Blistering audit blames political rush to construction for ballooning rail costs

HONOLULU (HawaiiNewsNow) - The city neglected its responsibility to spend taxpayer money on the rail project “prudently," working on an artificial timetable and a “fragile” financial plan to gin up public support for the work — and then failing to be transparent about ballooning costs and unforeseen problems, a new audit concludes.

The blistering state audit comes as construction of the rail project moves into the urban core, where it will almost certainly meet new obstacles — and more unexpected costs. The current estimated price tag for the 20.1-mile elevated guideway project is now $9.2 billion, up 79.5 percent from the original estimate of $5.1 billion.

“From the beginning, unrealistic deadlines and revenue projections resulted from a desire to demonstrate that the project was progressing satisfactorily and to minimize public criticism, which could have eroded support for the project,” the audit concluded.

“As the project progressed, the information disclosed to the public often contradicted internal projections, obscured the extent of the project’s financial problems, or was disclosed much later than known to rail officials. As a result, the costs have increased and the completion date has been delayed, and public confidence in the project has deteriorated.”

In fact, the audit found that the very first major construction contract for the rail system was rushed because politicians — primarily then-Mayor Mufi Hannemann — feared state lawmakers would divert the excise tax surcharge meant to pay for the project.

The report, which was ordered by lawmakers when they approved additional funding for the embattled project last year, also found that city officials associated with the project had hoped to get the contract bids out to developers during a slump in the construction business, so the bids would be more competitive — but the plan backfired.

As a primary example of the project’s mismanagement, the auditor noted that Hannemann had promised the project was “shovel ready” during a speech in October 2009, a week after awarding the first $483 million construction contract to Kiewit. Within four months, however, “delays in required federal approvals resulted in Kiewit starting to accrue delay costs that ultimately would be passed on to the city.”

State Auditor Les Kondo included a letter in the report from Hannemann to late U.S. Sen. Daniel Inouye, who was also pushing the project, in which Hannemann wrote: “I am convinced, as you are, that the state legislators will be successful in diverting the transit fund monies if we fail to demonstrate tangible progress with construction activities.”

But Hannemann said construction costs were actually lower in 2009. Hannemann blamed former HART CEO Dan Grabauskas for allowing costs to spiral out of control after he left the mayor’s office.

“When we put out those contracts, it was to take advantage of a down economy and construction companies I knew would come in and bid at a lower price," Hannemann said.

Meanwhile, Mayor Kirk Caldwell, who was Hannemann’s managing director at the time the initial contract was awarded and acting mayor in 2010, called the audit “extensive” and a “call to action” for the Honolulu Authority for Rapid Transportation’s board of directors to “maintain strong management oversight ... and to ensure HART incorporates into their everyday practices the suggested recommendations contained in the state auditor’s report.”

The auditor cited several examples in which “premature” awards led to expensive change orders. Unexpected problems, such as unmapped underground utilities or delayed environmental permits, also led to costly work delays.

For example, in Jun 2010, HART conditionally awarded a $195 million to Kiewit/Kobayashi for the design and construction of the train’s maintenance and storage facility. The premature awarding of the contract, the audit said, resulted in $86.4 million in change orders as of June 30, 2017. That’s a 44 percent increase.

In all, the auditor documented $354.4 million in change orders related to Honolulu’s rail project as of August 2017.

The auditor also said HART officials tried to hide from the public, and even from the HART board and city officials, how much the project was escalating in cost.

The report said “the information disclosed to the public often contradicted internal projections, obscured the extent of the project’s financial problems, or was disclosed much later than known to rail officials. As a result, the costs have increased and the completion date has been delayed, and public confidence in the Project has deteriorated.”

The audit also criticized HART for being less than fully cooperative with auditors, an allegation the HART leadership disputed in its response, which was published with the audit.

“HART believes that it was cooperative, although it is acknowledged that timeliness of response was an issue and is an area of improvement in the future,” the rail agency wrote.

The agency did not dispute the finding that early contracts were rushed and caused cost and delay issues, but noted that the project is under new leadership — and has made significant changes.

“Since January of 2017, under the leadership of the interim CEO and now the current CEO, we have applied and practiced prudent accounting through a system that tracks all financial costs," the agency wrote. “Using this information, the HART Board is provided and updated with financial reports on a monthly basis.”

HART also said that it now uses a “robust risk assessment and management system, developed a well-documented and a participatory change order management system, and has applied best practices and effective front-line construction management.”

“For two years now, we have not asked for one more penny on the project. We’re on the same budget and same schedule for two years now," said HART CEO Andrew Robbins.

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