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The City of Portland, Oregon

Audit Services

Audits City bureaus and programs for efficiency, effectiveness and equity

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PORTLAND BUILDING FOLLOW-UP: Greater public transparency needed about project costs, trade-offs, and missed equity requirement

An image of the Portland Building, comparing its architectural rendering to a more recent photo showing construction on the exterior of the building.

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Summary

Audit results: Budget transparency still needed as costs for Portland Building grew to $214 million, 10 percent more than planned $195 million

Audit results: City on track to meet minimum requirements, but there have been no reports on trade-offs that affected other opportunities

Audit results: City missed requirement to disburse about $1 million in grants to help meet equity goals


Summary

The Portland Building is an active construction site and the renovation is forecasted to be completed ahead of schedule. The City decided to renovate versus demolish and rebuild the iconic structure and set a budget of $195 million for the project. We identified risk areas during the project’s initial phase, and this report follows up on the recommendations from that audit.

We found these issues have not been resolved.

We recommended in 2016 to present budget information for public transparency, ensure timely, effective and inclusive decisions will be made by key milestones, and develop an implementation plan and schedule for the adopted community benefits. We found that budget transparency is still needed as costs for Portland Building grew to $214 million, 10 percent more than planned $195 million. The City is on track to meet minimum requirements, but there have been no reports on trade-offs that affected other opportunities.

We make new recommendations to address remaining risks with the City’s compliance with Americans with Disabilities Act and historic preservation requirements, as well as implementation of community benefits. We will follow up on these in addition to the original budget transparency recommendation in one year.

Our office has also begun an audit of the construction contract and will report results later this year.

 


Audit Results: Budget transparency still needed as costs for Portland Building grew to $214 million, 10 percent more than planned $195 million

Background: City Council authorized the Portland Building renovation in 2015 using a generic description of “design, re-location, reconstruction, and project management” activities, with a $195 million budget and a 2020 deadline for completion. Our 2016 audit found that the Office of Management and Finance project team presented Portland Building budgets in a way that made it difficult to trace back to earlier cost estimates and scope commitments, and recommended that the project team present budget information with greater specificity to allow for public transparency.

Update: While the public narrative about the Portland Building focused on activities tied to the $195 million budget, this does not include components critical to delivering a functional building. Starting in December 2016, the project team began excluding some elements from the project scope to stay within its $195 million budget. These exclusions included furnishings, technology equipment, as well as tenant improvements for parts of the building that would otherwise be left unfinished – two and a half floors of offices, and the childcare center on the first floor (see Figure 1).

Figure 1. Approved or anticipated buildouts that are not part of the $195 million budget

Figure 1 is a two-dimensional outline of the floors of the Portland Building. Two and a half office floors and a childcare center are shaded in blue with the other floors appearing white to indicate the approved or anticipated buildouts that are not part of the $195 million budget.

Source: Audit Services analysis of project records

 

The project team began in March 2017 to request new funding to add back these exclusions as projects separate from the main $195 million renovation project. The project team states there are benefits to overall City operations as a result. The City Budget Office raised concerns about these “spin-off projects” in its annual budget analyses. Over the years, the project team has been transparent about each individual budget request, but there has been no presentation of the collective Portland Building costs that result from these piecemeal decisions. As a result, budgets the project team presented to Council and the Portland Building Community Oversight Committee did not include the entire work managed by the City or its contractors.

The final costs for the Portland Building are not yet known. The City’s official bond statement from November 2018 projected costs to $225 million. Less financing costs of $11 million, that relates back to $214 million of Portland Building activity (see green and blue items in Figure 2). At that time, the project team estimated savings from the main $195 million renovation budget, and dedicated about $4.2 million of those funds to address part of the building’s technology needs after Council did not approve the separate budget request proposed in September 2018.

Figure 2. Main renovation project along with other significant project costs (approved in blue and anticipated in orange) at end of 2018

Figure 2 is a vertical bar graph showing the different costs of the renovation project. The main renovation is a green bar amounting to $191 million, which represents $195 million budget minus the projected cost savings. Technology is a blue bar amounting to $4 million, representing the audio/visual equipment and scheduling system for meeting rooms and digital signage in the building. Two and a half office floors is a blue bar amounting to $7 million, representing tenant improvements that are consistent with other office floor buildouts. Furnishings is a blue bar amounting to $12 million, representing workstations, chairs, conference room furniture, shelving, storage, etc. Childcare is an orange bar amounting to $3 million, representing tenant improvements for space planned on the first floor. Technology, the two and a half office floors, and furnishings are approved renovation project costs. Childcare is an anticipated project cost.

