may 2013 metro board construction committee: 405 project budget cost overruns

7/30/2019 May 2013 Metro Board Construction Committee: 405 Project Budget Cost Overruns

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SUBJECT:ACTION:

One Gateway PlazaLos Angeles, CA 90012 -2952 213. 9 22. 2000 Te 3 9etro.net

CONSTRUCTION COMMITTEEMAY 16,2013

1-405 SEPULVEDA PASS IMPROVEMENTS PROJECTAPPROVE LIFE OF PROJECT BUDGET INCREASE

RECOMMENDATION

Approve an increase to the LOP budget by $78 .7 million, increasing the LOP budgetfrom $1 ,070.7 million to $1,149.4 million (Attachment B), subject to the funding transfersand borrowing strategies summarized in Attachment A, the "Interstate 405 SepulvedaPass Improvements Project Cost Management Process and Policy Evaluation."

ISSUEOn April 23, 2009, the Board established an original LOP budget of $1.034 billion for the1-405 Project. The 2006 California State Senate Bill 1026 authorized Metro to conduct ademonstration program to enter into a design-build contract for the construction of thenorthbound high-occupancy vehicle (HOV) lane on Interstate 405 freeway through theSepulveda Pass that would complete the final link in one hundred miles of HOV lanesstretching from Orange County to North Los Angeles County. The strategy to proceedwith a design-build contract arrangement was undertaken as a means to facilitateacceleration of the project, reducing the duration of impact to adjacent communities andreturning the corridor to full utility by a number of years, including significantly improvedsafety with new exchanges, ramps and bridgesThe 1-405 corridor is noted as the second most congested in the nation and consideredone of both regional and national significance. The design-build strategy also ensured aconstruction schedule that could incorporate $130 million of federal funding availableunder SAFETEA-LU. In addition to being a major interstate highway link, the SepulvedaPass has served as a critical utility corridor between the San Fernando Valley and theWestside of Los Angeles for more than 60 years. Had the work proceeded under thestandard California Department of Transportation (Caltrans) design-bid-build contractingmethod, potholing operations to attempt to locate all utilities would have beenconducted in advance of compiling the documents for contractor bids. Instead, underthe accelerated design-build method , previously unidentified major utilities became


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known as the contract progressed. These utility relocations would have been part of theproject irrespective of the contracting methodology, but the significant scope andnumber of utility related issues that have emerged as the work proceeded with thecurrent design-build contract will cumulatively exceed the nominal contingency of 3.7%($38.3 million) included in the project's original budget. This is substantially lower thanthe 10-15% contingency typical for projects the size and complexity of the 1-405 Project.The project is now approximately two-thirds complete. Incrementally, a number of majormilestones have been completed and the remainder of the work and associated risksare known to the project team.To date, the Board has approved three (3) increases to the LOP budget: 1) $2.6 millionto fund overlapping areas of the City of LA's Reversible Lane Project; 2) $8 million forbetterment work to repair the Caltrans existing drainage systems, and; 3) $26.1 millionto fund lane standardization and access improvements from the State of CaliforniaProposition 1B Corridor Mobility Improvement Account (CMIA). As a result of theseincreases, the current LOP Budget is $1,070.7 million. Metro staff has prepared aforecast of costs-to-complete the project, and has identified a potential funding gap of$78.7 million (see Attachment C). The recommended action closes the funding gap andwill increase Project Contingency to 10% of the revised budget, subject to the fundingtransfers and borrowing strategies summarized in Attachment A.

DISCUSSIONAs Attachment C indicates, the additional Total Cost Forecast to Complete the project is$135.3 million. This is the cumulative added costs for Provisional Sum work, potentialchanges, Professional Services, and potential claim risk. To determine the funding gapof $78.7 million, the forcecast-to-complete price has been adjusted by cost recoveryfrom the City of LA for the Reversible Lane Project, CMIA funding previouslyprogrammed for enhanced mitigation activities, potential cost savings, and currentavailable contingency.Provisional Sum WorkProvisional Sum work alone is forecast to cost an additional $85.8 million. As has beenpreviously reported to the board, Provisional Sums are used to pay for unknown butanticipated items of work that could not be accurately addressed in the preliminaryengineering documents. Based on limited information, Metro assigned values toProvisional Sum Items and included those amounts in the Contract. The actual scope ofsuch work is finalized during the design-build process, and funds are expended uponwritten authorization by Metro's Project Manager, based on an agreed price betweenKiewit and Metro, or the work is performed on a Time and Material basis. ProvisionalSum costs are summarized as follows:

1-405 Project LOP Budget Page 2


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Bid Current Forecast FundingtoProvisional Sum Work Price Budget Complete GapDescription (Cost in (Cost in (Cost in (Cost inMillions) Millions) Millions) Millions)Utilities $112.0 $123.2 $159.7 $ 36.5Hazardous Materials $0.2 $6.7 $7.9 $ 1.2Local Drainage $10.0 $40.0 $71 .5 $ 31.4Additional Traffic andTransportation Management $5.0 $3.0 $8.5 $ 5.5Plans (TMP)Westwood Hills Mitigation $7.4 $9.4 $16.3 $ 6.9Maintenance during $5.0 $5.5 $11 .3 $ 5.8ConstructionAll Other $17.5 $9.0 $7.4 $ (1 .6)

TOTAL $157.1 $196.8 $282.6 $ 85.8Provisional Sum work was significantly underestimated at the time of bid , due primarilyto the following:

Utilities: As required by the Contract, Kiewit performed an inspection to identifypotential utilities in conflict with the project. Kiewit identified over 50 utilityconflicts not shown in the bid documents, which require relocation or protection .Additional conflicts are uncovered as construction continues. Hazardous Materials: Surface soils along the 1-405, and all other freeways, iscontaminated by particles from vehicle exhaust and must be handled ashazardous material. The original bid price estimate for this work did not take intoaccount that, in accordance with the Contract, all work associated withhazardous materials is paid on a Provisional Sum basis . Local Drainage: In accordance with the Contract, installation , relocation andprotection of all local drainage facilities are paid on a Provisional Sum basis .One item alone, a 12' x 12' box culvert that extends for miles along the alignmentis estimated to cost $30 million to protect-in-place. Additional TMP: At the start of the Project, Kiewit was required to submit a trafficmanagement plan for acceptance by Caltrans, and the City of Los Angeles. Asconstruction proceeds along the alignment, the plan requires revisions to meetcurrent conditions and requirements. Revisions to the plan are paid on aProvisional Sum basis. Westwood Hills Mitigation: This Provisional Sum item was included in theContract to cover mitigation efforts required to settle the lawsuit brought by thecommunity. Metro had not reached agreement with the community when thecontract was bid and therefore the scope of work was unknown . Workcompensated under this item includes such things as soundwalls, retaining walls ,and property restoration.

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Maintenance during Construction: This item covers on-going maintenancerequired for existing Caltrans facilities within the right-of-way, including bridgesand pavement. Excluded from this work is damage caused by the DesignBuilder.Metro's forecast-to-complete price is based on Kiewit's cost proposals for ProvisionalSum work. Although Metro's estimates for the work are substantially less than Kiewit's,the parties have not reached bi-lateral agreement on the costs for known work andtherefore it is prudent to use the worst-case scenario in forecasting the Provisional Sumwork.Change WorkAlso contributing to the funding gap are potential change orders . Potential changes areunknown at this time however, as approximately 1/3 of the work is yet to be performed,it is reasonable to presume that changes and claims will occur. Staffs forecast of $20.3million for potential changes was calculated based on 35% of changes to date,excluding changes issued for Provisional Sum work.Professional ServicesProfessional Services account for $20.2 million of the funding gap. ProfessionalServices include Metro staff, Caltrans staff, and consultant staff required to administerthe project. Caltrans staffing costs have increased due to added staff required fordesign and field oversight. Other professional services have increased with the additionof several staff members to prepare estimates, negotiate costs , review Time andMaterial documentation for Provisional Sum Work , and assist Metro with disputes andclaims .Potential Claim RiskAlso included in the forecast to complete is $9 million of potential claim risk due todisputes and claims from Kiewit. The primary causes for claims are work that Kiewitconsiders a change but Metro considers to be base contract work, and items that Kiewitconsiders to be Differing Site Conditions. When the parties cannot agree, the issue istaken to the Dispute Review Board for resolution.Potential Cost SavingsStaff has taken action to reduce the funding gap by $14.9 million in potential costsavings. This reflects on-going efforts to identify cost-effective methods for performingthe work, and opportunities for deleting scope from the Project. Potential cost savingshave been identified in the following areas:



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Landscaping may be deleted from the project, with the approval of the City of LAand Caltrans. Best Management Practice (BMP) facilities may be deleted. In addition BMPcosts will be reduced by allowing Kiewit to install Low Impact Development (LID)biofiltration swales, in lieu of more costly facilities . Design savings to Kiewit resulting from simplifying the submittal process. Professional Services savings in labor costs.

