BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT: Title
Receive Report of Bids, Ratify Addenda, Approve the Contingency Fund, and Award the Construction Contract to Cratus, Inc. for the South County Recycled Water Pipeline Phase 1C Project, Project No. 91094009, Contract No. C0723 in the Sum of $3,270,000 (City of Gilroy, Unincorporated Santa Clara County, District 1).
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RECOMMENDATION: Recommendation
A. Ratify Addenda No(s). 1, 2, 3, and 4 to the Contract Documents for the South County Recycled Water Pipeline Phase 1C Project;
B. Award the Construction Contract to Cratus, Inc., located in San Francisco, California, in the sum of $3,270,000; and
C. Approve a contingency sum of 15% in the amount of $490,500 and authorize the Chief Executive Officer or designee to approve individual change orders up to the designated amount.
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SUMMARY:
The objective of the South County Recycled Water Pipeline Phase 1C Project (Project) is to expand the existing recycled water distribution system in the City of Gilroy to serve additional customers and improve existing service through system redundancy, as planned in the South County Recycled Water Master Plan.
The Project scope includes installing approximately 3,200 linear feet of 24-inch diameter pipe from the east of Luchessa Avenue to Cameron Boulevard. The pipeline connects the 36-inch recycled water pipeline installed as a part of Phase 1B to the South County Regional Wastewater Authority’s (SCRWA) 12-inch recycled water pipeline to create redundancy in the system.
Project Background
In 2004, the Santa Clara Valley Water District (Valley Water) and SCRWA, with the participation of the Cities of Gilroy and Morgan Hill, jointly prepared the South County Recycled Water Master Plan (2004 Master Plan). The 2004 Master Plan was updated in 2015 (2015 Master Plan Update) and approved by both the SCRWA Board and Valley Water’s Board of Directors (Board). The 2015 Master Plan Update carried forward the immediate and short-term capital investments that had been defined in the 2004 Master Plan and re-evaluated the long-term capital investments to expand the use of recycled water in Gilroy and Morgan Hill. The immediate-term facilities were completed in 2006. The short-term Phase 1 distribution facilities were split into Phases 1A, 1B, and 1C. The Phase 1A facilities were completed in 2012. At the request of the City of Gilroy, a portion of the Phase 1B facilities (Camino Arroyo Service Line) was completed in June 2015.
The remaining phases were bid and awarded under the South County Recycled Water Pipeline Short-Term Phase 1B/2A/1C/2B Project (Contract No. C0668), with Phase 1C included as a supplemental item. Phase 1B facilities, along with the Phase 2A facilities, were installed in August 2023. The work for Phase 2B is ongoing under Contract No. C0668. Unfortunately, Valley Water was not able to proceed with the Phase 1C work under Contract No. C0668 because easements were not secured in sufficient time. As the scope was removed from Contract No. C0668, the funds allocated for Phase 1C were disencumbered and released in the Fiscal Year 2024-25 (FY 25) adjusted budget and rolled over into the FY 2025-26 (FY 26) adjusted budget to allow for the scope to be re-bid under the Project (Contract No. C0723).
This Project will complete the short-term Phase 1 distribution system facility improvements in the 2015 Master Plan Update to help resolve the current recycled water distribution system’s operational deficiencies, improve the system’s reliability, expand the system to serve new customers, and allow increased use by existing customers.
Addenda Ratification
Four (4) addenda were issued during the bid advertisement period to clarify the Project Contract Documents and answer bidders’ questions. To formally incorporate the Addenda into the Project Contract Documents, staff recommends that the Board ratify the addenda.
Contract Award
A report of bids received at the bid opening for the Project on September 10, 2025 is summarized in Table 1, including the Engineer’s estimate for Project budgeting purposes (refer to the Financial Impact section).
The lowest responsive bid was submitted by Cratus, Inc. of San Francisco, CA. The bid submitted by Cratus, Inc. is 21% higher than the Engineer’s Estimate of $2,713,050. Past project and industry publication cost data that design engineers use to develop the Engineer’s Estimate is based on stable economic conditions, but the Post-COVID-19 environment, escalation in gas prices, and fluctuating tariffs made estimating this Project very challenging. Additionally, rapidly escalating costs due to supply chain disruptions, raw material cost inflation, and the upsurge in new construction affecting labor availability are all contributing factors to the elevated prices reflected in the bids received.
Five bid proposals were received, and their prices were within 30% of each other. The three lowest bids from Cratus, Inc., Ranger Pipelines, Inc., and Mountain Cascade, Inc. were within 3% of each other, which indicates a competitive bid pool and consistent interpretation of the Contract Documents. However, the bid by Mountain Cascade was deemed non-responsive.
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TABLE 1 Bid Summary |
|
Contractor, Location |
Bid Price |
Award Amount |
|
Cratus, Inc., San Francisco, CA |
$3,270,000 |
$ 3,270,000 |
|
Ranger Pipelines, Inc., San Francisco, CA |
$3,316,150 |
|
|
Mountain Cascade, Inc., Livermore, CA |
$3,348,053 |
|
|
Con-Quest Contractors, Inc., Burlingame, CA |
$3,636,700 |
|
|
Mitchell Engineering, San Francisco, CA |
$4,728,950 |
|
|
Engineer’s Estimate: $2,713,050 |
Staff recommends the Board award the contract to Cratus, Inc. as the bidder responsible, submitting the lowest responsive bid.
