Travis County Commissioners Court
November 22, 2005
Item 8
Now, joe, while you're sitting there hot, here's number 8. Consider impact on construction price increase on county capital projects, c.i.p. Project budgeting and c.i.p. Management processes and bid letting schedules and take appropriate action.
>> all right, this is -- hapsour first wake-up call to what's going on in the market. We did go out to bid on anderson mill road. We needed this estimate before we went out with $4 million to bid the low bid came in about $3 million over that. And -- which was just phenominal. And so we have met with the engineer, we have actually spoken with some of the bidders. We have spoken with txdot. We have spoken with other agencies around town to get some sense of what is going on. And some of this stuff is -- actually international and national marks that are in play, some are local markets, some are projects specific conditions. So I think it's important to be able to separate out what's driving what. We know in fact that hurricane katrina and rita did impact the petroleum industry along the gulf coast, and for that matter some of the other raw material manufacturers, pvc pipe in particular. We know justs you go to fill you your car, gas prices have been up to 3 bucks a gallon. That in part is due to the impact of the hurricanes. Now, we're also watching those prices drop. So that may be just the murk damage itself, we expect that to basically play out in about six months or so and the markets will stabilize to that. But you have this large country to the east called china, literally soaking up a lot of the materials for their economic growth. And so that would speak to a long-termes sca laition of prices for building materials. Everything from plywood to concrete to even recycled materials are being purchased by china at this point. You also have opec, which is threatened to lower production if prices start to drop too much. So you've got international markets that would say long term oil prices are not going back down to where we saw a year or two years ago. Local markets, we're faced with right now a lot of work, road construction work, housing construction, building construction that is soaking up local resources. And by that I mean labor and materials, equipment. We're all competing for the same pool of labor and equipment. Every piece of equipment that's to be had is out there working on some project. We're also seeing local prices of material for base material, for instance, in concrete to be in high demand because of the nature of the projects going. So we're in competition with other local projects. Now, we're not certain whether that is long term, say five years, or whether we can see that abating as new people enter into the market for supplying these materials and some of these projects get completed. When [inaudible] is put away, when 130 passes through in '07, when some of these other projects taper off, we may see just the opposite occurs, the contractors are a little more eager to get new work. Understand where we are in the niche also. When txdot goes out with projects, you are talking about multi-million dollar projects. Our largest project sometimes is in the $4 million, $5 million range. Not a very large project as projects go. So the profit margins on the large projects are much bigger than what they would get out of our project. So typically we have to watch when other people are bidding their projects in such a way as to hit it timely so we're not competing with txdot in their bid letting and we're also after a certain type of contractor backfilling to large contractors on these large jobs. Basically they are staffed up. And they will bid our projects but they will bid them at a premium because they have to go out and buy the labor and equipment to do our project. They have no slack resources. And I think that's in part what is playing right now on anderson mill road. There's just a lot of work out there and we're just hitting the local market at the wrong time. Then finally when we get to project specific risk, we know that we've been having difficulty moving utilities out of the right-of-way. We have had two projects that we bid where utilities were not adjusted when we went out to bid and delayed the contractors in both cases. Now, if you are sitting here fix to go bid a project with the county and your prices have to be good for a year to 18 months, but the utilities have not been adjusted, you probably are going to add in some extra money on your bid to make sure if there's any delay because of utilities you've got the money in your back pocket to cover any price increases. So part of our issue, and this is very related to anderson mill road, we have utilities that would be relocated simultaneously to construction of the roadway. We do not have confirmation from utilities that they would get out in a certain period of time. So there's a risk factor associated with our contractors going in saying I don't know when the utility company will be out of my way. If he happens to delay my project I知 not going to take a hit, I知 going to put a little extra money in in case I get delayed as a result of that. So we are trying to peel back this onion. We do believe that you are likely to see price increases in your projects that equal 15 to 20%. Even if you manage all the other risk associated with the project. That is something you probably should prepare for. And by prepare, I知 saying basically don't spend any allocated money, unallocated money that you have on hand that would speak to the 2005 unallocated money, any savings derived from completed project, and you have some out of the '84 bond money and I致e spoken to Commissioner Davis about. That don't start new projects if you have savings. Hold that savings in abeyance until you are able to clear all these projects that are underway. Unfortunately you don't have that latitude in the 2001 bond ram. As you are completing projects there, you have to -- you cannot spend that money until all the projects are completed within their proposition. So you are somewhat bound on how you can move money around within propositions until certain events occur with the bond covenants. Which may mean that you know you are going to have a savings on a project, and you do, you already have some savings, but you cannot move that savings to where it's needed until something else occurs within that proposition. So you may need a mechanism that allows you to reach into a pool of money, for example, sertsdz of obligation, to cover an unexpected price increase on a project. Knowing that you will be able to pay yourself back once these other events occur and you will be able to move savings from a 2001 bond project in to cover that overand i. So there's a lot of moving parts. I guess the message of this agenda item is expect proablg 15 to 20% increases in price in remaining profntle you may get requests for projects underway by people out there working on projects and have now suffered some cost increases that they could not have anticipated at the time they bid the project. Txdot in this case is actually looking for a provision that they may start including in their projects that would allow them to escalate and de-escalate prices if it can be demonstrated that the suppliers have caused the increase to occur after a bid has occurred. But full documentation will have to be provided by your successful bidder in order to be eligible for that adjustment in price.
