elgy
of Seattle

INTERNAL AUDIT REPORT 

Operational Audit - Capital
Interim Westside Fire Station Project









May 2019 - February 2022
Issue Date: March 25, 2022
Report No. 2022-04 
POrt ===   INTERNAL AUDIT
of Seattle

Interim Westside Fire Station Project 




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Interim Westside Fire Station Project 

Internal Audit (IA) completed an audit of the Interim Westside Fire Station Project (Project) for the
period May 2019 through February 2022. The audit was performed to provide an independent
assessment of performance, with the purpose of determining how goals and objectives were achieved,
and to determine if there were opportunities for improvement. 
The Project was originally approved by Commission as a modular building in February 2018 with a total
project cost of $5.5 million. The Project changed to a stand-alone building, as a design-build with a
lumpsum contract in May of 2019. By this tim e, approximately $460,000 was already spent in sunk
design costs for the modular building and an additional $390,000 in Port soft costs. 
Macro-Z Technologies (MZT) was selected as the successful bidder and was awarded the Project on
October 31, 2019 in the amount of $4,950,000. Substantial Completion was to occur by November 24,
2020, and Physical Completion to occur within 60 after Substantial Completion. 
During the Project, the Port approved an additional 150 days, extending the Substantial Completion 
date to April 23, 2021. As of the date of this audit report, Substantial Completion has not been attained. 
Project costs have reached a total of $9,010,000. Construction costs paid to MZT total $4,801,947 and
other costs, including soft costs, are $4,208,053. We estimate liquidated damages (LDs) to be
approximately $682,974 as of March 31, 2022, however the actual amount is unknown until the Project
is completed and a full reconciliation is performed. 
In general, Port management's monitoring alignedwith policies and procedures. However, our audit
identified opportunities where internal controls could be enhanced or developed. These opportunities
are listed below and discussed in more detail beginning on page six of this report. 
1.  (Medium) The  Contractor  did  not  complete  the  Project  by  the  Substantial  Completion  date,
resulting in a delay of use of the fire station. 
2.  (Medium) The Port was potentially overbilled approximately $106,983 out of $140,942 in COVID-19
Not-to-Exceed change orders. Payment for COVID-19 related expenses were approved prior to
receiving accurate and complete supporting documentation from the Contractor. 
We also noted opportunities to improve processes, that we communicated to Port management via a
management letter. 


Glenn Fernandes, CPA 
Director, Internal Audit 


Responsible Management Team 
Wayne Grotheer, Director, Aviation Project Management Group 
Nora Huey, Director, Central Procurement Office 
Tina Soike, Chief Engineer and Director, Engineering Services 
Janice Zahn, Assistant Engineering Director, Construction 

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Interim Westside Fire Station Project 

In February 2018, Port Commissioners authorized the design and construction of an interim fire station
on the west side of the airport. The total estimated cost of the fire station was $5.5 million. The design
included two distinct adjacent elements: a pre-engineered fire truck shelter and a modular crew
quarters building. During the design phase, it was determined the risks involved with using a modular
type building were greater than first thought because of manufacturing lead times and runway closure
coordination to deliver the modular units. 
On May 20, 2019, Port Commission authorized a design-build contract to establish a stand-alone, fully
functional fire station. The building would provide adequate accommodations for Fire Department staff
and equipment, enabling the Fire Department to meet the Federal Aviation Administration's mandated
airfield response time. Changing from the modular to a stand-alone building, resulted in the Port being
unable to utilize the original design. This resulted in the Port incurring approximately $460,000 in sunk
design costs for the modular building, and $390,000 in additional Port soft costs prior to May 2019. 
The Port used the alternative public works contracting procedures to solicit bidders for the Project. In
September 2019, the Port received two bids and selected the lowest bidder, MZT. A contract in the
amount of $4,950,000 was awarded on October 31, 2019. The Contract's terms required Substantial
Completion to occur by November 24, 2020, with Physical Completion to occur within 60 after
Substantial Completion. 
Port Commission approved the following total budget for the Project: 
Date                   Action                             Amount ($) 
May 2019             Stand-alone building approval        5,500,000 
October 2019           Budget increase                    3,679,000 
February 2021          Budget increase                      609,000 
September 2021        Budget increase                     300,000 
Total      10,088,000 
Events including COVID-19, Port design errors, and scope changes resulted in an extension of
Substantial Completion: 
Schedule 
Original Substantial Completion Date               November 24, 2020 
Approved Time Extension (Calendar Days)                        150 
Revised Substantial Completion Date                    April 23, 2021 

At the time of this audit report, the Project has not reached Substantial Completion. The total  costs of
the Project have reached $9,010,000. Of this amount, construction costs paid to MZT total $4,801,947 
and other costs, including soft costs, are $4,208,053. The Construction Management (CM) group has
withheld $300,000 towards LDs  see page six for additional information.




