The city added $2.17 million onto approved city bids, but no public list of change orders exists

photo by: Sylas May/Journal-World Illustration

In 2017, the city approved 103 change orders, for a total of $2.17 million in added spending.

It was street repair season in 2017, and leaders with Lawrence’s public works department thought they had found a good deal.

Each year, the city department makes its lists of streets that need new pavement or other such repairs. Each year, there’s always some streets that could make the list but don’t.

In late 2017, it was determined the city could add a few more streets to the list. For the additional work, the city would need to pay $180,000 more than the low-bid price that city commissioners had agreed to months earlier.

The $180,000 price tag would be cheaper than if the city waited to do the repairs, officials have said.

That may be true, but $180,000 is not exactly pocket change at Lawrence City Hall. Commissioners have turned down smaller requests from other groups and organizations because they felt they didn’t have available funds.

In the end, the $180,000 worth of additional roadwork was completed. A city policy required that the additional costs be approved by the City Commission, and they were at a Dec. 19 City Commission meeting.

But the approval had a twist to it. When commissioners unanimously approved the $180,000 increase, nearly all of the additional street work already had been completed. City staff members already had given the construction company the green light. If city commissioners had wanted to object to the additional costs, it is unclear how they would have been able to do so at that point.

The $180,000 in unexpected street repairs is an example of what City Hall officials call a “change order.” Not all change orders involve an after-the-fact approval by the City Commission. Many don’t require any approval at all from city commissioners.

A multi-month review by the Journal-World found that in 2017, there were 103 change orders. Some of them resulted in changes to contracts or bid amounts that reduced the price of the project, but far more increased the cost of city-approved work. In total, change orders added $2.17 million in additional costs.

The Journal-World review also found:

• City policy creates limited instances where the City Commission must approve change orders. As a result, about 85 percent of all change orders were approved by city staff members.

• While the city has a written policy for when the City Commission must approve change orders, it does not have a written policy for how staff members should approve change orders, but instead follows an unwritten set of general practices.

• It is difficult for members of the public — or even city commissioners — to see a comprehensive list of change orders that have been approved during any given time period. The Journal-World had to pay a $142 open records fee to compensate the city for the time that was required to compile a list of the 2017 approved change orders.

After-the-fact approvals

Change orders are not unique to Lawrence. Similar processes exist within many governments. City officials say that staff thoroughly reviews the change orders, and that expanding projects can actually save the city money in the long run. Some city leaders said managing those changes rightly falls to city staff, and that the flexibility is needed.

But some city leaders also have questioned the process, especially when commissioners are being asked to approve spending increases after the fact.

That was the case in December when then-City Commissioner Mike Amyx pulled from the consent agenda an approximately $272,000 contract increase for the street and storm sewer project at 23rd Street and Ousdahl Road. The increases included additional concrete and asphalt repairs that had already been made by the time the commission was asked to approve the change order.

Amyx said he would not vote against the change order because the city has to pay the bills on a project that’s been done, but he said that the commission should be more involved when increasing a project’s contract cost is initially considered, as opposed to being asked to approve the change after the fact.

“I guess the big thing that I see is that the commission essentially only gets to look at the original project as it comes forward,” Amyx said at the time. “And a lot of the change orders as they come through, we don’t ever get to see that part until the final bill is paid.”

A change order can be an increase or decrease to the original contract amount, but does not necessarily mean the project goes over budget. For both the 23rd and Ousdahl project and the street maintenance program, the contract increase was within the amount budgeted. For instance, the original contract amount for the street repairs was $2.28 million, and the addition of $180,000 was within the maximum budgeted program cost of $3.24 million, according to a memo to the City Commission. The memo recommends approval of the change order and notes “the project has been substantially completed.”

Public Works Director Chuck Soules said a lot of the change orders for road projects are submitted after the work is already done because it isn’t efficient to pull crews and equipment off the road or otherwise hold up a project for approval. Once crews leave the area, costs to get them to come back will be higher.

Vice Mayor Lisa Larsen said it is a judgment call as to how cost efficient a change order would be. She said she has asked staff for more details about those decisions when they come to the commission, and has found their responses to be reasonable. When asked if she is comfortable approving change orders that are already complete, she said she thinks that allowing staff to make those calls is allowing them to do their job.

