Construction Project Falls Years Behind Schedule
Published on June 16, 2021
DENVER – The Department of Transportation and Infrastructure allowed a construction project to balloon in cost by more than 30% and last almost four times longer than scheduled, according to a report this month from Denver Auditor Timothy M. O’Brien and CliftonLarsonAllen LLP.
“Change orders after the fact, light documentation on a project, years of delays, and extra cost for work that may have been foreseeable — this doesn’t pass the test for public accountability and responsible management of public funds,” Auditor O’Brien said.
The Auditor’s Office worked with construction auditing experts at CliftonLarsonAllen to examine the Denver County Jail Building 24 Buildout contract. Auditors found that officials in the Department of Transportation and Infrastructure did not ensure sufficient documentation for invoices from subcontractors and they did not retain sufficient documentation explaining additional work and costs.
On the Building 24 construction project, many subcontractors billed for more than they had originally quoted for their work — adding nearly $2 million in additional project costs. Some subcontractors didn’t have any original price quotes on file at all.
The Department of Transportation and Infrastructure needs to improve how it monitors the amounts billed by subcontractors and it needs to reconcile price quotes to the amounts invoiced. This could help ensure the city is not overpaying for work performed and that subcontractors are adequately compensated by the primary contractor.
“Effective project management is essential to combat rising construction costs in the city,” Auditor O’Brien said. “The city must ensure that it gets what it pays for out of its contractors — and at no higher cost to the taxpayer than is necessary.”
The Building 24 construction contract was based on a common project delivery structure that involves choosing a contractor based on qualifications and a proposed contractor’s fee, and then the city works with both the contractor and the project designer in the preconstruction phase to determine the cost and timeline of the project.
This project delivery method helps with more complex projects or buildings with sensitive plans, like jails, but it gives the contractor broad authority over choosing, managing, and paying subcontractors. This method also relies on the contractor to manage the timeline of the project.
When the city chooses this project type, it becomes even more important for city managers to take a close look at invoicing information from subcontractors and compare it to the requests for payment submitted by the primary contractor. It is important for the city to compare detailed documentation to ensure accountability and proper oversight.
“The city is sending a lot of public dollars and bond money out the door for capital construction projects right now,” Auditor O’Brien said. “We need oversight. Based on the management of this construction contract, city managers need to make sure they’re keeping a closer eye on the work being done to make sure the public is getting what they pay for.”
Additionally, significant change orders throughout the Building 24 project led to a years-long delay and an increase in overall construction costs. The department approved an additional 1,001 days for the project that was originally scheduled to take only 262 days to complete.
Construction on the building was supposed to be done by January 2018, but completion was rescheduled to late March 2021. The construction project was not officially closed out in early March when audit work ended.
The majority of additional costs were marked as required changes to construction based on regulatory and safety issues that were noted during inspection and considered unforeseen. However, project documentation doesn’t explain why regulatory requirements and inspections couldn’t have been anticipated in planning and why they were outside the scope of the agreed-upon contracted guaranteed maximum price.
“If these change orders are allowable and proper according to city rules, there must be documentation explaining the decision-making process,” Auditor O’Brien said. “Managers should always work to show the public they are fiscally responsible for construction projects.”
Auditors recommend that change orders should be completed in a timely manner and documentation should explain the context of increased costs. This documentation would help improve accountability and the management of projects.
“Project oversight and monitoring of subcontractors is a common area of concern citywide,” Auditor O’Brien said. “This isn’t the first report showing a lack of oversight and it won’t be the last construction examination we do on this subject.”
We routinely review selected city contracts and agreements to evaluate and ensure performance, value, and proper city oversight.
Auditors did note other controls are operating effectively, including having multiple levels of approval for payments and change orders and keeping a detailed change order log. The department agreed with both recommendations and committed to implementing them by Aug. 1, 2021.
“I’m pleased the department has agreed to act so swiftly in addressing these problems,” O’Brien said. “Implementing these recommendations will help the department better fulfill its duty to ensure prudent use of Denver tax dollars.”
Read the report
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