HomeMy WebLinkAboutS21 - Civic Center Audit - Status ReportQ SEW Pp�,T
CITY OF
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cq<�Fo'P City Council Staff Report
June 28, 2016
Agenda Item No. S21
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Allyson M. Gipson, Vice President
Harris & Associates
PREPARED BY: Allyson M. Gipson, Vice President
TITLE: Civic Center Audit - Status Report
ABSTRACT -
In September of 2015, the City of Newport Beach ("City") solicited responses to a
Request for Qualifications for an auditing firm to conduct a close-out audit/post-
implementation analysis ("Close -Out Audit") of the Civic Center project ("Project").
Among other things, the Close -Out -Audit was to analyze: (1) how the Project grew in
cost, time and scope; (2) whether the contracts and amendments complied with
California law and industry standards; (3) how the Project may have followed or
deviated from standard industry practices; (4) the effectiveness of the value engineering
process; (5) the quality of the City's management of the Project; (6) the merits of the
Construction Manager at Risk delivery method; (7) how the Parking Structure compares
in cost to similar projects; (8) a review of the change order process; (9) a comparison of
the cost impacts of change orders issued on the Project to similar projects; (10) the cost
impacts of delays and plan alterations; and (11) the total Project costs as compared to
similar projects.
In November, 2015, the City retained the services of RW Block Consulting Inc. to
perform a performance and financial audit of the City's Civic Center complex. A draft
report was submitted on June 10, 2016, and preliminary results have been compiled.
RECOMMENDATION:
Please ask Ms. Gipson any questions you may have regarding the current status of the
audit or the preliminary findings.
FUNDING REQUIREMENTS:
Both Harris & Associates and RW Block Consulting, Inc. are within the budget
previously authorized by the City Council for this Civic Center Audit.
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DISCUSSION:
With regard to the eleven areas cited to be addressed by the audit, specific areas show
positive results. First addressing item (2), all contracts and amendments appear to be
in compliance with California public contract law and industry expectations. Second,
with regard to item (6) above, the draft audit confirms that the Construction Manager at
Risk (CMAR) delivery method was appropriate for the nature and complexity of this
project. And third, in relation to item (7) for the parking structure costs, the draft audit
notes that the City received a good value for the structure, with the final costs falling
well within industry standards for the time period that the parking structure was built.
However, the review of the remaining areas raised issues in several key aspects:
Over -Payment
The draft audit identifies more than $1.2 million in payments made to CW Driver without
substantiating documentation to justify the cost expenditures. The lack of clear financial
record-keeping on the part of the City and the PM made the review that much more
difficult.
Lack of Budget Control
Beyond the obvious differential between the original anticipated budget of $90 million
and the final Project cost of more than $135 million, the cause of the budget overruns is
significant.
1) The City staff provided little guidance to the Architect, Program Manager (PM)
and Construction Manager at Risk with regard to the process for the approval of
scope changes and increased cost items. Record-keeping on the nature of
changes and the approval process is sparse at best. In addition, the value
engineering efforts were of little value in reducing Project costs.
2) The Architect, Bohlin Cywinski Jackson, continued to proceed with design even
after early estimates indicated that the Project was exceeding the budget. The
cost of implementing the design was further impacted by the number of Requests
for Information, Design Bulletins, and Field Orders, which indicate a less -than -
comprehensive set of design documents, and the need to correct errors and
omissions on the part of the Architect.
3) The City hired CW Driver to serve as Program Manager to support the City's
efforts in the delivery of the Project. The Construction Management Association
of America (CMAA) is the Program Management and Construction Management
industry's standard-bearer for practices and procedures. As noted in the CMAA
Standards of Practice documents, a Program Manager is assigned the
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responsibility of managing all of the resources and relationships necessary to
achieve an owner's desired outcome. Typically the owner will engage the PM in
an agency capacity, where the PM is acting as the owner's representative,
defining and then protecting the owner's interests. The PM must utilize integrated
systems and procedures such as budgeting, estimating, scheduling,
procurement, and inspection to manage the planning, design, and construction
process. In this case, the PM failed to adequately document, manage, address
and control cost -related issues. This failure is further exacerbated by the inherent
conflict of interests when one firm serves as both the Program Manager and
Construction Manager at Risk. The CMAR acts as a general contractor during
the construction phase, with a focus on their own financial results, not the client's
financial and project interests.
Lack of Checks and Balance
Managing a project of this size and complexity to a specific budget and timeline requires
adequate control measures. Standard control measures include the review and
approval of design decisions and construction modifications by a skilled team of
professionals to ensure that proper standards are being observed. The City staff did not
appear to establish a procedural process to track the development of the Project
through design and construction. Further, the PM also failed to put these measures in
place. Consequently, the Project lacked adequate oversight, allowing for budget and
time overruns.
Lack of Documentation
A key discovery during the audit process was the lack of project documentation to fully
analyze the Project from start to finish. Examples include:
1) The lack of budget clarity at the outset of the Project, and continuing through
completion
2) Inconsistent Project data and reports from the PM;
3) Missing subcontractor bidding packages or documentation substantiating
portions of bids;
4) Missing support documentation for CMAR invoices; and
5) Lack of detail in pricing change orders.
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Lack of Sufficient Project Oversight by City Staff
The City took a proactive approach to delivering such a complex Project by hiring a PM.
However, failure to adequately manage and oversee the PM resulted in significant
departures from standard industry practices. For example, the regular receipt and
review of project reports and meeting minutes from the PM would have allowed the staff
to identify areas where the Project was trending negatively. Reviewing and closing out
all change orders as they occur — as opposed to leaving more than 70% of the change
orders to after completion — provides the most accurate information about the details of
a change and provides the most leverage for the City to negotiate. Both of these factors
were eliminated by closing out change orders after completion.
Recommendations
In order to provide sufficient budget and quality control on future projects, the City
should implement policies and procedures consistent with building industry standards
that correct the deficiencies identified by the Close -Out Audit. Building on the "lessons
learned" from the Civic Center project, the City should establish:
1) Policies and Procedures for project documentation, including the level of detail
required for bid alternates, monthly reports, meeting minutes, payment
applications, change orders and other project records.
2) Checks and balances on approvals related to design decisions and budget
impacts, including identified levels of authority and authorizations to proceed for
designers and builders.
3) Budget and cost control procedures for each project, detailing comprehensive
project costs and the nature of documentation required for design budget
changes and change orders.
4) Fiscal controls on project payments to ensure that consultants, contractors and
vendors receive payments only to the amount of their contracts with approved
amendments.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California
Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not
result in a direct or reasonably foreseeable indirect physical change in the environment)
and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA
Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no
potential for resulting in physical change to the environment, directly or indirectly.
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NOTICING:
This agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers this item).
ATTACHMENT:
Attachment A - Draft Executive Summary Prepared by RW Block Consulting, Inc.
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RW Block
Consulting, Inc.
