Kennedy Center: Improvements Needed to Strengthen the Management and Oversight of the Construction Process
Released: 2003-09-10T00:00:00

Letter

Background

The John F. Kennedy Center for the Performing Arts, which was established in 1964 as both a national cultural arts center and a memorial to the 35th President, opened in September 1971 as an independently administered bureau of the Smithsonian Institution. Shortly thereafter, in 1972, the Secretary of the Interior, through the National Park Service, assumed responsibility for maintenance and all other services related to the administration of the Kennedy Center facility. In 1994, legislation was enacted that transferred responsibility for operations and maintenance of the facility to the Kennedy Center Board of Trustees. The 1994 legislation also required the Kennedy Center to develop and update annually a comprehensive building needs plan that details the condition of the Kennedy Center facility and planned renovations. The Kennedy Center receives annual appropriations to fund operations and maintenance as well as construction. For example, in fiscal year 2003, Congress appropriated $16.2 million for the Kennedy Center’s operations and maintenance and $17.5 million for construction. The Kennedy Center has other sources of funds to finance capital improvements in addition to annual appropriations, such as charitable donations and the ability to borrow funds. The John F. Kennedy Center Act, as amended, provides that no changes may be made to the grounds of the Kennedy Center without the approval of Congress and the Secretary of the Interior. The John F. Kennedy Center Parking Improvement Act of 1997 gave the Kennedy Center approval to design and construct the parking garage expansion and site improvements.

The garage expansion is being funded through a loan from the District of Columbia, which issued revenue bonds to provide the related funding, and the site improvements are being funded through annual appropriations. To maintain a separation between the appropriated and nonappropriated funds, the Kennedy Center arranged for separate construction management and general contractors for the two parts of the project—the parking garage expansion and the site improvements. The Kennedy Center also maintains separate accounting for the garage expansion and the site improvements. To assist in the construction of the garage expansion, the Kennedy Center has hired a construction management firm. For the site improvements, the Kennedy Center is using construction-contracting services available to federal entities through a Corps of Engineers indefinite-delivery, indefinite-quantity contract. The Corps of Engineers is also providing limited management assistance to the project. Figure 1 shows the Kennedy Center building and adjacent area.

Garage Expansion and Site Improvement Project Estimates

As of July 2003, Kennedy Center officials estimated the cost of the garage expansion and site improvement project at $88 million. This estimate includes $43 million for the site improvements and $45 million for the garage expansion, including revenue bond issuance costs and capitalized interest payments. The garage expansion is to include 525 new parking spaces. The site improvements are designed to improve vehicle and pedestrian access to the Kennedy Center and include repairs and changes to the sidewalks, roads, and landscaping surrounding the Kennedy Center site. Regarding the garage expansion, 104 spaces are open and operating, and the remainder will open in December 2003. Kennedy Center officials estimated that the site improvements will be completed in the summer of 2004.

These current estimates reflect changes made after the 2001 contract award and include such things as an approximately 1-year increase in time frames and a $3.3 million, or 15 percent, increase in the garage expansion costs since the time of award. These increases were primarily due to (1) changes to the project design required by the National Capital Planning Commission and the Commission of Fine Arts; (2) large amounts of snow and rain during the winter and spring of 2003 that caused project delays; and (3) unforeseen site conditions, such as deteriorated concrete and greater-than-expected amounts of soil contamination. Kennedy Center officials told us that the site contains petroleum and coal-tar contamination. Although the Kennedy Center performed a soil test before construction began, the extent of the contamination was greater than expected. The costs associated with removing this soil contamination account for over half of the 15 percent increase over the awarded base contract amounts.

The July 2003 estimates of the project’s costs, time frames, and scope vary substantially from estimates that the Kennedy Center provided to Congress in 1997 and 1998. At that time, Kennedy Center officials estimated that the garage expansion would cost $25 million and would include 900 to 1,000 parking spaces, and that the site improvements would cost $3 million and include construction of a new front-entry driveway. Kennedy Center officials estimated that the project would be completed by August 2000. Table 1 summarizes the differences between the current and the 1997 and 1998 estimates of the project cost, scope, and schedule.

