City of Arvin

We performed our audit to determine whether:

• Project costs incurred and reimbursed were in compliance with the ATP project application, Master Agreement, Agreement, state and federal regulations, and California Transportation Commission (CTC) program guidelines.
• Project deliverables and outcomes were consistent with the project scope, schedule, and benefits described in the executed project agreements or approved amendments.

The audit included costs reimbursed for the "Sidewalk Improvements at Various Locations" Agreement between Caltrans and the City. Our audit period was from March 26, 2015 through July 10, 2017.

We conducted a performance audit of the City's costs charged to the Agreement between Caltrans and the City to determine if costs were in compliance with the Agreement, and applicable laws and regulations. We assessed the City's financial management system to determine if it is capable of accumulating, segregating, and allocating costs. In addition, we tested to determine if deliverables and outcomes identified in the ATP application were completed.

The audit was comprised of transaction testing of reimbursed project costs to evaluate compliance with Office of Management and Budget Circular A-87 and 49 Code of Federal Regulations (CFR) (both codified in Title 2 CFR Part 200), 2 CFR Part 200, 48 CFR Part 31 and requirements stipulated in the City's Agreement with Caltrans. The audit was limited to financial and compliance activities. Our field work was completed on April 20, 2018 and transactions occurring subsequent to this date were not tested and, accordingly, our conclusion does not include costs or credits arising after this date.

The City is responsible for costs claimed, and complying with applicable agreement provisions, and state and federal regulations. In addition, the City is responsible to ensure their financial management system is able to accumulate and segregate reasonable and allowable costs, and that it is able to properly allocate costs to projects. Because of inherent limitations in any financial management system, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the financial management system to future periods are subject to the risk that the financial management system may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The audit was less in scope than an audit performed for the purpose of expressing an opinion on the financial statements of the City. Therefore, we did not audit, and are not expressing an opinion, on the City's financial statements.

The audit included interviews of City staff, review of prior audit reports, reviews of costs claimed to Caltrans, review of project reports, visits to the project sites and obtaining an understanding of the City's financial management system. The audit was comprised of transaction testing of costs to evaluate compliance requirements stipulated in the City's Agreement with Caltrans.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the data and the records selected. An audit also includes assessing the accounting principles used and significant estimates made by the City, as well as evaluating the overall presentation of costs claimed.

Caltrans has a legal and fiduciary responsibility to ensure that all state and federal funds passed through Caltrans are expended in compliance with state and federal laws, regulations, and agreements. A&I performs audits to ensure that Caltrans is meeting its legal and fiduciary responsibilities and that state and federal funds are properly expended by local government agencies.

Based on our audit, we determined the following:

• Reimbursed project costs totaling $557,986 were not in compliance with the ATP application and Agreement, state and federal regulations, and CTC program guidelines.
• Project deliverables and outcomes were not consistent with the project scope, schedule, and benefits described in the ATP application and Agreement.
• Required semi-annual and final reports were not submitted.
• Conflict of interest issues were identified during the procurement process as well as other procurement process deficiencies.
• Various contract management issues were identified.

Note: Although the City's financial management system has the capability to accumulate, segregate, and allocate project/contract costs, no time sheets were maintained by management because no labor was charged to Caltrans. If in the future, the City decides to charge Caltrans for direct labor costs the City will need to track labor costs by project.

Our findings and recommendations consider the City's response dated May 30, 2018 to our draft report emailed on May 16, 2018. Our findings and recommendations, a summary of the City's response, and our analysis of the response are set forth in the Findings and Recommendations section of this report. A copy of the City's full written response is included as Attachment H.

The report is a matter of public record and will be placed on Caltrans' webpage, which can be viewed at <www.dot.ca.gov/audits/INC.html>.

The City of Arvin (City) did not meet deliverables and project outcomes consistent with their Active Transportation Program (ATP) application and their executed project agreement ATPL-5370(027) (Agreement) with the California Department of Transportation (Caltrans). Specifically, we identified the following exceptions:

• The ATP application identified 15 locations for sidewalk improvement work. However, we determined none of the 15 locations proposed in the ATP application were constructed. In addition, sidewalk improvements were made to Nectarine Court with the ATP funds, although the Nectarine Court location was not identified in the ATP application.

The Agreement provides that project will be administered in accordance with the California Transportation Commission (CTC) ATP Guidelines and Local Assistance Program Guidelines (LAPG). The CTC's 2014 ATP guidelines states that project applicants nominate ATP projects for funding consideration. If awarded ATP funding for a submitted project, the project applicant has contractual responsibility for carrying out the project to completion and complying with reporting requirements in accordance with federal, state, and local laws and regulations and the CTC ATP Guidelines that require performance outcomes be as described in the project application.

Caltrans reimbursed the City $557,986 for work that was supposed to be completed on this project. These costs are disallowed. For a complete list of project locations that were to be completed see Attachment I.

• The CTC Guidelines required the grantee to meet project milestones. During our audit we determined that none of the scheduled project phases proposed in the ATP application were met as shown below:

• The CTC Guidelines and LAPG Chapter 22.17 require ATP recipients to submit semi­annual reports, and a final project delivery report within one year of the project becoming operable. The City did not submit any of the required semi-annual or final reports. As no procedures or guidelines for reporting were implemented during the time of our audit period, the City did not know specifically what was required.

  The City staff lacked the experience, resources, and information necessary to perform project oversight. This resulted in poor project planning and lagging project status. The City also lacks policies and procedures and experienced staff to track and analyze data related to the project, and to ensure project deliverables are completed within cost, scope and schedules.

  Recommendation:

  We recommend the City:

• Reimburse Caltrans the $557,986 in disallowed costs identified above.
• Establish policy and procedures for project and contract administration, and to ensure project costs, schedules, and reporting requirements are met.
• Follow the ATP CTC Guidelines and executed agreements to ensure the submittal of the semi-annual reports and a final project delivery report at the end of each project to Caltrans.

  Summary of City's Response:

• City claims that it was not clear to the City during the audit under what specific grounds, if any, it may raise issues of concern with the audit team until the draft audit report was shared on May 17, 2018.
• City stated that Franklin Street and Nectarine Court were not part of the original ATP application. Franklin Street and Nectarine Court were included in the list of project streets submitted with the RFA [Request for Funding Allocation] for Construction to the CTC and approved at their June 2015 meeting. The City stated that Caltrans was involved throughout the process including assistance with selection of the updated sites and inspection, and guidelines were completed and adopted long after the fact. If Caltrans had intended that all of the locations initially proposed in the application be constructed, it would have provided funding/paid for the same. Improvements made to Franklin Street and Nectarine Court provided an equivalent or greater benefit due to their proximity to the school sites.
• The Agreement was approved well after the application was initially submitted, and if the application were applicable, it would effectively require construction to be completed before authorization and award of funds. Even if the application timelines applied, it is not reasonable for the City to be responsible for delays attributable to Caltrans and other non-City parties in processing the application or approving funds, nor does the audit address this issue. The draft audit erroneously relies upon the application proposal (not the subsequently approved Agreements) to reach a conclusion of noncompliance.
• The forms to be used for semi-annual reporting were not available when reporting was due, and the final reporting forms did not become available for use until late in 2016 — after construction was completed. 

Auditor's Analysis to City's Response:

• Audit team communicated all audit findings and criteria throughout the audit process and specifically during the exit conference call held on May 17, 2018. Moreover, when the audit team provided a summary of preliminary audit findings via email on April 4, 2018, the City agreed with the preliminary audit findings and stated they would make corrections moving forward.
• Auditor concurs with the City's statement that Franklin Street and Nectarine Court were not part of the original ATP application. Thus, the audit finding was revised to state none of the proposed 15 locations was constructed.

  Caltrans District 6 and Independent Office of Audits and Investigations (A&I) audit staff repeatedly requested any written communications from the City that supports Caltrans approving the scope change. No support was provided.

