Supplement

8. North Satellite Renovation and Expansion Project

Supplement

INTERNAL AUDIT REPORT
Operational Audit – Capital
North Satellite Renovation and Expansion Project

Source: Port of Seattle
June 2018 – May 2022
Issue Date: August 19, 2022
Report No. 2022-11

North Satellite Renovation and Expansion Project
TABLE OF CONTENTS

Executive Summary ................................................................................................................................................. 3
Background ............................................................................................................................................................. 4
Audit Scope and Methodology ............................................................................................................................... 5
Schedule of Findings and Recommendations ....................................................................................................... 6
Appendix A: Risk Ratings ....................................................................................................................................... 10
Appendix B: Overtime ........................................................................................................................................... 11
Appendix C: Safety ................................................................................................................................................ 13

North Satellite Renovation and Expansion Project
Executive Summary
Internal Audit (IA) completed an audit of the North Satellite Renovation and Expansion Project (NSAT)
for the period June 2018 through May 2022. The audit was performed to assure the quality of the Port
of Seattle’s (Port) monitoring of NSAT, to assess if it was meeting project management standards, and
to determine if change orders were allowable, properly approved, and reasonable.
The North Sea-Tac Airport Renovation Program (NorthSTAR) was a collaborative effort between the
Port and Alaska Air Group, Inc. (Alaska Airlines). NorthSTAR opened in July 2021, creating an
efficient “Curb to Gate” operation at the north end of the Seattle-Tacoma International Airport. The
NSAT Project is the largest segment of the NorthSTAR Program. The Port’s portion of NSAT totaled
$712 million. Alaska Airlines contributed an estimated $41 million. A General Contractor/Construction
Manager (GC/CM) approach was used to deliver the project. The Port selected Hensel Phelps as the
GC/CM for the construction portion with an initial construction contract of $458 million. During the
project, there was a net total of $30 million in change orders resulting in a total construction contract
cost of approximately $488 million. The Port also contracted with the firm, R.L. Townsend and
Associates, LLC, to perform independent construction cost control and cost verification consulting
services.
Although NorthSTAR was completed on time, a significant amount of overtime was incurred to mitigate
schedule delays, expedite the construction schedule, and meet construction milestones. Overtime
related Force Account Change Orders (CO) and Written Authorizations (WA) totaled approximately
$2.3 million. We identified numerous instances when contractors worked 12 – 16 hours and upwards
of 20 – 23 hours in a day. There were also instances in which contractors worked 24 – 25 days in a
row. Construction work is a physically demanding and dangerous job. Overtime can increase stress
and fatigue, while decreasing alertness and good judgement. Excessive overtime has dangerous
consequences. We reviewed the Project Safety Incident Reports for this project and found the use of
overtime did not result in a negative impact on safety.
In general, Port management’s monitoring aligned with policies and procedures. However, our audit
identified opportunities where internal controls could be enhanced or developed. These opportunities
are listed below and discussed in more detail, beginning on page six of this report.
1. (Medium) Overtime costs were not properly reviewed to assure payment accuracy and compliance
with both Port Standard Operating Procedures and Washington State Law. Lack of supporting
documentation and billing errors resulted in questioned costs of $79,118.
2. (Low) The Port does not have a policy limiting contractors from working extended hours and
consecutive days, causing an increased risk of negative impacts on safety and performance.

