The phrase,'Unsound Transit', was coined by the Wall Street Journal to describe Seattle where,"Light Rail Madness eats billions that could otherwise be devoted to truly efficient transportation technologies." The Puget Sound's traffic congestion is a growing cancer on the region's prosperity. This website, captures news and expert opinion about ways to address the crisis. This is not a blog, but a knowledge base, which collects the best articles and presents them in a searchable format. My goal is to arm residents with knowledge so they can champion fact-based, rather than emotional, solutions.


Sunday, March 2, 2008

Tummy rubbing at the Port of Seattle

Chummy culture at port costs taxpayers
Staffers, contractors may be too friendly, audit says


When port employees, consultants and contractors work for years on a complicated project such as Sea-Tac Airport's controversial third runway, it's natural to become friendly.

But a recent state audit found that chumminess got in the way of good business practices, potentially shortchanging federal taxpayers and airline travelers who help fund improvements.

One top Port of Seattle consultant and construction contractor had their own shorthand -- "tummy rubbing" -- for informally negotiating how much the port should pay for unexpected work at the airport, a recent state audit found.

"It's their way of talking about a quid pro quo -- that we're all friends and we'll take care of each other," said state Auditor Brian Sonntag, whose office commissioned the audit.

That coziness didn't always extend to relationships between port staffers and the elected commissioners to whom they're accountable. Auditors found commissioners were easily misled and manipulated, with some staffers expressing open disdain for their governance role, said David Cotton, a consultant who performed the audit.

In one extreme example, a port employee told an aide that a commissioner who had asked for talking points could go "piss up a rope," officials confirmed. He was fired last fall.

Another staffer initially refused to draft a resolution on commission interns until the commissioner who asked for it came back with two more votes in his pocket.

Port Chief Executive Officer Tay Yoshitani has the hard task of changing port culture, which for years, he said, emphasized getting projects done and responding to customers' desires rather than complying with all policies governing contracting rules.

The audit concluded the port's construction program wasted millions, failed to negotiate rigorously with contractors, appeared to favor certain businesses and sometimes broke state law when awarding contracts. A lack of controls created a climate in which kickbacks or bribes could have occurred, the report found. Though finding criminal fraud was beyond the audit's scope, the Justice Department is now investigating that question.

Yoshitani, who took the organization's helm last year, said the findings made more sense when he considered the past 15 years of port history. It was a time of unprecedented expansion to keep the port competitive -- pouring nearly $1 billion into seaport development, cleaning up contamination, upgrading airport terminals and starting the third runway project.

"It's like the boa constrictor that swallowed a baby elephant that's kind of working its way through," he said.

Others link the cultural climate to former CEO Mic Dinsmore, who declined to comment for this story. The hard-charger valued loyalty, disliked bad news, tightly controlled information and often dropped names of his extensive business and social connections, port officials and outside observers say.

"It was all about keeping good relationships with the people you were working with -- it was that kind of clubby atmosphere, and too few commissioners questioned it," said Fletch Waller, an ex-commission candidate who served on port advisory boards over a 15-year period.

In conducting a survey on seaport customer service, he found employees largely concerned about keeping their jobs and not making waves. Sometimes, Waller said, that led to expensive public investments that made little sense but kept shipping companies or warehouse customers happy.

The port has a dual, even schizophrenic, mission: It's a public agency and a competitive economic engine that creates private sector jobs. In the past, Yoshitani said, the pendulum swung too far in the latter direction.

The former executive at ports in Oakland, Calif., Los Angeles and Baltimore said he intends to bring about cultural change in Seattle "very carefully."

"My style of management is not to be a regulator but to be an inspirer," he said. "To keep that entrepreneurial spirit as well as the compliance piece, I need to get them understanding it's the right thing to do, and I need to get them feeling positive about it."

It also involves being clear about rules to be followed and holding people accountable, he said. Part of his approach will rely on restructuring, creating additional oversight of construction projects and standardizing procedures.

