INTERNAL AUDIT REPORT 
Operational - Capital Audit 
Concourse A Building Expansion for Lounges - Delta TRA 







Source: Internal Audit Photo 
November 2021- January 2024 
Issue Date: March 13, 2024 
Report No. 2024-01 
This report is a matter of public record, and its distribution is not limited. Additionally, in accordance with
the Americans with Disabilities Act, this document is available in alternative formats on our website.

            Concourse A Building Expansion for Lounges-Delta TRA 


TABLE OF CONTENTS 

Executive Summary ................................................................................................................................................. 3 
Background ............................................................................................................................................................. 4 
Audit Scope and Methodology ............................................................................................................................... 5 
Schedule of Observations and Recommendations ................................................................................................ 6 
Appendix A: Risk Ratings ....................................................................................................................................... 11 
Appendix B: Contractor Controlled Insurance Program (CCIP) Risks .................................................................. 12 













2

            Concourse A Building Expansion for Lounges-Delta TRA 

Executive Summary 
We completed an audit of the Concourse A Building Expansion for Lounges - Delta TRA Project for the period
November 2021 through January 2024. The audit was performed to provide a systematic and independent
examination of the quality of the Port's monitoring of the Project, determine if best practices are being
followed, verify compliance with contractual requirements, and identify potential risks that may affect the
Project's schedule and budget. 
Delta Air Lines (Delta), in partnership with the Port of Seattle (Port), designed and is constructing an addition
to the shell and core of the Concourse A building, located at the Seattle-Tacoma International Airport (SEA),
which will house Delta’s second Sky Club. The Project is being performed through a Tenant Reimbursement
Agreement (TRA) between Delta and the Port. Delta is responsible for the Delta Lounge interior buildout 
costs while the Port is responsible for the remaining Project costs. Upon completion, there will be a new Delta
Sky Club lounge and an updated Club at SEA lounge. The new building will add approximately 52,000 square
feet and will include more than 36,000 square feet of new leasable space. 
The TRA is being administered as a Guaranteed Maximum Price (GMP) contract in the amount of
approximately $133.7 million, of which $111.5 million is the Port’s responsibility. As this is a cost based GMP
Agreement, the Contractor has the ability to move amounts between line items in the Schedule of Values,
and it is warranted that a final GMP cost reconciliation audit be performed prior to final payment. 
Overall, we determined that the multiple Port departments involved are actively monitoring the progression 
of the Project and following current Port procedures. We did identify opportunities for the Port to improve
processes for this Project and future TRA projects. These opportunities are listed below and discussed in
more detail beginning on page six of this report. 
1.   (High) An implicit agreement between Hensel Phelps and the Port’s Risk Management Department
settled on $10 Million in Commercial General Liability Insurance (GLI) at an estimated cost of $559,500.
Hensel Phelps subsequently materially overbilled the Port for $100 Million in GLI, at a cost of $1,120,784. 
2.   (Medium) Hensel Phelps’ Request for Reimbursement Submittal (RRS) for General Requirements did
not include adequate supporting documentation. 
3.   (Medium) The Port has an opportunity to revise its procedures on future TRA projects in order to
decrease the potential of reimbursing unallowable or duplicate costs within General Conditions. 
We would like to extend our gratitude to the Port’s Project Management Group, Engineering Construction 
Management team, Diversity in Contracting team, and the Risk Management team for their assistance and
expertise during the engagement. 


Glenn Fernandes, CPA 
Director, Internal Audit 
Responsible Management Team 
Rick Duncan, Director, Aviation Business & Properties 
Eileen Francisco, Director, Aviation Project Management Group 
Karen Goon, Deputy Executive Director 
Jeff Hollingsworth, Director, Risk Management 
Nora Huey, Director, Central Procurement Office 
Jason Johnson, Senior Manager Airline Affairs & Aviation Properties 
Janice Zahn, Director of Engineering 


