BOARD OF COUNTY COMMISSIONERS

PUBLIC WORKS

CONTRACT AUDIT

BECKETT BRIDGE REPAIRS

REPORT NO. 98-20

DATED: December 17, 1998

The Clerk of the Circuit Court

Pinellas County, Florida

The Internal Audit Division has conducted a review of the Beckett Bridge Project.

PURPOSE

The purpose of this audit was to 1) determine whether payments made in connection with the Beckett Bridge Project were appropriate, 2) evaluate internal controls as they relate to the Beckett Bridge Project, 3) verify compliance with Public Works, Construction Division, policies and procedures.

SCOPE

We reviewed the Beckett Bridge Project contract and related contract documents. We flowcharted the contractor payment process and the change order process. We evaluated internal controls related to the Beckett Bridge Project contract. We verified that the payments associated with this project were properly calculated. We performed such other audit procedures as we considered necessary in the circumstances. Our audit period covered the time period between April 2, 1996 through February 27, 1998.

BACKGROUND

Public Works develops and implements the expansion and improvement of the County's infrastructure in accordance with the six year Capital Improvement Program (CIP). The first year of the program is the basis for actual appropriations authorized by the Board of County Commissioners (Board) for capital projects when adopting the annual budget.

Beckett Bridge was originally a wooden bridge with a concrete pier to support the steel section of the drawbridge when it was built in 1921. This wooden bridge was replaced with a concrete one in 1954. The 75 year old bridge started shifting and sinking. We contracted with DSA Group, Inc. to be the Engineer for the repairs. DSA Group, Inc. designed the repairs and provided the original project cost. On April 2, 1996 Public Works entered into a contract with the Inter-Bay Marine Construction Company to initiate repairs to maintain the integrity of the structure. This work involved the replacement of the bulkheads, new pilings for crutch bents and a control platform. A summary of the contract costs are shown below.

Beckett Bridge Repair Date Amount Cumulative Project Cost
Original Projected Cost $787,600.00
Invitation To Bid Price December 22, 1995 $903,933.00
Original Contract Amount April 2, 1996 $1,287,144.14 $1,287,144.14
Change Order #1 February 25, 1997 $525,673.58 $1,812,817.72
Change Order #2 November 18, 1997 $127,442.85 $1,940,260.57
Change Order #3 May 5, 1998 $74,986.90 $2,015,247.47

INTRODUCTION

The results of our review are shown below. They begin with an overall evaluation, followed by a detailed discussion of the findings and recommendations with management's responses.

OVERALL EVALUATION

The Internal Audit Division conducted a review of the Beckett Bridge repair project. We concluded that policies and procedures used to guide the activities did not provide adequate control. We found that noncompliance with existing policies and procedures affected internal controls to where we could not determine that all payments were appropriate. Our review disclosed certain matters which should be addressed to improve internal controls.

FINDINGS, RECOMMENDATIONS AND RESPONSES

FINDING 1 - The Daily Diary (diary) did not provide an accurate record of work

performed or materials received.

The Public Work's Manual of Instructions for Engineering Inspectors requires that the diary contain "A record of work performed, specifically index (SIC) by the item number, shall be maintained on a daily basis. A record of tests taken and information as to specific location will be made. A record of materials received, work performed by utilities and any information relating to instructions given or received shall be maintained." The contract required that "The Contractor will submit a copy of all delivery tickets for materials used on the project regardless of the basis of payment."

Six line item numbers were randomly selected from the Monthly Progress Reports. An attempt was made to reconcile those items from the Monthly Progress Reports to the diary. None of the items selected could be reconciled to the diary.

Line Item No. Description Amount per Daily Diary Amount per Monthly Progress Reports
455-133 Sheet Piling Steel $31,926.30 $34,266.24
455-8-5 Piling Driven $588.80 $1,288.00
460-2-1 Structural Steel (Carbon) $6,300.00 $24,811.83
460-2-5 Structural Steel

(Bascule Leaves)

$0.00 $152,260.00
508-73-1 Submarine Cable Assembly $0.00 $54,251.25
561-1 Paint Structural Steel $10,361.50 $67,045.00

We also randomly selected five receipts from a file of delivery receipts to reconcile to the diary. Three of the five receipts were not recorded in the diary as being delivered.

