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Transportation Nation

Low-Bid Process For Silver Line's Phase II May Foster Hidden Costs

Thursday, April 11, 2013

The success of a megaproject can come down to a single decision: choosing the right contractor.

As the Metropolitan Washington Airports Authority (MWAA) prepares to embark on Phase II of a $5.5 billion rail extension to Dulles International Airport known as the Silver Line, five pre-qualified construction consortiums are facing an April 19 deadline to submit bids to build a transportation project largely financed by toll revenues from the Dulles Toll Road.

After receiving the bids next Friday, MWAA will announce the winner in May. Preliminary work is scheduled to begin later this year with a target of 2018 for completion of the Silver Line to Dulles and beyond into Virginia's Loudoun County. Phase I of the project, which extends D.C.'s Metro to Reston -- is scheduled to open later this year.

Some of the biggest names in the construction industry are competing for the Phase II contract, including Bechtel, the firm that is building Phase I. The lowest bidder wins Phase II.

“Before you go to a low bid, you do everything possible to make sure that you have a firm that is fully capable and fully understands the scope of work of the project involved,” said Patrick Nowakowski, the executive director of the Dulles Corridor Rail Project. “We don’t want to have firms leading the effort… who’ve never undertaken a megaproject.”

Nowakowski says using the low-bid procurement procedure ensures the lowest possible price for Fairfax and Loudoun County taxpayers and the toll road users.

“It’s all about price,” Nowakowski said.

Once the contractor teams’ individual design proposals met the standards established in MWAA’s design schematics, the lowest bid became the only factor in deciding who will win the contract. Therefore, a bidding contractor with a superior design receives no advantage in the bidding process. But Nowakowski says his office has been meeting with the competing contractor teams for months to ensure all the design proposals are sound.

“That’s where the confidence level comes in, the amount of time we have spent working with them,” Nowakowski said. “[We] make sure that the designs they produce meet the minimum standards that [we’ve] established in a specifications.”

Critics say low bid invites trouble

Any number of issues can push a megaproject over budget, but the low-bid procurement process is particularly troublesome, critics say, because it entices a contractor to submit an artificially low bid with the intention of requesting change orders to drive up a project’s final cost, paid for by the project’s owner and into the contractor’s pockets. In the case of the Silver Line, the owner is MWAA.

“The procurement on Phase II is not being done in an optimal way,” said Brian Petruska, an attorney at the Laborers International Union of North America, one of the unions that supplied workers to build Phase I of the Silver Line. “For a contractor the number one goal is to get the project.”

Change orders usually occur in one of three ways: the project owner requests the change and then pays the contractor to include it; an unexpected problem arises in the construction process requiring a change for the project to proceed safely; or the contractor requests a change order from the owner. In the latter case, MWAA would have to approve any change orders that are requested by the general contractor.

“We've looked at projects such as the Wilson Bridge and the Springfield interchange where change orders were approved because the price of steel went up. You would think the contractor should factor in potential increases in the price of steel, so when they make the bid they take the risk,” said Petruska, who said MWAA should have chosen a bidding process that grades on both design and price.

MWAA insists its contract documents and oversight procedures will prevent unnecessary change orders and, therefore, stick to the Silver Line’s budget.

“I worry about change orders from the day I sign the contract to the day I end it,” Nowakowski said. “It’s not a function of the low-bid procedure. It’s a function of how well the contract documents were written and how well you manage the project from the day you start to the day you finish.”

The higher the Silver Line price, the higher the tolls on the Dulles Toll Road

Virginia’s approval of an additional $300 million in Silver Line funding lightened the burden on Dulles Toll Road users to finance the $2.7 billion Phase II extension. Before the Commonwealth approved new funding, toll revenues were scheduled to cover 75 percent of Phase II’s costs. That cost has been reduced to 64 percent, according to an MWAA spokeswoman-- as long as Fairfax and Loudoun Counties continue to fund the $400 million needed to build parking garages and a rail station at the planned Rt. 28 stop.

If Phase II’s construction goes over budget, toll road users may be asked to make up the difference, according to Virginia Transportation Secretary Sean Connaughton.

Connaughton says it will be up to the Metropolitan Washington Airports Authority to make sure only legitimate change orders are approved for Phase II of the Silver Line.

“Any price escalation is passed almost directly onto the toll road users, and the toll road users are already bearing a very large brunt of the cost of this project,” Connaughton said.

Change orders and bloated project budgets

The Metropolitan Washington Airports Authority has a mixed record in keeping its projects on budget. While MWAA officials have praised the contractor and union workforce for keeping Phase I of the Silver Line on time and on budget, the Dulles Main Terminal Automated People Mover Station will receive no such praise.

