HomeMy WebLinkAboutCOM 1282.004 2006-2008CASEY JARMAN
Caunry Clerk
County of Hawai `i
Office of the County Clerk
COLLEEN SCHRANDT
Legislative Auditor
Mail ing Address:
(Former County Building
25 Aupuni Street
Hilo, Hawaii 96720
Date:
To:
From:.
Subject
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MEMORANDUM ~~
July 31, 2008 k°-~ "~.~
Pete Hoffmann, Council Chairperson, and Council Members ~
Colleen Schrandt, Legislative Auditor ~~
Auditor's Response to DPW Thirty-Day Status Report dated July 22, 2008
As instructed by the Public Works and Intergovernmental Relations Committee at its
July 22, 2008 meeting, attached please find the Legislative Auditor's responses to the
Department of Public Works' thirty-day status report on audit recommendations filed as
Communication No. 1282.3.
Serving the Interests of the People of Our Island
Hawaii County is an Equal Opportunity Provider and Employer
KENNETH G. GOODENOW
Deputy County Clerk
Business Address:
333 Kilauea Avenue, Second Floor
Ben Franklin Building
Hilo, Hawaii 96720
Telephone: (808) 961-8255 Facsimile: (808) 961-8912
Comm. No. ~ :~ 8 2 •
Ref. 70~ p W ~ R G
Ref. Date JUL 3 f 71tfiR
THIRTY DAY STATUS REPORT
BY THE DEPARTMENT OF PUBLIC WORKS
ON AUDIT RECOMMENDATIONS
CHAPTER 7 RECOMMENDATIONS
1. We recommend that the County develop and implement along-term CIP master plan
following current best practices implemented by other governmental jurisdictions to
include input from all key stakeholders (including the Council and general public)
.that provides clearly defined goals and priorities to County departments charged with
CIP responsibilities.
• At a minimum, the CIP master plan should include a comprehensive listing of capital
improvement projects with prioritized rankings and timelines for completion.
• The CIP master plan development process should incorporate public input, coordination
with State and Federal agencies and funding sources, and investigation of public-
private partnerships.
• The CIP master plan development process needs to be supported by an information
technology (IT) system capable of capturing and reporting accurate, relevant and timely
financial and project management data.
• The CIP master plan development process should include standardized and regular
reporting and review of project timing and estimation, cost and resource allocations,
and budget-to-actual analyses.
We :believe that the first recommendation addresses the County as a whole and although
included as a recommendation in our audit, involves actions that are beyond the purview
and role of the Department of Public Works. This recommendation might be 7more
appropriately addressed to the Mayor as it involves a larger more comprehensive planning
and review process that involves several departments.
Auditor's Response:
As stated during presentation of the audit to the Council, this recommendation is
directed not only to the Mayor but to the Council as well. It is a recommendation to
change not only current procedures, but to change the culture, mind set, and
direction of County government to a culture of transparent accountability that
focuses on delivering the most needed capital improvement projects, programs and
services in the most effective and efficient manner. Such CIP delivery needs to
include processes and mechanisms to gather constructive input from all key
stakeholders for developing and updating along-term CIP master plan and
determining relative CIP ranking, timing and funding. Once developed, the long-term
CIP master plan would provide prioritization and guidance to DPW, while including
consideration of and reasonable allowance for emergency situations. A key
component of this change to transparent accountability and what DPW is directly
responsible for is the implementation of a Capital Asset Preventative Maintenance
process and schedule, which in conjunction with along-term CIP master plan, will
permit the development of realistic project schedules based on available human and
monetary resources.
Regardless of whether this approach is adopted, we recommend the Council, at a
minimum, require that:
1) DPW develop relevant pertormance measures relating to CIP, including minimum
reporting requirements, to evaluate the department's success in meeting its
stated mission, goals and objectives and the infrastructure and service needs of
the public.