  The CTC ATP Guidelines states that the project is executed within the scope identified when the decision was made to fund the project and delivered performance outcomes derived from the project as compared to those described in the project application. The City stated in the ATP application that the City proposed installing sidewalks where there is currently a lack of sidewalk continuity along various routes to Bear Mountain, Elementary School, Sierra Vista Elementary School and Haven Middle School from local residential neighborhoods. The City included an endorsement from the school district for those schools in the application. However, Nectarine Court is a route to Grimmway Academy which was not identified in the application.

  The City's ATP project was selected for funding allocation through a competitive process after Caltrans and CTC evaluated, rated, and ranked the information disclosed in the application. The City did not satisfy contractual responsibility for carrying out the project to completion. The Agreement and funding allocation were based on the application. The Request for Funding Allocation serves as the basis for requesting the allocation. Question 14 in the City's Request for Funding Allocation specifically asks if the request will change the project description, scope, exceed the amount programmed, or require an advance. The form was marked "No". Moreover, the City did not provide documents to support its response and approval for scope change.

• Funding for Plans, Specifications and Estimates was allocated on March 26, 2015 and June 25, 2015 for construction phase. Three months passed the proposed dates. A summary of phase start dates and funding allocations is as follows:

Per third party contractors' invoices that accompanied the City's request for reimbursement to Caltrans, the first date of PS&E work was dated March 25, 2015 and April 6, 2016 for construction. Although funding allocation was delayed about three months, the delay does not provide justification for the more than one year delay for construction phase completion.

• CTC ATP Guidelines were adopted on March 20, 2014 and the Agreement requires the City to administer the project in accordance with the CTC ATP Guidelines. The guidelines requires the City to submit semi-annual and final delivery reports to Division of Local Assistance (DLA). Further, even after the forms were available, the City had not submitted any of the required reports.

The City hired Quad Knopf, Inc. (Quad Knopf) to act as the City Engineer who provided Preliminary Engineering and Construction Engineering services for the ATP project which resulted in Quad Knopf overseeing their own work. The City did not have compensating controls to prevent the potential for conflicts of interest. Following are examples of conflicts of interest and the lack of oversight by the City:

• The ATP application was not signed by a City employee. Rather two Quad Knopf employees, acting for the City, signed the ATP application. One signature was from the person acting as City Resident Engineer and the other by the individual acting as the Senior Planner.
• During construction work, contract change orders (CCOs) were issued to Cen-Cal Construction. The CCOs were submitted by the acting Assistant Resident Engineer, recommended by the acting Design Engineer, and approved by the acting Resident Engineer who were all Quad Knopf employees.
• Quad Knopf’s construction engineering work was overseen by the City Manager who relied on the acting Resident Engineer who was a Quad Knopf employee.

Government Code section 1090 (a) states in part that members of city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by anybody or board of which they are members.

Conflict of Interest Guide issued by the Office of Attorney General provided that independent contractors, who serve in advisory positions that are frequently held by officers and employees, are subject to section 1090. Specifically, "independent contractors whose official capacities carry the potential to exert considerable influence over the contracting decisions of a public agency may not have personal interests in that agency's contracts."

Per the Local Assistance Procedures Manual (LAPM) Chapter 10.1, the same consultant to perform construction engineering on the same project and also perform design services may pose a potential conflict of interest if the firm has a vested financial interest in failing to disclose deficiencies in its design work product and seeks to insulate itself from pecuniary liability in subsequent phases such as minimizing or ignoring design errors and omissions. Prior to allowing a consulting firm to provide services on subsequent phases of the same project, the contracting agency must establish appropriate compensating controls in the form of policies, procedures,

practices, and other safeguards to ensure a conflict of interest does not occur in the procurement, management, and administration of consultant services.

City staff were not familiar with federal and state procurement requirements, specifically the need to address the conflict of interest. As a result, the City failed to prevent potential conflicts of interest posed by Quad Knopf providing design services and at the same time providing construction engineering services as they were both reviewing and inspecting their own work. With Quad Knopf serving as the responsible party and reviewing their own work, errors and omissions may not be reported or identified.

Recommendation:

We recommend the City:

• Implement policies and procedures relative to conflict of interest.
• Ensure there is a clear distinction between City employees and consultant employees relative to work performed.
• Provide conflict of interest training to City employees.

Summary of City's Response:

City Manager was the responsible-in-charge over Quad Knopf's work. Only the California Fair Political Practices Commission (FPPC) would have appropriate purview of this subject matter. The City has a published conflict of interest policy applicable to employees and consultants' and provides bi-annual training for its employees and consultants. The City acknowledges that it does not have a Panel Member Conflict of Interest & Confidentiality Statements in the project files. The City relies on contracted staff for their City engineer and City Surveyor positions. It is highly unusual for the City's designated Contracts Manager to have actual engineering experience. The City Manager was a full time public employee responsible in charge of the project. The City stated that Form 700 is used to address the conflict of interest but did not provide support.

Auditor's Analysis To City's Response:

Having the same consultant provide both the PS&E services and construction engineering services at the same time poses potential risks to concealing errors or omissions of engineering deficiencies. Inadequate oversight by City's employees increases the risks, especially without proper controls. The City did not provide documents to support its response that demonstrates the City Manager reviewed construction change orders (CCO) and the ATP application. The LAPM Chapter 10.9 provides that all construction engineering activities which may include preparation of CCOs must be under the overall supervision of a full-time employee of the agency who is in responsible charge.

Completion by the consultant designated as an agency engineer of the conflict of interest form for public agency officials, "Form 700", is required by State law. Form 700 would suffice as support. However, the City did not provide any Form 700 during our field work or in their response.

Finding 2 and recommendation were modified to remove the issue of not having the full time responsible-in-charge employee.

The procurement process used to procure a contract with Quad Knopf for Architecture and Engineering (A&E) Professional Services was not in compliance with state requirements. We reviewed the procurements of two contracts, one for A&E services and one for construction. We identified the following exceptions with the Quad Knopf A&E procurement:

• The City was unable to support that prospective consultants responded timely to the Request for Proposal (REP) due date since the proposals received were not date/time stamped or tracked through a log sheet. This was due to the City staff lacking the knowledge of a proper procurement process. LAPM section 10.5 states, "Documentation of when each proposal was received must be maintained in the project files. Copies of date stamped envelope covers or box tops are recommended." The lack of recording or date/time stamping submittals can result in an unfair advantage if late proposals are accepted.
• The City did not prepare an independent cost estimate prior to requesting RFPs for A&E services to allow the City to determine the reasonableness of proposed costs and quantities. LAPM Chapter 10.5 states, "the independent cost estimate, developed by the local agency in advance of requesting a cost proposal from the top-ranked consultant is an important basis and tool for negotiations or terminating unsuccessful negotiations with the most qualified consultant."
• The City lacked conflict of interest statements for panel members, and policies and procedures to ensure that proposal selections are in compliance with the conflict of interest requirement for A&E procurements. This was due to the City staff lack of familiarity with conflict of interest requirements. LAPM Chapter 10.1 states, "The Local agency must develop and maintain a written code of conduct governing the performance of its employees engaged in the award and administration of federal-aid highway funded contracts, including the prevention of conflicts of interest." If selection committee members have a conflict of interest that is later noted Caltrans may lose the funding it reimbursed the City. LAPM Chapter 10.5 requires the local agency Contract Administrator to ensure that all committee members meet the conflict of interest requirements (23 CFR 172) by completing and signing a conflict of interest statement (Exhibit 10-T "Panel Member Conflict of Interest & Confidentiality Statement) prior to selection process initiation.
• The REP issued to procure Quad Knopf did not specify an acceptable method of payment permitted by the LAPM. LAPM Chapter 10.2 requires one of four method of payment: actual cost-plus-fixed fee, cost per unit of work, specific rates of compensation, or lump sum be specified in the contract, depending on scope of work. Without a proper method of payment stipulated in the contract Caltrans may not be able to properly assess the accuracy of costs claimed.

