Keeping a Lid on Metro Rail Costs--Who’s in Charge?

Last fall when construction finally began on Los Angeles’ nearly $4-billion Metro Rail project, smiling transit officials joined smiling city officials in a show of confidence that seemed to portend that all was in readiness to embark on a mighty civic adventure.

In fact, The Times has learned since then, the Metro Rail start-up caught RTD officials still grappling with sloppy record-keeping, poor communications between key decision-makers and fuzzy chains of command: spending control problems that federal transit officials have warned repeatedly could lead to millions, if not billions, in unforeseen cost overruns.

Despite assurances last year by top district managers, including General Manager John Dyer, that the transit agency was fully prepared to take on one of the costliest transit projects in the nation’s history, continuing turf wars between key RTD departments suggest otherwise. Just last month--shortly after backhoes peeled away the asphalt on downtown streets for the subway’s first major underground work--there still was no consensus among RTD officials on who among them held primary responsibility for controlling costs.

The latest estimates for building the 20-mile subway already have been pushed nearly $1 billion higher than the early $3-billion price tag. Along with the litany of management problems that have been reported at RTD, the transit district’s ability to keep Metro Rail spending in line becomes a critical issue touching on public monies and political careers for years to come.

Stung repeatedly in the past by runaway costs on transit systems in other cities, federal officials began demanding two years before Metro Rail builders started work that RTD adhere to a strong, independent system of “checks and balances” on construction costs.

Central to these internal controls, officials say, should be thorough review and approval of all cost-related decisions by a well-trained group of contract administrators separate from the engineers who are designing and building the subway. Federal officials were insistent on the controls because the federal stake in Metro Rail is substantial: more than $600 million allocated so far and as much as $2 billion overall if and when the line connecting downtown with the San Fernando Valley is completed.

Ralph Stanley, chief of the Urban Mass Transportation Administration, said a staggering price has been paid elsewhere because of the absence of strong, independent cost checks on transit projects. In Washington, Detroit and Miami the lack of controls were “directly responsible,” Stanley said, for major, unbudgeted increases in those cities going undetected until the projects were nearing completion.

Officials eventually discovered, for example, a Washington system faced with bills six times higher than the first estimates, a Miami system more than $100 million over budget and costs nearly doubling in Detroit.

Assurances by Dyer

When federal officials previously identified early danger signs in RTD’s contracting system, Dyer assured them that the problems had been remedied.

UMTA has yet to evaluate the effectiveness of those remedies. In the meantime, Times reporters found that, as recently as last month, many of RTD’s problems in the area of contract administration--where cost controls occur--persist, specifically in the tug-of-war over spending prerogatives between engineers and administrators.

Federal transit officials say the engineer-at-the-helm approach has led to costly mistakes in some other cities, which have provided volumes of cost overrun horror stories on large transit projects. The engineers, often a tough, results-oriented breed of builders who follow “great projects” from one city to another, tend to be more concerned with actual construction problems than filling out paper work and analyzing the long-term budget effects of their decisions in the field, transit experts said.

“The problem you usually get is the (construction) people become very powerful and start running the project,” said Arland Eadie, who monitors transit agencies contracting procedures for UMTA. “At that point, you get fraud, waste and abuse.”

RTD’s Metro Rail construction czar, Robert Murray, a highly regarded manager in the industry, said that no such problems are plaguing the Los Angeles project. Metro Rail, he said, is in the best shape to begin construction of any major transit endeavor “since World War II.” “We can’t have gotten here if we don’t know what we are doing and (and if we were) all screwed up,” he said.

Problems Downplayed

Murray discounted the problems highlighted by UMTA, describing them as a request to “fine-tune some procedures” that were basically sound.

But in a highly critical 1984 review of pre-Metro Rail construction projects, UMTA officials found RTD’s cost-control system “void of checks and balances” and essentially a “rubber stamp” for contractors who requested more money. The study was done with an eye toward how the district was prepared to handle Metro Rail.

The report concluded that the engineering staff was exercising far too much control and, in practice, independent contract administrators were cut out of the decision process. As a result, construction change decisions were poorly documented and, in some cases, contractors were paid improperly in violation of federal guidelines, UMTA auditors found. Another federal audit about the same time warned that RTD Metro Rail contract management weaknesses “could cause future significant problems and possibly jeopardize completion of the project at the established funding levels.”

After the critical federal reports, a long and bitter power struggle ensued within RTD for control of Metro Rail contract administration. The construction division, headed by Murray, was pitted against an independent contract administration division headed by Maynard Z. Walters, director of contracts and purchasing.

“There were strong feelings on both sides,” said George Grainger, a former Los Angeles-based UMTA official who oversaw RTD’s federal grants. “It was a big tug-of-war internally.”

Many observers saw the struggle as a mismatch. Murray, an assistant general manager only one rung below Dyer, is a polished, forceful executive in the RTD hierarchy. He was recruited by Dyer after establishing a track record of success in Baltimore, where he helped oversee the start of construction of the city’s $747-million subway.

Management Ranking

Walters, a former private industry contract administrator, is a cautious, soft-spoken bureaucrat who ranks below Murray on the management totem pole.

After nearly two years of internal struggle, Dyer sent an inch-thick response to UMTA assuring federal officials that all of the issues had been addressed. Checks on engineers were strengthened, as federal officials demanded, with Walters getting final authority over cost-related construction changes, Dyer assured UMTA.

But RTD sources said that Metro Rail chief Murray was reluctant to surrender control over the project’s contracts and Dyer did not step in to clearly resolve the issue. In addition, the sources said, Walters was ambivalent about just how strong his role should be.

The Times found that Metro Rail operational manuals updated by Murray’s construction forces as recently as March gave only a minor role for reviewing and negotiating construction contract changes to Walters’ department.

