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THE BIG DIG

Project poses a test for privatization

Critics see conflict in Bechtel's overseeing its own artery/tunnel design work

Second of three parts

There's still a question as to whose tunnel this is.

Gov. Weld wants to name it "The Ted Williams' Tunnel." In Washington, they call it "Tip's tunnel," since the political clout of the late Democratic Speaker of the House, Thomas P. O'Neill Jr., helped make it happen.

But as one Capitol Hill insider said, "Don't kid yourself, it's Bechtel's tunnel."

Bechtel Corp. -- the engineering giant that has built most of the world's major construction projects from the Hoover Dam to the Alaskan oil pipeline -- is clearly in charge of the Big Dig. It is head of a private partnership that will ultimately receive as much as $2 billion in contracts for managing the $7.7 billion Central Artery/Third Harbor Tunnel project.

Former and current project officials as well as industry sources say that Bechtel, expert in manipulating the laws of leverage and power, has instilled a chilling effect over a project in which some believe it has a fundamental conflict of interest. Those officials and sources are now asking whether Bechtel's fierce corporate culture -- and an administration under Weld that may have ceded too much control to Bechtel -- contributed to driving up costs on the project.

It is ironic that in the Big Dig, Weld -- who has always tried to distance himself from a project he inherited from his Democratic predecessor -- may face the ultimate test of his own administration's mantra: privatization.

Secretary of Transportation James Kerasiotes insists the project is on track, and that if the Big Dig is a test of the administration's political philosophy, it is succeeding.

But even Kerasiotes, who likes to say he runs his department like it was his own business, has recently realized that he will have to be more vigilant, some of his staff say privately, in making sure Bechtel delivers on its end of the bargain.

Robert Weinberg, founding director of the graduate Public Management Program at Boston University and former chairman of the Massachusetts Port Authority, said, "If you are Kerasiotes, you have to fix Bechtel. It is my impression that they are managing in a very simple way. They are not creating an environment that works cooperatively to solve problems. The reason they are not doing that is: one, it's not their culture, and two, on top of them there is another culture set by Kerasiotes that reinforces it. "

The sense of intimidation comes on many levels, from hardball negotiating with subcontractors to paying a lobbyist, like Peter Berlandi, Weld's chief fund-raiser, to fight its battles in Boston. The firm is nearly obsessive about controlling information. It released hundreds of public documents, but delayed, and effectively blocked, sensitive information sought by the Globe.

The conflict of interest, critics say, is that Bechtel is overseeing a project that it designed itself. Bechtel, as the lead firm in the joint venture responsible for managing the project, is also responsible for completing up to 40 percent of the engineering design work in some sections. The design phase -- of which Bechtel has done roughly 25 to 30 percent overall -- is a critical and expensive part of a project, especially one of the magnitude of the Big Dig.

While there is precedent for having managers also do design work in other large construction projects across the country, experts in the field say it is rare -- and not the original plan for this project -- for a management consultant to get as high a percentage of design work as Bechtel has received.

"Bechtel is the 800-pound gorilla in this thing," says Frederick Salvucci, who was secretary of transportation under Gov. Michael Dukakis and is credited as the visionary of the Big Dig. "Right now the thing is out of the cage. But I think they the Weld administration are working hard to get it back in."

Salvucci, under whose watch Bechtel was selected as the project manager, also insists that Bechtel is the most qualified firm to handle a job like the artery/tunnel project. But, he adds, the key to having a private partnership manage a public works job effectively is providing the state with enough capable public employees working directly in the process, on an even footing with its private partnership. That balance, Salvucci says, has been lost.

Kerasiotes concedes there may be an apparent conflict of interest in Bechtel's contract effectively allowing it to supervise its own work, but he says that the state has managed the project well, and that the perception of a conflict is not the same as reality. The true check and balance for Bechtel here, he adds, is that the San Francisco-based firm's reputation is on the line:

"Go to San Francisco, walk in the lobby," Kerasiotes says. "What you're going to see, what their customers see, are all the places around the world where they built something. Prominent among those pictures is the Central Artery. Prominent in their marketing materials is the Central Artery. When they go talk to somebody about their capabilities and why they ought to be part of the mix, they're going to sell this project. If they are causing this project to screw up, if they are causing this project to be controversial, if they are causing this project to have problems of any kind, they're not going to market themselves that way."

