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Moss Adams LLP. A2017-277ee� C4 uk*�Zo -11A July 27, 2018 Moss Adams, LLP Attn: Steven Bacchetti 2040 Main Street, Suite 100 Irvine, CA 92614 RE: Extension of Termination Date for Agreement A2017-277 Dear Mr. Bacchetti: 14000 City Center Drive Chino Hills, CA 91709 (909) 364-2600 On December 14, 2017, the City Manager of the City of Chino Hills authorized execution of Agreement No. A2017-277 with Moss Adams, LLP. This letter serves as notification that the termination date has been extended until August 30, 2019. All other provisions of the agreement remain in effect. Should you have any questions regarding this notification, please contact Vivian Chou at 909.364.2773. Sincerely, Konradt Bartlam City Manager KB:wg cc: City Clerk's Office Finance Department Public Works/Engineering Department C16 eawd. - Art Bennett ■ Brian Johsz ■ Ray Marquez ■ Cynthia Moran ■ Peter J. Rogers AGREEMENT NO. A2017-277 FOR PROFESSIONAL SERVICES BETWEEN THE CITY OF CHINO HILLS AND MOSS ADAMS LLP. THIS AGREEMENT, made and entered into as of the last date signed below, between the CITY OF CHINO HILLS, a municipal corporation, hereinafter referred to as "City" and MOSS ADAMS LLP, hereinafter referred to as "Consultant". In consideration of the mutual covenants and conditions set forth herein, the parties agree as follows: 1. SCOPE OF SERVICES. Consultant agrees to perform the services set forth in Exhibit A "SCOPE OF SERVICES" attached hereto and made a part hereof. Consultant shall submit its work to the City for its review after completing each phase of the project as described in Exhibit A, or when otherwise requested by the City. Consultant shall, at its own cost, make any revisions of its own work as required by the City (except revisions requested after issuance of the final construction audit report, .which revisions are not within the Scope of Services set forth in Exhibit A) and re -do, at its own cost, any work which the City finds unsatisfactory due to Consultant's or subcontractor's errors or omissions. Consultant represents that it has the qualifications, experience and facilities to properly perform said services in a thorough, competent and professional manner and shall, at all times during the term of this Agreement, have in full force and effect, all licenses required of it by law. Consultants shall begin its services under this Agreement on December 18, 2017. -1- 2. STATUS OF CONSULTANT. Consultant is and shall at all times remain as to the City a wholly independent contractor. The personnel performing the services under this Agreement on behalf of Consultant shall at all times be under Consultant's exclusive direction and control. Neither City nor any of its officers, employees or agents shall have control over the conduct of Consultant or any of Consultant's officers, employees or agents, except as set forth in this Agreement. Consultant shall not at any time or in any manner represent that it or any of its officers, employees or agents are in any manner officers, employees or agents of the City. Consultant shall not incur or have the power to incur any debt, obligation or liability whatever against City, or bind City in any manner. Consultant shall not disseminate any information or reports gathered or created pursuant to this Agreement without the prior written approval of City except information or reports required by government agencies to enable Consultant to perform its duties under this Agreement. 3. CONSULTANT'S KNOWLEDGE OF APPLICABLE LAWS. Consultant shall keep itself informed of applicable local, state and federal laws and regulations which may affect those employed by it or in any way affect the performance of its services pursuant to this Agreement. Consultant shall observe and comply with all such laws and regulations affecting its employees. City and its officers and employees, shall not be liable at law or in equity as a result of any failure of Consultant to comply with this section. 4. PERSONNEL. Consultant shall make every reasonable effort to maintain the stability and continuity of Consultant's staff assigned to perform the -2- services hereunder and shall obtain the approval of the City Manager of all proposed staff members performing services under this Agreement prior to any such performance. 5. COMPENSATION AND METHOD OF PAYMENT. Compensation to the Consultant shall be as set forth in Exhibit B attached hereto and made a part hereof. Total compensation shall not exceed $19,980.00. Payments shall be made within thirty (30) days after receipt of each invoice as to all undisputed fees. If the City disputes any of Consultant's fees it shall give written notice to Consultant within 30 days of receipt of an invoice of any disputed fees set forth on the invoice. 6. ADDITIONAL SERVICES OF CONSULTANT. Consultant shall not be compensated for any services rendered in connection with its performance of this Agreement which are in addition to those set forth herein or listed in Exhibit A, unless such additional services are authorized in advance and in writing by the City Manager. Consultant shall be compensated for any additional services in the amounts and in the manner as agreed to by City Manager and Consultant at the time City's written authorization is given to Consultant for the performance of said services. 7. ASSIGNMENT. All services required hereunder shall be performed by Consultant, its employees or personnel under direct contract with Consultant. Consultant shall not assign to any subcontractor the performance of this Agreement, nor any part thereof, nor any monies due hereunder, without the prior written consent of City Manager. -3- 8. FACILITIES AND RECORDS. Consultant shall maintain complete and accurate records with respect to sales, costs, expenses, receipts and other such information required by City that relate to the performance of services under this Agreement. Consultant shall maintain adequate records of services provided in sufficient detail to permit an evaluation of services. All such records shall be maintained in accordance with generally accepted accounting principles and shall be clearly identified and readily accessible. Consultant shall provide free access to the representatives of City or its designees at reasonable times to such books and records, shall give City the right to examine and audit said books and records, shall permit City to make transcripts therefrom as necessary, and shall allow inspection of all work, data, documents, proceedings and activities related to this Agreement. Such records, together with supporting documents, shall be maintained for a period of three (3) years after receipt of final payment. 9. TERMINATION OF AGREEMENT. This Agreement may be renewed annually, but will terminate on August 20, 2018, unless otherwise extended in advance and in writing by the City Manager and agreed by Consultant. This Agreement may be terminated with or without cause by either party upon 30 days written notice. In the event of such termination, Consultant shall be compensated for non -disputed fees under the terms of this Agreement up to the date of termination. 10. COOPERATION BY CITY. All public information, data, reports, records, and maps as are existing and available to City as public records, and which are necessary for carrying out the work as outlined in the Scope of Services, shall be furnished to Consultant in every reasonable way to facilitate, without undue delay, -4- the work to be performed under this Agreement. 11. OWNERSHIP OF DOCUMENTS. Upon satisfactory completion of, or in the event of termination, suspension or abandonment of, this Agreement, the final construction audit report and all other completed deliverables prepared in the course of providing the services to be performed pursuant to this Agreement and provided to the City in a format reviewable by City (such as pdf, Microsoft Word, Excel, etc.), excluding any Consultant Materials (defined below) contained or embodied therein (hereafter, "Deliverables") shall become the sole property of City. Consultant may retain a copy of Deliverables for archival purposes. Consultant shall own its working papers and any consulting -related general skills, know-how, expertise, ideas, concepts, methods, techniques, processes, software, materials or other intellectual property which may have been discovered, created, received, developed or derived by Consultant either prior to or as a result of providing services under the Agreement (collectively, "Consultant Materials"). City shall have a non-exclusive, non -transferable license to use Consultant Materials for its own internal use and only for the purposes for which they are delivered to the extent they form part of a Deliverable. Notwithstanding anything to the contrary in this Agreement, Consultant and its personnel are free to use and employ their general skills, know how, and expertise, and to use, disclose, and employ any generalized ideas, concepts, know-how, methods, techniques, or skills gained or learned during the course of this Agreement so long as they acquire and apply such information without any unauthorized use or disclosure of confidential or proprietary information of City. -5- 12. RELEASE OF INFORMATION/CONFLICTS OF INTEREST. (a) All information gained by Consultant in performance of this Agreement shall be considered confidential and shall not be released by Consultant without City's prior written authorization excepting that information which is a public record and subject to disclosure pursuant to the California Public Records Act, Government Code § 6250, et seq. Consultant, its officers, employees, agents or subcontractors, shall not without written authorization from the City Manager or unless requested by the City Attorney, voluntarily provide declarations, letters of support, testimony at depositions, response to interrogatories or other information concerning the work performed under this Agreement. Response to a subpoena or court order shall not be considered "voluntary" provided Consultant gives City notice of such court order or subpoena. If Consultant or any of its officers, employees, consultants or subcontractors does voluntarily provide information in violation of this Agreement, City has the right to reimbursement and indemnity from Consultant for any damages caused by Consultant's conduct, including the City's attorney's fees. Consultant shall promptly notify City should Consultant, its officers, employees, agents or subcontractors be served with any summons, complaint, subpoena, notice of deposition, request for documents, interrogatories, request for admissions or other discovery request, court order or subpoena from any party regarding this Agreement and the work performed thereunder. City retains the right, but has no obligation, to be present at any deposition, hearing or similar proceeding. Consultant agrees to cooperate fully with City and to provide City with the opportunity to review any response to discovery requests provided by Consultant. However, City's right to review any such response does not imply or mean the right by City to control, direct, or rewrite said response. (b) Consultant covenants that neither they nor any officer or principal of their firm have any interest in, or shall they acquire any interest, directly or indirectly which will conflict in any manner or degree with the performance of their services hereunder. Consultant further covenants that in the performance of this Agreement, no person having such interest shall be employed by them as an officer, employee, agent, or subcontractor without the express written consent of the City Manager. Consultant further covenants that Consultant has not contracted with nor is performing any services directly or indirectly with the developer whose construction costs are the focus of the Scope of Services ("Developer'), and further covenants and agrees that Consultant and/or its subcontractors shall provide no service or enter into any agreement or agreements with the Developer prior to the completion of the work under this Agreement without the express written consent of the City Manager. 13. DEFAULT. In the event that Consultant is in default of any of the provisions of this Agreement, City shall have no obligation or duty to continue compensating Consultant for any work performed after the date of default and can terminate this Agreement immediately by written notice to the Consultant. 