Governor Rell: UConn Construction Panel Recommendations

Press Releases - 09/2005

{Seal of the State of Connecticut}

STATE OF CONNECTICUT
EXECUTIVE CHAMBERS
HARTFORD, CONNECTICUT  06106

M. Jodi Rell
Governor

FOR IMMEDIATE RELEASE
September 1, 2005
Contact:
Judd Everhart
860-524-7313
judd.everhart@ct.gov

Governor Rell Remarks on UConn

Construction Panel Recommendations

 

Thank you for joining us this afternoon. And welcome to Connecticut’s flagship university.

 

I wanted to hold this press conference on campus because I wanted to highlight all that has been accomplished here at UConn.

 

This university has come so far in the last 10 years.  Many positive improvements have been made. It has truly been transformed -- physically and academically. It has grown in size and in stature. It is home to world-class laboratories, well-respected faculty and the best and brightest students. Admission applications have nearly doubled in 10 years and average SAT scores are up.

 

UConn is a school on the move.  We are proud of the University and the people who make it up.

 

But there have been problems with the building program … serious problems … unacceptable problems.

 

The people of Connecticut have entrusted $2 billion in tax dollars to re-build UConn. The parents of Connecticut are entrusting their sons and daughters to the university. The students of Connecticut are entrusting their education and their future to the university.

 

And quite frankly, in terms of some aspects of UConn 2000 program, the university has violated that trust.

 

Corners were cut.  Problems were ignored.  Wrong decisions were made.   And there was an astounding failure of oversight and management.

 

In response, in April, after reading and hearing report after report about cost overruns, safety problems and lax construction, I said enough.  I appointed a commission to review the UConn 2000 and UConn 21st Century programs.

 

I wanted to make sure that our taxpayers got their money’s worth.  I wanted to make sure that our parents knew their children were safe in the dorms and in the classrooms here.  And I wanted our students to know they were safe and in functioning, new buildings.

 

The 6-member commission spent more than 4 months looking at every aspect of these building programs.  They held meetings, conference calls, and hearings.  They met with experts and heard from university officials. 

 

Today, they are presenting me with a detailed report on their findings and a series of recommendations on how to address the inadequacies that have come to light. 

 

I thank the members for their countless hours of hard work and their dedication to this task, and I accept their recommendations.

 

We will immediately implement those recommendations that are administrative in nature and we will seek legislative approval for those requiring General Assembly action.

 

My tenure as Governor has been focused on reform and accountability, and that is exactly what the recommendations seek to accomplish.

 

The central recommendation is the creation of a new, seven-member UConn Building Committee

 

Ø They will be independent from the Administration. They will be unbiased, independent managers overseeing these taxpayer-financed projects.

Ø I realize this is a dramatic change for UConn, but I believe it is a necessary one, given the problems we’ve had.

Ø The Building Committee will also hire a new full-time Director of Capital Projects. The main requirement for this position will be someone with extensive experience and training in construction management.

Ø The Director “will ensure that buildings are built in a safe and cost-effective manner.” That is how it should be.

 

UConn learned some serious lessons about the importance of audits during this process, and I agree with the Commission in recommending tighter auditing controls, especially those already outlined in the Pinnacle-One Report, the Blum-Shapiro Report and the 2005 Price-Waterhouse-Coopers report.

 

Ø In the past, audits were conducted, but their findings and recommendations often went unheeded. That practice must – and will – stop.

Ø The Commission recommends that the Board of Trustees assign independent auditors to every capital project.

Ø These auditors will have “unfettered access” to all documentation and that will ensure that the Board, the General Assembly and the Governor will have full and accurate information on how these projects are being managed.

 

Under another recommendation, which I support, the Board will assign a person responsible for audit implementations, with specific deadlines.

 

I also support the establishment of a new position of a Chief Audit and Compliance Officer, reporting directly to the Joint Audit and Compliance Committee of the Board of Trustees.

 

I appreciate the changes President Austin and the Board have already implemented to improve the flow of information to senior management. It is critical that this process be tightened up and that all information on construction projects – the good, the bad and the ugly – get to the top ASAP.

 

The other central recommendation from the Commission, and another one I strongly support, would align UConn’s contracting processes with the strict contract bidding and awarding processes required by our Department of Administrative Services. This will ensure that all contracts are competitively bid and awarded in the fairest possible way.

 

Today is a new day for UConn. It is, and will remain, one of America’s great public universities.

 

I look forward to working with President Austin, Board Chairman Jack Rowe and the General Assembly to see to it that these recommendations are turned into action – as soon as possible.

 

I appreciate the cooperation of the UConn Board and President Austin’s team during this process.

 

And I want to thank, again, Jon Pelto and Rob Bouvier for leading the Commission over the past four months. You have my deep gratitude, and that of Connecticut taxpayers. The students, their parents and the faculty here are indebted to you.

 

Thank you again.

 

The UConn Report is attached:

Governor’s Commission

 on UConn Review and Accountability

 

Final Report

 

September 1, 2005

 


 

 

Part I: Background

______________________________________________________________________________

 

On June 7, 1995, the General Assembly adopted UConn 2000, Public Act 95-230, An Act to Enhance the Infrastructure of the University of Connecticut, codified in sections 10a-109a through 10a-109y, inclusive, of the Connecticut General Statutes. On June 22, 1995 the act was signed into law in front of Babbidge Library, the symbol of the University of Connecticut’s (the University) crumbling infrastructure. At the time, the New York Times called UConn 2000 a “benchmark for public higher education in the country.”[i]

 

Through the UConn 2000 project, the State of Connecticut recognized and addressed the University’s need for a comprehensive infrastructure renewal program designed to rebuild, renew and enhance the University.  The overall program was designed to transform the University into one of the top public universities in the nation and lay the foundation for the University of Connecticut to attract Connecticut’s high-achieving students, to educate a top-notch workforce and to compete effectively for research grants. It was also designed to enhance programmatic excellence by jump-starting the University’s private fundraising with an endowment matching grant program. The overwhelming bipartisan support for UConn 2000 reflected the depth of consensus regarding the goals of the legislation

 

The Commission’s findings and recommendations are based on inquiry into the record, practices and procedures related to the implementation of the UConn 2000 program.  Lacking subpoena powers, the Commission relied on written record, audit reports, public testimony, field interviews, budget documents and the Connecticut General Statutes and the Regulations of Connecticut State Agencies.

