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Contract Award planned for rail project despite bidder's financial issues

Stranded System in the Central Valley
Stranded System in the Central Valley
From Photo Club Membership

The High-Speed Rail (HSR) Authority Board is set to authorize a contract for the start of the Design/Build process at their June 6th meeting. But the question is, should they?

They do not yet have approval for the project from the Surface Transportation Board (STB) in Washington DC. The HSR board has asked for an exemption from a full review process but they don’t know at this point if it will be the granted. A decision could be as early as this month. This organization approves new railroads in the United States and the High-Speed Rail Authority forgot to apply until the last minute. It’s been approximately 4 years since they first knew of this requirement.

Another kink in the road is the Prop 1A lawsuit. A court ruling is expected shortly and if the plaintiffs win, an unfavorable ruling for the rail authority could slow down the project if the judge requires strict conformance to the Prop 1A requirements the voters approved in November 2008.

Tutor-Perini Finances

But now it appears in addition to the bidding issues explained below, there are issues with Tutor-Perini finances according to a study conducted by Californians Advocating Responsible Rail Design (CARRD). Co-founder, Elizabeth Alexis, who is an economist and financial planner by trade, studied the financial background of Tutor-Perini, which shows a company that is having financial issues. Bottom line: Liquidity is dropping and debt is rising.

The Authority’s job during the Request for Proposal (RFP) process was to review the bidders two times for financial strength. First in the earlier part of the bidding to see if they were qualified to bid, then again in last stages of the selection.

"The Authority laid out a process that would highlight red flags. Bidders had to actually make formal certifications about a lack of Material Changes. So what happened here? The Authority needs to make good on its promises of a transparent process and disclose more information about the Financial Change review, starting with Tutor-Perini’s financial documentation." (CARRD) See important financial charts at the bottom about the Tutor Perini.

CARRD: How did Tutor-Perini make the grade?

• Financial strength is imperative for design-build contractor

• Authority’s rules listed types of disqualifying negative Material Changes to financial condition

• Tutor-Perini had three Material Changes

• Tutor-Perini’s finances are increasingly weak

• The Authority reported today (June 3, 2013) that none of the proposers had Material Changes in their financial status

Because Tutor-Perini failed the pass/fail analysis, it should not have been eligible to win.

For more see the complete analysis they prepared:

Former Chairman of the High-Speed Rail Authority, Judge Quentin Kopp also stated that the HSR authority board is required to make any substantial changes to the contract terms in accordance with the Streets and Highway Code. He considered the change to the formula substantial. He also offered that after the elimination of the two lowest rated technical bidders, the requirement of the winner was not just to be “the lowest bidder, it was the lowest responsible bidder.” He said that terminology" invites the financial capability examination needed to finish the project. “

What are they approving?

The HSRA says it’s approving a Design/Build contract for 30 miles but that’s not true at this time. First of all, it's 29 miles. The first stages of the Design/Build contract is about designing the particulars of the route.They may design 29 miles but they don't know how many miles they will build because of environmental clearance issues. The 130 miles, the Authority told the legislature it was going to build, combines two independently studied environmental corridors, Merced to Fresno and Fresno to Bakersfield and only the first one is cleared. The Request for Proposal materials say the construction segment will be in the range of 23 to 29 miles. So the actual mileage that will be constructed depends on where they are in the environmental process when they are actually ready to construct something. Tom Fellenz, staff attorney for the HSR project, says "construction activities" will begin in late summer.

There are those who would argue that the entire 130 miles has to be environmentally complete before construction can begin since one section depends on the other. The Prop 1A lawsuit contends that the entire 300 mile segment between Merced and the San Fernando Valley has to be cleared.

But for right this minute all they have cleared is a maximum 24 miles and the second half of the Initial Construction segment won't be certified until at minimum the Fall of 2013.

Route specifics

For those of you who follow this project very closely, the Authority needs to complete those 29 miles since the FRA required proof of "independent utility" in order to get the federal grants. This is not in California law but a requirement in the federal law. This is the back up plan necessary in case the high-speed rail project stalled. This independent utility is a new route for Amtrak and is clearly not high-speed rail required in California law.

Former State Senator Simitian, who voted no on the project funding, said in a Senate Budget hearing, April 18, 2012, "If we don’t have additional funds forthcoming, if we have no more money from the feds, private investment or another bond measure, at the end of $ 6.2 billion we have 130 miles of conventional rail. That investment that gives us forty-five minutes off the commute time [of the existing Amtrak line] and the value is $15 million a year which is not a great return on investment for $6.2 billion. Absent of additional investment we’re left with a stranded investment with modest value.” The $15 million was calculated by the Legislative Analyst Office. (California State Budget April 18th, 2012 mm 53:37 to 1:04 ) Dan Richard, Board chairman stated in a Congressional Meeting in Madera on May 28th that he'd build the segment anyway even if no money was in sight.

In order to meet this requirement both sections must be environmentally cleared. Also let us not forget about the mysterious Chowchilla section, the size of an island in Hawaii, which might be added into the Merced to Fresno environmental document. So the question is, are the first 23 miles really environmentally cleared? It is a fascinating explanation of this problem and details issues in the area which is perhaps why the Authority wanted to postpone dealing with this area. (5 minutes) Anja Raudabaugh, Madera Farm Bureau Executive Director's statement about Chowchilla.

Here are the facts:

CP1 of the ICS is a total of 29 miles, not 30 miles and it is broken up as:

· CP1-A is 23 miles and is entirely within the Merced-Fresno EIR, only.

· CP1-B is the 1-mile, which is in both the Merced-Fresno and Fresno-Bakersfield EIRs.

· CP1-C is 5 miles and is entirely within the Fresno-Bakersfield EIR, only. (Not environmentally cleared)

According to Rita Wespi from CARRD, “A more accurate statement would be that only 24 miles of CP1 HAVE been cleared.”

The Authority is clearly trying to give the appearance that more miles will be built or perhaps trying to match up statements made to the STB and the Congressional hearings that they in fact have cleared at least 29 miles.

Contractor selection for CP-1

The first problem with the selection of a contractor surrounds the process. The second problem, is about the financial strength of the proposed winner, Tutor-Perini.

Let's review the facts. There was a stated process and formula chosen and made public at a board meeting in March 2012. The process involved choosing the top three contractors who were rated the highest in technical excellence, drop the two lowest and then apply the formula of 30/70% on technical and financial strength to the remaining three. The highest rated with the applied weighted average wins.

But instead of doing this, they did not drop the bottom two and applied the financial weighting of 70% to everyone, giving the least costly bidder a huge advantage. The result is the state of California ends up with the lowest technically rated bidder and the lowest price. That was not what was intended.

While the board had the right to make changes to anything in the RFP including the formula change, they did not have the right to do it in the way they did. CEO Jeff Morales was not authorized to do so with the nod of one director according to the Streets and Highway Code. He apparently was given the authority to make unsubstantial changes and this did not constitute a minor change.

This decision needed the approval of the entire board and since the Authority's responsibilities are written in statute, it cannot give away its legal responsibility.

This change was done in the least transparent way possible. Unlike the first decision made in the light of day, this was done so to speak in the dark of night without any discussion in a board meeting.

At the June 6th board meeting, the Authority is expected to approve the "winner" despite all the issues surrounding the bidder the bidding process and legal challenges. They appear determined to get a shovel in ground, no matter what.


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