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Chaos On the Lake

Photo by Robert YagerA week after the City Council voted to take over a $103 million construction contract on the beleaguered Owens Lake Dust Mitigation Project, the Department of Water and Power Board of Commissioners hauled managers in for questioning and called for an outside audit of the project’s prime contractor, Ch2M Hill. The five-member board, appointed by Mayor Antonio Villaraigosa, put pressure on the DWP to explain why costs have more than tripled at Owens Lake, from an initial estimate of $120 million to more than $400 million, despite City Administrative Officer Bill Fujioka’s written warnings that runaway costs would lead to increased water rates in March 2004. The project marks the DWP’s acceptance that it contributed to an environmental disaster in the high desert three hours north of L.A. by diverting water from the Owens Valley for decades.The Weekly, in a story in the October 14–20 issue, exposed widespread concern over the money pit dug by Ch2M Hill on the federally mandated Owens Lake project. DWP workers, regional air regulators and independent subcontractors alleged that the Colorado-based mega-firm has profited from its own shoddy work in irrigating the dry lakebed to reduce dust. As both engineer and construction manager on the six-year project, Ch2M Hill has been paid over $100 million for designing the project, then overseeing changes when their designs failed. Which, employees say, has been often.On Tuesday, during a marathon eight-hour board meeting, the new commissioners signaled that they intend to root out contracting waste and mismanagement at the DWP. “Start with specifics,” said Commissioner Nick Patsaouras. “I want a briefing on Ch2M Hill over the last six years, including contracts, amendments, change orders. I want to know who they are, and what they do.”Patsaouras and Commissioner David Nahai were appointed by President Mary Nichols as a two-man committee to reform the DWP’s contracting practices. They began by questioning the DWP’s Richard Harasick, who is overseeing the Owens Lake project. Harasick offered a little history: “Ch2M Hill was brought in as an expert witness in 1998 when forces throughout the state were lined up against us. There was legislation proposed that would have allowed Great Basin Air Pollution Control District to tell us how to run our water resources. The science [of reducing dust pollution] was uncertain and incomplete.”Harasick told the board that the DWP has spent $304 million thus far, of which $120 million is earmarked for Ch2M Hill. The contract began as a $550,000 sole-source consulting contract, he said. It soon rose to $12 million in 1998, then jumped to $13.9 million in 2001. Later that year, the DWP put out a bid for project design and construction management through 2007, Harasick said. Ch2M Hill was the low bidder, he said, adding that the board at the time approved amending the contract as it developed, to avoid paying a lump sum. That forced the council to approve a pair of retroactive amendments in 2002 and 2003, and a third one in 2004, according to the CAO’s 2004 report. “So we didn’t know where we were going,” Patsaouras broke in, “but we were going to take Ch2M Hill along for the ride. What a ride it has been.”The DWP lacked the resources to do the project on its own, Harasick continued. Ch2M Hill provides a valuable service by conducting a “shadow analysis” of Great Basin’s air-quality findings, he said, in addition to designing, then overseeing construction on, five out of six phases of the project. “So the fox is watching the chickens?” Patsaouras said. “They are protecting the design,” Harasick replied. “They should be protecting us,” Patsaouras said.General Manager Ron Deaton defended the DWP’s contracting and oversight policies. In explaining why Ch2M Hill has such a lock on a project that appears to have spun out of control, he stood by Harasick’s explanation that the firm offers valuable environmental and air-quality-management services. Harasick took responsibility for approving work on the Ch2M Hill contract, including millions of dollars of change orders.In response to Deaton’s and Harasick’s reminders that the DWP has been under a federal mandate to reduce dust pollution on a strict time schedule, board President Mary Nichols said the history of the DWP is to shirk responsibility until it gets “beat over the head” by the courts and federal and state regulators. “I want to know where every dollar, every penny is spent,” Patsaouras said. Added Commissioner David Nahai, “This contract has a spotlight on it now. These are huge numbers. Is there truth to the news reports? Are we going to take the position that there is none? If not, then how much is true? We should look at it under the microscope.”Throughout the day, Patsaouras referred to his experience as an MTA board member during a time in which the MTA was plagued by fraud and waste. He hammered DWP managers for specifics on a wide range of expenditures on other projects where costs also have escalated over time. “Piece by piece