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HomeMy WebLinkAbout9B - Pike Lake Trail CITY COUNCIL AGENDA REPORT MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: JUNE 1, 1998 9B GREG ILKKA, DIRECTOR OF PUBLIC WORKS/CITY ENGINEER CONSIDER APPROVAL OF CONTRACTOR'S CLAIM FOR LOST OVERHEAD ON PIKE LAKE TRAIL DUE TO THE ELIMINATION OF A RETAINING WALL. DISCUSSION: HISTORY The City Council approved elimination of a retaining wall from the contract for construction of Pike Lake Trail for a total contract reduction of , $78,142.00 pending receipt of documentation for their overhead. Attached is a letter from McNamara Contracting, Inc. on this subject. This change accommodated a developer's request for access to Pike Lake Trail by providing a graded slope in lieu of the retaining wall. CURRENT CIRCUMSTANCES The Contractor allocated $5,510 of overhead to the retaining wall on a $953,641.85 contract. As part of the change to the contract the Contractor indicated he needed to recover this full amount. Recovery of the full amount of overhead was questioned by the Council and the Contractor was asked to provide documentation to support the claim. The enclosed letter outlines the request for compensation. As stated, the Contractor included a 3% overhead factor on the contract. This would amount to $28,609.25 for the whole contract. Of this amount he allocated $5,510 to the retaining wall. The $5,510 represents almost 20% of his overhead on the entire project. He is now requesting recovery of only $2,344.26, but is claiming additional costs associated with the Change Order. Because McNamara assumed he would recover his full overhead amount when he submitted his costs initially, he did not mark up the new unit price on the remaining retaining wall work. He is now requesting this compensation, which by MnDOT specification is allowable at 15%. The request is for $1086. 162~~ Creek Ave. S.L Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER Further, because he has incurred additional costs on the Change Order beyond first anticipated he is requesting reimbursement of those costs as well in the amount of $2,400. ISSUES In highway construction, contractors allocate portions of their overhead to their major work items and not to every line item. In the bidding process the Contractor allocated $5,510 of overhead for the entire contract to the retaining wall. This amount has nothing to do with the amount of overhead it costs to actually build the retaining wall but is merely part of his 3% overhead factor which he distributed to the major work items on the contract. Because of the elimination of the retaining wall he has no way to recover this overhead. The Contractor's original request for overhead recovery was $5,510. Because he feels he was treating the City fairly, but is not receiving the same treatment in return, he now feels he must claim reimbursement for ' additional costs incurred which were not initially anticipated for a total of $5,830.26. CONCLUSION The Contractor initially requested 100% overhead recovery, but is now requesting recovery of only $2,344.26. However, the Contractor did not originally put a mark-up on his sub-contractor's prices and he has incurred additional costs he did not originally anticipate. He is now requesting reimbursement of these costs as well. The Contractor's total request is $5,830.26. The Contractor's claim has now become more involved than the original request to recover his overhead. In order to resolve this issue once and for all, staff recommends approval of the original request for $5,510. We believe the contractor would accept this offer as settlement of the entire claim. FISCAL IMPACT: If approved, the change in contract cost would be an additional $5,510. This would still represent a total contract deduction of $72,632,00. AL TERNA TIVES: There are three alternatives for the City Council to consider: 1. Approve the contractor's claim for reimbursement of lost overhead and increased costs due to elimination of a retaining wall on Pike Lake Trail in the amount of $5,510 and direct staff to prepare a change order for signature by the Mayor and City Manager. PLTCOI4.DOC 2. Approve a portion of the contractor's claim for reimbursement of lost overhead and increased costs due to elimination of a retaining wall on Pike Lake Trail and direct staff to prepare a change order for signature by the Mayor and City Manager. 3. Deny this item and provide staff with direction. RECOMMENDED MOTION: Motion and second to approve the contractor's claim for reimbursement of lost overhead and increased costs due to elimination of a retaining wall on Pike Lake Trail in the amount of $5,510 and direct staff to prepare a change order for signature by the Mayor and City Manager. REVIEWED BY: PLTC014.DOC : ASPHALT CONSTRUCTION May 18, 1998 R~n1"'C'" ~~lJ'.,. . HAY 20 1998 Mr. Greg llkka, P.E. Public Works Director/City Engineer 16200 Eagle Creek Avenue S.E. Prior Lake, MN 55372-1714 Re: Pike Lake Trail, Project No. 97-17 Dear Greg: This letter serves as McNamara Contracting, lnc's claim for reimbursement for overhead and profits. This claim is a result of a revised construction plan as described in Change Order #1 on the above referenced project. The revisionsjncludedin Change Order #1 have caused the following: 1. Reduced the recovery of overhead costs incurred by McNamara in the original bidding of the project. McNamara includes a 3.0% overhead factor in each project bid. This is based upon McNamara's history of bidding costs. Such costs include estimator and office staff time to review plans, project site, bid documents, office equipment, and plan costs. The following is our lost overhead: Change Order #1 - Deductions 93,210.00 Additions (approved) 15.068.00 78,142.00 x 3% $ 2,344.26 2. No markup has been included on the items to be paid to Rosti Construction. The prime contractor normally marks-up sub- contractor prices. This enables the Prime Contractor to recover costs incurred on behalf of the subcontractor such as bonding, scheduling, supervising, and processing payments. The markup also is to include a profit margin. Change Order # 1 approved prices from Rosti Without any markup for McNamara. McNamara believes it should be compensated for these items atour normal 15% markup rate: 7,240.00 x 15% 1,086.00 500l16Oth Street West · Rosemount, Minnesota 55068-1304 Office (612) 322-5940 · Fax (612) 322-5944 · Plant (612) 322-5946 3. McNamara has incurred substantial additional overhead costs due to Change Order # 1. Extra time has been spent by the job superintendent, project manager, estimator, and office personnel in the fOIm of additional site meetings, revised quantity and price reviews, project scheduling, project supervision, and contract documents processing. McNamara estimates this cost to be 40 hours x $60.00 2.400.00 Total claim for reimbursement for overhead and profits $ 5,830.26 Our original request for reimbursement for overhead costs was for $5,510.00. That amount was requestedgased upon our belief the city realized that McNamara had and 'will incur substantial costs due to Change Order # 1. Please review the above justification and present it to the City Council at your earliest . opportunity. Sincerely, ~tj:IA Controller McNamara Contracting, Inc.