The Colorado Department of Transportation’s increasing use of untraditional contracting approaches for large highway projects has been hampered by problems with how the deals are awarded, negotiated and managed, state auditors found in a recent report.
Awarding construction work to the lowest bidder for a set design is no longer the rule of thumb for large or complex projects designated for so-called “alternative delivery” contract methods. Instead, CDOT and transportation officials in several other states have opted for setups in which construction companies bid before the full design is complete and, once selected, work with CDOT or engineering contractors to finish it.
Critics contend these newer forms of contracting — used for work including the $1.3 billion Central 70 project in Denver and major widening projects on Interstate 25 south and north of metro Denver — favor larger companies, often from out of state, and risk costing taxpayers more.
But CDOT argues they save time and money on complex projects through improved designs and better project coordination that reduce the severity of speed bumps megaprojects typically encounter during construction.
The audit, performed by the Office of the State Auditor at the request of state lawmakers, found that CDOT didn’t always follow its contracting policies and lacked sound, consistent and transparent processes both for how it decides when to use an alternative contracting method — and how those contracts are awarded and carried out.
As CDOT ramps up its project schedule with an infusion of state funding for transportation projects, the audit sheds light on its performance on some of its largest recent projects. In the last two fiscal years, the audit says CDOT managed 19 projects that used alternative contracting methods, with combined budgets of $3.5 billion.
Among the auditors’ findings was that for half of 16 alternative-method projects reviewed, CDOT failed to consistently follow its evaluation and selection process before green-lighting the different contracting approach. The audit also highlighted a case in which an unsuccessful bidder for the $419 million I-25 South Gap project south of Castle Rock was among three firms short-listed and evaluated, despite its proposal missing a required section. Its inclusion deprived another bidder from being considered, auditors wrote.
Once CDOT awarded contracts for many projects, auditors questioned whether it was as focused on cost savings as it contends. The audit says that on nine projects that used one type of alternative contract, called the construction manager/general contractor model, CDOT paid a total of $18 million more for resulting construction contracts than recommended by independent cost estimators.
As for whether these alternative approaches save money or time? The audit casts some doubt.
“Our analysis found that Design-Build projects are more likely to have schedule and cost overruns and CM/GC performs similarly as the default delivery method, Design-Bid-Build,” the report states.
The report notes that a full comparison of some projects to the track record of the traditional low-bid approach wasn’t possible since information wasn’t available for the pre-construction design periods. That is where CDOT officials argue alternative contracts have greater potential to streamline a project’s timeline, allowing construction to start sooner — as is the hope on the upcoming $700 million Floyd Hill project on I-70 in the mountains, where simpler work will start in coming months while engineers work out long, complex bridge spans for later phases.
In the design-build contract model, which was used in the Central 70 project partnership, a contracting team is hired to complete the project’s design, taking the engineering out of CDOT’s hands, and then construct it.
The construction manager and general contractor model, which is being used on Floyd Hill, involves the selection of a single firm or team to take part in two phases: the pre-construction phase, where it provides input to CDOT as the project’s design is finalized, and then the construction phase.
In both, the larger firms that typically win contracts end up subcontracting a significant portion of construction work to smaller contractors, many of them locally based, while overseeing the projects. Among the repeat contractors selected for CDOT’s larger projects over the last decade are Kraemer North America, a Wisconsin firm owned by a Japanese company, and Kiewit, based in Omaha.
CDOT agreed to all of the report’s recommendations on how to improve its oversight and management of alternative-delivery contracts.
“In general, we think there are some strengthened processes that will make this just function better,” CDOT spokesman Matt Inzeo said Friday. “There are always better ways to administer complex projects, and this helps us do that.”
The original audit request came in 2021 from former Sen. Ray Scott, a Grand Junction Republican who left office at the start of this year. Scott, an ally of disgruntled Colorado contractors who haven’t been able to qualify for major CDOT projects under the alternative contract setups, predicted at the time that an audit would “prove out that there are problems with waste” in CDOT’s contracting.
The audit doesn’t question the value of the different approaches so much as criticize CDOT for its execution.
During their review of project documents, including some going back eight years, auditors found that CDOT had missed the expirations of several construction manager contracts for preconstruction phases.
It paid two firms $707,660 for work past those expirations. And it authorized $158 million worth of construction contracts tied to those expired arrangements — which legally required new bids since the original deals with the construction managers were no longer active.
“All of those actions violate statute, regulations, state controller policy and/or the department’s policies and contract terms,” said Stefanie Winzeler, the legislative audit supervisor, in testimony to lawmakers on Tuesday. “After we raised these issues to the department, it worked with the state controller and the Attorney General’s Office to reinstate all five contracts and ratify the payments made after the contracts expired.”
Keith Stefanik, CDOT’s chief engineer, noted that nearly 80% of the $158 million in construction work approved despite expired construction manager agreements was for the repair of U.S. 34 through Big Thompson Canyon. It was heavily damaged by major flooding in 2013, and permanent repairs took several years.
“This was an emergency project,” he told the Legislative Audit Committee. “In the emergency nature, we were contracting as fast as possible. We did make some mistakes. … We need to clean up some of our procedures on our emergency projects and our regular projects.”
Inzeo said in an interview that officials plan to continue using alternative approaches for some major projects because of advantages over traditional low-bid contracting, in which CDOT accepts the full risk of its initial project design — including for recurring change orders.
“The common thread (in alternative approaches) is that we bring the private sector into the design and the preconstruction phases of a project,” he said. “That can be useful because it allows us, in many cases, to start the less complicated (construction) work earlier while that combined team of CDOT and private sector industry types figures out the most complex elements. …
“It lets projects get started earlier than they usually would, and therefore get concluded earlier than they otherwise would. That is where the value is for the public.”
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