The Budget Analyst is pleased to present this Management Audit of the San Francisco International Airport Airfield Development Bureau Runway Reconfiguration Project. This report was prepared in accordance with Motion M02-121 adopted by the San Francisco Board of Supervisors on July 29, 2002, under the authority granted by Charter Section 2.114.

Purpose and Scope

The purpose of this management audit is to:

· Evaluate the economy, efficiency, and effectiveness of the Airfield Development Bureau's management of the Airport Commission's Runway Reconfiguration Project at San Francisco International Airport.

· Assess the Airfield Development Bureau's compliance with applicable Federal and State laws, local ordinances, and City policies and procedures.

The management audit report contains seven findings which address a variety of issues related to the Airfield Development Bureau's administration and operations. These findings make recommendations about Board of Supervisors oversight and appropriation control, public information and community input, controlling consultant expense reimbursements, the management of subcontracts, the use of "seconded subcontractors"¹ and "seconded personnel,"² the Wildlands, Inc. option agreement, and future organizational arrangements.

Methodology

This management audit was performed in accordance with Government Auditing Standards, 1994 Revision promulgated by the Comptroller General of the United States. In accordance with these standards, certain procedures were followed to ensure the audit report's factual accuracy, and to provide Airport management with an opportunity to comment on the audit report's content. A written response from the Airport Director is attached.

This management audit included the following basic elements in its planning and implementation:

Entrance Conference: We conducted an entrance conference on September 27, 2002 with the Airport Director and senior management staff to discuss the management audit scope, procedures, and protocol.

Pre-Audit Survey: We conducted a pre-audit survey to familiarize ourselves with Airfield Development Bureau administration and operations, and to identify areas of Airfield Development Bureau operations requiring additional review and analysis. As part of this survey phase, we interviewed most Airfield Development Bureau staff and a number of other Airport staff.

Field Work: We conducted field work in the specific areas that we determined would be included in this study. Fieldwork activities included additional interviews with selected Airport staff, and detailed review of Airfield Development Bureau documents and financial records.

Analysis and Preparation of Draft Report: At the conclusion of the field work phase of this study, we conducted detailed analyses of the information collected. Based on these analyses, we prepared our findings, conclusions, recommendations, and estimates of costs and benefits from implementation of our recommendations. We requested further information where necessary. The analyses were incorporated into a draft management audit report, which was then provided to the Airfield Development Bureau for review.

Draft Report, Airport Staff Reviews, and Preparation of the Final Report: Following delivery of draft audit report sections on May 2 and May 9, 2003, we conducted telephone exit conferences of the draft findings with Airport staff during the week of May 12, 2003 to identify any areas of the draft audit report requiring clarification or correction, and for us to provide additional explanation of the findings and recommendations. Following the telephone reviews, Airport staff provided additional information related to the findings. Based on this additional information, and further discussions, we considered the comments and clarifications provided by Airfield Development Bureau management before preparing this final report and issuing it to the Board of Supervisors. The Airport then provided a written response to the final report, and the final report and response was delivered to the Board of Supervisors.

Overview of the Airfield Development Bureau

Organizational Structure

On March 22, 1999, the Airport Director established a new bureau within the Airport with responsibility for the evaluation and planning of airfield development, and the implementation of any capital program that results from that process. The mission of the Airfield Development Bureau is:

To plan, design and develop an approved reconfigured runway system and necessary airside support facilities to satisfy the aviation, economic, environmental and public service demands of the San Francisco Bay Region.³

The new bureau was initially headed by an individual who was the former Municipal Railway Chief Construction Officer of Engineering and Construction. As Deputy Director of Airfield Development, this person headed a bureau which was a "full service organization,"⁴ comprising planning, environmental management, engineering, and public affairs staff, created to streamline and expedite the evaluation and planning, as well as the potential design and construction, of any future Runway Reconfiguration Project.

In May 2000, the Mayor designated the former Executive Director of the San Francisco Department of Parking and Traffic to be the new Director of Airfield Development. This person's role was to manage the Airfield Development Bureau and serve as a direct liaison with the Mayor's office. The Deputy Director of Airfield Development retained her position until she departed in February of 2001 and was replaced by the Airport's former Director of Design and Construction who had been in charge of the Airport's Master Plan. Between June 5, 2000, when the new Director of Airfield Development assumed his position, and late 2002, the Director of Airfield Development was a direct report to the Mayor, while also serving as a member of the Airport's senior management staff.⁵ At the Airport Commission's May 16, 2000 meeting, the Mayor addressed the Airport Commission on his decision to recruit a new Director of Airfield Development and a senior consultant, as full-time managers of the Runway Reconfiguration Project. "[T]hey will do the runway project, and the runway project only. They will not have anything else to do with any aspect of the Airport. That will be [the Airport Director] and his team's responsibility. And they will assume the leadership role to see that we produce this solution to our runway problem. ... I'm frankly looking forward to regular reports ... to [the Airport Commission] and regular reports to me on the progress that is being made with reference to this."

As noted above, at the same time that the new Director of Airfield Development assumed his duties, a senior consultant with DSG Strategies Inc. was a seconded subconsultant under the bureau's Airfield Development Engineering Consultant (ADEC) contract (May of 2000 through February of 2001) and the Airport's existing Master Plan contract with Luster/GKO (since March of 2001) to be the Chief Strategist for the Airfield Development Bureau, providing strategic planning services and liaison with Federal and State regulators. Since July 1, 2002, the only services provided by the Chief Strategist, a former Chief Counsel to the Federal Highway Commission, is assistance with the National Oceanic and Atmospheric Administration's second scientific review panel.

The Airfield Development Bureau's budget and staffing was reduced after September 11, 2001, when fiscal constraints limited the bureau's activities to the completion of the environmental and planning work necessary for the preparation of the Environmental Impact Report (EIR) and the Environmental Impact Statement (EIS) required for the Runway Reconfiguration Project. Certain functions previously performed by the Airfield Development Bureau are now performed by other Airport divisions. For example, engineering staff have been relocated back to the Airport's Facilities Operations and Maintenance Bureau, but are available to the Airfield Development Bureau on an as-needed basis.

