[Senate Hearing 108-810]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-810

 INVESTIGATION INTO THE BUREAU OF RECLAMATION'S ANIMAS-LA PLATA PROJECT

=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                            SPECIAL HEARING

                     MARCH 24, 2004--WASHINGTON, DC

                               __________

         Printed for the use of the Committee on Appropriations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate


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                               __________
                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
                    James W. Morhard, Staff Director
                 Lisa Sutherland, Deputy Staff Director
              Terrence E. Sauvain, Minority Staff Director
                                 ------                                

              Subcommittee on Energy and Water Development

                 PETE V. DOMENICI, New Mexico, Chairman
THAD COCHRAN, Mississippi            HARRY REID, Nevada
MITCH McCONNELL, Kentucky            ROBERT C. BYRD, West Virginia
ROBERT F. BENNETT, Utah              ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                PATTY MURRAY, Washington
LARRY CRAIG, Idaho                   BYRON L. DORGAN, North Dakota
CHRISTOPHER S. BOND, Missouri        DIANNE FEINSTEIN, California
TED STEVENS, Alaska (ex officio)

                           Professional Staff

                             Tammy Cameron
                             Scott O'Malia
                        Drew Willison (Minority)
                       Nancy Olkewicz (Minority)
                       Roger Cockrell (Minority)

                         Administrative Support
                              Erin McHale

                            C O N T E N T S

                              ----------                              
                                                                   Page

                       DEPARTMENT OF THE INTERIOR

Opening Statement of Senator Pete V. Domenici....................     1
Statement of Senator Ben Nighthorse Campbell.....................     3
Prepared Statement of Senator Wayne Allard.......................     4
Statement of Bennett W. Raley, Assistant Secretary, Water and 
  Science, Department of the Interior............................     5
    Prepared Statement...........................................     9
2003 Project Construction Cost Estimate..........................     9
The 1999 Project Construction Cost Estimate......................    10
Costs To Comply with Public Law 93-638...........................    10
Communications Between Reclamation and Project Sponsors..........    11
Conclusion and Next Steps........................................    11
Additional Committee Questions...................................    19
Questions Submitted by Senator Pete V. Domenici..................    19
Schedule and Cost................................................    19
Legislated Cost Ceiling..........................................    19
Cost Reimbursement...............................................    20
Changes in Design and Construction...............................    20
638 Process......................................................    20
Bureau of Reclamation Processes..................................    21

                       NONDEPARTMENTAL WITNESSES

Statement of Howard D. Richards, Sr., Chairman, Southern Ute 
  Indian 
  Tribe..........................................................    27
    Prepared Statement...........................................    28
Statement of Selwyn Whiteskunk, Councilman, Ute Mountain Ute 
  Tribe..........................................................    31
    Prepared Statement...........................................    33
Statement of Mike Griswold, President, Animas-La Plata Water 
  Conservancy District...........................................    38
    Prepared Statement...........................................    39
Statement of L. Randy Kirkpatrick, Executive Director, San Juan 
  Water Commission...............................................    42
    Prepared Statement...........................................    42
Prepared Statement of John R. D'Antonio, Jr., State Engineer, New 
  Mexico.........................................................    52
Prepared Statement of Phil Doe, Chair, Citizens Progressive 
  Alliance.......................................................    52
Prepared Statement of Russell George, Executive Director, 
  Department of Natural Resources, State of Colorado.............    54
Historical Context...............................................    55
The 1986 Settlement Agreement and Subsequent Legislation.........    56
Colorado Ute Settlement Act Amendments of 2000...................    57
The Indian Self-Determination and Education Assistance Act 
  (ISDEAA).......................................................    57
Public Law 93-638................................................    57
Additional Committee Questions...................................    58
Questions Submitted to Mike Griswold.............................    58
Questions Submitted by Senator Pete V. Domenici..................    58
Level of Involvement by Paying Partners..........................    58
Required Out Year Funds..........................................    59
Questions Submitted to L. Randy Kirkpatrick......................    60
Questions Submitted by Senator Pete V. Domenici..................    60
BOR Contract Obligations.........................................    60
Level of Involvement by Paying Partners..........................    61
Required Out Year Funds..........................................    61
Question Submitted to the Ute Mountain Ute Tribal Council........    62
Question Submitted by Senator Pete V. Domenici...................    62
638 Process......................................................    62

 
 INVESTIGATION INTO THE BUREAU OF RECLAMATION'S ANIMAS-LA PLATA PROJECT

                              ----------                              


                       WEDNESDAY, MARCH 24, 2004

                               U.S. Senate,
      Subcommittee on Energy and Water Development,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:03 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Pete V. Domenici (chairman) 
presiding.
    Present: Senators Domenici and Campbell.

                       DEPARTMENT OF THE INTERIOR

STATEMENT OF BENNETT W. RALEY, ASSISTANT SECRETARY, 
            WATER AND SCIENCE
ACCOMPANIED BY:
        WILLIAM E. RINNE, DEPUTY COMMISSIONER/DIRECTOR OF OPERATIONS
        RICK EHAT, PROJECT CONSTRUCTION ENGINEER


             opening statement of senator pete v. domenici


    Senator Domenici. First let me welcome the witnesses and 
thank you all for making time to participate in this hearing. I 
would also like to thank all the parties for the courtesy and 
professionalism that they have shown my staff in preparing for 
this hearing. It is my intent that this hearing examine the 
issues relative to Animas-La Plata, specifically the increase 
to the estimated cost project that were revealed last year. Let 
me begin then.
    We in the West are facing great challenges when it comes to 
available water supply. The Bureau knows that. If they do not 
they should. The current drought makes this challenge even more 
daunting at the same time our country faces other great 
challenges; reducing the debt, sustaining economic prosperity 
and protecting our environment. All these forces are brought to 
bear on large infrastructure projects such as this one. I think 
that all of us in this room understand the importance of 
providing sustainable water to the arid regions of the country. 
But we also understand that this must be balanced with 
environmental-sensitive and good economic stewardship.
    Let me start off by saying that I am committed to the 
construction of ALP. I prudently believe that the Animas-La 
Plata Project is important and I join with Senator Campbell, 
who has been the principal leader--Hi, Senator Campbell--
because this project is important to the West for numerous 
reasons. Being able to store available water is a critical 
element in providing a reliable supply of water to the western 
United States for there is usually not a reliable flow of 
sufficient water in streams, rivers to meet needs. This project 
is crucial to providing a degree of certainty to all the 
interests who depend on reliable water supply, whether they are 
agricultural or environmental. This certainty in turn fosters 
long-term economic health necessary to continue a way of life. 
The Animas-La Plata Project is also somewhat unique in that it 
serves as a central mechanism to settlement once and for all of 
long-disputed tribal rights in the Four Corners area. In fact, 
like it or not, in many ways this project is being looked at as 
the vanguard when it comes to settlement mechanism, and as such 
it is being highly scrutinized through the western United 
States. I do not think I have spoken to anyone who deals with 
water in the West who has not heard of the Animas-La Plata 
Project. Having said that, I will get to the issue of today's 
hearing.
    Regardless of how important this project is we cannot 
proceed with the idea that it will be completed at any cost. 
That will not work. We cannot continue down the path that is 
perceived as carte blanche expenditures of Federal tax dollars. 
This project, like every other project in which the Federal 
Government participates, must be managed such that the 
taxpayers get the best return on their money. The American 
taxpayer must have confidence in the Federal projects in that 
they are being implemented in a fair and reasonable manner for 
a fair and reasonable price. We here in Congress are 
responsible for making the decision to go forward with these 
projects based on information and analysis that you provide us. 
This cannot be taken lightly. The Congress must have confidence 
that their decisions are being based on complete and accurate 
information and when the Federal Government says that a project 
is going to cost x number of dollars the taxpayer must have 
confidence that when we in fact execute the project that we 
will do that for that amount. I was astounded to learn that 
last fall, of the $162 million increase in the cost estimate of 
this project. Now I know that it is not unusual for projects to 
creep up in price once they get underway, but 50 percent 
increase, from $338 to $500 million for me is unacceptable. The 
task at hand, and it starts today, is make sure that this 
never, never happens again. I understand from the report to the 
Secretary that there are several contributing factors to the 
grossly underestimated cost and I hope to examine these today. 
If I run out of time we will get you to give us the answers and 
if we have to we will call you back. But more important, a 
mutual understanding of what will be done to prevent this 
incident from happening again is terribly important.
    I would like to welcome Mr. Bennett Raley, Assistant 
Secretary of the Department of the Interior for Water and 
Science. We welcome you and thank you for coming. Accompanying 
him is Mr. Bill Rinne. Is that how you say your name?
    Mr. Rinne. Rinne, Rinne, sir.
    Senator Domenici. Rinne. Who is with us today to provide 
the subcommittee with an overview of the 638 Contracting 
process. Six-thirty-eight refers to Indian Self Determination 
and Education Assistance Act. Senator Campbell and I are fully 
aware of that Act. We certainly did not promote it with the 
idea that it would be the cost of such overruns as this, if 
that is the case. I am not sure it is but my friend, Senator 
Campbell is nodding, and if it is that is not what we intended. 
So when 638 refers to Self Determination and authority utilized 
for all aspects of Animas-La Plata. It will be part of the 
first panel and I will begin by having Mr. Raley do his opening 
statement after I let Senator Campbell talk. And then if we 
could have your 638 specialist provide us an overview we will 
begin on questions and I would appreciate it if you would give 
us frank answers and that you not fear telling us if it is 638 
that is not working, tell us.
    Our second panel we have a host of witnesses representing 
both the non-Federal sponsors, local water authorities, tribes 
that are party to the project. We appreciate you all taking 
time to be with us.
    With that, Senator Campbell, would you care to make your 
opening remarks?


              STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL


    Senator Campbell. Thank you, Mr. Chairman. First, I'd like 
to, with your permission, submit for the record a statement 
from Senator Allard, who could not be here this morning. If 
that would be all right? And second, I have to chair another 
hearing at 11:00 so I am going to stay as long as I can but I 
do have all of the testimony in writing here that I will read 
at length.
    Senator Domenici. Senator, I intend to come to your hearing 
so we are going to break here in time.
    Senator Campbell. Thank you, thank you.
    Senator Domenici. If you will make sure that you say there 
that I am late and I am coming.
    Senator Campbell. Yes, I will, thanks. We will have a vote 
in the middle of that hearing, as you know, but we will keep 
that going.
    As you know, Mr. Chairman, the Animas-La Plata is very 
important to southwestern Colorado and the northwest part of 
your State too, and it was an effort that you and I both worked 
on for a number of years. This was originally authorized, I 
don't think a lot of people know it, but was authorized clear 
back in the 1950's when Congressman Wayne Aspenall from western 
Colorado was in the House as the Chairman of the Interior 
Committee. It was authorized at the same time as the Central 
Arizona Project in the Central Utah Project, and never was 
built. And for years, since I first came to Congress, I have 
worked on this but the fight even goes back farther than that, 
clear back to 1868 when the Ute tribe signed a treaty with the 
United States that was never honored. And of course, as we both 
know in the history of the United States government, when 
dealing with Indian tribes most of them were never honored, 
unfortunately. But the Colorado Ute Indian Water Rights 
Settlement Act, as it was called, of 1988 was the bill that I 
first introduced when I came to Congress 18 years ago to try to 
move the project again. And as I leave the Senate my goal 
certainly is to make sure that this project is on-line with no 
further unexpected bumps in the road.
    I am just as concerned as you are about the size of the 
cost overrun. The revised estimates increased the cost of over 
$162 million, as you have mentioned. That is a lot of money. 
And I am the last person who wants to spend more Federal money 
on unexpected cost overruns. But this is certainly unexpected 
for all of us. I was astounded when I was told by Secretary 
Norton that there was a cost overrun. But it is the United 
States' honoring of a treaty that was signed in 1868. I think 
we need to look at that foremost. And also, we need to look at 
why these overruns have occurred to make sure that there is no 
additional cost to be incurred by the project in the future, as 
you have already mentioned. I know there has been some 
discussion about whether the 638 Contracting is largely to 
blame for the overruns. After examining the numbers as closely 
as I can I do not think there is a basis for that claim. While 
there are some additional costs associated with tribal 
contracting, some additional costs were envisioned by the Self 
Determination Act and the 638 costs on the Animas-La Plata 
contract are well within the normal range. Part of the problem, 
in my view, is that there is a lot of confusion about what 638 
Contracting is and is not. The Self Determination Act allows 
certain Federal agencies to contract with Indian tribes to 
conduct government programs or build Federal projects that are 
intended to serve Indian people. The act is intended to benefit 
tribes by permitting them to obtain the experience necessary to 
compete in today's complex business and governmental world. The 
Act also recognizes that active tribal participation in 
programs and projects to serve Indian people will result in a 
product that is more likely to meet the needs of the tribes and 
tribal members. What 638 Contract is not, however, is a blank 
check to tribal organizations to build a project no matter what 
it costs. And you have certainly spoken to that. These 
contracts are very carefully negotiated, there are extensive 
scoping sessions, determinations of fair and reasonable prices, 
partnering agreements, secretarial revisions of plans based on 
tribal concerns and many other procedures to ensure that the 
government is not blind-sided by unexpected costs. And I want 
to make one thing very clear. The increases caused by these 
cost overruns should not and will not be passed on to local 
water users. The local water users did not know that there 
would be cost overruns and I think it would be unfair to have 
them have to pick up the slack.


               PREPARED STATEMENT OF SENATOR WAYNE ALLARD


    Thank you, Mr. Chairman, I am looking forward to the 
testimony as long as I can stay.
    Senator Domenici. Senator Allard's statement will be 
inserted for the record.
    [The statement follows:]

               Prepared Statement of Senator Wayne Allard

    Thank you, Mr. Chairman, for allowing this statement to be 
presented before the committee. After listening to the testimonies 
presented today, it will become quite evident that the history of the 
Animas-La Plata project has been one of compromise and challenge. The 
witnesses gathered today have spent decades working toward the 
fulfillment of this project, including my colleague, Senator Ben 
Nighthorse Campbell.
    Growing up in rural Colorado and throughout my tenure as a public 
servant, the Animas-La Plata conflict endured. In fact, it continued 
for more than three decades until the authorizing amendment passed in 
2000. Until that point, every time water and water projects were 
discussed, the promises and unsettled claims to the Colorado Ute Indian 
Tribes persisted. Today, 4 years after the historic agreement of 2000, 
the Federal Government is fulfilling its obligation to the Ute Indian 
Tribes and to satisfy the water treaty obligations. Dirt is finally 
moving and the reality of a promise fulfilled is beginning to take 
shape.
    I would like personally to commend Senator Campbell for his 
tireless efforts from his days in the House of Representatives to his 
current time in the Senate and through four different presidential 
administrations to fulfill our Nation's treaty obligations.
    The current situation, indeed the reason for this hearing, has 
caused a moment for responsible reflection. I am concerned, as is 
everyone here, about the cost overruns. I also realize that we are all 
here today to assure that future projects learn from ALP. However, I 
would reiterate to the Committee that there remains strong support for 
this project from citizens and locally elected officials. I have no 
doubt that the issues brought forward today will build a stronger 
partnership between the Bureau and all Section 638 partners. It took 
130 years for Congress and the administration to recognize the 
responsibility to build the project. I will continue to support the 
efforts of local partners and the efforts of Senator Campbell today, 
through completion of the project, and long after.
    Thank you Mr. Chairman.

    Senator Domenici. Senator Campbell, let me say, while I 
have joined you along the way from the original down to Animas-
La Plata right to this day, I am sorry we will not have you 
around for a longer period of time. But I hope that during the 
ensuing months before you leave us that you will join in making 
sure, with me and others, that we can finish it in a reasonable 
manner. And a reasonable manner does not mean these kinds of 
overruns or we will end the project in the middle. And that is 
what will happen.
    Now with that I want to start. Secretary Raley, would you 
please give us your statement? Brief it. It will be made a part 
of the record at this point.

                     STATEMENT OF BENNETT W. RALEY

    Mr. Raley. Thank you, Mr. Chairman, Senator Campbell. I 
want to thank you for this opportunity, and I mean that very 
seriously. My presence here today is simply a function and a 
reflection of the seriousness with which Secretary Norton and 
myself and the Commissioner take the construction cost estimate 
increase. We were horrified, as you are, to find it out, that 
it existed. And Secretary Norton directed, immediately, that 
there be an exhaustive review of the reasons. We're here today 
to report on those reasons. But I want to harken back to your 
comments before the hearing started, Mr. Chairman. You said, 
well, come up and shake hands while we start friends. I know 
we'll end friends, Senator, because friends have the obligation 
to be honest with one another. We will be honest with you and 
we will be honest with the public with respect to what happened 
here. We will depart friends because we share the same goals, 
protecting the public interest and moving forward with the 
Animas-La Plata Project in fulfillment of the United States' 
obligations to the tribes, once, finally we hope.
    With me today are Bill Rinne, Deputy Commissioner of 
Reclamation and Rick Ehat, Project Construction Engineer. Mr. 
Rinne, in fact, was tasked by the Commissioner, having not had 
involvement in the Animas-La Plata Project, to assemble a team 
within Reclamation of individuals that had not been directly 
involved in the Animas-La Plata Project, to do a review on 
lessons learned. Mr. Ehat, as you know, is the man on the 
ground, on the point to help us fulfill our obligations to you 
and the public. Senators, Mr. Chairman, these two gentlemen 
have my trust and I hope that they will earn yours.
    We're here today to discuss what the Department has learned 
from the Animas-La Plata experience. More importantly, we're 
here to discuss what the Department and Reclamation have done 
and will do in order to assure both you and the public that the 
Animas-La Plata and future Reclamation projects will be 
constructed in a cost-effective manner based on the best 
information available. As I said before, I want to assure you 
that the Secretary, myself and the Commissioner were deeply 
disturbed when we found out that the cost of completion of the 
Animas-La Plata Project was approximately $500 million, in 
today's dollars, instead of the $338 million we all previously 
thought. And in fact I will assure you, Mr. Chairman and 
members of this committee, that the questions internally have 
been far more pointed and far less tactful than are likely to 
ever emanate from this committee, given the conduct of the 
Senate.
    The Secretary immediately directed Reclamation to take 
three steps: find out what happened to Animas-La Plata; find 
out what can be done to fix this problem and review other 
Reclamation construction projects to see if similar problems 
exist elsewhere in Reclamation. From an analytical standpoint 
there were at least fundamental causal factors for the increase 
in the construction cost estimate. First, and let me be very 
clear about this, there were management failures by Reclamation 
in the management and implementation of this project. There 
were ample opportunities, both pre- and post-authorization, to 
fully analyze the cost estimate for ALP. I would add that there 
are other factors that may have contributed to the unhappy 
result that we face today, but my purpose here today is to 
focus on the Department's responsibility and Reclamation's 
responsibility for what happened and our ability to ensure, as 
you said, Mr. Chairman, that it never happens again.
    The first that I would mention is, due to the 
organizational changes, from 1993 to 1995, and I'm not 
suggesting a disagreement or, for that matter, agreement with 
those changes; they simply were and are what they are; the 
processes that had been in place, developed over decades for 
construction management, if you will, were sunsetted. In 
particular, the Reclamation instructions that had been built 
over the years to deal with complex construction projects were 
sunsetted effectively in 1995. In retrospect, and again, I am 
not distracting attention from or suggesting that this was the 
dominant reason; I started out by referring to Reclamation's 
responsibility in the construction cost estimate increase and 
do not flinch from that. But we also must recognize, if we are 
to address this in the future, in retrospect it has become 
clear to us that what happened was in essence the wiring was 
ripped out and not replaced with anything in a systemic way. We 
know that now, we know that too late to avoid what happened at 
Animas-La Plata. What happened in the interim was that the 
wiring was put in place in an ad hoc and incomplete manner. And 
if it weren't for the fact that this happened at Animas-La 
Plata, quite frankly, it was a function that was, it was a 
result that was bound to happen unless and until the discipline 
and control and reporting functions to the public and Congress 
were replaced. And we recreate at a different level what was 
sunsetted with the Reclamation instruction.
    Finally, Reclamation, and perhaps others, lacked an 
adequate understanding of the cost differences, notice I say 
cost differences, of contracting under the Indian Self 
Determination and Education Assistance Act, or 638 as it's 
commonly referred to, versus traditional Reclamation 
contracting.
    Let me respond explicitly and without ambiguity to 
questions that have been raised by yourself, Mr. Chairman, and 
Senator Campbell. Six-thirty-eight is not the cause of the 
construction cost estimate increase. The cause was, with 
respect to 638, a lack of understanding in the Bureau and 
elsewhere as to the differences between 638 and what 
Reclamation traditionally does. If there's been a 
misunderstanding of the Department's perception as to the 
factor that 638 plays in this, either on the Hill or with our 
partners in the tribes, I apologize for that. But it is the 
position of the Secretary and myself that 638 is not the cause 
of the increase. It was our lack of comprehension of the 
differences. And we are comfortable that 638, with what we know 
now, can be implemented throughout the Animas-La Plata Project 
and other projects in a way that fulfills the requirements and 
goals of that Act and also achieves the goals of protecting the 
public interest.
    Now, these causal factors represented themselves in what I 
would call symptoms. Among those symptoms include a dependence 
on appraisal level information as if it was a feasibility or 
higher level of certainty with respect to cost estimates. That 
was a fundamental error, the Bureau played a significant role 
in that. But the fact of the matter is that what was treated as 
feasibility-level work was in fact far less than that; it was 
appraisal-level work. And that was a symptom of the causal 
factors I've referred to.
    Another symptom, mischaracterizations. Not to my knowledge 
intentional, but omissions that were very serious of site 
conditions. To be blunt there was an assumption that the site 
for the pumping plant was soil and in fact it is bedrock. 
There's a significant difference in cost for excavating that 
site. That was a management failure to not understand that. 
There was a failure to fully factor in the cost impacts of 
environmental and other constraints. Throughout the process 
there were costs associated with changes in site locations that 
were not adequately discussed with our partners or with you. 
There were omissions of costs in the 1999 estimate. There was, 
fundamentally, an inadequate review, in Reclamation, of the 
draft cost estimates that were relied upon by Congress. There 
was also and has been in the months since the discovery of the 
increase an inappropriate characterization by Reclamation 
personnel, inadvertent, I know, of the role that 638 played in 
the cost increase. I said, without reservation, that 638 is not 
the cause of the cost increase, that it was----
    Senator Domenici. Has the Bureau ever had big contracts 
under 638?
    Mr. Raley. Not to my knowledge, sir. And the experience, 
the institutional knowledge within the Bureau, let me put it 
this way, it's far greater now than it was as Animas-La Plata 
was going through the process. That is something that the look 
back has identified as a critical need and in fact the Bureau 
of Reclamation has reached out to other resources in the 
Department, at the BIA and elsewhere, where they have a longer 
and deeper history of working with 638, so that the 
misunderstandings and mistaken assumptions that were present in 
Animas-La Plata are not repeated.
    As I indicated, Secretary Norton has directed that there be 
a multi-level response or a review and assessment. In response 
to that, Reclamation has created a new organizational structure 
which clearly lays out the responsibility for project 
construction. Reclamation has doubled its efforts to consult 
with project sponsors on the scheduling of construction 
activities and reviewing design changes to save costs at every 
opportunity. Reclamation is tracking, on an on-going basis, the 
actual costs incurred against the overall 2003 construction 
estimate, something that was not previously done. We're 
providing this information to project sponsors and the general 
public on a monthly basis. Reclamation is reviewing its 
procedures for cost estimates and construction to identify and 
correct process deficiencies that may have led to the ALP cost 
estimate problems. In essence, we need to rewire in a more 
effective manner what was taken away with the sunsetting of the 
Reclamation instructions.
    Senator Domenici. Now, you say rewire, you're using that as 
an analogy, right?
    Mr. Raley. Yes sir. There were very elaborate, some would 
say too elaborate, Reclamation instructions that in essence 
provided the discipline and structure for the management of 
projects starting with engagement of Congress moving forward to 
completion. With the sunsetting of the Reclamation instructions 
for a wide range of reasons, what we realize now and didn't 
know until we thought about it, was that much of the 
discipline, much of the reporting and the identification of 
who's responsible for what, where the buck stops for particular 
decisions was swept away and only replaced on an ad hoc basis. 
That was a management failure within Interior. Reclamation, as 
I said, has reached out to other resources to fully understand 
638. And finally, Reclamation and the Department are engaged in 
a long-term process that's intended to enable Reclamation to 
fulfill its core mission of delivering water and power in a 
manner from Reclamation facilities that achieves the goals set 
by Congress and our responsibility to the public. One of the 
most important parts of this process is an effort to identify 
the human capital and institutional structures that need to be 
in place so that Reclamation can fulfill its responsibility to 
you and the public for ensuring that projects like Animas-La 
Plata are completed in the most cost-effective manner.
    In summary, the Department reiterates its support for 
Animas-La Plata completion and moving on. Reclamation takes 
responsibility for problems that occurred at Animas-La Plata. 
Reclamation has implemented measures for controlling costs on 
Animas-La Plata. Reclamation is actively consulting with 
project sponsors on all aspects of the project. Reclamation 
stands behind the 2003 cost estimate of $500 million plus 
indexing. Reclamation has streamlined reporting and 
accountability for construction management. And we're using 
this as a lessons learned so we avoid this experience in the 
future.
    If I could step back one last time and then turn this over 
for question from you, Mr. Chairman and Mr. Campbell, in the 
long-run our perspective is that there's an irreducible minimum 
function or core concept that Reclamation needs to be able to 
serve. Reclamation in the next century will inevitably, or 
Reclamation or its equivalent, will have responsibility for 
operating and maintaining many of the projects built over the 
last century. Reclamation or someone in the Federal Government 
will have responsibility for rebuilding and modernizing what 
we've built over the last 100 years. As you mentioned, Senator, 
the demand for water and power is growing, not shrinking, and 
we must maintain existing capacity if we're to meet the 
challenges of the future.
    And third, Reclamation will have a need to manage 
construction of whatever new projects Congress authorizes and 
funds within the Reclamation program. Our long-term goal is to 
take action now to put in place the pieces at Reclamation that 
will allow it to meet all of those goals and that we rebuild 
and restore the trust that must exist between Reclamation and 
Congress and Reclamation and the public.

