Audit of The Los Angeles World Airports' Capital Development Program

Audit of the Los Angeles World Airports
Capital Development Program

Prepared for the

City Controller
City of Los Angeles

Submitted by
Harvey M. Rose Associates, LLC
1390 Market Street, Suite 1150
San Francisco, California 94102
(415)-552-9292
http://www.harveyrose.com

J une 12, 2013

J une 12, 2013
Ms. Wendy Greuel
City Controller
City of Los Angeles
200 North Main Street, Room 300
Los Angeles, CA 90012
Dear Controller Greuel:
Harvey M. Rose Associates, LLC is pleased to present this Audit of the Los Angeles World
Airports Capital Development Program. The audit was requested by your office to evaluate the
efficiency and effectiveness of LAWAs processes for capital improvement projects, including
construction management practices, with a primary focus on LAXs capital expansion.
Thank you for providing our firm with the opportunity to conduct this audit for the City of Los
Angeles. Upon your request, we are available to present the report to the City Council or other
responsible City officials.
Sincerely,

Stephen Foti
Project Manager

TABLE OF CONTENTS

Executive Summary ....................................................................................................... i
Controllers Accountability Plan .............................................................................. viii
Introduction ................................................................................................................... 1

1. Value Engineering ................................................................................................ 20
2. CMAR Contractual Relationship ........................................................................ 28
3. Monitoring CMAR Change Management .......................................................... 36
4. CMAR Quality Assurance Monitoring ............................................................... 45
5. Capital Decision-Making Processes..................................................................... 56
6. Capital Improvement Plans and Budget............................................................. 66
7. Long-term Strategy for Program Management ................................................. 74

Appendix A: Ranking of Recommendations .......................................................... A-1
Appendix B: U.S. Airport Survey Instrument ...................................................... B-1
Appendix C: U.S. Airport Survey Responses ........................................................ C-1
Appendix D: City Department Survey Instrument ............................................... D-1
Appendix E: City Department Survey Responses ................................................ E-1
i

Audit of the Los Angeles World Airports
Capital Development Program
EXECUTIVE SUMMARY
This report was prepared at the request of the City Controller in accordance with the powers and
duties prescribed in Article II, Section 261(e) of the City Charter.
Scope
The audit was designed to evaluate the efficiency and effectiveness of Los Angeles World
Airports (LAWA) processes for capital improvement projects, including construction
management practices. Although LAWA owns and operates Los Angeles International Airport
(LAX), LA/Ontario International Airport (ONT), and Van Nuys Airport (VNY), the audit was
primarily focused on processes and practices related to the LAX capital development program
due to the significant program costs more than $3.6 billion - currently underway. The specific
objectives of the audit were to:
Perform a broad review of how LAWA conducts long-range planning for various capital
improvements, including whether LAWA has an appropriate process to prioritize projects
department-wide and identify financing for capital improvements.
Determine if the current organizational structure ensures efficient and effective
management of construction projects.
Determine whether the LAWA project management functions (including contract
oversight, contract monitoring, and accurate payment of contract invoices) are performed
in an effective manner to ensure projects are completed on time, on budget, and in the
most economical way.
Conduct a broad review and sufficient test work, based on the sample of construction
projects, to assess the adequacy of a number of organizational functions.
Assess best practices of other City departments and other large municipal-owned airports
that could improve construction management efficiency and effectiveness within LAWA.
The scope of the audit included consultant, contractor, and departmental functions related to
construction projects completed at LAX as of FY 2010-11 and projects currently in process.
Summary of Results
The audit report includes seven major findings that examine LAWAs capital development
activity. Overall, the report found that, while LAWA has succeeded in building an effective
capital development organization under substantial pressures, opportunities exist to enhance the
transparency and accountability of the process and reduce financial risks to LAWA.
Executive Summary
ii

Primary areas for improvement include LAWAs implementation of the Construction-Manager-
At-Risk (CMAR) model, especially with regard to the prevalence of change orders; LAWAs
informal decision-making and prioritization processes around capital planning and lack of a
multi-year Capital Improvement Plan; and LAWAs lack of a long-term strategy to strengthen
in-house program management capacity. These and other areas of weakness increase LAWAs
financial risk and hinder full transparency.
The findings and weaknesses described in this report reflect a complex set of notable
organizational challenges, including a lack of institutional knowledge and capacity to design and
implement a major development program after decades of dormancy; market pressures to
accommodate international carriers with contact gates for large new aircraft; interest voiced by
City officials and the Board of Airport Commissioners to complete the projects expeditiously;
and, the need to contend with lawsuits from the airlines and surrounding communities, as well as
other complex stakeholders interests. Under these pressures, LAWA has succeeded in building a
strong and effective organization, with an adequate internal control system, while simultaneously
implementing the largest public works project in the history of the City of Los Angeles.
Key Findings
LAWA has not formalized a structured Value Engineering process, as required by the
FAA for some grant programs and recommended as a best practice for all capital
projects. While some important elements of Value Engineering exist, LAWA could
ensure conformity with federal guidelines and achieve greater life-cycle cost savings by
implementing a structured program.
The Federal Aviation Administration (FAA) requires that structured Value Engineering
processes be used for certain airport projects that are funded with federal Airport
Improvement Program (AIP) grants. Although not mandatory, the FAA also recommends
that Value Engineering guidelines and specifications be followed for most large capital
projects, including those funded with Passenger Facility Charge (PFC) revenues.
Further, design and construction industry best practices recommend the use of Value
Engineering at the 30% design phase, and federal advisories recognize that by employing
Value Engineering principles at the earliest stages of a project, the opportunity for
influencing final costs is greatly increased. Distinct from Value Engineering, Cost
Engineering is more typically emphasized by LAWA throughout the design and construction
phases, with a focus on evaluating initial construction cost, rather than the life-cycle cost
implications of design and construction decisions.
LAWA has not implemented a formal Value Engineering process that meets the standards set
by the FAA, including the performance of such a process by an independent impartial team.
Further, LAWA does not have assurance that it is achieving the greatest value for the cost to
develop the airport. The impact from the lack of a structured Value Engineering process is
significant, since LAWA is presently in the midst of a massive development project that is
expected to cost in excess of $6 billion over the next decade, which is funded in part with
$2.8 billion in PFC revenues
Executive Summary
iii

The Construction Manager at Risk (CMAR) project delivery method, chosen for use on
the Bradley West Gates and Core projects, was an effort to enable an accelerated
schedule while maintaining control over the projects designs. While LAWAs analysis
of the benefits of using the CMAR model, which had never been used before by the
Department, supported managements decision to move forward in this manner, certain
circumstances and project expectations may have prevented LAWA from realizing the
models full benefits..
The CMAR contract agreements for the Bradley West Core and Gates projects appropriately
include Component Guaranteed Maximum Price (CGMP) caps, which accumulate to
Aggregate Guaranteed Maximum Prices (AGMP) also referred to as the contract amounts.
However, total expected costs may exceed these amounts and budgeted contingencies due to
the volume of change orders. As a result of this and other factors, the risk to the CMAR
contractor may have been diluted and the contractors incentive to deliver the projects within
the contract amounts combined with contingencies may have been compromised.
Despite involving the CMAR in the design process for approximately one year during the
pre-construction phase, LAWA reports that a majority of change orders have resulted from
design changes, owner betterment requests, and/or scope expansion, and plan errors.. LAWA
staff has noted that some, but not all, of the design deficiencies are the result of the projects
aggressive schedule and complexity.
The CMAR agreements for the Bradley West projects do not contain sufficient controls,
including sanctions, to ensure contractor performance in key areas. For example, although
the CMAR contracts require performance bonds or 10% retention of each progress payment
claimed during the Construction Phase, there are no specifications that directly address the
enforcement of CMAR performance related to its Quality Assurance or Change Management
responsibilities.
LAWA has not effectively overseen the CMAR change order management function on
the Bradley West Gates and Core projects to fully ensure that unnecessary costs are
avoided. As a result, LAWA may be incurring greater costs, be vulnerable to disputes
over contractor change requests, or experience delays in project close-out.
LAWA has not taken sufficient action to ensure that the CMAR for the Bradley West
projects effectively analyzes subcontractor change estimates for accuracy and
reasonableness. LAWA staff change order cost estimates are consistently and significantly
lower than the CMAR change order proposal amounts. Based on sampling, Airports
Development Group (ADG) estimators have determined that the CMAR recommended
change order amounts were overstated by an average of 16.5% and 11.2% for the Bradley
West Gates and Bradley West Core projects, respectively. Based on data provided by ADG,
the avoided cost of the LAWA independent estimation process amounted to approximately
$56 million as of November 2012, which would have included $2.8 million in additional
CMAR management fees had the full amount of the change orders been approved. In one
Executive Summary
iv

instance, the CMAR submitted a proposal for $393,378 worth of structural steel work at two
gates; however, the change order request was eventually settled for only $826.
Furthermore, the CMAR has not complied with contractual obligations to submit change
order requests and cost estimates in a timely manner and LAWA has not consistently
enforced such provisions, resulting in sizeable delays to change order processing. Up until
October 2012, LAWA had not enforced this contract provision even as it received contractor
change requests, on average, over four weeks after the contractually required timeframe of 21
days. The delayed efforts by ADG to enforce compliance of contractual timelines has had
limited response from the contractor thus far. These delays raise the risk of subcontractors
not getting paid on-time, schedule impacts to some work, increased risk of disputed change
order requests, and additional difficulties for LAWA when it is time to close-out projects
after construction is complete.
LAWA may be performing Quality Control (QC) functions assigned to the Bradley
West projects CMAR and for which the CMAR is already compensated through the
executed contracts. LAWA may be incurring unforeseen costs because of the
duplication of efforts, along with other inefficiencies in the CMAR-LAWA relationship.
By contract, the Bradley West projects CMAR QC staff is responsible for the first review and
testing of completed construction elements. The contracts further state that LAWA inspectors
subsequently perform a final review, or quality assurance (QA) review, ensuring construction
elements comply with applicable plan specifications and codes. In practice, however, LAWA
inspectors perform more detailed and frequent QC duties, and do not actively review the
CMAR QC performance, which may be deficient. Interviews suggested that the CMARs QC
staff is not consistently present on job sites and, instead, may rely on the report of the
subcontractor project manager or the foreman regarding the quality of the work product.
LAWA inspector staff suggests that the inability of the CMAR to achieve QC program goals
may relate to the level of staffing assigned to the QC function under the plan, even though
LAWA reimburses the CMAR approximately $4.5 million annually to perform this function.
LAWA inspectors have not employed a comprehensive system for recording compliance
activity, which hinders its ability to implement an effective system for monitoring the
performance of the CMAR. This occurs, in part, because the LAWA Construction Inspection
Division Procedures Manual does not define policies regarding the use of Requests for
Inspection and is not clear regarding the implementation of other inspector compliance tools,
specifically J ob Memoranda and Notices of Noncompliance. Furthermore, a complete
version of the manual is not centrally located, readily available, or routinely updated.
LAWAs established process for capital decision-making includes a limited level of
official involvement by the Board of Airport Commissioners (BOAC) and the absence
of a systemic and analytical process for determining which projects should be
prioritized and advanced for development.
Executive Summary
v

The BOAC has limited involvement in the review and prioritization of proposed projects and
is not involved in the assessment of initial project concepts or budgets. Instead, these
responsibilities have been assumed by executive staff and the Board may have less than
optimal involvement in major capital project decision-making processes.
In describing the reasons for the BOACs limited involvement in project approval, LAWA
management stated that the City Attorney has advised that there is a tension, or potential
conflict leading to pre-decisional bias, between the Boards roles when (1) considering and
approving individual capital projects, and (2) fulfilling environmental review responsibilities
under the California Environmental Quality Act (CEQA). However, this concern about pre-
decisional bias is not founded in any written legal opinion. Further, per the LAX Specific
Plan, the City Council provides the final CEQA approval on LAX Specific Plan Amendment
projects. Additionally, a review of State law suggests that the City may have flexibility in
determining which entity serves as the final CEQA approver. These factors suggest that the
City and LAWA have the ability to configure processes and the assignment of functions in a
manner that would eliminate concerns about pre-decisional bias, while also enhancing the
Boards role in formal project approval.
Executive management does not conduct comprehensive needs assessments, based on the
results-oriented goals and objectives that flow from the organizations mission, nor has it
established a systemic process for determining which projects should be prioritized and
advanced for development. Without an organized framework within which potential project
concepts are vetted according to established criteria and priorities, the rationale for decision-
making may not be clear to LAWA stakeholders.
LAWA does not have a multi-year Capital Improvement Plan (CIP). Further, LAWA
has overstated large baseline capital program budgets in the past, including a $40.5
million surplus on one major project. This practice may result in a greater commitment
of funds than might otherwise be necessary with more accurate forecasting, and
increases the risk of unnecessary or avoidable expenditures.
LAWA does not have a multi-year capital plan that has been presented to the Board of
Airport Commissioners in a public setting. This diminishes accountability and transparency
in the organization. Instead, general capital improvement concepts are included in a 2004
Master Plan and the Specific Plan, and Specific Plan Amendments only include rough order
of magnitude cost estimates for seven development alternatives presently under
consideration. LAWA should continue efforts to develop a robust capital improvement plan
process, to ensure compliance with the intent of the City Charter and improve transparency
and accountability over capital project decision-making.
On a project basis, baseline capital budgets are estimated at initial stages of development.
Project estimates include broadly defined cost components, such as construction allowances,
which are budget estimates for unknown, but potential costs; percentage-based soft costs,
which are general estimates of the cost of architectural, engineering and administrative
expense; and, construction contingencies. Combined, these broadly defined cost components
Executive Summary
vi

can raise the total project budget. Although budgets are refined as projects move through the
conceptual and design phases, initial estimates showing allowances, soft cost components
and contingencies should be clearly presented and described to ensure that Finance
Department budget personnel have all of the information necessary to conduct a thorough
review and assessment of capital budget reasonableness.
LAWA pays an estimated 15 to 20 percent more for program management services
provided by a contractor than it would pay for City staff. Without a strategy to
transition program management functions to City personnel, LAWA will continue to
pay a premium for services, which will be required through at least 2018.
While the need for consultant program management services in the first years of LAWAs
capital development program was clear, LAWA has not developed a strategy or plan to
transition LAWA staff into capital development program management and other roles that
are currently held by AECOM consultants. As of November 13, 2012, the AECOM contract
had been amended and extended three times. The third amendment increased the term from
six to eight years and the total contract amount from $162,720,000 to $201,934,228. If even
just one-third of the consultant staff, representing approximately $48 million over the current
life of the AECOM contract, had been replaced by City personnel, the City conservatively
could have saved an estimated $7.2 million, based on a 15 percent differential between City
and consultant costs. LAWA has not conducted any cost-benefit analyses or provided any
long-term strategy for use of consultants versus City staff in program management services
in the future, nor has it required the contractor to provide formal training and staff
development opportunities for City staff.
The extent of LAWAs future capital development program remains unclear, though
information contained in the Specific Plan Amendment Study (SPAS) and public statements
made by LAWA management indicate that total costs could range between $6 billion to more
than $12 billion. In any case, LAWAs capital development program will continue for
several years to come and will require skilled program management professionals. Even if
the need for such knowledge and expertise declines over the next ten years, as LAWA
accomplishes major components of its current capital development program, there will
always be a baseline need for skilled capital improvement program expertise. As long as
LAWA continues to rely heavily on consultants instead of developing City staff resources, it
will pay a premium for such services.
Review of Report
On February 12, 2013, a draft report was provided to the LAWA Executive Director for review
and comment. An exit conference was held with LAWA management on March 6, 2013 to
discuss the contents of the report for quality assurance purposes. We considered the departments
comments before finalizing the report.
Most notably, LAWA disagrees with our assessment of the costs of consultant staff compared to
City staff, as described in Section 7. LAWA argues that a fair assessment would include a full
Executive Summary
vii

allocation of the Citys indirect costs for every new City position added, using the indirect cost
factors included in the Controllers Cost Allocation Plan (CAP). It is our view that while this is
an appropriate methodology for allocating indirect costs across all City departments on a
proportional basis and ensuring the General Fund is appropriately reimbursed for the cost of
services to enterprise and grant-funded projects, it is not appropriate for estimating the true
marginal cost of converting from contractors to City personnel. For example, it is unlikely that
the City would incur significant additional costs for office space (i.e., space is already being
provided for contractor personnel), or for additional City Administrative Office, Controller or
City Attorney personnel if some contractor positions were converted to City staff. Further, the
City does not incur many categories of indirect cost charged by the contractor, such as travel
expenses (City employees are local), the high salaries paid to private sector executives (up to
$546,000 in annual compensation), or profit and incentive compensation paid to employees.
In addition, LAWA does not agree with the audit findings related to the applicability of using a
public works benchmarking study to assess LAWA's use of consultant staff in Section 7.
However, our technical consultant who has had experience managing major public works
capital projects across a broad spectrum of organizations, including municipal public works
departments, clean water departments and large international airports disagrees and indicates
this type of benchmarking study can be broadly applied.

Controllers Accountability Plan
RECOMMENDATIONS PAGE MAYOR/COUNCIL
ACTION REQD
DEPARTMENT
ACTION REQD

viii
SECTION 1. VALUE ENGINEERING
The LAWA Executive Director should:
1.1 Direct staff and request legal counsel to prepare an
assessment of past practices used on LAWA
development projects, to ensure that design review
and cost engineering efforts can satisfactorily meet
FAA expectations regarding the use of structured
Value Engineering.
27 LAWA
1.2 Develop and establish policies and procedures that
ensure that a structured Value Engineering program
is implemented at LAWA.
27 LAWA
SECTION 2. CMAR CONTRACTUAL RELATIONSHIP
The LAWA Executive Director should direct ADG
management to:
2.1 Conduct a post-project assessment of the costs and
benefits of the CMAR model. Include a comparison
of alternative models.
35 LAWA
2.2 Evaluate the CMAR model, as implemented for the
Bradley West Gates and Core projects, by
reviewing the agreements and the incentive
structure they provide.
35 LAWA
2.3 Develop formal criteria for choosing project
delivery models on future capital projects and
ensure that project management and other pertinent
staff are made aware of the strengths and
weaknesses of all procurement models considered.
35 LAWA
SECTION 3. MONITORING CMAR CHANGE
MANAGEMENT

management to:
3.1 Review contract provisions, such as Articles 01 23
00 (Change Orders), 01 24 00 (LAWA Initiated
Changes), and 01 25 00 (CMAR Change Request)
in the Bradley West Construction Agreements, to
strengthen language and expectations of CMAR
change management for future projects. Specific
areas that could be strengthened include the
expectation of the CMAR role in the meriting
review process, pricing estimation for proposed
change orders, and the acceptability of CCR
revisions that contain cost increases, but no changes
44 LAWA
ACTION REQD
DEPARTMENT
ACTION REQD

ix
in the scope of work.
3.2 Follow through on formal communications to the
CMAR management regarding contractual
provisions requiring the CMAR to submit CPCNs
and CCRs within the timeframes stated in the
agreement.
44 LAWA
3.3 Formally communicate that unsupported estimates
used as placeholders, as well as CCR revisions that
do not contain changes in scope, will not be
accepted.
44 LAWA
3.4 Consider enhancing the monitoring of CMAR
performance of change management to include its
ability to meet contract prescribed timelines for
change submittals to reduce the risk of schedule
impacts, that subcontractors will not paid in a
timely manner, and to ensure the project may be
closed out with an efficient and effective process.
44 LAWA
3.5 Conduct a post-project analysis of the resources
allocated to CMAR Change Management functions
by LAWA under the Bradley West project budgets
to determine whether they exceeded the mean or
median amount spent, as a percentage of total costs,
on this administrative function. Report results to
the Board of Airport Commissioners.
44 LAWA
SECTION 4. CMAR QUALITY ASSURANCE
MONITORING

The LAWA Executive Director should direct the Chief
Airports Inspector to:
4.1 Update and make readily available the LAWA
Construction Inspection Division Procedures
Manual.

54
LAWA

4.2 Direct inspector staff to follow procedures outlined
in the LAWA Construction Inspection Division
Procedures Manual.
54
LAWA
4.3 Provide training to LAWA inspector staff on
records and information management procedures to
ensure that staff are knowledgeable about
requirements and equipped to comply with them.
54 LAWA
4.4 Review processes and determine if procedures,
notably those related to J ob Memos and the
issuance of Notices of Noncompliance, should be
54
LAWA
ACTION REQD
DEPARTMENT
ACTION REQD

x
revised.
4.5 Standardize and maintain LAWA-owned logs to
track the full history of document communications
with a given contractor.
54
LAWA
4.6 Review the Request for Inspection processes and
define the implementation of Request for
Inspection in institutional documents for
standardization of Request for Inspection processes
and procedures.
54

LAWA
SECTION 5. CAPITAL DECISION-MAKING PROCESSES
The Board of Airport Commissioners should direct the
LAWA Executive Director to:
5.1 Request a written legal opinion from the City
Attorneys Office regarding any potential conflict
of interest related to the Boards duties and
authorities related to airport development and
CEQA review.
64 BOAC
5.2 If a conflict of interest is determined to be a factor
by the City Attorneys Office, develop a proposal
to reassign the CEQA review responsibility from
the Board of Airport Commissioners to the City
Planning Department or another entity within the
City, thereby enabling the Board of Airport
Commissioners to conduct a more substantial level
of review of the capital development program.
64 BOAC
5.3 Building on LAWAs current periodic open-call
for projects practice, conduct a comprehensive
needs assessment of airport capital assets, including
both potential development projects and facilities
maintenance needs, based on the results-oriented
goals and objectives that flow from the
organizations mission.
64 BOAC
5.4 Develop a policy and systemic process for LAWA
executive management to use on an on-going basis
going forward to evaluate the costs and benefits of
various proposed projects and prioritize among
them. If deemed appropriate pursuant to
Recommendations 5.1 and 5.2, the outputs of such
a process should be officially reported to the Board
of Airport Commissioners so that it may be
involved in the selection of capital development
projects.
64 BOAC
ACTION REQD
DEPARTMENT
ACTION REQD

xi
SECTION 6. CAPITAL IMPROVEMENT PLANS AND
BUDGET

The Board of Airport Commissioners should direct the
LAWA Executive Director to:
6.1 Continue efforts to develop a multi-year capital
plan that would be presented to the Board of
Airport Commissioners in public session.
72 BOAC
6.2 Present a five-year capital spending plan as part of
the annual budget review process.
72 BOAC
6.3 As part of the annual budget process, or as required
by the needs of the organization, seek Board of
Airport Commissioner approval of detailed,
individual capital project budgets.
72 BOAC
6.4 Require all project budget packages to specifically
identify allowances and other cost components for
which the basis of the estimate cannot be reliably
determined.
72 BOAC
6.5 Review the analytical basis for estimating project
soft costs and contingencies and consider
establishing variable standards based on project
scope.
72 BOAC
6.6 Implement comprehensive and formalized policies,
procedures and standards for developing,
implementing and monitoring capital project
budgets.
72 BOAC
SECTION 7. LONG-TERM PROGRAM MANAGEMENT
STRATEGY

7.1 Direct staff to develop a long-term strategy for the
use of consultants and LAWA staff in program
management and support roles, including the
identification of the amount and types of baseline
staffing that will be required on a long-term basis,
and an estimate of the amount and types of
consultant staffing that will be required. The
strategy should be based on a cost-benefit analysis
that justifies the allocation of LAWA staff and
consultants.
82

LAWA

7.2 Build upon and broaden its recent effort with the
Airport Engineer classification to identify any
airport-specific job classifications that could be
82 LAWA
ACTION REQD
DEPARTMENT
ACTION REQD

xii
established by the City and enable LAWA to recruit
and retain appropriate capital development staff.
Any such proposed classifications should be
provided to the Human Resources Division for
review.
7.3 Direct the Human Resources Division to review
existing job classifications for capital development
at the airport and conduct analysis to determine
whether the addition of new airport-specific
classifications is appropriate.
82 LAWA

1
Introduction
Harvey M. Rose Associates, LLC (HMR) is pleased to present this Audit of the Los Angeles
World Airports Capital Development Program. This report was prepared at the request of the
City Controller in accordance with the powers and duties prescribed in Article II, Section 261(e)
of the City Charter.
Objectives and Scope
The audit was designed to evaluate the efficiency and effectiveness of Los Angeles World
Airports (LAWA) processes for capital improvement projects, including construction
management practices. Although LAWA owns and operates Los Angeles International Airport
(LAX), LA/Ontario International Airport (ONT), and Van Nuys Airport (VNY), the audit was
primarily focused on processes and practices related to the LAX capital development program
due to the significant program costs more than $3.6 billion - currently underway.
The specific objectives of the audit were to:
Perform a broad review of how LAWA conducts long-range planning for various capital
improvements, including whether LAWA has an appropriate process to prioritize projects
department-wide and identify financing for capital improvements.
Determine if the current organizational structure ensures efficient and effective
management of construction projects.
Determine whether the LAWA project management functions (including contract
oversight, contract monitoring, and accurate payment of contract invoices) are performed
in an effective manner to ensure projects are completed on time, on budget, and in the
most economical way. Based on a sample of LAX construction projects, this includes
assessing if:
a. LAWAs solicitation, evaluation, and award of project contracts are in accordance
with City and Department policies;
b. Project contractors provide services in accordance with the terms of their contracts;
and
c. Contractors submit complete and accurate claims for payment in accordance with the
terms of their contract, and that costs were reasonable for services provided.
Conduct a broad review and sufficient test work, based on the sample of construction
projects, to assess the adequacy of the following functions:
a. Project Strategy, Organization, and Administration
b. Project Financial Management
c. Project Procurement Management
d. Project Controls and Risk Management
e. Project Schedule Management
Introduction

2
Assess best practices of other City departments and other large municipal-owned airports that
could improve construction management efficiency and effectiveness within LAWA.
The scope of the audit included consultant, contractor, and departmental functions related to
construction projects that were completed at LAX as of FY 2010-11 and projects currently in
progress.
Methodology
This performance audit was conducted in accordance with Government Auditing Standards, J uly
2011 Revision by the Comptroller General of the United States. In accordance with these
standards and best practices for conducting performance audits, the following five key phases
were conducted:
1. An entrance conference was held with the Executive Director and other LAWA officials. The
purpose of the entrance conference was to introduce Harvey M. Rose Associates, LLC staff
and consultants, describe the performance audit process and protocol, and request
information about the capital development program at LAWA. Following the entrance
conference, an overview of the Airports Development Group (ADG) and capital development
activity, including a tour of the exterior of the Bradley West project, was provided by the
LAWA Deputy Executive Director over ADG.
2. An initial review of LAWA capital development was performed, including interviews with
key LAWA officials and a review of documentation provided by several departments within
LAWA. During the Initial Assessment, 26 individuals were interviewed, including managers
and directors of the major LAWA organizational divisions, to obtain an overview assessment
of organizational strengths and weaknesses. At the conclusion of these activities, a more
detailed plan was developed for conducting subsequent performance audit activities.
3. Field work was conducted to research key elements of LAWA capital development activity,
which included additional interviews and tours, and the collection and analysis of data. In
addition to basic field work activities, sampling was conducted in the following areas:
a. Change Order Files: A random sample of 100 estimator files were examined,
representing a statistically significant sample of multiple types of change orders, to
measure variances among sub-contractor, CMAR and LAWA estimates of the cost of
change orders and to determine whether suitable controls have been established over
change management processes.
b. Solicitation and Award Files: A judgmental sample of 15 construction and professional
services contracts documentation was reviewed, including requests for qualifications,
proposals, bid packages, and BOAC approval documentation with scoring and other
justifying documentation. The sample was selected to include the largest construction and
professional services contracts, as well as a range of sizes and types of contracts.
Introduction

3

4. A benchmarking survey of seven other U.S. international airports, as well as two City
departments that operate substantial capital programs, was conducted in order to identify best
practices and compile other information for use in comparative analysis and the development
of recommendations.
5. A quality assurance review process was undertaken to ensure the factual accuracy of the
report. This process included an internal peer review conducted by personnel from HMR, as
well as a review of the draft report by responsible LAWA officials. After officials completed
their review of the draft report, an exit conference was held to discuss the reports factual
accuracy and clarity. LAWA officials were also requested to provide comments on the
recommendations contained herein.
Overview of LAWA
Los Angeles World Airports (LAWA)
1
is a Los Angeles City department that owns and operates
a system of three airports: Los Angeles International Airport (LAX), Los Angeles/Ontario
International Airport (ONT) and Van Nuys Airport (VNY).
2
The Department has an employee
workforce of approximately 3,500 employees and additional consultant personnel distributed
between these three airports. LAWA serves a major portion of the Southern California air
passenger and cargo market.
Passenger traffic, both domestic and international; air cargo; and, most FAA defined aircraft
movement are highly concentrated at LAX. ONT, located 35 miles east of downtown Los
Angeles in San Bernardino County, serves about 10 percent of the passenger traffic of LAX.
VNY has no commercial passenger traffic, but with nearly 300,000 general aviation movements
reported in calendar year 2011, it has the vast majority of general aviation activity of the three
LAWA airports and, according to LAWA, it is one of the busiest general aviation airports in the
world.
Overview of Capital Development at LAWA
In recent years, LAWA has embarked upon a major development and modernization program at
its three airports, with most of the focus on LAX. When completed, the development project will
have resulted in major airfield, terminal, noise mitigation and infrastructure improvements at
LAX, with the centerpiece development being the modernization of the Tom Bradley
International Terminal (TBIT) and construction of the new Bradley West terminal annex. These
improvements will reportedly position LAX as a preeminent international hub in the United
States.

