San Francisco transit officials have tapped a joint-venture that includes former Muni chief Emilio Cruz to lead construction of the Central Subway–but the cost of the deal is raising questions about the projected price tag of the project.
Under a contract approved by the Board of Supervisors earlier this year, the Municipal Transportation Agency will pay $147 million to Central Subway Partnership to take over management of Central Subway, nearly twice what the MTA said the services would cost when it got permission to outsource the work in the first place.
“In the course of evaluating the proposals and negotiating with the highest ranked proposer,” wrote MTA Executive Director Nathaniel Ford in a memo explaining the increase, “the SFMTA determined that it had underestimated the range of program management and construction management activities and hours … necessary to complete the Central Subway Project.”
That is a long way of saying that the MTA staff didn’t quite grasp just how much work will be involved in managing all aspects of the Central Subway tunneling, station construction and train installation project.
In February 2008, Ford got approval from the MTA board of directors to hire a project manager through a competitive bid and to negotiate a contract that wasn’t supposed to exceed $82 million.
In June, the agency received two responses to its Request for Proposals (RFP). One came in at $156 million from Central Subway Partnership, a joint-venture between AECOM USA Inc. and EPC Consultants, where former Muni General Manager Cruz is vice president for business development. The second–from a joint venture of Parsons and Hatch Mott McDonald–was comparably priced at $137 million, according to MTA spokesman Judson True.
After a committee assembled by the MTA evaluated the proposals and rated Central Subway Partnership the top bidder, the two sides began negotiating and produced the final contract worth $147 million, or 79 percent more than anticipated.
For backers of Central Subway, which would link Chinatown to Union Square, South of Market, Caltrain and Muni’s Third Street light-rail line, the final number is worrisome.
It makes sense for public agencies to outsource construction of major projects rather than maintain the necessary in-house talent year after year. But all told, the MTA has forecast Central Subway to cost $1.5 billion and take six years to build, starting in 2010. Now, with the project management contract coming in so far over estimates and slated to consume 10 percent of the overall budget, officials are wondering what to expect when contracts are issued for the actual tunneling, station construction, and railroad system installation.
“What does that generally say about the MTA and the RFPs it puts forward?” asked Supervisor Sean Elsbernd at a Dec. 17 hearing on the management contract before the supervisors Budget and Finance Committee.
At the hearing, True, the MTA spokesman, acknowledged that his agency had missed the mark by a long shot but that it didn’t intend to repeat its mistake.
“We are doing everything we can to prevent that from happening again,” True told Elsbernd.
There’s plenty of room for improvement. According to a report by Board of Supervisors Budget Analyst Harvey Rose for the supervisors committee hearing, the MTA grossly underestimated several aspects of the contract. For example, it will pay 407 percent more than expected ($3.1 million instead of $620,000) for “design management,” 325 percent more ($10.6 million instead of $2.5 million) for “community outreach,” and 250 percent more ($4.3 million instead of $1.2 million) for “start-up testing and commissioning,” which presumably involves making sure the subway works once tunneling, station construction and railway system installation are complete.
And it isn’t just the cost side of the equation that concerns observers.
As Rose noted in his report, the majority of the money for Central Subway is supposed to come from the federal government but the city has yet to secure guarantees from Washington.
And that was before the Obama administration pushed through hundreds of billions of dollars in spending to revive the U.S. and the full scope of the Wall Street bailout began to come into focus.
Perhaps that is why the MTA also agreed to pay Central Subway Partnership a bit more than initially expected for one other key component of the management job: nailing down sufficient Federal Transit Administration funds to pay for the project.