                           PREPARED STATEMENT

    Senator, there's nothing that's been said with respect to 
638 that we would disagree with, by either you or Senator 
Campbell. Mr. Ehat and Mr. Rinne are here if you wish to have a 
discussion of the details of the contract negotiations and I 
leave it to you, Mr. Chairman, as to whether you'd like them to 
summarize the actual process that Reclamation used and is using 
now for 638 or if you wish to move on to other areas of 
interest to you.
    [The statement follows:]

                 Prepared Statement of Bennett W. Raley

    Mr. Chairman, I am Bennett Raley, Assistant Secretary of the 
Interior for Water and Science. My testimony today is intended to help 
the committee understand why the cost estimate to complete the Animas-
La Plata Project (Project) increased from $338 million in 1999 to $518 
million today, and to explain the steps we've taken to ensure that the 
problem does not recur.

                               BACKGROUND

    The purpose of the Project, essentially, is to divert, pump, store, 
and convey water from the Animas River at Durango, Colorado to provide 
water for both Indian and non-Indian municipal and industrial uses in 
Colorado and New Mexico. It is required to fulfill the requirements of 
the Colorado Ute Settlement Act Amendments of 2000.
    After several changes in the scope of the project over six decades, 
the project plan is now settled on four key project features: the 
Durango Pumping Plant; Ridges Basin Inlet Conduit; Ridges Basin Dam; 
and the Navajo Nation Municipal Pipeline. Project construction also 
required the relocation of parts of a county road and natural gas 
pipelines.

                2003 PROJECT CONSTRUCTION COST ESTIMATE

    Reclamation began developing the new Project construction cost 
estimate in early 2003, which contained a total estimate of $500 
million, based on January 2003 price levels. The current indexed price 
for the project is $518 million.
    After these construction cost estimates for the Project were 
completed in July 2003, Secretary Norton directed Reclamation to review 
the costs associated with the project to explain the reasons for the 
increase in the construction cost estimate. Reclamation undertook a 
detailed and critical review of technical and administrative data, held 
discussions with Reclamation staff involved in program and construction 
management, and met with project sponsors to prepare the report. The 
complete report, including a chronology of the project dating to 1956, 
is submitted for the record along with this statement.
    In summary, there is no single reason why the construction cost 
estimate for the Project increased from $337.9 million in 1999 to $500 
million in 2003. There are, however, several factors that contributed 
to the increased estimate that I will focus on today: (1) the accuracy 
and completeness of the 1999 construction cost estimate, along with 
additional costs associated with final Project design and construction; 
(2) the failure to include the cost of contracting under the Indian 
Self-Determination and Education Assistance Act (ISDEA) Public Law 938-
638; and, (3) inadequate communication between Reclamation and sponsors 
of the Project concerning cost factors related to design options and 
decision-making.

              THE 1999 PROJECT CONSTRUCTION COST ESTIMATE

    In general, the report shows that, with the exception of the Ridges 
Basin Dam feature, the 1999 Project construction cost estimate was 
incomplete and inaccurate for the pumping plant, inlet conduit, gas 
pipeline and road relocations, and the newly-added Navajo Nation 
Municipal Pipeline.
    The 1999 estimate was prepared by qualified engineers hired by the 
Ute Mountain Ute Tribe (UMUT) who relied upon several years of 
Reclamation data and analyses. Key factors that contributed to the 
underestimate included:
  --Dependence on appraisal level information at the feasibility study 
        phase;
  --Mischaracterization of site conditions; and
  --Failure to fully factor in the cost impacts of environmental and 
        legislative requirements.
    A crucial problem with the 1999 estimates was that they were 
identified as being at the feasibility level, when they were actually 
based upon less developed appraisal level data. Another factor that 
contributed was oversight. In the early 1990's, Reclamation was 
reorganized to give Area Offices greater autonomy to design and manage 
construction, eliminating the Technical Support Center's (TSC) 
oversight role. This fact alone contributed to the lack of attention to 
the 1999 estimates accuracy or source.
    Despite concerns raised by TSC technical staff in Denver to the 
Western Colorado Area Office that the feasibility design and estimate 
used in the 1999 Draft Supplemental Environmental Impact Statement 
(DSEIS) did not contain sufficient information and detail to complete 
an in-depth review of cost estimates, work on the 1999 DSEIS pushed 
ahead without addressing this concern. In 1999 and early 2000, 
attention was on completing environmental requirements with limited 
focus on accuracy of the cost estimate.
    Nevertheless, the 1999 cost estimate was included in the July 2000 
Final Supplemental Environmental Impact Statement (FSEIS), used to 
support the Colorado Ute Settlement Act Amendments of 2000 authorizing 
the project, and formed the basis for negotiations of repayment 
contracts for some of the Project sponsors.
    The 2003 estimate for the Durango Pumping Plant is $52 million 
above the 1999 estimate. Approximately $38 million of this increase was 
due to the type and quantity of material that must be excavated: 
bedrock vs. soil, and project management and site support costs.
    Neither the total volume to be excavated nor the bedrock was 
factored into the initial design concepts by the contractor.
    Another $28 million of the increase was to relocate parts of gas 
pipelines and County Road 211 from the Ridges Basin Reservoir site, 
again due to increased excavation and directional drilling.
    Reclamation did not identify these significant costs until 
completing final designs for the Durango Pumping Plant.

                 COSTS TO COMPLY WITH PUBLIC LAW 93-638

    The spirit and intent of the ISDEA is to provide Tribes an 
opportunity to be self-determining and to take a more active role in 
those activities that impact their daily lives. Under the ISDEA, the 
Secretary must allow a Tribe to contract for any work that is a 
program, service, function, or activity administered by the Secretary 
for the benefit of a Tribe. The ISDEA is not a sole-source program; it 
is a congressionally mandated, direct-source program that directs the 
Secretary to contract with Tribes under certain situations. In the 1988 
Settlement Act, Congress mandated application of the ISDEA to the 
Animas-La Plata Project.
    Contracting under Public Law 93-638 (the ``638 process'') differs 
from traditional competitive bidding. Under the ISDEA, the fixed-price 
construction contracts (requested by the Ute Mountain Ute Tribe) are to 
be comprised of: (1) the reasonable costs to the Tribe of actually 
performing the work; (2) the costs to the Tribe of auditing the general 
and administrative expenses incurred by the Tribe in performing the 
work; (3) the costs of developing the project proposal; and (4) a fair 
profit.
    The objective of the negotiations is to arrive and a fair and 
equitable price for the award, not to obtain the lowest possible award 
price. Nor does the price have to conform to either party's cost 
estimate.
    The 1999 cost estimate did not include additional costs of applying 
ISDEA. Instead, it was based on construction costs in a competitive 
bidding environment. The 2003 Project construction cost estimate 
includes a 30 percent Estimating Difference Factor (EDF) that would be 
applied to future Project contracts. The intent of using the EDF was to 
try to more accurately estimate and account for Reclamation and 
contractor administrative and other costs likely to occur in 
negotiating future ISDEA contracts. While the 2003 EDF equate to $43 
million to apply ISDEA, accounting for 24 percent of the increase (none 
of which was included in the 1999 estimate), there is some optimism 
that the actual amount could be less for the remainder of the Project 
as Reclamation, the Tribe, and other Project sponsors work more closely 
on Project implementation.

        COMMUNICATIONS BETWEEN RECLAMATION AND PROJECT SPONSORS

    The report found that communications and discussions between 
Reclamation Project staff and Project sponsors about the cost factors 
related to design options and decision-making have been inadequate. 
Specifically, communication as required by existing contracts was not 
detailed or timely enough to allow sponsors input on construction plans 
and progress, changing conditions, or other information associated with 
the construction of the Project.
    As a result of this finding, the Project Construction Committee was 
established by Reclamation in 2001 to provide a system to assure that 
necessary internal and external coordination and management of the 
project occurred during construction.
    Reclamation has also reconfigured the Project Construction 
Committee to improve interaction and communications with the sponsors. 
It is our opinion that this reconfigured process seems to be working 
quite well at this time.

                       CONCLUSION AND NEXT STEPS

    Mr. Chairman, despite the cost increases, Animas-La Plata is still 
a viable project and a high priority for our customers. Moving the 
project forward is crucial to satisfying the Indian Water Rights 
Settlement and meeting future non-Indian municipal water supply needs 
in southwestern Colorado and northwestern New Mexico.
    Reclamation has completed or is taking steps to manage and complete 
the Project in the most cost effective and efficient way possible. 
These actions, when fully implemented, will provide the safeguards 
necessary to avoid similar occurrences on this and other Reclamation 
Projects in the future.
    First, the basic construction cost estimate for the Project has 
been redone by Reclamation. Management efforts will continue to save 
costs during scheduling of construction and final design of components 
of the Project. Second, Reclamation has reviewed its internal 
organizational approach to construction of the Project and reconfigured 
the organization as necessary to improve construction management and 
interaction and communication with sponsors. Third, the ISDEA processes 
are being reviewed to improve efficiencies in construction of the 
Project. Fourth, as noted above, Reclamation has reconfigured the 
Project Construction Committee to improve the external communications 
with Project sponsors. Fifth, Reclamation will use Value Engineering 
processes, in cooperation with Project sponsors, to seek additional 
ways to reduce Project construction costs. Finally, Reclamation is 
reviewing its procedures for cost estimates and construction to 
identify and correct process deficiencies that may have led to the 
Animas-La Plata Project cost estimate problems.
    Thank you for the opportunity to testify today and update this 
committee on the progress we are making in constructing the Animas-La 
Plata Project. I would be happy to answer any questions you may have at 
this time.

    Senator Domenici. Senator Campbell, knowing your schedule, 
and you have a very important hearing and it has to do with 
Indian problems also, would you like to question?
    Senator Campbell. I have, yes, a couple. I appreciate it, 
Mr. Chairman. First of all, I have to tell you, Bennett, we 
have both known you for a long time, worked with you on a lot 
of different water projects. I am really upset about this, as 
is the Chairman, and reading your testimony while you were 
talking I have to tell you that, as to your own omission, you 
guys really dropped the ball on this. As I understand it you 
had no experience dealing with 638 contracts yourself, or your 
department had not, and you did not do any research with any 
government agencies which had experience dealing with 638 
contracts or with the Indian Self Determination and Education 
Act. Is that right?
    Mr. Raley. Senator, Reclamation had had minor exposure with 
638 and some other projects including Central Arizona and 
others but nothing of this significance and complexity.
    Senator Campbell. Okay.
    Mr. Raley. And it's very clear that for good intentions, 
they thought that they could do it then move forward. The thing 
I love about Reclamation is they're can do. You give them a 
job, they're going to get it done. They did not stop and ask 
questions within the Department about the knowledge that was 
there, that could have avoided some of the misunderstanding and 
mischaracterizations that's occurred over the last couple of 
months as to the role of 638.
    Senator Campbell. All right. Well, let's move on since we 
have a short time. Reading your testimony, it says that $38 
million were increased over because of, and I quote, ``site 
support costs, moving some gas pipelines and a county road.'' 
The only county road I know that really has to be moved is one 
that is pretty far away from where the pumping station is now. 
Why would that be included in the county road?
    Mr. Raley. Senator, may I ask Mr. Rinne to answer that?
    Senator Campbell. Yes, please do.
    Mr. Rinne. Senator, the county road referred to there is 
within the Ridges Basin Dam site and that is the only one that 
was moved. That is part of the overall cost because it's 
included in the Ridges Basin Dam feature.
    Senator Campbell. Okay. It says you were not aware that it 
was going to be bedrock versus soil that would have changed the 
site support cost. Why did not somebody do some core drilling 
or something to find out what the hell was under the ground?
    Mr. Raley. Senator, I asked the very same question. And I'm 
going to refer to Mr. Ehat for the answer.
    Mr. Ehat. Thank you, Mr. Raley. Senator Campbell, there 
were many exploration holes in the area. What I would 
characterize as the problem with the original estimate, the 
1999 estimate, is that there were mistakes in interpreting that 
data that were not caught by Reclamation. We knew there was 
bedrock there sir, that was very clear.
    Senator Campbell. So you did some core drilling and who did 
the analysis of that?
    Mr. Ehat. Reclamation had developed an extensive file of 
the information on the site, as well as Department of Energy, 
for the UMTE clean-up and that information was handed over to 
the estimators but as near as we can tell, Senator, that 
information was mischaracterized and mistakes were made.
    Senator Campbell. By who? By Reclamation or Energy? Who 
made the mistakes?
    Mr. Raley. I can answer that, Senator. Reclamation is 
responsible for the mistakes.
    Senator Campbell. Did I also understand you to say there 
was no single reason but design changes that were not 
anticipated were also part of it, between 1993 and 1995?
    Mr. Raley. Yes sir.
    Senator Campbell. What were some of the design changes? I 
know it was downsized to what is now called the Animas-La Plata 
Light. Is that the design changes you are talking about?
    Mr. Raley. That's one and in fact, some of the basis for 
the prior costs were based on the larger project where there 
were commonly assumed to be economies of scale that didn't 
necessarily exist in a downsized project. And I'll ask Mr. 
Rinne if there are others.
    Senator Campbell. So you assumed that with the downsizing 
of the project the costs would go down too but some of them did 
not?
    Mr. Raley. Yes.
    Senator Campbell. You also mentioned, as I think I heard 
you say, the changes in law between 1993 and 1995, there were 
some environmental law changes or changes in requirements of 
fulfilling environmental impact statements. Is that correct?
    Mr. Raley. Well, not changes in law, Senator, but a lack of 
foresight and incorporation of the costs of meeting 
environmental requirements.
    Senator Campbell. Who do you think should foot the bill for 
the cost overruns?
    Mr. Raley. That's something the Secretary is reviewing at 
this very moment. As you well know, Senator, the issue of 
reimbursability is one that the statute provides. The Secretary 
has a role in consultation with the project partners. We have 
already started those discussions with project partners and 
with Congress.
    Senator Campbell. Well, at this point do you believe as I 
do that the cost overruns should not be passed on to those 
water users who are going to be purchasing the water, since 
they had no idea that there was going to be this kind of a cost 
overrun?
    Mr. Raley. Senator, I do not have an administration 
position on that point.
    Senator Campbell. How will the flow of funds, including the 
request in this year's President's budget, on the Animas-La 
Plata affect its completion?
    Mr. Raley. Well, conceptually, depending on what Congress 
does this year, that will define how much ground we have to 
catch up for future years. As you well know, the project was to 
be constructed over 7 years and appropriated over 5. Now we 
have two factors. We have the cost increase, which increases 
our challenges dramatically, but we also have funded the 
project at its basic capability so far and put off for 
succeeding years the building of the appropriations so that we 
can complete construction in 7. We have been engaged with 
committee staff to talk about various options for completing 
the project in accordance with the law, given the new realities 
of the remaining amount needed to be appropriated, including 
the cost increase.
    Senator Campbell. So you do not have a revised schedule for 
completion at this time?
    Mr. Raley. Well, at the present time, and Mr. Ehat can 
speak in greater detail, we're proceeding under existing law 
and appropriations. The question, Senator, if I may, is given 
the additional cost increase, we can either cover that by 
increasing the appropriations for Animas-La Plata, early and 
then ramping down. Or we can flatline the appropriations, 
stretch out the project longer. There are additional costs 
associated with stretching it out longer.
    Senator Campbell. Can you compare those real quick? I mean, 
facing a $500 billion deficit this year, we are in a world of 
hurt and all of our subcommittees have already pretty much been 
told that we are going to have some very tight spending caps 
and I think that is going to last for a number of years, 
myself.
    Mr. Raley. As do we, Senator.
    Senator Campbell. And that reality tells me that we are 
probably not going to be increasing the money so we are going 
to have to go the other way if it is completed and extend the 
time frame in which it is built. You do not have an estimate on 
the number of years that would extend it if we went that, do 
you?
    Mr. Raley. We have options. It's not an infinite range but 
it's a question of what can be done without increasing the 
costs unacceptably and fit within the administration's budget 
and what Congress chooses to do. In all likelihood one option 
will be to extend the construction by a period of several 
years. There are also options for meeting the original 7 year.
    Senator Campbell. When you said there is a cost of 
extending it also it is by several years? Did I understand that 
is what you just said? Do you have any kind of an estimate on 
that? What if we extended it several years, over and above this 
already cost overrun, what it would cost?
    Mr. Raley. Senator, if you'll allow me, given the sort of 
sorry record we're dealing with right now with estimates that 
weren't fully vetted and thought through, I'd like to decline 
compounding that error by giving you our rough estimates now 
and having, not you but others, mistakenly rely on those. I 
will commit to you, to the Chairman and to your staff, that we 
will provide you with all the data that we have in terms of 
options so that we fully understand the benefits and costs of a 
particular funding stream. I just don't want to repeat a 
mistake we're dealing with of giving with a number that is 
wrong.
    Senator Campbell. I understand. This is one mess, you know 
that.
    Mr. Raley. Yes sir.
    Senator Campbell. You heard the chairman mention, in the 
middle of his statement, that maybe we ought to just stop the 
thing in the middle or something. I do not think, my own view 
is that that's not an option because if we did stop it the cost 
would be more for stopping than it would be for building it, if 
you factor in the tribes going back to courts. And you know 
that is how we got in this in the first place. And if we had 
gone to court we had some estimates that, I mean, even before 
it was revised down to what is called Animas-La Plata Light, we 
had some estimates that costs of fulfilling our obligations to 
the tribes which probably would have won in court because they 
have those old, original treaty rights that pretty much gives 
them first priority in the water down there, it would have cost 
more than building a project even when it was at its highest 
level of funding, before it was downsized. In addition to that, 
some of the numbers that we got back with the number of farmers 
and ranchers and homes and so on that would literally be 
without water if the tribes won in court and then appropriated 
their water. So in my view we are in a mess but it is a mess we 
have got to fix and move forward, we cannot just stop the 
thing, it has got to go forward. But there is no doubt in my 
mind too, it is going to be tough to find the money without the 
project time frame over a period of years. And I know that some 
of the other members even that could not be here today, they 
are pretty concerned about it too because a lot of the Western 
people who have been supportive of this over the years are now 
saying, ``Oh my gosh, what has happened to us? How come we did 
not know all the numbers before we supported the project?'' So 
I would just encourage you to get back with this information as 
quick as you can on some estimates about extending the building 
time frame.
    Mr. Raley. Yes, sir.
    Senator Campbell [presiding]. I have no further questions. 
Was the Senator coming back in a minute? Why do not we just sit 
for a recess for a few minutes until Senator Domenici comes 
back.
    You might not be the right one to answer this but I do have 
one more I was going to ask. Someone has told me, although I 
have not seen anything documented about it, that the amount of 
archaeological things that were found in the site far exceeded 
what had been expected and that was one of the things that took 
a lot more time and a lot more manpower because they are 
required by law to find all these things that are on the 
ground, pot shards or, you know, things that have been left 
there of eons of people that lived in that area before we ever 
got there. Do you happen to know the size of the increase?
    Mr. Raley. Senator, I'll ask Mr. Ehat to respond. The 
answer is yes, there was very substantial in terms of the 
additional cultural work that was done.
    Senator Domenici [presiding]. Mr. Ehat, you want to help 
with that?
    Mr. Ehat. Yes sir.
    Senator Domenici. Go ahead.
    Mr. Ehat. Our estimate of that increase is about $7.5 
million.
    Senator Campbell. Seven-and-a-half million dollars? That is 
in manpower and so on?
    Mr. Ehat. That's correct, sir.
    Senator Campbell. Thank you, Mr. Chairman.
    Senator Domenici. Well, if your estimating on that is as 
bad as the rest it could be $20 million. In any event, let me 
tell you that I know the Commissioner could not be here and I 
know the Secretary is very busy. But I want to tell you so you 
can carry it back to the Commissioner, I have been advocating 
for the last 3 years, trying to put more work in the Bureau. 
And it is a little easier up here, budget appropriation-wise, 
to try to do that. But you might as well tell them that I am 
not very impressed and I do not know if I am going to continue 
down that path. I do not know that the Bureau is going to be 
growing. If they cannot do this, you know, I am going to go 
with the Corps of Engineers. And I do not look for projects of 
this magnitude for awhile that I am any part of, going to the 
Bureau of Reclamation unless they convince me that they have 
had a material change in the way they do business. Now, I am 
sorry about that but, I am in a position that we do not know 
where we are going to get the money. That is the problem. It is 
not a problem of just talking. The money given to this 
subcommittee is not enough to take care of the subcommittee on 
what we estimated. And then we have to argue about water every 
year, you know that, you guys go before OMB and it does not 
make a darn what we need, they give us less. Right? We cannot 
do it this year. There is not enough money. So I hope you 
understand.
    Mr. Raley. Senator, I will deliver that message to the 
Secretary.
    Senator Domenici. Please do.
    Mr. Raley. But I know she, philosophically, agrees with 
you. If we can't fulfill our obligations to Congress and the 
public then something needs to change.
    Senator Domenici. The other thing I want to tell you is, 
you know, from my standpoint, this is one of the most important 
projects that I joined him in putting together. And we had 
plenty of opposition, right?
    Senator Campbell. Right.
    Senator Domenici. And we did it because we thought the 
Indian solution was so big that it permeated the arguments that 
were given. And here we end up, those people who were opposed, 
they are probably laughing at us. And so I want to get on with 
this. And also, out there in the audience there are various 
groups, like mine, from San Juan County. They do not have a lot 
of money, they are up here saying, how do we find the $7 
million or $9 million that this cost estimate is going to cost 
us? And I do not know how to find it. I do not want them to pay 
it but I do not know how to find it. So I wish you would be 
looking at that, the overruns for others who do not have the 
money. You know, they cannot come up here and ask us for it so 
they are there in San Juan County and there must be more of 
them, right?
    Senator Campbell. Sure. All the water users.
    Senator Domenici. And they are getting shafted. So we have 
got to be concerned. In my opinion you ought to ask for more 
money in sort of an asterisk column, saying we cannot expect 
those who approved of this project and joined it, we cannot 
expect them to pay this overrun. The overrun we are paying for 
but I do not know if we are going to get the money we are 
paying for it, right? But I do not know how these others are 
going to do it so I am worried about it, all right?
    Now, has the Bureau developed a new completion schedule for 
this project?
    Mr. Raley. Mr. Ehat?
    Mr. Ehat. Yes sir, we have, and we're looking at, based on 
the new estimate and a reasonable funding level, about a 2-year 
delay on the features and about a 3-year delay on first fill.
    Senator Domenici. So you are going to spread the money and 
needs out a little?
    Mr. Ehat. That's correct, sir.
    Senator Domenici. To ease up a little bit on our budget. 
Okay. Is this schedule based on optimum annual funding 
allocations or on historic funding levels?
    Mr. Ehat. Well Senator, we are working with you and your 
staff to provide options.
    Senator Domenici. Okay.
    Mr. Ehat. In terms of future funding obviously we're going 
through that internally with the 2006 budget as we speak and 
that's going to be dependent on decisions you make with respect 
to the 2005 budget and, you know, we can't select, at this 
point, exactly what the option will be.
    Senator Domenici. Right.
    Mr. Ehat. But we want to provide you with all the 
information we have.
    Senator Domenici. Well, what might the impact be to the 
total project cost if you assume less than optimal funding?
    Mr. Ehat. Well, depending sir, on how far it stretches out 
you could see increased costs over and above the $500 million 
plus indexing of, under one scenario for stretching out our 
number of years, $38 million, for example of additional costs 
just associated with an extended delay. But again, we're 
working with the information, it's almost a numeric analysis, 
we're trying to figure out what the right suite of options are 
to share with you as we deal with the reality.
    Senator Domenici. All right. Report to the Secretary 
indicates that there has been a legislated cost ceiling in 
place. If the Bureau would have examined its cost data then 
that would have worked. This sends an awful, troubling message 
that unless there is a cap on the funds you do not have to 
worry about accuracy. But a cap is not good either. We do not 
like them because then we have to come back here and play with 
the caps because we do not expect, in a project of this 
magnitude, that there are no changes. So I hope that you are 
doing something to change this philosophy and I certainly hope 
you are doing that in a way that we can understand. And I would 
like you to tell us, not now, but to get us information on that 
as soon as you can.
    Mr. Raley. Yes sir.
    Senator Domenici. If so, is the Department comfortable 
enough with their current estimate of $500 million that it 
could be used as a basis for a ceiling if we choose to do that?
    Mr. Raley. Five hundred million dollars plus indexing.
    Senator Domenici. What?
    Mr. Raley. The $500 million plus indexing.
    Senator Domenici. Yes.
    Mr. Raley. Yes sir.
    Senator Domenici. What do you guys, you two experts, what 
do you say about that?
    Mr. Rinne. I agree, Senator. We feel that $500 million with 
indexing is something we should be able to stay with.
    Senator Domenici. Okay. There have been significant 
expenditures that cost the sharing partners and they do not 
feel they should be required to pay. I told you that.
    Mr. Raley. Yes sir.
    Senator Domenici. Including costs associated with what 
appears to be errors on the part of the Bureau as well as old 
sunk costs that really are irrelevant to the projects currently 
under construction. Are there any remedies within the 
Department that would allow for relieving these cost-sharing 
obligations? And if not, would this have to be addressed 
legislatively?
    Mr. Raley. Senator, the statute itself, with respect to 
Animas-La Plata provides for secretarial determination of 
reimbursability of costs and there's a standard set out in the 
statute. We are part of the way through an intensive legal 
review of that issue. Obviously there's the factual review of 
the basis for the cost increases and we have already started 
what is provided for in the statute and that is dealing with 
this issue in cooperation with the project sponsors.
    I'd like, if I could go back a moment, to say that our 
comfort in the $500 million plus indexing is predicated on the 
assumption that appropriations are.
    Senator Domenici. Senator Campbell, before you leave, could 
I ask you, do you feel comfortable with my assumption that 
these cost-sharing people that are not part of direct depart, 
that we ought to look at how much their increase is, the 
increase for which they had nothing to do.
    Senator Campbell. Mr. Chairman, when you were out of the 
office I did mention that to Bennett that I did not think they 
should be responsible at all since they had nothing to do with 
it and they are just going to get blind-sided with an increase 
that the water users should not have to pay for this cost 
overrun.
    Senator Domenici. Okay. So what you are going to do is 
check this very carefully, Senator.
    Senator Campbell. Yes sir, we are in the process.
    Senator Domenici. Now if that does not fit in the $500 
million you have got to tell us, because if we have to pass 
separate legislation, No. 1, is it in, No. 2, is it legal? 
Right? Will you do that for us?
    Mr. Raley. Yes sir.
    Senator Domenici. Okay. Thank you. I will be over at your 
hearing in about 30 minutes.
    Six-thirty-eight process. You indicated that $43 million 
increase in the cost is attributed to this process. I would 
like to know how much of that $43 million, or how it breaks 
down? In other words, how much of the Bureau of Reclamation 
oversight of the contract, how much is purely due to contract 
negotiation processes?
    Mr. Raley. Well Senator, for purposes of the 2003 cost 
estimate for planning purposes the Bureau was conservative so 
there are no future surprises for you and others, put in a 
factor of 30 percent to cover the costs associated with 638. 
That does not mean that the tribes have or will have a 30 
percent profit, as some have said, nor does it mean that the 
actual cost will be that. The Bureau, with its new 
understanding of what 638 is and is not, and with cooperation 
of the tribes, is working through the individual contracts and 
are quite hopeful if not comfortable that the 30 percent, which 
is put in there for planning purposes, will be in excess of 
what is actually required.
    Senator Domenici. Well, I do not know if the Indian 
leadership that accepted the responsibility under 638 are 
present here. Are they? They are in the second panel? Okay. 
Then we are going to take up a few questions with them.
    Mr. Raley. Yes sir.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Domenici. I do not think we ought to give them 
carte blanche either. You know, they have got to do this in a 
way that is realistic and should minimize your employment needs 
on the civilian side. So with that, there are some things you 
have got to get us, would you get them to us as soon as 
possible?
    Mr. Raley. Yes sir.
    Senator Domenici. All right. You are excused.
    Mr. Raley. Thank you sir.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

