Audit Report on the Department of Environmental Protection’s Oversight of Costs to Construct the Croton Water Treatment Plant

AUDIT REPORT IN BRIEF

We performed an audit of the Department of Environmental Protection’s (Department’s) oversight of costs to construct the Croton Water Treatment Plant (Plant).  The purpose of the Plant is to filter drinking water from the City’s Croton water system in order to comply with a 1998 Consent Decree with the federal government and New York State.  The Consent Decree was executed because the federal government had alleged that the City had failed to safeguard the quality of Croton water, thus violating the Safe Drinking Water Act, the Surface Water Treatment Rule, and the National Primary Drinking Water Regulation.

After legal disputes prompted the Department to investigate alternative sites for the Plant, the original 2007 completion date was extended to October 31, 2011, through supplements to the Consent Decree issued in 2002 and 2005.  The Department’s engineering consultant (a joint venture between Metcalf & Eddy and Hazen and Sawyer) was responsible for preparing designs and cost estimates for the Plant’s construction.  In an August 2003 “Enhanced Conceptual Design Report,” the joint venture estimated the cost of construction as $992 million, a figure that was reported in the Department’s 2004 Final Supplemental Environmental Impact Statement for the Plant’s construction.  As of February 2009, the Department had awarded construction contracts totaling $2.13 billion.

Audit Findings and Conclusions

The Department has generally administered the construction of the Croton water treatment plant effectively to ensure that actual costs are substantiated, reasonable, and necessary.  While we identified some problems in maintaining records for substantiating voucher payments, our review indicated that the Department has appropriate processes and internal controls for reviewing and approving payments to contractors.

However, we note that the actual cost to construct the Plant is much higher than was estimated by the Department when it reported in 2003 that the cost would be $992 million.  The actual cost of the contracts awarded by the Department by February 2009 totaled $2.13 billion—$1.14 billion higher than estimated.  Had the conceptual cost estimate complied with engineering standards for accuracy, the actual cost of construction would not have been expected to exceed $1.29 billion.  Accordingly, we concluded that the conceptual cost estimate was unreliable and could not be used as a gauge of the actual costs that would be incurred by the Department to construct the Plant.

Audit Recommendations

This report makes a total of six recommendations.  The major recommendations are that the Department should:

• Prepare written procedures for auditing payment vouchers in accordance with Comptroller’s Directive No. 7.
• Ensure that engineering audit office files contain appropriate evidence to show that substantiating documentation was reviewed.
• Ensure that conceptual cost estimates adhere to estimating guidelines in the Department’s “Cost Estimating Manual.”
• Develop conceptual cost estimates that contain sufficient substantiating information.
• Adjust cost estimates to include the anticipated effects of inflation in labor, equipment, and material costs.
• Adequately oversee the work of consultants preparing cost estimates, and review documentation used in their development.