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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"(b) Adjustments in price permitted by rules adopted under subsection (a) shall be computed in one or more of the following ways: (1) By agreement on a fixed price adjustment before commencement of the pertinent performance; (2) By unit prices specified in the contract or subsequently agreed upon before commencement of the pertinent performance; (3) By the costs attributable to the events or situations under such clauses with adjustment of profit or fee, all as specified in the contract or subsequently agreed upon before commencement of the pertinent performance; (4) In any other manner as the contracting parties may mutually agree upon before commencement of the pertinent performance; or (5) In the absence of agreement by the parties: (A) For change orders with value not exceeding $50,000 by documented actual costs of the work ... (B) For change orders with value exceeding $50,000 by a unilateral determination by the governmental body of the costs attributable to the events or situations under clauses with adjustment of profit or fee, all as computed by the governmental body in accordance with applicable sections of the rules adopted under section 10313-601 [Cost principles rules required] and subject to the provisions of part VII [Legal and Contractual Remedies] ..." [emphasis added] The Department of Public Works lacks a contract management system to ensure that contractors maintain insurance coverages through project completion. Contract supplements and change orders are not consistently accompanied by renewals of certificates of insurance from contractors. Specifically, 50% of contracts reviewed by the auditors did not document renewals of contractor insurance. DPW General Requirements and Covenants at §7.12, Insurance, provides in pertinent part: "The Contractor shall not commence any work under contract until he has obtained from responsible insurance companies all insurance as required herein, and the Contractor shall maintain this insurance in full force and effect until the work to be performed has been accepted by the Engineer. These policies shall be executed and delivered to the Chief Engineer." [emphasis added] The Department of Public Works does not consistently conduct independent verification of work completed and relies on contractor assessments for progress payments. Other than progress payment requests that were stamped and approved by project engineers and /or inspectors, few project files provided to the auditors included independent verification 22