            Questions Submitted by Senator Pete V. Domenici

                           SCHEDULE AND COST

    Question. Has the Bureau developed a new completion schedule for 
the project?
    Answer. Yes, Reclamation has developed a revised completion 
schedule. This schedule is being evaluated in light of various funding 
scenarios.
    Question. Is this schedule based on optimum annual funding 
allocations or historical funding levels?
    Answer. The schedule currently used for project management is based 
upon a reasonable funding level with currently appropriated amounts, 
the President's request of $52 million for fiscal year 2005.
    Question. What might the impact be to the total project cost if you 
assume less than optimal funding?
    Answer. Should a slow funding level result in decreasing the 
efficiency of construction which results in as much as a 2-year delay, 
an increase could be expected of as much as $38 million above the $500 
million project cost estimate, not including indexing. We are 
continuing to study various funding scenarios and associated impacts on 
the construction schedule and corresponding impacts to the project cost 
estimate.
    Question. Has this information been communicated to the cost 
sharing partners?
    Answer. Reclamation is actively consulting with the project 
sponsors. During our last project coordination meeting, Reclamation 
discussed and highlighted this issue with the project sponsors and 
specifically described that delays in the project schedule could 
increase overall project costs.

                        LEGISLATED COST CEILING

    Question. The report to the Secretary indicates that had there been 
a legislated cost ceiling in place, the Bureau would have examined its 
cost data more rigorously. This sends an awfully troubling message: 
that unless there is a cap on the funds, you don't have to worry about 
accuracy and dependability in your project data. I certainly hope that 
you are doing something to change that philosophy.
    My question to you is: Do you feel that imposing a cost ceiling at 
this stage of the project would be beneficial?
    Answer. A great deal of focus is towards containing costs and 
completing ALP within the updated cost estimate amount. This amount 
must, of course, be adjusted for inflation. While a cost ceiling may be 
perceived as beneficial, we do not feel it, by itself, would 
effectively control costs. However, should Congress impose a ceiling, 
we would not object.
    Question. And if so, is the Department comfortable enough with 
their current cost estimate of $500 million that it could be used as a 
basis for such a ceiling?
    Answer. Reclamation, in partnership with the project sponsors, is 
aggressively looking for opportunities for cost savings in the 
implementation of the ALP project. Barring any unforeseen external 
factors or funding delays driving up total completion costs, 
Reclamation believes we can construct the ALP within the 2003 
construction cost estimate of $500 million. Of course this figure would 
be adjusted annually for inflation, possibly resulting in a larger 
total figure, but would still be considered at or below the $500 
million level in January 2003 dollars. This would be the only increase 
in the total cost of that project that we can foresee, keeping in mind 
that construction of major civil works is an inherently uncertain 
field.

                           COST REIMBURSEMENT

    Question. There have been significant expenditures that the cost 
sharing partners don't feel they should be required to pay, including 
costs associated with what appear to be errors on the part of the 
Bureau, as well as old ``sunk costs'' that really are irrelevant to the 
project currently under construction.
    Are there any remedies within the Department that would allow for 
relieving these cost sharing obligations?
    Answer. Reclamation is reviewing the options available within 
current laws and policies to address the allocation of project costs 
among the various project purposes and beneficiaries. It is the firm 
position of the administration that project beneficiaries for all 
projects should contribute their fair share of the reasonable and 
unforeseen project costs.
    Question. If not, would this have to be addressed legislatively?
    Answer. Reclamation is working very diligently with the cost 
sharing partners to explain all of the costs and the associated 
allocations.

                   CHANGES IN DESIGN AND CONSTRUCTION

    Question. There were changes made to some of the project features 
that resulted in major increases in cost.
    Could you summarize these changes and explain why they were made?
    Answer. Additional costs relating to completion of final design and 
decisions made on project features or their components since the 
project was authorized for construction in December 2000 explain most 
of the revision in the cost estimate. The largest increases in the cost 
estimate were from: (1) the additional excavation requirements for two 
components of the Ridges Basin Dam (gas pipelines and County Road 211 
relocations, and (2) the actual site conditions at the Durango Pumping 
Plant, (the presence of mostly bedrock rather than common soil 
materials and construction support requirements). In both cases, these 
requirements were identified after completion of the original cost 
estimate when decisions were made by Reclamation about relocations and 
when the design process had advanced sufficiently to expose under-
estimates of quantities and types of material respectively.
    Question. Can you explain the process that was used for 
communicating these changes with the project partners?
    Answer. Some information was provided through compliance reviews 
such as environmental assessments and also as a part of the updates 
during Project Construction Committee (PCC) meetings.
    More recently, Reclamation has implemented a process to manage, 
track, and report cost and schedule changes. This process yields clear 
data that are shared with project sponsors on a regular basis.
    Question. Has anything been done to improve this process?
    Answer. Reclamation has reconfigured the PCC and has redoubled its 
efforts to consult with project sponsors on the scheduling of 
construction activities, tracking costs, reviewing design changes on an 
ongoing basis with all project sponsors. This process includes ``real 
time'' reporting of all issues and holding periodic (monthly) face to 
face project update meetings with all project sponsors.
    Question. Do you feel that these improvements will satisfy the 
obligations set forth in the contracts the Bureau has with the paying 
partners?
    Answer. Yes, we are confident that the changes will meet the 
obligations in the repayment contracts paying partners.

                              638 PROCESS

    Question. You indicated that a $43 million increase in the cost is 
attributed to the 638 process.
    I'd like to know how that $43 million breaks down. In other words, 
how much is for Bureau of Reclamation oversight of the contract, how 
much is purely due to the contract negotiation process, etc.?
    Answer. The $43 million figure is a conservative estimate to 
account for both the additional costs that can be incurred through the 
application of Public Law 93-638, and changes in the scope of the 
contract that occur during any negotiated procurement.
    Question. In theory, the 638 process is supposed to provide the 
opportunity for Native Americans to ``fill the shoes of federal 
employees'', which should result in lower staffing levels by the 
Federal agency. Could you address the impacts to staffing levels on 
this project as a result of the process?
    Answer. The 1988 Settlement Act specifically allows the design and 
construction of ALP to be subject to the provisions of the Public Law 
93-638 Act. The Tribes have, in detail, designated the specific 
activities they will take the lead in performing. Reclamation's project 
functions have been designed around those designated Tribal activities, 
resulting in no identified duplicated functions. The application of the 
638 process at ALP has provided the Tribes many opportunities to 
enhance their skills and to become more self sufficient. We believe the 
Tribes are taking full advantage of these opportunities.
    Question. Had the 638 process not been congressionally mandated, 
would it have been a viable option for accomplishing this project?
    Answer. Yes.

                    BUREAU OF RECLAMATION PROCESSES

    Question. You claim that you have taken steps to improve the 
structure of the Bureau of Reclamation team that is working on the 
project.
    Can you explain these steps and also explain how they will improve 
the functionality of the team?
    Answer. First, we have realigned the reporting structure (chain of 
command) in Reclamation's Upper Colorado Region so that the ALP Project 
Construction Engineer now reports directly to the Regional Director and 
all on-the-ground construction functions report to the Project 
Construction Engineer. This essentially utilizes highly experienced 
construction management staff in control of the project.
    Second, we have initiated new cost-tracking procedures that relate 
all project costs to the cost estimate in order to detect problems 
early and avoid surprises. This system provides an accurate ongoing 
evaluation of project progress vs. the construction cost estimate. 
Finally, the PCC provides a medium for constructive, ongoing input from 
project sponsors.
    Question. It concerns me that critical members of the Bureau's 
project team are not co-located in Durango. As I understand, some 
functions reside in Grand Junction, and others even as far away as the 
Regional Office in Salt Lake. Wouldn't it be a good idea, especially 
given the situation, to have a dedicated team on site?
    Answer. A dedicated on-site team is being utilized. Some support 
functions are being used from the Grand Junction and Salt Lake City 
offices for efficiency. These support services are for items such as 
environmental support, archeological support, personnel support, budget 
support, etc. This allows the on-site team to not fully staff for these 
functions, thereby reducing the overall project costs.
    Question. Please outline for the committee the Bureau 
responsibilities for ALP before and after the July cost overrun was 
identified.
    Answer. The organization charts shown on Attachment 1 identify 
Reclamation's current organization and our organization prior to the 
issuance of the revised Project Cost Estimate in July, 2003. 
Reclamation has taken some aggressive actions to complete the Animas-La 
Plata Project in the most cost effective and efficient way possible. 
The newly established construction office has the sole responsibility 
to construct the project, a format that we have full confidence in 
being successful. We have increased the level of coordination and 
consultation with the project sponsors so that they are properly 
involved in decisions on the project, and I have developed a system to 
allow for open and complete cost accountability.
    Question. When the July estimate was released, how much had been 
spent on ALP activities up to that point--post-1998? Include sunk 
costs.
    Answer. When the revised project estimate of $500 million was 
released in July 2003, a total of nearly $131 million had been 
obligated on the Project. This includes sunk costs of approximately $68 
million (expended through fiscal year 1998) and $63 million obligated 
from fiscal year 1999 forward.
    Question. Please provide a categorical breakdown of non-contract 
costs of ALP.
    Answer. Attachment 2 provides a breakdown of the Reclamation non-
contract costs in a tabular form. The table identifies the number of 
Full-Time Equivalent (FTE's) Reclamation employees by office and by 
project feature. The table also provides a general description of the 
functions being performed by the various offices on each of the project 
features.
    Question. ALP report only discusses firm fixed-price contracts and 
obligations. Provide information on other ways the 638 contract is used 
for other than fixed price contracts. What other types of contracts are 
involved in 638 for ALP? Provide the size and cost of the contracts.
    Answer. The ISDEA (Public Law 93-638) process is used for a variety 
of contracting purposes with the Ute Mountain Ute and Southern Ute 
Indian tribes. The use of firm-fixed price contracts for the 
construction work on the features in Southwest Colorado is described in 
the Commissioner's report. The following tables detail the work 
activities performed by the Ute Mountain Ute and Southern Ute Indian 
tribes under 638 contracts for non-construction work.

                    NON-CONSTRUCTION 638 CONTRACTING
------------------------------------------------------------------------
                                                                  Number
                                                      Value         of
                                                                  Tasks
------------------------------------------------------------------------
Cultural Resource Mitigation Cooperative            $12,053,012
 Agreement.....................................
                                                ========================
Tribal Services Cooperative Agreements: \1\
    Ute Mountain Ute Tribe (Proposal                 $1,692,253        8
     preparation, Management of tribal
     activities, Tribal involvement in
     meetings, Vegetation management on
     mitigation lands, etc.)...................
    Southern Ute Indian Tribe (Aquatic                  $88,148        3
     monitoring, Land acquisition appraisals)..
                                                ------------------------
      Total....................................      $1,780,401       11
                                                ========================
Future Services Cooperative Agreements: \2\
    Ute Mountain Ute Tribe (Tribal management,   \3\ $2,750,000
     tribal involvement in meetings, etc.).....
    Southern Ute Indian Tribe (Aquatic             \3\ $120,000
     monitoring)...............................
                                                ------------------------
      Total....................................  \3\ $2,870,000
------------------------------------------------------------------------
\1\ Includes costs from start of construction in 2001 to current. Does
  not include value of work performed by tribes prior to 2001.
\2\ Does not include contingencies.
\3\ Estimated value.

    Question. Please provide a briefing on the philosophy of the 
construction schedule for ALP--flow rate of funds, what it means from 
year to year. Clearly mark where funding authority ends.
    Answer. The schedule for Animas-La Plata has been revised to 
incorporate the 2003 CCE. The net result of the revised project 
schedule is a delay of project features of approximately 3 years and a 
delay of reservoir first fill completion of approximately 3 years to 
2011. Current funding authority expires in 2006. The revised project 
schedule is based upon a reasonable level of funding per fiscal year 
and maintains the high risk work of the Ridges Basin Dam and Durango 
Pumping Plant as high priority work. This allows the dam and the 
pumping plant to be constructed in an efficient fashion avoiding 
increased project costs due to stretching out production. However, in 
so doing other features have been moved in time to allow for the 
reasonable level of funding. One of these deferred features is 
completion of the Navajo Nation Municipal Pipeline (NNMP). The NNMP 
shows a delay of approximately 32 months beyond the previously accepted 
project schedule. The Reclamation team is prepared to brief the 
chairman and other committee members and staff in greater detail at 
your earliest convenience.
    Question. Provide information on the IGCE estimate process. How 
accurate is it? What the estimates were, what was spent, how far over/
under, on schedule, etc. What has BOR learned from the process so that 
it gets better?
    Answer. Reclamation prepares planning level (appraisal and 
feasibility) cost estimates through procurement related estimates 
Independent Government Cost Estimates (IGCE) bid estimates as tools for 
project management. Planning level cost estimates such as feasibility 
cost estimates are used for project authorization while IGCEs are 
required by the Federal Acquisition Regulations (FAR) for procurement 
of construction projects. Reclamation utilizes proven techniques, 
bureau-unique knowledge, and accepted industry resources \1\ to develop 
its cost estimates. All IGCEs' are developed as if Reclamation were 
submitting a proposal to compete for the work using the same technical 
information available to prospective bidders.
---------------------------------------------------------------------------
    \1\ Industry resources--Construction Cost estimating resources such 
as; MEANS, Richardson, CAT Handbook, etc.
---------------------------------------------------------------------------
    Reclamation continually analyzes bid information on projects by 
evaluating the IGCE versus contractor's bids. Reclamation maintains and 
monitors bid results by the use of abstracts \2\ showing comparison 
between the IGCE and contractor's bids. The IGCEs' of each unit price 
are measured against the bid results shown on abstracts. These are 
updated and used to improve the accuracy of IGCEs' and unit price for 
subsequent cost estimates (planning through IGCE).
---------------------------------------------------------------------------
    \2\ Abstract--Compiled by the Contracting Officer showing the bid 
results for each construction procurement.
---------------------------------------------------------------------------
    Reclamation publishes quarterly the Bureau of Reclamation 
Construction Cost Trends (published in the Engineering News Record). 
These trends track price fluctuations for features of work specifically 
being constructed by Reclamation.
    Reclamation's Dam Safety Program is the single largest construction 
program in Reclamation at the present time. As noted in Appendix 2, 
page 2-5 of the Commissioner's report to the Secretary, the program has 
completed 65 modifications at an overall cost of approximately 86 
percent of the total estimated cost of the projects. While there have 
been historical variations in actual costs from the originally 
estimated costs, our office actively engages in management techniques 
to both control costs and to evaluate cost saving measures.
    For the Animas-La Plata contracting, a process has been established 
where by the field construction office contracting staff provides 
pertinent actual costs of the construction contractor to the Technical 
Service Center. This information is evaluated and utilized where 
appropriate in development of subsequent IGCEs for the Animas-La Plata 
procurement process. This process is consistent with the provisions of 
the Public Law 638, Indian Self Determination, Education, and 
Assistance Act for fixed price construction contracts.






