Outside Audit of Metro Rail Cost Ordered by RTD

Scalded by a federal report warning of potential cost overruns, the head of the Southern California Rapid Transit District on Thursday ordered independent audits of the Metro Rail project.

Earlier this week, auditors for the U.S. Office of the Inspector General met with Assemblyman Richard Katz (D-Sylmar) and Sen. Alan Robbins (D-Tarzana) to share concerns that the initial 4.4-mile segment of the Metro Rail Red Line subway system was behind schedule and could possibly run out of money, Katz said.

“They are very distressed about organization, and they told me they were concerned about a lack of accountability,” Katz said in a telephone interview.

“They said the project was already delayed by a year and a half,” Katz said, and expressed concern that it could slip even further.

First Phase

Project officials have spent half of the $1.25 billion earmarked for the first phase of Metro Rail--running from Union Station through downtown to MacArthur Park--which is only one-third completed and 18 months behind schedule, transit authorities said. The delays have also been responsible for increased costs of the system, half of which is being funded by the federal government.

But RTD General Manager Alan Pegg, in a report to the transit district’s board of directors, said he expects the project to meet its revised completion date of September, 1993, and that much of the money spent so far has been used to purchase land.

“I believe that anybody in the eighth grade can tell you that if you are going to build something, you must first buy the land,” Pegg added. “Buying the land does not dig a tunnel or put down any bricks or mortar.”

“I think the people from the Office of the Inspector General have a much better education than eighth grade,” argued Robbins, who has authored a bill to reorganize the transit district. “When these auditors tell you the money is 50% gone and the work is 32% done, you have to ask why.”

The auditors could not be reached for comment. But Pegg angrily admonished them for failing to reveal their findings to his agency before going to state legislators.

“I must report to you that there has been no discussion of those audit findings with this district prior to that discussion with state legislators,” Pegg said. “I consider such an approach extremely unprofessional conduct.”

Disturbing Trends

Nonetheless, he acknowledged that his own review of cost reports on the Metro Rail project showed “disturbing cost trends,” including escalating real estate costs, which indicate that “we have a signal by which to take appropriate management action to ensure that we get the lowest possible cost on the project for the taxpayers of Los Angeles County.”

Enshrouded by what he called “an air of controversy,” Pegg called for separate independent audits to reasses projections of the overall cost of the project and to establish what the district’s cost will be to resolve more than 750 unsettled contractors’ claims and contract change orders valued at $49.7 million.

Such audits would allay concerns that the district may have to dip into its steadily shrinking contingency fund, set aside for unforeseen expenses, to settle the claims, Pegg said.

Since February, the contingency margin has shrunk from $66 million to $23 million, transit district officials said.

While the contingency margin is less than half the total amount of unresolved claims, Pegg told reporters at a news conference Thursday that historically, claims have been settled for less than the full amount and some are withdrawn completely.

“The project costs review will help determine if it will be necessary to use money from this account,” Pegg said.

Question Posed

What if the transit district’s own audits suggest a dramatic cost overrun?

“We fully expect the auditors to agree with our findings,” said Greg Davy, an RTD spokesman. “However, if there were any differences of opinion, we would sit down with them and see what their concerns were.”