ATTACHMENT A
City of Newport
Beach'
.0 \
Civic Center Audit
June 17, 2016
C7
Revision
Date
Comments
Rev 0
June 10, 2016
Initial Draft
Rev 1
June 17, 2016
Minor Edits
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RW Block City of Newport Beach
Consulting, Inc. Civic Center Audit
June 17, 2016
I. Cover Letter.............................................................................................................2
II. Executive Summary................................................................................................3
A. Background.........................................................................................................................................3
B. Scope.....................................................................................................................................................5
C. Key Findings........................................................................................................................................6
III. Detail........................................................................... Error! Bookmark not defined.
A. Program and Project Management ............ .............. Error! Bookmark not defined.
B. Project Cost Estimates ................................. ....... Error! Bookmark not defined.
C. Procurement ........................................ # ...................... Error! Bookmark not defined.
D. Design....................................................................................... Error! Bookmark not defined.
E. Guaranteed Maximum Price Amendments .............. Error! Bookmark not defined.
F. Invoicing ......................11ik%wv
............................ Error! Bookmark not defined.
G. Change Managemen................. ........ Error! Bookmark not defined.
H. Delivery Method........................................Error! Bookmark not defined.
I. Program Management Policies and Procedures...... Error! Bookmark not defined.
J. "What should the project have cost?.. .......................... Error! Bookmark not defined.
IV. Exhibits....................................................................... Error! Bookmark not defined.
A. Exhibit 1- Documents Relied Upon ............................. Error! Bookmark not defined.
B. Exhibit 2 - Unavailable Requested Documents........ Error! Bookmark not defined.
C. Exhibit 3 - Phase III - Selective Demolition Documents........... Error! Bookmark not
defined.
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I. COVER LETTER
June 17, 2016
Mr. Aaron Harp
City Attorney
City of Newport Beach
100 Civic Center Drive
Newport Beach, CA 92660
Subject: Civic Center Audit — Draft Report
Dear Mr. Harp,
City of Newport Beach
Civic Center Audit
June 17, 2016
R.W. Block Consulting (RWBC) has completed procedures related toforming an audit
on the City of Newport Beach's Civic Center project. The attached report outlines the scope
of the audit engagement, scope limitations, observations, and recommendations.
Our work was limited to the procedures and analysis described in the attached report, and
was based on the information provided to RWBC through June 9, 2016. No additional
information was provided during the review and comment period. RWBC reserves its right
to amend this report should additional information be provided subsequent to the date of
issuance.
We thank the management and staff of the City of Newport Beach and their consultants for
the cooperation, courtesy, and assistance provided as we performed our procedures.
Please contact me at (407) 256-0509, roy.block@rwblockconsulting.com or Derek Hennessey
at (617) 794-1528, derek.hennessey@rwblockconsulting.com should you have any questions
or require additional information regarding this report.
Sincerely,
Roy W. Block
President/CEO
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June 17, 2016
II. EXECUTIVE SUMMARY
A. BACKGROUND
Starting in the early 2000's the City of Newport Beach identified a need for
improvements to its existing administrative offices and facilities. Over the next several
years the City undertook various activities to identify and quantify deficiencies with the
existing administrative offices and facilities, and to evaluate options to mitigate such
deficiencies. Ultimately, the voting associated with a 2008 ballot initiative directed the
City to construct the new City Hall and Administrative offices (the "Civic Center") on City
property located adjacent to Newport Beach's Central Library. The Civic Center project
("the project") is comprised of a new City Hall, Council Chambers, a Community Room, a
450 space parking garage, an addition to the existing library, nd approximately 12 acres
of parks.
Following the approval of the ballot initiative, the City started the project development
process. In November 2008 the City Council approved the Design Committee's final
recommendation and selected Bohlin Cywinski Jackson (BCJ) to design the project, and
in January 2009 approved the recommendation from qualifications based process to
engage C.W. Driver as the Program Manager. In April 2010 the City Council approved
C.W. Driver's Construction Manager at Risk (CMAR) contract that included the
Construction Manager at Risk services and mass excavation scopes of work.
The project was divided into multiple phases to allow progressive construction to begin
as design was completed on discrete elements of the project. The total scope of the
project was ultimately approved by the City Council in six (6) phases:
Phase I — C.W. Driver Basic Services and Mass Excavation
Phase II — Design/Build Parking Structure
Phase III — Civic Center and Park
Phase IV —San Miguel Bridge
Phase V — Signage & Utilities at Library
Phase VI — Library Clerestory Window Replacement
The construction of the project started in May 2010 and was completed in April 2013.
TABLE 1 summarizes the project's costs and identifies costs that have not been included
on the reported total project costs:
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Table 1: Total Project Cost Summary
City of Newport Beach
Civic Center Audit
June 17, 2016
The $474,012 in additional library Furniture, Fixtures and Equipment (FFE) and $734,412in
IT/AV equipment were transferred out of project costs as they were funded by other
1 Per "Civic Center Expenditures Detail" Excel file with a modified date of January 12, 2016 provided by
the City's Finance department, "Civic Center by FY" tab.
2 Per the CMAR's final payment application's, payment application No. 44 dated March 14, 2014.
3 Per "Civic Center Expenditures Detail" Excel file with a modified date of January 12, 2016 provided by
the City's Finance department, "FFE" tab.
4 Per "Civic Center Expenditures Detail" Excel file with a modified date of January 12, 2016 provided by
the City's Finance department, "IT AV Equip" tab.
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In Project's
Total Cost'
Not Included in
Project's Total
Cost
Total
Soft Costs
Design
$ 17,324,980
$ -
$ 17,324,980
Program Management
3,186,611
-
3,186,611
Consultants
3,276,406
-
3,276,406
Soft Cost Subtotal
23,787,997
-
23,787,997
Hard Costs
CMAR Cost
114,466,752
2,399,430
116,866,1822
Other Hard Costs
259,411
-
1 259,411
Hard Cost Subtotal
114,726,163
2,399,430
117,125,593
Other Project Costs
Incidental Costs
161,184
-
161,184
Furniture, Fixtures and Equipment
2,784,724
474,012
3,258,7363
IT/AV Equipment
156,087
734,412
890,4994
Owner's Controlled Insurance Program
2,702,235
1
2,702,235
Other Project Costs Subtotal
5,804,230
1,208,424
7,012,654
Subtotal
144,318,390
3,607,854
147,926,244
Financing Costs
4,806,192
4,806,192
Total
$149,124,582
$3,607,854
$152,732,436
The $474,012 in additional library Furniture, Fixtures and Equipment (FFE) and $734,412in
IT/AV equipment were transferred out of project costs as they were funded by other
1 Per "Civic Center Expenditures Detail" Excel file with a modified date of January 12, 2016 provided by
the City's Finance department, "Civic Center by FY" tab.
2 Per the CMAR's final payment application's, payment application No. 44 dated March 14, 2014.
3 Per "Civic Center Expenditures Detail" Excel file with a modified date of January 12, 2016 provided by
the City's Finance department, "FFE" tab.
4 Per "Civic Center Expenditures Detail" Excel file with a modified date of January 12, 2016 provided by
the City's Finance department, "IT AV Equip" tab.
