Performance audit, Arizona Department of Transportation, construction management function

              State of Arizona
Office
of the
Auditor General
PERFORMANCE AUDIT
Report to the Arizona Legislature
By Douglas R. Norton
Auditor General
ARIZONA
DEPARTMENT OF
TRANSPORTATION
CONSTRUCTION
MANAGEMENT
FUNCTION
October 1997
Report # 97-17
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DOUGLAS R. NORTON, CPA
AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
DEPUTY AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
October 29, 1997
Members of the Arizona Legislature
The Honorable Jane Dee Hull, Governor
Mr. Larry Bonine, Director
Arizona Department of Transportation
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Arizona Department of
Transportation construction management function. This report is in response to a May 29, 1995, resolution of the
Joint Legislative Audit Committee. The performance audit was conducted as part of the Sunset review set forth in
A.R.S. §§41-2951 through 41-2957.
This report is the final in a series of four reports issued on the Arizona Department of Transportation. This audit
focused primarily on the Arizona Department of Transportation’s (ADOT) construction management function. It
addresses the need for ADOT to better manage construction cost increases. Because of the large amount of monies
involved with construction, every percentage point of unnecessary cost increases that the Department can avoid
equates to significant dollar savings. In addition, ADOT needs to fully implement its Project Management Process
to help minimize cost increases that occur during construction that are design-related. The audit also addresses steps
ADOT should take to improve its partnering program to ensure the program operates consistently for each
construction project. Finally, the report recommends that ADOT take advantage of opportunities to use value
engineering and design-build contracting to save money and reduce project completion times.
The audit also followed up on concerns identified previously in ADOT’s Equipment Services Section. The audit
found that ADOT needs to better monitor vehicle utilization and control fleet size, and that ADOT needs to establish
vehicle utilization standards as was recommended in 1987. Although ADOT has made improvements in equipment
preparation timeliness, the Department should explore options that may further reduce equipment preparation time
and costs.
As outlined in its response, ADOT agrees with all of the recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on October 30, 1997.
Sincerely,
Douglas R. Norton
Auditor General
Enclosure
i
SUMMARY
The Office of the Auditor General has conducted a performance audit and Sunset review of
the Arizona Department of Transportation, pursuant to a May 29, 1995, resolution of the Joint
Legislative Audit Committee. The audit was conducted as part of the Sunset review set forth
in Arizona Revised Statutes §§41-2951 through 41-2957. This audit addresses the Depart-ment’s
construction management function and is the fourth and final audit of the Depart-ment
conducted in response to the resolution. Previous audits addressed the Department’s
Motor Vehicle Division revenue functions, its highway planning and engineering functions,
and the Motor Vehicle Division.
The Arizona Department of Transportation’s (ADOT) mission is to provide a transportation
system that meets the needs of Arizona’s citizens. In 1995, ADOT reorganized its planning,
design, construction, and maintenance functions into the Intermodal Transportation Division
(Division). In fiscal year 1996, the Division employed 2,732 full-time equivalent staff (FTE)
and spent more than $1 billion, including monies paid to contractors for road construction.
During the next five fiscal years, ADOT plans to start approximately $3 billion worth of
statewide construction projects.
Since the last series of audits in 1987 and 1990, ADOT has done much to address problems
and improve its performance related to construction. For example, ADOT has decreased its
construction oversight costs and has met its construction staffing cost goals for the last four
fiscal years. In addition, ADOT has increased its use of the private sector to design and over-see
construction projects. Since 1991 ADOT has used a “partnering” process to improve
working relationships with contractors. In 1992, ADOT began to implement total quality
management to evaluate and improve its performance. In 1995, ADOT began implementa-tion
of its Project Management Process to address problems with project design. This audit
recommends further improvements to the Project Management and partnering processes,
and also addresses the need to improve the monitoring of construction costs, and expand the
use of value engineering and design-build contracting, as well as the need for more effective
management of its vehicle fleet.
The Department Needs to
Better Manage Construction
Cost Increases
(See pages 5 through 9)
ADOT can improve its management of construction costs. Over the last 4.5 years, construc-tion
completion costs have exceeded original contract amounts by 2.9 to 7.6 percent annually.
Because of the large amount of monies involved, every percentage point of unnecessary cost
increases that ADOT can avoid equates to significant dollar savings. For example, for projects
ii
planned to begin construction during the next 5 years, a 1 percent overall unnecessary cost
avoidance equals more than $30 million.
ADOT can take steps to better control construction cost increases. Although some construc-tion
cost increases are hard to avoid, such as changes in federal specifications, others are
more manageable, such as omissions in designs and quantity changes. A basic action ADOT
can take to minimize future cost increases is clarifying to construction project managers that
the original contract amount is the completion cost target. Currently, it appears ADOT con-struction
managers’ target is the contract amount plus the 5 percent contingency ADOT
budgets for to cover unforeseen, necessary costs. To further reduce construction cost in-creases,
ADOT needs to better collect, classify, and evaluate construction cost increase data
and communicate reasons for increases to staff originally responsible for those parts of the
project.
Improvements to the Project
Design Phase Can Better Control
Construction Cost Increases
(See pages 11 through 14)
Improving the project design process can help minimize cost increases that occur during
construction due to design-related problems. During 1996, most of the documented cost in-creases
on ADOT projects were design related. National studies conclude that improvements
made during design and pre-construction can have a great impact on controlling construc-tion
costs and minimizing project overruns. Recently, ADOT adopted the Project Manage-ment
Process (Process) to address problems with the design phase. The Process involves a
team of experts from various areas such as design, materials, and maintenance who can pro-vide
a comprehensive review of designs as they are developed. However, the Process lacks
full participation by all parties and is not yet fully operational. To make the Process effective
in minimizing cost increases, ADOT needs to ensure all team members participate in the Pro-cess,
and track how the major decisions the team makes impact cost increases.
Partnering Program
Improvements Needed
(See pages 15 through 19)
ADOT should take steps to make its partnering program more effective. Partnering involves
a formalized process to resolve issues or disputes between the Department and contractors
that arise during the construction phase, emphasizing quick resolution at the project level.
The Department currently partners all construction projects with private contractors. While it
is difficult to assess partnering’s impact on costs and completion times, since partnering has
been implemented, construction claims have been virtually eliminated. However, the De-
iii
partment can improve its partnering program by developing clear dispute resolution guide-lines,
improving feedback and training, and enhancing evaluations of partnering relations.
Use of Value Engineering and
Design-Build Contracting Can Help
Reduce Project Costs and
Completion Times
(See pages 21 through 23)
ADOT should take advantage of opportunities to use value engineering and design-build
contracting to save money and reduce project completion times. Value engineering, which
allows contractors to propose cost and time saving project modifications, has the potential to
save several million dollars each year. Although value engineering generated savings of over
$3.7 million on projects completed between late 1991 and December 1995, cost savings de-creased
sharply in 1996, accounting for only $115,000. Contractors stated that they have been
reluctant to develop value engineering proposals because ADOT sometimes took too long to
review the plans. However, ADOT recently incorporated review time standards for value-engineering
proposals that may increase the use of value engineering. ADOT also should
monitor successful value engineering proposals and incorporate them into future projects.
Additionally, to further control costs and reduce completion times, if given legislative ap-proval,
ADOT should explore options to design-build contracting, in which a contractor is
responsible for both the design and construction of a project.
ADOT Still Has Many
Light Vehicles with Low
Mileage Use and Is Also Experiencing
Equipment Preparation Delays
(See pages 25 through 29)
ADOT continues to have many light vehicles with low mileage use and should also explore
options to further reduce equipment preparation time. In 1996, 144 of ADOT’s 1,002 perma-nently
assigned light vehicles, or 14 percent, were driven under 500 miles per month. A 1987
audit found similar low mileage problems. The Department could better monitor vehicle
utilization by establishing formal utilization standards, identifying vehicles not meeting utili-zation
standards, and reassigning or eliminating underutilized vehicles. In addition, al-though
ADOT has reduced the amount of time it takes some specialty vehicles to be
prepared and issued to ADOT units, the Department should explore other options that
could further address preparation delays and/or reduce costs.
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Other Pertinent Information—
Arizona’s Roads and Bridges
Are in Good Condition
(See pages 31 through 34)
Road pavements and bridges in Arizona are in better condition than those nationally and
compare favorably to other Western states according to Federal Highway Administration
assessment standards. Roads remain in good condition through the efforts of a fully funded
Pavement Preservation Program or road rehabilitation program. The State Transportation
Board has approved the start of road rehabilitation projects worth approximately $76 million
in fiscal year 1997 to $98 million in fiscal year 2000. Arizona bridges rank second nationally,
and also benefit from a fully funded Bridge Preservation Program, which provides for bridge
inspections, emergency repairs, and upgrading.
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Table of Contents
Page
Introduction and Background ................................................................... 1
Finding I: The Department Needs
to Better Manage Construction
Cost Increases........................................................................................ 5
Construction Costs of $3 Billion
During the Next Five Fiscal Years.................................................................................... 5
Project Completion Costs
Have Exceeded Original
Contract Amounts.............................................................................................................. 5
Clear Project
Cost Target Needed........................................................................................................... 6
Evaluation of Project Cost
Increases Can Help Minimize
Future Expenses ................................................................................................................. 7
Recommendations.............................................................................................................. 9
Finding II: Improvements to the Project
Design Phase Can Better Control
Construction Cost Increases................................................................ 11
Most Cost Increases
Are Related to the
Design Phase....................................................................................................................... 11
Project Management Process
Needs to Be Fully Operational.......................................................................................... 12
Recommendations.............................................................................................................. 14
vi
Table of Contents (cont’d)
Page
Finding III: Partnering Program
Improvements Needed .......................................................................... 15
What Is Partnering?............................................................................................................ 15
Measuring Partnering
Impact Is Difficult............................................................................................................... 16
ADOT Can Take Steps to
Improve the Partnering Process ....................................................................................... 16
Recommendation............................................................................................................... 19
Finding IV: Use of Value Engineering and
Design-Build Contracting Can Help
Reduce Project Costs and
Completion Times.................................................................................. 21
Recent Changes to Value Engineering
Program May Increase Its Use.......................................................................................... 21
Design-Build Methods
Could Impact Construction
Costs and Time................................................................................................................... 22
Recommendations.............................................................................................................. 23
Finding V: ADOT Still Has Many Light
Vehicles with Low Mileage Use
and Is Also Experiencing Equipment
Preparation Delays................................................................................. 25
Light Vehicles Continue
to Have Low Mileage Use................................................................................................. 25
Most Serious Equipment Preparation Delays
Addressed, but Further Improvements
May Be Possible.................................................................................................................. 27
Recommendations.............................................................................................................. 29
vii
Table of Contents (concl’d)
Page
Other Pertinent Information....................................................................... 31
Arizona Roads Are
Well Maintained................................................................................................................. 31
Arizona Bridges Rank
No. 2 in the Nation............................................................................................................. 33
Sunset Factors............................................................................................. 35
Agency Response
Tables
Table 1: Arizona Department of Transportation
Completed Construction Projects
Calendar Years 1993 through 1997
(Unaudited).......................................................................................... 6
Table 2: Pavement Condition Comparison Rankings
for Arizona, Five Contiguous States, and Nationwide
Urban and Rural Roadways
Calendar Year 1995............................................................................. 32
Table 3: Bridge Condition Comparison Rankings
for Arizona, Five Contiguous States, and Nationwide
Calendar Year 1996............................................................................. 34
viii
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1
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance audit and Sunset review of
the Arizona Department of Transportation, pursuant to a May 29, 1995, resolution of the Joint
Legislative Audit Committee. The audit was conducted as part of the Sunset review set forth
in Arizona Revised Statutes §§41-2951 through 41-2957. This audit addresses the Depart-ment’s
construction management function and is the fourth and final audit of the Depart-ment
conducted in response to the resolution. Previous audits addressed the Department’s
Motor Vehicle Division revenue functions, its highway planning and engineering functions,
and the Motor Vehicle Division.
The Arizona Department of Transportation (ADOT) spends the majority of its revenues for
highway construction projects. From fiscal year 1995 to 1997, highway construction projects
worth $454 million to $768 million were approved to begin construction in the respective fis-cal
years. Additionally, in June 1997, construction projects worth approximately $1 billion
were approved to begin construction in fiscal year 1998.
