Public buildings leak dollars

By Steve Kanigher

Friday, May 27, 2005 | 6:14 a.m.

For years, valley residents have seen many massive hotel and casino construction projects finished on time or better.

The 29-story tower that Caesars Palace opened in 1997 was built within its budget and was completed three months earlier than planned, and the 422-room Palms opened a month early in 2001, for example.

Over those same years, however, many major taxpayer funded buildings, wind up months, if not years, behind schedule and cost millions of dollars more than initially projected.

The yet-to-open Clark County Regional Justice Center, nearly 3 1/2 years overdue and $15 million over budget, is only the latest public construction project to be riddled with delays, cost overruns and defective workmanship.

Some of the problems stem from the cumbersome public construction system. But local and state officials acknowledge that in some cases their agencies have simply failed to properly manage and inspect construction projects to ensure the work is going well.

Those failures and other factors have forced taxpayers to spend tens of millions of extra dollars on buildings in the last several years.

The largest amounts are two county projects with one contractor -- AF Construction Co. Inc. of Las Vegas -- which ran $33.4 million over budget.

The Regional Justice Center accounts for a little less than half that amount, and the remainder -- an $18.3 million overrun -- was for the expansion of the Clark County Detention Center.

The Regional Justice Center was supposed to open in 2002 as the new home of state and local courts. But it remains unfinished, with 38 roof leaks, dozens of moldy areas and substandard electrical work still to be addressed. Heavy rains have damaged its carpet, ceiling tile and sheet rock.

Concerns have been raised as to whether the building is sufficiently braced for seismic activity. Leaky windows and uneven floors abound, and metal air-handling units connected with the air-conditioning system were not properly installed, according to the county.

Such problems led the county to fire AF Construction from the project last month.

"We're working with the city of Las Vegas to do a walk-through from a building-code standpoint," Clark County Aviation Director Randy Walker, overseer of the project, said.

"We won't be hiring a new general contractor per se, but what we'll do is piece out the work. Our goal is to have people in the building by the first part of October. It's going to be hard to do, but we will work diligently."

The contractor began making accusations that the preparatory work had been inadequate almost as soon as the work started. When the contractor was digging for the foundation, its workers were stopped by rock-hard caliche.

AF Construction later cited various design flaws. For example, it successfully argued before an independent Disputes Review Board set up to monitor the project that 11 elevator hydraulic lifts were not included in the original drawings. The result was a cost overrun of more than $165,000.

But county officials have since questioned whether AF Construction was qualified to do the work. The $123.4 million contract it received in December 1999 to build the Regional Justice Center and the $66.4 million contract it won for the jail expansion in November 1999 were by far its largest public-works contracts. Its prior ones were in the $20 million to $45 million range, including the Las Vegas Convention Center's expansion and high school constructions.

"They hadn't built anything of the magnitude of the Regional Justice Center before," Walker said. "Building a school or a library is not the same as building a complicated 18-story high rise. I believe that has been part of the problem with the building."

AF Construction wasn't even the lowest bidder on the courthouse project. But it won the contract through the state bidder preference law that gives public agencies the right to award work to companies that have at least five years of work history in Nevada and that are within 5 percent of the low bid. The low bidder did not qualify for bidder preference.

AF Construction won't comment on the project.

Thom Reilly, who inherited the courthouse and jail expansion projects when he became county manager in 2001, acknowledges that the county could have done more damage control earlier. In 2002, fed up with the delays, Reilly appointed Walker to replace then-Assistant County Manager Mike Alastuey as overseer because of Walker's experience with large construction projects. The county also reduced the role of a construction-management firm attached to both projects.

"I certainly think the county could have had a stronger construction management staff to address some of these problems," Walker said. "The county went in with a good plan, but somewhere along the way things broke down. The county maybe should have had the right in-house people to manage the construction-management firm.

"Reilly has indicated that before the county goes into another major construction program he wants to set up a process to prevent us from getting into this situation again," he said.

By March 2003 the county stopped paying AF Construction for the Regional Justice Center work and began assessing $12,000 in daily fines, which have added up to more than $14 million. The company and the county also traded lawsuits over the projects.

In its lawsuit, AF Construction claimed it was not properly compensated for delays that it blamed on inaccurate and incomplete designs.

The company alleged that the 1,320-bed jail expansion, which was supposed to be ready in May 2001 but didn't open until September 2002, fell behind schedule because of problems that were the county's fault. The county ordered different security metal ceilings after determining the original was too thin, and the county had signed off on poorly designed fire alarm, smoke control and life-safety systems, many of which were rejected by the Las Vegas Fire Department, according to AF Construction's lawsuit. The county also prematurely dismissed a mechanical subcontractor, the lawsuit said.

