A Tale of Two Cities' Wastewater Treatment Plant Projects
by Kari Olsen
Synopsis: Resident concerns regarding the cost of the Morro Bay/Cayucos wastewater treatment plant (WWTP) upgrade project are similar to those expressed several years ago by residents of the City of Fillmore, California. The cost of the Fillmore plant ballooned from a 2003 estimate of $24 million to a final total of about $83 million. Morro Bay and Cayucos residents fear that the same thing could happen here and have urged their elected officials to consider an alternative project approach with a guaranteed final cost, such as that offered by PERC Water.
Morro Bay and Cayucos residents have noticed that their concerns regarding the Morro Bay/Cayucos wastewater treatment plant (WWTP) upgrade project are similar to those expressed several years ago by residents of the City of Fillmore, California. That City undertook a project to replace its own aging WWTP, and final costs exceeded the original cost estimate by approximately $59 million. In 2003, Fillmore residents received a notice stating that their new plant would cost $24 million. Total project cost has now ballooned to about $83 million for a 1.8 million gallon per day (mgd) facility designed to serve 15,000 residents. The facility is slightly larger than the 1.5 mgd plant that is planned for Morro Bay and Cayucos. The Fillmore project is complete. The Morro Bay/Cayucos project is in the design stage. Because the Fillmore project is several years ahead of their own, Morro Bay and Cayucos residents suggest that both they and their elected officials can and should learn from the experience of their City of Fillmore counterparts
Fillmore residents began to feel their project's financial impact several years ago. According to a July 5, 2007 article in the Ventura Star, "On July 1, the first of several rate hikes was implemented. Fillmore residents used to paying $25 a month are now paying $66. The rate will double again next year. New homes and businesses will have to pay $3,000 to hook up to the new system, in addition to the higher rates." Three years later, in June, 2010, Fillmore City Council Member and Mayor pro-tem Gayle Washburn stated, "The financial impacts of this plant have taken quite a toll. Of course, the economic situation isn't helping either. We have high delinquencies . . . "
According to Washburn, " . . . actual plant construction was around $46 M. We also paid $26 M for a "recycling system." Then there was the land (that we didn't need), the levee (that we had to build because of where we bought the land), plus the new road and piping to said location." Boyle Engineering (now AECOM) was hired by to manage the project, something Washburn believes should not have been necessary for a DBO project. Boyle, according to Washburn, collected approximately $10 million in project management fees, and the law firm received over $575,000 in legal fees for writing the contract.
Fillmore residents tried to halt runaway project costs, pleading with the City Council to look at other alternatives. A 2007 newspaper ad placed by concerned Fillmore residents begins with the statement, "the City of Fillmore is being led to Sewercide." The ad asked residents to, "Please contact your City Council Members and Demand that they cancel the American Water contract and re-bid for lower cost options." The Council did not cancel the contract.
A website published by a Fillmore citizens' group tells the story of Fillmore's project from the point of view of the city's residents. Documents on the site include a series of emails between Fillmore resident Bob Stroh and the City's Public Works Director, and a variety of other communications and reports. A comparison of the history of the Fillmore project with that of Morro Bay and Cayucos shows marked similarities in resident concerns related to the request for proposal (RFP) process, alleged staff "scare tactics" regarding Regional Water Quality Control Board (RWQCB) fines, staff allegations regarding risks associated with termination of contracts, staff resistance to consideration of proposals from PERC Water, and reliance of elected officials on the "wrong" experts.
The RFP Process
In both Fillmore and Morro Bay, residents have alleged errors and possible misconduct in the Request for Proposal (RFP) processes used in choosing vendors for the WWTP projects. In an email to the Fillmore Public Services Director, Fillmore resident Bob Stroh stated, "What I can draw from what I've seen so far about this sewer mess we're in is this: The request for bids was designed to discourage fair and open bidding . . . " The Fillmore contract was awarded to American Water, a subsidiary of RWE/Thames. RWE, a multi-national conglomerate based in Germany, is a provider of electricity, gas, water, and wastewater management services. Included in the American Water proposal were project team members Kennedy/Jenks Consultants, an engineering firm and W.M. Lyles Co. which did the construction.