14. INDEMNIFICATION. (a) Consultant represents it is skilled in the professional calling necessary to perform the services and duties agreed to hereunder by Consultant, and City relies upon the skills and knowledge of Consultant. Consultant shall perform such services -7- and duties consistent with the standards generally recognized as being employed by professionals performing similar service in the State of California. (b) Consultant is an independent contractor and shall have no authority to bind City nor to create or incur any obligation on behalf of or liability against City, whether by contract or otherwise, unless such authority is expressly conferred under this agreement or is otherwise expressly conferred in writing by City. City, its elected and appointed officials, officers, agents, employees and volunteers (individually and collectively, "Indemnitees") shall have no liability to Consultant orto any other person for, and Consultant shall indemnify, defend, protect and hold harmless the Indemnitees from and against, any and all liabilities, claims, actions, causes of action, proceedings, suits, damages, judgments, liens, levies, costs and expenses of whatever nature, including reasonable attorneys' fees and disbursements (collectively "Claims"), which the Indemnitees may suffer or incur or to which the Indemnitees may become subject by reason of or arising out of any injury to or death of any person(s), or damage to and real or tangible personal property, to the extent caused by the negligent or wrongful acts or omissions of Consultant, its agents, officers, directors or employees, in performing any of the services under this agreement. If any action or proceeding is brought against the Indemnitees by reason of any of the matters against which Consultant has agreed to indemnify the Indemnitees as above provided, the City shall provide Consultant with prompt written notice and cooperate with Consultant in handling the Claim. Consultant, upon notice from the CITY, shall defend the Indemnitees at Consultant's expense. Consultant shall be -8- entitled to defend and settle any Claim, in its sole discretion, using counsel selected by Consultant and/or its insurer. To the extent Consultant has discretion in the selection of defense counsel, Consultant shall consider any reasonable objections to selected counsel raised by the City. The City may participate in the defense at its own expense with counsel of its own choosing. The insurance required to be maintained by Consultant under paragraph 15 shall ensure Consultant's obligations under this paragraph 14(b), but the limits of such insurance shall not limit the liability of Consultant hereunder. The provisions of this paragraph 14(b) shall survive the expiration or earlier termination of this agreement. The Consultant's indemnification does not extend to Claims occurring as a result of the City's sole negligent or willful acts or omissions. 15. INSURANCE. A. Insurance Requirements. Consultant shall provide and maintain insurance acceptable to the City Attorney in full force and effect throughout the term of this Agreement, against claims for injuries to persons or damages to property which may arise from or in connection with the performance of the work hereunder by Consultant, its agents, representatives or employees. Insurance is to be placed with insurers with a current A.M. Best's rating of no less than A:VII. Consultant shall provide the following scope and limits of insurance: least as broad as: (1) Minimum Scope of Insurance. Coverage shall be at (a) Insurance Services Office form Commercial General Liability coverage (Occurrence Form CG 0001). l� (b) Insurance Services Office form number CA 0001 (Ed. 1/87) covering Automobile Liability, including code 8, 9 hired and non -owned autos and endorsement CA 0025, or equivalent forms subject to the written approval of the City. (c) Workers' Compensation insurance as required by the Labor Code of State of California and Employer's Liability insurance and covering all persons providing services on behalf of the Consultant and all risks to such persons under this Agreement. (d) Errors and omissions liability insurance appropriate to the Consultant's profession. (2) Minimum Limits of Insurance. Consultant shall maintain limits of insurance no less than: (a) General Liability: $1,000,000 per occurrence for bodily injury, personal injury and property damage. If Commercial General Liability Insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to the activities related to this Agreement or the general aggregate limit shall be twice the required occurrence limit. (b) Automobile Liability: $1,000,000 per accident for bodily injury and property damage. (c) Workers' Compensation and Employer's Liability: Workers' Compensation as required by the Labor Code of the State of California and Employers Liability limits of $1,000,000 peraccident. (d) Errors and Omissions Liability: $1,000,000 per -10- claim. B. Other Provisions. Insurance policies required by this Agreement shall contain the following provisions: (1) General Liability and Automobile Liability Coverages. (a) City, its officers, officials, and employees and volunteers are to be covered as additional insureds (blanket endorsement acceptable) as respects: liability arising out of activities ,Consultant performs, products and completed operations of Consultant; premises owned, occupied or used by Consultant, or automobiles leased or hired or borrowed by Consultant. The coverage shall contain no special limitations on the scope of protection afforded to City, its officers, officials, or employees. (b) Consultant's insurance coverage shall be primary insurance as respect to City, its officers, officials, employees and volunteers. Any insurance or self-insurance maintained by City, its officers, officials, employees or volunteers shall apply in excess of, and not contribute with, Consultant's insurance. (c) Consultant's insurance shall apply separately to each insured against whom claim is made or suit is brought, except with respect to the limits of the insurer's liability. (d) Any failure to comply with the reporting or other provisions of the policies including breaches of warranties shall not affect coverage provided to the City, its officers, officials, employees orvolunteers. (2) Workers' Compensation and Employer's Liability Coverage. Unless the City Manager otherwise agrees in writing, the insurer shall -11- agree to waive all rights of subrogation against City, its officers, officials, employees and agents for losses arising from work performed by Consultant for City. C. Other Requirements. Consultant agrees to deposit with City, upon request, certificates of insurance necessary to satisfy City that the insurance provisions of this contract have been complied with. The City Attorney may require that Consultant furnish City with copies of original endorsements effecting coverage required by this Section. The certificates and endorsements are to be signed by a person authorized by that insurer to bind coverage on its behalf. City reserves the right to inspect complete, certified copies of all required insurance policies (except declarations pages for Errors & Omissions Liability), at any time. (1) Consultant shall furnish certificates and endorsements from each subcontractor identical to those Consultant provides. (2) Any deductibles or self-insured retentions must be paid by Consultant, and comparable to deductions and retentions typical for entities of the nature, size, and structure of Consultant. (3) The procuring of such required policy or policies of insurance shall not be construed to limit Consultant's liability hereunder nor to fulfill the indemnification provisions and requirements of thisAgreement. (4) Consultant shall promptly notify City of any suspension, cancellation, or material reduction in insurance required by this Agreement, unless Consultant immediately obtains replacement coverage meeting the requirements herein. 16. Limitation of liability. Each party's total liability to the other for any and all -12- damages whatsoever arising out of or in any way related to this agreement from any cause, including but not limited to negligence, errors, omissions, strict liability, breach of contract or breach of warranty shall not, in the aggregate, exceed the fees paid to consultant under this agreement. In no event will either party be liable to the other for any special, indirect, incidental, or consequential damages in connection with or otherwise arising out of this agreement, even if advised of the possibility of such damages. In no event shall either party be liable for exemplary or punitive damages arising out of or related to this agreement. The limitations of liability set forth in this section 16 shall not apply to: (i) liability for death or personal injury resulting from a party's negligence; or (ii) any indemnification obligations set forth in this agreement. 17. NO THIRD PARTY BENEFICIARIES. City and Consultant are the only parties to this Agreement and are the only parties entitled to enforce its terms. Nothing in this Agreement gives, is intended to give, or shall be construed to give or provide any benefit or right, whether directly, indirectly or otherwise, to third persons. 18. NONDISCRIMINATION/ NONPREFERENTIAL TREATMENT STATEMENT. In performing this Agreement, the Parties shall not discriminate or grant preferential treatment on the basis of race, sex, color, age, religion, sexual orientation, disability, ethnicity, or national origin, and shall comply, to the fullest extent allowed by law, with all applicable local, state and federal laws relating to nondiscrimination. 19. UNAUTHORIZED ALIENS. Consultant hereby promises and agrees to comply with all of the provisions of the Federal Immigration and Nationality Act (8 U.S.C.A. & 1101, et seq.), as amended; and in connection therewith, shall not -13- employ unauthorized aliens as defined therein. Should Consultant so employ such unauthorized aliens for the performance of work and/or services covered by this contract, and should the Federal Government impose sanctions against the City for such use of unauthorized aliens, Consultant hereby agrees to, and shall, reimburse City for the cost of all such sanctions imposed, together with any and all costs, including attorneys' fees, incurred by the City in connection therewith. 20. ENTIRE AGREEMENT. This Agreement is the complete, final, entire and exclusive expression of the Agreement between the parties hereto and supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter herein. Each party to this Agreement acknowledges that no representations by any party which are not embodied herein and that no other agreement, statement, or promise not contained in this Agreement shall be valid and binding. 21. GOVERNING LAW. The City and Consultant understand and agree that the laws of the State of California shall govern the rights, obligations, duties and liabilities of the parties to this Agreement and also govern the interpretation of this Agreement. Any litigation concerning this Agreement shall take place in the San Bernardino County Superior Court. 22. ASSIGNMENT OR SUBSTITUTION. City has an interest in the qualifications of and capability of the persons and entities who will fulfill the duties and obligations imposed upon Consultant by this Agreement. In recognition of that interest, neither any complete nor partial assignment of this Agreement may be made -14- by Consultant nor changed, substituted for, deleted, or added to without the prior written consent of City. Any attempted assignment or substitution shall be ineffective, null, and void, and constitute a material breach of this Agreement entitling City to any and all remedies at law or in equity, including summary termination of this Agreement. Subcontracts, if any, shall contain a provision making them subject to all provisions stipulated in this Agreement. 23. MODIFICATION OF AGREEMENT. The terms of this Agreement can only be modified in writing approved by the City Council and the Consultant. The parties agree that this requirement for written modifications cannot be waived and any attempted waiver shall be void. 24. AUTHORITY TO EXECUTE. The person or persons executing this Agreement on behalf of Consultant warrants and represents that he/she/they has/have the authority to execute this Agreement on behalf of his/her/their organization and warrants and represents that he/she/they has/have the authority to bind Consultant to the performance of its obligations hereunder. 25. NOTICES. Notices shall be given pursuant to this Agreement by personal service on the party to be notified, or by written notice upon such party deposited in the custody of the United States Postal Service addressed as follows: Com. Attention: City Clerk City of Chino Hills 14000 City Center Drive Chino Hills, California 91709 Email: cityclerk@chinohills.org -15- Consultant. Attention: Steven Bacchetti Moss Adams LLP 2040 Main Street, Suite 100 Irvine, CA 92614 The notices shall be deemed to have been given as of the date of personal service, or three (3) days after the date of deposit of the same in the custody of the United States Postal Service. 