If the Runway Reconfiguration Project moves into a construction phase, the Airfield Development Bureau's role would change from managing a environmental review process to managing a very large construction project which could take up to seven years to complete.

The Work Program

Initial Work: 1998

The Airport's existing runways were designed and constructed in the 1940s, and lack adequate separation to accommodate dual runway landings in adverse weather conditions. In 1997, the Federal Aviation Administration requested the Airport Commission to examine runway reconfiguration alternatives to reduce aircraft delays and noise, and to accommodate the anticipated next generation of larger aircraft.

Commencing in June of 1998, the Airport Commission undertook a feasibility study on runway reconfiguration, involving the Federal Aviation Administration, other regulatory agencies, the airlines, the business community, and environmental organizations. The Airport held its first stakeholder meeting on June 5, 1998. The Airport Commission established goals to (a) reduce aircraft delays, (b) reduce noise, (c) handle the new generation of larger aircraft, and (d) achieve net environmental gains through environmental mitigation in excess of environmental impacts created by runway reconfiguration. The URS Corporation was contracted through a competitive selection process to conduct the feasibility study. Contract 7021.1 with the URS Corporation was subsequently modified eight times to (a) provide additional planning services, (b) extend the expiration date from December 31, 1998 until March 7, 2002, and (c) increase its original budget by $500,799, from $1,356,000 to $1,856,799.

Between September of 1998 and March of 1999, the URS Corporation and its 16 subcontractors analyzed 32 runway reconfiguration alternatives and reported in detail on six, including three "no build/no fill" alternatives. During the development of its report, the URS Corporation presented three working papers to, and solicited comments from, stakeholder meetings in September and November of 1998, and in January of 1999. The final report was submitted to the Airport Commission in April of 1999 and concluded that the Bay Area's three major airports, San Francisco, Oakland, and San Jose, would not have sufficient capacity to accommodate projected air travel demand in 2010 without incurring significant delays to aircraft schedules.

More than 30 regulatory agencies and legislative bodies will ultimately review any runway reconfiguration proposal put forward by the Airport. Of these, the most notable are:

· The Federal Aviation Administration, which approves runway layouts.

· The Bay Conservation and Development Commission (BCDC), the California state regulatory agency charged with protecting San Francisco Bay, which issues Bay fill permits under the McAteer-Petris Act.

· The U.S. Army Corps of Engineers, which issues Section 404 Clear Water Act and Section 10 Rivers and Harbors Act permits for filling wetlands.

· The Regional Water Quality Control Board, which issues Section 401 fill certificates.

· The U.S. Fish and Wildlife Service.

· The California Department of Fish and Game.

· The National Marine Fishery Service.

· The City and County of San Francisco Board of Supervisors, which authorizes the budget.

· The San Mateo County Board of Supervisors.

Key Airfield Development Bureau staff work with a multi-agency task force to share information and obtain guidance on what is needed to gain regulatory approval for the EIR/EIS documents. BCDC, the U.S. Army Corps of Engineers, and the Regional Water Quality Control Board are members of this task force.

Legal, Regulatory, and Lobbyist Services

Given the high level of regulatory oversight, the Airport has been contracting since October of 1998 for as-needed legal, regulatory, and lobbyist services related to environmental law, aviation law, land use and eminent domain, permitting, and the regulatory agency requirements, at a total budgeted cost of $3,906,153 to date. Specifically, the Airport has entered into the following seven contracts for as-needed legal services related to runway reconfiguration:

· Morrison and Foerster (by means of (a) Modification No. 18 to the Airport's existing contract with Morrison and Foerster between October of 1998 and August of 2001, and (b) a sole sourced new Contract 7900.4 since August of 2001, for a total budget of $1,120,000).

· Remy, Thomas and Moose (Contract 7000.4 since October of 1999 for a total budget of $1,450,000).

· Howard, Rice, Nemerovski, Canady, Falk and Rabkin (Contract 7000.2 since November of 1999 for a total budget of $100,000; this contract has been suspended and its total budget has not been expended).

· Erickson, Beasley, Hewitt and Wilson (Contract 7000.1 since December of 1999 for a total budget of $100,000; this contract has been suspended and its total budget has not been expended).

· Hopkins and Sutter (Contract 7000.3 since December of 1999, and later assigned to Foley and Lardner under Contract 7000.16, for a total budget of $200,000).

· Sheppard, Mullin, Richter and Hampton (Contract 7000.5 since December of 1999 for a total budget of $750,000; this contract has been suspended and its total budget has not been expended).

· O'Melvaney and Meyers (Modification No. 3 to the Airport's existing Contract 7000.17 since August of 2001 for an additional budgeted cost of $100,000; this contract has been suspended and its total budget has not been expended).

The Airfield Development Bureau also seconded Smith Dawson Andrews, the Airport's Washington, D.C. lobbyist, under the Airport's existing Luster/GKO contract to secure capital project funding (March of 2001 through May of 2002, at a cost of $86,153).

In addition, the Airfield Development Bureau seconded a full-time permitting coordinator under the Airport's existing Luster/GKO contract from August of 1999, and obtained additional permitting services from LSA Associates, a subcontractor to Environmental Science Associates.⁶ Since December of 1999, the bureau seconded another consultant under the Airfield Development Bureau's first URS Corporation contract and the Airport's existing Luster/GKO contract to provide Federal Aviation Administration and regulation interpretation services.