The Fillmore WWTP RFP included 137 pages of requirements. Vendors bidding on the project, including American Water, indicated that they understood that proposals significantly varying from the "base design" would be disqualified. Washburn believes that the public was misled with regard to the reasons why the particular technology described in the RFP requirements should be used. Washburn states, "At the time, we had some other vendors telling us that there were lower cost technologies that would meet our requirements. We asked for presentations from those other vendors but were told that it was a waste of time because if those other technologies were cost effective AW, etc. would have included them in their proposal."
In Morro Bay, some residents allege that the RFP process that resulted in awarding the WWTP Upgrade design contract to MWH was flawed. One problem cited was the 8-year time schedule posted on the City of Morro Bay website. Task 65 indicates that the RFP was to be issued on May 31, 2010. In fact, the RFP was issued on October 1, 2009, 8 months ahead of schedule. It has been alleged that the incorrect date shut out some vendors, including PERC Water, who were relying on the schedule to time their entry into the competition.
A Morro Bay resident attempted to obtain copies of the completed evaluation forms that rated WWTP design contract applicants against a set of formal evaluation criteria. She was initially told that they either did not exist, or were exempt from disclosure. She complained to the City Council and was subsequently told that the completed forms had been retained by individual evaluation committee members and were not available. No explanation was given as to why they could not be obtained from the individuals who were said to have retained them. Completed evaluation forms are considered by RFP experts to be a critical component of the audit trail necessary to ensure that an RFP process has been conducted fairly.
Some Morro Bay residents also raised concerns regarding the fact that Dylan Wade, the City's Capital Projects Manager, was allowed to be a member of the evaluation committee. Wade is a former MWH employee. MWH was the successful bidder, despite the fact that its bid was the highest. Concerns were also raised regarding the fact that the Mayor's brother is the Chief Financial Officer of an MWH sub-contractor for the project. Residents have also asked why Morro Bay and Cayucos Sanitary District staff members failed to identify, and to suggest consideration of, lower-cost and potentially-more-effective wastewater treatment alternatives, such as that offered by PERC Water. PERC has been building wastewater treatment plants for over ten years.
Threat of RWQCB Fines
In Fillmore and in Morro Bay and Cayucos, residents were warned by staff that looking at alternatives could delay their projects, subjecting the residents to huge fines that would allegedly be imposed by the Regional Water Quality Control Boards (RWQCB's) if deadlines were missed. Fillmore residents were unwilling to accept their city staff's warnings that the Los Angeles area RWQCB would impose such fines. They took matters into their own hands and contacted the local RWQCB directly. In a letter to that board, leaders of Fillmore's Citizens for Responsible Growth organization stated that, "Our community cannot afford this burden. We are a low income community and you can imagine the harsh impact that this cost will impose on our citizens; including seniors, farm workers, small restaurants and businesses. Our intention has always been to comply with regulations and build a new sewer plant and we have been fighting to come up with lower cost solutions in order to prevent such extreme hardship on our community." The group went on to state that, "Considering the scope and complexities involved in these issues and the length of time to procure funding, bids and construction, perhaps the time lines are inadequate." The group posed several requests and questions to the RWQCB, including, "1. We would like to know what is required to get the time schedule order extended." and "2. What financial impact an extension would have on penalties and fines?"
An email from Bob Stroh to the Fillmore Public Services Director described the result of the communication. "I am at a loss regarding your answer to the RWQCB issue. All I know is that people in the citizens group that spoke with the Board told me and I believe the city council that they were given assurances that the Board would work with us and it was not their intent to bankrupt any city. That certainly has been the case for other cities, why not Fillmore?" Stroh said, "When a large number of people asked that you postpone signing the contract to give time to explore other options you would have none of it. You scared us with threats that the Water Quality Control Board would charge us exorbitant fines for being out of compliance. In so doing you misled the council, intentionally or otherwise. The Board was more than willing to work with Fillmore as they have done with many communities that are in the same boat. All you had to do was ask." According to the response to a question in the FAQ on the Fillmore citizens' website, "Jon Bishop, Executive Director for the LARWQCB has stated that they will work with communities."