1
Also referred to as the Department of Airports in the City Charter.
2
LAWA also owns a general aviation airport in Palmdale. However, this airport was closed in 2008.
Introduction

4

LAWA Capital Project Financing
In FY 2011-12, LAWA had an annual operating budget of approximately $657.7 million and
made direct capital project budget appropriations of approximately $939.2 million. As of J une
30, 2012, LAWA held net assets of approximately $4.36 billion, which was comprised of $8.57
billion in total assets and $4.21 billion in total liabilities. Of the $8.57 billion in total assets,
$5.33 billion represented the value of total capital assets, net of depreciation, as of J une 30,
2012.
3
Notably, over the past three fiscal years, LAWAs total capital asset value has increased
by $1.37 billion, or 34.4 percent from $3.97 billion as of J une 30, 2010 to $5.33 billion in 2012.
The net assets of $4.36 billion included $2.41 billion invested in capital assets net of related debt
(i.e., the book value of property, facilities and other assets wholly owned by LAWA), which
has increased by 19.6 percent over the three year period since 2010. In FY 2011-12, LAWA
reported major capital asset activities for the year, amounting to $987.0 million in expenditures
or commitments
4
, as shown in Table I.1. Table I.3, later in the Introduction, displays budget and
expenditure data by project groupings (i.e., elements) as of September 30, 2012.
Table I.1
FY 2011-12 LAWA Capital Projects Activities (In Millions)

3 Value based on the original cost of the assets less depreciation by asset category. The actual market value may
differ.
4
Los Angeles World Airports (Department of Airports City of Los Angeles, California) Comprehensive Annual
Financial Report as of June 30, 2012, Page 23 (Unaudited). This figure compared with the capital budget
appropriations of $939.2 million, presented previously in this section.
Project Category Description Amount
Tom Bradley International Terminal Improvements and security upgrades. 579.5 $
Utilities Replacement of Central Utility Plant/co-generation facility. 98.2
Terminals Renovations at Terminals 5 and 6. 69.4
Residential Soundproofing Residential acquisition, soundproofing, and noise mitigation. 41.4
Security Security program in-line baggage screening. 31.6
IT Various IT network and systems projects. 27.9
Elevators/Escalators Repairs and improvements of elevators and escalators. 15.8
Aifield and Runways New north/south crossfield taxiway and apron. 5.8
TOTAL EXPENDED 869.6 $
Airfield and Runways Various 7.8 $
Noise Mitigation Various 6.8
Terminals and Facilities Various 84.9
Miscellaneous Various 17.9
TOTAL COMMITTED 117.4 $
GRAND TOTAL 987.0 $
Expended
Committed
Introduction

5

Revenue Bonds Used to Finance Capital Projects
LAWA issues revenue bonds to finance its major capital project activities. As of J une 30, 2012,
LAWAs outstanding long-term debt attributable to these bonds was approximately $3.58
billion, which was a decrease of approximately $48.3 million over the $3.63 billion amount
outstanding as of J une 30, 2011 and $1.0 billion over the amount outstanding as of J une 30,
2010. Despite this substantial and rapid increase in LAWAs total bonded indebtedness, LAWA
continued to receive high bond ratings from Standard and Poors (AA), Moodys Investment
Services (Aa3) and Fitch Ratings (AA) as of J une 30, 2012, suggesting it has the financial
capacity to absorb such debt obligations.
Between J une 30, 2011 and J une 30, 2040, after all of the existing revenue bonds have been paid
in full, LAWA will have made $3.6 billion in bond principal and $3.5 billion in bond interest
payments, for a total of approximately $7.1 billion. In FY 2011-12, LAWA made an annual
payment of $236.5 million toward this debt; and, in FY 2012-13, LAWA is scheduled to pay
$241.3 million toward this debt. Over time, these bonds will be repaid from a variety of sources,
including Unrestricted Net Operating Revenues, Passenger Facility Charges (PFCs), Customer
Facility Charges (CFCs), Capital Grants, and other sources of airport income.
Unrestricted Net Operating Income A portion of LAWAs unrestricted net operating income is
used to fund capital projects and debt service. This net operating income represents uncommitted
operating fund balances that become available after subtracting total operating expenses from
total operating income. Total operating income is generally derived from non-airline related fees
and charges (e.g., concession fees and commercial rentals), and airline related fees and charges
(e.g., aircraft landing and apron fees, and long-term terminal leases and tariffs). Operating
expenses include the cost of maintaining and operating LAWA airports, but does not include the
cost of major capital projects. In FY 2011-12, LAWA collected approximately $902.2 million in
operating income and incurred $657.7 million in operating expenses, for net operating income
before depreciation and amortization of $244.4 million. This amount does not include restricted
non-operating income received from PFCs, CFCs and grants, which are discussed more fully
below.
Passenger Facility Charges Passenger Facility Charges (PFCs) are fees imposed by airports on
enplaned passengers. PFC revenues are used to finance eligible airport related projects that
preserve or enhance safety, capacity, or security of the national air transportation system; reduce
noise or mitigate noise impacts arising from an airport; or furnish opportunities for enhanced
competition among carriers.
5
Both the fee amount and the intended use of fee income are
reviewed and must be approved by the Federal Aviation Administration (FAA) and are subject to
federal audit.
According to LAWAs financial statements, LAWA has received approval from the Federal
Aviation Administration to use PFCs to pay for debt service on bonds issued to finance the Tom

5
Financial Report as of June 30, 2012, Page 55, Note 9
Introduction

6

Bradley International Terminal (TBIT) renovations, Bradley West and related projects. Project
approvals, as of J une 30, 2012, included the following:
Table I.2
FAA Approved Capital Projects to be Funded with PFCs (In Thousands)

Source: Los Angeles World Airports (Department of Airports City of Los Angeles, California)
Comprehensive Annual Financial Report as of June 30, 2012
In FY 2011-12, LAWA collected $130.8 million in Passenger Facility Charges. Of this amount,
the Board of Airport Commissioners authorized the use of $25.2 million for the TBIT
Renovation and Bradley West development projects. All of the $25.2 million was used to pay
debt service on bond proceeds being used to meet current costs. PFCs are also used to fund
capital projects on a pay-as-you-go basis.
Customer Facility Charges In November 2001, the Board approved the collection of a State-
authorized Customer Facility Charge from rental car companies serving LAX and ONT airports.
State law allows airports to collect a fee of $10 per on-airport rental car company transaction to
fund the development of consolidated car rental facilities and common-use transportation
systems.
6
In FY 2011-12, LAWA collected $29.6 million from these fees. Through J une 30,
2012, LAWA had expended $43.9 million of $167.0 million in collections on approved projects.
Federal Grants Various federal grants are available to LAWA for Airport Improvement
Program (AIP) and Transportation Security Administration (TSA) capital projects. In fiscal years
2011 and 2012, LAWA received $75.2 million and $62.4 million in such grants, respectively.
These grants are categorical in nature and are awarded on a project specific basis. AIP grants are
typically used to fund airfield, taxiway and runway improvement projects; TSA grants are
typically used for improvements to passenger and baggage screening areas.
Airline Contributions The airlines also provide resources to LAWA under the terms of their
long-term terminal lease agreements that are used to fund certain capital projects and pay for
debt service (e.g., rents, Federal Inspection Service Charges and direct payments for terminal
debt service, ground rent and amortization of assets paid with LAWA funds). During the period
of the audit, LAWA was in the process of revising its financial relationship with the airlines and

6
Financial Report as of June 30, 2012, Page 54, Note 10
Terminal Development 1,731,257 $
Noise Mitigation 907,313
Airfield Development 106,751
Land Acquisition 33,680
Aircraft Rescue and Firefighting Vehicles 1,899
Total FAA Approved Projects 2,780,900 $
Introduction

7

developing a new methodology for determining rates and charges under the tariff. On September
17, 2012, the new methodology was approved by the Board and on November 13, 2012, the new
rates for calendar year 2013 were adopted. According to LAWA Finance Department staff, the
new rate structure is intended to produce a uniform method for determining airline charges,
ensure that the airlines share of costs are more equitable, and provide additional future sources
of income for airline terminal and other airline supported improvements.
LAWA Capital Project Costs
LAWA is currently involved with capital projects that have combined budgets of approximately
$3.64 billion that are grouped into six project elements, including (1) Airside, (2) Landside, (3)
Utilities and Infrastructure/Central Utility Plant, (4) Terminals, (5) Residential Soundproofing,
and (6) Bradley West. Descriptions and the relative budgets for each are described below.
The two organizational units that are most heavily involved in capital development are the
LAWA Planning Division and the Airports Development Group (ADG). The process for
assessing, approving and implementing development projects typically begins in the Planning
Division and then progresses through the design phase to construction, overseen by ADG. The
simplified flow charts on the next two pages illustrate the progression of a development project
through LAWA (Exhibit 1).
Introduction

8
Exhibit 1 Page 1 of 2
LAWA Development Process

LAWA Planning Division
Leads development and approval
process for Master Plan and
Specific Plan Amendments.
Airport Board of Commissioners
adopts plans.
Proposal request
considered by LAWA
Capital Review Team
LAWA Planning Division Develops
project definitions and scope
statements from Board or
Executive directive, or approved
department submittals
YES
LAWA Planning Department
Department collaboration
Conceptual design up to 30%
Environmental review
Initial cost estimate
Project schedule
Finance Department
Reviews project cost estimate,
identifies funding source,
ensures availability of funding
and recommends a budget (i.e.,
"Definition Package").
LAWA Divisions
Develop and submit business case
justification for capital project
proposals arising from
Board/Executive directive or
solicitation and assessment of
division needs
No
To Page 2
Airport Development Group
Collaborates with the Planning
Department on development
approach [a] Design-Bid-Build
(DBB), [b] Construction Manager
at Risk (CMAR) or [c] Design-
Build (DB).
Introduction

9

Exhibit 1 Page 2 of 2
LAWA Development Process

Introduction

10
LAWA Planning Division
Initial planning functions are conducted by the Planning Division, which prepares the Master
Plan, Specific Plan Amendments, Initial Project Design (up to 30% complete) and
Environmental Reviews. The Planning Divisions groups are generally organized by ADG
element, as shown in Exhibit 2, below.
As part of larger reorganization across LAWA during the last five years, the Planning Division
has grown from a size of approximately 20 staff to 58 staff, including primarily planners,
engineers and architects. The Division makes use of consultants, as necessary, to assist with
temporary fluctuations in workload and to provide specialist expertise. Currently, the Division
reportedly includes 10 embedded consultants.
On an ongoing basis, the Planning Division is responsible for receiving requests for capital
projects from LAWA departments and providing the requests to LAWA executives for
consideration. To accomplish this, on a periodic basis, Planning makes a broad solicitation for
requests from LAWA departments and compiles them for executive review. Upon review by the
Capital Review Team, composed of LAWA Deputy Executive Directors, proposal requests are
either rejected or returned to the Planning Division for project definition and development of
scope statements. Planning then works with the requesting department to development the
conceptual design up to approximately 30 percent complete; conducts an environmental review
of project impacts; outlines an initial cost estimate; and defines a project schedule. After the
Finance Department prepares a definition package, composed of the final cost estimate,
funding sources and a recommended budget, the Capital Project Policy Committee reviews the
project for approval before oversight is transitioned from Planning to ADG.
Throughout the process leading up to the formal transition of project oversight to ADG, Planning
staff communicate with ADG element engineers to ensure that ADG input is incorporated into
the planning process. Some projects may move from Planning to ADG substantially earlier than
the 30 percent design stage, depending on project urgency and complexity, and on the type of
project delivery system to be employed.
Airports Development Group
LAWA established the Airports Development Group (ADG) in 2008 as part of a major
reorganization of activities related to capital development. The impetus for the reorganization
was the initiation of the Tom Bradley International Terminal (TBIT) Bradley West
development project, with a special emphasis on developing boarding gates that could
accommodate the larger aircraft that international carriers have begun to use (e.g., the Airbus A-
380 and Boeing 747-8 aircraft).
ADG is composed of eight divisions and approximately 85 City staff positions plus a large
fluctuating number of consultants that support ADG technical operations. As of September 2012,
the total number of positions within ADG, including both City staff and consultants, was 319.
The organization structure is shown in Exhibit 3 below.
Introduction


11

Exhibit 2
LAWA Planning Division Organization
(LAWA Employees and Embedded Contractors)

TOTAL POSITIONS 58
Notes:
1. Unspecified and variable
project-based architectural,
engineering and technical
services arepurchased from
contractors (e.g., project
engineering and design).

Introduction


12

Exhibit 3
LAWA Airport Development Group Organization
(LAWA Employees and Embedded Contractors)

ADG divides its project work into the following six primary groups known as elements: Airside;
Landside; Utilities and Infrastructure/Central Utilities Plant (CUP) Replacement; Terminal;
Residential/Soundproofing; and Bradley West. Each element contains multiple projects and is
overseen by an Element Manager. With the exception of the Bradley West Element, whose
Manager reports directly to the Director of ADG, all Element Managers report to the Assistant
Program Manager of ADG. Descriptions of each element are included below
7
.

7
Project descriptions were current as of the most recent Airports Development Executive Management Program
Status Report, September 30, 2012.
TOTAL POSITIONS 319
Notes:
1. Excludes City Attorney
personnel.
2. TheConstructionInspection
Unit excludes workload &
specialty staff augmentation
received from:
- DPW Bureau of Contract
Administration
- DGS Bureau of Standards
- On-Call Inspectionand
Testing Services provided
by threecontractors.
3. Unspecified and variable
project-based architectural,
engineering & technical
services arepurchased from
contractors (e.g., project
designand engineering).

ADG Interfaces withLAWA
departments:
Administration
Finance& Budget
LAWA Controller
Facilities Management
Operations & Emergency
Services
Facilities Management
Commercial Development
InformationManagement
Law Enforcement &
Homeland Security
Public Relations & Media
External Affairs
See Attachment 1 for
general descriptions of
each of these divisions
and units.
Introduction


13
Airside Element The Airside Element includes development work on and around the LAX
airfield, including the construction, reconstruction and rehabilitation of taxi-lanes; runway safety
area improvements; perimeter fence enhancements; and construction of miscellaneous support
facilities. Additionally, the Airside Element currently includes the pavement management
program for a taxi-lane at Van Nuys.
Landside Element The Landside Element includes development and improvements on airport
property other than the airfield and terminal areas. Current projects include a second level
roadway expansion; coastal dunes improvement project; parking lot site modifications; and the
demolition of structures on recently acquired properties in the Manchester Square and Belford
communities surrounding LAX.
Utilities and Infrastructure / Central Utilities Plant (CUP) Replacement Element TheUtilities
and Infrastructure Element currently includes one project, the CUP Replacement project. This
project will provide a replacement CUP to supply hot water and chilled water to the Central
Terminal Area (CTA); the required chillers, pumps, generators, boilers and piping to produce
and distribute the hot and cold water; and, gas turbine driven generators with heat recovery steam
generators. The project also includes a utility distribution system; demolition of the existing
CUP; pump room upgrades; and a facility management and control system.
Terminal Element The Terminal Element includes development and improvements within the
LAX terminals. Current projects include elevator and escalator replacement; fire-life-safety
system upgrades; cosmetic improvements; explosive detection system replacement; concessions
enabling projects; power system upgrades; and American with Disabilities Act accessibility
improvements.
Residential/Soundproofing Element The Residential/Soundproofing Element currently
includes two noise mitigation projects, one for approximately 9,400 units surrounding LAX, and
one for approximately 1,049 units surrounding Van Nuys Airport.
Bradley West Element A stand-alone element that constitutes approximately 52 percent of the
cost of the entire capital development program
8
, the Bradley West Element is the centerpiece of
LAWAs capital expansion work. The two primary projects are:
Bradley West Gates:
The planned configuration of concourses will allow for nine Airbus A380 gates; five
Airplane Design Group gates; and three narrow body gates. The work will also consist of
constructing approximately 540,000 square feet of space for passenger services, building
systems, building maintenance, airline operations, concessions, storage areas, back of
house secured circulation space and airline lounges.

8
According to the Program Cost Summary contained in the Airports Development Executive Management Program
Status Report, September 30, 2012.

Introduction


14
Bradley West Core Improvements:
The existing Federal Inspection Service (FIS) facilities in TBIT have been improved, and
693,000 square feet of new departure level space will be developed to include new
passenger amenities and an Integrated Environmental Media System (IEMS).
Administrative offices will also be developed. Scheduled to be substantially completed in
May 2013
9
, the Bradley West Gates and Bradley West Core projects will provide an
entirely new profile for LAX and will allow the airport to accommodate nine large
aircraft that currently cannot be serviced at any existing gate at LAX. These
improvements are intended to attract substantially larger numbers of high-end
international passengers to LAX. In addition to the Gates and Core projects, the Bradley
West Element also includes the following projects: traffic mitigation; east ramp and
concourse demolition; art in public places; and the New Face of the CTA, Phase I
projects.
In total, the elements employ approximately 120 engineers, plus additional support staff. Similar
to other divisions within ADG and LAWA, these staff include a mix of LAWA staff and
consultants. The mix of consultant and LAWA staff fluctuates and is currently estimated by
ADG to be approximately 60 percent consultant and 40 percent LAWA staff). Program
management services are provided by AECOM, Inc., and Paslay Management Group (PMG)
provides a small number of leadership positions within ADG, including the Owners
Representative position, which reports to the Board of Airport Commissioners through the
LAWA Chief Executive Officer.
As of September 30, 2012, the total current budget of all of the projects within the elements was
approximately $3.64 billion, of which $1.84 billion had been incurred to date. As discussed
above, and shown in Table I.3, the Bradley West Element constitutes $1.89 billion, or 52
percent, of the total program budget.

9
According to the Program Master Schedule contained in the Airports Development Executive Management
Program Status Report, October 31, 2012.

Introduction


15
Table I.3
Airports Development Program Cost Summary by Element as of 9/30/12

Key
Baseline Budget: estimated cost as it was first reported in an Element
Current Budget: estimated cost as it was planned plus or minus any processed revisions.
Committed to Date: total contractual obligation to date (awarded design and construction contracts, authorized task orders, etc.)
Incurred to Date: total of invoices received to date for the project.
Estimate at Completion (EAC): latest estimate of the total cost of the project.
Variance: Current Budget minus EAC
% Incurred: Incurred to Date divided by EAC
% Contingency Used: change in contingency divided by original contingency
Source: Airports Development Executive Management Program Status Report, September 30, 2012.
Contract, Controls and Finance The Contract, Controls and Finance Division is composed of
two primary subdivisions, the Contract and Budget group and the Program Controls group. The
Contract and Budget group, led by a LAWA manager, carries out contract and finance
administration functions for ADG, including development and implementation of all
solicitations; all payments to contractors and City departments; budget development and cost
engineering for all projects; and management of ADGs document control facilities and
processes. This group includes 20 positions composed of LAWA staff and consultants. The
Program Control group, led by a consultant manager, is composed of approximately 30
individuals, most of whom are consultants to LAWA serving in the roles of schedulers and
estimators. The program control function was previously integrated into the program
management team with reporting to the program managers. Approximately four years ago, the
Description
Baseline
Budget
Current
Budget
Committed
to Date
Incurred to
Date
Estimate at
Completion
(EAC)
Variance
(Budget -
EAC)
%
Incurred
%
Contingency
Used
Capital Budget 1
Airside Element 506,810 503,110 372,930 343,716 488,826 14,284 70% 72%
Bradley West Element 2,040,915 1,894,365 1,429,393 1,046,070 1,849,100 45,265 57% 0%
CUP Replacement Element 423,835 423,835 347,459 184,074 417,810 6,025 44% 18%
Utilities & Infrastructure Element 8,175 13,994 13,994 13,641 13,994 - 97% 100%
Residential/Soundproofing Element 180,000 160,000 154,190 146,411 160,000 - 92% 100%
Terminal Element 270,000 240,035 192,089 72,394 208,851 31,184 35% 9%
3,429,735 3,235,339 2,510,055 1,806,306 3,138,581 96,758 58% 25%
Capital Budget 2 -
Airside Element 142,914 140,009 22,138 14,162 130,776 9,233 11% 7%
Landside Element 31,114 31,114 8,807 1,463 30,154 960 5% 0%
Residential/Soundproofing Element 1,317 1,317 1,030 908 1,214 103 75% 0%
Terminal Element 32,513 32,154 9,931 4,179 27,436 4,718 15% 0%
207,858 204,594 41,906 20,712 189,580 15,014 9% 25%
Subtotal 3,637,593 3,439,933 2,551,961 1,827,018 3,328,161 111,772 N/A N/A
Unallocated Contingency N/A 200,024 - - N/A N/A N/A N/A
Work in Progress N/A - 17,450 10,974 N/A N/A N/A N/A
Program Total N/A 3,639,957 2,569,411 1,837,992 N/A N/A N/A N/A
(dollars in thousands)
Introduction


16
program control function was separated from the program management responsibility in order to
establish greater controls and accountability.
One key role of the Program Control group is the review and approval of project change orders.
The vast majority of change orders result in increased payments to contractors.
As of September 30, 2012, the cumulative executed and approved change orders for the Bradley
West element totaled $191,768,113, or 15.4 percent of the total base combined contract amount.
These figures, including a break-out of the Gates project and the Core project, are shown in
Table I.4.
Table I.4
Cumulative Bradley West Element Change Orders as of 9/30/12

Source: Airports Development Executive Management Program Status Report, September 30, 2012.
Construction Inspection Division Another primary ADG organizational unit is the Construction
Inspection Division, which is responsible for performing quality assurance activities in order to
ensure contractor compliance with quality standards as outlined in the scope of services specified
in each contract.
Other Key LAWA Departments
While ADG and the Planning Division were the primary subjects of the audit review, several
other LAWA entities play key roles in the capital development process and were reviewed
during the audit process. These include Finance & Budget, Facilities Management Group,
Operations, Commercial Development, Comptroller, and the Procurement Services Division. In
addition, the roles, responsibilities and authorities of the executive office and Board of Airport
Commissioners were examined during the audit.
Summary of Benchmarking Survey
A benchmark survey was conducted of seven large municipal-owned U.S. airports, as well as
two other City departments, in order to identify best practices for the management of capital
projects and compile other information for use in comparative analysis and the development of
recommendations.

Executed Approved
Total Change
Orders
Base Contract
Value
Total Change
Orders % of
Contract Value
Bradley West Gates 82,232,867 $ 4,148,704 $ 86,381,571 $ 621,550,000 $ 13.9%
Bradley West Core 89,938,086 $ 15,448,456 $ 105,386,542 $ 622,600,000 $ 16.9%
Total Bradley West 172,170,953 $ 19,597,160 $ 191,768,113 $ 1,244,150,000 $ 15.4%
Introduction


17
Survey Respondent Selection Process
Survey participants were selected based on an analysis of a number of factors, including (1) 2010
2011 change in annual passengers, (2) 2010 2040 projected change in annual enplanements,
(3) 2010 2011 change in annual movements, (4) five-year projected development costs, (5)
portfolio of capital projects, (6) location, and (7) input from LAWA management. The seven
airports in the final group were determined to best match the characteristics of the Los Angeles
International Airport (LAX) within criteria defined for this audit. Of the seven invited airports,
all but one provided a response. The six respondents are listed below:

J ohn F. Kennedy International Airport (New York)
Miami International Airport
Dallas-Fort Worth International Airport
McCarran International Airport (Las Vegas)
San Francisco International Airport
Hartsfield-J ackson Atlanta International Airport
For the limited survey of City departments, the audit team considered the scale of capital projects
and contracting activities undertaken by various departments. The Bureau of Engineering,
Bureau of Sanitation, Port of Los Angeles/Harbor Department, and the General Services
Department were invited to participate. The Bureaus of Engineering and Sanitation and the Port
of Los Angeles responded to the survey.
A survey questionnaire was developed by the audit team, with input from LAWA management,
and administered to the selected airports and the City departments via telephone and internet.
The airport and City department survey instruments are provided in Appendices B and C,
respectively. The complete sets of airport and City department responses are provided in
Appendices D and E, respectively.
Highlights of Key Response Patterns
The six airport respondents provided general information regarding the processes surrounding
the capital planning process and implementation at the respective airports. While differences in
airport leadership and governing structure accounted for several notable differences in responses,
there were consistencies, which appeared to reflect industry standards.
While all airports had a method for prioritizing capital projects, two airports specifically
referenced the Airport Cooperative Research Program (ACRP) Report 49: Collaborative
Airport Capital Planning Handbook as the choice methodological guide for formalizing the
capital planning process. ACRP, overseen by the Transportation Research Board (TRB) of
the National Academies and sponsored by the FAA, is an applied research program that
attempts to address industry problems through the research of and the development of
workable solutions.
Airports were asked to choose the applicable delivery models for a selection of four different
airport project categories, which included airfield projects, new facility construction projects,
renovation/rehabilitation projects, and other projects.
Introduction


18
o Design-Bid-Build was listed by respondents 83.3 percent of the time, making it the
most frequently used delivery model for airport construction projects;
o Airports listed Design-Build in about 20.8 percent of scenarios;
o Construction-Manager-At-Risk was only listed by three of the six respondents as a
possible delivery model, and typically it appears to only be employed for large-scale
projects.
Three of the six airports reported employing structured value engineering.
All airports responded that construction engineering quality assurance staff has the ability to
stop payment to contractors.
All airport respondents reported using a contingency on construction projects, though only
one of the six airports noted there was not a standard contingency applied across the board
for projects, rather it was something determined based on the project. Five of the airport
respondents reported contingencies of between seven and ten percent.
The Los Angeles City department respondents were the Department of Public Works Bureaus of
Engineering and Sanitation and the Port of Los Angeles. These responses also displayed notable
consistencies.
All respondents reported using value engineering.
All respondents reported quality assurance employees, i.e. inspectors, engineers, etc., are able
to stop payment to contractors.
All respondents reported maintaining change order tracking mechanisms.
Like the airports, the City departments were asked to choose the applicable delivery models
for a selection of three different construction project categories, which included facility
construction projects, renovation/rehabilitation projects, and other projects.
o The Port of Los Angeles only reported using Design-Bid-Build on the facility
construction projects and noted no other dominant model for the other categories.
o The Bureaus of Engineering and Sanitation listed Design-Bid-Build for all the categories
with the caveat that a Construction-Manager-At-Risk model may be used for large-scale
projects.
LAWAs Challenges and Accomplishments
In the course of this audit, it was evident that LAWA has been faced with several challenges as it
has endeavored to implement its capital program. To a certain extent, these challenges provide a
context for understanding the findings and recommendations contained in this report.
Introduction


19
The first major challenge stemmed from a history of dormant development at LAX. When the
recent set of major construction projects began at LAX in 2007, it had been approximately 20
years since any substantial development activity had been carried out by LAWA. BOAC
documents from the time stated, Today LAX suffers from the combined afflictions of physical
decay and design inadequacy. After decades of construction inactivity, LAWA lacked the
institutional knowledge and capacity to design and implement a major capital improvement plan.
The second major challenge was the aggressive schedule required for the completion of the
Bradley West Core and Bradley West Gates projects. Urgent market pressures to accommodate
international carriers with contact gates for large new aircraft, coupled with interest voiced by
the Citys elected officials and the Board of Airport Commissioners to complete the projects
expeditiously, required LAWA to develop capacity and complete construction in an extremely
short timeframe. Especially given the lack of recent experience in capital programming and the
consequent need to contract many of the design and management functions to consultants, the
aggressive schedule posed an immense challenge.
Finally, LAWA has carried out all of this development activity while contending with lawsuits
and a complex set of stakeholders interests. As a result of a 2006 legal settlement between
LAWA and several cities surrounding the LAX area, the County and a non-governmental
organization, LAWA has been subject to limitations on its passenger and gate activity which
include perceived limits on its ability to plan for increased activity. In addition, LAWA has
proceeded with construction activity while simultaneously ushering amendments to its Master
Plan through the complex environmental review process.
Under these pressures, LAWA has succeeded in building a strong and effective organization,
with an adequate internal control system, while simultaneously implementing the largest public
works project in the history of the City of Los Angeles. While this report contains important
findings and recommendations for improvement, the audit team was generally impressed with
the professionalism and performance of the members of the LAWA organization. LAWA
leadership should be credited for building an organizational culture of distinction while
achieving the aggressive schedule that was driven by market demand and the direction of City
elected officials.
Acknowledgements
Harvey M. Rose Associates, LLC would like to thank the management and staff from the many
LAWA divisions that participated in this performance audit. In particular, we would like to thank
those individuals in the Airports Development Group who took considerable time to discuss
LAWAs program and provide much detailed data and other information to the audit team. For
the most part, LAWA staff and consultants were extremely cooperative and went out of their
way to ensure that auditor requests for information were met. In addition, Harvey M. Rose
Associates, LLC extends its thanks to the participants of the benchmarking survey.
20
1. Value Engineering
The Federal Aviation Administration (FAA) requires that structured Value
Engineering processes be used for certain airport projects that are funded with
federal Airport Improvement Program (AIP) grants. LAWA relies on AIP and
other federal grants for various airfield and terminal improvements, amounting
to $75 million and $62 million in 2011 and 2012, respectively.
Although not mandatory, the FAA also recommends that Value Engineering
guidelines and specifications be followed for most large capital projects,
including those funded with Passenger Facility Charge (PFC) revenue. As of
June 30, 2012, LAWA had received authorization from the FAA to spend nearly
$2.8 billion in Passenger Facility Charge revenue for capital projects related to
terminal development, noise mitigation, airfield development, land acquisition
and aircraft rescue and firefighting vehicles.
Design and construction industry best practices recommend the use of Value
Engineering at the 30% design phase, and federal advisories recognize that by
employing Value Engineering principles at the earliest stages of a project, the
opportunity for influencing final costs is greatly increased. Distinct from Value
Engineering, Cost Engineering is more typically emphasized by LAWA, with
more focus on evaluating initial construction cost, rather than evaluating the
life-cycle cost implications of design and construction decisions.
LAWA has not formalized a structured Value Engineering process, although
some important elements exist, and efforts reportedly are being made to
strengthen the procedural foundation and approach to evaluating project design
and materials alternatives using a structured Value Engineering process.
Nonetheless, the current LAWA process may violate federal requirements for
some AIP funded projects.
LAWA should prepare an assessment of current practices to ensure that design
review and Cost Engineering efforts have satisfactorily met FAA expectations
regarding the use of structured Value Engineering for AIP funded projects.
Based in part on the results of this analysis, LAWA should establish, refine and
bolster policies and procedures necessary to ensure that a structured Value
Engineering process is established at LAWA and extended to development
projects funded from other sources of income, including PFC revenue. By
implementing these recommendations, LAWA would be more assured that it
would be in compliance with FAA regulations for AIP funded projects, and
could potentially achieve greater life-cycle cost savings on all development
projects, regardless of funding source.
Value Engineering is defined by the federal government as an organized effort to analyze the
functions of systems, equipment, facilities, services and supplies for the purpose of achieving
essential functions at the lowest life-cycle cost consistent with required performance, quality and
Section 1: Value Engineering
21

safety (Federal Acquisition Regulations, Part 52.248). The U.S. General Services
Administration (USGSA) states that, The primary emphasis is placed on obtaining maximum
life-cycle value for first-cost dollars expended within project budgets. Improved value can be
represented in a number of different ways depending upon specific project needs. This would
include improved function, flexibility, expandability, maintainability and/or aesthetics, as well as
reduced life cycle cost (LCC).
Value Engineering has been an important process for ensuring that organizations achieve the
greatest value for cost since the 1940s. Formal Value Engineering requirements and processes
were developed and have been institutionalized at the federal level since the 1960s and are now
considered a best practice for capital projects in both the public and private sectors. Federal
regulations, including Federal Acquisition Regulations Part 52.248, Federal Aviation
Administration Advisory Circular Number 150/5300-15A, the Code of Federal Regulations and
other directives require the use of Value Engineering on all projects that are funded with federal
grants. Standards are defined for the construction industry, generally, and certification is
available through the Society of American Value Engineers (SAVE).
Some Value Engineering Principles Are Informally Applied at LAWA
In 2008, the Federal Aviation Administration (FAA) issued Advisory Circular (AC) Number
150/5300-15A to provide guidance on using value engineering (VE) on airport projects funded
under the Federal Aviation Administrations . . . Airport Grant Program.
1
This AC states that,
In general, use of this AC is not mandatory. However, use of the AC is mandatory for all
projects funded with federal grant monies through the Airport Improvement Program (AIP) and
with revenue from the Passenger Facility Charge (PFC) Program. In 2012, the FAA cancelled
the requirement that a structured Value Engineering process be used on PFC funded projects, but
continued to recommend following the guidance and specifications included in the AC.
LAWA relies on federal AIP and other grants for various airfield and terminal improvements,
amounting to $75.2 million and $62.4 million in 2011 and 2012, respectively. In addition, as of
J une 30, 2012, LAWA had received authorization from the FAA to spend nearly $2.8 billion in
Passenger Facility Charge revenue for capital improvement projects related to terminal
development, noise mitigation, airfield development, land acquisition and aircraft rescue and
firefighting vehicles.
Nonetheless, LAWA has not formalized a structured Value Engineering process into its major
development processes. Instead, several component features of Value Engineering independently
exist and have been implemented as the development projects of the past few years have
progressed. For example, LAWA has developed a Design and Construction Handbook in an
attempt to standardize the types of equipment and systems installed at the airport. For example,

1
This Advisory Circular replaced AC 150/5300-15, published in 1993, which provided guidance and specifications
on structured Value Engineering processes recommended for federally funded transportation projects, but did not
mandate use for specific categories of grants.
22

LAWA intends to standardize escalators to be installed in the renovated terminals to reduce life-
cycle costs of maintenance and repair. In another example, on the Central Utility Plant (CUP)
project, a major objective was to design a facility that would provide long-term operating savings
and lowered energy usage. Generally, the Facilities and Maintenance Group at the airport has
been tasked with assessing the total cost of ownership when participating in design and
construction projects.
In addition, some of the more significant efforts undertaken by LAWA for the Bradley West
Gates and Core projects have included the following:
As part of the master planning process, the architectural firm of Fentress Architects was
retained to develop the conceptual framework for LAX development. As part of that process,
various alternative concepts were explored and presented to City and LAWA officials,
stakeholders (e.g., the airlines) and the community. Through this process, key aesthetic and
design decisions were made that, in part, would eventually drive the cost of Bradley West
Terminal development and other future projects. However, no structured analysis of lower
life-cycle cost alternatives were conducted by an independent third party, although the
Construction Manager at Risk (CMAR) recommended Cost Engineering alternatives that
would limit improvements to Level 5 and Level 6 of the Core to the minimum standards
required for structural integrity, and lowering the ceiling height by 10 feet 6 inches. These
suggested design changes were projected to save approximately $11.8 million in initial
construction costs, but all were rejected by LAWA, the airlines and the design team.
During the design phase, a Program Management Team (PMT) was established to evaluate
proposed design attributes, including materials selection, mechanical systems, long-term
maintenance and other features that would drive the cost of the facility. Most decisions were
informal. For others, analysis reportedly was conducted to determine the cost savings that
might result from design modifications. As an example, decisions were made based on an
analysis of the initial cost and life-cycle cost of installing a centralized pre-conditioned air
system for new gates, rather than installing individual air conditioners at each jetway. It was
reportedly found that the centralized system, while more costly to acquire and install, would
have a longer useful life and less costly life-cycle cost than installing individual air
conditioners at each gate.
LAWA has also established interdisciplinary teams for each of its capital program elements,
which include representatives from the various operating departments, including Operations,
Facilities and Maintenance, and others. These teams are intended to facilitate projects and
collectively make decisions regarding design and construction alternatives throughout the
process. However, discussions with element managers and operating department
representatives suggest that participation on the interdisciplinary teams has been variable and
that in some key areas, such as Facilities and Maintenance, the assigned representatives have
not been sufficiently trained in cost engineering or Value Engineering principles.
23