Intermodal Transportation Division
Organization and Staffing
ADOT’s Intermodal Transportation Division is responsible for planning, designing, con-structing,
and maintaining the state highway system. To carry out its functions, the Division
is divided into three branches: Operations, Planning and Engineering, and Valley Transpor-tation,
with a total of 2,732 FTEs in fiscal year 1996.
The Operations Branch is responsible for materials tests, highway construction outside of the
Phoenix metropolitan area, and statewide highway maintenance. Until recently, Equipment
Services, which provides transportation and maintenance equipment to ADOT and other
state agencies, was part of the Operations Branch. Now equipment services is part of the
Support Services Office responsible to the Department Director. The Planning and Engi-neering
Branch is responsible for bridge, roadway, right-of-way, traffic, statewide project
management, planning and design, transit, and aeronautics functions. Finally, Valley Trans-portation
is responsible for design and construction in the Phoenix metropolitan area.
Budget
The Intermodal Transportation Division receives both appropriated and nonappropriated
monies. Unlike many other state agencies, the Division receives only a small amount of Gen-eral
Fund appropriations. Rather, the State Highway Fund (Fund) is the Division’s major
funding source. The Fund receives a portion of money generated from vehicle registration,
2
title, license and related fees, and fuel and motor carrier taxes. Additionally, approximately
50 percent of construction expenditure reimbursements are received from the federal gov-ernment.
Monies from Arizona cities and counties, and other state agencies, are also depos-ited
in the Fund. The Fund also receives interest income and other revenues. ADOT
disburses Fund monies primarily for engineering, construction, improvement, and mainte-nance
of state highways.
Follow-up to Previous
Auditor General Reports
As part of the current audit, concerns previously identified in the Auditor General’s 1990 and
1987 performance audits of the Arizona Department of Transportation were reviewed. The
reports raised issues concerning ADOT’s Highway Design Process and Contractor Claims
Process (Auditor General Report 90-3), and ADOT’s Equipment Management (Auditor Gen-eral
Report 87-9).
n Design review process needs to be strengthened—The 1990 audit found that ADOT
had not routinely performed timely design reviews. Design reviews provide assurance
that roads are built as ADOT intended and function safely. To correct this problem,
ADOT was developing uniform procedures and guidelines to address responsibility and
expectations at each design review stage. The report recommended that ADOT also con-sider
adopting a more realistic scheduling system to encourage broader participation in
the review process.
Follow-up: ADOT recently began implementing its Project Management Process, which
includes detailed procedures and guidelines for project reviews at designated stages.
However, ADOT needs to enforce participation in the Process to better control construc-tion
cost increases (see Finding II, pages 11 through 14).
n Changes needed to ensure timely resolution of claims—The 1990 audit found that
ADOT lacked specific claims procedures, which resulted in delayed claims resolution.
Claims arise from unresolved contractual disputes between ADOT and private contrac-tors
concerning such matters as delays, additional work, and differing site conditions.
Additionally, vague claims resolution specifications and lack of claims monitoring further
burdened the process. The report recommended that ADOT continue its efforts to for-malize
the claim submission process, implement a system to monitor the process, and
establish procedures requiring written decisions for every formal claim.
Follow-up: During the period 1990 through 1993, ADOT implemented a detailed re-porting
and tracking system for claims processing. In addition, ADOT implemented a
partnering program in 1991 to improve contractor relations. Since that time, construction
claims have been virtually eliminated. However, ADOT can further improve the effec-
3
tiveness of its partnering program by developing clear guidelines for issue resolution,
improving feedback and training, and enhancing evaluations of partnering relationships
(see Finding III, pages 15 through 19).
n Light fleet vehicle utilization needs improvement—The 1987 audit found that ap-proximately
195 light fleet vehicles could be eliminated from ADOT’s fleet if ADOT im-proved
efficiency and did not replace underutilized vehicles. ADOT’s lack of formal
utilization standards, inadequate monitoring of vehicle utilization, and lack of clear
authorization to Equipment Services’ management to recall or transfer unjustified, un-derutilized
vehicles contributed to low utilization. The audit recommended that ADOT
reduce its fleet by 195 light vehicles, develop formal utilization standards, use the equip-ment
management system to monitor vehicle utilization, and clarify who has the author-ity
to remove or reassign vehicles that do not meet utilization criteria.
Follow-Up: ADOT still has many vehicles with low mileage use. In 1996, 144 of ADOT’s
permanently assigned light vehicles, or 14 percent, had low mileage use. ADOT has yet to
develop formal utilization standards to help identify underutilized vehicles and control
fleet size (see Finding V, pages 25 through 29).
n Unnecessary delays in issuing new equipment must be eliminated—The 1987 audit
found that ADOT had allowed $1 million worth of new equipment to sit idle for up to 2.5
years before being placed into service. This equipment was comprised of truck chassis,
which required attachment of specialized bodies and other equipment before they could
be issued to ADOT users. The audit recommended that ADOT better plan for new
equipment issuance, and monitor new equipment through the preparation process.
Follow-Up: Since 1987, ADOT’s Equipment Services Section has improved planning for
new equipment issuance by completing body specifications, issuing solicitations, and se-lecting
vendors to perform fabrication and attachment needs before the truck chassis are
expected to be delivered to ADOT. Furthermore, Equipment Services’ management now
monitors each vehicle from the date ADOT issues the requisition to purchase the chassis
to the date Equipment Services issues the completed unit to the user. Although ADOT
has addressed the most serious new equipment preparation delays, ADOT should ex-plore
options that may further reduce equipment preparation time and/or costs (see
Finding V, pages 25 through 29).
Audit Scope and Methodology
The purpose of this audit was to evaluate ways ADOT can better control construction cost
increases, the status of the Project Management Process, the effectiveness of ADOT’s part-nering
program, follow-up on previous audit recommendations concerning fleet manage-ment,
and the condition of Arizona’s roadways and bridges. This report presents findings
and recommendations in five areas:
4
n The need to better control unnecessary construction cost increases;
n The need to make the Project Management Process fully operational;
n The need for ADOT to improve its partnering program;
n The need to increase use of value engineering and design-build contracting; and
n The need to monitor vehicle utilization and explore options that may reduce equipment
preparation time and/or costs.
In addition to these audit areas, the report contains Other Pertinent Information regarding
the condition of Arizona’s roads and bridges (see pages 31 through 34) and responses to the
12 Sunset Factors that should be considered in determining whether the Arizona Department
of Transportation should be continued or terminated (see pages 35 through 42).
This performance audit focused on ADOT’s construction and fleet management. To evaluate
construction management, this audit reviewed 216 completed construction projects and cor-responding
State Engineer Reports for calendar year 1996 and January through June 1997.
ADOT’s cost-tracking database for construction was analyzed to determine reasons for cost
increases. Further, 4 ADOT process manuals were examined to determine ADOT’s current
policies and procedures. Additionally, department officials and staff, transportation staff
from 6 other states, members of Associated General Contractors, private contractors, a U.S.
Army Corps of Engineering staff member, and other construction experts and consultants
were interviewed to learn about their construction management processes. Finally, magazine
and journal articles, recent legislation, reports from other states, and Federal Highway Ad-ministration
and National Cooperative Research Program reports were reviewed to identify
construction management trends.
In addition, this audit focused on ADOT’s vehicle use and equipment preparation time. Cal-endar
year 1996 data for 1,002 light vehicles was analyzed to determine vehicle use. Prepara-tion
time data for 61 vehicles issued in 1996 that needed attachments was also analyzed to
determine if preparation delays had been reduced. Finally, ADOT equipment services offi-cials
and staff, transportation staff from 5 other states, and the Director of the Arizona Cor-rectional
Industries were interviewed to determine current fleet management practices and
the feasibility of various options to reduce vehicle underutilization and equipment prepara-tion
delays.
This audit was conducted in accordance with government auditing standards.
The Auditor General and staff express appreciation to the Department’s Director, the State
Engineer, and their staff for their cooperation and assistance throughout the audit.
5
FINDING I
THE DEPARTMENT NEEDS
TO BETTER MANAGE CONSTRUCTION
COST INCREASES
The Department needs to address increasing construction project costs. Cost management is
critical to the efficient use of construction monies because each 1 percent of unnecessary costs
that ADOT can avoid during the next five fiscal years equals more than $30 million. To help
ensure that construction projects are completed as close to the original contract amount as
possible, ADOT management needs to clearly communicate a challenging construction cost
target to construction managers. ADOT can also minimize future construction cost increases
by evaluating factors that have caused cost increases and incorporating the resulting infor-mation
into future projects.
Construction Costs of $3 Billion
During the Next Five Fiscal Years
Controlling construction project costs is vital to ensure that highway construction monies are
used most efficiently. While some cost increases are difficult to avoid, such as changes in fed-eral
specifications, others, such as omissions in designs and quantity changes, can be better
managed. During the next five fiscal years, the Department has planned to start more than $3
billion in statewide construction projects. Because every percentage point increase in unnec-essary
costs that ADOT can avoid would reduce taxpayer expense by more than $30 million,
it is essential that ADOT better manage construction cost increases now to help minimize
future expenses.
Project Completion Costs
Have Exceeded Original
Contract Amounts
The availability of future construction monies could be impacted if ADOT project completion
costs continue to exceed original contract amounts. During the last 4.5 years, construction
projects have exceeded their original contract amounts by an overall difference of 5.3 percent.
6
Project costs exceed original contract amounts—During the last 4.5 years, construction proj-ects
were completed at a cost of more than $61.5 million, or 5.3 percent, over original contract
amounts. During this period, original contract amounts totaled approximately $1.16 billion,
but projects were completed at a cost of more than $1.23 billion. As illustrated in Table 1, con-struction
projects have exceeded their original contract amounts by 2.9 to 7.6 percent annu-ally.
Construction projects completed in 1997 to date have the greatest increase, 7.6 percent
more than original contract amounts.
Table 1
Arizona Department of Transportation
Completed Construction Projects
Calendar Years 1993 through 1997
(Unaudited)
Year Projects
Original Contract
Amount
Final
Amount
Dollar
Difference
Percentage
Difference
1997 * 76 $ 150,477,816 $ 161,944,933 $11,467,117 7.6%
1996 151 248,765,709 262,608,295 13,842,586 5.6
1995 131 262,261,453 278,579,773 16,318,320 6.2
1994 97 178,015,778 188,531,146 10,515,368 5.9
1993 115 324,429,088 333,880,371 9,451,283 2.9
Total 570 $1,163,949,844 $1,225,544,518 $61,594,674
Overall percentage
difference 5.3
* Only projects completed in January through June 1997 are included.
Source: Auditor General staff summary of data presented in Arizona Department of Transportation State
Engineer Reports for 1996 through June 1997.
Similar cost increases could impact future construction monies—Similar construction cost
increases could impact the availability of future construction monies. As mentioned previ-ously,
ADOT has planned to start $3 billion worth of construction projects during the next
five fiscal years. Project completion cost increases ranging from 2.9 to 7.6 percent during the
next 5 fiscal years will equal $87 million to $228 million. Therefore, any unnecessary cost in-creases
ADOT can avoid on these projects could provide monies for other projects.
Clear Project
Cost Target Needed
To help ensure that projects are completed at a cost as close to their original contract amounts
as possible, ADOT management needs to clearly communicate to construction managers a
7
challenging construction cost target. This target should be completing all projects within their
original contract amounts. Highway construction consultants have stated that, although cost
increases are not uncommon or unexpected during construction, project engineers should
always target completion costs at the original contract amount. However, ADOT construc-tion
project managers indicated that keeping construction costs within 105 percent of the
original contract amount is acceptable. One reason for this perception is that some Depart-ment
policies appear to validate a 105 percent target. For example, ADOT has a formal con-struction
cost objective of 105 percent. This cost objective includes an additional 5 percent of
the original contract amount to cover unavoidable cost increases that may occur during con-struction,
such as changes in federal requirements. Further, project cost increases that surpass
the 105 percent construction cost objective require additional approval from ADOT central
management. Although these policies are appropriate for budgeting and controlling con-struction
costs, they should not be misconstrued by project managers to establish a 105 per-cent
target. Therefore, ADOT senior management needs to clearly communicate this
distinction to its construction managers to help ensure maximum concern for cost manage-ment
at the project level.
