Capital Improvement Project Supervisor Jeanne Jensen gave an overview to Town Council last month on how inflation and supply-chain disruptions are wreaking havoc on Gilbert projects. (YouTube)
Capital Improvement Project Supervisor Jeanne Jensen gave an overview to Town Council last month on how inflation and supply-chain disruptions are wreaking havoc on Gilbert projects. (YouTube)
On the books is a project to rehab 140 deteriorating manholes in south Gilbert but a 17% increase since the work was budgeted two years ago means the Town will have to redo 20 fewer manholes or look for more funding.
Manhole maintenance and replacement may be among the lesser town projects that have been impacted by inflation in Gilbert, which has seen millions in additional costs for several major projects.
Gilbert has over 18,000 manholes located along its wastewater collections system, renovating them as the need arises.
“We are doing a deep look at our south manholes,” said Jeanne Jensen, Capital Improvement Project supervisor at the June 28 council study session, adding “we have seen a substantial change in the price of surface prep.”
Jensen and staff gave the council an overview of how inflation and supply-chain issues are affecting town projects, purchases, maintenance and operations and what strategies officials are using to combat that.
“It’s no surprise to anyone who’s had to go grocery shopping or fill up their cars lately there are some significant pressures out there impacting our community,” Jensen said. “This challenge is serious.
“It’s probably one of the worst combinations of factors we could have possibly asked for but in this case we have come up with alternatives, we’ve come with solutions and we have to just do what we always do but do it more and do it more often.”
Market volatility, delayed or unavailable goods and price escalations are the main economic challenges, according to Jensen.
Driving that volatility include both past general pandemic policies such as manufacturing shutdowns to stop the spread of COVID-19 and the ongoing invasion of Ukraine, she said.
She pointed to the price of nickel, which was on a steady decline until March, when Russia attacked Ukraine.
“Nickel is a primary product out of Ukraine and it is a core product that goes into stainless steel for us,” Jensen said. “So between March and May we’ve seen the cost impacts to ductile iron go up about 16%, cost impacts to stainless steel up about 18%.
“So volatility is not just a matter of escalation although that does generally provide upward price pressure. But what we’re really running into is the inability to predict the next price challenge.”
As a result, staff is seeing some direct pressures on a couple of significant capital projects in Gilbert, according to Jensen.
Besides the manhole fixes, the cost has also shot up for the South Reservoir Water Quality Improvement project.
“That price that was originally developed in 2018 has seen up to 400% escalation on key commodities,” Jensen said, adding that the total budget cost has increased by $4.6 million.
She said the Capital Improvement staff was working closely with other departments “to make sure that we had appropriately scheduled other projects around this project’s dollar-cost necessity, making sure that they have the resources they need to meet their goals but having to re-prioritize projects.”
Ryan Blair, CIP supervisor, said one of the major impacts to transportation projects is the availability and the price of concrete.
“The availability of concrete’s difficult,” he said. “You can’t get large pours, you have to get small pours.”
The Val Vista/Melrose street and traffic signal project has seen cost escalations of 50% for concrete, 35% for asphalt, traffic signals 48% and 200% for PVC waterlines, he said.
“On a normal year, this is actually a project where we would have been charged $67,360,” he said. “The contract is now $99,512.”
Adding to the mix is supply chain disruptions that are causing longer lead times and a timely availability of some materials.
“We often find material we typically rely on no longer in production or if it is in production it’s 10, 12, 16 months out,” Jensen said. “These were materials that were typically on the shelf, now we’re seeing lead times that are 10 folds higher.”
Gilbert Police recently saw that impact of long lead times in ordering 23 Tahoes, Purchasing Manager Jim Campion said.
“Pursuit-ready vehicles historically were four to six months lead time,” Campion said. “They went (to) 10 to 18 months. GM was limiting production to 10,000 units nationwide.”
The town’s strategies to try and keep its projects moving include developing relationships with vendors and involving the leadership of general contractors for help in providing resources to a project or to help lower or forego in some instances markups, such as on fees, according to Jack Gierak, CIP supervisor.
“Other approaches we utilize – not our favorite – but we come back and we request for additional contingencies,” Gierak said. “Also, we utilize all available procurement methods, co-op agreements became very popular recently and that really is very helpful (and) we change products.
“If a product is not available we work with our vendors, architects, engineers to replace the product for equal as to not compromise the integrity of the project.”
Campion said another approach is buying what the town needs early, such as executing advance purchases of tires, which are used for fire and refuse trucks.
“We’re starting procurement processes well in advance, in some cases we’re starting procurement processes a year in advance,” Campion said. “We’re in constant contact with suppliers inquiring about availability and supplies. We award contracts to multiple suppliers in some cases so we have backups. In some cases we had to cut back on frequency of service and revise scope of work to fit our budgets.”
Jensen said the town also is putting projects that can wait on the back burner until the market is more economically viable, identifying alternative available stocks with engineering firms in advance and pre-purchasing and stockpiling critical materials like pipe segments.
She said an emergency project arose last year after a contractor working in the area hit a 36-inch transmission line immediately outside the North Water Treatment Plant.
Because the town had that pipe in stock, crews were able to make the necessary repairs in under three days, she said.
“We are identifying some of those materials as we take one out of inventory we go ahead and purchase a new one to put back into inventory so that we can keep these pieces of our infrastructure running day-to-day and not having that impact to the community,” Jensen said.
And, the town plans to break projects into smaller jobs.
“Typically, when we would hire a contractor we would hire them for the duration of the project at the beginning,” Jensen said. “The challenge with doing it that way in this market is that those contractors are having to price in the full guess that they’re making. And quite frankly it can be a guess of their risk.
“What we’re proposing to do for a lot of these is to break these projects into smaller pieces. So, we order them to come out, they do the upfront work we pay them for that work. We then send them out to do the next piece, materials procurement they go ahead and do that and then we price that labor and that piece when that time comes up.”
However, despite what the town may be able to do to mitigate against escalating costs, it’s moot if it can’t get its hands on the materials, according to Jensen.
“We do have a series of strategies and plans that we deploy on all of our projects but we’re just having to pull more tools out of that toolbox,” Jensen said. “One of the most important things for us in CIP is cost quality and schedule.
“We never want to have to choose one of those over the other two and so what we’re taking on is the same approach we would do on all of our projects through detailed scoping, identification of materials and all of the other components that we can.
“We’re just doing it earlier, we’re doing it more frequently and we’re allowing for more opportunities to do parallel design to consider alternative delivery methods in lieu of low bidding.”
Councilman Scott Anderson asked if staff looked at what other municipalities are doing to address the challenge.
Jensen said staff has reached out to the public and private sectors looking for innovative approaches that Gilbert could look at.
“We feel that the strategies we’re taking on probably represent the best combination of tools we’ve seen out there,” she said, “Although there are certainly more and we will not hesitate to continue to investigate all those possible options.”
Vice Mayor Aimee Yentes asked if Gilbert has a collaboration with another municipality where they can help each other out if there is a need for supplies.
“I think back when things get complicated sometimes people go back to more rustic elements of our economies like bartering,” said Yentes, “and know what other cities have that are, you know in their inventory. Maybe it’s kind of akin to like when you can’t find beans on the shelf you ask your neighbor, ‘Well, I got a bag of beans and I’ll swap you for some toilet paper.’
“So, is there any collaboration to kind of maybe look at that as jurisdiction to jurisdiction.”
Campion said the town so far has been able to manage its inventory and that he meets monthly with an East Valley procurement group, where they share resources for supplies.
“We are able to say, ‘hey, you know I was able to get this over here, why don’t you try them?’” he said. “We are putting some of that into place but hopefully I don’t have to get to the point where I have to borrow toilet paper again or anything like that.”
The town is also is entering into longer-term contracts to keep control of cost.
For instance, at the June 28 meeting, Council approved a $10.5 million, 10-year contract with Axon for body-worn cameras, Tasers, in-squad cameras, software and support.
According to the Police Department, the contract will allow it to lock into current prices and upgrade its service.
Assistant Town Manager Leah Hubbard Rhineheimer said Council should expect to see more change orders, early procurements and JOB and CM@R contracts come before them.
“It’s no secret that over the past couple of years we’ve seen a tremendous amount of economic and global uncertainty and instability that has really impacted the supply chains as well as our ability to deliver goods and project, as well,” she said.
“These impacts continue to become more and more significant and the Gilbert team is working diligently to mitigate those impacts, anticipate them and mitigate them to the best of our ability.”