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November 9, 2005

Mr. Doyle ValdezPresident, Board of TrusteesAustin Independent School District1111 West 6th StreetAustin, Texas 787037573

Dear Mr. Valdez:

Deloitte Consulting LLP (“Deloitte”) is pleased to submit this report relating to ourassessment of the Austin Independent School District’s (“AISD” or “the District”) bondmanagement program. The primary purpose of this project was to review the managementpractices, operations and internal controls of the District’s bond management program.During the assessment, we reviewed the District’s bond management practices, accountingprocedures and financial reporting processes currently utilized by the District to manage andreport on its capital construction and renovation projects. Additionally, we selected severalprojects from the 2004 bond program and reviewed documentation related to the planning,budgeting, procurement and operational and financial management of the projects. At therequest of the Board of Trustees, we also reviewed the charter, role and reportingrelationships of the Citizen Bond Oversight Committee. Cumulatively, these reviews providethe basis for our conclusions, findings and recommendations related to the District’s bondmanagement program.

Based upon our review of the District’s bond management practices and documentationrelated to individual projects, we concluded that the District is well-positioned to manageeffectively the 2004 bond program. Our summarized observations on the District’s ability toimplement the program are discussed in the General Conclusions section of this report. Wealso noted a few areas where we believe that opportunities exist for the District to improve itsbond management practices. These findings and related recommendations are detailed in theFindings and Recommendations section of this report. We encourage the District to reviewour recommendations and take action to address these improvement opportunities as itcontinues with its 2004 bond program and future operations.

Deloitte Consulting LLP Suite 2300 333 Clay Street Houston, Texas 77002

www.deloitte.com

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We appreciate the opportunity to serve the District on this important project. We alsoappreciate the exemplary cooperation of your staff during the course of this review. If youhave any questions or need additional information related to this report, please feel free tocontact Scott Huntsman at (713) 982-2331 or Greg Higgins at (469) 417-3652.

Yours truly,

DELOITTE CONSULTING LLP

By: Scott HuntsmanDirector – Public Sector

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PROJECT BACKGROUND

Introduction

Over the past decade, the student population of Austin Independent School District (AISD)has increased significantly due to rapid residential growth and development in thecommunities it serves. The growth in student enrollment has created a need for additional andexpanded educational and support facilities. In response to this need, Austin voters gave theiroverwhelming approval to a five-year, $519.5 million school bond program to alleviateovercrowding and improve the quality, safety and sustainability of AISD's campuses andfacilities. The bond program will be used to finance capital expansions, renovations andother facilities-related projects (e.g. safety and security and purchase of low emission schoolbuses). The bond programs are evidence of the District’s and the community’s commitmentto support high quality education and environmental stewardship through the developmentand improvement of facilities. Every Austin student, family and school will benefit from theinvestments made under this bond program.

The 2004 bond program (approved by voters in September 2004) totals $ 519.5 million(original budget) and included the following major improvements:

• Construction of six new elementary schools (Southwest, Southcentral, Northeast,Southeast and two Undesignated)

• Construction of two new middle schools (Northeast and Southwest)

• Construction of a new performing arts center (partial funding)

• Construction of 64 additional elementary classrooms, 25 additional middle schoolclassrooms and 12 additional high school classrooms across schools

• Acquisition of land for school sites (Southwest Middle School, Undesignated elementaryschool, performing arts center and future Southeast Middle School)

• Renovations to campuses and districtwide Facilities Including technology, athletics,physical education, and environmental health

• Installation of safety and security infrastructure and hardware

• Purchase of low-emission school buses

• Refinancing of contractual obligations

Although the overall budget for the 2004 bond program has been approved by the Board ofTrustees, the majority of the projects are in the initial planning or design phases. The five-year plan called for design work to begin in January 2005 with all 150 projects scheduled for

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completion by the summer of 2010. Exhibit I below summarizes the estimated costs relatedto the 2004 bond program.

Exhibit IAISD 2004 Bond Program by Category

(Initial Cost Estimates)

Amount

Proposition 1 – Tax Rate: $0.0154 $183,598,064

7 New Schools $115,125,702

Classroom Additions $30,280,564

Land Acquisition $5,992,398

Proposition 2 – Tax Rate: $0.0169 $201,103,971

Renovations $187,550,897

Technology $13,553,074

Proposition 3: Tax Rate: $0.0045 $53,899,309

Safety and Security $20,954,097

Districtwide Facilities $17,505,352

Low Emission Buses $13,234,166

Hazardous Material Abatement $2,205,694

Proposition 4: Tax Rate: $0.0011 $12,830,510

Interscholastic Sports $8,185,729

Joint Use Facilities $2,220,000

Elementary Playslabs $2,424,781

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Proposition 5: Tax Rate- $0.0037 $44,599,762

New Performing Arts Center $7,719,706

Site for New Performing Arts Center

1 New School

$1,102,815

$35,777,241

Proposition 6: Tax Rate: $0.0049 $23,495,000

Contract Refinancing $23,495,000

Total Costs $519,526,616

In summarized form, the 2004 bond program includes the following five major categories ofprojects.

