One of the better underreported infrastructure stories in recent years is the construction of the freeway tunnel in Boston, Massachusetts, commonly referred to as "The Big Dig". There has been much news about the death of a woman last year due to a sudden and catastrophic failure of a bolt holding up a concrete ceiling slab, but little of the culture that led to this event.
This is a potentially huge story that could bring about fundamental changes in the way large Engineering projects get built. This project of massive scope has been so poorly managed that the Program Managers, a consortium of Bechtel and Parsons-Brinkerhoff appear to be willing to spend "somewhere north of $300 million to settle all disputes and avoid litigation.
Let's deconstruct that for a moment. The total project cost was to date is just short of $12 billion. Aside: this is a couple of orders of magnitude above its original estimate. On budget not. A program manager should cost no more than 5% of project cost. However the oligarchs have done an excellent job of getting more than that in recent years so, just for laughs let's say they were paid 10%, I have no idea what the real number is. Ten percent of a lot of money is a lot of money, in this case about $1.2 billion. Getting a 10% profit on program manager contracts is tantamount to highway robbery, given how low the risk is, but it's also the high end of the norm. So Bechtel and P-B may have seen a profit of over $100 million. That's probably best case speculation. So they are willing to give all their profits at least twice over to avoid the publicity that would come from a full on trial. And, incidentally, this does not include any amount they are paying to buy off the family of the woman who was killed.
My.
So we can be pretty sure that there's much they just as soon wouldn't want aired. The information I have received over the years regarding the Big Dig, the "word on the street" as it were, said that the project was built with little regard for the quality of the work or the cost. Everything had to be done as quickly as possible so that a thin fiction of staying on schedule could be maintained. Other scuttlebutt includes plenty of work sub-contracted to incompetents based on their political connections or relations with executives at Bechtel or P-B. I really have no way of "knowing" that this is the case in a strict legal sense, but from my years of experience I'd bet a lot on it being so. Program managers, particularly the big firms, are little more than public relations firms, their employees are scolded at every turn to be "team players" meaning they are not to question things.
A typical person running a program managers' operations will be short on engineering skills but long on his ability to abuse employees and charm politicians. So keep an eye on the proceedings at the Big Dig. See how much they pay to keep their pefidity hidden.
Monday, September 17, 2007
Thursday, September 6, 2007
Contracts
There's been some stir lately about how contracting for Engineering services in government agencies is being abused. I don't think abused is the right concept. What's really happened is that the people involved have developed a well oiled system that maximizes profits while minimizing risk. I'd call it a conspiracy, emphasis on piracy.
Agencies and consultants will both insist that contracts are procured competitively. But it's not really competition, it's a beauty show. Well trained and rehearsed marketeers strive to convince agency people, government workers in the main, that they should be hired for a particular project. They dissemble, usually with a flashy power point program and sleek graphics, about their experience, dedication, and abilities. Sometimes they even lie. What always amuses me is how similar these presentations are. There's really nothing of substance on which to make a decision, so the race usually goes to the best theatrical show.
After the big decision is made, the marketeers generally are replaced by the financial types. Remember this: cost is not a factor in determining who gets selected. A selection is made and then the cost is negotiated. This racket still is protected by law in many states. The rationale is that the services are so specialized that there is only one firm who is best qualified to do the work. Price competition gives the managers heartburn. Contracts are usually negotiated on a cost reimbursement basis, in other words any costs incurred by the consultant must be reimbursed. These include all overhead costs. Consultants prefer to negotiate billing rates for their workers, thereby keeping their true costs hidden. A contract negotiated between a skilled consultant and a uninformed government employee can yield profits as high as 25%. Other times actual, verifiable cost plus a fee, another word for profit, are what is paid. The consultant is virtually assured a profit no matter how well or poorly he performs.
And it gets worse. I many cases consultant has a positive incentive to run up costs, particularly if billing rates are used. Since each unit billed increases profits, the more units, the more profit. Items purchased by the consultant are often also marked up for no reason other than to increase profits.
This is a lucrative business. Is it any wonder that Haliburton moved into this from riskier oil exploration?
Finally the actual contract itself generally shields the consultant from liability for all except the most egregious mistakes. Frequently, negligence is the measure that trips liability. Just know this: among the three large engineering firms active in Iraq, Haliburton, Bechtel, and Parsons, over $20 billion was billed to the U.S. government and precious little was actually built. Of that amount, at least a billion, and probably a lot more was pure profit. In previous wars, profiteering on this scale was considered treasonous and dealt with accordingly. This has not been the case under this administration in this war.
Agencies and consultants will both insist that contracts are procured competitively. But it's not really competition, it's a beauty show. Well trained and rehearsed marketeers strive to convince agency people, government workers in the main, that they should be hired for a particular project. They dissemble, usually with a flashy power point program and sleek graphics, about their experience, dedication, and abilities. Sometimes they even lie. What always amuses me is how similar these presentations are. There's really nothing of substance on which to make a decision, so the race usually goes to the best theatrical show.
After the big decision is made, the marketeers generally are replaced by the financial types. Remember this: cost is not a factor in determining who gets selected. A selection is made and then the cost is negotiated. This racket still is protected by law in many states. The rationale is that the services are so specialized that there is only one firm who is best qualified to do the work. Price competition gives the managers heartburn. Contracts are usually negotiated on a cost reimbursement basis, in other words any costs incurred by the consultant must be reimbursed. These include all overhead costs. Consultants prefer to negotiate billing rates for their workers, thereby keeping their true costs hidden. A contract negotiated between a skilled consultant and a uninformed government employee can yield profits as high as 25%. Other times actual, verifiable cost plus a fee, another word for profit, are what is paid. The consultant is virtually assured a profit no matter how well or poorly he performs.