>> so joe, I guess as far as funding is concerned, and I know what you're saying there, I guess txdot has had some experiences other than the added language, adjustment language added to -- to the vendor that's actually providing the service for txdot, the source of funding coming from that, is there a model I mean because I think what you are suggesting here of course we set something aside for the type of situation as far as material and all these other kinds of things that's going to cost us money because of the increase in cost. Is there any type of model per se that txdot is using right now to overcome some of these things that we are looking -- probably going to run into and have run into as far as --
>> yes. They basically -- they delay projects. They just -- they have a 10-year schedule, and based on what they see is occurring in the market, they prioritize. They decide not to do some projects just to defer them investmently or defer them for a longer period of time so that they can afford the projects they do go out to bid with. That's a typical strategy what they would do is basically stay within our budget to stop doing some projects. And periodically they will make a call statewide to their districts to start putting the projects in priority so as to defer projects of a less r priority. We certainly have that capability ourselves. We can defer projects, we can delete projects. I think that would be just one tool in the tool kit. I would say the first thing I would do is manage the risk first. And I think the biggest risk we have is a utility relocation is to go ahead and get a handle as best we can on getting utilities out of our waterway so the -- right-of-way so the contractor is not builting that risk into his bid. I think that is something that is important for us to look at as we manage our projects. The other thing for us is time is money. We just cannot delay, we need to be very efficient in the way we manage our projects.
>> compensation that needs to occur with some of these utility operators, and I知 not going the name any kind of names, but one of them has certainly held up us Commissioner Davis on west howard lane in terms of one utility company. Do we need to have some conversations be it high speed infrastructure lines, be it water lines, wastewater lines, be it utility companies, telecommunications companies, we need to have some conversations because some of these are some governmental partners who I don't think are fully aware of what impact they are having on other governmental he want at this time's projects. And the second we finish our projects, they are annexing into their tax base. So perhaps we need to have some conversations with some of these providers as well about what issues we are facing.
>> actually the municipal providers are really responsible. I think we're talking about private providers, water corporations, like telephone in particular. I think we have -- other than one project that you and I are familiar with, and I think that was an unusual circumstance. I think the city of Austin has been very responsive to moving utilities and working with us in utility relocation. I wouldn't say that is our biggest problem. We -- other water utilities that have been at issue. But certainly I think coordinating with all of them would be important. Just like us, they have budge s. They have to be able to foresee when spending would come into play so they can budget the appropriate amount of money to relocate utilities. Part of it is good coordination. And from our part executing when we say we are going to execute and we say we have to have a utility out of way by such and such a date they should know that's a good date and we have to have them out at that time.
