutes for the June 2017 meeting and found that DWR disclosed the $286 million surplus to the state water contractors. Finally, the chief stated that these funds are available to pay for new
State Water Project facilities, including WaterFix. However, DWR has not developed any concrete plans for how it will use this growing surplus revenue balance.
To improve management of large and complex infrastructure projects, the Legislature should enact legislation requiring agencies to publicly report significant changes in the cost or schedule of such projects if they are expected to exceed their established budgets by 10 percent or schedules by 12 months.
To better manage large infrastructure projects, DWR should develop and implement a project reporting policy requiring its management staff to document and justify decisions to proceed with such projects if they are expected to exceed their established budgets by 10 percent or schedules by 12 months. DWR should make these documented decisions and justifications publicly available and submit them to the Resources Agency for review and approval.
To ensure it makes appropriate use of its growing surplus revenue balance, DWR should develop a detailed plan describing how it intends to use these funds.
DWR Did Not Select Appropriately Its Current Program Manager for the Conservation and Conveyance Program
DWR’s Process for Selecting Its Initial Program Manager
•Developed a request for qualifications that established the criteria for selecting the program manager, including relevant education; possession of a valid California professional engineer license; experience in the planning, managing, and overseeing of large water resources infrastructure; strategic program development; project management; and experience in environmental compliance and engineering and construction. •Published the request for qualifications in the State Contracts Registry and a relevant professional publication. •Held a mandatory meeting attended by approximately 55 individuals representing numerous interested firms. The meeting included a detailed question and answer session to clarify requirements and expectations. •Received statements of qualifications from two interested firms. •Interviewed the two responding firms. •Used a defined scoring rubric to score the qualifications and interview responses of the two responding firms based on criteria defined in the request for qualifications. •Negotiated with the highest scoring firm for a cost that was deemed fair and reasonable. •Awarded the contract to the most highly qualified responding firm.
Source: DWR’s request for qualifications and various other DWR documents.
•DWR did not follow state law when it replaced the program manager for the conservation and conveyance program. •DWR did not accurately value its initial contract with the new program manager—the Hallmark Group (Hallmark)—or ensure that it received fair and reasonable pricing for one of Hallmark’s subcontractors.
DWR Did Not Follow Proper Procedures in Replacing the Program Manager for the Conservation and Conveyance Program
Although DWR initially used a robust selection process that was in line with both the letter and spirit of state contracting law to select its first program manager, it later used other methods to select a replacement program manager, and these methods did not follow the competitive process required under the law. State law requires state agencies that are contracting for architectural and engineering services to select contractors based on demonstrated competence and professional qualifications. The architectural and engineering (A&E) contract process seeks the most highly qualified contractor; the agency then negotiates with that contractor a price that is fair and reasonable although not necessarily the lowest price. Additionally, based on the services DWR identified in the Scope of Work section of its request for qualifications and its contract with URS Corporation (URS)—its original choice to provide program management services—DWR was contracting for specific services that are consistent withconstruction project management, which a licensed engineer or general contractor must perform, as state law requires.
In May 2008, DWR used a competitive process to engage a consultant to provide program management services and engineering support services, as required by state contracting law and its own regulations. DWR followed the process detailed in the text box to select URS as the most qualified firm to support the conservation and conveyance program team’s efforts. In its response to the request for qualifications, URS identified the individual who would serve as program manager and presented his qualifications, detailed in Table 1, as part of the larger competitive process. DWR then negotiated with URS for a contract worth up to $60 million and with a term from May 2008 through December 2015.
Hallmark’s Program Manager Does Not Appear to Possess the Qualifications That DWR Required When It Selected URS
Requirements and Selection Criteria from DWR’s Request for QualificationsURS
However, not long after awarding the contract, DWR directed URS to replace its program manager with the president of Hallmark without DWR’s demonstrating that Hallmark was qualified to provide these services or had the required professional license. Specifically, 13 months after awarding the contract to URS, DWR issued a notice of disapproval that removed the individual URS had designated as the program manager apparently because he was not working full time on the project. A clause in DWR’s contract with URS allowed DWR to disapprove “the assignments or the continuing assignment of specific contractor personnel, subcontractors and subcontractor personnel.” However, the contract did not indicate a specific process by which the disapproved personnel should be replaced. Because of the size, cost, complexity, and significance to the State of WaterFix, we expected DWR to require URS to provide an equally qualified replacement; alternatively, DWR could have used a competitive process to select a replacement program manager based on the criteria it had established in the original request for qualifications. Instead, in an August 2009 amendment to its contract with URS, DWR replaced the program manager by directing URS to engage Hallmark as a subcontractor to provide the program management services.
