An item on the September 10, 2013 meeting agenda for the board of the California High-Speed Rail Authority authorized a “contingency” amount of $160 million for the $969,988,000 design-build contract (Construction Package 1) awarded to Tutor Perini/Zachry/Parsons for the first 29-mile segment of California High-Speed Rail, from Madera to Fresno.
As defined by the California Department of General Services, a “construction contingency” is a set percentage of the construction contract amount budgeted for unforeseen emergencies or design shortfalls identified after a construction project commences. The California High-Speed Rail Authority claims this amount was set based on “an exhaustive risk-based, informed investigation of the facts and circumstances that exist as design work commences.”
The staff report for the item included a cryptic explanation of a $20 million increase in the contingency amount:
Following the procedures established by this Board in Resolution #HSR13-20, Authority staff has developed a construction contingency of $160,000,000 as appropriate at this time for CP 1. Pursuant to said resolution, the CEO is authorized to manage the CP 1 contingency. For reference, $140,000,000 in contingency funds was included in the capital cost estimate for CP 1. Not included at that time was the application of new Buy America requirements to utility relocations. This issue has only surfaced in recent months, applying not just to the project but to federally-funded highway and transit projects throughout California and nationally. Although staff is working to mitigate any impacts, it is prudent to include additional contingency at this time.
As soon as I saw this, I wondered what materials were originally going to be imported for utility relocation but will now be obtained in the United States at an additional cost of $20 million.
I asked this question during public comment at the September 10 board meeting. I pointed out that my inquiry was not related to support or opposition to high-speed rail, but it was important for Congress to know specifically how its “Buy America” requirements affect purchasing and cost for projects, so it can make an informed decision on such policies in the future.
Staff failed to address my question when the item was under consideration. I was surprised and pleased when new board member Katherine Perez-Estolano asked staff for elaboration on the $20 million contingency amount to account for the newly-implemented Buy America directive. She did not get a specific answer, but staff assured her that they applied careful risk analysis.
Apparently the Federal Highway Administration (FHWA) and Federal Transit Administration (FTA) are now interpreting Section 1518 of the “Moving Ahead for Progress in the 21st Century Act” (MAP-21) as direction to impose “Buy America” requirements to utility relocation. MAP-21 is Pub.L. 112-141, signed into law as H.R. 4348 by President Obama on July 6, 2012.
SEC. 1518. BUY AMERICA PROVISIONS. Section 313 of title 23, United States Code, is amended by adding at the end the following: “(g) Application to Highway Programs.–The requirements under this section shall apply to all contracts eligible for assistance under this chapter for a project carried out within the scope of the applicable finding, determination, or decision under the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.), regardless of the funding source of such contracts, if at least 1 contract for the project is funded with amounts made available to carry out this title.”
A July 11, 2013 memo from the U.S. Department of Transportation Federal Highway Administration “Application of Buy America to non FHWA-funded Utility Relocations” suggests that the items made abroad that will now be made in the United States are “steel and iron products.” I’m guessing the United Steelworkers union was influential in adding this provision, and the country now making these products at lower cost is the People’s Republic of China. See the extensive Buy America information at the web site of the United Steelworkers.
A May 16, 2013 report from the California Department of Transportation (Caltrans) entitled “Buy America Utility Relocation Challenges in California” claimed that the regulation would jeopardize $2.5 billion in ongoing construction and $3.2 billion in planned construction: “A significant majority of these projects involve utility relocations by utility owners who have expressly stated that they are currently unable to comply with MAP-21s Buy America provisions.” This danger was alleviated on July 12, as reported by the Riverside Press-Enterprise in “‘Buy America’ Relief Clears Way for Projects,” when the Federal Highway Administration gave government agencies and utilities “until Dec. 31 to comply with new rules to buy domestic materials for utility lines that must move because they are in the path of construction.”
Here are some interesting questions that have yet to be answered:
- Which countries and companies are losing business because of the Buy America requirement for utility relocation?
- Which companies are gaining business?
- How many net jobs will be gained in the United States because of it?
- How much more in total will it cost utilities and government agencies?
- The California High-Speed Rail Authority is estimating a cost increase of $20 million for the first 29-mile segment of the bullet train because of the Buy America requirement. What’s the estimated cost increase for the whole system?
- Will any additional items be manufactured in California because of the requirement?
- If so, will that manufacturing increase have any effect on the state’s greenhouse gas emissions?
I don’t expect these answers to come from the California High-Speed Rail Authority.