Billing errors have led the local agency overseeing Honolulu rail to overpay project contractors in several cases, including one of the agency’s main consultants helping to manage construction, according to the state auditor’s office.

Further, the Honolulu Authority for Rapid Transportation doesn’t always require the necessary documentation to justify rail costs when its contractors and Hawaiian Electric Co. submit their invoices, according to a summary of the auditor’s latest report on the project.

That report, done by the private firm Baker Tilly Virchow Krause, is slated to come out Friday.

Baker Tilly relied on a relatively small sample of rail invoices over a couple of years and uncovered faulty payments totaling thousands of dollars, State Auditor Les Kondo said Thursday.

It’s the latest in a string of audits scrutinizing the project, which has seen its costs nearly double to $9 billion.

It remains unclear whether the isolated issues flagged by Baker Tilly extend to other rail contracts. “There’s some leakage. How much? I don’t know,” Kondo said.

He downplayed the report’s significance, in part because some of the overpayments were small, and called his office’s first two audits on rail more important.

State Auditor Les Kondo speaks about the first HART Audit.
State Auditor Les Kondo speaks about the first HART Audit. Cory Lum/Civil Beat

Nonetheless, HART board members discussed at length the report’s findings — and HART’s response — during a subcommittee meeting Thursday. The rail agency then repeatedly declined to provide a copy of the draft report that its board members had discussed, citing instructions from Kondo not to do so.

Instead, the local agency provided a summary list of 11 findings from the auditor’s upcoming report and HART’s responses. HART officials said the summary used the auditor’s own wording.

It’s not clear whether the summary that rail leaders discussed publicly on Thursday lacks important context from the state’s yet-to-be released audit.

It’s to be the auditor’s fourth and final chapter in a series of state-mandated probes into problems that have dogged rail under HART and city management.

The auditor’s report, along with a similar series released by the city auditor, have shed more light on the causes that helped dramatically drive up costs in recent years besides the hot construction market, which rail officials mainly cite.

It comes as the rail project finds itself embroiled in a federal criminal investigation and as HART attempts to significantly alter its approach mid-construction, switching to a public-private partnership, in hopes of finishing the full 20-mile, 21-station transit line by 2026.

On Friday, HART is expected to trim the candidates looking to finish rail to Ala Moana Center to no more than three finalists. Under state procurement law it can’t say who those finalists are — or even how many there are, according to agency officials.

Earlier this year the Honolulu City Council also authorized a forensic audit to probe for a potential fraud or malfeasance — a step they hope will help recover some of the public’s trust on the project.

Waipahu Rail Station HART 2.
A rail station takes shape in Waipahu. A summary of the latest state auditor’s report flagged problems with HART’s handling of billing and invoices in some cases. Cory Lum/Civil Beat

One of the state auditor’s more notable findings, according to the summary, was that HART at one point declined nearly $124,000 in savings it stood to gain from its core systems support contractor, Lea + Elliot. Agency officials believed — erroneously — that they had a policy of waiving such savings if they didn’t amount to at least 3% of the contract’s overhead, according to the summary.

In its response HART acknowledged that it had erred in believing there was such a waiver policy in the first place. Lea + Elliot will credit the full amount going forward, according to HART.

The rail agency waived those savings in 2015 and 2016, a particularly fraught era in the project’s recent history, in which rail’s total cost estimate spiked dramatically.

HDR Engineering, a consultant whose employees are among some of rail’s top managers embedded in HART, frequently billed the rail agency using incorrect rates between 2016 and 2018, according to the audit summary. The firm overcharged the local agency more than $5,000 in that time, it added.

HART said it’s seeking that money back from HDR and vetting its procedures to “mitigate discrepancies.”

In a separate audit released in January, the state found that HART doesn’t properly hold accountable the project’s consultants, who have an “obvious profit motive.”

The latest state audit also found that HART doesn’t require Hawaiian Electric Co. to provide enough supporting documentation for its costs on the rail project, and that rail’s on-call contractors can bill the project using different rates at different times for identical tasks.

However, board members took issue with some of the other findings. They disagreed with the auditor that HART should require contractors to collect so-called “lien waivers,” which the auditor said could protect the agency from future subcontractor claims.

“Some of these observations strike me as off base,” said Terrence Lee, the volunteer board’s vice chairman.

FTA Stands Firm on City Rail Payments

Meanwhile, as the HART board discussed the state auditor’s report and other matters Thursday, a mainland delegation from Federal Transit Administration, including Regional Administrator Ray Tellis, waited upstairs in the agency’s Alii Place offices to discuss the future of the project.

HART Executive Director Andrew Robbins press conference at Alii Place.
HART Executive Director Andrew Robbins looked to sway rail’s FTA partners to release project funding earlier. Cory Lum/Civil Beat

The FTA tentatively plans to start releasing rail’s remaining federal dollars in February, once the costs of switching to a public-private partnership become clearer.

HART Executive Director Andy Robbins has said he hoped to convince the FTA to resume payments of that $744 million later this year instead.

He also aimed to convince the FTA to allow the city to delay paying the bulk of its $214 million obligation to rail construction until 2026. The FTA, however, wants to see the city start those payments in more “stable” amounts, starting now.

It’s not clear that Robbins succeeded. In a statement released after the meeting Thursday, HART said the FTA officials reiterated their desire to see the city payments earlier.

“We understand the Honolulu City Council will address the provision of the City Subsidy in the coming weeks,” Robbins said in that statement.

Read the state audit here::

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