A high-speed rail viaduct is under construction just south of Fresno near Highway 99. Image via California High-Speed Rail Authority
Written by David Castellon
The California High-Speed Rail Authority made costly mistakes early that have ballooned by billions of dollars the cost of the nation’s first such rail system.
And the organization currently needs to get its procedures for reviewing contracts and deliveries in order to avoid additional cost overruns, according to an audit report on the agency issued this morning by California State Auditor Elaine Howle.
“Its Flawed Decision Making and Poor Contract Management Have Contributed to Billions in Cost Overruns and Delays in the System’s Construction,” states the headline for the report, which was requested by the Joint Legislative Audit Committee, comprised of state Assembly and Senate members.
The rail line is planned to extend about 520 miles from Los Angeles through the Valley to San Francisco, transporting passengers at speeds over 200 mph.
But plans to share some rail lines with existing commuter and freight services to cut costs may force the trains to have to slow down in some areas, states the report. It goes on to say that while the rail authority claims to have secured or lined up $28 billion so far, enough to complete the rail line from Bakersfield to Madera – the first phase of construction, which now is underway – and Gilroy to San Francisco, it would need to secure additional dollars to connect the two.
And that doesn’t include securing more funding to build the rest of the line between Bakersfield and Los Angeles, the auditor’s report states.
In addition, the agency notes that having to push back the construction completion schedule for the Valley portion of the rail line as far as March 2022 is risky because if construction isn’t finished by December of that year, the rail authority may have to pay back federal grants totaling $3.5 billion, “$2.6billion of which it reports it has already spent,” according to the audit report.
When Californians voted in 2008 to approve the sale of $9.9 million in bonds for the project, the total cost estimate presented to voters was $35 billion.
But that was far from accurate, as the estimate has more than doubled to about $77 billion, and that cost could go up further, the auditor estimates.
“The Authority’s spending to date and future projections suggest that the risk of such additional cost increases is high,” states the report.
“Costs for the threecurrent construction projects in the Central Valley have been significantly greater than the authority originally projected, in large part because the authority did not complete many critical planning tasks before moving forward with construction. Although the authority has asserted that the early start was necessary to comply with the requirements for the system’s federal grant funding,” it continues.
“The risks associated with beginning construction early – the fact that the authority had not acquired sufficient land for building, had not determined how it would relocate utility systems and had not obtained agreements with external stakeholders, including impacted local governments and other railroad operators – developed into costly problems. These risks have contributed to more than $600million in changes to construction contracts to pay for work for which the Authority had not sufficiently planned or budgeted.”
And despite being aware of the risks, rail officials didn’t factor them into their cost forecasts until early this year, the report states.
“It now forecasts that finishing the construction that is currently underway will require still another $1.6billion in contract changes,” the state auditors report.
“In addition, the authority will need to do more to control the soaring costs of its contracts by improving its contract management,” it states, noting that the rail authority made some changes after an internal audit revealed problems with that system.
Still, the auditors concluded that despite there being 56 full-time and part-time contract managers and outside consultants overseeing contracts, the auditors found significant problems in some contracts – one valued at $1.3 billion – and few of the people overseeing the contracts reviewed could provide evidence they had reviewed monthly invoices.
“We found similar problems when we reviewed the authority’s monitoring of deliverables” and contracted services provided, it states, going on to say that none of the contract managers for nine contracts reviewed maintained tracking logs.
“Further, only twocontract managers could demonstrate any formal documentation for the acceptance of deliverables, and we have concerns regarding the timeliness with which these two contract managers evaluated and accepted deliverables.”
The report goes on to say that “Without the contract management documentation its policies require, the authority cannot demonstrate that the hundreds of millions of dollars it has spent to date on the contracts we reviewed has been necessary or appropriate.”
Among the recommendations by the auditors:
– HSRA should establish formal prerequisites for beginning construction to prevent avoidable cost overruns and project delays.
– Provide quarterly updates to the state Legislature detailing the progress of Valley construction by January 2019 to help avoid overshooting the December 2022 deadline or risk having to pay back the American Recovery and Reinvestment Act grant money.
– Prioritize contract management efforts by establishing a process for hiring and assigning full-time, experienced contract managers.
– Require HSRA’s ContractManagement Support Unit to establish a schedule to monitor contract manager compliance and help ensure the unit’s integrity by staffing it with full-time contract managers who are state employees.
– Hold contract managers accountable for performing the duties assigned to them. The Authority should require and review documentation of the contract managers’ compliance with these policies and related procedures.
In letters posted on the state auditor’s website, HSRA officials state, “We concur with and will work to implement the CSA’s recommendations as an integral part of the Authority’s commitment to excellence and continuous improvement.”
Another states, “We are pleased to report that we have begun implementing these and other corrective actions to remedy the issues identified,” and goes on to offer a lengthy list of actions planned based on the findings and recommendation of the audit.
See the audit and the responses online at www.auditor.ca.gov.