REPORT TO COUNCIL
SUBJECT
Title
Approve a $34,500,000 Increase to the Construction Contingency in the Construction Contract with Walsh Construction Company II, LLC for the Sunnyvale Cleanwater Program Secondary Treatment and Thickening/Dewatering Project (PW22-17); Authorize Amending an Existing Contract with Psomas for Construction Management Services (F15-40); and Approve Budget Modification No. 19 in the Amount of $38,258,785
Report
REPORT IN BRIEF
Approval is requested for the following five actions:
1. An increase in contingency for construction services for Walsh Construction Company II, LLC in the amount of $34,500,000;
2. A 12th Amendment to the Consultant Services Agreement, in substantially the same format as Attachment 1 to the report, to increase the contract amount with Psomas of Walnut Creek, increasing the not-to-exceed contract amount by $3,417,077 to $39,846,201 and extend the term of the agreement through May 1, 2029;
3. Authority for the City Manager to execute the 12th Amendment to the Consultant Services Agreement when all necessary conditions have been met;
4. A 10% contingency in the amount of $341,708; and
5. A budget modification in the amount of $38,258,785
EXISTING POLICY
Pursuant to Chapter 2.08 of the Sunnyvale Municipal Code, City Council approval is required for the procurement of goods and/or services exceeding $250,000 in any one transaction.
Pursuant to Chapter 2.09 of the Sunnyvale Municipal Code, City Council approval is required for construction contracts exceeding $250,000.
Pursuant to Sunnyvale Charter Section 1305, at any meeting after the adoption of the budget, the City Council may amend or supplement the budget by motion adopted by affirmation votes of at least four members so as to authorize the transfer of unused balances appropriated for one purpose to another, or to appropriate available revenue not included in the budget.
ENVIRONMENTAL REVIEW
On August 23, 2016, the City Council certified the Program Environmental Impact Report (PEIR) for the Sunnyvale Water Pollution Control Plant Master Plan (SCH #2015062037) (Master Plan PEIR) (RTC No. 16-0663). Subsequently, the Council accepted two addenda to the PEIR (RTC 21-0756 on August 10, 2021, and RTC 22-0975 on November 1, 2022). The actions being considered involve work that is within the scope of the PEIR and addenda and no further environmental review is required.
BACKGROUND AND DISCUSSION
The City is implementing the largest Capital Improvement Program in its history-known as the Sunnyvale Cleanwater Program (SCWP)-to address aging infrastructure and make necessary upgrades to support continued and compliant operations at the Donald M. Somers Water Pollution Control Plant (Plant). The largest project in the SCWP is the Secondary Treatment & Thickening/Dewatering Project - CAS Stage 1 (Secondary Project), which is currently under construction. This project has sustained significant delays on the Thickening/Dewatering portion, increasing the contractor’s cost to perform the work and the Construction Management Consultant’s cost to manage such work. After extended negotiations, staff has reached mutual agreement with both the contractor and the Construction Management Consultant (CMC) on the price for this change.
The Headworks and Primary Treatment Project
The Headworks and Primary Treatment Project was the first major capital project under the Cleanwater Program. It delivered new facilities to remove solids from raw wastewater prior to secondary treatment. Design began in 2013, and construction was delivered in two bid packages. In 2016, Anderson Pacific Engineering Construction, Inc. was awarded the construction contract (RTC No. 16-0456) for the Primary Treatment Facility Package 1 Site Preparation Project (PW16-19). Subsequent to this project, in 2017, C. Overaa & Co. (Overaa) was awarded the construction contract (RTC No. 17-0447) for the Primary Treatment Facility Package 2 Project (PW16-28) which consists of replacing the existing headworks and primary treatment facilities with new facilities. the Primary Treatment Facility Package 2 Project is often referred to as the Headworks and Primary Treatment Project.
