6. Presentation

North Satellite Renovation

Final Construction Audit Report 
The Port of Seattle 
Mechanical Contractor/Construction Manager: 
Hermanson Company, LLP 
Electrical Contractor/Construction Manager: 
VECA Electrical Company, Inc. 
North Satellite Renovation and Expansion 




Report Submitted By: 

R. L. Townsend & Associates, LLC 
(972) 403-1829 
Plano, Texas 

June 3, 2022 
The contents of this report are based on our understanding of documents and other information
provided to us as of the date of this report. If anyone has any questions regarding the contents of this report,
please contact our office for clarification. A revised report will be issued with a revised date if any material
representation needs correction.

                Port of Seattle 
North Satellite Renovation and Expansion MC/CM & EC/CM                                         Report Date: June 3, 2022 
EXECUTIVE SUMMARY 

Audit Background 
As a part of an overall program of controlling construction costs, the Port of Seattle (PoS) engaged R.L.
Townsend & Associates, LLC (RLT) to perform an ongoing review of the contracts and billing records
associated with The Port of Seattle – North Satellite Renovation and Expansion. This report covers the
Mechanical Contractor/Construction Manager (MC/CM) and Electrical Contractor/Construction Manager
(EC/CM) portions of the general contract managed by Hensel Phelps. 

Project Background - MC/CM 
On July 14, 2015, Hensel Phelps (HPCC) contracted with Hermanson Company, LLP. (Hermanson) to serve as
the MC/CM for the Port of Seattle Sea-Tac expansion.
The budget for the Project at the time of the contract was $584,680, which covered the pre-construction
phase. This initial subcontract was subsequently amended three times for PWP 1 – 3 and Final MASCC,
which brought the total contract value to $68,939,752 prior to Subcontractor Change Orders. 
A fixed specified amount for General Conditions (GCs) costs was specified in the original contract and added
after 90% design completion. 
A fixed fee of 8.42% was used to compensate the subcontractor monthly after the Maximum Allowable
Subcontractor Construction Costs (MASCC) amendment was negotiated and executed. 
Bonding was required for the Cost of Work and included within the MC/CM fee. 

Project Background - EC/CM 
On July 14, 2015, Hensel Phelps contracted with VECA Electric Company, Inc. (VECA) to serve as the EC/CM 
for the Port of Seattle Sea-Tac expansion.
The budget for the Project at the time of the contract was $571,975, which covered the pre-construction
phase. This initial subcontract was subsequently amended three times for PWP 1 – 3 and Final MASCC,
which brought the total contract value to $82,504,310 prior to Subcontractor Change Orders. 
A fixed specified amount for GCs costs was specified in the original contract and added after 90% design
completion. 
A fixed fee of 12.5% was used to compensate the subcontractor monthly after the Maximum Allowable
Subcontractor Construction Costs (MASCC) amendment was negotiated and executed. 
Bonding was required for the Cost of Work and was included within the EC/CM fee. 