26. CONSISTENCY. In interpreting this Agreement and resolving any ambiguities, the main body of this Agreement takes precedence over the attached Exhibits; this Agreement supersedes any conflicting provisions. Any inconsistency between the Exhibits will be resolved in the order in which the Exhibits appear below: A. Exhibit A: Scope of Work B. Exhibit B: Compensation 27. SEVERABILITY. The invalidity in whole or in part of any provision of this Agreement shall not void or affect the validity of the other provisions of this Agreement. -16- IN WITNESS WI HERE OFF, the parties hereto have caused this Agreement to be 00. executed the `dderr -fi n�� CITY 9F CHINO HILLS Konradt Bartlam City Manager (Date) t 7 - City Clerk la -15- / I (Date) -17- MOSS ADAMS LLP (Signature) Mark Steranka, Partner for Moss Adams LLP (Printed name/Title) December 12, 2017 (Date) (Signature) (Printed name/Title) (Date) Exhibit A Scope of Work: In conformance with the City of Chino Hills Municipal Code § 3.40.180(8) and 3.40.190(A) and the terms of the Development Agreement, the work shall consist of an audit of the accounting of the costs of construction related to Pinehurst Park. The anticipated tasks in performing the audit include, but are not limited to, the following: • Reviewing the information and documentation supplied and identifying any additional information or documentation needed to complete the audit; • Comparing the design and as -built plans for consistency with the construction quantities; • Verifying construction quantities indicated in the requests for payment (invoices) are consistent with the approved plans; • Identifying any discrepancies between the cost accounting, invoices, and actual construction quantities; • Identifying any costs that are ineligible for reimbursement; • Documenting and certifying the audit findings; and • Determining the final audited cost. Consultant shall perform the services in accordance with Standards for Consulting Services established by the American Institute of Certified Public Accountants (AICPA). Accordingly, Consultant will provide no opinion, attestation or other form of assurance with respect to the work or the information upon which the work is based. The procedures Consultant will be performing will not constitute an audit or a review in accordance with generally accepted auditing standards or attestation standards. Consultant will not audit or otherwise verify the information supplied to Consultant in connection with the engagement, from whatever source, except as may be specified in the Agreement. Due to the inherent limitations in any internal control structure, errors or irregularities may occur and not be detected. Also, projections of any evaluation of the internal control structure to future periods are subject to the risk that the internal control structure may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If during the assessment, Consultant becomes aware of reportable conditions that are significant deficiencies in the design or operation of the internal control structure, Consultant will communicate them to City immediately. Exhibit B VVVVW, MOSSAOAMS,COM MOSS -ADAMS LLP Name Position Hours Rate $350 Total $5,600 Mark Steranka Partner 16 Colleen Rozillis Senior Manager 24 $305 $7,320 Charnee Foston and Stephen Manager 20 $225 $4,500 Bacchetti Lawrence Staff 16 $160 $2,560 Stepovich TOTAL $19,980 999 Third Avenue, Suite 2800 1� /TOS /� 1� /� � /(S IIP Seattle, WA 98704 1V1 t.7 T1L111V1 Certified Public Accountants I Business Consultants Construction Cost Audit of Pinehurst Park Moss Adams LLP 999 3`d Ave, Ste 2800 Seattle, WA 98104 MOSS ADAMS LLP WW W.MOSSADAMS.COM PROPOSALFOR Construction Cost Audit of Pinehurst Park City of Chino Hills Prepared by: Peder Jensen, Senior Manager Moss Adams LLP 2040 Main Street Suite 900 Irvine, CA 92614 (949) 221-4000 WWW. MOSS ADAMS. COM MOSS -ADAMS LLP June 22, 2017 Joe Dyer I i Assistant City Engineer City of Chino Hills 14000 City Center Drive Chino Hills, CA 91709 Dear Mr. Joe Dyer: We are pleased to submit our proposal related to the Construction Cost Audit of Pinehurst Park for the City of Chino Hills (the City). Moss Adams offers highly regarded construction auditing and accounting services for clients throughout the United States, and we are confident that we offer the team, capabilities, and approach that will meet or exceed your expectations. • We have a long history working with government. Our national Government Practice and Not - for -Profit Practice consist of over 180 professionals, the vast majority of whom specialize primarily, if not exclusively, in serving education, government, and tax-exempt organizations. • We use a collaborative approach to working with our clients. We team with you to address what is needed to improve your construction program operations. Our team will work closely with the City to establish a working relationship that provides maximum benefit in meeting the stated goals and objectives for this engagement. • We bring experienced professionals with deep construction industry knowledge. Our partner and senior manager involvement in engagements is significantly higher than what other firms offer. Our approach is collaborative, and we will include your team in every step of the audit process to l ; successfully deliver value-added results. 1 Moss Adams has the experienced people, methods, and tools to provide construction audit services to meet the City's needs. We appreciate the opportunity to submit our qualifications and look forward to helping you with the final project verification. Thank you for your consideration. Sincerely, Peder Jensen, CCA Senior Manager For Moss Adams LLP (503) 478-2197 peder.jensen@mossadams.com Proposal for City of Chino Hills WWW.MOSSADAMS.COM MOSS -ADAMS LLP TABLE OF CONTENTS 1. COMPANY OVERVIEW 1 CONSTRUCTION AUDITING EXPERIENCE 1 2. REFERENCES 3 LIST OF PUBLIC ENTITIES 3 PROJECT DESCRIPTIONS 4 3. CONSTRUCTION AUDIT SCOPE AND METHODOLOGY 6 AUDIT ENGAGEMENT APPROACH AND METHODOLOGY 6 TIMELINE 11 4. STATEMENT OF QUALIFICATIONS 12 PROJECT TEAM 12 RESUMES 13 5. FEE SCHEDULE 6. STATEMENTS & EXCEPTIONS MANDATORY STATEMENTS EXCEPTIONS 17 19 19 20 7. APPENDIX: SAMPLE REPORT 21 Proposal for City of Chino Hills WWW.140SSADAt45.COM MOSS -ADAMS LLP 1. COMPANY OVERVIEW i Moss Adams provides accounting, tax, and consulting services to public and private middle -market enterprises in many different industries. Founded in 1913 and headquartered in Seattle, Moss Adams has 28 locations throughout Washington, Oregon, California, Arizona, New Mexico, Kansas, i and Texas. Our assurance services include audits, accounting, internal controls, business risk management, and employee benefit plans. Our tax services include federal, state, and local tax planning and I compliance; international tax planning and compliance; cost segregation; and R&D tax credits. We also provide consulting and advisory services for mergers and acquisitions, corporate finance, valuations, business owner succession, business planning, litigation and forensic accounting, IT integration and reviews, and compensation. We offer additional services such as investment banking and asset management by drawing on our two affiliate companies, Moss Adams Capital LLC and Moss Adams Wealth Advisors LLC. Moss Adams is one of the 15 largest accounting and consulting firms in the United States. Our staff of more than 2,600 includes approximately 280 partners. Moss Adams is also a founding member of Praxity, AISBL, a global alliance of independent accounting firms providing clients with local expertise in the major markets of North America, South America, Europe, and Asia. CONSTRUCTION AUDITING EXPERIENCE Moss Adams has significant experience in performing construction cost, quantity, quality, and compliance audits. Our service team has audited several large-scale construction programs, including public construction programs funded by state and federal funds, grants, and other funding sources. We have provided construction control services on numerous public and private construction programs valued between $1 million and $3.5 billion. We complete multiple construction audit projects each year, ranging from full program reviews to final audits. In these engagements, we have acted as the principal auditor. Our team brings needed knowledge of construction means and methods as well as direct experience in monitoring and analyzing construction operations. Moss Adams has a strong service team that brings the requisite understanding and knowledge of construction management methods, contracting strategies, project controls, and engineering in order to conduct successful construction internal controls assessments. This team has accomplished multiple construction program audits, is familiar with different types of construction contracts and project delivery methodologies, and has worked directly with general contractors Proposal for City of Chino Hills 1 1 www.MOssAOAM5.COM MOSS ADAMS LLP and construction managers on issues arising out of schedule delays, construction quality, change orders, excess charges, and project progress reporting. Our tearn performs between 50 and 60 construction audits per year on projects of varying size and scope. Cost savings we have found for previous clients are listed below. Project Size $800 million Savings $4.1 million Findings Excessively priced labor rates reduced during negotiation $300 million $475,000 Noncompliant labor charges, unallowable home office personnel, expense overcharges $300 million $5.5 million Preconstruction contract charge limits not applied $230 million $604,000 Installed different units than specified requirements $91 million $3.9 million Billings in excess of guaranteed maximum price, questionable labor charges, project expense overcharges, noncompliant rental charges, and self -performed work in excess of contractually agreed-upon maximum amount $70 million $656,000 Noncompliant labor charges and rental charges above contractual limits $70 million $850,000 Contractor errors charged to owner through change orders $55 million $4.2 million Noncompliant labor charges (fraud) $50 million $674,000 Billed over actual job cost report amount $50 million $200,000 Insurance double charged $45 million $3.1 million Noncompliant general conditions labor and expense charges $30 million $76,000 Contractor errors charged to owner through change orders $22 million $4.2 million Noncompliant labor charges and unapproved out -of -scope change -order charges passed through on billing $16 million $280,000 Over -billed quantities $14 million $220,000 Noncompliant labor and expense overcharges $11 million $76,000 Questionable labor charges $8 million $118,000 Noncompliant rental equipment charges Proposal for City of Chino Hills 1 2 WW W.MOSSADAMS.COM MOSS ADAMS LLP 2. REFERENCES LIST OF PUBLIC ENTITIES A sampling of construction audit clients served by your team members includes: • Banner Health System (8 locations) a MultiCare Health System (4 locations) • Beaverton School District a Oak Valley Hospital District • Central Washington Hospital a Parkland Health and Hospital System • Ceradyne Corporation 0 Phoenix Children's Hospital • City of Los Angeles 0 Port of Portland • City of Phoenix • Portland Public Schools • Clark County School District • Presbyterian Healthcare Services • Community Memorial Health System a Puyallup Tribe of Indians • Cottage Health System 0 Sacramento Public Schools • Dignity Health -5 locations 0 Salinas Valley Memorial Healthcare System • Dry Creek Rancheria Band of Pomo Indians 0 Salt Lake Airport Authority • Emerald Queen Casino a San Jose Unified School District • Episcopal Senior Communities (2 locations) Stanford Hospital and Clinics • Good Samaritan Hospital • Sutter Health • Hoag Hospital • Swedish Health Services • Intel Corporation (9 locations) a Teledyne Corporation • Kaiser Permanente (4 locations) • Tynan Group • Lodi Memorial Hospital 0 University of Chicago • Long Beach Community College District 0 University of Hawaii • Los Angeles Unified School District & University of Southern California • Maricopa County Wyoming Medical Center • Maricopa County Community College District a Yakama Nation Legends Casino • MGM Resorts International (3 locations) Proposal for City of Chino Hills 1 3 WWW.MOSSADAMS.COM 1V10SS-ADAMS» PROJECT DESCRIPTIONS Construction Audit and GMP Contract Experience A representative sample of the large (over $50 million) GMP contract projects we have worked on recently is below. ConstructionLarge GMP Client Audit Date Construction Contract Value Parkland Health and Hospital System 2011—present 0 $1.3 billion Bank of China 2016 • Project 1: $450 million Project 2: $410 million Nike 2017 • a • Project 1: $225 million Project 2: $175 million Project 3: $150 million California Department of Corrections 2017 0 $250 million Dignity Health 2016—present • • Project 1: $80 million Project 2: $50 million Real Estate Developer 2017 • • Project 1: $65 million Project 2: $52 million Yuma Regional Medical Center 2017 0$110 million Yakama Nation Legends Casino 2015—present a$90 million University of Alaska, Anchorage 2016 a$80 million Balboa Bay Beach Club 2016 0 $75 million Whidbey Island General Hospital 2016—present a$65 million City of Arvada, CO 2017 0$63 million San Francisco State University 2016 0 $60 million St. Charles Health 2015—present a$60 million Security Properties 2017 a $55 million Gonzaga University 2015-2016 a$50 million Proposal for City of Chino Hills 1 4 WWW.MOSSADAMS.COM MOSS -ADAMS LLP Detailed Client References Client Parkland Health and Hospital System Services Construction program controls implementation, initial, interim and final construction audits, and ongoing risk advisory and consulting services including audit design vs. installed quantities and material. Contact Person Mr. Vic Summers, Senior Vice President, Internal Audit Contact Information (214) 590-8148, vic.summers@.phhs.org Reference #2 Client City of Arvada, CO Services Close-out construction cost audit on the City's Olde Town Transit Hub construction project. Recalculating total cost and schedule and change order impact. Contact Person Ms. Lorie Gillis, Deputy City Manager Contact Information (720) 898-7500, lgillis a arvada.org Reference #3 Client Beverly Hills Unified School District Services Performance audit of construction program. We also assessed bond program risks, controls design, and controls operation, and tested expenditures for compliance. Contact Person Ms. La Tanya Kirk -Carter, Chief Administrative Officer Contact Information (310) 551-5100, Ext. 2222, Ikirkaabhusd.org Proposal for City of Chino Hills 1 5 WWW.MOSSADAMS.COM MOSS -ADAMS LLP 3. CONSTRUCTION AUDIT SCOPE AND METHODOLOGY AUDIT ENGAGEMENT APPROACH AND METHODOLOGY Review the information and documentation supplied and identify any additional information or documentation needed to complete the audit: Moss Adams will start the engagement with an entrance meeting between the City, the general contractor, and Moss Adams. In this entrance meeting, we will have a well -organized document request outlining the specific documents we need in order to validate quantities, design, and costs for the project. Most of the documents requested will come directly from the general contractor, but there will be several documents that will be requested from