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STATE OF RHODE ISLAND
SENATE COMMITTEE ON GOVERNMENT OVERSIGHT
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. . . . . . . . . . . . . . . .
PROCEEDINGS AT HEARING
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IN RE:
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CENTER FOR BIOTECHNOLOGY AND :
LIFE SCIENCES BUILDING AT
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UNIVERSITY OF RHODE ISLAND
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DATE:
TIME:
PLACE:
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APRIL 21, 2008
3:30 P.M.
SENATE LOUNGE
STATE HOUSE
PROVIDENCE, RI
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PRESENT:
SENATOR LENIHAN, CHAIRMAN
SENATOR CICCONE
SENATOR SHEEHAN
SENATOR SOSNOWSKI
MS. GEORGE, COMMITTEE COUNSEL
RHODE ISLAND COURT REPORTING
747 NORTH MAIN STREET
PROVIDENCE, RI 02904
(401) 437-3366
(COMMENCED AT 4:02 P.M.)
SENATOR LENIHAN: If the committee
will come to order, please. This is the
April 21st meeting of the Senate Committee on
Government Oversight. It's a continuation of our
hearings into a technique or methodology used for
the awarding of construction contracts, looking
into the construction manager at risk form of
that. And the case study we have before us is
Center for Biology, Biotechnology and Life
Sciences at URI.
Before we get into the meat of the
matter this afternoon, I want to make some
introductory remarks. When we met two weeks ago
prior to the spring break, we had a hearing in
which the representatives of the university, I
think were at something of a disadvantage, that
even though we had indicated that we wanted to
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talk about the specifics of the contract that was
arrived at between the Gilbane Building
Corporation and URI, the specifics of what we were
asking for was not clearly indicated.
And as a result, they couldn't be as
responsive as they wanted to be. I will take
responsibility for that. I would also say that in
the interim as Vice President Weygand from URI had
indicated, they would be as cooperative as they
possibly could in supplying information and
documents to us, and they have done just that.
In fact, my legal counsel indicated that
her experiences with URI during that period of
time has been, quote, "terrific," unquote. So I
thank the university for that willingness, and at
this point I think we should begin these hearings
on a level of what is cooperation, a positive
note, and any negativity that was attached to the
first meeting should disappear. In effect, we're
rebooting the committee process, to start where we
would have liked to have started two weeks ago.
Speaking of rebooting, I also have to
indicate as an introductory remark that we've been
having some problems with our PowerPoint
presentation. Periodically it's been crashing for
reasons that no one, other than the computer
fairies, can figure out. And as a result, we may
have to adjust as we go through the afternoon,
depending on how willing it is to cooperate with
us.
The way we're going to proceed this
afternoon is we're going to go through the changes
to the standard AIA contract which was described
at the first hearing and the contract which was
agreed to between Gilbane and the university.
We're going to be operating in a way which says
these are the changes that were made, the legal
counsel will make a series of introductory remarks
about that change so the committee is familiar
with what we're doing. A series of questions will
be asked by the committee members about those
changes and we'd ask, at that point, we'd ask that
URI respond.
To that end, we have with us this
afternoon the vice president, one of the vice
presidents at URI, Mr. Robert Weygand, Paul
DePace, a professional engineer and the Director
of Capital Projects at URI, and Mr. Christopher C.
Whitney, who was one of the legal counsels which
was employed in arriving at this new contract.
If a question is asked of one of you and
someone else is better prepared to answer it or
wants to build off your answer, please feel free
to do so. I would ask the committee members that
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these questions are going to be structured
according to the individual terms of the contract.
If we can, let's not jump off the contract
provision we're discussing at the time.
Otherwise, we're going to get lost in a blizzard
of legalese which is difficult enough to follow as
nonattorneys and I'd like to have us have a solid
understanding of what transpired and the reasons
for it as we go forward.
At this point, I would call upon the
committee counsel, please, Ms. Linda George, to
give us an introduction to the first part of the
presentation.
MS. GEORGE: Certainly,
Mr. Chairman. As Mr. Chairman indicated, we're
continuing with the previous hearing and we will
be speaking to the changes in the standard
contract versus the contract between URI and
Gilbane Building Company.
And we will also be looking at the
inconsistencies between the scope of the work
described in the RFP and the scope of the work
negotiated in the contract which established the
guaranteed maximum price, the contract between URI
and Gilbane. We will start with the scope of the
work.
The first issue we'll address is
bonding. The request for proposal states that a
bond is required. The winning proposal submitted
by Gilbane Building Company includes a line item
for a performance bond in the amount of $286,700.
Rhode Island General Laws requires a
bond for contracts over $50,000. The law also
requires that the bond be between 50 and
100 percent of the value of the contract.
However, the CBLS contract, that's the Center for
Biology, Biotechnology and Life Sciences contract
does not require a bond. That would be the first
issue that the committee will address.
SENATOR LENIHAN: Linda has spoken
to the change that we're referring to here, the
deletion of the bond requirement for Gilbane, and
I would ask the folks from URI as to why in
particular that requirement was deleted?
MR. WEYGAND: Thank you,
Mr. Chairman. First of all, prior to answering
that, I want to thank you and the committee
members and legal counsel for allowing us to come
back before the committee again to testify. I
want to -- I think that all of our records were
provided, as you said, to the legal counsel and
your staff members, and we'll continue if there
are other questions or other documents that are
needed or asked for, we'll be happy to comply with
anything that you're looking for.
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What I'd also like to say is, very
briefly, without getting into any details, at the
last hearing I submitted to you copies of or a
listing of all the colleges and universities in
New England and the state of Rhode Island and
throughout the country who utilize this
methodology of construction delivery.
I also wanted to give to the committee,
just for their information purposes, a listing of
all of the major science buildings and
institutional buildings of this nature that use
this same form of construction contracting. You
will see that it's a very laudable list and the
list of clients and contractors are some of the
best in the country.
So that you all know that this is not a
unique form of contracting for the University of
Rhode Island alone, but it is utilized throughout
the country, throughout New England by all of our
peers, Massachusetts, Connecticut, New Hampshire,
Maine and Vermont very successfully.
With that, Mr. Chairman, let me answer
this specific question and I will try to defend as
many -- defend any one of these, but also Paul,
Chris, as well as Vern Wyman, who is the Assistant
Vice President for Business Service is here, and
Lou Saccoccio, our inside legal counsel may also
be able to provide some information.
The amount of bonding that is provided
for this project is in multiple different pockets,
if I could use that term. It's actually in the
form of subcontractor bond as well as the CM fee
bond. There is approximately $39.5 million worth
of performance bonding that is in this project,
not all held by Gilbane. It's held by the
subcontractors and the University of Rhode Island
is named as the recipient with regard to that.
So traditionally under some forms of
bonding, you may have one contractor that holds
the whole amount of bond. In this case, we have
that CM holding the portion that is his bonding
for his fee and then all of the subcontractors for
their individual bonding, limits of their
performance of the work.
So if you have an electrical contractor
who is doing $5 million of work, we have bonding
for that $5 million. HVAC, concrete, painting,
whatever it may be, totaling nearly $40 million in
bonding for the project. We also have a number of
other forms of bonding that in the RFP was
identified to all of the respondents, not just
Gilbane, but everybody.
It is called the OCIP Plan, or the
Owner's Controlled Insurance Program, where we
have a range of multiple kinds of insurances that
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we hold because it's cheaper for us to hold it.
We get a better premium price than many of the
contractors and we've been doing this for a number
of years successfully to reduce the cost of
insurance on projects.
The amount of OCIP, and it's in
different subcontracts as well, some of it is for
workers' compensation, some of it is for general
liability. It's in excess of $80 million that we
hold in various parts for insurance on this
project as well. Chris Whitney, I think, can
explain the legal aspect of why we suggested what
we're doing.
But before we leave that, the $286,700
that was part of the proposal, the RFP, included
this bonding. We took that not as a gift back to
Gilbane, not at all, this was a credit to our
account.
We can still buy that insurance, but it
would be duplicative of what the other subs
presently have and that's available to us, but we
took that as a credit to the job, not as an
elimination of Gilbane's responsibilities and
duties without any benefit to the project.
Perhaps Chris Whitney can explain the legal
aspects of this.
MR. WHITNEY: Actually, before I
get to the legal, just a brief comment on the
economic considerations that contributed to this
decision to which I alluded two weeks ago. Just
to recap what I think I testified to two weeks
ago, I've negotiated many cost plus construction
management at risk contracts over the years, many
of which use the form A 121.
On every -- I can't recall a single
private project that was delivered in that manner
that did not involve the owner's decision to waive
the bond on the part of the construction manager,
and in lieu thereof, to require that the trade
contractors be bonded.
And it goes, again, I don't want to
repeat myself, but I'll try to be brief, but the
theory is very simple. A construction manager
under this form of delivery will insist for its
own protection that its trade contractors be
bonded. It will insist on that. And it will
expect to pass through the cost of those bonds to
the owner.
So it begs the question, all right, if
the owner bonds the construction manager as well,
then there is a double layer of bonding at twice
the expense with minimal increased protection to
that second layer of bonding because the first
layer of bonding should be more than enough.
So the question arises in virtually
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every construction management contract. What was
different about this situation was the issue
became whether it was legal under the Rhode Island
statutes and I know you have a copy of the memo
that I produced.
I was asked that question. I wasn't
sure of the answer to it. You see the memo that I
produced and the memo analyzed the statutes and
concluded that I thought it was probably legal
based on a Rhode Island Supreme Court case that I
had cited, the Accent versus Marathon case in
which our Supreme Court had made the statement
that strictly construed, Section 37-13-14 neither
prohibits the waiver of a bond nor provides a
remedy if a bond has not been obtained.
I did note that case, but not
withstanding that, that was the type of language
in the case that appeared to admit of a legal
option of waiving the bond requirement for the CM
in this instance. And the analysis, while it's
not in my memo, there were further discussions
that I had with Mr. DePace over his perception and
understanding of our public procurement laws that
would require that the parties actually performing
the construction be bonded and that, in this case,
is the trade contractors.
And then ultimately I understand that
the university looked for guidance as well to the
Purchasing department, the Department of
Administration. So that was a decision that
involved a lot of consideration from a lot of the
parties involved. I played a role in it and the
university did go to me for my thoughts on the
legality of it.
MR. WEYGAND: Paul, could you also
convey to them your conversations with the
Department of Administration and why you decided
on this?
MR. DePACE: Following up on the
discussions that we saw an opportunity for
crediting the contract and bringing $286,000 back
to the construction aspect of the project which is
our prime responsibility, at a discussion with Lou
DeQuattro of the Department of Administration to
ask if this was now possible, and if it were, what
steps would we need to go through in order to
credit the bonding expense for the CM.
And we discussed how all of the
subcontractors would be bonded and the Board of
Governors for Higher Education and the university
would be named on those performance bonds, that
Gilbane was themselves doing no direct work, they
were not installing any of the work.
Therefore, the financial capability of
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the Gilbane Building Company then came into
question. Mr. DeQuattro asked that we have a
knowledgeable person review the financial
statements of Gilbane, which they had submitted to
us as part of the RFP process. Our controller,
Sharon Bell, did do that review.
We have a letter in the file saying
that, indicating that she said that they were a
healthy organization, provided that letter to Lou
DeQuattro, we agreed that therefore that the bond
could be waived. I have to admit as Counsel
George has pointed out to us that there is not one
specific, a single specific document in the file
that says, that asks "May we?" And then a
responding letter that says, "Yes, you may."
However, Attorney DeQuattro will confirm
that we had this conversation and that he -- the
Department of Administration did agree that this
could be waived. And it was indeed waived in the
course of the placement of the purchase order with
Gilbane Building Company on this project.
SENATOR LENIHAN: When did that
conversation take place?
MR. DePACE: It took place prior
to the final submission of the GMP and the
signature of the contract, which I believe -SENATOR LENIHAN: March 20th.
MR. DePACE: -- is dated March
20th or April 20, 2007. March 20, 2007, yes.
SENATOR LENIHAN: That's when the
document was signed, but when did Mr. DeQuattro
give you his feedback?
MR. DePACE: It would have been
within probably the week before that.
SENATOR LENIHAN: So I'm summing
up here, the answer to the question is that your
read of the law, not the law, the case law, was
that the Supreme Court had rendered another
decision that in effect the statute was silent on
whether or not you had to have it or whether or
not you had the authority to waive it. And if so,
there was no penalty attached to it anyway; am I
missing something here?
MR. WHITNEY: No. The statute
does say you have to have it. This case seemed to
say that it, strictly construed, it doesn't
prohibit waiver. So it's in the statute. This
case suggests it could be waived. And yes, if it
were waived, this case stands for the proposition
that a party wouldn't have a private cause of
action as a consequence of the waiver.
SENATOR LENIHAN: Let me ask Paul,
just for the record, because the public watching
this has no idea who Mr. DeQuattro is, could you
identify him in terms of his position?
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MR. DePACE: I think the proper
term is, I believe he's chief legal counsel for
the Department of Administration.
MR. WEYGAND: He's chief legal
counsel for the Department of Administration.
SENATOR LENIHAN: And do you know
what his duties are with regard to the A, E and C
Committee?
MR. DePACE: He's the chairman of
the Architect Engineer Consultant Selection
Committee.
MR. WEYGAND: There's two other,
which we've testified, Mr. Chairman, there's two
other parts of this. One is the legal part of it
that you mentioned. The second part is that this
would actually be a savings to the project by
doing this. This was not a giveaway that they
don't have to do it. They gave us a price for
doing this, which no matter who was selected,
whether it was this firm or another firm, if we
went this avenue, they would all give us roughly
the same amount for not utilizing this aspect.
And the third part is that there is
subcontract coverage bonding for all of the
construction work that's out there, so it's not as
if there is no bonding for the project, it's just
not all bonded under Gilbane's roof.
SENATOR LENIHAN: That brings me
to another question. I was reading an article
this afternoon of an arrangement under a CMAR out
of state where the owner of the building being
constructed had a problem. When it came time to
file a suit, instead of filing suit against a
single entity, had to file suit against multiple
entities, in this particular case it was something
like 16 or 17 entities.
And I'm not suggesting that that scope
would apply here as well, but isn't that something
of a disadvantage to the state or to the
university, if we had to go looking to multiple
suits to take and recover for damages for
liability?
MR. WHITNEY: I would agree it's a
slight disadvantage, Mr. Lenihan, but the reality
is what would happen if you can sue the
construction manager directly is you sue the CM
directly and then the CM, as you probably
understand, brings in third party claims against
any sub that may arguably be responsible.
So you end up in one case with all the
same parties, multiple attorneys with
unfortunately the expense and complexity of those
kinds of cases whether you have to sue directly
the subs or whether you can sue directly your CM.
SENATOR LENIHAN: Okay. We may
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revisit that at a future date. We got some
indirect feedback from people who had experience
in the past with this type of construction
methodology that the money for the bond, in this
case the $286,000, would have been money
exceptionally well spent.
But in this case, you presented an
alternate approach to it and we'll take that into
consideration. You have already told us that your
discussions with DOA were with Mr. DeQuattro, was
there anybody else at DOA that you had
communications with?
MR. DePACE: No.
SENATOR LENIHAN: Okay. And
again, I'm repeating something, but again, just to
make sure I understand it, there are no written
documents memorializing your conversations with
Mr. DeQuattro?
MR. DePACE: Not the final
decision. There were other e-mails that I
provided to counsel saying that the conversation
was happening, along with the copy of the letter
from our controller.
SENATOR LENIHAN: And that's the
extent of those communications that were
memorialized?
MR. DePACE: Yes, sir.
SENATOR LENIHAN: Was deleting
this bond requirement, I think you've responded to
this tangentially, was deleting the bond
requirement a material change to the request for
proposal?
MR. WEYGAND: Within the RFP, all
of the CM at risk respondents provided for the
bond. It was at our selection or election to
decide to pull that out after we got legal advice
and looked at could we save money for the project
and put it back into the project and that we had
adequate bonding by all the subcontractors.
In other words, we had $40 million worth
of construction performance bonding in place. If
we had all of that, this would be a second layer
of insurance or bonding. And for that purpose, it
was Paul's decision that we should move forward
with trying to remove it.
SENATOR LENIHAN: In other words,
the equivalent -- the cost for the bond
requirement was essentially the same in all of the
proposals, so deleting it from one -MR. WEYGAND: Would have been
deleted from any one -SENATOR LENIHAN: -- comparison
between one proposal and the other and the other.
MR. WEYGAND: To give you an idea
in terms of calculation, generally speaking, the
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construction manager at risk fee -- I'm sorry,
bonding, for all of the work is normally about
three quarters of one percent of the entire
construction cost. So a $40 million project would
be someplace in the neighborhood of around
$300,000 for the cost of the project and here it
was $286,700. That would have been given to us by
any one of the three respondents if we took it
back.
SENATOR LENIHAN: That three
quarters of one percent, would that also apply to
those individual subcontractors when they went out
for bonding?
MR. WEYGAND: Theirs is a little
bit more. It's more like 1.1 percent.
SENATOR LENIHAN: That brings me
actually into another section. In the -MR. WEYGAND: It all depends, of
course, on the history of the individual
subcontractor, their bonding fluctuates by their
performance, et cetera, but generally it's in that
neighborhood.
SENATOR LENIHAN: The value
engineering log, you indicate and it shows in the
log itself that the construction manager's bond,
quote, "partially offset by Subguard." Could you
explain that, please?
