Naples faces exponentially higher costs for a new stormwater system. Here's why

The price to build a new coastal stormwater system in Naples could more than double.

Mostly because of higher-than-expected costs for labor and materials – and there's not a lot of competition to build it.

A general contractor the city hired for preconstruction and construction management services has come in with a guaranteed maximum price of about $86.2 million.

That includes $67.5 million in actual construction costs, far exceeding the "probable cost" provided by the independent engineer, which put it at $32 million.

Based on the current scope, the long-anticipated project would remove all nine of the stormwater outfalls – or large pipes – lining the city's beaches, as directed by the state's Department of Environmental Protection more than a decade ago. A new stormwater management system, including two new pumps, would replace the gravity-based outfalls, with the goal of reducing street flooding, water pollution and beach erosion.

While the price difference between the old and new estimates is huge, Bob Middleton, the city's director of public works and utilities, said that it didn't come as a shock to him, as other cities and counties grapple with the same financial realities around the state and country, due to higher construction costs and inflation that have doubled and tripled the cost of infrastructure projects across the board.

"The cost that the contractor got was from vendors, supplying him quotes," he explained. "He also supplied his own quotes, which were very close. They were within $1 million of each other."

The city hired the contractor, Kiewit Infrastructure South Co., to review and certify the design, to solicit prices from vendors and to come up with a maximum cost for the project. It's known as a "construction manager at risk" approach, which has gained popularity, as a way to control the schedule and budget for projects, and to ensure quality work.

The assurances come at a cost. If Kiewit is hired to manage the project, it would get 12% of the guaranteed maximum price for construction. Based on its current estimate to build and manage the job that would total more than $8.8 million.

For the consulting work it's done so far, the city agreed to pay Kiewit about $1.57 million, which is not part of the company's percentage-based fee to build the project, nor its estimate.

The maximum price is made up of more than just the actual construction costs. For example, $7.75 million has been allocated to "general conditions," which include expenses for everything from job mobilization and signage to traffic control and site management that might not have been considered by the engineer.

Kiewit's estimate also includes contingencies to cover any unexpected costs on the city's and the contractor's end. If not spent, that money would come off the price tag, reducing it by nearly $4 million.

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Original estimate questioned

After learning about the vast difference in estimates at a recent city council workshop, some residents criticized the council and city staff for not paying enough attention to the rising costs and questioned the validity of the last price quote by Erickson Consulting Engineers, which is now a few years old.

Resident Greg Myers, an oft-critic of city council and its decisions, went as far as to suggest that Middleton and the city manager should be fired over how the project has been handled since they've been in charge. City council didn't point any fingers at staff.

Myers described the presentation on the status of the project as a "disaster."

"What I've heard today is beyond the pale, to the point where I want to throw up," he said.

Some on council questioned the veracity of the original estimate themselves, acknowledging it lacked detail and specificity, so it was difficult to make an apples-to-apples comparison.

A representative for Erickson Consulting couldn't be reached for comment, but Middleton said he recently asked the company to justify and update its projected cost, and it did. The engineer's new estimate, he said, actually came in lower, at $28 million, with some of the construction work already done on the project.

"I don't think it has to do with paying attention," Middleton said. "We want to be unbiased. We rely on the engineer and the contractors to give us the price of what it's going to cost, and not get involved, so they can provide the best information."

At the workshop, Russel Dingman, a project manager at Kiewit, described the maximum price as a "worst-case number," not a firm, fixed one.

He told council that he would continue to get quotes that could potentially bring down the estimate, but shared they've been slow in coming because local subcontractors are so busy with other jobs and struggling to find and keep enough workers for the jobs they have already.

"There's not a lot of people looking for work," Dingman said. "Quite frankly."

In fact, he said, several subcontractors he contacted told him they would only provide their prices if they're guaranteed the job because they've got so much going on and aren't all that interested in doing it.

Since companies are so busy, their prices may not be as competitive, resulting in higher costs, Dingman said.

After reviewing the project's design, Kiewit found it sound.

The contractor's first estimate came in at more than $91 million, but in working with city staff to get that number down, it made a few changes that shaved off a few million. Changes included substituting some of the construction materials suggested by the engineer.

