Front-Runner to Build SF Subway Station Has History of Cost Overruns

By Zusha Elinson / Bay Citizen
|  Thursday, Aug 9, 2012  |  Updated 11:06 AM PDT
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Front-Runner to Build SF Subway Station Has History of Cost Overruns

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A construction giant with a history of cost overruns and expensive legal battles is the leading candidate to build a new subway station in San Francisco.

Tutor-Saliba Corp.’s $239 million bid to build the Chinatown station for the planned Central Subway is the lowest of four bids being evaluated by the San Francisco Municipal Transportation Agency. By law, the lowest bidder has a significant edge in public contracts.

But history suggests that the transportation agency should proceed with caution: Collectively, 11 major Bay Area projects completed by the construction company since 2000 have cost local government $765 million more than expected, 40 percent above the initial bids, according to a review by The Bay Citizen.

“Tutor is doing the same thing that he has always done: He bids super low, but the project ends up costing a lot more in the end,” said Kevin Williams, a former city contract compliance officer who raised concerns about the company’s work at San Francisco International Airport. “The reason that he is repeating this on the taxpayers’ dime is because he gets away with it.”

Run by politically connected CEO Ron Tutor, Tutor-Saliba has continued to win new projects despite attracting both criticism and lawsuits that allege the company drives up the price of projects. At one point, agencies in Los Angeles and San Francisco sought to bar the company from bidding.

The tough-talking Tutor characterizes those attacks as “bullshit,” turning the blame back on local agencies for routinely making costly changes to their original plans.

The list of local Tutor-Saliba jobs includes some of the largest construction projects in the Bay Area, such as the BART extension to San Francisco International Airport, the airport’s new international terminal, and seismic retrofits of the Richmond-San Rafael Bridge and the western approach to the San Francisco-Oakland Bay Bridge.

Going over budget is common on public works projects. A widely cited 2003 study of 258 large rail, bridge, tunnel and road projects around the world found that nearly nine out of 10 came in over budget.

The study, by Oxford University professor Bent Flyvbjerg, found that on average, the rail projects went over budget by 45 percent, bridge and tunnels by 34 percent, and roads by 20 percent. Overruns on Tutor’s 11 Bay Area projects ranged from 1 to 107 percent.

Los Angeles County Metropolitan Transportation Authority lawyers and San Francisco City Attorney Dennis Herrera previously have sought to ban Tutor from bidding on new jobs. In work on the San Francisco airport, Herrera alleged in a 2002 lawsuit that the company “artificially inflated” bills when the cost rose 56 percent, from $626 million to $980 million.

Ron Tutor countered that increases are driven by public agencies. For example, in the retrofit of the Richmond-San Rafael Bridge, the contract increased by half by the time it was completed in 2005, in part due to underwater debris that surprised even the California Department of Transportation.

“There is this bias that it must be the contractor,” Tutor said in an interview. “They never look to see what’s behind the increases, and 90 percent of the time, it’s the owners adding to the work.”

The Chinatown subway station is to be built on Stockton Street in San Francisco. It is planned as the final stop of the $1.6 billion Central Subway that will run from the South of Market district to Chinatown.

Tutor-Saliba’s bid on the station, which features a modern, glassy, above-ground design, was part of a joint venture with Frontier-Kemper Constructors – a tunneling company purchased last year by Tutor-Saliba’s parent company, Tutor Perini Corp.

The bid now awaiting a decision is about $30 million lower than the second-lowest bid, from another joint venture: SJ Amoroso/FCC/Southland.

Kristen Holland, an SFMTA spokeswoman, said the staff was evaluating the bids for “responsibility and responsiveness.” By law, public agencies must, in most cases, choose the company with the lowest bid. Even when other factors can be considered, price always gets the most weight, industry experts say.

Meanwhile, across the bay, Tutor is digging the new fourth bore for the Caldecott Tunnel in Oakland. The initial $215 million bid was well below the engineer’s estimate. But earlier this year, some unexpected ground conditions raised the price by $11 million according to Ivy Morrison, a Caltrans spokeswoman for the project. (The Metropolitan Transportation Commission reported in April that the increase actually amounted to $27 million because of the need to replenish reserve funds for the project.)

Morrison said finding ground conditions more difficult than anticipated is common in major tunnel work such as the Caldecott project, which is scheduled to add two lanes to Highway 24 between Orinda and Oakland by late 2013.

“The project is going very successfully, and Tutor-Saliba is meeting the terms of its contract with Caltrans,” Morrison said in an email.

San Francisco lawsuit

The cities of Los Angeles and San Francisco have engaged in lengthy – and expensive ¬– legal battles with Tutor-Saliba. San Francisco’s Herrera filed a lawsuit over its work building the airport’s international terminal, parking garages and a boarding area, as well as tracks and stations for the AirTrain. Tutor “knew that if it submitted an unrealistically low bid,” it would win the airport contracts, the city’s lawsuit claimed.

Tutor planned to “artificially inflate” its bills with “fraudulent change orders and other deceptive means” and strong-armed airport staff into approving them with “threats of delay and walking off the job,” the city claimed. The lawsuit also claimed that Tutor was using phony minority contractors.

At the time, Tutor-Saliba’s lawyers fired back that there wasn’t “a single fact to justify the bald legal conclusion” that the extra payments were “procured through fraud.” Ron Tutor referred to the city’s lawyers as liars in a San Francisco Chronicle story and filed a separate defamation lawsuit against Herrera.

