Cedar Rapids awards $348 million contract for Water Pollution Control Facility improvements

CEDAR RAPIDS — City of Cedar Rapids officials are exploring options to reduce the cost of its $348.3 million project to improve the Water Pollution Control Facility after the City Council on Tuesday awarded a construction contract exceeding initial cost estimates by about $70 million.

Undeterred by the increased cost, the nine-member council unanimously backed the project to pursue improvements to the facility located at 7525 Bertram Rd. SE near the Cedar River. The improvements will enhance the facility’s capacity to treat wastewater — a draw for economic development — and curb its environmental impact with new technologies.

Council members said it was best to stay the course and voted to award the construction contract to Indianapolis-based Bowen Engineering Corp. Inflation has driven up other costs of public projects, and they feared delays would likely spike costs for this project. They also considered it crucial to improve the aging infrastructure before incurring hefty maintenance costs.

The facility was built in the late 1970s and became operational in 1980. It serves an area with a population of about 190,000, including Cedar Rapids as well as Marion, Hiawatha, Robins, Palo and part of Linn County. Because the city treats high-strength waste, Utilities Director Roy Hesemann has said the facility treats the population equivalent of about 1.9 million people.

Cedar Rapids bid the improvements in June with initial engineer’s cost estimates of $277.5 million, plus a $5 million allowance. Staff received two bids:

Under state law, the city must accept the “lowest responsive, responsible bidder” or the council could reject the bids and try again.

The improvements will incorporate new processes that Hesemann said will reduce greenhouse gas emissions, which increase the earth’s surface temperatures and fuel climate change.

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The project will install anaerobic digesters and biogas cleaning and compression systems, as well as new aerobic granular sludge treatment tanks.

Biogas is a renewable energy source generated from raw materials including agricultural and municipal waste.

Work on the improvements is slated to begin in September and wrap up in January 2029.

Why the bids came in high

Utilities Department staff and consultants spoke with Bowen Engineering Corp. officials to understand the disparities in cost estimates.

Council documents state that some interested general contractors indicated they were not bidding on the project because of local labor market conditions. With a limited labor pool, prospective general contractors anticipated increased costs of labor associated with importing workers or competing for the local workforce.

To qualify for the tax credit under the federal Inflation Reduction Act, projects must be initiated by the end of 2024. This has prompted several biomass to biogas projects being bid throughout the country, driving up demand for gas equipment and resulting in extended delivery times and higher equipment pricing.

As other Midwestern cities pursue similar large projects, Hesemann said contractors capable of doing such projects have been inundated with work.

“There is a legitimate concern about a local labor shortage” with the number of other construction projects in the region, he told the council.

Plus, having limited bidders — in this case only two — typically results in a higher bid price, according to council documents.

How will the improvements be funded?

The city plans to use a mix of sources to fund the project. That includes federal grants and tax credits intended to combat climate change, and the city hopes to claim another $15 to $16 million in federal tax credits that are part of the Democrat-backed Inflation Reduction Act passed in 2022.

Finance Director Abhi Deshpande said Cedar Rapids has $36.7 million cash in hand to use toward the project, while $318.7 million would be covered by issuing new debt.

For the portion of the project cost not covered by federal funds, Cedar Rapids will rely on a 20- to 30-year loan through the State Revolving Fund.

The city has been increasing rates for consumers in recent years in anticipation of having to pay for the upgrades, Hesemann has said.

In fiscal 2024, the rate was set at $43.93 for 7,500 gallons per month. The fiscal 2025 rates that took effect July 1 increased to $47.88.

The planned improvements also may generate new revenue.

Anaerobic digestion facilities included in the project will allow for better generation of biogas from all waste entering the plant. Once captured, Hesemann has said the biogas will be scrubbed and injected into MidAmerican Energy’s natural gas pipeline off-site. The city will sell the renewable natural gas to MidAmerican at a contracted price, receiving the revenue from the gas and any renewable energy credits based on the open market.

How will Cedar Rapids address increased costs?

To reduce costs or make up the cost difference, Hesemann told The Gazette city staff are working with the contractor and consultants.

Asked if the city would consider hiking utility rates more than planned to support the increased costs, Hesemann said “we are looking at rates as we move forward” in consultation with financial advisers and city Finance Department staff.

Historically, he said rate increases have varied over the years — some as small as 2-3 percent, while other years may see rate increases closer to 10 percent. Any rate bumps would fall “within our historical rate increase structure,” Hesemann said. Staff are not currently exploring double-digit rate increases.

Options being explored include changing the piping material used in the project or making structural changes in the buildings or facilities, Hesemann said.

Some structures could be removed from the initial project and the city could revisit any removed items later — for instance, potentially delaying construction of smaller pieces that local contractors could complete.

Staff ultimately recommended accepting the bid to comply with requirements for grants that are needed to fund the project.

“The Utilities Department continues to pursue grant funds for this project that could reduce the total out of pocket costs to the city, but these grants will not be awarded for several months,” according to council documents. “Some of these grants also have time constraints that require a significant amount of the construction to be completed” by Dec. 31.

Council says infrastructure investment needed

Council member Tyler Olson said such investments are necessary for a growing city with a strong economy and industrial base. He said ratepayers would favor a “deliberate” approach of proactively improving the facility instead of paying for emergency repairs that would potentially cause rates to spike more and disrupt operations.

“You need to invest in the infrastructure that’s going to power that future,” Olson said.

Council member Scott Olson said the city already has seen inflation drive up costs of flood control construction, pushing the price tag of permanent flood protection closer to $1 billion — up from the initially estimated $750 million.

Facing workforce limitations and the reality that few contractors specialize in this type of project, he said “the chances of us finding new faces to bid is probably going to be difficult.”

Comments: (319) 398-8494; marissa.payne@thegazette.com