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
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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.
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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.
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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.
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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.
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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
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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 LBEMBE‐Minority Business Enterprise Micro MBEWBE‐Womens Business Enterprise SBA‐LBEOBE‐ 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
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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 607PublicSafetyBuilding $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
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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
SanFrancisco’sCityConstructionProgram 18
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 OrdinanceF2014-2015 F2015-2016Budgeted 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
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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.
SanFrancisco’sCityConstructionProgram 20
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.
SanFrancisco’sCityConstructionProgram
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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
SanFrancisco’sCityConstructionProgram 22
(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
SanFrancisco’sCityConstructionProgram
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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
SanFrancisco’sCityConstructionProgram 24
informationinauniformmanner,recordingoriginalcontractamounts,eachchangeorderandchangeincontractvalue,andfinalcontractamounts,tobesummarizedandregularlyreportedtotheBoardofSupervisors.24
Weinterviewedemployeesinotherlargecitiesandfoundthatallofthecitieshadindependentoversightofpublicworksconstructionprojects.Allofthecitiesweresearchedrequiredthatconstructionprojectchangeordersthatexceededaspecificthresholdrequirecitycouncilapproval.OtherlargeU.S.citieshaveimplementedindependentoversightofconstructionprojectsthroughthecreationofanindependentdepartmentofcontractmanagementintheirDPWdepartment.ThisunitmonitorsDPWconstructionprojectadherencetocitypolicies.Inthesecities,thecontractmanagementdepartmentisindependentanddoesnotreporttoDPWarchitects,engineersorprojectmanagers.ThelackofBOSoversightofallCityconstructioncontractsandthelackofindependentoversightofDPWdepartmentconstructionprojectsshouldberemedied.
SanFrancisco’sCityConstructionProgram
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.
SanFrancisco’sCityConstructionProgram 26
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
SanFrancisco’sCityConstructionProgram
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.
BOSMayorBOSMayorOfficeoftheController
F5.Constructioncontractcloseoutproceduresarenotfollowed,whichcanresultintheCitynotreceivingtheservicesitcontractedtoreceive.
R5.TheOfficeoftheControllershouldimplementastandardizedconstructioncontractcloseoutpolicyandrequireallCitydepartmentstoadheretoanynewpolicy.
BOSMayorOfficeoftheController
F6.ThevarietyofconstructionprojectsintheCitycreatesamismatchbetweenthedesignandengineeringskillsrequiredforcurrentprojectsandtheskillsofthestaff,resultinginduplicatelaborcostswhenoutsidefirmsareretainedandexcesscapacitywhenthereisadeclineinconstructionactivity.
R6.The BOSshouldrequesttheBLAorCSAtobenchmarktheCity’sdesignandengineeringworkforceorganizationalstructureagainstcomparablecitiesandissueareport.
BOSMayorOfficeoftheControllerDPW
F7.Thelackofintegratedconstructionmanagementsystemsandthefailuretofollowcentralizedconstruction
R7.TheMayorshouldallocatefinancialresourcesinthecurrentCitybudgettofundtheDepartmentofTechnologyhiringaconsultingfirm
BOS
SanFrancisco’sCityConstructionProgram 28
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.
MayorOfficeoftheControllerDPW
F8.TheCitydoesnothaveanindependentmanagementgroupreviewingcitywideconstructionperformancereportsandmonitoringadherencetochangeordersandconstructioncontractcloseoutpoliciesandprocedures.
R8.The BOSshouldeitherrequesttheCSAorBLA,orretainanoutsidefirm,tobenchmarktheindependentconstructionmanagementstructureofothercitiesanddeveloprecommendationsapplicabletoSanFrancisco.
BOSMayorOfficeoftheController
F9.SanFranciscoCitydepartmentsdonotissuefinalreportsonconstructionprojectsthatarereadilyavailabletoitscitizens.
R9.TheBOSshouldrequireallCitydepartmentstoissuefinalprojectconstructionreportswithinninemonthofprojectcompletionforallconstructionprojectsandforthereportstobepostedoneachdepartment’swebsite.
BOSMayorOfficeoftheController
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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
SanFrancisco’sCityConstructionProgram 30
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.