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California State Auditor Report Number : 2015-117

California Department of General Services’ Real Estate Services Division
To Better Serve Its Client Agencies, It Needs to Track and Analyze Project Data and Improve Its Management Practices



The California Department of General Services’ (General Services) Real Estate Services Division (division) controls 58 buildings statewide and provides real estate and property management services for most state departments and agencies. The division, with certain exceptions, has direct control over the erection, construction, alteration, repair, or improvement of any state structure or building.1 The division may grant an exemption from this requirement if it determines that its services in connection with such projects are not required. Client agencies that have obtained this exemption may solicit bids from contractors or use their own staff to complete their projects. For example, the California Department of Water Resources explained that it frequently obtains this type of exemption for tenant improvement work because it employs architectural and engineering staff who can conduct the work.

According to division management, as of February 2016 the division consisted of roughly 2,000 employees spread across four branches—Asset Management, Project Management and Development (project management branch), Building and Property Management (building management branch), and Construction Services (construction services branch). These branches collectively provide services related to planning, overseeing, or performing construction and maintenance projects on behalf of the client agencies. Asset Management is responsible for reviewing the completeness of incoming project requests and assigning those requests to the appropriate branches within the division. Therefore, Asset Management is not responsible for delivering projects. As such, we focused our review on the other three branches.

Projects range from maintenance, such as repaving parking lots, to major capital outlay projects, such as the construction of a new building, with each branch having its own distinct responsibilities, as shown in Table 1 below. For example, the project management branch is responsible for delivering capital outlay projects and providing architectural and engineering services, whereas the construction services branch is solely responsible for conducting inspections of construction projects and providing construction services under certain circumstances, using a combination of day laborers and contractors. According to its website, as of February 2016 the division managed more than 24 million square feet of space in state‑owned or state‑managed facilities, and its major capital outlay, special repair, and minor capital outlay projects encompassed nearly 1,200 active projects valued in excess of $4.2 billion.

Table 1
Three of the Real Estate Services Division’s Branches and Their Key Responsibilities as They Relate to Project Delivery
Mission To provide tenants and the public with a safe and healthy environment in which to conduct business, and to preserve the State’s investment in real property and equipment through an efficient and effective centralized maintenance and operations program. To deliver quality, cost‑effective, and timely real estate services to state agencies. This includes management of the planning, design, and construction of major and minor capital outlay projects and leasing projects within the scope, budget, and schedule that meet the program requirements of clients and the authorization of the Legislature. This may be done either through the capital outlay process or through alternative forms of delivery. Construction Management and Inspection Unit: To ensure compliance with building codes and that the highest quality of construction is provided to the State in its buildings.

Direct Construction Unit: To provide high‑quality construction solutions to address urgent construction problems that are in the best interests of the State, with minimum disruption and maximum sensitivity to multiple client agencies.
Number of positions (as of February 2016) 1,582 292 95
Key responsibilities and services Facility operation and maintenance. • In‑house architectural and engineering services.

• Management of large and/or complex projects, including capital outlay projects.

• Cost estimates for all phases of construction projects.
• Code inspection to ensure compliance with building codes and regulation.

• Field‑level management of construction.

• Change order estimation and negotiation.

• Direct construction services.

Sources: State Administrative Manual, sections 1301, 1320, 1320.1, 1328, and 1330, and documentation provided by the California Department of General Services’ Real Estate Services Division (division).

Note: This table represents a variety of activities undertaken by the division. Although we included maintenance in this table to demonstrate the Building and Property Management branch’s responsibilities, we did not review maintenance, as it was not within the scope of our audit. Further, the Asset Management branch is not included in this table because it does not work directly on construction‑type projects.

Types of Construction Projects and the Process Used to Deliver Them

Funding of Construction Projects in 2015

Minor capital outlay: Generally, projects with a cost of less than $634,000 and specifically described as minor in the budget act.

Major capital outlay: Projects exceeding $634,000 or any capital outlay project not described as minor in the budget act, regardless of the total project cost.

