Management of Capital Projects

The Department of Public Works manages most of the City's General Fund capital projects. The Charter authorizes the City's enterprise departments – the Port, the Airport, the Public Utilities Commission, and the Municipal Transportation Agency – and the Recreation and Park Department to manage their own capital projects. The Department of Public Works manages the capital projects of the remaining departments, including street and other projects under the jurisdiction of the Department of Public Works, and provides engineering, architectural, and construction management services to the enterprise as well as the General Fund departments.

The Department of Public Works' engineers and architects serve as project managers for capital projects. The project designer serves as project manager for single discipline projects, such as electrical or structural engineering projects. The Department has also formed a project management group, which assigns engineers and architects as project managers for a limited tenure.

Management of the Capital Project Design Process

The planning and design of projects is the key stage in determining the scope and costs of the capital project. The project designer drafts the construction specification documents that form the basis of the construction bid. The Department prepares construction cost estimates in-house or hires consultants specializing in construction contract estimation, depending on the type of project.

Client departments participate in planning most capital projects. The Department of Public Works' role is to support the planning process and execute the project plan. The Department's engineering and architecture staff design most of the Department's projects, although the Department will hire design consultants to design complex or specialized projects, such as health care or corrections facilities. The project design is the basis of the construction documents and construction cost estimates.

According to interviews with the Department of Public Works' engineers and architects, the capital project design is intended to meet Americans with Disabilities Act and building code requirements and industry standards. The designer needs to balance the client's project plans, code requirements and other standards, and cost restraints. The goal is to achieve a project design that balances design requirements and reduces the need for change orders during the construction phase of the project.

The Bureaus of Engineering and Architecture are responsible for the Department of Public Work's capital project design. Although project design can be complex and varies significantly by the type of project, design efficiency can be measured in part by the cost of the design compared to total construction costs, and the number of construction contract change orders attributed to design errors and omissions.

Capital Project Design Costs

Generally, the Bureaus of Architecture and Engineering senior architects and engineers are responsible for meeting with clients, developing the scope of work, and assigning design work to staff within their sections. The Bureau of Architecture has a pool of consultants to assign design work in addition to the Department of Public Works' architecture staff. The Department also contracts with outside consultants to design complex or specialized projects.

The Department of Public Works encounters specific issues when managing design costs as a portion of overall project costs. As a public agency, the Department lacks the budget constraints of a private firm that must absorb excess labor costs. The Department must pay for all labor hours charged to a project. Conversely, the Department cannot offer pay incentives or retain funds for delivering the project at lower than budgeted costs. The Department also encounters higher design costs due to the higher regulatory and design standards for many public projects. The Department must balance the need to cost-efficiently design projects while ensuring design thoroughness to avoid later construction change order costs for design errors and omissions.

The Department of Public Works' engineers and architectures expect design costs to make up approximately 7 percent to 15 percent of a project's costs, as a general rule. Design costs constitute a larger percentage of small projects. Specific types of projects, such as curb ramp construction, have a higher percentage of design costs due to the special issues encountered in designing the curb ramp, such as the location of utilities and street lights, basements, and other structures.

Benchmarking Design Costs

Seven California agencies, including the San Francisco Department of Public Works, have been participating in an ongoing capital improvement program benchmarking study. The California Multi-Agency CIP Benchmarking Study – Update 2005 found that, for projects completed between January 1, 1999, and January 1, 2005, the project delivery costs as a percentage of total construction costs increased over time. The Study considered that the increased project delivery costs resulted from improved data collection, which identified project delivery costs more accurately, greater community involvement and coordination, and more stringent regulatory requirements.

When compared to the Study's benchmarks, the Department of Public Works project planning and design costs as a percentage of total construction costs are not high.

Table 6.1
The Department of Public Works' Capital Project Planning and Design Costs as a Percentage of Total Construction Costs for Capital Projects Completed in 2005

Source: The Department of Public Works Bureau of Architecture and Bureau of Engineering

Managing Design Quality

Capital projects can incur delays and increased costs if the project planning and design is inadequate. The Bureaus of Architecture and Engineering have formal quality assurance and control policies and procedures to reduce the risk of inadequate design but have implemented these procedures unevenly. The Bureaus of Architecture and Engineering's written policies and procedures cover the design process, including defining the roles and responsibilities of the design team, establishing standards for different types of project designs, and outlining requirements for quality assurance checks of project designs.

The Bureau of Architecture has a formal quality assurance program. The quality assurance program consists of five elements:

The Bureau of Architecture has designated one senior architect position to oversee the quality assurance program. The Bureau of Architecture provided a list of 46 design projects that were reviewed between November 2004 and August 2006. Most of these projects were reviewed when the design documents were 95 percent complete, although some projects were reviewed at an earlier phase. According to the documentation, the reviewer returned the project documents to the designer if corrections were necessary.

