Aggressive cost containment is necessary if Honolulu plans to stay within budget on its $5.2 billion rail project, according to a recent report from a federal contractor hired to oversee design and construction progress.

It’s a dire assessment of the fiscal standing of the largest public works project in Hawaii’s history, and one that seems to conflict with what top rail officials have been saying about finishing the project on time and within its budget.

And the report was issued before the Honolulu Authority for Rapid Rapid Transit learned that bids for the construction of nine rail stations came in 60 percent higher than expected, or about $110 million more than what was budgeted.

HART officials are now rebidding that contract in three separate parts in an effort to contain costs, although it could delay opening the first leg of the rail system.

Honolulu Rail Hele On (NO text)

Honolulu’s rail project faces significant cost challenges in part because of a fast-paced market and two lawsuits that delayed construction.

PF Bentley/Civil Beat

The July report, which was released in late August, noted the “sufficiency of the budget” would need to be re-evaluated after another major bid opening in November for a contract currently estimated at $750 million.

If that bid is anything like the August opening, serious questions could be raised about whether there is enough money to complete the project as promised.

A Pessimistic Viewpoint

HART Executive Director and CEO Dan Grabauskas downplayed the federal contractor’s assessment, saying it’s meant to be a pessimistic view of where the project stands today.

“Their job is to look at the part of the glass that’s half empty,” Grabauskas said. “Each of these reports is constantly hammering on budget and schedule. The language in there is meant to challenge us every month.”

That means the contractor will often issue stern warnings about potential financial risks — such as delays in property acquisition that could impact construction schedules — even if those pitfalls never come to pass.

“We don’t want to wake up one day and see a zero balance in our contingency account.” — HART CEO Dan Grabauskas

The contractor estimated in the July report there’s only $390 million left over in the rail project’s contingency fund,which is meant to cover unexpected cost increases. That’s $165 million less than what Grabauskas told a Honolulu City Council budget committee last week.

Grabauskas said the difference is due to the contractor projecting future cost increases that are likely to occur or that might still be under negotiation, such as for change orders. He said the $555 million figure he gave to council members is the known balance of the contingency fund, which does not take into account those possible upcoming costs.

“We want to anticipate and see trends,” Grabauskas said. “We don’t want to wake up one day and see a zero balance in our contingency account.”

Looking to Trim

The project management oversight contractor who wrote the report, was hired by the Federal Transit Administration to monitor the $1.5 billion grant the agency dedicated to rail.

The contractor issues monthly reports to evaluate whether the project is progressing as scheduled and within the proposed budget. July’s report is the most recent available.

The FTA did not comment in the report, although it did submit recommendations to HART that are expected to be discussed at Thursday’s regular board meeting.

The oversight contractor, Tim Mantych, of Jacobs Engineering Group, in St. Louis, did not respond to interview requests.

Several budgetary issues are covered in the July report, from concerns about using federal funds to build an interim park-and-ride facility at a University of Hawaii West Oahu train station to proposed design changes that could involve additional environmental review.

Each month the contractor and HART review project costs and contracts, with much of the discussion focused on cutting expenses and speeding up the construction schedule.

The July reported emphasized the need for HART to “develop aggressive cost containment measures” based on the oversight contractor’s review of project risks.

CEO for the Honolulu Authority for Rapid Transportation (HART) answers questions from the Honolulu City Council on June 4, 2014.

Honolulu Authority for Rapid Transportation Executive Director and CEO Dan Grabauskas is hopeful the rail project has enough contingency money to cover increasing construction costs.

PF Bentley/Civil Beat

Grabauskas said he’s constantly searching for places to trim costs. A recent example he cites is HART moving away from buying rail insurance from Kiewit, which is one of the contractors working on the project.

HART initially budgeted $65 million to cover the insurance costs, but Grabauskas said the actual price tag was estimated to increase to $75 million. Instead, HART decided to buy its own insurance with an equivalent cost of $60 million.

“That’s an aggressive cost containment measure,” he said.

HART is also looking to trim costs in other areas, although Grabauskas was unwilling to provide specifics.

He said any cuts, particularly those related to station and guideway construction, would not affect customer safety or comfort. That could result in getting rid of “non-essential” aspects of stations and using less expensive materials.

Trimming the cost of materials is one aspect of rebidding construction on the first nine stations.

During a press conference Tuesday, Grabauskas told reporters that HART had decided it would ask contractors to use a different type of concrete finish that is less expensive than what was in the initial request for proposals.

He also said HART would split the contract up into three parts to stagger the work and potentially open up the project to smaller contractors.

Grabauskas hopes this will help reduce the price of the nine stations, but he also made it clear that there is “no guarantee.”

“All of this is simply about trying to drive down cost,” he said.

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