The RWQCB response received by the residents differs from that claimed by Fillmore Public Services Director Bert Rapp, who stated that he had tried to get an extension from the RWQCB and had received no written response. Rapp said that he had been told, in a conversation with an RWQCB attorney, that an extension could not be granted.
Morro Bay staff members and some City Council members have warned on several occasions that any delay could result in missing the RWQCB-imposed 2014 deadline, and the imposition of $10,000 per day fines. Morro Bay residents countered that past practices show that the RWQCB's want the best water treatment facilities possible, and are willing to work with communities so long as significant progress is being made. In the July 16, 2010 JPA meeting, at least one staff member still voiced disagreement with that position. There have been no publicly-reported written communications with the Central Coast RWQCB by either Morro Bay residents or Morro Bay City staff with regard to these concerns in relation to the current project.
Contract Issues
Both Morro Bay and Fillmore residents have taken issue with their respective city staffs' claims that cancelling contracts with vendors hired to work on their WWTP projects would be difficult or impossible. Stroh alleged that a City of Fillmore spokesperson had told PERC Water that the city could not "get out of" the contract with American Water. He also told the Fillmore Public Services Director, " . . . you previously said we could get out of our contract anytime we wanted but you are also saying that we are probably stuck with this contract because of various reasons." According to the citizens' website, cancelling the City's contract with American Water could have been accomplished in any one of four ways: lawsuit, referendum, lack of funding, or "outright cancellation by the City Council (this will trigger a $650,000 escape clause – but is worth it to save millions!)"
Cayucos Sanitary District and Morro Bay City staff members have, on several occasions, implied and directly stated that termination of the contract with MWH could result in litigation or other negative financial impacts. On page 4 of the contract with MWH is this termination of agreement clause: "8.01 Termination of Agreement Without Cause. Notwithstanding any other provision of this Agreement, any party may hereto terminate this Agreement, at any time, without cause, by giving at least ten (10) days prior written notice to the other parties to this Agreement." The contract contains no provision for any termination penalties. MWH would have to be paid for work done to date, but there is no cancellation fee like the $650,000 that Fillmore would have had to pay to terminate its contract with American Water.
Staff Resistance to PERC Water
Like their Fillmore counterparts, some City of Morro Bay and Cayucos Sanitary District staff members have shown what has been described by residents as strong resistance to PERC Water's entry into the competition for the WWTP contract. In 2002, PERC Water attempted to enter the competition in Fillmore. According to Bob Stroh's emails, Fillmore City staff members were reluctant to consider the firm, and only made contact under pressure exerted by citizens. One email states, "And that brings us to PERC. They were approached by some citizens of Fillmore after hearing about Santa Paula's conversations with PERC. Their numbers looked interesting and warranted a good look by the city. At no time did you ever suggest meeting with PERC and in fact it was the council, after the urging by citizens, that directed you to set up the meeting." "I can't speak for any other Fillmore Citizen—just me, Bob Stroh. Why didn't you just schedule a meeting with Brian (PERC) that we all could have attended and heard and considered PERC's proposal?"
Other emails published by the Fillmore residents appear to allege improprieties. Referring to an officer of AECOM/Boyle, the firm contracted to manage the Fillmore WWTP project, one email says, "To include Glen Hille who could lose millions if Fillmore went with PERC, in telephone communications with PERC is nothing short of, well, I don't know, criminal? There is no mystery why only selective parts of what you or Hille said in telephone conversations with Brian was included in your emails. I can only conclude that you and Hille made it clear to PERC that they would suffer if they continued to communicate with Fillmore." Conversely, the Fillmore Public Services Director alleged that Boyle would actually make money if PERC were to take over the project."