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RW Block
Consulting, Inc.
City of Newport Beach
Civic Center Audit
June 17, 2016
funding sources'. A total of $2,399,430 for the final claims settlement between the City
and C.W. Driver on February 25, 2014 that was funded from the City's General Liability
Fund as a Non -Tort Settlement, and even though this was not included in the project's
total costs it was included in the Construction Manager at Risk's final cost of
$116,886,182 stated on the Construction Manager at Risk's final payment application.
B. SCOPE
The goal of this audit is to provide an overview of the Project costs by Project area (i.e.,
Parking Garage, City Hall, etc.) and, where appropriate and information available, a
detailed analysis of specific Project costs and/or areas. To accomplish this goal the
following scope of work for the audit was developed to analyze: (1) how the Project
budget increased, time extended, and scope implemented; (2) whether the contracts and
amendments thereto complied with California law as well as industry standards from a
business perspective 6; (3) how the Project may have followed or deviated from applicable
standard private industry practices for construction method and construction
management; (4) the effectiveness of the value engineering process; (5) the quality of the
City's management of the Project; (6) the merits of the Construction Manager at Risk vs.
other construction delivery methods; (7) how the Project compares on a per square foot
or parking stall basis to similar projects of this size and scope; (8) a review of the change
order process, the amount of change orders, and whether the change orders were within
industry norms; (9) a comparison of the cost impacts of change orders issued on the
Project to similar projects; (10) the cost impacts of delays and plan alterations; and (11)
the total Project costs as compared to similar projects.
As will be discussed, our work was impacted by the lack of availability of a complete set
of project documents. However, we believe we have been able to achieve the goal of the
audit, even though there were areas of the specified scope where we could not perform
any procedures or only limited procedures. Assessing the value engineering process,
and the cost impacts of delays and plan alterations are two areas where we could not
perform any procedures due to insufficient information, such as more complete value
information documentation, value engineering analysis of items assessed, and more
complete project scheduling information. If additional information is made available this
could result in changes to our observations and recommendations.
A list of documents that RWBC relied upon to perform this engagement is included as
EXHIBIT 1. Additionally, a list of documents that RWBC requested but were not able to
be produced is included as EXHIBIT 2.
' Per "Civic Center Expenditures Detail" Excel file with a modified date of January 12, 2016 provided by
the City's Finance department, "Civic Center by FY" tab. The Additional Library FFE was funded by the
"BET Fund" and the IT/AV Equipment was funded by "IT Fund 6420-9300".
6 RWBC requested that the applicable California Laws be identified to ensure we were assessing
compliance from a business perspective to the appropriate laws. These applicable laws were not
identified. Therefore, we could not complete this aspect of the work.
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C. KEY FINDINGS
City of Newport Beach
Civic Center Audit
June 17, 2016
1. The CMAR was paid amounts in excess of its allowable costs
Our analysis of the Construction Manager at Risk's payment applications and
Accounts Payable (AP) information for the project identified the Construction
Manager at Risk has been paid $116,866,182, but has incurred no more than
$115,632,049 in allowable costs. Therefore, it appears the Construction Manager at
Risk has been overpaid by at least $1,234,133.
The information provided by the Construction Manager at Risk did not include
payment applications with the typical supporting documentation such as
subcontractor payment applications, supporting documentation for reimbursable
general conditions costs and support for Construction Manager at Risk staffing costs,
which required RWBC to analyze the Construction Manager at Risk's Accounts
Payable records to assess the costs incurred by the Construction Manager at Risk for
the project. Our review of the Accounts Payable records shows that the maximum
amount of allowable costs was $115,632,0497. Given the Construction Manager at
Risk has not provided support for the Construction Manager at Risk labor costs or
hours invoiced, our analysis utilizes the Construction Manager at Risk labor costs
from the Construction Manager at Risk's payment application 44.
2. Over budget since conceptual design
We found that estimated construction costs exceeded the established budget
parameters from Conceptual Design through the Permit Set, or in other words, the
entire project development process. With the exception of the Parking Garage, the
efforts to reduce the construction costs were unsuccessful. TABLE 2 summarizes the
budget parameters established during the Design Competition for the "hard costs"$
of the major scopes of work, with are referred to as the City's General Design
Parameters ("GDP"). We noted the assumption was the Park and Site Work unit cost
budget includes the site preparation costs, which were contracted as the Mass
Excavation scope included in Phase I.
RWBC analyzed the CMAR's "AP Job Transactions Drilldown" report dated February 10, 2016, the
CMAR's subcontractor paid invoice files, and the CMAR's vendor paid invoice files for all costs, except
the CMAR's labor costs, insurance costs, and CMAR fee. For the labor costs we utilized the value from
the CMAR's final payment application, and for the insurance costs we applied the 0.91% to Phase I
costs and 0.71% to all other costs, and we applied 3.25% for the CMAR fee to all costs.
8 "Hard Costs" are the construction costs for a project, and for the purposes of this report these are all
of the CMAR's costs, not just the CMAR's trade/subcontractor costs.
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Table 2: Project Hard Cost Budget Parameters
City of Newport Beach
Civic Center Audit
June 17, 2016
The last complete project estimate by C.W. Driver9 that was available for our review
was the "Permit Set" estimate dated October 15, 2010. TABLE 3 compares the
budgeted quantities of work for the major components of the project to the
quantities included in C.W. Driver's estimates at the various stages of design.
Table 3: Budgeted to Final QuantitComparison
City Hall
Parking
Garage
Parks & Site
Work
Total
Unit Cost Budget Range
$400-$450
$20 -$25,000
$15 - $20
incl. site prep
80,000
Unit of Measure
(A
parking space
(sf)
1 450
Budgeted Quantities
80,000
450
600,000
101,680
Budget Unit Price
$450.00
$25,000
$20.00
450
GDP Budget
$36,000,000
$11,250,000
$12,000,000
$59,250,000
The last complete project estimate by C.W. Driver9 that was available for our review
was the "Permit Set" estimate dated October 15, 2010. TABLE 3 compares the
budgeted quantities of work for the major components of the project to the
quantities included in C.W. Driver's estimates at the various stages of design.
Table 3: Budgeted to Final QuantitComparison
As illustrated by TABLE 3 the City Hall project's scope increased significantly from the
beginning of the design process through final design, and the Parks and Site Work
9 The Designer also engaged an estimator (C.P. O'Halloran), but for most of our analysis we will utilize
the C.W. Driver estimates. We will compare aspects of the C.W. Driver and C.P. O'Halloran estimates
on the "Detail" section of the report.
to C.W. Driver's April 10, 2009 Conceptual Design estimate.
