Building a Good HSR System Requires Looking Beyond Costs Alone

Jan 15th, 2013 | Posted by

Governor Jerry Brown traveled to San Jose State University today to announce a controversial partnership with Udacity, a private company that would offer remedial education to new college students via massive open online courses. While I profoundly disagree with the proposal, I do agree with Governor Brown chiding reporters for focusing only on the program’s costs in their initial questions of him at the event. And I can find humor in the governor’s comment that this program “costs less than high speed rail.”

What matters most about this online education proposal isn’t its cost, it’s whether or not it will do a good job providing education to California students. And a similar principle holds with the HSR project. What matters most isn’t its cost. What matters is how many people it serves, how much carbon emissions it reduces, and whether it’s built safely, properly, and effectively.

Those factors are also the ones that matter most when it comes to assessing the bids to build the initial construction segment of the HSR project in the Central Valley. But as with the governor’s online course proposal, it is costs that the media has zeroed in on in assessing the first HSR bids:

According to a 161-page instruction book given to the contractors, the detailed price estimates must be “submitted in a sealed container” separate from the rest of the proposal. Next to it must be another sealed envelope with just one page displaying the price tag.

The supporting documents that back up the price figures then must be submitted “in a locked fireproof cabinet” and stored somewhere secure, “with the key held only by the contractor.” If any of the firms’ proposals don’t meet the rail authority’s quality standards, their envelopes with the actual bids won’t ever be opened.

The firms offering the best price stand the best chance. To determine which of the five final firms are awarded the five-year contract in June, the companies will receive a score based 70 percent on cost and 30 percent on quality….

But some outsiders are questioning why the state is taking so long to look at the price, particularly with so many taxpayer dollars on the line and a groundbreaking just months away.

“The process is supposed to be transparent,” said state Sen. Mark DeSaulnier, D-Concord, chairman of the Senate’s transportation committee. “Once the bid is in, it’s in the public domain, and the public needs to (be able to see) what the bids look like, especially on a project like this.”

This is a flawed line of attack on the project from DeSaulnier, the last man standing of the anti-HSR triumvirate now that Joe Simitian and Alan Lowenthal have been termed out of office. As Mike Rosenberg’s article points out, the bids will largely be decided based on price. But to get the best project, it makes sense to have a detailed technical analysis of the proposals, rather than let price obscure those other factors.

Construction experts agree that separating costs and technical matters is a smart way to assess a bid:

“It’s totally appropriate not to look at the price (first) and totally appropriate to look at the technical aspect of it first,” said Ken Gibbs, a Los Angeles-based mediator on construction disputes and co-author of a book on California construction law. “You may wind up comparing apples to oranges if you’re only looking at price.”

But that offends those who believe that the only thing that matters, to the exclusion of all other factors, is sticker price. One has to wonder if these HSR critics are the ones who would buy a car solely based on price and not look at reliability ratings, mileage estimates, cost of ownership, and whether or not it actually meets their needs. A building contractor could save a lot of money by buying a SmartCar rather than an F-350 pickup truck, but they would probably have a hard time hauling materials to a building site.

The California High Speed Rail Authority is handling this the right way. I’m looking forward to seeing how the bids turn out, and of course, looking forward to construction beginning later this year.

  1. joe
    Jan 15th, 2013 at 22:05

    Lessons learned from Tutor-Saliba’s low cost bidding?

    A construction giant with a history of cost overruns and expensive legal battles is the leading candidate to build a new subway station in San Francisco.

    Tutor-Saliba Corp.’s $239 million bid to build the Chinatown station for the planned Central Subway is the lowest of four bids being evaluated by the San Francisco Municipal Transportation Agency. By law, the lowest bidder has a significant edge in public contracts.

    “Tutor is doing the same thing that he has always done: He bids super low, but the project ends up costing a lot more in the end,” said Kevin Williams, a former city contract compliance officer who raised concerns about the company’s work at San Francisco International Airport. “The reason that he is repeating this on the taxpayers’ dime is because he gets away with it,” Williams said, referring to company CEO Ron Tutor.
    The study, by Oxford University Professor Bent Flyvbjerg, found that on average, rail projects went over budget by 45 percent, bridges and tunnels by 34 percent and roads by 20 percent. Overruns on Tutor’s 11 Bay Area projects ranged from 1 to 107 percent.

    Los Angeles County Metropolitan Transportation Authority lawyers and San Francisco City Attorney Dennis Herrera previously have sought to ban Tutor from bidding on new jobs. In work at the San Francisco airport, Herrera alleged in a 2002 lawsuit that the company “artificially inflated” bills when the cost rose 56 percent, from $626 million to $980 million.

