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Great Hall Blames DIA for Reno Issues

Wednesday, November 27, 2019

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Recently, former Ferrovial-led consortium Great Hall Partners circulated a 248-page document recounting how Denver International Airport officials’ change orders negatively affected the renovation of the airport’s Jeppesen Terminal.

Great Hall claims that DIA officials’ indecisions contributed to the project’s various delays and cost overruns.

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.

arinahabich / Getty Images

Recently, former Ferrovial-led consortium Great Hall Partners circulated a 248-page document recounting how Denver International Airport officials’ change orders negatively affected the renovation of the airport’s Jeppesen Terminal.

That summer, DIA announced 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 required more than $1 billion to complete.

Up $650 million from the original budget, the documents also claimed that various delays 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.

In September, 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 would 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 showed that the airport had roughly $900 million in liquidity to back up any settlement.

Last month, the DIA announced that it 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 was also 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.

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 began Nov. 6, with hopes that the Denver City Council would complete the process by the end of the year so that construction can restart in Q1 2020.

grandriver / Getty Images

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.

By mid-October, Moody’s estimated that the eventual termination payment for GHP would land between $140 million and $180 million. However, the DIA was also estimated to owe GHP $70 million or more to repay its lenders, bringing the overall cost to between $210 million and $250 million.

At the same time, DIA announced that it selected Jacobs Engineering Group to assess how to manage the project and intended to make Jacobs the terminal’s new program manager as well. In this role, Jacobs will aid other contractors in tracking the schedule, budget, stakeholder concerns and progress.

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

What’s Happening Now

According to the GHP’s document, which was obtained by The Denver Post, the report indicates that the DIA’s management team conducted micromanaging practices regarding the project’s designs and decision-making.

In various examples, GHP recounts a 14-month-long process to finalize restroom designs, the changing of wall designs from laminate to acrylic “solid surface” panels on 200,000 square feet of walls to deciding whether the panels should be seamless or not (an endeavor that took a reported additional four months to finalize).

Additionally, GHP depicts airport leader Kim Day as a meddlesome CEO and the oversight team as too small, arguing that the result of reoccurring indecisions changed already-set designs and blew permit deadlines, ultimately increasing the project costs.

Now, GHP is seeking $288 million for change orders and termination costs, $166.7 million of which was reportedly used for the restroom and wall change orders alone.

“Had the owner put more foresight into the design it ultimately wanted or if the owner had been actively engaged in the change process, the impacts from the change directives may have been different,” said the contracting team’s claim, signed by Great Hall Partners CEO Ignacio Castejon.

Last week, Denver City Council awarded roughly $136 million to a new local project team—Englewood-based LS Gallegos & Associates, Aurora-based Sky Blue Builders and Denver-based Gilmore Construction—and multinational firms Jacobs Engineering and Stantec to complete GHP’s unfinished renovations.

Officials report that work on the project is slated to resume in the terminal early next year when a sixth company, Hensel Phelps, will join the team, accompanied by another major contract. Work is expected to last until sometime in 2024.

   

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

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