ENR New York's 2010 Owner of the Year: New York City Department of Environmental Protection

The New York City Department of Environmental Protection is finding itself in a unique situation these days.

With more than $11 billion in active construction contracts and another $3-plus billion in planning and design – with $14.6 billion more on the way in the form of a new 10-year Capital Plan – the DEP has become one of the most important owner-developers in the tri-state area, especially with most private sector building still frozen in place.

The New York City Department of Environmental Protection is finding itself in a unique situation these days.

With more than $11 billion in active construction contracts and another $3-plus billion in planning and design – with $14.6 billion more on the way in the form of a new 10-year Capital Plan – the DEP has become one of the most important owner-developers in the tri-state area, especially with most private sector building still frozen in place.

“Through this down economy we’ve still managed to put out a couple billion dollars worth of work or more a year,” says James Mueller, the DEP’s deputy commissioner of the Bureau of Engineering and Design. It’s diverse work, some of it’s large, some of it’s small, it covers a lot of different contractors and employs a lot of people. I think people take notice of that.”

The DEP is putting thousands of construction workers on job sites at a time when there aren’t many jobs to go around which has helped to raise its profile with an industry whose dealings with the department have been frosty, at times, in the past.

“When you’re looking at 30, 40, 50% unemployment [in the construction industry], you can’t help but consider an owner like the DEP a desired owner, maybe one of the most desired owners,” said one industry insider who represents several firms that work on DEP projects. “Has it always been that way? No. But they’re making great strides in a lot of areas and they’re keeping a lot of our [workers] busy. That goes a long way with a lot of people.”

DEP officials are aware they haven’t always had the best reputation throughout the industry. For years they were viewed as a lumbering bureaucracy that was slow to pay its bills, slower to clear change orders and often lacking in clear directions for the contractors it employed. But over the last couple of years the department, which is responsible for managing the water supply for all of New York City, has begun taking calculated steps to improve their standing with the construction industry and it appears to be working.

Over the last couple of years the DEP has spent considerable time re-evaluating its business practices and implementing several new strategies while the department’s young, new commissioner, Caswell F. Holloway, who was appointed by Mayor Michael Bloomberg in November of last year before taking over in January 2010, has made improved relations with contractors one of his biggest priorities and has

“There was definitely a perception out there that the DEP could be difficult to work for,” says Caswell F. Holloway, who was appointed DEP Commissioner in 2009 by Mayor Michael Bloomberg. “I think there’s been a lot done to improve that.”

And all the while, there has been work. And lots of it.

The mammoth capital program includes four in-the-ground projects that are being looked at by those within the department as “legacy jobs:” the $6 billion City Tunnel No. 3, which spans 60 miles at depths reaching 800 ft intended to allow, for the first time, inspection and repair of the city’s original two water conveyance tunnels, built in...

...1917 and 1936, respectively; the $4 Billion Newtown Creek Wastewater Treatment plant expansion in Greenpoint, which will raise the capacity of what is already the city’s largest wastewater treatment plant to 700 mgd during wet weather storms; the $2.8 billion Croton Water Filtration Plant, which employs more than 1,000 workers a day and will culminate in a 290-million-gallon-per-day facility built 100 ft below grade in just 51 months; and the $1.4 billion, 160,000-sq-ft Catskill-Delaware Ultra-violet Disinfection plant, which, when completed will be 10 times the size of any similar facility previously built.

“Through this down economy we’ve still managed to put out a couple billion dollars worth of work or more a year. It’s diverse work, some of it’s large, some of it’s small, it covers a lot of different contractors and employs a lot of people. I think people take notice of that.”

“If you take just our major projects, the amount of work that we have going on right now is much more than City Water Tunnel No. 1 and City Water Tunnel No. 2 combined,” says Holloway. The good side of that is that we’re doing a lot of work and we’re an economic driver. In an economic picture that is improving but still isn’t looking so great, you could look at the DEP as a bright spot for the simple reason that we’re doing work.”

New York Construction recently sat down with Holloway and a team of his senior staff members – Mueller, Michael Borsykowsky, assistant commissioner for engineering management; Kathryn Mallon, assistant commissioner for in-house design and support; and Bernard Daly, executive construction manager on the Croton plant – to discuss the meaning of being named Owner of the Year, as well as the DEP’s future as one of the region’s pre-eminent builders while the economy is still navigating difficult waters.

New York Construction: Why do you think you won – why did the industry choose you as its owner of the year?

