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Advisory Memorandum
No. 04A-6006
May 20, 1997 Ben G. Watts, P.E., Secretary Cecil T. Bragg, Jr., C.P.A. Inspector General Frank Carlile, Assistant Secretary for Transportation Policy Bill Deyo, State Highway Engineer Jimmy Lairscey, Director, Office of Construction Lex Chance, State Estimates Engineer Contract Estimating Process
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Executive Summary
This review was conducted as part of the Office of Inspector General Work Plan and was designed to assist management in the effective implementation of transportation programs by the FDOT. Our review covered the contract estimating process which is administered by the State Estimates Office. The FDOT is required by Federal Highway Administration and Florida Statutes to have an estimate. The contract estimating process begins when a project is selected for inclusion in the work program and an estimate is developed by the Long Range Estimate System. This estimate is for budget purposes and does not directly relate to the development of the official state estimate. Once the pay items and quantities for a project are determined by the design function, the process to develop an official state estimate begins. The pay item machine price multiplied by quantity generates the basic estimate for a project. District staff may override the pay item machine price if they have knowledge of the project warranting such a change. The Preliminary Plans Package is then sent to Central Office. Preliminary Estimates Office reviews this package noting anything that may affect the cost of a pay item. When the Final Plans Package is received, the Preliminary Estimates Office reviews the machine prices and any district overrides of machine prices. The estimators can override these prices based on their judgment, as well as on methods and tools available to them to develop the official state estimate.
We concluded that the Department is meeting the Federal Highway Administration and Florida Statute requirements to have an estimate. However, since there were no official procedures or standards to measure performance because of concern about the confidentiality of the official state estimate and the difficulty of defining a good estimate, we could not determine if the contract estimating process is effectively and efficiently meeting the needs of the Department. Listed below is a synopsis of our findings and recommendations. Our findings are: < The contract estimating process provides an estimate which meets the basic requirements of the Federal Highway Administration and Florida Statutes to have an estimate. However, the quality of the contract estimating process in meeting the Departments needs cannot be determined since the Department has not provided official policies, rules, procedures or standards for the performance of the contract estimating process; and The contract estimating process has not been included in the Quality Assurance Review monitoring process by the Department.
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We recommend: < < The State Estimates Office develop policies, rules, procedures and standards and monitor their implementation to ensure compliance and quality performance of the contract estimating process; and The State Estimates Office consult with the Quality Management Office to consider establishing a Quality Assurance Review plan.
It should be noted that a review by the Office of Program Policy Analysis and Government Accountabilty of the FDOT Construction Bid and Contract Administration Process stated for the 108 projects in their sample, the successful bids were 6% below FDOTs estimate and the average bids on the projects they examined were within 1% of FDOTs estimate.
OIG Advisory Memorandum No. 04A-6006 3
Appendix A
As its mission, the FDOT will provide a safe interconnected statewide transportation system for Floridas citizens and visitors that insures the mobility of people and goods, while enhancing economic prosperity and sustaining the quality of our environment.2 In an effort to meet this mission, the Department has identified the need to have a contract estimating process. According to the FDOT Organizational Manual, the State Estimates Office is responsible for directing the development of policies and procedures for the contract estimating process; conducting training pertaining to estimates; performing quality assurance reviews relating to the preliminary estimates process; and preparing the Departments official cost estimate on construction projects going to letting. The contract estimating process is managed through the Preliminary Estimates Office and the Engineering Support Services Office which have the responsibilities listed below. Preliminary Estimates Office - The Preliminary Estimates Office is responsible for activities relating to the contract estimating process including: < < < < < Preparing the official FDOT estimate; Performing plan reviews and bid analysis; Developing estimation aids; Assisting the districts with Job Cost for the Work Program and the use of the Long Range Estimate (LRE) System; and Performing quality assessments of district use of the Contract Estimating System (CES).