Cotton said Yoshitani appears to be trying to change the tone at the top. But defensive responses to some findings make him question the organization's commitment.

"Whether he can change the culture or the culture changes him remains to be seen," Cotton said. "I certainly wish him success."

Among the findings that troubled auditors was the way port staff handled change orders -- additional work created when plans change or unexpected conditions surface.

They're common in large projects such as the third runway. But because contracts already have been awarded, additional costs are usually settled without a competitive process.

Auditors say there should be a negotiation in which engineers and managers review a contractor's proposal and perform independent estimates to make sure prices are reasonable.

In one baggage-screening project, the audit looked at 215 change orders totaling $2,777,552. The final "negotiated" amount was identical to the contractor's proposal 87 percent of the time, it found.

Auditors called it an "extraordinary coincidence" that suggested rigorous cost evaluations and meaningful negotiations hadn't taken place. It's impossible to quantify how much money could have been saved if they had, the report said.

Port officials argued a construction company managing the project handled negotiations with subcontractors, which weren't reflected in port files. Additional documentation largely failed to support that claim, auditors said.

A practical balance has to be struck between reaching a fair price and efficiency, said Steve Goldblatt, associate professor and former chairman of the University of Washington's Department of Construction Management. "To spend inordinate amounts of time or money, or both, to try to get those things precisely nailed down is not in the public interest," he said.

Nonetheless, port officials are now requiring that all change orders be approved by contracting professionals -- an extra set of eyes. It's also requiring staff to fully document negotiations to managers. A strong message has been sent that "tummy rubbing" is not an acceptable practice, said Dakota Chamberlain, who is managing the port's response to the audit.

The port also is following one of the audit's top recommendations -- hiring a chief procurement officer to ensure contract awards, purchasing decisions and subsequent changes follow all policies and law. Yoshitani wants that person to be perceived not as an ogre out to stop work, but as someone who can help other departments with compliance.

The office would add a professional buffer between hired contractors and port project and construction managers. "That will be an excellent check and balance ... so the guys out in the field working day to day with the contractors are not the same people approving change orders," Port Commission President John Creighton said.

Since the audit's release, the five-member port commission has begun to flex its atrophied muscles.

Staff members bent over backward if you wanted a trip to China, former elected officials said. In the past, inquiring about an issue was likely to generate a brief memo, a careful staff briefing or a flood of information that was too voluminous to digest.

"It's the role of commissioner as hood ornament," said former port Commissioner Alec Fisken. "They were to be tolerated and taken on trips and trotted out for receptions."

Keeping commissioners appropriately informed is a balancing act at every port, Yoshitani said. "We're constantly trying to push 10 pounds of information into a 5-pound bag," he said.

The commission is now revising a bedrock document outlining how much money staff members can spend on their own and how often they're required to ask for approvals.

In the past, once commissioners approved a large project, low-level staffers could make big-money changes as long as the project's total cost wasn't exceeded, the audit found. In the future, the commission likely will demand a stronger oversight role.

The commission is currently withholding its approval of large projects -- such as a pending $400 million-plus rental-car facility and garage -- until substantial progress has been made on audit recommendations.


Here's how a Port of Seattle consultant with WHH Construction and a project manager for Gary Merlino Construction Co., a Sea-Tac Airport contractor, resolved their differences over how much more the port should pay for unforeseen work on emergency generator enclosures and power systems.

Contractor's proposal:


The port's estimate:


On Jan. 18, the consultant e-mailed the project manager to say some costs were OK, but "still laughing at the rest ... (actually you and SE do have something coming so lets figure that out via tummy rub in lieu of you all documenting what is undocumentable.)"

On Jan 25, the contractor wrote: "Gee you're starting to wear me down on this. NOT." He offered $65,000; the consultant countered with $54,500.

The contractor's response: "You're getting closer but not close enough. Total of 62 for the both of them. Write it up and we're done."

The port consultant replied: "If it starts with a '5' we're there."

The change order was made final for $59,999

Sources: Performance Audit Report: Port of Seattle Construction Management; e-mails and port documents

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