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Project on Government Oversight

POGO letter to Commissioner Marin with the US Section of the International Boundary and Water Commission regarding a sole-source contract

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December 20, 2005

Acting Commissioner Carlos Marin
International Boundary and Water Commission
United States Section
4171 North Mesa, Suite C-100
El Paso, TX 79902-1441
1-800-262-8857

RE: South Bay Contract/Bajagua Proposal

Dear Acting Commissioner Carlos Marin:

My organization, the Project On Government Oversight (POGO), has serious concerns that your agency, the US section of the International Boundary and Water Commission (USIBWC), has bypassed the reasonable and prudent processes that exist to protect the taxpayer in the awarding of a sole-source contract to Bajagua Project LLC (hereafter "Bajagua") for the ownership and operation of a secondary wastewater treatment plant. We hope information provided in this letter will lead you to pursue answers to concerns we raise and, if necessary, take appropriate action.

Sources within the USIBWC, who wish to remain anonymous, originally tipped POGO off to their concerns. Their desire for anonymity is well-founded since there has been a recent clampdown on employees by USIBWC management, according to a State Department Inspector General report on the state of the USIBWC under former Commissioner Arturo Duran.

Having investigated some of the allegations made by these insiders, here are some of POGO's concerns with the South Bay International Wastewater Treatment Plant/Bajagua Project (hereafter referred to as "the Project"):

Secrecy. According to our sources, USIBWC management, including its Legal Counsel have forced the individuals involved with the Project to sign a confidentiality agreement. This non-disclosure agreement (internal "gag" order) does not allow individuals to speak with anyone about the project. Insiders tell us that the gag order was put in place to keep these employees from speaking to other USIBWC employees, the media or to public interest groups about the Project. Earlier this year, POGO also wrote a letter with similar concerns about a vague and potentially sweeping secrecy policy that was to take effect agency-wide at the USIBWC. Sources say that the agency-wide secrecy policy has been put on hold and is likely dead now, but that the Bajagua-specific gag order is still in effect.

Improper Congressional Interference. The South Bay Project legislation (Public Law 106-457) seems to set criteria tailor made to match the proposal of Bajagua LLC (previously Aqua Clara LLC). Rep. Bob Filner (D-CA) was the author of Title VIII of PL 106-457, named the "Tijuana River Valley Estuary and Beach Sewage Cleanup Act of 2000." Filner wrote in a letter to your predecessor, former USIBWC Commissioner John Bernal, on January 10, 2001, that:

Congress was briefed on, and supportive of, the Bajagua proposal at the highest levels. Congress intentionally exempted the owners of the proposed 'Mexican facility' from federal procurement law anticipating that Aqua Clara, LLC would be the owner of that facility, Mr. Oberstar writes.

[POGO Notes: "The Mexican facility" refers to the Bajagua international wastewater treatment plant proposal; Aqua Clara LLC became Bajagua; "Mr. Oberstar" is Congressman Oberstar, at the time the Ranking Democratic Member of the House of Representatives Transportation and Infrastructure Committee]

According to Dan Guttman, an expert on government contracting who teaches at Johns Hopkins University." You wire things [government contracts] not by telling the person making the selection, 'Pick this company,' but by telling the person, 'These are the criteria.'" (San Diego Union-Tribune "'Earmarking' has grown in Congress," 12/3/2005) Setting the criteria was exactly the method employed by Filner to get Bajagua the South Bay contract.

Lack of Competition. The Bajagua contract is being awarded on a sole-source basis. Federal Acquisition Regulation (FAR) states that "contracting officers may solicit from one source if the contracting officer determines that the circumstances of the contract action deem only one source reasonably available (e.g., urgency, exclusive licensing agreements, or industrial mobilization)." (FAR part 13.106-1 (b)(1))

The U.S. District Court for the Southern District of California's December 6, 2004, court order in California v. Duran sets a variety of deadlines for the USIBWC to meet environmental and contractual standards. Some have indicated to POGO that the court order mandates a sole-source contract. Our investigation, however, found otherwise. The order states that a project schedule (called a "Critical Path Schedule") should include a deadline for awarding "contract(s) for design and construction of facilities and notice to proceed with construction of facilities not later that December 19, 2005." Court Order Para. 5(a)i. USIBWC is contracting the water plant in two phases: (1) ownership and (2) design, construction, and building. The court order does not provide any source selection mandates or deadlines governing the contracting for ownership and operation of a treatment facility. The court order deadline only applies to the design and construction contract, for which there were six bidders.

POGO's General Counsel Scott Amey wrote the following in a previous letter: "IBWC's move to grant Bajagua LLC a sole source contract is not in the best interest of Southern California or the American taxpayer. In fact, sole source contract awards limit aggressive negotiations, prohibit innovation, and result in increased costs. POGO urges the IBWC to conduct an open competition to ensure that the government is getting the best value for the services it is seeking and restore the public's faith in the federal government's contracting system."

Though Public Law 106-457 exempts Bajagua from federal procurement law, it does not mean that the USIBWC is required to utilize this exemption and grant Bajagua the contract on a sole-source basis. In sum, nothing necessitates a sole-source contract for the ownership and operation of the wastewater treatment plant. POGO believes there should be at least a time-limited open competition for ownership and operation. The competition should also not be limited by the criteria of Public Law 106-457 because it is tailored to the Bajagua proposal.

