San Francisco Bay Guardian, September 12, 2001


Bechtel’s $45 Million Screw Job

Staffers billing at $157 an hour. Lunches at fancy restaurants. Lots and lots of expensive consulting work that never needed to be done. A case study in the problems of privatization.


By Savannah Blackwell


On Aug. 14, Mike Quan, the San Francisco Public Utilities Commissions engineering manager, told the five-member commission that it should continue a four-year, $45 million contract with Bechtel Infrastructure Corporation and several private partners to help manage the reconstruction of the city’s crumbling water system. Quan praised the private group's performance and declared that it had “met or exceeded” the agency's expectations.


But Quan’s upbeat presentation doesn’t tell the entire story. Nor does the slick, glossy mailer Bechtel has prepared for members of the Board of Supervisors, which claims that Bechtel is saving the city lots of money, has done plenty of useful work, and has unique expertise that the city badly needs.


In fact, a four-month Bay Guardian investigation has found the city is getting soaked. Out of nearly $8 million the PUC has agreed to pay Bechtel for its first year of work, at least $5 million is a complete and total waste of money, senior-level PUC employees say. In some cases, the waste is astonishing: for instance, Bechtel took a city database of projects, re-sorted the information, transformed the data into a different format -- and sold it back to the city for nearly $500,000.


The city’s contract with Bechtel and its partners, which operate as the San Francisco Water Alliance, is a case study in the dangers of privatization. Everyone agrees that the city’s water system is badly in need of repair, that the job will be difficult and the cost high. Bechtel insists that the private sector can help do the job more efficiently, saving the city money.  (Bechtel representatives declined to comment for this story.) 


But Bechtel -- which has a long history of running up huge costs on public works projects -- is looking to make a profit and has cut a deal that helps the company a lot more than it helps the city. The corporation is charging the city as much as $157 an hour for its staff’s work, is trying to stick the public with all sorts of questionable bills, and is reaping big returns at taxpayers’ expense -- with little oversight or accountability.


“Unfortunately, this is what we expected,” David Novogrodsky, executive director of International Federation of Professional and Technical Engineers, Local 21, told the Bay Guardian.


And yet, the PUC is desperately trying to convince the Board of Supervisors to renew the agreement.


The Board of Supervisors decided in June to put money dedicated to Bechtel’s second year of the contract on hold until hearings could be held to determine whether the contract is worthwhile. A draft version of an upcoming report from budget analyst Harvey Rose, obtained by the Bay Guardian, calls Bechtel’s biggest claim, that it will save the PUC 10 percent of the overall cost of the capital improvement program, “speculative.”


The contract may be in trouble: at least one supervisor, Chris Daly, has indicated he’s not inclined to give Bechtel the go-ahead for another year, and several other supervisors have expressed reservation. When the contract was approved by the pre-district elections board, President Tom Ammiano was the sole vote against it.


Among other things, our investigation, which involved a review of thousands of pages of documents and interviews with more than one dozen PUC staffers, found:


  · Bechtel has billed or attempted to bill the city for tens of thousands of dollars’ worth of personal expenses for Bechtel employees -- laundry service, numerous meals at fancy restaurants, a $54 tab at Happy Donuts, and in one case, an umbrella and a dental pick -- even though the city is paying far more for Bechtel staffers than it pays for its own employees, who receive no such perks.


  · The majority of the work Bechtel has done for the city either was unnecessary, duplicated work that city staffers had already done, or wasn’t specialized enough to require a highly paid outside consultant. In fact, although the contract says that labor charges should be limited to engineers and “technical specialists,” only seven of the 40 Water Alliance employees working at the PUC are certified engineers. The rest are administrative and secretarial support staff -- and the city is still paying between $50 and $125 an hour for their services. “This is a wholesale gift for Bechtel,” one high-ranking city engineer, who like many PUC staff engineers and technicians we interviewed, asked to remain anonymous for fear of retribution on the job.


  · Until very recently, the PUC didn’t challenge any of Bechtel’s expenses: “The word from the top was not to question anything Bechtel did,” one PUC staffer told us. Only after a July audit by city controller Ed Harrington, which showed that Bechtel billed the PUC inappropriately for $2,766 out of $75,943 worth of invoices submitted between October 2000 and February 2001, has Quan started to balk at covering some of Bechtel’s payment requests.


