Council questions water plant hike
- Published: March 17, 2016
Could the Village recoup some of the money it paid to HNTB, the company hired for initial designs of the new water plant, given that HNTB’s estimate of the plant cost turned out to be grossly inaccurate?
Council members considered that question at their March 7 meeting, while revisiting a discussion on why the current estimated cost of the new plant is about double the cost originally cited when Council began considering building a new plant five years ago.
The plant’s current estimate is about $7.2 million for the construction, which Village Manager Bates said could ultimately go up or down. That amount is $2 million higher than the HNTB estimate of $5.2 million made last year. Documents presented to Council five years ago by Artesian of Pioneer, when Council first began considering building a new plant, estimated the cost at $3.8 million.
At the March 7 meeting, Council approved a resolution that authorizes Bates to enter into a contract with Shook Construction to begin construction of the plant this summer.
Council is using the design/build process for the plant construction, and according to state regulations for the design/build process, had to hire a criteria engineering firm to complete the first 30 percent of the plant’s design. Last year the Village hired HNTB, paying the company almost $450,000 for its design and consulting services.
In response to the question of whether the Village could recoup some of that cost due to the inaccurate estimate, Bates said the contract with HNTB specifies the Village could only do so if the company was found to be negligent in a way that harmed the Village. While the inaccurate estimate was unfortunate, she did not believe it constituted negligence. Village Solicitor Chris Conard seconded Bates’ assessment, stating the Village doesn’t have legal grounds to recoup the loss.
Still, Council member Judith Hempfling questioned whether Council might have made a different decision regarding constructing the new plant had it known the final cost was so high.
“In that sense, there was harm done,” she said.
According to a written report by Bates, the inaccurate figure was the responsibility of the HNTB estimator, who inaccurately estimated the cost of equipment and installation, site work, concrete and piping. Part of the problem is that the estimator only used a single source of pricing, rather than several sources.
“You never use a single source,” Council member Gerry Simms said. “That’s just poor estimating.”
A member of the committee that worked on the water plant process, Simms said committee members had not seen the data HNTB used to make its estimate.
The Village has communicated to HNTB its displeasure with the cost mistake, Bates stated in a written report to Council.
“This has been strongly addressed with HNTB,” she wrote.
Other factors contributed to the discrepency between the original estimate presented to Council and the current estimate, Bates said. First, five years have passed, and the 2011 Artesian of Pioneer estimate took place during the recession, when prices were lower. Also, the $3.8 million figure covered only a “package plant,” which is a pre-packaged unit that would not have met the specific needs of the Village, including pellet softening, which the new plant will include.
“All of these factors worked together to increase the price significantly,” Bates wrote.
Also, the $7.2 million estimate, which Bates said the Village staff negotiated down from the Shook firm’s opening offer of $10 million, is not the guaranteed maximum price, or GMP. That price will be negotiated in August. In a previous conversation, Bates stated that prices often go down when using the design/build process, because the original estimate is made with only 30 percent of the design complete, but it could also go up.
“As I noted previously to Council, this is how this process works, where you continue to negotiate final price as the design progresses,” she wrote.
Village staff is comfortable that the $7.2 million estimate is close to market price, because both of the two final construction firms made estimates that were very similar, according to Bates.
The rising cost for the water plant is one factor that contributed to Council’s decision at the end of last year to significantly raise water rates for villagers. Beginning this year, water rates will go up 30 percent per year for the next three years, to almost double the current rate, and sewer rates will increase by 15 percent for four years, to a total of a 60 percent increase. The new water rates are expected to cover the cost of the water plant, along with several other anticipated water projects, Bates said at the meeting. Council at the meeting also approved a resolution that authorizes the Village taking out a 30-year loan from the Ohio Water Development Authority for the new plant.
See the March 17 News for other March 7 Council agenda items.