8. Construction Management Costs and Construction Project Timelines

  • Most of the Bureau of Construction Management's construction projects do not complete on the originally scheduled date. On average, construction projects extend for approximately 135 days, or four and one-half months, past the original construction completion date. When projects are not completed on time, not only does the project incur additional construction and construction management costs, but the City and the public are denied timely access to the facility.

  • In a review of 27 construction contracts completed in 2004 and 2005, only 22 percent, or six contracts, completed by the original contract completion date. 78 percent, or 21 construction contracts, extended beyond the original contract completion date, ranging from two months to more than two years.

  • The Bureau of Construction Management extends contract timelines due to weather delays, changes in work scope, and delays requested by the client or attributed to an outside factor. The Bureau generally documents time extensions through contract change orders

  • The Bureau of Construction Management's procedures to document construction contract time extensions varies significantly among projects. The Bureau often documents and approves time extensions after the completion of the contract, some times as much as 16 months after the completion of the contract. By not formally approving and documenting contract time extensions during the course of the construction project, the Bureau reduces its control over time extensions and cannot ensure that the construction project does not incur unnecessary delays.

The Department of Public Works' Bureau of Construction Management staff are responsible for managing construction projects and working with the construction contractor. Construction managers are minimally involved in the early planning and design stages of the capital project. Construction management staff review the construction documents prior to the bid announcement, but do not become actively involved in the project until the contractor is selected. Once the Department issues the notice to proceed to the contractor and the construction contract begins, the construction manager manages the construction project from the job site. For large construction projects, the construction manager will remain at the job site throughout the construction period. More than one construction management staff person may be assigned to the construction site for large or complex jobs.

Construction Management Costs

Construction management costs are part of the capital project's delivery (or soft) costs. The Bureau of Construction Management provides estimated construction management costs to the project manager for each project and the project manager develops the construction management allocation for the capital project.

Generally, the Bureau of Construction Management's project costs for construction management services are within the norms identified by the California Multi-Agency CIP Benchmarking Study Annual Report – Update 2005.

Table 8.1
The Department of Public Works' Construction Management Costs as a Percentage of Total Construction Costs for Capital Projects Completed in 2005

Average Costs for Department of Public Works Projects Completed in 2005

Average Construction Management Costs

Average Total Construction Costs

Construction Management Costs as a Percent of Total Construction Costs

California Multi-Agency CIP Benchmarking Study - Update 2005

Sewer Projects

Sewer Projects Less than $500,000

$41,885

$289,836

14%

16% to 19%

Sewer Projects $500,000 to $3,000,000

$121,157

$800,817

15%

14% to 16%

Street Projects

Street Reconstruction Projects Less than $500,000

$80,830

$448,865

18%

18% to 27%

Street Reconstruction Projects $500,000 to $3,000,000

$232,238

$1,610,717

14%

6% to 18%

Street Reconstruction Projects Greater than $3,000,000

$1,084,062

$17,015,391

6.4%

5% to 6%

Recreation and Park Clubhouses and Centers

Community Building Project $500,000 to $3,000,000

$368,695

$2,694,817

14%

11% to 17%

Community Building Project Greater than $3,000,000

$907,349

$6,037,928

15%

6% to 11%

Recreation and Park Playgrounds

Playground Project $500,000 to $3,000,000

$117,300

$1,493,573

10%

10% to 17%


Source: Department of Public Works Bureaus of Architecture and Engineering

Construction management costs for one Recreation and Park Department project, the $6 million Harding Park club house project, equaled 15 percent of total construction costs, compared to a benchmark range of 6 percent to 11 percent. According to the Manager of the Bureau of Construction Management, numerous project problems, including the deadline to complete the clubhouse prior to the PGA tournament, contributed to the higher than usual construction management costs.

Construction Contract Time Extensions

Most of the Bureau of Construction Management's construction projects do not complete on the originally scheduled date. On average, construction projects extend for approximately 135 days, or four and one-half months, past the original construction completion date. In a review of 27 construction contracts completed in 2004 and 2005:

Six construction contracts, or 22 percent, completed by the original contract completion date. Two of these contracts were delayed due to inclement weather but otherwise the construction contract completed on time.

Twenty-one construction contracts, or 78 percent, extended beyond the original contract completion date, ranging from two months to more than two years.

Change Order Agreements to Extend Contract Timelines

The Bureau of Construction Management extends contract timelines due to weather delays, changes in work scope, and delays requested by the client or attributed to an outside factor. The Bureau generally documents time extensions through contract change orders.

The Bureau of Construction Management's contract change order procedure specifies that the resident construction manager or engineer initiates construction change orders and routes the change order documentation through the appropriate engineering and management staff. Both the contractor and the Department of Public Works managers sign the change order, formally agreeing to additional work, costs, and time extensions.

