FLORIDA DEPARTMENT OF TRANSPORTATION Office of Inspector General

Advisory Memorandum
No. 04A-6006

DATE: TO: FROM:

May 20, 1997 Ben G. Watts, P.E., Secretary Cecil T. Bragg, Jr., C.P.A. Inspector General Frank Carlile, Assistant Secretary for Transportation Policy Bill Deyo, State Highway Engineer Jimmy Lairscey, Director, Office of Construction Lex Chance, State Estimates Engineer Contract Estimating Process

COPIES:

SUBJECT:

Executive Summary
This review was conducted as part of the Office of Inspector General Work Plan and was designed to assist management in the effective implementation of transportation programs by the FDOT. Our review covered the contract estimating process which is administered by the State Estimates Office. The FDOT is required by Federal Highway Administration and Florida Statutes to have an estimate. The contract estimating process begins when a project is selected for inclusion in the work program and an estimate is developed by the Long Range Estimate System. This estimate is for budget purposes and does not directly relate to the development of the official state estimate. Once the pay items and quantities for a project are determined by the design function, the process to develop an official state estimate begins. The pay item machine price multiplied by quantity generates the basic estimate for a project. District staff may override the pay item machine price if they have knowledge of the project warranting such a change. The Preliminary Plans Package is then sent to Central Office. Preliminary Estimates Office reviews this package noting anything that may affect the cost of a pay item. When the Final Plans Package is received, the Preliminary Estimates Office reviews the machine prices and any district overrides of machine prices. The estimators can override these prices based on their judgment, as well as on methods and tools available to them to develop the official state estimate.

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The official state estimate is part of the Plans, Specifications, and Estimate package that is sent to the Federal Highway Administration for approval of the project including the federal funding for the project. The Plans, Specification, and Estimate package including the official state estimate must be approved by the Federal Highway Administration and the Department must be notified of the approval before advertising the project can take place. Finally, the official state estimate is used for bid analysis and to advise the Contract Awards Committee. The overall objective of our review was to determine if the contract estimating process is effectively and efficiently meeting the needs of the Department. Our specific objectives were to evaluate: < < < The district contract estimating process; The process and documentation related to contract estimating; and The systems and software used by the estimators.

We concluded that the Department is meeting the Federal Highway Administration and Florida Statute requirements to have an estimate. However, since there were no official procedures or standards to measure performance because of concern about the confidentiality of the official state estimate and the difficulty of defining a good estimate, we could not determine if the contract estimating process is effectively and efficiently meeting the needs of the Department. Listed below is a synopsis of our findings and recommendations. Our findings are: < The contract estimating process provides an estimate which meets the basic requirements of the Federal Highway Administration and Florida Statutes to have an estimate. However, the quality of the contract estimating process in meeting the Departments needs cannot be determined since the Department has not provided official policies, rules, procedures or standards for the performance of the contract estimating process; and The contract estimating process has not been included in the Quality Assurance Review monitoring process by the Department.

<

We recommend: < < The State Estimates Office develop policies, rules, procedures and standards and monitor their implementation to ensure compliance and quality performance of the contract estimating process; and The State Estimates Office consult with the Quality Management Office to consider establishing a Quality Assurance Review plan.

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FINDINGS AND RECOMMENDATIONS

The Florida Department of Transportation (FDOT) is required by 23 United States Code 106 to submit to the Secretary [of the U.S. Department of Transportation] for his approval ... such surveys, plans, specifications and estimates for each proposed project included in the approved program as the Secretary may require. Furthermore, the Federal-aid Policy Guide adds that all projects financed with Federal-aid highway funds require the submission of a plans, specifications, and estimates package to the Federal Highway Administration (FHWA) for approval. Additionally, section 339.135, Florida Statutes (F.S.), requires FDOT to file a Legislative Budget Request. The Five-Year Work Program is a portion of the Legislative Budget Request. A project must have an estimate before it can be included in the Five-Year Work Program. Section 20.23(3)(a), F.S., requires the Departments Central Office to establish departmental policies, rules, procedures and standards and monitor their implementation to ensure uniform compliance and quality performance by the districts. This statute requires the Central Office monitoring function to be based on a plan that clearly specifies what areas will be monitored, activities and criteria used to measure compliance, and a feedback process that assures monitored findings are reported and deficiencies corrected. The Department is authorized by section 334.044(2), F.S., to adopt rules, procedures and standards for the conduct of its business operations and the implementation of any provision of law for which the Department is responsible. Additionally, the managers of the Departments Central Office are required by section 338.048(4), F.S., to monitor the districts and Central Office units that provide transportation programs and assess their performance; determine compliance with all applicable laws, rules and procedures; and provide useful information for Department managers to take corrective action when necessary. Finally, the FDOT Central Office Organization Manual states the Estimates Office is to direct the development of policies, procedures, conduct training and perform Quality Assurance Reviews relating to the preliminary and final estimates process.

