san francisco’s city construction program: it needs...

San Francisco’s City Construction Program:

It Needs Work

June 2015

City and County of San Francisco

Civil Grand Jury, 2014-2015

SanFrancisco’sCityConstructionProgram 2

Members of the Civil Grand Jury

Janice Pettey, Foreperson

Philip Reed, Foreperson Pro Tem

Anne M. Turner, Recording Secretary

Morris Bobrow

Leonard Brawn

Daniel Chesir

Matthew Cohen

Jerry Dratler

Herbert Felsenfeld

Allegra Fortunati

Mildred Lee

Marion McGovern

Fred A. Rodríguez

Gary Thackeray

Jack Twomey

Ellen Zhou

SanFrancisco’sCityConstructionProgram

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THE CIVIL GRAND JURY

The Civil Grand Jury is a government oversight panel of volunteers who serve for one year. It makes findings and recommendations resulting from its investigations.

Reports of the Civil Grand Jury do not identify individuals by name.

Disclosure of information about individuals interviewed by the jury is prohibited. California Penal Code, section 929

STATE LAW REQUIREMENT California Penal Code, section 933.05

Each published report includes a list of those public entities that are required to respond to the Presiding Judge of the Superior Court within 60 to 90 days as specified. A copy must be sent to the Board of Supervisors. All responses are made available to the public. For each finding, the response must:

1) agree with the finding , or 2) disagree with it, wholly or partially, and explain why

As to each recommendation the responding party must report that:

1) the recommendation has been implemented, with a summary explanation; or 2) the recommendation has not been implemented but will be within a set timeframe as

provided; or 3) the recommendation requires further analysis. The officer or agency head must define

what additional study is needed. The Grand Jury expects a progress report within six months; or

4) the recommendation will not be implemented because it is not warranted or reasonable, with an explanation.


TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................................ 5BACKGROUND ............................................................................................................................ 6METHODOLOGY ......................................................................................................................... 8DISCUSSION ................................................................................................................................. 9The Current Contracting Environment and its Complexity ............................................................ 9

1. Overview ......................................................................................................................... 92.The Construction Management General Contractor (CMGC) Approach ........................ 93. The Lowest Cost Bid Problem ..................................................................................... 114. The Role of “LBEs” ..................................................................................................... 135. Revisions to Chapter 6 ................................................................................................. 14

Construction Project Management ................................................................................................ 141. Change Order Management .......................................................................................... 152. Contract Close Outs ...................................................................................................... 17

Department Interactions ................................................................................................................ 181. The DPW Architecture and Engineering staff ............................................................. 182. Disparate Policies and Systems ................................................................................... 193. Errors and Omissions ................................................................................................... 194. Recreation and Park ...................................................................................................... 19

Information Technology ............................................................................................................... 20Transparency and Reporting ......................................................................................................... 21Lack of Independent Oversight ..................................................................................................... 23FINDINGS .................................................................................................................................... 25RECOMMENDATIONS .............................................................................................................. 25REQUEST FOR RESPONSES..................................................................................................... 26GLOSSARY ................................................................................................................................. 29ACRONYMS ................................................................................................................................ 29ENDNOTES ................................................................................................................................. 30


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EXECUTIVE SUMMARY

HowcanSanFranciscomanageaconstructionportfolioofover$25billionwithinconsistentcontrols,insufficientsystems,andaninabilitytoconsolidatecitywidefinancialandmanagementinformation?WhydoesSanFranciscocontinuetooperateacontractingenvironmentthatisoutofstepwithbestpractices?ShouldtheCitybespendingsomuchonconstructionwithouttheoversightoftheBoardofSupervisors?TheCivilGrandJury(CGJ)wantedanswerstothesequestions.InthisreporttheCGJexaminesthesethreecriticalproblemsthathavebeencalledoutinnumerousCityauditreportsoverthelastfewyearsbutremainunaddressed.InourresearchwediscoveredthattheCity’sconstructionprojectportfolioisdiverse,thatsomeprojectsareverycomplex,andthatneighborhoodprojectsinflamethepassionsofSanFranciscocitizens.Sixdepartmentshavepublicworkscontractingauthority.TheCGJchosetofocusprimarilyontheworkofoneofthose,theDepartmentofPublicWorks(DPW).Althougheffortsareunderwaytoaddresssomeoftheproblemareas,muchworkstillneedstobedone.Ourrecommendationsinclude:

TheCityneedstoreviseChapter6oftheAdministrativeCodetoenablecontractorselectiononpastperformanceinadditiontothelowcostbid.

Commonconstructionmanagementprocessesaddressingchangeorders,projectcloseoutandcomplianceneedtobeinstituted,monitoredandmeasured.

Constructionmanagementinformationmustbestandardizedtoproducecitywidereports.Onceconsolidatedinformationisavailable,citywidereportsshouldbepublishedforpublicreview.

TheCity’soutofdatetechnologyandweakConstructionManagementSystemsinfrastructuremustbeaddressed.

TheBoardofSupervisors(BOS)musttakeamoreactiveroleintheoversightofconstructionprojects.


BACKGROUND

SanFrancisco’s2014–2023ten‐yearcapitalplanis$25billion,astaggeringsumbyanymeasure.Theplanprincipallyfundsinfrastructurelikeroadsandpowersystems,buttherearealsoalargenumberofbuildingprojects.Thecitydifferentiatesbetween“vertical”projects,e.g.buildings,and“horizontal”projects,likeroads.TheverticalprojectscanrangefromthehighlycomplexandmassiverebuildingofSanFranciscoGeneralHospitaltoarelativelysmallproject,liketherenovationofacommunitycenteratMissionPlayground.

2014‐2023 Capital Plan Summary

(Dollars in Millions)

By Service Category Plan Total

Public Safety $1,376

Health and Human Services $1,306

Infrastructure & Streets $8,678

Recreation, Culture, and Education $1,241

Economic & Neighborhood Development $4,151

Transportation $8,228

General Government $91

Total $25,072 1

SixCitydepartmentshavepublicworkscontractingauthority.Thesedepartmentsare:

‐ ThePortCommission(thePort)

‐ TheAirportCommission(theAirport)

‐ TheSanFranciscoPublicUtilitiesCommission(PUC)

‐ RecreationandParkDepartment(R&P)

‐ TheMunicipalTransportationAgency(MTA)

‐ TheDepartmentofPublicWorks(DPW)

Goingforward,thesesixareaswillbereferredtojointlyasthe“sixCitydepartments”.


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InadditiontoDPW’sowndepartmentprojects,DPWmanagesconstructionprojectsforallnon‐Chapter6departmentssuchastheLibrary,FireDepartment(SFFD)andDepartmentofPublicHealth.

Constructionprojectsarefundedinmanywaysincludingbondmeasuresthattaxpayersapprove,federalorstatefunding,citygeneralfunds,privatesources,oracombinationofallavailablesources.Whengeneralobligationbondfundsareused,theCitizens’GeneralObligationBondOversightCommittee(CGOBOC)hastheresponsibilityofensuringthatgeneralobligationbondproceedsarespentproperly.AtrecentCGOBOCmeetings,theDirectorofAuditspresentedperformanceauditsofconstructionpracticesintheCity.Theauditsidentifiedcontrolweaknessesintheareasofcontractchangeordermanagementandtheprocessofclosingoutconstructioncontracts.Afterreviewingadditionalconstructionmanagementaudits,theSanFranciscoCGJfeltthetopicwarrantedstudy,giventhedollarmagnitudeandlargenumberofbuildingconstructionprojectsinprocess.

AstheCGJbeganitsinvestigationwefoundthattherehavebeen25auditsoverthelastsevenyears,whichhaveexaminedvariousaspectsoftheconstructionmanagementprocess.Someofthesewerecitywideperformanceaudits,whileothersfocusedonspecificprojects.Theseauditsweredonebyemployeesandoutsidefirmswithspecializedexpertiseinsuchassessments.Severalthemesemergedfromthesevariousrigorousaudits.

