Get control of rail contract costs

The national recession seemed to bring bargain contracts for design and construction of Honolulu’s 20-mile rail line, but what appear to have been loopholes are beginning to increase dollar costs by the tens of millions. With about half of rail contracts already let out — some say too eagerly, leading to some costly delays — the authority overseeing the transit project needs to better pace the awarding of future jobs to avoid potential cost hikes through premature agreements with contractors.

In October 2009, then-Mayor Mufi Hannemann looked to be doing the right thing in pushing to begin construction of the $5.27 billion project in two months. Indeed, the $482.9 million contract with Kiewit Pacific Co. was $15 million less than the city had anticipated for the start of design work and construction of the rail line’s first segment.

"Because this economy is in the tank," Hannemann explained, "the sooner we get these contracts out, the sooner we can get people to work (and) the sooner we can employ them and we can help the economy."

Alas, ground was not broken for the rail until February 2011, and the city expects to tap $58.2 million from the initially $865 million in "contingency" funding to cover change orders and other unbudgeted expenses, according to the Honolulu Authority for Rapid Transportation. That and other delays in contracts are expected so far to cost $88.1 million from the contingency reserve, expected to leave $776.9 million.

Some $865 million for a contingency cushion certainly sounds reassuring at the outset — but as evidenced in recent months, it can draw down relatively quickly, as reported by the Star-Advertiser’s Kevin Dayton. And that makes a community staring down rail’s multibillion-dollar price tag increasingly nervous, especially with construction just starting.

HART Executive Director Daniel Grabauskas says the additional contingency spending is "not unusual," noting that the city has awarded about half of the contracts required to complete the project. He said the city still is negotiating "some pretty wide disagreement" on claims by Kiewit, the project’s major contractor, and the issue is far from settled.

Other settlements made by the city with rail contractors using the contingency fund include $15.9 million to cover increased costs in steel and other materials to Kiewit/Kobayashi, a Joint Venture, $10.7 million to cover the cost of designing the rail guideway in the Honolulu Airport area to AECOM Technical Services Inc. and $4 million to Kiewit to cover insurance costs after a city-sponsored insurance plan was delayed.

With the country’s economic setback, HART needs to make good on the city’s promise to capitalize on frugal, competitive costs from rail contractors. Apart from the contingency fund, Mayor Peter Carlisle signed a City Council bill to authorize a $450 million line of sudden infusion of borrowed cash available to the rail project, but he said that "the likelihood is next to zero" that it will be needed. For skeptical taxpayers, such words ring hollow unless the city shows via actions it can rein in contract costs.

Revenue from the city’s half-percent general excise tax surcharge that began at the beginning of 2007 is set to expire at the end of 2022 and appears to be sufficient, along with federal assistance, to complete the project. HART still must ensure that this steep dip into the contingency fund for the first half of rail contracts is a starting spurt and not a pattern. But the use of contingency funds is to be expected, and it should not discourage the movement forward.