“They are the professionals out there, and there is a level of trust that goes on,” Larsen said. “Now, that doesn’t mean that, when it comes to the commission, we can’t ask them about that and find out what the details were regarding this change order.”

Commissioner Jennifer Ananda said she is comfortable allowing “ceremonial approvals” when the cost of a project would be more if the city were to wait to do the work. However, Ananda said she thinks it’s important that there be a process in place in the case that the commission does not approve a completed change order, or even an expedited manner to approve those as they come up. As it is, she said she does question whether the process essentially takes a budget decision out of the commission’s hands.

“Is it because that work needs to be done? Should we be looking at our prioritization to see if that’s where that extra $180,000 should be going?” Ananda said. “I think that those are the kind of questions that I would want to ask.”

Commissioner Matthew Herbert said he trusts city staffers, and that he isn’t sure it would do a lot of good to take those decisions out of their hands.

“The way that I view the role of being a commissioner is as a policy setter, not as a micromanager,” Herbert said. “I trust city staff to manage the day-to-day affairs of the city.”

Mayor Stuart Boley and Commissioner Leslie Soden did not immediately respond to the Journal-World’s interview request for this article.

Examples of change orders

The largest single category of change orders in 2017 was engineering services. Of the 103 transactions on the list of change orders, 13 were for engineering services, and together those transactions totaled about $861,000, or about 40 percent of the $2.17 million.

Assistant Director of Utilities Melinda Harger said the engineering change orders come about because the city creates a change order every time engineering work begins on a new phase of a project. She said many communities probably would not consider that a change order, but it is processed as such in Lawrence.

City Manager Tom Markus said that when he joined the city in 2016, both the number of change orders and level of scrutiny from the governing body stood out from other cities where he’s worked. But he said those trends can vary greatly year to year depending on how many projects a city has going, and that the level of scrutiny could be related to how much commissioners trust city staff or how familiar they are with construction and contractor work.

“My first reaction to it here was we did seem to have a fair number of change orders, and we didn’t seem to have the scrutiny at the commission level that I’ve experienced in other places,” Markus said. He later added that since Larsen — who has a background as a contractor — joined the commission, change orders are getting a deeper look.

In addition to the numbers of change orders being variable year to year, cities may differ in what they label a change order. Though the purchases Lawrence processed as change orders last year total $2.17 million, Markus and city officials said that about half of that amount is the result of transactions that don’t necessarily meet the typical definition of a change order.

Because of the variable nature and classification of change orders, the Journal-World did not attempt to compare Lawrence’s totals with those of other communities.

The Journal-World, though, did review some of the high-dollar Lawrence change orders approved in 2017. Here are some examples:

• In November, the commission approved a $119,500 increase to the contract to reconstruct 19th Street from Naismith Drive to Alabama Street. The one-page memo to the commission noted the approximate dollar values for additional curb, gutter, retaining walls, irrigation and driveway repair, and that the project’s $3.45 million budget left “sufficient funding available for the change order.”

• In December, the commission approved an approximately $71,200 increase to the contract for the Kaw River Water Treatment Plant. The memo states the changes increased the cost of the contract by 6.73 percent, and included additional repairs to the basin and replacing a set of concrete stairs, which was not scoped with the original project. The stairs came at a cost of about $22,700.

• Over an approximately two-year period, the city approved a series of five change orders for a Clinton Water Treatment Plant project designed to improve taste and odor problems at the plant. The net increases of the five change orders totaled $216,000, or about a 5.6 percent increase in the price of the contract at the time. A city memo notes the funding for the project is covered by increases in the city’s utility rates. Crossland Heavy Contractors was the lowest bidder on the project, but the increases to the contract would have made it the third of five bids had the other bids remained flat.

Other change orders on the list provided to the Journal-World are for smaller dollar amounts, as well as some decreases in contract costs. Those include a $23,800 increase in the contract for the Oread water storage tank and pump station replacement; a $7,200 increase for the Clinton Water Treatment Plant raw water pump station improvements; and a $12,400 increase for a waterline replacement on Sunnyside Avenue. City staff approved those change orders administratively, and so more details are not immediately available.

