November 5, 2015 - The California High-Speed Rail Authority sets the record straight and addresses several key issues that have been presented in a misleading manner, or were incorrect, resulting in a rather distorted account of the program.
Click here for response with attachments
October 30, 2015
The Honorable Toni G. Atkins
Assembly Speaker
California Assembly
State Capitol, Room 219
Sacramento, CA 95814
Dear Speaker Atkins:
We are writing in response to your inquiry regarding the October 24, 2015 Los Angeles Times article, “Special Report: $68-billion California bullet train project likely to overshoot budget and deadline targets.” The article in question gave readers a dramatic, but wholly false impression of where our program stands in terms of costs and technical hurdles. Because of the Legislature’s important role in conducting oversight of the program, we want to address several key issues that were either presented in a misleading manner or were incorrect, resulting in a rather distorted account of the program.
First and foremost, before turning to the article itself, as you know, the Legislature maintains strong oversight of the High-Speed Rail program through several mechanisms. Senate Bill 1029, which authorized expenditures for the program, contains strict reporting requirements. Our most recent SB 1029 report, submitted to the Legislature on March 1, 2015, lays out in great detail the progress and challenges faced by the program. You also have the benefit of an independent Peer Review Group which reports to the Legislature and with whom we maintain regular interactions so that they may independently advise you on project status and challenges. Beyond that, at the Legislature’s behest, we have opened our Finance and Audit Committee meetings to the public which legislative staff often attends. The metrics and reports of that committee are available to all through our website.
To correct false impressions that may have been generated by the article’s content we offer the following clarifying information about our program.
Construction Costs
The article implies that the program is or will be over budget in construction with a thin contingency. In fact, the first three construction packages are running well under budget. Construction packages 1 and 2-3 are under contract for aggregate amounts that are hundreds of millions of dollars below budget estimates. These contract savings are due to a combination of a competitive bidding environment and opportunities for lower contractor bids created by the design-build project delivery method.
The program’s capital cost estimates include specific contingencies of up to 25 percent, not the reported 10 percent figure in the article. Additionally, there is a 5 percent “unallocated” contingency covering construction of the entire program. Our construction contracts contain risk based contingencies of over 15 percent. So, not only are we currently running under budget, but we have healthy contingencies built into our budgets and we manage against those.
Tunneling Challenges
The article also discusses the challenges of tunneling. When the Legislature and then the voters approved Proposition 1A, the basic route was established, including the connections through the Tehachapi and San Gabriel mountain ranges. Our responsibility is to find the most efficient and cost-effective way to create those connections.
In fact, the challenges of building tunnels in mountainous and seismically active areas are wellknown and are being thoroughly addressed with particular focus on keeping the program within cost and schedule projections. We have some of the world's leading tunneling experts working on our program. International companies that built rail tunnels through the Pyrenees Mountains and the Swiss Alps are members of our team. We have conducted symposia to learn from the leading tunneling experts around the world, and have engaged with Japanese and Spanish experts who have been part of the construction of tunnels through similar conditions. None of those experts were included in the newspaper story, despite the fact that they were made available to the reporter. We are happy to make these same experts available to you, your colleagues, and your staff.
Our technical consultants have reiterated their comfort level with our schedule and approach. California has a vast array of tunnels for transit systems, roadways, and of course the State Water Project. These tunnels transect faults and cross mountain ranges. Modern tunneling technology has advanced considerably since even these tunnels were constructed. We and our array of international experts are quite confident that we understand the issues surrounding tunneling and that our schedule is realistic.
Infrastructure Program Risks
The article contained extensive comments and discussion of potential future cost increases based on other infrastructure projects. Unfortunately it glossed over the only actual data points dealing directly with our program – the first construction contracts have come in hundreds of millions of dollars below estimates.
It quotes the work of Dr. Flyvbjerg of Cambridge University, a renowned expert on the risks associated with large scale infrastructure projects. What it did not say was that we work very closely with Dr. Flyvbjerg, and based on his work, we have developed what may be the most sophisticated risk management system associated with any public infrastructure project to date. Our risk management program is constantly updated, monitoring and managing thousands of risk elements to assess their impact on schedule and cost. This information is routinely discussed in our Finance and Audit Committee meetings, but we would be pleased to brief you further on this very comprehensive approach, at your convenience.
Allegations of Hidden Reports
The article refers to a 2013 “report” by the state’s main project management contractor, Parsons Brinkerhoff (PB), where estimates were provided that the cost of building the first phase from Burbank to Merced had risen 31% to $40 billion and projected that the cost of the entire project would rise at least 5%. While the specific report referenced in the article has not been provided to us by the newspaper reporter, we believe it is a reference to a draft PowerPoint presentation prepared for preliminary discussions about the 2014 Business Plan. Assuming this is the case, the article misrepresents both the nature of this document – a slide deck marked “Draft” – and how it played into the process of updating cost estimates. Developing cost estimates, particularly for a project that will be built over a period of years and with many undefined elements, involves the consideration of a number of variables. We look at a variety of factors that can lead to high or low case estimates. In the end, the numbers used for project planning and management are based on best estimates and the most valid assumptions.
Just as with the development of legislation, over the course of time, there will be multiple iterations of projections that are discussed, deliberated, and ultimately decided. The information in this draft document was preliminary, still in development and subject to review, clarification, and refinement. The enclosed document, which we assume the reporter was referring to, was one of scores of analyses and assessments considered in the development of our cost projections. That full documentation behind the final cost estimates was provided at the time of the release of the business plan and is available at:http://hsr.ca.gov/About/Business_Plans/2014_Business_Plan.html
The Authority under the present leadership has always been forthcoming about the costs and risks of the program. We did not hesitate, upon assuming leadership of the program in 2011, to announce estimated program costs that were sharply higher than previous estimates. In addition to our highly sophisticated internal audit functions, we have been subject of numerous external audits, including a year-long review by the U.S. Governmental Accountability Office, which found that our capital cost projections were substantially consistent with applicable federal guidelines. We will continue to be open with you, your colleagues in the Legislature, and with the public about where the program stands.
As of today, the program is making steady progress, employing hundreds of people in an area of the state with the highest unemployment and poverty rates. We are meeting our goals that 30 percent of contract dollars flow to small businesses in California and three percent to businesses owned by disabled veterans. Our first construction segment in the Central Valley will not only serve as the spine of the High-Speed Rail system, but will also eliminate 55 at-grade railroad crossings as we build, which will markedly improve public safety by preventing accidents, injuries, and deaths.
We cannot guarantee that there will not be challenges or setbacks in the future. Yet, contrary to all the misstatements and manufactured pessimism, we have the team and tools in place to deliver the nation’s first high-speed rail system to the people of California within the budget guidelines we’ve adopted and on our expected schedule.
If you wish to discuss the program further, please don’t hesitate to contact us or Barbara Rooney, Deputy Director of Legislation, at (916) 330-5636 or Barbara.Rooney@hsr.ca.gov.
Sincerely,
DAN RICHARD
Chairman
California High-Speed Rail Authority
JEFF MORALES
Chief Executive Officer
California High-Speed Rail Authority Attachment
Source: California High-Speed Rail Authority