R. L. Townsend & Associates, LLC                                                                                       1

                Port of Seattle 
North Satellite Renovation and Expansion MC/CM & EC/CM                                         Report Date: June 3, 2022 
Final Audit Objectives, Scope, and Methodology 
Objectives: 
The audit objectives were to determine the accuracy of the contractor’s billings, document audit adjustments
and costs avoided due to the audit and evaluate the appropriateness of the approved change orders. 
Scope: 
The scope included a review of the mechanical and electrical subcontractor costs and billings associated
with the Base Building. Pre -Construction Services and final negotiated PWP-1 costs were included to ensure
a comprehensive project overview. 
Methodology: 
The following methodology was used: 
• Job Cost Reports 
o   Reviewed and compiled job cost accounting records to date. 
• Lump sum 2nd tier subcontractor contracts 
o   Reviewed subcontracts for alternates, allowances, and unit rates. 
o   Reviewed 2nd tier subcontractor change orders. 
• Subcontractor Change Orders (SCO) 
o   Reviewed SCO supporting backup documentation for correct fees, labor rates, possible
duplicates, math errors, or any unusual items. 
o   Reviewed Force Account (FA) SCO reconciliation to ensure accuracy of final costs. 
o   Reviewed Negotiated Support Services (NSS) Work Authorizations (WA) supporting backup
documentation for correct fees, labor rates, possible duplicates, math errors, or any unusual
items. 
o   Reviewed Force Account Work Authorizations (WA) reconciliations to ensure accuracy of
final costs. 
• Monthly Hermanson and VECA Payment Application (Pay App) 
o   Began monthly billing invoice reviews with the General Contractor/Construction Manager
(GCCM) Pay App #58 dated September 30, 2018. 
o   Labor reports were reviewed to ensure the PoS approved labor rates were utilized. 
o   Material invoices were reviewed to ensure the billed costs were supported with backup
documentation. 
o   Invoices were reviewed to ensure that small tools and safety items were not incorporated
into the costs (it was agreed that a percentage add would be utilized to pay for these items). 
o   Equipment rental costs were reviewed. 
o   Second tier subcontractor pay apps were reviewed monthly. 
o   The monthly pay apps were reviewed to ensure non-reimbursable items were not billed. 
o   The monthly projections and reverse projections were validated. 
o   The calculations for small tools and safety were verified. 
o   The fee calculations on base work and change order work were verified. 
o   The amount HP billed for MC/CM and EC/CM costs were reviewed to ensure the costs billed
to PoS were consistent with the costs submitted. 
o   A worksheet with issues was submitted to the PoS for review and comments. 
R. L. Townsend & Associates, LLC                                                                                       2

                Port of Seattle 
North Satellite Renovation and Expansion MC/CM & EC/CM                                         Report Date: June 3, 2022 
o   Issues were resolved by email or phone calls with each subcontractor. 
o   Issues were noted as closed and revised worksheets were submitted as necessary. 
o   Monthly meetings were attended with the PoS project team to discuss discrepancies, issues, 
and recommended corrective action. 
o   Revised Pay Apps were tracked and monitored.

Summary of Total Subcontractor Cost (TSC) – MC/CM 
The following chart indicates Hermanson’s Total Subcontractor Cost (TSC) for Pre-Construction Services,
Amendments and SCO #s 1- 108 equals $81,382,006: 
General                 MC/CM Fee
Phase         Pre-Con                  COW                     Total
Conditions                  8.42%
Pre-Con             $  584,680                                       $     584,680
PWP 1                         $    197,591  $    541,354  $    45,582  $    784,527
PWP 2                         $    376,043  $   7,653,651  $    644,437  $   8,674,131
PWP 3                         $    283,347  $  20,546,813  $  1,730,042  $  22,560,202
Final TSC                       $  2,841,826  $  30,893,180  $  2,601,206  $  36,336,212
Original TSC          $  584,680  $  3,698,807  $  59,634,998  $  5,021,267  $  68,939,752
SCO #s 1-107         $   95,717  $    544,865  $  10,810,489  $    923,765  $  12,374,836
Current TSC          $  680,397  $  4,243,672  $  70,445,487  $  5,945,032  $  81,314,588
SCO #108                                   $      62,432  $      4,986  $      67,418
Final TSC             $  680,397  $  4,243,672  $  70,507,919  $  5,950,018  $  81,382,006

Summary of Total Subcontractor Cost (TSC) – EC/CM 
The following chart indicates VECA’s Total Subcontractor Cost (TSC) for Pre-Construction Services,
Amendments and SCO #s 1-111 equals $94,747,841: 
General                      EC/CM
Phase          Pre-Con                   COW                          Total
Conditions                   Fee 12.5%
Pre-Con              $ 571,975                                                   $      571,975
PWP 1                         $    902,985  $   2,784,262  $       348,033  $    4,035,280 
PWP 2                         $    62,833        $   1,507,170  $       188,396  $     1,758,399
PWP 3                         $    417,046  $  21,484,822  $      2,685,603  $    24,587,471
Final TSC                       $  4,628,940  $  41,708,662  $      5,213,583  $    51,551,185
Original TSC           $ 571,975         $  6,011,804  $  67,484,916  $      8,435,615  $    82,504,310
SCO #s 1-109          $  151,561  $       -    $  12,320,428  $      1,540,054  $    14,012,043
MASC             $  723,536  $  6,011,804  $  79,805,344  $     9,975,669  $   96,516,353
SCO #110            $      -    $       -    $   (1,572,010) $       (196,502) $    (1,768,512)
Estimated Final TSC     $  723,536  $  6,011,804  $  78,233,334  $      9,779,167  $    94,747,841

