<DOC>
[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:95261.wais]
S. Hrg. 108-810
INVESTIGATION INTO THE BUREAU OF RECLAMATION'S ANIMAS-LA PLATA PROJECT
=======================================================================
HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
SPECIAL HEARING
MARCH 24, 2004--WASHINGTON, DC
__________
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__________
COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky TOM HARKIN, Iowa
CONRAD BURNS, Montana BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama HARRY REID, Nevada
JUDD GREGG, New Hampshire HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas MARY L. LANDRIEU, Louisiana
James W. Morhard, Staff Director
Lisa Sutherland, Deputy Staff Director
Terrence E. Sauvain, Minority Staff Director
------
Subcommittee on Energy and Water Development
PETE V. DOMENICI, New Mexico, Chairman
THAD COCHRAN, Mississippi HARRY REID, Nevada
MITCH McCONNELL, Kentucky ROBERT C. BYRD, West Virginia
ROBERT F. BENNETT, Utah ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana PATTY MURRAY, Washington
LARRY CRAIG, Idaho BYRON L. DORGAN, North Dakota
CHRISTOPHER S. BOND, Missouri DIANNE FEINSTEIN, California
TED STEVENS, Alaska (ex officio)
Professional Staff
Tammy Cameron
Scott O'Malia
Drew Willison (Minority)
Nancy Olkewicz (Minority)
Roger Cockrell (Minority)
Administrative Support
Erin McHale
C O N T E N T S
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Page
DEPARTMENT OF THE INTERIOR
Opening Statement of Senator Pete V. Domenici.................... 1
Statement of Senator Ben Nighthorse Campbell..................... 3
Prepared Statement of Senator Wayne Allard....................... 4
Statement of Bennett W. Raley, Assistant Secretary, Water and
Science, Department of the Interior............................ 5
Prepared Statement........................................... 9
2003 Project Construction Cost Estimate.......................... 9
The 1999 Project Construction Cost Estimate...................... 10
Costs To Comply with Public Law 93-638........................... 10
Communications Between Reclamation and Project Sponsors.......... 11
Conclusion and Next Steps........................................ 11
Additional Committee Questions................................... 19
Questions Submitted by Senator Pete V. Domenici.................. 19
Schedule and Cost................................................ 19
Legislated Cost Ceiling.......................................... 19
Cost Reimbursement............................................... 20
Changes in Design and Construction............................... 20
638 Process...................................................... 20
Bureau of Reclamation Processes.................................. 21
NONDEPARTMENTAL WITNESSES
Statement of Howard D. Richards, Sr., Chairman, Southern Ute
Indian
Tribe.......................................................... 27
Prepared Statement........................................... 28
Statement of Selwyn Whiteskunk, Councilman, Ute Mountain Ute
Tribe.......................................................... 31
Prepared Statement........................................... 33
Statement of Mike Griswold, President, Animas-La Plata Water
Conservancy District........................................... 38
Prepared Statement........................................... 39
Statement of L. Randy Kirkpatrick, Executive Director, San Juan
Water Commission............................................... 42
Prepared Statement........................................... 42
Prepared Statement of John R. D'Antonio, Jr., State Engineer, New
Mexico......................................................... 52
Prepared Statement of Phil Doe, Chair, Citizens Progressive
Alliance....................................................... 52
Prepared Statement of Russell George, Executive Director,
Department of Natural Resources, State of Colorado............. 54
Historical Context............................................... 55
The 1986 Settlement Agreement and Subsequent Legislation......... 56
Colorado Ute Settlement Act Amendments of 2000................... 57
The Indian Self-Determination and Education Assistance Act
(ISDEAA)....................................................... 57
Public Law 93-638................................................ 57
Additional Committee Questions................................... 58
Questions Submitted to Mike Griswold............................. 58
Questions Submitted by Senator Pete V. Domenici.................. 58
Level of Involvement by Paying Partners.......................... 58
Required Out Year Funds.......................................... 59
Questions Submitted to L. Randy Kirkpatrick...................... 60
Questions Submitted by Senator Pete V. Domenici.................. 60
BOR Contract Obligations......................................... 60
Level of Involvement by Paying Partners.......................... 61
Required Out Year Funds.......................................... 61
Question Submitted to the Ute Mountain Ute Tribal Council........ 62
Question Submitted by Senator Pete V. Domenici................... 62
638 Process...................................................... 62
INVESTIGATION INTO THE BUREAU OF RECLAMATION'S ANIMAS-LA PLATA PROJECT
----------
WEDNESDAY, MARCH 24, 2004
U.S. Senate,
Subcommittee on Energy and Water Development,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 10:03 a.m., in room SD-124, Dirksen
Senate Office Building, Hon. Pete V. Domenici (chairman)
presiding.
Present: Senators Domenici and Campbell.
DEPARTMENT OF THE INTERIOR
STATEMENT OF BENNETT W. RALEY, ASSISTANT SECRETARY,
WATER AND SCIENCE
ACCOMPANIED BY:
WILLIAM E. RINNE, DEPUTY COMMISSIONER/DIRECTOR OF OPERATIONS
RICK EHAT, PROJECT CONSTRUCTION ENGINEER
opening statement of senator pete v. domenici
Senator Domenici. First let me welcome the witnesses and
thank you all for making time to participate in this hearing. I
would also like to thank all the parties for the courtesy and
professionalism that they have shown my staff in preparing for
this hearing. It is my intent that this hearing examine the
issues relative to Animas-La Plata, specifically the increase
to the estimated cost project that were revealed last year. Let
me begin then.
We in the West are facing great challenges when it comes to
available water supply. The Bureau knows that. If they do not
they should. The current drought makes this challenge even more
daunting at the same time our country faces other great
challenges; reducing the debt, sustaining economic prosperity
and protecting our environment. All these forces are brought to
bear on large infrastructure projects such as this one. I think
that all of us in this room understand the importance of
providing sustainable water to the arid regions of the country.
But we also understand that this must be balanced with
environmental-sensitive and good economic stewardship.
Let me start off by saying that I am committed to the
construction of ALP. I prudently believe that the Animas-La
Plata Project is important and I join with Senator Campbell,
who has been the principal leader--Hi, Senator Campbell--
because this project is important to the West for numerous
reasons. Being able to store available water is a critical
element in providing a reliable supply of water to the western
United States for there is usually not a reliable flow of
sufficient water in streams, rivers to meet needs. This project
is crucial to providing a degree of certainty to all the
interests who depend on reliable water supply, whether they are
agricultural or environmental. This certainty in turn fosters
long-term economic health necessary to continue a way of life.
The Animas-La Plata Project is also somewhat unique in that it
serves as a central mechanism to settlement once and for all of
long-disputed tribal rights in the Four Corners area. In fact,
like it or not, in many ways this project is being looked at as
the vanguard when it comes to settlement mechanism, and as such
it is being highly scrutinized through the western United
States. I do not think I have spoken to anyone who deals with
water in the West who has not heard of the Animas-La Plata
Project. Having said that, I will get to the issue of today's
hearing.
Regardless of how important this project is we cannot
proceed with the idea that it will be completed at any cost.
That will not work. We cannot continue down the path that is
perceived as carte blanche expenditures of Federal tax dollars.
This project, like every other project in which the Federal
Government participates, must be managed such that the
taxpayers get the best return on their money. The American
taxpayer must have confidence in the Federal projects in that
they are being implemented in a fair and reasonable manner for
a fair and reasonable price. We here in Congress are
responsible for making the decision to go forward with these
projects based on information and analysis that you provide us.
This cannot be taken lightly. The Congress must have confidence
that their decisions are being based on complete and accurate
information and when the Federal Government says that a project
is going to cost x number of dollars the taxpayer must have
confidence that when we in fact execute the project that we
will do that for that amount. I was astounded to learn that
last fall, of the $162 million increase in the cost estimate of
this project. Now I know that it is not unusual for projects to
creep up in price once they get underway, but 50 percent
increase, from $338 to $500 million for me is unacceptable. The
task at hand, and it starts today, is make sure that this
never, never happens again. I understand from the report to the
Secretary that there are several contributing factors to the
grossly underestimated cost and I hope to examine these today.
If I run out of time we will get you to give us the answers and
if we have to we will call you back. But more important, a
mutual understanding of what will be done to prevent this
incident from happening again is terribly important.
I would like to welcome Mr. Bennett Raley, Assistant
Secretary of the Department of the Interior for Water and
Science. We welcome you and thank you for coming. Accompanying
him is Mr. Bill Rinne. Is that how you say your name?
Mr. Rinne. Rinne, Rinne, sir.
Senator Domenici. Rinne. Who is with us today to provide
the subcommittee with an overview of the 638 Contracting
process. Six-thirty-eight refers to Indian Self Determination
and Education Assistance Act. Senator Campbell and I are fully
aware of that Act. We certainly did not promote it with the
idea that it would be the cost of such overruns as this, if
that is the case. I am not sure it is but my friend, Senator
Campbell is nodding, and if it is that is not what we intended.
So when 638 refers to Self Determination and authority utilized
for all aspects of Animas-La Plata. It will be part of the
first panel and I will begin by having Mr. Raley do his opening
statement after I let Senator Campbell talk. And then if we
could have your 638 specialist provide us an overview we will
begin on questions and I would appreciate it if you would give
us frank answers and that you not fear telling us if it is 638
that is not working, tell us.
Our second panel we have a host of witnesses representing
both the non-Federal sponsors, local water authorities, tribes
that are party to the project. We appreciate you all taking
time to be with us.
With that, Senator Campbell, would you care to make your
opening remarks?
STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL
Senator Campbell. Thank you, Mr. Chairman. First, I'd like
to, with your permission, submit for the record a statement
from Senator Allard, who could not be here this morning. If
that would be all right? And second, I have to chair another
hearing at 11:00 so I am going to stay as long as I can but I
do have all of the testimony in writing here that I will read
at length.
Senator Domenici. Senator, I intend to come to your hearing
so we are going to break here in time.
Senator Campbell. Thank you, thank you.
Senator Domenici. If you will make sure that you say there
that I am late and I am coming.
Senator Campbell. Yes, I will, thanks. We will have a vote
in the middle of that hearing, as you know, but we will keep
that going.
As you know, Mr. Chairman, the Animas-La Plata is very
important to southwestern Colorado and the northwest part of
your State too, and it was an effort that you and I both worked
on for a number of years. This was originally authorized, I
don't think a lot of people know it, but was authorized clear
back in the 1950's when Congressman Wayne Aspenall from western
Colorado was in the House as the Chairman of the Interior
Committee. It was authorized at the same time as the Central
Arizona Project in the Central Utah Project, and never was
built. And for years, since I first came to Congress, I have
worked on this but the fight even goes back farther than that,
clear back to 1868 when the Ute tribe signed a treaty with the
United States that was never honored. And of course, as we both
know in the history of the United States government, when
dealing with Indian tribes most of them were never honored,
unfortunately. But the Colorado Ute Indian Water Rights
Settlement Act, as it was called, of 1988 was the bill that I
first introduced when I came to Congress 18 years ago to try to
move the project again. And as I leave the Senate my goal
certainly is to make sure that this project is on-line with no
further unexpected bumps in the road.
I am just as concerned as you are about the size of the
cost overrun. The revised estimates increased the cost of over
$162 million, as you have mentioned. That is a lot of money.
And I am the last person who wants to spend more Federal money
on unexpected cost overruns. But this is certainly unexpected
for all of us. I was astounded when I was told by Secretary
Norton that there was a cost overrun. But it is the United
States' honoring of a treaty that was signed in 1868. I think
we need to look at that foremost. And also, we need to look at
why these overruns have occurred to make sure that there is no
additional cost to be incurred by the project in the future, as
you have already mentioned. I know there has been some
discussion about whether the 638 Contracting is largely to
blame for the overruns. After examining the numbers as closely
as I can I do not think there is a basis for that claim. While
there are some additional costs associated with tribal
contracting, some additional costs were envisioned by the Self
Determination Act and the 638 costs on the Animas-La Plata
contract are well within the normal range. Part of the problem,
in my view, is that there is a lot of confusion about what 638
Contracting is and is not. The Self Determination Act allows
certain Federal agencies to contract with Indian tribes to
conduct government programs or build Federal projects that are
intended to serve Indian people. The act is intended to benefit
tribes by permitting them to obtain the experience necessary to
compete in today's complex business and governmental world. The
Act also recognizes that active tribal participation in
programs and projects to serve Indian people will result in a
product that is more likely to meet the needs of the tribes and
tribal members. What 638 Contract is not, however, is a blank
check to tribal organizations to build a project no matter what
it costs. And you have certainly spoken to that. These
contracts are very carefully negotiated, there are extensive
scoping sessions, determinations of fair and reasonable prices,
partnering agreements, secretarial revisions of plans based on
tribal concerns and many other procedures to ensure that the
government is not blind-sided by unexpected costs. And I want
to make one thing very clear. The increases caused by these
cost overruns should not and will not be passed on to local
water users. The local water users did not know that there
would be cost overruns and I think it would be unfair to have
them have to pick up the slack.
PREPARED STATEMENT OF SENATOR WAYNE ALLARD
Thank you, Mr. Chairman, I am looking forward to the
testimony as long as I can stay.
Senator Domenici. Senator Allard's statement will be
inserted for the record.
[The statement follows:]
Prepared Statement of Senator Wayne Allard
Thank you, Mr. Chairman, for allowing this statement to be
presented before the committee. After listening to the testimonies
presented today, it will become quite evident that the history of the
Animas-La Plata project has been one of compromise and challenge. The
witnesses gathered today have spent decades working toward the
fulfillment of this project, including my colleague, Senator Ben
Nighthorse Campbell.
Growing up in rural Colorado and throughout my tenure as a public
servant, the Animas-La Plata conflict endured. In fact, it continued
for more than three decades until the authorizing amendment passed in
2000. Until that point, every time water and water projects were
discussed, the promises and unsettled claims to the Colorado Ute Indian
Tribes persisted. Today, 4 years after the historic agreement of 2000,
the Federal Government is fulfilling its obligation to the Ute Indian
Tribes and to satisfy the water treaty obligations. Dirt is finally
moving and the reality of a promise fulfilled is beginning to take
shape.
I would like personally to commend Senator Campbell for his
tireless efforts from his days in the House of Representatives to his
current time in the Senate and through four different presidential
administrations to fulfill our Nation's treaty obligations.
The current situation, indeed the reason for this hearing, has
caused a moment for responsible reflection. I am concerned, as is
everyone here, about the cost overruns. I also realize that we are all
here today to assure that future projects learn from ALP. However, I
would reiterate to the Committee that there remains strong support for
this project from citizens and locally elected officials. I have no
doubt that the issues brought forward today will build a stronger
partnership between the Bureau and all Section 638 partners. It took
130 years for Congress and the administration to recognize the
responsibility to build the project. I will continue to support the
efforts of local partners and the efforts of Senator Campbell today,
through completion of the project, and long after.
Thank you Mr. Chairman.
Senator Domenici. Senator Campbell, let me say, while I
have joined you along the way from the original down to Animas-
La Plata right to this day, I am sorry we will not have you
around for a longer period of time. But I hope that during the
ensuing months before you leave us that you will join in making
sure, with me and others, that we can finish it in a reasonable
manner. And a reasonable manner does not mean these kinds of
overruns or we will end the project in the middle. And that is
what will happen.
Now with that I want to start. Secretary Raley, would you
please give us your statement? Brief it. It will be made a part
of the record at this point.
STATEMENT OF BENNETT W. RALEY
Mr. Raley. Thank you, Mr. Chairman, Senator Campbell. I
want to thank you for this opportunity, and I mean that very
seriously. My presence here today is simply a function and a
reflection of the seriousness with which Secretary Norton and
myself and the Commissioner take the construction cost estimate
increase. We were horrified, as you are, to find it out, that
it existed. And Secretary Norton directed, immediately, that
there be an exhaustive review of the reasons. We're here today
to report on those reasons. But I want to harken back to your
comments before the hearing started, Mr. Chairman. You said,
well, come up and shake hands while we start friends. I know
we'll end friends, Senator, because friends have the obligation
to be honest with one another. We will be honest with you and
we will be honest with the public with respect to what happened
here. We will depart friends because we share the same goals,
protecting the public interest and moving forward with the
Animas-La Plata Project in fulfillment of the United States'
obligations to the tribes, once, finally we hope.
With me today are Bill Rinne, Deputy Commissioner of
Reclamation and Rick Ehat, Project Construction Engineer. Mr.
Rinne, in fact, was tasked by the Commissioner, having not had
involvement in the Animas-La Plata Project, to assemble a team
within Reclamation of individuals that had not been directly
involved in the Animas-La Plata Project, to do a review on
lessons learned. Mr. Ehat, as you know, is the man on the
ground, on the point to help us fulfill our obligations to you
and the public. Senators, Mr. Chairman, these two gentlemen
have my trust and I hope that they will earn yours.
We're here today to discuss what the Department has learned
from the Animas-La Plata experience. More importantly, we're
here to discuss what the Department and Reclamation have done
and will do in order to assure both you and the public that the
Animas-La Plata and future Reclamation projects will be
constructed in a cost-effective manner based on the best
information available. As I said before, I want to assure you
that the Secretary, myself and the Commissioner were deeply
disturbed when we found out that the cost of completion of the
Animas-La Plata Project was approximately $500 million, in
today's dollars, instead of the $338 million we all previously
thought. And in fact I will assure you, Mr. Chairman and
members of this committee, that the questions internally have
been far more pointed and far less tactful than are likely to
ever emanate from this committee, given the conduct of the
Senate.
The Secretary immediately directed Reclamation to take
three steps: find out what happened to Animas-La Plata; find
out what can be done to fix this problem and review other
Reclamation construction projects to see if similar problems
exist elsewhere in Reclamation. From an analytical standpoint
there were at least fundamental causal factors for the increase
in the construction cost estimate. First, and let me be very
clear about this, there were management failures by Reclamation
in the management and implementation of this project. There
were ample opportunities, both pre- and post-authorization, to
fully analyze the cost estimate for ALP. I would add that there
are other factors that may have contributed to the unhappy
result that we face today, but my purpose here today is to
focus on the Department's responsibility and Reclamation's
responsibility for what happened and our ability to ensure, as
you said, Mr. Chairman, that it never happens again.
The first that I would mention is, due to the
organizational changes, from 1993 to 1995, and I'm not
suggesting a disagreement or, for that matter, agreement with
those changes; they simply were and are what they are; the
processes that had been in place, developed over decades for
construction management, if you will, were sunsetted. In
particular, the Reclamation instructions that had been built
over the years to deal with complex construction projects were
sunsetted effectively in 1995. In retrospect, and again, I am
not distracting attention from or suggesting that this was the
dominant reason; I started out by referring to Reclamation's
responsibility in the construction cost estimate increase and
do not flinch from that. But we also must recognize, if we are
to address this in the future, in retrospect it has become
clear to us that what happened was in essence the wiring was
ripped out and not replaced with anything in a systemic way. We
know that now, we know that too late to avoid what happened at
Animas-La Plata. What happened in the interim was that the
wiring was put in place in an ad hoc and incomplete manner. And
if it weren't for the fact that this happened at Animas-La
Plata, quite frankly, it was a function that was, it was a
result that was bound to happen unless and until the discipline
and control and reporting functions to the public and Congress
were replaced. And we recreate at a different level what was
sunsetted with the Reclamation instruction.
Finally, Reclamation, and perhaps others, lacked an
adequate understanding of the cost differences, notice I say
cost differences, of contracting under the Indian Self
Determination and Education Assistance Act, or 638 as it's
commonly referred to, versus traditional Reclamation
contracting.
Let me respond explicitly and without ambiguity to
questions that have been raised by yourself, Mr. Chairman, and
Senator Campbell. Six-thirty-eight is not the cause of the
construction cost estimate increase. The cause was, with
respect to 638, a lack of understanding in the Bureau and
elsewhere as to the differences between 638 and what
Reclamation traditionally does. If there's been a
misunderstanding of the Department's perception as to the
factor that 638 plays in this, either on the Hill or with our
partners in the tribes, I apologize for that. But it is the
position of the Secretary and myself that 638 is not the cause
of the increase. It was our lack of comprehension of the
differences. And we are comfortable that 638, with what we know
now, can be implemented throughout the Animas-La Plata Project
and other projects in a way that fulfills the requirements and
goals of that Act and also achieves the goals of protecting the
public interest.
Now, these causal factors represented themselves in what I
would call symptoms. Among those symptoms include a dependence
on appraisal level information as if it was a feasibility or
higher level of certainty with respect to cost estimates. That
was a fundamental error, the Bureau played a significant role
in that. But the fact of the matter is that what was treated as
feasibility-level work was in fact far less than that; it was
appraisal-level work. And that was a symptom of the causal
factors I've referred to.
Another symptom, mischaracterizations. Not to my knowledge
intentional, but omissions that were very serious of site
conditions. To be blunt there was an assumption that the site
for the pumping plant was soil and in fact it is bedrock.
There's a significant difference in cost for excavating that
site. That was a management failure to not understand that.
There was a failure to fully factor in the cost impacts of
environmental and other constraints. Throughout the process
there were costs associated with changes in site locations that
were not adequately discussed with our partners or with you.
There were omissions of costs in the 1999 estimate. There was,
fundamentally, an inadequate review, in Reclamation, of the
draft cost estimates that were relied upon by Congress. There
was also and has been in the months since the discovery of the
increase an inappropriate characterization by Reclamation
personnel, inadvertent, I know, of the role that 638 played in
the cost increase. I said, without reservation, that 638 is not
the cause of the cost increase, that it was----
Senator Domenici. Has the Bureau ever had big contracts
under 638?
Mr. Raley. Not to my knowledge, sir. And the experience,
the institutional knowledge within the Bureau, let me put it
this way, it's far greater now than it was as Animas-La Plata
was going through the process. That is something that the look
back has identified as a critical need and in fact the Bureau
of Reclamation has reached out to other resources in the
Department, at the BIA and elsewhere, where they have a longer
and deeper history of working with 638, so that the
misunderstandings and mistaken assumptions that were present in
Animas-La Plata are not repeated.