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Interim Westside Fire Station Project 

We conducted the engagement in accordance with  Generally Accepted Government Auditing
Standards and the International Standards for the Professional Practice of Internal Auditing. Those
standards require that we plan and conduct an engagement to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our engagement objectives. We
believe that the evidence obtained provides a reasonable basis for our findings and conclusions based
on our engagement objectives. 
In some cases, we used a judgmental method to determine the samples selected for our audit test
work. The results of this work cannot be projected to the population as we did not select a random
sample. 
The period audited was May 2019 through February 2022 and included the following procedures: 
Project Cost Estimate and Bid 
Obtainedan understanding of the cost estimate process by interviewing the Cost Estimating
Manager and obtaining the original cost estimates for the Project. 
Reviewed bid processes and documentation from the Central Procurement Office. 
Quality Control Review and Quality Materials 
Obtained an understanding of the Port's quality control process. 
Reviewed supporting documents, submittal logs and non-compliance reports. 
Change Orders 
Obtained an understanding of the Port's CO review process. 
Verified approvals by required personnel. 
Confirmed the approved change order amounts tied to the Change Order Log. 
Reviewed COs for reasonableness and compliance with contract requirements. 
Reviewed supporting  documentation  and  change  order/claim  submissions,  specifically
errors/omissions, scope changes, and COVID-19 change orders. 
Key Personnel 
Obtained a listing of the key personnel assigned to the Project. 
Confirmed the personnel listed in the contract worked on the Project. 
Verified the Port was informed in a timely manner of key personnel changes. 
Substantial Completion/Liquidated Damages 
Reviewed the contractual obligations for the collection of LDs. 
Calculated the potential LDs for collection since Substantial Completion was not met. 
Port Allowance Use 
Obtained an understanding of the Port's Allowance review process. 
Selected a sample of work authorizations for testing based on risk. 
Reviewed supporting  documentation of allowances for reasonableness, compliance with
contract provisions and proper approval. 



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Interim Westside Fire Station Project 

1) Rating: Medium 
The Contractor did not complete the Project by the Substantial Completion date, resulting in a
delay of use of the fire station. 
The Project was awarded to MZT on October 31, 2019 with a Notice to Proceed date of December 05,
2019. The  Contract's terms required Substantial Completion to occur by November 24, 2020. Events
such as COVID-19 impacts, Port design errors, and scope changes resulted in the Port's approval of
150 excusable days which extended the date of Substantial Completion to April 23, 2021. As of the
date of this audit report, Substantial Completion had not been met. 
MZT did not complete the Project by the Substantial Completion date, resulting in a delay of use of the
fire station. Currently, there are numerous unresolved punchlist items that may not be completed prior
to Substantial Completion. The CM group confirmed they would not grant Physical Completion, which is
to occur within 60 days after Substantial Completion, until these punchlist items are resolved. There is
potential for an assessment of Physical Completion delays in the amount of $985 per day, starting 60 
days after Substantial Completion. 
On January 25, 2021, the Port issued Serial Letter #013 (Letter of Forbearance). The letter stated the 
Port was willing to forbear from taking action on imposing LDs for 90 days from the date of the letter if 
MZT completed the Project, submitted information justifying the delay, and provided time for the Port to
complete its analysis within the 90-day timeframe. The letter stated that if MZT did not meet the criteria,
the Port reserved the right to assess LDs from the original milestone date. MZT did not meet the
requirements of the letter. 
The Port issued Serial Letter #014 (Schedule Concerns) on March 23, 2021, to discuss concerns with 
MZT about successfully meeting the Substantial Completion date. The letter required MZT to submit a
written recovery plan by March 31, 2021. MZT did not submit a recovery plan as required by the letter. 
The Port issued Serial Letter #015 (Letter of Forbearance #2) on April 23, 2021, which provided MZT
an additional 65 days to meet the requirements stated in Serial Letter #013. MZT failed to meet the
requirements of this letter as well. 
On January 21, 2022, the Port issued Serial Letter #020 (Withholding Payment) which notified MZT that
the Port will withhold any future payments. The letter stated, "Withholding payment and assessment of
these Liquidated Damages shall not in any way release MZT from any contractual obligations to
complete the work as required by the contractual documents and do not preclude or reduce the Port's
legal right to pursue other remedies is related to or arising out of the delay for which LDs are
assessed." The CM team withheld $300,000 towards LDs from previous Pay Estimates. 
On March 4, 2022, the Port issued Serial Letter #021 (Cure Notice) informing MZT and its surety 
company that MZT was in material breach of at least four material obligations of the contract
documents. The letter stated, in part, "If any element of the breach is not cured within the applicable
cure period set in the serial letter, the Port intends to terminate MZT for default and transfer the
performance of the Contract to Fidelity, the surety that issued the performance bond for the project."
Per this letter, if MZT fails to perform within the cure period ending April 13, 2022, the Port is entitled to
take action against MZT. 
The Contract allows the Port to pursue LDs of $1,997 per day from the revised Substantial Completion
date of April 23, 2021. As Substantial Completion is yet to be determined, for the purpose of the report, 

