INTERNAL AUDIT REPORT 
Operational- Capital Audit 
North Terminal Utilities Upgrade Project Phase 1 






June 2016  November 2021 
Issue Date: November 24, 2021 
Report No. 2021-20

North Terminal Utilities Upgrade Project- Phase 1 

TABLE OF CONTENTS 

Executive Summary ................................................................................................................................................. 3 
Background ............................................................................................................................................................. 4 
Audit Scope and Methodology ............................................................................................................................... 5 
Schedule of Findings and Recommendations ....................................................................................................... 6 
Appendix A: Risk Ratings ......................................................................................................................................... 8 














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North Terminal Utilities Upgrade Project- Phase 1 
Executive Summary 
Internal Audit (IA) completed an audit of the North Terminal Utilities Upgrade Project (NTUUP) Phase 1 
for the period June 2016 through November 2021. The audit was performed to assure the quality of the
Port's monitoring of the Project, to assure it was meeting project management standards, and to
determine if change orders (COs) were allowable, properly approved, and reasonable. 
We selected this project to audit based on the number of COs and the delay in schedule completion.
Our sample for testing included the largest dollar value change orders, ones that changed the scope of
the project, those that approved the extension of the contract, and those that were the result of errors
and omissions. 
The project was originally approved by Port Commission in June 2016 in the amount of $21.3 million. 
The project estimation process began in March of 2019, however, later in 2019, the project was split into
two phases. The final construction cost estimate, performed by C&N Consultants, Inc. (C&N), totaled
$10.6 million for phase 1 and $75,000 for the pet relief area. In February 2020, the Port received four
bids for the project. The lowest bidder, James W. Fowler Co. (Fowler), was awarded the contract in the
amount of $12,184,750. 
The project delivery method was a design-bid-build with a lumpsum contract. The final construction cost
total was $13.36 million, which included approximately $1.17 million in COs. The contract required that
Fowler substantially complete the work no later than 420 days following the contract execution date,
which would have been April 20, 2021. During the project, the Port approved 119 additional days, out of
which 89 days were excusable, but not compensable. This was due to the unforeseen effect of supply
chain issues caused by the COVID-19 pandemic and extended substantial completion to August 16,
2021. There is a likelihood that similar problems may be encountered in other projects because supply
chain issues are anticipated to be a problem in the near term. Port Legal is currently reviewing contract 
language to ensure it is adequate to address these possibilities. 
In general, Port management's monitoring is aligned with policies and procedures. However, our audit
identified an opportunity where internal controls could be enhanced or developed. This opportunity is 
listed below and discussed in more detail beginning on page six of this report. 
1.  (Medium) We noted instances where the Port's Standard Operating Procedures were not followed,
including contractor's submission of inadequate documentation in the justification of change orders,
and failure to complete an estimate when required. 


Glenn Fernandes, CPA 
Director, Internal Audit 


Responsible Management Team 
Wayne Grotheer, Director, Aviation PMG 
Nora Huey, Director, CPO 
Tina Soike, Chief Engineer and Director of Engineering Services 
Janice Zahn, Asst. Engineering Director- Construction 

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North Terminal Utilities Upgrade Project- Phase 1 
Background 
The purpose of the Project was to replace the existing 45-year-old undersized steam, condensate, and
chilled  water  supply, return  piping  from  the  Central  Mechanical  Plant, and  create  a  redundant
interconnected piping loop in two phases. The existing piping was undersized for current and future
heating, ventilation, and air conditioning (HVAC) loads. 
The Project was divided into two phases. Phase 1 provided new upsized piping from the Central
Mechanical Plant to points of connection for the Concourse D Annex and North Satellite. Phase 1 work
was critical as it was required for the planned 2021 opening of the newly renovated North Satellite, and 
Phase 2 will provide capacity improvements to support Concourse C and D and complete the
interconnected loop system making the system fully redundant. 
The project was originally approved by Port Commission in June 2016 in the amount of $21.3 million. In
March of 2019, the Port hired Notkin Mechanical Engineers (Notkin) to provide an estimate for the
NTUUP. Notkin sub-contracted the estimate work to C&N, who estimated the entire construction costs
to be about $22 million. In June of 2019, the Port proposed splitting the project into two phases and C&N
provided project estimate updates as follows: Phase 1: $15.2 million; Phase 2: $7.3 million; Pet Relief
Area: $100,000. The Port received an updated cost estimate in November 2019 which amended Phase
1 construction costs to $10.6 million and the Pet Relief Area costs to $75,000. 
The bid opening for the Phase 1 project was on February 04, 2020, and the Port received four bids. The
lowest bidder, Fowler, submitted a bid for $12,184,750, which was 4.5 percent over the Port's
construction estimate of $11,653,000. All other bidders exceed the estimate by at least 15 percent. The
procurement team determined that Fowler's bid was an accurate reflection of the construction market at
that time and awarded the contract. 
The Project experienced multiple construction COs. Some were due to maintaining the schedule for
achievement of Milestone 1, which was critical in ensuring that the North Satellite would open on time.
These COs resulted in schedule delays and increased Project costs. The project delivery method was
a design-bid-build with a lumpsum contract. The final construction contract total was $13.36 million,
which included approximately $1.17 million in COs. Substantial completion was achieved on August 16,
2021, and a temporary certificate of occupancy was issued. The physical completion date had not yet
been determined because Fowler still needed to complete the installation of the door at the Old Post
Office building. This was due to supply chain issues, and longer than normal lead times. As of the time
of this report, the estimated time for completion of the door work was January 2022. The following table
details the current schedule and budget. 

