March 3, 2016 Mr. Daniel Grabauskas, Executive Director and Chief Executive Officer Honolulu Authority for Rapid Transportation (HART) City and County of Honolulu 1099 Alakea Street, 17th Floor Honolulu, Hawaii 96813 Dear Mr. Grabauskas: City Council Resolution 15-90 requested a performance audit of the Honolulu Rail Transit Project to determine the adequacy of the Honolulu Authority for Rapid Transportation (HART) processes to ensure that the rail project is constructed and completed economically, effectively and efficiently. Per the resolution, the audit sub-objectives were to examine the HART financial and contingency plans; contract awards, expenditures, and subcontractor costs; and evaluate the project cost increases and shortfalls. Other sub-objectives were to review rail project revenues and expenditures from 2007 through 2014; determine when HART was aware of the financial shortfalls; and to assess the potential for additional cost overruns. The resolution requested our office to evaluate the potential continuing costs after the project is completed and operational. This audit was performed in accordance With generally accepted government auditing standards from July 2015 to January 2016. Background The city voters approved a fixed guideway system for the City and County of Honolulu in 2008 and approved an amendment to the city charter in the 2010 general election that established the Honolulu Authority for Rapid Transportation (HART). HART was formed on July 1, 2011. HART is a semi-autonomous agency of the City and County of Honolulu government. HART is responsible for completing a 20 mile fixed rail system that will run from Kapolei in the Western and of the city to Ala Moana Shopping Center. Despite having a goal of completing the project on time and on budget, HART project costs have increased $1.3 billion (20 percent) from the original estimate of $5.2 billion to an estimated $6.5 billion. Project construction started in 2012. The project was originally to be completed by January 2020 with interim rail service beginning in June 2016 and full service starting in March 2019. Project delays and recent estimates indicate rail service will not begin on time and may be delayed to late 2018 for interim service and late 2021 for fuli service operations. Audit Results HART knew as early as 2012 of the potential budget shortfalls due to increasing costs, but did not notify the city council of the shortfalls and cost increases until fiscal year (FY) 2015. processes can be improved to construct and complete the project more economically, effectively, and efficiently. Specifically, we found that financial and subsidiary plans are not reliable or current; and financial plan has not been updated to reflect the rail project?s most current financial condition in spite of the significant cost increases. HART needs to strengthen its controls over financial information reporting to ensure data is complete and readily available from its Contract Management System; delay claims are adequately tracked, monitored, and reported; and pending utility agreements, contingency allowance figures, and GET county surcharge receipts are complete and accurate. Project management and contract administration controls can be improved. More specifically: Project Management Plan (PMP) and Operations and Maintenance Plan (0MP) are outdated and unreliable as decision?making tools. HART made concessions to a single contractor; did not perform quantitative analysis to justify a major decision to repackage a bid for 9 stations in the Westside Stations Group; and paid $1.5 million in stipends to unsuccessful bidders without knowing the bidders? actual costs. HART is also paying for vacant office space. Contract administration controls need to address invoice payments, procurement file documentation, and to prevent improper payments. Better planning is needed to address and manage future rail project costs. Subsidies will be needed to fund rail operations and maintenance costs after the rail is constructed. HART needs to improve planning and oversight to effectively address and manage future operations and" maintenance needs; maximize fare box recoveries and ridership; and minimize city subsidies. Absent the improvements, we anticipate additional cost overruns will occur. More specifically, project cost estimates, details, methodologies, and cost assumptions are unsubstantiated, and project managers are not managing actual costs against their budgets. Administrative Matters Our attached draft report is a discussion draft and contains several recommendations for improving HART operations. We will be meeting with the offices of HART, BFS, and the Managing Director to discuss the draft report. Based on the inputs, we anticipate revising the draft report. A revised, final draft report will be sent later with a request for a written management response. We would appreciate your response to our discussion draft report by March 21, 2016. Your response may be written or sent via e-mail. We express our appreciation for the cooperation and assistance provided us by the staffs of HART, its contractors, the Office of the Managing Director, the Department of Budget and Fiscal Services, and the many others who provided inputs for this review. We are available to meet with you and your staff to discuss the tentative review results and to provide more information. If you have any questions regarding the audit report, please call the auditor~in~charge, Amy Cheung at 768-9233 orme at 768-3130. Sincerely, Edwin S. W. Young City Auditor 0: Roy Amemiya, Managing Director Nelson Koyanagi, Director, Budget and Fiscal Services Director Diane Arakaki, Chief Financial Officer, HART AUDIT OF THE HONOLULU AUTHORITY FOR RAPID TRANSPORTATION (HART) DISCUSSION DRAFT REPORT CHAPTER 1: INTRODUCTION AND BACKGROUND 1 Introduction 1 Background 1 The Honolulu Rail Transit Project 2 Project schedule 3 Funding sources 3 Audit objectives, scope and methodology 4 Audit results 5 CHAPTER 2: HART NEEDS TO IMPROVE FINANCIAL MANAGEMENT AND PLANNING 8 Background 3 HART was aware of potential shortfalls as early as 2012, but it did not alert the city council until FY 2015 9 processes can be improved to more economically, effectively, and efficiently report project costs . 12 Financial and operating plans are not regularly updated. 12 Reliable and consistent project cost information is lacking 14 Project cost estimates lacked supporting documentation 16 Delay claims and related costs were not updated or supported 17 HART lacked support for $120 million in utility cost in creases 18 $130 million in estimated cost overruns for project enhancements were not supported 19 Escalation cost estimates -_were not calculated by using a specific factor 20 HART underestimated GET county surcharge receipts 20 Improved Financial Management and Planning Are Needed 21 Recommendations 21 CHAPTER 3: HART NEEDS TO IMPROVE PROJECT MANAGEMENT AND CONTRACT ADMINISTRATION 22 Background 22 Additional cost overruns and shortfalls are likely 23 Contingency increases contributed greatly to the cost overruns because HART underfunded its contingency in 2012 . 25 Cost controls were insufficient to control cost increases 27 Updating the project management plan (PMP), including the subsidiary plans, was never made a priority I 27 Waiver concessions were made Cost estimates and potential savings were lacking in the decision to repackage the Westside 29 Stations Group 29 HART paid $1.5 million to unsuccessful bidders without documenting their actual costs. m?m 31 HART is paying for vacant office space 31 Contract administration needs to be improved 32 Contract administration policies and procedures were incomplete and outdated 33 Contract administration roles and responsibilities were confusing 33 Contract ?les had missing documentation 33 Conflicts of interest statements were missing 34 Disqualified contractor check were missing 34 Invoice payment procedures do not address all contract types 34 Invoice payments had unsupported and unallowable costs 34 Recommendations 35 CHAPTER 4: BETTER PLANNING IS NEEDED TO ADDRESS AND MANAGE FUTURE RAIL PROJECT COSTS 36 Background 36 HART needs to plan for annual operations and maintenance of the rail system - Other rail systems indicate annual and ongoing. operations and maintenance costs must be addressed. 37 Subsidies will be needed to fund rail operations and maintenance costs 37 HART needs to improve planning to maximize fare box recoveries. 39 HART needs to improve pianning to maximize ridership. 4O HART needs to fill a critical operations and maintenance position. I 42 Recommendations 42 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 43 Recommendations 44 MANAGEMENT RESPONSE 46 APPENDIX A GLOSSARY OF ACRONYMS 47 APPENDIX - GLOSSARY OF TERMS AND DEFINITIONS 48 APPENDIX CONTINGENCY BALANCE 53 APPENDIX GET RECEIPTS APPENDIX CAPITAL COSTS COMPARISON APPENDIX PROCUREMENT DOCUMENTATION FILE APPENDIX CITY COUNCIL RESOLUTION 15-90 55 57 58 59 Audit of HART Chapter 1: Introduction and background Introduction This audit was conducted pursuant to City Council Resolution 15?90, Requesting the City Auditor to Conduct a Performance Audit of the Honolulu Rail Transit Project to determine the adequacy of the Honolulu Authority for Rapid Transportation?s (HART) processes to ensure that the rail project is constructed and completed economically, effectively and efficiently. Per the resolution, the audit sub-objectives were to examine the HART financial and contingency plans; contract awards, expenditures, and subcontractor costs; and evaluate the project cost increases and shortfalls. Other sub-objectives were to review rail project revenues and expenditures from 2007 through 2014; determine when HART was aware of the financial shortfalls; and to assess the potential for additional cost overruns. The resolution requested our office to evaluate the potential continuing costs after the project is completed and operational. Background HART was established in July 2011 by a charter amendment, after the voters approved a fixed guideway system in 2010. HART?smiSSion is to plan, design, construct, operate, and maintain Honolulu?s high-capacity, fixed guideway rapid transit system. HART is governed by a 10-member- board consisting of three members appointed by the mayor, three members appointed by the city council, three ex~offici0 members, and one member appointed by the board. Board members serve five?year staggered terms and are not compensated during their terms. The board meets and establishes overall policy for'developing, operating, and maintaining the public transit system. In 2012, the board appointed a chief executive officer (CEO) to manage and provide leadership to HART. Page [1 Exhibit 1.1 HART organization chart HONOLULU AUTHORITY FOR RAPID TRANSPORTATION HART BOARD OF DIRECTORS I EXECUTIVE Exacme DIRECTOR n. CEO .I STATE OVERSIGHT PROGWWMIIGER ..-I teem. co mam I I soar-Iceman counsa. I SENIOR :Lanm PRIVATE SECRETARY I .. RECEFTTIUNIST DEPUTY EXECUTIVE I .. DIRECTOR I 1 I I 1 PROJECT nnkecron Prawan SECRETARY mess-ran or spam SECRETARY PROJECTS coma-r ON PLANNING. now? WI. I DESIGN AND conamuc'nON PROJECT CONTROL-5 AND ORANGE AND RIGHT OF WAY DIRECTO OI. FARE SYSTEM PROJECT I or DESIGN mi: PROJECT comma . DIRECTOR or ecu-ram DIRECTOR OF PLnunIms. PROCUREMENT ?In ER I Ocus?rnucrlou ADMINISTRATIDN mo PERMITTINGAND I CONTRACTS I I I I I I mum. .- us AND QUALITY ASSURANCE SYSTEM SAFEWANO CIVIL mm ensue: DIRECTOR or amuw secumw DIRECTOR OF OPERATIONS :2 .- ASSURANCE MDQUNJTY -- CHIEF SAFETYMD . Ramon. . MammwaE .. commumcmous -- a?cunm same: Hear The Honolulu Rail Transit Project The $5.2 billion Honolulu Rail Transit Project (rail project) is the largest, most expensive public works project in the State of Hawaii?s history. The project is intended to mitigate traffic congestion between O?ahu?s east-west transportation corridors, and will consist of 21 stations that will connect the East Kapolei station to the Ala Moana Center station. Page [2 Exhibit 1.2 Map of the Honolulu fixed rail system Pear'lridg?'f i, r: Downtown? .- Civic Center Source: I II I Project schedule The project was originally to be completed by January 2020 with interim rail service beginning in June 2016 and full service starting in March 2019. Project delays and recent estimates indicate rail service will not begin on time and may be delayed to late 2018 for interim service and late 2021 for full service operations. Funding sources operational and capital costs for the project are funded through various federal, state, and local monies. Page 13 0 Federal funding comes from a $1.55 billion grant from the Federal Transit Administration (FTA) Section 5309 New Starts Fundi. As of November 27, 2015, HART received $472.5 million of the federal grant. 0 The State of Hawaii imposed a half percent General Excise Tax (GET) surcharge for the City and County of Honolulu to fund the project. The county surcharge was to expire on December 31, 2022. It has since been extended to 2027. The City and County of Honolulu will issue general obligation bonds (debt financing) to fund construction of the rail project. In November 2015, the city council approved legislation that enabled the city to issue up to $350 million in general obligation commercial paper to fund the public improvements and equipment related to the rail project. Audit objectives, scope and methodology City Council Resolution 15-90 authorized the City Auditor to conduct a performance audit of HART to determine the adequacy of its processes to ensure that the rail project is constructed and completed economically, effectively, and efficiently. The resolution asked for an examination of seven inter-related'areas. We organized the audit to address those areas through the following ._objectives: 0 Assess the reliability of financial information provided to government decision makers and the public about the project?s fiscal challenges. - Determine whether HART has a reasonable subsidy plan to fund future operational and maintenance costs. - Assess compliance of procurement and contract management practices for its contracts awards and associated expenditures. 