High-Speed Rail

August 25, 2014

Two firms drop out of bidding for Valley's high-speed rail work

Two would-be contenders for a contract to design and build the second stretch of a high-speed train line through the San Joaquin Valley have dropped out of the competition, leaving the California High-Speed Rail Authority with three contractors chasing the job.

The withdrawal of the two contracting teams potentially reduces the competitive pressure on the remaining firms bidding for the 65-mile job from Fresno to the Tulare-Kern county line. The state estimates the project's value at between $1.5 billion and $2 billion.

Rail authority CEO Jeff Morales confirmed last week that two teams sent withdrawal letters to the agency in May. They are:

California Rail Builders, a joint venture composed of Ferrovial Agroman U.S. Corp. and Granite Construction. Ferrovial is an American subsidiary of Ferrovial S.A., a Spanish company, while Granite Construction is a California company headquartered in Watsonville.

Skanska-Ames Joint Venture, a team that includes Skanska USA Civil West California District Inc., a subsidiary of Sweden's Skanska, and Minnesota-based Ames Construction Inc.

"We knew going into this process that it was very unlikely that we would carry five bidders all the way through," Morales said. "Putting these proposals together is a multimillion-dollar exercise, and it ties up a lot of resources for these firms. They have to make judgments every day on how they're going to spend money chasing work."

Neither team gave specific reasons in their withdrawal letters. Jose Baraja, a Los Angeles-based representative of Ferrovial Agroman, said in his notice to the rail authority only that "the number of bidders shortlisted resulted in problems moving forward on the project." Skanska USA Civil's vice president of operations in Riverside, Jeff Langevin, wrote that his team's decision was "based on internal business decisions and strategy and not a reflection on the authority or the project." Both letters indicated that the companies hope to compete for future contracts on the high-speed train system.

Several of the companies on the withdrawn teams had bid unsuccessfully with different partners for work on the rail system's first construction segment, a 29-mile stretch from Madera to the south end of Fresno. That contract was awarded last summer to a joint venture of Tutor Perini Corp. of Sylmar, Zachry Construction of Texas and Parsons Corp. of Pasadena.

Tutor Perini/Zachry/Parsons, which submitted the winning bid of about $1 billion for the Madera-Fresno contract, is one of the remaining teams for the second package. The other two are:

Dragados/Flatiron/Shimmick, a consortium that includes Dragados USA Inc., a subsidiary of Grupo ACS and Dragados S.A. of Spain; Flatiron West Inc. of San Marcos; and Shimmick Construction Co. of Oakland.

Golden State Rail Partnership, composed of OHL USA Inc., a subsidiary of Spain's Obrascón Huarte Lain S.A., and Samsung E&C America Inc., a U.S. subsidiary of South Korea's Samsung Group.

Bids are due on Oct. 3 and the rail authority hopes to award the contract in December.

In a conference call with investment analysts earlier this month, Tutor Perini CEO Ron Tutor suggested that the reduced competition for the second high-speed rail contract and a rebounding demand for major civil infrastructure projects could make the work more profitable.

"It's just us competing with two Spanish company joint ventures," Tutor told analysts. "The civil business is growing with such leaps and bounds that there's definitely capacity constraints, which ... leads to better margins."

Morales, however, said he believes the remaining firms will still provide "a very competitive set of bids. That's what you look for in a procurement."

The most important thing, Morales added, is that the agency receive more than one bid. "Usually on mega projects, two or three -- and four at most -- is where you see the greatest competition," he said. The more competitors are involved, "statistically, the odds are lower" for any of the given firms."

"Now, their odds have gone up. Instead of a 20% chance, they have a 33% chance."

This will be the second of four major infrastructure packages for the high-speed rail route through the Valley. It stretches from American Avenue south of Fresno, near the BNSF Railway freight tracks, through Kings County and into Tulare County, to about a mile north of the Tulare-Kern county line. It includes bypasses around the communities of Hanford, Corcoran and Allensworth. The expected work includes six areas of elevated tracks, six bridges, one undercrossing and 30 road overpasses.

A third contract will extend the route to just north of Bakersfield, while the fourth will cover the laying of steel tracks on the entire Madera-Bakersfield route.

The rail agency expects to spend about $6 billion to build the Valley sections, which will be the backbone of a 520-mile, $68 billion system linking San Francisco and Los Angeles with electric trains carrying passengers at up to 220 mph.

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