State Auditor Elaine Howle on October 5 released an audit on Governor Jerry Brown’s Delta Tunnels project revealing extensive mismanagement by the Department of Water Resources, including the violation of state contracting laws, spending millions of dollars over anticipated costs, and failure to complete either an economic or financial analysis.
The 97-page report said the Department of Water Resources (DWR) broke state contracting laws when they replaced the program manager for the California WaterFix, formerly called the Bay Delta Conservation Plan (BDCP). The WaterFix project aims to build two massive 35-mile long tunnels under the Delta to export Sacramento River water to corporate agribusiness interests in the San Joaquin Valley and Southern California water agencies.
The audit summary pointed out that although DWR used a “robust selection process” to select its first program manager, the URS Corporation, it later used “other methods” to select a replacement program manager, the Hallmark Group.
Chuck Gardner is the CEO and President of the Hallmark Group. As of July 2017, DWR had given Gardner $13.8 million to work on the tunnels project.
The report said DWR directed its contractor to replace their program manager with the Hallmark Group “without demonstrating that this new program manager was qualified to provide such services or had the required professional license.”
Hallmark “lacked a licensed engineer required by law for construction project managers and had no demonstrable experience planning large water resources infrastructure projects,” according to the audit, page 27.”
“DWR later awarded this new program manager its own contract without a competitive process, and the program manager has had to subcontract many of the program management functions for which DWR is generally paying a markup of 5 percent,” the audit determined.
In a contorted procedure, DWR hired the new contractor under the existing contract with URS by making Hallmark a subtractor. But instead of making Hallmark responsible to URS, they instead made them accountable to DWR, in spite of Hallmark not having the qualifications to manage such a project.
The report reveals how DWR audit and internal audit staff complained about Hallmark’s qualifications to do the job, but the upper management and DWR legal counsel ignored their advice.
“No pesky (request for qualifications), no (statement of qualifications) no 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,” one email from a DWR whistleblower stated. “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 (subcontractors) we direct the contractor to add.”
“This looks surprisingly like a bribe to keep them quiet,” the email concluded
Interestingly enough, the recommendation for Hallmark came from Jeff Kightlinger, general manager of the Metropolitan Water District (MWD) of Southern California, but they kept no records of how they determined Hallmark was qualified for the job.
“It smells like a sweetheart deal,” said Tim Stroshane, Policy Analyst for Restore the Delta.
In addition to the apparent sweetheart deal made to hire Hallmark, the auditor also revealed the costs and timeline of the planning phase “increased significantly due to the scale and unexpected complexity of the project.”
As of June 2017, the planning phase cost had increased approximately $280 million from the original cost estimate of $140 million in 2009. DWR only spent 6 percent of its own funding, with 31 percent of funds coming from the U.S. Bureau of Reclamation, 22 percent from MWD, 12 percent from Kern County Water Authority, and 17 percent from San Luis Delta Mendota Water Authority.
Finally, the audit said DWR “has not ensured that it is prepared’ for the transition of WaterFix to the design and construction phase of the project, noting that:
• It has not completed either an economic or a financial analysis to
demonstrate the financial viability of WaterFix.
• It has not fully implemented a governance structure for the design and
construction phase of the project.
• It has not updated required program management documents for the
planning phase yet WaterFix has evolved since it began.
Erin Mellon, Assistant Director of Public Affairs for Department of Water Resources, said the Director’s formal response “speaks for itself.” [http://www.water.ca.gov/docs/waterfix-audit-report-2016-132.pdf]
However, she noted there are a “few key takeaways” from the response.
”The audit confirms no general fund dollars were used,” Mellon said. “The audit also validates the unprecedented and exhaustive work the Department has done to propose the best project for the state of California.”
She also said, “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.”
Delta Tunnels opponents praised the release of the audit for exposing the “many flaws” of the Delta Tunnels process, including the misuse of taxpayer money by DWR.
Last August, the Joint Legislative Audit Committee voted to launch a state audit investigating the funding for the California WaterFix, as requested by Assemblymember Susan Eggman and Senator Lois Wolk.
“The audit released today, which I requested with my Delta colleagues, further illuminates the many flaws of the WaterFix Project,” said Eggman in a statement. “The findings reveal that after 11 years of planning there remain more questions than answers about the viability and benefits of the project. Significant cost increases, failure to follow state law regarding contracts, inadequate expertise, and the absence of economic analysis or a financial plan – this is what more than a decade of planning has resulted in.”
“One can only imagine the boondoggle that will result if this project were ever to advance to the construction stage. It is time for a different direction,” she concluded.
Likewise, Barbara Barrigan-Parrilla, Executive Director of Restore the Delta, said, “Both the state audit and federal audit have confirmed a misuse of taxpayer money and irresponsible financial planning for the Delta Tunnels. With this latest finding from the State Auditor, Westlands Water District’s withdrawal from the project, and Metropolitan Water District’s public staff statements that ‘they won’t have to pay for the tunnels if they don’t take water’ and that ‘the project could now be one or two tunnels,” California WaterFix is in complete disarray.”
“We cannot see how any public water agency can vote to support any percentage of this project as project planning basics are not in place,” she emphasized.
Barrigan-Parrilla noted that this audit was only made possible through research compiled by Restore the Delta policy analyst Tim Stroshane and by Pacific Advocates’ Patricia Schifferle.
“State Auditor Elaine Howle and her crack staff found that DWR mismanaged first the Bay Delta Conservation Plan and more recently the California WaterFix,” said Stroshane. “They failed to foresee the project’s complexity, used sweetheart deals to hire contractors, and failed to apply accountable management practices. Overall, DWR breached the public’s trust in its attempts to plan and implement Governor Jerry Brown’s tunnels vision.”
In September, the Inspector General (IG) for the U.S. Department of Interior determined that the Bureau of Reclamation improperly used over $84.8 million in federal taxpayer’s money in the planning process for Governor Jerry Brown’s Delta Tunnels project. The IG issued a 42-page report detailing the misuse of the money and the recommendations made to Reclamation to resolve the issue.
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A summary of the state audit can be viewed here.
The full report be viewed here.