2008-01-AU Limited Scope Performance Audit Report Department of Public Works CIP Contract Change Orders and Supplements for FY 2006-2007

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o Change Order Nos. 000652.1 and 000652.2 totaling $49,035 for replacement of deteriorated ballfield elements, bleachers and fencing at Hualani Park. o Contract Supplement No. 000737.2 for $100,000 for standby costs relating to weather delays for aerial LIDAR mapping of the Puna Tax Map District. The original contract contained no provisions for weather contingencies and currently exceeds its original completion date by 582 days and original contract amount by $177,250. Audit Obiective No. 4: Determine whether adequate procedures exist to resolve and recover any disputed charges. • The Department of Public Works does not sufficiently document its identification, resolution and recovery of disputed charges. The auditors were unable to obtain satisfactory documentation to determine whether "advance payments" are being made or if "disputed charges" are accurately identified, resolved and recovered. We did note instances in which billings were returned to contractors for revision before payment was authorized. However, minor uncorrected mathematical errors in processed progress payments were also noted. In Contract No. 000737 for LIDAR mapping discussed above, the DPW project engineer advised the auditors that the vendor's most recent estimate of project completion was 75 %, but the DPW contract accounting spreadsheet indicated progress payments totaling 91% of the budgeted contract amount. The Department of Public Works does not consistently include and enforce liquidated damages clauses in contracts, contract supplements and change orders. DPW does not consistently assess liquidated damages when professional services and construction contracts are past their contractual completion dates. DPW administrators informed the auditors that it has generally been departmental policy to forgo assessing liquidated damages in construction contracts because the department has not always been able to document damages (as advised by the Corporation Counsel) and it is concerned that contractors will increase time and costs in future bid proposals to include a contingency for liquidated damages. DPW administrators also informed the auditors that liquidated damages clauses are generally not included in professional services contracts because delays in plan reviews or permit issuances are often caused by governmental agencies including the County. The Department of Public Works does not consistently enforce retainage clauses in contracts, nor does DPW communicate or document decisions to alter retainage being withheld or determinations to release retainage. In interviews with DPW administrators, the auditors were informed that the department and the County are updating retainage policies pursuant to passage of the "Prompt Payment Act" by the State Legislature in 2006 (codified as HRS §103- 10.5), which delineates specific In