By directing URS to engage Hallmark as a subcontractor in this manner, DWR did not select a firm that met the requirements of the request for qualifications, DWR’s regulations, or state law. Our review of the Hallmark contract file found no indication of how DWR identified Hallmark as the replacement program manager nor any evidence that DWR evaluated Hallmark’s qualifications for this role. DWR asserted that Metropolitan recommended Hallmark based on Metropolitan’s previous experience working with the firm. However, the general manager of Metropolitan told us that although he did recommend Hallmark, Metropolitan had not previously worked with the firm. Furthermore, when we asked him why he recommended Hallmark, he indicated that he was given the name by a third party but could not recall who that third party was. He also said that Metropolitan and other water contractors interviewed other individuals but determined Hallmark was the firm it would recommend to DWR; however, he was unable to provide us with any documentation of those interviews or how the water contractors arrived at their conclusion to recommend Hallmark. We were also unable to ascertain why Metropolitan was interviewing candidates on behalf of DWR.
DWR officials stated that DWR made its own independent assessment of Hallmark’s qualifications, and it based its selection on Hallmark’s successful program management experience in other programs. We subsequently talked to the former director of DWR who was involved in the selection of Hallmark. He recalled that Hallmark’s efforts on the University of California, Merced campus project brought Hallmark to the attention of the water contractors because Hallmark was largely given credit for managing the engineering contractors on that project. He also indicated that he thought the initial recommendation for Hallmark came from the general managers of Metropolitan and Westlands Water District. He stated that the water contractors believed that Hallmark could provide additional cost controls over the project. Nonetheless, DWR was unable to provide us with documentation of any assessments or with any other records supporting the selection of Hallmark.
Therefore, we performed a high level comparison of the qualifications of Hallmark and URS and found that Hallmark does not appear to possess the technical credentials or experience on relevant projects that DWR required when it engaged URS. In the initial request for qualifications, DWR identified the following as necessary qualifications of the program manager:
• Relevant education.
• Possession of a valid professional engineering license.
• Experience in the planning, managing, and oversight of large water resources infrastructure.
• Experience in strategic program development.
• Experience in project management and environmental compliance.
• Experience in engineering and construction.
In selecting Hallmark, DWR disregarded many of the qualifications required for the original program manager. Table 1 shows that Hallmark lacked a licensed engineer required by law for construction project managers and had no demonstrable experience planning large water resources infrastructure projects. Further, DWR was unable to provide some of the information listed in Table 1 regarding Hallmark’s qualifications. Instead, we searched Hallmark’s website and other public sources to obtain more information about the firm’s qualifications.
DWR explained that after one year working with URS, it became clear that demonstrated program management skills were needed rather than a strict focus on engineering. Although DWR officials cited Hallmark’s successful program management experience in other programs as a reason for the selection, staff members in its A&E contracting unit (contracting unit) raised concerns over Hallmark’s apparent lack of qualifications.
Excerpts From Allegations Against DWR About Selection of Hallmark as Program Manager
“The first activity that I believe violates the code and one that we routinely allow is letting contract managers direct contractors to add a specific sub to an existing contract. Put simply, the contract manager wants a specific contractor not currently under contract to perform some type of work allowed under the existing contract. Direct the prime to add the firm you want and have them do the work. No pesky RFQ, no SOQ review, no silly determining if the new folks are actually the most qualified, no allowing other firms to apply for the work, no following the code. The practice has become so prevalent, we’re actually starting to address it in our additional payment provisions where we allow a higher markup on subs we direct the contractor to add. This looks surprisingly like a bribe to keep them quiet.”
