Request to Approve Increase to the Cost and
Duration Contingency for Contract HH-1000R,
Mountain Tunnel Improvements Project
San Francisco Public Utilities Commission Meeting
October 13, 2026
3 Mountain Tunnel
4 HH-1000R Project Scope
Early Intake
Adit
Flow Control
Facility and
New Priest
Adit
Tunnel Repairs &
Contact Grouting
(11 miles)
Roadway
Improvements
(Slope
Improvements
Completed)
Blue = Original Scope
Red = Descoped
Green = Added Scope
with a Job Order
Contract
South Fork
Siphon
Instrumentation
& Controls
Improvements
(JOC 112-03)
HH-1000R Contract Overview
• Original Contract Amount: $138,973,189
• Original 10% Cost Contingency: $13,897,318
• Approved Increase in Cost Contingency: $28,029,702
• Modification Nos. 1 through 16 Amount Change: $9,630,106 • Modification No. 17 through Resolution No. 25-007: ($15,727,083) • Modification Nos. 18 through 29 Amount Change: $13,261,980 • Total Current Contract Amount: $146,138,192
• Current Cost Contingency: $19,034,934
• Proposed Additional Cost Contingency: $13,270,000 (For Resolved Outstanding Contract Claims)
• Total Proposed Contract Cost Limit: $178,443,126
5 6
• Dispute resolution reached between MTCI and SFPUC for $18,270,000 to resolve all outstanding disputes between January 29, 2021(NTP), and May 29, 2026
• A total of 40 disputes with an initial claim amount of $60,000,000 – A few of the resolved disputes are listed below
• Design changes and additional work for the Priest Adit and Flow Control Facility (FCF) shaft
• Off-site storage of project material and availability of staging areas claims • Claims for additional costs for in-tunnel work due to substantially increased quantities for lining demolition, lining repair and grouting • Differing site condition claim for upcountry slope work • Claim associated with changed contract winter shutdown dates • Demolition of the FCF building foundation and partial building walls • Resolves all outstanding disputes and avoids potential litigation
Resolve Outstanding Disputes
Duration Increase
• Notice-to-Proceed Date: January 29, 2021
• Original Contract Duration: 2,160 consecutive calendar days
• Original 10% Duration Contingency: 216 days
• Modification Nos. 1 through 29: 0 calendar days
• Total Current Contract Duration: 2,160 calendar days
• Current Duration Contingency: 216 days
• Proposed Additional Duration Contingency: 150 days
• Total Proposed Duration Limit: 2,526 consecutive
calendar days
• Duration increase is required due to the time frame to complete the Instrumentation JOC work and to complete
final commissioning
7 Pressure Monitoring Under
JOC
8 Tunnel locations
susceptible to over
pressurization
Install Pressure Transducers
and Fiber Optic Cables
under JOC
• Planned Start is September 22,2026
• Planned Finish is February 01, 2027
9 Original
Contract
Resolution No.
25-007
Resolution
No. 26-0084
This
Proposed
Modification
Proposed
Contract
Amount
Construction $138,973,189 ($15,727,083) $0 $0 $123,246,106 Contingency $13,897,318 $13,029,702 $15,000,000 $13,270,000 $55,197,020 Total
Approved
Contract
Cost Limit
Amount
$152,870,507 $150,628126 $165,628,126 $178,443,126
Contract
Duration
2,160 days
216 days
2,376 days
+ 0 days + 0 days + 150 days 2,526 days
Contract HH-1000R Summary
Questions
AGENDA ITEM
Public Utilities Commission
City and County of San Francisco
DEPARTMENT: Infrastructure Division
AGENDA NUMBER: 11
MEETING DATE: October 13, 2026
Calendar: Regular Calendar
Project Manager: Randy Anderson
Approve Increase to the Cost and Duration Contingencies for Contract No. HH-1000R, Mountain Tunnel Improvements Project
Summary of Proposed
Commission Action:
Approve an increase of $13,270,000 to the existing cost contingency and 150 calendar days to the existing duration contingency for Contract No. HH-1000R, Mountain Tunnel
Improvements Project, with Mountain Tunnel Constructors, Inc., for a revised cost limit of $178,443,126 and a revised duration limit of 2,526 consecutive calendar days (approximately six years and eleven months). This additional contingency is needed to resolve outstanding disputes under the construction contract that arose between the start of construction ( January 29, 2021) and May 29, 2026.