Schedule (Per October 29, 2021 Trend Log) 
Original Contract Completion Date                      04/20/2021 
Approved Time Extension (Calendar Days)                    119 
Revised Contract Completion                          08/16/2021 
Budget (Per October 29, 2021 Trend Log) 
Original Contract Sum                                 $12,184,750 
Executed COs                                     $1,174,158 
Projected Contract Sum to Date*                      $13,358,908 
Original Contingency *                                   $1,218,475 
Revised Contingency Total*                            $1,218,475 
Remaining Contingency                                  $3,003 
* Contingencies used are included in Project Contract Sum to Date. 

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North Terminal Utilities Upgrade Project- Phase 1 
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. 
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 statistical random sample. 
The period audited was June 2016 through November 2021 and included the following procedures: 
Project Cost Estimate and Bid 
Obtained an understanding of the Port's project cost estimate process by interviewing the Cost
Estimating Manager and obtaining the original cost estimates for the project. 
Discussed the estimate process with C&N Consultants, Inc. 
Obtained and reviewed bid documentation submitted to the Central Procurement Office. 
Gathered documentation and assessed the reasonableness of choosing the design-bid
lumpsum method over other delivery methods. 
Change Orders 
Obtained an understanding of the Port's CO review process. 
Verified approvals by required personnel (e.g., Port, Contractor, etc.). 
Confirmed approved change order amounts tied to the Change Order Log. 
Reviewed COs for reasonableness and allowability. 
Recalculated markups. 
Reviewed supporting documentation and change order/claim submissions, specifically
error/omission, scope changes, and COVID-19 change orders. 
Obtained additional supporting documents from Fowler and their subcontractors for CO 
overtime hours. 
Compared the overtime hours submitted by Fowler, to the daily force account field
documentation, and subcontractor certified payroll and paystubs. 
Obtained clarification and additional support for discrepancies noted in the CO for overtime. 
Critical Milestones 
Obtained an understanding of the Port's monitoring process. 
Obtained the substantial completion date and letters of forbearance. 
Tied out the dates of actual substantial completion to the expected dates. 
Assessed the reasonableness of excused/extended days approved through COs. 
Reviewed if the contractor is liable for liquidated damages. 





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North Terminal Utilities Upgrade Project- Phase 1 
Schedule of Findings and Recommendations 
1) Rating: Medium 

We noted instances where the Port's Standard Operating Procedures were not followed,
including contractor's submission of inadequate documentation in the justification of change
orders, and failure to complete an estimate when required. 
We selected seven COs for review, based on those that we considered to be highest risk. Examples
include designer error and omissions, owner error and omissions, large dollar amounts, and COs that
authorized additional days that extended the contract completion date. Our review covered $893,687
and 189 days of the approved contract extension days. 
In general, the internal controls over the change order management process were adequate. However,
opportunities to further strengthen these processes and controls were identified, such as including 
adequate documentation and support for the COs. We observed the following issues during our CO
review. 
CO number       Purpose                       Audit Observations 
CO 9       Relocation of existing  The contractor did not notify the Port when it was at 80% of
(Reconciling  electrical conduits      the Not to Exceed (NTE) amount approved in CO 9. 
CO 13) 
CO 33       Reroute underground  An estimate was not performed in accordance with Standard
chilled water            Operating Procedure (SOP) 40.01: Change Orders  Change
Management. 
CO 40       Premium to meet      1.  Inadequate detailed description to support the differences
Milestone 1                between contract and change order work, and reasons 
for delays on the contract work. 
2.  Shinn Mechanical - The daily force account field
documentation that was submitted as supporting
documentation was illegible. Internal Audit needed to
request new documentation. Furthermore, the finalized
copies did not include the required signatures (this also
was noted in CO 13). The field documentation reports 
combined weekends instead of listing each day
separately as required by SOP. 
3.  Performance Contracting Inc. (PCI) - The submitted daily
force account field documentation did not include all the
required signatures. 

These observations were contrary to established Port policies and procedures and best practices. We
also noted that some of the change orders were approved once the work was completed, which was
unique to this project, usually change orders are approved before the work begins as seen in other
projects. 
During testing of CO 40, discrepancies were identified between the subcontractor timesheets/paystubs
and the daily force account field documentation submitted to the Port for overtime hours. Overtime hours
billed that did not match pay stubs totaled $3,000. We also noted PCI reported to the Washington State
Labor and Industries (L&I) that no staff worked on this project during the time of the CO work. In addition,
Shinn did not report one employee's first three weeks of overtime hours (60 hours) to L&I. This is contrary
to State Law. 

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North Terminal Utilities Upgrade Project- Phase 1 
Recommendations: 
Management should strengthen the control over documentation, approval, and compliance with
SOPs. 
Although the Port is not responsible for the contractor, or their subcontractors, to submit accurate 
certified payroll reports to L&I, CPO should inform L&I about the inaccurate reports. 
Management Response/Action Plan: 
The Engineering Construction Management and Central Procurement Office  Construction Contracting
teams agree with the findings. 
Key areas of focus for Construction Management to address these issues will be on training and
oversight of staff less experienced with Port processes, both FTEs and Consultants. In addition to
referencing published SOPs, we will continue to reinforce our processes through regular meetings with
staff, with an expanded attendee list to include Consultants, to increase overall understanding of these
processes and best practices for enforcement of the contract and management of changes. 
We will continue to coordinate with our CPO Construction Contracting partners to strengthen controls
and ensure all required elements are in place before executing changes to the Contract. 

DUE DATE: December 31, 2021 












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North Terminal Utilities Upgrade Project- Phase 1 
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 
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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