Support‑funded: Projects in a state‑owned or state‑managed building that are paid for out of the client agencies' operating budget.

Sources: State Administrative Manual, sections 6806 and 6807; the Department of Finance Budget Letter 14‑01; and interviews with California Department of General Services’ Real Estate Services Division staff.

The division is responsible for specific types of construction projects: major and minor capital outlay projects and support‑funded projects, the funding for which is defined in the text box. According to the State Administrative Manual, capital outlay projects are those that alter the purpose or capacity of real property, which could include projects such as renovating existing buildings or building new ones. In addition, the division oversees support‑funded projects. According to an assistant branch chief in the building management branch, these projects may include tenant improvements—such as replacing carpet, repainting office walls, and replacing doors or windows before the end of their lifecycle—and special repair projects, such as replacing roofs, security systems and boilers, and modernizing elevators.

Although the branches are ultimately responsible for the planning and delivery of all types of projects, there are certain differences in responsibilities between major capital outlay projects, minor capital outlay projects, and support‑funded projects. For example, although the division is responsible for managing public works projects—any state‑funded construction project performed for the benefit of the public, including construction‑related work performed on state‑owned office buildings—once preliminary plans for a major capital outlay project are approved by the State Public Works Board (public works board) and the Department of Finance (Finance), project scope cannot be altered without written approval from Finance. Conversely, if a similar scope change occurs on minor capital outlay projects or support‑funded projects, the division does not have to seek this same approval.

Within the division, the project management branch has primary responsibility for delivering major capital outlay projects. For these typically higher‑cost projects, the division must follow the specific process prescribed in the State Administrative Manual. Required steps include approvals from both Finance and the public works board. Table 2 below describes each phase of the process and its estimated duration. Further, as shown in the table, major capital outlay projects can take nearly three years, at a minimum, to complete. According to a capital outlay program manager in the project management branch, for minor capitol outlay and support‑funded projects, the division generally follows the major capital outlay project process outlined in the State Administrative Manual, with the exception of oversight by the public works board, which is not required.

Table 2
Phases of Capital Outlay Projects and Estimated Time Frames
1 Concept and documentation • Client agency defines problem and develops conceptual solution. 2 to 5 months
2 Historical resources • Client agency submits proposed project and historic resources inventory to the California Office of Historic Preservation for review if the project will affect a state‑owned structure that is over 50 years of age. Typically coincides with phases 1 and 3
3 Budget approval • The California Department of General Services Real Estate Services Division (division) submits proposed projects to the Department of Finance (Finance) for approval in the state budget. 17 months
4 Site selection and acquisition • Client agency and the division select a site.

• State Public Works Board (public works board) approves the site.

• As the public works board’s agent, the division acquires the property.
Up to 12 months
5 Environmental review • Division ensures that the project meets California Environmental Quality Act requirements. May coincide with phases 1 through 4
6 Preliminary plans • Design architect or engineer prepares schematic documents, designs, and estimate of project costs.

• Division certifies the environmental process.

• Public works board and Finance approves preliminary plan design.
3 to 12 months
7 Working drawings • Design architect or engineer prepares plans and specifications for bidding and construction work and refines the cost estimate.

• Responsible lead design agency obtains mandatory review and approvals from the Office of the State Fire Marshal and the Division of the State Architect.

• Division submits the design certification to Finance.

• Finance approves the working drawings and proceeding to bid.
3 to 11 months
8 Bidding • Division advertises the project for construction bids.

• Interested bidders prepare and submit construction bids to the division.

• Finance authorizes the award, if within approved funding levels, and approves transfer of construction funds for the division.

• Division awards the construction contract to the contractor.
3 to 6 months
9 Construction • Contractor constructs project.

• Division processes construction progress payments and change orders within the approved contingency amount.

• Division files a contract completion notice with Finance.
3 to 36 months . Within 3 months after project completion or within 3 years from the time the funds were transferred, whichever is earlier
10 Claims and close‑out • Division closes out the project by returning or refunding unused funds to the source of those funds.

Sources: State Administrative Manual, sections 1451, 6808, and 6851 and Government Code Section 14959.