11 C.W. Driver's April 7, 2010 Design Development estimate.
12 C.W. Driver's August 6, 2010 50% Construction Documents estimate.
13 C.W. Driver's October 15, 2010 Permit Set estimate.
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City Hall
Parking
Garage
Parks & Site
Work
Unit of Measure
(sf)
parking
space
(sf)
Budgeted Quantities
80,000
450
600,000
Conceptual Design10
96,184
1 450
562,294
Schematic Design
Estimate was not provided
Design Development"
101,680
450
524,948
50% Construction DocumentS12
102,255
450
619,078
Final Design Quantities13
102,656
450
619,078
Final Quantity Variance
22,656
0
19,078
% Variance
28.32%
0.00%
3.18%
As illustrated by TABLE 3 the City Hall project's scope increased significantly from the
beginning of the design process through final design, and the Parks and Site Work
9 The Designer also engaged an estimator (C.P. O'Halloran), but for most of our analysis we will utilize
the C.W. Driver estimates. We will compare aspects of the C.W. Driver and C.P. O'Halloran estimates
on the "Detail" section of the report.
to C.W. Driver's April 10, 2009 Conceptual Design estimate.
11 C.W. Driver's April 7, 2010 Design Development estimate.
12 C.W. Driver's August 6, 2010 50% Construction Documents estimate.
13 C.W. Driver's October 15, 2010 Permit Set estimate.
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RW Block
Consulting, Inc.
City of Newport Beach
Civic Center Audit
June 17, 2016
scope became slightly over budget between the Design Development and 50%
Construction document phase. We note that our review of the estimates shows that
the primary driver of the Parks and Site work variances between the phases is the size
of the wetland areas, and whether the wetland areas are included in the totals14
TABLE 4 summarizes the project's estimated hard costs as prepared by C.W. Driver
prior the start of construction on the City Hall component to the budgeted values
and RWBC's "Adjusted" Permit set estimate costs:
Table 4: Unit Hard Cost Comparison
The manner in which the actual costs have been provided to RWBC, prevents us from
including accurate comparable actual cost values in the above analysis. However,
RWBC's "Adjusted Permit Set" estimate's total value is within 0.15% of the total
construction costs invoiced by the Construction Manager at Risk, and should be a
good proxy for the actual costs. The RWBC "Adjusted Permit Set" Estimate utilizes
C.W. Driver's Permit Set estimate, but adjusts the Construction Manager at Risk
contingency from 3% to 7.5% given the level of the design's completion at that point
in time, and the inflation from -5% to 0% given the contemporaneous information
available regarding construction costs in the third quarter of 2012.
As shown in TABLE 4 above, the project team did take effective actions to deliver the
garage within the established budget range. However, value engineering and design
management efforts at either Conceptual Design and Permit Set were not effective in
yielding savings for the balance of the project that were within budgets established
as part of the design competition.
14 The Conceptual Design estimate identifies 23,952 sf of wetlands in the total, and the 50%
Construction Documents estimate identifies 74,020 sf of wetlands in the total, while the Design
Development estimate does not specifically identity any wetlands in its total. Given the wetlands
appear to be existing conditions (i.e. not being created), we are not certain whether the wetland areas
should be included in the total Parks area, as these areas are not being constructed (they actually
need to be avoided by the construction activities). Including the wetland areas in the total will result
in the unit cost for the Park work appearing to be a lower value than it would otherwise be.
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Conceptual
RWBC
Design
Permit Set
Adjusted
Budget
10 -Apr -09
15 -Oct -10
Permit Set
City Hall
$400/sf - $450/sf
$570.51/sf
$592.62/sf
$640.34/sf
Parks and
Site Work
$15/sf - $20/sf
$56.34/sf
$43.75/sf
$47.71/sf
$20,000—
Garage
$25,000 /space
$32,738/Space
$17,144/space
$18,430/space
The manner in which the actual costs have been provided to RWBC, prevents us from
including accurate comparable actual cost values in the above analysis. However,
RWBC's "Adjusted Permit Set" estimate's total value is within 0.15% of the total
construction costs invoiced by the Construction Manager at Risk, and should be a
good proxy for the actual costs. The RWBC "Adjusted Permit Set" Estimate utilizes
C.W. Driver's Permit Set estimate, but adjusts the Construction Manager at Risk
contingency from 3% to 7.5% given the level of the design's completion at that point
in time, and the inflation from -5% to 0% given the contemporaneous information
available regarding construction costs in the third quarter of 2012.
As shown in TABLE 4 above, the project team did take effective actions to deliver the
garage within the established budget range. However, value engineering and design
management efforts at either Conceptual Design and Permit Set were not effective in
yielding savings for the balance of the project that were within budgets established
as part of the design competition.
14 The Conceptual Design estimate identifies 23,952 sf of wetlands in the total, and the 50%
Construction Documents estimate identifies 74,020 sf of wetlands in the total, while the Design
Development estimate does not specifically identity any wetlands in its total. Given the wetlands
appear to be existing conditions (i.e. not being created), we are not certain whether the wetland areas
should be included in the total Parks area, as these areas are not being constructed (they actually
need to be avoided by the construction activities). Including the wetland areas in the total will result
in the unit cost for the Park work appearing to be a lower value than it would otherwise be.
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3. Same firm served as both the Program Manager and CMAR
The City selected the same firm to serve as both the Program Manager and
Construction Manager at Risk. Utilizing the same firm for both roles is not a best
practice as these two functions typically serve competing financial interests. A
Program Manager is retained to act as the owner's representative, and represent the
owner's interests (such as controlling costs, schedule, scope, and claims avoidance,
for example). The "at risk" in Construction Manager at Risk identifies the CM has
profit and loss exposure, and therefore their own commercial considerations may
take precedent over the owner's interests. As such, there is an inherent conflict and
likely lack of segregation of duties when the same firm is selected to perform both of
these roles. Based on the documents reviewed, it does not appear the relationship
between the Program Manager and Construction Manager at Risk negatively
impacted the City in a significant manner. This was one of the largest issues with the
execution of the project delivery approach chosen by the City. It should be noted
that we have observed what appears to be comingling of the Program Manager's
costs with the Construction Manager at Risk's costs, in the form of expense reports
for the Program Manager's staff being included with the Construction Manager at
Risk's Accounts Payable records. Given labor records were not provided for the
Construction Manager at Risk's scope, we could not identify if the same staff were
also filling roles on both the Program Management and Construction Manager at
Risk scopes of work.
4. Project Documents
A complete set of key project documents was not made available to RWBC to use for
this evaluation. This is the result of the City not having a complete set of archived
project documents, the Program Manager not recognizing the contractual
requirement under its Program Management contract to provide RWBC with access
to all documents, and the Construction Manager at Risk primarily providing limited
financial and cost records per the contractual requirements of its Construction
Manager at Risk contract. The lack of pertinent project information creates
information gaps that (1) may result in unsupported costs being identified through
an audit; (2) City and/or Construction Manager at Risk may not be able to answer
critical questions or properly defend positions taken during the implementation of
the project.
5. Project Reporting
We found that project level reporting was inconsistent in data presented to various
stakeholders and that the frequency of reporting periods was not standard. TABLE 5
lists the various project update reports we observed that were provided to the City
Council:
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Table 5: Project Update Reports Summary
City of Newport Beach
Civic Center Audit
June 17, 2016
Date
Subject
Content Summary
New City Hall and Park Project:
98,000 sf vs, 75,000 sf, $84.8M "hard cost", "hard costs"
Consideration and Approval of
per unit (sf, space, cubic yard), and discussion on unit
14 -Apr -09
Concept Design, Direction for
cost budget parameters. PV, San Miguel bridge, and
Schematic Design Phase
Parking Garage trellis system included in costs.
