ARC cancellation hits industry hard
Nov 2010
Paula Wallis, TunnelTalk
- Fallout from the cancellation of the ARC (Access to the Region's Core) project continues following the announcement two weeks ago. The tunneling industry is out millions of dollars, companies involved are closing out contracts and moving on, while others are questioning the basis for the projected cost overruns.
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Alignment through New York and New Jersey
- "The whole industry has millions of dollars invested in time, and money to service tunnel program to date and that's all gone", said David Klug, Chairman of the American Underground Construction Association and President of David R. Klug & Associates. Klug himself was representing various manufacturers in the midst of marketing the supply of seals, connectors and other components for the precast segmental tunnel linings and other materials for the project.
- "I think, unless President Obama or Transportation Secretary LaHood steps up and does something on a national level the project is dead," said Klug. "But someone has to do something quickly because there is a lot of demand for skilled people in the industry and companies are already transferring employees to other projects."
- "To my knowledge New Jersey Transit will pay for work already completed on contracts awarded, plus the cost to close out existing contracts, which will likely be in the tens of millions of dollars," said Klug.
- ARC by the numbers
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$8.7 billion - a 2009 cost estimate funded as follows:
• $3 billion - FTA New Starts program
• $3 billion - Port Authority of New York and New Jersey
• $1.3 billion- Federal Highway Administration
• $1.25 billion - New Jersey Turnpike Authority
• $130 million - American Recovery and Reinvestment Act -
$11 billion to $14 billion current cost estimate
$478 million spent so far
$271 million demanded by FTA as repayment from New Jersey
6,000 temporary construction jobs and
44,000 permanent new jobs lost by cancellation of the project
$4 billion in new personal income and
$10 billion in gross regional product lost by loss of additional employment
Environmental losses include
22,000 fewer vehicles a day on area roads and
66,000 ton reduction in annual greenhouse gases
- For the Schiavone/Shea/Skanska JV the decision comes three months after inking a deal with the Robbins Company to supply a retractable TBM to excavate the Palisades Tunnels on the New Jersey side. The Palisades Tunnel was the only tunneling contract of three awarded for the new 5.8km (3.6 mile) long rail tunnel under the Hudson River between New Jersey and Manhattan. The JV broke ground on the project in June (2010).
- In a company news release on Wednesday (16 November 2010) Richard Cavallaro, President of Skanska USA Civil, confirmed the suspension of work on the Palisades Tunnel until further notice. "It is highly unusual that we are forced to suspend an ongoing project," said Cavallaro. "The reason is that the State of New Jersey does not have the funds available in its budget to complete the project," he told shareholders. Skanska's 20% share of the $US258 million contract represents $47 million.
- The company says it had completed about 10% of the contracted work. Skansk's JV partners, Schiavone and Shea, with shares of 50% and 30% respectively, are also closing out their contracts.
- Parsons Brinckerhoff, which held the $82.5 million design contract for the ARC project in joint venture with STV Group and DMJM Harris/AECOM, refused to comment on the cancellation. Sources say, however, that the company is planning on shuttering its New Jersey office and is reassigning engineers to other projects including the Subway to the Sea metro extension project in Los Angeles that is moving forward.
- Likewise, the mega project's construction management team of Tishman, Parsons and ARUP is closing up shop.
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Manhattan miss
The cancellation dealt a devastating blow to the Barnard/Judlau JV that won the $583 million Manhattan Tunnels contract, but was still waiting on a notice to proceed. In an interview with local media, Tim Barnard, CEO of Barnard Construction said his company is out millions of dollars. New Jersey transit delayed the award of contract based on some design and land rights issues, but in an effort to expedite the mobilization process, the JV and other entities worked at their own financial risk and maybe hard pressed to recoup the losses. - Barnard declined to give specifics but said the company probably spent a million to bid the project, and millions more preparing for it, including relocating about a dozen workers, some with families, from Bozeman to Manhattan.
- With a half billion dollar contract in hand, Barnard also passed on pursuing other projects. Barnard told reporters "disappointed" is not a strong enough word but that he "couldn't sit and whine about it". The company has recalled workers from New York and is regrouping to find other jobs.
