HART manages risk with $400M deal

The Honolulu Authority for Rapid Transportation (HART) will soon begin construction work on the town side of Middle Street. This will be the initial push to complete the rail project to Ala Moana Center.

The first work will involve the relocation of utilities along the 4-mile stretch of Dillingham Boulevard through Kalihi, into Downtown Honolulu, through Kakaako and into the Ala Moana neighborhood. Advancing utilities relocation work in the City Center area mitigates one of the highest risks identified in all transit projects.

For this work, HART awarded an “IDIQ” contract for a not-to-exceed amount of $400 million. This is not a typical “low-bid” or “fixed-price” type of contract, but rather one designed to allow maximum flexibility in dealing with utility relocation work. The IDIQ or Indefinite Delivery/Indefinite Quantity approach is based on a catalog of firm unit pricing awarded to the contractor. The unit pricing is for specific tasks, such as installing a length of pipe at a specific depth.

In this way, HART can issue task orders to the contractor with agreed pricing, until all the work necessary is completed. The contract allows HART to manage risk, such that the contractor can continue working each day despite obstacles that might arise. The contractor is paid only for work it performs, and no delay costs are paid when obstacles or issues arise.

To develop a cost estimate for this project, HART considered several scenarios, one of which was to analyze the work in the most optimal environment. That was one in which production and work would not be inhibited due to the need to keep roads open and traffic flowing. This “low end” estimate came in at about $240 million. While cost estimates are confidential so as to not tip off potential bidders, agencies typically provide a target price or a range in their procurement documents so as not to reveal the actual budget. In this case, HART used the $240 million as its lower range estimate for bidders.

But HART is also realistic. To that end, several other detailed estimates were done under differing assumptions to better predict the real-world situation under which the selected contractor would be working. Based on these estimates, HART established a budget of $408 million for the utility relocation work, and the contract awarded to Nan Inc. at $400 million is under that budgeted amount.

Additionally, contingency is carried across the entire rail development program such that the realization of any particular risk that results in more cost will not result in our project budget being exceeded. This helps us keep our commitment to stay on budget. The fact is that since January 2017, project costs have not “run away,” and our publicly stated budget of $8.165 billion, excluding financing costs, has not changed.

HART has had several recent discussions with the Federal Transit Administration, which recognized the “night and day difference” in the way HART is now managing the project. In specific talks about the utilities work, FTA confirmed that it is comfortable with HART proceeding with the IDIQ contract.

Hard-working men and women, friends, relatives and neighbors, are out every day building this project. Construction work is progressing on the nine rail stations on the ewa end, while foundations and columns for the guideway between Aloha Stadium and Joint Base Pearl Harbor-Hickam are being constructed.

Plans to begin limited passenger service in less than 2-1/2 years are proceeding. The utility relocation work now starting past Middle Street is another example of HART’s commitment to complete the project in a responsible manner, and the momentum for this important and transformational project continues.

Andrew Robbins is executive director/CEO of the Honolulu Authority for Rapid Transportation.