August 5, 2014

Merced rethinking construction project contingency policy

Merced City Council voted to give the city manager approval over 10 percent of a $3 million construction job in Merced, a departure from the usual 25 percent. One councilman said he would like to see the smaller number become common practice, though city staff said it could hold up certain jobs.

The city’s top administrator will have final say over additional funding for a $3 million construction project for Merced, a decision that could set a precedent for future city projects.

Merced City Council directed staff during its regular meeting to allow additional funds, or “change orders,” of 10 percent or less to be approved by the city manager, a departure from the normal 25 percent threshold.

The discussion centered on a $3 million contract to build a laboratory at the Merced Wastewater Treatment Plant, which was awarded to BMY Construction Group Inc. of Fresno.

Change orders are used to deal with unforeseen costs in a construction project, and could cause delays if brought to the council for approval.

The project will already require about $450,000 for contingency costs, according to city records. The average construction project in Merced spends between 5 percent and 8 percent on contingency costs, according to John Sagin, the city’s senior architect.

Councilman Mike Murphy said the size of the additional cost of the project makes the city’s oversight particularly important, but the lower threshold for the city manager to sign off on those added funds would likely make for better policy. “I’d like to see that going forward, not just on this project,” he said.

The 10 percent threshold would allow change orders of up to $300,000 to be approved without council’s input, as opposed to the $750,000 that would have been allowed under the 25 percent rule.

Murphy said the council could call emergency meetings to handle particularly urgent project approvals to avoid delays.

City Attorney Greg Diaz said having contractors hold off on their work when they run across an unforeseen problem could lead to “public inconvenience” problems. The city could be on the hook to pay contractors whose work is delayed while waiting to hear from City Council.

“If that becomes a council policy on things like road projects, you’ll end up with roads being closed a lot longer,” he said.

City Manager John Bramble said putting a City Council meeting together could take as long as 72 hours, leaving some projects stranded during that time. He asked the council to discuss the change further with city staff.

Under the Brown Act, meeting agendas and announcements require a 72-hour notification period. Special meetings require at least 24 hours.

The council did not place a change to the policy on a meeting agenda. Mayor Stan Thurston said it will be discussed at a future meeting.

The new laboratory at the treatment plant will be built on the site of an older one, city staff said, so the soil there will need treatment.

The work to be done includes constructing a new, one-story laboratory building, including all plumbing, electrical, utility connections, laboratory equipment, and interior and exterior finishes.

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