As I indicated, Secretary Norton has directed that there be
a multi-level response or a review and assessment. In response
to that, Reclamation has created a new organizational structure
which clearly lays out the responsibility for project
construction. Reclamation has doubled its efforts to consult
with project sponsors on the scheduling of construction
activities and reviewing design changes to save costs at every
opportunity. Reclamation is tracking, on an on-going basis, the
actual costs incurred against the overall 2003 construction
estimate, something that was not previously done. We're
providing this information to project sponsors and the general
public on a monthly basis. Reclamation is reviewing its
procedures for cost estimates and construction to identify and
correct process deficiencies that may have led to the ALP cost
estimate problems. In essence, we need to rewire in a more
effective manner what was taken away with the sunsetting of the
Reclamation instructions.
Senator Domenici. Now, you say rewire, you're using that as
an analogy, right?
Mr. Raley. Yes sir. There were very elaborate, some would
say too elaborate, Reclamation instructions that in essence
provided the discipline and structure for the management of
projects starting with engagement of Congress moving forward to
completion. With the sunsetting of the Reclamation instructions
for a wide range of reasons, what we realize now and didn't
know until we thought about it, was that much of the
discipline, much of the reporting and the identification of
who's responsible for what, where the buck stops for particular
decisions was swept away and only replaced on an ad hoc basis.
That was a management failure within Interior. Reclamation, as
I said, has reached out to other resources to fully understand
638. And finally, Reclamation and the Department are engaged in
a long-term process that's intended to enable Reclamation to
fulfill its core mission of delivering water and power in a
manner from Reclamation facilities that achieves the goals set
by Congress and our responsibility to the public. One of the
most important parts of this process is an effort to identify
the human capital and institutional structures that need to be
in place so that Reclamation can fulfill its responsibility to
you and the public for ensuring that projects like Animas-La
Plata are completed in the most cost-effective manner.
In summary, the Department reiterates its support for
Animas-La Plata completion and moving on. Reclamation takes
responsibility for problems that occurred at Animas-La Plata.
Reclamation has implemented measures for controlling costs on
Animas-La Plata. Reclamation is actively consulting with
project sponsors on all aspects of the project. Reclamation
stands behind the 2003 cost estimate of $500 million plus
indexing. Reclamation has streamlined reporting and
accountability for construction management. And we're using
this as a lessons learned so we avoid this experience in the
future.
If I could step back one last time and then turn this over
for question from you, Mr. Chairman and Mr. Campbell, in the
long-run our perspective is that there's an irreducible minimum
function or core concept that Reclamation needs to be able to
serve. Reclamation in the next century will inevitably, or
Reclamation or its equivalent, will have responsibility for
operating and maintaining many of the projects built over the
last century. Reclamation or someone in the Federal Government
will have responsibility for rebuilding and modernizing what
we've built over the last 100 years. As you mentioned, Senator,
the demand for water and power is growing, not shrinking, and
we must maintain existing capacity if we're to meet the
challenges of the future.
And third, Reclamation will have a need to manage
construction of whatever new projects Congress authorizes and
funds within the Reclamation program. Our long-term goal is to
take action now to put in place the pieces at Reclamation that
will allow it to meet all of those goals and that we rebuild
and restore the trust that must exist between Reclamation and
Congress and Reclamation and the public.
PREPARED STATEMENT
Senator, there's nothing that's been said with respect to
638 that we would disagree with, by either you or Senator
Campbell. Mr. Ehat and Mr. Rinne are here if you wish to have a
discussion of the details of the contract negotiations and I
leave it to you, Mr. Chairman, as to whether you'd like them to
summarize the actual process that Reclamation used and is using
now for 638 or if you wish to move on to other areas of
interest to you.
[The statement follows:]
Prepared Statement of Bennett W. Raley
Mr. Chairman, I am Bennett Raley, Assistant Secretary of the
Interior for Water and Science. My testimony today is intended to help
the committee understand why the cost estimate to complete the Animas-
La Plata Project (Project) increased from $338 million in 1999 to $518
million today, and to explain the steps we've taken to ensure that the
problem does not recur.
BACKGROUND
The purpose of the Project, essentially, is to divert, pump, store,
and convey water from the Animas River at Durango, Colorado to provide
water for both Indian and non-Indian municipal and industrial uses in
Colorado and New Mexico. It is required to fulfill the requirements of
the Colorado Ute Settlement Act Amendments of 2000.
After several changes in the scope of the project over six decades,
the project plan is now settled on four key project features: the
Durango Pumping Plant; Ridges Basin Inlet Conduit; Ridges Basin Dam;
and the Navajo Nation Municipal Pipeline. Project construction also
required the relocation of parts of a county road and natural gas
pipelines.
2003 PROJECT CONSTRUCTION COST ESTIMATE
Reclamation began developing the new Project construction cost
estimate in early 2003, which contained a total estimate of $500
million, based on January 2003 price levels. The current indexed price
for the project is $518 million.
After these construction cost estimates for the Project were
completed in July 2003, Secretary Norton directed Reclamation to review
the costs associated with the project to explain the reasons for the
increase in the construction cost estimate. Reclamation undertook a
detailed and critical review of technical and administrative data, held
discussions with Reclamation staff involved in program and construction
management, and met with project sponsors to prepare the report. The
complete report, including a chronology of the project dating to 1956,
is submitted for the record along with this statement.
In summary, there is no single reason why the construction cost
estimate for the Project increased from $337.9 million in 1999 to $500
million in 2003. There are, however, several factors that contributed
to the increased estimate that I will focus on today: (1) the accuracy
and completeness of the 1999 construction cost estimate, along with
additional costs associated with final Project design and construction;
(2) the failure to include the cost of contracting under the Indian
Self-Determination and Education Assistance Act (ISDEA) Public Law 938-
638; and, (3) inadequate communication between Reclamation and sponsors
of the Project concerning cost factors related to design options and
decision-making.
THE 1999 PROJECT CONSTRUCTION COST ESTIMATE
In general, the report shows that, with the exception of the Ridges
Basin Dam feature, the 1999 Project construction cost estimate was
incomplete and inaccurate for the pumping plant, inlet conduit, gas
pipeline and road relocations, and the newly-added Navajo Nation
Municipal Pipeline.
The 1999 estimate was prepared by qualified engineers hired by the
Ute Mountain Ute Tribe (UMUT) who relied upon several years of
Reclamation data and analyses. Key factors that contributed to the
underestimate included:
--Dependence on appraisal level information at the feasibility study
phase;
--Mischaracterization of site conditions; and
--Failure to fully factor in the cost impacts of environmental and
legislative requirements.
A crucial problem with the 1999 estimates was that they were
identified as being at the feasibility level, when they were actually
based upon less developed appraisal level data. Another factor that
contributed was oversight. In the early 1990's, Reclamation was
reorganized to give Area Offices greater autonomy to design and manage
construction, eliminating the Technical Support Center's (TSC)
oversight role. This fact alone contributed to the lack of attention to
the 1999 estimates accuracy or source.
Despite concerns raised by TSC technical staff in Denver to the
Western Colorado Area Office that the feasibility design and estimate
used in the 1999 Draft Supplemental Environmental Impact Statement
(DSEIS) did not contain sufficient information and detail to complete
an in-depth review of cost estimates, work on the 1999 DSEIS pushed
ahead without addressing this concern. In 1999 and early 2000,
attention was on completing environmental requirements with limited
focus on accuracy of the cost estimate.
Nevertheless, the 1999 cost estimate was included in the July 2000
Final Supplemental Environmental Impact Statement (FSEIS), used to
support the Colorado Ute Settlement Act Amendments of 2000 authorizing
the project, and formed the basis for negotiations of repayment
contracts for some of the Project sponsors.
The 2003 estimate for the Durango Pumping Plant is $52 million
above the 1999 estimate. Approximately $38 million of this increase was
due to the type and quantity of material that must be excavated:
bedrock vs. soil, and project management and site support costs.
Neither the total volume to be excavated nor the bedrock was
factored into the initial design concepts by the contractor.
Another $28 million of the increase was to relocate parts of gas
pipelines and County Road 211 from the Ridges Basin Reservoir site,
again due to increased excavation and directional drilling.
Reclamation did not identify these significant costs until
completing final designs for the Durango Pumping Plant.
COSTS TO COMPLY WITH PUBLIC LAW 93-638
The spirit and intent of the ISDEA is to provide Tribes an
opportunity to be self-determining and to take a more active role in
those activities that impact their daily lives. Under the ISDEA, the
Secretary must allow a Tribe to contract for any work that is a
program, service, function, or activity administered by the Secretary
for the benefit of a Tribe. The ISDEA is not a sole-source program; it
is a congressionally mandated, direct-source program that directs the
Secretary to contract with Tribes under certain situations. In the 1988
Settlement Act, Congress mandated application of the ISDEA to the
Animas-La Plata Project.
Contracting under Public Law 93-638 (the ``638 process'') differs
from traditional competitive bidding. Under the ISDEA, the fixed-price
construction contracts (requested by the Ute Mountain Ute Tribe) are to
be comprised of: (1) the reasonable costs to the Tribe of actually
performing the work; (2) the costs to the Tribe of auditing the general
and administrative expenses incurred by the Tribe in performing the
work; (3) the costs of developing the project proposal; and (4) a fair
profit.
The objective of the negotiations is to arrive and a fair and
equitable price for the award, not to obtain the lowest possible award
price. Nor does the price have to conform to either party's cost
estimate.
The 1999 cost estimate did not include additional costs of applying
ISDEA. Instead, it was based on construction costs in a competitive
bidding environment. The 2003 Project construction cost estimate
includes a 30 percent Estimating Difference Factor (EDF) that would be
applied to future Project contracts. The intent of using the EDF was to
try to more accurately estimate and account for Reclamation and
contractor administrative and other costs likely to occur in
negotiating future ISDEA contracts. While the 2003 EDF equate to $43
million to apply ISDEA, accounting for 24 percent of the increase (none
of which was included in the 1999 estimate), there is some optimism
that the actual amount could be less for the remainder of the Project
as Reclamation, the Tribe, and other Project sponsors work more closely
on Project implementation.
COMMUNICATIONS BETWEEN RECLAMATION AND PROJECT SPONSORS
The report found that communications and discussions between
Reclamation Project staff and Project sponsors about the cost factors
related to design options and decision-making have been inadequate.
Specifically, communication as required by existing contracts was not
detailed or timely enough to allow sponsors input on construction plans
and progress, changing conditions, or other information associated with
the construction of the Project.
As a result of this finding, the Project Construction Committee was
established by Reclamation in 2001 to provide a system to assure that
necessary internal and external coordination and management of the
project occurred during construction.
Reclamation has also reconfigured the Project Construction
Committee to improve interaction and communications with the sponsors.
It is our opinion that this reconfigured process seems to be working
quite well at this time.
CONCLUSION AND NEXT STEPS
Mr. Chairman, despite the cost increases, Animas-La Plata is still
a viable project and a high priority for our customers. Moving the
project forward is crucial to satisfying the Indian Water Rights
Settlement and meeting future non-Indian municipal water supply needs
in southwestern Colorado and northwestern New Mexico.
Reclamation has completed or is taking steps to manage and complete
the Project in the most cost effective and efficient way possible.
These actions, when fully implemented, will provide the safeguards
necessary to avoid similar occurrences on this and other Reclamation
Projects in the future.
First, the basic construction cost estimate for the Project has
been redone by Reclamation. Management efforts will continue to save
costs during scheduling of construction and final design of components
of the Project. Second, Reclamation has reviewed its internal
organizational approach to construction of the Project and reconfigured
the organization as necessary to improve construction management and
interaction and communication with sponsors. Third, the ISDEA processes
are being reviewed to improve efficiencies in construction of the
Project. Fourth, as noted above, Reclamation has reconfigured the
Project Construction Committee to improve the external communications
with Project sponsors. Fifth, Reclamation will use Value Engineering
processes, in cooperation with Project sponsors, to seek additional
ways to reduce Project construction costs. Finally, Reclamation is
reviewing its procedures for cost estimates and construction to
identify and correct process deficiencies that may have led to the
Animas-La Plata Project cost estimate problems.
Thank you for the opportunity to testify today and update this
committee on the progress we are making in constructing the Animas-La
Plata Project. I would be happy to answer any questions you may have at
this time.
Senator Domenici. Senator Campbell, knowing your schedule,
and you have a very important hearing and it has to do with
Indian problems also, would you like to question?
Senator Campbell. I have, yes, a couple. I appreciate it,
Mr. Chairman. First of all, I have to tell you, Bennett, we
have both known you for a long time, worked with you on a lot
of different water projects. I am really upset about this, as
is the Chairman, and reading your testimony while you were
talking I have to tell you that, as to your own omission, you
guys really dropped the ball on this. As I understand it you
had no experience dealing with 638 contracts yourself, or your
department had not, and you did not do any research with any
government agencies which had experience dealing with 638
contracts or with the Indian Self Determination and Education
Act. Is that right?
Mr. Raley. Senator, Reclamation had had minor exposure with
638 and some other projects including Central Arizona and
others but nothing of this significance and complexity.
Senator Campbell. Okay.
Mr. Raley. And it's very clear that for good intentions,
they thought that they could do it then move forward. The thing
I love about Reclamation is they're can do. You give them a
job, they're going to get it done. They did not stop and ask
questions within the Department about the knowledge that was
there, that could have avoided some of the misunderstanding and
mischaracterizations that's occurred over the last couple of
months as to the role of 638.
Senator Campbell. All right. Well, let's move on since we
have a short time. Reading your testimony, it says that $38
million were increased over because of, and I quote, ``site
support costs, moving some gas pipelines and a county road.''
The only county road I know that really has to be moved is one
that is pretty far away from where the pumping station is now.
Why would that be included in the county road?
Mr. Raley. Senator, may I ask Mr. Rinne to answer that?
Senator Campbell. Yes, please do.
Mr. Rinne. Senator, the county road referred to there is
within the Ridges Basin Dam site and that is the only one that
was moved. That is part of the overall cost because it's
included in the Ridges Basin Dam feature.
Senator Campbell. Okay. It says you were not aware that it
was going to be bedrock versus soil that would have changed the
site support cost. Why did not somebody do some core drilling
or something to find out what the hell was under the ground?
Mr. Raley. Senator, I asked the very same question. And I'm
going to refer to Mr. Ehat for the answer.
Mr. Ehat. Thank you, Mr. Raley. Senator Campbell, there
were many exploration holes in the area. What I would
characterize as the problem with the original estimate, the
1999 estimate, is that there were mistakes in interpreting that
data that were not caught by Reclamation. We knew there was
bedrock there sir, that was very clear.
Senator Campbell. So you did some core drilling and who did
the analysis of that?
Mr. Ehat. Reclamation had developed an extensive file of
the information on the site, as well as Department of Energy,
for the UMTE clean-up and that information was handed over to
the estimators but as near as we can tell, Senator, that
information was mischaracterized and mistakes were made.
Senator Campbell. By who? By Reclamation or Energy? Who
made the mistakes?
Mr. Raley. I can answer that, Senator. Reclamation is
responsible for the mistakes.
Senator Campbell. Did I also understand you to say there
was no single reason but design changes that were not
anticipated were also part of it, between 1993 and 1995?
Mr. Raley. Yes sir.
Senator Campbell. What were some of the design changes? I
know it was downsized to what is now called the Animas-La Plata
Light. Is that the design changes you are talking about?
Mr. Raley. That's one and in fact, some of the basis for
the prior costs were based on the larger project where there
were commonly assumed to be economies of scale that didn't
necessarily exist in a downsized project. And I'll ask Mr.
Rinne if there are others.
Senator Campbell. So you assumed that with the downsizing
of the project the costs would go down too but some of them did
not?
Mr. Raley. Yes.
Senator Campbell. You also mentioned, as I think I heard
you say, the changes in law between 1993 and 1995, there were
some environmental law changes or changes in requirements of
fulfilling environmental impact statements. Is that correct?
Mr. Raley. Well, not changes in law, Senator, but a lack of
foresight and incorporation of the costs of meeting
environmental requirements.
Senator Campbell. Who do you think should foot the bill for
the cost overruns?
Mr. Raley. That's something the Secretary is reviewing at
this very moment. As you well know, Senator, the issue of
reimbursability is one that the statute provides. The Secretary
has a role in consultation with the project partners. We have
already started those discussions with project partners and
with Congress.
Senator Campbell. Well, at this point do you believe as I
do that the cost overruns should not be passed on to those
water users who are going to be purchasing the water, since
they had no idea that there was going to be this kind of a cost
overrun?
Mr. Raley. Senator, I do not have an administration
position on that point.
Senator Campbell. How will the flow of funds, including the
request in this year's President's budget, on the Animas-La
Plata affect its completion?
Mr. Raley. Well, conceptually, depending on what Congress
does this year, that will define how much ground we have to
catch up for future years. As you well know, the project was to
be constructed over 7 years and appropriated over 5. Now we
have two factors. We have the cost increase, which increases
our challenges dramatically, but we also have funded the
project at its basic capability so far and put off for
succeeding years the building of the appropriations so that we
can complete construction in 7. We have been engaged with
committee staff to talk about various options for completing
the project in accordance with the law, given the new realities
of the remaining amount needed to be appropriated, including
the cost increase.
Senator Campbell. So you do not have a revised schedule for
completion at this time?
Mr. Raley. Well, at the present time, and Mr. Ehat can
speak in greater detail, we're proceeding under existing law
and appropriations. The question, Senator, if I may, is given
the additional cost increase, we can either cover that by
increasing the appropriations for Animas-La Plata, early and
then ramping down. Or we can flatline the appropriations,
stretch out the project longer. There are additional costs
associated with stretching it out longer.
Senator Campbell. Can you compare those real quick? I mean,
facing a $500 billion deficit this year, we are in a world of
hurt and all of our subcommittees have already pretty much been
told that we are going to have some very tight spending caps
and I think that is going to last for a number of years,
myself.
Mr. Raley. As do we, Senator.
Senator Campbell. And that reality tells me that we are
probably not going to be increasing the money so we are going
to have to go the other way if it is completed and extend the
time frame in which it is built. You do not have an estimate on
the number of years that would extend it if we went that, do
you?
Mr. Raley. We have options. It's not an infinite range but
it's a question of what can be done without increasing the
costs unacceptably and fit within the administration's budget
and what Congress chooses to do. In all likelihood one option
will be to extend the construction by a period of several
years. There are also options for meeting the original 7 year.
Senator Campbell. When you said there is a cost of
extending it also it is by several years? Did I understand that
is what you just said? Do you have any kind of an estimate on
that? What if we extended it several years, over and above this
already cost overrun, what it would cost?
Mr. Raley. Senator, if you'll allow me, given the sort of
sorry record we're dealing with right now with estimates that
weren't fully vetted and thought through, I'd like to decline
compounding that error by giving you our rough estimates now
and having, not you but others, mistakenly rely on those. I
will commit to you, to the Chairman and to your staff, that we
will provide you with all the data that we have in terms of
options so that we fully understand the benefits and costs of a
particular funding stream. I just don't want to repeat a
mistake we're dealing with of giving with a number that is
wrong.
Senator Campbell. I understand. This is one mess, you know
that.
Mr. Raley. Yes sir.
Senator Campbell. You heard the chairman mention, in the
middle of his statement, that maybe we ought to just stop the
thing in the middle or something. I do not think, my own view
is that that's not an option because if we did stop it the cost
would be more for stopping than it would be for building it, if
you factor in the tribes going back to courts. And you know
that is how we got in this in the first place. And if we had
gone to court we had some estimates that, I mean, even before
it was revised down to what is called Animas-La Plata Light, we
had some estimates that costs of fulfilling our obligations to
the tribes which probably would have won in court because they
have those old, original treaty rights that pretty much gives
them first priority in the water down there, it would have cost
more than building a project even when it was at its highest
level of funding, before it was downsized. In addition to that,
some of the numbers that we got back with the number of farmers
and ranchers and homes and so on that would literally be
without water if the tribes won in court and then appropriated
their water. So in my view we are in a mess but it is a mess we
have got to fix and move forward, we cannot just stop the
thing, it has got to go forward. But there is no doubt in my
mind too, it is going to be tough to find the money without the
project time frame over a period of years. And I know that some
of the other members even that could not be here today, they
are pretty concerned about it too because a lot of the Western
people who have been supportive of this over the years are now
saying, ``Oh my gosh, what has happened to us? How come we did
not know all the numbers before we supported the project?'' So
I would just encourage you to get back with this information as
quick as you can on some estimates about extending the building
time frame.
Mr. Raley. Yes, sir.
Senator Campbell [presiding]. I have no further questions.
Was the Senator coming back in a minute? Why do not we just sit
for a recess for a few minutes until Senator Domenici comes
back.
You might not be the right one to answer this but I do have
one more I was going to ask. Someone has told me, although I
have not seen anything documented about it, that the amount of
archaeological things that were found in the site far exceeded
what had been expected and that was one of the things that took
a lot more time and a lot more manpower because they are
required by law to find all these things that are on the
ground, pot shards or, you know, things that have been left
there of eons of people that lived in that area before we ever
got there. Do you happen to know the size of the increase?
Mr. Raley. Senator, I'll ask Mr. Ehat to respond. The
answer is yes, there was very substantial in terms of the
additional cultural work that was done.
Senator Domenici [presiding]. Mr. Ehat, you want to help
with that?
Mr. Ehat. Yes sir.
Senator Domenici. Go ahead.
Mr. Ehat. Our estimate of that increase is about $7.5
million.
Senator Campbell. Seven-and-a-half million dollars? That is
in manpower and so on?
Mr. Ehat. That's correct, sir.
Senator Campbell. Thank you, Mr. Chairman.
Senator Domenici. Well, if your estimating on that is as
bad as the rest it could be $20 million. In any event, let me
tell you that I know the Commissioner could not be here and I
know the Secretary is very busy. But I want to tell you so you
can carry it back to the Commissioner, I have been advocating
for the last 3 years, trying to put more work in the Bureau.
