Two huge construction firms that are helping to build about 54 miles of bullet train structures in the Central Valley are seeking an additional $300 million on their fixed-price contracts, the Los Angeles Times has learned.
The increases, if the state ultimately agrees to cover them, would further bloat the bill for what has been touted as the easiest and most predictable section of the Los Angeles-to-San Francisco system.
The potential increases lend credence to the findings of a December risk assessment by the Federal Railroad Administration that costs for building the full 118 miles of work in the Central Valley could jump by 50%, or $3.6 billion, above current estimates.
The increases are described in letters from Tutor Perini Corp. and Dragados USA. The firms make the case that their contracts do not cover the full scope of the work and that the state’s management of the project is causing delays.
A representative for the state rail authority said the agency has not agreed to pay the additional costs to the companies and that the letters do not represent formal claims. It has also sharply disputed the federal estimates, saying the higher projected costs were part of a routine risk assessment of the project and that they do not account for efforts to avoid them.
The potential cost increases come during a difficult political juncture.
Newly empowered Central Valley Republican members of the U.S. House last month asked the Trump administration to conduct a full blown audit of the project’s finances and have successfully held up a related federal grant until they get what they want.
I won’t find myself in the impossible position of having proceeded with major work without agreement.
Separately, the state is facing two key lawsuits that could puncture the project’s funding. One disputes its plan to tap bond funds. The second seeks to block funding from the state’s carbon auctions.
The Tutor letter, which lists $228 million in additional costs, reveals friction between the company and the rail authority.
“I won’t find myself in the impossible position of having proceeded with major work without agreement,” the company’s chief executive, Ron Tutor, wrote in the Sept. 26 letter addressed to rail authority CEO Jeff Morales. “It is my opinion that none of these should be controversial ... the inability of your job site to do anything to resolve changes on a timely basis is obvious.”
Tutor went on to say that the managers of the project were “trying to figure out ways not to pay us.”
The letter lays out seven separate cost issues, though it does not detail or justify them. The largest item involves the construction of intrusion barriers, which would separate existing Union Pacific and BNSF freight tracks from the future high-speed rail tracks.
Tutor, based in Sylmar, also lists $61.6 million in cost increases for several miles of work in Madera, on a section that was originally supposed to cost $154 million.
Separately Dragado, a Spain-based firm that is teamed with U.S.-based Flatiron, said in an Aug. 23 letter that delays in obtaining land for construction along the rail route could end up costing $100 million to $110 million, though it could accelerate its pace and cut the increase to $60 million to $65 million.
The Times obtained the letters under a public records act request after learning about them from officials close to the project.
In an accompanying letter to The Times, the rail authority asserted that “contractors routinely propose cost increases or time extension … although not all such proposals result in any payment or time extension.”
It went on to say the letters by themselves are not a basis for increasing the cost of the project and that the authority would have to first determine if the claims have any merit — indicating that the issues have not been resolved.
In an interview, Ron Tutor said his costs are not increasing, but rather all the $228 million outlined in his letter are “owner-initiated change orders.”
“It is their option whether they do the work,” he said, adding that some of the changes would be necessary for a functional system and others are optional. The biggest item, involving barriers, resulted from discussions with Union Pacific Railroad, he said.
“That is between them and Union Pacific,” he said. “We just quoted them a price.”
In a statement, Union Pacific said the barriers are critical for safety.
“The barrier requirement between freight and proposed high-speed rail tracks was agreed to and included in a 2014 agreement between Union Pacific and the California High Speed Rail Authority,” the company said. “The barrier type was determined through a study led by [the rail authority]. The barriers will reduce the possibility that a derailment on either party’s tracks could interfere with safe operations on the other party’s tracks.”
The project has fallen far behind schedule, largely because the state has been slow in acquiring land. The federal risk analysis projected that 118 miles of Central Valley track from Madera to Shafter will not be completed until 2024, seven years behind schedule.
Such delays almost always cause increases in cost, because employee salaries, equipment charges and material costs drag on over a longer period of time.
The rail authority previously agreed to pay Tutor about $50 million to cover an earlier claim that the firm’s progress was delayed because the state was slow to buy the property on which it was contracted to build. It added another $15 million for the company to accelerate construction activity in a bid to make up time.
The rail authority warned the Legislature in a report last month that costs associated with both land acquisition and intrusion barriers are “very high” risks with significant impacts to the project.
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