16th Street Improvement Project

Highly visible public projects can negatively affect the public’s perception of government when government fails to act in an open, fair, and competitive manner. The Department of Transportation & Infrastructure plays a critical role in ensuring the city’s investment in this project creates value and serves the entire community, whose taxes are paying for these projects.

FINDING 1 – A change order was used to add $18 MILLION and an extra year of work to the project, but the Denver City Council was not told about this until afterward. The city’s “Standard Specifications for Construction General Contract Conditions” is part of the contract. But the standards, which are used for overseeing and managing capital projects, are weak and were last updated in 2011, 15 years ago.

FINDING 2 – The department needs to strengthen its project development and contracting processes for future projects. We found issues with the project’s scope of work, project delivery selection, competitive bidding, and subcontracting processes.

FINDING 3 – The city's project management practices were generally effective but can be improved. The city did not consistently ensure compliance with all contract terms and handled some processes informally, which sets a precedent this could be acceptable on future projects.

1.1 Implement a process to convert change orders into contract amendments – Working with the Mayor’s Office, the Department of Transportation & Infrastructure should add context to Executive Order No. 8 to determine whether the City Council should be required to approve change orders for contracts that already exceed $500,000 when the change order is of high value, and to develop a process to identify when a change order alters an agreement beyond the scope of a change order.

Transportation & Infrastructure should also work with the City Attorney’s Office and other stakeholders to update the city’s “Standard Specifications for Construction General Contract Conditions” to identify when a change order alters an agreement beyond the scope of a change order.

Relevant change orders should then be converted to amendments and approved by the City Council accordingly.

Department of Transportation & Infrastructure – Disagree

1.2 Formalize the relationship between the department and the City Council – Working with the City Council, the Department of Transportation & Infrastructure should formalize what should be reported beyond legal requirements like agreements and amendments to the City Council member in whose district the project is located and to the City Council’s Transportation & Infrastructure Committee. This should, at a minimum, include project delays and cost overruns.

Department of Transportation & Infrastructure – Agree, Implementation Date – Feb. 26, 2027

1.3 Update general contract guidance – The Department of Transportation & Infrastructure should work with the City Attorney’s Office and other stakeholders to update the city’s “Standard Specifications for Construction General Contract Conditions” to:

• Incorporate current and leading practices.
• Clarify whose approvals are necessary to comply with separation of duties.
• Formalize the change-order comment process.
• Address impacts from alternative delivery methods including those the city typically uses like design-build and construction manager/general contractor.

Department of Transportation & Infrastructure – Agree, Implementation Date – Feb. 26, 2027

2.1 Address Denver’s historic brick sewer system – The Department of Transportation & Infrastructure should work with the Colorado State Historic Preservation Office to determine whether a citywide programmatic agreement may be created to proactively address the potential discovery of brick sewers during federally-funded construction projects.

At a minimum, future federally-funded projects involving subsurface construction should include historic brick sewers in the National Environmental Protection Act review in coordination with the Section 106 evaluation process.

Department of Transportation & Infrastructure – Agree, Implementation Date – Feb. 26, 2027

2.2 Use a formal project delivery selection methodology – The Department of Transportation & Infrastructure should ensure the project delivery method it selects aligns with the project by creating and implementing a formalized project delivery selection methodology based on leading practices, like those developed by the Colorado Department of Transportation, University of Colorado, Water Collaborative Delivery Association, and other similarly credible sources.

The project delivery selection methodology should adequately consider common alternative delivery methods like:

• Design-build.
• Construction manager/general contractor.

After following the selection methodology, staff should document the process followed, the delivery method selected and retain those documents in accordance with the city’s retention policies.

Department of Transportation & Infrastructure – Agree, Implementation Date – Feb. 26, 2027

2.3 Strengthen the department’s internally-developed project delivery selection methodology – The Department of Transportation & Infrastructure should continue refining and strengthening its adapted project delivery selection methodologies to ensure they align with leading practices already established by the Colorado Department of Transportation, University of Colorado, Water Collaborative Delivery Association, or other similarly credible sources.

Department of Transportation & Infrastructure – Agree, Implementation Date – Feb. 26, 2027

2.4 Ensure a competitive bidding process for capital projects by retaining documentation of all steps – The Department of Transportation & Infrastructure should ensure future capital projects preserve records in accordance with the city’s records retention schedule to demonstrate a competitive bidding process. This process should include:

• Ensuring all steps identified in future requests for qualifications and requests for proposals are completed.
• Developing a process to reassess risks should a bidder choose to withdraw.
• Documenting these processes formally.
• Following the city’s retention rules and keeping all bidding documentation, like proposal scorings, to ensure transparency around the competitive bid selections.

