May 2014

The risk of cost overruns on the new bridge was hidden. Is the same thing happening with sewage treatment plans?

APRIL WAS A DANGEROUS MONTH for two local megaprojects and their political backers. City of Victoria Mayor Dean Fortin’s claim of a “fixed price” contract with the builder of the new Johnson Street Bridge turned out to be little more than a mayoral misunderstanding. That project’s acknowledged price is now almost certain to top $100 million and construction will likely run well into 2016.

In the same week, CRD politicians’ attempt to ram a regional sewage treatment plant down the throat of the smallest municipality involved in the scheme proved to be an expensive political miscalculation. Esquimalt Council voted unanimously to push the project out of the municipality, and provincial Environment Minister Mary Polak made it clear she wouldn’t interfere on behalf of the CRD.

Both projects claimed to address problems for which there was little or no evidence of immediate danger to the public. Instead, the compulsion to get shovels in the ground in both cases came from claims—never verified—that supportive funding from upper levels of government could disappear. In that atmosphere of a looming deadline, proper planning and thorough consideration of alternative solutions were abandoned and financial risks hidden. The fear most Victorians have now is that the projects have dubious merits yet will add dearly to their annual household costs.

Let’s start with the bridge and examine closely the source of the mayor’s confusion. There is a cautionary tale therein, one that  backers of the centralized sewage treatment project might want to digest slowly before attempting to restart their unpopular program in the middle of an election year.

This image of work on the new JSB bridge was taken in China in March 2014. It suggests that, at the time the photo was taken, this critical aspect of the project was about 10 months behind schedule.

TO UNDERSTAND THE ORIGINS of Mayor Fortin’s misunderstanding about the nature of the contract he signed with the bridge’s builder, I’ll replay a series of critical events that took place in 2012. Our understanding of what happened behind closed doors at City Hall as these events unfolded is made possible by the excellent hindsight provided by provisions of the Freedom of Information and Protection of Privacy Act.  

You might recall that councillors had first approved replacing the current bridge in April 2009 when the price of a new “signature” bridge—complete with on-street bicycle lanes, three lanes for vehicular traffic, a railway track and separate pedestrian/cycling amenities—was estimated at $40 million. This price rose within days to $63 million; the company that did the estimate left out a lane-width of bridge. A year later—in a “Class C” cost estimate—a bridge without rail on it was pegged at $77 million.

In March 2012, however, City staff announced the price to build a new bridge had risen to $92.8 million. 

This last jump in the estimate was accompanied by a major reconceptualization of the one-of-a-kind bridge’s physical configuration. If you’ve been following the sewage treatment project’s twisted history, this reconceptualization of the new bridge was the equivalent of going from a three-plant distributed system to a single centralized plant at McLoughlin Point—it was a fundamental change that should have triggered alarm bells in the minds of Victoria councillors.

Alarm bells didn’t sound because neither City staff nor the City’s project manager MMM Group told councillors that the project had undergone a fundamental rethink. Councillors weren’t told that engineering challenges had been encountered with the unique design, or that only partly-worked-out conceptual solutions to those problems had been found.

Instead, a March 2012 staff report urged councillors to commit to a form of procurement (“Design-Assist”) that would quickly secure a contractor to build the bridge. The report stated, “This [course of action] secures the contractor as soon as possible and allows the contractor to plan and execute the installation of coffer dams prior to the close of the next fisheries work window on February 15, 2013. This is required to accommodate the in-water construction of bridge foundations in order to maintain project schedule.”

Councillors had long been warned by City staff that if project schedule wasn’t maintained, federal funding would be jeopardized. To ensure construction began as soon as the winter fisheries window opened, staff were saying, in effect, a bridge builder needed to be ready to go by December of that year. The need for committing to immediate action and making irrevocable decisions was tied to preserving federal funding.

So without realizing that the bridge design was still at a conceptual level, and accepting City’s staff’s admonition that they had to move quickly, councillors agreed to enter into a procurement process.

By May 2012 three construction firms (PCL Constructors Westcoast, Kiewit Infrastructure,  Walsh Construction) had been short-listed to submit bid proposals. The City’s RFP stipulated that proposals must include “a fixed price for the complete performance of all of the Contractor’s obligations under the Contract.”