Glenn Fernandes, CPA
Director, Internal Audit

Responsible Management Team
Nora Huey, Director, Central Procurement Office
Tina Soike, Chief Engineer and Director, Engineering Services
Janice Zahn, Assistant Engineering Director, Construction
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North Satellite Renovation and Expansion Project
Background
Alaska Air Group, Inc. (Alaska Airlines) is the largest airline at the Seattle-Tacoma International Airport
and serves as Alaska Airlines primary hub. The North Sea-Tac Airport Renovation Program
(NorthSTAR) opened in July 2021 and was a collaborative effort between the Port of Seattle (Port) and
Alaska Airlines to improve traveler experience and customer service. The North Satellite Renovation
and Expansion Project (NSAT) is the largest segment of NorthSTAR Program. The NSAT component
addresses the expansion of the North Satellite from 12 to 20 contact gates, increasing the total airport
gate count by 10. Services and operability improvements include the first permanent nursing suite, first
premanent secure site pet relief, the first purpose-build airside loading dock and increases the Airport
Dining and Retail program by 10 stores. Modernization of the existing North Satellite facility includes
the North Satellite and Concourse C Satellite Transit Stations. NSAT also expands the baggage
system to accommodate the satellite expansion.
Funding sources for the project were a combination of the Airport Development Fund, revenue bonds
and Passenger Facility Charge revenues. The Port’s portion of NSAT totaled $712 million: Design
totaled $87 million and construction totaled $625 million. Alaska Airlines contributed an estimated $41
million to build a new lounge and employee spaces.
NorthSTAR was delivered through a General Contractor/Construction Manager (GC/CM) approach.
This approach used an architect engineer (AECOM) to produce the design and used a GC/CM
(Hensel Phelps) for construction. A GC/CM was procured through a multi-part selection process that
included consideration and evaluation of the GC/CM bidder qualifications and experience, together
with some cost elements. The GC/CM was selected early in design and assisted the Port in evaluating
the project during the design phase and then provided construction management services. Once the
drawings were complete, the GC/CM entered into a construction agreement and assumed the risk for
the construction means and method (i.e., the GC/CM became the general contractor and hired the
subcontractors directly).
Washington State Law (RCW 39.10.385) requires an independent audit of subcontractor costs, when
subcontractors are selected through an alternative means. R.L. Townsend & Associates, LLC
(Townsend) was engaged early by the Construction Management (CM) team to assist the Port and
contractors with establishing appropriate protocols and controls. Townsend performed the audit for
Hermanson (Mechanical Contractor/Construction Manager (MC/CM)) and VECA (Electrical
Contractor/Construction Manager (EC/CM)). Procedures performed by Townsend included reviewing
job cost accounting records; r eviewing subcontracts for alternates, allowances, and unit rates;
reviewing subcontractor Change Order supporting documentation for correct fees, labor rates,
potential duplicates, math errors, or any unusual items; and reviewing monthly MC/CM and EC/CM
pay application requests for accuracy, allowable expenses, and proper support. The results of the
audit are listed below:
Description Agreed to Credit Cost Avoidance Total
MC/CM Audit Items $ 355,837 $ 490,448 $ 846,285
EC/CM Audit Items 668,234 636,240 1,304,474
Total $ 1,024,071 $ 1,126,688 $ 2,150,759
NSAT construction continued during the COVID-19 pandemic. To increase COVID-19 precautions, the
Port compensated contractors for the purchase of health and safety supplies (such as face shields,
masks, and sanitizing sprayers), added additional portable restrooms and hand washing stations, and
increased the frequency of busses to and from the construction site. Additionally, the Port reimbursed
the costs of a full-time COVID Supervisor, and authorized subcontractors to charge the Port an
additional 20 minutes per person per day for cleaning their tools and work area. COVID-19 related
expenses totaled approximately $4.5 million.

North Satellite Renovation and Expansion 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.
In some cases, 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
based random sample.
The period audited was June 2018 through May 2022 and included the following procedures:
Change Orders
• Obtained an understanding of the Port's change order review process, including creation,
negotiation, and approval.
• Verified approvals were obtained by required personnel.
• Confirmed that approved change order amounts tied to the Change Order Log.
• Reviewed for reasonableness and compliance with contract requirements.
• Reviewed supporting documentation and claim submissions, specifically errors/omissions,
scope changes, overtime, and COVID-19 expenses.
Project Close-Out
• Reviewed close-out Standard Operating Procedures and contractual requirements.
• Reviewed Townsend’s audit report, discussed the engagement scope, and identified areas of
risk for our audit.
• Obtained a copy of the Certificate of Occupancy status and checklist.
• Confirmed the final punch-list items had been completed.
• Reviewed training documents and maintenance logs to assure training had been provided and
the Port had maintenance documents.
• Verified substantial completion has been issued for Phase I and Phase II, and physical
completion was issued.
Prior Audit Recommendation Follow-Up
• Reviewed the prior recommendation and supporting documentation to determine the
recommendation was addressed.

