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Home My WebLink About10E - Police/City Hall Project 16200 Eagle Creek Avenue S.E. Prior Lake, MN 55372-1714 CITY COUNCIL AGENDA REPORT MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: CONSIDER APPROVAL OF CHANGE ORDER #1 TO THE POLICE STATION I CITY HALL CONSTRUCTION PROJECT. DISCUSSION: I ntrod uction The purpose of this agenda item is to receive authorization for change order #1 for the police station / city hall construction project. Historv The general conditions of the contract for the police station / city hall were worded in a fashion to encourage the contractor receiving the bid to investigate the extent to which elements of the project were exempt from sales tax. The contractor, Shaw Lundquist, interpreted the general conditions to mean that the entire project is exempt from sales tax and so he excluded sales tax from his bid. Only certain projects like libraries, jails and certain educational facilities are granted such exemptions under State Statute. Police stations and city halls are exempted only in regard to certain equipment such as energy-saving windows, doors, and heating and cooling equipment. Current Circumstances The general contractor made a claim against the City in the initial amount of $198,978 to compensate them for the sales and use tax they failed to include on certain items called out in the general conditions. As outlined in the attached letter from Bill Wolters, the City's owner's representative, that amount was negotiated to $189,993, and then to $171,257. Last week, Mr. Wolters, John MacNamara of Wold Architects, Suesan Lea Pace and I met with Tom Meyers of Shaw Lundquist and his attorney. We negotiated a final amount of $125,000 for this claim. Conclusion The City Council should determine if it will approve change order #1. ISSUES: The staff has considered the prospect of denying the claim. It is our belief that the likelihood of success is in question. FINANCIAL IMPACT: The total project budget is $13.5 million. This action would increase the contract with Shaw Lundquist from $11,157,800 by $125,000 to $11,282,800 (see change order document G701). The total project amount of $13.5 million would remain the same, but the contingency account would be reduced from $300,000 to $175,000 (see Constructive Ideas spreadsheet). The Council will recall that the alternates are funded from sources outside the $13.5 million www.cityofpriorlake.com ~,,;r'("~i ihlt....i~ ~t:,f""Nr?()T<.....~,..~n{1i:;:\1/'j^10nr2L{'t'1i-"" /;,...~ r, ~ { ,(';;-'<" {v(,,...."'..' '", _<+'_' <'\.r~q (:'/'\("> 1 \,<""m,,,~ V~>':" ,I l.)\ff~",h/" k 'nh)Ptlt5n~'9~2:4'4~:tt'230dr>rFax'~52:l:f4'T4245 ALTERNATIVES: RECOMMENDED MOTION: budget. In addition, the City instructed Mr. Wolters to work closely with the architect to assure the buildings are engineered and constructed in the most cost-effective manner while not compromising the aesthetic or functional integrity of the buildings. 1. Approve change order #1 as recommended. 2. Direct the staff to prepare additional information. Alternative #1. I\COU NC: LV\C; N FWfS\2005\1 Constructive Ideas, Inc. 901 Jefferson Avenue, Suite 300 St. Paul, Minnesota 55102 (651) 225-4740. Fax 225-4741 Project: Prior lake Police and City Hall Prior lake, Minnesota Architect: Wold Architects and Engineers St. Paul, Minnesota Adjustments Item Description Original Budget Since Bid Day Current Budget Total 1 Fees Cost of Project Fmancmg $256,639 $ 256,639 Arch/Engineering - Base Building $ 660,000 $ 660,000 Architectural Reimbursables $ 35,000 $ 35,000 Arch. Interior Design - In above $ - Owner's Representative $ 126,000 $ 126,000 Owner's Representative - Reimburasbles $ 4,200 $ 4,200 Survey - Allow $ 10,000 $ 10,000 Soil Borings - Allow $ 12,500 $ 12,500 Wetland Mitigation - not needed $ - Owner's Special Testing Durino Construction $ 50,000 $ (10,000) $ 40,000 Subtotal Fees and Reimbursables $ 1,144,339 2 Furniture, Fixtures and Equipment FF&E from Mav, 2005 budget $390,000 ($90,000) $ 300,000 Subtotal Furniture, Fixtures and Equiprnent $ 300,000 3 Special Systems Voice and Data Wiring $ 20,000 $ 20,000 Audio Visual Equipment $ 75,000 $ 75,000 Phone Equipment $ 50,000 $ 50,000 Paging System $ 25,000 $ 25,000 Misc. Equipment $ 50,000 $ 50,000 Security ( Cameras, etc.) $ 50,000 $ (50,000) $ - Move Allowance $ 25,000 $ 25,000 Subtotal Special Systems $ 245,000 4 Other Owner Costs Land Cost $ 730,000 $ 730,000 Sewer or Utility Relocation $ 50,000 $ (50,000) $ - Allowance for Dump Site Clean-up $ 75,000 $ (50,000) $ 25,000 Builder's Risk - by Contractor $ - Permits - City Permit Fee waived $ - Legal - Allowance $ 25,000 $ (25,000) $ - Allowance for Asbestos - Survey and Abatement $ 50,000 $ (30,000) $ 20,000 SACIWAC - Allowance $ 40,000 $ (40,000) $ - Subtotal - Other Owner Costs $ 775,000 5 Project Contingency - Fixed $400,000 $ (275,000) $ 125,000 Subtotal - Contingency $ 125,000 Subtotal - Items 1 thru 5 $2,952,700 ($363,361 ) $2,589,339 $2,589,339 Total Authorized by City Council - May 2, 2005 $13,250,000 $13,250,000 $13,250,000 Amount Available for Construction - September 13, 2005 $10,297,300 $10,660,661 $10,660,661 Apparent Low Bidder. 