And it is a little easier up here, budget appropriation-wise,
to try to do that. But you might as well tell them that I am
not very impressed and I do not know if I am going to continue
down that path. I do not know that the Bureau is going to be
growing. If they cannot do this, you know, I am going to go
with the Corps of Engineers. And I do not look for projects of
this magnitude for awhile that I am any part of, going to the
Bureau of Reclamation unless they convince me that they have
had a material change in the way they do business. Now, I am
sorry about that but, I am in a position that we do not know
where we are going to get the money. That is the problem. It is
not a problem of just talking. The money given to this
subcommittee is not enough to take care of the subcommittee on
what we estimated. And then we have to argue about water every
year, you know that, you guys go before OMB and it does not
make a darn what we need, they give us less. Right? We cannot
do it this year. There is not enough money. So I hope you
understand.
Mr. Raley. Senator, I will deliver that message to the
Secretary.
Senator Domenici. Please do.
Mr. Raley. But I know she, philosophically, agrees with
you. If we can't fulfill our obligations to Congress and the
public then something needs to change.
Senator Domenici. The other thing I want to tell you is,
you know, from my standpoint, this is one of the most important
projects that I joined him in putting together. And we had
plenty of opposition, right?
Senator Campbell. Right.
Senator Domenici. And we did it because we thought the
Indian solution was so big that it permeated the arguments that
were given. And here we end up, those people who were opposed,
they are probably laughing at us. And so I want to get on with
this. And also, out there in the audience there are various
groups, like mine, from San Juan County. They do not have a lot
of money, they are up here saying, how do we find the $7
million or $9 million that this cost estimate is going to cost
us? And I do not know how to find it. I do not want them to pay
it but I do not know how to find it. So I wish you would be
looking at that, the overruns for others who do not have the
money. You know, they cannot come up here and ask us for it so
they are there in San Juan County and there must be more of
them, right?
Senator Campbell. Sure. All the water users.
Senator Domenici. And they are getting shafted. So we have
got to be concerned. In my opinion you ought to ask for more
money in sort of an asterisk column, saying we cannot expect
those who approved of this project and joined it, we cannot
expect them to pay this overrun. The overrun we are paying for
but I do not know if we are going to get the money we are
paying for it, right? But I do not know how these others are
going to do it so I am worried about it, all right?
Now, has the Bureau developed a new completion schedule for
this project?
Mr. Raley. Mr. Ehat?
Mr. Ehat. Yes sir, we have, and we're looking at, based on
the new estimate and a reasonable funding level, about a 2-year
delay on the features and about a 3-year delay on first fill.
Senator Domenici. So you are going to spread the money and
needs out a little?
Mr. Ehat. That's correct, sir.
Senator Domenici. To ease up a little bit on our budget.
Okay. Is this schedule based on optimum annual funding
allocations or on historic funding levels?
Mr. Ehat. Well Senator, we are working with you and your
staff to provide options.
Senator Domenici. Okay.
Mr. Ehat. In terms of future funding obviously we're going
through that internally with the 2006 budget as we speak and
that's going to be dependent on decisions you make with respect
to the 2005 budget and, you know, we can't select, at this
point, exactly what the option will be.
Senator Domenici. Right.
Mr. Ehat. But we want to provide you with all the
information we have.
Senator Domenici. Well, what might the impact be to the
total project cost if you assume less than optimal funding?
Mr. Ehat. Well, depending sir, on how far it stretches out
you could see increased costs over and above the $500 million
plus indexing of, under one scenario for stretching out our
number of years, $38 million, for example of additional costs
just associated with an extended delay. But again, we're
working with the information, it's almost a numeric analysis,
we're trying to figure out what the right suite of options are
to share with you as we deal with the reality.
Senator Domenici. All right. Report to the Secretary
indicates that there has been a legislated cost ceiling in
place. If the Bureau would have examined its cost data then
that would have worked. This sends an awful, troubling message
that unless there is a cap on the funds you do not have to
worry about accuracy. But a cap is not good either. We do not
like them because then we have to come back here and play with
the caps because we do not expect, in a project of this
magnitude, that there are no changes. So I hope that you are
doing something to change this philosophy and I certainly hope
you are doing that in a way that we can understand. And I would
like you to tell us, not now, but to get us information on that
as soon as you can.
Mr. Raley. Yes sir.
Senator Domenici. If so, is the Department comfortable
enough with their current estimate of $500 million that it
could be used as a basis for a ceiling if we choose to do that?
Mr. Raley. Five hundred million dollars plus indexing.
Senator Domenici. What?
Mr. Raley. The $500 million plus indexing.
Senator Domenici. Yes.
Mr. Raley. Yes sir.
Senator Domenici. What do you guys, you two experts, what
do you say about that?
Mr. Rinne. I agree, Senator. We feel that $500 million with
indexing is something we should be able to stay with.
Senator Domenici. Okay. There have been significant
expenditures that cost the sharing partners and they do not
feel they should be required to pay. I told you that.
Mr. Raley. Yes sir.
Senator Domenici. Including costs associated with what
appears to be errors on the part of the Bureau as well as old
sunk costs that really are irrelevant to the projects currently
under construction. Are there any remedies within the
Department that would allow for relieving these cost-sharing
obligations? And if not, would this have to be addressed
legislatively?
Mr. Raley. Senator, the statute itself, with respect to
Animas-La Plata provides for secretarial determination of
reimbursability of costs and there's a standard set out in the
statute. We are part of the way through an intensive legal
review of that issue. Obviously there's the factual review of
the basis for the cost increases and we have already started
what is provided for in the statute and that is dealing with
this issue in cooperation with the project sponsors.
I'd like, if I could go back a moment, to say that our
comfort in the $500 million plus indexing is predicated on the
assumption that appropriations are.
Senator Domenici. Senator Campbell, before you leave, could
I ask you, do you feel comfortable with my assumption that
these cost-sharing people that are not part of direct depart,
that we ought to look at how much their increase is, the
increase for which they had nothing to do.
Senator Campbell. Mr. Chairman, when you were out of the
office I did mention that to Bennett that I did not think they
should be responsible at all since they had nothing to do with
it and they are just going to get blind-sided with an increase
that the water users should not have to pay for this cost
overrun.
Senator Domenici. Okay. So what you are going to do is
check this very carefully, Senator.
Senator Campbell. Yes sir, we are in the process.
Senator Domenici. Now if that does not fit in the $500
million you have got to tell us, because if we have to pass
separate legislation, No. 1, is it in, No. 2, is it legal?
Right? Will you do that for us?
Mr. Raley. Yes sir.
Senator Domenici. Okay. Thank you. I will be over at your
hearing in about 30 minutes.
Six-thirty-eight process. You indicated that $43 million
increase in the cost is attributed to this process. I would
like to know how much of that $43 million, or how it breaks
down? In other words, how much of the Bureau of Reclamation
oversight of the contract, how much is purely due to contract
negotiation processes?
Mr. Raley. Well Senator, for purposes of the 2003 cost
estimate for planning purposes the Bureau was conservative so
there are no future surprises for you and others, put in a
factor of 30 percent to cover the costs associated with 638.
That does not mean that the tribes have or will have a 30
percent profit, as some have said, nor does it mean that the
actual cost will be that. The Bureau, with its new
understanding of what 638 is and is not, and with cooperation
of the tribes, is working through the individual contracts and
are quite hopeful if not comfortable that the 30 percent, which
is put in there for planning purposes, will be in excess of
what is actually required.
Senator Domenici. Well, I do not know if the Indian
leadership that accepted the responsibility under 638 are
present here. Are they? They are in the second panel? Okay.
Then we are going to take up a few questions with them.
Mr. Raley. Yes sir.
ADDITIONAL COMMITTEE QUESTIONS
Senator Domenici. I do not think we ought to give them
carte blanche either. You know, they have got to do this in a
way that is realistic and should minimize your employment needs
on the civilian side. So with that, there are some things you
have got to get us, would you get them to us as soon as
possible?
Mr. Raley. Yes sir.
Senator Domenici. All right. You are excused.
Mr. Raley. Thank you sir.
[The following questions were not asked at the hearing, but
were submitted to the Department for response subsequent to the
hearing:]
Questions Submitted by Senator Pete V. Domenici
SCHEDULE AND COST
Question. Has the Bureau developed a new completion schedule for
the project?
Answer. Yes, Reclamation has developed a revised completion
schedule. This schedule is being evaluated in light of various funding
scenarios.
Question. Is this schedule based on optimum annual funding
allocations or historical funding levels?
Answer. The schedule currently used for project management is based
upon a reasonable funding level with currently appropriated amounts,
the President's request of $52 million for fiscal year 2005.
Question. What might the impact be to the total project cost if you
assume less than optimal funding?
Answer. Should a slow funding level result in decreasing the
efficiency of construction which results in as much as a 2-year delay,
an increase could be expected of as much as $38 million above the $500
million project cost estimate, not including indexing. We are
continuing to study various funding scenarios and associated impacts on
the construction schedule and corresponding impacts to the project cost
estimate.
Question. Has this information been communicated to the cost
sharing partners?
Answer. Reclamation is actively consulting with the project
sponsors. During our last project coordination meeting, Reclamation
discussed and highlighted this issue with the project sponsors and
specifically described that delays in the project schedule could
increase overall project costs.
LEGISLATED COST CEILING
Question. The report to the Secretary indicates that had there been
a legislated cost ceiling in place, the Bureau would have examined its
cost data more rigorously. This sends an awfully troubling message:
that unless there is a cap on the funds, you don't have to worry about
accuracy and dependability in your project data. I certainly hope that
you are doing something to change that philosophy.
My question to you is: Do you feel that imposing a cost ceiling at
this stage of the project would be beneficial?
Answer. A great deal of focus is towards containing costs and
completing ALP within the updated cost estimate amount. This amount
must, of course, be adjusted for inflation. While a cost ceiling may be
perceived as beneficial, we do not feel it, by itself, would
effectively control costs. However, should Congress impose a ceiling,
we would not object.
Question. And if so, is the Department comfortable enough with
their current cost estimate of $500 million that it could be used as a
basis for such a ceiling?
Answer. Reclamation, in partnership with the project sponsors, is
aggressively looking for opportunities for cost savings in the
implementation of the ALP project. Barring any unforeseen external
factors or funding delays driving up total completion costs,
Reclamation believes we can construct the ALP within the 2003
construction cost estimate of $500 million. Of course this figure would
be adjusted annually for inflation, possibly resulting in a larger
total figure, but would still be considered at or below the $500
million level in January 2003 dollars. This would be the only increase
in the total cost of that project that we can foresee, keeping in mind
that construction of major civil works is an inherently uncertain
field.
COST REIMBURSEMENT
Question. There have been significant expenditures that the cost
sharing partners don't feel they should be required to pay, including
costs associated with what appear to be errors on the part of the
Bureau, as well as old ``sunk costs'' that really are irrelevant to the
project currently under construction.
Are there any remedies within the Department that would allow for
relieving these cost sharing obligations?
Answer. Reclamation is reviewing the options available within
current laws and policies to address the allocation of project costs
among the various project purposes and beneficiaries. It is the firm
position of the administration that project beneficiaries for all
projects should contribute their fair share of the reasonable and
unforeseen project costs.
Question. If not, would this have to be addressed legislatively?
Answer. Reclamation is working very diligently with the cost
sharing partners to explain all of the costs and the associated
allocations.
CHANGES IN DESIGN AND CONSTRUCTION
Question. There were changes made to some of the project features
that resulted in major increases in cost.
Could you summarize these changes and explain why they were made?
Answer. Additional costs relating to completion of final design and
decisions made on project features or their components since the
project was authorized for construction in December 2000 explain most
of the revision in the cost estimate. The largest increases in the cost
estimate were from: (1) the additional excavation requirements for two
components of the Ridges Basin Dam (gas pipelines and County Road 211
relocations, and (2) the actual site conditions at the Durango Pumping
Plant, (the presence of mostly bedrock rather than common soil
materials and construction support requirements). In both cases, these
requirements were identified after completion of the original cost
estimate when decisions were made by Reclamation about relocations and
when the design process had advanced sufficiently to expose under-
estimates of quantities and types of material respectively.
Question. Can you explain the process that was used for
communicating these changes with the project partners?
Answer. Some information was provided through compliance reviews
such as environmental assessments and also as a part of the updates
during Project Construction Committee (PCC) meetings.
More recently, Reclamation has implemented a process to manage,
track, and report cost and schedule changes. This process yields clear
data that are shared with project sponsors on a regular basis.
Question. Has anything been done to improve this process?
Answer. Reclamation has reconfigured the PCC and has redoubled its
efforts to consult with project sponsors on the scheduling of
construction activities, tracking costs, reviewing design changes on an
ongoing basis with all project sponsors. This process includes ``real
time'' reporting of all issues and holding periodic (monthly) face to
face project update meetings with all project sponsors.
Question. Do you feel that these improvements will satisfy the
obligations set forth in the contracts the Bureau has with the paying
partners?
Answer. Yes, we are confident that the changes will meet the
obligations in the repayment contracts paying partners.
638 PROCESS
Question. You indicated that a $43 million increase in the cost is
attributed to the 638 process.
I'd like to know how that $43 million breaks down. In other words,
how much is for Bureau of Reclamation oversight of the contract, how
much is purely due to the contract negotiation process, etc.?
Answer. The $43 million figure is a conservative estimate to
account for both the additional costs that can be incurred through the
application of Public Law 93-638, and changes in the scope of the
contract that occur during any negotiated procurement.
Question. In theory, the 638 process is supposed to provide the
opportunity for Native Americans to ``fill the shoes of federal
employees'', which should result in lower staffing levels by the
Federal agency. Could you address the impacts to staffing levels on
this project as a result of the process?
Answer. The 1988 Settlement Act specifically allows the design and
construction of ALP to be subject to the provisions of the Public Law
93-638 Act. The Tribes have, in detail, designated the specific
activities they will take the lead in performing. Reclamation's project
functions have been designed around those designated Tribal activities,
resulting in no identified duplicated functions. The application of the
638 process at ALP has provided the Tribes many opportunities to
enhance their skills and to become more self sufficient. We believe the
Tribes are taking full advantage of these opportunities.
Question. Had the 638 process not been congressionally mandated,
would it have been a viable option for accomplishing this project?
Answer. Yes.
BUREAU OF RECLAMATION PROCESSES
Question. You claim that you have taken steps to improve the
structure of the Bureau of Reclamation team that is working on the
project.
Can you explain these steps and also explain how they will improve
the functionality of the team?
Answer. First, we have realigned the reporting structure (chain of
command) in Reclamation's Upper Colorado Region so that the ALP Project
Construction Engineer now reports directly to the Regional Director and
all on-the-ground construction functions report to the Project
Construction Engineer. This essentially utilizes highly experienced
construction management staff in control of the project.
Second, we have initiated new cost-tracking procedures that relate
all project costs to the cost estimate in order to detect problems
early and avoid surprises. This system provides an accurate ongoing
evaluation of project progress vs. the construction cost estimate.
Finally, the PCC provides a medium for constructive, ongoing input from
project sponsors.
Question. It concerns me that critical members of the Bureau's
project team are not co-located in Durango. As I understand, some
functions reside in Grand Junction, and others even as far away as the
Regional Office in Salt Lake. Wouldn't it be a good idea, especially
given the situation, to have a dedicated team on site?
Answer. A dedicated on-site team is being utilized. Some support
functions are being used from the Grand Junction and Salt Lake City
offices for efficiency. These support services are for items such as
environmental support, archeological support, personnel support, budget
support, etc. This allows the on-site team to not fully staff for these
functions, thereby reducing the overall project costs.
Question. Please outline for the committee the Bureau
responsibilities for ALP before and after the July cost overrun was
identified.
Answer. The organization charts shown on Attachment 1 identify
Reclamation's current organization and our organization prior to the
issuance of the revised Project Cost Estimate in July, 2003.
Reclamation has taken some aggressive actions to complete the Animas-La
Plata Project in the most cost effective and efficient way possible.
The newly established construction office has the sole responsibility
to construct the project, a format that we have full confidence in
being successful. We have increased the level of coordination and
consultation with the project sponsors so that they are properly
involved in decisions on the project, and I have developed a system to
allow for open and complete cost accountability.
Question. When the July estimate was released, how much had been
spent on ALP activities up to that point--post-1998? Include sunk
costs.
Answer. When the revised project estimate of $500 million was
released in July 2003, a total of nearly $131 million had been
obligated on the Project. This includes sunk costs of approximately $68
million (expended through fiscal year 1998) and $63 million obligated
from fiscal year 1999 forward.
Question. Please provide a categorical breakdown of non-contract
costs of ALP.
Answer. Attachment 2 provides a breakdown of the Reclamation non-
contract costs in a tabular form. The table identifies the number of
Full-Time Equivalent (FTE's) Reclamation employees by office and by
project feature. The table also provides a general description of the
functions being performed by the various offices on each of the project
features.
Question. ALP report only discusses firm fixed-price contracts and
obligations. Provide information on other ways the 638 contract is used
for other than fixed price contracts. What other types of contracts are
involved in 638 for ALP? Provide the size and cost of the contracts.
Answer. The ISDEA (Public Law 93-638) process is used for a variety
of contracting purposes with the Ute Mountain Ute and Southern Ute
Indian tribes. The use of firm-fixed price contracts for the
construction work on the features in Southwest Colorado is described in
the Commissioner's report. The following tables detail the work
activities performed by the Ute Mountain Ute and Southern Ute Indian
tribes under 638 contracts for non-construction work.
NON-CONSTRUCTION 638 CONTRACTING
------------------------------------------------------------------------
Number
Value of
Tasks
------------------------------------------------------------------------
Cultural Resource Mitigation Cooperative $12,053,012
Agreement.....................................
========================
Tribal Services Cooperative Agreements: \1\
Ute Mountain Ute Tribe (Proposal $1,692,253 8
preparation, Management of tribal
activities, Tribal involvement in
meetings, Vegetation management on
mitigation lands, etc.)...................
Southern Ute Indian Tribe (Aquatic $88,148 3
monitoring, Land acquisition appraisals)..
------------------------
Total.................................... $1,780,401 11
========================
Future Services Cooperative Agreements: \2\
Ute Mountain Ute Tribe (Tribal management, \3\ $2,750,000
tribal involvement in meetings, etc.).....
Southern Ute Indian Tribe (Aquatic \3\ $120,000
monitoring)...............................
------------------------
Total.................................... \3\ $2,870,000
------------------------------------------------------------------------
\1\ Includes costs from start of construction in 2001 to current. Does
not include value of work performed by tribes prior to 2001.
\2\ Does not include contingencies.
\3\ Estimated value.
Question. Please provide a briefing on the philosophy of the
construction schedule for ALP--flow rate of funds, what it means from
year to year. Clearly mark where funding authority ends.
Answer. The schedule for Animas-La Plata has been revised to
incorporate the 2003 CCE. The net result of the revised project
schedule is a delay of project features of approximately 3 years and a
delay of reservoir first fill completion of approximately 3 years to
2011. Current funding authority expires in 2006. The revised project
schedule is based upon a reasonable level of funding per fiscal year
and maintains the high risk work of the Ridges Basin Dam and Durango
Pumping Plant as high priority work. This allows the dam and the
pumping plant to be constructed in an efficient fashion avoiding
increased project costs due to stretching out production. However, in
so doing other features have been moved in time to allow for the
reasonable level of funding. One of these deferred features is
completion of the Navajo Nation Municipal Pipeline (NNMP). The NNMP
shows a delay of approximately 32 months beyond the previously accepted
project schedule. The Reclamation team is prepared to brief the
chairman and other committee members and staff in greater detail at
your earliest convenience.
Question. Provide information on the IGCE estimate process. How
accurate is it? What the estimates were, what was spent, how far over/
under, on schedule, etc. What has BOR learned from the process so that
it gets better?
Answer. Reclamation prepares planning level (appraisal and
feasibility) cost estimates through procurement related estimates
Independent Government Cost Estimates (IGCE) bid estimates as tools for
project management. Planning level cost estimates such as feasibility
cost estimates are used for project authorization while IGCEs are
required by the Federal Acquisition Regulations (FAR) for procurement
of construction projects. Reclamation utilizes proven techniques,
bureau-unique knowledge, and accepted industry resources \1\ to develop
its cost estimates. All IGCEs' are developed as if Reclamation were
submitting a proposal to compete for the work using the same technical
information available to prospective bidders.
---------------------------------------------------------------------------
\1\ Industry resources--Construction Cost estimating resources such
as; MEANS, Richardson, CAT Handbook, etc.
---------------------------------------------------------------------------
Reclamation continually analyzes bid information on projects by
evaluating the IGCE versus contractor's bids. Reclamation maintains and
monitors bid results by the use of abstracts \2\ showing comparison
between the IGCE and contractor's bids. The IGCEs' of each unit price
are measured against the bid results shown on abstracts. These are
updated and used to improve the accuracy of IGCEs' and unit price for
subsequent cost estimates (planning through IGCE).
---------------------------------------------------------------------------
\2\ Abstract--Compiled by the Contracting Officer showing the bid
results for each construction procurement.
---------------------------------------------------------------------------
Reclamation publishes quarterly the Bureau of Reclamation
Construction Cost Trends (published in the Engineering News Record).
These trends track price fluctuations for features of work specifically
being constructed by Reclamation.
Reclamation's Dam Safety Program is the single largest construction
program in Reclamation at the present time. As noted in Appendix 2,
page 2-5 of the Commissioner's report to the Secretary, the program has
completed 65 modifications at an overall cost of approximately 86
percent of the total estimated cost of the projects. While there have
been historical variations in actual costs from the originally
estimated costs, our office actively engages in management techniques
to both control costs and to evaluate cost saving measures.
