Performance Audit, Arizona Department of Transportation highway design process, contractor claims process

              DOlJGLAS R NORTON. CPA
ALlDlTOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
LINDA J. BLESSING. CPA
DEPUTY AUDITOR GENERAL
June 13, 1990
Members o f the Arizona L e g i s l a t u r e
The Honorable Rose M o f f o r d , Governor
Mr. Charles L . M i l l e r , D i r e c t o r
Arizona Department o f T r a n s p o r t a t i o n
T r a n s m i t t e d h e r e w i t h i s a r e p o r t of the Auditor General, A Performance
Audit o f the Arizona Department of T r a n s p o r t a t i o n ( ADOT), Highway Design
Process and Contractor Claims Process. This r e p o r t i s i n response to the
requirements of Chapter 68 o f the 1988 Session Laws.
We found few problems w i t h the o v e r a l l q u a l i t y o f ADOT's highway
designs. However, ADOT needs to strengthen i t s design review process and
needs- a more e f f e c t i v e system f o r managing design c o s t s .
I n reviewing the c o n t r a c t o r claims process, we found c l a i m s a r e n o t a
s u b s t a n t i a l expenditure i n r e l a t i o n to t o t a l c o n s t r u c t i o n c o s t s .
However, ADOT needs t o m a i n t a i n more complete and accurate i n f o r m a t i o n on
c l a i m s . ADOT also needs to improve the t i m e l i n e s s o f i t s claims h a n d l i n g .
The Department g e n e r a l l y agrees w i t h the f i n d i n g s of t h i s r e p o r t and has
already taken a c t i o n t o implement many of our recommendations. A
response from the Department i s found on the y e l l o w pages o f t h i s r e p o r t .
My s t a f f and I w i l l be pleased to d i s c u s s o r c l a r i f y items i n the r e p o r t .
S i n c e r e l y ,
~ o u w s8. Nor ton
Auditor General
DRN : I mn
2700 NORTH CENTRAL AVE. 0 SUITE 700 PHOENIX, ARIZONA 85004 ( 602) 255- 4385
SUMMARY
The O f f i c e o f the Auditor General has conducted a performance a u d i t o f
the Arizona Department of Transportat i o n ' s ( ADOT) highway design process
and c o n t r a c t o r claims process i n response to the requi rements o f Chapter
68 o f the 1988 Session Laws. This i s the f i r s t i n a s e r i e s o f r e p o r t s
addressing the requirements o f Chapter 68.
HIGHWAY DESIGN PROCESS
ADOT's Highway Development Group i s responsible f o r advancing p r o j e c t s
through the design process, a v i t a l p a r t o f a l l p r o j e c t s i n v o l v i n g the
c o n s t r u c t i o n of new highways or the r e c o n s t r u c t i o n of e x i s t i n g
f a c i l i t i e s . Design o f t e n i n v o l v e s s t u d y i n g highway l o c a t i o n and
environmental concerns, developing general plans, a c q u i r i n g land, and
p r e p a r i n g e n g i n e e r i n g drawings and c o n s t r u c t i o n p l a n d e t a i l s . Our review
found few problems, o v e r a l l , w i t h the q u a l i t y o f designs developed
through the ADOT process.
ADOT Needs To Strengthen
the Design Review Process ( see pages 5 through 9)
ADOT has not r o u t i n e l y performed t i m e l y design reviews. Design review
provides needed assurance a road can be constructed as intended and t h a t
i t w i l l f u n c t i o n s a f e l y and e f f i c i e n t l y when b u i l t . Design review i s
e s p e c i a l l y v i t a l since much o f ADOT's design work has been c o n t r a c t e d o u t
to engineering c o n s u l t a n t s . Reviews should be performed when designs are
30, 60, and 90 percent complete. During our a u d i t , we reviewed a l l 53
highway design c o n t r a c t s f o r f i s c a l years 1987 through 1989. Of the 29
p r o j e c t s 90 percent or more completed, 10 had not been reviewed a t one or
more o f t h e 3 0 , 60, and 90 percent completion stages.
Even when reviews were completed, review comments were not always
submitted on time. ADOT s t a f f d i d n o t p r o v i d e t i m e l y review comments f o r
h a l f of the p r o j e c t s reviewed. Late comments may cause delays and impact
p r o j e c t c o s t s . Several p r o j e c t s we examined required change orders due
t o untimely review.
To c o r r e c t t h i s problem, ADOT i s developing u n i f o r m procedures and
g u i d e l i n e s to address key areas o f r e s p o n s i b i l i t y and s p e c i f y
expectat ions a t each design review phase. To encourage broader
p a r t i c i p a t i o n i n the review process, ADOT should a l s o consider adopting a
more r e a l i s t i c scheduling system.
ADOT Needs a More Effective System
for Managing Design Costs ( pages 1 1 through 1 7)
F i n a n c i a l management o f urban highway design p r o j e c t s needs t o be
strengthened, as design costs on numerous p r o j e c t s have s i g n i f i c a n t l y
exceeded o r i g i n a l budgets.
Twelve p r o j e c t s , reviewed i n d e t a i l , were more than double the o r i g i n a l
budget. I n three o f these, d e s i g n c o s t overruns occurred because
o r i g i n a l budgets were not meaningful, and represented o n l y the f i r s t
phase o f multi- phase work. On the remaining 9 p r o j e c t s , ADOT placed
greater emphasis on addressing c i t i z e n and municipal concerns and
m a i n t a i n i n g schedules than on s t r i c t adherence t o o r i g i n a l budgets. Upon
passage o f the h a l f - c e n t sales t a x , ADOT committed i t s e l f to a
challenging schedule o f c o n s t r u c t i o n b i d dates. C o n c u r r e n t l y , o r i g i n a l
p r o j e c t budgets ( e s t a b l i s h e d by ADOT immediately a f t e r passage o f the
s a l e s t a x ) d i d not a n t i c i p a t e the f u t u r e changes requested by c i t i z e n
groups and m u n i c i p a l i t i e s -- changes t h a t would u l t i m a t e l y cause delays
and increase p r o j e c t c o s t s .
Compounding t h i s problem, ADOT has not kept adequate f i n a n c i a l
i n f o r m a t i o n a v a i l a b l e on i n d i v i d u a l p r o j e c t budgets and e x p e n d i t u r e s .
C o r r i d o r engineers, f o r example, art? unable t o monitor p r o j e c t budgets
through ADOT's T r a n s p o r t a t i o n Accounting System ( TRACS). At the time o f
our a u d i t , the system lacked a ' t r o l l - u p t ' c a p a b i l i t y t o accumulate and
r e p o r t budget and expenditure data f o r each s e c t i o n o f a highway and f o r
the highway as a whole. The Department i s p r e s e n t l y addressing some o f
these TRACS d e f i c i e n c i e s .
- Co s-- t Reduction Through More
Competitive Consultant Procurement ( see pages 19 through 24)
While ADOT g e n e r a l l y adheres to sound procuremefit p r a c t i c e s f o r
c o n s u l t a n t s , and i t s Engineering Consultant Services Section c o n s i s t e n t l y
f o l l o w s p r e s c r i b e d procedures ( w e l l documented i n c o n t r a c t f i l e s ) , the
Department might be able t o reduce costs by u t i l i z i n g a more c o m p e t i t i v e
approach i n the s e l e c t i o n o f consultants f o r i t s Highway Development
Group.
Cost competition f o r the s e l e c t i o n o f an engineering c o n s u l t a n t i s
l i m i t e d . ADOT n e g o t i a t e s h o u r l y rates and fees a f t e r s e l e c t i n g a
c o n s u l t a n t . This approach, although p r e f e r r e d by the engineering
consultant community, does not ensure t h a t ADOT pays a p p r o p r i a t e and
compet i t i v e r a t e s .
I n a d d i t i o n , ADOT should consider d i s c l o s i n g i t s p o l i c y o f spreading work
among many engineering f i r m s . This p o l i c y i s not c l e a r l y d i s c l o s e d i n
i t s b i d notices and requests f o r proposals, and may be u n f a i r t o some
f i r m s . ADOT may also want t o consider adopting procurement r u l e s o r
p o l i c i e s f o r e n g i n e e r i n g c o n s u l t a n t s e r v i c e s . Because ADOT i s exempt
from the procurement code, and no other s t a t u t o r y p r o v i s i o n s o r ADOT
r u l e s apply to engineering s e r v i c e s , ADOT i s under no o b l i g a t i o n t o
continue sound procurement p r a c t i c e s .
CONTRACTOR CLAIMS PROCESS
C o n t r a c t o r c l a i m s f o r more money are common i n highway c o n s t r u c t i o n .
Contractors may f i l e claims based on delays, a d d i t i o n a l work, d i f f e r i n g
s i t e c o n d i t i o n s , and f o r numerous other reasons. When a disagreement
between ADOT and a c o n t r a c t o r a r i s e s , ADOT and the c o n t r a c t o r can
f r e q u e n t l y reach an agreement and r e s o l v e t h e m a t t e r . However, i f the
c o n t r a c t o r and ADOT cannot agree on a s o l u t i o n , t h e c l a i m s process a l l o w s
the c o n t r a c t o r t o pursue the d i s p u t e .
ADOT e s t a b l i s h e d a Claims Branch i n 1982. C u r r e n t l y , the Claims Branch
i s responsible f o r maintaining a claims database, p r o v i d i n g t r a i n i n g on
claim avoidance and claim handling to ADOT f i e l d personnel, c o o r d i n a t i n g
necessary actions on appealed claims, and a s s i s t i n g d i s t r i c t s t a f f upon
request .
ADOT Lacks a Complete and Accurate
Picture of the Statew- i- de Claims Situation ( see pages 35 through 43)
ADOT c u r r e n t l y lacks accurate and complete information on the number,
status and outcome of claims departmentwide. Although the Claims Branch
should c e n t r a l l y gather claims i n f o r m a t i o n , claim f i l e s maintained by the
Claims Branch are o f t e n incomplete. Our review of Claims Branch f i l e s
revealed that some f i l e s lacked basic documents necessary to determine
the status of the corresponding claim. For example, some f i l e s lacked
c l a i m r e p o r t forms, p r o j e c t or d i s t r i c t denial l e t t e r s , l e t t e r s of
settlement or o f f e r s t o s e t t l e , and general correspondence between ADOT
and the c o n t r a c t o r r e g a r d i n g the claim. F u r t h e r , we i d e n t i f i e d problems
w i t h f i l e o r g a n i z a t i o n and maintenance. Although the Claims Branch sees
i t s r o l e as a resource f o r assistance or advice on handling claims, the
lack of complete i n f o r m a t i o n on claims and the poor o r g a n i z a t i o n of claim
f i les l i m i t the branch's abi l i t y to provide these services to ADOT
management and d i s t r i c t s t a f f .
In a d d i t i o n t o incomplete f i l e s , the computerized, departmentwide report
on claims i s flawed. The branch m a i n t a i n s a database to t r a c k the s t a t u s
of claims and report t h i s information to management and d i s t r i c t s t a f f .
However, of the 25 a c t i v e f i l e s we reviewed, only 10 cases had a database
status which matched the a c t u a l s t a t u s o f the claim. In a d d i t i o n , the
information reported by the Claims Branch regarding costs associated w i t h
claims i s misleading. For example, some costs ( such as $ 241 ,000 i n
consultant costs on one claim) are n o t captured, tracked, or reported.
F i n a l l y , i n f o r m a t i o n r e p o r t e d by the Claims Branch lacks d e t a i l and
provides no evidence of in- depth a n a l y s i s o f c l a i m s .
During the course of our a u d i t , ADOT recognized many of the problems
i d e n t i f i e d above and began taking c o r r e c t i v e a c t i o n . The branch has
r e c e n t l y developed goals and o b j e c t i v e s which c l a r i f y i t s r o l e i n the
claims process and should improve branch o p e r a t i o n s . However, other
improvements are needed. For example, the branch needs to r e v i s e i t s
method o f r e p o r t i n g c l a i m i n f o r m a t i o n and should conduct more in- depth
a n a l y s i s of c l a i m i n f o r m a t i o n .
ADOT Needs to Implement Changes
to Ensure Timely Resolution of- C - laims ( see pages 45 through 50)
ADOT needs t o implement changes t o promote the t i m e l y r e s o l u t i o n o f
claims submitted by c o n t r a c t o r s . We attempted to determine ADOT's
o v e r a l l t i m e l i n e s s i n c l a i m r e s o l u t i o n , b u t ADOT does not m a i n t a i n the
b a s i c d a t a needed t o do so. Although data i s not a v a i l a b l e on how long
i t takes ADOT t o accept or r e j e c t a c l a i m , we were able t o t r a c k the time
i t took f o r ADOT to process a c o n t r a c t o r ' s appeal o f a r e j e c t e d c l a i m .
We found t h a t c o n t r a c t o r s w a i t almost f i v e a d d i t i o n a l months t o receive a
determination on an appeal t o second l e v e l review.
ADOT's lack o f procedures may have caused these delays. ADOT has
developed s p e c i f i c a t i o n s which d e f i n e both ADOT's and the c o n t r a c t o r ' s
r o l e i n claim r e s o l u t i o n . However, the s p e c i f i c a t i o n s are vague i n
several areas which may c o n t r i b u t e to delays i n c l a i m r e s o l u t i o n . For
example, although c o n t r a c t o r s must f o l l o w s p e c i f i c time g u i d e l i n e s i n
f i l i n g c l a i m s , t h e r e a r e few time requirements f o r ADOT a c t i o n s . The
s p e c i f i c a t i o n s a l s o f a i l to provide c l e a r guidance f o r c o n t r a c t o r s i n
f i l i n g a c l a i m , and do not r e q u i r e ADOT to provide w r i t t e n d e c i s i o n s .
I n a d d i t i o n t o vague s p e c i f i c a t i o n s , ADOT lacks i n t e r n a l procedures f o r
m o n i t o r i n g t h e p r o g r e s s o f c l a i m s . However, the Claims Branch's new
goals and o b j e c t i v e s i n d i c a t e t h a t i t plans t o develop a " t i c k l e r "
database t o s i g n a l when ADOT a c t i o n s a r e r e q u i r e d . The Claims Branch
a l s o plans t o v i s i t d i s t r i c t s t o update i n f o r m a t i o n on c l a i m s t a t u s and
provide t r a i n i n g on claims r e s o l u t i o n .
TABLE .- O F CONTENTS -
HIGHWAY DESIGN PROCESS
INTRODUCTION AND BACKGROUND. . . . . . . . . . . . . . . . . . 1
FINDING I: DESIGN REVIEW PROCESS
NEEDS TO BE STRENGTHENED . . . . . . . . . . . . . . . . . 5
Design Reviews Not Done
o n a R o u t i n e B a s i s . . . . . . . . . . . . . . . . . . . . 5
Uniform Procedures and
W r i t t e n G u i d e l i n e s Are Necessary . . . . . . . . . . . . . 7
Recommendations. . . . . . . . . . . . . . . . . . . . . . 9
FINDING II: ADOT NEEDS A MORE EFFECTIVE SYSTEM
FORMANAGINGDESIGNCOSTS. . . . . . . . . . . . . . . . . 11
S u b s t a n t i a l Design Cost I n c r e a s e s . . . . . . . . . . . . . 11
Lack o f Adequate
F i n a n c i a l I n f o r m a t i o n . . . . . . . . . . . . . . . . . . . 15
Recommendations. . . . . . . . . . . . . . . . . . . . . . 17
FINDING I l l : ADOT MAY BE ABLE TO REDUCE COSTS
BY MAKING ITS CONSULTANT PROCUREMENT PROCESS
MORE COMPETITIVE . . . . . . . . . . . . . . . . . . . . . 19
Sound Procurement
P r a c t i c e s F o l l o w e d . . . . . . . . . . . . . . . . . . . . 19
Competition May
ReduceCost . . . . . . . . . . . . . . . . . . . . . . . . 2 1
Recommendations. . . . . . . . . . . . . . . . . . . . . . 2 4
OTHER PERTINENT INFORMATION, . . . . . . . . . . . . . . . . . 25
Design S t a f f Increases
Have BeenModerate . . . . . . . . . . . . . . . . . . . . 25
TABLE OF CONTE- N- T S ( Conc l ' d )
CONTRACTOR CLAIMS PROCESS
INTRODUCTION AND BACKGROUND. . . . . . . . . . . . . . . .