ADOT management supports a construction cost target within the original contract amount.
Department management acknowledged the need to communicate this cost target to con-struction
managers. Both ADOT management and construction managers stated that the
challenge to complete projects on time has been their primary concern and construction cost
management has been secondary. ADOT is in the midst of its largest construction effort ever,
with a primary focus on completing the Phoenix metropolitan freeway system. Because of
this system’s impact on traffic and business, ADOT is under great pressure to complete con-struction
as soon as possible.
Evaluation of Project Cost
Increases Can Help Minimize
Future Expenses
In addition to adopting a challenging construction cost goal, ADOT needs to evaluate why
construction cost increases have occurred and use that information to determine cost-saving
measures for future projects. To determine cost-saving measures, first ADOT needs to collect,
classify, and evaluate cost increase information for each construction project. Then evaluation
results need to be communicated to other ADOT employees who can use the information to
invoke cost-saving measures. Specifically:
n Collect information—Collecting information on project cost increases will allow projects
to be more effectively evaluated and lead to possible process improvements. The De-partment
currently collects some information concerning project cost increases by re-viewing
project change orders, which are formal documents that add or delete work in
the contract and adjust the contract amount accordingly. However, ADOT does not
8
currently collect all project cost increase information involving quantity changes. A proj-ect
can experience a significant increase in cost through a quantity change. For example:
A construction contract to add a passing lane to an existing state road called for the
removal of 60 trees. By the time construction was completed, however, 563 trees
had been removed. This increased quantity added $176,060 to the project’s cost.
However, this cost increase information was not recorded on a change order for
future analysis by the Department.
n Classify information—Due to the complexity of highway construction, many factors can
contribute to a project’s increased completion costs; therefore, categorizing project cost in-crease
information needs to be very specific. However, ADOT currently uses only ten
classifications, resulting in some categories too broad to adequately define the exact na-ture
of the cost increase. In addition, the Department classified only $5.7 million of almost
$14 million in project cost increases occurring in 1996 completed projects. Incomplete and
poorly classified project information impedes the Department’s ability to fully under-stand
and evaluate the factors impacting construction cost increases.
n Evaluate information—Once the factors that contribute to construction project cost in-creases
have been collected and classified, ADOT management needs to carefully review
this information to determine future construction process improvements. Currently, the
Department does not evaluate the information it collects regarding cost increases. During
the course of the audit, however, the Assistant State Engineer-Construction began to in-formally
review all construction project change orders to better understand the factors
contributing to project cost increases. However, this process is incomplete because all in-formation
is not collected and the evaluation results are not communicated to appropriate
personnel.
In addition to evaluating factors directly impacting project costs, the Department should
also collect and analyze other information that could influence a project’s completion
costs, such as which contractor was used, or which ADOT construction staff and project
engineers were assigned to the project. By collecting cost increase information in con-junction
with other project demographic information, patterns may emerge that suggest
the need for further review or closer scrutiny in future projects.
n Improve communication—Finally, project cost evaluation results need to be communi-cated
to planners, designers, construction managers, and others who can use the infor-mation
to minimize costs on future projects. For example, changes to a traffic control plan
during construction should be communicated to the original traffic design engineer.
Without knowing this information, the traffic design engineer may not realize the original
design was deemed unworkable, and could unknowingly repeat the mistake.
9
Recommendations
1. The Department should clearly communicate to project managers that the target for
completing highway construction projects is within the original contract amount.
2. The Department should take the following steps to better manage construction project
cost increases:
a. Collect all information related to construction project cost increases;
b. Classify the information into well-defined, specific categories;
c. Formalize the process for reviewing project-specific information to identify construc-tion-
related factors that cause cost increases; and
d. Effectively communicate the reasons for all contract revisions to those originally re-sponsible
for affected parts of the construction project.
10
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11
FINDING II
IMPROVEMENTS TO THE PROJECT
DESIGN PHASE CAN BETTER CONTROL
CONSTRUCTION COST INCREASES
The Department can better control the construction cost increases previously discussed by
improving the operation of its Project Management Process. Most cost increases can be traced
to the design phase. To ensure coordination and oversight of design phase activities, ADOT
management needs to reaffirm the importance of the Process to its employees and imple-ment
two tools.
A construction project has four main development phases: concept development, design,
construction, and operation/maintenance. A project’s design phase involves preparing com-prehensive
design and construction documents suitable for competitive bidding. This phase
includes a wide variety of activities, such as material analysis, roadway design, environ-mental
permitting, traffic analysis, and developing contract specification documents.
Most Cost Increases
Are Related to the
Design Phase
Most construction cost increases over the contract amounts are related to design phase fac-tors,
which reflects highway construction experiences nationally. For calendar year 1996, ap-proximately
65 percent of documented cost increases over the contract amounts were due to
design errors and omissions, contract specification problems, and extra work not originally
identified in the design phase.1 The following projects all experienced design phase-related
cost increases:
TONTO NATURAL BRIDGE STATE PARK: During construction, a $327,546 change order was
approved to correct inaccurate specifications. The contract documents indicated that the
roadway excavation material was of sufficient quality to build an embankment when, in
fact, it was not.
1 The Department collected information related to less than $5.7 million of the nearly $14 million in cost in-creases
over the original contract amounts in calendar year 1996. Of the less than $5.7 million, more than $3.6
million, or almost 65 percent, was related to design phase factors.
12
DW RANCH ROAD—Junction US 93: During construction, a $99,469 change order was
approved to replace existing guardrail locations that were not included in the project
plans.
US 60 at Milepost 227: During construction, a $68,382 change order was approved to
correct an error in the project plans. The project plans required the top elevation of a re-taining
wall to match the cross slope of the existing highway but did not specify enough
concrete and steel to accomplish the match.
Nationally, construction industry representatives indicate that 70 to 75 percent of problems
encountered during construction are generated in the design phase. Additionally, a 1995 Na-tional
Cooperative Highway Research Program (NCHRP) Synthesis evaluated 42 states’
highway practices and concluded that problems that lead to additional compensation for the
contractor often can be minimized by actions taken in the design phase.1
Project Management Process
Needs to Be Fully Operational
Although ADOT recently instituted the Project Management Process (Process) to actively co-ordinate
and monitor design phase activities, it needs to fully execute the Process to better
control construction costs. The Process provides for the management of design phase activi-ties
and can help minimize cost increases during construction. However, the Process is not
fully operational, and in order to improve its operation, ADOT needs to take several actions.
As discussed earlier, a project’s design phase involves many different activities and has sig-nificant
influence over the project’s final cost. All of these activities must be coordinated and
incorporated into one comprehensive design package before the project can be advertised for
bids. Failure to do so may lead to omissions, overlaps, and other deficiencies in the design
package and contract documents. These deficiencies are often resolved by change orders
during construction, which can result in construction cost increases.
Project Management Process created to minimize loss—The Project Management Process
enables ADOT to focus on design phase activities so that it can produce projects with mini-mal
errors and omissions and fewer construction problems or design changes that result in
projects that exceed budgets. Between 1993 and 1994, an ADOT process development team
developed an extensive Project Management Process. Under this Process, ADOT technical
experts and other local area representatives form a project team to develop comprehensive
1 NCHRP Synthesis 214, A Synthesis of Highway Practice, 1995.
13
project design and contract specification documents for each construction project.1 In order
for the Process to succeed, team members must participate in or respond to several design
phase key events, such as four design review stages.
Project Management Process not fully operational—Interviews with ADOT staff and an
ADOT internal survey indicated that the Process is not fully executed. A recent ADOT sur-vey
of 69 project team members and follow-up interviews indicated that project team mem-bers
do not consistently participate in design phase key events, particularly the four design
review stages. In addition, ADOT staff indicated that sometimes when one team member
provides information late or does not participate in key events, the other team members may
have to estimate missing data or cut corners in order to meet project schedule dates. Ac-cording
to the NCHRP Synthesis mentioned earlier, a lack of team member participation
during the design phase can result in design deficiencies that may result in additional costs
during construction.
Several actions needed to improve the Project Management Process—In order to improve
the Process, ADOT needs to take several actions. To address participation problems, ADOT
upper management needs to reaffirm the importance of the Process to its employees. Inter-views
with various ADOT project team members indicated a variety of reasons for nonpar-ticipation,
including workload, lack of supervisory support, and other duties. A clear upper-management
message to both staff and first-line supervisors regarding the importance of the
Process could help overcome these barriers to participation. Additionally, the Department
needs to develop and implement two tools that can better facilitate the Process and affirm the
importance management places on it.
Pertinent management information is needed to identify and resolve
issues that hinder staff’s participation in the Process. Currently, ADOT
management does not have a process in place to monitor whether all
team members participate in the Process, what major decisions were made related to the
project, and how major decisions were made. As a result, management does not know where
to focus its improvement efforts. Better information about the Process could help identify
specific reasons why a project exceeded its contract amount. Once useful management in-formation
is identified and collected, management needs to use the information to identify
problem areas and resolve issues that limit the usefulness of the Process.
ADOT needs to provide better guidance to staff regarding
project priorities. Currently, some projects compete for project
team member input because each team member has multiple
projects they are assigned to at one time. As a result, a team member may have limited or late
1 Project team members include various ADOT technical units, such as materials, roadway design, construc-tion,
and maintenance staff, as well as other interested parties such as state, federal, and local government
representatives.
Management
Information
Project Priority
Guidance
14
input in one project’s design phase activities because the team member has chosen to focus
on one of his/her other assigned projects. Better guidance provided to team members could
help them properly allocate their time among their assigned projects and result in better co-ordination
of design phase activities.
Recommendations
1. ADOT upper management needs to reaffirm to its employees the importance of fully im-plementing
the Project Management Process.
2. ADOT needs to improve the operation of its Project Management Process by:
a. Compiling project management information to document decisions made related to
projects, identify specific problem areas within the Project Management Process, and
resolve issues that limit the usefulness of the Process; and
b. Providing better project priority guidance to staff to improve allocation of team mem-ber
time resources and coordination of project design phase activities.
15
FINDING III
PARTNERING PROGRAM
IMPROVEMENTS NEEDED
ADOT should take steps to improve its partnering program. ADOT established a partnering
program in 1991 to improve its relationships with construction contractors. Although a re-duction
in contractor claims and accompanying litigation appears to coincide with ADOT’s
establishment of partnering, it is difficult to measure partnering’s impact on project costs and
completion times. Therefore, ADOT should focus its efforts on improving several aspects of
its partnering program to ensure the program operates consistently for each construction
project.
What Is Partnering?
Partnering is a teamwork-oriented construction management method that attempts to elimi-nate
adversarial relationships between State Departments of Transportation (DOTs) and con-struction
contractors for the benefit of both parties. Historically, state DOT’s, including
ADOT, and contractors have had adversarial relationships because each party sought to
protect its own interests. Partnering’s team-oriented approach is a means to improve rela-tionships
with contractors, and it generally entails workshops, meetings, and a formal con-flict
resolution process to develop and sustain collaborative teamwork between Department
and contractor staff. The potential benefits to be gained from improved relationships include
reduction or elimination of contractor claims and accompanying litigation, as well as project
cost and timeliness improvements.
Since ADOT began partnering in the early 1990s, use of partnering among state transporta-tion
agencies has expanded rapidly. ADOT began using the partnering approach to con-struction
management in 1991. Since 1992, ADOT reports that all construction projects have
been partnered and as of March 31, 1997, there have been 384 projects completed. In addi-tion,
a 1996 survey of state transportation departments conducted by a private consulting
firm found that 44 of 46 states responding to the survey had direct experience with partner-ing,
and 37 of these states had established formal partnering programs.
16
Measuring Partnering
Impact Is Difficult
Although a reduction in contractor claims appears to coincide with the establishment of
ADOT’s partnering program, it is difficult to measure partnering’s impact on project costs
and completion times. Since partnering was implemented, ADOT has virtually eliminated
formal construction claims. However, it is difficult to obtain numerical evidence of partner-ing’s
success related to project cost and timeliness improvements.
Since partnering was adopted, ADOT has virtually eliminated formal construction claims.