                         ATTACHMENT 2.--ANIMAS-LA PLATA PROJECT--COLORADO AND NEW MEXICO--FISCAL YEAR 2004 RECLAMATION STAFF ESTIMATES AND FUNCTIONS (SEE LISTING BELOW)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                          ALPCO                       FCO                    WCAO-Durango           WCAO-Grand Junction          Regional Office              TSC (Denver)
           Activity            -----------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 FTE's      Function(s)     FTE's      Function(s)     FTE's      Function(s)     FTE's      Function(s)     FTE's      Function(s)     FTE's      Function(s)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1--Project Management.........     0.86  a, b, c, d......     0.23  a, b, c.........     1.31  a, b, c, d, g,       0.40  a, b, c, d, u...     0.41  d, g, u.........     0.31  a, c
                                                                                                u.
2--Program Management.........     2.92  e, f, g.........     0.00  ................     0.24  e, f, g.........     0.05  e, g............     0.05  e, g............     0.25  g
3--Cultural Resources.........     0.21  o...............     0.05  n, o............     1.00  o, s............     0.00  ................     0.04  s...............  .......  ................
4--Fish, Wildlife, and             0.87  n, o............     0.00  ................     2.40  k, l, m, n, s,       0.10  s, t............     0.20  s, t............  .......  ................
 Wetlands Mitigation.                                                                           t.
5--Fishery Enhancement........     0.01  a, c............     0.00  ................     0.15  a, c, h, s......     0.62  l, m, n.........     0.05  l, m............  .......  ................
6--Ridges Basin Dam &             22.86  a, b, c, d, f,       0.00  ................     1.95  h, i, k, s......     0.01  c...............     2.92  c, h, i, j, n,       3.75  m, n, p, q, r
 Reservoir.                               i, j, n, o, p,                                                                                              o, p.
                                          u.
7--Durango Pumping Plant......    16.35  a, b, c, d, i,       0.00  ................     0.69  h, i, s.........     0.00  ................     1.19  c, h, n, o, p...     4.72  m, n, p, q, r
                                          n, o, p, u.
8--Navajo Nation Municipal         0.00  ................     8.16  a, b, c, d, i,       0.22  h, s............     0.02  a, c............     0.10  c, p, o.........     0.74  m, n, p, q, r
 Pipeline.                                                           l, m, n, o, p.
9--Ridges Basin Inlet Conduit.     0.95  a, b, c, d, i,       0.00  ................     0.06  h, s............     0.00  ................     0.04  c, i, o.........     0.01  l
                                          l, o.
                               ---------                  ---------                  ---------                  ---------                  ---------                  ---------
      Totals..................    45.03  ................     8.44  ................     8.02  ................     1.20  ................     5.00  ................     9.78  ................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total FTE's=77.47.

Reclamation Staff Functions Include: (a) Project Management; (b) Sponsor Coordination and Consultation; (c) Federal & Non-Federal Agency Coordination; (d) Public Relations; (e) Budget and
  Accounting; (f) Project Scheduling and cost estimate updates; (g) Up Front Cost Share Agreement Administration and Repayment Contract Prep. & Admin; (h) Supplemental NEPA Compliance; (i)
  Land and Land Interest Acquisition; (j) Utility Relocations; (k) Land and Water Management; (l) Investigations and Pre design; (m) Design; (n) Contract Negotiation & Procurement Support; (o)
  Contract and Cooperative Agreement Administration; (p) Quality Assurance including safety; (q) Design Support during Construction; (r) Geology Support during Construction; (s) Environmental
  and Cultural Resources Oversight; (t) Mitigation Planning and Implementation; (u) Project Operations.

Notes.--FTE--Full-Time Equivalent; ALPCO--Animas-La Plata Construction Office; FCO--Farmington Construction Office; WCAO--Western Colorado Area Office; Regional Office--Upper Colorado Regional
  Office, Salt Lake City, Utah; TSC--Technical Service Center, Denver, Colorado; Washington DC staff not charged to A-LP.


                       NONDEPARTMENTAL WITNESSES

    Senator Domenici. Can we have the next panel, please? 
Howard Richards, Chairman of the Southern Ute Indian Tribe. 
Selwyn Whiteskunk, Councilman of the Ute Mountain Ute Tribe. 
Mike Griswold, President of the Animas-La Plata Water 
Conservation District. And Randy Kirkpatrick, Executive 
Director of the San Juan Water Commission. If we can have you 
all there.
    Thank you all. In particular I thank my friend from San 
Juan for coming. You have been working on this project from the 
time your hair was black until it got gray. That is pretty 
long.
    Mr. Kirkpatrick. That's correct.
    Senator Domenici. Now, we are going to start right now. 
What shall we start with? Okay, Howard Richards, Chairman of 
the Southern Ute. Mr. Chairman, proceed.

STATEMENT OF HOWARD D. RICHARDS, SR., CHAIRMAN, 
            SOUTHERN UTE INDIAN TRIBE
    Mr. Richards. Good morning. Mr. Chairman, thank you for the 
opportunity to testify today. I am Howard Richards, Chairman of 
the Southern Ute Indian Tribe. I ask that my full statement be 
part of the record. I will briefly summarize my testimony.
    Senator Domenici. It will be.
    Mr. Richards. First I want to express the tribe's 
appreciation to you and Senator Campbell for your support for 
the Animas-La Plata Project.
    Senator Domenici. Thank you.
    Mr. Richards. And the settlement of the tribe's water 
rights claim. Without this committee's support the Southern Ute 
Tribe would face a difficult court battle to obtain the water 
rights to which the tribe is entitled. We believe that building 
ALP and settling the tribal claims through development of new 
water supplies is a much better choice for the tribe and its 
neighbors in Colorado and New Mexico. We appreciate that you 
and Senator Campbell continue to work hard to help us 
accomplish that goal.
    Mr. Chairman, ALP is the heart of the settlement of the 
water rights claim of the Southern Ute Indian Tribe. It will 
provide the tribe and our sister tribe, the Ute Mountain Ute 
Tribe, with water to meet tribal needs now and into the future. 
The tribe has always recognized that it needs a firm and 
reliable water supply to create a permanent homeland for which 
the Southern Ute Reservation was meant to provide. ALP is a 
critical part of that plan because it allows the tribe to 
obtain the water supplies which it needs without depriving our 
neighbors of the water supplies that they have used for many 
years. The tribe has worked hard to make ALP and the settlement 
of their tribal water claims a reality. We have been fortunate 
to have neighbors and State governments in New Mexico and 
Colorado who recognize the need for additional water supplies 
and who have fought for ALP. The Tribe appreciates the many 
contributions and sacrifices that those parties have made.
    As you know, ALP has a long history. In 2002 Congress 
amended the 1988 Settlement Act to allow the settlement of the 
tribal claims through the construction of a smaller project 
that will provide Ute Tribes and water users in Colorado and 
New Mexico with water only for municipal and industrial uses. 
As this hearing demonstrates, the construction of the smaller 
ALP is a difficult job that requires the cooperation of many 
parties and the Federal Government. We were very disappointed 
by Reclamation's announcement last summer of its increased cost 
estimate for the project. It is important to build the project 
in a cost-effective fashion and on time. The failure to build 
the project on time would once more upset the settlement of 
tribal water rights claims. It is also important that our 
neighbors receive project water at a reasonable cost consistent 
with their expectations at the time the 2000 amendments were 
passed.
    I want to emphasize that there is much to do and that we 
must all continue to work together. The actual construction of 
the project is complicated and there are a number of other 
obligations such as environmental mitigation that must be met 
to build the project on time. Funding is also crucial. Without 
adequate funding the schedule will be delayed and the cost of 
the project will increase. There are also some issues which 
must be resolved through the parties. I'm confident that we can 
meet those challenges and complete the project and the 
settlement.

                           PREPARED STATEMENT

    Mr. Chairman, in closing I want to emphasize the importance 
of ALP to the tribe. The tribe wants to do whatever it can to 
accomplish the goal of building the project on time and in a 
cost-efficient manner. With that, Mr. Chairman, I thank you and 
the committee.
    [The statement follows:]

             Prepared Statement of Howard D. Richards, Sr.

    Mr. Chairman, thank you for the opportunity to testify today. I am 
Howard D. Richards, Sr., Chairman of the Southern Ute Indian Tribe.
    On behalf of the Tribe, I want to express our appreciation to you 
and Senator Campbell for your long-standing support for the Animas-La 
Plata Project (``ALP'') and the settlement of the Tribe's water rights 
claims in southwest Colorado. We are grateful for the assistance you 
and the Committee have provided over many years. Without that support, 
we would be facing a long and difficult court battle to obtain the 
water rights to which the Southern Ute Indian Tribe is entitled. We 
believe that the construction of ALP and the settlement of the tribal 
claims through the development of additional water supplies is a much 
better choice for both the Tribe and its neighbors in Colorado and New 
Mexico. We are grateful that you both share that view and continue to 
work so hard to accomplish that goal.
    Mr. Chairman, ALP is the heart of the settlement of the water 
rights claims of the Southern Ute Indian Tribe and will provide the 
Tribe and our sister tribe, the Ute Mountain Ute Tribe, with water to 
meet tribal needs, now and in the future. Since at least 1968, ALP has 
been a critical part of the Southern Ute Indian Tribe's plans for the 
future. The Tribe has always recognized that it needs a firm and 
reliable water supply to create the permanent homeland which the 
Southern Ute Indian Reservation was meant to provide. While Federal law 
promises Indian tribes the rights to use water to meet their present 
and future needs, tribes often are forced to resort to lengthy and 
bitter court cases to secure those rights. The recognition of tribal 
rights under Federal law frequently results in significant water 
shortages for farmers, ranchers and towns in the surrounding area. The 
Southern Ute Indian Tribe has always sought to secure the water 
supplies which it needs without depriving our neighbors of the water 
supplies that they have used for many years, sometimes for many 
generations.
    The Tribe has worked hard to make ALP and the settlement of the 
tribal water claims a reality. We have been fortunate to work not only 
with you and Senator Campbell, but also to have neighbors and State 
governments in New Mexico and Colorado who recognize the need for 
additional water supplies in southwest Colorado and northwest New 
Mexico, and who have fought equally hard for ALP. Our neighbors have 
acknowledged the validity of the tribal rights and have made many 
sacrifices to ensure the recognition of the Tribe's water rights and 
the settlement of the tribal claims. The Tribe greatly appreciates 
those contributions to the settlement effort and the construction of 
ALP.
    As this hearing demonstrates, the construction of ALP is a complex 
and difficult task that requires the continued cooperation of many 
parties, as well as the Federal Government. Although our interests are 
not always the same, all of the parties who would benefit from the 
project have worked together to overcome many obstacles. Our interests 
have at times clashed, but we have always managed to find a solution 
that we could all accept. There are some issues which still must be 
resolved, but I am confident that we will continue to work together and 
continue to move forward with building and operating the project.
    Both legally and practically, the construction of ALP is required 
to settle the tribal water rights claims on the Animas and La Plata 
Rivers. The average flow of the Animas River out of the State of 
Colorado is more than 700,000 acre-feet per year. But like most western 
rivers, the run-off varies greatly from year to year and takes place 
mostly in the springtime. Without storage, this water supply is of only 
limited use. Since the early part of the 1900's, parties in southwest 
Colorado and northwest New Mexico have sought to develop this resource 
to meet the needs of their communities. As a result of those efforts, 
ALP was authorized by Federal law in 1968.\1\
---------------------------------------------------------------------------
    \1\ See 43 U.S.C.  620.
---------------------------------------------------------------------------
    Until 2000, the purpose of ALP was to meet irrigation, municipal 
and industrial needs in the area. As structured in the late 1970's, the 
project was to provide water to users along the Animas River and, in 
addition, take water from the Animas River, store that water in Ridges 
Basin Reservoir, and deliver the water west into the La Plata Basin 
where it could be used for a number of purposes, including irrigation. 
When negotiations over the tribal water right claims began in the mid-
1980's, the Bureau of Reclamation had completed a ``final'' 
environmental impact statement, a definite plan report and obtained 
clearance for the full project under the Endangered Species Act,\2\ and 
other Federal environmental laws.
---------------------------------------------------------------------------
    \2\ 16 U.S.C.  1531-44.
---------------------------------------------------------------------------
    Under the Colorado Ute Indian Water Rights Final Settlement 
Agreement,\3\ the construction of certain project facilities were 
required to settle the tribal claims on the Animas and La Plata Rivers. 
The Southern Ute Indian Tribe was to receive irrigation, municipal and 
industrial water supplies from the project. In addition, certain tribal 
agricultural delivery facilities were to be constructed. In 1988, 
Congress approved the Settlement Agreement and authorized the 
construction and use of the project as envisioned by the Settlement 
Agreement.\4\ Under the Settlement Agreement and 1988 Settlement Act, 
the two Ute Tribes could return to court to seek recognition of their 
water rights if the required project facilities were not completed by 
January 1, 2000. Section 10 of the 1988 Settlement Act directs that the 
``design and construction functions of the Bureau of Reclamation with 
respect to the Dolores and Animas-La Plata Projects . . .'' were to be 
``subject to the provisions'' of the Indian Self-Determination and 
Education Assistance Act,\5\ ``to the same extent as if such functions 
were performed by the Bureau of Indian Affairs.'' The only caveat was 
the section would not apply if it would ``detrimentally affect the 
construction schedules.''
---------------------------------------------------------------------------
    \3\ (Dec. 10, 1986) (``Settlement Agreement'').
    \4\ Colorado Ute Indian Water Rights Settlement Act of 1988, Public 
Law No. 100-585 (1988) (``1988 Settlement Act'').
    \5\ 25 U.S.C.  450 to 458bbb-2 (``Self Determination Act'') 
(frequently called ``Public Law No. 93-638'' or ``638'').
---------------------------------------------------------------------------
    Throughout the 1990's, the project sponsors and Reclamation sought 
to begin construction of ALP but repeatedly ran into environmental 
problems involving the Endangered Species Act and water quality issues 
related to the irrigation component of the project. Following a series 
of public meetings over the fate of the project and the tribal water 
rights settlement, the Department of the Interior proposed resolving 
the tribal claims through the construction of a smaller project that 
would only serve municipal and industrial users and would reflect the 
depletion limits imposed on the project under the Endangered Species 
Act. Following the development of another environmental impact 
statement comparing the greatly reduced project to the non-structural 
alternative advanced by the project opponents, the Secretary of the 
Interior issued a record of decision finding, among other things, that 
the reduced project was the ``environmentally preferred alternative'' 
for settling the tribal claims.\6\
---------------------------------------------------------------------------
    \6\ Record of Decision, Animas-La Plata Project/Colorado Ute Indian 
Water Rights Settlement Final Supplemental Environmental Impact 
Statement July 2000 (Sept. 25, 2000).
---------------------------------------------------------------------------
    In 2000, Congress enacted the Colorado Ute Settlement Act 
Amendments of 2000 \7\ which authorized the settlement of the tribal 
claims through the construction of a smaller project that would provide 
the tribes and water users in Colorado and New Mexico with statutory 
established water allocations for municipal and industrial uses. The 
2000 Amendments directed the Attorney General of the United States to 
file the necessary papers with the Colorado Water Court to extend the 
deadline by which the Tribes must return to court to secure their water 
rights. The Attorney General has asked the Court to extend that 
deadline until 2012.
---------------------------------------------------------------------------
    \7\ Title III of Public Law No. 106-554 (Dec. 21, 2000) (``2000 
Amendments'').
---------------------------------------------------------------------------
    The Southern Ute Indian Tribe has worked closely with the Ute 
Mountain Ute Tribe, Reclamation, and the other project sponsors over 
the past 3 years to build the smaller project.
    Reclamation's announcement last summer of the greatly increased 
cost estimate was a shock and a disappointment. For a variety of 
reasons, it is extremely important to build the project in a cost-
effective and timely fashion. In particular, the failure to build the 
project on time would once more upset the settlement of the tribal 
water rights claims. It is also important that our neighbors receive 
project water at a reasonable cost, consistent with their expectations 
at the time that the 2000 Amendments were passed.
    The Southern Ute Indian Tribe continues to participate on both the 
Project Operating Committee (``POC'') and the Project Construction 
Coordination Committee (``PCC''). In addition, the Tribe, through Sky 
Ute Sand and Gravel provides ``batched'' material for the construction 
of the project. The Southern Ute Indian Tribe has also worked with the 
Ute Mountain Ute Tribe on the cultural resources contract for the 
project. At the outset of project construction, the Southern Ute Indian 
Tribe, the Ute Mountain Ute Tribe, and Reclamation discussed the tasks 
that were required to complete the project and determined who would 
have the lead, who would provide input and who would provide oversight 
on each of those tasks. The Southern Ute Indian Tribe has not charged 
Reclamation for these types of planning and coordination activities 
under the Self-Determination Act, but has only sought reimbursement 
when it actually supplies a product, such as concrete, to the project.
    Tribal representatives worked with Reclamation, on behalf of the 
Tribe, when it was developing its report to the Secretary of the 
Interior on the factors that resulted in the increased cost estimates. 
These individuals have advised me that they believe Reclamation is 
working diligently to correct the problems that resulted in the 
increased cost estimate. As you know, the project sponsors were not 
aware of the issues associated the increased costs until they reached 
the crisis stage.
    In our view, Reclamation has taken two useful steps to address the 
basic problems that existed with regard to project management. First, 
Reclamation is working to improve communication with the project 
sponsors. This effort has focused on developing a more formal means of 
communication about the issues facing the project, as well as increased 
emphasis on the monthly meetings of the PCC. Second, Reclamation has 
made it clear that Rick Ehat, a construction engineer in Durango, is 
charged with building the project. We have been told to direct our 
questions and concerns in the first instance to Mr. Ehat. We are 
encouraged by these new procedures and hope that they will improve 
communication and allow those who are directly affected to work with 
Reclamation to ensure that the project is built on time and in a cost-
efficient fashion.
    I want to emphasize the complexity of the tasks that face us in 
reaching those goals. Not only is the actual construction of such a 
project very complicated, there are a number of other obligations that 
must be met to complete the project on time. In particular, 
construction of the project requires substantial environmental 
mitigation both in the area and on related matters such as the 
environmental impact statement for the operation of Navajo Dam and 
Reservoir. These responsibilities require Reclamation to complete 
various activities and to consult with other Federal and State agencies 
to maintain the construction schedule. Funding is also critical. 
Without adequate annual funding, the schedule will be delayed and the 
cost of the project will increase further. In short, there is much to 
do, but working together, I am confident that we can meet the 
challenges before us and complete the project and the settlement.
    Mr. Chairman, in closing, I want to emphasize the importance of ALP 
to the Southern Ute Indian Tribe. The Tribe wants to do whatever it can 
to accomplish the goals of building the project on time and in a cost-
efficient manner. I would be glad to answer any questions you may have. 
Thank you.

    Senator Domenici. Thank you very much. Let me just say, Mr. 
Chairman, it is already pretty obvious that your wish that we 
complete it on time cannot be done. We can keep talking about 
it but we already heard it cannot be done.
    Now, Mr. Whiteskunk, you are next.

STATEMENT OF SELWYN WHITESKUNK, COUNCILMAN, UTE 
            MOUNTAIN UTE TRIBE
    Mr. Whiteskunk. Thank you, Mr. Chairman. Honorable Chairman 
and members of the committee, I'd like to thank you for the 
opportunity to address the members of the Energy and Water 
Committee regarding the Animas-La Plata Project. I take very 
seriously the honor my tribe has given me by choosing me to 
represent the Mountain Ute Tribe for this hearing.
    The Tribe has waited many years to see the Colorado Ute 
Indian Water Settlement implemented through the negotiations 
and ultimately the construction of the Animas-La Plata Project. 
The settlement passed in 1988 provided the Colorado Ute Tribes 
to participate in the project construction through the Indian 
Self Determination Education Assistance Act, Public Law 93-638. 
The opportunity for the Mountain Ute Tribe to utilize its 
construction division to undertake this major project is an 
example of the very reason that Congress passed the Indian Self 
Determination Act, to foster economic development, education, 
training and employment. It also gives the Ute people pride in 
their work, which benefits our homeland, our people and the 
capability of all Indian nations utilizing Public Law 93-638. 
Amendments to the Settlement Act were passed in the year 2000, 
which we began our direct role in the project development 
through the Cultural Resource Efforts, which were mandated 
prior to the construction. The Ute Mountain Ute Tribe is 
conducting a cultural resource investigation for the Animas-La 
Plata Project under Public Law 93-638, Self Determination 
contract.
    In April, 2002, the Tribe contracted with the Bureau of 
Reclamation to perform these responsibilities under the terms 
of this contract. The Tribe is responsible for the management, 
cultural resource in compliance with several Federal laws, 
including the Archaeological Resource Protection Act, the 
National Historic Preservation Act, the Native American Graves 
Protection and Repatriation Act, also known as NAGPRA. The 
Tribe is working closely with 26 consulting tribes to compile 
the evidence affiliation that is necessary for compliance with 
NAGPRA.
    The Cultural Resource team comprises over 50 individuals, 
including a six-person oversight committee consisting of a 
contract coordinator, a Ute Mountain Ute Tribal council member, 
two Southern Ute tribal members, a Bureau of Reclamation 
representative and an external archaeologist. Due to the 
experience presented by the six-person committee, everything 
from finances to archaeological methodology and ethnographic 
research is closely scrutinized and kept on track. This has 
allowed the cultural resource portion of the project to 
progress smoothly, on budget and on schedule.
    To date the Tribe has completed two of four field seasons 
and has excavated 50 archaeological sites. Many Native 
Americans are working on the Animas-La Plata Project, Cultural 
Resource Project, conducting excavation, laboratory analysis 
and learning technical specialties. Approximately 40 percent of 
the field crews were Native American in 2002 and 2003, and in 
2004 field season numbers are expected to remain high. In 
addition, the Tribe has hired a Southern Ute environmental 
company to help recruit, hire and train Ute tribal members, 
some with and some without experience.
    Senator Domenici. Mr. Whiteskunk, we are going to make your 
whole statement part of the record. So we would appreciate it 
if you would be brief.
    Mr. Whiteskunk. Yes sir. We have a Ute construction company 
who is doing the construction of the project, Mr. Chairman, and 
I have members of the company here as well to answer any of 
your questions if need be.
    Senator Domenici. Are those non-Indian contractors?
    Mr. Whiteskunk. They are with tribal members. The tribe is 
owned by the tribe, the construction company is owned by the 
tribe.
    Senator Domenici. But you have some outside contractors as 
part of that?
    Mr. Whiteskunk. Yes, employees.
    Senator Domenici. What percent of the contracts, I ask 
either of you, are done by non-Indians?
    Mr. Whiteskunk. I would say 75 percent of the work is done 
by the Ute Mountain Ute Tribe, 25 percent would be non-Indian.
    Senator Domenici. I find that very hard to believe but I do 
not have anything else to argue with you about. But I find that 
very hard to believe. This is highly technical and difficult 
construction and I do not know how you could do it with 75 
percent Indian. You have no experience, right?
    Mr. Whiteskunk. We, the Ute Mountain Ute Tribe and its 
company has experiences in a lot of construction-type 
construction. For this project it is the first time that we've 
undertaken this magnitude of a project.
    Senator Domenici. How about you, Mr. Richards?
    Mr. Richards. The only involvement we have as far as the 
Southern Ute Tribe is in respect to the cultural resources, 
mitigation of Animas-La Plata. I sat on the Cultural Resources.
    Senator Domenici. You do not build anything?
    Mr. Richards. No, we don't. We do provide material to the 
project such as concrete, sand and gravel and that's our only 
involvement in that, the tribal.
    Senator Domenici. All right. Mr. Whiteskunk, could you 
proceed?
    Mr. Whiteskunk. Yes sir. From its beginning, as the 
construction organization, Limited Construction Authority has 
successfully completed a variety of projects in the Four 
Corners region. The types of projects include heavy and highway 
construction, residential and commercial buildings, municipal 
improvement, oil field construction. All of these are performed 
on a merit shop basis with maximum utilization of Indian 
laborers and craftsmen. The Ute Mountain Ute Tribe Limited 
Construction Authority subject to the provision of the Indian 
Self Determination Act is performing the construction function 
of the Animas-La Plata Project. To date, five separate 
construction contracts have been negotiated to Weeminuche 
Construction Authority by the Bureau of Reclamation, two of 
which have been successfully completed, three are on-going. 
Other Animas-La Plata construction components are in the 
process of being bid or negotiated and were comprised a 
majority of the project. Weeminuche Construction currently 
employs 170 people, nearly 100 are currently working on the 
Animas-La Plata Project. Native Americans comprise 
approximately two-thirds of this workforce. As work progresses 
into the summer of 2004, it is anticipated the number of people 
working on the project will increase substantially.
    Recruitment efforts are made with Native American presence 
and much of the recruiting is accomplished through the Tribal 
Employment Rights Office of the Ute Mountain Ute Tribe and the 
Southern Ute Tribe. To further enhance the construction skills 
of the workforce the company is training a group of Native 
Americans as heavy equipment operators, mechanics and 
carpenters to work on the Animas-La Plata Project.