FINDING I: ADOT LACKS A COMPLETE
AND ACCURATE PICTURE OF THE
STATEWIDE CLAIMS SITUATION . . . . . . . . . . . . . .
Claims Branch F i l e s Are
Incomplete and Poorly Organized. . . . . . . . . .
Claims I n f o r m a t i o n Reported
I s D e f i c i e n t . . . . . . . . . . . . . . . . . . . . .
ADOT I s Taking Steps
t o Improve . . . . . . . . . . . . . . . . . . . . . .
Recommendations. . . . . . . . . . . . . . . . . . . .
FINDING I I : ADOT NEEDS TO IMPLEMENT
CHANGES TO ENSURE TIMELY RESOLUTION
OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . .
Some Claims Have Had
Delays i n Resolution . . . . . . . . . . . . . . . . .
ADOT Lacks Formal Procedures
f o r Timely R e s o l u t i o n . . . . . . . . . . . . . . . .
Recommendations. . . . . . . . . . . . . . . . . . . .
OTHER PERTINENT INFORMATION. . . . . . . . . . . . . . . .
ADOT Does Not Keep Accurate Composite
I n f o r m a t i o n on P r o j e c t Costs . . . . . . . . . . .
Appeals Process. . . . . . . . . . . . . . . . . . . .
AGENCY RESPONSE
APPENDIX I Department o f L i b r a r y , Archives and
P u b l i c Records Memo
APPENDIX I ! C o n t r a c t o r Survey Results
Page
2 9
LIST OF TABLES
HIGHWAY DESIGN PROCESS --
TABLE 1 : Design Costs Increases
Twelve Design C o n t r a c t s . . . . . . . . . . . .
TABLE 2: Highway Development Group
FTEs f o r F i s c a l Year 1985- 86
Through 1989- 90. . . . . . . . . . . . . . . .
TABLE 3: Highway Development Group
FTE lncreases by Section Between
F i s c a l Year 1985- 86 and 1989- 90. . . . . . . .
TABLE 4: ADOT C o n s t r u c t i o n Program
Cost by F i s c a l Year. . . . . . . . . . . . . .
CONTRACTOR CLAIMS PROCESS
TABLE 1 : C o n t r a c t o r C l a i m S t a t i s t i c s
Calendar Years 1985 through 1989 . . . . . . .
- INTR- OD UCTION AND BACKGROUND
The O f f i c e o f the Auditor General has conducted a performance a u d i t o f
the Arizona Department of T r a n s p o r t a t i o n ' s ( ADOT) highway design process
i n response to the requirements o f Chapter 68 o f the 1988 Session Laws.
This i s the f i r s t i n a s e r i e s o f r e p o r t s addressing the requirements o f
Chapter 68.
The design process i s a v i t a l p a r t o f a l l p r o j e c t s i n v o l v i n g c o n s t r u c t i o n
o f new highways and r e l a t e d f a c i I i t ies as we1 l as r e c o n s t r u c t ion and
improvement of e x i s t i n g roads. S p e c i f i c design a c t i v i t i e s necessary
p r i o r t o c o n s t r u c t i o n w i l l vary depending upon the nature o f the
p r o j e c t . However, design o f t e n w i l l r e q u i r e studies of highway l o c a t i o n
and environmental concerns, development o f the p r o j e c t ' s general p l a n ,
a c q u i s i t i o n of land, and the p r e p a r a t i o n o f c o n s t r u c t i o n p l a n d e t a i l s .
Highway Development Group
Oversees Design Process
The ADOT Highway D i v i s i o n ' s Highway Development Group i s responsible f o r
advancing p r o j e c t s through a l l phases of the design process. Headed by a
Deputy State Engineer, the Group i s composed o f t h e Design, L o c a t i o n ,
Right- of- way, S t r u c t u r e s , and Urban Highway S e c t i o n s . Each S e c t i o n ' s
r e s p o n s i b i l i t i e s are as f o l l o w s :
Design Section i s responsible f o r the design and development o f
roadway c o n s t r u c t i o n plans f o r a l l highways not on the urban highway
system, and uses engineering design c o n s u l t a n t s to provide design
services on i n d i v i d u a l p r o j e c t s . A p r o j e c t monitor i s assigned t o
administer the d e s i g n c o n s u l t a n t c o n t r a c t s .
A l l p r o j e c t s prepared by ADOT or by engineering c o n s u l t a n t s under
c o n t r a c t to ADOT, are routed to c o n t r a c t s and s p e c i f i c a t i o n s services
i n the Design Section f o r f i n a l p r o j e c t approval, and b i d
adve r t i semen t .
Location Section i s composed o f two u n i t s -- locat ion services and
photogrammetry and mapping s e r v i c e s . Location s e r v i ces i s
responsible f o r conducting highway l o c a t i o n and design s t u d i e s , and
f o r preparing p r o j e c t assessment documents. Photogrammetry and
mapping s e r v i c e s p r o v i d e support ( f i e l d surveys, a e r i a l photographs,
and a v a r i e t y o f engineering maps) to various d i v i s i o n s w i t h i n the
Department.
Right- of- way S e c t i o n i s responsible f o r a l l a c t i v i t i e s involved i n
the a c q u i s i t i o n o f right- of- way f o r highways. The s e c t i o n provides
services f o r p l a n and t r a n s f e r documents p r e p a r a t i o n , and a p p r a i s a l ,
r e l o c a t i o n , a c q u i s i t i o n , and condemnation.
S t r u c t u r e s S e c t i o n i s responsible f o r the design and p r e p a r a t i o n of
plans f o r a l l b r i d g e - r e l a t e d p r o j e c t s , drainage design services on
a l l highway and b r i d g e p r o j e c t s , and b r i d g e i n s p e c t i o n s e r v i c e s .
0 Urban Highway S e c t i o n i s responsible f o r developing a l l highway
p r o j e c t s on the Urban Highway system, and assumes a l l r e s p o n s i b i l i t y
f o r the Urban Highway process, w i t h the exception o f right- of- way
a c q u i s i t i o n and f i n a l processing o f b i d documents used i n b i d
a d v e r t i s i n g .
A d d i t i o n a l l y , t r a f f i c design s e r v i c e s , environmental p l a n n i n g s e r v i c e s ,
the m a t e r i a l s s e c t i o n , p r e c o n s t r u c t i o n engineering management, and the
four ADOT d i s t r i c t s a l l provide s i g n i f i c a n t support to the Highway
Development Group.
Statewide and Urban
- H ighway Design
C u r r e n t l y , ADOT design e f f o r t s focus p r i m a r i l y on the Department's
statewide program and on the development of r e g i o n a l urban freeway
systems. Although ADOT s t a f f are performing much of t h e design work on
statewide p r o j e c t s , most regional urban freeway design has been
c o n t r a c t e d out to engineering c o n s u l t a n t s . Design- related c o n t r a c t costs
f o r f i s c a l year 1989- 90 are estimated to be $ 69 m i l l i o n . ( ' )
As r e s p o n s i b i l i t i e s f o r the Urban Highway Program increased d r a s t i c a l l y ,
impacting ADOT's statewide c o n s t r u c t i o n program and the Group's o v e r a l l
resources, t h e Department addressed t h e increased workload by employing
o u t s i d e management and design c o n s u l t a n t s t o perform a c t i v i t i e s
p r e v i o u s l y handled by ADOT's own s t a f f .
( 1 Contracts costs fiscal year 1989- 90 include obl igati ons from prior years.
According to the Department, passage of the Maricopa h a l f - c e n t sales tax
was instrumental i n the dramatic expansion o f d e s i g n - r e l a t e d a c t i v i t i e s .
P r e s e n t l y , the Urban Highway Program receives the m a j o r i t y o f ADOT1s
fund i ng and act i v i t y . I n f i sca l year 1988- 89. ADOT expended $ 234.7
mi 1 l ion on the program -- approximately 11 .5 percent ( or $ 27.1 mi l l i o n )
o f t h i s amount was p a i d f o r ' design- related s e r v i c e s .
Staff and Budget
For f i s c a l year 1989- 90, the Highway Development Group employs 500
f u l l - t i m e employees ( FTEs), maintains an a d m i n i s t r a t i v e budget o f $ 20
mi l l i o n , and i s responsible f o r a statewide c o n s t r u c t i o n program o f
approximately $ 460 mi l l i o n .
Audit Scope
Our a u d i t was conducted t o evaluate the e f f e c t i v e n e s s of ADOT's highway
design process. An o v e r a l l review i n d i c a t e d ADOT had very few problems
w i t h design q u a l i t y . Following a p r e l i m i n a r y review o f the Highway
Development Group's a c t i v i t i e s , our e f f o r t s focused on the Department's
design review process, design c o s t s , s t a f f i n g , and procurement of
engineering c o n s u l t i n g s e r v i c e s . Our f i n d i n g s address three s p e c i f i c
areas :
the e f f e c t i v e n e s s of ADOT's q u a l i t y c o n t r o l process f o r highway
des i gn ,
the methods t h a t could be u t i l i z e d t o strengthen f i n a n c i a l management
of urban highway design, and
the adequacy o f ADOT's procedures f o r procurement o f engineering
consultant s e r v i c e s .
This report a l s o c o n t a i n s o t h e r p e r t i n e n t informat ion on design s t a f f i n g
( see page 25).
Our a u d i t was conducted i n accordance w i t h g e n e r a l l y accepted
governmental a u d i t i n g standards.
The Auditor General and s t a f f express t h e i r a p p r e c i a t i o n to the D i r e c t o r
o f the Arizona Department o f T r a n s p o r t a t i o n and s t a f f f o r t h e i r
cooperation and assistance d u r i n g the course of our a u d i t .
FINDING I
DESIGN REVIEW PROCESS
NEEDS T-- O BE STRENGTHENED
ADOT's design review process can be improved. We found c o s t l y delays and
c o n t r a c t change orders can occur when reviews are not r o u t i n e l y performed
and comments a r e n o t submitted on a t i m e l y b a s i s . ADOT has adopted
uniform w r i t t e n procedures t o improve i t s design review, and should
consider a d d i t i o n a l measures t o promote a more e f f e c t i v e design review
process.
Importance of design review - Design review, a common procedure i n the
t r a n s p o r t a t i o n i n d u s t r y , provides the needed assurance a road can be
constructed as intended, and t h a t i t w i l l f u n c t i o n s a f e l y and e f f i c i e n t l y
when b u i l t . A l l s t a t e s contacted d u r i n g our a u d i t review designs d u r i n g
t h e i r development to ensure q u a l i t y . Design review can also provide
a d d i t i o n a l b e n e f i t s by i d e n t i f y i n g c o n s t r u c t i o n time and c o s t s a v i n g s .
Timely design review i s e s p e c i a l l y important as ADOT r e l i e s h e a v i l y on
outside design c o n s u l t a n t s , many o f whom have not worked w i t h ADOT b e f o r e
and are t h e r e f o r e unfami l i a r w i t h i t s t e c h n i c a l standards and other
requirements. Review of c o n s u l t a n t work i s also necessary to ensure
sections designed by d i f f e r e n t f i r m s are compatible i n design and s a f e t y
f e a t u r e s .
ADOT assigns each p r o j e c t a m o n i t o r who d i s t r i b u t e s design p l j n s t o
various ADOT s e c t i o n s , d i s t r i c t o f f i c e s , and other o u t s i d e agencies f o r
review comments, and i s responsible f o r design review.
Design Reviews Not Done
on a Routine Basis
Although needed t o ensure q u a l i t y , the Department i s not r o u t i n e l y
performing t i m e l y and c o n s i s t e n t design reviews. According to ADOT,
reviews should be conducted a t three d i s t i n c t stages: when designs are
30, 60, and 90 percent complete. Our a n a l y s i s of p r o j e c t f i l e s found
comments a r e n o t always submitted a t these 30, 60, and 90 percent stages
o f completion and, even i f submitted, comments are o f t e n l a t e . Some
p r o j e c t s may have experienced delays and cost increases because design
review comments were n o t s u b m i t t e d on time.
We reviewed a l l 53 highway design c o n t r a c t s , i n various stages o f
completion, f o r f i s c a l years 1987- 89 to determine i f ADOT procedures were
being f o l l o w e d . Because 12 o f the 53 highway design p r o j e c t s had not
completed 30 percent reviews, we concentrated only on the remaining 41.
Untimely reviews - Our examination o f highway design f i l e s found t h a t
design review has not always been c o n s i s t e n t and t i m e l y . For example, 10
of the 29 p r o j e c t s 90 percent or more completed had not been reviewed a t
one or more o f the 30, 60, and 90 percent stages -- a r e s u l t , a t l e a s t
p a r t l y caused by i n c o n s i s t e n t review p r a c t i c e s by p r o j e c t m o n i t o r s . Some
monitors ask ADOT sections to review plans a t a l l t h r e e i n t e r i m design
stages, w h i l e others requested reviews only once. D i s t r i c t involvement
has also been i n c o n s i s t e n t . In some cases, d i s t r i c t s have reviewed plans
at the 30 or 60 percent completion stage o f design, i n other cases,
d i s t r i c t review has n o t occurred u n t i l the 90 percent completion stage.
Even when reviews were conducted, comments were f r e q u e n t l y submitted
l a t e . I n f a c t , ADOT d i s t r i c t s t a f f or other ADOT sections d i d not
provide t i m e l y review comments f o r 21 of 41 p r o j e c t s past the 30 percent
review stage. Reviewers g e n e r a l l y have 14 days t o submit comments.
Comments are considered l a t e , i f a reviewer f a i l s t o respond w i t h i n the
s p e c i f i e d time frame.
Cost increases - L a t e d e s i g n review comments can delay p r o j e c t s and may
r e s u l t i n c o s t l y change o r d e r s . Several management consultant p r o j e c t
monitors have complained about ADOT's pervasive l a t e review problem. One
consultant i n p a r t i c u l a r has r a i s e d concerns about t h i s problem i n every
r e p o r t he has w r i t t e n to ADOT i n t h e p a s t 11 months. Another consultant
informed us l a t e review comments by c e r t a i n Highway Development Group
sections are also a c o n t i n u i n g problem.
The f o l l o w i n g are four s p e c i f i c examples o f p r o j e c t delays and change
orders caused by l a t e design review:
Late reviews on the Indian School Road T r a f f i c Interchange P r o j e c t
have resu l ted i n design development prob lems and an $ 1 1,600 change
o r d e r . Reviews a t the 60 and 90 percent stages o f completion were
two and seven weeks l a t e , r e s p e c t i v e l y . Of the s i x ADOT sections
which were supposed to review the design plans, o n l y one submitted
comments on time, the others were 4 to 52 days l a t e . Other important
ADOT engineering sections never submitted review comments a t a l l .
Late comments a l s o r e s u l t e d i n a change order to address landscaping,
detour c o n s t r u c t i o n d e t a i l s , and t r a f f i c sign s t r u c t u r e requests.
Late reviews r e s u l t e d i n e x t r a ADOT design and p r o j e c t delays on the
40th S t r e e t t r a f f i c interchange p r o j e c t . An ADOT review s e c t i o n
submitted 60 percent review comments to design c o n s u l t a n t s a f t e r
p r o j e c t designs were complete. These comments suggested s i g n i f i c a n t
changes i n the design, f o r c i n g c o n s t r u c t i o n delay. Correspondence
f. rom an ADOT a d m i n i s t r a t o r i n d i c a t e d that had these comments been
received a t o r c l o s e t o the a p p r o p r i a t e t i m e , changes could have been
made r o u t i n e l y , w i t h minimal a d d i t i o n a l c o s t . I n the end, ADOT s t a f f
had t o redesign plans the c o n s u l t a n t had been paid t o develop.
According to the East Papago P r o j e c t m o n i t o r , l a t e review comments
have r e s u l t e d i n change orders on a l l the East Papago highway
s e c t i o n s . For example, j u s t i f i c a t i o n f o r change orders on the second
s e c t i o n o f the East Papago i n d i c a t e d t h a t , i n some cases, necessary
reviews were up t o three months l a t e . I n f a c t , the change orders
i n d i c a t e l a t e reviews a l s o caused other elements o f the design
development process t o go p o o r l y .
The need to re- analyze pavement design on an Outer Loop Highway
P r o j e c t r e s u l t e d i n a $ 50,174 change o r d e r . ADOT comments on the
pavement design were l a t e and, because the c o n s u l t a n t had already
completed the d e s i g n , a change order was submitted a u t h o r i z i n g
payment approval f o r a d d i t i o n a l work caused by l a t e comments.
