Rail project copes with new delays at a critical time

The next 100 days likely will determine whether the 20-mile Honolulu rail line will be finished by the city’s latest target date of December 2025, and there are signs there could be trouble ahead.

The half-built, $9.2 billion rail line from East Kapolei to Ala Moana Center is the largest public works project in state history, and the city is preparing to award what would be the largest rail contract yet.

New deadlines are approaching for pivotal decisions on a proposed public-private partnership, or P3 agreement, a critically important contract that would be unlike anything the city has attempted before. The task is complex, and if the rail line is to open without any more delays, there is little time to spare.

But delays do happen. Just this year rail officials have coped with underground chemical contamination discovered near Daniel K. Ino­uye Airport that stopped work there for a time, cracks in metal canopy arms that were fabricated for West Oahu rail stations, and new delays as HART rewrites the Dillingham Boulevard traffic management plan for what will be years of construction.

In the weeks ahead, HART and city officials must rapidly evaluate what will be voluminous proposals for a P3 agreement to complete the rail project. The rail authority attempted to contract out construction for the same stretch of rail line from Middle Street to Ala Moana Center four years ago, but that effort stalled. The city is now trying the new public-private partnership approach.

However, the P3 procurement is intertwined with another complex contract to relocate utilities such as water and electrical lines that are in the path of the rail line from Middle Street to Ala Moana Center. That utility relocation work, which is expected to cost as much as $400 million, has already been delayed.

There are also concerns that some key personnel have quit during the P3 procurement, including HART First Deputy Executive Director of Procurement, Contracts and Construction Claims Nicole Chapman, and Director of Procurement Paula Youngling.

A consultant for the FTA recently cited Youngling’s departure as a “significant concern” because she was leading the P3 procurement for HART. However, HART officials say she was one member of a team and will be quickly replaced. A spokesman for HART said it is Executive Director Andrew Robbins who is leading the P3 effort.

Under the current schedule the P3 contract is supposed to be awarded by Feb. 23, but Robbins has already warned the board of directors of the rail authority that the contract may be delayed. When asked when the actual award might be, he said that “the fiscal year ends June 30 of next year, and we definitely want to get it in before the fiscal year is over.”

Rail officials say they still believe all work on the 20-mile rail line will be finished in time to make the city’s projected opening date in December 2025, but the Federal Transit Administration has been skeptical that HART can meet that schedule.

The FTA is predicting the entire rail line and 21 stations won’t actually open until September 2026, and calculates there is only a 65% probability the city will even open the rail system by that date.

Completion of the Honolulu train system is already running nearly six years behind the timeline that HART adopted in 2012 when it signed a full-funding grant agreement with the FTA, and those delays are largely to blame for dramatic increases in the cost of the project, which have soared from $5.12 billion in 2012 to $9.2 billion today.

Relocating utilities quickly is key

Robbins has said at least two companies are competing for the P3 contract, which involves an estimated $1.4 billion in construction work. That includes finishing the last 4.1 miles of elevated track and eight train stations in urban Honolulu, and building a 1,600-stall parking garage and transit center at Pearl Highlands.

The winning bidder in the P3 competition would also maintain and operate the entire rail line for 30 years. HART’s “moderate range” projection is that the annual cost of operations and maintenance for rail will start at $137 million in 2026 and increase to $169 million by 2036.

That means the maintenance and operations portion of the P3 deal will likely be worth more than $4 billion over the life of the contract.

The original target date for awarding the P3 contract was Sept. 30, 2019, but that deadline has been delayed three times already. The latest award date is Feb. 23, and HART staff warn that milestone will likely be put off again.

HART officials say the P3 bidders — which have not been publicly identified — have asked for more time to prepare their proposals. But rail authority officials also acknowledge there have been delays in the contract to relocate utilities along the rail route, work that is closely linked to the P3 initiative.

That contract to move utilities out of the way of the rail construction is worth up to $400 million, and was awarded to contractor Nan Inc. in 2018.

According to a consultant that monitors the project for the Federal Transit Administration, HART had planned to begin major work on the utility relocation effort in the city center along the Dillingham corridor by Nov. 12 but has missed that target.

“No new schedule for starting the major work has been shared,” wrote consultant Hill International Inc. in a report released last month. Robbins has said he hopes to begin major construction on relocating city center utilities in early January.

That utility relocation work is being done along the rail route in segments, and it affects the P3 bidders because the utility work must be complete in each segment before the winning P3 bidder can begin construction on the elevated rail line in that area.

Robbins told the rail authority board of directors in May that the plan was to have Nan finish moving all utilities out of the way along the rail route for 4,000 feet from Ala Moana Center headed in the Ewa direction, and for another 4,000 feet from Middle Street headed in the Diamond Head direction, by mid-June 2020.

Clearing the utilities out of those areas in advance would allow the P3 contractor to quickly get to work once the P3 contract is awarded, Robbins said at the time, but that schedule appears to be slipping.

The rail authority still has not completed a traffic management plan for the major utility work Nan will have to do in the congested Dillingham corridor, and HART does not expect to submit the traffic plan to the city for its consideration and approval until the end of this year.

HART staff also disclosed last month the city might need to acquire some additional land in connection with the utility relocations, and said the construction schedule for the utility work is still being developed.

