Called on the carpet by the city auditor, Denver International Airport CEO Kim Day said “the buck stops with me,” but refuted claims that the airport hotel and transit project has been mismanaged and is grossly over budget.
Auditor Dennis Gallagher formally presented his scathing performance review to the city audit committee Thursday, saying there has been a lack of change-related cost controls and that the project is plagued by poor record keeping and sloppy accounting.
“From the initial $500 million to the current $544 million, we cannot provide assurance that the (hotel transit center) project will not ultimately increase to $599 million,” the audit report said.
The Denver Post obtained a draft copy of the audit on Nov. 9.
In its response to the audit, DIA agreed to implement, within 90 days, all 11 recommendations made in the report.
Day, however, vigorously defended management of the project to the committee.
DOCUMENT: Read the latest DIA Hotel and Transit Center Performance Audit.
She said change orders are overseen by a management committee, convened by Mayor Michael Hancock in 2013, which includes a third-party consultant and meets monthly.
Day said the project should not be judged by the $500 million pre-bid budget, calculated in 2011. The figure was “overly optimistic,” she said, and was adjusted once the bid was awarded to Mortenson, Hunt and Saunders .
“It was not the result of poor oversight,” Day said. “We remain on track to complete the project between 5 and 10 percent over our budget of $544 million, as we announced last spring.”
She also noted the report cited “no evidence of erroneous payment, overbilling or poor maintenance of our airfield or terminal.”
The audit report details an additional $130 million that will bump the project cost to about $730 million. The costs were included in the original project scope, but Day said they should not be lumped into the overall budget.
The costs include $75 million for “related capital projects,” $53 million for “RTD infrastructure,” and $2 million, the audit said, “that has not been captured by any established budget,” but includes $450,000 associated with a financial-assurance consulting contract and $1.5 million for DIA salaries.
The capital projects — expansion of the airport baggage and train systems, utility relocation and roadwork — are necessary “due to the natural growth of DIA operations and the general aging of infrastructure,” the audit said.
“We found that the project was going to be over budget, and we took some stuff out of the budget,” Day said. “The Denver Post continues to lump two other projects with the hotel and transit center. They are not connected … they are not necessary, nor do they serve the hotel and transit center.”
Audit committee member Jeff Hart characterized the maneuver as a “lack of precision.”
Those pieces of work were part of the original project,” he said. “It seems like it was just a way to deal with cost overruns at that point by pulling certain items of work out of the original scope of work.”
Gallagher questioned the contract terms — specifically the on-time completion bonus calculated at 4.25 percent of the total project cost and an additional 2.5 percent bonus for MHS’s pre-construction overhead costs.
Both Day and project manager Stu Williams said the bonuses are within the industry norm of 2.5 to 5 percent, and necessary to guarantee on-time completion.
“We have an obligation … with RTD that we would turn over the space they needed to complete their work by Jan. 1, 2014,” Day said. “It was very important to us that we not hold up the East Line.”
Gallagher wondered whether some blame should be pointed at Hancock’s office or at City Council.
“I’m going to say the entire buck stops with me,” Day said. “Anything the council approved, I submitted. Electeds can only make decisions based on information they are given, and I’m the one that informs them.”
After the meeting, Day said Gallagher’s office never spoke directly with her during the audit.
Williams said he was involved in several group meetings with his staff and auditors, but never questioned one-on-one, where he said he could have clarified many issues.
“I was never interviewed directly,” Williams said. “I think it would have been more appropriate for them to have had a line of questioning just for me.”
But Gallagher’s spokesman, Denis Berckefeldt, said Williams and former DIA financial chief Patrick Heck held biweekly phone conversations with audit deputy director John Carlson. He also said his department was instructed by Heck, who resigned in September, to not speak directly with Day.
The auditor has no enforcement powers over DIA. His office will follow up with the airport in about six months, Berckefeldt said.
“Sometimes they agree to something to get off the hook, and then never get around to actually fixing it,” he said, “then it’s up to the mayor or the City Council to ask the tough questions.”