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OMAHA — Despite “serious questions” raised by Nebraska’s top civil and criminal attorney, the City of Omaha moved forward with a $411 million contract integral to one of its most expensive-ever infrastructure projects.
Nebraska Attorney General Mike Hilgers, in an April 21 letter, laid out concerns about the proposed wastewater treatment plant expansion contract with Missouri-based McCarthy Building Companies.
In the end, Hilgers said that while his team was bothered by the city’s compliance with a previously-approved agreement, he saw nothing that “appears unlawful.” He said contract approval was a matter best left to the judgement of the City Council.
The council voted 4-3 to support the McCarthy pact following a lengthy discussion during this week’s council meeting and more than a month of delays on a decision.
Omaha Mayor John Ewing Jr. urged approval, saying the agreement ensures reliable wastewater treatment for a growing metro area. He was confident that city officials, with help from HDR and an outside reviewer, presented a contract that protects the interest of taxpayers.
“Risk has been carefully managed up front, protecting the city from the sticker shock that often comes with costly change orders during construction,” Ewing said in a letter to the council.
The McCarthy agreement became controversial partly because well-known, homegrown Hawkins Construction Co. said it could have done the work for about $78 million less. CEO Chris Hawkins pointed out what he saw as flaws in the process and asked the council to start a new, open bidding process.
Hawkins, as well as some council members, were skeptical of aspects including a contractual language change that allowed McCarthy to “self-perform” too much of the work rather than undergo competitive bidding. Hilgers also noted that concern and also questioned the accuracy of McCarthy’s fees.
State Auditor Mike Foley also became involved, reaching out to council members after fielding “numerous” concerns from taxpayers. In a March 27 letter, he said: “The more I learn about this, the more concerned I become.” But Foley said in an interview this week that the final decision was for the City Council, not his office.
The $411 million contract is essentially the more complex and detailed sequel to a $4 million September 2024 contract in which the city selected McCarthy to do pre-construction and design work for the wastewater plant expansion project.
Under the “Construction Manager at Risk” project delivery method, which is a relatively new contracting process for the City of Omaha, the council was asked to approve the $411 million “guaranteed maximum price” for work laid out in the roughly 180-page amended agreement approved Tuesday.
The project at hand is the upgrade and expansion of the city’s Papillion Creek Water Resource Recovery Facility, which is designed to meet the growing metro area’s wastewater treatment needs through 2050.
The city has budgeted about $565 million over six years, including for work laid out in the McCarthy contract and $88.5 million for special aerobic granular sludge equipment and construction of a new Omaha Public Power District substation.
According to the Hilgers letter, the language change gives McCarthy the green light to self-perform work worth about $163 million — over 64% of the total costs of direct work.
“This volume of self-performance materially differs from what would be expected” based on the earlier agreement, the AG’s letter to Deputy City Attorney Ryan Wiesen stated. However, it said that “because there is some uncertainty surrounding” how the city applied state law, the AG could not conclude that the process was unlawful.
“Whether the city chooses to ratify such a departure from the council-approved CMAR agreement is, however, a decision best left to the judgment of the City Council,” said the letter which was discussed publicly.
In explaining the uncertainty, the AG looked to state statute that sets the legal baseline for a constructing bidding process. He noted that the statute allows contract refinements so long as those refinements do “not exceed the scope of the project statement contained in the request for proposals.”
The AG went on to say that, “as a threshold matter,” he could not readily identify “a definitive ‘project statement’ in the request for proposals” to serve as the baseline for whether the contract changes later sought “exceeds the scope of the project statement.”
Council members Danny Begley, Pete Festersen, LaVonya Goodwin and Ron Hug voted to approve the contract, while Brinker Harding, Aimee Melton and Don Rowe voted against.
Goodwin called the contract situation “very complex” and said she leaned on guidance of city officials who, she noted, believed they operated in “good faith” and within legal bounds.
Festersen said the impact on ratepayers was top of mind. He acknowledged the lower unsolicited bid by Hawkins Construction, which city officials have said could not be legally considered and did not guarantee a price.
The McCarthy $411 million proposal is viewed as a “guaranteed maximum price.” Festersen said the contract amount would not raise sewer use fees, which is the primary funding source that will cover the project cost. Sewer fees are collected for the City of Omaha by the Metropolitan Utilities District.
Begley, while questioning a McCarthy official, noted that some segments of work had been competitively bid even though construction had yet to begin. Hawkins has said his company had hoped to bid on segments of the overall project but was not invited.
Jim Theiler, assistant public works director, acknowledged that the team should have consulted earlier with the City Council, but said it acted in the “best interest” of the city.
“We fully believed that we were doing what was in accordance with state law,” Theiler said.
Harding said the concerns he voiced weeks ago hadn’t changed. He said the original 2024 agreement with McCarthy laid out “the rules of the road” related to work to be self-performed or competitively bid.
“I don’t believe that was followed,” said Harding. “We violate the public’s trust if we’re changing it to accommodate the process that … was agreed upon in an earlier action.”
Ewing called it a “well thought out and well executed process” to get a “necessary health and environmental project done carefully and on time, given a six-year construction timeline.”
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