Source: Port of Seattle
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Internal Audit (IA) completed an audit of the Main Terminal Low Voltage System Upgrade Project (Pre-
Construction) for the period January 2019 through August 2023. The audit was performed to assure the
quality of the Port of Seattle’s (Port) monitoring of the Project, to assess if it was meeting project
management standards, and to determine if pay applications were properly approved, supported, and
reasonable.
The Port utilized the General Contractor/Construction Manager (GC/CM) delivery method for the Project.
In addition to this audit, Washington state law (RCW 30.10.385) requires an independent audit be
conducted to confirm the proper accrual of costs for any alternatively selected subcontractors.
A GC/CM contract for the pre-construction portion of the Main Terminal Low Voltage System Upgrade
Project (Project) was executed on August 9, 2019, by the Port with M.A. Mortenson (Mortenson). The
initial Not-to-Exceed (NTE) amount was $1,500,000 and pre-construction had an estimated performance
period of three years. At the time of the initial agreement, design was less than 30% complete and it
was expected that additional funds would be needed to support the pre-construction services being
provided by the GC/CM and Electrical Contractor/Construction Manager (EC/CM). The Port and
Mortenson agreed to begin with the initial NTE funding of $1,500,000 and increase the NTE amount
once the full level of effort and costs for the services could be more accurately defined. In August of
2021, an additional $1,500,000 was authorized through a Change Order to fund the remainder of the
Pre-Construction services. The total budget for pre-construction was $3,000,000. The Pre-Construction
portion of the project was completed in November 2022.
Our audit focused on a review of pay applications and compliance with Contract requirements. Our work
identified an opportunity where internal controls could be enhanced or developed. This opportunity is
listed below and discussed in more detail beginning on page six of this report.
1. (Medium): We identified opportunities for Engineering Construction Management to strengthen
controls during the pay application review process. Additionally, supporting documentation to show
compliance with the Port’s Standard Operating Procedure 40.08, State law and the Contract, was
not always maintained.
Glenn Fernandes, CPA
Director, Internal Audit
Responsible Management Team
Eileen Francisco, Director, Aviation Program Management Group
Karen Goon, Deputy Executive Director
Nora Huey, Director, Central Procurement Office
Chris Sherwood, Assistant Director of Engineering – Construction
Janice Zahn, Director of Engineering
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A GC/CM pre-construction portion of the Contract was executed on August 9, 2019, between the Port
and M.A. Mortenson (Mortenson). The initial Not-to-Exceed amount was $1,500,000 and pre-
construction had an estimated performance period of three years. On August 18, 2020, an EC/CM
contract was executed between Mortenson and VECA Electric & Technologies (VECA), and in
November 2020, Mortenson and VECA mobilized and began providing preconstruction services. At the
time of the initial agreement, design was 30% complete and it was expected that additional funds would
be needed to support the pre-construction services being provided by the GC/CM and EC/CM, although
the full level of effort and services needed was difficult to fully quantify. Therefore, the Port and
Mortenson agreed to begin with the initial NTE funding of $1,500,000 and increase the NTE amount
once the full level of effort and costs for the services could be more accurately defined. In August of
2021, an additional $1,500,000 was authorized through a Change Order to fund the remainder of the
Pre-Construction services. The total budget for pre-construction was $3,000,000.
The Project replaces Main Terminal's low-voltage distribution system at Seattle-Tacoma International
Airport (SEA), which serves power to every floor of the main terminal and is at the end of its serviceable
lifespan. The Project replaces nearly 300 separate electrical power panels and installs a new power
center. Pre-construction services include detailed design reviews with recommendations to improve
quality and reduce project costs. During construction, work performed by the GC/CM and EC/CM will be
negotiated directly as part of the maximum allowable construction costs (MACC). All remaining work is
competitively bid by the GC/CM with Port oversight. The total budget for the project is $119,557,000.
Construction is estimated to be completed in the second quarter of 2026.
