Port of Anchorage expansion: 10 years gone — what now?

Photo/Courtesy/Port of Anchorage

This summer was to be a celebrated one at the Port of Anchorage. There was supposed to be fanfare — photographs and a ribbon cutting — a party marking the completion of the port’s 10-year expansion project and the opening of four new large docking berths.

Instead there is a lawsuit. There is finger pointing. There are new designs, hundreds of millions of dollars yet to be spent, and years of work yet to be done.

“The (Municipality of Anchorage) was successful in obtaining over $300 million, actually now with the state grants and bonds over $400 million, of which $300 million was spent,” said Anchorage Mayor Dan Sullivan. “What’s the deliverable for that $300 million? We did not get what we were supposed to be delivered in terms of a construction project.”

Moving forward, Sullivan said the project could easily cost another $500 million to $800 million to build the desired 6,000 feet of new dock structure.

Under an agreement signed in November 2011, by U.S. Maritime Administration, or MARAD, officials and Sullivan, the municipality took control of port construction from MARAD, the original project leader.

A month later, Port Director and former Gov. Bill Sheffield resigned after working at the port for 10 years and being the public face of the ambitious expansion effort that had ended up way behind schedule and far over budget. 

As of May 2012, Sullivan said all project decisions ultimately go through him.

He said then-mayor and current Alaska U.S. Sen. Mark Begich should have monitored the project more closely during the construction phase of the project.

“I think (the municipality) signed away our management rights. Literally, within weeks of taking office (in July 2009) we began receiving reports that, ‘oh, by the way things have gone horribly bad down there in terms of construction,’” Sullivan said.

The port is owned and operated by the Municipality of Anchorage. To date, the project has received $439 million. The State of Alaska has contributed nearly $220 million, federal government has given nearly $139 million and the port has added more than $80 million in loans and tariff generated revenue.

According to the municipality’s third quarter report for the 2013 fiscal year to the state Legislature, $130 million remains unobligated and available for future project work.

No significant construction work has occurred at the port since late 2010 when repair of dock structures damaged during installation was attempted.

Other than the development of a cross-state gas pipeline, Sullivan called the port the “most important project right now in the state of Alaska.”

On March 8, the municipality filed suit in state court against Integrated Concepts and Research Corp., or ICRC, the project’s management firm; PND Engineers Inc., the Anchorage-based designer of the Open Cell Sheet Pile dock system used in construction; and CH2M Hill, the owner of VECO Alaska Inc., which was hired as a design consultant on the project.

Some saw this fiasco coming.

A prescient 2008 letter to ICRC from prospective subcontractors Alaska Interstate Construction LLC and West Construction Co., both with a long history of working with sheet pile structures, warned what would happen if the ICRC decision stood to have low-bid contractor Quality Asphalt Paving to install the Open Cell Sheet Pile. QAP is well known but had no experience in such work.

The presidents of the two companies wrote to ICRC that, “failure of this (sheet pile) wall during construction would severely delay the next phases of the project, reflecting very poorly on the contractors involved, PND, ICRC and the Port of Anchorage.”

That turned out to be an understatement.

How it started

The Port of Anchorage serves about 85 percent of Alaska’s population with 90 percent of its goods. Since 2000, roughly 4 million tons of cargo has passed through the port annually, according to the municipality. It is also considered a strategic port by the Department of Defense, one of 17 commercial ports throughout the nation and Guam with the distinction.

On June 24, 2003, then-Anchorage Mayor George Wuerch signed a memorandum of understanding with MARAD to oversee the Port of Anchorage Intermodal Expansion Project, as it is formally known. MARAD’s responsibility was to “require the development and application of purchasing provisions that maximize the use of local firms for subcontracted activities during port expansion,” according to the agreement.

In the same memo, MARAD announced Koniag Services Inc. as the “prime contractor” for project activities. Virginia-based Koniag Services is a subsidiary of Koniag Inc., the Kodiak Native corporation.  At the time Koniag owned ICRC, which it sold in June 2007 to VSE Corp., a Defense Department contracting company.

ICRC was awarded the project management contract for the project as a Small Business Administration Native 8(a) corporation. Businesses that qualify for 8(a) status receive preferential standing among those competing for government contracts.

The summer of 2003 also saw the beginning of study work including geotechnical and hydraulic surveys and data collection for the requisite environmental impact statement.

A year prior, in 2002, PND drafted a concept plan for the new-look port using its patented sheet pile design, company Vice President Kenton Braun said. That initial plan was then reviewed by the infrastructure design and consulting firm Moffatt and Nichol Inc., of Long Beach, Calif.

