splost 2 forensic report

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DeKalb County School SystemSPLOST Forensic Program Review

Table of Contents

Confidential 6/01/2006

Section

I

I-A

I-B

IV

IV-C

IV-D

IV-E

V

V-A

V-B

V-C

V-D

V-E

V-F

V-G

V-H

V-I

VI

2

3

4

5

Section Description

The SPLOST Program and PartiesThe Program and Budget Process

The Parties

Scope of Work

Findings and Conclusions-Executive Summary

Findings and Conclusions-Detailed Discussion

Perceptions of Problems with the SPLOST11Program-Change Orders and Management with Heery-Mitchell

Understated Needs Assessment Levels and Approval ofProjects by the Board

Heery Mitchell Contract Files and Performance

Allocations of Funding to Clusters and Projects

Southwest DeKalb High School-What Happened and How itCould Have Been Avoided

Other Observations

Selection of Individual to Run the SPLOST Program onBehalf of DCSS

Selection and Approval of Contracts

Audits

Close Outs

Punch List and Repair Work

Contract Administration

Change Order Review

Contract Administration

Other Contract Administration Issues

Recommendations

Criteria for Capital Expenditures

Needs Assessment Process

Priority of SPLOST Projects

Cluster Elementary School

DCSS Interface Representative for

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13

13

16

22

29

33

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County School SystemSPLOST Forensic Program Review

Table of Contents

Confidential 6/01/2006

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Budget and StatusReporting forMajorCapital Projects

MoreFormal ProjectApproval Process

EvaluationofExistingContract Language

Financial OversightbyDCSS

Best PracticesForum


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Celebrating 25 Years

June 1,2006

Dr. LewisSuperintendentDeKalb County School System

3770 North Decatur RoadDecatur, Georgia 1099

Dear Dr. Lewis:

Rubino in conjunction with PMA Consultants

(hereinafter, has completed our effort related to those tasks

outlined in our proposal to County School System of

December 27, 2005 (as subsequently modified based on issues identified

and information gathered and reviewed) concerning SPLOST11

(or, theProgram). (This effort was described as Phase I in the proposal). In the

following pages and Attachments, we have presented our conclusions

based on the information reviewed and the discussions and interviews with

DCSS representatives and other individuals (identified further).

The report has been organized to include discussions relating to the

following issues and areas:

An overview of the SPLOST program;

An explanation of the various parties in the SPLOST

Program process;

A discussion of the work performed by including

a listing of the 16 construction projects sampled;

A summary of interviews conducted;

Summaries of budget and actual cost amounts for the SPLOST

11program;

A discussion of the growth in the SPLOST program from the

initial assessment timeframe to the current time,

and reasons for the increases;

Confidential Page 1 June 1,2006

Member, Worldwide Professional


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County School System SPLOST Forensic Program Review

A summary of the provisions of the contract between the Program Manager (PM),

Heery-Mitchell, a Joint Venture (HM) and DCSS, and an assessment as to the

information contained in the HM files relating to its performance in accordance with

these provisions;

A discussion of the South West DeKalb High School (SWD) renovation project;

Comments as to the process used on SPLOST11 for professionals

selection and the results of the changes to the contracts for select contract

reviewed by

Recommendations arising from our review and conclusions.

I. THE SPLOST PROGRAM AND PARTIES

A-The Program and Budget Process

The Special Purpose Local Option Sales Tax ("SPLOST 11") program represents the

second phase of the one percent local sales and use tax levied within DeKalb County for twenty

quarters beginning on July 1, 2002. Under the passed by DeKalb County

voters on March 19, 2002, the sales and use tax proceeds are earmarked primarily for thefollowing DCSS Capital Outlay Projects:

a. Property acquisition, construction and equipping of eight new schools and two

new centers,

b. Renovations, modifications, additions, and equipment for existing county schools,

and

c. Acquisition and installation of information systems, hardware and infrastructure

at all schools and selected other facilities.

The SPLOST 11 budgeting process started with the program management firm

which had been engaged by DCSS for the SPLOST I program, conducting a comprehensive

Needs Assessment (NA). The purpose of the HM assessment was to evaluate and identify the

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capital improvement, technology and transportation needs in the late time period for

evaluation purposes for the SPLOST11 In total, identified approximately $1.15

billion in capital requirements for the assessed areas. In contrast, at the time of the start of the

SPLOST11Program, the Sales and Use tax collections were estimated at plus Georgia

DOE funding and interest of another (after the use of of advanced funding for

SPLOST I projects), for a total of approximately This resulted in assessed needs that

were considerably in excess of anticipated SPLOST11collections.

Due to the variance between collections and total assessed needs, the School Board was

presented with a preliminary prioritization and budget for all potential SPLOST 11 projects on

June On June 10,2002, the Board of Education (BOE, or the Board):

Approved the SPLOST11Capital Outlay priority list of Phase projects totaling

$325,433,078 to allow for the immediate planning and development of new schools,

renovations, technology and transportation improvements.

Authorized the Superintendent and Staff to utilize funding in the amount of

to plan and develop new schools and centers, classroom additions,

renovations and property acquisitions described as Phase

In total, the June 10,2002 actions by the DCSS BOE approved funding in the amount of

$430,833,078 for those projects, prioritized as a part of the needs assessment as Phases and

(See attached Schedule I for summary of the amounts and dates of Board approval actions.)

In addition, DCSS had identified approximately of Program contingency4. The NA

estimates supporting the Board authorized amounts included costs of the following types:

SPLOST I Capital Improvements and Capital Improvements Needs Assessment - revised 18/01makes no comment as to the appropriateness of utilizing of SPLOST funding for SPLOST I projects

SPLOST Capital Improvements Preliminary Prioritization and Budget -MayA review of SPLOST Board actions does not indicate any direct Board action or consent item specifically

approving program contingency but contingency amounts are shown on documents supporting board minutesbeginning on September At the September Board meeting, the board approved the allocationfrom contingency to balance the cost increases incurred on several projects. The contingency balance prior to thataction was $24.6 million as listed above.



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Architect and Engineering Fees

a Construction Cost for New Construction, Additions, and Renovations

Furniture, Fixtures Equipment

Land Costs

Program Management Fees

Technology Upgrades

Transportation Improvements

Other Miscellaneous Costs

The other miscellaneous cost category included a pool of costs that were estimated as a

part of the needs assessment process for individual project cost contingencies and estimated cost

escalation.

Contingencies were included in each of the projects that we reviewed at a rate of five

percent (5%)of all estimated project costs. Typically, cost contingencies are used for a variety

of purposes. Cost contingencies of this nature are typically used to address cost growth related

to design and scope changes, as well as expected and unforeseen change orders that occur during

the actual construction of the respective

An additional cost pool for escalation was included in the Other Miscellaneous cost

category. A seven and one half percent escalation factor was also added to all estimated costs.

Escalation allowances of this nature are normally used to plan for cost increases during the life of

a project or program primarily for price increases resulting from inflation. Generally speaking,

the size of the escalation factor largely depends on the duration gap between the time that a

project is being estimated and the construction mid-point. Obviously, the longer the time period

between the estimation date and the actual construction period, the higher the effective escalationrate will be.

The Construction Management Association ofAmerica's Standard ofpractice defines Contingency as"An amount ofmoney reserved by the Owner to pay for unforeseen changes in the work." ...



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On May 12, 2003, the Board provided a second grouping of SPLOST 11 authorizations.