 

The President of the University and his senior management team made themselves readily available to the Commission and provided extensive responses and background materials to inquiries by the Commission.

 

There is no doubt that the UConn 2000 and 21st Century UConn building programs have played a vital role in the extraordinary transformation of the University. As a result of the historic building and renovation program, the Storrs Campus and the five regional campuses have been updated, enhanced and modernized. As a direct result of the infrastructure renewal effort and significant enhancements in its academic programs, the University of Connecticut has drastically raised its national reputation and now enjoys the status of the top public university in New England.  Today, due in large part to the state’s historic financial investment, the University is able to attract better faculty and better students thanks to more modern equipment, updated lab space, modern classroom facilities and other amenities.


However, over the past year, it has become apparent that serious shortcomings in the management and oversight of UConn 2000 resulted in a variety of problems. These include but are not limited to the construction of a number of dormitories that failed to meet
Connecticut’s State Building and Fire Safety Code requirements, cost overruns and financial management and accounting deficiencies.

 

The University has acknowledged these problems and played an important role in working to identify the extent of the issues and problems that needed to be addressed.  In April 2005, President Philip Austin, appeared before the legislature to outline the University’s corrective action plan aimed at improving management, oversight, financial reporting, communications and code compliance. 

 

On April 12, 2005, the Governor’s Commission on UConn Review and Accountability (the Commission) was created by the Governor to determine whether The University of Connecticut’s internal controls with regard to the expenditure of funds appropriated for the implementation of the UConn 2000 project are sufficient to reasonably ensure The University of Connecticut’s compliance with applicable law, regulation and policy.[ii] Further, the Commission was charged with (1) identifying those areas in which The University of Connecticut’s internal policies regarding the UConn 2000 project are deficient and (2) making recommendations on how they can be strengthened to better protect the integrity of the project and the expenditure of public funds. The goal of this report is to provide an objective review and recommendations to the Governor so that the state and the University of Connecticut can maximize the potential of the UConn 2000 and 21st Century UConn programs.

 

The Commission’s expanded corrective action plan recommended in this report will help ensure better procedures, oversight, accountability and reporting as the program goes forward. Some recommendations can be implemented immediately; others require legislative approval.


It is in the best interest of the state to have the
University of Connecticut continue to grow as a major institution of higher learning and research. All of us in Connecticut can only profit by an excellent University operating in a modern and safe environment. These recommendations aim to achieve that goal.


 

 

Part II: Methodology

______________________________________________________________________________

 

In keeping with the Governor’s charge, the Commission explored the history of implementation of the UConn 2000 program and evaluated the policies and procedures currently being used by the University.

 

The Commission reviewed several audit reports (and supporting documentation) commissioned by the University including:

 

Ø      Coopers and Lybrand (1996)

Ø      PinnacleOne (1998-1999)

Ø      Blum Shapiro (1999, 2000, 2001, 2002)

Ø      Reports by the State Auditors of Public Accounts

Ø      PriceWaterhouseCoopers (2005)

Ø      University of Connecticut Board of Trustees – Internal Audit Review and Report of the PinnacleOne and Blum Shapiro engagements

 

Members of the Commission also met with:

 

Ø      Mr. Fred Hughes, Blum Shapiro

Ø      Mr. Jim Bradley, formerly of PinnacleOne

Ø      Mr. K. Michael Walker, Chief Audit and Compliance Officer, University of Connecticut

Ø      Mr. Chris Hughes, PriceWaterhouseCoopers

Ø      Mr. Larry Schilling, former Director of Architectural and Engineering Services

 

The Commission also consulted with the following individuals:

 

Ø      Commissioner Leonard Boyle, Department of Public Safety

Ø      Mr. John Blaschik, Deputy State Fire Marshal, Department of Public Safety

Ø      Commissioner James Fleming, Department of Public Works

Ø      Secretary Robert Genuario, Office of Policy and Management

Ø      Mr. Robert Jaekle, Auditor of Public Accounts

Ø      Mr. Kevin Johnston, Auditor of Public Accounts

Ø      Mr. Christopher R. Laux, A.I.A., State Building Inspector, Department of Public Safety

Ø      Commissioner Valerie Lewis, Department of Higher Education

Ø      Commissioner Linda Yelmini, Department of Administrative Services

Ø      Mr. Daniel Tierney, Deputy State Building Inspector, Department of Public Safety

 

The Commission also reviewed documentation submitted by the University at our request, and University officials including President Austin, Lorraine Aronson, Linda Flaherty Goldsmith, Tom Callahan, George Krauss, Fred Hethcote Bruce Detora and Dale Dreyfuss provided direct testimony at our meetings or made themselves available for a number of interviews and discussions.

 

The Commission evaluated the information gathered from the above-referenced sources in light of President Austin’s corrective action plan to determine whether appropriate policies and procedures exist for the safe administration of the UConn 2000 project and the 21st Century UConn project. In short, the Commission has been asked to determine whether the President’s corrective action plan is an appropriate and adequate response to the problems that have arisen at the University. In those areas where the Commission considers the University’s response to be deficient, the Commission makes a recommendation to remedy the situation.