North Satellite Renovation and Expansion Project
Schedule of Findings and Recommendations
1) Rating: Medium
Overtime costs were not properly reviewed to assure payment accuracy and compliance with
both Port Standard Operating Procedures and Washington State Law. Lack of supporting
documentation and billing errors resulted in questioned costs of $79,118.
Force Account Change Orders and Written Authorizations total more than $2.3 million. Overtime was
incurred to help mitigate and reduce schedule delays because of project changes requested by the
Port. Standard Operating Procedure 40.04 defines Force Accounting as a process that ensures an
organized, identifiable, verifiable, and accountable method of compensating the contractor for costs
and expenses, including labor, material and equipment expended by the contractor and tracked on a
daily basis. Overtime was performed by multiple subcontractors on a frequent, reoccurring basis from
2018 through 2020. Contractors regularly worked more than 12 to 16 hours a day. We also noted
instances in which contractors worked upwards of 20 to 23 hours a day and over 88 hours in a sevenday
period. We were not always able to confirm contractors were on-site for these extended work
shifts because the Port does not require contractors to have a daily attendance log, sign-in sheet, or
other means to document when contractors were working, however, we did confirm that the Port paid
for these hours in the pay applications. See Appendix B for additional information.
Hensel Phelps was contracted as the project’s GC/CM to perform monitoring and oversight functions,
including overtime hours and invoice review. The Port’s Standard Operating Procedure 40.04 requires
overtime performed through Force Account to be both pre-approved and post-approved. Overtime preapprovals
are required to be maintained as change order supporting documentation. The change
order documentation we reviewed did not contain any pre-approvals. The customized Force Account
sheets used on this project included initial and signature lines for post-approval of overtime. Our
testing showed instances in which required initials and signatures were missing from the Force
Account sheets, and therefore, the overtime should not have been approved for payment. We
confirmed payment was still made for overtime hours that were missing required pre-approvals and
post-approvals. It is the GC/CM’s responsibility to assure accurate billings through adequate
monitoring and oversight.
The Port has a responsibility to assure accuracy of final costs and compliance with overtime
requirements. In addition to the Standard Operating Procedure requirements, Washington State Law
(RCW 43.09.200) requires all transactions to be supported through receipts, vouchers or other
documentation. We found several areas of non-compliance, billing errors and lack of supporting
documentation that were not identified by the Port’s review process, totaling $79,118 in questioned
costs. The Port has an opportunity to enhance the review process to ensure compliance with overtime
requirements and payment accuracy.
Recommendations:
• Enhance the review process to assure compliance with Force Account overtime requirements
and payment accuracy. Also, hold the GC/CM accountable for adequate oversight and correct
billings.
• Implement a policy that requires contractors on Port projects to maintain a way to track on site
personnel to prevent fraud, waste or abuse as it relates to time theft. Examples may include
badge swiping at arrival and departure from the job site or sign in and out sheets.
• Construction Management should seek and recover any amount due to the Port from
overbillings and unsupported costs.

North Satellite Renovation and Expansion Project
Management Response/Action Plan:
Response #1 – Force Account Requirements
Port Engineering – Construction Management, Central Procurement Office (CPO), Project
Management, and Legal will meet to consider modifications to the Force Account process in future
contracts.
Response #2 – Policy to track contractor personnel on site
Port Engineering – Construction Management, Central Procurement Office (CPO), Project
Management, and Legal will meet to consider adding a requirement for Contractors to track all
personnel on site in future contracts.
Response #3 – Recover any Overbilling
In coordination with Hensel Phelps, Port Engineering – Construction Management will ensure
validation of actual costs incurred by the contractor. The items identified by Internal Audit shall be
addressed as part of the validation process and we will deduct any amounts overpaid.