Recommendation:

We recommend the City:

• Establish policies and procedures for A&E procurement services to address the deficiencies noted above.
• Ensure City staff is trained on procurement requirements.

Summary of City's Response:

The City stated that all four responses to RFPs were date and time stamped and provided bid responses of Cen-Cal Construction and three other unsuccessful bidders. They also stated that they did not find it feasible to determine a contract amount over a future five-year period for Contract City Engineer agreements because future needs are not usually identified that far in advance.

City has a conflict of interest policy which was updated in September of 2016 and provides bi­annual training for its employees and consultants.

Method of payment is often not determined until assignments are known. The City Engineer is expected to provide services for a wide-range of projects.

Auditor's Analysis to City's Response:

The finding was about the lack of date and time stamps which would demonstrate timely submission of the response to the RFP which resulted in the contract between the City and Quad Knopf, not the construction procurement. The City provided bids which resulted in the contract between the City and Cen-Cal Construction.

When contracts are funded by Caltrans, the administering agencies are required to develop independent cost estimates which are used as a base for contract negotiations to establish contract costs are reasonable and fair and to estimate a maximum contract amount.

The City did not provide documents to support the updated conflict of interest policy and training records.

Panel Member Conflict of Interest & Confidentiality Statements were supposed to be in the project files but could not be located there. The City stated it will ensure that such statements are included in the project files for future projects.

Also, use of permitted methods of payment is required to demonstrate costs are in compliance with the federal cost principles. Federal requirements are incorporated into the LAPM which prescribes state requirements. The ATP project is subject to the LAPM requirements. Thus, finding 3 remains as stated.

The City did not properly manage the third party contract with Quad Knopf. Specifically, we identified the following exceptions:

• The master contract did not include a maximum contract dollar amount. LAPM Chapter 10.2 requires contracts to include a reasonable maximum contract amount.
• The master contract provided for four possible types of payment methods but only one cost proposal was included instead of one cost proposal for each payment method. The RFP did not identify the method of payment to be used in each cost proposal. LAPM Chapter 10 Exhibit 10-H requires different cost proposal (formats) for various payment methods depending on the scope of services to be provided.
• The master contract limited the dollar amount of each task order to $100,000 but the City issued one task order for $149,000. Caltrans paid a total of $120,325 for the task order for Quad Knopf s services. Thus, allowable maximum task order amount was exceeded by $20,325 (this amount is included in the $557,986 disallowed costs in finding 1). Master contract section 3.2.2.J between the City and Quad Knopf states that the total amount of each task order shall not exceed $100,000.
• The task orders did not include project description and location to provide clear scope of work. The master contract entered into between the City and Quad Knopf and task orders were to be issued for specific tasks.
• A fee schedule was used in the cost proposal but the components of the loaded hourly rate were not broken out into direct labor wage rate, indirect cost rate, and profit. To determine the allowability and reasonableness of costs as required by 48 CFR Part 31.201-2(a) which is the federal cost principles, costs should be broken down to identify the components of the loaded costs.
• A different labor rate was billed for a two man survey crew than what was proposed in the contractor's cost proposal. 48 CFR Part 31.201-2(a) provides a cost is allowable when the cost complies with terms of the contract.

The City staff is not familiar with required state and federal contract management rules and regulations. As a result, the City's contract management procedures are inadequate and Caltrans runs the risk of paying for unallowable costs.

Recommendation:

We recommend that the City:

• Develop policies and procedures on proper contract management process to address the deficiencies noted above.
• Ensure there is staff trained on contract management requirements.
• Bill only for rates and costs as outlined in contracts.

Summary of City Response:

• It is not feasible to determine a realistic maximum contract amount over a future five-year period for Contract City Engineer agreements because future needs are not usually identified that far in advance.
• Cities retain a City Engineer to service a wide-variety of project types for work that is often dependent on unknown future development activity, and the ongoing and developing needs of infrastructure systems such as water, parks, etc. that cannot be forecast accurately.
• City stated that Guidelines adopted after the fact should not be retroactively applied to the master contract with Quad Knopf.
• At no time was Caltrans a party to the master contract between the City and Quad Knopf; only the parties can interpret the terms of the agreement. The City approved a single task order for $149,000, rather than going through a redundant process of splitting it into two task orders, and no party to the master contract has disputed this approval.
• City asserted that federal cost principles are not applicable unless required for specific projects or tasks by the agency providing funding for that project.
• The high billing rate paid for a two-man survey crew was based upon the higher prevailing wage requirements.

  ANALYSIS OF CITY'S RESPONSE:

• The LAPM Chapter 10.2 requires contracts to specify a reasonable maximum length of contract period and a maximum total contract dollar amount.
• Section 17 in the Master Agreement between Caltrans and City stipulated that the City agrees to comply with federal cost principles.
• City and Quad Knopf agreed to $198 for two-person survey crew. Paying the prevailing wages is the City and Quad Knopf's responsibilities. Caltrans can only reimburse costs that were stipulated in contracts and any costs above the maximum task order amount should be borne by the City. Any costs that exceeded the stipulated amounts should be paid out of City funds.

Thus, finding 4 remains as stated.

List of ATP Application Project Locations

A summary of the locations of the sidewalk improvements proposed in the Active Transportation

Program application by City of Arvin.

*Two projects listed at one location on the ATP application.

Thank you for providing the City of Arvin a copy of the audit team's draft audit report. While City staff have actively assisted and supported the team's audit requests, it was not clear to the City during the audit what specific grounds, if any, may raise issues of concern with the audit team until the draft audit report was shared. We also appreciate the audit team's willingness to speak with City staff and the City's former City Engineer team regarding this matter on May 17, 2018, to assist in clarifying aspects of the draft audit report.

After reading the draft audit report, it appears the audit team may not have had the benefit of a complete picture of events. This is understandable given the retirement(s) and unavailability of the key Caltrans personnel who were actually involved in the process, a complete turnover of all involved City personnel (including the former finance director, former City Engineer, and the former City Engineering firm [Quad Knopf (QK)]), Caltrans' document retention policy (which would include emails and documents from former employees), and other items outside of the audit team and City's control. Additionally, ATP Cycle 1 was a new program whose policies were still being developed when the project was being processed and constructed. Neither Caltrans nor City staff had the benefit of those policies at the time. We hope this response will help provide that information and will result in updated findings and recommendations consistent with that information and the mandates of the law.

In this regard, please find an overview of the City's response to the draft audit conclusions. To assist in bringing clarity to the audit report, the City also interviewed former Caltrans and City employees who were actually involved with the project, and is prepared to submit declarations, etc., as needed. While we appreciate the flexibility of the audit team allowing almost 8 business days (rather than the original deadline of 5 business days) to respond to the audit which took place over the last 140 days or more, we continue to request more time and remain concerned that this will not allow for adequate time to fully respond given the types of issues and conclusions reached. This could result in the audit team making a determination without key facts and information. Regardless, we hope that the information we are able to provide in such a short time will be informative. In broad strokes:

• The audit has preliminarily determined that "Reimbursement project costs totaling $557,986.00 were not in compliance with the ATP application and Agreement, state and federal regulations, and CTC program guidelines." However, the City requests the audit team consider the following:
  • The Caltrans Office of Local Assistance was actively engaged by the City and involved throughout the process, including assistance with selection of the updated sites, presentation of the sites for approval by CTC, request by the City Engineer to review the CTC allocation request for completeness, and inspection of the updated project locations on at least two occasions.
  • There is no non-compliance if the terms of the actual Agreement approved by Caltrans/CTC (as compared to a mere application proposal) are actually applied, nor does the draft audit identify any term of the approved Agreement that was violated.
  • The newly created ATP program did not have complete guidelines at the time of project application, approval and construction. Instead, the default State Safe Routes To School Process was used as recommended by Caltrans, and which was consistent for the project's stated purpose of providing "safer access to existing schools and providing wheelchair accessible paths."
  • Guidelines adopted long after the fact should not be retroactively applied, nor can they legally vary the express provisions and requirements of the approved Agreement.
  • If Caltrans had intended that all of the locations initially proposed in the application be constructed, it would have provided funding/paid for the same. It did not. For example, even though not required by the approved Agreement, the City constructed the Durham Street and Haven Drive sidewalk, etc., which was a site identified on the original ATP application. This single location alone cost the City approximately $500,000.00 in Measure L funds — or approximately 90% of the total funding awarded under the approved Agreement. If the City did not receive the benefit of the funding to install the improvements it originally proposed in the application, it should not now be penalized for instead installing what was expressly funded and approved.