* The total estimated minimum time frame excludes site selection and acquisition, as these phases do not apply to every project.

Process for Estimating and Funding Public Works Projects

Generally, when a client agency requests a public works project, both the project management and construction services branches—depending upon the branch responsible for the project—prepare initial cost estimates that they present to the client agencies. According to cost estimation staff in these two branches, cost estimators prepare estimates based on historical costs for similar projects, internal guidelines, industry standards, and the professional judgment of the cost estimators and their supervisors. However, as we describe in the Audit Results, the building management branch does not have a process for estimating project costs, which are built into the tenants’ rental rates, or time frames.

Prior to beginning work on a project, funds must be deposited into General Services’ Architectural Revolving Fund (fund). The State Administrative Manual indicates that transfers into the fund require approval from Finance. Under state law, division expenditures of fund money must adhere to the original authorized purposes for which the money was transferred. Once a project is complete, state law requires General Services to transfer any remaining money that has not been obligated to the project back to its source within three months. However, irrespective of project completion, funds not obligated to the project within three years of their deposit must be returned unless Finance authorizes an extension.

Requirements for Public Works Projects Compared to Private Sector Projects

Public works projects, compared to purely private sector projects, have more rigorous statutory requirements, as described in Table 3 below, which can contribute to increased costs and project duration. For example, state law requires private contractors on public works projects to pay prevailing wages to their workers—a wage determined by the Department of Industrial Relations based on the type of work conducted and the location of the job site—and to employ paid apprentices, both of which may increase costs. In addition, state law requires the division to award the majority of public works contracts to the lowest responsible bidder after completing a prescribed competitive bidding process. According to the State Administrative Manual, this process can add up to six months to the length of the project. Given that the competitive bidding process requires administrative oversight, this process can also increase project costs.

Table 3
Comparison of Major Requirements for Public Works Projects and Private Sector Projects
Compliance with the California Building Standards Code (Title 24). Title 24 governs the design and construction of buildings and includes requirements for the structural, plumbing, electrical, and mechanical systems; fire and life safety; energy conservation; green building design; and disabled building access. To provide minimum requirements to safeguard public health, safety, and general welfare.
Governor’s Executive Order Number B‑18‑12 (April 25, 2012):
Requires state agencies to implement the building practices set forth in the Green Building Action Plan.
To reduce the costs and environmental impacts associated with operating state buildings.
Competitive bid process/contract awarded to lowest responsible bidder. To prevent corruption and discourage favoritism and fraud.
Prevailing wages. To protect against substandard wages and equalize competition.
Contractors performing public works projects must employ paid apprentices. To encourage the utilization of apprenticeship as a form of on‑the‑job training
Small business/disabled veterans business enterprise considerations. To help these interests compete more effectively for a portion of the dollars awarded competitively through the State’s bidding process.

Sources: California Code of Regulations, Title 24; Health and Safety Code sections 18901 et seq.; State Contract Act (Public Contract Code, sections 10100 et seq.); Labor Code sections 90.5, 1770 et seq., and 3070 et seq.; Government Code sections 14835 et seq.; Military and Veterans Code sections 999 et seq.; State Contracting Manual, chapters 1, 5, 8, and 10; and Governor’s Executive Order Number B‑18‑12 (April 25, 2012).

* These requirements apply to all public works projects, regardless of whether a state department manages the project or a private sector firm manages the project.

Procuring Architecture and Engineering Services for Public Works Projects

Although under state law the division generally must award construction services portions of projects to the lowest responsible bidder, for architecture and engineering services, state law requires that selection be based on demonstrated competence and on the professional qualifications necessary for the satisfactory performance of the services required at a fair and reasonable price. Further, the division can contract out these services without providing a justification explaining its reasons for contracting out work that a state employee could otherwise perform, as is typically required of any state personal services contract. According to the chief of the project management branch, in order to fulfill all requests for public works projects, the branch frequently contracts with private architecture and engineering firms to perform design and construction management services for its projects. The chief of the project management branch also explained that the branch determines which work it will contract out based on staff availability and technical expertise. To accomplish this work expeditiously, the branch maintains retainer contracts with several private architecture and engineering firms to conduct such work.

