Audit finds conflict in University of Iowa hospital project in North Liberty

[cigaretteman]

Four years ago — in the wake of an over-budget children’s hospital project plagued by design changes, construction delays, mismanagement, and cost overruns — University of Iowa Facilities Management assumed oversight control of all forthcoming UI Health Care construction to, among other things, “mitigate any future challenges.”



But the UI shift in leadership and decision-making power has meant “significant” challenges for the $525.6 million hospital campus it’s building in North Liberty, according to an Oct. 18 audit by Baker Tilly, provided to The Gazette through an open records request.


“A significant challenge on this project is the communication between UI (Facilities Management) Design & Construction and UIHC Capital Management,” according to the audit, reporting a “gap in understanding between UI (Design and Construction) and UIHC and their respective ownership of responsibilities, which has caused a potential lack of information sharing throughout the project.”





“The key disagreement between the two departments is who the true owner of the project is.”


UI Health Care is the “ultimate owner” of the 469,000-square-foot hospital rising on a 60-acre plot near the intersection of Forevergreen Road and Highway 965.


But JE Dunn’s construction management contract is with UI Design and Construction, making JE Dunn “contractually obligated to defer to the UI D&C team.”


“This has created challenges due to UIHC's expectations from JE Dunn and caused constraints to overall project management,” according to the audit, flagging spending discord on things like furniture, medical equipment and information technology.


“There appears to be a gap in procedural understanding with UI D&C on how UIHC arrived at these budget amounts or how they are managed,” according to the audit, which the audit presented in generalities and bullet points to the Board of Regents in November.


When asked whether any regents requested or read the full audit report provided to The Gazette upon its request, board spokesman Josh Lehman said regents received the public presentation at the November meeting and had the opportunity to ask questions.

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As part of the recent audit, Baker Tilly reported the construction piece of UIHC’s North Liberty contract obligation sits at $359.1 million, and UIHC — through Sept. 30 — had spent $184 million, putting spending at about 51 percent of its budget.


That matches the timeline of the project — which started in September 2021, with a scheduled 2025 opening.


But a lack of “transparency, clear and open lines of communication, and a ‘mutual trust’ culture between stakeholders” could lead to cost and schedule overruns, according to the audit.

Children’s hospital​

Those were among the issues that afflicted the UI Stead Family Children’s Hospital project and compelled an oversight change, according to an investigation by The Gazette.


The 14-floor, 563,250-square-foot Children’s Hospital budget started at $270.8 million and swelled to $360.2 million, with its completion date shifting from 2015 to December 2016 to February 2017.


Due to long-running and ongoing disputes with contractors on the project — including another verdict against the UI this year, which the university appealed and the Iowa Supreme Court retained this week — Children’s Hospital costs ballooned to more than $400 million.


And a subsequent discovery of cracking and damaged windows on levels three through 11 of the new hospital — which now need replacing — has added another $45 million to the project, bringing the cost near $450 million.


A 2019 UI Finance and Operations review aired “widespread confusion throughout campus about why the Children’s Hospital project experienced design problems and delays.”


“The committee was pleased to learn that all future UIHC building projects will now be overseen by (Finance and Operation), rather than solely within UIHC’s administration, which will allow the extensive experience of F & to benefit the entire campus,” according to the committee report.

Communication help​

But UI officials in the recent North Liberty audit acknowledged communication problems have followed, and they expressed efforts to “improve our lines of communication between UIHC and UI (Design and Construction).”


Those efforts have included hiring The Knowledge Collaborative to “facilitate working sessions that will clearly define communication protocols and channels between the two organizations.”


An Arizona-based consultant founded that company in December 2020. It doesn’t have a website, and UI officials didn’t immediately provide The Gazette with its contract or payment amounts to The Knowledge Collaborative to date.


But UI Facilities Management in October 2021 reported using it for an assessment of “current project management capabilities and needs” of its design and construction department.


