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-- Plant to cost $1 billion-plus more than estimated, stretch well past target completion date; City to face $15 million in penalties-- 

New York City Comptroller William C. Thompson, Jr. today issued two audits finding fault with the Department of Environmental Protection's (DEP) management of the Croton Water Treatment Plant project.

One audit revealed that DEP will not be able to complete the construction, and begin operation of, the Croton Water Treatment Plant by the mandated deadline of October 31, 2011. The second found that the original estimate to construct the Plant was seriously flawed and the actual construction costs will now exceed $2 billion-- more than double the original estimate.

"The Department of Environmental Protection is carrying out one of the largest and most complex construction projects in New York City's history to ensure the safety of the City's water supply," Thompson said. "It is critical that this work be completed without further delay to ensure that our water remains clean and civil penalties are kept to a minimum."

"Unfortunately, the agency has failed to fully manage the Croton Water Treatment Plant project. Not only will DEP fail to meet the mandated deadline of opening the Plant, thereby exposing the City to almost $15 million in penalties, but it also underestimated the costs of the Plant by more than one billion dollars. Taxpayers deserve better."

"The Croton project is the biggest boondoggle in the City's history, and it's the taxpayers who are being soaked," said Assemblyman Jeffrey Dinowitz, whose 81st Assembly District covers the Bronx. "These audits by Comptroller Thompson make clear what many of us in the community have been saying for a long time, namely that the cost of the water treatment plant is totally out of control. I can only attribute these massive cost overruns to a DEP that has been less than honest and simply not competent enough to handle such a complicated project. What is particularly shocking is that the Mayor remains silent as more and more of taxpayer money goes down the drain."

You can view both audits at www.comptroller.nyc.gov.

The DEP is responsible for the daily delivery of approximately 1.1 billion gallons of drinking water to New York City and State consumers. In 1997, the federal government claimed that the City had failed to safeguard the quality of the ten percent of the City's water that is supplied by the Croton system, in violation of the Safe Drinking Water Act, the Surface Water Treatment Rule, and the National Primary Drinking Water Regulation. Therefore, in 1998, the Federal government and New York State executed a Consent Decree in which the City agreed to construct and put into operation by 2007 the Croton Water Treatment Plant.

Supplements to the Consent Decree were issued in 2002 and 2005, extending the completion date to October 31, 2011. The Second Supplement contains 44 design and construction milestones that the DEP must fulfill between 2003 and 2011 in order to complete the Plant on schedule. Failure to attain these milestones and complete the Plant on time will subject the City to monetary penalties.

The Croton Water Treatment Plant is being constructed 80 feet below a portion of Van Cortlandt Park at the Mosholu Golf Course in the Bronx. It is designed to treat up to 290 million gallons of water daily from the City's Croton water system. In 2003, the DEP estimated that the cost to build the Plant was $992 million; the current cost is more than $2 billion.

The first audit examined whether the DEP has developed a plan to carry out the construction in accordance with the Consent Decree's requirements and timeframe, whether the work completed has been in accordance with the plan and the established timeframes, and whether the DEP will be able to complete the construction in accordance with the timeframes. The second determined whether the DEP effectively administered the construction of the Croton Plant to ensure that costs were substantiated, reasonable and necessary. Both audits covered Calendar Years 2003 to 2009 and were initiated in April 2008.


Audit 1: Pace of Construction

In this audit, auditors found that while much of the work completed to date is in accordance with established timeframes, the DEP will still not be able to complete the overall construction of the Plant and commence operations in accordance with the terms of the Consent Decree.

The Consent Decree requires that the DEP commence operations of the Plant by October 31, 2011.  However, the DEP's own progress report indicates that the Plant will not be ready for operations until April 11, 2012--164 days later than required. As a result, the City may be liable for $10,913,000 in penalties in addition to the more than $4.7 million already assessed against the DEP.

The DEP will not meet the stipulated Consent Decree deadline due to a problem in the awarding of the contract for the Plant's phase-one construction. A contract was awarded on May 11, 2007 for work that began on August 21, 2007--195 days after the required milestone date. As a consequence, contracts for mechanical, electrical, and plumbing work also were delayed. Auditors further noted that even if the phase-one contract had been awarded in a timely fashion, the DEP would still not be able to complete construction on time due to delays in completing designs and beginning construction of the Plant's off-site facility improvements.

The delay in awarding off-site facility contracts compromised the DEP's ability to complete required Plant startup and commissioning testing on time. The DEP should be able to complete construction of the Plant by October 11, 2011, thereby providing a six-month testing period so that the Plant can become operational by April 11, 2012. According to the DEP's schedule, however, critical work will not be completed until February 10, 2012--just nine weeks before the Plant must become operational.

"I am very concerned about certain risks in the DEP's plan and timetable," Thompson said. "Nine weeks leaves very little leeway to complete required commissioning testing before the Plant is to become operational. If the DEP had begun the off-site improvement work on time, the work could have been completed by February 15, 2010--almost two years earlier than the DEP currently anticipates."

Thompson said the DEP also has missed certain milestone dates for which the New York State Interim milestones, the DEP was required to fulfill 33 by the close of the auditors' field work on October 15, 2008. According to the New York State Department of Health, however, the DEP did not achieve three milestones and two interim milestones by that date. 

Audit 2: Controls Over Costs


This audit revealed that the DEP severely underestimated the actual costs of the construction by more than $1 billion dollars.

According to the DEP's August 2003 "Enhanced Conceptual Design Report" and 2004 "Final Environmental Impact Statement," the cost to construct the Plant was estimated to be $992,462,918.  However, the total amount of the contracts that have been awarded by the DEP as of February 2009 was $2,137,045,745, representing a 115 percent increase above the estimated cost. 


The DEP initially stated, and auditors confirmed, that the 2003 conceptual cost estimate was based on a design that was 30 percent complete. However as the audit was completed, the DEP attempted to justify the swollen costs by stating that the design was only 10 percent complete.


"The DEP's gross underestimation of the actual cost of the Croton Plant is utterly disturbing," Thompson said. "The DEP has now stated that the conceptual design upon which the Plant cost was estimated was at most about 10 percent complete. If this was the case, the DEP should not have estimated the cost or led the public to believe that the $992 million estimate was reasonable."


Auditors found serious flaws with the conceptual cost estimate. The estimate was not based on appropriate design drawings, lacked documentation to substantiate costs of design revisions, tunnel work, and off-site facilities, and contained calculation errors.


Thompson said the estimate was unreliable because it was not adjusted to include the anticipated effects of inflation in labor, equipment, and materials costs that would have been expected for a long-term project like the Plant. Auditors determined that these additional costs due to inflation for 2003 to 2008 would have ranged from $310,802,418 to $359,190,840.




Based on both audits' findings, Thompson made 16 recommendations, telling the DEP to:


·         Immediately complete any outstanding designs, solicit bids, award contracts, and commence work for all remaining off-site facility construction contracts;

·         Incorporate construction schedules for off-site facility work in the overall Plant progress schedule;

·         Effectively plan and manage the critical off-site facility work to ensure its completion within sufficient time to undertake adequate Plant testing and commencement operations;

·         Ensure that it completes all required work in accordance with the timeframes prescribed in the Consent Decree;

·         Consult with the New York State Department of Health and seek a waiver for any assessed and potential penalties;

·         Ensure that the work of design consultants is properly supervised and tracked;

·         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; and,

·         Adequately oversee the work of consultants preparing cost estimates, and review documentation used in their development.