the City as well. The documents we will be requesting will include: • Project contracts • Design drawings including original plans and final as-builts • Payment applications • Change orders, change order logs, contingency and allowance logs • Cost reports—total project cost report, labor reports, equipment reports, subcontractor ledger reports, etc. • Insurance and safety information • Close-out documentation We will use a portal or drop box to collect all information to make sure the information is organized and secure. The document request will be a live document that will be maintained through the engagement and updated as we progress through the process. Our goal in the entrance meeting is to assign responsible parties and identify target dates for all documents. Compare the design and as -built plans for consistency with the construction quantities: Design and as -built plans will be reviewed for consistency of construction quantities. Plans will be compared to determine if approved modifications were made throughout the construction phase. Construction quantities included within payment applications will be compared to approve plans to verify accuracy. During on-site fieldwork, a sample of construction quantities installed can be Proposal for City of Chino Hills 1 6 WWW.MOSSADAMS.COM MOSS -ADAMS LLP verified during the site visit. Cost associated with any unapproved or undocumented construction quantities will be identified and included within the audit report. Verify construction quantities indicated in the requests for payment are consistent with the approved plans: The payment applications schedule of values will be reviewed to validate that all billed quantities match the plans and installed quantities. Interviews with the general contractor and owner will be conducted during fieldwork to review how quantities were established and documented to verify proper controls were used during the project. Testing procedures will be conducted to verify that final quantities reconcile between the billing schedule of values, plans, and final as-builts. Any deviations or issues will be included in the report and cost adjustments will be included in the final audited cost. Identifying any costs that are ineligible for reimbursement: This analysis will cover management of expenditures including direct costs, indirect costs, subcontractor charges, and labor costs. Contracts will be reviewed to gain an understanding of allowable charges and reimbursable costs. Processes to review and approve contractor charges will be analyzed to prevent excessive charges and overpayments, and payment applications will be reviewed to assess the adequacy of supporting documentation. Controls over the calculation of retention will be evaluated. The method of accounting for retention will be assessed to determine the accuracy and appropriateness of the retention calculation, as well as the timeliness of retention release. Materials, Equipment, and Other Direct Costs—A sampling of payment applications and job cost report charges will be tested, including materials, equipment and other direct costs, as follows: • Review materials, equipment, and other direct costs to date for correctness and compliance with the contract • Verify that dollar amounts were correctly posted to the job cost report • Verify that dollar amounts were posted to the correct job site and cost code • Review payment documentation and calculations to assess adequacy of support • Review contract terms and test for costs not reimbursable per the contract • Review general conditions and equipment charges to date, and test for costs not reimbursable per the contract Proposal for City of Chino Hills 1 7 WWW.MDSSADAMS.COM MOSS ADAMS LLP • Review self -performed work, match to supporting documentation, and look for compliance with the contract • Validate subcontractor contract compliance • Validate subcontractor charges to supporting invoices and schedule of values • Review allowance and contingency use, and document over/under amounts • Validate payment application pricing as contracted or subcontracted • Match between subcontractor and other applicable schedule of values, installations, and amounts billed • Validate material receipts match to purchase order and invoice prior to payment • Verify that discounts have been taken to verify proper credit has been given Indirect Costs—Indirect costs will be reviewed to identify any unallowable and unsupported costs. A sampling of indirect cost charges on the job cost report will be tested as follows: • Validate indirect cost charges to supporting payment documentation, invoices, and calculations to assess compliance of charges and adequacy of supporting documentation • Verify that dollar amounts were correctly posted to the job cost report and to the correct job site and cost code • Analyze "sensitive" accounts containing transactions relating to identified field or home office overhead personnel and other potential unallowable costs, including travel reimbursement, subsistence, moving, outside consulting, legal fees, claims costs, late fees, owned equipment, home office expenses, and inappropriate site office expenses • Verify that discounts were applied, including early payment, owned equipment, etc. Subcontractors—We will obtain and analyze subcontracts to determine a sample of subcontractors to perform the following procedures: • Inquire as to any billing disputes or issues • Determine pricing of original subcontract bids • Obtain relevant correspondence as necessary • Determine the extent of review the general contractor has provided for subcontract billings • Verify subcontractor contract compliance • Validate subcontractor charges to supporting invoices and schedule of values • A sample of subcontractor transactions will be selected from the job cost report; the following review procedures will be performed on the selected subcontractor transactions: o Validation of charges to supporting invoices Proposal for City of Chino Hills 1 8 WWW.MOSSADAMS.COM MOSS ADAMS LLP o Verification of correct job cost report posting and correct job site and cost code posting o Verification that discounts have been taken to verify proper credit has been given o Verification that subcontractor retention release is consistent with completed work and contractual terns Direct Labor and Labor Burden Costs—This analysis will cover measurement and management of labor costs and reporting. A sampling of charges will be tested, including labor transaction charges and labor burden as follows: • Identify populations and select sample of labor transactions for testing • Obtain time sheets for nonexelript employees • Trace labor hours and amounts from the job cost report to the certified payroll and labor distribution reports • Trace wage rates to supporting source documentation such as cancelled checks, union agreements, certified payroll, or payroll registers • Trace exempt salaries, as found on the contractor's payroll registers, to their respective annual salaries as documented in human resources files • Determine which levels of personnel are cost reimbursable and which costs for contractor personnel are covered by the fee; the basis for any issues with the contractor's employee job categorization will be documented • Evaluate the component parts of labor burden and other indirect costs • Trace labor burden charges to supporting source documentation • Analyze the components of labor burden such as fringes, insurance, and state and federal taxes • From the sample of selected employees, test for costs not reimbursable per the contract, including travel -related expenses for exempt employees • If desired, where contractually specified labor rates have been applied, we will compare the contractor rates to our comparative regional labor cost and rate database by job category for reference and use in negotiating contractual rates • Tests for Costs Not Reimbursable per the Contract—Costs not reimbursable per the contract will be considered in the above construction audit procedures. The following procedures will be specifically performed: • Determine if billings were in accordance with contract terms for site office versus home office expenses • Review all other items specified in the contract as items that are not reirnbursable and compare these criteria to amounts invoiced. Document any differences with a description of the reason why the amount invoiced is not reimbursable under the contract terms. Proposal for City of Chino Hills 1 9 WWW.M0SSADAMS.COM MOSS -ADAMS L> Quantify the magnitude of any non -reimbursable costs observed during the audit. Discuss any such items with the contractor and document any explanations from the contractor as to why the amounts were billed. Document and certify the audit findings: A written potential issues list (PIL) will be developed as the engagement progresses and will be validated as audit work is completed and shared with you to achieve maximum audit efficiency and effectiveness. Our audits are based on validated facts. Once our PIL has been validated by both the City and general contractor, we will prepare a draft report for discussion with you prior to delivery to the contractor. You will receive a comprehensive report that provides an executive summary including audit observations, cost savings or cost avoidances, quantity discrepancies, recommendations including industry best practices, and good practices observed during the review. Detailed appendices will be included in our report to provide support for questioned and unsupported cost amounts, and to facilitate resolution of our observations. The report will include the construction audit project scope of services and project overview. Determining the final audited cost: Included in our report will be a summary of final project cost. This summary will be calculated based on the general contractor's incurred costs, billings, and deductions of any questioned or unsupported costs or quantity deviation observations noted in our report. There will be several testing steps taken during the audit engagement to validate the general contractor's total costs and determine whether proper support was provided and these costs comply with contract language. Proposal for City of Chino Hills I 10 WWW.MOSSADAMS.COM MOSS -ADAMS LLP TIMELINE The proposed cost breakdown of the tasks for this engagement is outlined below. Proposal for City of Chino Hills 111 BreakdownTask Cost 1. Initiating Project start-up, risk assessment, document request $400 2. Reviewing the information and documentation supplied and identifying any additional information or documentation needed to complete the audit $400 3. Comparing the design and as -built plans for consistency with the construction quantities $2500 4. Verifying construction quantities indicated in the requests for payment (invoices) are consistent with the approved plans $3,200 5. Identifying any discrepancies between the cost accounting, invoices, and actual construction quantities $4,680 6. Identifying any costs that are ineligible for reimbursement $6,800 7. Documenting and certifying the audit findings $1,000 8. Determining the final audited cost $1,000 Total Cost $19,980 Proposal for City of Chino Hills 111 WWW.MOSSADAMS.COM MOSS ADAMS �LP 4. STATEMENT OF QUALIFICATIONS PROJECT TEAM Approach to Staffing The Moss Adams approach to staffing is to assemble a highly skilled group of consultants to handle reviewing and auditing the final costs and quantities for the Pinehurst Park project. The proposed team for this project is comprised of seasoned professionals with solid backgrounds in infrastructure construction. Moss Adams provides staff continuity in projects of this type by balancing workloads and making sure there is sufficient coverage for each member of our project team. This is accomplished through a combination of factors: • Staff schedules are carefully monitored to avoid scheduling conflicts • Although each consultant has specific expertise and experience, we emphasize cross -training and diversification of knowledge at all times • Regular meetings with our project teams are conducted to communicate current issues and share information Proposal for City of Chino Hills 1 12 WWW.MOSSADAt4S.COM MOSS -ADAXIS Lu' RESUMES Mark Steranka PARTNER Role: Mark will be your quality assurance reviewer. Professional Experience Mark serves as the national practice leader for government internal and performance audit services and has 30 years of experience. He serves as project manager for internal audit engagements for Carson City, Modesto, and Stockton, and has managed assignments ranging in size from $25,000 to $1 million. Mark has worked extensively with local and state governments throughout the western United States to evaluate risks, operational efficiency and effectiveness, internal controls, and compliance with requirements. Mark has worked with many cities and government agencies with similar projects to the City. He has provided relevant consulting services for clients such as: • States: Alaska, California, Idaho, Oregon, and Washington • Counties: King County, Pierce County, San Juan County, and County of Sonoma • Cities: Anacortes, Burien, Carson City, Culver City, Edmonds, Lynnwood, Issaquah, Modesto, Portland, Redondo Beach, San Jose, Santa Monica, Santa Rosa, Stockton, and West Richland Special Purpose Districts: Community Transit, Lake Stevens Sewer District, North Perry Water District, Richland School District; Santa Clara Valley Water District, Snohomish County PUD No. 1, and Tacoma Department of Public Utilities ' Mark is experienced in reporting to boards, commissions, committees, councils, and executive management members, as well as in working with citizen committees and stakeholder groups. He is also well versed in designing and facilitating meetings, focus groups, and customer surveys. i Education • Executive Management Program, University of Washington • BS, mechanical engineering, University of Notre Dame • Certified, GAGAS Performance Audits Proposal for City of Chino Hills 1 13 WWW.MOSSADAMS.COM MOSS ADAMS LLP 5. FEE SCHEDULE Professional fees for the project have been prepared by identifying the activities within each of the proposed project tasks, and the hourly fee for the proposed project team to accomplish those activities. It is our practice to manage our consulting engagements carefully in order to not exceed these proposed fees. If the scope of the engagement changes, our project manager will meet with the City to discuss prior to proceeding with any changed scope. Moss Adams understands that said hourly rate schedule is part of our quote for use in invoicing for progress payments. Cost: Moss Adams is committed to fees that are fair and commensurate with the experience and level of service described in this proposal. We have prepared the following fee estimate based on our understanding of your current service needs. Fees for this project are estimated to be $19,980 Expenses will be billed separately at cost. Hourly rates and cost per hour are detailed on the following page. Proposal for City of Chino Hills 1 17 I WWW.MOSSADAMS.COM MOSS -ADAMS LLP 6. STATEMENTS & EXCEPTIONS MANDATORY STATEMENTS 1. Moss Adams understands that this RFP shall be incorporated in its entirety as a part of the Consultant's quote. 