Audit faults MDOT oversight of flawed road projects

LANSING – The Michigan Department of Transportation's monitoring of road warranties — intended to hold contractors responsible for poor work — is ineffective because the department doesn't properly inspect and follow up on the completed projects and make sure contractors correct deficiencies, Auditor General Doug Ringler said in a report released today.

"Our review ... identified 48 of 92 expired warranty projects that needed corrective action," the report said. "As of June 30, 2014, 24 of the warranties had been expired for over one year without MDOT having addressed the corrective action."

MDOT said it agrees with all six recommendations made by the auditor general and is taking action to improve its system of monitoring and enforcing warranties.

"By October 2015, MDOT, in working with the Department of Attorney General, will develop a procedure for non-responsive contractors that have been notified to perform warranty work," the department said in part of its response to the audit.

But the auditor noted that similar issued were raised in an earlier audit, released in 2010, and at that time the department said it would "strengthen its procedures to assure the completion of inspections."

The report raises questions about MDOT's handling of existing road repair dollars as Gov. Rick Snyder and other state officials push for a May 5 ballot proposal to hike the sales tax from 6% to 7% and raise an extra $1.2 billion a year to fix and maintain Michigan roads and bridges.

"If our road and construction projects had proper oversight by the state, we could invest more money in other needed projects," said Paul Mitchell, chairman of the Coalition Against Higher Taxes and Special Interest Deals, which is urging a "no" vote on the ballot proposal.

But MDOT Director Kirk Steudle told the Free Press the auditor's findings need to be put into context. The potential costs shifted from the contractor to the state as a result of problems the auditor identified amount to tens of thousands of dollars or a low six-figure number, but MDOT oversaw the completion of 1,340 road and bridge construction projects costing $1.4 billion during the period covered by the audit, from Oct. 1, 2011 through March 31, 2014, he said.

MDOT spokesman Jeff Cranson said MDOT was recognized in a 2011 report as a national leader in the use of road warranties, both in terms of the number of warranties and its years of experience administering them.

"MDOT manages a robust warranty program and has largely pioneered the process with no template, no model from another state to draw on," Cranson said. "MDOT absolutely accepts the need to do a better job at enforcement and is working to improve that process."

According to the report:

■ MDOT doesn't consistently verify that corrective actions have been completed before the warranties expire. "As a result, the responsibility for the cost of road repairs may shift from the contractor to the state," the report says.

■ MDOT doesn't consistently perform final inspections of projects before warranties expire and maintain proper documentation. "As a result, MDOT may not have the authority to require a contractor to perform corrective action, and the cost of repairing or replacing a road or bridge could lie with the state instead of the contractor."

■ MDOT has a database, the Statewide Warranty Administrative Database, to help it track and enforce warranties, but doesn't make sure that information in the database is accurate or complete. For example, the auditor identified 28 projects with 32 warranties that were not recorded in the database. "Relying on inaccurate or incomplete information can result in the state bearing the cost of repairing roads when they were damaged under warranty," the audit said.

State law requires MDOT, where possible, to secure warranties on state trunkline projects.

As of April 2014, the department had 452 active road construction warranties and 29 active bridge warranties, the report said.

The auditor inspected 12 construction project files containing 14 warranties that required corrective action and found that the contractor had not completed corrective action for five, or 36% of the warranties. The estimated cost of the corrective work that didn't get done was $314,000, the report said.

For two of the five warranties, MDOT completed inspections on time and determined that corrective warranty action was needed, but didn't notify the contractors before the warranties expired, the auditor said. "Therefore, MDOT could not enforce the warranty provisions," worth $3 million, and had to pay for an estimated $93,000 in corrective work.

For three of the five warranties, MDOT did not assure that contractors completed required corrective action in a timely manner, the auditor found.

MDOT said in its response that warranty corrective work sometimes can't be performed within the warranty period because of seasonal limitations on some types of work or because a dispute resolution procedure is still under way. However, it said the department has taken, or is taking, steps to improve the process.

In another sample the auditor looked at, MDOT did not complete or document that it completed 19, or 4.3% of 441 final inspections before the warranties expired.

And MDOT did not notify the contractor at the end of the warranty period whether claims were pending in 11, or 37%, of 30 warranties examined, the report said.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.