Water authority board delays OK of $40 million change order

Southern Nevada Water Authority board members want more information before they approve another $40 million for the new intake project now under construction at Lake Mead.

The board was set to vote Thursday on a $39.5 million "change order" for the roughly $700 million project, which is now more than a year behind schedule after a series of setbacks that began last summer.

Instead, board members decided to revisit the matter next week, after they have been briefed behind closed doors on all the intricacies of the contract, surety bonds and insurance policies associated with the work.

Board member and Clark County Commissioner Steve Sisolak said he wants to "make sure ratepayers are protected" before approving such a large sum .

The board will meet at 8 a.m. Feb. 25 for a private briefing on the matter. The public portion of the meeting is slated to begin at 9 a.m. on the seventh floor of the Molasky Corporate Center at City Parkway and Ogden Avenue downtown.

Water authority General Manager Pat Mulroy said the change order is needed to cover the cost of the problems encountered so far and a design change that is expected to get the work back on track.

More importantly, she said, the payment will protect the authority going forward, because the general contractor, Vegas Tunnel Constructors, would agree to absorb any future cost overruns associated with the current phase of the project.

"When you transfer risk like we are with this change order, that comes at a price," Mulroy said.

She added that the authority will "aggressively" work to recover as much of the $39.5 million as possible through the insurance carrier that is covering the work.

The insurer has paid about $4.5 million so far, and "we expect them to pay more," Mulroy said. "We'll take it all the way to arbitration if that's what's required."

The new intake is being built to pull water from deep enough in Lake Mead to allow the flow to continue even if the reservoir shrinks below one of the two existing straws that supply roughly 90 percent of the Las Vegas Valley's drinking water supply.

The project involves mining a 23-foot tunnel that will pass through three miles of solid rock and come up from the bottom of the lake.

Most of the excavation will be done by a tunnel-boring machine that will be lowered in pieces down the 600-foot vertical access shaft and put together underground.

First, though, the contractor has to figure out a way to keep the starter tunnel and assembly area for the boring machine from flooding.

Vegas Tunnel Constructors officials claim that the conditions the company has encountered underground are much worse than what was predicted by the geologic report the water authority included in the construction contract.

Marc Jensen, director of engineering for the water authority, said the contractor first served notice about the unexpectedly poor conditions in March 2010. The real trouble began on July 1, when workers excavating the starter tunnel hit a fault zone, causing water and debris to flood the work area.

Vegas Tunnel Constructors spent weeks trying to stabilize the fault, but the area flooded twice more.

The contractor now is excavating a new starter tunnel in a different direction in hopes of skirting the worst of the unstable ground.

The project was originally slated for completion in early 2013. The authority now hopes to have the third intake on line by the summer of 2014.

As large as it is, the proposed change order still falls within the 10 percent contingency amount the authority budgeted for the project.

Mulroy said the contractor is absorbing about $15 million in additional costs on top of the $39.5 million.

If the board rejects the change order, the authority will be left with two options, Mulroy said: stop the work or keep going and "assume liability."

Sisolak said he just wants all the facts before he votes, including the exact terms of the project's insurance coverage and the potential liability of the contractor and others for what has happened.

Vegas Tunnel Constructors' piece of the overall project totals $487 million, which ranks as the single-largest construction contract ever awarded by the water authority. The change order would boost that figure to $526.6 million, which is still $61 million less than the only other bid the authority received for the project.

Mulroy said this job is so large and complex that it took the authority more than a year to find someone willing to insure the work.

She told board members they can probably count on more unforeseen conditions and setbacks in the future.

"We're underground. Not only underground, we're going under the lake," she said.

Contact reporter Henry Brean at hbrean@reviewjournal.com or 702-383-0350.