LAWA has adopted LEED Building Standards in response to a 2006 Greening LAX policy
adopted by the City Council. Accordingly, the design of the building, as well as water reuse
and on-site recovery and recycling programs during construction have reduced fuel
consumption, waste disposal and related cost. As LAWA goes through its design process,
LEED Building Standards are employed to identify opportunities for energy efficiency, waste
reduction and other alternatives for reducing environmental impacts and the future cost of
operations and maintenance (e.g., environmental control systems).
The Bradley West CMAR (i.e., Walsh Austin J oint Venture) conducted some Cost and Value
Engineering during the pre-construction and construction phases of the project. There is
evidence that the PMT received proposals from a joint effort by both the architect, Fentress
Architects, and the CMAR on Value Engineering opportunities, amounting to
approximately $94.0 million in savings. Of this amount, LAWA executive management
accepted approximately $31.7 million worth of proposed changes that would produce
construction savings. However, a review of the line-item proposals indicates that most were
Cost Engineering proposals aimed at reducing construction cost but not necessarily
considering life-cycle cost to the airport for operations, maintenance and repair. The
difference between Value Engineering and Cost Engineering is discussed below, with
examples of selected CMAR proposals that lead us to the conclusion that most were Cost
Engineering and not Value Engineering in nature. As will be discussed further, below, no
formal Value Engineering report has been produced by the CMAR.
LAWA More Successfully Implements Cost Engineering Principles
Distinguished from Value Engineering, Cost Engineering has been a construction industry best
practice for many years. A narrower discipline, cost engineers analyze design, construction and
materials alternatives with a goal of reducing the total cost of construction. This is an ongoing
process, integrated into both the preconstruction and construction phases of a project. It is neither
structured (i.e., many alternatives are identified informally, and not until construction is well
underway and opportunities to modify design or construction standards become apparent); nor,
does it necessarily consider operational, maintenance and repair impacts or other life-cycle costs.
LAWA representatives stated that it employs Value Engineering principles on approximately
90% of all projects, but that the process has not been formalized and reports are generally not
produced. Instead, Value Engineering findings are integrated into final design plans and
presented to the FAA for review and approval, when required. These final plans and
communications with the FAA do not necessarily include an affirmation from LAWA that Value
Engineering practices were employed. However, in the judgment of our technical experts, the use
of the term Value Engineering is a misnomer. As mentioned above, these efforts, while
effective at producing alternatives for reducing construction costs, do not necessarily produce
alternatives for reducing life-cycle cost.
24

For example, among the proposals produced from the CMAR review of the design plans for the
Bradley West Gates Project, were several that proposed replacing Terrazzo flooring with carpet
in some major passenger circulation areas. While the construction savings was potentially
significant, amounting to $2.0 million in one area alone, there is no evidence in the record that
the shorter useful life of carpet in a heavily trafficked area, and resulting future maintenance,
repair and replacement costs, were analyzed or taken into consideration. Other examples include
removing escalators and replacing them with staircases, modifying structural design in non-
critical areas of the terminal, narrowing corridors, and using less costly materials. While each of
these may have been effective alternatives for reducing the cost of construction, there is no
evidence that analysis of the long-term operational and maintenance costs, and/or the impacts on
the value of building aesthetics and customer experience, were conducted.
In another example, during the initial conceptual design phase, certain aesthetic features of the
Bradley West Core were endorsed by City officials. Included was the concept of constructing a
Great Hall and a complex wave-like roof structure, both of which would be distinguishing
features of the building. While these features and associated finishes will make an impressive
statement about the City of Los Angeles, it does not appear that a comprehensive analysis was
conducted during early project phases to determine the life-cycle cost of incorporating these
features into the design. Consequently, a review of Change Order records maintained by LAWA
includes a March 2011 authorization to purchase window washing equipment for the Bradley
West Core costing $607,000. Further, during interviews, we were advised that LAWA is only
now evaluating the logistics and associated cost implications of cleaning and repairing windows
in the Great Hall and elsewhere in the terminal during terminal operations, which will be
complicated due to floor to ceiling height, limited ceiling or rooftop access points, and the
potential need to move equipment into the facility during periods when travelers will be present.
Had an independent Value Engineering study been conducted, design features could have been
considered that could have potentially mitigated these difficulties.
Value Engineering Contract Provisions Are Not Effectively Exercised
FAA Advisory Circular No. 150/6300-15A, Subsection 7 states that, VE, as it relates to
engineering and the design of projects, is most effective when it is accomplished early in the
design phase because ideas are still conceptual and the sponsor and designer can be flexible with
decisions without incurring delays in the project schedule . . . Once major decisions (those
involving high cost items) are made, the opportunity for influencing final costs is greatly
reduced. . . . Value engineering studies for airport grant projects should be conducted when the
design is about 30 percent complete.
Reportedly, most design and preconstruction contracts at LAWA include provisions for Value
Engineering studies to be performed. For example, Section 01 22 00, Subsection 1 of both
contracts with Walsh Austin J oint Venture (Gates and Core) state that the PMT (Project
Management Team) may direct the CMAR during preconstruction or construction to perform a
Value Engineering (VE) study or studies, to evaluate the design and recommend possible value
engineering. Consistent with federal regulations, Subsection 5 states that, No action should be
25

labeled Value Engineering and included in the VE study unless the action includes identifying
the function, using creativity to develop multiple alternatives, and selecting the alternative that
will perform the required function at the lowest total cost considering performance, reliability,
quality, and maintainability. Nonetheless, no such study or studies were ever requested by
LAWA or prepared by the CMAR during the preconstruction or construction phase. In addition,
we were advised that Value Engineering exercises are typically conducted as part of the design
process, through meetings and discussions, and so specific reports or studies arent prepared.
LAWA Value Engineering Does Not Conform with FAA Guidelines
FAA Advisory Circular No. 150/6300-15A, Subsection 8 and Subsection 9 describe very specific
requirements to accomplish Value Engineering on a project. Specifically, the FAA identifies the
following five characteristics that are essential to its success:
a. VE relies on the use of many widely accepted analysis concepts and techniques.
b. VE is a systematic process and follows an eight step job plan.
c. VE focuses on identifying and analyzing the function the project component(s) or activity
fulfills.
d. VE utilizes creative techniques, especially brainstorming.
e. VE is performed by a team not associated in any way with the design team and draws
upon the individual and collective viewpoints, experience and knowledge of its members.
As part of the process, Value Engineering follows a structured VE J ob Plan that systematically
selects the projects or components to be evaluated; ensures the composition of a team that is
collectively competent to perform the assessment; goes through structured information gathering,
speculation, evaluation and development phases; and, develops formal recommendations and
approvals by the sponsor. After implementation, the FAA suggests that audits be conducted to
ensure that desired results have been attained.
LAWAs process does not meet these minimum FAA guidelines and specifications. First, the
processes followed by LAWA are not systematic and do not follow the recommended eight step
job plan. LAWA ADG managers stated during interviews that, while they believe Value
Engineering activities are performed, much more work needs to be done to elevate LAWA
standards of compliance with FAA guidelines and specifications. Further, as discussed
previously, it does not appear that LAWA focuses its analysis on the functions that the
components or activities fulfill. Instead, based on the Value Engineering log maintained by the
department for the Bradley West projects, most of the emphasis is placed on reducing the cost of
construction instead of reducing the life-cycle cost of the functions that the components fulfill.
Lastly, Value Engineering does not appear to be performed by an independent third party in all
instances. For example, on the Bradley West projects, the CMAR was asked to evaluate the plans
developed by the architect and report to the PMT on the results of the analysis. To ensure that a
thorough and independent evaluation is performed, the Value Engineering team should be
entirely separate and not have a vested interest in project outcomes.
26

LAWA Should Structure a Compliant Value Engineering Process
Representatives of LAWA suggest that the absence of a formalized and structured Value
Engineering process may be the result of several factors:
1. No structured Value Engineering process was in place, nor was the in-house skill set
available to develop or coordinate a comprehensive Value Engineering process when major
capital development activity commenced in 2007. This reportedly occurred because the
organization had approximately 20-years of deferred maintenance and no major construction
projects had been undertaken for a longer period.
2. The condition of the airport and market pressure to modernize its facilities for large
international aircraft required that steps be taken to expedite the design, preconstruction and
construction stages of the project, and so priorities were placed on maintaining an aggressive
schedule and other more critical aspects of the development process.
3. Multiple projects at the airport have been undertaken simultaneously and all have been fast-
tracked, so formalized Value Engineering studies have generally not been conducted.
Interviews with key engineering managers within ADG indicate that internal practices need
to be formalized, refined and bolstered.
The federal government provides minimum standards for ensuring the effectiveness of a Value
Engineering process. First, FAA Advisory Circular No. 150/6300-15A, Subsection 12 allows
two approaches for obtaining Value Engineering services: (1) by securing the services of a
contractor specialty firm; or (2) by using internal staff who collectively have the skills necessary
to perform Value Engineering analysis. In both instances, personnel must meet the training and
certification standards established by the Society of American Value Engineers (SAVE). In
addition, Subsection 14 states that if the Value Engineering is to be performed by its own staff, a
proposal must be submitted to the FAA for approval prior to the start of any work. Appendix 2,
citing excerpts from the Code of Federal Regulations, Subpart 48.2, Section 48.201, requires that
an explicit contract between the sponsor and the contractor be approved by the federal
government and that periodic progress reports be submitted to the federal contracting officer.
Although requested, LAWA was unable to provide copies of contracts, FAA approval letters or
Value Engineering studies, as evidence that it has complied with the guidelines and
specifications included in FAA Advisory Circular No. 150/6300-15A. As a result, LAWA may
not conform with FAA guidance, despite the fact that many positive actions have been taken by
the organization to perform cost engineering and other valuable exercises as it proceeds through
the early stages of project design and preconstruction review.
LAWA management does not have assurance that it is achieving the greatest value for the life-
cycle cost to develop the airport. The impact from the lack of a structured Value Engineering
process could be significant, since LAWA is presently in the midst of a massive development
project that is expected to cost in excess of $6 billion over the next decade.
27

Conclusions
LAWA has successfully implemented component features and processes that apply Value
Engineering principles. However, it has not implemented a structured process or taken steps to
ensure that Value Engineering processes are uniformly applied on every major project. Further,
LAWA has not implemented standard procedures or practices that ensure that formal Value
Engineering studies are performed for Airport Improvement Program projects.
Importantly, LAWA does not have assurance that it is achieving the greatest value for the cost to
develop the airport. The impact from the lack of a structured Value Engineering process could be
significant, since LAWA is presently in the midst of a massive development project that is
expected to cost in excess of $6 billion over the next decade.
Recommendations
1.1 Direct staff and request legal counsel to prepare an assessment of past practices used on
LAWA development projects, to ensure that design review and cost engineering efforts
can satisfactorily meet FAA expectations regarding the use of structured Value
Engineering.
1.2 Develop and establish policies and procedures that ensure that a structured Value
Engineering program is implemented at LAWA.
Costs and Benefits
LAWA would incur costs to implement a structured Value Engineering program from either
assigning personnel to the function or retaining consultants. However, through a structured
process, LAWA could potentially achieve greater life-cycle cost savings and be better able to
demonstrate to the public and elected officials that it is cost-effectively implementing projects.
28
2. CMAR Contractual Relationship
LAWA chose to use a Construction Manager at Risk (CMAR) project delivery
method for the Bradley West Core and Gates projects, which had never before
been used by the department. While the analysis of the benefits of using the
CMAR model supported managements decision to move forward in this
manner, certain circumstances and project expectations may have prevented
LAWA from realizing the models full benefits. For example, a staff report to
the Board of Airport Commissioners supporting the use of CMAR as the project
delivery method for the Bradley West Core and Gates projects noted the benefits
of having the construction manager involved in the design process. However, a
majority of change orders have resulted from design changes, owner betterment
requests, and/or scope expansion, and plan errors despite the CMARs access to
design plans in the pre-construction phase.
The CMAR contract agreements for the Bradley West projects appropriately
include total contract amount caps, which are the aggregation of Component
Guaranteed Maximum Prices for various components of the projects. However,
total expected costs may exceed these contract amounts due to the volume of
change orders resulting from unknown conditions, owner initiated design
changes and other factors. As a result, the risk to the CMAR may have been
diluted and the incentives for the CMAR to deliver the project under the
contract amount, or the maximum guaranteed price, may have been
compromised, since the CMAR can charge management fees on most costs.
Further, the CMAR agreements for the Bradley West projects do not contain
sufficient controls, including sanctions, to ensure contractor performance in key
areas. For example, although the CMAR contracts require performance bonds
or 10% retention for each progress payment claimed during the Construction
Phase, there are no specifications that directly address CMAR performance
related to its Quality Control or Change Management responsibilities. Although
LAWA expects to continue with a high level of construction activity for the next
five to ten years, it has not initiated any evaluation of the efficiency and
effectiveness of the CMAR project delivery method, as implemented for the
Bradley West projects, to decide whether it is appropriate or should be modified.
LAWA should conduct a post-project assessment of the costs and benefits of the
CMAR model and compare it to other possible alternatives; evaluate the CMAR
model, as implemented for the Bradley West projects to identify the need for
possible modifications to contractor requirements and incentives; and, develop
formal criteria for choosing project delivery models for future capital projects.
Implementation of the recommendations would allow LAWA to develop more
refined contracting strategies and ensure that LAWA interests are protected on
future development engagements.
Section 2: CMAR Contractual Relationship
29

Several Project Delivery Methods Exist for Large Capital Projects
According to experts in the International Airport Management industry, Construction Manager at
Risk (CMAR) is an alternative capital project delivery model where a construction manager is
engaged to be directly responsible for project construction. Under this model, the CMAR -- and
not the owner -- holds the contracts with individual construction contractors (or self-performs the
construction or a portion of the construction) and oversees overall construction activities for a
fixed price. Therefore, the CMAR is not just responsible for managing construction schedules
and activities, but also assumes the risk for potential cost overruns. Accordingly, CMAR
contracts should clearly assign risk to the parties, describe the basis for ensuring contractor
accountability and establish sanctions for CMAR non-performance.
The other two primary delivery models are Design-Bid-Build (DBB) and Design-Build (DB).
Under the more traditional DBB model, the owner or developer retains an architectural and
engineering firm to design the project and prepare construction documents. The owner then
takes responsibility for the management of the project by directly hiring the construction
firms and coordinating the project schedule.
Under the DB model, the owner or developer hires a single firm to design and build the
project with construction commencing before designs are complete.
LAWA has used both the D-B-B and D-B models for other projects. For example, (a) most
runway and taxi-lane projects use the DBB model; and, (b) the Central Utility Plant (CUP)
project uses the DB model.
When considering various delivery models, the primary owner objectives should be cost, quality,
and schedule. More specifically, these goals should consider:
1. Final Cost
2. Lifecycle Cost
3. Schedule Duration
4. Owner Control
5. Need for Expertise from Specialists
6. Owner Risk
7. Litigation Risk
8. Cost and Schedule Growth
9. Cost of Design Changes
10. Degree of Design Completion and
Construction Start
11. Prescriptive vs. Performance
Specification
12. Distribution of Responsibility
Generally, owner risks of extending the schedule and increasing costs is lowest under a DB
model, higher under a CMAR model, and highest under a DBB model. However, owner control
over design detail and ability to make late changes with minimal impact to cost or schedule is
generally highest under a DBB model, lower under a CMAR, and lowest under a DB model.
These relationships are graphically displayed in Exhibit 2.1, extracted from Airport Owners
Guide to Project Delivery Systems, published by the Airports Council International NA,
Airports Consultants Council and the Associated General Contractors of America (October
2006).
30

Exhibit 2.1
Schedule, Cost and Owner Involvement
Relationships for Three Major Project Delivery Methods

Source: Extracted from Airport Owners Guide to Project Delivery Systems, published
by the Airports Council International NA, Airports Consultants Council and the
Associated General Contractors of America (October 2006)
Evaluation and Selection of Delivery Model Alternatives
LAWA chose to use a CMAR project delivery method for the Bradley West projects, which had
never before been used by the department. By all accounts, the primary driver for choosing this
model was the desire by LAWA and other City officials for an aggressive construction schedule.
Therefore, LAWAs choice of a CMAR model reflected its priority to place schedule over cost,
while retaining some ability to affect project design as the project moved through parallel design
and construction processes.
The extent to which LAWA management analyzed the potential risks of employing the CMAR
model and determined how best to mitigate those risks is not clear. Additionally, it is not clear
whether LAWA management fully examined other hybrid project delivery models that might
have been appropriate.
31

In October 2008, the LAWA Board of Airport Commissioners approved a resolution that
authorized the use of either the Construction Manager at Risk or Design-Build as alternative
delivery systems. The related staff report to the Board of Airport Commissioners gives a general
description of the CMAR structure and its purported benefits of: (1) allowing LAWA to maintain
control of the design; (2) placing the construction manager at risk to deliver the project at the
agreed maximum guaranteed price; and (3) a shortening of the entire schedule by allowing the
construction manager to begin construction in packages as design progresses. Further, the staff
report noted that by having the construction manager participate in the design process, LAWA
would gain the benefit of the firms construction experience and knowledge resulting in a more
cost effective and constructible design. However, the staff report did not identify or
acknowledge any potential risks of utilizing the CMAR model and strategies for reducing those
risks.
Requiring an ordinance change, the Board requested and the City Council approved changes to
City codes that permitted this action. In the staff report to the Board, it was determined that the
Bradley West projects could be completed approximately five to seven months earlier using the
CMAR model rather than the more traditional DBB.
An April 2009 staff report to the Board of Airport Commissioners for the Bradley West Gates
Pre-Construction contract with the CMAR did not include a robust discussion of the costs,
benefits or risk of using this model. Rather, the staff report stated that using a DBB model would
delay the J anuary 28, 2012 required completion of the Bradley North Gates. The report
continued to state that, with the Design-Build delivery model, the owner relinquishes a large
degree of design control . . . which is not recommended on a project like the Tom Bradley
International Terminal Modernization, or its components, given the complexity of the project.
There was no discussion of the method of implementation, including how potential risks of the
CMAR model would be addressed, or of the costs and benefits of other, hybrid delivery models.
The October 2008 staff report noted that LAWA would negotiate and authorize a guaranteed
maximum price on a package by package basis accumulating to a final overall Guaranteed
Maximum Price and the final agreement, and its associated Construction Services Option
amendment would include the term Aggregate Guaranteed Maximum Price (AGMP).
The actual pre-construction services agreement defined this term as:
The total not-to-exceed amount payable by LAWA to the CMAR for complete performance of the
Work based on the incremental addition of each [Component Guaranteed Maximum Price or]
CGMP to the Contract.. If the Cost of the Work exceeds the Aggregate Guaranteed Maximum
Price, the CMAR guarantees to complete the Work at no additional cost to LAWA.
However, during the course of our audit LAWA representatives have stated that this term is not
used for the Bradley West project and that cost overruns were expected from the outset, given
the size, complexity and design stage when the project was initiated. This suggests that the
importance of the AGMP may have been downplayed as the project was implemented.
32

Bradley West Has Incurred a Large Volume of Changes, Despite the
CMARs Access to Design Plans in the Pre-Construction Phase
As previously mentioned, the October 2008 staff report to the Board of Airport Commissioners
recommending approval of the CMAR model noted that by having the construction manager
participate in the design process, LAWA would gain the benefit of the firms construction
experience and knowledge resulting in a more cost effective and constructible design.
However, a majority of change orders resulted from design errors, owner betterment requests,
and design changes. According to ADG reports, the breakdown of the Bradley West project
change order categories, by proportional dollar amount, are:
Design Evolution 32.7%
Owner Betterment 29.1%
Document Correction 23.4%
Field Conditions 10.7%
Code Requirement 4.1%
Based on these statistics, only 14.8% of the change orders were attributed to unknown field
conditions or unanticipated changes in building codes. The remaining 85.2% were attributed to
design changes, owner requested betterment and/or scope expansion, and plan errors. ADG staff
has noted that some, but not all, of the design deficiencies are the result of the projects
aggressive schedule and complexity. While the project architects and engineers are required to
carry $5 million in Errors and Omissions insurance per claim, final determination of potential
liability is being deferred until the project is completed.
As generally understood in the construction industry and as described in the October 2008 staff
report to the Board of Airport Commissioners, CMARs are required to deliver a project within a
prescribed schedule and under a Guaranteed Maximum Price (GMP), which provides an
incentive to minimize costs because overages for stated work above the GMP are to be borne by
the CMAR while savings under the GMP would be retained by LAWA. The CMAR contract
agreements for the Bradley West Core and Gates projects included Component Guaranteed
Maximum Prices (CGMPs), which together accumulate to final overall Guaranteed Maximum
Prices (also referred to as the Contract Amount in the Construction Services Option
amendments) for the Bradley West Core and Gates projects. These contract amounts are subject
to change order authority up to project contingency amounts of $66.7 million for the Core project
and $61.4 million for the Gates project. Increases in project costs as a result of change orders
have brought the total contract costs closer to the combined contract authority (the contract
amounts and contingency amounts).. Although we requested total cost forecasts that are prepared
by ADG staff on a bi-weekly basis for the Bradley West projects, we were not provided with a
copy at the completion of fieldwork. As a result, we are not able to accurately project the
likelihood that LAWA will exceed the combined Contract Amount and contingency. However,
33

these projects have been subject to a substantial number of change orders, which may result in
LAWA exceeding the contract and contingency amounts.
As shown in Table 2.1, below, there were 1,154 closed change orders totaling $105,386,542 in
changes for the Bradley West Core project and 1,897 closed change orders totaling $86,381,571
in change orders for the Bradley West- Gates project as of September 30, 2012. This activity is
significant, since it averages over 127 monthly change orders, amounting to additional costs of
nearly $8 million per month over the approximately two year period of construction.
Table 2.1
Bradley West Change Order Volume As of 9/30/12
Project
Number of Closed
Change Orders
Number of Change Orders
In Process/Under Review
Dollar Amount of
Executed and
Approved Changes
Bradley West Gates 1,897 669 $86,381,571
Bradley West Core 1,154 729 $105,386,542
BW Total 3,051 1,398 $191,768,113

Source: Bradley West Gates and Bradley West Core Project Management Dashboard Reports, September 30, 2012
Under the pre-construction and construction services agreement, the CMAR for the Bradley
West project compensation is determined using three methods: (1) direct cost reimbursement, (2)
overhead, and (3) a CMAR fee. The CMAR may charge a fee of 3.95% (Core) and 5.90%
(Gates) for all subcontractor and consultant personnel costs, which supplements reimbursements
for the CMARs direct costs and the mark-up on all costs for overhead.
The CMAR had access to the design documents during the RFP process and for approximately
one year through the pre-construction phase, during which time was charged for pricing the
construction components. ADG management and CMAR representatives state that it would have
been more beneficial for the CMAR to have been involved earlier in the design stage to more
effectively identify the need for design modifications, but this was difficult because of the
accelerated schedule. Nonetheless, this preconstruction involvement, beginning in J une 2009
when the Bradley West Gates pre-construction agreement was executed with a one year term,
provided a significant period of time for the CMAR to identify design flaws and errors in the
construction documents.
CMAR May Have Disincentive to Minimize Change Order Costs
Our review of processes for the Bradley West Gates and Core projects found that LAWA project
managers, inspectors and estimators are fulfilling many of the CMARs contractual roles and
responsibilities related to Change Order meriting and pricing, and project quality control (see
Sections 3 and 4). Further, the CMAR has routinely missed deadlines clearly established in the
contract. Yet there are minimal enforceable remedies and sanctions available to LAWA, despite
34

the fact that the CMAR is being compensated for its direct and most indirect costs associated
with the projects (as defined by Federal Acquisition Regulations, or FAR, Part 31).
As stated earlier, the CMAR is compensated a 3.95% and a 5.90% management fee on Sub-
Contractor/Consultant personnel costs for performing services on the Core and Gates projects,
respectively. Although management fees of this nature are common in CMAR contracts, because
CMAR fees are to be applied to all personnel costs including additional costs resulting from
change orders there may be a disincentive for the CMAR to minimize consultant and
subcontractor expenses.
The CMAR agreements for the Bradley West Core and Gates projects do not contain sufficient
controls, including sanctions, to ensure adequate contractor performance. Although the CMAR
contracts allow for the posting of a performance bond or the use of a 10% retention on each
progress payment during the Construction Phase until work under specified components has been
completed and accepted by LAWA, there are no specifications that directly address CMAR
performance as it relates to Quality Control or Change Management. Further, although some
sections of the agreements specify that work should conform to the highest professional
standards for the construction industry and that only competent workers shall be employed on
the work, there are no measurement controls in place to enforce these standards.
LAWA Intention to Evaluate the CMAR Model is Unclear
LAWA documents establish a high level of activity for the next five to ten years based on
existing plans for a mid-field satellite concourse, a connector between Bradley West and the
mid-field satellite terminals, and an inter-terminal tram system, among others. However, it is not
clear whether LAWA intends to take substantive actions to evaluate the efficiency and
effectiveness of the CMAR project delivery method, as implemented for the Bradley West
projects, and how it may be applicable to future projects. Given the extensive plans for continued
capital development at the airport, it would be in LAWAs best interest to conduct a post-project
assessment of the costs, benefits and risks of the CMAR model, and to examine contract
language that would give LAWA options for providing incentives and/or enforcing compliance
with contract requirements.
Conclusions
LAWA chose to use a Construction Manager at Risk (CMAR) project delivery method for the
Bradley West projects, which had never before been used by the department. While the analysis
of the benefits of using the CMAR model supported managements decision to move forward in
this manner, certain circumstances and project expectations may have prevented LAWA from
realizing the models full benefits.
The CMAR contract agreements for the Bradley West projects appropriately include Component
Guaranteed Maximum Price (CGMP) caps, which accumulate to overall Guaranteed Maximum
35

Prices (GMP) referred to as the contract amounts. However, total expected costs may exceed
these amounts as well as contingencies due to the volume of change orders resulting from
unknown conditions, owner initiated design changes and other factors. As a result, the risk to the
CMAR may have been diluted and the incentives for the CMAR to deliver the project under the
GMP or Contract Amount may have been compromised, since the CMAR may charge
management fees on most costs.
Further, the CMAR agreements for the Bradley West projects do not contain sufficient controls,
including sanctions, to ensure contractor performance in key areas. For example, although the
CMAR contracts require performance bonds or 10% retention of each progress payment claimed
during the Construction Phase, there are no specifications that directly address CMAR
performance related to its Quality Assurance or Change Management responsibilities. Although
LAWA expects to continue with a high level of construction activity for the next five to ten
years, it has not initiated any evaluation of the efficiency and effectiveness of the CMAR project
delivery method, as implemented for the Bradley West projects, to decide whether it is
appropriate or should be modified.
Recommendations
The LAWA Executive Director should direct ADG management to:
2.1 Conduct a post-project assessment of the costs and benefits of the CMAR model. Include
a comparison of alternative models.
2.2 Evaluate the CMAR model, as implemented for the Bradley West Gates and Core
projects, by reviewing the agreements and the incentive structure they provide.
2.3 Develop formal criteria for choosing project delivery models on future capital projects
and ensure that project management and other pertinent staff are made aware of the
strengths and weaknesses of all procurement models considered.
Costs and Benefits
The costs involved with implementing these recommendations include additional staff time to
conduct assessments of the CMAR project delivery model and its alternatives as well as time
spent developing and vetting formal criteria for choosing project delivery models. The benefits
of implementing the recommendations include a richer understanding of the benefits and risks of
using a CMAR model for capital projects and a more methodical process for selecting delivery
models for future projects.
36
3. Monitoring CMAR Change Management
As generally understood in the capital and airport development industries, a
major benefit of the CMAR project delivery model is the transfer of
responsibility and a significant amount of risk from the owner to the CMAR for
the entire construction effort. However, ADG has not implemented this project
delivery model in the most effective manner given that there have been over
3,000 changes to the Bradley West projects scope amounting to approximately
$192 million as of September 2012. Approximately $8.8 million of this amount
consisted of CMAR management fees.
LAWA has not taken sufficient action to ensure that the CMAR for the Bradley
West projects effectively analyzes subcontractor change order estimates for
accuracy and reasonableness, despite paying the CMAR $4.5 million per year
for this service. Additionally, based on discussions with various LAWA staff and
a review of files shared with the audit team, the CMAR and ADG Package
Managers do not consistently perform independent or sufficient merit reviews of
change order requests from subcontractors. Further, the CMAR has not
complied with contractual obligations to submit change order requests in a
timely manner and LAWA has not aggressively enforced its own change
management guidelines or specific time requirements of the CMAR agreements.
LAWA has assembled an independent unit of approximately 14 FTE Estimators,
to review change order requests. These resources supplement approximately
$370,000 paid monthly to the CMAR for administering change management.
Even so, LAWA may be incurring unnecessary costs for change order review
due to the CMARs substandard analysis of subcontractor cost estimates.
Inconsistent merit reviews have led to a higher risk of incurring unnecessary
costs and inefficiencies, namely that estimators are sometimes required to review
change requests that should not have been merited. Further, due to the lack of
compliance with contractual timelines for change estimates, LAWA is at greater
risk that subcontractors may not get paid in a timely manner, potentially
impacting project schedules, increasing the risk of disputed change requests, and
creating additional difficulties for LAWA at project close-out.
LAWA should review and strengthen contract provisions for future projects,
follow through on communications related to the enforcement of change
management contract provisions, enhance monitoring of CMAR performance to
include its ability to meet contractual timelines, and conduct a post-project
analysis of the resources allocated to CMAR change management functions to
determine whether the CMAR exceeded the mean or median amount spent, as a
percentage of total costs, and report results to the Board. The benefits of
implementing these recommendations include potential reductions in the
backlog of change orders, the avoidance of unnecessary costs, minimizing
schedule impacts, and ensuring subcontractors are paid on time for the Bradley
West projects, as well as future CMAR projects.
Section 3: Monitoring CMAR Change Management
37

CMARs Change Management Does Not Fully Prevent Unnecessary
Costs
As generally understood in the capital and airport development industries, a major benefit of the
Construction-Manager-at-Risk (CMAR) project delivery model is the transfer of responsibility
and a significant amount of risk from the owner to the CMAR for the entire construction effort,
including the performance risk of subcontract administration and coordination, cost containment,
and schedule adherence. However, our review has found that LAWA Airports Development
Group (ADG) has not effectively implemented the CMAR project delivery model, or contained
unnecessary costs that have arisen from the thousands of changes that have been proposed to the
Bradley West project scope. ADG has not taken sufficient steps to ensure that the CMAR
effectively implements procedures to avoid unnecessary costs resulting from the change order
management function on the Bradley West Gates and Bradley West Core projects (Bradley West
projects).
ADG Not Requiring CMAR to Adequately Review Subcontractor Estimates
LAWA has not effectively overseen CMAR performance of administrative responsibilities on
the Bradley West projects. Specifically, ADG has not ensured that the CMAR conducts effective
reviews of subcontractor scope revisions being requested through the change order process or
subcontractor estimates of change order costs prior to submission to LAWA for approval. As a
result, ADG staff is often required to evaluate change orders that have not been thoroughly
analyzed or have been incorrectly estimated by the CMAR. ADG staff who are charged with
reviewing and negotiating change order cost estimates, report that they are also often required to,
in effect, negotiate with CMAR subcontractors on the final amount to be paid (although CMAR
representatives are present). This should be a CMAR responsibility, since LAWA has no
contractual relationship with the subcontractors. Further, our review of LAWA change order
negotiation files for the two Bradley West projects found that the CMAR estimates often include
simple oversights requiring LAWA review and correction, such as incorrect labor bussing rates.
1

ADG has established an independent unit of estimators to review and evaluate change order
submittals from the CMAR for the Bradley West projects. This unit consists of approximately 14
FTE staff members (which ADG has recently considered expanding), who spend the vast
majority of their time on the Bradley West projects assessing the basis for the contractors
estimates, validating that standard rates and estimating techniques for work tasks and materials
have been used by the subcontractor and the CMAR to arrive at its recommendation, comparing
the change order request to the original scope of work and the Change Directive from ADG, and
arriving at an independent estimate of cost. While any responsible owner should conduct their
own review, regardless of the extent of the construction manager review, the level of effort

1
The agreement with the CMAR allows for billing labor time when accessing or leaving the construction site. For a
period of time this was done by bussing workers from an off-site remote parking lot. Subsequently, LAWA provided
for an on-site parking lot, which dramatically reduced the amount of time spent by workers on access buses.
38

required by LAWA for the Bradley West projects is likely more than would otherwise be
necessary due to inadequate review by the CMAR. Despite numerous communications with the
CMAR on the issue, ADG has not taken sufficient steps to ensure that the CMAR for the Bradley
West projects effectively reviews subcontractor change estimates for accuracy and
reasonableness. Our review of a random sample of 100 recently closed change order negotiation
files for the Bradley West projects shows that the CMAR cost estimates rarely vary from
subcontractor estimates, and if they do, the amounts are typically not significant. On average, the
CMAR estimates are only 1.7% below subcontractor estimates on the Bradley West Projects
(2.54% below subcontractor estimates for the Bradley West Gates and 0.86% below
subcontractor estimates for the Bradley West Core projects (95% Confidence Level 10%)), as
shown in Table 3.1 below.
Table 3.1
Mean Difference Between Subcontractor and CMAR Change Estimates
Project Mean Subcontractor Estimate Mean CMAR Estimate Mean Percent Reduction
Bradley West Gates $69,212 $67,451 2.54%
Bradley West Core $196,083 $194,400 0.86%
BW Aggregate $132,648 $130,926 1.70%
Source: Records of Negotiations from 100 randomly selected, recently closed Bradley West projects change order
negotiation files
Further, based on sampling, the CMAR often recommends change order cost estimates prepared
by the subcontractor to LAWA, even when it makes a determination that a lower amount is
appropriate. Therefore, in most cases the CMAR essentially proposes the estimates provided by
the subcontractors with little or no revision.
CMAR Change Order Cost Estimates Are Consistently Inflated
ADG staff change order cost estimates are consistently and significantly lower than the CMAR
change order proposal amounts. Based on our sampling of 100 randomly selected recently closed
change order negotiation files, we found that ADG estimators have determined that the CMAR
recommended change order amounts were overstated by an average of 16.5% and 11.2% for the
Bradley West Gates and Bradley West Core projects, respectively (95% Confidence Level
10%). Further analysis of the sample results indicates that the CMAR agrees to nearly all of the
reductions recommended by the ADG estimators. As shown in Table 3.2 below, the average
percentage of the reductions accepted by the CMAR for the Bradley West Gates and Core
projects equals 78.9% and 93.4%, respectively (95% Confidence Level 10%).