DUE DATE: 12/31/2022

North Satellite Renovation and Expansion Project
2) Rating: Low
The Port does not have a policy limiting contractors from working extended hours and
consecutive days, causing an increased risk of negative impacts on safety and performance.
NSAT incurred a significant amount of overtime, which allowed contractors to work an excessive
number of hours in a day and in an overall week. Overtime and the number of hours contractors work
each day is not tracked and monitored by the Construction Management team, and therefore, Port
personnel are not aware of how many hours contractors are working. Construction work is a physically
demanding and dangerous job. Overtime can increase stress and fatigue, while decreasing alertness
and good judgment. We reviewed the Project Safety Incident Reports for this project and found the
use of overtime did not result in a negative impact on safety. Although there were no negative safety
impacts, the Port can take steps to increase worksite safety by limiting the number of hours
contractors may work. See Appendix C for additional information.
Internal Audit requested a copy of Hensel Phelps (HP) sa fety policy, specifically for contractors
working extended hours on the project. We also asked HP if there is a policy limiting the number of
hours a contractor can work in a day and additionally, the number of consecutive days in a row that a
contractor can work. HP does not have a policy to limit the number of hours or consecutive days
contractors can work on a project.
Long work hours can have negative impacts on both safety and performance, causing an increased
risk of accidents and decreased productivity at worksites. According to the Construction Executive
article Overworked Employees Don’t Add Up, written by Jonathon Kessler on February 10, 2020,
“Many tests conducted over the years have found that increased productivity does not have a direct
correlation with increased number of hours worked. Quite simply, well-rested employees are more
productive. With increased overtime comes a diminishing return in quality and safety, both to the
laborer and to their coworkers. This affects not only project timing, but also the possibility of decreased
profits on a project. There also may be an unintended consequence of diminishing the reputation of a
company.” In addition, Kessler states “Overworked, tired or fatigued employees are not only prone to
bad judgment, burnout and stress, but they are also more likely to take unnecessary shortcuts to
circumvent tasks that may be too strenuous as the week goes on. With construction already known for
being one of the most dangerous, if not the most dangerous occupation; OSHA has reported that the
industry accounts for nearly 20% of all private-industry worker fatalities.”
The National Institute for Occupational Safety and Health (NIOSH) published a report in April 2004
titled, Overtime and Extended Work Shifts: Recent Findings on Illnesses, Injuries, and Health
Behaviors. The report states, “In 16 of 22 studies addressing general health effects, overtime was
associated with poorer perceived general health, increased injury rates, more illnesses, or increased
mortality.” Additionally, “A pattern of deteriorating performance on psychophysiological tests as well as
injuries while working long hours was observed across study findings, particularly with very long shifts
and when 12-hour shifts combined with more than 40 hours of work a week. Four studies that focused
on effects during extended shifts reported that the 9th to 12th hours of work were associated with
feelings of decreased alertness and increased fatigue, lower cognitive function, declines in vigilance
on task measures, and increased injuries.”
Occupational Health and Safety Administration (OSHA) does not limit the number of hours an
employee can work per day or per week. The Fair Labor Standards Act (FLSA) only limits the number
of non-overtime hours to 40 per week. However, the Port should have policies in place to limit the
number of hours in a day and hours a week a contractor can work, to assure safety at the worksite.

North Satellite Renovation and Expansion Project
Recommendations:
• Review the Port’s safety policies to determine if there should be a limit on the number of hours
a contractor can work in a day and the number of consecutive days a contractor can work at
the Port.
Management Response/Action Plan:
Port Engineering - Construction Management, Engineering - Construction Safety, Engineering -
Construction Labor, Risk Management, Legal, and Project Management will meet to consider adding a
limit to hours/days worked for contractor personnel to future contracts.

DUE DATE: 12/31/2022

North Satellite Renovation and Expansion 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
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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North Satellite Renovation and Expansion Project
Appendix B: Overtime
Overtime was a common occurrence to assure milestones and deadlines were met. We noted
numerous instances in which contractors were working upwards of 12 plus hours in a day; some
instances in which contractors were working 20 to 23 hours in a day. For tasks that take longer than a
standard work shift to complete, an alternative to overtime would be scheduling two shifts at straight
time, which would increase safety and reduce overtime costs. In addition, we found multiple instances
on Written Authorizations (WA) 257 and 351 when contractors did not work 40 hours on this project,
but billed overtime to this project on Fridays and Saturdays (see table below). Although this complies
with labor agreements, this could be a reason that overtime was incurred.
Contractor Description
Performance Abatement Services WA 257: 60 instances of 75 contractors over an 18-week period.
WA 351: 26 instances of 58 contractors over a 29-week period.
Northwest Partitions WA 257: 60 instances of 21 contractors over a four-week period.
Pre-Approval
For the NorthSTAR project, the customized Daily Force Account Field Documentation Form Notes
requires:
“All overtime or double time work must be pre-approved by the Port of Seattle and
performed at the project indicated at the top of this form, as noted in specification section 00
70 00.G-08.05.1.D. Attach authorization with Force Account documentation.”
Additionally, change order documents may state overtime requirements. For example, Change Order
721 requires:
“Weekly notification to the Resident Engineer (RE) of the projected overtime (OT) activities
and how the planned OT activities are associated with the impactful Construction Bulletins
(CB-s) and Request for Information (RFI-s) is required.”
None of the overtime change orders we reviewed included pre-approval authorizations with the Force
Account documentation, as required. We asked the NorthSTAR Construction Management (CM) team
how overtime was monitored by the Port personnel and they stated the overtime approvals occurred
as a phone call or e-mail conversation between Hensel Phelps and the CM team. We were unable to
obtain documentation to support pre-approvals for overtime incurred on this project.
Post-Approval
Overtime Not-To-Exceed Change Orders require daily Force Account sheets to be completed by the
subcontractor. The customized Daily Force Account Field Documentation Form Notes used on this
project requires:
“Owner Rep., Contractor, and GC must initial page 1 of 2, and sign, date, and print on page
2 of 2 in order to be considered a complete Daily Force Account Documentation.”
We reviewed approval initials and signatures for two change orders. We found multiple instances in
which the Force Accounts lacked the required approvals. Force Account invoices should not have
been paid without the required approvals.
Change Order 721 Approval Present Approval Missing
Owner Rep Initials 86 71
Subcontractor Initials 144 13
GC Initials 82 75
Owner Rep Signature 88 69
Contractor Signature 154 3
Total 554 231

