Loading...
HomeMy WebLinkAboutSS3 - Civic Center Project - CorrespondenceReceived After Agenda Printed January 13, 2015 Item No. SS3 January 11, 2015 PLEASE DISTRIBUTE TO CITY COUNCIL MEMBERS AND ENTER INTO THE PUBLIC RECORD- reference January 13, 2014 City Council session Subject: Final Accounting Closeout and Lessons Learned re: Construction of Newport Beach City Hall /Civic center and, Request to City Council for Improved Fiscal Controls Mayor and Council Members: We appreciate the direction of Mayor Pro -tem Dixon to staff to provide a report detailing the final Closeout Accounting for the construction of the new City Hall at the upcoming January Council meeting, and comments regarding "lessons learned ", presumed to include opportunities for improvement going forward. We are pleased that this opportunity is being provided. Residents have been waiting for over 18 months for answers to questions posed at the May, 2013 Council meeting during which City staff first presented a request to Council for an additional $6 million to "complete the closeout accounting" on this project. $4.3 million was to be used for what was characterized as "design omissions ", nor was a fully detailed schedule provided to consider the merits and amounts. Residents expressed desire for further explanation and information, also including understanding of the role ,actions and accountability of the third party CM at risk . Residents submitted oral and written testimony, and asked that the Council not approve the request until such time as the requested supporting information was provided; particularly as there were potential issues of both cost and risk(safety and claims - related) associated with 'omissions ". The Council proceeded to unanimously and without condition or request for additional information, approve the extra funds. We have reviewed the Staff Reports throughout the course of this project, and including those prepared in preparation for the January 13, 2015 Study Session. Following are our key concerns which we request that the Council consider and affirmatively address in its direction going forward. Capital programs represent one of the three largest areas of financial expenditure and commitment of the City. The City cannot provide true Fiscal Control and accountability until its approach to capital programs is addressed. Therefore, it is critical that the City and its leadership: 1)ldentify specific points of concern relating to policy and practice associated with capital program planning and management, and 2) Establish specific policy direction, procedures, commitments to fiscal budget discipline, contractual and project management controls, and 3) maintain clear roles and accountability going forward . Following please find our observations and comments , as evidenced by the handling of the Civic Center project, and as exemplified by the staff's approach to the requested current reporting: 1. A prevailing philosophical direction and practice that " money is no object" and that budgets are of little significance to adhere to —Staff is correct that voters approved the relocation of the City Hall to its current site(inclusive of required parking); and, a park area in conjunction with the city hall. The project budget vetted and approved by the voters was stated to be in the $30 million range,and that it would be funded largely by cash on balance sheet. Newport Beach is a city of approximately 85,000 residents. Historically, the City has been the beneficiary of extraordinary levels of Development fees ,substantially derived from several large developers. This philosophy has been actively promulgated from the top by City Council, and has created an institutional practice and culture with city staff that "funds are unlimited ". This philosophy, and corresponding culture needs to be changed, to align with the Will of the People. Relative to the Civic Center project, it was clear that no one was charged with, or acted, so as to actively conform to budget parameters. As staff has pointed out, is was clear from early in the planning and design process that the scale of the new City Hall was far beyond that needed or justifiable from an approved fiscal perspective. 2. Perpetual increase in project scale, scope and expense without transparency and approval —The project grew without discipline to over 4 times the originally contemplated cost. Why did senior staff not object to this and propose alternative approaches? Staff is correct in citing the significant time and effort associated with a "public process ". However, staff fails to cite the repeated public testimony and objection to the scale, scope and expense of the project were perpetually changed and increased without public approval. This began fairly early in the process. Budgetary parameters should have been conveyed to the design team, and certainly would be required to hold a third party CM to fulfilling responsibility. It is intereresting to note that, in the same time frame that the scale and budget was ignored and allowed to run without control, the City Manager was actively engaged in operational consolidation, including significant staff consolidation and reduction and consideration of outsourced solutions. 3. Expensive, ineffective "public process " —We agree with staff that there was significant time and effort invested in forms of public process. However, the staff neglects to mention that the public in oral and written testimony, voiced significant consistent, repeated objection to the ballooning expense and runaway scope of the "project ". This strong public objection began early on, with the Design concept, and continued throughout the project. It was clear that the city was aware of the residents' position( as evidenced by Mr. Hill's public commitment to "stop at $90 million ") Why did the Council and staff choose to Consistently Ignore the Will of the People? Scale and scope of the City office building, all the way to the park Bridge, furnishing,etc. were objected to along the way. This philosophy, policy and practice need to be changed for the good of the City, and aligned with the will of the People going forward. 