CUB Troubled by City Auditor’s Findings on BES Building Cost Overruns

What follows is the Citizens’ Utility Board of Oregon’s Statement on B.E.S. Columbia Building: scope additions and ineffective design oversight led to substantially higher project costs.

The Citizens’ Utility Board of Oregon (CUB) is deeply troubled by the analysis of the City Auditor concerning the Columbia Building cost overruns and the need for investigation of possible ethical lapses in Bureau of Environmental Services (BES) design contract management.

CUB has already been a leading advocate on the Utility Oversight Blue Ribbon Commission for clear authority for a new oversight group to review both capital improvement project planning and adjustments to project costs. The Auditor’s report reinforces that the Utility Oversight Commission needs to make this a priority recommendation. CUB advocacy will then turn to the City Council that must enact this and other recommendations from the Utility Oversight Commission.

Six points are of particular concern to CUB:

1. BES did not follow its own project management guidelines and gave the Capital Improvement Program manager the task of supervising the Columbia Building project design. “In other words, the same manager was responsible to both oversee spending and carry out the project work,” wrote the Auditor. This decision meant that BES design services staff, the people who typically manage design contracts, did not have a formal role in managing this process for the Columbia Building. Though this deviation from normal design contract management procedures only occurred for this building project, it is notable that one million dollars were identified as construction costs primarily linked to incomplete design.
2. BES hired a temporary architect for design project management (evidently due to the deviation from normal procedures described above) who was then hired by the contractor. This joint employment appears to be a violation of contract provisions intended to prevent conflicts of interest. Though BES indicates it took actions to ensure contract compliance on this point, the report indicates that: “We verified with the City Attorney’s office that this conduct raised legal concerns and merited further inquiry to determine whether ethical or contractual violations had occurred.” Appropriately, this has prompted Nick Fish, Commissioner-in-Charge for BES, to bring in an independent law firm for a legal review.
3. Expanding the scope of the project by $1.5 million to include Treatment Plant site work may have been appropriate, but “adding it to the office building design contract made the building seem more expensive and the other work less transparent.” Two options (1: starting a new project, or 2: creating new contracts within this project) were identified in the report as alternatives that would have been more transparent. BES said those options might have increased costs, but unfortunately, the opportunity for broader discussion of the best strategy for oversight of site work additions was lost.
4. BES provided limited information to the City Council about Treatment Plant site work and other aspects of the project design. For example, BES designated a key estimate as “optimal” in its communications to the City Council even though it did not appear to merit this rating under guidelines provided in the Auditor’s report.
5. After Dan Saltzman, then Commissioner-in-Charge of BES, stopped supporting additional increases to the design contract, BES “ultimately paid the design contractor an additional $95,581 through construction change orders.” In other words, once an anticipated amendment didn’t occur, because BES had gone ahead and “paid for expanded design using dollars intended for later construction review and inspection,” they then had to figure out another way to pay for that work. A noncompetitive BES contract to a design subcontractor for $49,840 also enabled more “design work without having to go to the Council for an amendment to raise the contract maximum.”
6. BES said that all the project goals were high priority, an approach appropriately characterized in the report as BES not prioritizing goals. In the future, BES needs to place high priority on clearly laying out project options and assessing how they meet a range of project goals. For example, the benefits of adding community meeting space should have been weighed against the increased cost in a transparent manner. If BES had included a cost benefit analysis in setting goal priorities for the Columbia Building, it seems likely that the result would have been a more basic building that still met significant community, emergency management, and energy conservation goals.

CUB commends Commissioner Fish for removing from the consent agenda significant construction cost adjustments; however, this must become a routine City Council practice that continues on an ongoing basis.

CUB will be monitoring for BES’s compliance with the recommendations in this Auditor report, and will carefully review a broader audit on city procurement practices that is now underway.

CUB will be sharing this analysis with the Utility Oversight Blue Ribbon Commission. The Auditor’s report highlights the importance for that Commission to recommend that any new oversight group be given specific authority to review capital improvement project planning as well as project cost adjustments.

Please contact CUB’s Consumer Advocate for Portland Public Utilities, Janice Thompson, for questions or additional suggestions, at 503-227-1984 x 24 or .(JavaScript must be enabled to view this email address).

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