By Erin Glanville
Municipal Projects: Why Do Things Cost So Much?Uploaded: May 2, 2014
I occasionally experience "sticker shock" at the proposed cost of city projects. I'm not the only one. A few months ago, the City Council seemed equally as perplexed at the price tag associated with some City Hall renovations, including $400K to replace 30,000 square feet of building carpet with new carpet tiles. Curious, I turned to my go-to, YELP, to look up commercial carpet installers with strong reviews. I spoke to the owner of a top rated company; did he do public buildings? Yes. In fact, he had just completed a large project installing carpet tiles for a local private college. He had done the work after hours so that the building would be functional for students during the daytime. His estimate for 30,000 square feet using a product similar to what he had just installed for the school: $150K. The difference was quite substantial. It piqued my interest, and I decided to try and better understand why municipal projects cost so much.
The Unchangeable: Logistics, Prevailing Wages, & How Salaries & Overhead Are Billed
In the case of these specific City Hall improvements, Assistant Public Works Director Ruben Niño explained to me that there are two major factors that impact project costs: logistics and prevailing wages. According to Mr. Niño, this project involved a much more complicated logistical picture than a simple carpet installation. He points out that the project involves a dismantling of work cubicles which necessitates expensive electrical work on the wiring that runs through the cubical partition walls. The work would also have to be phased in and done during off hours in order to maintain operations for the public. All of this involves multiple contractors, higher wages for off-daylight hours work, and logistical complications-- all of which equal dollars.
The second major factor cited by Mr. Niño, prevailing wages, is universal to all government contracts. Set by the California Department of Industrial Relations, prevailing wage laws require all bidders to use the same wage rates when bidding on a project. In other words, they make sure bids are not won based on paying lower wage rates than another bidder. Established wages include the basic hourly wage rate, overtime, and holiday pay rates. While an entire post could be spent on the pros and cons of prevailing wages, suffice it to say that proponents point out that by removing wages from the comparison, issues of efficiency and quality become more important. Opponents say it increases public works project costs and inhibits competition. Regardless, municipalities are required to abide by prevailing wage laws.
Another factor that isn't generally made clear to the public is the fact that city staff salaries and overhead costs (e.g. the City Attorney, the finance department, keeping the lights on) are "embedded" within capital improvement project (CIP) budgets. For example, according to Mr. Niño, approximately 50% of Public Works staff time is billed against the projects managed by that department. The other half comes from the General Fund. That accounting is not always clearly communicated to the public looking at a large bottom line number associated with a project. For full transparency, it is very helpful when governing organizations clearly break out all three (hard construction or project costs, personnel costs, and the overhead costs) charged to a project when communicating a project's budget to the public.
The Intangible: Does Transparency Hurt Us?
There are other factors at work that seemed to frustrate at least one Council Member, Rich Cline. Mr. Cline, who has a great deal of experience with large scale projects in the private sector, seemed frustrated with the cost of a number of recent projects that have come before the Council, including the City Hall renovations. I put the question to him: why do these projects seem to cost so much? Mr. Cline stated that while he appreciates that the city is following the correct RFP procedures and bid solicitation process (which includes sending out bids to over 14 different builder exchanges or plan rooms), he feels like there is the same small group of the vendors responding and that "the net needs to be cast wider." Moreover, Mr. Cline points out that the vendors bidding on a project have a great deal of publicly available information that may give them an advantage. Unlike in the private sector, prospective bidders have access to meeting podcasts, minutes and online budgets to find out exactly how much has been set aside for a given project. Does that impact their bid? It is hard to imagine that it doesn't, although to what degree is up for debate and multiple civic leaders I posed the question to expressed different opinions ranging from it having a negligible impact to a substantial one. Ironically, in this case, one of the ingredients that is critical to good governance, transparency, may have a down side when it comes to getting competitive bids.
What Can Be Done To Reduce Costs?
To keep project costs down, the city has had to look at altering project schedules and allowing required work to occur during daylight hours, which has a greater impact on the public. For example, when two initial bids to replace the irrigation system along Santa Cruz Avenue at night came in too high, the City Council rejected the bid. Public Works changed the scope to allow work to occur during the day. While the daytime project might have been more inconvenient to the public and downtown businesses, it nevertheless saved Menlo Park approximately $100K. The current tree replacement project along El Camino (existing crepe myrtle trees are being replaced with London planetrees) was rescheduled, according to Mr. Niño, in order to more flexibly accommodate the schedule of a less expensive contractor and timed to occur during daylight hours. Again, it has a short term impact on traffic, but it also results in cost savings to the city.
There may be online tools that could help widen the net and create more competition by bringing in more bids. The City of Fremont uses an online service called BidSync to advertise projects and solicit bids from a much broader (according to BidSync) pool of service providers. According to Fremont's purchasing manager, Linda Wright, the service has "opened it [their pool of responses to proposals quite a bit" and "has cut down on paperwork work considerably." A somewhat similar service called eBidboard is used by Mountain View for their public works projects. I did a free trial of the BidSync service. I signed up as a service provider for writing projects and received daily updates on projects from around the country that matched my profile. I can particularly see the value in having small projects that could be done remotely (e.g. graphic design, documentation) advertised in a broad-based online marketplace where bids can be solicited outside of the expensive Silicon Valley area.
It's been an enlightening process to better understand some of the forces behind the bottom line numbers, and I appreciate the time various civic leaders spent sharing their opinions and perspectives. I'm left with several key take-aways on the things within our control:
? Vigilant out-of-the-box thinking in terms of cost cutting is required. If that means some public pain, I am all for it. (I will no longer cast a stink-eye on the orange construction trucks on El Camino during rush hour because I know it saves our city a substantial sum.) The City Council has and should continue to exercise pushback in an effort to achieve the biggest bang for the taxpayer buck.
? Technology "tools" can be strategically used to create more competition. Menlo Park has recently launched a new website and is in the process of consolidating back end systems. However, the city may want to investigate the value proposition behind some of the offerings out there and see if tweaking our procurement process could lead to cost savings.
? The important of understanding the different costs associated with a given project. Going forward, I will be drilling down on project costs to better understand the ratio between the hard costs, project management and overhead costs as part of the total picture.