MR. DePACE: The value engineering
log that was in the documents that we transmitted
to counsel was an interim step document. The
initial costing of this job put the price of the
construction work beyond the university's ability
to fund it. We had to continue to do value
engineering to get the price in a range where we
could handle the project.
So we continued for an extended period,
longer than was originally contemplated, value
engineering the scope of work down to something
that we could handle. There are a number of items
that we chose to accept. One of the proposals, I
believe that the document that's referred to there
is one of those interim or iterative steps as we
were working toward value engineering.
Subguard is an insurance product that
has some similarities to bonding. It works well
for the contractor or the construction manager
because it allows the construction manager, I
believe, to step in immediately and make
corrections to the work and get compensated.
Whereas bonding, if a contractor
defaults under bonding, and we did have a
contractor default under bonding on this project
already and it was immediately handled, the
bonding company has the responsibility of
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providing a new contractor to do the work.
So Subguard was something that was
proposed by Gilbane and something that they had
used on other projects. We researched it, both
ourselves and with Mr. DeQuattro, decided it was
not appropriate for this project, that payment
performance bond in the traditional sense was what
was necessary, so that's what we installed. So
the terminology there, Subguard was an interim
discussion point rather than a completion.
SENATOR LENIHAN: Two questions.
Quick one, is Subguard some kind of a trade-marked
product out there?
MR. DePACE: I believe it is. I
believe it's a registered trademark of a
particular insurance company's product.
SENATOR LENIHAN: You made the
decision not to go with that because why?
MR. DePACE: It's a fairly new
product. We discussed it, as I say, with counsel.
We discussed it with Lou DeQuattro. We felt
that -- we were discussing it at the same time
that we were talking about eliminating or
crediting back the cost of the CM's proposal.
We decided that we needed the stability
and perhaps, and I'll let counsel speak to that if
he wishes, it was more in keeping with the state
law which said payment performance bonds are
required on construction projects over $50,000, so
we decided payment performance bond in the
traditional sense with the University Board of
Governors for High Education named was the most
appropriate coverage.
SENATOR LENIHAN: It is your
position, and I'm just understanding, that if you
had chosen to go with Subguard that still would
have been in conformance with the statue that
required the performance bond?
MR. DePACE: Senator, I'm not an
attorney and I don't play one on TV.
SENATOR LENIHAN: That makes two
of us.
MR. DePACE: It is my personal
opinion that that is correct. Perhaps someone who
does play the part of a counselor would be better
to answer that.
MR. WHITNEY: Thanks for noting
that I just play the part, Paul. I'm not certain.
I would have some trouble with it and I may even
have weighed in with that opinion. I know that I
weighed in against Subguard on this project
because I researched it.
It is really a new product. I only
could find two articles that had been published on
it. It was a pro and con article published in a
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publication that I'm pretty familiar with,
American Bar Association publication on
Construction Industry. And the cons just seemed
to outweigh the pros, too untested.
Unlike a bond, for instance, Subguard
can be cancelled for nonpayment of premiums. Not
to suggest that we're worried about Gilbane not
paying the premium, but the point is once a bond's
issued, it's there and it can't just go away,
whereas insurance can.
And there was the legal issue insurance
versus bonding. As you know, there's a lot of
similarities between insurance and bonding, but
there are a lot of important differences as well.
So all in all, even though it was some additional
savings, and quite frankly, particularly because
we had decided not to require Gilbane to post a
bond, I was not comfortable further departing from
what perhaps people are accustomed to doing here,
we wanted the protection of the subcontractor
bonds.
SENATOR LENIHAN: My other
question to Mr. DePace, the initial maximum price
that was offered by Gilbane was on January 21st of
2007. You changed that because it was too high a
figure, and as a result, you received an approved
second proposal on March 21, 2007, two months
later, I'm not hung up on the individual day, but
just approximately, and that was the document
which formed the basis of your agreement with
Gilbane?
MR. DePACE: Yes.
SENATOR LENIHAN: My question is
the value engineering log that I referred to
earlier, you said this was an interim document,
was there more than one that was produced between
January and March?
MR. DePACE: To my recollection,
there were several iterations of that document as
we were -- our approach to value engineering was
that the team, and that meant both architects of
the Gilbane team and the university team,
including what we would consider our user, our
customer, which is the department, the College of
The Environmental Life Sciences, would sit down in
long meetings and identify opportunities for
saving.
And that could be shelving space, it
could be using a different material. It could
mean using, for instance, VCT tile, vinyl
composition tile rather than ceramic tile for the
floors. We had to continually move a number of
these things through our heads, price them out
either with subcontractors or with estimators to
try and work our way through. So this particular
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document that you have there is one of those steps
in there. So I think there were some before,
there may have been one after that.
MR. WEYGAND: There were a number
of exercises, both work sessions as well as
documents that brought us down to that final price
in March 20th, 21st of 2007. If you do not have
them, we will search to make sure you get them.
But there is an exhaustive value
engineering exercise that we go through with all
of the players as well as an outside estimating
firm above and beyond that of the architect to be
sure that we're getting the best pricing for the
work.
SENATOR LENIHAN: The major
changes that showed up as cost savings that I
could see between January and March were first off
what we're discussing here, the cost of the
bonding, the second was utilities, the third was
the demolition of the existing building.
Calling those here in our terminology
and discussion "major changes," were there -- were
those three a constant in the series of interim
documents? Was that something you said, "These
are our major changes to save us a considerable
sum of money to bring us down within our budget,"
was that basically your thinking from beginning to
end until you signed in March?
MR. WEYGAND: Not so much in the
beginning. We had always hoped that those
portions of that work would be included. When the
pricing actually came in from the architect and
the architect's outside estimator, as well as from
Gilbane, we started going through items.
But certainly the demolition and the
North District Utilities were the largest ticket
items, but there were many other items that are in
there value engineered that aren't of the same
value as aggregates, but in composite they are
very large items.
We can provide you with that information
so you can see every little $2000, $5000, $20,000
item that we went through. You may have simple
things like the surfaces of casework in the
laboratory spaces, the construction of the
ceiling, the walls, et cetera, where we may modify
or change the type of material to get it down to a
lesser cost and we do that in value engineering.
But certainly, Mr. Chairman, not as large as
utilities or the demolition of BSC.
SENATOR LENIHAN: I asked the
question regarding subcontractors. Who
specifically or what group specifically approved
the bonding of the individual subcontractors? In
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other words, plumbing or someone is doing
electrical work, who determined the amount of the
bond necessary for those individual components?
MR. DePACE: The bonding for each
contractor was in the total amount of the bid, so
if a contractor bid $5 million for a particular
scope of work, he was bonded to the level of $5
million.
SENATOR LENIHAN: Okay. So
basically once they got the bid that's -MR. WEYGAND: That's the value of
their bond, that's correct.
SENATOR LENIHAN: Not that you'd
have any reason to do so, but was there any need
to discuss the subcontracting bonding with DOA,
Department of Administration?
MR. DePACE: We saw no reason to
do that and we did not.
SENATOR LENIHAN: Okay. The cost
of the $286,000 bond if it had been left in there
would have been an expense to the university,
correct?
MR. WEYGAND: To the project, yes.
SENATOR LENIHAN: What was the
total cost to URI for the subcontractor bonding?
MR. WEYGAND: I don't know if we
have it all calculated, but I think you do. I
think there was a document that we provided legal
counsel that showed the premium costs. I don't
know if that document that Linda has also shows
the total dollar amount of it, but it should be
total construction value of around
$39-and-a-half-million and I'm not sure what the
estimated premium costs.
MR. DePACE: $415,000.
SENATOR LENIHAN: Legal counsel
indicates that she had been provided with that
document, but until she just produced it for me,
we couldn't find it. That's why I was asking
about it, so the cost for the subs to bond were
$415,210?
MR. WEYGAND: Again, if you go
back to what I said before earlier about the 1.1
percent times $39-and-a-half-million dollars for
the construction costs, you get around 400 and
some odd thousand dollars for a bonding premium.
That's pretty traditional in the business. It
waivers or changes depending upon the contractor
though.
SENATOR LENIHAN: I understand why
Gilbane might want to do so, but if we had chosen
to go with the bonding requirement of Gilbane, two
hundred and some odd thousand dollars, 286, why is
it still necessary to have a bond for the
subcontractors from the state's perspective, not
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Gilbane's, from the state's perspective? Wouldn't
that agreement, that bond with Gilbane cover the
state's exposure?
MR. WHITNEY: I mean, I think the
answer is from the state's perspective, yes, the
answer to your question is it would. But the
reality is Gilbane, like every other CM at risk,
insists on bonding its trade contractors to
protect itself against risk. Because its bond -any bond that Gilbane posts doesn't protect
Gilbane from subcontractor default.
So every CM at risk that I've ever dealt
with on a contract like this, always starts and
insists successfully that they will bond their
subs and the owner will pay.
SENATOR LENIHAN: Since it's a
pass through expense to the state, is there any
reason why Gilbane, and I'm not sure there is, is
there any reason why Gilbane would have liked to
see the elimination of the $286,000 bond?
MR. WHITNEY: Yes. But of minor,
minor consequence. Any company has limits on
their bonding capacity, even a mighty company like
Gilbane. And every bond eats into that bonding
capacity and so theoretically depletes the bonding
capacity to that extent.
Is it likely that Gilbane had any
problem posting a bond here and having that
diminish its bonding capacity to the extent that
it prevented it from bidding other work? Very
unlikely. So my instincts would overwhelming
suggest that while in a perfect world, Gilbane
would prefer not to bond, the fewer bonds the
better, that it was not an issue of consequence to
Gilbane.
MR. WEYGAND: I would also add,
Mr. Chairman, that today as we speak, we can ask
for the reinstallation of that bond right now and
expend another $286,700 and we could do that.
Gilbane has that capacity and we could ask for
that.
Certainly that would be an additional
expense to the project which we could absorb at
the detriment of some other aspect of the project,
but that could go back in. Some might also say,
"Well, why did you have both of them in there?"
Then I would guess one could perhaps argue you
should have one or the other, the $410,000 worth
or the $287,000 worth.
SENATOR LENIHAN: When you were
talking about the comparison of one proposal from
one building company, A to B to C, as we're
discussing the bonding that would have been
imposed upon the construction company, your logic
was it was essentially the same amount from
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proposal A, B and C, so a change in one could have
automatically been a change in the other, so it
still allowed you to make a cost comparison,
correct, among the other entities?
MR. WEYGAND: That's correct.
SENATOR LENIHAN: In the case of
the subcontractors, I'm assuming that each of the
construction managers were free to select their
own subcontractors?
MR. WEYGAND: Actually, there's a
process that we went through and they had to be
approved by the university before they're awarded.
They go through a very open and competitive
process which is overseen or at least we look at
it and make sure it's done in a very positive way.
None of the subcontracts are awarded
unless Paul reviews them and then approves them,
that's the process we presently have. And we make
sure that indeed they are qualified to do the work
and that it's just not Gilbane's choice, but it's
actually a choice that is concurred by the
university. Paul, would you like to explain some
of the details of that?
MR. DePACE: Yes. We observed -Gilbane managed, but we observed the entire
procurement process of each one of the trade
contractors. That meant that through their
website bid program, they invited contractors to
bid. The bids were received online.
I have each of the bids for each of the
trade contractors and broken down in complete
detail, including actually a line for the payment
performance bond, which is why we're able to
produce this spreadsheet for you which shows the
individual sheets.
Following the bid, the apparent low
bidder is brought in for what's called a scope
review. That means a meeting with the Gilbane
project management, the design team from Payette
and myself. We went through the individual work
items on there to ensure that the contractor
understood everything, that had everything
covered.
And that was in place and at sometime
following that, Gilbane made a written
recommendation to us with all of this back-up
information, a recommendation to me to award this
subcontract, to which I signed off on each
individual one.
SENATOR LENIHAN: So I understand
the process better, let's assume that each of the
competing firms when they decided to award the
component of the project for electric, that there
were easily, you know, half a dozen or a dozen
firms out there that are qualified to do the work,
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who had a performance record that indicated that
they were reliable and so forth, that they met
whatever criteria you set up.
MR. DePACE: Yes.
SENATOR LENIHAN: As you looked at
them and you looked at what they were pricing out,
what their portion of the job was, if you saw that
one company offered a price under one of these
proposals that was less than the price offered by
the firm which you ultimately awarded to, say
Gilbane, would you say to Gilbane, "You can take
and chop $50,000 off this contract if you used A,
B, C Electric instead of C, D, E Electric"?
MR. DePACE: I think in each case,
I think that the record will clearly show that in
each case, the low bidder was selected. We have
all of the bid documents. We allowed counsel to
look at our records and for each of the some 30
bid packages, we have each bid and you can
identify that it was the low qualified bidder.
Now, in some cases a bidder withdrew,
and I can't remember the scope it was, because
they misunderstood the bid and did not have the
appropriate scope of work covered. So they
withdrew, but at each case, it was the lowest
cost.
SENATOR LENIHAN: So there is
nothing to prevent you, you in fact have utilized
that fact that you had information from each of
the competing proposals in the firms and you had
the authority to not only pick which is the best
overall, but also to take and ensure that each of
the component parts was the low bidder?
MR. DePACE: I think, Senator,
you're getting right to the core of why one of the
principals of construction management that we
believe is good, we -- "we" the owner -- see the
sum of the low bids.
With the general contractor, some other
form -- we don't know exactly what the bids are or
the contractor bought them out. He may be
selecting another contractor rather than the low
bid price for other reasons, perhaps tradition,
perhaps relationships. Perhaps he trusts that
contractor more than the low bidder, but could
have other reasons in mind for selecting the low
bidder. We clearly have the sum of all of the low
bids for each of the packages.
MR. WEYGAND: And we also have,
Mr. Chairman, the ability to say no to a
particular selection if we don't think that
Gilbane is awarding it in the proper fashion with
the best price and the best qualified bid. We go
about that in a way that is expeditious but also
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in the best interests of the project.
SENATOR LENIHAN: Now, final
question, this sort of sums up a lot of what's in
this section. At the end of all of this, who in
particular, who specifically is responsible for
delivering the project on time and at or under
cost?
MR. WEYGAND: It's the
construction manager.
SENATOR LENIHAN: And if that
project is not delivered on time and at or under
cost, there is a provision later on, I believe
it's $2,500 a day figure that kicks in?
MR. WEYGAND: There's actually, in
the RFP, the original in the RFP was only supposed
to be $1,000 per day penalty or reward. You have
to have both. If you have one, you have to have
the other.
And we upped that because we wanted more
of a provision to $2,500 a day. So we changed it
from about a $30,000 per month penalty to a
$75,000 penalty if they don't provide the work on
time.
SENATOR LENIHAN: And if they
bring it in a month early?
MR. WEYGAND: They benefit as
well. There's another provision in there -- Paul
has pointed out a couple of what may seem
nontraditional to Rhode Island, but it's very
traditional throughout the country about how
construction management projects work.
We have another one and that is where
the contractor, the CM, can point out various
savings in the project that will still give us the
qualitative project that we require but at a
lesser price, there's a savings provision within
it.
So if the contractor identifies he can
provide that door, that window, that wall
covering, that flooring for just the same quality
as you want, but I can get it in a different
material that looks like this and you're good with
it and we can save $10,000, traditionally what
happens is normally the price is split.
The savings is split by the owner and
the contractor. They get 50 percent, we get 50
percent. The highest level, I think Chris would
probably tell you, is normally around a 75 percent
to the owner, 25 percent to the contractor. We
negotiated an 80/20, 80 percent to the owner, 20
percent to the contractor which is a great savings
for us if we realize savings. And they can't hide
that savings and keep it for themselves, we would
be able to see it.
SENATOR LENIHAN: By the way, I'll
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do something now so everyone understands, each of
you gentlemen was sworn at the previous hearing,
you understand you're still under oath? Thank
you.
Now I want move on to the demolition
phase here. Attorney George will first offer an
introduction and then Senator Ciccone has some
questions to ask.
MS. GEORGE: Continuing with the
scope of work issues, comparing the RFP to the
contract between Gilbane and URI. Demolition of
the existing Biological Science Center was
identified as part of the scope of work in the
RFP. However, the Gilbane proposal also includes
demolition of the BSC after the Center for
Biotechnology is completed.
In the value engineering log, the
demolition of the BSC is deleted with a deferment
of savings of $883,210 and I say deleted because
the building must be deleted, it just wouldn't be
deleted under the contract we're discussing.
MR. DePACE: Demolished.
MS. GEORGE: Demolished under
another contract.
SENATOR LENIHAN: Senator Ciccone.
SENATOR CICCONE: Thank you. Who
at URI made the decision to delete the demolition
of the building and why?
MR. WEYGAND: Let me refer to
this, the chairman and senator had just talked
about this a little while ago. There's actually
two items and I don't know if the next slide is
going to talk about the second item, but let me
try to handle both of them and anticipate the
second one, and that is the Biosciences building,.
The present building that exists at URI
is an underground concrete structure that we want
to demolish for various reasons. It's leaking.
There's all kinds of problems that exist with the
building and we want to remove it for a lot of
very good reasons.
We also wanted for, under this project,
in the scope of this overall project to construct
utilities to this North District of the university
campus that are necessary, gas, water, electric
and a number of others, steam included.
There are two parts of the RFP that one
must look at. One is the scope which identifies
everything that you wish would be included in the
work that they would do. The CBLS building,
utilities and the demolition of the BSC building.
The second proposal is on page 6 of the
proposal or the RFP that also identifies a total
construction cost estimated at $42 million. Those
two things must be taken into consideration when
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you consider scope. They tell you as an owner,
will tell you to the contractor what we hope we
can construct and we're also going to give you the
cap in the terms of the dollar amount of which we
are going to construct.