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Interim Westside Fire Station Project 

we used March 31, 2022 to calculate LDs. Based on a projected eleven-month delay, we estimate the
Port will be entitled to pursue approximately $682,974 in LDs, however, the final amount is unknown
until the Project is complete and a full reconciliation is performed. 
In addition to the calculation of potential LDs, we performed an additional test to determine whether the
Port's soft costs were accurately estimated. We reviewed the LD calculation sheet and determined that
the amount estimated for the daily inspector was based on a Full-Time Employee rate instead of a
consultant rate. Based on our calculation, we estimate that the Port will incur additional inspector soft
costs of $596 per day, that the Port will not be able to collect, to keep the daily field inspector on site
until the Project is complete. The table below reflects the estimated additional uncollectable costs: 
Average Inspector rate per   Estimated Inspector   Difference   Number   Additional costs the Port will
LD calculation sheet         daily costs                           of Days    incur until 03/31/2022 
$250                   $846        $596       342                   $203,832* 
*This is an estimate; the final amount is unknown until the Project is complete. 
Recommendation: 
Upon completion of the Project, Port management should calculate and pursue LDs from the
Contractor. 
Port management should consider contractors performance in future solicitations. 
Management Response/ Action Plan: 
Response #1  Liquidated Damages 
The team is in agreement with the recommendation that liquidated damages should be imposed in the
amount of $1,997 / day for unexcused delays beyond the revised Substantial Completion date and
$985.00 / day for unexcused delays beyond the Physical Completion date. The team fully intends to
pursue liquidated damages and that has been previously conveyed to the Contractor. This will be done
once the Contractor achieves Substantial Completion and Physical Completion when we can quantify
the actual delay. 
Response #2  Future Solicitations 
The Port agrees, and currently has a process with which to evaluate including contractor performance
in a solicitation, by either adding supplemental bidder responsibility criteria or past performance
evaluation criteria. The team intends to review our acquisition planning process to ensure that these
options are clear for our customers. 
DUE DATE: 12/31/2022 






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Interim Westside Fire Station Project 
2) Rating: Medium 

The Port was potentially overbilled approximately $106,983 out of $140,942 in COVID-19 Not-to-
Exceed change orders. Payment for COVID-19  related expenses were approved prior to
receiving accurate and complete supporting documentation from the Contractor. 
In April 2020, the Washington Department of Safety and Health issued Directive 1.70 detailing
employer requirements for the continuation of work during the COVID-19 pandemic. Specifically, the
Directive included five basic categories of prevention elements, including education for workers about
COVID-19, wearing face coverings, distancing, regular cleaning and sanitization, frequent employee
handwashing, and the ability to ensure sick employees stay home (or go home if at the worksite.) 
On April 10, 2020, the Port issued a Construction Jobsite Safety letter that required contractors to
implement additional COVID-19 safety measures. In recognition of the additional costs contractors
would incur, the letter agreed to compensate 100% of the actual costs, plus the applicable markup, for
a full-time COVID-19 Supervisor (Supervisor), plus 50% of the actual costs of sanitation items and PPE
with proper receipts. The letter also outlined responsibilities for the Supervisor that included daily
monitoring, sanitizing, and ensuring staff working on the job site complied with safety protocols. The
Supervisor was supposed to maintain and submit to the Port a daily COVID-19 written report of
activities. The Port issued CO 14 on September 4, 2020, with a not-to-exceed (NTE) amount of
$120,000. The Port then issued CO 20 on April 13, 2021, increasing the NTE amount to $200,000. 
On January 19, 2021, the Port'sRE issued Serial Letter #012 (COVID-19 Letter of Concern) to MZT
which discussed the Port's concern that MZT had not implemented adequate safety controls to protect
workers from the possible spread of COVID-19. Furthermore, on July 12, 2021, the Port issued a memo
to MZT stating the Port would stop payment for a supervisor, as of February 18, 2021, because MZT
assigned the role as collateral duty to someone already onsite and did not meet the requirements
outlined for a full-time COVID-19 Supervisor. 
We requested a copy of MZT's Job Cost Ledger and timesheets from the CM group. The CM group
stated that requesting the documentation from MZT would affect MZT's ability to complete the Project,
which was already past the scheduled completion date. As an alternative approach, we obtained MZT
Certified Payroll Reports from the Washington Department of Labor and Industries. These were
additional documents that are not usually provided to CM. We noted that in some instances the Daily
Force Account Field Documentation sheets, that were submitted and certified to be complete and
accurate by MZT, did not accurately reflect actual labor hours worked. Additionally, we noted instances
in which MZT did not provide the Port's CM group invoices to support additional costs related to
COVID-19 safety supplies as required. Instead, the Port CM paid MZT by estimating the costs.
Additional information from our testing is listed in the following table. 





