Baltimore officials awarded an $83.5 million contract Wednesday to overhaul the city's huge water-meter system — and warned residents that they could be liable for damage the work might cause on their properties unless they purchase insurance.

The city selected Itron Inc. of Washington state to install meters for a new wireless meter system that will serve 400,000 customers in Baltimore and Baltimore County, rejecting a competing bid from local firm Dynis LLC that was $101 million more.

Mayor Stephanie Rawlings-Blake said the upgrade is part of an effort to end "outrageous" water bill mistakes that have infuriated residents and forced the city to issue more than $9 million in refunds last year.

"We've all heard the horror stories, and some of us may have even experienced the shock of an outrageously high or inaccurate water bill," Rawlings Blake said after the 4-0 vote by the Board of Estimates. "Baltimore is home to so many hard-working families, many of whom are barely making ends meet. I can imagine their anxiety at getting a bill for several hundred or thousands of dollars more than they expected."

The replacement is expected to be completed in the city by 2016 and the county by 2017.

While the upgrade is expected to cut down on human error and promptly reveal leaks, it also will create some costs for residents. City officials said they are encouraging homeowners to buy insurance covering pipes on their property during the installation process.

Should workers damage or break such infrastructure, the property owner would be considered liable, officials said. They said the insurance would cost about $5 per household line per month — or about $60 a year for many homeowners.

"Citizens have always been responsible for that stretch from the meter to their house," said Timothy Krus, the city's purchasing agent. Residents will receive a mailing informing them of the insurance option after a firm is selected to provide it, he said.

City Comptroller Joan M. Pratt abstained from the vote, saying that she wants more answers about why the Itron bid was so much lower than its rival's. She said she was bothered by the plan to ask citizens to purchase insurance, but she encouraged residents to do so to avoid paying "thousands" if property is damaged.

"It's like another tax," she said. "I don't think the citizens should be charged. But I do think they need to purchase the coverage. If there are damages, the city is not going to pay for it."

Rawlings-Blake called the installation of wireless "smart" meters the first step in ending the city's chronic problem with inaccurate water bills, some of which are caused by malfunctioning meters or human error when reading meters.

The new system will transmit signals that monitor water use and cost — enabling city residents and 26 percent of Baltimore County residents to check their water use online at any time. City officials said that will encourage conservation and quickly alert residents to leaks or other problems with their bills.

Under Itron's proposal, about three-fourths of Baltimore County customers will get a less advanced system, and meter readers will have to go to those properties quarterly to determine water usage. That would not have been necessary under the more expensive bid by Dynis, which is based in Columbia.

Baltimore County officials said they were satisfied with the selection of Itron, saying its plan will limit the number of signal towers that will have to be built, especially in rural areas.

"We have been working with the city throughout the procurement process," said Ed Adams, the county's public works director.

Baltimore residents have long complained about erratic water bills, but the issue gained widespread attention last year when the city auditor found the Department of Public Works overcharged thousands of customers by at least $9 million and an investigation by The Baltimore Sun uncovered additional problems. Baltimore provides water service to about 410,000 customers, half of whom live in Baltimore County.

"There is no one here who is not aware of the problems we've faced," Rawlings-Blake said. "We've had manual meter reader errors, transcription mistakes, understaffed customer support that put customers on seemingly never-ending hold. Some meters had not been actually read for years."

In selecting Itron, city officials rejected a protest by Dynis, which argued that the Itron proposal has "substantial technical deficiencies," including using "unlicensed radio frequencies that may not function properly."

Dynis attorney Paul S. Caiola, of the firm Gallagher Evelius & Jones, raised several concerns before the vote. He contended that Itron failed to complete a pilot project for smart meters 10 years ago in Baltimore and pointed out missteps in other cities, such as Houston and Charlotte. Caiola also contended that the city's request for proposals process was confusing and caused Itron to significantly underbid on several aspects of the work, including installing copper pipes and meters.

"The city should consider whether Itron's bid is too good to be true," he said in written testimony.