Three major contracts for Oahu rail project linked to same firm
By Sean Hao
Advertiser Staff Writer
By Sean Hao
The city has awarded three major contracts worth nearly $108 million as it prepares to build a new commuter rail system, and all three winners were linked to one company: Parsons Brinckerhoff.
The New York-based engineering firm has been active in Hawai'i since the 1960s and had a major role in designing H-3 Freeway.
Still, that Parsons Brinckerhoff and a firm formed by its former employees are dominating the contracts has raised concerns that the city doesn't do enough to solicit competition. That's a charge the city denies.
Construction of the 20-mile, $3.7 billion elevated train connecting East Kapolei to Ala Moana Center is still in the planning phase, and scrutiny of rail contracts will only increase as it moves into the more expensive building phase.
The train system, Honolulu's largest public works project ever, will be the subject of a city audit later this year and voters will have an opportunity to voice their opinion on the plan on Nov. 4.
The first contract, for $10.2 million, was awarded to Parsons Brinckerhoff in August 2005. That was followed by a $11.5 million contract given in March 2007 to InfraConsult LLC, which was formed by three former Parsons Brinckerhoff employees. In August 2007, PB Americas Inc., a unit of Parsons Brinckerhoff, won the largest contract to date, for $86 million.
Parsons Brinckerhoff and the city have defended the company's success in winning Honolulu transit contracts, citing extensive experience in the field locally and internationally. In addition to work on H-3 Freeway, Parsons Brinckerhoff was a key consultant on a prior plan to build a Honolulu rail system in the 1990s and a bus rapid transit project pursued earlier this decade.
Parsons Brinckerhoff is one of the biggest, oldest and most widely recognized transportation engineering firms in the world. The company's founder, William Barclay Parsons, helped break ground on New York's first subway on March 24, 1900. Today, the 123-year-old privately owned company generates about $1.4 billion in annual revenues and has 9,000 employees worldwide and about 100 in its Honolulu office.
"PB is a global firm with local staff who live and work in the Honolulu community" said city Transportation Services Director Wayne Yoshioka in an e-mailed statement. "PB professionals have been involved in the planning, design and construction of Hawai'i infrastructure projects since PB's Honolulu office opened in April 1966."
Hundreds, if not thousands, of businesses likely will work on the transit system by the time it's completed, with the largest contracts going to construction companies and the manufacturer of the trains. Those contracts are expected to draw more intense competition than the early contracts, which are mostly for design and planning.
LACK OF BIDDERS
The decision to award the largest contract, for $86 million, to PB Americas was made by a four-member committee composed of government and private-sector individuals. The group met on July 12, 2007, to decide who was best qualified for the contract.
One of the biggest questions at that meeting wasn't who would get the contract, but why there weren't more than two bidders. According to minutes of the meeting, some members expressed disappointment that only two firms sought the contract — PB Americas and Morristown, N.J. -based Louis Berger Group Inc.
Normally, the city would require at least three bidders for contracts of this type, however, just two days before the July 12 meeting, then-Transportation Director Melvin Kaku waived that requirement. Kaku said potential competitors had a month to apply for the contract, which covers preliminary engineering and environmental studies, according to city documents.
However, committee member Lorrie Stone said the city should have done more to publicize the contract, which was posted on the city's Web site on June 5, 2007, and in a newspaper classified ad, according to minutes of the meeting. Stone didn't return a call seeking a comment for this story.
Committee members were told by a city transportation official that their role was to decide which firm was better qualified, rather than to question city solicitation procedures.
PB Americas was rated highest on all criteria by all members and got the contract.
NEW FIRM AWARDED
That deal followed the March 2007 contract awarded to InfraConsult LLC. The $11.5 million, 2 1/2-year contract was to provide management support on the project, which included oversight of the work done by Parsons Brinckerhoff.
InfraConsult was formed in the summer of 2006 by three former Parsons Brinckerhoff executives. Two had previously worked on Honolulu transit projects.
Only one other company — Parsons Transportation Group — submitted a qualified competing bid. Parsons Transportation is part of Los Angeles-based Parsons Corp., which has no connection to Parsons Brinckerhoff.
The city selected InfraConsult over Parsons Corp. even though InfraConsult had a shorter track record.