Kiewit's estimate not only reflects the high cost of labor and materials, but equipment, which is also in short supply, and sometimes must be ordered years in advance, Dingman said.

He told council his company could "self-perform" the work if it can't find enough subcontractors willing or able to do the job, and it would be comparable in price. However, he said, the goal is to get local companies involved, as much as possible.

Project timing, scope reconsidered

With the price still so much higher than anticipated, city leaders are considering whether to reduce the scope of the project to bring it closer to what could be supported by the city's stormwater fund, which is generated by stormwater utility user fees. A consultant is working to determine a supporting rate.

The city has received $15 million from the state to help fund the project. It's seeking another $10 million from the state Legislature this session, and exploring other funding sources, including federal grants.

Gary Young, the city's finance director, told council he would "leave no stone unturned," in looking at funding options.

Based on the current maximum price estimate, he said a big part of the project would have to be financed. If the city chose to finance $60 million of the cost, utility fees would have to be raised by about 79%, to support the annual debt payments, plus interest, Young said.

Even if the city issued $30 million in debt, rates would still have to be raised by nearly 40%. So, rates will have to be touched, unless other funding sources can be found that haven't been budgeted or identified for the project already, Young said.

"I don't envy my job, but I envy your job even less, to be honest with you. Because that's where the rubber is going to meet the road," he said.

Based on the original proposal, the city only planned to issue about $5.5 million in debt.

At the highest number, interest on the debt could cost more than $27.7 million.

The city has already spent more than $11.5 million on the project, including engineering and directional drilling for new outfall pipes from the beach end at Third Avenue North into the Gulf.

At the workshop, council directed staff to continue exploring options for building and financing the project, including reducing the scope and completing it in phases.

The idea of further delaying the project didn't sit well with some on council, especially Terry Hutchison. He criticized past administrations for dragging their feet, and not getting the work done sooner, which will now cost residents a lot more money.

Construction prices, he said, will only continue to rise, so it doesn't make sense to "kick the can" down the road any longer.

"We need to make this happen and find out the best way financially to make it happen," Hutchison said.

Taking a pause

Others are council aren't as eager to get the project going, with lingering questions about its true cost and real purpose.

Councilwoman Beth Petrunoff missed the workshop, but afterward she shared concerns about the ballooning cost of the new stormwater system and moving it forward.

"I personally think that we need to take a pause on this thing, as brief as possible, and go back and say 'what are we trying to do with this project, are we trying to improve the water quality and flooding, and if that is what we are trying to do, is this thing that is specced out going to do it," she said in a phone interview.

She questioned whether water quality would really be helped by placing drainage pipes 1,000 to 1,500 feet into the Gulf, and whether there might be less expensive ways to improve it, such as doing more frequent lake cleaning and street sweeping.

Given the new price tag, Petrunoff said: "It's worth putting some scrutiny on it to make sure this is the right way to go."

Some residents agree a pause is needed, including Jon Zoler.

In a reactive letter to the mayor and council, he asked: "What would $100 million dollars buy? A wastewater system that takes one hour to drain the streets versus the current gravity-based system that takes two or three hours. A system that would take years to construct and cause significant street reconstructions and traffic problems in numerous streets for years."

He's lived on Third Avenue North for nearly 20 years, and he continues to strongly oppose the placement of the pump station at the end of the street, near the beach.

If there must be a new stormwater system, he argued it should only be installed at the north end of Gulfshore Boulevard, which is more commercial, rather than at the south end in a neighborhood of single-family homes, near a popular beach entrance.

"There must be a simpler and far less costly solution. Let's apply some common sense to this problem," Zoler said.

Paul Thomas, who also lives on Third Avenue North, agreed, in a letter of his own.

"One point that I would add is that sunk costs should not be considered when evaluating future spend. It is irrelevant to future value creation," he wrote to council.

He added: "It would be good governance to review the decision process to this point before proceeding in order to understand how such a seemingly detailed plan can be off by a factor of three in terms of cost and to ensure that other assumptions regarding the goals of this project are aligned with reality."

Council is scheduled to hear another update from city staff and the contractor on pricing and construction and financing options and to discuss next steps at a workshop Feb. 20.

This article originally appeared on Naples Daily News: Higher building costs drive up price of new stormwater system in Naples