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Price of wastewater pond project jumps $1.5M

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Updating and expanding Perham's wastewater treatment facility is going to cost a lot more than anticipated, and residents can expect a rate increase on their utility bills to help make up the difference.

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Engineer's estimates had originally put a price tag of $4.8 million on the planned expansion project, but at a meeting last week, city councilors got some unwelcome news. The lowest bid, made by Magney Construction, Inc. out of Chanhassen, Minn., came in at just over $5.9 million. And it was by far the lowest bid.

When including extra costs in addition to construction, such as an irrigator, engineering and contingency, the grand total of the project is now at well over $6.3 million - a full million and a half more than expected.

City Manager Kelcey Klemm said he's not sure yet exactly how much of a rate increase will be needed, but residents should "expect a small increase for 2013." The city has already adjusted rates in the last couple of years in anticipation of this major project.

Jeremy Anderson, vice president of Design Tree Engineering of Alexandria, Minn., presented Magney Construction's bid, along with three others, to the council last week. He said the original engineer's estimate was low due to a number of factors. The addition of the removal of biosolids, for example, and the change from a spring to a winter project start, were not factored in until recently, and both increased the total cost.

Design Tree did not come up with the original bid, as they joined the project later on in the process. Still, engineers with the company believed $4.8 million was a reasonable estimate.

Anderson admitted that even he was surprised by how high the bids were.

Councilors were not happy about it.

"A million over?" questioned councilor Fred Lemkuhl, speaking strictly of construction costs. "To me, somebody screwed up."

Councilor Harriet Mattfeld agreed: "Somebody goofed. That's all I can say."

The council went ahead and approved the low bid, with the hope that Magney Construction would work with the city and engineers to find some cost-saving opportunities along the way.

To that end, Klemm said in a follow-up interview Monday that at least one change order was already in the works, at an estimated savings of more than $200,000, and other changes were being considered for additional savings.

"We were able to get a schedule of costs from the contractor and we think there are a few things in there that we can probably do without, without compromising the project at all," he said.

Announcing a piece of positive news, Klemm added that the city received word late last week that the Minnesota Public Facilities Authority, or PFA, would be providing a $682,239 Wastewater Infrastructure Fund grant for the project - "so that eases the pain a little," he said.

This grant is in addition to a separate $2.4 million grant that the city has already received for the project, from the U.S. Department of Economic Development Administration.

After these two grants are factored out of the total cost, about $3.3 million is left over. This portion will be financed through a PFA low-interest loan with an approximate interest rate of 1 percent. The project has also qualified for a 30-year term instead of the standard 20-year term, according to Klemm, which will lower the expected debt service payment to about $135,000 per year.

Councilors did for a brief moment consider putting out a second call for bids to see if the responses would differ; however, any new bids would likely be the same as (or more than) the current low bid, Klemm pointed out, unless some major aspects of the project plan were to change, which is not a viable option. The major upgrades and enhancements called for by the current plan are needed in order to fix the odor issue that has plagued the south side of town for the last few years.

Timing is also a factor: the upgrades need to be complete before spring if the odor is to be controlled without extra - and expensive - chemical treatments. The excessive odor coming from the ponds has been a source of complaints - not only around town, but also to the Minnesota Pollution Control Agency.

In addition, the city has already gone through a lengthy process of applying for and being awarded the $2.4 million EDA grant. To delay things now could put that grant money in jeopardy, and that's a risk councilors didn't want to take.

"I don't know that we have an option other than proceeding" with accepting the low bid and moving forward, said councilor James Johnson.

On Monday, Klemm added, "We'll try to trim a few things where we can, and that extra grant, that helps. And then we're getting a low-interest loan... At the end of the day, the project should still be pretty affordable for Perham ratepayers."

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