Office of the Auditor General / Bureau du vérificateur général AUDIT OF CONSTRUCTION SUPERVISION 2012 VÉRIFICATION DE LA SURVEILLANCE DE LA

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1 Office of the Auditor General / Bureau du vérificateur général AUDIT OF CONSTRUCTION SUPERVISION 2012 VÉRIFICATION DE LA SURVEILLANCE DE LA CONSTRUCTION

2 Table of Contents EXECUTIVE SUMMARY... i RÉSUMÉ... xxxiii 1 BACKGROUND SCOPE OBJECTIVES FINDINGS AND RECOMMENDATIONS AREAS OF POTENTIAL SAVINGS CONCLUSION ACKNOWLEDGEMENT APPENDIX A CHANGE ORDER TABLES Office of the Auditor General 2012 Annual Report

3 EXECUTIVE SUMMARY Introduction The Audit of Construction Supervision was included in the 2012 Audit Plan of the Office of the Auditor General (OAG), approved by City Council on December 14, Background Council Members brought nine projects to the attention of the Auditor General, for review. The projects examined were constructed in 2010 and 2011, except for two that were constructed in 2004 and A sample was selected from the projects completed in 2011 and Audit Objectives Audit Objective No. 1 - Examine and evaluate the processes and methodologies pertaining to the Construction Supervision Procedures followed by the City. Criteria: Review of tender documents Examination of tendering process, including design/build projects Procedures for selection of contractor Review of contract documents Construction administration files Assignment of project manager, project supervisor and inspectors Construction inspection tasks and procedures Procedures for management of change orders and extra work orders Claims process procedures Audit Objective No. 2 - Determine whether the processes and methodologies are consistent and compliant with all relevant policies, procedures, legislation and regulations. Criteria: Project management procedures Procedures for transfer of project from design to construction Tendering process Procedures for selection of contractor Office of the Auditor General 2012 Annual Report Page i

4 Contract administration process Cost control Management of change and extra work orders Inspection procedures Management of claims by contractor Audit Objective No. 3 - Examine nine specific projects and specific issues brought to the attention of the Auditor General by Members of Council, to determine if they are consistent with relevant policies, procedures, legislation, and regulations. Criteria: Review of specific projects and issues indicated by Councillors Selection of type of contract Project management procedures Procedures for transfer of project from design to construction Procedures for selection of contractor Contract administration process Inspection procedures Quality control and quality assurance procedures Claims management Cost control Audit Objective No. 4 - Examine a sample of ten construction projects completed in 2011 to determine if they are consistent with relevant policies, procedures, legislation, and regulations. Criteria: Review of ten sample projects Selection of type of contract Project management procedures Procedures for transfer of project from design to construction Procedures for selection of contractor Contract administration process Inspection procedures Quality control and quality assurance procedures Page ii Office of the Auditor General 2012 Annual Report

5 Claims management Cost control AUDIT SCOPE The audit scope consists of a review the construction supervision process used during construction of capital works projects by the City. The audit examined the following projects that have been brought to the attention of the Auditor General by Councillors. The review focussed on the specific concerns raised by the Councillors, as follows: Transitway Installation of manhole covers along the travelled lanes and on the path of the bus wheels. Gloucester Hornets Nest Review of cost compared to the size of the project; review the procurement process. Townline Bridge Replacement, Structure Contractor with poor performance was awarded the contract, previous project not completed on time, increase in risk to City. Note that this project was completed in Cavanagh Bridge (John Shaw Road), Structure Contract awarded to same contractor as Structure , the issues are the same. Note that this project was completed in Dunrobin Road Culvert, Structure Culvert was flooded, was rehabilitated, flooded again, and was replaced completely in King Edward Avenue Reconstruction Concerns with basement cracks in a number of properties. Woodroffe Avenue Watermain Replacement Following a watermain break in January 2011, construction did not start until April The concern is whether the work could have been done in the winter or early spring. Summer construction affected the residents, including water restrictions due to the temporary water service. John Leroux (Stittsville) Arena Upgrades The roof repairs were delayed until late 2009 because the materials would not fit the curvature of the roof. Work was not completed until In addition, the use of design-build in comparison to conventional design-tender-build projects to be assessed. Goulbourn Recreation Complex Ice pad addition was started in 2011 and completed in There is a concern with quality assurance and control, and how it may affect the project warranty. Office of the Auditor General 2012 Annual Report Page iii