                           PREPARED STATEMENT

    The roles of the Ute Mountain Ute Tribe and Southern Ute 
Tribe have played in the Cultural Resource Mitigation Project 
construction very simply add more significance to our water 
rights settlement, the history of which spans more than two 
decades and represents a very real cooperation between the two 
tribes and our non-Indian neighbors in the San Juan Basin. The 
commitment we have to see this settlement through the act of 
2000 is equally matched by our present commitment to build this 
water project correctly, on time and cost effectively. Reaching 
this goal will be a proud moment for the Ute Mountain Ute Tribe 
and the Southern Ute Tribe and its people.
    I thank you.
    [The statement follows:]

                Prepared Statement of Selwyn Whiteskunk

    Mr. Chairman, Senator Campbell and members of the committee. Thank 
you for the opportunity to participate in this important hearing. I am 
honored to represent the Ute mountain Ute tribe and its members today. 
We have worked very hard and have waited many, many years to see the 
Colorado Ute Indian Water Rights Settlement implemented through the 
construction of the Animas-La Plata project.
    The Ute Mountain Ute tribe is not a mere bystander in the 
implementation process. The settlement passed in 1988 provided for the 
Colorado Ute tribes the opportunity to participate in the project 
construction through the Indian Self Determination and Education 
Assistance Act. For the Ute Mountain Utes, this opportunity is 
meaningful for the very reasons Congress passed the Act:
  --this project brings economic development to the tribe and its 
        members,
  --it further promotes education, training and employment among our 
        members,
  --it provides real world experiences in cooperation and management, 
        particularly on such a large scale involving so many tribal and 
        governmental programs,
  --it promotes pride in our work and the benefit it brings to our 
        homeland and our people. These benefits ultimately make the 
        tribe stronger and better able to participate in its own 
        evolution.
    After amendments to the Settlement Act were passed in 2000 and the 
project was ordered to proceed, we immediately began our direct role in 
project development by contracting the cultural resources mitigation 
responsibilities which must be completed prior to construction and 
which continue throughout the life of the project.
    The Ute Mountain Ute tribe and the Southern Ute Indian tribe 
entered into the contract for cultural resources mitigation in 2002. 
The area surrounding the project is very important archaeologically in 
that there are thousands of artifacts, ranging primarily from 2,000 to 
10,000 years old, and the area is also important to our tribes 
culturally in that it contains a portion of a popular route through the 
mountains that was used by the Ute people for generations. I am pleased 
to inform you that the contract has proven to be a great success in 
areas that are very important to the tribes:
  --nearly 40 percent of all employees working on the contract are 
        Native American, as well as our own tribal members,
  --we have implemented a popular 5-week Native American training 
        program,
  --the mitigation work has coordinated very well with the construction 
        work,
  --and we have made findings of significant archaeological interest.
The Weeminuche Construction Authority plays an even larger role in the 
actual building of this critical water storage facility.
    The Ute Mountain Ute tribe owns and operates its own construction 
company, the Weeminuche Construction Authority, and we have designated 
Weeminuche as the prime contractor on the construction of the project. 
Building a dam such as this is extremely complicated and requires a 
wide range of skills and expertise. We are very proud of the work 
Weeminuche is doing and we see many benefits in the project for our own 
people, and the local community. Our people are gaining hands-on 
experience in areas that will prove useful to them in the future. 
Although the opportunities for employment in construction on the 
project varies with the time of year and the particular contract being 
executed, Weeminuche generally employs about 100 people, about 67 of 
whom are Native American. Weeminuche also utilizes many subcontractors, 
many of which are local to the area.
    The hands-on role the Ute Mountain Ute tribe has played in cultural 
resources mitigation and project construction very simply adds more 
significance to our Water Rights Settlement, the history of which spans 
more than two decades and represents very real cooperation between our 
two tribes and our non-Indian neighbors in the San Juan basin. The 
impetus behind the Act is to provide to the tribes the water they were 
promised, but, in the end, we sincerely hope this reservoir will help 
to better serve the needs of all people in the area, particularly 
during these times of drought and severe water shortages. We want this 
project to remind people forever that the Federal Government's trust 
responsibility to native peoples can result in great things for all 
people, and that by working together, local residents, tribes, local, 
State, and Federal governments can achieve real, tangible success.
    The commitment we have made to see this settlement through to the 
Act of 2000 is equally matched by our present commitment to build this 
water project correctly, on time, and cost-effectively. Reaching that 
goal will be a proud moment for the Ute Mountain Ute tribe, and when 
the reservoir is filled with the wet water we have dreamed of for so 
many years, our pride will shine a bright light on Ute Mountain and the 
entire Four Corners.
    Thank you. I will be happy to respond to any questions. 
    
    
    
    Senator Domenici. Thank you. Our two next witnesses are Mr. 
Griswold and Mr. Kirkpatrick. I would like you to proceed in 
that order and make your statements part of the record and be 
as brief as you can.
    Mr. Griswold. Thank you, Mr. Chairman.
    Senator Domenici. You are welcome.

STATEMENT OF MIKE GRISWOLD, PRESIDENT, ANIMAS-LA PLATA 
            WATER CONSERVANCY DISTRICT
    Mr. Griswold. I appreciate that. I've been associated with 
this project for 10 years as a director of the Animas-La Plata 
Water Conservancy District and 6 of those years I was 
president. During much of the downsizing and up through 6, 7 
months after our July 31 date. We measure time by that date. We 
believe that the Bureau doesn't want to go to the woodshed 
twice on this project and we think there were some mistakes 
made. We haven't reached complete agreement with the Bureau on 
some of the underlying for some of the mistakes but we think 
the Bureau recognizes those. And my personal opinion is that I 
think they were very candid in the report that they made to the 
Secretary. I think that they fully intend to be within that 
indexed $500 million cost. I certainly hope so.
    Our district represents a relatively small amount of use of 
water from the project, about 5 percent of the water, but we do 
believe that some of the costs are costs that should not be 
borne as reimbursable cost by our organization in paying our 
full and fair share of the water, such as the arrangement under 
638, which we applaud, we admire that effort to assure 
assistance for the tribes to be able to improve their 
capabilities. But that isn't actually a unit construction cost, 
or construction unit cost, I should say, that we believe that 
we should be reimbursing to the Federal Government.
    Let me just say this. For our users of water the 
resolution, the bottom line is pretty straightforward. Is the 
water affordable? Our two principle purchasers of water from 
our district are going to be, we hope, the city of Durango and 
a rural domestic water system for the southwestern third of our 
county. The price of the water is a very significant factor in 
their planning for feasibility. The city will not pay more than 
they would pay if they had to build their own storage 
facilities. So their possibility of expanding the amount that 
they pay is relatively slight. We were in the final stages of 
negotiation with them for this purchase when July 31 occurred. 
The Rural Domestic Water Distribution Company is something that 
is still in the future but they're going to have to get ahead 
of the curve if they're going to be delivering water. As a 
matter of fact, my successor as president of the District is a 
person who has to haul their domestic water for their home. 
There are a lot of people in our area that are in that 
position.

                           PREPARED STATEMENT

    So we do support Resolution. I have been very encouraged 
about the things that I have heard, both from you and from 
Senator Campbell and from Secretary Raley, that by golly, we're 
going to binge down and really put our efforts to this and 
we're going to finish it in a high style. And I support that 
wholeheartedly.
    [The statement follows:]

                  Prepared Statement of Mike Griswold

    Mr. Chairman, I appreciate the opportunity today to speak on behalf 
of the Animas-La Plata Water Conservancy District (the District). The 
District was formed under the Colorado law about 22 years ago to plan 
for and develop the water resources within our boundaries. A primary 
undertaking of the District has been promotion of the Animas-La Plata 
Project. The District also expected to be the agency to collect 
payments from irrigators using Animas-La Plata project water, and then 
to pass those funds on as repayments for construction by the Bureau of 
Reclamation.
    I have been a Director on the District board for 10 years, and its 
president for the past 6 years, until I stepped down in February of 
2004. During that period, a combination of environmental, financial and 
political concerns about the original Project's scope brought home the 
realization that the Project, as originally configured, would not be 
built in the foreseeable future. Then Secretary of the Interior Babbit 
was adamant that the downsized project could not include any irrigation 
features. With reluctance, our District supported building a down-sized 
version of the ALP which will allow for the settlement of the reserved 
water right claims of the two Ute Indian tribes of Colorado and provide 
M&I water for use in our county and in San Juan County, New Mexico. The 
ALP, authorized by Congress in 2000 and now under construction, will 
also allow the Navajo Nation to receive M&I water and have it delivered 
from Farmington, NM to Shiprock, NM by a pipeline to be built as part 
of the Project.
    The Bureau of Reclamation contracted the cost estimation process 
for the down-sized project, and included those costs in the 2000 FSEIS. 
Our District did not participate in either the preparation or the 
presentation to the public of these cost estimates. We did argue, 
however that the ``sunk costs'' associated with the earlier Project's 
irrigation features should not be considered as a cost of the downsized 
Project.
    The non-Indian participants in this Project have been consistent in 
their commitment to pay for their proportionate share of the reasonable 
construction costs for the three remaining Project features which are 
the pumping station, the conduit, and the off-stream reservoir. The 
2000 Amendments provide that non-Indian participants could elect to pay 
their share of the construction costs up front, thereby avoiding being 
charged interest during construction, or they could execute repayment 
contracts. The District arranged to have the full amount of our share 
of the project costs paid out of funds available to the Colorado Water 
Resources and Power Development Authority (the Authority). Our share of 
the Bureau's construction cost was deposited by the Authority in an 
interest earning escrow account from which the Bureau has already made 
withdrawals in direct ratio to the expenditures of Federal 
appropriations for Project construction.
    Construction officially began on November 9, 2001. Our borrowed 
money was at risk from that date onward, under a contract between the 
Bureau and the Authority. For the last 2 years, I personally 
represented our District at construction coordination meetings held by 
the Bureau. I also served on a task force which drafted agreements to 
be in place when construction was completed. During this time I 
attended almost all of the Project meetings. As several contracts were 
let for segments of the construction activity, we became aware that 
some of the price tags for these segments were higher than we expected. 
However, the Bureau did not have its construction activity segmented in 
a fashion that would permit us to easily compare cost segments in the 
FSEIS. I, personally, questioned the Durango Area Office director 
regarding the cultural resources contract the Bureau awarded, and was 
told that, yes, the price was higher than anticipated, but that was 
because it covered additional work, such as compliance with the Native 
American Graves Repatriation Act and other added costs resulting from a 
higher density of archeological sites in the Project area.
    Let me emphasize at this point that the Animas-La Plata Water 
Conservancy District did not employ independent engineering consultants 
to review or oversee the work of the Bureau of Reclamation. We, as many 
sponsors, relied upon the Bureau's expertise in Project construction. 
Let me also emphasize that because we had elected to pay our share of 
the project costs up front, we had placed significant reliance upon our 
contractual agreements with the Bureau which required full consultation 
on Project construction decisions and which limited any further or 
additional payments towards Project construction costs to those which 
were reasonable and unforeseen. Despite the fact that there were 
numerous meetings of the Project Construction Committee during the 
period from November 2001 until July 2003, little, if any, consultation 
took place. At no time were we informed that there was overall concern 
about the construction cost estimates against which we were operating.
    As a result, we were shocked when the July 31, 2003 letter from 
Regional Director, Rick Gold, arrived announcing that the cost estimate 
for completion of the greatly reduced Animas-La Plata Project would 
have to be increased by approximately $162 million. The reasons given 
by the Bureau for the estimated cost increase are a matter of record 
that I will not detail in this statement. I have read the report the 
Bureau prepared for the Secretary on the issue. Our District believes 
that report was candid, and evidenced a detailed effort to investigate 
and explain the reason for the cost increases. Several factors included 
in the report, however, did not accurately state the conditions that we 
believe existed at the time the 1999 estimates were made and used by 
the Bureau.
    I will mention a few instances. The bedrock at the pumping plant 
site was, or should have been, known to a high degree of accuracy, as 
some three dozen test wells had been drilled by the Department of 
Energy (DOE) and monitored by, among others, the Bureau. From these 
test wells the Bureau had the information to accurately assess the 
materials to be excavated but, inexplicably did not use it. The fault 
line which the Bureau states required realignment of the pumping plant 
subsequent to cost estimating was a known feature long before the 
original estimate was approved by the BOR and, in fact, was cited in 
the 2000 FSEIS. DOE's UMTRA (Uranium Mill Tailings Recovery) team had 
stated, at a public meeting it conducted in Durango, that the ground 
water recovery on the 46 acres where the pumping plant is sited was 
progressing naturally, and that it did not need any special remedial 
treatment. Despite that statement the BOR letter suggests that another 
reason the reconfiguration of the pumping plant was dictated, was 
because of ground water recovery needs. These positions seem to be 
inconsistent with the facts and circumstances known at the time the 
project cost estimate was accepted by the Bureau. In addition, the 
decisions to change the pumping plant location, for whatever reason, 
was never the subject of consultation with the Project participants and 
no assessment of the potential for a change in project cost was ever 
performed.
    There were also other design changes made without consultation with 
partners contrary to the payment contracts the Bureau executed with the 
two participating entities. For some changes limited information was 
shared--for instance, for the relocation of County Road 211--but these 
did not, in my estimation, rise to the level of consultation. We were 
told by the Bureau in essence, ``Here is what we are doing or are going 
to do.'' More importantly, no comparison of the cost difference between 
alternatives was ever presented. The same circumstances occurred with 
regard to decisions on how and where to relocate natural gas pipelines 
in the Project Area.
    Please be assured that in the Post-July 31 2003 era, the Bureau has 
devised and employed processes which specifically identify issues and 
changes, and sets forth a process for consultation with Project 
supporters. My opinion is that the increases reported in July 2003 
should be, for the most part, characterized as CORRECTIONS TO THE 
ESTIMATES and not as COST OVERRUNS. Effectively all of the reasons for 
the significant increase in the project cost relate to mistakes made in 
the estimate that were not carefully checked by the Bureau or to 
changes in project design that were made by the Bureau after the 
estimates were prepared without adequately considering the cost 
consequences. Examples to support this statement include the following:
  --there was only a small increase in cost for the reservoir proper, 
        essentially for general inflation and for the cost of 638 
        process. The estimates for the reservoir were generally on 
        target.
  --the one facet of the reservoir construction that did change was in 
        the nature and number of drop structures in Basin Creek between 
        the reservoir and the confluence with the Animas River. The 
        original cost estimates were inadequate because they included 
        too few drop structures.
  --by comparison, the errors in estimating costs for the pumping plant 
        and conduit were horrendous. Some of the omissions were: not 
        including an administration building; absence of pressure 
        reduction and anti-backflow valves for the conduit (I 
        personally asked the Bureau's lead man about this in mid-2002, 
        and was told that they were planned.); insufficient diameter 
        for the conduit to carry the planned capacity of the pumps, as 
        examples.
  --redesign of features after the cost estimate was prepared, such as 
        County Road 211 changed from replacement in kind just outside 
        the high water level to replacement high on the ridge with a 
        road greatly improved in design standards; relocating the 
        pumping plant and placing deep into the bedrock; changing the 
        gas pipelines' relocation route to include boring two 36-inch 
        diameter holes for over one-quarter of a mile, as examples.
  --costs to be expected from implementation of the Indian Self 
        Determination and Education Act (638) contracting process were 
        not included.
  --unspecified Homeland Security features, have also been added.
    I would also like to address the relationship of the 638 Process to 
the Animas-La Plata Project. In 1988 and again in 2000, the Congress 
specifically directed the Bureau of Reclamation to utilize 638 
procedures in constructing the Animas-La Plata Project. The 
congressional direction was unmistakable. The Animas-La Plata Project 
was to be built, to the extent feasible, utilizing resources of the 
Colorado Ute tribes. Even a cursory review of the underlying law makes 
it clear that Congress did intend to provide additional financial 
benefits to the Indian tribes over and above those that might be 
enjoyed by a non-Indian contractor. At no time has Congress suggested 
that these additional costs should be considered part of the 
reimbursable cost of the Project. In fact they are costs the Federal 
Government incurs in order to encourage the improvement of the economic 
condition of American Indian tribes generally. We, as financial 
contributors to and participants in the Animas-La Plata Project want to 
make it perfectly clear that we have no disagreement with this 
congressional decision so long as those costs do not become a part of 
our reimbursable share. We also want to be clear that we are very 
confident in our Indian neighbors' ability to perform the tasks 
necessary to build the Animas-La Plata Project for a reasonable and 
competitive price. There is nothing in the circumstances surrounding 
the construction record that exists today to suggest the tribes have 
benefited inappropriately from the congressional decision nor have they 
taken advantage of the process. In fact, the work that has been done on 
the Project to date has been completed in a highly professional manner 
and we are proud to have the tribes as our partners.
    To the extent that there has been a suggestion by some that the 
application of the 638 Process to this Project has resulted in an 
increase in project costs approaching 30 percent, or that the tribes 
have received a largess approaching 30 percent of the project costs, we 
categorically disagree with any such assertions. It is our strong 
belief that if there are increases in the cost of the Animas-La Plata 
Project due to the 638 interaction, those increases will first have 
been sanctioned by the Congress and second that they will in all 
likelihood not exceed 10 percent. The tribal participation in 
constructing the Animas-La Plata Project is not, and should not be 
cited as, a major reason for the change in project costs. From our 
perspective, the enormous bulk of the change in project cost results 
from inaccurate assessments of the costs prepared for the 1999 EIS and 
subsequent changes in Project facilities which were made by the Bureau 
of Reclamation without consultation with Project supporters and without 
assessing the impact of the changes on ultimate project costs.
    The bottom line for the Animas-La Plata Water Conservancy District 
and the water users which it represents is a straightforward 
proposition. We obtained funding from the Colorado Water Resources and 
Power Development Authority in order to pay upfront for the cost of the 
Project. The price which was paid was within the ability of our 
citizens to repay. Included within the group of our potential customers 
is the City of Durango as well as the District's own plans to construct 
a rural domestic water system in western La Plata County. The cost of 
water from the Animas-La Plata Project is the most critical element in 
providing both of these systems with a water supply. Any significant 
increase in the cost of project water over and above that already 
committed will seriously jeopardize the ability of either entity to 
continue participating. It is absolutely essential that the costs 
associated with constructing the Animas-La Plata Project resulting from 
reliance on the 638 Process and resulting from the Bureau's omissions 
in estimating the cost of the Project and changing project facilities 
without considering the cost implications should not be borne by the 
non-Indian Project participants.
    We must find ways to keep the cost to our District within the 
ability of our customers to pay. I believe Commissioner Keys and the 
Department of the Interior are dedicated today to taking every step 
they can to meet this need. Our region in Colorado needs the long-term 
security that stored water in this project will provide. I am 
optimistic that it can happen. Significant progress can be made by 
assuring that the non-Indian participants pay for their proportion of 
reasonable construction costs but that costs for other purposes be 
appropriately assigned elsewhere.
    We continue to support the completion of the project. We support 
the overall goal of meeting the treaty commitments to the Colorado Ute 
tribes to provide a reliable supply of water for their present and 
future needs, a promise dating from 1868. We support the Bureau in 
continuing a well-reasoned use of the 638 process with the tribes in 
constructing this project. We support fiscally responsible cost 
allocations. We stand ready to support the mutual goals shared by our 
Native American friends, the San Juan Water Commission of New Mexico, 
the State of Colorado, and the Bureau of Reclamation, all in a well 
functioning partnership.
    And we thank this subcommittee for its dedication to these goals.

    Senator Domenici. Thank you very much.

STATEMENT OF L. RANDY KIRKPATRICK, EXECUTIVE DIRECTOR, 
            SAN JUAN WATER COMMISSION
    Mr. Kirkpatrick. Senator Domenici, I want to thank you for 
the opportunity to come before you and I appreciate you 
incorporating my testimony in that effort. I will try to keep 
my comments as short as possible.
    I want to thank you for what I heard from you and Senator 
Campbell regarding the holding down of our costs. The only one 
that we're still concerned, it was brought up earlier this 
morning was the concern about the extended construction time 
and how those costs will be allocated as well. We're very 
concerned that they could push the cost of this project beyond 
our ability to pay.
    Senator Domenici. I agree with you. That is a very serious 
problem.
    Mr. Kirkpatrick. The second part that I would like to 
address this morning before I close is, we have been very 
concerned with the willingness of the Bureau of Reclamation to 
comply with the existing contract between the San Juan Water 
Commission and the Bureau of Reclamation. It is the opinion of 
the Commission that we would have avoided some of these 
problems had they fully consulted and informed us of these 
changes and we would encourage you to urge their coming to 
settlement on that. We see improvement but we have not seen 
full compliance at this point.

                           PREPARED STATEMENT

    And to shorten my thing as slow as I can I would like to 
make one final comment here. Despite the issues we raised in 
our written testimony we still feel it is appropriate that the 
Bureau of Reclamation and Weeminuche Construction Company 
continue construction of this project, and feel that it would 
be very shortsighted to change horses in the middle of the road 
on the construction. They are coming up to standard and doing a 
very good job, an excellent team.
    [The statement follows:]

               Prepared Statement of L. Randy Kirkpatrick

    Thank you for the opportunity to testify in this important hearing 
today. Before I begin, I would like to introduce to you the Chairman of 
the San Juan Water Commission, Mark Duncan.
    Today I want to address two points that are important to the San 
Juan Water Commission and the State of New Mexico. They are: (1) the 
Bureau of Reclamation's management of the Animas-La Plata Project and 
(2) cost reimbursement.
    However, I want you to know that despite the concerns I am raising 
today, the San Juan Water Commission remains committed to the 
completion of the Project. The Project is now under way, and it must be 
completed and put into operation. The Project and the water storage it 
will provide for New Mexico are critical to the future of the northwest 
part of the State. Further, the Bureau of Reclamation remains the best 
agency to complete the project--their construction team is excellent. 
The Bureau is working diligently to manage the construction, and it 
would be foolhardy--not to mention expensive and time-consuming--to 
change the construction team now.

