Rail station strategy proves costly

In 2015, amid mounting costs, Honolulu rail leaders boasted that their efforts to obtain lower bid prices were paying off. A decision to break up a big nine-station construction contract into three smaller ones trimmed the price of that work by more than $40 million.

“The good news, I would say, is I think our staff has finally got our arms around where we see the costs climbing,” rail’s then-Executive Director Dan Grabauskas said that November, after his agency unsealed bids to build the last three-station package and revealed the total savings.

However, it’s now clear that much of those touted savings will disappear. The agency overseeing rail will have to pay its construction consultant millions of dollars extra to help monitor all the West side station work simultaneously, project officials now say.

At their regular meeting Thursday, the Honolulu Authority for Rapid Transportation board members unanimously approved a $16 million increase to San Francisco-based PGH Wong Engineering, which has a contract to help monitor and inspect rail’s first 10 miles of elevated guideway and station work.

It’s a preliminary amount that’s expected to last only through June 2018. By the time PGH Wong’s contract finishes, HART expects it could pay the firm as much as $36 million more on top of the original $54.2 million deal, which was signed in January 2014, to handle the extra work.

“We will be back” to ask for more PGH Wong funding later, HART West Construction Manager Kai Nani Kraut told the board Thursday.

The original contract assumed that the firm would have to oversee only one construction contract to build all nine West side stations.

By dividing the station work into three smaller bundles, HART enabled more contractors to bid, attracted more competition and drove down the prices, officials said.

But the change also tripled the PGH Wong staff required to monitor the station work since it’s now all proceeding at the same time, according to new HART documents released this week.

“This is an expense that should have been anticipated at the time the decision was made,” new HART board member Ember Shinn, a former city managing director, said Thursday. “There are probably other collateral expenses associated with un-bundling” the station work.

In addition to the stations’ repackaging, Kraut also cited their construction delays as a main reason HART would have to eventually increase PGH Wong’s contract up to $36 million. She added that HART was unable to break down the extra cost by each of those factors.

The decision to repackage most of rail’s remaining construction contracts started in late 2014 when, as costs began to skyrocket, HART leaders met privately with local construction firms and asked what steps they could take to help reduce bid prices.

That year the rail agency also scrapped the original low bid by Nan Inc. to build all nine West side stations when it came in at $294.5 million — more than $100 million above what HART had budgeted for that work.

By breaking it up into three-station bundles, HART managed to get the cost to about $250.8 million instead. The contracts have so far incurred nearly $5 million in change-order increases, according to the rail agency’s monthly reports. That figure doesn’t include the separate, impending PGH Wong increases.

Overall, the rail project faces a budget shortfall of about $3 billion, including financing. The state Legislature said this week it intends to hold a special session later this summer to work out a funding solution.