AF Construction also had disputes with some of its subcontractors, including one that walked away from the justice center work in 2002.

The county is sticking to its position that, despite its own construction management deficiencies, AF Construction must shoulder much of the blame for construction delays, defects and cost overruns.

"We got two jobs, both bid independently and designed by different designers," Walker said."They both had delays and cost overruns. The only common thread was the contractor."

The lawsuits have been dismissed, with arbitration scheduled for both projects. It will be at least a year before the courthouse dispute is arbitrated. Earlier this month, arbitrators ruled that the county could not prove that it was overcharged for the jail expansion, a decision that the county appealed.

One thing is certain: The county won't be hiring AF Construction for any more public-works projects. So said George Stevens, county chief financial officer, who based his opinion on a 2003 state law that set up a 13-point prequalification process for public-works bidders. That law was was sought by county officials.

"Based on our experience with AF Construction, they would not make our list of qualified bidders," Stevens said.

The Sawyer Building

Nevada has had problems with its construction in Southern Nevada as well.

The Sawyer State Office Building, 555 E. Washington Ave., opened in 1995, is now adorned with webbing.

That's because at least 50 large marble tiles -- each weighing 4 pounds and a square foot in size -- have fallen from the exterior since 2003. Other sections of outer walls have buckled. One tile nearly hit a man, who was in the parking lot.

State officials say the building is susceptible to water seepage and mold.

The Legislature's Interim Finance Committee in November approved $1 million in emergency funds to remove the remaining tiles, and it has been estimated that it could cost $10 million to install new ones.

Lawmakers won't spend the additional money because the state has sued general contractor Precision Construction Inc./Kitchell Contractors Inc. of Arizona, the architect and the marble subcontractor. The state termed the falling tiles a safety hazard, alleged they were not installed properly and also cited "water staining on interior marble tiles in the atrium."

Architect Lucchesi Galati Architects Inc. of Las Vegas has responded that it specified the installation of a "fluid waterproofing membrane within the setting of the exterior tile system."

But it alleged that the state Public Works Board sought to cut the project's costs, and the general contractor deleted the waterproofing membrane between the plastic and ceramic tile to save $125,000.

The general contractor, in turn, has alleged that subcontractor Carrara Marble Co. of America, a California corporation, was responsible for the construction defects regarding the marble tiles.

Veterans Home

The Southern Nevada Veterans Nursing Home in Boulder City opened in August 2002, about 18 months behind schedule and $1 million over its $19 million budget.

The facility, which was supposed to open in January 2001, had cracked walls, doors that didn't shut properly, sinks that were too high and toilets that did not meet Americans With Disabilities Act standards.

Contractor Addison Inc. of Las Vegas argued that the state ignored its warnings that walls could move more than one-half inch in a single day because of heat. This movement caused walls to crack and prevented doors from closing properly, Addison argued.

The state disagreed and fired Addison in June 2001. The state had penalized the company $2,885 a day since the scheduled January 2001 completion date because of missed construction deadlines and withholding $1.4 million. Addison was replaced by Metcalf Builders Inc. of Carson City.

Addison sued the state, arguing that the project was poorly designed and that it and its contractors were owed more than $6 million.

The Nevada Supreme Court last year ordered the state to settle with Addison through binding arbitration.

Lied Library

UNLV's Lied Library opened in January 2001, about 15 months behind schedule and with $3.6 million in cost overruns beyond its $40.5 million budget.

The Public Works Board accused contractor Tibesar Construction Co. of Las Vegas of shoddy construction, a conclusion also reached by a Legislative Counsel Bureau audit. But the audit also blamed the board for poor oversight and for failing to ensure that bidders were qualified.

Early on it was discovered that the second and third floors of the five-story building did not have enough steel beams to support the bookshelves.

Then the low-bidding communications wiring subcontractor sued, alleging that the winning bidder, Tele Data Contractors -- which submitted only the fourth lowest bid -- got the contract after providing free lunches and rounds of golf to Mark Holman, UNLV's network services manager. A Clark County District Court judge found fault with the way the contract was awarded, but allowed Tele Data to resume work.

The project was slowed by the unexpected discovery of underground utility lines and was plagued by masonry and mold problems. Fire-prevention measures also had to be redesigned after construction began. There were also water seepage, ill-fitting doors, electrical problems and uneven floors.

Contractors and subcontractors filed $11 million in claims against the state because of construction delays. Last year Nevada agreed to spend $600,000 to repair the library roof and electrical system and also paid $1.7 million to contractors and subcontractors to settle claims. The state's legal fees were more than $1 million.