Public Affairs, Communications, and Outreach Services

A subcontractor under the URS Corporation contract, Bay Relations, began working on communications issues in October of 1998. Since then, the Airfield Development Bureau has contracted for a variety of public affairs, communications, and outreach services, at a total budgeted cost of $560,000 to date for prime contractors. Since October of 1999, the Airfield Development Bureau has seconded (a) Cabellon and Associates for public information services under the Luster/GKO contract (October of 1999 through April of 2001), (b) Bay Relations for San Mateo public relations under the ADEC contract (December of 1999 through October of 2000) and the DMC Airfield Engineers contract (May through July of 2002), and (c) Keri Smith for communications services under the ADEC and Luster/GKO contracts (May of 2000 through August of 2001). Orgmetrics provided public outreach services as a subcontractor to Environmental Science Associates (commencing November of 1999). Further, the Airfield Development Bureau has entered into the following three prime contracts for public relations, communications, and outreach services related to the Runway Reconfiguration Project:

· Solem and Associates (Contract 7031.1 from November of 1999 until September of 2001, for a total budget of $340,000). Solem and Associates provided public affairs services.

· ER Group, LLC (Contract 7033.1 from July of 2000 to April of 2002, for a total budget of $100,000). The ER Group developed a public affairs program in Santa Clara County and the East Bay.

· Bay Relations (Contract 7032.1 from October of 2000 until July of 2002, for a total budget of $120,000). Bay Relations developed a public information program for San Mateo County.

The Airfield Development Bureau also received public affairs assistance for five regional forums held between May and August of 2001 from three seconded subconsultants under the DMC Airfield Engineers contract: GCI Kramer (logistics, May to October of 2001), NCG Porter Novelli (media relations and communications outreach, May of 2001 through April of 2002), and Dan Schnur (Bay Area strategy for community outreach, May to December of 2001).

The public information program is discussed in more detail in Section 2.

Regional Air Transportation Systems Study

In December of 1998, the Airport contracted with P & D Aviation to prepare a regional air transportation systems study by March of 1999. Contract 7021.2 with P & D Aviation was modified twice to (a) expand its scope of work, (b) extend the expiration date from December 31, 1999 until December 31, 2000, and (c) increase the original budget by $51,420, from $500,000 to $551,420. Due to the expanded scope of work, the final report was not completed until December of 2000. The planning work undertaken by P & D Aviation supported subsequent airfield planning and airspace design work.

The Runway Reconfiguration Project: 1999 and 2000

After the establishment of the new Airfield Development Bureau and the release of the URS Corporation's runway reconfiguration feasibility study in April of 1999, the Airport moved swiftly to develop the Runway Reconfiguration Project. In August of 1999, the Airfield Development Bureau contracted with ADEC for engineering reports based on geotechnical and geophysical reconnaissance of the Bay site and examination of potential borrow sites.⁷ Contract 4087.A with ADEC has subsequently been modified six times to (a) expand the scope of work, (b) extend the expiration date from September 1, 2001 until December 31, 2003, and (c) increase the original budget by $21,667,258, from $7,000,000 to $28,667,258. Since February of 2000, ADEC has presented 15 geotechnical reports on foundations, hydraulics, bathymetry (data derived from the measurement of the depths of large bodies of water), sedimentation, and hazardous materials. By collecting data from the Bay floor, ADEC's preliminary engineering reports contributed to the evaluation of different structural engineering alternatives, the assessment of environmental impacts, and the preparation of the draft EIR and EIS. The remaining nine reports required under the contract have not yet been finalized because ADEC has been directed to minimize its work activities, and therefore finalization of the remaining reports is on an as-needed basis, as directed by the Airfield Development Bureau.

In August of 1999, the Airfield Development Bureau also contracted with Environmental Science Associates to provide as-needed environmental permitting services on the assumption that the Runway Reconfiguration Project would move forward sufficiently rapidly to require early advice about various regulatory agencies' permitting processes. Contract 7012.1 with Environmental Science Associates was subsequently modified three times to (a) provide additional environmental planning services, (b) extend the expiration date from December 31, 2001 until July 31, 2002, and (c) increase the original budget by $442,148, from $350,000 to $792,148.

In September of 1999, the Airfield Development Bureau entered into its second contract with the URS Corporation to prepare the EIR/EIS documents. Contract 4240.1 with the URS Corporation has subsequently been modified five times, and is subject to a further contract modification pending before the Finance and Audits Committee, to (a) expand the scope of the environmental work required under the contract, (b) extend the expiration date from December 31, 2001 until June 30, 2005, and (c) increase the original budget by $18,641,558, from $1,100,000 to $19,741,558. Under this contract, the URS Corporation and its team of more than 30 specialist subcontractors has assisted the Bureau to prepare the following reports:

· The EIR required by the California Environmental Quality Act (CEQA). The Office of Environmental Review, a part of the City's Planning Department and the lead agency in the EIR process, defines the scope of work in conjunction with the other regulatory agencies involved and directs the URS Corporation in its EIR work. The draft EIR was originally scheduled for completion and public release in the Fall of 2000, but that deadline has been progressively postponed. With the Airport's May 7, 2003 decision to suspend all operationally-based studies until there is a significant and sustained increase in air traffic, production of the EIR is on hold. The earliest the EIR could now be produced is in 2005.

· The EIS required by National Environmental Policy Act (NEPA). The Federal Aviation Administration, which is the lead agency in the EIS process, defines the scope of work in conjunction with the other regulatory agencies involved and directs the URS Corporation in its EIS work. The draft EIS was originally scheduled for completion and public release in the Fall of 2000, but that deadline has been progressively postponed. With the Airport's May 7, 2003 decision to suspend all operationally-based studies until there is a significant and sustained increase in air traffic, production of the EIS is on hold. The earliest the EIS could now be produced is in 2005.

