HRT COST-TO-COMPLETE
Memo from HRT President & CEO Philip A. Shucet to the Transportation District Commission of Hampton Roads:
February 18, 2010
Re: Cost to Complete
Dear Commissioners,
The Transportation District Commission of Hampton Roads and the executive leadership of Hampton Roads Transit passionately brought a vision to the region that culminated in Norfolk being the smallest American city to qualify for a new light rail transit line. That achievement should not go unrecognized.
With construction more than half finished, Norfolk’s most complex public works effort will soon yield a changed landscape. When completed in the late spring of 2011, The Tide will reshape the City. Change is already occurring. The Tide has sparked private investment along its path. The promise of more to come hangs in the air.
But where vision was strong; HRT stumbled on execution. The practical engineering and construction expertise required to build The Tide simply went beyond the institutional expertise within HRT. The transition from a service agency to a contracting entity is not easy. The complex demands of heavy construction in a city as old as Norfolk with its congested urban fabric added to the challenges.
We missed an early warning shot when the engineer's estimate for the largest contract – the move into downtown Norfolk - was significantly above the FFGA. The actual bid came in even higher. That was the time to take a deliberate look at the entire budget. Experienced contractors know how to evaluate risk. The message in that bid is palpable: There is more risk here than you know. We compounded an over-budget bid by issuing a delay order to the same contractor.
Projects that start right usually end right. We faltered early.
The Tide has experienced two significant public episodes of cost overruns. The first, reported in the fall of 2008, made it clear that the original projected cost of the project – $232 million – was low. Unfortunately, the assessment that produced the new cost – $288 million – lacked the rigor necessary to determine a reliable estimate.
In August and September of 2009, an internal HRT assessment looked at a more reasonable cost-to-complete. This work was compiled in an October 2009 report, and put the project cost at $324 million. The October 2009 report was not made public. The report’s author suggested that her work be reviewed by an independent entity. The October 2009 HRT assessment served as the foundation for the AECOM report issued on January 27, 2010. AECOM’s estimate of a cost-to-complete was $335 million based on the limited time and material they had on hand to review.
On February 1, 2010, an HRT team that included a senior executive professional engineer from Norfolk was assembled to assess and prepare a final cost-to-complete. Actually, it is more accurate to say cost-at-completion. Our federal, state, and local partners want to know – and have a right to know – what the final bill will be. The work of the HRT team goes beyond a review of the October 2009 and the AECOM reports. The work undertaken over the past two and a half weeks, and presented in this report, is a bottom-up look at each cost element of the project. Historical costs have been accurately captured. Future costs have been analyzed for each outstanding contract. And a hard look has been given to the administrative support necessary to successfully complete the project. The individuals closest to the work have applied their best sense of professional judgment to anticipate the inherent risk remaining in each element of work.
Can we claim perfection? No. What we can say is that our work now represents a cost-to-complete that HRT owns and accepts with full accountability. That’s as it should be.
Sincerely,
Philip A. Shucet
President and CEO
Summary of Major Findings:
The cost to complete The Tide will be $338,284,251
The start of revenue operations will be May 2011
The exercise that developed these critical thresholds represents a forward look toward the completion of The Tide, the start of testing and revenue service. It is not intended to be an exhaustive look backward at how the project exceeded its original budget. That effort will be taken up by the Inspector General’s office at the Virginia Department of Transportation which has been asked to review business practices at Hampton Roads Transit.
An analysis of the factors that have driven The Tide from its original cost of $232.1 million to its current figure reveals numerous contributing issues in the general categories of hard, soft and real estate costs.
Significant increases were found in the hard costs associated with contract 40 – the main contract to bring light rail into downtown Norfolk. These costs were driven by underground utility relocations – gas, electric and storm sewer – and the need to remove all utilities away from the alignment. While this was anticipated at the start of the project, the extent of utility work and the time required to design changes was not fully appreciated. In addition, significant additional costs were incurred in Contract 60 which is delivering the traction power substations, which convert alternating current to direct current for use in the system. Upgrades in signalization, additional safety gates and the inclusion of an operations control center added roughly $10 million to this contract.
