Opinions Clash on Metro Rail Cost Overruns

Bracing for release of an extraordinary audit of the Los Angeles Metro Rail project, contractors and transit officials building the city’s first subway system have begun to blame one another for lengthy delays and other construction difficulties that already have run the massive undertaking millions of dollars over-budget.

Contractors contend that the Southern California Rapid Transit District has wrapped so much red tape around the $1.2-billion, 4.4-mile first phase of the subway project that it is almost impossible to get a decision on even the simplest problem.

Transit officials defend their Metro Rail performance, and they say contractors are complaining only because the RTD has adopted a vigorous approach toward cost controls.

An audit to be released today is expected to side in large part with the contractors, revealing major management and contract supervision problems inside the transit district, The Times has learned. The first phase of the $3.7-billion Metro Rail subway project is now 18 months behind schedule and believed to be substantially over budget.

“If the same problems happen (in the second phase of construction),” a source familiar with the audit said, “we are talking about a dynamite situation . . . an unacceptable situation.”

The second phase, which will cost an estimated $2.5 billion, will extend the Metro Rail Red Line from downtown to North Hollywood, a distance of about 12 miles.

The Metro Rail project is one of the most costly subway jobs ever attempted, and one of the most complex. The 16-mile line--funded by federal, state and local money--will be owned by the commission and run by the RTD.

Three separate audits of the project currently are under way--one by the U.S. Department of Transportation, another by the RTD and the third by the Los Angeles County Transportation Commission.

Friction exists between the commission and the transit district, which designed and is building the first 4.4 miles. Legally, both agencies can design and build transit rail lines and both are fully staffed to do that work. The result is a certain amount of rivalry and duplication of effort.

Adding to this friction are questions being raised by the Los Angeles City Council before it puts up the city’s $96-million share of the second phase of Metro Rail and agrees to shoulder up to $181 million in cost overruns. The council wants to know more about the existing cost overruns.

Contractors have filed hundreds of claims, saying the district is stalling or refusing to pay for $51 million worth of work. The district denies the money is owed.

Top RTD officials said that if the contractors have money problems, it is because they bid their jobs low and are now trying to run up the costs by claiming more money than they have coming.

“We’ve tried to be firm with the contractors . . . to make sure we only pay for what we’ve contracted,” said RTD Assistant General Manager William Rhine. “I can’t find anything we are or are not doing that would result in this apparent degree of friction.”

With its release today, the commission’s audit will be the first to be made public. It was ordered earlier this year in an attempt to get the lagging project back on schedule and stem the fiscal hemorrhage. As the Metro Rail funding authority, the commission oversees the project’s progress and monitors expenditures.

The audit was undertaken by one of the so-called “big eight” accounting firms, Deloitte, Haskins and Sells, in conjunction with the Kellogg Co., a management consulting firm. Prior to its release, it was sent for review to a panel of experts, including some from the transit district, which has attached its own evaluation of the audit and recommendations. The organization of what essentially is an outside audit of the audit itself was seen as evidence of the controversial nature of the report.

The major fear among top commission officials is that cost overruns on the troubled first phase will drain millions of dollars needed to complete the remaining two-thirds of the Metro Rail project and construct an additional system of three light rail lines.

The district has acknowledged that its contingency fund has withered from $131 million down to $22 million. This fund--part of the first-phase budget--is used to cover unforeseen expenses. But district officials remain upbeat in their public assessments of the ambitious effort to bring Los Angeles its first subway system.

“This job is going exceedingly well,” project engineer Jim Crowley said.

One contractor told The Times, however, that his projects are millions of dollars over budget and more than a year behind schedule primarily because the RTD’s plans for tunneling under high-rise buildings downtown were flawed.

Mike Shank, managing partner in the Shank-Ohbayashi consortium that is boring tunnels on either side of the 7th Street Station at a contracted cost of $44 million, said he shut down one of the firm’s two jobs for six months, telling district officials that he wouldn’t “mine under buildings with a defective plan.”

According to Shank, the Metro Rail financial and management problems are widely known throughout the construction industry and will have an impact on the second phase of bidding.

“Everyone in the industry knows what is going on here in Los Angeles,” Shank said. “It will have to push up the next round of bidding at least 25% to 30%. I wouldn’t bid into Phase 2 at any price under the present . . . setup. It’s a nightmare . . . unlike anything I’ve ever seen in 30 years.”

No tunnel work ever goes smoothly, Shank said, explaining that there are always problems and the unexpected is routine. Because of this, he added, “you’re counting on the owner working with you to solve the problems” but “this owner doesn’t . . . cooperate in any way.”

The transit district’s staff rigidly enforces the contract specifications, even when those specifications are out of date or just won’t work, Shank contended.

For example, Shank pointed to the $18.8-million construction of twin tunnels between the Metro Rail stations at 5th and Hill streets and 7th and Flower streets. The job burrows under several tall buildings.

To protect those buildings from settling while crews were tunneling, the district wrote rigid specifications into the plans, including dictating the use of a tunneling technique called “compaction grouting” to hold the earth in place while concrete liners are formed and braced.

When his crews began boring, Shank said, they immediately ran into trouble. The tunnels passed through fine sand that ran like dry sugar and kept sloughing down around the machines, making tunneling the district’s way virtually impossible. Shank said he worried that the ground would settle more than the one-eighth inch allowed in the district plans.

“After we had started the job, we heard from another source that what (the district’s) consultant had actually told them was that this compaction grouting wasn’t going to work,” Shank said.

The district claimed it was not required to reveal this information and ordered him back to work, Shank said.

Shank disagreed and rather than risk damaging the buildings overhead, he asked that a more expensive method called “chemical grouting” be used to firm up the sandy soils before the tunnels were dug. When the district refused, Shank shut the job down.

Ultimately, the district agreed to allow chemical grouting in the sugar-sands and it relaxed the safety tolerance eightfold, allowing up to one inch of soil settlement. Work was completed on the first of the parallel tunnels at an additional cost of $800,000 and the district paid the cost increase.

District engineer Crowley said the original design was sound and explained that the district agreed to the changes to satisfy the concerns of Los Angeles city engineers, who sided with Shank, asking that the chemical grouting method be used.

“We wanted to get him back to work,” Crowley said.

There are other signs of growing unrest among the contractors, including a lawsuit that was filed recently in Los Angeles Superior Court by Illinois Walsh Construction Co., builder of the Metro Rail maintenance shops and rail yards.

The suit seeks $4.9 million in disputed work claims, including for the excavation of large pits in the shop floor. These pits were dug once, then had to be filled back up so other work could progress, then were re-dug in a $2.6-million earth-moving mix-up that the company said had resulted from district-caused delays.

Illinois Walsh officials would not comment on the case, nor would the district. However, Webster G. Wiley, the subcontractor who twice excavated the pits, said those delays and the extra work ran his part of the contract up from $184,899 to $869,457, money that he and the general contractor are trying to collect.

“This is probably the worst job that I’ve ever been on,” Wiley sighed.

Another complaint was that the district’s plans and specifications were written seven or eight years ago and called for manufactured electrical or mechanical gear that had been off the market for years. One project manager for a big job said that when he tried to substitute equipment available today, the district’s project managers would reject the replacement and “demand that the specifications be met 100%.”

Oftentimes, this meant custom-building a part, he said.

“You bid those jobs on the (specifications), true, but you expect that you can buy the item, the manager said, asking not to be identified. “No one estimates custom-building the whole damn job.”

He tried but failed to get someone higher up to override those rigid replacement demands, he said, then added, “We could never get to the decision makers . . . so we lost time and a lot of money.”