Should the City Modify Its Wastewater Proposal?

wastewater-treatmentIn late May, the city council approved a Request for Qualifications (RFQ) on the wastewater project for what is estimated to be a 95 million dollar project.  However, critics claim that there may be more cost-effective alternatives to the locally designed Charrette Design Plan, that are specifically precluded by the stringent language of the RFQ.

A June 13, 2013, letter from PERC Water, a water recycling corporation, to Project Manager Michael Linquist informs the city that the firm does not intend to submit a proposal, based on the likelihood “that our firm will likely be disqualified from the process, or at a minimum be considered non-qualified to receive a Request for Proposal (RFP) for the Project.”

“The RFQ as presently written is limited to very specifically qualify only those firms or teams that have prior experience with the design prescribed n the Charrette Design Plan,” the firm writes.

The firm believes that with the new capacity specification, they can design the project at $66 million rather than the $95 million the engineers are estimating, which would equal a 30-year net present value savings of about $55 million.

“We respect the Council’s vote to rely solely on the Charrette Design Plan as the basis of design for the Project, however we remain puzzled why the Council would not entertain designs in a parallel path that could result in such meaningful savings to the ratepayers of Davis.”

Councilmember Brett Lee was the sole dissenting vote at the May 21, 2013, meeting.

“We make sure that the process is open enough so that people feel  like if they are qualified, if they offer Davis a good solution to our wastewater treatment problem that they would be in the running,” the councilmember stated.  “We don’t want to artificially narrow the field and exclude people from being able to be a part of the process.  Once we narrow it down to the three candidates at the next level, that we don’t have people trying to short-circuit the process at that time.”

Mayor Joe Krovoza was very blunt at the council meeting, “That is exactly what we are doing and we need to understand that is what we are doing here.”

“If this council is not interested in doing the Charrette Design Plan, then this is not the RFQ for us to move forward with, period,” he said.  “This is not a performance-based approach, this is an approach to implement the Charrette plan.”

Mayor Krovoza would add, “It is my position… that the Charrette process is one that this community came up with, this community likes, that fits our site and there’s been some opportunities where I’ve suggested doing something a little different than the Charrette process, this council has come back and said we’re going to keep it a local project.  If it’s a local project the Charrette design is what we came up with.”

But Councilmember Lee argued, “We should have a process so that if what they’re proposing is legitimate and they have a legitimate ability to solve Davis’ wastewater problem for something on the order of 20% less, that we don’t inadvertently exclude them.”

He would add, “I’m not opposed to the Charrette plan, I would just like to keep it open if somebody has a better and perhaps more cost-effective solution… that they’re not inadvertently excluded at the first hurdle.”

But, at least some have called into question whether PERC Water can deliver on their promises.

Steve Pinkerton told the Vanguard, “I think we’ve looked at it enough that I’m not sure we are seeing a big difference in cost.”

PERC Water apparently has promised to provide some early documentation that they could do a project of this size and scope, Mr. Pinkerton said.  He said that they have represented to the city that they would put their own money forward to prove the city should go a different path, but they have failed to follow through on those promises.

“They haven’t provided any evidence that they can do it a lot cheaper,” he said.

When we asked Mr. Pinkerton whether a submittal to the RFQ wouldn’t have to bear out some of this documentation, he responded, “We’re not saying they can’t submit a proposal.”

However, from PERC Water’s perspective, why expend the resources if they have no chance, based on the RFQ parameters, to win a bid?

“That’s one way to look at it,” the city manager acknowledged.  He added, “From my perspective, we’re simply going along with the council direction that we’ve had for two years.”

From 2011 on, the city council directed the city to pursue the Charrette Design Plan and hire West Yost to do a detailed amount of preliminary work related to the Charrette.  The council directed staff at that time to narrow the focus down to the Charrette.

In 2012, a $4 million contract was let for a lot of the preliminary design work to be completed.

“When you do a $4 million contract, you’re investing a lot of money into the plan as it was approved back in 2011,” the city manager said.  “There was a lot of debate back then.  I think a lot of this was determined when they decided to go Design-Build rather than Design-Bid-Build.”

Mayor Joe Krovoza told the Vanguard that the cost estimates being put forward are from PERC Water, an interested party with an interest in changing the bidding rules.

“That does have to be taken into account,” the mayor said.