Constructionprojectsalwaysinvolvechangeorders,whichauthorizeworktobeaddedtoordeletedfromtheoriginalcontract.Inmanyinstances,thechangeordermanagementprocesswasweakwhichcouldexposetheCitytoincreasedcostand/ordelays.

Constructioncontractcloseoutproceduresarealsoanareaofconcern;astrongcloseoutprocessensuresthatallcontractualtermsaremet,sodeficienciesinthatprocesscouldmeanarisktothecity,

IntheprojectsthatDPWmanagesanddesigns,therehavebeendesignerrorsthathaveledtoavoidablecostincreases.

Cityconstructionprojectslacktransparencyforseveralreasons.Thesystemsthattrackprojectsacrossdepartmentsvaryanddonotsharecommondataelements,preventingtheconsolidationorcomparisonofkeyperformancemetrics.Similarly,nofinalreportispublishedoneachprojectsummarizingthefinancial,functionalandoperationalprojectoutcomes.

Accountabilityforbothlargeandsmallcityconstructionprojectsresidesinthedepartment,itscommissionortheCityAdministrator,butnotwiththeBOS.WiththeexceptionofDPW,allsixCitydepartmentshavecommissionoversight.


TheinformationsystemsinfrastructureinDPWisnotsufficienttohandlethe535activehorizontalandverticalprojectsthatDPWcurrentlymanagesthatarevaluedat$5.7billion.2

AnApril2014auditperformedbytheCityServicesAuditorexaminedtheCity’scurrentpracticeofawardingconstructioncontractsusingasinglecriterion,thelowcostbid,apracticethatignorescurrentbestpracticesusedbyotherlargecitiesandgovernmentagencies.

Manyofthesefactorsalonesuggestedtheneedforfuturestudy,buttakentogether,aninvestigationofCityconstructionmanagementwasclearlywarranted.Tomakethetopicmanageable,wechosetofocusonthebuildingconstructionmanagementprocessofDPW.Weareconfidentthatmanyofourrecommendationswillbeapplicabletoothercitydepartmentsandtheirconstructionprojectsaswell.

METHODOLOGY

Wereviewedmanycity‐publishedsourcesofinformationinpreparingthisreportincludingdepartmentwebsitesandtheSanFranciscoAdministrativeCode(theCode).TheCityServicesAuditor(CSA)hasaconstructionauditgroupthatauditsCityconstructionprojectsandissuedseveralauditsinthelastsevenyears.Wereviewedtheseauditsindepth,focusingonthosethatdealwithverticalprojects,managementcontrols,andtheCity’scurrentlowestcostbiddercriterionforawardingconstructioncontracts.

Wealsoreviewedthe2007ManagementAuditofDPWpreparedbytheSanFranciscoBudgetandLegislativeAnalyst(BLA).AsectionofthatmanagementauditaddressedDPW’sprogramforreportingandpreventingconstructiondesignerrorandomissionchangeorders.Additionally,wereviewedthe2011BLAreportonthecostofchangeordersandthelackofcitywidechangeorderreporting.

TheCGJinterviewedrepresentativesofthesixCitydepartmentsandCitydepartmentsthatlackcontractingauthorityinordertounderstandtheirdifferentperspectivesontheeffectivenessoftheprevailingpracticesofmanagingtheCity’sconstructionworkload.Weinterviewedconstructioncontractorsincludingthosewhodobothpublicandprivateconstructionprojects,andcontractorswhohavechosennottobidonCitywork.WeinterviewedseniormanagersatthePublicWorksdepartmentsinotherlargecitiestounderstandthepracticesinplaceintheircommunities,andtherebydiscernwhatissuesmayapplytoallcitiesandwhatmaybeuniquelypertinenttoSanFrancisco.Asaresultoftheseinterviewswewereprovidedwithadditionalmanagementreports,anddataextractsfromthedepartments.


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DISCUSSION

OurinvestigationrevealedseveralareasforimprovementinCitymanagementofverticalconstructionprojects.Theseissueareasarediverse,sowewilladdresseachseparately.Theyare:

TheContractingEnvironment

ConstructionProjectManagement

DepartmentInteractions

InformationTechnology

TransparencyinReporting

IndependentOversight

The Current Contracting Environment and its Complexity

1. Overview

ThenumberofcranesseenintheSanFranciscoskylineisaclearindicationofthescaleofconstructionprojectsinourcity.Althoughmostprojectsareprivatedevelopments,manyarecityprojectsthatmustcompeteforthesamedesignandconstructionresources.

ThemannerinwhichtheCitysecuresdesignandcontractorresourcesforconstructionprojectsisviaacontractingprocessoutlinedinChapter6oftheCode.TheCodespecifiesthattheCitymusttakethelowestcost“responsiblebidder.”Additionally,biddersarerequiredtoincludeLocalBusinessEnterprises(LBEs)aspartoftheirconstructionteam.Thisisa“hardbid”process,wherespecificationsareprovidedtobidderswithnonegotiationofprojectscope,timingordeliverables.

Somemajorconstructionfirmswillnotparticipateinahardbidprocess.Theyseethehardbidprocessasstructurallyflawed;aprocesswheretheclientdoesnotchooseacontractorbasedonpastperformanceorthequalityofthecontractor’swork.Thelowcostbidprocesscancreateaperverseincentiveforcontractorstoscrutinizeprojectbidspecificationstodeterminetheexistenceofflawsoromissionsinthebidspecificationsthatwouldneedtobeaddressedthroughlucrativecontractchangeorders.Thepresidentofamajorconstructionfirmthathadhistoricallyavoidedmunicipalcontractingviahardbidssaidin2007,"Theprocessasithasbeenfollowedisafailureeverytime.WhyinGod'snameisthisprocessstillrepeated?"3

2. The Construction Management General Contractor (CMGC) Approach

Theconstructionindustrymovedtoalternativecontractingstructurestocounterthe“oldschool,”hardbidenvironment.Privatedevelopersandcontractors,realizingtherewasaneedforgreatercollaborationindesigningandbuildingcomplexconstructionprojects,developedcontractualagreementsthatsupportspecializationandcollaboration.


Ina“Design‐Build“contractonefirmprovidesprojectdesignandconstructionservices.Thisapproachisusedforroutineconstructionprojects,likeparkinglotsorcorrectionalfacilities,wherespecificfirmsspecializeinagiventypeofstructureandofferaturnkeysolution,providingboththeprojectdesignandconstructionmanagementservices.Inthisprocess,writtendesigncriteriaareprovidedalongwithprojectrequirements.Thebiddingfirmcomesbackwiththeprojectdesignandtheconstructioncost.TheCityofSanFranciscohasdoneseveralDesign‐Buildprojects.Forexample,the$255millionRehabilitationDetentionFacilityisadesign‐buildproject.Othermunicipalitieshaveadoptedthisturnkeyoptionaswell.InaConstructionManagementGeneralContractor(CMGC)relationship,thecontractorprovidesinputinthepre‐constructionphaseoftheprojecttosimplifytheconstructionprocess,reducingconstructioncost.Theconstructionmanagerispaidforpre‐constructionplanning,whichincludesvalidatingthebudget,andidentifyingconstructionsavingsthatcouldbeachievedfromtheredesignofcertainelementsoftheproject.Thegoalistocreateamoreefficientandcosteffectiveconstructionproject.Theprivatesectorcontractingcommunityalsoreferstothisasintegratedprojectdesign.CMGCpracticeswereadoptedinSanFranciscoin2007,whenthenMayorGavinNewsom,recognizedtheneedformorecollaborationintheplanningofthenewAcademyofSciences.SeniorleadershipofDPWassistedinpassinganordinancetoenableCMGCpractices.4TheCityaddressedthesenewcontractingstructuresinitsCode:Chapter6.61fordesign‐build,and6.68forCMGCprojects.Subjecttotwoconditions,theseprovisionsgranttheflexibilitytosoliciteitherdesign‐buildorCMGCproposalstodepartmentheadsauthorizedtoexecutecontractsforpublicworksprojects.Theprojectmustbesuitabletoeitherprocess;and,mostsignificantly,approvalmustbeobtainedbytheclient’sdepartmentcommission.Ifadepartmenthasnocommission,theCityAdministratormustapprovethearrangement.DPWhascompletedfiveconstructionprojectsusingCMGCwithanotherfiveprojectsintheactiveconstructionphase.ThefiveactiveprojectsarethePublicSafetyBuilding,SanFranciscoGeneralHospital,theOfficeoftheChiefMedicalExaminerBuilding,theMosconeCenterExpansionandtheVeteransBuilding.ThebenefitsofusingtheCMGCprocesshavebeendemonstratedintheearlyresultsoftheseprojects.TheAcademyofSciencesrebuildwasabig“win”fortheCity,cominginbothontimeandunderbudget.TherebuildingofSanFranciscoGeneralHospitalisbeingcoordinatedbyaspecialisthospitalcontractingfirm.Changeordersonthelargestphaseofthe$882millionproject,the$673millionofnewconstruction,wereapproximately3%oftotalcost,agreatresultforaprojectofitssizeandcomplexity.