Source: Audit Services compilation of City project records and staff communications

 

These projected costs from the bond statement don’t include at least one more area anticipated by the project team that has yet to be authorized by Council – the buildout for a childcare center (see orange item in Figure 2). Council approved $217,000 for design and permitting costs and, at the end of 2018, the project team planned to request $2.7 million for construction as part of this year’s budget proposal. It is not clear how this space on the building’s first floor would be used should Council not approve construction.

These projected costs also do not reflect additional side projects prompted by the Portland Building renovation. When Council first authorized the renovation some items, such as the relocation of the existing childcare center and data center, were funded outside of the $195 million budget. There also will be projects that address additional ways the building will be used and changes to ongoing operations and maintenance costs once the renovated building is occupied.

The final costs will be allocated to tenant bureaus and, ultimately, will have a long-term effect on the City’s capacity for direct services to residents. The financial impact to bureaus was first quantified in December 2018 as part of internal preparations for this year’s budget discussions. While the City is implementing uniform tenant rates for all of its downtown office spaces with adjustments to allow for utility bureaus to directly pay for their share of costs using ratepayer dollars, the Portland Building is the primary cost driver (86 percent). Average square footage costs will go up 102 percent – from $21.27 for Fiscal Year 2018-2019 to $43.03 for Fiscal Year 2020-2021. About one quarter of increased costs will be borne by the General Fund, with Transportation, Development Services and Utility funds responsible for most of the remainder (see Figure 3).

Figure 3. Renovation drives increased downtown tenant costs for the General, Development Services, Transportation, and Utility funds

Figure 3 is a vertical line graph showing the tenant costs due to the renovation. A starting cost in 2019 appears on the left, and increased costs projected for 2021 appears on the right. In 2021, the Water Bureau is estimated to have $4,294,344 in costs, Environmental Services is estimated to have $4,298,605 in costs, Transportation is estimated to have $4,696,927 in costs, Development Services is estimated to have $5,877,901 in costs, and the General Fund is estimated to have $8,828,511 in costs.

Source: City records on downtown office space costs by fund and adjustments to account for utility bureau-direct costs based on communications with project staff

Recommendations:

1. Our audit recommendation for budget transparency remains relevant for the remainder of the City’s Portland Building work. Given the significance of the side projects described in our audit, we further recommend the Chief Administrative Officer describe this collective Portland Building activity when presenting budget-to-actual reports to Council and Oversight Committee.

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Audit Results: City on track to meet minimum requirements, but there have been no reports on trade-offs that affected other opportunities

Background: To meet the $195 million budget limit, the project team prioritized scope flexibility. In a presentation to Council, the team identified the minimum requirements it would achieve, as well as broader goals and aspirations to exceed those minimums (see Figure 4).

Figure 4. Project team committed to minimum requirements, set additional goals and aspirations

Figure 4 is an image depicting the project team identifying and committing to minimum requirements of the project’s scope and setting additional goals and aspirations to exceed those minimums.

Source: Excerpt from project team's July 2016 presentation to Council

 

The 2016 audit identified a risk that the project team did not have a structured way to prioritize work beyond the minimum requirements or to evaluate and communicate trade-offs that may be needed. The audit recommended that the project team ensure timely, effective and inclusive decisions through a structured decision-making approach.

Update: The City is on track to meet minimum requirements – for example, to eliminate water intrusion, upgrade seismic performance to be consistent with a new building, and replace most building systems, such as for heating and cooling. The project team communicated this information at Council and Oversight Committee meetings. However, with the exception of the piecemeal budget proposals described earlier, there were no similar discussions about the status of project team’s attempts to reach beyond the minimum requirements and how the options were prioritized.

The following three examples illustrate where decisions may affect achievement of renovation expectations and anticipated benefits. There was no record that identified the consideration of trade-offs or ramifications.

