Design-Build-Collapse

Hello USDA loan, good-bye design-build and all it promised.

The County is on the verge of dropping its once-touted, cost-saving design-build process for the Los Osos sewer project. The trigger for shelving design-build: The approximately $64 million USDA loan coming to the County for the project and contractual strings that the County claims are attached to the loan.

“(USDA) may not support design-build under their guidelines and under their contracting documents,” said County Project Engineer John Waddell at the July 27 Los Osos Project Update for the Board of Supervisors and public.

“In the next several days,” said Waddell at the time, “when we find out the amount of the funding, and in the next several weeks when we get their additions on the funding, we’ll be able to evaluate what their funding means, what that means for design-build, how the benefits of USDA funding compare with the benefits of design-build and so forth, and we’ll be able to resolve this question in the near future.”

The USDA loan does not preclude design-build—although design-build hasn’t been done under USDA in California. In fact, USDA regulations support design-build and inclusion of economical alternatives. However, Waddell’s comment suggests that Public Works has already predetermined that the benefits of USDA funding far exceed the benefits of design-build, to make a specious argument out of it, as if they have to make a choice between USDA and design-build, which they don’t.

The real choice the County has to make is whether they want to follow USDA regulations and fully restore design-build with STEP and alternatives—or not, and if they don’t then how to best avoid them. Among several relevant USDA regulations covering design-build is:

§ 1780.70  Owner's procurement regulations.

Owner's procurement requirements must comply with the following standards:

(b) Maximum open and free competition. All procurement transactions, regardless of whether by sealed bids or by negotiation and without regard to dollar value, shall be conducted in a manner that provides maximum open and free competition. Procurement procedures shall not restrict or eliminate competition. Examples of what are considered to be restrictive of competition include, but are not limited to: placing unreasonable requirements on firms in order for them to qualify to do business; noncompetitive practices between firms; organizational conflicts of interest; and unnecessary experience and bonding requirements…”

Design-build has been a neutered process for over a year now, the actual “competition” having shrunk exclusively to the existing MWH design and a few gravity system builders. The USDA loan now provides the County with a timely excuse to drop design-build entirely. At the same time, dropping design-build yields another benefit—it cuts off any remote possibility of returning to the open-bidding process. So those Los Osos community activists seeking to return STEP to the design-build process may soon have to contend with getting design-build back on the table first and STEP back in design-build second, which will further distance STEP and affordable alternatives from the debate over the County’s closed-door policy.

Of course, the County could keep the shell of design-build alive to lend the appearance that they have followed their guiding documents, such as the County’s own 2007 “Assessment Engineer’s Report,” which prominently identifies design-build and an “apples-to-apples” cost comparison of the STEP and gravity collection systems as a key components of the sewer solution. Adopted by the County, the “Engineer’s Report” influenced Los Osos homeowners who succumbed to the false advertising to vote “yes” in the fall 2007 Proposition 218 vote to be taxed or not taxed for the project. Many who voted “yes” believed that the County’s own document, certified by two engineers, was sufficient guarantee that the most affordable project would be selected.

Orenco Letter
On the surface, there appears to be little PR value in maintaining the thin design-build façade, and, in fact, it may actually pose some liability for the County to keep it on life support. Generally, though, the USDA loan is a win-win for the County’s back-room way of doing business.

Commissioned by the County, the Wallace Group’s “Assessment Engineer’s Report” of August 2007 was stamped and certified by Wallace Group Assessment Engineer Craig Campbell and Co-Assessment Engineer Dean Benedix for the County. Contained in that report, which was accepted by the Board of Supervisors, is an August 16, 2007 memo from Benedix to then-Public Works Director Noel King and then-Deputy Director Paavo Ogren that read in part:

“The special benefit of the collection system was selected such that a range of collection system alternatives could be funded. In the current project selection strategies, the STEP and gravity alternatives would compete through the construction bidding phase using a competitive bid, design/build and/or build/own/operate/transfer process.”

Wrote Bill Cagle of Orenco Systems to Board Chairman Frank Mecham on May 28: “Based on the above statement alone WM Lyles should have been shortlisted, because it was the only team to propose STEP technology and according to official documents STEP was supposed to be taken through the RFP construction bid stage.”

The next sentence in the report states:

“If gravity system bids are received near the high end of the cost range, it is unlikely that gravity will compete with STEP.”

