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Talks break down between city, contractor on interceptor project

Work on unique floating sewer pipe has now been postponed

A recap of online coverage at www.lakeoswegoreview.com:

Friday: Subcontractors affiliated with the Lake Oswego Interceptor Sewer project tell the Lake Oswego Review the city has called off talks with the lead contractor and the project will not begin in September.

Monday: Lake Oswego Mayor Judie Hammerstad confirms the breakdown in contract negotiations and announces delays. The Lake Oswego School Board votes to pursue an agreement that would allow the city to stage construction at the Lake Grove Swim Park.

Tuesday: The Lake Oswego City Council votes to sever ties with its contractor and delay the start of construction until fall 2009.

Lake Oswego has severed ties with the construction company set to lead the city's $100 million sewer project, opting to delay construction by as much as a year instead of negotiating a growing impasse over costs.

The Lake Oswego City Council formally ended negotiations with Barnard Construction Co., the Montana-based firm set to lead the project, in a morning meeting Tuesday.

Negotiations with the company broke down in part because of a disagreement about costs, city officials said. Calling off the talks also gives the city added time to secure a construction staging area. Representatives are still in talks with the Lake Oswego School District about use of the Lake Grove Swim Park.

That plan inched forward Monday when members of the school board indicated a willingness to sign an agreement for its use.

But construction on the one-of-a-kind floating sewer pipe, set to begin in September, has been postponed until fall 2009.

The pipe, called the Lake Oswego Interceptor Sewer, will carry effluent from the west side of the city east through Oswego Lake to a treatment plant on the Willamette River. It would serve more than two-thirds of the buildings and homes in Lake Oswego and replaces an aging and undersized pipe now on pilings in Oswego Lake.

The pipe is vulnerable to an earthquake and prolonged rains have caused it to back up, prompting the Oregon Department of Environmental Quality to fine the city and mandate its replacement.

Construction of the interceptor sewer was set to begin after Labor Day and, for the last eight months, the city appeared on track to begin the work a full year ahead of the Oct. 1, 2009 deadline mandated by the Oregon Department of Environmental Quality.

Lake Oswego officials chose Barnard Construction Co. to lead the project in November 2007 after the company submitted the only proposal for the job.

Barnard was one of three companies that responded to Lake Oswego's request for proposals, advertised in Portland, Seattle and on the Internet. After two firms opted not to submit proposals, Barnard became the sole candidate for the work.

Delaying start of the work

For the past eight months, city representatives have worked with Barnard on final designs for the interceptor sewer, now 70 percent complete. They have recently been steeped in negotiations with the company, aiming to parlay their design contract with Barnard into a construction contract that would lead to a start on in-water portions of the interceptor sewer this fall.

As the general contractor on the project, Barnard would have supervised the construction work, much of which would be done by subcontractors.

Late last week, representatives of two subcontractors potentially in line for work - Advanced American Construction Inc. and Crux Subsurface Inc. - told the Lake Oswego Review that the project was off. The story broke on the newspaper's Web site Friday afternoon.

In interviews, representatives of both companies said they were part of an early team established by Barnard and were set to perform in-water work related to the project, such as fusing pipes and drilling the interceptor sewer's underwater anchoring system on the floor of Oswego Lake.

They said Lake Oswego had discontinued talks with Barnard and that the city would be crafting a new plan for how to move ahead with the job, which could include waiting up to a year to begin construction and shifting work to a new contractor.

Lake Oswego Mayor Judie Hammerstad Sunday confirmed construction on the sewer interceptor would not go forward in September as planned. She said other sewer work, such as the replacement of small sewer lines that connect to the interceptor sewer in the area of Oswego Canal, would continue.

Joel Komarek, the city's lead engineer on the interceptor sewer project, said negotiations became bogged down in a disagreement about the markup Barnard would charge for work performed by other contractors and the prices Lake Oswego would pay for equipment.

He said Barnard asked for a markup of 16.25 percent on work performed by subcontractors, a markup of 16.25 percent on their own work and sought 100 percent of the rental rates recommended by the Oregon Blue Book for use of construction equipment already owned by the company. Barnard also sought 100 percent of the rental rates recommended by the Oregon Blue Book for rented construction equipment, even if the company obtained use of the machinery for a lower rental rate.

Komarek said negotiations reached an impasse when the city would only agree to an 8 percent markup on subcontractor work, aimed to restrict some profit on rented construction equipment and would pay only 95 percent of Blue Book rates for use of machinery owned by Barnard.

'If we look at just the markup on the subcontractor work going from 16.25 percent to 8 (percent), there was a difference of $4 to $5 million,' said Komarek.

He said the city also disagreed with Barnard's apparent intent to issue subcontracts to Advanced American Construction and Crux Subsurface without competitive bidding.

Attempts to reach Joe Nelson, vice president of Barnard, were unsuccessful.

Hammerstad said while the city was happy with the design work performed by Barnard to date, 'I think we're also doing the right thing in bidding it out.'

'The council and staff are attempting to make very deliberate decisions that we feel are in the best interest of our city and of our ratepayers,' she said.

Lake Oswego is now poised to complete design work on the interceptor sewer by November and current plans call for the construction work to be put out to bid. Pre-qualification for potential contractors could begin as early as February, according to Komarek.

Looking for certainty

How the city moves forward will hinge on whether it can successfully negotiate access to Oswego Lake for the work. While the Lake Oswego Corporation has already agreed to allow construction work on the lakefront portion of the Lake Grove Swim Park, which is owned by the Lake Corp, the city is still in talks with Lake Oswego School District about building a road through the park to carry materials to the water.

Though the city has been in talks with the school district about a construction easement since spring 2007, shareholders in the swim park were generally unaware that the park could be used for construction and would be at least partially closed through the 2009 recreational season. Several park users have threatened litigation.

The school board decided to push forward in talks with the city Monday and will aim for a construction schedule that holds the park open for swimmers and park users several days a week. The board also wants guarantees that construction teams can protect the park's Douglas fir trees and keep the area safe.

Hammerstad said the delay in construction would now allow the city up to a year to work through the access issue and address concerns by park users before litigation halts the job.

'I'm feeling optimistic about slowing it down so we can solve some of the issues that are before us,' she said.

She said the city benefits by creating more certainty around the project before construction begins.

City officials were aiming to begin construction on the sewer interceptor after Labor Day, in part to get an early start. The schedule allowed crews to complete portions of the in-water work in time to refill the lake for summer recreation in 2009.

Both Komarek and Hammerstad now say the delays should not translate into higher costs for the city. The $7 million already paid for design work has produced permanent designs that remain in the city's ownership despite the breakdown in negotiations with Barnard.

'You develop these working relationships and the hope is you transition into a construction phase and you maintain those relationships,' Komarek said.

But he said the city loses little other than time in the switch. He expects increases in the cost of construction materials but said the city could still purchase some material this fall and that material costs may be offset by a favorable contracting climate. As Oregon weathers tough economic times, more firms compete for work at lower prices, he said.

William 'Skip' O'Neill, president of the Lake Oswego Corporation, said any delay in construction should not affect lake users.

'Our agreement with the city is that we would not lose summer boating activity on the lake. If they delay, all they would be doing would be pushing out what activities you might see on the lake' to a later date, he said.

Hammerstad confirmed the lake would remain open for recreation during summer months.