SEA's medium voltage electrical distribution system and power centers have all been renewed and
replaced within the last 20 years. The next phase of SEA's renewal and replacement program for the
electrical system is the low-voltage system. This infrastructure is critical to airport operations. Large
portions of the existing low-voltage electrical distribution system are over 40 years old and are past the
end of their useful operating life (30 years), raising concerns over their continued reliability. Additionally,
much of the existing equipment is not compliant with the current National Electrical Code (NEC). This
Main Terminal Low Voltage System Upgrade will correct all the issues in this area and bring the
installation up to current standards and compliance with current codes. Specific scope items include:
(1) Normal Power renewal, replacement, optimization, and expansion.
(2) Emergency Power renewal, replacement, optimization, and expansion.
(3) Replacement of the Central Terminal Power Distribution Load Center.
(4) Implement branch circuit level energy metering in new work.
(5) Minimize disruption to normal airport operations during construction.
(6) Abatement of regulated materials as incident to the overall scope.
The construction contract was executed with Mortenson and the Port in November 2022 and will be
completed in early 2026. The total cost of the Project is budgeted at about $120 million, with a 7%
Women-Owned and Minority-Owned Business Enterprise aspirational goal.
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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.
In some instances, we used judgmental sampling methods to determine the samples selected for our
audit test work. In those cases, the results of the work cannot be projected to the population as a whole.
The period audited was January 2019 through August 2023 and included the following procedures:
Pay Applications
• Obtained an understanding of management’s review and approval process of pay applications.
• Reviewed supporting documentation for all pay applications, including receipts and timesheets.
• Verified labor hours were billed in compliance with contract requirements.
• Determined if receipts accurately supported pay applications and complied with contract
requirements.
• Reviewed the use of the contingency and the other stipulated costs budgets to determine if
expenses aligned with contract provisions.
Change Orders
• Obtained an understanding of management’s Change Order review process.
• Verified approvals by required personnel.
• Confirmed the approved change order amounts tied to the Change Order Log.
• Reviewed Change Order supporting documentation for reasonableness and compliance with
contract requirements.
Key Personnel Change
• Obtained an understanding of management’s review process over key personnel changes.
• Reviewed key personnel changes occurring during the pre-construction phase.
• Obtained and reviewed supporting documentation for such changes.
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We identified opportunities for Engineering Construction Management to strengthen controls
during the pay application review process. Additionally, supporting documentation to show
compliance with the Port’s Standard Operating Procedure 40.08, State law, and the Contract, was
not always maintained.
We reviewed all pre-construction pay applications for compliance with the Port’s Standard Operating
Procedure (SOP) 40.08, the Washington State Auditor’s Budgeting, Accounting and Reporting System
(BARS) GAAP Manual 3.1.4.10/RCW 43.09.200, and the Contract.
SOP 40.08 states pay application oversight/administrative controls as “CPO Contract Administration
confirms required contract compliance documentation has been provided by the Contractor.”
BARS GAAP Manual 3.1.4.10 Original Supporting Documentation requires: “Local governments are
responsible for obtaining and ensuring the integrity and retention of the original vouchers, receipts, and
other documents – regardless of physical form – necessary to isolate and prove the validity of every
transaction relating to the receipt, use and disposition of public funds or property (RCW 43.09.200). This
requirement extends to all accounting entries, including interfund transactions or allocations of overhead
costs.”
Contract requirements were not properly followed, as outlined below:
Contract
Section
Contract Language
Issue
III.B.1.
The hourly rates included in Attachment B
(Preconstruction Work Plan) cover all of
the GC/CM’s direct and indirect costs or
expenses arising out of or related to the
performance of the Preconstructions
Services authorized in this Agreement,
including but not limited to: (in part)
l) local travel and parking;
m) Security Badging Costs;
q) Mail and delivery services.
Our review found the following items
were reimbursed by the Port:
l) Parking expenses were overbilled by
$674.00.
m) Security badging costs were
overbilled by $467.76.
q) Mail and delivery services were
overbilled by $81.14.
III.B.2.
The GC/CM and any other subcontractors
working on Preconstruction Services shall
provide detailed time sheets for each day
worked that show (a) the names of
individuals that worked on the Project, (b)
the hours each individual worked, and (c)
the tasks each individual performed. For
every day that an individual bills time to
the Project, time sheets for that individual
must show his/her billable and non-billable
time for that day.
