Independent Accountant s Report On Applying Agreed Upon Procedures

Transcription

1 Independent Accountant s Report On Applying Agreed Upon Procedures The School Board of Orange County, Florida Comprehensive Needs Project at Apopka Elementary School

2 INDEPENDENT ACCOUNTANT S REPORT ON APPLYING AGREED UPON PROCEDURES Comprehensive Needs Project at Apopka Elementary School The School Board of Orange County, Florida Orlando, Florida We have performed the procedures enumerated below, which were agreed to by The School Board of Orange County, Florida ( OCPS ), solely to assist you in certifying the final contract value to Welbro Building Corporation (the Construction Manager ), based upon the total costs of construction, as presented by the Construction Manager, for the Comprehensive Needs Project at Apopka Elementary School (the Project ) and to certify certain other Project costs. The sufficiency of these procedures is solely the responsibility of the party specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures applied and the related findings are as follows: 1. We obtained copies of the contract documents between OCPS and the Construction Manager and read the documents noting items of financial and attestation significance, including provisions relative to the cost of work, fee arrangements, bonds and insurance, and owner direct purchases. This Project was not performed under the owner controlled insurance program ( OCIP ). 2. We inquired of the contracting parties to determine if there were any disputed provisions relative to the Project, or if there were any other unresolved disputes, including disputes between the Construction Manager and their subcontractors. No disputes were brought to our attention. 3. We requested and obtained from the Construction Manager a reconciliation of the final pay application to the job cost detail. 4. We reviewed the construction costs, as documented by the Construction Manager, for compliance with the contract documents, including the following: a. vouched all costs (as determined by phase totals on the Construction Manager s job cost) in excess of $50,000. 1

3 for subcontract costs that qualify, we examined the subcontract and all the change orders to the subcontract, comparing the adjusted contract amount to the amount in the Construction Manager s job cost and the total of the Construction Manager s payments to the subcontractor. Additionally, we traced owner direct purchase amounts per OCPS to deductive change orders to the subcontractor to ensure that subcontracts had been reduced for the purchases. for reimbursable labor costs, we chose a sample of 12 items from the payroll line items in the Construction Manager s job cost and traced each line item selected to time sheets and pay rate authorizations. for other items that qualified, we traced the charge to vendor invoices and evidence of payment. Additionally, we examined supporting documentation for bond, insurance, and subguard charges. See Exhibit B for additional comments regarding general liability insurance. b. reviewed the costing of change orders between OCPS and the Construction Manager for conformity to the contract documents. We reconciled the owner direct purchases, per the ODP Log to deductive change orders to the guaranteed maximum price. c. reviewed Construction Manager labor burden percentage, if applicable, for appropriateness as well as conformity to the contract documents. The labor burden was established in the contract documents at 35%, and no exceptions were noted in the application of this percentage as regards general conditions labor or reimbursable labor. d. reviewed and inquired of the Construction Manager regarding related party charges to the Project. The Construction Manager self performed various small scopes included within the general requirements (primarily daily cleaning) with their labor in the amount of approximately $45,000. The scopes that were self performed were indicated as such on the schedule of general requirements included as an attachment to Amendment #1. Additionally, the subguard default insurance deductible is insured through a U.S. Captive which is owned by members of the Construction Manager. e. reviewed posting dates in the job cost for charges incurred prior to the Notice to Proceed as set forth in the contract amendments. There were no charges noted. f. reviewed and inquired of the Construction Manager regarding whether or not a subguard program was used on the project. The Construction Manager did use a subguard program on this Project, but not all of the subcontractors were included in the program. As is typical in most negotiations, the project management team for OCPS inquires as to the threshold for which subcontractor bonds are applied. In the case of this project, the Construction Manager agreed to a combination of subguard and subcontractor bonds in an effort to assist with budget concerns. We inquired and reviewed documentation that the subcontractors included in the subguard program did not charge bond costs, and we received representation from the Construction Manager that those subcontractors did not charge bond costs. g. reviewed Construction Manager fees and general conditions for conformity to the contract documents. Additionally, we reviewed the Construction Manager s actual compensation for a sample (16 items) of general conditions labor charges (included 2

