INTERNAL AUDIT REPORT

Source: Port of Seattle

Operational Audit - Capital

Shilshole Bay Marina Customer Facilities Project

November 2017 – December 2019

Issue Date: December 9, 2019

Report No. 2019-18

Revised: December 9, 2019

INTERNAL AUDIT

Shilshole Bay Marina Customer Facilities Project

TABLE OF CONTENTS

Executive Summary ................................................................................................................................................ 3

Background ............................................................................................................................................................. 4

Audit Scope and Methodology ............................................................................................................................... 5

Schedule of Findings and Recommendations ....................................................................................................... 6

Appendix A: Risk Ratings ....................................................................................................................................... 8

Shilshole Bay Marina Customer Facilities Project

Executive Summary

Internal Audit (IA) completed an audit of the Shilshole Bay Customer Facilities Project (Project) for the

period November 2017 through December 2019. The audit was performed to assess the quality of the

Port’s monitoring of the Project to assure it is meeting project management standards in an efficient and

effective manner.

The engineering firm, Tetra Tech (TT) estimated the value of the project at $8.1 million in 2018. However,

the lowest bid received was approximately 25% higher than the engineer’s estimate. TT, together with

Port Management, met with the lowest bidder to determine why there was a discrepancy between the

engineer’s estimate and the bids.

Internal Audit met with TT to identify factors that contributed to bids coming in higher than the original

estimate. TT indicated that they expected the Project to go out for bid in early spring when construction

bids are historically lower. However, due to the complexity of the Project and multiple Port requested

design scope changes, the Project did not go out for bid until late the second quarter. The difference in

timing may have resulted in an increase of approximately 5%. TT also indicated that the bidders had

previous experience performing work at the Port, and their bids reflected a higher construction cost per

square foot compared to the market rates in the region that TT used in its estimate.

TT also explained that it worked with Port Management and obtained the schedule of values from the

lowest original bidder, Western Ventures. TT utilized Western Venture’s schedule of values in its

revised estimate of $10.8 million that went out to bid in 2019. Western Ventures was ultimately

awarded the contract.

In general, Port management’s monitoring of the Project generally aligned with industry standards.

However, our audit identified an opportunity where internal controls could be enhanced or developed.

This opportunity is listed below and is discussed in more detail beginning on page six of this report.

1. (Medium) An opportunity exists to strengthen internal controls by requesting that Tetra Tech (TT)

provide individual names on invoices. This would provide the appropriate detail for the Port to assure

that individuals being billed for services performed, have the appropriate experience, fall into the

appropriate job category, and are billed at the correctly negotiated rate.

We also noted two opportunities to improve processes, that we communicated to Port management via a

management letter.

Glenn Fernandes, CPA

Director, Internal Audit

Responsible Management Team

Stephanie Jones Stebbins, Managing Director, Maritime

Anne Porter, Director, Maritime

Nora Huey, Director, CPO

Shilshole Bay Marina Customer Facilities Project

Background

The Project consists of the construction of three new buildings which includes, two large, multi-use

buildings (restroom, shower and laundry) located in the south and central areas of the Marina, plus a

smaller restroom/shower only building at the north end of the Marina. As part of the project, existing

buildings M4, M5, and M6 will be demolished. In addition, a significant portion of the parking lot will be

paved.

The South and Central buildings will be approximately 2,700 square feet each and include separate

ADA accessible men, women, and family unisex restrooms with shower facilities. Additionally, these

buildings will incorporate tenant laundry areas. The North building will be approximately 700 square feet

and include three individual all-gender restrooms and three shower facilities. Although consolidated into

fewer buildings, the new facilities will increase the number of showers over the existing configuration,

and more than double the current laundry capacity.

The design incorporates sustainable features including, radiant heated floors, water saving fixtures,

onsite storm water management bioswales, and rooftop panel arrays which are estimated to offset 70%

of the restrooms’ electrical use. Heat pumps are expected to handle over 70% of the buildings’ heating

and cooling needs without requiring outside fossil fuels.

The Project was originally scheduled to begin construction in 2018. However, the lowest bid received

was approximately 25% higher than the engineer’s estimate. To understand costs, Port staff met with

the lowest bidder. Port management indicated that the primary difference between the estimate and bids

primarily reflected the region's current construction market that was not reflected in the estimate. Port

staff looked at alternatives that would deliver maximum customer-service improvement, but better align

the Project scope and budget. The alternatives were also weighed against feedback from moorage and

business tenants collected during individual and public engagement meetings.

In February 2019, Port management presented its results to the Port Commission and recommended

an option that reduced the project scope and increased the construction authorization by $2.9 million.

This approach resulted in a total project estimate of $15.0 million which included a 15% construction

contingency and made use of the current design and permits. After the Project went out for re-bid,

Western Ventures Construction was awarded the contract in July 2019 at a total construction cost of

$10.4 million.

Shilshole Bay Marina Customer Facilities Project

Audit Scope and Methodology

We conducted the engagement 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 conduct an engagement to obtain sufficient, appropriate evidence to provide a

reasonable basis for our findings and conclusions based on our engagement objectives. We believe that

the evidence obtained provides a reasonable basis for our findings and conclusions based on our

engagement objectives.

The period audited was November 2017 through December 2019 and included the following procedures:

Invoice Review Process / Approved Consultant Personnel

• Assessed the Port project team’s process was adequate to assure invoices were accurate and

properly supported.

