Government

Contract overruns common but closely watched in Cedar Rapids

A worker with Boomerang Corp. drives a scraper across land as construction of the Rockhurst Drive SW Regional Detention Basin continues in southwest Cedar Rapids, Iowa on Wednesday, Dec. 19, 2018. (Jim Slosiarek/The Gazette)
A worker with Boomerang Corp. drives a scraper across land as construction of the Rockhurst Drive SW Regional Detention Basin continues in southwest Cedar Rapids, Iowa on Wednesday, Dec. 19, 2018. (Jim Slosiarek/The Gazette)
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CEDAR RAPIDS — The city of Cedar Rapids has spent more than $4 million on change orders — or work added or removed from the original quote — for construction projects since 2015, according to data provided by the city.

Sometimes changes are at the request of the client. Other times the contractor. Sometimes they increase the price. Other times they reduce it.

The amount represents a 2 percent increase above the $164 million originally awarded for 254 contracts for sewer repairs, asbestos removal, utility work, paving and other municipal jobs, bringing the total investment to $168 million. This is within industry standards, said Scott Olson, a City Council member with a background as an architect and commercial broker.

“The record we saw, we are well within the national standards of what we’d consider an acceptable range of change orders,” Olson said.

City officials have been reviewing change order data, which is one of the more asked about and misunderstood practices they deal with, and presenting the information to City Council members, several of whom are new this year, they said.

The city is bound by state law to award contracts to the lowest responsive bidder.

Nate Kampman, city engineer, said people at times think contractors under bid to win a contract with plans to make up the difference through change orders or in other ways use change orders to inflate their fee, but that rarely happens, and measures are in place to guard against it.

Change orders are routine and occur on virtually every project, he said. The city builds a 10 percent contingency into project budgets anticipating changes.

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The largest change order amount since 2015 was $1 million for a Czech Village utility relocation project near 16th Avenue SW. A $3.2 million contract with Rathje Construction of Marion increased 34 percent to $4.3 million because of changes to the underground alignment of the sewer. This was done to save money and time on the next phase of the project. They also added an intersection to avoid multiple closures of the intersection, according to city data.

The largest change order relative to the project cost was a 155 percent increase for sanitary sewer point repairs in 2017. In that case, the $90,411 contract awarded to Borst Brothers Construction of Marion increased to $230,633 because “damage was far greater than originally thought,” according to city data.

Changes to the project scope are one of the most common types of change orders, Kampman said. Material substitutions, unforeseen site conditions, particularly underground, and errors or omission in contract documents also are common reasons.

“It’s just like remodeling an older house,” said Chuck Finnegan, president of LL Pelling, a North Liberty-based paving company. “You don’t know what you’ve got until you get in there.”

Since 2015, Pelling has won 11 city contracts worth $9 million, making it one of the most prolific city contractors.

The company seal-coated roads in Bever Park, rehabilitated pavement on Third Avenue SW and made a parking lot outside Veterans Memorial Stadium comply with the Americans with Disabilities Act.

Change orders increased the Bever Park project by 47 percent from $149,262 to $218,995 because the road became more damaged after the design was completed. Discovery of underground vaults while doing water main work on Third Avenue SW caused an 11 percent increase in costs from $1.3 million to $1.4 million.

On the other hand, the Veterans Memorial project had change orders to reduce the budget by 5 percent from $120,393 to $114,957. Overall, LL Pelling had $829,050 in change orders since 2015.

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Quantity changes for materials, requests for additional work and unexpected underground conditions, such as poor soil quality, are common causes for work order changes, Finnegan said.

Change orders can result in increases or decreases in cost.

Of the 254 projects since 2015, 109 had increases totaling $9 million while 90 had decreases totaling $5 million — resulting in a net increase of $4 million, according to city data. Projects still underway did not have pricing information.

Justin Holland, the city’s construction engineering manager, cited examples of why costs can come down — design engineers may overestimate the work, an anticipated obstacle doesn’t materialize, fewer materials may be needed, or a more efficient way may be discovered to complete the job.

Rick Fosse, a professor of practice, civil and environmental engineering at the University of Iowa, said change orders generally scale down proportionally as a project gets larger. For example, a $50 million project typically shouldn’t see more than a 5 percent increase from change orders, an $1 million project could see a 5 to 10 percent increase, and an $100,000 project could reasonably see 10 percent or more in cost increases from change orders.

“Small projects tend to be higher than large projects,” he said.

Holland said he gets asked if certain contractors are more prone to seek change orders. He said it is relative to how many contracts they have.

For example, Rathje has had the most city contracts since 2015 — 41 contracts worth $29 million — and also saw the greatest increase in project costs from change orders — $1.6 million above the original contracts, according to city data.

Boomerang Corp., of Anamosa, has four active city projects, including building a regional detention basin on Rockhurst Drive SW, plus another 17 projects worth $10 million under a previous name, Ricklefs Excavating, and has seen cost increases of $491,677.

“We’d have change orders on a project no matter who the contractor is,” Holland said.

The city has protocols in place to ensure change orders are needed and to vet the amounts, he said.

Materials have set unit prices and everything is measured, he said.

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After a change order is requested, cost and schedule impact is documented with justification, it’s signed by the city construction staff and the contractor, and then must get approval from the contract administrator, construction manager, city engineer, contracts manager, city manager and City Council regardless of how large or small.

“If they came to us and say, ‘Oh, we didn’t have enough money in this item,’ that’s not something we just say, ‘Oh, we’ll just give you a change order,” Kampman said. “These changes are true changes to the project. It’s not them making up what they left out of the bid.”

l Comments: (319) 398-8310; brian.morelli@thegazette.com

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