FROM THE GROUND UP: CONSTRUCTING OR RECONSTRUCTING A MODERN FIREHOUSE
FIREHOUSE CONSTRUCTION
Part four in a series.
Once you plan the layout and design of your new fire station, then you must consider how much it will cost and how you are going to pay for it. There are a number of ways to pay for such a large capital project. Each fire department operates under its own legally established funding procedures.
FUNDING OPTIONS
Private company. A private fire company has the least restrictions on how it can raise funds. However, on the down side, a private company usually has access to much less money than a municipal district does. Basically, it has three options.
The first option is obtaining a mortgage loan from a bank or other lending institution, just as any other private company would to undertake a capital construction project. Some banks, however, are not too receptive to this procedure. There is some concern that such a loan represents a high risk to the bank, since foreclosing on the mortgage is of little use to the bank. The fire station cannot in any practical terms be used by anyone other than the fire company occupying it, and therefore the bank cannot use it to recoup any losses. However, the average fire company, in business for many years, is highly unlikely to default on the loan.
The second option, and most economical way to finance the construction, is to save your money. This is no small task, of course, when such projects run $500,000 to $4 million, but it has been done, and the interest saved by not borrowing the money amounts to a very considerable sum. It takes a lot of planning, foresight, determination, and economizing for a number of years, but it is definitely worth looking into.
The third option is to have the municipality or municipalities served construct the fire station and lease it back to the fire company. This creates no drain on the limited resources of the fire company and places responsibility for the fire station directly on the public served. The terms of such a lease arrangement, however, are usually very difficult to arrange to everybody’s satisfaction. The municipal government does not want to appear to give away a bonanza to the fire company for no reciprocal service. On the other hand, the fire company quite rightly should consider the possibility, however remote, that sometime down the road it could be thrown out of the fire station and replaced by another fire company organized by the municipality. In some cases the municipality and the fire company disagree so much on the project that, on its completion, the fire company refuses to move into it. All in all, look at this sort of arrangement very, very carefully before entering into it.
Fire district. An independent fire district with its own taxing authority as an autonomous branch of government has access to direct taxpayer payment to fund a capital project.
This is usually organized through the use of a bond issue—that is, taxpayers are asked to allow the fire district to sell in the open market municipal bonds that are bought by investors under the guarantee that interest payments will be made to them directly from taxes collected by the fire district. This is the normal system for funding all government construction in the United States.
The problem here, of course, is obtaining taxpayer approval for suchra large expenditure of money. Generally, over the years, the public has proven quite willing to pay for proper, reasonable expenditures for fire protection as long as they are assured that the facility is necessary and that the money is being spent wisely. As long as there is agreement among the fire district, firefighters, and related community service organizations that the facility is needed, in most cases the public will approve the asked-for bond issue. If there is disagreement within the fire department as to the need for or type of such a project, however, it is almost a sure bet that the bond issue will be defeated. Therefore, it is most important that agreement on need be reached before the bond issue is offered to the public. When the bond issue is set for voting, it is usually helpful to mail out a flier describing what you are proposing and its costs. When deciding and organizing the bond issue, it is almost required that you consult with a municipal bond attorney, who organizes such issues and will be able to tell you the relative costs involved and steps to take.
Independent fire districts also can finance construction of their fire stations through savings. However, they must take care to observe all proper legal steps so the fire district is not accused of maintaining a slush fund of exorbitant proportions for unnecessary frills.
Municipal department. A municipal fire department—one directly responsible to a village or city government—usually will have its capital projects funded out of the municipal budget. The same rules and regulations usually apply as with an independent fire district, although in this case the financial branch of the government rather than the fire department itself actually organizes the funding of the construction.
PROJECT CASH FLOW
Once you arrange financing and have your money in hand, the next step is spending it. It will probably not be spent in one lump sum. Payments for such a construction project are spread out over the entire period of construction so the department does not pay for more work than the contractors have completed.