And the latter one is important because
they base their fee, estimating based on the
amount of construction, not necessarily all the
work. As we start going through the design of the
project, unfortunately the project grew in scope
and cost because of inflation and other things and
exceeded the $42 million.
We then value engineered it down and in
doing so you eliminate certain things. And so
therefore, Senator Ciccone, it was -- the BSC
demolition as well as the utilities were pulled
out to stay within the $42 million cap that's
identified in the RFP because if we didn't, then
they would have had a claim against us for
additional fees for exceeding the cost of
construction and that would have been a
justifiable claim against us as well.
SENATOR CICCONE: In order to stay
within the cap, you said the decision was made;
who made that decision to eliminate that aspect of
the project?
MR. WEYGAND: All of the deletions
are agreed to by the university administration;
first at the recommendation of Paul DePace and
Capital Projects. Also concurrence with our
architect Payette, their estimator and all those
other people that are involved that are outside of
Gilbane, then it's brought through Vern Wyman.
And it goes through legal counsel if
there's a legal issue and in many cases it's a
cost estimating issue, not a legal issue, and then
we approve it, meaning myself who is the vice
president and then of course the president, et
cetera. That is not an uncommon procedure whether
it be CM or whether it be a GC.
And let me give you an example. We have
a project at the university, two projects right
now that are general contractor projects, not CM
projects, but GC projects. And when it's bid, we
really don't know versus with the CM what the bid
price is going to be until it's brought in.
But we know that it may in fact go over
the scope of the work. So we add or deduct
alternates to try to get us within the price. And
this is just another methodology of doing the same
thing. That approval for removing or adding an
extra project, an add or delete item, Senator, is
also at our discretion in the same fashion I just
described.
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SENATOR CICCONE: Do you have any
documents that memorialize the decision to
eliminate this from the project?
SENATOR LENIHAN: Other than the
value engineering log?
MR. DePACE: The value engineering
log is the item.
SENATOR CICCONE: Thank you. Was
the decision once you reached it discussed with
anyone in the Department of Administration to
eliminate this aspect of the project?
MR. DePACE: No, Senator, it was
not.
SENATOR CICCONE: Let me ask it a
different way. Did you notify anyone at the
Department of Administration that you were going
to delete this aspect of the project to keep them
aware of you trying to stay within the $42 million
cap?
MR. WEYGAND: Well, within the GMP
which is submitted and is approved, in the
contract, is approved at DOA. It, by way of
omission, deletes those items on there and only
includes those items they're responsible for. So
in that sort of way, it does inform them, but not
in a proper positive way of notifying, unless
Paul, I'm mistaken here.
MR. DePACE: No. You've
characterized it correctly.
SENATOR CICCONE: Looking at the
demolition costs, in one estimate it shows that it
was $840,000 originally and then as we're looking
at the slide here, as you're looking at your value
engineering log, it jumped up approximately
$43,000 more to $883,000, how did the change take
place?
MR. DePACE: To tell you frankly,
I don't remember.
MR. WEYGAND: We'll try to get the
two numbers for you and find out the justification
between them. I have the sense it was probably
timing and inflation, but I don't know and we'll
get back to you on that.
MR. DePACE: The way some of these
numbers are come up with, besides using our
professional estimator that came through the
architect's office and using Gilbane's extensive
estimating department, in some cases the best way
to do that is bring in a subcontractor and ask for
a courtesy explanation on what it would cost to
demolish the building to get a budgetary number,
it's not uncommon in the industry to rely on good
subcontractors to give you budgetary figures to
help you in making decisions. I believe that's
kind of what I remember happening in this
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particular case.
MR. WEYGAND: Let us get the
information for you to try to determine the
timeline of when it was 840 and when it was 883.
SENATOR CICCONE: Thank you. At
the time that the determination was made, I'm
going to assume that your answer is going to be it
was made towards the latter part, closer to the
March date, when you were ready to do the
contract, so realistically then anyone else that
bid on this didn't have the advantage of knowing
that you were going to eliminate the demolition of
the building; is that correct?
MR. WEYGAND: Well, in the respect
that the RFP, which everybody was privy to and
knowledgeable of, the total construction cost was
to be capped at $42 million. That no matter who
it would have been as CM they would have required
us to either compensate them more or keep it
within the $42 million. We would have gone
through this same exercise no matter who was the
construction manager.
It's a process of getting within the
construction funds that you have available to you,
the $42 million and value engineering out items
that you can't afford to do, whether that has to
do with the inflation or whatever the cause is
from, but it would have been common to all. No
one person was given the advantage of knowing that
we would have eliminated or included a demolition
or a utility project. They all had, which we had
to keep to, the $42 million cap on construction.
SENATOR CICCONE: I'm going to ask
a Chairman Lenihan question since I'm not sure and
I didn't look at all the bids. Assuming that you
were going to stay within the $42 million cap,
company A, construction managers, submit their
response to the RFP, their proposal, staying
within the $42 million to include the demolition
of the building, company C in your competitive
negotiations as you're continuing, is a little bit
higher, reduces during your competitive
negotiations, well the two items you talked about,
the utilities, and in this case, the demolition,
and stays within the 42, is there like an
advantage or disadvantage that's given to one
company or the other?
MR. DePACE: The way that our RFP
was structured, all the bidders or respondents
understood that we were asking them to manage
$42 million worth of construction and that the
total project cost was budgeted at $55 million,
soft costs being the difference.
They were also defined a very detailed
scope of work as to what they were to provide for
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services and they were given a detailed outline of
what the university required for core management
team on the job. We said we wanted and we did
this identifying the weeks that we would want each
individual profession on the job.
We wanted a project manager for 100
percent of the time, 104 weeks, it was a two-year
program. We wanted an office engineer, we wanted
quality engineers on the job. We needed a site
superintendent and we defined all of that. So
while the exact scope of work, none of them saw
what the building design was, except
schematically, they saw some photographs of some
renderings of it.
None of them saw -- they were able to
see the biological sciences building, but from our
point of view they knew it was $42 million worth
of management, they knew what the schedule was,
they knew what the exact professions that we
required on the job; therefore, they had to fill
in their rates for those individual professions,
extend them and that was their price.
So I don't think anyone was
disadvantaged -- clearly no one was disadvantaged
by not knowing exactly whether the demolition was
in or out.
SENATOR CICCONE: Well, I
understand what you're saying and the original RFP
had it in, so everyone bid with it in?
MR. DePACE: Yes.
SENATOR CICCONE: Obviously what
I'm understanding now is that everyone that bid
came over $42 million; is that what you're telling
me?
MR. WEYGAND: No.
MR. DePACE: No. Again, all the
individuals -- the selection of construction
manager at risk for this project was 80 percent
qualifications and team, 20 percent on cost.
The identification of cost was a pretty
defined spreadsheet that said this many people for
this amount of time on the job, you fill in the
rates as to how much you're going to pay those
people, extend them, multiply them through, some
to a bottom number, and that's your price. So
they knew not specifically -- it made no
difference to them from my point of view whether
they knew the scope was in or out. They knew they
were managing. Remember, they're bidding
management services, not construction services.
They're bidding only the management -MR. WEYGAND: Let me try to get to
the senator's question. I think I know what he's
talking about. Could possibly somebody know that
we were not going to demolish the BSC building,
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not going to construct the North District
Utilities before they bid on this?
Anybody could guess. Certainly we
didn't provide any information because we didn't
know at that time that we couldn't afford it. For
instance, we could have done this, constructed the
North District Utilities, demolish the BSC
building and built a CBLS building that had many
of these features, but was smaller, cheaper and
fell within the $42 million.
Could have done the whole thing, but
what we decided on again was trying to deliver the
program for the College of Environmental Life
Sciences with the research and laboratory spaces
and all the other elements that are necessary,
that building grew in cost and unfortunately
pushed out some of these other things.
But we could have constructed all three
of those elements and cheapened the CBLS building
and still done the same job for under $42 million.
So while the scope is there, and a lot of times -perhaps you could take a look at someone who wants
to build their home. I want four bedrooms, I want
two baths and I want a living room, et cetera and
I want it to be approximately $500,000 in value.
Well, you may be able to give that to
me, but it may not be the 4,000 square feet I
wanted, it may be 3,000 square feet to fit it in.
So we give them both scope, as well as dollar
amount. And sometimes the scope changes if the
cost of the scope rises and exceeds the dollar
amount. It's not uncommon.
SENATOR CICCONE: I think I had
one more question. When you deleted the
demolition project, did you see that as a material
change to the RFP?
MR. WEYGAND: No, not at all.
Certainly it's actually an easier scope review,
management of a demolition contract, it's pretty
simple. It's much more difficult to oversee and
manage the construction of a high technology
research laboratory, so no, not at all.
SENATOR CICCONE: Let me ask this
question, so the demolition project has been put
on hold, correct?
MR. WEYGAND: At this time, yes.
SENATOR CICCONE: At this time.
You have another building that's going to be going
up where you have to put utilities in also?
MR. WEYGAND: We have to proceed
with utilities, yes, we do.
SENATOR CICCONE: I'm going to
assume that when you proceed with the next
building, I believe it's your pharmacy building?
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MR. WEYGAND: That's correct.
SENATOR CICCONE: Included in that
cost would be the demolition again and probably
the utilities, correct?
MR. WEYGAND: That's correct. So
somehow we have to pay for it at some point in
time.
SENATOR CICCONE: Right.
MR. WEYGAND: Whether it's under
this contract, by extending that contract past $42
million or doing it under another contract, you're
right, Senator. And we'll have to pay for that
because the cost of construction has gone up, no
doubt about it.
SENATOR LENIHAN: The response by
the various firms to your RFP, did each of those
responses break out the demolition costs as a line
item?
MR. WEYGAND: No. No. Again, as
Paul said, this is a management fee that they
submitted and the scope of services. They did not
put in actual prices for the building, utilities
demolition, not at all. It's just that your
management fee will cover $42 million worth of
construction work which may include the utilities,
the demolition and the construction of the
building.
SENATOR LENIHAN: So at the point
where you're just making the decision to go ahead
with the contract, you don't really know what your
actual demolition costs are going to be?
MR. WEYGAND: At the initial part
of the construction manager at risk we are hiring
them for, there's really two parts to it, one is
for the management services which is
pre-construction, during the construction document
phase of the work.
At that point in time, we go through all
the design work and estimating with the architect
and with the CM on board at that time, providing
us with input and suggestions and revisions that
he thinks could save us money and get us within
the price we have.
We do the value engineering and then
they submit to us a guaranteed maximum price for
the work. That occurred around April 2007. At
that point in time, after we have done our due
diligence with our outside estimating firm and our
architectural firm, we either agree or disagree
with the guaranteed maximum price.
At that point in time when we do that,
Senator, that's when they go forward with the
construction, not until then. We also have the
option at that point in time to say, "We don't
want the project, we disagree with your pricing,
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we think that we can't work it out with you. We
want to go to a general bid."
We have that option as well under this
contract. We decided not to opt to that direction
because all of the advice received from outside
estimating firms, outside architecture and
engineering companies all said this was a good
contract and this was a good price.
SENATOR LENIHAN: Senator Ciccone
asked for the reasons why there was a differential
between the demolition costs of $840,000 to $843
and change. Your response was that there was a
cost increase due to inflation and other things.
MR. WEYGAND: I surmised that.
I need to get that information.
SENATOR LENIHAN: I understand
that and I guess this may be something you have to
get back to us with. I understand the inflation
aspect of it, what other things are you referring
to here in terms of why the costs increased?
MR. WEYGAND: Now it could be that
there are some unforeseen circumstances that all
of a sudden popped up like removing some
additional utilities in or around that building
that may have added to the estimate.
At this point in time, we really don't
have that information in front of us. We should
really provide that without trying to surmise or
guess what it would actually be.
SENATOR LENIHAN: Fair enough.
Any further questions from the committee on this
aspect of the contract change? Ms. George.
MS. GEORGE: I have one question.
You've explained that cost is a consideration in
postponing the deletion of the biology building,
the existing building; was time also a
consideration? In other words, did deferring the
I'm not sure.
demolition of the biological sciences building to
another contract at a later date, did that also
save time and help keep the CBLS on schedule; was
that a consideration?
MR. WEYGAND: You always go -I'll be very candid with you. You look at keeping
that project on time so you don't have cost
overruns as a result of us delaying the project
because if it's delayed by our costs, they get
additional fees for that delay. We don't want to
do that.
The other part of it is you always
wonder if you delay the demolition is it going to
cost you a little bit more because of inflation.
So you weigh those things and that's not easy to
do but the real reason why we eliminated that
scope within this project was we just didn't have
the money to do it. If we had the money, that
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would have been on our list to be done.
MS. GEORGE: Okay. Thank you.
SENATOR LENIHAN: I'd like to move
on to one of the other deletions from the work and
that's the North District Utilities, one of the
other significant sums in here. And again ask
Attorney George to offer some introduction.
MS. GEORGE: We've already
mentioned that North District Utilities, this was
included in the RFP for construction of associated
utilities and site improvement, the value
engineering log which was part of the GMP,
guaranteed maximum price, deletes or defers the
North District Utilities with a cost savings of
$4.9 million. And I say savings, but it has to be
paid for at some point.
MR. WEYGAND: That's correct, at
some point in time.
MS. GEORGE: I'm just using that
term.
MR. WEYGAND: Correct. This I
would say again, counsel, is the same thing, the
same argument as the previous one. It exceeded
the $42 million that we had available to us within
the project. It was one of the items that we had
to cut out of it and you're absolutely correct, we
have to put it back in at some point in time, but
within the bond that we had for the project and
the money available to us, we couldn't afford to
do it under this project.
SENATOR LENIHAN: Other than the
explanation you've given us, several points, that
you simply didn't have enough money to do it, were
there any other reasons why the North District
Utilities were deleted from this initial contract?
MR. WEYGAND: Not at all. Both of
these elements quite frankly are critical to full
development of the North District for the
university's Health and Life Sciences campus,
whether it be for chemistry, pharmacy, CBLS,
nursing, all of these buildings need the North
District Utilities improvements on the campus and
we need to do it. Frankly, it's just a matter
that we did not have enough money within the
contract to complete this work.
SENATOR LENIHAN: This question is
redundant in the sense that it's asked repeatedly,
who at the university made the decision to delete
this particular item?
MR. WEYGAND: It's the same as we
did before. It initially goes through our review
team which consists of the office at Capital
Projects and Paul DePace with concurrence and
agreement by our architect, Payette Associates and
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their independent estimators as to the value of
what this is. It is then brought through Vern
Wyman and through administration meetings with me.
And then it's approved at that point in time.
Anticipating your next question, is
there any specific notice to the Department of
Administration? It's just like the other one. As
a way of giving them the GMP by way of omission or
elimination out of there, that's the only notice
that we really give them. There may have been
conversation, but I don't know if there's any
documentation that that occurred.
SENATOR LENIHAN: You were quite
correct, that was going to be my next series of
questions. But also as one little addendum to
that first set, other than anything you have
already provided us, were there any physical
documents referencing this decision to delete the
utilities from the CBLS contract?
MR. WEYGAND: What I would like to
do is, just as Senator Ciccone asked me a similar
question on the biosciences demolition, let us
research again our documents to be sure that there
aren't other value engineering logs, e-mails,
minutes or other kinds of notices or information
that would shed more light on to it and provide it
to counsel.
MR. DePACE: If I may add a
statement there about your question about the
notification to Division of Purchases, the
university has had an office of Capital Projects
starting in 1988 that has been responsible for
numerous construction projects over the course of
the years.
And you may remember that I mentioned
when the committee made the site visit that since
the year 2000, fiscal 2000, we have installed $346
million worth of work in place at the university,
all campuses.
I think that I'd be clear in saying and
I think the Department of Administrations would
also reiterate this, that they have a certain
degree of confidence in our ability to deliver
projects and therefore to make decisions that stay
in concert with the law, but the ability to
deliver, so I think that there was that bit of
confidence that when our projects come forward,
that they understand that we have given them due
diligence in review and discussion.
SENATOR LENIHAN: Could you
describe for us, the terminology's been put out
here several times in responses to the North
District Utilities. I know we saw because we made
our site visit, we looked at the maps you had out.
Could you describe again for the committee and
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those who are watching today what exactly this
North District is?
MR. WEYGAND: Yes. In 2002, the
university updated its master plan for the campus
specifically with an intention to improve the area
from Flag Road south to approximately Alumni
Avenue, that's a north to south direction. East
to west would be upper College Road all the way
down to Heathman Road.
That area has a, I could say, an
eclectic group of buildings, if I could use that
term, such as the old Rodman Hall which used to be
an armory and basketball court to Chafee Hall to
Woodward Hall to the Coastal Institute of the
Cooperative Extension Center to a range of other
buildings.
None of them really designed with any
land use in mind or any relationship of the
curriculum and how we deliver it to the location
of buildings. Generally you like to juxtapose
buildings of similar kinds of curriculum near each
other so there is resource sharing and a nexus of
activity that goes with it. That was not done.
So in 2002, we contracted with an
outside firm from the University of Virginia who
developed a master plan which showed us how we
should really rearrange and develop our buildings
in this area. And we've dedicated that North
District to curriculums that deal with health and
life sciences; nursing, biological sciences,
chemistry, pharmacy, and related social sciences
as well. They would all be located there.