The Bureau of Engineering's quality assurance program has been less fully-implemented than the Bureau of Architecture. The Bureau of Engineering has one assistant engineer assigned to the quality assurance program but has not funded the senior engineer position to oversee the program. The Bureau has detailed policies and procedures but has not implemented one component – annual audits of randomly selected projects to ensure compliance with quality assurance procedures. According to the Bureau manager, quality design and bidding documents are a top priority for the Bureau in FY 2006-2007.

The Impact of Project Design on Construction Contract Change Orders

The quality of the project design can have significant impact on the construction project's costs and time lines. If the design project contains errors, omits design details, or fails to identify significant site conditions, the construction contract can be adjusted through a construction contract change order to pay the contractor for the change in project scope or specifications, increasing project costs or extending project timeliness. Overall, construction contract costs increase by about 2.9 percent from the initial contract costs due to design errors and omissions and by an additional 2.2 percent due to unforeseen site conditions.

Table 6.2
Total Construction Contract Change Orders as a Percent of Original Construction Contract Amounts for 49 Construction Projects Completed in 2004 and 2005

Source: Bureau of Construction Management

The Department of Public Works classifies construction contract change orders as design errors, design omissions, unforeseen site conditions, and client requests. Because the Department does not have a formal definition for each change order type, the Department's staff classify change orders based on their experience and best judgement.

The Department of Public Works classifies change orders caused by design error separately from change orders caused by design omissions. Design error or omission refers to mistakes (errors) or oversights (omissions) by the project's designers, requiring plan and specification corrections. The project designer should have reasonably known and dealt with the design issue during the design of the project.

Change orders due to unforeseen site conditions are necessitated by discovery of actual job site conditions that differ from those shown in the contract plans or described in the specifications. By definition, the project designer could not reasonably have known of the site condition during the project design.

A third type of change order results from client requests, such as additions or deletions to the original project scope and design.

The California Multi-Agency CIP Benchmarking Study – Update 2005 found that projects tend to have change orders equal to 10 percent of the construction contract cost. The size of the construction project had little impact on construction contract change order percentages. According to the Study, project managers tend to approve construction contract change orders up to the amount of the contract's contingency, which is usually set at 10 percent of the total construction contract amount. Because contract cost increases greater than 10 percent require additional approval, project managers and construction contractors work within the allotted amounts.

According to interviews with Department of Public Works staff, the distinction between change orders designated as due to design errors and omissions or to unforeseen site conditions is not exact. A change order may be classified as due to unforeseen site conditions although the project designer could have reasonably known the condition of the site.

Measuring Design Performance

Previously, the Bureau of Engineering had a performance goal to limit construction contract change orders due to design errors and omissions to no more than 3 percent. Currently, neither the Bureau of Engineering nor the Bureau of Architecture measure the impact of design errors and omissions on construction costs.

The Department has a large number of construction contracts with change orders due to design errors and omissions exceeding 3 percent. Of 49 construction contracts completed in 2004 and 2005, 11 contracts or 22.4 percent, had change orders due to design errors and omissions that exceeded 3 percent of total construction costs. The Department needs to measure and report the impact of design errors and omissions on construction costs annually. These goals and measures should be uniform for the Bureau of Engineering and the Bureau of Architecture.

Addressing Recurring Project Design Problems

A detailed review of the 49 construction projects completed in 2004 and 2005 and other projects reveals some recurring project issues.

Quality of Consultant Design

The Department of Public Works' quality assurance program focuses on project designs created by the Bureau of Engineering and Bureau of Architecture staff. The Department does not have an agreed upon protocol to review design services provided by outside consultants. Although the City has legal recourse if a consultant's project design is seriously flawed, the City does not have formal procedures to ensure that consultant design services will result in efficient project delivery. The City generally pays the costs of construction contract change orders due to design errors and omissions rather than the design consultant.

The Department of Public Works needs to identify commonly occurring problems in design projects provided by consultants and develop protocols to address these problems. For example, because consultants are less familiar with City requirements and standards for public facilities, the Department needs to ensure that consultants are fully informed and that design projects meet American with Disabilities Act and other requirements.

Also, the Department of Public Works implemented a task force to assess capital project quality assurance procedures. The task force addressed consultant design quality controls as well as coordinated quality assurance procedures between the Bureaus of Architecture and Engineering. The Department needs to move forward in establishing effective quality controls, both for consultant and in-house design projects.

Coordinating with the Department of Building Inspection to Meet Requirements

Construction projects are delayed or incur unexpected costs because the project did not meet Department of Building Inspection requirements.

