Tag Archive for Californians Advocating Responsible Rail Design (CARRD)

Little-Known Facts About the Contract for the First Construction Segment of California High-Speed Rail

As reported by John Hrabe in the January 27, 2014 www.CalNewsroom.com article High-Speed Rail Critics Question Timing Of Rail Firm’s Contribution To Brown Campaign, Governor Jerry Brown’s 2014 re-election campaign committee received the maximum possible contribution of $27,200 on January 21, 2014 from the construction company Tutor Perini.

Tutor Perini is part of the Tutor Perini/Zachry/Parsons joint venture that won the design-build contract for the first construction segment of California High-Speed Rail, a 29-mile stretch from Madera to Fresno. (For detailed information on design-build procurement in California, see Why Lowest Responsible Bidders Don’t Necessarily Win Rail Construction Contracts: Explaining Design-Build Procurement and Best Value Criteria in California Law.)

Three days after the $27,200 contribution was made – and on the day it was recorded by the California Secretary of State – California Attorney General Kamala Harris submitted an extraordinary request to the California Supreme Court on behalf of Gov. Brown, the California High-Speed Rail Authority, and other interested parties. They want the court to grant relief to allow the project to continue, even though a Sacramento County Superior Court judge decided in 2013 that the California High-Speed Rail Authority failed to comply with the law established by Proposition 1A in 2008 and therefore could not sell any of the $9.95 billion in bonds authorized by voters under that statewide ballot measure.

Tutor Perini Contribution to Brown for Governor 2014 Campaign Committee

Tutor Perini Contribution to Brown for Governor 2014 Campaign Committee

As this brazen campaign contribution begins to gain public attention, here is some little-known information about the contract and cost for the first construction segment.

1. Tutor Perini Contract Amount Is Higher Than People Think

An April 12, 2013 press release showed California High-Speed Rail Authority officials were pleased when the low bid for the design-build contract came in under $1 billion.

The Authority had estimated the cost for the design-build contract to be between $1.2 billion and $1.8 billion. The Authority determined that Tutor Perini/Zachry/Parsons, a California-based Joint Venture, who bid $985,142,530, was the “apparent best value.”

But the amount announced to the public is deceptive.

At its June 6, 2013 meeting, the California High-Speed Rail Authority awarded a design-build contract to Tutor Perini/Zachry/Parsons, a Joint Venture, for their fixed bid price of $969,988,000 and hazardous material unit bid price of $15,154,530 for a total bid price of $985,152,530 on “Construction Package 1” (CP-1). This is the 29-mile segment between Madera and Fresno.

There was an additional $53 million included for contingencies, for a total of $1,022,988,000. See this information here:

Approval to Award Contract for Design/Build Services for Construction Package 1 – June 6, 2013

EXECUTION VERSION – Agreement No.: HSR13-06 – Book 2, Part A, Subpart 1 – Signature Document (see Attachment B – Prices)

Since then, a $160 million contingency fund was created for the project, including $20 million for compliance with Buy American provisions for utility relocation.

Approval of Contingency Fund for Construction Package 1 – September 10, 2013

Resolution #HSRA 13-21 – Approval of Contingency Fund for Construction Package 1 – September 10, 2013

This means that the Madera to Fresno construction segment is authorized to cost taxpayers as much as $1,182,988,000.

This amount does not include all of the consulting work beforehand. Pre-construction costs from Merced to Bakersfield are $160 million through September 30, 2013 and authorized for a total of $241 million. (A more specific amount for the Madera to Fresno first construction segment is not available.)

California High-Speed Rail Authority Project Update Report to the California State Legislature – November 15, 2013

Yes, this 29-mile segment is a billion-dollar segment, and that does not include interest to be paid on borrowed money obtained through bond sales.

2. Potential Windfall for Tutor Perini Because of California High-Speed Rail Authority’s “Strange Lack of Competency in Procurement Strategy”

The California High-Speed Rail Authority has completed the environmental review of the Merced to Fresno segment. It is in the process of environmental review for the Fresno to Bakersfield segment.

Construction Package 1 has 25 miles in the approved Merced to Fresno segment and 4 miles in the not-approved Fresno to Bakersfield segment. If the California High-Speed Rail Authority can’t conclude environmental review of the Fresno to Bakersfield segment by July 12, 2014, the Authority has to renegotiate the contract for Construction Package 1 with Tutor Perini/Zachry/Parsons.