CONSISTENT TREND TOWARD PRIVATE FIRMS

Bechtel officials say that there are many projects in which managers also do design work, and they cite major highway and transit construction in Atlanta and Los Angeles as examples.

Said Bechtel spokesman Jeff Leicthman: "This is a common practice. I didn't want you to perceive it as a conflict when it is the way business is done in the engineering sector."

It is a process that has evolved over decades. Until the late 1960s, a state's Department of Public Works would have staffed up for a large project. Since then, there has been a trend toward governments hiring private firms, resulting in some states ceding to them both the management and final design of large projects.

Still, this was not the way the artery/tunnel project was intended to be built. The 1984 state guidelines for selecting a management consultant for the then newly funded project clearly stated "management consultant will not be considered for basic design of final design sections."

Specifically, state employees estimated that the management team would carry out the conceptual design, about 10 percent of the total. After that, the state would select the final design firms to finish the remaining 90 percent, according to Matt Coogan, a state official at the time who was on the team researching what model to use.

In 1985, a joint venture headed by Bechtel was selected for the project. Joining them was Parsons Brinckerhoff Inc. of New York. California-based Bechtel and Massachusetts seemed an odd marriage. Bechtel -- which has annual gross revenues of $7 billion and is of the Republican power elite -- was thrust into the culture of the commonwealth, a state that then personified Democratic liberalism.

By late 1988, as Dukakis was immersed in his failed bid for the presidency, the project was falling behind schedule.

With the support of a Republican Federal Highway Administration, Bechtel convinced state officials that the fastest way to advance design was for Bechtel/Parsons to do more of it, and then hand off to final designers. This was needed to get the complicated process of permitting and environmental approvals completed before deadlines for funding.

Anthony Lancellotti, design manager for Parsons, said that having the joint venture do 25 percent of the design was "the right number" because of complicated interfaces and a need for consistency.

But Steven Kaiser, a former engineer for the Massachusetts Environmental Policy Act, who was involved in the original scoping of the artery project, said "Salvucci made a mistake in the beginning, and it has just gotten worse. This relationship of Bechtel overseeing its own design has been rotten since day one. . . . To say it is industry-wide is just pointing out an industry- wide corruption."

Infuriated local engineering firms watched as Bechtel successfully ate up hundreds of millions of dollars in contracts. Bechtel officials maintain this jealousy is at the root of recent criticism within the local engineering community. Furthermore, some engineers selected to do final design for the project, experts in their own right, felt belittled at being handed design work that they were merely supposed to carry out on the orders of the management firm. Some experienced firms, such as Seelye Stevenson and Maguire/ Harris, have been recalcitrant, industry sources say. They have been reluctant to sign off on Bechtel/Parsons designs, sources add, especially since it is the final designer who carries virtually all of the liability if something goes wrong in construction because of poor design.

Bechtel can be "denigrating" to section designers, Weinberg, a Dukakis appointee to MassPort, said, with the firm making it clear "no one is to question" Bechtel.

Lancellotti said, "Very early in the project, there were these types of complaints, but I think in the last few years the relationships have been good. I don't hear complaints."

Bechtel/Parsons has in many ways profited from the expanded scope of their work. The partnership was originally projected to receive $88 million a year for its contract in the late 1980s. It is now receiving $158 million a year. The joint venture also has a staff of some 1,000 employees now, compared to the state which has only 60 full-time staff monitoring the project.

Furthermore, with each delay to the project, Bechtel/Parsons makes more money. It has a "cost, plus contract," which essentially means, in layman's terms, that it is paid by the hour. There is virtually no control that holds it to delivering the project on time.

"They do win when the project goes longer, because they get paid for that. And I recognize that, and I tell them that all the time," says project director Peter Zuk.

Kerasiotes has gone so far as to publicly point out that Bechtel could lose its contract if it fails to perform. That threat, project insiders say, is hollow since, as a practical matter, it would be nearly impossible, and certainly costly, for another firm to take over halfway through the project.

FORT POINT CHANNEL: AN ACHILLES' HEEL

In the Big Dig, the problems that can arise when one firm is both manager and designer have been most dramatically illustrated in the Fort Point Channel.