Both the Community Health Network third floor tenant improvement project and the Maxine Hall Health Center renovation project incurred change orders and increased project costs from unanticipated regulatory requirements. Completion of the Community Health Network project was delayed because the Department of Building Inspection inspector did not approve installation of electrical conduits in modular office walls, requiring rewiring of the location, exceeding the original construction document scope. The Maxine Hall Health Center project incurred construction contract change orders to comply with Department of Building Inspection site inspection requirements to install temperature control modifications. According to the project manager, the Department of Building Inspection had not required these modifications in the project drawings.

The Department of Public Works needs to coordinate with the Department of Building Inspection, among other agencies, to ensure that policies, procedures, and regulations are both well-understood and consistently applied. According to interviews with Department of Public Works staff, building inspectors have significant discretion in approving completed projects and validating compliance with City regulations.

Gathering Project Site Information

Several of the projects reviewed incurred additional costs because the construction project encountered unexpected or unidentified problems. In some instances, problematic site conditions are impossible to discern or anticipate in the project design, or the cost of identifying the problematic site condition exceeds the expected cost of correcting it during the construction project.

The Palace of Fine Arts rotunda roof repair project included a contingency to pay for expected deterioration in the existing roof but the actual deterioration exceeded the contingency. According to the project manager, the Department would have had to hire a second contractor to investigate the rotunda roof prior to completing the design documents to fully identify the extent of roof deterioration

However, construction projects encounter problems, resulting in change orders and increased costs, for issues or incidents that could have reasonably been anticipated. For example, both the Geary Boulevard pavement renovation project and the Post and Stockton Streets emergency repair projects incurred construction contract change orders to pay for San Francisco off-duty police officers to direct traffic during construction in traffic-congested zones. In both cases, the costs of directing traffic could have reasonably been known during the planning and design of the project.

Site Visits

The Department of Public Works' project design procedures include visiting the project site during the planning of the project and ensuring compatibility of the project with site conditions. The extent to which project designers visit and interact with the project site depends not only on the design type but the individual designer. According to interviews, project designers vary in the extent to which they visit and become familiar with specific project sites.

The Bureaus of Engineering and Architecture need to review change orders resulting from design omissions and unforeseen site conditions to assess the extent to which physical site visits would improve the design document or reduce the need for change orders. For example, the Octavia Boulevard Street Improvement project incurred a $26,500 change order because the project designer had not known about the adjacent International School's parking lot gates that opened onto the project site.

Site Testing during Project Planning and Design

The Department of Public Works could reduce the frequency of construction contract change orders resulting from unforeseen site conditions by better testing of the site. Because increased testing results in increased planning and design costs, the Department needs to assess the costs and benefits of site testing and evaluation to determine if better site information can result in more efficient construction project results.

Both the Maxine Hall Health Center renovation and Helen Wills Park project encountered asbestos in the existing structures during the construction project, and the renovation of Fire Station No. 33 incurred multiple change orders to mitigate dry rot in the existing structure.

Because the Department of Public Works approves construction contract change orders, based on a negotiated price with the contractor or on time and materials, the resulting contract change order can represent higher costs than if the work were included in the initial low bid. Consequently, testing for and including specific site conditions in the original bid documents could result in cost savings and timely project completion.

Construction Document Review

The Department of Public Works' task force to assess capital project quality assurance procedures considered revising the existing guidelines for the Bureau of Construction Management to review project plans and specifications to assure that project plans are compatible with the project site. The Department's current policies and procedures provides for construction management staff to participate in the document review process for large projects at the 50 percent, 75 percent, and 95 percent design stages. According to the policy, the Bureau of Construction Management staff participate in quality assurance evaluation, staging area, site preparation, construction execution, sequencing, and scheduling. For other projects, the Bureau of Construction Manager staff review the project plans and specifications prior to submission to bid. The task force considered revised procedures that would elaborate on these functions.

Because the City as a public agency is prohibited from consulting with construction contractors on site conditions prior to the bid process, the Department needs to rely on its own resources to determine if a design project on paper can successfully be implemented at the construction site. As in the case with site testing, the Department of Public Works needs to assess the costs and benefits of increased review compared to the potential costs of construction contract change orders and delays.

Conclusion

The Department of Public Works has incurred significant construction contract costs resulting from contract changes due to design errors and omissions that differ from the design. Both the Bureaus of Architecture and Engineering have quality assurance and control programs, although the Bureau of Engineering's quality assurance program has been less fully implemented. Lack of quality controls over projects designed by consultants, inadequate communication with regulatory bodies regarding project design and implementation, and inadequate site information through testing and visits all contribute to contract cost increases.

Recommendations

The Deputy Director for Engineering should:

Costs and Benefits

The Department of Public Works could reduce construction contract change order costs by strengthening its design quality controls. Based on the 49 construction projects completed in 2004 and 2005, a 10 percent reduction in construction change order costs would make available $200,000 in funds that could be re-allocated to other projects.