High-Speed Rail

High-speed rail board adopts policy to manage construction costs

Amid fears of cost overruns, the California High-Speed Rail Authority on Thursday approved a policy aimed at keeping construction costs in check.

At their meeting in Sacramento, board members unanimously adopted a plan to set and manage contingencies for individual construction contracts for the statewide rail system. That will include the $985 million contract that's already been awarded -- but has yet to be signed -- to build the first 30-mile stretch from Madera through Fresno.

The amount of the contingency allowance will depend on specific conditions for each construction section, officials said.

Jon Tapping, the authority's risk manager, said most public works agencies allow a flat percentage for unanticipated costs on every construction project -- from 10% at the California Department of Transportation to as much as 15% for the Federal Highway Administration and Federal Transit Administration.

"What we are proposing is a state-of-the-industry approach to refining those contingencies," Tapping said.

That approach includes a detailed assessment of each construction segment, and running potential risks through computer simulations to estimate the likelihood of cost increases. That ongoing analysis would guide the authority's managers and board in setting, managing and adjusting contingency allowances for each contract.

The rail agency's estimated price to build the system from San Francisco to Los Angeles is about $68.4 billion. That statewide figure already includes contingencies of 15% to 25%.

"What we're doing now is taking that down to the application of the contingency on a contract basis," authority CEO Jeff Morales said. "This is a more precise way of determining what the risks are and what the contingency should be on each contract."

In June, the agency's board authorized Morales to negotiate a contract with a consortium of Tutor Perini Corp. of Sylmar, Zachry Construction of Texas and Parsons Corp. of Pasadena to design and build the first section of the railway from Avenue 17 near Madera to American Avenue south of Fresno. The authority hopes that construction may begin later this summer.

The Tutor Perini/Zachry/Parsons team was the lowest of five bidders for the design-build contract, and the only contractor to submit a bid below $1 billion. The selection of Tutor Perini, however, drew criticism from observers worried about what they described as a history of change orders that drive up costs on the company's projects.

The rail authority has touted its use of design-build contracts as a way of avoiding potential change orders because the contractor is responsible for designing the project as well as building it. Because the contractor is also the architect and engineer, the builder essentially has no one to blame but its own team for costly engineering errors.

Morales and Richard said that contingencies will allow for factors that were unpredictable when contractors bid on projects. "This is not for a contractor to come in and say, 'We missed something,' " Morales said. "But something like soil conditions being different than what we all expected would come under a contingency."

Richard added that a contingency would also apply "if utility maps weren't updated, and you open up a trench to find a gas line instead of just cables."

In expressing concerns about high-speed rail costs potentially spiraling out of control, critics have pointed to cost overruns on large public works "megaprojects," including the Interstate 93 "Big Dig" tunnel project in Boston and the new eastern span of the San Francisco-Oakland Bay Bridge.

One oft-mentioned expert is Bent Flyvbjerg, a program management professor at Oxford University. "Even in the best of times, large infrastructure investments have a dismal performance record in terms of cost overruns, delays and benefit shortfalls," Flyvbjerg wrote in a 2009 research article in the Oxford Review of Economic Policy.

Indeed, Californians have scratched their heads as cost estimates for the high-speed rail program climbed dramatically in recent years.

In 2006, the authority estimated it would cost about $45 billion to develop and build the entire rail system -- Phase 1 from San Francisco to Los Angeles and Phase 2 extensions to Sacramento and San Diego. By 2009, the costs to construct and equip Phase 1 alone were estimated at $43 billion, and estimates for the Phase 2 extensions were pushed off.

In November 2011, the authority sent the state into sticker shock with a business plan that calculated the Phase 1 San Francisco-Los Angeles price tag to be more than $98 billion -- more than double the figure from just two years earlier.

In April 2012, the agency trimmed about $30 billion from the cost by proposing a "blended" system. Instead of fully dedicated tracks that would only be used by bullet trains for the entire length of the system, the rail authority proposed to save money by having its high-speed trains share tracks or rail corridors with established commuter-rail systems between San Jose and San Francisco and in Southern California.

Also on Thursday, the rail authority board approved seeking companies' qualifications for surveying-mapping parcels, utilities and easements for right of way from Fresno into Kern County, all in preparation for future construction in the San Joaquin Valley.

Up to four contractors may be chosen for the work based on their qualifications, and each contract could be worth up to $1.5 million. The four-year contracts would take effect in October.