Source: http://www.bendbulletin.com, January 29, 2017
By: Marina Starleaf Riker

City being sued for what construction company calls ‘extraordinary’ number of design errors

Budgeting issues, design flaws and construction defects were among a number of challenges the city of Bend dealt with while expanding its sewer treatment plant.

Next month, the city will be responsible for defending how it dealt with those problems in court after the construction company hired to expand the plant sued the city for $8 million.

According to the lawsuit, Kennewick, Washington-based Apollo Inc. experienced added costs and delays due to an “extraordinary” number of design errors by the project’s engineer and construction manager, Colorado-based CH2M Hill. Apollo alleges that the city’s design and contract documents were “defective and deficient,” and is suing Bend for $8 million for unpaid work and damages.

However, the city of Bend says the added costs and delays were instead due to Apollo’s poor management and failure to follow the contract — not issues with CH2M Hill, which has not been brought into the lawsuit. The city also says Apollo’s allegations about damages are “legally insufficient,” and that the company is only owed about $4 million in unpaid work.

To date, the project has cost city taxpayers about $24 million on construction, $10.8 million for engineering and construction management and $2.7 million in consultants and attorneys — but has yet to be finished.

The city blames Apollo for the problems, but the lawsuit could still come with a hefty price tag for Bend taxpayers. They’ll be on the hook to pay for going to court, as well as hiring a new contractor to finish the sewer plant. The outcome of the lawsuit will determine who will take the blame for the problems — Apollo, CH2M Hill or the city of Bend.

However, an examination of city email records obtained by The Bulletin reveals a slew of problems beyond Apollo’s construction troubles. Email records show issues including CH2M Hill working beyond its budget and challenges bringing contract increases to city councilors. In addition, two top city public works officials were longtime employees of CH2M Hill.

Meanwhile, city officials say CH2M Hill’s construction management costs were much higher than anticipated, which in part led the project to go over budget. They also say a poor working relationship between CH2M Hill and Apollo led to further problems including the project running more than a year behind schedule.

However, city records show the sewer treatment plant isn’t the first CH2M Hill project that’s experienced problems. The sewer treatment plant contract is only one of 20 contracts the city of Bend has awarded CH2M Hill over the past decade, which total nearly $22 million, according documents The Bulletin obtained from the city.

In 2010, the city swallowed a $106,000 mistake when CH2M Hill’s designs for a manhole were off by a couple of feet during the city’s southeast interceptor sewer project. Jim Wodrich, a city engineer who previously worked as a planner for CH2M Hill, was involved in negotiating with the firm to determine if the company was liable for the $106,000 manhole mistake.

Sewer plant problems

In 2009, the city of Bend hired CH2M Hill for about $200,000 to start preliminary designs for the sewer plant expansion. That contract was extended several times to pay CH2M Hill to finish engineering work, which totaled about $5.5 million.

Eventually, CH2M Hill was hired to work as the project’s construction manager. Today, the contract’s total value is $10.8 million.

Budgeting problems with the project began to surface in 2011, when Bend City Manager Eric King said an accounting software error caused CH2M Hill’s cost for design work to jump from $2 million to about $4 million.

After CH2M Hill’s initial design work was finished, the city decided to extend CH2M Hill’s contract, and hire the firm as the project’s construction manager for an additional $4.5 million. That brought CH2M Hill’s contract, which was initially only for engineering work, to about $10 million.

However, that decision was made without opening the job to a public competitive bid, which would allow other companies to submit proposals.

City email records show a local construction company emailed the city expressing interest in submitting a proposal. Bend’s Public Works Director Paul Rheault, who worked for CH2M Hill for 16 years before taking a job at the city, responded to the email by saying that keeping CH2M Hill on board would decrease costs in the long run by allowing city staff to do more work.

But keeping CH2M Hill on as the construction manager would lead to thousands of dollars in unexpected costs.

Bend City Manager Eric King said there is a lengthy review process before all big contract changes are approved. There are multiple people involved, and sometimes committees are formed to review the decision, he said.

“There is no one individual that has the authority to make decisions,” King said.

Over budget

About three years later, in 2014, city staff started to realize the sewer plant project was going drastically over budget, according to city email records.

