Water Resources

In response to a congressional request, GAO examined the Bureau of Reclamation's construction of the Fountain Valley pipeline in Colorado to determine: (1) why there was an increase in the pipeline project's total cost; (2) whether the Bureau had the legal authority to charge overhead costs to the pipeline operator; and (3) the equity of the Bureau's overhead charges.

GAO found that: (1) about $12.3 million of the project's $13.9-million total cost increase was due to increases in construction costs; (2) the overhead rate in the preliminary contract estimate was too low; (3) the construction contract legally authorized the Bureau to charge overhead costs to the pipeline operator; (4) although the direct overhead and noncontract costs were appropriate for the project, the Bureau's Missouri Basin Region overcharged the operator more than $500,000 in indirect overhead charges between 1981 and 1986; (5) the Region improperly applied an allocation rate in 1981 when distributing overhead costs among individual projects; (6) the Region used three different methods to allocate indirect costs to the operator; and (7) the Region did not comply with generally accepted accounting principles. GAO also found that regional officials agreed to: (1) recompute the pipeline's cost allocations using each of the three methods it applied during the project's life; (2) correct the erroneous rate applied in 1981; (3) exclude inequitable indirect overhead cost shifts; and (4) provide the recomputation to the operator and determine the amount of indirect overhead costs the operator should reasonably pay.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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