BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT: Title
Approve an Increase of $1,168,431.87 to the Construction Contract Contingency Sum for the Upper Llagas Creek Flood Protection Project, Phase 2A, Project No. 26174052, Contract No. C0665 (Morgan Hill, District 1).
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RECOMMENDATION: Recommendation
Approve an increase of $1,168,431.87 to the construction contract contingency sum, bringing the total contingency sum to $9,966,351.87 for the Upper Llagas Creek Flood Protection Project, Phase 2A, Project No. 26174052, Contract No. C0665.
Body
SUMMARY:
Increase the construction contract contingency in order to resolve a contract claim for additional work submitted by Flatiron West, Inc. (Contractor).
Project Background
Santa Clara Valley Water District (Valley Water) is undertaking the Project in partnership with the U.S. Army Corps of Engineers (USACE) and the City of Morgan Hill (City) to provide 1% flood protection to approximately 1,100 homes and 500 businesses along West Little Llagas Creek, East Little Llagas Creek and Llagas Creek. The Project is part of the Safe, Clean Water and Natural Flood Protection Program (Safe, Clean Water Program) that voters approved in 2012 and renewed in 2020 as Project E6 under the flood protection priority. The approximately 13.9 miles-long project encompasses the City of Morgan Hill, City of Gilroy, and various unincorporated areas of Santa Clara County, including San Martin. The Project is being constructed in three phases (Phase 1, Phase 2A, and Phase 2B), and flood protection will only be realized after construction of all three phases is completed. Graniterock Company was awarded Phase 1 construction by the Valley Water Board of Directors on July 23, 2019, and the Notice of Completion was accepted by the Valley Water Board of Directors on May 24, 2022. Flatiron West, Inc. was awarded Phase 2A construction by the Valley Water Board of Directors on April 13, 2021. On January 28, 2025, the Valley Water Board of Directors accepted the work as complete and authorized filing of a Notice of Completion for Phase 2A, Milestones 1 & 2.
Phase 2B was awarded to Graniterock Company by the Valley Water Board of Directors on August 13, 2024, and is currently under construction.
The entire Project consists of channel widening and deepening, instream improvements for wildlife and habitat, installation of maintenance roads along top of banks, installation of fencing and gates, instream improvements for wildlife and habitat, revegetation, and a three-year plant establishment maintenance period.
Relevant Prior Board Actions
On September 22, 2009, the Board approved a cost-sharing agreement with the City of Morgan Hill for preparing the environmental document and the design plans and specifications.
On June 10, 2014, the Board certified the Environmental Impact Report for the Upper Llagas Creek Flood Protection Project and adopted Resolution No. 14-67.
On May 14, 2019, the Board adopted the plans and specifications and authorized advertisement for bids for the construction of the Phase 1 Project.
On July 23, 2019, the Board awarded the Phase 1 Project contract to Graniterock Company, in the amount of $68,118,602.00 and approved a contingency fund of $10,217,790.00.
On January 12, 2021, the Board adopted the plans and specifications and authorized advertisement for bids for the construction of the Phase 2A Project.
On April 13, 2021, the Board awarded the Phase 2A Project contract to Flatiron West, Inc., in the amount of $43,989,600 and approved a contingency fund of $8,797,920 with a construction contract retention of ten percent (10%) because the Project was determined to be ‘substantially complex’ due to the precision needed to safely perform critical underground work, including tunneling, within the time allowance for completion of work.
On May 24, 2022, the Valley Water Board of Directors accepted the work as complete and authorized filing of a Notice of Completion for Phase 1, Milestones 1 & 2. Upon completion of the 3-year mitigation native plantings establishment period (Milestone 3) anticipated in spring 2025, the Valley Water Board of Directors will consider a Notice of Completion for Phase 1, Milestone 3.
On May 16, 2023, because of the completion of Milestone 1 (Tunnel Completion), the Board authorized reducing the Phase 2A construction contract retention of ten percent (10%) to five percent (5%), for the Upper Llagas Creek Flood Protection Project Phase 2A, Project No. 26174052, Contract No. C0665 with Flatiron West, Inc., consistent with the minimum amount of retention required by the California Public Contract Code.
On January 28, 2025, the Valley Water Board of Directors accepted the work as complete and authorized filing of a Notice of Completion for Phase 2A, Milestones 1 & 2.
Contract Change Orders
A total of thirty-six (36) contract change orders totaling $7,456,351.87 have been executed to date to address various issues, including unforeseen site conditions and utilities, Valley Water & City of Morgan Hill (City) requested changes, post-design clarifications, and credits back to the contract for adjustments to bid items based on final quantity measurements. This total of $7,456,351.87 for change orders was within the previously Board-approved Contract contingency amount of $8,797,920.