This is why the California High-Speed Rail Authority quietly asked the federal Surface Transportation Board for an environmental exemption, which the board has refused to grant while it extends the time period for comment until February 14, 2014. The September 26, 2013 Petition for Exemption from the California High-Speed Rail Authority to the Surface Transportation Board states the following:

The Authority has entered into a design-build contract to construct a 29-mile segment of the HST System, comprised or approximately 5 miles of track and facilities within the boundaries of the Fresno to Bakersfield HST Section in the vicinity of Fresno and approximately 24 miles of track and facilities covered by the exemption granted in the Merced to Fresno Decision. The Authority’s design-build contract requires the Authority to give the contractor separate notices to proceed with construction of the 5-mile and 24-mile segments. The notice to proceed for the 5 miles of track and facilities must be issued by July 12, 2014. If the Authority cannot issue the notice on the 5-mile segment by July 12th, it will be removed from the contract and the Authority will need to re-negotiate the price for the construction of the 24-mile segment and the price and timetable for the 5-mile segment. Since the construction contract does not contain a separate price for the 5-mile and 24-mile segments, this could result in a substantial aggregate increase in the cost of construction of the two segments. There is a possibility that the Board will have a vacancy as of January 1, 2014. Given the Authority’s July 12th notice to proceed deadline, the possibility of a Board vacancy is of concern to the Authority. However, the Board has authority to grant conditional approval of construction exemptions. Although the Board does not do so absent compelling circumstances, there would be compelling circumstances in this case because conditional approval would avoid circumstances which could require the Authority to pay a higher price for the construction of the initial segment of the HST System. Accordingly, if a Board vacancy becomes imminent, the Authority respectfully requests that the Board conditionally grunt this Petition subject to the completion of the environmental review process, and issue a decision effective by December 31, 2013.

Petition for Exemption from the California High-Speed Rail Authority to the Surface Transportation Board – September 26, 2013, and subsequent correspondence

Californians Advocating Responsible Rail Design (CARRD) is harshly critical of what it calls “serious mistakes made by the Authority and its consultants” and “the strange lack of competency in procurement strategy.”

July 12, 2014: What Is the Big Deal?Californians Advocating Responsible Rail Design (CARRD) – December 4, 2013

Justified or not, Tutor Perini and its predecessor firms have a reputation for looking at big urban infrastructure projects and figuring out weaknesses and mistakes that can be exploited later for financial advantage. An April 19, 2013 article in the Los Angeles Times about the low bid for California High-Speed Rail (Bullet Train Bid Rules Altered) hints at that reputation:

Critics have complained that the firm tends to bid low to win contracts and then seeks change orders and contract amendments that increase costs. The firm has handled many major construction projects successfully. But it also has been embroiled in controversies involving accusations of overbilling, fraud and shoddy workmanship related to the Los Angeles subway, San Francisco International Airport and public works projects in New York. Those matters have cost the builder tens of millions of dollars in legal judgments, settlements and penalties.

This reputation for Tutor Perini is also addressed in the UT San Diego April 15, 2013 article Bullet Train Bidder Had Overruns and its April 16, 2013 article ‘Change-Order Artist’ Fights Back.

Anyone who has closely followed the business of the California High-Speed Rail Authority recognizes how it could be a sitting duck. Taxpayers will end up paying the bill.

My Public Comments on Bond Finance for California High-Speed Rail Entered into Record for Pivotal Bond Validation Lawsuit

My March 15, 2013 written comments to the California High-Speed Passenger Train Finance Committee outlining several concerns about its plans for bond financing were the ONLY written comments submitted to the committee before its March 18, 2013 meeting, at which it authorized borrowing more than $8 billion for California High-Speed Rail through bond sales (a requirement under Proposition 1A).

In addition, I was one of four people to speak in person at the March 18, 2013 California High-Speed Passenger Train Finance Committee meeting at which committee members voted to authorize the bond sales.

My written and oral comments to the California High-Speed Passenger Train Finance Committee have been entered into the record for the validation lawsuit (High Speed Rail Authority et al. v. All Persons Interested et al. – Case No. 2013-00140689) filed on March 19, 2013 in Sacramento County Superior Court concerning the legal validity of the bond sales. My comments help to boost the case of the respondents (“All Persons Interested”) that the California High-Speed Passenger Train Finance Committee failed to fulfill its legal responsibilities under Proposition 1A before it authorized the bond sales.

My written comments are submitted to the court as Exhibit G (public comment letter to the HSPT Finance Board by Kevin Dayton, March 15 , 2013) in the August 19, 2013 declaration of Rita Wespi of Californians Advocating Responsible Rail Design (CARRD) based in Palo Alto. Her declaration states that “Based on a series of Public Records Act requests I submitted to the High-Speed Rail Authority and the High-Speed Passenger Train Finance Committee, it is my opinion that the Finance Committee voted to approve over eight billion dollars of state bonds with little more information than a resolution from the High Speed Rail Authority.”

The declaration goes on to state the following:

On March 25, 2013, I made a similar request of the HSPT Finance Committee for “copies of all reports, analyses and recommendations provided to the HSPT Finance Committee members.”