In practice, the Bureau of Construction Management often approves time extensions after the fact. According to the Bureau of Construction Management Manager, the contractor proceeds with additional work requested by the Department of Public Works or the client prior to change order approval to prevent unnecessary delays in the project. The Bureau of Construction Management Manager states that Bureau staff document and assess time extensions in daily reports and progress meetings, and formalize time extensions in change orders once the full extent is known.

A review of the 21 contracts with extended timelines shows that:

In only nine contracts did the Department formally approve contract time extensions through a change order signed by the Department managers and the contractor during the course of the construction project. However, in one of these nine contracts (project 0481J) the Department did not formally approve a change order for 101 days out of 225 days of extended time until six months after the completion of the project.

In six contracts the Department did not document approval for all the days included in the time extension. The remaining days, or "overrun", were included in the final time summary in the contract close out documents. For example, project 2019N timelines were extended by 546 days. The Department documented 293 days in time extensions in eight change orders approved and signed during the course of the project. However, according to the Bureau of Construction Management, the 253 day overrun, which included 81 days for a holiday moratorium and 172 days for delays attributed to PG&E and design changes, will be recommended in the time summary in the final close out documents.

In six contracts, the Department documented approval for all time extensions after the completion of the project. The Department documented these time extensions in change orders or in the time summary in the final close out documents from one month to 16 months after the completion of the project.

The Attachment to Section 8 provides a summary of the 27 construction contracts.

Approval of Project Time Extensions through the Change Order Process

According to the Bureau of Construction Management, timeline extensions are negotiated between the Bureau and the contractor. The Bureau authorizes the contractor to perform the work before negotiations are completed to avoid unnecessary project delays.

However, the Bureau of Construction Management's practices vary widely among projects. Although the Bureau negotiates and documents time extensions through change orders during the course of the project, the Bureau often only documents time extensions after the project is completed.

For example, Project 0722A was extended by 258 days, from the original completion date of October 6, 2004 to the final completion date of May 22, 2005. According to the project's construction manager, the Department negotiated time extensions with the contractor up front. According to contract documents, the project time extensions were approved and documented through change orders throughout the project, beginning with change order number seven prior to the original completion date and completing with change order number 15 shortly after the final completion date.

On the other hand, Project 2029N documented time extensions only after the completion of the project. The project was extended by 137 days from the original completion date of April 25, 2005 to the final completion date of September 9, 2005. According to the project's construction manager, the project extensions received informal approval during the course of the project. However, the Department did not document formal approval of the 137 day time extension until October 2005 after the completion of the project.

The Bureau needs to develop more uniform procedures to ensure that construction managers are monitoring, negotiating and documenting contract time extensions in a timely manner to prevent unnecessary project delays. The Department's change order procedure requires approval by senior managers and signoff by both Department managers and the contractor. Therefore, change order documentation to extend project timelines during the course of the project provides a formal agreement for the project extension and a project control over timelines.

Tracking of Change Orders in the Information System

The Bureau of Construction Management's change order tracking system is intended to track the impact of construction contract change orders on project schedules and costs. Resident construction managers and engineers enter the information into the system from source documents. However, the resident construction managers and engineers differ widely in the level of detail and precision included in the information system entries. In a review of 55 projects completed in 2004 and 2005, the resident construction manager or engineer had made no entries for five of the projects, which had cumulative contract budgets of $7.4 million. Many of the other projects had inaccurate or insufficient information. Consequently, although the Bureau managers can track specific projects, they cannot track the overall impact of change orders on construction projects.

Conclusion

The Bureau of Construction Management's lacks sufficient control over construction project time extensions. The Bureau's practices to document construction contract time extensions vary significantly among projects, and the Bureau often documents and approves time extensions after the completion of the contract, some times as much as 16 months after the completion of the contract. The Bureau needs to document contract time extensions through the change order process during the construction project to ensure formal agreement between the Department and the contractor and provide control over project time extensions.

Recommendations

The Bureau of Construction Management Manager should:

8.1 Implement procedures to (a) ensure accurate and complete entry of change order information into the Bureau of Construction Management's change order tracking system and (b) tracking and monitoring of change order information.

8.2 Re-evaluate time extension approval and documentation procedures, including change order policies, procedures, and practices, to ensure that the written procedures provide sufficient project control over project timelines and that actual practices comply with procedures.

Costs and Benefits

Implementation of these recommendations are intended to strengthen the Department of Public Works' controls over construction contract time extensions. Contract time extensions can result in increased Department costs for staff time to monitor the contract. By increasing control over contract time extensions, the Department should be able to reduce unnecessary staff costs, thus shifting staff resources to other uses.