Schedule to CompleteThe current Substantial Completion date for the Project is May 31 , 2013. At this time,Kiewit has not substantiated any excusable delays to the project, however, Kiewit hasinformed Metro that the anticipated Substantial Completion is now September 2014.Metro believes that the work will be completed in June 2014, but in any case the originalSubstantial Completion date will not be met. Staff has requested a recovery schedulefrom Kiewit to mitigate delays, but Kiewit has not provided an acceptable recoveryschedule to date. Metro is preparing a time impact analysis for the project , and willupdate the Board as schedule revisions are accepted .

DETERMINATION OF SAFETY IMPACTThe changes identified in this board report will have no impact on safety of the overall 1-405 at completion.

FINANCIAL IMPACTFunds approved as part of the recommended action will be added to the budget in costcenter number 8510, Construction Contracts/Procurement under Project 405523, 1-405Sepulveda Pass Widening Projects, account 53101 , Acquisition of Buildings andStructures as follows:

FY 13-$00.0FY 14- $63.0 millionFY 15-$15 .7 millionTOTAL $78.7 million

IMPACT TO BUS AND RAIL OPERATING AND CAPITALThe source of funding for this work is FHWA funds , State of Californ ia Department ofTransportation funds , and Local matching funds , more specifically, Prop C 25% fromother measure regional highway and transit projects as per Attachment A. These fundsare not eligible for bus and rail operating and capital projects.

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ALTERNATIVES CONSIDEREDThe original Project budget contained an inadequate contingency of 3.7%. Staff hasundertaken efforts to identify potential savings to reduce the forecast cost increase,including efforts to contain Provisional Sum costs. Efforts to mitigate the funding gapwill continue, however, the cumulative value of Provisional Sum work, changes, claims,and Professional Services will exceed the original LOP budget contingency in theoriginal budget.

NEXT STEPSWith the approval of the recommendations, staff will work with Caltrans to identify andreprogram additional funds for the 1-405 Project and make other necessary fundingexchanges, budget actions, and funding agreements to fund the project.ATT ACHMENT(S)A. 1-405 Sepulveda Pass Improvements Project Cost Management Process andPolicy EvaluationB. Proposed Project Cost and Funding PlanC. Summary of Funding Gap

Prepared by:

1-405 Project LOP Budget

Michael A. BarbourExecutive Officer, Highway Project Management31 0-846-3522David YaleExecutive Officer, Countywide Planning and Programming213-922-2469

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Introduction

ATTACHMENT AInterstate 405 Sepulveda Pass Improvements ProjectCost Management Process and Policy Evaluation

April 29, 2013

The Measure R Cost Management Process and Policy was adopted by the LACMTA Board ofDirectors in March 2011. While the 1-405 Sepulveda Pass Improvements Project is not fundedwith MeasureR, LACMTA staff has prepared this analysis consistent with the MeasureR CostManagement Process and Policy Evaluation for use in the event the LACMTA Board ofDirectors wishes to apply an approach similar to the MeasureR policy. LACMTA staff hasextensively evaluated the 1-405 Sepulveda Pass Improvements Project in accordance with theMeasure R policy to identify up-to-date cost estimates and alternatives to address the existingfunding gap. The 1-405 Sepulveda Pass Improvements Project extends from the lnterstate1 0near West Los Angeles and Santa Monica to the U.S. 101 in the San Fernando Valley. Theproject will close a 10-mile carpool lane gap on 1-405 by adding a northbound carpool lanebetween Interstate 10 and U.S. 101.Presently, the 1-405 Sepulveda Pass Improvements Project and related mitigation measureshave a total funding gap of $135.3 million. Of the $135.3 million funding gap, $126.3 million isdue to unforeseen mitigation and inspection costs. The remaining $9 million amount is anadditional reserve for successful claims against the project. After actions by the State, the Cityof Los Angeles , and Metro are taken into account, the cost to complete Life of Project budget isnow believed to be $1,149.4 million, revealing a net funding gap of $78.7 million. To addressthe total funding gap of $135.3 million, the State, the City of Los Angeles, and Metro arerecommending the following financial strategies, arranged here in a manner consistent with theMeasure R Cost Management Process and Policy.Measure R Cost Management Policy SummaryThe adopted Final Unified Cost Management Process and Policy stipulates the following:"If increases in cost estimates occur, the LACMTA Board of Directors must approve a plan ofaction to address the issue prior to taking any action necessary to permit the project to move tothe next milestone. Increases in cost estimates will be measured against the 2009 Long RangeTransportation Plan as adjusted by subsequent actions on cost estimates taken by the LACMTABoard of Directors. Shortfalls will first be addressed at the project level prior to evaluation forany additional resources using these methods in this order:

1) Value engineering and/or scope reductions;2) New local agency funding resources;3) Shorter segmentation;4) Other cost reductions within the same transit corridor or highway corridor;5) Other cost reductions within the same sub-region; and finally,6) Countywide transit cost reductions and/or other funds will be sought using preestablished priorities. "



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We followed the six steps prescribed by the policy to address the funding gap and developedthe following plan of action:Value Engineering and/or Scope ReductionsLACMTA staff has identified approximately $14.9 million in value engineering recommendationsthat, if implemented, would narrow the funding gap from $135.3 million to $120.4 million . Thisreflects on-going efforts to identify cost-effective methods for performing change work, andefficiencies in administering the Project.New Local Agency Funding ResourcesActing for the State of California on December 6, 2012, the California TransportationCommission allocated $26.1 million of their Corridor Mobility Improvement Account (CMIA) bondfunds from the 1-5 North Empire Avenue/Burbank Boulevard Project to the Interstate 405Sepulveda Pass Improvements Project. These funds were made available due to veryfavorable bids received for 1-5 North project. The State's CMIA funds will be used for theconstruction of enhancements and standardizations related to the 1-405 project.There is $13.0 million available in project contingency and the City of Los Angeles has agreedto contribute approximately $2.6 million to the 1-405 project and its related mitigations. Once theproject contingency and the additional City of LA revenues are included, there remains a $78 .7million funding gap. We are also expecting further cost and revenue recoveries that are not yetfinal for approximately $3.7 million 1.As a result of the State and Local agency actions above, the remaining funding gap is believedto be $75.0 million , as shown in the table below.

Funding Gap after Value EngineeringCMIA ReprogrammingAvailable ContingencyCity of LA Cost Recovery for Reversible Lane ProjectNet Funding GapFurther Cost/Revenue Recovery from OthersRemaining Net Funding Gap

Shorter Segmentation

$120.4 M($26.1 M)($13.0 M)($2.6 M)$78.7 M($3.7 M)$75.0 M

Since this project closes a gap in the carpool lane network, shorter segmentation would negatethe value of the project and potentially introduce safety impacts. A shorter segment is notfeasible and the funding gap is still $75 million.Other Cost Reductions within the Same Highway Corridor

1Betterments were requested by the following parties : Caltrans, City of Los Angeles Department of Water& Power, County of Los Angeles, J. Paul Getty Trust, and the United State General ServicesAdministration.



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We considered closing the funding gap with funds from the Measure R San Fernando Valley 1-405 Transit Project. However, funding for this project is not scheduled to be available until 2031and cannot be transferred from a transit use to a highway use until after the year 2019, per theMeasure R ordinance. We also analyzed deferral of Segment 3 of the Westside SubwayExtension. Staff does not recommend deferral of this project because such funding cannot betransferred from a transit to highway use until after the year 2019 and is not available until after2026 and thus could not be advanced for this project. We move on to the next step of the policywith the same funding gap of $75 million .Other Cost Reductions within the Same SubregionThe mileage between the 1-405 project limits at Interstate 10 and U.S. 101 is split 75 percent($56.25 million) within the Westside Sub-region and 25 percent ($18.75 million) within the SanFernando Valley Sub-region. To close the $75 million funding gap, we recommend the followingfunding transfers summarized in Table 1:T bl 1 Se ummary ofC ost R d "th" th suct1ons w1 m e arne s breg1on

Prop C CentralProject Prop. C 40%& Measure Measure Subregion Local Net25% Lease R35% R20% CFP Funds ChangeRevenue FundsExpo II ($56.25) $56.25 $0.00

1-405 NB $56.25 $75 .00HOV $18.75Westside ($56.25) ($56.25)Equity1-5 North(SR134- ($18.75) $18.75 $0.00SR170)

SFV ($18.75) ($18.75)EquityNet $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Change

Transfer $56.25 million (75% of the $75 million shortfall) in Proposition C 25% funds fromthe Exposition Light Rail Line Phase II to the 1-405 Sepulveda Pass Improvements Project; Restore the Exposition Light Rail Line Phase II budget to its original funding level by moving$56.25 million in Measure R 35% transit bond funds into its funding plan ;