4. Inadequate contractual framework and project controls —It was a reasonable decision to retain the services of a third party Construction Manager to provide the supervision and oversight associated with such a project. However, there is no evidence provided to date of basic contractual framework or project controls applied to any of the consultants of contractors. CW Driver is recognized to be an experienced general contractor and construction manager. Under what framework, and where is their accounting and administrative process? How was CW Driver's performance monitored as a third party CM at risk? There remains no material evidence of scope or budget management - - -how could there be when the scope and expense were allowed to continually move without transparency or accountability? What mechanism protected the City from conflict, as this firm also served as the General Contractor? What did the City end up paying the firm for a) General Contracting, and b) third party CM at risk services? 5. Experience and capability of staff —The manner in which the service providers were contracted and left with little supervision and accountability calls the City's project controls processes and staff capability to manage capital projects and budgets into question. We as a City need to have capable, committed staff that can act on our behalf to carry out the capital projects and operational requirements of the city . This needs further independent professional investigation. 6. The staff report still has not provided full "closeout accounting" report with customary schedules,including a lineup schedule indicating the initial project plan, and where scope and corresponding budgets were submitted, changes proposed, and approved. What are the closeouts for the major contractors on this project, and are there any remaining issues or payments to be resolved? This project, while the largest in terms of financial impact, is by no means the only one where there has been over - sizing, perpetual scope creep, and no discipline as to budget accountability. Capital programs represent one of the 3 largest areas of financial expenditure and commitment by the City. Therefore, it is critical that we 1) Identify the points of concern, and, 2) Establish a specific path with policy, procedures, commitment to disciplined project management and control, and clear roles and accountability going forward. What follows are our observations regarding items of concern evidenced by the handling of the new City Hall (Civic Center) project: We respectfully request that the current City Council take immediate action to course correct for the sake of the community, and the future of Newport Beach. Going forward, we want to have confidence that our City leadership and governance is disciplined, responsible and transparent to the public. We specifically ask that the City Council: 1. Provide specific philosophical direction consistent with the will of the People relative to fiscal responsibility and conservatism, accountability and approach going forward. 2. Engage an independent Auditor experienced in forensic and management review of capital programs , selected by those City Council members not previously involved with the City Hall project to conduct an Independent Audit of the Civic center project and expenditures, payments to key contractors, as well as the City's policies, practices, controls, and City staff roles and responsibilities relative to capital programs. The Independent Audit should include the original scope and budget, contractual frameworks, vetting and selection of contractors, project controls and oversight and administration of interim and financial accounting. 3. Request that the Auditor provide specific recommendations as to policies, controls and staffing for the City to improve project planning, control and performance accountability for future project planning and administration. 4. Implement policies requiring adherence to originally vetted and authorized project scope and budget, unless as explicitly reviewed and approved in advance by the City residents. 5. Review significant projects currently pending or under way to ensure that there is adequate oversight and conformance to scope and all -in budget as approved-- - and, that all contractors' performance and accounting conforms to the governing contracts on a regular basis. 6. Adopt an ongoing enhanced capital project review procedure including, but not limited to independent commissioners and /or resident representatives, and that the City residents be given all opportunities to participate in the review of such projects. 7. With the upcoming City budget cycle, actively examine the underlying assumptions as to sources of revenue and priorities for capital and operating plans. Direct City staff to implement a conservative, limited revenue growth assumption framework so that the City can remain full- service and prosperous; the exceptional community that our City residents and sought -after visitors want, all without having to rely on unconstrained development. With this approach, the City can remain economically vital and sustainable, while perpetuating its unique and valuable character as a spacious and beautiful residentially - oriented community. Thank you for your consideration. Residents: Denys H. Oberman Kathryn H. K. Branman Linda Klein cc: Other Concerned Citizens of Newport Beach, Residents for Reform, No on Measure Y, SPON