Somestates,includingOregonandWashington,havemovedtoamandatoryuseofCMGCpracticesforlarge‐scaleprojects.Federalprojectsalsousethismethodofcontracting.Aqualifications‐basedcriteriaisestablishedfortheawardoftheCMGCpre‐constructionproject.Priceisnotaselectioncriterion.SanFrancisco,likemanyjurisdictions,includes


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socialpolicygoalsliketheuseofdisadvantagedbusinessenterprisesasaratableelementinthescoringprocess.Afterthehighestscoringbidderhasbeenselected,priceisthennegotiated.TheCGJcommendstheCityonitsuseofCMGCanddesign‐build,processesthatarebeingadoptedasa“BestPractices”intheconstructionindustry.Theincreaseduseofthesetechniquesforlargeand/orcomplexconstructionprojectswillonlyyieldbenefitstotheCity.

3. The Lowest Cost Bid Problem AlthoughsomecityconstructionprojectsutilizeCMGCanddesign‐buildtechniques,mostprojectsarestillsubjecttothelowestcostbidapproach.Forprojectsequaltoormorethan$400,000,theCoderequirestheCitytoaccept“aresponsiblebidderofferingthelowestresponsive bid.” Forprojectsunder$400,000theCoderequires“aresponsiblebidderofferingthelowestquotation.”5Thosetermsaredefinedasfollows:

Responsible.Aresponsiblebidderorcontractorisonewho(1)meetsthequalifyingcriteriarequiredforaparticularproject,includingwithoutlimitationtheexpertise,experience,recordofpriortimelyperformance,license,resources,bondingandinsurancecapabilitynecessarytoperformtheworkunderthecontractand(2)atalltimesdealsingoodfaithwiththeCityandCountyandshallsubmitbids,estimates,invoicesclaims,requestsforequitableadjustments,requestsforchangeorders,requestsforcontractmodificationsorrequestsofanykindseekingcompensationonaCitycontractonlyuponagoodfaithhonestevaluationoftheunderlyingcircumstancesandagoodfaith,honestcalculationoftheamountsought.

Responsive.Aresponsivebidisonethatcomplieswiththerequirementsofthesubjectadvertisementforbidswithoutconditionorqualification.6

WhileitwouldappearthattheSanFranciscocityrequirementtoacceptaresponsiblebidderofferingthelowestcostresponsivebidwouldincorporateevaluatingcontractorpastperformanceinthebidselectionprocessforfixedbidcontracts,thisisnotthecase.AnApril2014CSAcitywideconstructionauditevaluatedwhetherthesixCitydepartmentseffectivelyevaluatecontractorpastperformanceandutilizecontractorpastperformanceinawardingconstructioncontracts.Theauditfoundthat“citydepartmentsdonotadequatelyassesscontractorperformanceanddonotconsiderpastperformanceintheconstructionawardprocess.”Thereportgoesontosay,“becausetheCitydoesnotrequireevaluationsofcontractors’performanceand,hence,thereisnoformalrecordoformethodbywhichtojudgecontractorresponsibility,poor‐performingcontractors—evencontractorsincapableofperformingtheworkonwhichtheybid—cansecureadditionalcitycontracts.”7Similarly,70%ofthosesampledbytheCSAreportedthatacontractorhadperformedpoorlyonaCityproject.8


Othercitieshavedevelopedextensivevettingcriteriaforpublicworkscontractors.Fiveoftheleadingpracticesaresummarizedinthetablebelow.ThreeofthesixSanFranciscoCitydepartmentshaveacontractorevaluationprocess.However,thethreedepartmentsusedifferentcontractorassessmentcriteriaandthecontractorevaluationsarenotusedinthecontractawardprocess.

9Adoptionofleadingpracticesincontractorperformanceevaluationdiscouragesthefollowingcontractorpracticesthatincreaseconstructionprojectcosts: Contractorspurposelysubmittingabidthatdoesnotprovideenoughmoneyto

completeaconstructionprojectknowingthattheCitywillneedtoissueprojectchangeorderstofundtheprojecttocompletion.Projectchangeordersarenotsubjecttocompetitivebiddingandhaveamuchgreaterprofitmarginforcontractors.

Contractorsevaluatingconstructionprojectsfromtheperspectiveoftheproject’schangeorderpotential.ContractorswhousethisprocessevaluatetheCity’sbidpackagesfromtheperspectiveofwhatdesignelementsaremissingfromthebidpackagethatwillnecessitatefuturechangeorders.

Contractorsnotcompletingaprojectwhentheyhavereceivedthebulkoftheprojectconstructioncontractpayments,therebyleavingtheCitytofindanewcontractortocompletetheopenitemsontheprojectpunchlist.

Theuseofpastperformancecriteriaalsoeliminatestherevolvingdoorofbadcontractorssecuringcityworkbyvirtueofalowestcostbid.TheCityofLosAngelesgoesevenfurtherwithits“ContractorResponsibilityOrdinance”:

Priortoawardingacontract,theCityshallmakeadeterminationthattheprospectivecontractorisonethathasthenecessaryquality,fitnessandcapacitytoperformtheworksetforthinthecontract.Responsibilitywillbedeterminedbyeachawardingauthorityfromreliableinformationconcerninganumberofcriteria,includingbutnotlimitedto:managementexpertise;technicalqualifications;experience;organization,material,equipmentandfacilitiesnecessarytoperformthework;financialresources;satisfactoryperformanceofothercontracts:satisfactoryrecordofcompliancewithrelevantlawsandregulations:andsatisfactoryrecordofbusinessintegrity.10


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Inallthereare18differentcategoriesthatareevaluatedintheLosAngelesfinalreport.Poorresultswillprecludeafirmfromfurtherworkaswillfalsificationofanyofthesurveyanswers.

4. The Role of “LBEs” TheCityhasspecificsocialpolicygoalsincorporatedintoitscontractingrequirements.Itprovidespreferencepointsinawardingcontractstothosecontractorswhousesubcontractorswhomaybenew,small,orfromdisadvantagedbackgroundsorneighborhoods.Thesediversitygoalsandthecomprehensivestatutoryregulationsthatgovernthem,alterexistingprimecontractorandsubcontractorworkingrelationships.Manycontractorsarerequiredtousesubcontractors,withwhomtheymayneverhaveworked,towinCitycontracts.Thecontractorscannotdependonthecompetencyofthesesubcontractors.AllofthismakescontractingwiththeCityaveydifficultprocess.InparticularChapter14oftheCodeidentifiesthefollowingcategoriesofbusinessesthataregivenpreferenceinthepublicbuildingprocess:

LBE‐ Local Business Enterprise Small LBE

MBE‐Minority Business Enterprise Micro MBE

WBE‐Womens Business Enterprise SBA‐LBE

OBE‐ Other Business Enterprise Non‐profit LBE 11 Numerouspreferencecategoriesandtheuniquerequirementsofeachcitydepartmentcreateextraworkandmanagementchallengesforbothcontractorsandsubcontractors.TheContractMonitoringDivision(CMD)oftheGeneralServicesAgency(GSA)ischargedwithenforcementoftherequirementsofChapter14(B)throughtwoseparateunits:acertificationunitthatqualifiesfirmsforcertificationmeetingcertainprescribedcriteria,andacomplianceunitthat“setsgoals”forhiringChapter14businessesinmostCitycontracts.Forexample,thecomplianceunitwilldeterminethepreferencecontentofeachelementoftheconstructionproject.Thereareapproximately1,700firmsthathavebeencertifiedforsome270differentcategoriesofbusinesstypesforeachspecificproject.TheCGJdidnotdetermineifthecertificationprocessincludedcertificationofcontractorperformance.Additionally,thereisChapter12,whichenforcesnon‐discriminationpracticesinthecertificationprocessandundertheCodeisenforcedbytheHumanRightsCommission(HRC).AlthoughtheCodestillplacesthisobligationontheHRC,thisfunctionhasbeentransferredtotheCMD.Finally,thereistheOfficeofEconomic&WorkforceDevelopment,which,underChapter6.22(g)oftheCode,administersandmonitorslocalhiringpolicyforconstructionintheCity.ContractorsdoingworkwiththeCityhavedescribedtheprocessas“byzantine.”Noonequestionsthemeritofthesocialgoal;ratheritisthecomplexityofmeetingitthatcreatesfrustration.SomecontractorsaredauntedbytheCity’sLBErequirement,sincesomeLBE


firmspossessgoodconstructionskillsbutlackconstructionmanagementandadministrativeskills.Whenasubcontractorfailstodeliveracceptableworkontime,itcancausesignificantprojectdelays,whichcanleadtoasignificantincreaseintotalprojectcostandjeopardizetheprimecontractor’sreputation.ThishasledtoareductioninthenumberofcontractorswillingtobidonCitybusiness.R&Patpresenthasonlyfourcontractorswhowillbidonmostoftheirconstructionprojects.

5. Revisions to Chapter 6 Atpresent,acityworkgrouphasbeenformedtoidentifyadministrativeandsubstantivechangesthatshouldbemadeinChapter6oftheCode.InphaseItheworkgroupproposed43technicalchangestotheBOSthisspring.InphaseIIoftheproject,theworkgroupwillbeproposingthatChapter6oftheCodebemodifiedtoincludecontractorperformanceasanadditionalcriterioninawardingfixedbidconstructioncontracts.Inthecurrentlowestbidenvironment,itispossibleforacontractorwithatrackrecordofpoorqualityworkandfailuretomeetdeliveryschedulestowinnewconstructioncontractsmerelybecauseitwasthelowestbidder.ItisoftendifficultforDPWsupervisorypersonneltocollaboratewithlowbidcontractorsunderthesecircumstances.EventhoughperformanceisnotacriterioninthelowestbidenvironmentinSanFrancisco,theCityhasaprocessforexcludingcontractorsfrombiddingonnewconstruction.Theprocessiscalleddebarment.Acontractorcanbedebarreddueto“willful”misconductinanyaspectofthebiddingprocess,fromsubmittingfalseinformationintheproposaltofailuretocomplywiththetermsofthecontract.12TheCitydebarmentprocessisdifficult,andcurrentlynoCitycontractorsaredebarredorpreventedfrombiddingonnewconstructionprojects,regardlessofhowmanynoticesofnon‐compliancetheyhavereceivedfromtheCity.TheCSAissuedaCitywideConstructionauditreportinMayof2014thatprovidesanecdotalexamplesofCityprojectswhereconstructioncontractorsperformedpoorly.Thereportfoundthatpoor‐performingcontractorshavemorenon‐compliancenotices,higherprojectsoftcost(non‐constructioncosts)andmorechangeordersthanhighperformingcontractors.OneexamplecitedintheauditreportisanAirportcontractorwhoreceived59non‐compliancenoticesforimproperworkona$14millioncontracttoconstructabridgeattheAirport.13Itisnotclearwhysuchacontractorwasnotconsideredfordebarment,aprocessthatdoesnotappeartobeusedtoprotecttheCityfrompoorlyperformingcontractors.WeencouragetheBOStoamendChapter6oftheCodetoincludeconsiderationofcontractorpastperformanceinawardingfixedbidconstructioncontractsandtoimplementthechangeswiftly.Construction Project Management Projectmanagementcontrolsareveryimportantforensuringprojectqualityandformanagingconstructionprojectcosts.Wereviewedtwoimportantareasofconstruction


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projectcontrol:changeordermanagementandprojectconstructioncontractclose‐outprocedures.Additionally,welookedattheconsequencesofnon‐compliancewiththeseandotherpolicies.

1. Change Order Management Largeconstructionprojectswillhavemanyhundredsofchangeorders.Anillustrativelistappearsbelow.14

Project Total Cost # Of Change Orders

SanFranciscoGeneralHospital

$887million 607

PublicSafetyBuilding $243million 389NorthBeachBranchLibrary $14million 116BayviewBranchLibrary $14million 102PalegaRecreationCenter $14.4million 175MissionDoloresPark $18million 103Thechangeorderprocessgeneratesmanydocumentsthatneedtobemanagedandroutedforapprovalandsignoff.Itstartswithacontractorpreparingaproposedchangeorderwhichleadstoanegotiationprocessandanindependentcostanalysisforchangeordersover$20,000.Onceachangeorderhasbeenapproved,itrequiresacontractmodification.Theserequireauthorizingsignaturesaswellas,insomecases,revisedarchitecturalplansorengineeringspecifications.Allofthechangeorderdocumentsneedtobemanaged,sothatapprovalscanbetracked,contractrevisionscanbenoted,andkeydocumentscanberetrievedasneeded.ThefollowingexamplestakenfrommanyCSAauditreportsdemonstratethatmanagementprocessesforchangeordersaredepartmentspecific,notcitywide,andarefrequentlyignoredinpractice.TheApril2014CSAauditofchangeordersonthe$243millionPublicSafetyBuildingprojectfound:15

DPWdocumentedproposedchangeorders,but,contrarytodepartmentalprocedures,didnotdocumentthenegotiationsforthoseexceeding$20,000.

DPWdidnotpreparetherequiredindependentcostestimatesforproposedchangeordersexceeding$20,000,sohadnonegotiatingleveragewhenthecontractorsubmittedrevisedcosts.

Proposedchangeordersrequestingtimeextensionsdidnotcontainsufficientsupportingdocumentation,increasingtheriskofpossibleapprovalofunwarrantedtimeextensions.

TheCSAissuedabout20changeorderauditreportsoverthelastfouryears.Theauditshighlightedsignificantproceduralproblemsthatcanbeimprovedwithallcitydepartments


usingthesamechangeorderprocedures,greateradherencetoexistingchangeorderpoliciesandtheimplementationofcitywidechangeordermanagementreports.Theauditsfoundcontrolweaknessesinlargeandmidsizeconstructionprojects.TheCSAApril2013AuditofthePUC$39.2millionAlamedaSiphon#4foundthat40%ofprojectchangeorderswereissuedand47%wereapprovedaftersubstantialcompletionoftheconstructionproject.Approvingchangeordersafterthecontractorhascompletedtheworkiscontrarytotheintentofthechangeordermanagementprocess.Changeordersareafactoflifeinconstruction;someareduetounforeseenbuildingconditionsandregulatoryrequirements,whileotherchangeordersareavoidableTwotypesofavoidablechangeordersaredesignerrorsandomissionsandclientrequestedchangesduringconstruction.Itisimportanttoreportalltypesofchangeordersandtoensurethatavoidablechangeordersreceiveahigherlevelofmanagementscrutiny.DPWhasastatedgoaloflimitingerrorandomissionchangeordersto3%oftotalprojectcost.Theextenttowhichtheyareachievingthat3%standardisnotclear.TheCGJbelievesthisshouldbeacitywidestandardthatshouldbereportedandenforcedforallconstructionprojects.TheAlamedaSiphonprojecthad196changeorderstotaling$6.8millionor21percentoftheoriginalcontractvalue.Asampleof40ofthe196changeordersfoundthatmodificationswererequiredbecauseof:6designerror,6designomission,12differingsiteconditions,8owner‐requested,3regulatoryrequirementandfiveothercategorychangeorders.16ACSAApril2013auditoftwomidsizeconstructionprojects,the$10.8millionChineseRecreationCenterandthe$4.6millionMissionClubhouseandPlaygroundrenovation,foundsignificantdepartmentpolicyviolations.ChangeordersfortheMissionClubhouseandPlaygroundrenovationamountedto$642,103or14percentoftheoriginalcontractvalue.ChangeordersfortheChineseRecreationCenteramountedto$1,587,540or15percentoftheoriginalcontractvalue.17Theauditfoundthefollowingdepartmentalpolicyviolations:

