Fed watchdog clears the $2.4 billion renovation of crimes, but finds no price cap after $2 billion of contracts

The Federal Reserve's inspector general found no grounds for a criminal referral and no administrative misconduct in the renovation of the Fed's Eccles and 1951 Constitution Avenue buildings in Washington, according to the report published Wednesday. That is the headline most outlets ran, and it matters politically: CNBC reported the findings could defuse one line of attack against former Chair Jerome Powell, who remains a governor until January 2028.

The other 120 pages are a case study in how a construction budget more than doubles, and they are worth reading for anyone who signs or bids on big building contracts.

The numbers in the report

• The total project budget rose from $1.317 billion in February 2020 to $2.381 billion in December 2024.
• The construction portion more than doubled, from $921 million to $2.018 billion. In January 2026 the construction manager proposed a construction cost of $2.135 billion.
• More than $2 billion of construction has been awarded, yet as of July 2026, over four years after work began, the Board had not set a guaranteed maximum price.
• The Board priced the job through 84 separate packages (69 awarded before it formally asked for a price cap in December 2025), while paying the construction manager a fee of 2.95% of construction cost.

The widely quoted $2.5 billion figure comes from the Fed's budget documents; the inspector general's construction and project numbers above are the ones the evaluation actually tested.

What went wrong, in contractor terms

The Fed chose a "construction manager at risk" contract. The point of that structure is that, once design is largely done, the owner and the builder agree a guaranteed maximum price, and overruns above it land on the builder. The inspector general says the Board never got there. Buying the work in 84 pieces with no ceiling, the report says, made the deal "resemble a riskier cost-plus reimbursement contract," shifted little risk to the builder and likely discouraged subcontractors from bidding.

The biggest single hit came from mechanical, electrical and plumbing work. Four MEP packages totaled $694 million, nearly $500 million above the architect-engineer's 2022 estimates. Three of the four, worth $624 million together, did not draw the three bids the contract normally requires.

The Fed's staff blamed inflation. The report tests that directly. Construction producer prices rose about 16% from March 2022 to October 2023, per BLS data it cites, while the two core-and-shell MEP packages rose 203%, from $178 million to $539 million. The two interior fit-out MEP packages rose 454%, from $28 million to $155 million, against a 19% index move. Seven cost categories that account for $799 million of the $960 million construction increase rose between 88% and 588%, against 24% for the index.

One more finding stands out. Quarterly dashboards sent to internal oversight committees kept reporting the project as "on track" because the benchmark was reset to each newly approved budget and schedule, rather than measured against the original ones.

What changes now

The Board concurred with all seven recommendations. In a letter published with the report, CNBC reported, Chair Kevin Warsh said he would conduct a full audit and has asked the General Services Administration to act as project executive. U.S. Attorney Jeanine Pirro had said she would consider reopening a criminal inquiry depending on the findings; the report gives no basis for one. For rates, nothing here changes the path: the next FOMC decision is scheduled for October 28.

Why a builder should care

This is a public, audited example of the risk every general contractor and owner negotiates: a price that is never locked, change after change, and a fee that grows with the cost. The same pattern the Fed hit on a $2 billion job shows up on a $2 million one.

141,913 independent construction and contractors are listed on CheckThisBiz, a directory of 7,704,724 independent US businesses, including 12,896 in TX, 12,642 in CA, 11,414 in FL. Chains and franchises are excluded from that count, so these are the owner-operated businesses that actually apply for funding.

Related: the Fed's stress test overhaul, also finalized this week, and all Fed and rates coverage.

Sources: Federal Reserve OIG, Evaluation of the Eccles-1951 Renovation Project Management and Construction Costs (2026-FMIC-B-016) and full report (PDF); CNBC. This is market information, not investment advice.