Record rehab tab?

Cost of City Hall Retrofit Skyrockets

The seismic retrofit of L.A. City Hall, first estimated to cost $92 million, is now expected to cost taxpayers $350 million or more - likely making it the most expensive quake reinforcement project for a single building in California history.

Although currently budgeted at $273 million, officials say that proposed modifications and construction change orders are expected to push the price tag significantly higher, perhaps to as much as $400 million.

"These types of projects tend to escalate significantly, especially with change orders," said Los Angeles Mayor Richard Riordan. "I am also very concerned about 'scope creep.' The cost figures that I'm heating are well over $300 million. I believe it's now at $350 million and we have barely begun the full construction phase."

By scope creep, Riordan refers to the tendency for government-funded projects to get more expensive as additional work is added - such as adding more City Council offices.

He pointed to two other major government buildings whose costs have more than doubled over their starting budgets. One is the seismic retrofit and restoration of San Francisco City Hall, which started out three years ago at $103 million and is now at $293 million. The other is the Ronald Reagan Building in Washington, D.C., which Congress initially authorized for $362 million but which ended up costing $818 million.

Riordan has recused himself from any decision-making on the project because he and one of the architectural firms involved are co-owners of a downtown building.

Escalating costs also concern local real estate investor and developer Stuart Ketchum who chaired an advisory panel that came up with a $165 million "bare-bones" plan for the retrofit project two years ago. He estimates that the project will cost at least $350 million before it's finished.

That figure includes an estimated $25 million to $50 million proposed by Project Restore, a citizens committee recommending restoration of the historic ceilings around the rotunda and other enhancements.

"In my gut, I believe it will be about $350 million," Ketchum said. "And that's assuming there are no major unforeseen change orders that go beyond the contingency fund," which is around $5 million.

Ketchum pointed out, for example, that no plans have been made for additional council offices if voters approve an expanded City Council as part of charter reform.

Keeping change orders in check has proven difficult on similar large public works projects, according to David Luberoff, assistant director of the Taubman Center for State and Local Government at Harvard University's JFK School of Government.

"The value of the change orders is absolutely key," Luberoff said. "It's not uncommon on these types of projects for change orders to approach 20 or 30 percent of the total budget." On the new $5 billion Denver Airport, for example, change orders totaled more than $500 million, exceeding 25 percent of the initial $2 billion cost, he said.

Change orders on such major projects generally come in three types: changes in the overall project design; the need to fix unanticipated problems, such as more asbestos removal; and changes made at the last minute to specific rooms or portions of the building.

If the change orders were to exceed 25 percent of the $273 million budget, they would eat up the $5 million contingency fund and add another $60 million to the cost. When added to a maximum of $50 million in additional restoration, that brings the total to about $385 million.

Of course, these are all projected additional costs. To date, the total cost of the project remains $273 million, unchanged since the City Council approved the seismic retrofit budget in October 1996. For funding, the city is drawing on a $126 million grant from the Federal Emergency Management Agency and a portion of $230 million in voter-approved bonds for seismic retrofit projects.

As of April 30. according to the City Engineer's Office, $73 million had been spent - $38 million for design and consulting work, $24 million for relocating offices outside of City Hall and the rest on miscellaneous expenses. The $73 million figure is now expected to rise rapidly as the project enters its main construction phase. Completion is now set for the middle of 2001. Clark Construction Co. won the general construction contract in February, with a $112 million bid.

"The trick to keeping change order costs under control is to say no," Luberoff said. "Even then, it's very difficult to get change orders below 10 percent of total costs."

Chief Legislative Analyst Ron Deaton, who headed up the relocation process and is on one of two city committees charged with keeping a lid on the retrofit costs, says that's what he plans to do.

"I would expect a whole raft of change orders to come in as the project nears completion," Deaton said. "And I expect that I will be saying no to 99 percent of them."

But the key is whether the City Council will toe the line or bend to requests for changes in project design.

City officials first took a hard look at seismic reinforcement after the 1989 Loma Prieta quake caused severe damage to San Francisco City Hall. Preliminary estimates made in the early 1990s put the cost at $92.3 million.

Then came the Jan. 1994 Northridge earthquake, which damaged L.A.'s historic City Hall. In February 1994, city engineers estimated the retrofit cost at $153.4 million. By 1995, it had risen to $240 million, at which time Riordan called for an outside panel of experts to review the project costs.

In October 1996, the City Council's ad-hoc Seismic Committee settled on a retrofit costing $222 million; however that would only have funded the retrofit of the foundation and the first four floors of the 27-story tower. The retrofit of the upper floors was projected to cost an additional $51 million. The full City Council voted 11-2 to include the funding for the upper floors, which brought the new total to $273 million.

In anticipation of rising pressures for additional expenditures, the City Council created two committees to keep a lid on costs. One, called the Governance Committee, consists of Deaton, Chief Administrative Officer Keith Comre, and the chief engineer.

The City Council itself has also formed an ad-hoc committee consisting of council members John Ferraro, Richard Alatorre and Rita Walters, along with the president of the Board of Public Works Committee, Ellen Stein. Its role is to check up periodically on both the project and the Governance Committee.

"With not one, but two committees keeping an eye on costs, we have set up a system to keep the costs under control," said City Councilman Michael Feuer, who sits on the Budget Committee. "The key now is to make sure it works as it has been designed to."

But Assistant City Controller Tim Lynch is skeptical that the city can keep project costs under control.

He noted that the city will likely receive a federal reimbursement of $40 million to $50 million in seismic retrofit funds for work done to bring area bridges up to new earthquake standards.

"With those funds out there, I see very little incentive for the city to keep costs within budget, even with the committees in place," Lynch said.

In San Francisco, such an extensive cost control system was never put in place, according to Peter Byrne, editor and publisher of the San Francisco Investigative Newsletter, who has been a longtime local government critic. In the three years since the building was vacated, the cost has increased from $102.7 million to the current estimate of $293 million.

If the L.A. City Hall retrofit ultimately exceeds that, it would become the most expensive retrofit-related rehabilitation of a single building in state history in pure dollar terms, according to Charles Thiel, a Northern California-based seismic consultant who served on the blue-ribbon panel for L.A. City Hall's seismic retrofit project.

He said that 20 years ago, a seismic retrofit of the state Capitol building cost around $250 million. In today's inflation-adjusted dollars, that would exceed the cost of both the L.A. and San Francisco City Hall projects.