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“Cost overruns” for WTP 4 subject of management emails

Tuesday, June 12, 2012 by Michael Kanin

A series of emails between City of Austin management and the director of the Austin Water Utility show the utility knew about potential “cost overruns” with its controversial $508 million Water Treatment Plant 4 and informed management about them as early as last December – news that raises questions from at least one Austin City Council Member about why City Manager Marc Ott didn’t know about the situation earlier.


On May 23, Assistant City Manager Rudy Garza wrote an email to utility director Greg Meszaros that he “previously briefed (City Manager) Marc (Ott) that we would be coming for a budget amendment.” Garza, who recently retired, then pointed to a list of items he discussed with Assistant City Manager Robert Goode as part of a reorganization of city management staff last December. The utility has said that it plans to come before Council for more funding for the plant. The email referenced “amendment in July” dealing with the plant among the items on the list.


In Fact Daily obtained the emails via a public information request last week.


Meszaros revealed the potential construction cost issues sometime after noon on May 23 at a meeting of the Council’s Audit and Finance Committee. He told Council members that, though he still expects the plant to come in close to the $508 million cost budgeted, a set of issues may force the utility to ask Council for more money. (See In Fact Daily, May 24, 2012.)


Garza’s email to Meszaros was sent just before 1pm that same day. It was part of an email exchange between city executives that reveals concern about Meszaros’ presentation. The sequence appears to have started with an email city Department of Public Works head Howard Lazarus sent at roughly 4:30pm the previous day.


On May 22, Lazarus sent an email to Ott “at the request of…Goode and in collaboration with…Meszaros.” It informed the City Manager of Meszaros’ intent to tell Audit and Finance Committee members he planned to ask for “an increase in the MWH contract amount from the current $359M to $385.6M.”

MWH was contracted by the utility to manage construction of the plant.


Ott responded at almost 9pm that evening: “Guys, this is concerning to me,” he wrote. “I know it’s not a lot of money but I understood that we would not need to go back to Council for additional authorization. Howard/Robert, please see me before the committee meeting.”


City of Austin spokesperson Samantha Park said that this was the first that Ott had heard of the potential budget problem.


At 7:30am the next day, a few hours before Meszaros’ presentation, Goode responded to Ott:  “Rudy told me about this many months ago … this was evidently projected for quite some time,” he wrote. “He told me that bottom line we should be ok, it’s really a cash flow issue.  Not sure why he didn’t talk to you about it.”


Meszaros had formally told Goode about the issue in a May 16 email. “Robert, I am working with the WTP4 project team to prepare a transaction to take to Council to increase our MWH construction contract authorization to account for anticipated cost of work, allowances and contingencies,” Meszaros wrote. “Our working estimate is an increase in the MWH agreement from $359M to $380.6M. This increase in authorization plus our estimate for soft costs ($144.7M) brings the total for WTP4 to $526M.


“Embedded in this amount is approximately $24M in allowances and contingencies,” he continued. “We do not anticipate the need to use all of this amount and our expectation is that the final project cost will be near our original $508M budget.”  


However, it seems from Garza’s email that Goode probably knew about the situation in December. Garza’s email further implies that Ott had heard about the budget issues before May 22. Garza announced his retirement in April. His last official day was June 1.


Council Member Bill Spelman, who serves on the Council’s Audit and Finance Committee, told In Fact Daily that he has seen the emails. He wondered, if Meszaros, Garza and Goode all knew about the issue, then “why the devil didn’t the City Manager?”


“I am very disappointed that whoever made the call, didn’t make the right call,” Spelman added, further noting that “keeping it a secret until the last possible moment” was not the best approach.


“(We) needed to have a longer conversation about this,” Spelman concluded. He further noted that it appears as though “(Meszaros) was prohibited from doing what his good instincts were telling him to do.”


Mayor Pro Tem Sheryl Cole continued to express her worry about the situation Monday afternoon. Cole, who chairs the Council’s Audit and Finance Committee, noted that the May 23 briefing was the first that Council members had “learned of any potential cost overruns.”


“This information was highly alarming and we are now intent on identifying opportunities to lower costs in the project to avoid an overrun of the overall project budget,” she said in an email.


Water utility spokesperson Jason Hill maintains that the plant remains on target. “This is not an overrun,” he told In Fact Daily. “We are looking at ways to deal with contingencies and cash flow. At the end of the day, the project is on budget and on time,” Hill said.

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