Audit Analyzes Hospital Budget

According to an audit conducted this summer, the project is expected to exceed its original budget by more than $25 million, or 18 percent.

PwC Consulting, a business of PricewaterhouseCoopers LLP, released the audit report to School of Medicine Dean Jeffrey Houpt on July15.

When the project was proposed in 1995, officials filed a certificate of need -- an estimate of total cost -- for $140.2 million. The final projection estimates a budget of $165.6 million, the report states.

Construction of the hospitals is also behind schedule. Initially, officials planned a November 1999 opening. But the second and final phase will not be done until February 2003, officials say. Phase one ended in February 2002.

The report outlines five areas that comprised most of the cost overrun: construction, consultation, equipment, financing and the contingency.

Construction and consultation both cost more than expected because of a multitude of unforeseen charges.

Financing cost overruns resulted because UNC Hospitals pursued a larger bond purchase than originally planned and because of unforeseen capital interest expenses from the building delay. But the audit states, "these interest expenses would have been paid by the Hospital in any event."

Though equipment costs were actually more than $100,000 less than projected, PwC cited the area because the cost documentation for equipment expenditures was "incomplete and decentralized."

But Karen McCall, vice president of public affairs for UNC Hospitals, contested this assertion, saying the project did have an equipment budget.

The audit states the University needs to bring in more professionals to evaluate project plans before construction begins. It also calls for comprehensive policies in managing large projects and a standardized accounting system.

McCall said UNC Hospitals plans on following many of these guidelines for future large-scale projects.

But she said an essential problem with the hospitals project was the use of multi-prime contracting, or contracting parts of the project individually. Officials say multi-prime contracting, mandated by state law for state institutions when the project began, leads to cost ineffectiveness, as opposed to single-prime, which allows hiring one contractor to handle the work

The N.C. General Assembly passed a law in December that frees state agencies from the multi-prime mandate.

She said officials will apply the lessons learned from this project to future undertakings. "(The auditors) came out of it saying we were under-resourced to this magnitude of a project with everything else going on."

The University Editor can be reached at udesk@unc.edu.