Finance Committee Spends A Hour Discussing Library Project, Unanimously Votes To Reject All Project Bids

The Finance Committee met 09/26/2022. The meeting was around an hour and ten minutes long, and all but around 5 minutes of that was taken up by discussion on the request from the city to reject all bids for the library project.

As most people are aware at this point, the bids on the library project came in $14 million over budget. Director of Parks, Recreation, and Facilities, Dean Gazza, told the committee that of the 38 bid packages only 33 were bid on. Many of the bids far exceeded the city’s anticipated targets. Director Gazza also noted that it was very unusual to not have a lot of bidding activity on a major project like the library.

After discussing the situation with Boldt, the construction manager, and SOM, the architectural firm, the city decided the best option was to reject all the bids and rebid it in early 2023 which they felt would be a more favorable time. He mentioned January as a target, and said they did not want to delay much beyond March. Ahead of putting it out for new bids, they were going to talk with some of the bidders, contractors that that they had expected to bid but then did not, and the local unions and encourage them to bid on the project.

They were also going to go over the project and reevaluate its scope. Previously, they had engaged in value engineering exercises to try to reduce cost without decreasing the scope, but given how high the bidding numbers were they now needed to look at the project’s scope.

Director Gazza also said that some of the bids that came in were simply outrageously high. “Rejecting the bids does send a message that we are not going to expect the taxpayers nor are we gonna expect the donors to just accept this.”

A couple Boldt representatives also spoke to the committee. Paul Coenen felt strongly that with effort they would be able to bring the project back in line.

They needed to study further value engineering options. They also wanted to talk to subcontractors in the area and find out if they had any insight into how to reduce costs.

They were very disappointed by the turnout on bid day, and they wanted to understand why some subcontractors decided not to bid. They planned to hold some in-person meetings between Boldt, the city employees involved with the project, and the executives of some of those companies to get feedback and figure out how to make the project more enticing to them, given that the market was tight and contractors had substantially more bid opportunities than they could handle. The city wanted to do what it could to make the library project stand out as an attractive job opportunity.

Boldt felt that a spring start date made sense. Not doing the project in the winter would reduce some costs. Additionally, they wanted to open up bids (a) when the documents were accurate and reflected any and all of the corrections and changes they made and (b) at a time when the subcontractor community was hungry and wanted to take the project seriously.

One Boldt representative felt that the market would be softening in the second half of 2023 and into 2024 which was a little scary for those in the construction industry but overall would be a good thing. He said that the Appleton Library Project was the first project where someone held up their hands and refused to pay highly inflated costs. He felt that was significant because inflation only continued when demand continued even when supply could not keep up with demand.

A Boldt representative told the committee, “We are really confident that this project is going to come in and be a balance of meeting the budget and the need of the community.”

The alderpersons, both those on the committee and those who were simply present, asked quite a few questions of Director Gazza and the Boldt representatives.

Alderperson William Siebers (District 1), in response to Director Gazza’s statement that some of the bids had been outrageous, said that his experience had been that contractors don’t want to get a bad reputation by not bidding so, if they don’t want a project, will give a terrible bid. He wondered if some of the contractors who bid had not really been interested in the project. And if they weren’t interested now, they may still not be interested later on.

A member of the Boldt team said it came down to a manpower risk. For a period of time, the construction industry had experienced a challenge in obtaining materials. But now there was a manpower challenge. There was a lot of risk associated with taking on another project when they already had a full slate of projects scheduled for the 1^st quarter of 2023, particularly because the library was a sophisticated and challenging project that had to be done well. He did speak highly of the craftsmen in Northeast Wisconsin. He felt that there were no finer craftsmen anywhere in the country than in Northeast Wisconsin and that they did have the ability to do the project.

Alderperson Siebers said that with inflation being the way it is as well as the fear that it would continue increasing, there were concerns about being able to keep the project within the budget.

A Boldt representative said that they had implemented a lot of value engineering ideas to reduce money; however, inflation ate up all the savings they had tried to capture. They hoped that, moving forward, the building industry would slow down, thus reducing costs.

Alderperson Siebers also asked if Boldt had bid on any of the packages and how their bids had compared to the others.

Boldt had bid on about a dozen packages. A lot of them had been ones they typically self-perform such as concrete, structural steel, and carpentry. They also bid on a variety of packages that they don’t self-perform; this was done in an effort to keep the project moving and the bids they submitted were on behalf of subcontractors who were trusted partners of Boldt and interested in the job but who were struggling with pre-qualification.

