Big cost overrun on drainage, road project

Councilman Dobbie: 'If they screw up, they should pay for it.'

By Renee Batti

Almanac News Editor

A project to fix drainage and roadway problems in an area of Atherton crossed the finish line with a price tag that's 83 percent over the projected cost, thanks to some $768,000 in change orders.

While the project has been officially accepted by the Atherton City Council, council members have made it clear: They will not accept most of the additional costs without a fight.

The project to fix drainage and roadway problems in the area of Fletcher Drive and Ridgeview Drive was begun in mid-2010. The town budgeted $922,055 for the project, with a 10 percent contingency of $92,205 for unforeseen problems that could legitimately boost the original projected cost. The final cost came in at about $1.69 million.

Mike Kashiwagi, the town's interim public works director, told the council at its Jan. 18 meeting that the staff's analysis of the cost overruns indicates that, while some added costs were the results of legitimate factors that aren't unusual for such projects, numerous other extra costs resulted from "design errors and omissions" on the part of the design contractor.

"If they screw up, they should pay for it," said Councilman Jim Dobbie, adding that he wants the town to "go after" the firm responsible for the overruns.

The council approved the official "notice of completion" so that the main contractor, Gallagher and Burk, can be paid, but City Attorney Bill Conners said that engineering firm Wilsey and Ham, the project's design contractor, has been put "on notice that they should talk to their insurance carrier because this (the cost overruns) is a very serious matter."

He noted that Gallagher and Burk "didn't do anything wrong that we can ascertain" and that the town's gripe is with the engineering firm.

The first change order for $140,300 was brought before the council in September 2010, followed by $305,108 in April 2011. The council was asked to approve a third change order of $322,483 at the Jan. 18 meeting as part of signing off on the project.

Mr. Conners explained that accepting the project is necessary to claim damages, which the town is poised to do.

In a report to the council, Mr. Kashiwagi wrote that the town sent a letter to Wilsey and Ham in June, "notifying them that due to the type and amount of change orders, the Town would immediately begin investigating the cause and damages to the Town resulting from what we believed to be design errors and omissions."

In November, after the town's investigation, staff met with Wilsey and Ham representatives to review the town's analysis of the change orders, Mr. Kashiwagi wrote.

Mr. Kashiwagi said last week that the engineering firm had not yet responded to that analysis.


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Posted by Interested
a resident of Atherton: West Atherton
on Feb 9, 2012 at 5:19 pm

It's about time that all those involved in the building industry, whether it's architectural firms, engineering firms, contractors or inspectors, be held accountable for mistakes that cause clients to be hit with massive change orders, overruns, poor functionality, and lousy workmanship

I'll be very interested to see how this all turns out.

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Posted by Menlo Voter
a resident of Menlo Park: other
on Feb 9, 2012 at 6:54 pm


change orders in this type of construction generally come about because of unknown conditions. Since they are working in the ground and they don't have x-ray vision there is no way to anticipate much of what drives these change orders.

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Posted by Remembering When
a resident of another community
on Feb 9, 2012 at 7:08 pm

Decades ago, Wilsey and Ham were a leading architectural/engineering firm in the new town of Foster City. They engineered and built a big new building which dominated the "downtown" for several years. That is, until it began to tip and sink from faulty engineering. Jokes were made about Foster City "sinking into the Bay" in those early years but only one building actually did begin to do so. Needless to say, that building is long gone now. But the reputation of its owners lives on to those of us who remember. Is this episode in Atherton simply history repeating itself for Wilsey and Ham?

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Posted by Robert D.
a resident of Menlo Park: other
on Feb 10, 2012 at 12:31 pm

If you have ever bid on government contracts (and I have)one thing you build in with school districts and towns is "I can bid under my cost to win the contract in with the full understanding they will make so many change orders I will make more than enough profit on this deal" It is the ugly side of business, and anyone who has run any business (from a finance perspective) gets that there is always an ugly side - generally just not shared...
To my point a few weeks back to Peter C., this is why we do not use our complete and/or real name on the web site so we can be candid - otherwise it would all be generic
So, do I think the over-runs are way out of the park, yep. Do I think they have a settlement number which makes their profit in mind, yep... So we they settle for less and council "high-5's" on their reduce settlement, do not be fooled - everyone won, just like the excel spreadsheet some finance guy from the bidding team predicted.

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Posted by Menlo Voter
a resident of Menlo Park: other
on Feb 10, 2012 at 1:23 pm

Unfortunately when it comes to hard bidding projects, especially public works projects Robert D is correct. I too have bid public works projects. The plans are almost always incomplete. Existing conditions are almost always not as reported and the client alomost always makes changes. Those things all amount to change orders and when possible the contractor is going try to recover income he left on the table when he bid and won the job. There is a better way - cost plus contracts. In that scenario the contractor gets a fair profit and the owner and contractor work together to keep costs under control. And it's open book. The owner sees all actual costs.

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Posted by Interested
a resident of Atherton: West Atherton
on Feb 10, 2012 at 2:14 pm

Menlo Voter: With cost plus contracts, there still is no incentive for the contractor to keep costs down. To the contrary, if the contractor is earning a fixed percentage mark-up on the cost, the higher the cost, the greater their profit.

Additionally, in a cost-plus relationship, it's to the benefit of the subs and the contractor, who typically have close relationships with each other, to keep costs high. Sure the contractor can show the client paperwork with costs on them, but there's nothing in place to insure those costs are reasonable.

If you can refute the above, I'd love to hear your reasoning.

Like this comment
Posted by Interested
a resident of Atherton: West Atherton
on Feb 13, 2012 at 4:39 pm

Robert D:

What do you think about Cost Plus bids?

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Posted by Menlo Voter
a resident of Menlo Park: other
on Feb 13, 2012 at 6:59 pm


in a typical cost plus arrangement, multiple bids are taken from a variety of subcontractors so good pricing can be confirmed. The GC and Owner can work in concert to achieve fair pricing for the Owner. The fact is that a cost plus agreement makes the contractor a team memeber with the owner. A fixed price agreement makes it an adversarial arrangement in which the contractor is going to go in low and do everyhting he can to increase his bottom line.

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