City officials are starting over in their search for a company to build the first rail stations, hoping to curb construction costs that are $110 million over projections, but risking a one-year delay in the system’s initial opening.
Dan Grabauskas, executive director for the Honolulu Authority for Rapid Transportation, said Tuesday that the agency is scrapping three bids received last month for the first nine stations because they were more than $110 million higher than what officials expected.
The agency, which oversees the rail’s construction, will break up the package into three smaller ones with three stations each. The smaller packages will be submitted for bids in about two-month intervals, beginning in about 10 weeks, Grabauskas said.
While the project is still slated for a full opening in 2019, the change could delay the opening of the initial 10-mile stretch between East Kapolei and Aloha Stadium, which is scheduled for 2017, he said.
“If we need to push it off to 2018 to save $20 (million), $30 million, I think that most people will say that that’s the right thing to do,” he said.
Grabauskas said he didn’t know how much savings the new plan will bring, but the goal is for the total for all three projects to come in below $294 million — the lowest of the three bids. The agency had budgeted $184 million for nine stations along the line’s first 10 miles.
The three companies that submitted bids — Nan Inc., Nordic PLC and Hensel Phelps — did not immediately return calls for comment.
Grabauskas said the agency was supposed to award the first contract Monday.
“We have decided that it is in the public’s best interest to cancel this solicitation and redesign the bid in order to reduce risk to the contractors and thereby reduce costs,” Grabauskas said at a news conference about the changes.
Grabauskas said the contractors that submitted bids may be able to protest the agency’s decision, but he said preventing the agency from lowering costs could jeopardize its ability to finish other work.
“There’s a lot of work to be done,” he said. “There’s really billions of dollars yet to go out.”
He added, “I would hope that they would see this as an opportunity to do the right thing and let us go forward with some changes that are going to drive down costs.”
He said two lawsuits stopped construction for more than a year, forcing the city to ask contractors to do more work in less time — an action that increased costs in the “red-hot market.”
Grabauskas said the sheer size of the package may also be to blame.
“It was a very large contract by standards in Hawaii,” he said. “The very size of the package itself may have driven up costs.”
Grabauskas said the large package eliminated smaller subcontractors from the competition because they could not handle constructing so many stations at the same time.
He said smaller packages will increase competition among subcontractors and drive down prices. With smaller packages the agency will also be able to address contractor concerns, which will reduce the risk that leads to higher prices, he said.
The agency originally thought a nine-station package would result in lower costs through economies of scale and fewer contracts to manage.
But those savings have been outweighed by the ramped-up schedule, expensive designs and inflexible contract requirements.
Grabauskas said cheaper engineering designs, such as a brushed finish on concrete, could save millions when implemented throughout the 21 stations in the $5.26 billion project and still not affect customers’ experience.
He said engineers also plan to reduce costs by giving contractors more flexibility in how they construct the project.
“There’s no guarantee that these measures will significantly reduce the costs down to our engineers’ estimates,” he said, adding that the “hot marketplace is still going to mean that we’re going to have high bids.”
But Grabauskas said the market, which is very different today compared with a couple of years ago, has stabilized over the past several months. Grabauskas said he was hopeful that it wouldn’t change much over the next few months.
While the rail project has about $550 million remaining in its contingency fund for unexpected costs, Grabauskas said he preferred making changes to the package rather than just using the fund money.
“If we can drive down costs, I think people are expecting us not to take the easy way out and to dig into our savings account,” he said. “They’re expecting us to dig deep, work hard and make sure that we do everything in our power to drive down costs.”