Plus or minus two projects

Update, 8/18/12: This post wil be updated, now that new information on the production of the 2009 Cost Report to Congress has been acquired (see here). For now, the raw data below remains valid, but the conclusion that the Corps inflated the estimates given to Congress fromthose produced by Black and Veatch is incorrect. The B and V estimates were without contingency and escalation. Those two items are what made up the difference between the estimates given to Congress and the B and V numbers. However, it appears the Corps manipulated the Option 1 number when it came in higher than the appropriation, effectively lying to Congress.

After more than 500 days, the Corps finally released the documents I had been asking for in the permanent pumps saga. It is obvious why they held them back.

In March, 2009 the Corps delivered a report to Congress on the releative costs of Option 1 (keep the existing outfall canal walls, levees, and pump stations, while adding a pump station at the end of each canal) and Option 2 (line the canals with concrete, get rid of the walls and levees, demolish the existing pump stations, and have new lakefront pump stations to handle all drainage). There's also an Option 2a, which adds a diversion of drainage from the Hoey's Basin section of Jefferson and Orleans Parishes. That stormwater would be routed to the Mississippi River.

The report presented these as the costs:


Over $3.4 billion dollars for Option 2. That's certainly an eye-popping number and makes Option 2 look inconceivably expensive compared to the $797 million for Option 1. The Corps, unlike everyone else - including the people protected by this project - wanted Option 1.

There's one problem: it appears those cost numbers are not the truth, according to these new documents.

In a December, 2008 internal cost estimate prepared by Corps consultants Black & Veatch as part of the effort to write the Report to Congress, Option 2's engineering and construction costs were estimated at about $1.8 billion, not the $3 billion+ number.

Let's make sure we're comparing apples to apples here. The internal estimate is strictly for the engineering and construction of the facilities. It leaves out stuff like land acquisition, relocations, and construction management. The line items from the Report to Congress for just the Option 2 pump stations, canal revisions, and engineering were these:


The sum of the highlighted items is $3.219 billion.

There's one further clarification: the internal estimate (a document titled, "Basis of the Cost Estimate Developed by Black & Veatch to Support the 2008 Report to Congress" - the mention of 2008 indicates the original deadline of the report, which was busted by the Corps) calls out a couple of different flavors for Option 2, one with breakwaters in front of the 17th Street canal and Orleans Avenue canal stations, one without. However, that's a minor distinction, because both are about $1.8 billion:


The estimate for the same items as reported to Congress is $1.6 billion more - 77% greater - than what the Corps' internal numbers showed.

Put another way, that's a difference of about double the Congressional appropriation of $804 million for the entire project.

But wait there's more.

The Report to Congress called out the total price for Option 1 as $797 million, conveniently just below the appropriated amount. I wrote quite a bit in 2009 about how the Corps likely slashed their Option 1 estimate to make it fit the appropriation, moving the costs to Option 2. The slashing is confirmed explicitly by the new documents, in a part when Black & Veatch is describing the process of updating their cost estimates from an earlier round performed in 2006:

"Material Costs Update. The 2006 estimate was then updated to current (October 2008) costs. There were significant upward cost revisions in many areas, the greatest being in the fabrication costs for the pumps and drivers. When these costs were added, the Option 1 cost estimate appeared to be very close to, perhaps over, the appropriated amount. This cost estimate was termed the “Robust Adaptable Option 1”. HPO leadership asked B&V to find ways to reduce costs, and an aggressive review of all costs was undertaken.

Base Adaptable Pump Station. Careful examination of the design concepts incorporated in the “Robust” design resulted in significant cost savings, and the development of a new design called the “Base Adaptable Option 1”. This concept and the estimate developed from it, became the basis of the “Base to Go”, the cost of Option 1 for the Report to Congress."

So the "Base Adaptable Pump Station" is the flavor of Option 1 that became the basis for the estimate in the Report to Congress. So what was the internal estimate for the Option 1 Base Adapatable flavor?


$480 million.

Just to make sure we're doing apple to apples, here's what the Report to Congress called out for just the pump station, small revisions to the canals, and engineering:


That total - released in March, 2009 - is $752 million. That's an inflation of 56% from the internal estimate published in December, 2008.

I'm sure there's lots of people out in the field who know loads more about Corps estimating than I do, and would very much like to poke holes in what I'm saying here. However, I believe such criticisms will likely amount to nibbling around the edges of what appears to be a massive overestimation of the costs of the project likely designed to perform two Corps objectives:

1) Make Option 2 look so costly as to be impossible to construct.
2) Make Option 1 look to fit perfectly within the Congressional appropriation.

The public suspected objective 1 was going on. After all, Orleans and Jefferson Parishes commissioned a study showing the actual costs of Option 2 were over a billion dollars less than what the Corps was reporting. However, objective number two, while speculation on my part, appears to be new news. It comes out of the very surprising result that the Corps was radically inflating the Option 1 estimate as well. To what end were they doing this? Perhaps to avoid having the appropriation slashed by Congress. If Congress knew the Corps believed Option 1 could be built for half what had been appropriated, there likely would have been pressure to cut the funds.

What this appears to come down to is that the Corps may have, let's say, "stretched the truth" in reporting the costs of the permanent pumping project to Congress and the public. A $1.6 billion difference in internal and external cost estimates for Option 2 is very tough to explain away, as is the 56% increase in Option 1 costs. But I look forward to the Corps attempting to do so.