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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

Summary

HIGHLIGHTS

Our audit concerning the California Department of General Services’ Real Estate Services Division’s (division) planning and completion of construction projects revealed the following:



Results in Brief

The California Department of General Services’ (General Services) Real Estate Services Division (division) controls 58 buildings statewide. The division provides various real estate and property management services for most state departments and agencies, including maintaining state buildings, managing and designing various construction projects, performing construction inspections, and providing construction services deemed to be of an urgent nature. The division is composed of four branches—Asset Management, Project Management and Development (project management branch), Building and Property Management (building management branch) and Construction Services (construction services branch)—each of which is responsible for a distinct array of the division’s services. For example, the project management branch is responsible for delivering capital outlay projects and providing architectural and engineering services, while 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.

Our audit revealed that the division exceeded the initial time frames it established for the majority of the projects we reviewed. Specifically, of the 25 projects we reviewed, which were active between January 1, 2011, and June 30, 2015, we identified 17 for which the division exceeded estimated time frames and an additional four for which it did not establish time frames. When we interviewed division staff and reviewed available project documentation, we noted that in some cases, the division may have been able to prevent certain project delays. For example, we noted that in seven of the projects we reviewed, the project management branch overlooked key features in the projects’ planning or design. In one instance, General Services—which owns the building—requested that the project management branch renovate the interior and exterior of the State Library and Courts building. Initially, the project management branch planned to perform the construction in phases in order to maintain occupancy of the building. However, a detailed analysis of the building’s infrastructure systems was later performed and it was determined that maintaining occupancy was not feasible, and thus General Services had to seek approval from the Department of Finance to relocate the tenants, adversely affecting the project schedule. Had this type of analysis been done to inform its initial project schedule, the project management branch could have developed a more accurate time frame estimate.

Similarly, we found that project costs frequently exceeded the division’s initial estimates. Of the 25 projects we reviewed, we found that the division prepared complete cost estimates for only 19, and of those 12 exceeded the division’s initial cost estimate. In the example with the largest difference, we found that the project management branch spent roughly $115 million more than its initial estimate of about $118 million for the construction of a veterans’ home in West Los Angeles; however, this cost overage was primarily due to changes in the project’s scope requested by the client agency. Further, of the seven projects that exceeded initial cost estimates by 10 percent or more, one overage occurred primarily because of deficiencies in the design of the project. In particular, the project management branch’s costs associated with the construction of a new area office in Oakhurst for the California Highway Patrol primarily increased due to inadequacies in the contractor’s design for a communication tower.

We asked client agencies about whether they had any concerns regarding time frames and costs as part of our survey of client agencies associated with the projects we reviewed. Several expressed that they had concerns about both the time frames and the costs of their projects. Further, five of the client agencies reported that their operations were adversely affected because of these delays or cost overages. For example, the California Department of Transportation reported that the project management branch’s renovation of one of its existing buildings, which took two years longer to complete than originally estimated, affected employee morale, increased rental costs, and created additional workload for its headquarters’ administrative staff.

Without centrally tracking the reasons for delays and cost overages, the division cannot readily identify the number and frequency of delays due to design deficiencies, planning inadequacies, site conditions, or other common factors, nor can it determine whether it should alter its project management practices accordingly. Because the branches lack procedures for identifying and tracking project status, including the reasons for time delays or cost overages, the division generally relies on the project managers to answer division management’s questions related to the status of individual projects as needed. This issue is not new. In fact, this deficiency was brought to the attention of the division roughly 10 years ago; however, the division still lacks a system to centrally track key data related to its projects. Further, although the project management and construction services branches assert they do not have a backlog—projects that have never begun or are unnecessarily on hold—both were unable to prove this assertion because they do not centrally track the required data. Additionally, the building management branch explained that it does have a backlog of projects, but its data do not distinguish construction projects from other projects, such as maintenance. Thus, this branch could not demonstrate whether it had a backlog of construction projects. Given the frequency with which the division exceeded its original time frames for the projects we reviewed, it is reasonable to conclude that other projects were not able to begin on time, which is one definition of a backlog.

Division management explained that it does not centrally track adequate project information because its current data system was designed to track project costs and was not intended to be a project management tool. However, since its initial implementation of the system, the division has added functionality that would allow it to track the appropriate data, yet it had not considered using the system for this purpose until we brought it to the division’s attention during the course of our audit. Division management indicated that it is in the process of implementing a new project management system through a statewide initiative, with an anticipated launch date of July 2017. The division has contracted with a consultant to assist the division in implementing this system, making recommendations to the statewide project team to ensure the system meets the division’s needs and provides it with the capability to implement our recommendations, and developing an implementation plan.