Uniform Procedures and
Written Guidelines are Necessary
A t the time of our a u d i t , ADOT design review had been i n c o n s i s t e n t
because the Department had not e s t a b l i s h e d and enforced formal, uniform
procedures. P r o j e c t m o n i t o r s , f o r example, d i d not have standard
procedures i n d i c a t i n g who should review designs a t each stage i n the
design development process. Consequently, some p r o j e c t monitors
d i s t r i b u t e d plans and other design documents f o r review a t the 30, 60.
and 90 percent completion stages, whi le others d i d n o t . D i s t r i c t o f f i c e
involvement i n , and r e s p o n s i b i l i t y f o r , design review had a l s o n o t been
c l a r i f i e d . On some p r o j e c t s , d i s t r i c t s had not p a r t i c i p a t e d i n design
review u n t i l l a t e i n the development process.
ADOT has responded to t h i s problem by preparing a comprehensive manual on
the highway development process, which i t plans t o f i n a l i z e and implement
i n the summer o f 1990. According to the Deputy S t a t e Engineer for
Highway Development, the manual, which has been under development since
February 1989, w i l l g r e a t l y improve the c u r r e n t process i n two d i s t i n c t
ways. F i r s t , i t provides a uniform review process f o r a l l highway design
p r o j e c t s . Secondly, i t c l e a r l y defines and e s t a b l i s h e s s p e c i f i c
g u i d e l i n e s f o r each design review stage and o u t l i n e s the s p e c i f i c ,
formalized r e s p o n s i b i l i t i e s o f p r o j e c t monitors a t each stage.
To supplement the manual , ADOT has a l so deve loped a po l i cy memorandum on
d i s t r i c t involvement i n design r e v i e w . The memorandum ( which was
implemented i n A p r i l 1990) w i l l r e q u i r e d i s t r i c t involvement i n each
stage of the design process -- the development and review o f pre- design
documents ( i . e . , p r o j e c t assessments), the review o f a l l design plans and
documents, and p a r t i c i p a t i o n i n a l l design- related f i e l d s i t e v i s i t s .
A d d i t i o n a l e f f o r t s -- While ADOT's highway development manual and p o l i c y
memorandum on d i s t r i c t involvement w i l l address many o f the d e f i c i e n c i e s
we i d e n t i f i e d , the Department may wish to consider a d d i t i o n a l measures to
promote a more e f f e c t i v e design review process. The manual, f o r example,
does not s p e c i f y how much time ADOT w i l l a l l o w f o r design review. In
many cases, the Department has allowed two weeks f o r s e c t i o n s t a f f to
review d e s i g n p l a n s and documents. Unit s t a f f and design managers have
s t a t e d two weeks a r e n o t always s u f f i c i e n t t o accomplish review,
e s p e c i a l l y when they have competing p r i o r i t i e s . The s t a f f a l s o i n d i c a t e d
three t o four weeks may be necessary f o r adequate and complete design
review. Consultants we spoke w i t h also agree t h a t the two- week review
period may not be adequate. They suggested a l ~ n g e r p e r i o d should be
planned when f i r s t developing a p r o j e c t schedule.
As ADOT reviewers have not always submitted t h e i r comments on time, and
some have not responded a t a l l , ways to f a c i l i t a t e t i m e l y response and
p a r t i c i p a t i o n i n the design review process should a l s o be considered.
Current procedures r e l y h e a v i l y on i n d i v i d u a l desk reviews and submission
o f d e t a i l e d w r i t t e n comments. This can be tedious and time consuming f o r
those r e v i e w i n g d e s i g n s .
To minimize t h i s problem, the Colorado Department o f T r a n s p o r t a t i o n has
developed a method t h a t reduces r e l i a n c e on i n d i v i d u a l w r i t t e n comments.
Plans are d i s t r i b u t e d i n advance and reviewers a t t e n d meetings i n which
a l l comments are discussed. Meetings are organized so engineers from
s i m i l a r d i s c i p l i n e s meet a t the same time to discuss areas o f common
r e s p o n s i b i l i t y . During meetings, d e t a i l e d notes are taken and a l l
comments recorded. According t o Colorado highway o f f i c i a l s , attendance
a t these meetings has been high and the process has been e f f e c t i v e . ADOT
may be able t o promote greater and more t i m e l y p a r t i c i p a t i o n i n design
review by adopting s i m i l a r procedures.
RECOMMENDATIONS
1. The Department should adopt the p o l i c y and g u i d e l i n e s mandated i n the
Highway Development Group's design review d r a f t manual.
2. The Department a l s o needs t o consider a d d i t i o n a l ways to strengthen
the design review process. S p e c i f i c a l l y , they should:
a. a l l o w more time f o r reviewers t o submit comments, and
b . adopt methods reducing r e l i a n c e on i n d i v i d u a l w r i t t e n comments
ADOT N- - E EDS A MORE EFFECTIVE SYSTEM
FOR MANAGING DESIGN COSTS
ADOT's f i n a n c i a l management o f the urban highway design process needs t o
be strengthened. Design costs increased s u b s t a n t i a l l y d u r i n g the f i r s t
f o u r y e a r s o f the Urban Highway Program. Rather than s t r i c t adherence t o
p r o j e c t budgets, u n t i l r e c e n t l y , emphasis has been placed on meeting b i d
schedules and s a t i s f y i n g c i t i z e n requests. Lack of adequate f i n a n c i a l
i n f o r m a t i o n on p r o j e c t budgets and expenditures has also f u r t h e r l i m i t e d
ADOT's a b i l i t y to monitor and c o n t r o l design c o s t s .
Substantial Design
Cost increases
Urban highway design, l i k e the program as a whole, has had s u b s t a n t i a l
c o s t i n c r e a s e s . A n a l y s i s o f the reasons f o r these increases suggests
some o r i g i n a l design budgets understated funds needed to complete design
work, w h i l e other budgets favored meeting schedules over cost c o n t r o l .
Program costs increase - The c u r r e n t p r o j e c t e d cost to complete the
20- year Urban Highway Program i s c o n s i d e r a b l y h i g h e r than the 1985
estimate o f approximately $ 3.2 b i l l i o n . Adjusted f o r i n f l a t i o n , t h i s
1985 estimate represents approximately $ 3.9 b i l l ion. ADOT c u r r e n t l y
p r o j e c t s the cost o f the Program to be $ 6.1 b i I l i o n i n 1989 do1 l a r s , ( l )
or a 56 percent cost increase.( 2)
( 1 ) According t o ADOT s t a f f , the f o l l o w i n g are some of the reasons f o r the increase: i n
1985 ADOT underestimated some costs; right- of- way cost estimates have doubled;
t r a f f i c p r o j e c t i o n s have increased on average 90 percent; the number o f m i l e s
depressed below grade has more than doubled; a d d i t i o n a l mid- mile b r i d g e s and f u l l y
d i r e c t i o n a l interchanges a r e b e i n g designed and c o n s t r u c t e d ; and d r a i n a g e r e q u i r e r n e ~ t s
increased.
( 2 ) T h i s i n c r e a s e , combined w i t h an expected revenue s h o r t f a l l , r e s u l t s i n a need f o r
a d d i t i o n a l funding t o complete the proposed system. Projected revenues f o r t h e
20- year l i f e o f the Urban Highway Program have decreased each year s i n c e t h e e x c i s e
tax l e g i s l a t i o n was enacted i n 1985. Total p r o j e c t e d revenues i n f i s c a l year 1986
were $ 6.009 b i l l i o n ; by f i s c a l year 1989 t h i s e s t i m a t e had decreased t o $ 4.049
b i l l i o n . Taking bond proceeds, debt s e r v i c e , and o t h e r revenues i n t o account, the
t o t a l revenue a v a i l a b l e t o the Urban Highway Section becomes $ 3.2 b i l l i o n ( 1989
d o l l a r s ) . Thus, $ 2.9 b i l l i o n o f the $ 6.1 b i l l i o n cost remains unfunded.
Design p r o j e c t s , l i k e other elements o f the Urban Highway Program, have
also experienced c o s t i n c r e a s e s . Because approximately 95 percent o f the
design on the Program w i l l be completed by c o n s u l t a n t s , design cost
increases are due predominately t o increased c o n s u l t a n t c o s t s .
To determine t h e magnitude o f and causes f o r increased design c o s t s ,
A u d i t o r General s t a f f reviewed budget data f o r a l l open urban highway
design p r o j e c t s as of November 1989. Of the 59 p r o j e c t s i d e n t i f i e d
through ADOT's Transpor t a t ion Account i ng System ( TRACS), 12 p r o j e c t s
o r i g i n a l l y t o t a l i n g approximately $ 25 m i l l i o n , had budget increases o f
more than 25 percent or greater than $ 100,000( 1), and c o n t r a c t change
orders t o t a l i n g approximately $ 55 m i l l i o n . Thus, the t o t a l cost o f the
p r o j e c t s represented by these c o n t r a c t s increased 218 p e r c e n t . Table 1
( page 13) shows s p e c i f i c c o n t r a c t amounts and t o t a l change orders f o r the
con t rac t s rev i ewed .
( 1 ) Budget increases were determined by comparing " o r i g i n a l " budgeted amounts to the
" c u r r e n t " budgeted amounts as stated i n ADOT's Transportation Accounting System. As
noted l a t e r , these budgeted amounts may not be accurate.
TABLE 1
DESIGN COST INCREASES
12 DESIGN CONTRACTS
Contract Contract Change Percent
- D- e s c r i p t i o n Amount Orders l ncrease
NW Outer Loop TI $ 4,954,900 $ 2,615,009 52.78
Outer Loop TI @ State R t . 360 3,924,300 2,958,875 75.40
SE Loop & P r i c e Rd 2,765,200 324,314 11.73
Paradise C o r r i d o r 2,733,700 1,015,856 37.16
1- 10 & 99th Ave. TI 2,048,900 1 ,469,270 71 .71
Squaw Peak Gen'l Consultant 1 ,829,300 5,607,378 ( a ) 306.53
Colton Lane- NW Loop 1,716,800 2,158,472 125.73
Hohokam- Sky Harbor Interchange 1,480,200 779,114 52.64
Outer Loop Mgmt Consultant 2,393,752 33,932,281 ( a ) 1,417.54
Squaw Peak Extension 823,681 481 ,836 58.50
Hohokam Archaeological 266,800 3,268,500 ( a ) 1,225.07
E . Papago Storm D r a i n 197,918 236,980 119.74
T o t a l
( a ) Change orders were l a r g e l y f o r a d d i t i o n a l phases o f multi- phase work. See discussion
be1 ow.
Source: Auditor General review o f E n g i n e e r i n g C o n s u l t a n t S e r v i c e s
c o n t r a c t f i l e s
Budgets not meaningful - ADOT d i d not i n i t i a l l y e s t a b l i s h meaningful
budgets f o r some design p r o j e c t s . For example, three o f the l a r g e s t
change o r d e r i n c r e a s e s o c c u r r e d because o r i g i n a l p r o j e c t budgets
represented only the i n i t i a l phase o f work. The $ 34 m i l l i o n change order
increase i n the Outer Loop management consultant c o n t r a c t r e f l e c t s t h i s
problem. The o r i g i n a l budgeted amount was f o r the development of a
general design, and represented o n l y the f i r s t phase o f a multi- phase
p r o j e c t . Although the a d d i t i o n a l phases were a n t i c i p a t e d a t the time
t h i s c o n t r a c t was developed, they were not r e f l e c t e d i n the o r i g i n a l
budget f i g u r e s . The budget was s i g n i f i c a n t l y exceeded when the
subsequent phases were implemented by n e g o t i a t i n g change o r d e r s w i t h the
c o n s u l t a n t .
Likewise, most o f the $ 5.6 mi l l i o n change o r d e r i n c r e a s e f o r the Squaw
Peak general c o n s u l t a n t c o n t r a c t was needed to pay f o r an a d d i t i o n a l
phase o f t h i s multi- phase p r o j e c t . The $ 3.2 m i l l i o n increase i n the
Hohokam Archaeological c o n t r a c t was a l s o the r e s u l t o f a d d i t i o n a l t e s t i n g
and data recovery n o t i n c l u d e d i n the f i r s t phase o f the p r o j e c t .
Meeting schedules a priority - For the remai n i ng 9 c o n t r a c t s , addressing
c i t i z e n requests and m a i n t a i n i n g p r o j e c t schedules took precedence over
o r i g i n a l budgetary issues. Design changes made i n response to p u b l i c
concerns were t h e r e f o r e a p r i m a r y f a c t o r i n a t l e a s t p o r t i o n s o f these
cost i n c r e a s e s . ( ' ) ADOT o r i g i n a l l y budgeted f o r " b a s i c " freeways.
Because the o r i g i n a l budgets d i d not a n t i c i p a t e the p u b l i c and municipal
concerns r a i s e d l a t e r , more freeway m i l e s depressed below grade had to be
designed than were o r i g i n a l l y planned, and more l o c a t i o n and design
a l t e r n a t i v e s had to be s t u d i e d and developed. ADOT viewed these changes
as necessary, i n p a r t , t o keep p r o j e c t s on schedule.
Meeting schedules w i t h o r i g i n a l budgets proved a monumental t a s k . When
the Urban Highway Section was c r e a t e d , ADOT management pressured i t to
meet a r i g o r o u s c o n s t r u c t i o n b i d date schedule. ( Although the h a l f - c e n t
sales tax p r o p o s i t i o n was not passed u n t i l e a r l y October 1985,
c o n s t r u c t i o n was o r i g i n a l l y scheduled to begin on a l l s i x p r o j e c t s i n
1986 -- the f i r s t i n the " e a r l y p a r t o f the 1986," the " f i n a l freeway i n
January 1987.") At t h a t time, w i t h only four s t a f f , the Urban Highway
Section was expected t o develop plans f o r a l l s i x freeway sections so
c o n s t r u c t i o n c o u l d begin i n e a r l y 1986.
To accomplish t h i s g o a l , ADOT had to h i r e o u t s i d e design and management
consultants to e x p e d i t e t h e design process. ( I t c u r r e n t l y takes 27 weeks
to award a d e s i g n c o n t r a c t . ) O r i g i n a l p r o j e c t budgets, e s t a b l i s h e d by
ADOT immediately a f t e r passage o f the h a l f - c e n t sales t a x , d i d not
a n t i c i p a t e f u t u r e changes t h a t would be requested by c i t i z e n groups and
m u n i c i p a l i t i e s -- changes t h a t would cause both delays and cost
( 1 ) C i t i z e n i n p u t i s not the only f a c t o r p r e c i p i t a t i n g cost increases. Some cost
increases may be i n i t i a t e d by ADOT i n order t o reduce c o n s t r u c t i o n costs l a t e r . By
c o n t r a s t , some cost increases may have been unnecessary and avoi dab1 e. ( For exampl e,
see F i n d i n g I , pages 6 through 7 . )
increases. I n some instances, when forced to make a choice between
o r i g i n a l budgets and schedules, management placed g r e a t e r emphasis on
meeting schedules than on adherence to budget l i m i t a t i o n s .
Lack of Adequate -
Financial Information
Compounding t h i s problem, ADOT has not had adequate f i n a n c i a l i n f o r m a t i o n
a v a i l a b l e on i n d i v i d u a l p r o j e c t budgets and e x p e n d i t u r e s . ADOT1s
Transportation Accounting System ( TRACS) and o t h e r f i n a n c i a l t o o l s
a v a i l a b l e t o program managers d i d not provide accurate and t i m e l y budget
and expenditure i n f o r m a t i o n t h a t may have helped r e s t r a i n cost increases
by enabling urban highway managers to assess the impact o f c i t i z e n and
municipal requests on o v e r a l l freeway budgets.
Decisions made w i t h o u t needed i n f o r m a t i o n - Five c o r r i d o r engineers
oversee design of the Urban Highway Program, and a r e r e s p o n s i b l e f o r
supervising highway design budgets. They review work performed by
engineering c o n s u l t a n t s under c o n t r a c t w i t h the Department, and recommend
c o n t r a c t m o d i f i c a t i o n s and change o r d e r a p p r o v a l s . They are a l s o
required t o sign a statement c e r t i f y i n g funds are a v a i l a b l e t o pay f o r
change orders. Some crossed out o r m o d i f i e d t h i s statement because they
do not receive t h e d e t a i l e d f i n a n c i a l i n f o r m a t i o n necessary to p r o p e r l y
assess the impact o f change o r d e r s .