6 To provide context of the overall process to the review of the projects raised by the Councillors, the following ten projects completed in 2011 and 2012 were examined, representing a total construction value of $123,766,000, which constitute approximately 11% of the total budget value of the projects that were active in the City in The ten projects include projects of small, medium and large size. The following projects were selected as a representative sample based on these criteria: Projects Figure 1: Selected Projects Reviewed Per Infrastructure Services Department 1 SW Transitway Extension (North) Stage 1 - Fallowfield to Berrigan Estimate at Completion Cost ($000s) $17,568 2 Woodroffe Ave. Watermain Replacement (Baseline to Navaho) $4,827 3 Sandridge Rd (Hillsdale Rd to Merriman Ave) - Road, Watermain & Sewer $8,000 4 Centrepointe Theatre Expansion $11,850 5 West Nepean Collector Sewer - CIPP Rehabilitation $3,800 6 Campeau Dr. Water Pumping Station $3,500 7 Strandherd Dr. (Crestway to Prince of Wales) incl. widening of Prince of Wales 8 3W Feedermain Link - Phase 1, Part 1 (Ottawa River Pkwy to Moodie) $35,000 $32,000 9 Cave Creek Collector, Phase 1 (Harmer to Faraday) $6, Prince of Wales Roundabout Reconstruction at Central Experimental Farm $1,221 TOTAL Estimate at Completion Cost of Projects Examined $123,766 Change orders were reviewed in the projects listed in Figure 1 and five of the projects raised by Councillors, where change orders were applicable. In total change orders of 15 projects were reviewed. In all projects, we reviewed the costs in comparison with the authorities. The audit encompassed the following tasks: Review legislative framework; Review City s policies, procedures, standards and practices; Page iv Office of the Auditor General 2012 Annual Report

7 Review industry procedures, standards and practices; Review background data; Obtain and review all files for the project; Conduct interviews with individuals involved in the various projects; Conduct site visits, as required; Prepare draft report for fact verification; Conduct additional interviews for confirmation of issues, as required; and, Submit draft report for management review. Summary of Key Findings General Findings The findings below are related to Audit Objectives No. 1 - Examine and evaluate the processes and methodologies pertaining to the Construction Supervision Procedures followed by the City; and, Audit Objective No. 2 - Determine whether the processes and methodologies are consistent and compliant with all relevant policies, procedures, legislation and regulations. 1. The City uses a procurement process for construction services that requires public solicitation of bids for the work. The procurement process is carried out by Supply Branch. Bidding opportunities for construction projects are sent to the Ottawa Construction Association (OCA), who publishes them and administers the issue of tender documents for interested contractors. Solicitations are not published in other tender advertising sites unless the project requires highly specialized contractors, in which case the City uses MERX Projects posted at the OCA are available for viewing on site or online by members of the OCA. Non-members can purchase the tender documents at a higher cost than members. The City has advised that tenders are published by OCA in Link2Build, a new electronic bid advertisement board that has been in use by OCA since Link2Build is a website that publishes construction bid opportunities (primarily non-residential) published by local and regional construction associations across Canada. During the audit, the solicitation document process for non-members was tested by registering and downloading the documents for one project. The process was clear and relatively straightforward. 3. Information provided by OCA indicates that approximately 9% of the total Infrastructure Services Department tenders (110 out of 1,271) had tender 1 MERX is a well established and well-known electronic tendering service with Canada-wide scope, which has been in operation since Office of the Auditor General 2012 Annual Report Page v