The Fort Point Channel was marshland until the 19th century when the city carved a channel through it, extending the wharves and warehouses on a bustling waterfront. The skeletons of that era are still buried in the muck, broken wooden piers and a rusted 19th-century railroad bridge.

There, in the murky waters of the channel, the project faces perhaps its most complex engineering challenge: to design an intricate weave of ramps and tunnels through the soft mud and the ancient relics at the bottom. The engineers must also design over an existing MBTA Red Line that runs beneath the channel and under a series of rail lines that snake along its banks.

It is a key crossing for the project because without it, there will be no direct link between the Massachusetts Turnpike Extension and the new Third Harbor Tunnel, which is considered the single most valuable aspect of the project for commuters.

But Fort Point Channel has proven to be an Achilles' heel of the undertaking -- potentially causing $200 million in added costs and what officials hope will be no more than a one-year delay because of miscalculations on the engineering.

Bechtel's early design work in the channel was questioned by the final designer, a joint venture of Maguire/Harris, according to documents obtained by the Globe. A preliminary design report dated Jan. 21, 1992, showed that Maguire/Harris engineers found Bechtel had done inadequate assessment of soil conditions; that the plan for excavation was flawed and needed to be reexamined; and that Bechtel's design was "neither feasible, cost effective or efficient."

Maguire/Harris also directly challenged Bechtel's assertion that it had completed 25 percent of design, and indicated that the area needed to be almost completely redesigned.

Those concerns went unaddressed by Becthel/Parsons, project sources say. Instead Bechtel instructed Maguire/Harris to carry out the design as laid out in its own preliminary design work. State officials say they were left in the dark for nearly 18 months on problems at Fort Point Channel, not being informed of them until this spring.

"It's a very dicey proposition to be manager of design and construction and not tell the owner about a problem," allowing it to leak out instead, says Zuk.

On June 20, the Federal Highway Administration issued a dire warning in an internal memo which stated that the costs in the Fort Point Channel were headed "upwards of $500 million" -- a figure more than 10 times higher than was originally estimated.

Zuk says officials are aggressively investigating liability in the engineering miscalculations as part of an effort to recover damages, which project sources say could be as high as $50 million or more.

But Fort Point Channel is not the only example of instances where an apparent conflict of interest for Bechtel has developed in the artery/tunnel project. Sources from both the private and public sector with direct knowledge of the project say it has also occurred:

- In the South Boston and East Boston approaches to the new Third Harbor Tunnel. Engineers questioned Bechtel's early design and whether soil conditions would support the excavation methods. Later, during construction, the support systems did not hold properly in the soils and tens of millions of dollars had to be spent to correct the problem.

- In the Dewey Square Tunnel section. Engineers from the MBTA asked Bechtel to hold off on its preliminary design in that area until the new plans for the transitway were completed. But Bechtel went ahead with its design anyway, later causing that area to be redesigned to accommodate the transit lines.

One senior executive at a firm that has had run-ins with Bechtel/Parsons on these conflicts said that Bechtel has been adamant in forcing the final designer to stick to Bechtel's own preliminary design.

"The reason isn't that complicated," said this person, who asked not to be identified. "It's money. The federal government doesn't want to pay for preliminary design twice. So if Bechtel's design was not up to snuff, then the feds and the state will go after them for cost recovery."

Other officials say that Bechtel has been able to wield its power easily in the first phase of construction because the final design firms know Bechtel will have a great deal of control over evaluating those same firms for future contracts that will be let in other parts of the project.

POLITICAL BATTLES IN BOSTON, WASHINGTON

Exactly how this perceived conflict of interest played out in the Fort Point Channel is a story as layered and murky as the mud at the bottom of the channel. But it is one that brings together the central players in the drama. They range from Salvucci, who first saw how problematic the channel could be, to Berlandi, who has recently landed at the center of this controversy.

The easiest solution to get through the channel would have been to build a bridge. But Gillette, the city's leading manufacturer, has its headquarters there.

In 1983, Mike Shea, Salvucci's chief of staff at the time, said that he and the then-transportation secretary met with Gillette, at the behest of US Rep. Joe Moakley, a South Boston Democrat. The Gillette executives told Salvucci and Shea that the canal was vital to the plant's operations.

"They made it clear," said Shea. "If we went ahead with it, they were going to leave the city of Boston." As they left, Shea remembers, Salvucci was "ashen."