Evolution of the Division’s Structure

The division, formed in 1997, originally comprised six branches. Since its formation, the division has continued to reassess its structure and has consolidated its operations down to its current four branches, three of which we described in Table 1. Specifically, the division commissioned a study by a private consulting firm to conduct a high‑level evaluation of the division’s structure. In its report, issued in January 2006, the consulting firm noted that the division was organized primarily by function and that the branches within the division tended to operate as separate organizations that did not fully share knowledge, process innovation, or critical operational data. Although as of March 2016, the division’s branches still seem to operate primarily as independent organizations, we did not see evidence during our work indicating that this was causing unnecessary project delays or hindering work product. Further, in its report, the consulting group noted that the division had initiated a change in its organizational approach in response to pending retirements, staff reassignments, and the division’s belief that reassigning personnel would introduce more accountability. The report recommended that the division support this new approach by consolidating two branches—Customer Account Management and Asset Planning and Enhancement—which the division has implemented. This consolidation resulted in the Asset Management Branch.

Further, during 2012 and 2013, according to an internal report, the division made two key changes to its structure. First, it dissolved its Business Operations, Policy, and Planning Branch and dispersed that branch’s responsibilities among the division deputy director’s office as well as central service offices within the department. It also combined its Professional Services Branch and Project Management Branch to create the Project Management and Development Branch. According to the division’s report, the goals of this consolidation were consistent with the division’s strategic plan to increase project on‑time delivery, improve cost recovery through efficient operations, increase customer satisfaction, and increase employee satisfaction.

Recent Concerns Regarding the Division’s Maintenance Services

The Legislative Analyst’s Office (LAO) issued a report in March 2015 related to the division’s responsibilities for performing maintenance on buildings controlled by General Services, such as replacing heating, ventilation, and air conditioning systems or repaving parking lots. The building management branch is responsible for this type of ongoing maintenance. This report identified several issues relating to the division’s untimely completion and high costs of maintenance‑type work. Specifically, the LAO noted that the division was not tracking the needs and performance of its buildings, not tracking its spending on maintenance activities, and not using benchmarks to compare its maintenance performance to that of outside organizations. As a result, it recommended that the Legislature require General Services to address the factors that led to the accumulation of deferred maintenance by evaluating building maintenance staffing levels, setting rental rates to meet ongoing building needs, and using its existing analysis tools to better prioritize maintenance efforts.2 Additionally, the LAO recommended that the Legislature provide General Services with authority to use job order contracting for certain types of maintenance projects.

Scope and Methodology

The audit committee directed the California State Auditor’s office to perform an audit of the division regarding its operations to plan, design, and construct capital outlay projects. Table 4 includes the audit objectives the audit committee approved and the methods we used to address them.

Table 4
Audit Objectives and the Methods Used to Address Them
1 Review and evaluate the laws, rules, and regulations significant to the audit objectives. We reviewed relevant state laws and regulations.
2 Determine whether the structure of the California Department of General Services’ (General Services) Real Estate Services Division (division) structure allows it to effectively provide services regarding state‑owned or leased buildings throughout the State.
  • For each of the four branches within the division—Asset Management, Project Management and Development (project management branch), Construction Services (construction services branch), and Building and Property Management (building management branch)—we reviewed the branch’s role in performing public works projects, including special repairs, and its process for completing these projects. We did not note any areas of concern related specifically to the division’s overall structure. However, as we explain in the Audit Results, we do believe there is a need for a staffing analysis in the building management branch.