Daniel O'Brien, Public Works Board manager, says Nevada has suffered from a shortage of building inspectors. He said the board hopes to add four inspectors to the current six in Southern Nevada this year.

"All we usually have is one project manager and one inspector on each job," O'Brien said. "Some of these large projects need more than one inspector. We also will be hiring firms on larger projects to help us with project management.

"We've run into problems in the past where a contractor asked questions and we didn't get the answers quickly."

Sahara West Library

The $19.5 million Sahara West Library, 9600 W. Sahara Ave., was intended to be the crown jewel of the library district. It opened in January 1997, more than a year behind schedule.

The Las Vegas-Clark County Library District began withholding $1,500 a day from the contractor when the project ran beyond the anticipated October 1995 opening. Its board ordered Las Vegas-based contractor Sletten Construction to repair floors and stairs because of safety concerns.

The library also had a number of aesthetic issues, including cracks in the lobby floor, when it opened.

The district and Sletten sued architect Tate and Snyder Architects Inc. over the way the building plans were drawn and revised. The district agreed in 1998 to pay $1.2 million to settle all countersuit claims against it involving the library.

The red tape

There are numerous restrictions that complicate construction of taxpayer-funded buildings.

Contracts must be awarded to the lowest bidder, so long as that bidder properly responded to the bid requirements and has a responsible track record. An owner of a private building does not have to go out for bids and instead can hire the best contractors and architects he can afford.

Preference must be given to companies that have done business in Nevada for at least five years and are within 5 percent of the low bid -- if the low bidder does not qualify for bidder preference. An owner of a private building does not have to give preference to Nevada companies.

Government entities usually have a staff of architects and construction managers that represent them in dealings with the hired designer and builder. On privately funded projects, the designer and builder often have direct access to the owner without having to deal with an added layer of bureaucracy.

Construction workers on publicly funded projects must be paid "prevailing wages," which are set by the state labor commissioner based on surveys. Many contractors say that wage scale increases labor costs by 15 percent to 25 percent for government buildings.

Public agencies normally hire architects first, put a designed project out for bid and then hire the builder, a process known as design-bid-build. This often leads to confrontations between the architect and builder.

Owners of private buildings more commonly use what is known as a design-build process: The architect and builder -- usually two different companies -- combine as a team to bid on a building. The private sector has been using this approach in Nevada for at least 20 years. Design-build can cut a building's cost by about 5 percent, construction experts say.

Even with all the restrictions, most county building projects such as fire stations, usually proceed without a hitch, according to Carel Carter, manager of acquisition, design and construction for the county's Real Property Management Department.

Her architects and construction managers review building designs and meet weekly with the designer and general contractor.

"We make sure that the architect and contractor are getting the information that they need," Carter said. "If there is a conflict between the architect and contractor, we usually sit down and work it out."

Contractors and some public officials say that problems usually involve the low-bid process, combined with adversarial relations between the architect and builder.

"The traditional design-bid-build process inherent in public-works projects lends itself to an adversarial situation," John Breternitz, Public Works Board chairman, said.

"You've got the designer with his ideas and plans, and you've got the general contractor who is trying to make sure his prices are as low as possible. When these forces come together, there will be problems."

Las Vegas City Manager Doug Selby said the adversarial relationship exists because the bidder "has to bid as low as he can to get the job."

"Therefore, he's probably not totally comfortable with his bid," Selby said. "So he will look for opportunities to recoup some of that lost bid money.

"He may do that by looking for defects in the contract language or in the drawings. He could then argue that he's been adversely impacted by excessive delays and sees that as an opportunity to ask for more compensation."

Whether contractors purposely submit low-ball bids to win contracts, only to turn around with change orders later to make more money, is difficult to prove, public officials say. Walker said he has no evidence of that with county contracts. But Selby said, "I speculate that that does happen from time to time."

Government entities normally ask bidders who submit extremely low bids to check their applications to make sure they did not overlook any costs. Selby and O'Brien said bids have been withdrawn after contractors caught errors.

"There is a concern about that every once in a while," O'Brien said of state building projects. "But probably 95 percent of the contractors are good contractors. Most of the time their bids are bunched close together because they're using the same subcontractors."

Reasons for change orders vary. The contractor could argue that a wall is in the wrong place or that drawings on one page do not mesh with drawings on another page. The agency may want an air-conditioning system that is produced by only one source but is not in stock.

Or, a subcontractor cannot obtain enough cement or structural steel -- two products that have been hit in recent years by double-digit inflation because of global market demand.

As LND Construction owner Leo Durant of Las Vegas said, the lowest bidder isn't necessarily "the right player for the game."