This Board action is known as the "Next Steps" funding allocation. Under the Next Steps

funding allocation, the Board authorized the Superintendent and staff to:

Utilize anticipated funding in the amount of $92,726,270 to bring the funding

allocation for each respective DeKalb County Cluster to 40%of the Cluster's ten year

assessed needs. In essence, the Clusters were given the 40% allocation, and given the

opportunity to decide how to spend those funds

Utilize anticipated funding from the State Reimbursement Program to develop the

following projects:

o Stephenson Large School Model-Additional project funding of $4,903,200

o New Peachtree Middle School Model - Additional Anticipated Funding

o New High School Career Technology Additions - Additional Funding of

o Renovate Restrooms at all schools beyond the funding already approved under

Phase 1-

Additional Funding $16,800,000

The Next Steps Board action added approximately $135.1 M to the Program, or a revised

total of approximately before Program contingency. The Board subsequently

approved certain other budget adjustments in June 2003, November 2003 and June based

on recommendations from the SPLOST team. These actions addressed the Model, the

Sexton Woods Relocation, and Emergency HVAC projects, and authorized an additional

in Board approved funding. As evidenced in Schedule I, the total Board

authorization for specific SPLOST projects totaled $586,527,543, before program

contingency. In addition to the amounts approved for specific projects, an additional

of SPLOST program contingency was identified6. During the 2003 through 2005

A review ofSPLOST Board actions does not indicate any direct Board action or consent item specifically

approving program contingency but contingency amounts are shown on documents supporting board minutes



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time period, a number of additional SPLOST board actions addressed SPLOST project and

program budgets, with the majority of these actions geared toward the re-allocation of funding

from contingency to projects that were in an overrun status in comparison to the originally

approved project amounts. Accordingly, the total Board approved program budget at February

2006 stood at $61 (See Schedule I), and, as of December 6,2004, virtually the entire original

contingency amount of had been reallocated to projects with cost growth and overruns.

As mentioned above, anticipated SPLOST11 tax collections were estimated at

at the inception of the SPLOST program, which, with the Georgia DOE match, totaled

of total revenue. As of April 2006, total SPLOST tax collections and other revenue were

estimated at $494 million, or an amount in excess of $115M below the $61 that the Board had

approved for specific projects and contingency.

Given that the estimated available program funding was at levels less than the $61 of

approved projects and contingency, DCSS SPLOST 11 Program personnel separated the school

projects into"Above the Line" (AL) and "Below the Line" (BL) categories, with the schools

slated for implementation initially, and the BL schools only being implemented as funds would

allow. The DCSS Board minutes, however, do not clearly address the issue of the approved

projects being subject to funding, as discussed further. As of April 2006, the total wasapproximately while the BL total was As discussed further, changes were

often made from AL to BL to address growth in the AL projects in process, such that many of

the schools that were assuming completion of their new schools or renovation efforts have now

slipped to a BL category either in total, or with respect to certain deferred aspects of the work.

In reviewing the evolution of the budget process and amounts, the June 10, 2002 Board

Approved Phase projects (which totaled with contingency, as referenced

above) were within the total estimated revenue projection, and would have logically been viewed

at the time by the community and other interested parties as the AL projects, even though those

terms were not used at that juncture.

beginning on September At the September Board meeting, the board approved the allocationfrom contingency to balance the cost increases on several projects. The contingency balance prior to thataction was$24.6million as listed above.



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B-The Parties

The SPLOST 11 Program oversight rests with the DCSS Board of Education. As such,

the Board is responsible for approving contracts and change orders in excess of certain limits,

approving new school and renovation projects, and for directing the prioritization of the various

projects.

DCSS designated Dr. Stanley Pritchett as the Associate Superintendent of Business

Affairs and Plant Services in 1996. In this capacity, Dr. Pritchett served as the DCSS

representative in charge of both the SPLOST I and SPLOST programs until October at

which time he was replaced by Mrs. Patricia Pope. Dr. Pritchett was the DCSS interface with

and was also responsible for the recommendations to the Superintendent with respect to

selection and, in conjunction with HM, for the selection of contractors to perform the

various school construction projects. Dr. Pritchett and HM were responsible for making

recommendations to the Board relating to project selection and prioritization. has been the

PM since January 1998.

During the performance of SPLOST 11, DCSS had the following Superintendents of the

School System:

Dr. James Hallford, from the start of SPLOST to June

Dr. Johnny Brown ,from July to October

Dr. Lewis, from October to the present

Approximately twenty five major Contractors and twenty one Architect

Engineering firms have received contracts for work on the SPLOST 11 Program, and many of

these contracts will be discussed further.



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SCOPE OF WORK

The original scope of work was established in our discussions with DCSS,

and outlined in general in our proposal of December 27, 2005. The proposed areas of review

were incorporated into our contract with DCSS dated January 9, 2006. In summary, we were

asked to review the general issue of the growth of the SPLOST budget and resulting change

orders issued to contractors, in an attempt to determine and explain the reasons for increases in

the Program cost, which has led, in large part, to differences in the original Board-approved

project list and those projects actually scheduled to be completed. As part of our effort, the

County was interested in assessing the level and adequacy of documentation and support in the

PM's files for the entitlement and pricing aspects of various changes to the construction and

ARCHITECT contracts. In addition, we were asked to review the PM's files for information

with respect to reports and schedules for the Program that were required under the PM's contract.

As we commenced our work, we decided to conduct a broad range of interviews,

including Board members, other individuals suggested to us by DCSS, and individuals who

contacted us to give their perspective. Those interviews raised certain other issues not

specifically discussed and contemplated at the time of our original engagement, as discussed

further. More specifically, we conducted interviews with representatives, as well as withDCSS employees, legal representatives, and other interested parties. In Attachment A, we have

included a listing of the individuals that we held conversations with during the performance of

our work. All of the DCSS Board Members were invited to participate in our interview process.

In Attachment B, we have listed the information reviewed as part of our assignment, including

certain schools where we conducted site visits, and in Attachment C, we have included a

summary of certain references and publications that we have considered as part of our

conclusions and recommendations.

As part of the approach to the engagement, we realized that it was neither economically

feasible nor necessary to review every school project in the Program. Therefore, we selected all

Program projects with an underway budget of over These projects are listed in Attachment

D, along with information as to the ARCHITECT firm and contractor selected for the projects,



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and the type of method guaranteed maximum price, lump sum, etc.) used

by the County for each construction contract.

As discussed further, our initial review or the HM files relating to the issue of the level of

documentation prepared and maintained for the individual projects resulted in our conclusion

that HM had not consistently documented its conclusions as to the entitlement as to most of the

change orders on the Program, nor had it consistently summarized the effort that it had

undertaken, or its basis for its recommendation as to the pricing and ultimate amount of the

subject changes. Instead of being in a position of reviewing conclusions and

determining, on a sample basis, our reactions to the level of support for those entitlement and

pricing reviews (as contemplated at the outset of our engagement), we concluded that there was

no Program-wide approach for such reviews by HM, and reviewed the sample project files

(discussed further) to confirm that this conclusion was appropriate. In conjunction with DCSS

representatives, we concluded that it was more beneficial to review all of the larger project files

during our Phase I effort rather than selecting just one or two contracts and reviewing the

entitlement and pricing basis for the individual change orders in more depth.