39

Table 3.2
Mean Difference Between CMAR and LAWA Change Order Cost Estimates
Project
Mean Difference
Between CMAR Estimate
and LAWA Estimate
Mean Percent
Difference
Mean Amount of
LAWA Reductions
Accepted by CMAR
Mean Percent of
Proposed Reductions
Accepted by CMAR
Bradley West Gates ($10,639) -16.5% ($8,396) -78.9%
Bradley West Core ($8,202) -11.2% ($7,661) -93.4%
BW Aggregate ($9,421) -13.9% ($8,029)
-86.2%

Source: Records of Negotiations from 100 randomly selected recently closed Bradley West projects change order
negotiation files
Based on data provided by ADG, the avoided cost of the LAWA independent estimation process
has amounted to approximately $56 million as of November 2012, with approximately $2.8
million of that amount coming from reduced CMAR fees (the CMAR agreement stipulates fees
of 3.95% and 5.9% on the Core and Gates projects, respectively). Additionally, we understand
from discussions with ADG Estimators that their recommended estimated reductions are often
smaller than they otherwise would be due to the difficulty of acquiring documentation to support
further reductions.
Additional Cost of Ineffective CMAR Reviews
LAWA directly reimburses the CMAR for its costs of change order management. Through the
Construction Services Agreements, LAWA is providing significant resources to the CMAR for
subcontractor administration and coordination, which includes change management functions.
Specifically, approximately $370,000 is provided to the CMAR for change management
personnel on a monthly basis totaling to nearly $4.5 million per year.
2
This amount is in addition
to approximately $9.26 million that was paid out in CMAR fees on change orders (as of
September 30, 2012) to compensate for construction management services. However, given the
results of the sampling and analysis, it is unclear what benefit LAWA is receiving for such
outlays. ADG staff has stated that they consider this function to be almost entirely administrative
and not focused on vetting change cost estimates for reasonableness. However, the contract with
the CMAR states that the CMAR shall provide a description of possible CMAR actions or
solutions to minimize the cost of the Contractor Potential Change Notice and the CMAR may
provide an estimate of the adjustment in the Contract Time and Contract Pricing which it
believes is appropriate. Further, the ADG Change Management Flow Chart provided to the
audit team indicates that the CMAR is responsible for evaluating the price and time associated
with every proposed change.

2
Estimate is based on amount paid to CMAR for change management personnel in October 2012. ADG does not
track these costs.
40

Meriting Process for Bradley West Change Orders
Generally, before a contractor-generated change order cost estimate is provided by the CMAR
(as a Contractor Change Request or CCR), the scope and basis of the proposed change order is
submitted to ADG (as a Contractor Potential Change Notice or CPCN) to determine if a
change order has merit. The merit review is conducted by the Package Manager (aka Project
Manager) who either denies the request with a Field Directive or authorizes it with a Change
Directive. If a Change Directive is issued, the CMAR is required to submit an itemized cost
proposal in the form of a CCR, which is referred to the ADG Estimating Unit for review.
Based on discussions with various ADG staff and a review of files that they shared with the audit
team, ADG Package Managers and the CMAR do not consistently perform independent or
sufficient merit reviews of change requests from subcontractors. Therefore, ADG estimator staff
has been required to evaluate some change order requests that have not been sufficiently justified
by the CMAR.
In one instance (Bradley West Gates Contractor Change Request #6686), a review of the
negotiation file found that the CMAR submitted a proposal for $393,378 worth of structural steel
work at two gates. Although this change was merited by LAWA, the ADG estimators were able
to negotiate a final change amount of only $826 for a total savings of $392,552 (or 99.8%) from
the recommended amount of $393,378. After review and onsite investigation by multiple LAWA
staff members, a LAWA assessment showed that the requisite change in scope was minor and
expected to cost less than $4,000. However, the CMAR review of the change proposal estimate
from its structural steel subcontractor failed to identify the significant flaws in the proposed
scope of work and costs, and it could be argued that the change order request from the sub-
contractor should not have been merited by the CMAR or by ADG, given the settlement amount.
It is our understanding from discussions with ADG staff that these types of deficiencies are
identified frequently in Bradley West change orders.
Delayed Oversight has led to Significant Backlog of Change Orders
The CMAR has not complied with contractual obligations to submit change order requests in a
timely manner and LAWA has not consistently enforced such provisions, resulting in sizeable
delays to change order processing. ADG staff has noted that although ADG recognized the
tardiness of change orders very early in the project, LAWA agreed to not enforce the contractual
timelines, but rather to continue to track the changes day by day as they are submitted. Staff
noted that this was done in order to keep the Bradley West projects on schedule, and to assure
the subcontractors that they would get paid in a timely manner for change work.
The construction services agreements for the Bradley West Projects require the CMAR to
promptly submit a written notice of matters or circumstances which the CMAR believes might
require a change in the contract document, contract time, or contract pricing by submitting a
Contractor Potential Change Notice (CPCN) within seven working days after the CMAR
41

becomes aware of such circumstances. The construction services agreement also requires the
CMAR to submit a complete and itemized estimate in the form of a CCR within 21 days after
submitting a CPCN. ADG construction management guidelines also require the CMAR to
submit a CCR within 21 days after receiving a Change Directive for owner-initiated changes.
Although the construction services agreements state that LAWA, in its discretion may grant
extensions in writing for the submission of CPCNs, the use of extensions appears to have been
applied liberally as a policy choice by LAWA.
Contractual Timeline Requirements Not Monitored by ADG
ADG does not monitor or report on the aging of deliverables with timelines stipulated by the
construction services agreements and the ADG construction management guidelines. The
construction services agreement and the ADG construction management guidelines define the
change management process and the roles of the CMAR and of ADG. According to the
agreement and the guidelines, the CMAR waives any claim for an adjustment to the contract
pricing or contract schedule if it does not submit its notice of a potential change (CPCN) or its
itemized proposal for change orders (CCR) within seven or 21 days, respectively, or within such
extension that LAWA may have granted in writing. The audit found that although ADG
management monitors change orders globally for each project based on the number of changes at
each step in the established process, there is no formal monitoring or reporting of CMAR
compliance with the time requirements established in the construction services agreements.
Contractual Timeline Requirements Not Enforced Until Recently
Until recently, ADG had not enforced the contractual timing requirements for change orders,
raising the risk of subcontractors not getting paid in a timely manner, potentially impacting the
construction schedule, increasing the risk of disputed CCRs, and creating additional difficulties
during the project close out phase. As recently as November 2012, ADG had accepted CPCNs
from the CMAR at the point they were received, regardless of whether the CPCNs were
submitted within the seven day required contractual timeframe. Similarly, up until October
2012, LAWA had not enforced the contractual timeframe for CCRs even when it received CCRs,
on average, over four weeks after the contractually required timeframe of 21 days, according to
our analysis of all closed contractor generated change orders for the Bradley West projects. We
also noted that these averages may be somewhat inflated by outliers as the median tardiness was
five days for the Gates Project and nine days for the Core Project. Nevertheless, these delays
raise risks, such as subcontractors not getting paid on time and increasing the risk of disputed
change requests, as described above. Additionally, a majority of the CPCNs that have been
submitted past the seven day deadline represent cases where the subcontractors and/or CMAR
have proceeded with work based on a Request for Information, but without a full review of the
scope and costs. This may raise the risk of incorporation of unnecessary work and/or costs into
change orders.
ADG had identified the CMARs failure to meet contractually prescribed timelines for submittal
of CCRs at the outset of the construction phase in 2010, but corrective actions were not taken
42

until J anuary 2012. Further, it is not clear if actions taken to reduce delays will improve
processing for the Bradley West projects. After identifying a significant backlog of CPCNs
without adjoining CCRs, a charter was drafted and signed by the CMAR in J anuary 2012. The
charter included a CMAR pledge to take steps to reduce the change order request backlog over
the subsequent months. The charter included a provision that the CMAR was to submit
associated CCRs for all CPCNs opened prior to December 31, 2011 by no later than September
30, 2012.
Following the September 30
th
charter deadline, ADG management identified that the CMAR had
not submitted most of its CPCNs within the seven day contractual requirement. In an October
15
th
letter to CMAR management, ADG noted that beginning November 5
th
, LAWA would no
longer accept CPCNs that arrive after the contractual timeframe of seven days.
Efforts to Enforce Compliance Have Had Limited Impact
The delayed efforts by ADG to enforce compliance of contractual timelines has had limited
response from the contractor thus far. According to discussions with ADG management, the
CMAR waited until the end of the eight month submission timetable to provide most of the
requisite documentation. Further, many of the submissions from the CMAR were for additional
time extensions rather than completed CCRs. A review of Bradley West monthly project status
reports showed that the number of change orders in the under merit review stage of the change
management process spiked in October 2012 (the month after the deadline for submission of
CCRs) for the Gates and Core projects by 55.1% and 39.7%, respectively, from the prior month.
A review of a random sample of 100 recently closed negotiation files for the Bradley West
projects found that the CMAR has been engaged in initially submitting incomplete CCRs and
later submitting revised CCRs with no scope change, but with additional costs. Additionally, in
one CCR file we reviewed, ADG staff discovered that a false document had been submitted for
a $9,000 cost item, a practice that the staff noted is on going with this subcontractor and
others. When ADG staff confronted the subcontractor on the issue they were told it was
submitted as a place holder for expected costs in order to expedite change order processing.
Additionally, according to discussions with ADG management, the CMAR is making greater use
of the established Dispute Resolution Process to appeal changes that are not approved by
LAWA, including change requests intended to modify contractual timelines. Further, ADG
management has indicated that the CMAR is allowed to revise CCRs that have not yet reached
the settlement stage. While this may be common practice at LAWA, the CMAR agreements do
not specifically address this issue other than to state that the CCRs should set-out as specifically
as practicable the requested adjustments to the Contract Pricing, Contract time or other Contract
provisions.
43

Conclusions
The LAWA Airports Development Group (ADG) has not effectively overseen the Construction-
Manager-at-Risk (CMAR) change order management function on the Bradley West Gates and
Bradley West Core projects (Bradley West projects), to ensure that unnecessary costs are
avoided. ADG has not taken sufficient action to ensure that the CMAR for the Bradley West
projects effectively analyzes subcontractor change estimates for accuracy and reasonableness.
Our review of a random sample of 100 recently closed change order negotiation files for the
Bradley West projects shows that the CMAR cost estimates rarely vary from subcontractor
estimates, and if they do, the amounts are generally not significant. Further, the CMAR often
recommends the subcontractor change order cost estimates to LAWA, even when it makes a
determination that a lower amount is appropriate. In effect, the CMAR is proposing the estimates
provided by its subcontractors with little or no revisions.
ADG staff change order cost estimates are consistently and significantly lower than the CMAR
change order proposal amounts. Based on sampling of 100 randomly selected, recently closed
change order negotiation files, we found that ADG estimators have determined that the CMAR
recommended change order amounts were overstated by an average of 16.5% and 11.2% for the
Bradley West Gates and Bradley West Core projects, respectively. Based on data provided by
ADG, the avoided cost of the LAWA independent estimation process has amounted to
approximately $56 million as of November 2012.
Based on discussions with various ADG staff and a review of files that they shared with the audit
team, ADG Package Managers and the CMAR do not consistently perform independent or
sufficient merit reviews of change requests from subcontractors. In one instance (Bradley West
Gates Contractor Change Request #6686), a review of the negotiation file found that the CMAR
submitted a proposal for $393,378 worth of structural steel work at two gates was eventually
settled for $826. It could be argued that this change order request from the sub-contractor should
not have been merited by the CMAR or by ADG, given the settlement amount.
The CMAR has not complied with contractual obligations to submit change order requests and
cost estimates in a timely manner and LAWA has not monitored or consistently enforced such
provisions, resulting in sizeable delays to change order processing. Up until October 2012,
LAWA had not enforced this contract provision even as it received CCRs, on average, over four
weeks after the contractually required timeframe of 21 days, according to our analysis of all
closed contractor generated change orders for the Bradley West Gates and Core projects. The
delayed efforts by ADG to enforce compliance of contractual timelines has had limited response
from the contractor thus far. These delays raise the risk of subcontractors not getting paid on-
time, schedule impacts to some work, increased risk of disputed CCRs, and additional difficulties
for LAWA when it is time to close out the project after construction is complete.
44

Recommendations
The LAWA Executive Director should direct ADG management to:
3.1 Review contract provisions, such as Articles 01 23 00 (Change Orders), 01 24 00
(LAWA Initiated Changes), and 01 25 00 (CMAR Change Request) in the Bradley West
Construction Agreements, to strengthen language and expectations of CMAR change
management for future projects. Specific areas that could be strengthened include the
expectation of the CMAR role in the meriting review process, pricing estimation for
proposed change orders, and the acceptability of CCR revisions that contain cost
increases, but no changes in the scope of work.
3.2 Follow through on formal communications to the CMAR management regarding
contractual provisions requiring the CMAR to submit CPCNs and CCRs within the
timeframes stated in the agreement.
3.3 Formally communicate that unsupported estimates used as placeholders, as well as CCR
revisions that do not contain changes in scope, will not be accepted.
3.4 Consider enhancing the monitoring of CMAR performance of change management to
include its ability to meet contract prescribed timelines for change submittals to reduce
the risk of schedule impacts, that subcontractors will not paid in a timely manner, and to
ensure the project may be closed out with an efficient and effective process.
3.5 Conduct a post-project analysis of the resources allocated to CMAR Change
Management functions by LAWA under the Bradley West project budgets to determine
whether they exceeded the mean or median amount spent, as a percentage of total costs,
on this administrative function. Report results to the Board of Airport Commissioners.
Costs and Benefits
The costs of implementing these recommendations include additional staff time to review
contract provisions, draft and review communications to the CMAR, create and implement
additional monitoring processes, and conduct a post-project analysis. The benefits of
implementing these recommendations include potential reductions in the backlog of change
orders, the avoidance of unnecessary costs, minimizing schedule impacts, and ensuring
subcontractors are paid on time for the Bradley West projects, as well as future CMAR projects.
The benefits would also include having a better understanding of the true administrative costs of
the CMAR model relative to other capital projects.
45
4. CMAR Quality Assurance Monitoring
The active Construction-Manager-at-Risk (CMAR) contracts for the Bradley
West Gates and Core projects at Los Angeles International Airport, along with
the LAWA-approved CMAR Quality Control (QC) Plan, outline the Quality
Control (QC) services to be provided by the CMAR. As defined, the CMAR QC
staff members are responsible for reviewing and testing completed construction
elements first, and then LAWA inspectors perform a final review to ensure that
construction elements comply with applicable plan specifications and codes.
LAWA may be performing QC functions assigned to the Contractor and for
which the Contractor is already compensated, through the executed contracts,
amounting to approximately $122,600 per month, or $1.5 million per year.
LAWA may be incurring unforeseen costs because of the duplication of efforts,
along with other inefficiencies in the CMAR-LAWA relationship. Because
LAWA inspectors do not have, or do not follow all procedures for tracking
inspection activity or monitoring the performance of the CMAR, management is
unable to effectively gauge CMAR QC performance or overall CMAR
compliance with active contracts.
The LAWA Construction Inspection Division Procedures Manual establishes
LAWA policies on processing and monitoring a contractors work product.
Weaknesses in the practice of CMAR performance monitoring may result in
deficiencies in construction, which may affect the integrity of the work element
and increase the possibility of future litigation. Incomplete records of
communication between LAWA and the CMAR pose a risk for LAWA if
litigation occurs. Additionally, LAWA is exposing itself to additional unforeseen
costs by, in a handful of cases, funding changes to incorrectly completed
construction elements.
A revision of the LAWA Construction Inspection Division Procedures Manual
could help to codify outstanding ambiguities, notably those related to the
issuance of Job Memos and Notices of Noncompliance, as well as those related to
tracking inspection records. Making the Manual readily available and providing
training to LAWA inspector staff on records and information management
procedures to ensure that staff are knowledgeable about requirements and
equipped to comply with them may help ensure that inspector staff follow
required procedures.

The inspection processes for both in-progress and completed work elements are described in the
active contracts and established through informal agreements with the Construction-Manager-At-
Risk (CMAR) for the Bradley West Gates and Core. In general, the initial inspections and testing
Section 4: CMAR Quality Assurance Monitoring
46
are to be performed by the CMAR Quality Control (QC) program to verify that construction
meets the requirements of applicable building codes and the specifications defined in the job
plan. After the QC staff determines that the construction element meets the job specifications,
QC staff submit a Request for Inspection to LAWA inspector staff. The submittal of the Request
for Inspection initiates the final inspection of the work element by the LAWA inspector staff to
verify that the work has been performed as required.
During the construction process, but separate from the Request for Inspection process, LAWA
inspector staff have several tools available to enforce CMAR compliance with code and
stipulated technical job specifications.
LAWA inspector staff can verbally notify the CMAR if an inspector observes a work
element that is not compliant with code or technical job specifications.
If the verbal notification does not result in the CMAR addressing the matter, the LAWA
inspector staff member can document the noncompliance issue by issuing a formal J ob
Memo to the CMAR.
Neither the verbal notification nor the J ob Memo requires action by the CMAR, but if the
compliance issue remains unaddressed after the issuance of a J ob Memo, the LAWA
inspector staff member can issue a Notice of Noncompliance to the CMAR regarding the
compliance issue. If this occurs, the CMAR, and thus the subcontractor responsible for the
work element, may not receive payment on the work until the noncompliant work product
has been addressed.
CMAR Quality Control Services May Not Be Sufficiently Monitored
The executed contracts with the CMAR for the Bradley West Gates and Core projects outline
some key components of the inspection processes. The contracts stipulate that the CMAR QC
program is to perform inspection and testing of all items of work required by the technical
specifications, including those performed by subcontractors. The inspections and testing
performed by the CMAR QC team of subcontractor work should precede inspections and testing
performed by LAWA inspector staff. The QC Plan defines the structure, staffing,
responsibilities, and procedures surrounding the CMAR QC program, and the QC Plan is
required of the CMAR by the executed contracts to be submitted to and approved by the LAWA
inspector staff prior to the commencement of construction.
LAWA Inspector Staff Are Not Actively Reviewing QC Performance
While the executed contracts state that the LAWA inspector staff should review QC reports and
conduct audits to check for deficiencies in CMAR QC work, the LAWA inspectors do not keep a
record of CMAR QC staff performance. Interviews suggest that such a record is sensitive to
maintain, since it potentially jeopardizes the working relationships between the CMAR QC staff
and LAWA inspectors.
47
However, LAWA inspectors have maintained such records on other LAWA projects, and to
illustrate, two specific Notices of Noncompliance for the Taxilane S project were brought to the
attention of auditors. The first Notice of Noncompliance, No. 114, states that a contractors QC
representative was not present during the welding of a gas line, and a contractors QC
representative is required to be present for all welding activities. The second Notice of
Noncompliance, No. 202, shows that the LAWA inspectors rejected poured concrete due to
visible cavities and invisible voids that can be felt when tapping to the placed concrete walls.
As reported, these concrete imperfections should have been caught in the initial contractors QC
inspection before being referred to the LAWA inspector team for sign-off. Maintaining such a
record of CMAR QC staff performance would help to highlight deficiencies in the relationship
between the CMAR QC staff and the LAWA inspector staff.
Quality Control Plan and Program May Not Align With Needs
Having the ability to measure performance would help LAWA evaluate whether the CMAR is
accomplishing the objectives of the approved QC Plan. For example, LAWA inspector staff
suggested that the inability of the CMAR to achieve the goals of the program may relate to the
level of staffing assigned to the QC function under the plan. Reportedly, the LAWA inspectors
are taking primary responsibility for ensuring conformity with applicable specifications and
plans with respect to materials, workmanship, construction, finish, and function, in some cases
performing roles intended for the CMARs QC team. This level of effort by LAWA is in
addition to approximately $122,600 paid per month, totaling approximately $1.5 million per
year,
1
to the CMAR for fulfilling its QC responsibilities under the construction agreements.
Interviews suggested that the CMARs QC staff members are not consistently present on job
sites when required and, instead, may rely on the report of the subcontractor project manager or
the foreman regarding the quality of the work product. Persons interviewed were of the opinion
that the likely cause is the quantity of the work to be inspected within the schedule, given the
number of CMAR inspectors, which total 10 inspectors and 2 managers. Because a record of
CMAR QC performance is not maintained by LAWA, this assertion cannot be independently
verified. For example, no data exists to determine the number of QC inspections performed per
inspector per day, the complexity of the inspections that are performed, or performance against
the Request for Inspection date.
Further, an assessment of basic staffing, workload, and activity data may not fully describe the
capacity of the CMAR to perform the QC function. For example, representatives of the CMAR
noted that subcontractors may be required to add a dedicated QC staff person on contracts, if
certain thresholds stipulated by the CMAR are met. However, those thresholds were not well
defined for the audit team and records demonstrating the extent of such requirements are not
maintained. The addition of some QC staff as part of the subcontractor work requirement may be
alleviating some of the reported QC work overload, but there is not a corroborating report of the
actual practice.

1
Estimate is based on amount paid to CMAR for Quality Control personnel in October 2012. ADG does not track
these costs, so a compilation of the actual annual cost could not be conducted.
48
Procedures for Requests for Inspection are Inconsistent
As currently established, once a work element has passed inspection and testing by CMAR QC
program staff, the LAWA Inspection Division receives a Request for Inspection. The submittal
of a Request for Inspection certifies that the work element has passed inspection and testing by
the CMAR QC team. The Request for Inspection initiates the final inspection of the work
element and may result in the following determinations:
The work product is accepted by the LAWA inspector staff, and the subcontractor is allowed
to proceed with the next phase of construction;
The work element is rejected by the LAWA inspector staff, and the subcontractor is not
allowed to proceed with construction until noncompliance matters are addressed;
The work element is partially accepted by the LAWA inspector staff, and the subcontractor
may proceed, but needs to resolve more minor noncompliance matters; and,
The Request for Inspection is cancelled before an inspection, so the inspection is not made.
Cancellations are initiated by the CMAR, and it was suggested in interviews that this may be
occurring after the CMAR is verbally advised by the assigned inspector that the work product
is not ready for inspection.
Request for Inspection Process Lacks Codification
The Request for Inspection process is not consistently used to initiate a LAWA inspection or to
track performance. Instead, the decision to use the Request for Inspection process may be
decided jointly by the CMAR and the associated LAWA inspector team, depending upon the
complexity and scale of a project. As repeatedly reported to the audit team, the chief benefit of
the Request for Inspection process, which is standard practice in the Los Angeles Building and
Safety Department, is to record the acceptance of work that has been completed.
The policies regarding the use of Requests for Inspection are not defined in the CMAR
agreements or in the LAWA Construction Inspection Division Procedures Manual. Instead,
managers in the LAWA Inspection Division reported that there are informal agreements between
the CMAR and LAWA inspector staff, which initiate the use of the Requests for Inspection.
Though the lack of formal Request for Inspection policies presents an opportunity for the LAWA
inspectors and a contractor to tailor the process to specific project needs, the lack of defined
policies and procedures makes it an unreliable mechanism for tracking construction contractor
and subcontractor performance.
In the absence of defined policies surrounding the Request for Inspection process, it was reported
that Request for Inspection documents are not consistently submitted by the CMARs QC
inspectors for each construction element that is considered complete. LAWA inspectors attribute
this to the large quantity of construction elements that require inspection by LAWA inspectors.
LAWA inspectors state that they visit job sites with enough frequency that, occasionally,
construction elements are approved informally, with no record of the approval. Given that
49
maintaining a record of completed construction elements is the chief benefit of the Request for
Inspection process, the lack of maintained policies for the documentation of the Request for
Inspection process presents a potential source of risk for LAWA.
Requests for Inspection Are Not Currently Logged by LAWA
For the Bradley West Gates and Core projects, LAWA inspectors do not log Requests for
Inspection or track the results of inspections, so there is no LAWA summary record of inspection
activity. Requests for Inspection records could only be provided to the audit team by the LAWA
inspector staff from physical copies of the individual documents. PDFs of Request for Inspection
source documentation are also uploaded to Prolog, a document management system, though
there is no way to assess aggregate data through Prolog and it was reported that not all
documents had been uploaded to the system.
The LAWA Construction Inspection Division Procedure Manual states that the Field Inspector is
to maintain logs to track correspondence/documentation such as RFIs, Field Memos, submittals,
etc. While the Manual does not clearly define the content of the logs, the lack of any internally
maintained logs reflecting aggregate data for issued Requests for Inspection is a technical
violation of these procedures. According to the executed contracts, the CMAR is responsible for
tracking inspections in an Inspection Control Log. However, LAWA inspector staff does not
have routine access to this log, though it was reported in interviews that logs could be requested
from the CMAR when required. The lack of regular access to CMAR logs and the absence of
LAWA Inspection Division logs with associated outcome data inhibit LAWA inspector staffs
ability to assess overall CMAR performance or identify trends in subcontractor performance by
analyzing frequencies in Rejected or Partially Accepted results.
By tracking the results of the Requests for Inspection, LAWA could use the Requests as a key
component of a performance measurement tool. The ability to assess Request for Inspection
outcomes at a high level could point out increased frequencies of partial acceptances and
rejections for certain construction elements within the Bradley West Gates and Core, allowing
the LAWA inspector team to take proactive measures to address deficiencies. Based on a sample
of 195 Requests for Inspection submitted between August 2012 and November 2012:
51.3% were accepted, which means the work product was approved and the construction
subcontractor was allowed to proceed with construction;
9.7% were rejected, which means the subcontractor was not allowed to proceed with
construction until noncompliance matters were addressed;
27.7% were partially accepted by the LAWA inspectors, meaning the subcontractor may
proceed, but needed to resolve noncompliance matters; and,
9.7% were cancelled Requests for Inspection, which are typically Requests for Inspection the
CMAR submits and chooses to revoke.
50
For 1.5% of the sample, such data was not recorded in the source document. This aggregation of
data can help to elucidate CMAR and subcontractor performance. A table displaying sample
results is provided below.

