Army's Olmsted Dam project nears completion with over $1.87B spent, facing significant cost overruns

Contract Overview

Contract Amount: $1,870,676,938 ($1.9B)

Contractor: Washington Group/Alberici Joint Venture

Awarding Agency: Department of Defense

Start Date: 2004-01-28

End Date: 2020-04-30

Contract Duration: 5,937 days

Daily Burn Rate: $315.1K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: COST PLUS AWARD FEE

Sector: Construction

Official Description: TAS::96 3134::TAS ARRA::YES::ARRA OLMSTED DAM CONSTRUCTION PROJECT (ARRA FUNDS ADDED 9/3/2009 BY MODIFICATION P00090)

Place of Performance

Location: OLMSTED, PULASKI County, ILLINOIS, 62970

State: Illinois Government Spending

Plain-Language Summary

Department of Defense obligated $1.87 billion to WASHINGTON GROUP/ALBERICI JOINT VENTURE for work described as: TAS::96 3134::TAS ARRA::YES::ARRA OLMSTED DAM CONSTRUCTION PROJECT (ARRA FUNDS ADDED 9/3/2009 BY MODIFICATION P00090) Key points: 1. The project has experienced substantial cost growth since its inception, indicating potential issues with initial budgeting or scope management. 2. While a definitive contract was used, the extended duration and high cost suggest a complex and challenging construction undertaking. 3. The use of Cost Plus Award Fee (CPA) pricing structure introduces performance incentives but also requires robust oversight to manage costs effectively. 4. The project's significant investment positions it as a major infrastructure undertaking within the Army Corps of Engineers' portfolio. 5. The long duration of the contract (over 16 years) points to the complexity and potential unforeseen challenges inherent in large-scale civil engineering projects.

Value Assessment

Rating: concerning

The Olmsted Dam project's final cost is substantially higher than initial estimates, reflecting significant cost escalation over its long lifecycle. Benchmarking against similar large-scale civil engineering projects reveals that while complex infrastructure often faces cost increases, the magnitude here warrants scrutiny. The Cost Plus Award Fee structure, while intended to incentivize performance, requires careful monitoring to ensure that award fees are justified by demonstrable value and not simply a pass-through of escalating costs. The total expenditure of over $1.87 billion for this single project highlights a considerable investment that needs to be evaluated against the delivered benefits and alternative solutions.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, suggesting that multiple bidders had the opportunity to propose solutions. However, the definitive contract type and the project's extended duration indicate a complex procurement process that likely involved extensive negotiation and potentially multiple modifications. The fact that it was competed fully is a positive sign for price discovery, but the subsequent cost escalations suggest that the initial competitive environment may not have fully captured the long-term cost risks.

Taxpayer Impact: Full and open competition is generally beneficial for taxpayers as it fosters a competitive environment that can drive down prices. For this project, while competition was present at the outset, the significant cost growth over time suggests that the initial competitive bids may not have accurately reflected the full scope of work or the inherent risks involved in such a massive undertaking.

Public Impact

The primary beneficiaries are the U.S. Army Corps of Engineers and the nation's inland waterway transportation system. The project delivers critical upgrades to navigation infrastructure on the Ohio River, enhancing the efficiency and reliability of commercial shipping. The geographic impact is concentrated along the Ohio River in Illinois, supporting regional economic activity tied to river commerce. The project supports a significant construction workforce, contributing to employment in the heavy and civil engineering sector.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Significant cost overruns compared to initial estimates raise concerns about financial management and forecasting accuracy.
The extended contract duration suggests potential scope creep or unforeseen complexities that impacted project timelines and budgets.
The Cost Plus Award Fee structure requires diligent oversight to ensure that award fees are tied to genuine performance improvements and not just cost increases.
The sheer scale of the investment necessitates ongoing scrutiny to confirm value for money and alignment with strategic objectives.

Positive Signals

Awarded under full and open competition, indicating an initial effort to secure competitive pricing.
The project addresses critical national infrastructure needs for inland waterway transportation.
The contract is managed by the Department of the Army, a major federal agency with experience in large-scale construction projects.
The project is located in Illinois, potentially benefiting the regional economy through construction jobs and related activities.

Sector Analysis

The Olmsted Dam project falls within the Heavy and Civil Engineering Construction sector, a segment characterized by large-scale, complex infrastructure development. This sector is crucial for national transportation, energy, and water management systems. Comparable spending benchmarks for major dam and lock construction projects often run into hundreds of millions, if not billions, of dollars, reflecting the inherent costs and complexities. The Army Corps of Engineers is a primary client for such projects, investing heavily in maintaining and upgrading the nation's waterways.

Small Business Impact

There is no indication that this contract included specific small business set-asides. Given the magnitude and specialized nature of the Olmsted Dam project, it is likely that the prime contractor, a joint venture, subcontracted portions of the work. Analysis of subcontracting data would be necessary to determine the extent of small business participation and its impact on the broader small business ecosystem within the heavy construction sector.

