Opinion: Contractors play games with city contracts to extract more money; it must stop

Contractors working with the city submit artificially low bids to win projects and then ask for multiple changes that hike the cost way up. The city plays along.

What does a contractor do if a project is canceled because his bid was too high?  Simple! Submit a lower bid, start work, and then put in for a series of amendments that hike the cost back up to and beyond the rejected bid.  Easy, if the client cooperates. There’s one client that always does: City of Berkeley.

A case in point is the windsurfer bathroom on the south side of the Marina.  It’s already pricier per square foot than prime Pacific Heights real estate, and it’s still not in service although the building went up in June. After spending way over the contract for this overpriced and redundant installation, the City Council is about to approve another $25,000+ cost overrun claim (Oct. 16 Agenda Packet at p. 561).  And the game isn’t finished.

Let’s look at the scorecard.

In November 2016, the city put the South Cove Parking Lot and Restroom Project out for bids. A month later, two bids had come in. Team Ghilotti Inc. had the lower one, at $1,818,000. The higher one was $1,881,000 by Interstate Grading.  On Jan. 24, 2017, the city manager requested, and City Council approved, the rejection of both bids as too high. The city’s engineer had estimated that the project should cost no more than $1,430,000, not including administrative overhead, and the available grant funding ceiling was $1.6 million. Of that, $600,000 was for the restroom. The city directed its staff to “re-scope the project” and put it out for new bids.

The city then hired TranSystems Inc., another contractor, to review and revise the plans. TranSystems also played the game. TranSystems had drawn up the original plans in 2012 for an initial fee of $139,625. It came back in 2013 for an additional $43,260 for design upgrades. In 2015 it asked for and got $75,955 more. On May 31, 2016, it demanded and got an additional $29,016. Then came the re-scoping work after the city manager’s rejection. On March 14, 2017, TranSystems billed the city for $63,000.  On May 16, 2017, it asked for and got an additional $25,300.  This made a total of $88,300 for work done during the re-scoping period. Altogether, Berkeley paid TranSystems Inc. a total of $350,596, all for design and design changes of a parking lot and restroom, not for actual construction. 

You would think that TranSystems had prepared a memo showing the difference between the old plan and the new re-scoped plan, to justify that $88,000 invoice, but when I put in a Public Records Act request for documents showing the difference, I got the reply that no such documents existed.

The city then re-advertised the allegedly re-scoped project for bids, and Team Ghilotti came in with a low bid at $1,604,955.55. This was $213,044.45 less than its earlier bid. On Oct. 24, 2017, the city executed Contract No. 10754 with Team Ghilotti Inc. in that amount for the south Marina parking lot and restroom project. 

The contract says that the contractor “has examined thoroughly” all aspects of the site above and below ground, knows all code requirements, and pledges that no additional work will be required to finish the project.

Despite this pledge, on April 3, 2018, six months in, the contractor went back to the city asking for an additional $130,000, claiming it was needed due to “unforeseen conditions” requiring an electrical upgrade and landscaping. The savings from the original bid was now reduced from $213,044.45 to $83,044.45.   

On April 23, 2018, the city agreed to up the contract amount by another $8,272.69. The contractor had found unforeseen objects and unsuspected mud while excavating the restroom sewer trench. The savings was now down to  $74,771.76.

Only two days later, on April 25, the city agreed to pay the contractor an additional  $167,497.50. This was for an allegedly new electrical design and for unforeseen soil conditions when landscaping. At this point, the new contract for the re-scoped project became $92,725.74 more expensive than the original rejected bid.  

Tonight, Ghilotti is asking for, and the Parks, Recreation and Waterfront Department is recommending, an additional $25,116. It’s Item 11 on the Consent Calendar. If approved, as doubtless it will be, Ghilotti will have taken the city for $117,841.74 more than the original bid that the city manager rejected in Jan. 2017 as unreasonable and excessive. In fact, it brings the contract cost to $54,841.74 higher than the rejected high bid of Jan. 2017 by competitor Interstate Grading.  

Is the game over now? Not likely. The prefab restroom building went up in June 2018, but you can’t use it. The Parks, Recreation and Waterfront department has kept it locked and posted a notice on the door (see photo) saying that “Restroom Utilities are currently under construction. Anticipated completion date: July 30, 2018.” The facility has remained closed and that same notice remained up as Oct. 15,  75 days after the posted “anticipated completion date.”

A Parks source explained to me recently that the utilities still under construction are electrical, and that PG&E was withholding approval. The $25,116 that Ghilotti is asking the City Council for on Oct. 16 is only for landscaping, not for electrical. Very probably, another round of increases is coming for the electrical work. That will bring the cost overrun for this re-scoped project even higher above the ceiling that the city manager set in 2017.  

Nobody has asked why the contractor hadn’t foreseen this totally foreseeable landscaping and electrical work and built it into the bid to begin with. Or why Parks and its engineers hadn’t looked at the contractor’s bid hard enough and seen that it was just the opening move. In the game of Parks contracts, opening bids are a joke, contractor’s guarantees of thorough inspection are empty verbiage.  The city manager’s extraordinary finding that the 2017 bids were unreasonably high was just a paper barricade that Parks easily defeated with an end run. There’s not one word of protest in the Parks documents against Ghilotti’s repeated claims for extra payments. Parks and the contractors dance together in a warm embrace. Meanwhile, the infamous windsurfer restroom — the most expensive structure per square foot ever built in Berkeley — remains closed to the public.

The city initially defended the extravagant cost of the windsurfer restroom on the ground that it wasn’t city money. It was Cosco Busan and related grant money. True enough, for the project as originally scoped. But the cost overruns are coming out of the Marina budget, which is city money. It was interesting to hear the parks department shrug that off. Oh yes, the Marina budget can kick in $130,000 without impacting any other project.  Add $167,497.50, sure, why not. Another $25,116, no problem. This, from a department that chronically complains it can’t fund permanent restrooms in Cesar Chavez Park, even though $130,000 alone would buy two permanent restrooms with money left over. Like Parks contracts, the Marina budget is fluid and relativistic. For park visitors, there’s no money. For windsurfers, Marina money flows like water.

Martin Nicolaus has lived in Berkeley since 1992. He writes an almost daily blog on Cesar Chavez Park (chavezpark.org), has published a book about the park (From Trash to Treasure), and led a campaign to replace park porta-potties with permanent flush-toilet bathrooms.