Table 4.1
Sample Summary of Requests for Inspection Status
August 2012-November 2012

Source: Bradley West Gates and Core Requests for Inspection submitted to LAWA

Inspection Compliance Tool Benefits Are Not Fully Realized
During the construction process, the LAWA inspector staff have a several tools at their disposal
to enforce CMAR compliance with job specifications. LAWA inspector staff regularly visit work
sites, with or without the prompting of Requests for Inspection, and in doing so, if a LAWA
inspector staff member notices a work element that does not follow the job specifications, a
verbal notification can be issued to the subcontractor and the CMAR, observing the compliance
issue. If the verbal notification does not result in the CMAR addressing the matter, the LAWA
inspector staff member can issue a J ob Memo to the CMAR, documenting the compliance issue.
Neither the verbal notification nor the J ob Memo, contractually or otherwise, requires action by
the CMAR or subcontractor. If the compliance issue remains unaddressed after the issuance of a
J ob Memo, the LAWA inspector staff member can issue a Notice of Noncompliance to the
CMAR regarding the compliance issue. If this occurs, the CMAR, and thus the subcontractor
responsible for the work element, may not receive payment on the work until the noncompliant
work element has been addressed.
Current Structure Facilitates Inspector Staff Ability to Stop-Payment
The current organizational structure of the Airport Development Group (ADG) is intended to
provide LAWA inspector staff with the ability to actively address concerns about CMAR and
construction subcontractor performance. Within ADG, LAWA inspectors currently report
directly to the ADG Program Manager. This structure ensures that the independence of the
LAWA inspectors is protected and that project teams can be held accountable for contractor
performance.
Accepted Rejected
Partial
Acceptance
Cancelled Unknown Total
Numbers of Requests for
Inspection
100 19 54 19 3 195
Percent of Requests for
Inspection
51.3% 9.7% 27.7% 9.7% 1.5% 100.0%
51
Additionally, LAWA inspectors review CMAR invoices and have the authority to stop payment
if a LAWA inspector determines that construction does not meet contract specifications or code.
Although infrequently exercised, this authority provides LAWA inspectors with a valuable tool
for ensuring CMAR and subcontractor compliance.
Outcomes of Job Memos Are Not Logged
A J ob Memo is issued to the CMAR by LAWA inspectors when a verbal notification of a
problem with a construction element does not resolve the noncompliance issue. While J ob
Memos are recorded by LAWA inspectors, for the Bradley West Gates and Core projects,
LAWA inspectors only log the issuance date, subject, J ob Memo number, and the issuer for each
J ob Memo. Although the J ob Memo log provided to the audit team by the LAWA inspectors has
fields for recording the resolution of the J ob Memo, date resolved, and release signature, these
fields are generally not populated, even though these fields are routinely completed for other
projects at the Los Angeles International Airport, such as the CUP and Taxilane S. While this
level of tracking is not required by either LAWA policy, LA City policy, or by the executed
contracts, tracking the outcomes of J ob Memos would enable LAWA inspectors to better
monitor contractor performance.
Job Memos Are Inconsistently Implemented
Because there is no contractual obligation, LAWA policy requirement, or LA City Code
requirement that the CMAR or its subcontractors take action on J ob Memos issued by LAWA
inspectors, the CMAR has reportedly requested that the intermediate J ob Memo step in the
notification process be eliminated. Bypassing the J ob Memo step would be a violation of the
LAWA Construction Inspection Division Procedures Manual, which stipulates J ob Memos are to
precede Notices of Noncompliance.
J ob Memos function as the first formal, written notification of a compliance violation after a
verbal notification has failed to rectify the given issue. The J ob Memo step serves several key
purposes, as identified by the audit team:
1. It is a textual clarification of the compliance violation and required remedial action, which
may aid in the performance of actions to ensure compliance.
2. It aids in the full documentation of the communication between the CMAR and the LAWA
inspector staff that can be referenced in the event of litigation.
3. It is an integral step in the escalating notification process as, if the noncompliant work is
addressed with the issuance of the J ob Memo, it does not necessarily stop work and slow the
construction process.
It was reported that, in most cases, LAWA inspectors presently issue Notices of Noncompliance
directly after a non-compliance concern is identified and verbally communicated to the CMAR.
According to LAWA inspector staff, in response to the request made by the CMAR, J ob Memos
are no longer consistently issued by LAWA inspectors for the Bradley West projects. This is
52
justified by some LAWA inspector staff, who report that bypassing the J ob Memo process
improves the efficiency of the communication between the LAWA inspectors and associated
CMAR subcontractors. However, this assertion could not be validated. Conversely, it was also
reported that some inspector staff still use J ob Memos in the event the inspector wants to ensure
the documentation of the communication between the inspector and the CMAR.
Because J ob Memos are intended to precede Notices of Noncompliance, there should be more
issued J ob Memos than issued Notices of Noncompliance on record for all projects. However, a
review of the complete logs for both J ob Memos and Notices of Noncompliance for the Bradley
West Gates and Core projects revealed that fewer J ob Memos than Notices of Noncompliance
have been issued to the CMAR. This differential is consistent with the J ob Memo bypassing
practice that LAWA inspectors described during the audit process.
Table 4.2
Number of Issued Job Memos Compared to
Number of Issued Notices of Noncompliance

Project
Number of Job
Memos Issued
(as of 11/01/12)
Number of Notices
of Noncompliance
Issued (as of
11/01/12)
Bradley West Gates 120 303
Bradley West Core 72 157
Source: Bradley West Gates and Core logs for issued Job Memos and
issued Notices of Noncompliance
Notices of Noncompliance Can Be Addressed Through Change Directives
When a J ob Memo evolves into a Notice of Noncompliance, the CMAR can avoid the need to
modify or replace the non-compliant construction by consulting with the Field Engineer, Project
Manager, or Element Manager, depending on the scope of the change, and obtaining a Change
Directive. A Change Directive can modify the contractual job specifications to conform to the
existing work product. This may be a positive process, which enables the CMAR and LAWA to
move forward on projects when the completed work, while different from the original job
specifications, fits the intent of the design and adheres to code. However, when there is an
additional cost associated with an issued Change Directive, LAWA can bear the cost even when
construction modifications were not approved ahead of time.
Two specific Notices of Noncompliance that evolved into Change Directives for the Bradley
West Gates project were brought to the attention of auditors. In the two cases, LAWA bore the
cost of changes that were approved, even though the construction deviated from specifications.
These are described below:
53
In the first Notice of Noncompliance, NNC 0068, newly constructed connections to an
existing storm drain pipe in the Bradley West Terminal tested positive for sewage, a violation
of the job specification plans. A Notice of Noncompliance was issued for the incorrectly
installed drain connections and the subsequent contamination, and the cross-connections
were corrected by the subcontractor. A Change Directive was issued to ensure the work plan
included the work necessary to perform the alteration to the incorrectly installed cross-
connections, and payment was authorized to the Contractor, under FD 0327, from an existing
allowance for pot-hole repair that was no longer required, to repair the problem. The total
cost of this change was $15,798, paid by LAWA, even though the incorrect installation was
inconsistent with the job specifications and should have been corrected by the subcontractor
or identified by the CMAR during the QA process.
The second Notice of Noncompliance, NNC 122, notes the Contractor did not provide the
proper restraints at full height knock-out walls. A Request for Information was submitted by
Walsh Austin to LAWA to explore changing the requirement for the restraints and instead
using braces rather than restraints. The subsequently issued Change Directive approved the
braces and set a not-to-exceed amount of $5,410 for the change. The Change Directive ended
with a total cost of $6,835, again paid by LAWA, even though the incorrect restraints were
installed by the subcontractor.
During the course of the audit, other instances of noncompliance impacting both the project
schedule and costs were brought to our attention by persons who independently contacted the
City Controller. While not discussed specifically in this report, these instances were similar to
the examples described above, since work progressed after it became apparent that some
construction was performed incorrectly, the schedule was impacted and additional unanticipated
and substantial cost was incurred by LAWA.
The Procedures Manual Is Not Readily Accessible
As previously mentioned, the Request for Inspection process as well as the implementation of
inspector compliance tools lack clear codification in the LAWA Construction Inspection Division
Procedures Manual. Furthermore, based on interviews, a complete version of the LAWA
Construction Inspection Division Procedures Manual is not centrally located, readily available,
or routinely updated. The audit team did not receive the Manual immediately after the initial
request for the Manual because, reportedly, the Manual needed to be compiled and updated
sections needed to be included in the final submittal to the audit team. Inspection Division
personnel stated that the development of the Manual was underway during audit fieldwork.
This Manual should be the formalization of the inspection processes and procedures, and be used
to ensure uniformity and to minimize risks associated with the inspection process. The Manual
should be made easily accessible and readily available in an up-to-date version as a reference for
both the CMAR and LAWA. The previously noted violations of procedural requirements may, in
part, be due to the Manuals lack of availability.

54
Conclusion
The general lack of codification of key policies and procedures and the adherence to existing
policies and procedures present a range of risks. It was reported in interviews that the scope of
the Bradley West Gates and Core projects and the aggressive timeline for the projects have
resulted in pressure to expedite the typical pace of construction, and may prohibit a fully
thorough completion of each construction element.
However, based on the audit teams evaluation of the highlighted problem areas, other causes
likely include: (a) management has not developed or codified procedures for some key
processes; (b) a comprehensive system for recording compliance activity is not employed, in
some cases in direct violation of established policies; and (c) management has not developed a
reliable system for monitoring the performance of the CMAR. Addressing these problem areas
would help to mitigate the noted financial and potential legal risks facing LAWA.
Recommendations
The LAWA Executive Director should direct the Chief Airports Inspector to:
4.1 Update and make readily available the LAWA Construction Inspection Division
Procedures Manual.
4.2 Direct inspector staff to follow procedures outlined in the LAWA Construction Inspection
Division Procedures Manual.
4.3 Provide training to LAWA inspector staff on records and information management
procedures to ensure that staff are knowledgeable about requirements and equipped to
comply with them.
4.4 Review processes and determine if procedures, notably those related to J ob Memos and
the issuance of Notices of Noncompliance, should be revised.
4.5 Standardize and maintain LAWA-owned logs to track the full history of document
communications with a given contractor.
4.6 Review the Request for Inspection processes and define the implementation of Requests
for Inspection in institutional documents for standardization of Request for Inspection
processes and procedures.
Cost and Benefits
LAWA would incur costs to update the LAWA Construction Inspection Division Procedures
Manual, as it would take staff time to do a full review of the current policies and procedures and
incorporate identified needs in an updated manual. Additionally, LAWA would sustain
continued costs for regular trainings for staff on the Manual and associated procedures and
55
policies, as it would require staff time and resources to facilitate trainings. In the long run,
LAWA would likely see a savings through the review and closure of current inefficiencies in the
administration of inspection procedures and policies. Perhaps most importantly, by improving
the codification of and adherence to inspection processes and procedures, LAWA would reduce
the risks associated with potential litigation resulting from incomplete or absent record-keeping.
56
5. Capital Decision-Making Processes
The Board of Airport Commissioners has limited involvement in the review and
prioritization of proposed projects and is not involved in the assessment of initial
project concepts or budgets. Instead, these responsibilities have been assumed by
executive staff and the Board may have less than optimal involvement in major
capital project decision-making processes. This dynamic is, in part, driven by
LAWA managements opinion that a tension, or conflict exists between the
Boards environmental review responsibilities and its more direct role
considering capital projects for approval. Further, executive management does
not conduct comprehensive needs assessments, nor has it established a systemic
process for determining which projects should be prioritized and advanced for
development.
This informal governance structure and managements expanded role in the
decision-making process may pose risks to LAWA long-term strategic best
interests. Without an organized framework within which potential project
concepts are vetted according to established criteria and priorities, the rationale
for decision-making may not be clear to LAWA stakeholders.
LAWA should seek a formal legal opinion on the perceived conflict regarding
the BOACs role in the CEQA process; conduct a needs assessment of airport
capital assets; and establish policies and procedures for prioritizing potential
projects. With these actions, LAWA would ensure the BOACs involvement in
and improve the transparency and accountability of major capital development
decision-making at LAWA. These recommendations could be implemented using
existing LAWA resources.
While the City Charter allows the Board of Airport Commissioners (BOAC) to delegate
responsibilities to the Department of Airports (LAWA) General Manager, it also identifies
development as a primary power and duty of the BOAC. City Charter Section 632 (Powers and
Duties of the Board) defines Development of the Airports as one of the three primary duties of
the Board of Airport Commissioners, stating that the BOAC shall have the power and duty to
purchase, lease, acquire, condemn, design, erect, maintain, improve, repair and operate all
property, improvements, utilities, equipment, supplies or facilities as it may deem necessary or
convenient for Departmental Purposes.

City Charter Section 633 (Powers and Duties of the General Manager) states that the general
manager of the Department of Airports shall have the power and duty to, among other things,
enforce all orders, rules and regulations adopted by the board; supervise and manage the design,
construction, maintenance and operation of all work or improvements authorized or ordered by
the board; and carry out all powers and duties of the department delegated by the board. The
extent to which the BOAC has delegated authority over capital development to the General
Manager (also known as the Executive Director), and the manner in which the delegated
authority has been exercised, may limit transparency.
Section 5: Capital Decision-Making Processes
57

The BOAC Does Not Consider Detailed Project Budgets Until
Construction Contracts are Presented for Approval
The BOAC formally approves a number of key documents related to capital development at
LAWA. These documents include the following:
1. Airport Master Plan (2004);
2. LAX Specific Plan (2005);
3. Specific Plan Amendment Studies (SPAS);
4. Annual list of projects for which the BOAC has made a CEQA finding;
5. Individual construction and professional services contracts valued over $150,000, which
in some cases may be accompanied by overall project budget information; and,
6. Change orders valued over $150,000 for most projects, or change orders valued over
$1 million for certain other projects, including the Bradley West Gates and Core
projects.
1

Although the Board approves contracts and appropriations for construction and professional
services throughout the design and development process, it is only presented with high-level
summary project costs for approval during the annual budget review process. Further, as noted in
section six of this report, LAWA has not produced a formal Capital Improvement Plan (CIP) that
describes all planned development projects, expected costs of implementation, sources of
funding, schedules and other key variables important when determining development priorities
and the capacity of the organization to finance planned improvements.
While the requirements for formal Board approval of capital development costs are limited to
those listed above, the Board is briefed or otherwise informed of the status of project budgets on
a regular basis. The primary mechanism by which staff communicates ongoing updates is the
monthly Program Status Report. These reports present a variety of financial data and narrative
description for all current projects, including current expenditure levels compared to baseline and
current budget, an estimate of cost at completion, status of contingency use, and information
regarding schedule and any implementation problems. These reports are well organized and
provide the Board a good tool for understanding the status of the projects within the capital
development program. However, these reports serve an advisory purpose for projects already
underway. As noted above, the Board does not formally approve project budgets between the
very high level step of annually approving the one-page list of projects during the budget process
and the late-stage step of approving individual contracts.
LAWA representatives stated that the Board generally does not take action on the strategic
direction of LAWA development beyond its approval of the Master Plan and instead acts in an

1
Change order approval authority below these thresholds is delegated on a contract by contract basis to the
Executive Director.
58

episodic manner, performing legally mandated functions, such as approving contracts and
appropriating funds. In its current role, these representatives suggested that the Board is advised
through informal workshops and discussions, and through various staff reports, but that it
generally follows executive managements leadership regarding the long-range development
goals of the organization.
Given these factors, it can be argued that the BOAC has not assumed a formal role reviewing,
approving or prioritizing initial capital project concepts or project-level budgets. In addition, the
absence of Board approved project-level budgets or a comprehensive CIP appears to place
LAWA in violation or conflict with the intent of City Charter Section 610 and Administrative
Code Section 11.28.3, which require the BOAC to annually submit a capital plan or budget to the
Mayor, City Council
2
, and City Controller.
Instead, LAWA has determined that in order to technically satisfy these Charter and
Administrative Code requirements, it must merely submit, as part of its budget process, a list of
projects for which the BOAC has made a CEQA finding. However, the information contained in
the list is limited to a brief title (e.g. Taxiway S or T6 Renovations), current projected cost,
and source of financing, and does not meet generally accepted standards for capital improvement
planning.
3
In addition, the approval of the list of projects that the BOAC has already reviewed
under CEQA is the only formal action taken by the Board to identify projects that may move or
have moved forward for development. For example, there is no record that the Board officially
considered or took action on the conceptual design of the Bradley West project, which is in the
list of CEQA approved projects. Ultimately, the design choices for this project had major cost
consequences for this project.
Perceived Tension with CEQA Role Limits BOAC Involvement
LAWA management states that based on advice from the City Attorney, there is a tension
between the Boards roles when (1) considering and approving individual capital projects, and
(2) fulfilling environmental review responsibilities under the California Environmental Quality
Act (CEQA). In email correspondence, the LAWA Chief Operating Officer described informal
City Attorney advice, as follows: it is critically important that the BOAC not act in any way that
appears to be pre-decisional on projects that have yet to be evaluated under CEQA and for which
the BOAC is anticipated to be asked to make a CEQA finding in the future. Further, the Chief
Operating Officer states that, we understand there to be substantial downside risk by putting the

2
The plan or budget shall be submitted to the Commerce, Energy and Natural Resources Committee.
3 The Government Finance Officers Association of the United States and Canada (GFOA) Best Practice, Preparing
and Adopting Multi-Year Capital Planning (2006) (CEDCP), and Development of Capital Planning Policies (2011)
(CEDCP),which states, in part To create a sustainable capital plan, the finance officer and other participants in the
capital planning process need to consider all capital needs as a whole, assess fiscal capacity, plan for debt issuance,
and understand impact on reserves and operating budgets, all within a given planning timeframe. Capital planning
policies provide an essential framework for managing these tasks and for assuring that capital plans are consistent
with overall organizational goals.
59

BOAC in a potentially pre-decisional situation in asking for approval of a capital program, yet
there is no administrative or legal requirement to approve projects to be part of a capital
program. Therefore, we have decided to maintain administration of capital programming
decisions at the management level.
City Council Provides Final CEQA Approval
Despite the opinion described above, the BOAC does not make the final determination regarding
environmental compliance for many airport projects. For LAX Specific Plan Amendment
projects, the BOAC makes a recommendation to the City Council, which is ultimately
responsible for certifying environmental impact reports and CEQA compliance. According to the
LAX Specific Plan discussion on the environmental compliance process (Sec. 7. LAX Plan
Compliance Review), the Executive Director shall have the authority to recommend approval,
approval with conditions, modification or denial of a request for an LAX Plan Compliance
determination. This recommendation shall be made to BOAC and the City Council
Subsection F 5 (Procedures, City Council Determination), states that City Council shall
approve, approve with conditions, modify or deny a request for LAX Plan Compliance. The City
Council shall make the same findings required to be made by the Executive Director, supported
by facts in the record. (Emphasis added.) Accordingly, for many projects, the BOAC serves an
advisory role to the City Council, which is similar to the Executive Directors advisory role to
the BOAC. While not every project is subject to the LAX Specific Plan Amendment review
requirements, our understanding is that most of the large projects would be included. In addition,
all projects may be appealed directly to the City Council, pursuant to the California Public
Resources Code Section 21151.
In addition, the California Code of Regulations and the Natural Resources Agency establish
CEQA as a self-regulating statute, explaining that public agencies are entrusted with
compliance with CEQA and its provisions are enforced, as necessary, by the public through
litigation and the threat thereof. The California Natural Resources Code provides guidelines for
determining the lead agency in cases where two or more public agencies will be involved and
states that the lead agency will normally be the agency with general governmental powers, such
as a city or county, rather than an agency with a single or limited purpose such as an air pollution
control district or a district which will provide a public service or public utility to the project.
However, the law (Section 21067) also states that "Lead agency means the public agency
which has the principal responsibility for carrying out or approving a project which may have a
significant effect upon the environment; and (Section 21069) "Responsible agency means a
public agency, other than the lead agency, which has responsibility for carrying out or approving
a project. It appears that cities and counties have some flexibility in determining which entity
will serve as the lead agency. In the case of LAWA, which is defined in the City Charter as the
Department of Airports, it could be argued that it is the Responsible Agency and that the
City Council is the Lead Agency. This interpretation should be considered by the City
Attorney with the implementation of recommendations contained in this report to obtain a formal
legal opinion on this matter.
60

Further, the Federal Aviation Administration (FAA) also acts as an external approval authority
on environmental impact determinations made by the City for many LAX development projects,
including any projects that would be included in a Specific Plan Amendment. A 2006 legal
settlement (Stipulated Settlement) between LAWA and several cities surrounding the LAX
area, the County and a non-governmental organization, required that LAWA seek the review and
approval of the FAA if the City Council approves an LAX Specific Plan Amendment in the
future. The FAA review will include compliance with all applicable federal laws, including
NEPA [National Environmental Policy Act] and the conformity requirements under the Clean
Air Act.
Comprehensive Capital Needs Assessments Not Routinely Conducted
LAWA has not conducted a formal capital needs assessment that would provide a strong basis
for capital decision making and prioritization processes. According to best practices identified by
the U.S. Government Accountability Office, a comprehensive needs assessment considers an
organizations overall mission and identifies the resources needed to fulfill both immediate
requirements and anticipated future needs based on the results-oriented goals and objectives that
flow from the organizations mission.
4

Instead of a comprehensive needs assessment, the Facilities Planning Group periodically solicits
project requests from LAWA operating departments through an open call to the deputy directors.
The interval between these efforts varies, and is typically approximately 18 to 24 months. The
most recent open call for project requests occurred in October 2012 and built on a previous list of
57 unfunded capital project needs. These requests are reviewed for legitimacy
5
and
appropriateness by the Facilities Planning Group and provided to the executive management for
review.
Needs Assessments not Informed by Realistic Forecasting
In addition, LAWA has placed a cap on planning for the future expansion of LAX. Due to
provisions of the 2006 Stipulated Settlement between LAWA and Surrounding Communities, a
practical capacity of 78.9 million annual passengers (MAP) was established and all planning
scenarios since that time have planned for this capacity only. Yet the 2004 LAX Master Plan
stated that by 2015, LAX would have passenger demand of 98 MAP, and that by 2025, there
would be a regional shortfall of 30 MAP. However, the actual 2011 level was only 61.8 MAP.
Further, an updated forecast was completed as part of the LAX Specific Plan Amendment Study
with a baseline year of 2010 and forecasting 78.9 MAP level in the new horizon year of 2025.
Although it appears the 2004 projections were overly aggressive based on actual activity and
more recent forecasting, the 78.9 MAP projection through 2025 which is exactly the level
dictated by the Stipulated Settlement may not be a realistic projection, either.

4
Executive Guide: Leading Practices in Capital Decision-Making, U.S. GAO, December 1998.
5
Terminology used by LAWA representatives during interviews for this audit.
61

It was stated during interviews that LAWA has no choice but to cap its growth projections at the
78.9 MAP included in the Stipulated Settlement. However, based on a review of the Stipulated
Settlement, this cap is only in effect until December 31, 2015, the end of the term of the
Settlement. While LAWA points to another provision of the Stipulated Settlement that requires a
separate gate cap of 153 passenger gates through 2020 as another constraint in its ability to plan,
it is not clear that the gates cap should keep LAWA from adjusting its MAP after 2015.
In addition, a review of several Project Definition Booklets (PDB) and Project Definition
Documents (PDD) suggest that comprehensive MAP forecasting is not routinely included when
profiling the needs of the airport. As a result, these key documents, which drive sizing and
design decisions, are deficient and do not give contract architects and engineers needed
forecasting information or a clear perspective on the development needs of the airport.
No Policy or Systemic Process for Prioritizing Projects
LAWA has not developed a systemic process or tool for executive management to prioritize
capital project proposals. Executive management does not systemically score, rank or weigh the
costs and benefits of various proposals that are raised as potential projects for development
before determining which to advance for development. Instead, executive management selects
projects informally with a small committee composed of the Executive Director and select
deputies. Executive management stated that the lack of development for approximately 20 years
has rendered the urgent capital needs obvious in recent years and that a more formal process was
not necessary.
The informal manner in which executive management exercises the delegated authority to make
capital programming decisions may weaken LAWAs ability to ensure that capital decision-
making optimizes LAWAs long-term strategic best interests. Without an organized framework
within which potential project concepts are vetted according to established criteria and priorities,
the rationale for decision-making may not be clear to LAWA stakeholders.
The consequences of having an informal process for prioritizing projects can be significant. For
example, decisions were made by two separate administrations at LAWA to proceed with the
renovation of the Tom Bradley International Terminal (TBIT) and, later, the construction of the
Bradley West Gates and Core projects. As a result, the projects have evolved substantially over
the years and the sequence of planning and construction may now be adversely impacting the
costs to the airport.
The $737 million TBIT renovation project included major interior renovations to the departure
lounge, the ticketing lobby, the customs and immigration arrivals hall, the arrivals corridors and
waiting area (meet and greet); as well as modifications to two gates (including a two-level gate)
to accommodate new aircraft such as the Airbus A380 and the Boeing 787.
It was always anticipated that some demolition would be necessary to join the TBIT and Bradley
West concourses. However, the TBIT concourse interface with the planned Bradley West
62

Terminal was not fully conceptualized until 2008, while the TBIT renovation was underway but
before the new Bradley West construction had been initiated. Nonetheless, at the time, it was
determined that the existing north and south concourses at TBIT would be demolished after
completion of the new concourses. Demolition would include approximately 77,620 square feet
of floor area in the north concourse (i.e., two story structure with approximately 38,819 square
feet on each level) and all of the approximately 127,160 square feet of the south concourse
(approximately 63,580 square feet of floor space on each of two levels). This demolition area
equates to a total of 204,780 square feet of existing terminal area at TBIT.
Now, this evolving concourse interface project is being redesigned a second time as the Bradley
West Gates and Core projects are coming to a close and the basic infrastructure has been
substantially built. In March 2012, a presentation to the BOAC initiated changes to certain
planned improvements and specified that areas of the recently renovated TBIT would be
demolished as part of the Bradley West connector redesign. In addition, it has been reported that
the scope change is significant enough to have triggered a decision to remove approximately
$273 million of the approved Scope of Work (SOW) for the Bradley West CMAR and
competitively rebid the revised SOW.
At the conclusion of audit fieldwork, LAWA reported that the $273 million in TBIT interface
improvements plus $43 million for the New Face of the CTA (for a total of approximately
$316 million) will be funded by savings due to the reduction in scope from the previously
reported project budgets and an additional $60 million in funding from other sources.
Significantly, though, the summary documentation that has gone to the BOAC does not provide
sufficient detail to determine the extent of the demolition of renovated areas that will occur under
the revised scope. However, based on the review of materials by the audit teams technical
expert (architect), the subterranean level of the TBIT is to be enlarged to house the Federal
Inspection Services (FIS); the interstitial area and baggage handling level is to be enlarged; the
mezzanine and four airline lounges are to be demolished to create a new central security
checkpoint; and, several airline lounges are to be demolished.
While demolition of some areas have been anticipated from inception, the degree to which the
TBIT renovation improvements will be affected is not clear. While we have been advised that
most of the improvements that are to be demolished were cosmetic and relatively low cost, it is
not clear whether changes in construction sequencing or additional time to plan and prioritize
project activity might have resulted in cost savings. Further, because LAWA is changing the
SOW almost three years after the original scope of work was bid, due to market conditions and
other factors, it is not certain whether the cost of construction for the new SOW will be higher
than originally anticipated under the prior SOW.
Best practices in executive decision-making around capital planning recommend a structured
approach to evaluation, selection and prioritization of projects. Exhibit 5.1 below shows the
principles and practices recommended by the U.S. Government Accountability Office.
63

Exhibit 5.1
GAO Capital Decision-Making Framework - Principles and Practices

Source: USGAO, Executive Guide: Leading Practices in Capital Decision-Making, GAO/AIMD -99-32
While LAWA acknowledges that its project prioritization and selection process could be
improved, and staff have bolstered the open call for projects process, as described above, the
organization would benefit by establishing a policy and systemic process to use on an on-going
basis to evaluate the costs and benefits of various proposed projects and prioritize among them.
One tool used by some jurisdictions implementing a framework like that outlined in Exhibit 5.1
above is a prioritization matrix that organizes key project information, clarifies options, and
assists decision makers in understanding options in relation to established criteria and priorities.
An example of a prioritization matrix used by Lane County Airports in Oregon is provided as
Attachment 5.1. LAWA reportedly utilized such matrices in the past, prior to the current wave of
capital development activity. LAWA should consider reintroducing a matrix tool as it develops
its policy and process for capital project decision making.

64

Conclusions
The Board of Airport Commissioners may have a less than optimal level of official involvement
in major decision-making processes related to airport development, in conflict with the intent of
its duties related to development of the airports as prescribed in City Charter Section 632(c). The
Boards delegation of capital programming decisions to executive management, without an
accompanying check on that delegated authority, may hinder accountability and transparency of
the capital program at a strategic level. Further, the informal manner in which executive
management exercises its delegated authority to make capital programming decisions may pose
risks to LAWAs long-term strategic best interests.
Recommendations
The Board of Airport Commissioners should direct the LAWA Executive Director to:
5.1 Request a written legal opinion from the City Attorneys Office regarding any potential
conflict of interest related to the Boards duties and authorities related to airport
development and CEQA review.
5.2 If a conflict of interest is determined to be a factor by the City Attorneys Office, develop
a proposal to reassign the CEQA review responsibility from the Board of Airport
Commissioners to the City Planning Department or another entity within the City,
thereby enabling the Board of Airport Commissioners to conduct a more substantial level
of review of the capital development program.
5.3 Building on LAWAs current periodic open-call for projects practice, conduct a
comprehensive needs assessment of airport capital assets, including both potential
development projects and facilities maintenance needs, based on the results-oriented
goals and objectives that flow from the organizations mission.
5.4 Develop a policy and systemic process for LAWA executive management to use on an
on-going basis going forward to evaluate the costs and benefits of various proposed
projects and prioritize among them. If deemed appropriate pursuant to Recommendations
5.1 and 5.2, the outputs of such a process should be officially reported to the Board of
Airport Commissioners so that it may be involved in the selection of capital development
projects.
Costs and Benefits
These recommendations could be implemented using existing LAWA resources. By addressing
the perceived tension regarding the BOACs role in the CEQA process; conducting a needs
assessment of airport capital assets; and establishing policies and procedures for prioritizing
potential projects, LAWA could ensure the BOACs involvement in and improve the
transparency and accountability of major capital development decision-making at LAWA.
Attachment 1: 08-12
Draft CIP Project Prioritization Matrix
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Payments
I-5/Coburg
Interchange 2008-09
County participation in
Interchange improvements $2,500,000 Interstate 13,500 N/A 3 ++ ++ ++ + + + 9
GC Bob Straub Parkway
S. 57th St. to
Jasper Rd. 2006-07
Construction of a new arterial
between the Eugene-
Springfield Hwy. and the
Springfield-Creswell Hwy. 1.93 $5,712,000 Minor Arterial NA NA NA + ++ + ++ ++ + + + 11
Structures Brice Creek Road MP 3.31 2008-09
Replace structure. HBRR
project with 11% match. $1,791,457
Minor
Collector
Structures London Road MP 8.73 2007-08
Rehabilitate structure with
OTIA III 100% funding $252,000
Major
Collector
Rehabilitate structure with
OTIA III 100% funding $225,000
Major
Collector
Replace structure with OTIA
III 100% funding $1,750,000
Major
Collector
Safety
Irving Railroad
Crossing
At Northwest
Expressway
2007-08
Safety improvements 0.15
$1,500,000
Minor Arterial
8,000 90 3 ++ + ++ ++ + + ++ 11
GC Prairie Road
Bailey Lane to
High Pass Rd 2008-09 Upgrade to urban standards 0.5 $1,250,000
Major
Collector 1,150 90 5 + + + + ++ + + + 9
GC Bolton Hill Road
Territorial Hwy. to
Dogwood Ln. 2007-08 Upgrade to urban standards 0.653 $1,750,000
Major
Collector 1,550 74 1 + + + + + + + + 8
GC Harvey Road Hillegas to UGB 2007-08 Upgrade to urban standards 0.5 $1,571,000
Minor
Collector 2,100 73 1 + + + + + + + + 8
GC High Pass Road
Hwy. 99 to
Oaklea Dr. 2009-10 Upgrade to urban standards 0.859 $2,488,000
Major
Collector 3,700 66 2 + + + + + + + + 8
GC
Beaver
Street/Hunsaker
Lane
Division Ave. to
River Rd.
2009-10
Upgrade to 2-lane urban
facility 1.141
$3,000,000
Minor
Collector
6,800 90 3 + + + + + + + 7
Safety
Delta/Beltline
Interchange
Operations
To Be
Determined 2008-09
County contribution for safety
and Transportation System
Management Improvements 0.3 $1,100,000
Principal
Arterial
32,900 70 ++ + + + + +
7
Payments
Delta/Beltline
Interchange Match N/A Modernization Match Unknown
Principal
Arterial 32,900 + + ++ + + 6
GC Green Hill Road
Royal Ave. to
Clear Lake Rd. N/A
Addition of shoulders, curb
and gutter, or combination
thereof 2.254 $4,400,000 Minor Arterial 4,650 89 12 + + + + + + 6
GC Laura Street
Scotts Glen to
Lindale Upgrade to urban standards 0.3 $900,000
Major
Collector 5,000 55 3 + + + + + + 6
GC Royal Avenue
Terry St. to
Green Hill Rd. N/A Upgrade to urban standards 1 $2,750,000
Major
Collector 3,700 62 6 + + + + + + 6
GC Wilkes Drive
River Rd. to
River Loop #1 N/A
Upgrade to 2 to 3-lane urban
facility 0.932 $3,000,000
Major
Collector 4,050 85 1 + + + + + + 6
Structures
Deadwood Covered
Bridge Roofing
Deadwood Lp Rd
MP 0.307 2010-11 Covered bridge re-roofing. $100,000 Local
Structures
Parvin Covered
Bridge
Parvin Rd
MP 0.775 2010-11
Covered bridge structural
repair. $500,000 Local
Structures
Wendling Covered
Bridge Roofing
Wendling Rd
MP 3.535
2010-11
Covered bridge re-foofing.
$100,000
Local
Prioritization of bridges is determined through technical analysis performed in conjunction with annual inspections.
The bridges listed represent Lane County's next bridge priorities from that analysis.
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Due the importance of bridges to the County infrastructure and the existence of committed funding these projects have been separated from other project
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6. Capital Improvement Plans and Budget
LAWA has not developed a Capital Improvement Plan or developed a multi-
year Capital Budget. Instead, general capital improvement concepts are
included in a 2004 Master Plan and the Specific Plan, and Specific Plan
Amendments only include rough order of magnitude cost estimates for seven
development alternatives presently under consideration. Further, broad
projections of capital improvement project costs serve as the basis for the
various bond issues, the most recent of which was issued in 2010 and updated for
some projects in 2012. The annual capital budget approved by the LAWA Board
of Airport Commissioners includes only a high level summary of anticipated
capital expenditures for each major element and for the budget year.
On a project basis, baseline capital budgets are estimated at initial stages of
development. These estimates include broadly defined cost components, such as
construction allowances, which are budget estimates for unknown, but potential
costs; percentage-based soft costs, which are general estimates of the cost of
architectural, engineering and administrative expense; and, construction
contingencies. Combined, these broadly defined cost components can raise the
total project budget by as much as 52 percent over the estimated direct cost of
construction. Yet, allowances are not routinely defined in documentation that is
provided to the Finance Department.
At least one completed large project budget was overstated and other project
budgets may no longer align with LAWAs intentions. For example, the budget
for the completed Crossfield Taxiway project was overstated by $40.5 million, or
22.8 percent. Such over-budgeting may result in a greater commitment of funds
than might otherwise be necessary with more accurate forecasting, and may
increase the risk of unnecessary or avoidable expenditures.
LAWA should initiate a comprehensive capital improvement plan process,
including development of policies and procedures that serve as the basis for
establishing and updating capital budgets. As projects move from the conceptual
to design phases, detailed line item estimates showing allowances, soft costs and
contingencies should be clearly described, to ensure that Finance has all of the
information necessary to conduct a thorough review and assessment of capital
budget reasonableness.
The LAWA Master Plan was adopted by the Board of Airport Commissioners in 2004 and
certified by the City Council in 2005. The Master Plan provided a conceptual framework for a
range of development projects, which included the construction of improvements to the airfield
and the west side of the Tom Bradley International Terminal (TBIT) that evolved into the
Bradley West terminal project. The Master Plan did not estimate costs for planned development;
and, the Specific Plan, adopted in 2006, expanded the conceptual framework, but, again, did not
estimate project costs.
Section 6: Capital Improvement Plan and Budget
67

LAWA is in the midst of developing a Specific Plan Amendment Study (SPAS), in order to
define remaining projects and meet conditions included in the LAX Master Plan Stipulated
Settlement, which set certain growth limits and other conditions affecting development at the
airport. Accordingly, the draft SPAS modifies certain aspects of the 2004 Master Plan as a first
step toward aligning more current development goals at Los Angeles International Airport
(LAX) with the terms of the Stipulated Settlement. Completed in J uly 2012, the draft SPAS is
presently going through the public review process. The SPAS provides a Rough Order of
Magnitude (ROM) estimate of costs for seven development alternatives being considered by
LAWA, which is an industry standard during the conceptual planning phase. None of these
efforts constitute a Capital Improvement Plan.
LAWA does not Produce a Capital Improvement Plan
Although there has been significant effort to move the development process forward, LAWA
does not produce a formal Capital Improvement Plan (CIP) that more specifically describes the
current and future airport environment, planned capital projects, expected costs of
implementation, sources of funding, development schedules and other key variables important to
consider when determining priorities and the development capacity of the organization. Instead
of a CIP, LAWA reportedly has relied upon analysis contained in its bond official statements
(OS), such as the 2010 Series D Senior Revenue Bonds for $876 million, to project future
development costs.
For example, at the time the 2010 OS was published, $5,577,118,000 in completed and ongoing
projects had been identified by LAWA and its consultants, with the costs identified using broad
estimating techniques. These projects were to be funded, in part, with $2,267,381,000 in bond
proceeds secured by LAWA prior to 2010 plus $536,280,000 in bond proceeds that would be
secured by LAWA in the future, for a total of $2,787,612,000 in bond proceeds. An additional
$2,773,458,000 in funding was earmarked from other sources, including net operating revenues,
grants from the federal government and Passenger Facility Charges (PFC) collected from airline
customers. Interviews with LAWA Finance Department personnel state that this is the most
comprehensive framework for understanding the future cost of planned airport development.
However, Finance Department personnel also state that project inventory and cost estimates are
being continuously reevaluated and revised as projects progress and new development needs and
sources of income are identified.
1
While the estimates made for purposes of sizing bonds are
appropriate, they do not provide sufficient information regarding the character and near term
schedule for the development of the Citys airports, and therefore, do not constitute a CIP.