Civic Center Update -
Focuses on size of building. Does not aggregate City
Size/Scope/Square Footages
Hall, EOC, Council Chambers and Community Room
11 -Aug -09
areas (they total 99,407). No budget values provided,
only a discussion in budget vs. estimated, and
suggests that a project is not over budget until bids
are received.
City Council Minutes - Civic
Discussion on why financing $140M if the project may
Center Update
cost $80M. Includes two "Options and Phasing Charts"
27 -Oct -09
that indicates the project's cost could range from
$100M to $140M.
Civic Center Update
Discusses project cost estimates ranging from $82m to
$140M. Includes updated "Options and Phasing
10 -Nov -09
Charts". Minutes reflect Council Members statements
that the project costs should not exceed $100M to
$105M.
2010 Civic Center Financing
Provides "target" all -in estimated costs for the project
Overview and Related
at the various design phases, including $123M at the
09 -Nov -10
Documents
construction document phase, with a breakdown of
the costs by project element. Including financing costs
this value raised to $128M.
NB Civic Center Project (cost
A project cost forecast showing the project's costs
forecast)
ranging from $124.9M to $135.5M was included with
22 -Feb -11
the CMAR's Guaranteed Maximum Price Amendment 3
approval documents provided to the City Council
Newport Beach Civic Center
Discusses progress, contingency usage, value
09 -Aug -11
Construction Update
engineering, and construction cost values.
Civic Center & Park Close-out
Discusses project's hard costs of $112.8M and total
11 -Jun -13
Accounting
project costs of $139.9M. Also discussed cost drivers.
As TABLE 5 illustrates reports towards the latter part of the project were issued less
frequently, and the content of the repots was inconsistent. Additionally, we observed
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that 13 issues of a project newsletter were published between April 2011 and
October 2012.
As discussed in TABLE 5 the only instance where cost per unit (i.e. square foot,
parking space, etc.) appeared to be presented was in April 14, 2009, and in this
instance only the "hard costsi" per unit for various components were reported. Cost
per units are examples of key metrics, as this is how the target budget values were
relayed in the design competition. While we did not observe other unit costs, as also
discussed in TABLE 5 we observed the total values for aspects of the project reported
throughout the project, but not in a consistent manner (i.e. hard costs, total project
costs, construction costs have all been presented but not reconciled to one another
in their presentations). By not reporting the costs on a unit basis the overruns
associated with the target budgets for the components would not have been as
apparent.
In summary, we observed evidence of project reporting to various entities (i.e. City
Council and the public) throughout the project, though the reporting did appear to
become less frequent as the project progressed. The consistency and content of the
reporting, as well as reporting at prescribed intervals, are areas for potential
improvement, as routine reporting ensures the stakeholders are updated at the
appropriate intervals, and a consistent reporting format ensures the same
information is reported at each interval which allows for variance analysis to the prior
intervals information.
6. City led procurement
Copies of the City's procurement documents related to the project were requested,
but were not made available. Given this limitation, we based our City -lead
procurement findings based on ad-hoc procurement related documents that were
provided and information contained in various City Council agenda items. For the
City -lead contract awards reviewed, all except for two (2) project consultants, and
possibly the Construction Manager at Risk contract, appeared to followed the City's
policies which are well aligned with industry leading practices. We observed that in
two (2) instances16, consultants on the project with contract values in excess of
$75,000 may have been procured on a sole source basis, which does not appear to
comply with the City's procurement guidelines; we have emphasized "may have
been", as we do not have complete documentation, but the wording in the City
Council items suggest these may have been sole sourced.
is These costs were reported as "hard costs", which were noted to exclude certain elements of the
CMAR costs, and therefore were not reported inaccurately. Better descriptions of these costs are
trade costs or "direct costs". In our experience "hard costs" generally refer to the total direct cost of
the work or all CMAR costs, not just the CMAR's "direct costs" which typically are limited to trade
subcontracted work.
16 The two (2) contracts that may have been sole sourced were the Anderson Penna — Plan Check and
Inspection Services, and Leighton Consulting — Geotechnical Exploration and Consulting contracts.
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7. Construction Manager at Risk Procurement
The wording in the City Council agenda item was ambiguous as to the manner in
which the Construction Manager at Risk contract award was conducted. A
September 14, 2010 presentation indicated the Construction Manager at Risk scope
was a follow-on to the Program Manager's scope. As discussed above, it is not an
industry practice to have the program manager serve in a project management
capacity as well as act as the builder of the project. Therefore, under normal
circumstances we would not consider a Construction Manager at Risk scope to be an
extension of a Program Manager's scope, as these scopes are generally performed by
two different firms given their competing interests in roles performed. Given the
same firm performed both roles on this project, we evaluated the Program Manager
Request for Qualifications (RFQ) and contracts/contract amendments to assess if the
Construction Manager at Risk scope was procured as part of the Program Manager
procurement process.
The Program Manager Request for Qualifications discussNth(3) phases of work:
Phase I — Pre -Design Management Services
Phase II — Design Management Services
Phase III — Construction Management Services.
We reviewed the three (3) Professional Services Agreements (PSAs), or amendments
to Professional Services Agreements, for the Program Manager and determined the
three (3) phases were incorporated in these Professional Services Agreements.
Therefore, it does not appear the Program Manager Request for Qualifications, or
award selection, included Construction Manager at Risk services. Additionally, the
form of the Construction Manager at Risk contract was different from the Program
Manager contract(s) (Construction Manager at Risk contract vs. Professional Services
Agreement), which would be another indication these services were not procured
together. Therefore, it appears there may be questions with a third contract award
with regards to complying with the procurement policies.
8. Design competition — construction cost evaluations
The evaluation criteria for the design competition includes a section and weighting
for incorporating the construction costs of the proposed designs. However, it was
not clear to us if specific requirements for providing detailed cost estimates were
required as part of the competition, and how the construction cost aspects of each
proposal were ultimately incorporated into the scoring. TABLE 6 summarizes the
hard cost construction estimates provided by the various designers who participated
in the design competition17.
17 With the exception of the "Notes" column, this table was Attachment I to the Design Committee's
report to the City Council. The information contained in the "Notes" column, was also included in
Attachment I.
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Table 6: Hard Cost Estimates from Design Competition
Based on the TABLE 6, and the information contained in "Attachment I" to the Design
Committee's report, the level of hard cost information provided by the designers
varied. Additionally, RWBC notes, that the values for Bohlin Cywinski Jackson do not
contain site preparation costs cost, but the estimate for the rest of the designers do
contain site preparation costs. Therefore, this not an accurate comparison, and
depending on how the cost points awarded, this inaccuracy could have impacted the
rankings.
