Tower of troubles: Acclaimed UI Children's Hospital emerges from blown budgets and deadlines

Contractors and auditors assail 'fast track' process that's still in dispute today

July 9, 2018 | 1:32 pm
The University of Iowa Stead Family Children's Hospital is seen from Kinnick Stadium in Iowa City on Friday, Apr. 21, 2017. (Stephen Mally/The Gazette)
Chapter 1:

IOWA CITY — With another year of construction left on a gleaming new children’s hospital, University of Iowa Health Care executives ordered a contractor to make a change: These manual doors for the lobby library, theater, pharmacy and other areas just won’t do.

But swapping them out for the desired Swiss-made automatic sliding doors also meant changes to the structure around the openings and, of course, the budget.

The new doors would up the price three quarters of a million dollars, bringing the total to $873,121. The structural changes added $89,000.

By the time the Iowa Board of Regents approved the extra charges, in May 2016, the planned grand opening was less than a half a year away.

So the university spent more — nearly a quarter million more — to rush the order, even though the UI knew the opening date was a long shot, if not impossible.

And yet, on July 25, 2016, UI project manager Jason Miller wrote in an email, “We agree to the acceleration costs.”

The extra $239,116 included 698 worker hours to expedite production and delivery of the doors, which flew from Switzerland to California on three planes. Then the doors made the journey by truck to Iowa City, with drivers taking turns through the night to get them here on time.

But just days before the UI planned to show off its new hospital to the public, the executives handed down a new directive: never mind.

The UI postponed much of the rushed installation until after its public tours, saying it got a certificate of occupancy anyway. But the delay meant crews would be called back to town later, at yet more expense.

The swap increased the cost of the doors from $122,080 to roughly $1.2 million. Although a small portion of the overall UI Stead Family Children’s Hospital budget, it hardly was an isolated incident. In fact, a Gazette investigation has found, it was emblematic of thousands of other changes propelled by an ill-advised construction method that drove up the price, blew deadlines and left contractors and the university ensnared in a web of accusations and a fight over tens of millions of dollars that continues today — more than a year after the hospital took in its first young patients.

In a December 2015 internal memo obtained by The Gazette, hospital construction manager Gilbane Building Company described not a team working together toward a goal but a corrosive environment of “false accusations, slander of our reputation, perverse and unprofessional behavior and language” and verbal abuse and threats.

The company said it was the “first time we have ever seen” a building project lacking even one set of documents showing what all the contractors were to do.

“This should never be done again because there is too much risk,” the Gilbane memo said.

All the while, the Board of Regents approved budget increase after budget increase for the project with little to no public discussion or tough questions — even after a scolding audit.

Iowa Hawkeyes fans wave Sept. 16, 2017, to patients in the University of Iowa Stead Family Children’s Hospital at the end of the first quarter of the football game against the North Texas Mean Green at Kinnick Stadium. (Jim Slosiarek/The Gazette)
Chapter 2:

CHILDREN'S HOSPITAL WIDELY ACCLAIMED

The 14-floor, 563,250-square-foot project opened seven floors and moved in its first patients on Feb. 25, 2017, a year and a half late.

 

Then the university opened its Level 12, featuring a acclaimed “press box” for patients and families to enjoy a bird’s-eye view of football games at neighboring Kinnick Stadium.

The university wrapped up its pediatric inpatient move and opened its remaining fourth and fifth levels — committed to surgery and post-anesthesia care — by April 2017.

In the year since, the UI Stead Family Children’s Hospital has captured the nation’s heart — earning adoration not only for the vulnerable young patients it treats, but for being a catalyst in a new tradition: fans and players waving up from Kinnick at the tiny spectators after the first quarter of games.

Philanthropists Jerre and Mary Jo Stead, who have given tens of millions to the UI and whose name adorns the building, were given construction updates but were not part of the day-to-day decisions on design and construction activities.

“From a hospital standpoint, a technology standpoint, and for the kids, it’s the best in the world,” Jerre Stead said.

