HART approves private partnership

The Honolulu rail authority on Thursday approved plans to use a “public-private partnership” approach to develop the last portion of the 20-mile rail project and the planned Pearl Highlands Transit Center and garage, which together are expected to cost about $1.4 billion to build.

The “P3” plan calls for the Honolulu Authority for Rapid Transportation to solicit proposals from developers who will finance, design and build the new facilities, and also operate and maintain the entire rail system from Kapolei to Ala Moana for 30 years.

The city expects to pay $127 million per year to maintain and operate the rail system, and that amount will increase with inflation, which means a P3 agreement that lasts 30 years would cost city taxpayers billions of dollars over the life of the contract.

The hope is the P3 solicitation will prompt developers to offer to build the last 4.3 miles of the rail line at a bargain in an effort to secure the contract to operate the rail line for decades to come. HART has estimated it will save $46 million in construction costs and $300 million in maintenance and operating costs by using the P3 approach.

A spokesman for HART said the first phase of the P3 solicitation, which is designed to identify qualified potential bidders, could be issued by the rail authority as early as today.

Honolulu Mayor Kirk Caldwell told the HART board of directors Thursday he supports the P3 plan, but is worried that the rail authority is rushing the process.

Until now, HART has generally used a more straightforward “design- build” approach where contractors bid to design and build a segment of the project. But the design-build approach for rail has been characterized by change orders and expensive delay claims from contractors that contributed to cost overruns.

In December 2015, HART froze the solicitation of bids for the design and construction of the last segment of the rail line through the Honolulu city center, which is one of the most difficult and complex pieces of the project.

Since then, HART has spent almost a year studying the possibility of using a public-private partnership to complete the rail line, and the board in July authorized HART staff to spend up to $8.5 million to hire consultants to prepare a request for proposals for the P3 effort.

HART Executive Director Andrew Robbins said he believes the P3 method is a better approach than design-build, but Caldwell noted that HART and the state have never used the P3 method to develop a project before. He described the rail board as “pioneers” of the public-private partnership approach.

Caldwell wants the specifications for the P3 to spell out that the city cannot be required to absorb any more cost overruns. He also said Thursday that he wants HART to provide more detail for bidders on “scope and risk.”

If there is a lack of detail on important aspects of the city center piece of the rail project, that it could result in less interest in bidding on the project, and higher bids, Caldwell said. That has been part of the problem with the design-build approach, he said.

“We go before we have it fully designed, we don’t address all the questions up front, and people bid higher, they all bid higher, and then we have the unfortunate choice of choosing the lowest of the higher bids … because we rush to get things out,” Caldwell said.

In the last two weeks, Caldwell said he heard similar concerns from his staff who describe a process where “because they’re rushing to get out the Phase 1, they’re saying, ‘Well, we’ll take these things out because we haven’t quantified them yet or qualified them yet, and we’ll do an addendum.’”

“I’m like, holy moly, we’re doing exactly what we did before, and we know what happened before,” Caldwell told the HART board. “We ended up having change orders and we create uncertainty.”

The board met in an executive session that was closed to the public after Caldwell spoke to discuss the P3 proposal and other issues. After that closed-door session, Robbins assured the board that “P3 is feasible and beneficial to our project, for our stakeholders and to the taxpayers.”

The board then voted unanimously to support the P3 solicitation.

Robbins said responses to the initial solicitation, to identify qualified bidders, will be due in November or December. Request for proposals will then be issued in January, and responses to that more detailed solicitation will be due in mid-2019. A P3 contract should be awarded by the end of next year, he said.

The city signed an agreement with the Federal Transit Administration in 2012 that called for rail’s elevated guideway and 21 stations to be built for $5.26 billion and to be completed in 2020. However, construction and financing of the project is now expected to total about $9 billion, and HART says the project won’t be finished until late 2025.

The FTA committed $1.55 billion in federal funding to help Honolulu build the rail line, but has withheld $744 million of that money while HART works through how it will manage cost overruns and schedule delays on the rail project.

The FTA is demanding that HART submit a revised “recovery plan” by Nov. 20 that spells out how it will complete the rail line from Kapolei to Ala Moana, including the method HART will use to complete construction.

Robbins has said HART will update its recovery and financial plans for the FTA as soon as the public-private partnership solicitation is launched.