A Bridge Too Costly

The city's way of contracting out public works construction is broken — so much so that companies are not bidding on important municipal projects and that could cost us billions

The time required to ship the iron ore from Kentucky, then convince a cement plant to handle it, caused weeks of delays. This is the sort of obstacle typical of public works projects, which require applying the math and measurement of engineering to changeable things such as canal banks and bridge spans. Yet it's the kind of issue engineers and city officials acknowledge San Francisco seems ill prepared to accommodate.

Just like other cities, San Francisco is obliged to put construction projects out to bid, then accept the lowest offer put forth by a contractor qualified to do the work. This system is set up to avoid cozy cronyism that might ensue if city officials were allowed to award contracts based on personal preference, rather than price.

This anti-corruption, low-bid system is far from perfect, however. Drawbacks include a propensity by bidders to bid lower than they can really afford, hoping to make up the difference with expensive "change orders," which are required when the original design doesn't accommodate real-world engineering problems encountered in the field. This strategy provokes an equal and opposite reaction among city bureaucrats loath to be gamed by wily construction firms. They adopt a fighting pose, and challenge proposed design changes as a matter of course, letting city lawyers sort out the resulting disputes once the job is done.

"The outcome is that we're not necessarily getting the number of bids we want to. And we're not having the relationship with contractors we might want to have," says Robert Beck, deputy director for engineering of the San Francisco Department of Public Works.

In April, the city attempted to attract contractors to bid on a project to build a gas-turbine power plant to replace ones at Hunters Point and Potrero. But there were no takers. In an effort to explain the lack of interest, Public Works officials interviewed contractors in the aftermath of the power plant bid debacle. And contractors cited the city's contentious system of contract management, of which the Mitchell's dispute with the city over delays building Fourth Street Bridge is a prime example.

The city must soon begin issuing bonds to pay for some $4 billion worth of work on refurbishing the Hetch Hetchy water delivery system. If the city can't attract high-quality bidders, and can't get the projects completed swiftly, skyrocketing materials costs could cause the project's price tag to double, triple, or worse.

Sklar refers to the bidless power plant project as a wakeup call.

"Now is perhaps one of the worst construction environments you could go into. Material prices are skyrocketing across the country. Aluminum has doubled in the past year. Steel and cement are going through the roof. Here we have contractors with lots of other work, material prices high, and a city that puts out onerous contracts. So the city has to come up with new ways of contracting," Sklar says.

In an ideal contracting world, sharp-eyed city managers draw up top-notch engineering plans. Contractors are profit-seeking, but highly competent and fair-minded. When the contractor encounters an unforeseen problem and asks for potentially costly design changes, a steely-eyed genius of an engineer working for the city is at the scene in a flash to hand out a Solomonlike decision about whether the city will pay for the extra work. If not, she suggests an alternate engineering solution, or determines the contractor is stepping out of line. Ideally, that city-employed field engineer would have sufficient authority to make such decisions stick. And she would enjoy a reputation for fairness and toughness, so that contractors would view accepting such on-site engineering decisions as in their best business interests.

Such a system would require screening out abusive contractors who try to make their profits by gaming the city. It so happens city officials are now studying the possibility of such a screening program.

It would require a first-rate design process by the different engineering departments that now serve Department of Public Works, the airport, the Public Utilities Commission, the Municipal Railway, and other departments, so that contractors wouldn't be tempted, as they now are, to quibble over perceived design flaws.

This is one of those intractable city crises, spread over various departments representing disparate special interests, that can't be solved without leadership. Such a solution would require peeling away bureaucracy and putting top-notch people in the field, so that engineering problems could be resolved than foundering for months in lawyer-land.

Anything less than a dramatic reform of our system of public works construction could end up costing our city billions of extra dollars over the next few years, bankrupting other city programs such as health care, transportation, parks, and public safety.

But any real fix would require the kind of daunting bureaucratic reform that involves stepping on toes, breaking up fiefdoms, and abolishing sinecures. It's the type of reform the mayor shied away from undertaking in the area of civil service reform, despite much fanfare last year.

The city's financial future is at stake this time around. Fixing bridges and pipes and power stations without bankrupting the city is hardly the sort of issue one can easily hang campaign slogans from. But if Gavin Newsom doesn't do something, the city's finances, along with the mayor's political reputation, could be headed for a death trap.

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