State comptroller refuses to pay for setbacks blamed on the rail authority

State Comptroller Curt Otaguro is refusing to authorize payments for delay claims on the city’s rail project if the city rail authority or its consultants were to blame for the circumstances — rejecting already a total of $11.2 million in invoices.

That could present a serious problem for the Honolulu Authority for Rapid Transportation, which has already agreed to pay many millions of dollars in delay claims to various contractors working on the $9.2 billion rail line. In one settlement announced earlier this year, the rail authority agreed to pay $160 million to resolve delay claims by contractor Ansaldo Honolulu JV.

Development of the 20-mile rail line is far behind schedule, prompting large delay claims from a number of contractors. The city projected in 2012 the entire rail line would be operating by Jan. 31, 2020, but the city now does not expect the full rail line to open until the end of 2025.

There are costs associated with those delays because contractors are required to mobilize, hire crews and be ready to start work by specific dates. If the project is then delayed unexpectedly, contractors often will seek to recoup their mobilization and other costs.

Under a state law passed in 2017, HART submits its invoices including delay claims to the comptroller’s office, which reviews the invoices to ensure they qualify as “capital” or construction- related costs that are eligible for state funding from hotel room or excise tax collections. State tax collections from those sources are paying the vast majority of the cost of the city rail project.

As of the end of June, HART had nearly $200 million in unpaid invoices pending with the Department of Accounting and General Services, and the comptroller has requested “additional information” on nearly $38 million of those invoices, according to HART. That amount includes more than $14.6 million in unpaid delay claims.

Otaguro said DAGS has already rejected four delay claims totalling $11 million that did not qualify as “capital costs.”

In one case, he said, DAGS refused to reimburse the rail authority for a delay claim because it was related to botched coordination between two contractors.

Contractor Nan Inc. was supposed to take over a job site from Kiewit Infrastructure West Co., “and there was an error in the contract, and so one contractor was still on property, and Nan has a contract saying they can now enter the property to start their jobs,” Otaguro said.

“So, whose fault is that? Clearly, it was a contractual error, and so we feel that we, the state or the taxpayers, should not have to pay for an error of that nature,” he said.

In other cases, rail project delays may have been caused by factors that HART could not control, and DAGS will have to consider those factors. In some cases DAGS has paid for delay claims, and “it’s just a matter of looking at each case. It’s going to be case by case, it’s invoice by invoice.”

Otaguro said he does not believe DAGS has yet received the biggest delay claim of all, the $160 million settlement with Ansaldo.

“Once we receive those claims, we’ll have to take a hard look at the reasons for those delays,” he said. “That’s going to take some investigation, some due diligence on our auditors’ part.”

However, HART Executive Director Andrew Robbins said he believes that delay claim has already been submitted, but DAGS has not determined yet whether it will reimburse the city for those costs.

Terrence Lee, vice chairman of the HART board’s Finance Committee, said Thursday he met recently with Otaguro to discuss the process DAGS uses to review HART’s invoices.

“They are taking the position that if they determine that a charge — a delay claim, primarily — is something that there is fault attributable to HART or its consultants — then they do not think that that meets the requirements of the statute” that sets out the requirements for the use of those state tax dollars, Lee told members of the HART Finance Committee.

A section of the 2017 law known as Act 1 that provided a multibillion-dollar financial bailout for the rail project also requires the comptroller to determine whether the expenditures for rail are “necessary,” Lee said.

“And so in his mind — and, frankly, I think in legislators’ minds — that requires qualitative analysis as to whether those funds were necessarily spent, and if they feel that there’s some fault on the part of HART or its consultants, then it wasn’t necessary or needed to be spent that way and so they’ll deny it,” Lee said.

Lee then asked that the Finance Committee of the rail authority meet in executive session Thursday morning to discuss the issue, and announced after that closed-door meeting that “we don’t have a definitive answer or position at the moment, but we’ll continue to evaluate it.”

In other business, the HART Project Oversight Committee approved a change order worth up to $10 million to produce new canopy arms for stations from East Kapolei to Aloha Stadium. Cracks were discovered in the lower portions of arms that had been fabricated for the West Loch and Hoopili stations.

The metal arms are designed to support overhead fabric canopies that will extend toward the center of the station platforms to provide travelers with shelter from rain and sun as they wait for trains.

HART contends the cracking is “either a result of poor design, improper fabrication or both,” and plans to seek reimbursement for the cost of the change order.