Our interface with DCSS was with the Superintendent of Schools, Dr. Lewis,

his administrative assistant, Ms. Deborah Loeb, and the Chief Financial Officer, Rick Cost. Wealso met on numerous occasions with Mrs. Patricia Pope, and received information from her and

her staff. Our work was performed independently, and our conclusions are not necessarily those

of the Superintendent or other DCSS employees. Since the time period for our Phase I review

was limited, our review was somewhat summary in nature, especially with respect to certain

issues arising out of the interview process that were not contemplated within our original scope

of work for Phase I.

FINDINGS AND CONCLUSIONS-EXECUTIVE SUMMARY

As mentioned above, the original budget for the SPLOST program was approved by

the Board in June of 2002, and outlined of specific projects in two groups, Phase and



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Current projects approved to date total inclusive of contingency which was

originally established at a total of approximately and which has now been eroded with

cost overmns on existing contracts. Against this schedule of school projects that have been

approved is projected revenue of leaving a shortfall of over $1 if all projects on the

list are considered.

During the course of our review, the major problems identified to by DCSS

representatives and others interviewed were:

Overmns on the various projects, such that the contingency for the Program has

basically eroded in its entirety;

Constant requests by the SPLOST Group, including for the Board to approve

change orders to the construction contracts;

Shifting of priorities of the various programs, such that schools that were scheduled

for completion as part of the original budget will not be completed with SPLOST11

funds, and others that were not part of the originally approved budget have become

higher priority, and will be completed;

A lack of appropriate Program management and oversight by Group,

that may have caused or contributed to the aforementioned problems.

In summary, the following are our major conclusions relating to these and other issues

that arose during our review. In Sections and V of this report, a detailed discussion of each of

these issues, as well as comments relating to other findings and conclusions, is included. In

Section VI, we have included 19 specific recommendations for the Board to consider as part of

its improvements in its capital construction programs.

contract with DCSS was a comprehensive Program Management

contract and imposed many requirements on HM in terms of scope and

contract deliverables that are necessary to manage a program of the SPLOST11

size. Based on our review of the HM files and our conversations with and

DCSS personnel, it was apparent that HM did not, in many cases, fulfill its



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contractual obligations nor manage the Program in accordance with the terms

of its contract. Details of these issues are presented in Sections and V.

Based on the records reviewed, DCSS did not properly oversee

performance. We did not observe written DCSS communication to of its

performance deficiencies until the middle of2004.

The selection of an individual with no construction experience prior to

SPLOST, to be the DCSS point person for the Program, (which included the

role of oversight of HM), was not in the best interests of DCSS. This role

should have been filled by someone with construction experience.

The DCSS Board should not have approved $61 in projects, as it gave the

public the sense that the projects listed would be completed with SPLOST

funds, which is clearly not the case. It is unclear as to whether or not the Board

was briefed in sufficient detail by and the DCSS staff when approving the

projects.

The original Needs Assessment (NA) estimates for the individual projects wereunderstated in relation to subsequent contract actions. Part of the reason for

the inadequacy appears to result from insufficient project contingency and

escalation factors.

and the DCSS staff should not have recommended, and the Board should

not have approved, an allocation of funds on a percentage basis to the

individual County clusters 40% of the total NA levels), as it allowed for a

mechanism that appears to deviate from overall County needs and contributed

to the impression of a capital allocation process that was political in nature.

Once original estimates were coming in higher than the budgeted levels

established in the NA, HM should have re-baselined the entire Program to

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present a more realistic budget for the schools that were prioritized as part of

the original budgets. This would, in all probability, have avoided much of the

continuing controversy relating to the shifting of priorities for each school, the

deferral of certain work on existing projects, and the need to the Board to be

dealing regularly with changes to the construction contracts.

Under current Board policy, the selection decision for awarding contracts to

firms for SPLOST rests with the Superintendent, and

does not require Board approval. Until recently, there was no documentation

as to the basis for the evaluation and award of such contracts by the DCSS staff

assigned this task by the Superintendent. This approach was in accordance

with Board policy, but should be modified, as the level of contracts that

DCSS is awarding with the advent of SPLOST warranted a more formal

selection and approval process that is clearly disclosed, transparent to the

public and approved by the Board.

NeitherHM nor DCSS representatives have audited the contractors performing

work under cost type arrangements on the SPLOST program. In addition, it

appears, from theHM

files, that the approval of pay requisitions and changeorders was not, in many instances, a well documented or thorough process. If

change orders were based on actual or estimated costs, they should have been

scrutinized in more detail and should be reviewed by DCSS to see if they are

properly supported by the contractor's records and actual costs.

Based on the records reviewed, HM did not categorize the changes on the

projects in a Program-wide fashion such that any changes that might be

candidates for cost recovery from the firms for errors and omissions are

readily identified and pursued. We are not aware of any actions taken by HM

or DCSS as to pursue recovery against the firms for errors or omissions

until very recently, after the HM suspension. We have summarized, as part of

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our detailed discussions, changes that have references to design issues that

need to be further investigated by DCSS for possible cost recovery.

Based on our review of the HM records there is a lack of a consistency with

respect to change order entitlement reviews. Our concern is not only with the

merit of the issue, but also with the increases in contract price and contract

time that have been granted without sufficient documented justification.

IV. FINDINGS AND CONCLUSIONS-DETAILED DISCUSSION

A-

Perceptions of Problems with the SPLOST Program-

Change Orders and

Management by Heery-Mitchell

During our initial meetings with DCSS representatives, and as part of the interviews with

many of the individuals involved with the Program, the perceptions of problems with SPLOST

centered on two main issues - the number and value of the change orders issued to the

construction projects, and the failure of the PM, HM, to monitor, control and meaningfully

manage the Program such that much of the cost growth was controlled or prevented. We havebeen informed by individuals that we interviewed that the Board has been frustrated with

requests to approve change orders at the various Board meetings, and with the inability to clearly

understand the current projected costs on many of the school projects, resulting in, among other

things, the fact that the Board, the Superintendent, and counsel to DCSS have lost confidence in

HM's ability to manage the Program and predict a meaningful estimate at completion for many

of the contracts in progress. There have been a number of letters written between DCSS (and its

counsel) and over the past year and a half outlining problems that DCSS believes to beHM's

responsibility, with HM responding with its defense of individual issues. The lack of confidence

by DCSS and its counsel with respect to performance has led to the recent suspension of

HM. In addition, based on our conversations with you and others, there is a sense that some of

the Public appears to have also lost confidence in the overall program management, as many

have seen projects in its jurisdictions be partially or wholly deferred, as they are moved from AL

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to BL status. According to some of our interviews and a review of certain records, the public, in

many instances, views the allocation of funds to specific projects as an overly politicized

process, and questions whether or not the expenditures are consistent with an independent needs

assessment review and prioritization.

Our review of the HM files for the 16 larger projects has led us to the conclusion that, at

present, the level of change orders was only a part of the issue for the Program growth on

SPLOST 11, as those increases explain only a portion of the growth in the construction project

levels. Based on our review of the Board minutes, it appears that the total change orders formally

approved by the Board through April 10, 2006 totals approximately $5M (see Schedule

which, on its face, would lead to the conclusion that the change orders are not that material in

relation to the overall budget. However, it should be noted that, since Ms. Patricia Pope has

assumed the primary DCSS Program responsibilities, she has taken in lead in identifying the

magnitude and extent of the pending, and approved change orders. This exercise

is in process, and has resulted in the preliminary identification of additional potential change

order exposure that was not evident in the HM files that we reviewed (see Schedule XIV). It

should also be noted that we reviewed the HM individual contract and Program files provided to

us by HM. We understand that, more recently, DCSS has discovered additional files that

individual HM employees keptin

their personal work space files and drawers that might nothave been part of the centralized HM filing system. We have not, unless specifically noted,

reviewed these materials as part of our Phase I effort.

