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Resolution 2023-32526RESOLUTION NO. 2023-32526 A RESOLUTION OF THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, ACCEPTING THE RECOMMENDATION OF THE FINANCE AND ECONOMIC RESILIENCY COMMITTEE, AT ITS FEBRUARY 17, 2023 MEETING, TO APPLY A TIERED FEE STRUCTURE TO ESTABLISH AN ALLOWANCE IN PROJECT BUDGETS TO FUND GENERAL ADMINISTRATIVE AND OVERHEAD EXPENSES OF THE OFFICE OF CAPITAL IMPROVEMENT PROJECTS (CIP) AND ITS PROJECT MANAGEMENT, ADMINISTRATION AND OVERSIGHT FUNCTIONS WITH A YEAR-END RECONCILIATION TO ALLOCATE THE COST OF ACTUAL LABOR HOURS SPENT PER PROJECT TO THE CIP DEPARTMENT; AND FURTHER ACCEPTING THE COMMITTEE'S RECOMMENDATION TO CHARGE THE APPROPRIATE FUNDS TO DEFRAY THE COSTS OF PROJECT OVERSIGHT FOR PROJECTS IN DEVELOPMENT, BUT NOT YET BUDGETED, INSTEAD OF TREATING SUCH EXPENSES AS GENERAL OVERHEAD COSTS. WHEREAS, the Office of Capital Improvement Projects (CIP) provides project development and construction program management services for major capital projects in the City of Miami Beach; and WHEREAS, the CIP department has 33 full time employees composed of senior management, architects, engineers, construction managers (in different categories of experience and responsibility), financial managers, field inspectors, and administrative personnel; and WHEREAS, the departmental functions are divided into Project Development and Project Administration. The Project Development function includes staff directly managing the capital projects and represents 65% of the operating budget; and WHEREAS, the Project Administration function includes staff providing indirect support to the project managers including financial and administrative functions and represents 35% of the operating budget; and WHEREAS, CIP is currently managing approximately 50 active projects in the planning, design, permitting and construction phases; and WHEREAS, departmental functions include the selection and management of contractors and consultants using a variety of project delivery methods including job order contracting, design - build, construction management at risk, and design -bid -build; and WHEREAS, CIP often also works on evaluation and development of projects that are not yet defined capital projects; and WHEREAS, in FY 2022, these tasks represented 25% of Development staff time (expenses related to these projects should be charged to the respective operating funds: General Fund, Enterprise Funds and Special Revenue Funds); and WHEREAS, presently, project oversight costs for projects in development are treated as general overhead, and therefore charged to budgeted capital projects; and WHEREAS, at the June 22, 2022 City Commission meeting, a discussion on cost allocations or percentages charged to capital projects to fund the operations of the CIP was referred to the Finance and Economic Resiliency Committee (FERC); and WHEREAS, on October 31, 2022, the item was presented at the FERC meeting to advise that the Office of Management and Budget retained Matrix Consulting Group (Matrix) to conduct an analysis of the current methodology being utilized to allocate the annual costs of the CIP Department and discuss options for recovering costs from capital projects based upon best practices, industry standards, and defensibility; and WHEREAS, 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); and WHEREAS, 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; and WHEREAS, Matrix has recommended the utilization of the same fiscal year's actual labor hours spent per project to allocate the fiscal year-end costs of the CIP Department; and WHEREAS, 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; and WHEREAS, 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; and WHEREAS, this tiered structure is intended to address the inequity of utilizing a singular percentage (i.e., 6.5%) across all projects, regardless of budget size, and to ensure that the percentage charged for projects valued at less than $10 million better captures the actual cost of oversight for such projects; and WHEREAS, in addition, the Administration has recommended 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; and WHEREAS, the actual charges for projects in development would be posted to the related operating budget at year-end, based on Labor Hours described above; and WHEREAS, the Finance and Economic Resiliency Committee discussed this item at its February 17, 2023 meeting and passed a motion recommending that the City Commission adopt a