An independent review of the financial
position of the Alaskan Way Viaduct Replacement Project in Seattle concludes
that the overall program can still be completed within the US$3.1 billion
budget set at the start of the project. This is in spite of construction delays
and additional costs associated with the TBM breakdown which, under a current
“worst case scenario”, would result in the owner (WSDOT) being liable for
$317.5 million of change orders and extra administration costs.
However, even if this worst case scenario
were to play out, the independent three-person Expert Review Panel (ERP) which
reports annually to the Governor and the Washington State Legislature on
project progress, “remains confident” that no more State or local funds will be
required, as things currently stand, to complete the project. These
calculations, however, include $200 million of anticipated toll revenue raised
by the completed project although the level at which this will be charged is
yet to be agreed by the State Legislature.
Speaking to TunnelTalk from
Seattle, ERP chairperson Patricia Galloway said the Cost Estimation Validation
Process (CEVP) that WSDOT employed when it was preparing the design-build
tunneling contract was proof of the owner’s “foresight” in managing project
risks. Galloway explained that as part of the CEVP process WSDOT hired an
advisory team of international tunneling experts to make cost projections and
estimates based on risks associated with operating a “one of its kind TBM.”
These recommendations formed the basis of an incentive versus risk contingency
contract payment structure with the tunnel contractor, STP (the joint venture
of Dragados and Tutor Perini), that was subsequently incorporated into the
design-build contract by WSDOT’s California-based expert legal firm.
“The potential funding sources [to cover
the extra costs that have been incurred by STP] are currently higher than the
worst case scenario costs to date,” explained Galloway, “and that is because of
what we believe was the foresight of WSDOT to prepare a contract and a program
budget – for which the design-build tunnel contract is only one part – to make
all [the project elements] work together for completion of the entire program.”
However the ERP, in its latest April 2015
report, recognizes that there are “important challenges” presented by the
current and ongoing problems associated with the $1.1 billion tunnel
construction contract “that may affect budget and schedule.”
The SR99 tunnel program represents 35% of
the overall SR99 Viaduct Replacement Project that also includes the demolition
of the viaduct and restoration of the Seattle waterfront; construction and
reconfiguration of the highways to service the north and south portals; and the
decommissioning of the city’s Battery Street road tunnel.
To counterbalance the potential liability
associated with increased tunnel construction costs, schedule overruns beyond
the contract delivery date of January 16, 2016, and costs associated with
repairs to the 17.5m diameter Hitachi Zosen EPBM, the ERP notes that there are
currently up to $329.6 million of funds that could be realised to cover the
potential deficit as it stands at present (Fig 1). These relate to:
under-spends and unused contingencies in
other parts of the overall project to an amount of some $59.2 million;
utilization of the £65 million of
incentive-based contingency funds built into the design-build tunnel contract
with STP;
$50 million of liquidated damages that
relate to penalties of up to $50,000/day that will be levied against STP for
late completion beyond the substantial contract completion date of 17 January
2016 (rising to $100,00/day after November 9, 2016), and;
the assumption of a successful maximum
claim of $85 million being made against the TBM insurance policy.
The ERP’s latest financial projections are
based on data made available by all the project’s stakeholders and assume that
no more problems emerge once the TBM is restarted in August (2015). All
potential Differing Site Conditions (DSC) contingencies and non-tunnel
under-spends are accounted for in its calculations, and there now remains only
$20 million of contingency in the Deformation Fund to cover possible extra
costs associated with settlements and damage caused by TBM excavation
operations under Downtown Seattle after the machine has passed beyond its final
Safe Haven 3 at 1,500ft (457m) into the TBM tunnel drive.
“Barring no other major problems with the
TBM and its operation, and knowing that the hardest part of the tunnelling will
have been completed by the time STP hits Safe Haven 3 [at 1,500ft], and that
there is the availability to the program of the £20 million Deformation Fund
that has not been included in our calculations, once the drive goes under the
city, and barring something completely unforeseeable, then there should be
sufficient funds available to complete the program to the $3.1 billion budget”
said Galloway.
