Summary: In response to a congressional request, GAO examined the Bureau of Reclamation's construction of the Fountain Valley pipeline in Colorado to determine: (1) why there was an increase in the pipeline project's total cost; (2) whether the Bureau had the legal authority to charge overhead costs to the pipeline operator; and (3) the equity of the Bureau's overhead charges.
GAO found that: (1) about $12.3 million of the project's $13.9-million total cost increase was due to increases in construction costs; (2) the overhead rate in the preliminary contract estimate was too low; (3) the construction contract legally authorized the Bureau to charge overhead costs to the pipeline operator; (4) although the direct overhead and noncontract costs were appropriate for the project, the Bureau's Missouri Basin Region overcharged the operator more than $500,000 in indirect overhead charges between 1981 and 1986; (5) the Region improperly applied an allocation rate in 1981 when distributing overhead costs among individual projects; (6) the Region used three different methods to allocate indirect costs to the operator; and (7) the Region did not comply with generally accepted accounting principles. GAO also found that regional officials agreed to: (1) recompute the pipeline's cost allocations using each of the three methods it applied during the project's life; (2) correct the erroneous rate applied in 1981; (3) exclude inequitable indirect overhead cost shifts; and (4) provide the recomputation to the operator and determine the amount of indirect overhead costs the operator should reasonably pay.
