Florida Department of Transportation

OFFICE OF INSPECTOR GENERAL

Dispute Review Boards

REPORT 04G-2001 November 2002

Florida Department of Transportation

JEB BUSH GOVERNOR

605 Suwannee Street Tallahassee, Florida 32399-0450 November 25, 2002

THOMAS F. BARRY, JR. SECRETARY

Mr. Thomas F. Barry, Jr., P.E., Secretary Florida Department of Transportation 605 Suwannee Street, MS-57 Tallahassee, Florida 32399-0450 Dear Secretary Barry: RE: Dispute Review Boards Audit Report No. 04G-2001

Attached is our audit report on Dispute Review Boards (DRBs). Our objectives were to assess the effectiveness of DRBs in resolving disputes, determine compliance with Department policies and procedures, and determine the need for process improvements. The audit included the Central Office and all Districts and found the DRB process to be effective in assisting in the resolution of disputes. Our efforts to evaluate compliance of the DRBs with Department policies and procedures revealed several conditions that require management action. Recommendations address concerns regarding DRB member selection, recordkeeping and payment practices, and practices relating to hearings and preparation of recommendations. Management in the State Construction Office (SCO) has indicated agreement with the majority of the recommendations included in the report and revisions or additions to associated procedures are in progress or planned. Additionally, management is planning future DRBspecific training for staff and consultants and is developing further guidance regarding the preparation of DRB recommendations. Sincerely, ORIGINAL SIGNED BY Cecil T. Bragg, Jr., C.P.A. Inspector General

DISPUTE REVIEW BOARDS AUDIT REPORT NUMBER 04G-2001

OFFICE OF INSPECTOR GENERAL

Audit Team Members

Audit Director Audit Manager Auditor-In-Charge Auditor Auditor Lisa L. Evans, CPA Kim B. Smith, CPA James L. Maxwell, CIA, CFE David D. Beals John C. Hess

Sections 20.23 and 20.055, Florida Statutes, require the Florida Department of Transportations Inspector General to review, evaluate and report on policies, plans, procedures, and other operations of the Department and recommend improvements. This audit was conducted to assist management in the effective implementation of transportation programs by the Department. This audit was conducted in accordance with applicable Government Auditing Standards issued by the Comptroller General of the United States and Standards for the Professional Practice of Internal Auditing published by the Institute of Internal Auditors. We included such tests and other auditing procedures as were considered necessary under the circumstances.

Office of Inspector General

TABLE OF CONTENTS
Page EXECUTIVE SUMMARY BACKGROUND FINDINGS AND RECOMMENDATIONS DRB EFFECTIVENESS COMPLIANCE ISSUES FINDING MATRICES Audit Finding 1 List of Candidate Members Audit Finding 2 Frequency of Board Member Selection Audit Finding 3 Three Party Agreements Audit Finding 4 Minutes of Meetings Audit Finding 5 Support for DRB Payments Audit Finding 6 Settlement Efforts Audit Finding 7 Hearings for Monetary Costs Audit Finding 8 DRB Recommendations Audit Finding 9 Department Response to Board Recommendations Audit Finding 10 DRB Documentation EFFECTIVE PRACTICES APPENDICES A. Missing/Incomplete Three Party Agreements B. Undocumented Payments for DRB Services ATTACHMENTS 1. Objectives, Scope and Methodology 2. Management Response 3. Distribution Schedule 1 2 3 3 6 7 8 9 10 11 12 13 14 15 16 17

19 21

22 23 26

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EXECUTIVE SUMMARY This audit of Dispute Review Boards (DRBs) and associated activities was initiated at the request of senior Department management and was included in the Inspector Generals work plan for fiscal year 2001-2002. Our objectives were to assess the effectiveness of DRBs in resolving disputes, determine compliance with Department policies and procedures, and determine the need for process improvements. Our scope involved a review of the organization, administrative activities, and recommendations issued by DRBs active during calendar years 2000 and 2001. The Florida Department of Transportations State Construction Office coordinates the use of DRBs as part of its responsibility to obtain cost effective and quality construction of Floridas roads and bridges. DRBs are used to provide expertise to facilitate the timely and equitable resolution of disputes, claims, and controversies between the Department and Contractors to avoid construction delays, future claims and litigation. Projectspecific DRBs are required by a special provision, typically included in contracts for larger or more complex projects. Department use of Regional Dispute Review Boards (RDRBs) began in January 2002. RDRBs operate under different rules and are generally intended to serve smaller projects. Consideration of RDRBs was not included in this review. To achieve our objectives we: Reviewed applicable Department policies and procedures, and related industry practices; Interviewed or surveyed appropriate staff and participants in the process; Documented organizational and administrative aspects of projects; Reviewed documentation and results of dispute hearings leading to the preparation of Board recommendations; and Evaluated aspects of DRB effectiveness.

CONCLUSION The DRB process appears to be effective in assisting in the resolution of disputes, leading to more timely completion of projects, reduced cost overruns, and avoidance of claims. Utilizing DRBs on larger projects can serve to motivate greater cooperation between parties resulting in fewer unresolved claims and a reduced litigation potential. Regarding compliance with Department policies and procedures, we identified several conditions that require management action. Our recommendations address concerns regarding DRB member selection, recordkeeping and payment practices, and practices relating to hearings and preparation of recommendations. Finally, several effective practices, noted during the audit, have been included as potential process improvements, worthy of consideration throughout the Department.

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Office of Inspector General

BACKGROUND DRBs are formed and granted authority under a Three Party Agreement (TPA) required in the construction contract between the Department and the Contractor. Parties to the TPA include the Department, the Contractor, and the DRB members. DRBs are authorized to adopt their own operating procedures, but commonly adopt guidelines that have been established by the State Construction Office. While provisions of the Construction Project Administration Manual (CPAM) address activities of Department staff in working with the DRB, these provisions do not apply directly to the DRB members or the Contractor. The project-specific DRB model used by the Department involves: Selection and empowerment of a panel of three DRB members who are experienced, respected and impartial; Organization of DRBs before project construction begins; Holding regular meetings (usually at the job site) to allow DRB members to become familiar with the project and participants; Department and Contractor representatives openly discussing and resolving disputes at the project level; Escalation to a DRB hearing when a contract dispute cannot be resolved by mutual agreement at the project level; and DRB members considering the relevant contract documents, correspondence and other documentation, and the particular circumstances of the dispute in arriving at a written, nonbinding recommendation. The direct cost of using DRBs is the compensation of members who serve on them. A per day cost of $3,000 ($1,000 per DRB member) for each regular meeting or dispute hearing was established to reimburse the Contractor for providing compensation to the three DRB members. Our computation of payments to DRB members for calendar years 2000 and 2001 are shown, by District, in Table A.
Table A: DRB Member Payments (by District) Year 2000 Year 2001 Both Years District Payments Percent Payments Percent Payments Percent 1 142,000 13% 203,000 15% 345,000 14% 2 74,000 7% 83,000 6% 157,000 6% 3 44,000 4% 79,000 6% 123,000 5% 4 163,000 15% 277,000 20% 440,000 18% 5 186,000 18% 165,000 12% 351,000 14% 6 66,000 6% 81,000 6% 147,000 6% 7 223,000 21% 309,000 22% 532,000 22% TPK 170,000 16% 189,000 13% 359,000 15% Totals $1,068,000 100% $1,386,000 100% $2,454,000 100%
Source: OIG audit team review of Pay Events