The entire list of change orders for 2017 is below.

Who approves change orders

Of the 103 change orders completed last year, a Journal-World review of commission agendas found that 15 were sent to the City Commission for review, meaning that city staff approved the remaining 88, or about 85 percent.

Under the city’s purchasing policy, commission approval is required if the cumulative amount of the changes increases the purchase order by more than $50,000. The policy also states that “extra work beyond the original project scope” also requires City Commission approval.

Though city staff approves the vast majority of change orders internally, precisely who on city staff approves those change orders is not predetermined. That differs from the city’s purchasing policy, which requires department heads to approve purchases of more than $5,000 and the city manager to approve purchases of more than $25,000.

Finance Director Bryan Kidney said that approval levels for change orders under $50,000 are not specifically addressed in city policy or procedures, but certain approval levels are used as a general practice. Kidney said department directors generally approve change orders up to $25,000 and the city manager level approves those $25,001 to $49,999. He said that an accountant in the finance office reviews all change orders before they are allowed.

The change order policy also states that to more closely monitor construction project change orders, bids must be written in a way that can clearly define what the change is and how much the increase or decrease should be. It further states that bids should request quantities such as linear feet, square feet or cubic yards, and should never ask for a lump sum.

Larsen said she is open to looking at the change order policy, and that it’s important to make sure the city has good criteria set. However, she said that the city would need to consider how approval thresholds could negate efficiencies when crews and equipment are already in place. She said that as long as the work needed to be done and the change order is following the line item prices from the original bid, she wouldn’t want the policy to delay the process.

“That’s something that can definitely be looked at, but I would sure want to make sure that we would consider all potential scenarios for how that should work,” Larsen said. “Because what I would not want to do is negate the efficiency of a job just because it reached a dollar amount threshold.”

Ananda said that while it’s the City Commission’s responsibility to ensure it is being fiscally responsible, she feels comfortable at this point with change orders under $50,000 being determined at the city manger’s discretion.

“There might be consequences should that (process) be abused, and I think that’s incumbent on the city manager to review and strike that balance and delegate those processes,” Ananda said.

Herbert said that if members of the community want the change order approval thresholds to be spelled out, he thinks that is a policy the commission ought to develop.

“It probably would be better to have that spelled out so there is no question,” Herbert said.

When asked about how change order approvals under $50,000 are handled, Markus said he thinks adding some general guidance to the policy would make sense. However, he said with construction change orders, for instance, the city wouldn’t want to shut down construction waiting for a lengthy approval process, as it would cost even more money.

“I think some general guidance wouldn’t be a bad thing,” Markus said. “But I would tell you that change orders have very unique characteristics unto each particular project, so they don’t necessarily refine to that.”

What to watch for

In general, Markus said awarding contracts based on the lowest bidder does mean the city must be watchful. Markus said that in his experience, contractors may bid too low in very competitive environments. He said that in an environment where the margin of profitability for the contractor is slight, the city has to watch the project carefully to ensure the contractor isn’t needlessly increasing the cost of the contract.

“The bidder is going to be pushing things throughout the whole process,” Markus said. “And so then you have a management issue where you have to watch what’s being asked for: if additional time is being asked for, if additional funds are being asked for. You have to watch to make sure that they are completing the scope of work and they are not creating issues that expand the scope of work.”

Like Markus, Larsen also indicated the city must be watchful. Larsen, who previously owned an environmental consulting firm, said that as a former contractor, her company’s change orders were always being scrutinized to make sure pricing was appropriate. She said the city needs to do the same, and that starts when city staff send the original bid out. She said when contracts are bid out on a line item basis with unit prices, it’s much easier to ensure the city is getting a reasonable price and that the contractor is not trying to make more money by front- or back-loading the project.

“I believe we have to be careful, first of all when we are bidding these that the original bid is done properly, and that there is enough oversight from the city’s side on the project that we are getting what the bid proposed,” Larsen said.

Where projects and their change orders become more difficult to monitor is when a certain element of work does not have a unit price. For instance, unit prices might establish a set price for a linear foot of concrete.

