The Federal Reserve failed to effectively oversee the renovation of its headquarters, letting construction costs more than double without ever locking in a price ceiling, the central bank’s inspector general found in a report released Wednesday.
Officials at the Fed failed to “take numerous actions available to it that could have better controlled costs and mitigated some of the significant construction cost increases,” the report said.
But the watchdog found no evidence that anyone had broken federal criminal law, the question at the heart of a Justice Department criminal investigation of then-Fed Chair Jerome H. Powell that prosecutors dropped this year. The watchdog also found no administrative misconduct.
Overall, the report’s findings were mild compared with the accusations President Donald Trump asserted earlier this year, accusing Powell of “criminality” in the $2.4 billion renovations of the Fed’s headquarters. Trump had often talked about firing Powell but stopped short of doing so. Powell remains on the Fed’s board.
The current Fed chair, Kevin Warsh, said he has put the General Services Administration in charge of finishing the project, effective immediately. The renovations had been handled by the Fed’s internal facilities staff.
Warsh added that he would hire an independent auditor to check every cost awarded so far, according to a letter included in the report.
“If any arm of government should be showing vigilance in cost control, it is the nation’s central bank — and this will be the practice going forward,” Warsh wrote.
A spokeswoman for Warsh and the rest of the Fed board, many of whom were in place at the time of the alleged oversight lapses, did not immediately provide comment.
The report said the Fed’s board delegated day-to-day management of the project to Fed staff.
The Fed’s board approved a $1.3 billion budget for the project in 2020. By December 2024, it had grown to $2.4 billion, and the construction portion alone had more than doubled, from $921 million to $2 billion, according to the report.
Four years after construction began, the Fed still had not negotiated a guaranteed maximum price with its contractor, a key protection for building owners, the report found. Instead, it divided the work into 84 smaller packages with no overall cap, which the inspector general said effectively turned the deal into a riskier endeavor.
Four packages for mechanical, electrical and plumbing work came in nearly $500 million over estimates. The Fed did not take extra steps to independently check those prices because the project team “preferred to keep the project moving,” the report said.
The renovations aimed to create a modern campus for the Fed involving two buildings overlooking the National Mall in Washington.
Trump alleged “criminality” in the building renovations, and the Justice Department this year issued a subpoena to Powell, in part to build a case for Trump to remove Powell from the Federal Reserve. Last year, the head of the Office of Management and Budget suggested that Powell either misled Congress or didn’t seek appropriate approval from a planning commission after scaling back aspects of the renovations.
A judge blocked the subpoena, and in April the U.S. attorney’s office dropped a federal probe looking into criminal allegations, with Justice Department staff acknowledging they had no evidence of wrongdoing in its criminal investigation.
The U.S. attorney’s office had alleged in written filings that Powell’s testimony contained “possible discrepancies” and that the cost overruns had raised “the specter of fraud,” but it did not offer details.
Attorneys for the Fed’s board of governors said in a legal filing challenging the subpoena that cost overruns are not unusual for the federal government’s largest construction projects. The Department of Homeland Security’s St. Elizabeths campus, which was once described as the largest federal construction project in the D.C. region, was $1.5 billion over budget in 2014 and still has not been completed, the attorneys noted. The Capitol Visitor Center and the Ronald Reagan Building and International Trade Center both ended up costing twice their original budgets, the lawyers added.
“While the Board is working diligently to manage the significant costs that come with renovating historic buildings, the Federal Reserve has explained that over the seven years of this project there have been increases in building costs, increases in labor costs, problems with asbestos contamination, and other elements that have contributed to these overruns,” the Fed attorneys said in a legal filing. “Nothing about cost overruns for such a project is unusual or indicative of criminal activity.”
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