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FINDINGS AND RECOMMENDATIONS DRB EFFECTIVENESS An important measure of the success of DRBs is whether they were effective in promoting the timely resolution of disputes. DRBs are effective when they promote more timely completion of projects leading to improved services to the public. Another factor of effectiveness is completion of construction projects consistent with the contract, and at a fair cost. Communication between the Department and Contractors is essential to the resolution of disputes and the resulting decreases in delays, reduced costs, and avoidance of claims. We compared time and cost overruns of completed projects assigned DRBs to comparable projects not assigned DRBs; we considered the resolutions resulting from DRB meetings and hearings and obtained input regarding the process from key participants through interviews and surveys. Overall, it appears the DRB process is effective and valuable in assisting in the resolution of disputes, leading to more timely completion of projects, reduced cost overruns, and avoidance of claims. Comparison of Time and Costs Overruns Data was analyzed for construction projects completed during fiscal years 2000, 2001, and 2002. Due to the Departments relatively recent use of DRBs, the number of completed projects with DRBs was comparatively small and was concentrated in 2002, the most recent fiscal year analyzed. The information shows that longer-term projects (greater than 1 year in length), which used a DRB, experienced smaller percentage time and cost overruns than comparable projects without DRBs. Although no causal relation could be verified, it appears DRBs effectively contributed to timelier project completion at costs closer to the original contract amount. Comparison results for fiscal year 2002 are included in Table B.
Table B: Time and Cost Overruns for DRB and Non-DRB Projects Contracts Lasting No. of Av. Days1 % Time2 Av. Cost3 % Costs4 Longer than 1 Year Contracts Overrun Overrun Overrun Overrun DRB Contracts 15 11.5 1.84% $1,675,369 12.12% Non-DRB Contracts 60 105.3 19.10% $1,448,997 17.89%
Source: Annual Time and Cost Overrun data per the State Construction Office.

Project time overrun was computed by determining the Days Used less Weather Days and subtracting the Original Contract Days. Days Overrun for each project in the population was summed and divided by the number of projects in the population to compute the Av. Days Overrun. 2 % Time Overrun was computed by aggregating the Days Overrun for each project in the population and dividing the total days by the aggregated Original Contract Days. 3 Project cost overrun was computed by subtracting the Original Contract Amount from the Final $ Paid per FM. Cost Overrun for each project in the population was summed and divided by the number of projects in the population to compute the Av. Cost Overrun. 4 % Cost Overrun was computed by adding each Cost Overrun and dividing by the sum of all Original Contract Amount(s).

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Office of Inspector General

DRB Hearings and Resolution of Dispute Issues Our review of contracts utilizing DRBs covered 108 projects. In 72 of these projects (66%), parties did not hold a DRB hearing, presumably indicating that disputes which arose under the contracts were resolved without the need for a formal hearing. It appears the availability of a regular forum for discussion of outstanding issues, and the intent of DRBs to encourage negotiation between the parties, contributed to the apparent timely and reasonable settlement of disputes as noted in the overrun comparison in Table B. Dispute hearings were held for the remaining 36 projects. We obtained and analyzed information on each DRB hearing. Table C shows the number and percent of hearings by District. Based on the information shown, it appears that certain Districts escalated dispute issues to DRBs, while others tended to resolve issues through negotiated settlements or issuance of unilateral payments.
Table C: DRB Hearings by District Projects No. of District with DRBs Percent Hearings 1 16 15% 7 2 7 6% 2 5 3 5 5% 9 4 18 17% 6 5 16 15% 14 6 10 9% 3 7 22 20% 12 TPK 14 13% 10 Totals 108 100% 63

Percent 11% 3% 14% 10% 22% 5% 19% 16% 100%

Source: OIG audit team review of DRB Hearing Events

On a statewide basis, our analysis showed that hearing recommendations favored both sides equally. Certain Districts had a higher incidence of favorable DRB rulings (recommendations) than other Districts. Such differences could indicate that some Districts had greater success in deciding which issues to settle and which to take to a hearing. Following the issuance of DRB recommendations, both parties have the opportunity to respond as to their acceptance or rejection of recommendations. Forty-seven of 65 recommendations (72%) were accepted by both parties. Eighteen recommendations were rejected by at least one party; six of these disputes were subsequently resolved. Ultimately, 53 of 65 recommendations (82%) formed the basis for resolution of the disputes. In general, DRBs appeared effective in promoting dispute resolution, both by encouraging communication and negotiation, thereby avoiding the need for hearings, and by making reasonable and supported settlement recommendations following hearings.

Eight of the 9 hearings in the sample for District 3 related to a single project.

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When hearings were held, we found recommendations were usually consistent with contract provisions and provided a reasonable basis for resolution of the disputes. Survey Input On-line forms were used for surveying key participants in the process. Surveys were sent to selected project staff and managers, as well as Consultant CEIs (CCEIs) engaged on contracts included in our sample and to all District Construction Engineers. Contractors and listed DRB candidates for whom we could obtain e-mail addresses were also given an opportunity to provide feedback. Survey questions involved various aspects of the process in addition to seeking views on the effectiveness of DRBs. Survey responses revealed a generally positive view of the DRB as an effective mechanism for timely settlement of disputes. Specifically, project and CCEI staff responded positively regarding the ability of the process to bring about timely settlement of disputes. Contractors who responded commented on the DRBs ability to help in settling disputes before they evolved into claims. DRB candidates not only commented on ways the process could be streamlined, but also remarked that it was working well in getting disputes resolved. Project and CCEI staff responded that they were often able to settle disputes without referring them to DRBs for formal hearings. This feedback was consistent with the fact that two-thirds of the DRBs we reviewed had never been requested to hold a hearing. We considered the settlement of disputes without hearings to be an indicator of additional effectiveness as DRBs encouraged the Department and Contractors to resolve dispute issues as they arose. DRBs appear to be encouraging both parties to consider settlement of dispute issues in lieu of the less controllable outcome of a DRB recommendation. Overall, it appears the DRB process is effective and valuable in assisting in the resolution of disputes, leading to more timely completion of projects, reduced cost overruns, and avoidance of claims. Utilizing DRBs on larger projects can serve to motivate greater cooperation between parties resulting in fewer unresolved claims and a reduced litigation potential.

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Office of Inspector General

COMPLIANCE ISSUES In determining compliance with Department policies and procedures, we reviewed 108 projects with DRBs active during calendar years 2000 and 2001. Projects were reviewed for compliance with established criteria included in the DRB Three Party Agreement, Special Provision 8-3.7, and the Operating Guidelines for DRBs. Analysis of information regarding the organization and administration of DRBs, as well as documentation related to the hearings held and recommendations issued, revealed several conditions that require management action. Our recommendations address concerns regarding: DRB member selection; Improvements in recordkeeping and payment practices; and Modifications to hearing practices and preparation guidelines for DRB recommendations.