R&Phasnopublishedchangeorderprocessesorprocedures. DPWdidnotadequatelyrecordpertinentinformationonallchangeorders. DPWdidnotobtainindependentestimatesforchangeordersofmorethan$20,000

asrequiredbywrittenprocedures. BothR&PandDPWeachallowedanincreasetocontractormarkupswithouta

contractmodificationascalledforbythecontract. Amajorityofcontractorchangeorderrequeststhatincludedaprojecttime

extensiondidnotmeetcontractrequirements,andsomechangeorderrequestsweresubmittedlate.

Insomeinstances,contractorsdidnotadheretochangeorderpricingrequirements.


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AnOctober2011BLAreporttotheBOSevaluatedthefrequencyandcosttotheCityofcontractchangeordersforlargeconstructionandprofessionalservicecontracts.ThereportsurveyedtenCitydepartmentsandreviewed218constructionandprofessionalservicecontractsover$5millionenteredintobetweenFiscalYear2006‐07andSeptember2011.Thereportfindingswerethat107or49.1%ofthelargeconstructionandprofessionalservicecontractshadchangeorderswithatotalcostof$295.2million,astaggeringsum.OneoftherecommendationsinthereportwastohavetheBOSrequestthatallCitydepartmentsmaintaincontractinformationinauniformmannerandthattheinformationbesummarizedandregularlyreportedtotheBOS.Weconcurwiththisrecommendation.

2. Contract Close Outs CSAauditreportsexaminedasecondimportantconstructionmanagementprocess,theprocessusedtocloseoutcontractorconstructioncontracts.Theconstructioncontractcloseoutformallyendstheconstructionphaseofacapitalprojectandensuresthatallcontractualandlegalobligationshavebeenfulfilledbeforefinalpaymentisreleasedtothecontractor.EnsuringcompliancewithallcloseoutproceduresassurestheCitythatthecontractorusedcityresourcesappropriatelyandcompletedtheworkinaccordancewithcontractterms.TherewereanumberofDPWandnon‐DPWcontractcloseoutauditswhereCitydepartmentswerefoundtohaveskippedsomeofthecontractcloseoutprocedures.Inthecloseoutaudits,tworecurringfindingswerethatthedepartmentsfailedtouseacontractcloseoutchecklist,aconstructionindustrybestpractice,andthedepartmentswereunabletoprovideadequatedocumentationthatspecificaspectsoftheconstructioncontracthadbeenfulfilled.

TheJuly2013closeoutauditofthecontractforthe$583millionLagunaHondaHospitalReplacementProgramfoundthatDPWwasunabletoverifyitscompliancewitheightof34applicablecloseoutprocedures.Similarly,theJuly2012closeoutauditofthe$332,000contractforChinatownPublicHealthCenterADAImprovementsPhaseIIfoundthatDPWdidnotrequirethecontractortocomplywiththefollowingsixcloseoutprocedures:18

Submitallchangeordersbeforeworkwas95percentcomplete. AdvisetheCityofpendinginsurancechangeoverrequirements. NotifytheCityinwritingthattheworkwassubstantiallycompleteandreadyfor

inspection. Submitconsentofsuretytofinalpayment. Submitacertifiedcopyofthepunchlistofremedialitemstobecompletedor

corrected,statingthateachitemhasbeenotherwiseresolvedforacceptancebytheCity.

NotifytheCityinwritingthatallpunchlistitemsofremedialworkwerecompletedandtheworkwasreadyforfinalinspection.

Thatsaid,contractcloseoutscanbeproblematic,becausedepartmentsrelyonthecontractortofulfillallcontractrequirements.Inthecurrentconstruction‐boom


environmentinSanFrancisco,somecontractorsjustwalkawayfromthefinalpaymentandmoveontoanotherproject,ratherthandealwiththefinalpaperwork.Otherjurisdictionshaveexperiencedthissameproblem.Portland,Oregonisevaluatingalargerholdbackprovisioninthecontracttoreducethisbehavior.Department Interactions

1. The DPW Architecture and Engineering staff Asmentionedearlier,DPW,hasoneofthemostdiverseconstructionportfoliointheCity.Notonlydoesitmanageitsownprojects,italsoworkswithotherCitydepartmentsasneeded.ThePort,MTAandR&PrelyonDPWforgeneralconstruction.DPWhasexpertiseinremodels,seismicretrofitting,hydraulicsandnewconstruction.R&P,SFFDandthePoliceDepartmenthavehundredsofbuildingsthatneedtoberemodeledorreplaced.Theseinclude220cityparks,82recreationcenters,51firestationsand12policestations.ThePUCreliesonDPWforspecificexpertisearoundhydraulics.DPWmanagesbothbuilding(vertical)androadandsewer(horizontal)constructionprojectswithaFY2014‐2015budgetedarchitectureandengineeringstaffof531fulltimeequivalent(FTE)employees.Mostofthesalariesandbenefitsoftheseemployeesarechargedtotheindividualconstructionprojects(capitalized)andnottoDPW’soperatingbudget.DPWmanagesabout41%ofthebudgetedcitywide1,286FTEs.

Annual Annual

Salary Salary

Ordinance Ordinance

F2014-2015 F2015-2016

Budgeted Budgeted

FTEs FTEs

DPW- Architecture Bureau 252.0 258.9

DPW- Engineering Bureau 278.7 287.6

DPW- Total Arch+ Engineers FTEs 530.7 546.5

41% 41%

Airport- Bureau of Design and Construction 167.3 181.7

MTA -Capital Programs & Construction 156.4 158.9

Port - Engineering and Environmental 26.5 26.5

PUC- Engineering 389.0 394.0

Recreation and Parks- General Fund work order fund 16.0 16.0

Citywide total 1,285.9 1,323.7

F2015-2016 % increase in FTEs 37.8

F2015-2016 increase in FTEs 2.9% 19


19

TheremaybeanopportunityforSanFranciscotobetterutilizethe1,286budgetedFTEswhoarecurrentlyspreadamongthesixCityDepartments.WerecommendtheCityhavetheCSAbenchmarkSanFrancisco’scitywideconstructionmanagementstafforganizationalstructureagainstcomparablecities.DPW’sstaffingstructurecontrastswiththestaffingoflargeconstructionfirms.Historically,constructionfirmsmaintainedadeepstaffoftradespeopleandspecialists.LargecontractingfirmsalongwithcitieslikePortlandobservedthatthevarietyofconstructionprojectscreatesamismatchbetweentheskillsrequiredforcurrentprojectsandtheskillsoftheirstaff.Theresultisduplicatelaborcostswhenoutsidefirmsareretained.Ascompetitiveconditionsdemandedmorecosteffectiveapproachesandnimbleoperations,constructionfirmsandcitieslikePortlandeliminatedinternalspecialistdepartmentsanddevelopedrelationshipswithsubcontractingfirms.Intervieweessharedthatfewmajorcitiesmaintainalargepublicworksstaffofspecialtydesignandengineeringemployees.

2. Disparate Policies and SystemsSincethesixCityDepartmentsmanagesitsownconstructionprojects,itisnotsurprisingtheyhavedevelopedtheirowndepartment‐specificconstructionprocessesandsystems.Whenmorethanonecitydepartmentworksonaconstructionproject,itisimpossibletocombinedepartmentconstructioninformation,becausedataiscapturedand/ordefineddifferently.Forthatreasonitisdifficulttoproducecitywideconstructionprojectreports.CSAauditsfoundthatDPWandR&Pprojectchangeordersweredifficulttocoordinate,becauseindividualdepartmentalsystemsanddepartmentaloperatingprocedureswerenotaligned.R&PlacksawrittenchangeorderpolicyandDPW’ssystemsareincompatiblewithR&P’sworkflowforprocessingchangeorders.