2. Moss Adams has provided section 4. Statement of Qualifications to address qualifications applicable to this project including the names, qualifications, and proposed duties of the Moss Adams staff to be assigned to this project; a listing of recent similar projects completed including the names, titles, addresses, and telephone numbers of the appropriate persons which the City can contact. 3. A copy of the Moss Adams hourly rate schedule can be found in S. Fee Schedule. Said hourly rate schedule is part of the Moss Adams quote for use in invoicing for progress payments. 4. Moss Adams understands that all federal laws and regulations shall be adhered to notwithstanding any state or local laws and regulations. In case of conflict between federal, state, or local laws or regulations, the strictest shall be adhered to. S. Moss Adams shall allow all authorized federal, state, county, and the City of Chino Hills officials access to place of work, books, documents, papers, fiscal, payroll materials, and other relevant contract records pertinent to this project. All relevant records shall be retained for at least three years. 6. Moss Adams will not discriminate against any employee or applicant for employment because of race, color, religion, sex, or national origin. 7. Moss Adams shall comply with the California Labor Code. Pursuant to said regulations entitled: Federal Labor Standards provisions; Federal Prevailing Wage Decision; and State of California Prevailing Wage Rates, respectively. 8. Moss Adams shall comply with the Copeland Anti -kickback Act (18 USC 874 C) and the implementation regulation (29 CFR 3) issued pursuant thereto, and any amendments thereof. 9. Moss Adams does not plan to utilize any subcontractors for this engagement. It plans to self - perform all tasks listed in the proposal. If this changes at any time during this engagement, Moss Adams understands it needs to receive prior written approval from the City. Proposal for City of Chino Hills 1 19 WW W.MOSSADAMS.COM MOSS ADAMS LLP EXCEPTIONS This proposal is contingent upon completion of the Moss Adams new client acceptance process and negotiation of a mutually acceptable contract. With regard to terms and conditions set forth in the RFP and the sample contract attached as Exhibit A', Moss Adams suggests as follows: Exceptions Providing for representations in lieu of warranties EX A §1 Clarifying access requirements, including to protect the confidentiality of EX A §§8, 11, sensitive FIR records, information of other clients and firm proprietary data and where applicable limiting access to fees and expenses charged. RFP pg. 3 ¶5 Clarifying insurance requirements, including non -ownership of vehicles, professional liability is per claim, notification only goes to the primary insured, Ex A §15 additional insureds are added via blanket endorsement, and providing for confidentiality of our insurance structure including deductibles, self -retention RFP pg. 5-7 levels, and declaration pages of professional liability. Clarifying City's ownership of final deliverables and of its own IP vs. Consultant's ownership of works in progress, working papers, and general skills and know- EX A §11 how. Clarifying responsibilities and obligations Ex A §12 Focusing indemnification Ex A §14 Addressing limitations of liability and no third party beneficiaries New We have successfully signed professional services agreements with thousands of clients, including many cities and municipalities, and we commit to working in good faith to successfully negotiate a mutually agreeable contract on a timely basis should we be awarded this work. We are happy to provide a proposed redline of the sample contract upon request. 1 These exceptions apply to equivalent provisions throughout the RFP and sample contract Proposal for City of Chino Hills 1 20 MOSS ADAMS LLP 7. APPENDIX: SAMPLE REPORT WWW.MOSSADAMS.COM Proposal for City of Chino Hills 1 21 ABC Company/City of Anytown Olde Town Anytown Project Close -Out Construction Cost Audit March 9, 2017 March 9, 2017 Mr. John Doe, Partner ABC Company 123 Main Street Anytown, CA 12345 Subject: Construction Audit Services for the City of Anytown Municipality Dear Mr. Doe: WWW.M OSSADAMS.COM 101 Second Street, Suite 900 San Francisco, CA 94105 T (4151956-1500 F 14151 956-4149 Thank you for the opportunity to perform construction audit services for the Olde Town Anytown Project. This report summarizes the results of our review. This engagement was performed in accordance with Standards for Consulting Services established by the American Institute of Certified Public Accountants as outlined in our professional services agreement dated November 21, 2016. The scope of this engagement is outlined in the body of our report. This report was developed based on information from our review of construction project documentation and records. This report is intended solely for the use of ABC Company and the City of Anytown. Moss Adams LLP does not accept any responsibility to any other party to whom this report may be shown or into whose hands it may come. We appreciate the opportunity to help you continuously improve your construction program performance. Please do not hesitate to contact me at (360) 334-0239 if you have any questions or need further assistance regarding this important matter. Very truly yours, -PA49--�- Peder Jensen, Senior Manager, Construction Audit Practice Leader for Moss Adams LLP ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project TABLE OF CONTENTS EXECUTIVESUMMARY............................................................................................................................................................................. 1 OBJECTIVEAND SCOPE............................................................................................................................................................................ 6 PROJECTOVERVIEW................................................................................................................................................................................ 7 DETAILED OBSERVATIONS AND IMPROVEMENT RECOMMENDATIONS..................................................................................................... 8 APPENDIX A - QUESTIONED CRAFT LABOR COSTS................................................................................................................................ 25 APPENDDx B - UNSUPPORTED PROJECT CHARGES................................................................................................................................ 29 APPENDIX C - QUESTIONED TOTAL PROJECT EQUIPMENT CHARGES..................................................................................................... 31 APPENDDx D - QUESTIONED SUBCONTRACTOR OVERHEAD AND PROFIT MARKUPS.............................................................................. 32 APPENDIX E - QUESTIONED CONTRACTOR SELF -PERFORMED WORK MARKUPS.................................................................................. 33 APPENDIX F - QUESTIONED DUPLICATED PROJECT EQUIPMENT CHARGES........................................................................................... 34 MOSS ADAMS LLP ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project ExEcunw SummAUY The close-out construction cost audit of the Olde Town Anytown Project (the Project) identified opportunities to improve billing and contracting practices as well as related controls. We identified $17,443,293 (including fee) in unsubstantiated costs which are further defined as questioned and unsupported costs. Questioned costs are charges that are not allowable per the construction agreement (the Contract) between the City of Anytown and DEF Building Group, Inc. Unsupported costs lack the proper support or backup to verify that the charges are allowable per the construction agreement between the City of Anytown and DEF Building Group, Inc. A summary of the questioned and unsupported Contract charges and project control improvement opportunities is provided on the following page. For the purposes of the close-out construction cost audit, City of Anytown is referred to as "the City" or "Owner," DEF Building Group, Inc. is referred to as "DEF," "Construction Manager," or "Contractor," and Moss Adams LLP is referred to as "Moss Adams," "we," or "our." MOSS -ADAMS LLP Page 1 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project A. Audit Observations The table below lists the questioned costs identified during our review. Summary observations and future improvement opportunities have been provided on the following page. To summarize, this report identified $15,839,298 of unsupported costs and $1,603,995 of questioned costs (including contractor fee on applicable observations, see below table and footnote for further details). Observation , Questioned and Unsupported Costs Invoiced Costs 1 Unsupported Contractor Self -Performed Work $10,852,901 2 Unsupported Change Order Charges $4,881,056 3 Questioned Craft Labor Costs $386,227 4 Questioned General and Administrative Costs $339,782 5 Questioned Contractor Fee $228,596 6 Questioned Duplicated Paid Time Off Labor Costs $188,667 7 Questioned Employee Moving Expenses $173,629 8 Unsupported Project Charges $102,772 9 Questioned Project Equipment Charges $95,786 10 Questioned Subcontractor Overhead and Profit Markups $67,370 11 Questioned Project Management Labor Costs $35,800 12 Questioned Contractor Self -Performed Work Markups $12,663 13 Questioned Equipment Fuel Charges $10,135 14 Questioned Salaried Labor Overtime Charges $9,466 15 Questioned Duplicated Equipment Charges $9,432 16 Questioned Travel Costs $7,219 17 Questioned Equipment Tire Charges $3,094 18 Questioned Third -Party Car Damage $2,705 MOSS -ADAMS up Page 2 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 19 Questioned Invoice Amount $186 20 Unsupported Subcontractor Change Order Markups** TBD 21 Unsupported Contractor Self -Performed Work TBD Requirement* 22 Lack of Documentation Supporting Competitive Bid of TBD Concrete Work** Contractor Fee at 2.5% on Cost of Work* I $35:807* I *The Contractor fee was calculated on all items that included fees in the related project billing. The following observation amounts were left out of the 2.5% fee calculation: Observations 1, 2, 5, and 12. The subtotal questioned and unsupported costs that that fee was applied to was $1,432,270 (Observations #3 through #19, excluding #5 & #12). **Total cost is unable to be calculated due to the lack of support and details provided by DEF. This information was requested multiple times through the audit and each request was denied. 1. Unsupported Contractor Self -Performed Work — DEF did not provide any cost support for claimed "self -performed" work scope, resulting in unsupported costs in the amount of $10,852,901 (see Observation No. 1 in the report body). 2. Unsupported Change Order Charges — DEF did not provide any cost support for all change order work, resulting in unsupported costs in the amount of $4,881,056 (see Observation No. 2 in the report body). 3. Questioned Craft Labor Costs — DEF's craft labor costs were billed with rates that are in excess of Contract rates, resulting in extrapolated questioned costs of $386,227 (see Observation No. 3 in the report body). 4. Questioned General and Administrative Costs — DEF included unallowable general and administrative costs in its project costs, resulting in questioned costs of $339,762 (see Observation No. 4 in the report body). 5. Questioned Contractor Fee — DEF applied the 2.5% Contractor Fee to self -performed work which already included an allowable 8% fee, resulting in duplicated fee and questioned costs of $228,596 (see Observation No. 5 in the report body). MOSS -ADAMS LLP Page 3 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 6. Questioned Duplicated Paid Time Off Labor Costs — DEF duplicated labor costs by including a Paid Time Off (PTO) rate in the Contract labor rates while also billing for individuals hours while taking PTO, resulting in questioned costs in the amount of $188,667 (see Observation No. 6 in the report body). 