As the program cost growth was not fully explained by the extent and magnitude of the

identified change orders, we believe that it is more appropriate to define and assess the growth of

the SPLOST 11 program by looking at the original NA amount, and comparing it to the current

status of the individual projects that we selected for review. The reason for our conclusion to

look to the original NA instead of the construction contracts as the measuring points is that, in

many instances, the level of change orders on a contract does not always address the true

problem in terms of Program growth or public perception of project re-prioritization from to

BL. This is true because the initial construction contract value was often established at a point

when many cost growth risk issues were already discovered, and, in many cases, addressed

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through the contracting process. What is driving the issue, in our opinions, is the differential

between the NA levels from 200212003 until the current time-frame, which, of course, also

includes the volume of change orders actually issued.

In Schedules through we have summarized our comparison of the current

Budget to that which was prepared and published in June 2002, as well as the Budget

published through June 2003 (the budget authority that incorporated the 'Next Steps' and other

additions and re-prioritizations, including the 40% allocation to Clusters for their determination

as to use for those funds). As can be see from the chart, the current expenditures on the 16

schools that we reviewed is anywhere from 21% to 37% above the amounts from the

timeframe (inclusive of contingency and escalation allocation), depending on how the data is

viewed in terms of projects not contemplated as Phase I in 2002. As an example, in reviewing

the schedule, it can be seen that the New Peachtree Middle School (MS) was not included in the

original 2002 budget total of However, once the 40% allocation was made to Clusters,

individuals in the Cluster decided to build a new Middle School, and so this project

was added at a level of in mid 2003. By adding this project, the overall funds for AL

requirements had to be adjusted, meaning that either this project drew from certain other projects

that were scheduled to be priority O.E.C. North High School North), O.E.C.

Central (Warren Tech), Woodridge Elementary School, Stone Mountain Elementary School, andHigh School), or eliminating (along with the other additions at the same time) the overall

Program contingency. Therefore, the absolute growth of these 16 projects from the original NA

budget to their current status is 37%; however, even if you factor in the addition of the budgets in

2003, and view them as the baseline for measurement, the additions are still approximately 21%

of the revised budget totals. These increases are in addition to the 7.5% escalation and 5%

individual project contingency amounts originally included by in each of the original budget

totals.

The information in Schedules11 through IV relates to the overall budget for the SPLOST

11 Program projects, inclusive of construction, and furniture and fixtures. We were not

asked to review the information relating to the furniture and fixture contracts, nor certain other

budget items beyond the construction and areas. However, in analyzing the construction



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and contracts, we did conclude that each of these expenditure areas had similar increases in

terms of budget growth from the original NA to the current actual or projected levels. In

Schedules V and VI, we have provided certain examples of contracts that had large increases in

the actual expenditures in comparison to that contemplated at the time of the NA and original

budgeting process. As can be seen from this analysis, the conclusion is consistent for both the

construction and design component of the expenditure comparison.

Given this data, it is clear that the growth of the Program is at levels that are beyond what

might have been anticipated, and, as discussed further, are not merely attributable to escalation

of labor and materials in the Atlanta area over the last four years. Determining the exact cause

for the increases is a much more complicated undertaking, however, and will be explored further

in this report. At the outset, however, it is important to stress that, based on our document

reviews and interviews, the original NA levels were determined by the PM, HM, and the

responsibility for monitoring the increases and reporting those to DCSS and the Board also rests

with in its role as the overall PM, as outlined under the terms of its contract with DCSS, as

discussed further.

B-Understated Needs Assessment (Na) Levels And Approval Of ProjectsBy The

Board

As mentioned above, the NA process, which led to the establishment of budgets for

various schools and the overall Program, understated the costs needed to accomplish the

objectives of the Program. Our understanding was that HM performed the NA review for the

County, and used an approach whereby it estimated costs based on a square foot (SF) or unit

price approach, and then added a cost contingency factor of5% and an escalation factor of7.5%

to the estimated amounts for all project costs contemplated by the NA. As an example, for new

school construction, HM apparently applied a graduated square foot pricing amount for various

types of schools Elementary Schools, Middle Schools and High Schools), and then added

the contingency and escalation factors.



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In analyzing the issue of planned versus actual costs, we have summarized the actual

costs per square foot for certain of the new school projects that we had reviewed. This

information is presented in Schedule VII, and reflects an average total cost per foot of $126.86.

The $126.86 is based on change orders approved, as well as those recommended by HM for

approval and pending as of April 12, 2006, per the Change Order Log (COR Log) that HM

provided to DCSS. The $126.86 does not include any changes for issues

on active projects as of April 12, 2006, even though some amounts have been reserved by HM

for such potential issues. As a result, the $126.86 cost per foot may, in fact, be higher when the

projects are all closed out. In comparison, those same schools had a planned cost per square

foot, inclusive of contract contingency and escalation, of $111.83 (See Schedule or an

increase of almost $15 per foot of new construction (a 13% increase), beyond budgeted

escalation and contingencies (assuming no additional changes are executed).

To assess the reasonableness of the contingency component of NA levels, we

looked to SPLOST I new school construction data to see if trends for that part of the program

were properly considered by HM. As shown in Schedule the increases in the new school

construction contract values for SPLOST I, as of June 2001 (near to the NA timeframe) were

tracking at approximately 15%. This percentage compares to 5% individual contract

contingency thatit

used for the SPLOST program. It would appear that, even assuming thatthe original starting points for the graduated costs per SF were reasonable (albeit perhaps a little

understated), the contingency for changes, based on the SPLOST I experience, should have been

higher.

The other area that we reviewed relating to the NA study undertaken by HM was the

escalation rate of 7.5% used across the board and applied to the totals. To understand the 7.5%

factor, it must be remembered that this is really an average for the 5 year SPLOST program,

and should be viewed, in a summary fashion, as an approximate 3% per year escalation for 5

years, which would mid point out at around It should be noted that we did not see any

analysis by HM as to the timing of the actual construction to see if a simple application of one

escalation rate made sense in terms of the timing of the projects, and we believe that a

driven escalation analysis should have been undertaken as part of the NA. Without such an



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analysis, it is virtually impossible to determine if the mid-point of a Program schedule actually

translates into the mid-point of the construction expenditures. As an example, if a Program is

scheduled to span a 5 year period, it may be that, with planning and design, the actual

construction expenditures will be weighted more heavily towards the later part of the 5 year

period. If so, even using a 3% per year estimate, the overall factor would be higher than the

7.5% result the used (and, perhaps, calculated) for the Program.

From a review of the RS data for the late time frame, we

observed that the use of an annual escalation factor of 3% (if that was, in fact, the manner in

which HM approached its estimate) was not apparently unreasonable. (See Schedule X)

However, escalation rates increased rather markedly in 2004 and 2005, contributing to the more

recent rise in costs for SPLOST11 in relation to the original NA. This escalation has been caused

by a number of factors, including increases in steel and concrete prices nationally, increases in

construction materials due to the hurricane issues in the South over the last two years, and

increases in Atlanta due to competition for resources due to the multiple SPLOST programs in

the various counties. It is difficult, in hindsight, to determine how much of this increase for

and 2005 should have been contemplated by HM. The rising escalation in these years does not,

however, explain the Project growth for schools bid and awarded early in the Program, such as

New Miller Grove, New Tucker, and New

Another increase between the NA and the final actual costs relates to scope growth in

terms of size of the facility. Of the new school construction in our sample, six of the projects

included changes in square footage, and this total scope growth equates to approximately

SF, or approximately $7 million. But for this scope growth, other projects that were originally

scheduled to be might have been able to be completed with SPLOST11funds.

