Details released Tuesday on the now defunct Honolulu rail “P3” effort show the actual price to complete the rail line’s final four miles and eight stations, plus build a mid-route transit hub in Pearl City, could cost at least $1.3 billion more than the city had budgeted for that work.
Both of the private-sector teams that recently competed for the public-private partnership to finish rail bid over $2.7 billion for the construction contract.
One team, dubbed City Center Connection Group, or “C3G,” bid $2.775 billion, according to a city release. The other finalist, Imua Transit Honolulu or “ITH,” bid $2.730 billion.
Both bids included several hundred million dollars of financing costs, which the teams would have to cover on top of the base design and construction price. They represent the public’s first glimpse of actual market prices needed to complete the perpetually cash-strapped transit project to Ala Moana Center.
The Honolulu Authority for Rapid Transportation had estimated that work would cost some $1.4 billion. The P3 procurement file shows that HART had set a $1.72 billion “affordability limit,” or cap on what it was able to pay.
“I felt it was critical to make a decision on the P3 so we could know what the market prices are,” said Glenn Nohara, a retired construction executive who sits on the HART board. “Now, we need to make plans going forward.”
The P3 deal wasn’t just about construction, however — it also included a 30-year operations and maintenance component. The procurement file shows the city would have paid C3G more than $5.3 billion for O&M over 30 years and ITH nearly $4.2 billion.
But HART had provided the teams with an affordability limit of $4.95 billion over 30 years. Had the city awarded the P3 deal to ITH, it would have locked in savings on operations and maintenance of about $750 million over that 30 years, HART Executive Director Robbins said Tuesday.
Nonetheless, HART and the city still would have been well short of the funding needed to finish construction.
Robbins said the $2.7 billion bids were just the initial offering. Had the P3 procurement been allowed to continue, his agency would have been able to trim about 5% from the proposed prices.
A 5% reduction would still leave the city short of the needed funds, however. But Robbins said that HART could have locked in the P3 deal — and those operations savings — by agreeing to do the work in phases as construction funding became available. State procurement law allows for such an arrangement, he said.
It would only need to certify the deal with an initial, $250 million agreement for initial design work to prepare for construction, Robbins said.
This fall, the city and HART’s administrative leaders openly clashed over whether to cancel the P3 procurement, even as the pricing details behind the debate remained private. HART finally relented on Nov. 20 and agreed to cancel the P3 procurement. It had been pursuing that effort for about two years.
HART on Monday announced that it has taken early steps toward launching its fourth attempt to award a contract that gets rail past Middle Street and into town.
“So now we are gauging what interest there may be in completing only the construction of the rail project under a new procurement for City Center,” Robbins said in a statement. “We’ll be asking construction industry experts about contract packaging and delivery methods that will provide the best value for the community.”
Now, HART and the city aim to complete construction with a phased approach to get the elevated line to Ala Moana Center. Unlike in the P3 procurement, there would be no operations component.
The private-sector prices also appear to indicate that rail will cost well over $11 billion.
The rail agency’s more recent budget estimates still fall well short of the prices proposed by the C3G and ITH teams. In late November, the HART board’s finance committee reviewed a budget estimate that put that last major rail construction work at just $2.3 billion.
Ruth Lohr, HART’s chief financial officer, acknowledged at the time that with the failure of the P3 effort rail officials didn’t know what the true cost would be. The P3 bids were sealed to follow state procurement laws.
This summer, the CEO of construction firm Tutor Perini Corporation, which was part of the ITH team, disclosed to investors that their bid was “over 2 billion.”
Honolulu Mayor Kirk Caldwell and other city leaders have said the unaffordable prices made it clear the city should abandon P3 immediately.
However, correspondences between HART and the city that were confidential during the procurement process show that city officials were looking to end the P3 procurement as early as May, before those price proposals were submitted.
“If the P3 procurement ultimately will not be in HART’s or the City’s best interest or will not be successful, it is imperative that we identify and determine that at the earliest practicable time so that we can recover quickly and minimize cost increases and schedule delays,” former city Transportation Services Director Wes Frysztacki wrote to Robbins in a May 11 letter.
In August, after the prices were submitted, Deputy Budget and Fiscal Services Director Manuel Valbuena told Robbins that the city remained intent on leaving the P3 effort, as “previously provided in correspondence from DTS” — the city’s Department of Transportation Services — “to HART dated May 11 and July 17, 2020 and hereby restated.” (The price proposals were submitted the last week in July.)
HART and city officials hope to devise a strategy that’s amenable to their partners at the Federal Transit Administration to salvage the transit project, despite its latest spike in costs.
HART and the city withheld the P3 price proposals last week because one of the teams had objected to sharing those details. Correspondences provided by HART on Tuesday revealed that the C3G group was the one that objected.
HART provided the pricing details after C3G did not file an appeal with the state’s Office of Information Practices.
Read the correspondence with C3G here:
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