Although the defamation suit was dismissed, the city spent nearly $10 million in legal fees fighting Tutor-Saliba in court, Herrera told the Chronicle at the time. In 2006, Tutor agreed to pay $19 million to settle the case.

As Tutor seeks approval of its Chinatown station bid, a showdown with Herrera appears unlikely. As part of the settlement, the city dropped its attempt to ban Tutor.

Herrera declined to comment for this story.

David Casselman, a lawyer who represented the Los Angeles County transportation authority in its protracted legal fight with Tutor-Saliba over a subway project, accused the company of using lawsuits to bully local governments.

“They have had very good success with intimidating public agencies with litigation,” Casselman said. If the SFMTA approves the Chinatown station contract, city officials should “go forward knowing full well that they’re going to get into litigation.”

David Romyn, a lawyer at Castle & Associates, a law firm that Tutor has relied on for nearly three decades, said the firm gets involved in a small fraction of the projects on which Tutor bids.

“Mr. Casselman’s comments about this litigation are far more reflective of his agenda to market himself to other public agencies and not reflective of Tutor-Saliba’s litigation practice,” Romyn said.

Legal battle in LA

Ron Tutor, the son of Armenian immigrants, has a win-at-all-costs approach to business, several people said in interviews. His net worth is $615 million, according to the Los Angeles Business Journal. He now co-owns entertainment giant Miramax.

Tutor has the means to donate generously to political candidates – and he does. In the 2009-10 election cycle, Tutor and his companies gave more than $330,000 to statewide candidates and causes, including $250,000 to the California Democratic Party. Last year, Tutor and eight other Tutor-Saliba executives donated $4,500 to the unsuccessful mayoral campaign of Tutor’s former nemesis, Herrera.

It all started with the construction company.

Tutor-Saliba’s public works projects in Los Angeles go back decades, including the Red Line subway, which spawned a legal fight that lingers 17 years later. Tutor-Saliba sued the transit agency in 1995 for $16 million in change orders that were denied. The Los Angeles County transportation authority countersued, alleging violations of the False Claims Act, which protects against contractors submitting false claims for payment.

Los Angeles officials who supported the lawsuit said they had hoped to make Tutor an example to other contractors. The transportation authority had spent more than $34 million on the legal fight as of 2010, according to The Los Angeles Times. But the authority has not recovered any money, according to spokesman Dave Sotero. In 2005, a state appeals court threw out a $30 million verdict against the company. And in 2010, Tutor won a judgment worth $3 million against the city, according to the company’s SEC filings.

Roger Snoble, CEO of the Los Angeles County transportation authority from 2001 to 2008, said the construction giant was aggressive but not worse than other contractors.

“Other contractors will just make dumb mistakes, and you have to fight your way out of it,” Snoble said. By contrast, Tutor-Saliba is “just very aggressive on the legal side of things, and they try to outgun you – that’s just the way they operate.”

“They’re gonna be aggressive, but you have to be aggressive right back,” Snoble said.

Not all overruns contested

Not every Bay Area project has been subject to dispute. Bay Area Rapid Transit hired the company to build its extension to the San Francisco airport in the 1990s. The bid came in at $526 million. By the time it opened to the public in 2003, the contract cost the transit agency 14 percent more, $603 million, according to BART.

Shortly before the extension was completed, BART spokesman Mike Healy said the “pattern of change orders here has been fairly normal” and “most of the changes have been requested by BART.”

Tutor also built two BART stations – San Bruno and South San Francisco – with few cost overruns. Neither went over budget by more than $1 million, or about 2 percent.

The firm’s work on the Richmond-San Rafael Bridge did end up costing 50 percent more than the original bid, but there were some extenuating circumstances.

Tutor-Saliba, in a joint venture with two other companies, was chosen to retrofit the bridge in 2000. The Tutor-Saliba/Koch/Tidewater bid was $484 million for the project, according to a Caltrans database. Caltrans ended up paying $728 million for the work by the time it was finished five years later.

Caltrans spokesman Robert Haus pointed to a 2004 report by the state auditor that blamed $48 million of the increase on unexpected underwater work, echoing Ron Tutor’s explanation. Debris undetected by Caltrans accounted for an unexpected $22 million cleanup. Change orders for piling work made up an additional $26 million. Further overruns were caused by an $11 million increase in Tutor’s overhead and a $35 million increase in steel prices, the report found.

“It’s because the foundations weren’t as presented, and there were all sorts of issues,” Ron Tutor said. “There were hundreds of change orders from Caltrans.”

The company also retrofitted the western approach to the Bay Bridge. Tutor-Saliba’s winning $178 million bid in 2003 was bitterly contested by the second-lowest bidder, C.C. Myers Inc., which claimed Tutor lacked “fitness and integrity,” according to news reports at the time. By the time the I-80 western approach opened in 2010, Tutor had collected $269 million, according to Caltrans records – a 51 percent increase.

Bart Ney, a Caltrans spokesman, said the increased costs on the west approach retrofit came when Caltrans decided to speed up demolition, increase local access on the roads nearby and curb the dust from the demolition to ease the concerns of nearby San Francisco residents.

“When you’re designing, you’re not completely taking into account how it’s going to affect the community,” Ney said. “It’s not till you’re out in construction that you see how it really impacts people.”

This story was edited by Amy Pyle and copy edited by Nikki Frick and Christine Lee.

The Bay Citizen is part of the independent, nonprofit Center for Investigative Reporting, the country’s largest investigative reporting team. For more, visit www.baycitizen.org. Elinson can be reached at zelinson@baycitizen.org.

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