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Middle Harbor Project Is Over Budget By $29.5 Million

Port Official Says Further Increases May Be Likely

By Samantha Mehlinger - Staff Writer

August 13, 2013 – The Middle Harbor project at the Port of Long Beach is over budget by $29.5 million as of June 17, and its program manager, Tom Baldwin, anticipates the cost may go even higher.

The budget originally approved by the Long Beach Board of Harbor Commissioners in January of this year was for $1.2 billion, and included $50 million for “escalation” costs. At press time, the Business Journal could not confirm if the escalation amount is similar to a contingency included in most construction contracts, and if so, if the $50 million had also been spent.

According to the port, the project is combining two older terminals into one of the most technology-advanced green facilities in the world. When completed, it is expected to double capacity while supporting upwards of 14,000 jobs.

Port Middle Harbor Project

Middle Harbor project – January 2013 photograph by the Business Journal’s Thomas McConville

The document outlining the increase stated that the additional spending was necessitated [usually covered by a contingency] by “unforeseen obstructions” and “higher than anticipated material and labor costs” for the relocation of OXY Long Beach, Inc.’s oil field facilities required by the Middle Harbor improvements. Oxy Long Beach is a division of Occidental Petroleum Corporation.

Additionally, “substantial damage” was incurred to an OXY oil set aside area, an oil facility meant to remain untouched by redevelopment projects.

Within the $29.5 million authorized expenditure, $23.7 million was approved for the additional costs related to high labor and material costs, as well as unforeseen obstructions.

Baldwin told the Business Journal these costs were underestimated because, “They have a very specific type of pipe they need to procure for the oil operations. And they were having difficulty finding approved manufacturers for that pipe. What ended up happening is they had to pay a premium for the approved manufacturers [for the pipe],” which, Baldwin noted, may partially be because the port asked them to accelerate the process.

In terms of labor, he said, “I heard that during this time, there was a shortage of welders due to work that was also going on within the region, so they ended up having to pay a premium in order to find welders to work on this project.”

The “unforeseen obstructions” OXY came across in relocating its oilfield operations were found underground, Baldwin explained. “[Obstructions included] electrical duct banks, underground storm drain or sewer, those types of items.”

The remaining $5.8 million is allocated for repairs to an OXY oil set aside area damaged by a contractor working on an adjacent retaining wall for the Middle Harbor project.

“As far as damages during the work, the contractor had caused some settlement of the ground in that area and that basically required the oil field to stop their pumping operations and to re-level their facilities in order for them to start pumping again,” Baldwin said.

The harbor commissioners previously approved spending in the amount of $143,389,365 for Middle Harbor oilfield work, under which OXY’s relocation efforts were funded. As of June 1, $132,833,060 of that had been expended. Approving the additional $29.5 million for OXY’s relocation efforts brings the total budget for oilfield work related to the Middle Harbor project to $172,889,365.

However, the document estimates it will cost a total of $198,200,000 to complete all oilfield relocation and removals, meaning further increases in the Middle Harbor program budget may be necessary.

More project budget increases may have to be approved in the future, Baldwin speculated. “I think the likelihood is that we will have to raise the budget again to account for changes that could come up in the future,” he stated. “Right now, we are seeing some issues that could contribute to the likelihood of that happening on some of the projects we are working on.”

One such example is underground obstructions. Baldwin explained that after subsidence (the sinking of land that occurs when oil is pumped out of the ground) of 20 to 30 feet that occurred decades ago, developers haphazardly tried to fix it. “Now we are running into all of these abandoned utilities that were just left in place after the area subsided,” he said.

A proposed contract amendment for construction management services for Middle Harbor for an additional $9,400,000 is up for a vote at the harbor commission meeting on August 19. The professional services contract is with Arcadis.

“As we get a better understanding of the overall impacts, we will make a determination on whether or not we will need to increase the budget,” Baldwin said, noting that some projects within Middle Harbor have come in under budget, and may be able to absorb some additional costs.