INTERNAL AUDIT REPORT
OPERATIONAL AUDIT
WEST SIDE FIRE STATION
JANUARY 2017 – JUNE 2018
ISSUE DATE: SEPTEMBER 28, 2018
REPORT NO. 2018-08
West Side Fire Station
January 2017 – June 2018
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ................................................................................................................................................. 3
BACKGROUND .............................................................................................................................................................. 4
AUDIT SCOPE AND METHODOLOGY ........................................................................................................................... 5
SCHEDULE OF FINDINGS AND RECOMMENDATIONS............................................................................................... 6
APPENDIX A: RISK RATINGS ........................................................................................................................................ 9
APPENDIX B: FIRE DEPARTMENT TOTAL PROJECT COST COMPARISONS ............................................................ 10
INTERNAL AUDIT
West Side Fire Station
January 2017 – June 2018
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EXECUTIVE SUMMARY
Internal Audit (IA) completed an audit of the proposed West Side Fire Station for the period January 1,
2017 through June 30, 2018. The audit’s primary objective was to evaluate the reasonableness of initial
cost estimates. We also reviewed lease provisions and the impact it had on the Port’s decision to build a
temporary facility. Those results were provided to management in a separate letter dated September 28,
2018.
On February 27, 2018, Port Commission approved the construction of an interim Aircraft Rescue Fire
Fighting (ARFF) station on the west side of the airport for an estimated cost of $5.5 million. The project’s
anticipated completion date is October 2019 and will be utilized for a minimum estimated life of four years
until a permanent facility is built.
The Port of Seattle Fire Department is required by Federal Aviation Administration (FAA) regulations to
respond to an emergency, within three minutes from the time of the alarm, to the midpoint of the farthest
runway. This response time is not achievable from the main station.
We identified the following issue:
1) The cost of construction at SeaTac Airport is inherently higher than equivalent construction outside the
airport. Additionally, conceptual cost estimates are difficult to estimate and more susceptible to change
when designs are incomplete. However, we identified sections of the cost estimate, that in our opinion,
did not appear to align with industry practice and in some cases appeared excessive.
This issue is discussed in more detail beginning on page six.
We extend our appreciation to Capital Development and to the Port’s Fire Department for their assistance
and cooperation during the audit.
Glenn Fernandes, CPA
Director, Internal Audit
RESPONSIBLE MANAGEMENT TEAM
Ralph Graves, Senior Director, Capital Development
Wayne Grotheer, Director, Aviation Project Management Group
West Side Fire Station
January 2017 – June 2018
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On February 27, 2018, Port Commission approved the construction of an interim fire station on the west
side of the airport for an estimated cost of $5.5 million. The project’s anticipated completion date is
October 2019, and will be utilized for an estimated life of four years until a permanent facility is built.
The interim fire station’s living quarters, of about 2,500 modular square feet, will consist of five
bunkrooms, a day room, a kitchen, male and female bathrooms with showers, laundry facilities, and an
exercise room. The station will require necessary improvements to the insulation, windows, seals, and
filtration to minimize jet noise and exhaust. The station will also include a 3,200 square foot structure for
two ARFF vehicles. It will be equipped with electronically operated panel bay doors, an alerting system,
lighting, heating (to prevent freezing of firefighting media), and a 100% exhaust capture system.
The Port of Seattle Fire Department is required by Federal Aviation Administration regulations (Chapter
14 § 139.319) to respond to an emergency, within three minutes from the time of the alarm, to the
midpoint of the farthest runway. All other vehicles must respond within four minutes.
Completion of the third runway in November 2008 impacted the Fire Departments ability to respond to an
emergency within three minutes from the main fire station. As a result, in August 2015, the Port has
subleased two small office rooms and storage space for one emergency response vehicle from
Weyerhaeuser (now Paccar). Paccar requested that the Port’s firefighters be segregated from Paccar
operations.
BACKGROUND
West Side Fire Station
January 2017 – June 2018
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We conducted this performance audit 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 perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions based on our audit
objectives.
The period audited was January 2017 – June 2018. We used a risk-based approach from the planning
phase to the testing phase. We assessed risks and identified controls to mitigate those risks. We
gathered information through document requests, research, interviews, and observations. Our audit
included the following procedures:
Budgeted Project Costs
• Inquired with Port management (including the project manager and cost estimator) to understand
how estimated project costs were derived.
• Reviewed and assessed supporting documentation.
• Used third party sources (RS means) to assess Port management’s estimated shell costs.
• Obtained a description and financial expenditure data from six regional fire stations for cost
comparisons (see Appendix B).
Personal Service Vetting Process
• Obtained an understanding of the Central Procurement Office’s selection process of project
management services.
• Reviewed Service Directives and Service Agreements.
• Documented and tested key controls to validate compliance with Port Policy and State Law.
Lease Terms
• Reviewed lease terms, including the assignment of lease, and its impact on the Port’s decision to
build a temporary facility.
