Meeting_Body
CONSTRUCTION COMMITTEE
JULY 16, 2025
Subject
SUBJECT: OFFICE OF THE INSPECTOR GENERAL CONSTRUCTION CHANGE ORDER SPOT CHECKS
Action
ACTION: RECEIVE AND FILE
Heading
RECOMMENDATION
Title
RECEIVE AND FILE Office of the Inspector General Construction Change Order Spot Check Report for the period March 1, 2025, to May 31, 2025.
Issue
ISSUE
On January 25, 2018, the Metro Board directed the Office of the Inspector General (“OIG”) to conduct random spot checks on change orders for the construction projects listed in the quarterly program management report to ensure that the CEO Delegation of Authority to approve Construction Change Orders Policy is performing in the manner desired by the Board of Directors.
Background
BACKGROUND
The OIG’s Construction Change Order Spot Check Program (“Spot Checks”) focuses on approved change orders and modifications that exceed $500,000. The four change orders in this report were selected from the Program Management Quarterly Major Project Status for the period of March 1, 2025, to May 31, 2025. The OIG gathers the data, reviews all the change orders over $500,000, and selects change orders from the major projects. The information for the Spot Checks was collected from the Program Management Information System (PMIS), which is the department’s database system. Also, virtual meetings and telephonic interviews were conducted with Metro Program Management, Project Control, and Procurement staff from each involved project office.
For each Spot Check, we summarized:
• Description of the change order,
• Change order detail,
• Scope of Work,
• Budget,
• Schedule (Time to execute the change order),
• Safety, and
• Recommendations (lessons learned).
Metro’s Program Management or Control department has provided input to this report before its issuance, and they are asked to provide written responses to the recommendations in this OIG Spot Checks Report within approximately 30 days after this Report is issued. Included with this report is a spreadsheet with the status of responses concerning previous OIG Spot Check Report recommendations (Attachment B).
Discussion
DISCUSSION
Spot Checks Performed in this Quarter
Spot Check #1 - Rail to Rail Active Transport Corridor Project
This OIG Spot Check report pertains to the Rail to Rail Active Transport Corridor Project (Contract C1166 MOD 00136), Differing Site Conditions.
Change Order Detail
See Attachment A, Spot Check #1 table.
Summary #1
Scope of Work - This change order of $552,382.69 is for MOD 00136. This modification was issued to compensate the Contractor for differing site conditions at the Rail to Rail Active Transport Corridor Project C1166. The original project scope involved removing the existing pavement and 8 inches of subsurface material, which was assumed to be crushed miscellaneous base (CMB), at various street intersections within the City of Los Angeles public right-of-way. The removal of pavement at these intersections was necessary because they crossed the project boundary.
The subsurface conditions on the public right-of-way were not identified in the project plans or geotechnical reports. In total, approximately 752 cubic yards of native soil were removed, and additional effort was required by the Contractor to haul and properly dispose of this unexpected material.
Questions for Metro Project Management
1. Did the design team perform adequate due diligence in their subsurface evaluations?
2. Were historical reference records reviewed during the design development phase and prior to bid solicitation, such as boring logs or Bureau of Engineering drawings?
Response from Metro Project Management
1. Subsurface borings were conducted as part of the geotechnical investigation; however, the scope was limited exclusively to the Metro right-of-way. No borings or subsurface evaluations were performed within the street intersections of the public right-of-way, resulting in an incomplete subsurface profile for the overall project boundary.
2. Yes, historical records were reviewed during the design development and were provided to the Contractor during the bid solicitation process. The historical records were not sufficiently clear at all intersections. Additionally, the designer only documented the subsurface material encountered at utility locations and lacked documentation at the street intersection locations where utilities were not present, and the native soil was later discovered.
Budget - This change order for MOD 00136 was negotiated to $552,382.69. The Contractor’s cost and scheduled proposal (CSP) was $552,382.69, and the Independent Cost Estimate (ICE) was $868,469. The ICE is $316,086.31 (36.40%) over the CSP and the negotiated amount. The variance from the ICE and Contractor’s Price was attributed to the estimator envisioning a larger scope of work, which was later clarified by Metro Project Management. It was determined that the final cost proposed by the Contractor was fair and reasonable. The project staff stated that funding for this change order is within the approved Life-of-Project budget.
Schedule - The CEO Delegation of Authority process was utilized for this change order. The Contractor notified Metro of the differing site conditions and request for change (RFC) on January 21, 2025. Metro agreed on the Scope of Work on March 17, 2025. The modification was awarded on March 26, 2025, and it took the staff three workdays to complete all signature approvals for a total of ten workdays to complete the process. Under the prior Board approval method for change orders, assuming presentation at the May Board meeting date, it would have taken a total of forty-one workdays to complete the transaction.
