Audit: ‘Potential’ for recovery money
An audit of a management services contract between the city and the firm that oversaw the utilities expansion has found $8.5 million in potential cost recovery dollars, the city said in a news conference Thursday.
The word “potential” is important, because the city auditor conceded that the odds of recovering even a small portion of that money would be a long, arduous task.
“There is no pot of gold waiting for us to grab,” city spokesperson Connie Barron said.
In 1999, the city entered into an agreement with MWH Americas, which oversaw the water and sewer expansion, which included construction of the North Reverse Osmosis (RO) plant.
The contract expired in September 2011. Some members of the then-sitting city council believed the contractor was overcharging and misleading the city.
Rich Townsend was contacted to do an independent audit, first on the RO plant, then on the entire project.
The audit found that “MWH billed the city in accordance to the terms of the contract as amended from time to time during the term of the agreement.”
City Auditor Margaret Krym said that one sentence pretty much framed the report and might be its most understandable item, as the contract is complicated, the issues complex, so much so that it changed the way the city does such contracts.
It also recommended that the city consider the applicability of Section 287.055 of The Florida Statutes which require “the firm receiving the award to execute a truth-in-negotiation certificate stating that wage rates and other factual unit costs supporting the compensation are accurate, complete, and current at the time of contracting.”
“According to information provided to the city over the life of the contract and summarized by our audit, the average wages rates used to bill the city for labor provided by MWH were overstated by an average of approximately 5 percent over the life of the contract.”
Townsend also found $8.5 million in potential cost recovery dollars on a project that cost $780 million.
There were five issues, in laymen’s terms, where Townsend found potential cost recovery the city council should further examine:
1.) Reconciliation of contractually agreed upon labor refunds and the impact on amounts billed for program management;
2.) Analysis of labor rates used by MWH for billings by the hour for construction phase engineering, construction management and program management;
3.) Analysis of labor rates used to price lump sum contracts for pre-construction engineering services;
4.) Analysis of construction costs incurred that were funded by authorized contingency amounts included in the construction work authorizations;
5.) Analysis of amount paid to North RO plant electrical subcontractor for performance and payment bond costs
The $8.5 million question is can any of the money be realistically recovered? Krym said not without litigation, adding that Townsend verbally advised against using taxpayer money to hire an attorney.
City Manager John Szerlag said the city contacted Aaron A. Haak, a board-certified construction law attorney to see if his firm, Knott, Ebelini and Hart would take the case on a contingent fee basis. Haak declined.
And even if the city won the entire amount, city Business Manager Mike Ilczyszyn said the city would end up with far less than $8.5 million in hand.
“Even if you cleared that hurdle, after paying attorneys you’re looking at, maximum, $5 million,” Ilczyszyn said. “And you still have to pay court costs, expert witness fees, and, after three or four years, maybe, you’re left with $4 million.”
“The hurdles to overcome are huge, even insurmountable,” Krym said. “That’s a decision the city council would have to address.”
The city council has received the report and will decide whether to bring it forward. City management has recommended the city move forward, since it uses a different project delivery method (design/bid/build) from the “Construction Manager/ Program Manager at Risk” method used with MWH.
In its response to the audit, MWH said “MWH concurs with the report’s finding that MWH billed the city in accordance with the master agreement, as amended through the course of the work. MWH made substantial efforts to assure that detailed records were maintained throughout the program and the report properly reflects that the amounts billed were appropriate for the services. However MWH disagrees with many of the particular observations.”
Besides, Jeff Pearson, the city’s public works director, said the RO plant, which opened in 2010, has been an “excellent facility.”
“Visitors from all over the world have come to see what we do and some of the cost-saving ideas we’ve implemented; we are the third-lowest utility in operation and maintenance in the state,” Pearson said.
Krym said citizens can take comfort on two points; that Townsend was motivated to find recoverable monies and due diligence was done, and that the potential risks have been addressed in current projects, with contract language more clearly articulated.
“A thorough job was done, the outcome did not find huge smoking guns in the significant issues,” Krym said. “The city has learned a lot and improved processes to create better contracts.”