In an attempt to get the project back on track, the city decided to hire Wodrich, who had left the city to work for HDR Engineering, for up to $345,000 to help manage the project.

In an email exchange that took place in Nov. 2014, Wodrich told Jeff England, the city’s engineer for the project, that project costs were higher than expected. England responded to the email, saying that convincing Eric King and council to approve an additional $1.2 million would be difficult.

“There’s really no advance notice that we are this far out of scope and budget,” said England in the email.

On Tuesday, England said telling the consultant that there are difficulties getting contract increase approved is a negotiation tactic.

“In other words, I’m already pushing back on the consultant in order to minimize any potential cost increases,” England said.

But months after the email exchange, city staff had yet to ask the City Council to increase the contract, and CH2M Hill was about to run out of money. CH2M Hill planned on working beyond the $4.5 million contract increase that had previously been approved by the council, according to city email records.

“The sensitivity of the issue cannot be overstated and the timing for bringing (the amendment) forward, in whatever form, is of critical importance,” said England in an email to CH2M Hill staff. “Had we taken it to council two weeks ago as originally planned, we probably wouldn’t be having this conversation because in all likelihood I would no longer be employed here — not kidding.”

On Tuesday, England said there were no problems involving the amendment and bringing it forward for councilors’ approval. Instead, the sensitivity of the issue had to do with the level of uncertainty about the project’s future, England said.

At the time, the city was talking with another company to take over construction management services from CH2M Hill. City officials were also having discussions with attorneys about how to tackle problems with Apollo, he said.

Tom Hickmann, the director of the city’s engineering department, said it took a while to bring the contract increase forward to city councilors because CH2M Hill’s construction management costs were much higher than expected. Those costs grew after Apollo’s construction didn’t pass inspections, which meant CH2M Hill had to do more design work, he said.

The unexpected costs were something Bend’s city councilors didn’t take lightly, he said.

“This is ballooning much bigger and even though I can sit here and defend all of it, the appearance of this it doesn’t look good,” said Hickmann. “And we were certainly concerned about that public appearance even though we can defend (the costs incurred).”

King, the city manager, said he was unaware of the email exchanges and any issues involving the contract increase. He said it’s not unusual that city staff overseeing projects negotiate with the companies hired to build and oversee them.

“Their job is to make sure that they can make the case,” he said.

The Bend City Council eventually approved the contract increase in November 2015, nearly a year after staff knew the project was running over budget. The contract change increased CH2M Hill’s contract by about $840,000 — more than $600,000 of which went to paying the company back for work that had been completed beyond the original contract’s scope.

At that time, CH2M Hill’s design errors and omissions on the project totaled between $415,000 and $620,000 — not including additional redesign and construction costs, according to city documents. In general, a certain number of design errors are considered normal — about 3 percent of total construction costs, according to city documents.

At that point, the city had approved about $1 million for construction changes, — about 3.17 percent of the project’s total cost.

City of Bend officials would not comment about what portion of those construction changes were caused by design errors. However, Hickmann said a 3 to 5 percent change in the construction amount is not uncommon, and is not indicative of any serious design flaws.

CH2M Hill officials would not comment on its involvement with the project.

Taxpayers on the hook?

Depending on what happens in court, taxpayers could be on the hook to pay Apollo up to $8 million on top of the $24 million the city has paid the company to date.

So far, the city has also spent about $465,000 on legal fees, which includes mediation efforts with Apollo. However, those legal costs will rise if the case goes to trial.

Depending on the outcome of lawsuit, Bend taxpayers may also be footing the bill to finish 15 percent of the project that hasn’t been completed.

This time, the construction project will be overseen by more strict city procedures, in part because of dealings with the sewer treatment plant project, said Hickmann. Several city policies were changed in response to problems on the project, he said.

For example, the city now tries to stay away from hiring outside engineering firms to work as construction managers on projects they’ve designed, said Hickmann. Meanwhile, the city also made its request for proposal process more stringent, he said. Additionally, the city plans to avoid low-bid contract awarding — which is how Apollo was awarded the construction contract — in the future, Hickmann said.

“We certainly didn’t want to end up where we’ve ended up,” said Hickmann. “We did everything we could that we could think of in bringing outside expertise to help guide us to get the project on its rails and keep it there. And despite all that effort, we weren’t successful.”