Safety - The Rail to Rail Active Transport Corridor Project has 387,164 Project hours through April 2025 with a Total Recordable Injury Rate (TRIR) of 2.07 (the Bureau of Labor Statistics National Average is 2.3) and a Days Away Restricted or Transferred (DART) rate of 1.55 (the Bureau of Labor Statistics National Average is 1.5).
Recommendations/Lessons Learned - CONSIDER: It is recommended that the Metro designer conduct comprehensive subsurface investigations within the project boundary, which includes the public right-of-way (city property) and the Metro right-of-way (Metro property) during the design phase. Furthermore, the potholing checklist should be revised to document all subsurface material encountered, not only at the utility locations.
Spot Check #2 - Purple Line Extension Section 3 Transit Project
This OIG Spot Check report pertains to the Purple Line Extension 3 Project (Contract C1152 MOD 00148), Design of Hi-Rail Vehicle Storage.
Change Order Detail
See Attachment A, Spot Check #2 table
Summary #2
Scope of Work - This change order of $6,692,007 is for MOD 00148. It is related to the Purple Line Extension 3 (PLE3) Project C1152 for the design to modify a section of the tracks and the Tail Track Exit Shaft at the west terminus of the PLE3 alignment for the storage of Hi-Rail vehicles. The proposed design will incorporate a motorized turntable to enable Hi-Rail vehicles to turn around in the shaft and drive back to the Division 20 Maintenance Yard. This design modification will involve infrastructure improvements to the electrical system, as well as the installation of safety features, including a linear heat detection and fire suppression system, a gas detection system, and exhaust fans. This modification is essential for storing and managing access to Hi-Rail vehicles, which will significantly reduce transit service delays when Hi-Rail vehicles are deployed.
Budget - This change order for MOD 00148 was negotiated to $6,692,007. The Contractor’s cost and schedule proposal (CSP) was $10,979,572, and the Independent Cost Estimate (ICE) was $6,461,592.62. The ICE is $4,517,979.38 (41.15%) under the CSP. The negotiated amount is $230,414.38 (3.57%) over the ICE. The project staff stated that funding for this change order is within the approved Life-of-Project budget.
Schedule - The CEO Delegation of Authority process was utilized for this change order. The Contractor and Metro agreed on the Scope of Work on March 21, 2025. The modification was awarded on May 20, 2025, and it took the staff a total of twelve workdays to complete all signature approvals for a total of forty-one workdays to complete the process. Under the prior Board approval method for change orders assuming presentation at the June Board meeting date, it would have taken a total of sixty-one workdays to complete the transaction.
Safety - The Purple Line Extension 3 Project C1152 has 2,278,171 Project hours through April 2025 with a Total Recordable Injury Rate of 0.79 (the Bureau of Labor Statistics National Average is 2.3) and a Days Away Restricted Transferred (DART) rate of .18 (the Bureau of Labor Statistics National Average is 1.5).
Recommendations/Lessons Learned - No recommendations by the OIG.
Spot Check #3 - Purple Line Extension Section 2 Transit Project
This OIG Spot Check report pertains to the Purple Line Extension Section 2 (Contract C1120 MOD 00247.1), Memorandum of Agreement (MOA) impacts at the Wilshire/Rodeo Station for Street-Level Restorations.
Change Order Detail
See Attachment A, Spot Check #3 table.
Summary #3
Scope of Work - This change order of $13,193,811 is for MOD 00247.1. It pertains to the Purple Line Extension 2 (PLE2) Project C1120. This modification is related to the Wilshire/Rodeo Station for street-level restoration and the impacts of evolving developments, as outlined in a Memorandum of Agreement (MOA) between the City of Beverly Hills and Metro. The MOA was initially drafted in 2017 but was not fully negotiated and agreed upon by both parties until 2019. The 2017 MOA terms referenced in the Contractor’s base contract diverged from the terms outlined in the 2019 MOA, resulting in the misalignment of the contract terms between Metro and the Contractor.
This Change Order is not a scope expansion beyond what was originally planned in terms of physical work for the Contractor, but rather a cost realignment due to community-driven constraints of the Beverly Hills final MOA requirements that materially changed the time, manner, and cost of performing the work for the Contractor.
Background and Origin of the MOA
In 2017, a preliminary MOA was drafted to establish a cooperative framework between Metro and the City of Beverly Hills. The purpose of the MOA was to manage community impacts, define acceptable construction practices, and address traffic disruptions in one of Beverly Hills' most commercially sensitive zones. The proposed plan, at the time, allowed for a five-week continuous closure of Wilshire Boulevard between Beverly Drive and Crescent Drive. This approach was expected to minimize the overall project duration and consolidate the necessary disruptions into a short, defined period.
