The Washington State Auditor says the city of Snoqualmie overpaid its private engineering contractor thousands of dollars during construction on Snoqualmie Ridge.
Acting on a citizen hotline complaint made in 2008, auditors found that the city’s contractor, Everett-based Perteet, Inc., charged the city an extra $7,000 over several months for expenses not allowed under its contract.
In the report, released in November, auditors said the city failed to detect the extra charges, then passed them on to land developers when it billed them for services.
Auditors found that the city overpaid Perteet by $2,300 between April and June 2007. Other invoices revealed $5,000 in additional overcharges for items not covered by the current contract, such as the firm’s use of a four-wheel drive vehicle, cellular phone use and mileage.
Auditors also found that city could have hired at least six full-time employees for the same amount it paid Perteet—an average of $765,000 per year between 2003 and 2009. At a minimum, they say, the city could have hired one engineer to oversee the contractor’s work to ensure it was not excessive.
Investigators said Ridge developers were surprised by the cost and level of construction observation for their projects.
“We found the engineering contractor employed construction observers to watch a backhoe dig a ditch on a day when pipe installation was not scheduled,” the report states. “The developers stated this level of oversight was unnecessary and created an undue financial burden to developers. The homebuilding company, developers, excavators, project managers and others on the construction site overwhelmingly told us that their building and construction projects in other cities did not incur costs of this nature. One developer told us fees exceeded expectations by more than 50 percent; another told us it increased expected costs by 250 percent.”
Several developers indicated the city did not limit the engineering contractor’s work to necessary tasks, auditors stated.
“The city… gave the contractor the ability to work and bill any amount of hours without limitations or oversight,” the report states.
One citizen allegation, that the city allowed its contractor to engage in behavior contrary to the Engineer and Land Surveyor’s Rules of Professional Conduct and Practice, was referred to the State Board of Registration for Professional Engineers and Land Surveyors, the organization charged with regulating engineers.
Flexible contract
Perteet has held the engineering contract for Snoqualmie since 1994. Its contract is still in place.
While the company did not return a request for comment last week, Snoqualmie officials defended their practices with the contractor.
In a written response to the auditor, Snoqualmie officials challenged assertions that city could have saved developer costs by employing its own engineers.
During the last decade, Snoqualmie was the fastest growing city in the state, adding an average of one new home per day between 1998 and 2009.
“We had constant, intense pressure from the developer when things were going, to say we need faster processing,” Mayor Matt Larson told the Record. He said it would have been irresponsible of the city to hire, then lay off, engineers to meet demand for review and inspection.
Construction activities spike at different times in the year. Plan reviews happen in wet winter months, while inspections happen in spring and summer.
“The land developer for both Snoqualmie Ridge I and Snoqualmie Ridge II needed the ability to turn city inspection services on or off like a spigot, according to season and according to other factors affecting demand,” the city’s response stated. “If the city had hired six engineers, it would not have had sufficient work for them.”
“We would have been going through a roller coaster cycle of hiring people, firing people,” Larson said. Calculating overhead such as office space, “we thought it looked fairly equitable.”
City Attorney Pat Anderson said the auditor “was overwhelmed by the idea that a consultant had been paid $5 million. She failed to appreciate the scope of the undertaking.”
Creating Snoqualmie Ridge, he said, was like founding a town the size of Hoquiam from the ground up.
“They had acres and acres of grading going on, with erosion control and water quality measures needing to be put in place,” Anderson sad. “You can’t do that unless somebody’s watching you. If you’re not watching, (contractors) will not follow the plans. They will take shortcuts.”
Larson pointed to instances, such as a Ridge hillside built using inappropriate fill that sloughed off and landed in a wetland, where more oversight was necessary.
“Here’s an instance where we’re doing spot inspections, and we’re getting killed for it,” Larson said. “The balance is a very subjective thing.”
“We are firmly convinced that the inspection that occurred was appropriate and necessary,” said Anderson, who insisted that high Ridge development standards were spelled out clearly before developers made a commitment.
“It’s high quality, and quality costs money,” Larson said. “We’re all taking risks innovating with this urban design. Is it perfect? No. Does it have challenges? Yeah. But it’s all something we’re trying to push the edge on, in exploring new areas. There are some inherent risks in that. But to suggest that there’s something nefarious or unscrupulous going on, I don’t accept that at all.”
Overbilling
In their written response, Snoqualmie officials acknowledged that the contractor charged the city items for allowed in its original contract but removed in a 2003 renewal. Anderson described the overbilling as a technical error.
“The city has experienced no financial loss,” he said. “There is nothing refundable to the developer because the developer has no contractual relationship with Perteet. Their job is reimburse us what we paid.”
Larson said he may consider requesting a full accounting.
Perteet is “a professional, ethical organization,” he said. “I would expect they would address any errors in their billing. I would prefer that we take that up with them.”
The city has outlined several ways to prevent overbilling in the future. Larson directed all department heads charged with oversight of payments for contractors to be accountable, familiarize themselves with contracts and ensure invoices follow the provisions.
Contractors must submit invoices in sufficient detail to determine payment eligibility. If the department head is uncertain about reimbursement, or if the contract terms are in dispute, the city administrator and attorney must give approval for payment. Snoqualmie’s public works director has overall responsibility for insuring contract compliance. Last March, the city hired a project engineer, who is a licensed professional engineer, who meets weekly with engineering contractor when construction inspection is occurring. The city engineer provides direction on the level and frequency of inspection and reviews contractors’ daily inspection reports and invoices.
The audit “questions the credibility and professionalism of the city in a very public way,” Larson said. “It gives us a strong incentive… to take a hard look at ourselves.”
Still, Larson said he doesn’t expect the auditor’s decision to chill development in Snoqualmie. He pointed to the recent sale of remaining Snoqualmie Ridge II inventory by Ridge developers Murray Franklyn and Quadrant to the Pulte Group as a sign of confidence.
“Would it have been better if, from 1998 to 2007, we had employed an engineer to oversee all the inspection?” Anderson asked. “Yes, in hindsight.”
“That’s part of the growing pains,” Larson said. “It was city staff trying to grow from wearing three hats to becoming more and more specialized. Are there going to be hiccups? Absolutely. It’s impossible to compare to other communities because there isn’t anything like it. There was a profound amount of innovation.”
