Jonathan Huggett's report on the Johnson Street Bridge Project
By David Broadland, July 19, 2014
I'll rearrange the deck chairs while you get out your wallet.
A semi-scathing report by engineer Jonathan Huggett on the state of the $93-million-and-rising Johnson Street Bridge Replacement Project was released by the City of Victoria on July 19. The report was prepared for the City following disclosure in April that the company contracted to build the bridge, PCL Constructors Westcoast, had filed a “Request for Change Order” for an additional $7.9 million and a 5.5 month extension of the completion date for the project. Huggett, an independent consultant considered to be an expert on municipal engineering projects, paints a troubled picture of the project.
Commenting on the project’s leadership, Huggett wrote, “During my review I asked everyone involved a simple question: ‘Who is in charge of the project.’ Nobody could provide me with an answer. That is an unacceptable situation.”
Huggett recommended the City delegate authority “to one individual (the Project Director) to manage the project.” The City promptly appointed Huggett to that position, although Huggett’s report noted his appointment is “on an interim basis” until September 2014.
Since September 2013, the City’s Director of Engineering and Public Works Dwayne Kalynchuk has been acting as “Project Director.” But even before Huggett’s report was released, blame for the project’s woes had fallen on the shoulders of Kalynchuk’s lieutenant, Senior Project Manager Ken Jarvela, who was fired last week.
Huggett also identified “various unresolved issues” plaguing the project. He said, “The failure to resolve these issues means that other issues then arise. In my experience resolving issues on construction contracts is not adequately dealt with by simply saying no and threatening litigation...It is naive in the extreme to believe that all that has to be done is to look up an appropriate page in a contract and enforce the requirement.”
Huggett recommended appointing an “experienced project referee” to help the parties avoid “litigation” since “ultimately litigation rarely benefits anyone.”
Huggett suggested issues were going unresolved partly because “Both MMM and H&H have largely expended much of their budget and are reluctant to incur additional costs that they cannot cover.” MMM Group is the City’s project manager, but are also doing engineering and design for the project; MMM sub-contracted engineering of the lifting portion of the bridge to the New York-based engineering firm Hardesty & Hanover.
Huggett gave MMM’s role in the troubled project special scrutiny. He noted a “recurring theme” in which “the costs for MMM performing construction services are a challenge, yet the budget was set by MMM in its agreement with the City.” Huggett added that a “lack of budget for undertaking services can never be justification for failing to provide adequate professional services.”
Huggett said timelines didn’t allow an exhaustive review of communications between the City and MMM, but he was “concerned regarding engineering services provided to the City” by MMM. Huggett made a telling observation: “[B]ecause the contracts with MMM and PCL are designed to dovetail, the latest claim for additional costs by PCL, if found to be valid, might imply fault with MMM. For this reason MMM are in a conflict of interest in assessing the PCL request for additional costs.” Huggett added “the City should recognize that,” and recommended appointing “independent advisors to assess the PCL claim for additional costs.”
PCL lays the blame for the increased costs on actions, errors or omissions by MMM. Its letter goes into cost increases in some detail, including a “414 percent increase in grout.” This is a reference to the infamous 4000 gallons of epoxy grout Victoria’s new bridge will depend on for structural support of the bascule leaf. MMM’s letter denies each of PCL’s claims, including the grout, and concludes, “In summary, we believe that PCL’s request for a Change Order has no merit and should be rejected.”
In his assessment of risks facing the project, Huggett noted that “While the City is publishing risk assessments in its reports, that risk registry does not adequately reflect or focus on the real and important risks related to the project.” Huggett went on to outline six risks “that must be properly managed,” including that the “project budget is extremely tight and there is a very real prospect that it will not be achieved.”
Another risk arises, Huggett reported, as a result of the bascule leaf being fabricated in China. “[Q]uality assurance is a key concern,” Huggett wrote. He recommended that the City devise an “appropriate quality assurance plan,” that would provide “further comfort that the portions of the bridge manufactured in China are of appropriate quality and meet all of North American standards of workmanship and material quality.”
Huggett also addressed the risk posed by the project’s relentlessly changing schedule and noted that a schedule supplied to the City by PCL in April 2013 had “not been formalized by issue of a change order, which would be the usual practice.” Since then PCL has changed the project schedule three times in response, PCL says, to actions, omissions or errors made by MMM. Again, MMM rejects all of PCL’s claim. Whoever is to blame, PCL’s current completion date is September 16, 2016. Huggett optimistically noted, “While it is very late to be agreeing [to] a project schedule, when the City already has a claim for delay, and fabrication work has begun in both China and Victoria, it is better late than never to adopt a project schedule.”
Huggett’s assessment that the project’s budget will likely have to be broken, again, will doubtless provide Mayor Fixed-Price-Fortin with another not-a-penny-more media moment, but is anybody still listening to the mayor? On the issue of project costs Huggett was blunt: “The term ‘fixed price contract’ is often used on construction projects, but in reality there is no such thing as a fixed price contract. It is possible to establish a fixed price contract related to a fixed scope of work, an agreed project schedule and a detailed allocation of risk, but any variation in any of those three categories is inevitably going to lead to a variation in price. That is the purpose of a contingency. We recommend a pragmatic approach to deal with costs on this project. I am certainly not suggesting that the City tear up contracts, but complex issues are involved. The project has turned out to be far more complex than originally anticipated and this has resulted in changes to schedule, scope and risk.”