1
On November 13, 2012, LAWA management received authorization to issue $263 million in 2012 Series Revenue
Bonds for Terminal 5 and Terminal 6 improvements, as well as for refunding a portion of prior year commercial
debt. Although we were advised during interviews that this new bond issue would trigger a reevaluation of capital
program costs, the preliminary Official Statement for the 2012 Series Revenue Bonds was just been made available
to investors and more current and complete estimates of capital program costs had not been publicly reported.
68

The BOAC Has Delegated Substantial Capital Budget Authority
In addition, the Board of Airport Commissioners has delegated substantial capital budget
authority to management, and project budgets are not presented to the BOAC in most cases until
construction contracts are presented for award. For example, the FY 2012-13 LAWA Capital
Budget provides a summary statement of planned capital expenditures for the year by source, a
statement of bonded indebtedness and a schedule entitled Capital Plan Budget Fiscal Year
2012-13. Consistent with the City Charter and Administrative Code,
2
the latter schedule shows
expenses for BOAC Approved Capital Projects by broad title (e.g., Taxiway S), as well as
sources of funding (i.e., Debt, Grants, PFCs, Tenant Funded and LAWA Cash). This list
represents the projects for which the BOAC has made a CEQA finding. Also attached to the
budget is a subsidiary schedule that shows projects that are in the definition/design phase and
are Pending future action by the BOAC for approval.
This listing does not constitute a CIP. The annual budget adopted by the Board only includes
summary level financial information that reflects planned expenditures for capital projects for the
year. These annual budgets are determined from analysis of (a) the multi-year project budgets
approved by the Capital Project Committee that will be active during the year, and (b) the
schedules for the active projects. The FY 2012-13 Capital Budget includes the following major
development appropriations, by source of funding:
Passenger Facility Charge Funded Capital Expenditures $235,425,000
Grant Funded Capital Expenditures 55,488,000
Revenue Funded Capital Expenditures 660,307,000
Total Capital Expenditures* $951,220,000
* Excludes budgeted expenditures for equipment, capital leases and bond redemption and interest.
As stated previously, although the Board of Airport Commissioners participates in establishing
the conceptual framework for airport development through workshops; approves all contracts,
contract amendments and change order modifications over $1 million in value; and, approves the
annual capital budget, it does not consider the total cost of individual project budgets until
construction contracts are presented for award. Prior to award, this responsibility has been
delegated to the Capital Project Policy Committee, which consists of the Executive Director, the
Chief Operating Officer and deputy directors, including the Deputy Director of Operations and
the Deputy Director of Facilities and Maintenance.

2
Los Angeles City Charter Section 610 and Los Angeles Administrative Code Section 11.28.3
69

Budget Flexibility Could Result in Financial Risk
Capital project cost estimates allow a substantial degree of flexibility and budgets approved by
the Capital Project Policy Committee appear to have been greater than necessary in some
instances. Although LAWA has generally implemented good budget analysis and control
processes, a high level of budget flexibility and discretion has been granted to capital projects
program managers in the interest of expediting modernization project schedules. In interviews,
the Finance Director confirmed that capital project budgets are broadly estimated at the outset.
This is illustrated by budget and financial data for the largest closed project. As of September
2012, financial data for the six fully completed projects show that an overall savings of $40.8
million from the combined baseline budgets occurred (17.2% of the $232.3 million combined
baseline budgets). Further examination of the data for each individual project shows that three of
the six exceeded their original baseline budgets and three of the six were less than the original
budget. However, nearly all of the savings was derived from the Crossfield Taxiway Project
(M101A), which accounted for $40.5 million of the $40.8 million in savings for all projects, or
22.8 percent of the $177.8 million baseline budget for the project.
An analysis of the differences between the Baseline Budget and the actual expenses for the
Crossfield Taxiway Project also suggests that individual line item costs can vary substantially.
On this project, Design and Construction Management services exceeded budget by 51.0% ($2.9
million) and 48.1% ($1.4 million) respectively, while offsetting savings from the Baseline
construction Budget was approximately 7.0% ($8.6 million). Substantial additional savings of
approximately $12.1 million resulted from lower charges for Management and Control overhead
charged by the Airport Development Group, including LAWA staff and contractors.
Significantly, no contingencies were expended from the Baseline Budget, amounting to an
additional $22.6 million in savings.
Although not yet completed, budgets for the Bradley West Gates and Core projects appear to
have been constructed with similar flexibility and proposed changes in project scope have not
been reported to the BOAC in a timely manner. These two budgets, which combined received
baseline budgets amounting to more than $1.7 billion, are projected to be substantially completed
in May, 2013. As with the Crossfield Taxiway Project, LAWA was estimating at the time of this
report that substantial budget savings will be realized from soft costs and contingency accounts.
The BOAC has been advised that this budget will be reduced as the result of a planned project
scope change that will remove a portion of the originally planned work related to the Tom
Bradley International Terminal (TBIT) renovation and interface with Bradley West, costing an
estimated $273 million. At the time of this report, the process for implementing the scope change
and awarding a new contract for the modified project was reportedly underway but a final
recommendation had not yet been presented to the Board even though the major portion of
construction on this very large project will be completed in a very short period.
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LAWAs project budget development process has evolved over time as the organization has
modified its process for advancing projects toward development. The typical budget
development process includes multiple steps intended to develop accurate project budgets,
including the following: (1) Initial estimates of project construction costs are made by contract
architects and engineers who report to the Planning Department; (2) The initial estimates are
reviewed by Planning personnel for reasonableness; (3) A second review of the estimate is
conducted by the Airport Development Group (ADG); and, (4) The project package is sent to
the Finance Department for reconciliation of differences, review, possible adjustment,
finalization and submission to the Capital Project Policy Committee for consideration. This
multi-layered budget development and review process is intended to assess the reasonableness of
the estimates, create checks and balances in the estimating process, and ensure that baseline
budget components conform to LAWA policy.
This process is undertaken early in the project scoping process, so estimates are commonly more
general and liberally set to allow adjustments for unforeseen costs and potential design changes.
Although other actions are taken by LAWA to continually assess, report and modify budgets, if
necessary, estimating accuracy may be compromised in some instances because of the general
nature of the initial estimating process and a desire by City officials to quickly modernize the
airport to accommodate large aircraft, thereby elevating project schedule above financial risk.
Certain Budget Development Techniques Are Not Transparent
To counter the potential impact from excess budgeting, other processes have been developed to
ensure that budget appropriations are monitored and modified, if necessary, after actual costs are
known or can be reasonably estimated through completion. Based on interviews and document
review, residual funding is swept into a general reserve managed by the Finance Department
each quarter (i.e., also termed the Owners Reserve).
Key variables affecting capital project estimating accuracy are summarized below:
A. Budgets for construction services are developed early in the process, requiring estimators
to use general industry standards and experience to construct broad estimates of project
costs. These estimates may need to be modified, depending on actual contractor bids
and/or materials cost during the construction phase. As demonstrated for larger projects,
these early estimates may be inaccurate at the line item level and may result in large
budget surpluses when the project is completed.

B. General budget allowances are made for certain unknown but anticipated construction
costs (e.g., allowances for hazardous waste removal). According to LAWA staff, these
allowances are often undetectable in the budget packages, unless purposely itemized by
the estimator. As a result, the ability of Finance Department budget staff to identify
inappropriate or excessive allowances is compromised.

71

C. On the largest projects, some soft costs, such as design services, may vary substantially
from the baseline budget. The cost of project administration services provided by LAWA
staff and consultants were consistently overstated on the projects reviewed for the audit,
suggesting that the initial estimates for these cost categories could be refined.
LAWA routinely allocates soft costs at an additional 27% of the construction, or hard cost
budget. This percentage allocation was reportedly developed based on the experience of other
airports, but has not been refined since initially adopted by LAWA for budget estimating
purposes. LAWA staff state that the data from actual LAX development projects is collected and
compared with the estimate as part of the Project Status Report (PSR) process, and that actual
costs on projects are typically lower than the 27% estimate (approximately 23% to 24%).
LAWA has also developed general fixed percentage estimates for contingency appropriations.
Depending on the character of the project, the contingency can be set at 10% (for flatwork, such
as taxiway and runway surfacing), 15% (for new vertical construction, such as the Bradley West
projects) and 25% for renovation. However, no contingency adjustments are made for project
budgets, based on scale. Our review of completed projects and other projects nearing completion
indicates that contingency appropriations may be greater than necessary on larger projects, and
could potentially be reduced at the outset.
While actual costs are monitored regularly by LAWA, there have been no actions taken to adjust
the percentages for projection purposes going forward. Our review of the estimates and actual
results suggests the following weaknesses in the current approach exist:
Because allowances are not always articulated in the estimating documents that go to the
Finance Department for review, a detailed, independent assessment of the appropriateness or
level of allowance cannot be made by the Finance Department. LAWA should modify its
current practice to ensure that all allowances are specifically identified and formally justified
in the estimates that are forwarded to Finance for approval.
Percentage estimates for line-item appropriations for soft costs can vary significantly from
actual costs. This is particularly apparent for the estimates made for design services, and
management and control services provided by both in-house and consultant personnel. This
is illustrated by the description of variances reported on the Crossfield Taxiway project,
described previously in this report, where design and construction management services
exceeded the original budget by 48.1%; and, substantial savings of $12.1 million resulted
from lower charges for Management and Control overhead. LAWA should initiate a cost
allocation study to refine the rationale for allocating costs and the appropriateness of rates.
On several projects, contingencies are not drawn down to the extent budgeted. Once again, as
an example, on the Crossfield Taxiway Project no contingencies were spent, leaving a
remaining balance of $22.6 million in savings when the project was closed out. LAWA
should adjust contingencies by both the type of construction (e.g., flatwork, new vertical and
renovation) and dollar amount of the improvements to better reflect expected need.
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Therefore, to ensure that budgets more accurately predict actual costs, LAWA should refine the
analysis that serves as the basis for estimating soft costs and contingencies. The analysis should
consider whether differential approaches may be appropriate based on (a) the type of project, (b)
the scope of the project, and (c) the complexity of the development.
Finally, LAWA has not developed comprehensive policies, procedures and standards for capital
project budgeting, although various subsidiary documents related to process and change order
approval authorities exist. LAWA should develop such policies, procedures and standards,
including specific procedures and standards for estimating soft costs and contingencies.
Conclusions
LAWA does not have a multi-year capital improvement plan that has been presented to the
Board of Airport Commissioners in a public setting. This diminishes accountability and
transparency in the organization. In addition, LAWA has overstated its baseline capital program
budgets on at least one major project. This results in a greater commitment of funds than would
otherwise be necessary with more accurate forecasting, and may increase the risk of unnecessary
or avoidable expenditures. Further, the Finance Department does not receive sufficiently detailed
cost information on allowances and other general estimates of construction costs to make fully
informed decisions on the recommended budget. Estimates of project soft costs and
contingencies may be set too high for large capital projects, suggesting that an ongoing process
for evaluating and refining estimating practices may be appropriate.
Recommendations
The Board of Airport Commissioners should direct the LAWA Executive Director to:
6.1 Continue efforts to develop a multi-year capital plan that would be presented to the Board
of Airport Commissioners in public session.
6.2 Present a five-year capital spending plan as part of the annual budget review process.
6.3 As part of the annual budget process, or as required by the needs of the organization, seek
Board of Airport Commissioner approval of detailed, individual capital project budgets.
6.4 Require all project budget packages to specifically identify allowances and other cost
components for which the basis of the estimate cannot be reliably determined.
6.5 Review the analytical basis for estimating project soft costs and contingencies and
consider establishing variable standards based on project scope and other factors.
6.6 Implement comprehensive and formalized policies, procedures and standards for
developing, implementing and monitoring capital project budgets.
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Costs and Benefits
These recommendations could be implemented using existing LAWA resources. Producing a
comprehensive capital improvement plan and developing policies and procedures that serve as
the basis for establishing capital budgets would better communicate LAWA development goals
and projected costs. As the projects move from the conceptual to design phases, detailed line
item estimates showing allowances, soft cost components based on better defined project
characteristics, and contingencies should be clearly presented and described, to ensure that
Finance Department budget personnel have all of the information necessary to conduct a
thorough review and assessment of the capital budget reasonableness.
74
7. Long-Term Program Management Strategy
While the need for consultant program management services in the first years of
LAWAs capital development program was clear, LAWA has not developed a
strategy or plan to transition LAWA staff into capital development program
management and other roles that are currently held by consultants. Despite a
stated intention to transition to an owner-driven organization, the contract for
program management services has recently been extended to eight years at a
cost of $202 million, and documentation suggests that these services will continue
to be provided by consultants through at least 2018. LAWA has not conducted
any cost-benefit analyses or provided any long-term strategy for use of
consultants versus City staff in program management services in the future.
Based on a review of the most common positions held by consultants and a
comparison to existing City job classifications, the cost of utilizing consultants is
estimated to be approximately 15-20 percent greater than the cost of City staff.
In addition, by placing consultants in key roles throughout ADG, staff
development opportunities for LAWA personnel are limited. Further, unless
LAWA implements a strategy for aligning staffing needs with specialty skill sets,
the continued lack of in-house expertise will perpetuate the deficiencies that
required the use consultants in the first place. Even if the need for such
knowledge and expertise declines over the next ten years as LAWA accomplishes
major elements of its capital development program, there will always be a
baseline need for capital development program staff expertise.
LAWA should develop a long-term strategy for the use of consultants and
LAWA staff in program management and support roles, including the
identification of the amount and types of baseline staffing that will be required
on a long-term basis. LAWA should also broaden its recent efforts to identify
any airport-specific job classifications that could be established by the City and
enable LAWA to recruit and retain appropriate capital development staff.
Implementation of these recommendations would enable LAWA to develop an
owner-driven organization that is capable of leading future phases of capital
improvement without relying as heavily on consultants, thereby reducing costs.
Initial Need for Consultant Program Management
When LAWA commenced its major multi-year capital development program in 2007, the
general consensus of LAWA management was that existing LAWA staff resources were
insufficient to manage the program and that program management services would need to be
provided by consultants. In records and interviews, management cited several justifications,
including the magnitude of the program; the aggressive schedule; the relative inexperience of the
LAWA staff resulting from the absence of a substantial capital development program for
Section 7: Long-term Strategy for Program Management
75

approximately 20 years; and, in some cases, the lack of certain specialized job classifications
among the Citys existing job classifications (e.g. estimators and schedulers). These justifications
were described in the Regional Airports Planning Divisions
1
request to LAWAs Human
Resources Division for authorization to hire consultants pursuant to City Charter Section 1022,
which allows boards of commissioners to enter into contracts for the performance of work when
it is determined by the Council or the board of commissioners that the work can be performed
more economically or feasibly by independent contractors rather than by City employees.
Determination by Human Resources
In its 1022 Determination Review (referring to the City Charter Section noted above) of the
Regional Airports Planning Divisions request to hire program management consultants,
LAWAs Human Resources Division determined that there were no other LAWA personnel who
could provide the service, stating according to the division, LAWA does not have sufficient
staff to perform the work proposed for contracting due to the magnitude and scope of work.
However, the determination also stated that City classifications have the expertise to perform
some of the work proposed for contracting, such as planning, environmental analysis,
architectural design, engineering design, project management, design management, inspection,
and project control services. The Department of Public Works may have the capability to
perform some of the work proposed for contracting. However, according to the division, the
work proposed for contracting requires technical expertise in various disciplines and fields,
which city classifications do not have the expertise to perform.
In its considerations of alternatives and whether LAWA staff could perform the function, the
RFP for Program Management Services stated that the HR Division is continuing its review and
if it is determined that City classifications could possibly perform some of the proposed work,
LAWA will notify the specific department(s) and provide them with a copy of the RFP.
Solicitation and Award of Program Management Services Contract
On November 6, 2007, LAWA issued a Request for Proposals (RFP) for Program Management
Services for the Capital Improvement Program at Los Angeles International Airport. The RFP
sought to secure program management services including, but not limited to:

1
Prior to reorganization of capital development program activities at LAWA, this division performed many of the
functions now assigned to the Airport Development Group.
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Pre-design
Program Logistics and Support
Planning Management and Assistance Services
Design and Engineering Management
Construction Management
Environmental Services
Post-Construction Services
Integrated Project Management Team Reporting
Contracts and Administration
The RFP stated that it is expected that the contract will be for a term of six (6) years. Five bids
were received by LAWA and three were considered responsive. The three responsive bidders
(DMJ M Aviation, Inc.; Bechtel Infrastructure Corporation; and Parsons/J acobs Integrated
Program Management Team) were interviewed by a panel of five voting members and two non-
voting technical advisors, and a representative from the Office of the City Attorney observed the
process. The firms were scored according to the criteria in the RFP and Bechtel Infrastructure
Corporation and DMJ M Aviation, Inc. were the top two scorers. A second round of interviews
was conducted by the same panel as the first round, except that the two original non-voting
members were not present and LAWAs Executive Director also participated as a non-voting
member. Upon review of all of the assessment information, LAWA staff recommended the
selection of DMJ M Aviation, Inc. At this time, DMJ M Aviation, Inc. was the aviation operating
firm of parent company AECOM Technology Corporation.
The BOAC approved the contract (DA-4260) with DMJ M Aviation, Inc. on March 3, 2008, and
the Program Management Agreement was dated March 19, 2008. The original contract was for a
one-year term and a total amount of $25,000,000. Section 4.2.2 of the contract states that the
City anticipates that it would like to reserve the option to extend beyond six (6) years, and
stipulated the Citys option to amend the contract to extend the term up to ten (10) years.
An integration of the contractors worldwide operations into a single entity resulted in the
contract being assigned to AECOM Technical Services, Inc. in 2010.
AECOM Contract Extension and Ongoing Baseline Staffing Need
Pursuant to contract DA-4260 cited above, AECOM Technical Services Inc. and its
subcontractors provide program management services for LAWAs capital improvement
program. From March 2008, when the contract was approved, through November 2012, 865
individuals had been authorized to work at LAWA under the contract, including individuals
employed by AECOM and 67 subcontractor firms. AECOMs program management services
include pre-design services, program logistics and support, planning management, construction
management, environmental services, post-construction services, and other customary services.
As of November 13, 2012, the AECOM contract had been amended and extended three times, as
shown in the table below. In the second amendment, $62,720,000 was added without changing
the term of the contract. According to a staff report to the BOAC, management attributed the
need for additional funds to the addition of approximately $1.2 billion of capital projects beyond
the originally anticipated $3 billion, as well as the added responsibility of coordination and
77

oversight of tenant-initiated improvement projects. The third amendment increased the term from
six to eight years and the total contract amount from $162,720,000 to $201,934,228.
Table 7.1
AECOM Contract Amendments
Date of BOAC
Approval
Total Contract
Amount
Total Contract
Term
Original Contract 3/3/2008 25,000,000 $ 1 year
Amendment A 2/9/2009 100,000,000 $ 6 years
Amendment B 12/6/2010 162,720,000 $ 6 years
Amendment C 11/13/2012 201,934,228 $ 8 years

Source(s): Report to the BOAC, Meeting Date: November 13, 2012, Item #4, Subject:
Amend Contract and Appropriate Funds; RFP for program management services.
LAWAs cost forecast for the eight year contract includes declining total annual cost in years six,
seven and eight, to $21.7 million, $13.7 million, and $9.0 million, respectively. The average
annual cost of the first five years of the contract was $31.5 million, with a pattern of increase,
from $21.0 million in year one to an estimated $41.0 million in year five. Should the amounts
budgeted in years six, seven and eight prove insufficient to meet program needs, LAWA
management would have the option to present an additional contract amendment to the BOAC,
as it did in 2010 with the second contract amendment. As mentioned previously, in that case,
$62,720,000 was added to the contract without changing the term of the contract.

Table 7.2
AECOM Annual and Cumulative Cost Summary

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Annual Cost
PM Staffing 16,912,364 $ 23,237,725 $ 20,570,104 $ 23,423,935 $ 27,683,181 $ 20,808,677 $ 13,081,862 $ 8,394,713 $
Other Services 4,064,722 $ 1,263,472 $ 6,472,995 $ 20,608,167 $ 13,331,211 $ 881,100 $ 600,000 $ 600,000 $
Total Annual Cost 20,977,086 $ 24,501,197 $ 27,043,099 $ 44,032,102 $ 41,014,392 $ 21,689,777 $ 13,681,862 $ 8,994,713 $
Cumulative Cost
PM Staffing 16,912,364 $ 40,150,089 $ 60,720,193 $ 84,144,128 $ 111,827,309 $ 132,635,986 $ 145,717,848 $ 154,112,561 $
Other Services 4,064,722 $ 5,328,194 $ 11,801,189 $ 32,409,356 $ 45,740,567 $ 46,621,667 $ 47,221,667 $ 47,821,667 $
Total Cumulative Cost 20,977,086 $ 45,478,283 $ 72,521,382 $ 116,553,484 $ 157,567,876 $ 179,257,653 $ 192,939,515 $ 201,934,228 $
Forecast

Source(s): Report to the BOAC, Meeting Date: November 13, 2012, Item #4, Subject: Amend Contract and
Appropriate Funds. RFP for program management services.

The extent of LAWAs future capital development program remains unclear, though public
statements made by LAWA management indicate that total costs could range between $6 billion
to more than $12 billion, based on Rough Order of Magnitude estimates made in the Specific
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Plan Amendments presently under consideration. LAWA management has reported to the BOAC
that the total capital program budget, as established in Capital Budgets 1 and 2, is estimated to be
approximately $6 billion to $7 billion through 2018
2
. Further, in an interview with a local
planning and infrastructure trade association, LAWA Executive Director recently stated, that on
top of the approximately $4.1 billion Capital Budget #1, Weve got another $8 billion-plus to
spend on this airport if were really going to make LAX the airport this city deserves.
3

In any case, LAWAs capital development program will continue for several years to come and
will require skilled program management professionals. The November 2012 staff report
recommending the third contract amendment states ADG will continue to require outside
professional support services through 2018the primary focus of this actionis to retain key
personnel who are critical to the completion of the Bradley West Gates and Core Improvements,
Core Renovations, and Central Utility Plan Replacement projects and core staff that will help
transition program management services to the successor firms based upon a new procurement.
As these statements make clear, LAWA plans to continue to purchase program management
services from consultants for the foreseeable future.
LAWA Uses Comparatively More Consultants Than Others
The Airport Development Groups total Management and Controls budget amounted to
$141,431,367 across all projects active as of September 2012. ADG budgeted 65.3 percent of its
total Management and Controls budget for consultants and the remaining 34.7 percent was
budgeted for the cost of LAWA Management and Controls personnel. On the project level, these
budgets for consultant management and controls services range from a low of 0 percent to a high
of 99.8 percent. The Bradley West Gates project budgets 67.0 percent for consultants, and the
Bradley West Core project budgets 76.2 percent for consultants.
By comparison, the California Multi-Agency CIP Benchmarking Study (2012 Update), which is a
survey of seven of the largest cities in California, reports that, on average, the respondents spent
30 percent of total project delivery costs on consultants, and 70 percent on in-house staff.
Although this Benchmark Study focuses primarily on public works departments, it provides a
broad indicator of experiences in other jurisdictions that should be considered by LAWA as it
sets its own goals for transitioning to a more appropriate mix of stable in-house personnel and
consultants with specialty skills.

2
Capital Program Management Strategy Evolution presentation to the BOAC Meeting of November 13, 2012.
3
Gina Marie Lindsey Updates LAXs Capital Program: Bradley West, The Planning Report, October 4, 2012.
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LAWA Has Not Planned for Transition to a Baseline Organization
Despite LAWAs stated intent to transition ADG to an owner-driven organization and the
expectation that capital development will continue for several years to come, LAWA executive
managers have not developed a plan or strategy for determining baseline needs or transitioning
the program management function to LAWA staff. Similarly, LAWA managers stated that no
cost-benefit analysis has been conducted to assess the relative value of relying heavily on
contract-driven program management services.
Further, LAWA has not conducted follow-up analysis of staffing needs and the suitability of
LAWAs existing classifications since the 2007 1022 Determination, despite the fact that the
initial review assumed only a six year contract term and the RFP for program management
services stated that the HR Division would continue its review. A Procurement Services Division
representative stated that Charter Section 1022 does not require a new review with contract
amendments unless the scope of services changes significantly. While LAWA has implemented
a position approval process intended to determine if a City job classification could meet the
staffing need instead of a consultant for each new requested position, this process does not
amount to a broad assessment of staffing needs that could inform higher-level decision-makers
about the suitability of LAWAs existing classifications. Such an analysis would guide a strategy
to develop a sustainable baseline organization. During the course of the audit, LAWA gained
approval for the creation of a new Airport Engineer classification, which is an example of the
type of effort that should be included in a larger organization building strategy.
It should be noted that LAWA has utilized City staff from other City departments in some cases
where LAWA staff could not meet the need of the capital development program. LAWA has
employed these individuals by entering into memoranda of agreements (MOA) with Public
Works, the Department of Building and Safety and the Department of General Services. LAWA
reports that the Airports Development Group has expended a total of $47.2 million in
Interdepartmental Orders for other City departments, dating back to J uly 2008. These
Interdepartmental Orders cover a variety of services, including a large number for testing,
inspection, plan check and permitting.
Lack of Formal Staff Development Opportunities
The AECOM contract (DA-4260) requires the contractor to work with LAWA to train City
employees and conduct other staff development activities, as described in Services subsection
2.4.5, shown below:
Program Manager shall assist LAWA in training and developing LAWA and City staff resources.
This may be accomplished in a number of ways, including through partnering of LAWA and City
staff with Program Manager staff, including its sub-consultants, developing training curricula,
materials and manuals or assisting in the development of apprentice programs.
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Aside from the experience of working in an integrated project team environment and the learning
opportunities that may arise from that arrangement, it does not appear that AECOM has provided
substantive capacity building opportunities for LAWA staff that would prepare them to take on
greater program management roles. LAWA provided training logs for City staff and consultants,
including documentation to indicate that some trainings were provided by AECOM. However,
this training log is not linked to an overall strategy that defines long-term baseline staffing needs.
Instead, although important, the log focuses on technical training needs that would be expected
on any large capital development project, such as worksite safety. By placing consultants in key
roles throughout ADG, and not requiring the program management contractor to formally train
and develop staff to perform core program management functions, LAWA hinders staff
development opportunities for LAWA personnel and perpetuates the deficiency that required the
use of consultants in the first place.
Total Cost of Contractors Exceeds Total Cost of City Employees
While it was not feasible in the course of this audit to conduct a comprehensive detailed
comparison of the costs of all AECOM contract employees and similar classifications of City
employees, a basic analysis was conducted to provide an order-of-magnitude comparison.
Base Rates and Benefits are Slightly Higher for City Employees
To compare the productive hourly cost of City employees with the hourly rates charged by
AECOM for its personnel, an analysis was conducted of directly comparable classifications, such
as architects and engineers. The analysis concluded that productive hourly salary rates for City
employees are approximately 3.4 percent greater than the base rates charged by AECOM for
various classifications that provide program services. In addition, certain employee benefit costs,
such as contributions for City retirement, are also greater than the corresponding categories of
expense included by AECOM in its total rate calculation.
Indirect Costs are Substantially Higher for Contractors
Federal cost accounting regulations included in Federal Acquisition Regulation (FAR) Part 31
allow contractors to charge for direct labor, employee benefits and indirect costs of operations. In
the most recent fiscal year, AECOM is charging LAWA for indirect costs that amount to 122.4
percent of direct labor rates for on-site personnel. These indirect costs include allocated amounts
for various cost pools, including the following:
Indirect costs of AECOM personnel, including allocated costs for administrative personnel
located at the Home Office.
Home Office allocations, which includes costs of executive management earning salaries
above the FAR benchmark (less than $546,000 in the initial analysis).
Incentive compensation (e.g., bonus and incentive pay).
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Travel expenses for management and administrative personnel who are not assigned to the
LAWA projects (i.e., LAWA directly reimburses travel expenses for assigned personnel).
By contrast, we estimate that the City would primarily incur cost of labor and related benefits, if
LAWA were to employ City personnel rather than consultants, since most of the non-personnel
overhead cost categories would not require additional City appropriations. For example, LAWA
is already allocated a portion of indirect costs for finance, legal and administrative staff
employed centrally by the City. If LAWA were to replace contract personnel with City staff, the
total City cost for these support services would very likely not be affected. As a result, we
estimate that on a marginal cost basis, the combined contractor rate, including both base salary
and overhead, is approximately 15 to 20 percent greater than the cost of providing services with
City personnel, since many of these allocated costs would not be incurred, or would only be
marginally incurred by the City if it used its own personnel.
Further, we recognize that LAWA will always require some contractor assistance above its
baseline staffing need to respond to temporary fluctuations in development activity and to retain
individuals with special skills. However, because LAWA has not defined its baseline capital
project staffing need or the key capital program management positions that should be held by
City personnel, an accurate estimate of the amount of savings that would result from
transitioning to in-house operation could not be determined for this audit. Nonetheless, if even
just one-third of the consultant staff, representing approximately $48 million
4
over the current
life of the AECOM contract, had been replaced by City personnel, the City could have saved a
conservatively estimated $7.2 million, based on a 15 percent differential between City and
consultant costs. The actual savings rate would be variable depending upon the classifications
pay ranges established by the City and mix of staff. While this analysis is merely an order of
magnitude estimation and a detailed study would be necessary prior to any major strategy shift, it
is intended to illustrate the type of analysis that should be carried out by LAWA management as
it considers its long-term options for program management services.
Conclusions
LAWA will continue to pay a premium for the use of consultant program management services
unless it successfully establishes at least a baseline in-house organization using City job
classifications. Based on a review of the most common positions held by consultants and a
comparison to existing City job classifications, the additional cost difference from using
consultants in place of City staff is estimated to be approximately 15 to 20 percent. In addition,
by placing consultants in key roles throughout ADG, LAWA hinders staff development
opportunities for LAWA personnel and perpetuates the deficiency that required the use
consultants in the first place. Even if the need for such knowledge and expertise declines over the

4
$48 million represents approximately one-third of $146 million, which is equivalent to the $154 million cumulative
cost of PM staffing (see Table 7.2) discounted by 5% to, according to LAWA, account for other direct costs such as
trailers, computers, vehicles, maintenance, etc. that are paid for through the contract.
82

next ten years as LAWA accomplishes major components of its capital development program,
there will always be a baseline need and, as long as LAWA continues to rely heavily on
consultants instead of developing City staff resources, it will pay a premium for the services.
Recommendations
7.1 Direct staff to develop a long-term strategy for the use of consultants and LAWA staff in
program management and support roles, including the identification of the amount and
types of baseline staffing that will be required on a long-term basis, and an estimate of
the amount and types of consultant staffing that will be required. The strategy should be
based on a cost-benefit analysis that justifies the allocation of LAWA staff and
consultants.
7.2 Build upon and broaden its recent effort with the Airport Engineer classification to
identify any airport-specific job classifications that could be established by the City and
enable LAWA to recruit and retain appropriate capital development staff. Any such
proposed classifications should be provided to the Human Resources Division for review.
7.3 Direct the Human Resources Division to review existing job classifications for capital
development at the airport and conduct analysis to determine whether the addition of new
airport-specific classifications is appropriate.
83

Costs and Benefits
Implementation of these recommendations would enable LAWA to understand the costs and
benefits associated with its options as it pursues a more owner-driven organizational model. If
it so chooses, LAWA could build an organization that is capable of leading future phases of
capital improvement without relying as heavily on consultants, thereby reducing costs. LAWA
could save approximately 15 to 20 percent on program management costs by transitioning
consultant roles to City staff. In the context of the program management contract to-date, if even
just one-third of the consultant staff had been replaced by City personnel, the City could have
saved a conservatively estimated $7.2 million.
A-1
Appendix A
OFFICE OF THE CONTROLLER
Audit of the Los Angeles World Airports Capital Development Program
Ranking of Recommendations
Section
Number
Description of Findings Ranking
Code
Recommendations
1 LAWA has not formalized a
structured Value Engineering
process, although some important
elements exist, and efforts
reportedly are being made to
strengthen the procedural foundation
and approach to evaluating project
design and materials alternatives
using a structured Value
Engineering process. Nonetheless,
LAWA is presently in technical
violation of federal requirements and
could be subject to sanctions, if
found to be non-compliant. In
addition, design and construction
industry best practices recommend
the use of Value Engineering at the
30% design phase, and federal
advisories recognize that by
employing Value Engineering
principles at the earliest stages of a
project, the opportunity for
influencing final costs is greatly
increased.

