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Audit of the Massachusetts Bay Transportation Authority - Review of Contract Management Process

September 28, 2018 · Massachusetts Bay Transportation Authority · Read the full official report on mass.gov ↗ · official site ↗

Published September 28, 2018 Audit covers July 1, 2014 – December 31, 2016 Under Suzanne M. Bump · 2011–2023

In plain English
The audit found that the MBTA had weaknesses in how it managed construction contracts, including cost estimates, bidder tracking, change order paperwork, and bid reviews.
source
“The MBTA did not maintain an accurate Bid Comparison to Cost Estimate Database of information on all DBB projects, nor did it require contracted design engineers to perform a root cause analysis on each bid that varied from the engineer’s estimate by more than 10%.”
Read the plain-English breakdown
What is this?

This is a state performance audit of the MBTA’s construction contract management process for July 1, 2014 through December 31, 2016.

“This report details the audit objectives, scope, methodology, findings, and recommendations for the audit period, July 1, 2014 through December 31, 2016.”
Why was it audited?

Auditors checked whether the MBTA had fixed earlier problems identified by an outside auditor in bidding, contract changes, and cost estimates.

“The scope of our audit was to determine whether the MBTA had taken measures to adequately address the management action items that were identified by an external auditor.”
Why it matters

If the MBTA does not do required cost and risk checks, projects can run into delays, higher costs, and funding problems.

“Because it did not always conduct them, the agency did not collect all the information it needed to effectively and efficiently administer projects, which could result in problems such as project delays, cost overruns, and funding issues.”
What's in it for me?

For riders and taxpayers, this matters because the MBTA serves millions of people and its construction spending affects public transportation reliability and public money.

“According to its Capital Investment Program for fiscal year 2016, the MBTA system is the fifth-largest mass-transit system in the country in terms of ridership, serving 4.7 million people over an area of 3,200 square miles, with about 1.3 million passengers each day.”
The bottom line

The auditors concluded that the MBTA needed stronger controls and better documentation in several parts of its construction contract process.

“The MBTA did not effectively administer its construction contract bid analysis process.”
What happens next

The report recommends that MBTA management create and enforce monitoring controls so estimates, risk reviews, bid data, and required analyses are done correctly.

“MBTA management should establish effective monitoring controls to ensure that information is accurately recorded in the Bid Comparison to Cost Estimate Database and that a root cause analysis is performed for each bid received that varies from the engineer’s estimate by more than 10%.”
Why it's significant

The audit is significant because the MBTA awarded 39 construction contracts worth about $464 million during the period reviewed.

“During our audit period, the CDD awarded 39 construction contracts, totaling $464 million.”
Jargon, unpacked

A change order means a formal contract change that adds or removes work, changes the project price, changes the schedule, or both.

“A change order is a document requesting, acknowledging, and approving (or disapproving) work that is either added to or deleted from the project scope, altering the original guaranteed maximum price in the contract, the planned completion date, or both.”

4 figure(s) pending source verification - not shown

What the Auditor checked

What the Auditor found

The MBTA did not ensure required cost estimates and risk analyses were properly completed.
internal controlsrecordkeeping/documentationprocurement/contracts

Why it matters: The MBTA lacked information needed to administer projects effectively, increasing risk of project delays, cost overruns, and funding issues.

Standard: MBTA Project Controls Manual requirements for estimates, cost growth reports, bases of estimate, qualitative risk analyses, quantitative risk analyses, and risk registers. ( Section II of the MBTA Project Controls Manual; Section IX of the MBTA Project Controls Manual )

1 recommendation
  • MBTA management should establish effective monitoring controls to ensure that periodic project estimates and risk analyses are properly conducted by MBTA personnel, its contracted design engineers, and their estimators.agency: partially agreed
Agency response & Auditor reply
Agency: "The MBTA is renewing its focus on making certain that interim and final estimates and risk analyses are performed according to the requirements of the MBTA Project Managers (PM) Manual and MBTA Project Controls Manual and are well documented."
Auditor: "Based on its response, the MBTA is taking measures to address our concerns in this area."
The MBTA did not maintain an accurate disinterested bidders database or investigate all prospective bidders.
procurement/contractsrecordkeeping/documentationinternal controls

Why it matters: The MBTA could not fully analyze why potential vendors did not bid or develop effective strategies to increase competition.