In addition, at the time that the Kennedy Center officials were planning the garage expansion and site improvement project, they were also planning to construct a large format movie theater at an additional cost of $7 million to $10 million. This portion of the project was later dropped due to cost considerations. It was anticipated that repayment of the loan from the District of Columbia would come, in part, from parking fees and movie theater revenue. Kennedy Center officials recognize that the reduction in planned parking spaces from approximately 1,000 to 525, as well as elimination of the movie theater revenue, will result in a reduced amount of revenue available for loan payments. However, they said they are confident that given planned increases in parking prices over the next 30 years, they will still be able to pay off the loan with revenue from the new parking spaces. A table of the Kennedy Center’s projected parking revenue is included in appendix I. Kennedy Center officials told us that they have reevaluated some planned capital projects, and that making these changes allowed them to expand the scope of the site improvements portion of the project. These officials said that they decided to (1) eliminate two projects involving the installation of a mezzanine in the Grand Foyer and windows in the building facade; (2) delay the construction of a curtain wall; and (3) construct planned repairs to elevators and an expansion of the sprinkler and fire suppression systems in phases, rather than simultaneously.

Furthermore, in commenting on a draft of this report, Kennedy Center officials noted that the scope of the site improvements has increased substantially since the 1997 estimate, and that the scope now includes repairs and improvements to pedestrian walkways, the underground building service tunnel, garage exhaust systems, and the marble walkways and exterior wall coverings. Table 2 shows the scope of the components of the current site improvements. Kennedy Center officials said that they were initially planning on making these repairs at a later date. However, by including them with the site improvements, they hoped to expedite the work, achieve a more uniform architectural design, and reduce the number of contractors involved, thereby simplify scheduling and coordination efforts. Kennedy Center officials said these scope changes account for $38.6 million of the difference between the $88 million actual cost and the $28 million 1997 estimate.

Kennedy Center officials were unable to provide a detailed explanation of how they arrived at the preliminary 1997 and 1998 cost and schedule estimates because they had experienced high staff turnover since the estimates were developed, and records were either not available or not retained. Despite this fact, these officials said that it appeared that the estimates were based on some unrealistic assumptions. For example, they said the initial estimates were incorrectly based on construction costs of garages outside the District of Columbia, which was a poor comparison because they are less expensive to construct; did not adequately consider the need to keep the Kennedy Center open 365 days per year, which had an effect on construction phasing and coordination issues and subsequently on the estimated costs and time frames; and did not account for the unusually expensive, busy, and competitive construction market conditions during this period.

Furthermore, the project was delayed for approximately 2 years as Kennedy Center officials worked through multiple efforts to design and bid the project and reduce project costs. For example, as part of the National Capital Planning Commission and the Commission of Fine Arts project review process, the Kennedy Center was required to redesign some portions of the project to comply with their decisions regarding design elements, finishes, landscaping, and the elimination of planned valet parking on top of the semi-elliptical terrace. In addition, budget constraints led the Kennedy Center to undertake various efforts in an attempt to lower the project cost, such as (1) redesigning portions of the project, (2) performing value engineering to identify and eliminate unnecessary costs, and (3) rebidding the project after initial contractor bids far exceeded the Kennedy Center’s expectations and it was unsuccessful in negotiating with the lowest bidder. Kennedy Center officials acknowledged that they should have better informed Congress of the preliminary nature of the 1997 and 1998 estimates and the subsequent events in the planning and bidding phases of the project that affected the project’s costs, time frames, and scope. As a result, these officials said that they now have monthly meetings with congressional stakeholders to discuss the status of ongoing construction projects.