The Automated People Mover Station, which provides a rail and pedestrian link between the main terminal and midfield concourses at Dulles Airport, was awarded by MWAA to the contractor Turner Construction Co.* at the low-bid price of $184 million. After 82 change orders were approved, the project finished at $388 million, an increase of $204 million from the original low bid, according to sources familiar with an internal MWAA audit.

The audit also found MWAA staff approved certain increases without documentation and without written contractual obligation to do so, sources said.

While the People Mover Station may provide an egregious example of a project’s costs soaring out of control, it serves a caution that even when government agencies sign a contract with established construction industry giants, things can go very wrong. That is why, Nowakowski said, the Silver Line’s project management team will exercise strict oversight.

“We’ve got some of the five best teams in the world competing” for the contract, he said. “The taxpayers can believe that we’ve done everything that we can to get the best possible price.”

The Springfield Interchange (Archer Western) and the Silver Spring Transit Center (Foulger Pratt) provide two widely publicized examples of projects that went well over budget despite having major construction firms serving as general contractors. Archer Western is leading one of the five construction consortiums that will bid of Phase II of the Silver Line.

In addition to Archer Western Contractors, the other construction consortiums competing to build Phase II are led by Bechtel Infrastructure Corp., Skanska USA, Clark Construction Group, and Fluor Enterprises Inc.

Construction industry warns against pointing fingers

Representatives of the construction industry say it is harder to determine what actually went wrong than to simply assign blame when megaproject encounters budget or construction problems.

“A newspaper or a radio show or anybody can spout off and say there was a problem on a job and they name the contractor or the subcontractor,” said Patrick Dean, president of the Associated Builders and Contractors of Virginia. “Typically they don’t get into the details because that news is old by the time anything is figured out.”

Dean says the idea contractors pocket huge sums off excessive change orders is “a fallacy.”

“It’s not like contractors are going to make a lot of money on change orders. A change order increases their contract but they are a hassle. You have to negotiate them, sometimes you fight over them. You may have to rework something or change your schedule,” said Dean, who said some change orders are requested not for profit but to make projects more durable to reduce future maintenance costs.

Regardless of whether MWAA or the general contractor will pay for any change orders approved during Phase II of the Silver Line, the additional costs may ultimately fall on drivers on the Dulles Toll Road.

Virginia Transportation Sec. Connaughton, a critic of MWAA’s past performance, said the agency must run this project well. “Additional costs not only delay the project but obviously cause it to spiral out of control with price,” Connaughton said.

This is the first of a two-part series on construction of Phase II of the Silver Line to Dulles.

*This post originally listed the contractor as Skidmore, Owings & Merrill. They are the architects, not the contractor. 

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Transportation Nation

Lawsuit Says DC Airports Authority Can't Raise Tolls To Pay for Rail

Wednesday, September 12, 2012

(Washington, DC -- WAMU) The agency that's running the Silver Line rail project to Dulles Airport is holding public hearings on its plan to dramatically raise tolls on the Dulles Toll Road to pay for the project. But a Federal Court of Appeals will consider a lawsuit that could derail the project.

The class action suit argues the Metropolitan Washington Airports Authority (MWAA) does not have the legal right to raise tolls on drivers to pay for trains. Only an elected legislature can raise tolls in order to pay for something other than the maintenance and operation of the Dulles Toll Road itself, the suit claims.

"A toll is a user fee. That means you are using something and you have to pay for the service," says attorney Robert Cynkar, who will argue the case before a federal appellate court in October. "A tax is anything above that where money is being taken from you to raise revenue for another project."

The lawsuit doesn't address whether the Silver Line should be built. It's focused only on whether the MWAA has the authority to raise taxes, which is how Cynkar characterizes the toll hikes.

Under the Virginia constitution, elected officials are the only people who can vote to raise taxes.

But is a higher toll really a tax? To the drivers who will be paying them starting in January, Cynkar says the answer might be yes.

"The issue of whether the Metro rail is a good idea, whether it makes sense for the economy, how much it should cost and all that, are different issues," Cynkar says. "We just say that if you are going to build this thing and you need to get revenue for it, you have to do it the constitutional way."

A lower court dismissed the case in July. According to Don Williamson, a professor of taxation at the Kogod School of Business at American University, the toll increases might legally be considered taxes — but that doesn't necessarily mean the airports authority is in the wrong.

"The public as a whole could interpret any collection of revenue for any purpose to be a form of tax that they are paying to the government," Williamson says. "And it becomes merely a technicality whether we call that collection a tax or a user fee."

For its part, the airports authority "continues to believe the appeal lacks merit, and we will respond appropriately in court," said a spokesman in a statement. The MWAA filed a response to the original suit in April. But Williamson says the appeals court will have room to draw a different conclusion.

