Audit Subcommittee Offers Recommendations to Avoid Undergrounding Debacles

The City Council Audit Subcommittee is calling for public comment on its draft report examining the handling of the Piedmont Hills utility undergrounding project. The three members of the subcommittee presented their draft sections Jan. 26 and are expected to offer a completed report at their March 15 meeting, nearly a year after the audit began.

The undergrounding project was supposed to have been paid for entirely by the Piedmont Hills residents. However, the construction was plagued by the discovery of bedrock along more than 60 percent of the route for the utility trench, resulting in more than $2 million in overruns that were paid for with withdrawals from the city's general fund.

Though after reviewing how city policy on undergrounding was applied to the Piedmont Hills project, the audit subcommittee didn't find any wrongdoing, each section of its draft report contains recommendations for how the city might avoid getting stuck with the bill for future projects.

Valley Utility, which was contracted to do the construction, first hit rock on July 21, 2009, shortly after the work began. By the time the firm started ringing up the change orders to remove it was already too late to avoid unforeseen costs to the city, City Councilman and audit subcommittee member John Chiang concluded.

The money appropriated to pay for the excavation was less than the amount Piedmont would have owed the firm for terminating their contract early at any point along the way, with the potential cost ballooning to much as $5 million the longer the city waited to pull the plug, according to Chiang's analysis; he surmised the city would likely have then had to pay even more on top of that to complete the project.

So Chiang suggested, and his fellow subcommittee members agreed, next time the city approves any undergrounding, a project manager with the relevant expertise should be assigned to oversee the work and provide regular updates on the progress, and the city should contract outside help to fill that role if no one on staff has the time or know-how to take it on.

Chiang also recommended that the city take steps to control its financial liability regarding private undergrounding projects like the one in the Piedmont Hills and improve its risk management generally.

In order to prevent the city from getting saddled with unforeseen costs, subcommittee member and retired judge Ken Kawaichi suggested the City Council should also consider setting a cap on municipal contributions to undergrounding projects and set a policy about what expenses the city will pay for and which will remain the responsibility of the homeowners in the utility district.

Furthermore, Kawaichi said the city should require bidders for future undergrounding projects to do a check of geological reports for problems such as bedrock that could lead to overruns.

While the subcommittee's recommendations may chart a better course for undergrounding in the future, its report overall left unanswered many of the most burning questions about how the Piedmont Hills went awry. The subcommittee, said Kawaichi, was limited to doing little more than a document review while litigation through which the city hopes to recover some of the overrun costs associated with that project is pending.

"We really can't talk to … people who know the answers about important things such as who knew what, when … because of the attorney-client privilege," Kawaichi said in his January presentation. "Instead of having one hand tied behind the back, I think it's two hands and one foot, and we're kind of hopping around trying to figure out what's going on from the documents."

Once the city's legal actions are resolved, Kawaichi wants the audit subcommittee to subpoena witnesses and place them under oath at a public hearing on the Piedmont Hills project. Until such a hearing is held, he concluded, the subcommittee should wait to issue its final report.