Audit Criticizes DWP Office Construction Spending

A construction contract for a Department of Water and Power office building in Sun Valley ran $5.4 million over a budget of $27.5 million due largely to the utility’s decision to start work before final plans were finished, according to a critical audit released Monday.

“The ratepayers of Los Angeles deserve better,” said Los Angeles City Controller Rick Tuttle.

But DWP officials said the entire project came in on budget at $62 million, and claimed that the utility saved another $10 million by speeding construction.

Tuttle’s findings were issued only days after the city settled a 9-day strike by unions representing 11,000 DWP workers by granting them a 9% pay hike over 4 years.

In July, Tuttle forced the DWP to accept a sweeping audit of its $500 million-a-year outside contracts. An audit firm is to be selected soon.

“We remain concerned that the system of contract management at DWP is flawed,” Tuttle said in a prepared statement Monday.

The dispute centers on how well DWP oversaw the construction of the Anthony Office Building, a four-story structure housing 1,500 workers, at 8501 Arleta Ave.

The speed-up, or “fast-tracking,” of the contract with Irvine-based McCarthy Western Constructors Inc. for the second phase of the office building was the focus of Tuttle’s criticism.

The project was begun in July, 1990, and was completed in August, 1992--about two months behind schedule.

“The fault of the high costs is the DWP’s, not the contractor’s,” said controller press deputy Tim Lynch. “It was built as if money were no object.”

According to the audit, the second phase contract involved over-runs of $6.8 million--or $5.4 million more than the $1.3 million set aside for such contingencies. The original contract was for $27.5 million, but $34.3 million was paid to complete the building.

Tuttle blamed the overruns on the utility’s efforts to fast-track construction by starting work before final plans were finished. As a result, 29 costly adjustments were needed as the plan for the building evolved and changed.

For example, Alfredo Sinson, the head of Tuttle’s audit team, said unnecessary costs were incurred when previously constructed walls had to be demolished and wiring and plumbing revised.

Fast-track construction should not be used unless it can be “cost justified,” Tuttle’s audit concluded.

The audit also found that when changes were ordered, the contractor was not first asked to specify how much the changes would cost or how long they would take to complete. Such a procedure was required by the contract but not invoked by DWP until 23 change orders had been processed, according to the audit.

In a separate finding, the audit also disclosed that DWP “unnecessarily” incurred $60,956 in costs when the contractor had to stop work to wait 14 days for utility officials to obtain a required building permit. “That was inexcusable,” Lynch said.

The DWP’s Tanaka said the audit was “an example of second-guessing” by auditors of practices that are common and acceptable in the construction industry.

“It is very common in the fast-track process to have change orders,” Tanaka said. “And we believe the change orders were appropriate for this project.”

Tanaka said the total project not only came in on budget of $62 million but that the DWP saved another $10 million by speeding up construction.

If the building had not been fast-tracked, DWP officials would have had to lease temporary quarters for the 1,500 Sun Valley employees at a cost of $5 million. These employees previously worked in DWP offices downtown that were being vacated to permit remodeling. In addition, DWP saved $5 million in construction interest costs by finishing the Sun Valley project early, Tanaka said.