>> a good question for legal is what legal rights do we have against utilities whose slow action causes increased costs for us? Do we have the right to sue for reimbursement? Do we have the right to once they remove certain utilities, do we have a right in the future to impose certain conditions? I知 not looking for the answer right now. The other thing would be that if they slow around in taking a utility out, once we get them out, could we tell them not to put it back in? The way I see it the county owns the right-of-way, but the law gives the utilities rights to use that, right? So I mean it would be -- it would be good to have a good legal understanding of that. If knowing else, it seems to me we ought to have our lawyers write a real threatening letter to some of the utilities to try to get them to move a little faster if in fact they are causing prices continue to crease. A couple questions though. One is that I mean it would help I think to see a list of the '01 projects that have been completed and any savings realized. Two is a list of '01 projects not completed and projected shot falls or overages. We can certainly use any surplus from specific '01 projects to cover others.
>> by precinct. By peen. Ct.
>> that's the law by precinct.
>> we put that in the covenant.
>> once all the precinct projects are covered, it could go to other precincts. I知 just trying to get a picture of that.
>> that's right.
>> and the other thing was I think it would help us to get a legal briefing on utilities, what rights they have, what rights we have, if not today next Tuesday. Next Tuesday better?
>> okay.
>> so what you've done basically was try to figure out -- well, to I guess appreciate that there are economic conditions beyond our control causing quite inpreeses. And whether we like it or not we've got to deal with them. But at some point if the increases are like fuel costs, if the other increases are, it may well start down. Is that what I hear you saying?
>> that's my estimation that this is the -- the 50% range is not a real long-term price increase. I think that that is a bump that's occurring because of the uncertainty in the markets. That these contractors are looking out, they are hearing from their suppliers, they are saying I知 not going to take this risk. I知 going to plug in a big number to cover myself. But I think when things start stabilizing, I think you will start see prices come back down. I do not think we will see them go back to prices we saw two years ago when we were getting fantastic prices on hot mix and f mix.
>> so your message is to be forewarned.
>> and save for the future. I would say do not start any new project that you have discretion on until you start -- until we get through this and start covering the ones that we've already promised the voters that we would do. For my part it means better project management and also looking at what we include in the scope of the projects, I may have to rescope some of these projects to delete things we otherwise would have done.
>> we're not going to use any adjustment language similar to what the state is doing at this point as far as when we go out for bids. Something needs to be looked at. I guess the point is using it in your adjustment language then of course there is still -- I guess if you want to look at the -- increase 15 to 20% range, I really don't know what we'll land on being the safety zone. I was trying maybe to look at --
>> I would like to talk to purchasing about that. They may have some other ideas.
>> judge, there may be one other legal question surrounding this issue and may require bond counsel or maybe the county attorney's office, and that is may we borrow through certificates of obligation a slug of money that does not have a project connected to it. I believe we wouldn't have an issue with this c.o. For this project, this cost overrun, et cetera, but are we able to c.o. Finance money for future cost overruns that are not project specific. I don't know the answer, but I just want to get it on to the laundry list of legal questions because I mean if we can, fine, if that's the world decor.
>> let me make sure I知 understanding. It seems to be that our narrow focus of where these projects that we may need some bridge gap financing here are related to 2001 which are very much related to very specific projects as opposed to there may be a strategy which is the unallocated funds on the 2005. It really seems to be focused and I think we might be able to say exactly which projects are we talking about with preciseness.
>> four to six problems that we're talking about.
>> they would be named as opposed to just stuff.
>> anything else on items 8 or 9? Christian, do you want to opportunity to share with us finally any good news today?
>> it's almost lunch.
>> under 8 or 9.
>> it's almost lunch.
>> thank you.
>> we'll have these back on next week.
>> can I ask is next week realistic because we only really have, like, one and a half more days before next Tuesday as opposed to two weeks, because it sounds like some of these are something that's going to take more time and I知 presuming people will not be working on thanksgiving and during the game.
>> two weeks is fine with me.
>> I知 just trying to be realistic.
>> December 6th. 8 and 9 will be back on December 6th. To give this court an opportunity to enjoy thanksgiving like everybody else. That is Commissioner Sonleitner's suggestion.
>> and the day after.
The Closed Caption log for this Commissioners Court agenda item is provided by Travis County Internet Services. Since this file is derived from the Closed Captions created during live cablecasts, there are occasional spelling and grammatical errors. This Closed Caption log is not an official record the Commissioners Court Meeting and cannot be relied on for official purposes. For official records please contact the County Clerk at (512) 854-4722.
Last Modified:
Tuesday, November 22, 2005 2:41 PM