Monday, February 4, 2013

Your California high-speed choo-choo update


All you really need to know with respect to just how big of a mess California’s high-speed rail project is the fact that 4 losing bidders to design and build the initial 30 mile set of tracks in the Central Valley each received $2 million for their troubles.

From the San Diego Union-Tribune:

Only one out of five bidders to design and build the first phase of California’s high-speed rail project will win the $1.8 billion contract — but they will all get paid.

The California High-Speed Rail Authority has agreed to issue a $2 million “stipend” to all four of the losing bidders, an obscure practice used for some large-scale construction projects. Bullet-train officials say the incentive was designed to attract bidders and therefore spur better, more competitive proposals.

“It might seem curious to people at first why we would pay losing bidders, but it’s very much a mathematical proposition,” said Dan Richard, authority chairman. “We think that we’ll get better bids and lower bids as a result.”

Richard described the stipends as standard policy on large projects and added that the reimbursements do not come close to the costs incurred by unsuccessful construction firms.

Contractors last month submitted proposals to design and build the first 30-mile stretch of track for the proposed $68 billion high-speed rail system. The statewide network endeavors to eventually stretch more than 800 miles north to south with trains traveling at speeds of up to 220 mph.

Allow us to translate what Dan Richards was attempting to communicate:

“There is no way in hell we would be able to attract any serious bidders and ask them to design and build a high-speed railroad when we don’t yet own any of the land upon which to build this without that $2 million cushion. There is too great a risk for bidding firms for us not to pay them off afterwards."

And you would not be surprised to learn that this bidding practice of “stipends” is, uh, somewhat irregular.

Eric Christen, executive director of the Poway-based Coalition for Fair Employment in Construction and a project opponent, said in his 13 years in the business he has never seen a payout for losing bidders.

“If it was the only thing that these guys were doing like this, well, I might give them the benefit of the doubt,” Christen said. “But it’s one after another, after another, after another.”

As to the amount of the stipends, he said, “The numbers to me as a taxpayer and as a private citizen are shocking.”

Assemblywoman Diane Harkey, an outspoken critic of the project, cited the recent dust-up in arguing for legislative oversight of the rail authority.

“We’ve never had a business plan. We’ve never had a funding source. We’ve never had an accurate ridership study and we are thinking of eminent domaining hundreds of parcels,” said Harkey, R-Dana Point. “And we’re sending out bids and paying out $2 million as if we are a private company for anyone who wants to bid but doesn’t happen to win.

“It’s easy to see how this money could just be sucked out of the state and end up going into the black hole and never producing any transportation element for the people of California.”

More from the article:

Sajeev Malaveetil, an expert in government contract accounting, administration and compliance, said stipends are most frequently seen at the state level on major transportation projects.

“It’s not a common practice, and I can’t necessarily think of situations where you see it outside of a major construction or developmental project, but it’s not unprecedented,” said Malaveetil, a director at the Berkeley Research Group in Washington. “It is used primarily in situations where the procuring party cannot itself identify the specific requirements they are looking for.

“They know what the end result is, but they are looking for different options and design components and technical approaches with the understanding that when they make the final contract award, they may actually adopt some of those facets from one offer into the ultimate contract.”

It’s certainly no coincidence that the largest government-funded boondoggles are major transportation projects at the state level.
And to be clear, that $2 million stipend really does make sense when you are asking engineering firms to bid on a project where there are so many variables and so many unknowns. The risk factors are huge.

But what may necessarily make sense does not make it right. A massively complex public works project riddled with uncertainties and driven by unrealistic time tables will indeed generate unsavory business practices such as these stipends.



K T Cat said...

The stipend tells me that the state lacks an internal workforce competent to do the engineering task. They are having to outsource every element of the design and analysis. In essence, they are paying each firm $2M to write the specs of their construction contract.

That's OK as far as it goes, but how do they plan on monitoring contract performance once the real thing is awarded if they have no expertise? The real risk is in the execution phase. The $2M gravy in the planning phase is nothing in comparison.

Mostly Nothing said...

I think the analyst hit it on the head. The State doesn't have a clue what they are doing. All they know is that they want a choo choo.

I am so glad I don't live in California anymore. It was screwed up badly on the 80s, I can't imagine it today.

Doo Doo Econ said...

The tea party has a group called "tea party express" that drained our local coffers, but at least they made a national tour!

So, we are not immune to the lure of the choo-choo snake oil. Ours is at least competent, professionally marketed choo-choo snake oil.

High-speed rail is just embarrassing.