Middle Harbor Price Tag
Underground Obstructions Part Of Reason For Spike In Cost
By Samantha Mehlinger - Staff Writer
September 24, 2013 – Port staff is projecting additional overruns of $85 million to the Middle Harbor Redevelopment Project budget due to construction challenges and underestimated project costs. The Middle Harbor project was already $29.5 million over the original budget of $1.2 billion as of June.
A presentation by Sean Gamette, acting chief harbor engineer and acting assistant managing director of engineering, broke down the costs between Phases 1 and 2 of the project at the September 16 board of harbor commissioners meeting. An estimated increase of $30 million is needed to complete Phase 1, which is currently underway and scheduled for completion in 2015.
Phase 1 of the Middle Harbor project includes 12 individual construction projects at a budget of about $779.3 million. While Phase 1 is currently running slightly under budget at about $777 million, costs are expected to rise. Art Wong, port spokesperson, told the Business Journal that “unforeseen conditions in the ground or water” are likely to increase costs going forward. Two projects within Phase 1 are completed. The only project left to bid out is the battery exchange building, an unmanned facility that will serve automated container transportation systems. According to Gamette, early estimates for the battery exchange building “did not accurately represent” the scope of the building’s functions, contributing to the $30 million increase.
Upon running into higher-than-anticipated costs in the first phase due to underground and in-water construction complications, the budget for Phase 2 now requires an additional $55 million, according to Gamette. The current budget for Phase 2 is $449.7 million, which includes nine individual projects. He proposed $30 million be added to Phase 2’s budget to account for construction issues. The remaining $25 million is needed to reconfigure an oil set-aside area, he said.
These $114.5 million in project-overrun costs bring the overall Middle Harbor budget to $1.314 billion. Gamette told the commission that once a risk assessment for Phase 2 of the project is finalized, he will return to the commission with a “more complete request” for a budget adjustment. This is likely to occur in November, he said.
Commissioner Rich Dines pointed out that when the Middle Harbor project was originally pitched, the estimated cost was much less. “Just four years ago, we thought this would be a $750 million project,” he said. “I hope we don’t get to $1.5 billion by 2019, because I think there is a lot of risk for the port in watching the budget continue to increase.”
It seems that underground obstructions and replacement of equipment associated with oilfield relocation efforts may be causing most of the cost overruns, Commissioner Wise observed. Thomas Fields, commission president, asked Gamette what percentage of the estimated cost overruns were caused by oilfield relocation efforts. Gamette was unable to provide that estimate.
Wise reminded those present at the meeting that revenue from oil production goes into the Tidelands Fund. Given what she called “enormous increases” to the budget to benefit oil efforts, she suggested looking at having the Tidelands Fund pay for oilfield relocation costs, since it is that fund which ultimately benefits. Wong told the Business Journal that the port staff would follow up on the suggestion.