0 Evaluate the project?s ?nancial viability and the likelihood of other factors that could potentially increase the project?s revenue shortfall and cost overruns. To meet our objectives, we reviewed applicable city, state, and federal laws, and rules and regulations. These included city and the State of Hawai?i procurement policies and procedures; FTA requirements; and contract and project management general guidance and best practices. We reviewed policies and procedures; and conducted interviews with key management, staff, and consultants to obtain information about current fiscal condition and financial plans for the future. We did not review the most current financial plan because it was being updated at the time of our audit. HART 1 The Federal Transit Administration New Starts program is the federal government's primary financiai resource for locally planned, implemented, and operated major transit capital investments. The New Starts program funds new projects and extensions to existing ?xed guideway transit systems in every area of the country. Page 14 referred us to the original 2012 Full Funding GrantAgreement (FFGA) financial plan and PowerPoint slides for project cost updates. We relied on information provided by HART. We examined records stored in the city?s Financial Management System (C2HERPS) and Document Management System (DocuShare); and Contract Management System (CMS). These records included budget documents from fiscal (FY) 2011 through FY 2015, annual financial statements, revenues and expenditures reportsz, and various correspondence for the period of July 1, 2007 through June 30, 2015 We assessed the reliability of financial information by tracing records in CZHERPS, CMS, and internal and external reports to source documents. Although we questioned the completeness and accuracy of some data, we relied on documents and reports provided by HART because they were the only information available at the time of our audit. These documents and reports included Full Funding Grant Agreement (FFGA) financial plan, the FFGA, current and past business plans, HART Progress Reports, Project Management OversightConsultant (PMOC) Reports from October 2011 through December 2015, HART Facts, HART board meeting minutes, and other correspondence. We did not test financial statement information, which is audited by independent auditors. On a test basis, we examined 25 construction and professional services contract files (including contract solicitation, bid, and award documents) based on contracts awarded as of June 22, 2015. The majority of the contracts we reviewed were awarded by HART using competitive sealed bidding, competitive seaied proposal, professional services procurement, or sole source procurement methods. We did not examine the procurement process as part of our review. We also selectively reviewed procurement file documentation. We conducted interviews with key staff and consultants to obtain an understanding of contracts and its invoice payment process. We also interviewed project managers who directly managed the contracts we reviewed. We examined, on a test basis, 50 construction and professional services invoices paid during the period of July 1, 2007 through June 30, 2015. For each invoice, we evaluated whether these invoices were properly reviewed and approved, adequately documented to support construction and consulting activities, and consistent with the contract terms before payment authorization. We also evaluated whether the payment practices complied with city policies and procedures, and if industry best practices were in effect during the audit period. We compared project cost management practices to best practices in the Project Management Institute's Guide to the Project Management Body of Knowledge (PMBOK Guide) with a focus on project cost management; the Government Finance Officers Association (GFOA) guidance on capital project monitoring and reporting; the U.S. Government Accountability Office's Cost Estimating and Assessment Guide and Schedule Assessment Guide. 2 The forecast reports were titled Forecast Costs by Contract with Detaiis. Page 5 We identified other localities that have design-build-maintain rail systems. Based on the availability of information, we compared forecasted and actual capital costs; operation and maintenance costs; forecasted and actual ridership data; subsidy sources; and farebox recovery rates with each capital project. We visited leased office space and calculated the office vacancy rate as part of our review of non-project costs. In 2012, the Office of the City Auditor issued an audit report, Audit of the Honolulu Authority for Rapid Transportation (HART) Public Involvement Programs, which identified several areas for improvements. The report stated HART routinely paid consultant and sub-consultant invoices despite minimal documentation; the agency?s CMS lacked sufficient data; and that consultant performance and work products were not formally monitored and evaluated. During the audit, we assessed whether these concerns were resolved. We performed this audit from July 2015 to January 2016 in accordance with Generally Accepted Government Auditing Standards (GAGAS). These standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We obtained evidence that provide a reasonable basis for our findings and conclusions based on our audit objectives. - Audit results Despite having a goal of completing the project on time and on budget, HART project costs have increased $1.3 billion (20 percent) from the original estimate of $5.2 billion to an estimated $6.5 billion. HART knew as early as 2012 of potential budget shortfalls due to increasing costs, but did not notify the city council of the shortfalls and cost increases until 2015. processes can be'improved to construct and complete the project more economically, effectively, and efficiently. Specifically, we found that financial and subsidiary plans are not reliable or current; and financial plan has not been updated to reflect the rail project?s most current financial condition in spite of the significant cost increases. HART needs to strengthen its controls over financial information reporting to ensure data is complete and readily available from its Contract Management System; delay claims are adequately tracked, monitored, and reported; and pending utility agreements, contingency allowance figures, and GET county surcharge receipts are complete and accurate. Project management and contract administration controls can be improved. More specifically: Project Management Plan (PMP) and Operations and Maintenance Plan (0MP) are outdated and unreliable as decision-making tools. HART made concessions to a single contractor; did not perform quantitative analysis to justify a major decision to repackage a bid for 9 stations in the Westside Stations Group; and paid $1.5 million in stipends to unsuccessful bidders without knowing the bidders? actual costs. HART is also paying for vacant office space. Contract administration controls need to address invoice payments, procurement file documentation, and to prevent improper payments. Better planning is needed to address and manage future rail project costs. Subsidies will be needed to fund rail operations and maintenance costs after the rail is constructed. HART needs to improve planning and oversight to effectively address and manage future operations and maintenance needs; maximize fare box recoveries and ridership; and minimize city subsidies. Absent the improvements, we anticipate additional cost overruns will occur. More specifically, project cost estimates, details, methodologies, and cost assumptions are unsubstantiated, and project managers are not managing actual costs against their budgets. Page [7 Chapter 2: HART Needs to Improve Financial Management and Planning Despite having a goal of completing the project on time and on budget, HART project costs have increased $1.3 billion (20 percent) from the original estimate of $5.2 billion to an estimated $6.5 billion. HART knew as early as 2012 of potential budget shortfalls due to increasing costs; but did not notify the city council of the shortfalls and cost increases until fiscal year (FY) 2015. processes can be improved to construct and complete the project more economically, effectively, and efficiently. Specifically, we found that financial and subsidiary plans are not reliable or current; and financial plan has not been updated to reflect the rail project?s most current financial condition in spite of the significant cost increases. HART needs to strengthen its controls over financial information reporting to ensure data is complete and readily available from its Contract Management System; delay claims are adequately tracked, monitored, and reported; and pending utility agreements, contingency allowance figures, and GET county surcharge receipts are complete and accurate. Absent the improvements, we anticipate additional shortfalls and cost overruns will occur. Background mission is to plan, design, construct, Operate, and maintain Honolulu?s high- capacity, fixed guideway rapid transit system. To fulfill its mission, HART is responsible for completing the project on time and within budget and ensuring the design and actual construction of the project will facilitate__the delivery of a safe, high quality, and cost- efficient service in the future. HART is also responsible for maintaining public trust through prudent and transparent use of financial, human, and environmental resources. Other HART responsibilities are to support the creation of mixed use, pedestrians friendly, compact development along the rail line; pursuing partnerships with the private sector to create economic opportunities and generate income and cost savings for the rail transit system; andfostering an organization that is open, accountable, inclusive, and delivers better than promised results. As of November 2015, HART received $472.5 million of the $1.5 billion federal grant for the rail project. Per the 2012 Full Funding GrantAgreemenf (FFGA), HART and the city had to comply with the grant terms to receive the remaining balance of $1 billion. The exhibit below details the allocations by federal fiscal year. Page 18 Exhibit 2.1 New Starts Grant Allocation (by federal fiscal year)3 Federal Fiscal Year FTA Obligated 5 Actual Drawdown Allocation Amounts Amounts to Date Available Balance 2008 15,190,000 15,190,000 - 2009 19,800,000 19, 800,000 - 2010 30,000,000 30,000,000 - 201 1 55,000,000 55,000,000 - 2012 200,000,000 200,000,000 - . 2013 236,277,358 152,519,166 83,758,192 2014 250,000,000 . - 250,000,000 2015 250,000,000 - 250,000,000 2016 250,000,000 - 250,000,000 HART was aware of potential shortfalls as early as 2012, but it did not alert the city council until FY 2015 As early as December 2012, the project management oversight consultant (PMOC) reports discussed concerns over the viability of operations. However, HART did not alert the city council of the potential shortfalls until December 2014 (FY 2015) In the reports, the PMOC questioned the adequacy of ability to forecast costs for design-build contracts; raised concerns over technical ability to control project costs; questioned the sufficiency of contingency reserves; and identified the need to develop, update, and implement secondary risk mitigation measures. In December 2014, the CEO stated that the agency was facing a $600 million cost overrun and a $310 million revenue shortfall. The public statement notified the city council that project costs had increased and revenues were less than projected. 3 The federal fiscal year runs from October 1 to September 30. Table covers federal funding only. Total rail project funding includes federal, state, and local funding sources. Federal funding also inciudes $4 million out of $214 million of FTA Section 5307 Formula and American Recovery and Reinvestment Act (ARRA) funds. State funding includes the state half percent General Excise Tax (GET) county surcharge to fund the rail project. The GET county surcharge originally was to expire December 31, 2022, but was extended through December 31, 2027 to cover the additional project cost increases and revenue shortfall. HART estimates the five?year extension will generate revenue in the range of $1.5 billion to $1.8 billion. GET collections in FY 2015 totaled $1.248 billion. City funding includes general obligation bonds (debt ?nancing) to fund construction of the raii project. In November 2015, the city council approved legislation that allowed the city to issue up to $350 million in general obligation commercial paper to fund rail project related improvements and equipment. HART also anticipates using the funds to cover its short-term cash flow needs. in 2015, city council resolution 15-18 eliminated the use of $210 million of Federal Section 5307 grant monies in the project?s ?nancial plan to ensure the funds were only used for city transportation services TheBus and Hanoi-Van services). Page )9 Actions to resolve the shortfalls: In March 2015, the Hawaii State Legislature introduced bills to extend the rail project GET county surcharge from December 2022 to December 2027. HART and city officials lobbied in support of the GET extension and the legislature passed the bill in May 2015. After the state governor signed the bill in July 2015, the chief executive officer (CEO) reported to the HART Board of Directors on October 15, 2015 that the cost overruns had increased an additional $714 million, for a total of $1.3 billion. The exhibit below details the changes in estimated project costs and revenues. Exhibit 2.2 Estimated Project Cost Increases and Revenue Shortfalls (dollars in thousands) Cost Estimates Chan October 2015 HART Board Meeting i December 2014 HART Board Meeting Descri Estimated Costs Increase: Lawsuits and Dela Ciaims Util Relocations Pro' ct Enhancements Cost Escalation Allocated Contn Unallocated Contin Debt Financin Costs 32 $190 000 50 000 75,000 45,000 240 000 $190 000 120 000 130 000 240 000 240,000 299,000 95,000 tt? {l in. Estimated Revenue Shortfall: GET Pro' Shortfall FTA 5307 Fund Reduction .Ie" ?55100 000 210 000 i: at: $100 000 210,000 tilt 13 5555 Source: Of?ce of the City Auditor (OCA) analysis based on HART Project Risks Update, December 18, 2014 and Project Cost Update, October 15, 2015. Impact of shortfalls: HART subsequently came under increasing scrutiny by policy makers, the local media, and the public. Throughout the project, local news reports drew public attention on the credibility of project cost information, and policy makers expressed concerns over the lack of detailed financial information provided by HART for decision-making purposes. The city council also expressed concerns related to the HART data, financial management and planning, decision making, contract administration, and post- construction costs. As a result, the city council delayed approving the GET surcharge extension. Page [10 After the Federal Transit Administration (FTA) issued warnings related to the lack of project funding, members of the city council reluctantly approved the county surcharge in January 2016. In the Federal Transportation Agency letter to the Mayor, FTA stated the next $250 million federal installment will not be released until the city and HART provided a revised cost estimate and schedule, an updated financial plan, and a commitment of local funds to cover the increased cost estimates. The exhibit below details the timeline. Exhibit 2.3 Funding Milestones - December 2014 HART announced a $600 million projected capital costs increase and a $310 million revenue shortfall. - March 2015 Hawaii State Legislature introduced senate and house bills regarding the GET county surcharge extension. - April 2015 HART confirmed need to repay funds spent in full to Federal government if rail project cancelled. - May 2015 Hawai?i State Legislature passed House Bill 134, extending the GET county surcharge extension from December 31 2022 to Decem ber 31 2027. - July 2015 Governor signed GET county surcharge extension bill into law (Act 240). Approval to adopt the ordinance (Bill 23) by the City County must be decided by June 30, 2016. - October 2015 HART announced additional project costs increase of $714 million. 0 November 2015 FTA issued a letter expressing concern that the city has not yet completed the actions needed to extend the GET surcharge that is critical to completing the project. - January 2016 City Council adopted city ordinance 16-1 supporting the 5-year extension of the GET county surcharge. 