Construction Contractor Prequalification Process

The photo shows a construction site on the 16th Street Mall in downtown Denver, viewed through a chain-link fence. A construction worker operates a yellow excavator with buildings in the background, including the city’s iconic clock tower.

Objective

To evaluate:

  • Whether the city’s contractor prequalification process aligns with other U.S. government entities.
  • Whether the city, through its Prequalification Board, follows its own rules for contractor prequalification.
  • How efficient the application process is and how effective the Prequalification Board is.

Background

The Department of Transportation & Infrastructure and Denver International Airport co-manage the city’s prequalification process. Contractors on multimillion-dollar city construction projects must meet the highest standards of performance and have the financial capability, integrity, and experience to complete the projects they intend to bid on.

The city has defined rules and a designated board to determine which contractors prequalify.

Why this matters

Without a more transparent prequalification process, city managers risk reducing the city’s pool of potential qualified bidders because contractors may choose to abstain from doing business with Denver if they believe the prequalification process is unfair or not transparent.

A reduced pool of bidders could result in the city receiving lesser-quality work or paying more for construction than necessary. It also leaves the city vulnerable to reputational damage by not being seen as a fair and equitable business partner.

Findings

FINDING 1 — The city’s process to assign and communicate contractors’ financial limits lacks transparency

  • The Prequalification Board does not document how it makes decisions.
  • The city’s prequalification rules allow for subjective decisions about prequalification and assigned financial levels.
  • The board does not tell contractors why they were assigned a certain financial level or how they can improve their standing.
  • The rules do not allow contractors to dispute their assigned financial levels.

FINDING 2 — The Prequalification Board is not receiving accurate and complete information about potential city contractors

  • The Department of Transportation & Infrastructure does not collect and verify some information that could disqualify contractors from prequalification.
  • Supervisory reviews of summary information given to the Prequalification Board are not effective at identifying inaccuracies and calculation errors in documents manually prepared by the prequalification coordinator.

Recommendations

1.1 Update the prequalification rules – The Department of Transportation & Infrastructure and Denver International Airport should update the city’s prequalification rules to require that recommendations made by the Prequalification Board are documented with detailed reasons for the financial levels assigned for contractors’ work categories.

Agency Response – Agree, Implementation Date – March 31, 2024

1.2 Improve transparency – The Department of Transportation & Infrastructure and Denver International Airport should improve transparency when determining contractors’ prequalification statuses to ensure accountability and that institutional knowledge is retained. To that end, the agencies should:

  • Document justifications and rationale for assigned financial levels in both the managers’ letters to contractors as well as any meeting minutes for the Prequalification Board.
  • Communicate the justification for financial level determinations to contractors.

Agency Response – Agree, Implementation Date – March 31, 2024

1.3 Establish a dispute process for prequalified contractors – The Department of Transportation & Infrastructure and Denver International Airport should develop, document, and implement a process that allows prequalified contractors to dispute prequalification decisions. Specifically, the agencies should ensure all contractors are given transparent reasoning and justification for decisions on assigned financial levels.

This process should be codified in the city’s prequalification rules as part of implementing Recommendation 1.1.

Agency Response – Agree, Implementation Date – June 1, 2024

2.1 Update applications for prequalification – To ensure the board has the information it needs to ensure its decisions comply with the prequalification rules, the Department of Transportation & Infrastructure and Denver International Airport should:

  • Update the applications for prequalification to require that applicants disclose whether they are in arrears or in default on a city obligation whether by debt or contract.
  • Update the prequalification policies and procedures to include processes for staff to verify and document the review of an applicant’s potential debarment status with the city and whether they are in arrears or default.

Agency Response – Agree, Implementation Date – March 31, 2024

2.2 Document supervisory reviews – The Department of Transportation & Infrastructure and Denver International Airport should formally document how supervisors review and approve application packages for contractors seeking prequalification. This should be done through formalized policies and procedures to ensure information prepared by the prequalification coordinator is consistent with city rules and that the Prequalification Board receives accurate information.

At a minimum, the procedures should detail who is to perform the review, the steps involved in the review, and the steps involved when errors are identified.

Agency Response – Agree, Implementation Date – March 31, 2024

Auditor's Letter

January 18, 2024

We audited the city’s construction contractor prequalification process to evaluate how efficient the application process is, how effective the Prequalification Board is, and whether the city follows its own rules for contractor prequalification. I now present the results of this audit.

The audit found the city’s process to assign and communicate construction contractors’ financial limits lacks transparency. We found the Prequalification Board does not document how it makes decisions and the city’s prequalification rules allow for subjective decision-making about prequalification and the financial levels contractors are assigned. We also found the board does not tell contractors why they were assigned a certain financial level or how they can improve their standing, and city rules do not allow contractors to dispute their assigned financial levels. Meanwhile, we learned the Prequalification Board is not receiving accurate and complete information about potential construction contractors.

By implementing recommendations for stronger requirements in the city’s prequalification rules, a contractor dispute process, and stronger manager review processes, the Department of Transportation & Infrastructure and Denver International Airport will be better able to ensure a more fair and transparent prequalification process for potential city construction contractors.

This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, “General Powers and Duties of Auditor.” We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

We appreciate the leaders and team members in the Department of Transportation & Infrastructure and Denver International Airport who shared their time and knowledge with us during the audit. Please contact me at 720-913-5000 with any questions.

Denver Auditor

Auditor's Signature
Timothy O'Brien, CPA


Timothy O'Brien Official Headshot

AUDITOR TIMOTHY O'BRIEN, CPA
Denver Auditor


Denver Auditor´s Office

201 W. Colfax Ave. #705 Denver, CO 80202
Emailauditor@denvergov.org
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