Bellevue city leaders unanimously approved an agreement last night that will keep construction moving on the new City Hall even as the project...

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Bellevue city leaders unanimously approved an agreement last night that will keep construction moving on the new City Hall even as the project faces an $11.3 million overrun.

The agreement, between the city and general contractor Lease Crutcher Lewis, establishes an interim payment plan for the excess costs and will allow City Hall to open in January, a six-week delay from the original plan. But mediation in the fall, and possible litigation if that doesn’t work, will be needed to determine who ultimately will pay for the overrun.

Each party has said it believes the other should be responsible.

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Because the contractor, during negotiations last summer, agreed to a maximum price of about $71 million for construction, the company can be held liable for the money.

Last night, every city leader expressed disappointment at the situation, which was revealed Friday.

“In June we had a group of people … saying they’d be able to deliver this project at this cost,” said Councilman John Chelminiak.

“As hard as we try as a government, we somehow cannot do enough to stay with the budget,” said Councilman Don Davidson. “I’m frustrated and disappointed.”

Under the agreement approved last night, the city plans to use a project contingency fund to cover $1.9 million of the shortfall. Lewis agreed to pay $2.5 million for now to keep the project moving, leaving the city with the rest of the bill if it can’t find enough ways to save money on the project.

Leaders were careful to point out that the interim payment plan and schedule do not mean the city is accepting responsibility for the overrun.

“This isn’t a settlement agreement, it’s an agreement to make sure this project keeps proceeding,” said Councilman Grant Degginger.

The $11.3 million shortfall emerged after subcontractor bids in December and January came in significantly higher than the previously agreed-upon construction cost of $71 million.

After demolition and excavation, the project was split into separate construction tasks, called packages. Of those, 14 were put out to bid in December. Two of those 14 got only a single bidder, according to the city.

Every package came in over the budget agreed upon with the contractor, said Matt Terry, the city’s planning and community-development director.

Both the city and the contractor attribute at least part of the overrun to a lack of competition for certain packages, a glut of new construction in Bellevue and an increase in the cost of materials, especially steel.

In the next few weeks, the project plans will be reviewed to see whether redesigning or possibly getting rid of some components of the design could bring down the cost. City officials said they expect to find as much as $3 million in savings that way.

The City Hall project is a retrofit of an existing seven-story structure on 110th Avenue Northeast in downtown Bellevue.

Leaders also have identified possible sources of additional funds to help finish the project, including extra real-estate excise-tax revenue, extra sales-tax revenue earned from the recent building boom, unallocated dollars from the city’s 2005 capital-improvement plan and other city reserves. The city also could issue additional bonds.

Natalie Singer: 206-464-2704 or nsinger@seattletimes.com