Kennedy Center Faces Challenges in Managing Its Construction Program

In addition to problems associated with the planning and bidding phases of the project, we found that the Kennedy Center faces a number of challenges in managing large construction projects. The Kennedy Center lacks (1) adequate policies and procedures to guide the planning and management of the construction process, (2) some timely construction data on schedules and costs for effectively overseeing construction projects and measuring results, and (3) key human capital resources and expertise that would be highly beneficial in managing the construction process. More specifically: Policies and procedures. Although the Kennedy Center had some limited construction-related guidance, such as safety plans developed by the construction management contractor, it does not have formal, written project management policies and procedures to help guide and administer construction projects. A typical project management guide would include policies and procedures on the organization of the project, quality control and assurance standards, project execution procedures, and requirements for day-to-day administration of contracts, all of which would help to ensure overall project oversight. Other federal agencies that manage construction projects, such as the General Services Administration, the Department of State, and the Architect of the Capitol, use such guidance.

Timely construction data. The Kennedy Center does not always receive timely construction data on schedules and costs. These data are necessary for monitoring construction costs and measuring results, such as estimated total project costs. For example, the Kennedy Center’s construction manager told us that he provided cash flow reports only when requested, and that, at times, he provided the reports at a rate of once every 3 months, instead of on a monthly basis as required by the contract. In addition, the Kennedy Center decided to waive the submission of key timely written project management reports from the construction manager and to rely instead on weekly meetings. In commenting on a draft of this report, Kennedy Center officials said that they had received timely scheduling data on the garage project, on a weekly and monthly basis, at various meetings. However, these meetings were no substitute for timely written reports, which are typically used in construction project management and would have provided additional detailed information on schedules and costs that could have been helpful in project oversight. Kennedy Center officials agree that they should have obtained monthly project management reports and are now doing so.

Human capital resources and expertise. Kennedy Center officials lack key human capital resources and expertise that would be highly beneficial in managing the construction process. For example, the Kennedy Center experienced significant turnover in both in-house staff and contractor personnel during the design stages of the project, which has contributed to reduced institutional knowledge of the project and has increased the time necessary to finalize design decisions. In addition, two key management positions were left vacant for an extended period. The project executive position became vacant in September 2001. The person in this position is responsible for directing and managing all capital repair and construction projects. Kennedy Center officials had decided not to fill the project executive position, but instead to have the executive vice president assume those duties. However, Kennedy Center officials said that given the complexities and scale of the upcoming plaza and buildings project, they now plan to fill this position and have the person report to the executive vice president. Also, the contracting officer position became vacant in the summer of 2002, and Kennedy Center officials told us that because of difficulties in finding a qualified candidate, they did not fill this position until March 2003. The President of the Kennedy Center told us he recognized that the Kennedy Center continues to lack adequate staff or expertise to manage its upcoming plaza and buildings project, and he detailed plans to address these shortcomings. In commenting on a draft of this report, Kennedy Center officials noted that they are in the process of filling the positions of director of capital projects and project manager, have engaged an architect and developer firm, and now feel that they do have sufficient staff and expertise.

These construction management challenges are not new to the Kennedy Center. In September 1995, a Kennedy Center consultant reported that there were no clear lines of responsibility within the existing facility management structure, and that job descriptions were not clearly defined. In addition, the consultant’s report also noted the following: “An organized system should be developed for managing information concerning the facility operations to be used to monitor performance against established standards.” Regarding human capital, we reported in 1993 that the Kennedy Center lacked a federal contracting officer, architects, engineers, or other professional occupations associated with capital projects. We concluded that the Kennedy Center did not have sufficient capability to effectively manage large-capital construction projects. In commenting on a draft of this report, Kennedy Center officials told us that since 1993, they have added a contracting department of five full-time positions and an entire project management department consisting of nine employees—six full-time Kennedy Center employees, including four project managers and two support personnel, plus three contract employees. In addition, these officials said that full job descriptions have been developed for all positions.