Documents published on the Fillmore citizens' website, including letters written by PERC Water employees, indicate that in the face of the perceived hostility of the Fillmore city staff, PERC eventually withdrew from the competition. Fillmore staff criticized various aspects of PERC's proposal and alleged that PERC had not proven it could save the city money. The City's Public Services Director said, "…you have indicated to Fillmore Citizens that PERC can save the community $20 million but you have not provided the community details on what is in your proposal and what is not so we can determine if the $20 million is real or imagined." PERC Water's Design –Build-Operate Package, dated November 1, 2002, does, however appear to provide considerable detail on how the cost savings would be realized. A letter and email from PERC Water to Fillmore's Public Services Director also addresses a number of questions regarding cost savings. In one of his emails to the Fillmore Public Services Director, Bob Stroh stated, "You certainly can deny this, but it's my understanding that you stated that you did not want to meet with PERC and that they were told in a telephone conversation by someone speaking for the city that we in fact could not get out of our contract with American Water. PERC got the message. I for one feel like I've been had and will be paying for it till the day I die."
In Morro Bay and Cayucos, residents have also urged their elected officials to consider PERC Water, and other firms that may offer similar technology, as a superior, lower-cost alternative to the project currently underway. Morro Bay residents formed have formed a citizens' group, "Citizens for a more affordable WWTP in Morro Bay". Morro Bay and Cayucos residents have spoken at City Council, Sanitary District, and JPA meetings, urging their elected representatives to consider alternative approaches to WWTP upgrade technology, financing, ownership and operation. Morro Bay City staff members, some City Council members, and some Cayucos Sanitary District Board members have discouraged PERC Water from participating, stating that PERC was "too late" entering the competition, that their claims appear "too good to be true," and that their approach may not actually save money. PERC Water guarantees final plant cost, project schedule, and quality of effluent.
Who are the Experts?
Residents of both Fillmore and Morro Bay have criticized their respective City Council members for relying on "experts" to the detriment of residents. In Fillmore, Stroh complained that, "The "experts" the council is so fond of saying they must depend on aren't always so expert. The expert said the bids should come in at the $50 million range. Oops, how about the $80 and $90 million range. The "experts" said they could do the legal procurement work for between $138,000 and $211,500 max and because staff recommended that firm, council approved. Then the law firm came back for more, a lot more, which staff recommended and council approved, raising the total cost to $417,416 plus another $60,000 for a second retainer. State Revolving Funds that would have saved the ratepayers millions, well, they just didn't happen. My thought is that the State's requirements might have jeopardized the opportunity for more profit for some unnecessary people at our expense."
Morro Bay residents have criticized at least one City Council member for making statements that the City staff are the experts, and that the Council must rely on them. The residents alleged that this assumption is detrimental to residents, and that City staff have, in the past made significant errors in judgment, as reported in the May SLO Coast Journal article, "Morro Bay Residents Call for More Oversight of City Staff". Several Morro Bay Council members and Cayucos Sanitary District Board members have been the subject of residents' complaints regarding over-reliance on the ‘wrong" experts and failure to consider other points of view regarding the WWTP upgrade project.
Possible Evidence of a Course Change in Morro Bay and Cayucos
On June 16, a long and sometimes-contentious JPA meeting culminated in a unanimous vote by the JPA Board to allow PERC Water to develop a customized design report (CDR) to show what it could do. The vote gave residents what they asked for and went against recommendations made by staff. The Board also voted to have a peer review performed by Kitchell Engineering to evaluate the relative strengths and weaknesses of the current WWTP project and that proposed by PERC.
In 2007, a concerned Fillmore resident stated, "I think there is probable cause to believe that the people and the city council have been led down a wrong and very expensive road and that the council should take immediate action to halt construction of the plant, make a complete and independent review of what has transpired and determine our best course of action from that point forward." Fillmore residents' pleas did not move their elected officials to look for less costly alternatives.
Morro Bay and Cayucos residents have expressed optimism and the hope that the recent JPA vote indicates their experience may be different from and happier than that of their neighbors to the South. PERC Water has provided a rough estimate indicating it can bring the Morro Bay/ Cayucos plant in for about $20 million, considerably less than the $27 million estimate for the project underway. The firm's CDR is expected to be complete within sixty days.
Noting that, "The new plants at Santa Paula and Piru were both re-bid and still able to meet their timelines." Fillmore's Mayor pro-tem offered some advice to Morro Bay and Cayucos: "Ultimately, the District needs to pick the lowest cost, best quality solution for the benefit of the community. Even if it takes longer to do so."
See also: New Technology PERC Wastewater Treatment to be Considered |