For the Animas-La Plata contracting, a process has been established
where by the field construction office contracting staff provides
pertinent actual costs of the construction contractor to the Technical
Service Center. This information is evaluated and utilized where
appropriate in development of subsequent IGCEs for the Animas-La Plata
procurement process. This process is consistent with the provisions of
the Public Law 638, Indian Self Determination, Education, and
Assistance Act for fixed price construction contracts.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
ATTACHMENT 2.--ANIMAS-LA PLATA PROJECT--COLORADO AND NEW MEXICO--FISCAL YEAR 2004 RECLAMATION STAFF ESTIMATES AND FUNCTIONS (SEE LISTING BELOW)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ALPCO FCO WCAO-Durango WCAO-Grand Junction Regional Office TSC (Denver)
Activity -----------------------------------------------------------------------------------------------------------------------------------------------------------------
FTE's Function(s) FTE's Function(s) FTE's Function(s) FTE's Function(s) FTE's Function(s) FTE's Function(s)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1--Project Management......... 0.86 a, b, c, d...... 0.23 a, b, c......... 1.31 a, b, c, d, g, 0.40 a, b, c, d, u... 0.41 d, g, u......... 0.31 a, c
u.
2--Program Management......... 2.92 e, f, g......... 0.00 ................ 0.24 e, f, g......... 0.05 e, g............ 0.05 e, g............ 0.25 g
3--Cultural Resources......... 0.21 o............... 0.05 n, o............ 1.00 o, s............ 0.00 ................ 0.04 s............... ....... ................
4--Fish, Wildlife, and 0.87 n, o............ 0.00 ................ 2.40 k, l, m, n, s, 0.10 s, t............ 0.20 s, t............ ....... ................
Wetlands Mitigation. t.
5--Fishery Enhancement........ 0.01 a, c............ 0.00 ................ 0.15 a, c, h, s...... 0.62 l, m, n......... 0.05 l, m............ ....... ................
6--Ridges Basin Dam & 22.86 a, b, c, d, f, 0.00 ................ 1.95 h, i, k, s...... 0.01 c............... 2.92 c, h, i, j, n, 3.75 m, n, p, q, r
Reservoir. i, j, n, o, p, o, p.
u.
7--Durango Pumping Plant...... 16.35 a, b, c, d, i, 0.00 ................ 0.69 h, i, s......... 0.00 ................ 1.19 c, h, n, o, p... 4.72 m, n, p, q, r
n, o, p, u.
8--Navajo Nation Municipal 0.00 ................ 8.16 a, b, c, d, i, 0.22 h, s............ 0.02 a, c............ 0.10 c, p, o......... 0.74 m, n, p, q, r
Pipeline. l, m, n, o, p.
9--Ridges Basin Inlet Conduit. 0.95 a, b, c, d, i, 0.00 ................ 0.06 h, s............ 0.00 ................ 0.04 c, i, o......... 0.01 l
l, o.
--------- --------- --------- --------- --------- ---------
Totals.................. 45.03 ................ 8.44 ................ 8.02 ................ 1.20 ................ 5.00 ................ 9.78 ................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total FTE's=77.47.
Reclamation Staff Functions Include: (a) Project Management; (b) Sponsor Coordination and Consultation; (c) Federal & Non-Federal Agency Coordination; (d) Public Relations; (e) Budget and
Accounting; (f) Project Scheduling and cost estimate updates; (g) Up Front Cost Share Agreement Administration and Repayment Contract Prep. & Admin; (h) Supplemental NEPA Compliance; (i)
Land and Land Interest Acquisition; (j) Utility Relocations; (k) Land and Water Management; (l) Investigations and Pre design; (m) Design; (n) Contract Negotiation & Procurement Support; (o)
Contract and Cooperative Agreement Administration; (p) Quality Assurance including safety; (q) Design Support during Construction; (r) Geology Support during Construction; (s) Environmental
and Cultural Resources Oversight; (t) Mitigation Planning and Implementation; (u) Project Operations.
Notes.--FTE--Full-Time Equivalent; ALPCO--Animas-La Plata Construction Office; FCO--Farmington Construction Office; WCAO--Western Colorado Area Office; Regional Office--Upper Colorado Regional
Office, Salt Lake City, Utah; TSC--Technical Service Center, Denver, Colorado; Washington DC staff not charged to A-LP.
NONDEPARTMENTAL WITNESSES
Senator Domenici. Can we have the next panel, please?
Howard Richards, Chairman of the Southern Ute Indian Tribe.
Selwyn Whiteskunk, Councilman of the Ute Mountain Ute Tribe.
Mike Griswold, President of the Animas-La Plata Water
Conservation District. And Randy Kirkpatrick, Executive
Director of the San Juan Water Commission. If we can have you
all there.
Thank you all. In particular I thank my friend from San
Juan for coming. You have been working on this project from the
time your hair was black until it got gray. That is pretty
long.
Mr. Kirkpatrick. That's correct.
Senator Domenici. Now, we are going to start right now.
What shall we start with? Okay, Howard Richards, Chairman of
the Southern Ute. Mr. Chairman, proceed.
STATEMENT OF HOWARD D. RICHARDS, SR., CHAIRMAN,
SOUTHERN UTE INDIAN TRIBE
Mr. Richards. Good morning. Mr. Chairman, thank you for the
opportunity to testify today. I am Howard Richards, Chairman of
the Southern Ute Indian Tribe. I ask that my full statement be
part of the record. I will briefly summarize my testimony.
Senator Domenici. It will be.
Mr. Richards. First I want to express the tribe's
appreciation to you and Senator Campbell for your support for
the Animas-La Plata Project.
Senator Domenici. Thank you.
Mr. Richards. And the settlement of the tribe's water
rights claim. Without this committee's support the Southern Ute
Tribe would face a difficult court battle to obtain the water
rights to which the tribe is entitled. We believe that building
ALP and settling the tribal claims through development of new
water supplies is a much better choice for the tribe and its
neighbors in Colorado and New Mexico. We appreciate that you
and Senator Campbell continue to work hard to help us
accomplish that goal.
Mr. Chairman, ALP is the heart of the settlement of the
water rights claim of the Southern Ute Indian Tribe. It will
provide the tribe and our sister tribe, the Ute Mountain Ute
Tribe, with water to meet tribal needs now and into the future.
The tribe has always recognized that it needs a firm and
reliable water supply to create a permanent homeland for which
the Southern Ute Reservation was meant to provide. ALP is a
critical part of that plan because it allows the tribe to
obtain the water supplies which it needs without depriving our
neighbors of the water supplies that they have used for many
years. The tribe has worked hard to make ALP and the settlement
of their tribal water claims a reality. We have been fortunate
to have neighbors and State governments in New Mexico and
Colorado who recognize the need for additional water supplies
and who have fought for ALP. The Tribe appreciates the many
contributions and sacrifices that those parties have made.
As you know, ALP has a long history. In 2002 Congress
amended the 1988 Settlement Act to allow the settlement of the
tribal claims through the construction of a smaller project
that will provide Ute Tribes and water users in Colorado and
New Mexico with water only for municipal and industrial uses.
As this hearing demonstrates, the construction of the smaller
ALP is a difficult job that requires the cooperation of many
parties and the Federal Government. We were very disappointed
by Reclamation's announcement last summer of its increased cost
estimate for the project. It is important to build the project
in a cost-effective fashion and on time. The failure to build
the project on time would once more upset the settlement of
tribal water rights claims. It is also important that our
neighbors receive project water at a reasonable cost consistent
with their expectations at the time the 2000 amendments were
passed.
I want to emphasize that there is much to do and that we
must all continue to work together. The actual construction of
the project is complicated and there are a number of other
obligations such as environmental mitigation that must be met
to build the project on time. Funding is also crucial. Without
adequate funding the schedule will be delayed and the cost of
the project will increase. There are also some issues which
must be resolved through the parties. I'm confident that we can
meet those challenges and complete the project and the
settlement.
PREPARED STATEMENT
Mr. Chairman, in closing I want to emphasize the importance
of ALP to the tribe. The tribe wants to do whatever it can to
accomplish the goal of building the project on time and in a
cost-efficient manner. With that, Mr. Chairman, I thank you and
the committee.
[The statement follows:]
Prepared Statement of Howard D. Richards, Sr.
Mr. Chairman, thank you for the opportunity to testify today. I am
Howard D. Richards, Sr., Chairman of the Southern Ute Indian Tribe.
On behalf of the Tribe, I want to express our appreciation to you
and Senator Campbell for your long-standing support for the Animas-La
Plata Project (``ALP'') and the settlement of the Tribe's water rights
claims in southwest Colorado. We are grateful for the assistance you
and the Committee have provided over many years. Without that support,
we would be facing a long and difficult court battle to obtain the
water rights to which the Southern Ute Indian Tribe is entitled. We
believe that the construction of ALP and the settlement of the tribal
claims through the development of additional water supplies is a much
better choice for both the Tribe and its neighbors in Colorado and New
Mexico. We are grateful that you both share that view and continue to
work so hard to accomplish that goal.
Mr. Chairman, ALP is the heart of the settlement of the water
rights claims of the Southern Ute Indian Tribe and will provide the
Tribe and our sister tribe, the Ute Mountain Ute Tribe, with water to
meet tribal needs, now and in the future. Since at least 1968, ALP has
been a critical part of the Southern Ute Indian Tribe's plans for the
future. The Tribe has always recognized that it needs a firm and
reliable water supply to create the permanent homeland which the
Southern Ute Indian Reservation was meant to provide. While Federal law
promises Indian tribes the rights to use water to meet their present
and future needs, tribes often are forced to resort to lengthy and
bitter court cases to secure those rights. The recognition of tribal
rights under Federal law frequently results in significant water
shortages for farmers, ranchers and towns in the surrounding area. The
Southern Ute Indian Tribe has always sought to secure the water
supplies which it needs without depriving our neighbors of the water
supplies that they have used for many years, sometimes for many
generations.
The Tribe has worked hard to make ALP and the settlement of the
tribal water claims a reality. We have been fortunate to work not only
with you and Senator Campbell, but also to have neighbors and State
governments in New Mexico and Colorado who recognize the need for
additional water supplies in southwest Colorado and northwest New
Mexico, and who have fought equally hard for ALP. Our neighbors have
acknowledged the validity of the tribal rights and have made many
sacrifices to ensure the recognition of the Tribe's water rights and
the settlement of the tribal claims. The Tribe greatly appreciates
those contributions to the settlement effort and the construction of
ALP.
As this hearing demonstrates, the construction of ALP is a complex
and difficult task that requires the continued cooperation of many
parties, as well as the Federal Government. Although our interests are
not always the same, all of the parties who would benefit from the
project have worked together to overcome many obstacles. Our interests
have at times clashed, but we have always managed to find a solution
that we could all accept. There are some issues which still must be
resolved, but I am confident that we will continue to work together and
continue to move forward with building and operating the project.
Both legally and practically, the construction of ALP is required
to settle the tribal water rights claims on the Animas and La Plata
Rivers. The average flow of the Animas River out of the State of
Colorado is more than 700,000 acre-feet per year. But like most western
rivers, the run-off varies greatly from year to year and takes place
mostly in the springtime. Without storage, this water supply is of only
limited use. Since the early part of the 1900's, parties in southwest
Colorado and northwest New Mexico have sought to develop this resource
to meet the needs of their communities. As a result of those efforts,
ALP was authorized by Federal law in 1968.\1\
---------------------------------------------------------------------------
\1\ See 43 U.S.C. 620.
---------------------------------------------------------------------------
Until 2000, the purpose of ALP was to meet irrigation, municipal
and industrial needs in the area. As structured in the late 1970's, the
project was to provide water to users along the Animas River and, in
addition, take water from the Animas River, store that water in Ridges
Basin Reservoir, and deliver the water west into the La Plata Basin
where it could be used for a number of purposes, including irrigation.
When negotiations over the tribal water right claims began in the mid-
1980's, the Bureau of Reclamation had completed a ``final''
environmental impact statement, a definite plan report and obtained
clearance for the full project under the Endangered Species Act,\2\ and
other Federal environmental laws.
---------------------------------------------------------------------------
\2\ 16 U.S.C. 1531-44.
---------------------------------------------------------------------------
Under the Colorado Ute Indian Water Rights Final Settlement
Agreement,\3\ the construction of certain project facilities were
required to settle the tribal claims on the Animas and La Plata Rivers.
The Southern Ute Indian Tribe was to receive irrigation, municipal and
industrial water supplies from the project. In addition, certain tribal
agricultural delivery facilities were to be constructed. In 1988,
Congress approved the Settlement Agreement and authorized the
construction and use of the project as envisioned by the Settlement
Agreement.\4\ Under the Settlement Agreement and 1988 Settlement Act,
the two Ute Tribes could return to court to seek recognition of their
water rights if the required project facilities were not completed by
January 1, 2000. Section 10 of the 1988 Settlement Act directs that the
``design and construction functions of the Bureau of Reclamation with
respect to the Dolores and Animas-La Plata Projects . . .'' were to be
``subject to the provisions'' of the Indian Self-Determination and
Education Assistance Act,\5\ ``to the same extent as if such functions
were performed by the Bureau of Indian Affairs.'' The only caveat was
the section would not apply if it would ``detrimentally affect the
construction schedules.''
---------------------------------------------------------------------------
\3\ (Dec. 10, 1986) (``Settlement Agreement'').
\4\ Colorado Ute Indian Water Rights Settlement Act of 1988, Public
Law No. 100-585 (1988) (``1988 Settlement Act'').
\5\ 25 U.S.C. 450 to 458bbb-2 (``Self Determination Act'')
(frequently called ``Public Law No. 93-638'' or ``638'').
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Throughout the 1990's, the project sponsors and Reclamation sought
to begin construction of ALP but repeatedly ran into environmental
problems involving the Endangered Species Act and water quality issues
related to the irrigation component of the project. Following a series
of public meetings over the fate of the project and the tribal water
rights settlement, the Department of the Interior proposed resolving
the tribal claims through the construction of a smaller project that
would only serve municipal and industrial users and would reflect the
depletion limits imposed on the project under the Endangered Species
Act. Following the development of another environmental impact
statement comparing the greatly reduced project to the non-structural
alternative advanced by the project opponents, the Secretary of the
Interior issued a record of decision finding, among other things, that
the reduced project was the ``environmentally preferred alternative''
for settling the tribal claims.\6\
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\6\ Record of Decision, Animas-La Plata Project/Colorado Ute Indian
Water Rights Settlement Final Supplemental Environmental Impact
Statement July 2000 (Sept. 25, 2000).
---------------------------------------------------------------------------
In 2000, Congress enacted the Colorado Ute Settlement Act
Amendments of 2000 \7\ which authorized the settlement of the tribal
claims through the construction of a smaller project that would provide
the tribes and water users in Colorado and New Mexico with statutory
established water allocations for municipal and industrial uses. The
2000 Amendments directed the Attorney General of the United States to
file the necessary papers with the Colorado Water Court to extend the
deadline by which the Tribes must return to court to secure their water
rights. The Attorney General has asked the Court to extend that
deadline until 2012.
---------------------------------------------------------------------------
\7\ Title III of Public Law No. 106-554 (Dec. 21, 2000) (``2000
Amendments'').
---------------------------------------------------------------------------
The Southern Ute Indian Tribe has worked closely with the Ute
Mountain Ute Tribe, Reclamation, and the other project sponsors over
the past 3 years to build the smaller project.
Reclamation's announcement last summer of the greatly increased
cost estimate was a shock and a disappointment. For a variety of
reasons, it is extremely important to build the project in a cost-
effective and timely fashion. In particular, the failure to build the
project on time would once more upset the settlement of the tribal
water rights claims. It is also important that our neighbors receive
project water at a reasonable cost, consistent with their expectations
at the time that the 2000 Amendments were passed.
The Southern Ute Indian Tribe continues to participate on both the
Project Operating Committee (``POC'') and the Project Construction
Coordination Committee (``PCC''). In addition, the Tribe, through Sky
Ute Sand and Gravel provides ``batched'' material for the construction
of the project. The Southern Ute Indian Tribe has also worked with the
Ute Mountain Ute Tribe on the cultural resources contract for the
project. At the outset of project construction, the Southern Ute Indian
Tribe, the Ute Mountain Ute Tribe, and Reclamation discussed the tasks
that were required to complete the project and determined who would
have the lead, who would provide input and who would provide oversight
on each of those tasks. The Southern Ute Indian Tribe has not charged
Reclamation for these types of planning and coordination activities
under the Self-Determination Act, but has only sought reimbursement
when it actually supplies a product, such as concrete, to the project.
Tribal representatives worked with Reclamation, on behalf of the
Tribe, when it was developing its report to the Secretary of the
Interior on the factors that resulted in the increased cost estimates.
These individuals have advised me that they believe Reclamation is
working diligently to correct the problems that resulted in the
increased cost estimate. As you know, the project sponsors were not
aware of the issues associated the increased costs until they reached
the crisis stage.
In our view, Reclamation has taken two useful steps to address the
basic problems that existed with regard to project management. First,
Reclamation is working to improve communication with the project
sponsors. This effort has focused on developing a more formal means of
communication about the issues facing the project, as well as increased
emphasis on the monthly meetings of the PCC. Second, Reclamation has
made it clear that Rick Ehat, a construction engineer in Durango, is
charged with building the project. We have been told to direct our
questions and concerns in the first instance to Mr. Ehat. We are
encouraged by these new procedures and hope that they will improve
communication and allow those who are directly affected to work with
Reclamation to ensure that the project is built on time and in a cost-
efficient fashion.
I want to emphasize the complexity of the tasks that face us in
reaching those goals. Not only is the actual construction of such a
project very complicated, there are a number of other obligations that
must be met to complete the project on time. In particular,
construction of the project requires substantial environmental
mitigation both in the area and on related matters such as the
environmental impact statement for the operation of Navajo Dam and
Reservoir. These responsibilities require Reclamation to complete
various activities and to consult with other Federal and State agencies
to maintain the construction schedule. Funding is also critical.
Without adequate annual funding, the schedule will be delayed and the
cost of the project will increase further. In short, there is much to
do, but working together, I am confident that we can meet the
challenges before us and complete the project and the settlement.
Mr. Chairman, in closing, I want to emphasize the importance of ALP
to the Southern Ute Indian Tribe. The Tribe wants to do whatever it can
to accomplish the goals of building the project on time and in a cost-
efficient manner. I would be glad to answer any questions you may have.
Thank you.
Senator Domenici. Thank you very much. Let me just say, Mr.
Chairman, it is already pretty obvious that your wish that we
complete it on time cannot be done. We can keep talking about
it but we already heard it cannot be done.
Now, Mr. Whiteskunk, you are next.
STATEMENT OF SELWYN WHITESKUNK, COUNCILMAN, UTE
MOUNTAIN UTE TRIBE
Mr. Whiteskunk. Thank you, Mr. Chairman. Honorable Chairman
and members of the committee, I'd like to thank you for the
opportunity to address the members of the Energy and Water
Committee regarding the Animas-La Plata Project. I take very
seriously the honor my tribe has given me by choosing me to
represent the Mountain Ute Tribe for this hearing.
The Tribe has waited many years to see the Colorado Ute
Indian Water Settlement implemented through the negotiations
and ultimately the construction of the Animas-La Plata Project.
The settlement passed in 1988 provided the Colorado Ute Tribes
to participate in the project construction through the Indian
Self Determination Education Assistance Act, Public Law 93-638.
The opportunity for the Mountain Ute Tribe to utilize its
construction division to undertake this major project is an
example of the very reason that Congress passed the Indian Self
Determination Act, to foster economic development, education,
training and employment. It also gives the Ute people pride in
their work, which benefits our homeland, our people and the
capability of all Indian nations utilizing Public Law 93-638.
Amendments to the Settlement Act were passed in the year 2000,
which we began our direct role in the project development
through the Cultural Resource Efforts, which were mandated
prior to the construction. The Ute Mountain Ute Tribe is
conducting a cultural resource investigation for the Animas-La
Plata Project under Public Law 93-638, Self Determination
contract.
In April, 2002, the Tribe contracted with the Bureau of
Reclamation to perform these responsibilities under the terms
of this contract. The Tribe is responsible for the management,
cultural resource in compliance with several Federal laws,
including the Archaeological Resource Protection Act, the
National Historic Preservation Act, the Native American Graves
Protection and Repatriation Act, also known as NAGPRA. The
Tribe is working closely with 26 consulting tribes to compile
the evidence affiliation that is necessary for compliance with
NAGPRA.
The Cultural Resource team comprises over 50 individuals,
including a six-person oversight committee consisting of a
contract coordinator, a Ute Mountain Ute Tribal council member,
two Southern Ute tribal members, a Bureau of Reclamation
representative and an external archaeologist. Due to the
experience presented by the six-person committee, everything
from finances to archaeological methodology and ethnographic
research is closely scrutinized and kept on track. This has
allowed the cultural resource portion of the project to
progress smoothly, on budget and on schedule.
To date the Tribe has completed two of four field seasons
and has excavated 50 archaeological sites. Many Native
Americans are working on the Animas-La Plata Project, Cultural
Resource Project, conducting excavation, laboratory analysis
and learning technical specialties. Approximately 40 percent of
the field crews were Native American in 2002 and 2003, and in
2004 field season numbers are expected to remain high. In
addition, the Tribe has hired a Southern Ute environmental
company to help recruit, hire and train Ute tribal members,
some with and some without experience.
Senator Domenici. Mr. Whiteskunk, we are going to make your
whole statement part of the record. So we would appreciate it
if you would be brief.
Mr. Whiteskunk. Yes sir. We have a Ute construction company
who is doing the construction of the project, Mr. Chairman, and
I have members of the company here as well to answer any of
your questions if need be.
Senator Domenici. Are those non-Indian contractors?
Mr. Whiteskunk. They are with tribal members. The tribe is
owned by the tribe, the construction company is owned by the
tribe.
Senator Domenici. But you have some outside contractors as
part of that?
Mr. Whiteskunk. Yes, employees.
Senator Domenici. What percent of the contracts, I ask
either of you, are done by non-Indians?
Mr. Whiteskunk. I would say 75 percent of the work is done
by the Ute Mountain Ute Tribe, 25 percent would be non-Indian.
Senator Domenici. I find that very hard to believe but I do
not have anything else to argue with you about. But I find that
very hard to believe. This is highly technical and difficult
construction and I do not know how you could do it with 75
percent Indian. You have no experience, right?