3

            Concourse A Building Expansion for Lounges-Delta TRA 
Background 
Delta, in partnership with the Port, designed and is constructing an addition to the shell and core of the 
Concourse A building that will house Delta’s second Sky Club. The Project is being performed through
a TRA between Delta and the Port. Delta is responsible for the interior buildout costs of the Delta lounge,
within the new building shell, while the Port is responsible for the remaining Project costs. Upon
completion, there will be a new Delta Sky Club lounge and an updated Club at SEA lounge. The new
building will add approximately 52,000 square feet and will include more than 36,000 square feet of new,
leasable space. The total contracted amount off the Project is approximately $133.7 million. The Port’s
responsibility was originally estimated at approximately $90 million which subsequently increased to
$111.5 million. 
The Scope of Work of this project includes: 
1.  Adding  approximately  52,000  square  feet that  will  provide  shell  space  for  two  lounges  and
associated building systems. 
2.  Reconfiguring  existing  space  to  provide:  additional  leasable  office  area,  an  entry  foyer,  a
replacement restroom, and vertical circulation. 
3.  Demolishing an existing airport building and constructing a new building to house the relocated
Aviation Maintenance Department Passenger Loading Bridge. 
4.  Providing temporary restrooms for the Port’s common use lounge in order to keep the lounge
operational during construction. 
In addition, the Project required enabling work so that Concourse A could remain operational during the
underground utility work and construction. This included the relocation of a Maintenance Department 
Passenger Loading Bridge shop, vendor receiving, compactors, emergency dispersal area, a portion of
the Airport Operational Area fence, employee bus turnaround, and maintenance vehicle parking. 
The Project, specifically authorized by Delta, represents a strategic response to shifting passenger
demand from the South Satellite to Concourse A following the opening of the International Arrivals
Facility. With insufficient space to meet this demand, the Port agreed to permit Delta to design and
construct the lounge addition in undeveloped space. 
This project is identified as a Tier Two project under the Port's Sustainable Evaluation Framework. The
project team examined sustainability concepts, including a triple-glazed electrochromic façade, allelectric
appliances, low-flow water fixtures, signage for public transportation, an employee breakroom,
and three new electric vehicle charging stations. 
There were three budget adjustment requests during the Project based primarily on the progression of
the Project’s status (a more accurate cost estimate as the design reached 100%), lack of a final GMP,
escalation in materials, and delays in construction. 






4

            Concourse A Building Expansion for Lounges-Delta TRA 
Audit Scope and Methodology 
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 instances, we used judgmental sampling methods to determine the samples selected for our
testing. In those cases, the results of the work may not represent the population as a whole.
The period audited was November 2021 through January 2024 and included the following procedures: 
Women and Minority Business Enterprise (WMBE) Utilization Goals 
• Obtained an understanding of how Port management was monitoring Hensel Phelp’s (Hensel) 
compliance with utilization goals. 
• Obtained a list of subcontractors and their contract values. 
• Identified subcontractors who met the WMBE qualifications.
• Calculated the total WMBE subcontractors compared to the total Eligible Tenant Improvement
value. 
Insurance Test 
• Identified subcontractors participating in the Contractor Controlled Insurance Program (CCIP).
• Reviewed their contracts and bid packages to ascertain the inclusion of General Liability
Insurance (GLI).
• Verified the removal of participating subcontractors’ GLI from the CCIP amount in the GMP.
• Collaborated with the Port’s Director of Risk Management to review final insurance documents, 
determined whether insurance coverage met the Port’s requirements, and assessed the
potential for cost reductions. 
General Requirements/General Conditions 
• Obtained an understanding on how the Port was monitoring HP's compliance with the agreement
regarding General Conditions (GC) and General Requirements (GR). 
• Obtained supporting documents for GC and GR charges. 
• Reviewed evidence to assess the allowability of charges.
• Determined whether GCs were billed on a reasonable percentage of project completion basis. 