2) The. Administration, and more specifically the Department of Finance in
conjunction with DPW, provide and implement an electronic data system and
application capable of tracking and reporting on the financial timing and physical
status of ALL CIP projects on a regular (at least quarterly) basis and provide said
reports to the Council in a timely manner.
.However, the Hawaii County Charter states that one of the responsibilities of the Planning
:Department is to "Review the lists of proposed capital improvements contemplated by
.agencies of the County and recommend the order of their priority. " As a result, we have
::included the Planning Department in our audit committee meetings and have asked that
.they address their present role in the CIP process.
Planning Director Response:
The. Planning Department currently compiles a report for the Mayor entitled "Proposed
Capital Improvement Budget and Six-Year Capital Improvements Program "each Fiscal
.Year that. is submitted to the County Council.
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Auditor's Response:
Hawaii County Charter section 6-4.2 provides, in pertinent part, that: "The director
shall be the chief planning officer of the county and the administrative head of the
department and shall: (d) Review the lists of proposed capital improvements
contemplated by agencies of the county and recommend the order of their priority."
The Auditor interprets this charter section as assigning ultimate responsibility for the
CIP plan to the Planning Director, but does not preclude the Planning Director from
instituting a process for developing along-term CIP master plan including project
priority and timing based on input of key stakeholders as recommended above.
As a result, the first bulleted item - to produce a comprehensive listing of Capital
Improvement Projects with prioritized rankings and timelines for completion - is a product
that is incorporated into the fiscal year proposed capital budget.
Auditor's Response:
During interviews with DPW managers, the audit team was told that the 6-Year Capital
Improvements Program included in the annual CIP budget is more or less a "wish list"
rather than a CIP master plan, since the cost of CIP projects included in the annual
budget and 6-year CIP program far exceeds possible funding. The prevailing attitude
seems to be that there is no need to account for changes to the annual CIP budget
since everyone knows that there isn't sufficient funding to realistically execute all of
the "wish list" projects. At a minimum, there should be regular and timely reports to
the Council and the public on the status of all projects included in the annual CIP
budget.: This would at least provide some accountability and permit open review and
discussion of the County's realistic allocation of available resources.
Ourrecommendation includes the establishment of a process for development and
updating of a long-term CIP master plan based on realistic estimates of funding
necessary throughout the life of a project and realistic estimates of available funding
sources, with first priority given to preventative maintenance of existing assets.
:With the Community Development Plans (CDP) now underway and with their adoption and
'.the formation of CDP Action Committees, we will now have a mechanism for incorporating
community input and prioritized projects. We will be forming our first Action Committees
in the upcoming months and developing a process for community-government llaborations.
Auditor's Response:
The'Auditor agrees that the CDP process can be a piece of the long-term CIP
development process, with CDP plans used to gather input on specific community
priorities. However, not all districts have CDP plans and the CDP process will not
completely address the long-term CIP development process called for in
Recommendation No. 1. Therefore, at some point, the CDP process will need to rank
all district specific priority projects relative to each other in order to develop an overall
project priority master plan.
The remainder of this recommendation calls for the development of a more comprehensive
'.CIP process and would require further research and involvement with other County
'departments.
Page - 3 - 7/22/08
Auditor's Response:
Agreed. When evaluating best practices and designing its own processes, the County
should review and capitalize on the experiences of other governmental jurisdictions
that have implemented CIP processes including input from all key stakeholders. The
Auditor has and continues to gather information on best practices, policies,
processes, and sample reports to be shared with DPW managers.
2. We recommend that the Department of Public Works develop comprehensive policies,
.procedures and controls for management of capital improvement projects, including,
but not limited to:
Project Scoping
• Develop policies and procedures that specifically address project Scoping and
negotiation strategies to obtain best values and promote equity and fair competition
among professional services consultants and construction contractors. Included should
be a process to document the consideration, analysis and determination of the costs and
benefits related to bundling or separating the work required.
We are looking at a consultant contract to establish written policies and procedures
and estimate the funding at $200, 000, which is not a budgeted item and we may be
issuing a supplementary budget request.