Both EIR/EIS documents will address the environmental impacts of all of the preferred runway reconfiguration alternatives, the "no build/no fill" alternatives, any borrow and disposal site alternatives, and the mitigation site alternatives required to comply with the Clean Water Act and the McAteer-Petris Act. In the course of drafting the EIR/EIS documents, the scope of work has been guided by (a) Federal and State requirements, (b) regulatory agencies' instructions and information requests, and (c) the key scientific questions identified by the San Francisco Airport Science Panel (see below). The two documents must be separate because on November 6, 2001 San Francisco voters approved Proposition D by a margin of 74.4 percent to 25.6 percent requiring voter approval for any City project involving more than 100 acres of fill in San Francisco Bay. While the ballot measure did not specifically mention the Runway Reconfiguration Project, all of the runway build alternatives under consideration require more than 100 acres of Bay fill. Therefore, this Charter amendment will require the Airport Commission to place any runway reconfiguration proposal requiring Bay fill before the City voters for approval. Since this vote is contingent on completion of the EIR only, and not the EIS, the Federal Aviation Administration and the Office of Environmental Review agreed to prepare separate but parallel documents. The Airfield Development Bureau seconded (a) a consultant under the Environmental Science Associates contract to provide EIR/EIS coordination services between March of 2000 through November of 2001, and (b) Dellums Brauer Halterman under the Airport's existing Luster/GKO contract to provide regulatory coordination.

In September of 1999, the Airfield Development Bureau also entered into a memorandum of understanding with BCDC, to fund BCDC's review of potential Runway Reconfiguration Projects. Memorandum of Understanding 7011.5 with BCDC funds BCDC's contract with Donald Neuwirth and Associates for technical review of Federal Aviation Administration and BCDC documents. The memorandum of understanding has subsequently been modified twice to (a) purchase additional technical expert hours, (b) extend the expiration date from July 1, 2001 to June 30, 2004, and (c) increase the original budget by $250,000, from $200,000 to $450,000.

In October of 1999, the 19 member San Francisco Airport Science Panel issued its Report of the San Francisco Airport Science Panel. The panel, which was formed by the National Oceanic and Atmospheric Administration at the request of BCDC and other Federal and State regulatory agencies, identified the key scientific questions the Airport should address in its environmental review process and recommended a comprehensive peer-reviewed research program to understand the impacts of the proposed runway expansion. This panel effectively provided the scope of work for the scientific aspects of the Runway Reconfiguration Project.

In December of 1999, the Airfield Development Bureau entered into its contract with Howard, Needles, Tammen and Bergendorff (HNTB) for an airspace and taxiway planning study. Contract 7021.3 with HNTB has subsequently been modified six times to (a) expand its scope of work substantially, (b) extend the expiration date from October 31, 2001 until December 31, 2003, and (c) increase the original budget by $4,435,534, from $1,824,466 to $6,260,000. While the final HNTB report was due in August of 2000, the required scope of the report was increased significantly, delaying a final report until March of 2002. Most recently, it published Airfield Development Planning, Updated Forecast (September of 2002). The analysis and design of airspace and airport operations performed by HNTB is required to develop runway reconfiguration alternatives. Since July of 2001, a Parsons Transportation expert in airspace and airfield planning has been seconded under the Airport's existing Luster/GKO contract to further refine the runway reconfiguration alternatives.

In December of 1999, the Airport Commission convened a Blue Ribbon Panel of eight experts in the engineering and construction of marine structures to evaluate the myriad of runway structure suggestions the Airport Commission had received. The Blue Ribbon Panel members were seconded under the ADEC contract. Between January and August of 2000, the Airfield Development Bureau and the Blue Ribbon Panel selected five engineering firms through a competitive process to develop three offshore runway platform concepts: earth fill structures, pile-supported structures, and the previously untested alternative of float-in, bottom-founded structures.⁸ The five contractors who were paid $250,000 each to prepare offshore runway construction concepts were:

· T.Y. Lin International/Ben C. Gerwick, Inc.,/Han-Padron Associates (Contract 7042.21 from April to September of 2000).

· AGS, Inc. (Contract 7042.22 from May to September of 2000).

· Parsons Brinckerhoff, Quade and Douglas, Inc. (Contract 7042.23 from May to September of 2000).

· Peratrovich, Nottingham and Drage, Inc. (Contract 7042.24 from June to September of 2000).

· The Dutra Group, Hydronamic bv, Bean Stuyvesant (Contract 7042.25 from August to September of 2000).

The runway proposals had to accommodate the new large aircraft, have a 100 year lifespan, withstand significant seismic events, and accommodate soil settlement in the Bay. The purpose of this exercise was to understand the full environmental impacts of a preferred construction method. The primary design concept designs were due and delivered on July 24, 2000 for review by the Blue Ribbon Panel. Supported by information prepared by ADEC, the Blue Ribbon Panel issued its Offshore Runway Construction Concepts, Final Report on November 15, 2000. In that report, the panel reviewed the proposed concepts in terms of (a) minimizing environmental impact, (b) ensuring seismic safety and functionality, (c) minimizing the impact on Airport operations, and (d) optimizing cost and schedule. The panel concluded that the selected platform type could be a composite to put less strain on the specialized resources in the Bay Area, minimize the environmental impact, spread the seismic risk of the entire facility, and allow concurrent construction activities, thereby accelerating the overall construction schedule.

In March of 2000, the Airfield Development Bureau entered into a contract with the California Academy of Sciences to develop a database of San Francisco Bay flora and fauna species. Sole source Contract 7013.1 with the California Academy of Sciences had a budget of $145,047. The key deliverable, an Excel database, was due in December of 2000 but was not delivered until September of 2002. In June of 2000, the Airfield Development Bureau entered into a contract with the Bodega Marine Laboratories at UC Davis for a study of herring and oyster habitats. Sole source Contract 7013.2 with the Bodega Marine Laboratories has subsequently been modified three times to (a) expand its scope, (b) extend the termination date from March 1, 2001 until December 31, 2002, and (c) increase the original budget by $250,000, from $306,000 to $556,000. While the contractor delivered several reports within negotiated extensions to its deadlines, the contractor's last report has been suspended. Both the California Academy of Sciences and the Bodega Marine Laboratories contracts contributed to the EIR analysis required by CEQA.