5

            Concourse A Building Expansion for Lounges-Delta TRA 
Schedule of Observations and Recommendations 
1) Rating: High 
An implicit agreement between Hensel Phelps and the Port’s Risk Management Department 
settled on $10 Million in Commercial General Liability Insurance (GLI) at an estimated cost of
$559,500. Hensel Phelps subsequently materially overbilled the Port for $100 Million in GLI, at a
cost of $1,120,784.
Per Exhibit E- Minimum Insurance Requirements in the Tenant Reimbursement Agreement (TRA), The
Commercial General Liability insurance (GLI) “per occurrence” limit is required to be a minimum of $15
million. Per discussion with Risk Management, the intent of the Port was to have contractors maintain
$15 million in GLI, not materially more and that it will reimburse insurance costs up-to the required
coverage limits. However, the contract wording says, “not less than” rather than “will be”, allowing
General Contractors to meet this provision in form rather than as intended by Risk Management. 
Prior to approval of the Final Guaranteed Maximum Price (GMP), Hensel inquired whether the Port was
willing to decrease the Commercial GLI “per occurrence” limit from $15 million to $10 million. Justification
for the request was that Hensel felt the Port’s insurance limits were high and costly for subcontractors
to obtain. Through email discussion, the Port’s Risk Management team agreed to the request, thereby
creating an implicit agreement that the estimated cost would be $559,500 for the $10 million in
Commercial GLI. 
During the Project, however, Hensel submitted insurance invoices totaling $1,120,784, which included
general liability insurance limits of $100 million “per occurrence”. The Port has deferred reimbursement
of the submitted insurance costs until final approval from Risk Management.
We also noted, that for the final agreed to GMP, the Port’s estimator used Hensel’s proposed insurance
costs of $1,725,182. If Risk Management’s estimate was used, the final GMP could have potentially 
been $1,165,685 million less. 
Contractor Controlled Insurance Program (CCIP) 
Hensel utilized a CCIP on this Project. The purpose of a CCIP is to consolidate insurance coverage for
all parties on a job site into one blanket policy controlled by Hensel. A CCIP eliminates the need for
individual contractors, and subcontractors, to obtain coverage on their own and provides Hensel comfort
that sufficient coverage is in place. Although there are benefits, there are also risks to the Port when a
CCIP is used. 
In order to address the risks associated with CCIPs, with the assistance of the Port’s Project
Management Group, we made multiple requests to obtain subcontractor bid documents and
subcontracts. Although there are “Right to Audit” clauses in both the Agreement between Delta and
Hensel, and the TRA, Hensel refused to provide the documents citing that they “did not see the need,”
although we explained the audit reasons for the requested documents. Accordingly, our audit scope was
limited, and we are unable to conclude whether subcontractor contracts included additional insurance
that was being passed on to the Port, any insurance credits were properly passed on to the Port, or that
other risks, described in Appendix B, did not occur. 
Recommendations: 
1.1 Contract insurance language should be updated to outline both minimum and maximum insurance
requirements that will be reimbursed, thereby preventing the Port from incurring costs for additional
insurance coverage.
1.2 TRA language should be updated to specifically describe the documents that are subject to audit
and consequences if those documents are not provided when requested. 

6

            Concourse A Building Expansion for Lounges-Delta TRA 
1.3 Risk Management should make the determination on what the final reimbursable insurance cost
should be. Additionally, the total GMP should be adjusted accordingly. 
1.4 When estimating a GMP, Port estimators should use amounts recommended by Risk Management
instead of amounts proposed by contractors. 
Management Response/Action Plan: 
The following is a general portion of the response to all recommendations. 
The project team includes: AV Project Management Group, AV Project Controls, Port Risk Management,
Port  Engineering  -  Construction Management, AV Business & Properties, and AV Commercial
Management. Other necessary departments may be added to this team as the process proceeds. 
A multi-year initiative to reevaluate and change the aspects of the TRA process is underway with Port 
stakeholders. Some of the measurable improvements are expected to be implemented in 2024 and
others in 2025. The recommendations of this internal audit will be incorporated into this effort. 
Management Response to Item #1: The project team agrees with the recommendation in improving
future TRA contract language and will work with other project delivery groups and Risk Management to
establish clear guidelines as they relate to acceptable insurance requirements and thresholds. 
1. 
DUE DATE: 12/18/2024 