8 document takers that were from outside of the Ottawa and surrounding area (defined as 50 km from the City s boundary). Of these, five tenders were awarded to contractors from outside the Ottawa and surrounding area, comprising less than 1% of the total value of construction contracts awarded by the City ($363,200,000). 4. The concern with the method of tender advertising is that the City only posts tenders with the OCA (who publishes them in Link2Build, as noted above). Consequently, tenders do not get a wide distribution outside of the City of Ottawa. Tenders would receive wider distribution if they are published in more general sites, such as MERX. It can be expected that advertising tenders in a wider area will result in the City getting more bids which could result in lower prices for the City contracts. It is noted that the City uses MERX for other solicitations, including non-construction related request for proposals and request for standing offers. 5. In its annual report to Council, Supply Branch analyzes the Delegation of Authority reports to identify contracts awarded to and/or performed by local companies. According to the annual report, when adjusted to remove goods and services not available locally (e.g., transit buses are not manufactured in Ottawa, nor is winter rock salt mined locally), approximately 94.5% of the City s annual purchasing dollar was spent in Ottawa and the surrounding area. Figure 2: Analysis of Local Purchasing by Quarter Per Supply Branch Q1: 2011 Q2: 2011 Q3: 2011 Q4: 2011 BEFORE removing purchases not available locally: 69.6% 85.7% 78.9% 80.7% AFTER removing purchasing not available locally: 91.4% 92.9% 97.6% 93.7% Page vi Office of the Auditor General 2012 Annual Report

9 Figure 3: Geographical Vendor Breakdown for 2009 to 2011 Contracts Awarded Under Delegation of Authority Per Supply Branch Region Dollar Value % of Total Dollar Value % of Total Dollar Value % of Total Ottawa and area $898,901, % $754,027, % $732,055, % Ontario $22,897, % $18,187, % $24,918, % Quebec $10,522, % $13,028, % $5,796, % All Others $18,607, % $12,077, % $4,805, % Total $950,928, % $797,320, % $767,576, % Supply Branch did a 2011 buy local analysis isolating only construction contracts. Based on this analysis, 808 of the total 884 construction contracts awarded in 2011 (91.4%) were awarded to local firms. When considering dollar value, this figure rises to 96.6%. Figure 4: 2011 Buy Local of Construction Contracts Region Per Supply Branch # of Construction Contracts Dollar Value % of Dollar Value Ottawa & Area 808 $397,711, % Ontario 50 $11,995, % Quebec 21 $1,845, % Other 5 $226, % Total 884 $411,778, % 6. It is our opinion that savings may be achieved by advertising construction project bid opportunities in widely used site that would reach a broader audience outside of Ottawa. 7. The City s procedures for assignment of project managers and inspectors are similar to the practice in other Ontario municipalities. 8. Contract administration and inspection tasks are well documented in the Inspection Manual prepared by Infrastructure Services. 9. The projects examined, with one exception, were constructed using a designtender-construction format of procurement. The Dunrobin Road culvert replacement was constructed using a time-and-materials basis. 10. The City carries out a bid analysis for all tenders, comparing the cost estimate prepared before tendering with the various bids. This procedure is similar to that used generally by other Ontario municipalities. Office of the Auditor General 2012 Annual Report Page vii

10 11. The City uses formal contract documents for all the construction contracts examined. 12. The Branch Manager and Program Manager assign the project manager to the contract based on his/her experience. Inspectors are assigned from a pool of inspectors, supplemented with consultants as required by workload or expertise. 13. Purchasing By-law No. 50 of 2000 A By-law of the City of Ottawa Respecting Purchasing of Goods, Services and Construction. As noted on the City s website, the Purchasing By-law has the objective of obtaining the best value when purchasing goods, construction and services for the City, while treating suppliers equitably. The guiding principle is that purchases be made using a competitive process that is open, transparent and fair to all suppliers. We examined the application of the By-law to the process of acquiring construction services. 14. The Project Manager Manual (PMM) provides detailed guidance and instruction on requirements for tendering of the projects. Supply Branch coordinates with the Ottawa Construction Association to place the Request for Tenders, and the project manager provides input during the tendering period. 15. The PMM makes provisions for the steps to be taken when the construction administration and inspection is done by a consultant. 16. The PMM contains directions regarding questions during tendering and addendum procedures. 17. Once the tender has closed, the bids are reviewed by the City for clerical errors and compared to estimates and budget. A rationale is provided for any gross inconsistencies in unit prices. 18. The contractor is selected based on the methodology identified in the solicitation. In the case of the projects examined, this was based on lowest responsive bid. 19. The City does not have a policy and procedures to enable explicit evaluation of the past performance of contractors on previous City contracts when determining the award of a new contract. The City advises that a prequalification process is used in large complex projects, and that the City has the right to request a firm s experience in successfully completing projects of similar size and complexity. However, the City does not always use these methods, and past performance does not enter explicitly into the bid evaluation. As a result, contracts are awarded to the lowest bidder meeting the mandatory requirements identified in the solicitation, including bonding and insurance requirements. Page viii Office of the Auditor General 2012 Annual Report