4 in the lump sum general conditions) for accuracy of base salary, application of contracted labor burden percentage, and personnel appropriateness to the Project. We found that, on the average, the actual pay rates were 8% less than the rates in the general conditions schedule attached to Amendment #1 ( contract rates ) for the sample selected. However, a large portion of that difference resulted from one of the persons selected, the Project Executive/Operations Manager. If the Project Executive is removed from the statistics, on the average, the actual pay rates were 4% less than the rates in the general conditions schedule. Additionally, for all of the persons tested, the actual rate was less than the contract rate for 11 of the 16 items sampled. It should be noted that, per Section 5.A.1., the Construction Manager is to promptly report to OCPS any occasion in which the labor/payroll rates paid to personnel are lower than the estimated rates included in the guaranteed maximum price attachment for the general conditions expense. We are not aware of any notification being made to OCPS. h. reviewed actual contingency costs (in conjunction with the review of the subcontractor supporting documentation), and reviewed the contingency log for proper authorization and resolution of final balances. i. recalculated the guaranteed maximum price and actual costs of construction based upon the Construction Manager s records. The results are shown in Exhibit A Project Costs. 5. Regarding the completion of the Project, we performed the following: we inquired and examined support that the Project was completed within the time constraints stated in the contract. We noted that the Certificate of Final Inspection was dated 185 days after the date of substantial completion for Phase III, whereas the contract documents require that final completion be achieved within 120 days of substantial completion. we examined the Certificates of Substantial Completion and the Certificate of Final Inspection, signed by the Architect, verifying that the Project was completed in accordance with the contract. 6. We obtained evidence of the SAP/Purchase order reconciliation from OCPS and ensured the final contract value to the Construction Manager was accurate and reflected final preattestation adjustments. 7. We obtained a representation from the Construction Manager that the job cost is complete and represents properly reimbursable and paid costs under the terms of the contract, a related party was used on this Project as noted above, and all supporting documentation has been made available, as well as other necessary representations. We have included additional comments for your consideration as Exhibit B to this report. 3

5 This agreed upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to, and did not, conduct an examination or review, the objective of which would be the expression of an opinion on the specified elements, accounts, or items. Accordingly, we do not express such an opinion or conclusion, respectively, on the construction costs. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of The School Board of Orange County, Florida, and is not intended to be and should not be used by anyone other than the specified party. Orlando, Florida April 18,

6 The School Board of Orange County, Florida Comprehensive Needs Project at Apopka Elementary School Exhibit A Project Costs Calculation of the construction costs plus fee: Construction Manager job costs $ 9,056,369 Reductions: General conditions costs included in the job costs (675,407) Other non billable costs as indicated by the Construction Manager (78,516) Minority partner portion of the construction management fee (32,337) Removal of elevator reinspection fees (2,750) Adjustments to a subcontractor for amounts funded by the Architect (3,697) 8,263,662 Original lump sum general conditions 675,407 Calculation of the construction management fee: Original construction management fee from Amendment #1 485,056 Additional construction management fee from contingency use 3,273 Reimbursement for materials testing (168) 488,161 Construction costs plus fee $ 9,427,230 Calculation of adjusted guaranteed maximum price: Original guaranteed maximum price per Amendment #1 $ 11,548,918 Adjustments from change orders per the Construction Manager (2,115,240) Adjusted guaranteed maximum price $ 9,433,678 Construction costs, lesser of construction costs plus fee and adjusted guaranteed maximum price $ 9,427,230 Owner direct purchases 2,009,836 $ 11,437,066 5

7 The School Board of Orange County, Florida Comprehensive Needs Project at Apopka Elementary School Exhibit B Schedule of Comments and Recommendations Contract language Comment: In Exhibit A (General Terms and Conditions) of the Standard Construction Management Contract between The School Board of Orange County, Florida ( OCPS ) and Welbro Building Corporation (the Construction Manager ), in paragraph 36.7 there is a provision for OCPS to capture buyout that reads as follows, Contractor shall promptly report to Owner any occasion in which the contract price in an agreement with a subcontractor or supplier is lower than the estimated price included in the GMP for the scope of Work covered by such agreement (including any Change Order and Construction Change Directive Work). However, the contract documents do not specifically state what is to be done with buyout once it is identified. Recommendation: It is our recommendation that the contract documents clearly state how identified buyout be reported to OCPS, and how its use is subsequently tracked. One suggestion would be to establish a Buyout Log to account for the amounts identified, and to track any usage in a manner similar to that utilized for contingency. Thus, use by the Contractor of the captured buyout would require similar authorizations. Because buyout amounts are already loaded with construction management fee, the Contractor should not be allowed additional fee if the buyout amounts are subsequently authorized for use. The Buyout Log would then become a part of the contract documents and all buyout remaining at the completion of the Project would be reconciled and returned to OCPS in the final change order. General liability insurance Comment: Previously, OCPS large construction projects participated in the Owner Controlled Insurance Program ( OCIP ) which included general liability insurance for both the Construction Manager and the subcontractors. In recent years, OCPS has terminated the OCIP and construction managers have provided their own general liability coverage, and have priced that coverage in accordance with their company policies. As regards the Construction Manager on this Project, the pricing for the general liability coverage is.7029% of the contract value. However,.2963% of the.7029% relates to self insured deductibles for property damage, bodily injury, and pollution mold insurance. It is the Construction Manager s policy to anticipate, as part of their pricing, that they will experience one loss per year for the full amount of the per occurrence deductible, which is $50,000, $50,000, and $100,000 for the coverages mentioned above, respectively. Additionally, it should be noted that the total actual losses experienced will not be known until the expiration of the 10 year Statute of Repose expires. 6