  · Bechtel and the PUC both insist that there’s no move afoot to privatize the city’s valuable municipal water system; however, several key Bechtel employees involved in the San Francisco project -- including the project director -- have come directly from a job in England in which Bechtel was involved in privatizing part of a public water system and have praised such efforts.


$2,000 Business Cards

Bechtel was hired last September to manage the massive, multi-billion dollar reconstruction of the water delivery system serving San Francisco and other parts of the Bay Area and owned by the city. The Water Alliance is supposed to provide “overall direction and guidance” for a job that will take at least 10 years and involve some 200 individual projects and fix-ups along the 260 miles of pipeline coming from Yosemite. In addition, Bechtel is supposed to help manage the actual construction on individual projects, help with the selection of designs, and provide technical expertise in managing the workload crunches.


Critics say that what Bechtel is really out to do is privatize the water system entirely -- something the giant multi-national corporation has done elsewhere in the world.


A review of Bechtel invoices and requested charges to the PUC, some obtained under the San Francisco Sunshine Ordinance and others provided by PUC staffers, shows that Bechtel is extremely aggressive about its billing and has attempted to charge the city for a dazzling array of expenses, ranging from big-ticket items like international travel to a $1.50 cup of coffee at the Oakland Marriott.


“The Bechtel people appear to charge for anything,” Novogrodsky told us.


Just one expense report, dated April 16 and submitted by Bechtel’s Leamon Abrams, whose job is to recruit subcontractors owned by women and minorities, shows nine lunches with various members of the consultant team at places like Zuni Café and the Sheraton Palace, ringing in at a total of $556.22. Meals and entertainment charges are not supposed to be covered by the contract, according to a July report by city controller Harrington.


Thousands of dollars have gone to international travel, including hotels and meals, to bring Bechtel employees from England to San Francisco. For example, on May 24 Bechtel requested $2,836.38 to cover “boarding and lodging” for Steve Whittall, a Bechtel employee based in England, whose job was to review the PUC's time-card system.


Bechtel requested $7,564.09 to cover the hotel and other expenses of Ian McKay, another employee from England, who spent February and March in the city as part of Bechtel’s efforts to implement a project database that Bechtel developed for the private North West Water Ltd. in Warrington, England. (Bechtel has been authorized to charge the city $194,794 for the database, which staffers say will force the PUC to deal with the corporation on a long-term basis.) McKay even submitted reimbursement requests for personal items such as an umbrella ($9.99) and a dental pick ($6.99).


To his credit, on July 2 Quan refused to approve the hotel and expense charges for the two employees’ stay in San Francisco.


PUC documents show that yet another Bechtel employee from England, George Carr, sought reimbursement for more than $50 in laundry charges and $54.35 for several trips to Happy Donuts. Carr submitted $18,101 for labor and expenses for 79 days in San Francisco; the controller questioned $6,592 of that, so Bechtel has resubmitted the request with additional documentation. It’s not clear at this point whether the taxpayers will eat the tab for Carr’s doughnuts.


The invoices show numerous charges for phone calls and travel between Warrington, England and San Francisco. There are also scores of charges for renting cars, copying documents, and purchasing letterhead and envelopes.


In December, Bechtel billed the PUC more than $2,000 for business cards for 21 employees. (Culture-Lite, a discount print shop in Chinatown, could have done basic business cards for that many people for $525, one of the shop’s staffers told us.) Quan approved that expense.


$157 an hour

In March and April the company succeeded in getting the PUC to cover $414.98 in FedEx charges for sending information between Bechtel offices. The city has paid thousands of dollars for consultants’ computer systems to be set up and for other technical equipment for Bechtel.


In one instance Bechtel charged the city nearly $600 to make copies of the PUC’s own manuals -- although the city has its own copying service. Quan approved the request July 26 but told the company to use the city’s own reproduction services in the future.


Over a three-day period in early February, Bechtel’s team was doing a design review of a project and billed the city for $465.20 worth of refreshments, including lunch from Java City.


