INTERNAL AUDIT REPORT 



Operational Audit- Capital 
Central Terminal Infrastructure Upgrade Project 
(Bid and Design Phases) 
October 2014  November 2020 
Issue Date: November 24, 2020 
Report No. 2020-18

Central Terminal Infrastructure Upgrade Project 


TABLE OF CONTENTS 

Executive Summary ............................................................................................................................................... 3 
Background ............................................................................................................................................................ 5 
Audit Scope and Methodology .............................................................................................................................. 6 
Schedule of Findings and Recommendations ..................................................................................................... 7 
Appendix A: Risk Ratings ...................................................................................................................................... 9 












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Central Terminal Infrastructure Upgrade Project 
Executive Summary 
Internal Audit (IA) completed an audit of the Central Terminal Infrastructure Upgrade Project (Project)
for the period October 2014 through November 2020. The audit was performed to assess the quality
of the Port's monitoring of the Project to assure it was meeting project management standards in an
efficient and effective manner. 
The Project will be audited in two parts; this audit focused on the bidding and design phases while the
second audit will focus on the construction and closeout phases, which is scheduled to occur in the
1st quarter of 2021. 
The delivery method for this Project was a design-bid-build with a lump sum contract. The Port
entered into an agreement with HNTB Corporation (HNTB) on October 23, 2014 to furnish design
services for the Terminal Utility Upgrades Design of Airport Dining and Retail project. In 2016, the
Airport,  Dining  and  Retail  Infrastructure  Modifications  project  and  the  Central  Terminal  HVAC
Upgrade project were advertised, but due to incoming bids being higher than the engineer's estimate, 
both procurements were canceled in October 2016. As a result of these irregular bids, the project
management team combined the two construction projects into one larger project and estimated the 
combined Project to be $10.2 million. Osborne Construction Co. (Osborne) was awarded the contract
in the amount of $9.3 million. 
The contract required that the contractor substantially complete the work no later than 730 days
following the contract execution date, which would have been December 26, 2019. Based on the
October 2020 trend log, there have been an additional 278 approved days that have extended
substantial completion to September 29, 2020. As of the conclusion of this audit, the Contractor had
not completed the Project. Currently,   the Port's project team  stated that the Project will be
substantially completed at the end of November 2020. 
Through discussions with the Port's project staff, one of the main reasons that the project did not
meet critical milestones, and experienced cost overruns, was the lack of involvement from key
stakeholders during the review and approval of designs. Additional reasons that contributed to project
delays and cost overruns, included the lack of design review after merging the two original projects, 
and Port turnover in key departments involved with the Project. Management conducted a "lessons 
learned" assessment for the Project in 2019, in which they self-identified these issues. 
The construction contract total is currently $12.2 million, which includes approximately $2.7 million in
change orders (COs); a 29% increase in project costs. Although not all change orders could have
been prevented during the design phase, a stronger design and approval process could have
prevented some of them. Additionally, we have noted similar concerns in other audits of capital
projects. We identified the following opportunity where internal controls need to be enhanced or
developed. This opportunity is discussed in more detail beginning on page seven of this report. 
1.  (Medium) The lack of involvement, participation, and collaboration between the key stakeholders
during the review and approval of designs resulted in additional project costs and schedule
delays. 


Glenn Fernandes, CPA 
Director, Internal Audit 


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Central Terminal Infrastructure Upgrade Project 

Responsible Management Team 
Wayne Grotheer, Director, Aviation PMG 
Dawn Hunter, Director, Aviation Commercial Management 
Nora Huey, Director, Central Procurement Office 
Tina Soike, Chief Engineer and Director of Engineering Services 
Janice Zahn, Asst. Engineering Director - Construction 
