When the partnering concept was adopted in 1991, ADOT had 60 active claims valued at
over $23 million. Claims are contractors’ formal requests for payment for additional work
performed or other increased costs to complete construction projects. Contractors file claims
when ADOT and the contractor are unable to resolve the cost issues informally. Claims are
resolved through formal methods such as mediation, arbitration, or litigation. The Depart-ment
reports that only two formal claims have been filed on partnered projects. All other cost
issues have been resolved using the partnering process.
In contrast, partnering’s impact on construction costs and time are difficult to measure. Na-tionally,
researchers have found it difficult to measure partnering’s impact on project cost
and completion time. Some studies have noted that it is difficult to quantitatively measure
the impacts of partnering, and report that there is little numerical evidence of partnering’s
success. One method of evaluating partnering suggested by researchers is to compare part-nered
projects with nonpartnered projects in terms of cost growth, completion time, contract
administration cost, value engineering savings, and interpersonal attitudes. However, be-cause
all ADOT construction projects since 1992 have been partnered, there is currently no
way to compare projects using this approach.
ADOT Can Take Steps to
Improve the Partnering Process
Although measuring impact is difficult, the Department should focus efforts on improving
its partnering program process. As a starting point, ADOT should address four concerns
raised by ADOT staff and contractor personnel. The Department should: 1) develop guide-lines
to ensure greater consistency in issue resolution statewide; 2) provide better feedback to
ADOT staff and contractors regarding decisions made when issues are forwarded to higher
levels of management; 3) continue efforts to customize its initial partnering workshops and
develop additional training on critical partnering skills and procedures; and 4) improve
ongoing evaluations of its partnering relations.
Department staff and contractors have expressed concerns about ADOT’s partnering pro-gram.
Since October 1996, ADOT has solicited feedback on its partnering program from its
17
own staff and private contractors through focus group meetings and a one-day partnering
conference. A 1997 ADOT partnering conference summary document states that “The initial
success enjoyed over the past 4 years is wearing thin in some aspects of partnering causing
mistrust, lack of commitment to partnering concepts and a general feeling that the other fac-tions
are either not partnering or using partnering to their own advantage.“ Despite these
problems, a majority of ADOT staff and private contractors participating in these meetings
believe partnering is working as intended and is preferable to the more adversarial approach
to construction that preceded it. Focus group and partnering conference participants identi-fied
several ways to strengthen ADOT’s partnering program, which are discussed below.
Guidelines needed for issue resolution—The Department could improve the consistency of
decisions ADOT staff make by developing clear guidelines for issue resolution and moni-toring
their application statewide. Currently, there is a multi-step process the Department
follows to resolve contract issues that arise with the contractor during construction. First, the
ADOT project engineer tries to resolve the issue at the local project level. If the issue remains
unresolved at the local project level, the issue is immediately escalated, or forwarded, to the
next level, the District Engineer’s Office. If still unresolved, the issue is escalated to the high-est
level, the State Engineer’s Office.
In October 1996, ADOT’s local project resident engineers submitted a report to the Depart-ment’s
management team that outlines problems with the escalation process. Resident engi-neers
expressed concern that the escalation process, as currently practiced, varied statewide.
Concerns ADOT’s resident engineers noted included:
n Proper escalation channels occasionally are not followed;
n Frivolous escalations and small-dollar issues are escalated to management;
n The contractor sometimes reintroduces previously resolved issues at a later date; and
n The escalation process is abused at times, with some contractors manipulating the system
to achieve additional compensation.
Developing issue resolution guidelines could help ensure greater consistency in decision-making.
Resident engineers recommended that ADOT clearly define the escalation process
and develop specific guidelines so the process is better understood and more consistently
followed. Department staff and contractor personnel who participated in a January 1997
partnering conference also recommended the escalation process be standardized and issue
resolution efforts be monitored to encourage decision-making consistency.
Improved feedback needed—Feedback mechanisms need to be developed to communicate
the rationale for decisions made in the escalation process. A 1994 review of ADOT’s part-
18
nering program by the Federal Highway Administration (FHWA) found that “the full ra-tionale
for a decision is frequently not provided.” The FHWA reported that receiving the ra-tionale
for decisions is very important to staff, and recommends that ADOT take steps to
assure the timely dissemination of such information. The Department’s resident engineers
also stressed the importance of feedback concerning decisions made in the escalation process.
They suggested establishing a newsletter or information center to communicate information
about issues that have been escalated. The resident engineers feel that knowing the outcomes
of escalated issues can help them learn what types of issues are typically decided in the De-partment’s
favor, rather than the contractor’s, for future reference.
Improved training needed—Initial partnering workshops need to be customized to better
meet the needs of project teams, and additional training in partnering concepts and related
skills needs to be developed. Partnering workshops are held at the beginning of each con-struction
project. ADOT and contractor staff who participated in an October 1996 focus
group meeting identified the need to tailor partnering workshops based on a variety of fac-tors,
including the project’s nature and complexity and the mutual familiarity of the project
team. They recommended that both ADOT and contractor staff play a role in planning the
workshop. ADOT has since initiated efforts to customize initial partnering workshops.
While the initial partnering workshops provide some discussion of partnering concepts, ad-ditional
training is needed. The Department has developed little formal training in partner-ing
concepts, skills, and procedures. Those who participated in the October 1996 focus group
meeting identified the need for training in such areas as negotiations, the issue resolution
process, and conducting monthly evaluations.
Enhancements to evaluations of partnering relationships needed—Another way partnering
can be improved is by enhancing the ongoing evaluation of partnering relationships. Al-though
it is difficult to assess partnering’s impact on project cost and time, the Department
can do more to evaluate partnering relationships. ADOT’s current efforts are hampered be-cause
information from monthly project evaluations and project close-out workshops is in-complete.
Although each project team is supposed to submit a monthly evaluation to
ADOT’s Partnering Section, the Partnering Section currently receives monthly evaluations
from only 10 to 15 percent of all project teams.
In addition, although project teams are generally required to hold project close-out meetings
at the end of construction, only 74 close-out workshops of 384 partnered projects have been
held since 1991. Close-out workshops are important because they provide an opportunity to
assess project performance and discuss lessons learned.
19
Recommendation
1. The Department should take the following steps to improve its partnering program for
highway construction projects:
a. Develop clear guidelines for the issue resolution process and routinely monitor their
application statewide to ensure greater consistency in decision-making;
b. Develop feedback mechanisms to communicate the rationale for decisions made in
the escalation process;
c. Continue efforts to customize initial partnering workshops and begin to develop
training courses for both ADOT and contractor staff concerning basic partnering con-cepts,
essential partnering skills, and ADOT partnering procedures; and
d. Strengthen ongoing evaluation of partnering relationships by ensuring that monthly
evaluations and project close-out workshops are held consistently, and that the in-formation
gathered is used to assess needed changes.
20
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21
FINDING IV
USE OF VALUE ENGINEERING AND
DESIGN-BUILD CONTRACTING CAN HELP
REDUCE PROJECT COSTS AND
COMPLETION TIMES
Use of value engineering and design-build contracting can help reduce project costs and
completion times. Recent changes ADOT has made to its value engineering program may
increase its use by contractors. Further, design-build contracting may prove to be cost benefi-cial
and reduce project completion times.
Recent Changes to Value Engineering
Program May Increase Its Use
The use of value engineering has declined and recent value engineering results are disap-pointing.
However, recent changes ADOT has made to its value engineering program may
increase its use.
Value engineering proposals modify projects’ plans or specifications to reduce construction
costs without sacrificing quality or safety standards. The Department also considers value
engineering proposals that provide a better product at a higher initial cost if the overall proj-ect
lifecycle cost will be lower. Contractors submit value engineering proposals to ADOT for
review and approval. According to ADOT, most proposals are submitted before construction
begins. When value engineering results in cost savings, the savings are split equally between
the contractor and ADOT.
Recent value engineering results disappointing—Value engineering and its cost savings have
declined substantially. Since late 1991, when ADOT implemented its partnering program,
ADOT reported value engineering savings of over $3.7 million on projects completed
through the end of calendar year 1995. However, projects completed during calendar year
1996 only accounted for $115,000 in value engineering savings. A Department report esti-mated
that value engineering proposals could potentially save 1 to 2 percent of the original
contract amount for every construction project, which would equal $2.1 million to $4.3 mil-lion
for fiscal year 1996 projects. A 1995 Maryland State Highway study reported an average
value engineering cost savings of 6 percent.
Recent changes may increase use of value engineering—Recently, ADOT has made some
changes to its value engineering program that may increase its use. Contractors indicated
22
that they have been reluctant to invest valuable time and money developing proposals be-cause
the Department sometimes took too long to review and analyze the plans. In addition,
contractors stated that increased value engineering savings would be realized if ADOT more
quickly evaluated proposals. In October 1996, ADOT incorporated into its contract specifica-tions
book a 10-day review period to determine whether a contractor’s initial value engi-neering
submittal has merit and should be submitted formally. Within 30 days of the
proposal’s submission, ADOT must accept or reject it. Contractors indicated it is still too
early to determine whether these review time frames are acceptable. Therefore, ADOT
should monitor the use of value engineering since incorporation of the review standards and
determine if any further modifications are needed to further encourage the use of value en-gineering.
Additionally, the Department should ensure that successful proposals are incorporated into
future projects. A 1997 ADOT internal audit found “There is currently no formalized process
to ensure that [value engineering] proposals are incorporated into the design of future proj-ects.”
As a result, ADOT may pay contractors more than once for repeat value engineering
proposals. However, monitoring these engineering proposals would allow ADOT to realize
100 percent of the future savings.
Design-Build Methods
Could Impact Construction
Costs and Time
Another option that could potentially help control costs and reduce construction time is the
use of design-build contracts. Design-build contracts are innovative contracting alternatives
to the conventional design-bid-build contracting system. Other states have experimented
with design-build contracts and report reduced costs and/or time savings for particular
types of projects. In 1996, ADOT received legislative authorization to conduct two design-build
pilot projects and the final evaluation report is due by December 1998. If design-build
proves to be an effective contracting alternative, other design-build variations should be ex-plored
for further cost and time savings.
The construction industry is experimenting with design-build contracts. A design-build con-tract
is an alternate contracting method in which the contractor is responsible for both the de-sign
and construction phases of the project. However, ADOT still approves the design before
construction begins and all changes to the design during construction. In contrast, the more
traditional contracting method ADOT uses is one in which a project design is developed by
ADOT or a design company and then advertised to obtain construction contractor bids.
Other states report positive results—Other state Departments of Transportation have tested
design-build programs and report positive results for certain types of projects. A 1996 Fed-eral
Highway Administration draft paper reports that Pennsylvania, Florida, and Colorado
23
realized cost and/or time savings with design-build contracts.1 For example, Pennsylvania
reported that design-build construction project costs were comparable to conventionally de-signed
projects with a reduction in the Department’s design costs. This suggests that design-build
projects may be more cost-effective than conventionally designed projects. Addition-ally,
Florida’s experience with an 11-project pilot design-build program indicated that de-sign-
build projects produced a significant reduction in after-bid change orders, which
contribute to construction cost increases. Also, Florida reported that an average design-build
project takes 35.7 percent less time to construct than a nondesign-build project. However,
Florida reported design-build contracts to be more successful with projects such as bridges,
raised pedestrian walkways, and canals than with roadways.
ADOT authorized for two design-build pilot projects—Laws 1996, Chapter 146 permits
ADOT to use design-build contracting methods for two transportation projects. One project,
the I-10 interchange at Cortaro Road, went out for bid on July 3, 1997, and is currently under
construction. ADOT has not yet identified the second project.
A legislative committee will evaluate the design-build contracting method and submit a final
report by December 1998 that includes a recommendation as to whether design-build should
be a permanent contracting alternative for ADOT. In order to assist the committee, ADOT
has contracted with Arizona State University to develop and collect project evaluation data.
Variations of design-build being tested—Some other states are experimenting with variations
of design-build contracting. Michigan and Utah have awarded design-build-warranty and
design-build-maintenance contracts in attempts to better manage project costs. These con-tracts
require contractors to design, construct, and maintain or warranty the projects for time
periods ranging between two and five years. If design-build becomes a permanent contract-ing
option, ADOT should investigate the potential these variations have to further control
costs and improve completion times.