Amount

Renovations to Campuses and District-wide Facilities $233,645,527

New Schools, District-wide Facilities, Additions and Land Acquisition $228,197,826

Safety and Security $20,954,097

Purchase of Low-Emission School Buses $13,234,166

Refinancing of Contractual Obligations $23,495,000

Total Cost $519,526,616

Engagement Scope

Deloitte was engaged by the AISD Board of Trustees to perform a review of the District’s2004 bond program. The original objectives of this review (as outlined in the District’s RFP)were:

1. Compare best practice management and organizational structures for large bond programs(over $300 million) to AISD 2004 Bond Program management staff and structure andmake recommendations for improvement.

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2. Review and analyze the AISD 2004 Bond Program management and organizationalstructure including the roles and responsibilities of District bond management staff,Campus Task Forces (CTFs), Internal Bond Committee (IBC), the Community BondOversight Committee (CBOC), the Superintendent, and the Board of Trustees, and providerecommendations on how these groups can best interact to optimize supervisoryrelationships, accountability, and ultimate program success.

3. Review management policies, procedures and practices related to all facets of bondprogram implementation, including procurement practices, and make recommendations forimprovement in these areas.

4. Assess design and construction management procedures currently in place, includingdelivery methods, project planning, design review procedures, and quality assuranceprocesses and make recommendations for improvement.

5. Review the general plans for bond program communications and assess the quality of plansfor effectively communicating with the citizens of Austin on the progress and success ofthe AISD bond program as well as any contingency plans for communicating under specialcircumstances.

6. Develop specific, culminating recommendations including proposed implementation plansthat specify activities to be accomplished, person responsible, date of completion, cost, andindicators of measures of success.

During contract negotiations, it was mutually agreed that our project team would invest lesstime than originally anticipated in comparing AISD bond management practices to those ofother districts in order to contain project costs. Rather than conduct a formal survey of otherdistricts, it was decided that we would rely primarily on our experience working with otherlarge bond programs to provide comparative practices.

In order to meet the project objectives, our project workplan and activities included thefollowing:

• Collection and review of bond program documents including program plans, budgets,timelines, Board meeting minutes and other background documentation

• Interviews with Board members and CBOC Tri-chairs to confirm the project scope andreceive input on issues and areas of focus

• Interviews with District personnel involved in the accounting and management of bondprojects to identify current practices and opportunities for improvement

• Interviews with District management personnel to assess the level of guidance, oversightand review provided to bond program management staff

• Interviews with selected external service providers that support the AISD bond program

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• Collection and organization of bond project budgets, schedules and management reports

• Review of bid specifications, proposals and vendor selection documentation for selectedbond projects

• Review of vendor contracts, correspondence and supporting documentation for bondexpenditures (i.e., vendor invoices) for selected bond projects

• Reconciliation of selected bond projects to general ledger expenditures

• Verification of major contract amounts, change orders and related payments for selectedbond projects

• Review of the District’s record management and project accounting procedures andpractices related to its bond programs

• Preparation of a final report

Although we conducted a review and analysis of procedures related to the District’s bondexpenditures, this engagement does not constitute an audit in accordance with generallyaccepted auditing standards. In addition, our review of finance-related bond managementpractices did not consist of an examination of the District’s internal control over bond funds inaccordance with the Statements on Standards for Attestation Engagements issued by theAmerican Institute of Certified Public Accountants (AICPA). Accordingly, we do not expressany opinion or any other form of assurance with respect to the District’s financial statementsor its bond funds or internal controls over bond funds for any period or date. In addition, wedo not express any opinion on the propriety of expenditures made by the District related to itsbond program.

Overview of Financial and Bond Management Practices

Over the past ten years the District has developed various procedures and practices to manageits bond programs and to ensure that bond expenditures are properly managed and reported.Many of the current procedures and practices utilized by District personnel were developedduring the course of the 2002 Health and Safety bond program; however, certainimprovements or changes in processes, controls and reporting protocols have been madeduring the initial stages of the 2004 bond program. In fact, a few reports were created orrevised during the course of the project at the request of the CBOC.