I. Procedures, Guidance and Standards for the Contract Estimating Process

Finding 1 The contract estimating process provides an estimate which meets the basic requirements of the Federal Highway Administration and Florida Statutes to have an estimate. However, the quality of the contract estimating process in meeting the Departments needs cannot be determined since the Department has not provided official policies, rules, procedures or standards for the performance of the contract estimating process.1

It should be noted that a review by the Office of Program Policy Analysis and Government Accountabilty of the FDOT Construction Bid and Contract Administration Process stated for the 108 projects in their sample, the successful bids were 6% below FDOTs estimate and the average bids on the projects they examined were within 1% of FDOTs estimate.
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The contract estimating process is providing an estimate for the plans, specifications, and estimates (PS&E) package for FHWA and for the Five-Year Work Program. However, there are no official policies, rules, procedures or standards to ensure compliance and quality performance of the contract estimating process. Without policies, rules or procedures it is difficult to establish standards because of a lack of clarity and explicitness about what is expected of the contract estimating process and the difficulty of establishing a useful measure of what constitutes a good estimate. According to the State Estimates Office, there are no official procedures for the contract estimating process for security reasons. Since the official state estimate must be confidential by statute, the State Estimates Office keeps the contract estimating process confidential. Knowledge of the contract estimating process will not lead to knowledge of the official state estimate. The process will provide the guidelines to develop an official state estimate, but will not provide the official state estimate because of the necessity to use judgment in the development of the official state estimate. Currently, the State Estimates Office has desk procedures which are not available on infobase. These could be used to aid the development of official policies, rules, procedures or standards for the contract estimating process. Establishing official standards to measure the performance of the contract estimating process would make it possible to determine the quality of the contract estimating process in meeting the needs of the Department. Official policies, rules or procedures would provide direction and consistent guidelines for the contract estimating process as well as educate Department personnel about the purpose and need for the contract estimating process. Additionally, policies, rules or procedures would identify key areas of the contract estimating process which would aid in the development of a Quality Assurance Review Plan. Recommendation 1 We recommend the State Estimates Office develop appropriate standards as well as policies, rules or procedures and monitor their implementation to ensure compliance and quality performance of the contract estimating process.

II. Quality Assurance Reviews

Finding 2 The contract estimating process has not been included in the Quality Assurance Review monitoring process by the Department. The State Estimates Office has not been participating in the Quality Assurance Review process for the contract estimating process in the districts nor does it have a plan for participating in Quality Assurance Review process. According to the State Estimates Office, Quality Assurance Reviews are not performed by the State Estimates Office because the State Estimates Office does not consider the contract estimating process to be a decentralized function. While Federal-aid construction projects and projects over $1 million dollars in value must be processed through the State Estimates Office, in FY 1995-96, district construction contract lettings totaled
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approximately $47 million. The construction contracts let in the districts require official state estimates which are not subject to oversight by the State Estimates Office. Participating in the Quality Assurance Review process could provide useful information for Department managers to ensure the quality of the contract estimating process in the districts. It would also provide Central Office oversight for the contract estimating process in the districts. Recommendation 2 We recommend the State Estimates Office consult with the Quality Management Office to consider establishing a Quality Assurance Review Plan.

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Appendix A

Background and Introduction

As its mission, the FDOT will provide a safe interconnected statewide transportation system for Floridas citizens and visitors that insures the mobility of people and goods, while enhancing economic prosperity and sustaining the quality of our environment.2 In an effort to meet this mission, the Department has identified the need to have a contract estimating process. According to the FDOT Organizational Manual, the State Estimates Office is responsible for directing the development of policies and procedures for the contract estimating process; conducting training pertaining to estimates; performing quality assurance reviews relating to the preliminary estimates process; and preparing the Departments official cost estimate on construction projects going to letting. The contract estimating process is managed through the Preliminary Estimates Office and the Engineering Support Services Office which have the responsibilities listed below. Preliminary Estimates Office - The Preliminary Estimates Office is responsible for activities relating to the contract estimating process including: < < < < < Preparing the official FDOT estimate; Performing plan reviews and bid analysis; Developing estimation aids; Assisting the districts with Job Cost for the Work Program and the use of the Long Range Estimate (LRE) System; and Performing quality assessments of district use of the Contract Estimating System (CES).