0 February 2016 Mayor signed bill into law. Source: OCA analysis based on information from the Project Risks Update, December 18, 2014; Project Cost Update, October 15, 2015; FTA letter, dated November 12, 2015; and City Ordinance 16?1. @age [11 processes can be improved to more economically, effectively, and efficiently report project costs Regular reporting provides management with information necessary to make sound decisions and to be transparent and accountable to key stakeholders and the public. Our review found that HART can improve its financial management and planning by retaining and providing reliable project cost information to policy makers and decision makers. Despite significant project cost changes, HART has not regularly updated and reported accurate and reliable financial information. As a result, HART reports contain inconsistent project cost data which limit the overall usefulness of its financial planning, project cost, and funding information. More specifically, HART needs to: Regularly update financial and operating information and plans; Provide reliable and consistent project cost information; Update and support delay claims and related costs; Document and support utility cost increases and estimated cost overruns for project enhancements; Use specific and consistent factors in calculating and estimating escalation costs; and Properly estimate GET county surcharge receipts; Financial and operating plans are not regularly updated. An FTA grantee must demonstrate financial management and capacity to match and manage FTA grant funds and to cover cost increases and operating deficits. To ensure compliance with the FTA requirements, HART should follow best practices that ensure its financial and operating plans are regularly updated and are accurately reflected in its rail project financial reports. In the FTA triennial review, FTA reported deficiencies in the project?s financial management capacity. Specifically, financial plan did not demonstrate sufficient financial capacity to complete the project as currently planned. The deficient report, in our opinion, occurred because HART did not regularly update its financial plans, as well as financial data. More specifically, although HART knew since 2012 that the project costs would eventually exceed the original budget, updating the financial plan was not discussed until April 2014. HART delayed communicating the potential cost increases to the HART Board of Directors and the city council until December 2014 when CEO announced a $910 million project deficit. The $910 million project deficit consisted of Page [12 $600 million in increased costs, a $210 million loss in federal FTA Section 53074 funding, and a $100 million general excise tax (GET) county surcharge revenue shortfall. While there were indicators that led to the project deficit, project managers and staff in key positions stated they were unaware of fiscal condition until the December 2014 public announcement. As a result, corrective actions were not taken to ensure the FTA financial management and capacity were satisfied. At the October 2015 board meeting, the HART CEO subsequently reported the project cost overrun had increased to $1.3 billion, and asked the city council and other policy makers to extend the GET county surcharge. The cost overruns are detailed in the exhibit below. Exhibit 2.4 Project Cost Estimates (As of June 2012, December 2014, and October 2015*) Original Estimates Cost Estimates i Change from Original Estimates December 2014 i October 2015 June 2012 FFGA HART Board HART Board Description Financial Plan Meeting Meeting Project Capitai Costs $4,948,000 $4,948,000 $4,948,000 Lawsuits and Delay Ciaims 190,000 190,000 Utility Relocations 50,000 120,000 Project Enhancements 75,000 130,000i Cost Escalation 45,000 240,000? Aliccated Contngency -- 240.000 240.000i Unalloca contingency Egg}: she . Update, October 15, 2015. - This table excludes revenue shortfall of $210 million in New Starts Fund reduction and $100 million in general excise tax (GET) county surcharge receipts. Our analysis indicates the latest cost overrun figures are not reliable and will likely increase because the HART financial data and plans have not been updated to reflect the changes in the project costs. 4 Federal Section 5307 (49 U.S.C. 5307) is a formula grant program for urbanized areas that provides capital, operating, and planning assistance for mass transportation. This program was initiated by the Surface Transportation Act of 1982 and became primary transit assistance program. \The federal funds are apportioned to urbanized areas utilizing a formula based on population, population density, and other factors associated with transit service and ridership. Section 5307 is funded from both federal general revenues and trust funds, and is available for transit improvements for urbanized areas. Page [13 Reliable and consistent project cost information is lacking Reporting inconsistent information can cause confusion for policy makers and the public. During our-review of HART reports, we found the reports contained missing, outdated, and incomplete information. HART staff told us that not all contract information is populated into the HART contract management system (OMS). As a result, HART management and staff relied on CMS reports that were missing critical information. For example, we found: Contract numbers in different reports contained different amounts. For example, in Exhibit 2.5, the contract balances in four different reports ranged from $2.6 million to $3.5 million. CMS data was inaccurate. For example, HART executed a $100,000 professional services contract, but the expenditure report we reviewed indicated HART paid over $146,000 under the contract. HART staff later confirmed that there was a CMS error which excluded two contract amendments that totaled $250,000 from the CMS report. Invoice amounts were incomplete. For instance, we found a missing invoice for $11,344 was not properly posted and scanned into CMS. Delay claim data were incomplete. More specifically, delay claims totaling nearly $642 million were not reported. Most notably, the $8.7 million delay claim filed by Ansaldo Honolulu Joint Venture5 (eventually settled in October 2015) was not reported. Other delay claim data were outdated and not updated for two months. (See Exhibit 2.6). The number of executed and pending utility agreements were inconsistent and unreconciled. More specifically, the CMS report showed a total of 48 utility contracts. In contrast, the tracking spreadsheet identified 54 contracts (including 40 active utility contracts, 7 closed contracts, and 7 pending contracts). Six utility agreements were missing in a key report. Six pending contracts valued at $107.9 million were excluded from the HART CMS forecast report. Differences in the contingency balance were not reconciled and did not match external PMOC reports. HART balances were higher than the figures reported by the PMOC. Appendix compares the differences between contingency balances with the figures reported by the PMOC. The differences between the HART balances and the PMOC balances ranged from $149 million to $254 million. 5 AnsaldoBreda and Ansaldo STS became a part of the Hitachi Group Company on November 2, 2015 and November 3, 2015, respectively. AnsaldoBreda is now Hitachi Rail Italy. Page [14 - State of Hawaii General Excise Tax (GET) balances were unreconciled and did not match HART progress reports and PMOC reports. Appendix compares the differences between the actual GET receipts with amounts reported by the PMOC. Although there may have been a timing difference between collection and reporting, the variances we found were significant. The differences between the HART GET receipts and the PMOC reports ranged from $25 million to $526 million. Exhibit 2.5 Contract balance comparison (dollars in millions) List of Awarded Contracts Summary asi of June 22, 2015 Run Date: Forecast Report HART Facts as of Description Date: 3?13?15 115/2015 for June 2015 June 30, 2015 Total Contract Award $3,506 $3,496 $2,620 $3083 lotiutd n3 391E 356 376 :l ?1?2?1'5 .. we - .. - Source: OCA analysis of List of Award Contracts Summary as of June 22, 2015, Forecast Report for June 2015, and HART Facts as of June 30, 2015. image 15 Exhibit 2.6 Incomplete delay claims summary (dollars in thousands) Executed Pending Possible Contract Description Claims Changes Changes West Oahu/Farrington Highway Change Order 058 Delay of NTP (WOFH) Guideway Design-Build 2, 3, and 4 - CMC Escalation jg $6,228; (DB) Contract - WOFH DB Contract LCC Delay?Time Related Overhead $8 000 DB Contract - Utility Detays 3 5,275 WOFH DB Contract AIS Suspension Part 2 3,0005 Kamehameha Highway Guideway Delay to Method Shaft 6 121 (KHG) DB Contract KHG DB Contract Deiay (ROW) 25,000 KHG DB Contract NIA 4,500 Airport Section Utilities Construction Time Impact Delay - Navy ROW - Design-Bid?Buiid Contract 802 Core Systems Design Build OSM Q-Month Delay Claim i: $8,700 Contract i West Oahu Stations Group NTP 1E3 Delay Duration. Station . a 2.20? Module Dealgn _West Oahu Stations Group NTP 2 Delay Project Interface 400 Management Costs gs .. .1 s. Source: OCA analysis based on HART Project Delays June 26, 2015, January 31, 2015, and December 18, 2014; CMS forecast reports, September 25, 2015 and June 26, 2015. Project cost estimates lacked supporting documentation Cost estimating, by nature, is imprecise. Therefore, it is important to develop cost estimating methodologies and document key assumptions for the estimates. The Guide to the Project Management Body of Knowledge (PMBOK Guide) states that supporting details for cost estimates should include: A description of the estimated scope of work. This is often provided by a reference to the work breakdown structure - Documentation of the basis for the estimate (That is how it was developed?); and - Documentation of any assumptions made; and a An indication of the range of possible results. We did not find documentary evidence to support some of the estimates related to the above requirements, as welt as, the costs that contributed to the $1.3 billion project cost increase. Page 116 Delay claims and related costs were not updated or supported HART stated delay claims totaled $190 million and were attributed to lawsuits, escalation, and other delays. Of the $190 million, $146.2 million were executed through change orders funded by the project contingency reserves. We found that the remaining costs of approximately $45 million were either unsupported or the claim amount changed. Exhibit 2.4 quantifies the delay claim costs. Exhibit 2.7 Delay claim costs Delay Claim Executed Delay Costs Ciaims 3 December 2014 and October I August 2015 2015 3 Project Delays HART Board Cost Summary Description Meetings Difference Total Legal Delay Costs $45,902,918 $39,039,250 ($6,863,668) Total Other Delay Costs $77,126,198. $77,126,198 $0 Escalation (combination of NTP 8 Legal) $49,106,403 $30,078,065 ($19,028,338) Total Delay Claims Cost. $172,135,519 $146,243,513 ($25,892,006) 9,52 mans: Qm.? 929.011.111.90. - s58,- ??fiiaE-r?liweiri . - . ?a ?it? . . .. . my,? ?may Source: OCA analysis based on HART Project Risks Update, December 18, 2014 and Project Cost Update, October 15, 2015 The HART reports were not updated to reflect the most current cost information. By updating the claim information, we found: $12.2 million in additional potential delay costs related to the West Oahu/Farrington Highway Guideway Design-Build contract6 that increased the delay claim from $6.8 million to $19 million. - $1 million in additional potential delay costs related to the Kamehameha Highway Guideway Design Build contract (Escalation Due to Schedule Impacts) that increased the delay claim from $3.5 million to $4.5 million. 0 $825,000 in overstated delay claims related to the CMS forecast report. The report removed an $825,000 delay escalation claim for the maintenance and storage facility, but the update was not reflected in the tracking spreadsheet and not entered for two months. 0 $670,184 in overstated delay claims in the tracking spreadsheet. The tracking spreadsheet identified a $7.5 million delay escalation claim for the West Oahu 5 West Oahu/Farrington Highway Guideway Design-Build contract (Delay of NTP 2, 3, 4 Escalation Costs) Page 17 Farrington Highway Guideway Design-Build contract, but the forecast report showed $6,829,816. - We also did not find details to support litigation costs of approximately $6.9 million because HART tracks them separately as ineligible project costs. HART lacked support for $120 million in utility cost increases Utility relocation costs were not included in the $910 million project deficit reported by HART in December 2014. In October 2015, HART provided project cost updates that showed utility costs increased from $50 million to $120 million. See exhibit 2.8. Exhibit 2.8 Utility costs increase (doliars in millions) Cost Estimates December 2014 October 2015 HART Board HART Board Meeting Meeting i 77% 0% 29% Util Work Desert on Additional Clearance Conflicts with HEI Hi Volta Util Relocations in the Center Se ment Service Connection for Permanent Power $Lines . 3 Source: OCA analysis based on HART Project Risks Update, December 18, 2015 and Project Cost Update, October 15, 2015. Staff explained that they used the Rough Order of Magnitude (ROM) 7 methodology to value the utility cost estimates. Although projects in the early phase generally have limited information to produce quality cost estimates, at a minimum, we expected a description of the estimate, scope and assumptions, data sources, estimating methodology and rationale, risk analysis results, and a conclusion about whether the cost estimate was reasonable. When we requested supporting documentation for how HART reached the total cost estimates, we were told that detailed estimates were still being developed and were not available for review. HART eventually provided a three-page draft that showed calculations for $99 million. The cost estimates did not provide detailed documentation describing how it was derived; showed no evidence of any review or approval; and did 7 According to Cost Estimating Procedure, a Rough Order of Magnitude Estimate (ROM) is an estimate developed to facilitate project budget and feasibility determinations. The order of magnitude estimate information is based on parametric units route feet, lane miles, gross square feet, number of parking stalls) and other quanti?able data. Pricing is based on historical cost caps that are adjusted for project location, size or capacity differences, and cost esoalations. A Rough Order of Magnitude is developed when a quick estimate is needed and few details are available. Based on historical information, it is typically developed to support what-if-anaiyses, and can be developed for a particular phase or portion of an estimate to. the entire cost estimate. The analysis is helpful for examining differences in alternatives to see which are the most teasibie. Because it is developed from limited data and in a short time, a rough order of magnitude analysis should never be considered a budget-quality cost estimate. Page 18 not identify the factors used to estimate the $120 million in utility costs. As a result the estimate was not credible. We subsequently discovered the project manager responsible for the utility contracts did not know about the $120 million cost increase. $130 million in estimated cost overruns for project enhancements were not supported Like the utility relocation costs, project enhancements were not discussed when HART reported the $910 million cost overrun and revenue shortfall in December 2014. In October 2015, HART reported project enhancements increased costs from $75 million to $130 million. The additional $55 million cost estimate increase included $35 million in public highway improvements and $20 million in additional escalators. The HART project controls manager told us that project enhancements were created to present change orders differently to stakeholders and the public. (See Exhibit 2.9 below.) Exhibit 2.9 Project enhancement costs increase (dollars in millions) Cost Estimates Change December 2014 October 2015 HART Board HART Board Description Project Status Meeting Meeting 5 Platform Safety Gates iExecuted Change Order 328 $28 -- Additional Seats Executed Change Order 2 - Fare Collection Systems Solicitation 15 15 Emergency Backup Generators iSolicitation Preparation 15 15; -- Public Highway Improvements Change Orders Preparation 15% 50! 