The Authority has separate management structures to oversee its three active construction projects. As we discuss in Chapter 1, the Authority has assigned an oversight firm to manage-under its direction-each of the three current construction contracts. In addition, the Authority has assigned a contract manager to be its authorized representative for each construction contract and to also manage the pertinent oversight firm's contract. Because managing its construction contracts is distinctly different than managing its other contracts in terms of how it measures and pays for work, the Authority has developed requirements specific to this process. Specifically, the Authority's policy requires oversight firms to provide primary, day-to-day oversight of the construction contractors' progress in meeting contract requirements.
Because the current construction contracts include provisions that require the contractors to base their invoices on their progress instead of on the costs they incur, the total amount each construction contractor can earn is the total value of the contract-inclusive of contract increases due to change orders-regardless of the contractor's actual costs to perform the work. The Authority tasks the oversight firms with evaluating and verifying the construction contractors' claimed progress as part of reviewing the contractors' monthly invoices. When an oversight firm has verified a construction contractor's progress, it communicates that fact to the Authority's contract manager, who then approves payment based on the agreed-upon value of the work as identified in the invoice materials.
The Authority's construction invoicing approach has the potential to significantly limit the risk of it overpaying the construction contractors, but the extent to which the Authority can rely on it as a cost control tool depends on how well the Authority oversees the work of the oversight firms. When we reviewed the invoicing processes for the three construction contracts, we determined that the invoicing documents contained the required documentation to allow the oversight firms to evaluate construction progress. However, as a matter of practice, the Authority's contract managers stated that they rely on formal review and approval from the oversight firms without reviewing additional information to independently verify the accuracy of the invoices. Determining whether the oversight firms have effectively performed their roles would require the Authority to actively monitor the oversight firms and to document that monitoring. However, the contract managers are only now beginning to institute this type of active monitoring. In early 2018, in response to board concerns, the contract managers for the three oversight firms developed a performance evaluation template for the oversight firms, as we discuss above. Authority staff presented the preliminary performance evaluation template to the board in June 2018, but this presentation did not include actual evaluation data. Instead, the contract managers stated that they expected to conduct formal evaluations using the template on a quarterly basis moving forward. | The Authority's construction invoicing approach has the potential to significantly limit the risk of it overpaying the construction contractors but depends on how well the Authority oversees the work of the oversight firms. |
Because the Authority's oversight structure for construction contracts relies heavily on the oversight firms, it is crucial that the Authority provide a clear methodology for consistently evaluating the oversight firms' performance. | The Authority has not yet established any formal methodology or procedures for using the performance evaluation template. For example, the template asks contract managers to rank the oversight firms' performances on a scale from one (poor) to five (excellent) across a range of categories, but it does not make clear how contract managers are to determine the scores. The fact that three contract managers will use the template while monitoring different oversight firms creates the risk that their evaluations will be inconsistent. Although the contract managers have discussed setting specific criteria for determining how they will assign values, they have not yet done so. Further, the contracts director acknowledged that as of September 2018, the Authority is still evaluating the initial methodology and that it plans to monitor monthly trends shown through the reports. Because the Authority's oversight structure for construction contracts relies heavily on the oversight firms, it is crucial that the Authority provide a clear methodology for consistently evaluating the oversight firms' performance. |
The Authority's construction contract management structure also does not mitigate the risks of cost overruns by the oversight firms. In fact, two of the three oversight firms expended their funds ahead of schedule and needed substantial contract amendments to continue performing their oversight duties. When we asked the pertinent contract managers about the reasons for these cost overruns, they referred to changes that the Authority had made to the construction contracts that the firms oversee. These change orders, which we discuss in Chapter 1, added significant costs and time to the construction contracts and thus-according to the contract managers-caused significant additional work and expense for the oversight firms. However, the Authority did not amend the oversight firms' scopes of work and funding contemporaneously with these changes. Rather, as we discuss in the previous section, the Authority amended one of the oversight firms' contracts to add $28.5 million when it was projected to deplete its contract funds nine months ahead of schedule.