The majority of the bond management practices utilized by the District are well-documented.Our review of the District’s bond management program was based on an extensive review ofthis documentation as well as interviews with Board members, CBOC Tri-chairs andnumerous AISD personnel. The following section outlines the basic procedures and practicesutilized by the District to manage bond projects that are most comprehensively documented inthe District’s Program Management Manual. This document provides a thorough overviewof the program as well as more detailed information in areas such as program controls and

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procedures, the HUB/Small/Local Firms Program, the Partnering program and other keytopics. Information from this document supplemented by information received in interviewsconducted during the project are the basis for the following high-level summaries of keyprogram functions and processes.

Planning and Budgeting

Planning and budgeting duties associated with the District’s bond programs are shared amongseveral District departments, committees and external firms. The AISD Board of Trusteescreated the Citizens’ 2004 Bond Advisory Committee in March 2004 to makerecommendations for new facilities and for renovations to existing facilities. In developing aninitial scope of work for the proposed 2004 Bond Program, the Committee considered andanalyzed facility assessment data and recommendations from various AISD departments, theInterscholastic Sports Task Force, the Community Safety Task Force, a demographic expert,campus principals and more than 100 volunteer architects, engineers and constructionprofessionals. The Committee also hosted four public forums to provide 2004 bondinformation to the community and receive citizen input. The Committee worked very closelywith the District’s Construction Management staff to develop the overall scope, size and listof projects to be completed in the 2004 program.

During the planning process, District Construction Management staff provided a range ofinformation and analysis to assist the Bond Advisory Committee including facilitiesassessment data, cost information, demographic projections, scheduling expertise, etc. Thisinformation and analysis provides a basis for the Committee’s discussions and planningprocesses. In its final form, the bond program proposals that go before voters are the result ofa collaboration between District staff, Committee members and other key stakeholdersinvolved in these processes. For the 2004 bond program, these results were documented inthe District’s Blue Book. This document summarizes each bond proposal and providesadditional detail on project scopes and bond resource allocations by campus.

Following approval of the bond program by the voters, the Board of Trustees approved theinitial project cost estimates for the entire program at its September 27, 2004 meeting. Theagenda item took the form of a bond project implementation schedule that contained costestimates, project scopes and completion dates. This schedule serves as the official budget forthe program. During this meeting, the Board also approved construction delivery method forthe planned bond projects in compliance with Texas Education Code requirements.

Throughout the course of the bond program, project cost estimates are amended based on theinput of District personnel and service firms including the construction manager, architects,engineers, and contractors. Changes to project cost estimates may be amended for a numberof reasons including deflation/inflation (based on the timing of projects within the project,detailed scoping changes made during design or construction, actual construction bids, etc.Under the Texas Education Code, the Board of Trustees must approve budget amendments incases where the total cost of construction projects at the fund level exceeds the original budget(e.g., when cumulative change orders exceed the approved budget). At this point in the 2004bond program, no such budget amendments have been submitted since the District still

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anticipates that the program scope will be achieved with the original budget of $519.5 million.

At the operational level, Construction Management staff maintains more detailed budgets foreach bond project. Although these budgets are not approved by the Board, they provide abasis for managing and monitoring the individual project cost components such as designfees, engineering fees, construction costs, permitting fees, project contingencies, etc. Thesedetailed project budgets are modified during the design and construction phases of projects toreflect the increased level of certainty over cost estimates as projects are implemented.

Procurement

For the District’s 2004 bond program, the Construction Management Department isresponsible for the procurement of the majority of goods and services related to the program.In certain cases the District’s Purchasing Department assists the Construction ManagementDepartment in procurement activities (such as when the District selected a HistoricallyUnderutilized Business (HUB) and small and local business consultant). However, allprocurement activities associated with bond construction projects are performed byConstruction Management Department personnel.

The following chart details the procurement method and device used to procure bond programgoods and services.

Exhibit IIBond Project Procurement Methods

Good/Service Procurement Method Procurement Documents

New Facility Construction,Renovation or Expansion

Construction Manager atRisk/Competitive SealedProposal/Competitive Bid

RFQ/RFP/RFB/Contract

Design/Engineering Services Competitive Proposal RFQ/Contract

Other Professional Services Competitive Proposal Contract

Land n/a – negotiated contracts Title transfer

Impact/Inspection Fees n/a – based on City of Austinschedule of costs

n/a

Furniture, Fixtures andEquipment

Competitive Bid RFB/Purchase Order

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Briefly, the procurement process consists of the following activities:

• Specifications for goods or services developed by District personnel or contractedprofessionals (e.g., architects)

• Request for Bids (RFB) or Request for Proposals (RFP) or Request for Qualifications(RFQ) document prepared by the Construction Management Department and reviewed byappropriate District/program management personnel

