PUC votes to ask Board of Supervisors to cap consultant indemnity for Calaveras Dam construction‑management contract

The San Francisco Public Utilities Commission voted on March 9, 2010 to request that the Board of Supervisors approve a limit on consultant indemnification for the proposed construction‑management services agreement (CS911R) for the Calaveras Dam replacement project.

Harlan Kelly, assistant general manager for infrastructure, and Dan Wade, Calaveras project manager, said construction‑management firms have raised concerns about uncapped third‑party liability and that a fixed cap would broaden the pool of qualified bidders for this large, complex tunneling and dam project. Staff proposed a cap equal to roughly twice the value of the construction‑management fee (the draft cap discussed in the hearing was about $75,000,000), with explicit carve‑outs that would preserve owner remedy for gross negligence or willful misconduct.

Matt Hansen from the City Administrator’s Risk Management Division and Dan Wade briefed the commission on industry comparables, including San Diego County and a Midwest municipal power consortium that used caps plus owner‑supplied insurance (OSIP) to distribute risk. City staff said the general contractor and design professionals would remain subject to different indemnity structures: the construction contractor would be asked to carry large general‑liability limits (staff said they expected $100 million or more) and a performance bond that would include a 10‑year latent‑defect warranty; design professionals would continue to face professional‑liability exposure tied to insurance limits.

Commissioners pressed staff on alternatives, asking whether owner‑supplied insurance, higher performance bonds, or different indemnity language would change the risk profile. City Attorney George Wong explained that construction contracts typically include broad indemnity language that can make a contractor responsible notwithstanding the owner’s partial fault; staff and the city attorney described the proposed cap as a calibrated procurement choice intended to attract experienced firms while preserving key protections (insurance, bond, and exclusion for gross negligence).

Several commissioners expressed concern about removing a source of potential recovery in a catastrophic event, and asked whether the city would be left with insufficient recourse if the capped party failed or had limited insurance. Staff responded that in practice large contractors carry substantial insurance and performance bonds, that a consultant liable for the cap would likely be insolvent if hit for the full amount, and that the design‑contract and contractor insurance/bond structure are the Commission’s primary safeguards.

After extended debate, the Commission voted to authorize the general manager to request the Board of Supervisors approve the proposed limit on indemnification liability for the construction‑management consultant for the Calaveras project. Staff said the action does not commit the Commission to proceed with the Calaveras project itself; it only sets procurement terms to enable a viable RFP process and receipt of proposals.