Consultant: T got snookered on Green Line

Transit agency allowed contractor ‘to work the system’

STATE HOUSE NEWS SERVICE

THE STATE ENABLED a major contracting group to take advantage of it, leading to ballooning Green Line Extension costs, according to a consultant brought in to assess what went wrong.

“We allowed them to work the system,” said Brian Lang, a member of the MBTA’s Fiscal and Management Control Board, summarizing the consultant’s report to the board.

“Yes, sir,” replied Terry Yeager, managing director of the consulting firm, the Berkeley Research Group.

Before the control board and the state’s transportation board entered a closed-door executive session Monday afternoon, Yeager and others told them that the contract with White Skanska Kiewit did not cap indirect costs, did not allow the state to check the books on the contractor’s costs, and allowed the contractor to hone in on the maximum allowable price.

The group of three major contractors won the bid through a construction-manager-general-contractor procurement, the only one of its kind by Massachusetts state government. Consultants blamed the state’s implementation of that type of procurement for driving up estimated costs of the trolley extension from the roughly $2 billion price tag a year ago to as much as $3 billion.

[The construction manager/general contractor bidding process, which is a hybrid of two alternative public construction approaches, was approved by the Legislature specifically for the Green Line extension as a pilot project. The CM/GC process uses elements of the so-called Construction Manager at-risk method, where a contractor is picked and then negotiates a guaranteed maximum price that, in theory, requires the contractor to eat any unapproved overages in cost. The hybrid model also draws off the design-bid approach that brings in the contractor at the outset to work with architects on the design and come up with a guaranteed maximum price.] [All three approaches were detailed in a story in CommonWealth magazine’s Fall issue that focused on the pitfalls of the approaches, including the cost overruns of many projects despite the mandate of a guaranteed maximum price. ] The Berkley Research Group’s presentation suggested a key goal of the construction approach – a guaranteed maximum price – was never accomplished. “While these contracts are styled as ‘guaranteed maximum price,’ that is a misnomer,” according to the presentation.] In early December, transportation officials will begin determining how and whether to move forward on a project that Transportation Secretary Stephanie Pollack said is “ripe for being a high-ridership project” with real estate development expected to be spurred along the corridor from East Cambridge through Somerville and out to Medford.

In August, the state announced that an offer submitted by White Skanska Kiewit for construction of the first three stations had led officials to adjust upwards its cost-estimate by $1 billion, throwing the project into jeopardy.

“I still believe that if we can’t do this project there’s no other project that we can do,” said Rafael Mares, vice president and director of Healthy Communities and Environmental Justice at the Conservation Law Foundation – a group that successfully sued the state to commit to the Green Line Extension as a clean air component of the Big Dig. “This is in one of the most densely populated areas of the country. We’re looking at a light rail project – we’re not building a tunnel here. It’s in an existing right-of-way; it’s legally required; and we’re getting almost a billion dollars in federal subsidy.”

While the Massachusetts Department of Transportation hired separate groups to oversee the project – including independent cost estimator Stanton Constructability Services – about 10 people, or the equivalent of four full-time employees, was tasked with oversight from within MassDOT, according to David Mohler, director of planning at MassDOT.

The cost estimator “wasn’t terribly well connected” with the others developing project costs, said Yeager, who said that as White Skanska Kiewit sought a price within 110 percent of the independent cost estimate, the estimator would move its cost estimate up.

“It strikes me as sort of illogical,” said Steve Poftak, a member of the control board and the MassDOT board. Referring to the estimate, he asked, “Why is it moving?”

“I can’t wrap my mind around it either,” Yeager replied.

Ann-Therese Schmid, a partner at the law firm Nossaman who was brought in for additional perspective on the cost overruns, described the cost-estimator as “blind,” and said the contractors did not have a guaranteed maximum price and returned risk on the project to the state.

Pollack said the lack of a comprehensive understanding of the project costs was a long-standing deficiency for the extension, which preceded hiring of the cost estimator.

“There was never a reliably built bottoms-up cost-estimate,” Pollack told reporters. “The independent cost-estimator wasn’t even on board in the early stages,” Pollack said. “It seems like many parties failed to undertake actions that would have helped us much better understand the cost of this project, and the cumulative result is that we are standing here having already let four construction contracts without actually understanding what it’s going to cost to get to the end of the project.”

Schmid said that on construction-manager-general-contractor procurements there should only be one or two contracts for the full project to provide “cost certainty.”

In the first four contracts for preliminary work, utility relocation, drainage, and steel, two came in over-budget by about 45 percent; one came in over by 86 percent; and the steel fabrication contract came in 11 percent under, according to Mohler, who said the “burn rate” on the contracts is about $1 million per week.

Schmid also said that she heard anecdotally the contractors did not always receive three bids from subcontractors as required.

After a closed-door session where board members said no decisions were made, Control Board Chairman Joe Aiello laid out the four next steps: “figure out what we’re going to build … who’s going to build it … where do we find the extra money,” and swapping out the T’s management team.

“We’re going to have to change that out completely,” said Aiello, who said that is his opinion and noted the board has not voted on that. He said there has been no discussion about potentially filing a lawsuit.

Michael Widmer, the longtime former president of the Massachusetts Taxpayers Association, who attended the meeting, said the analysis “raises questions about the handling of this by the Patrick administration,” and credited the Baker administration for its examination of the deficiencies.

“I give them credit for laying them out in detail because when something goes wrong, the public and politicians are looking for who’s to blame, and clearly here there’s the whole system and many actors who are part of the problem,” Widmer told the News Service. “I’ve rarely if ever seen an open, transparent examination of something that went wrong on this scale.”

Jeff Mullan, who was transportation secretary from 2009 to 2011 and is now a partner at Foley Hoag, accompanied the Berkeley Group at the meeting.

Terence Rodgers, managing director of the Berkeley Group, told the board there is “no silver bullet,” though he said the project was excessively schedule-driven.

“People were reluctant to try to back off those dates,” said Rodgers, who acknowledged that he was unfamiliar with the project deadlines.

Mares said the initial deadline had been roughly four years ago, on Dec. 31, 2011, and now there are interim progress measures in place.

“They didn’t even understand what that deadline was,” said Mares, who praised the consultants’ overall analysis but said that aspect was “flawed.” He said, “Part of the problem is that [White Skanska Kiewit] was given the opportunity to take advantage of the MBTA.”

Meet the Author