In April of 2000, the Airfield Development Bureau contracted with the Metropolitan Transportation Commission to update the Regional Airport System Plan, and with the Federal Aviation Administration to study air traffic control tower siting. Contract 7021.5 with the Metropolitan Transportation Commission cost $313,500 and resulted in an updated Regional Airport System Plan on June 30, 2000, one and a half months later than the original due date of April 15, 2000. Sole source Contract 7022.1 with the Federal Aviation Administration is a three-year contract due to expire on April 25, 2004 at a budgeted cost of $67,725.

In July and August of 2000, the Airfield Development Bureau contracted with Jones and Stokes for wetlands mitigation design, and with Baker and McKenzie to provide environmental and permitting consulting services for the Airfield Public Interest Group.⁹ Contract 7013.3 with Jones and Stokes has subsequently been modified once to (a) expand its scope, (b) extend the expiration date from October 31, 2001 until December 31, 2002, and (c) increase the original budget by $3,350,000, from $800,000 to $4,150,000. Jones and Stokes issued Draft Environmental Analysis of Tidal Marsh Restoration in San Francisco Bay in December of 2001. This report analyzed the positive and negative impacts of restoration projects on San Francisco Bay.

Equal Consideration For Each Runway Alternative - Late 2000

Throughout the drafting of the EIS, Federal regulatory agencies require that each runway alternative included in the process be given equal consideration by the Airport until a preferred runway alternative is selected. However, several of the regulatory agencies which must ultimately approve the process and approve the Airport's preferred runway alternative expressed concern that the Airport had not given each of the runway alternatives equal consideration throughout the review process.

In late 2000, the Federal Aviation Administration and the Office of Environmental Review provided BCDC and the other regulatory agencies with Status Summary 2 which proposed four reconfigured runway alternatives and a "no build/no fill" alternative focused on system management. The regulatory agencies were concerned that this "no build/no fill" alternative would not be considered in the EIS document and would be insufficiently covered in the EIR document. Therefore, BCDC retained subcontractor G & C Aviation Consulting, Inc. (later renamed Williams Aviation Consultants, Inc.) under its memorandum of understanding with the Airport to provide specialist assistance in air traffic management systems. In September of 2001, Williams Aviation Consultants published a report which (a) reviewed the four reports on "no build/no fill" alternatives listed immediately below, and (b) assessed the causes of aircraft delays at the Airport:

No Build/No Fill Alternatives Considered

· SFO Runway Reconfiguration Program EIR/EIS, Alternatives Considered and Eliminated from Detailed Study, Preliminary Report, prepared by the Federal Aviation Administration in November of 2000.

· SFO Runway Reconfiguration Program EIR/EIS, Demand Management Alternatives, Preliminary Report, prepared by the Federal Aviation Administration in November of 2000.

· Reductions in Flight Operations as an Alternative to Runway Reconfiguration at San Francisco International Airport, Final Report, prepared for the Airport by Charles River Associates in April of 2001. Charles River Associates, seconded under the HNTB and DMC Airfield Engineers contracts to analyze the no-build alternatives that were under consideration and the manner in which each alternative would address the Airport's delay problems, concluded that landing and take-off slot controls, differential pricing, and controls over the size of planes allowed to use the Airport would (a) create implementation issues, (b) have cost implications for both the airlines and their passengers, and (c) raise legal and political issues.

· Potential Future Contribution of Air Traffic Management Technology to the Capacity of San Francisco International Airport, prepared for the Airport by an Independent Technology Panel in August of 2001. The Independent Technology Panel was a joint initiative by the Airport and BCDC to assess the potential impact of new technologies on the Airport's capacity. While the Independent Technology Panel identified a number of future air traffic management technologies that will enable the Airport to increase its capacity during poor weather conditions, the panel concluded that technology alone would not eliminate all flight delays or fully accommodate long-term projected flight demand. The panel recommended that the Airport formally engage in a strategic technology initiative, in coordination with other airport authorities, to accelerate the deployment of new air traffic management technologies.

In September of 2001, Williams Aviation Consultants, Inc. released its review and concluded that the Federal Aviation Administration and Charles River Associates reports failed to consider the cumulative benefits of various aviation technology options¹⁰ and different forms of demand management,¹¹ in conjunction with the use of other Bay Area airports, to address the issues of bad weather capacity and delay. Instead, those reports considered the various options individually and dismissed each as unable to increase the Airport's capacity during bad weather. Williams Aviation Consultants stated that "All of the activities analyzed in the EIR/EIS are considered independently. Considering each activity as a separate and independent initiative has allowed the proponent to dismiss each as not meeting the purpose and need of the project. As the proponent envisions and defines the project in this report, the only acceptable proposal is one that provides two arrival runways spaced at least 4,300 feet apart."

By contrast, the Independent Technology Panel report supported William Aviation Consultants' recommendation that a suite of system management options, with each option contributing some portion to delay reduction and increased capacity, should be considered. Williams Aviation Consultants stated that the absence of an objective airspace and ground operations model prevented an accurate prediction of delay reduction that would result from any proposed build or "no build/no fill" alternative and the introduction of possible new air traffic management technologies. Williams Aviation Consultants concluded that "The airport cannot continue to insist on unconstrained growth, it is limited by space, weather, airspace and technology."

In December of 2001, the Long Term Management Strategy agencies, made up of the U.S. Army Corps of Engineers, the U.S. Environmental Protection Agency, the San Francisco Bay Regional Water Quality Control Board and the BCDC, wrote a letter to the Airport expressing the agencies' concerns that (a) the purpose and need for the Runway Reconfiguration Project had not been clearly expressed by the Airport, (b) the Airport and the FAA "may not be considering the no-build alternatives on an equal basis with the fill alternative," (c) the build alternatives could be further reduced in scale in order to minimize the need for Bay fill, and (d) studies commissioned by the Airport "need to be independently evaluated if the conclusions drawn from the studies are to be relied upon by the FAA, SFO, regulatory agencies and the public."

