Wastewater treatment plant specs called into question

The Metropolitan Council has hired a contractor to construct an East Bethel water reclamation facility that will collect and treat sewage and disperse the treated water to water reclamation sites that could in turn be used for irrigation, commercial or industrial needs.

Crews have been working along Highway 65 and Viking Boulevard near Highway 65 on installing sewer and water pipes, a water tower and a water treatment plant. A new wastewater treatment plant will be coming soon along 185th Avenue near this area. Photo by Eric Hagen

Crews have been working along Highway 65 and Viking Boulevard near Highway 65 on installing sewer and water pipes, a water tower and a water treatment plant. A new wastewater treatment plant will be coming soon along 185th Avenue near this area. Photo by Eric Hagen

The Metropolitan Council unanimously agreed to hire the Rice Lake Construction Group of Deerwood. Out of four bidding companies, it had the lowest bid of $13,056,600.

The highest bid of $14,136,050 was still lower than the most recent estimate of $14.2 million, according to Metropolitan Council Environmental Services (MCES) spokesperson Tim O’Donnell.

The other three companies that submitted bids were Gridor Construction of Buffalo, Knutson Construction of Minneapolis and Staab Construction of Marshfield, Wis.

MCES is paying all project costs to construct the water reclamation facility, the rapid infiltration basins that will receive the treated effluent in water form.

O’Donnell acknowledged that there was some concern raised by the construction contractors regarding a two-year “performance verification period” in which the contractor would fine-tune the equipment and processes, program the instrumentation and control systems and demonstrate that the facility is operating properly.

However, he said four bids is a typical number for this type of project.

By comparison, East Bethel received eight bids for the water treatment plant in January. In December 2010, the city received eight bids for the water and sewer pipes contract, five bids for the water tower contract and four bids for the construction of two wells.

At the request of ABC Newspapers, O’Donnell mailed letters from three construction contractors and three insurance and bond agencies that raised concerns about the two-year performance verification period.

The three contractors were Municipal Builders Inc. (MBI) of Andover, Magney Construction of Chanhassen and Sheehy Construction Company of St. Paul.

All three wrote mailed a letter to James Roth, MCES principal engineer and project manager, in December 2011 to inform him that they would not bid on the project.

MBI is the company that is working with the city of East Bethel to construct its water treatment plant.

“This requirement has never been imposed on a contractor in our area before,” wrote John Wegner, president of MBI in a Dec. 13, 2011 letter to Roth. “It exposes the contractor to numerous operational liabilities and insurance requirements that contractors are not protected against.”

According to Wegner, its surety company for the last 18 years is refusing to bond the project.

MBI searched for another surety to bond the project but none have committed to do this solely due to the performance verification section, Wegner said.

Gregory T. Spalj of the Fabyanske, Westra, Hart & Thompson law firm in Minneapolis, which represents the Rice Lake Construction Group, said his client has built wastewater and water treatment plants throughout the Midwest since 1984 and has encountered many unique specifications and programs issued by municipalities to suit specific needs.

“If Rice Lake Construction Group thought the specifications were not workable, it would not have submitted a bid,” Spalj said.

“Many contractors may shy away from a project for a variety of reasons depending on their qualifications, capacity, ability and timing.”

“Rice Lake Construction Group saw no reason not to submit a bid on this project.”

ABC Newspapers had also asked the cost for the Rice Lake Construction Group to take on the two-year verification period. This question was not addressed.

John Klein of Klein Agency, Inc. Insurance and Bonds in St. Paul wrote in his letter that a contractor’s job is to build, not to design the system or draw plans.

Klein’s belief was that MCES would see less bidders than intended and any prospective bidder would increase its bid to cover the unknown operational costs, he said.

“I am not a contractor, but experience would tell me that the only way a contractor can bid an unknown is to either purchase insurance for it or to jack up his price so much that it would easily cover any possible, expected exposure,” Klein said.

O’Donnell said the two-year operational expenses were included in the bids.

This approach has been used on other projects such as the Eagles Point Wastewater Treatment Plant in Cottage Grove, although the post-construction verification period was shorter, he said.

“The two-year period for this project relates to the plant’s level of sophistication and low initial flow of wastewater, because this plant will serve newly sewered areas,” O’Donnell said.

“Our experience has shown that wastewater treatment/water reclamation facilities of this complexity require an additional commitment of this nature from the contractor to fully demonstrate the integrity of their work.”

O’Donnell said it is difficult to compare the number of bids received when these other projects were conducted by different government organizations and require varying degrees of specialization to construct.

The water treatment plant uses one basic process such as pressure filtration to treat a uniform input like groundwater, he said.

The MCES wastewater treatment facilities need to use several processes because they treat a much more variable input, which in this case in wastewater, O’Donnell said.

Therefore, he said there tends to be an opportunity for more contractors to do the water treatment plant work compared with the more complex wastewater treatment facilities.

Due to the scope of the project, MCES pre-qualified nine companies that could bid on the construction project and four other companies who would be qualified to run the wastewater treatment facility for two years after construction, according to O’Donnell.

Rice Lake Construction selected Bolton and Menk, Inc. of Mankato to operate the facility, O’Donnell said.

Jim Schoenberger, vice president of Sheehy Construction Company said in a Dec. 16, 2011 letter to Roth that his company felt the language of the two-year period after construct is a little ambiguous and could lead to more risk than typical for a project like this.

“We really hate to pass as we value the relationship with the Metropolitan Council,” Schoenberger wrote.

“However as a business, we have to weigh the exposure of the firm for what we would be undertaking and have the support of the bonding and insurance companies.”

Mark Magney, president of Magney Construction, wrote in a Dec. 13, 2011 letter to Roth that his surety company will not provide a performance/payment bond for this extended operating period.

He wrote that his company could not accept the additional risk associated with operating the plant.

Bob Bowman, an account executive officer for Travelers Insurance, and Dennis Richmann, vice president of the United Fire Group Surety Department, also sent letters to MCES expressing similar concerns about the two-year verification period.

Bowman wrote that the specifications as written would require the contractor to factor in additional costs for a number of items, including but not limited to extended overhead, surcharge for extended time line on the performance and payment bond, bonding of the operational and maintenance contractors, warranties to cover the extended time line, insurance and routine maintenance.

“Our understanding is that Metropolitan Council has never had a build-operate contract like this in the past,” Bowman wrote in his letter dated Dec. 12, 2011. “This raises concerns about potential disputes that are hard to quantify and may impact contractor willingness to bid the project.”

Eric Hagen is at eric.hagen@ecm-inc.com

  • Concerned

    Is this really a story? It sounds like much ado about nothing. Some contractors did not like some of the requirements and did not quote on the project. The ones that did, got the job. They have a contract and should abide by that contract or have to deal with the any leagal issues if they do not. Who is calling the spec’s into question other than the contractors that did not bid?

    • Surety Bond Guy

      The tax payer may call the specs into question. In attempting to transfer the risk of successfully operating a waste water treatment plant for two years, The Metropolitan Council has inadvertently increased the costs of that plant by an unknown quantity. A contractor bidding on an unknown quantity must necessarily consider every worst case scenario, and charge accordingly, whether or not any of these scenarios come to pass. Thus, the Council is needlessly spending money by asking a fourth party to hire a third party to perform a function that it should be able to perform on its own.

      Additionally, the Council is relying on a surety company which may or may not be solvent during the two year maintenance period, further exposing tax dollars to unnecessary risk.

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