                        INTRODUCTION--BACKGROUND

    The San Juan Water Commission (``SJWC'' or the ``Commission'') is a 
New Mexico joint powers organization, and it is composed of 
representatives of the San Juan Rural Water Users Association, San Juan 
County, and the Cities of Aztec, Bloomfield and Farmington. These 
entities collectively provide Municipal and Industrial water to more 
than 110,000 people, including many people on the Navajo Nation. The 
SJWC was the first entity to contract with the Bureau of Reclamation 
(``BOR'' or ``Bureau'') for storage in the Animas-La Plata Project 
(``the Project''), as required in the authorizing legislation. We at 
the SJWC have paid up front our share of the cost of the Project as 
originally estimated by the BOR, or $6.9 million. We have advanced 
funds pursuant to our contract from an escrow account as requested, 
based on the BOR's invoices.
    The SJWC was shocked and dismayed to learn of the Bureau's extreme 
cost underestimate on July 31, 2003. We attempted to understand the 
basis for our money advances and the cost of the construction contracts 
since construction began, but we frankly had little success obtaining 
the information we requested from the Bureau. Although apparently we 
were asking the right questions at the right time, we did not 
anticipate the magnitude of the Bureau's underestimate.
    It appears that the old construction estimate, which formed the 
basis of our contract and our $6.9 million payment, was incomplete. 
Apparently, the estimate was not a construction-level estimate, but 
rather was based only on an appraisal- or feasibility-level study. 
Further, the Bureau made changes to the Project that added significant 
costs. These two factors--an incomplete estimate and design changes--
significantly contributed to the great disparity between the original 
cost estimate and the new cost estimate. The third significant factor 
contributing to the disparity between the two cost estimates is the use 
of the Indian Self-Determination and Education Assistance Act (Public 
Law 93-638) (the ``638 process''), which the Bureau has interpreted to 
require the use of sole-source contracting for the construction of the 
Project, as well as to require the training and supervision of Indian 
contractors, often at significant expense. Additionally, the Bureau has 
maintained and increased its own non-contract staffing inconsistent 
with the spirit of the 638 process.
    The first information the Project sponsors received concerning 
increased costs was the letter dated July 31, 2003, from Rick Gold, the 
Bureau's regional director in Salt Lake City. This letter was released 
to the media the same day. The July 31 letter shocked the SJWC, and it 
unfairly placed much of the blame for the cost estimate differences on 
the Ute Mountain Ute Tribe (``UMUT''), which is the primary 638 
contractor and whose consultant developed the old cost estimate. 
Although the letter threatened to split the sponsors, we agreed to 
continue to work together and to support continued appropriations for 
the Project.
    In response to this unexpected bombshell, the SJWC prepared a 
report about how and why the mistakes were made in preparing the 
original cost estimate, which is attached. As we acknowledged in our 
report, the BOR must make some significant changes in the way it does 
business in order to regain our confidence and to maintain our support 
for the Project. Much to the credit of John Keys, Bill Rinne and Rick 
Gold, some progress has been made since July 31, but more remains to be 
done. Following are the two areas in which changes must still be made: 
the Bureau's operations and the SJWC's reimbursement obligations.
    The Bureau must continue to change the way it is managing the 
Animas-La Plata Project.--First and foremost, the Bureau must staff the 
Project with people who have the construction experience and project 
management judgment necessary to complete the Project. The Bureau has 
made these modifications for the construction phase of the project, and 
it is a welcome change.
    Second, the Project Construction Coordination Committee meetings 
must comply with contractual obligations. This is a very challenging 
but necessary task, and we appreciate the Bureau's efforts to change 
the structure and content of the meetings. Although the consultation 
function of the committee is difficult, it is necessary because it is 
mandated in Article 4(a) of our contract with the Bureau. Incorporating 
consultation with us into their process has been difficult for Bureau 
officials, and we appreciate the structural changes that have been 
made. However, a full, satisfactory consultation process has not yet 
been put into place.
    Issues regarding the cost of the Project and the SJWC's 
reimbursement obligations must be resolved.--Bureau officials have told 
us about their internal efforts to allocate costs in a way that is 
equitable. However, although we appreciate what the Bureau has told us, 
we need to review the Bureau's final cost allocations in order to 
determine whether they are equitable to the San Juan Water Commission. 
In addition, we believe some of the measures listed below must be 
implemented to ensure that the increased construction costs are fairly 
allocated. It is simply too early to tell whether the Bureau will 
incorporate these measures, but we do not doubt the sincerity of the 
people we have worked with most closely--John Keys, Bill Rinne and Rick 
Gold.
    First, the Bureau must develop a cost-tracking procedure to prevent 
the underestimates and mistakes that have occurred from happening 
again. Such a process is under development, and time will tell whether 
it is successful.
    Second, Bureau staff (and staff costs) must be reviewed and 
reduced. As part of this evaluation, Bureau and tribal staffing must be 
visible to the project sponsors and to the public. In fact, the UMUT's 
contract with the Bureau addresses the need to examine Bureau staffing 
directly, but we understand that this information has not been provided 
to the Tribe. The Master Contract for General Provisions for Self-
Determination Construction Contracts for the ALP, October 22, 2002, 
states:

    ``M. Design and Construction Management Expenditures. In order to 
reduce project costs associated with 638 undertakings, Reclamation 
agrees to implement its design and construction management 
responsibilities in the most economical and efficient manner possible. 
Reclamation will provide to the Contractor [WCA], in writing, its work 
plans, which lay out planned staffing, projected level of effort 
required to carry out these responsibilities, and proposed 
expenditures.''

As of November 2003, counsel for the UMUT had not received any such 
information from the Bureau. At the recent Project Construction 
Coordination meetings, the Bureau has explained some of the inner-
workings of the Bureau and how costs are charged to the Project. The 
Bureau, however, must still link its costs to specific 638 functions. 
We understand that the 638 process is being used here in a novel way, 
and we have a need to know how much it is costing and why.
    Third, the Bureau must continue to review the 638 process. Such 
review is ongoing, and the 638 process appears to be improving in 
efficiency and cost control. The Colorado Ute Indian Water Rights 
Settlement Act of 1988 (Public Law 100-585) requires the use of the 638 
process in the design and construction functions of the Bureau with 
respect to the ALP. However, the legislation does not direct exactly 
how the 638 process will be used. Because this process is still 
developing, it is imperative that all 638 costs be visible and 
reviewable.
    Fourth, all sponsors, including SJWC, must have a role in future 
contracts between the UMUT's construction company and the Bureau. Such 
participation would give us more comfort with the process and enable us 
to tell our taxpayers that the Federal Government and Indian 
contractors are working hard to hold down costs between the Bureau and 
the tribal construction company. We understand that the contract 
negotiations have been hard-hitting and have resulted in lower costs, 
but we need to see this process for ourselves.
    Fifth, the cost of the 638 process, including costs incurred by the 
BOR, should not be reimbursable by the non-Tribal sponsors. The 638 
process represents a Federal policy choice to help Indians gain skills 
and experience on government jobs. That Federal policy choice should 
not be implemented in a way that increases costs to the non-Indian 
cost-share partners in the Project, including the Commission. Such 
costs should be non-reimbursable.
    Finally, the Commission's contract specifically states that the 
SJWC can be assessed additional costs only if those costs are 
``reasonable and unforeseen costs associated with Project construction 
as determined by the Secretary in consultation with the Commission.'' 
Article 8(d). The Bureau's mistakes in the original cost estimates 
should not be considered ``reasonable and unforeseen'' additional costs 
because they resulted from decisions that the Bureau made without 
consultation with the SJWC.
    Moreover, the definition of ``reasonable and unforeseen'' costs 
(still to be determined) should not include costs resulting from design 
changes the Bureau made after the SJWC executed its contract with the 
Bureau. For example, the Bureau made a decision to relocate the pumping 
plant, in part, because of the presence of a fault line and potential 
contamination from an old mining site. The Bureau did not advise the 
SJWC when it was considering this change, or consult with the SJWC or 
other sponsors. The costs associated with this change should not be 
attributable to the joint costs for which the SJWC is responsible 
because the SJWC paid its upfront $6.9 million payment in good faith 
and under a contract that requires consultation on ``final plans for 
Project Works, project completion schedule, and Project construction 
costs.'' [Article 4(a)] In effect, the Bureau has not fulfilled its 
contractual obligations to the SJWC regarding this and many other 
changes, and the SJWC should not be forced to pay for such expenses. 
The Bureau's contract with the State of Colorado for the Animas-La 
Plata Conservancy District has similar language.
    Thank you again for the opportunity to present this testimony 
today, and thank you for your interest in this important issue. Please 
feel free to contact me if you have any additional questions.
                                 ______
                                 
                               Memorandum
TO: San Juan Water Commission
FROM: L. Randy Kirkpatrick and Staff
DATE: November 19, 2003
RE: ALP Cost Increases

    This briefing paper reviews the process that led up to the Bureau 
of Reclamation's (``Bureau'') announcement on July 31, 2003, that it 
had underestimated the cost of construction of the Animas-La Plata 
Project (``ALP'') by more than $163 million. While we attempted to 
grasp the full extent, there may be additional information that changes 
these findings. It also will suggest changes that should be put into 
place to prevent this from occurring again and to make the San Juan 
Water Commission (Commission) whole. The increases in the Navajo/
Shiprock pipeline are not addressed since they are not reimbursable by 
the Commission.
    The information in this paper is based on limited information and 
documents obtained from the Bureau before August 21, 2003, and from a 
meeting with Bureau officials in Durango on August 27, 2003 (outside of 
the review team process), and from independent analysis of Bureau 
documents. This report does not in any way draw on information obtained 
from the Bureau during the preparation of its report to the Secretary.
    The construction cost estimate the Bureau used in the 2004 Budget 
Justification documents was $336.9 million at the January 2003 price 
level--this estimate (the ``old estimate'') was based on a cost 
estimate developed for the Final Supplemental Environmental Impact 
Statement (``FSEIS'') in 1999 and indexed up. The new construction cost 
estimate, at the January 2003 price level, is $500 million (which is 
now estimated by indexing, in October 2004 dollars, at approximately 
$517 million), and it was developed independently, from the ground up, 
by the Bureau beginning in January 2003. One way to understand why the 
cost estimates are so far apart is to trace the development of the old 
estimate from 1999 to the present, and to trace the changes in the 
project since 1999.
    The Commission relied on the Bureau in the design and estimating of 
the project. In the preparation of this report the Commission engaged 
the services of professional consultants to review the Bureau's work 
and develop this report.
    In essence, it appears that the old estimate was incomplete because 
it was generally at an appraisal or feasibility level only, not 
construction-level estimates, and that the Bureau made changes to the 
project that added significant costs. These two factors--an incomplete 
estimate and design changes--significantly contribute to the great 
disparity between the old estimate and the new estimate. The third 
significant factor contributing to the disparity is the use of the 638 
process, which the Bureau has interpreted as requiring the use of sole-
source contracting for the construction of the project, as well as 
requiring the training and supervision of Indian contractors, often at 
great expense. Additionally, the Bureau has maintained and increased 
its own non-contract staffing inconsistent with the spirit of the 638 
process.
A. Development of the Old and New Estimates, and How the Sponsors Were 
        Informed
    The cost estimates in the FSEIS that were used to support the ALP 
and the legislation passed in 2000 were based on 1985 estimates from a 
feasibility study, and then indexed upward for inflation in 1993 and 
1999. They have since been indexed up to 2003.
    The estimates were never more than feasibility level estimates. 
They may have been at the lower appraisal level for some items. The 
estimates included some mistakes in estimating the volume of material 
to be excavated and in some unit prices. The Bureau changes to certain 
features were made without considering the increased costs or 
consulting with all the sponsors. The Bureau supplied most of the 
information used by the Ute Mountain Ute Tribe's (``UMUT'') consultant 
to develop the estimates.
    Construction management in the 1999 estimate was at a level of 12 
percent; more typical of BOR projects is 15 percent, which is where it 
is in the new estimate.
    Normally, on any Bureau project, before construction begins on 
individual features, the Bureau will prepare construction cost 
estimates. That has not been done on this project.
    In early 2003, the Bureau began an independent cost estimate for 
ALP. The Bureau's rule (and OMB's rule) only allows cost indexing for 5 
years before a new estimate is made. This new estimate was from scratch 
and was not an updating of previous costs. It was done with the 
Bureau's Technical Service Center in Denver.
    About June 1, all the costs began to come together and it seemed 
clear that a huge difference was likely.
    When Bureau management became aware of the magnitude (they expected 
a $30 million to $50 million increase), they were embarrassed and set 
out to determine where the differences were. Rick Ehat, the 
Construction Engineer on the project, outlined the differences in the 
``Construction Cost Estimate Variances'' document, dated August 6, 
2003, which is attached for your review. Also attached are two 
spreadsheets that detail the old estimate, entitled ``A-LP Construction 
Cost Estimate, April 2002,'' and the new estimate, entitled ``A-LP 
Construction Cost Estimate, Draft #3K--Updated as of 7/29/03.'' The 
Bureau provided these documents at a meeting with project sponsors on 
August 7, 2003.
    The project sponsors were not advised of the new cost estimate 
prior to its public release.
    The first information the project sponsors received was the July 31 
letter from Rick Gold, regional director in Salt Lake City. This letter 
was released to the media the same day.
    The July 31 letter shocked the project sponsors, and it unfairly 
placed much of the blame for the cost estimate differences on the UMUT, 
which is the primary 638 contractor and whose consultant developed the 
old estimate. It threatened to split the sponsors, but they agreed on 
August 14, 2003 to continue to work together and to support the current 
appropriation for the ALP.
    Also on July 31, Secretary Norton sent a memo to John Keys, through 
Bennett Raley, that she wanted a report by September 2 on the 
procedures that caused the problem and recommendations for 
improvements. Bill Rinne, Deputy Commissioner, is in charge of the 
review and report. Project sponsors have participated in the review 
process by commenting on drafts of the report. Project sponsors agreed 
to a non-disclosure agreement to protect the information generated by 
the review effort until the report is released. As of this writing 
(November 19, 2003), the report has not been released.
    On August 1, 2003, the San Juan Water Commission sent a letter 
(attached) to Rick Gold asking for specific information on the cost 
estimates and confirmation that the July 31 letter did not constitute 
any formal notice that construction costs have increased, which could 
immediately increase the cost to the Commission.
    On August 7, 2003, a small group from the project sponsors met with 
the Bureau. The presentation was nothing like the July 31 letter. The 
group expressed the deep sense of betrayal caused by the letter. The 
letter appeared to be purely a CYA action and put the sponsors, 
especially the Utes, in a terrible position. The group urged the Bureau 
to take responsibility.
    On August 13, 2003, Rick Gold sent a follow-up letter to Harold 
Cuthair (attached) in which he apologized for blaming the UMUT. But the 
letter failed to address what role design changes played in increasing 
the costs. It also did not retract the cost increases laid at the feet 
of the UMUT.
    On August 14, 2003, sponsors met to hear the attendees from the 
August 7, 2003 meeting communicate their understanding issues (which 
forms much of the basis of the report). Additionally, the group 
recognized the need to continue construction activities and 
appropriation efforts, while evaluating the impacts of the estimates 
and the appropriate responses, including the possibility of litigation.
    On August 15, 2003, the Commission sent a follow-up letter to Rick 
Gold (attached) that listed the information received. At that point, 
the Bureau had supplied information in only three of eight categories 
requested.
    On August 20, 2003, the Commission sent a letter to Pat Schumacher 
(attached) confirming that no formal notice has been issued raising the 
cost to the Commission. The Bureau has formally acknowledged this by 
letter August 26, 2003 (attached).
B. Design Changes That Increased the Costs
    The Bureau made several significant design changes after 1999 that 
were not reflected in the old estimate as it was ``updated'' each year 
by indexing. The Bureau did not consult with Commission on the changes.
    The Commission's contract, negotiated in 2001, has a specific 
requirement that the Bureau involve the sponsors in significant 
construction and design decisions:

    ``The Project Construction Coordination Committee will be made up 
of representatives of those entities that have been identified by the 
Settlement Act, as amended, to receive a water allocation and the 
Bureau of Reclamation. This committee will provide coordination and 
consultation on the construction activities among all the project 
beneficiaries, seeking common understanding and consensus on decisions 
associated with such items as final plans for Project Works, project 
construction completion schedule, and Project construction costs.''

Article 4(a) of Contract between the Bureau and the Commission, 
finalized in February 2002. The Bureau's contract with the State of 
Colorado on behalf of the ALP District has similar language.
    The first meeting of the Project Construction Coordination 
Committee (``PCC'') in early 2002 did not review the costs associated 
with changes that had been made up to that point in designs for the 
project. The PCC meetings, which were monthly and open to the public, 
did not raise any issue for consultation or discussion among the 
committee members. Recognizing the shortcomings of these meetings, the 
Commission began trying to monitor the costs of the ALP through 
``contract compliance'' meetings. Even so, the Commission still had 
trouble getting concrete information on aspects of the project.
    Some of the design changes that had the biggest impact involve the 
pumping plant. It was turned 90 degrees so that it is perpendicular to 
the Animas River instead of parallel to it. The Bureau made this change 
to meet environmental requirements related to the uranium tailings pile 
that is on the river bank. However, the Bureau ``sold'' the change as a 
design enhancement and aesthetic improvement. The resulting cost 
increase, however, is staggering--the new plant is about $40 million 
more than the pumping plant described in the old estimate. Part of the 
increased cost results from turning the plant 90 degrees. Also, the 
earlier design missed the elevation of the plant, and it must be put 
lower in the ground (and rock). Also, the new design eliminated some 
office space, and so a new O&M building (costing $2.5 million) must be 
added.
    Another significant design change was the relocation of the natural 
gas pipelines that go through Ridges Basin. In the old estimate, the 
lines were to be relocated around the southern side of the reservoir. 
Then the Bureau, for uncertain reasons, decided to relocate them around 
the north end of the reservoir, which required using horizontal 
drilling, at a much higher cost, and making other costly changes to the 
inlet conduit; e.g., going deeper into rock to build a sleeve to run 
the conduit through.
    The Bureau also upgraded the replacement of County Road 211, 
without any Commission input. The old estimate accounted for moving and 
replacing CR 211 at its existing condition, a marginal gravel road. The 
Bureau upgraded the road and made other changes that increase the cost 
by about $10 million. The Commission asked to participate in the 
process that the Bureau had in negotiating with La Plata County about 
the road, but was not invited.
    Jerry Knight, Ute Mountain Ute cultural resources on August 14, 
2003, said that they knew the estimates were wrong for the cultural 
resources program when they began the work. The BOR changed the design, 
and the budget was inadequate. This occurred in late 2001, but the 
official cost estimates were not changed. Nor were the redesign changes 
a subject brought to the ALP sponsors for consultation.
    The Commission's contract specifically states that it can only be 
assessed additional costs if they are ``reasonable and unforeseen costs 
associated with Project construction as determined by the Secretary in 
consultation with the Commission.'' Article 8(d). The Bureaus' mistakes 
in the cost estimates should not be considered ``reasonable and 
unforeseen.''
C. Use of 638 Process Raises Costs for Construction and Administration
    The Colorado Ute Indian Water Rights Settlement Act of 1988 (Public 
Law 100-585) requires the use of the Indian Self-Determination and 
Education Assistance Act (Public Law 93-638) in the design and 
construction functions of the Bureau with respect to the ALP.
    However, the legislation did not direct exactly how the 638 process 
would be used. The UMUT concedes that its start-up as construction 
manager was not efficient, and that it spent money on gearing up. The 
Bureau, however, has been much less forthcoming in how the 638 process 
affects the Bureau's non-contract costs in the Project.
    The construction engineer convinced the UMUT to hire experts in dam 
construction to help the tribe learn the business. He was concerned 
that the Weeminuche Construction Authority (``WCA'') was not prepared 
to handle the project without these consultants. He said WCA is a road 
contractor, and not a dam contractor, which makes a big difference. 
Those costs apparently have been attributed to the project, but non-
Indian project sponsors were not consulted or even advised before the 
experts were hired. In the case of the Pumping Plant, the Bureau 
determined that the WCA could not perform the design work and declined 
to have the WCA take over that part of the project.
    The Bureau appears to have kept a number of employees on the 
payroll who duplicate the UMUT construction management and WCA work. 
The Commission, even after repeated requests and several meetings, has 
not been able to get the information that would explain duplicative 
work by the Bureau. The Bureau did not address this aspect of 638 
contracting at all in its July 31 letter.
    However, the UMUT's contract with the Bureau addresses the issue 
directly. The Master Contract for General Provisions for Self-
Determination Construction Contracts for the ALP, October 22, 2002, 
states:

    ``M. Design and Construction Management Expenditures. In order to 
reduce project costs associated with 638 undertakings, Reclamation 
agrees to implement its design and construction management 
responsibilities in the most economical and efficient manner possible. 
Reclamation will provide to the Contractor [WCA], in writing, its work 
plans, which lay out planned staffing, projected level of effort 
required to carry out these responsibilities, and proposed 
expenditures.''