Recommendations
1. The Department should monitor its value engineering program to determine if any
further modifications are necessary to encourage its use by contractors.
2. The Department should monitor successful value engineering proposals and incorporate
them into future projects.
1 Assessment of Contract Management Techniques for Improving Construction Quality, Trauner Consulting Services
Inc., April 1996.
24
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25
FINDING V
ADOT STILL HAS MANY LIGHT VEHICLES
WITH LOW MILEAGE USE AND IS ALSO
EXPERIENCING EQUIPMENT
PREPARATION DELAYS
The Arizona Department of Transportation should monitor vehicle utilization and explore
options to further reduce equipment preparation time and costs. One hundred forty-four of
ADOT’s light fleet vehicles have very low mileage use. Additionally, although ADOT has
addressed serious equipment preparation delays, further improvements may be possible.
ADOT’s light fleet vehicle inventory includes sedans, station wagons, pickups, and vans. As
of March 1997, ADOT had approximately 1,300 permanently assigned light fleet vehicles,
about the same number as there were in 1987.
Light Vehicles Continue
to Have Low Mileage Use
ADOT still has many vehicles with low mileage use. In 1996, 144 light fleet vehicles had low
mileage use. ADOT needs to take steps to better identify whether these low mileage use ve-hicles
are underutilized to help control fleet inventory. ADOT has a history of vehicle utiliza-tion
difficulties. Office of the Auditor General Reports in both 1983 (Auditor General Report
No. 83-2) and 1987 (Auditor General Report No. 87-9) found ADOT’s light vehicles were un-derutilized.
Although ADOT has no formal mileage use standard for its light fleet vehicles, Equipment
Services’ management consider vehicles driven under an average of 800 miles per month to
have low use. This audit considered vehicles driven under 500 miles per month to have low
mileage use.
All vehicles assigned to billable organizations as of February 1997 that reported monthly
mileage use in calendar year 1996 were analyzed. For each vehicle reporting use, the yearly
mileage total was divided by the number of months in which use was reported, rather than
12 months.
26
One hundred forty-four light vehicles have very low mileage use—Usage figures for 1996
were available for only 1,002 of ADOT’s permanently assigned light vehicles.1 Of these 1,002
vehicles, 144, or 14 percent, averaged less than 500 miles per month. In the absence of ADOT
having any formal utilization standards and a system in place to justify vehicles not meeting
utilization standards, these 144 vehicles appear to be underutilized.
Using ADOT’s informal standard of 800 miles per month to determine low mileage use, 334,
or 33 percent, of the permanently assigned vehicles appear to be underutilized. Until ADOT
develops and implements valid vehicle utilization standards, the extent of actual vehicle un-derutilization
cannot be determined.
ADOT should take steps to monitor vehicle utilization—ADOT should take the following
steps to ensure adequate monitoring of its light vehicle fleet inventory:
n ADOT should establish formal utilization standards for its light vehicles, combining
miles driven with frequency of use requirements. Officials from California’s Depart-ment
of Transportation (CALTRANS) and Colorado’s State Fleet Management stated
that vehicle utilization should be measured by reviewing both mileage and frequency
of use. For example, California state policy requires that, where pool vehicles are avail-able,
permanently assigned passenger vehicles should accumulate more than 6,000
miles and/or be used on at least 70 percent of the workdays the vehicle is available in a
six-month period. Where pool vehicles are not available, permanently assigned pas-senger
vehicles should accumulate more than 4,000 miles and/or be used on at least 70
percent of the workdays the vehicle is available in a six-month period.
n ADOT should use its automated Equipment Management System to identify and re-port
on all vehicles not meeting the utilization standards. For example, twice a year,
CALTRANS identifies for its districts all underutilized vehicles based on data collected
for the prior six months.
n ADOT should establish a formal process for justifying those vehicles that do not meet
utilization standards. Supervisors should be responsible for justifying the vehicle as-signment
for all vehicles in their organizations that do not meet utilization standards.
CALTRANS uses a standard form to document the user’s reasons for underutilization
and whether the vehicle was found to be justified. If justified, the vehicle is retained on
assignment; otherwise, the vehicle is reassigned to another cost center or the motor
pool.
1 Calendar year 1996 usage data was readily available for only those light vehicles used in 1996 that were as-signed
to billable units within ADOT at the time of this audit. Some vehicles used in 1996 have since been
replaced with new vehicles, while others have been transferred to nonbillable units. Further, some vehicles
assigned to billable units at the time of this audit are new vehicles and therefore were not used in 1996.
27
n ADOT Equipment Services management should be given clear authority to reassign
underutilized, unjustified vehicles to other organizations within the Department that
can better use them. If they cannot be better used by another organization, ADOT
should not replace them at their scheduled time of replacement, but should continue to
use either the ADOT motor pool or the Arizona Department of Administration motor
pool to meet peak vehicle demands.
1983 and 1987 audits identified same problems—Office of the Auditor General reports in
1983 and 1987 on ADOT’s Equipment Services Section (see Report 83-2 and 87-9) found the
same problems that exist today. The 1983 report found 50 percent of ADOT’s automobiles
and light trucks were driven less than ADOT’s informal mileage use standard. The 1987 re-port
found some improvement, although more than 15 percent of ADOT’s light vehicles
continued to have low mileage use. Both reports found the absence of utilization standards
and inadequate monitoring of vehicle utilization to have contributed to the low utilization
figures.
Most Serious Equipment
Preparation Delays Addressed,
but Further Improvements
May Be Possible
ADOT has rectified some specialty equipment preparation delays identified in the 1987
audit; however further improvements may be possible. ADOT has addressed the most seri-ous
equipment preparation delays, but some lengthy preparation delays still occur. ADOT’s
Equipment Services Section now monitors the preparation process and follows proper pro-cedures
in planning for new equipment issuance, which has helped ADOT address serious
equipment preparation delays. However, ADOT should explore other options that could
further improve specialty equipment preparation timeliness and/or reduce costs.
ADOT’s Equipment Services Section is responsible for preparing and issuing new equipment
to all ADOT users. Equipment preparation ranges from minimal (applying decals and lights
to passenger cars) to more major effort (attaching specialized bodies and other components
to chassis). The Department frequently contracts with vendors to fabricate and attach the
specialized bodies and components to the chassis. The vehicles in this review include those
vehicles issued in 1996 for which ADOT contracted with vendors for fabrication and attach-ment
needs.
Most serious preparation delays have been addressed, but lengthy delays still occur—The
most serious preparation delays identified in the 1987 audit have been addressed, but some
lengthy delays still occur. Preparation time is measured from the date Equipment Services
accepts the chassis to the date it issues the completed vehicle to the user. The 1987 report
found that from 1984 to 1987, 11 vehicles took 18 months or longer to be issued to users, with
28
5 of the 11 vehicles taking 2 years or more. This audit did not find any vehicle issued in cal-endar
year 1996 for which ADOT contracted with vendors for fabrication and attachment
needs to take as long as 18 months to be issued; however, some lengthy delays still exist. For
example, of the 61 vehicles issued in calendar year 1996 requiring attachments from vendors,
48 took over 6 months to be issued to users. Further, 12 of these vehicles took over 1 year to
be issued to users.
Implementation of previous audit recommendations has helped ADOT address serious
equipment preparation delays—As was recommended in the 1987 audit, Equipment Serv-ices’
management now monitors the preparation process and follows procedures for plan-ning
new equipment issuance that have helped ADOT address serious equipment
preparation delays. Previously, Equipment Services’ management was unaware of the extent
of equipment delays because they did not monitor new equipment preparation. Now, using
a project management database, Equipment Services monitors each vehicle from the date
ADOT issues the requisition to buy the chassis to the date Equipment Services issues the
completed unit to the user.
Additionally, Equipment Services’ management follows procedures that were recommended
in the 1987 audit in planning for new equipment issuance. Previously, poor planning was
found to have contributed to the excessive delays. For example, Equipment Services’ man-agement
waited to complete the specifications for the chassis’ specialized bodies until after
the chassis were received. Now, management completes body specifications, issues solicita-tions,
and selects vendors to perform fabrication and attachment needs before the chassis are
expected to be delivered to ADOT.
ADOT should explore other possibilities for improvement—ADOT may be able to further
reduce equipment preparation time frames and/or reduce costs by 1) addressing a problem
with vendor contracts; and 2) considering a process used by some other states to prepare
equipment.
ADOT should change a practice that unnecessarily extends the amount of time given ven-dors
to prepare equipment. Currently, prior to sending out to vendors the formal solicitation
to bid on equipment preparation jobs, ADOT contacts several prospective vendors to identify
estimated delivery time frames. ADOT routinely selects the longest time frame estimate pro-vided
to include in the formal bid document. According to ADOT, this is done to allow
smaller vendors the opportunity to bid on these jobs.
However, ADOT routinely adds an additional 30 days to the contract to ensure that contrac-tors
have sufficient time to complete the work. This practice is unnecessary and contributes
to equipment preparation delays.
To further reduce equipment preparation time, ADOT should explore participating in a
program with Arizona Correctional Industries (ACI) in which inmates would be responsi-ble
for truck and trailer fabrication, attachments, and refurbishment for ADOT. Similar
29
programs have been established in Ohio and Texas. According to Ohio DOT officials, Ohio
Penal Institutions (OPI) has a vehicle preparation time of approximately six months with
cost savings comparable to using private industry vendors. However, unlike Arizona,
Ohio state law requires state agencies to purchase goods from OPI. According to ACI’s
director, ADOT would have to exhibit a committed interest before this capital-intensive
program could be established. Management from both ADOT’s Equipment Services Sec-tion
and ACI are interested in the benefits such a program could provide; therefore, an ad-hoc
committee should be formed to further explore program implementation.
Recommendations
1. ADOT should take steps to monitor vehicle utilization by:
a. Establishing formal utilization standards for its light fleet vehicles;
b. Using its automated Equipment Management System to identify and report on all ve-hicles
not meeting the utilization standards;
c. Establishing a formal process for justifying those vehicles that do not meet utilization
standards; and
d. Giving authority to Equipment Services management to reassign and eventually re-duce
ADOT’s fleet size by not replacing underutilized, unjustified vehicles.
2. ADOT should eliminate the 30-day cushion it currently adds to the delivery time frame
for the completed unit in order to reduce equipment preparation delays.
3. ADOT should study whether participating in a program with Arizona Correctional In-dustries
in which inmates would be responsible for truck and trailer fabrication, attach-ments,
and refurbishment would improve vehicle preparation timeliness and be cost-effective.
30
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31
OTHER PERTINENT INFORMATION
During the course of the audit, other pertinent information was developed relating to the
condition of Arizona roadways and bridges.
Arizona Roads Are
Well Maintained
Arizona pavement conditions are better than those nationally and compare favorably to
other Western states. ADOT has established a Pavement Preservation Program to keep
roadways in good condition. To help achieve this goal, the State Transportation Board ap-proves
sufficient funding for this program to maintain roads in accordance with current
standards. In addition, maintaining pavement conditions is a top priority for ADOT Districts’
maintenance staff.
Arizona roads rank favorably—As shown in Table 2 (see page 32), Arizona’s roads are in
better condition than roads nationally and compare favorably to the five contiguous states.
Urban interstates and arteries in Arizona are in better condition than those in California,
Colorado, Nevada, New Mexico, and Utah. Further, Arizona rural roadways are in better
condition than those in California, Colorado, and New Mexico.
To evaluate pavement conditions, the Federal Highway Administration (FHWA) annually
collects data indicating road conditions from each state. The FHWA uses the International
Roughness Index (IRI) to determine pavement conditions. The IRI is an objective measure of
pavement roughness developed by the World Bank, and is accepted as a standard in pave-ment
evaluation. States report rural and urban roadways’ pavement conditions. These road-ways
are divided into interstate, other freeway, other principal arteries, and minor arteries.
The FHWA uses the IRI measurement to rank roadways accordingly.