    Kristen Holland, an SFMTA spokeswoman, said the staff was evaluating the bids for “responsibility and responsiveness.” By law, public agencies must, in most cases, choose the company with the lowest bid. Even when other factors can be considered, price always gets the most weight, industry experts say.

    Alon Levy Reply:

    So here’s what happens in New York: by state law, agencies have to pick the lowest bid. To avoid being shortchanged like this, they write overexacting specs, down to what construction materials the contractors must use. The only people who want to deal with the headache of following those specs to the letter are people who are too incompetent or corrupt to get private-sector work, and so public works are stuck with the worst contractors. Briefly in the recession, when there was no private-sector work to be had, some of the Second Avenue Subway contracts came in 50% below budget.

    Nathanael Reply:

    Yep. There was some change a year or two ago to the state law which may make it slightly easier to reject bids from untrustworthy and incompetent companies, but from what I can tell it’s still next-to-impossible in NY to reject the lowest bid, even if it’s obviously not the right one.

    Reedman Reply:

    The 2002 Herrera lawsuit about SFO has to be taken with a grain of salt. In parallel, there was whistle-blower lawsuit filed by a city staff member (Kevin Williams) in which he claimed that city employees knew that TS was using shell companies to qualify for minority set-aside work on the airport. Note that Herrera’s lawsuit was only for $30 million — TS was not accused of the rest of the cost inflation. Then SF Mayor Willie Brown refused to fund the lawsuit (after SF spent $500k to get it going) because it was estimated that it would cost $2.5 million more in legal fees, and in Browns estimation (Brown is a lawyer) the city lacked the necessary evidence to win.

    Richard Mlynarik Reply:

    Willie Brown is several other things besides a “lawyer” who makes “estimations”.

    VBobier Reply:

    Willie Brown is no fool, Lawyers rarely are, if their successful that is….

    VBobier Reply:

    This reminds Me of the old proverb: “A fool and his money are soon parted”, this seems to apply if one only looks at the price…

  2. swing hanger
    Jan 15th, 2013 at 22:20

    How about awarding the bid to a contractor that has a proven track record of delivering at cost and with top quality.

    MarkB Reply:

    LA Metro discovered the hazards of low-cost bidding after the fiasco of the AnsaldoBreda LRV order for the Gold Line. After Metro was able to cancel the contract and rebid it, the bid criteria included a large weighting to the vendors’ history of “on time and on budget” delivery. The winning bidder, Kinki Sharyo, wasn’t the lowest cost but did have the highest competence rating.

    Joey Reply:

    Ignoring the well-known hazards of buying anything from AnsaldoBreda?

    joe Reply:

    The predominate factor is cost – bad record and lowest cost – you win.
    Read the Tutor-Saliba Corp article.

    Joey Reply:

    Yes, I’ve read through that particular saga several times. The worrying thing is that it never changes.

    joe Reply:

    Ironically, the more prescribed the selection rules, the easier it is for the “crooks” to build a business model designed to game the review process and consequently, the system.

    VBobier Reply:

    Yeah, I agree, one such crook is about to be handed His Head by the Courts, a certain guy by the name of Rizzo, formerly of Bell Gardens infamy and of Hesperia CA where He left with a Golden fleece Parachute before moving onto Bell Gardens….

    synonymouse Reply:

    Actually, in the pyramid of corruption, Rizzo is a piker at the bottom level.

    Next up in perfidy is the influence peddler, exemplified by Willie Brown, whose advice to Rizzo would be never put anything on paper.

    Further up comes the earmark system, wherein opportunistic(ada “moderates”, “compromisers”)pols scrounge and tradeoff for goodies and freebies for the folks at home. They’re compromised alright.

    Finally at the top you have the patronage machine, essentially a legit mafia running everything.

    As California – and the US – slouch into the 3rd world, simple crooks like Rizzo will be the norm not the exception.

    Nathanael Reply:

    You are dead wrong about what’s at the top.

    Don’t believe me? Start looking into “foreclosure fraud”. There’s corruption on the top scale: outright fraud, committed by banks against *both* homeowners and investors, rubberstamped by judges, and if the judges don’t like it, the banks start working to replace the judges with bank-friendly ones.

    The same level of corruption — judge-buying — is found in coal mining in West Virginia.

    If you aren’t looking at people who buy judges, you aren’t looking at the top level of corruption.

    Steve S. Reply:

    But cities (most recently Miami) keep buying from them.

