A biography Gardner submitted to the state says he is an economist with more than three decades of experience in program management, organizational leadership and strategic planning. On Hallmark’s website, he describes himself as a “project-turnaround specialist,” whose accomplishments include overseeing the development of the UC Merced campus in the early 2000s. -- Sabalow, Kasler, Sacramento Bee, Oct. 5, 2017
“They (the state) would have known that years earlier and adjusted the project or the plan accordingly,” Michael said. “To say we have to wait until the end to see who is in and out, it’s bad government.”Breitler, Stockton Record, Oct. 5, 2017
Tunnels audit heaps blame on state
State officials who have been planning the $17 billion Delta tunnels for more than a decade failed to determine whether the project pencils out financially and violated state law by hiring a high-level consultant who didn’t meet basic qualifications, according to a state audit released Thursday.
Meanwhile, planning costs for what’s now known as the California Water Fix have roughly doubled to about $280 million from $140 million, and the process has dragged on for years.
In better news for tunnels supporters, Thursday’s independent audit also found that no state general fund money has been used to date, which is consistent with long-standing promises that only those who benefit from the tunnels will pay for them.
But the federal government has quietly contributed its own funding, as recently revealed in a separate federal audit. In fact, the federal Bureau of Reclamation has contributed more money — about $81 million — than any of the benefiting water districts, the newest audit reports.
Assemblywoman Susan Eggman, D-Stockton, who requested the state audit last year along with Sen. Lois Wolk of Davis, said Thursday that the findings are “one more stick in the spokes of a bicycle that is going off the track.”
“I think the takeaway is they’ve been planning for 11 years and there’s no plan,” Eggman said. “It’s time to cut our losses and start working on a real solution.”
The audit suggests state officials should have already done a full financial study to answer basic questions like whether the tunnels should be built at all, and whether they will benefit California as a whole. That work has been started but never finished.
In a written response to the audit, state officials say they are waiting to find which water agencies will agree to pay their share for the tunnels before completing the studies.
“That’s completely backwards and it’s contrary to standard practice,” said University of the Pacific economist Jeff Michael, who began calling for a more rigorous financial study of the project six years ago. Michael has worked as a consultant for groups opposing the tunnels.
The auditors said a full financial analysis is “critical” to helping districts decide whether they should agree to pay for the tunnels — decisions that are being made this month. Had the full studies already been done, Michael said Thursday, officials would have had a better understanding of the sticker shock now being experienced by San Joaquin Valley farmers who voted last month not to pay for the tunnels.
“They (the state) would have known that years earlier and adjusted the project or the plan accordingly,” Michael said. “To say we have to wait until the end to see who is in and out, it’s bad government.”
Much of Thursday’s audit focuses on the state Department of Water Resources’ effort to bring a new program manager on board to oversee development of the plan.
In May 2008, DWR contracted with the engineering firm URS Corporation, which then selected a person to serve as manager, the audit says. Soon after, however, the state told URS to replace that person with the president of Sacramento-based Hallmark Group, identified on the company’s website as Charles Gardner.
The job was awarded without a competitive bidding process, the auditors wrote, and despite the fact that Gardner lacks an engineering license, something DWR had required of the previous manager.
“How can you not be an engineer and be in charge of creating the oversight and design for the second-largest public infrastructure project in California?” said Barbara Barrigan-Parrilla, head of Stockton-based Restore the Delta, which opposes the tunnels.
State officials told auditors that Hallmark had been recommended by the Metropolitan Water District of Southern California, which supplies 19 million southlanders with water from the Delta. The auditors wrote that they were “unable to ascertain why Metropolitan was interviewing candidates on behalf of DWR.”
“It reveals what a captured agency DWR is,” Barrigan-Parrilla said. “It is captured by the water contractors.”
The initial $4 million contract with Hallmark has since ballooned to $14 million, the auditors wrote.
“DWR 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,” they concluded.
The state defended its actions in a 13-page written response, saying that the change in program managers did not violate the law and that the consultant provided “excellent value and quality of services.”
The new manager was hired not for engineering expertise, state officials said, but to control costs. Other consultants were in charge of engineering. The state said Hallmark cut the number of staff by 40 percent and reduced costs by 65 percent.
“The facts demonstrate the high value that DWR and the project have received from the project manager’s performance,” DWR Director Grant Davis wrote.
In its own prepared statement, Hallmark officials said the tunnels project has won two “prestigious” awards under its management.
“Hallmark will not speculate on why an audit that was supposed to be focused on DWR’s general fund expenditures instead spent taxpayer dollars reevaluating Hallmark’s qualifications,” the company wrote.
The audit was released five days before Metropolitan’s Board of Directors is scheduled to decide whether to participate in the tunnels, a vote which is pivotal to the project since Metropolitan is expected to pay more than one-quarter of the $17 billion cost.
Delta tunnels consultant was paid millions, but auditor says the firm wasn’t qualified
Ryan Sabalow And Dale Kasler
The Delta tunnels project was just gaining steam, and a San Francisco engineering firm had outbid its competitors to win a $60 million, seven-year state contract to help plan the project.
But officials at the California Department of Water Resources weren’t happy with a manager that the company, URS Corp., had assigned to help oversee the planning process.