Contract Change Order #37 is a $501,180.86 pending change order which addresses contract delay compensation related to Bid Items below:
A. $280,535.28 cost increase for work associated with Bid Items 26-1, 26-13, 26-14, 41-12, 41-14 and 41-15. Project delays were experienced relating to utility relocation work, earthwork, traffic control, and flatwork improvements.
B. $220,645.58 cost increase for work associated with Bid Items 43-4. Project delays were experienced relating to earthwork, asphalt concrete, aggregate base, temporary and permanent pavement markings, drainage facilities, and flatwork improvements. Bid Item 43-4 was included in the contract on behalf of the City of Morgan Hill and is subject to the provisions of the executed cost sharing Agreement #A4448S between the city and Valley Water. Staff continues to negotiate with the City on these additional cost increases related to this bid-item per the terms of the Agreement #4448S between the City and Valley Water.
Table 1 presents a summary of the construction contract and contingency amounts associated with the completion of Milestones 1 and 2.
TABLE 1. SUMMARY OF CONSTRUCTION CONTRACT
AND CONTINGENCY AMOUNTS
Construction Contract Claim
On October 28, 2024, the Contractor submitted a construction contract claim to Valley Water in the amount of $866,291.00. During the negotiation process, this claim amount increased to $902,000.00. The claim relates to work done to address construction deficiencies in a sewer siphon for which the contractor was seeking additional compensation. The claim included a request for an informal conference pursuant to Article 3.12(G) of the contract specifications. Flatiron West, Inc. also requested additional compensation in the amount of approximately $1.9 million, claiming loss of productivity, additional costs for work acceleration, additional overhead costs related to delays, and costs related to Builder’s Risk Insurance. Valley Water staff participated in multiple informal conferences and negotiation meetings since December 3, 2024, including escalation of the sewer siphon related claim to a Dispute Resolution Board (DRB) per Article 3.13 contract specifications.
During the DRB meeting convened on March 19, 2025 the DRB affirmed that the sewer siphon claim had merit. As a result, an amicable resolution was reached and Valley Water Staff tentatively agreed to a settlement with Flatiron West, Inc., in the amount of $2.51 million, subject to Board approval of the additional contingency to effectuate this settlement.
Increased Construction Contingency Recommendation
As shown in Table 1, insufficient funds remain in the current remaining contingency to execute a change order to address the resolution of the Contractor’s claim for additional compensation as discussed above. Staff recommends the Board approve an increase in the contingency fund in the amount of $1,168,431.87, which will enable staff to execute Contract Change Order No. 37 and Change Order No. 38 for the additional costs associated with the Contractor’s claim for additional compensation. If approved by the Board, the additional contingency amount will result in a total contingency of $9,966,351.87.
ENVIRONMENTAL JUSTICE AND EQUITY IMPACT:
There are no Environmental Justice impacts associated with the Upper Llagas Flood Protection Project, Phase 2A. This action is unlikely to result in adverse impacts and is not associated with an equity opportunity.
FINANCIAL IMPACT:
The Upper Llagas Creek Flood Protection Project, Phase 2A, Project No. 26174052 is included in the Capital Improvement Program (CIP) Fiscal Years (FY) 2025-29 Five-Year Plan and in the FY 2024-25 Adopted Budget. There are sufficient funds in the Project’s FY2024-25 budget for the increase to the contract contingency in the amount of $1,168,431.87. The impact of the increase to the contract contingency would be an increase to the Total Project Cost (TPC) reflected in the CIP Draft FY 2026-30 Five-Year Plan, however, the Project currently has Project Reserves to accommodate this increase in the TPC. The increase in the TPC will be addressed during the development of next year’s CIP FY 2027-31 Five-Year Plan and the biennial Budget process. The Project is funded through the Safe, Clean Water and Natural Flood Protection Fund (Fund 26).
The City of Morgan Hill has reimbursed Valley Water $2,525,000 to date for their base Bid Items for City Improvements for Phase 2A in accordance with City-Valley Water cost-sharing agreement #A4448S executed on April 21, 2021. Valley Water will send an invoice to the City after Project Notice of Completion is issued for reimbursement of costs regarding any modifications, revisions, change orders and/or extra work approved by the City. Outstanding reimbursements for the City of Morgan Hill are estimated to be $844,660.39 plus the additional amounts negotiated with the City as it relates to the settlement with Flatiron West Inc.
CEQA:
As described above, the Board certified an Environmental Impact Report for the Upper Llagas Flood Protection Project, Phase 2A in June 2014. The activities to be performed and funded by the increased contingency sum were evaluated in the Environmental Impact Report, and thus no further CEQA review is required.
ATTACHMENTS:
Attachment 1: Location Map
Attachment 2: Contract Agreement
UNCLASSIFIED MANAGER: Manager
Bhavani Yerrapotu, 408-630-2735