By Peter Kenyon, April 16, 2015
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.
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.
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.
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)
“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.”
SR99 southern viaduct demolition (2011) and replacement highway connections completed a year ahead of schedule
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.
- Expert Review Panel Report, April 2015
- STP-WSDOT clashes threaten Seattle project (ERP Report 2014) – TunnelTalk, March 2014
- Seattle TBM recovery shaft repair row – TunnelTalk, January 2015
- STP wins latest round of DRB claims – TunnelTalk, February 2015
- DRBs – knowing and playing by the rules – TunnelTalk, August 2008
- VIDEO: Explaining Bertha lift and repair program – TunnelCast, April 2015
- TBM recovery shaft delays in Seattle – TunnelTalk, Aug 2004
- Discussing Seattle TBM repair strategy – TunnelTalk podcast, Jul 2014
- Bertha bearing to get 86-tonne reinforcement – TunnelTalk, Jun 2014
- TBM Bertha repairs strategy – TunnelCast, Apr 2014
- Twelve month repair job for TBM Bertha – TunnelCast, Apr 2014
- Addressing the Bertha bearing seal issues – TunnelTalk, Feb 2014
- WSDOT questions contractor TBM decisions – TunnelTalk, Mar 2014
- TBM Bertha suffers bearing seal failure – TunnelTalk, Feb 2014
- Hyperbaric inspections begin in Seattle – TunnelTalk, Jan 2014
- Investigating the Seattle mega-TBM stoppage – TunnelTalk, Jan 2014
- Dewatering to help deal with stuck Bertha – TunnelTalk, Dec 2013