  • We also reviewed an external evaluation of the division’s structure completed in 2006, as well as an internal report regarding the division’s reorganization that occurred in 2012 and 2013.
3 For a selection of project requests made by state agencies since 2011, assess the effectiveness of the division’s applicable processes, policies, procedures, and practices for the following:  
a. Determining the scope and timeline of the projects, including whether the projects were completed within estimated time frames.
  • Because the division does not consistently track project time frames in General Services’ Activity Based Management System (ABMS), the data were insufficient to identify projects based on the date the project was requested. Therefore, we judgmentally selected 24 projects active between January 1, 2011, and June 30, 2015. Although the Joint Legislative Audit Committee asked us to specifically review capital outlay projects, we also included support‑funded projects, including tenant improvements and special repairs, to ensure that we selected the types of construction projects cited in the audit request. To select our test items, we weighted our project selection based on the relative proportion of the division’s work performed by each branch. The project management branch had a significantly larger number of construction projects; thus, we weighted our selections more heavily for that branch. Further, we included a State Board of Equalization project, as the audit request raised a specific concern regarding that project.

  • We interviewed division management and reviewed applicable documentation to gain an understanding of the division’s process for determining the project scope and estimated time frames.

  • For our selection of 25 projects, we performed the following:

    • Compared the original estimated project time frames, if available, to the actual time frames for each phase and determined whether the division completed the phases and overall projects within its original estimated time frames.

    • Interviewed division staff, including project managers, and reviewed available project documentation to attempt to identify the primary reasons for any delays and to determine whether the projects with delays had any common factors primarily contributing to the delays.

  • We developed and conducted a client agency survey of those entities whose projects we reviewed. The survey inquired about various aspects of the project lifecycle, including the division’s communication with the client agency regarding project time frames.
b. Estimating the costs of the projects. To the extent possible, determine whether the projects’ design and construction costs are comparable to those costs on similar private sector projects and determine the reasons for any differences.
  • To assess the division’s processes for estimating costs for each of the projects selected in Objective 3a, we performed the following:

    • Obtained cost estimates from branch staff and reviewed each branch’s approach to deriving cost estimates.

    • Compared initial estimated project costs, if available, with actual project costs for each phase.

    • Reviewed available project documentation and interviewed project managers to attempt to determine the primary reasons variances existed between any initial cost estimates and the actual project costs.

  • To determine if the projects’ design and construction costs are comparable to those in the private sector, we performed the following:

    • Reviewed laws and regulations to identify reasons for cost differences between public and private sector construction projects.

    • Interviewed management in each of the three branches to determine if they had conducted analyses of their costs compared to those of private firms conducting similar work. The project management branch was the only branch that had conducted such an analysis.

    • Reviewed the project management branch’s analysis of the hourly rate it charges client agencies for design, project management, and construction management to private firms it has contracted with to provide architecture and engineering services. As described in the Audit Results, we determined this analysis is inadequate.

    • Conducted our own analysis of the project management branch’s hourly rate, after excluding administrative and most overhead costs, compared to those of two private firms’ contracts the branch had on retainer during fiscal year 2014‑15 that contained the most comparable positions as those included in the branch’s hourly rate.

    • We focused our review on the project management branch’s hourly rate because the branch had a significantly larger number of construction projects than the other two branches, and thus the effect of noncompetitive hourly rates would be greater. Furthermore, unlike the other two branches, the project management branch maintains retainer contracts with private firms that conduct similar work for the State, allowing us to conduct such an analysis.

    • Used the responses from our client agency survey discussed in Objective 3a to understand their experiences working with the division, including their perspective regarding various aspects of the project lifecycle, such as project costs, and their experiences, if applicable, using private contractors in lieu of the division.
c. Communicating with the requesting agencies, project construction personnel, and other General Services and division staff about the projects including, but not limited to, project time frames, change orders, and revised costs. For change orders, determine who is notified about change orders and who approves them.
  • We used the client agency survey discussed in Objective 3a to ask client agencies about various aspects of the project lifecycle, including the division’s communication of project time frames, project costs, and billing practices.

  • For each selected project that included change orders, we performed the following:

    • Selected two change orders from each project and verified that they received approval from the project manager.

    • For selected change orders, we reviewed project documentation to determine whether the project manager communicated these change orders to the client.