For a lot of the packages, Boldt was the only bidder, but on a few they did have competition. For the structural steel package, they were about 30% lower than their competitor. For the cold metal framing package, they were the high bid by around 15%. For the millwork furnish package they were the low bid by a very small percentage.

Alderperson Chad Doran (District 15) had a number of questions.

When they started the project, it had been decided that reusing the existing structure would be more cost effective. Was that still the case now?

Director Gazza confirmed that reusing the existing structure would still be the more economical way to go for a number of reasons. He mentioned that the amount of concrete they would need for foundation work and foundation walls would be much more costly if they were building a new building.

Alderperson Doran asked when the last round of cost estimating had been done.

Director Gazza said that had been done at around the 90% point of design development. That was the point in August when they had given a presentation to the Common Council. At the time they had felt that they were running about $12 million over budget and ended up doing cost-cutting exercises which they shared with the Council and which, at the time, they felt would bring them back near target.

Alderperson Doran asked if, in the time between the presentation in August and the time when the city went out for bids, had there been any conversations between staff and Boldt? At some point did they get the sense or receive feedback that would have led them to expect they were not going to make budget?

Director Gazza didn’t know if they got a sense. There was concern because of inflation, interest rates, and labor shortages—none of which seemed to be solved at this point and all of which seemed to be continuing whether it be due to factors like war or the fed recently increasing interest rates again.

It was difficult to know what the bids would have been like if they had opened them up earlier because things had been crazy for a year. There were new articles from throughout the country of schools and municipal buildings that were receiving zero bids. Perhaps that made some sense in places like Nebraska, North Dakota, or Wyoming that didn’t have the resources that the Fox Cities had. But it was disappointing to be in an area with so many mechanical contractors, electrical contractors, carpentry firms, and roofing companies and still receive limited bids.

From the little bit of feedback he had obtained so far, some contractors were struggling to find workers and were calling in retirees and paying them top dollar to come back.

A Boldt representative also noted that the value engineering process took between 4 and 6 weeks, so that had been a problem of either trying to get market sooner to get out in front of inflation or spend time trying to figure out how to reduce costs.

Alderperson Doran asked if the $12 million they had mentioned saving with the value engineering process was what they had anticipated their changes would have cut from the project. Did they have an actual number that had been saved due to value engineering?

Director Gazza said it was an estimate. It was based on estimates provided by Boldt and from the cost consultant hired by SOM.

Alderperson Doran asked if they could walk through what exactly staff had been working on cutting during that value engineering process.

Director Gazza said that they had made some significant changes. They eliminated some internal stairwells. The skylights had originally been intended to be oval, but they changed them so that they were square on the exterior but looked oval from the interior. Some walls had originally been intended to be curved, but those curves were eliminated. They redid the service desks in a different format. They had some room dividers that originally had a wood finish on them but they changed that to a cloth finish. They did not use special bird proof glass and instead decided to use other more economical bird proofing measures. They also made changes to lighting and the HVAC systems. In the bathrooms they reduced tile to wet walls only. They made changes to flooring choices and furniture.

Mayor Woodford said they had cut millions of dollars from the scope of the project over the course of the project and also in between May and when they opened bids up. That was partly why they were disappointed about what happened on bid day because they had already put in an immense amount of work to cut from where they could. It was frustrating that all the old tricks that help bring a project in on time and on budget were not working the way they used to. “To simplify the message that we shared a little bit last week, we really tried to hold harmless the major sort of programmatic and aesthetic aspects of the project through up to this point. We just have to, we have to recognize as a project team, as a community, that you know everything’s gonna have to be on the table as we look at the next round of a value engineering. But—correct me if I’m wrong, Boldt Team—it’s not just about cutting from project scope; it’s also about strategy in terms of when we hit market and what’s in the construction documents, making sure that our documentation is ready to go. Those pieces too help us in terms of competing for the project.”

Alderperson Doran asked if, now that they were looking at scaling back the project, was there an added cost to the city to do that work? If so, where was the money going to come from?

Director Gazza stated, “No, there is no added cost.” The construction manager (Boldt) and the architect (SOM) get paid based on the bid dollar amount.

Mayor Woodford added that while there was no additional cost to the city there was added cost to Boldt but despite that they had not batted an eye at rejecting the bids and redoing the process. “I just want to recognize that the company is significantly invested beyond what shows up in the contract, and we’re deeply appreciative of that.”

Alderperson Doran said he believed earlier this year the Council had approved pre-ordering an electrical switch gear. Was that still moving forward or did it have to change based on the scope of the project changing?