11 20. The City has developed a document for reporting supplier performance during the course of a contract. However, if the contractor completes the contract without default, they are eligible to bid in future City contracts; even if the contract process was fraught with difficulties, delays, and extra costs caused by poor performance. The only penalty considered is if Supply Branch barrs the contractor from bidding on future City projects. A performance evaluation method that is taken into account in the evaluation of future bid opportunities is necessary to distinguish between contractors who perform well from those who do not. 21. Past performance of contractors should be documented and a rating system established to enable the City to take the contractor s past performance into account when they are competing for new work. The City currently has a Contractor Performance Appraisal Form to document performance; the form is included in Appendix X-2 of the Project Manager Manual. This form, with some modifications, would be a good basis for contractor performance evaluation, as discussed in the previous point. We note that the Contractor Performance Appraisal Form was found in the project files of only one project (Townline Bridge) and not in other project files reviewed. 22. The contract administration functions are well documented and are followed by the project managers. 23. Review of the change orders in the various projects examined demonstrated that the City has a proper method of checks and balances to confirm the need for the change order, review the amounts proposed by the contractor, and negotiate as required a fair price for the change order amount. 24. In general terms, change orders in large new building projects can be expected to have a value ranging between 2% and 3% of the contract value on very well coordinated projects; however, average values can be as high as 5%. On projects that are additions to other buildings the value of change orders is expected to be higher. For heavy construction projects, such as roads, watermains, sewers, and bridges, acceptable values of change orders range from 5% to 10% of the contract value. The changes are expected to be the result of site conditions. The range of generally accepted values were determined based on the experience of a senior architect with more than 20 years of experience, and was used as a typical experience. Construction Delay Claims, B. Bramble & M. Callahan, Construction Law Library, 2005, p states that change orders can range from -5% to +10%. The American Institute of Architects (AIA), The Architect s Handbook of Professional Practice, 1994 states that the changes could be as high as 7%. AIA Best Practice document, Managing the Contingency Allowance, David Hart, 2007, indicates a value of 5% is commonly used. Columbia University Facilities (http://facilities.columbia.edu) provides a range of 5% to 10%. In addition, the Office of the Auditor General 2012 Annual Report Page ix

12 acceptable range of change orders can be supported by the usual range of contingency allowances that are provided in civil construction projects. 25. Review of the change orders for the various projects examined showed that several were the result of design issues or design errors and omissions. Work performed under a change order is generally more costly than if the same work is performed under the original tender bid. The reason for the higher cost is that the contractor will charge full price for labour, materials, and equipment required to carry out the work, since there is no competitive process, plus the contractor is entitled to mark up the cost by 15% in the case of work done by the contractor or 10% for work done by a sub-contractor for overhead and profit. The percentages of mark-up were determined based on the change orders reviewed during this audit. In contrast, contractor s overhead and profit are distributed throughout the project items in a bid. 26. In some instances, the cost of the entire change order was the result of consultant s errors and omissions. The City paid the entire cost, without requiring the consultant to cover the additional costs. 27. On two of the projects reviewed, the respective project manager classified the change order into categories (e.g., design errors and omissions, coordination, owner request, site conditions, and others). This procedure is important to assist in recording the amounts that could be recovered from the consultants. Not all project managers follow this procedure. This process should be followed by all project managers. 28. Figure 5 summarizes the costs of change orders for the various projects, and the portion of the cost that was due to design errors and omissions by consultants. Details on individual change orders for each project are provided in Appendix A of the full report. 29. The amount of the change orders suggests that there may be issues with this matter. This will be explored further in our 2013 Audit of Infrastructure Services. Page x Office of the Auditor General 2012 Annual Report