Arizona identifies and funds roadway needs—To ensure that roadway conditions remain in
favorable condition, ADOT established the Pavement Preservation Program. This program is
designed to monitor the condition of Arizona highways and identify rehabilitative actions
needed to maintain or improve the condition of Arizona roads. Pavement Preservation staff
inspect each mile of state highway annually to assess ride roughness, cracking, and other
factors such as rutting, friction, flushing, and faulting.1 This data is analyzed by the Network
Optimization System (NOS), a statistical modeling program that determines the most cost-effective
method to allocate resources for pavement rehabilitation projects. Sections of road-
1 “Friction” represents the amount of asphalt on the roadway surface, which may be smooth, shiny, or even
sticky in the summer. “Flushing” represents the ability of pavement to stop a vehicle. “Faulting” represents
the difference in elevation of two concrete slabs on each side of a concrete pavement joint.
32
ways are then identified for rehabilitation to keep an adequate number of roadway miles in
good condition. Finally, Pavement Preservation and District staff prioritize rehabilitation
projects and submit a five-year plan to the State Transportation Board for approval.
The State Transportation Board approves sufficient funding for the Pavement Preservation
Program to maintain roads in accordance with current standards. For fiscal year 1996, the
Board approved the start of approximately $66.4 million worth of pavement preservation
projects. Additionally, the Board has approved the start of projects totaling approximately
$76 million in fiscal year 1997 to $98 million in fiscal year 2000. NOS predicts that annual
funding needs should remain constant once funding reaches approximately $100 million.
This amount should fund a sufficient number of rehabilitation projects to keep an adequate
number of roadway miles in good condition.
Table 2
Pavement Condition Comparison Rankings
for Arizona, Five Contiguous States, and Nationwide
Urban and Rural Roadways
Calendar Year 1995
URBAN
Comparison
Rank
Interstate
Highways
Other
Freeways
Other
Principal Arteries
1 Arizona Utah Arizona
2 Utah Nevada Utah
3 Nevada Arizona Nevada
4 Nationwide California California
5 New Mexico Nationwide New Mexico
6 California Colorado Nationwide
7 New Mexico Colorado
RURAL
Comparison
Rank
Interstate
Highways
Other
Principal Arteries
Minor
Arteries
1 Nevada Utah Utah
2 Utah Nevada Nevada
3 Arizona Arizona Arizona
4 Nationwide Nationwide Nationwide
5 New Mexico California California
6 California New Mexico New Mexico
7 Colorado Colorado Colorado
Source: Auditor General staff analysis and summary of data in Highway Statistics 1995, U.S. Department of Transporta-tion,
Federal Highway Administration.
33
Roadway conditions are a maintenance priority—In addition to the Pavement Preservation
Program’s rehabilitative efforts, ADOT’s District maintenance staff are responsible for main-taining
roadway surface conditions. District maintenance staff perform such activities as pot-hole
and crack filling, sand sealing, chip sealing, and flush coating. For fiscal year 1996,
approximately 18 percent of the Districts’ maintenance budgets was spent on road surface
maintenance activities.
Arizona Bridges Rank
No. 2 in the Nation
Data compiled by the Federal Highway Administration (FHWA) show that in 1996, Arizona
bridges were ranked No. 2 in the nation when compared to all other states.1 Only Nevada,
which has 943 bridges to maintain compared to Arizona’s 4,225 bridges, ranks higher. Table
3 (see page 34) shows the percentage of bridges in Arizona ranked “good” and “substan-dard”
compared to contiguous states and the national total.
ADOT’s Bridge Preservation Program is managed by the Department’s Bridge Management
Section, which is responsible for providing the FHWA with bridge inspection reports. This
section is also responsible for identifying and prioritizing all bridge repair and rehabilitation
projects.
The State Transportation Board approves sufficient funding for the Bridge Preservation Pro-gram.
Annual funding provides for bridge inspection programs, emergency repairs, and up-grading.
Funding for the Bridge Preservation Program has increased from $1 million in fiscal
years 1995 and 1996 to $1.5 million in fiscal year 1997. Additionally, for fiscal years 1998 and
1999, approved funding levels increase to $4 million to repair bridge girders damaged by
oversized trucks.
Bridge replacement projects are primarily funded by federal dollars. Depending upon the
FHWA’s assessment of Arizona’s bridges, the State generally receives enough federal fund-ing
to replace two to three bridges per year.
1 The FHWA annually rates the condition of bridges nationwide. In consultation with the states, the FHWA
assigns sufficiency ratings to all bridges 20 feet or longer. The federal government then provides each state
with a list of substandard bridges.
34
Table 3
Bridge Condition Comparison Rankings
for Arizona, Five Contiguous States, and Nationwide
Calendar Year 1996
Percentage of
Good Bridges1
Percentage of
Substandard Bridges2
Total
Interstate and State
Bridges3
Nevada 96.1% 3.9% 943
Arizona 94.5 5.5 4,225
California 86.7 13.3 12,730
Colorado 84.8 15.2 3,722
Nationwide 75.1 24.9 281,398
Utah 70.2 29.8 1,730
New Mexico 66.5 33.5 2, 947
1 Bridges not requiring repair, rehabilitation, or replacement.
2 Bridges requiring repair, rehabilitation, or replacement, but not considered unsafe.
3 Located on state and interstate highways.
Source: Auditor General staff summary of data in Better Roads, November, 1996.
35
SUNSET FACTORS
In accordance with A.R.S. §41-2954, the Legislature should consider the following 12 factors
in determining whether the Arizona Department of Transportation should be continued or
terminated.
1. The objective and purpose in establishing the agency.
The Legislature established the Arizona Department of Transportation (ADOT) in
1974 by combining the functions of the Highway Department, originally established
in 1927, and the Department of Aeronautics, originally established in 1962. The De-partment’s
mission is “To provide a transportation system, together with the means
of revenue collection, licensing, and safety programs, which meets the needs of the
citizens of Arizona.” ADOT’s key responsibilities include:
n Planning, designing, constructing, and maintaining a statewide transportation
system;
n Providing vehicle title, registration, and licensing services;
n Testing and licensing motor vehicle operators; and
n Providing automobile and aircraft user and fuel revenue collection and distribu-tion
services.
The Department’s responsibilities are carried out by its four operational units: Inter-modal
Transportation, Administrative Services, Motor Vehicle, and Transportation
Support.
The Department receives guidance in capital planning and program development
from the seven-member State Transportation Board appointed by the Governor. The
Board is responsible for annually updating and adopting the Five-Year Transporta-tion
Facilities Construction Program and awarding contracts each month for highway
projects. The Board also has authority to issue highway revenue and transportation
excise tax bonds.
36
2. The effectiveness with which the agency has met its objective and purpose and
the efficiency with which it has operated.
Although the Department has met its prescribed objectives and purpose, our reviews
identified several areas where ADOT could improve its effectiveness and efficiency in
fulfilling its responsibilities. Specifically:
n The Motor Vehicle Division (MVD) needs to improve its collection and handling
of fees and taxes collected from the general public and the motor carrier industry.
Specifically, MVD could improve its efficiency and effectiveness in revenue col-lection
and oversight by better protecting cash and valuables in field offices and
continuing recent efforts to enhance collection of delinquent taxes. While the re-port
also noted deficiencies in the Division’s enforcement of taxes on motor carri-ers,
legislation passed in 1997 significantly changed the method of collecting such
taxes. Specifically, the Legislature created a motor carrier fee that is paid at the
time of vehicle registration, which the Department believes will help eliminate tax
evasion. (Auditor General Report 97-4).
n Although the majority of its customers are satisfied with its services, the Motor
Vehicle Division could further improve the delivery of driver licensing and title
and registration services in several ways. First, it needs to improve its method of
measuring service timeliness to further address long wait lines at MVD offices.
Second, it needs to improve telephone service provided to customers calling to
obtain information. Finally, MVD needs strengthened oversight of private con-tractors
who perform various motor vehicle transactions to ensure that such trans-actions
are accurately processed and that access to MVD driver information is
appropriately used (Auditor General Report 97-13).
n In addition, ADOT can improve the effectiveness of its highway planning func-tion.
Specifically, ADOT should better incorporate criteria and data into the deci-sion-
making process for recommending funding allocations and project selections
for the Five-Year Transportation Facilities Construction Program to ensure the
most needed highway projects are constructed. In addition, ADOT should follow
federal or state regulations regarding relocation assistance in order to reduce relo-cation
expenditures for persons displaced due to highway projects. Finally, ADOT
should develop a formal process for identifying and disposing of right-of-way
property purchased but not needed for highway projects (Auditor General Report
97-9).
n Further, ADOT should better manage the construction process. First, ADOT
should take steps to better control future project cost increases by communicating
to construction managers the target for completing construction projects is within
37
the original contract amount and by fully implementing its Project Management
Process (See Finding I, pages 5 through 9).
Second, while the Department has virtually eliminated construction claims since
implementing a partnering program in 1991, ADOT should improve the effective-ness
of its partnering efforts. Third, to further control costs, ADOT should monitor
its value-engineering program and determine if any further modifications are nec-essary
to increase its use (See Finding III, pages 15 through 19).
n Finally, ADOT should take steps to better manage its fleet. In order to better iden-tify
and monitor underutilized vehicles, ADOT should establish utilization stan-dards,
require supervisors to justify those vehicles that do not meet utilization
standards, and reassign and eventually eliminate vehicles that are underutilized
and unjustified. Additionally, ADOT should explore various options that may de-crease
costs and/or shorten the time needed to prepare equipment requiring spe-cialized
attachments (See Finding V, pages 25 through 29).
3. The extent to which the agency has operated within the public interest.
The Department of Transportation has operated within the public interest by plan-ning,
designing, constructing, and maintaining a statewide transportation system;
providing automobile title, registration, and licensing services; and providing auto-mobile
and aircraft user revenue collection and distribution services. The Department
estimates Highway User Revenue Fund collections in fiscal year 1997 will total ap-proximately
$875.5 million, with the Department receiving approximately $436.5 mil-lion.
The remainder is allocated to counties, cities, towns, and other transportation-related
funds. The Department also estimates total fiscal year 1997 collections of the
Maricopa Transportation Excise Taxes at $190 million.
However, the Motor Vehicle Division may not have operated in the public’s interest
by revaluing over 400,000 vehicles registered in the State in a manner which made it
difficult for the public to detect such changes. Therefore, the Legislature should con-sider
establishing statutory provisions requiring MVD to notify taxpayers of changes
in vehicle values and to provide an opportunity for taxpayers to appeal any revalua-tion
errors (Auditor General Report 97-13).
4. The extent to which rules adopted by the agency are consistent with the legisla-tive
mandate.
The Department has review procedures for all rules and regulations to ensure con-sistency
with statutes and the Department’s mission. Additionally, the Attorney Gen-eral’s
Office and Governor’s Regulatory Review Council (GRRC) further ensure that
38
all rules and regulations promulgated by ADOT are consistent with its statutory
authority.
GRRC reviewed ADOT’s statutes per the Office of the Auditor General’s request and
determined that the Department has not promulgated all rules mandated by statutes.
The Department should work with GRRC to adopt the rules required by A.R.S. §§28-
108(A)(6) relating to the expenditure of money in the State Highway Fund; (A)(8) re-lating
to closing state highways under construction or repair; and (A)(12) relating to
application for and expenditure of mass transit monies.
5. The extent to which the agency has encouraged input from the public before
adopting its rules, and the extent to which it has informed the public as to its
actions and their expected impact on the public.
According to an ADOT official, the Department informs the public of proposed rules
by holding public meetings and publishing impact statements before rules are heard
at the Governor’s Regulatory Review Council.
ADOT recently expanded its outreach efforts by obtaining additional input from key
transportation stakeholders and the public regarding the State’s transportation sys-tem.
The Five-Year Transportation Facilities Construction Program outlines ADOT’s
commitment as to what will be constructed in the coming five years. ADOT initiates
numerous efforts to inform the public of its intentions, and to obtain input prior to fi-nal
adoption of the Five-Year Program, by holding:
n Monthly State Transportation Board meetings at different locations throughout
the State, which are open to the public;
n Focus sessions with local government officials to discuss ADOT’s Five-Year Pro-gram
and 20-Year Plan and to obtain input on regional transportation priorities;
and
n One annual formal public hearing each in Tucson, Flagstaff, and Phoenix regard-ing
ADOT’s proposed Five-Year Program.
Finally, the Department of Transportation has not fully complied with the Open
Meeting Law requirements. As of July 7, 1997, ADOT had not notified the Secretary of
State where public meeting notices for the Priority Planning Committee, Medical Ad-visory
Board, Overdimensional Permit Advisory Council, and License Plate Commis-sion
are posted, as required by A.R.S. §38-431.02(A)(1).