"This is a legal issue, not a factual issue, so the Circuit Court of Appeals has more ability to interpret the law differently," he says, "and disagree with the district court."

(Disclosure: one of the plaintiffs Cynkar is representing is an American University law professor. WAMU 88.5 is licensed to American University.)

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Transportation Nation

Proposed Silver Line Toll Hike Vexes Virginians

Friday, September 07, 2012

Higher tolls are coming to the Dulles Toll Road next January. The question remains how high.

The public had its first chance to weigh in on projected toll increases at an open house Thursday night organized by the Metropolitan Washington Airports Authority (MWAA), the agency running the Silver Line rail project that will heavily rely on increased toll revenues for its financing.

The Silver Line is a 23-mile rail link connecting Washington, D.C to Dulles International Airport and beyond into the Virginia suburbs. Its projected cost is $5.5 billion.

Effective January, the one-way full toll would increase to $2.75, then to $3.50 in 2014, and $4.50 in 2015, under current toll projections.  Rates would continue to rise two dollars every five years for the next four decades unless other sources of funding are secured to mitigate the toll increases.

“It’s ridiculous,” said Bayush Radadaya of Ashburn, who drives the Dulles Toll Road to work. “Right now I can afford it but once it doubles I cannot because gas prices are so much.”

Unlike a typical public hearing where residents take turns speaking into a microphone to a panel of officials, the event inside a high school cafeteria in Ashburn was informal. MWAA officials were on hand to answer questions, residents could read about the project on posters displaying charts and maps, and submit written comments into a cardboard box.

“You can throw a comment on a card but I’m not quite sure you necessarily have input,” said Pete Sabbatino of Ashburn. “The most input you are going to get is if someone read’s your comment card.  It’s being dictated to you.”

The Airports Authority says public feedback will be taken seriously when establishing the new toll rates later this year.

“The benefit of the [open house] is that we have an opportunity to educate people about the project,” said MWAA CEO Jack Potter.

Toll revenues are projected to cover about 50 percent of the Silver Line’s total estimated $5.5 billion cost.  The project was split into two phases; the tolls would cover 75 percent of Phase 2’s cost of $2.7 billion, under current projections.

Critics of the financing arrangement point to the lack of federal funding ($900 million for Phase 1, none for Phase 2) and relatively small contribution by the state of Virginia ($150 million).  Potter says the airports authority is working to increase those figures, which would reduce the toll increases and give drivers a break. MWAA is requesting a loan under the Transportation Infrastructure Finance and Innovation Act (TIFIA) program.

“It’s a 2.4 percent loan versus what we’re able to get in the open bond market of about six percent, so that would significantly lower our cost for financing the debt,” said Potter, who said Virginia’s contribution of $150 enabled MWAA to delay the $4.50 one-way, full toll rate until 2015. It was originally projected to take effect next year.

To Loudoun County resident Daniel Davies, the plan to finance a rail project out of the pockets of car commuters is unfair.

“"The toll rates plus what the toll avoidance is going to do to our communities and the traffic along Route 7 and Route 28 is just going to be gridlock,” said Davies, referring to drivers who will dodge the higher tolls on the highway by clogging already congested local and state roads.

Davies said he opposes the Virginia state legislature providing any additional funding for the Silver Line because the state already handed over the Dulles Toll Road to MWAA, an asset valued at more than $3 billion during the administration of Gov. Tim Kaine.

Read more TN coverage of the Silver Line here.

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Transportation Nation

Silver Line Vote Tuesday Could Stunt Rail-to-Dulles Plan

Monday, July 02, 2012

(Washington, D.C. -- WAMU) The Silver Line project is a 23-mile, $5.5 billion rail link to connect Washington, D.C to Dulles International Airport and beyond into the Loudoun County, Virginia suburbs.  When completed there will be 11 rail stops between the capital and the final stop in Ashburn. (See full specs here as a PDF.) It's an ambitious transit extension, one of the largest in the nation currently underway, and a critical vote Tuesday at 9 a.m. ET may shrink the plan significantly.

Phase I of the project is nearing completion.  Phase 2 is scheduled to start next year.  However, there is one more obstacle to overcome before construction may begin on time.

The Loudoun County Board of Supervisors is scheduled to vote Tuesday on whether to participate in the project.  The county’s commitment to Phase 2 is $270 million.  If the county decides to opt out, the project will be delayed by at least 18 months and will likely never extend beyond the airport.

Fairfax County and the state of Virginia are also committing funds to the Silver Line, but the bulk of the project run by the Metropolitan Washington Airports Authority (MWAA) will be financed by increased tolls on the Dulles Toll Road. Those tolls are projected to cover 75 percent of the $2.7 billion cost.