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Central Terminal Infrastructure Upgrade Project 
Background 
The purpose of the Project was to provide the shell space and associated vertical circulation for
expansion of, and improvements to, the airport dining and retail (ADR) space in the Central Terminal. 
The outcome was anticipated to improve customer service and increase non-aeronautical revenues.
A space demand analysis showed there was a need in the Central Terminal for an additional 12,000
square feet of ADR space to meet the anticipated 2025 passenger projections. This project will add
approximately 10,000 square feet of new ADR space to the Central Terminal. The Port entered into
an agreement with HNTB Corporation (HNTB) on October 23, 2014 to furnish design services for the
Terminal Utility Upgrades Design of Airport Dining and Retail project. 
In  2016,  the  Port  advertised  two  separate  projects  for  bids. The  first  project  was  the   ADR
Modifications Central Terminal Project  with an engineer's estimate of $3.4 million. The   ADR
Modifications Project received one bid of $7.5 million, which was 120% above the engineer's
estimate. The second project was the Central Terminal HVAC Upgrade Project with an engineer's
estimate of $2.9 million. This project also received one bid of $8.7 million, which was 194% above the
engineer's estimate. As a result of these irregular bids, the Port's Project Management Team
combined the two construction projects into one larger project, the Central Terminal Infrastructure
Upgrade Project, with an estimated project cost of $10.2 million. Osborne Construction Co. (Osborne)
was awarded the contract for $9.3 million. 
The Project has experienced multiple construction change orders. Some of these were driven by
business and customer service related decisions, but nonetheless, have resulted in schedule delays
and increases to the Project's budget. 
The following table details the current schedule and budget. 
Schedule (Per October 2020 Trend Log) 
Original Contract Completion Date                      12/26/2019 
Forecasted Contract Completion Date                  09/29/2020 
Budget (Per October 2020 Trend Log) 
Original Contract Sum                                  $9,309,641 
Executed COs and Potential Cost Risks                $2,969,591 
Projected Contract Sum to Date                       $12,279,232 
Original Contingency                                   $1,021,000 
Revised Contingency Total                            $3,021,000 
Remaining Contingency                                 $51,409 






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Central Terminal Infrastructure Upgrade Project 

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. 
The period audited was October  2014  through November  2020 and included the following
procedures: 
Bid-Law Compliance 
Obtained an understanding of Port staff's understanding and compliance with bid law 
regulations through inquiry with the Central Procurement Office's management and staff. 
Reviewed supporting documentation from bid packets, including: the public solicitation, bid
proposals, bid tally sheets, applicable state laws, and Port policies and procedures. 
Invoice Review Process 
Obtained an understanding of the Port project team's review and approval process of designer
invoices. 
Assessed whether the process was adequate to assure invoices were accurate, for allowable
purposes, and properly supported by reviewing supporting documents and performing testing
procedures. 
Project Management (Lessons Learned) 
Reviewed the "lessons learned" spreadsheet from the Lessons Learned Database. 
Obtained an understanding of issues encountered during the project through inquiry with
management. 
Reviewed supporting documentation, including email correspondence, invoices and service
directives. 







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Central Terminal Infrastructure Upgrade Project 
Schedule of Findings and Recommendations 
1) Rating: Medium 
The lack of involvement, participation, and collaboration between the key stakeholders during
the review and approval of designs resulted in additional project costs and schedule delays. 
We interviewed multiple departments that were identified as key stakeholders and sponsors for the
Project, including the Aviation Project Management Group, Construction Management, Aviation
Maintenance, Aviation Facilities and Infrastructure, ADR, HNTB, and the prime contractor (Osborne), 
to understand the history of the project including the planning, design, and issues encountered. 
Although the Port has a process in place which gives stakeholder and department sponsors an 
opportunity to review designs and provide feedback, we noted the following weaknesses in the
process that could potentially impede the success of a project: 
It is not mandatory for key stakeholders to provide feedback and approve key design milestones. 
Full approval of the designs early, may decrease the potential for scope changes after the design
is approved. 
An email with the designs is sent for review and feedback to stakeholders. For projects with major
operational and customer service impacts, stakeholder departments not regularly affiliated with
construction projects, may not have the technical expertise to understand engineering drawings.
The project management team has an opportunity to be more involved with these stakeholders to
assure they have a complete understanding of a project and its impacts. 
As a result of the weaknesses highlighted above, the project experienced multiple design changes 
which resulted in numerous error and omission change orders, scope changes, and schedule delays. 
In multiple instances, the Aviation Division Directors collectively made the decision for these changes. 
The following table details the total designer error change orders and owner error/omission change
orders: 
Justification Code Summary     No. of      Amount     Approved 
COs                  Contract
Extension 
Error/Omission Designer                79     $497,206              0 
Error/Omission Owner                 11    $1,236,310           123 
Total:        90    $1,733,516        123 days 
Source: SQL Server Reporting Services Production- Full Trend Log, October 7, 2020 
Additional reasons that contributed to the added cost were management and staff turnover in key
departments. Port management self-identified these issues by conducting a "lessons learned" review
in 2019. IA recognizes that errors and/or omissions do periodically occur during a project; however,
better involvement, participation and collaboration between key stakeholders, project sponsors, and
the designer during the pre-construction and design phases would have prevented some of these
change orders. 
Recommendations: 
Obtain approval from stakeholder departments for all critical milestones during the design phase 
(15%, 30%, 60%, 90%, and 100%) within a set deadline. It should be the responsibility of the
design reviewer/approver from the stakeholder departments to respond timely. Once each design 
milestone is approved, there should be no deviation from the approved designs, except in rare 
circumstances. 