Mr. Mark Paxson, General Counsel for the Treasurer’s Office, replied that “other than the agendas, resolutions and minutes from the prior meeting that are due for approval, there are typically no other documents provided to Finance Committee members prior to their meetings.”

In his response, Mr. Paxson stated that, for the March 18 committee meeting, the HSPT Finance Committee received in total one public comment letter and a briefing memo from the Public Finance Division’s staff. The staff briefing memo simply reiterated the agenda.

The March 15, 2013 public comment letter requested the Finance Committee to add language to Resolutions IX and X which would a) prohibit 40-year terms of maturity, and b) prohibit the use of Capital Appreciation Bonds. The letter argued that without this language, the bond sales and resulting repayment schedule would deviate from what was described in the 2008 voter guide for Proposition 1A. To the best of my knowledge, this letter was not acknowledged or discussed by the Finance Committee.

The declaration is correct: the only indications that my public comment was received was a subsequent email dated March 20, 2013 from Timothy Aguirre in the State Treasurer’s office informing me that “The State Treasurer’s Office will be holding the High-Speed Passenger Train Finance Committee meeting on Friday, March 29, 2013 at 2:00 pm at STO Room 587. Please see the attached meeting agenda” and a March 25, 2013 email from a general mailbox for the State Treasurer’s Office stating “You have indicated you would like to be contacted on items relating to the High Speed Passenger Train Finance Committee. The resolutions to be taken up during the March 29th meeting have been posted to the State Treasurer’s website.  You can find the resolutions by following the web link provided below. http://www.treasurer.ca.gov/financial/meeting.asp.”

My comments in person at the California High-Speed Passenger Train Finance Committee meeting on March 18, 2013 were submitted as Exhibit A (transcript of the meeting) as part of an August 19, 2013 declaration of Kathy Hamilton of Menlo Park, who writes articles about California High-Speed Rail for the Examiner web site.

Kevin Dayton: Note: Tape was turned on a little late, missing his intro. Kevin is CEO of
Labor Issues Solutions.

“Will the bonds be sold separately or at the same time for state bonds for other purposes? What rate do you expect to sell them at? I heard the chairman say 6.25% but I’m going to guess that was probably made that number up out of his head. The bonds selling last week were between 3.5 and 3.8%, something like that. I’d like to hear more about what you think you will get out of this. How will the bonds be structured? Will we be selling capital appreciation bonds at all for this? If the lawsuit that is coming up in Kings County is lost by the High-Speed Rail Authority and you’ve sold bonds, what happens to the money? These are questions I think that regular Californian who voted for this want to know. [They want to know] a lot more about this. We need to know a lot more about this [because] it’s a lot of money for us especially when you consider the interest etc will be about $20 billion [interest on bond funds] total for the whole thing. Thank you.”

Carol Ferris breaks in: “I’d like to thank you for your comments. I would also like to say that the purpose of this is to hear public comment and certainly the committee members can then take your comment into consideration. It’s not a question and answer session at this time.”

As noted in Kathy Hamilton’s declaration about the California High-Speed Passenger Train Finance Committee, “There was no evidence presented, questions asked or witnesses called. There were no discussions that the approval of the High-Speed Rail resolution was necessary or desirable. There were no discussions at all…none of the appointed committee members were in attendance, and all were substitute representatives.”

In other words, it was a farce. My article California High-Speed Rail: One-Way Ticket to Debt in www.FlashReport.org on March 25, 2013 described my experience speaking at the March 18, 2013 meetings of the California High-Speed Rail Authority and the California High-Speed Passenger Train Finance Committee. Also related to this meeting are my March 15, 2013 post Message to California High-Speed Rail Authority and California High-Speed Passenger Train Finance Committee: No 40-Year Bonds, No Capital Appreciation Bonds, What If You Lose Lawsuit? and my March 30, 2013 post Reality of Crushing Public Debt from Bond Sales Eclipses the Fantasy Vision of California High-Speed Rail.

Additional Background on Bond Validation Lawsuits

Documents filed in California High-Speed Rail Bond Validation Lawsuit – on the web site of Transportation Solutions Defense and Education Fund (TRANSDEF)

Sacramento Judge Has a Full Plate of Rail LawsuitsFresno Bee – September 9, 2013

Legal Challenges Plague the California Rail Projectwww.Examiner.com, by Kathy Hamilton – September 8, 2013

Bullet Project Attempts Legal Maneuver to Limit Damage by Lawsuits – www.Examiner.com, by Kathy Hamilton – April 2, 2013

California’s High-Speed Rail Authority Sues Everybody, Invites You to Argue Case in CourtSan Jose Mercury-News – March 28, 2013