• RFB/RFP/RFQ advertised (if required by State law) and issued

• Pre-bid or pre-proposal conference held with potential vendors

• Bids/proposals/qualifications received from potential vendors

• Bids/proposals/qualifications evaluated by Construction Management Department, otherDistrict personnel, or construction manager (depending on the nature of the work to beperformed)

• Bids/proposals/qualifications evaluation reviewed by Selection Committee if applicable

• Bid/proposal/qualifications award developed, presented by staff to Board of Trustees andapproved by Board of Trustees

• Contract negotiated (if applicable)

• Contract executed and/or Purchase Order issued

• Contract managed by Construction Management personnel, construction managers, orother District personnel

This basic process is used for the purchase of most goods and services associated with capitalconstruction projects. However, certain fees associated with mandated construction permits,inspections, and local government infrastructure (e.g., impact and inspection fees) are notprocured with a formal contract or purchase order. In the context of construction projects,these services and related fees charged by the appropriate local government are mandated byordinances.

The District has also encouraged the participation of HUB/Small/Local businesses in the bondprogram. This program is being coordinated through the Construction ManagementDepartment with ongoing assistance provided by an external consultant, Community MentorProtégé Initiative (CMPI).

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Program and Project Management and Oversight

The District utilizes a variety of processes and committees to provide management andoversight of the bond program during its implementation. First, the District has created acadre of professional architects that serve as project managers (11 as of October 2005) oneach project from design to completion. Project assignments are made to balance workloadsamong the project management team. Further, the Construction Management Departmentincludes approximately 10 additional personnel that provide administrative and financialsupport, demographic information, Partnering and HUB coordination and other key supportservices during the planning and implementation of the bond program.

Construction Management staff also work extensively with other AISD staff in departmentssuch as Athletics and Food Service, and other entities such as CTFs, Partnering organizations,principals and other campus staff and other stakeholders to seek input and concurrence onproject designs, schedules, construction management issues and other matters throughout theimplementation of the bond program. These communication and collaboration processes helpto ensure that individual projects comply with the scope and intent of the approved bondprogram and that they address campus needs. Finally, Construction Management staffcommunicates project statuses and issues to the Chief Financial Officer and theSuperintendent on an “as needed” basis.

Primary oversight of the bond program is provided by the CBOC. The CBOC was formed inFebruary 2005 when the Board of Trustees developed a detailed charter for it and providedaccess to key District staff to facilitate the oversight role of the Committee. The charter of theCBOC proscribes several roles including:

• Review and evaluate information on all projects and expenditures of bond funds from staffreports/updates on the timelines and progress of the 2004 Bond Program

• Design, with staff assistance, electronic surveys that assess key campus stakeholders’levels of satisfaction with the quality of work and rating of customer service (i.e.,courtesy, knowledge and helpfulness for the bond project workers); and review andevaluate the survey results and any corrective action resulting there from

• Review and evaluate any proposed changes to the individual project scope of work to thevoter-approved 2004 Bond Program

• Conduct public hearings at campuses on substantive proposed changes to the voter-approved bond program prior to Board action

• Report orally and in writing to the Superintendent and the Board on the 2004 BondProgram in January, May and September of each year

• Review and evaluate new construction and renovation projects against specific criteriacontained in Board Policy EL-16, Facilities

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As such, the CBOC meets monthly to review information prepared by ConstructionManagement staff including project status reports, proposed project scope changes, projectissues and other pertinent information related to monitoring the overall implementation of thebond program. The CBOC also reports to the Board of Trustees three times each year on thestatus and progress of the bond program.

Ultimately, the implementation of the 2004 bond program is the responsibility of the Board ofTrustees. Under the Board’s policy governance model, the Board reviews periodic reportsfrom the Superintendent on the program’s progress and policy-related implementation issues.Further, the Board has approved procurement methods, contract and bid awards and otherpolicy or significant program changes that warrant their input or concurrence.

Financial Management

Duties associated with accounting for bond programs and issuing payments are sharedbetween the Finance and Construction Management departments. All revenue accounting andinvestment functions are the sole responsibility of the Finance Department. On thedisbursement side, the typical payment process includes the following key activities:

• Vendor invoices are received by the Construction Management Department

• Invoices are reviewed and authorized for payment by the District’s consultant architect,AISD project manager, Assistant Director of Construction Management and the Directorof Construction Management

• Invoices are processed and posted by the Finance Department to the District’s generalledger

• Vendor payments are issued and mailed by the Finance Department

Although the Finance Department establishes individual project codes within the GeneralLedger for each bond project, detailed financial tracking of projects is performed by personnelin the Construction Management Department. These personnel are the source of the majorityof the financial reports on bond projects that is generated for internal personnel, the CBOCand the Board of Trustees.