7. Questioned Employee Moving Expenses — DEF billed the Owner for unallowable employee -related moving costs and bonuses, resulting in questioned costs in the amount of $173,629 (see Observation No. 7 in the report body). 8. Unsupported Project Charges — DEF included multiple items within the project billings that they could not supply cost support for, resulting in unsupported costs in the amount of $102,772 (see Observation No. 8 in the report body). 9. Questioned Project Equipment Charges — Excessive Contractor -owned equipment charges resulted in questioned costs in the amount of $95,786 (see Observation No. 9 in the report body). 10. Questioned Subcontractor Overhead and Profit Markups — A subcontractor included overhead and profit markups on change order work in excess of Contract rates, resulting in questioned costs in the amount of $67,370 (see Observation No. 10 in the report body). 11. Questioned Project Management Labor Costs — DEF billed the Owner for project management labor costs that were incurred before the Contract date, resulting in questioned charges in the amount of $35,800 (see Observation No. 11 in the report body). 12. Questioned Contractor Self -Performed Work Markups — DEF applied the 8% self -performed Contract markup to change order work performed by multiple subcontractors, resulting in questioned costs in the amount of $12,663 (see Observation No. 12 in the report body). 13. Questioned Equipment Fuel Charges — DEF included unallowable fuel charges in project billings, resulting in questioned costs in the amount of $10,135 (see Observation No. 13 in the report body). 14. Questioned Salaried Labor Overtime Charges — DEF billed the Owner for salaried labor overtime charges in excess of its actual incurred costs, resulting in questioned costs in the amount of $9,465 (see Observation No. 14 in the report body). 15. Questioned Duplicated Equipment Charges — Contractor -owned equipment was not optimally utilized, resulting in duplicated questioned costs of $9,432 (see Observation No. 15 in the report body). 16. Questioned Travel Costs — DEF included unallowable travel costs in its project billings, resulting in questioned costs of $7,219 (see Observation No. 16 in the report body). 17. Questioned Equipment Tire Charges — DEF billed the Owner for unallowable tire charges, resulting in questioned costs of $3,094 (see Observation No. 17 in the report body). MOSS -ADAMS LLP Page 4 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 18. Questioned Third -Party Car Damage — The Contractor was unable to provide cost support and a reason for cost related to damage of a third -party car, resulting in questioned costs of $2,705 (see Observation No. 18 in the report body). 19. Questioned Invoice Amount — DEF billed the Owner for amounts in excess of invoice and payment totals, resulting in questioned costs of $186 (see Observation No. 19 in the report body). 20. Unsupported Subcontractor Change Order Markups — Multiple subcontractors provided cost support for change order work that did not properly document for allowable markups (see Observation No. 20 in the report body). 21. Unsupported Contractor Self -Performed Work Requirement — DEF did not verify that it was able to comply with a Contract provision requiring the Contractor to self -perform 30% of the total Contract (see Observation No. 21 in the report body). 22. Lack of Documentation Supporting Competitive Bid of Concrete Work Scope — DEF did not provide evidence that the concrete scope of the project was competitively bid and awarded to the lowest price contractor (see Observation No. 22 in the report body). MOSS up Page 5 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project OBJECTIVE AND SCOPE The primary focus of the close-out construction cost audit was to evaluate construction project controls and review construction expenditures for the Project to determine their reasonableness and adherence to terms of the construction contract. This report reflects practices observed and cost documentation reviewed through Payment Application #28, December 25, 2016. Specific coverage was provided in the following areas: • Reviewed payment documentation and calculations to assess adequacy of supporting documentation. • Assessed internal controls surrounding Contractor's processes. • Reviewed Contract terms and identified sensitive accounts for examination of unallowable costs. • Analyzed change orders. • Reviewed reimbursable labor expenditures. • Reviewed allowance and contingency expenditures including approval processes. • Analyzed direct costs including subcontractor costs and reimbursable supplier/vendor costs. • Assessed reasonableness and basis for fixed general conditions billed. • Reviewed lien release and insurance documentation. • Performed fee testing. • Performed other testing procedures as necessary. • Conducted interviews as necessary. MOSS -ADAMS LLP Page 6 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project PROJECT OVERVIEW Effective October 20, 2014, a Guaranteed Maximum Price (GMP) Contract was executed for the construction of the Olde Town Anytown Phase 1 Parking & Site Improvements Project between the City and DEF. The original not -to -exceed Contract sum was $25,467,820. Nine subsequent change orders were fully executed totaling $4,817,181. The GMP Contract value totaled $30,285,001 and the total completed and stored to date through December 25, 2016, was $29,092,388, or approximately 96% complete. We performed this review using the most current Contractor payment application, which was Payment Application #28 through December 25, 2016. Costs reviewed included the Project budget and actual expenditures through December 25, 2016. The project includes a new transit hub for the Regional Transportation District G -Line electric commuter rail line between Denver Union Station and Wheat Ridge, Colorado. The project included a 600 -space parking structure, four plazas connecting Olde Town to the station and parking structure, and a 36,000 square foot "Festival" deck to accommodate community events. Observations in this report have been discussed with the City, ABC Company, and DEF. *DEF claims that the Schedule of Values (SOV) Line Item #1 — Concrete and change orders are lump sum items that were billed on a percent -complete basis of the line's budget. Moss Adams requested backup for all associated costs multiple times throughout the audit process, which DEF declined to provide each time. This is reflected in Observations 1 and 2. MOSSLLP Page 7 "• r s ; ,� �h a : ere a ea v E ' Concrete SOV #1 $9,425,750 $9,387,655 100% $0* 0%* All Other Original Line Items (SOV #2-18) $13,855,070 $12,745,715 92% $8,955,739 63% Allowances 1,281,207 1,493,390 117% Fee 614,710 584,574 95% 584,574 100% Change Orders (include fee) 574,638 574,149 100% 0* 0%* Total 525,751.375 524.785.483 96% 1 S9,544�1 38% *DEF claims that the Schedule of Values (SOV) Line Item #1 — Concrete and change orders are lump sum items that were billed on a percent -complete basis of the line's budget. Moss Adams requested backup for all associated costs multiple times throughout the audit process, which DEF declined to provide each time. This is reflected in Observations 1 and 2. MOSSLLP Page 7 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project DETAILED OBSERVATIONS AND IMPROVEMENT RECOMMENDATIONS This report section provides a summary of our detailed construction audit observations, risks, and recommendations. The below observations and recommendations reflect the Project status at the time of this review. 1 Unsupported Contractor Self -Performed Work — The Contractor The Contractor should reconcile the concrete line item to has billed its portion of "self -performed work" on a lump sum actual cost incurred and provide sufficient backup to percent -complete basis and is not reconciling the billing to the actual support those costs for the Owner and its auditor. If the cost of the work and Contract terms, resulting in unsupported costs of Contractor's cost incurred was less than the billed cost $10,852,901. Line Item #1 of the SOV of the payment applications they are required to provide a credit to the City for the between the Contractor and Owner is for the concrete work scope, difference. which was "self -performed" by DEF. Per Article 5. 1.1 of the A201 Contract, "A Subcontractor is a person or entity who has a direct Contractor's Response: contract with the Contractor to, `perform a portion of the Work at the site." Given the Contract's descri tion of a subcontractor the p "DEF believes this self -performed work was contracted Contractor cannot be a subcontractor to itself. This would make for clump -sum price." Article 6 of the A133 Contract (cost to be reimbursed) applicable to all cost incurred in relation to the work performed directly by the Contractor. The Contract does not make reference to any portion of the work or payment that would be provided on a lump sum basis. Article 7.1.7 of the Contract specifically addresses how all completed work is to be calculated based on the cost of the work. MOSS -DAMS LLP Page 8 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 2 Unsupported Change Order Charges — The Contractor has billed all change orders on a percent -complete basis without providing support for actual costs incurred for the work, resulting in unsupported costs of $4,881,056. In the monthly payment applications to the Owner the Contractor provided lump sum billings for each change order with a separate billing detail for each of the nine approved change orders. When a change order is approved it increases the overall GMP Contract value to the revised total amount including the change order. However, all billed costs, including change order costs, are to be billed as cost reimbursable per the Contract. Billed costs should include enough support to verify compliance with Article 6 of the Contract and should be reconciled with the Contractor's actual cost incurred. The following costs have been billed on a percent -complete basis: 1&2 $ 1,393,908.00 3 $ 1,753,476.00 4 $ 1,057,578.00 5 $ 47,880.00 6 $ 154,863.00 7 $ 87,512.00 8 $ 135,839.00 9 $ 250,000.00 The Contractor should reconcile each change order to actual cost incurred and provide sufficient backup to support those costs for the Owner and its Auditor. Contractor's Response: "DEF believes these change orders were contracted for a lump -sum price." MOSS -ADAMS u2 Page 9 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 3 Questioned Craft Labor Costs — The Contractor billed craft labor The Contractor should implement controls to ensure that costs that were not in accordance with the contract, resulting in craft labor billing rates match Contract rates. The $4,444 of questioned costs of sampled costs. Exhibit E of the Contractor is required to provide a credit of $386,227 to Contract outlines allowable labor rates for all hourly craft employees. the Owner from the observed overcharges. In comparing Exhibit E to the Contractor's labor detail report, there appears to be a deviation between the Contract rates and billed rates Contractor's Response: for a number of employees in the sampled periods (see Appendix A for additional details). We sampled four weeks of time, including "DEF disagrees with the auditor's analysis of allowable week ending dates: craft rates however we do believe we incorrectly billed • 02/13/2016 these craft labor costs. Craft labor billings should have • 04/16/2016 been the 2015 Base Rate Amount (Exhibit E) multiplied by the hours worked plus actual fringes, payroll taxes and • 07/09/2016 insurance." • 12/24/2016 DEF did provide the Union Agreements and Wage Updates that were also used in our review. The allowable rate columns in Appendix F provide the correct rate that should be used to calculate the correct billable costs. The difference between the allowable rate and billed rate for the sampled periods resulted in $4,444 of questioned costs. As part of the sample we reviewed $29,920 of craft labor costs. A total of $4,444 was deemed unallowable. The total craft labor cost population for the project was $2,600,362 as provided by the Contractor. We utilized this information to determine that the potential total impact within craft labor costs is $386,227 for the questioned cost identified above. MOSS ADAMS LLP Page 10 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 4 Questioned General and Administrative Costs — The Contractor included unallowable general and administrative (G&A) costs in its project job cost report, resulting in questioned costs of $339,762. On a monthly basis the Contractor would apply a markup to the project costs to cover "General and Administrative Costs" of its area and home offices. Per Articles 6.8.2 and 6.8.3 of the Contract, costs not to be reimbursed included, "Expenses of the Construction Manager's principal office and offices other than the site office" and "Overhead and general expenses...", which are specifically being covered by the G&A markup that has been applied. Over the course of the project there were debit charges of $2,091,845 applied to project billings and discounted credits of $1,752,083 for total G&A charges of $339,782 ($2,091,845 minus $1,752,083) applied to the project. As part of the documentation requested for the audit, the Contractor was asked to provide a project -to -date job cost distribution report that reconciled to the completed and stored total from Payment Application #28. The Contractor should only bill the Owner for the cost that complies with the Contract. The Contractor is required to provide a credit of $339,782 to the Owner. Contractor's Response: "DEF does not believe these General and Administrative costs have been billed." MOSS -ADAMS LLP Page 11 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 5 Questioned Contractor Fee — The Contractor applied the Contractor The Contractor should have controls in place to not Fee on portions of the work that are not allowable resulting in duplicate the Contractor Fee on self -performed work. The questioned costs of $228,596. Per Article 5 of the Contract, the Contractor is required to provide a credit of $228,596 to Contractor is allowed to apply a 2.5% fee on all costs of work and an the Owner. 