Cost overruns, unidentified risks, legal and engineering oversight are addressed in the finally adopted Risk Assessment Policy.

Following Piedmont’s unplanned expenditure of well over 3 million tax payer dollars, a result of the  failed Blair Park/Moraga Canyon sports complex project and faulty private underground utility project, residents and groups such as the Piedmont League of Voters (LWV) were concerned and offered suggestions on how to protect Piedmont from future unplanned financial impacts.  The City Council finally unanimously approved a Risk Assessment Policy.

Risk problems centered on the lack of step-by-step monitoring and reporting of risks and costs.  The new policy lays out actions to alert the Council, the public and the staff when capital projects costing over $300,000 are considered, approved and implemented. Public knowledge early in project development was specifically requested by the LWV and others.

The policy is intended to provide a thorough review of projects prior to expending large amounts of City time and money on projects without public knowledge and involvement.

Rob Hendrickson, a construction law attorney and civil engineer who served on the LWV’s Task Force on Civic Governance, repeated the monthly accounting recommendation presented in April, 2013 by then LWV President Julie McDonald.  He urged that as a project was being implemented a monthly accounting should be presented to the Council to assure staff was monitoring the project and the public was aware of problems.  This request was echoed by High School student Julie Adams, who felt this was common in business and should be a part of the policy.

Tim Rood, candidate for City Council, agreed with the accountability measures noted in the LWV communication.

Acting City Attorney Michelle Kenyon cautioned against including specific timelines for the City Administrator, such as monthly reporting, as this could result in further risk if the timeline was not met. Council member  Jeff Wieler stated the responsibility for compliance rested with the City Administrator as part of the job description and non-compliance would be dealt with through personnel evaluations and ultimately through the  Council election process.

Public Works Director Chester Nakahara who was responsible for drafting and redrafting the much belabored policy responded to concerns. Numerous “and/or” clauses in the policy language were at issue as to when and what would be presented to the public and Council during the conceptual and implementation phase of a project.  Nakahara pointed out that the requirement that the City Attorney and City Engineers review projects would be an expense for the City.

Excerpts from the City Charter:

The City Administrator, “Shall keep the Council fully advised as to the financial condition and future needs of the City…”

The City Attorney is to “Represent and advise the Council and all City officers in all matters of law pertaining to their offices;” “Approve the form of all contracts made by and all bonds given to the City, endorsing approval thereon in writing;” “All contracts shall be drawn under the supervision of the city attorney.”

The City Engineer description states, “There shall be a city engineer who shall have supervision over all matters of an engineering character as required by State law, or as assigned by the City Council.”

Council member Garrett Keating supported contract review by the City Attorney to protect the City from risks on public and private projects.

Review by the City Engineer is intended to make certain all projects are properly engineered and contracts are appropriately specified.

Consultants employed to oversee or advise on projects would be an additional cost of any project.

City Administrator Geoff Grote, who is retiring within weeks, stated that the policy would not prevent all future problems, while acknowledging the policy would be helpful and could be modified as needed in the future.

Mayor John Chiang was repeatedly thanked for bringing the policy to the Council for approval prior to his February retirement from the Council.

Click for the staff report and communications.

Click for draft minutes to view changes approved by the Council.

Resident Urges City Council  to Reconsider Risk Management Policies – 

The following is an open letter to the Piedmont City Council.

Re: Risk Management Policies

To the Piedmont City Council:

I urge you to reconsider some of your members’ stated opposition to reviewing the risk management oversights which were made in connection with the City’s consideration of the Moraga Canyon project, as understanding how and why they occurred will help guide your review and consideration of the recently proposed risk management policies.

As a preface, these issues are independent of the political wisdom for or against the Moraga Canyon project. They deal solely with the project risks presented, some of which were similar to the risks which surfaced in the Piedmont Hills Undergrounding project. I will confine my comments to three principal aspects of the project: 1) The contracting arrangement was not legal because Blair Park LLC was not properly licensed; 2) design responsibility and liability was omitted from the agreements; and 3) the bond requested was not required to be posted by the proper party and so would have not protected against the appropriate risks.

