Construction on Honolulu’s 20-mile rail line has just begun, but the city is already chewing through cash reserves set aside to cover budget overruns or other unexpected costs related to construction of the project, according to city records.
Last year the city reported it had "contingency" funding of more than $865 million to cover unexpected or unbudgeted costs for the $5.27 billion rail project.
That contingency budget dropped to about $835 million after the city drew down funds to cover change orders and other unbudgeted expenses, and the city expects to tap another $58 million in contingency funding for undisclosed costs in the months ahead, according to records released by the Honolulu Authority for Rapid Transportation.
That additional contingency spending would drop the remaining contingency reserve to $776.9 million, but HART Executive Director Daniel Grabauskas said that is no cause for concern.
"It is not unusual," Grabauskas said, pointing out the city has awarded about half of the contracts that will be required to complete the rail project. City officials say those signed contracts lock in many of the city’s costs, and reduce the chances of unbudgeted construction expenses in the future.
However, much of the contingency money the city is spending will go to pay delay claims for a contract that was awarded in 2009, and to pay for escalations in the cost of materials such as steel under another contract that was awarded last year.
Those change orders granted to Kiewit Infrastructure West Co. and Kiewit/Kobayashi, a Joint Venture, in recent months made it clear that construction-related costs can escalate even after the city awards rail contracts at fixed prices.
Donald Horner, chairman of the Finance Committee for the HART board of directors, has vowed to closely monitor the contingency budget to be sure the city is careful with taxpayer dollars and keeps costs under control.
Horner did not respond to a request for comment for this article.
Grabauskas last week would not say exactly how the city plans to spend the $58.2 million that city officials expect to draw down from the rail contingency budget in the months ahead.
"Because we are in negotiations with contractors over possible change orders, we cannot give specific breakdowns of those figures at this time," he said. The concern is that detailing how much the city expects to pay for the claims would tip the city’s hand in the negotiations.
The additional contingency spending will likely go for contractors’ delay claims, future contract negotiations, land acquisition, HART and consultant staffing changes, and design modifications for the rail project, Grabauskas said.
The contingency spending that has been made public so far includes a $15 million change order the city last year agreed to pay to Kiewit to compensate the company for delays in the start of design work and construction of the first segment of the rail line.
The city contracted with Kiewit on Nov. 17, 2009, to build the first portion from East Kapolei to Pearl Highlands. The city was supposed to issue notices authorizing the contractor to proceed with all construction the following spring, according to a claim for compensation filed by Kiewit with the city.
That didn’t happen. The city encountered delays in winning final approval of the project’s environmental impact statement, and more delays in obtaining required approvals from the Federal Transit Administration.
The city finally authorized Kiewit to begin heavy construction on the first 6.5-mile segment earlier this year, almost two years later than originally planned.
Kiewit and the city agreed last year that the city would make an initial $15 million payment to compensate the company for some of those delays, but city officials acknowledge millions of dollars in additional delay claims by Kiewit are still unresolved.
The city would not make public the details of those additional Kiewit claims, and officials say they will be resolved later through negotiations.
"We are still negotiating with Kiewit on those final numbers," Grabauskas said. "I don’t have an estimate on when we would settle those claims. We settled the ones that we could come to agreement on both sides. We have some pretty wide disagreement on what we think the remaining amount is. I anticipate it’s going to take some time to come to resolution."
Former Mayor Mufi Hannemann praised that Kiewit contract in a news release in 2009, saying that Kiewit’s proposal cost $90 million less than the city had expected.
The city decided to award the Kiewit contract for the first segment in 2009 to "demonstrate to the public that tangible progress was being made" on the rail project, according to city records.
Rail opponents have strongly criticized the city for awarding that and other contracts too early and incurring delay claims by Kiewit.
In April, the city announced another $15.9 million change order to cover increases in the cost of steel and other materials required for the 20-mile rail project.
Kiewit/Kobayashi made that claim for additional money because prices for steel and other materials have increased in the two years since the joint venture originally expected to begin work.
Kiewit/Kobayashi’s original 2010 proposal to provide the materials assumed the company would begin work in April 2010.
In fact, the joint venture’s contract award was not finalized until June 24, 2011, and Kiewit was not given authorization to take steps such as ordering steel until last January.
Kiewit/Kobayashi is also seeking money for additional profit and overhead costs related to the steel and materials purchases, but the city is still negotiating on those issues.
Grabauskas said another $10.7 million was transferred out of the contingency budget to cover the cost of designing the rail guideway in the airport area.
The airport guideway and utilities design contract with AECOM Technical Services Inc. cost more than the city projected for that design work, meaning $10.7 million had to be transferred out of the contingency budget to cover the cost of the contract, according to a report released by the city last month.
The city issued a news release Jan. 9 announcing the award of the $38.8 million contract to AECOM for design of the 5.2-mile airport segment, but the news release didn’t mention the cost of the design had exceeded the amount HART had budgeted for the work.
The city also tapped contingency funding to cover some smaller change orders, including $4 million the city has agreed to pay for insurance for Kiewit.
That insurance was supposed to be provided through a special city-backed Owner Controlled Insurance Program, or OCIP, but procurement problems delayed the launch of OCIP.
The city then agreed to provide $4 million to allow Kiewit to purchase its own insurance instead of obtaining coverage through OCIP.
City records also show HART tapped another $800,000 in contingency funding to cover the higher-than-expected cost of a real estate consultant who assisted the city with buying property needed for the rail project.
Grabauskas said the FTA required the city to hire a contactor with special expertise in FTA procedures and requirements for buying property and relocating businesses and residents for public works projects.
The city then entered into a contract with Paragon Partners Ltd. for $3.2 million to assist with real estate purchases and relocations, which was $800,000 more than the city had projected, Grabauskas said.
The city also announced two additional change orders earlier this month.
The HART board on June 7 approved a $1.9 million addition to the city’s $5.5 million contact with HDR Engineering Inc. to design the West Loch, Waipahu and Leeward Community College rail stations.
That change order increases the fee for HDR as part of an effort to redesign the stations to cut station construction costs. Elements of the improved design can be used for other stations along the rail route, according to information provided by HART.
Another change order would add $2.67 million to fund a memorandum of understanding between the city and Waipahu High School in connection with rail construction work that will be done on the school grounds.
Kiewit originally estimated that mitigation work at the school would cost $596,000, but city officials later discovered there would be additional costs, including the replacement of portable classrooms and air-conditioners.