Over the term of the project the contractors will submit requisitions, usually on a monthly basis. The requisition indicates how much of the project the contractor claims to have completed to date. The architect will review each requisition as submitted and certify to you the amount he feels the contractor is entitled to, indicating where he disagrees with the contractor’s requisition. The architect makes these decisions based on a schedule of values or cost breakdown, which the contractor submits at the beginning of the project.
From each requisition a certain amount—a retainage —is withheld until completion of the project to assure that all work indicated in the requisitions has been completed. This amount will vary, sometimes dictated by municipal laws, but is usually in the range of 2 to 10 percent.
The total cash flow for the construction of a fire station consists of the amounts each contractor requisitions on a monthly basis. You then can decide how much money to retain for direct payments and how much to invest in secondary investments, short-term notes, bonds, and so on in order to raise additional funds.
BIDDING
Once financing is in place, the next step is building: You must hire contractors to execute the construction. While common sense dictates pricing a number of different contractors before selecting one to build the fire station, in many areas it is a legal requirement. Municipal law in the United States generally requires open public bidding in an attempt to assure that public monies are spent in an open, honest, and efficient way. While public bidding usually is not required for a private fire company, it still makes good sense to obtain more than one bid.
Let’s look at some of the arrangements, concepts, and devices that have arisen over the years in construction bidding to protect both the owner and the contractor.
Contractor. The contractor is an individual or a company that contracts with the owner of the proposed building to furnish labor and materials to build all or a portion of the project. The principal contractors on a project such as a fire station, usually known as the prime contractors, will in fact not do all of the work themselves. They in turn will retain the services of additional specialty or subcontractors to finish specific portions of the project. The steel fabricator, the mason, the sheetrock contractor, and the painting contractor are examples of the typical subcontractors who will play a part in the construction process.
Remember, however, that the owner only has a contractual arrangement with the prime contractor and has little or no legal authority to direct or control the subcontractors. This obviously can lead to difficulties in obtaining the quality work the owner thinks he has contracted for. In order to control this situation, contracts often are written to limit the amount of subcontracting permitted to onethird or one-half of the total contract.
In many states the law requires that contracts for municipal construction be let to more than one prime contractor. In New York state, for example, this type of construction must be let out in four separate, distinct contracts: general construction, plumbing, heating, and electrical. In New Jersey, on the other hand, a fifth contractor for structural steel is added, but the municipality does have the option to let the contract to one single contractor instead. This arrangement was arrived at over the years to prevent a few large contractors from controlling all the municipal construction in a locality and to open up the construction industry, allowing for freer competition and lessening the chances of collusion and inflated bidding.
The multiple contract system does, no doubt, achieve its objectives. However, the administration problems that occur between four separate contractors and the owner often are of such proportion that they increase costs and disagreements and make you question the wisdom of multiple contracts.
Bidder. A bidder is a contractor who offers his services to an owner for the construction of a project. Bidding can be open, free to anyone who wishes to make a bid, or closed, limited to a select list of prequalified bidders.
Open bidding is usually required for any municipal construction in order to lessen the chances of unethical conduct. Some sort of advertisement or “legal notice” is published in the newspapers and trade publications that defines the nature of the project; the contracts to be awarded; date, time, and place to pick up the bid documents; and date, time, and place to return the bids. For a $ 1 million to $2 million fire station with multiple contracts, it is not unusual to see this kind of advertising draw 50 or 60 bidders.
Private bidding, on the other hand, is limited to a list of contractors known to have successfully completed similar work. Usually this list is somewhere between three and 10 bidders.
Bid bond. A bid bond is an attempt to guarantee that the low bidder on a project will in fact perform the contract for the terms of his submitted bid. Until a contract is signed, there is of course nothing binding the contractor to do what he says he is going to do. The bid bond is an amount of money, generally five percent of the contract, guaranteed by a bonding or insurance company, which the bidder will forfeit if he does not live up to the terms of his bid.
Labor, material, and performance bonds. These are similarly guaranteeing documents, underwritten by a bonding or insurance company, that guarantee that once the contract is signed it will be completed. If the contractor fails to complete his contract, the bonding company is responsible for its completion. Try to avoid this option, since it adds substantial delay to the project; if it’s unavoidable, it does protect the owner from a substantial loss.