First, while creating a new entity – Blair Park LLC – to be the contracting party was apparently done in an attempt to insulate the City from potential construction cost overruns, because Blair Park LLC was agreeing to cause to have the complex constructed, it was required to be a licensed contractor, but was not. It was immaterial that all the actual construction work was to be performed by Webcor, a licensed contractor. Vallejo Development Company v. Beck Development (1994) 24 Cal.App.4th 929, 941 (“The fact that [the developer] subcontracted with licensed contractors to provide the actual labor, equipment and materials to construct the infrastructure improvements is irrelevant. [Business & Professions Code] Section 7026 plainly states that both the person who provides construction services himself and one who does so ‘through others’ qualifies as a ‘contractor’. The California courts also long held that those who enter into construction contracts must be licensed, even when they themselves do not do the actual work under the contract.”) Because Blair Park LLC was the contracting party with the City, it was obligated under California Business & Professions Code Section 7028 to be licensed.

Indeed, under Business & Professions Code Section 7028.7, the City itself could have been issued a citation and fine by the State Contractors License Board Registrar for entering into a contract with an unlicensed contractor. A contract with an unlicensed contractor is considered to be illegal and unenforceable. I brought this issue up with the City staff and the project proponents prior to the Council meeting at which the project was approved.

Second, notwithstanding the fact that Blair Park LLC had design/build responsibilities, because the City’s proposed agreement with Blair Park LLC, and Blair Park LLC’s conditions of contract with Webcor were apparently modeled on the Webcor-Havens School contract model (under which the school district owner provided the design, unlike here where Blair Park LLC was obligated to provide the design), the agreements and conditions for approval and site Lease completely omitted any reference to design liability and professional liability insurance. Public owners are used to providing the design, and being responsible for it, so it is perhaps easy to understand how this important risk factor would get completely overlooked when the City was contemplating the use of a different contract delivery model (i.e., design/build), but it also highlights why a risk management assessment of not just the detailed procedures but also more importantly, the big picture items, is so important.

Lastly, although the contract required Webcor to obtain a performance bond (and there was to be a further requirement to provide unspecified neighboring property damage security regarding potential future damage to houses), the exact risk which was at the center of Piedmont Hills Undergrounding – unforeseen subsurface conditions requiring extra work – was a Blair Park LLC risk, not a contractor risk, and would therefore not be covered under Webcor’s performance bond. Blair Park LLC was responsible for providing the design of the significant retaining walls, which design was necessarily dependent on unknown subsurface conditions.

Webcor was to be responsible for constructing what was depicted in the design and shown on the plans. If the subsurface conditions actually encountered were different than what was shown on the plans, and the design had to be modified and required extra work, those extra work claims – that cost over $2.5 million on the Piedmont Hills Undergrounding project – would not have been covered by Webcor’s performance bond (nor any damage security bond). Blair Park LLC was the only party to have design responsibility, and it was not required to post any performance bond. By analogy, requiring the undergrounding contractor on Piedmont Hills to post a performance bond did not mitigate its $2.5 million in extra work claims. The City had to pay for the extra work to complete the undergrounding because it could not leave the streets with open trenches. So too on Moraga Canyon, if the contractor encountered unknown subsurface conditions requiring extra work in the middle of constructing the retaining walls and re-routing sewers, somebody would be required to pay for the extra work because the work would have had to have been completed for safety reasons. Blair Park LLC was not required to provide any security demonstrating any ability to pay beyond the agreed upon contract construction costs. As occurred on Piedmont Hills, the City, as owner, would have been responsible to cover the extra costs to allow the construction to be completed. However, the City has demonstrated that it cannot even recover from the project proponents its out of pocket consultant costs under the Indemnification Agreement. There was no agreement to cover this real risk. Thus, while the Moraga Canyon project called for a bond, it was the wrong party being required to post the bond, and so the City remained at risk if the project required extra work to deal with unforeseen subsurface conditions. This was a repeat of the same exact risk as on Piedmont Hills.