SCO Management has indicated agreement with the majority of the findings and recommendations. Revisions or additions to associated procedures are in progress or planned that will address several of the audit findings. Additionally, management is planning future DRB-specific training for staff and consultants and is developing further guidance regarding the preparation of DRB recommendations. Audit findings begin, in matrix format, on page 7. See Attachment 2 (page 23) for the complete text of managements response to the report. Matrices Summary Finding 1 List of Candidate Members Finding 2 Frequency of Board Member Selection Finding 3 Three Party Agreements Finding 4 Minutes of Meetings Finding 5 Support for DRB Payments Finding 6 Settlement Efforts Finding 7 Hearings for Monetary Costs Finding 8 DRB Recommendations Finding 9 Department Response to Board Recommendations Finding 10 DRB Documentation

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Audit Finding 1 List of Candidate Members

Objective Conclusion Determine whether individuals listed as candidate Board members are appropriately qualified to serve. Formal qualification requirements to serve on Dispute Review Boards have not been established. Individuals listed as candidates met desired qualifications to serve, with minor exceptions.

Supporting Evidence
As of January 2002, 117 individuals were listed as Board candidates per the DRB website maintained by staff of the State Construction Office (SCO). We attempted to evaluate resume information relating to extent (years) of construction experience. We further evaluated listed candidates as to whether they attended an introductory workshop sponsored by the DRB Foundation. SCO staff informed us that this course is a precondition for being listed as a Board candidate. We noted this requirement was not addressed in the DRB procedures or specifications. Results were as follows: The resume of one individual failed to demonstrate 10 years of experience in construction. We were unable to review all resume documents, as links to six resumes were not functioning. All but 4 individuals were found to have completed the DRB Foundation review course (as of March 2002). Recommendation -

Criteria
Special Provision - Disputes Review Board (REV 1-23-01) (FA 2-1-01) (7-01) Article 8-3.7.3 It is desirable that all Board members have at least ten years of experience with the type of construction involved in this project, in the interpretation of Contract Documents, and in contract dispute resolution.

Causes
Existing qualifications to serve are said to be desirable and not required. All stated qualification criteria are not addressed in DRB procedures or the Special Provision.

Impact/Risk
Not having written (and required) qualification criteria for evaluating the eligibility of individuals to serve as Board members can result in unqualified individuals being selected or subject to selection.

Requirements for Board member qualifications should be formally established and documented by the State Construction Engineer. Individuals should be screened in accordance with the requirements before being placed on the candidate list, which should serve as pre-qualification of Board members. DRB website links to all resumes should be maintained active. See Management Response in report Attachment 2 beginning on page 23.

Management Response -

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Office of Inspector General

Audit Finding 2 Frequency of Board Member Selection

Objective Conclusion Determine whether individuals selected as Board members are able to serve. Individuals selected as Board members represent relatively few of the candidates listed as qualified to serve. Some individuals are selected to serve on numerous Boards concurrently.

Supporting Evidence
In assessing the DRB process, we tallied meeting and hearing events, which allowed us to evaluate Board member selection and frequency of use. We determined that a small percent of the candidates available for selection staffed most of the Boards. Of the individuals listed as Board candidates, less than one in three had been appointed to serve on more than one Board. More than half of the candidates listed had never been appointed to serve. We computed that payments to only five of the candidates accounted for over half (52%) of the monies paid in the 2 years ended 12/31/01. These member payments totaled $1,267,000. Furthermore, all but one of these individuals has also been appointed to serve on 2 or more Regional DRBs. We further computed that fifteen percent of payments were to members who attended and received additional payment for a second or third DRB meeting held on the same day. Project staff interviewed indicated difficulties in scheduling high-use Board members. For example, one instance occurred where scheduling problems prevented a hearing, which lead to a negotiated settlement without Board input. Recommendation -

Criteria
Disputes Review Board DRB Three Party Agreement Section II Scope of Work The Department and the Contractor will keep the Board informed of construction activity and progress by submitting written progress reports and other relevant data at least monthly. The Board will visit the project at regular intervals and/or at times of critical construction events and meet with the Engineer and the Contractor. State Construction Office DRB Operating Procedures Section 2 Frequency of Regular Meetings In order for the DRB to become familiar with the project circumstances, it will initially meet once per month during the first 6 months and at least bimonthly thereafter.

Causes
The apparent basis for selecting members to serve relates to familiarity that the sides have with the candidates who have served in the past. Members selected in the past are chosen again, regardless of the number of Boards they are actively serving on. Information regarding members serving on multiple Boards is not considered during the selection process. Multiple Board meetings held the same day might result when frequently selected members are unable to keep up with the demands on their time.

Impact/Risk
Scheduling meetings and hearings becomes difficult for projects with members who serve on numerous Boards. Rescheduling meetings becomes especially complicated when Board members are, out of necessity, required to reserve dates several months into the future. Project information sent to keep Board members informed of construction activities and developments may be difficult to review for members dividing their attention between many Boards, potentially hindering their familiarity with project issues. Perceptions of preference to a few members can adversely impact attitudes towards the DRB process. Listed Board member candidates never (or rarely) selected may assume that selection to a DRB is limited to favored individuals, potentially impacting their willingness to serve. The greater the number of Boards any candidate is selected for increases the risks of disruption should he or she become unable or unavailable to serve.

Member availability should be considered when Board candidates are selected. The State Construction Engineer should consider enhancing the DRB website to inform users of members who are assigned to a significant number of ongoing Boards. The State Construction Engineer should consider limiting the number of Boards that any one candidate could be approved to serve on concurrently. Consideration should also be given to paying reduced amounts to members who attend multiple meetings held the same day. See Management Response in report Attachment 2 beginning on page 23.

Management Response -

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Audit Finding 3 Three Party Agreements

Objective Conclusion Determine whether Three Party Agreements were properly executed and maintained in Department files. Numerous Three Party Agreements were either not on file or were not properly executed.

Supporting Evidence
A principal document in the organization of the DRBs is the Three Party Agreement (TPA). It provides for the establishment and operation of the DRB and is the only contract to which Board members are parties. We made an effort to review this agreement for each of the 108 projects included in our sample. Of the projects reviewed, 9 TPAs (8%) were not on file. We were unable to determine if the agreements had ever been executed. Of the remaining 99 TPAs, 31 (31%) were not properly executed [15 were not dated, 12 were missing signatures, and 4 were neither dated nor signed]. Recommendation -

Criteria
Special Provision - Disputes Review Board (REV 1-23-01) (FA 2-1-01) (7-01) Article 8-3.7.3 Immediately after agreement is reached on all members of the Board the Contractor, the Department and the members of the Board shall proceed with execution of a Three Party Agreement. FDOT Disbursements Operations Manual Procedure 350-030-400, Section 2.10.1.1 Procurement of services requires a contract stating all provisions and conditions

Causes
Responsibility for the execution of TPAs was not defined. Execution of other TPAs was not completed, likely due to oversight or neglect. Completion of TPAs was not monitored for quality at the District level.