In addition, he argued, “There is every reason to believe that there [are] to be substantial competitive bids on the wastewater treatment plant, as well, as we’ve pointed out.”

“We are already seeing at least one bidder coming back being willing to bid at 20 percent below the engineering estimate,” he said.  “So this idea that only PERC offers a cost-savings is not correct.”

While Mayor Krovoza seems skeptical of the PERC Water proposal and their ability to carry out their promises, he is more equivocal on the process.

On the one hand, he noted, “It is the decision of the council dating back to the spring of 2011 that the most efficient and lowest energy path forward was to go forward with the Charrette Design, designed by the community, through the design-bid process, that’s what we’re going forward with.”

He expressed concern that going forward with a parallel design process would essentially grant a monopoly to the PERC System.

“Since they are the only one who can build that system, I think that puts us in a very precarious position,” the mayor said.  “I think it’s an enormous risk to put all of the eggs in their basket, I don’t they’re proven enough or they’re credible enough.”

There were also concerns expressed with PERC’s operation in Santa Paula, California.  The relationship between the Santa Paula City Council and PERC Water was called into question.

The Ventura County Grand Jury found that “council members failed to adequately explain the financial basis for approving a $149.7 million contract with a Costa Mesa company to operate the city’s wastewater treatment plant,” according to a story in the Ventura County Star from September 2011.

Santa Paula Mayor Fred Robinson said in the letter that the grand jury failed to cite in its report “a legal requirement that council members receiving campaign contributions must disclose that fact under these circumstances.”

“Moreover, the city is not aware of such a requirement,” the letter states.

The Ventura paper reports, “City staff had recommended the council hire the French firm Veolia to run the plant instead of PERC Water Corp. But a majority of the council voted in April 2008 to give the contract to PERC, despite the fact its proposal was $22.3 million more than Veolia’s.”

The paper continues, “The grand jury eventually exonerated the council on allegations it acted improperly or violated the state’s open meeting law, known as the Brown Act.”

“The grand jury was unable to find substantiation of violations of the Brown Act,” the panel stated in its report issued in June 2011.

“The grand jury found that suggestions that council votes were influenced by campaign contributions were not substantiated,” the report stated.

But grand jurors found the council did not adequately or “reasonably justify their decision.”

From local reports, the problem appears to be Santa Paula City Council actions, not actions on behalf of PERC.

There were additional concerns about PERC driving up the price, after their initial low bid, with change orders.

The bigger question, however, is not necessarily PERC Water’s proposal per se, but whether the restrictive RFQ is the best way forward.

Brett Lee and some in the community have argued that the council should at least keep an open mind and not foreclose the possibility of a better and more cost-effective plan emerging during the bidding process.

Matt Williams during public comment said, “A major impediment to even exploring the possibility of saving that $47 million is that staff has constructed an RFQ that effectively makes one specific design of the wastewater upgrade a prerequisite.”

“That is ironic considering the fact that Davis has recently hired a Chief Innovation Officer, because the course the RFQ charts effectively eliminates the possibility that wastewater technology innovation can save Davis that $47 million,” he said.

He notes, “This irony becomes even stranger when one looks at the video of April 23rd council meeting Item 9 http://archive.cityofdavis.org/media/council-2013-04-23.ram, in which council clearly directed staff to go back and rework the RFQ so that its focus is on the ability to provide a solution to our wastewater challenges, and specifically, with a concentration on performance criteria rather than a specific design. “

Moreover, this process is not simply a matter of PERC Water versus the Charrette plan.  Alder Construction is another firm that is not going to be pursuing the project under the current RFP.

As they told the city, “We feel that, while the RFP states that innovation is encouraged, the fact is that the Charrette Plan is so proscriptive it really eliminates the innovation side of the design-build process.”

Mayor Krovoza said, “I’m comfortable sticking with it.”  At the same time he said he might be willing to at least explore a more broad performance-based RFQ.

He said that the Charrette Process was designed with cost in mind and the city will bid it competitively.

“That to me feels good,” he said.

He expressed concern that PERC Water would come in at the 11th hour with a lower cost system and suddenly the council would switch on a dime.

“My comments at the meeting were does everyone get it, does everybody understand that we’re going with the Charrette Design and that is going to exclude PERC and we’re doing that for the reasons that we have come up with,” he said.