These risk issues could have and should have been caught and addressed in a risk management analysis. The presently proposed Risk Management Procedures did not, and would not have caught these material oversights. As the old cliché provides, those who cannot remember the past are condemned to repeat it. If these types of risks were not addressed on the Piedmont Hills Undergrounding project, or on the proposed agreements for the Moraga Canyon project, on what basis does the Council think the present City project team, procedures and proposed risk management policies will catch them in the future? A change in paradigm is needed if one wants a different result. Learning from past mistakes is more productive than simply trying to ignore them, and focusing on minutiae to the exclusion of understanding the big picture is bad policy.

Respectfully submitted,

Rob Hendrickson

cc: Piedmont Civic Association

Piedmont Patch

Piedmont Post

Piedmonter

LWVP

Editors Note: The opinions expressed are those of the author and not necessarily those of the Piedmont Civic Association.

Litigation with Harris and Gray returns to trial court – 

Legal procedures continue as the City of Piedmont attempts to recover funds spent on the Piedmont Hills Undergrounding Assessment District (PHUAD) established for undergrounding of utilities.  The City is charging two engineering firms with liability for the over $2.4 million spent to complete the project after rock was discovered in the area. > Click to read more…

The City of Piedmont has recently updated available legal documents associated with the lawsuit against consulting engineers to the Piedmont Hills Underground Utility District (PHUUD).

The cost overruns and street collapse arising from the private undergrounding of utility services in the Glen Alpine and Sotelo Avenues area have resulted in City General Fund expenditures of approximately $2. 5 million on behalf of the PHUUD.   Legal documents can be viewed here.  The City is hoping some of the loss can be recovered through the litigation. 

The City of Piedmont has invited public comment on the recommendations of the Municipal Tax Review Committee, the League of Women Voters Task Force, and the City Council Audit Subcommittee.  The full reports, along with a matrix of the recommendations prepared by Vice Mayor John Chiang, are linked below.

The City Administrator’s response to the recommendations is provided in his Discussion of Reports and Recommendations . . . ,  The City Council has allowed time to implement the recommendations prior to a vote on the renewal of the City’s General Parcel Tax by delaying the measure until the June, 2012 ballot.

Did you miss the LWV forum on these issues?   Watch the video here.

Written comments should be directed to the City Council, c/o Piedmont City Clerk, 120 Vista Avenue, Piedmont, CA 94611 or by email to:jtulloch@ci.piedmont.ca.us.  Correspondence received by the City Clerk is considered part of the public record. > Click to read more…

At its meeting on January 18, the City Council voted unanimously to reimburse the Sewer Fund for $275,000 used for Crest Road repairs.   Piedmont residents Rick Schiller and Rob Hendrickson thoroughly investigated the payment of $275,000 from the Piedmont Sewer Fund for road repair work on Crest Road.   > Click to read more…

At its meeting on January 17, 2012, the City Council extended the moratorium on utility undergrounding districts for two more years, until March 2014. This was the Council’s first step in implementing  recommendations of  the Council’s own Audit Subcommittee and the League of Women Voters Task Force, both of which  investigated and reported on the serious and costly flaws in the City’s management of the Piedmont Hills Utility Undergrounding District.

> Click to read more…

Special note: the Council meeting is being held Tuesday, January 17, 2012 at 7:30 p.m.  City Council Chambers, 120 Vista Avenue, Piedmont, California. > Click to read more…

Residents’ investigation of the Crest Road washout revealed incorrect allocation of funds from the Sewer Fund, resulting in proposed refund to the sewer fund > Click to read more…

 New Information on Crest Road Washout –

League of Women Voters

Task Force to Investigate and Report on Piedmont Hills Undergrounding Project Addendum to Preliminary Findings

– Crest Road Trench Washout
November 14, 2011

The League of Women Voters Task Force is publishing this Addendum to its initial report (updated 3/15/11) because of additional information obtained since completion of that report. > Click to read more…