Mr. Whiteskunk. We, the Ute Mountain Ute Tribe and its
company has experiences in a lot of construction-type
construction. For this project it is the first time that we've
undertaken this magnitude of a project.
Senator Domenici. How about you, Mr. Richards?
Mr. Richards. The only involvement we have as far as the
Southern Ute Tribe is in respect to the cultural resources,
mitigation of Animas-La Plata. I sat on the Cultural Resources.
Senator Domenici. You do not build anything?
Mr. Richards. No, we don't. We do provide material to the
project such as concrete, sand and gravel and that's our only
involvement in that, the tribal.
Senator Domenici. All right. Mr. Whiteskunk, could you
proceed?
Mr. Whiteskunk. Yes sir. From its beginning, as the
construction organization, Limited Construction Authority has
successfully completed a variety of projects in the Four
Corners region. The types of projects include heavy and highway
construction, residential and commercial buildings, municipal
improvement, oil field construction. All of these are performed
on a merit shop basis with maximum utilization of Indian
laborers and craftsmen. The Ute Mountain Ute Tribe Limited
Construction Authority subject to the provision of the Indian
Self Determination Act is performing the construction function
of the Animas-La Plata Project. To date, five separate
construction contracts have been negotiated to Weeminuche
Construction Authority by the Bureau of Reclamation, two of
which have been successfully completed, three are on-going.
Other Animas-La Plata construction components are in the
process of being bid or negotiated and were comprised a
majority of the project. Weeminuche Construction currently
employs 170 people, nearly 100 are currently working on the
Animas-La Plata Project. Native Americans comprise
approximately two-thirds of this workforce. As work progresses
into the summer of 2004, it is anticipated the number of people
working on the project will increase substantially.
Recruitment efforts are made with Native American presence
and much of the recruiting is accomplished through the Tribal
Employment Rights Office of the Ute Mountain Ute Tribe and the
Southern Ute Tribe. To further enhance the construction skills
of the workforce the company is training a group of Native
Americans as heavy equipment operators, mechanics and
carpenters to work on the Animas-La Plata Project.
PREPARED STATEMENT
The roles of the Ute Mountain Ute Tribe and Southern Ute
Tribe have played in the Cultural Resource Mitigation Project
construction very simply add more significance to our water
rights settlement, the history of which spans more than two
decades and represents a very real cooperation between the two
tribes and our non-Indian neighbors in the San Juan Basin. The
commitment we have to see this settlement through the act of
2000 is equally matched by our present commitment to build this
water project correctly, on time and cost effectively. Reaching
this goal will be a proud moment for the Ute Mountain Ute Tribe
and the Southern Ute Tribe and its people.
I thank you.
[The statement follows:]
Prepared Statement of Selwyn Whiteskunk
Mr. Chairman, Senator Campbell and members of the committee. Thank
you for the opportunity to participate in this important hearing. I am
honored to represent the Ute mountain Ute tribe and its members today.
We have worked very hard and have waited many, many years to see the
Colorado Ute Indian Water Rights Settlement implemented through the
construction of the Animas-La Plata project.
The Ute Mountain Ute tribe is not a mere bystander in the
implementation process. The settlement passed in 1988 provided for the
Colorado Ute tribes the opportunity to participate in the project
construction through the Indian Self Determination and Education
Assistance Act. For the Ute Mountain Utes, this opportunity is
meaningful for the very reasons Congress passed the Act:
--this project brings economic development to the tribe and its
members,
--it further promotes education, training and employment among our
members,
--it provides real world experiences in cooperation and management,
particularly on such a large scale involving so many tribal and
governmental programs,
--it promotes pride in our work and the benefit it brings to our
homeland and our people. These benefits ultimately make the
tribe stronger and better able to participate in its own
evolution.
After amendments to the Settlement Act were passed in 2000 and the
project was ordered to proceed, we immediately began our direct role in
project development by contracting the cultural resources mitigation
responsibilities which must be completed prior to construction and
which continue throughout the life of the project.
The Ute Mountain Ute tribe and the Southern Ute Indian tribe
entered into the contract for cultural resources mitigation in 2002.
The area surrounding the project is very important archaeologically in
that there are thousands of artifacts, ranging primarily from 2,000 to
10,000 years old, and the area is also important to our tribes
culturally in that it contains a portion of a popular route through the
mountains that was used by the Ute people for generations. I am pleased
to inform you that the contract has proven to be a great success in
areas that are very important to the tribes:
--nearly 40 percent of all employees working on the contract are
Native American, as well as our own tribal members,
--we have implemented a popular 5-week Native American training
program,
--the mitigation work has coordinated very well with the construction
work,
--and we have made findings of significant archaeological interest.
The Weeminuche Construction Authority plays an even larger role in the
actual building of this critical water storage facility.
The Ute Mountain Ute tribe owns and operates its own construction
company, the Weeminuche Construction Authority, and we have designated
Weeminuche as the prime contractor on the construction of the project.
Building a dam such as this is extremely complicated and requires a
wide range of skills and expertise. We are very proud of the work
Weeminuche is doing and we see many benefits in the project for our own
people, and the local community. Our people are gaining hands-on
experience in areas that will prove useful to them in the future.
Although the opportunities for employment in construction on the
project varies with the time of year and the particular contract being
executed, Weeminuche generally employs about 100 people, about 67 of
whom are Native American. Weeminuche also utilizes many subcontractors,
many of which are local to the area.
The hands-on role the Ute Mountain Ute tribe has played in cultural
resources mitigation and project construction very simply adds more
significance to our Water Rights Settlement, the history of which spans
more than two decades and represents very real cooperation between our
two tribes and our non-Indian neighbors in the San Juan basin. The
impetus behind the Act is to provide to the tribes the water they were
promised, but, in the end, we sincerely hope this reservoir will help
to better serve the needs of all people in the area, particularly
during these times of drought and severe water shortages. We want this
project to remind people forever that the Federal Government's trust
responsibility to native peoples can result in great things for all
people, and that by working together, local residents, tribes, local,
State, and Federal governments can achieve real, tangible success.
The commitment we have made to see this settlement through to the
Act of 2000 is equally matched by our present commitment to build this
water project correctly, on time, and cost-effectively. Reaching that
goal will be a proud moment for the Ute Mountain Ute tribe, and when
the reservoir is filled with the wet water we have dreamed of for so
many years, our pride will shine a bright light on Ute Mountain and the
entire Four Corners.
Thank you. I will be happy to respond to any questions.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Senator Domenici. Thank you. Our two next witnesses are Mr.
Griswold and Mr. Kirkpatrick. I would like you to proceed in
that order and make your statements part of the record and be
as brief as you can.
Mr. Griswold. Thank you, Mr. Chairman.
Senator Domenici. You are welcome.
STATEMENT OF MIKE GRISWOLD, PRESIDENT, ANIMAS-LA PLATA
WATER CONSERVANCY DISTRICT
Mr. Griswold. I appreciate that. I've been associated with
this project for 10 years as a director of the Animas-La Plata
Water Conservancy District and 6 of those years I was
president. During much of the downsizing and up through 6, 7
months after our July 31 date. We measure time by that date. We
believe that the Bureau doesn't want to go to the woodshed
twice on this project and we think there were some mistakes
made. We haven't reached complete agreement with the Bureau on
some of the underlying for some of the mistakes but we think
the Bureau recognizes those. And my personal opinion is that I
think they were very candid in the report that they made to the
Secretary. I think that they fully intend to be within that
indexed $500 million cost. I certainly hope so.
Our district represents a relatively small amount of use of
water from the project, about 5 percent of the water, but we do
believe that some of the costs are costs that should not be
borne as reimbursable cost by our organization in paying our
full and fair share of the water, such as the arrangement under
638, which we applaud, we admire that effort to assure
assistance for the tribes to be able to improve their
capabilities. But that isn't actually a unit construction cost,
or construction unit cost, I should say, that we believe that
we should be reimbursing to the Federal Government.
Let me just say this. For our users of water the
resolution, the bottom line is pretty straightforward. Is the
water affordable? Our two principle purchasers of water from
our district are going to be, we hope, the city of Durango and
a rural domestic water system for the southwestern third of our
county. The price of the water is a very significant factor in
their planning for feasibility. The city will not pay more than
they would pay if they had to build their own storage
facilities. So their possibility of expanding the amount that
they pay is relatively slight. We were in the final stages of
negotiation with them for this purchase when July 31 occurred.
The Rural Domestic Water Distribution Company is something that
is still in the future but they're going to have to get ahead
of the curve if they're going to be delivering water. As a
matter of fact, my successor as president of the District is a
person who has to haul their domestic water for their home.
There are a lot of people in our area that are in that
position.
PREPARED STATEMENT
So we do support Resolution. I have been very encouraged
about the things that I have heard, both from you and from
Senator Campbell and from Secretary Raley, that by golly, we're
going to binge down and really put our efforts to this and
we're going to finish it in a high style. And I support that
wholeheartedly.
[The statement follows:]
Prepared Statement of Mike Griswold
Mr. Chairman, I appreciate the opportunity today to speak on behalf
of the Animas-La Plata Water Conservancy District (the District). The
District was formed under the Colorado law about 22 years ago to plan
for and develop the water resources within our boundaries. A primary
undertaking of the District has been promotion of the Animas-La Plata
Project. The District also expected to be the agency to collect
payments from irrigators using Animas-La Plata project water, and then
to pass those funds on as repayments for construction by the Bureau of
Reclamation.
I have been a Director on the District board for 10 years, and its
president for the past 6 years, until I stepped down in February of
2004. During that period, a combination of environmental, financial and
political concerns about the original Project's scope brought home the
realization that the Project, as originally configured, would not be
built in the foreseeable future. Then Secretary of the Interior Babbit
was adamant that the downsized project could not include any irrigation
features. With reluctance, our District supported building a down-sized
version of the ALP which will allow for the settlement of the reserved
water right claims of the two Ute Indian tribes of Colorado and provide
M&I water for use in our county and in San Juan County, New Mexico. The
ALP, authorized by Congress in 2000 and now under construction, will
also allow the Navajo Nation to receive M&I water and have it delivered
from Farmington, NM to Shiprock, NM by a pipeline to be built as part
of the Project.
The Bureau of Reclamation contracted the cost estimation process
for the down-sized project, and included those costs in the 2000 FSEIS.
Our District did not participate in either the preparation or the
presentation to the public of these cost estimates. We did argue,
however that the ``sunk costs'' associated with the earlier Project's
irrigation features should not be considered as a cost of the downsized
Project.
The non-Indian participants in this Project have been consistent in
their commitment to pay for their proportionate share of the reasonable
construction costs for the three remaining Project features which are
the pumping station, the conduit, and the off-stream reservoir. The
2000 Amendments provide that non-Indian participants could elect to pay
their share of the construction costs up front, thereby avoiding being
charged interest during construction, or they could execute repayment
contracts. The District arranged to have the full amount of our share
of the project costs paid out of funds available to the Colorado Water
Resources and Power Development Authority (the Authority). Our share of
the Bureau's construction cost was deposited by the Authority in an
interest earning escrow account from which the Bureau has already made
withdrawals in direct ratio to the expenditures of Federal
appropriations for Project construction.
Construction officially began on November 9, 2001. Our borrowed
money was at risk from that date onward, under a contract between the
Bureau and the Authority. For the last 2 years, I personally
represented our District at construction coordination meetings held by
the Bureau. I also served on a task force which drafted agreements to
be in place when construction was completed. During this time I
attended almost all of the Project meetings. As several contracts were
let for segments of the construction activity, we became aware that
some of the price tags for these segments were higher than we expected.
However, the Bureau did not have its construction activity segmented in
a fashion that would permit us to easily compare cost segments in the
FSEIS. I, personally, questioned the Durango Area Office director
regarding the cultural resources contract the Bureau awarded, and was
told that, yes, the price was higher than anticipated, but that was
because it covered additional work, such as compliance with the Native
American Graves Repatriation Act and other added costs resulting from a
higher density of archeological sites in the Project area.
Let me emphasize at this point that the Animas-La Plata Water
Conservancy District did not employ independent engineering consultants
to review or oversee the work of the Bureau of Reclamation. We, as many
sponsors, relied upon the Bureau's expertise in Project construction.
Let me also emphasize that because we had elected to pay our share of
the project costs up front, we had placed significant reliance upon our
contractual agreements with the Bureau which required full consultation
on Project construction decisions and which limited any further or
additional payments towards Project construction costs to those which
were reasonable and unforeseen. Despite the fact that there were
numerous meetings of the Project Construction Committee during the
period from November 2001 until July 2003, little, if any, consultation
took place. At no time were we informed that there was overall concern
about the construction cost estimates against which we were operating.
As a result, we were shocked when the July 31, 2003 letter from
Regional Director, Rick Gold, arrived announcing that the cost estimate
for completion of the greatly reduced Animas-La Plata Project would
have to be increased by approximately $162 million. The reasons given
by the Bureau for the estimated cost increase are a matter of record
that I will not detail in this statement. I have read the report the
Bureau prepared for the Secretary on the issue. Our District believes
that report was candid, and evidenced a detailed effort to investigate
and explain the reason for the cost increases. Several factors included
in the report, however, did not accurately state the conditions that we
believe existed at the time the 1999 estimates were made and used by
the Bureau.
I will mention a few instances. The bedrock at the pumping plant
site was, or should have been, known to a high degree of accuracy, as
some three dozen test wells had been drilled by the Department of
Energy (DOE) and monitored by, among others, the Bureau. From these
test wells the Bureau had the information to accurately assess the
materials to be excavated but, inexplicably did not use it. The fault
line which the Bureau states required realignment of the pumping plant
subsequent to cost estimating was a known feature long before the
original estimate was approved by the BOR and, in fact, was cited in
the 2000 FSEIS. DOE's UMTRA (Uranium Mill Tailings Recovery) team had
stated, at a public meeting it conducted in Durango, that the ground
water recovery on the 46 acres where the pumping plant is sited was
progressing naturally, and that it did not need any special remedial
treatment. Despite that statement the BOR letter suggests that another
reason the reconfiguration of the pumping plant was dictated, was
because of ground water recovery needs. These positions seem to be
inconsistent with the facts and circumstances known at the time the
project cost estimate was accepted by the Bureau. In addition, the
decisions to change the pumping plant location, for whatever reason,
was never the subject of consultation with the Project participants and
no assessment of the potential for a change in project cost was ever
performed.
There were also other design changes made without consultation with
partners contrary to the payment contracts the Bureau executed with the
two participating entities. For some changes limited information was
shared--for instance, for the relocation of County Road 211--but these
did not, in my estimation, rise to the level of consultation. We were
told by the Bureau in essence, ``Here is what we are doing or are going
to do.'' More importantly, no comparison of the cost difference between
alternatives was ever presented. The same circumstances occurred with
regard to decisions on how and where to relocate natural gas pipelines
in the Project Area.
Please be assured that in the Post-July 31 2003 era, the Bureau has
devised and employed processes which specifically identify issues and
changes, and sets forth a process for consultation with Project
supporters. My opinion is that the increases reported in July 2003
should be, for the most part, characterized as CORRECTIONS TO THE
ESTIMATES and not as COST OVERRUNS. Effectively all of the reasons for
the significant increase in the project cost relate to mistakes made in
the estimate that were not carefully checked by the Bureau or to
changes in project design that were made by the Bureau after the
estimates were prepared without adequately considering the cost
consequences. Examples to support this statement include the following:
--there was only a small increase in cost for the reservoir proper,
essentially for general inflation and for the cost of 638
process. The estimates for the reservoir were generally on
target.
--the one facet of the reservoir construction that did change was in
the nature and number of drop structures in Basin Creek between
the reservoir and the confluence with the Animas River. The
original cost estimates were inadequate because they included
too few drop structures.
--by comparison, the errors in estimating costs for the pumping plant
and conduit were horrendous. Some of the omissions were: not
including an administration building; absence of pressure
reduction and anti-backflow valves for the conduit (I
personally asked the Bureau's lead man about this in mid-2002,
and was told that they were planned.); insufficient diameter
for the conduit to carry the planned capacity of the pumps, as
examples.
--redesign of features after the cost estimate was prepared, such as
County Road 211 changed from replacement in kind just outside
the high water level to replacement high on the ridge with a
road greatly improved in design standards; relocating the
pumping plant and placing deep into the bedrock; changing the
gas pipelines' relocation route to include boring two 36-inch
diameter holes for over one-quarter of a mile, as examples.
--costs to be expected from implementation of the Indian Self
Determination and Education Act (638) contracting process were
not included.
--unspecified Homeland Security features, have also been added.
I would also like to address the relationship of the 638 Process to
the Animas-La Plata Project. In 1988 and again in 2000, the Congress
specifically directed the Bureau of Reclamation to utilize 638
procedures in constructing the Animas-La Plata Project. The
congressional direction was unmistakable. The Animas-La Plata Project
was to be built, to the extent feasible, utilizing resources of the
Colorado Ute tribes. Even a cursory review of the underlying law makes
it clear that Congress did intend to provide additional financial
benefits to the Indian tribes over and above those that might be
enjoyed by a non-Indian contractor. At no time has Congress suggested
that these additional costs should be considered part of the
reimbursable cost of the Project. In fact they are costs the Federal
Government incurs in order to encourage the improvement of the economic
condition of American Indian tribes generally. We, as financial
contributors to and participants in the Animas-La Plata Project want to
make it perfectly clear that we have no disagreement with this
congressional decision so long as those costs do not become a part of
our reimbursable share. We also want to be clear that we are very
confident in our Indian neighbors' ability to perform the tasks
necessary to build the Animas-La Plata Project for a reasonable and
competitive price. There is nothing in the circumstances surrounding
the construction record that exists today to suggest the tribes have
benefited inappropriately from the congressional decision nor have they
taken advantage of the process. In fact, the work that has been done on
the Project to date has been completed in a highly professional manner
and we are proud to have the tribes as our partners.
To the extent that there has been a suggestion by some that the
application of the 638 Process to this Project has resulted in an
increase in project costs approaching 30 percent, or that the tribes
have received a largess approaching 30 percent of the project costs, we
categorically disagree with any such assertions. It is our strong
belief that if there are increases in the cost of the Animas-La Plata
Project due to the 638 interaction, those increases will first have
been sanctioned by the Congress and second that they will in all
likelihood not exceed 10 percent. The tribal participation in
constructing the Animas-La Plata Project is not, and should not be
cited as, a major reason for the change in project costs. From our
perspective, the enormous bulk of the change in project cost results
from inaccurate assessments of the costs prepared for the 1999 EIS and
subsequent changes in Project facilities which were made by the Bureau
of Reclamation without consultation with Project supporters and without
assessing the impact of the changes on ultimate project costs.
The bottom line for the Animas-La Plata Water Conservancy District
and the water users which it represents is a straightforward
proposition. We obtained funding from the Colorado Water Resources and
Power Development Authority in order to pay upfront for the cost of the
Project. The price which was paid was within the ability of our
citizens to repay. Included within the group of our potential customers
is the City of Durango as well as the District's own plans to construct
a rural domestic water system in western La Plata County. The cost of
water from the Animas-La Plata Project is the most critical element in
providing both of these systems with a water supply. Any significant
increase in the cost of project water over and above that already
committed will seriously jeopardize the ability of either entity to
continue participating. It is absolutely essential that the costs
associated with constructing the Animas-La Plata Project resulting from
reliance on the 638 Process and resulting from the Bureau's omissions
in estimating the cost of the Project and changing project facilities
without considering the cost implications should not be borne by the
non-Indian Project participants.
We must find ways to keep the cost to our District within the
ability of our customers to pay. I believe Commissioner Keys and the
Department of the Interior are dedicated today to taking every step
they can to meet this need. Our region in Colorado needs the long-term
security that stored water in this project will provide. I am
optimistic that it can happen. Significant progress can be made by
assuring that the non-Indian participants pay for their proportion of
reasonable construction costs but that costs for other purposes be
appropriately assigned elsewhere.
We continue to support the completion of the project. We support
the overall goal of meeting the treaty commitments to the Colorado Ute
tribes to provide a reliable supply of water for their present and
future needs, a promise dating from 1868. We support the Bureau in
continuing a well-reasoned use of the 638 process with the tribes in
constructing this project. We support fiscally responsible cost
allocations. We stand ready to support the mutual goals shared by our
Native American friends, the San Juan Water Commission of New Mexico,
the State of Colorado, and the Bureau of Reclamation, all in a well
functioning partnership.
And we thank this subcommittee for its dedication to these goals.
Senator Domenici. Thank you very much.
STATEMENT OF L. RANDY KIRKPATRICK, EXECUTIVE DIRECTOR,
SAN JUAN WATER COMMISSION
Mr. Kirkpatrick. Senator Domenici, I want to thank you for
the opportunity to come before you and I appreciate you
incorporating my testimony in that effort. I will try to keep
my comments as short as possible.
I want to thank you for what I heard from you and Senator
Campbell regarding the holding down of our costs. The only one
that we're still concerned, it was brought up earlier this
morning was the concern about the extended construction time
and how those costs will be allocated as well. We're very
concerned that they could push the cost of this project beyond
our ability to pay.
Senator Domenici. I agree with you. That is a very serious
problem.
Mr. Kirkpatrick. The second part that I would like to
address this morning before I close is, we have been very
concerned with the willingness of the Bureau of Reclamation to
comply with the existing contract between the San Juan Water
Commission and the Bureau of Reclamation. It is the opinion of
the Commission that we would have avoided some of these
problems had they fully consulted and informed us of these
changes and we would encourage you to urge their coming to
settlement on that. We see improvement but we have not seen
full compliance at this point.
PREPARED STATEMENT
And to shorten my thing as slow as I can I would like to
make one final comment here. Despite the issues we raised in
our written testimony we still feel it is appropriate that the
Bureau of Reclamation and Weeminuche Construction Company
continue construction of this project, and feel that it would
be very shortsighted to change horses in the middle of the road
on the construction. They are coming up to standard and doing a
very good job, an excellent team.
[The statement follows:]
Prepared Statement of L. Randy Kirkpatrick
Thank you for the opportunity to testify in this important hearing
today. Before I begin, I would like to introduce to you the Chairman of
the San Juan Water Commission, Mark Duncan.