8 Apopka ES: Response to Independent Accountant s Report dated April 18, item No. issue noted by CRI area management response 1 Item 4 g: We found that, on average, the actual pay rates were 8% less than the rates in the general conditions schedule attached to Amendment #1 for the sample selected. However, a large portion of that difference resulted from one of the persons selected, the Project Executive/ Operations Manager. It should be noted that, per Section 5.A.1., the Construction Manager is to promptly report to OCPS any occasion in which the labor/ payroll rates paid to personnel are lower than the estimated rates included in the guaranteed maximum price attachment for the general conditions expense. 2 Item 5: We noted that the Certificate of Final Inspection was dated 185 days after the date of substantial completion for Phase iii, whereas the contract documents require that final completion be achieved within 120 days of substantial completion. Facilities Services. Facilities Services Payment for General Conditions is on the basis of lump sum with the understanding that per the Truth-in Negotiation Certificate, the Construction Manager will reimburse staff members per the base rate as listed within the various line items of the General Conditions. The PM Team is not aware of notification issued by the CM to OCPS alerting of payment to staff members that is lower than the established unit rates. The project team and Construction Manager will be reminded of the requirement per Section 5.A with an emphasis on the Owners right to audit the contractor s payroll. In addition PM Team proposes that for future projects, request for payment for General Conditions be presented in the itemized form showing staff members as outlined in the GMP proposal. Based on recommendation from the PM Team, Facilities Services did not pursue the assessment of Liquidated Damages as related to Final Completion of the work as It became evident that the delay in achieving final completion within the 120 day time frame was not all attributable to the CM. PM Team will propose a recommendation that separates the duration of 120 days into separate areas of responsibility as related to the various parties involved in the closeout process. This, in an effort to isolate the time/ duration for which the CM is responsible. 3 Exhibit B In paragraph 36.7 of the Standard Agreement Between Construction Manager and OCPS, there is a provision for OCPS to capture buyout that reads as follows, Contractor shall promptly report to Owner any occasion in which the contract price in an agreement with the subcontractor or supplier is lower than the estimated price included in the GMP. However the contract documents do not July 24, 2017 Facilities Services Construction Managers are alerted during GMP negotiations that buyout savings are to be recorded and tracked on each application for payment. CMs are further informed that approval is required prior to the use of such savings. It should be noted that remaining buyout savings which are not utilized during the course of the project reverts to the Owner as 1 P age

9 Apopka ES: Response to Independent Accountant s Report dated April 18, item No. issue noted by CRI area management response specifically state what is to be done with the buyout once identified. a component of the final GMP Reconciliation Change Order. 4 Exhibit B General Liability Insurance: The pricing for general liability coverage is % of the contract value. However, % of the % relates to selfinsured deductibles for property damage, bodily and pollution mold insurance. It is the Construction Manager s policy to anticipate, as part of their pricing, that they will experience one loss per year for the full amount of the per occurrence deductible, which is $50,000, $50,000 and $100,000 for the coverages mentioned above, respectively. Additionally, it should be noted that the total actual losses experienced will not be known until the expiration of the 10 year Statute of Repose expires. Facilities Services As GMP submissions are analyzed, the PM Team references the total cost of insurance included on the schedule of values with relevant historical data. This to safeguard against significant variance from the historical data. In addition, the team will investigate the possibility of having the insurance information presented by the CM be analyzed by OCPS Risk Department. July 24, P age