Corridor engineers are unable t o monitor p r o j e c t budgets through
f i n a n c i a l i n f o r m a t i o n obtained from TRACS, because:
A t the time o f our a u d i t , TRACS d i d not have a " r o l l - u p " c a p a b i l i t y
so that budget and expenditure data f o r each s e c t i o n o f a highway
could be accumulated and reported f o r the highway as a whole. ADOT
was working t o develop t h i s c a p a b i l i t y and produced i t s f i r s t
prototype r e p o r t i n May 1990. C o r r i d o r engineers t h e r e f o r e cannot
review budget variances f o r an e n t i r e highway and a n a l y z e t h e e f f e c t s
of a design change i n one s e c t i o n on the o v e r a l l highway budget. The
TRACS feature which would a l low these r o l l- ups t o occur wi l l not be
operational u n t i l next f i s c a l year.
@ Current design p r o j e c t budgets are s t i l l n o t meaningful f o r f i n a n c i a l
c o n t r o l purposes. Most p r o j e c t s have exceeded t h e i r c u r r e n t budget
amounts because o r i g i n a l budgets had not been updated. Contract
o b l i g a t i o n s ( t h e sum o f the c o n t r a c t and change order amount) were,
on average, 33 percent higher than c u r r e n t budget values. One
c o n t r a c t -- w i t h a c u r r e n t budget o f $ 18.7 m i l l i o n -- had o b l i g a t i o n s
o f more than $ 35 m i l l i o n . Measuring expenditures against budgets i s
less meaningful when budgets have already been exceeded.
Urban Highway management has not played a s u f f i c i e n t l y a c t i v e r o l e i n
d e f i n i n g and updating budget i n f o r m a t i o n . Budgets are e s t a b l i s h e d by
A d m i n i s t r a t i v e Services D i v i s i o n s t a f f . The s t a f f base c u r r e n t
budget amount on c o n t r a c t amount. No contingencies f o r change orders
or incomplete p r o j e c t scopes are included.
The system l a c k s a c c u r a t e data. Some design c o n t r a c t s have more than
one TRACS p r o j e c t number, and TRACS d e s c r i p t i o n s are o f t e n
m i s l e a d i n g . As a r e s u l t , TRACS d e s c r i p t i o n s may not match c o n t r a c t
d e s c r i p t i o n s , and expenditures may be charged t o the wrong TRACS
account .
Urban Highway s t a f f are addressing f i n a n c i a l d e f i c i e n c i e s - To improve
f i n a n c i a l management of the program, Urban Highway s t a f f are addressing
some o f the TRACS d e f i c i e n c i e s . During our a u d i t , Urban Highway s t a f f
increased t h e i r e f f o r t s t o i d e n t i f y and implement TRACS p r o j e c t
d e s c r i p t i o n s and r e p o r t format enhancements. ADOT s t a f f , f o r example,
are reviewing a l l p r o j e c t s t o ensure TRACS d e s c r i p t i o n s match p r o j e c t
d e s c r i p t i o n s , and expenditures are n o t b e i n g charged to the wrong
account. As o f l a t e January 1990, 60 percent o f the TRACS p r o j e c t
numbers had been reviewed. A t the end of our a u d i t , ADOT formed a
committee t o p l a n and supervise a more extensive TRACS clean- up e f f o r t .
A d d i t i o n a l l y , ADOT' i s i n s t i t u t i n g t r a i n i n g requirements f o r a l l c o r r i d o r
engineers.
U n t i l r e c e n t l y , Urban Highway managers have made design d e c i s i o n s ,
r e s u l t i n g i n c o s t i n c r e a s e s , without the a b i l i t y to evaluate and discuss
w i t h c i t i z e n groups and m u n i c i p a l i t i e s the impact of these d e c i s i o n s on
p r o j e c t , highway, and o v e r a l l program budgets. However, new TRACS
f i n a n c i a l enhancements should a l l o w c o r r i d o r engineers t o evaluate such
d e c i s i o n s . A " r o l l - u p " c a p a b i l i t y , f o r example, would provide budget
variance i n f o r m a t i o n t h a t could a s s i s t c o r r i d o r engineers i n determining
the o v e r a l l impact o f any design changes. C o r r i d o r engineers could also
use t h i s i n f o r m a t i o n t o r e j e c t s i g n i f i c a n t cost changes, or suggest less
expensive a l t e r n a t i v e s .
RECOMMENDATIONS
1 . ADOT should develop more r e a l i s t i c p r o j e c t design budgets and update
budgets on a more t i m e l y b a s i s .
2. Urban Highway s t a f f should continue to develop f i n a n c i a l t o o l s t h a t
provide accurate budget and expenditure data so d e c i s i o n s a f f e c t i n g
design cost increases can be made i n view o f t h e i r impact on
i n d i v i d u a l p r o j e c t , highway, and o v e r a l l Urban Program budgets.
3. Urban Highway s t a f f should issue an annual r e p o r t e x p l a i n i n g
s i g n i f i c a n t variances between highway budgets and expenditures.
FINDING Ill
ADOT- MAY B E ABLE TO REDUCE COSTS
- BY - MA- KI- NG- IT S CONSULTANT PROCUREMENT
PROCESS MORE- C- OMPETITIVE
The Department may be able t o reduce costs through a more c o m p e t i t i v e
approach i n s e l e c t i n g c o n s u l t a n t s . A review of c o n t r a c t f i les i n d i c a t e d
t h a t the Department f o l l o w s sound procurement p r a c t i c e s i n a d v e r t i s i n g
and i n i t s use o f committees to review proposals i n s e l e c t i o n o f
c o n s u l t a n t s . However, ADOT could p o t e n t i a l l y reduce costs by i n t r o d u c i n g
some cost c o m p e t i t i o n p r i o r to c o n s u l t a n t s e l e c t i o n . I n a d d i t i o n , ADOT
should c o n s i d e r : 1 ) d i s c l o s i n g i t s p o l i c y o f spreading work among f i r m s ,
and 2) adopting procurement r u l e s f o r engineering c o n s u l t a n t s e r v i c e s .
Scope of consultant qrocurement - ADOT's Highway Development Group
c o n t r a c t s c o n s u l t a n t s e r v i c e s i n c l u d i n g highway design and drawings,
landscape design, and b r i d g e and s t r u c t u r a l designs. I n f a c t , the
m a j o r i t y o f the new urban highway system design i s being developed by
c o n s u l t a n t s . I n a d d i t i o n , the Department c o n t r a c t s c o n s u l t a n t s t o
p r o v i d e o t h e r s e r v i c e s r e l a t e d t o or needed f o r highway design and
c o n s t r u c t i o n . For example, ADOT awards c o n t r a c t s t o c o n s u l t a n t s t o
perform a r c h a e o l o g i c a l survey and data c o l l e c t i o n . The Highway
Development Group's Engineering Consultant Services ( ECS) Section
a d m i n i s t e r s t h e process used f o r h i r i n g c o n s u l t a n t s . As o f September 27,
1989, ADOT had c u r r e n t c o n t r a c t s o f approximately $ 325 m i l l i o n f o r
design- related s e r v i c e s -- d e s i g n e n g i n e e r i n g , a r c h a e o l o g i c a l s e r v i c e s ,
and management c o n s u l t a n t s .
Sound Procurement
Practices Followed
ADOT's Highway Development Group adheres t o sound procurement p r a c t i c e s
i n the s e l e c t i o n o f c o n s u l t a n t s . The ECS Section c o n s i s t e n t l y f o l l o w s
p r e s c r i b e d procedures, and a l l a c t i o n s are w e l l documented i n c o n t r a c t
f i l e s . The Department a l s o c o n s i s t e n t l y uses a p p r o p r i a t e s t a f f
committees to e v a l u a t e p r o p o s a l s .
To o b t a i n an engineering c o n s u l t a n t , ADOT p u b l i c l y a d v e r t i s e s and i n v i t e s
q u a l i f i e d f i r m s t o submit statements o f i n t e r e s t . These statements are
then evaluated by a s t a f f committee which reduces the number o f
consultant candidates to a " s h o r t l i s t " o f several f i r m s . S h o r t - l i s t e d
firms are then i n v i t e d t o submit t e c h n i c a l proposals t h a t are evaluated
by a second s t a f f panel. This second panel then ranks these f i r m s and
submits i t s recommendations t o ADOT management.
We reviewed a random sample o f 41 ECS consultant c o n t r a c t s ( about 50
percent o f a l l c o n t r a c t s awarded d u r i n g the years 1987- 89) to t e s t ADOT's
compliance w i t h i t s i n t e r n a l procedures governing the s e l e c t i o n process.
We found ADOT c o n s i s t e n t l y f o l l o w s well- documented procurement
procedures. Only one o f the 41 consultant c o n t r a c t s examined d i d not
include documentation o f approval w i t h a p p r o p r i a t e s i g n - o f f by s e l e c t i o n
committee members and management. I n a l l except one f i l e , c o n s u l t a n t
p r o j e c t s were a d v e r t i s e d a t least t w i c e . ( ' ) I n a d d i t i o n , we found
m u l t i p l e f i r m s s u b m i t t i n g statements o f i n t e r e s t i n a p r o j e c t , i n d i c a t i n g
ADOT made i t s s e l e c t i o n from several f i r m s .
F u r t h e r , our review i n d i c a t e s ADOT r o u t i n e l y uses s t a f f committees to
evaluate proposals, and c o n s i s t e n t l y uses a number of t e c h n i c a l s t a f f on
t h e i r s h o r t - l i s t and s e l e c t i o n panels. P a r t i c i p a n t s on both the
s h o r t - - l i s t and s e l e c t i o n panels include various s t a f f from a p p r o p r i a t e
ADOT engineering s e c t i o n s , as w e l l as s t a f f from other agencies
r e p r e s e n t i n g a p a r t i c u l a r p r o j e c t . P r o j e c t s , f o r example, i n v o l v i n g
highway design through a n a t i o n a l f o r e s t included the a p p r o p r i a t e f e d e r a l
s t a f f as p a r t i c i p a n t s on the panel.
( 1 ) I n b o t h i n s t a n c e s , t h e necessary documentation was l a c k i n g i n the f i l e s we reviewed.
It i s p o s s i b l e t h a t the i n f o r m a t i o n was misplaced as t h e r e was no i n d i c a t i o n o f
problems i n the o v e r a l l s e l e c t i o n process i n these cases.
Evidence i n d i c a t e s both p a n e l s e v a l u a t e d statements o f i n t e r e s t and
t e c h n i c a l proposals on c l e a r l y - s t a t e d c r i t e r i a , and ranked a p p l i c a n t s on
these c r i t e r i a . I n a d d i t i o n , management made c o n s u l t a n t s e l e c t i o n s , i n
most cases, based on the p a n e l ' s r a n k i n g .
Competition May
Reduce Costs
Although ADOT g e n e r a l l y f o l l o w s sound procurement p r a c t i c e s , cost
c o m p e t i t i o n p r i o r t o s e l e c t i o n i s l i m i t e d . I n a d d i t i o n , ADOT should
consider d i s c l o s i n g i t s p o l i c y o f spreading work among f i r m s and adopting
a d m i n i s t r a t i v e r u l e s governing procurement o f engineering s e r v i c e s .
No cost competition - The Department's c u r r e n t procurement process does
not provide f o r any cost c o m p e t i t i o n p r i o r t o s e l e c t i o n . Although
c o n s u l t a n t s must submit man- hour e s t i m a t e s , c o s t p r o p o s a l s a r e n o t
r e q u i r e d . A f t e r s e l e c t i n g a c o n s u l t a n t , ADOT n e g o t i a t e s h o u r l y rates and
fees based on h i s t o r i c a l c o s t s . T h i s approach, a common p r a c t i c e i n the
highway c o n s t r u c t i o n i n d u s t r y , i s p r e f e r r e d by the engineering c o n s u l t i n g
communi t y . ( l )
This approach, however, also does not ensure ADOP pays a c o m p e t i t i v e
r a t e . For example, ADOT n e g o t i a t e d an overhead r a t e o f 145 percent w i t h
one f i r m . L a t e r , d u r i n g the f i n a l a u d i t , the c o n t r a c t a u d i t o r ' s
p r e l i m i n a r y work i n d i c a t e d t h a t the f i r m ' s overhead was a c t u a l l y 89
p e r c e n t , The a u d i t o r s d i d not pursue f u r t h e r work nor r e p o r t on the
f i r m ' s overhead because ADOT had a l r e a d y n e g o t i a t e d and agreed to an
overhead r a t e o f 145 p e r c e n t . Thus, ADOT may have paid 56 percent more
overhead than the f i r m ' s a c t u a l r a t e f o r the p r o j e c t . Although the
department has s i n c e r e v i s e d i t s c o n t r a c t language so t h a t n e g o t i a t e d
overhead r a t e s are now subject t o change f o l l o w i n g a f i n a l a u d i t , t h i s
example suggests n e g o t i a t i o n s may n o t p r o v i d e the lowest r a t e s t h a t ADOT
might o b t a i n .
( 1 ) This process i s a l s o supported by the Brooks Act f o r f e d e r a l highway p r o j e c t s .
ADOT may be able to reduce costs by i n i t i a t i n g some c o s t c o m p e t i t i o n
p r i o r t o s e l e c t i o n ; p r o j e c t s using federal funds, however, might r e q u i r e
the approval of the Federal Highways A d m i n i s t r a t i o n . Agencies covered by
the procurement code have the o p t i o n o f s o l i c i t i n g cost proposals from
engineering f i r m s b e f o r e making a f i n a l s e l e c t i o n . Arizona Revised
S t a t u t e $ 41- 2578. D. 2 a l l o w s cost proposals to be s o l i c i t e d from the three
top- ranked f i r m s , i f c o n s i d e r a t i o n of a fee proposal i s deemed
advantageous to the S t a t e . While no c o n t r a c t may be awarded s o l e l y on
the basis o f p r i c e , cost may be taken i n t o c o n s i d e r a t i o n i n awarding a
c o n t r a c t .
Given the amount o f funds contracted by the Department, i t may be
advantageous to consider a s i m i l a r procedure f o r securing engineering
c o n s u l t a n t s . The State purchasing o f f i c e has found costs have been
reduced when c o m p e t i t i o n has been introduced i n t o the procurement
process. The State purchasing d i r e c t o r i n d i c a t e d i t i s also reasonable t o
assume a 10 percent savings on p r o f e s s i o n a l s e r v i c e s c o n t r a c t s by
i n t r o d u c i n g c o m p e t i t i o n . W i t h an estimated budget of $ 69,711,200 f o r
1990, a cost r e d u c t i o n o f only 5 percent could r e s u l t i n an annual
savings i n engineering c o n s u l t a n t s e r v i c e s of almost $ 3.5 mi l l i o n .
According t o the s t a t e o f Maryland's general services s e l e c t i o n board
r e p r e s e n t a t i v e , Maryland implemented a c o m p e t i t i v e b i d process f o r
a r c h i t e c t u r a l and e n g i n e e r i n g c o n s u l t a n t services t h a t proved h i g h l y
e f f e c t i v e i n reducing t o t a l c o n s t r u c t i o n costs. I n 1986, however, due to
o p p o s i t i o n from a r c h i t e c t u r a l and engineering p r o f e s s i o n a l groups, the
s t a t e returned to a n e g o t i a t e d cost process r e s u l t i n g i n increased
a r c h i t e c t u r a l and e n g i n e e r i n g c o n t r a c t costs as a percentage o f t o t a l
c o n s t r u c t i o n c o s t s .
" Spreading the work around" pol icy - I n add i t ion, ADOT shou l d consider
d i s c l o s i n g i t s p o l i c y o f spreading work among many engineering f i r m s ,
since i t may be u n f a i r and c o s t l y t o some f i r m s .