39
6. The extent to which the agency has been able to investigate and resolve com-plaints
that are within its jurisdiction.
ADOT’s Legislative Services Office (LSO) is responsible for coordinating responses to
all complaints concerning the Department, except those that are media-related, which
are forwarded to Community Relations. According to an LSO staff member, the Leg-islative
Services Office receives three to ten telephone complaints passed on from the
Legislature each day, mainly from constituents. The nature of the complaints varies
from concerns with current highway projects to complaints about driver’s license
revocations related to DUI citations. LSO reports it typically responds to these com-plaints
within ten minutes.
Further, the Legislative Services Office is responsible for coordinating responses to
written complaints addressed to legislators, the Governor’s Office, the congressional
delegation, the Director of ADOT, and the State Transportation Board. The Legislative
Services Office ensures that the complaints are researched and responded to by the
appropriate level of authority. ADOT’s goal is to respond in writing to complainants
within 3 to 10 days. As of September 18, 1997, there were 20 outstanding complaints
that had not received written responses within 3 to 10 days, with some complaints
dating as far back as September 1996.
Finally, ADOT’s Office of Special Investigations provides investigative services for the
Department in matters relating to automobile dealer licensing and complaints, crimi-nal
and administrative investigations, and employee and dealer background investi-gations,
and processes criminal information research requests for law enforcement
agencies worldwide. This office, while organizationally within the Motor Vehicle Di-vision,
provides services to the entire Department, as well as law enforcement agen-cies,
government entities, news media, and the general public.
7. The extent to which the attorney general or any other applicable agency of state
government has the authority to prosecute actions under the enabling legisla-tion.
A.R.S. §§28-109 and 28-2408 authorize the Attorney General’s Office to serve as legal
advisor to the Department and provide legal services and enforcement as required by
the Department. In addition, statutes identify civil and criminal violations related to
ADOT’s regulatory authority and establish penalties for noncompliance. Finally, the
Executive Hearing Office in the Motor Vehicle Division is empowered to impose civil
penalties or initiate prosecutions.
40
8. The extent to which the agency has addressed deficiencies in its enabling stat-utes
which prevent it from fulfilling its statutory mandate.
The Department has sought numerous technical and administrative changes and ad-ditions
to agency statutes over the years. Annually, ADOT develops a comprehensive
legislative program in conjunction with the Governor’s Office, other state agencies,
legislators, and key stakeholders. In the past few years, many of ADOT’s program
bills have been enacted. For example:
n Laws 1994, Chapter 317 allows third parties to offer driver’s license application
processing;
n Further, Laws 1996, Chapter 146 allows ADOT to use design-build contracts for
two pilot projects; and
n Finally, Laws 1997, Chapter 8 repealed the weight-distance tax and replaces these
revenues by creating an annual motor carrier fee for vehicles weighing between
26,001 and 80,000 pounds; increasing the highway user fee for commercial vehi-cles
weighing between zero and 80,000 pounds; increasing the use fuel tax rate;
and increasing single-trip permit fees.
9. The extent to which changes are necessary in the laws of the agency to ade-quately
comply with the factors listed in the Sunset Law.
The Legislature should consider amending state laws to align them with federal
regulations regarding relocation assistance. Specifically, the Legislature should con-sider
amending A.R.S. §28-7141 to include the definition of “small business” that fol-lows
the definition in the federal regulations: “A business having not more than 500
employees working at the site being acquired or displaced by a program or project,
which site is the location of economic activity.” According to the Department, how-ever,
conforming Arizona’s definition to the federal definition will increase the cost to
relocate certain persons.
Additionally, the Legislature should consider establishing statutory provisions re-quiring
MVD to notify taxpayers of changes in vehicle values and to provide an op-portunity
for taxpayers to appeal any revaluation errors.
10. The extent to which termination of the agency would significantly harm the
public health, safety, or welfare.
Termination of the Department of Transportation could harm the public health,
safety, and welfare. If ADOT were terminated, alternatives would be needed for li-
41
censing drivers, registering vehicles and aircrafts, building and maintaining the
State’s transportation infrastructure, and collecting Highway User Revenue Fund
monies used to fund ADOT’s activities.
11. The extent to which the level of regulation exercised by the agency is appropri-ate
and whether less or more stringent levels of regulation would be appropri-ate.
The current level of regulation appears generally appropriate. However, the Motor
Vehicle Division could strengthen its enforcement of collecting motor carrier taxes
and fees by increasing the use of mobile enforcement crews to ensure taxpayers not
currently checked by the port-of-entry system are adequately monitored (Auditor
General Report 97-4).
Additionally, the Motor Vehicle Division could strengthen its oversight of third-party
contractors who are authorized to perform various motor vehicle transactions. Spe-cifically,
MVD needs to adequately monitor the performance of these private con-tractors
to ensure accurate transaction processing and expand audit coverage of third-party
operations to ensure compliance with Division policies and procedures (Audi-tor
General Report 97-13).
12. The extent to which the agency has used private contractors in the perform-ance
of its duties and how effective use of private contractors could be accom-plished.
ADOT extensively uses private contractors to assist in the performance of its duties.
For example:
n Private contractors perform all ADOT highway construction. In fiscal year 1996,
119 projects were under construction for which contractors had earned more than
$475.6 million.
n ADOT has also been given authority to pilot two design-build projects in which a
single contractor is responsible for both the project design and construction. A
legislative committee will evaluate the design-build contracting method and by
December 1998 recommend whether it should be a permanent contracting option
for ADOT (See Finding IV, pages 21 through 23).
n In addition, almost 70 percent of construction projects have design consultant in-volvement,
according to ADOT. As of December 31, 1996, design consultant con-tracts
totaled more than $350 million.
42
n Moreover, ADOT’s Right-of-Way unit contracts with the private sector for several
important functions including property appraisals, negotiations to acquire prop-erty,
maintenance of properties not immediately needed, and demolition of prop-erties
prior to construction. However, Right-of-Way management fails to collect all
the necessary data to determine whether cost savings result from these privatiza-tion
efforts (Auditor General Report 97-9).
n Further, over the years ADOT has expanded its use of maintenance contracts. In
fiscal year 1987, ADOT expended approximately $2.6 million for maintenance
contracts. For fiscal year 1997, this amount has increased to an estimated $8.6 mil-lion.
ADOT uses maintenance contracts for such services as rest area maintenance,
landscape maintenance, highway/curb sweeping, and highway striping.
Finally, the Motor Vehicle Division has sought the use of private contractors in an ef-fort
to improve customer service. Specifically, MVD uses third-party contractors to
perform various motor vehicle transactions including titling vehicles, updating vehi-cle
registrations, processing driver’s license applications, and inspecting vehicles.
Typically, companies who contract with MVD to perform these services include
automobile dealerships, title services, and trucking companies. In fiscal year 1996,
MVD contracted with 12 third parties who processed 3 percent of all state motor vehi-cle
transactions, generating over $18.5 million in revenue (Auditor General Report 97-
13).
Agency Response
(This Page Intentionally Left Blank)
1
ARIZONA DEPARTMENT OT TRANSPORTATION
RESPONSE TO AUDITOR GENERAL PERFORMANCE
AUDIT OF CONSTRUCTION MANAGEMENT FUNCTIONS
ADOT’s response is organized to address each finding and the headings and subheadings are all in
the same order as in the report.
FINDING I
THE DEPARTMENT NEEDS
TO BETTER MANAGE CONSTRUCTION
COST INCREASES
Construction Costs of $3 Billion During the Next Five Fiscal Years.
Project Completion Costs have exceeded Original Contract Amounts.
In both of these paragraphs the Auditor General has used the wording “increase in unnecessary
costs that ADOT can avoid”. This wording infers that unnecessary costs have been incurred,
which has not been the case. Any change that results in additional cost is evaluated to assure that
value is added to the project. While it is true that changes could be eliminated in the design stage
of a project, but the costs still would be incurred. It also is true that many changes are
accomplished without additional cost, which is the first goal when changes are negotiated.
However, it is necessary on occasion to negotiate revised prices for new work.
Clear Project Cost Goal Needed
We agree that in an ideal world, all projects would be completed at the bid cost. But given the
nature of highway construction, it would be unreasonably expensive to spend the design time
necessary to investigate and eliminate every possible variance that might affect plans and
specifications. All specifications - - including those of both ADOT and AASHTO - - include
provisions for for making necessary revisions to accomplish additional work. Site conditions, acts
of God, changes in the character of the work, quantity variations, errors and omissions, payment
for quality incentives and disincentives, and asphalt quantities in project -developed mixes, are
among the factors that can add to project costs.
We agree, however, that every effort should be made to stay within bid amounts.
2
We also agree that construction personnel must be taught that the 5 percent budgeted contingency
is to be used as intended, not as a source of funds available for additional, unplanned project
improvements.
We do not agree with the auditors’ assertion that “construction cost management is secondary” to
project completion. We always strive to complete our projects within the intended scope,
schedule and budget.
Evaluation of Project Cost Increases Can Help Minimize Future Expense
Processes are being implemented to collect, classify and evaluate information with the goal of
improving the development of plans, specifications and processes to reduce inefficiencies and
costs.
Final estimates that tabulate variances in individual bid items are being reviewed in an effort to
detect areas where estimating may be improved. We regularly expect to find quantity variations
in contingency items such as dust palliatives, asphalt contents, quality incentive payments and
traffic-related items.
Change orders are being analyzed in 10 areas . Efforts will be made to more carefully analyze
these categories and to determine if a more detailed breakdown is needed.. (Copy Attached)
We also are working on a Quality Index program to evaluate contractors on completion time,
quality of work and materials and change orders.
A new process improvement has been implemented that is designed to address most of the
recommendations made in this section by addressing change order review, final quantity review,
project close out comments and resolution of partnering issues. The goal is to implement
improvements through modifications of plans, standards, policies and specifications.
3
Recommendations
1. The Department should clearly communicate to project managers that the target for
completing highway construction projects is within the original contract amount.
2. The Department should take the following steps to better manage construction project
cost increases.
a. Collect all information related to construction project cost increases;
b. Classify the information into well defined, specific categories;
c. Formalize the process for reviewing project specific information to identify
construction-related factors that cause cost increases; and
d. Effectively communicate the reasons for all contract revisions to those originally
responsible for affected parts of the construction project.
ADOT agrees with the above recommendations, all of which are already being implemented
through the new process improvement.
4
FINDING II
IMPROVEMENTS TO THE PROJECT DESIGN PHASE CAN BETTER CONTROL
CONSTRUCTION COST INCREASES
Most Cost Increases Are Related to the Design Phase
Project Management Process Needs to Be Fully Operational
Project Management Process created to minimize loss--
Project Management Process not fully operational--
Several actions needed to improve the Project Management Process--
ADOT agrees with the comments in the above sections.
Performance measures have already been revised to improve management
data to better monitor performance, identify problem areas and lead to issue resolution. Further
system improvements, generated by suggestions from project managers and staff currently are
being collected and collated for implementation.
PROJECT PRIORITY
GUIDANCE
ADOT agrees with the comments of the auditor general in this section. Group Managers have
been advised to assign project priorities when it becomes necessary for a team to divide available
resources among different projects. Timely completion of all projects remains as the goal.
MANAGEMENT
INFORMATION
5
Recommendations
1. ADOT upper management needs to reaffirm to its employees the importance of fully
implementing the Project Management Process.
2. ADOT needs to improve the operation of its Project Management Process by:
a. Compiling project management information to document decisions made related to
projects, identifying specific problem areas within the Project Management Process,
and resolving issues that limit the usefullness of the process; and
b. Providing better project priority guidance to staff to improve allocation of team
member time resources and coordination of project design phase activities.
ADOT agrees with and will implement all of the above recommendations.
6
FINDING III
PARTNERING PROGRAM
IMPROVEMENTS NEEDED
FINDING III PARTNERING PROGRAM IMPROVEMENTS NEEDED
We agree with the findings in this section of the report. ADOT has taken major steps to improve
its partnering program during the past year. The issues discussed by the Auditor General have all
been addressed and are being implemented at the present time. We do believe it is possible to
measure the impact partnering process on the time it takes to complete projects and we are
generally completing projects in 95% of the allotted time or less.