Accessibility: The project charter identified a minimum requirement to “upgrade accessibility” and an aspirational goal of “following Universal Design practices” which strives to produce buildings that are inherently accessible by all. The City in 2016 reported more than 800 unaddressed accessibility barriers in the building (see Figure 5). The City project team states that most barriers will be addressed as part of the renovation. However, the renovation does not address all components of the building. For example, the City is keeping existing stair structures and will address barriers with the stair rail systems but not horizontal distances or vertical heights of the stairways. The project team did not report this to Council or the Oversight Committee and has yet to request a City exception to the Americans with Disabilities Act or quantify the number of previously inventoried barriers that will exist after renovation. Inspections during construction will be critical to ensure no new barriers are inadvertently constructed.

Figure 5. Accessibility: City anticipates most previously inventoried barriers addressed, but has yet to quantify those that will remain

Figure 5 is a horizontal bar graph indicating the numbers of inventoried accessibility barriers by categories. The categories appear in descending order by the number of their barriers. In descending order, the categories appear as multiple user restrooms, door or gates, stairways, elevators, hazards, area of refuge, rooms, drinking fountains, other, and corridor or aisles.

Source: Staff communications and City's 2016 Americans with Disabilities Act tracking report

Note: In response to audit, project team noted that remaining barriers likely in stairway, elevators, and hazard categories

 

Sustainability: The project charter identified a minimum requirement to achieve Leadership in Energy & Environmental Design (LEED) certification at the Gold Level and also described “an opportunity to… ensure the City’s Green Building Policy is appropriately applied to the project.” Presentations to Council and the Oversight Committee have focused on tracking LEED Gold and the project team’s pursuit of a new, optional WELL Building certification – a standard focused on the health and wellness of the people in buildings – not required by City policy. There were no similar presentations when the City pursued policy exemptions to its Green Building requirements (see Figure 6). In two instances we found no evidence of how a decision was made. Staff reports to the Oversight Committee stated the project is on track to meet or exceed Green Building policy requirements. 

Figure 6. Sustainability: LEED and Bicycle Parking prioritized within Green Building policy

Figure 6 is a table listing sustainability key requirements in a column on the left, and the status of the requirement in a column on the right. Bicycle parking and Leadership in Energy and Environmental Design (also referred to as LEED) are on track. Bird-friendly and ecoroof requirements were City-approved exemptions. Green technology was a sustainability requirement the City determined was not appropriate. Salmon safe and space allocation sustainability requirements’ statuses were unknown as no records were found.

Source: Audit Services analysis of available project records

 

Historic Preservation: Retaining the historic status of the Portland Building was one of reasons the City pursued renovation over other options, such as selling and buying elsewhere, or demolishing and building new. The building is listed on the National Register of Historic Places because of architect Michael Graves’ award-winning Post Modernism design.

Despite the importance of historic preservation, there was no minimum requirement identified for this project principle. The project team identified an aspirational goal and anticipated benefit to “maintain the historic and iconic status of the building.”

As a part of the local Historic Landmarks Commission reviews in June 2017, the National Parks Service and the State Historic Preservation Office alerted the City that it would remove the Portland Building from the register if the City pursued the proposed exterior design to address water leaks (see Figure 7). This design includes using an aluminum rainscreen system that substitutes yet matches the pattern of the original tiles.

State Historic Preservation Office representatives said they will initiate a delisting process after the Portland Building is almost complete, and the City would be obligated to enter into a mitigation agreement for the adverse effect. In addition, there are City requirements to install “interpretive materials” in the renovated building and the project team reports these details have yet to be decided as of December 2018. The City will also have to pursue local landmarks status once the building is delisted from the National Register.

Figure 7. Historical Preservation: Chosen exterior design will substitute original materials and result in delisting of buildingFigure 7 is an architectural drawing in color of the Portland Building. The perspective is drawn as though someone would be looking at the building from an elevated height and from southwest 5th Avenue and Madison Street.

Source: Architectural rendering submitted to Council and Historic Landmarks Commission

 

Recommendations:

The opportunity to revisit decisions that resulted in these outcomes has passed, but there are still compliance actions for the City to take. We recommend that the Chief Administrative Officer:

2. Incorporate Americans with Disabilities Act inspections during the remainder of construction and report on the status of accessibility barriers to the Office of Equity and Human Rights and/or Bureau of Human Resources.