Impact/Risk
The DRB has no legal existence without a fully executed TPA, the contractual agreement that documents the establishment and provides for operation of the Board. The Department should not pay costs for Board members not formally established through the TPA. Insufficient record keeping of critical DRB documents hinders their later use (e.g., potential reference during arbitration or litigation, subject of public records requests, documentation required during the final estimate process, etc.).

The State Construction Engineer should define requirements for proper completion of the TPA in CPAM procedures. For those Boards that are active and have TPA deficiencies, agreements should be completed as soon as possible and maintained in Department files. Appendix A includes a listing of TPAs that were either not on file or were not properly executed. The original or copies of executed TPAs should be maintained on file in the District offices. The State Construction Engineer should ensure that payments for Board members not occur unless a properly executed TPA is on file. See Management Response in report Attachment 2 beginning on page 23.

Management Response -

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Audit Finding 4 Minutes of Meetings

Objective Conclusion Determine whether minutes of DRB meetings were prepared according to established procedures. Meeting minutes were often not available for all DRB meetings held.

Supporting Evidence
We made an effort to review minutes of meetings for each of the 108 projects in our sample. These important documents were not always prepared, distributed and approved in accordance with DRB Operating Procedures. Of the 108 projects reviewed, Department staff or consultants (for 29 projects) did not follow a practice of preparing minutes of Board meetings. Minutes were not found in the files for one or more meetings for many other projects. Though quality of minutes was not systematically evaluated, we noted the use of a wide range of formats from word-forword transcripts of all comments to meeting minutes evidencing little more than an agenda and who was in attendance. Survey Feedback: Concern was expressed over the preparation and distribution of meeting minutes by Department staff (inhouse CEI services). Responders mentioned that frequently DRB meetings are held in conjunction with project weekly progress meetings and minutes are often combined. Feedback from Board members expressed the importance of having minutes of all Board meetings, especially on projects that meet on less than a monthly basis.

Criteria
DRB Operating Procedures Section 4 Minutes of Meeting The Department will provide minutes of the regular meetings. Special Provision - Disputes Review Board (REV 1-23-01) (FA 2-1-01) (7-01) Article 8-3.7.3 The Department will prepare and mail minutes and progress reports, will provide administrative services, such as conference facilities and secretarial services, and will bear the cost of these services. Disputes Review Board DRB Three Party Agreement Section II - Scope Of Work The Department will prepare minutes of all regular meetings and circulate them for comments, revisions and/or approval by all concerned.

Causes
Minutes of some meetings appear to have been misfiled or never prepared. If prepared in electronic format (via word processor), some minutes may not have been printed for inclusion in the hardcopy files. Management controls were not in place to assure that meeting minutes were prepared, distributed, and approved.

Impact/Risk
Minutes are intended to serve as the official record of what happened in the Board meetings. Without accurate minutes, participants and non-participants alike cannot be provided with an accurate portrayal of what was discussed and any agreements reached during a meeting. Disagreements among participants could result. Poor content and format of meeting minutes may detract from their usefulness in communicating issues and events related to Board affairs. Insufficient recordkeeping of critical DRB documents hinders their later use (e.g., potential reference during arbitration or litigation, subject of public records requests, documentation required during the final estimate process, etc.).

Recommendation -

The State Construction Engineer should require that DRB provisions in the CPAM and the TPA form be revised to require that Boards (DRB Chair) include the approval and adoption of minutes from the previous meeting in each regular meeting agenda. Approved minutes should be maintained in Department files. Minimum guidelines on content of minutes should be a part of future training sessions and/or addressed in written DRB guidelines. See Management Response in report Attachment 2 beginning on page 23.

Management Response -

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Audit Finding 5 Support for DRB Payments

Objective Conclusion Determine whether documents were on file to support payments for DRB member services. Documentation was often not on file to support processing of payments for DRB member services. Overpayments were made project DRBs.

Supporting Evidence
For the projects reviewed, we attempted to reconcile recorded DRB payments to supporting documentation. In 40 of 108 projects (37%), project staffs were unable to produce invoices that supported all DRB-related payments. Numerous projects (28 of 108) included payments to contractors that were not supported by invoices and could not be substantiated by reference to meeting minutes or attendance rosters. As a result, we were unable to determine that a meeting (or hearing) had taken place. Undocumented payments for projects in our sample for the period ending 12/31/01 total $241,000 (7.8% of the DRB payments processed). Two instances were found where overpayments for project DRBs had occurred. The overpayments, which involved two separate projects, were for $30,000 and $3,000.

Criteria
Disputes Review Board DRB Three Party Agreement Section VI - Payment The board members shall be paid by the contractor pursuant to 8-3.7 of the construction contract, for services rendered under this agreement as provided hereinafter. Special Provision - Disputes Review Board (REV 1-23-01) (FA 2-1-01) (7-01) Article 8-3.7.4 Basis of Payment: A per day cost of $3,000 has been established by the Department to reimburse the Contractor for providing compensation to the three members of the Disputes Review Board. FDOT Disbursements Operations Manual Procedure 350-030-400, Section 2.5 All payment requests submitted to disbursement office must be signed by an authorized official acknowledging that goods and/or services were received, inspected, and approved, and the invoice to be paid is correct and complies with the provisions of the procurement document.

Causes
Invoice documentation was either never prepared by Board members or copies were not provided to project management staff for increasing the Pay Estimates for DRB payments. Documentation may have been used to process payments but not retained in the files. Overpayments resulted when CEI staff prepared erroneous or excessive increases in pay item quantities, in the absence of supporting invoice documentation. The erroneous $30,000 payment had not been invoiced. This error was not detected in the Monthly or Final Pay Estimate review processes. The contract has been closed.

Impact/Risk
Unauthorized or erroneous payments for DRB member services can occur if increases in project Pay Estimates are not based on supporting documentation. Insufficient record keeping of essential DRB documents hinders their later use (e.g., potential reference during arbitration or litigation, subject of public records requests, documentation required during the final estimate process, etc.).

Recommendation -

The State Construction Engineer should emphasize Department requirements that sufficient payment documentation be obtained before DRB pay item increases are made. Invoice documentation should be maintained in Department files. Efforts to recover actual overpayment amounts detected during our review have begun. As other instances of undocumented payments noted may represent additional overpayments, the State Construction Engineer should insure that appropriate investigation and action is taken. Appendix B includes a listing of these undocumented payments by project.

Management Response -

See Management Response in report Attachment 2 beginning on page 23.

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Audit Finding 6 Settlement Efforts

Objective Conclusion Determine whether the parties were promoting timely dispute resolution by participating in settlement negotiations prior to seeking a DRB hearing. The Department and the contractor usually negotiated before referring disputes to the Board; however, the eventual referrals were often untimely in relation to the schedule described in the Three Party Agreement.