Engineering Support Services Office - The Engineering Support Services Office is responsible for activities relating to the contract estimating process including: < < < < < < < < < < < Writing computer programs and specifications for State Estimates Office; Handling all computer applications for the State Estimates Office; Estimating future material usage; Preparing historical pay item information; Monitoring and updating the CES file, the LRE system, the design and construction calculations and the method of estimating; Developing and maintaining manuals used for estimates preparation; Administering estimates training sessions and instructing Department personnel in using CES and LRE systems; Conducting wage surveys for construction jobs; Administering fuel escalation and allocation programs; Writing procedures and coordinating form development for State Estimates Office; Calculating current and long range construction costs;

2020 Florida Transportation Plan Mission Statement

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< < Evaluating construction bid items for the improvement of estimating endeavors; and Preparing price trend indexes.

Statutory Basis for the Contract Estimating Process The FDOT is required by 23 United States Code 106 to submit to the Secretary [of the U.S. Department of Transportation] for his approval ... such surveys, plans, specifications and estimates for each proposed project included in the approved program as the Secretary may require. Furthermore, the Federal-aid Policy Guide states all projects financed in whole or in part with Federal-aid highway funds require the submission of a PS&E package to the FHWA for approval. The estimate in the PS&E package is to reflect the anticipated costs of the project in sufficient detail to provide an initial prediction of the financial obligation to be incurred by the State and the FHWA and permit an effective review and comparison of bids received. The PS&E package must be approved by the FHWA and the Department must be notified of the approval before advertising for actual construction can take place. The FDOT is meeting this requirement by providing a complete PS&E package, including an estimate, to the FHWA. According to the nine states transportation departments contacted during our review, FHWA requirements were the most cited reason for having a contract estimating process.3 The states transportation departments added developing an estimate for budgetary purposes and to have a reliable estimate for bid comparison/analysis purposes as secondary reasons to have a contract estimating process. Section 339.135, F.S., requires FDOT to file a Legislative Budget Request setting forth the Departments proposed revenues and expenditures for operational and fixed capital outlay needs to accomplish the objectives of the Department. The Five-Year Work Program is a portion of the Legislative Budget Request. A project must have an estimate before it can be included in the Five-Year Work Program. Section 337.168, F.S., makes the Departments official cost estimate confidential and exempt from the provisions of s.119.07(1), F.S., until the contract for the project has been executed or until the project is no longer under active consideration. The Department is required by s.338.2275, F.S., to submit a report of the estimated costs for each ongoing turnpike project and each planned project to the Legislature 14 days before the convening of the regular legislative session. Section 339.12, F.S., requires the Department, prior to entering an agreement to advance a project or project phase, to update the estimated cost of the project. According to s.339.125, F.S., the Department may advance available funds for the preparation of preliminary engineering plans with valid cost estimates, which plans and estimates shall be completed prior to the issuance of any bonds on all revenue-producing transportation projects. Additionally, according to this statute, no State bonds shall be sold for any revenueproducing transportation project if the bonds include a covenant to complete by the Department from moneys in the State Transportation Trust Fund until the Department has made cost estimates and determined that the projected available funds are sufficient to pay for the project.