35.? Additional Escalators itationP ration 5? ource: OCA analysis based on HA pdate, December 18, 2015; Project Cost Update, October 15, 2015; and CMS forecast report, September 2015. We found that HART could not support $46.1 million of the $130 million in project enhancement cost estimates. Discrepancies existed between the cost estimates presented to the HART board and the documentation supporting the estimates because HART did not follow its cost estimating procedures. For example, we did not find detailed descriptions or support for: a $23.8 million for public highway improvements 0 $5.2 million for the emergency backup generators - $2.7 million for fare collection We questioned the estimated $20 million for additional escalators. HART provided a handwritten proposed costs page that showed two estimates which varied by roughly $6 million with a low of $17 million and a high of $25 million. HART explained that the estimated costs are considered Rough Order of Magnitude, and represented only the in (Q (n A to preliminary phase of the project. The disparity between the two figures was questionable because there were few details to support the underlying assumptions related to the proposed costs. Higher estimates can overstate the total project costs while lower estimates can potentially result in cost overruns. While cost estimates are only estimates, absent detailed information, we were unable to - identify all the cost elements included in the total amount. More importantly, we could not assess the reasonableness and appropriateness of the methodology and assumptions used to develop the estimates. Escalation cost estimates were not calculated by using a specific factor HART increased its escalation cost estimates by $195 million, from $45 million in December 2014 to $240 million in October 2015. HART attributed the increase to extraordinary market conditions. However, HART staff was unable to explain to us the methodology used to support the cost estimates. We found that HART did not use a specific factor to calculate the increase and that the estimated costs are subsets of the projected total escalation. Consequently, we were unable to verify the reasonableness of the additional escalation costs because HART had not established a methodology to forecast escalation costs and the amounts were not calculated by using a consistent and Specific factor. The exhibit below shows the unsupported cost increase. Exhibit 2.10 Escalation costs increase (dollars in millions) Cost Estimates Change December 2014 I October 2015 HART Board Meetin Update, October 15, 20 5. HART underestimated GET county surcharge receipts In 2014, HART reported a GET revenue shortfall in the range of $80 to $100 million and attributed the shortfall to a coding error by the State of Hawai?i Department of Taxation. The error resulted in a $9.9 million distribution error which was compounded annually over 10 years for a total of $100 million. We requested information related to the $100 million GET revenue shortfall and analyzed the spreadsheets provided by HART. The HART spreadsheets showed how GET county surcharge receipts were tracked and how revenues were projected. We found that HART did not properly update its revenue forecasts when the $9.9 million coding error was discovered. Consequently, HART underestimated its projected shortfall amount by $150 million. Page 20 The chief financial officer (CFO) stated that-HART knew the amount was higher than the $100 million reported, but was not aware the shortfall was $150 million. Improved Financial Management and Planning Are Needed While the FTA does not require submittal of updated financial and operating plans after the award of a full funding grant agreement, it does retain the right to ask for updated financial and operating plans if any significant changes to the project occur after the funding grant agreement is signed. According to the FTA Guidance for Transit Financial Plans, sound financial planning ensures the financial health of transit agencies and affects the quality of service provided. Financial and operating plans serve as a fundamental tool for management and policy makers to make critical decisions, especially for a project of this magnitude. Consistent with best practices, the plans should therefore be regularly updated to reflect the most current financial condition of the project. The CEO stated professional judgment was used in estimating the cost overruns and revenue shortfalls and the inaccurate and unreliable financial data did not impede the oversight of the rail project. According to the CEO, outdated financial plans and operating pians do not affect the oversight of the rail project. According to the CEO, HART is fulfilling its reporting requirements; updating the financial and operating plans are contingent upon the passage of the GET county surcharge extension8 by the city; and FTA has not established a specific timeframe requirement for financial updates. CFO stated a formal update requires HART to go through a process that is subject to the review and approval of key stakeholders, including the HART Board of Directors, the project management oversight consultant, and the FTA. We believe this reasoning should not delay efforts to update its financial and operating plans. Without current financial and operating plans, HART management, policy makers, and decision makers will be unable to make cost-effective decisions to ensure the project is completed efficiently, effectively, and economically. Recommendations 8 At the time of our interview, the GET county surcharge extension was still subject to the adoption of bill 23 by the city council. Chapter 3: HART Needs to Improve Project Management and Contract Administration Project management and contract administration controls can be improved. More specifically: Project Management Plan (PMP) and Operations and Maintenance Plan (0MP) are outdated and unreliable as decision~making tools. HART made concessions to a single contractor; did not perform quantitative analysis to justify a major decision to repackage a bid for 9 stations in the Westside Stations Group; and paid $1.5 million in stipends to unsuccessful bidders without knowing the bidders? actual costs. HART is also paying for vacant office space. Contract administration controls need to address invoice payments, procurement file documentation, and prevent improper payments. Background On December 18, 2014, chief executive officer (CEO) reported to the HART Board of Directors that the total project costs will increase billion, an increase of $600 million in additional costs and a $310 million funding shortfall. HART attributed project cost increases to three separate events: lawsuits that resulted in delay ciaims, higher than expected bid for the construction of the nine Westside stations, and the unfavorable GET county surcharge revenue receipts. Ten months later, on October 15, 2015, the project?s cost overrun and revenue shortfall increased by $1.624 billion. The exhibit below provide details. Page [22 Exhibit 3.1 Factors that contributed to the project cost increase and revenue shortfall (dollars in thousands) Cost Estimates December 20 4 HART Board Meeting $4,948,000 Ori inal Estimates June 2012 FFGA Financial Plan $4,948,000 October 2015 HART Board Meeting $4 948,000 Desc? 'on Pro ct Ca ital Costs Estimated Costs increase: Lawsuits and Dela Claims Util Relocations Pro ct Enhancements Cost Escalation Allocated Contn en Unallocated Contin Debt Financin Costs 0 . $1 90,000 50 000 75,000 45,000 240 000 $190 000 120 000 130,000 240 000 240 000 299 000 310 000 215 000 215.000 a 0 Estimated Revenue Shortfall: GET Pro acted Shortfall FTA 5307 Fund Reduction $100 000 210,000 Slit $100 000 210,000 Source: Of?ce of the City Auditor (OCA) analysis based on HART Project Risks Update, December 18, 2014 and Project Cost Update, October 15, 2015. s, it? Construction cost overruns are not unusual Our comparison of construction costs for other capital rail projects indicated cost overruns frequently occur. The following data table features a comparison of capital costs among 10 heavy rail projects. 0 The first four services (Atlanta, Baltimore, Miami, and Washington, D.C.) were initial rail projects that initially established heavy rail service in the respective urban areas. The cost overruns for these projects ranged from 33% to 83%. The remaining six heavy rail projects were extensions and built to integrate the new projects into already established heavy rail transit services. One project was completed under budget. The remaining five projects had cost overruns that ranged from 3.3% to 30.9%. Nine out of 10 light rail projects also reported cost overruns that ranged from 1.8% to 55%. The details are shown in the exhibit below. Page [23 Exhibit 3.2 Capital costs comparison of heavy and light rail projects Total Capital Cost (doliars in minions)" Original FFGA 1 At c?pletion 1 Project Year Project Corn leted . .. .. .. .. 1970.. 1 Baltimore 1983 1 $804 $1 ,289 60.30% Miami 1984 2 $1,008 $1.341 33.00% Washington, DC. 1976 5 $4,352 $72968 83.10% Buffan 1984 $478 51% Pittsburgh 1984 -1 1% Portland . 1993 1996 BaltimoreJohns Chi 0 SW San Francisco-Calms 13.70% 19.10% 4.90% $438.40 171.60 t-R'aii .- $109.50 6.50 $455.80 SE $522.00 179.90 I 6.20% 810% 1.30% 64.00 $464.00 1998 1993 Balaas?wrHuman" Portland?Westside St. Louis-MetroLink Chicago-Douglas Branch 2005 $478.20 $440.80 680% San Francisco-SFO 2003 $1 {185.70 $1,551.60 30.90% Washington? Largo 2004 $412.60 3 $426.40 3.30% Minneapolis-Hiawatha - 2004 $512.90 $696.70 35.80% Pittst rgh-Stage II 0 Reconstruction 2004 $363.20 $385.00 6.00 A: San Diego-Mission Valley East 2005 $426.60 $506.20 18.70% Source: Office of the City Auditor (OCA) analysis based on information obtained from the Urban Transit Rail Projects: Forecast Versus Actual Ridership and Cost, 1990, prepared by Dr. Don H. Pickrell for the Urban Mass Transit Administratidn and the Predicted and Actual Impacts of New Starts Projects: Capital Cost and Ridership, 2007. Ail dollar amounts shown represent adjusted real values. The FFGA program was established after the projects featured in the 1990 study. As such, forecasted figures shown aboveare sourced from projections earlier in the planning process than an equivalent FFGA stage. Additional HART rail project cost overruns and shortfalls are likely One of stated goals is to preserve the stewardship of resources by maintaining public trust through the prudent and transparent use of financial, human, and environmental resources. HART can demonstrate good public stewardship by well- supporting its management decisions. in addition to deficiencies in financial management and planning, we found shortcomings that could impact the project?s long-term financial viability, increase the Page [24 likelihood of additional cost overruns, and reduce the funds available to the rail project. Specifically, we found: - Contingency increases contributed greatly to the cost overruns because HART underfunded its contingency in 2012. 0 Cost controls were insufficient to control cost increases. 0 Updating the project management plan, including the subsidiary plans, was never made a priority. - Inappropriate concession (retainage payments) with a contractor was made. a Cost estimates and potential savings were lacking in the decision to repackage the Westside Stations Group. 0 HART lacks policy and procedures on administering stipends and has paid $1.5 million without documentation of unsuccessful bidders? actual costs. - HART is paying for vacant office space. 0 Contract administration needs to be improved. The project management oversight consultant (PMOC) meets with HART management and staff to discuss increased costs and to ensure that cost issues are proactively addressed. In its December 2014, the PMOC reported it provided numerous cost mitigation recommendations that HART should consider implementing. Despite the recommendations, PMOC noted that minimal cost containment measures had been accomplished by HART and the trend of minimal cost containment was alarming. Contingency increases contributed greatly to the cost overruns because HART underfunded its contingency in 2012 Normally, the amount of contingency required for a project decreases with the project?s progress. Over time, as costs become more de?nitive, the contingency amount should decrease. However, HART increased its contingency reserves by $539.4 million (46 percent) because it underfunded its contingency in 2012. In June 2012, HART reduced its original $866 million contingency by $222 million to $644 million after it submitted its 2012 Full Funding GrantAgreement (FFGA) financial plan to the Federal Transit Administration (FTA). In October 2012, the PMOC warned HART that the $644 million contingency reserve was at a point below acceptable control levels underfunded). As a result of the PMOC warning and contingency reduction, HART established a Page 125 $76.1 million Known Change39 contingency account to separately fund costs that would have been covered by unallocated10 contingency reserves. 0 From April 2013 through August 2013, the PMOC continued to express concerns with the adequacy of the contingency reserves. In the November 2014 PMOC report, the PMOC recommended that strong controls must be put in place immediately to avoid future rapid contingency reductions. HART knew its contingency fund was underfunded as of 2012, but it did not communicate the need for additional contingency until December 2014. In December 2014, HART finally increased the underfunded contingency reserves to $884 million. In October 2015, HART increased the reserves to $1.18 billion. The HART contingency increases from $644 million in June 2012 to $884 million in December 2014 to $1.18 billion in October 2015 were part of the reported project shortfalls. The last increase of $539.4 million was mere than the contingency under the federal FFGA submitted to the FTA, and may have been excessive. Exhibit 3.3 Contingency reserves increase (dollars in thousands)? ginal Estimates Cost Estimates June 2012 FFGA Financial Plan HART Board Meeting HART Board Meeting tion Pro Ca i Costs 948 000 948 000 $4 948 000 Lawsuits and Claims 190 000 1 000 Uti Relocations 50 000 120 000 75 000 45.000 240 130 000 240 000 240 000 299 000 3 ii Pro Enhancements Cost Escaiation Aiiocated Co Unaiiocated Con .- 5H 39% 215 000 ii! 215.000 a $35 310 000 5'33 Debt Financi Costs 6 Allocated Co Unaiiccated Co Allowance $540100 $101 900 $1.600 .i?i 782 000 $1 02 $782 000 $401 000 7i$ HS 9 HART tracks known changes separately from the Project contingency established under the FFGA. Known changes are executed through budget transfers. 