• The audit has preliminarily determined that "Project deliverables and outcomes were not consistent with the project scope schedule, and benefits described in the ATP application and Agreement." However, the City requests the audit team consider the following:
  • There is no non-compliance if the terms of the actual Agreement approved by Caltrans/CTC (as compared to a mere application proposal) are actually applied, nor does the audit identify any specific term of the approved Agreement that was violated.
  • The Agreement was approved well after the application was initially submitted, and if the application were applicable as improperly determined by the draft audit, it would effectively require construction to be completed before authorization and award of funds. This would be inconsistent with Caltrans' policy that it will not reimburse for work without prior authorization, as well as the approved Agreement.
  • Even if the application timelines applied, it is not reasonable for the City to be responsible for delays attributable to Caltrans and other non-City parties in processing the application or approving funds, nor does the audit address this issue.
  • The improvements constructed were consistent with the ATP Cycle 1 program. In terms of the benefit to the public, improvements made to Franklin Street and Nectarine Court provided an equivalent or greater benefit due to their proximity to the schools sites. Supporting documentation to improvements made to Franklin Street include the fact that it has been identified as a bicycle corridor in previous Kern COG Bike Plans, and in the 2017 Kern Region Active Transportation Plan. (See Attachment I.)

• The audit has preliminarily determined that "Required semi-annual and final reports were not submitted." However, the City requests the audit team consider the following:
  • This project was funded during the first round of the ATP program and processes were still being developed over a substantial period after that time. The forms to be used for semi-annual reporting were not available when reporting was due, and the final reporting forms did not become available for use until late in 2016 - after construction was completed.
  • The actual reporting requirements of the approved Agreement prevail over guidelines, and the audit does not identify any express term of the approved Agreement that was allegedly violated regarding reporting.
  • Even assuming that the guidelines could vary the express terms of the approved Agreement, guidelines adopted long after the fact should not be retroactively applied. It is not reasonable to find noncompliance with a standard that was not in effect at the time.

• The audit has preliminarily determined that "Conflict of interest issues were identified during the procurement process as well as other procurement process deficiencies." However, the City requests the audit team consider the following:
  • Caltrans has apparently raised this issue multiple times in numerous other audits for other municipalities that use private consultants for City Engineer services, and is not necessarily related to the specific circumstances of the City's audit. A general concern should be addressed generally, rather than city by city. Only the California Fair Political Practices Commission (FPPC) would have appropriate purview of this subject matter. Caltrans may seek an opinion of the FPPC to put this issue to rest. If the FPPC issues an opinion that certain practice may constitute conflicts of interest, the City will (of course) comply with the FPPC's opinion, as may be applicable, on a go-forward basis.
  • The City does have a published conflict of interest policy (Chapter 1.24 of the City's Municipal Code, including Appendix A thereto) applicable to employees and consultants and provides bi-annual training for its employees and consultants. Employees and City Engineer complete Form 700 to disclose any potential conflicts.
  • There was no conflict of interest in this particular circumstance. (See discussion below.) Regardless, the City is in the process of moving forward to hire a City Engineer as an employee of the City. As a result, this will not be a potential issue in the future.
  • City acknowledges that it does not have a Panel Member Conflict of Interest & Confidentiality Statements in the project file, and will ensure that such statements are included in the file for future projects.

• The audit has preliminarily determined that "Various contract management issues were identified." However, the City requests the audit team consider the following:
  • As a preliminary matter, the master agreement for City Engineering services with QK, is no longer in effect. Based on the concerns raised in the audit report, the City is in the process of considering an in-house engineer for the upcoming fiscal year.
  • Guidelines adopted after the fact should not be retroactively applied to the master contract with QK.
  • Federal contract management rules are not applicable. No federal funds were used as  part of this project. The audit failed to identify any state regulations that incorporated the federal regulations with regard to this project.
  • The City Council approved the task order for a higher amount based on the needs identified in the task order. This is within the City Council's authority.
  • At no time was Caltrans a party to the master contract between the City and QK; only the parties can interpret the terms of the agreement. The City approved a single task order for $149,000.00, rather than going through a redundant process of splitting it into two task orders, and no party to the master contract has disputed this approval. The draft audit cites no authority for the premise that it can require reimbursement because of purported approval caps contained in an agreement to which Caltrans is not a party and which none of the actual parties have contested.
  • Regardless, to address the concerns raised in the draft audit, the City is willing to amend the master contract between the City and QK to take effect retroactively. In the alternative the City is willing to retroactively approve task orders, totaling less than $100,000.00 each. If the cost breakdowns advocated by the draft audit had been used, QK charges would have been $7,000.00 more than what was actually charged.

Please see the attachment for additional information regarding these items. Given there is no finding that can be made the City either violated or failed to comply with the terms of the approved Agreement that actually governs the location of the improvements, etc., there are no grounds to justify reimbursement of the project costs implemented consistent with that approved Agreement. The City requests the audit team update the draft audit accordingly.

We invite the audit team to fully and carefully consider the City's response before issuing its final determination, and request an opportunity to supplement this response to be able to adequately address the issues raised. Additionally, in the event that the draft audit is changed to add new or modified conclusions that assert noncompliance or are detrimental to the City, we anticipate that the audit team will provide due process and give the City the opportunity (and adequate time) to appropriately respond in writing before any final determination is made.

As always, we remain available to respond to any questions or to provide additional information on request, and would welcome a dialogue to allow for a reasonable resolution of this matter that is not only consistent with legal requirements and the intent of the underlying funds which we both steward, but also fair to both Caltrans and the City.

The draft audit preliminarily asserts that i) only part of the project location(s) set forth in the original ATP application proposal were actually completed, and thus costs are disallowed; ii) CTC guideline milestones were not met as purportedly required by the application; and iii) reporting was not provided as required by Local Assistance Program Guidelines (LAPG). It then concludes that City staff lacked experience, resources and information, which purportedly resulted in poor project planning and project delays, etc.

However, this finding is without basis as i) the approved Agreement (not an application proposal) governs the performance requirements, including the project locations; ii) these project locations were developed with the approval and assistance of Caltrans and the CTC; iii) the project was completed consistent with schedule as required by the approved Agreement per approved extension(s); and iv) even if the LAPG could superseded the approved Agreement (which they cannot), these standards have not been shown by the audit to be in effect at the time, nor has the audit provide any authority that these standards can be retroactively applied.

A. Project Background

The City appreciates the audit team may not have had the benefit of a complete picture of events. This is understandable given the retirement(s) and unavailability of the key Caltrans personnel who were actually involved in the process, a complete turnover of all involved City personnel (including the former finance director, former City Engineer, and the former City Engineering firm [QK]), Caltrans' document retention policy (which would include emails and documents from former employees), and other items outside of the audit team and City's control. Additionally, ATP Cycle 1 was a new program whose policies were still being developed when the project was being processed and constructed. Neither Caltrans nor City staff had the benefit of those policies at the time. We hope this preliminary response, and the background below, will help provide that information and will result in updated findings and recommendations consistent with that information and the mandates of the law.

