A contract agreement believed to be new to North America's underground-construction business has been successfully used for a large water main project in Somerset County, N.J. The Target Price/Cost Reimbursable Contract fosters teamwork by providing incentives for both the utility and the contractor to achieve time and cost targets.

In December 2000, utility operator Elizabethtown Water was bought by Thames Water, a British firm with some 42 million customers worldwide. Drawing on his previous experience with Thames Water, David Thomas, Elizabethtown Water's director-Capital Program, decided to implement the targeted contract arrangement.

The project involved the installation — at a depth of up to 20 feet — of 17,000 feet of mostly 72-in. pipeline comprising 1,100 pieces provided by Sommerville, N.J.-based Vianini Pipe Co. On a tight schedule and restricted budget, the water mains were threaded through congested streets in Bound Brook and Franklin Township. Upon completion of the project, the contract was credited with fostering teamwork, high productivity and considerable cost savings.

SPINIELLO COMPANIES WINS BID

According to Thomas, Elizabethtown Water was looking “not only at financial considerations but for the best project approach.” Each of seven contractors selected discussed project scheduling as well as plant, labor and material rates, markups, and a “target cost.” At the end of a rigorous process, the contract was awarded to Morristown-based Spiniello Companies, bringing to the project more than 75 years' experience in heavy construction and 50 years in pipeline rehabilitation.

Elizabethtown Water, Spiniello, and Killam Associates, the engineering consultants, elected to share a common office on-site, allowing changes, drawings and decisions to be executed immediately. “The time we saved alone yielded major cost savings,” explains Spiniello President Gary Stivaly. “On-site engineers went right to the drawing board, filing their record drawings quickly as the job proceeded.”

Spiniello Vice President and Director of Field Operations Robert De Ponte also concurred with arrangement. “All the high-level decision-makers and project managers worked together, often in the same room,” he notes. “A decision that might have taken weeks of letter writing elsewhere was frequently made here in 10 minutes.”

CASH FLOW

Under the Target Price/Cost Reimbursable Contract, the contractor is never in the position of bankrolling huge portions of the project. Instead, each month Spiniello Companies submitted detailed proof of the previous month's expenses along with an estimate of the costs they expected to incur in the coming month. Elizabethtown Water then reimbursed the contractor for costs, plus a markup for overhead and profit. In subsequent months, previous estimates were “trued up” with actual costs. Receiving prompt and regular payment for a significant outlay of product, including primarily 72-in. pipe, supplier Vianini also benefitted from the contract agreement.

By late last year, the project was reportedly moving so well that the utility decided to expand the project to address additional work: 45,000 ft. of smaller water main that intersected the new pipeline. The Spiniello team, highly experienced in rehabilitation, cleaned out the tuberculation built up over the years and applied a 3/16-in. concrete mortar lining (CML) within the pipes to improve efficiency, flow and water quality. Spiniello's Chuck Garbe reports that CML pipe rehabilitation offers cost savings of 40-60 percent over pipe replacement.

Overall, the project was deemed a success. Following installation and rehabilitation where needed, the pipelines are now in use. Since everything was finished on time, the utility and the contractor shared equally in total cost savings: a full 3.3 percent saving on the construction, and 10.7 percent on the cleaning and lining work.

At Spiniello, Stivaly notes, “The level of partnering was unique in our experience. We made several suggestions about installation methods, and the owner and engineers were receptive. In general, we had no real disputes, problems tended to be solved quickly, and considerable savings were realized.”

Adds Elizabethtown Water's Thomas, “We believe that this open and cooperative approach could be applied to all manner of utility construction, resulting in less confrontation and significant savings to the utility industry.”