The Airfield Development Bureau states that it has addressed the concerns of the regulatory agencies. The Airport's Official Statement, Issue 29 A & B, prepared for the purpose of providing Airport bond investors with information on the Airport and its financial condition, states that "Each of the six alternatives is being given equal consideration, the three build alternatives are being weighed against the two "no-build" alternatives" (page 45).

Program Management Services - 2001 Onwards

In April of 2001, the Airfield Development Bureau commenced a contract with DMC Airfield Engineers (a joint venture of DMJM Aviation, Mendoza and Associates, and Cabellon and Associates) for cost and schedule control and resources management services. Contract 7000.11 with DMC Airfield Engineers has a total budget of $5,350,000 and has been modified twice to extend the expiration date from December 31, 2001 until June 30, 2003. This contract had been initiated by the original Deputy Director of Airfield Development before her departure from the Airfield Development Bureau in February of 2001. DMC Airfield Engineers provide program management staff to augment Airfield Development Bureau staff.

However, in April of 2001, the same month that DMC Airfield Engineers commenced providing services, the Airport Commission authorized Airfield Development Bureau staff to issue a Request for Proposals for a broader program management services contract. This contract was initiated by the successor Deputy Director of Airfield Development who wanted to ensure that, in the event that one of the runway build alternatives is approved, (a) design, construction sequencing, and cost plans were ready, (b) the optimum number and type of contracts were established, and (c) all legal and environmental mitigation issues were forecast ahead of time. The successor Deputy Director of Airfield Development wanted a contractor who was both experienced in airport construction program management (which DMC Airfield Engineers are, particularly given their experience with the Airport's Master Plan) and maritime construction program management (which DMC Airfield Engineers are not, according to the Deputy Director who has since retired). A program definition panel comprising five construction experts reviewed the Airfield Development Bureau's requirements and recommended that the bureau hire an experienced program management contractor. An outside selection panel consisting of construction experts, the City Purchaser, and a human resources specialist reviewed five proposals from top maritime construction companies and scored two of those companies within half a point of each other. Those two companies, Parsons Brinckerhoff Quade & Douglas, Inc. and Parsons Transportation Group, Inc., formed a joint venture, Airfield Program Management Partners (APMP) with two additional joint venture members: Cornerstone Transportation Consulting, and The Allen Group. In October of 2001, the Airport Commission authorized the Airfield Development Bureau to enter into negotiations for a program management services contract with APMP. The Deputy Director wanted to use the environmental review phase, before actual construction begins, to develop program, cost, schedule, document control, and other program management tools, and to train staff how to use them. However, the APMP contract was not implemented due to post-September 11, 2001 fiscal constraints. Since this proposed contract would have incurred high costs ahead of the Record of Decision from the regulatory agencies to proceed with airfield development, it was considered a risky investment. The APMP contract would have involved four or five joint venture staff setting up the new systems, instead of the two DMC Airfield Engineers staff more recently used by the Airfield Development Bureau.

In June of 2001, two reports commissioned by the Airfield Development Bureau were submitted to the Federal Aviation Administration and the Office of Environmental Review as part of the EIR/EIS process:

· J. Laurence Mintier and Associates, a URS Corporation subcontractor, issued Upland Airport Alternatives for San Francisco International Airport Runway Reconfiguration which found no feasible sites for either (a) a new international airport to replace San Francisco, Oakland, and San Jose International Airports, or (b) a new, smaller supplemental airport. The report also considered the feasibility of relocating the Airport's general aviation activity to three nearby airports but determined that none of those airports is capable of providing significant relief.

· Lea and Elliott, another URS Corporation subcontractor, issued San Francisco - Oakland Airport Connector: An Initial Investigation. As required by California Senate Bill 1562, enacted in 2000, which requires the EIR to analyze the joint management of San Francisco and Oakland International Airports, the report summarized high-speed ferry and rail service options between San Francisco and Oakland International Airports in terms of their impacts on riders, security, baggage, minimum connect time, implementation schedule, and environmental impacts.

A Narrower Focus: The Aftermath of September 11, 2001

Since September 11, 2001, the activities of the Airfield Development Bureau have been limited to the completion of the environmental and planning work necessary for the preparation of its EIR and EIS documents. Since then, the Airfield Development Bureau has seconded Douglas Environmental under the DMC Airfield Engineers contract for EIR editorial services (October of 2001 to date), a former staff member under the Airport's existing Luster/GKO contract to provide EIR writing services (June of 2002 to date), and a consultant under the Luster/GKO contract to provide EIR editorial services (January through August of 2002).

All work not directly related to EIR/EIS preparation has been suspended. The Airfield Development Bureau is no longer planning for all six runway alternatives in their entirety. All public relations, marketing, and lobbying contracts have been suspended. $6.4 million of Federal Airport Improvement Program (AIP) grant funds which had been programmed for environmental work related to the Runway Reconfiguration Project were reprogrammed to address general Airport security issues after September 11, 2001.

In November of 2001, the Airfield Development Bureau entered into a memorandum of understanding with the National Oceanic and Atmospheric Administration to convene a new scientific peer review panel. The sole source memorandum of understanding with the National Oceanic and Atmospheric Administration has been subsequently modified once to (a) extend the expiration date from November 7, 2001 until December 31, 2002, and (b) increase the original budget by $90,000, from $100,000 to $190,000. The purpose of convening the second National Oceanic and Atmospheric Administration panel was to subject the environmental technical studies prepared to date on the runway build alternatives to an independent and objective peer review of their scientific soundness. According to Airfield Development Bureau staff, this represents an unprecedented process and the Federal Aviation Administration was initially reluctant to agree to it. The National Oceanic and Atmospheric Administration panel's peer reviews are due for release in the summer of 2003.