AUDIT SCOPE AND METHODOLOGY
West Side Fire Station
January 2017 – June 2018
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SCHEDULE OF FINDINGS AND RECOMMENDATIONS
The cost of construction at SeaTac Airport is inherently higher than equivalent construction
outside the airport. Additionally, conceptual cost estimates are difficult to estimate and more
susceptible to change when designs are incomplete. However, we identified sections of the cost
estimate, that in our opinion, did not appear to align with industry practice and in some cases
appeared excessive.
Our approach was not to request management to lower their cost estimate, but to offer an objective
opinion, using concepts from literary reference guides. We also compared the cost per square foot to
recently completed fire stations in the Seattle area and vicinity. The estimated cost per square foot for the
Westside Fire Station exceeded that for all recently built fire stations. (See Appendix B)
We identified the following for management’s consideration:
Upon initial review, we observed that total allowances and contingencies total $1.24 million of the $5.5
million. When we researched these costs, we felt that they did not align with industry practice or appeared
excessive.
Allowances - Design Development - $513,000 (30%)
According to third party cost information, allowances could be as high as 20% during the conceptual
stage and reduced to 3% at the final working drawing stage. Accordingly, we offered using a 20%
allowance and reducing it as the design progresses.
Construction Contingency - $467,000 (15%) / Project Contingency - $263,000 (5%)
Contingencies generally refer to costs due to unforeseen circumstances and can be used for minor non-
scope changes. Although a standard contingency amount/rate has been established, they usually range
between 0 – 5% of a project’s budget. It is not uncommon for contingencies to be high when designs are
incomplete, but as the project nears completion, the standard contingency usually ranges between 0 –
5% of a project’s total budget. Therefore, reducing total contingencies to 5% appears like a more
reasonable estimate.
Recommendations:
We recommend that for smaller capital projects such as the fire station, that Capital Development
completes a more substantial design, prior to requesting full project funding from the Commission. If
necessary, Commission authorization may be required for associated design costs. This will assure that
project estimates provided to the Commission are more refined and complete.
We also believe opportunities exist to reduce future construction costs. Accordingly, we offer the
following:
Due to the complexities with security at the airport and the additional cost that is incurred by complying
with various security requirements, we recommend that Capital Development engage the Lean team to
identify opportunities that would minimize costs and related inefficiencies resulting from the requirements
of building within a secure area.
1) RATING: MEDIUM
West Side Fire Station
January 2017 – June 2018
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Management Response:
We appreciate the work done by Internal Audit to review the conceptual cost estimate of this project and
to increase their understanding of construction cost estimation practices. As with any of the airport capital
projects, our cost estimates evolve with more knowledge as we proceed through development of design
and detailed sponsor and stakeholder requirements to the engineers’ estimate used as the basis of
getting construction bids from prospective contractors. We have just updated the estimate based on the
60% design recently submitted by our designer to the Port for review.
Based on our experience with construction cost estimation and construction costs at Sea-Tac airport, we
believe that the design development allowance, construction contingency, and project contingency were
appropriate at the conceptual cost estimate level (i.e., prior to start of design) that was the subject of this
audit and now at the 60% level. Our cost estimates are either developed or reviewed by our cost
estimating manager, who has over 25 years of cost estimation experience for a variety of owners and
contractors.
As for opportunities to improve our processes, we are continuously seeking to improve our processes, the
most significant of which require working with the many sponsors, stakeholders and project delivery
partners involved in doing projects at the airport. We have employed LEAN in the past in these efforts and
will likely do so again.
Allowances - Design Development - $513,000 (30%)
Scope development throughout planning and design is accounted for via Design Development Allowance
(DDA). We include a (DDA) ranging from 20% to 30% at the conceptual planning stage of a project. The
higher range was used because the project is located within the Airfield Operating Area and there were
numerous risks and unknowns. RS Means lists several factors that should be added to the project cost,
including but not limited to dust protection, security requirements, and job conditions. The DDA is reduced
as the project scope is further defined and the design enhanced. We reduce the DDA at each major
design phase and it is removed from the engineer’s estimate when the project goes out to bids for
construction contractors.
At 60%, the DDA has been reduced to 15%. This is the direct result of having more detailed drawings.
However, the direct costs for mechanical, electrical, and sitework have increased. This is mainly due to
power having to come from a further location, increased fencing requirements, additional plumbing
fixtures in the apparatus bays, and communication room needs. These were not anticipated during the
initial conceptual level of the project, especially the power (it was previously anticipated to come from the
much closer Paccar building). The overall project is now estimated to be approximately $5.8M. As we
work towards 100% design, anticipated mid-November 2018, DDA will be reduced to 0% and the
estimate further refined. If the project’s final defined scope cannot be accommodated for the current
budget of $5.5M, the project will request additional funding.
South Satellite Structural Improvement Project - Example
Another example of the evolution of DDA is from our South Satellite Structural Improvement Project.
During the notebook development, DDA was 30%. As is typical at this early stage in the project, as-built
drawings and some site investigations were performed, but significant concerns regarding access to
structural framing, working within operational constraints, and the amount of asbestos to be abated
remained.
