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Consultants: $1.9 billion Anchorage port renovation cost could be cut in half

Tankers Atalanta T and Atlantic Frontier offload a combined 525,000 barrels of jet fuel at the Port of Alaska on Friday, Nov. 16, 2018. The port has a total liquid fuel storage capacity of 3.4 million barrels, or over 140 million gallons. (Loren Holmes / ADN)

Consultants hired to take a comprehensive look at Anchorage’s long-challenged port renovation believe a third or more can be shaved off the project’s current ballpark price of approximately $1.9 billion.

A draft report issued to the Anchorage Assembly recommending how city officials should move forward with the Port of Alaska modernization project says between $600 million and $800 million could be saved by limiting new construction to what is truly needed and shifting to a new contracting and design philosophy.

The 97-page report was authored by Roe Sturgulewski, a vice president with the project management firm Ascent PGM. Former Anchorage Mayor and Alaska Sen. Mark Begich and Schawna Thoma, both of the consulting company Northern Compass Group, assisted in the port evaluation.

Sturgulewski said during a Sept. 19 presentation to the Assembly’s Enterprise and Utility Oversight Committee that the $1.9 billion price tag — a shock to many observers when it was made public early this year — includes upwards of $300 million simply for cost escalation since the design concept was first drafted in 2014.

Ascent and Northern Compass were contracted by the Assembly in April to help the city find ways to lower the cost of the project and identify funding options.

In July, the Assembly approved a $42 million contract to start construction of a new petroleum and cement dock next year. The work will be the first major development at the port since construction was halted in 2010 when problems installing steel sheet pile led to widespread damage in the structure that was to be the primary dock support.

The Municipality of Anchorage has since sued and settled with several contractors that worked on the project and is currently suing the U.S. Maritime Administration, or MARAD, in Federal Claims Court for the agency’s role in overseeing the project that saw roughly $300 million of state and municipal money spent with little to show for it.

The companies that use the port urged against starting work on the petroleum and cement dock largely out of concern that municipal officials would raise tariffs and fees at the port to cover at least some of the shortfall for the remainder of the petroleum and cement dock. The city had approximately $60 million allocated to the port at the time; the new dock is expected to cost more than $200 million.

While the Assembly ultimately approved the contract at the administration’s request, Sturgulewski said at the Sept. 19 meeting that, “There’s a common goal of wanting to solve the port issue, so there’s a good foundation for moving forward.”

Design changes and add-ons requested by the port user companies totaled roughly $400 million of the $1.9 billion overall cost based on the administration’s estimates, he also said.

Sturgulewski also confirmed that another element adding significantly to the $1.9 billion estimate — a figure no one involved believes is feasible — is that the administration used the basic design criteria from the petroleum and cement terminal and extrapolated them out to other facilities, such as the large cargo terminals, that need to be upgraded.

The petroleum and cement dock was designed to have a 75-year life and be extremely seismically resilient, to the point some engineers have said it’s overbuilt.

“It was a very conservative approach,” Sturgulewski said. “It was useful to bound the issue but I think it’s definitely overstated what the actual costs are and that could be in the order of hundreds of million of dollars difference.”

He suggested some other alternatives to drastically cut costs, such as building just one new cargo terminal instead of replacing both that are currently used. Shippers Matson and TOTE insist their schedules are set out of necessity and a result of many logistical issues, from when grocery stores want their fresh products to longshoremen’s union contracts.

Both Matson and TOTE call on the port each Sunday and Tuesday and the two current cargo terminals are largely unused the rest of the week. Some Assembly members have said building one cargo terminal and compelling the shippers to adjust their schedules — with significant lead-time — warrants serious consideration.

“You can cut the cost of the program in half, I believe, and that includes where we are at in terms of the PCT,” Sturgulewski said.

Begich stressed that city officials need to move toward a maximum price design-build contracting approach. They also need to determine as much as possible what funding is available from the state and federal governments or other sources and build to that funding level.

“You need to have a realistic plan of finance; not based on what you think the project is going to cost, but what you can actually get,” Begich said.

Municipal Manager Bill Falsey said, as did Assembly members, that he was still reading through the lengthy report, but most of the suggestions were well received.

He said he wanted to learn more about how the maximum price contracting concept would work with the inherent uncertainties of a large construction project.

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