Auditor's Response:
While $200,000 for a consultant contract may appear to be quite high, it must be
considered relative to the current Six-Year CIP Program budget of $159,562,000.
Should consultant recommendations be implemented and result in even a 0.5%
reduction in six-year CIP expenditures, a $797,810 savings would be realized and
consultant costs would be more than recovered. Once implemented, internal controls
should ensure continued savings in future CIP projects.
We have looked at the cost of contracts we issued over the last three years and the
results, as listed below, show that the size of jobs is reasonably distributed between
large and small projects.
Breakdown of Projects as follows:
Constructed or Under Construction Prniectc nvnr the T.nCt ThYOO YO/INC
Contract Amount Buildin En ineerin Total
$1, 000, 000 + 22 16 38 36.54%
$500, 000 to $999, 999 6 5 11 10.58%
$200, 000 to $499, 999 16 6 22 21.1 S%
$100, 000 to 199, 999 6 3 9 8.65%
$S0, 000 to $99, 999 6 3 9 8.65%
$1 to $49, 999 11 4 I S 14.43
Total 67 37 104 100.00%
Page - 4 - 7/22/08
Auditor's Response:
This table does not necessarily provide an accurate picture of project scoping and
distribution and value of work. We would suggest further breakdown by type of
construction to provide more relevant indication of work distribution. An analysis of
total contracts and dollars by awardee may be a good indicator of how well the
County does in promoting competition. Also, an analysis of number and dollar
value of change orders by awardee may indicate how well the County is doing in
obtaining the best value for taxpayer dollars and time.
Arguably, breaking larger projects into smaller project scopes to permit increased
competition and participation of smaller vendors will increase DPW's project
administration costs. However, the larger the project, the greater the difficulty of
managing project cost, progress, quality control, and governmental compliance.
When combined with the lack of internal controls currently evidenced at DPW, the
greater the possibility of inflated pricing at original bid and when change orders are
required.
Of the 67 Building Division projects, 23 or 34% were under the $200,000 threshold,
44 projects or 66% were above the $200,000 threshold, and 22 projects or 32% of
total projects exceeded $1,000,000.
For `Engineering Division projects, if we divide the table at the $500,000 threshold,
57% were over $500,000 and 43% fell below $500,000.
Do the threshold amounts included in the table represent original contract amounts
or adjusted contract amounts (including change orders)? Again, if they represent
original contract amounts, adjustments for subsequent changes would shift the
project distribution, significantly increasing the number of projects in the $500,000+
categories.
Perform more pre-project planning with client agencies and end users to better define
scope of work and deliverables for incorporation into professional services contracts to
ensure that design proposals (and subsequent construction bids) can be more competitive,
contracts can more clearly delineate responsibilities and compensation for each segment
of work, and contract supplements and change orders can be minimized.
Develop checklists for various phases of project compliance to ensure that all
prerequisites are completed before submittal to contract procurement, including apre-
design procurement checklist and apre-construction bid checklist.
For our Engineering Division we have developed an extensive scoping worksheet, which
appears as Attachment 1. Our Building Division will be producing a temporary one by
September and the final one would be part of the consultant contract, as building projects
are so varied in their scope and complexity.
Auditor's Response:
If actually used as part of an overall management and control process, the forms
submitted should result in more complete project scoping and documentation.
Page - 5 - 7/22/08
Project Tracking
• Develop a CIP master schedule to establish and track project timelines and prioritize and
monitor funding and resource allocations (including personnel).
Implement a process for regular and frequent review of project financial and physical
status by DPW administrators and project engineers, coordinators and inspectors.
These items will be a part of the consultant contract mentioned above.
Auditor's Response:
The Auditor agrees that since the County currently does not have an automated
system application (computer software) to provide. project status information
needed in a regular and timely manner, a needs analysis and an automated
applications comparison and recommendation should be included in the scope of a
consultant contract.
However, we recommend that the consultant contract performance requirements
and deliverables and procurement documents be submitted to the Council for
approval and/or amendment prior to publication.