Although it is difficult to determine the extent to which these challenges have hindered the Kennedy Center’s efforts on the garage expansion and site improvement project to date, having adequate policies and procedures, timely construction data, and additional qualified human capital—even though the Kennedy Center has enhanced its facility management staff since our earlier reports—would help to strengthen the construction program and reduce risk. Addressing these challenges will become increasingly important as the Kennedy Center undertakes the larger, more costly, and more complex plaza and buildings project. The critical importance of having quality guidance, data, and human capital was highlighted by the National Research Council’s 2000 report on federal organizations, such as the Kennedy Center, that contract out for construction management services to acquire and build facilities. The council found that, among other things, these organizations should have (1) plans, policies, and procedures to define project goals and develop strategies and methods for achieving those goals; (2) detailed data to monitor progress and assess risks; and (3) in-house staff with sufficient management, financial, and technical skills necessary for effective oversight of all phases of the project. Effective policies and procedures would provide a road map for project managers on how best to estimate project costs, administer the contract, and define the roles and responsibilities of project staff. Timely data would allow project managers to effectively oversee project status and measure results to gauge effectiveness. Qualified human capital and expertise would improve efforts to control project costs, time frames, and scope. Kennedy Center officials acknowledged the importance of focusing on these areas. In commenting on a draft of this report, these officials said that they have initiated efforts to improve these areas of concern, including (1) contacting the Federal Facilities Council for assistance with updating and improving construction management policies and procedures, (2) requesting monthly written project management reports, and (3) hiring additional in-house and contractor staff to assist in the upcoming plaza and buildings project.

Conclusions

Changes in costs, time frames, and scope are not unusual in large construction projects. However, in the case of the Kennedy Center garage expansion and site improvement project, early estimates proved to be especially problematic and were based on unrealistic assumptions. Furthermore, if the Kennedy Center continues to operate without adequate construction polices and procedures, timely schedule and cost data, and qualified human capital, the success of its future plaza and buildings project will be at risk. Although making improvements in these areas is no guarantee of project success, such improvements would strengthen the construction program and reduce risk by providing greater effectiveness in managing and overseeing future projects and measuring results.

Recommendations

To help improve the Kennedy Center’s ability to manage and oversee its construction program, we recommend that the President of the Kennedy Center, in conjunction with the Chairman of the Board of Trustees, develop comprehensive project management policies and procedures to guide the planning and execution of the construction process, ensure development and use of timely data to oversee construction projects and measure results, and ensure that the needs for human capital expertise are met.

Kennedy Center Comments

We provided a draft copy of this report to the Chairman of the Kennedy Center Board of Trustees and the President of the Kennedy Center. On June 20, 2003, the Kennedy Center President provided us with written comments on behalf of the trustees and staff (see app. II). Kennedy Center officials generally agreed with our findings and recommendations. They said that they found the recommendations helpful, and that they have initiated efforts to address them. Further, these officials provided additional comments to clarify information regarding the project estimates, project management data, and human capital resources, which we have incorporated throughout the report as appropriate.

Objectives, Scope, and Methodology

To meet our first objective of comparing the garage expansion and site improvement project’s most recent estimates on costs, time frames for completion, and scope with estimates previously provided to Congress in 1997 and 1998, we analyzed Kennedy Center construction project documents, such as contracts, estimates, and plans. To gain a better understanding of the construction project, we accompanied a Kennedy Center official on a tour of the construction site during which the official pointed out the major components and features of the project. In addition, we interviewed officials with the Kennedy Center, the construction management contractor, the architectural firm involved with the project, and the U.S. Army Corps of Engineers. To meet our second objective of determining what challenges, if any, the Kennedy Center faces in managing large construction projects, we examined the Kennedy Center construction process, including existing policies and procedures, organization structure, and construction data systems. For background information, we reviewed applicable statutes relating to the Kennedy Center and considered previous GAO work and industry construction management practices.

We did our work between January and July 2003 in accordance with generally accepted government auditing standards.

As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its issue date. At that time, we will send copies of this report to the appropriate congressional committees, the Chairman of the Kennedy Center Board of Trustees, and the President of the Kennedy Center. We will make copies available to others on request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions, please contact me on (202) 512-2834 or at goldsteinm@gao.gov. Major contributors to this report were Casey L. Brown, Terrell Dorn, and Thomas G. Keightley.

Kennedy Center’s Projected Revenue from Parking Spaces Constructed in the Garage Expansion

Debt service (principal plus interest)

Agency Comments from the John F. Kennedy Center for the Performing Arts

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