And as some of these new buildings which
would come on line, biosciences, biotech building
that we're talking about today, pharmacy,
chemistry and nursing, those need to be serviced
with new utilities because existing utilities are
at their maximum. We don't have the capacity of
electricity or gas or water. We need to bring
lines to those new buildings. So the North
District Utilities are to service that area and
also be a primer for the new technology park which
would be on the north side of Flag Road as well.
So it's really to get us going in the
direction that we need to for that portion of the
campus which is really the heart and the soul of
our life sciences, scientific research and
hopefully the future research and technology park.
SENATOR LENIHAN: Okay. Thank you
for setting that background up for us. In terms
of the nuts and bolts that go into supplying this
district with what it needs, let's direct
ourselves to the utilities questions.
How do you expect or when did you expect
or under what conditions do you expect that the
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North District Utilities will be installed? When
it is going to be done, when it is going to be
paid for, what is the source of money to do that?
Because as you've acknowledged in your
previous testimony, the costs that would have been
applied to this first building, the biotech
building has been kicked down the road because
there wasn't enough money to do it now. Could you
give us an idea of what's to come?
MR. WEYGAND: We're actually going
to have to fund it through revenue bonds that will
be paid for the university itself out of its
general fund to be able to pay for this. We're
not asking for a general obligation bond or RICAP
funding because frankly although I would love to
have -- the university would love to have the
assistance of the General Assembly to pay for this
out of RICAP, we don't foresee that, so we've
decided that we need to move forward with this
with our own initiative and pay for this out of
our own university funds through a revenue bond
that would normally go through RIPAC.
SENATOR LENIHAN: That's the first
time I've heard about that. The revenue bonds,
what's the source of the revenue to pay those
bonds?
MR. WEYGAND: Our general fund
money comes in primarily from two areas. One is
the general revenue from the state of Rhode Island
which is anticipated to be at a 25-year low this
year at about $65 million and the rest of it comes
primarily from tuition from students.
This is additional sources that come in,
which is more minor from outside sources such as
foundation and other kinds of gifts in kind. Our
general operating fund is approximately
$300 million per year. That does not include such
revenues for housing, dining, health care
services. Those are all separate. Those are
restricted funds for those purposes. This comes
out of the general fund that goes to pay for the
general operation of the university.
SENATOR LENIHAN: How big an
impact is it going to be to those items that would
normally be paid for out of your general operating
revenue? To what extent are they going to have to
be reduced or cut back or trimmed to provide the
revenue to fund these bonds?
MR. WEYGAND: Well, the good news
is that the demand at the university in terms of
new students coming in and other students that we
currently enroll is at an all time high. This
year, I think we have approximately 17,000
applications, maybe it's 16,000, someplace in that
neighborhood for about 3,100 seats for freshmen.
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But to answer your question, Senator, is
primarily it comes from tutions that are paid for
by students because the support by the General
Assembly, as you know, has been dwindling. Two
years ago the support from the General Assembly
was $84 million, next year it will be $65 million
and we don't anticipate that changing and that's
not because of the good will of the General
Assembly, it's just the finances of the state of
Rhode Island. It's what's happening.
So truly there are certain items that we
would love to have that money used for to enhance
our educational mission, but we do use moneys for
purposes of physical improvements out of our
general fund. This is not unusual. We don't like
to do this, but it certainly is not unusual for us
to do this. We do other capital projects and
other revenue bonds out of our general fund money.
SENATOR LENIHAN: What kind of a
term would you expect in terms of repayment?
MR. WEYGAND: Normally it's a
20-year note.
SENATOR LENIHAN: So a 20-year
note for an $800,000 bond?
MR. WEYGAND: That's for
demolition. I thought you were talking about
utilities. We do a whole range of utilities. We
would do approximately $9 million worth of
utilities to really complete the entire North
District Utility project, so it would be around a
$10 million bond that we would be asking for. And
the cost on that is generally around $800,000 per
year depending upon interest rates, and they're
fluctuating. But I would say, Vern, am I
incorrect on that, about $800,000 per year?
MR. WYMAN: A little over $1
million a year.
MR. WEYGAND: It's approximately
that cost per year that we would be paying for
those over 20 years. That's traditional with a
20-year note. We have been very grateful and very
pleasantly, not surprised, but happy that we've
had tremendous support from the General Assembly.
This building, the CBLS building, is a
$50 million general obligation bond that is paid
for by the state of Rhode Island. The pharmacy
building is a $65 million bond that's paid for by
the state of Rhode Island. And we have other
projects that are like that.
The General Assembly has also been
extremely generous in helping us in capital
projects like Independence Hall, Lippitt Hall, and
a number of others where you've given us straight
money out of the appropriation of RICAP.
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We don't foresee that happening this
year because of the way the state is strapped
right now. If we had our druthers, we would
rather have this come out of RICAP. We can't wait
to get it done two or three years down the road,
we need to get it done now.
SENATOR LENIHAN: And again, by
way of explaining something to other people who
may not understand, a revenue bond is not, at
least in theory, is not an obligation that the
state incurs if there's a default, the bond
holders are on the hook, but point of fact as a
practical matter, the state's going to have to
step forward to take on the bond, so that while it
may not require voter approval, it's still going
to be an obligation which at least in theory could
fall upon the general fund.
MR. WEYGAND: Without a doubt,
Senator. The main bond rating for the university
and Board of Governors is underpinned by the State
of Rhode Island bond rating and being a legislator
for a long time, I know that is indeed what
happens.
It has never happened that any bond has
been defaulted on by the University of Rhode
Island and we do keep our general fund revenue
bond that are very good percentage, a very low
percentage. We don't do very many of these at
all.
We have done some in the past and we
will look at them very judiciously before we
advance them, but this is important, utilities and
demolition, as well as hopefully the new chemistry
building and nursing building to really move the
University of Rhode Island to the level that it
needs to be to serve the people of Rhode Island in
terms of nurses, in terms of pharmacists and
pharmacist-related practices as well as biology
and biotechnology and all areas related to that.
These projects will move the university
to a level that you can all be very proud of and
provide economic impact to the state of Rhode
Island. That is really what we should be doing.
So these bonds, for whether it be utilities or
whether it be for the building themselves, are
extremely well spent and try to save every penny
and sometimes we may do things that seem outside
of the box to try to save the penny and squeeze
something here or there or get something a little
bit different than what may be tradition or the
norm, but we do that because we really believe in
our mission of providing a quality higher
education for Rhode Islanders and I think we're
doing that here. Sorry to get off on the tangent
of the building.
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SENATOR LENIHAN: Okay. Tooting
your own horn is a good idea from time to time.
MR. WEYGAND: Don't get too often
to do that.
SENATOR LENIHAN: The amount that
was included under the RFP for this particular
building, what did that represent in terms of the
total cost of installing and relocating utilities
for the North District, to the North District?
MR. WEYGAND: I don't want to get
off the cuff and I will get this to you. I will
get you our original original. This goes back to
2004 cost estimate of how we tried to figure out
what the -- how we constructed the $42 million
worth of estimates. And we'll have Paul put that
together for you so that it shows you, what, $2
million or $3 million for utilities, was it a half
million for the demolition, how much was it for
the building? Off the top, we don't have the
records in front of us, but we will supply that.
That goes back to the November 2004 bond issue and
how we originally constructed that at that time.
SENATOR LENIHAN: Without then
going into the specifics or the figures, you had
at that time some idea at least of what you
envisioned were going to be the total costs of
utilities for the district.
MR. WEYGAND: Yes. And we'll
provide you with that. I just don't know what
that is right now.
SENATOR LENIHAN: How did you
determine how much of that was going to be
included under the contract for the biotech
building?
MR. WEYGAND: I'm of the
assumption that what we did was we took -- what we
anticipated at that time was the cost of the
utilities, the cost of the demolition, and the
cost of the building more than likely based upon a
per square foot price that we saw around the New
England region and said if we want to have -- if
we can spend $50 million on the whole project, how
much can we build? And I would provide you with
that. I just don't know what that is off the top
of my head.
SENATOR LENIHAN: The figure that
I was supplied was that the guaranteed maximum
price that was submitted by Gilbane in January,
the one that you couldn't agree to because it was
too costly. Item one is the North District
Utilities at an amount of approximately $1.9 or
$2 million.
MR. WEYGAND: I think that would
probably only be one aspect of it. There may be
electricity and then there's gas, there's steam,
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there's water and there's other utilities as well.
That might have only been one piece of the entire
utility. We will be able to break that out for
you too, as well.
SENATOR LENIHAN: The reason I
supplied that amount was that the guaranteed
maximum price submitted by Gilbane two months
later on March 19, 2007 itemized the North
Utilities District costs at zero dollars and it
was explained, but the value engineering log
deletes the North District Utilities from the GMP
showing a savings of 4.9 million. And I'm just
trying to understand where the figure -- how did
you reconcile the figure of 1.9 in January with
the figure of 4.9 in March?
MR. WEYGAND: Paul, any -- without
guessing, that is.
MR. DePACE: We don't want to
guess. We want to provide you with the complete
information. I don't have the original GMP in
front of me, but I think that you could see that
the bid packages, item 2-C, North District
Utilities in the final GMP was then lined out as
not in contract and there were several lines that
fed to that, including Flag Road electrical
distribution and there is another line in here
that I can't find at the moment, the steam
distribution, but we did not have them fully
designed at that point, nor does my recollection
say that we clearly had the concept of the entire
fit-out of the North District quadrangle, meaning
the services for pharmacy, chemistry and nursing,
the future buildings clearly in our head at that
time.
So that we had some allowances in there
that was started off at some educated projections
as to what we thought it might be, but they hadn't
been designed at that point. So we were
speculating back and forth between Gilbane's
estimator, our private estimators and our
engineers trying to determine what they might be.
When we saw they started to get to this
scale, we knew that this scale was unachievable in
the budget that we had so we had to move them out.
We have continued to redesign those and we have
firmer figures actually now for the services.
SENATOR LENIHAN: When you get a
look at your materials, if you could address that
change in the estimates, educated projections.
MR. WEYGAND: So we'll do is we'll
track them so that you can see the scope of what
the utilities were at a particular time in the
logs and then how it either modified or changed,
but we'll get you that information.
MR. DePACE: You didn't want to
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hear the term "Wild ass scientific guess," did
you?
SENATOR LENIHAN: No, I didn't
hear that in a formal meeting of the Senate.
MR. DePACE: I can see at least
two items that jump right out at me and that's
item 16-D which is the Flag Road electrical
distribution, $2.7 million and the North District
Utilities, which in this context means the steam
system, that was $1 million, 972, so just between
those, we're at $4 million right there between
those two. So that's my recollection as to how,
but again -MR. WEYGAND: Let us get the
numbers to you so we're really firm.
SENATOR LENIHAN: I understand and
I appreciate that. That's the kind of thing which
is legitimate. Let me just come down to the hub
of it then. Well, first off, do you regard this
as a material change in your RFP?
MR. WEYGAND: Not a material
change in the RFP. Obviously it's a reduction in
the scope, but it's still within the dollar
amount. So again, it's hard to look at, "Well,
you told me you were giving me 5 bedrooms and now
you're going to give me 4 bedrooms," but it's
still within the $42 million of project that we
talked about.
SENATOR LENIHAN: In your
judgment, would it have made a difference to the
competing firms to have known that this was going
to be deleted from the RFP?
MR. WEYGAND: No. Because their
fee is really based upon $42 million worth of
construction, whether it's one item, five items or
two items.
SENATOR LENIHAN: Just to sum up,
the dollars to come to pay for these utilities is
going to have to come from revenue bonds and the
revenue stream to pay those revenue bonds have
either got to be by appropriation from the state
or from student generated tuition fees?
MR. WEYGAND: Our proposal is
because we don't anticipate the General Assembly
to give us money from RICAP, that they will come
from the general fund, of which of the $300
million that's in that fund, $65 million comes
from the state, the rest of it comes from other
sources, which is primarily -- two-thirds of which
is student fees.
SENATOR LENIHAN: As far as the
inability to access the RICAP funds, the gist of
your testimony to us is that in the short-term,
you don't think you'll be able to get it; in the
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long-term it will be too late to serve the needs
of the university because you want to go forward
with the project because every day that you're not
doing something with the project, it's costing you
additional money?
MR. WEYGAND: It is. And
inflation will have a heavy toll on these
utilities as we all know. I would like to leave
the door open, if the General Assembly at a year
from now or two years from now would like to help
us with the cost of this so we can pay down the
bond in a much quicker fashion and perhaps even
extinguish it through RICAP. That would be a
certain and welcome change to us at a later point
in time that would help us, but we must move
forward on these utilities now to get these
buildings in place properly.
SENATOR LENIHAN: I wish you good
luck with that. It took me three years of
negotiating the Senate's position when I was
Finance chair to get the House and the Governor's
Office, the previous governor, to go along with
the early payment of the bonds for consequences of
RISDIC. Not an easy process.
MR. WEYGAND: Not an easy process
but it is very possible to be done and frankly
that's the kind of thinking, Senator, I applaud
you on that, that we should have because that is a
way of us and the state of Rhode Island
diminishing some if its debt load.
And if we can afford to do it through
RICAP, that's the kind of vehicle you could
utilize that would not have an impact on other
parts of the state budget.
SENATOR LENIHAN: If there are no
further questions on this I want to move to the
next slide. Ms. George.
MS. GEORGE: This slide shows what
we've been discussing here, the scope of the work
as addressed in the RFP had to be narrowed because
of the costs. The guaranteed maximum price, we
had that as $44.6 million. I understand through
conversations with Mr. DePace that's gone up a
little bit since the initial contract. If you add
to it the bond for the Gilbane and the demolition
of the biology building, the existing building,
and the North District Utilities, you get a total
of approximately $50.7 million which was over the
amount of money that you had budgeted for this
project.
MR. WEYGAND: Right. That's
correct.
SENATOR LENIHAN: Is there any
reason or are there reasons you could use to give
the committee some insight here as to why the RFP
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proposal was significantly over the amount that
you had in mind when the project was first being
put together?
MR. WEYGAND: Some of it is
actually backed into, the project itself was a
total project cost including soft costs which are
not shown up here on this particular slide. Soft
costs include the cost of bond issuance,
architectural and engineering fees and other kinds
of soft nonconstruction costs which amount to, in
this project, approximately $10 million, Paul; is
that about right?
MR. DePACE: Yes.
MR. WEYGAND: About $10 million.
So if you added the soft costs to that number that
counsel has put up there, the total project cost
under this scenario would be about $60 million.
We had a bond issue approved by the voters for
$50 million and the College of Environmental Life
Sciences has raised approximately $4 million.
So we have a total project funding
available to us of $54 million versus $60 or $61
million. And clearly, we would love to be able to
have more fundraising by the College of
Environmental Life Sciences to $60 million, which
is where they had originally hoped it would be.
They hoped they would be able to fund
that extra $10 million, $50 plus another $10
fundraising to $60 million, but unfortunately,
that has not occurred. As a result, we have to
now downscale the project to where we presently
are for a total project cost of around
$54 million.
SENATOR LENIHAN: So the
discrepancy then is the outside fundraising,
outside the normal appropriation of dollars to the
university and the student generated funds, that
that raised a significant amount of money but not
the amount of money you needed to make the
$60 million dollar one?
MR. WEYGAND: That's accurate.
That's very accurate.
SENATOR LENIHAN: Was inflation a
significant factor?
MR. WEYGAND: Certainly it is in
various items. In some items, inflation was
rather standard at five to six percent annual
inflation. There were other items that escalated
to 15 percent per year.
SENATOR LENIHAN: Could you give
us an example?
MR. WEYGAND: We'll provide you
with that. We'll get that through our contracts
just so you can see some of the inflationary
costs. This will not come from the contractor but
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primarily from the trades which have tracked this
over time. It varies depending upon the item.
Steel and concrete were going through
the roof at one point in time to the point where
we couldn't even properly estimate it, so when you
get a good price, you nail it down and you take it
because tomorrow it will probably be another five
percent higher. There are other items that were
pretty traditional and standard.
Frankly, right now with the cost of
gasoline and diesel, delivery to the job, we have
quite a deal because the price of delivery is
already locked in as of a year ago and the price
of gasoline has gone up by, as you know, 75 cents
a gallon. So we're not paying inflationary costs
for those kinds of things. But we will get you
those numbers to show you what are primarily the
big items that really had huge inflationary
increases.
SENATOR LENIHAN: As you look
ahead to future construction, is there any kind of
a figure that you're using yourself internally?
Say, for inflation, you'd better figure in at
least "X."
MR. WEYGAND: Yes, we have. We do
that now and we did it before, too. But over the
last five years, it has been, I hate to say this
term, but it's been almost a crap shoot at times.
SENATOR LENIHAN: What are you
currently using as an assumption?
MR. WEYGAND: Five-and-a-half to
six percent per year for the entire cost of the
project, not just for one item.
SENATOR LENIHAN: Right.
MR. WEYGAND: Some items may be at
three, others may be at ten. I would also
surmise, again, I don't like to estimate, but the
cost of delivery of materials to the job site now
is going to be, we're going to pay a heavy price
for that, that premium right now because whether
it's bringing in steel, whether it's hauling in
concrete or whatever materials we're bringing in,
that cost of transportation is going to go through
the roof because of the cost of gasoline.
SENATOR LENIHAN: Again, if you
would give us by way of example that differential
of the inflation?
MR. WEYGAND: What we'll try to do
is break it out by trade, concrete versus
electrical versus HVAC versus all the others.
SENATOR LENIHAN: That's fine.
Thank you. I want to go now to slide seven.
SENATOR SHEEHAN:
followup question.
Just one
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SENATOR LENIHAN:
Certainly.