However, following the proposal of the 2017 MOA, the Beverly Hills City Council expressed significant concerns. The Council was particularly concerned about how the closure would affect nearby high-profile retail and hospitality businesses. The Council requested modifications to the proposed schedule, asserting that a five-week full closure would impose unacceptable levels of disruption, economic hardship, and logistical complications for area stakeholders.
Delay and Alteration of Memorandum of Agreement (MOA) Terms
Due to Beverly Hills’ objections, the original MOA was not immediately executed. The negotiations between Metro and Beverly Hills continued for approximately two years. During this time, Beverly Hills introduced several new conditions related to work hours, traffic control, business access, noise restrictions, and public safety. These additional provisions were not included in the 2017 version of the MOA and were not reflected in the contract that Metro executed with the Contractor.
In 2019, the parties finalized and executed a revised MOA. However, by this point, the scope of allowable construction activity had changed dramatically from what was anticipated in the 2017 version. Instead of permitting a consecutive five-week full closure of Wilshire Boulevard and Beverly Drive, the 2019 MOA prohibited extended full closures of these roads and mandated that work be conducted exclusively on weekends over an eighteen-week period.
In late 2024, Metro submitted a proposed variance to the MOA, seeking approval for a full street closure and continuous, around-the-clock construction, three weeks for Wilshire Boulevard and six weeks for South Reeves Drive. The proposal also incorporated three weekend contingencies and the installation of a sixteen-foot-tall sound barrier on South Reeves Drive to mitigate noise impacts for the duration of this work.
On February 5, 2025, the Beverly Hills City Council formally approved and executed Metro’s variance to the 2019 Memorandum of Agreement (MOA). This approval marked a significant milestone on the PLE2 Project, enabling construction to proceed within a shorter duration and with less public disruption by applying value engineering methodology to enhance constructability.
Restrictions and Impact on the Contractor’s Scope
These changes had a cascading effect on the Contractor’s cost structure. Each weekend closure required the development and implementation of traffic management plans, public safety measures, community outreach, and site-specific access accommodations. Additionally, equipment had to be repeatedly transported, staged, and secured to accommodate Beverly Hills' restrictions on weekday work. These operations involved not just added labor but also additional security, material handling, and inspection personnel. All of these factors contributed to a significant increase in the cost and complexity of performing the restoration work.
Budget - This change order for MOD 00247.1 was negotiated to $13,193,811. The Contractor’s cost and schedule proposal (CSP) was $18,344,400, and the Independent Cost Estimate (ICE) was $13,502,142. The ICE is $4,842,258 (26.4%) under the CSP. The negotiated amount is $308,331(2.28%) under the ICE. The variance between the ICE and the contractor’s proposal was attributed to the estimator’s assessment that the defined scope of work could be completed within a shorter duration, thereby reducing the overall estimated cost. Furthermore, the project team personnel provided input regarding the anticipated level of effort, which was instrumental in determining a fair and reasonable price. The project staff stated that funding for this change order is within the approved Life-of-Project budget.
Schedule - The CEO Delegation of Authority process was utilized for this change order. The Contractor and Metro agreed on the Scope of Work on March 20, 2025. The modification was awarded on March 28, 2025, and it took the staff a total of twenty-two workdays to complete all signature approvals for a total of twenty-seven workdays to complete the process. Under the prior Board approval method for change orders, assuming presentation at the June Board meeting date, it would have taken a total of sixty-two workdays to complete the transaction.
Safety - The Purple Line Extension 2 Project C1120 has 5,414,921 Project hours through April 2025 with a Total Recordable Injury Rate of 2.18 (the Bureau of Labor Statistics National Average is 2.3) and a Days Away Restricted Transferred (DART) rate of .44 (the Bureau of Labor Statistics National Average is 1.5).
Recommendation/Lessons Learned - CONSIDER: Securing a Memorandum of Agreement ahead of time, where possible, and ensure that Metro incorporates the MOA conditions into the contract terms with the Contractor.
Spot Check #4 - LAX/Metro Transit Center Station Project
This OIG Spot Check report concerns the LAX/Metro Transit Center Station Project (Contract C1197 MOD 00056), Art Work Impacts.
Change Order Detail
See Attachment A, Spot Check #4 table.
Summary #4
Scope of Work - This change order of $491,998 is for MOD 00056. This modification pertains to the LAX/Metro Transit Center Station Project. It was issued to compensate the Contractor for premium labor costs during the four-week installation of a suspended sculpture that was affixed to the station's ceiling structure, due to the high-risk nature of the overhead installation and the potential risk of falling objects. Metro proactively directed the Contractor to accelerate their work schedules around the art installation. This ensured the safety of all trades in the same vicinity and mitigated further deviations from the project milestone date.
