Taxpayers To Eat $7 Million Mistake

By Emily Weaver
Dunn Daily Record

DUNN – Engineers admitted they made a mistake — a $7 million mistake — that may cost Dunn taxpayers for years to come.

Davis Martin Powell engineers estimated the needed improvements to the city’s Black River Wastewater Treatment Plant would cost $3,699,000 in 2021. The city secured a state revolving fund loan of $3.626 million to help pay for it and awarded the design-build contract to T. A. Loving and Davis Martin Powell, high-scoring bidders on the project, in June. But now, engineers say the upgrades they could do for $4 million in 2021 may now cost up to $12.5 million, with some cuts.

The burden of more debt now rests on the shoulders of the city and its taxpayers.

“Something bad has happened here,” Councilman J. Wesley Sills told Michael Slusher, a project engineer with Davis Martin Powell, at the Dunn City Council meeting Tuesday night. “Biden’s inflation was 10%. Y’all missed the boat by 300%. … Is there something we can do with T. A. Loving to lower this price?”

Slusher said they are working to cut costs as engineers look at redesigning certain things, like putting a flow splitter box only 8 feet deep instead of 12.

“The project includes adding a clarifier, rehabbing a clarifier, constructing a new chlorine contact basin, constructing a new chemical feed system for pH adjustment, and to upsize aeration basin yard piping,” according to background on the council agenda item.

The improvements at the plant are required under a Special Order of Consent (SOC) that will help the city escape a moratorium on new sewer taps. The city’s growth depends on fixing its problems with inflow and infiltration into its sewer system that has led to sewage spills and the current moratorium.

“Does the $12 million that you’re presenting here, does that include the cutbacks?” Mayor William Elmore asked Slusher.

“Some of them, yes,” Slusher replied.

“So we’re not even getting the product that you presented to us initially,” the mayor commented. “If you’re cutting back on the product now with a $7 million increase, we’re not getting the same product.”

“Actually, as I went through, there are some benefits that will help you down the road on future projects, but it’s not all the $7 million. The changes that we’re making aren’t going to impact the capacity or the function of what we’re doing,” Slusher said. “The clarifiers, themselves, are basically unchanged. We’re not downsizing a structure or anything that would impact performance. It’s just looking at alternate ways to do it.”

Rising costs

Between January and April 2021, city leaders worked directly with Davis Martin Powell to establish an estimated budget of the project in order to know what to request from State Revolving Loan funds. That’s where the $3.699 million estimate came in, said City Manager Steven Neuschafer.

Once the city received confirmation of the loan request funding, staff put the project out for bid among design-build teams. T. A. Loving, of Goldsboro, and Davis Martin Powell, of High Point, scored the best and were awarded the project to start designing. But five months later, the price tag for their work jumped to $11.5-$12.5 million with the rising costs of materials and supply chain issues. And, Slusher admitted they also forgot to include allowances for geotechnical engineering issues.

“As we finalized the site plan in July, we had a geotechnical engineer come out, they did borings around the site and it revealed that it had worse groundwater problems and very poor soil conditions as compared to what some of our recent projects at the plant showed,” Slusher said. “Working with the contractor in the design build thing, allowed him to immediately notice that that’s going to be a huge impact on our construction methods, so excavations that normally you would try to do with just open cut, with laying the soil back are now going to have to be shored and sheeted and, of course, it’s going to have continuous dewatering to maintain the conditions so that they can work during construction.”

The improvements won’t expand the plant’s treatment capacity, but, with certain adjustments, it could make way for future upgrades while fixing the city’s infiltration problem.

“It only improves the ability to handle the flows that occur during your wet weather events, the I&I (inflow and infiltration) that we all know is a problem in the Dunn system,” Slusher told the council. “This will help minimize the collection system overflows and also work to get us out of the SOC.”

‘That’s unacceptable’

A cost estimate based on 30% of the construction plans showed a “significantly higher” price tag for the project, however.