The Secondary Project
To ensure continued reliable treatment and meet pending changes in regulatory limits for nutrients (nitrogen), the City is augmenting existing secondary treatment facilities with conventional activated sludge (CAS) facilities. The new Thickening/Dewatering facilities will process activated sludge from CAS Stage 1 and will replace the existing contract sludge handling and dewatering operation. In 2022, Walsh Construction Company II, LLC (Walsh) was awarded the construction contract (RTC No. 22-0975) for the Secondary Project which consists of both CAS and the Thickening/Dewatering facilities (PW22-17).
When the projects in the Cleanwater Program were first defined, it was envisioned that site preparation work would be divided among projects based on the area of each contractor’s construction. However, the number of concurrent projects with physical and schedule interdependencies created an opportunity to consolidate site preparation work into a single construction contract. Therefore, Project 833210-Secondary Treatment & Thickening/Dewatering-CAS Stage 1 includes two construction packages: (1) the Site Preparation package and (2) the main package for Secondary Treatment and Dewatering.
The Site Preparation package included demolition of the existing primary sedimentation tanks, building a temporary maintenance facility to house the maintenance staff, and the demolition of the primary controls building/maintenance facility. The primary controls building/maintenance facility location is also the site of the new Thickening and Dewatering building that is part of the Walsh contract. In 2021, Ranger Pipelines, Inc. (Ranger) was awarded the construction contract (RTC No. 21-0756) for the Site Preparation package (PW21-35).
Cause of Construction Delay
The Cleanwater Program reconstructs almost every area of the Plant. Because almost all available space is occupied by operating facilities, Program improvements must be constructed in sequence. (See Attachments 1 and 2.) For the current phases of the Cleanwater Program, the critical path sequence was the following:
1. Construct and commission new Primary Treatment Facilities (PW16-28, Headworks and Primary Treatment Project)
2. Demolish old primary sedimentation basins (PW21-35, Site Preparation Project)
3. Erect and move into temporary facilities on the site of the old primary sedimentation basins (PW21-35, Site Preparation Project)
4. Demolish primary control and maintenance building (PW21-35, Site Preparation Project)
5. Construct Thickening/Dewatering facilities on the site of the old primary control and maintenance building (PW22-17, Secondary Treatment & Thickening/Dewatering Project)
Task 1 was under Overaa’s scope; Tasks 2, 3 and 4 were under Ranger’s scope; and Task 5 is under Walsh’s scope.
Anticipating the risk of delaying one contractor’s work if the previous contractor finished beyond the contracted-for timeline, a year of float was scheduled into this sequence. Despite this buffer, the Primary Treatment Facilities were completed approximately three years late. The Plant electrical service had to be upgraded by PG&E to meet the higher power demands of the new facility, and protracted coordination with PG&E delayed the power upgrade by two years (RTC No. 23-0185). After receiving permanent power, an additional year was lost to problems while commissioning and programming the control system that automates operation.
While these events occurred, staff and the Construction Management Consultant (Psomas) and Program Management Consultant (CDM Smith) took measures to mitigate the delay as much as possible, including:
• Escalating the PG&E delays with the government liaison
• Bringing in temporary power to enable functional testing of systems and subsystems
• Providing technical support for troubleshooting controls programming
• De-scoping non-critical programming that the assigned system integrator was unable to complete
Staff considered descoping the thickening and dewatering building portion of the Walsh contract and then rebidding it after the primary facilities and site preparation work was completed, but did not pursue the option due to the estimated high additional costs (including the escalation for the future work and compensating the existing contractors for lost productivity), and the risk of having one more contractor on a constrained site.
After the new Primary Treatment Facilities became operational, staff gave Ranger a Notice To Proceed to begin demolition of the old primary treatment facilities and the installation of temporary office and maintenance facilities. This work also encountered delays. Although a hazardous materials survey was conducted during design and included with the bid documents, additional hazardous material was discovered that had not been detected earlier. The temporary facilities work was also delayed due to Building Code changes during construction, which required unplanned alterations to the designed facilities and slowed the issuance of the Certificate of Occupancy.
