'); //--> Back to Boston.com homepage Arts | Entertainment Boston Globe Online Cars.com BostonWorks Real Estate Boston.com Sports digitalMass Travel
[an error occurred while processing this directive]
The Boston Globe OnlineBoston.com Boston Globe Online / Easy Pass

Big Dig expense edges higher

Bechtel contracts add $84m to bottom line

By Sean P. Murphy, and Raphael Lewis, Globe Staff, 2/23/2003

   
 THE SERIES

PART ONE
Bechtel's mistakes drive up cost overruns, and company profits.

Graphics
Bechtel's fee overruns
Map of major conflicts
History of the contract
Contract modifications
Cross section of roadway
Construction cost overruns


PART TWO
State officials overlook and excuse Bechtel's mistakes for a decade.

Graphic
Cost recoveries initiated


PART THREE
Powerfull allies help protect Bechtel and its bottom line.

 FOLLOW-UPS

This series has generated strong response from the state, the public, and Globe columnists.
More Globe coverage

 GLOBE DEFENSE OF SERIES

On Feb. 20, 2003, Bechtel/Parsons Brinckerhoff issued a document disputing the findings of the "Easy Pass" series. Globe editor Martin Baron responded with a defense of the Globe's reporting.
Read Bechtel's statement
Read the Globe's statement

 PHOTO GALLERY

Building a reputation
Bechtel has never shied away from big construction projects, but worldwide achievements are accompanied by controversy.
See past Bechtel projects

 FROM THE ARCHIVES

2001
Review cites flaws at Big Dig
Cerasoli charges Big Dig coverup
$1.4b overrun known in '99
Firm rejects call to offset costs
'99 memos warned of tunnel leaks

2002
Officials disclose more defects
Lawsuit raises Big Dig questions
State to reopen deal with Bechtel
Big Dig hires quality manager
US knew of hidden expenses
Big Dig overrun just plain big
SEC probers to target Big Dig
Big Dig review to target overruns
Turnpike, firm set deal on leak cost

2003
Contracts to be reviewed

 RELATED LINKS

Central Artery/Tunnel Project
www.bigdig.com

Bechtel
www.bechtel.com

Parsons Brinckerhoff
www.pbworld.com

State Inspector General reports
On the history of the Central Artery/Tunnel project's finances:
www.state.ma.us/ig/publ/cat01ex.htm
On the Central Artery/Tunnel project's attempts to recover money for mistakes:
www.state.ma.us/ig/publ/catcrex.htm

About "Scheme Z" bridge design
libraries.mit.edu/rotch/artery/

State oversight of the Big Dig
www.state.ma.us/catocc/

Mass. Turnpike Authority
www.massturnpike.com

The Artery Business Committee
www.arterybusiness.com

 ONLINE CHAT

On February 11, 2003, Globe reporter Raphael Lewis chatted with Boston.com readers about the Bechtel series.
Transcript of chat

 CONTACT THE GLOBE

Any tips? Let us know.
Phone: 617-929-3379
E-mail: bigdigtips@globe.com

 MORE BOSTON.COM COVERAGE


Beyond the Big Dig   What happens to the ribbon of land being created by the depression of the Central Artery? A joint effort between The Boston Globe, MIT, and WCVB-TV explores.
A special report


Progress updates on the Big Dig. Info
 


A year after federal regulators took the state to task for hiding more than $200 million in Big Dig expenses, another $84 million in construction-related costs still are not included in the project's official price tag of $14.6 billion, according to project documents and industry specialists.

The $84 million is the amount the state is paying its private-sector manager, Bechtel/Parsons Brinckerhoff, to manage the installation and testing of the project's electronic systems.

About $44 million of that amount was authorized in 1996, for Bechtel to test the earliest-completed sections of the project.

Late last year, the Turnpike Authority board voted 4-1 to pay Bechtel another $40 million to test additional aspects of the project's electronic systems.

When this additional expense is included, the Big Dig's cost would swell from $14.625 billion to more than $14.7 billion, another in a chain of increases that has raised the concern of the project's bondholders.