Original designs for a University of Iowa children’s hospital portrayed in April 2011 renderings show a more traditional rectangle structure, which administrators changed to its final elliptical shape in June 2012 — six months after it signed a $21 million contract for design services with Heery International Inc. and a $11.2 million construction management contract with Gilbane. (Rendering from Board of Regents presentation)
Chapter 3:

DESIGN GOES FROM RECTANGLE TO OVAL

It started with a very different concept than the postmodern elliptical design seen today.

Original designs for the children’s hospital portrayed in April 2011 renderings show a more traditional rectangle structure, which administrators changed to its final elliptical shape in June 2012 — six months after it already signed a $21 million contract for design services with Heery International Inc. and a $11.2 million construction management contract with Gilbane.

That major change came just a month before construction — according to Gilbane’s original proposal — was to begin.

Gilbane’s initial timetable anticipated the hospital design period would extend for 10 months through May 2012, with construction commencing in July 2012 and ending the summer of 2015.

Instead, crews didn’t start until April 2013, and the design period stretched nearly five times a long as anticipated — 46 months through May 2015 — according to Gilbane documents.

“With the major change in the design of the building to the current elliptical shape and the extended design process, the complexity of the project increased significantly and the overall schedule of the project extended,” a March 2016 letter from Gilbane to the university stated.

The construction manager cited several reasons for the protracted schedule, including poor weather, a competitive labor market and a “significant quantity of design changes.”

“Our original proposal was based on a normal construction and closeout process, not the project currently being built,” according to the Gilbane letter.

Essentially, a chunk of the project was being designed as crews already were building. That process meant crews had to redo work they had already done or come up with new plans on the fly to accommodate the design updates.

In March 2015, an internal audit presented to the regents reached the same general conclusion Gilbane later did — that the project should never have been done this way.

The audit said the hospital was “fast-tracked” — meaning construction began before design was complete. ”UIHC holds all the financial and schedule risk,” according to the audit, which reported that strategy is “not ideal for a fast-track project with the level of anticipated change orders expected.”

Bill Magness, president and managing principal of Magness Consulting Services in New Jersey, was retained by the Iowa Attorney General’s Office in 2016 to represent it in a “litigation matter” concerning the hospital. He declined to comment about the UI case, specifically. But generally, Magness said, he never recommends using a project delivery method that saddles all the risk on the owner — like the UI in this case — and none on the construction manager.

“I never work that way,” he said. “I never recommend my clients work that way.”

Construction managers are the construction experts, according to Magness, and absolving them of risk makes little sense. Even in large projects with significant midstream changes, like the children’s hospital, strong management and communication can mitigate delays and disputes.

At a time the trades contractors were coping with design changes, the project was being overseen by George Mejias, executive director of UI capital management.

After the university “terminated” him in December 2015, construction manager Gilbane produced a memo portraying a project in disarray and listing things “Gilbane has been dealing with/observed.”

The memo alleging verbal abuse and a hostile work environment took aim at Mejias.

It asserted he had “threatened us with ruining our reputation for any future work at UI.”

Mejias, reached by phone, declined to comment for this article.

Following several contract amendments, Gilbane’s $11.2 million agreement swelled nearly 90 percent to $21.2 million. Heery’s contract increased 45 percent to $30.4 million by the end.

A review shows more than 1,000 change orders were approved by the hospital’s opening in early 2017 — with more coming through since. That approved total represented just a fraction of the several thousand requested changes, which Gilbane said in a December 2015 memo were “way more significant in number and total magnitude than (the) average project.”

“Messy project contractually,” according to the Gilbane memo. “Potential for cardinal change claims in our opinion.”

George Mejias (left), then-executive director of University of Iowa Hospitals and Clinics capital management, talks March 10, 2015, about various features of the lobby during a tour of the University of Iowa Children’s Hospital for members of the Board of Regents. (Stephen Mally/The Gazette)
Chapter 4:

PROJECT COST EXCEEDS APPROVED LEVEL

The changes boosted the total cost of 25 separate prime trade contracts for the project, which the university signed between 2011 and 2015, from $185.5 million to more than $262 million around the time the hospital opened last year, according to documents.

