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City eyes change in awarding contracts

Proposed change could lower construction costs of municipal projects

Posted: Friday, July 18, 2003

Juneau Assembly members will soon consider putting a charter change on the ballot that would allow the city to authorize alternative processes for awarding construction bids.

The proposed change is aimed at lowering the high cost of city construction projects, such as renovation of schools and the city-owned hospital.

"It allows the Assembly on a case-by-case basis to approve how projects get delivered," said Rod Wilson, the city's project manager for Bartlett Regional Hospital's renovation and expansion project. "The hospital will be the very first one they look at."

The Assembly will likely take public comment on the subject at its next meeting, scheduled for 7 p.m. July 28 in Assembly chambers.

Under city law, construction projects are awarded in a "design-bid-build" method. Projects are designed first, the city advertises for contractors and contractors deliver sealed bids to the city. The charter requires that the city award the contract to the lowest bidder. A general contractor then oversees the project and hires subcontractors.

With the charter change, the city could consider a number of procurement methods instead of just one. Wilson has been pushing for a method called a "construction manager with a guaranteed maximum price." Under this method a construction management firm would act as an intermediary between the city and the subcontractors, handling the design and making recommendations for design changes to accommodate cost overruns. Though there could be some unexpected changes in the project, the construction management firm would be expected to deliver the project for the set price.

"The construction manager has expertise in value engineering - going back in and looking at the existing design and saying, 'If we change this out, we would save X dollars off the construction,' " Wilson said. "Sometimes those changes have an impact on how the building performs ... the owner either accepts or rejects those changes."

The construction manager method would be a good solution for Bartlett Regional Hospital's renovation and expansion project, Wilson said. While four contractors prequalified to bid on the project, only one bid came back and it was $11 million over the hospital's $29.7 million construction budget.

Called Project 2005, the project would provide new space for the emergency and imaging departments, intensive and critical care, obstetrics, mental health and mechanical departments. It also would renovate the chemotherapy suite, cardiac rehabilitation, respiratory therapy, sleep lab and central registration areas. Voters approved a 1 percent sales tax to fund the work in 2000.

One of the problems of the city's procurement procedure where a general contractor oversees the project is that over recent years smaller, local subcontractors have been required to pay higher premiums for larger bonds. Many subcontractors are too small to acquire the necessary bonding.

In construction projects, subcontractors must buy performance and payment bonds to cover costs of labor and materials in the case that they default on their contract. Many local subcontractors are too small to acquire the necessary bonding. Contractors then have to look for larger subcontractors outside Juneau. Bringing people in from elsewhere raises project costs.

The construction manager method would make it easier for some smaller local subcontractors to bond.

"In the scenario with a construction manager, they are very big construction companies and they put up the bonding themselves with their own assets, it's up to them to make the decisions," Wilson said.

Assembly members have asked for more information on the charter change. Member Randy Wanamaker was cautious about endorsing the idea.

"I am afraid that if you give up control of a project in order to meet your budget target, this project would go through enough change it no longer meets the description and criteria of the bonding language the voters approved," Wanamaker said.

Assembly member Jim Powell was supportive of the change.

"Basically this helps us to ensure we get the best bang for our buck," Powell said. " I think it allows us to hire locally still and it makes more sense out of the bidding procedure."

• Julia O'Malley can be reached at jomalley@juneauempire.com.



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