resolution to apply a tiered allocation methodology to determine charges against project budgets, for budgetary purposes, to fund the cost of oversight by the Office of Capital Improvement Projects for CIP projects, as well as to charge the appropriate Funds to defray the costs of project oversight for projects in development, but not yet budgeted, instead of treating these as general overhead costs. NOW, THEREFORE, BE IT DULY RESOLVED BY THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, that, following a duly noticed public hearing on March 27, 2023, the Mayor and City Commission hereby accepts the recommendation of the Finance and Economic Resiliency's recommendation to use a tiered fee structure, as noted in the attached Exhibit "A", to establish an allwance in project budgets to fund general administrative and overhead expenses of the Office of Capital Improvement Projects (CIP) and its project management, administration and oversight functions with a year-end reconciliation to allocate the cost of actual labor hours spent per project to the CIP Department, and further,accepting the Committee's recommendation to charge the appropriate Funds to defray the costs of project oversight for projects that are in development, but not yet budgeted, instead of treating such expenditures as overhead costs. PASSED and ADOPTED this a7 day of h�a�c� 2023. Dan Gelber, Mayor ATTEST: 'MAR 3 1 2073 77tl RaJ6e1 E. Granado, City Clerk '.INCORPORATED' `• �..2e APPROVED AS TO FORM & LANGUAGE & FOR EXECUTION City Attomey t /k Date Resolutions - C7 J MIAMI BEACH COMMISSION MEMORANDUM TO: Honorable Mayor and Members of the City Commission FROM: Alina T. Hudak, City Manager DATE: March 27, 2023 SUBJECT: A RESOLUTION OF THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, ACCEPTING THE RECOMMENDATION OF THE FINANCE AND ECONOMIC RESILIENCY COMMITTEE, AT ITS FEBRUARY 17, 2023 MEETING, TO APPLY A TIERED FEE STRUCTURE TO ESTABLISH AN ALLOWANCE IN PROJECT BUDGETS TO FUND GENERAL ADMINISTRATIVE AND OVERHEAD EXPENSES OF THE OFFICE OF CAPITAL IMPROVEMENT PROJECTS (CIP) AND ITS PROJECT MANAGEMENT, ADMINISTRATION AND OVERSIGHT FUNCTIONS WITH A YEAR-END RECONCILIATION TO ALLOCATE THE COST OF ACTUAL LABOR HOURS SPENT PER PROJECT TO THE CIP DEPARTMENT; AND FURTHER ACCEPTING THE COMMITTEE'S RECOMMENDATION TO CHARGE THE APPROPRIATE FUNDS TO DEFRAY THE COSTS OF PROJECT OVERSIGHT FOR PROJECTS IN DEVELOPMENT, BUT NOT YET BUDGETED, INSTEAD OF TREATING SUCH EXPENSES AS GENERAL OVERHEAD COSTS. SUPPORTING SURVEY DATA FINANCIAL INFORMATION No fiscal impact. Applicable Area Citywide Is this a "Residents Right Does this item utilize G.O. to Know" item, pursuant to Bond Funds? City Code Section 2-14? No Yes Strategic Connection Organizational Innovation- Ensure strong fiscal stewardship. Legislative Tracking Page 317 of 1292 Office of Management and Budget Sponsor Commissioner David Richardson ATTACHMENTS: Description ❑ Memo - Accept Recommendation of the FERC to Apply a Tiered Administrative Structure to Recover C I P Costs ❑ Exhibit A ❑ Resolution Page 318 of 1292 MIAMI BEACH City of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, www.miamibeachfl.gov COMMISSION MEMORANDUM TO: Honorable Mayor Dan Gelber and Members of the City Commission FROM: Alina T. Hudak, City Manager DATE: March 27, 2023 SUBJECT: A RESOLUTION OF THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, ACCEPTING THE RECOMMENDATION OF THE FINANCE AND ECONOMIC RESILIENCY COMMITTEE, AT ITS FEBRUARY 17, 2023 MEETING, TO APPLY A TIERED ALLOCATION METHODOLOGY FOR CAPITAL IMPROVEMENT PROJECTS, AS WELL AS CHARGING FOR PROJECTS IN DEVELOPMENT, BUT NOT YET BUDGETED, TO APPROPRIATE FUNDS INSTEAD OF TREATING AS OVERHEAD COSTS. ADMINISTRATION RECOMMENDATION Adopt the Resolution. STRATEGIC PLAN SUPPORTED Organizational Innovation — Ensure strong fiscal stewardship BACKGROUND On June 22, 2022, a discussion on cost allocations or percentages charged to capital projects to fund the operations of the Office of Capital Improvement Projects (CIP) was referred to the Finance and Economic Resiliency Committee (FERC). On October 31, 2022, the item was presented at the FERC meeting to advise that the Office of Management and Budget retained Matrix Consulting Group (Matrix) to conduct an analysis of the current methodology being utilized to allocate the annual costs of the CIP Department and discuss options for recovering costs from capital projects based upon best practices, industry standards, and defensibility. At the February 17, 2023 Finance