[Editor’s note: Moffatt & Nichol reviewed the Open Cell Sheet Pile design for the port, as well as a pile-supported wharf concept. The firm contacted the Journal with an Aug. 2 letter to clarify that its draft report on the two port concepts “raised concerns with both the internal and global stability of the OCSP concept and raised doubts as to whether a wall of that height could be successfully constructed.” Moffatt & Nichol recommended additional study of the OCSP design, and its draft report submitted Oct. 31, 2002, “did not support the design as promulgated at that time.” Moffatt & Nichol were instructed by former port director Bill Sheffield to not finalize the report, “thus ending our involvement in the Port Expansion project in October 2002.”]

The first funds dedicated to the project began flowing that year as well. State Senate Bill 29, passed in 2002, appropriated $5.8 million to the municipality and the federal government authorized $12.3 million. The port contributed $3.9 million.

Studies continued in 2004 while the final design for rail improvements included in the project scope were approved. According to Braun, the municipality also recommended that the new dock facility have one berth capable of withstanding a 2,500-year “mega earthquake” event. The 1964 earthquake is widely considered a once-in-500 years event.

By the end of 2005 approximately 9,500 feet of track for railcar storage had been installed at the port, a finding of no significant impact had been issued for the marine terminal work and $80.9 million had gone towards the project, a municipal report states.

MARAD also chose PND’s Open Cell Sheet Pile, or OCSP, as the preferred design alternative for dock construction at the port.

A dike comprised of roughly 100,000 cubic yards of rock was constructed on the northern edge of the port during the summer of 2006. Backfilling the area behind the dike grew the usable port property on what was once tidal mud by 21 acres.

Right-of-way for a five-mile long haul road from the port to Joint Base Elmendorf-Richardson was cleared for moving substrate from pits on the base to the port. The connection with JBER would also serve as a military deployment route, removing convoys from city streets.

Another $36.7 million was appropriated to the project during 2006.

Throughout the marine construction portion of the project, monitoring for beluga whales was a continuous task. When they were spotted nearing the port work was halted, in order to not disturb the endangered population of Cook Inlet belugas.

No state or port money was given to the project during 2007, but $21.5 million came in from the federal Transportation and Defense departments.

Early in the year, VECO concluded its stability analysis of PND’s sheet pile for use at the port. The report, dated March 15, 2007, found that five of the seven layers of Bootlegger Cove clay found below much of Anchorage had been eroded away at the port site.

The upper layers of Bootlegger Cove clay are widely blamed for giving way and causing multiple landslides around Anchorage during the 1964 earthquake.

Because the port lacks the most vulnerable layers of soil, the report determined that “the (sheet pile) walls will act as rigid structures and the weakest zone will be beneath the steel sheet piling.”

In 2007, approximately 24,000 tons of armor rock was placed in front of the eventual dock facing to prevent tidal erosion during and after construction.

“Severe lack of understanding”

Project manager ICRC opened competitive contract bidding for dock construction and sheet pile installation on Feb. 21, 2008. Anchorage-based QAP, won the contract.

Six days later on Feb. 27, then-Alaska Interstate Construction President Kenneth Yockey and West Construction President Brad West formally protested QAP’s bid in their joint letter to ICRC.

The letter states that QAP “grossly underestimated” the scope of the port work in its $36 million bid. Alaska Interstate and West jointly bid the project for approximately $50 million, as did another bidding team of Kiewit Corp. and Swalling Construction Co.

On March 31, 2008, QAP entered into a $16.5 million lump sum contract with Washington construction consortium MKB Constructors.

West and Yockey wrote that the three bidders received the same quote for purchasing the sheet pile and that with coating and delivery it would total about $30 million, leaving $6 million for QAP and MKB to install the dock infrastructure.

“On its face, the bid submitted by QAP/MKB reflects a severe lack of understanding as to the nature and extent of the work that will be require to successfully complete the sheet pile installation, given the challenging conditions posed by this project. As previously stated, the sheet pile installation work is critical to the project’s success, and a failure during construction would be disastrous, both in terms of time and money. For these reasons, we vigorously protest the award of this subcontract to QAP and urge you to disqualify QAP’s bid as not responsible,” they wrote.

West and Yockey further cited their collaboration on nearly 30 sheet pile projects in Alaska, including at the Port MacKenzie facility across Knik Arm from Anchorage.

Also around that time, on Feb. 26, 2008, a written notice from MARAD announced the agency’s intent to rehire ICRC as construction manager for the port on a one-year contract with four subsequent yearly options.

While ICRC could no longer be awarded the contract under 8(a) status after Koniag sold it in 2007, MARAD decided that “Changing prime contractors at this stage would present a significant and unacceptable setback to the project’s progression, and would be contrary to the public interest,” according to the notice.