Irregularity in Assessment Process. The Bajagua proposal is noted as the "preferred alternative" in the draft Supplemental Environmental Impact Statement for Clean Water Act compliance at the South Bay International Wastewater Treatment Plant. This seems to be a violation of the National Environmental Policy Act (NEPA), for the following two main reasons:

1. Section 1502.2, Implementation, Paragraph (f) - Agencies shall not commit resources prejudicing selection of alternatives before making a final decision (Sec 1506.1).

2. Section 1506.1, Limitations on actions during NEPA process, Paragraph (a) - Until an agency issues a record of decision as provided in Sec. 1505.2, no action concerning the proposal shall be taken which would have an adverse environmental impact or limit the choice of reasonable alternatives.

Financing Questions. According to a November 13, 2005 San Diego Union-Tribune article on the Bajagua Project, USIBWC "estimates the Bajagua bill at $500 million over two decades. The Congressional Budget Office puts the figure at more than $600 million." Furthermore, "Bajagua will finance the project through a Citigroup loan, hoping the US government will repay the company through annual appropriations." The Final Supplemental Environmental Impact Statement (SEIS) says that the Bajagua Project Proposal will cost approximately $336 million. Presumably, the difference in the SEIS cost estimate and the USIBWC's cost estimate for the project is the interest planned to be paid back to Citigroup by government appropriations. Public Law 106-457 overrides the government's own Federal Acquisition Regulation (FAR) which categories interest as an unallowable cost.

FAR Part 31.205-20 Interest and other financial costs.

Interest on borrowings (however represented), bond discounts, costs of financing and refinancing capital (net worth plus long-term liabilities), legal and professional fees paid in connection with preparing prospectuses, and costs of preparing and issuing stock rights are unallowable (but see 31.205-28). However, interest assessed by State or local taxing authorities under the conditions specified in 31.205-41(a)(3) is allowable.

In 2004, Public Law 106-457 was amended. One of the changes was an adjustment to the amount of appropriations the law authorized for the Mexican facility (the Bajagua proposal). The initial law authorized appropriations up to $156 million—the estimated cost of the Bajagua proposal when the relevant section of Public Law 106-457 was written in 2000. By 2004, the estimated costs had more than doubled, so mention of the $156 million amount was struck and replaced with language authorizing appropriations totaling ''such sums as may be necessary'' for the Project.

Again, though Public Law 106-457 exempts Bajagua from federal procurement law, it does not mean that the USIBWC is required to utilize this exemption and allow government funds to reimbursement Bajagua for interest payments. This financial arrangement should be scrutinized with an eye toward the risk to the American taxpayer.

The Bajagua option is also not listed within the Final SEIS as the least expensive alternative.

Unknowns. The Final SEIS notes that both "Conflicts between Public Law 106-457 and Mexican laws [are] Unknown" and "Regulatory responsibility and authority unknown." Also, news accounts and sources tell us that the Mexican section of the IBWC has been largely left out of the Project's process and that the Bajagua contract may violate Mexican procurement law. Luis Antonio Rascón Mendoza, an engineer with the Mexican section of the IBWC, wrote the following in a letter to the USIBWC:

The publication of the SEIS, as well as the start of negotiations with the BAJAGUA Company, are matters that the United States Section has undertaken unilaterally. We understand the first because of your country's legislative requirements, and the second one at your own determination. With respect to that, through letter NO. CEU 00919/05 dated July 7, 2005, we have requested that no document be formalized implicating work in Mexico without the express consent of the Mexican Section.

Treaty Minute 311, which deals with the international wastewater project, states that, "All activities undertaken pursuant to the provisions of this Minute shall be subject to...applicable laws and regulations in each country." POGO understands "applicable laws and regulations in each country" to include procurement laws in both the U.S. and Mexico. Former Rep. Brian Bilbray and Rep. Bob Filner have tried to direct the USIBWC to direct Mexican procurement law as "not relevant." From a letter by Bilbray and Filner sent on December 4, 2000:

The Mexican facility is not a public project in Mexico. Therefore, public contracting law in Mexico is not relevant. USIBWC has no responsibility to investigate public contracting law in Mexico with the Mexican section of the IBWC regarding contract issues. USIWBC should focus on Treaty issues. It is the responsibility of the owner of the Mexican facility to develop the project in Mexico, and therefore, comply with Mexican law with regard to its project.

Additionally, POGO has been told that there are treaty modifications that still need to be worked on by the Mexican government for the Bajagua proposal to move forward. Because Treaty Minute 311 recommends that the international wastewater treatment facility be funded “up to a total of $156 million” and that “any additional costs shall be subject to subsequent Commission [U.S. and Mexican sections of the IBWC] agreements,” a new agreement seems necessary: The USIBWC’s Final SEIS states that Bajagua’s proposal will cost approximately $336 million and the Congressional Budget Office has projected costs up to $600 million, including interest payments over 20 years.

If you have any questions regarding our findings, or would like to discuss them, please do not hesitate to contact me at (202) 347-1122.

Sincerely,

Danielle Brian
Executive Director
Project On Government Oversight (POGO)
pogoarchive.pub30.convio.net

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