Report 2016-132 All Recommendation Responses

Report 2016-132: Department of Water Resources: The Unexpected Complexity of the California WaterFix Project Has Resulted in Significant Cost Increases and Delays (Release Date: October 2017)

Recommendation for Legislative Action

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.

Description of Legislative Action

Assembly Bill 2543 (Eggman) would require each state agency or department authorized to undertake any infrastructure project costing $1 million or more to publicly post on its website any change in the cost or schedule of the project that would result in the project exceeding its established budget by 10 percent or more or being delayed by 12 months or longer. The bill would require the posted information to describe how much the project is expected to exceed its established budget or delay its construction schedule.

  • Legislative Action Current As-of: April 2018

California State Auditor's Assessment of 6-Month Status: Legislation Introduced


Recommendation #2 To: Water Resources, Department of

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.

6-Month Agency Response

DWR continuously strives to improve its transparency, project management, monitoring, and usable metrics related to large infrastructure projects. To this end, DWR will evaluate its existing policies and procedures related to increases in project cost and delays in project schedules. DWR will then develop or amend policies and procedures if needed to include a mechanism for reporting material cost and time increases to the public. DWR will update its progress on this issue at the next periodic report to the State Auditor.

  • Estimated Completion Date: Unknown
  • Response Date: April 2018

California State Auditor's Assessment of 6-Month Status: No Action Taken


60-Day Agency Response

This recommendation does not make a distinction between the planning phase of a project and the design and construction phase. DWR believes this is an important distinction, as evidenced in the Report's findings for the planning phase of the WaterFix. The recommendation presupposes that an extension of time during a project planning phase is something that has a negative consequence. This recommendation has limited applicability here, since decisions regarding this project were made in response to stakeholder input and public comments to increase the range and scope to better meet the needs of the state. The planning process for large infrastructure projects is complex and subject to changing requirements and scope from a variety of sources including regulating agencies, project proponents, stakeholders, and the public at large. As seen with WaterFix, this results in increases in scope and schedules that are beyond the control of DWR. Limiting the Department's ability to be responsive to stakeholder input during complex "planning" efforts would be counterproductive.

  • Response Date: December 2017

California State Auditor's Assessment of 60-Day Status: Will Not Implement

Our recommendation does not presuppose that time delays have a negative consequence, rather that they should be thoroughly justified and vetted. The recommendation does not limit DWR's ability to be responsive to stakeholder input, but would require DWR to consciously and transparently consider that input before making decisions that affect project cost and schedule, whether during planning or other phases of the project.


Recommendation #3 To: Water Resources, Department of

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.

6-Month Agency Response

The Department has prepared Water Resources Engineering Memorandum (WREM) 74 which describes the fund's intended use and approval processes to be followed for a proposed new activity supported by Water Code section 12937(b)(4) funds. The proponent of a new activity proposed to be funded by (b)(4) prepares a charter explaining the objective of the new project, the project purpose and background, project scope, and other details required as shown in the attached "DWR SWP Project Initiation and Management, Project Charter (DWR 9670) Instructions" document. This proposed charter will be routed through the project proponent's chain of command for approval, and will also require the approval of DWR Executive Managers including the State Water Project Deputy Director and DWR's Director.

Once approved, the State Water Project Analysis Office will provide monthly reporting on all (b)(4) projects, including the new project, in the Projected Priority 4 Balance Report. This report will be provided to the Director, Chief Deputy Director and SWP Deputy Director at least quarterly. DWR plans that this process will be effective during April, 2018.

Will Implement.

  • Completion Date: May 2018
  • Response Date: April 2018

California State Auditor's Assessment of 6-Month Status: Pending


60-Day Agency Response

DWR has already defined a process for use of expenditure of (b)(4) funds in December 2016. DWR is working on developing and implementing a business process to formalize comprehensive procedures for proposing, approving, and tracking projected Priority 4 revenues and associated uses with implementation to start by the end of the first quarter of 2018. We will have an outline for the detailed business process in place by the end of December 2017.

  • Estimated Completion Date: 4/1/18
  • Response Date: December 2017

California State Auditor's Assessment of 60-Day Status: Pending


Recommendation #4 To: Water Resources, Department of

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.

6-Month Agency Response

Although the Department disagrees with the Auditor's view, DWR has complied with the Auditor's recommendations. Enhanced procedures for documenting DWR's evaluation of Architectural and Engineering contractors and subsequent subcontractors have been developed and will be implemented in April, 2018. For prime contracts, DWR will retain evaluation scores from the competitive selection process and other contract documents in the contract file. DWR has also identified a procedure to document the competence and qualifications of subcontractors added to the contract after the selection process, and will also maintain the subcontractor evaluation scores in the contract file.

Will Implement.

  • Estimated Completion Date: Unknown
  • Response Date: April 2018

California State Auditor's Assessment of 6-Month Status: Pending

We disagree that DWR has complied with our recommendation. DWR has developed procedures for documenting its evaluation of architectural and engineering contractors and for documenting the competence and qualifications of subcontractors. However, DWR has not documented its evaluation of Hallmark's competence or qualifications to provide program management services, services which must be performed by a licensed engineer or general contractor. Nevertheless, DWR has continued to extend the duration of its program management contract with Hallmark.


60-Day Agency Response

The Department will continue to comply with state contracting law including the processes outlined above. Enhanced procedures for documenting DWR's evaluation of Architectural and Engineering contractors and subcontractors have been developed and are in the process of final internal approval.

  • Estimated Completion Date: 2/28/18
  • Response Date: December 2017

California State Auditor's Assessment of 60-Day Status: Pending

As we stated in our report, we do not believe DWR followed state law when it replaced the program manager for the conservation and conveyance program.


