The Board of Estimates has expanded and extended to 2024 a policy that recently allowed the board to hike the bill for re-pointing and cleaning the stone walls of City Hall by $1.6 million.
Yesterday’s approval of a seemingly innocuous resolution – “Amendment Relating to Cost Escalation Change Orders Due to Adverse Economic Conditions” – by Baltimore’s three top elected officials alters the rules for Extra Work Orders, or cost overruns, established by the City Charter and the 1,050-page “Green Book” of construction specifications.
Previously, contractors could submit EWOs under three broad conditions:
• if the mandated quantity of materials was increased,
• if the scope of work was altered, or
• if unforeseen and unforeseeable site conditions were experienced.
Otherwise, “bids are irrevocable,” in the language of the City Charter, and contracts were enforceable by a performance bond guaranteeing that work is completed or else the city is compensated.
That meant that contractors were supposed to stick to the price that won them the contract in the first place, although this website has documented many instances – for sewers, bridges and other big-ticket items – where EWOs were awarded on dubious grounds.
Protecting Contractors from Inflation
Now, Mayor Brandon Scott, backed by City Council President Nick Mosby and Comptroller Bill Henry, will extend through June 30, 2024 a policy first instituted in December.
It lets contractors go back and renegotiate contracts approved by the spending board before July 2022 – then seek price increases based on “adverse economic conditions,” including for “high inflation and supply-chain disruptions.”
The Board of Estimates can then retroactively approve the new prices through EWO submissions.
Individual line items can be raised as much as 50% above the original bid, according to the resolution.
That’s far above the 19.6% construction input inflation rate at the height of U.S. inflation in 2021.
Individual line items can be raised as much as 50%, or much more than most measures of inflation.
Some of the language in the new policy is worth quoting.
For example, yesterday’s resolution “require[s] the project estimator for a city agency to review the change order” submitted by a contractor “and conduct a cost-benefit analysis of rejecting vs. approving vs. negotiating the change order result.”
“If it is in the public interest to negotiate on a change order request,” the document continues, “the cost-benefit analysis performed by the project estimator must be submitted to the Change Order Review Committee and the Board [of Estimates].”
The Change Order Review Committee, which already exists, next to never raises questions or objections to EWOs. And the Board of Estimates even more rarely fails to approve the new prices.
The resolution asserts that adherence to the same procedure “will ensure that change orders related to cost escalations due to adverse economic conditions are reasonable and justifiable.”
Scott, Mosby and Henry are all up for re-election next year, and contractors rank with real estate developers and attorneys as the most reliable sources of campaign contributions in Baltimore.
Already, P. Flanigan & Sons (street paving), R.E. Harrington Plumbing (sewer rehab), The Goode Companies (garbage services) and Whiting-Turner Contracting (building construction) have each given the $6,000 maximum contributions to People for Brandon M. Scott, the mayor’s campaign committee.
Scott did not comment yesterday on the new EWO policy as his infrastructure “czar,” Matthew Garbark, spoke of the importance of helping the struggling construction industry.
“Inflation remains at particularly severe levels. The construction industry is particularly hit” – Matt Garbark, Mayor Scott’s infrastructure czar.
“The original resolution is due to expire on June 30th. At this time, inflation remains at particularly severe levels. The construction industry is particularly hit by it, and there are a number of actions that agencies are working on,” he said.
“If we do not extend this, what happens?” Mosby asked Garbark.
“Then any negotiations on these particular types of change orders could not go forward,” Garbark replied, “This resolution should give us enough time [to renegotiate] these contracts.”
“So while this is really important, this will not have a huge adverse impact on us from a budgetary perspective. Is that accurate?” Mosby asked.
Garbark nodded in agreement, and the five-member board, which includes Public Works Director Jason Mitchell and Acting City Solicitor Ebony Thompson, approved the measure.
A Costly Facelift
The policy already has resulted in an extra $1,616,000 paid to Lorton Stone LLC last month because “the contractor has experienced an unanticipated rise in inflationary costs since the time of the bid,” according to BOE records.
In February 2020, the Virginia-based company bid $6.1 million to repair City Hall’s exterior walls, window sills and gutters. Since then, 19 EWOs have been awarded to the company, increasing the cost of the project to $8.5 million.
After the latest $1.6 million EWO for City Hall building restoration, the project price is now nearly double the original bid.
The $1.6 million added for unanticipated inflationary costs will bring the price tag to $10.1 million, or nearly double the original bid.
The Department of General Services has justified the cost increases based on a consultant who identified unexpected deterioration of mortar joints, leaking gutters and misaligned stones as workmen slowly made their way around the building, an outer wrapping of dark mesh marking their progress.
Looking for Federal Dollars
Last June, Scott created the Mayor’s Office of Infrastructure Development and appointed Garbark, a former City Hall staffer and DPW deputy director, as program director with a $2 million budget.
Modernizing city contracting processes and procedures is the first step toward tapping into federal infrastructure funds and making a difference in people’s lives, Garbark says. Speaking to Politico, he described his office’s priorities:
“Over the years, right, wrong or indifferent, there have been promises made throughout the city for major projects, whether it’s a multi-million dollar transit line, which was canceled, or reconnecting communities from highways.
“I think there are a lot of people, especially in underserved neighborhoods, that hear things and they dismiss them. They say, ‘Show me the progress.’ There’s a lot of work that we need to do to show that we’re taking advantage of this. I think once we start getting shovels in the ground and projects underway, they are going to realize how impactful this is going to be.”