The 97-page report said the Department of Water Resources ( DWR ) broke state contracting laws when they replaced the program manager for the California WaterFix , formerly called the Bay Delta Conservation Plan ( BDCP ). The WaterFix project aims to build two massive 35-mile long tunnels under the Delta to export Sacramento River water to corporate agribusiness interests in the San Joaquin Valley and Southern California water agencies .

The audit summary pointed out that although DWR used a “ robust selection process ” to select its first program manager , the URS Corporation , it later used “ other methods ” to select a replacement program manager , the Hallmark Group .

Chuck Gardner is the CEO and President of the Hallmark Group . As of July 2017 , DWR had given Gardner $ 13.8 million to work on the tunnels project .

The report said DWR directed its contractor to replace their program manager with the Hallmark Group “ without demonstrating that this new program manager was qualified to provide such services or had the required professional license .”

Hallmark “ lacked a licensed engineer required by law for construction project managers and had no demonstrable experience planning large water resources infrastructure projects ,” according to the audit , page 27 .

“ DWR later awarded this new program manager its own contract without a competitive process , and the program manager has had to subcontract many of the program management functions for which DWR is generally paying a markup of 5 percent ,” the audit determined .

In a contorted procedure , DWR hired the new contractor under the existing contract with URS by making Hallmark a

subtractor . But instead of making Hallmark responsible to URS , they instead made them accountable to DWR , in spite of Hallmark not having the qualifications to manage such a project .

The report reveals how DWR audit and internal audit staff complained about Hallmark ’ s qualifications to do the job , but the upper management and DWR legal counsel ignored their advice .

“ No pesky ( request for qualifications ), no ( statement of qualifications ) no review , no silly determining if the new folks are actually the most qualified , no allowing other firms to apply for the work , no following the code ,” one email from a DWR whistleblower stated . “ The practice has become so prevalent , we ’ re actually starting to address it in our additional payment provisions where we allow a higher markup on ( subcontractors ) we direct the contractor to add .”

“ This looks surprisingly like a bribe to keep them quiet ,” the email concluded

Interestingly enough , the recommendation for Hallmark came from Jeff Kightlinger , general manager of the Metropolitan Water District ( MWD ) of Southern California , but they kept no records of how they determined Hallmark was qualified for the job .

“ It smells like a sweetheart deal ,” said Tim Stroshane , Policy Analyst for Restore the Delta .

In addition to the apparent sweetheart deal made to hire Hallmark , the auditor also revealed the costs and timeline of the planning phase “ increased significantly due to the scale and unexpected complexity of the project .”

As of June 2017 , the planning phase cost had increased approximately $ 280 million from the original cost estimate of $ 140 million in 2009 . DWR only spent 6 percent of its own funding , with 31 percent of funds coming from the U . S . Bureau of Reclamation , 22 percent from MWD , 12 percent from Kern County Water Authority , and 17 percent from San Luis Delta Mendota Water Authority .

Finally , the audit said DWR “ has not ensured that it is prepared ’ for the transition

of WaterFix to the design and construction phase of the project , noting that :

• It has not completed either an economic or a financial analysis to demonstrate the financial viability of WaterFix .

• It has not fully implemented a governance structure for the design and construction phase of the project .

• It has not updated required program management documents for the planning phase yet WaterFix has evolved since it began .

Erin Mellon , Assistant Director of Public Affairs for Department of Water Resources , said the Director ’ s formal response “ speaks for itself .” [ http :// www . water . ca . gov / docs / waterfix-audit-report-2016-132 . pdf ]

However , she noted there are a “ few key takeaways ” from the response .

” The audit confirms no general fund dollars were used ,” Mellon said . “ The audit also validates the unprecedented and exhaustive work the Department has done to propose the best project for the state of California .”

She also said , “ The Department has already taken action based on the auditor ’ s feedback and will take their recommendations under advisement as it moves forward with WaterFix .”

Delta Tunnels opponents praised the release of the audit for exposing the “ many flaws ” of the Delta Tunnels process , including the misuse of taxpayer money by DWR .

Last August , the Joint Legislative Audit Committee voted to launch a state audit investigating the funding for the California WaterFix , as requested by Assemblymember Susan Eggman and Senator Lois Wolk .

“ The audit released today , which I requested with my Delta colleagues , further illuminates the many flaws of the Water- Fix Project ,” said Eggman in a statement . “ The findings reveal that after 11 years of planning there remain more questions than answers about the viability and benefits of the project . Significant cost increases , failure to follow state law regarding contracts , inadequate expertise , and the absence of economic analysis or a financial plan – this is what more than a decade of planning has

resulted in .”

“ One can only imagine the boondoggle that will result if this project were ever to advance to the construction stage . It is time for a different direction ,” she concluded .

Likewise , Barbara Barrigan-Parrilla , Executive Director of Restore the Delta , said , “ Both the state audit and federal audit have confirmed a misuse of taxpayer money and irresponsible financial planning for the Delta Tunnels . With this latest finding from the State Auditor , Westlands Water District ’ s withdrawal from the project , and Metropolitan Water District ’ s public staff statements that ‘ they won ’ t have to pay for the tunnels if they don ’ t take water ’ and that ‘ the project could now be one or two tunnels ,” California WaterFix is in complete disarray .”

“ We cannot see how any public water agency can vote to support any percentage of this project as project planning basics are not in place ,” she emphasized .

Barrigan-Parrilla noted that this audit was only made possible through research compiled by Restore the Delta policy analyst Tim Stroshane and by Pacific Advocates ’ Patricia Schifferle .

“ State Auditor Elaine Howle and her crack staff found that DWR mismanaged first the Bay Delta Conservation Plan and more recently the California WaterFix ,” said Stroshane . “ They failed to foresee the project ’ s complexity , used sweetheart deals to hire contractors , and failed to apply accountable management practices . Overall , DWR breached the public ’ s trust in its attempts to plan and implement Governor Jerry Brown ’ s tunnels vision .”

In September , the Inspector General ( IG ) for the U . S . Department of Interior determined that the Bureau of Reclamation improperly used over $ 84.8 million in federal taxpayer ’ s money in the planning process for Governor Jerry Brown ’ s Delta Tunnels project . The IG issued a 42-page report detailing the misuse of the money and the recommendations made to Reclamation to resolve the issue .

A summary of the audit can be read here : http :// auditor . ca . gov / reports / 2016-132 / summary . html