Inadequate Plans and Specifications Results in Significant Change Orders and Audit Finding

The Public Utility District No. 1 of Klickitat County (WA) contracted with an engineering firm to design the expansion of its landfill gas project, originally estimated at $55 million.  During construction, the District realized that the plans and specifications were incomplete and inadequate in a number of areas.

$12 Million in Change Orders:  As a result, the District negotiated numerous change orders to the construction contract, significantly increasing the contract amount.  The following chart is from an audit report issued by the Washington State Auditor's Office indicating the number and amount of change orders for a couple of the separate contracts that were awarded for the project:

Pricing Change Order Work:  The auditor issued a finding, noting that by executing the change orders, "the District cannot ensure it received the best possible price for these components of the project."  Of course, all change orders are negotiated amounts and not competitively bid, so it is hard to know whether any change order amount is the best possible price.  It is incumbent on public agencies to ensure they have a rigorous process for negotiating change order amounts, consistent with the methodology that should be described in the contract.

Separate Bidding Not Practical:  The District commented that the change orders were executed only after determining that it was "the most cost efficient path for our rate payers," and that the change orders were "very thoroughly reviewed."   The audit report does not include sufficient details, but presumably it would not have been practicable or advisable for the project to competitively bid the work that was not originally specified, since it was probably an integral part of the entire project.

Audit Recommends Careful Review of Plans and Specs:  The main criticism in the audit finding, however, related to the core issue that caused the problem: the lack of adequately reviewed plans and specifications.  The audit recommended that the District ensure "project plans and specifications are detailed enough to allow for accurate and complete bidding."  The District acknowledged the weakness in their approach that that they "need to take additional steps to ensure the completeness of specifications we receive, even from qualified engineers."

Audit Finding:  Click here to read the audit finding from the State Auditor's Office.

Lessons Learned:  The following are some of the impacts of inadequate plans and specifications:

• Bidders may bid based on different assumptions if the documents are not complete
• Significant change order amounts that are not competitively established
• Inability of the agency to meet its project objectives since they are not defined in detail
• Potential disputes and litigation over additional work

Public agencies have a responsibility to carefully review plans and specifications from architects and engineers to ensure completeness and that the documents meet the agency's objectives.

Mike Purdy's Public Contracting Blog 

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