Senator Sheehan.
SENATOR SHEEHAN: Did I understand
this correctly, Mr. Vice President, that there was
approximately some $10 to $11 million not included
in the scope of the work; is that what you had
stated? So it's somewhere between, the total cost
was between $50 and $65 in actuality, including
what you had deemed soft costs?
MR. WEYGAND: I'm not sure if I
understand your question. The total project
costs, if we included North District Utilities,
demolition of BSC, bond for CMAR, GMP, and the
soft cost, the total project if it was all of that
that we had hoped for would be about $61 million,
total project cost.
SENATOR SHEEHAN: So my question
to you would be why wouldn't the soft costs be
included in the overall price?
MR. WEYGAND: We do. We put it in
the project, but the GMP is only with regard to
the construction.
SENATOR SHEEHAN: Just for the
construction end of it?
MR. WEYGAND: Right.
SENATOR SHEEHAN: But not the soft
costs which basically would be incurred by the
university?
MR. WEYGAND: Right. It's part of
the project but it's not part of Gilbane's
responsibility to take care of.
SENATOR SHEEHAN: Thank you.
SENATOR LENIHAN: Okay. I'll call
upon legal counsel in order to get to slide 7.
MS. GEORGE: We're going to shift
the focus now from the differences in the scope of
work contained in the RFP and the scope of work
contained in the contract between Gilbane and URI.
And we're going to look at the
differences or changes from the standard AIA
contract and the language, whether the standard
AIA contract versus the contract between Gilbane
and URI, whether additions or deletions in the
language were made.
As was discussed at our last hearing,
the standard AIA contract is the starting point
from which parties negotiate and they are free to
and generally do change those terms by either
adding or deleting. So the first one we'll look
at is the limitation of liability.
In the AIA contract there's no provision
concerning this. However in the contract between
Gilbane and URI, language is added that provides
as follows: "The construction manager's total
liability to URI for breach of contract, warranty,
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negligence or otherwise is limited to the
construction manager's fee."
SENATOR LENIHAN: Which is
approximately $3.4 million?
MS. GEORGE: Well, I believe it
has gone up a little bit since then I believe
Mr. DePace had advised me.
MR. DePACE: Yes.
SENATOR LENIHAN: Okay. The
person who will be asking the questions in this
category is Senator Sheehan. You may proceed,
Senator.
SENATOR SHEEHAN: $3.4 approximate
million is the standard fee?
MR. WEYGAND: That's correct.
SENATOR SHEEHAN: The first
obvious question, this can go to anyone here you
see fit, why did URI agree to this particular
provision, especially since URI waived the bond
requirement, how does it benefit URI?
In other words, when you negotiate a
contract, you usually end up with something that
may be mutually beneficial; was this something URI
was willing to basically take kind of a backseat
on and then take a front seat for something else?
Why would you waive this particular provision as a
deviation from the standard contract, the pro
forma contract?
MR. WEYGAND: This goes back to
actually the very first question that was asked,
very similar, but I would like Paul to probably
best respond since he negotiated this area.
MR. DePACE: Really speaking about
the whole area of section 9 in the contract and
the university took proactive steps to mitigate
its risk on this project. If I might go through
this. There are risks during the construction
process and there are risks that are covered by
insurance.
First let me, minimizing this risk,
mitigating this risk was an important action, all
of our construction management programs, even our
lump sum bid programs. First of all, we require
the CM in all of our CM work to go through
interdisciplinary constructability review.
The purpose of this is to identify any
discrepancy or confusing items in the architect's
plans early on in the process and we direct the
architect to clarify those. So therefore, the
documents that finally go out to bid to the
subcontractors have been cleansed of whatever can
be found of discrepancies or confusing ideas that
could result in change orders.
The university requires that in this
particular case, this was something new for us,
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required that the CM bring in a third party to
evaluate the building envelope; roof, windows,
masonry to ensure the original designer had
properly designed them and that the flashing and
opportunities for moisture to get in the building
had been covered.
And this was done, again, before the
documents went out to bid. The university
requires the CM to hire an independent commissions
agent. This agent is to review all of the
mechanical systems designed to monitor the
construction, while under construction the indoor
air quality plan during construction and then
overseeing that all of the equipment properly
comes on-line.
This is done so that we work out all the
bugs in the system, the mechanical system. There
are two things that can really cause a problem.
One, if it rains on people's heads, so you want to
make sure that the building envelope has been
double-checked so that you don't get into a
dispute with the subcontractors or the CM about
whether the building is watertight or not. You've
gone through that extra level upfront before it
goes out to bid. Less trouble for everybody else,
prove out your design.
The second is where you can get into
trouble in a building is whether people are cold
when they want to be warm and warm when they want
to be cool. So having the commissioning agent
also part of our Lead program to review the
mechanical design, prove the indoor air quality.
And we actually have a construction plan for
monitoring indoor air quality during construction
as well as turning the equipment, putting the
equipment in place at the end in operation is
again a way of mitigating risk to the university,
to the project.
You've heard that from a risk point of
view that the university -- well, actually we
haven't talked much about the owner's controlled
insurance program, but the university has a proven
program where it brings the workers' compensation,
the general liability, excess liability insurance
coverage to the project, buying it as you might
say on a grander scale on any individual
contractor could buy; therefore buying it at a
better cost and we manage the safety with the
construction manager of the program.
And we have documents that we would
certainly be able to provide to the committee that
show how our owner's controlled insurance program
has saved the university, back into the projects
of about $5 million over the past 6 years. We'd
be happy to provide that to you.
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But in this coverage the university
provides $41 million worth of builder's risk
coverage, $54 million worth of general liability,
excess liability and additional excess liability
on the project. Again, we're able to buy it less
expensive and without the contractor's overhead
involved and bring that to the project, again,
mitigating the risk to the project.
And we cover Workers' Comp. We have
$1 million per occurrence Workers' Comp. coverage.
Again, we're able to provide it to the contractors
on the job through this coverage through our
carrier and our broker, we bring additional safety
inspectors to the job on a weekly basis to inspect
the job and ensure that we are actually running a
safe job. We and the university reap the benefit
of less loss.
By loss control, we manage loss control,
again, the money comes back to the university and
is in that $5 million that I'm talking about.
Also, the CM does not perform any construction
work on the job. We specifically say they are
management services, all the work is covered by,
and the subcontractors are responsible for,
covered by bonds, all of the work in place.
MR. WEYGAND: Those bonds amount
to $39 million additionally from what we're
talking about. They really are the performance
coverage for the project.
SENATOR SHEEHAN: Mr. Vice
President, is that then covered, is that cost
covered in the overall expense of the project,
insuring the subs?
MR. WEYGAND: Yes. It's part of
the subs cost when they submit their bid.
SENATOR SHEEHAN: Do you know how
much that costs, what is the cost to the project
itself for the subcontract performance bond?
MR. WEYGAND: We mentioned it
earlier. I think it was $410,000 or thereabouts
for all of the premiums for all of the
subcontractors.
SENATOR SHEEHAN: Versus what
would have been $280,000?
MR. WEYGAND: $286,000.
SENATOR SHEEHAN: For the CM?
MR. WEYGAND: And the reason for
that, I think Chris will be able to tell you that,
but let me just capsulate. Your question,
Senator, was on risk. And are we exposed to risk
if there is a nonperformance by Gilbane?
SENATOR SHEEHAN: Actually, I
haven't asked that question. You're ahead of me,
but I certainly will get to that question. But
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what I just wanted to know specifically was, so in
sum, what is the benefit to the University of
Rhode Island, is it saving money; is that what the
impetus was behind this standard deviation or this
deviation from the AIA contract pro forma?
MR. WEYGAND: In many cases, the
A 121 allows for very specific clauses to be
included in the contract. You will look at the
final contract, in large share, almost every
single one of those was completed. There is a
report called our standard additions or deletions
form from the A-21 and those happen sometimes
where there is clear negotiating going on between
the owner and the contractor, or that there is no
provision or specific provision within the AIA 121
for that particular area and we add some language
in there.
But what you're talking about is clearly
a negotiated portion of this that we, that Paul
when he negotiates it looks at the best interests
of the university, can we save money, are we
exposed to any risk, what are the benefits of
doing this, what are the downsides to doing this?
SENATOR SHEEHAN: After doing a
cost benefit analysis of waiving the particular
bond that we have with Gilbane as CM, it was
determined, at least by your analysis, that this
would save the overall project, hence the
university, some money?
MR. WEYGAND: Small amount,
$286,000. Also we wanted to be sure with legal
counsel that we could do this and Chris earlier
explained -SENATOR SHEEHAN: So weighing all
the potential costs, the benefit really certainly
is the $286,000 that would not have to be paid in
this bonding issue?
MR. DePACE: That's again simply
the bonding issue. The other items that I've
mentioned about the owner's controlled insurance
program, that's the insurances end of it.
SENATOR SHEEHAN: On the
employees?
MR. DePACE: Yes. Workers' Comp.
for the trade contractors, the general liability
for the project.
SENATOR SHEEHAN: So you have that
covered?
MR. WEYGAND: We decided some
years ago to go to the owner's controlled
insurance programs. Some people like it, some
people don't. It's very much like a
self-insurance program. We monitor it, we go into
the job site, we have our outside firms look at
them, be sure it's a good safe site.
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And we, as Paul had said, realized over
a number of projects within the last five years
approximately $5 million worth of sayings that
we've brought back to the university and the
projects. It would be simply very easy to say,
"Forget about trying to do that and just go the
traditional way and lose the $5 million."
We went out of the way and some people
like this, some people really dislike it and say
you're losing money. You're losing money. The
fact is that we've seen a realization of $5
million worth of savings and we'll put that up
against other people and most other companies try
to self-ensure and look at self-insurance as a way
of reducing your cost of insurance.
SENATOR SHEEHAN: So given the
cost benefit analysis, you thought this would
benefit the overall project in terms of saving
some money, at least namely the $286,000. Who was
party to that decision at the University of Rhode
Island?
MR. WEYGAND: It's the same
process we go through. Initially it looks at -it's by Paul's recommendation, his negotiation,
going through Vern Wyman. And if there's any
question on it, like in this case, there was a
legal question on it and the legal counsel was
brought in on that and reviewed that.
SENATOR SHEEHAN: In addition to
any documentation you may have already provided
the committee or counsel, is there anything else
that would show us the reasoning, is that set to
paper or is that oral?
MR. WEYGAND: I don't know if
there's one document, Jim, that would actually
say, "This is all the reasons why we decided to do
this." It's probably dispersed among e-mails,
correspondence and other things. If you want, we
will try to encapsulate it in one series of
documents so that you can see it, but I don't
think there is one specific document that says
this is why we did it.
SENATOR SHEEHAN: I appreciate
that offer. I'll talk to the chairman and counsel
to see if that would be necessary. Was this ever
discussed, this waiver of liability here of the
bond with DOA?
MR. WEYGAND: Yes. With
specifically Lou DeQuattro.
MR. DePACE: Of the bond.
SENATOR SHEEHAN: The bond. That
was with DeQuattro?
MR. DePACE: I don't think we
should confuse what he's asking here and the bond.
MR. WEYGAND: There's
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differences -SENATOR SHEEHAN: The limited
liability of not having the bond on the CM is what
I'm talking about. It was discussed with
DeQuattro over at the DOA?
MR. DePACE: The bond, yes.
SENATOR SHEEHAN: Was anything
else discussed with him that relates directly to
this issue? I don't know, maybe you were
confused, maybe there's a couple of issues there.
MR. DePACE: I started to
enumerate some of the areas where the university
mitigated risk on the job that made us feel
comfortable with this limited.
MR. WEYGAND: But with regard to
Lou DeQuattro, are you asking specifically with
regard to DOA?
SENATOR SHEEHAN: DOA
specifically, yes.
MR. DePACE: I'm sorry, could you
ask that question again? I'm sorry, I
misunderstood.
SENATOR SHEEHAN: Was this limit
of liability discussed with anyone at DOA and I
believe it was to the affirmative relative to the
bond being waived, that was with counsel of DOA;
was there anybody else involved in that
decision-making process?
MR. DePACE: I don't recall ever
discussing this in particular; bonding for sure.
SENATOR SHEEHAN: Not the
contractual language, but the actual waiving of
the bond was discussed with DeQuattro in-house?
MR. DePACE: Yes.
SENATOR SHEEHAN: Is there any
documentation that you haven't provided us yet to
date that would relate to that, specifically that
transaction or communication?
MR. DePACE: No.
SENATOR SHEEHAN: So that was more
of a verbal or oral discussion?
MR. DePACE: Yes. Again, there's
correspondence that goes around it, but there is
no specific, "Do you approve?" "Yes, I concur."
There's no one document that says that.
MR. WEYGAND: We did confirm
though with Mr. DeQuattro that he indeed would
testify to the fact that that occurred.
SENATOR SHEEHAN: Did you require
his approval for that or was that just kind of
apprising him of what was going to be transacted?
MR. WEYGAND: We talked to him.
We thought it was important for DOA to sign off on
this.
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SENATOR SHEEHAN: Are they
required, Bob, or is that just information?
MR. WEYGAND: That I don't know.
I don't want to say one way or the other. We
don't really know that the regulation provides for
a mandatory letter and approval from DOA. I just
don't know that.
SENATOR SHEEHAN: Next question,
Mr. Chairman, what is Gilbane at risk for? It
says this limits some exposure here to various
risks, could you give me a general statement,
maybe a for instance, as to what Gilbane would be
on the hook for if they didn't perform as they
should have as the CM.
MR. DePACE: Well, certainly the
limit of their fee at $3.4 million is no small
number. But they are responsible for the delivery
of the project, the overall delivery of the
project.
SENATOR SHEEHAN: On time?
MR. DePACE: On time.
SENATOR SHEEHAN: Within budget?
MR. DePACE: Within budget. And
through that, the payment of the subs because the
payment of the subs goes through that. We have
taken steps to ensure to mitigate the risk to the
university to ensure that the subs are paid by our
process. I can go through that in detail if you
like.
SENATOR SHEEHAN: Could they be
held in part for anything such as breach of
contract or warranty or negligence or would a
dollar amount be ascribed to any one of those
occurrences and that could be basically applied
against their fee which is $3.4 million?
MR. WHITNEY: Gilbane could be
held liable on any of those theories.
SENATOR SHEEHAN: But the cap
would be $3.4 million in terms of what they would
pay out?
MR. WHITNEY: That's correct. And
keeping in mind that cap in terms of the
magnitude, Senator, that's just not their
anticipated overhead and profit. That's really
Gilbane's general conditions cost, its management
cost to run this project. So it's at risk really
for virtually every dime it's going to bill on
this project on its own account over the life of
the project. It could lose it all if it is were
to breach the contract or otherwise incur
liability.
SENATOR SHEEHAN: So Gilbane is in
essence, or in fact rather, responsible for
delivering of the building on time and at cost; is
that factual?
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MR. WEYGAND: Yes.
MR. DePACE: Yes.
SENATOR SHEEHAN: So then the only
penalty here and the only one you can go after if
the building was not on time or was well over
cost, big cost overruns, would be Gilbane but
limited to the amount of $3.4 million?
MR. WHITNEY: No, that's not true,
just to clarify. The university is what's called
a dual obligee on the bonds posted by the
subcontractors. And so to the extent that any
problems were created by the performance or lack
thereof by any of the subs, the university would
have claims against those performance bonds of the
subcontractors.
The reality is that while you can
envision on the one hand a scenario where
Gilbane's mismanagement might have caused delay or
extra cost where they would be liable up to 3.3,
3.4 million, playing the odds, it's much more
likely that it would be some kind of defalcation
or poor performance by a subcontractor that leads
to those damages and the university would have
recourse against those trade contractors for those
amounts.
SENATOR SHEEHAN: Do you have any
provision, I don't know if maybe you have
insurance or whatnot that would do this, but
accounting for legal expenses, if you had to under
my wording, chase down a couple of subcontractors
for nonperformance as opposed to if Gilbane was on
the hook for managing the project overall, might
be more simpler to go after that kind of a big dog
as opposed to going after the little puppies that
may be running off into the corners?
MR. WHITNEY: I guess I see your
point. I mean, as you're probably aware, there is
a contract provision that Gilbane negotiated that
does provide that they may be reimbursed for
certain legal fees they may incur in pursuing
subcontract performance, but critically subject at
all times to the guaranteed maximum price, number
one, so that any expenses that they might be
reimbursed for that in the project's best
interests are still subject to the guaranteed
maximum price.
And secondly, that provision, which is
found, if I recall, somewhere in Article 9, is
very similar to language that is standard language
in the AIA, A 121, very similar language providing
for reimbursement of the construction management's
certain legal mediation and arbitration costs.
That provision term was slightly
modified by taking out a phrase having to do with
the owner's permission, which may not be
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unreasonably withheld and that was, in my opinion,
a very minor consequence. So my point is there
actually is language addressing it.
Some of the language that was added,
very similar to the standard language in the
document anyways and if that ever occurs, it's
Gilbane's entitlement to reimbursement is always
subject to the guaranteed maximum price.
SENATOR SHEEHAN: So just to recap
then, and first with a question. Do you under
normal circumstances require and I guess we've
debated whether or not case law requires, I guess
you would agree that subcontractors on any project
require a bond to be bonded?
MR. WHITNEY: I haven't analyzed
that issue myself and weighed in on it. I know it
is Paul's opinion and the university's that that's
a proper interpretation of state law and on the
surface, being familiar with the state law,
certainly resonates with me because they're the
contractors doing the work.
