IG report faults MARAD on port oversight


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A U.S. Army Chinook helicopter is loaded into a military transport at the Port of Anchorage in this 2007 file photo. The port’s designation as a strategic national defense port expanded the scope of the of its construction upgrade, to which nearly $440 million has been allocated since 2002.

Photo/File/AJOC

The U.S. Maritime Administration has a lot to learn about building ports, according to an intra-government report on the agency’s performance on three Pacific projects including the Port of Anchorage.

The Office of Inspector General’s audit of the Transportation Department agency, or MARAD, released Aug. 2, concluded that the Port of Anchorage project “had significant contracting problems stemming from MARAD’s inadequate planning, lack of reliable cost estimates, and noncompliance with federal contracting requirements when awarding and administering the port contracts.”

Separately, a third-party audit of the Open Cell Sheet Pile design, or OCSP, used at the port was released Aug. 7. It reported that engineering firm PND Engineers Inc. did not adequately account for stability issues in its plan. PND has disputed reports faulting its patented OCSP design and blames improper installation for the problems that halted construction in 2010.

In addition to the Port of Anchorage, Congress chose MARAD to oversee marine infrastructure projects in Hawaii in 2005 and Guam in 2008. The Anchorage project began in 2003 and was the first and largest construction project for MARAD.

Problems arose from MARAD’s narrow interpretation of its responsibilities in Anchorage and Hawaii, the report claims.

“Rather than take on a comprehensive role in developing and overseeing the port infrastructure projects, MARAD’s main role has, until recently, been limited to obligating and distributing funds to contractors for project tasks, such as project oversight, program management, engineering, design, and construction,” the report states.

It attributes the inflation of the price of the Port of Anchorage project from an estimated $211 million price tag in 2003 to likely more than $1 billion now, along with years of delay, to the agency’s delegation of responsibilities.

MARAD began managing infrastructure construction so federal money could be appropriated to the specific projects quicker.

Port owner, the Municipality of Anchorage took full control of the project in May 2012 after construction was halted in late 2010.

MARAD’s response as written in the report was that it “believed that the (Municipality of Anchorage) had full programmatic and technical control of the project and that it made decisions based on port officials’ requests” in terms of design and contract procurement.

Failure to draft independent government cost estimates, a step required by general federal and U.S. Department of Transportation regulations, could also have led to cost overruns at Anchorage, Hawaii and Guam, the report states.

Cost estimates for the Guam and Hawaii projects provided by local officials were near $200 million for each and maximum contract values awarded by MARAD were $400 million for both. MARAD officials questioned for the report could not explain why the estimates doubled.

Shortly after signing a working agreement with the Municipality of Anchorage in 2003, MARAD hired Koniag Services Inc., a newly formed subsidiary of Kodiak Alaska Native regional corporation Koniag Inc. to manage construction.

According to the report, municipal officials referred to Koniag Services as a “shell corporation” set up to allow the parent Koniag to win the project contract bid under the federal Small Business Administration’s 8(a) program for disadvantaged business owners that includes special provisions for Alaska Native corporations.

Integrated Concepts and Research Corp., or ICRC, another Koniag subsidiary, reportedly was the municipality’s first choice for project manager, but did not meet 8(a) requirements for a sole-source award.

Subsequently, ICRC encouraged MARAD to hire Koniag Services. When Koniag Services could not provide evidence of an established accounting system, MARAD transferred the Port of Anchorage contract to ICRC in February 2004, less than nine months after awarding it to Koniag Services, the report states.

It also notes that ICRC’s CEO represented Koniag Services during contract negotiations in May of 2003. Additionally, ICRC’s vice president was listed as the “principal in charge for the contract.”

 Contract procurement in the Hawaii and Guam projects is referred to in the report as “haphazard.” Acquisition plans for both projects were approved by MARAD on the same day and the plan for Hawaii accidentally refers to Guam. Additional supporting plan documents for both projects were discovered to be dated up to two months after the plans were approved, indicating a proper vetting process was not undertaken, it alleges.

The municipality filed suit against ICRC for breach of contract and professional negligence in March for its management of the port project. Port designer PND Engineers Inc. and project consultant VECO Alaska, now owned by CH2M Hill, were sued by the municipality at the same time. The case against ICRC is currently in federal court awaiting a judge’s decision on remand to state court as well as on dismissal motions.