    I agree, there MUST be a way to get companies like Tutor-Saliba or AnsaldoBreda, companies with a history of willful underbidding and subsequent overruns, out of the running. “Lowest bid price” doesn’t cut it with these guys. Competence-performance looks like it has some promise.

    synonymouse Reply:

    The way to accomplish it is to “privatize”, sorta. They should have taken the SNCF offer or a similar one from an overseas consortium(Japan, Inc.?) to build the whole blinking thing. Of course out of the question out of hand, because this thing was a scam from the outset, a make-work welfare scheme to funnel public money to PB, Tutor-Saliba, and Bombardier with the peripheral benefit of delivering Ca. welfare and Soc Sec checks to the doors of Sheldon Adelson, Steve Wynn, and Harry Reid.

    BeWise Reply:

    It’s a shame that the CAHSRA and PB chose not to allow competitive bidding at this stage in the process. Not only did certain vendors offer financing (Japan offered to lend half the money for the project with a ‘friendly loan’), but we could’ve used their expertise in designing, building, maintaining, and operating such a complex system. Not to mention, we could’ve had them absorb much of the risk of cost overruns (and other risks) through the contracting process.

    joe Reply:

    The GAO should know about this … send them the facts.

    I love how competitiveness is stifled by the CAHSRA refusing to let foreign vendors make sweet heart deals (verbal and in PPT) for total control over HSR without any competitive bids or review.

    It’s a perfect contradiction.

    Peter Reply:

    AnsaldoBreda’s problem products are not limited to LA. SF, DC, Denmark with its IC4s, Atlanta, and Boston (?) all suffer from shitty AnsaldoBreda vehicles.

    synonymouse Reply:

    gotta luv that Camorra.

    Poor Mezzogiorno – the rifiuti is piling up along the streets and roadsides. California’s future.

  3. Back in the Saddle
    Jan 16th, 2013 at 07:45

    Most federal agencies and many states base award a bid on “best value.” These agencies and states take prior experience, ability to fit the requirements of the RFP, and cost into consideration in the award. “Best value” weeds out the bad actors (for the most part) and unfortunately the unknowns or companies who are trying to break into the competitive bid process can be shut out. As an individual who worked with” Acquisition Management” in a federal agency using “best value” and an individual who managed numerous aviation contracts, my experience with contractors was positive in terms of the working relationship with the contractor and the taxpayer received the best bang for their hard earned dollars. Therefore, Robert and others who have chimed in on the fact that cost is not the only criteria in awarding contracts have history to support their arguments.

    Drunk Engineer Reply:

    Therefore, Robert and others who have chimed in on the fact that cost is not the only criteria in awarding contracts have history to support their arguments.

    You (and Robert) obviously missed the point. The problem is that the CHSRA won’t tell the Legislators the range of bids that came in. I can’t think of any other project where that was done.

    It also begs the question as to how long staff is going to evaluate bids before even looking to see if any of them came in within budget.

    Eric M Reply:

    Don’t they (contractors) have until Friday to turn in bids? If so, that would be dumb to let the public and contractors who haven’t turned in their proposals yet know what the bid $$$ are.

    Drunk Engineer Reply:

    Sure, but after Friday why withhold the numbers?

    Peter Reply:

    To complete technical evaluations of the proposals without biasing them by knowing which of them are cheaper or more expensive.

    NO ONE is seeing the prices until the technical evaluations have been completed. Not even the members or staff of the Authority.

    Drunk Engineer Reply:

    That is some serious kool aide you’re chugging.

    Peter Reply:

    Did you even read the Merc article?

    joe Reply:

    The NSF and all other reviews I participate in all ask reviewers and panels to review proposals on the technical content independent of the cost.

    This HSR process assures the integrity of their technical review and protects against successful lawsuits and challenges.

    Nathanael Reply:

    Exactly. Only after the tech evaluations are done will anyone read the prices. This is so that the tech evaluators won’t be biased by the prices.

    synonymouse Reply:

    Translation of “best value” and “cost is not the only criteria in awarding contracts” = an excuse for and a means of selecting a bidder who will not threaten the Fix.

    Ergo you will get a second rate contractor simply because PB & co. have already learned that it is virtually impossible that a first rate one with extensive experience will not in time “speak a discouraging word” about this incredibly stupid scheme. As the senescent dons on oxygen in the courtroom scene in “Casino” concluded: “Why take a chance?” Everybody who could be a threat gets whacked. There go your first tier bidders. I will be happy to be proven wrong on this one.

    Not only is the DeTour idiotic but then you have the 99 corridor BART. They plan to build the equivalent of a turn of the century NYC elevated railway only using 20th century aerial freeway tech, ie. massive amounts of hollow core. This amounts to a suburban and exurban BART down the San Joaquin Valley. There exists nothing close to the circumstances appropriate to a BART in that location. Fresno does not even have streetcars or light rail. The only conurbation that even slightly suggests the need for a BART is Sac, and it is entirely shut out of the Fix.

    synonymouse Reply:

    Fresno Area Rapid Transit

  4. jimsf
    Jan 16th, 2013 at 08:31

    ugh. can you even stand it. crusty old coots and slimey politicians in the pocket of big Ag and oil.