Contingency Funds
The Contract award sum for the Project is $3,270,000. To allow staff to quickly address unforeseen or changed site conditions and other unanticipated occurrences, without causing unnecessary delays or consequential costs to the Project, staff recommends the Board approve encumbering a contingency amount of $490,500 which amounts to 15% of the contract amount for the subject Project.
The above-contingency amount was estimated due to the known and unknown risks, such as:
1. Unforeseen conditions and field conditions that may be different from the baseline and as-built information used in preparation of the Project Contract Documents;
2. Unanticipated variances in quantities and cost of various lump sum items estimated in the Bid Proposal;
3. Coordination issues and risks associated with weather conditions; and
4. Coordination issues with operations and maintenance activities.
Approval of individual change orders for the Project will be subject to approval at the following designated amounts:
Engineering Unit Manager: $100,000
Deputy Operating Officer: $300,000
Chief Operating Officer $400,000
Assistant CEO $450,000
CEO: Up to the Total Amount of the Contingency
Relevant Prior Board Actions
On October 13, 2015, the Board held a Public Hearing on the Engineer’s Report and adopted Resolution 15-64 approving the Engineer’s Report.
On September 14, 2021, the Board considered the First Addendum to the South County Recycled Water Master Plan Program’s Environmental Impact Report for the Phase 1C alignment and adopted the plans and specifications and authorized advertisement for bids for construction of the South County Recycled Water Pipeline Short-Term Phase 1B/2A/1C/2B Project.
On December 12, 2021, the Board awarded a construction contract to Steve P. Rados, Inc. (Contract No. C0668) for the South County Recycled Water Pipeline Short-Term Phase 1B/2A/1C/2B Project, ratified addenda to the contract documents, and approved a construction contingency of $3,446,200.
On August 12, 2025, the Board adopted the Project plans and specifications and authorized advertisement for bids for construction.
Outreach to Bidders
The Notice to Bidders was made available to Valley Water’s registered PlanetBids vendors with the appropriate classifications to perform the Work. Chambers of Commerce, plan rooms (Builder Exchanges), and Valley Water’s website were also used to solicit interest in the Project. Broader advertising efforts also included two placements of the Invitation to Bid in the San Jose Post-Record.
Small Business Program
This project was advertised incorporating the Small Business Enterprise (SBE) Outreach Program, which establishes a small business subcontracting participation goal of at least 30 percent for non-SBE Bidders. The apparent low Bidder, Cratus, Inc., is not an SBE and was not able to subcontract the Work to SBE subcontractors. However, the Good Faith Effort documentation submitted has been accepted.
Right of Way
Valley Water has all the necessary right-of-way needed for the construction of the Project.
Regulatory Permits
Valley Water obtained all its necessary permits to construct the Project. The construction contractor will be required to obtain encroachment permits from the City of Gilroy and County of Santa Clara after contract award.
Public Outreach
During construction, appropriate measures will be taken to minimize construction impacts associated with the Project, such as traffic, noise, and dust. Residents and businesses will be informed of potential temporary impacts through social media, informational mailers, coordination with the City of Gilroy, and other outreach strategies. Construction contract documents include requirements and mitigations to minimize impacts during the construction.
Next Steps
If the Board approves the recommendations, staff will proceed with administering Project construction, which is anticipated to begin in December 2025 and be completed by May 2026.
ENVIRONMENTAL JUSTICE IMPACT:
There are no environmental justice impacts associated with the Project. Award of the Project to Cratus, Inc. is unlikely to or will not result in disproportionate impacts on any specific communities relative to the general population from the implementation of the Project. However, improved access to recycled water will benefit all populations within the service area.
FINANCIAL IMPACT:
The South County Recycled Water Pipeline Project, Project No. 91094009, is included in the Capital Improvement Program (CIP) Fiscal Years (FY) 2026-30 Five-Year Plan and in the Board-adopted FY 2025-26 Budget. The total cost for the recommended construction contract, including the change order contingency sum of $490,500 is $3,760,500. The award of this contract will increase the overall total project cost reflected in the CIP FY 2026-30 Five-Year Plan; the increase will be incorporated in the Draft CIP FY 2027-31 Five-Year Plan. Following the closure of the FY25 year-end accounting and the rollover of the estimated unspent FY25 funds to the Project’s FY26 Adjusted Budget, there will be adequate funds to partially encumber the planned expenditures for construction to be incurred during this fiscal year.
Funds to cover the remaining construction costs will be included in the biennial budget process and development of the CIP’s FY2027-31 Five-Year Plan or through budget adjustment(s).
The Project is funded by the Water Utility Enterprise Fund (Fund 61), with 100% of the costs allocated to Zone W-5 (South County).
CEQA:
On March 22, 2011, the Board adopted Resolution 11-25 certifying the South County Recycled Water Master Plan Final Program Environmental Impact Report (PEIR), which evaluated the installation of approximately 10 miles of recycled water transmission and distribution pipelines in the City of Gilroy (Master Plan Project). Phases 1B, 2A, and 2B of the Master Plan Project were consistent with the project description in the PEIR.
Phase 1C, which is the scope of the Project, was added to the Master Plan Project after the certification of the PEIR and was evaluated by the First Addendum to the PEIR. On September 14, 2021, the Board considered the First Addendum when it adopted the plans and specifications and authorized the advertisement for bids for the South County Recycled Water Pipeline Project Short-Term Phase 1B/2A/1C/2B Project.
ATTACHMENTS:
Attachment 1: Addenda No. 1, 2, 3, and 4
Attachment 2: Project Delivery Chart
Attachment 3: Map
UNCLASSIFIED MANAGER: Manager
Emmanuel Aryee, 408-630-3074