Based on our conversations and interviews, and our review of the files, it appears

that did not include local representatives in its discussions and analysis of the NA

levels. Later, the firms were often unable to design to the NA levels. We believe that the

RS Means is a leading supplier of construction cost information. A product line of Reed Construction Data, RSMeans provides cost information that helps owners, developers, architects, engineers, contractors and others toproject and control the cost of both new building construction and renovation projects.



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inclusion of these professionals in the process of establishing the budgets for the individual

projects, (a process which was used for SPLOST I), may have resulted in a more meaningful

planning and budgeting process, as these professionals would have had to reconcile their

participation in the NA process with their current budget estimates.

Based on our review, we also observed that the County did not appear to have in place a

written model spelling out the Criteria for Capital Allocation within the school system. This type

of model, or Master Plan, is important in that is sets out the criteria no children in portable

schools by a certain date, no school without operating air conditioning and heat systems by a

certain date, number of classroom goals per planned enrollment levels in various areas of the

county, etc.) by which decisions are made for individual schools and projects across the County.

Without such criteria, the allocation of funds among the various schools becomes difficult to

defend in some instances, and can be viewed by the public as an overly-political process. In

addition, studies have shown that School Systems that use effective Master Planning strategies

have lower incidents of scope creep and change order impact in comparison with school systems

that do not employ effective master planning strategies8. Although did perform detailed

work in arriving at estimated enrollments and other needs-driven requirements, there appeared to

be a subsequent disconnect between that analysis and the actual prioritization and approval of

projects. This is especially true after the"

Next Steps"

approval process in 2003 and theassignment of the 40% factor to each Cluster for determination of the use of the funds. This 40%

assignment approach contributed to the movement of projects between and BL, and, as

discussed further, appeared to lead to decisions for new school construction or additions that

were at odds with the overall NA effort originally undertaken. As such, we believe that the

process of assigning the 40% allocation to each Cluster and effectively allowing community

members and school officials in those areas to determine how to use those funds, without making

sure that the Cluster determination is consistent with the prioritization of the NA study, was not

appropriate.

As discussed above, the DCSS had assessed needs of at least $1.15 billion dollars based

on the results of the SPLOST needs assessment. Relative to the SPLOST Needs

FMUCMAAK-12Public School Construction Management Survey Report, 2005.



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Assessment, and as summarized in Schedule I, the Board approved $61 1 million of projects

based on the SPLOST team's recommendations (See Schedule I). The projects authorized for

construction by the DCSS BOE exceeds the current funding amount of (inclusive of an

additional $9M of estimated revenue recently added to the Program) by approximately

and is even in excess of what the funding levels supported at the time of the commencement of

the SPLOST Program. Due to this issue, and as it became apparent that there would not be

sufficient funding to complete approved projects with the SPLOST funds, the "above and

below the line" classifications were established by SPLOST individuals in the August

timeframe. Based on a review of BOE records and minutes, as well as the information conveyed

to us in interviews, it appears that the AL and BL issue, and the subsequent result that not all of

the projects would be built with SPLOST 11 funds, was never fully understood by the school

communities. The public believed that the Board's approval of their projects translated to the

fact that they would be built under the SPLOST program. Some staff internal to the SPLOST

and DCSS program concede that the communication of the above the line and below the line

issue, as well as the approval process for projects, could have been handled in a more clear and

transparent nature. In our opinion, the SPLOST team should not have recommended, and the

Board should not have approved $61 in projects under SPLOST 11, as it gave a false sense of

a promise that it now clearly can not keep. It is not clear from the records reviewed, however,

what information the Board was presented with by and Dr. Pritchett in reaching its decisionto approve the projects in the fashion that they did.

Compounding the understated NA budget issue, was a failure by and DCSS to

proactively manage the budgeting aspects of design and development, and re-baseline all of the

projects once the estimates were coming in with indications that the NA levels were either

unrealistic or inaccurate. As an example, the New Miller Grove High School Project was one of

the first new construction projects built under the SPLOST program. From the beginning of

the design development and estimating process for Miller Grove, the project exceeded

construction cost estimate from the SPLOST Needs Assessment. In fact, the estimates

provided HM by the Miller Grove architect early in the design process also exceeded the fully

loaded construction budget of $25.6 million plus 5% contingency and 7.5% escalation).

The Miller Grove GMP amount was set at $28 million for a SF facility, an effective cost



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per square foot of$117. As the new construction sequence of the SPLOST program progressed

(New Tucker MS, New Peachtree MS, New Chamblee MS, New Stone Mountain MS), the cost

per square foot numbers continued to increase beyond what had been

adversely impacting the budgetary status of the SPLOST11program.

The direction given to the SPLOST11 firms from the outset was to design to the NA

budgets. However, with New Miller Grove, as with several other schools, the firms came

back early with indications that the budget was inadequate to meet the intended scope. At this

point, DCSS had the option of either reducing scope to stay within the NA budget, or moving

forward and re-baselining the entire Program to address more realistic budgets and scope. If HM

and DCSS would have re-baselined the Program and revised all of the budgets to reflect the

results of more current information, it might have avoided many of the problems that now exist

in terms of deferring project scope and certain projects in their entirety, and the related lack of

confidence and trust by the public in HM, DCSS and the Board. Instead, the program moved

forward with outdated budget estimates, and each award in excess of the NA level resulted

further depletion of the overall Program contingency and eroding confidence in the overall

Program plan.

In summary, we believe that errors were made under the SPLOST 11 Program in thefollowing areas:

In using a 40%allocation approach to Cluster funding;

In recommending and approving $61 of projects in light of the funding estimates;

In failing to clearly communicate that certain projects were subject to future funding,

and, therefore, would probably not be completed with SPLOST11funds;

In understating the NA levels for possible contingencies that might occur with the

Program;

In failing to proactively manage the budgeting aspects of the

process;

In estimating escalation for a five year program without schedule-phasing the projects

and the timing of the incurrence of costs relating to those projects; and



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In failing to re-baseline the Program and project estimates once it was apparent that

the NA levels were inadequate.

C- Mitchell (HM) Contract Files And Performance

The HM contract for overall PM services is a comprehensive document that outlines the

duties that HM would perform and the fees that it would be paid for such effort. In Article 3 of

the agreement, role as the owner's agent is outlined, and language is included whereby

agrees to perform its duties "at a level and to a standard of care, consistent with the

standards and quality prevailing among first class, nationally recognized program and

construction management firms of superior skill and experience engaged in programs of similar

size and complexity."

In Article 4 of that agreement, the exact duties of HM were outlined. The following

summarizes certain obligations of HM pursuant to Article 4 of the agreement (References are to

Article 4 of the contract):

- Program Analysis-

The PM shall provide DCSS with a detailed written report, the Program Analysis.The Program Analysis"shall evaluate the Owner's program objectives and make

recommendations and proposals with respect to achieving such objectives or

modifying same."