“Possibly the most egregious example of this [letting contract managers direct contractors to add a specific sub to an existing contract] is when a former DOE Division Chief, directed the Washington Division of URS (‘URS WD’) to engage the president of Hallmark Group, Inc. (‘Hallmark’), to fill the position of Program Manager by subcontracting with Hallmark for this purpose” (46 8104, Amendment 1). Subsequently the PM services were removed entirely from the 8104 scope of work (Amendment 6) and Hallmark Group was issued its own contract (46 9986). No RFQ was issued; the new contract’s scope of work says simply that 8104 ‘was being administratively separated into two contracts.’ According to his LinkedIn profile, Hallmark Group, provides ‘management of large capital programs on behalf of government and institutional entities.’ No architecture, no engineering, no environmental services. He has a degree in economics. The ‘E’ in A&E does not stand for economics. The new contract was later tripled in size.”
Source: DWR employee emails.
Additionally, an employee at DWR with knowledge of the A&E contracting process also raised concerns over Hallmark’s qualifications. The employee indicated that Hallmark’s president, who is the program manager, had no architecture, engineering, or environmental services experience—only a degree in economics—as the allegations in the text box indicates. DWR’s internal auditors conducted an investigation into these allegations and concluded that DWR entered into the contract with Hallmark without using a request for qualifications. However, the internal auditors also stated that determining whether DWR’s entering into that contract without such a request violated state contracting law was a legal question that the investigation could not answer. DWR’s legal counsel subsequently reviewed the issues and found that DWR’s approach was legal; however, DWR’s counsel based its opinion in part on an unsupported assertion that DWR had determined that Hallmark was qualified.
In directing URS to subcontract with Hallmark, DWR also failed to follow the selection process that state law and DWR’s own regulations require, potentially resulting in DWR not receiving the best value for the contracted services. Although DWR asserted that subcontracting the program management services was appropriate and legal, the relationship established between URS and Hallmark does not appear to be a contractor subcontractor arrangement. In a traditional contractor subcontractor relationship, we would expect to see several conditions, including the following: the contractor is responsible for the subcontractor’s work products, the contractor determines payment to the subcontractor, and the contractor is legally responsible for the work of the subcontractor. However, the provisions DWR added to the contract with URS in the amendment to bring Hallmark on as a subcontractor clearly demonstrate that URS was not overseeing Hallmark’s work products, it was not determining payment to Hallmark, and it was not legally responsible for Hallmark’s work. Specifically, the language in the contract amendment that added Hallmark stated the following:
•“Hallmark will be reporting directly to and receive direction from DWR.” •“DWR shall make the sole and final determination as to the payment to Hallmark of any and all amounts invoiced by Hallmark.” •DWR shall provide written notice to URS of those portions of Hallmark’s invoice that are approved for payment.” •“URS’s liability to DWR in any manner arising out of or in connection with any act, omission, negligence or any other aspect of [Hallmark’s program manager] or Hallmark’s performance that is the subject of the amendment shall be strictly limited to whatever damages or other relief URS actually obtains from [Hallmark’s program manager] or Hallmark.”
In summary, the process DWR used to award the “subcontract” without demonstrating that Hallmark had the required qualifications and professional license is contrary to the letter and spirit of the law, which is intended to create competition to ensure that the State obtains a competent and qualified contractor at a fair and reasonable price.
The ultimate result of this subcontract is that DWR later awarded Hallmark its own contract, also without a competitive process. Specifically, in 2013 DWR removed the program management services component from the URS contract and entered into a new direct contract with Hallmark through what DWR termed an administrative separation, known also as an assignment.4 The contract documentation justified DWR’s choice not to use a competitive process by referencing the fact that URS had been selected through a request for qualifications. However, this justification is inapplicable given that Hallmark was never identified nor included in URS’s response to the request for qualifications. DWR officials told us that Hallmark had been functioning as program manager for three years and thus had demonstrated its qualifications. Nevertheless, as shown in Table 1, Hallmark did not have the necessary qualifications to fill the program manager role in the first place based on DWR’s original request for qualifications.