 

 

Part III: Commission Findings

______________________________________________________________________________

 

A.        Audits

 

The Commission finds that despite its contracts with several outside, independent auditing firms, the University failed to implement a number of the auditors’ recommendations. This course of action led the University down a precarious path leading to the perpetuation of ineffective policies and procedures which put the investment in the UConn 2000 project at risk.

 

For example, in 1996, Coopers and Lybrand (C&L) was retained by the to review the administrative structure of the UConn 2000 construction program and to make recommendations so that it could be sure that it had a structure to facilitate the effective and efficient execution of the program.

 

The Commission learned through personal interviews with members of the University’s staff that the Coopers and Lybrand report was prepared for internal purposes only. According to the employee interviewed for the purposes of the C&L report, it was kept in “draft” form in an effort to prevent it from becoming public. In the view of this employee, the University “organization was thin and not properly organized” and this disclosure would have been a distraction.[iii]

 

On September 15, 1998, Trustee Claire Leonardi made a “recommendation [to hire an independent auditor] to initiate a two-part review consisting of a standard construction audit which will be conducted on an annual basis, and a request to have an outside consultant of national reputation to assess the accomplishments of the UConn 2000 construction projects and the construction management operations…a one-time, independent program review will supplement the University’s overall report on Phase I, which will be submitted to the legislature in January  of1999.”[iv]In the Commission’s view, this clearly reflects the intention of the University to use the review to supplement the statutorily required Phase I report to the legislature.[v] 

 

In October of 1998, PinnacleOne was appointed by the University to conduct a Contractor Program Review and Financial Audit of UConn 2000.  The Chancellor’s notes[vi] revealed that The University of Connecticut was aware of the major problems uncovered by the PinnacleOne report.[vii]

 

Additionally, as referenced in the November 10, 1998 minutes of the Financial Affairs Committee of the Board of Trustees, “the [PinnacleOne] report will be sent to the Board… before the statutorily required University report is submitted to the Legislature on January 15, 1999,” is further evidence of the original intention.[viii]

 

Based on the above information, it is clear that the Board of Trustees preferred to use an independent source to validate the process which they were statutorily required to report upon to the legislature. Interviews with key personnel and interdepartmental memos suggest that members of the administration were surprised by the depth of the criticism of the program upon receipt of the first draft.[ix]   Based on information provided to this Commission, it is our belief that senior administration officials were made aware of this report and its content during meetings on January 13 and 15, 1999.[x]

 

The University’s senior management has stated that it does not remember being fully briefed on the negative findings in the Pinnacle report.[xi] However, it is difficult for this Commission to reconcile how, after the initial proclamations of importance[xii] and interest related to this report, that the University allowed a $250,000 work product to be disregarded.[xiii] We believe the handling of the report was consistent with the practice at the time to avoid the possibility of negative information becoming public.  This is unfortunate because the value of the PinnacleOne report would have benefited the Board of Trustees and the Legislature in their oversight responsibilities.

 

The Board of Trustees did little to consider any independent review of the UConn 2000 program and neglected its responsibilities by relying almost exclusively on information provided by the University.  It is also troubling that the University administration had very little internal oversight of the UConn 2000 program as its internal audit oversight was discontinued around the same time.[xiv]

 

The General Assembly also failed to fulfill its oversight responsibilities.  The Legislature was fundamentally responsible for addressing two key issues: the merits of the UConn 2000 program  and the manner in which the program was to be administered. The University’s decision not to include  the PinnacleOne report in its 1999 four-year  report, coupled with the Legislature’s failure to request sufficient information prevented a meaningful consideration of  alternatives to the way in which the UConn 2000 program was being administered and in consideration of the 21st Century UConn program.

 

The handling of the PinnacleOne report creates one of the more significant concerns of the Commission because it sets forth the best practices for administering a capital construction program of this magnitude. As Denis Nayden, Chairman of the Joint Audit and Compliance Committee recently stated, “… there is no evidence of substantial pro-active efforts by any level of the administration to implement appropriate action plans to address issues identified in the report.”[xv] Further, Mr. Nayden summarized by saying “… with the PinnacleOne and Blum Shapiro engagements taken together, there was more than adequate information available that The University of Connecticut’s Administration should have been aware of and taken action on it.”[xvi]  This sentiment accurately reflects the Commission’s opinion of the complete break down in the implementation of independent, professional outside recommendations regarding the UConn 2000 program.

 

In addition, the University contracted with Blum Shapiro to conduct financial audit summaries of the completed UConn 2000 projects beginning in 1999. Blum Shapiro also provided the University with management letters along with their audits in 1999 and 2000. A draft management letter was also provided for projects concluded in 2001 and 2002.

 

The initial management letter (1999) raised a series of concerns about the University’s handling of the UConn 2000 program.  Blum Shapiro observations included:

 

o       Deficiencies related to the control of deferred maintenance funds primarily related to accountability and spending policies.  The letter found that “while the University follows very strict guidelines in the approval and spending for “traditional” contracts, the same strict guidelines do not appear to be applied to the deferred maintenance funds.[xvii]

 

o       Regarding change orders, “[i]n almost all cases, there was no documentation in the file showing that this procedure had been performed. That is not to imply that the procedure was not done, but there is simply nothing in writing in the file. In speaking with the project managers, it appears that they did prepare an estimate, but then discarded the estimate when the final estimated costs were agreed upon between the project manager and the contractor.”[xviii]

 

o       As to the University’s capital project management software (CAPSTAT), “we found a number of instances where the expenses were misclassified between the original contract and the subaccounts. The contract costs in total were allocated to the correct job, but, if the purpose was to capture the correct costs within each subaccount, this purpose was not met.”[xix]

 

The management letter, along with the University’s response, was included in the package sent to the members of the Audit Subcommittee of the Board of Trustees and Blum Shapiro presented its findings to the Audit Subcommittee at its September 12, 2000 Board of Trustees meeting.[xx]

 

In its 2000 management letter, Blum Shapiro again raised a series of concerns with the way in which deferred maintenance funds were being budgeted and utilized.  The report found that the CAPSTAT and FRS, the University’s accounting systems were not being reconciled properly and that,  once again, there was no documentation in the file indicating that the project manager was getting estimates on change orders.