3. Errors and Omissions CitydepartmentsthatutilizeDPWforarchitectureanddesignworkassumeariskthattheywouldnototherwisehaveifthecitydepartmentretainedanoutsidefirm.CitydepartmentscannotsueDPWfordesignandomissionerrors.ADPWdesignerrororomissionforcesitsCityclientstoreducethescopeofaprojectorfindadditionalfundingforcompletion.DPWacknowledgesthattherehavebeenissuesonsomeprojects,butmaintainsthatallclientsaremadewhole;someclientdepartmentsinterviewedbytheCGJwoulddisagree.

4. Recreation and Park OneofthesixCityDepartments,R&P,warrantshighlighting,becauseDPWmanagesallR&PverticalprojectsandbecauseR&Pprojectselicitalotofcitizeninput.AlthoughR&Phasexpertiseinthelandscapeaspectsofconstruction,itoftenneedstorelyonDPWforstructuralprojects,fromplaygroundcenterstotenniscourtstobathrooms.


R&Phasateamofninespecialistsincludingprojectmanagers,seniorplanners,architectsandlandscapearchitects.SomearespecialistsinareaslikeirrigationorADA20access.TheyworkwithDPWonaMemorandumofUnderstandingwheretheR&Pprojectmanageristhepointpersononthejob,responsibleformaintenanceoftheprojectbudgetandschedule.Oftheir70activeprojects,20%areverticalprojectsand80%ofallprojectsareunder$1million.Thesesmallprojectsrequireextensivepublicmeetingsbecausethecommunityismorelikelytobecomeinvolvedwithaneighborhoodparkremodelthanapumpingstation.IndeedarecentSanFranciscoChroniclearticledetailedtherenovationofthe760squarefootrestroominWashingtonSquareParkthathadanextensivecommunityreviewprocessandultimatelycost$1.2million,whichwas20%overbudget.21DPWprovidesthedesignservicesforR&P,howeverthecostisoftenhigherthanwhatanoutsidedesignerwouldcharge.Forsmallprojects,thishigherdesignfeerepresentsasignificantportionoftheprojectbudget.Oncedesigned,DPWmanagestheconstructionusingitsresidentengineerteam.Theyhandlecontractorselection,fromthesmalluniverseofcontractorswillingtodoR&Pprojects.TheDPWengineerandR&Pprojectmanagercoordinatethecompletionoftheproject.Lackofclarityinthissharedrolestructureleadstoproblemsofaccountabilityforvariousaspectsoftheproject. Information Technology DPW’scurrentsystemsenvironmentiscomplicatedandobsolete.Morethan20yearsago,DPWdevelopedanAS400systemtomanageconstructionprojectdataatalevelthatwasmoregranularthanwhatwasavailablefromtheCity’sfinancialsystemFAMIS.DPWusestheElectronicJobOrderAccountingSystem(EJOA)tomanagebudgetsandadherencetotimelinesandinterfaceswithFAMISinarudimentaryway.EJOAcannothandleon‐linechangeordermanagementorprojectupdates.Theselimitationsledonemanagertosaythatthey“needtokeepreallygoodemailtrailsofdecisions.”Thatsaid,it should be noted that several contractors commented on the strong attention to detail of the DPW staff, despite their lack of adequate information systems. ThingsarenobetterinotherareasoftheCity.The Department of Public Health, for example, reports that it does not maintain electronic records of originally approved construction contract amounts at all, thus preventing comparison with amended or modified amounts, unless a manual review of individual contract document files is made. FAMIS,thecitywidefinancialsystem,istargetedforreplacementinFY2018.22DPWrecognizestheneedforcommonconstructionprojectdataarchitectureandimprovedprojectreportingandisdevelopingDPWconstructionmanagementsystemspecificationsaspartoftheFAMISprojectteam.WecommendDPWforrecognizingtheproblemanddevelopingadepartmentplantoaddresstheproblem.IndividualCitydepartmentsrecognizetheneedfornewsystemstobettercontrolaneverincreasingprojectworkload.IftheCitydoesnotprovideleadership,departmentswillberequiredtoactindependentlywhichwillperpetuatetheexistinglackofintegratedcitywideconstructionprojectreporting.


21

Theproblemisacitywideproblemthatshouldbeaddressedthroughthedevelopmentofacitywideinformationtechnologyplanthataddresses(i)thecoordinatedreplacementofthecitywidefinancialsystem(FAMIS),and(ii)theadoptionofcitywideconstructionprocedures,includingtheimplementationofacitywideconstructionmanagementsystem.ReplacingFAMISmayimprovesomereporting,butitisafinancialsystem,notaconstructionmanagementapplication.Asdescribedearlier,DPWlacksanelectronicdocumentmanagementsystemtocatalog,storeandretrievetherequisitedocumentationforchangeorders.Asaresult,theengineeringandarchitecturebureauswithinDPWhavetheirowndocumentmanagementprocesses.Similarly,there is no centralized database in the City that provides for monitoring contract change orders. Instead, the information must be obtained from individual departments, each of which records and reports the information differently, making a consolidated roll-up of citywide construction information impossible. WerecommendthattheDepartmentofTechnology(DT)retainaconsultingfirmwithextensiveconstructionmanagementsystemexpertisetodevelopcitywidesystemsrequirementsfortheimplementationofaflexiblesystemthatthousandsofcityconstructionprojectemployeeswillbeabletousetobettermanageconstructionefforts.However,theneedforaconstructionmanagementsystemisnotaddressedinthe2016InformationandCommunicationTechnology(ICT)planforFiscalYears2016‐2020.ItisunacceptablefortheCitytoproposetospendinexcessof$25billiondollarsoverthenexttenyearswhentheCitylacksbothcitywideconstructionproceduresandacitywideconstructionmanagementsystem. Transparency and Reporting Understandably,thelackofintegratedmanagementsystemsandfailuretofollowcommonpoliciesandproceduresinmanagingconstructionprojectsmakesitimpossibletogetanup‐to‐datesnapshotofthecurrentstatusofallactiveconstructionprojectsintheCity.Inthecurrentenvironment,theBLAandtheCSAmustusealabor‐intensivesamplingprocesstogetcitywideinformationinsteadofusingcitywidereports.WefounditdifficulttoworkwithindividualDPWconstructionprojectreportswhenmorethanoneCitydepartmentwasinvolvedinaconstructionproject.ForprojectswhereDPWisprovidingspecificprojectserviceslikeengineeringbutnotmanagingtheentireproject,DPWprojectreportsonlyhaveengineeringprojectcostinformation.DPWreportsthatsummarizemultipleconstructionprojectsaredifficulttousebecauseDPWoftenisnotprovidingthesameclientservicesforallconstructionprojects. Thelackofcitywidepoliciesandtheinconsistentapplicationofexistingpoliciesmakeitimpossibletocreatecitywidereportsthatsummarizekeyconstructionperformancemetricslikenoticesofnon‐compliance,changeorders,actualconstructionsoftcosts