Councel for the UMUT says they've never received any of this.
    The 638 contracting process operates much like a sole-source 
contract. As a result, the final contract prices may be significantly 
higher than they would be in the normal competitive bid process.
    The 638 process represents a Federal policy choice to help Indians 
gain skills and experience on government jobs. That policy choice 
should not be implemented in a way that increases costs to the non-
Indian cost-share partners in the ALP. Such cost should be non-
reimbursable.
D. Role of the Culture of the Bureau in This Process
    The Bureau staff in the chain of command that managed the ALP is 
fairly skilled in dealing with the public, the environmentalists and 
the local politics. That staff was woefully unprepared, however, for 
managing the construction of the ALP in partnership with the sponsors.
    The Bureau's culture has changed significantly in the last 20 
years, and so it is understandable, but not excusable, that appraisal 
level estimates would be used after they were included in the FSEIS and 
never reviewed critically again. The emphasis after 1999 was on 
environmental compliance and placating the local opponents. But no one 
in the Bureau looked hard at the cost estimates.
    Construction managers were not brought into estimate the costs in 
the project at the contracting stage in early 2001, when it would have 
been appropriate. Construction mangers were finally brought in to 
Durango in early 2002. The real construction managers are the ones who 
realized the cost estimates had no connection with reality.
    More distressing, the ``new'' Bureau staffers seem intent on 
protecting their positions, instead of coming clean about the mistakes 
made and the failures in personnel. In short, the Commissioners cannot 
trust many of the Bureau staff that they had put their confidence in 
before. It remains to be seen if the Bureau will honestly evaluate 
itself in the report to the Secretary, but that is a very hard task for 
any organization.
    The Commission is concerned that as the ALP moves forward, the 
Bureau must put in charge people who can be trusted. That does not 
include many of the current people in the old chain of command. Their 
culture is the ``new'' Bureau, and the ALP now needs old line, hard-
headed construction experts.
E. Suggestions for Addressing the Problems
    The Bureau must be staffed with people with the construction 
experience and project management judgment necessary to complete the 
project.
    The Bureau must be a real partner with the Commission and other 
sponsors.
    The Project Construction Coordination Committee meetings must 
comply with contractual obligations, such as consulting with the 
sponsors prior to decisions affecting construction.
    The Bureau must develop a cost-tracking procedure to prevent the 
mistakes that have occurred from happening again.
    The Bureau must revisit the 638 process to determine if other tasks 
may be beyond the resources of the Tribes, such as it did with the 
pumping plant. The Bureau must evaluate the duplication of activities 
involved in the 638 process and eliminate them.
    The San Juan Water Commission must have a role in the development 
of agreements between the Bureau and WCA on future contracts.
    Bureau and tribal staffing, and costs for 638 contracts must be 
visible to the project sponsors and to the public.
    Bureau staff must be reduced in the organizational chart.
    The Commission must be charged only with additional costs that are 
``reasonable and unforeseen,'' meaning that it must not be charged with 
the increased costs of mistakes and decisions made by the Bureau 
without consultation with the Commission and the 638 process.
    The Congress should reaffirm its commitment to the Animas-La Plata 
Project and support continuing appropriations that will permit the 
project to be completed consistent with the Colorado Ute Amendments of 
2000.

    Senator Domenici. Well, the thing that bothers me with 
reference to Mr. Griswold and you saying that, you know, they 
have made these great commitments and they sure sound good and 
they are redone the way they have done in the past and now they 
are really on the ball, the thing that bothers me is why we 
should believe that? Why should we believe that when there has 
been a mess up of this proportion in the past?
    Mr. Kirkpatrick. Mr. Chairman with all due respect to the 
Bureau, I am very concerned that they will fulfill what they 
have suggested at this point to solve the problem. But we have 
seen very strong improvements, particularly in the area of 
construction, of how the Bureau is managing this project for 
the period of construction.
    Senator Domenici. How about you, Mr. Griswold?
    Mr. Griswold. There has been considerable change in 
communications and sharing of information, an early warning 
system for changes that would make us aware of them, so I have 
a greatly improved confidence.
    Senator Domenici. Chairman Richards, I want you to know and 
I want Mr. Whiteskunk to know that we understand why this 
agreement was a good thing. And we think you were very prudent 
in saying we are not going to get as a good a deal if we go to 
court and win. Much less, there is a chance you would not get 
everything you take to court. But I do want to tell you that I 
am very concerned about overruns that might be caused by 638. 
And you know, we are here now saying we want the Bureau to do 
better. I think we cannot leave here without saying to you, 
Indian participation, that you have got to do better. You 
cannot be part of overruns. They did not account for all this 
but it is pretty much money and you have got to either be 
better at it or you have got to call to the attention of the 
Bureau what kinds of problems you are having that caused the 
increase.
    Mr. Whiteskunk, I am very sympathetic to how much you have 
to put together with reference to the Federal laws. 
Tremendously complicated and certainly, when you told us the 
scope of participation, you know, it is a wonder that you can 
get anything done. The way you are doing it, I am narrowing it 
down to some leaders, is probably the only way. And we hope 
that when you have finished all those people, the 26 that had 
been on the periphery, will think that what you have done is 
right. And I would be very careful, and I would have good 
lawyers. I would include in your estimates to the Bureau that 
you have got to have good lawyers because when we did this 
there were people who did not want us to do that. You know 
that. And they are tough. And they file lawsuits. And they love 
that. So you have to be in a good position, both of you in your 
tribes, to defend your interests and the interests that you 
have complied with these things like archaeological, which you 
told us about. They are important. In my opinion they could 
still stop this project. So I do not know if you wanted any 
opinion from me but I tend to think it is my job and I am going 
to have to approve this. You do not know it but I wear two 
hats. I do not necessarily like it when it comes to water 
because we always get under funded. But I have to appropriate 
the money in this other committee. So we could sit up here and 
gab but then over here comes the appropriations bill and they 
do not put in enough money to get the job done. Now, I cannot 
do anything about that. That is OMB and by the time it gets to 
me it is all finished. So we are going to have to watch it next 
year and the year after. And you are, too, when you make your 
plea to OMB that they give us enough money. Because if this 
thing falls apart the Federal Government has a pretty big 
obligation and it is going to mess up a lot of water users. 
That is why we made the deal, right?
    Mr. Kirkpatrick. That's correct.
    Senator Domenici. The deal was not made because we wanted 
to be nice. The deal was made because you looked at it, said, 
``If we have to spend time with lawyers and go through all 
these courts we are apt to be here 20 years and we do not know 
what is going to happen.''
    You know, we have a case in New Mexico, you might not have 
heard of it, with the Indians fighting the non-Indians and it 
is called the Amont case. A-M-O-N-T. It is 40 years old. Now, 
you know, you are an old man but 40 years is more than half 
your life. And we have not fixed it. But I am trying. And you 
think that I can continue that in court? If it has not worked 
for 40 why would I think that it would work in 50? So we have 
to negotiate, right?
    Mr. Kirkpatrick. That's correct.
    Senator Domenici. There is no way out. And people that are 
non-Indians do not like Indians who get everything. You know, 
they look at it and say they got too much, we did not get 
anything. So I have to find out how to give them something. 
Right?
    Mr. Kirkpatrick. That's correct.
    Senator Domenici. And the Indians are not going to object, 
they just want to get what they want. Right? That is what you 
are doing.
    Mr. Kirkpatrick. Right.
    Senator Domenici. Now, let me ask my San Juan County 
friend. How much is the current estimate of the overage that 
you would have to pay if we do not fix this, if we do not fix 
the cost?
    Mr. Kirkpatrick. The best number, and I don't have a good 
and somewhat unlike Bennett, probably would increase our cost 
about $3.8 million at this time, versus about $7 million.
    Senator Domenici. What is the baseline on what you are 
adding that to?
    Mr. Kirkpatrick. We would be adding that to approximately 
$7 million.
    Senator Domenici. That is a big increase.
    Mr. Kirkpatrick. Yes, it is.
    Senator Domenici. We have got to get that fixed. And Mr. 
Griswold, you have a big problem, too. How much is yours?
    Mr. Griswold. Our investment right now is about $7.3 
million and we figure it would go up 50 percent.
    Senator Domenici. Okay. So we are not talking about lots of 
money. How many districts are there? Two.
    Mr. Kirkpatrick. Actually there will be three. There will 
be another district in New Mexico that will be forced to pay 
additional funds.
    Senator Domenici. Where is that one?
    Mr. Kirkpatrick. That would be the La Plata Conservancy 
District. Stella Montoya, you know Stella, I know very well.
    Senator Domenici. All right. Well, we want a message to get 
out to them if you will give it to them, that we are trying to 
work out some way that that is included in the cost.
    Mr. Kirkpatrick. We would be glad to do so.

                    ADDITIONAL SUBMITTED STATEMENTS

    [Clerk's Note.--The following statements were submitted for 
inclusion in the record.]

   Prepared Statement of John R. D'Antonio, Jr., State Engineer, New 
                                 Mexico

    Mr. Chairman and members of the subcommittee, thank you for the 
opportunity to submit testimony at this hearing on the Animas-La Plata 
Project. New Mexico has for many years supported an Animas-La Plata 
Project that would provide storage of Animas River flows to meet the 
needs of water users in New Mexico. Also, New Mexico has supported the 
Colorado Ute Indian Water Rights Settlement Act of 1988 as well as 
amendments to the Act enacted by the Congress in 2000.
    It is very important, not only to New Mexico water users but to all 
water users of the San Juan River system, that storage of Animas River 
flows be provided to make the water supply available from the San Juan 
River system usable for development of the water apportioned to the 
States of Colorado and New Mexico by the Upper Colorado River Basin 
Compact. Further, the storage and regulation of Animas River flows in 
concert with the regulation afforded by Navajo Reservoir on the main 
stem of the San Juan River above the mouth of the Animas River will 
enhance the success of the San Juan River Basin Recovery Implementation 
Program to achieve its goals to conserve endangered fish species and to 
proceed with water development in the basin. An example of current 
development of the basin water supply is the proposed Navajo-Gallup 
Municipal Water Supply Project in New Mexico, currently under 
consideration, which is much needed to provide domestic water supplies 
to Navajo Indian communities and to the City of Gallup, New Mexico.
    It is our understanding that construction of the Animas-La Plata 
Project facilities is currently progressing satisfactorily. I urge that 
funding be provided up to the full capability of the Bureau of 
Reclamation in order that the project be completed as soon as is 
reasonably possible. Concern has arisen over the recent release of the 
revised cost estimate for the project which resulted in a cost increase 
estimated to be $160 million.
    The local entities are very concerned that this cost increase will 
affect their timely re-payment of project costs to complete the project 
works. I believe that Reclamation should carefully review the causes of 
the increase looking towards alleviating any increase in the repayment 
of project costs.
                                 ______
                                 
  Prepared Statement of Phil Doe, Chair, Citizens Progressive Alliance

    Thank you for the opportunity to provide testimony on the Animas-La 
Plata project cost overruns. We will supplement these remarks with more 
detailed information in the coming weeks.
    The recent disclosure that the Animas-La Plata Project is already 
$150,000,000 over the original cost estimates is not the real news. The 
real news is that the BOR knew the estimates to be bogus back in 1999 
when they submitted them to Congress. Indeed, these cost estimates were 
commissioned not by the BOR, but, in a callous and calculated misuse of 
the Indian Self-Determination Act, by the Ute tribes,\1\ the project's 
primary contractors and chief beneficiaries.
---------------------------------------------------------------------------
    \1\ The Southern Ute and Ute Mountain Ute tribes are the chief 
beneficiaries of ALP, receiving the lion's share of project water free 
of cost. These two small but very wealthy tribes have a combined 
population of about 3,000 people, counting man, woman and child. And 
despite claims made by some in support of building ALP, these tribes 
are not without water. In fact, they already control about 150,000 acre 
feet of water, most of it developed with Federal assistance. This 
constitutes half the water the entire State of Nevada is entitled to 
under the Colorado River Compact. Approximately 2,000,000 people live 
in Nevada.
---------------------------------------------------------------------------
    Moreover, as internal documents show, these estimates underwent 
little or no governmental review, and were actually devoid of cost 
estimates for whole portions of the project. Some suspect these 
rascally ``accounting errors'' to be deliberate so as to convince the 
Congress and the public that the project really had been downsized, 
both in cost and size. Actually, the public costs of the project are 
much greater than have ever yet been reported, and the project has not 
really been downsized despite the PR to the contrary.
    First the costs: The BOR's policy has been to tailor the truth 
about the project's overall costs by focusing only on the construction 
costs, while totally ignoring all other costs, past and future. We ask 
that there be a true accounting. If done honestly, both the Congress 
and the public will be agog at the outcome. Here are a few of the 
hidden costs that need to be accounted for:
  --The interest on the public debt that the project will burden us 
        with over the 100-year life of the project needs to be 
        calculated and added as a project cost. The interest component 
        alone will add billions of dollars to the true cost of this 
        project. The taxpayers also have to repay all but a sliver of 
        project construction costs. And those costs, too, for reasons 
        outlined below, will reach well into the billions when all is 
        said and done.
  --The construction cost estimates need to include estimated cost 
        increases from inflation. With a modest 3 percent rate of 
        inflation over a 15 to 20 years construction phase present 
        costs estimates might increase by 50 percent from inflation.
  --The estimated costs should be calculated based on a range from high 
        to low. Presently, the BOR prefers to give only a low-range 
        cost estimate. They persist in the fanciful notion that their 
        forecasting is precise and unsusceptible to unknowns and human 
        error. Yet, the last three major BOR construction projects, the 
        Dallas Creek and Dolores Projects, both in Colorado, and the 
        Central Arizona Project have all been at least 300 percent over 
        original cost estimates. Recently, the project construction 
        engineer admitted ALP was one of the most complicated projects 
        ever. Cost sensitivity analysis is a must if we are to have any 
        confidence in BOR cost projections, even those they admit to.
  --Adding to our concern over the final price tag is the fact that, 
        while hundreds of millions in Federal tax dollars have already 
        been spent on this project, ALP construction is only 3 to 4 
        percent completed according to a recent admission by the 
        project construction engineer. Even if the project were to 
        experience annual cost overruns of 10 percent annually, rather 
        than last year's 50 percent jump, we are looking at well over 
        another 100 percent increase in public costs, assuming a 15 to 
        20 years construction period.
  --Over $60,000,000 in planning costs have been shaved off because the 
        BOR has determined they were incurred for the agricultural 
        portion of the project that was supposedly eliminated by the 
        so-called 1999 compromise. These are still part of the 
        project's cost to the public and should be shown as such. 
        Moreover, as we will discuss later, the agricultural portion of 
        this project is still very much alive in the minds of the major 
        backers of the project.
  --The Ute tribes received $60,000,000 in ALP settlement money back in 
        1987. This money also should be added in as a public cost. 
        Indeed, the Utes were awarded another $40,000,000 in the 1999 
        amendments. This money should also be shown as a public cost 
        even though the BOR is asking the BIA to budget for that money 
        so that it does not undercut the money they have to spend on 
        construction and does not show up as a project cost.
  --The BOR's 1999 cost estimates failed to account for the power lines 
        and other infrastructure required to bring federally subsidized 
        power to the project pumping plant at Durango. The BOR is 
        presently asking WAPA to request $10,000,000 in its budget to 
        fund this portion of the project. Once again this is a project 
        cost and should be added in even if it comes disguised in 
        WAPA's budget.
  --In 1996, we asked the Department of Interior to calculate the value 
        of lost hydropower and increased salinity from project water 
        diversions. Their estimate was a public cost of $18,000,000 
        annually. Clearly, over the 100-year life of the project those 
        public costs will reach into the billions of dollars. Moreover, 
        the huge power requirements for project pumping will be robbed 
        from present CRSP users. It is not unlikely, therefore, that 
        another coal-fired power plant will be required in the four-
        corners area to replace the power needed for project pumping 
        and that lost because of project diversions. These costs, too, 
        have not been estimated or acknowledged for what they are, 
        project induced costs to the public.
    There are many other costs which remain hidden or half buried, but 
even the foregoing give ample proof that this project is a bank buster. 
So, when we add into this putrid mix the fact that there are no known 
uses for most project water, the burdensome imbecility of this project 
becomes even more pronounced. In fact, we have been in court for almost 
2 years trying to find out the intended uses of project water, for 
``beneficial use'' is a requirement before a water right can be granted 
under Colorado law. Project proponents have refused to provide any 
information on use. As a result, the American taxpayer is advancing 
truck loads of scarce public dollars for a project that doesn't even 
have a secured water right with which to fill the reservoir.
    On top of that, the BOR rushed into the few repayment contracts it 
has for small amounts of project water knowing that the cost estimates 
they were basing these contracts on were wrong. They even threatened 
project backers that if they didn't sign up for water immediately they 
would have to pay more when the real costs became known. These 
contractors are now refusing to pay more no matter what the final costs 
of the project may be. This threat defies Federal reclamation law 
requiring full repayment of the costs of M&I water, plus interest. It 
also helps explain why BOR is attempting to have other agencies such as 
WAPA fund some of the construction outlays.
    We mentioned earlier that the agricultural portion of the project 
is still alive and well. We know this from recent court briefs in which 
one of the project's chief backers, the Southwest Water Conservation 
District, is fighting our efforts to have them abandon the agricultural 
water rights for the Animas-La Plata Project. Despite the 1999 
legislation which supposedly eliminated agricultural water from the 
project, they've declared they intend to use this water for irrigation. 
Perhaps that explains why project pumps were greatly increased in size 
in the final design. Now multiple filling of the project reservoir can 
be easily accomplished so that project backers can have their cake and 
eat it too. It is Candide!
    In summation we make two requests. We ask Congress to suspend 
funding for this project until an independent GAO audit exposes the 
real public costs and Congress has an opportunity to evaluate those 
costs against the purported benefits. We also ask that, if this audit 
discloses criminal intent to defraud the American taxpayer, as we think 
it will, Congress join us in asking for a Federal grand jury 
investigation and prosecution of those responsible.
    Finally we note with great approval present efforts to adopt a pay-
as-you-go budgetary process in the Senate. This is not only necessary 
and wise public policy, in our opinion, but one of its minor 
consequences must surely be the red lining of that mountain of lies 
known as the Animas-La Plata Project.
    Thank you for the opportunity to testify.
                                 ______
                                 
Prepared Statement of Russell George, Executive Director, Department of 
                  Natural Resources, State of Colorado

                              INTRODUCTION

    The State of Colorado appreciates this opportunity to provide 
testimony before the Senate Subcommittee on Energy and Water 
Development concerning the Animas-La Plata Project (ALP). Construction 
of the Animas-La Plata Project is extremely important to the State of 
Colorado as it is the final piece required to bring closure to the 
resolution of the Tribal reserved water rights claims under the 1986 
Colorado Ute Indian Water Rights Final Settlement Agreement, in 
particular those portions of the Settlement concerning the Animas and 
La Plata Rivers.
    Despite the considerable controversy that has been generated by the 
Animas-La Plata Project, there exists an extraordinary partnership 
between the States of Colorado and New Mexico, and the Indian and non-
Indian communities in southwestern Colorado and northwestern New 
Mexico. Together, we have successfully quantified the reserved water 
right claims of the Southern Ute and Ute Mountain Ute Tribes in 
Colorado, and implemented most of the Settlement Agreement, in a unique 
way that serves as a national model. More than that, however, is a 
genuine sense of pride that exists between the Indian and non-Indian 
communities in the area, over shared use and development of water and 
mineral resources, economic opportunity, and preserving the quality of 
life and environmental heritage of the area.
    Through the 1986 Settlement Agreement, we have avoided protracted, 
expensive and divisive litigation. We have preserved non-Indian 
economies and provided for stable development of Tribal economies. We 
have avoided the social disruption resulting from the enforcement of 
Tribal reserved right claims. We have integrated the administration of 
Indian and non-Indian water rights into the State water rights system.
    Completion of the Animas-La Plata Project is critical to preserving 
the benefits of the 1986 Settlement Agreement with the Ute Tribes and 
the stability that it brings to the citizens of the San Juan River 
Basin.
    Accomplishing these results has required vision, extraordinary 
leadership, respect for the needs of all sides, a willingness to listen 
to and explore new solutions, and a commitment to stay at the table 
until a solution is reached. To fully understand the importance of the 
Animas-La Plata project in this process, it helps to review the history 
of the Reservations, the Animas-La Plata Project and the 1986 
Settlement Agreement.

