MEMORANDUM 08-44

To: Walt Wrede, City Manager

From: Carey Meyer, Public Works Director

Date: March 18, 2008

Subject: Homer Water Treatment Plant Improvement Project

Construction Contract Award Recommendations

The City opened bids for this project on March 6. Two bids were received:

Bid Amount

Udelhoven Oilfield System Services, Inc. $8,639,359

Alaska Mechanical, Inc. $9,793,000

Engineer’s Estimate $7,672,000

The lowest responsive bid is 12.6% above the engineer’s estimate.

The City’s options are 1) reject all bids and rebid current project, 2) redesign project to significantly reduce price and rebid, 3) identify ways to reduce price, find reasonable alternative funding sources, and award with alternative funding at a lower cost.

Rebidding the current project would allow additional contractors to bid the project. There were three other interested prime contractors that could not put a bid together because they could not get a bid from any mechanical subcontractors. Rebidding does not guaranty that more bidders will participate or that the existing bidders will continue to participate. There is no guaranty that rebidding will result in lower bids, rebidding could result in higher bids.

Scaling down the project to bring the price closer to the engineer’s estimate would require significant revisions. Important components of the project would most probably need to be sacrificed. A scaled-down project would not provide the City with a practical and long-lasting water treatment plant.solution. Postponing the project could impact the City’s ability to continue to meet the new more stringent drinking water quality regulations.

The project budget did include a contingency. Some of this contingency could be used to cover the additional cost. Some efficiencies can be implemented to reduce budgeted inspection costs to help meet the higher cost of construction. Some portions of the construction project normally would be completed using funds from the depreciation and reserve accounts. Paying for the removal of sludge from the existing lagoons out of the reserve account would be a reasonable method of funding the

additional cost and eliminating the need to borrow money to complete work normally paid for by depreciation finds. Modifications to the bid documents reducing risk and removing non-essential components has reduced the cost of the project to an 8.7% increase over the engineer’s estimate. Discussions continue to formally establish cost savings.

Recommendations:

The City Council approve the award of the bid in the amount of $8,339,359 ($300,000 less than low bid) to the firm of Udelhoven Oilfield System Services, Inc. Authorize City Manager to issue notice of intent to award.

The City Council revise the project budget as follows:

Current Budget Revised Budget

City Admin./Support Contracts $ 250,865 $ 250,864

Design $ 842,645 $ 842,645

Construction $ 7,672,848 $ 8,339,359

Treatment Equipment $ 1,500,000 $ 1,500,000

Inspection $ 650,000 $ 550,000

Contingency (5%) $ 458,642 $ 308,642

Funds from Reserve Account $ 0 $ 275,000

Total Project Budget $ 11,375,000 $ 12,066,510

Funding for the project is anticipated as follows:

City Portion State Portion Total

ADEC FY 06 Grant $ 144,000 $ 336,000 $ 480,000

ADEC FY 07 Grant $ 1,036,000 $ 1,036,000 $ 2,072,000

ADEC FY 08 Grant $ 1,300,000 $ 1,300,000 $ 2,600,000

ADEC FY 09 Grant $ 1,200,000 $ 1,200,000 $ 2,400,000

ACWF Loan $ 4,320,000 $ 0 $ 4,320,000

Reserve Account Funds $ 275,000 $ 0 $ 275,000

$ 8,275,000* $ 3,872,000 $ 12,147,000

* - $8,000,000 ADEC loan at 1.5% over 20 years (currently authorized by the Council) plus $275,000 from reserve account.