by piece. Amend, amend, amend. The board at MTA never knew. That’s what I’m seeing here.”Nahai drew attention to contingency clauses that allow DWP contractors to revise projects by up to 25 percent of the price. “These look like efforts to disguise change orders,” he observed. Patsaouras noted that at the MTA, change orders over $200,000 now require board approval. At the airport, the limit is $100,000. The Department of Public Works has a limit of $150,000, he said. On Phase 1 of the Owens Lake project, the DWP approved more than $20 million in change orders — right up to the contingency limit — Patsaouras said. “What a coincidence.” When he asked DWP Assistant General Manager Jim McDaniel if this was possible without board approval, McDaniel replied yes, Patsaouras said. “I was going to restrain myself. When I told the mayor this, he said, ‘I don’t believe it.’ ” Calls to Villaraigosa’s office were not returned.At the end of the day, the board ordered Deaton to prepare a plan to hire an outside accounting firm to audit Ch2M Hill’s contracts at Owens Lake and any other contracts relating to engineering and construction management on the project, along with a separate plan to hire a firm to audit 168 DWP contracts over $2 million that deal with time and materials, architects and engineers and construction management for the last five years. A veteran DWP employee who attended the meeting said the DWP should go back further. The employee said expenditures at the DWP have been on a course to overrun revenues for close to a decade. “If Patsaouras is true to his word, eventually he’ll get to the operational level where these contracts start to go south,” the employee predicted. “He’ll be able to connect runaway contracting costs with mismanagement, absenteeism, abuse of overtime and decrease in productivity.” The DWP board’S decision to act collided with action taken by the City Council last week to take over a $103 million contract with Barnard Construction Co., raising questions about whether the left hand is talking to the right. The new DWP board members previously approved the Barnard contract, but said they were not consulted before the council took it over.For the last year, however, DWP workers at Owens Lake have been telling the front office and city officials that the city’s ratepayers are being gouged. Water rates have increased 4 percent because of the project costs at Owens Lake, according to the CAO’s report in 2004. Workers said that action by the City Council, in particular Councilman Tony Cardenas, chairman of the Commerce Committee, is overdue. They pointed to Ch2M Hill’s political clout. Ethics Commission records show the firm and its lobbyists have contributed more than $70,000 to local politicians in the last five years, including former Mayor Jim Hahn, Cardenas and Villaraigosa.Workers at the DWP’s site in Keeler took note of a recent news story in which Cardenas was quoted as having “heard concerns from some DWP workers in the Owens Valley about wasteful spending.” They said that none of the 24 DWP workers on-site has ever had a conversation with Cardenas or his staff. A Cardenas spokesperson said he read about workers’ concerns in the Weekly. DWP workers believe the council is looking in the wrong place by taking over the low-bid construction contract awarded to Barnard.Cardenas should be looking at Ch2M Hill, the workers said. “Barnard may have done some shoddy work in the past, but Ch2M Hill engineered the job and ordered the work to be done,” said a DWP worker at Owens Lake, echoing the sentiments of several interviewed on Monday. “Barnard is coming in to move some dirt around, just like Kiewit or American Asphalt would have done if they were awarded the contract. But they take orders from Ch2M Hill. They got handed 100 pages of change orders from Ch2M Hill on their first day, before work even started.” In a recent interview, Councilman Bill Rosendahl, a member of the Commerce Committee, said he is looking forward to “asking questions and holding people accountable. That’s what I’m all about.” Rosendahl said he has faith in the new DWP board. The Commerce Committee was scheduled to meet Wednesday afternoon to discuss the Barnard contract. “The mayor has shown his commitment to the city by the commission he has picked. Choosing a pit bull like Nick Patsaouras is a great start.”Worker frustration over careless design and rising costs led to a recent visit by an employee-assistance counselor with Horizon Behavioral Services. After the Weekly reported the intervention, workers said, Harasick and DWP supervisors scrambled for answers — and attempted to shut down leaks of information. A memorandum from Gene Coufel, a supervisor at the DWP’s Northern District, instructed workers to channel all press inquiries to a PR specialist. “Why don’t they just do something about the situation?” said one worker, pointing to the DWP’s Terry Williams as another project supervisor who was upset about the news reports. “None of these guys have any balls. We’re not giving up our First Amendment rights. This is a waste of the public’s money.”