Soules said that not having a unit price in the original bid to use for an expansion is rare, but it could occur when something that was not expected to be included in the project occurs. He said that when that happens, the city would ask the contractor to submit a price, which would then be evaluated by city staff to make sure it falls in line with standards.

“The anomalies that we don’t have a bid price for are very few and far between,” Soules said.

Assistant Director of Utilities Melinda Harger said one of those exceptions is building projects, which she said are typically not unit price. She said if changes come up in those projects, the design consultant would issue a request for proposals to the general contractor, which would then be distributed to the subcontractors to arrive at a price. She said that if the consultant advises that the price is too high, the city can elect to bill for time and materials instead.

Change order advantages

Both city officials and commissioners agreed that change orders have benefits. Both say change orders can take advantage of good pricing and help the city be more efficient.

Harger said some form of change order is pretty much inevitable when dealing with infrastructure below the ground that you can’t see. And sometimes, she said if unit prices are low, it’s to the city’s advantage to expand the project.

“If your unit prices are good and there is additional work that needs to be done and we have additional money in the budget, let’s get this done (and) use the public dollar wisely,” Harger said.

Soules also said that many change orders actually function to save the city money in the long run. Both he and Harger said it can be more efficient to deal with issues as they come up as opposed to paying later to remobilize contractors. He said ensuring there are no change orders would actually cost the city more over the long term than doing the work when crews are in place.

Still, Soules said that with any project, the city does its best to identify every issue. But for road projects, he said the city sometimes finds that the pavement failure underneath the surface is more extensive than estimated.

“A lot of our streets have asphalt over them and then concrete underneath,” Soules said. “Sometimes it’s basically where can we tie into some decent material that will hold for that repair.”

Herbert said it is unfortunate that sometimes projects end up more expensive, but that there are benefits to change orders. Though Herbert, who operates a property management company, acknowledged that going over a project’s original bid amount can draw criticism, he said the most efficient thing to do is to fix everything as the city is working on a project as opposed to sticking to only what was initially bid.

“While I think the pessimist in the room is always going to assume that means it’s a bait and switch and the city is getting taken, I think the reality is we’re asking contractors to do projects involving stuff underground, and a lot of times you don’t know what it is until you see it,” Herbert said. “It’s similar to remodeling a house: You can take a best guess about what the situation is going to be, but once you tear up the floor, then you see what you see.”

Tracking change

At Lawrence City Hall, there is no central mechanism to track change orders or their specific details, including the reason for the change, the cost of the change order, how the cost was set, or the person who approved the change order.

For the internal change orders that Markus does not approve, he said he is able to go into the city’s system and pull up a change order via the particular project it was approved under. Regarding whether the city could have a better mechanism for tracking change orders, he said it’s a question of productivity.

“Everything could be done better; it’s whether it’s productive to do that,” Markus said. “I think that barring some obvious fault with the system we have, that you’d have to make that evaluation whether that’s worth doing or not.”

Ananda, who began her first term in January, said she would need to know more about the 103 change orders that were approved by the city and whether there are any concerning trends. She also said she would like to know if there is a way to access the change order information that wouldn’t cost the city money to develop.

“I think that I would need more information before calling for some kind of public repository, if there is not a problem,” Ananda said. “And I also understand the need for transparency and the need to have access to that information.”

Herbert said he thinks city staff provides good information about each individual change order that is presented to the commission. But finding information about all 103 change orders last year probably would be difficult, he said.

“If I wanted to find all the change orders from 2018 or 2016, there probably ought to be a method that is easier to do than having to go through an open records request or something like that,” Herbert said.

Larsen said that she thinks any comprehensive data on change orders would have to be looked at in the big picture and within the context of the city’s capital improvement budget. She said that while she would be open to a more comprehensive tracking to look for trends or compare to industry standards, each project needs to be understood individually as well.

“It’s always good to have more data,” Larsen said. “But looking at it comprehensively, we can’t forget that each project itself needs to be understood to make sure we know the merit of what that change order was.”

COMMENTS

Welcome to the new LJWorld.com. Our old commenting system has been replaced with Facebook Comments. There is no longer a separate username and password login step. If you are already signed into Facebook within your browser, you will be able to comment. If you do not have a Facebook account and do not wish to create one, you will not be able to comment on stories.