Also, in the interim, we recommend that DPW immediately implement a monthly
project status review and written report, whereby all department managers and
project staff will be apprised of project status and any current and potential issues.
Project Documentation and Control
Documentation Requirements. Implement minimum documentation, authorization, action
and reporting requirements for all phases of CIP management, including, but not limited
ta: project scoping and estimation; consultant ranking and selection; construction contract
procurement and award; governmental permitting, insurance and bond requirements;
internal estimation of contract supplements and change orders; project inspection;
verification of progress billings; resolution of disputed charges; and project closeout.
Special attention should be given to initial project scoping, as it appears that a significant
portion of contract supplements and change orders reviewed during the audit period was
due to insufficient front-end scoping.
Standardized Forms. Develop internal procedures, checklists and report forms relating to
project scoping, permitting, procurement, management, inspection, payment and closure
as well as external procedures, checklists and report forms for use by other County
agencies prior to submittal of projects to DPW for procurement. Where possible,
standardized processes and forms should be developed to ensure adequate and consistent
project documentation.
For change order justification, we will be incorporating the information shown on
Attachment 2.
Page - 6 - 7/22/08
Auditor's Response:
Is Attachment 2 - "Change Order Justification and Field-Approval Form" - to be
shared with the contractor, or is it an internal DPW form?
The form under "Justification for Proposed Change Order" should indicate
responsibility for the change, including, but not limited to, County scoping
or Design Consultant oversight, when applicable. The form should
specifically state the exact nature of additional work and/or description and
quantity of materials required and include sufficient detail to indicate why
they were not included in the original contract scope and quantities.
• The form needs to indicate how the change will be paid (e.g., lump sum,
time and materials, etc.).
• The form should indicate whether the County Engineer or Project
Coordinator is required be present to witness work execution, and delineate
any other documentation such as materials invoices that will be .required to
support the contractor's billing.
Will a similar "Contract Supplement Justification and Approval Form" be prepared
for professional services contracts?
These comments also apply below to "Contract Supplements and Change Orders".
• Routing and Retention. Develop policies and procedures for report preparation, routing
and retention to include all DPW personnel involved in capital improvement projects and
specifically address what documentation is expected to be completed and/or maintained
by whom, to whom it should be communicated, how, when and in what format.
Conflict of Interest/Related Parties. Develop policies and procedures that .address
"conflicts of interest" and "related party" issues between consultants/contractors and
DPW personnel, including defining "related party", requiring written related party
disclosures, and specifying additional documentation and control procedures required in
related party situations. At a minimum, policies and procedures should comply with
provisions of Hawaii County Code §2-84, Conflicts of interest, and §2-91.1, Financial
disclosures and disclosures of interest.
• Segregation of Duties. Develop policies and procedures that address segregation of duties
among DPW personnel, including, but not limited, to: project scoping, internal
estimation, ranking and selection of professional services consultants, bid and award of
construction contracts, inspection and acceptance of projects, and approval of progress
payment requests. At a minimum, policies and procedures should comply with provisions
of the County Department of Finance's Accounting Manual, Part I (June 7, 1999), at Page
103.11, which provides in part: "Any system of internal control should include, as a
minimum, the following elements: 1. Systems of authorizations, approvals, and recording
procedures adequate to provide reasonable accounting control over assets, liabilities,
revenues, and expenditures. 2. Separation of duties concerned with record keeping and
accounting reports from those concerned with operations or asset custody..."
Page - 7 - 7/22/08
• Contract Supplements and Change Orders. Develop quality control measures specifically
relating to contract supplements and change orders, including:
o Minimum documentation requirements.
o Standardized decision criteria to determine whether a proposed change is within the
original project scope or requires a separate procurement.
o Identification of specific causes necessitating the change.
o Identification of specific responsibility for the change.
o Independent internal estimation of time and costs relating to the change:
o Comparison of internal estimations to vendor/contractor estimations.
o Development of a negotiation strategy.
o Documentation of negotiations.
o Review, approval and documentation of agreed-upon time and costs.
o Documentation of comparison and verification of agreed-upon time and costs to
vendor/contractor invoices.
