Rail Firms Lack Accountability

NOV. 15, 2010


The California High-Speed Rail Authority really loves its contractors. It easily employs more than a hundred of them, though the rail authority doesn’t seem to know that. In fact, the authority literally has no idea how many sub-contractors are working on the bullet trains — and prefers it that way.

Last week at its Nov. 5 board meeting, the authority board added yet another name to the already bloated list of rail contractors: Price Waterhouse Coopers, the giant accounting firm that maintains offices all over the world. Though the contract isn’t yet final (authority spokesperson Rachel Wall said it’s still “going through the State’s contract approval process”), given the high scores the firm earned during the bidding process, final approval should come soon. Oddly, the addition of the well-known name Price Waterhouse Coopers to California’s high-speed rail effort, which has been in discussions for a couple months, received no media attention.

In a way, that’s not surprising. The massive array of firms that are planning the state’s high-speed rail project rarely get much publicity. The authority already has a bunch of firms working on financial planning, but Price Waterhouse Coopers will become the rail authority’s “financial consultant.” The contract is for $2.5 million and ends June 30, 2013. The reason for bringing Price Waterhouse Coopers into the high-speed rail authority is clear: the state rail agency needs money – lots of it – to start building the 800-mile bullet train network across California.

The authority says it will cost $43 billion to build the bullet train system, though critics like Reason Foundation have put the final build-out cost figure at twice that number. If all goes well, the authority says it can start laying down tracks as early as 2012.

“With the passage of Proposition 1A and the awarding of American Recovery and Reinvestment Act funds, the Authority is fast approaching the final design and construction phase of the project, thus it became evident that a re-evaluation of the Authority’s financial consultant service needs was necessary for the success of the program,” is how Carrie Pourvahidi, the authority’s Chief Deputy Director, put it in an Oct. 13 memo to the rail board. “Additionally, the Authority must become more aggressive in identifying, pursuing and securing funding for the project. For these reasons, it is paramount that the Authority employ the assistance of experienced financial advisers in the development and implementation of a sound financing program.”

Of course, the rail authority already employs a seven-firm term handling the “financial plan.” This team is led by the Bethesda, Md.-based Infrastructure Management Group, which the authority hired back in late 2006 (IMG’s $4 million contract runs out at the end of June 2012). IMG sub-contracts with various other firms, including Lehman Brothers, Sperry Capital, Inc., Bauer and Associates, CDS Consulting, Jack Faucett Associates and Dutch Ventures, LTD.

The new imperative of raising money – especially private money – is made clear in the rail authority’s Request for Proposals that preceded the Price Waterhouse Coopers contract. “The Authority has estimated $464.3 million will be needed to continue to move the HST system forward in the next (2010-11) fiscal year with the expectation that construction will begin construction in 2012,” states the RFP. “A robust portfolio of potential construction funding sources is necessary to meet these significant funding requirements.”

The use of the word “robust” appears throughout the RFP, most notably in the bold sentence that appears on page 5: “By the end of January 2011, a fully supported and robust financial plan must be available for the Authority to supply to the California Legislature.”

Some rail opponents have noted that most of the European nations that have built high-speed rail systems did their general engineering in-house. Anyone who’s ever heard the word “Caltrans” can pretty much imagine what would happen in this state had the high-speed rail authority gone down that route.

Instead, California looked to private industry to build the bullet trains, and at least on paper, this makes sense. The rail authority says it is “responsible for preparing a plan, conducting environmental studies, design, construction and operation of a high-speed passenger train network in California,” but according to Wall, the rail authority itself actually consists of just 17 full-time and one part-time employees. Critics say such a microscopic staff is woefully unable to oversee so many contractors and their subcontractors.

“There are layers of contracting,” Elizabeth Alexis, a Palo Alto economist, explained. “Each segment has a different contracting team – it’s like if you’re building a house, and you hire a different contractor to build each room.”

Alexis helped co-found Californians Advocating Responsible Rail Design (CARRD), a small group of Palo Alto professionals who both want bullet trains in California and find the current high-speed rail authority set-up to be grossly inefficient. They say the hiring of so many private contractors wastes millions of dollars.

To illuminate the nexus of contracting firms that surround the high-speed rail authority, CARRD activists began compiling a list of all the firms that work on planning for the bullet trains. They used publicly available records and came up with an estimate of at least 130 firms.

Wall’s response when I asked how many firms fell under the high-speed umbrella exemplifies the fear that Alexis and CARRD hold — that private firms are running amok with taxpayer dollars.

“There is a regional consultant (architecture and engineering) contract for each of the segments of the project,” Wall e-mailed when I asked for the number of contractors. “There are also contracts for legal services, financial consulting, visual simulations, and outreach. Note that the Authority manages its direct contracts — subcontracts are between the contractor and its sub, not the Authority.”

Translation: the high-speed rail authority has no idea how many firms are currently doing work on the project (click here for an August CalWatchdog story on how the rail authority couldn’t identify how many workers its contractors employed).

This is not an academic distinction. On Oct. 27, state Inspector General Laura Chick reported that while the rail authority management “has made significant progress in implementing changes and improvements in a very short period of time,” the authority “continues to lack written policies and procedures for day-to-day activities such as contract administration, information security, and fiscal and human resources administration.”

For clarification, I went to Alexis.

“There are 20 different Environmental Impact Report contractors,” she said. “They hire each other as sub-contractors, too.”

The New York-based engineering firm STV is a good example of these relationships. STV is the prime contractor for the Los Angeles to Anaheim rail segment, as well as a subcontractor on the Los Angeles-to-Palmdale and Palmdale-to-Fresno segments, according to data compiled by CARRD.

What’s more, many of the high-speed rail authority’s contractors donated considerable sums of money to the campaign to pass Proposition 1A, the $9.95 billion bullet train bond measure voters passed in 2008:

AECOM:                                                 $25,000

ARUP:                                                   $40,000

Hatch Mott MacDonald:                          $10,000

HNTB:                                                   $60,000

Infrastructure Management Group:             $5,000

Parsons:                                                  $30,000

Parsons Brinckerhoff:                                 $45,000

STV:                                                       $45,000

URS:                                                       $40,000

As noted above, Infrastructure Management Group was hired in late 2006 (nearly two years before the Prop 1A campaign) to work as the authority’s financial planner. The authority hired Parsons Brinckerhoff that same year to run the entire “program management team” that oversees the entire effort. ARUP, Hatch Mott MacDonald and URS are all part of a joint venture formed in 2006 that acts as the prime contractor for the Los Angeles to Palmdale and Palmdale to Fresno segments. Also in 2006, HNTB began work as the prime contractor on the San Diego to Anaheim run. AECOM came aboard in 2008 as part of a joint venture with DMJM Harris to plan the Altamont Corridor segment. That same year, Parsons started work on the Pacheco Pass segment.

For its part, the high-speed rail authority insists that it needs contractors like these because it lacks the required experience to do a project of this size – “one of the largest public works undertakings in the history of California,” according to the Price Waterhouse Coopers RFP – and needs to get help.

“The implementation of a statewide HST system is a significant undertaking that requires expert consultant assistance to serve as advisers, managers and extensions to Authority staff,” states the authority’s financial consultant RFP. “The complexity of the overall task suggests that the Authority would be best off with a team of experts in finance, institutional constraints and opportunities, constitutional or statutory restrictions and opportunities, and economic impact analysis.”

For Alexis and CARRD, though, language such as this masks a much greater problem. “In Europe, the costs of doing high-speed rail systems are one third of what it costs here,” Alexis said. “It’s embarrassing.”

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