We question DWR’s rationale for assigning the contract to Hallmark. When we asked DWR about the administrative separation and assignment of the program management services to Hallmark, DWR officials stated that it did so to increase workflow efficiencies. They also stated that its staff had experienced frustration going through URS to work with Hallmark, because of the additional layer of administrative processes. They did not believe paying URS the 5 percent subcontractor markup for work Hallmark performed was cost effective. According to DWR officials, the assignment provided its staff with direct access to the program manager while simultaneously saving the program significant costs. However, we question that reasoning because DWR created the difficulties in the first place by not awarding competitively a new contract for program management services, which would have provided its staff direct access to the selected program manager, following its notice of disapproval of URS’s program manager in July 2009. In addition, we are not convinced that DWR is saving money through the assignment because Hallmark has had to subcontract many of the program management functions, and DWR is generally paying a markup of 5 percent for invoices to Hallmark for overseeing those subcontractors.
DWR Did Not Accurately Value Its Initial Contract With Hallmark or Ensure That It Received Fair and Reasonable Pricing for one of Hallmark’s Subcontractors
DWR did not establish accurately the cost of the Hallmark contract before awarding it, resulting in an increase in the expense of the original contract award. When it awarded the contract to Hallmark, DWR did not ensure that the funding would cover adequately the services required for the duration of the contract; instead it simply transferred $4.1 million from the original URS budget to the new Hallmark contract. Although DWR awarded the contract for $4.1 million, it did not base this amount on accurate historical monthly costs or the correct term of the contract. Instead, DWR incorrectly used a contract term of 12 months to calculate the contract amount even though the contract itself was drafted for a term of 37 months. DWR also did not take into account the additional services that Hallmark’s subcontractors were performing under the contract.
Consequently, just seven months after awarding the contract, DWR amended it, increasing the budget by $7.3 million to cover the contract’s full term. DWR amended the contract three additional times to extend the term through December 2017 and to increase the total cost by $2.4 million. As of July 2017, the amount of the Hallmark contract had increased to a total of $13.8 million.
In addition, DWR paid for an important work product without ensuring that the price was fair and reasonable or that the work product was finalized. Specifically, in October 2012 DWR issued a deliverables paid task order to engage McKinsey & Company (McKinsey), a subcontractor to Hallmark, for $2.69 million, to develop the governance structure for the design and construction phase of the project, but DWR did not justify adequately the cost or ensure that it received a final work product.5 DWR regulations require it to estimate the value of services to be provided based on fees paid for similar services or based on a market survey. However, DWR staff in the contracting unit raised concerns about whether the cost of this task order was fair and reasonable because Hallmark did not present price comparisons or market rates for similar work. Although the task order stated that the price negotiated for McKinsey was fair and reasonable, it provided no analysis or support for the price, and we do not believe it complied with DWR’s regulations that require a fair and reasonable price be provided based on fees paid for similar services or on a market survey.
DWR’s contracting unit staff stated that they did not feel an email from Hallmark was sufficient justification for a fair and reasonable price because Hallmark did not provide either comparable prices or a market survey. The DWR contracting staff also were concerned that Hallmark’s email did not specify how Hallmark determined whether the price was reasonable because the email simply stated that the dollar amount “is worth it because McKinsey has such a great track record”, without specifying the dollar amount. However, DWR could not provide any documentation showing that the contracting unit staff’s concerns were ever addressed. Consequently, we don’t believe that DWR had adequate assurance that Hallmark’s price for this $2.69 million deliverable was “fair and reasonable.” Additionally, despite paying $2.69 million for this task order, DWR never made sure the consultant finalized the governance structure documents. DWR stated within the task order that these documents were due in January 2013, and according to DWR officials, DWR received draft documents but did not receive final governance structure documents. We discuss the status of the governance structure in more detail later in the next section.
To fully comply with state contracting law, DWR should ensure that it competitively selects architectural and engineering consultants based on demonstrated competence and professional qualifications. In addition, DWR should document in the contract file its evaluation of the competence and professional qualifications of all contractors and any subcontractors that are added to the contract subsequent to the competitive selection process.
