Disqus

Monday, February 14, 2011

More on the Construction Management Audit

I, along with other citizens, had written to the State Auditor several years back, complaining about the BEX capital building program. When you write to the Auditor, they log your letter and make sure you get a follow-up (I know that seems odd to have a public entity actually listen and keep track of your concerns but that's just how the SAO rolls.)

The letter said some points made in the audit like:
  • District facilities staff was unable to provide all requested documents in a complete and timely manner.
  • We could not always determine whether the documents did not exist or whether they could not be located. Project documents were not store consistently, and some were in multiple locations.
But they also said this:
  • We were unable to address your specific concerns related to the District's decision to select specific school projects for inclusion in its BEX III program because we discovered larger issues related to the BEX II projects.
I find that interesting because I wondered if they would even be able to say something about how the district was making decisions on which buildings to renovate and apparently they can.

But here's the meat of what I asked about (italics and bold mine):

Start of SAO listings:

However, we were able to identify the following factors that affected BEX II project costs during the audit period of July 1, 2005, to June 30, 2008:

* The District experienced construction cost inflation –The cost of labor and materials increased rapidly, at unprecedented rates. The District developed the initial BEX II project cost estimates before this high-inflation period. In addition, the levy estimates did not include $80 million in contingency funding or costs for educational specifications. As material and labor costs increased, the District approved contractor claims settlements that also increased the projects’ cost and accelerated the completion of certain project phases. For example:

o The District stated that its General Contractor/Construction Manager (GCCM) for the Cleveland High School project stopped work on the project for six months until the District renegotiated a higher contract price to cover unforeseen market cost increases. The District asserted its attorney-client privilege over the negotiation documents, so we were unable to measure the effect of this delay on the contract or project cost.

o The District approved a preliminary settlement with the GCCM for the Cleveland High School project, by taking on $4.3 million of $6.9 million in additional costs obtained through the bidding of the work needed to complete the project. The additional $4.3 million was funded through the change order contingency. The District also increased the project contingency and the change order contingency from 5 percent to 8 percent. The remainder of the additional costs was to be paid by the GCCM.

o The District approved a $5.6 million settlement with its GCCM on the Roosevelt High School project, which included costs to cover additional work, staffing, schedule inefficiencies, delays and other claims.

o The District approved a $334,000 modification to its architectural services contract for the Hamilton International Middle School project solely for construction inflation based on market conditions. The architect’s fee was increased without evidence of change in scope of work or additional effort.

o The District approved $1.1 million in architectural services contract modifications to compensate the architect on the Garfield project for additional redesign work as a result of the cost escalations occurring at the time.

* The District maintained ambitious construction schedules:

o The District scheduled its BEX II projects one right after another. Each project required students to move to a temporary location until the school was complete. Once complete, students from the next scheduled school would be moved to the temporary location so construction on that project could commence. The District did not have the ability to extend the scheduled completion date of a project without affecting the schedules of all other projects. Therefore, additional costs were incurred to accelerate the work.

* The District developed project cost estimates prior to any actual design work on the projects, and prior to the market increase in labor and material costs.

* Many of the District’s projects were remodeling or renovation of historically significant buildings (i.e. Cleveland, Roosevelt, and Garfield). There is a higher risk of unforeseen issues during a renovation project compared with new construction. For example:

o The District encountered bedrock during excavation on the Cleveland project. Removal expenses added $1.7 million to the project cost and also forced the Program to increase its contingency funding.

o Demolition and replacement of failing flooring at Garfield High School triggered a $1.7 million project cost increase and a $1.9 million transfer from the District’s Capital Eligible Projects Fund to cover the cost.

Due to market conditions at the time, the District reduced or eliminated some projects and shifted others to BEX III. It also funded some projects through its Building, Technology and Athletics Facility (BTA) program.

We recommended the District and facilities department management improve its monitoring and oversight of the Program including improved recordkeeping, improved change order and contract modification review processes, and enforcement of contract provisions. These recommendations should improve transparency into how the District is funding BEX projects.

End of Auditor letter

Wonder where all the money goes? Now you know.

I'm not here to argue the point about when BEX II started, there was a huge shift in construction costs. But you know what you do when your budget starts to go south? You regroup and scale backThe minute they knew that the Cleveland project had hit bedrock, scale back. The minute the flooring at Garfield was problematic, scale back.

If you don't have the money, scale back. I don't care what the principal or staff or anyone else says. You build within your means. And, if you aren't going to fund maintenance thereafter, REALLY don't spend vast amounts of money.

You know what I didn't do for this post? I didn't add up the money because frankly, it would be too depressing to know the figure. This is real money, folks. If you check surrounding districts, they are building elementary schools, middle schools and high schools for a lot less. How can we be in the same region and spend so much more, project after project?

The SAO can make recommendations that will improve transparency all they want. It doesn't mean anything will change in Facilities. We can hope it will but the SAO keeps churning out audits on the operations side and very little changes.

Now in BEX IV, it might be somewhat different. For one, we aren't doing anymore high schools (unless they do Meany for SBOC which I doubt). So these will definitely mean smaller projects. At the BEX Oversight Committee meetings there has been talk of using a set of 3 blueprints for elementary schools to save money (there's a thought). Maybe we can get more projects done if we spend less per project (no more rotundas in K-8 buildings).

5 comments:

mirmac1 said...

You'll find that "material cost escalation" and "market conditions" are very convenient scapegoats for poor general conditions and engineer's estimates. Sounds like the Cleveland's GC/CM basically won the stare-down. Of course they didn't want to show their "privileged" negotiation documents, because what they did was illegal. They renegotiated the contract after the RFP process. The GC/CM was able to rewrite the contract after the fact.

S'funny because GC/CM is supposedly a less adversarial way to work with contractors. Too often, owners are in the unenviable position of being outgunned and bearing more risk than their "partner."

mirmac1 said...

It's nice when you tell levy voters "pay X amount in additional taxes and we'll get you A, B, and C" then, without accountability only deliver A and B, shifting the rest to yet more taxes.

That mindset kills me: build Taj Mahals and fill them with few teachers with minimal experience and/or no training (i.e. TFA). THAT'LL make us more competitive. Just because Gates Jr's home was a monument to himself doesn't mean we can also piss away that kind of money.

Jet City mom said...

Sounds like Seattle has bad timing ( amongst other things)

From 2010 article
by Chris Cole is a certified estimating professional, LEED Accredited Professional and associate value specialist at Meng Analysis, a sister company of Studio Meng Strazzara.


Studio Meng Strazzara recently completed design and bidding on three projects for the Northshore School District. All the bids were constructed during this favorable bid climate.

The projects, which included a new transportation center, Woodinville High School and the Secondary Academy for Success, all bid 20 percent to 25 percent less than what they would have cost a year earlier. What does this really mean?

It is old news that construction costs have fallen considerably, and nobody needs to read another article stating that fact. So what exactly costs so much less, and why?

mirmac1 said...

That is what the magic of competition give you (and what we miss out on when MGJ sole-sources to her buddies). More firms are looking for work and willing to take on more risk. Seattle uses a quasi-semi-competitive method with GC/CM which actually ends up costing us more money.

One thing to keep in mind is that those who prepare the Engineer's Estimate on hard-bid jobs are often the A&E firms, who are motivated to fluff the number so they don't look bad when all bids come in high which often leads to a rebid.

Furthermore, on GC/CM projects A&E fees are based on the estimated MACC (Maximum Allowable Construction Cost) so there's little motivation to low-ball estimates or value engineer.

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