The remainder of the items under Project Documentation and Control will be a part of
the consultant contract mentioned above.
Auditor's Response:
The: Auditor suggests that control processes can and should begin to be
implemented prior to procurement of a consultant.
Quality Control
• At a minimum, the quality control process should include a mechanism to review project
status and communicate "lessons learned" to appropriate DPW staff as well as a
mechanism to review vendor and contractor performance with outcomes reported back
into the procurement ranking process at the departmental and County-wide levels.
• At a minimum, the quality control process should include a mechanism to regularly and
frequently report CIP status to the County Council, including specific dollars and dates
related to original budget, original contract, adjusted contract, actual expenditures
(current year and project to date), and estimates to complete on both time and cost for
every project.
We will start post construction evaluation for our construction contracts. Similarly,
upon completion of our consultant contracts, they will be evaluated.
Page - 8 - 7/22/0$
Auditor's Response:
Auditors suggest a "guide" be developed to assist in assuring a complete review.
DPW departments such as San Jose, Portland or Seattle may have a process in
existence and may be able to provide some assistance. As stated above, the
Auditor. is continuing to gather information to be shared with DPW managers.
3. We recommend that the Department of Public Works evaluate and incorporate
industry best practices relating to staffing levels and information systems
applications.
Best Practices -Staffing
• The Department of Public Works should evaluate and compare its staffing levels to
industry best practices to ensure that they are sufficient to meet program demands.
o Develop departmental and division "process maps" to clearly delineate roles and
responsibilities and evaluate the adequacy of staffing levels and resources to carry out
duties.
o Conduct acost-benefit analysis of hiring additional County personnel versus
continuing to outsource capital improvement project design and construction work.
o , Develop written policies and procedures as recommended above and implement
training programs to ensure that new policies and procedures are clearly and
consistently communicated to appropriate staff.
• If the department determines that it cannot make significant progress in the foregoing
areas within the next six months, it should consider procuring a private consultant to
assist in the development of process maps, improvement of policies and procedures, and
training of its personnel.
Best Practices -Information Technology (IT) Applications
• The Department of Public Works should evaluate and compare its information systems
applications to industry best practices to ensure that they are sufficient to meet program
demands.
o Assess informational needs against capacities of current County information systems
applications and conduct acost-benefit analysis relating to implementation of
necessary IT applications to address any critical deficiencies. Implement an integrated
computer application to provide report capability for project management on a regular
and frequent basis in a standardized and useful format. Increase capability for
proactive project monitoring and control to replace current record-keeping of
unstandardized data by different project personnel in various manual and electronic
formats in order to eliminate inefficiency, redundancy and potential of error.
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• If the department determines that it cannot identify a compatible information systems
application within the next six months, it should consider procuring a private public
works consultant with IT expertise.
We have determined that we can't make significant progress within six months and so we
will be procuring a private consultant who possesses specific experience and expertise to
evaluate and incorporate best practices. This is the same contract sited above in
Recommendation 2.
Auditor's Response:
Again, we recommend that procurement documents for an experienced public
works consultant be submitted to the Council for approval and/or amendment prior
to .publication. We further recommend that procurement documents specifically
require that the consultant provide the Council with a written report of all actions,
policies, procedures, systems applications, and personnel changes recommended
and the suggested order and timing of their implementation.
4. We recommend that the Department of Public Works, in consultation with the
Finance Department, develop and implement formal policies and procedures for
authorization, documentation, and systematic recordation and reporting of changes
to contract fund accounts.
The Department of Public Works met with the Department of Finance regarding this
recommendation. A process already exists, however, the Finance Department will have
it formalized and implemented County-wide.
Auditor's Response:
The`Auditor is not aware of any current reports to the Council related to changes in fund
accounts charged for CIP projects.
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