The mayor noted that none of the other three councilmembers pushed for a more performance-based bidding.

Despite these comments, however, Mayor Krovoza did offer that if there were three votes to look into a more performance-based bidding process, “I might have agreed to look at it a bit more.”

“I was open to thinking about it,” he said, but he saw no sign from any of the three.  “But with none of them budging, I wasn’t going to destabilize it and go into 3-2 territory.”

He noted he was out there on the regional option, and those three were dead set against the regional option that also could have saved the city tens of millions.

The question many have is why three on the council are dead set against even looking into a performance-based bidding process.  Unfortunately, at least for today, we cannot answer that question.  The Vanguard reached out to the other councilmembers, Dan Wolk, Rochelle Swanson and Lucas Frerichs, but none offered to comment on the record.

—-David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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7 Comments

  1. Davis Progressive

    interesting that people care about the few million that fluoride will cost us, but not the $20 to $50 million the wastewater plan potentially wates.

  2. Frankly

    I am 100% for pursuing any solution that will save money, but only based on a full and long-term cost-benefit analysis.

    I am 100% against ignoring or denying consideration of less costly alternative for any reason other than we KNOW it would not meet the formal requirements.

    Said another way, if the city is going to reject less-costly alternatives, then it should be required that an analysis of justification for this decision be completed and published.

    I have been responsible for purchasing multi-million dollar data processing technology for large companies. In some cases the project to select a solution took over a year. During that time new technology would emerge, and we were challenged to stop and consider it. However, there were costs associated with continued delay of the decision. Those costs would often provide justification enough for excluding emerging technology. Lastly, we also assessed some greater risks to emerging technologies as they lacked sufficient verification in the marketplace. We did not want to be the guinea pig stuck with buggy systems. We preferred technology that had been tested and proven reliable.

  3. Matt Williams

    Frankly said . . .

    [i]”I am 100% for pursuing any solution that will save money, but only based on a full and long-term cost-benefit analysis.

    I am 100% against ignoring or denying consideration of less costly alternative for any reason other than we KNOW it would not meet the formal requirements.

    Said another way, [b]if the city is going to reject less-costly alternatives, then it should be required that an analysis of justification for this decision be completed and published. [/b]

    I have been responsible for purchasing multi-million dollar data processing technology for large companies. [b]In some cases the project to select a solution took over a year. During that time new technology would emerge, and we were challenged to stop and consider it.[/b] However, there were costs associated with continued delay of the decision. Those costs would often provide justification enough for excluding emerging technology. Lastly, we also assessed some greater risks to emerging technologies as they lacked sufficient verification in the marketplace. [b]We did not want to be the guinea pig stuck with buggy systems. We preferred technology that had been tested and proven reliable.[/b]”[/i]

    Very well said Frankly. I have bolded several of your key points.

    Regarding the first bolded point, what you suggest is the very minimum that Staff should be providing in its Sherman’s March To The Sea elimination of any potential solution other than the specific Charrette Design. But rather than providing an analysis of their justification, Staff has simply lobbied behind the scenes for their home-grown design. The fact that they have essentially unfettered access to Council, while the proponents of newer, more innovative approaches (PERC Water is not alone in being innovative) have restricted access, makes the playing field anything but level . . . especially when it is that same Staff that presents the analysis of alternatives when wastewater appears on Council’s agenda.

    Regarding your second bolded point, we aren’t talking a year in this case. The Charrette conducted its review on October 22 and 23, 2009 and then published its report on January 29, 2010. So we are talking about 3 and 1/2 years of wastewater industry innovation. Further, in early 2011 after significant back and forth between Staff (who wanted a Design-Bid-Build project approach) and Council (who wanted a Design-Build approach), Council very clearly excluded Design-Bid-Build and chose Design-Build. That decision was made by Council in large part because a Design-Build project comes with a long-term warranty of both the plant design and the workmanship of its construction. That shifting of risk from the City to the DB firm is very valuable, especially if the design the DB bidder proposes contains innovations that bring down the capital costs [u]and/or[/u] the operating costs for the plant. More on this risk shifting later.

