City audit uncovers big cost increases for new LAX Bradley terminal

A city audit has uncovered an unusually high level of cost increases for LAX’s new Tom Bradley International Terminal -- the centerpiece of a multibillion-dollar modernization of the aging airport.

The Los Angeles city controller’s office, which sampled 30 projects across city government, revealed Thursday that Los Angeles World Airports paid almost 67% more for several construction contracts related to the Bradley work than it originally agreed to pay.

According to the audit, the contracts were supposed to total about $621 million, but the airport department ended up paying about $1.04 billion due to change orders. The difference amounts to about $414 million, or two-thirds of all the increases that were studied.

Change orders are requests by contractors to be paid extra when there are complications in a project, unforeseen problems, inadequate plans, changing prices for building materials or revisions made by the city. The requests are reviewed and either approved or rejected.

KPMG, the auditing firm hired by the controller, said the amount paid by the airport department was substantially higher than cost increases of 5% to 10% reported by many other U.S. cities and private builders for government construction contracts.

KPMG also concluded that airport overruns due to change orders were much higher compared with other Los Angeles city projects, which averaged about 4.3% when the Bradley terminal is removed from the mix. Those overages totaled $187 million, the controller’s office stated.

The audit reviewed about $4.9 billion in construction contracts from July 2011 through June 2014. Airport improvements, lake and park rehabilitation, power line installations, port improvements and water pipe modifications were among the projects considered.

“The picture that emerges from the audit is of a city that in most cases has done an acceptable job limiting cost overruns,” Controller Ron Galperin said. “But, given the large dollar amounts spent on construction by the city, even modest improvements can help save us millions of dollars.”

Los Angeles World Airports officials said they appreciate the controller’s audit and have already implemented a majority of his recommendations. They added that airport staff will continue to monitor and improve the change order process.

Overall, auditors found that change orders for all airport contracts they reviewed increased costs almost 28%. The amount falls to 7.16% by removing the Bradley terminal from the mix.

Auditors said construction of the Bradley terminal got ahead of planning, contributing to cost increases. City officials, they noted, designed the terminal on the fly and pushed for completion on an accelerated schedule.

The Bradley project has now cost Los Angeles World Airports about $2 billion, much higher than the original estimates of $1.4 billion in late 2009.

Airport officials attribute the increase to change orders, shifting two smaller projects to the Bradley terminal account and major additions to the plans, including a four-level structure that connects to Terminal 4 next door.

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