Meanwhile, the city is paying large sums of money for Bechtel’s workers. The way the billing system works, the private consulting workers get a base salary similar to that of comparable PUC workers -- and then the city pays Bechtel 2.13 times that amount to cover factors such as “overhead.” So the program manager’s base salary is $72.94 an hour, city records show, but the city is actually paying $156.82 an hour, or the equivalent of $326,000 a year, for that position. Although Bechtel isn’t getting away with all of its excessive billing, Novogrodsky says the ongoing attempts to squeeze the city are infuriating. “They’re acting irresponsibly, and that’s not the kind of partner you want,” he told us. “These guys are interested in billing for every penny. And what they’re doing is attempting to substitute themselves for the city’s management, and that’s not good.”


'Nothing happens'

The real waste isn’t just the cash spent on overpriced business cards, costly personnel, travel, and doughnuts. It’s the millions the city is paying Bechtel and its partners -- for little or nothing in return.


Bechtel has thus far submitted more than 30 individual “task orders” (or work orders), worth about $7.7 million, to the city. But much of that is for work the PUC doesn’t need -- or work that someone else has already done.


Some of the work orders are almost laughable in their bureaucratic insanity. Under a task order approved Oct. 24, 2000, the PUC agreed to pay Bechtel $95,000 -- to prepare another 20 task orders. By early September, $72,000 of that money had been spent, according to public documents. In essence, the city has paid Bechtel to decide what kind of work Bechtel should be doing.


Under another task order approved last November for $2.46 million, Bechtel was supposed to merge its team with that of the PUC to help and advise on the capital improvement program. Bechtel was also supposed to complete a survey of all PUC staffers’ skills.


According to PUC employees, the “survey” amounted to one e-mail query sent last November to about 137 staffers (roughly 10 percent of the PUC’s workforce) in only one PUC bureau and a subsequent report. No real effective team-building has taken place, many staffers say.


“The 2.4 million doesn’t help manage at all,” one high-ranking engineer told us. “If you don’t sit down and really work with people, nothing happens. We have basically two separate entities -- PUC and Bechtel -- that are not merged or integrated. It’s true we need help, but they seem to be coming in and annoying us and getting money for it.”


Bechtel has finally -- several months later than originally scheduled -- started training sessions for PUC staff. Some say that some of the material presented has been helpful. Others say that the sessions conducted by Bechtel are overly vague and general, since Bechtel’s employees have not learned the peculiarities of the PUC’s infrastructure or the specifics of doing business in San Francisco.


Moreover, it’s unclear whether the Bechtel employees being paid by the PUC can really offer the expertise that the PUC staff would find useful.


“We do not see the point of paying for traveling expenses for an out-of-towner to come to S.F. to learn of our policies and likely make a recommendation that we could already make,” a PUC employee who handles contracts for the agency’s engineering bureau wrote in an Aug. 7 email to Surinderjeet Bajwa, one of the PUC’s staffers who is supposed to help manage Bechtel’s work. “We do not see the point of having to train someone on the City’s administrative codes [and] rules…after which they will have to learn our existing procedures (more time) in order to make recommendations.”


A 'colossal giveaway'

A task order approved last November -- and cited in Bechtel’s glossy brochure to the supervisors -- provides an example of the duplication staffers have identified in Bechtel’s work. For $461,500, Bechtel claimed it had “completed plans” for various projects. In fact, the PUC’s own staff had already completed plans for nearly all of those projects by the time Bechtel arrived last summer.


Here’s how that little scam worked: By 1997, the PUC staff had compiled a list of all the work that needs to be done on the water system. That list has been revised repeatedly by PUC staff and put into a database. According to the staffers, Bechtel simply took that PUC information, reduced the number of categories of projects, added some scheduling information, printed it all out with nice colors in a bound document, and slapped a Water Alliance logo on it. (The accuracy of the staffers’ assessment is apparent from studying the city’s list of projects and their descriptions and comparing it to the information contained in the bound document bearing the Water Alliance logo.)


That document comprised the “completed plans.”


“They’re basically selling a new format for $500,000,” one PUC staffer said.


It gets worse. Under another task order, dated May 17, Bechtel is charging the city nearly $100,000 for an “update” to this list of projects.  Bechtel was supposed to help staff estimate the cost of projects more accurately. But a review of about 10 projects showed that Bechtel has not accomplished that. For example, projects with a cost estimating range of plus or minus 20 percent remain at that range, city records show.