Audit Discussion Items – MC/CM and EC/CM 
Agreed To      Cost
Description                 Credit     Avoidance       Total
Hermanson Audit Discussion Items      $   355,837  $     490,448  $    846,285 
VECA Audit Discussion Items            $   668,234  $     636,240  $   1,304,474
Total                                  $ 1,024,071  $   1,126,688  $   2,150,759
Details regarding the audit reviews of Hermanson and VECA can be found on the following pages. 
R. L. Townsend & Associates, LLC                                                                                       3

                Port of Seattle 
North Satellite Renovation and Expansion MC/CM & EC/CM                                         Report Date: June 3, 2022 
MECHANICAL CONTRACTOR/CONSTRUCTION MANAGER: 
HERMANSON COMPANY, LLP 
Summary of MC/CM Audit Discussion Items with Status 
Agreed To      Cost
Item #   Scope                Description                 Credit     Avoidance      Total       Status    GC/CM Pay App
1      All   Job Cost Reconciliation vs Billings          $    58,563              $     58,563  Remitted        98
True-up Labor Cost PWP-1 –
2     PWP 1 Amount Billed for Labor vs. Payroll Register  $    11,379              $     11,379  Remitted        73
3     PWP 1 BIM Labor Rates for PWP-1                $    2,222              $      2,222  Remitted        73
4     Final  Payroll Tax Adjustments                  $   283,673              $    283,673  Remitted     92, 94, 98
5      All   GC/CM Pay Application #s 58 - 98 Reviews               $   490,448  $   490,448  Remitted      Various
Total                                                 $   355,837  $    490,448  $    846,285

1.   Final Total Subcontractor Cost (TSC) vs Billed Amount 
The final reconciliation of the Hermanson’s project job cost equaled $81,382,006. As a result, HPCC issued a
final SCO in the amount of $67,418 as shown below: 
Description               Amount
MASC @ SCO #107              $  81,314,588
SCO #108                      $     67,418
Final TSC                            $  81,382,006
Review of Hermanson’s Pay Application #73 identified an overbilling of $58,563: 
Description                            Amount
MC/CM Contract as of SCO #107       $  81,314,588
Agreed-to final TSC                   $ 81,382,006
HPCC issued SCO #108             $     67,418
Billed as of MC/CM Pay App #73       $  81,440,569
Potential Overbilling                  $     58,563
Status: HPCC acknowledged the overbilling, and a credit was provided in CM Pay Application #98. 




R. L. Townsend & Associates, LLC                                                                                       4

                Port of Seattle 
North Satellite Renovation and Expansion MC/CM & EC/CM                                         Report Date: June 3, 2022 
2.   True-up Labor Cost PWP-1 – Amount Billed for Labor vs. Payroll Register 
The labor rates that were billed were reviewed against the labor rates reported in the payroll register. Based
on this review, it appears there may be a potential overbilling of $10,495 (not including fee) resulting from
the cost variance between the actual labor rates and the labor rates billed. After fee is included, the total
credit is $11,379. 
Status: Credit was provided in OPA 73 (Sub PA 49 dated 11/30/19). 

3.   BIM Labor Rates for PWP-1 
The labor rates that were billed were reviewed against the labor rates reported in the payroll register. Based
on this review, it appears there may be a potential overbilling of $2,222 resulting from the cost variance
between the actual labor rates and the labor rates billed. 
Status: Credit was provided in OPA 73 (Sub PA 49 dated 11/30/19). This item is closed. 

4.   Payroll Tax Adjustments 
Federal and State Unemployment (FUTA/SUTA) payroll taxes were reconciled and the proposed credit of
$283,673 was accepted. 
Total FUTA/SUTA
Year
Credit
2016           $          7,232
2017           $         33,787
2018           $         90,403
2019           $         31,397
2020           $         76,809
2021           $         10,468
Subtotal                   $         250,096
Small Tools & Safety Add   $          11,547
Fee Add                 $         22,030
Total Credit               $        283,673
Status: Agreed - Credit issued in Hermanson Pay Apps. 



