Matrix performed an analysis of the current CIP allocation methodology, alternative options explored, and recommendations on the most practical and equitable methodologies to allocate these costs, in alignment with best practices (Exhibit A).

The City’s current methodology includes direct and indirect support for management of a Capital project based on a project management fee of 6.5% of the total project budget. The fee is charged on a yearly basis based on the percentage of completion of the projects during each fiscal year. Fifty percent of the fee is charged during the design phase and 50% during the construction phase. This chargeback to projects fully funds the costs of the CIP Department each year.

Five alternative methodologies were explored to calculate the program management fee to determine the most appropriate, justifiable and defensible and in use by other agencies. These options included direct level of effort in the management and support spent by CIP staff on Capital projects, projects expenditures, total projects budget for all capital projects managed by the CIP department, and a combination of labor hours and project expenses and total budgets. Below is a recap of the other alternatives considered:

Labor Hours - In 2022, CIP staff tracked labor hours spent on individual projects. This methodology calculates the CIP project management fee based on total hours spent per project and presumes that the more hours spent managing a project, the more direct and indirect cost the project should bear.

Project Expenses – This methodology calculates the CIP program management fee based on the total expenditures incurred in each active capital project being managed in CIP. This option assumes that the project with larger expenditures required more staff oversight and support compared to those with minimal expenditures.

Project Budget – This methodology calculates the CIP program management fee based on the total project budget to approximate the proportion of direct and indirect costs that should be borne by each project.

The other two alternatives explored include a combination of Labor Hours, Project Expenses and Project Budget.

The methodology recommended by Matrix on recovering the annual CIP project management fee is based on actual labor hours spent by CIP staff managing the projects. Matrix has recommended to utilize the same fiscal year’s actual hours spent per project to allocate the fiscal year-end costs of the CIP Department. The charges to each project will be calculated based on the percentage of labor hours associated to each project and applied to the full CIP Department Budget.

Matrix has also provided future recommendations for budgetary purposes of future CIP program management fee.

Option 1 – Update the indirect estimated percentage applied to each capital project budget to the federal de-minimis rate of 10%. This is only for budgetary purposes to ensure that the City has sufficient funding set aside to cover the CIP Department Budget. The actual charges will be based on Labor Hours described above.

Option 2 – Develop a tiered administrative percentage structure

For existing and new potential projects, a tiered administrative percentage structure that scales down as the project budget increases has been recommended to estimate the administrative fee associated to managing the project. This tiered structure should address the inequity issue of utilizing a singular percentage and also demonstrates how the current 6.5% was insufficient to capture project support for projects valued at less than $10 million. The actual charges will be based on Labor Hours described above.

Tier 1: Up to $1M = 15% of project cost
Tier 2: $1M - $10M = 10% of project cost
Tier 3: $10M - $25M = 5% of project cost
Tier 4: $25M+ = 2% of project cost

In addition, the Administration is recommending that the efforts spent on evaluation and development of projects that are not yet defined capital projects, be budgeted as chargebacks to the appropriate Fund based on the historical percentages above. The actual charges will be posted to the related operating budget at year-end, based on Labor Hours described above.

Finally, it is recommended that CIP continue to monitor actual Labor Hours related to these efforts to review and update these percentages in the next 3 years.