Department of Transportation & Infrastructure – Agree, Implementation Date – Feb. 26, 2027

2.5 Implement subcontracting-process oversight controls – The Department of Transportation & Infrastructure should require submission and retention of subcontract and bidding documentation to support costs validation and ensure change orders are independently reviewed for reasonableness and proper authorization.

Transportation & Infrastructure should also implement controls to oversee the subcontracting process, including requiring review and approval of subcontract agreements and any significant revisions, to comply with city subcontracting policies in the “Standard Specifications for Construction General Contract Conditions” guidance.

Department of Transportation & Infrastructure – Disgree

3.1 Strengthen quality oversight processes, ensure contract compliance, and formalize nonconformance reporting – The Department of Transportation & Infrastructure should strengthen its documentation and the ability to trace its quality oversight and contract compliance processes by:

• Requiring consistent documentation.
• Implementing procedures to link nonconformance reports and other quality-issue tracking processes to payment applications and schedule of value line items.
• Documenting it has received required insurance coverages and waivers of subrogation.
• Documenting verification of activities or progress supporting payment approvals.
• Establishing standardized documentation requirements to ensure verification, acceptance, and payment decisions are fully supported and auditable.

Transportation & Infrastructure should work with the City Attorney’s Office and other stakeholders to update the city’s “Standard Specifications for Construction General Contract Conditions” to include formalized procedures for nonconformance reporting requirements and contract compliance.

Department of Transportation & Infrastructure – Disgree

3.2 Enforce liquidated damages and update the city’s “Standard Specifications for Construction General Contract Conditions” – The Department of Transportation & Infrastructure should enforce liquidated damages as allowed by contract terms.

Transportation & Infrastructure should work with the City Attorney’s Office and other stakeholders to update the city’s “Standard Specifications for Construction General Contract Conditions” to include formalized standards and criteria on when liquidated damages can be waived.

Department of Transportation & Infrastructure – Agree, Implementation Date – Feb. 26, 2027

Auditor’s addendum to agency response for Recommendation 1.1

The Department of Transportation & Infrastructure argues the change was because of delays and a contractor dispute. Therefore, it was not a “cardinal change.” We believe this argument misses the main issue in this finding and recommendation.

The audit finding does not say the change order was not allowed legally but that the combined change order and settlement materially altered the contract. As a result, the change needed a higher level of oversight. The issue is not that the department used a change order — the issue is the city’s existing rules have no mechanism for turning a change order into an amendment when the requested changes are so substantial they should be brought before the City Council for approval or oversight.

We agree Transportation & Infrastructure may have followed the existing rules. However, the existing rules are the problem we identified in the audit. This recommendation adjusts the existing rules by calling on the department to establish a clear process for deciding when a change order is a material contract amendment and when the City Council must approve it.

Implementing this recommendation would address this gap by establishing a clearer threshold for increasing oversight, increasing transparency, and strengthening accountability for using public funds.

Auditor’s addendum to agency response for Recommendation 2.5

The Department of Transportation & Infrastructure’s response focuses on whether the city needs to review subcontractor bids to establish the original price of a lump-sum, design-build contract.

But this recommendation calls for basic subcontracting oversight controls to ensure the city knows enough about the subcontracting process. Among the controls should be: requiring subcontract and bidding documentation be kept, reviewing significant subcontract agreements and revisions, and independently evaluating change-order costs for reasonableness and proper authorization.

This recommendation does not require Transportation & Infrastructure to second-guess every subcontractor selection or recreate PCL’s buyout process. Instead, it is intended to ensure the department has the information it needs to fulfill its oversight responsibilities, assess compliance with city requirements, and independently validate costs when changes occur.

Without these controls, Transportation & Infrastructure risks being unable to determine whether subcontractors are selected competitively, meet city requirements, or whether subcontract changes and related change-order costs are reasonable and supported.

Auditor’s addendum to agency response for Recommendation 3.1

The Department of Transportation & Infrastructure says the project generated more than 26,000 quality records and over 240 nonconformance reports. However, the quantity of records does not establish the adequacy of the control. What matters is whether the records have the needed information to allow the city to trace oversight decisions to corrective actions and payments.

Without consistent, traceable documentation, Transportation & Infrastructure may be unable to prove required protections are in place, whether it made payments after corrective work was completed and not before, or whether it made properly supported payment decisions. Without this information, the city faces financial, legal, and compliance risks.

This recommendation also calls for oversight activities to be consistently documented, contract-compliant, and traceable to the work and payments they support. Implementing this recommendation would strengthen contract compliance, accountability, and protection of public funds.