Huggett noted in his report that “When a project goes astray there are two types of issues that must be considered, these being: root causes, and symptoms. Addressing symptoms doesn’t deal with the basic cause of the problems.” Only time will tell whether Huggett has accurately identified “root causes,” but in the meantime, let me provide a few doubts.
The bridge design is essentially an ill-considered reinvention of the wheel. This was made clear to City engineers—including Kalynchuk and Jarvela—when two of the three major construction companies competing for the bridge contract provided bids that rejected MMM’s reinvention of the wheel. The bid proposals of Kiewit Infrastructure and Walsh Construction were unequivocal in their negative assessment of the design and the financial risks MMM’s unproven concept entailed.
PCL took a more pragmatic approach in its bid. It said, in effect, “First, let’s get the job; we'll figure out later how to make a profit on it.”
Instead of confronting the City and telling it the design was financially risky, PCL said they could build it for the price the City could pay if only the City would let them make a few changes to the design. Yet all the signs were there—both to City engineers and to MMM Group—that PCL was taking a great risk. Why was everyone so willing to enter into this risk with PCL? Self interest.
Here’s what we know happened, which Huggett may have missed: PCL’s bid was based on what was called an “optimized” design. PCL took MMM’s indicative design and changed it almost completely. To get a sense of the magnitude of that change, listen to what MMM is saying now. In its letter rejecting PCL’s change order claim, MMM says, “PCL’s Optimized design is fundamentally different from the Indicative design. The Optimized design was not more than 10 percent complete at the time of PCL’s proposal submission...”
Elsewhere in its letter, MMM states that “PCL’s Optimized Design was at best a schematic design (maybe 10 percent complete). An experienced Contractor would account for this in establishing the required contingency when using quantities taken from Schematic drawings.”
MMM uses this “10 percent complete” description of PCL’s optimized design over and over in its letter dismissing PCL’s change order request. MMM also observes, “We note that it is not unreasonable for scope to vary by 30 percent from a 10 percent design and that is normally accounted for with appropriate contingency.”
In other words, according to MMM, the contingency that PCL should have applied to PCL’s optimized design back in 2012 in its bid proposal was 30 percent. But that would have put PCL’s bid for construction of the bridge at $83 million, which would have put the total project cost at $110 million. Alas, City councillors had insisted the price couldn’t be “one penny more” than $92.8 million.
So, instead, the “contingency” City staff attached to PCL’s proposed price of $63.4 million was $2.6 million (3.9 percent), which would have put total project cost at councillors’ artificial affordability ceiling of $92.8 million.
Was that wise? It depends on from whose perspective you’re considering that question: MMM’s? PCL’s? Your average new-bridge-booster City councillor? Or a taxpayer?
Here’s what City councillors were told about PCL’s 3.9 percent contingency at a closed meeting back in November, 2012 when the recommendation was made to councillors that the City should enter into contract negotiations with PCL: “The contingency started out higher and as they go through and refine the design the contingency reduces, so arriving at a design built with a 5 percent contingency is normal. The reason it was at 10 percent was because of risk, but they will do the analysis noting it is not that far off. This is a unique project; that is why the contingency is different.”
That’s word for word what the minutes of that in camera meeting, obtained by FOI, indicate councillors were told. It’s unknown who said this, but City staff attending that meeting included Jarvela and Kalynchuk. Bridge-replacing councillors ate this up; it was just what they needed to hear, as unbelievable as it must have sounded.
So let’s sum this up. MMM is now saying PCL’s contingency should have been 30 percent. But if PCL had used a 30 percent contingency, instead of 3.9 percent, in their bid proposal, the project would have been dead in the water politically, and many City councillors and staff would have been embarrassed for having spent four years pursuing a monumental folly. MMM would have missed out on an additional $9.1 million on their project management/engineering and design contract, and PCL would have missed out on the opportunity to ink a contract they could later argue wasn’t “fixed price” and allowed the price to be jacked up.
In this complex dynamic of self interest, let’s not lose sight of the fact that City staff somehow believed, or construed, that a 3.9 percent contingency was “normal.” Where did that concept of a “normal” contingency come from? Huggett’s report notes that “Throughout the procurement process, the City was advised from an engineering point of view by MMM Group Limited.” One can rightly assume that advice would have included the value of what a “normal” contingency for a design at “10 percent complete” would look like.
Mr Huggett appears to be in favour of changing course, slightly, by rearranging the deck chairs, taking charge of one of them himself, and encouraging the City to get realistic about what it’s going to have to pay for getting the job done. That will only require that the mayor’s many supporters continue to gaze off into space, unperturbed, as this unseemly pursuit of corporate and political self-interest continues on in pretty much the same direction it has from the start.
David Broadland is the publisher of Focus Magazine. He’s currently on vacation but, after reading Huggett’s report, PCL’s letter and MMM’s rebutal, couldn’t resist returning to this ever-deepening well of almost unbelievable foolishness.
|Jonathan Huggett's report to July 24 GPC.pdf||1.56 MB|
|PCL Request for Change Order March 17, 2014.pdf||1.15 MB|
|MMM response to PCL Letter of Mar 17, 2014.pdf||1.13 MB|