Additionally, f the recommendations from the Design Committee was:
"3rd Party Cost Estimator. Get a 3rd party cost estimate for each of the designs
deemed a feasible alternative design by the City Council.
• NOTE: The cost information provided was rough and should be verified. 1118
From the documents we reviewed, we did not observe that this action occurred. We
would also state, that having the selected design firm hire a cost estimator, would
not appear to address this action item, as these estimates would be prepared as the
design progresses, and the action item appeared to suggest an assessment before
the award of the design contract.
9. Subcontractor Bidding
The Construction Manager at Risk subcontract files contained information for 62
subcontracts, but the Construction Manager at Risk provided bid information on only
42 subcontractor bid packages. We observed a number of instances were documents
were missing from the bid files provided, and that six (6) bid packages had less than
18 November 12, 2008 "City Hall and Park Design Committee Report" presentation to the City Council.
We also noted a similar statement in the body of the Design Committees recommendations.
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Parking
Parks &
Firm
City Hall
Garage
Site Work
Total
Notes
City's GDP Budget
$36,000,000
$11,250,000
$12,000,000
$59,250,000
Bohlin Cywinski
Excludes site preparation
Jackson
$36,763,102
$11,250,000
$12,000,000
$60,013,102
costs
Gonzalez Goodale
$32,375,549
1 $20,819,329
1 $10,747,980
$63,942,858
Includes site preparation
Johnson Fain
Detail not provided. Only the total.
$69,000,000
Includes site preparation
Includes $3.47M for site
LPA
$38,799,209
$13,323,719
$19,603,284
$71,726,212
preparation
Excludes $1.89M in
planned bridges. Includes
$5.6M for site preparation
Rossetti
$37,143,000
$15,165,000
$22,571,000
$74,879,000
and soil export
Based on the TABLE 6, and the information contained in "Attachment I" to the Design
Committee's report, the level of hard cost information provided by the designers
varied. Additionally, RWBC notes, that the values for Bohlin Cywinski Jackson do not
contain site preparation costs cost, but the estimate for the rest of the designers do
contain site preparation costs. Therefore, this not an accurate comparison, and
depending on how the cost points awarded, this inaccuracy could have impacted the
rankings.
Additionally, f the recommendations from the Design Committee was:
"3rd Party Cost Estimator. Get a 3rd party cost estimate for each of the designs
deemed a feasible alternative design by the City Council.
• NOTE: The cost information provided was rough and should be verified. 1118
From the documents we reviewed, we did not observe that this action occurred. We
would also state, that having the selected design firm hire a cost estimator, would
not appear to address this action item, as these estimates would be prepared as the
design progresses, and the action item appeared to suggest an assessment before
the award of the design contract.
9. Subcontractor Bidding
The Construction Manager at Risk subcontract files contained information for 62
subcontracts, but the Construction Manager at Risk provided bid information on only
42 subcontractor bid packages. We observed a number of instances were documents
were missing from the bid files provided, and that six (6) bid packages had less than
18 November 12, 2008 "City Hall and Park Design Committee Report" presentation to the City Council.
We also noted a similar statement in the body of the Design Committees recommendations.
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three (3) responsive bidders. It is common industry practice to require at least three
(3) responsive bidders, and this would align with the general City procurement
policies as well. Of the six (6) packages with less than three (3) bidders, the elevator
package is the only package where competition is sometimes limited given a small
number of elevator manufacturers.
The Construction Manager at Risk appeared to follow the standard industry practice
of evaluating and "normalizing" the bids to allow for comparison of equivalent
scopes of work. However, we observed a number of relatively large "normalization"
values, which in some cases impacted which firm was the low adjusted bidder, and
no support was provided for the normalization values (i.e. line items describing what
was being normalized, and the associated value). It is a common practice to provide
the details to support the normalization values. TABLE 7 below provides examples of
the four (4) largest positive and two (2) largest negative bid normalization values we
observed:
Table 7: Largest Bid Normalization Values
10.Constructability/Design Errors and Omissions
Based on the project's coding of changes, a large number of changes, representing a
significant cost, were attributable to design errors and omissions. Additionally, we
observed:
There were 1,724 Requests for Information (RFIs).
There were 3219 design bulletins for the project (excluding the mass
excavation component), with the first dated January 20, 2011 and the last
dated July 19, 2013, which revised approximately 73 specification sections
and 1,845 drawings.
19 We have excluded bulletin 26.1 which appears to be administrative in nature and appears to be
associated with receiving the certificate of occupancy.
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Scope
Bid Value
Normalization
Value
Adjusted Bid
Value
Normalization
as % of Bid
Value
(A)
(B)
(Q=(A)+(B)
(D)=(B)/(A)
Phase 2
Garage - Sub
$ 1,446,477
$1,510,683
$2,957,160
104.4%
Phase 3
Site Concrete
4,988,000
1,037,000
6,025,000
20.8%
Phase 3
CIP Concrete
3,218,262
994,135
4,212,397
30.9%
Phase 3
HVAC
5,953,000
953,529
6,906,529
16.0%
Subtotal
$15,605,739
$4,495,347
$20,101,086
28.8%
Phase 3
Misc. Metals
$1,213,000
$ (200,882)
$1,012,118
-16.6%
Phase 3
Access Flooring
2,275,421
(165,073)
2,110,348
-7.3%
Subtotal
$3,488,421
$ (365,955)
$3,122,466
-10.5%
10.Constructability/Design Errors and Omissions
Based on the project's coding of changes, a large number of changes, representing a
significant cost, were attributable to design errors and omissions. Additionally, we
observed:
There were 1,724 Requests for Information (RFIs).
There were 3219 design bulletins for the project (excluding the mass
excavation component), with the first dated January 20, 2011 and the last
dated July 19, 2013, which revised approximately 73 specification sections
and 1,845 drawings.
19 We have excluded bulletin 26.1 which appears to be administrative in nature and appears to be
associated with receiving the certificate of occupancy.
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There were eight (8) design bulletins associated with the mass excavation
component, with the first dated March 31, 2010 and the last August 30, 2011,
which revised approximately 19 specification sections and 46 drawings.
There were 676 field orders (which are field issued design changes). These
changes were formally incorporated through design bulletins and account for
approximately 30 specification section and 698 drawing bulletin revisions.
These are clear indications that significant amounts of additional information, and/or
clarifications to the plans and specifications, were required.
While the designer obviously has responsibility for its design, the Program Manager'
preconstruction and construction phase scopes of work include design management
and constructability reviews. Therefore, the program manager also has responsibility,
as many of these issues could have been identified and addressed during the design
management processes and constructability reviews.
Leading practices would include incorporating design progress package and
constructability reviews in the Construction Manager at Risk contract as well (typically
referred to as preconstruction services). The Construction Manager at Risk contract
for this project did not include these scopes, and given the Construction Manager at
Risk contract was not approved until April 2010 there would have been limited
opportunity for the Construction Manager at Risk to perform these reviews as the
mass excavation work was approved at the same time, and the design for the balance
of the project was on the construction documents phase in April 2010.