Jim Mueller: I think it’s a combination of volume of work, but also a function of us trying to improve the way we do business in terms of managing contracts and streamlining our business processes in an effort to make the DEP a better client. I wouldn’t say we’re done, but I think we can say that we’re done starting the process. It’s kind of the end of the beginning. Our engagement of staff both here and with our 300-plus engineers who are out there designing and managing the work, I think people in the construction industry are beginning to see that manifest itself in terms of progress on jobs, problems getting knocked down and schedules starting to move. Like I said, I don’t think we’re done by a long shot, but I think it’s that combination of getting the work out there steadily and trying to constantly improve the way we manage it.

Bernard Daly: I think we’re also one of the safer owners out there.

Michael Borsykowsky: Definitely. It’s our highest priority. Our program has matured quite a bit in that regard. We’ve staffed up to a high level of competency within the agency. We’re also doing a much better job of auditing our sites so people know that we have active site representatives from the contractors that are ensuring that work is done with the written health and safety plans. We also have our own in-house people and third party people so we can send down and audit the sites. That’s had a real significant impact. Our numbers are very good. I think we still have some areas that could use improvement but considering the amount of manpower we have out there now and heavy equipment we have in play our safety performance has been very successful.

BD: We have requirements in the contracts that the firms have to have a site safety professional on site. Then we require the CM have its own safety staff. So we really have a very robust safety program in place.

MB: And it’s very important that we do. We have, what, 17, 18 cranes in place at Croton alone? [Safety] has to be a big part of our focus.

JM: I think it’s also been important for us to work on forging good relationships with other agencies – I’m talking about departments like the fire department or the Department of Buildings or ConEd. We’ve made a concerted effort at all levels – from our safety program to our construction program to our design program – to make sure we’re coordinating all that very well with our oversight and I think it’s really paying off in terms of streamlining projects and solving issues instead of having them linger or having fingers being pointed.

NYC: You mentioned the volume of work you have in the ground right now. Has this agency ever seen anything like this?

Commissioner Caswell F. Holloway: We’re in a period of unprecedented construction at the DEP, by any measure. Whether you’re talking the number of projects, the size of projects, the amount of committed capital dollars, the number of construction workers, the burn rate we’re going through on a daily basis – you name it – there’s a...

...onsiderable amount of work that we’re managing right now. I don’t think people understand the magnitude all of this work carries in terms of the changes to the water system in the city that are going to carry us through the next hundred or so years. So getting these investments finished and getting them turned on in huge. Four years in the life of DEP is the blink of an eye. The legacy is going to be that the system is going to be transformed in a way not seen probably since the initial development that brought the watershed water to the city.

MB: We’ve got these megaprojects going and some of them are the manifestation of planning that has been going on for decades. City Tunnel 3 has been going on for many, many years; Croton has been in the ground a long time. There is a tremendous amount of planning has preceded us and enabled us to facilitate putting in the phases that we’re involved with and we’re also looking ahead with an eye toward the phases that will come after us. Hopefully we’ll be able to be appreciated for our foresight the same way we appreciated our predecessors from the Board of Water Supply or on the wastewater side. We are in a bubble of tremendous work right now where between Newtown Creek, City Tunnel 3, Ultraviolet Disinfection and Croton, this is really a tremendous program for us. The budget is going to be a little tighter coming up and we’re going to need to work even harder to make sure every dollar we spend is absolutely prioritized and prioritized again. We’re going to have to look to defer some projects that we’d like to do in order to focus on some projects that we absolutely must put out.

JM: And, you know, it’s been about 50 years since they finished building out the Delaware (water) system. That was back in the 1960s and that was a tremendous amount of work. So what we’re doing right now is a one-in-fifty- or one-in-a-hundred-year kind of era for us. And then we’re pushing our last Clean Water Act project (Greenpoint’s Newtown Creek) at the same time. If you go back far enough, back around World War I and World War II the agency was building the aqueducts and those were pretty significant projects to be working on in what was relatively the same era. But in recent times, this is by far the biggest we’ve been.

NYC: With so many firms hurting as work has dried up, and with the DEP having put out so much work, are you seeing a difference in terms of the bids you’re seeing?

MB: We went through a pretty difficult time in the bid room for awhile. We saw, at one point, escalation of about a percent per month. Unfortunately we put out some pretty significant projects during that time to keep up with our program. But we’ve been doing much better in the bid room recently. We’re seeing more bids and they’re coming in much more competitively. Our estimates have been beaten quite a bit lately.

JM: A lot more competition.

MB: Right. And we’re seeing larger companies compete for some smaller jobs they might not have been interested in a few years ago. We’re seeing some medium-sized companies stretching out and bidding on something that may have been a little more ambitious of them before.

NYC: So what does all of this work mean for the industry? Or, more importantly, what does it mean for your relationship with the construction industry in the years ahead?