According t o ADOT o f f i c i a l s , to avoid h i r i n g two or three i n t e r n a t i o n a l
firms f o r a l l c o n s u l t a n t work, management has adopted an u n w r i t t e n p o l i c y
o f " spreading the work around." Although ADOT a l r e a d y c o n s i d e r s the
c u r r e n t workload o f f i r m s as a s e l e c t i o n c r i t e r i a , some f i r m s may l a t e r
be removed from f i n a l c o n s i d e r a t i o n i f they have had a large number o f
c o n t r a c t s w i t h ADOT i n the past. According to the executive d i r e c t o r o f
t h e Arizona Consulting Engineers A s s o c i a t i o n , they encouraged ADOT t o
adopt t h i s u n w r i t t e n p o l i c y , because they f e l t i t was necessary so t h a t
Arizona f i r m s would not be l i m i t e d from securing c o n t r a c t s . ( ' )
ADOT has e l i m i n a t e d f i r m s from c o n s i d e r a t i o n based on the amount o f the
f i r m ' s p r i o r work w i t h ADOT. I n 15 o f the 41 cases reviewed, management
modified the short l i s t and e l i m i n a t e d most of the f i r m s t h a t had
received s u b s t a n t i a l work from ADOT i n the p a s t . I n 6 other cases,
management decided not t o award the c o n t r a c t to the s e l e c t i o n p a n e l ' s top
choice because the f i r m had s u b s t a n t i a l p r i o r work.
This p r a c t i c e may be u n f a i r t o some f i r m s . The use of h i s t o r i c a l
workload as a f a c t o r i s not mentioned i n a d v e r t i s i n g f o r a s p e c i f i c
p r o j e c t . On a recent landscape design p r o j e c t , we c o n t a c t e d t h r e e design
consultants on the s h o r t l i s t , and found none had been n o t i f i e d of the
Department's u n o f f i c i a l , u n w r i t t e n p o l i c y of " spreading the work
around." AI l three a l s o f e l t t h a t being e l i m i n a t e d from f u t u r e ADOT
design c o n t r a c t s because o f t h e i r workload was u n f a i r . F u r t h e r , these
c o n t r a c t o r s i n d i c a t e d they might h e s i t a t e b e f o r e b i d d i n g on f u t u r e ADOT
c o n t r a c t s as, a l l three noted, f i r m s incur s u b s t a n t i a l c o s t s i n preparing
technical p r o p o s a l s . One c o n t r a c t o r i n d i c a t e d h i s f i r m spent $ 5,000 -
$ 6,000 i n developing such p r o p o s a l s . This f i r m a l s o f e l t t h i s
expenditure was excessive when the f i n a l c o n t r a c t amount was $ 50,000, and
the f i r m ' s chances o f securing the c o n t r a c t were s i g n i f i c a n t l y reduced
due to ADOT's u n w r i t t e n p o l i c y .
Rules may be needed - F i n a l l y , because ADOT i s exempt from the
procurement code, and no other s t a t u t o r y p r o v i s i o n or ADOT r u l e s apply t o
engineering c o n s u l t a n t s e r v i c e s , the Department i s under no legal
( 1) An ADOT a n a l y s i s o f 112 f i r m s which are c u r r e n t l y a c t i v e i n d i c a t e s t h a t 45 percent are
Arizona f i r m s , and 39 percent are o u t - o f - s t a t e f i r m s which have e s t a b l i s h e d and
maintained l o c a l Arizona o f f i c e s f o r a t l e a s t f i v e years. The remaining f i r m s are
out- of- state f i r m s which have maintained l o c a l o f f i c e s f o r l e s s than f i v e years ( 11
percent) or have no Arizona o f f i c e ( f i v e percent.).
o b l i g a t i o n t o continue sound procurement p r a c t i c e s . Changes i n personnel
or management p o l i c i e s could r e s u l t i n d e t e r i o r a t i o n of procurement
p r a c t i c e s t o the detriment o f the S t a t e .
Our review o f ADOT's exemption i n d i c a t e s i t was based on c o n s i d e r a t i o n o f
c o n s t r u c t i o n c o n t r a c t i n g f o r which ADOT had separate s t a t u t e s a t the time
the code was adopted. However, ADOT has never had separate s t a t u t e s f o r
p r o c u r i n g e n g i n e e r i n g s e r v i c e s - - an area that has grown considerably i n
terms of the number o f c o n t r a c t s awarded since the code was adopted.
Some l a r g e r agencies, exempt from the procurement code, are required t o
adopt a r u l e e s t a b l i s h i n g procurement procedures " s u b s t a n t i a l l y
e q u i v a l e n t " to p r o v i s i o n s o f the code. For example, the c o u r t s , the
u n i v e r s i t y system, and the S t a t e l o t t e r y must a l l adopt a procurement
r u l e . As ADOT f o l l o w s procurement p r a c t i c e s c o n s i s t e n t w i t h the code,
adopting such r u l e s or an i n t e r n a l p o l i c y would not appear unreasonable
nor r e q u i r e ADOT t o make s u b s t a n t i a l changes i n present procurement
procedures.
RECOMMENDATIONS
1 . ADOT should continue t o f o l l o w p u b l i c a d v e r t i s i n g , c o n s i s t e n t
t e c h n i c a l e v a l u a t i o n , and o t h e r c u r r e n t p r a c t i c e s t h a t have provided
a s t r o n g procurement system f o r design c o n s u l t a n t s .
2. ADOT management should reconsider i t s p o l i c y o f " spreading the work
around," and i f a d e t e r m i n a t i o n i s made to continue i t , t h i s p o l i c y
should be d i s c l o s e d i n a d v e r t i s i n g and m a t e r i a l s d i s t r i b u t e d t o
i n t e r e s t e d firms and s e l e c t i o n committee members,
3. ADOT management should consider i n t r o d u c i n g some cost c o m p e t i t i o n
p r i o r t o s e l e c t i o n o f a design c o n s u l t a n t .
4. The L e g i s l a t u r e may wish t o consider r e q u i r i n g ADOT to promulgate
r u l e s comparable to the S t a t e ' s procurement code f o r departmental
purchasing n o t covered by o t h e r l e g i s l a t i o n . As an a l t e r n a t i v e , ADOT
could adopt an i n t e r n a l p o l i c y addressing procurement of engineering
c o n s u l t a n t s e r v i c e s .
OTHER PERTINENT INFORMATION
I n response t o Chapter 68 o f the 1988 Session Laws, we developed other
p e r t i n e n t i n f o r m a t i o n on s t a f f i n g l e v e l s for highway design.
- De sign Staff Increases
Have Been Moderate
I n t h e p a s t f i v e years, ADOT's Highway Development Group's s t a f f
increased only moderately as a d i r e c t r e s u l t o f the i n i t i a t i o n and growth
of the Urban Highway Program. The o v e r a l l increase i n s t a f f i n g ( see
Table 2, below, and Table 3 , page 26) and c o n s t r u c t i o n program budgets
( see Table 4, page 26) i n d i c a t e s s t a f f has not changed s i g n i f i c a n t l y ,
even w i t h a d d i t i o n a l workload. From f i s c a l year 1985- 86 through 1989- 90
the Highway Development Group s t a f f has increased only 17 p e r c e n t .
TABLE 2
HIGHWAY DEVELOPMENT GROUP
FTEs FOR FISCAL YEAR 1985- 86 THROUGH 1989- 90
Sect i on - 1985- 86 1986- 87 1987- 88 1988- 89 1989- 90
Administrat ion 3
Research 0
Locat ion 100
Des i gn 122
Right o f Way 135
S t r u c t u r e s 6 1
Loca l Government ( a ) 4
P r o j e c t Scheduling 0
Eng . Consul t a n t s ( a ) 0
Urban Highway 1
TOTAL 426 - 47- 1 % gJl
( a ) A f t e r f i s c a l year 1986- 87, FTEs ( f o u r l o c a l government and f i v e engineering
c o n s u l t a n t s ) were moved t o the urban highway and design s e c t i o n s .
Source: Arizona Department o f T r a n s p o r t a t i o n , Highway Development Group,
February, 1990.
Construct ion fundi ng however, d u r i n g the same per iodcl) has increased
approximately 60 p e r c e n t .
TABLE 3
HIGHWAY DEVELOPMENT GROUP
FTE INCREASES BY SECTION BETWEEN
FISCAL YEAR 1985- 86 AND 1989- 90
Section FTE Increase/ Decrease
A d m i n i s t r a t i o n
Research
Locat i on
Des i gn
Right o f Way
S t r u c t u r e s
Local Government
Urban Highway
TOTAL t74
Source: Auditor General a n a l y s i s o f ADOT FTEs f i g u r e s f o r f i s c a l year
1985- 86 through 1989- 90
TABLE 4
ADOT CONSTRUCTION PROGRAM
COST BY FISCAL YEAR
Year Amount
( i n M i l l i o n s )
1985- 86 463.0
1986- 87 611 .3
1987- 88 768.5
1988- 89 875.1
( Figures i n constant d o l l a r s )
Source: O r g a n i z a t i o n a l R e p o r t , A r i z o n a Department o f T r a n s p o r t a t i o n ,
Highway Development Group
( 1 ) ADOT's construction funding began to increase dramatically in f i s c a l year 1985- 86, due
to the beginning of the Urban Highway Program.
Based on a c c e l e r a t i o n o f the Urban Highway Program w i t h i n Maricopa
County, the Highway Development Group's o v e r a l l 17 percent FTE increase
during the f i v e - y e a r p e r i o d appears reasonable as s t a f f i n other sections
a f f e c t e d by the Urban Highway Program ( i . e . l o c a t i o n , design and
r i g h t - o f - w a y ) increased by 9 p e r c e n t or 47 p o s i t i o n s .
According to the Deputy S t a t e Engineer o f the Highway Development Group,
there are no plans a t the present time t o s i g n i f i c a n t l y increase FTEs
w i t h i n any s e c t i o n s of the Highway Development Group, and whenever
p o s s i b l e , a d d i t i o n a l work w i l l be handled by e x i s t i n g s t a f f o r , i f
necessary, through o u t s i d e p r o f e s s i o n a l service c o n t r a c t s .
Extensive use o f o u t s i d e c o n s u l t a n t s - Estimated c o n s u l t a n t c o s t s f o r
both the statewide and Urban Highway Programs f o r f i s c a l year 1989- 90 are
$ 69,711,200. Instead o f h i r i n g a d d i t i o n a l f u l l - t i m e s t a f f , ADOT's
Highway Development Group has engaged engineering c o n s u l t a n t f i r m s t o
design and manage development o f new State highways. Only about 30
percent o f present statewide p r o j e c t design work i s done by ADOT s t a f f ,
the other 70 percent i s done by outside c o n s u l t a n t s . I n the Urban
Highway Program, almost a l l design a c t i v i t i e s a r e p r o v i d e d by o u t s i d e
c o n s u l t a n t s .
Consultants have extensive d u t i e s - B o t h d e s i g n and management
c o n s u l t a n t s have extensive d u t i e s . Design c o n s u l t a n t s t r a n s l a t e ADOT's
conceptual ideas and those o f f e d e r a l and l o c a l agencies i n t o designs f o r
the actual highway sections or s t r u c t u r e s i n conformance w i t h ADOT
t e c h n i c a l s t a n d a r d s . Management c o n s u l t a n t s d i r e c t a l l management
a c t i v i t i e s f o r p a r t i c u l a r highway s e c t i o n s . They meet w i t h l o c a l
community groups and oversee expenditures t o c o n t a i n costs of v a r i o u s
design c o n s u l t a n t s ' work on sub- projects and other r e l a t e d a c t i v i t i e s .
A d d i t i o n a l b e n e f i t s o f c o n s u l t a n t s - There a r e s e v e r a l reasons why ADOT
uses c o n s u l t a n t s . F i r s t , when ADOT obtained funding f o r the expansion of
the highway system i n Maricopa County, the Department chose t o use
outside c o n s u l t a n t s , r a t h e r than increase agency s t a f f so design and
c o n s t r u c t i o n work c o u l d b e g i n more r a p i d l y .
I n a d d i t i o n , ADOT lacked t h e experience t o manage numerous design
c o n s u l t a n t s , and a l s o lacked the s p e c i a l i z e d e x p e r t i s e needed f o r design
o f some o f the complicated s t r u c t u r e s i n the concept plans ( i . e . the
" Stack" a t 1- 10 and 1- 17 or the " Deck" a t 1- 10 and Central Avenue). The
use o f design and management c o n s u l t a n t s a l s o a l lowed ADOT to make
s i g n i f i c a n t progress w i t h o u t delay and few s t a f f increases.
F i n a l l y , c o n s u l t a n t s are being used so ADOT w i l l not have i d l e s t a f f when
workload d e c l i n e s . S i g n i f i c a n t numbers o f i d l e s t a f f could force the
Department t o l a y o f f employees. Thus, use o f c o n s u l t a n t s allows ADOT to
m a i n t a i n a c o n s i s t e n t l e v e l o f s t a f f and, a t the same time, provide
enhanced job s e c u r i t y f o r i t s employees.
INTRODUCTION AND BACKGROUND
The O f f i c e of the Auditor General has conducted a Performance Audit of
t h e A r i z o n a Department o f T r a n s p o r t a t i o n ' s ( ADOT) c o n t r a c t o r claims
process f o r highway c o n s t r u c t i o n . This performance a u d i t was conducted
i n response to t h e requirements of Chapter 68 o f the 1988 Session Laws
which d i r e c t e d us to review c o n t r a c t o r claims f o r highway c o n s t r u c t i o n .
C o n t r a c t o r c l a i m s are common i n highway c o n s t r u c t i o n because many f a c t o r s
i n f l u e n c e each c o n s t r u c t i o n p r o j e c t and not a l l can be a n t i c i p a t e d i n the
c o n t r a c t . Contractors may f i l e claims based on delays, a d d i t i o n a l work,
d i f f e r i n g s i t e c u n d i t i o n s , and f o r numerous other reasons. When a
disagreement between ADOT and a c o n t r a c t o r a r i s e s , ADOT and the
c o n t r a c t o r can f r e q u e n t l y reach a s o l u t i o n p r i o r to the dispute
e s c a l a t i n g to a c l a i m . I f ADOT and the c o n t r a c t o r agree t h a t e x t r a
compensation i s j u s t i f i e d , t h e m a t t e r i s resolved by change order or
force account . ( I ) However, i f the c o n t r a c t o r and ADOT cannot agree on a
s o l u t i o n , the c l a i m process a l l o w s the c o n t r a c t o r to pursue the d i s p u t e .
Several Factors Impact
Frequency Of Claims
According t o a 1983 T r a n s p o r t a t i o n Research Board s t u d y , a number o f
f a c t o r s c o n t r i b u t e t o t h e incidence o f c l a i m s . ( * ) On the c o n t r a c t o r ' s
p a r t , there may be inadequate i n v e s t i g a t i o n o f the s i t e before b i d d i n g ,
overoptimism i n b i d d i n g , and d e l i b e r a t e b i d d i n g under c o s t . The
department can a l s o c o n t r i b u t e to claims by changing plans d u r i n g
c o n s t r u c t i o n , g i v i n g inadequate b i d d i n g i n f o r m a t i o n , and i n c l u d i n g
s p e c i f i c a t i o n s t h a t are o v e r l y r e s t r i c t i v e .
( 1 ) If ADOT and the c o n t r a c t o r agree on the t o t a l p r i c e , a change order i s issued. I f
they cannot determine an agreeable p r i c e , the c o n t r a c t o r keeps d e t a i 1 ed records o f
c o s t s , which ADOT i n s p e c t o r s v e r i f y d a i l y , and a f o r c e account i s used t o repay the
costs p l u s a f i x e d percentage o f p r o f i t based on the standard s p e c i f i c a t i o n s .
Audi t o r s reviewed ADOT's i n t e r n a l c o n t r o l s over these suppl emental agreements.
N o t h i n g came t o our a t t e n t i o n t o suggest those c o n t r o l s are n o t adequate.
( 2 ) C o n s t r u c t i o n C o n t r a c t Claims: Causes and Methods of S e t t l e m e n t , T r a n s p o r t a t i o n
Research Board, N a t i o n a l Research Council ( November 1983).
According t o ADOT s t a f f , the u n d e r l y i n g cause o f many claims i s increased
c o m p e t i t i o n i n the c o n s t r u c t i o n i n d u s t r y . This has caused c o n t r a c t o r s to
cut t h e i r p r o f i t margins to the e x t e n t that they can no longer a f f o r d t o
absorb any e x t r a c o s t s . However, the department acknowledges i t a l s o
p l a y s a r o l e , since i t w r i t e s the plans and s p e c i f i c a t i o n s . ADOT
reported t h a t a frequent cause o f claims i s d i f f e r e n t i n t e r p r e t a t i o n s o f
c o n t r a c t documents. F i n a l l y , both ADOT and c o n t r a c t o r s t o l d us t h a t
claims sometimes a r i s e due to p e r s o n a l i t y clashes on the j o b .