Budget - This change order for MOD 00056 was negotiated to $491,998. The Contractor’s cost and scheduled proposal (CSP) was $496,638, and the Independent Cost Estimate (ICE) was $492,991.38. The ICE is $3,646.62 (.73%) under the contractor's proposal. The negotiated amount is $993.38 (.20%) under the ICE. The project staff stated that funding for this change order is within the approved Life-of-Project budget.
Schedule - The CEO Delegation of Authority process was utilized for this change order. The Contractor and Metro agreed on the Scope of Work on May 2, 2025. The modification was awarded on May 21, 2025, and it took the staff a total of two workdays to complete all signature approvals for a total of fifteen workdays to complete the process. Under the prior Board approval method for change orders, assuming presentation at the July Board meeting date, it would have taken a total of fifty-one workdays to complete the transaction.
Safety - The LAX/Metro Transit Center Station Project has 1,577,260 Project hours through April 2025 with a Total Recordable Injury Rate (TRIR) of 1.27 (the Bureau of Labor Statistics National Average is 2.3) and a Days Away Restricted or Transferred (DART) rate of .0 (the Bureau of Labor Statistics National Average is 1.5).
Recommendations/Lessons Learned - No recommendations by the OIG.
Financial_Impact
FINANCIAL IMPACT
This report will have no financial impact on the Agency beyond what is described herein.
Impact to Budget
For all the construction change orders reviewed, Metro staff stated that the funds are within the approved budget and will utilize the contingency funds to cover the costs from the Life-of-Project budget.
• Spot Check #1) $552,382.69 Rail to Rail Active Transport Corridor Project
• Spot Check #2) $6,692,007 Purple Line Extension 3 Transit Project
• Spot Check #3) $13,193,811 Purple Line Extension 2 Transit Project
• Spot Check #4) $491,998 LAX/Metro Transit Center Station Project
Equity_Platform
EQUITY PLATFORM
In the opinion of the OIG , we considered whether these change orders presented any equity-related issues on their face. The OIG did not receive any data concerning community impacts. The OIG observed no obvious disparate impacts created by these change orders on small businesses or low-income persons or by the performance of the work in a manner that impacted a disadvantaged community beyond what is typical and usual when conducting any construction.
Vehicle_Miles_Traveled _Outcome
VEHICLE MILES TRAVELED OUTCOME
VMT and VMT per capita in Los Angeles County are lower than national averages, the lowest in the SCAG region, and on the lower end of VMT per capita statewide, with these declining VMT trends due in part to Metro’s significant investment in rail and bus transit. * Metro’s Board-adopted VMT reduction targets align with California’s statewide climate goals, including achieving carbon neutrality by 2045. To ensure continued progress, all Board items are assessed for their potential impact on VMT.
While this item does not directly encourage taking transit, sharing a ride, or using active transportation, it is a vital part of Metro Program Management, Safety in construction, and effective financial management. Because the Metro Board has adopted an agency-wide VMT Reduction Target, and this item generally supports the overall function of the agency, it is consistent with the goal of reducing VMT.
*Based on population estimates from the United States Census and VMT estimates from Caltrans’ Highway Performance Monitoring System (HPMS) data between 2001-2019.
Implementation_of_Strategic_Plan_Goals
IMPLEMENTATION OF STRATEGIC PLAN GOALS
The Office of Inspector General reviews large change orders over a calendar quarter and makes recommendations as appropriate to support Metro’s Strategic Plan Goal #5: Provide responsive, accountable, and trustworthy governance within the Metro organization and CEO goals to exercise fiscal discipline to ensure financial stability. The OIG mission includes reviewing expenditures for fraud, waste, and abuse in Metro programs, operations, and resources. For each selected change order reviewed, the OIG evaluates whether there are red flags of fraud, waste, or abuse taking place. We report the details of the significant change orders and make recommendations consistent with the OIG’s Construction Best Practices report dated February 29, 2016, and supplemental report in 2023 more particularly focusing on safety, lessons learned, improving efficiencies, and prudent spending.
Next_Steps
NEXT STEPS
The OIG shall provide every quarter, an ongoing spreadsheet of recommendations to Program Control and Program Control. Program Control and Program Management agrees to respond to the recommendations of the OIG within 30 days. The OIG continues to meet periodically to discuss reports, recommendations, and the status of implementation of the recommendations with Project Management, and receive updates. The list of OIG recommendations and Metro management responses is an attachment to this OIG report (Attachment B).
Attachments
ATTACHMENTS
Attachment A - Change Order Details for Spot Checks in this report
Attachment B - OIG Recommendations and Responses Tracking Sheet
Prepared_by:
Prepared by: Stuart Bermudez, Construction Specialist Investigator, (213) 244-7324
Reviewed_by:
Reviewed by: Karen Gorman, Inspector General, (213) 244-7337