Engineering Support Services Office - The Engineering Support Services Office is responsible for activities relating to the contract estimating process including: < < < < < < < < < < < Writing computer programs and specifications for State Estimates Office; Handling all computer applications for the State Estimates Office; Estimating future material usage; Preparing historical pay item information; Monitoring and updating the CES file, the LRE system, the design and construction calculations and the method of estimating; Developing and maintaining manuals used for estimates preparation; Administering estimates training sessions and instructing Department personnel in using CES and LRE systems; Conducting wage surveys for construction jobs; Administering fuel escalation and allocation programs; Writing procedures and coordinating form development for State Estimates Office; Calculating current and long range construction costs;
Statutory Basis for the Contract Estimating Process The FDOT is required by 23 United States Code 106 to submit to the Secretary [of the U.S. Department of Transportation] for his approval ... such surveys, plans, specifications and estimates for each proposed project included in the approved program as the Secretary may require. Furthermore, the Federal-aid Policy Guide states all projects financed in whole or in part with Federal-aid highway funds require the submission of a PS&E package to the FHWA for approval. The estimate in the PS&E package is to reflect the anticipated costs of the project in sufficient detail to provide an initial prediction of the financial obligation to be incurred by the State and the FHWA and permit an effective review and comparison of bids received. The PS&E package must be approved by the FHWA and the Department must be notified of the approval before advertising for actual construction can take place. The FDOT is meeting this requirement by providing a complete PS&E package, including an estimate, to the FHWA. According to the nine states transportation departments contacted during our review, FHWA requirements were the most cited reason for having a contract estimating process.3 The states transportation departments added developing an estimate for budgetary purposes and to have a reliable estimate for bid comparison/analysis purposes as secondary reasons to have a contract estimating process. Section 339.135, F.S., requires FDOT to file a Legislative Budget Request setting forth the Departments proposed revenues and expenditures for operational and fixed capital outlay needs to accomplish the objectives of the Department. The Five-Year Work Program is a portion of the Legislative Budget Request. A project must have an estimate before it can be included in the Five-Year Work Program. Section 337.168, F.S., makes the Departments official cost estimate confidential and exempt from the provisions of s.119.07(1), F.S., until the contract for the project has been executed or until the project is no longer under active consideration. The Department is required by s.338.2275, F.S., to submit a report of the estimated costs for each ongoing turnpike project and each planned project to the Legislature 14 days before the convening of the regular legislative session. Section 339.12, F.S., requires the Department, prior to entering an agreement to advance a project or project phase, to update the estimated cost of the project. According to s.339.125, F.S., the Department may advance available funds for the preparation of preliminary engineering plans with valid cost estimates, which plans and estimates shall be completed prior to the issuance of any bonds on all revenue-producing transportation projects. Additionally, according to this statute, no State bonds shall be sold for any revenueproducing transportation project if the bonds include a covenant to complete by the Department from moneys in the State Transportation Trust Fund until the Department has made cost estimates and determined that the projected available funds are sufficient to pay for the project.
We contacted the following states transportation agencies by telephone: Arkansas, Connecticut, Indiana, New York, Pennsylvania, South Dakota, Texas, Vermont, and Wyoming.
OIG Advisory Memorandum No. 04A-6006 7
Appendix B
This review of the Departments contract estimating process was conducted by the Office of Inspector General in accordance with the approved Work Plan for FY 1995-96 and in conjunction with its responsibilities to review, evaluate and report on policies, plans, procedures and other operations of the Department and recommend changes for improvement as outlined in Sections 20.055 and 20.23, Florida Statutes (F.S.). The overall objective of the review was to determine if the contract estimating process is effectively and efficiently meeting the needs of the Department. It included the following specific objectives: ! ! ! Evaluate the district contract estimating process; Evaluate the process and documentation related to the contract estimating process; and Evaluate the systems and software used by the estimators4.
We reviewed relevant sections of the Code of Federal Regulations, Florida Statutes, the Florida Administrative Code, and current Department policy and procedures manuals. Staff from the FDOT State Estimates Office, Office of Construction, and Office of Market Analysis were interviewed. We also interviewed staff from the Federal Highway Administration and surveyed how other states handle the contract estimating process. The scope of our audit addressed current operating procedures for the Contract Estimating process.
We performed survey phase work toward accomplishing this objective. When it was determined there were no standards, policies or procedures, the decision was made to terminate the audit at that point. An evaluation of the systems and software was not made.
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Appendix C
Management Response
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