 

Blum Shapiro also provided a draft management letter for 2002 that continued to highlight serious concerns including:

 

o       “In performing our audits, we found there to be multiple instances where costs were charged to a project within CAPSTAT, then at a later time that cost is no longer shown a [sic] cost to a project. This may happen when there is an error in the original transaction or if it is determined that a different project should be charged the cost. Because CAPSTAT is not a date sensitive system, it is not possible to see the transactions in and out of a project. Therefore, it is impossible at times to find out where that original transaction has gone.” [xxi]

 

o       The draft management letter also noted issues regarding CAPSTAT being properly reconciled with the FRS System and the lack of proper documentation on change orders.[xxii]

 

The University also engaged Blum Shapiro in 2002 and 2003 to conduct project audits for buildings completed in those years. As Mr. K. Michael Walker stated to the Commission in a letter send to us on August 22, 2005, “[Blum Shapiro] was instructed to ‘suspend’ their work. After The University of Connecticut’s leadership (Mr. Nayden and senior administrators) did their analysis of the engagement, they subsequently instructed [Blum Shapiro] to complete their work for [FY] 02-03.[xxiii]

 

PriceWaterhouseCoopers (PWC) was engaged by The University’s Board of Trustees in November 2004, “pursuant to a Scope of Work under the Master Services Agreement dated April 6, 2004, to perform an assessment of its Architecture and Engineering Services Department.” [xxiv] The PriceWaterhouseCoopers, Evaluation of the University of Connecticut’s Architecture and Engineering Services Department (PWC report) made the following findings:[xxv]

 

Summary of Observations

 

·        A lack of standardized policies and procedures, lack of segregation of duties and a lack of formal building inspection protocol within the UConn 2000 and 21st Century UConn programs.

 

Project Budgeting Process

 

·        The project approval process requires increased transparency and should be administered with a disciplined protocol and documented with written authorizations.

·        The current project budget process is inappropriate given the nature and size of the program.  It does not include or permit accurate forecasts of project costs.

·        Project budgets are not appropriately supported by line-item detail.

·        Little to no oversight of the budget modification process was observed.

·        Budget variations do not appear to be regularly identified, tracked, reviewed or analyzed.

 

A&ES Organizational Structure and Staffing

 

·        The current A&ES reporting structure does not incorporate segregation of duties.

·        The current A&ES operating structure does not include appropriate project controls functions to track and update cost and schedule information.

·        UConn has not dedicated sufficient resources to manage the UConn 2000 and 21st Century UConn construction programs.

 

A&ES Reports to UCONN Administration

 

·        No meaningful management reporting is, or has been, performed.

·        The current Management Information System (MIS), CAPStat, is not appropriate for use at a capital program of this magnitude, and should be replaced as soon as possible.

 

Availability of Project Plans and Specifications

 

·        Drawings and specifications… used by UConn and Bechtel/Fusco were not consistently updated to incorporate recent design changes.

 

 

Bechtel/Fusco’s Performance

 

·        Bechtel/Fusco did not appear to provide adequate staffing on projects, reportedly due to UConn’s budgetary considerations.

 

Building Inspection and Code Compliance Process

 

·        UConn does not have a documented, nor consistent, procedure for performing all necessary inspections on non-threshold buildings.

·        UConn did not document the building inspections that were performed in a disciplined, consistent way.

·        UConn does not have, nor has retained, adequate resources to perform and document the required building inspections.

 

Implementation of PinnacleOne’s Recommendations/Findings

 

·        Many of the areas of concern expressed in PinnacleOne’s detailed report in 1999 do not appear to have been addressed by UConn.

 

Cost Transfers and Allocations

 

·        Actual costs were transferred between projects, and costs may have been incorrectly allocated to others.

·        Deferred Maintenance Funds may have been used, without Board approval, for construction of new structures and to supplement the budgets of “named” projects.

 

Other Observations

 

·        There may have been instances of A&ES and the Facilities Department using change orders to existing contracts and existing task order contractors to bypass competitive bidding requirements.

 

B.        Management and Oversight

 

The Commission believes that the 2005 PWC report contains the best overall evaluation of the A&ES responsibilities related to the UConn 2000 project from inception to present.  The report paints a grim assessment of the University administration’s performance.

 

Another area of concern for the Commission is the University administration’s Building and Grounds Committee, through which management oversaw decision-making related to the implementation of the UConn 2000 Program.  As a result of Commission interviews, it became clear that this very small group was allowed to operate in a closed environment from early in the UConn 2000 project until 2004 with limited oversight or accountability. The rules of the committee, as relayed by a committee member reflect the desire to control the process and not allow input or transparency into its process. They are as follows: (1) meetings are closed; (2) no substitutions ;( 3) what happens in the room, stays in the room; (4) leave titles at the door and; (5) only decisions come out.[xxvi] The Commission believes that this committee was allowed too much control and authority in the process.

 

It should be noted that at least one newspaper reported that there was some political interest in removing the University’s independent capital development authority.[xxvii]  At the Commission’s June 23, 2005 meeting, number of University officials spoke with pride in their hopes to prove critic’s wrong (that the University would fail in its attempts to run the construction process). When President Austin was asked by the Commission about the University of Connecticut’s concern with the possibility that responsibility of the UConn 2000 program could be returned to the Department of Public Works (DPW) he indicated that he was concerned about it.[xxviii] This exchange provides one explanation of The University of Connecticut’s possible motivation to restrict negative information related to the UConn 2000 program.