The RFP also stipulated that proponents would provide an “Indicative Price” based on MMM’s design, which it now claimed was at “60 percent” completion even though it was simply a concept.

The first indication to City staff that the project was in trouble—aside from the aforementioned doubling of the cost estimate over a two-year period—was when all three proponents said they couldn’t build MMM’s design for the City’s $66 million budget for construction. (Other costs, including MMM’s project management fee, brought the total estimate to $92.8 million.)

Undaunted, City staff proceeded to the next phase of the procurement process: “collaborative” meetings with the proponents. Senior City staff records of those meetings, obtained by FOI, show that all three companies expressed strong reservations about MMM’s conceptual design; all three proposed “optimizations” that would change every aspect of MMM’s design; only the basic shape of the bridge originally proposed by Wilkinson Eyre architect Sebastien Ricard was left more or less intact.

The need to extensively reconsider MMM’s design delayed the RFP process and the closing date for final bids was extended by two and a half months. The previously pressing need to have a contract signed by the end of November so as to “maintain project schedule” vanished.

On November 1, 2012 the City received three bids, the details of which were shared with only four or five of City Hall’s most senior managers. Each of the bids produced significantly different proposals on how to create a bridge that looked like the one in MMM’s design. Two bids were much higher, price-wise, than the City’s “affordability ceiling,” and all three bids completely reconfigured the mechanical scheme for making the bridge lift. Kiewit Infrastructure’s engineers said, “unknowns and/or unexpected costs” of MMM’s “unconventional design” would “conflict with the City’s mandate to remain near or below the indicated Affordability Ceiling.” Kiewit added that MMM’s design “may represent a fundamentally high risk and expensive design approach.” They advised the City to abandon MMM’s “rolling wheel” concept in favour of a bridge that rotated on bearings fixed at the centre of the big wheels. They might as well have said, “Why reinvent the wheel?”

In their critical review PCL noted that MMM’s design “was heavily imbalanced” in the open position and that “the level of imbalance…is greater than was used for the design of the span drive machinery.”

PCL also noted: “The support  machinery… was considered to present a significant unknown in terms of the performance of the bridge when deformations were taken into account. The tolerances specified…are impossibly tight, and were viewed to be impossible to maintain after erection of the bascule span.”

Overall, very little of MMM’s design was left unchanged. Ironically, two of the bids included construction schemes that would eliminate the need for the coffer dam that had been used months earlier to rush councillors into the procurement phase.

In PCL’s bid proposal every single element of the bridge had changed in shape, the material it would be made from, or both of those.

Although PCL’s bid was within the City’s affordability ceiling, the risk to City taxpayers was high. PCL’s bid might have been low-balled to ensure it became the preferred proponent. Once it was in that position, PCL could then negotiate a contract with City officials in which a higher cost could be hidden, possibly by mutual agreement, in the details of the contract. That this was a real risk was underlined by the fact that the other two bids proposed radically different mechanical concepts and put the cost of building the bridge much higher than PCL’s suspiciously low bid. Only a small circle of senior City managers were aware of the details of the bids.

This was the most critical moment in the project’s 4-year life. City staff and the project’s political backers no doubt would have preferred all of these concerns to remain hidden; for the project to fail at that moment would have hurt political careers—particularly the mayor’s—and marred the professional reputations of these highly-paid, ambitious bureaucrats. Should they go public with details of the bids? Or should they keep it all hidden and try to negotiate a contract with PCL?

When I wrote about this in Focus’ March edition I wasn’t able to say whether City councillors had been warned by City staff about this risky situation. Had the warnings of PCL, Kiewit and Walsh been communicated to councillors? After all, the City was going to pay $75,000 to each unsuccessful proponent participating in the bid process, mainly for providing a critical review of MMM’s design and suggesting ways to improve it. Given the drastic nature of the changes all three companies were proposing—and the fact that two of the bids were far above what the City said it could afford—wasn’t the costly and independent advice of the engineering teams exactly the kind of information City staff should have shared with councillors? Did they?

Hold that question in your mind a minute as we consider something else that happened before City staff told councillors about the bids: Six days after receiving the three bid proposals and their stinging critiques of MMM’s flawed design, Mayor Fortin signed MMM to a new $9.1-million contract to project manage and redesign the bridge. That’s right. Almost as soon as City engineers learned how badly they had been served by MMM’s project management and engineering services, they signed MMM up for more of the same.