Today I want to address two points that are important to the San
Juan Water Commission and the State of New Mexico. They are: (1) the
Bureau of Reclamation's management of the Animas-La Plata Project and
(2) cost reimbursement.
However, I want you to know that despite the concerns I am raising
today, the San Juan Water Commission remains committed to the
completion of the Project. The Project is now under way, and it must be
completed and put into operation. The Project and the water storage it
will provide for New Mexico are critical to the future of the northwest
part of the State. Further, the Bureau of Reclamation remains the best
agency to complete the project--their construction team is excellent.
The Bureau is working diligently to manage the construction, and it
would be foolhardy--not to mention expensive and time-consuming--to
change the construction team now.
INTRODUCTION--BACKGROUND
The San Juan Water Commission (``SJWC'' or the ``Commission'') is a
New Mexico joint powers organization, and it is composed of
representatives of the San Juan Rural Water Users Association, San Juan
County, and the Cities of Aztec, Bloomfield and Farmington. These
entities collectively provide Municipal and Industrial water to more
than 110,000 people, including many people on the Navajo Nation. The
SJWC was the first entity to contract with the Bureau of Reclamation
(``BOR'' or ``Bureau'') for storage in the Animas-La Plata Project
(``the Project''), as required in the authorizing legislation. We at
the SJWC have paid up front our share of the cost of the Project as
originally estimated by the BOR, or $6.9 million. We have advanced
funds pursuant to our contract from an escrow account as requested,
based on the BOR's invoices.
The SJWC was shocked and dismayed to learn of the Bureau's extreme
cost underestimate on July 31, 2003. We attempted to understand the
basis for our money advances and the cost of the construction contracts
since construction began, but we frankly had little success obtaining
the information we requested from the Bureau. Although apparently we
were asking the right questions at the right time, we did not
anticipate the magnitude of the Bureau's underestimate.
It appears that the old construction estimate, which formed the
basis of our contract and our $6.9 million payment, was incomplete.
Apparently, the estimate was not a construction-level estimate, but
rather was based only on an appraisal- or feasibility-level study.
Further, the Bureau made changes to the Project that added significant
costs. These two factors--an incomplete estimate and design changes--
significantly contributed to the great disparity between the original
cost estimate and the new cost estimate. The third significant factor
contributing to the disparity between the two cost estimates is the use
of the Indian Self-Determination and Education Assistance Act (Public
Law 93-638) (the ``638 process''), which the Bureau has interpreted to
require the use of sole-source contracting for the construction of the
Project, as well as to require the training and supervision of Indian
contractors, often at significant expense. Additionally, the Bureau has
maintained and increased its own non-contract staffing inconsistent
with the spirit of the 638 process.
The first information the Project sponsors received concerning
increased costs was the letter dated July 31, 2003, from Rick Gold, the
Bureau's regional director in Salt Lake City. This letter was released
to the media the same day. The July 31 letter shocked the SJWC, and it
unfairly placed much of the blame for the cost estimate differences on
the Ute Mountain Ute Tribe (``UMUT''), which is the primary 638
contractor and whose consultant developed the old cost estimate.
Although the letter threatened to split the sponsors, we agreed to
continue to work together and to support continued appropriations for
the Project.
In response to this unexpected bombshell, the SJWC prepared a
report about how and why the mistakes were made in preparing the
original cost estimate, which is attached. As we acknowledged in our
report, the BOR must make some significant changes in the way it does
business in order to regain our confidence and to maintain our support
for the Project. Much to the credit of John Keys, Bill Rinne and Rick
Gold, some progress has been made since July 31, but more remains to be
done. Following are the two areas in which changes must still be made:
the Bureau's operations and the SJWC's reimbursement obligations.
The Bureau must continue to change the way it is managing the
Animas-La Plata Project.--First and foremost, the Bureau must staff the
Project with people who have the construction experience and project
management judgment necessary to complete the Project. The Bureau has
made these modifications for the construction phase of the project, and
it is a welcome change.
Second, the Project Construction Coordination Committee meetings
must comply with contractual obligations. This is a very challenging
but necessary task, and we appreciate the Bureau's efforts to change
the structure and content of the meetings. Although the consultation
function of the committee is difficult, it is necessary because it is
mandated in Article 4(a) of our contract with the Bureau. Incorporating
consultation with us into their process has been difficult for Bureau
officials, and we appreciate the structural changes that have been
made. However, a full, satisfactory consultation process has not yet
been put into place.
Issues regarding the cost of the Project and the SJWC's
reimbursement obligations must be resolved.--Bureau officials have told
us about their internal efforts to allocate costs in a way that is
equitable. However, although we appreciate what the Bureau has told us,
we need to review the Bureau's final cost allocations in order to
determine whether they are equitable to the San Juan Water Commission.
In addition, we believe some of the measures listed below must be
implemented to ensure that the increased construction costs are fairly
allocated. It is simply too early to tell whether the Bureau will
incorporate these measures, but we do not doubt the sincerity of the
people we have worked with most closely--John Keys, Bill Rinne and Rick
Gold.
First, the Bureau must develop a cost-tracking procedure to prevent
the underestimates and mistakes that have occurred from happening
again. Such a process is under development, and time will tell whether
it is successful.
Second, Bureau staff (and staff costs) must be reviewed and
reduced. As part of this evaluation, Bureau and tribal staffing must be
visible to the project sponsors and to the public. In fact, the UMUT's
contract with the Bureau addresses the need to examine Bureau staffing
directly, but we understand that this information has not been provided
to the Tribe. The Master Contract for General Provisions for Self-
Determination Construction Contracts for the ALP, October 22, 2002,
states:
``M. Design and Construction Management Expenditures. In order to
reduce project costs associated with 638 undertakings, Reclamation
agrees to implement its design and construction management
responsibilities in the most economical and efficient manner possible.
Reclamation will provide to the Contractor [WCA], in writing, its work
plans, which lay out planned staffing, projected level of effort
required to carry out these responsibilities, and proposed
expenditures.''
As of November 2003, counsel for the UMUT had not received any such
information from the Bureau. At the recent Project Construction
Coordination meetings, the Bureau has explained some of the inner-
workings of the Bureau and how costs are charged to the Project. The
Bureau, however, must still link its costs to specific 638 functions.
We understand that the 638 process is being used here in a novel way,
and we have a need to know how much it is costing and why.
Third, the Bureau must continue to review the 638 process. Such
review is ongoing, and the 638 process appears to be improving in
efficiency and cost control. The Colorado Ute Indian Water Rights
Settlement Act of 1988 (Public Law 100-585) requires the use of the 638
process in the design and construction functions of the Bureau with
respect to the ALP. However, the legislation does not direct exactly
how the 638 process will be used. Because this process is still
developing, it is imperative that all 638 costs be visible and
reviewable.
Fourth, all sponsors, including SJWC, must have a role in future
contracts between the UMUT's construction company and the Bureau. Such
participation would give us more comfort with the process and enable us
to tell our taxpayers that the Federal Government and Indian
contractors are working hard to hold down costs between the Bureau and
the tribal construction company. We understand that the contract
negotiations have been hard-hitting and have resulted in lower costs,
but we need to see this process for ourselves.
Fifth, the cost of the 638 process, including costs incurred by the
BOR, should not be reimbursable by the non-Tribal sponsors. The 638
process represents a Federal policy choice to help Indians gain skills
and experience on government jobs. That Federal policy choice should
not be implemented in a way that increases costs to the non-Indian
cost-share partners in the Project, including the Commission. Such
costs should be non-reimbursable.
Finally, the Commission's contract specifically states that the
SJWC can be assessed additional costs only if those costs are
``reasonable and unforeseen costs associated with Project construction
as determined by the Secretary in consultation with the Commission.''
Article 8(d). The Bureau's mistakes in the original cost estimates
should not be considered ``reasonable and unforeseen'' additional costs
because they resulted from decisions that the Bureau made without
consultation with the SJWC.
Moreover, the definition of ``reasonable and unforeseen'' costs
(still to be determined) should not include costs resulting from design
changes the Bureau made after the SJWC executed its contract with the
Bureau. For example, the Bureau made a decision to relocate the pumping
plant, in part, because of the presence of a fault line and potential
contamination from an old mining site. The Bureau did not advise the
SJWC when it was considering this change, or consult with the SJWC or
other sponsors. The costs associated with this change should not be
attributable to the joint costs for which the SJWC is responsible
because the SJWC paid its upfront $6.9 million payment in good faith
and under a contract that requires consultation on ``final plans for
Project Works, project completion schedule, and Project construction
costs.'' [Article 4(a)] In effect, the Bureau has not fulfilled its
contractual obligations to the SJWC regarding this and many other
changes, and the SJWC should not be forced to pay for such expenses.
The Bureau's contract with the State of Colorado for the Animas-La
Plata Conservancy District has similar language.
Thank you again for the opportunity to present this testimony
today, and thank you for your interest in this important issue. Please
feel free to contact me if you have any additional questions.
______
Memorandum
TO: San Juan Water Commission
FROM: L. Randy Kirkpatrick and Staff
DATE: November 19, 2003
RE: ALP Cost Increases
This briefing paper reviews the process that led up to the Bureau
of Reclamation's (``Bureau'') announcement on July 31, 2003, that it
had underestimated the cost of construction of the Animas-La Plata
Project (``ALP'') by more than $163 million. While we attempted to
grasp the full extent, there may be additional information that changes
these findings. It also will suggest changes that should be put into
place to prevent this from occurring again and to make the San Juan
Water Commission (Commission) whole. The increases in the Navajo/
Shiprock pipeline are not addressed since they are not reimbursable by
the Commission.
The information in this paper is based on limited information and
documents obtained from the Bureau before August 21, 2003, and from a
meeting with Bureau officials in Durango on August 27, 2003 (outside of
the review team process), and from independent analysis of Bureau
documents. This report does not in any way draw on information obtained
from the Bureau during the preparation of its report to the Secretary.
The construction cost estimate the Bureau used in the 2004 Budget
Justification documents was $336.9 million at the January 2003 price
level--this estimate (the ``old estimate'') was based on a cost
estimate developed for the Final Supplemental Environmental Impact
Statement (``FSEIS'') in 1999 and indexed up. The new construction cost
estimate, at the January 2003 price level, is $500 million (which is
now estimated by indexing, in October 2004 dollars, at approximately
$517 million), and it was developed independently, from the ground up,
by the Bureau beginning in January 2003. One way to understand why the
cost estimates are so far apart is to trace the development of the old
estimate from 1999 to the present, and to trace the changes in the
project since 1999.
The Commission relied on the Bureau in the design and estimating of
the project. In the preparation of this report the Commission engaged
the services of professional consultants to review the Bureau's work
and develop this report.
In essence, it appears that the old estimate was incomplete because
it was generally at an appraisal or feasibility level only, not
construction-level estimates, and that the Bureau made changes to the
project that added significant costs. These two factors--an incomplete
estimate and design changes--significantly contribute to the great
disparity between the old estimate and the new estimate. The third
significant factor contributing to the disparity is the use of the 638
process, which the Bureau has interpreted as requiring the use of sole-
source contracting for the construction of the project, as well as
requiring the training and supervision of Indian contractors, often at
great expense. Additionally, the Bureau has maintained and increased
its own non-contract staffing inconsistent with the spirit of the 638
process.
A. Development of the Old and New Estimates, and How the Sponsors Were
Informed
The cost estimates in the FSEIS that were used to support the ALP
and the legislation passed in 2000 were based on 1985 estimates from a
feasibility study, and then indexed upward for inflation in 1993 and
1999. They have since been indexed up to 2003.
The estimates were never more than feasibility level estimates.
They may have been at the lower appraisal level for some items. The
estimates included some mistakes in estimating the volume of material
to be excavated and in some unit prices. The Bureau changes to certain
features were made without considering the increased costs or
consulting with all the sponsors. The Bureau supplied most of the
information used by the Ute Mountain Ute Tribe's (``UMUT'') consultant
to develop the estimates.
Construction management in the 1999 estimate was at a level of 12
percent; more typical of BOR projects is 15 percent, which is where it
is in the new estimate.
Normally, on any Bureau project, before construction begins on
individual features, the Bureau will prepare construction cost
estimates. That has not been done on this project.
In early 2003, the Bureau began an independent cost estimate for
ALP. The Bureau's rule (and OMB's rule) only allows cost indexing for 5
years before a new estimate is made. This new estimate was from scratch
and was not an updating of previous costs. It was done with the
Bureau's Technical Service Center in Denver.
About June 1, all the costs began to come together and it seemed
clear that a huge difference was likely.
When Bureau management became aware of the magnitude (they expected
a $30 million to $50 million increase), they were embarrassed and set
out to determine where the differences were. Rick Ehat, the
Construction Engineer on the project, outlined the differences in the
``Construction Cost Estimate Variances'' document, dated August 6,
2003, which is attached for your review. Also attached are two
spreadsheets that detail the old estimate, entitled ``A-LP Construction
Cost Estimate, April 2002,'' and the new estimate, entitled ``A-LP
Construction Cost Estimate, Draft #3K--Updated as of 7/29/03.'' The
Bureau provided these documents at a meeting with project sponsors on
August 7, 2003.
The project sponsors were not advised of the new cost estimate
prior to its public release.
The first information the project sponsors received was the July 31
letter from Rick Gold, regional director in Salt Lake City. This letter
was released to the media the same day.
The July 31 letter shocked the project sponsors, and it unfairly
placed much of the blame for the cost estimate differences on the UMUT,
which is the primary 638 contractor and whose consultant developed the
old estimate. It threatened to split the sponsors, but they agreed on
August 14, 2003 to continue to work together and to support the current
appropriation for the ALP.
Also on July 31, Secretary Norton sent a memo to John Keys, through
Bennett Raley, that she wanted a report by September 2 on the
procedures that caused the problem and recommendations for
improvements. Bill Rinne, Deputy Commissioner, is in charge of the
review and report. Project sponsors have participated in the review
process by commenting on drafts of the report. Project sponsors agreed
to a non-disclosure agreement to protect the information generated by
the review effort until the report is released. As of this writing
(November 19, 2003), the report has not been released.
On August 1, 2003, the San Juan Water Commission sent a letter
(attached) to Rick Gold asking for specific information on the cost
estimates and confirmation that the July 31 letter did not constitute
any formal notice that construction costs have increased, which could
immediately increase the cost to the Commission.
On August 7, 2003, a small group from the project sponsors met with
the Bureau. The presentation was nothing like the July 31 letter. The
group expressed the deep sense of betrayal caused by the letter. The
letter appeared to be purely a CYA action and put the sponsors,
especially the Utes, in a terrible position. The group urged the Bureau
to take responsibility.
On August 13, 2003, Rick Gold sent a follow-up letter to Harold
Cuthair (attached) in which he apologized for blaming the UMUT. But the
letter failed to address what role design changes played in increasing
the costs. It also did not retract the cost increases laid at the feet
of the UMUT.
On August 14, 2003, sponsors met to hear the attendees from the
August 7, 2003 meeting communicate their understanding issues (which
forms much of the basis of the report). Additionally, the group
recognized the need to continue construction activities and
appropriation efforts, while evaluating the impacts of the estimates
and the appropriate responses, including the possibility of litigation.
On August 15, 2003, the Commission sent a follow-up letter to Rick
Gold (attached) that listed the information received. At that point,
the Bureau had supplied information in only three of eight categories
requested.
On August 20, 2003, the Commission sent a letter to Pat Schumacher
(attached) confirming that no formal notice has been issued raising the
cost to the Commission. The Bureau has formally acknowledged this by
letter August 26, 2003 (attached).
B. Design Changes That Increased the Costs
The Bureau made several significant design changes after 1999 that
were not reflected in the old estimate as it was ``updated'' each year
by indexing. The Bureau did not consult with Commission on the changes.
The Commission's contract, negotiated in 2001, has a specific
requirement that the Bureau involve the sponsors in significant
construction and design decisions:
``The Project Construction Coordination Committee will be made up
of representatives of those entities that have been identified by the
Settlement Act, as amended, to receive a water allocation and the
Bureau of Reclamation. This committee will provide coordination and
consultation on the construction activities among all the project
beneficiaries, seeking common understanding and consensus on decisions
associated with such items as final plans for Project Works, project
construction completion schedule, and Project construction costs.''
Article 4(a) of Contract between the Bureau and the Commission,
finalized in February 2002. The Bureau's contract with the State of
Colorado on behalf of the ALP District has similar language.
The first meeting of the Project Construction Coordination
Committee (``PCC'') in early 2002 did not review the costs associated
with changes that had been made up to that point in designs for the
project. The PCC meetings, which were monthly and open to the public,
did not raise any issue for consultation or discussion among the
committee members. Recognizing the shortcomings of these meetings, the
Commission began trying to monitor the costs of the ALP through
``contract compliance'' meetings. Even so, the Commission still had
trouble getting concrete information on aspects of the project.
Some of the design changes that had the biggest impact involve the
pumping plant. It was turned 90 degrees so that it is perpendicular to
the Animas River instead of parallel to it. The Bureau made this change
to meet environmental requirements related to the uranium tailings pile
that is on the river bank. However, the Bureau ``sold'' the change as a
design enhancement and aesthetic improvement. The resulting cost
increase, however, is staggering--the new plant is about $40 million
more than the pumping plant described in the old estimate. Part of the
increased cost results from turning the plant 90 degrees. Also, the
earlier design missed the elevation of the plant, and it must be put
lower in the ground (and rock). Also, the new design eliminated some
office space, and so a new O&M building (costing $2.5 million) must be
added.
Another significant design change was the relocation of the natural
gas pipelines that go through Ridges Basin. In the old estimate, the
lines were to be relocated around the southern side of the reservoir.
Then the Bureau, for uncertain reasons, decided to relocate them around
the north end of the reservoir, which required using horizontal
drilling, at a much higher cost, and making other costly changes to the
inlet conduit; e.g., going deeper into rock to build a sleeve to run
the conduit through.
The Bureau also upgraded the replacement of County Road 211,
without any Commission input. The old estimate accounted for moving and
replacing CR 211 at its existing condition, a marginal gravel road. The
Bureau upgraded the road and made other changes that increase the cost
by about $10 million. The Commission asked to participate in the
process that the Bureau had in negotiating with La Plata County about
the road, but was not invited.
Jerry Knight, Ute Mountain Ute cultural resources on August 14,
2003, said that they knew the estimates were wrong for the cultural
resources program when they began the work. The BOR changed the design,
and the budget was inadequate. This occurred in late 2001, but the
official cost estimates were not changed. Nor were the redesign changes
a subject brought to the ALP sponsors for consultation.
The Commission's contract specifically states that it can only be
assessed additional costs if they are ``reasonable and unforeseen costs
associated with Project construction as determined by the Secretary in
consultation with the Commission.'' Article 8(d). The Bureaus' mistakes
in the cost estimates should not be considered ``reasonable and
unforeseen.''
C. Use of 638 Process Raises Costs for Construction and Administration
The Colorado Ute Indian Water Rights Settlement Act of 1988 (Public
Law 100-585) requires the use of the Indian Self-Determination and
Education Assistance Act (Public Law 93-638) in the design and
construction functions of the Bureau with respect to the ALP.
However, the legislation did not direct exactly how the 638 process
would be used. The UMUT concedes that its start-up as construction
manager was not efficient, and that it spent money on gearing up. The
Bureau, however, has been much less forthcoming in how the 638 process
affects the Bureau's non-contract costs in the Project.
The construction engineer convinced the UMUT to hire experts in dam
construction to help the tribe learn the business. He was concerned
that the Weeminuche Construction Authority (``WCA'') was not prepared
to handle the project without these consultants. He said WCA is a road
contractor, and not a dam contractor, which makes a big difference.
Those costs apparently have been attributed to the project, but non-
Indian project sponsors were not consulted or even advised before the
experts were hired. In the case of the Pumping Plant, the Bureau
determined that the WCA could not perform the design work and declined
to have the WCA take over that part of the project.
The Bureau appears to have kept a number of employees on the
payroll who duplicate the UMUT construction management and WCA work.
The Commission, even after repeated requests and several meetings, has
not been able to get the information that would explain duplicative
work by the Bureau. The Bureau did not address this aspect of 638
contracting at all in its July 31 letter.
However, the UMUT's contract with the Bureau addresses the issue
directly. The Master Contract for General Provisions for Self-
Determination Construction Contracts for the ALP, October 22, 2002,
states:
``M. Design and Construction Management Expenditures. In order to
reduce project costs associated with 638 undertakings, Reclamation
agrees to implement its design and construction management
responsibilities in the most economical and efficient manner possible.
Reclamation will provide to the Contractor [WCA], in writing, its work
plans, which lay out planned staffing, projected level of effort
required to carry out these responsibilities, and proposed
expenditures.''
Councel for the UMUT says they've never received any of this.
The 638 contracting process operates much like a sole-source
contract. As a result, the final contract prices may be significantly
higher than they would be in the normal competitive bid process.
The 638 process represents a Federal policy choice to help Indians
gain skills and experience on government jobs. That policy choice
should not be implemented in a way that increases costs to the non-
Indian cost-share partners in the ALP. Such cost should be non-
reimbursable.
D. Role of the Culture of the Bureau in This Process
The Bureau staff in the chain of command that managed the ALP is
fairly skilled in dealing with the public, the environmentalists and
the local politics. That staff was woefully unprepared, however, for
managing the construction of the ALP in partnership with the sponsors.
The Bureau's culture has changed significantly in the last 20
years, and so it is understandable, but not excusable, that appraisal
level estimates would be used after they were included in the FSEIS and
never reviewed critically again. The emphasis after 1999 was on
environmental compliance and placating the local opponents. But no one
in the Bureau looked hard at the cost estimates.
Construction managers were not brought into estimate the costs in
the project at the contracting stage in early 2001, when it would have
been appropriate. Construction mangers were finally brought in to
Durango in early 2002. The real construction managers are the ones who
realized the cost estimates had no connection with reality.
