Item - 2018.AU13.12

The Audit Committee recommends that:  

1. City Council request the Chief Engineer and Executive Director, Engineering and Construction Services, to strengthen processes and monitoring measures to ensure that:

a. Inspections for verifying substantial performance and for identifying deficiencies during the warranty period are conducted in a timely manner.

b. Appropriate deficiency lists are prepared and forwarded to the contractor in a timely manner.

c. Estimated value of all defective and remaining work is documented.

d. Rectification of deficiencies is followed up in a timely manner.

e. Documentation of all follow-up work is retained in the contract files.

f. Rectification work is inspected, and signed-off as completed by the project leader.

2. City Council request the Chief Engineer and Executive Director, Engineering and Construction Services, to update existing procedures within the ECS Capital Works Procedures Manual to ensure that project staff conduct a formal comprehensive assessment of estimated value of defective and remaining work to determine if the criteria for substantial performance prescribed in the Construction Act are met.

3. City Council request the Chief Engineer and Executive Director, Engineering and Construction Services, in consultation with Insurance and Risk Management, to ensure existing procedures for obtaining appropriate insurance and bonding extensions where required, are correct and are being correctly implemented.

This report contains the results of the Auditor General's Phase One audit of construction contracts issued by the Engineering and Construction Services (ECS) Division. 

The first phase of the audit focused on substantial performance and warranty inspection processes under the Division's Municipal Infrastructure Construction Service. Subsequent phases will address other areas of capital project management, and is scheduled for completion in 2019.

Overall, we found that the Division has established good guidelines for substantial performance and warranty inspections. However, it needs to ensure its prescribed procedures, including timely inspections and follow-up, are consistently implemented by project staff to minimize the risk of incurring unnecessary costs for defects and damages.