And it gets worse. I many cases consultant has a positive incentive to run up costs, particularly if billing rates are used. Since each unit billed increases profits, the more units, the more profit. Items purchased by the consultant are often also marked up for no reason other than to increase profits.
This is a lucrative business. Is it any wonder that Haliburton moved into this from riskier oil exploration?
Finally the actual contract itself generally shields the consultant from liability for all except the most egregious mistakes. Frequently, negligence is the measure that trips liability. Just know this: among the three large engineering firms active in Iraq, Haliburton, Bechtel, and Parsons, over $20 billion was billed to the U.S. government and precious little was actually built. Of that amount, at least a billion, and probably a lot more was pure profit. In previous wars, profiteering on this scale was considered treasonous and dealt with accordingly. This has not been the case under this administration in this war.
Air Travel
It's now official. A story running in all the mainstream media outlets reports how air traffic delays are at an all time high. Don't you just love it when they report something that most people already know?
One wonders when the other shoe will fall. One thing that apparently is going to happen is they are going to a new air traffic control system. I suspect this is what's behind all the new found mainstream attention. Of all the fears associated with flying, the fear of dying in a crash has to be number one. New air traffic system? You can count on some published reports on how it will compromise safety and so forth. Thus a preemptive strike explaining how it will eliminate or a least reduce delays.
I don't really think the new system will compromise safety at all. Look at the way air traffic dropped after 9/11 and you will understand that the industry most certainly does not want any air crashes tied to it. So the new system (tied to GPS will likely deliver on what is advertised and help cut delays.
But they will come back. Air travel pretty much has a monopoly on public transit these days and it will only increase as the population does. My perception is that the delay problem is worse in Europe, even with a functioning rail network, largely because population is much more concentrated there. Why then do we not put resources into developing a rail network here?
One wonders when the other shoe will fall. One thing that apparently is going to happen is they are going to a new air traffic control system. I suspect this is what's behind all the new found mainstream attention. Of all the fears associated with flying, the fear of dying in a crash has to be number one. New air traffic system? You can count on some published reports on how it will compromise safety and so forth. Thus a preemptive strike explaining how it will eliminate or a least reduce delays.
I don't really think the new system will compromise safety at all. Look at the way air traffic dropped after 9/11 and you will understand that the industry most certainly does not want any air crashes tied to it. So the new system (tied to GPS will likely deliver on what is advertised and help cut delays.
But they will come back. Air travel pretty much has a monopoly on public transit these days and it will only increase as the population does. My perception is that the delay problem is worse in Europe, even with a functioning rail network, largely because population is much more concentrated there. Why then do we not put resources into developing a rail network here?
Tuesday, September 4, 2007
Bay Bridge
The Bay Bridge is a vital part of the roadway infrastructure here in the Bay Area. It connects San Francisco with the East Bay, the only such connection, and carries nearly 300,000 vehicles a day. In 1989 it was damaged by a 7.0 earthquake named Loma Prieta and closed for a month. Engineers determined that the eastern portion of the bridge was seismically unsafe and would have to be replaced. Eighteen years later we are still five years away from the completion of the replacement span. Nearly an entire generation will have passed.
One wonders then how important this project is. It took more than ten years merely to sort out what the replacement would look like and at least three more to iron out difficult design issues. This does not indicate any sense of urgency on the part of the decision makers. Looking at it dispassionately, the bridge stood for 50 years before it was damaged by an earthquake.
The Loma Prieta event resulted in exactly one death on the bridge. That's a pretty good record, one seismic fatality in what is now 68 years of operation. One month of down time due to earthquakes. Weighed against this is the scale of the bridge and its impact on the consciousness of all who see it, from whatever perspective. Much of the debate about what sort of bridge to build revolved around the issue of aesthetics versus cost.
Aesthetics won, I'm happy to report. In order for this to happen, a portion of the costs of the new bridge have been passed on to the users. Southern Californians insisted on this although they do not think it unfair that all Californians support their profligate use of automobiles by paying for their freeway projects.
In any event, the bridge was closed completely over the Labor Day weekend to accommodate construction and all those people in all those vehicles found another way to get around. By all accounts it worked pretty well, although there were no normal workdays in that time span and a lot of folks were out of town.
Caltrans, the public agency responsible for the bridge has been doing some pioneering type work on construction contracting and it paid off with this closure when their cooperative approached helped the contractor finish the work comfortably early. Everyone is happy and everyone looks good. Perhaps others will see the wisdom of this approach.
One wonders then how important this project is. It took more than ten years merely to sort out what the replacement would look like and at least three more to iron out difficult design issues. This does not indicate any sense of urgency on the part of the decision makers. Looking at it dispassionately, the bridge stood for 50 years before it was damaged by an earthquake.
The Loma Prieta event resulted in exactly one death on the bridge. That's a pretty good record, one seismic fatality in what is now 68 years of operation. One month of down time due to earthquakes. Weighed against this is the scale of the bridge and its impact on the consciousness of all who see it, from whatever perspective. Much of the debate about what sort of bridge to build revolved around the issue of aesthetics versus cost.
Aesthetics won, I'm happy to report. In order for this to happen, a portion of the costs of the new bridge have been passed on to the users. Southern Californians insisted on this although they do not think it unfair that all Californians support their profligate use of automobiles by paying for their freeway projects.
In any event, the bridge was closed completely over the Labor Day weekend to accommodate construction and all those people in all those vehicles found another way to get around. By all accounts it worked pretty well, although there were no normal workdays in that time span and a lot of folks were out of town.
Caltrans, the public agency responsible for the bridge has been doing some pioneering type work on construction contracting and it paid off with this closure when their cooperative approached helped the contractor finish the work comfortably early. Everyone is happy and everyone looks good. Perhaps others will see the wisdom of this approach.
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