and Economic Resiliency Committee meeting, the Committee discussed this item and passed a motion recommending the City Commission adopt a resolution to apply a tiered allocation methodology for CIP projects, as well as charging for projects in development, but not yet budgeted, to the appropriate funds, instead of treating these as overhead costs. OVERVIEW CIP provides project development and construction program management services for major capital projects in the City of Miami Beach. The CIP department has 33 full time employees composed of senior management, architects, engineers, construction managers (in different Page 319 of 1292 Accept Recommendation of the FERC to Apply a Tiered Administrative Structure to Recover CIP Costs Page 2 categories of experience and responsibility), financial managers, field inspectors, and administrative personnel. The adopted FY 2023 Operating Budget for the department is $5,838,000. The budget includes salaries and benefits in the amount of $4,950,000 (85% of the total budget), operating expenditures in the amount of $233,000 (4% of the total budget) and other departmental internal charges in the amount of 655,000 (11% of the total budget). The full FY 2023 CIP operating budget is funded by chargebacks to capital projects managed by the department. The departmental functions are divided into Project Development and Project Administration. The Project Development function includes staff directly managing the capital projects and represents 65% of the operating budget. The Project Administration function includes staff providing indirect support to the project managers including financial and administrative functions and represents 35% of the operating budget. CIP is currently managing approximately 50 active projects in the planning, design, permitting and construction phases. Departmental functions include the selection and management of contractors and consultants using a variety of project delivery methods including job order contracting, design -build, construction management at risk, and design -bid -build. It is important to note that CIP often also works on evaluation and development of projects that are not yet defined capital projects. In FY 2022, these tasks represented 25% of Development staff time (expenses related to these projects should be charged to the respective operating funds: General Fund, Enterprise Funds and Special Revenue Funds). In the past, this effort has been treated as overhead, and therefore charged to budgeted capital projects. ANALYSIS 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 Page 320 of 1292 Accept Recommendation of the FERC to Apply a Tiered Administrative Structure to Recover CIP Costs Page 3 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 the utilization of 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 recommendations for budgetary purposes of future CIP program management fee. Option 1 — Update the indirect estimated percentage to 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 $1 M = 15% of project cost Tier 2: $1 M - $1 OM = 10% of project cost Tier 3: $1 OM - $25M = 5% of project cost Tier 4: $25M+ = 2% of project cost In addition, the Administration recommends 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. CONCLUSION The Administration recommends that this tiered administrative structure be used for budgetary purposes and that the methodology to recover costs be used based on the labor hours spent on an annual basis and updated as necessary. In addition, for projects that are in development, but not yet budgeted, CIP should charge the appropriate fund, instead of treating these expenditures as overhead costs. Page 321 of 1292 Accept Recommendation of the FERC to Apply a Tiered Administrative Structure to Recover CIP Costs Page 4 Attachment: Exhibit A — Matrix Consulting Group CIP Allocation Memo ATH/JG/TOS Page 322 of 1292 matrix � consulting group 1650 S Amphlett Blvd., Suite 213 San Mateo, CA 94402 650.858.0507 January 6, 2023 SUBJECT: CAPITAL IMPROVEMENT PROGRAM (CIP) ALLOCATION TO CAPITAL PROJECTS The Matrix Consulting Group was retained by the City of Miami Beach to review the current methodology used by the General Fund Capital Improvements Program (CIP) to recover costs from Capital Projects. The City of Miami Beach currently assesses a 6.5% fee to calculate the direct and indirect support associated with managing a capital project. This methodology has been in existence for over 10 years and there is no documentation behind the basis for