In a possible effort to avoid drawing attention to the issue, the PUC removed the field showing the accuracy of cost-estimating from a final report, issued Aug. 14.


There are several other task orders, costing a total of $400,000, that call for Bechtel to help the PUC staff improve its cost-estimating work. But it’s not clear that the staff even needs that help -- or that Bechtel can provide it. In at least one case, a cost estimate that was found to be inaccurate was made by another consultant -- not a PUC staffer. In another case, the project for which Bechtel was supposed to help with cost estimates has been put on hold.


And Bechtel itself recently produced a report showing that the PUC’s staff is better at estimating the cost of a project than most other water and sewer districts in Northern California.


Bechtel is also trying to convince the Board of Supervisors that it can help PUC staff choose the most cost-effective design and construction method for projects. (John Kluesener, the top manager for the Bechtel group, calls this “optioneering.”) But in at least one case -- under a task order approved in January worth $67,000 -- Bechtel came up with the same option that PUC staffers already had chosen.


“No matter what we do, we have to check our work with Bechtel, and that has just slowed things done,” one engineer told the Bay Guardian. “This seems like a colossal giveaway that is causing bad morale,” another engineer said. “[Bechtel] reviewed my project estimate, which they said was 40 percent off. It turned out to be only one percent off, but I spent a whole day dealing with them.”


Under a work order approved in February for $197,250, Bechtel was supposed to come up with an operations plan which, public records reveal, another consultant had already produced.


Under a yet another dubious order, approved in April, Bechtel is supposed to “assist” the PUC in public outreach on the capital improvement program. Bechtel included in the order tasks such as setting up “mobile interactive displays” for school children to learn about the city’s Hetch Hetchy water system. Staffers say these tasks don’t require a high level of outside (and expensive) engineering expertise.


Engineers who have sent e-mails to union representatives are concerned that the PUC is not monitoring carefully the work of the Water Alliance.


One wrote in February, “I receive complaints daily about the ability and cost of the Water Alliance. All uniformly negative…Water Alliance is about to evaluate themselves and present it to the Board of Supervisors. How about if we evaluate them?”


One engineer working in the Sunol Water Treatment Plant wrote in March, “For the Sunol improvements job, which is a $46 million job out of the Sunol Water Treatment Plant, we are paying the Water Alliance $46,000 to develop a safety program out here, and $200,000 to review certified payrolls for the job. In the meantime, the City staff doing construction management doesn’t have a vehicle or courier service between us and the design consultants because it’s too expensive…I would like to try and be a part of some effort to expose the ‘Water Alliance’ scam for what it is.”


Bechtel and its supporters insist that the company merely is helping San Francisco with a project and that no privatization of public infrastructure will be involved. But according to several engineers at the Southeast Treatment Plant, managers from Bechtel have told workers that privatization of at least that facility is a possibility. The Bechtel managers insist that would be a good thing. “We had to sit through a trial run of a presentation Kluesener was going to give about privatization,” one engineer told us. “Some of us asked some critical questions, and we were later told that ‘these are good people who give back to the community.’”


At the presentation, Kluesener discussed Bechtel’s privatization effort in England. A representative of Kluesener told us he would not speak with the Bay Guardian about the Water Alliance contract or the work Bechtel has performed under it.


The draft of the budget analyst’s report states that Bechtel has identified savings amounting to between $27.7 million and $57.7 million. That’s not surprising: former PUC president Victor Makras told Kluesener at the PUC’s July 10 meeting that in order to convince the Board of Supervisors to renew its contract, Bechtel should “be prepared to identify savings to the board.”


Kluesener responded, “We have a potential for savings. The only way to achieve the savings is to work through part of the projects.”


In other words, a company that has privatized water systems around the country and is trying to charge the city for everything from doughnuts to toothpicks says it can save money only if its gold-plated contract is renewed.


“They told me when they were trying to get the contract that they would ‘Bechtelize everything’,” Novogrodsky noted. If that continues, the water system repair will be an ever-more-costly mess.


Research assistance by Kate Williams.


Post note: Roughly two months after this story was published, the Board of Supervisors voted to terminate Bechtel’s contract with the city.


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