    Regarding your third point, technology that has been tested and proven reliable is very important for the City, but it is even more essential for the DB firm, because they are the ones who are on the hook for the long-term warranty of the design (D) that they build (B). In Design-Bid-Build (D-B-B) the designing firm and the building firm can be and very frequently are different companies. Thus, in a D-B-B procurement the City if it runs into problems with the plant after it has come live has to pursue two different firms who frequently point fingers at one another saying, “That problem is in the design!” or “That problem is in the way the plant was built.” Common responsibility is [u]not[/u] the hallmark of the D-B-B process. In the DB process the same firm is responsible for both the design and the build, so finger pointing is eliminated and the City gets any problems resolved much more quickly, and more often than not at the expense of the DB firm. So “tested and reliable” is key for any DB firm that doesn’t want to see its profits eroded away by warranty repairs.

    (continued)

  4. Matt Williams

    (continued)

    With those three points covered, lets look at the current Davis WWTP Upgrade process and see how it measures up. As part of my due diligence I spoke to the Utah State Chair of the Design Build Institute of America (DBIA) who attended the June 12th walk through and asked him the following question, [i]”Do you agree with the argument that because the RFQ/RFP is so proscriptive, that the typical warranty benefits that a DB process is supposed to yield will be elusive? The explanation of that argument is that in Design Build, the builder has a formal, direct voice in the design, and as a result a level of comfort that standing behind the project’s performance with a warranty is a reasonable risk. In Design – Bid – Build each component stands alone with respect to warranty issues. If the project encounters a design problem then the burden of standing behind the design falls on the Design firm and the Build firm stands on the sideline. With such a proscriptive design the eventual builders of the Davis will in reality be building someone else’s design, not their own design, and as a result will be reluctant to take on warranty risk for that design.”[/i]

    His answer to that question was, [i]”Yes, you are correct that the current procurement path will probably not result in a WWTP plant that will give the City a design-build warranty from a performance standpoint. However, the current RFP will still give the city a limited warranty of the build portion of the project from a workmanship standpoint, which is typically 1 year from the date of beneficial use of the plant.”[/i]

    So who will be warrantying the plant? You and I will be doing so . . . as citizens and rate payers. Why? Because our representatives, City Staff in perfecting the proscriptive design that is included in the RFQ/RFP have assumed the warranty responsibility. In fact we as ratepayers begin paying for warranty costs as soon as the project begins, because $14.5 million of the $95 million total estimated costs are for oversight of the project. In effect that is $14.5 million being spent so that the City can “get up to speed” on their own design. As Yul Brynner once said, [i]”Its a puzzlement.”[/i] A very expensive puzzlement that can be avoided if the Council steps up and actually holds Staff accountable for completing the DB Process that Council mandated in early 2011.

  5. Frankly

    Matt – Thanks for this great explanation. It makes perfect sense now.

    Can you explain, or if not then guess, what the staff motivation is for designing the system and accepting the risk that they will make mistakes that lead to problems and higher costs?

    There are pro vs. con trade-offs for every decision, and I can think of some cons for the DB approach, but I can accept that there are more risks as you describe for a DBB approach.

    Related to this and technology projects, my thinking and approach evolved over time to a framework of best practice that considered all design, build and operate contracts as partnership agreements. In addition, instead of spending too much time exploding the RFP, we focused on the essential and critical requirements realizing that we would sub-optimize at some point because systems are complex and unplanned challenges are the expectation not the exception. After this we focused on the service level agreement addendum. That became the living “partnership” agreement that included all the performance expectations, compensation and incentives, and also included the performance expectations, compensation and incentives for the exit strategy (partnership disillusionment).

    What I am suggesting here is that the city could mitigate the risks for making design mistakes by developing a sufficient partnering service-level agreement.

    However, with only one bidder, there is not much negotiating leverage to do so.

  6. Matt Williams

    Frankly,

    Look at the Staff Report at http://city-council.cityofdavis.org/Media/Default/Documents/PDF/CityCouncil/CouncilMeetings/Agendas/20110419/Packet/09-Wastewater-Upgrade.pdf It clearly lays out the choices that Council had to choose from, and Council chose Performance and DB. Since that decision by Council, Staff has systematically pursued Prescriptive and D-B-B, spending millions of dollars along the way to complete the D part of D-B-B and thereby come up with the prescriptive criteria that are the hallmark of the RFQ/RFP process we are in the midst of. It really couldn’t be any more “black and white” and in Staff’s own words no less.

    Lots of really good quotes from that Staff Report, but it still leaves open the question of “What is Staff’s motivation?”

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