Parsons Corp. had $2.5 billion in sales and 13,500 employees in 2007, according to Gale Group, a research company. Parsons Transportation registered to do business in Hawai'i in May 1980, according to state records.
InfraConsult, which was founded in June 2006, did not register as a Hawai'i business until March 16, 2007 — just days after the company was selected the winning bidder for the city contract. The Honolulu transit deal is the company's biggest contract to date.
InfraConsult, which was ranked highest by all evaluation committee members, won the contract even though its bid of $11.5 million was higher than Parsons Transportation's bid of $9.4 million. InfraConsult's proposal was "very detailed" while Parsons was "shallow," according to minutes of a March 8, 2007, evaluation committee meeting.
InfraConsult's job under the contract will essentially be to augment the city staff in overseeing the work conducted by Parsons Brinckerhoff. In effect, former Parsons Brinckerhoff employees will be helping the city oversee the work of current Parsons Brinckerhoff employees.
Michael Schneider, managing partner for InfraConsult, said it is wrong to expect that his company will cut Parsons Brinckerhoff any slack.
Schneider said he left Parsons Brinckerhoff following a difference of opinion about the company's future direction that "was not particularly friendly."
Schneider also said he didn't form InfraConsult specifically to bid on the Honolulu contract and has no intention of going easy on Parsons Brinckerhoff.
"It had absolutely nothing to do with Honolulu," he said. "That was serendipity to some extent, which came along at least a year after I decided to leave the company and form an organization.
"Let us just say that if anybody thinks we split off so we could benignly manage the people at PB, they have no concept of what went on at Parsons Brinckerhoff," Schneider said.
It's unclear why more companies haven't competed for city rapid transit contracts.
The request for proposals for the contract awarded to InfraConsult was posted on the city's Internet site on Jan. 23, 2007. Posting the request for proposals on the Internet is the minimum posting requirement for contracts, according to the State Procurement Office.
The city exceeded posting requirements for the PB Americas contract by placing a classified ad in the June 16, 2007, Honolulu Star-Bulletin. Bidding for the contract closed about two weeks later, on July 5.
State Rep. Cynthia Thielen, R-50th (Kailua, Kane'ohe Bay), thinks some potential bidders may be intimidated by what appears to be a decadeslong close working relationship between Parsons Brinckerhoff and the city. That perception may have been augmented when Wayne Yoshioka, a former Parsons Brinckerhoff manager and engineer, took over as city transportation director on Dec. 1, 2007. The train project is run by Yoshioka's department.
Yoshioka, a high-school classmate of Honolulu Mayor Mufi Hannemann, has promised to recuse himself from key decisions regarding his former employer.
Current and former Parsons Brinckerhoff employees also have been reliable contributors to Hannemann's re-election campaign, giving $30,175. Hannemann, who's made the train a top priority — has received a total of nearly $3 million in campaign contributions during the current election cycle. Hannemann has said there's no link between campaign contributions and the awarding of city contracts.
Thielen said the city needs to work harder to solicit more bidders for Honolulu's rail system given the project's scope and cost. Thielen battled Parsons Brinckerhoff as an attorney for Stop H-3 Association.
"In this instance it would take someone from this administration going out and aggressively seeking other bids and I don't think they were interested in doing that," she said. "Large companies from outside the state may decide not to bid because they feel the system is somewhat wired and they're not going to have the opportunity to have a successful bid. So it may be that Hawai'i, at least for those transportation projects, is known as a closed operation."
The lack of competition on major transit deals may not be in the best interest of taxpayers, Thielen said. "Does that get the best price for the taxpayers?" she said. "I don't think so."
Based on an internal city estimate, the contract for preliminary engineering and environmental impact studies was expected to cost $70.5 million. That included a 9 percent, or $5.4 million, profit margin for the company conducting the work. The final contract with Parsons Brinckerhoff was valued about $86 million.
City officials did not respond to questions regarding that discrepancy.
However, a city official did say that Honolulu's rapid transit contracts are treated no differently than any other contracts.
"This is standard procedure for the city," Yoshioka said in an e-mail. "The size and scope of projects do not influence announcement requirements and the city posts all bid announcements the same way."
As for more aggressively seeking out bidders, Yoshioka said, "It is inappropriate for the city to contact individual firms in an attempt to solicit responses."