Background: The San Francisco Public Utilities Commission (SFPUC) Water Enterprise’s Mountain Tunnel conveys Hetch Hetchy water supply approximately 19 miles from Kirkwood Powerhouse to Priest Reservoir. The tunnel, which is horseshoe -shaped, is
approximately 15 feet tall and 15 feet wide. It delivers 100 percent of the Hetch Hetchy water supply, and thus it is a critical, non - redundant link in the Hetch Hetchy water system. Having been in service since 1925, sections of the tunnel’s original lining have deteriorated due to age, original construction deficiencies, and deferred maintenance, resulting in vulnerabilities to meeting water quality and delivery reliability level -of-service objectives. The Mountain Tunnel Improvements Project (Project) is a multi -year project to perform rehabilitation and improvements to extend the life of this critical water conveyance facility.
On October 13, 2020, by Resolution No. 20-0210, this Commission awarded Contract No. HH-1000R, Mountain Tunnel Improvements Project, to Michels Tunneling, in the amount of $138,973,189 and with a duration of 2,160 consecutive calendar days.
On June 13, 2023, by Resolution No. 23 -0110, this Commission approved the assignment of Contract No. HH-1000R, Mountain Tunnel Improvements Project, from Michels Tunneling to Mountain Tunnel Constructors, Inc., a wholly owned Michels Corporation affiliate.
Agenda Title: HH-1000R, Mountain Tunnel Improvements Project Commission Meeting Date: October 13, 2026
On January 14, 2025, by Resolution No. 25-0007, this Commission approved Modification No. 17, decreasing the contract amount by $15,727,083, to remove scope of work related to the South Fork location, and increasing the cost contingency by $13,029,702, to fund additional potential change orders related to the increased scope for the tunnel lining repair, final lining in the New Priest Adit, temporary water filtration plant, changes to the contract outage start and end dates, and additional roadway improv ements for Rickson Road.
On May 26, 2026, by Resolution No. 26 -0084, this Commission approved an increase of $15,000,000 to the existing cost contingency, for a revised cost limit of $165,173,126, and no change to the contract duration. This cost contingency increase was used to fund additional costs f rom a delayed start and earlier end of Outage No. 5 in 2025 -26; ongoing d elays to the initial commissioning of the Flow Control Facility; ongoing delays to the final project commissioning due to descoping of work related to South Fork; and additional anticipated costs to resolve outstanding potential change orders.
Scope of Contract: The objective of the Project and Contract No. HH -1000R is to improve the reliability and control of water flow, water quality, and maintenance access through the rehabilitation of the Mountain Tunnel and related improvements. The work includes concrete lining repairs, contact grouting, a large flow control v alve facility , new tunnel adit and access portals, access road stabilization and improvements, environmental mitigations, and other site work and restoration.
Modifications to the
Contract:
Modifications Nos. 1 to 29: Staff issued Modification Nos. 1 to 29, increasing the contract amount by $ 7,165,003, within the cost contingency approved under Resolution No s. 25 -0007 and 26 - 0084, for a total contract amount of $ 146,138,192, with no change to the contract duration.
Proposed Increase to Cost Contingency: Staff recommends the Commission approve an increase of $ 13,270,000 to the existing cost contingency , for a revised cost limit of $ 178,443,126. The contractor has submitted demands for additional payment under the contract in excess of $ 60,000,000, claiming extra work and associated costs. Staff has reviewed and analyzed the contractor’s submittals and negotiated with the contractor a dispute resolution amount of $18,270,000, in exchange for a release of claims. The additional contingency is necessary to fund the resolution amount.
This resolution of outstanding items will address all dispute d contractual issues from the start of the contract (January 29, 2021) to May 29, 2026 , and eliminates the potential for protracted and Agenda Title: HH-1000R, Mountain Tunnel Improvements Project Commission Meeting Date: October 13, 2026
costly litigation between the City and Mountain Tunnel Constructors Inc. If the contingency is approved, the resolution of the disputed costs will be in the form of a contract modification. The I tems to be covered by the anticipated contract modification would include, but not be limited to:
• Costs for work related to design changes and additional work in the Priest Adit and Flow Control Facility Shaft.
• Off-site storage of project -generated material and lack of available contract-provided staging areas.
• Claimed additional in-tunnel material quantities for structural tunnel lining repairs and contact grouting activities.
• Various structural, mechanical, and electrical work resulting from design changes.