Supporting Evidence
We evaluated whether settlement efforts had occurred before unresolved disputes were referred to the Board for a formal hearing. We also attempted to assess the timeliness of practices that resulted in a formal hearing. For the 65 DRB hearings held, we were able to gather only limited data concerning pre-hearing settlement efforts, as documentation supporting such efforts was not always provided. Notices of Intent and Hearing Requests were often not included in the files we reviewed. (Of the 65 hearings, 23 or 35% of the Notices and 16 or 24% of the Requests were not found.) We noted evidence of project-level negotiations for each of the disputes heard that, while short of resolving the dispute(s), resulted in the identification of a concise issue(s) that could be addressed by the Board as a matter of factual, or fact based, application of the contract and specifications. Where data on pre-hearing settlement efforts was available for the hearings eventually held, only 3 of 42 hearings took place within the timeframe identified in the TPA (within 65 days from dispute occurrence). Survey Feedback: Of the FDOT staff, CEI consultants, and contractor representatives who responded, most indicated that sufficient negotiations efforts occurred before issues were referred to the Board. Many respondents commented that established escalation processes often contributed to successful negotiations. Most (72%) of the Board members who responded to the survey agreed that efforts were made to resolve issues. Recommendation -

Criteria
Special Provision - Disputes Review Board 8-3.7.1 It is not intended for the Department or the Contractor to default on their normal responsibility to cooperatively and fairly settle their differences by indiscriminately assigning them to the Board. Disputes Review Board Three Party Agreement Section II - SCOPE OF WORK B. Procedure and Schedules for Dispute Resolution: Disputes will be considered as quickly as possible, taking into consideration the particular circumstances and the time required to prepare detailed documentation. Disputes Review Board Three Party Agreement Section II B. a. thru d. (summarized) These provisions could result in a hearing by the Board within 65 days from the date of the Engineers adverse response to a Notice of Intent. This period may be shortened by agreement of the parties, but there is no corresponding provision for extending the period.

Causes
Escalation processes, often developed during the partnering process, promote negotiations between parties and were utilized for many of the DRB projects. A requirement to establish a mandatory, effective process for escalation of disputes for consideration by the DRB was not in place. Rigid timeframes for dispute escalation to the DRB, as presented in the TPA, are often not attained, likely because of the short time periods allowed for the negotiation stages.

Impact/Risk
Without reasonable negotiation efforts (escalation), the parties may proceed to DRB hearings before having discussions adequate to resolve the dispute or even to define and narrow the dispute(s) to issues upon which the parties cannot agree. Without an established process for escalating dispute issues, conflicts may remain unresolved for longer time periods. This could result in costly disruption of work, deterioration of relationships, increased settlement costs, etc.

The State Construction Engineer should revise future contract provisions to include a defined escalation process for advancing disputes to the Board, whether in conjunction with a Partnering provision or otherwise. Section II B of the TPA should be revised to make it consistent with the use of escalation processes. See Management Response in report Attachment 2 beginning on page 23.

Management Response -

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Audit Finding 7 Hearings for Monetary Costs

Objective Conclusion Determine whether documentation was presented and considered in Board determinations of monetary costs. Recommendations involving monetary costs were not always based on required cost information and were not always supported by stated and relevant cost determinations and findings.

Supporting Evidence
Sixteen of 65 Board recommendations (25%) reviewed involved specific quantification of delay days or monetary costs in the settlement recommendation. Recommendations for three of these issues resulted after hearings that had recommended contractor entitlement. The remaining 13 recommendations involved concurrent recommendations that combined issues of entitlement, and days or dollars. Four recommended additional days only. The remaining nine, and all three recommendations made following entitlement recommendations, contained a specific monetary settlement amount. We found five of these twelve to be inadequately supported by stated findings.

Criteria
Disputes Review Board Three Party Agreement, II B. g. . . .The Board will focus its attention in the written report to matters of entitlement and allow the parties to determine the monetary damages. If both parties request, and sufficient documentation is available, the Board may make a recommendation of monetary damages. (Emphasis added) Special Provision - Disputes Review Board (REV 1-23-01) (FA 2-1-01) (7-01) 8-3.7.2. Continuance of Work During Dispute Throughout any protested work, the Contractor will keep complete records of extra costs and time incurred. The Contractor will permit the Engineer and Board access to these and any other records needed for evaluating the dispute.

Causes
Department representatives have requested or consented to Board hearings involving both entitlement and monetary cost issues. By allowing Boards to consider both entitlement and monetary valuation issues concurrently, opportunities for both sides to negotiate potential settlements are lost. For hearings involving recommendations of specific monetary settlement amounts, there is no specific requirement that the contractor present cost accumulations performed in compliance with Special Provision 8-3.7.2, nor that the Engineer present cost accumulations performed as directed in Standard Specification 5-12.2.

Impact/Risk
Concurrent recommendations of both entitlement and monetary costs may deny both parties the opportunity to negotiate a mutually agreeable dispute valuation based on the Boards recommendation of entitlement. Recommendations of a specific monetary amount to resolve a dispute may not be based on, and supported by, valid cost information.

Recommendation -

The State Construction Engineer should consider directing District and project level staff that Board hearings involving monetary valuation be requested (or agreed to) only following a related recommendation on Contractor entitlement. Board hearings involving monetary cost impacts should require submission and consideration of cost accumulations required in Special Provision 8-3.7.2 and Standard Specification 5-12.2. See Management Response in report Attachment 2 beginning on page 23.

Management Response -

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Audit Finding 8 DRB Recommendations

To determine whether DRB recommendation documents are prepared using the recommended format and that recommendations are supported by reported findings. Conclusion - Except for a few older recommendations, the prescribed format was used. However, in seven instances, Board recommendation documents either contained no statements of fact or references to pertinent contract provisions, or were not supported by the stated findings. Objective -

Supporting Evidence
Assessment of DRB recommendations included a review of objective information, such as dates of Board hearings and recommendations and whether the prescribed recommendation elements were presented. We also categorized disputes and made judgmental determinations as to whether findings statements were sufficient to support DRB recommendations. Seven of 65 recommendations contained no statements of fact or reference to the pertinent contract provisions, or the recommendation was not supported by the findings reported. Survey Feedback: Survey respondents generally did not express confidence that Board recommendations were based on contract provisions and FDOT Specifications; 50% of contractors and only 25% of FDOT staff indicated recommendations were always based on the contract and specifications. Less than two-thirds (64%) of Board members that responded reported that recommendations were always based on the contract and specifications.

Criteria
Special Provision - Disputes Review Board 8-3.7.1 The Board will fairly and impartially consider disputes referred to it and will provide written recommendations to the Department and Contractor to assist in the resolution of these disputes. Disputes Review Board Three Party Agreement II C.: . . . The BOARDS recommendations and discussions of its reasoning will be submitted as a written report to both parties. The recommendations will be based on the pertinent contract provisions and the facts and circumstances involved in the dispute. DRB Operating Procedures 7.1 . . . Recommendations will be based on the pertinent contract provisions and the facts and circumstances involved in the dispute . . .