West Side Fire Station
January 2017 – June 2018
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During the 60% estimate, the DDA had decreased to 15%. However, the direct costs had increased.
Current building codes increased the amount of strengthening and the number of steel members requiring
that strengthening.
At 100%, direct costs remained in-line with the 60% estimate. Construction phasing was removed from
the estimate and the DDA was reduced to 0%.
Construction Contingency - $467,000 (15%) / Project Contingency - $263,000 (5%)
There are 2 different contingencies being discussed above. The first is the construction contingency, or
change order contingency, which is a percentage of the construction bid amount. This is to cover the cost
of potential change orders and is a common industry practice. The percentage typically ranges from 5%
for new construction on a greenfield site to 15% on a renovation project and/or brownfield sites. Port
construction management agreed to reduce this to 12% since these are new structures being built on an
existing, occupied site. Although the airfield may not be considered a “brownfield” site, it is an already
developed site with the potential of contaminated soil within the active airfield operations area. This
contingency is not reduced as a matter of routine as the project nears completion, but is depleted as
change orders are issued.
The second contingency, the project contingency, is based on the total project cost and is intended to
cover unanticipated circumstances or cost overruns. These costs could be related to construction cost
overruns, fees related to the project (for example, recently imposed sewer connection fees), operational
fees, or other jurisdictional complications. If unused, this money is returned to the Aviation Division’s
capital allowance CIPs to fund future capital projects. This is a common contingency carried by a project
Owner and within industry standards. This contingency is not reduced as the project nears completion as
a matter of routine but may be depleted to cover unanticipated costs or cost overruns.
West Side Fire Station
January 2017 – June 2018
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APPENDIX A: RISK RATINGS
Findings identified during the course of the audit are assigned a risk rating, as outlined in the table below. The
risk rating is based on the financial, operational, compliance or reputational impact the issue identified has on
the Port. Items deemed “Low Risk” will be considered “Exit Items” and will not be brought to the final report.
Rating Financial Internal Controls Compliance Public
Port Commission/
Management
HIGH
Large financial
impact
Remiss in
responsibilities
of being a
custodian of
public trust
Missing, or inadequate
key internal controls
Noncompliance
with applicable
Federal, State,
and Local Laws,
or Port Policies
High probability
for external audit
issues and/or
negative public
perception
Important
Requires immediate
attention
MEDIUM
Moderate
financial impact
Partial controls
Not adequate to identify
noncompliance or
misappropriation timely
Inconsistent
compliance with
Federal, State,
and Local Laws,
or Port Policies
Potential for
external audit
issues and/or
negative public
perception
Relatively important
May or may not
require immediate
attention
LOW/
Exit Items
Low financial
impact
Internal controls in place
but not consistently
efficient or effective
Implementing/enhancing
controls could prevent
future problems
Generally
complies with
Federal, State and
Local Laws or Port
Policies, but some
minor
discrepancies
exist
Low probability
for external audit
issues and/or
negative public
perception
Lower significance
May not require
immediate attention
Efficiency
Opportunity
An efficiency opportunity is where controls are functioning as intended; however, a modification would make
the process more efficient
West Side Fire Station
January 2017 – June 2018
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APPENDIX B: FIRE DEPARTMENT TOTAL PROJECT COST COMPARISONS
Note:
All of the projects presented are larger than the West Side Fire Station project. Management indicated
that economies of scale are gained and therefore, cost per square foot will generally be lower as the size
of the building increases. Conversely, cost per square foot will generally be higher as the size of the
building decreases. Accordingly, the above table is sorted by square footage.
Management also indicated that Airport construction is proven to be more expensive than typical building
construction costs and for a more meaningful comparison, the cost of the above fire stations should be
adjusted to take into consideration airfield operations, working within a 24 hour facility, and security
constraints.
Management Response:
When comparing similar projects across agencies, it is important to acknowledge the differences in costs
that are considered a “total project cost.” In our experience, costs beyond the physical construction (i.e.,
contractor) vary widely, which makes comparing total project cost challenging.
Building
Description
North Shore 2010 30,000 $19,110,719 637 Permanent - 5 vehicle bays, office space, gym, kitchen
Central Pierce 60 2017 21,500 13,313,557 619 Earthquake Structural Upgrades, Emergency Generator
Seattle Fire 32 2017 18,000 16,368,766 909 Permanent - office space, gym, laundry
Central Pierce 72 2018 16,449 9,014,148 548 Permanent - 4 vehicle bays
Snohomish 2018 11,860 6,303,600 532 Permanent - 3 vehicle bays, office/training space, dormitory
Central Pierce 63 2017 8,378 5,730,724 684 Permanent - 3 vehicle bays, living areas, six sleeping rooms
POS Westside 2019 5,670 5,500,000 970 Temporary - 2 vehicle bays, gym, laundry, dormitory
* Adjusted for Inflation and Escalation through 2019 (Cost Index: Turner Building, Mortenson Construction, Rider Levett Bucknall)
FIRE STATION - PROJECT COST COMPARISON / BENCHMARK
Square Feet
Cost / SQ
FT ($)
Total Project
Cost
*