Sunday May 19, 2019Los Angeles, California

Managing Construction Project Risk

May 19-22, 2019 • Los Angeles, California113th Annual Conference

Learn more by visiting us at gfoa.org • #GFOA2019

Angel MummaDirector of Finance, City of Dublin

Dr. April MittsFinance Director, City of St. Helena

Rick ClarkeChief Program Management Officer, LA Metro

Mark RuffChief Financial Officer, City of Minneapolis

Agenda

Introduction to Speakers Introduction to Session Topics Speaker Case Studies Commonalities Panel Questions

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Managing Construction Risks

Moderator: Angel Mumma, Director of Finance, City of Dublin

Speaker: Dr. April Mitts, Finance Director, City of St. Helena

Speaker: Rick Clarke, Chief Program Management Officer, LA Metro

Speaker: Mark Ruff, Chief Financial Officer, City of Minneapolis

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Managing Construction Risks

Better relationships between finance and capital projects prevent problems down the line, and create more opportunities for openness and transparency

Common challenges the finance office addresses during major capital infrastructure projects

Coping mechanisms for the long timeline of many projects, and challenges with closing out projects after they are wrapped up

What does finance oversight during a construction project look like to mitigate risks

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City of St. Helena

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Dr. April Mitts, Finance Director

City of St. Helena

Comprehensive Flood Control and Restoration Project• What? o Provides 200-year flood protection along with important environmental restoration

• When?o Completed in June 2011

• How Much? o $40 million

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City of St. Helena7

City of St. Helena8

City of St. Helena9

City of St. Helena10

City of St. Helena11

City of St. Helena

What happened?• My first week on the job

Where do I start?• Paperwork, paperwork, paperwork

What to do next? • Develop a plan

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City of St. Helena

Importance of finance involvement• Guide Public Works on financial aspectoDifferent perspective on budgetoRecord keeping requirementsoTracking of funding sources

• Cross-check of expenses and project tracking• Can consider long-range financial planning

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City of St. Helena

Creating transparency and building trust for projects• Open communication• Honesty in how the project is progressing (or not

progressing)• Identifying “warning signs”• It is okay to ask for help

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City of St. Helena

Lessons Learned• Finance will always be involvedo Proactive vs. Reactive

• Do not hide from anything – even the bad news• Keep everyone informed• Become an ally with Public Works• Keep accurate and detailed records• Importance of internal control structures

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LA Metro

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Rick Clarke, Chief Program Management Officer

May 19, 2019

LA Metro 2

• Nation’s third largest transportation system• Nation’s largest clean-air fleet (over 2,200 CNG buses)• 1,479 square miles of service area• 115 miles of Metro Rail • Over 1.2 million Average Weekday Boarding's (Bus & Rail)

• FY19 Agency Budget - $6.6B• FY19 Program Management Budget $2.162B• 10,217 FTEs

• Capital Program - $18.3B• Over 180 capital projects under construction

• 100+ projects in planning phase

• 2.4 million people in the next 40 years in LA County

• More unmet critical transportation needs than there is money to meet them

• Additional local revenues generated by Measure M provide an opportunity to leverage more state/federal/private dollars to build major projects —and build them faster

• Metro is also promoting private sector initiatives to further accelerate project implementation

Positioning LA County for the Future19

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Measure M

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• New ½ cent sales tax – No sunset• Increases to 1-cent in 2039 when Measure R expires• $120 billion over the first 40 years• 71.15% approval by LA County voters

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Measure M Projects

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Measure M Transit Program

2323

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• 8.5 mile Light Rail Line and 8 Stations

• Extends from Exposition Line to Metro Green Line

• Southwestern Yard Maintenance Facility

• 24,400 Daily Projected Trips (in 2035)

• Project Budget: $2.058 Billion• Federally assisted project –

TIFIA Loan • Revenue Operations:

Spring 2020

Crenshaw/LAX Transit Corridor25

• 1.9 mile Link Connecting Blue & Expo Lines with Gold Line

• 3 New Stations• $1.750 Billion• 90,000 Daily Project Transit Trips• 17,700 Daily New Transit Trips• $670 Million FTA Grant and $160 Million TIFIA

loan

Regional Connector Transit Corridor26

Westside Purple Line Extension27

Measure R Highway Projects

Subregional Allocations

HighwaysMeasure R

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Metro Transit & Highway Projects: 40 –Year Build out