1.The newly created ATP program did not have complete guidelines at the time; default Safe Routes To School process was used as recommended by Caltrans

At the time, ATP Cycle 1 was a new program whose policies were still yet to be developed. Neither Caltrans nor City staff had the benefit of those policies during that period. Instead, the default State Safe Routes To School Process was used as recommended by Caltrans's Office of Local Assistance, and which was consistent for the project's stated purpose of providing "safer access to existing schools and providing wheelchair accessible paths."

Extensive communications and several in-person meetings were held with multiple officials consistent with the Safe Routes to School process were held, and the process was used

to develop updated project locations consistent with Caltrans' Office of Local Assistance's request to have curb return-to-curb return construction.

2. Caltrans Office of Local Assistance was actively involved with the approved protect locations as updated

The updated project locations approved in the Agreement were well known to Caltrans, whose Office of Local Assistance was actively engaged with the City Engineer in the process.

The Caltrans Office of Local Assistance was kept fully informed, provided with the updated locations, walked the updated location sites at least two times (including the Nectarine Court location), were provided a list of the updated locations (and a second copy when the first was lost), and encouraged curb return-to-curb return construction consistent with the project as actually built per the approved Agreement. Additionally, the City Engineer was actively engaged in the process to ensure compliance, and sent numerous requests to the Office of Local Assistance to confirm whether "anything was missing" and complied with any of the Office of Local Assistance's direction. The was an active effort to move this project along in a timely manner. For example, the next day after the funding allocation for PE was approved by CTC, the City Engineer was scheduling a review of the project sites with the Office of Local Assistance.

This was consistent with the direction from Kern COG received in December of 2014 which requested the City "Please contact the Local Assistance Office of CALTRANS District 6 for assistance in developing a project specific approval package that will be acceptable to the California Transportation Commission to issue a notice to proceed with elements of the project."

The City did as instructed. As noted above, Caltrans staff was in regular communication with City staff regarding the details of the proposed project. In fact, Caltrans staff reviewed and edited the materials prepared by the City and which were ultimately submitted to the CTC for approval. Additionally, the City provided Caltrans staff with copies of the request for proposal for construction of the project which specifically detailed the location of the work to be performed. Furthermore, Caltrans staff walked the sites of the proposed project with city staff on at least two occasions — including the Nectarine Court and Franklin location. At no time during the months of interactions, via telephone, email and in-person, did Caltrans staff object to, or raise concerns regarding, the scope of the project as revised per the guidance of the Office of Local Assistance. In fact, the Office of Local Assistance did just the opposite, including encouraging updated project locations that would allow for curb return to curb return pedestrian travel — which many of the proposed improvements in the application did not contain.

3. Caltrans assisted the City with obtaining CTC approval of the Agreement, and CTC approved the Agreement

The City originally submitted an application to Kern COG in July of 2014 with detailed descriptions and exhibits of the general scope of the project. In January of 2015, the City also provided a Request for Funding Allocation for PE which was sent to Caltrans staff for CTC approval. The Request for Funding Allocation provided a general description of safe routes to school projects within the City bounded by Comanche Drive, Sycamore Road, Derby Street, and Varsity Ave. The improvements all occurred within this area. In addition, a Request for

Funding Allocation for Construction was sent to Caltrans for CTC approval in April of 2015 which included the same description as the PE and a Project List. The Project List listed 11 streets including Franklin Street and Nectarine Ct. All of these materials were reviewed by Caltrans staff, who were involved in their development.

Thereafter, the Project List was submitted to, and approved by CTC, at their meeting on June 24, 2015.

B. The Approved Agreement Governs the Performance Requirements

The draft audit erroneously relies upon the application proposal (not the subsequently approved Agreements) to reach a conclusion of noncompliance. This was further asserted by the audit team during the closeout call, when the audit team confirmed its contention that the application is binding on the City and controls over the express terms of the approved Agreements. However, these assertions are contradicted by the express terms of both the Master Agreement and Program Supplement Agreement approved by Caltrans and the CTC (collectively "Agreement").

Contract interpretation is a question of law. (Ben-Zvi v. Edmar Co. (1995) Cal.App.4th 468, 472.) The essential goal of contract interpretation is to give effect to the mutual intentions of the parties, which generally, is solely governed by the four corners of the contract. (Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377, 390.)

According to the Program Supplement Agreement, the project location is identified as "In the City of Arvin, bound by Comanche Drive, Sycamore Road, Derby Street, and Varsity Ave." Also, the Program Supplement Agreement "adopts and incorporates" the Master Agreement and is "subject to all of the terms and conditions thereof" Moreover, it states "Each project-specific PROGRAM SUPPLEMENT shall separately establish the terms and funding limits for each described PROJECT funded under this AGREEMENT and that PROGRAM SUPPLEMENT."

On the first page of the Master Agreement it states: "WHEREAS, before STATE FUNDS will be made available for PROJECT, ADMINISTERING AGENCY and STATE are required to enter into an agreement to establish terms and conditions applicable to the ADMINISTERING AGENCY when receiving STATE FUNDS for a designated PROJECT...." Page fourteen of the Master Agreement states: "In the case of inconsistency or conflicts with the terms of this AGREEMENT and that of a project-specific PROGRAM SUPPLEMENT and/or Cooperative Agreement, the terms stated in that PROGRAM SUPPLEMENT and/or Cooperative Agreement shall prevail over those in this AGREEMENT." In addition, it states "No alterations or variations of the terms of this AGREEMENT shall be valid unless made in writing and signed by the PARTIES, and no oral or agreement not incorporated herein shall be binding on any of the PARTIES."

The four corners of the approved Agreement are clear and unambiguous: the City, Caltrans and CTC never intend for the application to constitute a binding contract or agreement between the parties. Had they desired to do so, the application would have been incorporated by reference into the Program Supplement Agreement and/or Master Agreement. It was not. The fact that the application was excluded from those agreements renders it non-binding as a matter of law.

Next, the application itself is devoid of any reference to it being binding upon the City or constituting a contract between the City, Caltrans and/or CTC. (See the detailed discussion below.)

Finally, the City is not legally bound by any alleged oral or implied contract imagined by the audit team with regard to the application. Those who contract with municipal agencies are presumptively charged with full knowledge of the agencies contracting requirements and are bound at their own peril to ascertaining the restrictions applicable to municipal contracts. (See Katsura v. City of San Buenaventura (2007) 155 Cal.App.4th 104.) Courts have long held both oral and implied contracts a legally unenforceable against municipal agencies. (Id. at 109-10; see also G. L. Mezzetta, Inc. v. City of American Canyon (2000) 78 Cal.App.4th 1087.)

As such, as a matter of law the application is not a binding contract on the City, nor can it be used to vary the express terms of the Agreement actually approved by the parties.

Therefore, the City requests the audit team correct the audit report to assess performance based on the Agreement actually approved by the parties — not a mere application proposal.

C. The Audit Provides No Authority That The ATP Application Is A Binding Contract Or Agreement That Supersedes The Express Terms Of A Subsequent Agreement That Was Actually Adopted By The Parties

The audit is devoid of any legal authority for the novel premise that the application is a binding agreement or contract. In fact, it is not binding. Under California law an application is just that - an application. It is a proposal by a party to enter into a contract, not an agreement itself. Further, an application lacks the essential legal terms to be considered a contract. Indeed, the application itself is devoid of any reference to it being binding upon the City or constituting a contract between the City, Caltrans and/or CTC. To the contrary, it has all the indicia of an application — not a contract.

Assuming for the sake of argument an application could constitute an agreement, this would mean that applications would effectively (and unilaterally) bind Caltrans or the CTC as to the exact scope of a project by its mere submission. In essence, under this argument the application process would be turned into a "take it or leave it" process, whereby Caltrans or the CTC could not have the discretion to modify the proposed project based on funding or other limitations.

