HomeMy WebLinkAboutStaff Report 2609-6719CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, September 14, 2026
Council Chambers & Hybrid
5:30 PM
Agenda Item
AA1.Approval of Increase of Construction Contingency for Contract No. C211781123B with
Swinerton Builders in the Amount Not-to-Exceed $7,374,367 and Amendment to the
Fiscal Year 2027 Budget Appropriation for the Capital Improvement Fund for the New
Public Safety Building Capital Improvement Program Project (PE-15001), to Support a
Settlement Agreement With Swinerton Builders; CEQA Status – Environmental Impact
Report for the New Public Safety Building and New California Avenue Area Parking
Garage (Resolution No. 9772) New Item Added
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Public Works
Meeting Date: September 14, 2026
Report #:2609-6719
TITLE
Approval of Increase of Construction Contingency for Contract No. C211781123B with
Swinerton Builders in the Amount Not-to-Exceed $7,374,367 and Amendment to the Fiscal Year
2027 Budget Appropriation for the Capital Improvement Fund for the New Public Safety
Building Capital Improvement Program Project (PE-15001), to Support a Settlement Agreement
With Swinerton Builders; CEQA Status – Environmental Impact Report for the New Public Safety
Building and New California Avenue Area Parking Garage (Resolution No. 9772)
RECOMMENDATION
Staff recommends that the City Council:
1. Approve an increase of construction contingency for Contract No. C21178123B with
Swinerton Builders in the amount of $7,374,367 for a total contract contingency amount
of $20,767,167; and
2. Amend the Fiscal Year 2027 Budget Appropriation for the Capital Improvement Fund by
(requires a 2/3 vote):
a. Decreasing the Infrastructure Plan Reserve by $3,600,000;
b. Decreasing the Capital Fund Infrastructure Reserve by $2,599,367; and
c. Increase the New Public Safety Building project (PE-15001) appropriation by
$6,199,367.
EXECUTIVE SUMMARY
This report outlines key aspects of the City’s settlement with Swinerton Builders resolving the
Public Safety Building construction dispute. Also addressed are ongoing best practices
enhancements for City construction projects. The Public Safety Building is now operational with
Police, Fire administration, Office of Emergency Services work groups, and 911 Dispatch set to
switchover operations by October 1.
The settlement terms include City payment of $8 million and Swinerton having now completed
work on critical building systems that was preventing full-building occupancy and move-in.
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Additionally, Swinerton will dismiss their arbitration filing, release all claims, and extend
warranties of certain building systems.
BACKGROUND
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The initial contractual date for substantial completion was July 29, 2023. Over the course of the
project, there were over 1,000 Change Order Requests submitted by the contractor, many of
which resulted in Contract Change Orders that increased the contract amount. City Council
previously approved three increases to the authorized construction contingency, adding a total
of $5,000,000 to the initial contingency of $8,392,800. The approved Change Orders extended
the substantial completion date to September 29, 2023, and delays by Swinerton in completing
project work extended completion into 2026.
On July 31, 2026, Public Works accepted the project as complete, and a Notice of Completion
was filed with Santa Clara County Recorder’s Office on August 5, 2026. Phase 2 of the PSB
move-in began on August 18 and was completed on August 27. As of August 27, 2026, all public
1 City Council, February 1, 2021; Agenda Item #3, SR #11752
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=81421&dbid=0&repo=PaloAlto&cr=1
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safety workgroups except Dispatch are operational at the PSB, with Dispatch switchover
planned by October 1, 2026.
ANALYSIS
City payment of $8 million settlement amount
Swinerton agreement to complete work on the detention area smoke control system,
fume hood certification and emergency generator work that was preventing full building
occupancy and move-in of all public safety departments (completed)
Extended warranties of those three systems through July 31, 2027
Swinerton dismissal of arbitration filed against the City of Palo Alto
Release of all claims by Swinerton
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while adding about 6% to the total cost of the PSB project, was determined to be prudent to
resolve the dispute with Swinerton and avoid the risk of a potential significant arbitration
decision in Swinerton’s favor.
Implementing a policy to require formal partnering on major construction projects
citywide. Partnering is a process through which the construction contractor, City staff,
and design team commit to building effective relationships at multiple levels in the
respective organizations, allowing for more effective flagging and resolution of issues
before they become significant. Partnering has been used in the past on City projects
and is currently used with construction of Fire Station #4, so a formal City policy will
ensure application in the future.
Early escalation and engagement with contractor’s regional management to discuss
project issues and potential solutions. This item would be facilitated by the partnering
process where applicable but may also be applicable to smaller projects.
Inclusion in the policy referenced above of additional constructability review by a third-
party contractor and/or architect for internal consistency, completeness of plans and
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constructability of details. The Fire Station #4 plans were reviewed by a third-party
contractor.
Organizing construction team resources to allow capacity to expedite review of change
order requests to avoid potential delays. Review of change order requests is justifiably
focused on ensuring entitlement and fair costs for any approved change orders, but the
resources involved in the reviews when there are large amounts of change order
requests, as on the PSB project, can delay work progress. Staff has taken this approach
on the Fire Station #4 project.
Reviewing insurance requirements for errors and admissions for design professionals to
scale based on size of project. City requirements are currently uniform regardless of the
size of the project.
Evaluating major projects for applicability of alternatives to design-bid-build project
delivery, such as design-build or construction manager at risk, or progressive design-
build. Alternatives to design-bid-build can shift the liability for design issues away from
the City and lead to a more collaborative relationship between the construction, design,
and City teams. It can also increase costs and in some instances limit flexibility to
respond to changing needs or community concerns.
Reviewing City liabilities introduced by current Public Contracting Code and professional
liability statutes, and consider advocating for any potential legislative solutions
identified.
Staff has already incorporated the first three bullets into the Fire Station #4 project and will
continue to implement lessons learned on future projects.
FISCAL/RESOURCE IMPACT
The settlement payment to Swinerton under the agreement is $8 million. Staff recommends
increasing the Fiscal Year 2027 budget appropriation for the New Public Safety Building project
(PE-15001) by $6,199,367, of which $3,600,000 will be funded by the Infrastructure Plan
Reserve and $2,599,367 will be funded by the Capital Fund Infrastructure Reserve. The
Infrastructure Plan Reserve is intended to fund increased costs on the 2014 Council
Infrastructure Plan projects, and the use of $3,600,000 from the reserve leaves $1,200,000
available for the upcoming Downtown Parking Garage project. The remaining $1,800,633
needed for the settlement payment is available in the project as contract savings or unspent
construction contingency. The revised project budget for the PSB (excluding salary and benefits)
will total $128,831,431.
STAKEHOLDER ENGAGEMENT
Public Works has coordinated with key staff from departments involved with the PSB.
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ENVIRONMENTAL REVIEW
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APPROVED BY:
3 Resolution 9772
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=54175&dbid=0&repo=PaloAlto&searchid=cae46e6d
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