So did City engineers inform councillors of what was in the engineering reviews of MMM’s design?

They did not. The staff report delivered to councillors at a November 16, 2012 in camera meeting, and the minutes of that meeting, including the questions asked by councillors and the answers provided by engineering staff, were recently obtained from the City’s FOI office. That staff report shows that none of the warnings from PCL, Kiewit or Walsh, nor the actual bid amounts from Kiewit or Walsh, were provided to councillors. The minutes also show that none of the councillors asked about any aspect of the Kiewit or Walsh bids. (Download the staff report and minutes as well as the individual proposals from the menu at the end of the article)

The staff report shows that City staff told councillors PCL’s bid was $63.4 million and “The other two proposals also offered optimizations, but their prices were above the City Affordability Ceiling, and therefore include significant risk that it would not be possible to reach an acceptable agreement with these other proponents.” Yet City staff mentioned none of the numerous risks pointed out by PCL, Kiewit and Walsh.

The City had said going into the RFP that their $66 million affordability ceiling included a “ten percent” contingency. PCL’s proposal left only a four percent contingency. When asked about this at the meeting, the minutes note that councillors were told: “Arriving at a design built with a five percent contingency is normal...This is a unique project, [so] that is why the contingency is different.”

Even though City staff knew the design level was, at that point, less than 60 percent because of all the proposed changes in the bridge’s design, they led councillors to believe a “five percent” contingency was normal, and at the same time it was “different” because of the one-of-a-kind design. Shouldn’t it have been higher? American bridge engineer Ed Wortman recently told Focus, “The $2.8 million contingency allowance seems too low for the design at the 60 percent level. This amount would be reasonable for 100 percent final design but not for an incomplete design.”

Especially noteworthy is that the staff report told councillors: “It was also important to note that the proposal from PCL had no proposed amendments to the draft construction contract.” This appears to be a significant misrepresentation. PCL’s proposal actually stated, “In keeping with the collaborative intent of the RFP, PCL is proposing a modified contract.” After outlining its understanding of the design and price negotiations that the draft contract would set up, PCL’s bid proposal then stated, “PCL is proposing a subtle deviation to this process where...” which is followed by a big blank space in the copy of the proposal provided to Focus. The modification to the contract PCL proposed was redacted by the City on the basis that disclosure would be harmful to PCL’s business interests.

On the recommendation of senior City staff who signed the report, all but one councillor (Ben Isitt) voted to proceed with negotiations with PCL. Forty-five days later, the City had signed a contract with PCL to build a bridge for a “fixed price” even though the design was little more than conceptual.

The contract Mayor Fortin signed, and that all councillors—except Ben Isitt and Lisa Helps—approved on December 31, 2012, has a provision in it that allows PCL to submit a “Claim for Change.” On March 17 of this year PCL submitted a claim for $7.9 million based on, according to the City’s Director of Engineering Dwayne Kalynchuk, “design delay” and “scope growth.”

Given that the design of the bridge—a structure that various engineers have described as very complex—had been knocked back to a conceptual level during the RFP process, the mayor ought not be surprised that “design delay” has occurred. Perhaps he isn’t.

As for “scope growth,” one example of a significant material change in the bridge that took place since the contract was signed has been documented by Focus over the last several months. In its proposal, PCL envisioned a simple interface between the 1700-tonne bascule leaf and the rollers that support that weight. But the interface that was eventually chosen is vastly more complex and expensive than PCL envisioned, and now includes the use of 4000 gallons of epoxy grout.

Such a design change would have been executed by the engineering company designing the bascule leaf (Hardesty & Hanover), but, under the terms of PCL’s contract, the change had to first be approved by MMM Group, who have overall responsibility for design.

The City has stated that MMM will provide “advice on the merits of PCL’s request,” but one thing is already clear: fabrication of the critical bascule leaf in China only got started in March 2014, approximately 10 months behind the schedule outlined by the City and MMM in March 2013.

A local expert on contracts and procurement—who requested anonymity because of dealings with the City and/or engineering companies involved in the project—said an overrun of $7.9 million so early in the construction schedule was the mark of a project that is “financially doomed.”

The expert said that a fixed price contract shouldn’t have been entertained by the City until the design was at “85 percent.”

