DEL MAR — The Del Mar City Council is moving ahead with the next phase of the city’s utility undergrounding project at Stratford Court South while navigating an unexpected doubling of project costs to over $10 million.
The Utility Undergrounding District 1A project will replace 56 utility poles and 7,650 linear feet of overhead cables with underground lines along Stratford Court between 4th and 12th streets, impacting 227 properties and 464 residences.
Construction will likely begin in August and last until March 2025, according to city staff. 1A is the second of eight total districts planned for undergrounding in Del Mar, with construction completed in the Tewa Court/10th Street district in early 2023.
On Monday, the council approved a $4.7 million construction bid from Teichert Utilities for the 1A project in a 2-1 vote, with Councilmember Dan Quirk opposed (Councilmember Terry Gaasterland and Mayor Dave Druker were both recused due to their proximity to the project site).
Although Teichert’s was the lowest of the five bids received by the city, it was still around $1.6 million higher than the city had anticipated.
“This is not great news, and we were all pretty shocked,” said Councilmember Tracy Martinez.
In addition, the city is seeing major cost increases from San Diego Gas & Electric for their installation of cable and connections, billing and engineering fees. The agency provided a $3.26 million estimate for their work back in March — nearly triple the $1.1 million figure projected by the city in December based on work from the previous phase.
Between SDG&E and construction bid increases, Del Mar’s original $5.4 million budget estimate for the 1A project seven months ago has increased to over $10 million.
City officials emphasized that bid costs aren’t going to get any lower if they wait to award a contract, noting that other bids were as high as $8.8 million and that more money would be wasted by restarting the bidding process.
“The bid we have is the best we’re gonna get for 1A,” said Councilmember Dwight Worden. “Under the circumstances, we’re doing the best thing for our city to accept this bid, because everything tells me it’s only gonna get worse if we don’t.”
City staff said project costs have seen around 20% inflation since the first undergrounding project on Tewa Court/10th Street, and that 1A poses more construction difficulties due to its congested streets, need for traffic and pedestrian control and proximity to the beach.
Along with the Teichert bid, the council also approved smaller contracts for construction management and geotechnical services for the project, for a total of $5.4 million in construction costs.
Quirk, who voted against the contracts, said he would like to see a breakdown of material costs versus labor costs. He claimed that based on his own Googling of material costs and “back-of-the-envelope math,” the undergrounding project could be done for much cheaper.
City Manager Ashley Jones explained that the city would have to pay for its own analysis of these costs, and that in the competitive bidding process used by the city, line items are not distinguished by labor and materials. Even if this cost breakdown were included, prices would not be negotiable.
Other city staff also disagreed that the project costs would come back much lower, if at all.
“I guess the question is, to what end? The process we have in place doesn’t allow for negotiating. If we obtain that information but we’re not planning on changing our model, then there’s not much that we can do with it,” Jones said.
Quirk said the information would be useful for residents to be able to see in the interest of transparency.
“I think the process to get the cost of the materials is pretty simple and straightforward. I’m gonna keep advocating for it,” he said.
Financial questions
The city currently has enough funds through Measure Q to fund the additional project costs without having to issue any debt, according to Jones. However, the surprise rise in costs has spurred officials to hire a financial advisor to help keep things on track.
At the same meeting, the council unanimously approved a $30,000 task order with financial planning firm NHA Advisors LLC. The firm will spend the next six weeks reviewing financials for the undergrounding program, updating cash flow options and looking at financing possibilities.
NHA’s findings will be presented to the Undergrounding Project Advisory Committee (UPAC) in the fall, to be followed by recommendations to the City Council. This will be important as the council looks ahead to upcoming undergrounding phases, such as district X1A covering Crest Canyon, Jones said.
“We’ve got to get a better idea of what our financing options are and provide some recommendations to council before we can move forward with construction of X1A,” Jones said.
UPAC members supported this idea.
“This is the right time to hire a financial consultant to facilitate financial planning for this enormous project, and make sure we consider all our financing options going forward,” said UPAC Vice President Amy Cheshire.
The city is also drafting a letter to SDG&E to request more detailed information about the massive increase in their costs for Project 1A, which the agency blamed on labor cost increases, inflation, and supply chain challenges as reasoning for the new costs.
“I think the elephant in the room is SDGE,” said Martinez. “I know that our staff and the committee is going to ask a lot of questions and try to get as much information from SDGE to try to explain why these estimates are so much higher than they were in the past.”
Looking ahead to future undergrounding phases, Del Mar is currently wrapping up the design phase X1A, including obtaining all of the necessary easements.