Early Resolution
Is Important
L i t e r a t u r e on claims r e s o l u t i o n stresses the importance o f r e s o l v i n g
claims a t a low l e v e l o f a u t h o r i t y . Resolution a t t h i s l e v e l g e n e r a l l y
i s less c o s t l y to the S t a t e because h i g h e r l e v e l r e s o l u t i o n can add legal
fees, o u t s i d e c o n s u l t a n t s c o s t s , and i n t e r e s t charges t o the basic
c l a i m . For example, a 1981 c l a i m f o r $ 652,769 more than doubled ( t o
$ 1,321,694.65) when t h e A r i z o n a Supreme Court a f f i r m e d an award to the
c o n t r a c t o r o f $ 557,000 p l u s i n t e r e s t and a t t o r n e y ' s fees. C o n t r a c t o r s
a l s o b e n e f i t from r e s o l u t i o n o f claims a t a low l e v e l o f a u t h o r i t y since
they can o b t a i n reimbursement f o r t h e i r l e g i t i m a t e costs more q u i c k l y .
Claim Process
Has Several Steps
ADOT's Standard S p e c i f i c a t i o n s f o r Road and B r i d g e C o n s t r u c t i o n d e f i n e
t h e stages o f the claim process. These s p e c i f i c a t i o n s are p a r t o f every
c o n s t r u c t i o n c o n t r a c t . Before s t a r t i n g the disputed work, the c o n t r a c t o r
submits n o t i c e o f c l a i m , i n w r i t i n g , i n d i c a t i n g the c l a i m ' s basis and
n a t u r e . During t h e course o f the work, both p r o j e c t s t a f f and the
c o n t r a c t o r keep d e t a i l e d records o f l a b o r , equipment, and m a t e r i a l s
used. The c o n t r a c t o r submits an estimate o f t o t a l coq: v i t h i n 10 days
a f t e r n o t i c e o f claim i s g i v e n . W i t h i n 60 days a f t e r a l l c o s t s a r e
i n c u r r e d , the c o n t r a c t o r submits a c l a i m , which includes a d e t a i l e d
p r e s e n t a t i o n and e x p l a n a t i o n o f c o s t s . ADOT p r o j e c t s t a f f make the
i n i t i a l d e c i s i o n to accept or r e j e c t the c l a i m a f t e r d i s c u s s i o n w i t h
d i s t r i c t s t a f f .
The c o n t r a c t o r can pursue f u r t h e r avenues i f d i s s a t i s f i e d w i t h ADOT's
decision or i f no d e c i s i o n i s made w i t h i n a defined time frame. He or
she may request a second l e v e l review, which i s an a d m i n i s t r a t i v e h e a r i n g
before ADOT engineering s t a f f . Whether or not there i s a second l e v e l
r e v i e w , t h e c o n t r a c t o r may demand a r b i t r a t i o n f o r claims o f less than
$ 100,000. A r b i t r a t i o n f o l l o w s procedures defined by the American
A r b i t r a t i o n A s s o c i a t i o n , and the a r b i t r a t o r ' s d e c i s i o n cannot be
appealed. Contractors may take legal a c t i o n i f the c l a i m i s over
$ 10Q, 000. The A t t o r n e y G e n e r a l ' s T r a n s p o r t a t i o n S e c t i o n handles these
cases f o r ADOT, w i t h t e c h n i c a l assistance from ADOT personnel.
Claims Branch Was Created
To Assist In Process
ADOT e s t a b l i s h e d a Claims Branch i n 1982. I t s e a r l i e s t r e s p o n s i b i l i t y
was to provide t e c h n i c a l assistance t o the A t t o r n e y G e n e r a l ' s o f f i c e ,
which a t the time was defending ADOT against a l a r g e l a w s u i t brought by a
c o n t r a c t o r .
The Claims Branch was reorganized and expanded i n 1985. I t took on o t h e r
d u t i e s i n c l u d i n g m a i n t a i n i n g a c l a i m s database, p r o v i d i n g t r a i n i n g on
claim avoidance and claim handling to ADOT f i e l d personnel, c o o r d i n a t i n g
necessary actions on appealed cases, and a s s i s t i n g d i s t r i c t s t a f f upon
request .
As p a r t o f i t s a c t i v i t i e s , the branch d i s t r i b u t e s t o each d i s t r i c t a
monthly r e p o r t r e g a r d i n g t h e s t a t u s o f c u r r e n t c l a i m s . The Federal
Highways Administrat ion ( FHWA) has praised the " emphasis area" which
begins each q u a r t e r l y issue o f the r e p o r t . The emphasis area i s an
a r t i c l e about some aspect o f c l a i m s : i t i s a supplement t o ADOT's
p e r i o d i c claims t r a i n i n g , and i t keeps d i s t r i c t s t a f f aware o f the
issues. Recent t i t l e s include " Unexpected Claims," " Claim Defense
Package," " Tips f o r Witnesses," " Claims Avoidance," and " N e g o t i a t i n g . "
The FHWA was so impressed w i t h the concept that i t sent copies t o a l l i t s
regional o f f i c e s .
C u r r e n t l y , the branch i s p a r t o f Construction A n a l y s i s S e r v i c e s w i t h i n
the Construction Section o f the Highway Operations Group i n ADOT's
Highways D i v i s i o n . The branch i s overseen by the manager o f C o n s t r u c t i o n
A n a l y s i s S e r v i c e s and has 4.5 a d d i t i o n a l FTEs i n c l u d i n g a c l a i m s
e n g i n e e r , a p r o j e c t a n a l y s i s e n g i n e e r , a l e g a l a n a l y s t , an a d m i n i s t r a t i v e
records worker, and an a d m i n i s t r a t i v e s e c r e t a r y .
Claims Small In Relation
To Total Construction Costs
ADOTts data i n d i c a t e s t h a t c l a i m s a r e not a s u b s t a n t i a l expenditure i n
r e l a t i o n to the amount of highway c o n s t r u c t i o n . The t o t a l amount
expended on claims from 1985 through 1989 was less than 1 percent o f the
value o f c o n s t r u c t i o n p r o j e c t s s t a r t e d during the same p e r i o d . F u r t h e r ,
from 1985 through 1989, ADOT p a i d out an average o f only 32 percent of
the amount requested by c o n t r a c t o r s . Table 1 ( see page 33) shows the
trends i n c o n s t r u c t i o n and claims over the past f i v e y e a r s . ( ' )
Comparable data on claims i s not a v a i l a b l e from other s t a t e s . We
contacted e i g h t other s t a t e s and attempted t o o b t a i n claims i n f o r m a t i o n .
We found t h a t not a l l s t a t e s t r a c k e d c l a i m s , and some o f those t h a t d i d
defined the term " claim" d i f f e r e n t l y than ADOT. For example, some s t a t e s
t r a c k claims only a f t e r they have been presented to the c e n t r a l o f f i c e
f o r a d e c i s i o n , w h i l e ADOT begins t r a c k i n g when n o t i c e o f a p o t e n t i a l
claim i s received.
The T r a n s p o r t a t i o n Research Board reported i n 1983 t h a t " t h e r e i s an
almost t o t a l lack o f nationwide data on the claims experience o f highway
agencies. " c2)
( 1 ) T h i s d a t a i s presented t o show the general magnitude and t r e n d o f c l a i m s . As
discussed i n F i n d i n g I , a u d i t o r s d i d not f i n d ADOTis claims data t o be re1 i a b l e .
Although t h e a c t u a l d o l l a r amounts may not be c o r r e c t , we b e l i e v e t h e general
conclusion about the s i g n i f i cance o f claims i n r e l a t i o n t o c o n s t r u c t i o n i s v a l i d .
( 2 ) C o n s t r u c t i o n Contract Claims: Causes and Methods o f S e t t l e m e n t , T r a n s p o r t a t i o n
Research Board, N a t i o n a l Research C o u n c i l , ( November 1983): 5.
TABLE 1
CONTRACTOR CLAIMS STATISTICS
CALENDAR YEARS 1985 THROUGH 1989
( as of February 7, 1990)
Amount of Amount of Claims F i l e d Settlement Amount Percent of Claims
Construction Including Pending and of Reso l ved Paid to Project
Year Projects Awarded Resolved Claims( a) Claims( b)(~) Amount
1985 $ 206,118,912 $ 19,848,597
1986 324,555,891 7,164,333
1987 285,413,653 9,871,295
1988 323,544,669 9,706,337
1989 441 ,256,640 - 6,63- 4,013
TOTAL $ 1,580.889.765 $ 53.224.575
( a ) Claims whose n o t i c e of claim was f i l e d d u r i n g t h e year. May p e r t a i n t o a p r o j e c t begun i n a p r i o r year.
W
w ( b ) Settlement amount i s based on paid claims which were f i l e d d u r i n g the year, although payment may have been i n a
subsequent year.
( c ) Outstanding claims e x i s t f o r each o f the calendar years; t h e r e f o r e , the settlement amounts w i l l increase as pending
claims are resolved. For example, claims representing almost t w o - t h i r d s of the t o t a l amount claimed d u r i n g 1989 were
s t i l l pending as o f February 7, 1990.
Source: Information on construction projects from ADOT Contracts and Specifications Services.
Claims data from ADOT Claims Branch database. Percents and t o t a l s calculated by Auditor
General s t a f f .
Audit Scope and Purpose
Our a u d i t focused on the performance o f ADOT1s Claims Branch i n
s u p p o r t i n g c l a i m s handling throughout the department. I n a d d i t i o n , we
reviewed claim d e c i s i o n s made by ADOT's d i s t r i c t and management s t a f f .
The r e p o r t presents d e t a i l e d f i n d i n g s i n two major areas:
a The need f o r complete and accurate i n f o r m a t i o n on the number, s t a t u s ,
and outcome o f claims departmentwide
a The t i m e l i n e s s of ADOT1s c l a i m s h a n d l i n g .
During the course o f our a u d i t , we developed Other P e r t i n e n t I n f o r m a t i o n
regarding: ADOT1s lack of r e l i a b l e management i n f o r m a t i o n and second
l e v e l review board composition.
This a u d i t was conducted i n accordance w i t h g e n e r a l l y accepted government
a u d i t i n g standards.
The Auditor General and s t a f f express a p p r e c i a t i o n t o ADOT's d i r e c t o r and
employees f o r t h e i r cooperation and assistance d u r i n g the a u d i t .
FINDING I
ADOT LACKS A COMPLETE AND ACCURATE
PICTURE OF THE STATEWIDE CLAIMS SITUATION
ADOT c u r r e n t l y l a c k s a c c u r a t e and complete i n f o r m a t i o n on the number,
s t a t u s , and outcome o f claims departmentwide. Although the Claims Branch
should c e n t r a l l y g a t h e r c l a i m s i n f o r m a t i o n , claim f i l e s maintained by the
Claims Branch are o f t e n incomplete and p o o r l y maintained. F u r t h e r ,
s t a t e w i d e c l a i m s i n f o r m a t i o n disseminated by the branch f a i l s to p r o v i d e
an accurate and comprehensive p i c t u r e o f c o n t r a c t o r c l a i m s . During the
course o f our aud i t , ADOT management recogn i zed these prob l ems and began
taking c o r r e c t i v e a c t i o n .
The Claims Branch i s ADOT's c e n t r a l r e p o s i t o r y of c o n t r a c t o r c l a i m d a t a .
Although ADOT p r o j e c t s t a f f maintain t h e i r own c l a i m f i l e and are
i n i t i a l l y responsible f o r handling and making d e c i s i o n s regarding c l a i m s ,
the Claims Branch e s t a b l i s h e s and maintains a c e n t r a l f i l e on a l l claims
f i l e d against ADOT by c o n t r a c t o r s . The branch uses an automated system
t o track the s t a t u s and r e s o l u t i o n o f claims and produces a monthly
report which captures departmentwide claim act i v i t y . ( ' ) The branch i s
ADOT's o n l y composite source o f management i n f o r m a t i o n regarding c l a i m s .
I n f a c t , ADOT r e l i e s on i n f o r m a t i o n compiled by t h i s branch to evaluate
how w e l l i t i s handling c l a i m s .
F i l e s maintained by the Claims Branch are incomplete and p o o r l y
maintained. As a r e s u l t , the s t a t u s of the claims cannot be determined
from review of c e n t r a l o f f i c e f i l e s . F u r t h e r , the Claims Branch's
a b i l i t y to provide advice and assistance i s hindered.
( 1 ) S p e c i f i c a l l y , the report breaks out by d i s t r i c t each a c t i v e c l a i m , t h e status of the
claim, any d o l l a r amount claimed, and a b r i e f d e s c r i p t i o n of the claim. The resolved
claim l i s t i n g shows the d o l l a r amount paid out on the claim.
Central o f f i c e c- l- a i- m f i l e s are incomplete - We reviewed 25 a c t i v e claim
f i l e s and 28 closed c l a i m f i l e s maintained by the c e n t r a l o f f i c e Claims
Branch and attempted t o i d e n t i f y the progress and s t a t u s o f a c l a i m by
the contents i n the f i e Our review found t h a t many f i l e s lacked
basic documents necessary to determine what was happening, or had
happened, w i t h the c l a i m . For example, i n 10 o f the 25 a c t i v e f i l e s the
most recent documentation was a t least 6 months o l d . I n a d d i t i o n , our
review o f 28 closed c l a i m f i l e s found t h a t r e s o l u t i o n i n f o r m a t i o n was not
always contained i n the f i l e . Basic items which were missing from some
f i l e s included:
Claim r e p o r t forms which capture b a s i s , d o l l a r amount and date o f
c l a i m .
P r o j e c t or d i s t r i c t denial l e t t e r s which would i n d i c a t e when the
department responded to the c l a i m .
L e t t e r s o f s e t t l e m e n t or o f f e r s to s e t t l e which would i n d i c a t e ADOT's
e f f o r t s t o address the c l a i m .
General correspondence between ADOT and the c o n t r a c t o r regarding the
claim which would document any e f f o r t s taken to resolve or address
the c l a i m .
Change orders or supplemental r e c e i v e r s i n d i c a t i n g the amount f o r
which the c l a i m was s e t t l e d .
Other useful i n f o r m a t i o n regarding the handling o f a c l a i m i s not always
documented i n the Claims Branch f i l e . For example, p r o j e c t s t a f f and the
c o n t r a c t o r s may h o l d v a r i o u s meetings w h i l e t r y i n g t o r e s o l v e a c l a i m .
However, several p r o j e c t s t a f f t o l d us that the minutes o f and d e c i s i o n s
from these meetings are not included i n the claim f i l e . Also, telephone
conversations between Claims Branch s t a f f and p r o j e c t s t a f f r e g a r d i n g a
c l a i m are f r e q u e n t l y not documented i n the claim f i l e . Thus, a c t i o n may
be o c c u r r i n g on a c l a i m t h a t would not be evident from the f i l e .
F u r t h e r , the d i f f i c u l t y o f i d e n t i f y i n g a c l a i m ' s s t a t u s from the f i l e i s
compounded by the lack of summaries f o r both claim f i l e contents and
a c t i v i t i e s r e l a t e d to the c l a i m .
( 1 ) T h i r t y closed c l a i m s were s e l e c t e d . However, o n l y 28 were a c t u a l 1 y reviewed. One
c l a i m was a d u p l i c a t e and another could not be l o c a t e d .
Some of the problems w i t h missing data are due t o p r o j e c t s t a f f ' s f a i l u r e
t o send the i n f o r m a t i o n to the Claims Branch. Procedures o u t l i n e d i n the
August 1989, ADOT C o n s t r u c t i o n Report r e q u i r e p r o j e c t s t a f f to submit
claim information t o the Claims Branch. However, branch s t a f f i n d i c a t e d
t h a t p r o j e c t personnel do not always r e l a y c l a i m i n f o r m a t i o n . We
reviewed and compared 12 c l a i m f i les a t the p r o j e c t o f f i c e s t o the
corresponding claim f i l e s maintained a t the Claims Branch and found t h a t ,
i n each case, p r o j e c t f i l e s contained i n f o r m a t i o n not found i n Claims
Branch f i l e s . Important documents missing from Claims Branch f i l e s but
contained i n p r o j e c t o f f i c e f i l e s i n c l u d e d t h r e e d e n i a l l e t t e r s and one
l e t t e r o f f e r i n g s e t t l e m e n t . I n one o f the 12 cases, the Claims Branch
had no information on the c l a i m .