Recommendation #5 To: Water Resources, Department of

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.

6-Month Agency Response

It continues to be DWR's position that the Department must have the ability, when necessary, to work with a contractor to ensure the most highly qualified subcontractor is chosen to accomplish the contract's specified tasks. As shown in our response to Recommendation 4, above, DWR has developed procedures to ensure only the most qualified subcontractors are selected. We feel it is in the State's best interest for the process to remain as shown in this updated procedure. Will not implement.

  • Response Date: April 2018

California State Auditor's Assessment of 6-Month Status: Will Not Implement

We disagree with DWR's position. To reduce the risk of DWR directing contractors to select particular subcontractors, DWR should require its contractors to select the most highly qualified subcontractor, and DWR should then verify the subcontractor's qualifications before it approves the selection.


60-Day Agency Response

It is essential that DWR work with a contractor to identify the specific tasks for which a subcontractor will be required. Additionally, it is important to convey to the contractor the expertise and qualifications necessary of the subcontractor in order to ensure the most highly qualified subcontractor is chosen to accomplish the specified tasks. The Report's Recommendation, above, isolates DWR from such consultation. Without these communications, time is unnecessarily expended while the contractor attempts to obtain a suitable sub-contractor without the benefit of input from DWR.

  • Response Date: December 2017

California State Auditor's Assessment of 60-Day Status: Will Not Implement

We disagree. Our recommendation is intended to reduce the risk that DWR will direct contractors to select specific subcontractors. We stand by our recommendation that the contractor should put forth the subcontractor it believes will best perform the work required by the contract and DWR should verify the qualifications of that subcontractor before approving the selection.


Recommendation #6 To: Water Resources, Department of

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.

6-Month Agency Response

The Department has updated its Architectural and Engineering contract procedures to fully implement the Auditor's recommendation. To ensure files contain price/rate documentation, a separate memorandum will be placed in the contract files identifying what contracts were used as a price/rate comparison. The memorandum will also identify any other data that was used in review of contract price/rates. This policy and procedure was implemented on January 26, 2018 when it was disseminated to Architectural and Engineering contract staff via email on January 26, 2018.

Additionally, Task Order Procedures were updated to require the Program Manager to document in files that all deliverables have been identified and received.

Implemented.

  • Completion Date: May 2018
  • Response Date: April 2018

California State Auditor's Assessment of 6-Month Status: Fully Implemented


60-Day Agency Response

The Department has updated its Architectural and Engineering contract procedures to include a separate memorandum in the contract file identifying what other contracts were used as a price/rate comparison, and to identify any other data that was used in review of contract price/rates.

  • Completion Date: November 2017
  • Response Date: December 2017

California State Auditor's Assessment of 60-Day Status: Pending

  • Auditee did not substantiate its claim of full implementation
  • Auditee did not address all aspects of the recommendation

Recommendation #7 To: Water Resources, Department of

To ensure that DWR manages WaterFix in an effective manner, DWR should complete both the economic analysis and financial analysis for WaterFix and make the analyses publicly available as soon as possible.

6-Month Agency Response

On February 12, 2018, the Department completed and made available an economic analysis based on "staged" implementation of WaterFix. This economic analysis for this staged project can be found here: https://www.californiawaterfix.com/economic-analysis/?utm_source=CA+Water+Fix+Update+Issue+%2336&utm_campaign=CA+WaterFix+Update+Issue+35&utm_medium=email DWR is considering this proposal for a staged construction in order to preserve options that may be required depending on final participation of the SWP and CVP public water agencies. However, as coordination with the SWP and CVP public water agencies continue, there may be revisions to this economic analysis and the Department will complete and make available a revised economic analysis and financial analyses once the exact levels of participation of the SWP and CVP public water agencies and the implementation schedule for the project is determined. Partially Implemented.

  • Estimated Completion Date: Unknown
  • Response Date: April 2018

California State Auditor's Assessment of 6-Month Status: Partially Implemented


60-Day Agency Response

The Department will complete and make available economic and financial analyses once the exact level of participation of each public water agency and the implementation schedule for the project is determined.

  • Estimated Completion Date: Unknown
  • Response Date: December 2017

California State Auditor's Assessment of 60-Day Status: Pending


Recommendation #8 To: Water Resources, Department of

In order to prepare for the potential approval of WaterFix and to ensure that the project is managed properly during the design and construction phase, DWR should develop an appropriate governance structure so that it is prepared to oversee the design and construction of WaterFix in the event it is ultimately approved.

6-Month Agency Response

A governance structure has been developed with the public water agencies and will be implemented when the project moves into the implementation phase. Will Implement.

  • Estimated Completion Date: Unknown
  • Response Date: April 2018

California State Auditor's Assessment of 6-Month Status: Pending


60-Day Agency Response

A governance structure has been developed with the public water agencies and will be implemented when the project moves into the implementation phase.

  • Estimated Completion Date: Unknown
  • Response Date: December 2017

California State Auditor's Assessment of 60-Day Status: Pending


Recommendation #9 To: Water Resources, Department of

In order to prepare for the potential approval of WaterFix and to ensure that the project is managed properly during the design and construction phase, DWR should develop and update when necessary the associated program management plan for the design and construction phase of the project.

6-Month Agency Response

The Department will carry out this recommendation prior to the implementation phase. Will Implement.

  • Estimated Completion Date: Unknown
  • Response Date: April 2018

California State Auditor's Assessment of 6-Month Status: Pending


60-Day Agency Response

The Department will carry out this recommendaton prior to the implementation phase.

  • Estimated Completion Date: Unknown
  • Response Date: December 2017

California State Auditor's Assessment of 60-Day Status: Pending


All Recommendations in 2016-132

Agency responses received are posted verbatim.