More distressing, the ``new'' Bureau staffers seem intent on
protecting their positions, instead of coming clean about the mistakes
made and the failures in personnel. In short, the Commissioners cannot
trust many of the Bureau staff that they had put their confidence in
before. It remains to be seen if the Bureau will honestly evaluate
itself in the report to the Secretary, but that is a very hard task for
any organization.
The Commission is concerned that as the ALP moves forward, the
Bureau must put in charge people who can be trusted. That does not
include many of the current people in the old chain of command. Their
culture is the ``new'' Bureau, and the ALP now needs old line, hard-
headed construction experts.
E. Suggestions for Addressing the Problems
The Bureau must be staffed with people with the construction
experience and project management judgment necessary to complete the
project.
The Bureau must be a real partner with the Commission and other
sponsors.
The Project Construction Coordination Committee meetings must
comply with contractual obligations, such as consulting with the
sponsors prior to decisions affecting construction.
The Bureau must develop a cost-tracking procedure to prevent the
mistakes that have occurred from happening again.
The Bureau must revisit the 638 process to determine if other tasks
may be beyond the resources of the Tribes, such as it did with the
pumping plant. The Bureau must evaluate the duplication of activities
involved in the 638 process and eliminate them.
The San Juan Water Commission must have a role in the development
of agreements between the Bureau and WCA on future contracts.
Bureau and tribal staffing, and costs for 638 contracts must be
visible to the project sponsors and to the public.
Bureau staff must be reduced in the organizational chart.
The Commission must be charged only with additional costs that are
``reasonable and unforeseen,'' meaning that it must not be charged with
the increased costs of mistakes and decisions made by the Bureau
without consultation with the Commission and the 638 process.
The Congress should reaffirm its commitment to the Animas-La Plata
Project and support continuing appropriations that will permit the
project to be completed consistent with the Colorado Ute Amendments of
2000.
Senator Domenici. Well, the thing that bothers me with
reference to Mr. Griswold and you saying that, you know, they
have made these great commitments and they sure sound good and
they are redone the way they have done in the past and now they
are really on the ball, the thing that bothers me is why we
should believe that? Why should we believe that when there has
been a mess up of this proportion in the past?
Mr. Kirkpatrick. Mr. Chairman with all due respect to the
Bureau, I am very concerned that they will fulfill what they
have suggested at this point to solve the problem. But we have
seen very strong improvements, particularly in the area of
construction, of how the Bureau is managing this project for
the period of construction.
Senator Domenici. How about you, Mr. Griswold?
Mr. Griswold. There has been considerable change in
communications and sharing of information, an early warning
system for changes that would make us aware of them, so I have
a greatly improved confidence.
Senator Domenici. Chairman Richards, I want you to know and
I want Mr. Whiteskunk to know that we understand why this
agreement was a good thing. And we think you were very prudent
in saying we are not going to get as a good a deal if we go to
court and win. Much less, there is a chance you would not get
everything you take to court. But I do want to tell you that I
am very concerned about overruns that might be caused by 638.
And you know, we are here now saying we want the Bureau to do
better. I think we cannot leave here without saying to you,
Indian participation, that you have got to do better. You
cannot be part of overruns. They did not account for all this
but it is pretty much money and you have got to either be
better at it or you have got to call to the attention of the
Bureau what kinds of problems you are having that caused the
increase.
Mr. Whiteskunk, I am very sympathetic to how much you have
to put together with reference to the Federal laws.
Tremendously complicated and certainly, when you told us the
scope of participation, you know, it is a wonder that you can
get anything done. The way you are doing it, I am narrowing it
down to some leaders, is probably the only way. And we hope
that when you have finished all those people, the 26 that had
been on the periphery, will think that what you have done is
right. And I would be very careful, and I would have good
lawyers. I would include in your estimates to the Bureau that
you have got to have good lawyers because when we did this
there were people who did not want us to do that. You know
that. And they are tough. And they file lawsuits. And they love
that. So you have to be in a good position, both of you in your
tribes, to defend your interests and the interests that you
have complied with these things like archaeological, which you
told us about. They are important. In my opinion they could
still stop this project. So I do not know if you wanted any
opinion from me but I tend to think it is my job and I am going
to have to approve this. You do not know it but I wear two
hats. I do not necessarily like it when it comes to water
because we always get under funded. But I have to appropriate
the money in this other committee. So we could sit up here and
gab but then over here comes the appropriations bill and they
do not put in enough money to get the job done. Now, I cannot
do anything about that. That is OMB and by the time it gets to
me it is all finished. So we are going to have to watch it next
year and the year after. And you are, too, when you make your
plea to OMB that they give us enough money. Because if this
thing falls apart the Federal Government has a pretty big
obligation and it is going to mess up a lot of water users.
That is why we made the deal, right?
Mr. Kirkpatrick. That's correct.
Senator Domenici. The deal was not made because we wanted
to be nice. The deal was made because you looked at it, said,
``If we have to spend time with lawyers and go through all
these courts we are apt to be here 20 years and we do not know
what is going to happen.''
You know, we have a case in New Mexico, you might not have
heard of it, with the Indians fighting the non-Indians and it
is called the Amont case. A-M-O-N-T. It is 40 years old. Now,
you know, you are an old man but 40 years is more than half
your life. And we have not fixed it. But I am trying. And you
think that I can continue that in court? If it has not worked
for 40 why would I think that it would work in 50? So we have
to negotiate, right?
Mr. Kirkpatrick. That's correct.
Senator Domenici. There is no way out. And people that are
non-Indians do not like Indians who get everything. You know,
they look at it and say they got too much, we did not get
anything. So I have to find out how to give them something.
Right?
Mr. Kirkpatrick. That's correct.
Senator Domenici. And the Indians are not going to object,
they just want to get what they want. Right? That is what you
are doing.
Mr. Kirkpatrick. Right.
Senator Domenici. Now, let me ask my San Juan County
friend. How much is the current estimate of the overage that
you would have to pay if we do not fix this, if we do not fix
the cost?
Mr. Kirkpatrick. The best number, and I don't have a good
and somewhat unlike Bennett, probably would increase our cost
about $3.8 million at this time, versus about $7 million.
Senator Domenici. What is the baseline on what you are
adding that to?
Mr. Kirkpatrick. We would be adding that to approximately
$7 million.
Senator Domenici. That is a big increase.
Mr. Kirkpatrick. Yes, it is.
Senator Domenici. We have got to get that fixed. And Mr.
Griswold, you have a big problem, too. How much is yours?
Mr. Griswold. Our investment right now is about $7.3
million and we figure it would go up 50 percent.
Senator Domenici. Okay. So we are not talking about lots of
money. How many districts are there? Two.
Mr. Kirkpatrick. Actually there will be three. There will
be another district in New Mexico that will be forced to pay
additional funds.
Senator Domenici. Where is that one?
Mr. Kirkpatrick. That would be the La Plata Conservancy
District. Stella Montoya, you know Stella, I know very well.
Senator Domenici. All right. Well, we want a message to get
out to them if you will give it to them, that we are trying to
work out some way that that is included in the cost.
Mr. Kirkpatrick. We would be glad to do so.
ADDITIONAL SUBMITTED STATEMENTS
[Clerk's Note.--The following statements were submitted for
inclusion in the record.]
Prepared Statement of John R. D'Antonio, Jr., State Engineer, New
Mexico
Mr. Chairman and members of the subcommittee, thank you for the
opportunity to submit testimony at this hearing on the Animas-La Plata
Project. New Mexico has for many years supported an Animas-La Plata
Project that would provide storage of Animas River flows to meet the
needs of water users in New Mexico. Also, New Mexico has supported the
Colorado Ute Indian Water Rights Settlement Act of 1988 as well as
amendments to the Act enacted by the Congress in 2000.
It is very important, not only to New Mexico water users but to all
water users of the San Juan River system, that storage of Animas River
flows be provided to make the water supply available from the San Juan
River system usable for development of the water apportioned to the
States of Colorado and New Mexico by the Upper Colorado River Basin
Compact. Further, the storage and regulation of Animas River flows in
concert with the regulation afforded by Navajo Reservoir on the main
stem of the San Juan River above the mouth of the Animas River will
enhance the success of the San Juan River Basin Recovery Implementation
Program to achieve its goals to conserve endangered fish species and to
proceed with water development in the basin. An example of current
development of the basin water supply is the proposed Navajo-Gallup
Municipal Water Supply Project in New Mexico, currently under
consideration, which is much needed to provide domestic water supplies
to Navajo Indian communities and to the City of Gallup, New Mexico.
It is our understanding that construction of the Animas-La Plata
Project facilities is currently progressing satisfactorily. I urge that
funding be provided up to the full capability of the Bureau of
Reclamation in order that the project be completed as soon as is
reasonably possible. Concern has arisen over the recent release of the
revised cost estimate for the project which resulted in a cost increase
estimated to be $160 million.
The local entities are very concerned that this cost increase will
affect their timely re-payment of project costs to complete the project
works. I believe that Reclamation should carefully review the causes of
the increase looking towards alleviating any increase in the repayment
of project costs.
______
Prepared Statement of Phil Doe, Chair, Citizens Progressive Alliance
Thank you for the opportunity to provide testimony on the Animas-La
Plata project cost overruns. We will supplement these remarks with more
detailed information in the coming weeks.
The recent disclosure that the Animas-La Plata Project is already
$150,000,000 over the original cost estimates is not the real news. The
real news is that the BOR knew the estimates to be bogus back in 1999
when they submitted them to Congress. Indeed, these cost estimates were
commissioned not by the BOR, but, in a callous and calculated misuse of
the Indian Self-Determination Act, by the Ute tribes,\1\ the project's
primary contractors and chief beneficiaries.
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\1\ The Southern Ute and Ute Mountain Ute tribes are the chief
beneficiaries of ALP, receiving the lion's share of project water free
of cost. These two small but very wealthy tribes have a combined
population of about 3,000 people, counting man, woman and child. And
despite claims made by some in support of building ALP, these tribes
are not without water. In fact, they already control about 150,000 acre
feet of water, most of it developed with Federal assistance. This
constitutes half the water the entire State of Nevada is entitled to
under the Colorado River Compact. Approximately 2,000,000 people live
in Nevada.
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Moreover, as internal documents show, these estimates underwent
little or no governmental review, and were actually devoid of cost
estimates for whole portions of the project. Some suspect these
rascally ``accounting errors'' to be deliberate so as to convince the
Congress and the public that the project really had been downsized,
both in cost and size. Actually, the public costs of the project are
much greater than have ever yet been reported, and the project has not
really been downsized despite the PR to the contrary.
First the costs: The BOR's policy has been to tailor the truth
about the project's overall costs by focusing only on the construction
costs, while totally ignoring all other costs, past and future. We ask
that there be a true accounting. If done honestly, both the Congress
and the public will be agog at the outcome. Here are a few of the
hidden costs that need to be accounted for:
--The interest on the public debt that the project will burden us
with over the 100-year life of the project needs to be
calculated and added as a project cost. The interest component
alone will add billions of dollars to the true cost of this
project. The taxpayers also have to repay all but a sliver of
project construction costs. And those costs, too, for reasons
outlined below, will reach well into the billions when all is
said and done.
--The construction cost estimates need to include estimated cost
increases from inflation. With a modest 3 percent rate of
inflation over a 15 to 20 years construction phase present
costs estimates might increase by 50 percent from inflation.
--The estimated costs should be calculated based on a range from high
to low. Presently, the BOR prefers to give only a low-range
cost estimate. They persist in the fanciful notion that their
forecasting is precise and unsusceptible to unknowns and human
error. Yet, the last three major BOR construction projects, the
Dallas Creek and Dolores Projects, both in Colorado, and the
Central Arizona Project have all been at least 300 percent over
original cost estimates. Recently, the project construction
engineer admitted ALP was one of the most complicated projects
ever. Cost sensitivity analysis is a must if we are to have any
confidence in BOR cost projections, even those they admit to.
--Adding to our concern over the final price tag is the fact that,
while hundreds of millions in Federal tax dollars have already
been spent on this project, ALP construction is only 3 to 4
percent completed according to a recent admission by the
project construction engineer. Even if the project were to
experience annual cost overruns of 10 percent annually, rather
than last year's 50 percent jump, we are looking at well over
another 100 percent increase in public costs, assuming a 15 to
20 years construction period.
--Over $60,000,000 in planning costs have been shaved off because the
BOR has determined they were incurred for the agricultural
portion of the project that was supposedly eliminated by the
so-called 1999 compromise. These are still part of the
project's cost to the public and should be shown as such.
Moreover, as we will discuss later, the agricultural portion of
this project is still very much alive in the minds of the major
backers of the project.
--The Ute tribes received $60,000,000 in ALP settlement money back in
1987. This money also should be added in as a public cost.
Indeed, the Utes were awarded another $40,000,000 in the 1999
amendments. This money should also be shown as a public cost
even though the BOR is asking the BIA to budget for that money
so that it does not undercut the money they have to spend on
construction and does not show up as a project cost.
--The BOR's 1999 cost estimates failed to account for the power lines
and other infrastructure required to bring federally subsidized
power to the project pumping plant at Durango. The BOR is
presently asking WAPA to request $10,000,000 in its budget to
fund this portion of the project. Once again this is a project
cost and should be added in even if it comes disguised in
WAPA's budget.
--In 1996, we asked the Department of Interior to calculate the value
of lost hydropower and increased salinity from project water
diversions. Their estimate was a public cost of $18,000,000
annually. Clearly, over the 100-year life of the project those
public costs will reach into the billions of dollars. Moreover,
the huge power requirements for project pumping will be robbed
from present CRSP users. It is not unlikely, therefore, that
another coal-fired power plant will be required in the four-
corners area to replace the power needed for project pumping
and that lost because of project diversions. These costs, too,
have not been estimated or acknowledged for what they are,
project induced costs to the public.
There are many other costs which remain hidden or half buried, but
even the foregoing give ample proof that this project is a bank buster.
So, when we add into this putrid mix the fact that there are no known
uses for most project water, the burdensome imbecility of this project
becomes even more pronounced. In fact, we have been in court for almost
2 years trying to find out the intended uses of project water, for
``beneficial use'' is a requirement before a water right can be granted
under Colorado law. Project proponents have refused to provide any
information on use. As a result, the American taxpayer is advancing
truck loads of scarce public dollars for a project that doesn't even
have a secured water right with which to fill the reservoir.
On top of that, the BOR rushed into the few repayment contracts it
has for small amounts of project water knowing that the cost estimates
they were basing these contracts on were wrong. They even threatened
project backers that if they didn't sign up for water immediately they
would have to pay more when the real costs became known. These
contractors are now refusing to pay more no matter what the final costs
of the project may be. This threat defies Federal reclamation law
requiring full repayment of the costs of M&I water, plus interest. It
also helps explain why BOR is attempting to have other agencies such as
WAPA fund some of the construction outlays.
We mentioned earlier that the agricultural portion of the project
is still alive and well. We know this from recent court briefs in which
one of the project's chief backers, the Southwest Water Conservation
District, is fighting our efforts to have them abandon the agricultural
water rights for the Animas-La Plata Project. Despite the 1999
legislation which supposedly eliminated agricultural water from the
project, they've declared they intend to use this water for irrigation.
Perhaps that explains why project pumps were greatly increased in size
in the final design. Now multiple filling of the project reservoir can
be easily accomplished so that project backers can have their cake and
eat it too. It is Candide!
In summation we make two requests. We ask Congress to suspend
funding for this project until an independent GAO audit exposes the
real public costs and Congress has an opportunity to evaluate those
costs against the purported benefits. We also ask that, if this audit
discloses criminal intent to defraud the American taxpayer, as we think
it will, Congress join us in asking for a Federal grand jury
investigation and prosecution of those responsible.
Finally we note with great approval present efforts to adopt a pay-
as-you-go budgetary process in the Senate. This is not only necessary
and wise public policy, in our opinion, but one of its minor
consequences must surely be the red lining of that mountain of lies
known as the Animas-La Plata Project.
Thank you for the opportunity to testify.
______
Prepared Statement of Russell George, Executive Director, Department of
Natural Resources, State of Colorado
INTRODUCTION
The State of Colorado appreciates this opportunity to provide
testimony before the Senate Subcommittee on Energy and Water
Development concerning the Animas-La Plata Project (ALP). Construction
of the Animas-La Plata Project is extremely important to the State of
Colorado as it is the final piece required to bring closure to the
resolution of the Tribal reserved water rights claims under the 1986
Colorado Ute Indian Water Rights Final Settlement Agreement, in
particular those portions of the Settlement concerning the Animas and
La Plata Rivers.
Despite the considerable controversy that has been generated by the
Animas-La Plata Project, there exists an extraordinary partnership
between the States of Colorado and New Mexico, and the Indian and non-
Indian communities in southwestern Colorado and northwestern New
Mexico. Together, we have successfully quantified the reserved water
right claims of the Southern Ute and Ute Mountain Ute Tribes in
Colorado, and implemented most of the Settlement Agreement, in a unique
way that serves as a national model. More than that, however, is a
genuine sense of pride that exists between the Indian and non-Indian
communities in the area, over shared use and development of water and
mineral resources, economic opportunity, and preserving the quality of
life and environmental heritage of the area.
Through the 1986 Settlement Agreement, we have avoided protracted,
expensive and divisive litigation. We have preserved non-Indian
economies and provided for stable development of Tribal economies. We
have avoided the social disruption resulting from the enforcement of
Tribal reserved right claims. We have integrated the administration of
Indian and non-Indian water rights into the State water rights system.
Completion of the Animas-La Plata Project is critical to preserving
the benefits of the 1986 Settlement Agreement with the Ute Tribes and
the stability that it brings to the citizens of the San Juan River
Basin.
Accomplishing these results has required vision, extraordinary
leadership, respect for the needs of all sides, a willingness to listen
to and explore new solutions, and a commitment to stay at the table
until a solution is reached. To fully understand the importance of the
Animas-La Plata project in this process, it helps to review the history
of the Reservations, the Animas-La Plata Project and the 1986
Settlement Agreement.
HISTORICAL CONTEXT
The original Ute Reservation was established by treaty in 1868,
prior to the arrival of non-Indian settlers to the area. The arrival of
non-Indians resulted in conflicts, and reconfiguration of the
Reservation lands. In 1895, Indians living on the Reservation were
given the option of settling on 160 acre allotments, or moving to the
western portion of the Reservation. Non-Indians were able to acquire
some of these allotments as well. In 1934 this homesteading process was
closed. The result was the present configuration of checkerboard Indian
and non-Indian lands on the Southern Ute Reservation and the contiguous
block nature of the Ute Mountain Ute Reservation. These lands are
downstream from non-Indian development in Colorado. Almost every river
in southwestern Colorado passes through one or both of the
Reservations.
The rights of Indian Tribes to reserved water is based on the date
of the reservation. In the late 1800's, non-Indian irrigation was
beginning upstream from the Reservation, on the Pine River. The
Southern Ute Tribe filed claims for irrigation purposes in 1895, and
water litigation ensued which lasted until 1930, when a Federal court
awarded the Indian claimants the No. 1 water right on the Pine River.
This created a severe water shortage for the non-Indian irrigators, and
resulted in the construction of Vallecito Dam in 1941, to serve both
Indian and non-Indian lands.
In contrast, the Mancos Project was developed on the Mancos River
by 1950. Although the Mancos River is the primary river through the Ute
Mountain Ute Reservation, the Tribe did not receive the benefit of
water service from the Project. In fact, the town of Towaoc, which is
on the Ute Mountain Ute Reservation, did not even have a potable water
supply until 1990, as part of the implementation of terms under the
1986 Settlement Agreement.
Colorado is a semi-arid State and the precipitation it receives,
16.5 inches on average, varies significantly from year to year.
Droughts occur frequently and can last several years. Therefore, the
ability to capture and store water during times of plenty is critical
to providing a stable economy. In 1956, Congress enacted the Colorado
River Storage Project Act (CRSP), which provided for comprehensive
water development throughout the Upper Colorado River Basin. This Act
authorized the construction of the initial CRSP units--Curecanti,
Flaming Gorge, Navajo and Glen Canyon; a number of participating
projects, including the Florida Project; and the preparation of
planning reports--including the Animas-La Plata and Dolores Projects.
The Florida Project was completed to serve lands on Florida Mesa in
1963, which included some Indian lands but which did not completely
meet Indian needs.
The CRSP Act also established a mechanism for assisting in the
funding of construction of these and other projects, through the
creation of the Upper Colorado River Basin Fund (the ``Basin Fund'').
In short, hydroelectric power revenues generated from the CRSP Units
are credited to the Fund to pay for certain construction, operation and
maintenance costs of the initial CRSP units. The balance of any
revenues are credited to each of the upper basin States to pay for that
portion of the construction costs of participating projects allocated
to irrigation, that are beyond the ability of irrigators to repay.
Additionally, participating projects can take advantage of favorable
rates for CRSP power.
In 1968, Congress enacted the Colorado River Basin Project Act
(CRBP). Among other things, the CRBP Act authorized the construction of
the Animas-La Plata and Dolores Projects, concurrent with the
completion of the Central Arizona Project. The authorization for the
Animas-La Plata project was for a configuration substantially different
than the presently proposed configuration. However, the Project was
always contemplated to serve both Indian and non-Indian needs.
Thus, as of the late 1960's, there was some resolution of Tribal
claims, and a good deal of water development undertaken and
contemplated in the San Juan River Basin. Some but not all of this
development benefited the Tribes. However, quantification of Tribal
claims, and their impact on non-Indians, were certainly open questions.
The United States Supreme Court established a test for the amount of
such claims, based on practicably irrigable acreage, which includes
both present and future irrigation needs.
Quantification of the Tribal claims in Colorado commenced in 1972,
when the United States Department of Justice filed reserved rights
claims on behalf of the two Ute Tribes in Federal district court. The
State of Colorado and other parties intervened, and moved to dismiss on
the grounds that under the McCarren Amendment jurisdiction belonged in
State water court. The United States Supreme Court ruled that State
court was the most appropriate forum in which to achieve integrated
adjudication of reserved rights claims. Immediately thereafter, the
United States filed extensive claims in State water court.