During our audit we identified a contracting method, known as job order contracting, that we believe could ultimately reduce project time frames and costs for certain types of projects. Currently, the division must conduct competitive bidding for its construction contracts except under limited circumstances authorized by state law. When the division uses competition to award a contract, it must award it to the lowest responsible bidder. However, this may not be the most efficient option for the division’s smaller, frequently repeated types of construction projects. Instead, for those types of projects, the division could benefit from job order contracting that would allow it to seek competitive bids for predetermined types of jobs to be performed in the future. According to several public educational entities in the State that use job order contracting—including the University of California Office of the President—this method has resulted in both time and cost savings.

Further, our audit noted that the budgets of 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—managed by the project management branch include costs relating to planning, project management, design, review, inspection, and administrative services. Many of these costs are charged through an hourly rate to client agencies and can drive up the cost of projects. Specifically, the hourly rate the project management branch charges for its design, project management, and construction management services is much higher than the comparable rates of private sector firms conducting similar work for the State. In fact, the project management branch conducted a rate analysis dated February 2015 and concluded that administrative and overhead costs largely contribute to the project management branch’s higher hourly rate, which was $182 for fiscal year 2014–15, or $46 more than the $136 average hourly rate of 26 private firms that conduct similar work for the State. However, neither the project management branch nor the division has conducted an adequate analysis to fully explain the reasons for this difference. The project management branch’s analysis contemplates that by adjusting its method for recovering administrative costs from its client agencies whose work it outsources to private firms, it could reduce its hourly rate by $9. However, this leaves a $37 per hour difference between the two rates that the project management branch could not explain. Without conducting such an analysis, the division cannot ensure that the project management branch’s rates remain competitive for its clients and that the project management branch is providing the State with the best value.

Our audit also found that the division could improve its approach for communicating project status to client agencies. The division does not establish clear expectations for how its project managers should communicate changes in project costs and time frames to its client agencies and other stakeholders. Instead, it provides each project manager with the discretion to establish individual communication plans based on the level of contact desired by the client agency and the level of technical expertise within the client agency. To understand how this practice affects client agencies, our survey included questions regarding client satisfaction that revealed areas where the division could improve its communication methods. For example, the California Highway Patrol recommended that division staff respond to client questions in a timely manner, while the California Department of Insurance suggested that division staff set up regularly scheduled meetings to keep customers updated and projects moving forward.

Finally, we found that the division has not developed adequate goals or meaningful metrics by which to measure its progress in delivering projects on time and within budget, which is of particular concern given that the division frequently exceeded estimated time frames and costs for the projects we reviewed. Because it has not done so, the division is missing a key opportunity to obtain information critical to developing effective training for its staff. Thus, it is not surprising that we found the training that the division’s two largest branches—project management and building management—provide to staff is largely inadequate and infrequent. Further, the limited training it does offer is generally not focused on the timely and effective delivery of projects. Without a formal training program that incorporates mechanisms to evaluate the division’s project management processes, identify any gaps that require improvement, and provide the needed training related to project delivery, we question how the division can claim that its staff are adequately trained.



Recommendations

Legislature

To improve efficiencies and reduce some costs for less complex and easily repeatable projects, the Legislature should authorize the division to create and implement a pilot program for job order contracting for appropriate projects. The division should report to the Legislature on its progress within two years of implementing the pilot program, including, at a minimum, information regarding the time and cost savings the pilot program provided the State.

To improve efficiencies and reduce some costs for less complex and easily repeatable projects, the Legislature should authorize the division to create and implement a pilot program for job order contracting for appropriate projects. The division should report to the Legislature on its progress within two years of implementing the pilot program, including, at a minimum, information regarding the time and cost savings the pilot program provided the State.

Division

To ensure long-term efficient and effective delivery of projects, the division, in its planned implementation of its new project management system in July 2017, should do the following:

Until the division implements its planned project management system, it should, by September 2016, develop a process to, at a minimum, identify project status and reasons for project delays as well as cost overages. Using these data, the division should evaluate and modify its project management processes to ensure the efficient and effective delivery of projects.

To ensure that the project management branch charges its client agencies a competitive hourly rate, by December 2016 and every two years thereafter, the division should conduct a rate analysis that fully accounts for differences between the project management branch’s rate and private firms’ market rates. If the division finds that the rates are not competitive, it should identify and implement strategies to ensure that the project management branch’s rates are as competitive as they can be with those of its private firm counterparts.

To improve its communication with client agencies, at a minimum the division should ensure that project managers are using consistent procedures by providing specific expectations related to communicating and documenting time delays, cost changes, and change orders.

To effectively evaluate the performance of its branches in delivering projects, the division should develop meaningful goals and objectives and a method of measuring its success in achieving them as part of its strategic plan that is focused on ensuring that projects are delivered on time and within budgeted cost estimates.

To ensure that its project management staff are adequately trained and have the information necessary to deliver projects as efficiently and effectively as possible, the division should develop and implement by December 2016 a periodic training program for staff within its project management and building management branches. This training program should include updated information that reflects any processes it revises based on its review of critical project status data and its progress toward meeting its goals.



Agency Comments

General Services agreed with our recommendations and indicated that it plans to take various actions to implement them.



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