this methodology. Therefore, the purpose of this study is to discuss options for recovering costs from capital projects based upon best practices, industry standards, and defensibility. The following memo provides a brief overview of the methodology used to conduct the analysis, the current CIP allocation methodology in place, the alternative CIP allocation options explored, the recommended methodology, and future considerations. I Methodology for Analysis In this study the project team utilized a wide variety of data collection and analytical techniques. The scope of work was accomplished through the completion of the following activities: • Conducted Interviews with City Staff: The project team met with CIP and Budget staff to discuss the current methodology, its use, and application. • Collected Data: The project team gathered information regarding the current model, data factors such as labor hours, expenses, etc. as well as historical information to conduct a trend analysis. • Discussed Results with City Staff: The project team reviewed the results of the analysis with CIP and Finance staff to determine if the proposed methodology was able to capture support more accurately as well as meet the intended goals and objectives of the study. Matrix Consulting Group Page 1 Page 323 of 1292 CIP Cost Allocation City of Miami Beach, FL The objective of this analysis is to provide a clear and transparent methodology for allocating direct and indirect support to Capital projects. 2 Current CIP Allocation Methodology The City of Miami Beach, financially and operationally, houses its Capital Project staff in a program within the General Fund known as the Capital Improvement Program. This program includes the cost of project managers that are directly working on projects as well as the manager and support staff for those engineers. To recover the cost for the direct and indirect support for capital projects, the City applies a percentage to each capital project budget. The City's current methodology is to calculate direct and indirect support for a Capital project based upon 6.5% of the project's total budget. This 6.5% is used to charge the total direct and indirect support. Of the total direct and indirect support calculated from the 6.5%, 50% is charged during the design phase, and 50% during the construction phase. This information is tracked in an excel spreadsheet and at the end of the fiscal year the Capital Projects manager meets with staff and determines two components: 1. Current Phase of the Project: Design or Implementation 2. % of Phase Complete: Estimated percentage of the design or construction phase that has been completed that year. Based upon these two components, the annual direct and indirect cost is calculated for each capital project. This ensures that each project only ever pays the total direct and indirect cost initially estimated (6.5%) for that project, regardless of the actual direct or indirect time spent by staff on that project. The goal is that the total direct and indirect costs calculated for each project will equal the total annual expenses for the Capital Improvement Program. Any gaps in funding are the responsibility of, and covered by, the General fund. As discussed in the introduction, the current methodology of 6.5%, and the 50% allocation to design and construction phase is based upon institutional practice. There is no policy and / or procedure documentation regarding the basis of the 6.5%, and why it was allocated 50% to both the design and construction phase. Additionally, in the current methodology, if a project does not officially start the design phase, no administrative fee is applied, even if staff spend significant time on that project. Matrix Consulting Group Page 2 Page 324 of 1292 CIP Cost Allocation Citv of Miami Beach, FL 3 Alternative CIP Allocation Methodologies The primary purpose of this study was to evaluate alternative methodologies based upon best practices, industry standards, and level of effort and support spent by Capital Improvement Program (CIP) staff on Capital Projects. The project team explored five different options: 1. Labor Hours: In 2022, CIP staff acquired a time tracking system in which staff were able to code their time spent on individual capital projects. This methodology looked at allocating the CIP costs based upon the total hours spent per project, and presumes that the more hours spent on a project, the more direct and indirect cost that project should bear. 2. Project Expenses: This methodology uses the total project expenses incurred in the previous year to approximate the proportion of direct and indirect costs that should be borne. This methodology presumes that projects that had larger expenditures required more staff oversight and support compared to those with minimal expenditures. 