    Roger Christensen Reply:

    Jeff Denham has just been made chairman of the railroad subcommittee of the House Transportation and Infrastructure Committee. Ugh, indeed.

    StevieB Reply:

    Jeff Denham published an editorial Jan. 15, 2013 calling for abandonment of California high speed rail.

    At a time when we’re overburdened by state and federal debt and already struggling to find ways to pay for existing programs, it is unconscionable that the high-speed rail authority is pushing ahead with a project we can’t afford and one that most don’t have confidence in here in California.

    He continues with his standard criticism that it is expensive and operations will have to be subsidized.

    Rather than trying to force a square peg into a round hole, we believe it is time to cut our losses and focus on deficit reduction and improving current infrastructure.
    Californians expect us to get our fiscal house in order. Few things could baffle California taxpayers more than continuing to throw billions of dollars at a “Field of Dreams”-type project, potentially leaving all of us on the hook for a bad investment and saddling our future generations with the burden of paying off the costs of constructing and operating high-speed rail.

    Clem Reply:

    Of course a subsidy will be required with such a contorted route, speed limits through urban areas and 160 mph Amcrap.

    synonymouse Reply:

    That’s the real reason to summon Amtrak. Nationalize the operating deficit. People in Dubuque will be helping to keep the Moondoggle running.

    Riding into Mexico City on the NdeM in 1969 I never thought in a million years that it would disappear.

    Nathanael Reply:

    Clem, don’t fall into the trap of agreeing with Jeff Denham on anything, it just makes you look bad.

    Reality Check Reply:

    High-speed rail critic Jeff Denham to chair House railroad panel

    WASHINGTON — High-speed rail skeptics gained new traction Wednesday with the promotion of Rep. Jeff Denham, R-Turlock, to chairmanship of the House panel that oversees railroads.

    A sharp critic of California’s ambitious high-speed rail plan, Denham can use his post to challenge one of the Obama administration’s top public works priorities. Future rail legislation must pass through Denham’s subcommittee, which can also hold hearings to shed potentially unflattering light on specific projects like California’s.

    “I’m opposed to it, but I’m going to work with the California High-Speed Rail Authority on going forward,” Denham said Wednesday. “I want to work together with them, though I still have doubts about their funding and ridership numbers.”

    Underscoring his new leadership position, as well as his stated willingness to keep an open mind, Denham met early Wednesday morning on Capitol Hill with the California High-Speed Rail Authority’s two top officials, board chairman Dan Richard and chief executive officer Jeff Morales. In a statement, Richard described the meeting as “collegial and productive.”

    synonymouse Reply:

    But does he have the insight and the moxie to challenge them to reopen and revisit alternatives?


    joe Reply:

    Denham should have a high profile platform to play the fool – perfectly fine with me.

    He’s skeptical of HSR, train ridership and climate change and wants to shut down the government.

    Recall Issa’s snub against women testifying for his panel did more to put women’s issues on the forefront for 2012 than any other politician.

    Nathanael Reply:

    Amazingly, Issa has actually done some good stuff, on copyright law, privacy rights, and oversight of runaway prosecutors.

    I can’t say the same for Denham.

  5. Keith Saggers
    Jan 16th, 2013 at 14:52

    How do reps. Denham and McCarthy get elected, is it illegal for unemployed people to vote in the Central Valley?

    Keith Saggers Reply:

    It was an Opinion not an Editorial

    Nathanael Reply:

    Read “What’s the Matter With Kansas”.

    The really generic explanation is that ill-informed people can often be convinced to vote for really awful candidates using appeals to emotion.

    Nathanael Reply:

    And how many of us are well-informed? How many of us keep tabs on what *all* our elected representatives, down to city clerk, are doing *all* the time? I basically do, but I’m a political-process junkie. That’s not normal.

    Most people are too busy to keep track of what’s really going on, and that makes them easy marks for crooked politicians who lie to them. The only way to counteract it is to tell them the truth. (Though that isn’t enough by itself, often people don’t want to hear an “inconvenient truth”, and the oil workers in Bakersfield probably have strong incentives to believe what the oil companies say.)

    VBobier Reply:

    A lot of money and enough gullible voters willing to vote for His ass, hopefully in 2014 the Demographics will tip against Jeff Denham as they almost did in 2012 and kick Him out of Congress for good, the USA needs less crazy ass Repubs and more Progressive Democrats and/or Progressive minded Independents who will ally themselves with Democrats, like US Senator Bernie Sanders does….

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