Central o f f i c e c l a i m f i l e s p o o r l y maintained - Not only are the Claims
Branch f i l e s incomplete but they are a l s o p o o r l y m a i n t a i n e d . The c u r r e n t
lack of order to the f i l e s prevents them from being an e f f i c i e n t t o o l
from which t o gain i n f o r m a t i o n . Our review of c l a i m f i l e s found:
a F i l e s f r e q u e n t l y c o n t a i n m u l t i p l e copies o f the same document.
F i l e contents are not i n any i d e n t i f i a b l e systematic o r d e r .
a Many f i l e s lack summaries o f f i le contents or a composite l i s t i n g of
actions taken on the c l a i m .
a I n d i v i d u a l c l a i m f i l e s might c o n s i s t o f more than one f o l d e r .
However, there was no i n d i c a t i o n t h a t the c l a i m was continued
elsewhere.
a Several d i f f e r e n t and confusing f i l i n g systems are i n use i n the
o f f i c e .
I n a d d i t i o n , s t a f f do not use a f i l e checkout system, which makes i t
d i f f i c u l t to locate f i l e s when needed. Claims Branch s t a f f admitted they
f r e q u e n t l y have d i f f i c u l t y l o c a t i n g f i l e s . I n f a c t , f i l e s are
o c c a s i o n a l l y l o s t . A records management supervisor from the Department
o f L i b r a r y , Archives, and P u b l i c Records reviewed the Claims Branch f i l e s
a t our request and v e r i f i e d the above problems. His o b s e r v a t i o n s and
recommendations f o r c o r r e c t i n g the problems a r e i n c l u d e d i n Appendix I .
Claims Branch's a b i l i t y t o p r o v i d e assistance i s hindered - Incomplete
and poorly organized i n f o r m a t i o n l i m i t s the branch's a b i l i t y t o p r o v i d e
sound advice and assistance t o ADOT management and d i s t r i c t s t a f f . The
branch sees i t s r o l e t o be a resource to which d i s t r i c t and
a d m i n i s t r a t i v e s t a f f can go t o o b t a i n assistance or advice on handling
c l a i m s . T h e r e f o r e , branch s t a f f should be able to r e f e r to the c l a i m
f i l e t o review t h e circumstances, a c t i o n s , and s t a t u s of the c l a i m i n
order t o respond to questions or p r o v i d e a s s i s t a n c e r e g a r d i n g the
handling o f a c l a i m . Not ' having complete i n f o r m a t i o n a t t h e i r disposal
places branch s t a f f a t a disadvantage because they may be requested to
p r o v i d e a d v i c e without having the p r i v i l e g e o f perusing a l l i n f o r m a t i o n
associated w i t h the c l a i m .
Claims Information
Reported Is Deficient .
Claim i n f o r m a t i o n compiled and reported by the Claims Branch i s flawed
and sometimes inaccurate. I n a d d i t i o n , the manner i n which costs
associated w i t h claims i s reported i s misleading. Also, the r e p o r t s sent
to the p r o j e c t s t a f f and c e n t r a l o f f i c e s t a f f contain no d e t a i l e d
i n f o r m a t i o n or in- depth a n a l y s i s o f c l a i m s .
Reported s t a t u s i n f o r m a t i o n not e n t i r e l y accurate - ADOT has e s t a b l i s h e d
an automated database which t r a c k s c l a i m s t a t u s . This database
i n f o r m a t i o n i s reported to ADOT c e n t r a l o f f i c e s t a f f as w e l l as p r o j e c t
s t a f f v i a a monthly c o n s t r u c t i o n r e p o r t . However, our review o f 25
a c t i v e f i l e s revealed t h a t i n only 10 cases d i d the data- base s t a t u s
match the actual s t a t u s of the c l a i m . I n some cases the inaccurate
s t a t u s i s a d i r e c t r e s u l t o f having inadequate i n f o r m a t i o n i n the claim
f i l e . For example, we found f o u r c l a i m s i d e n t i f i e d as a c t i v e on the
database, t h a t ADOT p r o j e c t personnel informed us had been dropped or
s e t t l e d . However, there was no i n f o r m a t i o n i n the Claims Branch f i l e to
r e f l e c t the change i n s t a t u s . Claims Branch f i l e c o n t e n t s a r e the main
source o f i n f o r m a t i o n used t o e s t a b l i s h a claim record on the database as
w e l l as a source f o r t r a c k i n g c l a i m s t a t u s .
Even when the branch has i n f o r m a t i o n on a c l a i m , i t i s not always
captured on the database. We found instances where the branch f a i l e d to
use the i n f o r m a t i o n i n the f i l e t o update the claim s t a t u s . I n 9 o f the
25 a c t i v e claims we reviewed, t h e branch f i l e s contained i n f o r m a t i o n
which impacted the s t a t u s o f a c l a i m , y e t the database d i d not r e f l e c t
the f i le s t a t u s . For example, four claim f i l e s i n our sample contained
w r i t t e n documentation t h a t the c o n t r a c t o r had dropped the c l a i m .
I d e a l l y , t h i s i n f o r m a t i o n should have been used t o remove t h e c l a i m s from
the a c t i v e database f i l e and t r a n s f e r them t o t h e r e s o l v e d database
f i l e . However, some o f these claims were i d e n t i f i e d as a c t i v e on the
database as many as 9 months a f t e r the documentation to drop t h e c l a i m
was received by the branch. I n a d d i t i o n , one c l a i m f i l e contained
documentation i n d i c a t i n g t h a t the claim had been denied by the deputy
State engineer, yet t h i s change i n s t a t u s was not r e f l e c t e d on the
claims database. Claims Branch s t a f f c o u l d p r o v i d e no e x p l a n a t i o n as to
why t h i s i n f o r m a t i o n had not been used except t h a t i t was an o v e r s i g h t .
Reported c l a i m amount i n f o r m a t i o n i s m i s l e a d i n g - I n a d d i t i o n t o the
inaccuracies i n reported s t a t u s , i n f o r m a t i o n reported by the Claims
Branch regarding costs associated w i t h claims i s m i s l e a d i n g . For
example, some costs which should be captured and included as c l a i m costs
are not being tracked and r e p o r t e d .
Consultant costs -- ADOT sometimes uses c o n s u l t a n t s to help w i t h i t s
defense o f a c o n t r a c t o r c l a i m , and the charges can be s u b s t a n t i a l .
For example, as o f September 27, 1989, ADO^ had paid $ 240,939 to
c o n s u l t a n t s f o r t h e i r assistance i n the defense of a $ 7 m i l l i o n
c l a i m . However, these types of costs are never r e f l e c t e d i n the
actual c l a i m c o s t s r e p o r t e d by the Claims Branch.
A r b i t r a t i o n costs - Costs associated w i t h defending a c l a i m i n
a r b i t r a t i o n a r e n o t i d e n t i f i e d or included as p a r t o f the c l a i m
c o s t . A r b i t r a t i o n costs average several hundred d o l l a r s ranging from
$ 150 to $ 875 per a r b i t r a t i o n case d u r i n g the 1989- 90 f i s c a l year.
Furthermore, some costs included i n the reported c l a i m amounts should be
i s o l a t e d to provide a more r e a l i s t i c p i c t u r e o f how much ADOT a c t u a l l y
p a i d out on a c l a i m . Claims i n v o l v i n g time extensions ( l i q u i d a t e d
damages), p e n a l t i e s , c i t y p r o j e c t s , and federal p a r t i c i p a t i o n are a l l
cases i n which ADOT's r e p o r t i n g i s m i s l e a d i n g . For example:
ADOT can f i n e a c o n t r a c t o r f o r f a i l i n g t o complete a job on
schedule. Consequently, some c o n t r a c t o r s f i l e claims because they
b e l i e v e they are e n t i t l e d t o more time to f i n i s h the job and do not
b e l i e v e they should be f i n a n c i a l l y p e n a l i z e d . T y p i c a l l y , the
c o n t r a c t o r wi l l t r y t o o b t a i n a time extension and, i n essence,
m i t i g a t e the d o l l a r amount the c o n t r a c t o r would be penalized f o r
completing the job l a t e . An amount e q u i v a l e n t to the monetary
p e n a l t y would be claimed.
The r e p o r t i n g problem a r i s e s i f ADOT agrees t o g i v e the c o n t r a c t o r
the time extension requested. Rather than r e p o r t i n g these types of
c l a i m s s e p a r a t e l y from r e g u l a r c l a i m s , the r e p o r t e d i n f o r m a t i o n may
show a d o l l a r amount claimed by the c o n t r a c t o r and a zero resolved
amount, i n d i c a t i n g ADOT p a i d o u t n o t h i n g on the c l a i m . However, i n
essence the c o n t r a c t o r was compensated. Therefore, ADOT's f a i l u r e to
i s o l a t e these costs r e s u l t s i n the r e p o r t i n g o f misleading
informat i o n .
a ADOT may impose p e n a l t i e s on c o n t r a c t o r s i f the end product of the
p r o j e c t does not meet c o n t r a c t s p e c i f i c a t i o n s . I f a c o n t r a c t o r
b e l i e v e s he or she was penalized improperly, the c o n t r a c t o r can f i le
a c l a i m f o r the amount o f the p e n a l t y . We i d e n t i f i e d one case i n
which ADOT l a t e r waived the p e n a l t y . However, t h e i n f o r m a t i o n i s
presented so t h a t i t appears the c o n t r a c t o r l o s t the claim since ADOT
shows no money being p a i d out where money was c l a i m e d . R e p o r t i n g the
i n f o r m a t i o n t h i s way makes ADOT look as i f i t i s paying out a lower
percentage o f claims than i t a c t u a l l y i s . Again, r e p o r t i n g the
i n f o r m a t i o n i n t h i s manner misrepresents what a c t u a l l y happened w i t h
the c l a i m .
I n a d d i t i o n , i n some instances the Claims Branch i s r e p o r t i n g i n f o r m a t i o n
on claims f o r which the S t a t e i s not f i n a n c i a l l y l i a b l e . For example,
some c i t y p r o j e c t s are p a r t i a l l y funded by f e d e r a l d o l l a r s , but the
federal funds must pass through ADOT. As a r e s u l t , ADOT c o n t r a c t s f o r
the job but the c i t y p r o v i d e s s u p e r v i s i o n and i n c u r s a l l l i a b i l i t y
associated w i t h the p r o j e c t , i n c l u d i n g any c l a i m s . However, the
c o n t r a c t o r f i l e s i t s c l a i m w i t h ADOT. I n these cases, a d o l l a r amount
claimed w i l l be r e p o r t e d , and a zero d o l l a r amount p a i d w i l l be i n d i c a t e d
even though some other e n t i t y , such as the c i t y , may have a c t u a l l y paid a
p o r t i o n o f t h e claimed amount. By i n c l u d i n g o n l y the claimed amount and
no amount p a i d , the percent o f claim d o l l a r s a c t u a l l y paid i s
a r t i f i c i a l l y lowered.
F u r t h e r , the Claims Branch f a i l s t o i d e n t i f y c l a i m costs which may have
been p a i d by t h e f e d e r a l government, making i t appear as i f a l l claim
costs paid were paid by ADOT.(') For example, t h e f e d e r a l government
through the FHWA p a r t i c i p a t e d i n the amount o f $ 1 ,006,817 o f a $ 1 .7
mi l l i o n delay c l a i m . However, ADOT's r e p o r t i n g mechanism gives no
i n d i c a t i o n o f federal a s s i s t a n c e .
I n f o r m a t i o n r e p o r t e d i s l i m i t e d - I n a d d i t i o n t o the inaccuracies and
misleading i n f o r m a t i o n contained i n the r e p o r t , the i n f o r m a t i o n reported
and d i s t r i b u t e d t o the d i s t r i c t s and ADOT management provides no d e t a i l e d
i n f o r m a t i o n o r a n a l y s i s on c l a i m s . The Claims Branch monthly r e p o r t
l i s t s a c t i v e claims organized by d i s t r i c t s and s o r t e d by r e s i d e n t
engineer, claim number, and p r o j e c t number. In a d d i t i o n , any d o l l a r
amount claimed i s noted along w i t h a b r i e f d e s c r i p t i o n o f the c l a i m .
However, no i n f o r m a t i o n regarding the h i s t o r y o f a c l a i m i s p u b l i s h e d .
Therefore, one cannot r e a d i l y i d e n t i f y the age o f the c l a i m , the l a s t
date of any a c t i o n on the c l a i m , or the a c t i o n t h a t has been taken on the
c l a i m . C u r r e n t l y , t h i s type o f i n f o r m a t i o n i s not captured on the
database. However, planned r e v i s i o n s t o the automated system w i l l a l l o w
t h i s information to be tracked and r e p o r t e d .
Also, we found l i t t l e evidence o f any r o u t i n e in- depth analyses being
performed on the c l a i m i n f o r m a t i o n by the Claims Branch. The branch
compiles and r e p o r t s i n f o r m a t i o n . However i t appears t o be used
p r i m a r i l y t o l i s t the s t a t u s o f c l a i m s . Although the volume o f claims
may i n d i c a t e ADOT1s need to improve i t s c l a i m s e t t l e m e n t and p r e v e n t i o n
procedures, they do not suggest what p a r t s o f the c o n s t r u c t i o n process or
the c o n t r a c t i n g system need a t t e n t i o n . T h e r e f o r e , i t i s necessary t o
evaluate what aspects o f c o n s t r u c t i o n are most f r e q u e n t l y the subject o f
c l a i m s .
ADOT1s c o n t r a c t i n g c l a i m experience can be analyzed t o i n d i c a t e s p e c i f i c
changes i n the c o n t r a c t i n g process t h a t a r e l i k e l y t o reduce the number
o f claims or the s e v e r i t y of the d i s p u t e s . P e r i o d i c a n a l y s i s o f the
( 1 ) The federal government may p a r t i c i p a t e i n paying claims i n p r o j e c t s where federal
money i s funding a l l or a p o r t i o n of the p r o j e c t . However, FHWA's agreement t o
p a r t i c i p a t e i n the cost of the claim does not e n t i t l e Arizona to a d d i t i o n a l federal
funds but gives ADOT permission to use e x i s t i n g federal funds to pay claim costs.
a v a i l a b l e i n f o r m a t i o n may reveal trends or i d e n t i f y areas i n which
improvements or changes are needed i n order t o m i t i g a t e the number o f
f u t u r e c l a i m s .
ADOT Is Taking
Steps to Improve
During the course o f our a u d i t , ADOT management became aware o f many o f
the problems mentioned above, and began c o r r e c t i v e a c t i o n . Claims Branch
personnel are t a k i n g a more a c t i v e r o l e to a s s i m i l a t e c l a i m data. For
example, s t a f f have begun making r e g u l a r t r i p s t o each d i s t r i c t t o review
d i s t r i c t c l a i m f i l e s t o ensure c o m p a r a b i l i t y w i t h t h e i r own f i l e s . Other
planned improvements i n c l u d e :
o Updating i n f o r m a t i o n contained on the database
0 Revising and expanding the type o f claim i n f o r m a t i o n captured on the
database t o i n c o r p o r a t e r e l e v a n t a c t i o n s and dates i n order t o
f a c i l i t a t e e a s i e r s t a t u s d e t e r m i n a t i o n .
E s t a b l i s h i n g and m a i n t a i n i n g a t i c k l e r database o f a l l c l a i m n o t i c e s
a P r o v i d i n g summaries o f f i l e contents and a c t i o n s i n a l l c l a i m f i l e s .
I n a d d i t i o n , the branch has r e c e n t l y developed goals and o b j e c t i v e s which
should c l a r i f y the branch's r o l e i n the process and improve o p e r a t i o n s .
Also, the branch p l a n s t o d e l i n e a t e s t a f f r e s p o n s i b i l i t i e s regarding the
processing o f c l a i m i n f o r m a t i o n . F i n a l l y , based on some o f the r e c e n t l y
developed o b j e c t i v e s , i t appears more analyses o f c l a i m i n f o r m a t i o n w i l l
be performed.
RECOMMENDATIO- NS
I . ADOT should continue to implement improvements as o u t l i n e d i n i t s
goals and o b j e c t i v e s statement for the Claims Branch.
2. ADOT should r e v i s e i t s method o f r e p o r t i n g c l a i m i n f o r m a t i o n t o more
a c c u r a t e l y r e f l e c t c l a i m d o l l a r amounts.