Finally, also assuming for the sake of argument the submission of the application created some sort of binding agreement, it was superseded by the Agreement actually approved by Caltrans and the CTC.

The City again requests that the draft audit or the audit team identify any authority for the premise that a mere application prevails over the express terms of a subsequently approved Agreement. If such authority is provided, the City requests an opportunity to respond to this new basis. If not, the City requests the audit team correct the audit report to assess performance based on the Agreement actually approved by the parties — not a mere application proposal.

D. The Draft Audit Did Not Find Any Noncompliance With The Approved Agreement Itself — Whether Improvement Location, Schedule Of Performance, Etc.

The Findings and Recommendations are devoid of any finding that the project was noncompliant any term of the approved Agreement itself. During the phone conference, the audit team was also unable to articulate any term or condition of the controlling Agreement that the City was alleged to have violated. Instead, the draft audit erroneously concludes noncompliance is based off of the initial ATP Application — which is not the approved Agreement nor binding as noted above.

The City requests the proper standards, per the approved Agreement, be applied in the audit. If so, there is no discrepancy as to approved project locations, project schedules, etc., which would warrant a finding of noncompliance.

1. Project locations

Applying the proper standards is a critical factor in obtaining an accurate audit. For example, Franklin Street and Nectarine Court were not part of the original application proposal. However, these locations were determined after consultation (including field visits) with Caltrans Local Assistance representatives, who had responsibility for managing the agreement with the City. Also, the work did not conflict with the executed Supplemental Agreement, or with the Request for Authorization to Construct submitted to and approved by the CTC. See Attachment I for additional project location information and discussion.

Finally, it is not reasonable to now expect that all the locations initially proposed in the application would have to be constructed when sufficient funding was not awarded which would allow all the locations initially proposed in the application to actually be constructed. For example, even though not required by the approved Agreement, the City constructed the Durham Street sidewalk, etc., which was a potential site identified on the original application. This single location alone cost the City approximately $500,000.00 in Measure L funds — or approximately 90% of the total funding awarded under the approved Agreement. If, contrary the weight of the evidence, Caltrans had intended that all of the locations initially proposed in the application be constructed, it would have provided funding/paid for the same. It did not. If the City did not receive the benefit of the funding to install the improvements it originally proposed in the application, it should not now receive the burden for instead installing what was expressly agreed and approved by all the parties.

2. Project milestones

By erroneously relying on the application, rather than the approved Agreement, the draft audit likewise comes to an invalid conclusion regarding project milestones.

For example, the draft audit states that "none of the project phases proposed in the ATP application were met," and then provides the following table:

This table is erroneous as i) the application schedule is not applicable, ii) the schedule fails to take into account subsequent extensions approved by the parties; and iii) the schedule does not take into account delays attributable to Caltrans (or other non-City entities) for process and implementing the project.

Instead, the dates shown under the "As Occurred" column for End design and Begin construction phase are incorrect. (See table below.) Work proceeded expeditiously at each stage and actual performance conformed with the executed agreement and the authorization for construction. Design work was completed in around 8 months (to bid date) and construction was completed in a similar time. Below is the table which includes the schedules as submitted to the CTC with the Requests for Allocation for PE and Construction, and the schedule provided by the Supplemental Agreement.

*Request for Funding Allocation for PE approved on 3/26/15 by CTC (Attachment C)

**Request for Funding Allocation for Construction approved on 6/24/15 by CTC (Attachment D) ***Program Supplement (Attachment E)

As can been seen, the City complied with the project milestones either ahead of time or within a minimal amount of time, and was completed on time. The project was not delayed 413 days as erroneously asserted in the draft audit report. In fact, the project was completed within the thirty-six (36) month time frame established by the Agreement. As such, the City requests the audit consider the project milestones that were actually approved and applicable to the project.

3. The Audit Disregards The Reporting And Timeline Requirements Established Within The Program Supplement Agreement And Master Agreement

As stated previously, the City is not bound by the application, as it is not an agreement between the parties. The audit relies solely upon the timelines project milestones identified within the application; however, the Program Supplement and Master Agreement expressly provides requirements for project milestones and reporting. Moreover, the audit is devoid of any

assertion the City failed the meet a timeline or reporting requirement identified within the Program Supplement Agreement and/or Master Agreement.

Indeed, if the project application schedule initially proposed by the Application was effective as erroneously assumed by the draft audit, it would have required construction of the project before the funds were actually awarded or the Agreement approved — which is in violation of Caltrans' own policies for reimbursement of project costs, etc.

The erroneous information regarding alleged noncompliance with timelines and reporting by the City are inaccurate and should be removed from the audit report.

E. Guidelines, As Cited By The Draft Audit Are Not Applicable

The City requests the audit report re-examine all guidelines to determine whether they are even applicable to this matter or even in effect at the time project. If they were, the audit report should identify when the policy went into effect, and what provision of the approved Agreement makes it enforceable.

1. Reporting forms did not exist at the time of the project

The draft audit asserts the City did not submit semi-annual reports, or a final project delivery report.

The daft audit fails to note this project was funded during the first round of the ATP program and processes were still being developed over a substantial period after that time. The forms to be used for semi-annual reporting were not available when reporting would have been due, and the final reporting forms did not become available for use until late in 2016 - after construction was completed. Emails between the QK office and Caltrans ATP Coordinator confirm this.

2. Guidelines cannot vary the express terms of the approved Agreement

 As set forth above, the approved Agreement is the prevailing contract between the parties. Unless the approved Agreement contain terms that expressly require compliance with guidelines, guidelines cannot vary an approved Agreement between the parties. For example, the Program Supplement and Master Agreement has express reporting requirements that would apply, not LAPG Chapter 22.17

 The draft audit fails to cite any such provision, or to provide any authority as to why the cited guidelines are applicable given the particular circumstances of this matter.

3. Guidelines Adopted Long After the Fact Cannot be Retroactively Applied

Even assuming that guidelines are shown to be applicable by the Agreement, or can vary the express terms of the approved Agreement (which they cannot), the draft audit erroneously finds noncompliance as to policies and guidelines that do not appear to be in effect at the time of the alleged noncompliance.

For example, while the audit asserts that there was noncompliance with the Local Assistance Program Guidelines (LAPG) for reporting requirements, there is nothing in the audit

report showing the guidelines were actually in effect at the time of the alleged noncompliance. During the phone conference regarding the draft audit report, audit team staff were also unable to confirm whether any of the policies or regulations were even in effect at the time of project. Instead, the earliest version of LAPG Chapter 22.17 (regarding reporting) the City could locate was dated April 20, 2016 — long after the project was already started and nearly completed.

As noted above, at the time ATP Cycle 1 was a new program whose policies were still yet to be developed. In the absence of guidelines adopted by Caltrans, the default State Safe Routes to School process was followed by the City Engineer and Caltrans' Office of Local Assistance. Neither Caltrans nor City staff had the benefit of those (yet to be adopted) policies at the time — nor should either be penalized for policies which did not exist.

A. Use Of Consultants As City Engineers Is A Regional Issue That Should Be More Properly Addressed By The FPPC

Caltrans has raised this issue multiple times in numerous other audits for other municipalities that use consulting services for City Engineer services. This appears to be an issue of more general concern to Caltrans, and not necessarily related to the specific circumstances of the City's audit. A general concern should be addressed generally, and not jurisdiction by jurisdiction. While the City (or other cities) and Caltrans may disagree as to whether there is a conflict with using a consultant City Engineer for project supervision, neither the City nor Caltrans has been charged with determining potential conflicts of interest under State law. Instead, this falls within the purview of the California Fair Political Practices Commission (FPPC). Caltrans may seek an opinion of the FPPC. If the FPPC issues an opinion that certain practice may constitute conflicts of interest, the City remains willing to comply with the FPPC's opinion as applicable on a go-forward basis.

