The Department of Finance and Administration’s Management of Construction Projects at Selected State-Owned Buildings
Executive Summary
The PEER Committee conducted a review of the Department of Finance and Administration’s management of construction projects at four selected state-owned buildings: the Department of Archives and History Building, the Underwood Complex of the Department of Health, the Sillers Building, and the Woolfolk Building.
Conclusion
The Department of Finance and Administration’s Bureau of Building has not managed the construction projects at the Underwood Complex and the Archives and History, Sillers, and Woolfolk buildings in a manner that best protects the state’s interest. The bureau’s actions have contributed to additional costs of approximately $10.8 million for change orders (an amount that could have been reduced with improved oversight), including $192,690 for contracts for personal services (i.e., janitorial and groundskeeping) that should have been provided through DFA’s operations budget. These costs added approximately $6 million in debt service for the state. Also, the bureau has not consistently controlled projects to ensure that they are delivered on time at the lowest possible cost.
Impact of Change Orders and Personal Services Contracts on Long-Term Debt Service for Projects at the Four Buildings
The Department of Finance and Administration has contributed to additional costs of approximately $10.8 million due to change orders (an amount that could have been reduced with improved oversight), including non-construction personal services contracts for groundskeeping and building janitorial services. This increased project cost has resulted in an approximate $6 million debt service cost for the state.
Management and Control of Construction Project
The Department of Finance and Administration has not consistently controlled projects to ensure that they are delivered on time at the lowest possible cost.
The department’s Project Accounting and Tracking System cannot be used to measure planned versus actual construction performance due to system design deficiencies for financial and time information associated with individual construction projects.
Also, the Bureau of Building compensates contractors for change orders in a manner that violates its own standard construction contract and rewards professionals for performance that unnecessarily increases project costs.
Recommendations
The Legislature should amend MISS. CODE ANN. Section 31-11-30 (1972) to require the Department of Finance and Administration, in reviewing and reporting on project preplanning, to estimate and report to the Legislature the projected debt service costs for each preplanned project.
The State Auditor should conduct a compliance audit of the four personal services contracts associated with grounds or building cleaning at the Woolfolk Building.
If this audit identifies these expenditures as an unauthorized use of bond funds, the state should make a claim against the surety bond of the Executive Director of the Department of Finance and Administration under MISS. CODE ANN. Section 7-7-211 (1972).
The Bureau of Building should use a modified change order form that includes a cost summary sheet for the proposed work. This sheet should list the following costs for the general and each trade contractor:
The Bureau of Building should require the general contractor and each trade contractor to substantiate with written documentation the labor burden (fringe benefit) rate that they will charge during the construction project.
This cost requirement could be made a part of the contract bid process for the general contractor and at the beginning of a trade contractor’s participation in the project.
Upon the receipt of a change order request, the Bureau of Building should determine the total cost for the change order by estimating the long-term debt service costs, so that the total cost of this additional work can be considered in the approval process. If this change order is approved, the bond proceeds and debt service costs should be documented in the Project Accounting and Tracking System.
The Bureau of Building should modify the Project Accounting and Tracking System to capture milestones essential in tracking time and cost for the various phases and participants in the construction process and use these data elements for management purposes. The bureau should also modify PATS to provide management reports to DFA on a routine or real time basis and capture information concerning bureau and professional team visits to construction sites and project meetings.
The Bureau of Building should modify PATS to capture the following data elements for change orders and use the information for management purposes: initiator, category, type, and average processing days measured from the date the change order is formally requested.
The Bureau of Building should change its standard design professional contract to state that the bureau’s policy will be to file insurance claims for all change order work that is caused by the professional’s design errors, omissions, or documentation deficiencies. Further, the bureau should not pay any additional fees to the professional team for such change orders.
The Bureau of Building should consider reducing the overhead and profit percentage that it pays to general and trade contractors, taking into consideration the rates paid by other states. The bureau should set a maximum total percentage regardless of the number of participants involved in the contract. The bureau should allocate this percentage proportionately based on the amount of work performed by each contractor.
The Bureau of Building should modify its bid process to require the general contractor to substantiate with written documentation a detailed breakdown of what is included in the overhead rate that they will charge. The general contractor should subsequently require the trade contractors to do the same at the point of their contract negotiation.