Oversight needed on contract change orders

Nearly $300 million in additional unplanned costs for San Francisco projects in the past five years might not seem like much in comparison with the national debt, which is approaching $15 trillion. But this potential abuse of taxpayer dollars, much of it below the radar of top city officials, should be better managed, receive more oversight and be reined in where possible.

As The San Francisco Examiner reported recently, a Budget Analyst’s Office report revealed that nearly half the 218 construction and professional services contracts worth $5 million or more — a stack of agreements totaling $6.4 billion — were later increased with so-called change orders that added $295.2 million to The City’s tab.

More than half of it was due to the San Francisco Public Utilities Commission, which increased nearly two-thirds of its contracts by $166.6 million.

That works out to an additional 10 percent, or nearly $3 million per contract, which is not the worst in The City. But it adds up because the SFPUC handed out 86 contracts, mostly for the massive $4.6 billion rebuild of the Hetch Hetchy water system.

Tyrone Jue, a spokesman for the SFPUC, cautioned against relying on change orders to gauge a department or project, pointing out that the Hetch Hetchy project as a whole is $160 million under budget.

“Change orders don’t always tell the whole story,” Jue said.

That’s true, but change orders are a few costly chapters in that story. A review of the SFPUC’s Water System Improvement Program in January 2010 warned about contractors bidding extra low in order to get the project, then attempting to increase their pay through change orders.

“Due to the economic slowdown, contractors are bidding very competitively, resulting in very low bids,” the report states. “The contractors could potentially be very aggressive in attempting to cut costs or recover costs through change orders.”

It’s difficult to know whether every one of The City’s change orders was justified or just a back-door scheme to get the payment the contractors felt they deserved in the first place. And that’s part of the problem — the Board of Supervisors has been largely kept in the dark on contracts and cost increases.

Construction contracts are not subject to San Francisco supervisors’ approval, and other contracts need to be $10 million or more in order to require their approval. That’s much higher than Los Angeles’ $25,000, Santa Clara County’s $100,000 and San Jose’s $250,000 thresholds for approval. In addition, change orders for nonconstruction contracts in San Francisco must be in excess of $500,000 before they require approval by the supervisors.

That lack of oversight concerns Board of Supervisors President David Chiu, who said, “At the very least, we need to have more transparency.”

We agree. Most contracts and change orders should be reviewed by the supervisors to provide openness and scrutiny in the way public dollars are spent. It will help prevent abuses by contractors seeking to skim a little extra off the top while city bureaucrats look the other way.

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