7

            Concourse A Building Expansion for Lounges-Delta TRA 

2) Rating: Medium 
Hensel Phelps’ Request for Reimbursement Submittal (RRS) for General Requirements did not
include adequate supporting documentation. 
General Requirements (GRs) are also called direct costs which include Hensel Phelps’ staff costs 
performing various functions for the job, including performing security, setting up barricades... etc. It also
includes related equipment purchases and rentals. Article 4.2 of the Agreement between Hensel and
Delta specified costs that are reimbursable, while Article 4.4 listed items that were not reimbursable.
The current contracted amount for GRs is $3,237,881. Of that amount, the Port's portion is $2,326,281
for work on the core and shell. As of December 2023, Hensel billed $536,477 in GRs, of which $417,743
has been reimbursed. 
During our engagement, we noted that Hensel submitted Job Cost Detail Report printouts from its
accounting system, instead of actual invoices to support GR costs. In accordance with standard
practices and Exhibit D §3 of the TRA, which states, in part, “Reasonable documentation establishing
that Tenant has incurred all costs for which reimbursement is sought,” monthly RRSs should include
copies of invoices or other supporting documentation for each GR expense. Without actual invoices, it
is difficult for the reviewer to ensure requested expenses are appropriate, belong to the specific project,
invoiced to the contractor, align with project expectations, and requested amounts and dates are
accurate. 
Recommendations: 
2.1 RRS approvers should obtain proper documentation, in order to reconcile GR costs previously
reimbursed and require supporting documentation for future reimbursement requests. 
2.2 Standard Operating Procedures should be updated to reflect the need for actual invoices as
adequate support for reimbursement requests. 
Management Response/Action Plan: 
The Project Team will work with Aviation Departments that generate TRAs to determine the required
documentation for reimbursement for General Requirements. Standard Operating Procedures will be
updated to require adequate backup documentation to support reimbursement requests. 

DUE DATE: 09/24/2025 







8

            Concourse A Building Expansion for Lounges-Delta TRA 

3) Rating: Medium 
The Port has an opportunity to revise its procedures on future TRA projects in order to
decrease the potential of reimbursing unallowable or duplicate costs within General
Conditions. 
General Conditions (GCs) describe how a contractor will fulfill the requirements of a project. GCs also
cover a contractor’s indirect costs, such as staff salaries, safety, computers, and site management costs.
The range of components that may be included in GCs heightens the potential that those costs may be 
also billed elsewhere in the contract, or otherwise unallowable if not properly vetted and monitored. The
Port’s portion of GC reimbursable costs is approximately $6.6 million. 
Article 4 of the Agreement between Hensel and Delta outlined allowable and non-allowable GCs,
however, the Agreement allowed Hensel to submit its proposed GC Costs as a lump sum amount, 
without requiring documentation supporting the components in its Final Guaranteed Maximum Price 
(GMP) proposal. During our meeting with the Port’s Cost Estimator, we learned that professional
judgment was used to determine the GC line item on the GMP instead of reviewing cost components. 
We note that there are benefits to using lump sum GCs, including reducing the documentation that
needs to be reviewed monthly Reimbursement Submittal. However, there are limitations, such as: 
• A contractor may try and save money in the short term by reducing staff at the expense of proper
management. 
• A contractor’s direct costs may increase, and if the contingency is built in to the GMP as a separate
line item (as the case on this project), the Port would pay all of the increase in direct costs and
receive no savings in the lump sum general conditions. 
• A contractor may be reluctant to spend more, although necessary, general condition money to get
more supervision or engineering support if it looks as if the general conditions budget were in
jeopardy. 
• A contractor may attempt to shift general condition costs to direct construction costs by requiring
subcontractors to pick up some of those costs in their contracts. 
• A contractor may move “cost of work” line-item amounts into the GC line item, knowing that there
would not be scrutiny of the costs. 
• A contractor may attempt to bill all GCs early in the Project. 
Given the risks previously mentioned, a better business practice would be for the Port to either reimburse
actual GCs or require a contractor to include documentation supporting the components of GCs prior to
negotiating a GMP. 
Recommendations: 
3.1 Although we suggest GCs to be reimbursed on a cost basis, if the Port continues to allow TRAs to
use lump sum GCs, Port management should, at a minimum, require a detailed expected scope of
work in the GC costs prior to agreeing to a GMP. 
3.2 Port management should reimburse no more than the approved GC line item agreed in the GMP 
(plus any GC increase that may occur from Change Orders). If the General Conditions line item is
increased on the Schedule of Values, the Port should require justification prior to approving the
change. 
Management Response/Action Plan: 
The project team agrees with the recommendations. TRA contract language will be modified to require, at
minimum, a detailed scope of work in General Conditions costs, prior to agreeing to Final GMP. Standard