 

It is difficult for the Commission to understand the disconnect between what independent review material was available (the same reports cited above) and The University of Connecticut’s public responses.  Specifically, in President Austin’s letter to Governor Rell and others on March 29, 2005, in response to a Hartford Courant article states, “Where there have been problems, we have addressed the immediate issues and where there are any weaknesses in process or oversight, worked to improve our administrative structures.  Moreover, contrary to the implications in the article, we have communicated such problems immediately to all relevant parties, the Board of Trustees, State enforcement agencies and others.” [xxix]

 

The Commission believes, from the information it has reviewed, that the University did not communicate the problems uncovered by the audits immediately to all “relevant” parties such as the Board of Trustees, State enforcement agencies and others.  Only recently has the University begun to address the scope of problems related to the UConn 2000 project.

 

In keeping with the Governor’s charge to this Commission, we have attempted to determine the overall cost of the UConn 2000 program. However, we were unable to perform an assessment because of the failures of the University’s accounting systems to properly track and report project costs. As stated in the PWC report:

 

“[d]uring numerous interviews we were informed that actual costs from certain projects had been transferred into others. We understand that in some cases this may have been done to prevent a project from exceeding its current year’s funding limit. However, we are not certain whether these costs were transferred back to their rightful project once subsequent year funding was available. We were also told that some costs from certain projects were inappropriately allocated to certain other projects. We did not pursue these allegations, as they fall beyond our current scope of work. However, these are serous potential allegations that should be investigated, especially since they undermine the credibility of reported costs.”[xxx]

 

C.        Fire and Safety Code Compliance

 

 The Commission also wishes to address the fire and safety code issues that have emerged during the course of this review. The handling of safety inspections best illustrates the flaws in operating in a closed environment virtually free from independent scrutiny. Pursuant to the UConn 2000 legislation, the University has the authority to pursue building designs that were “non-threshold.”[xxxi]In the process of administering the UConn 2000 program, the University believed it was sufficient for the architect to certify that the plans were designed to meet state building and fire safety codes and for the contractor to certify that the facility was built to plan.

 

 In their view, this process was an adequate and prudent safety option to address code compliance issues.  Clearly, the certification mechanism the University utilized failed to identify a significant number of fire and building code issues.  By not engaging sufficient staff to conduct inspections or retaining outside services for this function, the University accepted buildings that did not meet code.  The unacceptable risk and additional cost associated with correcting these code violations is among the Commission’s most serious findings.

 

 The Commission does not think that this approach carries with it the appropriate controls to ensure the safety of University students, faculty and staff.  Problems and safety concerns could remain undetected for years.  Further, the remediation of these problems is much more difficult to fix once the building is complete, as opposed to remedying the problem during construction. Finally, litigation, which is the likely source of funds to remediate these problems, is not an appropriate control to ensure the public’s safety and adequate financial recovery.


 

Part IV: The University’s Corrective Action Plan

______________________________________________________________________________

 

The Commission makes special note of the work the University of Connecticut has made to develop and implement its own corrective action plan.  As reported by the University, beginning in 2003, the President and Board of Trustees took steps to strengthen the University’s administrative structure with the establishment of two new leadership positions – a Chief Operations Officer and a Chief Fiscal Officer, both reporting directly to the President.

 

In response to the UCONN 2000 related issues, President Austin announced a Corrective Action Plan in April 2005.  The Corrective Action Plan included:

 

o       New University Office of Fire Marshal and Building Inspector

o       Organizational Restructuring

o       Personnel Actions

o       Changes to the Contract Approval and Administration Process

o       Revised Project Budgeting and Reporting

o       Strengthened Oversight: Audit, Compliance and Risk Management

o       Financial Recovery: Legal Action

 

A.  New University Office of Fire Marshal and Building Inspector (OFMBI)

 

The newly established office is responsible for administering a clearly defined permitting, inspection and final occupancy program that requires a comprehensive review prior to and during all new construction and major renovations at the University campuses throughout the state.  All Certificates of Occupancy or Substantial Compliance letters will be issued from this office for non-threshold projects and to this office by the State Department of Public Safety for threshold.

 

B.  Organizational Restructuring

 

The University of Connecticut also instituted a number of other organizational changes to ensure more direct reporting to senior management.  The Director of Capital Projects and Contract Administration now reports directly to the Vice President/Chief Operations Officer.   In addition, the two positions responsible for the entering financial data into the construction management system and reporting on that information now report to the Vice President/Chief Financial Officer CFO rather than to the Executive Director of A&ES.  This provides proper segregation of duties that were previously missing.

 

C.  Personnel Actions

 

UConn also made several personnel changes including the retirement of the Executive Director of A&ES.

 

D.   Contract and Expenditure Review and Administration:

 

A comprehensive Capital Project Delivery Process Manual has been compiled, and the processes contained became effective July 11, 2005. While all elements of the project delivery process are addressed by the manual, the budgeting, contracting, and expenditure review processes were completely revamped. The CFO, through the Plant Accountant, ensures that invoices from the contractor comport with the financial terms of the contract. All construction invoices are reviewed by Accounting Department, the Project Manager, and the Executive Director of A&E prior to being approved for payment. Change Orders are subjected to increased review, particularly within the CFO’s area, to assure budget adequacy prior to approval of the change.

 

E.  Revised Project Budgeting and Reporting

 

The University has also implemented a new budgeting process.  The new policy and practice are to submit to the Board a project budget before calendar year-end budgets for any current project estimated to cost $500,000 or greater. Multiple iterations of Project Budgets will be presented to the President and the Board during the planning, design and construction processes.

 

In order to provide better control and management, the administration purchased FAMIS  (Fixed Asset Management Information System) system last spring to meet the construction tracking and reporting information needs, the facilities management work order tracking needs, and the space tracking and reporting requirements associated with a research institution. FAMIS is in the implementation phase. The system provides capabilities for project forecasting, which will greatly assist the efforts for the next ten years of UCONN 2000 (also referred to as 21st Century UCONN).