N

U
1.1 Direct staff and request legal counsel to prepare
an assessment of past practices used on LAWA
development projects, to ensure that design
review and cost engineering efforts can
satisfactorily meet FAA expectations regarding
the use of structured Value Engineering.

1.2 Develop and establish policies and procedures
that ensure that a structured Value Engineering
program is implemented at LAWA.
2 While LAWAs analysis of the
benefits of using the CMAR model
supported managements decision to
employ the CMAR project delivery
method for the Bradley West
projects, certain circumstances and
project expectations may have
prevented LAWA from realizing the
models full benefits. For example,
LAWA officials state that they
expected a large volume of change
orders on the Bradley West projects
from inception, since construction
began on the two projects before
designs were complete. Yet, the
CMAR has stated that the volume of
change orders has been higher than
expected, contributing to cost
escalation and impeding its ability to
manage the project effectively.

N

N
U

management to:
2.1 Conduct a post-project assessment of the costs
and benefits of the CMAR model. Include a
comparison of alternative models.
2.2 Evaluate the CMAR model, as implemented
for the Bradley West Gates and Core projects,
by reviewing the agreements and the incentive
structure they provide.
2.3 Develop formal criteria for choosing project
delivery models on future capital projects and
ensure that project management and other
pertinent staff are made aware of the strengths
and weaknesses of all procurement models
considered.
Section
Number
Code
Recommendations

A-2

3 A major benefit of the CMAR
project delivery model is the
transfer of responsibility and a
significant amount of risk from
the owner to the CMAR for the
entire construction effort.
However, ADG has not
implemented this project delivery
model in the most effective
manner and has not taken
sufficient action to ensure that
the CMAR for the Bradley West
projects effectively analyzes
subcontractor change order
estimates for accuracy and
reasonableness. Further, the
CMAR has not complied with
contractual obligations to submit
change order requests in a timely
manner and LAWA has not
aggressively enforced its own
change management guidelines
or specific time requirements of
the CMAR agreements.

U

U

U

N

N
management to:
3.1 Review contract provisions, such as Articles
01 23 00 (Change Orders), 01 24 00 (LAWA
Initiated Changes), and 01 25 00 (CMAR
Change Request) in the Bradley West
Construction Agreements, to strengthen
language and expectations of CMAR change
management for future projects. Specific areas
that could be strengthened include the
expectation of the CMAR role in the meriting
review process, pricing estimation for
proposed change orders, and the acceptability
of CCR revisions that contain cost increases,
but no changes in the scope of work.
3.2 Follow through on formal communications to
the CMAR management regarding contractual
provisions requiring the CMAR to submit
CPCNs and CCRs within the timeframes
stated in the agreement.
3.3 Formally communicate that unsupported
estimates used as placeholders, as well as
CCR revisions that do not contain changes in
scope, will not be accepted.
3.4 Consider enhancing the monitoring of CMAR
performance of change management to include
its ability to meet contract prescribed timelines
for change submittals to reduce the risk of
schedule impacts, that subcontractors will not
be paid in a timely manner, and to ensure the
project may be closed out with an efficient and
effective process.
3.5 Conduct a post-project analysis of the
resources allocated to CMAR Change
Management functions by LAWA under the
Bradley West project budgets to determine
whether they exceeded the mean or median
amount spent, as a percentage of total costs,
on this administrative function. Report results
to the Board of Airport Commissioners.
4 LAWA may be performing QC
functions assigned to the
Contractor and for which the
Contractor is already
compensated through the
executed contracts. LAWA may
be incurring unforeseen costs
because of the duplication of
efforts, along with other

N

U

The LAWA Executive Director should direct the
Chief Airports Inspector to:
4.1 Update and make readily available the LAWA
Construction Inspection Division Procedures
Manual.
4.2 Direct inspector staff to follow procedures
outlined in the LAWA Construction Inspection
Division Procedures Manual.
Section
Number
Code
Recommendations

A-3

inefficiencies in the CMAR-
LAWA relationship. Because
LAWA inspectors do not have,
or do not follow all procedures
for tracking inspection activity or
monitoring the performance of
the CMAR, management is
unable to effectively gauge
CMAR QC performance or
overall CMAR compliance with
active contracts. Additionally,
weaknesses in the practice of
CMAR performance monitoring
may result in deficiencies in
construction, which may affect
the integrity of the work element
and increase the possibility of
future litigation.
N

N

N

N

4.3 Provide training to LAWA inspector staff on
records and information management
procedures to ensure that staff are
knowledgeable about requirements and
equipped to comply with them.
4.4 Review processes and determine if
procedures, notably those related to J ob
Memos and the issuance of Notices of
Noncompliance, should be revised.
4.5 Standardize and maintain LAWA-owned logs
to track the full history of document
communications with a given contractor.
4.6 Review the Request for Inspection processes
and define the implementation of Requests for
Inspection in institutional documents for
standardization of Request for Inspection
processes and procedures.
5 The Board of Airport
Commissioners has limited
involvement in the review and
prioritization of proposed
projects and is not involved in
the assessment of initial project
concepts or budgets. Instead,
these responsibilities have been
assumed by executive staff and
the Board may have less than
optimal involvement in major
capital project decision-making
processes. This dynamic is, in
part, driven by LAWA
managements opinion that a
tension, or conflict exists
between the Boards
environmental review
responsibilities and its more
direct role considering capital
projects for approval. Further,
executive management does not
conduct comprehensive needs
assessments, nor has it
established a systemic process
for determining which projects
should be prioritized and
advanced for development.

U

N

N

U

The Board of Airport Commissioners should direct
the LAWA Executive Director to:
5.1 Request a written legal opinion from the City
Attorneys Office regarding any potential
conflict of interest related to the Boards
duties and authorities related to airport
development and CEQA review.
5.2 If a conflict of interest is determined to be a
factor by the City Attorneys Office, develop a
proposal to reassign the CEQA review
responsibility from the Board of Airport
Commissioners to the City Planning
Department or another entity within the City,
thereby enabling the Board of Airport
Commissioners to conduct a more substantial
level of review of the capital development
program.
5.3 Building on LAWAs current periodic open-
call for projects practice, conduct a
comprehensive needs assessment of airport
capital assets, including both potential
development projects and facilities
maintenance needs, based on the results-
oriented goals and objectives that flow from
the organizations mission.
5.4 Develop a policy and systemic process for
LAWA executive management to use on an
on-going basis going forward to evaluate the
costs and benefits of various proposed projects
and prioritize among them. If deemed
appropriate pursuant to Recommendations 5.1
and 5.2, the outputs of such a process should
Section
Number
Code
Recommendations

A-4

be officially reported to the Board of Airport
Commissioners so that it may be involved in
the selection of capital development projects.
6 LAWA has not developed a
Capital Improvement Plan or
developed a multi-year Capital
Budget, and the annual capital
budget approved by the LAWA
Board of Airport Commissioners
includes only a high level
summary of anticipated capital
expenditures for each major
element and for the budget year.
On a project basis, baseline
capital budgets are liberally
estimated at initial stages of
development. These estimates
include broadly defined cost
components, can raise the total
project budget by as much as 52
percent over the estimated cost of
construction (i.e., termed hard
costs in the industry and by
LAWA). Large project budgets
are typically overstated, which
can result in a greater
commitment of funds than might
otherwise be necessary with
more accurate forecasting, and
may increase the risk of
unnecessary expenditures.

U
N
N

N

N

N

The Board of Airport Commissioners should direct
the LAWA Executive Director to:
6.1 Continue efforts to develop a multi-year
capital plan that would be presented to the
Board of Airport Commissioners in public
session.
6.2 Present a five-year capital spending plan as
part of the annual budget review process.
6.3 As part of the annual budget process, or as
required by the needs of the organization, seek
Board of Airport Commissioner approval of
detailed, individual capital project budgets.
6.4 Require all project budget packages to
specifically identify allowances and other cost
components for which the basis of the
estimate cannot be reliably determined.
6.5 Review the analytical basis for estimating
project soft costs and contingencies and
consider establishing variable standards based
on project scope.
6.6 Implement comprehensive and formalized
policies, procedures and standards for
developing, implementing and monitoring
capital project budgets.
7 LAWA has not developed a
strategy or plan to transition
LAWA staff into capital
development program
management and other roles that
are currently held by consultants.
Despite a stated intention to
transition to an owner-driven
organization, the contract for
program management services
has recently been extended to
eight years at a cost of $202
million, and documentation
suggests that these services will
continue to be provided by
consultants through at least 2018.
The cost of utilizing consultants
is estimated to be approximately

U

N

7.1 Direct staff to develop a long-term strategy for
the use of consultants and LAWA staff in
program management and support roles,
including the identification of the amount and
types of baseline staffing that will be required
on a long-term basis, and an estimate of the
amount and types of consultant staffing that
will be required. The strategy should be based
on a cost-benefit analysis that justifies the
allocation of LAWA staff and consultants.
7.2 Build upon and broaden its recent effort with
the Airport Engineer classification to identify
any airport-specific job classifications that
could be established by the City and enable
LAWA to recruit and retain appropriate
capital development staff. Any such proposed
Section
Number
Code
Recommendations

A-5

15-20 percent greater than the
cost of City staff. In addition, by
placing consultants in key roles
throughout ADG, LAWA hinders
staff development opportunities
for LAWA personnel and
perpetuates the deficiency that
required the use consultants in
the first place. Even if the need
for such knowledge and expertise
declines over the next ten years
as LAWA accomplishes its
capital development program,
there will always be a baseline
need for capital development
program staff.

N
classifications should be provided to the
Department of Human Resources for review.
7.3 Direct the Human Resources Division to
review existing job classifications for capital
development at the airport and conduct
analysis to determine whether the addition of
new airport-specific classifications is
appropriate.

Description of Recommendation Ranking Codes
U- Urgent- The recommendation pertains to a serious or materially significant audit
finding or control weakness. Due to the seriousness or significance of the matter,
immediate management attention and appropriate corrective action is warranted.

N- Necessary- The recommendation pertains to a moderately significant or potentially
serious audit finding or control weakness. Reasonably prompt corrective action should be
taken by management to address the matter. The recommendation should be
implemented within six months.

D- Desirable- The recommendation pertains to an audit finding or control weakness of
relatively minor significance or concern. The timing of any corrective action is left to
managements discretion.

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s
c
r
i
b
e
)

*'
I
f

Y
e
s
,

p
l
e
a
s
e

s
p
e
c
i
f
y

^ ^ " "
P
l
e
a
s
e

e
x
p
l
a
i
n

b
e
l
o
w
,

i
f

n
e
c
e
s
s
a
r
y
.

^ ^ " "
Appendix B
B-1
4
.

W
h
a
t

i
s

y
o
u
r

a
i
r
p
o
r
t
'
s

f
o
r
e
c
a
s
t

f
o
r

N
e
w

L
a
r
g
e

A
i
r
c
r
a
f
t

(
N
L
A
)

o
p
e
r
a
t
i
o
n
s

d
u
r
i
n
g

t
h
e

n
e
x
t

f
i
v
e

y
e
a
r

p
l
a
n
n
i
n
g

w
i
n
d
o
w
?
5
.

W
h
a
t

i
s

t
h
e

c
u
r
r
e
n
t

a
v
e
r
a
g
e

a
g
e

o
f

y
o
u
r

t
e
r
m
i
n
a
l

f
a
c
i
l
i
t
i
e
s
?

A
n
d

w
h
e
n

w
e
r
e

y
o
u
r

t
e
r
m
i
n
a
l

f
a
c
i
l
i
t
i
e
s

l
a
s
t

r
e
m
o
d
e
l
e
d

o
r

u
p
g
r
a
d
e
d
?

6
.

P
l
e
a
s
e

d
e
s
c
r
i
b
e

y
o
u
r

c
a
p
i
t
a
l

e
x
p
e
n
d
i
t
u
r
e
s

f
o
r

r
e
m
o
d
e
l
,

r
e
p
a
i
r

a
n
d

u
p
g
r
a
d
e

p
r
o
j
e
c
t
s

(
v
e
r
s
u
s

e
x
p
a
n
s
i
o
n
)

o
v
e
r

t
h
e

l
a
s
t

1
5

y
e
a
r
s

a
n
d

y
o
u
r

p
r
e
s
e
n
t

c
o
s
t

e
s
t
i
m
a
t
e

o
f

d
e
f
e
r
r
e
d

m
a
i
n
t
e
n
a
n
c
e
.

I
f

p
o
s
s
i
b
l
e
,

p
l
e
a
s
e

p
r
o
v
i
d
e

t
o
t
a
l

e
x
p
e
n
d
i
t
u
r
e
s

f
o
r

t
h
e
s
e

t
y
p
e
s

o
f

p
r
o
j
e
c
t
s

d
u
r
i
n
g

t
h
i
s

p
e
r
i
o
d
.

7
.

P
l
e
a
s
e

l
i
s
t

t
h
e

o
f
f
i
c
e
s
,

d
e
p
a
r
t
m
e
n
t
s
,

o
r

o
r
g
a
n
i
z
a
t
i
o
n
s

(
i
.
e
.

E
x
e
c
u
t
i
v
e

O
f
f
i
c
e
,

P
l
a
n
n
i
n
g

D
e
p
a
r
t
m
e
n
t
,

e
t
c
.
)

g
e
n
e
r
a
l
l
y

i
n
v
o
l
v
e
d

i
n

t
h
e

f
o
l
l
o
w
i
n
g

s
t
a
g
e
s

o
f

p
r
o
j
e
c
t

d
e
v
e
l
o
p
m
e
n
t
.
8
.

P
l
e
a
s
e

d
e
s
c
r
i
b
e

t
h
e

p
r
o
j
e
c
t

c
o
s
t

e
s
t
i
m
a
t
i
o
n

p
r
o
c
e
s
s
.

P
l
e
a
s
e

i
n
c
l
u
d
e

t
h
e

n
u
m
b
e
r

o
f

e
s
t
i
m
a
t
e
s

d
e
v
e
l
o
p
e
d

f
o
r

a
n
y

g
i
v
e
n

p
r
o
j
e
c
t
,

w
h
i
c
h

e
n
t
i
t
i
e
s

d
e
v
e
l
o
p

t
h
e

e
s
t
i
m
a
t
e
s
,

a
n
d

w
h
i
c
h

e
n
t
i
t
y
'
s

e
s
t
i
m
a
t
e

u
l
t
i
m
a
t
e
l
y

r
e
c
e
i
v
e
s

a
p
p
r
o
v
a
l
.

T
o
t
a
l

n
u
m
b
e
r

o
f

N
L
A
N
u
m
b
e
r

o
f

c
o
n
c
u
r
r
e
n
t

N
L
A

o
n

t
h
e

g
r
o
u
n
d
^ ^ " " ^ ^ " "
D
e
f
i
n
i
t
i
o
n

o
f

p
r
o
j
e
c
t

s
c
o
p
e
D
e
s
i
g
n
E
n
v
i
r
o
n
m
e
n
t
a
l

r
e
v
i
e
w
P
r
o
j
e
c
t

C
o
s
t

E
s
t
i
m
a
t
i
n
g
^ ^ " "
9
.

D
o
e
s

y
o
u
r

a
i
r
p
o
r
t

e
m
p
l
o
y

a

s
t
r
u
c
t
u
r
e
d

v
a
l
u
e

e
n
g
i
n
e
e
r
i
n
g

p
r
o
c
e
s
s
?

I
f

s
o
,

p
l
e
a
s
e

s
p
e
c
i
f
y

t
h
e

m
a
n
a
g
e
m
e
n
t

r
e
p
o
r
t
s
,

t
o
o
l
s
,

o
r

p
r
o
c
e
s
s
e
s

b
y

w
h
i
c
h

m
a
n
a
g
e
r
s

o
b
t
a
i
n

a
n
d

e
v
a
l
u
a
t
e

p
r
o
g
r
a
m

a
n
d

f
i
n
a
n
c
i
a
l

s
t
a
t
u
s

i
n
f
o
r
m
a
t
i
o
n
.
1
0
.

P
l
e
a
s
e

d
e
s
c
r
i
b
e

t
h
e

k
e
y

q
u
a
l
i
t
y

c
o
n
t
r
o
l

o
r

q
u
a
l
i
t
y

a
s
s
u
r
a
n
c
e

s
y
s
t
e
m
s

i
n

p
l
a
c
e

t
o

o
v
e
r
s
e
e

c
o
n
t
r
a
c
t
o
r

p
e
r
f
o
r
m
a
n
c
e
.

1
1
.

D
o

y
o
u
r

c
o
n
s
t
r
u
c
t
i
o
n

e
n
g
i
n
e
e
r
i
n
g

q
u
a
l
i
t
y

a
s
s
u
r
a
n
c
e

e
m
p
l
o
y
e
e
s

(
R
e
s
i
d
e
n
t
/
P
r
o
j
e
c
t

E
n
g
i
n
e
e
r
s
,

I
n
s
p
e
c
t
o
r
s
,

o
r

F
i
e
l
d

E
n
g
i
n
e
e
r
s
)

h
a
v
e

t
h
e

a
u
t
h
o
r
i
t
y

t
o

s
t
o
p

p
a
y
m
e
n
t

t
o

c
o
n
t
r
a
c
t
o
r
s
?
1
2
.

I
s

a

s
t
a
n
d
a
r
d

c
o
n
t
i
n
g
e
n
c
y

a
p
p
l
i
e
d

t
o

a
l
l

c
o
n
s
t
r
u
c
t
i
o
n

c
o
n
t
r
a
c
t
s
?

I
f

s
o
,

p
l
e
a
s
e

e
n
t
e
r

t
h
e

p
e
r
c
e
n
t
a
g
e

v
a
l
u
e
.
^ ^ " "
Y
e
s

(
e
n
t
e
r

p
e
r
c
e
n
t
a
g
e

v
a
l
u
e
)
N
o

(
b
r
i
e
f
l
y

d
e
s
c
r
i
b
e

h
o
w

c
o
n
t
i
n
g
e
n
c
i
e
s

a
r
e

d
e
t
e
r
m
i
n
e
d
)
N
o

M|.
Y
e
s

(
p
l
e
a
s
e

d
e
s
c
r
i
b
e

b
e
l
o
w
)

M|.
P
l
e
a
s
e

d
e
s
c
r
i
b
e

^ ^ " "
Y
e
s

*'
N
o

*'
O
t
h
e
r

(
p
l
e
a
s
e

s
p
e
c
i
f
y
)

Appendix B
B-2
1
3
.

P
l
e
a
s
e

l
i
s
t

t
h
e

t
i
t
l
e
s

o
f

t
h
e

a
u
t
h
o
r
i
z
i
n
g

s
i
g
n
a
t
u
r
e
s

r
e
q
u
i
r
e
d

f
o
r

c
h
a
n
g
e

o
r
d
e
r
s
.

I
f

d
o
l
l
a
r

a
m
o
u
n
t

t
h
r
e
s
h
o
l
d
s

a
p
p
l
y
,

p
l
e
a
s
e

i
n
d
i
c
a
t
e
.

^ ^ " "

D
o
c
u
m
e
n
t
s

R
e
q
u
e
s
t
I
n

a
d
d
i
t
i
o
n
,

w
e

r
e
q
u
e
s
t

t
h
a
t

y
o
u

p
r
o
v
i
d
e

t
h
e

f
o
l
l
o
w
i
n
g

d
o
c
u
m
e
n
t
s

v
i
a

e
m
a
i
l
:

1
.

A
v
a
i
l
a
b
l
e

o
r
g
a
n
i
z
a
t
i
o
n

c
h
a
r
t
s

f
o
r

a
l
l

a
i
r
p
o
r
t

d
e
p
a
r
t
m
e
n
t
s

a
n
d

d
i
v
i
s
i
o
n
s
,

i
n
c
l
u
d
i
n
g

t
h
e

g
e
n
e
r
a
l

a
i
r
p
o
r
t

g
o
v
e
r
n
a
n
c
e

a
n
d

m
a
n
a
g
e
m
e
n
t

s
t
r
u
c
t
u
r
e
,

k
e
y

a
d
m
i
n
i
s
t
r
a
t
i
v
e

d
i
v
i
s
i
o
n
s
,

b
u
d
g
e
t

a
n
d

f
i
n
a
n
c
e
,

p
l
a
n
n
i
n
g

a
n
d

d
e
v
e
l
o
p
m
e
n
t
,

a
n
d

a
i
r
p
o
r
t

o
p
e
r
a
t
i
o
n
s

2
.

C
o
p
i
e
s

o
f

t
h
e

p
o
l
i
c
i
e
s

a
n
d

p
r
o
c
e
d
u
r
e
s

f
o
r

a
i
r
p
o
r
t

a
n
d

f
a
c
i
l
i
t
y

p
l
a
n
n
i
n
g
,

d
e
s
i
g
n
,

a
n
d

c
o
n
s
t
r
u
c
t
i
o
n
,

i
f

a
v
a
i
l
a
b
l
e

e
l
e
c
t
r
o
n
i
c
a
l
l
y
.

O
t
h
e
r
w
i
s
e
,

c
o
p
i
e
s

o
f

t
h
e

t
a
b
l
e

o
f

c
o
n
t
e
n
t
s

w
o
u
l
d

b
e

s
u
f
f
i
c
i
e
n
t
.

3
.

M
o
s
t

r
e
c
e
n
t

a
i
r
p
o
r
t

s
t
r
a
t
e
g
i
c

p
l
a
n
,

i
f

a
v
a
i
l
a
b
l
e

e
l
e
c
t
r
o
n
i
c
a
l
l
y
.

O
t
h
e
r
w
i
s
e
,

a
n

o
f
f
i
c
i
a
l

s
u
m
m
a
r
y

s
t
a
t
e
m
e
n
t

o
f

s
t
r
a
t
e
g
i
c

g
o
a
l
s

a
n
d

o
b
j
e
c
t
i
v
e
s

w
o
u
l
d

b
e

s
u
f
f
i
c
i
e
n
t
.

4
.

M
o
s
t

r
e
c
e
n
t

a
i
r
p
o
r
t

c
a
p
i
t
a
l

p
l
a
n

5
.

A
i
r
p
o
r
t

c
a
p
i
t
a
l

b
u
d
g
e
t
s

f
o
r

t
h
e

p
a
s
t

f
i
v
e

y
e
a
r
s

6
.

A
i
r
p
o
r
t

c
a
p
i
t
a
l

p
r
o
j
e
c
t

f
i
n
a
n
c
i
a
l

r
e
p
o
r
t
s

f
o
r

t
h
e

p
a
s
t

f
i
v
e

y
e
a
r
s

T
h
e
s
e

d
o
c
u
m
e
n
t
s

w
i
l
l

h
e
l
p

u
s

u
n
d
e
r
s
t
a
n
d

c
a
p
i
t
a
l

d
e
v
e
l
o
p
m
e
n
t

a
t

y
o
u
r

a
i
r
p
o
r
t

a
n
d

w
i
l
l

a
l
l
o
w

u
s

t
o

a
n
s
w
e
r

f
u
r
t
h
e
r

q
u
e
s
t
i
o
n
s

b
y

r
e
f
e
r
r
i
n
g

t
o

t
h
e

d
o
c
u
m
e
n
t
s
.

W
e

h
o
p
e

t
o

a
v
o
i
d

o
r

m
i
n
i
m
i
z
e

f
o
l
l
o
w
-
u
p

q
u
e
s
t
i
o
n
s
.

P
l
e
a
s
e

s
u
b
m
i
t

t
h
e
s
e

d
o
c
u
m
e
n
t
s

e
l
e
c
t
r
o
n
i
c
a
l
l
y

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o

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Appendix B
B-3

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.