The ERP notes, however, that the $317.5
million figure of potential extra liabilities relating to STP’s accumulated
claims for extra costs that it has so far incurred is a “worst case scenario”,
adding that “the ERP’s experience is that awards of contractors’ claims is
often substantially less than the sums requested by them.” If STP fails to
recover these substantial extra costs from WSDOT – either through mutual
agreement or following intervention by the DRB, or via possible future legal
challenges in court – it is (so far) looking at a potential cost addition of
26.5% above its contract price of £1.1 billion, not including any successful
claim made against the maximum $85 million TBM insurance policy.
To date STP has submitted, or is due to
submit, $292.5 million of change order requests, which it is entitled to do
under the terms of the design-build contract. This includes the largest single
claim to date, known as PCO (Potential Change Order) 250, which relates to
excavation of the recovery shaft and damage to the TBM that STP claims was
caused by an old and unmapped 8in diameter steel well casing. That claim has
been the subject of a mass of correspondence since it was lodged in December
2013, shortly after the TBM was stopped. WSDOT and STP have failed to reach
agreement on the issue, and a Dispute Review Panel is now due to convene
shortly to hear evidence from both parties. However, under the terms of the
contract between STP and WSDOT the panel’s recommendations are not binding upon
either party.
Three main elements emerge from the latest
ERP report:
the disputes review process is not working
“due to both parties’ reluctance to acknowledge the decisions made in the
process” (p21 of the official report attached)
the contingency and project risk provisions
built into the design-build contract are working well to minimize project
financial risk and to protect the State’s liability
there exists “a tendency [for owner and
contractor] to blame rather than to work together to solve problems” (p21 of
the report)
Galloway told TunnelTalk that a
significant amount of work had been carried out by STP towards completing other
elements of the tunnel contract that had originally been scheduled to take
place following completion of the TBM excavation drive. These include works at
the north and south portals, which are now substantially complete, and internal
structures inside the tunnel behind the TBM. “The fact that STP has been able
to advance a lot of that work and take advantage of the TBM downtime has
enabled it to mitigate a significant portion of the delay.” Galloway also
pointed out that talk of a two-year delay was “a bit of a misnomer” because
while STP’s project completion date assumed completion with no risks being
realized by the end of 2015, WSDOT’s less demanding schedule incorporated an
extra year’s worth of project risk to November 2016.
“Through the Cost Estimating Validation
Process (CEVP), the WSDOT contract contemplated that there might be issues,
since this was to be a first of its kind machine, and that there was the
potential for issues with the TBM,” explained Galloway. “That is why the
insurance was set up in such a way so as to deal with some of the issues that
have, since, occurred; a claim has been made and the insurance investigators
are out on site doing their investigation work."
“The next round of excavation to Safe Haven
3 [about 400ft ahead once the repaired TBM restarts] will be important in terms
of seeing how the machine operates after the repairs, but the good news is that
STP is meeting its repair schedule.” Once an expert analysis of the advance
rate being achieved by the newly reinforced and repaired machine during its
short drive into Safe Haven 3 is complete, and following a final inspection of
the TBM prior to driving under Downtown, STP is expected to announce a revised
substantial completion date. WSDOT’s reduction by £8 million of the maximum $58
million liquidated damages that it can hold STP liable for (to cover schedule
overrun penalties) implies a current estimate of an extra 160 days at
$50,000/day – some time in June-July 2017.
This analysis, however, presupposes no
further problems being encountered since most of the sources for offsetting
income and contingency have now been accounted for. In addition, although
liability for the extra costs might not fall upon WSDOT (and ultimately the
taxpayers of Seattle) if the owner can successfully fend off all, most, or some
of the change order claims, the contractor could be facing huge additional
costs over and above its £1.1 billion contract price.
Next week TunnelTalk will report
on the issues surrounding the major change order PCO250 – which relates to the
TBM obstruction – based on a mountain of project correspondence between WSDOT
and STP that has been released to us under the USA Freedom of Information
legislation.