 

Project tracking will also be strengthened by the monthly reconciliation of CAPstat/FAMIS data with the data shown in the University’s Financial Reporting System. In addition, monthly meetings with the COO, CFO, AVP, and the Storrs and UCHC CFOs to review project status will ensure better tracking. Finally, the projects’ status will be reported quarterly to the University’s Building and Grounds Committee.

 

F.  Strengthened Oversight: Audit, Compliance and Risk Management

 

The Board and President created and filled the position of Chief Audit and Compliance Officer (CA&CO).  Resources designated for the internal audit (IA) function doubled to $2,000,000 annually. As a growing institution with complex financial relationships and multiple constituents, a strong audit function is critical to the University’s long-term success.

 

G.  Legal Recovery

 

The University is also actively pursuing recovery of costs associated with the student housing corrections. A number of changes will produce better management of the legal process.

 

 

 

PART V: Commission Recommendations – The Expanded Corrective Action Plan

______________________________________________________________________________

 

            A.        Audits

 

The Commission recognizes that the University has taken significant corrective action. Nonetheless, we strongly recommend that the University implement the full recommendations of the 1998 PinnacleOne report, 1999 and 2000 Blum Shapiro reports, and the 2005 PWC report to the extent that these recommendations are applicable and consistent with the Commission’s report.

 

Additionally, the Commission recommends that the Board of Trustees make a list of the recommendations in each audit and management letter; establish a time by which those recommendations will be implemented; and a person primarily responsible for their implementation. The date set for implementation of any auditors recommendation should be monitored by the Joint Audit and Compliance Committee of the Board of Trustees.

 

B.        Increased Oversight

 

President Austin’s plan to strengthen the oversight functions of the board are to be commended and this Commission endorses the establishment of a new position for the Chief Audit and Compliance Officer (CA&CO).  The CA&CO reports directly to the Joint Audit and Compliance Committee of the Board of Trustees. In our view, this is an important first step in creating some independence in the University’s audit and oversight functions. However, this Commission believes that more can be done by strengthening the independence of the Board of Trustees.

 

1.         Trustees shall not serve consecutive six year terms and their successors must be appointed within 90 days of expiration of his or her term.

2.         The Board of Trustees should select and appoint independent auditors for all capital construction projects who will have unfettered access to all documentation necessary to conduct an appropriate review of a multi-billion dollar construction program. The retaining of independent project auditors will ensure that the Board of Trustees, the General Assembly and the Governor will have accurate and full information on how the projects are being managed.

3.         As stated above, the Board of Trustees should make a list of the recommendations of each audit and management letter; establish a time by which those recommendations will be implemented; and a person primarily responsible for their implementation. The date set for implementation of any auditors recommendation should be monitored by the Joint Audit and Compliance Committee of the Board of Trustees.

4.         At least annually, the Joint Audit and Compliance Committee should meet with the Independent Auditors alone, without anyone from management present.

5.         All audits authorized by the Board of Trustees should be included in the University’s financial reporting package to the legislative committees of cognizance  and the Governor.

6.         The Board of Trustees should consider the creation of a whistleblower process independent of the processes currently available under Connecticut law. [xxxii] This will give contractors and others involved in the UConn 2000 and 21st Century UConn programs adequate protections to bring sensitive matters to the Board of Trustees without fear of retribution.

7.         The Board of Trustees should have its own Building and Grounds Committee independent of the Financial Affairs Committee and independent of the University administration’s Building and Grounds Committee.

 

C.        Organizational Restructuring

 

The Commission endorses the University’s actions to ensure more direct reporting to senior management. As President Austin explained in University’s Corrective Action Plan, “the Director of Capital Projects and Contract Administration now reports directly to the Vice President/Chief Operations Officer.   In addition, the two positions responsible for the entering financial data into the construction management system and reporting on that information now report to the Vice President/Chief Financial Officer CFO rather than to the Executive Director of A&ES.  This provides proper segregation of duties that were previously missing.”[xxxiii] This system replaces a previous model where the lines of communication did not always flow to the President.

 

However, this Commission recommends going a step further. We propose the establishment of an independent UConn Building Committee. This committee will be comprised of seven members: three members appointed by the Governor; three members appointed by the Chairman of the Board of Trustees and one member by vote of the other six members. The Chairman of the Building Committee will be chosen from the members.

 

 The Building Committee will be responsible for the management of all UConn 2000 and 21st Century UConn construction projects. The Building Committee will generally ensure that the buildings are safe, code compliant and cost effective. This committee will:

 

·        develop, and submit for approval to the Board, a construction program for each UConn 2000 and 21st Century UConn project prior to design;

·        provide oversight for selection and performance of professionals to manage, design, construct and commission university construction projects;

·        select architects, engineers, consultants, program managers, construction managers and other entities which are needed to design, construct and commission university facilities;

·        award contracts for goods and services with respect to capital development projects;

·        review and approve architectural plans and specifications for university construction projects;

·        establish standard practices and procedures for university construction projects

·        continue to monitor project scope, schedules and budgets

·        authorize changes in contracts as needed;

·        monitor and approve change orders within appropriations by the Board of Trustees

 

The Building Committee is also responsible for hiring a full-time Director of Capital Projects who will have extensive experience and training in construction management.  The Director will report directly to the Building Committee and will develop and implement an overall management plan to coordinate the construction of  existing UConn 2000 and 21st Century UConn projects. To ensure that the buildings are built in a safe and cost efficient manner, the Director of Capital Projects, in consultation with the Building Committee, may utilize existing university staff or hire additional staff to fulfill his duties. The Director shall provide quarterly reports to the Board of Trustees.

