CHSRA Continues Working to Control Costs
One of the most common sources of cost overruns on a megaproject are change orders. The California High Speed Rail Authority today adopted policies to reduce them as well as to manage contingencies within the existing budget:
At their meeting in Sacramento, board members unanimously adopted a plan to set and manage contingencies for individual construction contracts for the statewide rail system. That will include the $985 million contract already awarded — but yet to be signed — to build the first 30-mile stretch from Madera through Fresno.
The amount of the contingency allowance will depend on conditions for each construction section, officials said….
That approach includes a detailed assessment of each construction segment and running potential risks through computer simulations to estimate the likelihood of cost increases. That analysis would guide the authority’s managers and board in setting, managing and adjusting contingency allowances for each contract.
Rather than setting aside a certain amount for contingencies as a percentage of the budget, they’re taking a smarter approach to anticipate potential sources of cost increases. That builds on their work to reduce change orders:
The rail authority has touted its use of design-build contracts as a way to avoid change orders because since the contractor is the architect and engineer, the builder has no one to blame but his or her own team for costly engineering errors.
Morales and Richard said contingencies will allow for factors that were unpredictable when contractors bid on projects. “This is not for a contractor to come in and say, ‘We missed something,’ ” Morales said. “But something like soil conditions being different than what we all expected would come under a contingency.”
Richard added that a contingency would also apply “if utility maps weren’t updated, and you open up a trench to find a gas line instead of just cables.”
Skeptics have long charged that the contractor would simply find ways to make money on the back end by submitting numerous change orders and raising the overall project cost that way. The CHSRA’s policies are a good way to reduce that possibility. Reducing cost overruns will go a long way to building public support to fund the completion of the project, and it’s clear that the Authority is rightly taking this issue seriously.