THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Tuesday, September 24, 1996 TAG: 9609240285
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY MAC DANIEL, STAFF WRITER
DATELINE: CHESAPEAKE LENGTH: 122 lines
Despite a contract that was supposed to prevent cost overruns, the city has agreed to pay at least an extra $1.18 million for construction of the new city jail.
And that's the good news.
Armada/Hoffler Construction Co., the city's construction manager for the jail, had requested an additional $2.8 million to cover what it considered to be changes in the scope of the project.
The request stumped Chesapeake public works officials because, they said, they had never approved any change in construction scope.
After a preliminary audit, however, the city concluded that $1.18 million in cost changes requested by Armada/Hoffler were justified.
The City Council last week approved spending $125,000 on a detailed audit on the cost overruns at the jail.
The new jail, at Albemarle and Holt Drives, would add 318 beds to the city's jail system and is scheduled to open in June.
In 1992, the jail costs were estimated at $21 million, but the price has reached $38 million, following a number of changes in the guaranteed maximum price contract.
Such a contract is designed to limit the total price of a project unless there are major changes made by the city.
It is the largest such contract in the city's history, according to public works director John A. O'Connor.
``We thought the guaranteed maximum price contract would eliminate surprises,'' O'Connor said.
Asked if it had, O'Connor said no.
``There still had to be some adjustments, which concerned us,'' he added.
``I don't want to say this is all Armada/Hoffler's doing. We have an architect that Armada/Hoffler claims has caused them some problems, too. We intend to look into that as well.''
A guaranteed maximum price contract works this way: If the project cost falls below the set amount, the money saved is returned to the city. If the cost comes in above the contract, the general contractor is supposed to pay it out of his profits.
More money can be added to the contract, but only if the city changes the project's scope.
``There was no instance where the city of Chesapeake directed an increase in the project scope,'' Thomas H. Westbrook, assistant director of public works, wrote in an August memo to interim City Manager Clarence V. Cuffee.
``We couldn't understand why there was a change in scope,'' Westbrook said in a recent interview.
Armada/Hoffler contended the changes included an array of differences between the designs used to bid out the contract and the actual construction plans the architect gave to the contractors.
They included:
Calling for specially shaped bricks, at an additional cost of $15,200. That change in price was rejected by the city.
Using certain brick types for the jail's recreation yard. The city agreed to pay the $40,000 cost of these bricks out of a contingency fund.
Requiring different steel weights in reinforced walls, handrails and elsewhere, most of which was rejected by the city.
Louis S. Haddad, president of the Armada/Hoffler Holding Company, said Monday that his company was simply following procedure when it asked for the additional $2.8 million to cover the changes between the design drawings and construction plans.
Haddad said his company has done more than $500 million in such guaranteed maximum price contracts. It is bidding on two such projects in Portsmouth, one in Norfolk and one in Baltimore, Haddad said.
The construction drawings - not Armada/Hoffler - called for the change in scope at the jail, he said.
``If Tommy Westbrook is saying he didn't change anything, then he better listen to his guys,'' Haddad said. ``When there are blatant changes in the scope, we're not about to turn around and make the subcontractors eat this because we're good guys.''
The dispute over who would pay for the changes was negotiated for more than 18 months, according to city memos obtained by The Virginian-Pilot.
The two sides came to an agreement last April. It was signed by Armada/Hoffler in June, according to city officials.
Finally, after meeting last week in a closed session because the matter might eventually involve litigation, the City Council allotted the additional $1.18 million to the project.
The council also called for the detailed audit.
Armada/Hoffler officials say they agree with the audit and actually called for one themselves during the recent settlement.
``We insisted that it be a third party,'' Haddad said. ``The crux of the audit is that it protects everybody. It keeps you out of trouble.''
A preliminary audit, the city said, reached the $1.18 million figure.
That money, along with $165,000 to extend the architect's contract and $125,000 for the audit, was approved by the City Council after an executive session held late last Tuesday night.
The city also budgeted $600,000 from the construction contingency fund so that, if there are future changes in the contract, ``we control that money,'' said City Attorney Ronald S. Hallman.
``We want to be fair to the contractor,'' Westbrook said, ``but we also want to make sure the money was properly spent.''
The City Council has been discussing the issue in executive session for at least the past two weeks and knew about the problem when they approved a deal to have Armada/Hoffler build a $9 million conference center that would be leased to the city, according to city documents.
The jail audit, to be performed by Goodman & Company LLP of Norfolk, is under way and is expected to be complete around May - more than 1 1/2 years after the jail project was originally scheduled to be up and running.
Chesapeake has used guaranteed maximum price contracts on the City Hall project, as well as on a 50-bed addition to the city jail in 1986.
Haddad said his company is confident that it is not responsible for the additional costs.
``This is going to bear out,'' Haddad said, ``that we're right.'' ILLUSTRATION: [Color Photo]
FILE PHOTO
Armada/Hoffler says the city called for changes that increased
construction costs. The city will audit the overrun.
CONSTRUCTION OF CHESAPEAKE'S NEW CITY JAIL
``We thought the guaranteed maximum price contract would eliminate
surprises,'' said Chesapeake public works director John A. O'Connor.
But for the new city jail, it didn't. The City Council has agreed to
pay $1.18 million more than the contract price, due to differences
between the design drawings and construction plans. But that is less
than the $2.8 million requested by the construction manager,
Armada/Hoffler Construction Co.
KEYWORDS: CITY JAIL CONSTRUCTION COST OVERRUN AUDIT
CHESAPEAKE CITY COUNCIL by CNB