ICRC’s contract expired on May 31, 2012, and was not renwed.

Between the 2009 and 2010 construction seasons, ICRC dropped the QAP team as contractor and hired West Construction for $30 million to continue installing the sheet pile.

But the company’s original task changed to sheet pile removal and reinstallation as more and more damaged sheet pile was discovered.

Tragedy struck at the port in 2011 when West Construction foreman Jack Button was killed while working at the port Aug. 17. Button was backfilling maerial around sheet pile segments when the ground beneath his bulldozer gave way and trapped him in debris and water. Fill had been removed around the sheet piles for inspection.

Construction, litigation and a new design

The March lawsuit filed by the Municipality of Anchorage for unspecified damages against ICRC, PND and VECO alleges construction and design negligence during multiple stages of the port project.

It claims that ICRC breached its contract with MARAD, to which the municipality was a direct beneficiary, and “that ICRC and PND vastly underestimated and misrepresented the costs, ease and feasibility of using the Open Cell Sheet Pile system on this project.”

The suit was initiated after a CH2M Hill study that found the Open Cell Sheet Pile design unsuitable for use at the Port of Anchorage. A subsequent CH2M Hill alternative design report was made public on the same day the municipality filed the court action.

CH2M Hill, which now owns VECO and is a defendant in the municipality lawsuit, was commissioned by the Army Corps of Engineers to investigate the port situation after the municipality asked the Corps to intervene as an unbiased, expert party.

Combined, the cost of the study and concept design report was approximately $2.6 million.

According to the suitability study, “the open cell system is adequately designed to meet initial internal stability structural design requirements, assuming it was constructed without defects.

However, at the end of 50 years, it will be slightly over-stressed due to corrosion and will not meet safety standards.”

It concluded that damaged and defective sheet piling in three of the four newly constructed sections of the dock do not meet normal operational requirements. The dry barge berth — the lone suitable structure —is currently used in daily port operations.

PND has held firm in its stance that its sheet pile design can be used at the Port of Anchorage, provided it is installed properly. Company Vice President Kenton Braun said CH2M Hill’s claim that corrosion will impact the integrity of the dock prior to it meeting its 50-year design life is a result of faulty installation preventing the corrosion prevention system from being installed. Thus, the sheet pile has corroded faster than expected in the years since it was set in place.

“If (the sheet pile) had been installed properly we wouldn’t be in this situation,” PND President John Pickering said.

The suitability study found that soil pressure pushing seaward from the dock side of the sheet pile caused the structure to bulge in some instances. Additionally it found that, “large rock encountered during driving of the sheet piling impacted pile driving alignment,” particularly in the wet barge berth.

MKB drove those sheet piles during November 2008 and used up to “1,200 blows per foot of movement for the sheet piles,” according to the municipal complaint.

The municipality’s claim against ICRC alleges the management team knew of armor rock that was displaced by tidal and ice flow up to a year before sheet pile installation but attempted to deny that knowledge.

CH2M Hill’s preferred alternative design uses a pile-supported dock with a 75-year design life, similar to the one in use at the port now and built in 1961.

PND Senior Engineer Garth Howlett said CH2M Hill met with his company once, for approximately an hour in February 2012, while conducting the yearlong suitability study. He also questioned the feasibility of a dock designed to last 75 years.

“From a practical standpoint, a 50-year life on a wharf facility is probably about as far as you want to go anyway because a lot of the equipment they would be using in 50 years — the stuff that we’ve got down there now would be completely obsolescent,” Howlett said.

He noted that the criteria PND used to design the sheet pile for the Port of Anchorage was decided upon long before the company became involved in the project.

In a March 19 presentation to the municipal Geotechnical Advisory Commission about the new port design options, CH2M Hill spokesman Don Anderson explained the firm’s criteria change.

“We said 75 years (for design life) — a little longer than the Open Cell system and we just see a number of things these days going 75 years,” Anderson said. “You just look at the existing facility. We think that’s an achievable design life.”

Anderson added that some of the seismic criteria measures were changed by CH2M Hill because their design is a vastly different type of structure.

In late May, the municipality announced it had contracted with international engineering firm Simpson Gumpertz and Heger Inc., or SGH, to review the PND and CH2M Hill designs. The SGH review will be used in court proceedings and to determine the proper design going forward, Sullivan said.

Prior to the taking the port problems to court, Sullivan received a letter from Brad West dated Feb. 6, 2013. In the letter West offered his opinion on the PND’s sheet pile and noted his 2008 prediction.