• Work related to differing site conditions in upcountry slope stabilization.
• Costs associated with delays for water system outages in Mountain Tunnel resulting in alleged lost production activity.
Proposed Increase to Duration Contingency: Staff recommends the Commission approve an increase of 150 calendar days to the existing duration contingency for a revised total duration limit of 2,526 consecutive calendar days . The additional contingency will be used to extend the contract term to ensure all mechanical and electrical operation features of the F low Control Facility and Priest Adit are completed and fully commissioned for Hetch Hetchy Water and Power operational use.
Funding and Costs: Funding Source: Project No 10014114, Mountain Tunnel Improvements Project.
Original Contract Amount: $138,973,189
Original 10% Cost Contingency: $13,897,318
Approved Increase in Cost Contingency: $28,029,702
Modification Nos. 1 through 16 Amount Change: $9,630,106 Modification No. 17 through Resolution No. 25-007:
(15,727,083)
Modification Nos. 18 through 29 Amount Change: $13,261,980 Total Current Contract Amount: $146,138,192
Current Cost Contingency: $19,034,934
[Proposed] Additional Cost Contingency: $13,270,000
Total [Proposed] Cost Limit: $178,443,126
Schedule: Notice-to-Proceed Date: January 29, 2021
Original Contract Duration: 2,160 consecutive calendar days Original 10% Duration Contingency: 216 calendar days
Modifications Nos. 1 through 29: 0 calendar days
Total Current Contract Duration : 2,160 consecutive calendar days
Current Duration Contingency: 216 calendar days
Agenda Title: HH-1000R, Mountain Tunnel Improvements Project Commission Meeting Date: October 13, 2026
[Proposed] Additional Duration Contingency: 150 calendar days
Total [Proposed] Duration Limit: 2,526 consecutive calendar days
Environmental
Review:
On October 23, 2019, the Planning Department issued the Final Mitigated Negative Declaration (MND) for the Mountain Tunnel Improvements Project (Case No. 2017 -014249ENV), prepared pursuant to the California Environmental Quality Act (CEQA).
On November 12, 2019, by Resolution No. 19 -0213, this
Commission adopted the Final MND, CEQA Findings , and a Mitigation Monitoring and Reporting Program (MMRP) pursuant to the CEQA, and approved the Project.
Modifications to the Project include off-site storage . These modifications are not substantial, are within the scope of the project evaluated in the Final MND, and no additional environmental review is required.
View the Final MND, the CEQA Findings contained in Resolution No. 19-0213, and the MMRP.
Local Business
Enterprise Utilization
and Non-
Discrimination in
Contracting:
The Contract Monitoring Division (CMD) established a 3% Local Business Enterprise (LBE) subcontracting requirement for this Contract. The contractor committed to 5.347% LBE subcontractor participation with its bid submittal, and this amount remains unchanged.
Agenda Title: HH-1000R, Mountain Tunnel Improvements Project Commission Meeting Date: October 13, 2026
Location Map
Mountain Tunnel Improvements Project
PUBLIC UTILITIES COMMISSION
City and County of San Francisco
RESOLUTION NO. __________________
WHEREAS, The San Francisco Public Utilities Commission (SFPUC) Water Enterprise’s Mountain Tunnel requires improvements to address deterioration to its original lining due to age, original construction deficiencies, and deferred maintenance, resulting in vulnerabilities to meeting water quality and delivery reliability level-of-service objectives, and to extend the life of this critical water conveyance facility; and
WHEREAS, On October 13, 2020 , by Resolution No. 20-0210, the Commission awarded Contract No. HH-1000R, Mountain Tunnel Improvements Project , to Michels Tunneling; and
WHEREAS, The original contract amount was for $138,973,189 , and the original contract duration was 2,160 consecutive calendar days; and
WHEREAS, The construction Notice-to-Proceed date was January 29, 2021; and
WHEREAS, On June 13, 2023, by Resolution No. 23 -0110, this Commission approved the assignment of Contract No. HH -1000R to Mountain Tunnel Constructors, Inc., a wholly owned affiliate of Michels Corporation; and
WHEREAS, On J anuary 14, 2025, by Resolution No. 25-0007, the Commission approved a decrease of $15,727,083 to the contract amount, for a revised total contract amount of $ 123,246,106, to remove scope of work , and approved an increase of $13,029,072 to the existing cost contingency, for a revised cost limit of $150,173,126 , with no change to the contract duration, to fund additional potential change orders related to the increased scope for the tunnel lining repair, final lining in the New Priest Adit, temporary water filtration plant, changes to the contract outage start and end dates, and additional roadway improvements for Rickson Road; and