Matthew Amorello, Turnpike Authority chairman, said the $84 million in contracts -- about half of which has already been paid out -- is not considered part of the capital cost of the project, but instead an "operational cost" of running the completed project, putting it outside the overall bottom line.

"It's a transitional cost," said Amorello. "It's to make sure everything is running properly before Bechtel and the other contractors leave town."

But the contracts describe work that involves construction management, with only a portion of the work left for maintenance and operations.

"The majority of this work is involved in the coordination of the system operations type activities with the construction activities," the 1996 contract reads. Among its other duties, Bechtel had to "participate in the startup of construction activities" and "support construction activities with technical expertise" -- the exact type of work Bechtel does on the rest of the Big Dig.

Specialists in construction management said the kinds of tasks required in the state's contracts with Bechtel appear to be capital costs, rather than operational, and thus should be included in the overall cost estimate.

"Any expense before a project is turned over to the owner is a construction cost," said Alan Altshuler, a Harvard professor and former state transportation secretary.

C. William Ibbs, a construction management professor at the University of California at Berkeley and a former consultant on the Big Dig, agreed.

"Normally, that's part of the capital cost," said Ibbs, who said he is familiar with the financing of 160 major projects worldwide, due to his research efforts.

The project's chief counsel, Kurt Dettman, said the $84 million could fit into either category.

"It's a cost that straddles capital costs and operations costs," said Dettman. "For some reason, it was decided to carry that cost as operational, instead of capital. I don't do the financing at the project, so why it was deemed operational, I don't know."

Altshuler noted that the project "has a history of keeping many things off the project estimate."

Last year, the US Department of Transportation inspector general told Amorello that the project had a history of "Enron-style" accounting techniques, as he demanded that $150 million in insurance costs be added to the bottom line. Later, the Federal Highway Administration insisted that another $52 million be added to reflect the cost of state workers whose sole responsibilities are to work at the Big Dig.

If the state had included the $84 million cost of Bechtel's electronic work as a construction cost, as Ibbs and Altshuler believe they should have, the federal government would have been obligated to reimburse the state for up to 80 percent of the costs.

However, former project director Peter M. Zuk, who ran the Big Dig in 1996 when the first Bechtel contract to oversee the turnover of the highway system was signed, said he does not believe he ever presented the contract to the Federal Highway Administration for reimbursement.

"It is my belief that this scope of work was not submitted to Federal Highway for federal participation," he said. "We were informed that Federal Highway does not participate in state operations and maintenance costs."

In a statement, a Federal Highway Administration spokesman said, "We understand the purpose of these [contracts] is to provide operations and maintenance support."

In 2000, the top leaders of the Big Dig -- Turnpike Authority chairman James Kerasiotes and state project director Patrick Moynihan -- were asked to resign after disclosing a $1.4 billion increase in the project's cost estimate.

Kerasiotes and Moynihan are currently under investigation for using questionable accounting methods to keep the Big Dig's cost down.

Later in 2000, Andrew Natsios, who replaced Kerasiotes, added another $125 million to the project's estimated cost, saying Kerasiotes had improperly kept that amount out of actual project costs off the budget. One example cited at the time was $39 million for Turnpike Authority employees who devoted all their time to the project, but until then were carried on the Turnpike's budget.

Kerasiotes has repeatedly insisted he did nothing improper, noting he has never been charged with any offense.

Natsios, now director of the Agency for International Development at the US Department of State, did not return telephone calls seeking comment.

The Turnpike Authority has not hidden the $84 million expense. In official cost estimates published monthly, project managers list the total project cost as $14.625 billion. Listed separately but on the same page is the additional cost, for what they term "system validation and acceptance." The monthly report lists that expense as $74 million, but Eric Waaramaa, acting chief financial officer, said the amount appropriated is $84 million.

Sean P. Murphy can be reached at smurph@globe.com. Raphael Lewis's e-mail address is rlewis@globe.com.

This story ran on page B1 of the Boston Globe on 2/23/2003.
© Copyright 2003 Globe Newspaper Company.

 Search the Globe
 Search for:  
Today Yesterday Past month Past year   Advanced Search

© Copyright 2003 New York Times Company
| Advertise | Contact us | Privacy policy |