New York City Department of Environmental Protection

Improvements Needed in Contracting Practices for the Third Water Tunnel

The Department of Environmental Protection (DEP) is responsible for the construction of the third water tunnel which is designed to increase the City's water delivery capacity and reduce the overload on existing water tunnels. The total construction cost for the entire project is currently estimated at $5.8 billion. DEP circumvented City purchasing and budgeting procedures by including items totaling $8.6 million in the contract specifications that were not directly related to the scope of the contract work. Our review of such items obtained from 24 vendors identified overpayments of $432,546. Through this circumvention of the budgetary process at least $3.3 million of operating expenses were included in capital contracts. We found that there was no competition for the procurement of the specialized cement used in the water tunnel's concrete because this type of cement was produced by only one supplier. DEP obtained the cement through the prime contractors without considering alternative procurement methods. There were also serious internal control weaknesses relating to the contract change process. Because the process was not sufficiently documented, there is no assurance that DEP did not overpay for changes. DEP often failed to properly check the background and qualifications of subcontractors and was unaware of 23 of the 67 subcontractors on three sampled contracts. A-5-94