Director Gazza said it did not have to change. It was just a main piece that they needed to get a jump on purchasing.

Alderperson Doran asked if the 33 bid packages that were bid on had been anticipated coming in at around $29 million and the 5 packages that weren’t bid on had been expected to be around $11 million.

Director Gazza said there were so many variables. If furniture cost more than they had less for construction. But, yes, $29 million had been the target for the packages that received bids. The packages that had not received bids had been relatively small, so he didn’t have numbers for those.

Mayor Woodford cautioned against a hypothetical exercise about pricing because that assumed they received rational bids on al of the packages which they did not. The bottom line was they didn’t get rational bids across them, so they couldn’t really speculate on the bids they didn’t get.

Alderperson Doran asked how they anticipated the delay affecting their lease of the temporary library space.

Director Gazza said they would be meeting with the landlord in the near future to talk about what their options were.

Mayor Woodford added that they had operationalized the cost of leasing the temporary space, so the lease was not being charged against the library project’s budget and it was not an additional operating expense for the city.

Alderperson Doran said he had been asked if the city had the option to end the lease of the temporary space and move back into the current space.

Director Gazza said that was not an option at this point. They did the asbestos remediation, sold furniture, did various testing within the facility including soil testing and some semi-destructive testing. Moving back in was not an option.

Alderperson Doran asked if they had gotten any updates from the Friends of Appleton Public Library about when they expected to have a final amount for their fundraising.

Library Director Colleen Rortvedt said that the Friends had been talking with potential top donors and finding out where they were at with potential donations. They were finding that donors were remaining consistent with the donation amounts they had indicated during the campaign feasibility study. The feasibility study had identified 80% of their goal which is what they wanted before they moved from the quiet, major donor phase to the open phase with lots of small donations. They were very optimistic. They would be bringing the first round of naming opportunities agreements forward at the very end of 2022 or the beginning of 2023. People were very excited and they actually had to get creative and find more naming opportunities for donors.

Mayor Woodford said that from a fundraising timeline standpoint it was actually helpful for the bids to be put out in January because it aligned the campaign with the project better and would allow them to have clarity about where the Friends were against their campaign target when the city was ready to break ground on the project.

He added that he had been involved with lots of fundraising projects and operations over the years and he was very impressed with the professionalism of the Friends’ campaign, the quality of the work they were doing, and then enthusiasm from donors. It far exceeded his expectations for a public sector fundraising campaign.

Alderperson Doran appreciated that and said, for himself, he would not want to be asked to approve the budget for the project without knowing what support they would receive through private fundraising. He wanted to make sure they were meeting their goals for the city residents.

Alderperson Israel Del Toro (District 4) asked what percentage of the bids had been reasonable versus those that had been unacceptably high.

Director Gazza said they didn’t do a calculation. There had been some that were within or lower than budget. Even though some of them had been acceptable, the city couldn’t really accept them while rejecting the others because of the timing of the project and the fact that the bids were only valid for 30 days.

Alderperson Del Toro wondered if they were taking a bit of a gamble by losing good bids along with the bad bids. He was worried they might find themselves worse off when they rebid. Was it truly an all or nothing proposition or could they accept some bids to help the city keep aiming for their budget target?

Director Gazza answered that given the magnitude of the project it was an all or nothing proposition, particularly because some of the bids that were reasonable were on smaller packages not the larger packages.

Mayor Woodford added, “The magnitude of this difference just puts us in a position where we don’t have fourteen million dollars of activity that we can complete and still be within the active timeline of these bids.” They had hoped that by having so many separate bid packages that they would have been able to do that, and when they rebid in January, they wanted to make sure that they preserved as much flexibility as possible so that they could rebid some individual packages without having to rebid everything. But right now, they didn’t feel they had that option because many of the bids had a 30-day deadline and it was going to take significantly more than one or two bids to get the project within budget range.

Alderperson Denise Fenton (District 6) asked about the timeline of the library relocation and why they had left the building before the bids were in.

Director Rortvedt answered that it was a really complex process to vacate a library. The move itself took 8 weeks and required both staff and outside resources like a moving company and a specialist to move the stacks. They could not mobilize a crew to take down the stacks, keep the books in order, restore the stacks, and put everything back up without being on their schedules.

Another complex part was moving the library’s network. The library’s internet came from the Outagamie Waupaca Library System which came through a state service. That state service had a very strict set of rules that they had to follow to reestablish the network at another location. They had to be on the schedule 6 months in advance. It was not something that could be done at the last minute and was enough in and of itself to justify committing to a timeline to move.

