Construction Process and Internal Controls Review

Design and Project Management; Procurement of Construction Services; Construction Management and Administration; and Project Closeout and Asset Inventory

DoE Audit Report JULY 2013

SUMMARY OF FINDINGS

Based on this assessment and in comparison to industry practices, Facilities Development Branch (FDB) has opportunities to streamline and improve its design and construction management processes to improve efficiency and internal controls. Overall it appears that at times FDB may have challenges in finding an appropriate balance between timely design completion and quality of designs, and insufficient construction oversight may exacerbate design deficiencies and cause project delays. FDB could also improve balancing the demands of designing and constructing school facilities with serving the end user.  FDB’s systems for retention and organization of project documentation and data are outdated, and organized and comprehensive document retention appears to be of less priority than moving as many projects through the design process as possible. Inconsistency of project delivery protocols and under-enforcement of agreed-upon metrics for project completion on neighbor islands compound many of these issues. Each of the findings summarized below are discussed further in the Detailed Report – Observations: Findings and recommendations section.

The key findings resulting from the process and internal controls review are as follows:

• POLICIES AND PROCEDURES

FDB does not have updated, comprehensive, and consolidated policies and procedures to manage design and construction projects. As noted in phase I of this assessment, FDB relies on policies and procedures for design and construction that pre-date the transfer of responsibility for school facility maintenance and construction from DAGS to DOE. As a continuation of efforts to address this repeat finding, FDB should continue to move toward a comprehensive branch manual that can help streamline the project design and construction process and serves as an effective reference for on-boarding new employees. DOE should also implement a process to keep its policies and procedures current on an ongoing basis.

• CAPITAL EFFICIENCY

Inefficiencies in capital planning, construction bidding, and construction management limit FDB’s ability to maximize use of its biennium budget to repair, maintain, and construct new school facilities throughout the state. Faced with limited resources, particularly on neighbor islands, FDB cannot consistently and proactively address maintenance issues, which can develop into costlier repairs or get overlooked in the capital planning process. Bid preferences and delays issuing notices to proceed reduce the value that FDB receives in the competitive bidding process. Insufficient project oversight leads to coordination issues during construction, which occasionally lead to costly consultant contract modifications and change orders. Delays in collecting project closeout documents and inconsistent cataloguing of documents received impact building maintenance and may jeopardize asset warranties. Ineffectual liquidated damages clauses that FDB only occasionally enforce further reduce the value that FDB receives from its capital improvement program.

• USER SATISFACTION

FDB and DAGS can provide more consistent updates to end users pertaining to project backlog, status of prioritizations and work order repair and maintenance projects, and ongoing campus construction activities. FDB should continue and expand training efforts for principals, custodians, and Administrative Services Assistants (ASA) and empower ASAs to fulfill their roles as conduits between FDB and the campuses. FDB should develop a robust post-project evaluation process that includes lessons-learned, consultant and contractor evaluations, and feedback from users and ASAs.

• INEQUITY OF WSF FUND USAGE FOR SCHOOLS ON O’AHU AND NEIGHBOR ISLAND SCHOOLS

Through interviews performed, principals for neighbor island schools reported facing the choice between using Weighted Student Formula (WSF) funding designed for school programs to address facility needs and waiting for FDB or DAGS to address a facility need. On O’ahu, principals did not report waiting so long for FMB to address a repair that they used WSF for facilities instead. FDB should improve responsiveness and reduce time to complete small repairs and other facilities projects on the neighbor islands to reduce instances where principals shift WSF funding away from school programs.

• SERVICE LEVEL AGREEMENT (SLA) WITH DAGS

Certain performance objectives related to work order processing time established by the SLA with DAGS no longer appear to meet the needs of users on the neighbor islands or cannot be measured with the current system in place to track work orders on the neighbor islands. Additionally, insufficient updates to the SLA have led to outdated references and omission of protocols related to FDB processes and requirements around such tools as FACTRAK and HePS. FDB should consider realigning responsibilities on neighbor islands so operations are comparable with those on O’ahu.

SUMMARY LIST OF FINDINGS

GENERAL FINDINGS AND RECOMMENDATIONS

Finding 1: FDB has outdated and decentralized policies governing R&M and CIP.

Finding 2: FDB does not sufficiently leverage technology to streamline the project and construction management process.

Finding 3: Inconsistency in document retention may lead to compliance violations.

Finding 4: Locating FDB resources in multiple facilities constrains inter-section communication and knowledge sharing.

CATEGORY 1: DESIGN AND PROJECT MANAGEMENT

Finding 5: Insufficient master planning leads to inefficient use of DOE resources.