The Tribal claims encompassed the potential irrigation of some
93,000 acres, in over 25 stream systems tributary to the San Juan
River. Most of these lands were in the La Plata and Mancos River
Basins, which are water-short and over-appropriated. Success by the
Tribes would totally eliminate existing non-Indian irrigation, disrupt
local economies and create regional hostility.
the 1986 settlement agreement and subsequent legislation
In April 1985, many parties, public and private, convened
negotiations to address the issues raised by the Tribe's reserved
rights claims. The State of Colorado's negotiating position was based
on several principles:
--vested property rights held by owners of State decreed water rights
would not be compromised;
--existing economies should be protected;
--existing uses should be protected by a ``no injury'' standard;
--reserved rights claims should be quantified by State water court,
not by Congress or in Federal courts; and
--the Tribes legitimate needs, such as the lack of a potable water
supply for Towaoc, should be met.
After intense and complex negotiations, an agreement in principle
was reached that included a binding cost-sharing agreement for
construction of the Animas-La Plata Project. This Agreement was titled
the ``Agreement in Principle Concerning the Colorado Ute Indian Water
Rights Settlement and Binding Agreement for Animas-La Plata Project
Cost Sharing.'' By signing the Agreement in Principle, the Secretary of
Interior certified that the non-Federal cost share contributions were
reasonable, allowing for the Federal release of the first $1 million
for construction of ALP. In addition to the cost sharing elements of
the Agreement, the parties to the State water court litigation agreed
to a set of principles that established the parameters for settlement
of the reserved right claims.
After 6 months of intense negotiations, the Colorado Ute Indian
Water Rights Final Settlement Agreement was signed on December 10,
1986. The Settlement Agreement contains six major elements: (1) In each
of the drainage basins, the reserved rights of the Tribes were
quantified; (2) The Tribes waived ancillary breach of trust claims
against the United States; (3) The Tribes agreed to specific conditions
concerning the administration and use of reserved water rights, so as
to integrate such administration into administration of non-Indian
water rights. These conditions included beneficial use as a limiting
condition, monitoring of water usage, sharing of streamflow data, and
judicial change in use proceedings in Colorado State water court when
required. The State court was given jurisdiction over all water on the
Reservations not decreed to the tribes as reserved water rights,
including both unappropriated water and State appropriative rights. The
parties agreed to the entry of consent decrees in State water court;
(4) The Tribes received commitments to obtain $60.5 million in Tribal
Development Funds, to enable the development of water and assist in
economic self sufficiency; (5) The non-Federal parties agreed to
significant cost sharing of the Animas-La Plata Project and Tribal
Development Funds. The parties agreed to seek Congressional deferral of
Tribal repayment of certain project costs until the water from the
projects was actually put to beneficial use; (6) The parties agreed to
seek Congressional relief from the Non-Intercourse Act limitations on
Congressional oversight over the use of reserved water rights. The
Tribes were allowed to sell, exchange or lease water outside the
Reservations, within or outside the State of Colorado, subject to State
and Federal law, interstate compacts and the law of the Colorado River.
The Settlement Agreement specified certain contingencies that had
to be met before the settlement became final. The parties agreed to
submit consent decrees to the Division 7 water court for judicial
approval. A stipulation setting forth this commitment was filed, but
was subject to legislative enactments by the United States Congress and
Colorado legislature prior to becoming final.
Federal legislation was introduced, and was enacted in 1988. The
Act approved the settlement and contained all the provisions
contemplated by the parties, except for those relating to the
interstate marketing of water. The legislation as introduced reflected
the neutral nature of the Settlement Agreement concerning the legality
of interstate marketing of reserved water rights under the Law of the
River. However, Lower Colorado River Basin States adamantly opposed the
provision, and demanded that the Tribes be prohibited from applying for
any out of State changes in place of use. Other western States objected
to the potential alienation of any Federal reserved water right from
the Federal reservation. The final Act therefore limited use of Tribal
rights in the Colorado River Basin until a final court order or
agreement of all seven Colorado River Basin States has previously
allowed such right for non-Federal, non-Indian water rights. Moreover,
the Act provides that any use of water off Reservation will result in
the right being changed to a State of Colorado water right for the term
of such use.
The Colorado General Assembly also enacted the legislation
contemplated by the Settlement Agreement. This legislation appropriated
$5 million to the Tribal Development Funds, so much as needed for the
Towaoc Pipeline, and $5.6 million for the Ridges Basin cost sharing.
In December 1991, the Water Court approved the consent decrees that
had been submitted to it based on the stipulations entered pursuant to
the Settlement Agreement, and following the enactment of necessary
Federal and State legislation.
COLORADO UTE SETTLEMENT ACT AMENDMENTS OF 2000
The debate over construction of the Animas-La Plata Project with
environmental opponents did not stop despite the 1988 Agreement and the
entry of the water court decrees. A separate process, was undertaken to
try to bring final closure to the Tribal claims on the Animas and La
Plata Rivers. The culmination of that process was the Amendments of
2000 to the 1988 Settlement Agreement which in short reduced the size
of Ridges Basin Reservoir by approximately one-half and restricted the
project to municipal, industrial and recreational purposes, eliminating
the irrigation component of the project. The amendments also reduced
the water allocations to various project beneficiaries and created
``resource funds'' for the Southern Utes and Ute Mountain Utes.
CONCLUSION
In summary, all of the conditions of the Settlement have been
satisfied, except for the construction of the Animas-La Plata Project,
and the Agreement remains in full effect. Therefore, completion of the
Animas-La Plata Project is of the upmost importance to Colorado if it
is to avoid litigation with the Ute Tribes over their reserved water
rights claims on the Animas and La Plata Rivers. After the
extraordinary efforts by all the parties involved in these settlement
discussions since 1972, the only responsible action is to complete
implementation of the Settlement Agreement by constructing the Animas-
La Plata Project.
THE INDIAN SELF-DETERMINATION AND EDUCATION ASSISTANCE ACT (ISDEAA)
PUBLIC LAW 93-638
The ISDEAA is designed to provide meaningful involvement by Tribes
in the administration, planning and conduct of Indian programs. The Act
requires the Federal Government to contract with Indian Tribes for
programs, functions, services and activities that are designed to
benefit Indians. The design and construction of ALP has been made
subject to the ISDEAA through the Colorado Ute Indian Water Rights
Settlement Act of 1988 and we are fully in support of that settlement
provision.
With respect to the ISDEAA or the 638 process, the State of
Colorado has no experience other than through the Animas-La Plata
Project. We understand that a Tribe under ISDEAA is entitled to
negotiate reasonable costs for performing the contract, the costs for
preparing the proposal, reasonable general administration costs, a
reasonable profit, and auditing expenses. The negotiating process
provides the tribes access to project cost estimates, in this case
those of the U.S. Bureau of Reclamation, in advance of the
negotiations. This process may not result in a project cost as low as
what would likely occur through a competitive bid process. Furthermore,
it appears difficult to identify what the increased cost of working
through ISDEAA would be. Based on information from the Bureau of
Reclamation for the Stage 1 work on the Ridges Basin Inlet Conduit and
Ridges Basin Dam Outlet Works Excavation, both of which are now
complete, the final contract values have exceeded the original contract
values. Some of this may actually be a savings due to the inclusion of
work that was scheduled for a future phase, but breaking that out
requires day-by-day monitoring of the project.
Our main concern is that the ISDEAA or 638 costs, which are non-
reimburseable by law, be carefully monitored and not passed on to those
that have or potentially could have repayment contracts. Given the cost
increases to the Animas-La Plata Project, we desire assurances that the
ISDEA or 638 costs do not make the cost of project unaffordable to the
end users.
We appreciate the opportunity to comment before the committee today
on the importance of the Animas-La Plata Project to Colorado and to the
completion of the Ute Water Settlement Agreement.
ADDITIONAL COMMITTEE QUESTIONS
[The following questions were not asked at the hearing, but
were submitted to the witnesses for response subsequent to the
hearing:]
Questions Submitted to Mike Griswold
Questions Submitted by Senator Pete V. Domenici
LEVEL OF INVOLVEMENT BY PAYING PARTNERS
Question. Could you please describe your level of involvement in
the construction of the project prior to last fall when the report came
out, and contrast that with your level of involvement now?
Answer. As described in my testimony before the committee, there
was ongoing and regular personal involvement between myself and other
members of the Board of Directors of the Animas-La Plata Water
Conservancy District and our counsel with the Durango field office of
the Bureau of Reclamation concerning the construction of the Animas-La
Plata Project. We attended every project operations committee meeting
and project coordinating committee meeting. In addition, we attended
numerous other meetings, both formal and informal with Bureau of
Reclamation staff to discuss a wide variety of issues related to the
Animas-La Plata Project. These meetings began before 1999 and continued
through the issuance of the letter to the Ute Mountain Ute Tribe on
July 31, 2003. During these meetings, the Bureau of Reclamation
regularly informed us of their intentions but rarely asked us for input
whether the topics related to 638 issues, wetland mitigation issues or
project construction issues.
If there was one single point of dissatisfaction, which we
experienced during this extended process, it was the lack of a
``dialogue'' between the Bureau of Reclamation staff and the project
supporters. Instead of a process of consultation, we were engaged in a
process wherein the Bureau of Reclamation reported on their decisions
and/or intentions.
From the issuance of the final supplemental and environmental
impact statement containing the project cost estimates until the July
2003 letter, there was never any discussion of the cost consequences of
the decisions that were being made, despite requests that those
discussions occur. In addition, there were never any budgets prepared
showing the costs of various alternative solutions to design decisions
being made by the Bureau of Reclamation.
In contrast, since the outcry arising from the July 31, 2003 letter
to Ute Mountain Ute Tribe, the Bureau officials have been
extraordinarily responsive. They have provided, through a series of
ongoing meetings, careful and complete analysis of the original 1999
cost estimate, the 2003 reformulation of a cost estimate and the
differences. The most important difference to note is not that there
has been a significant increase in the amount of time spent, but rather
the change in the level of detail provided and the opportunity to
discuss decisions at a preliminary level.
The time spent in meetings with Bureau officials has not changed
appreciably. The level of interaction with Bureau officials, and in
particular the opportunity to interact with the responsible
construction official, Mr. Rich Ehat, has increased significantly.
Clearly we will continue to have reasons to question proposals made by
the Bureau, and we may not always agree with their decisions, but the
opportunity to raise those questions and express those disagreements is
clearly now a matter of importance to the Bureau of Reclamation at all
levels. It is a welcome change from the perspective of those who will
be responsible for paying their reasonable pro rata share of the cost
of this project.
Question. What improvements would you like to see made?
Answer. As described in the preceding response, the Bureau has
become very responsive to the project supporters', and upfront
repayment participants', concerns. The Bureau of Reclamation has made
the changes that procedure should have been in place from the
beginning. Despite the embarrassment of responding to the criticism
resulting from the range in project cost, we must respectfully respond
that it is ``better late than never'' and we heartened by our current
relationship with the Bureau of Reclamation. There procedures appear to
be adequate to permit the input from project sponsors and participants
and they are endeavoring to provide whatever information we request or
require.
REQUIRED OUT YEAR FUNDS
Question. Do you feel you have adequate information from the Bureau
to insure that you will be able to meet your financial obligations? In
other words, do you feel project accounting is such that you have a
good handle on where you stand, and where you will end up financially
when the project is completed?
Answer. The answer to this question is both yes and no. Before
describing the reason for such an ambivalent answer, it is necessary to
understand the position of the Colorado project sponsors. The non-
Indian sponsors of the Animas-La Plata Project made enormous sacrifices
in agreeing to the downsized Animas-La Plata Project proposed by former
Secretary Babbitt. The significant part of the benefit from the Project
to these individuals and organizations was foregone and the remaining
demands for M&I water must compete with alternatives on a leased cost
basis. Relying upon the Bureau's acceptance of the 1999 cost estimates,
the Colorado Water Resources and Power Development Authority paid up
front the pro rata share of the project cost based upon a marketing
agreement with the Animas-La Plata Water Conservancy District. That
marketing agreement contemplated that the City of Durango would acquire
approximately 1,900 acre-feet of project consumption and that the
Animas-La Plata Water Conservancy District would acquire the remaining
700 acre-feet. Naturally, if the entire 40 percent increase in project
costs were determined to be fully reimbursable, the cost of those water
supplies so far outweighs other alternatives as to place the project
outside of the financial reach of the non-Indians.
The Bureau has been exceedingly forthright in discussing the issue
of project costs and the allocation of those costs between the
reimbursable and non-reimbursable categories. To the extent that this
question requires whether or not the Bureau is providing as much
information in as much detail as is reasonably available under the
present circumstances, the answer must be ``yes.'' To the extent that
the questions seek the project sponsors' confirmation that the Bureau
has provided enough hard data to permit the project sponsors to
conclude that they will be able to repay their share of project costs
when the project is completed, the answer is ``no.'' The inherent
uncertainty in projecting the final cost of the project creates this
dichotomy.
In order for the Colorado project participants to have confidence
that they can meet their financial obligations end up in a position
where they can pay for their pro rata share of their project
obligations it is necessary to identify and set in stone a maximum
financial cost, which they will have to bear. That cost should be based
upon the best current available information and reflect all of the
costs of the project that are fairly attributable to the provision of
municipal and industrial water to non-Indian participants. That
allocation of cost must recognize the Indian water rights settlement
purposes which currently support the development of this project and
which must recognize the fact that the cost of water from the Animas-La
Plata Project must be competitive with other reasonable alternatives
for project water supply.
Finally, it is important that the cost of water from the Animas-La
Plata Project to non-Indian participants be uniform on a per-acre foot
of water delivered basis. As the committee considers the consequences
of the change in cost of the Animas-La Plata Project, it must also
consider the fact that the non-Indian water supplies from the Project
ought to be equal among all of the non-Indian participants on an acre-
foot for acre-foot delivered basis.
______
Questions Submitted to L. Randy Kirkpatrick
Questions Submitted by Senator Pete V. Domenici
BOR CONTRACT OBLIGATIONS
Question. Mr. Kirkpatrick, you have touched on your desire for the
Bureau to live up to their contract obligations with the San Juan Water
Commission. Would you briefly outline for us those areas in which you
feel they did not meet these obligations?
Answer. Contract Obligations.--The following outlines the Bureau's
obligations to the San Juan Water Commission under the Contract, which
was agreed upon in late 2001 and signed in 2002, and the areas in which
the Bureau did not meet its obligations.
(A) Failure to consult with the Commission.--(1) Consultation is
required in several contract provisions:
--(a) The definition of consultation is: ``Consultation means the
United States shall notify and confer with the Commission
regarding significant decisions pertaining to this contract. In
the event that consensus cannot be reached and the United
States makes a decision, appeals are available to the extent
allowed under applicable laws. Article 1(j), page 4.
--(b) Under ``Project Works'' in Article 2, the Contract requires
consultation at two places, the introductory paragraph and in
Article 2(a)(4).
--(c) Article 4, ``Project Coordination Committees,'' describes the
establishment of two committees to provide consultation on
project construction issues and, later, on project operation
issues.
Article 4(a): ``The Project Construction Coordination Committee
will be made up of representatives of those entities that have
been identified by the Settlement Act, as amended, to receive a
water allocation and the Bureau of Reclamation. This committee
will provide coordination and consultation on the construction
activities among all the Project beneficiaries, seeking common
understanding and consensus on decisions associated with such
items as final plans for Project Works, Project construction
completion schedule, and Project construction costs. Upon
Project completion, this committee will be dissolved.''
(emphasis added)
(2) The BOR failed to meet its obligations to consult.
The BOR notified us of the organization of the required ``Project
Construction Committee'' (PCC) on April 20, 2001, and reported May 22,
2001, on the formation of the PCC. Subsequent to these early meetings,
we notified the BOR that the PCC as they organized it was not meeting
the requirements of our contract. Then, the BOR established a ``Contact
Compliance'' meeting with us in an attempt to meet the intent of our
contract. We tried to use the Contract Compliance meetings to obtain
essential information, but with little success. We asked the questions
and engaged consultants familiar with the BOR, but we were not provided
useable information. We had realized early on that the costs being
reported to us were inconsistent with the interim cost estimate in the
2000 FSEIS. Also evident in the PCC meetings were the lack of common
understanding and any engagement of the sponsors to reach a consensus
about decisions the BOR was facing. At the meetings, the BOR was simply
informing us of some of the decisions it had made, without consultation
with us.
(B) Non-contract cost overruns.--The BOR has failed to maintain
non-contract costs at or below 30 percent, as it said it would try to
do in Article 8(i). Also, we had not been afforded an annual report
specifying the dollar amount of the non-contract and all other
construction cost in a timely manner.
(C) The BOR fails to support cost allocation for operations as
specified in the Contract.--The BOR has not supported the use of
facilities procedure as the methodology to use to allocate the costs of
operations, as clearly called for in our contract. Article 11(a). This
dispute has been central to the delay in developing the Project
Operations Committee so that it may function to develop and operations
plan.
(D) The Bureau has not assured the Commission that it can deliver
the full Statutory Water Allocation under all scenarios.--Our Contract
states:
``Sufficient water will be delivered from Project storage or
bypassed to ensure that the Commission annually receives its Statutory
Water Allocation to be available for diversion at all approved points
of diversion on the San Juan River.'' Article 5(a).
Based upon information and discussion prior to our execution of our
Contract, we were assured that 3,025 acre feet of storage would be
sufficient to assure our water supply, and that in fact that this was a
conservative position. Again, subsequent review resulted in a discovery
that, in fact, the adequacy of this amount of storage depended on a
model of operations that was not consistent with the ROD, and laws
governing the water. In particular, the model assumed that the
Commission and Navajo Nation would have first call on water in the
river, and that the Ute Tribes and the State of Colorado would take all
of their water from the Reservoir.
Consequently, if the two Ute Tribes, La Plata Conservancy District
(NM), and the State of Colorado chose to obtain their Statutory Water
Allocation from direct flows in the Animas, as allowed in the ROD, our
storage would be inadequate almost directly proportional to the amount
used from the River. The BOR cannot assure us now that we will be able
to receive our full Statutory Water Allocation if the tribes or others
choose to use the Animas River to deliver water instead of the
reservoir.
(E) Poor forecasting of money required results in advances that are
too big.--Our Contract requires that we advance only the actual money
spent on construction in a given quarter, but the Bureau has never
provided an estimate that even closely approximated the actual
construction amount. Each Bureau request has exceeded the actual
construction expenditures by as much as $400,000 per quarter. The
Bureau's overestimates are costing us significant interest income,
which we depend upon to cover inflation and other associated cost
increases.
Question. In your opinion, has the Bureau done anything to rectify
this problem?
Answer. Effort to rectify problems.--In our opinion, the Bureau has
made an effort to rectify the problems, but the Bureau has not reached
the level of consultation for decision-making that we understand is
required in our Contract. We are provided information in a more timely
manner, but at this late stage of design and active construction, most
discretionary actions have occurred with little chance of modification.
Further, the Bureau recently informed us that it has determined that
all actions it has taken are necessary and reasonable, by their
definition, which we had no say in developing. The PCC process is more
open, with significantly improved reporting. We are definitely
progressing, but we are short of success.
LEVEL OF INVOLVEMENT BY PAYING PARTNERS
Question. Mr. Kirkpatrick, could you please describe your level of
involvement in the construction of the project prior to last fall when
the report came out, and contrast that with your level of involvement
now?
Answer. Our level of involvement prior to July 31, 2003 was
significant, but it was met with resistance by BOR staff in the Durango
Office and the Western Colorado Area Office. They were courteous and
seemed to meet with us on each request, but they seemed intent on
saying that understanding the system of the BOR was our responsibility,
it was not their responsibility to modify their reporting to make it
track with the estimates we had. We engaged the services of a former
Deputy Commissioner in an effort to understand the Bureau's reports,
and he had difficulty tracking construction and cost as we received the
information. It was easily consuming more than 50 percent of my time.
Question. What improvements would you like to see made?
Answer. Currently, it is a pleasure to say the current construction
engineer has diligently sought to improve communications, and provide
updates on ongoing activities. The problem we now face is catch-up on
agreements made that we were not informed of, much less adequately
consulted with, prior to July 31, 2003. On a regular basis we visit the
site, and we are briefed on the progress, including identified
challenges. The only shortcoming is a shortage of realistic
alternatives. It is now consuming about 70 percent of my time.
REQUIRED OUT YEAR FUNDS
Question. Mr. Kirkpatrick, do you feel you have adequate
information from the Bureau to ensure that you will be able to meet
your financial obligations? In other words, do you feel project
accounting is such that you have a good handle on where you stand, and
where you will end up financially when the project is complete?
Answer. We are continually seeking, through a series of
discussions, to get a handle on the ability to meet our financial
obligation. We have been given a variety of answers to the question,
``What is the impact of extending the construction schedule?'' The
answers seem to change frequently. Current accounting has improved
exponentially from what it was prior to July 31, but it still is not at
an acceptable level regarding outyears. We understand that for fiscal
year 2006 and 2007, at least $70 million will be needed each year to
keep the project on schedule. We would appreciate a question from the
committee to the Bureau to confirm the level of funding it needs to
construct the project most efficiently.
We are extremely concerned the cost of the project will exceed our
ability to pay, and thereby diminish or deny the benefits of the
project to our citizens. It seems that we should be able to determine
the cost definitively now through a cap on our obligation and encourage
the continued efficiency we see applied today in the project.
______
Question Submitted to the Ute Mountain Ute Tribal Council
Question Submitted by Senator Pete V. Domenici
638 PROCESS
Question. We have talked about the theory behind the 638 process .
. . that it is intended to provide the opportunity for Native Americans
to ``fill the shoes of Federal employees.''
In your opinion, is this the way 638 is working on this project? In
other words, do you feel that there is unnecessary duplication of
effort?
Answer. [The witness failed to respond by the time of publication.]
CONCLUSION OF HEARING
Senator Domenici. Okay. Thank you all very much. No other
questions. We stand in recess.
[Whereupon, at 11:25 a.m., Wednesday, March 24, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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