The collaborative’s more recent UI work began in August, according to the audit, expecting to wrap in late fall and “provide a clear road map for improved and more effective modes of communication, a clear understanding of project roles and responsibilities, and a framework that will provide future projects clear project plans.”

Audit: UI internal disagreement, communication has been ‘significant challenge’ in hospital project

The University of Iowa shift in leadership and decision-making power has meant “significant” challenges for the $525.6 million hospital campus it’s building in North Liberty, according to an Oct. 18 audit by Baker Tilly, provided to The Gazette through an open records request.

www.thegazette.com

 

[cigaretteman]

Project evolution​

The audit also suggested “design changes late in the project life cycle contributed to budget increases.”


“In our effort to determine the root cause of the project's increased budget, our initial approach was to focus on design changes,” according to the audit. “Specifically, increased square footage of the facility, added late in the project life cycle, likely contributed to budget increases.”


The North Liberty project over the years has shifted location, size, scope, and cost — beginning in 2016 as a medical office extension to the Iowa River Landing clinic in Coralville, allowing “orthopedic services to relocate from the main hospital campus.”


That project was budgeted at about $100,000, according to regents documents.


In February 2020, the university returned to the board asking to revise its plans by — among other things — moving the project to a more expansive location in North Liberty, with an initial building anticipated at 300,000 square feet, plus shelled space for growth.


In December 2020, UIHC submitted its first application for a certificate of need to the State Health Facilities Council — reporting plans for an orthopedic-leaning hospital spanning 216,180 square feet and costing $230 million.


The state denied that application given community provider concerns the university was veering outside its academic and tertiary-care lane with its orthopedics plans for the new facility.


UIHC in May 2021 returned with a revised application stripping all mentions of orthopedics and expanding the project’s total square footage to 280,330. The state approved the re-upped application Aug. 31, 2021, and the university a week later went before the regents seeking approval to start construction on the new North Liberty hospital, along with a previously unmentioned attached “academic and clinic building.”


The project — which in total would span 469,000 square feet and cost $395 million — landed unanimous board approval, propelling near immediate digging and an official groundbreaking in October, with appearances from Gov. Kim Reynolds, UI President Barbara Wilson, and Larry Marsh, chair of UIHC Orthopedics and Rehabilitation.


The university in July 2022 returned to the board seeking permission to up the total project budget to $525.6 million — an ask regents approved. Excluding an unchanged contingency fund of $21.2 million, the project’s design, planning, construction, furniture, and equipment budget increased from $373.8 million to $504.4 million — or 35 percent.


The increase, UI officials said, was due to “multiple convergent construction industry challenges, such as worldwide and local construction market inflation, higher raw material prices, limited availability of construction materials, and local construction trade labor shortages.”


Officials stressed in the request that the project’s square footage, design, and floor plans were the same ones approved in September 2021.

Behind the budget increases​

In response to the recent audit findings tying design changes to budget increases, UI officials pointed back to soaring inflation post-COVID.


“Material and labor costs fluctuated on a monthly basis, and it was an impossible task to anticipate future costs when suppliers would not or could not guarantee pricing on their products,” according to the UI audit response.


Acknowledging “difficulties in cost control when designs are not complete and/or fully vetted,” UI officials told auditors their chosen project delivery method was designed to involve a “wide range of assumptions before many design decisions are finalized.”


“It is important to realize that projects of this complexity and scale are not designed in a short time frame,” according to the university response. “A great deal of time is required (years in fact) to meet with the entirety of staff that need input into the design.”


The university response noted “two significant events occur during these elongated time frames.”


First, “some of the original users of the new building leave and are replaced with new staff that have differing ideas of what the design should be,” according to the audit response.


Second, new medical equipment comes on the market.


“Replacing the previously designed equipment with the newer models is almost always desired,” UI officials reported. “This clearly has cost implications for not only the equipment, but the spaces and infrastructure to support those newer pieces of equipment.”