OCA Audit Reports

Issued: October 2007

SUMMARY

This report provides an analysis of change orders in the capital construction program of the Austin Water Utility. This analysis required specific expertise in engineering and construction project management for municipal utilities. The Office of the City Auditor contracted with an engineering firm with such expertise that has not performed engineering or construction project management for any project in the City’s Capital Improvements Program (CIP) and does not plan to seek such work in the future. The firm that conducted the analysis is JCV Engineering (JCV), a consulting firm based in Houston, Texas.

The purpose of JVC’s analysis was to determine if cost and time growth on the Utility’s capital construction projects was within industry standards. Cost and time growth are both managed through the change order process. In the great majority of construction contracts some change orders are necessary. Most agencies and contracting entities try to limit the number and the size of change orders because they actually represent a non-competitive sole source procurement in which the owner is negotiating at a distinct disadvantage.

The industry standard and target adopted by the City of Austin for cost growth is 5% of the original contract value. By analyzing change orders for utility projects completed from 2004 through 2006, we found that the average cost growth on these projects is slightly above the industry standard – 6.64 percent after closeout for projects managed within the Austin Clean Water Program (ACWP), and 6.77 percent after closeout for projects managed through the City’s regular project management groups. Additionally, both project management groups show significant improvement at controlling cost growth over the time period examined.

In order to analyze the reasons for change orders, they must be properly classified. Both ACWP and non-ACWP projects were found to properly classify change orders by type of change (i.e. errors/omissions in plans or specifications, unforeseen conditions, value engineering suggestions, or owner requested changes). Analysis of major drivers of cost growth in both project groups can be categorized as actions taken or decisions made by the City rather than the contractor.

While the ACWP project management has improved in controlling time growth over the period under review, the project management for Utility capital construction outside of the ACWP has actually become less effective. The industry standard average range is 10 to 20 percent. Because of some outliers in the data, we opted to use the median time growth for our review in order to have a more accurate picture. The median time growth for all ACWP projects is 9.4 percent, and the median growth for the AWU projects outside of the ACWP is 23.7 percent, which is considerably above industry standard average range.

We have issued one recommendation aimed at standardizing and improving project management outside of the ACWP. Management has concurred with this recommendation.

Download the entire text of our Austin Water Utility CIP: Change Orders audit report (Size: 1.44 MB) in Adobe Acrobat. You will need Adobe's Acrobat Reader to view these files. Or request a hard copy of this audit report, No. AU06116, by submitting this audit report request form.

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