Category: Cost Recovery Efforts

A Tax Recovery Yarn

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How a multidisciplinary review of an already-negotiated sales and use tax exemption package, including analysis of equipment purchase orders and contracts, produced $millions in additional savings.

This effort required study of the technical data and vendor operating manuals, knowledge of sales tax exemptions and application in a “direct-use” state, understanding of how tax codes were input to produce tax accrual reports, and taking the initiative to appeal that which had already been established.

Special Report: No RW Allen GuaranTEE?

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Originally posted on CityStink
July 25, 2012
Augusta, GA
By Bradley E. Owens

Al M. Gray, President of Cost Recovery Works, Inc. contributed multidisciplinary review techniques in support of this article. Cost Recovery Works is no longer in business, as of December 31, 2020.

Augusta Today member Dean Klopotic submitted a Georgia Open Records Request seeking the RW Allen, LLC (RWA) billings for the TEE Center related contracts they are performing. The Law Department of the city of Augusta issued a response which included RWA invoice number 24 representing costs through March 31, 2012. Our investigating team has since obtained RWA invoice number 26 from other sources in city government and turned the documents over to cost recovery accounting specialist Al Gray for analysis and review.

RWA boasts of having an “Open Books Policy” but their TEE Center project manager Jim Cely declined to allow us to visit their offices to view supporting documents to the billings obtained through the Georgia Open Records Request. RWA CEO Rick W. Allen, currently a candidate for Georgia’s 12th Congressional District, had previously pledged to allow Mr. Gray access to the billing detail records. Despite being assured they would cooperate, we were not allowed to see the documents, and instead, Cely gave instructions to direct inquiries to Augusta Administrator Fred Russell… the same Fred Russell who has displayed a pattern of withholding VITAL information from Augusta Commissioners on the TEE Center and its companion parking deck across the street.

The TEE Center Contract with RW Allen, LLC is a Construction Manager at Risk guaranteed maximum price (GMP) contract. Under a fast track, a cost plus contract with a GMP, the Construction Manager sets its fee, general conditions (overhead) expenses, and other costs necessary to construct a total facility.  These contracts are or can be comprised of multiple subcontracts and work with the CM (RWA in this case), self-performing portions as if they had been subcontracted. In other words, they can hire themselves to do certain parts of the job as the Construction Manager.

Once the drawings and design work is 75% complete the GMP was officially set at a price of $29,700,000 and accepted by the Augusta Commission. There have been two change orders (“change orders” are contract modifications which usually are increases in the cost of the fixed price cap due to unforeseen “changes” that affect the construction itself) executed which bring the total price to $30,113,215.  So as you can see, the agreed upon price of the TEE Center construction was $29,700,000.00 but due to the two “change orders” the final projected price tag (there could be more change orders before it is completed, so I say “projected”) is now a cool $30,113,215.

Since the more detailed supporting documents for RWA’s invoices (which are pretty vague) are not likely to be in the possession of the Augusta government and therefore open records accessible and the honcho over at RWA, 12th District candidate R.W. Allen, has already broken his pledge to allow us access to the documents (a politician breaking a pledge to the tax payer? SAY IT ISN’T SO!); here are the questions we would pose to Mr. Russell and to Program Manager Heery International to find out the details of these invoices for us, the lowly tax payer footing the entire bill of $30mil and change.

Has There Been Double Billing of General Conditions Costs?

Let’s be clear here, these are complicated contracts, but the billing is not if you are willing to bear with me and see the questions we are asking.

Article 7.4.1 sets out the components of the contract price and these are repeated in Exhibit A in the contract. to be paid by Augusta, so a cost has to fall into one of those two categories and be authorized by the terms of the contract to be billed. To cover the contractor’s overhead costs, called “General Conditions” in construction language, RWA put in a General Conditions Guaranteed Maximum cost of $1,082,670 in the contract and in Exhibit G.

The capped GC cost is described this way on page 56: Items that are included within the General Conditions Costs for which the Construction Manager is entitled to no additional compensation include without limitation:.. viii. “That portion of insurance GL and Auto Builders Risk and P&P bond premiums that can be directly attributed to this Contract for Construction”… ix. Fees and assessments for the building permit and for other permits, licenses, and inspections for which the Construction Manager is required by the Contract for Construction to pay.

Looking at the latest payment application available, on line 2 of the Form G703 appearing on page 2, we find an amount listed for General Conditions costs of $1,082,475, which is only $195 less than the stated limit in the contract. Augusta is making progress payments, which total $697,917 (less 5% retained by Augusta) through this invoice, based upon component invoicing and RWA labor charges. In addition to the GC costs, we found $167,585 charged on page 2, line 19 of the G703 schedule for P&P Bonds.

Based upon the contract having capped GC costs to INCLUDE the P&P bonds, separate invoicing in this manner appears to be a duplicate charge, especially since the contract also says this: “The overhead and profit component for any change includes the cost of bonds and insurance”, which seems to preclude the additional billing of P&P bonds separately in this manner. The P&P bonds for the subcontractors are in their OWN costs.

Besides the P&P bond issue, there is the same issue with the $48,961 of permit costs on line 18 of the payment request.

These two issues relating to costs billed separately that appear to be already covered by capped General Conditions total $216,546. It is recommended that these costs be reallocated against the capped GC costs of $1,082,670, or line 2 on the G703 billing schedule of values.

Extension of General Conditions without Required Change Order?

 

Accompanying payment request number 24 was a document entitled, “Augusta TEE Center Contingency Log”, which includes a $16,393 item labeled, “extended builders risk cost due to delays.” There was an invoice supplied showing the builder’s risk policy was being extended to October, 2012. The contract says this, “All adjustments in compensation or extensions of time shall be by change order (page 38).”

No change order was found to extend the duration of the project, so shouldn’t this charge be covered by the capped General Conditions that includes builder’s risk insurance?

A much more important and broader issue is whether RWA intends to collect extended general conditions for the approximately 6 months greater time until completion of the project, to include the more costly GC costs, like supervision. The project duration in the contract was set at 24 months, yet the project is on the 26th monthly billing.

Does the charging of builder’s risk premiums for project delays mean that there will be a costly claim for extended General Conditions at the end of the project? Will extension costs be continued to be charged against the contract contingency, instead of being authorized by change order, as the contract apparently requires?

Lack of Pricing Details Limits Change Order Price Analysis?

 

Augusta Today and City Stink contributor Lori Davis submitted a Georgia Open Records Request on another matter concerning the TEE Center kitchen equipment that was added to the RWA contract as Change Order 1, to increase the Contract Price to a total of $29,276,987. Included in the information provided  was the pricing from the subcontractor, itemized by equipment price, but unsupported by cost versus overhead and profit analysis of the pricing.

The contract says this in Article 15: “If and to the extent the change involves work of one or more subcontractors, the overhead and profit component for subcontractors shall be fifteen percent, and the overhead and profit component for the Construction Manager shall be seven percent 7 of the amount allocable for subcontracted work.”

Unless there is additional analysis not presented with the City’s response to the GORA request, how can RWA tell whether the 15% limitation on overhead and profit has been met with respect to Change Order 1? Is sufficient cost information being obtained on other project changes to meet the contract limitations on combined overhead and profit?

Construction Equipment Rentals in Steel Costs?

Within the supporting backup for Payment Application 24 for the steel cost category was an invoice to RWA for construction equipment rental. The contract has this inclusion within the definition of General Conditions costs: “xviii. Rental charges for temporary facilities and for machinery equipment and tools not customarily owned by construction workers.”

Since the equipment rentals seem to be within General Conditions (Overhead), wouldn’t such costs be covered by the allowed 15% overhead and profit markup allowed on work self-performed by the Contractor?

Summary

  1. Aren’t $216,546 of bond and permit costs separately billed also within the capped General Conditions expense in this contract?

  2. Did the billing of $16,393 for extending insurance coverage to October 2012 presage a claim for an additional number of months of general conditions expense, including Contractor Supervisory labor, and unforeseen costs? Without a change order, should this item have been charged to contingency?

  3. Is there sufficient cost detail provided by subcontractors to assure that contract limitations on maximum, combined overhead and profit can be verified?

  4.  Are construction equipment rentals separately billable from overhead and profit markups?

  5. Will Augusta review the contract to assure that all contingency and allowances are recaptured by the city at project completion on this major contract? Others?

We expect that the Mayor and the City Commission will assure that these questions are answered.***

B.O.


**Augusta Today members Al Gray, Lori Davis, and Dean Klopotik also contributed to this report**

 

**Below is the GMP Construction Contract between RW Allen Construction on the city of Augusta for the TEE Center:

RWA GMP Contract