“And there you have the crux of the problem,” Cagle wrote in his letter. “Notwithstanding the fact that the STEP alternative would likely beat any gravity sewer proposal on cost and that the WM Lyles team represented the most qualified team to deliver the most sustainable solution, the RFQ evaluation committee did not include the WM Lyles STEP alternative on the shortlist. The only logical explanation to this suggests impropriety and a pre-determined outcome of the RFQ process.”

Orenco introduced design-build to Los Osos in October 2006, wrote Cagle, “because if done correctly the DB project delivery method performed in an open, fair, and equitable manner can bridge all socio-economic barriers. And if Orenco lost in that type of process, that would be OK, because Los Osos would benefit, which is the ultimate goal.

“Unfortunately,” wrote Cagle, “actions by staff and the appearance of impropriety with MWH have severely damaged the Los Osos WWTP DB process, attested by the fact that the socio-economic unrest still exists, and administrative cost overruns exceeding $5 million. The Design Build Institute of America warns that if the DB process is adulterated, the benefits of DB will be stripped away.”

[Lee Evey, past president of DBIA, offered his services to SLO County. This included bringing his design-build team of consultants to help the County through the design-build process. Evey didn’t hear from the County again. Obviously, the County was never interested in playing a willing, honest broker in a co-equal design-build process or they would have at least responded.]

“Engineer’s Report”
Legally, County Counsel Warren Jensen reduced the County’s own engineer-certified, board-adopted 2007 “Assessment Engineer’s Report” to a pile of scrap paper.

“The ‘Assessment Engineer’s Report,’” said Jensen on July 27, “is not a contract and it does not create some right to challenge what’s happened subsequent to that vote. In fact that very issue about the supposed contractual nature of the pact created by this ‘Engineer’s Report’ that was associated with the Prop 218 process was raised in a lawsuit that the County could not proceed because of that very reason, and the judge rebuffed that.”

Jensen likes to play with words, but, contrary to his bouts of hyperbole, there has been no ruling in local courts on the significance of the “Engineer’s Report.” The fact is that the “Engineer’s Report,” while not a contract, is a guiding document promulgated by the County. What is the point of the “Engineer’s Report” if isn’t adhered to? What is the meaning and value of the engineers’ stamps certifying the report and guaranteeing its contents if the report has no bearing on the project? Why did the County go to lengths (and expense) to disclose this information and notify the public of its inclusion in the Prop 218 vote if it wasn’t to be followed?

Plainly, to some observers, such a distinct deviation from the “Engineer’s Report” constitutes a violation of Proposition 218 of the California Constitution and, despite Jensen’s word-parsing, the County appears to be in some degree of legal jeopardy for degrading the clear intent of the report that steered the $127 million assessment of developed properties.

No Competition
Once ballyhooed by the County as an integral part of its plan to build the most affordable project for Los Osos, design-build became a lame-duck process last April when the County preemptively dropped any and all alternative systems from bidding—before any side-by-side cost comparison of STEP collection versus gravity collection could take place to determine the least expensive.

Waddell of Public Works doesn’t quite see it that way.

“We did have a competitive prequalification step to the design-build process in early 2009,” said Waddell on July 29.

Despite Waddell’s distortion of the facts, no cost competition ever took place and no final numbers were ever compared to see which system cost less, though STEP representatives claimed STEP would cost at least $50 million less than MWH gravity collection. As Project Engineer, Waddell should know that “competitive prequalification” is hardly the same as “competitive bidding,” which was always the essence of the design-build advantage.

Dumping the design-build process will most likely hand MWH a design-only contract, circumventing regulations preventing them from bidding, and contractors will then bid on the MWH design again as they did in 2005. This absolutely eliminates competition on the design, and virtually assures elimination of any real innovation in the project.

“The Design Build Institute of America training attended by County staff… warns this will happen whenever the design-build process is adulterated,” wrote Cagle to Chairman Mecham: “Had the current DB process gone down this path we’d already be in construction. And if a re-start were declared, construction of a sustainable wastewater solution could feasibly begin in a shorter timeframe than even the current project.”

Chairman Mecham did not respond to Cagle’s letter or to community inquires regarding the Cagle letter.

Public Works Director Paavo Ogren responded to Cagle in a June 3 email, largely ignoring the substance of Cagle’s comments, instead directing his response to copied supervisors, and volunteering to meet with them individually to review project milestones.

“Obviously I don’t agree with several of Mr. Cagle’s statements in his most recent correspondence,” wrote Ogren. “The project that your Board approved, and which is now the jurisdiction of the Commission, is an excellent project for Los Osos, and the time has come to move forward.”

Forward to design-build failure and tragedy for thousands in Los Osos.

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