Recommendations:
1. The Department should take the following steps to improve its partnering program
for highway construction projects:
a. Develop clear guidelines for the issue resolution process and routinely monitor their
application statewide to ensure greater consistency in decision-making;
b. Develop feedback mechanisms to communicate the rationale for decisions made in the
escalation process;
c. Continue efforts to customize initial partnering workshops and begin to develop
training courses for both ADOT and contractor staff concerning basic partnering concepts,
essential partnering skills, and ADOT partnering procedures; and
d. Strengthen ongoing evaluation of partnering relationships by ensuring that
monthly evaluations and project close-out workshops are held consistently, and
that the information gathered is used to assess needed changes.
ADOT agrees with the auditors’ findings and will implement those recommenations that have not
already been implemented (see attached partnering exhibits.).
7
FINDING IV
USE OF VALUE ENGINEERING AND
DESIGN-BUILD CONTRACTING CAN HELP
REDUCE PROJECT COSTS AND
COMPLETION TIMES
Recent Changes to Value
Engineering Program May
Increase Its Use
A continuous improvement process initated recently within the Value Analysis Section will enable
ADOT to collect and analyze data from a number of sources, with the goal of identifying and
implementing improvements in our products and services. The process also will create a
continuing measurement and record of our efforts to improve quality and enhance value. Vlue
Engineering will be one of the most important sources of information for the continuous
improvement process. One of the principal goals of this new process is to eliminate repetative
value engineering proposals to ensure that ADOT receives 100% percent of future savings from
these proposals.
This process is just getting started and we have not as yet collected enough data to generate
meaningful reports. We plan to distribute our reports, and other information about the process,
widely throughout the organization, in order to generate interest and to encourage all employees
to participate. With widespread employee and strong management support, the process will
become a powerful tool for quality and value enhancement. ( Copy Attached).
Design-Build Methods
Could Impact Construction
Costs and Time
We agree with this section.
The Pima County project at I 10 & Cortaro Road is progressing well and completion is
anticipated by March 1, 1998.
ADOT is presently evaluating several projects as candidates for the dsign build process in
Phoenix. It is the desire of ADOT that the two initial projects demonstrate the validity of design
build and that its use will be permitted by future legislation.
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Other new Innovative Contracting Ideas
Legislation passed in 1997 permits the use of cost + time bidding (a + b) . This allows selection of
a contractor to be based on cost plus a time charge for inconveniencing motorists. Experiience in
other states has shown that contractors have been able to complete projects much quicker when
they are required to consider the value of time in their bid submittal. The department plans to
issue up to twenty projects using this method.
Recommendations
The findings of the Auditor General are agreed to and the audit recommendations will be
implemented.
1. The Department should monitor its value engineering program to determine if any
further modifications are necessary to encourage its use by contractors.
2. The Department should monitor successful value engineering proposals and
incorporate them into future projects.
The findings of the Auditor General are agreed to and the audit recommendations will be
implemented.
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FINDING V
ADOT STILL HAS MANY LIGHT VEHICLES
WITH LOW MILEAGE USE AND IS ALSO
EXPERIENCING EQUIPMENT
PREPARATION DELAYS
Light Vehicles Continue
to Have Low Mileage Use
The Agency has implemented utilization standards for the light fleet using both mileage and
frequency of use. In response to the audit finding, the Agency conducted a one-time survey to
baseline usage reporting. The results of that survey indicated that in 1996 only 14 vehicles would
not have met utilization standards based on either mileage or frequency of use. Those fourteen
vehicles have been reassigned to higher use applications or have been disposed of.
Most Serious Equipment
Preparation Delays Addressed,
but Further Improvements
May be Possible
Auditor General’s Report cites twelve (12) vehicles (Traffic Control/Cone Retrieval Trucks)
which took over one year to process The audit language does not, however, differentiate
between delays and total processing time. Cone trucks are very complex and require a very long
build/fabrication window.
The twelve (12) trucks were prepared in-house after two (2) unsuccessful solicitation attempts to
award the body fabrication and ancillary equipment installation to the private sector. The savings
realized to ADOT Equipment Services and the State in building this unique equipment in-house
was $299,343.55 with no incurred cost or delays to the customer.
A summery documenting this build project was submitted to the Auditor General’s Office on
September 10, 1997.
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Recommendations:
1. ADOT should take steps to monitor vehicle utilization by:
a. Establishing formal utilization standards for its light fleet vehicles;
b. Using its automated Equipment Management System to identify and report on all
vehicles not meeting the utilization standards;
c. Establishing a formal process for justifying those vehicles that do not meet
utilization standards; and
ADOT agrees with the findings of the Auditor General on Items 1 a, b, c, above and the audit
recommendation will be implemented. A policy addressing this area has already been issued from
the Director. ( Copy Attached)
ADOT agrees with the finding 1. d. below and has already implemented this finding (Copy
attached). However; a different method of implementing the finding will be followed in that the
current policy will be further refined to consider the operational needs of the user as well as
Equipment Management.
d. Giving authority to Equipment Services management to reassign and eventually
reduce ADOT’s fleet size by not replacing underutilized, unjustified vehicles
2. ADOT should eliminate the 30-day cushion it currently adds to the delivery time frame for the
completed unit in order to reduce equipment preparation delays.
ADOT agrees with finding No. 2 of the Auditor General and the audit recommendation will be
implemented
.3. ADOT should study whether participating in a program with Arizona Correctional
Industries in which inmates would be responsible for truck and trailer fabrication,
attachments, and refurbishment would improve vehicle preparation timeliness and be
cost effective..
ADOT agrees with Finding Number 3 of the Auditor General and will study where use of the Arizona
Correctional Industries could be cost effective.
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OTHER PERTINENT INFORMATION
ADOT agrees with all of the positive facts and information in this section. However, the
references to “sufficient funding” (2 times) in this section are misleading. The Transportation
Board approves adequate funding to maintain the roads and bridges in accordance with current
standards. There are still deficiencies needing attention as traffic volumes increase, road use goes
up, and pavements deteriorate.
SUNSET FACTORS
ADOT generally agrees with the Auditor General’s comments addressing the twelve sunset
factors. However, the following comments are provided to clarify and/or address issues raised by
the Auditor General to help to present a complete assessment.
1. The objective and purpose in establishing the agency.
ADOT agrees with the narrative on this factor.
2. The effectiveness with which the agency has met its objectives and purpose and the
efficiency with which it has operated.
With respect to the comments from Auditor General Report 97-4, ADOT is addressing the issues
presented. Specifically, the Motor Vehicle Division is developing cash control policies and
procedures and developing additional procedures for the Collection Unit. The division is also
implementing the legislative changes affecting the motor carrier and fuel tax Areas.
With respect to the comments from Auditor General Report 97-13, ADOT is implementing
various technical solutions to evaluating and reducing the time customers spend in our offices and
obtaining information over the telephone. The Division is also increasing its service capacity in
the Communications Units and revising procedures to better sort and prioritize customer calls.
With regard to oversight of private contractors who perform motor vehicle transactions, the
division is improving its monitoring activities and security over computer records. These
improvements include password protection, operator identification numbers and the establishment
of a Quality Assurance Unit whose task is to monitor the work of all third party operators
employed by contractors.
With respect to comments from the Highway Planning and Engineering functions audit (Auditor
General Report 97-9), ADOT does not concur that greater use of “objective” criteria and data in
the program selection process will improve the quality of project selection. Since the audit report
was issued, ADOT has received the results of a study conducted by a consultant hired by the
department to recommend program process improvements. Several of the Transportation Board
members and ADOT district engineers have expressed concern about certain aspects of the
consultant’s recommendations regarding increased use of formulas in the project selection
process. The subject is still under review. Relative to the right-of-way findings, ADOT has
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followed federal and state regulations regarding relocation assistance and performed those
functions in a cost-effective manner
With regard to comments from Highway Construction Audit, ADOT will implement all of the
recommendations contained therein.
· An education program will be instituted to emphasize the importance of completing
projects within the bid amount whenever possible. There are always contingency
items of work when the ‘units of work” type bidding is used. Many items are
dependent on the time of completion, such as Traffic Control, and contents of product
mixes, such as the percent of asphalt in pavement mixes which cannot be determined
until the material source has been developed by the contractor. Any increases above
the bid amount will be measured and monitored to assure there is “value added” to the
completed project.
· The Partnering Program has recently been further improved and through measurement
of costs, time savings and relationships, and the program continues to gain in
effectiveness. An analysis of value -engineering procedures and specifications is being
implemented at the present time to look for opportunities for increased use.
· ADOT has established utilization standards which will enable the agency to determine
whether light duty vehicles are underutilized. In addition, a systematic review and
rotation process has been put in place to effectively use vehicles identified as
underutilized. Authority to transfer vehicles has been granted to the Equipment
Administrator. ADOT has eliminated the 30 day extension of time formally added to
bid delivery dates in order to tighten up delivery times for new equipment. Finally,
ADOT has entered into discussions with Arizona Correctional Industries to determine
if any fabrication can be accomplished by inmate labor to reduce costs and perhaps
improve delivery times.
3. The extent to which the agency has operated within the public interest.
The Department disagrees with the Auditor General’s statement, “… the Motor Vehicle Division
may not have operated in the public’s interest by revaluing over 400,000 vehicles registered in the
State …”
MVD sought and received legal advice from the Attorney General’s Office. The advice from the
Attorney General was:
· that MVD’s purpose in making the list price corrections was statutorily authorized; and
· that MVD would be remiss in its duties if it did not rely on the correct data when making
assessments for succeeding license year registrations.
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With regard to the Auditor General’s recommendation to the Legislature, MVD will comply with
any legislatively established statutory provisions regarding notifying and providing for taxpayer
appeals.
4. The extent to which rules adopted by the agency are consistent with the legislative
mandate
ADOT will review the areas identified by the Auditor General for which the Department has not
promulgated all rules mandated by statutes and develop such rules if necessary.
However, with respect to the prescription of rules for expenditure of State Highway Fund
monies, we believe a number of various specific statutes exist which relate to the expenditure of
highway funds which take precedent over general language of the powers and duties of the
Director. Specific references which relate to these rules are ARS 28-1822, 28-1824, 28-1826, 28-
1827 and 28-1828. Of particular relevance is ARS 35-131 which places all control relating to
expenditures under the direction of the Director of the Department of Administration.
Also, with regard to promulgating rules relating to the closure of state highways under
construction or repair has been accomplished by establishing a regulation which through the
delegation of authority, authorizes the District Engineer to regulate the closing of state highways
under construction or repair. Traffic is maintained through construction areas and roads are
closed for emergency conditions following a district plan or a statewide emergency plan. If
necessary they are closed on a priority basis.
5. The extent to which the agency has encouraged input from the public before adopting its
rules, and the extent to which it has informed the public as to its actions and their
expected impact on the public.
The Department will ensure that in the future ADOT notifies the Secretary of State where public
meeting notices are posted.
6. The extent to which the agency has been able to investigate and resolve complaints that
are within its jurisdiction.
The Auditor General noted that the Legislative Services Office had, as of September 18, 1997,
not responded to 20 outstanding complaints within its ten-day goal. It should also be noted that
because a complaint is beyond the ten-day goal, does not mean the complainant has not received a
response or resolution to his or her problem. Often these written complaints are resolved before
being delegated to the appropriate level within the department. For example, vehicle registration
tags may be received by the complainant before the complaint is received and motor carrier or
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driver records may be updated before correspondence is received. Also, complainants do not
always include return addresses in their correspondence and such complaints are left in the system
until the department is able to respond.
7. The extent to which the attorney general or any other applicable agency of state
government has the authority to prosecute actions under the enabling legislation.
The Auditor General states, “…the Executive Hearing Office and the Motor Vehicle Division is
empowered to impose civil penalties or initiate prosecutions.” The Executive Hearing Office
conducts hearings on contested matters which begin within other agencies. To further clarify this
statement, it should be noted the Executive Hearing Office does not directly order the civil
sanctions that are available. The Executive Hearing Office issues recommended orders that can
be accepted or modified by the director.
8. The extent to which the agency has addressed deficiencies in its enabling statutes which
prevent it from fulfilling its statutory mandate.
ADOT agrees with the narra