By Mike Baker, April 27, 2014
Ron Tutor is known for aggressive tactics in legal fights over projects.
Ron Tutor says he doesn’t want Seattle’s troubled tunnel project to end up in litigation, but he certainly won’t give an inch if it does.
The CEO of the construction company who helped bring Bertha, the world’s largest boring machine, to Seattle is already fighting large legal battles around the country — from the Big Dig in Boston to an MGM complex in Las Vegas. One of his court cases in California has gone on for nearly two decades.
In the Seattle project, Tutor said in an interview that his firm has already been analyzing the circumstances of the Bertha tunneling delay — which may last more than a year and add $125 million in costs — to assess who will ultimately bear responsibility for extra costs. He knows one thing for certain: His company, Tutor Perini, won’t be the one paying the bill.
“I’m not ready to name who we’re going to put it to,” Tutor said recently.
Last week, the contracting venture Seattle Tunnel Partners, which includes Tutor Perini and Dragados USA, said it had made a preliminary request for the state to pick up the $125 million tab, but the state has formally denied the claim.
Records obtained by The Seattle Times, meanwhile, show that the contractor is requesting dozens of other change orders with a current total value of more than $62 million.
Tutor’s tactics in the industry have left him with a reputation as someone who aggressively uses the legal system to deflect liabilities onto others and to seek extra payments for work on large projects. A review of the company’s financial records in recent years shows Tutor Perini has consistently been engaged in a variety of lawsuits, with hundreds of millions of dollars at stake.
Despite that history, state officials didn’t consider Tutor’s legal background when awarding his company the project in 2010.
David Casselman, an attorney who has litigated against Tutor several times on behalf of public agencies, said it’s foolish for government agencies not to consider the contractor’s legal past. He said Tutor is one of those CEOs who seems to welcome the dispute process.
“For him, it’s literally a price of doing business,” Casselman said.
Long L.A. battle
One of Tutor’s many current court claims began in 1995, when his firm pressed officials in Los Angeles County for $16 million in additional change-order payments for work on a subway project. Change orders are a notorious part of large construction projects, as firms seek compensation for unanticipated costs.
L.A. County leaders balked at the demand and eventually concluded the company had submitted “false claims” for reimbursement. The dispute escalated.
Nearly two decades later, the two sides are still fighting. What was once a $16 million disagreement related to extra work, delays and interest on late payments has now cost the county twice that in legal fees.
Casselman, who worked on the case, said much of Tutor’s business strategy appears to involve spending a lot of time working with attorneys before submitting a project bid, identifying areas where project documents could be considered ambiguous. That way Tutor can bid low and later get change orders to raise the price of the project.
“He’s a master at it,” Casselman said.
Tutor’s response? “That’s the biggest [b.s.].”
Tutor, who vehemently defends the company he’s built, said his firm bills for changes made by the agencies that hire his firm. He likened it to working as a contractor building a three-bedroom home, only to have the owner along the way decide to make the house five bedrooms.
And there’s no way Tutor Perini would have become so successful if it had taken advantage of its customers, he said.
In another of his legal disputes, a subsidiary that Tutor’s company acquired in 2011 was recently involved in lawsuits with King County over construction delays and cost overruns for tunneling work tied to the $1.8 billion Brightwater sewage-treatment project.
County officials sued a consortium of contractors in 2010, alleging they failed to meet deadlines after two boring machines broke down. The contractors filed a counterclaim, seeking reimbursement because of site conditions, boring-machine damage and the cost of hyperbaric interventions — all issues that could be in play during the Bertha project. King County prevailed in December 2012.
Seattle Tunnel Partners won the roughly $1 billion Bertha bid in 2010, even though a competing offer was slightly lower. The venture benefited from a state scoring system that assessed a variety of factors, including the width of the eventual roadway and the timeline of the project.
The partnership won the job in part because a faster timeline offered a better value for the state.
