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The Boston Globe OnlineBoston.com Boston Globe Online / Easy Pass

Audits say Big Dig firm overcharged by $31m

Parsons Brinckerhoff appeals federal findings

By Raphael Lewis, Globe Staff, 4/2/2003

   
 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
 


As state lawmakers launch an all-out effort to recover money lost to Big Dig mistakes, federal auditors have concluded that one of the two companies managing the project overcharged the public by $31 million.

The audits, which scrutinized bills submitted by Parsons Brinckerhoff Inc. of New York, so far have been conducted only through fiscal 1997, prompting state officials to speculate that the dollar figure could easily rise above $50 million when all the audits are completed. The company disputes the findings and has appealed.

While the $31 million represents just 2 percent of the Big Dig's $14.6 billion price tag, it nevertheless represents roughly 1,000 times the amount of money secured through the state's oft-criticized cost-recovery process. So far, just $35,707 in refunds has been recouped -- none from Parsons Brinckerhoff or its partner, Bechtel Corp.

The second of two all-day hearings into the failures of cost recovery takes place at the State House today, with top officials from Parsons Brinckerhoff and Bechtel testifying under oath about their role in the process. The companies have refused to discuss the details of the audits, saying they are confidential and the focus of mediation efforts.

Lawyers for the Massachusetts Turnpike Authority, which oversees the Big Dig, say they cannot release the audits because doing so would invite litigation with the project's private-sector managers. Lawyers for Bechtel/Parsons say the audits contain proprietary information, such as billing rates and the amount of insurance coverage the company carries, and they issued a warning to the Turnpike Authority that releasing the audits would draw a lawsuit.

The Globe has hired a law firm to obtain the audits, arguing they are public documents because they were commissioned by a public agency -- the authority -- and created by another public entity -- the Defense Contract Audit Agency, or DCAA, the auditing arm of the US Military. The authority commissioned DCAA to perform the audits after a 2000 cost-overrun scandal revealed the Big Dig's costs were $1.4 billion higher than previously acknowledged.

The Globe's lawyers are negotiating with Bechtel/Parsons's lawyers, who have provided the newspaper with a general summary of the audit findings.

The summary, however, does not mention the $31 million figure. That figure came to light when the Big Dig's chief counsel, Kurt Dettman, provided it to the Legislature at its Monday hearing.

In the company's written summary, Parsons Brinckerhoff said DCAA ignored key facts about its contract with the state, as well as general accounting procedures.

The issue is being mediated by the US Armed Services Board of Contract Appeals, which frequently moderates disputes between military contractors and the government. The proceedings are confidential.

In the summary provided to the Globe, the company highlighted five areas that DCAA flagged in its audits.

One involved billing rates for employees of Parsons Brinckerhoff who work for other branches of the company. Auditors found that Parsons inappropriately charged higher rates for some employees' overhead -- the cost of covering basic business expenses such as benefits. The auditors recommended that costs for all Parsons employees be the same. The firm says it charged more for some employees because some subsidiaries had higher basic expenses.

DCAA also found that Parsons had billed the project for management costs that, according to auditors, were not related to the Big Dig. The summary did not elaborate. Parsons Brinckerhoff has responded that such a finding does not conform to accepted accounting methods.

The auditors also found that Parsons had improperly billed for liability insurance. That coverage would pay for the costs associated with errors or omissions committed by its employees -- the exact coverage the company will need if lawmakers succeed in getting money back for Big Dig mistakes. The company says it has a contractual right to have the project pay for such insurance premiums.

According to the contract, the project will continue to pay for the premiums until the issue is settled.

DCAA also red-flagged the way Parsons Brinckerhoff billed for employee stock options, saying the firm had charged for an amount exceeding their cash value. DCAA has taken a similar position with a variety of government contractors over the years. The firm responded by saying DCAA's position has been rejected by a federal tribunal in the past.

In a statement yesterday, the company said it has a fundamental disagreement with the audit findings, and that such disagreements are routine. But a Parsons spokesman again declined to speak specifically, citing the ongoing mediation.

Turnpike Authority general counsel Michael Powers said his agency's position is simple: "Those were valid findings." Still, the agency doesn't want an "adversarial procedure," Powers said.

Raphael Lewis can be reached at rlewis@globe.com.

This story ran on page B1 of the Boston Globe on 4/2/2003.
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