Draft audit finds faults with Newport Civic Center project, including possible overbilling

The city of Newport Beach may have been overbilled by $1.2 million for its Civic Center project, according to preliminary audit results presented to the City Council on Tuesday.

The council hired R.W. Block Consulting and Harris & Associates in 2015 to comb through a sample of about 800 change orders and to review construction practices on the project to find out how the price tag on the new City Hall grew to $140.2 million from about $105 million between the start of construction in 2010 and the Civic Center's opening in May 2013.

The draft audit identified roughly $1.2 million in payments made to project manager and lead contractor C.W. Driver without substantiating documents, said Allyson Gipson, vice president of Harris & Associates, which managed the audit process.

The final draft of the audit could be completed as early as August.

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The City Council on Tuesday voted 4-3 to file the preliminary audit and direct City Attorney Aaron Harp to approach Pasadena-based C.W. Driver to seek reimbursement for the payments. Council members Keith Curry, Tony Petros and Ed Selich dissented.

Gipson said incomplete financial documents and missing monthly reports for the project may have caused the possible overbilling.

C.W. Driver told the auditing firm it had provided all the documentation for the Civic Center project that it had on file.

"The lack of clear financial record-keeping on the part of the city and the project manager [C.W. Driver] made the review that much more difficult," the draft audit states.

A representative of C.W. Driver declined to comment Wednesday.

Curry said the $1.2 million is a very small portion of the entire cost and that the council should give C.W. Driver time to respond to the audit and perhaps produce documentation that would justify the billings.

"Before we send our lawyers off, let's let staff and C.W. Driver react and answer questions," Curry said.

The draft audit identified some positive aspects about the project, including that all contracts appear to comply with legal and industry expectations and that the city received good value for the Civic Center parking structure, with costs within industry standards for the time period.

However, the draft points out a lack of detail in processing change orders, missing documentation from invoices, inconsistencies in project reports and a lack of budget clarity throughout the project.

The auditors were critical of city staff for not establishing a process to track the project through design and construction, which led to inadequate oversight and budget and time overruns, according to the report.

The draft audit concluded that city staff provided little guidance to the architect, Bohlin Cywinski Jackson, and to C.W. Driver for approving changes to the project's scope and costs.

"Record keeping on the nature of changes and the approval process is sparse at best," the report states.

The draft also indicates that a less-than-comprehensive set of architectural design documents, which led to the need to correct errors throughout construction, may have contributed to the increased cost.

The audit also criticizes the city's decision to hire C.W. Driver as the program and construction manager. Typically, the program manager would act as the city's representative on a project to protect its interests, while the construction manager generally focuses on its own financial results.

"In this case, the [program manager] failed to adequately document, manage, address and control cost-related issues," the report states. "This failure is further exacerbated by the inherent conflict of interests when one firm serves as both the program manager and construction manager at risk."

When the Civic Center project originated in 2005, city officials planned to redevelop the existing City Hall site at the entrance to the Balboa Peninsula at a projected cost of about $49 million.

But the project eventually moved to the more upscale area of Newport Center, where construction on the new complex began in 2010 off Avocado Avenue at 100 Civic Center Drive.

Costs swelled as the scope of the project expanded, eventually including a 17,000-square-foot expansion of the Central Library, a 14-acre park, a pedestrian bridge over San Miguel Drive and a 450-space parking structure.

At a cost of $140.2 million, some residents had a case of sticker shock.

Mayor Diane Dixon, Mayor Pro Tem Kevin Muldoon and council members Scott Peotter and Marshall "Duffy" Duffield were elected in 2014, running on a platform of fiscal responsibility as some of the project's harshest critics.

When they took their seats in January 2015, city staff provided a look into the construction project and posted change orders and other documents on the city website.

Dixon and Muldoon called for a deeper review of the project by an outside firm, saying it is common for large projects to undergo audits after they have been finished.

The audit request followed a city inquiry into whether former Assistant City Manager Steve Badum failed to report gifts from companies doing business with the city, including C.W. Driver.

The Orange County district attorney's office announced in August that it had found no evidence of criminal wrongdoing by Badum.

Dixon said the purpose of the audit was not to "play the blame game" but to look for ways to improve the city's oversight and procedures for future projects.

"The report has identified clear problems with the city's oversight," she said. "All of this is ripe for opportunity for improvement."

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Hannah Fry, hannah.fry@latimes.com

Twitter: @HannahFryTCN

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