If Loudoun opts in, the project will start on time.  MWAA will begin setting higher toll rates this fall and begin soliciting bids from contractors.

Loudoun County’s board asked for an extension to decide if it will “opt out” of Phase 2 because of concerns over how financing the project would impact the county’s taxes. Last week, the board gave tentative approval to creating special tax districts around the future Metro stops west of the airport.

Check back to TN for updates after the vote.

Follow Martin Di Caro on Twitter for live updates.

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Transportation Nation

Vote On Pro-Labor Clause For Silver Line Scheduled For This Week

Monday, June 04, 2012

The Metropolitan Washington Airports Authority Board of Directors is expected to vote Wednesday on whether to keep a controversial pro-labor provision in its plans for Phase 2 of the Silver Line.

Publicly, the airports authority leadership has defended the project labor agreement, or PLA, that caused the Republican-led Loudoun County Board of Supervisors and the Virginia General Assembly to threaten to pull out of the project. Privately, MWAA leadership is conceding the $2.7 billion rail link will not go ahead as planned if they insist on keeping the PLA.

The PLA would provide bidding contractors a 10 percent bonus on their technical evaluation scores if they choose a union workforce to build Phase 2 to Dulles International Airport and beyond into Loudoun County. Opponents have argued the PLA violates Virginia's right-to-work law and would lead to out-of-state union workers dominating a Virginia project.

"If the project labor agreement is part of this, then I am absolutely certain that Loudoun County would not be part of the project," says Loudoun Supervisor Matt Letourneau (R-Dulles). "Phase 2 would not move past Wiehle Avenue in Reston if there is a PLA for the foreseeable future."

Loudoun County has until July 4 to decide if it will confirm its funding commitment of $270 million to the Silver Line. Virginia lawmakers are threatening to withdraw $150 million over the PLA. Loss of those funds would send Phase 2 stakeholders back to the table, likely delay the project, and almost certainly lead to higher tolls on the Dulles Toll Road to make up the difference.

Today, there's a public hearing in Loudon County where residents will have the opportunity to weigh in on Dulles Phase 2. The Board of Supervisors is considering creating new taxes or tax districts to fulfill its funding obligation.

Construction on Phase 2 is scheduled to start next year.

 

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Transportation Nation

FTA Head: McDonnell To Pitch In $150 Million More To Dulles Metrorail

Friday, July 08, 2011

(Washington D.C. - WAMU) Virginia Gov. Bob McDonnell may be pitching in more money to the Dulles Metrorail project, despite his recent complaints that its cost has grown too high.

Leaders at the local and state level in Virginia say they're worried the rising cost of the project will force fees on the Dulles Toll Road to rise painfully high. Money from tolls is paying for a large chunk of the plan to build a new Metro line to Dulles Airport.

Federal Transit Administrator Peter Rogoff says, in the past few days, the McDonnell administration has told him it would contribute an additional $150 million to keep the tolls down.

McDonnell's transportation secretary, Sean Connaughton, won't confirm the offer, but he says it is one of the options under consideration.

Rogoff and other federal officials are working to mediate a dispute over the cost of the project between Northern Virginia's elected leaders and the Metropolitan Washington Airports Authority. Rogoff says if the dispute isn’t resolved soon, it could kill the plan.

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Transportation Nation

As Planners Decide to Put Station Underground, Intense Political Machinations Over Dulles Airport Train Station

Thursday, April 07, 2011

(Washington D.C. - David Schultz, WAMU) The construction of a subway line out to Dulles International Airport in Northern Virginia is one of the largest public works projects in the country, with a price tag of around $6 billion.

With that kind of dough, politics is bound to seep into the process one way or another. And it definitely has, especially after a decision yesterday that puts local politicians here in a no-win situation.

Yesterday, the Board of the Metropolitan Washington Airports Authority, which is overseeing the project, chose to locate the planned Metro station at Dulles underground, rather than above ground.

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The Board made this decision against the advice of almost every elected official in the region - local, state and federal. That's because the underground option is more than $300 million more expensive than an above ground alternative.

Airports Board members said they chose the more expensive option because

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Transportation Nation

The Paradox of the Dulles Airport Toll Road

Thursday, December 30, 2010

(Washington, D.C. -- David Schultz, WAMU) Nowadays, the cash toll roads generate is often put toward more than just the maintenance and upkeep of the road itself.

That's what's happening in Northern Virginia: the Dulles Toll Road connects the D.C. region to Dulles International Airport. The local Airports Authority here is using money from the road to pay for a new rail line that will run parallel to the road.

But how much money are they using? Therein lies the rub...

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