References. References are usually part of the bid package. The bidder is required to furnish a list of previous clients who can verify that he has performed projects of a similar nature in the past. Obviously the bidders will list only successfully completed jobs and not those plagued with problems. Or, such owners will deny problems existed for fear of legal repercussions. In general, however, you and your architect will be able to get a feel for a contractor’s previous performance both from what is and what isn’t said about his work.
Time of completion. The time taken to complete the building often is a concern, for reasons ranging from when to plan the arrival of fire apparatus to the fact that you do not want to waste time and resources. A time of completion can be given as part of the bid documents. The bidders also can tell you how long they intend to take to build the fire station.
What happens if the contractor does not complete the project within the allotted time? It may not be the contractor’s fault. Severe weather, labor strikes, interference from an outside party, or even the owner’s indecision and changes may be the cause. If it is indeed the contractor’s fault, you have two options. One is including a penalty clause in the contract: The contractor is assessed a penalty for extending the contract beyond the specified completion date. In many states, however, a bonus clause must accompany a penalty clause, and you must award the contractor a bonus for completing the project early. The other option is a liquidated damages clause, which states that the contractor must compensate the owners for damages they sustained due to his inability to complete the project on time. This does not require an accompanying bonus cause, but it is often difficult to ascertain a specific amount of damages. This is commonly set at SI00 to S500 per day of additional time taken.
Addenda. During the period allotted for the bidders to review the bid documents and come up with their proposals, questions of course will arise. No set of documents can be expected to answer every possible question of 30 to 60 bidders. When they do ask, your architect must provide answers to all the bidders to avoid repetition. These clarifications and modifications of the bid documents are issued as addenda prior to bidding. Bidding law often states that addenda must be issued at least seven days prior to receipt of bids.
Plan deposits. In the case of public bidding, while the bids must be open and freely available, in practical terms it is in the best interest of the owners to restrict the distribution of these plans to only serious bidders. Frivolous bidders, subcontractors who want their own sets of plans, and so on only cause confusion and additional work on the part of the owners. It is common practice, therefore, to require a deposit of S50 to S200 for a set of plans. The deposit usually is returned in full to those who submit a legitimate bid and return the plans to the owners. If no bid is received, the deposit is forfeited.
Affidavits. In certain states the bidders are required to submit affidavits indicating that they are aware of and that they will comply with certain aspects of the law, such as payment of mandated wage rates and equal opportunity employment. In addition, a “noncollusion affidavit” certifying that no collusion or rigging of bids has J occurred may be required.
Time of bid. A specific time is set for receipt and opening of the bids, whether public or private. In the case of public bidding, of course, this time must be strictly adhered to and any bids received late cannot be opened.
Base bid and alternates. The bid price usually is submitted in the form of a base bid with or without alternates. The base bid is one lump sum price to execute the contract as specified. Alternates are additions or deductions to the base bid for adding or omitting some portion of the work. Alternates are used for items that are not absolutely necessary to the project and that can be left out if necessary to bring the bids within the budget. The owner has the option to accept the base bid with or without all or some of the alternates in order to best utilize available funds. Selection of alternates may change the ranking of the bidders.
Unit prices. Sometimes your architect will be unable to determine in advance the actual amount of work required from the contractors. This most often occurs in the renovation of old buildings or in unusual soil conditions, where no one will really know the work involved until demolition or excavation is begun. In such cases, in order to be fair to all parties it is wise to require the bidders to submit unit prices for any work more or less than the amount indicated on the plans. For example, the plans may call for 300 cubic yards of concrete. The contractor gives a unit price of 5200 per cubic yard. If 340 cubic yards are required, the contractor is payed an additional 58,000. If only 280 cubic yards are used, the contract is reduced by 54,000 less an allowance for the contractor’s overhead, which he incurs in any event.
After the receipt and opening of bids, which, with 54 million at stake, is quite a tense moment, the next step is the analysis and awarding of the contract to the successful bidders, which we’ll discuss in the next article in this series.
