Audit Division
Audit Summary
Department of Transportation
Report LA96-31
Results in Brief
Improvements in the Department's management control system are necessary
to ensure consultant agreements are properly solicited, awarded, and managed.
The Department did not always perform or clearly document key aspects of
the contracting process for $16.9 million of the agreements we examined.
Our audit disclosed the Department's decentralized control system promoted
inconsistent and noncompliant practices throughout the agreement process.
The Department's expenditures for consultant agreements have increased
significantly, amounting to more than $56 million in fiscal years 1993-1995.
At these levels of expenditures, it is critical that consultant agreements
are managed in an efficient, economic, and consistent manner. To this end,
management has committed to restructuring the agreement process. Significant
changes will include the revision of existing policies, the development
of detailed procedures, and the centralization of agreement processing
responsibility. When implemented, these measures should mitigate many issues
addressed in our report. However, sustained management attention is critical
to the implementation of these proposed changes.
Principal Findings
1. The Department frequently issued requests for proposals (RFP's) that
did not fully disclose all evaluation factors nor their relative importance
to the consultant selection process. We examined 15 agreements totaling
$8.2 million that did not include complete evaluation criteria in the RFP.
Therefore, consultants may not provide a complete summary of their capabilities
and qualifications. Consequently, a comprehensive solicitation process
may not result. (page 10)
2. The Department needs to improve and better document its efforts to use
disadvantaged business enterprises (DBE's) as a source for consultant services.
Without improvements, DBE's may not receive an appropriate share of Department
business. (page 11)
3. Audits were not always conducted prior to cost negotiations for consultant
services. We noted nine agreements totaling $8.2 million negotiated without
an audit. The Department conducts pre-negotiation audits to assess the
capability of the consultant's accounting system to accurately capture
costs and to verify the legitimacy of the overhead rate. Without a pre-negotiation
audit, the Department has no assurance that payments for services are proper.
(page 14)
4. Detailed cost estimates were not always prepared prior to negotiating
and executing agreements. We reviewed 14 agreements totaling $7.8 million
that did not have detailed cost estimates covering all phases of the project.
The Department used the consultant's original estimate as the agreement
fee in eight instances totaling $3.3 million. Cost estimates are critical
to meaningful costs negotiations. Without them, excessive costs or unexpected
problems could result. (page 15)
5. The Department used inconsistent retention methods for engineering and
design agreements. During the audit period, the Department established
a new retention policy that limited payments to 90% of the agreement
total until the consultant's work is accepted. We noted 10 agreements subsequent
to this policy that did not contain this retention clause. (page 16)
6. NRS 284.173(6) requires contracts with independent contractors to be
submitted to the State Board of Examiners. However, based on an interoffice
memorandum prepared by an assigned counsel for the Department of Transportation,
the Department does not submit any contracts to the Board of Examiners.
We obtained a legal opinion from the Legislative Counsel indicating certain
contracts should be submitted to the Board of Examiners. (page 19)
Department of Transportation
Auditor's Comments on Agency Response
The Department of Transportation, in its response, does not agree with
one of our findings and recommendations. The following identifies that
section of the report where the Department has taken exception to our position.
We have provided our comments on the issues raised in the Department's
response to assure the reader that we believe the finding and recommendation
as stated in the report are appropriate.
The Department disagreed with the finding on page 19 that it did not submit
certain contracts to the State Board of Examiners for review and approval
as required by NRS 284.173(6). The Department stated that it has never
been its practice to submit contracts for services of independent contractors
to the Board of Examiners for approval. To support its position, the Department
requested an opinion from the State's Attorney General who responded with
Opinion Number 96-31, dated November 4, 1996. This opinion concludes the
Department has authority to enter into independent service contracts and
is not required to submit them to the State Board of Examiners for approval.
(see page 32) The Department indicates on page 33 that it will forward
contracts for administrative-type services to the Board of Examiners in
the future. However, the Department rejected our recommendation that it
submit nonconstruction related contracts to the Board of Examiners for
approval or seek a legislative exemption. (see page 34)
Legislative Auditor's Comments
As stated on page 19, our finding was based on a legal opinion from
the Legislative Counsel that indicates the Department is required to submit
certain contracts to the Board of Examiners. (See Appendix B for LCB legal
opinion.) We discussed the Department's response and the Attorney General's
legal opinion with the Legislative Counsel. According to the Legislative
Counsel, the provisions of NRS 284.173 require the filing and approval
of all contracts executed by the Department of Transportation for the services
of a person as an independent contractor other than for work of construction
or reconstruction of highways. Therefore, we believe our finding as stated
is correct. Furthermore, we believe our recommendation that the Department
submit nonconstruction related contracts to the Board of Examiners for
approval or seek a legislative exemption, is appropriate.