3. Project Budget: This methodology uses the total initial project budget to approximate the proportion of direct and indirect costs that should be borne. This methodology presumes that the larger the value of the project, the more overall support is needed for that project. 4. 75% Labor Hours and 25% Project Expenses: This is a hybrid methodology, which weights labor hours at 75% and Project Expenses at 25%. This presumes that the primary level of support is determined based upon hours spent by project staff, but that there is some component of weight that should be based upon those projects that expended significant monies the previous year. 5. 75% Labor Hours and 25% Project Budget: This is also a hybrid methodology approach, which weights labor hours at 75%, and Project Budget at 25%. This presumes that the primary level of support is determined based upon hours spent by project staff, but that there is some component of weight that should be based upon the overall dollar value of the project, as the larger the project, the larger the level of oversight and support is needed. These five different methodologies were reviewed with City CIP and Finance staff to determine which most appropriately reflected the level of effort spent by staff. All five methodologies are justifiable and defensible and in use by other jurisdictions. Matrix Consulting Group Page 3 Page 325 of 1292 CIP Cost Allocation Citv of Miami Beach, FL A Recommended Methodology Based upon the analysis conducted, the project team recommends that the City consider Option #1: Labor Hours, as the recommended methodology. This methodology best reflects the level of effort based upon actual staff hours that are spent on an annual basis in managing the projects. The following table shows the annual labor hours spent in support of each current CIP project, and the resulting percentage of support: Table 1: Labor Hours by Project Labor % of Project Name Hours Support _ _ 2 WAY CONVERSION 42ND ST. SHERIDAN 0.00 0.00% 23 ST. STREETSCAPE IMPROVEMENTS 249.50 0.99% 41 STREET CORRIDOR IMPROVEMENTS 610.50 2.43% 500-600 ALTON PARK 296.00 1.18% 72 ST. COMMUNITY COMPLEX 885.75 3.52% BAY GARDEN MANOR LINK 144.00 0.57% BAY WALK 1 OTH TO 12TH STREET - MARINA 119.00 0.47% BAYSHORE 8D - SUNSET ISLANDS 3 & 4 NEIGHBORHOOD IMPROVEMENTS 288.75 1.15% BAYSHORE NEIGHBORHOOD - CENTRAL BAYSHORE SOUTH 26.00 0.10% BAYSHORE SUNSET ISLANDS 3 & 4 - UTILITY UNDERGROUNDING 8.00 0.03% BAYVIEW TERRACE LINK 142.00 0.56% BAYWALK PEDESTRIAN BRIDGE 250.50 1.00% BISCAYNE BEACH ADDITIONAL PARKING 279.50 1.11% BRITTANY BAY PARK 2,359.75 9.39% CHASE AVE/34 ST. SHARED USE PATH 379.45 1.51 % COLLINS PARK PARKING GARAGE / COLLINS PARK ANCILLARY 260.50 1.04% COLLINS PARK PERFORMING ARTS VENUE - ROTUNDA 310.40 1.23% CONVENTION CENTER - CARL FISHER 1,178.50 4.69% DADE BOULEVARD SHARED USE PATH 175.25 0.70% FIRE STATION #1 714.75 2.84% FIRST STREET STORMWATER IMPROVEMENTS 0.00 0.00% FLAMINGO PARK - PHASE I - PI (OLD) 922.10 3.67% FLAMINGO PARK MASTER PLAN 809.50 3.22% FLAMINGO YOUTH CENTER FACILITY 66.00 0.26% INDIAN CREEK ST. DRAINAGE IMPROVEMENTS - PHASE III 2,627.25 10.45% KAYAK LAUNCH DOCKS (DICKENS) 0.00 0.00% LINCOLN ROAD WASHINGTON AV TO LENOX AV / CONV. CTR LINCOLN RD CONNECTION / LINCOLN RD BOLLARDS 403.75 1.61 % LOG CABIN 0.00 0.00% LUMMUS PARK / OCEAN DRIVE CORRIDOR 70.00 0.28% MARINE PATROL FACILITY 95.25 0.38% MAURICE GIBB PARK 724.00 2.88% MIDDLE BEACH RECREATIONAL CORRIDOR PH 3 1,388.55 5.52% NOBE OCEANSIDE PARK BEACHWLK 0.00 0.00% NORTH BEACH ENTRANCE SIGNS 242.50 0.96% NORTH BEACH OCEANSIDE PARK RENOVATION 2,060.95 8.20% NSPYC EXTERIOR CAFE AND RESTROOMS 244.50 0.97% OCEAN RESCUE NOBE FACILITY 62.50 0.25% Matrix Consulting Group Page 4 Page 326 of 1292 CIP Cost Allocation City of Miami Beach, FL Labor % of Pro ect Name Hours Support PALM & HIBISCUS ISLANDS ENHANCEMENT PALM & HIBISCUS LANDSCAPING - CIP 107.50 0.43% PAR 3/ BAYSHORE PARK 825.75 3.28% PARKING GARAGE AT PARKING LOT P16 0.00 0.00% PINE TREE DRIVE & 46TH STREET CIRCLE 286.50 1.14% PRIDE PARK / CONVENTION CENTER PARK 478.20 1.90% RUE VENDOME PUBLIC PLAZA 107.10 0.43% SHANE WATERSPORT SEAWALL & DOCK RAMP 196.50 0.78% SHARED PATH ON PARKVIEW ISLAND PARK (73RD-77TH) 0.00 0.00% SOUTH BAY