Collaboration in Civic Spheres

U.S. Audit Of Peace Arch Border Facility Rebuild: Construction Contract Management Was Lax, Costly

by Matt Rosenberg March 29th, 2011

SUMMARY: Contrary to mandates and guidelines meant to ensure competition in government construction contracting, the U.S. General Services Administration set aside the lead contractor’s proposed guaranteed maximum price of $59.9 million for construction phase services to redevelop the U.S.-Canada Peace Arch border crossing at Blaine, Wash. Instead the GSA approved a start to construction with no price cap and then more than a dozen piecemeal modifications based on estimates from subcontractors until finally okaying a ceiling of $91.4 million for all construction costs. An independent audit by the GSA’s Office of the Inspector General reports that the GSA’s Public Building Service, which managed the Peace Arch project contracting, improperly assumed financial risk for the project which should have been borne by the lead construction contractor (J.E. Dunn Construction of Kirkland, Wash., not named in the audit). Appropriations for the project included $26 million in U.S. Recovery Act funds. The audit directs the building service to ensure that in the future all similar contracts are bid competitively and a firm price ceiling is established at the outset.

BACKGROUND: The U.S.-Canada border crossing at the 1976-vintage Peace Arch facility on U.S. Interstate 5 in Blaine, Wash. was expanded to add more inspection booths and inspection areas to meet growth in current and future vehicle traffic, and to satisfy new security standards. Construction was overseen by the Public Building Service (PBS) of the U.S. General Services Administration (GSA) and funded in part by the U.S. Recovery Act of 2009. GSA is the federal government’s real estate management division and its independent Office of the Inspector General recently completed an audit review of the Peace Arch construction contracting process. Opening ceremonies for the rebuilt facility were held last week. Funds totaling $105.9 million were spent for the project, according to GSA, covering construction and other expenses including site acquisition, design, and road improvements.

KEY LINK: “Recovery Act Report – Peace Arch U.S. Port of Entry Redevelopment Construction Contract Audit, U.S. General Services Administration, Office of Inspector General, March 4, 2011.

KEY FINDINGS:

  • Construction work for the Peace Arch Land Port of Entry redevelopment project, through a type of contract called Construction Manager as Constructor, was to include a guaranteed maximum price set at the time the contract was awarded. But when the GSA’s Public Building Service (PBS) awarded the construction contract on March 14, 2007, it did not include a construction phase services price cap of $59,997,248 which had been submitted by the contractor. Leaving the door open for cost escalations, PBS noted on the construction contract that it would negotiate the price cap later.
  • PBS authorized construction to begin without a price cap and between August 2007 and December 2008 approved 14 contract modifications. Finally in late April 2009 as it approved the 15th contract modification, PBS set a price cap of $91,440,824 for construction and other construction-related expenses including bonds, other direct costs, contingency and profit.
  • By failing to set a price cap at the time of awarding the construction contract, and then permitting work to proceed and costly modifications to mount, PBS essentially discarded its negotiating leverage and agreed to an unpriced, non-competitive sole-source relationship with the lead contractor. It did so lacking an approved justification, and violated competition requirements of the Federal Acquisition Regulation and the Competition in Contracting Act. The approach used also was contrary to competitive contracting guidelines for the Recovery Act, issued by the U.S. Office of Management and Budget.
  • PBS allowed the lead contractor to dictate the price of the project based on sub-contractor cost estimates, turning what should have been a fixed-price deal with the financial risk borne by the general contractor into a project estimated on a piecemeal basis, with the financial risk assumed by the client.
  • The auditors recommend that PBS adopt new procedures to ensure that future Construction Manager as Constructor contracts are competitively bid. In an attachment to the audit, PBS says it has developed and is implementing a corrective action plan to ensure the problems cited don’t reoccur.

A spokesman for the Northwest/Arctic region of the GSA, headquartered in Auburn, Wash., today declined comment on the audit.

RELATED:

Recovery Act Audits, Office of Inspector General, U.S. General Services Administration

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