Cook County North Shore Hospital and Care Center (CCNSHCC) board members had a full agenda to plow through at their February 18, 2016 meeting, but topping that was a report from Chip Jacobs from Foster, Jacobs and Johnson (FJJ), the mechanical engineering firm that works with DSGW, the architectural company hired by the hospital to design the two-year, $24 million renovation and addition to the hospital and care center.
Jacobs said the state had notified his firm that several items that had been bid out weren’t up to code and needed to be revised, and therefore the price would be $239,033 more than budgeted for, money that would be taken from the building contingency fund, according to the contract.
The hospital/care center project is complicated, with areas closed off in phases and completed before patients, staff and equipment can be moved back into the new space while another area is closed off to be worked on.
Because of unknown, unforeseen problems that can occur, building projects of this size must have a “contingency fund,” that is, money set aside to meet any unexpected costs. The hospital put $1,006,567 of the total budget in that fund hoping little of it would be spent so near the end of the project so those dollars could be used to add back items that had been “value engineered out” to keep the job within budget.
As of January 2016, $160,357 had been charged to the contingency fund, leaving $846,210. With the items mentioned by Jacobs, another $239,033 taken out would leave $607,177.
Jacobs said a problem occurred not long after the bid documents were sent based on his firm’s estimates for mechanical/ electrical and plumbing work, and the state, which must okay any new work, said the specifications for the improvements allegedly didn’t meet state code, and therefore would cost more in materials and labor then FJJ’s estimates.
One change called for new, larger water pipes to be used at an increased cost of $133,669, and a second bid for mechanical/ electrical upgrades (water heaters etc.) was bumped up another $135,231 over estimates.
Hospital Board Member Tom Spence, a retired attorney, questioned the timing of the bids in relation to the state’s demands. He noted that the letter from the state came to FJJ before the bids were let, and FJJ had a chance to change the bid. He also said the new, higher than expected costs, shouldn’t be “on our dime.”
But Jacobs replied, “There is a cost to delaying bids,” and FJJ didn’t have a chance to review the letter from the state before the bids were sent, he said.
“The corrective action I took was on my dime. The labor I had to perform to work with the [state’s] code officials was at my expense,” Jacobs said to Spence.
Another problem arose, said Jacobs, when he called for a bid to do plumbing. Because the consumption of water wasn’t going to change much between the new and old building, said Jacobs, he didn’t call for many upgrades to the facility’s domestic water pipes. The state, however, called for new, larger diameter water pipes to replace the old ones, which resulted in far greater expense. “In hindsight, a larger water pipe isn’t a bad thing, but it is costing more money,” said Jacobs.
Spence questioned why the state code should apply when there was going to be little if any variation in water consumption, and Jacobs answered, “You can’t always apply logic and [state] codes in the same sentence.”
Spence also questioned FJJ’s understanding of the state’s codes, but Jacob replied, “My interpretation on code versus theirs isn’t always the same. If we appeal their decision they usually win.” He also said an appeal was a lengthy and costly process.
Money coming out of the contingency fund also concerns BOLDT, the construction company performing some of the work and overseeing the project.
BOLDT Vice President and Minnesota General Manager Shelly Peterson reminded Spence and the board that the contingency fund was only going to be used as designed. “This is why we have a contingency fund,” she said, noting it may come into play again because, “There are still areas of risk that haven’t been identified.”
“We [BOLDT] have a guaranteed maximum price of $23 million,” said Peterson adding, “The only one really taking risk here is BOLDT.”
What Peterson was referring to was the contract BOLDT signed with the hospital that is called a “construction management-at-risk” contract, meaning the company is guaranteed a maximum price to finish the job. If the bill runs higher, it comes out of their profits, and not the hospital’s coffers.
Spence replied that any bid items, per bid, had risk, and FJJ should have known what those risks were and managed them better. FJJ, said Spence, should also have informed the board about those risks.
But Jacobs replied that there were thousands of things to consider in a project of this size, and FJJ couldn’t bring all of those items back to the board for review.
”The bid process is a very messy process,” he said, and a delay in bids would have also been potentially costly.
When the state’s information came to FJJ it “straddled the bid process,” noted Jacobs.
“In hindsight maybe delaying the bids would have been good. But at the time we felt there were many higher risks involved,” Jacobs said.
“It wasn’t explained to us that the state could come back to us on RFPs (request for proposals),” said Spence, adding if the board had more information at the start of the process it might have added more money to the contingency fund.
As the project moves along, said Peterson, risk diminishes and fewer surprises should be uncovered.
CCNSHCC Administrator Kimber Wraalstad said she was frustrated seeing money taken from the contingency fund, noting that she too, hoped to use it for projects cut from the budget, but as she told the board, there never were any promises money would be left in the fund at the end of the job.
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