InfraConsult's Schneider said many potential Mainland-based competitors are in no position to legitimately compete with Parsons Brinckerhoff.
"There really isn't anybody that has PB's breadth and depth — 50 to 60 people in transportation on the island," he said. "Nobody has made that commitment. If there were other companies who chose to make the investment and have local people in Honolulu who could do what PB does, there would probably be more competition."
TRANSIT AUDIT PLANNED
City rail transit contract management and procurement practices are likely to be scrutinized under an audit planned for later this year, said City Auditor Leslie Tanaka. The rapid transit audit was requested by five City Council members who called for more transparency and accountability.
"We're probably going to be looking at the contracts, (but) we're not exactly sure how we're going to slice the audit pie," Tanaka said.
Council member and rail opponent Charles Djou lamented the lack of competition for city rapid transit contracts.
"We get more bids for an $800,000 water pump than an $80-plus-million contract for a multibillion-dollar rail system and that's, at a minimum, disappointing," he said. "I had a big problem with that whole process. I'm not accusing the administration necessarily of acting illegally, but I mean everything looked like it was slanted to deliver the result of Parsons Brinckerhoff, PB Americas getting the contract."
The city and Parsons Brinckerhoff said that criticism is unfounded.
"PB openly and fairly competed for the (preliminary engineering/environmental impact statement) contract and based upon that open competition was selected for the assignment," said Parsons Brinckerhoff spokeswoman Judith Cooper in an e-mail.
Parsons Brinckerhoff's history has not been without controversy. The company played a major role on Boston's "Big Dig," which was the nation's most expensive highway project. The Bechtel Group and Parsons Brinckerhoff partnered to manage the $14.6 billion tunnel project, which experienced massive cost overruns along with quality and safety issues.
Under a settlement agreement announced in January, Bechtel/Parsons Brinckerhoff paid $407 million to settle a state-filed lawsuit covering a tunnel collapse, which resulted in one death, as well as cost and design issues relating to the Big Dig.
Parsons Brinckerhoff also was a program manager and coordinator on the 11-mile urban train in San Juan, Puerto Rico. That system cost $2.23 billion when it opened in late 2007. That was more than double the $1.09 billion cost that was predicted during the project's planning phase. According to an April Federal Transit Administration study of 19 recently opened federally subsidized train projects, the urban train project experienced the largest cost overrun and one of the biggest ridership disappointments.
Among its achievements Parsons Brinckerhoff helped build the 173-mile Garden State Parkway, which was completed in 1956. The New Jersey toll road has more than 400 bridges. Parsons Brinckerhoff also was instrumental in building San Francisco's 75-mile Bay Area Rapid Transit system, which opened in 1972.
Martin Rubin, one of the BART project managers, opened the firm's Hawai'i office in 1966. That business was a joint venture between what was then known as Parsons Brinckerhoff Quade & Douglas and Sam Hirata, a former deputy director of transportation for the state.
The company's Hawai'i history dates back to a 1962 study on interisland ferry services, which was conducted for the state. Since then Parsons Brinckerhoff has worked on numerous local projects including the Halawa viaduct, the Ke'ehi interchange, the Admiral Clarey Bridge in Pearl Harbor and the widening of Kalaniana'ole Highway.
The firm's most high-profile Hawai'i project was H-3 Freeway. Parsons Brinckerhoff served as program manager and primary design consultant on the project, which was delayed for decades by legal and environmental concerns.
Stanley Kawaguchi, who headed the firm's Hawai'i office from 1979 through 2003, attributed Parsons Brinckerhoff's local success to a focus on three key principles — quality, innovation and responsiveness. That was augmented by Rubin's focus on hiring a Hawai'i-area manager with local ties.
"That's what we did and that's why I'd like to think the firm started getting a lot of very large work of course focused on transportation," said Kawaguchi, a University of Hawai'i graduate.
In 2003 Parsons Brinckerhoff joined other Hawai'i architects and engineers in pushing the state and city to award professional services contracts based on a firm's qualifications and experience, rather than on costs. Under that process, government agencies use committees of independent professionals to pick the most qualified company based on published criteria. A procurement official then negotiates the scope and value of a contract.
That change benefited Parsons Brinckerhoff, which is Hawai'i's top transportation engineering firm, Kawaguchi said.
Reach Sean Hao at email@example.com.