Soft costs also rose significantly as demands from third parties to move stations, upgrade the “look and feel” of shelters, the vehicle maintenance building, and decorative cladding of traction power substations required additional time from designers. Real estate costs experienced cost pressure as the need for hundreds of temporary construction easements required additional out help to execute.
- A summary of hard cost increases reflects a cost increase of 37% over the baseline set at the Full Funding Grant Agreement.
- Soft costs increased disproportionately at 101% from what was included in the FFGA budget. This was due to construction management and administrative costs remaining on the project an additional 16 months. For each change it required additional design effort and construction management.
- The ratio of soft costs to hard costs for the completed work is 45%
- The ratio of soft costs to hard costs for the remaining 38% of the project will be 9.75%
- The cost at completion is expected to be $45.7 million per mile.
- Overall, construction is about 62% complete. Unknown risks are becoming increasingly smaller as the project rises out of the ground
In October 2007, the Federal Transit Administration approved a Full Funding Grant Agreement (FFGA) that set the cost of the light rail project at $232.1 million. Construction began in December 2007 and almost immediately HRT was confronted with changed conditions and schedule delays. While work proceeded, an attempt to quantify the extent to which the changed conditions would affect the overall project cost resulted in HRT establishing a revised cost of $288 million in December 2008. This revised cost estimate fell short of the rigorous and analytical exercise that was required.
As project challenges continued to unfold, a cost-to-complete study began in August 2009. This effort was spearheaded by the former chief project management officer with information provided by the project staff. A draft summary assessment was compiled in October 2009, and forecast a projected cost at completion of $324,753,385 and revenue service date of March 2011. The October 2009 report was not made available to the public. The chief project management officer recommended that the October 2009 report be independently reviewed by a third party.
In early November 2009, an independent project assessment was commissioned to determine a reasonable and achievable cost at completion and revenue service date. This work was performed by AECOM, and largely relied on the October 2009 report. AECOM also included site reviews, interviews of various field and office personnel, and the application of professional judgment.
In January 2010, AECOM released its assessment recommending a cost at completion of roughly $335 million and a qualified opinion that an achievable revenue service date would be May 2011. Neither the October 2009 report nor the January 2010 AECOM report could have been expected to stand alone as a final cost-to-complete analysis. Both gave a clear picture, however, that a $288 million cost at completion was not achievable.
On February 1, 2010 a meeting of HRT’s Tide project management team was convened. The team was directed to prepare a final cost at completion as well as a projected date for revenue service. While this exercise would include a review of both the October 2009 and January 2010 reports, this was to be an exhaustive, ground-up look at every element of cost based on work completed and work remaining to be completed. Every summary number was to tie back to actual costs and best practice professional judgment of forward risk. Input was received from design directors, operations supervisors, and the City of Norfolk representative assigned to the project.
The team agreed to replicate the structure of the FFGA in format with new columns created to capture the following:
- The current contract or budget amount as adjusted or executed.
- Pending costs that are known but not yet fully quantified or negotiated.
- Other risk exposure not yet quantified in a pending change. These are risks that must be managed carefully by HRT and the contractors.
For ease in understanding the CTC is presented in a summary spreadsheet. In the cost-to-complete exercise every number was discussed, vetted, debated, and then accepted. In this manner the full team identified all the issues and discussed them in an open fashion.