The most recent prime contract entered into by the Airfield Development Bureau is the option agreement with Wildlands, Inc. (January of 2002). This option agreement facilitates the future purchase of North Bay land for potential habitation mitigation credits (see Section 6 for a more detailed discussion of this option agreement). Sole source Contract 7015.6 with Wildlands, Inc. extends from January of 2002 until the earliest of (a) nine years later, in December of 2010, (b) the close of escrow, or (c) December 31, 2006 if the City has not exercised its option to purchase the property, and Wildlands, Inc. has not independent acquired the property. The first three phases of the option agreement have a budgeted cost of $9,455,100.

Airfield Development Bureau Expenditures

As of December 31, 2002, the Airfield Development Bureau's total expenditures, based on actual invoices, are shown in Table 1 as follows:

Table 1

Airfield Development Bureau Expenditures

Based on Invoices

As shown above, the largest area of expenditure has been marine structures (39.34 percent), largely due to the size of the ADEC contract which has a total budget of $28,667,258. A further 26.71 percent has been expended on environmental studies, with expenditures peaking in FY 2000-2001 and FY 2001-2002. This remains an important area of investment as the Airfield Development Bureau focuses on drafting its EIR/EIS documents, representing approximately 54.18 percent of FY 2002-2003 expenditures to date. Planning studies consumed a further 13.14 percent of expenditures, with the bulk of those expenditures occurring early in the program. Expenditures on public information peaked in FY 2000-2001 and have been declining since then (2.94 percent). Expenditures on pavement and utilities also peaked in FY 2000-2001 and are now funded at 1.64 percent. The balance of the expenditures has been on Airfield Development Bureau administration and management (16.23 percent), which has also significantly decreased since FY 2000-2001.

Extensive Use of Contractors

As explained above, a considerable proportion of the Airfield Development Bureau's work program has been contracted out. As discussed in Section 4, the Budget Analyst audit team found that the Airfield Development Bureau did not have a single, comprehensive inventory that integrated baseline financial and non-financial information (such as the Airport Commission and Board of Supervisors approvals, timeframes, and key deliverables) about all of its prime contractors, subcontractors, seconded subconsultants, and seconded personnel. Therefore, the Budget Analyst audit team attempted to compile such an inventory to ensure that the Budget Analyst audit team and the Airfield Development Bureau shared an accurate understanding as to the scope, timing, and cost of the Bureau's contracting program.

As a result of that initiative, the Budget Analyst audit team developed Appendix A to this audit report which lists (a) the Airfield Development Bureau's 30 prime contractors, (b) the two public sector agencies with whom the Airfield Development Bureau has entered into memoranda of understanding, and (c) three pending memoranda of understanding. As shown in Appendix A, the budgeted cost of the Airfield Development Bureau's contracts and memoranda of understanding (excluding the two existing Airport contracts and the three pending memoranda of understanding) totals $89,571,455.¹²

In addition, the Airfield Development Bureau has obtained services under existing Airport contracts with (a) the John F. Brown Company for financial and economic analysis (the bureau task-ordered a cost-benefit analysis for the runway reconfiguration alternatives), (b) Harris, Miller, Miller, and Hanson, Inc. (HMMH) for noise abatement (the bureau task-ordered noise abatement measurement and analysis), and (c) The Allen Group/Cornerstone/EPC Consultants joint venture which provided construction management services for the West Cargo Building under the Airport's Master Plan (the initial secondment of a contract manager for the Airfield Development Bureau in the amount of $115,000). The contract manager seconded under The Allen Group/Cornerstone/EPC Consultants joint venture was later transferred to the DMC Airfield Engineers contract, once that contract was awarded.

The prime contractors managed numerous subcontracts, seconded subconsultants, and seconded personnel. While the Airfield Development Bureau was able to provide a comprehensive list of its 50 seconded subconsultants and seconded personnel, as shown in Appendix B to this audit report, the Airfield Development Bureau was unable to provide a complete list of subcontractors for the reasons outlined in Section 4 of this report.

Appendix C to this audit report is a chronological summary of when work was performed by the Airfield Development Bureau's prime contractors, their seconded subconsultants, and their seconded personnel.

The Budget Analyst audit team reviewed all of the Airfield Development Bureau's prime contracts and memoranda of understanding for their purpose, scope, and consistency with the overall Runway Reconfiguration Project plan, which until May 7, 2003 was focused on completion of the draft EIR/EIS. The Budget Analyst audit team's review concluded that all of the prime contracts and memoranda of understanding for planning, environmental, engineering, program management, and scientific and technical review consulting services were linked to the evaluation of the technical issues and environmental impacts of the numerous runway alternatives considered by the Airfield Development Bureau since 1998, and to the preparation of the draft EIR/EIS. However, the Budget Analyst audit team did not identify a clear link between the draft EIR/EIS and certain public affairs contracts, particularly as they related to political lobbying efforts, as discussed in Section 2 of this audit report.

While the Budget Analyst audit team was unable to review the thousands of contractor financial transactions, we did review a selected sample of invoices. The Budget Analyst audit team's findings resulting from this review are presented in Section 3.

The $89,571,455 budget plan for contract expenditures, based on the Airport Commission's approved plan for the Runway Reconfiguration Project, represents a significant investment, particularly if the Runway Reconfiguration Project does not proceed with a runway "build" alternative since runway "no-build" alternatives could have been investigated and evaluated at a much lower cost. However, the Budget Analyst audit team does note that $89,571,455, if fully expended, would represent only approximately 3.0 percent of a future runway "build" alternative, and related environmental mitigation activities, costing $3,000,000,000. If the cost of a runway "build" option was higher, then the $89,571,455 would decrease as a percentage of the overall Runway Reconfiguration Project costs.

Passenger Traffic Projections

The Budget Analyst notes that much of the impetus for work on the Runway Reconfiguration Project was a direct function of what seemed to be extreme rates of growth in flight and passenger traffic at the San Francisco International Airport. In performing this management audit, the Budget Analyst reviewed the most recent Airfield Development Planning, Updated Forecast, September, 2002, prepared by Airfield Development Bureau contractor HNTB.