To ensure that only qualified subcontractors are added to contracts after the initial award is made, DWR should make sure that contractors select their own subcontractors and that DWR subsequently approves the selection after it verifies their qualifications.
DWR should ensure that it retains adequate documentation in its contract files to support that contract prices are fair and reasonable and all deliverables are received.
On the eve of key votes in San Jose and Los Angeles, Gov. Jerry Brown’s $17 billion proposal to build two massive tunnels through the Delta to make it easier to move water from north to south was hit with another setback Thursday as a state audit found it was suffering from “significant cost increases and delays.”
The 91-page report from California’s state auditor, Elaine Howle, also said the state Department of Water Resources “has not completed either an economic or financial analysis to demonstrate the financial viability” of the project, which the Brown administration calls the California WaterFix.
Also, the Brown administration has not put in place a proper system of governance for the project, and has failed to keep important documents, the audit found.
The audit further concluded that the state Department of Water Resources “did not follow state law” when it replaced a key program manager on the project with a company that it hired without a competitive bidding process and which was run by somebody without an engineering degree.
State officials disputed that they violated the law, and said the project is on track.
“The department has already taken action based on the auditor’s feedback and will take their recommendations under advisement as it moves forward with WaterFix,” said Erin Mellon, a spokeswoman for the state Department of Water Resources.
Mellon said the audit “validates the unprecedented and exhaustive work the department has done to propose the best project for the state of California.”
Environmental groups had a different view.
“California WaterFix is in complete disarray,” said Barbara Barrigan-Parilla, executive director of Restore the Delta, a Stockton organization that opposes the tunnels. “We cannot see how any public water agency can vote to support any percentage of this project.”
The audit noted that the Brown administration hired the Hallmark Group, a Sacramento consulting firm, to run a key part of the planning and oversight for the project. The company, which was recommended by Metropolitan Water District of Southern California, had managed projects at UC Merced, but had no experience managing large water projects. It’s president, Chuck Gardner, has a bachelor’s degree in economics. The company was given a no-bid contract that has tripled in cost from $4 million to $13 million.
Thursday’s audit comes at a critical time for the plan, which is one of Brown’s two giant legacy construction proposals, the other being his high-speed rail project.
Last month, the tunnels plan took a significant hit when the board of Westlands Water District in Fresno, the nation’s largest agricultural irrigation district, voted 7-1 not to participate in its funding. Westlands had been expected to contribute roughly $3 billion toward the cost. That means that other water agencies — including Silicon Valley’s largest water supplier — that are trying to decide whether to help fund the project would have to pay more and raise customers’ water rates and property taxes higher than expected to cover the costs, along with any cost overruns.
On Tuesday, the board of the Metropolitan Water District of Southern California, a supporter of the project that provides water to 19 million people, is scheduled to vote on whether to help pay at least $4 billion fund it. Thursday, Brown met personally with 17 of the district’s 38 board members in Granada Hills to urge them for a yes vote.
Then on Oct. 17, the Santa Clara Valley Water District, whose costs could range from $600 million to $1 billion, is set to vote. But the agency’s chairman said Thursday that it may now delay that vote.
“The audit raises questions that our board needs to evaluate,” John Varela, chairman of the Santa Clara Valley Water District.
“We represent 2 million people,” Varela said. “We want to be certain that what we do as a board is not going to have a major financial impact on our ratepayers. We want to be fair to them. That is our biggest concern.”
The Santa Clara Valley Water District, which is based in San Jose, is the wholesale water provider for a dozen agencies, including cities like Santa Clara and private companies like San Jose Water Company. The district is also considering plans to build a new reservoir near Pacheco Pass, expand the use of recycled water, form a partnership with other agencies to expand Los Vaqueros Reservoir in Contra Costa County and continue to expand its conservation efforts.
“We have to look at all of our options moving forward to provide an adequate water supply as our county continues to grow,” Varela said.
Other big Bay Area water districts, like East Bay Municipal Utility District and the Contra Costa Water District, are not part of the project.