Complete to Cost 2/18/2010
| Baseline FFGA | Current Contract or Budget Total | Pending Changes | Remaining Cost Exposure | Cost-to-Complete | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Construction Package | HARD COSTS | |||||||||
| 10 | Wetlands Mitigation Grandy Village | $547,000 | $531,130 | $- | $25,000 | $561,130 | ||||
| 20 | Viaduct Brambleton | $13,822,059 | $15,315,753 | $923,200 | $128,583 | $16,367,536 | ||||
| 30 | NS ROW | $38,908,371 | $38,908,371 | $(38,908,371) | $- | $- | ||||
| 40 | Downtown | $24,337,995 | $42,353,720 | $53,205,891 | $2,151,968 | $97,711,579 | ||||
| 60 | Traction Power | $29,182,854 | $30,118,288 | $3,607,635 | $7,773,314 | $41,499,237 | ||||
| 80 | Vehicle Storage Maintenance Facility | $9,463,163 |
$11,218,011 | $948,464 | $2,563,200 | $14,729,675 | ||||
| 100 | Park & Ride's | $6,350,886 | $6,212,016 | $- | $970,000 | $7,182,016 | ||||
| 110 | Station Finishes | $4,091,671 | $3,955,000 | $52,000 | $485,500 | $4,492,500 | ||||
| 150 | Demolition | $301,001 | $1,512,315 | $- | $91,383 | $1,603,698 | ||||
| 160 | Construction of Temp Siding Track | $- | $137,000 | $316,980 | $- | $453,980 | ||||
| 120 | Light Rail Vehicles | $35,886,000 | $35,887,000 | $35,887,000 | ||||||
| LRV Security | $129,000 | $129,000 | $258,000 | $387,000 | ||||||
| 130 | Fare Vending Equip. | $1,553,000 | $1,553,000 | $1,553,000 | ||||||
| 1000 | Landscaping | $850,000 | $850,000 | |||||||
| 2000 | Drainage under I-264 | $1,600,000 | $1,600,000 | |||||||
| HARD COSTS Total | $164,573,000 | $190,285,604 | $20,403,799 | $14,188,948 | $224,878,351 | |||||
| REAL ESTATE, UTILITIES, INSURANCE | ||||||||||
| Purchase or Lease of Real Estate | $10,406,000 | $14,351,495 | $2,689,039 | |||||||
| Relocate Households & Businesses | $308,000 | $734,875 | $25,000 | |||||||
| Utilities | $4,468,900 | |||||||||
| Insurance (OCIP) | $5,745,000 | $5,745,000 | $2,804,822 | |||||||
| REAL ESTATE, UTILITIES, INSURANCE Total | $16,459,000 | $25,300,270 | $5,518,861 | $30,819,131 | ||||||
| SOFT COST | ||||||||||
| ENG, DESIGN, DSDC, PM/CM, PROJECT ADMIN. | ||||||||||
| Preliminary Engineering | $9,032,000 | $8,754,000 | $- | $- | $8,754,000 | |||||
| Design | $7,738,000 | $15,848,935 | $2,285,600 | $662,462 | $18,796,997 | |||||
| Project Management | $5,881,000 | $5,881,000 | $9,638,724 | $- | $15,519,724 | |||||
| Project Office Costs | $- | $554,660 | $100,000 | $654,660 | ||||||
| Project Support | $- | $940,626 | $400,000 | $1,340,626 | ||||||
| HRT Project Management & Administration | $- | $888,194 | $1,162,000 | $2,050,194 | ||||||
| HRT Public Involvement | $- | $932,564 | $932,564 | |||||||
| Construction Management | $10,524,000 | $12,366,632 | $194,231 | $- | $12,560,863 | |||||
| Professional Services AECOM | $- | $999,554 | $999,554 | |||||||
| $- | $- | |||||||||
| START UP & PRE-REVENUE OPS | $- | $- | ||||||||
| Parts and Materials | $313,600 | $1,374,349 | $925,651 | $2,300,000 | ||||||
| Rail Training: Operators/Supervisors and Maintainers | $257,440 | $9,976 | $490,024 | $500,000 | ||||||
| General Liability Insurance | $200,000 | $200,000 | $200,000 | |||||||
| Public Relations / Grand Opening Event | $100,000 | $- | $- | $- | ||||||
| Energy & Utilities | $- | $- | $600,433 | $600,433 | ||||||
| Rail Operations & Maintenance Staff | $1,192,960 | $853,417 | $3,422,737 | $4,276,154 | ||||||
| Bus Feeder Training and Pre-revenue testing | $- | $466,000 | $466,000 | |||||||
| Legal Fees & permits | $1,135,000 | $1,135,000 | $1,135,000 | |||||||
| SOFT COSTS Total | $36,374,000 | $48,806,790 | $16,432,348 | $5,847,632 | $71,086,769 | |||||
| Finance Charges | $3,937,000 | $1,500,000 | $1,500,000 | |||||||
| Unallocated Contingency | $10,757,000 | $10,000,000 | $10,000,000 | |||||||
| COST TO COMPLETE | $232,100,000 | $275,892,663 | $42,355,008 | $20,036,580 | $338,284,251 | |||||