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North Satellite Renovation and Expansion Project
Change Order 1096 Approval Present Approval Missing
Owner Rep Initials 131 22
Subcontractor Initials 149 4
GC Initials 101 52
Owner Rep Signature 132 21
Contractor Signature 145 8
Total 658 107
Review Process
Washington State Law (RCW 43.09.200) requires:
Local government accounting – Uniform system of accounting: “The accounts shall show the
receipt, use, and disposition of all public property, and the income, if any, derived there
from; all sources of public income, and the amounts due and received from each source; all
receipts, vouchers, and other documents kept, or required to be kept, necessary to isolate
and prove the validity of every transaction; all statements and reports made or required to
be made, for the internal administration of the office to which they pertain; and all reports
published or required to be published, for the information of the people regarding any and all
details of the financial administration of public affairs.”
Standard Operating Procedure 40.04 Procedures - Sub Section K: Number 3 states:
“When the full scope of each Force Account (FA) allowance is completed, the FA
documentation is to be included in the Reconciliation CO file.”
Furthermore, the Oversight/Administrative Controls section requires:
“All information should be scanned into the System of Record as part of the Reconciling
Change Order (304.05) file.”
We identified instances in which supporting documentation was inaccurate or not present:
Record Contractor Description Questioned
Costs
WA 257 and Performance Supporting documentation was not located in the change order $ 38,077
WA 351 Abatement records, pay application file (PA 86) nor provided after multiple
Service (PAS) requests.
WA 351 PAS Certified Payroll reports did not match hours reported on the Daily 19,889
Force Account Field Documentation.
WA 257 and NW Partitions Certified Payroll reports did not match hours reported on the Daily 1,848
WA 351 Force Account Field Documentation.
CO 1096 MidMountain Contractors inaccurately billed overtime hours instead of straight time 12,081
Contractor’s, hours.
Inc. Overtime paid for contractors that were not found on payroll records.
Invoice was missing for a materials charge.
Full invoice for 30 workers was paid, although the Inspector wrote on
the invoice that there were only 23 workers.
Full invoice for 26 workers was paid, although the Inspector wrote on
the invoice that there were only 13 workers.
Full invoice for 26 workers was paid, although the Inspector wrote on
the invoice that there were only 17 workers.
CO 721 MidMountain No supporting documentation was found in the change order records. 7,223
Contractor’s, We located records in seven pay applications, but documentation
Inc. for a portion of the change order could not be located.
Overtime for contractors was not found on payroll records.
Overtime on billings did not match payroll records.
Total $ 79,118
Note: Questioned costs include all applicable GC/CM and subcontractor markups.

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North Satellite Renovation and Expansion Project
Appendix C: Safety
Extended Work Shifts
There were 1,657 instances in which MidMountain Contractors worked 12 or more hours in a day on
the project. Our review showed some contractors worked upwards of 20 to 23 hours in one day.
Internal Audit reviewed the Project Safety Incident Reports for this project and found the use of
overtime did not result in a negative impact on safety.
Hours Worked in a Day Number of Instances
12 780
13 274
14 224
15 157
16 76
17 83
18 36
19 11
20 - 23 16

Consecutive Days
Our testing showed MidMountain Contractors worked upwards of 25 days in a row, with an average
total of 10 to 11 hours each day.
Contractor Consecutive Days Hours Daily Average (Hours)
1 25 257 10
2 24 261 11
3 24 250 10
4 24 249 10
5 24 247 10
6 17 166 10
7 16 159 10
8 15 155 10
9 12 128 11
10 12 102 9
11 11 108 10
12 10 109 11
13 9 100 11
14 9 97 11
15 9 96 11
16 8 92 12
17 8 88 11

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