11. Estimated costs in the Guaranteed Maximum Price Amendments
The Guaranteed Maximum Price Amendment (GMP) submissions included significant
amounts of estimated costs. Although the use of estimates to set a Guaranteed
Maximum Price Amendment value is not an uncommon practice, we found there was
no process to reconcile the estimated values to be bid values and how the work was
actually awarded. We observed that in general the Guaranteed Maximum Price
Amendment line item values were used on the Schedule of Values (Schedule of
Values) of the Construction Manager at Risk's payment application S20, but support
was not provided for the estimated cost component (discussed further in the next
item).
To illustrate this issue, as well as other issues throughout the report, we have
assembled documents associated with the Phase III — Selective Demolition scope of
work in EXHIBIT 3. The TABLE 8 summarizes the pertinent information from EXHIBIT
3 related to this issue:
20 The one exception was for Phase IV - San Miguel Bridge. For the San Miguel Bridge, the CMAR
appears to have updated the GMP estimate after the scope was approved, and used the updated
values as opposed to the values from the estimates included with the GMP approval package.
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Table 8: Estimated Costs in GMP and SOV Example
City of Newport Beach
Civic Center Audit
June 17, 2016
Selective Structure Demolition
Value
Exhibit 3
Reference
Phase III GMP — Summary
$263,725
"TV -1"
Phase III GMP — Detail
Subcontractor Proposal
$164,000
"SCV-1" and "BID -1"
Estimated Costs
99,725
1 "TV -1" minus "SCV-1"
Total
$263,725
"TV -2"
CMAR Payment Application No. 12
$263,725
"TV -3"
As TABLE 8 illustrates the Phase III Guaranteed Maximum Price Amendment included
$263,725 for Selective Structure Demolition, but the subcontractor proposal was for
$164,000. The balance of these costs were estimated costs.
A leading practice for Guaranteed Maximum Price contracts in thNpDu issector is to
establish a process where all costs elements must be contracted prior to allowing the
Construction Manager at Risk to invoice for these cost elements. Such a leading
practice provides transparency into the nature of the cost, contracted values and
invoicing, and prevents invoicing for costs on elements for which the method of
reimbursing costs has not been approved.
12.Construction Manage rRisk Invoicing
The CMAR payment a"pplic tions provided did not contain any supporting
documentation other than the Construction Manager at Risk's Schedule of Values. Is
it standard practice under most Guaranteed Maximum Price contracts for the
Construction Manager at Risk to provide copies of the subcontractor payment
applications, as well as other supporting documents for general conditions and
general requirements, such as time summaries for staff billed on a rates and hours
basis, supporting payroll costs, and invoices for reimbursable costs with their
payment applications.
As requested, the Construction Manager at Risk did provide copies of their
subcontractor invoices and other project vendor files for our review. However, the
manner in which the subcontractors presented their costs on their Schedule of Values
did not allow us to be able to match the subcontractors' or other project vendors'
costs to the line items on the Construction Manager at Risk's Schedule of Values.
To illustrate this issue, as well as other issues throughout the report, we have
assembled documents associated with the Phase III — Selective Demolition scope of
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work in EXHIBIT 3. TABLE 9 summarizes the pertinent information from EXHIBIT 3
related to this issue:
Table 9: Schedule of Values Line Item Invoiced Amounts
Selective Structure Demolition
Period
End
Completed
and Stored
Value
Exhibit 3
Reference
CMAR Payment Application No. 12
30 -Apr -11
$ 12,200
"INV -1"
Sub Payment Application No. 01
30 -Apr -11
$ 14,260
"INV -6"
Variance
$(2,060)
CMAR Payment Application No. 18
31-tT
N41,883
"INV -2"
Sub Payment Application No. 02
31 -Oct -11
$24,833
"INV -7"
Variance
$17,050
CMAR Payment Application No. 19
30 -Nov -11
$60,423
"INV -3"
Sub Payment Application No. 03
30 -Nov -11
$60,423
"INV -8"
Variance
$ -
CMAR Payment Application No. 39
31 -Jul -13
$260,598
"INV -4"
Sub Payment Application No. 11
31 -Jul -13
$240,738
"INV -9"
Variance
$ 19,860
CMAR Payment Application No. 4321
28 -Feb -14
$260,598
"INV -5"
Sub Payment Application No. 1122
31 -Jul -13
$240,738
"INV -9"
Variance
$ 19,860
As TABLE 9 illustrates in three of the four instances (we are not "counting" the last set
in the table, as it was included to show the value did not change Construction
Manager at Risk's final payment applications the values did not match, and in two of
the three the value exceeded the subcontractor's invoiced value, for which support
had not been provided. Additionally, as will be explained in the body of the report
the subcontractor's final value of $240,738 includes at least $39,553 associated with
the Library Clerestory Window Replacement, which is Phase VI work, not Phase III,
and $19,400 for work that appears should have been back -charged to other line
items as it was included in other subcontractor's scopes of work. Removing these
21 We utilized CMAR Payment Application No. 43 because the copy was much clearer than No. 44, and
the information for this line item was the same.
22 We utilized Subcontractor Payment Application No. 11 because it was their final payment
application.
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values results in a total of $181,758 or $78,813 less than was invoiced on this line
item. Support has not been provided for the $78,813 in costs.
A leading practice is to require the subcontractors to present their costs in a manner
that allows them to be matched to the Construction Manager at Risk's Schedule of
Values line items, and for the Construction Manager at Risk to include the other
vendors' costs in a manner so they can be matched to the Schedule of Values' line
items as well. The lack of supporting documentation that matched the Schedule of
Values' line items is what caused RWBC to perform the total construction cost
analysis described above to assess the Construction Manager at Risk's allowable
costs.
As mentioned previously, the Guaranteed Maximum Price Amendment line item
values were used for the payment application Schedule of Values line item values.
However, in many instances these line item values included estimated costs. Support
has not been provided for any of the estimated costs, yet all the Guaranteed
Maximum Price Amendment line items have been fully invoiced. TABLE 8 and TABLE
9 illustrate these points for one -line item and subcontractor, but based on our
observations this was a common practice and occurrence.
13.Change management - Costs
The Construction Manager at Risk contract did not provide any guidance on pricing
change orders. The subcontract language did provide guidance in some areas for
pricing Change Order Requests (CORs), but did not provide guidance on allowable
labor and equipment rates for pricing change orders. Therefore, we could not test
the labor and equipment rates for contractual compliance, but we did perform
reasonableness testing on the labor rates utilized for pricing change orders.
Insufficient information was provided to allow us to accurately perform
reasonableness testing on the equipment rates.
From the testing of the change orders we were able to perform, we found that
several supporting documents were missing, material costs were rarely supported
with quotes or invoices, and there were instances where potentially unallowable costs
were included in the change order values. In our test sample, the value of potentially
unallowable costs was less than 2% of the value of the changes in the sample.
Additionally, based on our benchmarking analysis which utilized prevailing wage
rates in Orange County, CA and CalTrans "Labor Surcharge" multipliers, in general,
the labor rates used to price Change Order Requests appeared to be reasonable.