Invoice Date Name of Company Amount Per Invoice Delivery Referenced In Diary Yes/No
June 18, 1996 Jeffreys Steel Co. Inc. $6,360.00 Yes
Oct. 22, 1996 RJM Engineering & Services $20,800.00 No
Nov. 12, 1996 Quality Electric $44,832.51 No
Nov. 25, 1996 Circuit Services Corporation $17,990.00 Yes
Jan. 22, 1997 Quality Electric $18,597.32 No

In addition, we decided to test material receipts for concrete since it relates to several item numbers. We examined all the receipts filed for the project. We did not find any delivery tickets for concrete.

Request for Payment Date Line Item No. Description of Concrete Related Items Amount Per Request For Payment Cumulative

Amount

Aug. 22, 1996 400-2-6 Counterweight $41,400.00 $41,400.00
Sept. 22, 1996 400-2-6 Counterweight $34,500.00 $75,900.00
Oct. 22, 1996 400-2-6 Counterweight $28,980.00 $104,880.00
Nov. 22, 1996 400-2-6 Counterweight $17,871.00 $122,751.00
Jan. 22, 1997 400-2-6 Counterweight $111,062.40 $233,813.40
Feb. 27, 1997 400-2-6 Counterweight ($88,913.40) $144,900.00
Mar. 27, 1997 400-2-6 Counterweight ($1,090.20) $143,809.80
Aug. 22, 1996 400-4-4 Superstructure $17,250.00 $17,250.00
Oct. 22, 1996 400-4-4 Superstructure $6,900.00 $24,150.00
Nov. 22, 1996 400-4-4 Superstructure $39,606.00 $63,756.00
Dec. 22, 1996 400-4-4 Superstructure $16,042.50 $79,798.50
Jan. 22, 1997 400-4-4 Superstructure $17,591.55 $97,390.05
Feb. 27, 1997 400-4-4 Superstructure ($65,877.75) $31,512.30
Mar. 27, 1997 400-4-4 Superstructure $13,572.30 $45,084.60

The manual does not require periodic reviews of the Inspector's records or diary by the Senior Engineer.

RECOMMENDATION - The diary should contain a reliable record of work performed and materials received. All delivery receipts should be available for inspection in the project file. The diary and project records (including test data) should be reviewed for completeness and accuracy on a periodic basis by the Senior Engineer.

RESPONSE - Management agrees that all pertinent project records should be reviewed by a supervisor.

FINDING 2 - Monthly Progress Reports were not processed properly.

The contract required the Inspector to prepare monthly estimates (Monthly Progress Reports). The Contractor's project representative was to review these reports with the Inspector and sign them in agreement. The Monthly Progress Report information was then used to prepare the Request for Payment. The Request for Payment was then forwarded to the Finance Division where it was utilized as documentation to authorize payment to the Contractor.

The Monthly Progress Report dated December 11, 1997 did not contain the Inspector's or Contractor's signatures.

Three of four Monthly Progress Reports reviewed were modified by Public Works after they were signed and submitted by the Inspector and the Contractor. The signatories did not endorse the changes.

RECOMMENDATION - Monthly Progress Reports should not be processed without the appropriate signatures or changes properly endorsed.

RESPONSE - The Monthly Progress Reports are estimates of work accomplished and used as a basis to prepare a Monthly Request for Payment. The Request for Payment is always reviewed and signed by the Contractor and minor discrepancies from the Progress Report are discussed if necessary; however, management agrees that any changes to the Progress Report should be noted and endorsed.

FINDING 3 - Public Works' policies and procedures do not adequately address payments to contractors.

The Public Works' Manual of Instructions for Engineering Inspectors has a section on ESTIMATES that states "For monthly and final estimates, field notes of accepted work will be used for quantities. The Inspector's records and diaries shall show the limits of work done each day." Changes in work approved by management may be performed by the contractor for which a change order has not been executed. Public Works has no written policies or procedures that provide guidance regarding completed work items that are related to pending change orders.

The Engineering Inspector prepares the Monthly Progress Report using quantities of work recorded in the Daily Diary. The Engineering Technician produces the Request for Payment from the Monthly Progress Report. There are no written policies or procedures for the preparation or verification of these reports.