  • According to division management, the division typically communicates time frame delays and cost changes with other divisions of General Services only as needed during the course of a project because they do not receive ongoing support as it relates to project delivery from other sections of General Services.
d. Billing the requesting agencies for the project costs. Specifically, determine whether the bills or invoices the division provides clearly reflect the work for which agencies are being charged.
  • We interviewed branch managers to determine the billing practices for each branch.

  • We interviewed branch managers to determine the reasons why the project management branch and the construction services branch do not provide bills or final cost breakdowns to the client agencies.

  • As part of our client agency survey, we also included questions related to billing.
4 Determine what proportion of requested projects is completed by the division within estimated time frames. Determine whether a backlog of requested services exists at the division and, if so, the reasons for that backlog.
  • We attempted to review ABMS data to determine the timeliness of all projects that the division has completed since January 1, 2011, and to identify the number of projects requested since January 1, 2011, that were not completed as of June 30, 2015. Because of the significant concerns we had about the data that we describe in Table 5 and in the Audit Results, we concluded that ABMS did not contain the necessary data that would enable us to conduct a review of its entire project population to determine the proportion of projects completed on time or whether a backlog of requested projects existed.
5 Determine whether the division has sufficiently and properly trained personnel to effectively meet the goals set by the division.
  • We reviewed the division’s 2014 through 2018 strategic plan to identify the division’s goals and objectives.

  • We interviewed key staff and reviewed available training materials from each branch to determine what, if any, training staff receive related to project delivery.

  • We reviewed certificates of registration for five engineers and five architects to ensure that their certificates were in good standing. We did not identify any issues.
6 Review and assess any other issues that are significant to the audit.
  • We reviewed six construction‑related contracts and one architecture and engineering services contract to ensure that General Services followed selected contracting requirements. We identified one instance where General Services could not provide evidence that it notified the Department of Industrial Relations of a public works contract requiring the payment of prevailing wage, as specified in state law. After we brought it to its attention, General Services has since revised its procedures and implemented a tracking log to ensure it always provides this notification.

  • We interviewed division management about job order contracting to determine whether the division believed this contracting method would be beneficial. We also reviewed the Legislative Analyst’s Office’s report, The 2015–16 Budget: Addressing Deferred Maintenance in State Office Buildings, issued in March 2015, that recommended the Legislature provide General Services with the authority to use job order contracting for certain types of maintenance projects. Finally, we interviewed officials from the Los Angeles Unified School District, the University of California Office of the President, and the California State University Office of the Chancellor, each of which have implemented job order contracting, to determine the benefits and challenges of such a contracting process.

Sources: California State Auditor's analysis of the Joint Legislative Audit Committee's audit request number 2015‑117, and information and documentation identified in the table column titled Method.

Assessment of Data Reliability

In performing this audit, we obtained electronic data files extracted from the information system listed in Table 5. The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of the computer‑processed information that we use to support our findings, conclusions, or recommendations. Table 5 describes the analyses we conducted using the data from this information system, our methods for testing it, and the result of our assessment.

Table 5
Methods Used to Assess Data Reliability
California Department of General Services (General Services)

Activity Based Management System (ABMS)

General Services’ project time frames as of August 2015
Make a selection of projects active between January 1, 2011, and June 30, 2015. This purpose did not require a data reliability assessment. However, we attempted to validate the completeness of the universe from which we made our selection. We found that General Services’ Real Estate Services Division does not consistently track project time frames in ABMS and currently has no mechanism to obtain a global view of the status of its projects. We discuss this limitation in the Audit Results. Not complete

Sources: California State Auditor’s analysis of information and data obtained from General Services.


1 According to the division’s principal architect, if a client agency wishes to undertake a project with a total cost not exceeding $281,000, it may do so without permission from the division. However, for most client agencies, if the total project costs are between a specified threshold, $281,000 and $634,000 for 2015, the client agency needs to obtain delegated authority from the division to undertake those projects with minimal division oversight. If a project exceeds $634,000, the client agency is not eligible to obtain delegated authority to undertake those projects unless allowed by statute. Go back to text.

2 The building management branch uses a separate data system to track building maintenance than the one we discuss in the Audit Results. Go back to text.

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