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CO Airport Struggles to End Partnership

Wednesday, October 23, 2019

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The breakup procedure continues to draw out between the Denver International Airport and its $1.8 billion public-private partnership with Great Hall Partners over issues within the airport’s massive terminal renovation.

Although the exit date for the company is scheduled for Nov. 12, airport officials claim that the termination fees—which are likely to exceed $200 million—are unlikely to be settled at the end of the 90-day termination period.

Project Saga

Roughly two years ago in November 2017, DIA proposed the addition of 39 gates in an expansion project, up from the airport’s original proposal of 26. At the time, the project was estimated to cost $1.5 billion and would be a P3 headed by Ferrovial Airports. The overall deal was slated to include a $650 million terminal renovation, which would be overseen by Saunders Construction over the course of four years. (Cost estimates for the actual expansion at the time were not yet available, however.)

A couple months later in January, two subsidiaries of Hochtief, a Germany-based construction company, were announced as the companies to oversee the estimated $700 million expansion. The companies, Turner Construction and Flatiron Construction, would be building two new hubs for the airport, with the capacity for three more, as well as 16 new gates and installing additional pavement.

ra-photos / Getty Images

The breakup procedure continues to draw out between the Denver International Airport and its $1.8 billion public--private partnership with Great Hall Partners over issues within the airport’s massive terminal renovation.

That summer, DIA would announce an official multi-year, multi-phase renovation timeline headed by Great Hall Partners with a budget of $650 million. The P3 also included 30 years of private oversight of expanded terminal concessions. A groundbreaking ceremony followed on July 12, 2018.

However, first delays struck in February 2019 when concrete on the main floor was found to be weaker than expected. According to officials, early testing of the concrete’s compressive strength was lower than what the project’s plan specified, so the area followed up with intensive testing. The DIA also noted that the testing needed to be complete prior to cranes going onto the main floor to erect steel.

At the time of the discovery, preliminary estimates stated that the project could be delayed by 209 workdays—roughly 10 months total.

In July, GHP reported that the renovation of Jeppesen Terminal wouldn’t be complete until at least 2024, three years behind its 2021 deadline. The companies (Ferrovial Airports, Saunders Construction and JLC Infrastructure) claimed the delay was due to various airport-requested design changes and structural issues found in old concrete initially used for the airport’s construction.

However, Channel 4 CBS Denver claimed that the project’s full completion could extend to 2025—with costs projected to increase by nearly 50%, or $311 million.

A month later, not long after DIA announced that it would be ending its P3 relationship with GHP for terminal renovations, the contractors released documents showing that the project requires more than $1 billion to complete.

Up $650 million from the original budget, the documents also claim that various delays have pushed the completion date back to February 2024 as well.

According to a DIA-hired independent consultant, inspections revealed that no safety issues were present in the concrete. However, additional testing was recommended for alkali-silica reaction, known to cause swells, cracks and even weaken concrete. Traces of the ASR were later found in the terminal.

Most recently, last month, Kim Day, CEO at DIA presented a revised renovation budget totaling $770 million and included $120 million in contingency funds.

According to Day, subcommittees and steering groups were working to process the closing of GHP’s contract and settling associated claims so that the contractor could successfully vacate the property by Nov. 12. Although a 34-year concession deal was included in GHP's contract, Day also confirmed that the DIA will run that component themselves after the renovation is complete.

It is also noted that although the new $770 million budget failed to include GHP's termination fees, a report from Moody’s Investors Service shows that the airport has roughly $900 million in liquidity to back up any settlement.

New Hires

Earlier this month DIA announced that it had selected Hensel Phelps to serve as the preferred construction manager and general contractor for Phase 1 of the project previously held by GHP. Canada-based engineering company Stantec has been chosen as the preferred lead design firm for the entire project moving forward.

During Phase 1, Phelps will be working on airline ticketing pods in the terminal’s center on Level 6, in addition to new restrooms and conveyances. The cost for this portion is slated to be determined in Q1 2020.

Andy445 / Getty Images

Earlier this month DIA announced that it had selected Hensel Phelps to serve as the preferred construction manager and general contractor for Phase 1 of the project previously held by GHP.

In addition to these hires, the DIA has also selected Gilmore Construction, Sky Blue Builders and roughly another dozen subcontractors it hopes to take over from GHP to continue to aid in design, engineering, steel placement and electrical work. DIA Senior Vice President of Special Projects, Michael Sheehan reports that continuing work with the major subcontractors could reduce the P3 breakup fees.

The approval process for the DIA’s selections will begin Nov. 6, with hopes that the Denver City Council will complete the process by the end of the year so that construction can restart in Q1 2020.

What’s Happening Next

Although neither GHP or the DIA will disclose a total amount being negotiated to satisfy the contractors’ costly breakup fees, Moody’s estimates that an eventual termination payment will land between $140 million and $180 million. However, this DIA is also estimated to owe GHP $70 million or more to repay its lenders, bringing the overall cost to between $210 million and $250 million.

Moving forward, DIA has selected Jacobs Engineering Group to begin assessing how to manage the project and intends to make Jacobs the terminal’s new program manager as well. Through this decision, Jacobs will aid other contractors in tracking the schedule, budget, stakeholder concerns and progress of work.

Additionally, plans include making an amendment to an existing Jacobs contract and a contract for an undecided new lead designer to a City Council committee on Nov. 6. The DIA plans to identify a new lead builder within two months’ time, after the new budget is complete.

   

Tagged categories: Airports; Budget; Business matters; Business operations; Construction; Contracts; Government contracts; Maintenance + Renovation; NA; North America; Ongoing projects; Partnerships; Project Management; Projects - Commercial; Public-private partnerships (P3); Renovation

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