Inside City Hall
For work not performed, a contractor wins a settlement
Or how a cost underrun wound up costing taxpayers
Above: A top city contractor, Spiniello knows how to throw around its weight on the legal front. (Mark Reutter)
The Brew has written extensively about overruns in road, water and other contracts that result in millions of dollars paid out by Baltimore taxpayers. They are called Extra Work Orders (EWOs), and examples are here, here and here.
This article is about a cost underrun that resulted in the payment of $518,120.18 to a private contractor by the Board of Estimates on Wednesday.
All of the board members approved the award, including Mayor Stephanie Rawlings-Blake, Acting City Solicitor David Ralph, Public Works Director Rudy Chow, Comptroller Joan Pratt, and Council President Bernard C. “Jack” Young, who was represented by Councilman Ed Reisinger.
(Of course, this is the same board, excepting Young and Pratt, that approved a nearly 30% increase in Baltimore sewer and water rates over the next three years. The first fee hike will go into effect on Tuesday.)
The contract involved the inspection of 69,000 feet of sanitary sewer pipe and the estimated rehabilitation of 63,000 feet of those pipes.
Spiniello Companies, which dominates sewer contracting in Baltimore and has done more than $75 million in work since 2010, won the contract (SC 917) with a low bid $2.83 million in June 2012.
Once the inspection was finished, however, it was discovered that nearly all of the pipe was in good shape and did not need cured-in-place pipe (CIPP).
The Department of Public Works ordered just 11,000 linear feet of pipe, paid Spiniello about $400,000 for the actual work performed, and terminated the contract in February 2014.
That process did not sit well the New Jersey-based contractor, who soon was demanding money to offset the costs it said it incurred “due to the underrun,” according to city records.
Spiniello cited a clause in the contract known as Variation in Estimated Quantities (VEQ), which says that an “equitable adjustment” in a contract price can be made if the quantities used are 25% less than the estimated amount.
The clause is common in city contracts. What was unusual was for a contractor to threaten legal action if a large payment wasn’t made.
“I am not aware if a dispute involving this clause has gone to settlement before,” said Jeffrey Raymond, spokesman for DPW.
In the course of 2½ years of back and forth, Spiniello first pressed for $860,000, then used another figure: $547,000, according to Raymond.
In the end, the city law department settled all outstanding disputes relating to SC 917 by agreeing to $450,000, plus $68,120.18 in retainage released by DPW.
The settlement raises some questions that were never discussed during Wednesday’s board meeting.
Did DPW poorly draft the contract by so specifically estimating how much pipe would require rehabilitation, and did Spiniello’s many other city contracts – for example, its $28 million contract to install 19 miles of CIPP pipe in South Baltimore – undercut its argument that it was stuck with large amounts of pipe and other supplies from SC 917.
Another point never addressed: when the Board of Estimates approves EWOs on existing contracts (including overruns going to Spiniello)*, why aren’t the unit cost of the added quantities ever revised downward?
We asked Acting City Solicitor Ralph if the VEQ clause protects the contractor, but leaves the taxpayer vulnerable.
His response via email:
“If a customer, like the City, uses more than it estimates, the supplier contractor would simply need to get more supplies to meet the actual demand. It would be unusual for the customer to get a cheaper price than it negotiated and which was bidded because it needed more supplies than it estimated.
“On the other hand,” he continued, “when a supplier relies upon a VEQ by purchasing supplies that turn out not to be needed, there is an actual expense incurred by the contractor – which does not exist in the other scenario.”
• Here, from 2014, is a rare case where Mayor Rawlings-Blake and the Board of Estimates rejected a bid from its top utility repair contractor.