Finding 6: Inconsistency in soliciting user comments during design development leads to project complications during construction.

Finding 7: FDB does not consistently review consultant designs and evaluate consultant performance.

Finding 8: Consultant contract modification processing causes project delays.

CATEGORY 2: PROCURMENT OF CONSTRUCTION SERVICES

No findings.

CATEGORY 3: CONSTRUCTION MANAGEMENT AND ADMINISTRATION

Finding 9: Delays in issuing notices to proceed (NTP) lead to increases in construction costs.

Finding 10: DAGS may be insufficiently staffed to proactively address work orders on neighbor islands.

Finding 11: DAGS may be insufficiently staffed to manage quality for neighbor island R&M projects and CIP.

Finding 12: Delays in DAGS and FDB addressing school-requested projects has led neighbor island schools to use their general education funds (Weighted Student Formula funding) to address selected facilities projects.

Finding 13: FDB does not adequately work through Administrative Services Assistants (ASAs) to keep school stakeholders apprised of project status.

Finding 14: FDB does not incorporate and consistently enforce effective liquidated damages clauses for construction contracts.

Finding 15: Project contingency may be insufficiently developed to address common unforeseen conditions.

CATEGORY 4: PROJECT CLOSEOUT AND ASSET INVENTORY

Finding 16: The standards set by the Service Level Agreement with DAGS do not appear to adequately meet the needs of neighbor island schools.

Finding 17: Delays in construction project closeout increase FDB risk.

Read … Entire Audit Report

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SA: Neighbor isle campuses bear brunt of DOE woes: Projects are poorly or improperly funded due to a lack of workers and old policies, an audit finds

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Hawaii State Department of Education Tackling Inefficiencies as part of Education Transformation

News Release from Hawaii DoE August 6, 2013

HONOLULU – As public schools begin a new year, the Hawaii State Department of Education (DOE) will keep part of its focus on investigating inefficiencies to enhance operations statewide. Today, the DOE revealed a new analysis aimed at improving development of school facilities.

A review of the DOE’s Facilities Development Branch (FDB) was presented before the Hawaii State Board of Education (BOE) Audit Committee. The analysis is based on the DOE/BOE strategic plan to locate and correct inefficiencies as directed by Superintendent Kathryn Matayoshi.

The review on FDB analyzed processes and controls related to specific construction, repair and maintenance activities against leading industry practices. It noted a number of findings and made recommendations for improvement.

“There is always an on-going need for improving or building additional facilities to support our students, and we need to make the best use of our capital improvement dollars. That's why we commissioned a thorough review to help us better manage projects as we go forward,” stated Superintendent Kathryn Matayoshi. “The findings of this review clearly indicate that outdated policies and procedures are prolonging many projects. Our department will work with all interested stakeholders to correct long-term challenges and address the recommendations.”

According to the report, “Inefficiencies in capital planning, construction building, and construction management limit FDB’s ability to maximize use of its biennium budget to repair, maintain, and construct new school facilities throughout the state.”

Other findings include:

• · FDB does not sufficiently leverage technology to streamline the project and construction management process.
• · Lack of effective communication within FDB leading to setbacks.
• · Insufficient master planning.

"Our Strategic Plan has three major components: Student Achievement; Staff Development and Systems of Support improvements,” stated BOE Chairman Don Horner. “This latest audit is part of the overall Plan to make much needed long-term and systemic improvements in how to more effectively and efficiently build and repairs our schools in the future."

Superintendent Matayoshi directed the DOE’s Internal Audit Office (IA) to assist in the scope to perform a Process and Internal Controls Review of FDB and to administer the procurement of those services. Following a request for proposal, Deloitte & Touche LLP was contracted in June 2011. The company summed up its findings and recommendations before the BOE Audit Committee today.

In February, IA presented its audit of the DOE’s food services program. Its review focused on the design and operating effectiveness of existing control procedures. The DOE has since taken corrective action based on the recommendations of that review.

Independent of all other departments within the DOE, the IA reports directly to the Superintendent and the BOE Audit Committee. IA reports quarterly on the status of audits and recommendations.

Last year, an audit of the DOE student bus transportation services surfaced a number of inefficiencies in contract procedures and fiscal mismanagement. Several changes have been made based on recommendations of that audit. The DOE also began this school year with its Get On Board initiative, a multi-year, multi-faceted commitment to reform its public school student bus transportation system. For more information about Get on Board, please visit www.HawaiiPublicSchools.org.

A copy of the DOE's Construction Process and Internal Controls Review report is available here.

Reports presented before the BOE can also be found at www.HawaiiPublicSchools.org.

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