3 . ADOT should analyze c l a i m s i n f o r m a t i o n i n various ways. The analyses
might be used to i d e n t i f y and c o r r e c t problem areas i n p l a n s ,
s p e c i f i c a t i o n s , o r o t h e r c o n t r a c t documents which may be the cause or
subject o f frequent c l a i m s .
4. ADOT should consider implementing some o f the recommendations
proposed by records management i n order to b e t t e r u t i l ize and manage
i t s Claims Branch f i l e s i n c l u d i n g developing a set of o f f i c e
procedures, p r o v i d i n g case summaries f o r each f i l e , and improving
f i le s e c u r i t y .
FINDING II
ADOT NEEDS TO IMPLEMENT CHANGES
TO ENSURE TIMELY RESOLUTION OF CLAIMS
ADOT needs to implement changes to promote the t i m e l y r e s o l u t i o n o f
claims submitted by c o n t r a c t o r s . ADOT has not handled some claims i n a
t i m e l y manner. By developing a more formal claims process and t r a c k i n g
claims to ensure they adhere to the g u i d e l i n e s , ADOT may be able t o
resolve claims more q u i c k l y .
Some Claims Have Had
Delays in Resolution
Although ADOT does not maintain the data necessary t o determine i t s
o v e r a l l performance i n t i m e l y c l a i m r e s o l u t i o n , i t appears t h a t some
claims are delayed longer than necessary. We attempted to determine
ADOT's t i m e l i n e s s i n complaint r e s o l u t i o n by reviewing 30 r e c e n t l y closed
claims but could not o b t a i n the basic data we needed from them. The
review proved inconclusive due t o several problems: 1) some f i l e s
contained no evidence o f when a n o t i c e o f i n t e n t t o f i l e c l a i m became a
formal c l a i m : t h e r e f o r e we could not determine the length of time between
f i I i n g t h e claim and ADOT's a c t i o n s ; ( ' ) 2) over h a l f o f the f i les
c o n t a i n i n g formal claims lacked a w r i t t e n d e c i s i o n by ADOT t o accept,
m o d i f y , o r r e j e c t : t h e r e f o r e there was no record o f when the i n i t i a l
decision was reached; and 3) i f ADOT responded to the claim by i n i t i a t i n g
n e g o t i a t i o n s and discussions w i t h c o n t r a c t o r s , as some ADOT s t a f f t o l d
us, we could not determine when t h i s took p l a c e , s i n c e no w r i t t e n record
was made f o r the f i l e s . These three f a c t o r s made i t impossible t o
c a l c u l a t e t h e l e n g t h o f time between the c o n t r a c t o r ' s f i l i n g a c l a i m and
ADOT's response.
( 1) Before beginning disputed work, contractors submit a n o t i c e of i n t e n t t o f i l e claim,
which allows ADOT to begin keeping i t s own records of the work but does n o t r e q u i r e a
response. Later, when the work i s completed and a l l costs have been i n c u r r e d , i f the
contractor s t i l l be1 ieves a d d i t i o n a l compensation i s j u s t i f i e d , the c o n t r a c t o r w i l l
f i l e a formal claim. ADOT then makes i t s decision to accept, modify, or r e j e c t the
claim.
Although we could not review the amount o f time i t took ADOT t o reach i t s
i n i t i a l d e c i s i o n on a c l a i m , we were able to t r a c k the time i t took f o r
ADOT to process a c o n t r a c t o r ' s appeal o f the d e c i s i o n . We reviewed a l l
22 o f the cases which had second l e v e l review hearings between 1987 and
1 9 8 9 . ( l ) I n these cases, ADOT took an average of 97 days from the
c o n t r a c t o r ' s request f o r a hearing t o the hearing date, and an a d d i t i o n a l
47 days from t h e h e a r i n g t o n o t i f y the c o n t r a c t o r o f i t s d e c i s i o n . ( 2 )
Thus, on average c o n t r a c t o r s w a i t almost f i v e a d d i t i o n a l months to
receive a d e t e r m i n a t i o n on the appeal o f an i n i t i a l ADOT d e c i s i o n .
While the data was n o t a v a i l a b l e to t r a c k ADOT's o v e r a l l t i m e l i n e s s i n
handling claims, a survey o f 20 c o n t r a c t o r s produced examples of delayed
c l a i m s . Twelve o f the 20 c o n t r a c t o r s we surveyed are d i s s a t i s f i e d w i t h
the amount o f time taken by ADOT to resolve claims.( 3) Three c o n t r a c t o r s
accused ADOT o f dragging o u t t h e process so t h a t the c o n t r a c t o r would
drop t h e c l a i m . The f o l l o w i n g cases i l l u s t r a t e delayed c l a i m s .
A claim f i l e d J u l y 25, 1988, f o r $ 26,800 was i n i t i a l l y denied a t the
p r o j e c t l e v e l August 5, 1988. The c o n t r a c t o r subsequently requested
an a d m i n i s t r a t i v e review o f the claim on August 16, 1988. The
hearing was scheduled and held December 13, 1988 ( 119 days l a t e r ) .
The review board made a recommendat i o n t o the ADOT S t a t e Engineer on
January 11, 1989, b u t t h e d e c i s i o n l e t t e r to the c o n t r a c t o r ( awarding
a p o r t i o n of the claim amount) was not sent out u n t i l March 13, 1989
- 90 days a f t e r the hearing was h e l d .
( 1 ) Second l e v e l r e v i e w hearings are a d m i n i s t r a t i v e hearings h e l d b e f o r e ADOT e n g i n e e r i n g
s t a f f .
( 2) Average time t o schedule h e a r i n g i s based on 19 o f the 22 cases. One case was
excluded because the f i l e was not a v a i l a b l e f o r o u r r e v i e w . The h e a r i n g i n t h a t case
was held on May 25, 1989, and as o f January 3, 1990, the reviewer had not made a
d e c i s i o n and s t i l l had the f i l e . A second case was excluded because the process was
prolonged by the c o n t r a c t o r ' s need to postpone t h e h e a r i n g w h i l e he f i n i s h e d g a t h e r i n g
c o s t i n f o r m a t i o n . The t h i r d case was not a second l e v e l r e v i e w but a f i n a l
a d m i n i s t r a t i v e r e v i e w as r e q u i r e d by the 1982 s p e c i f i c a t i o n s , which c a l l e d f o r
a t t o r n e y s on b o t h s i d e s , c o u r t r e p o r t e r s , and f i n a l a t t o r n e y s ' b r i e f s presented a f t e r
the hearing. Time frames on t h a t case would not be comparable t o o r d i n a r y second
l e v e l reviews. Average time t o i s s u e a d e c i s i o n i s based on the 14 o f those 19 cases
f o r which a d e c i s i o n had been given a t the time o f our review. Four o f the 19 cases
were s t i l l a w a i t i n g a d e c i s i o n , and one had been s e t t l e d b e f o r e a d e c i s i o n was made.
( 3 ) We surveyed 20 c o n t r a c t o r s who had a c t i v e claims w i t h ADOT as o f December 6, 1989.
See Appendix I1 f o r f u r t h e r i n f o r m a t i o n obtained from c o n t r a c t o r survey.
A c o n t r a c t o r w a i t e d over 8 months from the time he requested an
a d m i n i s t r a t i v e review u n t i l the hearing was h e l d , and he waited 2
more months to receive the d e c i s i o n from the review. The c o n t r a c t o r
requested an a d m i n i s t r a t i v e review on June 24, 1987, a f t e r the claim
was denied a t the p r o j e c t l e v e l . The hearing was not h e l d u n t i l
March 16, 1988, 266 days l a t e r . Furthermore, a recommendation
regarding the c l a i m was not reached u n t i l May 3, 1988 ( 48 days a f t e r
the hearing) and the c o n t r a c t o r was n o t i f i e d o f the d e c i s i o n i n a
l e t t e r dated May 20, 1988.
I n some cases, c o n t r a c t o r s m a i n t a i n ADOT's f a i l u r e to r e s o l v e c l a i m s i n a
t i m e l y manner may cause them f i n a n c i a l h a r d s h i p . For example:
A c o n t r a c t o r estimates an unresolved 6 month o l d c l a i m could cost h i s
company $ 300,000 i n missed p r o f i t on other work. As o f February 2 ,
1990, ADOT had not made a d e t e r m i n a t i o n regarding a c l a i m f i l e d by
t h i s c o n t r a c t o r on J u l y 27, 1989, although a d e c i s i o n should have
been made w i t h i n 90 days. ADOT d i s t r i c t s t a f f b e l i e v e the claim i s
v a l i d but have not reached an agreement on c o s t s .
The delay i n r e s o l v i n g t h i s claim has impacted the company's abi l i t y
t o b i d on other jobs since ADOT and bonding companies determine the
s i z e job a c o n t r a c t o r can b i d by reviewing the c o n t r a c t o r ' s l i q u i d
assets. Since the claim costs have not been reimbursed, the
company's l i q u i d a s s e t s a r e d i m i n i s h e d . The c o n t r a c t o r said he could
q u a l i f y f o r jobs up t o ten times the amount of l i q u i d assets, so t h i s
$ 136,000 claim could have reduced h i s a b i l i t y t o b i d by up t o $ 1 .36
mi l l ion.
ADOT's lack of procedures to ensure the t i m e l y r e s o l u t i o n o f claims may
have caused these delays. ADOT has developed s p e c i f i c a t i o n s which d e f i n e
both ADOT's and the c o n t r a c t o r ' s r o l e i n c l a i m r e s o l u t i o n . However, the
s p e c i f i c a t i o n s are vague i n several areas which can c o n t r i b u t e to delays
i n c l a i m r e s o l u t i o n . I n a d d i t i o n , ADOT lacks i n t e r n a l procedures f o r
m o n i t o r i n g the progress o f c l a i m s .
No time frames for ADOT actions - Although t h e s p e c i f i c a t i o n s include
time g u i d e l i n e s f o r c o n t r a c t o r s to f o l l o w throughout the r e s o l u t i o n
process, the s p e c i f i c a t i o n s do not c o n t a i n s i m i l a r requirements f o r
ADOT. The s p e c i f i c a t i o n s r e q u i r e o n l y t h a t ADOT make an i n i t i a l d e c i s i o n
w i t h i n 60 or 90 days ( depending on the s i z e o f the c l a i m ) . Once an
i n i t i a l decision i s made, ADOT has no f u r t h e r time g u i d e l i n e s t o meet
during the appeal process. Other s t a t e s have developed g u i d e l i n e s f o r
each phase o f the r e s o l u t i o n process. Oklahoma, f o r example, has set
deadlines f o r each phase o f the process so t h a t the f i n a l a d m i n i s t r a t i v e
decision can be given w i t h i n 40 days o f the formal c l a i m submission.
Claim s u b m i t t a l i s i n f o r m a l - ADOT s p e c i f i c a t i o n s g i v e o n l y general
guidance f o r f i l i n g a c l a i m , r e s u l t i n g i n informal and incomplete claims
which i n t u r n lead t o t i m e l i n e s s problems. The c o n t r a c t o r i s t o submit
the claim along w i t h cost i n f o r m a t i o n to ADOT w i t h i n 60 days a f t e r a l l
costs associated w i t h a c l a i m have been i n c u r r e d . However, the
s p e c i f i c a t i o n s do not d e f i n e the format o f the c l a i m , Consequently, some
f i l e s we reviewed contained no evidence o f when a n o t i c e of i n t e n t t o
f i l e claim became a formal c l a i m . Without being able t o determine when a
claim becomes " f o r m a l , " t r a c k i n g o f d e c i s i o n due dates becomes d i f f i c u l t ,
i f not impossible. Georgia e s t a b l i s h e s a formal c l a i m f i l i n g date by
r e q u i r i n g c o n t r a c t o r s t o f i l l o u t a c l a i m c e r t i f i c a t i o n form.
F u r t h e r , ADOT s p e c i f i c a t i o n s are unclear as t o e x a c t l y what s u p p o r t i n g
documentation i s needed. As a r e s u l t , c o n t r a c t o r s f r e q u e n t l y submit
incomplete clairns which d e l a y s p r o c e s s i n g u n t i l the c o n t r a c t o r s u p p l i e s
the m i s s i n g d a t a . I n c o n t r a s t , Washington's s p e c i f i c a t i o n s c l e a r l y
d e t a i l the minimum i n f o r m a t i o n to be supplied by c o n t r a c t o r s when they
submit a c l a i m .
W r i t t e n decisions are not r e q u i r e d - ADOT s p e c i f i c a t i o n s do not r e a u i r e
ADOT to provide c o n t r a c t o r s w i t h w r i t t e n d e c i s i o n s on claims submi 2 d ~
Although ADOT s p e c i f i c a t i o n s i n d i c a t e t h a t ADOT i s t o render a d e c i s i o n
w i t h i n 60 or 90 days o f r e c e i p t o f a c l a i m , t h e s p e c i f i c a t i o n s do not
require a w r i t t e n d e c i s i o n , I n s t e a d , the s p e c i f i c a t i o n s i n d i c a t e t h a t i f
the c o n t r a c t o r does n o t r e c e i v e a d e c i s i o n from ADOT w i t h i n the 60 or 90
days, the c o n t r a c t o r can assume the claim i s denied. Many o f the p r o j e c t
f i l e s we reviewed lacked a w r i t t e n d e c i s i o n . Although most o f the
c o n t r a c t o r s we surveyed i n d i c a t e d t h a t ADOT g e n e r a l l y d i d p r o v i d e a
w r i t t e n d e c i s i o n , some of those t h a t d i d not receive a w r i t t e n d e c i s i o n
were u n c e r t a i n as to whether ADOT t r u l y denied the c l a i m , or whether ADOT
was j u s t l a t e i n reaching a d e c i s i o n . Six of the e i g h t s t a t e s we
surveyed r e q u i r e department s t a f f t o make a l l d e c i s i o n s i n w r i t i n g . ( ' )
Claim progres- s i s not monitored - Although ADOT management i n d i c a t e d t h a t
i t i s the d i s t r i c t ' s r e s p o n s i b i l i t y to monitor claims p r i o r to the
a d m i n i s t r a t i v e review stage, some d i s t r i c t s t a f f i n d i c a t e d t h a t they r e l y
on the Claims Branch to m o n i t o r c l a i m s and issue reminders. However, the
Claims Branch has not a c t i v e l y monitored the progress o f claims a t any
l e v e l .
We found t h a t even those claims which have reached the c e n t r a l o f f i c e
review stage are not being monitored to ensure t i m e l y r e s o l u t i o n . Once a
claim has been denied a t the p r o j e c t or d i s t r i c t l e v e l , the c o n t r a c t o r
can request an a d m i n i s t r a t i v e review. Although the Claims Branch plays a
key r o l e i n scheduling claims f o r the a d m i n i s t r a t i v e r e v i e w , t h e branch
does not always schedule hearings i n a t i m e l y manner, and i t a l s o f a i l s
to f o l l o w up on the progress o f claims a f t e r review t o ensure t i m e l y
decisions have been rendered.
The Claims Branch's new goals and o b j e c t i v e s i n d i c a t e t h a t i t plans t o
take a s t r o n g e r r o l e i n m o n i t o r i n g c l a i m s . The branch i s planning to
develop a " t i c k l e r " database to s i g n a l when ADOT a c t i o n s are r e q u i r e d .
F u r t h e r , the branch w i l l be v i s i t i n g d i s t r i c t s to update i n f o r m a t i o n on
claim s t a t u s , and to provide t r a i n i n g t o d i s t r i c t s t a f f on c l a i m
r e s o l u t i o n .
( 1 ) We surveyed eight states regarding a l l aspects of t h e i r claims- handling process. We
chose these states ( North Dakota, Colorado, Washington, Georgia, F l o r i d a , Maryland,
Michigan, and C a l i f o r n i a ) based on recommendations from the Federal Highway
Administration, t h e American Association of State Highway and Transportation
O f f i c i a l s , and a national claims consultant, who said these states had good claims
processes o r many claims. We also discussed time l i m i t s w i t h Oklahoma, New Mexico,
and Nevada, because our review of 1 i terature and conversations w i t h contractors
indicated these states had shorter time requirements.
RECOMMENDATIONS
1. ADOT should establish time guidelines for each step in the claim
process.
2. ADOT should formalize the claim submission process by:
Requiring contractors to submit a claim form indicating the
date, basis, and amount of the claim.
Clarifying what items the contractor must submit with a claim.
3. The Claims Branch should develop and implement a system for
monitoring the progress of claims, and issue reminders when
appropriate to ensure that time guidelines are met.
4. ADOT shoul