Remember: The city has not authorized interceptor funding
- Roger Hennagin
- Lake Oswego Review - Opinion
One of the more important lessons that history teaches us is the fact that misperception and misunderstanding, if unchecked, can coalesce into a common belief system that lacks a factual foundation. For this reason I concluded that I should respond to Larry Cartwright's letter in the Aug. 7 Review on behalf of city staff and the council.
Number one, city council has not authorized spending $100 million on the sewer interceptor project. To date we have authorized expenditures for the engineering and design portions of the project and for the technical expertise that we needed to complete that portion of the project. Authorizing the future issuance of revenue bonds to fund the project does not mean that all of the money will be spent or that all of the bonds will necessarily be issued.
The $100 million figure that has been used is merely a rough estimate of the range that the final cost is expected to approximate. In fact, city staff and the council have worked tirelessly and continually in order to ensure that the project is constructed of sufficient quality to endure for the foreseeable future for the least cost that can reasonably be achieved. That is the reason that negotiations with Barnard Construction of Bozeman, Mont., broke down. Barnard desired a contract with a guaranteed profit for themselves plus the ability to increase their profit through their own unilateral negotiations with their subcontractors and/or implementation of other cost-savings measures. City staff recommended that the city negotiate a guaranteed maximum price contract where the city would receive the benefit of competitive bidding and price negotiations with the subcontractors. We were unable to overcome this impasse. It appears that Barnard may have adopted their position based upon the fact that they were the only bidder for the design and engineering phase of the project. They may have believed that this gave them a lock on obtaining the contract for the construction phase of the project.
City council, on the other hand, believed that the flagging economy increased the possibility that other contractors would bid for the construction phase of the project and that the bidding would be more competitive than it has been in the immediate past. Our belief was buttressed by bids we recently received for a storm water drainage project. We received 18 bids on that project, 17 of which were less than our city engineer's estimate of the anticipated cost for the project. The winning bidder submitted a bid that was slightly more than 50 percent of the city engineer's cost estimate. On previous construction projects that I have encountered during my 18 months as a city councilor the majority of bids we have received have been at or above the city engineer's estimate of project costs. This may reflect a willingness by contractors to reduce their profit margins.
Barnard Construction did establish a flat fee for constructing the interceptor sewer. The fee they quoted would have resulted in a total project price approximating $120 million. City staff and city council believe that we can achieve better pricing by delaying the project and opening the construction phase to competitive bidding.
Also, it should be noted that city council decided to finance the project with revenue bonds which can be issued as the money is needed for the project. This means that the citizens of Lake Oswego will not be paying interest on the funds before the money is spent as they would have been if the project were funded by government obligation bonds in which case all of the money would be borrowed at the beginning of the project.
Having spent five years working for a Fortune 100 company and 28 years litigating on behalf of and against private companies, large and small, I can assure the citizens of Lake Oswego that decisions are being made by staff and council in the same way that they are in the business world - with as much knowledge of the facts as can possibly be obtained at the time. We have a team of engineers from both the public and private sector collecting and analyzing data and providing their collective advice - and we are focused upon achieving a durable product for the best price available.
Roger Hennagin is a member of the Lake Oswego City Council.