Response From DIA regarding report by Denver auditor

1 Date: April 23, 2015 The “white paper” issued today by the Denver Auditor’s Office contains misleading conclusions regarding the cost of the Hotel and Transit Center (HTC) at Denver International Airport (DIA). First and foremost, it is misleading to suggest the HTC project has experienced a 40‐percent increase due to cost overruns. Some additional work unrelated to the HTC was added to the program at a later date that was never included in the original budget estimates, making the Auditor’s grouping of costs distorted. We would have clarified this with the auditor prior to the release of this document if we had been afforded the opportunity. The auditor’s accounting and cost projections for the HTC combined costs related to baggage system, terminal/concourse train system improvements, roads and bridges, and other work constructed for the benefit of the airport, beyond the HTC. This interpretation results in a calculation that is not an accurate representation of how the project itself has progressed. Most of this work was added later so DIA could minimize disruptions to passengers and take advantage of the efficiencies of having the same contractor do this work. It should be noted that the auditor, in the 2014 Performance Audit of Hotel and Transit Center, recognized the necessity of these projects regardless of the HTC. Secondly, the timing, tone and content of the white paper are suspect: None of the information in the auditor’s document is new. All project costs and accounting have been shared with the public, press and City Council throughout the years‐long project. In fact, estimated costs have not changed since April 2014. The auditor intentionally chose to issue an unofficial, political white paper instead of conducting the more traditional, formal and professional performance audit less than two weeks before the May 5 municipal election. In April 2014, the city and DIA completed a risk assessment that concluded that the final cost of all of the work underway could be 5‐10 percent over the 2013 contracted budget. DIA has been very transparent about this and publicly shared it with the community, the auditor and Denver City Council. DIA has worked hard to control costs however, due to the region’s strong economic recovery has had higher material and labor costs. Additionally, some unforeseen items and the fast‐track nature of the project to meet RTD’s schedule did contribute to this projected increase. It should also be noted that the project is not being funded by taxpayer dollars and DIA’s overall financial position is strong. Nothing has changed since DIA last announced the projected increase in 2014. Today, the project remains within the budget disclosed last year. The following information clearly shows the progression of costs associated with the Hotel and Transit Center and includes a separate accounting of the other capital projects. The project is nearing completion and is on schedule for the hotel to open and begin generating revenue this November with the station ready to accept passengers when the East Rail Line begins service in 2016.

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DIA drafted this response to Denver auditor Dennis Gallagher's report on the cost of the airport's new hotel.

Transcript of Response From DIA regarding report by Denver auditor

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Date:April23,2015ThewhitepaperissuedtodaybytheDenverAuditorsOfficecontainsmisleadingconclusionsregardingthecostoftheHotelandTransitCenter(HTC)atDenverInternationalAirport(DIA).Firstandforemost,itismisleadingtosuggesttheHTCprojecthasexperienceda40percentincreaseduetocostoverruns.SomeadditionalworkunrelatedtotheHTCwasaddedtotheprogramatalaterdatethatwasneverincludedintheoriginalbudgetestimates,makingtheAuditorsgroupingofcostsdistorted.Wewouldhaveclarifiedthiswiththeauditorpriortothereleaseofthisdocumentifwehadbeenaffordedtheopportunity.TheauditorsaccountingandcostprojectionsfortheHTCcombinedcostsrelatedtobaggagesystem,terminal/concoursetrainsystemimprovements,roadsandbridges,andotherworkconstructedforthebenefitoftheairport,beyondtheHTC.Thisinterpretationresultsinacalculationthatisnotanaccuraterepresentationofhowtheprojectitselfhasprogressed.MostofthisworkwasaddedlatersoDIAcouldminimizedisruptionstopassengersandtakeadvantageoftheefficienciesofhavingthesamecontractordothiswork.Itshouldbenotedthattheauditor,inthe2014PerformanceAuditofHotelandTransitCenter,recognizedthenecessityoftheseprojectsregardlessoftheHTC.Secondly,thetiming,toneandcontentofthewhitepaperaresuspect:

Noneoftheinformationintheauditorsdocumentisnew.Allprojectcostsandaccountinghavebeensharedwiththepublic,pressandCityCouncilthroughouttheyearslongproject.Infact,estimatedcostshavenotchangedsinceApril2014.

Theauditorintentionallychosetoissueanunofficial,politicalwhitepaperinsteadofconductingthemoretraditional,formalandprofessionalperformanceauditlessthantwoweeksbeforetheMay5municipalelection.

InApril2014,thecityandDIAcompletedariskassessmentthatconcludedthatthefinalcostofalloftheworkunderwaycouldbe510percentoverthe2013contractedbudget.DIAhasbeenverytransparentaboutthisandpubliclyshareditwiththecommunity,theauditorandDenverCityCouncil.DIAhasworkedhardtocontrolcostshowever,duetotheregionsstrongeconomicrecoveryhashadhighermaterialandlaborcosts.Additionally,someunforeseenitemsandthefasttracknatureoftheprojecttomeetRTDsscheduledidcontributetothisprojectedincrease.ItshouldalsobenotedthattheprojectisnotbeingfundedbytaxpayerdollarsandDIAsoverallfinancialpositionisstrong.NothinghaschangedsinceDIAlastannouncedtheprojectedincreasein2014.Today,theprojectremainswithinthebudgetdisclosedlastyear.ThefollowinginformationclearlyshowstheprogressionofcostsassociatedwiththeHotelandTransitCenterandincludesaseparateaccountingoftheothercapitalprojects.TheprojectisnearingcompletionandisonscheduleforthehoteltoopenandbegingeneratingrevenuethisNovemberwiththestationreadytoacceptpassengerswhentheEastRailLinebeginsservicein2016.
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2010

PreliminaryEstimate

2013ContractSignedwithContractortoBuildHotelandTransitCenter

2014Announcedriskassessmentprojecting510%increase

2015CurrentProjectionforProjectCompletion

HotelandTransitCenter

$500M $544M $571 $598M $580$586MOtherCapitalImprovements*

$0M $75M $78 $82M $78$81M

RTDraillinecosts** $26M $53M $56$59M $56$58M*Othercapitalimprovementsincludesimultaneouslyextendingtheterminaltrainstorageareatoincreasecapacity,rebuildinglevels4and6roadwaybridgesandotherworkthattakesadvantageofcostanddisruptionefficiencies.Noneofthisadditionalworkisrequiredforthehotelortransitcenter,butinsteadsupportsthefutureneedsoftheairportandsoisaccountedforseparately.**LitigationunderwaytodetermineRTD/DIAcostshare,butDIAplannedforthefullamountasaprudentmeasure.