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Houston has accused contractors building a massive water purification plant of holding the city’s future water supply “hostage” as legal fees mount in a dispute over who should pay $25 million in cost overruns.
City Council members last week approved spending millions more on an outside legal team ahead of an August trial on the lawsuit filed by city contractors building the $1.97 billion water plant expansion.
The legal dispute so far has not delayed the first phase of the project, aimed at doubling the city’s supply from the plant near Lake Houston. The city turned those spigots on last week, and construction work on a much larger second phase continues under a court order.
The four regional water authorities who split the cost with Houston on a project designed to eventually serve 3.5 million people are watching the dispute closely, however, in case it increases their costs.
“I’m very concerned, because whatever the outcome is, we will pay 33.5 percent,” said Jun Chang, general manager of the North Harris County Regional Water Authority.
No immediate threat
Houston Public Works officials say there is no immediate threat of a drinking water supply shortfall. The city draws water from multiple sources, and the Lake Houston plant continues to produce clean water.
The plant, which has been in operation since 2005, had the capacity to produce 80 million gallons per day before last week.
As the region’s population continues to grow, officials have been looking for ways to expand the city’s capacity. They also have been under a mandate to shift from sucking water out of the ground, which worsens subsidence, to drawing from surface water.
By the year 2035, water suppliers in the Houston region will be allowed to source at most 10 to 20 percent of their supply from groundwater or face hefty penalties from the Harris-Galveston Subsidence District.
In December 2015, City Council approved an agreement with a joint venture of the firms Jacobs Engineering and CDM Smith to design and build an expansion of the Lake Houston plant.
The costs are being split between the city, the North Harris County Regional Water Authority, the West Harris County Regional Water Authority, the Central Harris County Regional Water Authority and the North Fort Bend Water Authority, which in turn supply numerous municipal utility districts.
The expansion project is designed to put Houston and neighboring water authorities on a path to meet the state groundwater goals. The first phase adds 80 million gallons per day and the second, slated for completion in August 2025, will add 240 million gallons more.
The massive project, which had 1,500 workers on site at its peak, includes a new raw water intake pump station jutting 900 feet into Lake Houston and twin, 108-inch diameter pipes to deliver that water to the upgraded treatment plant.
In December, former Mayor Sylvester Turner held a ribbon-cutting to celebrate the contractors handing over the keys to the project’s first phase. The city last week began gradually supplying water from the first expansion, according to Erin Jones, a Department of Public Works spokesperson.
Water wars
The upbeat ceremony four months ago concealed an increasingly bitter legal fight over cost overruns.
Those include the cost of pipes, road work and fencing on the sprawling site, as well as the price of nearly 4 million pounds of stainless steel. Thanks to a “dramatic escalation” in the cost of steel between 2020 and 2022, the contractors say, the steel alone costs $6.6 million more than budgeted.
In September 2022, the project’s lead contractors sued the city for money to cover the overruns. In total, the overruns amount to about $25 million so far, according to a recent legal filing.
Since the start of the lawsuit, both sides have accused each other of being willing to walk away from work on the crucial water plant. Neither has actually done so, in part because 61st District Court Judge Fredericka Phillips ordered work to continue while the lawsuit plays out.
The contractors allege that city officials knew Houston would be on the hook for overruns on pass-through costs, despite claiming the project came with a “guaranteed” maximum price.
The city’s motivations were political, the contractors alleged in a November filing. Reducing the up-front cost of the project, they claimed, “merely allowed the City to kick the can down the road and politically appear” to have reduced the maximum price.
The city’s lawyers argue the contractors are trying to get around clear language capping the cost. They have painted a dire picture of how the dispute eventually could affect the region.
The city said in a December filing that it already has been forced to slow down requests from developers to claim future water capacity: seven projects have been put on hold and one has been denied.
Denying those permits, the city’s lawyers said, “arrests future development as word spreads that the city has a shortage of water.”
The construction contractors essentially are holding the city “hostage” by implying that they may walk off the job, city lawyers said in a December brief.
“Houston lacks any sort of adequate remedy at law for the closure of schools, environmental harm, loss of business, and fundamental disruption to everyday life that will directly and immediately flow from plaintiff’s refusal to perform clear-as-day contractual requirements,” the city said.
The Department of Public Works did not respond to a request to identify the development projects that have been paused.
Rising costs
Both sides continue to depose witnesses and file mountains of briefs. Even before Phillips oversees a trial currently set for Aug. 12, the costs to taxpayers are rising.
Last Wednesday, City Council unanimously approved an increase in Houston’s maximum spending on its legal contract with the firm Schiffer Hicks Johnson from $3.1 million to $5.6 million.
Chang, the general manager at the North Harris County Regional Water Authority, said he has been watching the lawsuit closely.
As the agency providing the biggest share of the project’s funding, the authority will get hit with a corresponding share of cost increases.
Repeated drought years have strained the authority’s ability to meet its surface water goals, so delays could lead to pricey fines from the Harris-Galveston Subsidence District if the authority is forced to tap groundwater to keep up with rising development.
“This expansion project, therefore, becomes extremely important, in the sense that if we don’t receive enough surface water, we will not be meeting the surface conversion requirement,” Chang said.
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