Airport Terminal Area Redevelopment Construction Contract, Audit No. 2004

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This audit of Airport Terminal Area Redevelopment Construction Contract was included on the City Council-approved fiscal year 2019/20 Audit Plan as a selected construction contract audit. The audit reviewed procurement, compliance with contract terms, and effectiveness of contract administration.

The Aviation department managed this project, hiring a consultant for construction administration and using Construction Manager at Risk (CMAR) delivery method for construction. This method involves negotiating a Guaranteed Maximum Price (GMP) for the project. The construction work involved demolishing two existing buildings, replacing them with two large executive hangars, a new aviation business center, a fuel farm, and a new parking lot. The construction was split into two phases and work was completed from July 2017 through December 2019.

Additional cost controls related to the GMP development and monitoring and verifying invoiced amounts should be adopted. Specifically, we found that:

  • Supporting details for the general condition costs were not obtained and reviewed during GMP development. Cost negotiations were not documented and cost review comments clearly addressed.
  • About $1.3 million in estimated work was added to subcontractor costs but use of these additional amounts was not monitored. In our review of 10 major subcontractors, only about 46% of these bid plugs were added to the subcontracts.
  • CMAR adjustments to scheduled contract values were not explained. Some Aviation-approved changes differed when applied by the CMAR, including overcharges of about $96,000.
  • Use of allowances need better monitoring and verification.
  • For some invoiced amounts, supporting documentation was missing or did not match the pay applications. In one instance, CMAR records showed a $283,000 subcontract price reduction that was not reflected in the amounts submitted to Aviation for payment.

The audit also recommended that the department formalize a process for approving changes and establish records retention standards for contract administration documents.

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