“Now that we’ve reached the 60% design level, they are doing another cost estimate at this time, … which T. A. Loving expects to have that completed by the end of this week,” Slusher told the board.

The cost increase didn’t sit well with city council members.

“The estimate that you gave was … $3.6 million and now you’re bringing in a bid of $12.5 million and our board feels — I feel — that that’s unacceptable,” the mayor told Slusher. “In doing research, it’s our understanding that quite a bit of stuff was left out of your estimate such as the geo work, major plumbing, major electrical and several other items that are very, very costly items … and I think we need some explanation on that.

“It’s hard for us as a small city or as any city it’s hard to plan a project based on a $3.6 million project and then in 12 months we come in and that project has tripled. We’re talking a difference of $7 million and … if we had that money, I don’t think we’d be willing to write a check because a mistake was made on the front end in an estimate,” Elmore told Slusher.

Councilman David Bradham said he had “serious concerns” with the tripled price tag.

“You’re talking about a roughly $7 million difference here and it’s not like forgetting to bring home the eggs from the grocery store, this is a lot of money that we have to make up here,” he said.

“It is and these are difficult conversations to have,” Slusher responded. “We do know that we left a few things out. The shoring was one of the biggest ones, I think, they anticipate. And it’s probably one of the most expensive, that and the groundwater control. And, as I said, we put this together looking backwards and based on cost estimates we had which are based on historical numbers. And we look at a couple of things now, just the difference in the pipe material itself and the concrete materials was … over $2.5 million. It adds up very quickly. I don’t know how to say (it) other than we are very sorry that, that estimate was not more reflective. And we do acknowledge that there are some items that should have been included in it.”

“You do realize that, that’s a lot of money for our city,” Bradham told Slusher.

“We realize that. Yes sir. That’s a lot of money for anybody,” Slusher said.

‘Trickle down effect’

Councilman Chuck Turnage said the error leads to more than just a higher price tag.

City staff was forced to rearrange spending priorities to complete projects that would lift the city out of its moratorium, which limits the growth needed to fund other infrastructure projects.

“… But now we’ve got to rearrange our finances to be able to handle your errors,” Turnage told Slusher. “This is the trickle down effect that’s going to be passed on to our customers and we are customers, too.”

The next item on the meeting’s agenda was whether or not to accept the $3.626 million loan from the State’s Revolving Fund. Turnage asked the city manager if they should go back and ask for more money.

“No,” Neuschafer said. “We have a ‘plan.’ I would say that if this wasn’t on the SOC list of a required project to get off of the SOC or out of the SOC agreement we would be reconsidering whether or not we would move forward with it, but it is one of the three top required projects so this is really a have-to-have as far as the state is concerned to be able to handle those peak flows and things like that. So the engineering, what needs to happen out at the plant is part of the project. But if it weren’t on that list, we’d be reconsidering things.”

Heather Adams, Dunn’s director of public utilities, told the board that if they asked for more money the project would be delayed for months and they still wouldn’t be guaranteed a loan to cover it all.

City staff is looking to use more of the $30 million grant it received for sewer and water repair from the American Rescue Plan fund to pay for the shortfall.

“We’re going to shift some of the funds from that $30 million grant and supplement this project from that,” Neuschafer told the board.

The city planned to use the grant funding to help pay for all three of the top projects required in the Special Order of Consent. Now, the city will likely have to seek funding for the last project to bridge this gap.

“Maybe the interest rates will be different by then,” Neuschafer said. “Maybe the costs will level out because that will be most likely in a couple of years down the road. But that’s still something that we have to do. And we hope that at least some of the sharpness of this increase might be able to plateau or we might find some additional funding for that last phase of the three projects.”

Mayor Elmore asked Neuschafer to look into whether or not Davis Martin Powell’s liability insurance will cover its early estimate error.

Board members asked for another meeting to further discuss the plans once T. A. Loving’s latest estimate comes in.

Turnage asked for the city’s financial department to help them understand “how we’re going to eat this elephant, financially.”