Background Over a twenty month period ended November 30, 1998 the University entered into approximately thirteen hundred construction contracts with a value of $48 million. The construction projects relating to these contracts ranged from large projects to construct new facilities to small
future years, the University anticipates increasing the amount of construction.
Contract project management
Recommendation No. 15
It is recommended that the University of Alberta
strengthen its contract project management systems by:
• ensuring contracts are executed in advance of the commencement of all construction projects,
• ensuring its competitive bidding policies are being followed and change orders are processed only when warranted, and
• improving the process to evaluate contractor performance.
Execution of contracts
Executed contracts are not always in place prior to the work commencing
To ensure that a basis exists for assessing whether a
contractor has met its performance obligations, an executed contract should be in place prior to the work commencing.
However, in approximately 20% of the contracts that my staff reviewed, work commenced prior to having a contract in place. In the majority of these cases fee disputes arose which were more difficult to resolve in favour of the University since formal contracts including contract specifications had not been in place prior to the
commencement of work. Part of the reason that contracts are not always in place prior to the commencement of work appears to be the tightness of the deadlines associated with completing the work. University staff have informed me that as a result of the tight deadline a more costly option may be used, based on perceived expediency, instead of a more cost-effective option.
The schedule of construction projects should be reviewed to ensure it is realistic
The University should review its scheduling of construction projects to ensure it is realistically attainable, so that projects can be completed on a cost-effective basis and contracts can be in place prior to the commencement of work.
Competitive Bidding and Control of Change Orders
A mechanism is needed to ensure University policy is always followed with respect to competitive bidding
Although the University has a policy specifying when competitive bidding should be used, a review of contract files and other correspondence indicates the policy is not always followed. A lack of competitive bidding can expose the University to the risk of potential failure to receive value for consideration paid. By failing to give consideration to other potential service providers, it is difficult for the University to judge the reasonability of costs proposed by a
vendor. Accordingly, the University needs to establish a mechanism to ensure its policy is enforced.
Sufficient information is not always in place to support the payment of change orders
Approximately 25% of the contracts with change orders examined by my staff were projects where the final cost exceeded the second lowest original competitive bid due to the processing of change orders. In some cases, sufficient documentation was not maintained in the project files to justify the payment of the change orders.
An improved process is needed to manage change orders
The University should improve the management of change orders. Prior to having a contractor commence additional work, a change order should be in place which includes the following:
• The sponsoring department’s agreement that the change to the scope of the work is required and is approved.
• The construction project manager has reviewed the technical merits of the change.
• The construction project manager and the purchasing department agreement that the change order, as
presented, does not represent work that should have been performed under the original contract.
• The construction project manager concurs in writing that the change order, as presented, represents fair value to the University.
Where, depending on the type of project, the number of change orders or the dollar amount of change orders exceeds a pre-defined limit, a review should be done to determine whether a weakness in the construction project management system may have caused the change orders to occur.
Contractor Performance Evaluation
Although a mechanism is in place to evaluate contractors, contractor evaluation is not consistently being done
Until very recently, the University has not had a formal process whereby the sponsoring department has had written feedback on the contractor’s prior performance. In
November 1998, the University’s purchasing department introduced evaluation forms for post-construction contractor and consultant evaluation. However, by April 1999, the purchasing department had received only one contractor evaluation form.
Contractors with performance issues continue to be used by the University
During our interviews with University staff from all levels of the construction management process, my staff asked
whether University staff members were aware of contractors with performance issues. For the majority of the
interviewees, the answer was clearly “Yes”.
Continued use of inadequately performing contractors has many effects on the University including:
• Concerns over whether the University is receiving value for consideration paid when the work is sub-standard or not in accordance with the original contract, and
• Increased risk of liability arising from poorly completed construction or repair work.