Appendix B
B-4
Dallas-Fort Worth International Airport John F. Kennedy International Airport
Hartsfield-Jackson Atlanta International
Airport McCarran International Airport Miami International Airport San Francisco International Airport
1. For which of the following is Board
approval required?
Airport Master Plan No No No - TheCity Council "adopts" theMaster Plan. No Yes Yes
Airport Master Plan Amendments No No No No Yes Yes
Capital Plan/Budget No Yes Yes No Yes Yes
Project Definition and Budget No No No No No No
Individual Contracts Yes Yes Yes Yes Yes Yes
Change Orders Yes No Yes Yes Yes No
Other
DFW Airport Boardapproval requiredfor:
Professional Services(A/E) New contractsover
$50K, changeordersover $40K, andConstruction
New contractsover $50K, changeordersover
$25K.
N/A N/A
Theairport director hasbeenauthorizedby the
Boardof County Commissionersto execute
changesordersnot to exceed10% of theawarded
contract amount. Thereisno dollar limit onany
singlechangeorder, just thetotal amount per
contract. Any changeorderswhichwouldexceed
this10% limit must beapprovedby theBoard, no
matter theamount. Asapractical matter, avery
largechangeorder will betakento theboardto
preservethe10% authority for thenormal course
of business. Wealso includeaspecial allowance
ineachcontract for itemswhichdevelopduring
thecourseof theproject. Thisspecial allowance
coverspermits, fees, andany changesdirectedby
theowner whichaddsto thescopeof thecontract
(asopposedto designerrors, designomissions, and
unforeseenconditions). By way of example, for
theTerminal 3project, a$1.2billioncontract by
award, thespecial allowancewas$50millionand
thechangeorder authority by boardpolicy was
$120million. Therewereapproximately $45in
changesonthisproject andnoneof thosechanges
went to theboardfor approval.
All constructioncontractsmust beapprovedby the
Boardof County Commissioners. Changeorders
must beapprovedby theBoardof County
Commissioners. If theCO isbelow 15% of the
cost of thecontract cambeapproved
administratively by theAviationDirector, but
needsto beratifiedby theBoardof County
Commissioners.
Thedollar amount thresholdrequiringAirport
Commissionapproval for contractsisany
constructioncontract over $400,000andany
professional servicescontract over $50,000.
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Dallas-Fort Worth International
Airport
John F. Kennedy International
Airport
Hartsfield-Jackson Atlanta
International Airport McCarran International Airport Miami International Airport San Francisco International Airport
2. Do you have a formal and systemic
process for prioritizing potential capital
projects and selecting those that will be
developed?
Yes and specify
Yes Projectsaresubmittedthrough
anelectronic processfor potential
funding. A committeeof senior
management reviewstheproject
requestsandapprovesor deniesthem.
Yes Theagency ranksstateof good
repair projectsalsocallednormal
replacement projectsby assessing
asset conditionandoperational
necessity. A moredetaileddescription
of thisprocesscanbefoundinACRP
Report 49CollaborativeAirport
Capital PlanningHandbook.
Yes TheDepartment of Aviation
(DOA) Bureauof Airport Planning
andDevelopment (P&D) isconsidered
thefacilitator andproprietor of the
DOAsCapital Improvement
Program. Withinput fromother
internal andexternal stakeholders,
P&D isconsideredtheleadbusiness
unit that isresponsiblefor the
preparation, development,
documentation, tracking, andoversight
of theCIP program.
Yes Eachyear wedevelopacapital
plan, whichispresentedtotheairlines
per our useandleaseagreement. The
need, funding, andprojectedyear to
commencetheproject, isincludedin
therecommendation. Thisreview
processwiththeairlinescoversall
project withacost inexcessof
$250,000. Our project list isdeveloped
by solicitingneedsfromour executive
teammembersandtheairlines. It is
reviewedat least quarterly by the
Director, Deputy Director andthe
FinanceDirector for any adjustments
basedonneed, operational concerns
andfinancingtiming. Theoperations
staff haveconstant input intothe
timingfor operational purposeand
need.
Yes A groupcomposedof Aviation
Department senior management,
airlinerepresentative, Consulting
Engineer andFinancial Advisor (User
Group) convenesmonthly toreview
andprioritizeprojectsandauthorize
funding.
Yes SFO studiedbest practicesandreviewedtheAirport CooperativeResearchProgram(ACRP) Report 49: CollaborativeAirport Capital
PlanningHandbook toformalizeanew capital planningprocess. Theprocessisasfollows: Airport ExecutiveManagement servesasthe
Capital PlanningReview Committee(CPRC), apolicy body, andprovidesdirectiontotheCIP WorkingGroupfor thecapital plan
development process. Specifically, theCPRC definestheAirport facility objectives, ensuresconsistency withtheAirportsstrategic plan, and
determinesthefinancial limitsfor investment. After theCIP WorkingGrouphasdevelopeditsannual updatetotheAirport capital plan, the
CPRC will review theproposedplanandrecommendchangesif needed. TheCapital Improvement Program(CIP) WorkingGroupisa
multidisciplinary groupof Airport managersthat work collaboratively toevaluate, develop, review, select, andmanagecapital and
maintenanceinvestments. Every project isevaluatedusingadetailedrankingmethodology todeterminethescoreof eachproposedcapital
project. TheAirport reevaluatesevery project that isbeingproposedfor inclusionintheCIP. TherankingcriteriaincludeSafety andSecurity;
Customer Experience; Operational Impact; ConditionAssessment; Sustainability; Risk; andFinancial Impact. Eachcriterionisalsoweighted
accordingtoitsrelativeimportance. TheCIP WorkingGroupprovidesanopenforumtodiscusscapital andmaintenanceprojectsunder
consideration. Subject matter expertsfromother Divisionsprovidetheinitial rankingsfor their projectsandareinvitedtoparticipateinthe
presentationof their projectstoensurethat eachproject isclearly understoodandisfairly evaluated. TheCIP WorkingGroupdeterminesthe
planbasedonCPRC policy guidanceandtheproject scores. Thenthegroupreviewsthefinancial impact andeliminateslow scoringprojects
fromtheplanif required, andprovidestheproposedcapital plantotheCPRC. TheCPRC staff havetheopportunity toask questions, request
that theCIP WorkingGrouptoprovideadditional information, andmakeadjustmentstotheinitial proposal. Airport staff reviewsthecapital
planwiththeAirport Director, theAirport Financial Advisory Committee(whichincludestheDeputy City Controller, theDirector of the
ControllersOfficeof Public Finance, andmembersfromthefinancial servicesindustry), theSanFranciscoAirport AirlineAdvisory
Committee(SFAAAC) of airlinerepresentatives, theCitysCapital PlanningCommittee, theMayorsOfficeandtheBoardof Supervisors.
TheCIP WorkingGroupalsoconductsmidyear reviewsof thecapital plantoidentify andproject issuesearly intheprocess. Thesemeetings
allow theAirport toconsider andevaluatenew project requestsduringthefiscal year. ThisprocessalsoenablesSFO toreallocatefundsfrom
any project that cannot be, or isnot being, implementedfor another project that may needthefundingor tofundanew project that wasnot
anticipated.
No N/A N/A N/A N/A N/A N/A
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3. Select the delivery model(s) the Airport
generally uses for the categories of
projects shown below.
Airfield Projects Design-Bid-Build Design-Bid-Build Design-Bid-Build
Design-Bid-BuildandConstruction-Manager-At-
Risk
Design-Bid-Build Design-Bid-BuildandDesign-Build
New Facility Construction Projects
Risk
N/A
Risk
Design-Bid-Build Design-Bid-Build Design-Bid-BuildandDesign-Build
Renovation/Rehabilitation Projects
Risk
Design-Build Design-Bid-Build
Risk
Design-Bid-Build Design-Bid-BuildandDesign-Build
Other Projects
Risk
N/A Design-Bid-Build N/A Design-Bid-Build Design-Bid-BuildandDesign-Build
Other, please specify.
For larger projects, theCMAR approachistypically
utilized. At DFW, wealso select contractorsona
competitivesealedproposal basis, whereprice,
alongwithother factorsareusedto determinethe
contractor that providesthebest valuefor that
particular contract. Thisapproachistypically (but
not always) usedwhenwehave100% of thedesign
documents.
Theagency usesDesign-Bid-Buildabout 85% of the
time. But other delivery strategiesareusedsuchas
Design-Build, Design-Build-Operate-and-Maintain
dependingontheproject.
Wedo useDesign-Buildfor somelarger projects, in
special casesonly wherethescheduleiscritical, or
wherewewant to specifically allow innovationor
alternativesfromoutsidesources.
Until recently theonly procurement methodusedwa
Design-Bid-BuildandDesign-Build. Changesto
Statepublic worksprocurement statutesweremadea
few yearsago whichgreatly enhancedtheability to
useConstruction-Manager-At-Risk. Wehaveused
thisprocessnow for six projects, all but oneof the
projectsarerenovations, bothbuildingandairfield.
Thelargest of theprojectshasbeenapproximately
$15million. Wehavejust awardedataxiway
renovationproject at $26million. If our experience
goingforwardmatchesour past experience, we
intendto usethisprocurement methodmore
frequently.
N/A
Thedelivery methodvariesdependingonthetypeof
project. For largescaleprojects, generally inexcess
of $50million, SFO usesaDesign-Builddelivery
model, but for smaller projectsSFO generally uses
theDesign-Bid-Builddelivery method.
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4. What is your airport's forecast for New
Large Aircraft operations during the next
five year planning window?
Total number of NLA Two scheduledCargo flightsusing747-800
J FK isoneof thetop10airportsintheworldfor
A380s- about 40flightsper day
Four aday (A380, not just groupVI) Wearenot planningfor New LargeAircraft operations.
Four daily (includes2AirbusA380and2Boeing
747-8Cargo Freighter)
Two intheshortterm, withupto 14daily operations
by FY17
Number of concurrent NLA on the
ground
Planningfor onepassenger A380, withgatecapacity
for two over thenext fiveyear period; 747-800
couldgatethreetoday, if demanddictated, but no
suchdemandcurrently exists.
From40flightsaday today to about 50flights5
years
One N/A
2AirbusA380intheafternoonand2Boeing747-8
Cargo Freighter inthemorning
One(possibly two onthegroundconcurrently inFY
16andFY 17)
5. What is the current average age of your
terminal facilities? And when were your
terminal facilities last remodeled or
upgraded?
Terminal D (International Terminal) openedin
2005. TerminalsA, B, C andE (DFWsother 4
Terminals) openedin1974andarecurrently inthe
processof beingremodeled(under our Terminal
Renewal andImprovement Program TRIP).
Estimatedcompletionfor TRIP is2017.
Terminal Inventory for PA airport systemranges
fromlessthanthreeyearsfor theNew Domestic
Terminal at J FK to morethan40yearsfor the
Central Terminal Buildingat LGA.
Most of theterminal wasbuilt inearly 1980s.
Remodelinginthelast 10yearsincludes1994-
ConcourseC, and2012- new terminal.
Terminal 3wasopenedthissummer. It has14gates, but the
terminal issizedto servicethose14gatesandupto 26gates
fromthesatelliteD gates. Thereisanundergroundtrainlinking
Terminal 3to theD Gates. SatelliteD has44gatesandis
connectedto Terminal 1andTerminal 3by anautomatedtrain.
Thefirst half of theD Gateswasopenedin1998. Thethirdwing
wasopenedin2004andthefinal wing(thefourthwing) was
openedin2007. TheC gateshas19aircraft gates. Themainpart
of thisareawasopenedin1987. Two of the19gateswereadded
in1994andGateC1wasaddedin2008. TheA&B Gateareas
aretheoldest gateareas. Partsof thisterminal areaare50years
oldandthenewest part of thisareais40yearsold. Most all of
theA&B Gateterminal areahasbeenremodeledinthepast 6
years. Two of thefour pods, most of thepassenger walk waysand
therotundaareashaveall beenremodeled, to includethe
restrooms, theceilingareas, thewindow walls, walls, andfloors.
Therenovationof the thirdpodisunder design. Terminal 2was
openedin1991. Thiseight gatefacility wasaremodel and
connectionof two oldstandaloneterminalsoperatedpreviously
by AmericanandPeople'sExpress. ThisTerminal hasbeen
closedandscheduledfor demolition.
Partsof thenew NorthTerminal andConcourse"D"
arestill under construction. Thenew South
Terminal andCC "J " opened5yearsago, Concourse
"H" opened15yearsago. Portionsof our Central
Terminal CC "E, F, andG" rangefromthe70'sto the
oldest concourse("G") whichdatesto thelate50's
whentheairport opened.
Terminal 1 Opened1963(major renovationsin
1988)
1983and2011)
1981. Additional renovationsarecurrently
underway)
International Terminal Opened2000
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Airport
6. Please describe your capital
expenditures for remodel, repair, and
upgraded projects over the last 15 years
and your present cost estimate of
deferred maintenance. If possible, please
provide total expenditures for these types
of projects during this period.
2005 Largecapital development programwhichincludeda
new terminal (Terminal D) andanew automatedpeoplemover
system(Skylink). Total Programwas$2.7B
2010 Startednew capital program Terminal Renewal and
Improvement Program(TRIP). Thisincludesthecomplete
renovationof TerminalsA, B, C andE. Current TRIP program
budget is$2.3B, scheduledfor completionin2017. In
additional to thelargecapital programs, DFW typically spends
$100M-$150M per year onavariety of ongoingcapital
projects, fromairfieldwork to terminal work. Thistypical
annual expenditurehappensevery year, includingduringthe
yearsof ongoinglargeprograms.
OnaveragethePA'scapital programin
Aviationexpendsabout $350M
annually. Inthepast 15yearswehave
exceededthat amount for programssuch
asthenew largeaircraft programat
J FK, New Domestic Terminal andnew
Terminal 8at J FK, reconstructionof the
Bay Runway at J FK, theJ FK andEWR
Air Trainandperimeter.
N/A
Since2008, theairport hasbeen
updatingor constructing: thebaggage
screeningareas, airfieldbridge
structures, theautomatedpeoplemover
system, relocationof thetraffic control
tower, runway andtaxiway lightingand
paving, runway 27R extension, runway
9R-27L reconstruction, concourseD
expansion, constructionof an
international terminal, concourseC
expansion, andaconsolidatedrental car
facility.
For maintenanceandrepair projectswe
useReserveMaintenancefundingwhich
isreplenishedthroughlandingfees.
TheAirport usestheCity andCounty of SanFranciscosFacilitiesRenewal
ResourceModel (FRRM). Thiswebbasedsoftwaretool predictstheannual funding
neededto maintainfacilitiesinastateof goodrepair. To estimatethisannual need,
themodel usesbasic buildinginformation(e.g. grosssquarefeet, constructiondate,
subsystemlifecycles, replacement costs, etc.). For boththetenyear capital planand
theannual capital budget, theAirport usessomeFRRM datato determinehow much
fundingto allocateto eachcost center for facility renewal. TheAirportsFacility
MaintenanceandDesignandConstructiondivisionsalso useaGIS infrastructure
mappingsystemthat assiststheAirport inidentifyingsomereplacement and
renewal needs. TheAirport budget for facilitiesmaintenanceover thepast 15years
was$72.6million. Thenext 10year projectedamount is$117.4million. The
Airport also hascompletednumerouscapital projectsrelatedto remodel, repair and
renovationof facilitiesor infrastructureassetsover thepast 5years.
7. Please list the offices, departments, or
organizations generally involved in the
following stages of project development.
Definition of Project Scope
Planning, Airport Development andEngineeringDept. (ADE),
RequestingDFW Department (ADEscustomer)
AviationDepartment-Airport Physical
Plant andRedevelopment Divisions
Planning/Environmental
ExecutiveOffice, Planning, andthe
appropriateoperational group(i.e.,
airfieldoperations for airfield
improvementsor terminal operationsfor
terminal projects).
PlanningDivisionandFacilities
Management Division
ThroughtheAirportsQuick ResponseTeam(QRT) process, stakeholdersassist in
definingproject scopeincluding: TheAirport Director; Senior Management;
PlanningDivision; DesignandConstructionDivision; FacilitiesMaintenance
Division; OperationsandSecurity Division; BusinessandFinanceDivision;
CommunicationsandMarketingDivision; MuseumsDivision; andAdministration
andTechnology Division
Design ADE
EngineeringDepartment who usesin-
houseandconsultants
Project Development
ExecutiveOffice, Planningandall
departmentsimpactedby theproject.
FacilitiesManagement Division DesignandConstructionDivision
Environmental Review
Environmental AffairsDepartment, ADE Aviationdirectsincollaborationwith
Engineering
Planning/Environmental Planning
Civil EngineeringandEnvironmental
Division
PlanningDivision
Project Cost Estimating ADE
Aviationdrawsonsharedresourcefrom
aProject Management Office
Project Controls/Estimating ConstructionManager
PlanningDivisionandFacilities
Management Division
DesignandConstructionDivision
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John F. Kennedy
International Airport
Hartsfield-Jackson
Atlanta International
8. Please describe the project cost
estimation process. Please include the
number of estimates developed for any
given project, which entities develop the
estimates, and which entity's estimate
ultimately receives approval.
Thecost estimationprocessisdifferent dependingonthetypeof project or program. ADE
hasonstaff cost estimators, who aresupportedby oncall consultant estimators. For
routinecapital projects, ADE estimatorshelpindevelopinganoverall project budget,
whichincludesestimatesfor constructionandsoft costs. ADE will also conduct
constructionestimatesasdesigndevelops(number of estimatesdependsonthesizeof the
project) andanestimateat bidtime(asif biddingwiththecontractors). For large
programs, likeTRIP, ADE estimatorsworkedwithconsultant staff andCMAR staff, to
developtheoverall programbudget, whichagainincludedestimatesfor constructionand
soft costs. Theprocesstypically includedtheentities(consultant, CMAR andADE)
estimatingtheconstructioncostsindependently, andthenthethreecomingtogether and
goingover theresultsfromeach, andworkingtogether to comeupwithaconsensus
programbudget. Throughout aprogram, estimatesarecompletedby consultant staff and
reviewedby ADE staff, asdesignisbeingcompleted, to ensureall areinlinewithbudget.
A typical project hasfour
estimatesthroughthe
project cycle: uponentry
inacapital plan; at the
completionof conceptual
development; if the
project goesto
preliminary design, there
isanother estimate; and
thefinal estimatebefore
constructionawardis
doneat thecompletionof
final design.
N/A
Thefirst estimateisaplanningestimate. For largeprojectsthisis
developedby theplanningconsultant managedby theplanningstaff and
reviewedby theDirector'soffice. Onceaproject isindesign, thereare
designreviewsat 10% completion, 35%, 60% and100% (sometimesthere
isa90% designreview aswell). Thefirst concretedesignestimateis
developedfor the35% designreview andupdatedfor eachsubsequent
review. Thedesignestimateisdevelopedby thedesignteamandreviewed
by theConstructiongroup, whichincludesin-housestaff andtheproject
management staff, a.k.aBetchel, for thepast 30years. If thedesign
estimateexceedstheplanningestimate, thenthedirector'sofficewill
determinetheneedto increasetheproject budget or direct thedesignteam
to reducetheproject scopeto bringit withinbudget (after reviewingcost
reductionalternatives).
TheAviationDepartment
employsoutsideconsultantsfor
project cost estimation.
Estimatesareinitiatedduring
planning, andupdatedduring
programming, design, and
construction(bidding) phases.
AirportsEngineeringandArchitecturesectionsdevelopcost
estimatesfor their smaller projectsthat generally focusonasset
preservationor minor facility improvements. For largescale
capital projects, SFO usesconsultantsto developcost estimates
at least threeseparatetimesduringtheproject. Thefirst project
budget estimateisdevelopedfor thefirst capital planproposal or
initial planningphaseof theproject. Thisestimateisdeveloped
by comparingthescopeandscaleof projectsto similar work and
identifyingissuesthat may influencethecost. Thesecondcost
estimateisdoneintheplanningphasewhenthedesignwork is
developedandtheproject scope, scheduleandother project
aspectsarefurther refined. Thethirdcost estimateiscompleted
whentheengineer or architect estimatestheproject work prior
to advertisingthecontract.
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John F. Kennedy
International Airport
Hartsfield-Jackson
Atlanta International
9. Does your airport employ a structured
value engineering process? If so, please
specify the management reports, tools, or
processes by which managers obtain and
evaluate program and financial status
information.
Yes - describe
Yes - For our largeprograms, Consultant, CMARs, and
ADE staff work together in reviewing design packages as
they arebeing developed fromavalueengineering
perspective. Notethat on largeprograms, theCMAR is
put under contract shortly after thedesigner, and is under
contract early on, and provides avast amount of pre-
construction services including estimating, scheduling,
phasing and valueengineering.
N/A N/A
Yes - All of thedesign projects for thepast 30 years
havebeen managed by Betchel, with oversight fromthe
airport construction management staff. Betchel staff
conducts thedesign review required by statelaw for
public works projects. Wedid employ theservices of an
additional design review/valueengineering company for
theConsolidated Rental Car Facility. Our conclusion
was that this additional cost did not produceany
meaningful adjustments to thedesign.
N/A N/A
No N/A
No - In thelate1990s the
PA had astructured value
engineering process.
Today weperformacost
and schedulerisk
assessments on projects
beforethey aresubmitted
to theBoard for
authorization.
No - If theschematic for
aproject wereto change
drastically, then it would
beconsidered, but it is
not routinely considered.
N/A No
TheAirport does not useastructured valueengineering
process. During each capital project process, theAirport will
evaluatealternativeways to implement aproject and identify
theoptimal solution for thesealternatives. Theprocess used
by theAirport can reduceproject costs without negatively
affecting overall quality. Theprocess of identifying
alternatives occurs throughout theproject, frominitial
programming, to planning, and throughout thedesign and
construction. This way of achieving project cost savings is a
moreproactiveprocess. Airport staff has determined that
structured valueengineering processes often occur too late
in theproject and aretheresult of budgetary shortfalls that
requirereducing project costs. Theprocess at theAirport
ensures that thescopeand budget areevaluated concurrently
and neither oneis compromised.
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Airport
10. Please describe the key quality
control or quality assurance systems in
place to oversee contractor performance.
ADE utilizesAirport staff andConsultant staff, bothactinginanOwners
Representativecapacity, whooverseetheprojects. Eachproject isassignedan
ownersrepteam, whichtypically includesaproject manager, contract administrator
andconstructionmanagers/inspectorsthat areresponsiblefor overseeingall aspects
of theproject, fromdesignthroughconstructioncompletion. DFW utilizesan
electronicproject management system(Unifier by Skire/Oracle) inmanagingits
projectsandprograms. All aspectsof theproject arehandledwithinthesystem, and
thesystem(whichiscloudbased) isutilizedby all thoseinvolvedintheproject
(ownersreps, consultantsandcontractors). DFWscontractsspecify that the
contractor isresponsiblefor quality control inthefield. DFW hasadirect contract
withanoutsidetestinglabthat conductsquality assurancetestingof thecontractors
work at DFWsdirection, onanasrequestedbasis.
Overall thePA'sEngineering Dept.
hasaresident engineer'sofficeat the
airportswhichhireconstruction
inspectorsthat assessearnedvalue
basedontheinspectionof thework
andretainsportionsof theoverall
contract valuetoinsurethat the
contractor hasanincentiveto
completethejob.
DescribedinConsultant Payment
Processingpolicy andprocedure.
For thepast 30yearsBetchel hasservedasour constructionmanager. Betchel has
staff inall theappropriatedisciplinestomanagetheconstructionprojects. This
includesproject managers, fieldinspectors, safety, scheduling, document control
andmanagement, etc. Betchel ismanagedby theairport'sconstructionand
engineeringstaff whichincludesanassistant director, anairport engineer andhis
assistant, twoarchitects, inspectorsandproject coordinators. Inadditionto
managingtheBetchel contract, thisstaff overseessmall projects(generally under
$1million) andtenant improvements. Inadditiontotheabove, theairport employs
for eachproject athirdparty company for quality control andquality assurance.
Thisincludesmaterialstesting, survey verification, designmix, etc.
ThereisaCounty wideevaluation
processmanagedby theCounty's
Internal ServicesDepartment.
http://www.miamidade.gov/internalse
rvices/
TheDesignandConstructionDivisionfollowsadetailed
ConstructionManagement Planthat servesasamanual for
all projects. Thepurposeof thePlanistooutlinethe
proceduresrequiredtoassurecompliancewiththequality
control andacceptanceprovisionof theconstructioncontract.
Theplanoutlinestheresponsibilitiesfor eachteammember
associatedwiththeproject, includingthecontract supervisor,
theproject manager, theresident engineer, inspectors, the
quality assurancetestinglabpersonnel, surveyorsandother
staff. Themanual alsooutlinesinternal audit procedures.
11. Do your construction engineering
quality assurance employees
(Resident/Project Engineers, Inspectors,
or Field Engineers) have the authority to
stop payment to contractors?
Yes
Yes- All applicationsfor payment tothecontractorsarereviewedby theowners
repteam, whohasauthority toapprove, deny or reviserequestedpayments.
Yes Yes Yes Yes Yes
No N/A N/A N/A N/A N/A N/A
Other - please specify N/A N/A
They canrecommendstoppayment
or partial payment.
Statelaw requiresprompt payment. If theconstructionmanagement staff decidesto
stoppayment thisdecisionmust becommunicatedinthenext construction review
meeting(heldevery other Friday). At that timethedirector andtheairport attorney
will decidehow toproceed.
N/A N/A
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Airport
International Airport McCarran International Airport Miami International Airport
San Francisco International
Airport
12. Is a standard contingency applied to
all construction contracts? If so, please
enter the percentage value.
Yes - enter percentage value N/A
Most publicly advertised
contracts apply an ExtraWork
Allowancethat can rangefrom
7% to 10%
10% - and anything charged
abovethis has to beapproved
by City Council
Yes - All estimates includeacontingency. Theamount lessens
as thedesign approaches completion. Thebid documents
requires each bidder to includeaspecific amount in abid for
thespecial allowance. This special allowanceacts as afinal
contingency which is included in thebudgeted amount for the
project.
10% contingency applied to project estimates Yes - 7.5%
No - briefly describe how contingencies
are determined
No - In developing aprogramor project budget, on aRough
Order of Magnitude(ROM) estimate, DFW typically use10%
contingency on theconstruction lineitemwithin theROM, and
an additional 10-15% contingency on theoverall project or
programbudget (theoverall programor project budget includes
construction, as well as design, and typical other project or
programsoft costs). On actual hard bid construction contracts,
any contingency that thecontractors may haveplaced in their
bid amount is not visibleto theOwner. For CMAR
construction typecontracts, which aregenerally Guaranteed
MaximumPricecontracts, contingency within thosecontracts is
not morethan 5%, and thecontractor must havetheOwners
approval to useit.
N/A N/A N/A N/A N/A
13. Please list the titles of the authorizing
signatures required for change orders. If
dollar amount thresholds apply, please
indicate.
All of thesepositions arein Airport Development and
Engineering Sr. Contract Administrator up to $25,000
Contracts Manager up to $1,000,000 (everything over
$25,000 must first haveAirport Board approval) Assistant
VicePresident ProgramAdministration ADE everything
over $1,000,000
Nearly all changeorder require
thesignatureof therequesting
department, such as Aviation in
thePA, and theEngineering
Department.
Attached policy and procedure
Betchel Staff has authority for changeorders up to $5,000.
Airport construction staff has authority up to $10,000.
Anything over $10,000 must beapproved by theairport
director (or thedeputy director in his absence). All owner
directed changeorders must beapproved by thedirector
regardless of theamount.
Project Manager, Facilities Management Division Chief,
Facilities management Division Director, Assistant Aviation
Director Facilities management, Deputy Director Operations
and Aviation (Airport) Director. All ChangeOrders must be
approved by theBoard of County Commissioners. If theCO is
below 15% of thecost of thecontract cambeapproved
administratively by theAviation Director, but needs to be
ratified by theBoard of County Commissioners.
List detailing dollar thresholds
for different levels of required
authorizing signatureprovided
to audit team.
A
p
p
e
n
d
i
x

C
C
-
9
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(
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5
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a

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F
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o

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y
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p
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^ ^ " "
P
l
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a
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e
x
p
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a
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b
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,

i
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^ ^ " "
P
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2
L
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A
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D
e
p
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B
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k
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S
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L
.
A
.

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B
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S
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A
.

D
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B
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A
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D
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B
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S
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3
.

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d
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c
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y
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c
a
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e
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p
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d
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f
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(
v
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p
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1
5

y
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a
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a
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m
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f

p
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b
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p
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s

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.

4
.

P
l
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a
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e

l
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t

t
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D
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p
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t
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f
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a
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d

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a
n
i
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t
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s

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p
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.
5
.

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s
.

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e

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n
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m
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r

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s

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a
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y

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c
t
,

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e
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e
s
t
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,

a
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d

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e
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y
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s

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e
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s

a
p
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a
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.

6
.

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s

y
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r

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p
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m
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t

e
m
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o
y

a

s
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t
u
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e
d

v
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l
u
e

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n
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n
e
e
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n
g

p
r
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e
s
s
?

I
f

s
o
,

p
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a
s
e

s
p
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c
i
f
y

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h
e

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a
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e
m
e
n
t

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p
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t
s
,

t
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s
,

o
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p
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s
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s

b
y

w
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m
a
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s

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b
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a
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e

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a
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d

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l

s
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s

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n
f
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m
a
t
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o
n
.
7
.

P
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a
s
e

d
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s
c
r
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b
e

t
h
e

k
e
y

q
u
a
l
i
t
y

c
o
n
t
r
o
l

o
r

q
u
a
l
i
t
y

a
s
s
u
r
a
n
c
e

s
y
s
t
e
m
s

i
n

p
l
a
c
e

t
o

o
v
e
r
s
e
e

c
o
n
t
r
a
c
t
o
r

p
e
r
f
o
r
m
a
n
c
e
.

^ ^ " "
D
e
f
i
n
i
t
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n

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f

p
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t

s
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n
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n
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v
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w
P
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t

C
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t

E
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m
a
t
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g
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Y
e
s

*'
N
o

*'
P
l
e
a
s
e

d
e
s
c
r
i
b
e

^ ^ " "
Appendix D
D-1
P
a
g
e

3
L
.
A
.

D
e
p
a
r
t
m
e
n
t
s

B
e
n
c
h
m
a
r
k
i
n
g

S
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v
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y
L
.
A
.

D
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p
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n
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s

B
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k
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S
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v
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y
L
.
A
.

D
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p
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e
n
t
s

B
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n
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k
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n
g

S
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v
e
y
L
.
A
.

D
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p
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t
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e
n
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s

B
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g

S
u
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v
e
y
8
.

D
o

y
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r

c
o
n
s
t
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c
t
i
o
n

e
n
g
i
n
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e
r
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n
g

q
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a
l
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t
y

a
s
s
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r
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n
c
e

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m
p
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y
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s

(
R
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s
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n
t
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c
t

E
n
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r
s
,

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n
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F
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E
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)

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a
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p
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?
9
.

I
s

t
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a
n

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a
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d

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s

f
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t
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c
h
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r
s
?
1
0
.

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l
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e

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e

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s

r
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q
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Appendix D
D-2
Port of Los Angeles Bureaus of Engineering and Sanitation
1. Do you have a formal and systemic
spruces for prioritizing potential capital
projects and selecting those that will be
developed?
Yes and specify
Yes - All capital projects greater than 150k are approved by the Project Development Committee (PDC). The PDC is comprised of senior management and several
division heads.
Yes
No N/A N/A
2. Select the delivery model(s) the
Department generally uses for the
categories of projects shown below.
Facility Construction Projects Design-Bid-Build Design-Bid-Build
Renovation/Rehabilitation Projects No dominant model or varies depending on project Design-Bid-Build
Other Projects No dominant model or varies depending on project Design-Bid-Build
Other, please specify. Projects are executed by outside contractors, other City Departments, or our own construction forces.
The wastewater programhas used design-build
three times, but design-bid-build is the normal
process.
3. Please describe your capital
expenditures for remodel, repair, and
upgraded projects over the last 15 years
and your present cost estimate of
deferred maintenance. If possible, please
provide total expenditures for these types
of projects during this period.
Our deferred maintenance budget is $5 million per year. We do not categorize projects as remodel, repair, upgrade, or expansion so can not provide a break down.
FromB.o.S.: We do not track costs separately
between expansion and rehab. FromB.o.E: There
are projects generally delivered over the 3-4 year
window and
A
p
p
e
n
d
i
x

E
E
-
1
4. Please list the Departmental offices
generally involved in the following stages
of project development.
Definition of Project Scope Engineering, Real Estate, Marketing, Port tenants, Public
BOE and client department; BOS Wastewater
Engineering Services, WW Collection System, and
the treatment plants
Design Engineering, Environmental, Construction
BOE and any consultant; BOE Environmental Eng
Div and Wastewater Collection Eng Div
Environmental Review Environmental, Engineering, Construction, City Attorney, Real Estate, Planning BOE and any consultant
Project Cost Estimating Engineering BOE and any consultant
5. Please describe the project cost
estimation process. Please include the
number of estimates developed for any
given project, which entities develop the
estimates, and which entity's estimate
ultimately receives approval.
For capital construction projects initial estimates are developed by the Engineering Division based on a conceptual design. This estimate is used to obtain project
approval by the PDC. Estimates are updated at various stages of design (40%, 80%, 100%). If estimates at these stages exceed the approved budget the project is
returned to PDC for a project update. The budget is baselined after approval of the environmental process. This usually occurs at the 80% design. All estimates are
prepared by the Engineering Division.
The project manager is responsible for presenting an
estimate to the client department for approval.
A
p
p
e
n
d
i
x

E
E
-
2
6. Does your Department employ a
structured value engineering process? If
so, please specify the management
reports, tools, or processes by which
managers obtain and evaluate program
and financial status information.
Yes - describe
Yes - Projects control reports are updated on a monthly bases. All projects are reported in the Project Information Control System(PICS) directly by our project
managers and costs are verified and checked by our Financial Control section. Project review meetings are held on a regular basis to review project status and issues
with management.
Various reports are generated to report actual and projected cash flows, milestones, and status. Reports generated include:
- 10 year Cash Expenditure
- Monthly 2 year Cash Expenditure
- 5 Year Cash Expenditure
- 12 Month Projected Construction Costs
- Quarterly Cash Expenditure
- Budget versus Current Projections
- Radar Report (tracks budget project and FY budget and schedule)
In addition to the above reports a CIP Dashboard is available to drill down to more specific project information.
Yes, though it is not as structured as suggested in
the question. It is a helpful tool for the process.
No N/A N/A
A
p
p
e
n
d
i
x

E
E
-
3
7. Please describe the key quality control
or quality assurance systems in place to
oversee contractor performance.
The Construction Division of the Los Angeles Harbor Department (LAHD) is responsible for managing all LAHD construction contracts. The Divisions management
philosophy aims at achieving successful delivery of construction projects within the constraints and requirements of quality, budget and schedule while minimizing
construction impacts on the environment, community and customers. The Divisions philosophy is based on the teamapproach, which utilizes a teamcomprised of
individuals fromthe Contract Administration, Survey, Test Lab, and Inspection Sections for the life of the project. The Project Construction Manager assigned to the
project has single-point responsibility for accomplishing all related day-to-day contract administration and construction management activities. The primary
responsibilities of the Division include:
Participate in design reviews, performconstructability/bid ability reviews on all projects and value engineering reviews on select projects.
Review CEQA documents related to proposed construction contracts.
Recommend construction packaging to enhance contractor efficiency.
Manage advertising, receipt of bids, and award of contracts.
Manage construction contracts to ensure contractors compliance with contract documents relative to cost, schedule and quality of work.
Review and process all RFIs and Shop Drawings.
Review and approve contractors construction schedules.
Provide survey, inspection and testing services for all construction contracts.
Process all construction payments.
Provide coordination between Port customers, contractors, utility companies, community groups, government agencies and other City departments.
Performenvironmental mitigation, monitoring and reporting during construction.
Ensure contractors compliance with regulatory requirements including SWPPP.
Participate in claims resolution.
Manage warranty issues.
The Construction Divisions philosophy is to actively create a teamenvironment and advocate a proactive approach to the construction process by identifying critical
issues and seek resolution to those issues in a timely manner in order to minimize risk of potential claims. Issues are addressed in a cooperative manner as project
concerns regardless of ultimate responsibility. Direct, frequent, open and honest communication is promoted and where appropriate, formalized partnering with the
contractor and all stakeholders is employed to ensure successful completion of construction projects.
The Project Delivery manual outlines all
procedures.
A
p
p
e
n
d
i
x

E
E
-
4
8. Do your construction engineering
quality assurance employees
(Resident/Project Engineers, Inspectors,
or Field Engineers) have the authority to
stop payment to contractors?
Yes
Yes - Monthly construction progress payments are initiated by construction management representatives, discussed with contractors, and processed based on the
percentage of acceptable work completed.
Yes - Bureau of Inspection
No N/A N/A
Other - please specify N/A N/A
9. Is there an established process for
tracking change orders?
Yes Yes
Yes there are two processes for tracking change
orders.
No N/A N/A
10. Please list the titles of the authorizing
signatures required for change orders. If
dollar amount thresholds apply, please
indicate.
Less than $150,000 - Executive Director
Over $150,000 - Board of Harbor Commissioners
A list was provided that outlines the signatures
required for the different dollar thresholds.
A
p
p
e
n
d
i
x

E
E
-
5

Audit of The Los Angeles World Airports' Capital Development Program

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