Council sends cost overrun issues to committee

City Council members approved an additional expenditure last week of a little more than $91,000 for the construction contract for restoration of infrastructure along lower Shoal Creek to Lady Bird Lake. The total budget of that project was $1,217,366 to repair erosion along the shoreline of the peninsula, restore native plants and limestone boulders and to stabilize the shoreline.

Council approved the item unanimously, but sent a broader discussion about cost overruns to the Council Audit and Finance Committee, where there could be a lengthy discourse about change orders and exactly how great a change order should be before it comes back to Council for approval. Council Member Sheri Gallo was absent.

Under state law, a municipal public works project may not have an overrun of more than 25 percent. Public Works Director Howard Lazarus explained that there are very few contracts with cost overruns that require Council authorization. Typical overruns are in the range of 5 percent, he said.

Council Member Ellen Troxclair first raised the issue at last week’s work session. Joining her in asking a multitude of questions was Council Member Don Zimmerman.

Lazarus told Council at the work session and again at Thursday’s Council meeting that staff had negotiated in good faith with the contractor, Forsythe Brothers Infrastructure LLC, to pay additional funds for work that was required after the October 2013 floods.

Keri Juarez, assistant director of Austin’s Public Works Department, explained that the lower Shoal Creek extension, a man-made extension into the lake, had been a problem for the Watershed Department for several years. She said the project was unusual because the flood created circumstances that the contractor had to deal with quickly. “We knew it was a high-risk project going into it,” Juarez said.

When the flood occurred, Juarez said, the contractor had just replaced topsoil. “It completely washed away a lot of the contractor’s work,” she said. “So although we anticipate that construction is going to be challenging when you’re working in the floodplain, the weather conditions that we encountered during the project were even more extreme than what we would normally expect.

“And so at times during construction, you have to do things quickly in order to prevent further damage,” Juarez continued. “So, when that topsoil was washed away, and we knew that there were potentially more storm systems coming, we had to put emergency measures in place to stabilize it” and prevent further damage.

The contractor spent the money in 2013 but did not bring the matter to the city until the end of the project, in 2014.

Lazarus said that when such an emergency occurs, one option is to “continue the work to protect the value of what’s been put in place and get an estimate” of what the difference is to take back to Council. Alternatively, he said they could “stop the work entirely and run the risk of losing the value of what’s in place, plus the additional cost for the contractor to keep the people and the equipment on-site until we come back — which can take an extended period of time, or demobilize.”

“So, there are just some projects like this,” Lazarus said, with “prudent people in the field where the best thing to do is to go ahead and protect the city’s interests.”

For his part, Zimmerman analogized the situation with the contractor to a small-business owner who suffers during the flood and then finds it difficult to pay his taxes. Because the city does not forgive taxes in that situation, he said, it also should not be paying the cost overruns caused by the flood. Zimmerman indicated that he would vote against the payment at work session, but voted in favor of it at the Council meeting.

From the tenor of the conversation at both meetings, it seems likely that one of these days, there will be an argument between Zimmerman and Council Member Leslie Pool, with Pool defending city staff.

Pool asked Zimmerman whether he was directing his comments to the staff or to his fellow Council members.

“I guess a little bit of both,” Zimmerman replied. “I think we as a group should take a different position and not allow these things to go forward, because it could set precedent and end up coming back to us over and over again.”

Zimmerman asked Lazarus if referring the matter to the committee would cause potential problems. Lazarus responded that the change order had been “negotiated in good faith with the contractor, and the city has agreed with the changed amounts. Should the Council decide to defer this, the contractor would have the option of filing a claim and pursuing this as a legal matter. That’s up to the Council’s discretion, but I would remind you that the adjustments that have been presented to you have been agreed to in good faith between the city and the contractor.”

Troxclair, who also serves as vice chair of the Audit and Finance Committee, asked staff to provide information on how many projects have cost overruns between 10 percent and 25 percent. She said she also wants to work on the question of whether a cost overrun should come back to Council when it is smaller than this one, and whether those instances can come to Council more quickly. However, she thanked staff for helping to answer her questions and agreed that the city must pay the debt.

Pool and Mayor Pro Tem Kathie Tovo, who chairs the Audit and Finance Committee, both indicated that they might not want to spend too much time on the contract question.