B. No Conflict of Interest

As a preliminary matter, it should be noted that the City is already in the process of moving forward to adopt a budget to hire a City Engineer as an employee of the City. As a result, this should not be a potential issue in the future.

Regardless, there was no conflict of interest per Government Code section 1090 as indicated in the draft audit. The City, upon completing the request for proposal process, hired Quad Knopf ("QK") to provide City Engineer services, and the City Council appointed Quad Knopf staff as the City Engineer and Assistant City Engineer. As part of their duties as the City Engineer and Assistant City Engineer, the City Engineer and Assistant City Engineer were responsible for overseeing the construction of City projects. With regard to this project, the City Engineer did exactly what they were hired to do, to wit - oversee the construction of the sidewalks. No additional contract was entered into for construction management services, nor did the City Engineer, QK or QK staff vote on any contract awarded for the construction of the sidewalks.

Further, the Master Agreement expressly authorizes the City to utilize contract engineer services. On page 6 of the Master Agreement it states "Projects and its facilities shall be maintained by an adequate and well-trained staff and engineers and/or such other professionals and technicians as Project reasonably requires. Said operations and maintenance staff may be employees of the ADMINISTERING AGENCY, another unit of government, or a contractor under agreement with ADMINISTERING AGENCY."

Finally, the draft audit again fails to allege the breached of any provisions of the Program Supplement and/or Master Agreement. For all these reasons the City request that the audit be updated to remove Finding 2.

1. The ATP application was not required to be signed by a City employee

The draft audit notes that the ATP application was not signed by a City employee. However, this is not a requirement of the application. The application states that "Local Agency Official (City Engineer or Public Works Director)" is to sign. Mr. Miguel Barcenas was the City Engineer named in the Contract City Services Agreement #2013-32 and approved by the City Council. Mr. Barcenas was acting in his official capacity as the City Engineer for the City of Arvin.

2. CCOs were approved by the City Council, not the City Engineer

The draft audit notes that during construction work, contract change orders (CCOs) were issued to Cen-Cal Construction, and that the CCOs were approved by the City Engineer, etc., who was a Quad Knopf employee.

However, these items are ordinary and usual type of change orders for unforeseen conditions (subgrade repair and abandoned pipe), or in the case of the added driveway, based on unit costs in the bid and field determinations made during construction. The change in pole type was clarification to the pole requirements on the plan and an agreed upon modification/upgrade to the pole. All were reviewed with the City Manager (a full time employee of the City), processed with his agreement, and then subsequently independently approved for payment by the City Council (not the City Engineer). Expectations that cost estimates made prior to design of the project can be broken down to this level of detail are unreasonable and do not reflect conventional practice.

As a final note, the total cost of Change Orders on the project was $8,605.52 compared to the total contract amount of $452,089.75 paid under the construction contract. Change orders represented just 1.9% of the construction contract with the City's contractor for the ATP work, which is well within industry standards and none are alleged to be a result of design errors.

3. The City Engineer was not overseeing his own work

The draft audit asserts that Quad Knopf was providing design services and at the same time providing construction engineering services, and as a result there was a conflict of interest as they were both reviewing and inspecting their own work. The audit also states that a consultant cannot be designated as the responsible charge of a project.

In response, it should be noted that small cities that lack the ability to hire full-time staff for the City Engineer roles have only the option to hire companies like QK to provide the necessary expertise and services on an as needed basis. There are approximately 74 cities in California who, because of a variety of needs (including their size, budget constraints, lack of potential candidates or desire to maintain continuity) rely on contracted staff for their City Engineer and City Surveyor positions. In such cases, it is highly unusual for the City's designated Contracts Manager (usually the City Manager or City Administrator) to have actual engineering experience. Most would disagree however that their lack of engineering experience is synonymous with being incompetent to manage an engineering consultant or to exercise good judgment and management oversight.

Additionally, the City does have a published conflict of interest policy (Chapter 1.24 of the City's Municipal Code, including Appendix A thereto) applicable to employees and consultants and provides bi-annual training for its employees and consultants. Employees and City Engineer complete Form 700 to disclose any potential conflicts.

Next, the National Society of Professional Engineers (NSPS) has reviewed questions concerning the potential for conflict of interest when City Engineers work on a variety of project roles and tasks. They have advised that while consultant roles may change according to the nature of assignments, those roles are not conflicted ones because in each case, the engineer is representing the same client and has the same duties. City Engineer agreements ordinarily prohibit the consultant from working for any other client entities within the City limits, which removes the potential for divided interests or conflicting duties. There is noting in the audit which supports the assumption that the City Engineer was working for any other client entities within City limits during the audit period.

Additionally, the audit neglects to address Chapter 10 of the LAPM, which states that there is potential for substantial project efficiencies by maintaining the same design team throughout all phases of the project, and such practice is allowed. The negative potential cited here for consultants to misrepresent design errors is speculative and presupposes that the City's designated Contract Manager would be unable to recognize such misrepresentations. Other government agencies such as USDA recognize the benefits of maintaining continuity of the project team through all phases of project delivery and for that reason favor that arrangement, as do many clients.

Further, the City Council did designate a full-time public employee (in this case the City Manager) in responsible charge of the project. The City Manager was a full time, public employee.

Finally, QK was reviewing and inspecting the work of the General Contractor. They were not "reviewing and inspecting their own work". The design work had already been completed prior to beginning of construction.

1. Oversight and management is exactly what city managers are expected to do. This includes oversight over consultants who provide a wide variety of services including those related to utilities (wastewater [including wastewater treatment and management], solid waste, water, etc.), public safety (police, fire, ambulance), public works, planning and development (including preparation of general plans, etc.), parks and recreation, etc.

A. Responses to RFPs Were Date And Time Stamped

The audit alleges the City was unable to support that prospective consultants responded timely to the Request for Proposal (RFP) due date since the proposals received were not date/time stamped or tracked through a log sheet and were not maintained in the project files.

However, all four responses to RFPs were date and time stamped. (See Attachment H.) The City Clerk has a practice and policy of using time/date stamps on all RFP submittals to ensure that no late proposals are accepted. This process is used for all projects for which an RFP has been issued. Copies of the date and time stamped letters enclosing the bid were maintained in the "Bids 2015 Sidewalk Improvement Project" in the City Clerks office. The City Clerk is willing to submit a declaration under the penalty of perjury documenting that it is her practice and policy to ensure that all RFP bid responses were date/time stamped, etc., that she received the four bid responses enclosed herewith as Attachment H, she time and date stamped each as they were received by the City, there were no late bids submitted to the City, and the proposals were regularly opened (and witnessed) at the time and place set forth in the RFP.

B. Cost Estimates

The draft audit alleges the City did not prepare an independent cost estimate prior to requesting RFPs for A&E services to allow the City to determine the reasonableness of proposed costs and quantities.

However, it is not feasible to determine a contract amount over a future five-year period for Contract City Engineer agreements because future needs are not usually identified (beyond immediate projects) that far in advance. The draft audit does not appear to understand the nature of the City Engineer role. Instead, it seems to assume that a City Engineer is limited to project agreements for specified work that is already identified, or on-call agreements with limited duration or limited number of assignments, known funding sources etc. This is almost never the case. Instead, cities retain a City Engineer to serve a wide-variety of project types for work that is often dependent on unknown future development activity, and the ongoing and developing needs of various infrastructure systems such as water, wastewater, parks etc. that cannot be forecast accurately.

C. Conflict Of Interest Statements

The draft audit asserts the City lacked conflict of interest statements for panel members, and policies and procedures to ensure that proposal selections are in compliance with the conflict of interest requirement for architecture and engineering (A&E) procurements.

However, the City has a published conflict of interest policy (Chapter 1.24 of the City's Municipal Code, including Appendix A thereto) applicable to employees and consultants. This conflict of interest policy was recently updated in September of 2016. Additionally, the City provides bi-annual training for its employees and consultants.