- Monthly reports-

The PM shall prepare and submit to the Owner's representative and the Owners

Counsel a monthly report "summarizing the progress of the program during the

preceding month." Such report shall set forth, in detail satisfactory to the owner,

significant facts and events occurring during the preceding month. The report shall

also describe any problems or obstacles which may adversely impact the budget or

schedule of the Program or any Project. The monthly report shall include without

limitation the following:



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The PM shall prepare an update of Program Schedule identifying any delays

to the Program or any Project including the cause and extent of the delays;

The PM shall provide DCSS with recommendations to mitigate schedule

delays;

The PM shall provide and analysis of budget and cash flow subdivided

between design and construction;

The PM shall provide a Month by month projection and forecast of future

anticipated costs and payments by Owner;

The PM shall provide a Summary of all change orders approved for each

Project during the preceding month, indicating cost and cause, and;

The PM shall tabulate the cumulative total cost of all change orders approved

for each project as percentage of the construction contract.

- At every meeting the Program Manager attends, the PM shall prepare and

distribute meeting minutes;

- The PM shall prepare a Program schedule that establishes and shows milestones

for critical phases and events in the design and construction of each Project in the

Program. The PM shall continually update this schedule throughout the duration of

the Program;

The PM shall provide, in writing, notice of delays to Program Schedule and

should make recommendations for eliminating or minimizing such delays;

- The PM shall provide and continually update throughout the duration of the

project a budget and anticipated cash flow analysis for the Program that segregates

costs into design and construction phases for each project;

.10 communication between the PM and DCSS shall be in writing to Dr.

Pritchett;- The PM shall implement a Manager or equal computerized system for

management and control of documents and information, with owner having

continuous access;

.13 - The PM shall prepare written design criteria and standards for the project and

should assist the Owner in the preparation of detailed education specifications;



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.14 - The PM shall prepare design schedules. PM shall also monitor all design

schedules and notify the Owner in writing of any delays in the Design phase

including recommendations for minimizing delays;

.15 - The PM shall provide program reviews with Project Architects during which the

PM and Architect review the design criteria, project budget, design schedule, program

schedule, communication channels and applicable laws affecting the project;

.17 - The PM shall attend twice monthly meetings on each project with architects to

review the progress of the design and address issues impacting the design and

constructability of the project;

17.1 - The PM shall evaluate the potential cost savings and the cost effectiveness of

the construction and installation;

17.2-

ThePM shall provide a written report within three days of these meetings

noting the progress and any issues with respect to the design process;

20 - The PM shall review pay applications of Project Architect and certify to owner

that the Architect is due such payment as required under the applicable contract;

1.1 - The PM shall perform a review of the Preliminary design and prepare written

report to owner noting any areas of concern or any deviations from the Project or

Program requirements. Such report shall contain estimate and shall identify

any deviations from the original Project budget and the cause of the same. The reportshall make recommendations for eliminating or minimizing such deviations;

- The PM shall perform a review of the design for construction and prepare a

written report to the Owner after review of design for construction. Such report shall

identify any problems or areasof concern. The report will also include estimate

and shall identify any deviations from the original Project budget and the cause of the

same. The report shall make recommendations for eliminating or minimizing such

deviations;

.24 - The PM shall negotiate with bidders when bids are in excess of budget;

.26 - The PM shall conduct preconstruction conferences and prepare written minutes

of the conference;

.28 - Unless otherwise directed by the Owner, PM shall coordinate with Owner to

schedule, coordinate, assist with and facilitate the performance of all Owners duties



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under each construction contract. The PM shall also perform all of the duties of the

Owner's Representative as defined in any Design Build contracts. PM shall

coordinate with Owner to schedule and coordinate the procurement, delivery, and

security of any materials, furnishings, and equipment to be furnished to the Program

or any Project by Owner;

.29 - PM shall confirm that all Contractors obtain all permits, licenses required by the

contract or law;

.31 - The PM shall review Contractor prepared construction schedules verifying that

schedules are reasonable, practical and in conformance with contract terms and

conditions. PM shall furnish the Owner with a summary of the schedules showing

the Contractors critical path logic;

.32-

The PM shall obtain and review all monthly updates to construction schedules

verifying that updates are consistent with actual progress. PM shall notify Owner in

writing if schedule shows slippage or delays to project;

.33 - The PM shall examine and approve the Contractors schedule of values (SOV) to

protect the owner against an unbalanced SOV;

.39 - The PM shall review each contractor payment request and shall certify to the

owner that in professional judgment that the requested amount is due the

Contractor. certification of the Contractor pay request shall be a representationto the Owner that the amount requested is properly due to the Contractor and the PM

has no reason why any portion of the requested amount should not be withheld;

.40 - The PM shall review all change order request or proposals submitted and advise

the Owner in writing as to the cause, likely cost, likely schedule impact and all other

potential impacts related to the request. PM shall negotiate on Owner's behalf cost

increases and decreases and time extensions resulting from each request. PM shall

maintain a log of all change order requests or proposals, all actions taken and the

dates of any such actions;

.41 - The PM shall be responsible for maintaining a daily log.

As evidenced by this detailed listing, roles and responsibilities under the terms of

its agreement with DCSS were very broad and comprehensive, and required detailed reporting



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and schedule management. Based on our review of the files maintained by HM, the following

observations were made:

It appears that no comprehensive Program Schedule was maintained and routinely

updated for the project. Interviews with HM personnel revealed that relied

upon the construction schedules prepared by the various Contractors involved in

the program. The individual construction project schedules are not adequate for

managing the specific project components (design, construction and

let alone the overall Program.

It appears that there was no consistent and coordinated approach to the review and

summarization of change orders on the projects. As an example, we expected to

see, for each project, a categorization of change orders among various types

design changes, differing site conditions, added scope, etc.) and a up of this

information into overall Program summaries of the same information. Any such

sporadic summaries found in the HM files reviewed by appeared to

have been prepared by the individual project manager for an individual contract,

but not updated and systematically summarized on a Program basis or put into

any format that could be meaningful to DCSS.

There was no documented evidence in the files reviewed by of any

attempt to go back to the firms for possible errors or omissions related to

design changes or issues that came up.

There was little documented evidence of steps HM took in analyzing the

entitlement and pricing aspect of the change orders on the sampled projects, nor

were there summaries of the change order negotiation process and conclusions

relating to why a particular change should be approved. Further it appears that

increases in Contract Time were granted without adequate documented schedule

justification. (This is commonly referred to as a record of negotiation (RON) or



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some other similar term, depending on the firm or organization performing the

effort.)

As a response to some correspondence from Dr, Pritchett citing breakdowns on

several projects, HM indicated, in August 2004, that it was going to undertake

quality type audits of its various projects on a quarterly basis.

These audits were to be performed by Don Green, a project manager. Our

review of the HM general program files, as well as the 16 sampled project files,

has not provided any indication of the results or performance of these audits.

Additionally, documentation requests were made by to related to

these audits, but no documentation was provided in response to these requests.

The monthly reports required by the contract were not consistently prepared.

When prepared, the format and content included within the reports appear to be

somewhat less than the format envisioned in the contract language cited above.

There is little documented evidence that HM performed detailed reviews of the

contractor's payment applications or requested actual cost information for those

contracts or changes that were being performed on a cost plus(GMP)contractbasis. In deposition testimony on the Carolina Casualty Insurance Company

versus R. L. Brown Associates, Inc., Construction Company, et. al, Mr.

Steven P. Kimsey, Program Coordinator for the Program, testified that he

believed that he had no responsibility to review the payment applications of the

contractors beyond making sure that the and others had signed off on the

request and that the budget authority existed to make the payment requested under

the requisition. Mr. Kimsey also testified that had no responsibility to look at

the conformity of the work with respect to the payment requisitions. Mr.