Standard: Management action agreed to in an August 30, 2011 external audit report requiring additional market research on why contractors do not bid.

1 recommendation
  • The MBTA should develop written policies and procedures for updating information in the database and identifying and researching disinterested bidders, and it should establish monitoring controls to ensure that these policies and procedures are followed.agency: agreed
Agency response & Auditor reply
Agency: "As a result of discussions during the audit process, the MBTA does agree that there is value in expanding the list of disinterested bidders to include those on the planholders list that are prequalified but that do not submit a Request for Proposal."
Auditor: "Based on its response, the MBTA is taking measures to address our concerns in this area."
The MBTA processed change orders without adequate supporting documentation.
procurement/contractsrecordkeeping/documentationinternal controls

Why it matters: Missing documentation increased the risk of inaccurate payments to contractors.

Standard: MBTA Construction Contract Change Order / Risk Reallocation Guidelines for Costs and Supporting Documents. ( MBTA’s Construction Contract Change Order / Risk Reallocation Guidelines for Costs and Supporting Documents )

1 recommendation
  • The MBTA should codify its Contractor’s Change Order / Risk Reallocation Check-Off List as a required piece of supporting documentation for all change orders and should implement monitoring controls to ensure that its contractors complete this document.agency: disagreed
Agency response & Auditor reply
Agency: "Therefore, this finding is not appropriate to include in the audit as a finding since there is no requirement that a checklist be submitted and the MBTA does not rely upon the information contained in the checklist even when submitted."
Auditor: "As noted above, during our audit, we found that the MBTA processed more than $3 million in change orders without adequate documentation."
The MBTA did not ensure its Bid Comparison to Cost Estimate Database was accurate.
procurement/contractsrecordkeeping/documentationinternal controls

Why it matters: The MBTA risked using erroneous data to calculate and analyze variances between project estimates and bids.

Standard: MBTA management responsibility for complete and accurate bid analysis database information.

1 recommendation
  • MBTA management should establish effective monitoring controls to ensure that information is accurately recorded in the Bid Comparison to Cost Estimate Database and that a root cause analysis is performed for each bid received that varies from the engineer’s estimate by more than 10%.agency: agreed
Agency response & Auditor reply
Auditor: "As noted above, OSA found that the MBTA did not ensure that the information in its Bid Comparison to Cost Estimate Database was accurate."
The MBTA did not ensure root cause analyses were performed for bids that varied from engineers’ estimates by more than 10%.
procurement/contractsvendor oversightinternal controls

Why it matters: The MBTA could not ensure all substantially varying bids were reasonable or that cost-estimate information was complete and accurate.

Standard: Section 8 of the MBTA Project Manager’s Manual Standard Operating Procedure. ( Section 8 of the MBTA Project Manager’s Manual Standard Operating Procedure )

1 recommendation
  • MBTA management should establish effective monitoring controls to ensure that information is accurately recorded in the Bid Comparison to Cost Estimate Database and that a root cause analysis is performed for each bid received that varies from the engineer’s estimate by more than 10%.agency: partially agreed
Agency response & Auditor reply
Agency: "As a result of discussions during the audit process, the MBTA does agree that there is value in performing a root cause analysis on all bids if the low bid varies from the engineer’s estimate by more than 10% to explain the variances."
Auditor: "OSA recommends that the MBTA follow its Standard Operating Procedure by performing a root cause analysis of any bid that varies from the engineer’s estimate by more than 10%, regardless of the low bid amount."

Verified dollar findings

Other identified $201,172 not in headline

Identified dollar findings that do not fall in a named band.

$201,172 - change orders paid without evidence of a Record of Negotiation

Prior findings revisited

Being worked on
"During both of these reviews, the accounting firm noted that the MBTA had made significant progress but had not yet fully implemented all of the suggested changes."

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