Changes and additions that the Authority has made to its three active construction contracts in the Central Valley have driven costs significantly higher than it originally projected. The Authority uses the change order process to account for unexpected developments, project delays that generate new contractor costs, and other changes to its construction contracts. The construction contracts allocate a specific dollar amount for each component of a project's design and construction. For any additional work that is not contained in the contract, the Authority must authorize a change order, which assigns a cost for the new work and increases the overall contract value. The Authority may direct a contractor to do additional work through a change order, or the contractor may request a change order for work it identifies as necessary. Change orders can also extend a project's timeline either to allow additional work or to account for delays. To date, the Authority has approved more than $600 million worth of change orders related to the three construction projects in the Central Valley.
The Authority relies on contracted construction oversight firms (oversight firms)-which are responsible for overseeing the construction contracts on behalf of the Authority-to evaluate potential change orders' merits and provide independent estimates of how much they should cost. However, we found that the Authority did not always follow the oversight firms' advice. We reviewed 11 of these change orders with a total value of $38 million and found that the Authority obtained the required levels of management approval before executing each.1 However, in four instances, the Authority approved change orders for dollar amounts that were more than its oversight firms recommended or for work that the oversight firms initially determined was already covered under the contracts. |
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The Authority approved change orders for dollar amounts that were more than its oversight firms recommended or for work that the oversight firms initially determined was already covered under the contracts. |
Specifically, in two of these four change orders, the Authority executed changes for amounts that were greater than the oversight firms recommended. For example, the construction contractor for Project 1 requested more than $21 million for unanticipated bridge construction. The oversight firm disagreed with the contractor, estimating a cost of only $7.4 million. The Authority ultimately authorized a change order for $18.6 million-more than twice the amount the oversight firm recommended. When we discussed with the Authority's director of design and construction why the Authority authorized more than the oversight firm recommended, he stated that the Authority's initial position was that the construction contractor would cover the cost of some of the new work because it should already have been aware of the need for that work. However, he was unable to provide any documentation showing how the Authority determined the higher number was appropriate. In the other change order involving a higher amount than the oversight firm recommended, the Authority authorized an $868,000 change when the oversight firm had recommended only $854,000. The Authority's documentation did not explain why the higher amount was appropriate.
| In two other instances, the Authority approved change orders involving work the oversight firms initially determined was already required by the existing contract terms. However, the contract language was undermined by the assumptions that the Authority had made during the bidding process. For example, the contractor for Project 2/3 requested additional compensation for increased costs associated with disconnecting existing utility lines. In response, the oversight firm correctly identified that the contract assigned responsibility for utility disconnection tasks to the contractor, and therefore the contractor bore responsibility for these costs. However, the oversight firm also noted that Pacific Gas and Electric (PG&E), the utility owner, had begun to charge a fee for disconnections that the Authority had not specified in the information it provided to the construction contractor during the bidding process. As a result, the Authority and the contractor negotiated the issue, and the Authority agreed to a change order of $2.7 million. In this case, the Authority's failure to adequately coordinate with a key external stakeholder before beginning the bidding process undermined its subsequent ability to use the oversight firm to enforce contract terms and limit costs. |
The Authority's failure to adequately coordinate with a key external stakeholder before beginning the bidding process undermined its subsequent ability to use the oversight firm to enforce contract terms and limit costs. |
In the other case we identified, the oversight firm initially concluded that the construction contractor should bear the cost to redesign a bridge that did not meet Union Pacific's standards. The Authority later approved a change order against this advice because it had not previously executed an agreement with Union Pacific, thereby limiting the contractor's ability to coordinate with the railroad. We discuss this change order in greater detail later in this chapter.
We found that the majority of all executed change orders came at the request of the Authority rather than the request of the contractors. Some of these change orders were the result of fundamental changes to the construction projects' plans. For example, the Authority requested and executed a $153 million change order to extend one of the projects 2.7 miles north to connect to the Madera County Amtrak station. Because the Authority did not include this work in the original contract, it clearly required a change order. However, as we discuss in the following section, the Authority requested many other changes that were not the result of fundamental changes to the planned system, but rather related to its decision to begin construction before completing critical tasks.
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1 We also reviewed two change orders that the Authority's legal unit settled through a different process. Including these two change orders, the total value of our selection is $139 million. As of June 2018, the Authority had executed more than $600 million in change orders