1? Unallocated contingency provides a funding source to cover unknown but anticipated additional project execution costs and uncertainty due to risk factors such as unresolved design issues, market ?uctuations, unanticipated site conditions and change orders. It also covers unforeseen expenses and variances between estimates and actuai costs. Page (26 Source: OCA analysis based on the FFGA ?nanciai plan, June 2012; HART Project Risks Update, December 18, 2015; and Project Cost Update, October 15, 2015. Cost controls were insufficient to control cost increases We found deficiencies related to cost controls that, in our opinion, partly contributed to the significant cost increases. In March 2014, the PMOC recommended that HART develop aggressive cost containment measures after their review of information provided by HART. In December 2014, HART announced the $910 million project cost overrun and revenue shortfall. The PMOC reported that in February 2015 HART started implementing some cost containment measures. Although HART claims that evaluating and developing cost containment opportunities and cost reduction strategies were ongoing activities, we believe that HART could have taken a more proactive approach in implementing cost containment measures. Instead, HART reacted by requesting more funding. We also found that not all project managers compare actual costs against their budgets even though this comparison is an important cost mechanism. One project manager said that she relies on project controls to monitor her contract costs. The project is at risk of additional cost overruns when project managers do not pay attention to actual costs. In our opinion, project managers should continuously compare actual costs against budget amounts, should analyze any variances, and take corrective actions before costs go higher than expected. Updating the project management plan (PMP), including the subsidiary plans, was never made a priority A PMP is a formal, approved document that guides how a project is to be executed and controlled. Best practice reCommends continuous updates to the PMP because it can provide greater precision with respect to schedule, costs, and resource requirements to meet the defined project scope. We found that HART has not updated its PMP, including the subsidiary plans, despite considerable changes in project schedule, costs, and staffing since'the federal FFGA was issued by the FTA in December 2012. Updating the PMP and its subsidiary plans11 has not been a high priority for HART. According to the PMOC, the PMP update has been in progress since May 2013. While the PMOC indicated that it was critical for HART to update the PMP and its subsidiary plans, CEO said that these outdated plans posed no impediment to his project oversight. We believe that an outdated PMP and its subsidiary plans could hinder management?s ability to effectively guide the project to completion in an economical, effective, and efficient manner. The key management plans inciude the risk and contingency management plan, project management plan, the operations and maintenance plan, the master project schedule, the financial plan, and the contract packaging plan. Page 27 Exhibit 3.4 Key management plans Pian Description Orginal Issue or Last Update Date Identi?ed as an Update Item Status Contract Packaging Plan (OPP) This document describes each third party contract which will be undertaken by HART to implement the Project. Approved for FFGA (2012) August 2014 Updating Financial Plan This document provides a summary of the capital costs and funding sources associated with both the Project and the city's ongoing capital needs for its existing public transportation system, including the results of three sensitivity analyses and potential mitigation strategies. it also describes the city's plan to fund the operations and maintenance costs associated with the Project, TheBu s, and TheHandi-Van services. June 2012 August 2014 Updating Master Project eduie (M PS) This document is the primary scheduie deveioped by the Project team which includes and coordinates the work of th various project segments and contractors. Approved for FFGA (2012) August 2014 Updating Operations and Maintenance Plan (OM P) This document presents th capacity ofthe city to operate and maintain the integrated transit system. June 2012 August 2014 Updating Project Management Plan (PM P) This document establishes the framework for administering implementation of the Project. It describes and documents the overall management approach liar the Project and is used both as a management tool to guide HART and as an informational overview for project participants and interested parties. Juiy17, 2012 WA Updating Risk and Contingency Management Plan (RCMP) This document outlines the planned of contin gen cy through out the Project. September 22, 2011 September 2013 Updating Page I28 Source: HART Standard Terms De?nitions and Acronyms, April 19, 2012; Project Management Plan, July 17, 2012; and PMOC Report, December 2015. Waiver concessions were made Pursuant to HRS ?103-32.1, city contracts allow HART and the city to withhold up to 5% of a contract amount to ensure that the contractor?s performance is satisfactory and acceptable. Once the city is satisfied with the projector is satisfied with any re-work the contractor is asked to do, the city will release the retained amount (retainage) to the contractor. For one contract, the rail prime contractor, Kiewit, requested a waiver and release of the retained amount. On March 6, 2013, CEO waived the five percent retainage for three construction contracts with Kiewit?. This concession was made for three specific change orders totaling $26 million and the total amount waived was about $1.3 million. Actual expenditures totaled $23 million, of which the total amount actually waived was $1.1 million. According to HART managers, they approved the waiver as an incentive for Kiewit to stay on the job. The approvalreduced Kiewit-costs during the period when the rail project work was suspended. The suspension occurred after an August 2012 Hawaii Supreme Court decision caused the proje'Ct work to halt so archaeological surveys could be completed. In September 2013', project work restarted. By waiving the 5% retainage, HART and the City lost some leverage to ensure Kiewit performed satisfactorily under its contracts. The city also risked being accused of favoritism or bias towardsone contractor. estimates and potential saVings were lacking in the decision to repackage the Westside Stations Group? HART was unabie to provide sufficient documentation to demonstrate that it prepared a reasonable level of cost benefit analysis to justify its decision to repackage the Westside Stations Group. Our review of the Westside Stations Group repackage strategy found that HART lacked documentation to quantify the expected costs and potential savings when the decision was made to cancel the original bid. Consequently, HART assumed significant risks that could have driven contract costs higher and made future savings unattainable. ?2 The contract documents indicate Kiewit requested a waiver for only one contract. HART approved the waiver for three contracts prior to issuing the approval memorandum. 13 The Westside Stations Group consists of the ?rst nine stations along the rail route. HART repackaged the Westside Stations Group into three rail station groups: Farrington Highway Stations, West Oahu Stations and Kamehameha Highway Stations. Page [29 During our audit, we asked HART to provide cost estimates and to identify its expected savings from the repackage. Prior to opening the three?three station bids, HART managers claimed a potential cost savings of $31 million on the decision to divide the nine stations into three packages of three stations. According to HART, the sum of the independent cost estimates totaled $263 million, $31 million less than the original low bid of $294 million for the 9 station package. We found that HART lacked sufficient time to fully evaluate and quantify any potential savings.l On September 9, 2014, CEO, who also serves as the chief procurement officer, authorized to cancel the 9 Stations Group construction bid prior to the receipt of all independent cost estimates for the three rail station packages, including the ramp. The total independent cost estimates of $263 million estimate was $79 million higher than the engineer?s original estimates. Nevertheiess, HART reported in its August 2014 Report that the overall cost of the $5.2 billion project will not change and that additional costs could be covered using a combination of contingency funds and adjusting the contract scope to reduce costs. Contrary to the August 2014 Report, HART announced in December 2014 that the cost for all the stations to be constructed and the remaining guideway will exceed the contingency reserves, off?sets, and other funds available by several hundreds of millions of dollars. Exhibit 3.5. Westside Stations Group independent Cost Estimate Station Group Date Amount Solicitation Date Open Bid Date 1 Award Amount Farrington Highway 12f?iOI14 $78,211,602 12/19/14 061?102?15 $79,000,000 West Oahu 04102215 $74,077,500 04113205 07f16i'15 $56,000,000 Kamehameha Highway 08f?i'?if3 $108,106,000 0811315 11:?17115 $115,800,000 May 2015 as H2R2 Ramp pins/15 omens cot Sm date I I nonstop tigress Report, November g, .- So 2015. Fortunately, the actual outcome reduced the original, 9-station group bid by $38 million. If the strategy had failed, the decision could have driven contract costs higher than the original nine station bid. Because of the fiscal situation confronting the agency, the CEO told us that he had to make it work. He relied on his professional judgment and consultant?s opinions when he canceled the 9?station bid and repackaged the contract into three rail station groups. While professional judgment is important, critical decisions should be supplemented by quantitative analysis and documented analysis, as well as past experience, and current or historical data. Page 30 HART paid $1.5 million to unsuccessful bidders without documenting their actual costs. According to HART managers, issuing stipends to unsuccessful bidders is a common practice and is accepted by the Federal Transit Administration. According to HART, this practice gives the owner title to the proposed design concepts. The stipend payment covers all or part of the cost of preparing bid proposals and encourages competition although the practice is an added cost to the owner. HART offered $3.5 million to compensate unsuccessful bidders for three design-build contracts?. The stipends were to be divided equally and not to exceed $500,000 for each unsuccessful bidder. records show that $1.5 million was paid to three unsuccessful bidders as of June 30, 2015. Exhibit 3.6 Stipend payments Sti Pa ment Offered $1,000,000 $1 500 000 $1 000 000 El?! E?ii Amount $500,000 $500 000 $500 000 ate 02111/10 05/26/1 0 12/0711 1 Contract West O?ahu/Farrington Hig hway Guidewa Kamehameha hwa Guidewa Ai rtGuidewa and Stations a a Source: OCA analysis based on C2HERPS data provided by the HART. We were, consequently, unable to assess whether the stipend payments were excessive or if the stipends covered the unsuccessful bidder?s actual costs because HART had not established any written policy or procedures related to administering the stipend payments. Effective policy and procedures provide staff guidance for issuing proposal stipends to unsuccessful bidders. Without any policies or procedures, it is unclear how HART was able to determine the compensation amount for each of the unsuccessful bidders; assess the documentation needed to support their actual costs; or determine the value or usefulness of the unsuccessful bidders? proposals. HART is paying for vacant office space HART should lease office space it needs and should use all office space it leases. During our on-site visit at HART, we identified one leased floor of 16,182 rentable square feet that had 12 vacant offices and 17 empty workstations. About 44% of the offices and workstations were unoccupied on this floor. Although HART has plans to occupy the empty Space, the offices and workstations sat vacant throughout our six-month audit. While it was empty, we requested a current inventory listing of its leased offices and workstations. It took HART staff over four 14 West O?ahu/Farrington Highway Guideway, Kamehameha Highway Guideway, and Airport Guideway and Stations Design-Build Contracts. Page 31 weeks to provide us this information. HART should evaluate and document its office space requirements and minimize HART operating costs by subletting its surplus office space or renegotiating its leases so that it only pays for space that is needed. Exhibit 3.7 Office and workstation vacancy rates . Occupied Unoccupied Totai Vacancy Rate Of?ces 34 1 2 46 26% Source: OCA physical count of leased office space and HART Work Space Inventory Listing, November 30, 2015 Exhibit 3.8 Photos of vacant offices and workaions Source: OCA Contract administration needs to be improved Currentand complete policies and procedures are necessary to provide clear and effective guidance to staff regarding contract management. Strong recordkeeping practices serve to ensure compliance with federal, state, and local laws. We sampled 25 contracts during our audit and found several deficiencies. We found that HART has not developed written policies related to contract administration and invoice payment practices and procedures were incomplete and not regularly updated. These deficiencies could lead to noncompliant and questionable practices. Page [32 Exhibit 3.9 Summary of Contract Types Reviewed No of Contracts Contract Type Reviewed Firm Fixed Price Cost Reimbursement Time and Materials Le al Contract Lease A reement Cost Plus Fixed Fee Combination Firm Fixed Price 8: Time and Materials Inter overnmental A reement Task Order Time and Materials ?7 a Source: OCA sample selection Contract administration policies and procedures were incomplete and outdated We found HART has not developed written policies related to contract administration and invoice payment practices. Policies and procedures were also needed for capital project monitoring and reporting. HART contract administration procedures were last updated in 2012 and need to be updated to reflect 2016 policies and procedures. The out-of?date policies and procedures increased the risk of making improper payments if the guidance were incorrect. Contract administration roles and responsibilities were confusing We found that contract administration procedures defined confusing roles and responsibilities for its project managers and contract managers. project managers acted as contract managers until October 2014. In the updated procedure manual, HART separated the positions into two distinct roles. However, the terms contract administrator and contract manager are used interchangeably at HART. The changes were therefore confusing. Until 2014, the project manager filled both the project manager and the contract manager roles. The dual role increased the risk of contract mismanagement between 2012 and 2014. For the sample of 25 contract files, we found: Contract files had missing documentation In our sample of 25 HART contract files, the documentation deficiencies included no complete listings of contract modifications and supporting documentation in the files; 8 (D co (.0 files which grant HART access to only prime contractor records; no access to sub- contractor records; 3 contract files that did not include the Scope of Work; and 2 contract files missing a Letter or Notice of Award. Con?icts of interest statements Were missing We found no evidence of subcontractor?s conflicts of interest certifications; no evidence to show that HART required financial disclosures for prime contractors or subcontractors; and 9 contract files where the prime contractors did not certify they had no real or apparent conflicts of interest. HART maintained subcontractors were required to file conflicts of interest statements as part of the solicitation process. Disqualified contractor check were missing- Among the 25 contract files, 2 files lacked evidence that an Excluded Parties List System (EPLS)!System for Award Management (SAM) check was performed prior to award to ensure the contractor was not suspended or debarred by the Federal government. These checks may have been made, but were not documented in the procurement files. Other contract file deficiencies included no evidence that contract managers conducted performance reviews; 22 contract files did not have designated contract managers; 1 contract file lacked the independent evaluations and scores of the evaluation committee related to the contract'award; and 3 files had no evidence of a cost or price analysis by HART for the intended award. A cost or price analysis should be performed for every contract so that the essential objective of a reasonable price is assured. - Invoice payment procedures do not address all contract types We found that invoice payment procedures do not address all contracts types, such as cost reimbursement, and time and materials because there were no defined policies and only one procedure related to contract payments. invoice payment procedure manual was developed in 2012 and was limited in scope to only Firm Fixed Price contracts which uses a Schedule of Milestones to determine progress payments by milestone achieved. Because HART has a variety of contracts and invoices which are not paid based on a milestones, we believe that this procedure is insufficient to fully support invoice payment process. If practices for paying invoices for contracts and goods and services are not adequately conveyed in guidance, policies, and procedures, it can lead to invoices being paid in spite of insufficient support and questionable expenses. Invoice payments had unsupported and unallowable costs Page [34 A strong invoice payment process prevents improper payments from being made. HART risks making improper payments when there is a lack of proper review and documentation to support the work or services billed. Our review of 50 HART invoices revealed instances of incomplete and improper payments or authorizations. We also found unsupported and unallowable costs. Specifically, our review showed HART paid: 0 4 invoices that lacked the required payment review checklist. The invoices totaled $12,068,696. 