SENATOR SHEEHAN: And given that
same interpretation or similar interpretation by
the university, this fee here -- it's really not a
fee, scratch that. This bond issue worth -- the
state would have had to pay $286,000 that could be
waived, that was the interpretation that counsel
had.
MR. WHITNEY: That's correct.
SENATOR SHEEHAN: And that would
be a savings of some $286,000, so doing the cost
benefit analysis in the grand scheme of things,
it's in the university's perhaps decision-making
estimation that barring any maybe massive lawsuit,
where you had to go after several subs and you
might have to incur legal expenses, that maybe
that is an expense kind of worth taking in the
cost benefit analysis ratio?
MR. WHITNEY: Yes. I generally
agree with your statement. I'm not sure that it
would cost, and I think it goes to a question that
the chairman had asked earlier, I'm not sure -- if
there became a problem, I'm really not sure you'd
spend, the university would spend any less money
in attorney's fees if it were only pursuing this
construction manager and its bonding company and
they in turn impleted everyone or whether the
university is suing the subs directly. I'm not
sure that that -SENATOR SHEEHAN: $3.4 million is
a lot of money, at least for me, I can say that
myself, but in terms of doing large construction
projects, I can only imagine that that is a
relatively smaller amount of money, given the
scope of the project at some $50 million, that
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perhaps if the overarching manager of the project,
there probably isn't a lot they could do within
the purview of their job description.
In other words, that they'd be liable
for, that could create through maybe cost overruns
or problems with the building, worst case
scenario, a wall falls down and maybe they had
managed -- maybe they had the wrong timing of what
they were putting in, wait for the cement to dry,
whatever it maybe, that could cost in excess of
$3.4 million.
My question would be is it worth paying?
And your response was no. Is it worth paying the
$286,000 to cover any possible liability that may
occur in more of an extreme problematic situation.
MR. WHITNEY: Senator, you hit the
nail right on the head. There is a direct link
between the university's decision to agree to this
limitation of liability and the university's
decision not to require Gilbane to post a bond,
but to require the subcontractors to post bonds.
If the university had required Gilbane
to post a bond, this provision would have been
problematic because if Gilbane had posted
$40 million bond, then its bonding would have
attempted to use this as a shield to liability,
and on a $40 million bond, we're liable up to $3.3
million.
But when the decision was made to have
the subs bonded, the subs are not protected by
this limitation of liability, so the theory really
is this limitation, which is substantial, the fee,
is to protect against problems created by Gilbane
and problems created by the subs are all going to
be covered by $39 million worth of performance
bond posted by subcontractors.
SENATOR SHEEHAN: So it's in your
estimation, educated projections, that damage that
could be done by the subcontracts could run up to
almost the total cost in theory of the project,
but yet the manager for the project, what damage
they could basically visit upon the project would
only be limited to about $3 to $4 million.
MR. WHITNEY: First of all, just
to be clear. Theoretically, there is not any
connection between the amount of a contract and
the amount of a bond and the amount of liability,
so that $39 million worth of subcontractor bonds,
I can't tell you that you couldn't have $100
million worth of liability, that's highly, highly
unlikely.
The reality of the industry is you
typically have claims that are far less than the
total penal sums of the bond. So that, so it's
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highly, highly likely that there is a tremendous
excess of protection here to the university.
SENATOR SHEEHAN: I'll just make
one more point or actually, I'll phrase it in the
from of a question, Mr. Chairman. Of the $3.4
million, is there any coverage under the owner's
controlled insurance for death? Let's say, God
forbid, that one of Gilbane's workers is in a
certain area and slips and falls off and dies.
Didn't mop the floor, who knows, whatever it was,
but the liability would rest with Gilbane and not
anybody else; what would happen then if there were
a lawsuit for $5 million for death resulting?
MR. WHITNEY: You've hit the other
nail on the head because the other key connection
here for the decision to agree to this on the part
of the university is the fact that the university
has this OCIP program. Now, I didn't review the
OCIP policy. I have discussed it generally, the
owner's controlled insurance program.
And the point that you correctly alluded
to this is, the OCIP provides tremendous amount of
coverage, liability, Workers' Comp., I think it's
$4 million in the aggregate. There a $25 million
dollar -SENATOR SHEEHAN: So is that for
more personnel purposes as opposed to property
damage?
MR. WHITNEY: Yes. Technically
the OCIP, as I understand it, I may be corrected,
does not technically include the property
coverage, but the university has substantial
property coverage as well, the builder's risk
policy.
So the point is that this limitation
here, limitation of liability, would not limit the
available insurance coverage in my opinion. So if
you had a $15 million loss because of a death, it
would be paid for by the OCIP liability carrier
and would not be limited by this limitation of
liability.
So basically the university's calculus
was in terms of the breach of contract problems,
you've got $39 million worth of bonds, plus $3.4
million approximately. And in terms of liability
issues -- and that could include property damage
issues, property or liability, they have
tremendous coverages under the owner controlled
insurances, under the OCIP and the builder's risk.
SENATOR SHEEHAN: And
hypothetically if Gilbane were to, and this is a
very big hypothetical, walk away from this
project, you think that would cost in excess of
$3.4 million in terms of delays in construction
and maybe idling of the entire workforce, so to
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speak, there at that construction site?
MR. WHITNEY: Well, anything is
possible, but I would say this, it's highly
unlikely. First of all, were Gilbane to walk away
or be terminated by the university and under
standard contract language, I haven't gone back to
review this but I know it's in there, the
university has the right to assume, step into
Gilbane's shoes in terms of the trade contracts.
So the vast majority of the work would
be being done by the trade contractors, it should
be a relatively seamless transition for the owner
to step in and continue -SENATOR SHEEHAN: So URI would
manage the project in that case?
MR. WHITNEY: Well, they could
hire, they'd probably hire a consultant, but your
point is well taken, they would probably hire
somebody to come in, exactly as the vice president
says, assume the management role that Gilbane
played and that party might charge a higher fee
than Gilbane because it's coming in after the
fact, but would $3.4 million be sufficient to
cover that?
It certainly should be when you think
about, for instance, the liquidated damages here,
which are substantial at $75,000 a month, that's
about $900,000 a year and you've got three plus
years of coverage just there. So I think the
university really carefully mitigated its risk
before it agreed to this.
And I understood, by the way, Senator, I
understood there was a quid pro quo to this and I
can't speak to it because I wasn't involved at the
time, but Mr. DePace may be able to and it goes to
a question I thought you asked earlier which is
why did you do this. And I think I've explained
two reasons, the OCIP and the subcontractor
bonding, but as I understood it, I understood
Gilbane offered some quid pro quo for this as well
that was my understanding. Mr. DePace can speak
to that better than I could.
SENATOR SHEEHAN: Actually, I'm
satisfied.
MR. WHITNEY: Okay. Thank you.
SENATOR LENIHAN: Does this
owner's controlled insurance program, does this
work like my car insurance that if I make claims
against it, my premium goes up?
MR. WEYGAND: There's a history.
MR. DePACE: I don't know about
your car insurance, but I can tell you the owner's
controlled insurance program is bid out on a
3-year basis or actually a 40-month basis, we're
actually in our third iteration of the plan.
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And we bid out both the management of it
to a broker and bid out the insurance coverage
cost to the large insurance companies, Zurich
Insurance, Zurich Casualty has won, over the past,
has won each time that the project has gone out to
bid.
Let me paraphrase the last report that
we got from them and say that they say that we
have an extraordinarily low loss ratio. In other
words, a lot of the premium has been returned to
the university because of the very low injury on
the jobs.
So we haven't seen the other end of it
where we would have claims that would push the
limits, we've actually seen less and that is the
benefit to the program of this, that we're paying
for the coverage and we're managing the losses
with the insurance company; therefore, we see the
benefit when there are little or no losses on the
job.
MR. WHITNEY: To take the analogy
further, I'm not aware of any auto policy insurer
sending money back for good claims history, except
for I think it's Allstate or one of those that
have been advertising that lately, that they treat
certain customers better by giving some money
back.
But generally speaking, auto policies
don't do that. You can have a perfect record for
twenty years and you don't get money back. OCIP
operates differently.
SENATOR LENIHAN: Counsel George,
do you want to ask a question?
MS. GEORGE: I have a question. I
understand that you've all said URI has reached
its limit of liability because of those various
ways to mitigate risk. You've gone through all
that. But all those ways to mitigate risk cost
money. OCIP costs money, liability insurance
costs money, the envelope review that you
explained to make sure the building is watertight
things.
To say no to Gilbane to this clause
would cost URI no money and would provide
certainly a measure of comfort. Why limit the
exposure here? The risk here to the construction
manager, when there's no cost or downside that I
can see to URI and maybe that gets to the quid pro
quo that was alluded to earlier.
MR. DePACE: First, let me say,
counselor, that risk on the project in general
will be paid for by someone. So if it becomes
part of the CM's responsibility, they would
propose it in the cost of the work and you would
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end up seeing it in the cost of the work.
We believe that we've brought the
insurances to this project at a much better cost
for the university and as I say, we can prove it,
as we have seen savings that we're able to go back
to individual projects of $5 million over the last
seven years. The balance of that I can say is
that commercial contracts like this are a
negotiation.
There are give and take and there are
things that the university wants in the contract
that push the RFP and I believe we've got some
things back from the RFP that is substantial for
us, including increased liquidator damages which
as you hear is $75,000 a month.
The other items are is that typically in
these projects there is no retainage held by the
university by the owner on the CM fee. We have a
percentage of the construction contract where
retainage is held on the project and we continue
to hold that until the end of the job.
I think that contractors will tell you
that you mentioned previously that our general
conditions, sometimes referred to as the 201
section of the contract is different from the AIA
contract and we're thankful that it is. As I said
the last time that we spoke, the AIA is an
Association of Architects, the AGC is an
Association of Contractors.
They each feel that they have their own
nuances in contracts prepared by them. We believe
that we need a strong owner approach contract. We
believe that our general conditions, now called
Division 007 for us, are very strong in protection
of the owner and those were not necessarily part
of the RFP, but were the general conditions that
we required on this project. We think that was
received for the value for limiting the liability
risk in trade.
Also, the RFP spoke to responsibilities
for ambiguities of the contract. Excuse me,
conflicts, ambiguities and problems from lack of
coordination within the subcontractor bid
packages. That was originally called in the RFP
to be part of the owner's contingency.
As counsel had mentioned earlier, that's
now shifted and is now a responsibility under the
CM's responsibility. I think that's a very
important shift in responsibilities. That plus
the other mitigation actions that we took in
place, I think are very important, where we ensure
that areas where the CM could default, we have
covered by processes.
In other words, let me identify a couple
of them. One of the areas where previous faults
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in construction contracts is that the general
contractor or CM doesn't pay the subcontractors.
I can tell you my first project in this business
was with a company that halfway through the
project stopped paying its subcontractors and this
was an $8 million project.
It was our field house. You could tell
that the CM was about to go out of business. We
had to take over that contract and actually start
paying the subs individually because we didn't
have all the right protections in place back then.
The contractor eventually went out of business but
every one of those subs got paid. We made sure
that that happened.
And so we learned some things from that.
And therefore, on each project that we have, with
every invoice and we allow them to invoice
monthly, we get a release of liens from all of the
trade contractors who performed work on that
contract for the previous month's payment. So
that means if we pay Gilbane in January by the
time February's invoice hits my desk, it should be
accompanied by a release of liens from all of the
subcontractors saying that they have gotten paid
for the January invoice. That's the only way that
I will sign the February invoice.
So that ensures -- that mitigates the
risk because we know that the subs are being paid.
And beyond that is the fact that we only pay the
CM their fee monthly. Therefore, the most that we
could be at risk at any one time is the work that
they put in on the previous month. So should they
default on the project or go south, we have the
balance of the contract where we had money
allocated for that project where we could then pay
someone to take the place.
I'd like to say, by the way, just for
the sake of it that we're talking about what if's
here. The project is almost exactly at 50 percent
complete, $22 million spent, $22 million left to
go. And we're running smooth, we're on schedule,
we're going to complete this building and deliver
it to the university in December, on December 29th.
I mentioned the analysis of their
finances before we went into the waiving of the
bonds. At the time of the awarding of the
purchase order and the GMP, all of the trade
contractors were actually bid so the costs were
not speculative, there was not some kind of
scientific guess at that point presented by the
contractor, we had all hard bids from trade
contractors that summed up, showed us what the
cost of the work was. So the risk again was
mitigated at that point.
MR. WEYGAND: I think she has it.
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MR. DePACE: I think that will
show you the way we approached it, so we had to
manage this portion of it and understand what the
risk was.
MR. WEYGAND: Mr. Chairman, if I
could, our legal counsel has some time constraints
tonight I don't know if you have other things here
that we may need response from legal counsel
because I know Chris has to leave in about ten
minutes.
SENATOR LENIHAN: It was my
intention, I was going through these questions by
category. There are a total of eighteen different
areas, we're on number seven right now. Although
some of the ones that are briefer, in fact in some
cases are covered with a single question. I don't
think we are going to finish all these this
evening. What is the time you have to leave in
actual time?
MR. WHITNEY: Well, I'm supposed
to be in Bristol at 7:00 for my class. I put it
back an hour again as I did two weeks ago. So I'm
getting a little nervous, I like to be on time. I
have 46 students and I don't have the number for
any of them to call them and tell them I'm running
late.
SENATOR LENIHAN: I think what I'm
going to try and do this evening is we're going to
try and finish one more set of questions. If
there are any that pertain to the legal aspects of
what's going on, you will be returning at some
future date and we'll ask you to address it then.
MR. WHITNEY: I'd be happy to do
that. I'd be happy to come back.
SENATOR LENIHAN: And if that is
an issue for you, make us aware of that.
MR. WEYGAND: Be happy to do so,
Mr. Chairman.
MR. WHITNEY: Okay. With that am
I excused now or do you want me to stay around?
I'll take that as a yes. Thank you, Mr. Chairman,
and members.
SENATOR LENIHAN: Ms. George, any
questions?
MS. GEORGE: I merely wanted to
summarize what you said today that this contract
clause was part of a quid pro quo during
negotiations, that you wanted retainage, you
wanted greater liquidated damages than were
required in the RFP, some give and take, and that
with all the other ways you have mitigated risk,
OCIP, the bonds for the subs, that you felt
comfortable in negotiating this particular section
in order to get something you wanted in another
position of the contract; am I accurately stating
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that?
MR. DePACE: Yes, counselor,
that's a fair statement. Thank you.
MS. GEORGE: Did you get anything
else for this section, just the liquidated damages
and the retainage?
MR. DePACE: Again, we mentioned
the liquidated damages change, we mentioned the
retainage, we mentioned the fact that we
introduced our general conditions which are strong
and not typical in the industry. They are
university, burnished in fire I might say, over
learning over the course of the years.
And the adjustment of the CM, of the
contingency for the responsibility for contingency
that was in the RFP and owner's contingency
responsibility for conflict and ambiguities or
problems from lack of coordination among the subs
and move that appropriately to the CM. So I think
it was a good pro quo and let's just say the
project is running well here, so I think that we
made a good decision.
MS. GEORGE: Thank you.
SENATOR LENIHAN: I just want to
give you notice, I'm going to steal that burnished
in fire quote and I'll use it on the floor
sometime.
MR. DePACE: Do I get a footnote
on that? Are you going to use wild ass scientific
guess, too?
SENATOR LENIHAN: No.
SENATOR SHEEHAN: Just a
mechanical question in terms of finances, when the
project is being paid for, does that money go to
the CM and then to the subs?
MR. WEYGAND: Yes.
SENATOR SHEEHAN: Or directly to
the subs?
MR. WEYGAND: It goes directly to
the CM, who is then responsible for paying the
subs. And the following month, as Paul said, they
provide a release of lien to show that indeed the
subs have been paid that previous month.
SENATOR SHEEHAN: How much would
that be approximately a month?
MR. WEYGAND: It varies.
SENATOR SHEEHAN: How much is it
this month or last month, just to give me an idea?
MR. WEYGAND: Well, we've been
into the project for about twelve months and we've
expended $22 million worth of money.
MR. DePACE: Two million a month.
SENATOR SHEEHAN: A couple of
million a month?
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MR. DePACE: Yes.
SENATOR SHEEHAN: I ask that
because that could be another damage one could go
after Gilbane for if they received money and
didn't disburse that money as they should have to
the subs.
MR. WEYGAND: As we said, we do
not release the next month's payment unless we
have a lien release that says they have been paid.
SENATOR SHEEHAN: And I would have
asked this of counsel in terms of just
technically, what does it mean to have a contract?
We talked about Supreme Court case law and that
one could waive this bond. To me, basic contract
law says -- I guess it could be a contract, but
usually it has to be some type of payment.
So if the payment technically comes from
Gilbane, I'm wondering if the contract here, the
construction contract, is not just specifically
with Gilbane but not necessarily with the
subcontractors because they're getting
compensation consideration from Gilbane, but that
would be a legal question. I don't know if anyone
has an answer for that.
MR. DePace: I'm not going to try.
MR. WEYGAND: I prefer legal
counsel. This is Mr. Lou Saccoccio who is the
University of Rhode Island's chief legal counsel.
SENATOR SHEEHAN: Mr. Saccoccio,
will you be sworn in, please.
LOUIS J. SACCOCCIO
Being duly sworn, testifies as follows:
THE REPORTER: State your full
name for the record, please.
THE WITNESS: Louis J. Saccoccio.
SENATOR SHEEHAN: Again, is this
basic contract law, that obviously to have a
contract, one party needs to receive, get a
service for consideration, in exchange for
consideration.