The UI last week reported its construction commitments at nearly $311.2 million, representing a 13 percent hike over its most recent approved budget for $274.3 million in those costs.

It reported commitment declines in other categories, however, including project administration, equipment expenses, and planning and design — even though it extended contracts with project managers and designers. In May 2016, the UI reported having spent more for planning and design, $36.8 million, than it reported this month at $32.5 million.

Today, the university reports its total project commitments at $370 million, about $10 million above the last approved budget and $100 million above the project’s first approved budget. But UI officials said they still expect to shave $13.1 million off the contractor costs and keep the project under the $360 million authorization.

Foreseeing the cost increases, the university in September 2015 asked the Board of Regents to up its project budget from $292 million to $360.2 million. That was less than the $384.9 million the UI projected it would actually cost, according to an internal document obtained by The Gazette. To make up the nearly $25 million gap — and not request it all from the regents — the UI tapped other sources like budgets for health care master planning and utilities relocation.

Those costs are categorized as “project credits” in an internal audit. UI Health Care spokesman Tom Moore described project credits as “work not completed by the contractor.”

“Project credits could also be back charges,” he said. “This is work typically not provided by the awarded contractor and is supplemented by another contractor to meet the project’s schedule.”

 

University of Iowa Children’s Hospital in an aerial photograph in Iowa City on Thursday, July 14, 2016. (Stephen Mally/The Gazette)
Chapter 5:

FAKE FACADES BUT MISSED DEADLINE

The children’s hospital didn’t open Dec. 10, 2016, as planned.

An attorney for contractors Merit Construction — which worked on those doors — and Modern Piping recently told a judge the university knew it wouldn’t make the December deadline even as a month earlier it was spending millions on temporary facades, expediting materials and overtime to host a grand opening and public tours.

The UI told The Gazette in April it incurred $295,744 for the public opening and had paid $92,311. Merit, which did much of the work for those events, instead reported spending much more — $1.15 million.

“The client would have a very hard time making a case for not knowing the status of the project,” the construction manager said in a document contained in court records. “They knew the whole team could not make Dec. 10.”

The document indicated construction completion dates “were missed on every floor.”

When the university announced Nov. 30, 2016, it would postpone the opening, spokesman Moore said administrators were working with construction manager Gilbane to “more fully understand the reasons for the delay.”

In a Dec. 26, 2016, email, the construction manager expressed trepidation about where blame would fall.

“I am concerned that we won’t have an opportunity to get to the facts before the hospital paints the picture they want — something we already experienced with the schedule,” according to the email. “The biggest hurdle is that we can’t create time nor more money, nor save face for them in the public eye … all of which they need, and all of which we can be conveniently blamed for, whether true or not.”

Work continues on the Pediatric Intensive Care Unit (PICU) floor during a tour of the University of Iowa Children’s Hospital for the Board of Regents in Iowa City on Tuesday, Mar. 10, 2015. (Stephen Mally/The Gazette)
Chapter 6:

ILL WILL CONTINUES IN FIGHT OVER MILLIONS

In litigation over contractor payments, attorneys have accused UI executives of misreporting the true costs to avoid public scrutiny or requests for more money.

“Instead of admitting the construction costs have exceeded budget, Iowa has not accurately reported costs and attempted to shift construction costs to Merit rather than requesting an increase in the budget,” according to paperwork filed in June with the American Arbitration Association, which is processing an $11.5 million disagreement between Merit and the UI.

Cedar Rapids-based contractor Modern Piping also is fighting with the university. An arbitrator ruled the UI owes it $21.5 million — most from the hospital work — and the two sides are set to have a hearing this week in Johnson County District Court.

University officials declined to comment on anything in pending litigation, including how much contractors say they’re owed and how much the university has imposed in back charges against them.

Heery International, of Iowa City, also declined to comment for this story after an executive first spoke with a reporter and then sent an email retracting his comments after consulting with his company attorneys.

Jean Robillard, UI Health Care vice president for medical affairs from January 2007 to November 2017, was at the helm for the project’s entirely but declined to comment to The Gazette.