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Central Terminal Infrastructure Upgrade Project 
Management Response/Action Plan: 
There are three key points from the Aviation Division in response to the audit findings. First, since this
project went through the bid and design phase there have been significant changes to project
processes that if in place at the time could have mitigated the cost increases. Second, two significant
changes to construction sequencing and project design were made as conscious business decisions
to meet customer service needs and to gain revenue which offset the cost of the changes. Finally,
additional process changes are under development to address the recommendation of mandatory
design review participation. 
The first relevant project process change made in 2020 is additional requirements during the project
definition phase. There are three main areas of focus that were added to our project definition
process in January 2020: 1) anticipated operational impacts or constraints, 2) temporary facilities or
systems, and 3) customer service or external communications. 
The second relevant project process change was in April 2020, when the Aviation Division adopted a
change management process for discretionary project scope changes from initial project approval
through construction. Project budget changes still require approval of the Aviation Investment
Committee and Port Commission and existing approval authority for construction change orders
under EX-2 are also unchanged. This new process is intended to put further scrutiny on changes
within the budget as well as those ultimately requiring further approvals due to the need for project
budget increases. Discretionary changes in project scope above $50,000 now require approval of a
Project Review Board (which consists of the Directors of Aviation Finance & Budget, Aviation
Facilities & Capital Programs, and Aviation Project Management); additional approvals are required
for changes above $500,000 (Aviation Chief Operating Officer) and above $1,000,000 (Aviation
Managing Director). 
For the central terminal infrastructure upgrade project, the significant changes made during
construction included delayed closure of the Anthony's restaurant and addition of HVAC utilities for
temporary hot food dining options in front of the construction barrier. These decisions were made by
the Aviation Division Directors in response to customer service and ADR tenant impact concerns,
recognizing that this would add construction cost. The added construction cost of those two changes
was $563,000 while the additional Port revenues resulting from these changes was over $1,100,000 
during the months of November 2018 through March 2020. 
Finally, Aviation Project Management is developing additional process changes to address the
recommendation  of  mandatory  design  review  participation.  Changes  include  designation  of
mandatory reviewers for each project beginning or already in design and development of
communications  expectations  for  non-technical  design  reviewers  (e.g.  Aviation  business
management), These changes will be complete in Q2 2021. 

DUE DATE: June 30, 2021 





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Central Terminal Infrastructure Upgrade Project 
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                                    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 
Partial              Potential for
Partial controls 
compliance with   external audit
Requires
Medium   Moderate                  Laws, Port       issues and / or
Not functioning                                           attention 
Policies             negative public
effectively 
Contracts          perception 
Functioning as
Low probability for
intended but     Mostly complies                       Does not
external audit
could be         with Laws, Port                       require
Low      Minimal                                    issues and/or
enhanced to     Policies,                            immediate
negative public
improve        Contracts                           attention 
perception 
efficiency 











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