If then the monies are actually -there's a contract with Gilbane to have
subcontractors do business on their behalfs. So
is technically the contract then, I mean the
construction contract, only with Gilbane and not
necessarily with the subs?
MR. SACCOCCIO: The contract is
directly with Gilbane, not with us.
SENATOR SHEEHAN: And not with the
subcontractors?
MR. Saccoccio: The university has
no contractual relations with the subcontractors.
SENATOR SHEEHAN: So by definition
then if we could go back and I don't want to
rehash that other situation, but would it not be
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the case then we might be ill-advised to waive a
bond for the only contracted party in this
construction project, which is Gilbane, as opposed
to the subcontractors?
MR. Saccoccio: We are also
protected under subcontractor's bonds.
SENATOR SHEEHAN: Against a
lawsuit is what I was saying.
MR. Saccoccio: Performance, yes.
SENATOR SHEEHAN: In terms of the
law, that was something we're getting back to and
I know you can't probably speak to this. But in
terms of the state, whenever it has a contract
with a construction company, they need to be
bonded, but I
well the subs
contract with
only one that
think the part of the reason was
are bonded. But there is no
the subs, then by definition the
has a contract is then the manager.
MR. SACCOCCIO: Our protection is
with the bonding company. We are a third party
beneficiary on the bond itself. As Gilbane will
benefit from the bond, we have a right to take
direct action against the bond.
SENATOR SHEEHAN: Thank you. I
thank you for your information. Thank you,
Mr. Chairman.
SENATOR LENIHAN: There's one more
category, one other category I want to get to, I
want to include because it also deals with limits
of liability, in this particular case, just with
the environmental issues. Again, Attorney George,
if you'd start us with an intro.
MS. GEORGE: This slide concerns
limitation of liability, environmental
limitations. In the standard AIA contract, it's
not addressed. The change in the contract between
Gilbane and URI add this language, that the
construction manager is not liable for any
environmental matters including mold, air quality,
contaminants and solid waste disposal, and I'm
summarizing. And this disclaimer of liability
shall apply to all claims against the construction
manager.
SENATOR LENIHAN: Okay. I've been
looking at some articles from various newspapers
off the net on previous experiences regarding
environmental matters and construction. And I'm
struck looking over again at how many times mold
is one of those issues that keeps jumping out.
That's just one of these categories, but in view
of this, can you explain to me why URI agreed to
absent Gilbane from any liability on those
environmental matters?
MR. DePACE: Okay. First, let me
say that I would have of course been much more
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comfortable and I admit that the university would
be better if this phrase, if the reference to mold
was not in the contract.
I do have to say though that the issues
about mold as you're reading about them on the web
is a fairly new phenomena. Maybe within the past
three, maybe max at five years, have you really
started to see claims or issues about mold in
construction projects where things are actionable.
Many contracts leave mold simply out of the
contract or liability of mold.
It is difficult, so our insurance
carriers tell us, to get a policy that covers
against mold. So it is a new phenomenon and it is
new, something that the university should have
protection on, but let me tell you where we
believe our coverages are in this area. So that
again, we took the approach of mitigating risk to
the university before agreeing to this.
There are at least two ways that you can
get mold in a construction project or in a
completed building. The two ways are you allow
moisture to come into the building and it soaks
into some material, say the drywall, and mold
starts to grow. Any time you get the right
temperature, a little bit of germ, a little bit of
bacteria, a wet area where it's the right
conditions, mold will grow. That's one area where
it can happen.
Another area where you can get it in the
building is if the HVAC system is not properly
designed, then you're bringing in moisture and the
moisture's allowed to accumulate somewhere. Or if
you had bad construction practices that allows
moisture to get into the HVAC system while you're
building it, so that it can breed.
We've taken mitigated steps in this
process to avoid this happening. Let me say,
number one, we don't allow the drywall or interior
finishes to go up. We finish, the finish trade
contractors to come in before the building is
weather tight.
That means the roof has to be tight, the
windows either have to be in place or have to be
blocked up with plastic or appropriate material so
that you're not getting water in the building.
Once you get water in the building, then it's
going to breed material. So we make sure that
that happens, make sure the building is weather
tight before we allow the finish trades to get in.
Secondly, as I mentioned, we have a
commissioning agent on board that is our policeman
for indoor air quality during construction and
therefore by process of them monitoring the
situation through, ensures that the end built
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product is covered, is as mold free as is possible
in good modern techniques.
For instance, as the committee went
through the building, you may remember I pointed
out the fact that all of the ductwork ends were
covered with plastic to keep air from getting in
there. That keeps mold from getting into the duct
systems therefor breeding and producing the mold
problem.
The building, as I say, would be weather
tight and was weather tight before we start
allowing any of the finish trades to come in. So
we believe that we have covered those particular
areas. We actually monitor indoor air quality
during the construction of the project and
actually have an indoor air quality plan for
construction.
And we don't even allow smoking in the
building and if you can imagine what that is with
construction workers to say you can't smoke in the
building while you're working, you have to go
outside to smoke and away from the building during
the course of construction. So we monitor indoor
air quality.
So we believe that we've put what is the
best possible hands around the mold issue and
believe that we have minimized the risk in there.
I will admit however we would be better served in
future contracts if the reference to mold, at
least in this paragraph, would be deleted. So
that's my lessons learned on the project and I'll
admit to that.
SENATOR LENIHAN: All right.
Given your reservations and also given the ways
that you think the university is protected by the
construction techniques that you're following,
given all that, in conclusion, why did you agree,
why did URI agree to this provision?
MR. DePACE: It was, again, part
of the give and take of the negotiation for the
business portion of the contract.
SENATOR LENIHAN: Well, clearly
this was a give, what was the take?
MR. DePACE: The take were the
items that I mentioned earlier. We were not one
for one items in exchange, we were negotiating the
whole contract at that particular time. So the
items that I mentioned earlier about the
liquidated damages and moving the contingency and
the fact again, mitigation and understanding what
the risk is, felt comfortable in moving forward
and we don't have any mold in the building.
SENATOR LENIHAN: There are all
kinds of ways that the owner, in this case URI, is
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exposed to potential problems. I'm assuming in
this case the construction firm introduced this as
one of their proposals to reduce their exposure,
to the extent that it reduced their exposure and
increased URI's, did it not?
MR. DePACE: I would say that the
shift, if it is not covered by the construction
management, could be covered in other ways and the
processes I laid out. I might also say that our
builder's risk policy, should a mold growth or
such a problem arise from damage, for instance, a
wind blown tree up against the building that broke
a window, allowed moisture to get in, and from
that could be traced to mold growth in the
drywall, that's covered by our builder's risk
insurance. So again, another step that we took to
mitigate the issue.
MR. WEYGAND: Let me try to
capsulize Paul's report to you here. This is
clearly something that after we have reviewed
this, brought to the attention, to our attention
by the committee, Paul has reviewed it over and
over again, and this is clearly something that we
would like to change and would change, not only
for we'd like to change it for this contract, but
will change for all future contracts.
This is the kind of thing that we would
say has marginal benefit, if any benefit
whatsoever to the university, versus quid pro quo.
And so therefore this is one area that while there
may be agreements on other parts, this is one
place that Paul and Capital Projects and all of us
believe that we could have done a little bit
better on this and we're going to try to make a
modification in the existing contract to correct
this.
SENATOR LENIHAN: Maybe I'm wrong
in this, but it's my understanding that in your
request for proposals regarding the pharmacy
building you have attached this contract, and I'm
assuming it includes this provision which waives
the environmental liability?
MR. WEYGAND: We still have the
opportunity to modify and change that contract.
SENATOR SHEEHAN: Is it your
intention to do that?
MR. WEYGAND: Yes, it is.
SENATOR LENIHAN: I want to get
the time frame on this. When you sent out or
solicited RFP's, were you aware at that time or
was it your opinion at that time or still in the
formulation stages that this is probably something
which wasn't to the best interests of the
university?
MR. WEYGAND: Not at the time it
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went out, no.
SENATOR LENIHAN: Then assuming as
you, I think indicated, but just so it didn't get
lost in the back and forth of the committee, it is
your intention specifically to address this issue
by way of amending the example contract that
you've attached to the new RFP's, to change that?
MR. WEYGAND: That's correct.
MR. DePACE: Yes, it is.
SENATOR LENIHAN: Generally
speaking then, who is responsible for overseeing
environmental matters in building construction?
MR. WEYGAND: Are you talking
about from a contractual standpoint or from the
university's side?
SENATOR LENIHAN: From the
university's side.
MR. DePACE: While they're under
construction it is, we have our safety inspectors
who look for all types of hazards while the
building is under construction.
MR. WEYGAND: We use our own
Office of Safety and Risk Management with safety
inspectors.
MR. DePACE: Those are mostly for
finished buildings although they do walk through
and do verify certain aspects during the design
phase and, for instance, the fire alarm phase.
Our own Office of Safety and Risk Management does
have responsibilities.
SENATOR LENIHAN: For example, you
offered us the example of taking the caps off all
the ductwork. Somebody had to think of that idea.
It's a good one obviously, where did that come
from?
MR. DePACE: That came as a
product of our hiring of the commissioning agent.
That was his direction. As you know, that we are
trying to achieve a Lead Silver certification on
this building. Lead Silver means that you have
to, among other things, protect the quality during
construction as well as design things in from the
very beginning. So it was part of our
construction, our commissioning agent's
responsibility to identify, create a construction
indoor air quality plan and to monitor it. So
it's our commissioning agent.
MR. WEYGAND: There may be many
places where recommendations will come with
regards to averting risk and improving the quality
of the building, including a number of issues with
regard to fire, safety, health, other types of
risks.
They may come from our safety and risk
management, they may come from the building
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inspector's office, they may come from our
commissioning agent, they may come from the fire
marshal and fire inspection, it can come from a
range of different places and all of them
contribute to making the building safer and
better. And we incorporate those as we go along.
That covering of ductwork, the basis of
that is clearly to receive Lead Silver certificate
points toward our obtaining our Lead Silver
certificate. That's where we got that idea. It
wasn't because of someone coming in and saying
well that's going to prevent mold. Someone else
came in and said this will prevent mold and also
helps you toward your Lead certification.
SENATOR LENIHAN: Is this
certification something that you seek -MR. WEYGAND: On all projects. On
all projects, we seek to receive Lead
certification. We strive -- in this building, I
think we will accomplish Silver certificate which
is what we like to have as our standard. The same
way with the pharmacy. Our dining services
building received, I believe, Lead Silver as well.
MR. DePACE: It was close.
MR. WEYGAND: That close. As you
know, certification doesn't come until after the
building is completed, until it's all commissioned
and everybody certifies the various things that
you completed properly.
SENATOR LENIHAN: Okay. I still
have more questions.
SENATOR SHEEHAN: Just a question
here, clarification, going back to the mold issue.
You said it was a part of your managing the risk
for averting problems from the get-go, safeguards
you put into place like making sure the plastic
covers the outside so moisture doesn't get in to
the finished work or covering the ducts and so
forth.
Is it your commissioning agent, as you
called that person, would it be their
responsibility, his or her responsibility, to go
in and say, "Oh, look, plastic's not up." Who
would go in and do that?
MR. DePACE: If it came to the
ductwork, yes, that's the commissioning agent's
responsibility.
SENATOR SHEEHAN: So they are
responsible for putting plastic on the ducts so
the rain doesn't come in?
MR. DePACE: If it came to the
windows, there are several people that are
responsible for that. Certainly among others that
watch it on the job site for us is the building
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commissioner's office. They will not allow any
electrical work, either rough or finish trades, to
go on within the building until it's weather
tight.
In order to push the schedule, the CM
has to use his creativity to ensure that either
the roof is on the building or that the roof is
covered. And either the windows are in the
building or that the building is completely
encased in plastic as it was so that we could work
through the winter.
SENATOR SHEEHAN: Now assuming for
the moment the CM were negligent in that
undertaking those types of safeguards which have
been specified in advance, at least from your
perspective, would that be an automatic breach -would that be some form of breach of contract at
that point? Would that be included and would you
consider that breach of contract in part, anyways?
MR. WEYGAND: Well, it could be
actually due to a couple of different reasons.
One would be that there wasn't proper supervision
by the CM. The other could be that it was also
the responsibility of the mason who was bricking
up the outside of the building to make sure all
the windows were properly secured and closed in.
So it could fall onto any one of those people
depending upon where the negligence happened to
be.
SENATOR SHEEHAN: Okay. Would
that be actionable at that particular time or
would one have to wait? Let's just say that maybe
the plastic went up belatedly but enough moisture
had gotten into the building until after the fact.
We've had issues at various universities with mold
and so forth, because frankly that could cost a
pretty penny to go back and get that out. Those
are not habitable buildings with mold spores.
MR. WEYGAND: Yes.
SENATOR SHEEHAN: Would you have
to wait until after the fact to say enough
moisture had gotten in or is there any way to hold
them to account at that particular time?
MR. DePACE: I think we would hold
them to account at that particular time. I know
we would hold them to account at that particular
time. If moisture were found and mold were
identified as having grown in the location, it
becomes pretty obvious when it is. We understand
what mold is.
We had, in some of our older buildings,
we have seen issues associated with that. We
would, in this particular case, direct immediate
rework of that area so that the mold is like a
seed, it multiplies if it stays in place. So it
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has to be immediately removed. We would direct
that it become immediately removed from the
process.
MR. WEYGAND: Anecdotically, let
me tell you that we did have a project, not this
project -SENATOR LENIHAN: If I may
interrupt, some of the questions are going beyond
the process, the meat of what we've got here.
SENATOR SHEEHAN: Sorry. I hadn't
seen those. Just for my edification, I know
there's -- hopefully it's on your list, the Chafee
building, was that mold or was that -MR. WEYGAND: PCB's.
MR. DePACE: PCB's. Originally it
was actually asbestos, 15 years ago.
SENATOR SHEEHAN: Contaminants at
URI.
MR. DePACE: Contaminants and
PCB's, yes.
SENATOR SHEEHAN: That might be a
good clause to include, contaminants, given that
personal experience with the university. Thank
you, Mr. Chairman.
SENATOR LENIHAN: If there is an
environmental issue that has resulted from
Gilbane's failure to properly supervise and/or
manage, this clause exempts them from any
liability. Who then is now responsible for the
damage of the exposure?
MR. DePACE: I don't read it.
Again, I'm not the attorney. I don't want to use
that phrase again. I'm not an attorney, but this
is not from negligence. If they're negligent in
supervising the project, I believe that they are
liable, and not under this clause but under
others.
I would leave that to the attorney
though to better speak. That's the way we would
manage the project is that this is -- they have
responsibility to manage the project. And if they
are not managing the project and there are
subcontractors and some of this results, they have
a responsibility to direct the subs to correct.
SENATOR LENIHAN: I would like
specifically at the next hearing to take this up,
if that could be addressed by your legal counsel.
I know you've answered this to some degree, but as
the building is going forward and you're trying to
mitigate any potential environmental problems,
who's doing the inspecting, who's supposed to be
doing the inspecting?
MR. WEYGAND: I'm sorry,
Mr. Chairman.
SENATOR LENIHAN: As you're going
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forward and constructing the buildings, you want
to take and mitigate any -- not any possibility,
that's impossible, but you want to mitigate as
much as possible any environmental risk or
exposure. Who's doing the inspecting to see that
that doesn't happen?
MR. DePACE: During the course of
this particular project, we have Payette
Architects that are responsible overall for the
construction administration and we pay them for
that as part their contract.
They have a representative that is
on-site regularly to observe the work that is
going on. And believe me, Mike Carr is his name,
a very detail individual. Payette Associates have
also contracted with a local architectural firm
Lerner Ladds Bartels, who also provide
construction inspection during the course of the
project.
The gentleman that they have on the job
is also very detailed and on the job site on a
regular basis. That's enhanced by the fact that
they have a project going on at the next building
over so that they do double duty when they're on
the site. We also have the Rhode Island Building
Commissioner's Office that inspects the building
for -- they have a general building inspector plus
an electrical, a plumbing and a mechanical
inspector.
They are on the job regularly and
examine, for instance, what's going on, what's
being installed within the walls before we allow
the walls to go up. That's done on a regular
basis. And of course we have the commissioning
agent who is on site on a regular basis inspecting
for the items within his purview.
SENATOR LENIHAN: You mentioned
earlier that the construction is essentially at
the halfway point, you've spent about half of the
money, so you have 50 percent. Up until this
point, as we speak, have been there been any
environmental issues that have come forward?
MR. DePACE: There have been none.
SENATOR LENIHAN: So there are no
associated costs, no one has had to remedy
anything?
MR. DePACE: Yes, sir.
SENATOR LENIHAN: At the
University of Rhode Island, your perspective, who
was it that approved this liability exclusion
clause?
MR. DePACE: I have the primary
responsibility for negotiating the contract.
SENATOR LENIHAN: You are the
negotiator, but I assume someone has to ratify --
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I assume you give a recommendation to someone.
MR. DePACE: My recommendation
goes up through the chain of command. As the vice
president has mentioned they lean heavily on my
recommendation with regard to this. So it goes up
through the chain of command. The document, of
course, was eventually sign by the university,
signed by the vice president and by Gilbane
Building Company.
MR. WEYGAND: And the Department
of Administration.
SENATOR LENIHAN: Okay, but from
the university's side, the buck stops at your
desk?
MR. WEYGAND: Yes.
SENATOR LENIHAN: But it also
requires a sign off at DOA?
MR. WEYGAND: That's correct.