"When the city's largest employer tells you they'll leave, it's over. We're dead in the water," Shea recalls Salvucci saying.

But Salvucci eventually came up with a promise to Gillette that the state could build the complex network of ramps taking traffic from the Massachusetts Turnpike Extension to the new Third Harbor Tunnel underground -- without impacting Gillette.

Salvucci reached out to Gillette engineers and they came on board, working with the state to solve the problem. "Being engineers, they were all very enthused with figuring out this puzzle," remembers Shea, now a political consultant working for Democratic gubernatorial candidate Mark Roosevelt.

But the battle for the Big Dig went beyond local political and economic concerns. There was also Washington. Knowing he faced an uphill struggleto win funding of a project of this size for a liberal state like Massachusetts in the Reagan era, Salvucci needed another card up his sleeve.

He knew he wanted Bechtel -- the world's largest and most qualified construction engineering firm, with close ties to two Reagan Cabinet officials, Secretary of State George Shultz and Secretary of Defense Caspar Weinberger -- to manage the project. Both Shultz and Weinberger had come directly from Bechtel, where they had been president and general counsel respectively.

Salvucci wanted Bechtel on the merits, but says, "Did I smile when I thought about the help they could give us with the White House? Yes."

State Sen. Therese Murray (D- Plymouth), a former project official under Salvucci, said, "Bringing Bechtel on board was probably the only way to go to get the deal through at that time. But it will end up costing us in the end. . . . The line of command should go: feds, highway, consultants. . . . But Bechtel has changed the check and balance. Unless you have some strong people in there, Bechtel is going to walk all over them."

One of the ways Bechtel has built its political strength is through its local hired hand, Berlandi.

Berlandi's dual roles -- as Weld's chief political fund-raiser in an election year and as a lobbyist for Bechtel -- have been highly controversial. Berlandi has said that given his close ties to the governor he would not use his political clout to directly influence the project; he would confine his efforts to "community work," selling the virtues of the project, or dealing with neighborhood concerns.

But on Friday the Globe, citing sources, reported Berlandi had directly intervened on behalf of Bechtel in the Fort Point Channel dispute, by calling Ira Levy, a senior vice president in the Maguire/Harris joint venture and warning him to stop its challenge of Bechtel. "If you want to work in this state again, don't play games with Bechtel," Berlandi was reported to have told the executive.

Berlandi and Bechtel denied that Berlandi made any such threat, but confirmed that he had spoken to Levy about not "throwing his name around." Levy also said that he had mentioned Berlandi's name at a project meeting on the Fort Point Channel.

To Laton McCartney, who wrote a book on Bechtel called "Friends in High Places," the hiring of a locally connected lobbyist like Berlandi, and taking on more design than originally planned, is classic Bechtel.

McCartney says that Bechtel has used a similar pattern across the world of "co-opting the controls of their work."

Berlandi may get it political clout with Weld, but Bechtel has also learned to bring potential critics on board. It has handed out tens of millions of dollars in consulting contracts, from $30,000 to Dukakis-era project director William Twomey to $64,000 to former City Councilor Bruce Bolling. Bechtel has worked with the project to design a subset of employees in key positions who are called "seconded employees," meaning they report to a state official but are paid through Bechtel. For example, communications director Connie Kastelnik hands out a State of Massachusetts business card, but it is Bechtel that pays her $91,000 annual salary.

"It becomes a process of co-opting the city or the country or the government, depending on where they are working," said McCartney. "They get the whistleblowers and the watchdogs on the payroll. When everyone gets cut in, who is going to scream? . . . They don't just have one Berlandi, they have many just like him all over the world."

Weinberg believes that Berlandi's role is a misguided public policy that serves the interests of Bechtel.

But Weinberg thinks it will ultimately backfire not only on Kerasiotes, but on Weld. A governor believed to aspire to higher office will have to successfully execute his philosophy of privatization to make that happen. His stewardship will be judged, at least in part, on how he handles the nation's largest public works project in his own back yard.

"The heart of what's wrong is that you can only manage by fear for a limited amount of time," says Weinberg. "A sergeant can manage by fear, a general cannot. When you are sergeant, you can intimidate because you see everybody you are responsible for. When you are a general you can't see them. . . .You have to rule by creating a culture and a vision so that people who work under you know what you want and work to achieve their goals."

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