Financial Reporting

Financial reports on the District’s bond programs are prepared and maintained byConstruction Management personnel. Reports which provide budgetary and actualexpenditure information on a detailed basis (by project and phase) are compiled and publishedby the Construction Management Department on a monthly basis (usually driven by CBOCmeeting dates). In addition, the Department has begun the process of periodically forecastingthe adequacy of resources to complete the entire bond program given the usage of theprogram-wide contingency during the first phase of the project. These forecasts have beenshared with both internal District leadership as well as the CBOC.

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Record Maintenance and Retention

Records related to bond programs are maintained by the Purchasing, ConstructionManagement and Finance departments. The Construction Management Department maintainsbid and contract files related to construction and professional services. These files typicallyinclude items such as:

• Specifications

• RFBs/RFPs/RFQs

• Bid responses

• Bid award documentation

• Contracts (Construction Manager and Professional Services)

• Insurance documentation

• Vendor communications

• Contract revisions

• Other relevant documentation

The Finance Department maintains records associated with bond issues, investments andvendor payments (e.g., invoices and copies of checks issued).

The Construction Management Department also maintains records related to constructionwarranties.

Public Relations and Communication

The District has also recognized and prioritized the importance of public relations andcommunication related to the 2004 bond program. As a result, the District has hired a localfirm, Tate Austin, to assist in developing communication strategies, devices, materials, etc tobe proactive in communicating information to stakeholders and the broader community on theprogram. To date, Tate Austin has developed a range of materials for the District including abond program logo, an outreach plan, messaging, website enhancements, a newsletter andother materials to support outreach and communication throughout the program.

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GENERAL CONCLUSIONS

Summary

Based on our review of AISD’s bond management program and selected 2004 bond projects,we believe that the District is well-positioned to implement the program effectively. Ourconclusions are based on several attributes of the organizational and operational environmentof the District including:

• The District has established a team of well-trained and licensed professionals (i.e.,professional architects) to manage projects over the duration of the bond program. Webelieve that adequate resources exist within the Construction Management Department toprovide proper coordination, management and oversight of projects during design andconstruction phases. Further, the team has access to external professional resources (e.g.,HVAC technical experts, safety consultant, etc.) when special needs arise or additionalresources are needed to manage project workloads.

• The District has made significant efforts to provide forums and structures for public input,oversight and accountability throughout the bond program. These efforts were initiatedthrough the formation of the Citizens’ 2004 Bond Advisory Committee to provide inputand feedback on the needs and plans related to the 2004 program. In addition, othergroups and programs such as the CTFs, the Partnering program and the HUB/Small/LocalBusiness program provide ample opportunities for community-based participation andfeedback during the bond program. Finally, the formation and operation of the CBOCfurther enhances program and individual project accountability to the Austin community.

• The District has designed and implemented operational controls that help ensure thatprojects and related disbursements are properly planned and executed. Specific features inthis area include the development and maintenance of detailed project budgets by projectmanagers, periodic reporting of program and project financial results to the CBOC (and tothe Board of Trustees through the CBOC) and multiple approvals of vendor payments byappropriate internal and external personnel.

• The District in collaboration with the Citizens’ 2004 Bond Advisory Committeeperformed a reasonable amount of documented planning and cost estimation to establishthe scope and total cost of the 2004 bond program. Cost estimates included assumptionsrelated to the increased costs of construction that are likely to occur over the duration ofthe program. In addition, both project and program-wide contingencies were establishedto provide for appropriate project scope changes, construction bids that exceed establishedbudgets, etc.

In summary, we conclude that the District has allocated adequate resources and implementedeffective management and operational processes to provide ongoing management andimplementation of the 2004 bond program. We did note, however, several areas where webelieve improvements in the focus of bond management resources or practices may provideincreased benefits to the District and bond program stakeholders. While we believe that these

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improvements are needed, they do not detract from our overall conclusion that the bondprogram is well-operated. In fact, many facets of the AISD bond management program arebetter designed and implemented than bond programs in other large Texas school districts thatwe have observed.

Future Economic Conditions

As previously discussed Construction Management staff in concert with the Citizens’ 2004Bond Advisory Committee invested significant efforts in developing budgetary cost estimatedfor each project in the program as well as project and program contingencies (based onhistorical levels of construction costs). Although the program is currently projected to beachievable within the $519.5 million budget, recent hurricanes in the Gulf Coast region of theU.S. and elevated fuel prices are already having a dramatic impact on construction materialand labor costs and availability. These events are clearly unexpected and could not have beenaccounted for when the bond program budgets were developed.

