Supervisors approve first reading of Central Shops relocation despite objections over sole-source contracting

The San Francisco Board of Supervisors on Feb. 2 approved on first reading two ordinances to move forward with the city's Central Shops relocation project, a key step in rebuilding the Southeast Wastewater Treatment Plant.

Supporters said the project was urgent because of failing treatment infrastructure and ongoing odor and safety problems in the Bayview/Hunter's Point neighborhood. Opponents and several supervisors pressed city staff and the Public Utilities Commission for more documentation about why the administration sought to waive competitive bidding and award the design-build delivery to a single team.

The project package presented as items 13 and 14 asked the board to: (1) authorize the director of real estate to execute a project delivery agreement with Oryx Development (and named architect and general contractor) to design and construct improvements at 555 Selby Street, 1975 Galvez Avenue and 450 Tolland Street with a total anticipated project delivery cost of $55,000,000 and to waive certain administrative code contracting requirements; and (2) appropriate a $62,200,000 transfer from the San Francisco Public Utilities Commission wastewater enterprise fund to implement the Central Shops relocation in fiscal years 2015'16 and 2016'17 and place $45,000,000 on a budget reserve.

Supervisor Mark Farrell and Supervisor Jane Kim, among others, said they supported the goal of rebuilding the wastewater facility but could not support waiving competitive bidding without clearer justification and more documented market outreach. Supervisor London Breed also voiced reservations during the discussion. Supervisor Malia Cohen, who sponsored the ordinances on the board floor, said delay would further harm community residents and that moving the project forward was necessary to reduce odors and environmental injustice affecting the Southeast neighborhood.

Harlan Kelly, general manager of the San Francisco Public Utilities Commission, told supervisors the Central Shops site the commission occupies had been acquired with wastewater bonds but not formally transferred into PUC enterprise ownership during earlier reorganizations. Kelly said the selected configuration keeps jobs and services in the neighborhood while allowing the PUC to rebuild digesters away from adjacent housing. Kelly said the particular parcels at issue became available about six months earlier and that waiting to complete a traditional competitive design-bid-build procurement could increase escalation costs and tack on years of delay.

John Updike (recorded in the transcript with variant spellings), director of the city's real estate office, described an expedited delivery approach that relied on a broker (Cushman & Wakefield) to identify a developer/contractor team with the capacity to proceed quickly in an active market. Updike said the city engaged Oryx Development, Charles Pankow Builders Ltd. (general contractor) and FME Architecture as a team that could proceed rapidly, and that staff cross-checked fee levels and market capacity with other large Bay Area firms. Updike and PUC staff said CEQA clearance for the project occurred on Oct. 28, and that design was still at roughly 15% when staff sought board authority.

Several supervisors asked whether other firms had been asked in writing to confirm they were unable to take on the work; staff said they conducted confidential market checks and had informal conversations with about six large firms believed to have the financial capacity, but did not present written declinations. Supervisor Aaron Peskin and others called the process problematic and said the department should not rely on brokers to pick teams without a public procurement. Supervisor John Avalos asked how the sole-source team was chosen and requested proof that the city had sought alternatives.

Developers who spoke to the board said the Oryx team members live and work in the Bay Area, that the project company for the transaction was formed as an out-of-state LLC for common business reasons, and that the general contractor and architect have relevant local experience. Juan Carlos Wallace of Oryx told the board the firm had built and managed local projects and that the firm's principals had decades of Bay Area experience. Board members pressed the applicant and staff on whether the lead developer itself had direct experience delivering design-build projects of this scale and on safeguards to prevent swaps of key personnel.

Budget and Legislative Analyst staff advised the board that the proposed waiver of Chapter 6 competitive requirements raised policy questions because the argument that "delay causes escalation" could be made for any major city project. BLA staff noted their review found staff had identified limited options given the constrained market and schedule.

Supporters pointed to an estimated cost of escalation to ratepayers if the project were delayed and noted that the PUC has spent emergency repair funds on critical biosolids facilities. Opponents pointed to the board's role in overseeing public contracting and asked for more transparency about broker involvement, market outreach and the decision to request a waiver of competitive bidding.

Without further changes the two ordinances were approved on first reading; the project will return to the board for subsequent hearings required by the municipal code. The record shows extensive board questioning and requests for follow-up documentation; several supervisors recorded votes against the waivers even while supporting removal of odors and other improvements at the Southeastern plant.

Ending: Staff and the PUC were asked repeatedly to provide to the board, in writing, the market outreach that led to the sole-source request, a list of firms contacted and any written responses, and further detail on the accounting/ownership status of the properties involved. The board also flagged the matter for additional oversight and follow-up in committee and in subsequent ordinance hearings.