Kimsey's assessment appears to be inconsistent with the terms of the HM contract

with DCSS. (See, for example, Article 4.39.)



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HM did not implement the Manager (or equivalent) system required under

the terms of its contract with DCSS. The Manager system would have

been an effective tool to monitor Submittals, Correspondence and Change

Orders.

The above deficiencies are not intended to be all-inclusive, and other areas where HM's

performance was questionable are referenced in other sections of this report. In discussing the

above with HM representatives, we were informed that HM worked very closely with Dr.

Pritchett in determining his needs under the Program, and that DCSS, through Dr. Pritchett, was

not always requiring those deliverables from the contract. Dr. Pritchett does not believe that he

relaxed the contract requirements for HM. Based on our review of the contract files of both Dr.

Pritchett and HM, there is no correspondence that conveys either a relaxation of the contract

requirements nor an expressed dissatisfaction with the HM reporting process until well into the

SPLOST Program, and after the involvement of legal representatives and construction

personnel of DCSS replacing Dr. Pritchett.

As mentioned above, DCSS personnel, the Board, and counsel to DCSS had lost

confidence with HM commencing in 2004. There are a number of letters and memorandum

between HM and DCSS and its counsel that outline areas that DCSS believed were theresponsibility of HM, along with responses to these issues. It was not the purpose of our

scope of work under this engagement to make determinations as to whether or not DCSS or HM

is, in each of the areas cited, responsible for the management issues identified in these letters.

However, we did observe the foregoing HM contract issues, some of which overlap with the

DCSS complaints, have made certain other conclusions relating to HM's performance in other

areas of this report, and have also concluded that HM had apparently participated in the

of change orders for items such as compensation for weather delays, that are

not generally considered compensable in the construction industry and/or under the subject

DCSS contracts with its contractors.

As a result of these and other issues, DCSS has suspended HM from its contract for PM

services.

Confidential Page 28 of49 June1,2006


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D-Allocations Of Funding To Clusters And Projects

As stated above, we believe that the allocation to clusters based on a 40% overall

percentage of needs assessments was not appropriate. This decision, coupled with a movement

of projects from BL to AL, contributed to the impression in the County that the approach was

overly political in nature. Although we were not tasked specifically with assessing the

appropriateness of the allocation of funds among the Clusters and school projects, we did

observe that there were some decisions made in the selection and scope of schools for

construction and renovation that are questionable in terms of a review of actual and projected

enrollments. These include questionsas to why:

A new McNair Cluster Elementary School is being planned to replace the Leslie J.

Steele ES at a cost of to allow for over 900 students, when the current enrollment is 305

and the capacity of the existing facility is In addition, other elementary schools in the same

cluster also have under-utilized capacity Peachcrest with a capacity of 902, and a

current enrollment of 289). In contrast, the Fairington Elementary School has a design capacity

of 748 students and a current enrollment of 1,417 with portable classrooms and transportation to

other clusters being utilized for the excess students. On the surface, these statistics raise the

question as to why DCSS would construct a new elementary school in the cluster.

A new Middle School is being built at Peachtree Middle School at a cost of

with a Design Capacity for 1,150 students, when the current capacity of the existing school is

1,342 and the current enrollment is

These questions are not meant to be all-inclusive nor a conclusion that those decisions

were inappropriate; however, they do highlight the need for County-wide criteria for the

expenditure of funds on school projects to assure that the overall County needs of the community

and students are being addressed.



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E-Southwest DeKalb High School-What Happened And How Could It Have

Been Avoided

The Southwest DeKalb High School (SWD) project was a particularly troublesome

project. Issues related to excessive change orders, delays, lack of budget control and value for

the amounts expended were identified of particular concern. In an attempt to understand these

concerns, we undertook a more extensive review of the project, and the following are our

preliminary findings.

The project was included in the SPLOST Needs Assessment program with a

value of $12,502,363 for the overall project. The project scope at the NA stage involved the

demolition and renovation of a portion of the existing high school and the construction of a new

wing.

DCSS contracted with Brown as the architect on April 22,2003. The contract

included a provision requiring a design to a stated construction cost limitation of

The contract value was $561,480, including Preliminary Consultation, Examination andReport, Preliminary Design and Price Estimate, Construction Documents and Final Price

Estimate and Contract Administration associated with the construction of an 18,000 sf new

addition, and the complete floor to ceiling renovation of sf of the existing facility. In

July 2003, DCSS increased the scope of the project by requiring the design of a 10,000 sf Career

Tech Classroom addition.

RL Brown's contract value was increased in December 2004 to reflect a fee adjustment

based on a $16 million construction contract, using the original contract fee rate (6% of

construction cost). This fee adjustment was to account for the increase in construction value

related to the scope increase resulting from the addition of a Multi-purpose classroom,

administrative offices and the extension of the trailer village.



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In October 2003, provided DCSS a preliminary estimate of probable cost of

$10,500,489. Depending on whether the scope of this estimate included the Career Tech

addition, it would still be in line with contractual stated cost limitation requirement. In

April 2004, prepared a 75% Construction Document phase estimate in the amount of

$13,703,999.

HJ Russell was awarded a GMP Construction Management contract in May

The contract provided for design phase services support in the amount of $9,750. Although there

was an uncertain project cost, and the preliminary estimates were in excess of amounts that the

DCSS budgeted, HJR was given the approval to commence demolition of the existing facility in

June 2004. It appears that the decision to allow demolition to commence with out final

drawings, permits or pricing was due partly to community pressure to initiate work on the

facility.

Amendment to the Contract, executed in July 2004, established a $7,278,050

GMP, setting in place a phased approach to the work, with a March 31,2005 required

completion date. The initial phase involved interior demo, site clearing,

temporary learning center, surveying, and temporary support of existing electrical, structural and

miscellaneous steel.

Later in 2004, provided its first GMP estimate in excess of $19 million. This set in

motion a series of Value Engineering (VE) studies in an attempt to reduce the cost. Several

recommendations were adopted and certain portions of the work was deferred. Amendment

to Contract, executed in March 2005, set the GMP at $16.5 million.

Schedule XII provides a summary of the schedule of values as reflected in the Russell

payment requisitions on the SW DeKalb HS project. A review of Schedule XII provides some

insight into the allegations that DCSS was not getting value for the work performed under the

contract. Renovation projects by nature include types of work that not readily apparent at

the completion of the project. Examples of this effort include the replacement of Plumbing,

HVAC and electrical systems, the demolition of existing building space to ready the structure for



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its new construction activities, and the or re-routing of site utility services

to accommodate the demands of the new facility. Additionally, other costs during the

construction process relate to the general conditions costs of the Contractor. Accordingly,

persons unfamiliar with the intricacies of construction renovation projects may not see the value

in a particular project if it is not apparent to the naked eye.

visited the Southwest DeKalb site on two occasions to walk the project in an

effort to better understand the nature of the project. During these site visits, and while analyzing

the payment requisitions, we have had occasion to notice extensive amounts of work above the

acoustic ceilings in the hallways and classrooms, as well as general conditions type costs that

could explain the perception gap between the community representatives that we met and the

construction team on SW DeKalb. A more detailed analysis of the project would be

required to make a determination as to whether DCSS received value under the construction at

SW DeKalb.

Although HJR completed the interior demolition in late October 2004, the renovation and

new addition work could not proceed until HJR received the Land Disturbance Permit and the

Building Permit. Approval of these documents was delayed pending final design review

with the Fire Marshall's office and the Building Department. The permits were finally receivedin February and March resulting in a six month delay to the contract schedule.

