Big Dig Lawsuit

[dik]

From Canadian Consulting Engineer Magazine

According to reports in the Portsmouth Herald Mass News and Boston Globe, the two engineering giants responsible for managing the Big Dig highway project in Boston are likely to be sued for $150 million for failing to keep control of the project costs.
Bechtel Corp. and Parsons Brinckerhoff have overseen construction on the massive tunnel project since the mid-1980s. The ambitious scheme was original approved at a cost of $2.6 billion, but it has ballooned to $14.6 billion, including $2 billion in cost overruns. Now the Massachussetts Turnpike Authority plans to file a breach-of-contract lawsuit against the engineering companies, charging that they "failed to disclose the true price."

 

[IRstuff]

It sounds like a CYA move. One could argue that the MTA was equally to blame for:

> not performing a sufficient audit of the original proposal to verify that the bid was reasonaly correct.

> "including $2 billion in cost overruns", so where did the other $10B in additional costs come from? Sounds like there were massive requirements creep from the MTA. Given that they are ONLY $2B of overruns on a $12.6B effort, that's only a ~15% variance, which is pretty darn good, given a 20-year program.

> Why is the MTA only suing for $150M? If that's what they think the total liability is, again, it's a CYA thing, given a 20-year program that's only only overrun by ~15%.

> Doesn't the MTA have financial bean-counters? Couldn't they figure out 15 years ago that the program was overrunning?



TTFN

 

[dik]

I've no idea why... I'm not familiar with the work/project. could be a CYA... In any event, it does raise the bar in case law... for errors and/or omissions and the outcome will not likely be good. I just hope the consultant has great documentation...

 

[Lutfi]

The following is my personal opinion and loud thoughts (no more, no less)

On project like this one it is very tough to secure a firm fixed price contract. I am not familiar with the type of contract at hand; I would think that GMP is very suitable for this type of project due to the many unknowns and the changes that creep into projects.

I also have to blame consultants because there is a greed factor if their fee is based on cost! I hate to bring this up but it is true.

My question is why did MTA wait till 10 B in changes took place before they raised their eyebrows? I seriously question their motive. We the consultants often get slammed from both ends. The owners blame us for changes and the contractors blame us for deficient plans. Usually when things go bad, there are too many reasons. It looks to me that we are searching for the guilty "stage" right now.

I am sure we will hear more about this in the coming months unless insurance companies settle out of court to save money.

 

[jheidt2543]

I agree with the previous posts. I've seen bids for various size projects range 15% and more for jobs lasting a year or less and those are in CURRENT dollars! I can't imagine predicting costs on a multi-billion dollar job over 20 years in duration within 15%, that's less than 1% per year if the scope never changed! Pretty damn good. If the scope changed, then it should be pretty easy to defend.

This is a political year, so I would bet someone is running for office on the back of this project.

 

[kenvlach]

Discussed this with a non-engineering, political type. We agreed that politics is involved. With the project in Senator Ted Kennedy’s backyard, there had never been a reason to worry about funding. The Bush administration is probably showing its muscle by tightening the pursestrings on its federal funding.

For an overview of the nearly 30 year, $14.6 billion project, see the Discovery Channel:

http://media.dsc.discovery.com/convergence/engineering/boston/interactive/interactive.html

 

[pablo02]

I was involved in a nuclear plant project (somewhat on the side lines) -- the original cost estimates were in the hundreds of millions, the staffing was set at 96 people... then a few years later a) 3 Mile Island, b) interest rates went to 21% (and the PUC wouldn't allow recovery of CWIP (construction work in progress)...

The project ended up around 2.5 Billion and the security staff itself exceeded 100 people... (and the protesters won't acknowledge that the delays they caused also added to the project costs)

One other aspect, the fact that cost overruns would occur had been known early in this (Big Dig) project -- but what do you do? Quit? They were far enough along that the only prudent decision was to proceed -- everyone knew ahead of time that the project was going to grossly exceed the original cost estimates... [maybe they failed to adequately inform the taxpayers, etc. ahead of time -- but thank goodness for the citizens of the Boston area, the rest of us in this country are "gladly" helping pay for this]

 

[dik]

The cost over runs are identifiable and can be noted at the time. Only in an extraordinary sense, can they 'pop-up' and these can be identified at the time they occur. I don't know what was done on this project.

On one project, I was involved with, a construction company came out with an 'Incident Report' which explained the reason for the extra to contract, the effect it would have on extention in time (with costs not being identified), and the increased cost for the actual work. If there was no increase in cost, it still identified the potential for a delay claim.

The person/company responsible for project management should have a really good record of cost increases, the reasons and proof that this information was presented to the owner in a timely fashion. I'm surprised that the claim is for a paltry $150M. It might be that there are real reasons and that the value claimed is 'reasonable'...

 

[IRstuff]

The impression I get is that this was a cost-plus contract, so when the MTA approved the ever-increasing EAC, they essentially agreed to the new cost structure.

The $150M appears to represent some residual profit, although it's not clear how a even on a cost-plus program with a 3x cost growth, there would be any profit left, since the profit is supposed to be decremented when the cost increases.


TTFN

 

[VoyageofDiscovery]

It's hard to believe that PB or Bechtel would have low balled such a project to this degree given their experience in megaprojects.

VOD

 

[LPPE]

Rumor has it that the original price was extremely low on purpose, because the actual price tag at the time would not have passed through and the project would have been scrapped.

 

[IRstuff]

That's obviously the contention of the lawsuit, but as late as 2001, the EAC was still under $8B. It was only in the last two years that the EAC doubled again.

However, the MTA would have been clearly incompetent or at least in collusion if they failed to audit the original bid and failed to recognize that it was so seriously underbid.

TTFN

 

[jetmaker]

This seems to be a common tactic in a lot of government programs. Companies lowball the bid to get the contract, knowing full well that the speciifcations are going to change. In some cases, the Companies even get to redefine the specifications once the contracts are awarded.

A similar case is developing with the Joint Strike Fighter program, which is now 1 year behind schedule, and $5 billion over budget.

Regards,
jetmaker

 

[IRstuff]

But the customer is either knowingly participating or an idiot.

Otherwise, one can clearly impose penalties and exercise them as required.

TTFN

 

[LUGuy]

I suspect the relatively small amount of the claim is based more upon the difference between the final project amount less what the feds have agreed to contribute ( I think that is around 12b but it might even be more?) and then factored to consider what the state had previously budgeted.

That begs the question of why aren't the feds suing for their portion of the bill?

I spent several years working various aspects of design and construction on the Big Dig, and I can honestly say that the magnitude of the work done under a 200-300 year old city on garbage for landfill was beyond most everyone's true comprehension when the project was first schemed and budgeted.

 

[IRstuff]

The Boston papers reported that the federal contribution was capped off at around $8B. Which also raises the question of why the ACE would have been remiss in not verifying the initial cost estimates.

TTFN

 

[jheidt2543]

I can't imagine a contractor gambling on possible extras on a project of this magnitude and risk. A few thousand dollars is one thing, but millions and billions is real money. To me, it sounds more like the governments lowballed the budget to get the project passed by the legislatures or referendums required for approval.