3 invoices, valued at $2,895,272, were partially approved. 2 invoices, valued at $18,607,656, had billing errors that were undetected. - 2 invoices totaling $23,268 that had management overrides and approvals although the work was performed prior to the execution of the contract agreements and constituted procurement violations. - $1 1,344 for on-call Contractor'Work performed for the Pig 8 the Lady restaurant (83 N. King Street), even though the work on the City Center had not officially started. - $1,863.16 for unallowable travel agent fees. 0 $740 for vacation travel expense paid for by HART. Recommendations Page 135 Chapter 4: Better planning is needed to address and manage future rail project costs Once the rail system is completed and operational, other rail systems indicate annual and ongoing operations and maintenance costs must be addressed. Other rail systems in the nation indicate subsidies will be needed to fund rail operations and maintenance costs after the rail is constructed. HART has not planned for the operations and maintenance of the rail system or the costs of operating the system after it is completed. HART needs to improve planning and oversight to effectively address and manage future operations and maintenance needs; maximize fare box recoveries and ridership; minimize city subsidies; and fill operations and maintenance positions. Background Due to project delays, HART reports interim rail service will begin in late 2018 and full service operations are projected to begin in 2021. The original and updated time schedule is shown below. Exhibit 4.1 Project schedule -- r. June 2016 June Late 2 1 March 2019 January.?' 2020 Late 2021 Original interim Revised Revised Projected Original Project Revised Passenger Interim interim Completion Completion Opening Date Passenger Passenger and Revenue Date Completion Opening Date Opening Date Service Date Date No.1 No.2 Source: Of?ce of the City Auditor (OCA) anaiysis based on HART documents HART needs to plan for annual operations and maintenance of the rail system HART reports it is only responsible for constructing the rail project and is not responsible for ongoing, annual operations and maintenance of the rail system. As a result, we found HART plans were outdated and did not adequately address how to operate and maintain the rail system once it is completed. We also did not find plans that addressed the ongoing costs of operating the system. Page [36 Other rail systems indicate annual and ongoing operations and maintenance costs must be addressed. Our city comparisons indicated that all rail services throughout the nation require some form of subsidy to make up for the costs of operating and maintaining the rail. Our comparisons showed that fares paid by riders were insufficient to cover the entire cost of operating and maintaining the rail systems. (See Exhibit 4.2) Exhibit 4.2 Subsidy comparisons (dollars in millions) Annual Costs Rail Transit Service Fare Revenues Atlanta Baltimore Boston Ch Los An $75.6 $12.9. $191.9 $278.2 $34.8 $208.1 $51.7 $315.5 $513.6 $117.0 $132.5 $38.8 $123.6 $235.4 $82.2 63.67% 75.05% 39.18% 45.83% 70.26% Miami $22.8 $77.7 $54.9 70.66% New York $3 030.7 84 763.5 $1 732.8 36.38% Philade ia $95.7 $186.7 $91.0 48.74% $406.1 $605.5 $525.0 $909.5 $1 18.9 $304.0 22.65% 33.42% San Francisco Washin DC. Charlotte Cleveland Denver Houston Phoenix-Mesa Portland Sacramento $4.4 $3.0 $49.4 $4.5 $12.8 $46.4 $14.7 $13.1 $11.7 $87.1 $18.4 $28.7 $99.3 $50.0 $8.7 $8.7 $37.7 $13.9 $15.9 $52.9 $35.3 66.41% 74.36% 43.28% 75.54% 55.40% 53.27% 70.60% Salt Lake $19.0 .5 $26.5 58.24% Seattle-Pu et Sound $14.8 $52.9 $38.1 72.02% St. Louis $18.6 $64.8 $46.2 71.30% Source: OCA analysis based on data obtained from the National Transit Database (NTD), 2013 The comparisons indicated that fixed guidevvay projects often resulted in significant transit service realignments, such as the creation of a transit agency to oversee and administer the operations of rail and other modes of public transit. To ensure a smooth transition from construction to operations, HART needs to update its operations and maintenance plan, establish operations and maintenance policies, develop fare policy details, identify subsidy sources, determine ridership and sources of revenues, and fill critical positions related to the operations and maintenance of the system after it is completed. Subsidies will be needed to fund rail operations and maintenance costs Fare box recoveries are fare revenues earned through carrying riders through regularly scheduled rail service. While fare revenues will cover a portion of the operations and Page l3? maintenance costs, our comparison of other systems showed that the fare revenues will not be sufficient to fully support total operating and maintenance costs. According to chief executive officer (CEO), fare revenues wilt cover about 30% of the Operations and maintenance costs. The remaining 70% will require subsidies from the city. Although city subsidies will be needed, HART has not clearly defined how rail operations and maintenance will be subsidized in its 2012 Full Funding Grant Agreement (FFGA) financial plan. Our comparison of other cities showed that other revenue sources15 are available to offset the cost of operating the rail system. For example, operating costs not funded by fare revenues can be supported by a combination of federal, state, and local government taxes. Exhibit 4.3 identifies state, federal assistance, and other fund sources for other cities. Exhibit 4.3 Sources of Operating Funds by Transit Agency* Federal Transit Agency City Fare Revenues? Locai Funds State Funds Assistance Other Funds Atlanta 27% 53% 0% 14% 6% Baltimore 23% 0% 75% 1% 1 Boston 35% 8% 53% 1% 4% Charlotte 22% . 58% 10% 5% 5% Chicago 42% 33% 20% 1 3% Cleveland 22% 0% 72% 6% 1% Denver 23% 55% 0% 15% 7% Houston 17% 66% 0% 16% 1% Los Angeles 24% 48% 7% 18% 2% Miami 23% 60% 5% 10% 2% New York 41% 16% 39% 1% 2% Philadelphia 37% 7% 47% 6% 3% Phoenix-Mesa 45% 34% 0% 19% 3% Portland 27% 45% 0% 23% 5% Sacramento 23% 51% 6% 17% 2% Salt Lake 17% 0% 65% 15% 3% San Francisco 65% 22% 3% 4% 6% Seattle Puget Sound 23% 72% 1% 0% 5% St. Louis 20% 70% 0% 8% 2% WashingtonSource: OCA analysis based on information from the NTD, 2013 Percentages do not total 100% due to rounding. Fare revenues based on the farebox recovery rate for entire transit agency in addition to rail service, often including but not limited to the following services: bus, commuter bus, commuter rail, light rail, heavy rail, ferry boat, and paratransit. 15 Excise taxes, special assessments for cities and towns, and property taxes. Page 38 Other forms of funding include parking fees, selling surplus land and property, retail space rental to vendors, utility company rentals of rights of ways, and advertising. Although these alternative sources of funds exist, HART has not identified other revenue sources for its rail operations and maintenance in its financial plan. As a result, HART and the city cannot ensure the city subsidies are minimized. HART needs to improve planning to maximize fare box recoveries. The farebox recovery rate is the percentage by which the fare revenues collected account for the total Operating costs of the service. it is calculated by dividing the total fare revenue by its total operating costs. Our city comparison of farebox recovery rates of other transit agencies showed that fare revenues alone will not be sufficient to fund all rail operations and maintenance costs. Exhibit 4.4 shows selected rail services across the metropolitan areas of the United States. All of these rail services had farebox recovery rates which varied greatly and were consistently less than 100%. Fares were either variable16 or flat rate?. 0f the selected rail comparisons, farebox recovery rates ranged from 77% for San Francisco's Bay Area Rapid Transit (BART) service to 24% for Houston. The average farebox recovery rate for all selected rail services for 2013 was 43%. ?5 A fare cost that varies in relation to the level of operational activity (time of day, distance travelled). 17 A fare cost that remains fixed irrespective to the level of operationai activity. Page [39 Exhibit 4.4 Rail Farebox Recovery Rates Comparison US. Cities Farebox Recovery Rates [2018] - Denver Chicago Seg?tgi/?e 57% .2. {$54.11; /Boston Portland Cleveland 61% u? New York 47/ mg? 64% Sacramento Philadelphia 29"" ., 51% San Francisco 77 A Baltimore 2 5% L05 Angeles Washington, DE. 3% Phoenix 57% 45% 24% 29% Source: OCA analysis of farebox recovery rates based on information from the NTD, 2013 Our comparison indicated HART needs to plan for potential fare revenues, farebox recovery rates, and anticipated ridership levels to ensure the rail operations and maintenance costs are covered. HART needs to improve planning to maximize ridership. Our nationwide comparison of comparable rail systems indicated ridership levels have generally fallen short of forecasted levels. As part of the application process for the federal FFGA, HART developed ridership estimates and forecasts which were incorporated into the 2012 Operations and maintenance plan (0MP). Our nationwide comparison indicated, however, that actual ridership fell short of the forecasted levels. (See Exhibit 4.4 below.) Page [40 Exhibit 4.5 Ridership Forecast vs. Actual Ridership Percentage of Forecasted 1 Actual Actual vs. a Forecasted Year Baltimo.r.e . .. . .. . 1031000. .. . . Miami 1988 239,900 35,400 14.76% Washington 1986 569,600 411 ,600 72.2692,000 291200 Portland 1989 42,500 19,700 .. .. .. "'""Anmam 57,126? ?36.55% LA Red Line 297,733 134,555 45.19% Chicago Orange Line 2000 118,760 54,986 46.30% Baltimore Johns Hopkins 2005 13,600 10,128 74.47% San Francisco Colma 2000 15,200 13,060 85.92% Dallas South Oak Cliff 34 170 26 884 78.68% Denver Southwest 22 000 19 083 86.74% Portland Westside 49 448 43 876 88.73% Salt Lake South 23 000 22 100 96.09% 3% 1 '?ee 68,600 Washington Largo 2020 14,270 6,361 44.58% Chicago Douglas Branch 2020 33,000 25,106 76.08% Denver Southeast 2020 38,100 22 545 59.17% Portland Interstate MAX 2015 18,860 12 785 67.79% Sacramento South 2015 12,550 8 734 69.59% Sources: OCA analysis based on infon'nation from the Urban Transit Rail Projects: Forecast Versus Actual Ridership and Cost (1990), prepared by Dr. Don H. Pickrell for the Urban Mass Transit Administration; Predicted and Actual Impacts of New Starts Projects: Capital Cost, Operating Cost, and Ridership Data (2003), prepared by the Federal Transit Administration; The Predicted and Actual Impacts of New Starts Projects: Capital Cost and Ridership (2007), prepared by the Federal Transit Administration. The federai FFGA program was established after the projects featured in the 1990 study. As some forecasted years were beyond the scope of the 2003 and 2007 the FTA reports, ?actual ridership? ?gures represent most recent numbers at the time the report was conducted. In our opinion, HART should prepare for a scenario in which actual ridership, or the number of passengers actually using rail, falls short of forecasted estimates. its Page [41 operations and maintenance plan is outdated and may result in inadequate revenues to cover the annual rail operating and maintenance costs. HART needs to fill a critical operations and maintenance position. director provides oversight related to the operations and maintenance of the rail system. The director is required to work closely with capital programs to provide operational and technical guidance during the design and construction phases. HART has not filled its Operations and Maintenance director position since the last occupant left the agency in August 2015. The city contract with Hitachi Rail Italy18 authorizes the company to operate and maintain the rail system and its passenger trains. According to HART, the Operations and Maintenance director will be responsible for administering the $1.4 billion operations and maintenance contract. The director will also be in charge of hiring a team of consultants to support the operations and maintenance function. Currently, no staff positions are assigned to support the operations and maintenance division. The vacant position and lack of support staff could leave HART unprepared when the rail becomes operational. Recommendations ?3 Formerly Ansaldo Honolulu Joint Venture Page 42 Chapter 5: Conclusions and recommendations HART is a semi-autonomous local government agency established in July 2011 by charter amendment after voters approved a fixed guideway rail system. mission is to plan, design, construct, operate, and maintain Honolulu?s high-capacity, fixed guideway rapid transit system. processes have impeded its ability to construct and complete the project economically, effectively, and efficiently. Despite having a goal of completing the project on time and on budget, HART project costs have increased $1.3 billion, or 20 percent, from an estimated $5.2 billion at inception to an estimated $6.5 billion as of FY 2016. HART knew as early as 2012 of potential budget shortfalls and increasing costs, but did not notify the city council of the shortfall and cost increases until FY 2015. We found that the HART financial plan and subsidiary plans were not reliable or current- financial plan was not updated to reflect the rail project?s most current financial condition in spite of the significant cost changes. We found that Project Management Plan (PMP) and Operations and Maintenance-Plan (0MP) were also outdated, and unreliable as decision-making tools. HART needs to strengthen its controls over financial information reporting. For example, data were missing, incomplete, and not readily available from contract management system (CMS). Delay claims were inadequately tracked and monitored and may go unreported. We identified reporting discrepancies in pending utility agreements, differences in contingency allowance figures, and differences in GET county surcharge receipts. In our opinion, additional cost overruns are likely. Rail project cost estimates consistently lacked sufficient detail and methodologies for underlying cost assumptions and were unsubstantiated. For example, delay claims were not updated to reflect the most current cost information, utility relocation costs increased by $120 million without this figure being fully supported, project enhancements increased by $130 million without being fully supported, and cost escalation increased by $240 million without substantiating the methodology used. increases in'contingency, both allocated and unallocated reserves, contributed greatly to cost overruns because HART initially underfunded its contingency in 2012. HART underestimated its projected shortfall amount due to a $9.9 million GET coding error. We also found that project managers were not adequately managing their budget by comparing actual costs against their respective budgets. HART needs to improve project management and contract administration controls. We found HART made inappropriate concessions to a single contractor, and failed to perform quantitative analysis to justify a major decision to repackage a bid for 9 stations on the westernmost portion of the fixed guideway transit system (Westside Stations Group). HART approved and paid stipends in the amount of $1.5 million to unsuccessful Page [43 bidders without knowing the actual costs to the bidders of submitting the bids. We also found that HART has been paying for vacant office space. Stronger controls over contract administration practices and invoice payment practices are needed. Specifically, guidance for contract administration is unclear, procurement file documentation controls had weaknesses, and the invoice payment process is inadequate to prevent improper payments from being made. We determined that HART needs better planning and oversight to effectively address and manage future needs. Subsidies will be needed to fund rail operations and maintenance costs after the rail is constructed. The amount of subsidy needed will depend on several variable factors, such as fares and the number of riders. Recommendations 1. Stakeholders and the public should be informed of significant changes in a timely manner. HART should make priority to analyze these changes, determine how it will affect the project?s overall costs and schedule, and regularly update key management plans to reflect those changes. 