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
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