We contacted the following states transportation agencies by telephone: Arkansas, Connecticut, Indiana, New York, Pennsylvania, South Dakota, Texas, Vermont, and Wyoming.
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Contract Estimating Process The contract estimating process begins when a project is identified as a candidate for inclusion in the work program. An LRE-based cost estimate will be requested for the candidate project. Candidate projects cannot be entered into the Work Program Administration system without first having a cost estimate. LRE uses cross section models to develop an estimated cost for roadway construction. This estimate is for budget purposes and does not directly relate to the development of the official state estimate. Once pay items and quantities for a project are determined, the process to develop an official state estimate begins. The contract estimating process is started in the district where the pay item quantity is multiplied by pay item machine price to generate the basic estimate for a project. District staff may override the pay item machine price if they have knowledge of the project that warrants a change. The Preliminary Plans Package is then sent to the Central Office. When the Preliminary Plans Package is delivered to the Preliminary Estimates Office by Central Office Roadway Design, the CES file is locked and the plans are distributed to a designated engineer who is assigned responsibilities for a specific FDOT district. Assigning a district to an engineer, allows the engineer to become familiar with a specific area of the state. This allows the engineer to become knowledgeable with the contractors, materials and activity levels of that specific area which may affect the cost of the project. Once the plans have been distributed to the appropriate estimates engineer, the engineer starts reviewing the plans and the district estimate for unusual items and constructability. This review includes a review of the plans including the keysheet and a reading of the plan notes. The estimator notes anything that would affect the cost of a pay item during this review. Three to four weeks after the Preliminary Plans Package is received, the Final Plans Package arrives from the districts. This package contains a CES printout and specifications for the project. The CES printout has a pay item machine price generated by the system based on historical data from completed projects for each pay item in the project. If the pay item is a new one without historical data, a price is assigned to it in CES. Additionally, any district overrides of these prices are included in the CES printout. The Central Office estimator reviews the pay item machine prices and the district override prices. Central Office estimators can also override prices based on their judgment. Among the methods and tools used to develop the estimate are SAS reports, searches of Bid Analysis Management System (BAMS) for similar items, and contacts with suppliers for specific prices for pay items. Once the appropriate pay items, quantities, and prices are determined for a project by the Central Office estimator, the information is loaded back into CES as the official state estimate. The official state estimate is a part of the PS&E package that is sent to FHWA for approval. The PS&E package must be approved by the FHWA and the Department must be notified of the approval before advertising for actual construction can take place. The Preliminary Estimates Office performs bid analysis based on the official state estimate. Bid analysis includes comparing contractors bids to the estimate, identifying significant deviations from the estimate, and

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determining if the bids are unbalanced. This information is used to advise the Contract Awards Committee. Estimating Systems Long Range Estimate System - The LRE system is used to prepare cost estimates for projects for which quantities are not available. This system is used primarily to produce budget estimates for the work program. LRE uses cross section models to arrive at an estimated cost for roadway construction. Cost estimates developed by LRE are based on a typical section type, user input and items such as mobilization and maintenance of traffic which are percentages of other items. The estimate developed by LRE does not directly relate to the development of the official state estimate for a project. Cost Estimating System - CES is a data base which contains the prices of about six thousand pay items. Districts load quantities and pay items for a contract into the system. This information is used with the pay item prices in CES to develop a pre-generated price total per pay item. The pay item prices in CES can be overridden by the districts. After the cost estimate is received by the Preliminary Estimates Office, it further refines the cost estimate to make it job specific. When this is finished, the project has an official state estimate. Hard Dollar - Hard Dollar is a PC-based automated estimating system which uses data extracted from the Bid Analysis Management System (BAMS) and CES to do quantity regression by pay item to generate a price. An estimator who uses Hard Dollar reviews the pay item prices generated by the system and overrides the pay item prices where appropriate. When the estimator finishes the estimate using Hard Dollar, the estimate is loaded back into CES. According to Preliminary Estimates Office staff, the version of Hard Dollar that the Department is using will not be supported by the manufacturer after 1997. Additionally, after January 31, 1997, the BAMS data base changed to the one number system which will not accommodate Hard Dollar. At the time of our review, a decision had not been made by the Preliminary Estimates Office on a replacement for Hard Dollar.

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Appendix B

Objectives, Scope and Methodology

This review of the Departments contract estimating process was conducted by the Office of Inspector General in accordance with the approved Work Plan for FY 1995-96 and in conjunction with its responsibilities to review, evaluate and report on policies, plans, procedures and other operations of the Department and recommend changes for improvement as outlined in Sections 20.055 and 20.23, Florida Statutes (F.S.). The overall objective of the review was to determine if the contract estimating process is effectively and efficiently meeting the needs of the Department. It included the following specific objectives: ! ! ! Evaluate the district contract estimating process; Evaluate the process and documentation related to the contract estimating process; and Evaluate the systems and software used by the estimators4.

We reviewed relevant sections of the Code of Federal Regulations, Florida Statutes, the Florida Administrative Code, and current Department policy and procedures manuals. Staff from the FDOT State Estimates Office, Office of Construction, and Office of Market Analysis were interviewed. We also interviewed staff from the Federal Highway Administration and surveyed how other states handle the contract estimating process. The scope of our audit addressed current operating procedures for the Contract Estimating process.

We performed survey phase work toward accomplishing this objective. When it was determined there were no standards, policies or procedures, the decision was made to terminate the audit at that point. An evaluation of the systems and software was not made.
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Appendix C

Management Response

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