1. Accuracy of Capital Project Cost Estimates Proposed Final Report Joint Legislative Audit & Review Committee September 23, 2009 Mark Fleming, JLARC Staff

2. September 23, 2009 JLARC Reviewed Agencies with Large Capital Programs Mandated by ESHB 2675 (2008) −Review accuracy of project cost estimates −Evaluate process for developing estimates Focused on 10 agencies accounting for 84% of state capital budget Reviewed all major projects completed between July 1, 2001 and December 31, 2008 2Accuracy of Cost Estimates Proposed Final Report BACKGROUNDBACKGROUND Report Page 1

3. September 23, 2009 Great detail Accuracy Depends on Project Detail 3Accuracy of Cost Estimates Proposed Final Report Report Pages 3-4 ESTIMATE ACCURACYESTIMATE ACCURACY Begin Construction Concept Phase Pre-design Phase Design Phase $$$ More detail Little detail

4. September 23, 2009 Expectations of Accuracy Increase as Projects Develop Cost estimate classification system expresses accuracy in ranges for each phase of development: Source: Association for the Advancement of Cost Engineering International. 4Accuracy of Cost Estimates Preliminary Report Report Page 4 ESTIMATE ACCURACYESTIMATE ACCURACY Concept Pre-design Design Phase +30% +20% +10% High -15% -10% -5% Low

5. September 23, 2009 Concept Phase: 73% of Cost Estimates Met Expectations for Accuracy 5Accuracy of Cost Estimates Proposed Final Report Report Page 4 ESTIMATE ACCURACYESTIMATE ACCURACY 19 Projects 70 Projects 7 Projects Percent Variance -100% -50% 0% 50% 100% 150% 200% 250% $0$50$100$150$200$250 Final project cost ($ in millions) Source: JLARC analysis of survey data and Association for Advancement of Cost Estimating International Recommended Practice 17R-97. Expected accuracy range +30% to -15% Expected accuracy range +30% to -15% Total: 96 Projects

6. September 23, 2009 Pre-design Phase: 71% of Cost Estimates Met Expectations for Accuracy 6Accuracy of Cost Estimates Proposed Final Report Report Page 6 ESTIMATE ACCURACYESTIMATE ACCURACY 15 Projects 61 Projects 10 Projects Expected accuracy range +20% to -10% Expected accuracy range +20% to -10% Percent Variance -100% -50% 0% 50% 100% 150% 200% 250% $0$50$100$150$200$250 Total: 86 Projects Source: JLARC analysis of survey data and Association for Advancement of Cost Estimating International Recommended Practice 17R-97. Final project cost ($ in millions)

7. September 23, 2009 Design Phase: 74% of Cost Estimates Met Expectations for Accuracy 7Accuracy of Cost Estimates Proposed Final Report Report Page 7 ESTIMATE ACCURACYESTIMATE ACCURACY 15 Projects 71 Projects 10 Projects Percent Variance $0$50$100$150$200$250 Expected accuracy range +10% to -5% Expected accuracy range +10% to -5% Source: JLARC analysis of survey data and Association for Advancement of Cost Estimating International Recommended Practice 17R-97. Total: 96 Projects -100% -50% 0% 50% 100% 150% 200% 250% Final project cost ($ in millions)

8. September 23, 2009 State Agency Cost Estimating Follows Recognized Practices OFM defines budget process and identifies required information. Agencies incorporate key steps into their project development and cost estimating procedures. OFM reviews cost estimates for logic and completeness. 8Accuracy of Cost Estimates Proposed Final Report Report Pages 11-15 JLARC found no obvious omissions in the process. Consistent with conclusions in 2005 JLARC review of the capital budget process ESTIMATING PROCEDURESESTIMATING PROCEDURES

9. September 23, 2009 Project Estimate and Financial Data Not Readily Available Project cost estimates are only available from individual state agencies. State accounting system information is fragmented: −Expenditures may be reported under multiple accounts. −Excludes non-appropriated local funds. Final project cost information must be compiled for each project. 9Accuracy of Cost Estimates Proposed Final Report Report Pages 17-19 PROJECT DATAPROJECT DATA

10. September 23, 2009 Recommendations Recommendation 1: OFM should clarify accounting procedures to require that: −Agencies record expenditures where the funds are actually used; and −Agencies report use of non-appropriated local funds by individual project. Recommendation 2: OFM should require a final close out report for each capital project, including final total costs and scope changes. 10Accuracy of Cost Estimates Proposed Final Report Report Page 20 RECOMMENDATIONSRECOMMENDATIONS

11. September 23, 2009 Concur Do Not Concur Concur Rec.1Rec. 2Agency Office of Financial Mgmt General Administration Dept. of Social & Health Svcs. Dept. of Corrections Mixed Responses to Recommendations 11Accuracy of Cost Estimates Proposed Final Report Do Not Concur Concur Partially Concur Concur Partially Concur No Response Concur Partially Concur Concur Partially Concur University of WA WA State University Eastern WA University Central WA University Western WA University The Evergreen State Coll. Community & Tech Colleges Report Pages 25-47

12. September 23, 2009 Agency Concerns OFM does not concur with Recommendation 1 because it believes that changing the state accounting system to report non-appropriated local funds by project will be difficult and expensive. OFM believes it can achieve this goal through the close-out report JLARC recommends. Several higher education institutions state that both recommendations will create a new layer of administrative reporting and be overly burdensome. 12Accuracy of Cost Estimates Proposed Final Report Report Pages 25-47

13. September 23, 2009 Legislative Auditor Response OFM is correct in stating that the summary report will meet the intent of the recommendation. However, OFM should continue to explore methods to adjust official accounting records to incorporate non-appropriated funds into project accounts. 13Accuracy of Cost Estimates Proposed Final Report Report Page 49

14. September 23, 2009 Legislative Auditor Response JLARC disagrees that a final closeout report will be an undue burden to higher education institutions. Much of this information is currently reported to OFM in semi-annual progress reports. The institutions already have the final total costs when they value their assets for the state accounting system. A final close out report will provide readily accessible information for Legislative and Executive oversight. 14Accuracy of Cost Estimates Proposed Final Report Report Page 49

15. September 23, 2009 Contact Information Mark Fleming 360-786-5181 fleming.mark@leg.wa.gov www.jlarc.leg.wa.gov 15Accuracy of Cost Estimates Proposed Final Report