Despite the optimistic timeline, the project has already suffered setbacks and delays, and now faces a potential 15-month stoppage to replace the bearing and damaged seals inside the boring machine. Tunneling is now projected to resume next spring, with a potential project completion at the end of 2016 — about a year later than scheduled.
Linea Laird, who oversaw the tunnel project for the state Department of Transportation until she was promoted to chief engineer for agency, said officials assessed contractor management plans and the experts each company was putting forward to work on the project. She said officials chose not to evaluate the legal histories of the contractors.
“That wasn’t part of what we evaluated them for,” Laird said.
Still, Laird said the state was aware Tutor Perini is a company that isn’t afraid to go to court or battle public agencies. She said that history simply meant the state needed to make sure its contract was written so that the state was not exposed to a lot of risk.
“What it tells us is that we need to be on top of our game administratively,” Laird said. She also said the state was evaluating the venture as a whole and that Tutor Perini was just one of the partners.
Tutor said litigation would be the least-desirable result and was hopeful the tunneling issues would be resolved amicably.
“If it isn’t, this is America. That’s why there are so many lawyers,” Tutor said.
Tutor Perini holds a minority share in the project — 45 percent — but the project’s manager, Chris Dixon, comes from the firm. Dragados has a lot of experience in tunneling work, while Tutor Perini touts its experience completing challenging projects in congested urban environments.
Tutor’s father founded the firm in 1949, and Ron Tutor joined the company after graduating from the University of Southern California in the 1960s. Tutor eventually became president of the company that was then known as Tutor-Saliba.
Over the decades, Tutor has built a mammoth construction firm — now Tutor Perini — that’s projecting 2014 revenues of up to $5 billion. It has worked on everything from hotels in Las Vegas to military bases in Afghanistan. His business success has allowed him to build a California lifestyle so swanky that for a time he rented his opulent second home there to pop star Britney Spears.
That house, which included a 19,000-square-foot main home and a tennis court, was smaller than a nearby estate in which Tutor resides.
Now in his 70s, Tutor earns several million dollars a year in annual compensation from Tutor Perini, including a base salary of $1.5 million, a personal driver and personal use of the company’s jet, according to documents filed with the Securities and Exchange Commission.
In recent years, Tutor has increasingly built ties to Hollywood, serving as one of the lead investors in a 2010 deal that purchased film company Miramax from The Disney Co.
William Ibbs, a professor at University of California, Berkeley who focuses on civil engineering and construction management, said Tutor Perini has a reputation of being difficult with public agencies. At the same time, he said, the company is very competent, successful and has taken on a variety of challenging projects — some with great success.
“Yes, they are tough,” Ibbs said. “By the same token, the government agencies that they work for aren’t going to just give money away needlessly.”
Bertha’s long stall
Work on the tunnel under downtown Seattle began last year but won’t restart until next year, after the contractor digs a giant vault in order to remove and repair a large portion of the boring machine.
So far, the tunnel partners and the state have agreed to dozens of small change orders at a cost of about $263,000, according to state officials.
The contractor’s $190 million in proposed change orders include requests related to a labor dispute, unanticipated soil conditions, utility changes, hazardous materials, strengthening at the existing Alaskan Way Viaduct and other issues.
State officials have said they believe the contractor is responsible for costs tied to the shutdown and that only a small fraction of the proposed change-order costs will be paid for by the state.
For a billion-dollar, one-of-a-kind construction project, the proposed change orders to date are not extraordinary, said Todd Trepanier, the state’s administrator for the project. He said he expected the tunnel to cost the state what it budgeted.
Problems with the Seattle tunnel could avoid court because claims must first go through a dispute-resolution board of experts dedicated to monitoring the project.
Steve Goldblatt, a Seattle-based expert who has served on dispute boards, said tunnel projects can benefit from such boards because the issues at stake are typically unique, complex and costly.
Goldblatt said most dispute boards deal with incremental problems compared with the ones now facing crews in Seattle.
“It’s clear that it’s a difficult situation,” he said. “I don’t know how that’s going to be resolved.”