UIHC Chief Executive Officer Ken Kates helped oversee the entire project as well, but also declined to speak with The Gazette for this article. He is retiring this summer.

Executives with Gilbane, of Baltimore, said they first had to ask permission from their client before answering questions from The Gazette, but then didn’t respond to written questions.

Moore, the UIHC spokesman, said the hospital project was created “with healing in mind.”

“The design minimizes stress, provides comfort, and promotes healing, and includes public spaces that enhance play, discovery and relaxation,” he wrote in an email.

He said patient satisfaction scores “have increased significantly since the move into the new space.” And the building, which also supports research, is more efficient.

Donors gave $51 million to the children’s hospital building campaign — or about 14 percent of the total cost, he said, and the fundraising effort continues today.

l Comments: (319) 339-3158; vanessa.miller@thegazette.com

Workers wash the windows of the University of Iowa Stead Family Children’s Hospital on Dec. 23, 2016, several weeks before the hospital opened to its first patients. (Rebecca F. Miller/The Gazette)
Chapter 7:

FULL TIMELINE AND UI STATEMENT

Below is the full copy of a statement from the UI:

University of Iowa Health Care spokesman Tom Moore provided these comments in response to a list of specific questions about the UI Stead Family Children’s Hospital project: University of Iowa has always provided the highest quality of care and compassion for patients and families, and that quality remains today. What has changed is the environment in which we provide that care.

The UI Stead Family Children’s Hospital building was created with healing in mind — the design minimizes stress, provides comfort, and promotes healing, and includes public spaces that enhance play, discovery, and relaxation. All of patients now have larger, private rooms with ample storage and space for parents to sleep comfortably, and a refrigerator for family use. Patient satisfaction scores, especially those related to the quiet environment, have increased significantly since the move into the new space.

The building is also more efficient for staff: operations as well as the locations of equipment and support functions are all standardized on each floor, and orientation in each room is identical — beds, sink, and other elements are in the same location in each room. An “on-stage/off-stage” concept creates separate areas for staff and patients, increasing privacy and reducing noise.

The building also supports research with The Cornish Human Brain Research Laboratory on Level 9. UI Stead Family Children’s Hospital is the first children’s hospital in the country to have such a facility. The lab, which is aimed at advancing treatment of children with epilepsy and other neurological diseases, includes a monitoring room, a patient room, and a separate EEG monitoring room.

Key to all of this is that patients and families played an important role in the design and building process, providing valuable input through our Youth Advisory Council and Family Advisory Council. Both groups remain active collaborators to ensure the voices of patients and families are included in everything we do. I’ve attached a few comments we’ve received from patients about the impact the building has had on their care:

“We are so grateful and blessed to have such an amazing facility to take our children to in our home state. My daughter has regular checkups for her Chiari malformation which have been going on for 2 years, but this was the first time we experienced it in the new facility. The building, the staff from security to our doctors were all beyond amazing and very helpful. Words will never be able to express the appreciation we have for everyone in this hospital. Thank you all so much!! The love and dedication you all have shows!!!”

“We absolutely love this hospital. This past weekend our daughter broke her ankle. We took her to the ER after not finding much relief from other places. They got us in and got her fixed up and comfortable again. They had so many people checking up on her. Making sure she was doing well, not in pain, comfortable and after she was doing good and wanting to play, they had even more people ready to help make her feel like she wasn’t in the hospital for our overnight stay. This is our second kid out of 4 that will have checkups in Iowa City and it is absolutely worth the 2 hour drive!”

“Wonderful facility. Incredibly well designed and thought out. It made our experience much easier.”

“What an amazing hospital with outstanding employees! From the moment we walked in to the moment we left, we were treated like family and felt at ease. The new hospital is beautiful and accommodating, they’ve thought of everything to make families and patients have the best experience possible. We are so blessed to have this hospital only and 1 and 1/2 hours from home, and I would make the drive again in a heartbeat. They took amazing care of my daughter and I can never thank them all enough for that.”