2. HART should increase its efforts to regularly update its financial plan as cost changes and adjustments are necessary to reflect the current financial condition of the project. Updates should be supported by detailed, source documentation. 3. HART should also update its OMP to address funding, management, and other transit needs once the rail becomes operational. 4. HART should consistently and accurately report on project cost information, possibly identify and explain variances if internal and external reports are intended to be different so that policy makers and the public receive reliable project cost information. 5. HART should develop written poiicies and update procedures for contract administration. 6. HART should clearly distinguish the roles and responsibilities of project managers, contract managers, and contract administrators in contract administration policies and procedures. 7. HART should promote increased awareness of procurement and contract administration file recordkeeping by providing additional training to staff. 8. HART should develop more robust guidance, policies, and procedures that address the variety of contracts and associated invoices HART receives in order to help to standardize the invoice payment process and prevent improper payments. Page [44 9. HART should support its cost estimates with reliable and sufficient information.? To do so, HART should thoroughly document details, including any forecasting methodology and assumptions made, in support of its cost estimates. 10. HART should develop a forecasting model to best predict escalation costs and support it with documentation. The projections should be based on using long- term historical data rather than a future of one year. 11.Project managers should prioritize budget management, compare actual to estimates, analyze any differences and make adjustments as necessary to minimize additional cost overruns. 12. HART should not make concessions on retafnage to contractors, as it diminishes ability to ensure proper performance and could be miscOnstrued as favoritism/biased. 13. HART should document its cost?saving strategies and to the extent possible, quantify the amount of potential cost savings. 14.HART should develop and implement written internal policy and procedures that will address stipend payments, including requirements for supporting documentation of unsuccessful bidders? actual costs, determination of compensated value, and limit payment to no more than the unsuccessful bidders? actual costs. -- 15. HART should better document its office space requirements and regularly review its office lease agreements to identify any unoccupied usable area. if space is unoccupied, HART should consider renegotiating or subleasing to reduce current operational costs so that it only pays for space that is needed and to find potential future savings. 16. HART should make better planning efforts to address issues related to polices, fare policy details, and subsidy sources. 17. HART should recruit and hire to fill the key director vacancy as quickly as possible, and work to develop a succession plan so that other key positions have designated successors in the event of an unexpected departure. Page [45' Management Response Page I46 Appendix A Glossary of Acronyms ARRA ASG CZHERPS CEO CFO CMS CPO DB DBB DBOM DEB EPLS FEB FFGA FHSG FTA FY GEC GET GTC HART HR HRTP KHSG LR OCA 0MP PM PMOC PMP PMSC RFC ROM SAM USEPA UZA American Recovery and Reinvestment Act Airport Station Group City and County of Honolulu Enterprise Resource Planning System Executive Director and Chief Executive Officer Chief Financial Officer Contract Management System Chief Procurement Officer Design-Build Design-Bid-Build Design-SuiId-Operate-Maintain Draft Environmental Impact Statement Excluded Parties List System Final Environmental Impact Statement Full Funding Grant Agreement Farrington Highway Station Group Federal Transit Administration Fiscal Year General Engineering Consultant General Excise Tax General Terms and Conditions Honolulu Authority for Rapid Transportation Heavy Rail Honolulu Rail Transit Project Kamehameha Highway Station Group UghtRaH Operations and Maintenance Office of the City Auditor Operations andMaintenance Plan Project Manager Project Management Oversight Consultant Project Management Plan Project Management Support Consultant Request for Change Rough Order of Magnitude Right-of?Way System for Award Management US Environmental Protection Agency Urbanized Area Page [47 Appendix Glossary of Terms and Definitions CZHERPS is an Oracle based enterprise resource management and reporting system for the City and County of Honolulu. Change Orders are written orders or alterations within the scope of the contract that direct the contractor to make changes authorized by the contract with or without the consent of the contractor. Contract changes within the scope of the contract may relate to specifications, delivery point, rate of delivery, period of performance, price, quantity, or other provisions of the contract. Chief Procurement Officer is HART Executive Director or designee. Contingency is an allowance in cost estimate and schedule for unknowns, typically based on the lack of detail in the construction documents, unknowns anticipated during construction, and based on the difficulty level of the work. Contract Administrator is the person identified in a Contract?s Special Provisions who is designated to manage the various facets of the contract to ensure satisfactory performance in accordance with the contractual commitments and that obligations to HART are fulfilled. Contract Management System is Oracle Primavera document management system and contract control software for the project. HART uses CMS to track and store all pertinent documents related to the project, including but not limited to, contracts, submittals, request for information, meeting minutes, transmittals, purchase orders, cost worksheets, change orders, and invoices. Contract Manager coordinates with the Project Manager regarding Contract Change Orders for compliance with HART policy and procedures and compliance with contract terms and conditions. The Contract Manager will review merit determination and Negotiation Strategy Memos and provide recommendations to the Project Manager. Contract Modifications are any written alteration within the scope of the contract to specifications, delivery point, rate of delivery, period of performance, price, quantity, or other provisions in the contract executed between the government and the contractor. This includes contract amendments, change orders, and task orders. Contract Amendment is one type of formal contract modification. It must be in writing. Core System consists of five major components: Train Control System, Traction Electrification System, Communication and Control Systems, Fare Vending System, and Intrusion Detection System Cost Control is a methodology to properly track and control cost incurred by the project. Page [43 Design-Bid is a contract delivery methodology under which HART contracts with a single entity that has responsibility for the design and construction of the project. Design-Bid-Build is a contract delivery methodology under which the HART contracts with a single contractor for design and contract documents for construction of work by another contractor. Draft Environmental Impact Statement is a full disclosure document that details the process through which a transportation project was developed, includes consideration of a range of reasonable alternatives, analyzes the potential impacts resulting from the alternatives, and demonstrates compliance with other applicable environmental laws and executive orders. Estimate at Completion (EAC) is the expected total cost of a schedule activity, a work breakdown structure component, or the project when the defined scope of work will be completed. Exclusive Right-of-Way is transit from which all other motor vehicle and pedestrian traffic, mixed and cross, is excluded. Fare Revenue is revenue earned from carrying passengers in regularly scheduled service. Passenger fares include the base fare, zone premiums, and peak period premiums. Farebox Recovery Rate of a passenger transportation system is the proportion of the amount of revenue generated through fares by its paying customers as a fraction of the cost of its total operating and maintenance expenses. Final Environmental Impact Statement represents the final planning stage of the project before the FFGA is signed with the federal government. It must include 1) identification of a preferred alternative; 2) reSponses to comments made during the circulation period; 3) commitments to mitigate adverse impacts of the project; 4) evidence of compliance with related environmental statutes, Executive Orders and regulations; and 5) a description of changes that have been made to the project since the DEIS was published. Once the appropriate FTA official has approved the FEIS, it is concurrently filed by FTA with the US Environmental Protection Agency (US EPA) for publication of a notification of availability for a 30-day circulation period in the Federal Register. Financial Plan documents the recent financial history of the transit agency, describes its current financial health, documents projected costs and revenues, and demonstrates the reasonableness of key assumptions underlying these projections. Page [49 Firm Fixed Price Contract includes a price that remains fixed irrespective of the contractor?s cost experience in performing the contract. A firm fixed price contract may include an economic price adjustment provision, incentives, or both. Full Funding Grant Agreement is an agreement between the federal government FTA and HART as a semi?autonomous agency of the city and county of Honolulu that sets forth the scope of the project that will be constructed using federal and non?federal funds, establishes a financial ceiling with respect to participation in the project, establishes a time for completion and specifies the mutual understanding, terms and conditions relating to the construction and management of the project. Government Funds, Federal (also called Federal Assistance) is financial assistance from funds that are from the federal government at their original source that are used to assist in paying the operating or capital costs of providing transit service. Government Funds, State (also called State Assistance) is financial assistance obtained from a state government(s) to assist with paying the operating and capital costs of providing transit services. Government Funds, Local (also called Local Assistance) is financial assistance from local governments (below the state level) to help cover the operating and capital costs of providing transit service. Some local funds are Collected in local or regional areas by the state government acting as the collection agency but are considered local assistance because the decision to collect funds is made locally.- Heavy Rail is defined as a mode of transit service (also called metro, subway, rapid transit, or rapid rail) operating on an electric railway with the capacity for a heavy volume of traffic. It is characterized by high-speed and rapid acceleration passenger rail cars operating singly or in multi?car trains on fixed rails; separate rights-of-way from which all other vehicular and foot traffic are excluded; sophisticated signaling, and high platform loading. Invoice is the contractor?s request for compensation for services provided based on the contract for the project. Light Metro is a medium-capacity rapid transit system, often falling between and utilizing a-mix of light and heavy rail systems features with respect to ridership capacity, right-of-way designation, and vehicle type. Light Rail is defined as a mode of transit service operating passenger rail cars singly (or in short, usually two-car or three-car, trains) on fixed rails in shared or right-of?way that is often separated from other traffic for part of the way. Light rail vehicles are typically driven electrically with power being drawn from an overhead electric line via a trolley or a pantograph; driven by an operator on board the vehicle; and may have either high platform loading or low level boarding. Page [50 National Transit Database is a federally mandated database reporting system, established by Congress to be the Nation?s primary source for information and statistics on the transit systems of the United States. Recipients or beneficiaries of grants from the FTA under the Urbanized Area Formula Program or Other than Urbanized Area (Rural) Formula Program are required by statute to submit data to the NTD. Over 660 transit providers in urbanized areas currently report to the NTD through the Internet- based reporting system. Each year, NTD performance data are used to apportion over $5 billion of FTA funds to transit agencies in urbanized areas. Annual NTD reports are submitted to Congress summarizing transit service and safety data. Non?Exclusive Right-of~Way is the rail right-of?way (ROW) over which motor vehicle and/or pedestrian traffic moving in the same direction or cross directions may pass. Operating and Maintenance Cost is the recurring costs of providing public transportation service. They include: all employees? wages and salaries; fringe benefits; operating suppiies such as fuel, and oil; contractors? charges for services; taxes; repair and maintenance services, parts, and supplies; equipment leases and rentals; marketing; lease or rental costs; and insurance. Operating expenses include administrative expenses. Operating costs exclude fixed costs such as depreciation on plant and equipment, costs of providing transportation services not available to the general public, and interest paid on loans on capital equipment. Operations and Maintenance Plan documents five years of historical data and presents 20 years of projected system operating revenues and costs to