The GC/CM did not submit timesheets
as part of the supporting documentation
for Pay Applications. Instead, a total
number of hours worked for each
contractor was submitted on the invoice.
We obtained timesheets from the
GC/CM and compared the number of
hours per the timesheets to the number
of hours paid per the invoices. We
determined one contractor overbilled by
2 hours, resulting in an overpayment of
$390.00.
III.B.3.
The Port will not compensate GC/CM for
any exempt employee for more than; a)
Eight (8) hours per day or forty (40) hours
per week for employees on a “regular”
five-day work schedule; b) Ten (10) hours
per day or forty (40) hours per week for
employees on a demonstrated four-day
Our review of timesheets obtained from
the GC/CM found eight instances in
which the Port paid more than 40 hours
in a week for exempt employees. This
resulted in an overpayment of $6,997.00.
1) Rating: Medium
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work “alternative” work schedule.
X.
GC/CM agrees not to replace or remove
any individual who is satisfactory to the
Port without the Port’s prior written
consent.
The Project Manager was replaced in
September 2020. The Construction
Management team for the Project stated
they reviewed and approved the Key
Personnel change, however, the
approval was not documented.
Attachment
C
The Port may require additional tasks be
performed by the GC/CM related to this
contract. A task is established to set up a
contingency for those services. GC/CM
shall not use or bill against this task
without specific written direction from the
Port. Such direction will be sent either via
letter or email from the Engineering
Construction Manager. The specific scope
of work, deliverables, level of effort, and
not to exceed value will be established in
the letter or email.
The GC/CM requested to use the
Contingency Budget, however, the
GC/CM’s purpose for using the
Contingency was to complete pre-
construction activities, not perform
additional tasks, as outlined in the
Contract. Additionally, we were unable to
obtain the Port’s approval for using the
Contingency Budget. The Port’s
Construction Management team for this
Project stated there were discussions
regarding the approval to use these
funds, however, it was not documented.
A total of $47,817.00 was charged to
Contingency Budget on the final Pay
Application.
Change
Order 1
Specialized tools and safety gear as
required by the EC/CM as well as parking
for contractors who are on site
occasionally will come from the Stipulated
Other Costs Budget.
The GC/CM requested via e-mail to use
the Stipulated Other Costs Budget,
however, the purposes for using the
Stipulated Other Costs Budget was to
complete pre-construction activities, not
for specialized tools, safety gear and
parking, as required in the Change
Order. Additionally, we were unable to
obtain the Port’s approval for using the
Stipulated Other Costs Budget. The
Port’s Construction Management team
for this Project stated there were
discussions regarding the approval to
use these funds, however, it was not
documented. A total of $37,585.00 was
charged to Stipulated Other Costs
Budget on the final Pay Application.
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Recommendations:
Construction Management should:
1. Review overpayments identified in the audit and collect overpayment from the GC/CM, as
appropriate.
2. Assure compliance with SOP 40.08, BARS GAAP Manual 3.1.4.10/RCW 43.09.200, and the
Contract, by requiring the GC/CM to submit all required documentation to support transactions. For
example, timesheets should be obtained as supporting documentation for the Pay Applications.
3. Maintain supporting documentation of Port management approval for all key personnel changes.
For any staff change including key or supplemental staff, there should be support provided for a
negotiated agreed upon rate.
Management Response/Action Plan:
1. Engineering Construction Management will review the identified overpayments and collect
reimbursement as appropriate.
2. Engineering Construction Management, in collaboration with Central Procurement Office (CPO),
and AV/Waterfront Project Management, will review documentation requirements for GC/CM
preconstruction services contracts and ensure all SOPs contain GC/CM specific procedures.
3. Engineering Construction Management agrees with the recommendation and will continue to train
staff to improve compliance with these existing requirements.
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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
Moderate
probability for
external audit
issues and / or
negative public
perception
Requires
attention
Low
Minimal
Functioning as
intended but
could be
enhanced
Mostly complies
with Laws, Port
Policies,
Contracts
Low probability
for external audit
issues and/or
negative public
perception
Does not
require
immediate
attention