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Program Challenges30

Deliver multiple large and complex projects on-time within budget Collaborate with stakeholders to meet community expectations Commitment of efficient third party review/approval by various

external jurisdictions Encourage competitive and qualified pool of contractors, small

businesses, and workforce on Metro projects Manage cost risks impacted by shortage of skilled workers, good

Contractors and utility resources in a growing construction market Maintain sufficient resources and staffing needed to manage and

support project delivery Addressing Contractor claims in a fair and equitable manner Achieve continuous improvement in project delivery through

innovation and application of best practices and lessons learned

Strategic Initiatives31

Continue to implement strategic initiatives to bring improved planning, consistency, transparency, and discipline to project delivery: Conduct Annual Program Evaluation of Metro’s capital program Establish reliable Life-of-Project budgets Engage robust management and support services consulting teams

to augment technical expertise and resources Enhance Risk Management Program Enhance Construction Claims Management Program Improved Best Practices/Lessons Learned Program Implement new Document Control/Change Control system (Unifier)

Strategic Initiatives cont.32

Implement new quality assurance approach Conduct readiness reviews before projects are released Utilize project delivery method selection process Utilize Integrated Project Management Office (IPMO) and

defined decision making ladders Implement Board delegation of authority as approved in January

2018.

City of Minneapolis

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Mark Ruff, Chief Financial Officer

Construction ProjectsMark Ruff, City of Minneapolis

Minneapolis Context35

16th largest metropolitan area in U.S. = 3.6 million people

46th largest city in U.S. = 415,000 in Minneapolis

$1.7 billion budgetNo strong Mayor/Manager

Develop a Team and Staff Up Temporarily if Needed

Internal• Project manager• Risk manager• Finance• Attorney• Department representatives

Owners Representative? Architect/Engineer

• Undertake program development before design, preferably with a design firm not guaranteed the final design contract

Specialized Consultants• Envelope/security/commissioning

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Program Work with Architect before Design Architect hired

Creates discipline of need assessment ahead of the “pretty picture competition” or single site option• If multiple potential sites, helps with analysis

oPolice precinct in urban area example• Minimize chance of “form before function” that comes with an

architectural firm trying to sell a design.• Better chance of hiring architect who is good at and enjoys the

pre-planning• Gives real construction cost estimates early in the process• Begin to identify operating cost implications

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Adjacencies and Square Foot Needs

Adjacencies lead to building form39

Which results in effective building40

Choose Bidding Option that Results in “Low Cost” and Keep a Fair and Open Process

Design/Bid/Build Best Value Construction Manager

• Agent• At Risk

Design/Build

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Design/Bid/Build – Best if:42

• Good market of traditional general contractors• Simpler project• Few time pressures

Best Value – Optimal When:

Complex components• Exterior• Elevators

Complex timing• Impound lot

Operating costs as important as capital costs

You want to minimize change orders and/or emphasize certain policies like small business

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Construction Manager at Risk

Need project on time and on budget

Meet specific workforce goals

Have multiple stakeholders

Project requires quick reaction time

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Construction Manager as Agent Contractor as a

consultant can come in early to assist in planning for project

Hire at same time as architect

Break into bid packages• Some best value

Decide if you want to allow to contractor to bid on portions of project?

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Design/Build F.S 146

• Unique circumstances on timing or location

• Very short timeframes

Contingency

How much construction contingency and how does it evolve with project?• Design and bid contingency• Construction contingency• Owners contingency

Who decides on change orders for scope change? Who investigates design conflicts? How often do you check in with elected officials? Don’t make a decision before you need to

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Insurance During Construction

Which are you?• Third-Party Insured• Self-Insured with Tested Reserves• Underinsured• Uninsured• Overinsured

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Operating Cost Projections

Use commercial standards for comparison• $x/square foot of building

Factor in “doubling up” costs in addition to moving costs Start the process early to create format for energy

efficiency analysis during design process

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Awareness

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Commonalities

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Commonalities Keeping everyone on the same page – and communicating well

between different teams Importance of collaborative working processes between people

doing the projects and finding the funding – that ongoing collaboration throughout the project

Public trust and public voting – pass the measure Planning – at the beginning the project but also as they continue

to fruition Doesn’t matter the size of the project – everything needs to get

taken into consideration Never know what is out there, so always plan for the unexpected

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Panel Questions

Why should finance be more involved with Capital projects?

Construction projects can take a long time to close out, based on the organizations policies, how do you deal with outstanding projects successfully?

What are common problems finance officers should look for in capital projects?

What is the biggest lesson your experience has provided you with in regards to managing capital projects?

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Audience Questions?

And Thank you!

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