The Construction Division Chief certifies that the Request for Payment is in accordance with the terms of the contract. The Director of Public Works authorizes paying the Request for Payment. We could not locate any written policies that identified the review procedures to be executed by either the Construction Division Chief or the Director of Public Works prior to their signing the Request for Payment.

FINDING 4 - The duties in the contractor payment process are not sufficiently segregated.

The Inspector's primary duty is to see that construction is performed in accordance with the contract, plans and specifications. The Inspector functions as the County liaison to the Contractor. The Inspector maintains the diary for each project under their supervision. The diary chronicles the work performed and materials received on the job site. The Inspector prepares both the Weekly and Monthly Progress Reports.

The Contractor's project representative reviews the Monthly Progress Report. Both the Contractor and the Inspector sign the Monthly Progress Report indicating agreement. There was no independent verification of the Monthly Progress Report. The Engineering Technician produces the Request for Payment from information on the Monthly Progress Report. An accounting clerk verifies that there are sufficient Board authorized funds for the payment. There was no independent verification of the Request for Payment calculation information.

RECOMMENDATION - Management should implement procedures to verify the Monthly Progress Report and Request For Payment information.

RESPONSE - Procedures have been modified to have the inspector's supervisor verify monthly estimates.

FINDING 5 - Changes in work were not always documented in writing.

The contract section CHANGES IN THE WORK required that changes in work always be by written order. It further stated that "No officer, employee, or agent of the County is authorized to direct any extra or change work orally." "The Engineer shall have the authority to order minor changes in the work not involving an adjustment to the Contract amount or an extension to the contract time and not inconsistent with the intent of the Contract Documents. Such changes may be effected by Field Order or by other written order."

Public Works does not have a policy specifying those individuals that have authority to write orders directing changes in the contractor's work. We searched the project's correspondence file for written orders from the County directing changes in the work related to Change Order #1. We found one written order from the Construction Division Chief authorizing an additional $129,840 in work and a 90 day extension.

In this project considerable changes in the scope of the work were required as a result of unforeseen geological conditions. This situation caused significant delays and increased the cost of the project substantially. We understand that the potential liability of the Engineer was discussed with the County Attorney. The project correspondence file does not contain any records documenting discussions with the County Attorney. We could not find any written record of the County Administrator or the Director of Public Works being notified or approving the change in work. The file does not contain a record of management's discussions related to the continuation of work on the project.

FINDING 6 - Payments to the Contractor were authorized by mislabeling work on the Request for Payments.

The Beckett Bridge Repair contract contained a section called the Schedule of Prices. This schedule identified work by item number, price and quantity. The contract provides that "In no case shall any extra work be paid for that has not been authorized in advance by written Change Order signed by the Pinellas County Board of County Commissioners, except in an emergency endangering life or property, or as expressly set forth herein." To obtain payment to the Contractor for work performed without a change order, the Inspector increased quantities of existing line items on the Monthly Progress Reports.

The Monthly Progress Report quantity information was transferred to the Request for Payment. The quantities were multiplied by the price of each item on the Schedule of Prices to calculate the Request for Payment amounts. The Construction Division Chief and the Contractor certified that the information contained within the Request for Payment was in accordance with the terms of the contract. The Director of Public Works approved the Request for Payment and forwarded it to the Finance Division in order to procure payment to the Contractor. The Finance Division pre-audits the Request for Payment to ensure that line items were authorized in the Schedule of Prices or in a Change Order.

Immediately after Change Order #1 was approved by the Board, the next Monthly Progress Report contained reductions in existing line item quantities and the newly authorized change order line items were charged.

RECOMMENDATION - Management needs to verify that work is accurately identified under a line item. The Contractor should not be paid for work items that have not been properly authorized by a Board approved written Change Order.

RESPONSE - Management agrees that the procedures utilized were confusing. The procedure utilized on this project was based on the premise that our contracts are considered lump sum with payment draws based on a schedule of values. To avoid future confusion, work items are now added to the schedule of values, if necessary, should a work unit required by the project scope not be covered by the schedule of values.

FINDING 7 - Change Orders were not submitted to the Board for approval in a timely manner.

The contract requires that "In no case shall any extra work be paid for that has not been authorized in advance by written Change Order signed by the Pinellas County Board of County Commissioners...." A change order results from a change in the work that comes from additional quantities or from extra work proposed by the contractor. We selected Change Order #1 for review. Change Order #1 consisted of several major changes in work. A summary is shown below.