SENATOR LENIHAN: And who would
provide that sign off at the Department of
Administration?
MR. WEYGAND: Director of
Administration.
SENATOR LENIHAN: Thank you. On
your recommendation in this particular case, I'm
assuming that came in the form of some kind of
document, your request as you passed it along the
chain of command, Mr. DePace?
MR. DePACE: Not specifically for
this, but in a recommendation to sign the entire
contract when we were done negotiating. I did not
particularly flag this or any other sections of
the contract at that time.
SENATOR LENIHAN: Do we have all
of the written documents that exist relative to
that general approval, that general recommendation
and consequent approval?
MR. DePACE: Yes, you do.
SENATOR LENIHAN: I think we've
asked this so many times you can probably
anticipate it, was this discussed with anyone at
DOA?
MR. WEYGAND: This particular
clause?
SENATOR LENIHAN: Yes.
MR. WEYGAND: Not to my knowledge.
SENATOR LENIHAN: As a result of
this clause, does Gilbane have any responsibility
here?
MR. WEYGAND: I think Paul was
alluding to he believes that they do in other
parts of the contract, but we really want to
confer with Chris Whitney before we respond to
that.
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SENATOR LENIHAN: Okay. I was
going to ask a question but it's regarding the
$3.4 million cap, but if this is absent from
Gilbane's liability, it doesn't matter what the
cap is because it's not their problem.
You raised a point by mentioning the
fact that one of the other -- for want of a better
term, the inspecting entities taking a look at
this on an ongoing basis, Payette Architectural
firm. In the contract we have with Payette and/or
the local, I've forgotten the exact citation, but
the local architectural firm -MR. DePACE: Lerner Ladds &
Bartels.
SENATOR LENIHAN: Do we have a
contract with them?
MR. WEYGAND: They are a
subcontract to the architectural firm, so it's not
a direct contract with us.
SENATOR LENIHAN: What about
Payette, do we have a contract with them?
MR. DePACE: Yes, we do.
MR. WEYGAND: Payette is the
direct contractor for the University of Rhode
Island as an architectural firm. They have
various subcontractors, including Lerner Ladds,
engineering firms as well as estimating firms.
SENATOR LENIHAN: In their
contract, are there any such exclusions that
absent them from liability in certain areas?
MR. WEYGAND: Have to review the
architectural contract between the State of Rhode
Island, the university and Payette. There is the
standard errors and omissions requirement for the
architect, meaning if that there is an error or
omission on their part, that they're liable for
it. But we'd have to review that. We're talking
specifically to this clause?
SENATOR LENIHAN: What I'm looking
at is, this is a -- you mentioned that they were
involved in this process, and it suddenly occurred
to me if they're involved in this process, they
obviously have liability as an architect, the
total process to get this building from a bright
idea to something that's sitting on the ground.
And it occurred to me that their
contract may contain in it terms which are
parallel to or complementary to the ones that
appear in the contract with Gilbane and I just
wanted to know if the state or URI has to go
looking for someone for responsibility and if
Gilbane is absented here, is the architectural
firm also freed from any liability if there was a
design flaw that allowed the introduction of any
one of these environmental factors.
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MR. WEYGAND: Well, I can tell you
that a design flaw is part of what we call errors
and omissions and that has to be covered by the
architect.
SENATOR LENIHAN: Is there a cap
on that E & O policy, liability?
MR. WEYGAND: Dollar amount. I
don't recall.
MR. DePACE: There is a
requirement, and I don't know whether it's by
statute or by regulation, as to what the design
agents need to carry for their errors and omission
policy.
sure.
It might be a million dollars, I'm not
MR. WEYGAND: It might be a
million or two in aggregate. I'm not sure.
SENATOR LENIHAN: I'm not trying
to be snide with this comment.
MR. WEYGAND: No, it's a good
question. There is a provision in there that
pertains to state law with regard to the limits of
the errors and omissions insurance. And we'll be
happy to pull that out.
MR. DePACE: It's a requirement by
the purchasing agent before such a contract is put
in place and approved by the purchase order, that
these insurances are assured to be in place.
SENATOR LENIHAN: I guess the
point I'm getting to is, your outside legal
counsel, Mr. Whitney, informed you that even
though statute says that the performance bond has
to be in place, he gave you a legal argument as to
why in fact you didn't have to conform to that.
I'm looking at the fact that while it
may be a state law regarding the responsibility of
this architectural firm, I just want to make sure
that there's no creative legal mind that's found a
way to conform to state law and not conform to
state law at the same time.
MR. SACCOCCIO: It's fair to say
that the architectural contract was entered into
well before this one. And certainly none of us
have actually looked at it in a while. I think I
know what you're asking, you're asking whether or
not there are similar limitation in liability
clauses in the architect's contract. We can
certainly get that for you.
SENATOR LENIHAN: We'll give you a
series of questions that I anticipate you will
respond to next time, not asking for a response
now because your legal counsel isn't present.
MR. WEYGAND: But I would like to
add that again the idea of the "quote" "waiver for
liability with Gilbane," was that the liability
was resting in the subcontract's performance bonds
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so that we're still being covered but not by one
policy with Gilbane, but multiple policies with
the subcontractors.
SENATOR LENIHAN: I don't have too
much of a problem constructing a scenario where
you ask the subcontractor -- the contractor may be
at fault, but so might also Gilbane if a building
envelope design was fine and will provide for a
water tight enclosure, but if it's not built
according to spec and design and there's a
problem, yes, it may be a responsibility of the
individual subcontractor, but up until this
exclusion or the cap, Gilbane's absented from
responsibility here, that's my point.
Up until now we've been talking
specifically about mold and I mention that only
because I saw that pop out of a number of news
stories from elsewhere. I'm assuming that there
are potentials for legitimate environmental
problems in areas that have nothing to do with
mold.
For example, demolition of the old
building. I don't know what the materials are in
there, but assume for a moment there was asbestos
in the site and it wasn't recognized and dealt
with, you have an environmental problem. Are
there other environmental problems that you have
to sort of look out for in particular as you go
through the balance of this process?
MR. DePACE: In the case of
demolition of bioscience, for instance, it was a
biological science building, so there are
chemicals in there. We intended to do and have an
allowance for in our own budget for a sweep of the
building to ensure that all of those were removed.
We're learning about environmental
hazards all the time. As even as recently as the
articles last week about biphenyls, plastic
bottles that affect individuals and have been for
years and baby's bottles that could adversely
affect their health. There's no proven
documentation on that but you can see that
Walmart's taken them off of the shelves already
because they anticipate something.
So there continues to be evidence about
environmental hazards that we don't know about
now. We do our best to try and stay abreast of
the scientific documentation. We have firms under
contract that do our asbestos abatement plans.
They also -- we have firms available to
us to test for items such as PCB's. The reason
why we did a major surgery on our Chafee building
because we found trace amounts of PCB's in the
project.
Several, I guess maybe 15 years ago,
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time is going by, we tried to flush all of our
transformers on campus about oils that may contain
PCB's because that was a proper product to be
using in the oils and transformers and we flushed
that out, but we're continuing to find things.
And as I say, mold is a relatively new
phenomenon, maybe two to five years old that have
had the issues come to the surface, that is
something you should be aware of.
MR. WEYGAND: There are in our
buildings, there can always be the potential for
hazardous material, whether it be a chemical in a
science laboratory building or something that came
out of an electrical transformer or some other
element like that.
In all of those cases, regardless of the
kind of bid, general contractor, construction
manager, whoever is doing the work, that burden of
payment for the removal of that waste is always
going to be ours. It is not something that
someone will pick up out of the grace of God
because they happen to have bid the demolition of
BSC if we didn't already tell them it was already
there.
So if there's an unforeseen
circumstance, there's a chemical, there's a
solvent, if there's some kind of waste that we did
not know about and that comes up, we bear that
burden no matter who the contractor is.
MR. DePACE: So it's burden on us,
the owner, to do a full examination of a building
that we're undergoing renovations, say our Lippitt
Hall, for instance, to determine where and how
much asbestos is in there, where the lead is, if
there's lead paint in it and where it is, and if
there are any other wastes within the building and
idea that to the contractor.
We have a responsibility to identify it.
You certainly simply can't back them into the fact
that it was identified as waste -- that hazardous
waste was in the building. If we didn't identify
it and tell them to take care of it and expect
them to take the burden of removing it. I don't
think that that would stand up in any courtroom.
SENATOR SHEEHAN: Just a question,
the question is this, if the CM in this case,
could the CM, I guess it could have, could have
been bonded for the full amount of their part of
the project, kind of an umbrella?
MR. WEYGAND: You mean the
$44 million?
SENATOR SHEEHAN: Well, no. If
they had done the bond here which would have cost
$286,000, you were trying to save that money.
They could have done that if they wanted to.
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MR. WEYGAND:
Absolutely.
If we
wanted.
SENATOR SHEEHAN: Pass the costs,
along with the fee. Might that have acted as an
umbrella so that nothing essentially would fall
through the cracks; is that a fair statement?
We've covered some major aspects,
personnel, there's some aspect of damage that
might have been covered, but it would have been
maybe kind of a catch all for any type of problems
that may have occurred.
MR. WEYGAND: With regard to
perform but not hazardous waste because that would
be totally different. Unless the hazardous waste
was the result of their performance, but if
their -- it had to be a chemical or something else
that was found on the site or in the demolition of
a building, that clearly falls outside of their
performance bond responsibility. It falls on us
to have identified it ahead of time and then they
would have properly bid on it. If it's not
properly identified, then it's our burden to pay
for it.
SENATOR SHEEHAN: That $286,000,
what amount is that bonded up to? What would that
have paid for if you had taken out -MR. WEYGAND: That was the
performance bond for the construction of the
building.
SENATOR SHEEHAN: Up to what
dollar amount would that have covered for the
liability?
MR. DePACE: Up to $44 million.
SENATOR SHEEHAN: So the whole
nut?
MR. DePACE: Would have been the
second layer.
MR. WEYGAND: Because the subs are
already covered.
MR. DePACE: The first is covered.
This would have been another layer on top to
ensure that the construction manager ensured that
the subs performed.
SENATOR SHEEHAN: So the $286,000
covers the full cost of the project, from the
university's perspective?
MR. DePACE: Yes.
SENATOR SHEEHAN: Is it conversely
true, could the CM actually have said, "Well, my
subs don't need to be bonded as I assumed the
responsibility?" So, for example, could the subs
have gone without being bonded to this project and
only the CM could have been bonded; is that
possible?
MR. DePACE: I think the CM could
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have proposed that and in that case we would not
have waived the CM's bond.
SENATOR SHEEHAN: Okay.
MR. WEYGAND: I don't want to
speak for the general contractor, but I would
imagine that the general, the CM would probably
say if that sub isn't bonding this, then I'm not
so sure I want to cover that unless there's a
savings to the CM as a result of that.
SENATOR SHEEHAN: Okay. But in
theory, the university could have been protected
if Gilbane was bonded or were to have been bonded
for the $286,000 and the subs were not.
The subs, if we add the total amount
that they paid for their performance bond, that
was $410,000 as I heard it, unless I misheard it,
versus $286,000 for the CM, might it be prudent,
at least from a financial perspective for the
university to say to the next CM of X Y Z project,
why don't you be bonded for the full amount and
then whatever you do with the subcontractors,
we're just going to hold you as one entity
responsible for our satisfaction for the entire
project.
MR. DePACE: I would say, my guess
is that the CM, any CM would say be glad to do
that and it will cost you $686,000 to do that,
because they need to ensure the performance of
their subs. They're not performing any of the
work so it would simply be the number would be
that much higher because they're now taking on the
responsibility for the subs, if you would find a
CM to do that.
SENATOR SHEEHAN: But wouldn't
that amount have been covered by the $286,000 bond
issue?
MR. DePACE: I don't think 286
would be the number. If the CM was not able to
bond his subs, which I'm sure he would want to,
then I'm sure the number would not be $286,000.
SENATOR SHEEHAN: So even though
that this amount here, this $286,000 covers in
theory at least up to the total price of the
project itself. So there would be in excess of
that, maybe personnel got hurt or something; is
that what you're saying?
MR. DePACE: I think the best way
and maybe the CM would be best to say how the
number was put together, but my guess is that the
CM bond of $286,000 was with the understanding
that the subs would be bonded and that was already
in the cost of the work. If the subs were not
bonded, the CM would have to protect itself and
would want to hire a number of bonding.
SENATOR SHEEHAN: From an
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actuarial point of view, and I'm no expert, it
would seem to me that the bonding company, that
the insurance company that was doing the bonding,
if they knew that the subs would be bonded, I'm
wondering why they would have assessed $286,000 in
cost? Maybe it would have been a much smaller
number seeing how the subcontractors were already
bonded; is that a fair statement or am I
misunderstanding?
MR. DePACE: I think that each of
the proposers against the RFP understood and
included that the subs would be bonded.
SENATOR SHEEHAN: That was
understood?
MR. DePACE: Actually, the
instructions in the RFP said everybody would be
bonded.
SENATOR SHEEHAN: So the
instruction was everyone be bonded, including the
CM and the subs. And with that understanding the
number of $286,000 come forward in terms of what
it could cost the CM, in this case Gilbane, to get
that bond?
MR. DePACE: The incremental cost
above what the subs would be bonded at. In other
words, 286 was incremental, assuming the subs were
bonded. If the subs were not going to be bonded,
then it would have been higher, I would expect.
SENATOR SHEEHAN: Okay. Might it
cost more that the CM were not covered? Could it
have cost the subcontractors more money because
now you've taken the CM out of the risk equation?
In other words, it would transfer -MR. WEYGAND: I don't think we
have the expertise to answer that, maybe someone
in risk management and insurance -SENATOR SHEEHAN: It just seemed
logical to me that if it's factored in, $286,000,
assuming that the subs would be bonded as well as
the CM, what happens if you take them out of the
equation? Does that mean that somebody will say
well, probably going to be on the hook for more
money if subcontractors get sued or something may
happen, like more money, maybe more than the
$410,000 as we heard.
MR. WEYGAND: It could very well
be. It would be inappropriate for us to try to
answer that without the advice from someone from
risk management.
SENATOR SHEEHAN: Thank you.
SENATOR LENIHAN: Any further
questions? If there are no further questions at
this time, I want to thank you for your input this
afternoon. It's been exceptionally helpful.
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There's a lot of material here for us to
digest but certainly it's a much more fulfilling
afternoon than it was a couple of weeks ago from
all points of view. I'm going to tell you ahead
of time that we'll be returning to this particular
matter and the balance of our questions two weeks
from today, not next week.
We have about a dozen bills that are
before the committee and we need to take and deal
with those the just because we're approaching that
deadline, that's the reason for the postponement
of this for two weeks. At that time, those
questions that needed the input from legal counsel
can be responded to and we'll go on with the
balance of questions. Do you have any questions
for us as a committee?
MR. WEYGAND: It's really, this
has followed pretty much the previous outline.
It's very similar to those. We can perhaps try to
expedite some of the next or two weeks from now
hearing, if we were to understand that the other
the rest of the remaining portions of our original
Power Point are where we're going to, we could try
to prepare some succinct answers for you because
we did ramble a little bit today and I don't want
to continue to say we'll get more information and
get it back to you.
So if we are to understand that the
remaining portion of the questions will really
pertain to the remaining portion of the PowerPoint
from two weeks ago, that's fine. We'll contain
our responses.
SENATOR LENIHAN: As I envision
it, the next time around that's exactly what we'll
do. We'll deal with the balance of the PowerPoint
and the questions that are contained. Finally now
we are finished with the issue of the contract and
contract provisions.
Now hopefully between now well, it will
be more than two weeks from now, say three from
now, we will have received information from the
Department of Administration to allow us to begin
to address the process which is a totally
different thing.
And as I indicated to you when we talked
several weeks ago, that's being segmented apart
from the contract itself. But we can't go forward
with that until we have further information from
DOA.
I had a conversation with Mr. Williams
as recently as this afternoon and I believe we're
going to be receiving that information forthwith,
and if that's true, you can probably anticipate
that three weeks from now you may well might have
to come back to speak to the issue of the process
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rather than just the contract itself.
MR. WEYGAND: We will make sure we
schedule our next Mondays with Mike.
SENATOR LENIHAN: I would also
advise you to do what I think you've already been
doing, that is in the interim if you have
particular questions, by way of helping your
presentation to organize it correctly, I'm as
close as a phone call or legal counsel for the
committee will glad to respond to any questions
that you have as well.
MR. WEYGAND: We greatly
appreciate the cooperation and assistance in this
and I know that we had hoped to be more prepared
the last time around but now with the PowerPoint
that we received last week, we can clearly address
the questions very pointedly, very succinctly for
you, so I greatly appreciate that and we'll move
forward and be ready for two weeks from today.
SENATOR LENIHAN: Anything further
to come before the committee this afternoon?
Hearing none, we'll call the hearing to an end.
Thank you again for coming and we'll see you in a
couple of weeks.
(ADJOURNED AT 7:10 P.M.)
* * * * * * * * * * * * * *
C E R T I F I C A T E
I, Claudia J. Read, Notary Public, do hereby
certify that I reported in shorthand the foregoing
proceedings, and that the foregoing transcript
contains a true, accurate, and complete record of
the proceedings at the above-entitled hearing.
IN WITNESS WHEREOF, I have hereunto set my
hand this 5th day of May, 2008.
CLAUDIA J. READ, NOTARY PUBLIC/CERTIFIED COURT REPORTER
MY COMMISSION EXPIRES NOVEMBER 2, 2008.
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