Staff and their consultants again took steps to partially mitigate these delays, including:
• Moving maintenance equipment and staff into interim containers and trailers, uncoupling primary control building demolition from the erection of the temporary maintenance building
• Resequencing construction activities
• Allowing critical work to continue on Saturdays
On January 30, 2026, Ranger completed work in the Primary Control Building area, freeing that portion of the site for Walsh to occupy. The City issued a Notice to Proceed to Walsh to begin construction of the Thickening/Dewatering facility (NTP3), and this work is now underway.
Cost of Construction Delay
Walsh’s construction contract originally anticipated that NTP3 would be issued between December 1, 2023, and April 1, 2024; however, it was actually issued on February 2, 2026. Accordingly, Walsh would be entitled to compensation for certain compensable costs. The construction contract documents details the types of costs that are compensable. The types of costs include:
• Higher costs for labor, materials, equipment, and expenses due to rising prices over time
• Increases in the quantity of person-hours and equipment-days due to lost efficiency and standby
• Additional management, insurance, bonding, and markup
• Similar costs for subcontractors
Pursuant to the contract documents between Walsh and the City, in the event of a claim, the contractor can recover reasonable and actual costs that were unavoidably incurred by the delay. To avoid an adversarial situation and secure price certainty, staff negotiated a change order based on both actual costs to date and estimates of additional costs to be incurred before project completion. Psomas and an auditor subcontracted by CDM Smith undertook a months-long review of the backup and calculations that Walsh provided to substantiate its additional costs. This backup included material such as:
• Subcontractor and vendor quotes
• Accounting records of employee timesheets, pay rate, and fringe benefits
• Expense receipts
• Project schedules with detailed construction activities, the associated labor, equipment, material quantities, and their costs
• Staffing plans with employee names and responsibilities
To be considered valid, a cost must be (1) compensable per the terms of the contract, and (2) substantiated with proof that-for past costs-it was incurred in the amount stated, or-for future costs-the amount stated is consistent with the assumptions on which Walsh based their winning bid. Documentation of these assumptions has been stored in escrow since bid opening. During the review process, those documents were accessed and compared to the assumptions on which Walsh based their proposed change order amount. These assumptions are consistent with the approach that Walsh likely took in preparing the original bid proposal, which was lower than the other two bidders’, and when they were competing for the job and had no negotiating leverage. Accordingly, to City staff, the costs are fair and reasonable.
Although most of the costs could be substantiated, staff and their consultant team identified several discrepancies in the material. These invalid costs included, among other items:
• Full management and supervision near the end of the project when work tapers down
• Costs for vehicles assigned to staff during project idle time
• Higher rates than bid for equipment, home office overhead and profit, and subcontractor overhead
• Subcontractor markups in excess of the amount allowed by contract
• Markups on bonds and insurance
• Duplicative subcontractor overhead markups
Walsh agreed to eliminate these costs from their original requested amount of $48,672,386, reducing it by $9,122,386.
To further offset the financial impact, Walsh and staff partnered to identify concessions the City could make to reduce Walsh’s future costs. These concessions include extending access to the City’s storage facility, allowing WPCP power use for the duration of the construction contract, and waiving redundant quality control testing. In exchange for these concessions, Walsh offered to lower their proposal by an additional $1,050,000, resulting in the agreed value of $38,500,000.
As a result of the Secondary Project’s extended schedule, Psomas will also need to remain on site for an additional 30 months through project completion and closeout. The twelfth amendment for Psomas will cover construction management services through the new project completion date of May 1, 2029 (which includes the project closeout period) for the Secondary Project. The original contract fee was based on a projected completion date of October 2026. With the extension of the construction contract, the original Psomas budget would not be sufficient to cover the costs of services through the updated completion date. This amendment will increase the original Construction Management Services task for the Secondary Project from $16,650,467 to $20,067,544, and the overall Psomas contract from $36,429,124 to $39,846,201.
