Denver International Airport’s planning and development division, which oversaw $93 million in construction projects last year, is ripe for being ripped off by unscrupulous contractors thanks to loose oversight, according to a scathing audit released by the city and county this week.
“Our review identified a culture within the division that permits inadequate change order practices resulting from a relaxed control structure,” auditor Dennis Gallagher wrote in the cover letter for the report.
“A loose system of change order controls can result in an increase in the price of a contract without adequate justification or documentation,” Gallagher continued. “Allowing an initial low bid award, followed by a price increase, can make the contract price higher than other bid prices.”
In other words, those slack controls may lead to situations where contractors intentionally lowball their bids, knowing that they can increase their costs through change orders once a project is underway.
Auditors reviewed five construction projects that had 29 change orders, and found that those changes resulted in a net $3.8 million increase to the projects’ bottom lines.
“One of the project’s change orders increased the total project cost by 89 percent and another by 63 percent,” the report notes. “Best practice indicates that change orders should not account for more than 20 percent of a project’s total cost.”
Change orders are common in construction, representing a request by the contractor to change the scale, scope or timetable of their work due to unforeseen circumstances, usually at a higher cost to the project. Change orders should be directly related to the work specified in the original contract.
But the audit found that Denver International Airport (DIA) officials have allowed contractors to issue change orders for work that should have been done under new contracts, which would requiring outside review and approval, as well as a bidding process.
For example, a contractor working on construction of a lobby project at the airport’s office building issued a $66,000 change order to be paid for separate work on a maintenance vehicle bus wash project that had nothing to do with the office building.
Another change order for $650,000 bundled a heating, ventilation and air conditioning project at the office building into an existing contract for unrelated work. Had this work been done under a new contract, as required, it would have first needed City Council approval, since it cost more than $500,000.
While this practice might save time, it opens the door for fraud, the report warned.
“This practice circumvents the City’s contracting process,” the audit read. “When a change order is used instead of initiating a new contract, transparency of the project is reduced.”
DIA officials were cooperative with auditors and, according to the Denver Post, willing to tighten their controls. That includes the airport hiring an oversight manager with experience in construction but who will answer to the audit committee.
“There’s no fraud in our agency, but this helps prevent that,” DIA manager of aviation Kim Day told the Post.
The audit is a prologue to another that will look at an even bigger airport project, the $544 million South Terminal Redevelopment Project, which will add a 500-room hotel, an outdoor plaza and a train station onto DIA’s iconic peaked-tent main terminal.
The airport’s planning division doesn’t oversee this project, which has been underway since 2011.
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