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Water Management Non-Construction CIP Costs Report No. 94-10 -- Report Summary Mac Fletcher, Principal Financial Auditor
The special study of the Surface Water Management (SWM) Capital Improvement Program (CIP) non-construction costs was initiated at the request of the King County Council. The request resulted from a difference of opinion on the appropriate funding level for the Sammamish River Dredging CIP Project. The primary difference in the SWM Division-requested and the Council staff-recommended funding levels resulted from estimates in non-construction CIP costs such as design, engineering, and construction management costs. The SWM Capital Improvement Program is managed by the Surface Water Management (SWM) Division. The emphasis of the SWM CIP is to design and implement solutions to surface water/urban drainage problems and to protect water resources. It should be noted that dredging projects are not capital improvement projects commonly undertaken by local government entities. The U.S. Army Corps of Engineers was contacted, but declined the project due primarily to insufficient funding. The scope and objective of the study were to conduct a general review of the policies and procedures for estimating and budgeting SWM non-construction CIP project costs. The process was reviewed to ensure that existing policies and procedures were adequate and consistently applied to various capital improvement projects, including the Sammamish River Dredging Project. The study methodology included interviews of key personnel and a review of written policies and procedures and other documents, including SWM's computerized project management system. Also, a sample of SWM CIP projects were selected for a detailed review of such aspects as sources of cost data, methodologies for establishing a preliminary budget and the process for refining the budget. It was concluded that SWM Division's estimates of non-construction CIP costs appear to be based on adequate procedures applied on a consistent basis. It was also concluded that SWM Division's preliminary cost-estimating process for the Sammamish River Dredging Project appears to have been conducted reasonably and in a manner consistent with existing policies and procedures. MAJOR FINDINGS AND RECOMMENDATIONS Preliminary estimates of construction costs are rough estimates based on similar project(s) constructed in the past, using an estimate of items needed and their historical construction costs. Generally, preliminary non-construction costs are estimated by using a historically-based cost curve as a percentage of the preliminary construction cost estimate. Certain other costs are based on a formula developed through an analysis of historical data. When a project is authorized through the CIP budget process, cost estimates are refined through detailed field check, scope development, and using more current and detailed unit costs. Based on a review of the SWM Division's CIP management system procedures and related documentations, it appears that the Division's procedures are adequate to arrive at a reasonable estimate of non-construction CIP costs. Cost estimating policies and procedures appear to be designed adequately, functioning as intended and applied on a consistent basis to various SWM CIP projects. While the SWM Division's cost-estimating procedures were found to be adequate, audit staff found that the summary data available for a review of preliminary cost estimates may be inadequate to provide key information about general project costs. Summary budget and accounting reports aggregate costs at very broad categories and lack adequate details for a ready analysis of CIP project financial data. Combined with significant time pressure often associated with the budget review and/or legislative process, the current format of summary budget data may not be sufficient for ready analysis of preliminary project data. The study recommended that the SWM Division add more summary level cost categories to enhance the ability to report on and analyze the budget/cost data. The purpose of the Sammamish River Dredging Project was to dredge a channel through the Sammamish River delta in Lake Washington near Kenmore, in order to provide adequate navigation depths for boats traveling between Sammamish River and Lake Washington. The channel was to be 1,200 feet in length, 75 feet wide and dredged to the depth of 7 feet. Audit staff found that SWM Division's preliminary cost estimating process for the Sammamish River Dredging Project appear to have been conducted reasonably and in a manner consistent with existing policies and procedures. The construction cost, to dredge and dispose 16,800 cubic yards of material, was estimated at $255,300. The associated non-construction costs, exclusive of contingency, were estimated at $324,000, or 125% of the construction costs. Audit staff reviewed the estimated non-construction costs, and also compared the costs to similar, though somewhat larger project. The estimated non-construction costs were found to be reasonably based on existing policies and procedures and contract documents. Audit staff found no evidence of excessive and/or duplicative costs included in the preliminary budget. Updated: 04/30/08 Auditor's Home | Audit Reports | Contact Us | Links to Audit Related Sites
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