The contract expert called Mayor Fortin’s claim that the City has a fixed price contract and doesn’t expect to pay the $7.9 million “disingenuous,” and said, “A ‘fixed price’ contract is not a ‘fixed price’ anymore if the project scope or schedule materially changes.”

Should the mayor expect MMM to reject PCL’s claim? The expert told Focus, “It’s the fox in the henhouse with MMM reviewing the claim—especially when they could be potentially at fault.”

The $7.9 million additional cost will push the project’s publicly-acknowledged price to $100.1 million.

Mayor Fortin and his engineering department staff appear to have taken the advice of former San Francisco Mayor Willie Brown. Interviewed about a $300 million cost overrun on a train terminal being built in San Francisco, Brown famously said, “We always knew the initial estimate was way under the real cost. If people knew the real cost from the start, nothing would ever get approved. The idea is to get going. Start digging a hole and make it so big there’s no alternative to coming up with the money to fill it in.”

ACROSS CENTENNIAL SQUARE from Victoria City Hall, the CRD has been busily digging such a hole for over a year: In March 2013 the CRD secretly purchased a site on Viewfield Road for $17 million on the chance it could be used as the site for an anaerobic digester as part of its purported “$782.7 million” secondary sewage treatment program. In May 2013 the commission appointed to oversee implementation of the program issued an RFP to design and build a plant at McLoughlin Point in Esquimalt, and by June had short-listed three teams of engineering and construction firms. The successful bid was expected to be announced “in the spring of 2014.” The commission then hired Albert Sweetnam as program director at a salary of $290,000 a year, including a $290,000 bonus if Sweetnam completes his five-year contract. In September, construction began on the first component of the program—the $11.5 million Craigflower Pump Station. In November a contract was awarded to design another component, the estimated $9.5 million Arbutus Road Attenuation Tank. In March of this year Acumen Communications Group were awarded a $1.5 million contract to supply communications services and Millennia Research signed a $600,000 deal to provide assistance in case human remains are uncovered during excavation work. Stantec, the engineering consultants, have an existing contract that will see them paid close to $40 million for “program consultant services” to 2018. By the end of 2013 the CRD had spent $65.4 million developing the program.

That’s a big hole.

All these expenditures were approved by a majority of CRD directors even though a final agreement to rezone McLoughlin Point was not in place. On April 7 Esquimalt Council voted unanimously to reject the CRD’s rezoning application. Whoops.

Esquimalt Council votes unanimously to reject a rezoning application that would have permitted a sewage treatment plant at McLouglin Point

Asked if she would intervene, provincial Environment Minister Mary Polak told CBC Radio, “I am not inclined to intervene in a matter that is ultimately, and should ultimately be a local decision… No provincial government should take lightly the idea of interfering when it comes to something that is legitimately within the bounds of a local government… I certainly will review whatever request is made of us and I will look forward to seeing what the CRD presents.”

On April 10, CRD Chair Alastair Bryson wrote to Polak and outlined what the CRD saw as its only options: It could “proceed in defiance of the bylaw,” abandon sewage treatment altogether (which, Bryson said, would place CRD “directors, officers and employees…in personal jeopardy of prosecution”), or find a replacement for the McLoughlin Point site, which “would necessitate re-negotiation of the funding agreements with senior governments. With a multi-year delay and significant uncertainty about when such a process would conclude, critical dates in the agreements could not be met.”

Bryson asked Polak to initiate “a Cabinet Order to suspend the operation of those provisions of the existing Zoning Bylaw…to allow this important project to proceed to construction.”

At the time Focus went to press, there had been no public response to the CRD from Polak.

Will the Minister take the CRD’s list of its options seriously? Attempting to build a sewage treatment plant without a building permit would set an interesting precedent; who else might follow the CRD’s example? Costco? Bryson’s worrying out loud about being prosecuted is dramatic, but federal regulations won’t come into effect locally until 2020. Bryson and his fellow directors don’t know for certain they’ll still be directors following this November’s civic elections, let alone in 2020.

The CRD’s real play in its letter to Polak is the threat of losing contributory funding from the provincial and federal governments, an argument aimed not so much at Polak as it is at other civic politicians thinking of standing up in support of Esquimalt’s position. As we saw earlier in this story, this is the same argument as used by City of Victoria staff to press their political enablers forward to a premature contract to build the Johnson Street Bridge. 

