Tag Archive for Tutor Perini/Zachry/Parsons

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.

2012 “Buy America” Law Estimated to Cost $20 Million for Utility Relocation on First 29 Miles of California High-Speed Rail

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.