Causes
Boards did not always recognize the need to state findings of fact to support their recommendations; the SCO prescribed format does not specifically call for a Findings Section. Boards sometimes attempted to reach equitable settlements, not staying within the confines of the contract and specifications.

Impact/Risk
When Board recommendations are not adequately supported by findings, it is difficult for the Department and the contractor to assess the basis for the recommendation. Effective dispute resolution is promoted when recommendations are adequately supported by facts and contract provisions and written to inform Department and contractor staffs.

Recommendation -

The State Construction Engineer should sponsor training or act to assure that individuals serving on Boards are aware of the need to accurately express all positions, including findings of fact; and produce recommendations that are supported by (or follow from) their stated findings. The prescribed format for DRB recommendations should be revised to include a Board Findings section, in addition to the Recommendation section that is already part of the form.

Management Response -

See Management Response in report Attachment 2 beginning on page 23.

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Audit Finding 9 Department Response to Board Recommendations

Determine whether written notification, declaring the Departments acceptance or rejection of each Board recommendation, is prepared and sent to the contractor and the Board. Conclusion - Department responses accepting or rejecting Board recommendations were not prepared in most cases. Objective -

Supporting Evidence
The Department filed only 22 of 65 accept/reject notices. Six of these were to reject the Board recommendation. Contractors responded in writing only 19 times, with 12 of these representing rejections of Board recommendations. Both parties accepted the recommendation by default (no written response) over 50% of the time.

Criteria
Disputes Review Board Three Party Agreement, II B. I . . .Although both the Department and the Contractor should place great weight on the Boards recommendation, it is not binding. If the Boards recommendations do not resolve the dispute, all records and written recommendations of the Board will be admissible as evidence in any subsequent dispute resolution procedures. Disputes Review Board Three Party Agreement, II B. h Within 15 days of receiving the Boards recommendations, both the Department and the Contractor will respond to the other and to the Board in writing, signifying either acceptance or rejection of the Boards recommendations.

Causes
The specified 15-day time limit on acceptance or rejection of Board recommendations may not allow adequate time for consideration and response by Department management (i.e., multiple levels of authority may be involved in the decision). Project level staff may find it expedient to not prepare documentation of the Departments acceptance, or may not be aware of the value of a statement of position in the event of subsequent dispute resolution proceedings.

Impact/Risk
A perception that acceptance of Board recommendations is preferred may put the Department at a disadvantage in post-hearing negotiations with contractors. It could result in negotiation of inappropriate and improper agreements and dispute resolutions. Not providing a written response to Board recommendations may adversely impact the Departments position should the issues be subject to further dispute resolution proceedings.

Recommendation -

The State Construction Engineer should consider revising the TPA and DRB procedures to lengthen the period allowed for Department management to decide on and document notification of acceptance or rejection of Board recommendations. Requiring that Department representatives provide a written response to each recommendation within the established deadlines should also be considered. See Management Response in report Attachment 2 beginning on page 23.

Management Response -

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Audit Finding 10 DRB Documentation

Determine whether essential documentation of disputes that result in Board hearings is prepared and on file to document efforts to resolve disputes and provide for a Record of the Hearing in the event of subsequent proceedings by the State Arbitration Board or in litigation. Conclusion - Hearing related documentation was not always prepared and retained. Objective -

Supporting Evidence
Important documents in the resolution process include escalation-related correspondence leading up to a request that a Board hearing be conducted, and all submittals/ rebuttals provided to Board members stating the positions preceding the hearing. Also important is the Boards recommendation, acceptance or rejection response from both parties. Documents evidencing dispute escalation (e.g., NOI, requests for Board hearing) were not produced for a significant number of the disputes that became issues at Board hearings. Although all Board recommendations were accounted for, many were not accompanied by accept/reject responses. In most cases, records custodians were able to produce documents supporting resolution of escalated disputes, but these and other documents were not maintained in a dedicated file or properly indexed. Recommendation -

Criteria
Disputes Review Board Three Party Agreement, II B. I . . .Although both the Department and the Contractor should place great weight on the Boards recommendation, it is not binding. If the Boards recommendations do not resolve the dispute, all records and written recommendations of the Board will be admissible as evidence in any subsequent dispute resolution procedures. Standard Specification 5-12.2, Special Provision 8-3.7, and the DRB Three Party Agreement Each establish specific notices, protests, statements, submittals, and other written documents which must be prepared and filed to document occurrences or events and the positions or allegations of the parties in the DRB dispute resolution process.

Causes
There was no consistent definition or filing for documents considered as DRB documents. Relevant documents may have been filed elsewhere and not made available for review.

Impact/Risk
Management may be unable to fully evaluate certain aspects of the DRB process (e.g., timeliness of dispute resolution) if files provided do not have all documentation. Insufficient recordkeeping of critical DRB documents hinders their later use (e.g., potential reference during arbitration or litigation, subject of public records requests, documentation required during the final estimate process, etc.).

The State Construction Engineer should revise DRB procedures to establish a filing or indexing requirement to track and account for critical DRB documents and events. Project staff and/or CEI consultants administering DRBs should insure that documentation is maintained to evidence and support activities related to the DRB process. See Management Response in report Attachment 2 beginning on page 23.

Management Response -

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Office of Inspector General

EFFECTIVE PRACTICES During fieldwork activities, we noted practical methods in use that enhanced the effectiveness of DRB-related activities. Certain of these practices may be useful to other Districts or projects. A summary of these practices is included below. Scheduling of Board Meetings DRB meetings for some projects were scheduled to allow DRB members to attend project progress meetings prior to holding their own meeting, which usually followed the progress meeting. This practice permitted DRB members to be better informed of project progress and allowed an efficient use of time for project staff and the Contractors. Use of Electronic Mail (E-mail) Some projects used e-mail for the periodic transmittal of meeting minutes, project progress reports, job-site photographs, and other materials to DRB members and other parties. This practice allowed DRB members and project staff to keep others informed of DRB schedules, construction activity, and other developments in an efficient and timely manner. (Note: We suggest that files sent electronically be archived for future reference.) In-house Guidance Some Districts provided in-house instruction for staff and CCEI representatives regarding preparation of hearing submittals and presentations to DRB panels. Activities included peer evaluations, assessment of hearing submittals (position papers), and critiquing simulated (mock) presentations before actual hearings. These practices enhanced the communication skills of staff concerning dispute resolution activities. Addressing Potential Dispute Issues Some DRB participants actively encouraged interactive discussions of potential problem issues as they arose, promoting an exchange of views on potential disputes. This practice gave DRB members a chance to better understand issues without the pressure to formulate an opinion, as in the case of a formal hearing. Dispute Escalation Several projects established an issues escalation matrix to formalize the process for advancing issues for DRB consideration. The matrix identified the decision-makers for both parties at different levels of authority. Disputes were discussed at each level until agreement was achieved. If the parties were unable to resolve disputed issues, referral to a DRB hearing was then permitted. Working through the escalation matrix appears to have the additional benefit of better defining and narrowing the areas in dispute even when parties cannot reach mutual agreement.

