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Examination Report

Halcyon Construction Inc. On-Call Contract

The objective of our examination of the City and County of Denver’s Department of Public Works’ on-call contract with Halcyon Construction Inc. was to review Halcyon’s selection of subcontractors, understand Public Works’ internal controls surrounding the approval of pay applications and change orders, and evaluate Public Works’ oversight regarding Halcyon’s compliance with progress reporting, project budgeting, and project closeout. CliftonLarsonAllen LLP conducted this examination on behalf of the Auditor’s Office.

The objectives of the examination were to review the following:

  • Public Works’ review of Halcyon’s selection of subcontractors under the on-call construction services contract and examination of pay applications and change orders
  • Understand Public Works’ internal controls associated with the review and approval of pay applications and change orders
  • Public Works’ oversight of Halcyon’s compliance with construction project progress reporting, project budgets, and project closeout processes and procedures

Watch the Audit Committee presentation here.

CliftonLarsonAllen LLP (“CLA”) was engaged by the Auditor to perform an examination of the City and County of Denver’s Department of Public Works’ (Public Works) compliance with the City and County of Denver’s procurement policy, Executive Order 8 and Contract No. PWADM-201520801-00 with Halcyon Construction, Inc. (the contractor) during the period May 1, 2015, to April 30, 2018 as it relates to subcontractor selection, pay applications, change orders, construction project progress reporting, project budget, and project closeout. The agreement between Public Works and Halcyon being examined was entered into on May 21, 2015 and covers the time period of May 1, 2015 through April 30, 2018 for an amount up to $3,000,000. As part of the deliverables, CLA presented an examination report to the Audit Committee. Halcyon provides Small Business Enterprise (SBE) on-call construction services to Public Works, which includes performing construction work on municipal buildings, remodeling, retrofitting, and renovation projects. This agreement was awarded to Halcyon through a solicitation for qualifications and proposal process from qualified general contractors dating back to October 2014.

The examination revealed within Public Works a lack of formalized policies and competitiveness surrounding the bidding environment, weak internal controls over the costing of construction projects and the change order process, and a lack of project monitoring for the Halcyon on-call contract.

As a result, the examination provided four recommendations for Public Works to improve its internal controls over its Small Business Enterprise (SBE) contractors.

Recommendation 1: We recommend that Public Works enhance the internal controls surrounding the mini-bid process to ensure compliance with policies. This can be accomplished by improving checklists and process flows surrounding the mini-bid process to ensure projects are competitively bid and evidence is retained to show compliance. We also recommend that Public Works consider expanding its pool of SBE contractors to allow for a more competitive environment and opportunities for other contractors to be considered for this work.

Recommendation 2: We recommend that Public Works follow its policy on the mini-bid process to ensure that the policy is understood and reflected in any employee resource manuals. This can be accomplished further by incorporating policies and process flows into training opportunities for employees and verifying that policies are fully understood by employees to ensure compliance.

Recommendation 3: We recommend that Public Works implement a policy requiring all subcontractor invoices to be submitted to Public Works by Halcyon at the time the “Contractor’s/Consultant’s Certification of Payment” (CCP) forms are submitted for payment processing and go through a detailed review process prior to payment. Detailed invoice support should also be required to be provided by Halcyon for their direct charges to further support amounts being certified for payment. Public Works should enhance its training, process flow, and oversight to address risks associated with potential overcharging by contractors and subcontractors under on-call contracts.

Recommendation 4: We recommend that Public Works enhance internal controls surrounding contractor monitoring and change order oversight. This can be accomplished by implementing a standardized checklist around site inspections for on-call construction projects. This can also be accomplished by enhancing the controls surrounding change order approvals by having a detailed process flow or similar documentation to track original work order scope, change order reasoning, and retain evidence of comparison of change orders to work orders. This process flow or similar documentation should be standardized for all projects and include comparisons to RSMeans data available for project managers regarding costing of projects.

Follow-up report

A follow-up report is forthcoming. 

Audit Team: Dawn Wiseman, Patrick Schafer,
Consultants: CliftonLarsonAllen LLP, Paul Niedermuller, Allison Slife, Eric Miller