UPDATE: Feb. 11, 2019: At the Jan. 4 meeting of the Kansas City Airport Committee, Steve Sisneros, Southwest Airlines’ managing director of airport affairs, told committee members that the majority of airlines servicing Kansas City International Airport have reached an agreement with the Kansas City Aviation Department and the Edgemoor Infrastructure & Real Estate team on construction costs for the new terminal. Sisneros said the airlines have set a budget of $1.5 billion, down from $1.64 billion.
Sisneros said the agreement was "a first step in moving the project forward” and that all parties would work together to design toward the new budget. However, Sisneros said the airlines have the ability to adjust that figure if, for instance, there are unforeseen conditions.
The project is still in the early stages of design, and Edgemoor managing director Geoffrey Stricker said the team has found $140 million of savings and could possibly make other changes that could lower costs as well. The $1.5 billion does not include the costs of financing.
Dive Brief:
- KCI Partnership, the AECOM-led consortium that lost out on the new $2 billion Kansas City Airport terminal project to Edgemoor Infrastructure & Real Estate in late 2017, has informed city officials that it still wants the contract and can do it for $1.1 billion less than Edgemoor, according to The Kansas City Star.
- KCI sent a letter outlining its general plan to three Kansas City Council members and indicated that part of the cost difference was in potential savings on Edgemoor’s projected debt payments, but Edgemoor disputed KCI’s numbers and said the group was mistaken in its calculations. Some city council members also argued that KCI’s proposal is likely uninformed since it has been out of the project discussion loop during the last year.
- Edgemoor and KCI are still working out some project details before executing a final agreement. The airlines, according to the Kansas City Business Journal, must also agree on how they will split the costs for the project before construction can move forward, but that deal is still likely weeks away.
Dive Insight:
At the end of January, Southwest Airlines, the largest carrier operating out of Kansas City International Airport, told KSHB 41 Action News that it planned to continue negotiations for the construction of a new terminal with the city’s selected bidder, the group led by Edgemoor Infrastructure & Real Estate. This is despite a recent attempt by the AECOM-led KCI Partnership to undercut the Edgemoor team on price by claiming to be able to deliver the new terminal for about $1 billion less than the current cost estimate of approximately $2 billion.
After KCI Partnership made the offer via a letter to members of the city council, three council members reached out to failed bidders Burns & McDonnell and AECOM for the financial details of their proposals. This prompted a protest from Kansas City Mayor Sly James in a statement to 41 Action News.
"So you've asked two bidders who were rejected by the process the council set up to come back now a year after the fact and tell you what they would do differently? To what end? I don't care what they say, there's no way they can do it,” James said. "So why are we bothering with this charade?”
The Edgemoor team also includes Clark Construction, The Weitz Co. and Clarkson Construction Co.
KCI Partnership's move to win the project at that advanced stage was indicative of the project's very combative bidding process. Local engineering firm Burns & McDonnell first proposed using private financing to replace the existing, outdated facility under a potential no-bid scenario, but the AECOM-led group quickly followed with its own offer. The council agreed that handing over the project to a private company was the way to go but opened up the process to other bids.
One advantage that KCI Partnership might have, if its new proposal is accurate, is that the savings it says it can provide brings the cost of the project back down to the original estimate of $1 billion. This is likely closer to the amount that voters were expecting when they cast their ballots in favor of the project in November 2017.
In a public-private partnership (P3), such as the one for the KCI airport terminal, it’s critical that all the parties to the agreement, including those responsible for the design and construction phase, work together to fully flesh out the scope of work and other details of the project so that there are no misunderstandings, costly or otherwise, after work begins.
Agencies that are new to P3s often hire legal counsel or other P3 experts to help guide them through the process but even those who have plenty of experience with the method still end up having to negotiate costly disputes on occasion. As of November 2018, the Florida Department of Transportation, P3 team I-4 Mobility Partners and general contractor SGL Constructors — all party to previous P3s — were still trying to reach an agreement on the P3’s claim for a 245-day delay and $100 million of cost overruns on the $2.3 billion Interstate 4 toll lane project near Orlando, Florida. At the center of the conflict are drilled shaft failures during construction of a bridge foundation and the P3’s assertion that it was prohibited from exploring alternate foundation systems.