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Office of Inspector General

Monetary Compensation Hearings Some projects had DRB members address only the Contractors entitlement to relief during the initial hearing on a given dispute. DRB recommendations that address both entitlement and monetary impacts concurrently may not allow parties sufficient time to negotiate compensation issues in light of the DRB recommendation on entitlement. If the parties could not agree on compensation following an entitlement recommendation, the monetary compensation question could then be submitted to the DRB. DRB Document Filing Many projects maintained files specifically for DRB related documents. This practice provided for quicker document retrieval and established the needed organization for a final estimates package when the project is completed. The State Construction Engineer and district management should consider the potential benefits of the effective practices noted above. Communications among Districts should be encouraged when effective practices are developed or adopted, or when difficulties with the DRB process arise. Such communication will permit Districts to improve through the sharing of ideas and experiences of others.

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APPENDIX A Missing/Incomplete Three Party Agreements Three Party Agreements that were either not on file or not properly executed are listed below. (Referenced in report comments on page 9.)
District Contract TPA Found
1 1 1 1 2 3 3 4 4 4 4 4 4 5 5 5 5 5 5 6 6 6 6 6 7 7 7 7 7 7 7 7 7 20365 20576 21140 21145 20459 20159 20944 20204 20248 20602 20946 20948 21089 19997 20207 20389 20658 21161 21266 20057 20390 20391 20662 20958 20573 20752 20805 20859 20888 21134 21168 21216 21274 No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes No No Yes Yes Yes Yes No Yes Yes No Yes Yes No No

TPA Dated
No No Yes Yes No No No No Yes Yes No Yes No No No No No Yes Yes No No Yes No Yes No No No Yes No Yes Yes No No

TPA Signed
No Yes No Yes Yes Yes Yes Yes No No Yes No No Yes Yes No Yes No No No No No Yes No Yes No Yes No No No No No No

(Continued on next page)

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APPENDIX A Missing/Incomplete Three Party Agreements (Cont.)

District Contract TPA Found

8 8 8 8 8 8 8 8 20185 20186 20224 20620 20746 20851 20960 20961 Yes Yes Yes Yes Yes Yes Yes No

TPA Dated
No No No No Yes No No No

TPA Signed
Yes Yes No Yes No No No No

Summary of Exceptions
TPA Found TPA Dated
Count of No Adj TPAs Not Found Adj BOTH exceptions Totals Reported TPAs not on file TPAs not dated TPAs not signed 9 28 -9 -4

TPA Signed
25 -9 -4

9 15 12

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Office of Inspector General

APPENDIX B Undocumented Payments for DRB Services Undocumented DRB payments for projects reviewed for the period ending 12/31/01 are listed below. (Referenced in report comments on page 11.)
Meeting Actual2 Payments Not Days Paid Documented3 Paid 19 6 $57,000 $18,000 $37,000 $19,000 $30,000 $36,000 $33,000 $9,000 $56,000 $24,000 $12,000 $54,000 $9,000 $36,000 $33,000 $33,000 $34,000 $30,000 $78,000 $93,000 $51,000 $30,000 $23,000 $63,000 $15,000 $30,000 $27,000 $48,000 $17,000 $15,000 $30,000 $10,000 $1,000 $27,000 $3,000 $9,000 $1,000 $6,000 $1,000 $1,000 $9,000 $3,000 $3,000 $3,000 $3,000 $9,000 $3,000 $3,000 $21,000 $26,000 $11,000 $4,000 $10,000 $3,000 $6,000 $3,000 $241,000
4

Payments District Contract Documented1 1 1 2 3 4 4 4 4 4 4 4 5 5 5 6 6 6 6 7 7 7 7 7 8 8 8 8 8 20228 20446 20898 20943 20171 20248 20466 20467 20788 20946 21155 19997 20389 20719 19863 20057 20390 20391 20358 20445 20752 20857 20889 20145 20185 20186 20224 20611 Total $40,000 $3,000

$7,000 12.33 $9,000 6.34

NOTES: Pay events documented by OIG staff in one or more sources DRB member/ contractor invoices, meeting minutes, or attendance rosters. Actual per State Construction Office data. These amounts are unsupported by invoices, minutes, or attendance rosters. Auditors were unable to determine that a meeting (or hearing) had taken place (undocumented payments). Represents 7.8% of the actual payments to DRBs in our sample through 12/31/01 ($3,089,715).
4 3 2 1

$29,000 10 $9,000 12 $30,000 11 $0 3 $55,000 18.67 $18,000 8 $11,000 4 $53,000 $0 $33,000 18 3 12

$30,000 11 $30,000 11 $31,000 11.33 $21,000 10 $75,000 $90,000 $30,000 $4,000 $12,000 $59,000 $5,000 $27,000 $21,000 $45,000 26 31 17 10 7.67 21 5 10 9 16

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Office of Inspector General

ATTACHMENT 1 Objectives, Scope and Methodology

Objectives The audit objectives were to review DRBs and associated activities to: Assess their effectiveness in resolving disputes; Determine compliance with Department policies and procedures; and Determine the need for process improvements.

Scope and Methodology Our scope involved a review of the organization, administrative activities, and recommendations issued by DRBs active during calendar years 2000 and 2001. To achieve our objectives we: Reviewed applicable Department policies and procedures, and related industry practices; Interviewed and/or surveyed appropriate staff and participants in the process; Documented organizational and administrative aspects of projects; Reviewed documentation and results of dispute hearings leading to the preparation of DRB recommendations; and Evaluated aspects of DRB effectiveness.

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ATTACHMENT 2 Management Response Recommendation

1) List of Candidate Members - Requirements for Board member qualifications should be formally established and documented by the State Construction Engineer. Individuals should be screened in accordance with the requirements before being placed on the candidate list, which should serve as pre-qualification of Board members. DRB website links to all resumes should be maintained active. 2) Frequency of Board Member Selection Member availability should be considered when Board candidates are selected. The State Construction Engineer should consider enhancing the DRB website to inform users of members who are assigned to a significant number of ongoing Boards. The State Construction Engineer should consider limiting the number of Boards that any one candidate could be approved to serve on concurrently. Consideration should also be given to paying reduced amounts to members who attend multiple meetings held the same day.

Management Response
The special provision for Dispute Review Boards has been revised to require DRB candidates attend a training course sponsored by the Dispute Resolution Board Foundation. The Department does not have the legislative authority to develop formal requirements for adding individuals to the candidate list. The SCO will verify hyperlinks to all posted candidate resumes and maintain them active. The special provision is being revised to require Board candidates provide written disclosure of the number of Boards they serve on and the frequency at which they meet. Revisions to the CPAM are being added to provide guidance in the selection of Board members based on their ability to effectively serve on multiple boards and still perform their other professional obligations. Changes to the DRB website have been considered, but the administrative efforts to enhance and maintain the site were considered to be too great. The Department will monitor the board memberships during calendar year 2003 and determine if members are being selected too often as to impact their effectiveness as DRB members. If this is found to be the case, a limit on the number of DRBs a member can serve on at any one time will be considered. An effort will also be made to include a more diverse number of candidate members on DRBs. The per-day fee represents compensation for time spent in non-meeting activities, meeting related travel and other expenses, as well as time spent in meetings. A review during calendar year 2003 will be made to determine actual expenses as related to these non-meeting activities. If reduced compensation for multiple same-daysame-location meetings is warranted, reduced payment rates will be established.