Finally, it is our understanding that the interview panel included a Caltrans Local Assistance representative. Regardless, the City acknowledges that it does not have a Panel Member Conflict of Interest & Confidentiality Statements in the project file, and will ensure that such statements are included in the file for future projects.

D. Method of Payment

The draft audit also asserts the RFP issued to procure Quad Knopf did not specify an acceptable method of payment permitted by the LAPM, either a actual cost-plus-fixed fee, cost per unit of work, specific rates of compensation, or lump sum, and notes that without a proper method of payment stipulated in the contract Caltrans may not be able to properly assess the accuracy of costs claimed.

However, method of payment is often not determined until assignments are known. For instance, compensation may be based on hourly fees at agreed rates to review private development projects and documents paid for by developer's fees. For other projects, they might be lump sum agreements based on specific tasks with a defined scope. Still other projects compensation might be based on hourly fees using prevailing rates for certain type of projects or per other fee arrangements dictated by the specific funding agencies.

The City Engineer is expected to provide services for a wide-range of projects, many of which do not involve Caltrans projects and which may have their own payment method requirements from the various funding sources. This cannot be determined at the time and during the process of hiring a contract City Engineer, as the City does not have a crystal ball that it can use to determine what projects (including emergency projects) may occur. Likewise, setting a one-size-fits-all method of payment could be contrary to funding requirements or project types. Instead, a maximum cost was established through the use of individual task orders reviewed and approved by the City Council.

Finally, the City is no longer in the master agreement with Quad Knopf, and given that it is in the process of obtaining budget approval for an in-house engineer, this should not be an issue on a go-forward basis.

A. Contract Dollar Amounts

The draft audit asserts the master contract with the City's Engineer at the time did not include a maximum contract dollar amount.

As noted above, it is not feasible (nor an industry practice) to determine a realistic maximum contract amount over a future five-year period for Contract City Engineer agreements because future needs are not usually identified (beyond immediate projects) that far in advance. The draft audit assumes that a City Engineer is limited to project agreements for specified work that is already identified, or on-call agreements with limited duration or limited number of assignments, known funding sources etc. This is almost never the case. Instead, cities retain a City Engineer to serve a wide-variety of project types for work that is often dependent on unknown future development activity, and the ongoing and developing needs of various infrastructure systems such as water, wastewater, parks etc. that cannot be forecast accurately.

City acknowledges that the master contract did not include a maximum dollar amount. However, as a practical matter costs for individual projects were controlled through the task order and review process and internal controls, reviews and City Council approval.

Finally, while the City disagrees with the draft audit finding on this matter, this this should not be an issue for future projects. The master contract with the City Engineer is no longer in effect, and the City is in the process of establishing budget approvals to retain a City Engineer as a public employee.

B. Method Of Payment

The draft audit again raises the issue of method of payment. The City refers the audit to its response in Section III(D), which is incorporated herein as if set forth in full.

C. Interpretation Of City Agreement With City Engineer

The draft audit first claims that the master contract with the City Engineer should contain a cap. (See above.) Thereafter, it then notes that the master contract between the City and the City Engineer's firm exceeded the master contract task order amount.

As a preliminary matter, the master agreement for City Engineering services with QK, is no longer in effect. Based on the concerns raised in the audit report, the City is in the process of considering an in-house engineer for the upcoming fiscal year.

Next, the City Council approved the task order for a higher amount based on the needs identified in the task order. This is within the City Council's authority.

Further, at no time was Caltrans a party to the master contract between the City and QK; only the parties can interpret the terms of the agreement. The City approved a single task order for $149,000.00, rather than going through a redundant process of splitting it into two task orders, and no party to the master contract has disputed this approval. The audit cites no authority for the premise that it can require reimbursement because of purported approval caps contained in an agreement to which Caltrans is not a party and which were authorized by the parties.

Finally, Caltrans has shown no harm, let alone harm that would warrant reimbursement of an approval above the alleged maximum task order amount by $20,325.00.

Regardless, the City is willing to amend the master contract between the City and QK (to take effect retroactively) to address Caltrans concerns regarding the master agreement with QK. In the alternative the City is willing to retroactively approve task orders, totaling less than $100,000.00 each.

D. Task Orders Provided Detailed Description of Services and Overall Costs

The draft audit asserts the task orders did not include project description and location to provide clear scope of work. Additionally, the draft audit concludes the master contract entered into between the City and Quad Knopf and task orders were to be issued for specific tasks.

Here, the task order included a detailed description of the services to be provided to accomplish the work envisioned with the ATP Cycle 1 Project and provided an overall maximum cost for the project. The task orders, including the accompanying reports to the City Council, were sufficiently detailed. As stated on the task order, a 10% discount to the Quad Knopf rate schedule was also provided.

E. Federal Cost Principles Are Not Applicable

The draft audit asserts that while a fee schedule was used in the cost proposal, the components of the loaded hourly rate were not broken out into direct labor wage rate, indirect cost rate, and profit. As a result, the draft audit concludes that it could not determine the allowability and reasonableness of costs as required by 48 CFR Part 31.201-2(a) which is the federal cost principles, as costs should be broken down to identify the components of the loaded costs.

Here, no federal funds were used as part of this project. Additionally, the draft audit has failed to identify any state regulations that incorporated the federal regulations with regard to this project.

Federal cost principles are not applicable to local governments, unless required for specific projects or tasks by the agency providing funding for that project. Acceptable fee arrangements can be hourly, based upon agreed bill rates, hourly based upon bill rates broken down as noted above, or by lump sum if scope of work is known in advance. A 10% discount to QK's charge rate schedule was provided in the task order.

Finally, QK has reviewed the costs of the project using rates approved by Caltrans for QK on recent projects and compared them to the cost charged to the ATP Cycle 1 Project. Based on that comparison, QK determined that the fees charged to the project were almost $7,000.00 less than would have been charged using QK's rates with breakdowns as described previously approved by Caltrans approved rates. (See Attachment F)

F. Survey Crew Costs

The draft audit asserts that a different labor rate was billed for a two-man survey crew than what was proposed in the contractor's cost proposal, and that 48 CFR Part 31.201-2(a) provides a cost is allowable when the cost complies with terms of the contract.

Here, no federal funds were used as part of this project. Federal regulation are not applicable unless state regulations are identified which require compliance with federal standards — which the draft audit has not identified.

Additionally, the higher billing rate was based upon the higher prevailing wage requirements of the funding source for field surveyors. These higher rates are not applicable to all types of surveying assignments. Prevailing wage rates are substantially higher than local rates and those contained in QK's standard commercial rates.

G. City Familiarity With State and Federal Requirements

Finally, the draft audit asserts that City staff are not familiar with required state and

federal contract management rules and regulations, and as a result, the City's contract management procedures are inadequate.

As set forth, above, the City's contract management procedures are adequate. Further, the City is actively moving forward to continually improve as well as to address the initial concerns raised in the preliminary draft audit. For example:

• The City is no longer using the master agreement with QK.
• The City is in the process of identifying budget funding to hire an in-house City Engineer as a City employee, to provide engineering services, prepare RFPs, supervise projects, ensure procedural compliance, etc.
• The City has actively updated its RFP templates to be consistent with the latest state and federal requirements.
• On May 17, 2018, City staff attended training provided by Caltrans on Procuring A&E On Call Contracts.

V. Conclusion

The City requests its response be fully considered by Caltrans before issuing its final determination, and request an opportunity to supplement this response to be able to adequately address the issues raised. Additionally, in the event that the draft audit is changed to add new or modified conclusions that assert noncompliance or are detrimental to the City, the City requests that it be provided with due process and given the opportunity (and adequate time) to appropriately respond in writing before any final determination is made.

The City remains available to respond to any questions or to provide additional information on request, and would welcome a dialogue to allow for a reasonable resolution of this matter that is not only consistent with legal requirements and the intent of the underlying funds which we both steward, but also fair to both Caltrans and the City.