There was evidence that a review process was in place, as we observed hand written
modifications that reduced costs, and the value of potentially unallowable costs is a
fairly low percentage of the change order test sample's total value, which provides a
level of comfort the approved values were not unreasonable.
However, the following issues we observed are indications that the review process for
Change Order Requests may not have been a thorough as it could have been:
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Certain Change Order Requests included unallowable costs, and we observed
the same unallowable costs in multiple Change Order Requests. With a more
thorough review process we would have expected not to observe many
instances of unallowable costs, and definitely not repeat occurrences.
A more thorough change order review process would have identified the
issue related to a lack of guidance on labor and equipment rates, and would
have resulted in addressing this in some manner early in the contract. This
does not appear to have been performed.
A more thorough review process would have required support for material
costs.
A more thorough review process would not have allowed any Change Order
Requests to be processed without complete supporting documentation.
Leading practices include the providing specific comprehensive guidance on pricing
change orders in the Construction Manager at Risk contract, and ensuring the
Construction Manager at Risk contract and subcontract language regarding pricing
change orders have been coordinated, or specifying the Construction Manager at
Risk, or more restrictive, contract language takes precedence.
14.Change Management — Timing of Change Order Requests
We observed that over 60% of the number of approved Change Order Requests to
the owner, and 71.7% of the approved total Change Order Request value were
approved after April 30, 2013, which is when construction was reportedly complete.
Based on our observations related to the numbers assigned to each Change Order
Request (low numbers were earlier in the project), it was apparent that is took many
months, and in some cases, over a year, for many of the Change Order Requests to
be prepared, reviewed and approved. It is not a leading practice for Change Order
Requests to routinely take months to prepare, review and approve. In addition, the
inability to timely review and approve Change Order Requests would have resulted in
limitations to cost forecasts, a critical management tool for construction projects.
15. Embedded Contingencies and Allowances
In the Construction Manager at Risk's subcontractor files we observed instances in
the subcontract exhibits where contingency and allowance amounts were included in
the subcontract values. Our analysis of the subcontracts identified 27 subcontracts
that included embedded contingency and allowances, and these totaled at least
$1,200,000.
We observed change orders between the Construction Manager at Risk and the
subcontractors where these embedded contingency or allowance values had been
used to reduce the cost of a change order, which is not atypical. However, in certain
cases, it appeared these changes were not part of Change Order Requests that had
been presented to the City for review and approval, which is not a leading practice
when using embedded contingencies and allowances. In most cases supporting
documents were not provided for the change orders between the Construction
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Consulting, Inc.
City of Newport Beach
Civic Center Audit
June 17, 2016
Manager at Risk and the subcontractors, and we could not assess the accuracy of the
pricing for this subset of change orders. Therefore, we cannot assess if the
embedded contingency and allowance values had been properly utilized.
Leading practices would include increased transparency into embedded contingency
and allowance amounts in the form of a report that identifies the subcontracts, the
amounts and the current balance, as well as requiring owner review and approval of
all change orders that utilizing this funding.
16.Selected delivery method
Construction Manager at Risk with a Program Manager was an appropriate delivery
method for this project, and probably the most appropriate given the status of the
design, the desired schedule, and scope of work. This method has been used
successfully for many years on many different types of projects that include elements
included in this project. However, the City's implementation of this delivery method
could be improved. As previously discussed, the same firm should not act as the
Program Manager and Construction Manager at Risk, as there are inherent conflicts
of interest.
We have not been provided with many documents that allow us to evaluate the level
of oversight the City provided to the Program Manager and Construction Manager at
Risk. Given the City's project manager was also the Director of Public Works, it seems
unlikely their sole responsibility was the oversight of this project. A project of this
size requires, at a minimum, an experienced and qualified full-time project manager.
Therefore, it is likely the City's oversight of the project could have been improved as
well.
17. Policies and procedures
We did not find any City policies or procedures that provided guidance on the
required aspects for managing large capital construction projects. We did observe
policies and procedures related to procurement and processing payments, but the
processing payments document was not applicable to the detailed reviews required
for construction Guaranteed Maximum Price invoices. A leading practice would be to
develop a comprehensive set of construction program and project management
procedures that can be applied to any capital development and adjusted in nature
and scope depending on project size/type/complexity.
18.What should the project have cost?
As previously discussed, the average square foot costs for the City Hall, and Parks
and Site Work, significantly exceeded budgets throughout design, with no value
engineering effort successful in reducing costs to budgeted values. The driver for
these variances appear to be both pricing and scope. For example, TABLE 10
summarizes the significant scope increases we have identified:
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Consulting, Inc.
Table 10: Significant Scope Increases
City of Newport Beach
Civic Center Audit
June 17, 2016
Component
Design
Basis
Actua123
Variance
City Hall area (sf)
80,000
102,656
22,656
budget unit price - high end ($/sf)
$450.00
Size related scope increase
$10,195,200
Park area (sf)
600,000
619,078
19,078
budget unit price - high end ($/sf)
$20.00
Size related scope increase
$ 381,560
Total — Size Related Overrun
$10,576,760
City Hall budgeted unit price overrun
(using high end of range)
$450.00
$592.62
$142.62
City Hall unit price overrun (based
on 102,494 sf)
4111IL4,640,383
Parks and Site Work budgeted unit
price overrun (using high end of range)
$20.00
$43.75
23.75
Parks and Site Work unit price
overrun (based on 619,078 sf)
$14,702,344
FTotal — Budged Unit Price Overruns
$29,342,727
Given the public involvement in the design completion and the early stages of the
design, and the reporting we have observed related to the size of the building, we
believe the 22,494 square feet of additional area was generally known 24, but we are
uncertain how this $10.2 million increase in scope due to the size of the building area
increasing was incorporated into the overall project budget. As outlined in TABLE 3
above, the size increase of the Parks area did not occur until late in the design phase,
and therefore it is not clear if this growth was widely known. Fortunately, the
$381,560 impact (using budget unit costs), is fairly insignificant on a project of this
size, and as discussed in FOOTNOTE 14 the overall area of the Parks being
constructed may be overstated due to the inclusion of wetland area.
However, were are not confident the price per square foot overruns associated with
the City Hall or the Parks and Site Work were well communicated, given we have only
seen one report from April 2009 that included unit price information.
Once these overruns are included in our analysis, coupled with the fact we have not
uncovered any significant issues in the change order aspect of our testing, the cost of
23 Per C.W. Driver's permit set estimate.
24 We use "generally" in this case as we have seen documents listing the City Hall building at 99,000 to
100,000 square feet, and view the 102,494 as a refinement on these general values.
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Consulting, Inc.
City of Newport Beach
Civic Center Audit
June 17, 2016
the project does not appear unreasonable, with the exception of the $1,234,133
Construction Manager at Risk overbilling issue discussed above. Additionally,
RWBC's independent cost estimates for the City Hall and garage aspects of the
project confirmed the price paid for these aspects of the project was reasonable
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