What the state did next was the focus of a highly critical state audit released Thursday. State Auditor Elaine Howle charged that DWR directed URS in 2009 to replace its employee with the president of a Sacramento consulting firm that lacked the qualifications to do the job, in what amounted to a no-bid multimillion-dollar contract that ran afoul of state contracting laws intended to ensure public dollars aren’t being wasted on unqualified firms.
A whistleblower cited in the audit raised questions about whether DWR – an agency in charge of overseeing billions of dollars of state water infrastructure as well as Gov. Jerry Brown’s $17.1 billion tunnels project – is routinely giving sweetheart no-bid deals to contractors without vetting them.
In a 97-page report on the tunnels planning process, Howle said the Sacramento company, Hallmark Group, was hired to work on the “conservation and conveyance” phase of the project. That phase has included evaluation of alternatives for rehabilitating the troubled Sacramento-San Joaquin Delta and planning for the chosen alternative: the Delta tunnels, which Brown’s administration says will improve water deliveries to south-of-Delta water agencies while improving the estuary’s ecosystem.
The $17.1 billion tunnels are to be paid for by the south-of-Delta water agencies that would benefit from them, and the audit said DWR hasn’t used any state taxpayer funds to plan the project. Nevertheless, state contracting laws still apply.
Howle’s audit said Hallmark “does not appear to possess the technical credentials or experience on relevant projects.” Howle said Hallmark’s hiring violated a state law that requires state agencies “that are contracting for architectural and engineering services to select contractors based on demonstrated competence and professional qualifications.”
State officials, however, said the audit misses the point of Hallmark’s work on California WaterFix, the official name of the project.
In a written response to Howle’s audit, DWR said Hallmark was perfectly qualified to do the work it was hired for: project management and cost control, not engineering work. “Within a year of being hired, Hallmark reduced staffing on the project by 40 percent, reduced monthly burn rate costs by 44 percent and within two years costs were reduced by 65 percent,” DWR said.
DWR said it complied with all state laws in contracting with Hallmark.
Hallmark president Charles “Chuck” Gardner Jr. wasn’t available for comment Thursday, but the firm issued a statement saying it’s “rightfully proud to play a significant role on the California WaterFix team, helping complete what by many accounts is one of the most complicated planning processes ever undertaken.”
A biography Gardner submitted to the state says he is an economist with more than three decades of experience in program management, organizational leadership and strategic planning. On Hallmark’s website, he describes himself as a “project-turnaround specialist,” whose accomplishments include overseeing the development of the UC Merced campus in the early 2000s.
Lester Snow, who was DWR’s director when Hallmark was brought in, said in an interview Thursday that Gardner’s lack of engineering credentials were irrelevant because his firm was hired to manage expenses, not oversee design of the project.
Hallmark’s work “did not include designing tunnels,” Snow said. “It was about cost control.”
The general manager of the Metropolitan Water District of Southern California, one of the leading advocates for the tunnels, said he insisted that DWR bring someone in to bring order to a chaotic process. Water districts “had spent $150 million, we had consultants all over the map ... with no cost containment, no management,” said general manager Jeff Kightlinger.
Kightlinger said Gardner “has done a good job.”
Hallmark eventually got its own no-bid contract, separate from URS, earning the company at least $13.8 million since being brought into the tunnels planning, according to the audit. A total of $280 million has been spent planning the tunnels.
However, the audit said Hallmark’s hiring may have contributed to rising costs. The audit said “Hallmark has had to subcontract many of the program management functions, and DWR is generally paying a markup of 5 percent.”
The hiring of a subcontractor without going through the normal vetting and bidding process is quite common, according to a DWR whistleblower whose emails were included in Howle’s audit.
“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,” the DWR employee said, according to the audit. “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.”
Howle’s audit comes at a critical time for the tunnels, which Gov. Jerry Brown’s administration says will improve water deliveries south of the Sacramento-San Joaquin Delta. The Westlands Water District, serving farmers in Fresno and Kings counties, last monthvoted against participating in the project, leaving a multibillion-dollar funding gap. Trying to keep the tunnels alive, the Metropolitan Water District of Southern California is expected to commit to a share of the project when its board votes next Tuesday.
Critics of the tunnels project said Hallmark’s hiring shows significant flaws in WaterFix. DWR chose a firm with “absolutely no experience in running a very large engineering project, or running a large water project,” said Patricia Schifferle, a Truckee environmental consultant and WaterFix opponent.
The audit said DWR brought in Hallmark based on recommendations from top officials at Metropolitan and Westlands, two of the largest south-of-Delta water agencies in the state.
“Nonetheless, DWR was unable to provide us with documentation of any assessments or with any other records supporting the selection of Hallmark,” the audit said.
Howle’s audit also criticized DWR for not completing an economic analysis of the tunnels project. Although the department released a draft economic analysis last year, Howle said a final analysis “is critical in determining whether water contractors are willing and able to pay for the construction” of the tunnels.
In a written response to Howle’s report, DWR said an economic analysis isn’t needed until it’s clear which south-of-Delta agencies will commit to the project. A DWR consultant “has already provided a wide range of financing options to water contractor governing boards as tools to enable each contractor to determine what financing option would best work for them,” DWR said in its response. “To date, we have received no requests for additional information.”
Barbara Barrigan-Parrilla of Restore the Delta, an anti-tunnels group, said the audit shows that the state is following a “completely backwards” process of trying to persuade water customers to pay for the tunnels before even finishing its financial analysis of the project.