2nd Bid. Shaw-Lundquist $10,579,700 Xcel Energy Rebate -31,500.00 File: Budget sheet for City Council- 12-19-2005 Page 1 12/13/2005 Constructive Ideas Planning, Preconstruction & Owner Representative Services · Project Cost Analysis December 12, 2005 Mr. Frank Boyles, City Manager City of Prior Lake 16200 Eagle Creek Avenue, S.E. Prior Lake, Minnesota 55372 Re: Sales Tax Issue Dear Frank: This letter is to summarize for you the sales tax issue on the new Prior Lake Police and City Hall project. As you know, there was a claim made by Shaw Lundquist for additional sales tax on certain materials for the project which, according to the General Conditions, were described as being exempt from Minnesota sales tax. The claim was originally submitted on October 18, 2005 in the amount of One Hundred Ninety Eight Thousand Nine Hundred Seventy-Eight Dollars ($198,978.00). This claim precipitated several actions on the part of Wold Architects and Engineers, myself, and Suesan Pace, your city attorney. First the claim was reviewed and rejected for lacking documentation and for being excessive in that the contractor was asking for sales tax on electrical materials which were not referenced as being tax exempt, and they were requesting an overhead and profit allowance of 10% of the total amount of the claim. As a result of this initial rejection, the contractor lowered the requested overhead and profit from 10% to 5% of the claim. This lowered the claim total to One Hundred Eighty-Nine Thousand, Nine Hundred Ninety- Three Dollars ($189,993.00). This revised claim was received on October 31,2005. On November 4,2005 there was a letter from Wold Architects to Shaw Lundquist which again requested additional information to support their claim and pointed out the error in the electrical calculation. This letter caused Shaw Lundquist to review their claim, and on November 10, 2005 they resubmitted with a revised electrical value. This lowered the claim to an amount of One Hundred Seventy-One Thousand, Two Hundred Fifty-Seven Dollars ($171,257.00). While this correspondence was taking place, research was being done regarding the tax issue. However, it was determined that "There is no explicit exemption under Minnesota law for the City of Prior Lake Project." The project did not meet the criteria in that it was 901 Jefferson Avenue, Suite 300 · St. Paul, MN 55102. (651) 225-4740. Fax (651) 225-4741 www.constructiveideasinc.com Mr. Frank Boyles December 12, 2005 Page 2 contracted for on a "lump sum" basis and not on a separate "material and labor" basis. Also, the legislation under which the General Conditions were apparently prepared was specific to libraries and possibly county jail facilities but would not cover city police facilities or city hall facilities. On November 2, 2005 a memo was issued from the city attorney to this effect. Contemporaneously with this research, we had requested additional documentation: specifically, access to Shaw Lundquist's bid documents in order to verify if, in fact, Shaw Lundquist had deducted sales tax as a result of their interpretation of the General Conditions. Our immediate access to these documents was delayed since Shaw Lundquist claimed our request was "unreasonable and this has nothing to do with the issue at hand." After some negotiations between Shaw Lundquist's attorney and the Prior Lake city attorney, access to the Shaw Lundquist document was provided to me, and on Monday, November 21, 2005 I reviewed their documents. As a result of my review, I noted that a bid deduction of One Hundred Twenty Five Thousand Dollars ($125,000.00) apparently had been taken prior to the bid being submitted. The note on the sheet titled this reduction "Bid adj tx." My findings were put in my letter to you of November 23, 2005 along with several questions regarding this apparent deduction and questions on whether or not some of the materials in question could still be considered tax exempt under a general sales-tax exemption for energy efficient equipment. Finally, a meeting was arranged at the offices of the Halleland law firm with Tom Meyers of Shaw Lundquist, his attorney, yourself, Suesan Pace, John McNamara of Wold Architects and Engineers, and myself to see ifthis claim could be settled on an equitable basis. The result of this meeting was to reach a resolution of this claim for an amount of One Hundred Twenty-Five Thousand Dollars ($125,000.00) with no allowance for overhead and profit. This amount is Seventy-Three Thousand Nine Hundred Seventy-Eight Dollars ($73,978.00) less than the original claim. This is the amount that we are requesting the City Council approve to resolve this issue. This amount would be charged against the project contingency which had been identified as Two Hundred Fifty Thousand Dollars ($250,000.00). This would leave the balance of $125,000.00 as our contingency going forward. This is a very small contingency for this early in the project. In order to protect this contingency, the architects and engineers, City personnel and myself will be continually reviewing the documents to see if any value engineering cost saving strategies can be identified. Any items noted would be brought before the City for approval prior to their being implemented on the project. It is regrettable that this tax issue occurred, but I feel it is in the City's best interest to dispense with it on this settlement basis and not pursue it through litigation. Mr. Frank Boyles December 12, 2005 Page 3 If you need copies of my earlier correspondence to your or attachments, please give me a call. Sincerely, CONSTRUCTIVE IDEAS, INC. ~I:!~ President /oww cc: Mr. Bill O'Rourke - City of Prior Lake Ms. Suesan Pace - Halleland Lewis Nilan Sipkins & Johnson, P.A. Mr. Mike Cox - Wold Architects and Engineers