9

            Concourse A Building Expansion for Lounges-Delta TRA 
Operating Procedures will be updated to require justification of an increase in General Conditions prior to
approving the change.
DUE DATE: 12/18/2024 



















1 0

            Concourse A Building Expansion for Lounges-Delta TRA 
Appendix A: Risk Ratings 
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     Operational                   Compliance      Public 
Controls                                          Management 
Impact 
High probability
Non-compliance
Missing or                       for external audit   Requires
with Laws, Port
High       Significant       partial                         issues and / or     immediate
Policies, 
Controls                          negative public     attention 
Contracts 
perception 
Moderate
Partial         Partial
probability for
controls or     compliance with
external audit       Requires
Medium   Moderate       controls not   Laws, Port
issues and / or      attention 
functioning    Policies 
negative public
effectively      Contracts 
perception 
Low probability
Functioning   Mostly complies                      Does not
for external audit
as intended   with Laws, Port                       require
Low      Minimal                                   issues and/or
but could be   Policies,                               immediate
negative public
enhanced     Contracts                          attention 
perception 











1 1

            Concourse A Building Expansion for Lounges-Delta TRA 
Appendix B: Contractor Controlled Insurance Program (CCIP) Risks 
The following risks are associated with CCIP as described by HPM Audit & Contract Services.1 
A way to overcharge involves the General Contractor including the agreed to CCIP cost in subcontract
values and includes it as a line item in the Schedule of Values. The General Contractor adds a
percentage to the low bid subcontractor’s price for the CCIP insurance that is actually being purchased
by the General Contractor even though the General Contractor has no intention of paying this amount
to the subcontractor. The Owner is then asked to pay the General Contractor upfront most, or all, of the
CCIP amount. The Owner is not aware that the General Contractor has included a similar amount in the
subcontracts as well. The General Contractor then requires the subs to bill all of this extra insurance in
their first pay application. The General Contractor collects this insurance amount from the Owner in
addition to the CCIP amount disclosed in the pay application, pays the sub only the subs actual cost,
not the CCIP amount that the sub was asked to bill, and therefore collects twice, or close to twice, the 
CCIP estimated amount from the Owner very early in the project. If the Owner catches on at the end of
the project, then the total CCIP cost is reconciled, but the General Contractor has had the Owners money
for a year or more. 
A second issue is requiring the subs to provide proof of additional insurance. On this last point we have
seen recently where smaller subs who did not meet the GL requirements of a certain General Contractor 
were required to buy insurance at higher limits. This additional insurance was then added to the subs
bid, thereby increasing the bid, and increasing the cost to the Owner. 
Another  risk  associated  with  CCIP  is  determining  whether  insurance  credits  received  from
subcontractors are tabulated properly and that the total of these credits are the same as the contractors
charge for the CCIP program. HPM provided the following example of an overcharge: 
A subcontractor indicated that recently they had turned in a bid with insurance of
approximately $1,000,000. The insurance credit offered was $50,000, making the net
subcontract bid of $950,000. When the subcontract was issued to this subcontractor,
they were confused by the fact that the gross subcontract was $1,050,000 and the
CCIP credit was now $100,000. While the net subcontract amount was still the same
amount of $950,000, the changed items did not make sense to the subcontractor. It
appears as if the contractor is trying to justify a higher cost of insurance to bill the
owner. Assuming all things being equal, the contractor can make more money on the
CCIP program by increasing the apparent cost of the subcontractor insurance. 
Without inspecting the original subcontractor bids and subcontractor contracts, this sort of deception is
hard to detect. 





1 HPM Audit & Contract Services Newsletter, Contractor Controlled Insurance Program Cost, Volume 19, No.2, July 2006 
HPM Audit & Contract Services Newsletter, Some New CCIP Overcharges, Volume 21, No.1, March 2008 

1 2