Once received the permits, it argued that its work was further delayed for several

other reasons including late RFI, submittal and shop drawing reviews. Later issues arose

concerning the kitchen grease traps. In June 2005, commenced the demolition of the

kitchen. This demolition started even though all shop drawings were not approved and design

was not complete. The Fire Marshall initially insisted that HJR install a large grease trap that

would have necessitated installation of new sanitary lines. This would have resulted in a large

dollar value change and the Fire Marshall ultimately permitted a relaxation of its requirement.

Although the requirement was relaxed, it still created a delay to the kitchen construction. The

school kitchen phase of the work was finally completed in January 2006.



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submitted a delay analysis explaining its position with respect to the delays

described above. The files showed no response from or

As with other projects reviewed by us, the significant cost growth from the initial

estimates necessitated redesigns from RLB. These redesigns likely contributed to the delay in

obtaining the and the resulting construction contract delay. Despite assurances from

that it would have construction drawings ready and approved by the time the demolition

was complete, the redesigns were of such a magnitude that approval was no longer a

formality.

In hindsight, perhaps a better strategy would have been to suspend construction work

once the construction cost estimates were showing a significant deviation from the budgeted

amount. At this point, a re-baseline of the SPLOST11 program may have been warranted as

significant overall Program contingency was going to be used, and funds allocated to other

planned projects may have been needed to fund the SWD contract work. While the suspension

may not have been well received in the community, it would probably have made sense from an

overall program perspective. Because the final cost of the SWD project will greatly exceed theinitial Needs Assessment value, the program will experience the ripple effect of the decisions to

proceed with the work.

V. OTHER OBSERVATIONS

Based on our review of project records and interviews of key project personnel, we have

made some additional observations and have reached some additional conclusions relating to the

SPLOST Program. These observations and conclusions are presented below.

A) Selection of Individual to Run the SPLOST11 on behalf of DCSS - as

mentioned above, DCSS selected Dr. Stanley Pritchett to head up the SPLOST Program and to



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act as the interface with HM, the firms, and other contractors and vendors dealing with

DCSS on the Program. Dr. Pritchett had no background or experience with construction prior to

his selection for this role. The County would likely have benefited from someone with

Construction Management or Construction experience in such a critical role, as this experience is

necessary for someone in the role assigned to Dr. Pritchett, especially considering that he had the

oversight responsibility HM PM contract.

B) Selection and Avvroval of Contracts - According to Board policy, the

Superintendent is responsible for selecting architects, and he accepted recommendations from his

staff as part of that process. For SPLOST Dr. Stanley Pritchett was heavily involved in the

recommendation and selection process for contracts. Our review to date of DCSS files

revealed no documentation of the process for selection and award. We understand from Dr.

Pritchett that he could consult with others in his department, but there was no written policy

established within the Superintendent's office or the SPLOST organization for the evaluation

criteria and selection process for firms. We observed that the Architects contracts were not

approved by the Board, and such approval was not required under existing Board policy. It

should be noted that the current evaluation and award process for construction contracts includes

the types of checks and balances that we recommend be considered for the architect selection

process. For information purposes, we have summarized the total SPLOST payments to thefirms as of February 2,2006 in Schedule XI.

Audits - although many of the SPLOST contracts were of a cost reimbursable

nature, and many change orders were based on cost representations by contractors,

noted no documentation evidencing the performance of audits by HM or other DCSS

representatives of the books and records of the contractors. (In addition, we understand that

some of the SPLOST I contracts may also be of a cost reimbursable nature, and may not have

been audited to date.) Typically, on a program of this size, the PM or the County itself would

have an audit arm to provide assist-audits of contractor data. By doing so, contractors are

sensitive to the data submitted, and there tends to be long term savings in terms of a deterrent

value when an audit environment is contemplated as part of the billing or negotiation process.



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D) Close outs- it appears that DCSS has not implemented a close out process for the

various construction and architect contracts, and that many of these contracts have been

completed, but still not closed out, for years.

E) Punch list and work-

based on discussions with select individuals and our

site visits to a few schools, it appears that there is still fairly substantial repair or punch list work

to be completed at certain schools. As an example, at the Miller Grove High School, we

observed stained ceiling tiles at several locations that may be the result of roof leaks, a large

gutter drain had fallen down and had not been repaired, and several doors were difficult to open

because of conflicts with the slab concrete. At the SW DeKalb School, we also noted several

stained ceiling tiles that may be the result of roof leaks.

F) Contract Administration - The Construction Management at Risk (CMR)

contracts were, in many instances, administered like they were Lump Sum contracts. Under a

CMR contract (or, a Guaranteed Maximum Price (GMP) contract), there is normally a ceiling

price established early enough in the process to motivate a contractor, through cost sharing

incentives, to work towards that ceiling and realize savings that it can share in with the owner.

On the SPLOST program, ceiling amounts were established too late in the program, thereby

creating a delivery method which was,in

essence, a cost type contract without a ceiling amountof any significance.

Those contracts that were administered as CMR deviated from the traditional

contracting that may have contributed to the issuance of change orders. In the traditional

contracting method, the contractor is permitted to include in its GMP price contingency amounts

to cover estimating variances and scope that is not clearly defined on the contract drawings. In

our brief review of the DCSS CMR contracts, we noted that many of the contracts did not

include such contingency amounts. Therefore, in many instances, as design was finalized, the

contractor submitted change order requests for items that would have normally been included in

the line item contingency amount.



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G) Change Order Review - We undertook a more detailed review of two Change

Orders; our findings are as follows:

a) Towers High School, Change Order Rock Excavation

The contract documents indicate that the contractor should expect to

encounter rock during the excavation for the storm sewer system. The

contract also notes that the contractor should assume that all excavation will

be earth material and that the contract sum shall be adjusted by change order if

rock is encountered during construction. Expectantly, the contractor,

encountered rock during the excavation for the Storm Sewer system

construction as was noted on the contract drawings. submitted its

claim for approximately $75,000 for costs incurred through September 22,

2005; in its proposal, also indicated that it was having difficulty

removing the rock with conventional means and was stopping work to explore

alternate means of removal. The Architect, Sy Richards, recommended

approval of claim in the amount proposed which was later approved

by the Board. Later, revised its claim, increasing the proposed amount

to approximately including a 29 day time extension request. We

understand that has not executed the Board approved change order,probably because it does not want to compromise its rights to recover

additional costs and time pursuant to its latest proposal.

We have several concerns with this issue as follows:

It appears that the contract is being administered as if the contractor is due

an increase in contract price and contract time for encountering rock that

was clearly detected during the design phase. It seems that a more

appropriate contracting strategy would have been to make the contractor

responsible for rock removal in its contract price and time and only allow

for increases in contract price and time if the nature of the rock

encountered was materially different than represented by the contract



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documents. This is a customary contracting strategy that can be

implemented with the use of a differing site condition clause. While the

contract does include a differing site condition clause, the change order is

being administered as if the excavation clause overrides the differing site

condition clause.

If it is determined that the contractor is entitled to a change for this issue,

we would suggest that the contract file include documentation setting forth

the nature of the change and indicating that an evaluation of the proposed

costs was undertaken. While there are references in the change order file

to estimates done by for this issue, the file did not include the

estimate or cost evaluation.

With respect to the request for an increase in contract time, we would also

have expected to see some level of schedule analysis to demonstrate that

the contractor was or was not entitled to any such adjustment. We did not

find any such evaluation in the change order file.

b) Miller Grove High