A Boldt representative added, “The other thing I would say from a construction perspective is, you know, 6 months ago did anybody anticipate this hyper-inflation that we’ve experienced?”

[I was honestly quite shocked to hear him say that. He could have read any number of moderately conservative websites who were predicting massive inflation as a result of the country’s Covid response on top of the federal government’s monetary policy since 2008. It has been known for over a decade that we were going to eventually have to pay the piper, and, once 2020 hit and the government started printing trillions of dollars in response to Covid while locking people in their homes and preventing them from working, a reasonable person could expect that that massive inflation was only a year or two away. It’s not that hard to find numerous articles from a year or two ago making that argument. Here’s one from May of 2020. Frankly, if truly none of the people in that room were aware that hyper-inflation was a genuine possibility, I find that concerning.]

The Boldt representative said that the root cause of the inflation was all the money that had been infused in the system to prop the economy up during the pandemic. Thankfully, the idea that they were going to move forward with a project no matter the cost was stopping and they were returning to sanity. That would cause the liquidity to dry up. He thought rejecting the bids and rebidding was a good plan.

Director Gazza said that the normal process was to move the people out and then remediate the building then get the site set up with fences and job trailers and do any testing that needed to be done. Then get into demolition.

If they bid the project first before moving and remediation, they would have to ask the bidders to hold their prices for six months which was not something they could do. Moving first was a normal and standard thing.

That was the last of the questions although there were some further comments.

Alderperson Katie Van Zeeland said that she had reflected over the past few days and felt like there was a high demand for construction and the city wasn’t the only project rushing to beat inflation or interest rates. It felt like maybe they missed the window. “I think it’s the right thing to do to be good stewards of the taxpayer money to reject these bids and try again later. I don’t think it will diminish the project for the community, but I just think we need to do the right thing and try again at a later date.”

Alderperson Siebers said he would appreciate, before they went out to bid again, receiving some kind of update on the scope of the project.

Director Gazza said similarly to what they did before he anticipated coming to the Council and giving a status update.

Before the committee voted on it, Director Gazza wanted to say that these were really unprecedented times. He spoke highly of both Boldt and SOM. “They [Boldt] really want this for the community. I mean they’ve said it, but they’ve demonstrated it. So, from my perspective I have to say it publicly, it’s amazing how much time they’re putting into it and how much concern they have for this project. In addition, SOM same thing. They’re in Chicago but they have people, two people that were born and raised in Appleton, and that’s one of the reasons they wanted to take the project on. They had told us they’re, you know, they’re in this to see this through.”

He also said that they received tremendous feedback from the public and from the donors that they felt they were doing the right thing. He wanted to the let the committee know that the feedback they had been getting was very positive.

Alderperson Siebers somewhat wryly noted that the people who were never in favor of the project were coming out of the woodwork as well.

Alderperson Brad Firkus (District 3) said he appreciated the thoroughness of the work that had been done up to this point and the decisiveness of the decision to reject the bids. “I feel with the level of effort that we’ve been seeing that this project will be successful. This is just one of those things that we are going to have to work through together, and I look forward to seeing this be a very successful project and a very beneficial project for a long time to come.”

The committee proceeded to vote 4-0 to reject all the bids for the Appleton Public Library project.

[I have to say, this entire project has been very frustrating. The city was pushing it for a decade while refusing to acknowledge the main concern a lot of people had—that all the proposals were way too expensive. If Mayor Hanna and his administration had taken steps to reduce the budget 10 years ago, we could have gotten this thing built during a time when the economy was booming.

It’s also frustrating to be told that the architects were able to shave $12 million off of the project through value engineering. I find it problematic that $12 million worth of unnecessary features were able to be eliminated without the scope of the project being impacted, and it’s problematic that the only reason they went through that value engineering exercise was because of their concerns about inflation. If inflation hadn’t been a concern, it sounds like they wouldn’t have done all that value engineering and the building would have cost $12 million more than necessary. The fact that those elements weren’t kept out of the design from the start suggests that they maybe aren’t being as careful with the taxpayer’s dollars as they would like everyone to believe.

It would also be nice to know what “budget range” is. Is the plan still to keep within the budget or is there now a “range” that may or may be the actual budget?]

View full meeting details and video here: https://cityofappleton.legistar.com/MeetingDetail.aspx?ID=986844&GUID=E6BE4445-738C-453A-9FEB-EB6773BF4826