3. Complete remaining state and local historical preservation requirements.

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Audit Results: City missed requirement to disburse about $1 million in grants to help meet equity goals

Background: City Council committed to set aside 1 percent of the Portland Building’s “hard construction costs” for community benefits in October 2015, and $1 million was allocated in July 2016. These funds were intended to address historical inequities in construction, and improve diversity in the workforce and among subcontractors. The plan was for these community benefits to “be dispersed in phases through the life of the [Portland Building] project … and the Chief Administrative Officer will report back regularly to the Council on activities and results.” The 2016 audit found that the community benefit activities were not integrated or aligned with the project schedule and recommended developing an implementation plan to maximize results of the equity goals for the Portland Building.

Update: The City spent $50,000 of the funds set aside for community benefits at the end of 2018 and had no plan to ensure the remaining $950,000 would be disbursed by the completion of the renovation. The City contributed the $50,000 to the Metro government’s regional construction workforce study. No funds were spent in support of disadvantaged workers and businesses. There has been no report to Council about the status of these activities or results since 2016.

The Office of Management and Finance made one attempt to award community benefits grants but did not follow through with its plans because of a change in direction from the Mayor’s Office. The Office announced a competitive grantmaking opportunity in April 2018 as part of a broader City program, using funds from the Portland Building and two other City construction projects. Of the 39 applications received in August 2018, there were 12 Portland Building-specific proposals from eight organizations that totaled $887,000 (see Figure 8). Despite available funds and interested applicants, who invested time to craft their proposals, the Office did not award any grants as scheduled for October 2018. The Office had yet to communicate with applicants by the end of 2018 about the status of their applications or the reason why the awards were not made.

Figure 8. City received grant proposals yet made none of the planned awards

Figure 8 is a vertical bar graph showing the available budgets for workforce development and technical and project management assistance community benefits grant in comparison to the proposals it received. In both categories of community benefits grants, the City made none of the planned awards. Workforce development received proposals that didn’t exceed the category’s budget but proposals exceeded the budget for the technical and project management assistance category.

Source: Audit Services analysis of City grant application records

 

Definition of apprentice: a trainee receiving supervised on-the-job and classroom instruction. Definition of journey worker: successfully completed an apprenticeship and has industry certification.

 

With less than one year of construction remaining, the City missed a strategic opportunity to use community benefits funding to help meet its stated equity goals for the Portland Building. 

While the project team anticipates meeting other equity goals for Portland Building, some of them may not be met (see Figures 9A and 9B). As of December 2018, the notable anticipated shortfalls are for the use of minority-owned businesses in both professional service and construction categories. In addition, the use of female journey workers is tracking only slightly above its goal.

Figure 9A. Specific goals compared to use of certified subcontractors

Figure 9A is a vertical bar graph showing the specific equity goals for the categories of owner’s representative, design, and construction and comparing minority, women, small business, or any kind of certified subcontractors. The City did not meet any of its equity goals.

 

Figure 9B. Specific goals compared to use of diverse workers

Figure 9B is a vertical bar graph showing the specific equity goals for the categories of apprentice and journey workers and comparing minority and women in each category. Minority and women apprentices and journey workers exceeded the equity goals but the use of female journey workers is tracking only slightly above its goal.

Sources for 9A and 9B: City project and procurement records

 

Definition of owner's representative: a third party hired to represent the project owner's construction interests.

The Portland Building’s Oversight Committee regularly evaluates the renovation project and – because of the challenges in reaching subcontractor and workforce goals – has given its most critical ratings in the “Equity” category to encourage the achievement of these goals by the end of the project. The project team presented equity reports focused on the activities under the primary construction contractor and did not include the performance of the City owner’s representative who also has an equity goal for its portion of the Portland Building work.

In addition, it is unclear how any future grantmaking will be administered to remain accountable to the Portland Building’s restricted sources of funding. The $1 million for community benefits grants is funded by tenant bureaus with about $360,000 from water and sewer ratepayer sources. Based on a recent court ruling and legal settlement that found the City spent ratepayer funds on non-utility projects, any use of ratepayer money must be reasonably related to the provision of water and sewer services.

Recommendations:

Given the challenges that remain with the Portland Building’s community benefits funding, we recommend that the Chief Administrative Officer:

4. Report to Council as required by the original Resolution, and inform applicants of City’s grantmaking status; and

5. Remove ratepayer funds from the community benefits budget if future grants are not reasonably related to the provision of water and sewer services.

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Response to Audit from Mayor Wheeler and the Office of Management and Finance

Objective, Scope, and Methodology

Audit published June 2019 

View a PDF of the full report online or the report's summary, information specific about community benefits, or trade-offs online