Toll Bridge Seismic Retrofit Program and San Francisco-Oakland Bay Bridge East Span
Joint Legislative Audit Committee and Senate Transportation and Housing Committee

Sunne Wright McPeak
January 24 and 26, 2005

The San Francisco-Oakland Bay Bridge East Span replacement project is another problem inherited by this Administration. Although the Loma Prieta earthquake occurred more than 15 years ago and we have had less than 15 months to manage the multitude of challenges associated with the Toll Bridge Seismic Retrofit Program (TBSRP), it has become abundantly clear that the Bay Bridge project has been plagued for years by political debate and dissention. And, while it is important to understand what factors have driven up the costs so that shortcomings can be corrected and costs can be better controlled going forward, we are primarily focused on solving problems and completing the bridge.

The goal of the Administration is to secure the best value for the public: complete a seismically-safe bridge in the shortest period of time for the most reasonable and manageable cost.

The new East Span of the Bay Bridge is under construction. When completed it will be approximately 2.2 miles (11,526 feet) long between Oakland and Yerba Buena Island in San Francisco Bay. The first 1.3-mile new section over the water from Oakland westward is a “skyway” design and is more than 68% completed. Most of the current debate is about a .38 mile (2,052 feet) connector portion of the bridge over the deepest water in the area called the “main span” that constitutes less than 18% of the entire length of the new structure (and is about 1.5 miles from the Oakland-Berkeley shoreline). In 1998 the Bay Area Metropolitan Transportation Commission (MTC) selected for this connector section a very complex design known as “Self-Anchored Suspension” (SAS).

As you examine what factors have driven up the cost of the new East Span of the Bay Bridge, it will be clear why we concluded that the least risky course of action to secure the best value for the public is to continue the “skyway” design for the connector section. When this Administration came into office, the bid process for the SAS superstructure was in progress—it had been advertised in February 2003 and the new date for receiving bids was set in December for May 26, 2004—making the bid process a total of 16 months. When bids were opened on May 26th, a single bid was received that was far in excess of the original engineer’s estimate and could not be awarded because it would exceed the expenditure limits set in AB 1171.

Given all the concerns about the cost increases, in August the Business, Transportation and Housing Agency (BTH) called for an audit. Soon thereafter, the Legislature requested the Bureau of State Audits (BSA) to conduct an audit. In order not to duplicate the BSA audit of financial records but to secure essential independent expertise regarding the history of the project and drivers of cost increases, BTH engaged a consortium led by The Results Group (TRG) to perform a focused review. TRG was instructed to analyze all the historical materials available and answer four basic questions regarding the cost increases. As a prudent practice to ensure a quality product, the TRG consortium work product was peer reviewed by an independent panel of academic engineering experts from the Arizona State University, University of California, Merced, University of California, Davis, University of Colorado and Texas A&M University. The Results Group report and academic Expert Technical Committee peer review report will be posted on the Caltrans website for your information and reference.

Let’s now talk about the findings of the audits about the factors driving the cost increases for the Toll Bridge Seismic Retrofit Program (TBSRP) and the East Span of the Bay Bridge.

The TBSRP included 7 bridges, 2 in Southern California and 5 in Northern California. In 2001 the Legislature and previous Administration adopted a budget for the total TBSRP (AB 1171) of $5,085 billion. To date, 5 of the 7 bridges’ retrofit projects have been completed, for a collective savings of $48 million under the AB 1171 budget—projects all managed by Caltrans.

Of the total cost increases for the Toll Bridge Seismic Retrofit Program, 90% of the cost increases are related to the Bay Bridge. Keep in mind that the new East Span of the Bay Bridge is a type selected by MTC, designed by the private sector, cost estimates developed, validated and concurred in by the private sector, and is being constructed by the private sector. Caltrans is the project manager.

Both the BSA audit and The Results Group report found that the SAS design is the single largest factor for the cost increase. The BSA calculated that the SAS superstructure bid accounted for $930 million of the increase, or about a third. However, this did not include the SAS foundation, support costs for the SAS, or contingency attributable to the SAS. The Results Group report calculated that the SAS was responsible for 53% of the cost increases, excluding contingency associated with the complexity of the design. If the contingency added to the budget in August 2004 because of the SAS complexity were taken into account, the SAS would comprise 60% of the cost increases. This does not take into account indirect cost increases because of time delays over the selection of the design type.

The Results Group identified three fundamental factors that caused cost increases: external market conditions, design complexity and extended time for completion. The Academic Expert Technical Peer Review Committee, who reviewed TRG work independently, concluded that the primary factors contributing to costs were complexity of design and market factors. The Results Group concluded that project management practices were unlikely to have contributed significantly to cost increases. The Academic Expert Technical Peer Review Committee concluded that project management had a “nominal” impact on cost increases.

