Budget grew with plans

How the budget for John Wayne Airport’s new electricity and air conditioning generator nearly tripled in size — from an inkling of an idea at $11 million to a robust utility plant at $31 million — apparently is not a case of contractors bilking the county-owned aviation hub or of frivolous spending.

Rather, it illustrates how major construction projects often morph, especially when they are planned in a volatile cost environment and are part of a larger undertaking, like the airport’s half-billion dollar expansion.

“More often than not, it’s a more innocent explanation,” said Allan Hauck, the construction management department head at Cal Poly San Luis Obispo. “The most likely culprit is that the project is so complex and there are so many unknowns.”

Indeed, when JWA officials first started planning to produce their own electricity and air conditioning in the early 2000s, they didn’t account for replacing much of their aging existing equipment, which they would still need for backup. Nor had they planned on building a freestanding structure to house all of the equipment.

“The project is much bigger today than it was in 2004,” said airport spokeswoman Jenny Wedge.

Added Director Alan Murphy: “We think it’s a good project, and we think it’s going to be cost-effective for us, and give us that additional level of independence.”

The $11-million core of the project was a new “co-generation” plant: a system that would both produce electricity by internal combustion and capture the excess energy to create cool water for air-conditioning. It could help prevent power outages, which happened on occasion.

Financial consultants told airport officials they would save more than $1.25 million annually in electricity costs, and the savings would pay for the equipment within eight years of ignition. That same payback schedule is true today — for the co-generation portion alone.

There just happens to be another $20 million in other equipment, design and building costs.

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The generators

The four natural gas-fired generators are massive Cummins engines with 18 cylinders — the size of a small school bus each. Running simultaneously, they can create a total of seven megawatts of electricity.

Murphy said they considered using solar energy for part of the electrical load, but projected savings didn’t outweigh the cost to install a solar system.

The county Board of Supervisors approved the airport’s request to buy the gas engines in 2004 for $2.6 million.

While some of the airport’s other capital improvement projects are being paid for with federal grants and special passenger fees, the engines and other Central Utility Plant components were funded by airport revenues solely, officials say. These include airline leases, parking fees, concessions, etc.

Murphy wanted to buy the engines before finishing the plant’s design, to lock in that year’s pricing and to get a leg up on the lengthy permitting process. He had the engines “pickled” in 2004 and stored.

But by the time contractors started up the engines in late 2010, they had to spend more than $1 million to refurbish them. The generators needed lubrication and to be modified to meet air quality standards.

One of them started smoking and is now being repaired under warranty.

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The other equipment

A maze of steel pipes and gauges connect the hulking green generators to other components. While from the outside the new building looks like a well-landscaped concrete cube with ducts on the roof, inside it houses much more.

The plant’s ultimate combination of machinery started to take shape about 2006, when airport officials realized that some of their aging cooling equipment should be replaced. They thought they might need it on the hottest summer days when the co-generation was not enough.

Murphy, Deputy Airport Director of Facilities Larry Serafini and engineers from Irvine-based Popov Engineers decided to scrap the existing electrical and air conditioning plant, replace all of the equipment, and combine it with the new co-generation system.

They would have to build a new Southern California Edison substation to provide about 5% of the airport electricity, and to back up the airport’s generators.

The additional cost for all that work: about $5 million.

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Where to build

Meanwhile, a different team of engineers was planning a new six-gate terminal in the airport’s tight eastern quarters, eclipsing the site of the existing electrical plant.

Popov, in 2003, first considered installing the co-generation system near that substation, or somewhere else in an airport structure. But as they progressed on the project, they decided to build a separate building and flesh out some of the ancillary costs, said Serafini. That would add $5 million.

The estimate was up to $20 million in 2006.

Construction costs were on the rise then. Steel, fuel costs and labor were climbing at a rate of about 10% each year.

When the airport issued a request for construction bids, the estimates were so far over budget — one came in at $30 million and another at $34 million — that officials had to reconsider the design, including where the plant should be built.

The county was forced to shelve the project, Murphy said, and when officials came back to the drawing board in 2008, they asked Popov to redesign the project inside a new parking structure.

Such major changes aren’t unusual in complicated construction projects, said Hauck.

“In the design process, there are lots of dead-ends,” he said. “It’s a creative process.”

Serafini and Murphy analyzed how much they would save, compared that to lost revenue from fewer parking spaces, and decided to build the plant on its own after all.

Ultimately, they paid $1.8 million more for a construction management firm to oversee the project outside of the structure, instead of inside.

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Another contractor, a new design

With their old plans in hand, airport officials decided to find a new company that could essentially re-design the utility plant and build it, with the hope that the contractor could find ways to be efficient and save money.

About 2008, state law changed so counties could use a new method to hire construction firms. Instead of the traditional “design-bid-build” process — where different contractors design and build the project — it could use a “design-build” method. This is where the same contractor does both.

They asked Popov to create “bridging documents” that outlined their vision of the plant. Then they relieved the firm of its services.

Before going back out to bid in late 2008, a revised cost-estimate pegged the plant between $20 million and $26.5 million.

The winning bid from West Coast Air Conditioning Co., based near San Diego, came in at $25.2 million. It finished the project in December.

Airport officials say West Coast has nearly $1 million in changes to the contract, some of which are still under review. Combined with Popov’s $1.8 million of work, $2.6 million to buy the generators in 2004, another $1.5 million to refurbish them in 2010, $1.8 million for a construction management firm and $1 million to test out the engines, the project comes out to about $34.9 million.

That figure is higher than what JWA has officially promoted: $30.7 million. The airport’s capital improvement budget, which contains the plant, only includes costs incurred beginning around 2005, when the county approved the larger plan. The generators were purchased in 2004, and some of the design work had already been completed.

“We did some duplicative work,” Murphy said. “But in the end I think we definitely ended up with a better project and a less expensive project.”