In his letter to Polak, Bryson left out a fourth option available to the CRD, the one Esquimalt’s Mayor Barb Desjardins supports, which she has called “a better plan.”

If Polak doesn’t intervene in favour of the CRD’s McLoughlin Point plan, the CRD will be forced to consider a different plan. Since the CRD has said itself that no other viable site for a central plant exists in the CRD, the only option would appear to be to distribute treatment amongst participating municipalities. Colwood has already chosen this option.

The CRD’s argument against distributed treatment is that it already considered that option and determined that it would cost “$2 billion.”  On the other hand, the CRD are still saying that a $783 million estimate for the plan with a treatment plant at McLoughlin Point is still valid, even though it was done in 2010.

Richard Atwell, a member of Sewage Treatment Action Group (STAG) and one of the developers of the “RITE Plan,” has found what appears to be a serious flaw in the CRD’s estimates: They’ve been cherry-picking cost estimates from two different studies.

A 2007 study by Associated Engineering, CH2MHill and Kerr Wood Leidal determined that a 110-million-litres-per-day central plant at Macaulay Point would cost $572 million. A 2009 study by the same companies estimated that a 10-plant distributed system would cost $1.85 billion.

In 2009 a third study for the CRD by Stantec and Brown & Caldwell put the cost of a 108-million-litres-per-day plant at McLoughlin Point at $210 million, far less than the 2007 study. The centralized plants in both studies had virtually the same capacity.

Atwell points out that when the CRD uses “$783 million,” that estimate depends on the $210 million estimate for the centralized plant. On the other hand, as Atwell notes, the CRD’s estimate of “$2 billion” for the distributed system comes from the Associated Engineering study. If the CRD is going to uses Associated Engineering's “$2 billion” for a distributed system, why don’t they use Associated Engineering's $572 million for the centralized plant?

Moreover, Atwell has determined that the 2009 Associated Engineering study put the cost of individual small plants in a distributed system at about 2.3 times the cost of a similar-sized (8 million litres per day) tertiary treatment plant in Blaine, Washington, completed in 2010.

Atwell also argues the CRD’s claims about the amount of land distributed plants would require is similarly flawed. In its 2009 study, the footprint such a plant would require was estimated by Associated Engineering to be 1.5 acres. Atwell says that’s three times the area the plant in Blaine uses. The plant in Blaine, which has the physical resemblance of a marina-restaurant-retail-shopping complex, was designed by Brown & Caldwell. That’s the same Brown & Caldwell who participated in the 2009 Stantec study on a centralized system. Atwell questions why the CRD didn’t ask Brown & Caldwell to provide estimates for a distributed tertiary system.

Atwell says “the CRD’s figures are totally unreliable for estimating the cost of a decentralized sewage treatment system.” He has created a video presentation of this information: www.sewagefacts.ca.

If the CRD’s estimate for a decentralized system seems fishy, is its 2010 estimate for a centralized system reliable? The estimate was performed by Stantec at the same time that company did a peer review of the $77 million cost estimate for a new Johnson Street Bridge. Stantec judged the bridge estimate to be “reasonable” even though it didn’t include, for example, anything for “approvals and permits.” At the time Stantec did that peer review “approvals and permits” had already cost the project $320,000. That sum had been paid to…Stantec.

At the very least, Stantec’s 2010 centralized system estimate ought to be adjusted for inflation and for the $38 million the CRD has said would likely be needed for a biosolids incinerator. With those adjustments, the estimate becomes $885.5 million.

The lesson from the bridge project is that nobody’s figures can be relied upon and that financial risks to taxpayers will be hidden. Early on in that issue, Victoria City Councillor Geoff Young tried to get fellow councillors to seriously consider repairing the existing bridge; that would have required doing a cost estimate based on practical considerations about how to get the most life out of what the City  already owned. His fellow councillors refused to follow Young’s practical suggestion and instead insisted on a cost estimate that would justify a decision they had already made.

Mayor Desjardins, Richard Atwell, STAG and many others are now asking Young to support doing an updated cost estimate for a distributed tertiary treatment system in which the burden of hosting treatment is both physically and politically shared. Given the way the bridge project has unfolded, you would think that Young, the chair of the CRD’s sewage committee, would want to support that.

David Broadland is the publisher of Focus Magazine.