13 Project Name Figure 5: Contract Amounts and Change Orders Original Contract Amount Change Order Amount Percentage of Change Orders in Relation to Original Contract Amount Portion of the Change Orders Paid by the City Relating to Design Errors 1 Gloucester Hornets $298,253 $35, % $30,816 Nest Fieldhouse 2 Cavanagh Bridge $751, , % 3 Woodroffe Avenue $4,110,700 $1,065, % Watermain ISD John Leroux Arena $493,300 $64, % (Stittsville Arena) 5 Goulbourn Twin Ice $6,635,000 $346, % $50,562 Pad 6 Southwest Transitway $12,457,000 $1,196, % $696,881 Extension 7 Woodroffe Watermain $6,327,937 $246, % ISB Sandridge Road $6,878,000 $248, % Reconstruction and Hillsdale Road 9 Centrepointe Theatre $9,343,824 $424, % $63,292 Expansion 10 West Nepean Collector $3,470,297 $595, % Sewer Rehabilitation 11 Campeau Drive $4,478,000 $379, % $198,075 Pumping Station 12 Strandherd Drive $14,892,000 $2,064, % $660,470 Extension ISB W Feedermain Phase $11,867,325 $762, % $30,204 1, Part 1 14 Cave Creek Collector $3,505,330 $367, % $70,980 Relocation 15 Prince of Wales $1,191,778 $57, % Roundabout TOTAL ALL PROJECTS $86,699,844 $8,022, % $1,801,280 Per the above table, the percentage of the change orders due to design errors and omissions is 22% of the change order value. 30. The City does not have a consistent approach to encourage the project managers to recover from the consultant the cost of change orders when these are caused by errors and omissions in the design. Office of the Auditor General 2012 Annual Report Page xi

14 Projects Raised by Councillors Audit of Construction Supervision The findings listed below pertain to the nine projects that were brought to the attention of the Auditor General by Councillors. The projects were reviewed in accordance with Audit Objective No. 3 and the associated criteria. Transitway The Transitway Design Manual, October 1993 has provisions for the placement of manholes on the Transitway, specifically stating that manholes and other ironwork shall not be placed on the travelled portion of the Transitway. The Sewer Design Guidelines, SDG001, November 2004 states that attempts should be made to avoid locating manholes in the path of vehicle tires, subject to the location requirements of the Guidelines for the Placement of Utilities in the Right-of-Way", which takes precedence. Review of the provisions show that they are adequate. Spot examination of the Transitway disclosed that its design follows these provisions. Gloucester Hornets Nest 1. The project was tendered using Supply Branch standard procedures. The bids received ranged from $298,937 to $581,333. The lowest bidder was awarded the contract. 2. Review of the cost of the building shows that the cost per square metre of building was $2,310 ($215 per square foot). Based on average construction cost per unit area of similar buildings, the unit cost for the building is competitive. 3. The cost of change orders due to design errors or omissions was $30,816. Although the work was necessary, when work is done as a change order the cost to the City is higher than if it is included in the original tender. In this particular case, the additional costs calculated based on 15% overhead and profit markup is $4,019 [$30,816*(1-1/1.15)]. Townline Bridge Replacement 1. The issue in this contract is whether the contractor had performed prior work for the City and their performance was not taken into account in awarding them this contract. The audit found that the contractor had completed a smaller culvert replacement, in which they made a major mistake in setting the elevations of the culvert footings. However, the resulting problems were corrected by the contractor at their cost and at no cost to the City. 2. In the bid for the subject bridge contract, the contractor met all the bid requirements, including provision of a bid deposit and agreement to bond, and subsequently met all insurance and bonding requirements. 3. Upon completion of this contract, in July 2004, it could be concluded that the contractor completed the work satisfactorily, but had schedule problems. Page xii Office of the Auditor General 2012 Annual Report

15 4. The contract work was delayed so the City applied liquidated damages to the contractor and deducted them from the payments. 5. In 2007, the contractor took legal action against the City on the basis of a claim for extras that was rejected by the City. This action is ongoing. Cavanagh Bridge 1. Contract ISB was awarded in April 2005, after the completion of the Townline Bridge Replacement, discussed in Section of the full report. The contractor work started on July 4, 2005; was substantially completed in January 6, 2006; and, was completed on June 27, At the start of the contract, the City discussed with the contractor the problems associated with various deficiencies, non-performance and supervisory issues on previous contracts carried out by the contractor. The City and the contractor agreed that their performance would be monitored during the execution of this contract. 3. The City attempted to apply a formal contractor evaluation form for future use, based on a form similar to the Contractor Performance Appraisal Form that is presently included in the Project Manager Manual. 4. Supply Branch working with departments developed a document for recording supplier non-performance, by progressive escalation of contract issues. The document provides general instructions for enforcing the provisions of the contracts, including notice of default and for termination of the contract. However, it is a general document intended to be applied to all City procurement, and is not sufficiently specific to construction. 5. The procedures do not include a method for recording past performance of contractors on City projects. There is no specific method for applying the results of past performance of a contractor to the selection process in future City contracts. 6. The Contractor Performance Appraisal Form included in the Project Manager Manual could form the basis for contractor evaluation. However, we noted that it was not found in the files of the projects that were reviewed during the audit. Dunrobin Road Culvert 1. The original culvert was a 1.8 m diameter corrugated steel pipe (CSP) culvert, which had corroded substantially. In 2007, the City arranged to rehabilitate it by installing another culvert through the barrel of the CSP culvert to extend its useful life. The process of installing the culvert through an existing culvert is called sliplining. Office of the Auditor General 2012 Annual Report Page xiii

16 2. On August 15, 2010, the road was overtopped at the culvert and part of the road embankment was washed out by the flood. On April 11, 2011, the road was overtopped during another storm, which caused damage to the northbound lane and shoulder, although not to the same extent as in the August 2010 flood. Following the flood, the road was repaired under emergency work procedures and reopened on April 16, Following the flood, a hydraulic analysis of the culvert showed that the lining done in 2010 had reduced the hydraulic capacity of the culvert. The consultant recommended that the culvert be replaced with a larger one. 4. On June 24, 2011, the road was overtopped a third time in less than one year. On this occasion, the City decided to keep the road closed and to replace the culvert with a new one selected on the basis of the consultant hydraulic recommendations and the pipe that was available from the manufacturer for rapid delivery. 5. The June 2011 work was done on a time and material basis, using the contractor that had been called in to repair the damaged road. 6. The issues with this project are that the initial renewal process, which concluded in the sliplining rehabilitation in 2007, did not follow the formal procedures for evaluation of renewal alternatives of bridges and bridge-culverts. The hydrology and hydraulic calculations were not sufficiently thorough to permit the City to recognize that the hydraulic capacity had been reduced, or the implications of this reduction. King Edward Avenue Reconstruction 1. The project comprised reconstruction of King Edward Avenue and connecting streets between York Street, Sussex Drive and Macdonald-Cartier Bridge. The work comprised relining the existing collector sanitary and storm sewers; reconstruction of underground utilities; removal of existing road bed, excavation, granular and hot mix asphalt; rehabilitation of the Red Path structures; demolition of one structure and three new landscape wall structures with a stone facing. 2. As part of the process, the City required the contractor to conduct a preconstruction survey of buildings and structures that could potentially be affected by construction activities and vibration. 3. The contractor retained a specialized firm to complete the pre-construction survey. The limits of the pre-construction survey are determined by the contractor, and not the City. This contracting procedure protects the City as the responsibility for damages is the contractor s. The procedure is a standard procedure used by practically all project owners, since the project owner (the City in this case) does not have control over the contractor s methods and operations. Page xiv Office of the Auditor General 2012 Annual Report

17 4. The specialized firm carried out a pre-construction survey of 100 buildings; of these, 44 were inspected both inside and outside. The remaining 56 were surveyed only on the outside because the owner refused entry to the survey company representatives. 5. The property owners of nine buildings claimed that their buildings had been damaged as a result of construction. Of the nine buildings, four are located outside of the pre-construction survey limits. 6. The property owners discussed the matter with the City s project manager, who referred the matter to the contractor. The contractor referred the matter to his insurance company. 7. The issue on this project arose from the fact that the City contract documents transfer the responsibility for damages that occur during construction to the contractor. A number of the property owners brought the matter to the attention of the Mayor, who had the City Solicitor review the contract documents. The City Solicitor advised the property owners that the matter should be pursued with the contractor. 8. The property owners have taken issue with the fact that the City transfers to the contractor the entire responsibility and risk for any damages caused by construction. The reason the City and practically all other project owners in North America pass this responsibility is that, as previously noted, the City does not have control or responsibility for the methods and procedures used by the contractor. 9. We reviewed contract documents issued by several other municipalities and the Ministry of Transportation. In all cases, the Ontario General Conditions of Contract, part of the Ontario Provincial Standard Specifications, which transfer the responsibility for any damages caused by the contractor to the contractor, were used. Public Works Canada in its contracts uses similar language. 10. The City s contract provisions meet the current standard for handling of damage claims. As well, the manner in which the project manager addressed construction damage claims was correct. Woodroffe Avenue Watermain Replacement 1. In 2007, a watermain failure on Woodroffe Avenue south of Hunt Club Road occurred. The City carried out a non-destructive pipeline condition assessment of the watermain from Hunt Club Road southerly to Fallowfield Road in November The condition assessment found that 18 of 558 pipes inspected (3.2%) had broken prestressing wires. A failure risk analysis of the data collected in the condition assessment was completed to calculate the risk of failure of the prestressed concrete cylinder pipes and the repair priorities for the maximum pressures. The failure risk analysis results, reported in February 2009, indicated that of the 18 pipes with broken prestressing wires, 3 were in Repair Office of the Auditor General 2012 Annual Report Page xv

18 Priority 1 (immediate action required) and 1 pipe in Repair Priority 2 (replace within 3 years). The other 14 pipes were in Priority 3 and 4 (moderate and low risk for the next 5 years). 2. The 1.2 m diameter watermain on Woodroffe Avenue failed on January 14, 2011 between Medhurst Drive and Hunt Club Road. This section of the watermain was constructed in 1975 and 1976 using concrete prestressed pipe. 3. The section of watermain that failed in January 2011 is located north of Hunt Club Road. It was constructed using the same type of pipe which had a similar failure in the fall of 2007, but about 1 to 2 years earlier. 4. The February 2009 failure risk analysis report states that pipes in Repair Priorities 1 and 2 are in high to moderately high risk of failure. The report recommended that the four pipes in Repair Priorities 1 and 2 be excavated and inspected externally to confirm the level of distress, and to replace the pipes accordingly. 5. The 2009 failure risk analysis report defines Priority 1 projects as those where the maximum pressure in the line exceeds the pressure that produces the ultimate strength with (Priority 1a) and without (Priority 1b) the contribution of soil resistance. The failure can occur at any time. Repair should be performed as soon as practical and in less than 1 year. 6. Accordingly, pipes in Priority 1 should have been replaced, at the latest, before February The design for the replacement of the four pipes south of Hunt Club Road in Priority 1 and 2 started in December 2009, with the original schedule of construction start date of October 2010, which is 8 months later than the Priority 1 failure risk indicated. The original design schedule was to have the design completed and the tender package ready before June At a scheduling meeting on January 12, 2010, the City decided to postpone the project, but that the design should be ready for construction in case that an emergency required the work to proceed. This was communicated to the project manager by a senior watermain rehabilitation engineer on May 19, 2010, who indicated that the delay was due to other potentially conflicting demands on the system, that the watermain and transient pressures would be monitored by Operations, and that the design should proceed to completion in case that an emergency repair became necessary. The City has indicated that the decision to delay the repairs was made based on other risks to the water system that would not have been apparent to the consultant doing the inspection at the time of the condition assessment. Drinking Water Services carried out a transient analysis (maximum water pressure analysis) in 2009 to assess the likelihood and magnitude of transients that could affect the pipes. The City has explained that the decision to postpone the repairs in Priority 1 was based on managing overall Page xvi Office of the Auditor General 2012 Annual Report

19 water system risks, and that the contract for the repairs on Woodroffe Avenue were scheduled to proceed after the completion of the 2W/2C watermain, which would provide a third feed into the area. 9. At the time of the January 2011 watermain break, construction of the Zone 2W 2C feedermain was in progress, so the City s Design and Construction explored the possibility of extending the contract to include the watermain north of Hunt Club Road. However, Asset Management and Drinking Water Services suggested that a condition assessment of the Woodroffe Avenue watermain be done first to identify areas of concern. The scope of the January/February 2011 condition assessment was broader than the 2008 condition assessment, and included the section from David Drive to Hunt Club Road, in addition to the section done in 2008 (Hunt Club Road to Fallowfield Road). 10. On February 24, 2011, Asset Management provided Design and Construction - West with a Scoping Document based on the findings of the condition assessment. When comparing the 2008 and 2011 conditions assessments, it was found that the number of pipe sections with wire breaks was similar on a per km basis, but a greater number of pipes had more severe deterioration. They did find substantial increase in deterioration in the prestressed concrete pipe watermain from The project manager was aware that procurement of the pipes could take a substantial length of time and therefore proposed to sole-source the procurement of the pipes from a manufacturer who could deliver the required quantity of pipe within the required schedule, in order to expedite construction. He requested pricing for the replacement pipes from the supplier and received it on February 24, On March 1, 2011, the project manager informed the pipe supplier that the City would proceed with buying the pipe and appurtenances required from the supplier selected. On March 10, 2011, the project manager sent an Estimated Spending Plan Authority (E-SPA) to Purchasing for the pipe. The project manager indicates in the that Supply Branch had been kept apprised all along, but review of the files found no documentation to confirm that this was the case. 13. On March 16, Purchasing asked the project manager for the reason for sole sourcing the pipe and for selecting the company. The discussion about sole sourcing the pipe extended to March 30 th, at which time the decision was to proceed with a standard tender. 14. The correspondence shows that at the time of the break in January 2011, the City repaired the broken watermain and it scheduled the required replacement of the remaining pipes to tender the project for work in the fall of However, the condition assessment of the watermain from David Drive to Fallowfield Road disclosed that sections of the watermain had deteriorated substantially since Office of the Auditor General 2012 Annual Report Page xvii

20 2008 and that there was similar deterioration in the segment north of Hunt Club Road. Based on the results, the City decided to not return to service the section of watermain from Knoxdale Road to Vaan Drive until the required watermain replacement was completed. On this basis, the City decided to carry out the watermain replacement and repair work as soon as possible, instead of returning the watermain to service immediately and risking another break. 15. While the pipe was out of service, supply to the Barrhaven and Riverside South service areas was being provided through a single 406 mm watermain along Merivale Road, supplemented by in-line pumping. The temporary supply met the demand at the time, but hydraulic modelling indicated that it would meet only 75% of the maximum day demand. 16. At the end of February 2011, the results of the condition assessment and the hydraulic modelling showed that construction could not be postponed until the fall, and the project was scheduled for tendering as soon as possible. 17. A number of alternative means of operation and/or repair were examined, including repairs by leaving the pipe in place, such as sliplining or reinforcing the pipe. The analysis concluded that the preferred solution is open cut construction along Woodroffe Avenue. Any of the alternatives would only advance completion by, at most, two weeks and the resulting watermain condition would not be as satisfactory. 18. As a result, it was necessary to impose a complete outdoor water ban in Barrhaven, Riverside South and Manotick until completion of the project, in order to avoid running the system dry and possible boil water advisories and inability to meet firefighting requirements. 19. Review of the change orders for this project found that they were fully documented and were reviewed by the contract administrator and project manager. In general terms, the change orders were necessary to expedite the project. 20. Police assistance at intersections item is a concern. Due to the level of traffic congestion on Woodroffe Avenue, it was necessary to have point duty police on a daily basis. The original tender did not anticipate this amount of point duty for the project. The additional cost was $247,637, paid by variation in the tender quantities at the tender price. The total price paid was $313,638. Review of the invoices to the contractor for 1,140.5 hours of police service show that the cost was $214,346 based on $188 per hour. The contractor was paid $99,292 or 46% mark-up on police cost. 21. The project manager should have negotiated the cost of this item, as it clearly was a very significant variation in the quantities, and the general conditions of contract contain provisions for such eventuality. In addition, the manner in which the item is paid provides the contractor with a profit on a service Page xviii Office of the Auditor General 2012 Annual Report

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