Report: MDOT ineffectively monitored warranties on work
Lansing — A state audit issued Friday questioned whether the Department of Transportation is effectively monitoring and enforcing road and bridge work warranties on Michigan's deteriorating roads, to make sure taxpayers aren't stuck with the bill for fixing substandard work.
In some cases, the audit said, MDOT inspectors found problems but didn't notify the contractor that work wasn't up to snuff until after the warranty had expired — or maybe not at all.
The report comes a few months before voters consider a sales tax increase to overhaul Michigan's roads and bridges.
Detroit News polls found last year that many voters questioned whether the state was getting enough bang for the buck on current road and bridge spending.
Michigan had 452 active road construction and 29 bridge warranties on April 16, 2014. From Oct. 1, 2011 to March 31, 2014, a period covered by the audit, MDOT oversaw the completion of 1,340 road and bridge construction projects costing $1.4 billion. State law requires the department, when possible, to get warranties on state trunk-line projects.
Department spokesman Jeff Cranson said "MDOT manages the largest warranty program in the nation, and has basically had to write the book on how to do this. But we acknowledge," he said, "the need to do better on the enforcement end and have already put measures in place to improve.
"There are tremendous challenges monitoring and enforcing these warranties," he added. "It requires time and resources that need to come from somewhere, and we are working on improving the technology involved."
Cranson cited a 2011 report from the National Cooperative Highway Research Program showing MDOT used warranties on more than 1,000 projects over more than a decade. Wisconsin has a 15-year-old warranty program, but only 80 to 100 projects are covered by it, according to the report.
The national report said MDOT "is the most-experienced agency implementing warranty contracting ..."
State lawmakers in December approved the requirement of new maintenance warranties for state and local roads as part of a plan to boost road and bridge repair spending $1.2 billion annually. The requirement would take effect if voters, on May 5, approve Proposal 1, which also would increase the 6 percent sales tax to 7 percent.
State let warranties expire
The auditors examined MDOT paperwork on 92 projects with expired warranties, 48 of which required corrective action. As of June 30, the report said "24 of the warranties had been expired for over one year without MDOT having addressed the corrective action."
They cited two projects on which MDOT inspectors found deficiencies, but contractors weren't notified of them before the warranties expired. MDOT consequently couldn't enforce the warranty and had to spend its own money on repairs totaling $92,800, according to the audit.
A 2010 audit also faulted the department's warranty monitoring. The new report says MDOT complied with three of seven recommendations in the 2010 audit and two of the prior recommendations no longer are applicable.
The latest criticism follows an audit last week that faulted MDOT's purchase and revamping of passenger rail cars that are sitting idle near Owosso. They were bought for a proposed inter-city commuter system that has yet to materialize.
Rep. Marilyn Lane, a House Transportation and Infrastructure Committee member, was angered by the audit and charged Friday that it shows a lack of accountability in Gov. Rick Snyder's administration.
"I questioned in committee two weeks ago about the situation with the railroad cars, and now there's this audit," said Lane, D-Fraser. "I've asked, and didn't get an answer: How many more of these audits are we going to get before we vote on Proposal 1?"
Daniel DeGraaf, executive director of the Michigan Concrete Association, said contractors take road construction warranties "very seriously" because they are linked to their ability to borrow money to finance materials, equipment and labor for projects.
"Contractors are very protective of their ability to bond. And if they default on anything, that affects their ability to even bid on work," DeGraaf said. "If they don't have that credit, then they cannot do business."
He said there can be lag time in filing paperwork with MDOT to ensure warrantied repairs have been made.
"With audits, sometimes, the paperwork is more important than what was actually done," DeGraaf said.
Corrective action planned
MDOT accepted the report's findings and is taking corrective action. For example, the department said it would enhance its "monthly auto-generated" report on warranties approaching or past the expiration dates to remind employees about updating the state's warranty database.
But MDOT also noted "many" projects cited in that audit finding "were still in the process of being completed." As of Dec. 3, 2014, the department had entered into the database 17 of 28 projects, containing 19 of the 32 warranties the report says weren't there when the audit was performed.
Under a new law that would take effect if Proposal 1 passes, the state department would create and implement a "performance rating system" for maintenance of all of the roadways it oversees. Starting Oct. 1, 2016, MDOT would be required to spend a minimum of 20 percent of its maintenance money based on the results of the rating system.
A similar requirement for "preventive maintenance services" would be made of local road agencies receiving $20 million or more from the Michigan Transportation Fund.
DeGraaf said the 20 percent maintenance spending requirement in the warranty legislation would ensure pavement cracks get filled quicker to prevent water from seeping into the road and deteriorating the foundation.
"What they're trying to do is extend the life of the system by doing the proper maintenance," DeGraaf said.