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Interim Westside Fire Station Project 
We identified the following instances of non-compliance: 
Issue                                                                           Questioned Costs ($) 
Includes 20% markup 
The Port was billed for 12 days that a supervisor was not onsite.                                       10,467 
One instance where a supervisor was onsite for 6 hours but billed 8 hours. 
From September 2020 through February 2021:                                                  87,362 
One Supervisor was assigned dual duties, not meeting the requirement for
a  full-time  COVID-19  Supervisor.  Internal  Audit  was  not  provided
documentation to determine the number of daily hours that differentiated
between his Supervisory duties and his regular duties. 
One Supervisor where Internal Audit was not provided documentation, as
requested, to verify the hours billed. 
Six instances where the Daily Force Account Field Documents were
submitted that included the Supervisor's time, although the Supervisor was
not on site. 
MZT did not submit Daily Force Account Field Documents for 5 days. 
One full-time Supervisor was billed at $89 per hour instead of their actual rate of                    8,568 
$52 per hour, in accordance with change order terms. 
The Port's Resident Engineer recommended that MZT be paid $586 without                 586 
requiring supporting documentation from MZT. 
MZT did not submit Daily COVID-19 written reports of activities, as required.                                 - 
The Port paid $900 by estimating the cost for handwashing stations and                    - 
disinfection costs even though MZT did not submit receipts, as required. We were 
unable to substantiate the actual costs that MZT incurred. 
MZT did not submit actual invoices for subcontractor costs as required by the CO                - 
and requested by the Port's Resident Engineer (RE). The RE created an estimate
of costs, however, we were unable to substantiate the actual costs of the $20,942
billed to and paid by the Port. 
Total Questioned Costs:               $106,983 
Contractors have the primary responsibility to submit accurate documents and billing requests to the
Port; however, the Port also has a responsibility to review those documents to assure that they are
accurate. 
Recommendations: 
Port personnel should require contractors to submit all required supporting documentation related
to COs prior to approving payments. Additionally, given that we have encountered similar results in
previous audits where contractors have inaccurately reported labor hours on Daily Force Account
Field Documents, we recommend that the CM Standard Operating Procedures be updated to
require contractors submit payroll reports as additional supporting documentation. 
CM should seek and recover any amount due to the Port from the overbilling. 




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Interim Westside Fire Station Project 
Management Response/Action Plan: 
Response #1  Force Account Requirements 
The Port Engineering, Central Procurement Office (CPO), and Legal will meet to consider modifications
to the Force Account process in future contracts. 
Response #2  Recover any Overbilling 
A reconciliation change order will be issued to close out Change Order 20 based on validated actual
costs incurred by the contractor once Physical Completion is achieved. We will require the additional
documentation identified by Internal Audit from the contractor as part of the validation process and
deduct any amounts overpaid. 

DUE DATE: 12/31/2022 















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Interim Westside Fire Station Project 

Findings identified during the audit are assigned a risk rating, as outlined in the table below. Only one of
the criteria needs to be met for a finding to be rated High, Medium, or Low. Findings rated Low will be
evaluated and may or may not be reflected in the final report. 
Financial      Internal                                               Commission/
Rating                                   Compliance      Public 
Stewardship  Controls                                         Management 
High probability
Non-compliance
Missing or not                       for external audit   Requires
with Laws, Port
High       Significant     followed                          issues and / or     immediate
Policies, 
negative public     attention 
Contracts 
perception 
Moderate
Partial
Partial controls                        probability for
compliance with
external audit       Requires
Medium   Moderate                  Laws, Port
Not functioning                      issues and / or      attention 
Policies 
effectively                               negative public
Contracts 
perception 
Low probability
Functioning as   Mostly complies                       Does not
for external audit
intended but     with Laws, Port                        require
Low      Minimal                                   issues and/or
could be        Policies,                             immediate
negative public
enhanced       Contracts                          attention 
perception 











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