 

Coordination amongst the Building Committee, Director of Capital Projects, and the University’s President, Chief Financial Officer and Chief Operating Officer will be necessary and should be encouraged. However, one of the major problems with the University’s capital program thus far has been a lack of independence in the flow of information from the University’s senior management team to the Board. This Commission hopes that this problem will be remedied by giving the Building Committee and Director of Capital Projects the independence and fiscal discipline it needs to build safe, quality and cost efficient buildings.

 

D.        Code Compliance

 

This Commission strongly believes that the oversight functions with respect to fire and safety code compliance must be independent from the University. While we understand the goal that the University tried to achieve in creating its own Office of Fire Marshal and Building Inspector, we do not believe that this, in and of itself, is enough. In order to be as effective as possible, the University must benefit from outside, independent inspectors free from internal pressures. Therefore, we recommend that the staff within the newly created Office of Fire Marshal and Building Inspector report directly to the appropriate divisions within the Department of Public Safety.

 

When an institution of higher education embarks upon a multi-billion dollar construction program to drastically improve its physical infrastructure, there cannot be any short-cuts in ensuring that the occupants of those buildings are safe. As we have learned from several individuals who have come before us, the State Building and Fire Safety Codes is incredibly complex.[xxxiv] It is in the state’s best interest to make sure that it is being interpreted and applied by individuals who are qualified and experienced in building and fire code compliance.

 

Further, this Commission believes that all buildings should be treated equally, whether or not they reach the thresholds mandated by state law. [xxxv] Therefore, all buildings, threshold and non-threshold should be held to the same standard.

 

In addition, the Commission makes the following recommendations:

 

1.         All buildings constructed during the UConn 2000 program that have not been fully inspected by an independent building inspector be fully inspected by February 1, 2006.

2.         The University shall be responsible for all costs associated for fulfilling its new duties. 

3.         All building plans and revisions shall be reviewed for fire and safety code compliance prior to construction.

 

E.         Budget and Finance

 

As we have in other areas, this Commission commends the University for the Steps it has taken to strengthen its budgeting and finance processes, particularly the purchasing of the Fixed Asset Management Information System (FAMIS). However, we believe that more can be done to ensure the financial integrity of the UConn 2000 and 21st Century UConn Programs.

 

Therefore, the Commission makes the following recommendations:

 

  • The University shall conduct a comprehensive assessment of its existing physical plant and institute a plan similar to the Department of Higher Education’s Asset Protection Plan.[xxxvi]
  • In addition, the Building Committee shall approve a prioritized list of deferred maintenance funding for approval by the Board of Trutees.
  • The Building Committee shall development of a “Cost & Budget Manual” which incorporates guidelines for establishing a fee structure for architects, and construction managers for various-sized projects.  The “General Guidelines for Capital Budget Submittals,” published by DPW dated June 5, 2004 should be utilized in the absence of its own manual.[xxxvii]
  • The building committee shall establish a realistic budget for each project. The square foot cost originally budgeted should be in line with the construction industry’s  typically accepted cost using, as an example, R.S. Means or the DPW square foot guidelines as published in their “General Guidelines for Capital Budget Submittals,” dated June 5, 2004. In addition, the Building Committee should hold the architect and contractor to the final approved budget.
  • To the extent possible, we recommend that the University fully reconcile the FRS and CAPSTAT systems and provide a detailed and accurate, annual report to the Governor, legislative committees of cognizance and Auditors of Public Accounts on all UConn 2000 expenditures.

 

With respect to deferred maintenance funding, the Commission recommends that the University approve a prioritized list of deferred maintenance funding for approval by the Board of Trustees.

           

 

F.         Construction Process

 

The University has also taken steps to improve its contracting processes through the adoption of a comprehensive Capital Project Delivery Process Manual and by providing additional budgetary and contract administration oversight by the Chief Financial Officer and other University staff. While this is a good first step, we believe other improvements are in order.Therefore, the Commission recommends that University use the prequalification process administered by the Department of Administrative Services.[xxxviii]

 

In an effort to ensure that all bids for future  University of Connecticut construction contracts are fair, all construction projects should be competitively bid, with certain exceptions, and awarded to the lowest qualified bidder. This recommendation is especially important when considering the paramount importance of fire and building code compliance. This commission also recommends that projects should be re-bid if less than three bids are received.

 

If utilizing a Construction Management (CM) form of contract, the Building Committee, should consider utilizing the following tools where appropriate:

 

Ø      Bonus/Penalty clause for early and late completion of the work. This approach would encourage the CM to complete work ahead of schedule. The per diem penalty could be the same amount as the bonus amount.

 

Ø      Share in the Savings processes- Under the present system contracts for Construction Managers at Risk contain a Guaranteed Maximum Price (GMP).  If the CM exceeds this price he or she pays for this work. If there are cost savings, any savings below the GMP revert back to the University. The CM should be encouraged, through value engineering, to find ways to reduce the overall cost of the project. The CM should be awarded a percentage of the overall savings to the GMP at job completion. The split should be established by The University of Connecticut and so stated in the contract. This approach would encourage ways to find areas of savings. Usually, under these conditions, the CM will generally submit with his bid a lower fee in anticipation that he will be able to save money throughout the project. The University of Connecticut should place a maximum cap on the amount of the CM’s share of the savings.

 

This Commission recommends the inspection of all warranty work prior to the expiration of the standard one-year warranty on materials and labor from the date of substantial completion. A system should be established so that prior to the end of the one year warranty period a thorough inspection of each facility is documented and a list of deficiencies is forwarded to the contractor for corrective action.

 

Finally, this Commission recommends that the University conduct periodic audits of the Construction Administrators’ costs and the Project Managers’ costs to ensure that it is being accurately charged for services rendered. This standard auditing procedure should have been conducted on a regular basis since the inception of the UConn 2000 program and utilizing periodic audits will help assure that 21st Century UConn is being completed in an efficient and cost effective manner.