The Delta tunnels plan, begun under former Gov. Arnold Schwarzenegger, would build two tunnels, each 35 miles long and 40 feet high, under the Delta, the vast system of channels and sloughs between the Bay Area and Sacramento where the state’s two largest rivers, the Sacramento and the San Joaquin, meet.
In 2009, the Department of Water Resources announced the project would cost $140 million to plan, design and permit. So far, it has cost twice that, $280 million, Thursday’s audit reported. That cost has come from water districts around the state, and the federal Bureau of Reclamation.
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The idea is that the tunnels would take water from the Sacramento River, south of Sacramento near the town of Courtland, and move it to the huge pumps near Tracy that are part of the State Water Project and Central Valley Project. That, supporters say, would reduce reliance on the pumps and make water deliveries more reliable by protecting endangered salmon, smelt and other fish, which can be killed by the pumps. Protecting the fish leads to reduced pumping.
But critics call the tunnels a huge boondoggle that will eventually allow large agribusiness interests in the San Joaquin Valley, as well as urban users in Los Angeles, to take more water out of the Delta, regardless of what promises are made now.
Complicating Brown’s plans, his administration has not been able to guarantee that the tunnels will allow any more water to be pumped out of the Delta than is being pumped out now — roughly 50 percent of all its fresh water in most years.
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Farm districts and city water agencies have looked at the costs and dozens of lawsuits already filed against the project, and calculated how much debt they would incur. Some wonder if they can spend the money more efficiently, or support a smaller project, even as they face increasing pressure from Brown and his staff to approve the plan as the governor’s final 15 months in office wind down.
Department of Water Resources: The Unexpected Complexity of the California WaterFix Project Has Resulted in Significant Cost Increases and Delays
... The Unexpected Complexity of the California WaterFix Project Has Resulted in Significant Cost ... of the planning efforts for the California WaterFix Project (WaterFix). WaterFix is intended to ... effort, DWR identified one of the alternativesWaterFixas its preferred approach. This report concludes . and its alternatives, which eventually included WaterFix, increased significantly. As of June 2017, the ... to demonstrate the financial viability of WaterFix.
2018-701 The Unexpected Complexity of the California WaterFix Project Has Resulted in Significant Cost ... 2019 Department of Water Resources California WaterFix Project Department of Water Resources California ... construction schedule. Background The California WaterFix Project (WaterFix) is intended to address ... one of the alternatives referred to as WaterFix as its preferred approach. WaterFix focuses on ... began with the BDCP and that have now shifted to WaterFix
Comparable projects The size of the WaterFix project is as large or larger than English Channel Tunnel and Boston's Big Dig, both of which were significantly more costly than originally anticipated. The Channel Tunnel project at £4.65 billion (about USD$5.10 billion) was 80% over its predicted budget. The Boston highway project grew from an original estimate of $2.8 billion in 1982, and by December 2007 had risen to over $14.6 billion, a cost overrun of about 190% when adjusted for inflation. This was before a series of significant defects that resulted in several deaths were discovered. The Boston Globe estimated that the project will ultimately cost $22 billion, including interest, and that it would not be paid off until 2038.
Environmental groups are unanimously opposed to and/or have voiced strong concerns about the project, including national groups such as:
the Center for Biological Diversity,
National Resources Defense Council,
Defenders of Wildlife,
Endangered Species Coalition;
State groups such as Friends of the River,
California Sport Fishing Protection Alliance,
Sierra Club CA,
Planning and Conservation League,
Restore the Delta,
Environmental Protection Information Center,
California Water Impact Network,
Clean Water Action,
Citizens Water Watch Environmental Justice Coalition for Water, and
Pacific Coast Fed. of Fishermen's Associations;
and regional groups such as The Bay Institute,
Coalition to Save the California Delta,
North Coast Rivers Alliance,
AquAlliance, and various Sierra Club chapters.
Cities in and near the Delta and farmers in the delta are also opposed to the Tunnels project because it would worsen the quality of water available for local municipal and agricultural uses. The project would also require filling of 775 acres of wetlands and entail over a decade of construction.
From Gerald Chernick 213 590-0470
Author CalFed Home-Water SA20