CLUB LINK 152.50 0.61 % STILLWATER ENTRANCE 132.45 0.53% STORMWATER PUMP STATION AT 19TH STREET EAST OF MERIDIAN 48.75 0.19% SUNSET HARBOR PUMP STATION #3 SCREEN 63.50 0.25% SUNSET ISLANDS 1 & 2 GUARDHOUSE 66.00 0.26% SURFACE LOT 01 A - PENRODS AT ONE OCEAN DRIVE 79.00 0.31 % SURFACE LOT 9D (P86) - 6976 INDIAN CREEK DR. 0.00 0.00% SURFACE LOT AT BISCAYNE BEACH / BISCAYNE BEACH SEAWAL 1,004.10 3.99% TENT CANOPY FOR NORTH SHORE BANDSHELL 0.00 0.00% VENETIAN ISLANDS BP13C 331.00 1.32% WATERWAY RESTORATION 93.00 0.37% WEST AVENUE PHASE II IMPROVEMENTS 1,465.35 5.83% TOTAL 25,140.65 100.00% Based upon staff time and effort, Indian Creek (10%), Brittany Bay Park (9%), North Beach Oceanside Park Renovation (8%), West Avenue Phase II Improvements (6%), Middle Beach Recreational Corridor (6%), and Palm & Hibiscus Enhancements (5%) represent the largest proportion of staff support. The remaining projects all have less than 5% of the total staff support on an individual project basis. Recommendation #1: The City should utilize the same fiscal years' actual hours spent per project to allocate the fiscal year-end costs of the Capital Improvement Program to each project. For example, FY22 Year -End Actual Capital Improvement Program Costs should be allocated based upon FY22 hours spent per project. Once the recommended methodology has been determined, the City will take the actual FY21-22 Expenditures for the Capital Improvement Program and allocate them based upon the percentage of hours associated with each project. The following table shows by major cost category the total actual expenditures for FY21-22: Table 2: Expenditures by Cost Category Category Salaries and Benefits Telephone FY21-22 Actuals $4,269,340 $11,643 Matrix Consulting Group Page 5 Page 327 of 1292 CIP Cost Allocation City of Miami Beach, FL Category FY21-22 Actuals Postage and Shipping 17 Rent -Building & Equipment $67,881 Printing $112 Contract Maintenance $98,158 Supplies - Office $6,138 Other Operating Expenditures $3,852 Other Contractual Services $8,080 Dues & Memberships $918 Training & Awards $2,290 Uniform Expense $1,400 Central Services -Internal Svc $8,000 Property Mgmt-Internal Svc $70,000 Fleet Management -Internal Svc $74,000 Self Insurance -Internal Svc $229,000 Applications/ Computer Hardwar $248,000 OIG Funding $2,000 Motor Vehicles_ $272,545 TOTAL $5,373,373 Approximately $4.2 million of the $5.4 million in expenses is related to Personnel expenses. These personnel are directly spending time on managing, reviewing, and designing capital improvement projects. The next largest component of expenses are in relation to the internal service funds ($631,000). The $5.4 million is allocated to projects based upon percentage of (labor hour) support. The following table shows by project, the total recommended CIP Charges: Table 3: Recommended CIP Project Charges Project Name _ 2 WAY CONVERSION 42ND ST. SHERIDAN 23 ST. STREETSCAPE IMPROVEMENTS 41 STREET CORRIDOR IMPROVEMENTS 500-600 ALTON PARK 72 ST. COMMUNITY COMPLEX BAY GARDEN MANOR LINK % of Allocated Support CIP Charges 0.00% $0 0.99% $53,326 2.43% $130,484 1.18% $63,265 3.52% $189,314 0.57% $30,777 BAY WALK 1 OTH TO 12TH STREET - MARINA 0.47% $25,434 BAYSHORE 8D - SUNSET ISLANDS 3 & 4 NEIGHBORHOOD IMPROVEMENTS 1.15% $61,715 BAYSHORE NEIGHBORHOOD - CENTRAL BAYSHORE SOUTH 0.10% $5,557 BAYSHORE SUNSET ISLANDS 3 & 4 - UTILITY UNDERGROUNDING 0.03% $1,710 BAYVIEW TERRACE LINK 0.56% $30,350 BAYWALK PEDESTRIAN BRIDGE 1.00% $53,540 BISCAYNE BEACH ADDITIONAL PARKING 1.11% $59,738 BRITTANY BAY PARK 9.39% $504,355 CHASE AVE/34 ST. SHARED USE PATH 1.51 % $81,101 COLLINS PARK PARKING GARAGE / COLLINS PARK ANCILLARY 1.04% $55,677 COLLINS PARK PERFORMING ARTS VENUE - ROTUNDA 1.23% $66,343 CONVENTION CENTER - CARL FISHER 4.69% $251,884 DADE BOULEVARD SHARED USE PATH 0.70% $37,457 Matrix Consulting Group Page 6 Page 328 of 1292 CIP Cost Allocation Citv of Miami Beach, FL Pro'ect Name FIRE STATION #1 FIRST STREET STORMWATER IMPROVEMENTS FLAMINGO PARK - PHASE I - PI (OLD) FLAMINGO PARK MASTER PLAN FLAMINGO YOUTH CENTER FACILITY INDIAN CREEK ST. DRAINAGE IMPROVEMENTS - PHASE III KAYAK LAUNCH DOCKS (DICKENS) LINCOLN ROAD WASHINGTON AV TO LENOX AV / CONV. CONNECTION / LINCOLN RD BOLLARDS LOG CABIN LUMMUS PARK / OCEAN DRIVE CORRIDOR MARINE PATROL FACILITY MAURICE GIBB PARK MIDDLE BEACH RECREATIONAL CORRIDOR PH 3 NOBE OCEANSIDE PARK BEACHWLK NORTH BEACH ENTRANCE SIGNS NORTH BEACH OCEANSIDE PARK RENOVATION NSPYC EXTERIOR CAFE AND RESTROOMS OCEAN RESCUE NOBE FACILITY PALM & HIBISCUS ISLANDS ENHANCEMENTS PALM & HIBISCUS LANDSCAPING - CIP PAR 3/ BAYSHORE PARK PARKING GARAGE AT PARKING LOT P16 PINE TREE DRIVE & 46TH STREET CIRCLE PRIDE PARK / CONVENTION CENTER PARK RUE VENDOME PUBLIC PLAZA SHANE WATERSPORT SEAWALL & DOCK RAMP SHARED PATH ON PARKVIEW ISLAND PARK (73RD-77TH) % of Allocated Support CIP Charges i4% --$ 765 0.00% $0 3.67% $197,083 3.22% $173,016 0.26% $14,106 10.45% $561,529 0.00% $0 CTR LINCOLN RD SOUTH BAY CLUB LINK STILLWATER ENTRANCE STORMWATER PUMP STATION AT 19TH STREET EAST OF MERIDIAN SUNSET HARBOR PUMP STATION #3 SCREEN SUNSET ISLANDS 1 & 2 GUARDHOUSE SURFACE LOT 01 A - PENRODS AT ONE OCEAN DRIVE SURFACE LOT 9D (P86) - 6976 INDIAN CREEK DR. SURFACE LOT AT BISCAYNE BEACH / BISCAYNE BEACH SEAWAL TENT CANOPY FOR NORTH SHORE BANDSHELL VENETIAN ISLANDS BP13C WATERWAY RESTORATION WEST AVENUE PHASE II IMPROVEMENTS _ TOTAL 1.61 % $86,294 0.00% $0 0.28% $14,961 0.38% $20,358 2.88% $154,742 5.52% $296,778 0.00% $0 0.96% $51,830 8.20% $440,492 0.97% $52,258 0.25% $13,358 5.20% $279,669 0.43% $22,976 3.28% $176,490 0.00% $0 1.14% $61,234 1.90% $102,207 0.43% $22,891 0.78% $41,998 0.00% $0 0.61 % $32,594 0.53% $28,309 0.19% $10,419 0.25% $13,572 0.26% $14,106 0.31 % $16,885 0.00% $0 3.99% $214,609 0.00% $0 1.32% $70,745 0.37% $19,877 5.83% $313,193 100.00% $5,373,373 The $5.4 million expenditures associated with the Capital Improvement Program are allocated proportionately based upon actual labor hours. Therefore, projects such as Indian Creek (10% of support) receive approximately $561,000 in allocated CIP Charges. It is important to note that this table identifies the total costs allocable and associated with each project. However, not all current and future capital projects may be able to afford the total identified charge. To ensure that the methodology is fair and defensible, Matrix Consulting Group Page 7 Page 329 of 1292 CIP Cost Allocation City of Miami Beach, FL the costs must be allocated without regard to funding limitations associated with projects. The costs are the maximum justifiable charges to each project. If a project cannot afford that charge, the City must find an alternative means to subsidize that project. 6 Future Recommendations The focus of this analysis was the documentation of the current methodology and to provide a basis for future operational improvements to the Capital Improvement Program. The following subsections discuss two key future recommendations: 1 Admin Fee Projection The current methodology of 6.5% allows CIP staff to build an admin fee projection into the capital project budget. The proposed methodology is to recover CIP staff costs annually based on historical project information. The City has two options as it relates to projecting indirect costs for future capital projects: • Option #1: Update the indirect estimated percentage to federal de-minimis rate of 10%. This 10% should only be used to budget for indirect costs, while the actual indirect charges to a project should never exceed the total amount calculated based upon the recommended methodology. This ensures that the City has sufficient funding set aside for indirect support, and that charges are based upon a defensible methodology. • Option #2: Develop a tiered administrative percentage. For existing and new potential projects, the CIP Manager could utilize a tiered percentage structure that scales down as the project budget increases to estimate the administrative fee associated with managing that project. Option #1 results in the City potentially not having sufficient funding or too much funding on particular projects as it is an estimate that is not based upon the level of staff effort needed. This option would also likely result in a similar situation as the current indirect percentage methodology. Therefore, it is recommended that for budgeting purposes for capital projects, as part of the Capital Project Budget development, CIP staff should proceed with Option #2 and develop a tiered administrative percentage structure. This will ensure that administrative fees project the level of effort based upon the estimated complexity (dollar value) of the project. Matrix Consulting Group Page 8 Page 330 of 1292 CIP Cost Allocation City of Miami Beach, FL The project team worked with City staff to estimate the level of staff effort that would be needed through the life of a project depending upon different project cost estimates. Based upon this, the project team developed the following tiered structure. Table 4: Administrative Fee