City auditor slams HART practices

The agency constructing the $9 billion Honolulu rail project violated state procurement law multiple times, according to a report by the city auditor.

“We found that (the Honolulu Authority for Rapid Transportation) violated procurement requirements 18 times in our sample review by issuing after-the-fact payments to contractors” for work done without proper notice to proceed, the report by city Auditor Edwin Young said.

The violations involved change orders totaling $4.5 million for two separate contracts — with Kiewit Infrastructure West and URS Corp. — the report said.

“Of the 17 change order procurement violations (for the Kiewit contract), we identified 8 instances where the contractor was directed to continue design work instead of following change order procedures,” the audit said. In nine of the 17 cases, “a total of $177,155, were not approved by the Procurement and Contracts Officers.”

HART also did not comply with existing policies and change orders, the audit said.

Overall, the auditor’s report said cost overruns and schedule delays were caused by inexperienced HART managers and contractors making questionable change orders and contract amendments “without sufficient justifications, inadequate documentation … and insufficient internal controls.”

The report also painted a grim picture of the project’s future but found that some improvements have been made to control costs and to heed the recommendations made in previous audits as well as by the Federal Transit Administration and the oversight consultant, the report said.

“Unfortunately current HART operations, practices, staffing and succession planning remains incomplete and does not adequately prepare for the project’s future,” Young’s cover letter to the Honolulu City Council said. “In our opinion, HART policies and practices are inadequate to prevent cost overruns and schedule delays from recurring.”

The audit was sent to city officials Thursday. The Council requested the audit in September 2017 amid growing concerns about the cost of the 20-mile project, which had risen by approximately $4 billion from its $5.3 billion cost in 2012.

More than 1 audit

The city 112-page audit is separate from a series of audits being released by state Auditor Les Kondo to the state Legislature this month, although it draws some of the same conclusions.

The city’s report concluded that cost overruns and schedule delays were largely to blame for the project’s growing price tag.

“HART lacked internal controls to minimize costs and prevent schedule delays,” Young said, adding that repeated warnings by the project management oversight consultant were ignored or addressed only partially.

Young said a review of 208 change orders and 63 contract amendments issued for 10 contracts raised the project cost by $416 million, a 16 percent increase over the original value. Change orders to three construction contracts alone added about six years to the project schedule, the report said.

Of 96 contracts awarded between 2008 and 2016, 69 contracts had 641 change orders and amendments, the report said.

In his response within the auditor’s report, HART CEO Andrew Robbins said the agency has implemented or begun to put in place recommendations made in the draft audit it received, as well as a previous audit from April 2016.

“HART concurs with the need to continue updating contract administration procedures, including those related to the oversight and approval process for contract amendments and change orders,” the agency response said. It also instituted a Change Control Committee to improve change procedures, the response said.

The HART administration will take to its board the audit’s recommendation to either hire an internal auditor or employ an outside firm to conduct audits of the work of the agency and its consultants, the response said.

The audit said HART’s contract management system data base is incomplete, leaving the agency to rely on a paper-based contract filing system for contract oversight that was insufficient. HART responded that a conversion to an electronic filing system “is anticipated to be completed as budget is made available.”

The audit said HART’s staffing and succession planning is incomplete and doesn’t prepare adequately for the project’s future. The agency relies on consultant managers and short-term personal services contracts for staffing, with 133 of 137 of HART’s employees on personal service contracts.

HART responded that while it would be ideal to have agency employees in key positions, “this is not always practical for multiple reasons.”

Other points made in the audit:

>> 41 of 100 contractor invoices totaling approximately $198 million did not have sufficient documentation or approvals. Contract files often lacked key documents including independent cost estimates, records of negotiations or proper approvals.

>> The project proceeded prematurely, as did many of the original contracts, when rights of way were not secured, plans for relocating utilities were insufficient and there were no adequate agreements with key third parties such as HECO, the University of Hawaii and even the city government.

>> “The rush to approve the project was for political reasons.” The report did not expand on that point.