Facing war with Trump, troubled California bullet train pushes biggest contract ever

The California bullet train authority is moving ahead with an aggressive plan to issue its biggest contract in history, steering into sharp criticism by federal regulators and even the state-appointed peer review panel that it is overreaching.

The agency took a key step last week toward issuing a 30-year-long contract to install track, set up high-voltage electrical lines, create a digital signaling system, build a heavy maintenance train garage and obligate future maintenance of the equipment and track.

It would cover future track from San Jose to Bakersfield, more than half the proposed Los Angeles-to-San Francisco system. It would lock the state into a maintenance contract, as well as equipment, on segments that it currently does not have money to build.

Rail authority Chief Executive Brian Kelly defended the plan as fulfilling the mission to build an electrified high-speed rail system and said it is essential to comply with federal grant agreements.

But a stinging letter from the Federal Railroad Administration, which oversees the grants, warned the state Monday not to move forward with the plan, raising a series of legal and operational objections.

“It is premature for [the rail authority] to undertake another major design-build contract,” the letter said. “The current construction packages continue to face significant and continuing delays building the necessary civil construction.”

The day after the letter arrived, the California High-Speed Rail Authority voted to take the next major step in that contract process, asking for bids from three international teams that could result in an award in 2020 and a notice to begin the work by September.

If the contract does go forward, it would also deflate an effort led by Assembly Speaker Anthony Rendon to curtail the bullet train’s construction spending in the Central Valley and redirect funds to high-speed rail project sections in Southern California and the Bay Area.

“If they approve that contract, it will put the Legislature in a position where it will have very little to say about what happens next, which is exactly why they are trying to do it,” said one key staffer. “But we have until September to make a difference in how they are doing things.”

In about one year, the project will run out of money and need a new appropriation, putting the future of the project back in the hands of the Legislature.

A more visible strain is on the state’s working relationship with the Federal Railroad Administration, which has been crumbling for more than a year as the two sides openly exchange threats, insults and accusations, as well as lawsuits.

The bullet train project obtained two grants during the Obama administration for a total of about $3.5 billion. Earlier this year, the U.S. Department of Transportation terminated a 2010 grant for $929 million that had not been spent. The state sued to reverse the decision.

Moreover, federal officials have warned that they intend to claw back an additional $2.5 billion that has been spent, because the state violated the agreement. Transportation Secretary Elaine Chao called the project a “classic bait and switch” after Gov. Gavin Newsom curtailed the project earlier this year.

The current standoff over the new contract appears to deepen the rift and represents a significant gamble by state officials that a more friendly Democratic administration will be in power when the grant deadlines arrive.

“The only way California does not lose is if Trump is gone,” said one executive at a private firm involved in the project.

If the state were to actually have to repay the $2.5-billion grant, it would create one of the biggest threats to the future of the troubled project so far, according to legislative staffers who are overseeing the effort.

Under the federal grants, California has to complete 119 miles of rail structures and install track in the Central Valley by 2022, but there is no requirement for electrical power, signals or a maintenance facility.

The work is far behind schedule, and only a third of all the bridges, viaducts and other structures have even started construction. The work was originally supposed to have been completed by 2017 at a cost of $6 billion. Now the cost is set at $10.6 billion.

If the state fails to accelerate its current slow work pace, it could end up not having all the civil work completed to install track by 2022.

To help manage that, the state plans to install track in non-continuous 5-mile segments, a plan that federal regulators said is complex and would prevent a “calculated or logical progression.” The letter was signed by Juliana Shu Barnes, a career civil servant who is a project manager.

Kelly said the segmented approach “is the best alternative to meet the deadline.”

He said the federal rail agency’s letter was “deeply flawed” and delivered only one day before the board had to decide on issuing a bid request. In general, state officials see the federal agency’s moves as overtly political and an attempt to damage the goal of building a bullet train.

In a reply letter to Barnes last week, Kelly wrote that the Federal Railroad Administration’s timing “is the latest example of FRA’s evolving position from one of cooperation and partnership to disengagement that appears calculated to impede the project’s progress.”

But the federal agency is not the only voice raising concerns about the contract. The state-appointed peer review panel, led by passenger railroad veteran Louis Thompson, raised concerns in an August letter.

The panel, the letter said, “is not convinced that the Authority has acquired the staff, process changes, controls and resources to take on such a massive contracting challenge. In addition, large and complex contracts are often protested, and the time schedule to meet the [grant] requirements would be immediately threatened by such a protest.”

At the rail authority meeting last Tuesday, board member Daniel Curtin raised those concerns, saying, “I am concerned we have too large a scope on this contract.”

Kelly briefly mentioned the Federal Railroad Administration letter at the board meeting, saying it mostly dealt with technical issues. He rejected the critique of the peer review panel, saying it is based on past problems with work that are not relevant to the current proposed contract.

Elizabeth Alexis, co-founder of a Bay Area watchdog group, had more explicit criticism.

“It is insane, and whoever wins it will have guaranteed change orders for years to come,” she said in an email. “This is a bet on a friendly new administration in 2020, as well as an effort to get around the sticky provisions in the law that forbid operational maintenance subsidies.”

Legislative staffers said they are perplexed about why the rail authority wants to select a contractor team to perform work that is years or even decades in the future.

There are three teams that would bid for the work, involving six foreign and two U.S. construction and engineering firms. The future work would be divided up into five different work packages. Only the first package that covers 119 miles has an estimated price by the authority, $1.6 billion.

That is more than the largest contracts so far, issued to a team led by the Spanish construction firm Dragados for $1.23 billion in 2014 and to a team led by Tutor Perini for about $985 million in 2013.

One legislative staffer compared the current plan to issue contracts for track, maintenance and other work before there are even trains to the 1960s Beatles lyrics: “I got no car and it’s breaking my heart / But I’ve found a driver and that’s a start.”