JM: We are going into a new 10 year program that will be finalized in January 2011. It’s kind of a fluid, living document. We’re always working on it and updating it. Right now we have $11 billion total construction value of active contracts and we have about $3 billion of active planning and design contracts. That’s our mature program that’s generating new work out of planning and design or that’s continuing existing work through our ongoing projects. 85% of that has been construction. The 10-year going forward is $14.6 billion for the agency starting in 2011. That’s all new work. I think all those things we’ve been concentrating so much on in terms of relationship building and business process changes I think we’re starting to see improvement on existing projects but they’re really going to make a difference on these new projects going forward. We’re excited.

NYC: You mention your business process changes and I’ve heard you talk before about wanting to be a better client. You’re an agency that has taken some criticism over the years from the construction industry, are those business changes and your desire to be a better client an attempt to quiet some of that criticism?

CH: I look at it like this: What does it mean to be a good client? You pay your bills, you give clear direction and you don’t use the bureaucracy to your advantage to string people along. I’m certainly in favor of paying people to work and attracting contractors to be repeat players and do business with us again. That’s just economics. The more people you have competing for work the better price you’re going to get. It’s only to our benefit that we would foster a healthy competitive environment. When I read my mail and look at all the disputes that we’re handling, one of the questions I always ask is, “What does this mean for the contractor?” I want to know what the understanding was coming into the job. There have been a lot of improvements in this area, but what I’m always looking at is how can we do even...

...better? I’m always going to be asking our contractors the same questions I ask our managers, which is: “Are we on budget, are we on time, if not, why not?” I want to help them get paid for the work they’re doing and make sure they’re getting clear direction on the project because, ultimately, we have to deliver these projects together.

We are going into a new 10 year program that will be finalized in January 2011. It’s kind of a fluid, living document. We’re always working on it and updating it.

NYC: So what were the problems? What was the DEP like as an owner five, 10 years ago as opposed to today?

CH: I don’t think there was really anything unique about what the contractors were asking for from the DEP. Some audiences I’ve talked to from the construction industry said that change orders take a long time in our budgeting process. Change orders going into a project are challenging and getting them turned over is a challenge, as well. Now, the city has a very strong contract that is very protective of the city – which is great for the city and its residents – but it can mean that when there are delays, contractors can get held up. I think the administration has been good at looking at how to change that. I think there is general recognition that DEP had excellent designers and engineers and there’s good expertise at the agency. So I haven’t heard a lot of complaints about the department’s ability to design a project, build it and get it done. Most of what I heard was, “I don’t want to work with DEP because it takes forever to get paid, I can’t get a change order turned around.” We want to stop that. That prevents a lot of contractors from coming to us. Or at least it has in the past.

JM: I also think we were a lot more fragmented before. We’ve changed our model to more of a life-cycle approach where moving down into the organization we’ve created positions that are responsible for planning, design and construction instead of having silos where each team would work on one thing independently then throw it over the wall. On the design side we created a project delivery manual which outlines scope, cost, schedule, management, risk management, community outreach … just a way to put it all on paper and say, “This is how we do it.” It’s this dynamic of lengthy projects versus new projects. We’re transitioning from an old way of doing things into a new way of doing things and you see that manifest itself in some of the mature projects already out there and then on the new projects as they move out those things will become even more embodied. Next year we’ll be better than we are now, the year after that, even better. It’s a continuous improvement evolution.

MALLON

DALY

BORSYKOWSKY

MUELLER

MB: One of the things we’re trying to do is work more consistently to develop standard operating procedures and train up our staff and our consultants to develop more standardization and have more predictability in terms of what our contractors’ expectations should be when they work for us. We’ve had some problems in the past with processing change orders and we’ve working very hard to try to identify them as quickly as possible and to process them as quickly as possible. We’re trying to reach out to our contractors even more than we have in the past and be more proactive in letting every member of the team know that they can be a player, they can have an impact on the job. Some of these contracts can be very complicated – it doesn’t just have to be a megaproject. When we do see issues that have potential to cause delays or costs, we’re trying to push as hard as we can to get passed those.

BD: We had a great example of that at Croton where we had a tunnel contractor on a job we’d bid out as drill and blast and they came back after the bid and offered to do it using a tunnel boring machine. So we ended up spending a couple of months reviewing their proposal and eventually agreeing to use the TBM. And it was finished quicker and we ended up getting a $4 million credit with that contractor. We’re going to finish that contract six months ahead of schedule because we were willing to listen to the contractor. So it was a win-win.

NYC: So, Commissioner, as the new leader of this department is it fair to say you were brought in here to be a kind of change agent?

CH: I think that the mayor is always looking for his commissioners to be change agents. If you’re brought in as the leader of an agency I think there’s an expectation that you’re going to bring a skill set, expertise and a vision that’s going to be aligned with what the mayor wants to get done. But that’s not to say that the agency in question is doing a bad job. The mayor isn’t paying us to just make sure that things are moving along at the status quo.