Banking and Finance Law Daily Wrap Up, OVERSIGHT AND INVESTIGATION—Fed watchdog finds no misconduct in headquarters renovation but faults cost controls, (Oct 1, 2026)

By Shashi Kant, B.A. LL.B., LL.M.

The Fed’s inspector general found no criminal grounds or misconduct in the headquarters renovation but faulted its cost management.

The Federal Reserve Board’s Office of Inspector General (OIG) has reported that it found no reasonable grounds to believe a federal crime occurred, and no administrative misconduct, in the Fed’s renovation of its Marriner S. Eccles and 1951 Constitution Avenue NW buildings in Washington, D.C. (Evaluation Report 2026-FMIC-B-016, Sept. 29, 2026). The OIG concluded, however, that the Fed did not effectively use the cost-management provisions in its construction contract as the project’s approved budget rose from $1.317 billion in February 2020 to $2.381 billion in December 2024. The evaluation makes seven recommendations, and the OIG said the Fed chairman concurred with its findings and recommendations.

Background. The OIG said it began the evaluation in July 2025 at the request of then-Chairman Jerome H. Powell. According to the report, the construction portion of the budget more than doubled over the same period, from $921 million to $2.018 billion. The report states that in January 2026 the Fed received a proposed construction cost of $2.135 billion from its construction manager. The OIG said it learned in January 2026 that the U.S. Department of Justice had opened a criminal probe involving Powell’s June 2025 testimony before Congress, which in part concerned the renovation. According to the report, the U.S. Attorney’s Office announced on April 24, 2026, that it had closed the probe while the inspector general conducted his inquiry. The OIG stated that at no point did it find grounds requiring a referral to the Attorney General under the Inspector General Act.

Contract execution. The Fed chose a construction manager at risk (CMAR) delivery method, under which the owner and contractor ordinarily agree on a guaranteed maximum price (GMP) that shifts cost risk to the contractor, the report explains. The OIG found that the Fed’s contract execution decisions effectively turned the arrangement into a cost-plus reimbursement contract. According to the report, the Fed did not obtain a project cost estimate from its construction manager until January 2026, 3.5 years after construction began and after more than $2 billion in construction costs had been awarded. The OIG said that as of July 2026 the Fed still had not set a GMP. The report states that the Fed instead set the project’s cost by awarding 84 limited-scope price packages without an overall cost ceiling. The construction manager receives a fee of 2.95 percent of construction costs under the contract, the OIG said.

Bidding and oversight. The OIG reported that four mechanical, electrical, and plumbing (MEP) packages totaling $694 million exceeded the 2022 estimates of the Fed’s architecture and engineering firm by nearly $500 million. Three of those packages did not receive the minimum of three bids called for in the contract, according to the report. The OIG said the Fed did not ask its outside construction representative to validate those costs independently. The report also found that quarterly dashboards sent to internal oversight bodies described the project as “on track” because the benchmarks were reset to each newly approved budget and schedule. The OIG said several of the problems resembled findings from its earlier reviews of the Fed’s Martin building renovation.

Cost drivers. The OIG identified inflation, limited subcontractor bidding, Fed design changes, and site conditions as contributors to the cost increases. The report cites the Fed’s January 2023 decision to switch from mostly open workspaces to mostly closed offices, which the OIG said delayed completion of the interior design by 21 months. According to the report, costs for the two core-and-shell MEP packages rose 203 percent, compared with an increase of about 16 percent in the Producer Price Index for new construction over roughly the same period. The OIG found that design features such as the marble, water features, and garden terrace did not materially contribute to the cost increases.

Reaction. Senate Banking Committee Chairman Tim Scott (R-S.C.) said he welcomed the report, which follows his April call for a full accounting of the cost overruns. Scott said inflation “does not change the Fed’s responsibility to manage its resources prudently,” and that the committee will continue its oversight of the Fed.

Ranking Member Elizabeth Warren (D-Mass.) said the report confirmed there is no basis to restart what she called the president’s “witch hunt” against Powell. Warren said Congress must act to improve transparency and accountability at the Fed, and she urged Chair Warsh to implement the report’s recommendations swiftly.

President Donald Trump, in a Truth Social post, said Powell should be forced to resign from the Board. Trump said he had asked Attorney General Todd Blanche to study the report and determine what to do. He said the project would cost at least $2.5 billion according to the report. The report puts the most recently approved budget at $2.381 billion.

Next steps. The OIG said it will follow up with the Fed quarterly to ensure the recommendations are fully addressed. According to the report, the Fed told the OIG in August 2026 that it was evaluating whether to finalize a GMP agreement, given that almost all construction awards had been issued. The report states that construction is scheduled to end by December 2027.

MainStory: TopStory DirectorsOfficersEmployers FederalReserveSystem OversightInvestigations