Merced City Council, Aug. 4, 2014: change orders and contingencies

The city council, like most legislative bodies, includes a number of items early in its agenda that are voted on together. It is called the "consent calendar" and items may be removed from it for individual attention. Councilman Mike Murphy asked that Item 8, a staff recommendation that the council accept a bid from a Fresno construction company to build a new laboratory building at  the city wastewater treatment facility, be removed for council discussion. After noting that "it is great that we have one of the bidders coming in 10 percent lower than the other two," Councilman Murphy objected specifically to the contract allowing a 25-percent increase for change orders on the authority of the city manager alone without council deliberation. Murphy thought 10 percent was good enough, noting that a $450,000 contingency fund was also included in the contract.
An unidentified city staffer responded to Murphy's questions about whether the contingency would include the change orders, too: "That would be part of the change orders," he said. "The contingency is just for items that come up during the normal construction and it's about 10 percent contingency for the construction, which is normal. But the change orders are anything that can go up to 25 percent ... usually between five and eight percent covers it..."
When Murphy noted that the two increases to the amount of the contract come to over 10 percent (actually to 40 percent of the contract, $1.2 million out of $3 million), the staffer replied that "that's why we put the 25 percent in the public code ...anything above that has to come back to Council for approval. Anything under that could be approved by the City Manager, as long as it's felt that it's reasonable or required.
Murphy expressed a desire to "have a discussion about" contractor charges running over 10 percent.
Both City Attorney Greg Diaz and City Manager John Bramble explained to Murphy why his idea was naive. City Attorney Diaz granted that the council can do that, but pointed out "what you need to understand is that when you are in the middle of a construction project and one of these unforeseen conditions...(inaudible) ... the project in going to stop and we'll likely end up paying delay damages to a contractor whose in the middle of a job and may end up having to demobilize and remobilize so that -- incomprehensible -- having the authority to ..."
Diaz continued to say that although a lab at a sewer plant probably doesn't pose a public inconvenience, "If this becomes public policy on road projects ... roads will be closed a lot longer."
Murphy replied that as long as we're talking about "three quarters of a million dollars," he'd be willing to meet on overruns. And, he thought, it might make the contract more efficient.
Mayor Stan Thurston waded into the discussion hands,  fluttering helplessly, and said that there isn't anything likely to go over that amount on the construction of this building.
But, the unnamed staffer said, "we do have over half a million dollars in soil conditions that have to be done."
Well done?
Sunnyside up?
Medium rare?
The City and the contractor didn't know how much work would have to be done before construction could even begin. According to the staffer, this is because the new building is being built on the site of an old building that was destroyed. Therefore, they are going to have to inject the soil before a foundation for the new building can be laid.
The mayor asked if there might not be some other location on the grounds of the sewer plant where the new lab might be built.
"Not that I know of," was the staff reply.
Murphy said he trusted staff judgment on location, he just wanted increases over 10 percent to come back to the Council. The staffer replied that he didn't expect anything like 25 percent overrun to occur on this project. "It's rare ... there would have to be a very unusual condition ...:"
Mayor Thurston, displaying more agitation, made an aside to Murphy through his switched on mike: "Couldn't we wait for that condition?"
Murphy said, smiling affably at the staffer, he'd be comfortable with 10 percent. He then asked if the proper motion would be to accept the bid but put a 10-percent cap on the change order increases.
Diaz explained how he can do that for this contract on this evening.
Murphy replied that he will make the motion as the city attorney has directed but that he would also like to see 10 percent rather than 25 percent on all contracts "going forward."
City Manager Bramble told Murphy "we need to have a conversation on that" because it could take up to 72 hours to convene the council and on a street project that would cost a lot just for a change order going a little over 10 percent.
Murphy relented, agreeing that that was another conversation but noting that the city manager has emergency powers in such instances.
Mayor Thurston asked and was told that the contractor would be doing the soil prep, not the city.
Murphy's motion with the 10-percent cap for the sewer-lab project passed unanimously.
Casey Steed, an unelectable politician not as local as he has claimed to be, was recognized by the mayor to speak on the issue. He took full credit for the 10-percent idea and uncorked a four-minute critique of the city's contracting policies suggesting sloppiness and waste of public funds and authority overreaching by city staff. We took away from the impromptu crowing that Steed, if ever elected, could never have managed what Murphy did with professional affability and respect: get the 10-percent cap on the new sewer-lab construction project. Once again, Steed's political weather vane whirled around the immoveable pole of his steely ego.
It seems like the fellows from Fresno whose bid came in 10 percent lower than their competitors will probably make that up and more if they "soil condition" right.
At the next council meeting, the council and staff had further words on the question of making 10 percent the maximum amount to be added to contracts for change orders. We will get to that conversation in due time. -- blj