In order to plan and mitigate risks that the bond program cannot be achieved with plannedresources, we recommend that the Construction Management Department develop acomprehensive forecast of anticipated bond project costs twice each year. The forecastshould present best and worst case scenarios and be shared with District administration, theCBOC, the Board and other stakeholders. These forecasts will provide stakeholders withcurrent information on the potential impacts of anticipated construction cost increases andallow for adequate planning and discussion of these issues.

Improvement Opportunities

The most significant opportunities for the District to improve the overall effectiveness of its2004 bond program is to revise the content and presentation of the information that isdisseminated to both internal and external stakeholders. We believe that the following actionswill improve the usefulness of the information that is utilized by key stakeholders and theoverall reputation and credibility of the District’s communications:

• Implement reporting procedures to communicate bond program issues and risksproactively to internal and external stakeholders including elevating key issues and risksto the Superintendent and the Board of Trustees when appropriate

• Ensure that the efforts of Tate Austin are focused on the high-value products and servicessuch as communicating project results, accomplishments and other information that isuseful and meaningful to the public as the bond program moves forward

• Provide summary level data in graphical form in monthly financial reports of bondprogram results and prepare the reports on consistent dates

In addition to these improvements, we further recommend that the District take severalactions to improve overall accountability including:

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• Implement a policy requiring Board notification of all transfers of project and programcontingencies and remaining balances

• Involve Purchasing Department personnel in bond program vendor selection committees

Although these improvements may appear to be low level priorities in the overall context ofthe bond program, they are key elements to improving the perceived effectiveness of theprogram in the Austin community. Further, these improvements may increase the level ofproactive action to address risk and other issues during the bond program.

Other Conclusions

During our initial interviews with members of the Board of Trustees and the CBOC Tri-Chairs, a number of issues or concerns were articulated that provided focus to our projectteam as we conducted our review of the bond management program. While the majority ofthese issues are addressed above or in the Detailed Findings and Recommendations section ofthis report, several of these issues warrant specific comments based on our analysis andexperience. These include:

• Charter and role of the CBOC

• Advantages or disadvantages of utilizing the Construction Manager At-Risk procurementmethod

• Vendor selection process

Each of these topics is discussed in greater detail below.

Charter and role of the CBOC

The current charter of the CBOC (developed in Fall 2005) prescribes a multi-dimensional roleincluding the following elements:

• Review and evaluate information on all projects and expenditures of bond funds from staffreports/updates on the timelines and progress of the 2004 Bond Program

• Design, with staff assistance, electronic surveys that assess key campus stakeholders’levels of satisfaction with the quality of work and rating of customer service i.e., courtesy,knowledge and helpfulness for the bond project workers

• Review and evaluate the survey results and any corrective action resulting there from

• Review and evaluate any proposed changes to the individual project scope of work to thevoter-approved 2004 Bond Program

• Conduct public hearings at campuses on substantive proposed changes to the voter-approved bond program prior to Board action

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• Report orally and in writing to the Superintendent and the Board on the 2004 BondProgram in January, May and September of each year, including, but not limited to:

− Overall economics and budget status

− Individual projects: scope, schedule, quality, and economics

− Survey results

− Construction management practices

− Any proposed substantive changes

− Environmental stewardship

− HUB utilization and

− Other issues/comments

• Review and evaluate new construction and renovation projects against specific criteriacontained in Board Policy EL-16, Facilities: The Superintendent shall not fail to assure theavailability of physical facilities that support the accomplishment of the Board’s Resultspolicies, that are safe, effectively used and properly maintained; the Committee willspecifically review performance related to: 1.a; 1.e; 2; 3; 8; 10.a; and 11.

Since its formation in February 2005, the CBOC has been establishing its processes,procedures and working relationship with District staff. In June 2005, the CBOC presentedits first update to the Board of Trustees structured in a manner that specifically addressed theelements of its charter.

We believe that the CBOC plays an important role in providing for public accountability inthe Austin community. Further, the charter and current role of the CBOC is consistent withthe practices of other large bond programs (i.e., focusing on overall program accountabilityrather than detailed operational involvement). We do not believe that an extension of thecurrent charter of the CBOC would be appropriate given that it might lend itself tomicromanagement of AISD staff or usurp the Board’s ultimate role in governance of the bondprogram. In summary, the CBOC’s key mission of providing community oversight to ensurethat the program achieves what the voters of Austin approved in the bond election isappropriate and a meaningful aspect of overall program accountability.

Advantages or disadvantages of utilizing the Construction Manager At-Risk procurementmethod

The District is utilizing the Construction Manager At-Risk procurement method to construct11 projects in the first phase of the 2004 bond program. The projects are mainly for newfacilities or significant expansions of existing campuses. For other projects, the District isutilizing the Competitive Bid or Competitive Sealed Proposal methods to procure constructiongoods and services. All of these methods are utilized by other Texas school districtsdepending upon the specific needs of the project such as cost containment, scheduling, etc.

