Palo Alto feuds with contractor over public safety building

As Palo Alto’s most critical infrastructure project nears the finish line, the city remains embroiled in a dispute with the main contractor, a conflict that is threatening to further raise the costs of the $120-million public safety building.

The project has seen numerous delays since construction kicked off in June 2021. The city’s most recent five-year capital improvement plan estimated that the building would be completed in fall 2024, a target date that came and went. The city’s prior five-year plan had projected that the project would be completed in the fall of 2023.

Despite recent complications and ongoing disputes involving the main contractor, Swinerton Builders, city officials expect most of the work to be completed by the end of this month, allowing staff to start occupying the building in January 2025, Public Works Director Brad Eggleston told this publication.

With costs rising, the City Council added $3.8 million to the project budget on Dec. 9 when it approved contract amendments with the main contractor, Swinerton Builders, and with Cumming Management Group, a company formerly known as Nova Partners that is providing contractor managing services.

The amendments include an $827,418 addition to the Cumming Management contract, bringing it to $10.5 million. The council also supplemented the contract with Swinerton with an additional $3 million to contingency funding, bringing the total contingency amount to $13.4 million.

This was the third time this year that the council voted to increase the contingency amount, which was set at $8.4 million in the initial Swinerton contract. The council had twice voted to add $1 million to the contingency funds, but that money was nearly depleted by November. Public Works Director Brad Eggleston noted in a report earlier this month that the money was used on change orders relating to smoke control in the detention area, sally port coiling doors and ADA improvements. He cited a list of reasons for the delays, including “unforeseen site conditions, owner requested changes, design clarifications, and required changes due to the authorities having jurisdiction, which are agencies that are responsible for enforcing codes and regulations.”

“In addition, since change order costs are based on current construction costs rather than bid amounts, the significant escalation of construction costs since award of the construction contract has impacted the project and the use of contingency,” Eggleston’s report states.

The project has been in the works for decades, with numerous studies concluding over the years that the existing police headquarters within City Hall is undersized and seismically unsafe. When the council approved its infrastructure priority plan in 2014, the public safety building was considered the most critical need on the wish list. In addition to serving as the new headquarters for the Palo Alto Police Department, the 44,500-square-foot building will house the Office of Emergency Services and the administration of the Palo Alto Fire Department.

But while the city is eager to see the project completed, Swinerton has claimed over the past year that the city’s onerous regulations and incomplete plans are slowing down the work. Lori Dunn-Guion, vice president at Swinerton, attributed the project delays to the hundreds of design changes that had to be made to the project, most of which were made to correct defects in the city’s designs. She claimed in an Oct. 23 letter to Eggleston that the project has suffered from defective plans and the city’s failure to process change order requests that workers have been submitting for the project.

She stated at the time that there were 298 change order requests outstanding, which were valued at $21.5 million. Some have been pending for more than two years, she wrote.

She asserted that the city has added work to Swinerton’s contract to remedy its own “defective plans” and that this is extending this work beyond the estimated substantial completion date.

“To make it worse, the city is aware that its failure to pay for added work in the current CORs – to correct prior defects in the plans – is causing subcontractors to threaten to refuse to perform any additional work.” Dunn-Guion wrote. “Thus, the City’s prior breaches are likely to continue to extend the Project and to continue to increase the City’s cost overruns.”

She also maintained that the project is unlikely to remain within the $120 million budget that the council approved in 2021, when it authorized bond sales to pay for the public safety building. In her letter, she specifically cited a Palo Alto Weekly article from Oct. 14 in which city officials asserted that the project remains within the approved budget. Even with the $1 million increase to the contingency budget that the council was considering at the time, the city would be $20 million short, she claimed.

“City staff have not even attempted to obtain funding to resolve the significant and growing debt to Swinerton and its subcontractors, and it appears that the City has misled local media as to the significant budget bust on the project,” Dunn-Guion.

When asked about the delays, Eggleston suggested that change orders are not the main cause. The city’s contract with Swinerton requires the contractor to continue working toward completion of the project, even where such disputes arise, he said in an email. Delays can be attributed to a variety of factors, including the weather, the need to replace a subcontractor and design change, he said.

“Here, the city and the contractor have different opinions as to the causes of, and allocation of responsibility for, the delay,” Eggleston said. “However, the City is participating in the contractual disputes process to address responsibility for delays, so we consider it inappropriate the publicly assign fault before the process is complete.”

“The city has urged the contractor to staff the project appropriately to reach completion as soon as possible,” he added.

The work that remains outstanding falls into two categories. There are tasks that need to be completed so that the city can get a temporary occupancy permit, allowing staff to start moving into and using the facility. These tasks include generator source testing and final fire alarm testing, which are both scheduled for next week, as well as minor modifications to ensure compliance with American Disabilities Act, according to Eggleston. He said the city is targeting the end of this month for completion of this task.

There are also other modifications that need to be made for the building to reach the status of “substantial compliance,” which includes completion of work related to smoke control in the first basement level and minor corrections that the city expects to be completed by February. These targets, he noted, are “subject to the contractor’s progress on remaining work.” But if things go according to plans, staff can start moving into the building in January, Eggleston said.

During its Dec. 9 meeting, the council voted 6-1 to approve the latest addition to the contingency fund and an increase to the Cummings Management contract, which will take the agreement to April 2025. Council member Greg Tanaka voted against the increase, noting that the city had already made numerous amendments that have increased the cost of the project.

“I think we need to hold the line,” Tanaka said. “Continuing to exceed the budget makes no sense. … If we are over budget, we should cut something. We shouldn’t just keep spending.”

This story originally appeared in Palo Alto Weekly. Gennady Sheyner covers local and regional politics, housing, transportation and other topics for the Palo Alto Weekly, Palo Alto Online and their sister publications.