School cost hike not a major construction crisis My turn

Posted: Sunday, December 02, 2007

The recent publicized cost increase for Thunder Mountain High School does not represent a major construction crisis. As with every city construction contract, there is a completion date specified: Aug. 1, 2008. Additionally, there are daily damages for not completing the project on time: $5,000 per day after Aug. 1, with an increase to $10,000 per day after Aug. 25.

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Similar to other contracts, this contract balances risks between the city and Coogan Construction Co. Increased risk equals increased cost. A risk assigned to Coogan was to construct this building within two years of Juneau's normal weather. However, the contract defines a threshold for extreme weather that the contractor could not have reasonably assumed during preparation of the bid. If the city assigned all risk for extreme events to the contractor, a reasonable business person would increase his bid price to cover any worst-case scenario, including extra costs to account for paying the daily damages described above. If none of those events occurred, the city would pay unnecessary costs in the original bid.

The contract identified a 50-year weather threshold. Below that threshold, Coogan is responsible to keep on schedule. Above that threshold, the city assumes the risk of delay and costs associated with those events. Last winter, there were several 50-year weather records for snowfall and temperature. Some of these records were daily extremes, and as most will remember Juneau had the highest snowfall ever recorded.

This settlement paid Coogan $200,000 for extra costs associated with last winter's extremes, such as snowplowing, loss of efficiency, etc. Although Coogan estimated on July 10 that it had costs more than $1 million and had lost about 60 days in its schedule due to extreme weather, the settlement kept the Aug. 1, 2008, completion date. Coogan has assumed considerable risk by agreeing to make up lost time: Significant overtime hours are required, extra people are working, daily damages loom. Furthermore, the city required the costs of getting back on schedule tied to performance. The $500,000 of potential payment to Coogan declines to $425,000 after Aug. 11, 2008, and $375,000 after Sept. 1, in addition to the $5,000 or $10,000 liquidated damages. Coogan has not only accepted a large risk, but has thankfully offered to achieve the city's major goal of getting this school opened for the upcoming school year.

In all construction projects, we anticipate project changes and budget for a "construction contingency." The costs do not come from another bond election or the Juneau School District's budget for staff, books and materials. All construction projects change as they proceed, and increased costs are common to the business. There is no perfect project. With current change orders, the city may pay an additional 3 percent above the original contract amount of $46,970,000. A percentage increase of this scale would be reasonable for any size project.

Although the city and Coogan staff provided excellent analysis and advice during the negotiations, as director, the city's responsibility for this settlement rests with me. I do not take this responsibility lightly. I would gladly discuss this settlement with anyone. Neither party was completely satisfied with the outcome; however, the issue is settled. The issue did not descend into a costly and lengthy legal quagmire in which, predictably, costs would be much greater and the outcome far from certain.

Juneau's discussion on high school(s) has been ongoing for more than a decade. After the 1998 failed vote for one large high school at Dimond Park, Juneau voters approved a two high school concept in the following election. The educational consultant hired to formulate this concept forewarned: "Going from one high school to two is the most gut-wrenching experience a community will ever undertake."

There are still issues to overcome, however, I am confident that Juneau's students, teachers, citizens and guests will ultimately appreciate all of the potential this new facility will offer to this community.

• Roger Healy is Juneau's engineering director.

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