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Recently the AISD’s Director of Internal Audit provided the Board with an analysis of the useof price/cost as a vendor selection factor in AISD versus other large Texas K-12 districts. Theanalysis revealed that the weighting of this criterion in AISD is on the low end whencompared to other districts. This finding is, however, mitigated by the fact that many ofAISD’s projects are tightly scheduled and necessitate a high degree of collaboration betweenthe architect, engineers, construction firm, subcontractors and AISD staff in order to achieveproject completion on schedule. This situation tends to favor the Design/Build orConstruction Manager At-Risk procurement methods where price/cost is not the primaryfactor used to award contracts. Ultimately, it is not feasible to make a determination as towhether the District might achieve cost savings from utilizing the Competitive Bid orCompetitive Proposal methods for these projects. Such a conclusion would require a side-by-side comparison of the financial results of one method versus another for identical projects.This data is simply not available in the current environment. Further, other factors such asscheduling, quality of construction, etc. would make a purely financial comparison of limitedvalue.

Perhaps more importantly, the Austin environment and community concerns drive the Districttoward construction methods that may be more expensive than those used in other Texasdistricts. For example, due to soil conditions, energy conservation programs, green buildingpractices and community demands for “unique” schools, each new facility within the Districtis designed individually. This practice differs from many other expanding K-12 entitieswhere prototype designs are utilized for new school construction especially at the elementarylevel. Programs such as the HUB/Small/Local business program and the Partnering programalso result in needs for increased levels of collaboration, facilitation and reporting that requirethe investment of significant staff resources. These initiatives and programs appear to bereflective of community demands that are specific to the Austin environment; however, theydo impact the cost of individual bond projects and the overall cost of the program.

Vendor selection process

The vendor selection process varies based on the type of procurement method utilized by theDistrict. In the case of competitive bids, the vendor selection process is straightforward (i.e.,lowest responsible bidder selected). For procurements utilizing other methods, a committeeprocess is typically utilized to review qualifications, proposals, etc. and reach consensus onthe vendor that provides “best value” to the District. These evaluations are made utilizingcriteria that are established and weighted based on the particular type and nature of theproduct or service being procured. The processes and controls for these vendor selectionprocesses are well-established in the District; however, they are not documented in a detailedmanner.

Based on our review of the District’s construction procurement processes, we concluded thatthey are consistent with those of other K-12 entities in Texas. We did not detect any controlweaknesses or other issues of concern other than the lack of Purchasing Department staff inselection committees. This finding is explained in more detail in the Detailed Findings andRecommendations section below.

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DETAILED FINDINGS AND RECOMMENDATIONS

1.0 Bond Program Issue Communication

Finding: The District is not effective in communicating bond program issues or risks that areencountered during the program internally or externally. The types of issues that have beenencountered to date are typical for large complex bond programs, and additional issues of thistype will likely be encountered over the next few years of the program. Although the Districthas the capacity and competence to manage and resolve these issues successfully, the mannerin which it has communicated them to stakeholders has resulted in the competence of theDistrict to properly manage the program being called into question by Board members, CBOCmembers and other stakeholders. The lack of effective issue and risk management in thesecases has eroded stakeholder perceptions of the professionalism and integrity of District staffand leadership.

Recommendation: The Construction Management Department in collaboration with the CFOshould implement reporting procedures to communicate bond program issues and risksproactively to internal and external stakeholders. We recommend that a bi-weekly report ofproject issues, risks and resolution strategies be developed and communicated to theSuperintendent, the Chief of Staff and other key leadership. This report should also be sharedwith the CBOC and the Board of Trustees (if the nature of the issue or risk is material) toprovide timely information-sharing. This reporting will assist in maintaining an open andtransparent environment in which information is shared and utilized to manage risks in aproactive manner.

2.0 Public Relations and Communications

Finding: The responsibilities associated with public relations and communications associatedwith the bond program are not clearly “owned” within the District. These responsibilities arecurrently shared among Construction Management staff and the Director of Communications.Further, it is unclear who is responsible for directing and monitoring the implementation ofthe marketing, communication and community outreach activities that are being performed bythe District’s consultant, Tate Austin. The lack of clear ownership and accountability for thisarea may result in a lack of effectiveness in implementing the communications plan and fromreceiving good value for the services that the consultant is delivering.