- As contractors and engineering firms wrap up and cut their losses, many are taking issue with Governor Christie's decision to cancel the nation's largest infrastructure project that was predicted to create 6,000 temporary construction jobs and 44,000 permanent new jobs.
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Costly cancellation
The $8.7 billion ARC project was more than a decade in the making when Christie canceled the project on October 27, citing cost overruns of at least $1 billion to as much as $5 billion. Christie said New Jersey "simply could not afford it". - "We were just getting into the crux of the design," said Randy Essex, Director of Tunnels at Hatch Mott MacDonald (HMM). The company was the lead engineer for the Schiavone/Shea/Skanska JV on the Palisades Tunnel. Essex said HMM had completed about half its work when the suspension notice was issued.
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Artist rendering of proposed Penn Station expansion
- "The question I put to the State of NJ and Federal officials advising on the project is, what is the basis for Governor Christie's cost overruns?" said Klug. "Project management and the designers had liberal cost escalations built into their cost to construct estimations based on the location and complexity of the project. Did some computer risk assessment model take these costs with overages already calculated in and mark those up again?"
- It is a question that may not be answered. New Jersey Transit spokesman Paul Wyckoff said the State has no plans to make public the details of the latest risk assessment and the potential cost overruns.
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Cancellation payback and options
With the project dead, the FTA is demanding New Jersey repay all Federal funding expended for ARC under the work agreement, "which is currently estimated to be $271.091 million, plus reasonable interest and penalty charges that will be determined by the FTA," wrote a regional representative for the FTA in a letter to the State. - US Transportation Secretary Ray LaHood intervened personally in an effort to save the project, putting forward a range of cost containments and revenue options including an additional $358 million in Federal funding to offset any potential overruns, and the possibility of additional funding through the Department's Railroad Rehabilitation and Improvement Financing (RRIF) program. RRIF offers both direct loans and loan guarantees with repayment periods of up to 35 years at low interest rates and provisions that can defer payments until after the project is put into service.
- The FTA also suggested that all or part of the project could be constructed privately and financed through a public private partnerships or P3. One scenario presented to the Governor had the FTA and the Port Authority of NY & NJ each contributing $3 billion, with New Jersey's contribution set at $2.7 billion (hard cap) and private investors paying $1.85 billion plus any cost overruns.
- Additionally, a number of project elements were identified that could either have been deferred or eliminated for a potential saving of $1.3 billion. But despite the FTA's best efforts the Governor said his decision was final and that "there was no opportunity for reconsideration".
- One day later, New Jersey State Senator Frank Lautenberg, a stanch supporter of the project, launched an investigation into the project's demise. Lautenberg said his probe "will root out the falsehoods and potential conflicts of interest surrounding the ARC tunnel and identify the motivations and factors" that "led to the largest loss of Federal transportation resources to New Jersey in its history". The probe will involve collecting public records, doing research and conducting interviews with every option on the table, including the power to subpoena individuals, said a spokesperson for the Senator.
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New Jersey Governor Christie cancels ARC project
- Supporters of the Alaskan Way Viaduct Replacement in Seattle, Washington worry a similar fate awaits that multi-billion project, as the Mayor of the city has made it clear he will protect the residents from runaway cost overruns. Hatch Mott MacDonald is providing program management support services to Washington State Department of Transportation on that project.
- "The Alaskan Way Viaduct Replacement project has a different set of drivers," said Essex. "Those who remember the collapse of Oakland's Cypress Freeway during the Loma Prieta earthquake will appreciate the seismic vulnerability of its cousin along Seattle's waterfront. It needs to be replaced."
- Meanwhile other States are lining up for a cut of the $3 billion FTA funds no longer made available to New Jersey and committed to ARC.
- New York is eyeing the money for the 2nd Avenue Subway and the East Side Access projects in New York City. Following a meeting with Secretary LaHood, New York Senator Kirsten Gillibrand said in a statement that LaHood "thought there could be a decision in the next 30 days or so and that New York is well-positioned to get some of the funding."
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Strong competition for first ARC contract - TunnelTalk, Nov 2009
Five JVs vie for Hudson River crossing - TunnelTalk, Jan 2010
Alaskan Way mega-project procurement - TunnelTalk, Oct 2010
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