Tier Structure (Budgeting Purposes Only) Tier Estimated Dollar Value Admin Fee 1 $0 - $1 million 15% 2 $1 million - $10 million 10% 3 $10 million - $25 million 5% 4 $25 million and above 2% The administrative fee percentage would be recommended to start at 15% for projects up to $1 million. The percentage would slowly scale down to 2% for projects greater than $25 million. This tiered structure ensures that appropriate support costs are captured. For example, for a $900,000 project the administrative fee would be $135,000 and for a $30 million project, the administrative fee would be $600,000. The $135,000 may only be needed for 1-1.5 years, whereas the $600,000 would last for the estimated 4-5 years for the larger project. This updated tiered structure addresses 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 less than $10 million. This exercise should only be for budgeting purposes. At year-end only the actual estimated support based upon actual hours spent would be billed to the project. Additionally, these percentages have been developed based upon staff annual estimates of time, rather than actual staff time spent per project. As the City has only recently started tracking time spent managing CIPs, these tiered percentages should be reevaluated in 3-5 years, when additional and more accurate data is available on time spent managing projects. Lastly, while the current methodology also utilized a percentage based administrative fee, it is recommended that this percentage based fee not be limited to being charged 50% in the design phase and 50% in the construction phase. The percentage based administrative fee will be used to set aside specific administrative funding for a project. The year-end actual process will draw down from that funding the moment any time is spent by staff on managing that project. If there is insufficient funding, it is recommended that a budget amendment be submitted to ensure that each project is paying for their fair share of administration costs. Recommendation #2: A tiered administrative fee structure should be adopted for budgeting purposes only. The structure should be as follows: Matrix Consulting Group Page 9 Page 331 of 1292 CIP Cost Allocation City of Miami Beach, FL - Less than $1 million = 15% administrative fee - $1 m - $1 Om = 10% administrative fee - $1 Om - $25m = 5% administrative fee - $25m+ = 2% administrative fee At the year-end, the support based on actual hours should be assessed to the project. Recommendation #3: The tiered percentage structure should be reevaluated in 3-5 years once additional data is available on actual staff time spent managing projects. Recommendation #4: The tiered administrative percentage should be used as an administrative fee funding source and should be drawn down immediately based upon actual hours spent rather than be limited to 50% during design and 50% during construction phase. 2 Direct Staff Billing The City of Miami Beach is unique compared to other jurisdictions in that engineers and staff directly working on capital projects are charged to the general fund and their cost is recovered from capital projects based upon an administrative fee. The industry best practice for Capital Improvement Programs is to have engineers and staff directly working on Capital Projects to bill directly to those capital projects. As part of this effort, the project team contacted the City of Miami (as specifically requested by the City) to determine their practice of charging to capital projects. The City of Miami also charges its engineers directly to capital projects. The proposed methodology shift of charging out CIP costs based upon the actual hours spent essentially serves as a proxy for direct billing engineering staff. Even though it is charged under the name of an administrative fee, this is truly the CIP direct and indirect chargeback to projects. Therefore, by implementing the proposed methodology the City is moving towards aligning with best practices. In the future, if there is an opportunity, it is recommended that for any capital projects, engineers are directly budgeted in that project at the beginning of the year rather than charged back to that project. This mitigates the need for additional administrative work and is more cost effective and efficient in the long run. Recommendation #5: The City of Miami Beach should consider long-term where appropriate to directly budget staff in capital projects at the beginning of a fiscal year. Matrix Consulting Group Page 10 Page 332 of 1292