Recommendation: AISD administration should develop and document the responsibilities formanaging public relations and communications activities associated with the bond program.This documentation should include specific assignment of the responsibilities for managingthe contract and implementation activities of the District’s consultant, Tate Austin. Further,the consultant activities should be periodically reviewed to ensure that the focus of theseresources is on providing high-value products and services to the District such ascommunicating project results and accomplishments to a broad audience of bond programstakeholders. This focus is consistent with the plan submitted by the consultant at theinitiation of the public relations and communications program.

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3.0 Project and Program Financial Reporting

Finding: Based on our review of project and program financial reports, we noted severalareas where improvements would be beneficial to users including:

• Although the Project Budget and Commitments schedule (which summarizes the financialstatus of each project within the program) provides useful information, the tabular formdoes not summarize the overall financial status of the program in a meaningful way. Assuch, additional reports or columns must be added to account for use of project andprogram contingencies and other financial projections.

• The Project Budget and Commitments schedule and supporting detailed reports areprepared monthly at various times (typically in advance of the CBOC monthly meeting).The lack of consistency in the timing of the preparation of these reports makes it difficultto reconcile them to the General Ledger for review or auditing purposes.

• The headings on the Project Budget and Commitments schedule are not easilyunderstandable and may result in a misunderstanding of what is presented in the reportand what has been approved by the Board of Trustees (e.g., Blue Book Allocation,Original Budget and Current Budget).

Cumulatively, these issues diminish the value of the reports and may result in amisunderstanding of the information that is presented to the CBOC, the Board and otherinternal and external stakeholders.

Recommendation: The Construction Management Department should implement thefollowing improvements in its monthly bond program financial reports:

• Develop and consistently present a few pages of graphical information summarizingoverall program status and financial resource uses. These summary pages could includegraphical depictions such as the following:

− Total program and financial allocations by phase

− Comparisons of Blue Book amounts compared to original and current budget amounts

− Percent of projects completed to date and resources expended

− Project contingencies and the portions utilized to date

− Program contingencies and the portion utilized to date

• Prepare the Project Budget and Commitments schedule and supporting detailed reports ona consistent basis in concert with the month-end financial closing process.

• Provide a glossary of terms and headings used in the Project Budget and Commitmentsschedule and supporting detailed reports

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These reporting enhancements will improve the value of these reports to users and diminishthe amounts of time that users are currently investing in reviewing and understanding reportedresults.

4.0 Project and Program Budget Variances and Contingencies

Finding: The District has not developed or documented a policy outlining the circumstancesin which project and program contingencies may be used and when Board notification orapproval may be required. The operating practice of the Construction ManagementDepartment is that project contingencies or project variances (i.e., remaining balances onprojects that are completed) are implicit in the approved budget of the program; therefore,they may be utilized within the project in which they are budgeted or any other project withinthe program without Board notification or approval. Although this operating practice isconsistent with the Texas Education Code regarding the legal level of control of budgetedfunds, it creates a gap in project accountability. Further, inter-project transfers ofcontingencies or remaining balances without Board approval or notification are a frequentsource of public mistrust and concerns in bond programs.

Recommendation: The Board of Trustees should be informed of any transfers of projectcontingencies or remaining balances between projects or to the program contingency in atimely manner (e.g., monthly reporting). Although this practice is not required by the TexasEducation Code, it does enhance accountability for the use of bond funds. Further, anotification procedure will enhance accountability but should not interfere with projecttimelines (which could be impacted if formal Board approval was required).

5.0 Bond Program Procurement and Vendor Selection

Finding: The construction procurement process does not provide for participation ofrepresentatives of the District’s Purchasing Department. Although involvement of PurchasingDepartment staff in not required by State law, their participation in vendor selectioncommittees lends expertise and often provides an impartial perspective in committeedeliberations.

Recommendation: The Construction Management Department should include participation ofPurchasing Department personnel on vendor selection committees related to constructionprocurements. The participation of these staff may provide an additional level of expertise inthese committees on purchasing statutes and requirements. Further, the participation ofPurchasing staff may increase the perceived level of credibility in selection processes bypotential construction vendors.

6.0 Timeliness of Vendor Invoice Processing

Finding: Based on our reviews of 2004 project documentation, we identified a significantincidence of invoices that were paid over 30 days after the date of receipt. In some cases,invoices were paid as much as 45 to 60 days after receipt. The Texas Government Code

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requires governmental entities to pay invoice no later than the 31st day of receipt of goods orservices (unless its governing body only meets once per month).

Recommendation: The Construction Management Department should monitor the timelinessof vendor payments and report exceptions to AISD management and the CBOC on a periodicbasis. The purpose of this tracking and reporting should be to minimize the incidence of latepayments and identify incidences that may relate to a specific project manager. Thesemeasures will assist in mitigating the risks that late payments occur and improve thereputation of the District as a good customer.