The University needs to ensure contractor evaluations are consistently prepared upon completion of the construction project
To improve contractor performance the University should put more emphasis on requiring project managers to promptly complete contractor evaluation forms. The purchasing department can then use that information to promptly amend the standing order vendor list to include only those contractors that have provided adequate performance. In addition, as part of this process and to understand how the sponsoring departments are impacted by the contractor’s performance the University should consider having the sponsoring departments provide feedback and signoff that the project was completed.
Performing
post-completion reviews may result in savings for the University
For larger dollar value or riskier contracts the University may wish to go further in contractor evaluation and consider building into its contracts the right to perform a
post-completion contract audit. These type of audits may result in savings for the University by addressing issues such as the achievement of overall project objectives, budget overruns and user satisfaction levels.
Conflict of interest policy and code of conduct
It is recommended the University require annual disclosure of private interests that have a likelihood of creating a conflict of interest for those staff involved in procurement and project management, and for all other administrative supervisory staff. In addition, it is
recommended that a code of conduct be defined for all staff and that the University put a mechanism in place to ensure that conflict of interests and code of conduct policies are being followed.
While the University has conflict of interest policies, no mechanism exists to ensure the policy is being followed by staff in procurement and project management
Currently, the University has conflict of interest policies in a number of different manuals and agreements. One of the most comprehensive policies appears in the General
Faculties Council (GFC) Policy Manual. This policy requires for all staff that conflicts of interest be disclosed when a staff member is appointed and when actual conflict of interest situations arise. However, the University lacks a mechanism to ensure that the policy was being followed for staff
involved in procurement and construction project management.
The policy also requires academic staff, in certain cases, to disclose annually private interests that have a likelihood of creating a conflict of interest. The same requirement should be in place for staff involved in procurement and project management, and for all other administrative supervisory staff.
As a minimum, staff involved in procurement and construction management should be required to provide written conflict of interest disclosures on an annual basis
Failure to have adequate disclosure of conflicts of interest could affect the integrity of administrative processes at the University including the management of construction projects. For example, project sponsors and construction project managers could be in a position to unduly influence contractor tendering and selection. Accordingly, persons in a position to contract or to provide influence over the competitive bidding process should be required to disclose conflicts of interest and annually private interests that have a likelihood of creating a conflict of interest.
A code of conduct should be defined for all staff
It would also be useful for the University to define a code of conduct for all staff. Such a code would include, for
example, the dollar level, if any, of gifts and other benefits it would be acceptable for staff to receive from those who conduct business with the University.
Administrative Systems Renewal Project (ASRP) and Non-ASRP Applications
Considerable progress with ASRP implementation has occurred
In my 1997-98 annual report (page 49), I recommended that the University develop contingency plans to mitigate the potential adverse consequences of slippage in the
Administrative Systems Renewal Project (ASRP)
implementation schedule. The systems to be implemented as part of ASRP replace the major financial, student information and human resource systems used by the University. I noted that the timelines for successful implementation of the ASRP
project were extremely tight and that slippage in delivery plans could result in serious difficulties for the University and have potentially adverse effects on the University’s
ability to manage the risk of Year 2000 failures.
Considerable progress with the ASRP implementation has occurred during the year. The University is looking at the risks remaining with the applications that have yet to be implemented and intends to make contingency plans where necessary.
Although the inventory of risk assessments for non ASRP systems was not complete by May, 1999, progress is being made
In my 1997-98 annual report (page 51), I also recommended that the University accelerate the process for assessing and identifying the mission critical Year 2000 risks, and potential costs to mitigate these risks, in the non-Administrative Systems Renewal Project systems. I commented on the significant logistical problems in administering a Year 2000 assessment project in an environment as extensive and decentralized as the University. My staff’s observations this year indicate that significant senior management
involvement is evident and that although the inventory of risk assessment was not complete by May 1999, that progress is being made and that more resources have been committed to move Year 2000 readiness forward.
As in the case with many organizations, despite the
University’s efforts to address the issue, it is not possible to be certain that all aspects of the Year 2000 problem affecting the University, including those related to the efforts of customers, suppliers and other third parties will be fully resolved before the Year 2000.