• Selected the five largest invoices, accounting for 45 percent of total consultant costs. Performed

testing on correct amount, invoice accuracy, properly supported, and whether consultant rates

and names agreed to the Level of Effort and Fee Schedule.

• Reviewed contract language and compared to the Consultant’s proposal.

Bid Withdraw Request

• Assessed whether the Project team’s process was adequate to assure the bid withdraw request

was accurate and reasonable, and that the Team complied with the CPO Procedures Manual.

• Reviewed the letter submitted by the bidder for the bid withdrawal request and Port’s acceptance

letter.

• Obtained and reviewed documentation to support the bidder’s reasoning to withdraw its bid.

Project Scope Changes and Cost Escalation

• Obtained an understanding of the history of the Project through management inquiry and the

review of documentation.

• Reviewed the timeline from Project concept, including scope changes, resulting in design and

construction cost escalations.

• Reviewed steps taken by Port management between the initial bid and re-bid, including meetings

held between the Port and construction firms to identify reasons why initial bid proposals

exceeded the engineer’s estimate.

Shilshole Bay Marina Customer Facilities Project

Schedule of Findings and Recommendations

An opportunity exists to strengthen internal controls by requesting that Tetra Tech (TT) provide

individual names on invoices. This would provide the appropriate detail for the Port to assure

that individuals being billed for services performed, have the appropriate experience, fall into

the appropriate job category, and are billed at the correctly negotiated rate.

We performed a detailed review of consultant and subconsultant invoices for the largest five monthly

pay requests with a total amount of $493,000. These pay applications equated to 45 percent of the total

amount the Port paid to TT. We noted that, in general, the Seaport Project team had a detailed review

process of invoices. For example, we saw an instance where the reviewer disallowed an invoice because

it was a duplicate from a previously submitted pay request. We also noted an instance where the

reviewer disallowed a specific purchase because it was not directly related to the Project. However, we

noted the following:

• The Level of Effort (LOE) included personnel names for TT and four out of the five

subconsultants, although all subconsultants had names on the negotiated rate sheets

maintained by CPO. TT and two of the subconsultants, who had approved personnel names on

the LOE, did not include names on their invoices.

• Invoices that did include names were not compared to the approved personnel on the LOE or

negotiated rate sheet.

Consultant personnel were negotiated, reviewed and authorized to work on the project by the Central

Procurement Office (CPO). CPO created an Approved Personnel List through a Level of Effort document

that was included as an attachment to the Agreement. Section XIII of the Agreement states, in part,

“Consultant will ensure that individuals who are specifically identified in this Agreement shall perform

the work assigned...” Additionally, the Agreement states, “Assigned individuals shall remain assigned

until completion of services. The Consultant may request that a particular individual be replaced with a

person of like skill and experience and, if agreed by the Port.” The Agreement also states that a SD

modification should occur when, “The work of the SD requires additional time, scope, and compensation;

and /or personnel are added to or deleted from the SD” (Section VI 5(D)).

The Service Agreement (Agreement) between the Port and TT (Section VI(A) and Section III(B)) allows

for service directives to be issued on a lump sum or on a time and expense basis. Service directives for

this project were issued on a time and expense basis. Our work determined that there was an opportunity

to strengthen existing controls.

Recommendation:

1. Port management should request that TT provide individual names on invoices so that the Port can

monitor which consultants are working on the Project. Individual names can be compared to the

LOE, and if there are names that are not in line with the LOE, invoice reviewers have the ability to

work with the Rate Negotiations Team to assure the Port is billed a fair and reasonable rate.

Management Response/Action Plan:

Port Management appreciates Internal Audits’ review of our existing contract management of the Tetra

Tech service agreement. We appreciate the feedback both in the Management letter and in the Audit

report. We appreciate learning our review of invoices incorporates a detailed review process.

1) Rating: Medium

Shilshole Bay Marina Customer Facilities Project

We are carefully weighing and considering how to implement recommended measures long term that

both provide sufficient controls and move our contracts forward in a timely and responsible manner. We

want to be careful that as we implement changes they work not only for this particular project, but also

move us towards long term practices. As we evaluate whether we request names, it is also important

to be clear what practices we intend to implement once we have those individual names. That is

currently undefined and management feels it is important to define prior to asking for information that is

not currently requested.

For this contract, we identified one specific position which was important and specified that individual in

a certain key position. Aside from that specific position, each service directive is managed by tasks with

job classifications versus identifying individual(s) names conducting the work. Currently the only

individual specifically identified is the Project Manager. The Port will ensure that this individual is

identified by name.

DUE DATE: 6/30/2020

Shilshole Bay Marina Customer Facilities Project

Appendix A: Risk Ratings

Findings identified during the audit are assigned a risk rating, as outlined in the table below. Only one

of the criteria needs to be met for a finding to be rated High, Medium, or Low. Findings rated Low will be

evaluated and may or may not be reflected in the final report.

Rating

Financial

Stewardship

Internal

Controls

Compliance Public

Commission/

Management

High Significant

Missing or not

followed

Non-compliance

with Laws, Port

Policies,

Contracts

High probability

for external audit

issues and / or

negative public

perception

Requires

immediate

attention

Medium Moderate

Partial controls

Not functioning

effectively

Partial

compliance with

Laws, Port

Policies

Contracts

Potential for

external audit

issues and / or

negative public

perception

Requires

attention

Low Minimal

Functioning as

intended but

could be

enhanced to

improve

efficiency

Mostly complies

with Laws, Port

Policies,

Contracts

Low probability

for external audit

issues and/or

negative public

perception

Does not

require

immediate

attention