WHEREAS, Staff issued Modification Nos. 1 to 17, increasing the contract amount by $6,096,977, within the cost contingency as approved under Resolution No. 25 -0007, for a total contract amount of $132,876,212, with no change to the contract duration; and
WHEREAS, On May 26, 2026, by Resolution No. 26 -0084, the Commission approved an increase of $15,000,000 to the existing cost contingency, for a revised cost limit of $165,173,126, and no change to the contract duration; and
WHEREAS, The contractor has asserted disputed costs for contract work that staff has determined, through review analysis and negotiations with the contractor, is valued at $18,270,000. The resolution of the disputed items would be paid through a contract modification in exchange for a release of claims. To fund the contract modification
resolving the disputed costs, staff recommends the Commission approve an increase of $13,270,000 to the existing cost contingency for a revised cost limit of $1 78,443,126 costs; and
WHEREAS, Staff recommends an increase of 150 calendar days to the existing duration contingency, for a revised duration limit of 2,526 consecutive calendar day to complete all remaining construction contract and start-up activities; and
WHEREAS, On October 23, 2019, the Planning Department issued the Final Mitigated Negative Declaration (MND) for the Mountain Tunnel Improvements Project (Case No. 2017-014249ENV), prepared pursuant under to the California Environmental Quality Act (CEQA); and
WHEREAS, On November 12, 2019, by Resolution No. 19-0213, this Commission adopted the Final MND, CEQA Findings contained in Resolution No. 19 -0213, and a Mitigation Monitoring and Reporting Program (MMRP), as required pursuant to the CEQA, and approved the Project; and
WHEREAS, Modifications to the Project include off -site storage and these modifications are not substantial, are within the scope of the project evaluated in the Final MND, and no additional environmental review is required; and
WHEREAS, The Planning Department is the custodian of records for Case No. 2017-014249ENV, and those records are maintained at 49 South Van Ness Avenue, Suite 1400, San Francisco, California 94103; staff have made these materials available for review by bot h this Commission and the public, and they are incorporated into the record before this Commission; and
WHEREAS, This Commission has reviewed and considered the information in the Project files including the Final MND, CEQA Findings contained in Resolution No. 19 - 0213, and MMRP, and all written and oral information provided by the Planning Department, the public, relevant public agencies, SFPUC and other experts, and the administrative files for the Project; and
WHEREAS, The Contract Monitoring Division established a Local Business Enterprise (LBE) subcontracting participation requirement of 3% for this contract, and Mountain Tunnel Constructors, Inc., committed to an LBE subcontractor participation of
5.347% with the bid submittal and this remains unchanged; and
WHEREAS, Funds are available from Project No. 10014114, Mountain Tunnel Improvements Project; now, therefore, be it,
RESOLVED, This Commission has reviewed and considered the Final MND and the record as a whole, and finds that the Final MND is adequate for its use as the decision- making body for the Project, that no subsequent environmental review is required, and
incorporates the CEQA Findings contained in Resolution No. 19 -0213 by this reference thereto as though set forth in this Resolution; and, be it,
FURTHER RESOLVED, This Commission further finds that since the Final MND was finalized, there have been no substantial changes in the Project or its circumstances that would require major revisions to the Final MND due to new significant environmental effects or an increase in the severity of previously identified significant impacts, and there is no new information of substantial importance that would change the conclusions set forth in those documents; and, be it,
FURTHER RESOLVED, That this Commission hereby approves an increase of $13,270,000 to the existing cost contingency and an increase of 150 calendar days to the existing duration contingency for Contract No. HH -1000R, Mountain Tunnel Improvements Project, with Mountain Tunnel Constructors, Inc., for a total cost contingency of $55,197,020, and a total duration contingency of 366 calendar days; and, be it,
FURTHER RESOLVED, That this Commission hereby authorizes the General Manager or the General Manager’s designee to consider and , if appropriate, to approve modifications to the contract up to a total cost limit of $ 178,443,126, and up to a total duration limit of 2,526 consecutive calendar days.
I hereby certify that the foregoing resolution was adopted by the San Francisco Public Utilities Commission at its meeting of October 13, 2026.
__________________________________
Director of Commission Affairs
San Francisco Public Utilities Commission