Oversight & Accountability

Oversight for this project is primarily conducted by the Department of the Army, specifically the Army Corps of Engineers. Accountability measures are embedded within the Cost Plus Award Fee contract structure, which includes performance metrics and award fee evaluations. Transparency is facilitated through contract awards databases and potentially through Army Corps of Engineers public reporting on major construction projects. The Inspector General for the Department of Defense would have jurisdiction to investigate any potential fraud, waste, or abuse related to this contract.

Related Government Programs

Army Corps of Engineers Civil Works Programs
Inland Waterways Trust Fund
Infrastructure Investment and Jobs Act Projects
Department of Transportation Maritime Administration Programs

Risk Flags

Cost Overrun
Schedule Delay
Contract Complexity
Long Project Duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.87 billion to WASHINGTON GROUP/ALBERICI JOINT VENTURE. TAS::96 3134::TAS ARRA::YES::ARRA OLMSTED DAM CONSTRUCTION PROJECT (ARRA FUNDS ADDED 9/3/2009 BY MODIFICATION P00090)

Who is the contractor on this award?

The obligated recipient is WASHINGTON GROUP/ALBERICI JOINT VENTURE.

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Army).

What is the total obligated amount?

The obligated amount is $1.87 billion.

What is the period of performance?

Start: 2004-01-28. End: 2020-04-30.

What were the initial cost estimates for the Olmsted Dam project, and how have they evolved over time?

Initial cost estimates for the Olmsted Dam project varied, but by the early 2000s, projections were often in the range of $700 million to $1 billion. However, as the project progressed, numerous factors, including design changes, unforeseen geological conditions, and inflation, contributed to significant cost escalations. By the time of the definitive contract award and subsequent modifications, the estimated cost had risen substantially, eventually exceeding $1.87 billion. This dramatic increase highlights challenges in accurately forecasting costs for large, long-duration infrastructure projects and underscores the need for robust cost control and contingency planning.

How does the Cost Plus Award Fee (CPA) structure influence contractor performance and cost management on this project?

The Cost Plus Award Fee (CPA) structure allows the contractor to recover allowable costs plus a base fee, with the potential for an additional award fee based on performance against defined criteria. For the Olmsted Dam project, this structure was intended to incentivize the contractor to achieve specific performance objectives, such as quality, schedule adherence, and safety, beyond minimum requirements. However, CPA contracts also require diligent government oversight to ensure that award fees are earned and justified, and that the contractor is not incentivized to inflate costs to increase the base fee. The significant cost growth on this project suggests that while the CPA structure may have driven some performance, it did not fully mitigate cost escalation.

What are the primary risks associated with a project of this scale and duration, and how were they managed?

Projects of the Olmsted Dam's scale and duration face numerous risks, including geological uncertainties, environmental challenges, design changes, labor availability, material cost fluctuations, and regulatory hurdles. Managing these risks typically involves thorough upfront site investigations, flexible contract structures, robust project management, and contingency planning. For Olmsted, risks related to the complex riverbed geology and the need for continuous navigation during construction likely contributed to delays and cost increases. The definitive contract and subsequent modifications suggest an adaptive management approach, but the overall cost outcome indicates that some risks were either underestimated or proved more challenging to mitigate than anticipated.

What is the strategic importance of the Olmsted Dam project for national infrastructure and inland waterway commerce?

The Olmsted Dam project is strategically vital for the nation's inland waterway system, particularly for commerce on the Ohio River, one of the busiest commercial waterways in the United States. The existing locks were aging and inefficient, causing significant delays and increasing transportation costs for bulk commodities like coal, grain, and chemicals. The new dam and locks are designed to improve navigation efficiency, reduce transit times, enhance reliability, and increase capacity. This modernization is crucial for maintaining the competitiveness of American businesses reliant on river transport and for supporting the broader national supply chain.

How does the total expenditure of over $1.87 billion compare to other major Army Corps of Engineers civil works projects?

An expenditure of over $1.87 billion places the Olmsted Dam project among the most significant and costly civil works projects undertaken by the Army Corps of Engineers. While many Corps projects involve substantial investments, the final cost of Olmsted is considerably higher than many other lock and dam replacements or new construction initiatives. For context, other major projects like the Three Rivers project or portions of the Mississippi River levee system have also commanded billion-dollar investments, but Olmsted stands out due to its long duration and the magnitude of its cost growth relative to initial projections. This high cost necessitates a thorough evaluation of its return on investment and comparison with the benefits derived from other large-scale infrastructure investments.

Industry Classification

NAICS: Construction › Other Heavy and Civil Engineering Construction › Other Heavy and Civil Engineering Construction

Product/Service Code: CONSTRUCT OF STRUCTURES/FACILITIES › CONSTRUCT NONBUILDING FACILITIES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: DACW2703R0003

Offers Received: 2

Pricing Type: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Address: 675 NEW DAM RD, OLMSTED, IL, 62970

Business Categories: Category Business, Not Designated a Small Business, Partnership or Limited Liability Partnership, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $12,328,860,107

Exercised Options: $12,328,860,107

Current Obligation: $1,870,676,938

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline