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Denver Airport Official Talks Developer Debacle

Wednesday, March 4, 2020

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The CEO for the Denver International Airport, Kim Day, has done an about-face in a recent “mea culpa” detailing all of the missteps in the massive Denver International Airport’s now $770 million renovation.

Day reportedly told Denver City Council members in multiple recent closed-door meetings that the deal was flawed before work even got off the ground citing a “bad contract” with developer Great Hall Partners.

Project Saga

In November 2017, the 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 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 CEO for the Denver International Airport, Kim Day, has done an about-face in a recent “mea culpa” detailing all of the missteps in the massive Denver International Airport’s now $770 million 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.

Contracts

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 claimed 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.

In October, Day presented a revised renovation budget totaling $770 million, which included the original budget and a $120 million contingency.

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 was 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.

Then, in October, the  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.

Andy445 / Getty Images

Day reportedly told Denver City Council members in multiple recent closed-door meetings that the deal was flawed before work even got off the ground citing a “bad contract” with developer Great Hall Partners.

In addition, 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. Those contracts totaled about $136 million.

Hensel Phelps is now clear to restart construction this month, and will begin by finishing the project’s first phase, which includes finishing an expansion of upper-level balconies and construction of new airline check-in pods, bathrooms and escalators.

The end of the first phase is now slated to be complete in 2021. It was originally supposed to be finished last summer, but GHP only finished about 25% of the work.

The project’s full completion is now looking likely in 2024, according to The Denver Post.

What Now

“I take full responsibility,” Day told council members, according to CBS 4 Denver.

She reportedly listed several areas in which the DIA fell short, including:

  • The project’s feasibility study was ill-conceived and poorly structured;
  • The contract for the project was also poorly constructed, lacking details in costs schedules;
  • GHP reportedly based its cost estimates on low-quality materials that had to be upgraded, increasing the costs of the project;
  • The DIA had no way to track the construction progress;
  • The team took too long to make decisions and were not “technically knowledgeable”;
  • The project was also slowed by a “level of complexity that was simply too much for a traditional permitting and inspection process”;
  • GHP was not held accountable and was reluctant to make changes; and
  • DIA administrators should have acted faster when it was clear things weren’t changing.

The council meetings were reportedly held as a way to lay out the missteps in an attempt to building a foundation of how to manage projects differently in the future.

The DIA and GHP are still reportedly negotiating breakage fees, though several reports indicate that talks are near completion and that the airport will reportedly pay more than $20 million to the developer for breaking the contract.

   

Tagged categories: Airports; Contract awards; Contracts; Maintenance + Renovation; NA; North America; Ongoing projects; Renovation; Terminals

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