Auditor Says VTrans Railroad Contracts Could Be Managed Better

State Audit Says Railroad Contracts at Vermont Agency of Transportation Could Be Managed BetterAgency did not competitively bid $7.2 million in construction work; did not charge interest on late lease payments; and did not collect salvage proceeds properly, among audit findingsMONTPELIER (December 5, 2008) – The Office of Vermont State Auditor Tom Salmon, CPA, reported today that oversight of railroad construction contracts in the Vermont Agency of Transportation (VTrans) is inadequate and is costing the State money.”One conclusion of the audit is that the Rail Division is not ensuring that the required competitive bidding in these contracts is taking place,” said Deputy State Auditor George Thabault. “Contracts are being ‘sole-sourced’ and this denies other companies the opportunity to compete for State contracts, and may be keeping the State from getting the best price for goods and services.”The rail audit was conducted following a request made by VTrans that the State Auditor investigate the deficiencies of its rail section and suggest improvements.”We recognized that we had some issues within our Rail Division that needed correcting, and requested the Auditor’s assistance,” said VTrans Secretary David Dill. “On our own, we were unable to clearly identify our weaknesses in a way that both we and the railroads could understand. Our goal is to use the findings of this report as a catalyst to forge a new and better relationship with the companies that run our rail systems.”The audit report noted four key findings:1. VTrans and its railroad subcontractors did not follow procurement regulations designed to foster open, competitive bidding, resulting in $7.2 million of recent contracts with Vermont Railway and one of its affiliates not being competitively bid. The largest no-bid contract – for $4,677,727 – was also issued without the required approval of the Secretary of the Agency of Administration.2. Oversight and administration of rail contracts need improvement. For example, auditors found that $82,401 from rail project salvage proceeds was being held by Vermont Railway to offset against future invoices rather than being returned to the State as required by contract. (The Agency has since discontinued the practice of allowing the netting of salvage credits and has adopted new procedures to promptly receive and account for salvage payments.)3. Lease revenues and agreed-to performance requirements of leaseholders are not being verified, and VTrans has forgone $37,000 in interest stemming from late payments of monthly leases for State-owned track.4. The Agency did not adequately follow up on past audits which reported $436,000 of questioned costs related to contracts with Vermont Railway.For the project, auditors selected four contracts totaling $7.2 million dollars, approximately 44 percent of the total active rail construction and railway upgrade contracts during fiscal years 2007 and 2008. All contracts were between VTrans and Vermont Railway and Green Mountain Railroad, two companies of the Vermont Rail System (VRS), a privately held, affiliated group of short-line rail transportation companies that operates in Vermont.Auditors recommended that AOT strengthen and clarify the language within its rail agreements, improve the oversight of contracts, enforce penalties for violations of the terms and conditions of its contracts and lease agreements, and provide for better fiscal management of its contractors and service providers.In its response to the report, the Agency of Transportation generally agreed with the report’s recommendations and pledged to provide the State Auditor with quarterly status reports on corrective actions.”VTrans already has put in place new business practices that correct some of the Auditor’s concerns, and we certainly will make additional changes to rectify the remaining deficiencies,” Dill said. “VTrans recently hired a new Rail Program Manager, and one of his top priorities is to improve our rail business operations.”Background:The oversight of the railway network in Vermont is the responsibility of the Vermont Agency of Transportation Rail Program. Vermont’s rail system consists of approximately 748 miles of track or rail right-of-way. The State owns approximately 427 miles, of which 305 miles are currently active. Ten railroad companies operate or have the rights to operate on the rail lines in Vermont.For Fiscal Year 2009, the AOT total budget is $412.2 million. The Rail Section is allocated $16.8 million of this budget. The Rail Section currently has eight staff positions of a total of approximately 1,050 positions in the Agency. The complete audit report is available at www.auditor.vermont.gov(link is external). Click on “Audits & Reports” and then “Special Audits” to access the new audit report.