                           HISTORICAL CONTEXT

    The original Ute Reservation was established by treaty in 1868, 
prior to the arrival of non-Indian settlers to the area. The arrival of 
non-Indians resulted in conflicts, and reconfiguration of the 
Reservation lands. In 1895, Indians living on the Reservation were 
given the option of settling on 160 acre allotments, or moving to the 
western portion of the Reservation. Non-Indians were able to acquire 
some of these allotments as well. In 1934 this homesteading process was 
closed. The result was the present configuration of checkerboard Indian 
and non-Indian lands on the Southern Ute Reservation and the contiguous 
block nature of the Ute Mountain Ute Reservation. These lands are 
downstream from non-Indian development in Colorado. Almost every river 
in southwestern Colorado passes through one or both of the 
Reservations.
    The rights of Indian Tribes to reserved water is based on the date 
of the reservation. In the late 1800's, non-Indian irrigation was 
beginning upstream from the Reservation, on the Pine River. The 
Southern Ute Tribe filed claims for irrigation purposes in 1895, and 
water litigation ensued which lasted until 1930, when a Federal court 
awarded the Indian claimants the No. 1 water right on the Pine River. 
This created a severe water shortage for the non-Indian irrigators, and 
resulted in the construction of Vallecito Dam in 1941, to serve both 
Indian and non-Indian lands.
    In contrast, the Mancos Project was developed on the Mancos River 
by 1950. Although the Mancos River is the primary river through the Ute 
Mountain Ute Reservation, the Tribe did not receive the benefit of 
water service from the Project. In fact, the town of Towaoc, which is 
on the Ute Mountain Ute Reservation, did not even have a potable water 
supply until 1990, as part of the implementation of terms under the 
1986 Settlement Agreement.
    Colorado is a semi-arid State and the precipitation it receives, 
16.5 inches on average, varies significantly from year to year. 
Droughts occur frequently and can last several years. Therefore, the 
ability to capture and store water during times of plenty is critical 
to providing a stable economy. In 1956, Congress enacted the Colorado 
River Storage Project Act (CRSP), which provided for comprehensive 
water development throughout the Upper Colorado River Basin. This Act 
authorized the construction of the initial CRSP units--Curecanti, 
Flaming Gorge, Navajo and Glen Canyon; a number of participating 
projects, including the Florida Project; and the preparation of 
planning reports--including the Animas-La Plata and Dolores Projects. 
The Florida Project was completed to serve lands on Florida Mesa in 
1963, which included some Indian lands but which did not completely 
meet Indian needs.
    The CRSP Act also established a mechanism for assisting in the 
funding of construction of these and other projects, through the 
creation of the Upper Colorado River Basin Fund (the ``Basin Fund''). 
In short, hydroelectric power revenues generated from the CRSP Units 
are credited to the Fund to pay for certain construction, operation and 
maintenance costs of the initial CRSP units. The balance of any 
revenues are credited to each of the upper basin States to pay for that 
portion of the construction costs of participating projects allocated 
to irrigation, that are beyond the ability of irrigators to repay. 
Additionally, participating projects can take advantage of favorable 
rates for CRSP power.
    In 1968, Congress enacted the Colorado River Basin Project Act 
(CRBP). Among other things, the CRBP Act authorized the construction of 
the Animas-La Plata and Dolores Projects, concurrent with the 
completion of the Central Arizona Project. The authorization for the 
Animas-La Plata project was for a configuration substantially different 
than the presently proposed configuration. However, the Project was 
always contemplated to serve both Indian and non-Indian needs.
    Thus, as of the late 1960's, there was some resolution of Tribal 
claims, and a good deal of water development undertaken and 
contemplated in the San Juan River Basin. Some but not all of this 
development benefited the Tribes. However, quantification of Tribal 
claims, and their impact on non-Indians, were certainly open questions. 
The United States Supreme Court established a test for the amount of 
such claims, based on practicably irrigable acreage, which includes 
both present and future irrigation needs.
    Quantification of the Tribal claims in Colorado commenced in 1972, 
when the United States Department of Justice filed reserved rights 
claims on behalf of the two Ute Tribes in Federal district court. The 
State of Colorado and other parties intervened, and moved to dismiss on 
the grounds that under the McCarren Amendment jurisdiction belonged in 
State water court. The United States Supreme Court ruled that State 
court was the most appropriate forum in which to achieve integrated 
adjudication of reserved rights claims. Immediately thereafter, the 
United States filed extensive claims in State water court.
    The Tribal claims encompassed the potential irrigation of some 
93,000 acres, in over 25 stream systems tributary to the San Juan 
River. Most of these lands were in the La Plata and Mancos River 
Basins, which are water-short and over-appropriated. Success by the 
Tribes would totally eliminate existing non-Indian irrigation, disrupt 
local economies and create regional hostility.
        the 1986 settlement agreement and subsequent legislation
    In April 1985, many parties, public and private, convened 
negotiations to address the issues raised by the Tribe's reserved 
rights claims. The State of Colorado's negotiating position was based 
on several principles:
  --vested property rights held by owners of State decreed water rights 
        would not be compromised;
  --existing economies should be protected;
  --existing uses should be protected by a ``no injury'' standard;
  --reserved rights claims should be quantified by State water court, 
        not by Congress or in Federal courts; and
  --the Tribes legitimate needs, such as the lack of a potable water 
        supply for Towaoc, should be met.
    After intense and complex negotiations, an agreement in principle 
was reached that included a binding cost-sharing agreement for 
construction of the Animas-La Plata Project. This Agreement was titled 
the ``Agreement in Principle Concerning the Colorado Ute Indian Water 
Rights Settlement and Binding Agreement for Animas-La Plata Project 
Cost Sharing.'' By signing the Agreement in Principle, the Secretary of 
Interior certified that the non-Federal cost share contributions were 
reasonable, allowing for the Federal release of the first $1 million 
for construction of ALP. In addition to the cost sharing elements of 
the Agreement, the parties to the State water court litigation agreed 
to a set of principles that established the parameters for settlement 
of the reserved right claims.
    After 6 months of intense negotiations, the Colorado Ute Indian 
Water Rights Final Settlement Agreement was signed on December 10, 
1986. The Settlement Agreement contains six major elements: (1) In each 
of the drainage basins, the reserved rights of the Tribes were 
quantified; (2) The Tribes waived ancillary breach of trust claims 
against the United States; (3) The Tribes agreed to specific conditions 
concerning the administration and use of reserved water rights, so as 
to integrate such administration into administration of non-Indian 
water rights. These conditions included beneficial use as a limiting 
condition, monitoring of water usage, sharing of streamflow data, and 
judicial change in use proceedings in Colorado State water court when 
required. The State court was given jurisdiction over all water on the 
Reservations not decreed to the tribes as reserved water rights, 
including both unappropriated water and State appropriative rights. The 
parties agreed to the entry of consent decrees in State water court; 
(4) The Tribes received commitments to obtain $60.5 million in Tribal 
Development Funds, to enable the development of water and assist in 
economic self sufficiency; (5) The non-Federal parties agreed to 
significant cost sharing of the Animas-La Plata Project and Tribal 
Development Funds. The parties agreed to seek Congressional deferral of 
Tribal repayment of certain project costs until the water from the 
projects was actually put to beneficial use; (6) The parties agreed to 
seek Congressional relief from the Non-Intercourse Act limitations on 
Congressional oversight over the use of reserved water rights. The 
Tribes were allowed to sell, exchange or lease water outside the 
Reservations, within or outside the State of Colorado, subject to State 
and Federal law, interstate compacts and the law of the Colorado River.
    The Settlement Agreement specified certain contingencies that had 
to be met before the settlement became final. The parties agreed to 
submit consent decrees to the Division 7 water court for judicial 
approval. A stipulation setting forth this commitment was filed, but 
was subject to legislative enactments by the United States Congress and 
Colorado legislature prior to becoming final.
    Federal legislation was introduced, and was enacted in 1988. The 
Act approved the settlement and contained all the provisions 
contemplated by the parties, except for those relating to the 
interstate marketing of water. The legislation as introduced reflected 
the neutral nature of the Settlement Agreement concerning the legality 
of interstate marketing of reserved water rights under the Law of the 
River. However, Lower Colorado River Basin States adamantly opposed the 
provision, and demanded that the Tribes be prohibited from applying for 
any out of State changes in place of use. Other western States objected 
to the potential alienation of any Federal reserved water right from 
the Federal reservation. The final Act therefore limited use of Tribal 
rights in the Colorado River Basin until a final court order or 
agreement of all seven Colorado River Basin States has previously 
allowed such right for non-Federal, non-Indian water rights. Moreover, 
the Act provides that any use of water off Reservation will result in 
the right being changed to a State of Colorado water right for the term 
of such use.
    The Colorado General Assembly also enacted the legislation 
contemplated by the Settlement Agreement. This legislation appropriated 
$5 million to the Tribal Development Funds, so much as needed for the 
Towaoc Pipeline, and $5.6 million for the Ridges Basin cost sharing.
    In December 1991, the Water Court approved the consent decrees that 
had been submitted to it based on the stipulations entered pursuant to 
the Settlement Agreement, and following the enactment of necessary 
Federal and State legislation.

             COLORADO UTE SETTLEMENT ACT AMENDMENTS OF 2000

    The debate over construction of the Animas-La Plata Project with 
environmental opponents did not stop despite the 1988 Agreement and the 
entry of the water court decrees. A separate process, was undertaken to 
try to bring final closure to the Tribal claims on the Animas and La 
Plata Rivers. The culmination of that process was the Amendments of 
2000 to the 1988 Settlement Agreement which in short reduced the size 
of Ridges Basin Reservoir by approximately one-half and restricted the 
project to municipal, industrial and recreational purposes, eliminating 
the irrigation component of the project. The amendments also reduced 
the water allocations to various project beneficiaries and created 
``resource funds'' for the Southern Utes and Ute Mountain Utes.

                               CONCLUSION

    In summary, all of the conditions of the Settlement have been 
satisfied, except for the construction of the Animas-La Plata Project, 
and the Agreement remains in full effect. Therefore, completion of the 
Animas-La Plata Project is of the upmost importance to Colorado if it 
is to avoid litigation with the Ute Tribes over their reserved water 
rights claims on the Animas and La Plata Rivers. After the 
extraordinary efforts by all the parties involved in these settlement 
discussions since 1972, the only responsible action is to complete 
implementation of the Settlement Agreement by constructing the Animas-
La Plata Project.

  THE INDIAN SELF-DETERMINATION AND EDUCATION ASSISTANCE ACT (ISDEAA)
                           PUBLIC LAW 93-638

    The ISDEAA is designed to provide meaningful involvement by Tribes 
in the administration, planning and conduct of Indian programs. The Act 
requires the Federal Government to contract with Indian Tribes for 
programs, functions, services and activities that are designed to 
benefit Indians. The design and construction of ALP has been made 
subject to the ISDEAA through the Colorado Ute Indian Water Rights 
Settlement Act of 1988 and we are fully in support of that settlement 
provision.
    With respect to the ISDEAA or the 638 process, the State of 
Colorado has no experience other than through the Animas-La Plata 
Project. We understand that a Tribe under ISDEAA is entitled to 
negotiate reasonable costs for performing the contract, the costs for 
preparing the proposal, reasonable general administration costs, a 
reasonable profit, and auditing expenses. The negotiating process 
provides the tribes access to project cost estimates, in this case 
those of the U.S. Bureau of Reclamation, in advance of the 
negotiations. This process may not result in a project cost as low as 
what would likely occur through a competitive bid process. Furthermore, 
it appears difficult to identify what the increased cost of working 
through ISDEAA would be. Based on information from the Bureau of 
Reclamation for the Stage 1 work on the Ridges Basin Inlet Conduit and 
Ridges Basin Dam Outlet Works Excavation, both of which are now 
complete, the final contract values have exceeded the original contract 
values. Some of this may actually be a savings due to the inclusion of 
work that was scheduled for a future phase, but breaking that out 
requires day-by-day monitoring of the project.
    Our main concern is that the ISDEAA or 638 costs, which are non-
reimburseable by law, be carefully monitored and not passed on to those 
that have or potentially could have repayment contracts. Given the cost 
increases to the Animas-La Plata Project, we desire assurances that the 
ISDEA or 638 costs do not make the cost of project unaffordable to the 
end users.
    We appreciate the opportunity to comment before the committee today 
on the importance of the Animas-La Plata Project to Colorado and to the 
completion of the Ute Water Settlement Agreement.

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following questions were not asked at the hearing, but 
were submitted to the witnesses for response subsequent to the 
hearing:]
                  Questions Submitted to Mike Griswold
            Questions Submitted by Senator Pete V. Domenici

                LEVEL OF INVOLVEMENT BY PAYING PARTNERS

    Question. Could you please describe your level of involvement in 
the construction of the project prior to last fall when the report came 
out, and contrast that with your level of involvement now?
    Answer. As described in my testimony before the committee, there 
was ongoing and regular personal involvement between myself and other 
members of the Board of Directors of the Animas-La Plata Water 
Conservancy District and our counsel with the Durango field office of 
the Bureau of Reclamation concerning the construction of the Animas-La 
Plata Project. We attended every project operations committee meeting 
and project coordinating committee meeting. In addition, we attended 
numerous other meetings, both formal and informal with Bureau of 
Reclamation staff to discuss a wide variety of issues related to the 
Animas-La Plata Project. These meetings began before 1999 and continued 
through the issuance of the letter to the Ute Mountain Ute Tribe on 
July 31, 2003. During these meetings, the Bureau of Reclamation 
regularly informed us of their intentions but rarely asked us for input 
whether the topics related to 638 issues, wetland mitigation issues or 
project construction issues.
    If there was one single point of dissatisfaction, which we 
experienced during this extended process, it was the lack of a 
``dialogue'' between the Bureau of Reclamation staff and the project 
supporters. Instead of a process of consultation, we were engaged in a 
process wherein the Bureau of Reclamation reported on their decisions 
and/or intentions.
    From the issuance of the final supplemental and environmental 
impact statement containing the project cost estimates until the July 
2003 letter, there was never any discussion of the cost consequences of 
the decisions that were being made, despite requests that those 
discussions occur. In addition, there were never any budgets prepared 
showing the costs of various alternative solutions to design decisions 
being made by the Bureau of Reclamation.
    In contrast, since the outcry arising from the July 31, 2003 letter 
to Ute Mountain Ute Tribe, the Bureau officials have been 
extraordinarily responsive. They have provided, through a series of 
ongoing meetings, careful and complete analysis of the original 1999 
cost estimate, the 2003 reformulation of a cost estimate and the 
differences. The most important difference to note is not that there 
has been a significant increase in the amount of time spent, but rather 
the change in the level of detail provided and the opportunity to 
discuss decisions at a preliminary level.
    The time spent in meetings with Bureau officials has not changed 
appreciably. The level of interaction with Bureau officials, and in 
particular the opportunity to interact with the responsible 
construction official, Mr. Rich Ehat, has increased significantly. 
Clearly we will continue to have reasons to question proposals made by 
the Bureau, and we may not always agree with their decisions, but the 
opportunity to raise those questions and express those disagreements is 
clearly now a matter of importance to the Bureau of Reclamation at all 
levels. It is a welcome change from the perspective of those who will 
be responsible for paying their reasonable pro rata share of the cost 
of this project.
    Question. What improvements would you like to see made?
    Answer. As described in the preceding response, the Bureau has 
become very responsive to the project supporters', and upfront 
repayment participants', concerns. The Bureau of Reclamation has made 
the changes that procedure should have been in place from the 
beginning. Despite the embarrassment of responding to the criticism 
resulting from the range in project cost, we must respectfully respond 
that it is ``better late than never'' and we heartened by our current 
relationship with the Bureau of Reclamation. There procedures appear to 
be adequate to permit the input from project sponsors and participants 
and they are endeavoring to provide whatever information we request or 
require.

                        REQUIRED OUT YEAR FUNDS

    Question. Do you feel you have adequate information from the Bureau 
to insure that you will be able to meet your financial obligations? In 
other words, do you feel project accounting is such that you have a 
good handle on where you stand, and where you will end up financially 
when the project is completed?
    Answer. The answer to this question is both yes and no. Before 
describing the reason for such an ambivalent answer, it is necessary to 
understand the position of the Colorado project sponsors. The non-
Indian sponsors of the Animas-La Plata Project made enormous sacrifices 
in agreeing to the downsized Animas-La Plata Project proposed by former 
Secretary Babbitt. The significant part of the benefit from the Project 
to these individuals and organizations was foregone and the remaining 
demands for M&I water must compete with alternatives on a leased cost 
basis. Relying upon the Bureau's acceptance of the 1999 cost estimates, 
the Colorado Water Resources and Power Development Authority paid up 
front the pro rata share of the project cost based upon a marketing 
agreement with the Animas-La Plata Water Conservancy District. That 
marketing agreement contemplated that the City of Durango would acquire 
approximately 1,900 acre-feet of project consumption and that the 
Animas-La Plata Water Conservancy District would acquire the remaining 
700 acre-feet. Naturally, if the entire 40 percent increase in project 
costs were determined to be fully reimbursable, the cost of those water 
supplies so far outweighs other alternatives as to place the project 
outside of the financial reach of the non-Indians.
    The Bureau has been exceedingly forthright in discussing the issue 
of project costs and the allocation of those costs between the 
reimbursable and non-reimbursable categories. To the extent that this 
question requires whether or not the Bureau is providing as much 
information in as much detail as is reasonably available under the 
present circumstances, the answer must be ``yes.'' To the extent that 
the questions seek the project sponsors' confirmation that the Bureau 
has provided enough hard data to permit the project sponsors to 
conclude that they will be able to repay their share of project costs 
when the project is completed, the answer is ``no.'' The inherent 
uncertainty in projecting the final cost of the project creates this 
dichotomy.
    In order for the Colorado project participants to have confidence 
that they can meet their financial obligations end up in a position 
where they can pay for their pro rata share of their project 
obligations it is necessary to identify and set in stone a maximum 
financial cost, which they will have to bear. That cost should be based 
upon the best current available information and reflect all of the 
costs of the project that are fairly attributable to the provision of 
municipal and industrial water to non-Indian participants. That 
allocation of cost must recognize the Indian water rights settlement 
purposes which currently support the development of this project and 
which must recognize the fact that the cost of water from the Animas-La 
Plata Project must be competitive with other reasonable alternatives 
for project water supply.
    Finally, it is important that the cost of water from the Animas-La 
Plata Project to non-Indian participants be uniform on a per-acre foot 
of water delivered basis. As the committee considers the consequences 
of the change in cost of the Animas-La Plata Project, it must also 
consider the fact that the non-Indian water supplies from the Project 
ought to be equal among all of the non-Indian participants on an acre-
foot for acre-foot delivered basis.
                                 ______
                                 
              Questions Submitted to L. Randy Kirkpatrick
            Questions Submitted by Senator Pete V. Domenici

                        BOR CONTRACT OBLIGATIONS

    Question. Mr. Kirkpatrick, you have touched on your desire for the 
Bureau to live up to their contract obligations with the San Juan Water 
Commission. Would you briefly outline for us those areas in which you 
feel they did not meet these obligations?
    Answer. Contract Obligations.--The following outlines the Bureau's 
obligations to the San Juan Water Commission under the Contract, which 
was agreed upon in late 2001 and signed in 2002, and the areas in which 
the Bureau did not meet its obligations.
    (A) Failure to consult with the Commission.--(1) Consultation is 
required in several contract provisions:
  --(a) The definition of consultation is: ``Consultation means the 
        United States shall notify and confer with the Commission 
        regarding significant decisions pertaining to this contract. In 
        the event that consensus cannot be reached and the United 
        States makes a decision, appeals are available to the extent 
        allowed under applicable laws. Article 1(j), page 4.
  --(b) Under ``Project Works'' in Article 2, the Contract requires 
        consultation at two places, the introductory paragraph and in 
        Article 2(a)(4).
  --(c) Article 4, ``Project Coordination Committees,'' describes the 
        establishment of two committees to provide consultation on 
        project construction issues and, later, on project operation 
        issues.
      Article 4(a): ``The Project Construction Coordination Committee 
        will be made up of representatives of those entities that have 
        been identified by the Settlement Act, as amended, to receive a 
        water allocation and the Bureau of Reclamation. This committee 
        will provide coordination and consultation on the construction 
        activities among all the Project beneficiaries, seeking common 
        understanding and consensus on decisions associated with such 
        items as final plans for Project Works, Project construction 
        completion schedule, and Project construction costs. Upon 
        Project completion, this committee will be dissolved.'' 
        (emphasis added)
    (2) The BOR failed to meet its obligations to consult.
    The BOR notified us of the organization of the required ``Project 
Construction Committee'' (PCC) on April 20, 2001, and reported May 22, 
2001, on the formation of the PCC. Subsequent to these early meetings, 
we notified the BOR that the PCC as they organized it was not meeting 
the requirements of our contract. Then, the BOR established a ``Contact 
Compliance'' meeting with us in an attempt to meet the intent of our 
contract. We tried to use the Contract Compliance meetings to obtain 
essential information, but with little success. We asked the questions 
and engaged consultants familiar with the BOR, but we were not provided 
useable information. We had realized early on that the costs being 
reported to us were inconsistent with the interim cost estimate in the 
2000 FSEIS. Also evident in the PCC meetings were the lack of common 
understanding and any engagement of the sponsors to reach a consensus 
about decisions the BOR was facing. At the meetings, the BOR was simply 
informing us of some of the decisions it had made, without consultation 
with us.
    (B) Non-contract cost overruns.--The BOR has failed to maintain 
non-contract costs at or below 30 percent, as it said it would try to 
do in Article 8(i). Also, we had not been afforded an annual report 
specifying the dollar amount of the non-contract and all other 
construction cost in a timely manner.
    (C) The BOR fails to support cost allocation for operations as 
specified in the Contract.--The BOR has not supported the use of 
facilities procedure as the methodology to use to allocate the costs of 
operations, as clearly called for in our contract. Article 11(a). This 
dispute has been central to the delay in developing the Project 
Operations Committee so that it may function to develop and operations 
plan.
    (D) The Bureau has not assured the Commission that it can deliver 
the full Statutory Water Allocation under all scenarios.--Our Contract 
states:

    ``Sufficient water will be delivered from Project storage or 
bypassed to ensure that the Commission annually receives its Statutory 
Water Allocation to be available for diversion at all approved points 
of diversion on the San Juan River.'' Article 5(a).

    Based upon information and discussion prior to our execution of our 
Contract, we were assured that 3,025 acre feet of storage would be 
sufficient to assure our water supply, and that in fact that this was a 
conservative position. Again, subsequent review resulted in a discovery 
that, in fact, the adequacy of this amount of storage depended on a 
model of operations that was not consistent with the ROD, and laws 
governing the water. In particular, the model assumed that the 
Commission and Navajo Nation would have first call on water in the 
river, and that the Ute Tribes and the State of Colorado would take all 
of their water from the Reservoir.
    Consequently, if the two Ute Tribes, La Plata Conservancy District 
(NM), and the State of Colorado chose to obtain their Statutory Water 
Allocation from direct flows in the Animas, as allowed in the ROD, our 
storage would be inadequate almost directly proportional to the amount 
used from the River. The BOR cannot assure us now that we will be able 
to receive our full Statutory Water Allocation if the tribes or others 
choose to use the Animas River to deliver water instead of the 
reservoir.
    (E) Poor forecasting of money required results in advances that are 
too big.--Our Contract requires that we advance only the actual money 
spent on construction in a given quarter, but the Bureau has never 
provided an estimate that even closely approximated the actual 
construction amount. Each Bureau request has exceeded the actual 
construction expenditures by as much as $400,000 per quarter. The 
Bureau's overestimates are costing us significant interest income, 
which we depend upon to cover inflation and other associated cost 
increases.
    Question. In your opinion, has the Bureau done anything to rectify 
this problem?
    Answer. Effort to rectify problems.--In our opinion, the Bureau has 
made an effort to rectify the problems, but the Bureau has not reached 
the level of consultation for decision-making that we understand is 
required in our Contract. We are provided information in a more timely 
manner, but at this late stage of design and active construction, most 
discretionary actions have occurred with little chance of modification. 
Further, the Bureau recently informed us that it has determined that 
all actions it has taken are necessary and reasonable, by their 
definition, which we had no say in developing. The PCC process is more 
open, with significantly improved reporting. We are definitely 
progressing, but we are short of success.

                LEVEL OF INVOLVEMENT BY PAYING PARTNERS

    Question. Mr. Kirkpatrick, could you please describe your level of 
involvement in the construction of the project prior to last fall when 
the report came out, and contrast that with your level of involvement 
now?
    Answer. Our level of involvement prior to July 31, 2003 was 
significant, but it was met with resistance by BOR staff in the Durango 
Office and the Western Colorado Area Office. They were courteous and 
seemed to meet with us on each request, but they seemed intent on 
saying that understanding the system of the BOR was our responsibility, 
it was not their responsibility to modify their reporting to make it 
track with the estimates we had. We engaged the services of a former 
Deputy Commissioner in an effort to understand the Bureau's reports, 
and he had difficulty tracking construction and cost as we received the 
information. It was easily consuming more than 50 percent of my time.
    Question. What improvements would you like to see made?
    Answer. Currently, it is a pleasure to say the current construction 
engineer has diligently sought to improve communications, and provide 
updates on ongoing activities. The problem we now face is catch-up on 
agreements made that we were not informed of, much less adequately 
consulted with, prior to July 31, 2003. On a regular basis we visit the 
site, and we are briefed on the progress, including identified 
challenges. The only shortcoming is a shortage of realistic 
alternatives. It is now consuming about 70 percent of my time.

                        REQUIRED OUT YEAR FUNDS

    Question. Mr. Kirkpatrick, do you feel you have adequate 
information from the Bureau to ensure that you will be able to meet 
your financial obligations? In other words, do you feel project 
accounting is such that you have a good handle on where you stand, and 
where you will end up financially when the project is complete?
    Answer. We are continually seeking, through a series of 
discussions, to get a handle on the ability to meet our financial 
obligation. We have been given a variety of answers to the question, 
``What is the impact of extending the construction schedule?'' The 
answers seem to change frequently. Current accounting has improved 
exponentially from what it was prior to July 31, but it still is not at 
an acceptable level regarding outyears. We understand that for fiscal 
year 2006 and 2007, at least $70 million will be needed each year to 
keep the project on schedule. We would appreciate a question from the 
committee to the Bureau to confirm the level of funding it needs to 
construct the project most efficiently.
    We are extremely concerned the cost of the project will exceed our 
ability to pay, and thereby diminish or deny the benefits of the 
project to our citizens. It seems that we should be able to determine 
the cost definitively now through a cap on our obligation and encourage 
the continued efficiency we see applied today in the project.
                                 ______
                                 
       Question Submitted to the Ute Mountain Ute Tribal Council
             Question Submitted by Senator Pete V. Domenici

                              638 PROCESS

    Question. We have talked about the theory behind the 638 process . 
. . that it is intended to provide the opportunity for Native Americans 
to ``fill the shoes of Federal employees.''
    In your opinion, is this the way 638 is working on this project? In 
other words, do you feel that there is unnecessary duplication of 
effort?
    Answer. [The witness failed to respond by the time of publication.]

                         CONCLUSION OF HEARING

    Senator Domenici. Okay. Thank you all very much. No other 
questions. We stand in recess.
    [Whereupon, at 11:25 a.m., Wednesday, March 24, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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