“I believe that the failures at the Port of Anchorage were the result of inexperienced contractors and managers, and were not related to the design of the facility,” he wrote. “I also firmly believe that the facility can be constructed as originally designed if it is constructed by an experienced contractor and overseen by a competent project manager that is the municipality owner’s representative.

“Please let me know if I can provide you with any additional information that will help in your decision of how to complete this project which is of great importance to the entire state of Alaska.”

The municipality’s complaint alleges West Construction’s 2010 work “demonstrates convincingly that ICRC and PND vastly underestimated and misrepresented the costs, ease, and feasibility of using the Open Cell Sheet Pile system on (the port) project.”

PND’s Braun said he wonders how the municipality can engage the players in the project in the midst of court proceedings.

Sullivan said the municipality filed the legal action so it met the state statute of limitations. Alaska law requires action to be taken over a disputed work contract within three years under most circumstances.

Sullivan sees no reason why the litigation and construction cannot be compartmentalized, he said.

Since the March 8 filing, the case has been moved to federal District Court.

Tight quarters for TOTE

CH2M Hill’s design calls for a new facility north of the docks now used by Totem Ocean Trailer Express, or TOTE, and Horizon Lines Inc., the two large shipping operators at the port.

Horizon Lines spent $25 million on three new dock cranes in preparation for the completion of the port. Those cranes have been stored in China since construction was suspended.

TOTE would be moved just less than a mile north from its current location for an undetermined amount of time while their current dock is replaced. TOTE Alaska Director George Lowery said the company has expressed its concerns about the CH2M Hill design and moving to a north berth.

“We already have a tight turning radius to come into the harbor and do a 180 and turn around and (the proposed north berth) just gets us into a tighter place,” Lowery said. “Our pilots feel like to even dock there we would need bigger and more powerful tugs than we presently have available in Cook Inlet. So, we aren’t prepared to say we agree to move out there even if it’s built.”

TOTE operates two 840-foot ships between Anchorage and Tacoma, Wash. Its parent company, Saltchuk Resources Inc., also owns Cook Inlet Tug and Barge.

Since TOTE participated in a three-day charette at the beginning of CH2M Hill’s design process, Lowery said he hasn’t been in contact with anyone at the municipality other than Rich Wilson, the director of the Port of Anchorage who oversees the day-to-day business operations.

At a March 8 municipal Assembly worksession in which port design options were discussed, TOTE’s Mike Thrasher said moving its operations at the port could add many miles of driving per year and associated costs for the company.

“It’s additional time and distance for us. If you use round numbers you’ve got 2,000 moves a week and that’s, you figure, just under a mile for each move, for each round trip,” Thrasher told the Assembly.

Lowery added that if TOTE were to move under CH2M Hill’s plan, his fear is that the municipality may not be able to secure funding to finish the company’s current berth.

A sheet pile wall left in front of TOTE’s current berth from earlier construction disrupts tidal flow and is causing continual siltation problems. Lowery said without weekly dredging the berth would be unusable.

Varying cost estimates by CH2M Hill and the municipality have phase one, the north berth construction, of CH2M Hill’s design running between $255 million and $327 million, with total project cost being between $500 million and $600 million.

These estimates are on top of what has already been spent.

Sullivan said depending on how much of the sheet pile design can be saved, going forward the PND’s design could cost as much as $800 million more. No plan has been put in place, he said, and Sullivan called the operators “key” players in further discussions.

“Right now it’s he said, she said. I’m really looking forward to this independent review because I’m not really convinced one design is better than the other,” Sullivan said.

Future of the port

The municipality will put a request for proposal, or RFP, out for bid for a project manager sometime this month, Sullivan said. A decision on the returned bids should be expected by early fall.

“I think one of the problems that happened leading up to where we are today is that there wasn’t a good project management team in place. That’s something that is going to be guaranteed going forward,” he said.

Oral arguments in the pending lawsuit are scheduled for July 12 to determine if the case should be sent back to state court. ICRC has claimed the municipality has no case against it if MARAD is not involved, because its contract was with the federal entity and not with the municipality. Thus, the case cannot be held in state court and has no grounds in federal court without MARAD.

Sullivan said the level of responsibility in the case begins with ICRC and continues with the subcontractors, but also that nothing has been ruled out in terms of litigation.

“As far as whether or not you can successfully sue the federal government — that’s an interesting question,” Sullivan said.

Regardless of the decision made going forward, new environmental permits will have to be acquired, either for a new design or to extend the current permits past their August 2014 expiration.

Sullivan said he plans to turn over a seamless project to the next mayor, and under the best-case scenario if funding is available, Anchorage’s mayor in 2020 will be able to cut a ribbon at the port.

Elwood Brehmer can be reached at [email protected].

08/13/2013 - 10:18am