8% fee on self -performed work by the Contractor. DEF included the 8% fee within SOV Line Item #1 — Concrete, but the 2.5% fee Contractor's Response: calculation also included calculation of the self -performed work. The 2.5% Contractor fee should not be duplicated on self -performed work "DEF does not believe we incorrectly billed this 2.5% where the Contractor is already earning an 8% fee. This resulted in Construction Fee or 8% fee on self -performed work. The questioned costs of $228,596 based on Payment Application #28 self -perform fee was included in the Cost of the Work in information as detailed below: GMP Amendment 1." 1 Pay Application #28 — Subtotal Completed and Stored to Date $23,626,759 2 Payment Application #28 — SOV 1 Concrete (8% Contractor fee included) $9,387,655 3 Subtotal of Applicable Allowable Contractor Fee (Line 1 - Line 2) $14,239,105 4 Contract Contractor Fee 2.5% 5 Total Allowable Contractor Fee (Line 3 x Line 4) $355,978 6 Payment Application #28 — Billed Fee $584,574 7 Difference (Line 6 - Line 5) $228,596 MOSSi x Page 12 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project e � 6 3,. � � +'a`�`,fi*•.c., : � � , 3. 3 a., w."J.»i. ,.."Fe *h �a �fi^ Questioned Duplicated Paid Time Off Labor Costs — Contractor .... . x« ""..; � {�'�� ... :e�� «. 0,�.na. M' . "` �'E"'..GG''� .y'°ti� "'�rve The Contractor should ensure it does not duplicate labor staff personnel charged duplicated PTO for select employees, cost billings by not billing for hours when someone is on resulting in $188,667 of questioned costs. Holiday, vacation, and sick holiday, vacation, or sick leave. The Contractor is time were billed for salaried administrative/ supervisory personnel required to provide the Owner a credit of $188,667. though these benefits were to be included within labor rates charged. Per Article 6.2.4 and Exhibit C of the Contract, "Costs paid or Contractor's Response: incurred by the Contractor for... customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions" "DEF does not believe we duplicated this paid time off shall be reimbursable "provided such costs are based on wages and labor cost. DEF billed the Owner the Staff Rates salaries included in the Cost of Work under Sections 6.2.1 through established in Exhibit C multiplied by the hours DEF paid 6.2.3." Article 6.2.2 states that labor rates included within Exhibit C the employee while they were assigned to the project." are based on wages and salaries of its personnel and should therefore be fully burdened. Because PTO is built into the hourly rate, an individual using PTO should not charge the project for those hours as it becomes duplicated cost. This results in questioned costs of $188,667. 7 Questioned Employee Moving Expenses — The Contractor billed The Contractor should only bill the Owner for the cost the Owner unallowable employee moving costs and bonuses resulting that complies with the Contract or obtain prior written in questioned costs of $173,629. Within the project cost, the approval to costs being incurred. The Contractor is Contractor included moving expenses for individuals relocating from required to provide a credit of $339,782 to the Owner. Hawaii, Southern California, Canada, and Omaha. These costs included moving allowances, bonuses, costs for selling personal Contractor's Response: houses, and moving and transport services. Article 6 of the Contract does not define employee moving costs as an allowable cost; "DEF is requesting Owner's approval on these items." therefore, these costs would fall under Article 6.8.6 of the Contract as "Cost not to be reimbursed... Any cost not specifically and expressly described in Sections 6.1 to 6.7." The Contractor's principal office location is within 30 miles of the Olde Town project site location; local personnel were therefore accessible to the job site. MOSS AMS LLP Page 13 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 8 Unsupported Project Charges — The Contractor included multiple unsupported items within the project costs, resulting in unsupported costs of $102,772. All costs billed to the project need to include enough support to verify that the costs were actually incurred for this project and that they comply with all Contract language. Multiple requests were made for actual invoices, third -parry pricing, and payment support for all items listed below. Please see Appendix B for further details of the unsupported project charges. Moss Adams requested cost support multiple times throughout the audit process for this documentation. Below are the dates Moss Adams requested cost support for the sampled charges: • Document request meeting and email on 01/3/17 • Phone call and email clarification on 01/18/17 • Phone call and email clarification on 01/19/17 • Sample request email on 01/20/17 • Email detailed log of missing cost support documentation on 01/30/17 • Email detailing missing requested information on 02/06/17 • Phone call and email outlining missing requested information and schedule deadlines on 02/09/17 • Final email outlining missing requested information on 02/14/17 The Contractor should provide sufficient cost and payment support for the identified transactions. If the Contractor is unable to provide the required support, they are required to issue a credit to the Owner for any amounts the Contractor is unable to support. Contractor's Response: "DEF is unclear on the billing amounts being questioned. DEF believes they provided support for these amounts through the payment application process." MOSS ADAMS LLP Page 14 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project MOSS—ADAMS LLP Page 15 9 Questioned Project Equipment Charges — Equipment was charged The Contractor should implement controls to ensure to the Owner in excess of the value of comparable items, resulting in equipment charges don't exceed the value of a questioned costs in the amount of $95,786. Per Article 6.5.2 of the comparable item. DEF is required to provide the Owner a Contract, ".... The total rental cost of any Construction Manager- credit of $95,786. owned item may not exceed the purchase price of any comparable item..." There were six vehicles charged to the project that exceeded Contractor's Response: the value of a comparable item (Please see Appendix C for further details). Contractor -owned equipment charges in excess of the value "DEF does not believe we incorrectly billed these of a comparable item are not allowable per the Contract, therefore equipment rental charges." resulting in questioned charges in the amount of $95,786. 10 Questioned Subcontractor Overhead and Profit Markups — In The Contractor should review and verify that all Change Order #l, CM 13, the Contractor included unallowable subcontractor pricing is in compliance with Contract subcontractor overhead and profit markups, resulting in $67,370 of requirements. The Contractor is required to provide a questioned costs. Change Order #1, CM 13 was intended to adjust credit of $67,370 to the Owner. GHI's quantity of several scope items, including Structural Concrete, Soil Nails, and Stressed Anchors. Per Article 5.1.3 of the Contract, "... Contractor's Response: Subcontractor's overhead and profit for increases in the cost of its portion of the Work (shall equal): 15%." GHI included markups in "DEF does not believe we incorrectly billed this excess of 15% overhead and profit (see Appendix D for additional subcontractor overhead and profit markup. This details), resulting in a questioned costs of $67,370. Subcontractor's (GHI) lump -sum change was negotiated down to about 50% of its original price and the Owner acce ted this lump -sum amount." MOSS—ADAMS LLP Page 15 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 11 Questioned Project Management Labor Costs — The Contractor The Contractor should only bill the Owner for the cost billed unallowable labor charges before the Contract date, resulting in that complies with Contract language. The Contractor is questioned costs of $35,800. The Contractor included an required to provide a credit of $35,800 to the Owner. intercompany invoice in its project billings showing 14 weeks of labor costs for Andy Anderson, Project Manager, which totaled Contractor's Response: $38,783. The 14 weeks covered dates from 08/03/2014 to 11/02/2014. As the prime construction contract between the City and "DEF does not believe we incorrectly billed these Project DEF was effective October 20, 2014, all costs before the Contract Management labor costs. These costs were included in effective date are unallowable. The Contractor was also reimbursed GMP Amendment 1 Cost of the Work." for $49,634 of costs for preconstruction that were intended to cover all services before the construction phase began. Project management labor costs before 10/20/2014 would then be considered unallowable per the contract. Approximately 92% (12 of the 14 weeks) of the time billed within the intercompany invoice was before 10/20/2014, resulting in questioned costs of $35,800. GMP Amendment 1 does not reference or change the Contract's start date, nor does it specifically reference any project management cost incurred before the agreement of the contract. MOSS -ADAMS LLP Page 16 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project MOSS -ADAMS LLP Page 17 ,r 12 Questioned Contractor Self -Performed Work Markups — Owner The Contractor should not include an 8% self -performed change orders included unallowable fee markups for Contractor self- markup on subcontractor costs. The project billings are performed work, resulting in $12,663 of questioned costs for the required to be reduced by $12,633 to prevent overcharges sample reviewed. Per Article 5.1.6 of the contract, "Work self- to the Owner. The Contractor is required to provide full performed by the Construction Manager shall be performed at a fee cost support for Change Orders #2 — 7 (Observation No. of 8%." The Contractor repeatedly charged an 8% self -performed 2) to verify the 8% markup was not applied to other work markup on work that was actually performed by subcontractors change order subcontracted costs. and incorrectly categorized as self -performed work. However, on the summary sheets and supporting documentation provided, it appears Contractor's Response: that the work was in fact performed by subcontractors and not the Contractor. For all work performed by a subcontractor, the "DEF and the Owner are currently reviewing the Contractor fee should have been limited to 2.5% (see Appendix E for of work. Based on that outcome definitionwill additional details). DEF willaddj adjust ll ust billing accordingly." Due to the lack of transparency and deficient cost support provided by DEF (as noted in Observations 1 and 2 of this report), there is a high probability that this risk is prevalent in both the concrete SOV line item and Change Orders #2-7. 13 Questioned Equipment Fuel Charges — The Contractor billed the The Contractor should not have included fuel cost in Owner for unallowable fuel charges, resulting in questioned costs of project billings. The Contractor is required to provide a $10,135. Per the Equipment Rate Table in Exhibit A of the Contract, credit of $10,135 to the Owner. "... All Equipment rates listed include fuel/oil/grease/general maintenance." The Contractor should not have billed for individual Contractor's Response: fuel charges as these costs were covered by the monthly rental rates included in the payment application. The Contractor's job cost "DEF does not believe we incorrectly billed the Owner included $10,135 of charges with "fuel" or "gasoline" in the for this CM owned equipment fuel." description title. MOSS -ADAMS LLP Page 17 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project MOSS DAMS LLP Page 18 The Contractor should only bill for costs incurred during 14 Questioned Salaried Labor Overtime Costs — The Contractor billed the Owner unallowable overtime costs for salaried staff completion of the work. The Contractor is required to personnel, resulting in questioned costs of $9,465. The Contractor's provide a credit of $9,465 to the Owner. staff personnel are salaried, exempt employees and do not earn overtime pay. The Contractor included 192 hours above the standard Contractor's Response: 40 per week for the Business Manager position in the job cost detail. This resulted in questioned costs of $9,465. "DEF does not believe we billed the Owner for these labor overtime costs." 