Central Subway contractor dispute threatens to bust budget

Muni’s $1.6 billion Central Subway project is nearly out of money.

Muni’s $1.6 billion Central Subway project is nearly out of money.

An independent federal monitor warns in a new report that the San Francisco Municipal Transportation Agency may soon spend its last federal dollar for the project and exhaust the “contingency” budget meant to cover cost overruns.

Once that happens, critics warn, San Francisco may be on the hook for any dollars needed to complete subway construction — lest The City be left with a train-less hole in the ground.

The dire warning from the federal monitor comes amid several challenges for the project: SFMTA director Ed Reiskin is set to depart in August, and the project contractor, Tutor Perini Corporation, has blasted his leadership and challenged the project’s likelihood of coming in under budget in an email exchange obtained by the San Francisco Examiner.

“Tutor Perini Corporation’s executives have sat thru [sic] too many meetings with you, Ed, where you promise the moon and deliver nothing,” Tutor Perini CEO Ron Tutor wrote to Reiskin in May.

In a statement, SFMTA said Central Subway staff is “resolving issues with Tutor on an ongoing basis,” and both parties are “aiming” to resolve some issues in a summer meeting.

It’s not exactly a glowing sendoff for Reiskin, but the problem is also not unique to San Francisco — Tutor is known for aggressively pursuing cities with claims and change orders. A July 14 report from the Wall Street Journal highlighted Tutor Perini’s $120 million lawsuit against the Port Authority of New York and New Jersey over “delays and cost overruns” to construct the George Washington Bridge Bus Station in Manhattan.

To help officials finally cut a ribbon on Central Subway amid this growing contractor conflict, Reiskin hired a new project director to lead Central Subway: Nadeem Tahir, who has 35 years of experience on projects from Los Angeles to Washington D.C. and served in the Federal Transit Administration.

“I would like to thank Ed for giving me this opportunity to serve the city,” Tahir told the SFMTA Board of Directors on Tuesday at their regular public meeting. “As he mentioned, transit is what I do. I took this on as a challenge, and I feel that I can help to bring this project to the finish line.”

Tahir started Monday — and he already has his hands full.

The Central Subway’s budget is running on fumes, according to the federal monitor, and its completion date threatens to slip back even further. Trains were expected to run from South of Market to Chinatown by December 2018, but now the independent monitor warns the project may stretch past May 2020.

Acrimony between SFMTA and the project contractor, Tutor-Perini Corporation, are the source of that funding drain according to the independent monitor’s May report. That monitor is technically known as a Project Management Oversight Committee. Tutor Perini has filed more claims than anticipated for a project of this size, the independent federal monitor wrote, citing changes in the original subway plans that are driving costs up.

“In the opinion of the (independent monitor), the rapid increase in claims by (Tutor Perini) calls into question the adequacy of the program contingency” budget, the independent monitor wrote in a May report obtained by the San Francisco Examiner. “Unless the claims are settled for less than the claimed amount, there is a risk that the program budget could be exceeded,” the monitor wrote.

And though that is not a new warning in and of itself, SFMTA’s steps to resolve those claims have so far failed, the monitor found.

Tutor Perini offered a “global claim settlement” offer on Feb. 8, 2019. But after a series of meetings and negotiations, SFMTA and Tutor Perini did not reach an agreement on the settlement.

In that May 17 email, Reiskin asked Ron Tutor, CEO of Tutor Perini, to meet with a “neutral facilitator” to help resolve outstanding claims with The City. Those claims previously went before a Dispute Review Board, which Tutor claimed sided with his company repeatedly — an outcome that would see SFMTA owing Tutor Perini for its claims and change orders.

“As you know, I will be leaving my position this summer,” Reiskin wrote. “I believe it would benefit both [Tutor Perini] and The City to put this process for resolving project claims in place before I leave.”

Tutor refused that initial offer and instead demanded Reiskin set up a meeting with SFMTA staff, an SFMTA Board of Directors member, a city attorney’s office staffer, and staff from Mayor London Breed’s office.

“I would like to be certain that whoever wants to be involved in a rational resolution of the Central Subway be engaged with the principals of Tutor Perini to try and mutually come up with a formula acceptable to the parties to finish this contract on a rational basis,” Tutor wrote. “It is simply not going to happen between SFMTA, your office and ours … We need assurance from higher-level people.”

While SFMTA works on resolving that conflict with Tutor, both the corporation and the man, the risk to the project has grown.

“The likelihood of project contingency not being adequate has increased,” the federal monitor wrote.

Gerald Cauthen, a retired civil engineer from transportation consultancy Parsons Brinckerhoff Quade & Douglas, Inc. who has long played a citizen watchdog role on city transit projects, said that spells bad news for San Franciscans who don’t want to shell out more tax dollars for the Central Subway.

“If they overrun that, unless the state smiles on them, they don’t have any outside money,” Cauthen said. “It may be all local funds.”

Supervisor Aaron Peskin, who represents neighborhoods served by the Central Subway, like Chinatown, was beside himself at the news of worsening delays and cost overruns. He was particularly livid that Central Subway’s interim project manager, Albert Hoe, did not inform him of the development.

“Every time Albert Hoe stands before the commission I chair he says we’re still going to the end of the calendar year, and still on budget,” Peskin said. “If he keeps saying that, he’s lying to me. And if he’s lying to me he’s lying to the people of San Francisco.”

In a statement, SFMTA warned the independent monitoring report is a forecast, and that the agency is making efforts to resolve issues with Tutor Perini.

“As there have always been, there are risks to achieving this schedule. On a project of this complexity, predicting the exact point of completion is always a challenge. We are still targeting revenue service for the end of the year. Construction is expected to wrap this fall, and then we move into testing. Testing could wrap relatively quickly, but the main focus is having a safe train system for our customers. We continue to mitigate any risks that would delay the project further,” Erica Kato, an SFMTA spokesperson said.

Forecast or no, San Francisco Transit Riders, a transit advocacy group, was aghast at the independent monitor’s report — which is the latest in a series of such reports.

“This is ridiculous. Federal oversight is specifically calling out a dysfunctional relationship between SFMTA and Tutor Perini, which is increasing the likelihood that the project might end up costing more than even the contingency fund,” said Cat Carter, a spokesperson with the San Francisco Transit Riders. “This is hurting communities and merchants from Chinatown to Union Square to SOMA.”

Carter added, “Where’s the accountability? Who pays for these delays besides the riders, the taxpayers, and the communities dealing with endless construction?”


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