R. L. Townsend & Associates, LLC                                                                                       5

                Port of Seattle 
North Satellite Renovation and Expansion MC/CM & EC/CM                                         Report Date: June 3, 2022 
5.   Pay Application Reviews 
During the audit review, PoS requested monthly reviews of the Hermanson draft pay applications for CM
Pay App #s 58 – 98. During the review, a total of $490,448 in discrepancies were discovered and resolved. 
Discrepancies included differences between the backup documentation and the amount billed, variances in
labor costs billed vs. the PoS approved labor rates, and billing projections not being reversed. 
Pay Application Review
Item                    Amount        Notes
Discrepancies resolved   $     488,114         A
Direct Savings to Project  $       2,334         B
Total                     $    490,448
Notes: 
A.  The discrepancies resolved were primarily schedule of values inaccuracies with other minor
variances between the backup and SOV as well. 
Discrepencies
OPA   Sub PA               Audit Notes
Resolved
59       35     $      507,679 SOV Variance
60       36     $       12,850 SOV Variance
64       40     $       (5,244) SOV Variance
65       41     $       43,273 SOV Variance
68       44     $        (946)      SOV Variance
69       45     $          711 SOV Variance
72       48     $       (14,687) SOV Variance
73       49     $       (27,962) SOV Variance
79       55     $        (781)      SOV Variance
81       57     $       (4,716) SOV Variance
84       60     $       (12,243) SOV Variance
85       61     $      (18,672)        SOV Variance
87       63     $        8,852 SOV Variance
Total               $      488,114
B.   The cost avoidance items showed a direct cost savings to the project of $2,334. 
Discrepencies
OPA   Sub PA               Audit Notes
Resolved
58       34     $           79 Small tools
63       39     $        1,688 Labor finding
77       53     $          (97) Labor finding
78       54     $          489 Labor finding
89       65     $          171 Labor finding
92       68     $            4 Labor finding
Total               $        2,334
Status: The above cost avoidance and discrepancies were corrected prior to PoS acceptance, thus avoiding
potential overpayment. 

R. L. Townsend & Associates, LLC                                                                                       6

                Port of Seattle 
North Satellite Renovation and Expansion MC/CM & EC/CM                                         Report Date: June 3, 2022 
ELECTRICAL CONTRACTOR/CONSTRUCTION MANAGER: 
VECA ELECTRIC COMPANY, INC. 
Summary of EC/CM Audit Discussion Items with Status 
Agreed To      Cost
Item #   Scope               Description                 Credit     Avoidance       Total       Status    CM Pay App
1      All   Total Subcontractor Cost vs Billings      $   119,553              $    119,553  Remitted      98
Payroll Tax Adjustments and other                                                         64R2, 79R2,
2      All   labor items                         $   531,300              $   531,300  Remitted    81, 82
3     PWP 1 Duplicate items                     $     3,081              $     3,081  Remitted     79R2
4     Final  Change order 34 & 54 duplicate item     $    14,300              $     14,300  Remitted     79R2
Business & Occupation Tax cost
5     Final  avoidance                                     $    169,525  $    169,525     n/a        n/a
6      All   CM Pay Application #s 58 - 98 Reviews              $   466,715  $    466,715  Remitted    Various
Total                                                 $   668,234  $    636,240  $   1,304,474

1.   Final Total Subcontractor Cost (TSC) vs Billed Amount 
The final reconciliation of the VECA’s project job cost equaled $94,747,841. As a result, HPCC issued a final
deductive SCO in the amount of <$1,768,512> as shown below: 
Description              Amount
Current MASC @ SCO #109       $  96,516,353
SCO #110                       $  (1,768,512)
Final TSC                          $  94,747,841
Review of VECA’s Pay Application #83 identified an overbilling of $119,533: 
Description                                      Amount
Agreed-to final TSC                             $ 94,747,841
EC/CM Contract as of SCO 109                $ 96,516,353
Recommended SCO 110                     $  (1,768,512)
Billed as of EC/CM Pay App #83               $  94,867,394
Potential Overbilling                           $    119,553
Status: HPCC acknowledged the overbilling, and a credit was provided in CM Pay Application #98. 