When HART Executive Director Robbins reported to the board last month, he acknowledged that “we are not moving fast enough based on the past results, and we have to move faster in getting these utilities relocated and then mobilizing our P3 contractor to construct the city center facilities.”

And, of course, time is money. Robbins told the rail board in May that HART might offer incentives to encourage early completion of the rail construction by the P3 contractor because an estimated 40% of the costs of the P3 contract are time-sensitive costs. “So, if we can encourage an early schedule, we’ll also get the best price,” Robbins said.

Contract delays possible

Under the most recent schedule that has been made public, the P3 bidders will submit their technical proposals to the city in six weeks. But if the P3 procurement deadlines are delayed again, that in turn reduces the time available to the P3 contractor to mobilize and build the last portion of the rail line to meet the city’s target opening date at the end of 2025.

To compensate somewhat, Robbins announced last month the city and HART have compressed the amount of time the city and its expert consultants will have to evaluate the final P3 proposals before awarding the contract.

The previous schedule allowed the city and its consultants more than 10 weeks to evaluate the complex technical proposals and almost seven weeks to study the price proposals. But the latest schedule made public by Robbins allows the city and its consultants less than six weeks to study and evaluate the technical proposals and less than four weeks to study the price proposals.

When asked last month about that compressed evaluation timeline, Robbins replied that “we did talk that over between HART and the city, and we believe that’s all achievable.”

Another potential wrench in the gears is the possibility of a procurement challenge. The P3 contract is potentially lucrative for the winning bidder, and a losing bidder may be tempted to challenge the award. That could also delay execution of the P3 agreement, which in turn could delay the opening of the 20-mile rail line.

That kind of challenge has happened before on the rail project. The city in 2011 delayed the execution of a $1.4 billion contract with Ansaldo Honolulu JV for eight months after two companies filed challenges to the city’s bid process for that contract.

Robbins knows that history better than most because in 2011 he represented Bombardier Transportation USA Inc., one of the losing bidders that challenged the city’s decision to award that contract to Ansaldo.

Robbins worked for Bombardier for 37 years, and finished his tenure there as senior director before taking over as CEO and chief procurement officer for the Honolulu rail authority in 2017. While working for Bombardier in 2011, he was directly involved in the procurement challenge the company filed against the city.

“I stand by my integrity at that time in representing my company,” Robbins said of the Bombardier challenge. Circuit Judge Rhonda Nishimura eventually rejected the Bombardier challenge and affirmed the contract award to Ansaldo.

When asked about the possibility of a new procurement challenge in connection with the P3 contract, Robbins replied that he thinks that is unlikely.

“There is the potential that somebody could protest. We’re aware of that and we’ve taken that into account. What you find is, when there are challenges, that usually has something to do with compliance,” he said.

“Bidders have a right to protest if they think there’s a valid reason, and I think my job is to run the procurement correctly and be compliant with the Hawaii procurement code,” he said. “So, you talk about what happened in the past when I wasn’t here, I happened to be on the other side of the table. Well, I’m on this side of the table now, and that’s my job, to make sure that we do the process correctly.”

Robbins said he is “highly confident” the project can be completed as currently scheduled and open by December 2025.

Federal money on hold

The FTA, meanwhile, is withholding nearly $744 million in federal funding for the Honolulu rail project until it determines the P3 procurement approach will allow the city to finally complete the rail line within the current $9.2 billion overall rail budget.

HART had hoped to satisfy the FTA on that point and convince it to begin releasing the federal funding by February, but now expects that federal funding will be delayed because the city is delaying the award of the P3 contract until at least Feb. 23.

HART officials reported last month they have revised their cash-flow plan for the year ahead to make up for the anticipated delay in federal funding.

Robbins remains optimistic, saying that the delays in the P3 bidding will “optimize” the bids and allow the city to share more detailed information with the bidders. Delays of this type are common in P3 procurements, Robbins said.

Much of the design work is done during the bid process, so allowing more time for bidding can be positive, he said. “Presumably, federal funding might be delayed a month under this schedule, but we’ll get better bids, so that’s kind of what we have to look at when we make these decisions,” Robbins said.

Meanwhile, Robbins on Nov. 13 submitted a “contingency plan” to Honolulu Mayor Kirk Caldwell outlining how HART plans to proceed if the P3 bids are too high or if the P3 procurement process fails outright.

HART explained in that document it is “optimizing” the utility relocation work to speed the project along and save money, and inviting the P3 bidders to propose new design concepts for cutting costs. HART is also looking to help secure special low-cost financing for the bidders to reduce their borrowing costs.

If the city does not receive any P3 bids at all, it would shift to a more traditional design-build procurement and would look to companies that participated in the P3 competition to complete the rail line, according to the HART plan.

Restarting the procurement and shifting to design-build could take as much as a year, but even then “it is not anticipated” that the delay would affect the December 2025 startup date, according to the contingency plan.

PROCURING FUNDS

Rail’s proposed public-private partnership would include:

>> $1.4 billion in construction work, including the last 4.1 miles of elevated track through urban Honolulu, eight train stations and a 1,600-stall parking garage and transit center at Pearl Highlands.

>> Winning bidder would also maintain and operate the entire rail line for 30 years. The annual cost of operations and maintenance for rail is expected to start at $137 million in 2026 and increase to $169 million by 2036.