(design,architecture,engineering,etc.)andacomparisonofactualprojectcosttobudgetedprojectcost.ItisimpossibletoprepareacitywidereportofactualconstructionexpensesforallsixCitydepartments,asevidencedbytheinabilityoftheCSAtoincludeactualcitywideconstructioncostsintheirMay2014constructionauditreport.Thecurrentsituationwheretherearenocitywideconstructionreportsthatcompareactualprojectspendingtooriginalbudgetforcompletedprojectsviolatesbothcommonsenseandbasicgoodmanagementpractice.Allowingthecurrentsituationtocontinuewhenthemajorityofthe$25billionten‐yearCapitalPlanspendingisforconstructionisunacceptable.Governmentconstructionprojectsaredifferentfromprivateconstructionprojects,becausetheyarepublicprojectsandsubjecttomanylevelsofoversightthatdonotexistintheprivateworld.PublicprojectsshouldbesubjecttocitizenoversightandtheoversightofmanyCityDepartments.Forexample,theCMD,(asmentionedearlier)reviewstheLBEcomponentofconstructionprojects.ConstructionprojectmanagersneedtodealwithreportingrequirementsthatareuniquetoeachCitydepartmentthatoverseesaspecificaspectofaconstructionproject.Governmentconstructionprojectsalsohavemorestringentprojectdocumentationandapprovalrequirements.TheCityhasallowedeachofthesixCitydepartmentstodefineandimplementdepartmentalsolutionsratherthanestablishingacitywidestandard.Thissiloproblemmirrorsthecity’sinformationtechnologyproblemthatwasaddressedinthe2011‐2012CivilGrandJuryreport,DéjàvuAllOverAgain.Thesolutionforbothproblemsrequiresthecitytodevelopacitywideplanandgiveonecitydepartmenttheresponsibilityfordesigningandimplementingcitywidesolutions.Developingacitywideconstructionreportingsolutionisadifficulttask,becausedepartmentslikethePUCandtheAirporthaveafewverylargeconstructionprojectsthatspanmanyyears.ThePort,MTA,R&P,andDPWhavemanysmallconstructionprojects.376or70%ofthe535activeDPWprojectshaveabudgetoflessthan$3milliondollars.Identifyingandimplementinganenterpriseconstructionmanagementsystemthatfitsdepartmentswithlargeandsmallprojectsisdifficult.Nonetheless,thecurrentlackofcitywideconstructionpoliciesandproceduresandtheinabilitytogenerateaccuratecitywideconstructionreportsneedstobeaddressed.

DPW active construction projects ‐ November 2014

Cost of individual projects

# of

projects

% of

total

Over ten million dollars 46 9%

Three million to ten million dollars 113 21%

Under three million dollars 376 70%

535 100% Thistheproblemneedstobeaddressedtoenablecitizenoversightofindividualconstructionprojects.Accesstoinformationonindividualconstructionprojectsisnotcurrentlypossible,becausetherearenofinalreportsissuedforeachcompleted


23

constructionprojectwhichreportoriginal,budgetedprojectcostandactualprojectcostaswellaskeyperformanceindicatorsliketheactualnumber,typeandcostofprojectchangeorders.Accordingtointerviewees,othercitiesproducereportsand/ormaintainwebsitesthatprovidedetailedinformationonconstructionprojects.ThepeopleofSanFranciscodeservethetoolstomonitorconstructionspendingthatisfundedbybondsthevoterswereaskedtoapprove.UntiltheCityimplementscitywideconstructionpolicesandreportingstandardssupportedbyacitywideconstructionmanagementsystem,meaningfulinformationaboutconstructionprojectswillnotbeavailabletothecitizensofSanFrancisco. Lack of Independent Oversight FiveofthesixCitydepartmentsreporttoanindependentcommission.Forexample,thePUCCommissionandtheR&PCapitalCommitteearerequiredunderChapter6oftheCodetoreviewprojectchangeorderswhenthecumulativecostofchangeordersforanindividualprojectexceeds10%ofbudgetedprojectcost.DPWclientdepartmentprojects,likethoseforSFFDandSFPD,aresubjecttothesamecommissionchangeorderoversight.DPW’sownprojectsarenotsubjecttothesameindependentoversight;thereisnoDPWCommission.TheBOSplaysnoroleintheapproval,ongoingreportingoroversightofanyconstructionproject.ThejurywastoldthattheBOSwasnotgivenaroleinapprovingconstructioncontractstopreventpoliticizingtheprocess.However,thefailureoftheBOStoexerciseregularoversightovercitywideconstructionspendingneedstobeexamined.TheCGJcannotfindanyreasonwhytheBOSshouldnotexerciseoversightauthorityafteracontracthasbeenawarded.ABLAauditnotedthelackofscrutiny:23

Construction contracts are not subject to BOS approval, whereas professional services contracts over $10 million do require BOS approval. The BOS must approve non-construction change orders greater than $500,000.

By comparison, in three other large jurisdictions in California, the threshold amount for a governing body approval was from $25,000 to $250,000, with some variances for construction and certain other contracts. Therefore, there is significantly less scrutiny of contracts required by the BOS for contracts with a value of less than $10 million.

Several BLA recommendations addressed the oversight issue, including (i) lowering the contract approval threshold to a number consistent with other cities, and (ii) changing the change order approval threshold to a cumulative amount as opposed to the current single change order threshold of $500,000.

Perhaps the most important recommendation, and the one with which the CGJ is in total agreementisthis:

TheBoardofSupervisorsshouldrequestthatallCitydepartmentsmaintaincontract


informationinauniformmanner,recordingoriginalcontractamounts,eachchangeorderandchangeincontractvalue,andfinalcontractamounts,tobesummarizedandregularlyreportedtotheBoardofSupervisors.24

Weinterviewedemployeesinotherlargecitiesandfoundthatallofthecitieshadindependentoversightofpublicworksconstructionprojects.Allofthecitiesweresearchedrequiredthatconstructionprojectchangeordersthatexceededaspecificthresholdrequirecitycouncilapproval.OtherlargeU.S.citieshaveimplementedindependentoversightofconstructionprojectsthroughthecreationofanindependentdepartmentofcontractmanagementintheirDPWdepartment.ThisunitmonitorsDPWconstructionprojectadherencetocitypolicies.Inthesecities,thecontractmanagementdepartmentisindependentanddoesnotreporttoDPWarchitects,engineersorprojectmanagers.ThelackofBOSoversightofallCityconstructioncontractsandthelackofindependentoversightofDPWdepartmentconstructionprojectsshouldberemedied.


25

FINDINGS

Basedonthediscussionabove,wehavethefollowingfindings:F1. DPWshouldbecommendedforitsadoptionoftheCMGCanddesign‐buildstructures

inlarge‐scaleprojectsandtheChapter6workgroupshouldbecommendedforworkingtostreamlinetheconstructioncontractingprocessintheCity.

F2. Thecurrentlowestbid‐contractingenvironmentisnotoptimalfortheCity,sinceitincreasescostsduetoadditionalprojectchangeorders,anditreducesthenumberofqualitycontractorswillingtobidonCityprojects.

F3. Thecomplexityofthecontractingenvironment,especiallyasitrelatestoLBEs,reducesthepoolofcontractorswillingtodobusinesswiththeCity,therebylimitingvendorselection.

F4. Changeordersarenotmanageduniformlyacrossdepartments,whichexposestheCitytoincreasedprojectcosts.

F5. Constructioncontractcloseoutproceduresarenotfollowed,whichcanresultintheCitynotreceivingtheservicesitcontractedtoreceive.

F6. ThevarietyofconstructionprojectsintheCitycreatesamismatchbetweenthedesignandengineeringskillsrequiredforcurrentprojectsandtheskillsofthestaff,resultinginduplicatelaborcostswhenoutsidefirmsareretainedandexcesscapacitywhenthereisadeclineinconstructionactivity.

F7. ThelackofintegratedconstructionmanagementsystemsandthefailuretofollowcentralizedconstructionmanagementpoliciesandprocedurespreventstheCityfromgeneratingcitywideconstructionreports.

F8. TheCitydoesnothaveanindependentmanagementgroupreviewingcitywideconstructionperformancereportsandmonitoringadherencetochangeordersandconstructioncontractcloseoutpoliciesandprocedures.

F9. SanFranciscoCitydepartmentsdonotissuefinalreportsonconstructionprojectsthatarereadilyavailabletoitscitizens.

RECOMMENDATIONS R1. None

R2. TheBOSshouldamendChapter6oftheAdministrativeCodetorequirecontractorperformanceasanadditionalcriterionforawardingconstructioncontracts.


R3. The CGJ recommends that the proposed Chapter 6 amendment make past performance a construction award criterion for all future City construction contracts including LBE subcontracts.