R. L. Townsend & Associates, LLC                                                                                       7

                Port of Seattle 
North Satellite Renovation and Expansion MC/CM & EC/CM                                         Report Date: June 3, 2022 
2.   Payroll Tax Credits and other Labor Items 
The job cost backup for the payroll was reviewed for accuracy in base rates and burden items. During the
review, it was determined that payroll taxes did not reflect actual cost. VECA agreed to reconcile costs at
the end of each year and to present the reconciliation for audit to review. The reconciliation was reviewed
and accepted by audit. Other minor errors in the billings included base rate inaccuracies and duplicate
billings of hours. The reconciliation was remitted in the pay apps as a line item. 
Payroll Tax Credit Breakdown
Year  Report          Description           Amount
2017   PWP 1  Payroll tax credit & other      $   29,281
2018   PWP 1  Payroll tax credit             $   186,793
2019    Final   Payroll tax credit             $   122,268
2020    Final   Payroll tax credit             $   146,907
2021    Final   Payroll tax credit             $    46,051
Total                                           $   531,300
Status: Agreed to credits were issued in OPA 64 R2, OPA 79 R2, OPA 81, and OPA 82. 

3.   PWP 1 Duplicate items 
PWP 1 included line-item charges for the same items within the job cost backup to the pay apps. This issue
was discussed with VECA and the PoS in the PWP 1 report and resolved after review of backup detail. 
Status: A $3,081 credit issued in Owner Pay app 79 R2. 

4.   SCO 34 & 54 Duplicate 
SCO’s 34 and 54 included line-item charges for the same change. This item was brought to the attention of
the PoS and VECA and resolved via credit. 
Status: A $14,300 credit issued in Owner Pay app 79 R2. 

5.   Business & Occupation Tax Cost Avoidance 
At the beginning of the project, the payroll labor base and burdens were reviewed for allowable charges per
the contract. B&O tax was identified as a disallowed charge. 
Status: The total savings over the course of the project is estimated to be approximately $169,525. 

R. L. Townsend & Associates, LLC                                                                                       8

                Port of Seattle 
North Satellite Renovation and Expansion MC/CM & EC/CM                                         Report Date: June 3, 2022 
6.   Pay Application Reviews 
RL Townsend was hired to review the pay apps for VECA from Owner Pay App 58 through the present. The
pay apps were reviewed utilizing a comprehensive excel spreadsheet custom designed for the PoS project
for reviewing the GMP subs. An abbreviated form of the spreadsheet was presented to PoS monthly. A highlevel
summary of the issues found, as well as job cost backup was provided. Audit communicated with the
PoS and VECA via email and monthly meetings to resolve any issues. 
During the review, a total of $466,715 in discrepancies (such as schedule of values variances between
previous and current pay apps), and direct cost savings (inaccurate billings) to the project were discovered,
as shown in the chart below. 
Pay Application Review
Item           Amount    Notes
Discrepancies resolved   $   281,888     A
Direct savings to project  $   184,827     B
Total                   $   466,715
Notes: 
A.  The discrepancies resolved were primarily schedule of values inaccuracies with other minor
variances between the backup and SOV as well. 
Discrepancies
OPA SubPA           Audit Notes
resolved
60    47   $      2,709 SOV variance
62    49   $     48,638 SOV variance
63    50   $     90,049 SOV variance
64    51   $      1,016 SOV variance
65    52   $     74,698 SOV variance
86    72   $     47,840 SOV variance
88    74   $     12,696 SOV variance
89    75   $       977 SOV variance
91    77   $      1,099 SOV variance
92    78   $      2,166 SOV variance
Total         $    281,888
B.  The cost avoidance items showed a direct cost savings to the project of $184,827. 
OPA  SubPA Direct Savings  Audit Notes
65     52   $    145,000 Labor finding
75     61   $     396.90 Duplicate hours
79     65   $     36,550 COVID
81     67   $      2,880 Backcharge
Total             $    184,827
Status: The above cost avoidance and discrepancies were corrected prior to PoS acceptance, thus avoiding
potential overpayment. 

R. L. Townsend & Associates, LLC                                                                                       9



Limitations of Translatable Documents

PDF files are created with text and images are placed at an exact position on a page of a fixed size.
Web pages are fluid in nature, and the exact positioning of PDF text creates presentation problems.
PDFs that are full page graphics, or scanned pages are generally unable to be made accessible, In these cases, viewing whatever plain text could be extracted is the only alternative.