High-Speed Rail

Risks rising for cost increases on high-speed rail construction

Construction continues on a high-speed rail viaduct over the Fresno River in Madera County.
Construction continues on a high-speed rail viaduct over the Fresno River in Madera County. California High-Speed Rail Authority

The prospect of higher-than-expected costs for high-speed rail construction in Fresno and Madera counties is prompting the California High-Speed Rail Authority to consider a big change in its allowance for potential cost overruns.

“At this time, we are forecasting a need to increase the contingency by about $150 million” for Construction Package 1, the first 29-mile segment from Fresno to Madera, agency risk manager Jon Tapping told the authority’s board members at their meeting Tuesday in Sacramento. That’s on top of the original $160 million contingency allowance that was established for the $1 billion contract awarded in 2013 to Tutor Perini/Zachry/Parsons, the prime contractor for the work.

Tapping said increased contingency requirements across the entire San Joaquin Valley sections of the planned bullet-train system from Madera to Bakersfield could add about $262 million to the $5.7 billion project budget – unless the agency takes steps to reverse the cost trends.

Lisa Marie Alley, a spokeswoman for the authority, said Tuesday’s report represents “just a forecast  that there could be a potential increase to the contingency.”

“We feel pretty good that management and mitigation might not warrant the potential increase, but it’s still something important to get out there and make the board aware,” Alley said. The authority’s board would have to formally approve any increase to the contingency allowances for any of the contracts.

The contract for Construction Package 2-3, a 65-mile stretch of the route between the south end of Fresno and the Tulare-Kern county line, was awarded last year for about $1.23 billion, with a contingency allowance of about $261.2 million tacked on.

No contingency has been established yet for Construction Package 4, a 22-mile segment from the Tulare-Kern line to Shafter. That contract was awarded this year, but has not yet been executed, Alley said.

The overall statewide cost budget of $68 billion for a 520-mile high-speed train system between San Francisco and Los Angeles, by way of the San Joaquin Valley, includes a contingency allowance of about $11 billion. The contingency figures for the construction segments in the Valley are included in that statewide budget.

An updated version of the authority’s business plan with fresh cost estimates is expected to be released in draft form this month.

On Construction Package 1, about $14 million of the $160 million contingency has been spent by the authority on expenses that were not included in the contract. That figure does not count any changes that have been submitted but not yet been approved by the rail authority.

Tapping and program delivery director Gary Griggs said the drivers for the potential contingency boost include higher right-of-way costs and delays associated with slower-than-expected property acquisition for the rail route; increased costs for utility relocation work; and issues working with the operators of adjacent freight railroad lines, including BNSF Railway and the Union Pacific Railroad.

Griggs added that his team also is dealing with additional environmental evaluation of alternative technical concepts proposed by the contracting team and associated costs, including permitting and right-of-way changes.

“When we set up the contingency, we did it with a risk-based approach” that sought to assess the range of things that could go awry and result in higher costs, Tapping said. “We identified a lot of these in that approach.”

Tapping added that his office is constantly updating its risk assessments as the project moves forward. The most recent analysis, he said, showed continuing negative trends in right of way, utility relocation and railroad requirements.

“The analysis indicates that we have the potential to exceed the contingency” for Construction Package 1 unless the agency takes corrective steps to reduce costs, he said.

Fresno businessman Tom Richards, the authority’s vice chairman and a member of the board’s Finance & Audit Committee, said the risk analysis was set up to provide the authority with “an early warning that costs may be changing from what we’ve projected (and) that’s exactly how it’s working.”

“This doesn’t mean the money is going to be spent, but the risk analysis says it’s prudent to prepare for the contingency,” he added. “We deal with changing projections; it’s the risk profile that we’re charged with containing. That’s what we’re doing now.”

Griggs and Tapping said the agency has beefed up staffing in its offices to speed the pace of right-of-way acquisition and to improve its handling of third-party agreements, including those with utilities and railroads. The agency said it’s also working with its contractors to seek ways to reduce construction costs through “value engineering.”

“We’ll see in time how effective we are with these mitigation measures,” Richards told his board colleagues.

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