The Metro Rail construction division also created its own in-house contract administration staff to specifically handle subway contracts.

Murray insisted that unit would not undermine the role of Walters’ staff.

However, when The Times began probing RTD’s compliance with federal requirements, Dyer moved quickly to shore up Walters’ authority, issuing a directive that said Walters would be drawn more directly into contract administration.

In an interview, Dyer said his new guidelines are a “major step” toward tighter cost controls. But he added, “I’m sure this memo will not . . . put behind all of the conflicts.”

However, despite the directive, RTD still is left with two sets of officials charged with monitoring Metro Rail construction costs, one under the engineering department and the other under the competing contract administrators. Sources told The Times that the responsibilities of the two groups are still confused.

Clash of Authority

Meanwhile, Walters, apparently emboldened by Dyer’s latest directive, now is seeking control of Murray’s contract administrators--a move that Murray said he was unaware of until Thursday when Times reporters questioned him.

Generally, colliding lines of authority tend to work in the engineers’ favor, several RTD sources said.

The confusion is important because it can lead to costly disputes with contractors, delays in construction and conflicting directions to workers, transit experts said.

The management conflicts were producing confusion as recently as March, after tens of millions of dollars in Metro Rail construction contracts were awarded and construction had begun.

Potentially costly disputes arose quickly over RTD’s management of the first underground construction--a $3.2-million Flower Street utility relocation contract where a cavernous underground station will one day house two levels of intersecting train routes,

An attorney for the contractor wrote RTD complaining about the “abysmal management performance” by the transit agency caused by unclear lines of authority.

“The current state of disarray within your construction management forces (is) caused by the fact that your forces have no authority to act decisively as required to manage the project,” lawyer Patrick J. Duffy warned RTD officials.

Duffy’s complaint grew out of the first contract change order to occur on the Metro Rail project. The Times found that Duffy’s client, Dalton Construction, was ordered to perform additional non-emergency work, wrapping utility lines with a protective covering. Records show that James Strosnider, RTD’s Metro Rail construction manager, gave written instructions to field personnel to negotiate with the contractor, agree to a higher price and get the new work going.

Belated Advisement

The work order was made before it was approved by Walters, as was then required by the contract. Walters’ office was belatedly advised of the $6,500 change and was not asked to review and approve the work until two weeks later.

In another instance, Metro Rail construction supervisors had ordered a portion of the work at the Flower Street station site to proceed on a cost-plus basis, meaning the contractor was no longer bound by his fixed-price bid and can recover all costs plus a guaranteed percentage of profit. Federal standards usually call for that type of change, the least desirable from a cost-control standpoint, to be reviewed by Walters’ staff.

But Walters’ office was not aware of that decision until after it had been made. “We were notified retroactively,” said T.L. (Johnny) Johnson, a Walters assistant.

At the time, members of both Walters’ and Murray’s staffs said, top RTD management was still debating who should have the authority to order that kind of contract change.

A crucial part of Walters’ job is tracking all cost-related contract questions as they arise, federal officials said. But The Times found that Walters lacked even the file documents to monitor the Dalton contract. While documents on both transactions were on file with various RTD engineers, they were absent from Walters’ files.

RTD managers acknowledge that there have been, in Murray’s words, “lumps and bumps” in internal communications on initial Metro Rail cost-control procedures. But they characterize them as minor, temporary problems that are being addressed and involve tiny amounts of money for a multibillion-dollar project. “Do you realize how small this issue is we’re talking about?” Murray asked.

Federal Position

However, some federal officials say that on a project as complex as Metro Rail, detailed lines of authority should be clearly in place before large contracts are awarded.

Some RTD managers say the “lumps and bumps” are not isolated incidents but part of a larger pattern of continuing turmoil over who will be responsible for cost-control efforts on Metro Rail and other contracts.

For example, a key “check” on the construction divisions’ payments to its contractors--required approval by Walters’ contract oversight unit--was eliminated last year. Progress payments now go directly from Metro Rail and other departments to the accounting division for payment.

Walters, who was overruled by higher management, said he wanted to keep that power so his office could better monitor activity on contracts.

A critical question for the future of Metro Rail, according to federal officials, is how aggressively Walters exercises--and Dyer enforces--the independent check on Metro Rail construction forces.

No long-term solutions are in sight. Pending reorganization of Los Angeles’ transit agencies, though seen by proponents as a cure for many of RTD’s problems, does not address oversight of Metro Rail contracts. Transit experts say that contract management may be more crucial to the success of the huge project than which politicians sit on the Board of Directors. The small Los Angeles County Transportation Commission will absorb the much larger RTD and Metro Rail and other commission rail development projects will be consolidated into a new agency.

County Politics

The cost-control issue has far-reaching implications for the county’s political leadership, particularly Mayor Tom Bradley and others who have been in the forefront of promoting the subway. No politician can afford a legacy of runaway costs, particularly in Los Angeles where officials have made an open-ended promise to commit local funds to meet most Metro Rail costs that go over present estimates.

UMTA’s Eadie said he plans to re-examine the adequacy of RTD’s Metro Rail cost-control procedures in the next few months, but declined to comment on the adequacy of the current system or Dyer’s new plan.

But he said he intends to carefully review one element of a recent Dyer decision--to delegate authority for Metro Rail contract changes of up to $25,000 to the engineering staff, without approval of contracts administrators. “A lot of money goes out through $10,000 and $20,000 (changes). . . . At those levels there can be a lot of fraud, waste and abuse. . . . I want to know how you ensure the checks and balances are there.”

Based on his experience elsewhere, Eadie said, he expects RTD’s engineers “will indeed probably try to take (spending) actions outside of the scope of their authority.”

“My question is: ‘Management, what are you going to do about it?’ ”