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Home My WebLink About09/12/2006 Adjourned Meeting / Study Session 169 ADJOURNED MEETING /STUDY SESSION SEPTEMBER 12, 2006 - 8 :00 A.M. - 9 :30 A.M. COUNCIL CHAMBERS - YAKIMA CITY HALL 1. Roll CaII Present: Council: Mayor Pro Tem Neil McClure presiding, Council Members Ron Bonlender, Micah Cawley, Norm Johnson, Bill Lover, and Susan Whitman Staff: Assistant City Manager Zabell, City Attorney Paolella and City Clerk Moore Absent: Dave Edler (excused) 2. Study Session regarding Construction and Commodity Pricing Assistant City Manager Zabell said this study session is to obtain information as a result of many bids coming in above what was budgeted. One of the difficulties with projects, is we budget for a concept. The design is developed, yet the construction doesn't start until a year or more later. Construction inflation is increasing so rapidly it is impossible to predict costs during the design phase. Sue Ownby, Purchasing Manager, gave a Power Point presentation. Simply stated, the unprecedented price increases are driven by the sharp rise in the cost of fuel and construction materials. Because of budget shortfalls, we have used our reserves and our REET funds. We have reduced the scope on some projects and have had to consider deferring others. External factors are: Crude oil prices are up China represents 32% of world's total supply Supply and demand Hurricane Katrina caused the loss of 27% of the nation's crude oil and 13% of our national refining capacity Refinery problems in Alaska 9/11 and Iraq - $487 billion going to that effort Economic Expansion Inflation Transportation — large tires are at a short supply, costs going up Insurance costs Health Care Costs rising twice as fast as inflation OSHA, WSHA, EPA and new emissions controls • 170 ADJOURNED MEETING SEPTEMBER 12, 2006 Mrs. Ownby related a recent local contractor's experience with the remodel of Fire Station 92: Concrete up 75% Gravel up 33% Roofing up 45% Drywall up 80 %. There have been many commodity increases over the last two years, e.g. fluoride, paper products, fuel, asphalt, water meters, etc. These have to be justified by the supplier prior to accepting the increase. Mr. Zabell said the City's action plan includes: timing of bid advertisements; special . outreach efforts (advertising, calling prospective bidders); bundling; flexible start dates; bid additive alternatives; adjusting the project scope, and canceling when costs exceed resources or benefits. 3. Audience comments Joe Morrier, 403 Yakima Avenue, verified the facts in the presentation. His Hilton Garden project was 24% over projection. The construction business has been very busy and getting jobs completed on time has been difficult. Much of the pricing elements are out of our control. Barbara Kline, Traho Architects, commented from an architect's perspective. Cost estimates need to be reviewed more than once. She spoke in favor of additive bid alternates and recommended allowing enough time for good decision making when developing a project schedule. Ms. Kline said architects from the community are more likely to have the pulse of our neighborhood. There was extensive discussion on the bids for the Fire Station 92 project. Council Member Bonlender was questioning the 28% increase in a three -month time frame. He asked to see the details that reflect the cause of that increase. Council Member Lover asked Ms. Kline if peer reviews would be accepted. She responded that a thorough and detailed decision - making process with a competent design professional eliminates the need for one. If all the goals are on the table, the budget is set according to the goals in the designing stage, the expectations are clear, and the fundamental decisions are made up front, it is unlikely that something will be unearthed that hasn't already been reviewed. Council Member Lover disagreed saying that he has almost always found a savings. Don Whitehouse, Washington State Department of Transportation, said they track the construction cost index. They saw an inflation rate of 1.5% throughout the 1990's. In 2000 it was 12 %. The latest numbers for the first six months of 2006, are up 31% over the same bid prices last year. This is from tracking six major materials, asphalt being the biggest but also concrete and gravel. They also track the number of bidders on contracts because competition is key. They are seeing that number decrease. Contractors have to price the risk. If an estimate is done in May and the bids are opened in August, the contractor has to estimate what 2 171 ADJOURNED MEETING SEPTEMBER 12, 2006 asphalt is going to cost him in May of next year. The question is, how can we reduce the risk? Because we want more bidders, we talk about risk allocation. For example, can we give the contractor more time in order to change the risk? Another major point Mr. Whitehouse brought up was communication. They call their contractors and ask them about the bidding environment, talk about staging, the procurement of materials, and try to design the project to get the best bidding. Assistant City Manager Zabell related efforts the City expended to remove the risk on the Dial -A -Ride contract. Vern Redifer, Public Services Director for Yakima County, also spoke,about the risk element. In projects that are scheduled to take more than a few months, somebody is going to have to assume the risk on the cost of the commodities. Typically, we have placed all that on the contractor. The County is looking at ways of alleviating some of the risk for the contractors believing they can ultimately gain better pricing in the long run by assuming some of that risk. He noted that they are not going to significantly affect the cost of materials and the cost of standard labor, so they have to find other methods within their control to keep costs as low as possible. Those methods would be providing contractors with flexibility as to when they start, on completion dates, and assuming some of the risk. They typically go through a constructability review and have some local contractors review the projects to determine whether it has good sequencing of events to give the opportunity to use labor forces and equipment efficiently. He also discussed sharing the downside of a project, stockpiling commodities, opportunities for economy of scale, and regionally purchasing or bundling projects. Ken Ormbreck, Traho Architects, said the contractors are 'scared to bid with what is going on with commodity pricing and pad their bids. In the budget, they add 10 -15% for inflation to create a healthy contingency. They also try to define the work as much as possible in the beginning. He explained their estimating process, suggested increasing the number of cost estimates during the design phase and then estimating it one more time right before bidding. He highly recommended not trying to reduce the cost of the design phase as they could end up getting poor estimates because they can't do the job necessary. Lois Wardell, Wardell Architects, described how estimating is done in their office. They have hired independent consultants for estimating, but always do an in -house estimate as well. She cautioned, if someone decided they wanted an independent estimate, they would still need to work closely with the local architect to have a feeling for the bidding climate and actual on -site conditions. Sherry Brockway, Brockway - Opfter -Raab Architecture, (the architect for the fire station project) explained how they did their estimates. They verified costs with local subcontractors before the project was bid. All estimators are corning in over budget now because no one seems able to keep up with the radical changes in cost. They have tried pre- bidding items that they know they will be using and getting them in stock at today's prices. 3 172 ADJOURNED MEETING SEPTEMBER 12, 2006 4. Adjournment LOVER MOVED AND JOHNSON SECONDED TO ADJOURN TO SEPTEMBER 13, 2006 AT 7:00 P.M. AT THE SOUTHEAST COMMUNITY CENTER, 1211 SOUTH 7 STREET, FOR AN INFORMATIONAL PUBLIC FORUM ON "YAKIMA'S SAFE COMMUNITY ACTION PLAN ". The motion carried by unanimous voice vote.,Edler absent. The meeting adjourned at 98:40 a.m. READ AND CERTIFIED ACCURATE BY �// 4,4� aG i2 °7 ' •UNCIL MEMBER DATE 11)1,40, Q v 06,0-67 (1 COUNCIL MEMBER DATE ATTEST: V("61 I CITY CLERK NEIL MCCLURE, MAYOR PRO Tail Minutes prepared by Linda Watkins. An audio and video tape of this meeting are available in the City Clerk's Office • 1 4