The latest financial plan for the Honolulu rail system shows the city has increased the design and construction cost estimates by $160 million since last fall, and is dipping deeper into the cash reserves for the project.
The largest cost increase shown in the new rail financial plan is for professional services such as design, engineering and project management, which are now expected to cost $153 million more than the city had budgeted last September for those activities.
Other major cost increases in the new financial plan include $83 million that will be needed for site work and "special conditions" related to rail.
At least some of those design and site work costs will go to pay delay claims filed by rail contractors, but city officials say they are still negotiating exactly how much will have to be paid to settle those claims.
Despite those new cost increases, the rail project is still within its overall $5.26 billion budget. That’s because the total budget for rail includes a large cash cushion known as "contingency" funding which is used to cover unexpected cost increases or unbudgeted expenses during planning and construction.
As construction or other costs increase, the money in the contingency budget is being allocated to cover those increases. As the contingency budget shrinks, the cash cushion for the rail project is getting smaller.
The city expects to spend almost all of its contingency funding during construction of the 20-mile rail line.
Don Horner, finance committee chairman for the Honolulu Authority for Rapid Transportation, said HART is carefully watching over the "burn rate," or the rate at which the cash reserves for the project are being spent down, to be sure the project does not run out of reserves.
At one time city officials boasted they had budgeted for a contingency reserve of nearly $1 billion to offset any unexpected costs, but that cash reserve dropped sharply as the project completed the preliminary design phase and construction began.
The contingency reserve for the rail project was reported as $865 million in April 2011, and declined to $815 million in the draft rail financial plan released last September.
The latest financial plan, released in June, shows the contingency reserve dropping to $644 million, which amounts to 15 percent of the overall budget for the project.
Daniel Grabauskas, HART executive director, said the size of the contingency reserve is expected to continue to drop as design and construction costs are finalized and the rail project progresses.
A 15 percent reserve is typical for this stage of a transit project as the city submits its final application for federal funding, Grabauskas said. He said the Federal Transit Administration has agreed that the $644 million contingency budget "is appropriate for this stage of the project."
"At this point we’re feeling very good about the fact that we are within the range that FTA has set, and based on the forseeable future of what is known, we are going in with a very strong amount of contingency," he said.
City officials say they intend to ensure the Honolulu rail project is completed on budget. Grabauskas points to projects such Vancouver’s 12-mile Canada Line, which began service in 2009, and the Vancouver Millennium Line, which opened in 2002, to prove that major transit projects can be completed at or under budget.
The voting public is more skeptical. A poll last month by the Star-Advertiser and Hawaii News Now found that 84 percent of Oahu voters strongly or somewhat agree that the rail project "will end up costing a lot more than is currently estimated."
Opponents of the rail line predict there will be large cost overruns, and cite projects such as the 11-mile Tren Urbano rail line in San Juan, Puerto Rico, which was considerably over budget by the time it opened in 2005.
Longtime rail opponent Cliff Slater said he expects the real cost overruns will come later, after the city has erected several miles of track. Slater said he believes rail contracts were awarded for artificially low amounts because contractors plan to submit change orders later to demand more money.
"Frankly, I’m not as concerned about that on the construction side as I am about the change orders that are coming," Slater said. Once the public believes it is too late to cancel the project, Slater said he expects the city will disclose that rail will actually cost more than the city has budgeted.
Slater is part of a group that has sued in federal court to try to block construction.
The new contingency budget of $644 million is $170 million less than the contingency reserve the city had budgeted in the rail financial plan released last September.
However, the city so far has declined to provide a specific breakdown of expenses that caused the rail project’s cash cushion to plummet in the past nine months.
Grabauskas said that’s because the largest single component of that $170 million is made up of delay claims the city must settle with contractors who were unable to begin work on time because of permitting or other delays in federal approvals that were not the contractors’ fault.
HART is still negotiating with Kiewit Infrastructure West Co. and other contractors over how much the city must pay to settle those delay claims, and city officials say it would tip their hand in those negotiations if they disclose exactly how much contingency funding they have set aside to settle those disputes.
The HART board agreed in January to pay Kiewit $15 million for delays in the construction of the first 6.5-mile segment of rail guideway from East Kapolei to Pearl Highlands, but additional Kiewit delay claims are pending in connection with that contract.
"Once it is settled it will obviously become public record, but at this point we only hurt the public’s interest by injuring our ability to negotiate competitively if we give up the specific dollar amounts that we have reserved" for delay claims, Grabauskas said.
The latest financial plan details the general categories of rail work that have seen some significant cost increases, and the delay claims are included in some of those categories.
The cost of rail-related professional services such as design, engineering and project management is now expected to total $1.184 billion, which is $153 million more than the city estimated last September.
Grabauskas said much of that cost was caused in part by requirements imposed by the FTA that the city hire additional consultants or expand the scope of existing contracts to help oversee construction.
Grabauskas said he hopes that is a "very conservative" number and that the actual cost will turn out to be less.
Professional-services costs are also turning out to be higher than expected in some of the final design contracts, although the city is still negotiating the exact amounts of those contracts, Grabauskas said.
The new financial plan also shows the city expects to spend $1.104 billion on site work and "special conditions" related to rail, which is $83 million more than the city estimated last year.
Included in those costs are delay claims as well as "future contract estimates and anticipated delay changes that we’re still calculating," Grabauskas said.
At the same time, the new financial plan shows rail planners believe they will be able to save money on construction of the 20 miles of raised guideway and track for the train system, which will extend from East Kapolei to Ala Moana Center.
The track and guideway elements are now expected to cost $1.275 billion, which is $46 million less than the city estimated last year.
The city continues to re-engineer the guideway and stations to realize savings changes in design, or unexpectedly low bids on contracts, Grabauskas said.
Other savings detailed in the new financial plan include an $80 million reduction in borrowing costs for the rail project.