FISCAL IMPACT
Budget for the Construction Contract with Walsh Construction Company II, LLC was appropriated in Fund 6081 - Wastewater Management Fund under Project 833210-Secondary Treatment & Thickening/Dewatering-CAS Stage 1. The current appropriation is insufficient to cover the recommended additional contingency. This project is funded in part through a Water Infrastructure Finance and Innovation Act (WIFIA) loan, and the additional costs are eligible for reimbursement under the WIFIA loan.
Budget for the current contract of $36,429,124 with Psomas for the various Sunnyvale Cleanwater Program construction projects was appropriated in Fund 6081 - Wastewater Management Fund under Project 831470-SCWP Construction Management. The remaining contract amount of unused or underspent tasks and contract contingency will be reallocated to fund a portion of the outstanding additional costs related to delays.
Budget Modification No. 19 has been prepared to reflect the following transfers (shown in aggregate by project in the table below):
1. Transfer $32,220,972 from Project 835500-Cleanwater Program Reserve to Project 833210-Secondary Treatment & Thickening/Dewatering-CAS Stage 1 to fund project delay-related costs.
2. Transfer $2,279,028 from Project 833150-SCWP Existing Plant Rehabilitation-Split Flow to Project 833210-Secondary Treatment & Thickening/Dewatering-CAS Stage 1 to fund project delay-related costs.
3. Transfer $3,758,785 from Project 833150-SCWP Existing Plant Rehabilitation-Split Flow to Project 831470-SCWP Construction Management to fund project delay-related costs.
Items 1 and 2 combine to a total increase of $34,500,000 to Project 833210, as reflected in the table below, while Items 2 and 3 combine to a total decrease of $6,037,813 to Project 833150.
Budget Modification No. 19
FY 2025/26
|
|
Current |
Increase/ (Decrease) |
Revised |
|
Wastewater Enterprise Fund |
|
|
|
|
Expenditures |
|
|
|
|
Project 831470 - SCWP Construction Management |
$16,814,363 |
$3,758,785 |
$20,573,148 |
|
Project 833150 - SCWP Existing Plant Rehabilitation-Split Flow |
$30,747,385 |
($6,037,813) |
$24,709,572 |
|
Project 833210 - Secondary Treatment & Thickening/Dewatering-CAS Stage 1 |
$89,905,000 |
$34,500,000 |
$124,405,000 |
|
Project 835500 - Cleanwater Program Reserve |
$38,403,465 |
($32,220,972) |
$6,182,493 |
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
RECOMMENDATION
Recommendation
Take the following actions:
1. Approve a $34,500,000 increase to the contract contingency in the Construction Contract with Walsh Construction Company II, LLC for the Sunnyvale Cleanwater Program Secondary Treatment and Thickening/Dewatering Project;
2. Approve the 12th Amendment to Consultant Services Agreement in substantially the same format as Attachment 3 to the report to increase the contract amount with Psomas of Walnut Creek, increasing the not-to-exceed contract amount by $3,417,077 to $39,846,201201 and extend the term of the agreement through May 1, 2029;
3. Authorize the City Manager to execute the 12th Amendment to the Consultant Services Agreement when all necessary conditions have been met;
4. Approve a 10% contract contingency in the amount of $341,708; and
5. Approve Budget Modification No. 19 in the amount of $38,258,785
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
_X_ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
___ Contract between public agencies
___ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Reviewed by: David Battaglia, Purchasing Officer
Reviewed by: Dennis Ng, Assistant Director of Public Works
Reviewed by: Ramana Chinnakotla, Interim Director of Public Works
Reviewed by: Matthew Paulin, Director of Finance
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. SCWP Project Area Sequencing Schematic
2. SCWP Construction Sequencing Timeline
3. Draft 12th Amendment to Consultant Services Agreement