Originally Posted - June 28, 2006

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ULSTER COUNTY---Severe mismanagement and inadequate oversight, as well as problems with design and with how contracts were written and enforced contributed to delays and to $12.9 million in unnecessary costs during the construction of the Ulster County Law Enforcement Center, according to a final audit released Wednesday by State Comptroller Alan G. Hevesi. State auditors found that the county's collective missteps significantly hindered its ability to effectively deal with problems as they developed and have left taxpayers with unnecessary costs.

The construction of the new jail center is millions over budget and more than two years behind schedule. The county originally budgeted $71.8 million to complete the project by April 2004. The county eventually increased the budget to $84.4 million, but it now estimates that the final project costs could exceed $100 million. As of June 2006, the facility is still not complete.

"The largest capital construction project in the history of Ulster County spiraled out of control because those responsible for overseeing it failed to do so," Hevesi said. "There was no central management, no accountability for contractors who failed to deliver on their contractual obligations and no control over spending. Contracts were written in the best interest of contractors, not in the best interest of taxpayers, and taxpayers are paying the price.

"What's worse, more than two years after it was supposed to be completed, the jail still isn't done and the final costs are still uncertain," Hevesi said. "What is certain is that the county must make comprehensive changes to ensure that this doesn't happen again."

The audit, started in June 2005 at the request of the Ulster County Legislature, examined the overall management of the project from July 2000 through June 2005. A copy of the draft version of the audit, which did not contain a response from the Ulster County Legislature, was obtained by the local media and several news stories ran prior to the release of the final audit Wednesday.

Ulster County Legislative Chairman David B. Donaldson, in a response included in the final audit, raised several issues on behalf of the county regarding the findings of the audit. These issues, as well the response of the auditors to these issues, include: The county says the report makes it seem that much of the blame for the delays and cost overruns is attributable to the county, when, in fact, the delays and resulting cost overruns were to a large extent the fault of other parties including the general contractor. Prior to starting the audit, state auditors informed county officials that the state audit would look at the county's oversight of the project, not the specific actions of all the contractors, and this is what the audit reflects. Comptroller's audits provide objective reporting and analysis and are designed to improve efficiency and management, not serve as a part of the legal or political strategy of one side or another in a dispute.

The county said that if auditors had talked with Hill International, a consulting firm hired to identify the specific causes for delays and cost overruns, the focus of the report would have been very different. State auditors did ask to meet with Hill International and to review the report that Hill was producing. State auditors were asked by attorneys representing the county not to extend the state audit into issues being reviewed by the consultant. Initially Hill International was hired for $150,000 to study and report on the project's problems, but has been paid more than $1 million to date.

The county disagreed that there were deficiencies in contracts. State auditors said the contracts were deficient because they did not contain key safeguards against cost overruns, such as penalty and incentive clauses or total compensation caps, which are common industry practices.

Contrary to the audit's findings, the county claimed that its contracts with the project manager Bovis Lend Lease and Crandell, the project's architect, did contain compensation caps. The county asserted that the original contracts allowed payments above the original amount to these contractors only if the contractors were determined to be free from fault. State auditors pointed out that there were no instances when the county withheld payments from either contractor even though there was potential fault on the part of both contractors. In fact, the contractors combined received nearly $2.2 million more than their original contracts called for. Thus effectively, there was no compensation cap.

The county said the report fails to define what a design error or discrepancy is and fails to arrive at a basis for concluding that 262 change orders valued at almost $2.3 million resulted from design errors and 62 change orders totaling more than $800,000 resulted from drawing discrepancies. State auditors obtained information on change orders from Prolog, the project management software used by the construction manager, which the architect had access to. Auditors identified $3.1 million in change errors that were classified in Prolog as "design error" and "drawing discrepancy."

The county said that auditors were incorrect when they said oversight of the project was not centralized. The county claimed that there was a well defined structure in place, but the county acknowledged that the committee that was responsible for oversight of the project was not appointed until three or four years after the project was underway and apparently never met. State auditors stood by their statement that there was no central oversight for this project, particularly in light of the problems identified in the county's own response.

Details of the specific audit findings are detailed below:

--Poorly Drafted Contracts Allowed Cost Overruns and Delays. $2.2 million in unnecessary costs occurred because contracts did not cap compensation or contain incentive or penalty clauses to ensure that the project finished on time and within budget. Cost overruns and completion delays ultimately resulted in additional compensation of $397,000 to the architect, and $1.4 million to the project manager.

--Excessive Change Orders. More than 1,000 change orders totaling $10.7 million were approved from 2002 through 2005, driving costs 30 percent above the original cost estimate. According to a project consultant for the county's architect, a construction project such as this could be expected to generate change orders valued at about five percent above the original cost estimate.

--Extensive Design Errors. One-third of the more than 1,000 change orders were to correct design and drawing discrepancies caused by the architect. Those change orders cost $3.1 million. Since the architect was paid a percent of the costs, the result was that rather than being penalized for causing unnecessary costs, the firm received additional compensation as a result of its own errors. Amazingly, the architect's original design did not meet building codes, but it nevertheless received the approval of county officials to move forward.

--Contracts Not Enforced. At least $895,000 in unnecessary payments were made because county officials approved change orders agreeing to pay contractors more money, even though county officials knew that this work should have been covered within the scope of the original contract. For example, the county paid the building contractor an additional $154,000 for site clean up even though all the construction contracts stated that contractors were responsible for daily site clean up. In addition, some contracts were too vague and did not adequately identify what services relevant contractors were required to deliver so the county often paid these contractors extra.

--Lax Oversight and Unreliable Reporting. $1.8 million was paid to legal and consulting firms to manage problems that arose during construction because of poor management. Oversight of the project was confusingly divided among several legislative committees, consultants and county staff. A key legislative oversight committee was not appointed until several years after the project started and never actually met. Bovis provided progress reports that were often late and incomplete.

--Unnecessary and Improper Expenses. At least $4.9 million in operating costs could have been avoided if the project was completed on time. For example, the county has spent an additional $2 million on boarding and transporting prisoners because of project delays. The county also reimbursed some consultants for improper expenses, such as $39.59 for cigars for an Ulster County Legislator and $100 penalty for an early return flight, illustrating the county's obvious lack of expenditure control.

The audit makes a number of recommendations to the county:

Identify all project design errors and determine whether those costs should be recovered. Review work orders and determine whether they are for work that falls within the scope of a particular contract and if money should be recovered from those contractors.

Recover questionable travel costs from contractors and determine if costs can be recouped from contractors responsible for delays.

Avoid contracts that provide compensation as a percentage of project costs. Instead in contracts for future construction projects, include penalties for work that is not completed within required timeframes.

Consolidate the oversight of future capital construction projects in one county office or legislative committee with the authority to make necessary decisions to keep projects on schedule and on budget. 6-28-06

Click here for a copy of the audit.

© 2006 North Country Gazette