Further complicating the relationship between MARAD and ICRC, the report found the agency did not comply with federal regulations requiring the contract to be terminated when ICRC was sold to VSE Corp., a Virginia-based management firm in 2007. MARAD’s request for a waiver from the requirement was denied, but the contract was not terminated and was renewed in 2008 on several one-year terms.

“According to MARAD officials, the contract was not terminated based on an undocumented agreement with SBA (the Small Business Administration) to allow the contract to run its course,” the report states.

The maximum value on the 2008 contract with ICRC was increased to $704 million.

Questions are raised by the report regarding MARAD’s design procurement procedures. MARAD approved a $6.1 million contract for use of PND’s patented Open Cell Sheet Pile design without open bidding, despite federal acquisition requirements that mandate full competition in the contract bidding process and discourage the use of patented services and technology, according to the report.

Several construction issues have kept work from being done on the port since late 2010 and have brought the suitability of the Open Cell Sheet Pile into for use at Anchorage into question.

Those problems could potentially have been mitigated had MARAD implemented a risk management plan early in the project, according to the report. Such a plan was not developed for almost seven years and after multiple construction and subcontractor communication challenges referenced in the municipality’s complaint against ICRC.

In a written response to the Inspector General’s report dated July 9, acting MARAD Administrator Paul N. Jaenichen wrote that the agency is in the final steps of developing its Port Infrastructure Development Program. In 2009 Congress ordered MARAD to start the program so future port projects would follow a more regimented process.

“As problems became apparent during construction at the Port of Anchorage intermodal expansion project, MARAD reevaluated earlier policy decisions and instituted new project oversight and management for all three projects,” Jaenichen wrote. “This administration has taken action to increase oversight, assign dedicated project and program staff, and increase its level of engagement with local partners.”

Sheet pile design deemed unsuitable again

A review of the Open Cell Sheet Pile design commissioned by the Municipality of Anchorage found that PND did not adequately account for stability concerns at the port site when integrating the sheet pile into its design for the dock infrastructure.

The forensic audit, released Aug. 7 and done by national engineering firm Simpson, Gumpertz and Heger Inc., or SGH, compared PND’s design to a CH2M Hill study that found the design unsuitable. CH2M Hill’s study was released in February and is the basis of the municipality’s pending lawsuit against PND that claims professional negligence in its port design.

CH2M Hill subsequently received a contract to draft its own concept designs for future port construction.

After the release of the CH2M Hill study, “we found ourselves in a case of two different engineering firms with two different opinions, so we felt it was important to get a third party opinion,” Anchorage Mayor Dan Sullivan said at an Aug. 9 press conference.

PND has taken the stance that CH2M Hill used different stability criteria in its determination. The SHG audit acknowledges variations in the design criteria, but found the differences in the criteria insignificant because the result is the same “regardless of whether we use the values by PND or by CH2M Hill.”

The controversy surrounds the layers of Bootlegger Cove clay located underneath the port and the tendency of the clay to act as a liquid during seismic activity.

PND did not sufficiently investigate potential failures in the clay when it considered two shear strength zones instead of three, the audit states. Additionally, it claims the existing sheet pile structures do not meet project requirements for static global stability standards at low tide.

SGH officials wrote that that potential construction defects in sheet piles constructed at the port did not affect their conclusions. The unsuitable finding refers to the project’s uncompleted north terminal extensions and does not include the wet barge berth.

PND Vice President Kenton Braun said SGH lacked information in generating its findings on the complex project because his company was not consulted during the review process.

PND attorney Lisa Marchese questioned the results of the audit because it was commissioned by the municipality while in the midst of legal action.

“You can preordain a conclusion by the data you give somebody to review and I think that’s been our contention all along,” Marchese said. “That’s why I think it was so critical that if this was truly going to be a forensic audit, that you invite everybody to participate and you’re very transparent.”

In 2002 the infrastructure design firm Moffatt and Nichol Inc. was hired to review PND’s early sheet pile design. The company’s October 2002 draft report cited concerns regarding the use of Open Cell Sheet Pile in a location with water as deep as the Port of Anchorage has at high tide.

The report did not rule out the legitimacy of using the OCSP design at Anchorage, but rather called for further investigation of both the preliminary sheet pile and pile-supported dock designs.

“Many of the issues we have identified can be refined or mitigated through technical design, but this will have an impact on construction schedule and cost,” the report states.

Company officials recently wrote in an Aug. 2 letter to the Journal that they were “succinctly directed by former Port Director Bill Sheffield to not finalize the report. Our work thus ended and the port proceeded with the project, absent further peer review from Moffatt and Nichol.”

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