The Updated Forecast was the first performed after the events of September 11, 2001. In updating its forecasts of passenger traffic, measured by combined international and domestic enplanements and flight operations (i.e., takeoffs and landings), HNTB assumed that the abnormally high levels of traffic for the calendar year 2000 and the precipitous decrease post September 11, 2001 were statistical anomalies. Therefore, HNTB did not include such data in its updated forecast. As a result of these and other economic assumptions, HNTB forecast a return to 1999 levels of activity by the year 2007. HNTB's analysis was based on actual data through December of 2001. According to the Airfield Development Bureau, this updated forecast did not seriously reduce the need for a solution to the Airport's flight delay problem within the near future.

However, more recent data on passenger traffic, which is directly related to Airport revenue and, therefore, to the overall financial condition of the Airport, show an even greater downward trend than that experienced in 2001.

In a report to the Chair of the Board of Supervisors Finance and Audits Committee, dated April 21, 2003, concerning the Airport Concession Support Program which had been approved by the Board of Supervisors in the spring of 2002, the Airport Director stated the continuing economic downturn, locally and nationally, has "resulted in a slower recovery than previously forecasted." The report noted that more recent passenger traffic data, reflecting the impact of the Iraq War and the SARS outbreak, were expected to have even further impacts, but that such data were not yet available. Even without this data, however, the Airport Director's report concluded that "We do not anticipate a return to pre-September 11^th passenger and concession sales levels until at least 2008". It is apparent, therefore, that the recent economic and air travel assumptions that formed the basis for past projections of future growth justifying runway reconfiguration have reversed trends in just the last two years, and that the Airport will need to continuously re-examine such assumptions and the underlying data supporting future projections in order to assess future needs.

In line with this thinking, on May 7, 2003, the Airport Director instructed Airfield Development Bureau staff to close contracts and suspend work related to the Runway Reconfiguration Project, with the exception of the scientific studies currently underway. The Airport Director suspended any contractor work which is reliant on air travel projections until there is a significant and sustained recovery in the level of passenger traffic and flight activity. In his May 7, 2003 letter to the Board of Supervisors, the Airport Director stated that:

The Airport is not proposing proceeding with [the draft EIR/EIS documents] - only finishing the work that would allow for the production of these documents at some point when airport traffic demands it in the future. The Airport realizes that the volatility of the airline industry makes completing the environmental analysis of issues such as noise, surface transportation, air quality and socioeconomics impractical. Any analysis would be subject to constant revision until the industry establishes consistent growth trends. [...] It is my recommendation that the environmental studies and preliminary engineering work be restarted no sooner than when, for a twelve-month period of time, passenger traffic at SFO reaches or exceeds 33 million and/or aircraft operations reach 360,000.

Therefore, as of the release of this audit report, the Airfield Development Bureau is focused on the completion of scientific studies which will be evaluated by the second National Oceanic and Atmospheric Administration scientific review panel. These scientific studies are not dependent on air traffic projections. According to the Airport Director, completion of the scientific studies will allow the Airport to (a) preserve the scientific information for future use, (b) complete work funded by the FAA, and (c) utilize the institutional knowledge and expertise of the consultant staff currently assigned to the work.

¹ Seconded subcontractors refer to those consultants who are (a) specifically selected by the Airport to perform the work of an entire task, and (b) paid through a prime contractor with whom they had no prior contractual connection. Such consultants are responsible for their work product, and the cost of correcting any errors or deficiencies.

² Seconded personnel (a) are the employees of a prime contractor, or one of their subcontractors, and therefore have a prior contractual connection with that contractor, (b) are physically located at the Airfield Development Bureau, (c) work under the direction of Airfield Development Bureau staff, and (d) provide a direct work product to Airfield Development Bureau staff. Their work products are the responsibility of the Airfield Development Bureau.

³ This revised mission statement was disseminated by memorandum to the Airport's senior and management staff on March 10, 1999 by the Acting Runway Reconfiguration Program Manager.

⁴ February 12, 1999 memorandum from the Airport Director to the Airport's senior and management staff about the Runway Reconfiguration Project.

⁵ During this time, the Airport Director remained responsible for financial management of the Airfield Development Bureau. Between late 2002 and his resignation on April 11, 2003, the Director of Airfield Development became a direct report to the Airport Director.

⁶ Since May of 2001, LSA Associates has also been seconded under the DMC Airfield Engineers contract to provide Environmental Liaison Office services.

⁷ A "borrow site" refers to the location from which sand and gravel would be dredged for use as Bay fill for new runways at the Airport. Three borrow sites are under consideration: one in San Francisco Bay within the City limits, one in the ship channel outside the Golden Gate Bridge, and one in existing British Columbia quarries.

⁸ Under the float-in, bottom-founded structure alternative, the structure would be constructed elsewhere, floated to the site, and then sunk at the Airport construction site to provide support for the new runway.

⁹ Contract 7000.12 with Baker and McKenzie was later reassigned to Steefel, Levitt and Weiss, and its total budget was $265,000.

¹⁰ Existing technology options include air traffic control, airspace allocation, aircraft navigation, and surveillance and communications technologies. New technologies include precision runway monitors (PRM), Simultaneous Offset Instrument Approach (SOIA), global positioning satellites (GPS), and new traffic management software.

¹¹ Demand management strategies include access restrictions to the Airport, revenue sharing, pricing incentives and disincentives, landing slot controls, shifting general aviation and cargo activity to other Bay Area airports, increasing the minimum size of passenger aircraft permitted to land, joint operating arrangements and cooperative marketing efforts by Bay Area airports, and the management of Bay Area airports under a regional airport structure. Demand management strategies can be implemented for certain hours of the day and can be modified to meet weather, demand, and other criteria.

¹² The amount of $89,571,455 includes (a) the pending Contract Modification No. 5A to Contract 4240.1 between the Airport and the URS Corporation in the amount of $3,540,828, and (b) the pending Contract Modification No. 2 to the memorandum of understanding between the Airport and BCDC in the amount of $125,000.