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Recommendation
3) Three-Party Agreement - The State Construction Engineer should define requirements for proper completion of the TPA in CPAM procedures. For those Boards that are active and have TPA deficiencies, agreements should be completed as soon as possible and maintained in Department files. Appendix A includes a listing of the TPAs that were either not on file or were not properly executed. The original or copies of executed TPAs should be maintained on file in the District offices. The State Construction Engineer should ensure that payments for Board members not occur unless a properly executed TPA is on file. 4) Minutes of Meetings - The State Construction Engineer should require that DRB provisions in the CPAM and the TPA form be revised to require that Boards (DRB Chair) include the approval and adoption of minutes from the previous meeting in each regular meeting agenda. Approved minutes should be maintained in Department files. Minimum guidelines on content of minutes should be a part of future training sessions and/or addressed in written DRB guidelines. 5) Support for DRB Payments - The State Construction Engineer should emphasize Department requirements that sufficient payment documentation be obtained before DRB pay item increases are made. Invoice documentation should be maintained in Department files. Efforts to recover actual overpayment amounts detected during our review have begun. As other instances of undocumented payments noted may represent additional overpayments, the State Construction Engineer should insure that appropriate investigation and action is taken. Appendix B includes a listing of these undocumented payments by project. 6) Settlement Efforts - The State Construction Engineer should revise future contract provisions to include a defined escalation process for advancing disputes to the Board, whether in conjunction with a Partnering provision or otherwise. Section II B of the TPA should be revised to make it consistent with the use of

Management Response
The CPAM will be revised to provide guidance regarding the execution of the TPA. The TPA will be modified to preclude payments to Board members prior to its execution. The SCE notified all DCEs of TPA deficiencies noted during the audit and directed that appropriate measures be taken to resolve each situation. The CPAM will be revised to include instructions for the process of executing the TPA. An original copy of the TPA will be maintained in the project files.

DCEs agreed to stress the importance of preparation of meeting minutes at future Resident Engineer meetings. The CPAM, TPA, and DRB Operating Procedures will be revised to require that Boards include the approval and adoption of minutes from the preceding meeting on each meeting agenda. Approved minutes will be maintained in project files. Training on the use of DRBs will be provided to appropriate staff and personnel during the next fiscal year. The CPAM and TPA will be revised to require the DRB Chairperson provide a copy of each invoice to the Department as a condition of payment for Board member services. Copies of Board member invoices will be maintained in project files. The SCE has forwarded the listing of undocumented payments to DCEs, instructing that appropriate action be taken.

The SCO does not agree that there is a need for this as the TPA already provides for a timely escalation of disputes to the Board.

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Recommendation
escalation processes. 7) Hearing for Monetary Costs - The State Construction Engineer should consider directing District and project level staff that Board hearings involving monetary valuation be requested (or agreed to) only following a related recommendation on Contractor entitlement. Board hearings involving monetary cost impacts should require submission and consideration of cost accumulations required in Special Provision 8-3.7.2 and Standard Specification 5-12.2. 8) DRB Recommendations - The State Construction Engineer should sponsor training or act to assure that individuals serving on Boards are aware of the need to accurately express all positions, including findings of fact; and produce recommendations that are supported by (or follow from) their stated findings. The prescribed format for DRB recommendations should be revised to include a Board Findings section, in addition to the Recommendation section that is already part of the form. 9) Department Response to Board Recommendations - The State Construction Engineer should consider revising the TPA and DRB procedures to lengthen the period allowed for Department management to decide on and document notification of acceptance or rejection of Board recommendations. Requiring that Department representatives provide a written response to each recommendation within the established deadlines should also be considered. 10) DRB Documentation - The State Construction Engineer should revise DRB procedures to establish a filing or indexing requirement to track and account for critical DRB documents and events. Project staff and/or CEI consultants administering DRBs should insure that documentation is maintained to evidence and support activities related to the DRB process.

Management Response

The CPAM and TPA will be revised to discourage concurrent hearings on Contractor entitlement and monetary valuation, unless mutually agreed to by the Department and the Contractor. Training on position papers and presentations to Board members will be provided by the SCO for Department staff and Consultant CEIs. The SCO will stress to DCEs the importance of observing specification requirements. The SCO will provide guidance by providing an example of a DRB recommendation that includes all of the desired elements. The SCO will further standardize the DRB recommendation format to avoid recommendations that are not supported by facts and contract provisions. Board recommendations will be required to detail dissenting opinion(s). The revised format will be included in the DRB Operating Procedures. DCEs decided against lengthening the 15-day time period to accept/reject the Board recommendation. DCEs also decided against written acceptances of Board recommendations since language in the TPA is clear that no action on the part of either party constitutes an acceptance.

The CPAM will be revised to provide guidance concerning the filing of critical DRB documents. Project staff will be expected to maintain DRB documentation as they do other project documentation.

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ATTACHMENT 3 Distribution Schedule

Thomas F. Barry, Jr., Secretary Ken Morefield, Assistant Secretary for Transportation Policy Cris Speer, Assistant Secretary for Finance and Administration David Brown, Chairman, Florida Transportation Commission Attention: Bill Ham (2) William Monroe, Auditor General Attention: L. R. Weathermon (2) Ricky Langley, Secretary, District 1 Aage Schroder, Secretary, District 2 Edward Prescott, Secretary, District 3 Rick Chesser, Secretary, District 4 Michael Snyder, Secretary, District 5 Jose Abreu, Secretary, District 6 Ken Hartmann, Secretary, District 7 Jim Ely, Executive Director, Floridas Turnpike Enterprise Freddie Simmons, State Highway Engineer Bill Albaugh, Highway Operations Director Ananth Prasad, State Construction Engineer Pamela Leslie, General Counsel Dick Kane, Public Information Administrator Sarah Strickland, Legislative Programs Administrator Dan Cashin, Budget Officer Robin Naitove, Comptroller Nelson Hill, Chief Information Officer Carolyn Runyan, Procedures Administrator Derry Harper, Governors Chief Inspector General Attention: James Thomas Chairman, Senate Transportation Committee Attention: Reynold Meyer Chairman, House Committee on Transportation Attention: Phillip Miller Chairman, Senate Budget Committee Attention: Tom Barrett Chairman, House Transportation and Economic Development Appropriations Committee Attention: Eliza Hawkins Chairman, Joint Legislative Auditing Committee Attention: Terry Shoffstall John Turcotte, Director, Office of Program Policy Analysis and Government Accountability (3) James E. St. John, Division Administrator, FHWA Attention: Ron Gressel

26 Audit Report No. 04G-2001