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Should the state deny its request, UIHC ‘would have to cease working on the project'

Aug. 9, 2022 4:07 pm, Updated: Aug. 10, 2022 3:27 pm

IOWA CITY — Although University of Iowa Health Care recently received approval from the Board of Regents to up spending on its new hospital project underway in North Liberty by 33 percent to $525.6 million, the campus still needs state approval to proceed.

One year after the State Health Facilities Council on Aug. 31, 2021, granted UIHC approval to build the 300,000-square-foot hospital portion of a larger 469,000-square- foot project, the council on Aug. 30 will consider a UIHC request to up that portion’s budget from $230 to $307.1 million — or nearly 34 percent.

Should the council deny its request, UIHC “would have to cease working on the project,” according to Becky Swift, the state’s certificate-of-need program manager. But the university could appeal the council’s decision, if denied.

UIHC says the increased cost is largely due to inflation, higher labor expense and supply chain issues — not changes in the design.

The day after a UI attorney on July 26 submitted a cost overrun request to the state, UI officials on July 27 sought regent approval to increase the total spend on its project — which includes an academic, research and clinic building that didn’t require state approval — from $395 million to $525.6 million.

“When we look at our budget and a change to that, one of the things we do is say, ‘Should we stop and wait for the market to change?’” Kim Hunter, the interim chief executive officer of the University of Iowa Hospitals and Clinics, told the regents in making that July appeal. “So we really considered that. But understand that the impact of delaying our project is significant on patient care. Health care access for Iowans would be reduced. Providing complex care to our patients is already strained, and this would further strain that.”

The nine-member Board of Regents approved the budget increase after asking questions like why design and management fees are up, what happens if costs rise higher, how the hospital will manage construction change orders and whether it can minimize costs by placing orders now.

In responding to those questions, UI officials committed to keeping spending as low as possible — expressing optimism they would succeed with lower construction bids than their worst-case preparations and potentially be back with another budget revision to bring down the estimated costs.

“When we realize those bids in roughly a month from now, we'll know where we stand and that will allow us to assess and come back to the Board of Regents with the results and hopefully a revised downward budget,” UI Senior Vice President for Finance and Operations Rod Lehnertz said at the time.

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In the state application to up its project spend, submitted before regent’s OK’d the increase, UIHC officials told the Health Facilities Council they needed regent approval “to execute the last few bid packages, which will lock in the guaranteed maximum price associated with the project.”

“UIHC, the university, and the Board of Regents State of Iowa have taken steps to be continued good stewards of available construction moneys and have participated in the construction manager at risk contracting model to lock in a guaranteed maximum price for the project,” according to UIHC’s application.

The university is tapping building usage funds, private donations, and debt to cover the costs. Officials confirmed for regents last month that “no state dollars or no tuition will be going to fund this.”

The “construction manager at-risk” model insulates the budget from “future upward fluctuation once all agreements are signed,” according to the university’s state application.

“The budget modification UIHC submits with this extension request reflects the top number UIHC will pay for the anticipated construction,” it states. “Anything in excess of the number reported today will be the responsibility of the construction manager.”

To date, UIHC has spent $12.4 million on site and land improvement work and on facilities, according to council documents. In addition to wrapping up planning and design for the entire project, officials report crews have:

Additionally, according to UIHC documents, “structural steel has been fabricated and the contractor is in the process of delivering the material to the site in preparation for erection beginning in the early part of August.” Precast panels for the central utility plant have been ordered and are being made — with an expected September delivery.

Work still to do includes: superstructure, building enclosure, interior finishes, mechanical, electrical, technology, pavement, landscaping, and medical equipment and furniture installation.

The cost overruns aren’t expected to delay completion, still on track for Dec. 27, 2024, according to UIHC documents. In explaining in more detail reasons for the budget hike, UIHC said:

“Russia and Ukraine are the No. 3 and No. 4 global aluminum producers,” according to UIHC documents. “Global shortages of microchips has also contributed to long production lead times (approaching 1 year) and petroleum price increases greater than 45 percent affected not only shipping costs but also petroleum based components.”

“Many major electrical equipment items now have lead times approaching 70 weeks, which will require additional labor resources to install the equipment in time to maintain the project schedule,” according to UIHC documents, which note electrician costs are up.

“At time of initial State Health Facilities Council approval, while UIHC did anticipate inflation and did reserve associated contingency, no one in the industry anticipated the magnitude with which these factors would affect construction given world events,” according to the university’s state application.

The typically five-member state council is currently down to four members after Jake Porter resigned April 14, having accepted a job in Arkansas. Porter was among the councilors who denied UIHC’s first “certificate of need” application for a new North Liberty hospital in February 2021. He voted for the project when the council reconsidered UIHC’s revised application in August.

“The governor's office is aware of the vacancy, but it has not yet been filled,” Swift told The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com

Higher education reporter, The Gazette

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