demonstrate the capability of the agency to operate and maintain the proposed project while providing existing levels of transit service. Project Controls are acts of the project management staff assisting the project controls manager in all aspects of cost, schedule, contract administration, and configuration management. Project Manager is responsible for managing scope, schedule, and budget. The Project Manager has authority to initiate, negotiate, and process changes. The Project Manager determines merit, oversees and monitors contract changes, leads negotiations and prepares Contract Change Order documents. The Project Manager may delegate responsibility. Ridership is the number of passengers using a form of public transportation. Reporting is a practice used to communicate information to audiences including internal staff such as employees, management, and executives, along with elected officials, other organizations such as community interest groups and rating agencies, and the public. Right?of-Way is the area through which a train travels; a train?s dynamic envelope, to include the track and the area around the track. Page [51 Rough Order of Magnitude is an estimate provided by the contractor or GEC for a RFC prior to the RFC having authorization from HART for final pricing. The ROM will include schedule changes based in weeks and costs based on $10,000 increments. System for Award Management is the official U.S. government system that combines federal procurement systems and the Catalog of Federal Domestic Assistance into an e-procurement system. Subsidy is an allocated amount of financial assistance from the government. Transit Agency (also called transit system) is an entity (public or private) responsible for administering and managing transit activities and services. Transit agencies can directly operate transit service or contract out for all or part of the total transit service provided. Utility Agreement is a contract with a utility company which defines the scope of a relocation, including reimbursement, liability, right-ofuentry, insurance, and schedule to complete the work. Westside Stations Group consists of the first nine stations along the rail route. Page [52 Appendix - Contingency Balance Comparison* HART Contingency Drawdown PM 06 Reports Spreadsheet Allocated Unallocated Contingency Ending No_ Month Contingency Contingency Balance Balance Difference Dec 2011 MIA NIA 4 Jan 2012 NXA -- 5 Feb 2012 NIA NIA - 6 Mar 2012 NIA NJA NIA 7 Apr 2012 NIA NIA 8 May 2012 9 Jun 2012 NA -- 10 ul 2012 NA N74 NIA $649.4 - 11 Aug 2012 WA NIA $654.5 12 Sep 2012 NIA $654.5 13 Oct 2012 MIA $654.4 14 Nov 2012 $654.7 -- 15 Dec 2012 $654.4 16 Jan 2013 $478.0. $654.4 ($176.40) 17 Feb 2013 $476.0 $652.8 ($176.80) 18 Mar 2013 MA MA $467.8 $652.3 ($184.50) 19 Apr 2013 NIA $441.5 $654.3 ($212.80) 20 May 2013 $447.4 $654.3 ($206.90) 21 Jun 2013 $400-$430 $654.3 22 Jul 2013 NIA $413-$439 $649.1 23 Aug 2013 NIA $415-$443! $643.2 ($200. 24 Sep 2013 NIA NIA $433.0 $637.1 ($204.10) 25 Oct 2013 NIA $440.0 $615.0 ($175.00) 26 Nov 2013 MIA $444.0 $610.0 ($166.00) 27 Dec 2013 $460.0 $609.8 ($149.80) 28 Jan 2014 NIA NIA $444.0 $608.3 ($164.30) 29 Feb 2014 $367.0 $61.0 $428.0 $608.2 ($180.20) 30 Mar 2014 $362.0 $60.8 $422.8 $608.2 ($185.40) 31 Apr 2014 NIA NIA $590.7 32 May 2014 $352.6 $63.8 $416.0 $568.4 ($152.40) 33 Jun 2014 $331.1 $66.3 $397.0 $563.4 ($166.40) 34 L11 2014 $323.8 $66.3 $390.0 $563.7 ($173.70) 35 Aug 2014 NIA NIA $559.4 36 Sep 2014 $324. 6 $66.3 $391.0 $550.1 ($159.10) 37 Oct 2014 $281.0 $67.0 $348.0 $531.8 ($183.80) 38 Nov 2014 $274.1 $56.1 $300.5 $542.5 ($242.00) 39 Dec 2014 $267.5 $66.5 $334.0 $523.8 ($189.80) 40 Jan 2015 NIA NIA NIA $519.8 41 Feb 2015 $291.8 $11.5 $303.0 $515.6 ($212.60) 42 Mar 2015 $2918 $11.5 $303.0 $510.7 ($207.70) 43 Apr 2015 NIA NIA $510.4 44 May 2015 $291.8 $11.5 $303.0 $509.8, ($206.80) 45 Jun 2015 $291.8 $11.5 $303.0 $501.7 ($198.70) 46 Jul 2015 $291.8 $11.5 $303.0 $500.7 ($197.70) 47 Aug 2015 NIA NIA NIA $492.9 48 Sep 2015 8291.5 $11.5 $303.0 $492.8 ($189.80) 49 Oct 2015 8291.5 $11.5 $303.0 $492.8 ($189.80) 50 Nov 2015 $291.5 $11.5 $303.0 $489.0 ($186.00) 51 Dec 2015 $291.5 $11.5 $303.0 $488.2 ($185.20) Page [53 Source: Of?ce of the City Auditor (OCA) comparison of PMOC and Quarterly Reports from October 2011 through December 2015 and HART Contingency Drawdown Spreadsheet Dollars in millions Some quarterly reports do not contain contingency balance information. Page 54 Appendix GET Receipts C0mparisons* HART HART Internal PMOC Reports ngress Rep? SpreadSheet Difference Between PMOC GET Surcharge Reports Receipts Actual GET and the Actual GET Surcharge Received To Date GET Received Surcharge GET Surcharge No. Month Amount (Since 2007) (Since 2007) Receipts Receipts 1 Oct 2011 $3,524 $673 NlAl $776 ($103) 2 Nov 2011 $3,524 $673 NJAE $791 ($118) 3 Dec 2011 $3,328 $746 NIA- $810 4 Jan 2012 $3,328 $746 NIA $823 5 Feb 2012 $3,328 $769 NIA $844 6 Mar 2012 $3,328 $796 NIA $859 7 Apr 2012 $3,328 $796 $859: $870 8 May 2012 $3,328 $859 $859 $890 9 Jun 2012 $3,328 $859 $859 $906. 10 Jul 2012 $3,358 $845 NIA $907 11 Aug 2012 NIA $906 $920 12 Sep 2012 $3,358 $907 NIA $932 13 Oct 2012 $3,358 $907 NIA $950 14 Nov 2012 $3,358 $907 NIA $963 15 Dec 2012 $3,358 $554 NIA $974 ($420) 16 Jan 2013 $3,358 $554 $996 ($442) 17 Feb 2013 $3,358 $554 NIA $1,013 ($459) 18 Mar 2013 $3,358 $554 NIA $1,029 ($475) 19 Apr 2013 $3,358 $554 NIA $1,049 ($495) 20 May 2013 $3,358 $554 NIA- $1,062. ($508) 21 - Jun 2013 $3,358 $554, $1,029 $1,080 ($526) 22 Jul 2013 $3,358 $651 - $1,029 $1,111 ($460) 23 Aug 2013 $3,358 $651 $1,079 $1,125 ($474) 24 Sep 2013 $3,358 $651 $1,079 $1,143 ($492) 25 Oct 2013 $3,358 $651 $1,079 $1,157 ($506) 26 Nov 2013 $3,358 $1,140 $1,143 $1,170 27 Dec 2013 $3,358 $1,140 $1,143 $1,187 28 Jan 2014 $3,358 $1,140 $1,143 $1,206 29 Feb 2013 $3,358 $1,140 $1,186 $1,228 (588) 30 Mar 2014 $3,358 $1,180 $1,186 $1,248 31 Apr 2014 NIA NIA $1,186 $1,265 32 May 2014 $3,358 $1,180 $1,248 $1,274 33 Jun 2014 $3,358 $1,180 $1,248 $1,298 ($118) 34 Jul 2014 $3,358 $1 ,180 $1 ,248 $1,314 ($134) 35 Aug 2014 NIA NIA $1,297 $1,331 36 Sep 2014 $3,358 $1,480 $1,297 $1,346 $134 37 Oct 2014 $3,358 $1,480 $1,297 $1,362 $118 38 Nov 2014 $3,358 $1,480 $1,346 $1,380 $100 39 Dec 2014 $3,358 $1,480 $1,346? $1,404 $76 40 Jan 2015 WA NIA $1,346 $1,426 41 Feb 2015 $3,358 $1,346 $1,404 $1,451 ($105) 42 Mar 2015 $3,358 $1,404 $1,404 $1,469. 43 Apr 2015 NIA NIA $1,404 $1,487 44 May 2015 $3,358 $1,404 $1,469 $1,503 45 Jun 2015 MA MA $1,469 $1,522 - 46 Jui 2015 $3,358 $1,469 $1,469 $1,542 47 . Aug 2015 NIA NIA $1,521 $1,568 48 Sep 2015 $3,358 $1,521 $1,521 $1,586 49 Oct 2015 $3,358 $1,521 $1,521 NIA 50 Nov 2015 WA NIA $1,586 NIA - 51 Dec 2015 NIA NIA $1,586 NIA - 98961155 Source: OCA comparison of PMOC and Quarterly Reports from October 2011 through December 2015 and HART GET Schedule as of November 2, 2015. Dollars in millions Some quarterly reports do not contain GET county surcharge balance information. Appendix Capital Costs Comparison The following data table features a comparison of capital costs among eleven heavy rail projects. The first four services (Atlanta, Baltimore, Miami, and Washington, D.C.) were initial rail projects, initially establishing heavy rail service in the respective urban areas. The remaining comparisons were extension projects, built to integrate into an already established heavy rail transit service. Total Capital Cost (dollars in millions)* Project Year Project Corn - leted 1 Original FFGA 5 At Completion Cost Overruns (V) Atlanta 1970 $1,723 $2.720 57.90% Baltimore 1983 $804 $1,289 60.30% Miami 1984 $1,008 $1,341 . 33.00% Washington, D.C. 1976 $4,352 $7,968 83.10% Buffalo 1984 $478 $722 51% Pittsburgh $699 $622 -1 1% Portland $172 $266 55% arano $188 13% .. a 10. Rat! $310.50 $438.40 $171.60 $109.50 .50 55.80 13.70% 19.10% 4.90% Baltimore-Johns Chi 0 SW San Francisco-Coima $522.00 179.90 5.20% 8.70% 1.80% ?$116.20 . . 64.00 $464.00 Baltimore-6011i HittintHVall I I Portiand-Westside Hillsboro St. Louis-MetroLink a Chicago-Douglas Branch 2005 ,1 $473.20 $440.80 680% San Francisco-SFO 2003 $1,185.70 $1,551.60 30.90% Washington-Largo 2004 $412.60 $426.40 3.30Minn eapolis-Hiawatha 2004 $512.90 $696.70 35.80% Pittsburgh-Stage ll Reconstruction 2004 $363.20 $385.00 6.00% San Diego-Mission Valley East 5 2005 $426.60 $506.20 18.70% Source: Of?ce of the City Auditor (OCA) analysis based on information obtained from the urban Transit Rail Projects: Forecast Versus Actual Ridership and Cost, 1990, prepared by Dr. Don H. Pickrell for the Urban Mass Transit Administration and the Predicted and Actual Impacts of New Starts Projects: Capital Cost and Ridership, 2007. All dollar amounts shown represent adjusted real values. The FFGA program was established after the projects featured in the 1990 study. As such, forecasted figures shown above are sourced from projections earlier in the planning process than an equivalent FGA stage. Page [57 Appendix Procurement Documentation File Where Appropriate, the procurement documentation file should contain: 5 Purchase request, acquisition planning information, and other 1 documents 2 Evidence of availability of funds 3 Rationale for the method of procurement (negotiations, formal advertising) 4 List of sources solicited 5 independent cost estimate 6 Statement of workiscope of services 7 Copies of published notices of proposed contract action 8 Copy of the solicitation, all addenda, and all amendments 9 Liquidated damages determination 10 An abstract of each offer or quote 1 1 Contractors contingent fee representation and other certi?cations and representations 12 Source selection documentation 13 Contracting Of?cer?s determination of contractor responsiveness and responsibility 14 Cost or pricing data 15 Determination that price is fair and reasonable including an analysis of the cost and price data, required internal approvals for award 16 Notice of award 17 Notice to unsuccessful bidders or offerors and record of any debriefing 18 Record of any protest 19 Bid, Performance, Payment, or other bond documents, and notices to sureties 20 Required insurance documents, if any 21 Notice to proceed Source: FTA Best Practices Procurement Manual, November 2001 Page [58 Appendix - City Council Resolution 15-90 agony COUNCIL 90 - ., CITYAND counrv or: HONOLULU at;ng HONOLULU. HAWAII 1 5 RESOLUTION REQUESTING THE CITY TO CONDUCT A PERFORMANCE AUDIT OF THE HONOLULU RAIL TRANSIT PROJECT. WHEREAS. at a cost of $5.2 billion and rising, the Honolulu Rail Transit project ("project") represents the largest and most expensive capital project in the history of the City and County of Honolulu; and WHEREAS, on July 201i the Honolulu Authority for Rapid Transportation was established through an amendment to the Revised Charter of the City a and County of Honolulu and is authorized to develop, operate, maintain and expand the project; and - WHEREAS, the plan to pay for this project has always centered on federal funding of $1.55 billion that is being awarded to HART in phases over time, as well as a half~percent general excise tax surcharge for rail that has been collected since 2007;and WHEREAS, with construction underway, budgetary, ?nancial, funding and cost concerns threaten the continued viability of the rail transit project, reflected in a growing shortfall of almost $1 billion due to reported factors such as project delay costs, contract bid escalations, and low GET surcharge revenues. as well as the need to cover future operating and maintenance costs, and extend the rail line to areas such as Manoa and West Kapolei; and WHEREAS, these budgetary, ?nancial, funding and cost concerns have resulted in HART appealing to both the City Council and the State Legislature for ?nancial assistance, including asking the City Council to adopt Resolution 15-7, which would authorize the issuance of City general obligation bonds and notes up to $1.9 billion, and asking the State Legislature to extend the GET surcharge in perpetuity; and WHEREAS, both City councilmernbers and State legislators have expressed continuing frustration over the lack of detailed ?nancial information. de?nitive construction costs, and soiid ?nancial plans with which to base decision-making for a project with the size, projected growth and uncertain final funding needs that the rail project represents: and WH EREAS, the Council finds that, given the scope of the project and the unknown magnitude of the funding needed in the future, a performance audit is warranted in order to provide accountability and public transparency. particularly at a time when public and government discussion, deliberation, and decision-making are 8:34 AM 1 Page 59 thiTY COUNCIL 90 .3 cm AND COUNTY OF HONOLULU HONOLULU, HAWAII No. 1 5 RESOLUTION focused on the soundness and continued viability of the project and its impact upon the residents of Honolulu; now, therefore, BE 11' RESOLVED by the Council of the City and County of Honolulu that the City Auditor is requested to investigate and conduct a performance audit of the Rail Project to determine the adequacy of its processes to ensure the Rail Project is constructed and completed economically, effectively and efficiently; and BE iT FURTHER RESOLVED that with an audit objective of providing government decisionvmakers with suf?cient information to form the basis for legislative decisions that provide appropriate and justified funding. whiie also remaining careful stewards of taxpayer dollars, the Council requests the City Auditorto examine, at a minimum. the following: (1) ?nancial plan, including any and all contingency ?nancial plans and updates ?led subsequent to the establishment of the initial ?nancial plan; (2) Contract awards and associated expenditures (including subcontractor costs), as well as details regarding what the expenditures are being used for; (3) The amount of cost increases. over and above projections in ?nancial plans, and detaiis on cost containment measures and the effectiveness of these measures to mitigate increasing costs and growing shortfalis; (4) A detailed accounting of all revenues and expenditures for the rail project from 2007 through the end of 2014; (5) The point at which HART should have known or became aware of the potential shortfall; (6) The likelihood and potential for additional cost overruns exceeding the current shortfall being reported by and (7) The potential continuing costs after construction is completed and the Rail Project is operational; and 0082015~D26613f31f2015 8:34 AM 2 Page [60 COUNCIL CITY AND COUNTY OF HONOLULU HONOLULU. HAWAII RESOLUTION BE lT FURTHER RESOLVED that the City Auditor is requested to meet with. and coordinate audit efforts with, the State Auditor, should the 2015 State Legislature pass a measure or measures requesting a similar State audit to ensure that both City and State audits are not duplicative! but act to maximize resources, ?ndings and recommendations; and BE iT FINALLY RESOLVED that copies otthis Resolution be sent to the Mayor, 3Managing Director? the Executive Director of the onolulu Authority for Rapid nga'insportation? and the City Auditor. . 1N UCED M: - DATE OF INTRODUCTION: 3 i eats Honolulu, Hawaii Councilmembers 0C82015-0266f3f3?li2015 8:34 AM 3 Page 61 CITY COUNCIL CITY AND COUNTY OF HONOLULU HONOLULU, HAWAII CERTIFICATE RESOLUTION 1590 Introduced: 03f31f15 By: ERNEST MARTIN Committee: TRANSPORTATION Title: RESOLUTION REQUESTING THE CITY AUDITOR TO CONDUCT A PERFORMANCE AUDIT OF THE HONOLULU RAIL TRANSIT PROJECT. Voting Legend: wiReservaIions 041302?15 TRANSPORTATION CIR-159 - RESOLUTION REPORTED OUT OF COMMITTEE FOR ADOPTION. 051?061?15 COUNCIL CR4 59 AND RESOLUTION 15-90 WERE ADOPTED. ANDERSON. ELEFANTE, FUKUNAGA, KOBAYASHI, MARTIN, MENOR. OZAWA. 2 ABSENT: MANAHAN. PINE. EST Y. MARTIN. CHAIR PRESIDING OFFICER LEN ASHI. ACTING CITY CLERK 29396162