"If he's the lowest responsive bidder, you either have to use him or you'll get sued by him," said Durant, past president of both the local Associated General Contractors chapter and the Nevada Subcontractors Association. "It doesn't mean he's the most qualified. He's the most qualified monetarily only."

And local governments don't always accurately predict the cost of their buildings, said Terry Murphy, a former county administrative services director who is now a consultant to private companies.

"What happens a lot of times in public-sector projects is that they are overdesigned and underfunded," Murphy said. "A lot of people are afraid to say to elected officials, 'You're asking for more than you have the money to build.' You have to make sure you have enough money in the budget."

Some contractors don't bid on public projects any more. Linda Harris, president and chief executive officer of LF Harris and Co. Inc. of Las Vegas, said it has been at least 10 years since her company built a public building.

"A lot of good building contractors have decided they don't want to become involved because they don't want to be in an adversarial position," Harris said. "With a public works project you usually have at least one extra layer of construction management to deal with. With a privately owned building you're often just dealing with the owner.

"One reason we don't bid on public works projects any more is that it comes down to who makes the biggest mistake on their bid.

"The last public-works project I bid on the contractor who got the job was 20 (percent) to 25 percent below my cost. The taxpayers end up losing because they're paying for something that may be second-grade quality because someone made a mistake on their bid. If you are the low bidder, you may wonder, 'What did my estimator forget?' "

Possible solutions

Selby said one idea that merits consideration is that when many bids are submitted, the low bid and high bid could be eliminated, with the contract awarded to the remaining bidder who is closest to the average.

"There wouldn't be any incentive to low-ball," Selby said. "The problem is sometimes you only get three bidders."

O'Brien said that the state's bidder prequalification law may have to be tweaked so that agencies can account for whether a contractor is argumentative or consistently late with projects.

Steve Holloway, executive vice president of the Associated General Contractors chapter, also said state law should be changed so that every public-works project includes an independent review of a building plan by an experienced general contractor to make sure that it can be constructed "in the manner as designed."

"The contractor would provide that input to the owner and the architect so that they could make revisions in the design before it goes out to bid," Holloway said.

He advocates a neutral three-member review board for public-works projects to resolve disputes between the government,, architect and contractor.

Some contractors said the problems with the Regional Justice Center could have been avoided had the county been able to use the 1999 law that allows local and state agencies to award design-build contracts for certain projects.

Although this option took effect in October 1999, two months before AF Construction won its contract, the county could not have used it because the designer had been selected in 1997.

Under the state law, each government agency can award an unlimited number of design-build contracts for work that exceeds $30 million but can issue only one such contract per year for a job valued at between $5 million and $30 million.

That limit was part of a compromise among contractors and public-works agencies when the law was drafted -- smaller contractors were concerned that they would be shut out of work if an unlimited number of design-build projects were allowed.

The two-story telecommunications building at the Community College of Southern Nevada's Cheyenne campus -- the first design-build contract awarded by the state -- is considered by officials and contractors alike as a shining example of the design-build process.

The $15 million building, designed by JMA Architecture Studios and built by Martin Harris Construction, both of Las Vegas, opened on schedule last year and within its budget.

"It went very smoothly," JMA President Thomas Schoeman said. "It was built on time, and there were no change orders. We also figured out economically how they could get more space so we added 8,000 square feet without costing the state more money."

Design-build projects can be built about 30 percent faster than traditional design-bid-build work because of the teamwork between the architect and builder, he said.

"Design-build is certainly something we should use more often in publicly funded projects," he said. "It eliminates adversarial relationships. The traditional design-bid-build process can add 5 percent to the cost of a project in change orders, which would have been $750,000 in our case."

The right way

The Clark County School District is often cited as an example of a government agency that properly manages its projects. In addition to having one of the nation's most prolific school-building programs, the district has an advantage over other agencies because most schools are cookie-cutter designs that are perfected as newer versions are built.

"Where you get in trouble is with custom designs, like the Regional Justice Center," Fred Smith, School District construction manager, said.

The School District has paid several out-of-court settlements related to construction, but most of those lawsuits involved building activity in the 1990s that was managed by an outside company. District employees now oversee school construction.

School designs are approved both by a Bond Oversight Committee, made up of experts in architecture and construction, and the School Board. Before bidding, the designs are also reviewed by independent architects and engineers to ensure that the buildings are constructible.

When voters approved bond issues for new schools in 1994, 1996 and 1998, the planning was done by facilities experts such as Smith and the district always met its targeted budgets.

That wasn't the case with the 1988 bond issue that was supposed to result in 77 schools. Only 57 were built by the time the money ran out in 1993.

"Of the people who planned the 1988 bond program, very few of them had experience in facility management," Smith said. "They were educators."