15 Questioned Duplicated Equipment Charges — Contractor -owned The Contractor should implement controls to ensure that equipment was not optimally utilized to minimize the cost to the the Owner is not being billed for duplicated equipment Owner, resulting in duplicated costs of $9,432. The Contractor had costs. The Contractor is required to provide a credit of five different half -ton pickup trucks on the project at different times $9,432 to the Owner from the observed duplicated throughout the duration of the construction phase. Pickup truck charges. equipment #152476 was on the job site from September 2016 through the end of December 2016. By September 2016, the Contractor's Response: Contractor already had two other half -ton pickups (equipment #132024 and #152479) that exceeded the maximum rental cap and "DEF does not believe we duplicated these project had been transferred off the project (please see Appendix F for equipment charges." further details). The Contractor should have continued to utilize one of the two pickup trucks for which the City had already paid the full replacement value through monthly rental costs. Instead, the Contractor placed a different pickup truck on the project, incurring additional rental charges and resulting in duplicated and unnecessary additional costs to the Owner. MOSS DAMS LLP Page 18 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project MOSS ADAMS up Page 19 tm 16 Questioned Travel Costs — The Contractor included unallowable The Contractor should either only bill the Owner for the travel costs in its project billings, resulting in questioned costs of cost that complies with the Contract or obtain written $7,219. The Contractor did not provide a purpose or reason for travel approval prior to costs being incurred. The Contractor is that complied with Article 6 of the Contract, which defined the cost required to provide a credit of $7,219 to the Owner. of work for the construction phase. The Contractor also did not provide or request prior written approval from the Owner for any of The Contractor did not provide a response to this these costs. This resulted in questioned costs of $7,219. recommendation other than requesting the payment application number and page of the questioned billings. Multiple times throughout the audit process Moss Adams informed DEF that Document Request #4 ("Project -to - date cost distribution report reconciled to the most recent payment application") would be utilized for cost samples and billed cost information. 17 Questioned Equipment Tire Charges — The Contractor billed the The Contractor should only bill the Owner for the cost Owner for unallowable tire charges, resulting in questioned costs of that complies with the Contract or obtain written approval $3,094. Per the Equipment Rate Table in Exhibit A of the Contract, prior to costs being incurred. The Contractor is required "... All Equipment rates listed include fuel/oil/grease/general to provide a credit of $3,094 to the Owner. maintenance." The Contractor should not have billed for vehicle tire charges as these costs are considered general maintenance and were The Contractor did not provide a response to this covered by the monthly rental rates included in the payment recommendation other than requesting the payment application. application number and page of the questioned billings. Multiple times throughout the audit process Moss Adams informed DEF that Document Request #4 ("Project -to - date cost distribution report reconciled to the most recent payment application") would be utilized for cost samples and billed cost information. MOSS ADAMS up Page 19 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 18 Questioned Third -Party Car Damage — The Contractor included third -party car damage costs in its project billings without any additional details, resulting in questioned costs of $2,705. The Contractor provided a voucher form and copy of a check provided to Bob Brown with the only explanation as "Car damage reimbursement." Based on the limited information provided through the audit sample selection, the claimed charges are not able to be evaluated to determine if they constitute allowable project costs and comply with the Contract language, thereby resulting in questioned costs of $2,705. The Contractor should either only bill the Owner for the cost that complies with the Contract or obtain written approval prior to costs being incurred. The Contractor is required to provide a credit of $2,705 to the Owner. The Contractor did not provide a response to this recommendation other than requesting the payment application number and page of the questioned billings. Multiple times throughout the audit process Moss Adams informed DEF that Document Request #4 ("Project -to - date cost distribution report reconciled to the most recent payment application") would be utilized for cost samples and billed cost information. MOSSLLP Page 20 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 19 Questioned Invoice Amount — The Contractor included two invoices where the project charges were more than the cost backup provided, resulting in questioned costs of $186. The job cost detail report included two project charges that exceeded the invoice and payment support provided. The Contractor provided actual invoices and copies of the check for both direct cost samples #28 and #65 that were less than project charges, resulting in questioned costs of $186. DEF did not provide any additional details of use tax, how the questioned amount was calculated, or any documentation to verify that these additional costs were incurred. Please see the below table for additional details. 28 $4,108 $3,950 $3,950 $158 65 $393 $365 $365 $28 The Contractor should either only bill the Owner for the cost that complies with the Contract or obtain written approval prior to costs being incurred. The Contractor is required to provide a credit of $186 to the Owner. Contractor's Response: "DEF does not believe they incorrectly billed the Owner for these invoice amounts. These costs were use tax not included in the invoice from the vendor." MOSS -ADAMS LLP Page 21 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project MOSS -ADAMS LLP Page 22 4 �� Mtu Ll 20 Unsupported Subcontractor Change Order Markups A number The Contractor should provide detailed cost support for of subcontractors provided cost support for change orders without all change order work as required by the Contract. The breaking out overhead and profit. Per Article 5.1.3 of the Contract, Owner should withhold payment on change order work "... Subcontractor's overhead and profit for increases in the cost of until the Contractor can provide sufficient cost support to its portion of the Work: 15%." It appears in all change orders that the determine that all costs comply with the Contract. subcontractors listed below included an undisclosed overhead and profit within the costs but did not break out the markups. Some of the The only response provided by the Contractor for this subcontractors only provided lump sum pricing while other observation was a request for which subcontractors and subcontractor support showed the quantity and rates. In order to change orders were not supported. The Potential Issues properly review the application of markups, all supporting List provided to DEF on 02/16/2017 included the list of documentation should be broken out with actual quantities and all subcontractors that did not provide enough detail to verified rates to determine if the correct insurance, profit, and determine if the proper markup was included. overhead were applied. The following subcontractors did not provide enough information to determine how much markup was included in their pricing: JKL Solutions Additional survey MNO Industries Rock PQR Concrete Pumping, Inc. Concrete pumping Doe and Sons, Inc. Additional caisson STU, Inc. Rentals VWX Dewatering Dewatering YZ Construction Corporation Haul to dump GHI Construction Company Drawings Clark Construction Slab beams Davis Rebar, LLC Reinforcing Steel MOSS -ADAMS LLP Page 22 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 21 Unsupported Contractor Self -Performed Work Requirement — The Contractor is required to provide full cost support for The Contractor was not able to support that it self -performed at least the concrete SOV line item and change order work as 30% of the cost of the work. Per Article 5.1.7 of the Contract, "The well as a detailed calculation showing the percent of the Construction Manager shall self -perform no less than 30% of the cost work actually self -performed and the portion of of the Work." The Contractor claims that it self -performed all of the subcontracted work. If DEF failed to self -perform 30% of concrete SOV line.items for the Contract; however, as explained in the work a credit should be provided to the Owner for the Observation No. 1, DEF did not provide cost support for this work. difference. MOSS ADAMS LLP Page 23 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project 22 Lack of Documentation Supporting Competitive Bid of Concrete The Contractor is required to provide support that it Work Scope — DEF did not provide evidence that the concrete scope competitively bid the concrete scope item. This support of the project was competitively bid and awarded to the lowest price should include: contractor. Per DEF's original proposal for this project, Section A — . Bid Solicitation Package General Information, "The decision as to which scopes of work will . Evidence where the solicitation was advertised be subcontracted or self -performed will be based upon solicitation of . Log of pricing information received competitive pricing for all trades and analysis of what combination . All price quotes as received achieves the best overall performance." Multiple times during the . Analysis of selection process audit it was requested that DEF provide the competitive bidding information for the "Concrete SOV Line Item #1," which DEF claims they "self -performed." No information or analysis was provided showing that the concrete scope was competitively bid. MOSS -ADAMS LLP Page 24 ABC Company/City of Anytown - Close -Out Construction Cost Audit for Olde Town Anytown Project APPENDIX A - QUESTIONED CRAFT LABOR COSTS The following table provides details of sampled Contractor craft labor charges and recalculated labor charges with the allowable Contract rate, resulting in questioned costs of $4,444. The Contractor billed individuals at a higher rate than the agreed upon contract rate reflected in Exhibit E of the Contract. The projected total impact of this observation is projected to result in questioned costs of $386,227. See Observation No. 3 for further details. Anderson, Andy Brown, Bob Clark, Charlie Davis, Dave 02/13/16 Evans, Ed Foster, Frank Garcia, George Harris, Harold COCA0002 10 COCA0002 37 COCA0002 12 COCA0002 19 COLA0001 14 COOP0001 16 COCA0002 30 COCA0002 25 7 $41.75 $62.63 $855.91 $31.91 $47.87 654.16 $201.76 6.5 $38.57 $57.86 $1,803.18 $30.41 $45.62 1,421.67 $381.51 0 $28.8 $0 $345.60 $20.66 $30.99 247.92 $97.68 0 $38.57 $0 $732.83 $30.41 $45.62 577.79 $155.04 18 $29.03 $43.55 $1,190.32 $21.82 $32.73 894.62 $295.70 4.5 $51.23 $76.85 $1,165.51 $39.95 $59.93 908.86 $256.64 15 $41.75 $62.63 $2,191.95 $31.91 $47.87 1,675.28 $516.68 11 $27.24 $40.86 $1,130.46 $19.46 $29.19 807.59 $322.87 MOSS -DAMS LLP Page 25 ABC Company/City of Anytown - Close -Out Construction Cost Audit for Olde Town Anytown Project Period �- x x Total Variance End Pa Scale Y a1D x °' a O '�' U Over/ Date Employee Name Group g x g a O g 9 9 O a Under (A) (B) (C) (F) (G) (I) (J) (K) (L) (M) LK) (N)M (GxIH) (G Ibsen, Irene COLA0001 16.5 15 $29.03 $43.55 $1,132.25 $23.82 $35.73 928.98 $203.27 $10,548.00 85116.86 $29431.14 Johnson, Jim COCA0002 3 0 $41.75 $0 $125.25 $36.44 $54.66 109.32 $15.93 King, Ken COCA0002 2.5 0 $38.57 $0 $96.43 $34.94 $52.41 87.35 $9.08 Lewis, Larry COCA0002 2 0 $38.57 $0 $77.14 $34.94 $52.41 69.88 $7.26 Miller, Mike COCA0002 1 0 $38.57 $0 $38.57 $34.94 $52.41 34.94 $3.63 07/09/16 Nelson, Nick COCA0002 6 6 $41.75 $62.63 $626.28 $36.44 $54.66 546.60 $79.68 Owens, Oscar COCA0002 3.5 0 $27.24 $0 $95.34 $24.32 $36.48 85.12 $10.22 Perez, Paul COCA0002 1 0 $38.57 $0 $38.57 $24.60 $36.90 24.60 $13.97 $1,097.58 957.81 $139.77 Qiang, Quentin COCA0002 0 4 0 $62.63 $250.52 $31.91 $47.87 191.46 $59.06 04/16/16 Robinson, Robert COCA0002 4.5 1 $38.57 $57.86 $231.43 $30.41 $45.62 182.46 $48.97 MOSS_ADAMS LLP Page 26 ABC Company/City of Anytown Close -Out Construction Cost Audit for Olde Town Anytown Project APPENDIX E — QUESTIONED CONTRACTOR SELF -PERFORMED WORK MARKUPS The following table provides details on the re -calculation of allowable markup related to Change Order #1. The Contractor included its self -performed 8% contractor fee on all work, including work performed by subcontractors. Per the Contract, the Contractor is only allowed to apply a 2.5% fee on subcontracted costs, resulting in questioned costs of $12,663.45 (see Observation No. 12 for further details). A DEF Self -Performed (including materials) $3,476.60 $93,129.08 From Change Order B Subcontractor Performed $11,733.83 $218,509.92 From Change Order C Allowable Fee on Self -Performed $278.13 $7,450.33 A x 8% = C D Allowable Fee on Subcontracts $293.35 $5,462.75 B x 2.5% = D E Total Allowable Fee $571.47 $12,913.07 C +D = E F Billed Fee $1,217.00 $24,931.00 From Change Order G Difference $645.53 $12,017.93 F - E = G Total Questioned(Line G total): $12,663.45 MOSS -ADAMS LLP Page 33 ABC Company/City of Anytown — Close -Out Construction Cost Audit for Olde Town Anytown Project APPENDIX F — QUESTIONED DUPLICATED PROJECT EQUIPMENT CHARGES The following table provides details on the duplication of equipment costs. Each identified equipment number is a different vehicle the Contractor charged rent for on a monthly basis. The Contractor should have implemented one of the three vehicles for which rent had already exceeded the capped value before utilizing equipment #152476 (see Observation No. 15 for further details). MOSS -ADAMS LLP Page 34 2014 2015 2016 Equipment Number o U Q. o o Z Q ti w Q ti va O Z Q ti w Q ti ti d L O Z Q 130026 130395 132024 132245 147660 152476 z k 152479 MOSS -ADAMS LLP Page 34