 

Conclusion

______________________________________________________________________________

 

The UConn 2000 and 21st Century UConn programs have had an extraordinary impact on the University of Connecticut from both a educational and developmental standpoint. The public and private investment in the University has served as the foundation for transforming it into one of the most prestigious public universities in the nation. 

 

This unprecedented capital investment and the corresponding operational control that was granted to the University of Connecticut required a far greater degree of management and oversight by the Board of Trustees and senior university administrators than it had.  The significant and serious fire and building code violations which have been uncovered and the problems regarding the University’s oversight, financial management and accounting practices have undermined the great strides the University has made.

 

The Commission hopes that, upon the recommendation of the Governor, the Connecticut General Assembly expeditiously adopts all statutory changes needed to implement these recommendations.  In addition, the University of Connecticut’s Board of Trustees should move quickly to adopt any by-law changes that are needed to properly execute the recommendations. The University’s administration should make any policy changes necessary for the proper implementation of this expanded corrective action plan.

 

We suggest that the Governor meet periodically with the University’s President and Chairman of the Board of Trustees to review the implementation of this Commission’s recommendations.

 

This Commission believes that the recommendations contained in this report will help ensure better procedures, oversight, accountability and reporting as the program goes forward to ensure the future success of UConn 2000 and 21st Century UConn. Adopting these recommendations and refocusing attention on enhancing the facilities and academic programs at the University of Connecticut is a vital step toward creating the University Connecticut and its citizens need and deserve.

 

 



[i] “UConn to Get $1 Billion,” New York Times, p. B1 (June 23, 1995). Exhibit A.

[ii] See attached Governor’s Commission on UConn Review and Accountability, Exhibit B

[iii] Interview Notes, PriceWaterhouseCoopers, Evalualtion of the University of Connecticut’s Architecture and Engineering Services Department (April 12, 2005).

[iv]Minutes of the University of Connecticut, Board of Trustees ( September 15, 1998), Exhibit C

[v] Conn. Gen. Stat. Sec. 10a-109g (rev. 2004), Exhibit D

[vi] See handwritten notes by Chancellor Mark A. Emmert attached as Exhibit E.

[vii] Id.

[viii] Minutes of the University of Connecticut, Board of Trustees (November 10, 1998).

[ix] Interview Notes, PinnacleOne Construction Program Review and Financial Audit (November 1999).

[x] The University of Connecticut, Office of Audit, Compliance and Ethics, PinnacleOne and BlumShapiro Engagements, Process Review, Draft report, p.4 and PinnacleOne Chronology, Appendix B, Items 12 and 14.

[xi] Testimony of President Philip Austin before the Governor’s Commission on UConn Review and Accountability (June 23, 2005). Exhibit F.

[xii] Memorandum from Philip Austin to Vice Chancellor Dale Dreyfuss dated September 17, 1998. Exhibit G.

[xiii] Purchase Order dated October 30, 1998. Exhibit H.

[xiv] University of Connecticut, Board of Trustees, Audit Subcommittee, Risk Analysis (August 31,2000). Exhibit I.

[xv] Letter to Board of Trustees Chairman John W. Rowe from Denis J. Nayden, Chairman Joint Audit and Compliance Committee (July 18, 2005). Exhibit J.

[xvi] Id.

[xvii] Blum Shapiro Management Letter (September 24, 1999), pp. 1-2. Exhibit K.

[xviii] Id. at 3.

[xix] Id. at 7.

[xx] The University of Connecticut, Office of Audit, Compliance and Ethics, PinnacleOne and BlumShapiro Engagements, Process Review, Draft Report, Appendix C, Item 13.

[xxi] BlumShapiro Draft Management Letter (June 30, 2002) p. 1.Exhibit L.

[xxii] Id. at 3-6.

[xxiii] Letter to Commission by Mr. K. Michael Walker (August 22, 2005) attached as Exhibit M.

[xxiv] PriceWaterhouseCoopers, Evaluation of the University of Connecticut’s Architecture and Engineering Services Department (April 12, 2005), p. 1. Exhibit N.

[xxv] PriceWaterhouseCoopers, Evaluation of the University of Connecticut’s Architecture and Engineering Services Department (April 12, 2005 .

[xxvi] PriceWaterhouseCoopers, Evaluation of the University of Connecticut’s Architecture and Engineering Services Department (April 12, 2005), Audit Notes.

[xxvii] Phaneuf, Keith M., “Rowland Considering UConn 2000 Switch,” Journal Inquirer, September 23, 1998. Exhibit O.

[xxviii] Testimony of President Philip Austin before the Governor’s Commission on UConn Review and Accountability (June 23, 2005).

[xxix] Letter from President Austin to Governor Rell (March 29, 2005). Exhibit P.

[xxx] PriceWaterhouseCoopers, Evaluation of the University of Connecticut’s Architecture and Engineering Services Department (April 12, 2005), p. 19.

[xxxi] Conn. Gen. Stat. sec. 29-276b and Connecticut State Building Code section 114.3 (1999 supplement).

[xxxii]  Conn. Gen. Stat. sec. 4-61dd.

[xxxiii] University of Connecticut, Construction Program, Initial Improvement Plan. Exhibit Q.

[xxxiv]  Testimony from State Building Inspector, Christopher Laux (July 26, 2005) and Mr. James Bradley (August 23, 2005).

[xxxv] Conn. Gen. Stat. sec. 29-276b and Connecticut State Building Code section 114.3 (1999 Supplement).

[xxxvi] Department of Higher Education Asset Protection Plan. Exhibit R.

[xxxvii] The General Guidelines for Capital Budget Submittals. Exhibit S.

[xxxviii] Conn. Gen. Stat. sec. 4a-100.

           





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