Contractor

Proposal

Date

Description Additional Days Amount
6/21/96 Grind Expansion Joints 0 $7,840
Additional Pilings 0 $198,466
9/27/96 Steel Brackets Bent #8 14 $22,174
10/10/96 Bascule Pier Repairs 90 $129,840
10/14/96 Coring 0 $625
11/08/96 Bascule Leaf Repairs 0 $36,982
11/15/96 Bascule Tip Repairs 21 $57,044
12/16/96 Jack Bent #7& Bent #8 21 $28,776

Additional Misc. Work 0 $43,926

TOTAL 146 $525,674

While reviewing the Bascule Pier Repairs, we noted that the contractor's proposal was dated October 10, 1996. The Engineer's evaluation of the proposal was faxed to Public Works on October 29, 1996. On October 30, 1996, a letter from the Construction Division Chief, sent to the Contractor, authorized an additional $129,840 of work and added 90 days to the completion date.

The original contract Completion Date contained within the Beckett Bridge Repair contract was November 17, 1996.

Change Order #1 authorized an additional $525,674 and a time extension of 146 days. This Change Order was approved by the Board on February 25, 1997. A change order approved 3 months after the completion date of the contract is not timely. Management should identify guidelines for timely submittal of change orders.

RECOMMENDATION - Change Orders should be submitted to the Board for approval in a timely manner.

RESPONSE - Management agrees, allowing appropriate time for negotiations, and contract review.

FINDING 8 - Change Orders should disclose all material information.

The contract provides for the County to direct changes in the work by written order. This allows the construction work to continue when there is not sufficient time to have the Board approve a change order. The contract stipulates that extra work shall not be paid for prior to receiving authorization in the form of a written Change Order signed by the Pinellas Board of County Commissioners, except in the case of an emergency. A memorandum accompanies the Change Order explaining the reasons for the change.

The County Administrator attached a memo to Change Order #1 when it was presented to the Board as an agenda item. This memo provided background information. The memo provided an adequate explanation of the reasons for the work, but didn't report the status of the work. This change order included work that had already been completed, work in progress that the County had authorized by written order, and work that the contractor proposed to accomplish. The status of the work in the change order is material and necessary for the Board to make appropriate decisions on change orders and should have been clearly disclosed.

RECOMMENDATION - Management needs to disclose all material information to the Board in their request for a change order. The Board should receive a written explanation describing the circumstances surrounding the need for, the execution or authorization of additional work.

RESPONSE - It is management's opinion that the documentation presented for Board decision making, discloses all relevant information.

INTERNAL AUDIT REPLY: Change orders should clearly disclose work that has already been completed. The Board should know when they are only authorizing payment to the contractor for work already approved by management.

FINDING 9 - The Contractor did not provide the Department of Public Works a copy of their notification to their Surety of the Change Orders.

In the Beckett Bridge Repairs contract, in Section 5, "Contract Security," it requires the Contractors to provide a Performance Bond and a Payment Bond in the amount of 100% of the contract amount, the costs of which are to be paid by the Contractor.

In the Beckett Bridge Repairs contract, in Section 10, "Changes in the Work," it requires the Contractor to notify the Surety of Change Orders and to provide the Engineer (County Employee) with a copy of said notification.

The Engineer did not receive a copy of the Contractor's notification to the Surety of Change Order No. 1 or 2, associated with the Beckett Bridge Repair contract.

RECOMMENDATION - The Department of Public Works should monitor the receipt of notification to the Surety, from the Contractor, of changes in work.

RESPONSE - This is a contractor responsibility; however, recent changes to procedures have been put in place to assure compliance.

FINDING 10 - The Contractor did not record the payment bond in the public records before commencing work.

Florida Statutes 255.05 requires that any person entering into a formal contract with the county shall be required, before commencing the work, to record a payment bond in the public records of the county where the improvement is located.

A search of the Pinellas County official records was conducted. The payment bond was not recorded.

RECOMMENDATION - The Department of Public Works should monitor whether a Contractor recorded a Payment Bond before providing a Notice to Proceed.

RESPONSE - This is a contractor responsibility; however, again, recent changes to procedures have been put in place to assure compliance.

Audit performed by:

Audit supervised by: