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HomeNewsArchivesAUDIT UNCOVERS MISUSE OF FEDERAL HIGHWAY FUNDS

AUDIT UNCOVERS MISUSE OF FEDERAL HIGHWAY FUNDS

Aug. 21, 2002 – A federal audit has found the Public Works Department has used contract amendments and change orders to circumvent the requirement that contracts for work funded by the Federal Highway Administration be awarded only after a competitive bidding process.
In one case, a contract let in 1993 for construction management and inspection services was extended five times over a period of five years and along the way encompassed work that was not part of the original contract, adding almost $3 million to the original $805,086 contract — a 363 percent increase.
In another case, increases amounted to $1.7 million, 181 percent over the original contract. In that case, cited in the audit released this week by the U.S. Interior Department's Office of the Inspector General, the project was extended for "13 years through three major amendments and a noncompetitive follow-on contract that added many items that were not in the original scope of work."
The original contract, let in 1986 in the amount of $958,841, was for work on Black Point Hill Road, Bolongo Bay Road, and Mandahl Road on St. Thomas. In 1988, $354,368 was added on for engineering services for highway projects on the Long Bay and Frenchman's Bay Roads. A second amendment added $251,742 for more engineering services for the Veterans Drive-Lovers Lane intersection, and Long Bay Road near Yacht Haven, changes prior to design for Bolongo Bay Road and curbs for Centerline Road.
In 1991, five years after the original contract was awarded, another $397,412 was added for work on Race Track Road, Raphune Hill and the intersection of Bolongo Bay Road and Turpentine Run and for an archeological inventory at Long Bay and Frenchman's Bay Roads.
And 13 years later, in 1999, engineering work, storm sewers, the Turpentine Run bridge and a culvert at Mandahl added yet another $729,250.
The audit also found double billings amounting to $457,763. The contractor had charged overhead for things such as travel, rent, utilities, postage, equipment rental and office maintenance — things that were "specifically included in the contract and contract amendment as 'miscellaneous direct non-salary costs' that were directly reimbursed under the contract," the audit said.
Another glaring irregularity was payment for construction and management services equivalent to 50 percent of construction costs, although the industry standard is 3 to 10 percent of construction costs. In 1997, when a Public Works grant manager suggested the contractor be required to provide justification for disputed or disallowed costs, the Public Works commissioner, who is not named in the audit, ordered that all contractor claims be paid.
The report also said non-transportation projects for which federal highway funds were used, such as Buddhoe Park and the Millennium Monument, which cost $1.57 million and $442,568 respectively (increased from the original contracts of $659,111 and $162,323, respectively), should be financed through bond proceeds for capital improvement projects, not soak up much-needed funds earmarked for highway projects.
In response to the add-ons to contracts, Public Works stated, "It is often not in the best interest of the government to request new bids when additional work arises in relation to existing contracts."
But the Inspector General's audit called the add-on and change-order extensions "a questionable business practice" and suggested that Public Works "develop a good working relationship with a number of other highway engineering firms and use the competitive procurement process to encourage those firms to compete against each other to give the government the best possible service at the best possible price."
The audit also suggested that where the same costs were billed twice, the duplicate charges should be collected from the contractor.
Other deficiencies found by the audit:
– Potential savings of about $835,200 were not realized because the government did not ensure that certain provisions for damages were included in and enforced for construction contracts.
– Salary reimbursements were overpaid by $43,913 because vouchers contained errors.
– The Disadvantaged Business Enterprise Program did not meet its objectives because of lack of monitoring staff.
– Federally financed equipment valued at more than $35,000 was not adequately accounted for and safeguarded.
Eleven recommendations were made to the governor. Based on the response by the Public Works commissioner, the Inspector General considers five recommendations resolved but not implemented and four unresolved, with additional information requested for one recommendation.
The governor has until Sept. 30 to respond.
The Federal Highway Administration sends nearly $13 million a year to the territory for constructing, maintaining and repairing public roads in the Virgin Islands.

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