A closer look at the actual cost increases support these conclusions. For example, for the two largest components of the bridge and the biggest contracts—the Skyway and the SAS connector span—capital requirements as determined by actual bids increased significantly more than support costs, which include Caltrans management costs. The support costs also include the costs of outside consultants with specialized expertise needed for a project of this magnitude. The Skyway capital costs budget increased $497 million or 62% while the support costs increased only $68 million (52%). The SAS capital costs budget increased $1.202 billion or 167% while the support costs increased only $147 million (130%). Thus, for these 2 largest components of the project, capital costs budgets determined by actual bids increased almost $1.7 billion while support costs budget (including Caltrans project management) increased only $215 million. In other words, capital cost increases bid by the private sector were 8 times greater than the support cost increases. The private-sector bids reflect both the external market factors and the complexity of the SAS design. Further, it is important to understand that capital costs drive support costs and that a large part of the support cost increases are due to the lengthened construction time period. The AB 1171 completion date set in 2001 by the previous Administration was 2007—which was unrealistic—and the current projected completion date is 2011-12 at the earliest—adding 4 more years of support costs to the total projected expenditures.

So when trying to determine contributing factors to the Bay Bridge cost increases, it is worth remembering that the Bay Bridge project has been plagued by political debate for years that caused delay after delay, which resulted in significant cost increases—that was no fault of Caltrans. In fact, Caltrans engineers originally proposed a “skyway” design for replacement of the East Span that was estimated in 1997-98 to be between $1.3-$1.5 billion. Even if it is assumed that estimate was low and the project would have experienced inflation—be conservative and double the cost—the bridge would have cost no more than about half of the current price tag and it would be completed by now.

Both the BSA audit and the TRG report as well as the academic peer review commented about and recommended changes in Caltrans management. We are aware of several aspects of Caltrans management and operations that need improvement and we appreciate this constructive criticism from BSA, TRG and the academic panel. I can assure you that we are working on improving Caltrans performance and will set forth the actions to date.

But, first, let’s review what Caltrans management did do to help control costs on the Bay Bridge project. According to the audit and focused review reports, Caltrans did many things right. It was not business as usual and the actions are considered among the “best practices” in the construction industry. Outside experts were convened and consulted on seismic safety, constructibility, mock bids, quality assurance and risk management. Based on the advice of outside experts, Caltrans took several prudent cost and risk management actions, including the following:

• Bid the bridge in several separate projects in order to increase the likelihood of competition—one of the best strategies for controlling costs.
• Established a “management campus” near the construction site in order to better coordinate activities between Caltrans and the construction firms, controlling contractor costs and claims.
• When the bid for the SAS foundation came in much higher than the original estimate, Caltrans brought in independent engineers to review the specifications, recommend modifications, and rebid the project, resulting in $30 million reduction in the second bid.

The BSA report found primarily two problems with Caltrans management on this project: (1) Caltrans did not file two quarterly reports with the Legislature, which were required by a new law that changed the requirements from annual reports to quarterly reports at the beginning of last year. We were not aware of this report requirement until BSA brought it to our attention. (2) Although Caltrans has an adopted Project Risk Management Handbook and took several extraordinary steps to control costs for the project which are considered “best practices” in the industry, BSA found that Caltrans did not having a separate written plan delineating these actions and did not have a separate person other than the project manager and overall TBSRP manager designated solely for the purpose of studying and overseeing risks. The quarterly reports should have been filed. However, it also should be kept in mind that they would have been filed during the time that the SAS superstructure bid was in process and any cost increase estimates would have been speculation that likely would not have the effect of reducing bids. In fact, the academic peer review committee observed that “the role of timely cost estimates is to provide policy and design guidance, but timely cost estimates will not change the actual bids received.”

Does anyone really think that if these paper documents had been written that the bid for the SAS superstructure would have been lower and that the rest of the future related costs magically would be less?

Having said that, there are several aspects of Caltrans management that need to be improved—there must be a wholly-changed culture of accountability and focus on improving mobility: greater individual responsibility and accountability in project management, improved communications, more complete documentation of actions, timely reporting, and a sense of urgency in building and maintaining California’s transportation system. That is what Director Kempton and I are committed to achieving for this Administration and you in the Legislature. As we often say, we are dedicated on transforming Caltrans from a “transportation bureaucracy” to a “mobility company.” We have taken several actions to do so.

For example:

• In conjunction with the California Performance Review, the Business, Transportation and Housing Agency launched early last year a major effort to improve performance in all departments. We convened more than 40 outside experts to review operations. The panel that reviewed Caltrans and developed internal performance metrics was chaired by Dr. Dan Mazmanian, Dean of the University of Southern California School of Policy, Planning and Development. These performance metrics are being embraced and instituted throughout all 12 Caltrans Districts.
• Director Will Kempton has instituted an internal tracking system to ensure that legally-required reports are prepared and filed in a timely manner.
• Director Kempton has instituted new risk management practices. For the Bay Bridge project specifically, he engaged an outside risk management firm that has prepared a risk management plan.
• Director Kempton also has changed the leadership management of the Toll Bridge Seismic Retrofit Program and the Bay Bridge project. And, based on the input from the audit and focused review, we are continuing to assess what additional expertise will be needed to manage the Bay Bridge project going forward.

In summary, we are committed to improving the performance and management practices of Caltrans. But, whatever fault that legitimately may be leveled at Caltrans project management and reporting, it had little to do with the cost increases for the Bay Bridge. The cost increases are driven by complexity of the SAS design and external market forces. And, that is why we need to learn from these audits in deciding how best to move forward to complete a safe bridge as soon as possible for the most reasonable and manageable cost.