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Reduce the Measure R 35% Westside Sub-regional equity project by $56.25 million, from$111.3 million to $55.05 million; Transfer $18.75 million in Proposition C 25% funds from Interstate 5 North project; Restore the Interstate 5 North project budget with $18.75 million in MeasureR 20% highwaybond funds; and, Reduce the MeasureR 20% San Fernando Valley Sub-regional equity project by $18.75million, from $84.00 million to $65.25 million .Restoration of the Exposition Phase II budget from Measure R 35% is only possible becausethe LACMTA Board approved Term Sheet for the Exposition Phase II project did not utilize$111 .3 million of the total Measure R 35% funds made available for the Expo project. Similarly,the LACMTA Board approved funding plan for the Interstate 5 North project did not utilize $272million in Measure R 20% funds for that project. The net impact of the Proposition C25%/Measure R 35%/Measure R 20% transfers above will be to reduce an as yet to bedetermined Westside Sub-Regional equity project required by the Measure R ordinance by$56.25 million and a San Fernando Valley Sub-regional equity project by $18 .75 million. Inorder for these transfers to occur, the LACMTA Board of Directors will need to authorize theadditional borrowing to accelerate the $69.5 million in Measure R funds. We will berecommending an update to our Long Range Transportation Plan Financial Forecast thatreflects these transfers and others that we anticipate in the coming year in May or June 2013.Countywide Transit Cost Reductions and/or Other FundsAs a result of current economic conditions, bond interest rates are lower than the rates assumedin the Long Range Transportation Plan. As a result, interest costs are lower than anticipated ,which would allow for additional borrowing. A more complete analysis o f our additionalborrowing recommendations, including one for the 30/10 plan , is scheduled for May or June2013.



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J:001-u.Q.CDn.r0-uIJJcQ.


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LOCAL PROPOSITION C 25%PE/DS

CONSTRUCTIONSTATE TCRP

CONSTRUCTIONSTATE CMIA

CONSTRUCTIONCITY OF LA111

CONSTRUCTIONFURTHER COST/REVENUE RECOVERY FROM OTHERS1' 1LACMTA SUBTOTAL

ICAL TRANS MANAGED FUNDING ISTATE TCRP

PA&EDPE/DS

STATE SHOPPCONSTRUCTION

FEDERAL SAFETEA-LUPE/DSRIW SUPPORTRIW

STPL-R-STP Local RegionalCONSTRUCTION

FEDERAL ARRA ES-RSTPCONSTRUCTION

CALTRANSSUBTOTAL

Route 405 HOV lanes from Route 10 to Route 101Project Cost and Funding Plan

13,000 ,000

14,000 ,000 48,000,000614 ,000 ,000

27,000,000 662,000,000

22,000 ,0006,000 ,000

20,000 ,00015 000,00082 000 000

10,100,000189,900 ,00028,000,000 306,900,000 10,100,000

75,000 ,000

26,100 000 2,600 ,000 3,700 ,000

107,400,000

8,000,000

8,000,000 [OTAL PROGRAMMED BUDGET ll55,ooo,ooo 1 3o6,9oo,ooo 1 1o,1oo,ooo 1 662,ooo ,ooo 1 I 115,4oo,ooo 1Rev: 1/31 /13Notes :(1) Of the $6M originally programmed for this project , City informed staff that a maximum of $2.6M is available to cover this work . Therefore the LOP budget must be (2) Further cost and revenue recoveries are expected but not yet finalized at an approximate amount of $3.7 million.



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ATTACHMENT CSummary of Funding Gap

Cost in DescriptionMillions$ 85.8 Provisional Sum Forecast to complete$ 20.3 Potential Changes Forecast to Complete$ 20.2 Professional Services Forecast to Complete$ 126.3 Subtotal$ 9.0 Potential Claim Risk$ 135.3 Total Cost Forecast to Complete$ 2.6 City of LA Cost Recovery for Reversible Lane Project$ 132.7 Subtotal$ 26.1 CMIA Funding Reprogrammed$ 106.6 Subtotal$ 14.9 Potential Cost Savings$ 91.7 Subtotal$ 13.0 Current Available Contingency$ 78.7 Total Funding Gap

Funding Sources- See Attachment A

Summary of LOP Budget Board ActionsCost inMillions

$ 1,034.0$ 1,040.0$ 1,048.0$ 1,070.7

$1,149.4

DescriptionApril 23, 2009 - Board approved Original LOP BudgetFebruary 23, 2011 - Board approved an additional $6 million from the City of LA foroverlapping areas of the Reversible Lane ProjectJuly 26, 2012 - Board approved an additional $8 million from Caltrans for CaltransDrainage Repair BettermentFebruary 28, 2013- Board approved: A) deletion of $3.4 million from the LOPbudget for the City of LA Reversible Lane Project thereby reducing the value for thiswork to $2.6 million, and; B) an additional $26.1 million in CMIA funding to the LOPBudget for project enhancementsMay 23, 2013- Recommended Board action to approve an increase of $78.7million to the LOP Budget, subject to the funding transfers and borrowing strategiessummarized in Attachment A


may 2013 metro board construction committee: 405 project budget cost overruns

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