R4. The Office of the Controller should implement a standardized change order management policy and require all City departments to adhere to the new change order policy.

R5. The Office of the Controller should implement a standardized construction contract closeout policy and require all City departments to adhere to any new policy.

R6. The BOS should request BLA or CSA to benchmark the City’s design and engineering workforce organizational structure against comparable cities and issue a report within a reasonable timeframe.

R7. The Mayor should allocate financial resources in the current City budget to fund the Department of Technology hiring a consulting firm with extensive construction management expertise to develop citywide system requirements for the implementation of a construction management system.

R8. Within a reasonable timeframe, the BOS should either request the CSA or BLA, or retain an outside firm, to benchmark the independent construction management structure of other cities and develop recommendations applicable to San Francisco.

R9. The BOS should require each City department to issue final project construction reports within nine months of project completion for all construction projects and for the reports to be posted on each department’s website.

REQUEST FOR RESPONSES

PursuanttoPenalCodesection933.05,thegrandjuryrequestsresponsesasfollows:

Findings Recommendations Response Required

F1.DPWshouldbecommendedforitsadoptionoftheCMGCanddesign‐buildstructuresinlarge‐scaleprojectsandtheChapter6workgroupshouldbecommendedforworkingtostreamlinetheconstructioncontractingprocessintheCity.

None

F2.Thecurrentlowestbid‐contractingenvironmentisnotoptimalfortheCity,sinceitincreasescostsdue

R2.TheBOSshouldamendChapter6oftheAdministrativeCodetorequirecontractorperformanceasanadditional

BOS


27

toadditionalprojectchangeorders,anditreducesthenumberofqualitycontractorswillingtobidonCityprojects.

criterionforconstructioncontracts.

F3.Thecomplexityofthecontractingenvironment,especiallyasitrelatestoLBEs,reducesthepoolofcontractorswillingtodobusinesswiththeCity,therebylimitingvendorselection.

F4.Changeordersarenotmanageduniformlyacrossdepartments,whichexposestheCitytoincreasedprojectcosts.

R3. The CGJ recommends that the proposed Chapter 6 amendment make past performance a construction award criterion for all future City construction contracts including LBE subcontracts.

R4.TheOfficeoftheControllershould implement a standardized change order management policy and require all City departments to adhere to any new change order policy.

BOS

Mayor

BOS

Mayor

OfficeoftheController

F5.Constructioncontractcloseoutproceduresarenotfollowed,whichcanresultintheCitynotreceivingtheservicesitcontractedtoreceive.

R5.TheOfficeoftheControllershouldimplementastandardizedconstructioncontractcloseoutpolicyandrequireallCitydepartmentstoadheretoanynewpolicy.

BOS

Mayor


F6.ThevarietyofconstructionprojectsintheCitycreatesamismatchbetweenthedesignandengineeringskillsrequiredforcurrentprojectsandtheskillsofthestaff,resultinginduplicatelaborcostswhenoutsidefirmsareretainedandexcesscapacitywhenthereisadeclineinconstructionactivity.

R6.The BOSshouldrequesttheBLAorCSAtobenchmarktheCity’sdesignandengineeringworkforceorganizationalstructureagainstcomparablecitiesandissueareport.

BOS

Mayor


DPW

F7.Thelackofintegratedconstructionmanagementsystemsandthefailuretofollowcentralizedconstruction

R7.TheMayorshouldallocatefinancialresourcesinthecurrentCitybudgettofundtheDepartmentofTechnologyhiringaconsultingfirm

BOS


Reports issued by the Grand Jury do not identify individuals interviewed. Penal Code section 929 requires that reports of the Grand Jury not contain the name of any person or facts leading to the identity of any person who provides information to the Grand Jury.

managementpoliciesandprocedurespreventstheCityfromgeneratingcitywideconstructionreports

withextensiveconstructionmanagementexpertisetodevelopcitywidesystemrequirementsfortheimplementationofaconstructionmanagementsystem.

Mayor


DPW

F8.TheCitydoesnothaveanindependentmanagementgroupreviewingcitywideconstructionperformancereportsandmonitoringadherencetochangeordersandconstructioncontractcloseoutpoliciesandprocedures.

R8.The BOSshouldeitherrequesttheCSAorBLA,orretainanoutsidefirm,tobenchmarktheindependentconstructionmanagementstructureofothercitiesanddeveloprecommendationsapplicabletoSanFrancisco.

BOS

Mayor


F9.SanFranciscoCitydepartmentsdonotissuefinalreportsonconstructionprojectsthatarereadilyavailabletoitscitizens.

R9.TheBOSshouldrequireallCitydepartmentstoissuefinalprojectconstructionreportswithinninemonthofprojectcompletionforallconstructionprojectsandforthereportstobepostedoneachdepartment’swebsite.

BOS

Mayor



29

GLOSSARY Change Orders – Work that is added or deleted from the original scope of work for a contract Close Out Procedure – The process by which an awarding agency ensures that all provisions of the contract have been fulfilled

Construction Management General Contractor - A process whereby an owner engages a contractor during the design process to provide input into the constructability of the design

Design-Build - A method to deliver a construction project where the design and construction are delivered by the same entity

Punch list - A list of tasks to be completed at the end of a construction project

Turnkey Solution - An approach that can be immediately implemented in a given business process

ACRONYMS

BLA – Budget and Legislative Analyst

BOS – Board of Supervisors

CGJ – Civil Grand Jury

CGOBOC – Citizens’ General Obligation Bond Oversight Committee

CMD – Contract Monitoring Division

CSA – City Services Auditor

DT – Department of Technology

DPW – Department of Public Works

FTE – Full-Time Equivalent

HRC – Human Rights Commission

LBE – Local Business Enterprise

MTA - Municipal Transportation Agency

PUC – San Francisco Public Utilities Commission

R&P – Recreation and Park Department

SFFD – San Francisco Fire Department


ENDNOTES 1 One SF – Building Our Future: The City and County of San Francisco Proposed Capital Plan, FY2016 – 2025. 2 Department of Public Works, Project/Client Table, November 2015. 3 J.K. Dineen, “Reinvention as Usual, The San Francisco Business Times, April 27, 2008. 4 Ibid. 5 San Francisco Administrative Code, Chapter 6, Section 20 (A) & (B). 6 San Francisco Administrative Code, Chapter 6, Section 6.1 (K) & (L). 7 City and County of San Francisco, Office of the Controller - City Services Auditor, Citywide Construction: Adopting Leading Practices Could Improve the City’s Construction Contractor Bid Pool, May 20,2014, 3. 8 Ibid., D-2. 9 Ibid., 4. 10 City of Los Angeles, Ordinance #173677, Article 14, Contractor Responsibility Program, Sec 10.40.2. 11 The San Francisco Administrative Code, Section 14B. 12 Grounds for Debarment, Section 28.3, administrative.sanfranciscocode.org. 13Office of the Controller - City Services, Auditor, May 20, 2014, op.cit. 11. 14 City and County of San Francisco, Budget and Legislative Analyst Report, Evaluation of Contract Change Orders for Large Construction and Professional Services Contracts , Oct. 17, 2011. 15 Office of the Controller - City Services Auditor, May 20, 2014, P3. 16 San Francisco Public Utilities Commission: Alameda Siphon Number 4 Construction Management, April 2014, P 10. 17City and County of San Francisco, Office of the Controller – City Services Auditor, Recreation and Park Department: Chinese Recreation Center and Mission Clubhouse and Playground Construction Management- The Change Management Process Requires Some Improvements, April 3, 2013. P 6. 18 Ibid. 19 City and County of San Francisco, Office of the Controller, Annual Salary Ordinance. 20 Americans with Disabilities Act 21 John King, “In Washington Square, no ordinary Restroom”, San Francisco Chronicle, 5/27/2015. 22 City and County of San Francisco, Proposed Information and Communication Technology (ICT) Plan Fiscal Years 2016-2020. 59. 23 City and County of San Francisco, Budget and Legislative Analyst Report, Evaluation of Contract Change Orders, Oct. 17, 2011. P 3. 24 Ibid.

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