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36 The contractor provides all personnel and materials bridges that were to be rehabilitated as part of the for maintaining the facility. If the owner decides to agreement; and 4) discrepancies with respect to the terminate the contractor during the O&M period, be- quality of work or equipment specified for installation. cause the owner deems it in its best interest, the owner For over a year, the two parties sought to resolve devel- has the right to terminate for convenience. The contrac- oping issues within the bounds of the contract. tor has the right to any costs incurred up to the termi- In 2002, Rail Group filed suit. The case was heard in nation date and costs incurred solely as a result of the the Superior Court in Essex County, New Jersey, for termination, any unusual costs incurred to oper- over 4 years. The primary basis of Rail Group's claim ate/maintain the facility, and previously unreimbursed was that it had encountered substantial increases in capital expenditures within a 12-month period. project cost and schedule due to owner-caused disrup- At the end of the contractor-obligated O&M period, tions, delays, and changes in the scope of the work. An- the contract stipulates that the contractor train any other key issue relative to Rail Group's argument was owner personnel to take over the O&M. In addition, the the function of the Reference Documents provided by contract requires that the contractor perform an inven- NJ Transit as the basis for Rail Group's bid for DB ser- tory of all O&M equipment and replace any missing vices. Rail Group's claim amounted to $125 million in equipment, to be deducted from the contractor's com- "extras" and an extension in the project's schedule. This pensation. If the price of replacement equipment ex- claim was in addition to $28 million for changes already ceeds the contractor's compensation, the owner must authorized by NJ Transit. NJ Transit's counterclaims, replace any and all equipment within 15 days after the in excess of $56 million, were based upon their argu- termination of the contractor's obligation. ment that required work was either deficient or not yet The contract also stipulates the condition of the as- completed, credits were due to NJ Transit for items of sets upon the completion of contractor-obligated O&M. work that were removed from the original scope of All assets, including LRT cars, must be in good condi- work, and payment of liquidated damages. In addition, tion, normal wear and tear excepted. All assets must NJ Transit argued that Rail Group had failed to provide have a physical and economic life expectancy consistent it with the necessary evidence to substantiate its re- with the timeline provided in the mandatory docu- quests for changes in the contract price. ments. The contract does not provide any more specific Ultimately, the two parties settled, but throughout information regarding the state of the facility at the the case several findings impacted the terms of the set- termination of contractor-obligated O&M. tlement agreement. During discovery, NJ Transit was found to have not adequately addressed some basic pro- Project Performance ject issues such as right-of-way management. The court, however, dismissed Rail Group's assertion that mis- General takes in the Reference Documents had cost it roughly In June of 1999, NJ Transit issued a letter of intent $20 million. The contract stated that the Reference to award the contract to Rail Group, and subsequently Documents were for informational purposes only, so it entered into an agreement with Rail Group for the Rail Group had an obligation to assess, in particular, design, construction, and O&M of the SNJLRTS. A no- the accuracy of these documents relative to existing tice to proceed was issued in December of 1999 with an conditions during the bidding process. As NJ Transit's original opening date in 2003. The procurement and counsel, Philip White, commented, "[the contract] was contract documents included both mandatory compli- very onerous on the contractor and it was enforced."25 ance requirements and reference design documents. Ultimately, NJ Transit agreed to pay $53 million to Rail Rail Group was granted substantial flexibility with re- Group. Of this amount, however, $15 million was pay- spect to design, construction, and operating details; ment of the Rail Group joint venture's undisputed re- however, it agreed to deliver the system for a fixed price tainer, and $8 million was payment for agreed-upon and by a specified date. Further, Rail Group assumed changes. NJ Transit also agreed to extend the contract the obligation to coordinate various design and con- by 438 calendar days, which allowed Rail Group to struction issues with local municipalities and entities avoid liquidated damages. along the corridor. Following extensive delays and dis- putes, the River Line opened for service in March 2004. IX. COMPARATIVE ANALYSIS AND DISCUSSION Issues, Claims, and Settlement General Overview Progress and changes became challenges relatively The seven cases investigated illustrate an array of early in the project. Delays, cost overruns, and disputes delivery approaches, procurement processes, contract were the result of several factors: 1) difficulties in es- provisions, and outcomes. A general summary of each tablishing final design parameters, which were com- case (in the order presented in the digest) is depicted in pounded by Rail Group's need to coordinate final design the following table. with multiple government agencies and municipalities along the corridor; 2) identification, protection, or relo- cation of utilities throughout the corridor; 3) issues re- 25 Public Works Financing, NJ Transit Rail DBOM Claims lated to the condition of existing freight railways and Settled, Vol. 215, at 4 (2007).

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37 Table 13. Overview of Case Studies Project Delivery Method Contract Start Finish Comments Value (mil- lions)26 BART Ex- DB $530 1997 2003 Track work and systems portion of project tension to was delayed and experienced cost escalation; SFIA this portion encountered undiscovered endan- gered species, had construction accidents, and difficult site conditions. Project inclusive of oth- er contracts was 20 months late and 33 percent over budget. DART Construction Man- $497.5 2005 2010 Opened ahead of schedule and on budget. Green Line agement/General Contractor Dulles DB $1,600 2007 2013 Construction of Phase 1 in progress and ap- Metrorail pears to be on time and generally within budget. AirTrain Design-Build- $1,134 1998 2003 Roughly 1 year late and 67 percent over JFK Operate-Maintain budget. Largo Ex- Design-Build $218 2002 2004 On time and ultimately 4 percent over budg- tension et; delay claims initially of $30 million, but set- tled through mediation for $9.5 million. Portland Construction Man- $220 2005 2009 On time and slightly over budget; no known Mall Seg- agement/General claims or major issues. ment Contractor Southern DBOM $605 1999 2004 438 days late and ultimately 9 percent over New Jersey budget; $125 million in claims by contractor and Light Rail $56 million counterclaim by owner. After exten- System sive litigation, $53 million settlement and time extension of 438 days. 26 For CMAR delivery, value is for construction; for DB, value is for design and construction; for DBOM, value is for design, construc- tion, and operations.

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38 While the intention of this study was not to compare project information provided by the owner. In both cas- the performance of one delivery method with another, es, uncertainty existed in site conditions and design the evidence gathered, while anecdotal, does permit requirements at the time of procurement. In one in- some basic inferences about the circumstances associ- stance, however, the owner adopted more of a risk- ated with each project and its delivery method. sharing philosophy in the project whereas in the other the owner maintained a risk-transfer stance. DBOM Projects Although these two issues are not unique to DBOM The two DBOM projects--AirTrain JFK and South- contracts, the real question is whether it was appropri- ern New Jersey Light Rail--were complex endeavors, ate for the agencies to shift the risks of site conditions and each experienced its share of issues and challenges. and defects in the design documents developed by the Both employed best-value type of procurement proc- agency to the contractor. For example, the purpose be- esses, but both strongly emphasized the fixed-price for hind the standard differing site conditions clause used design, construction, and operations services. The fixed by the federal government (which has been a central prices delivered by the proposers were based on func- tenet of construction contracts for decades) is that no tional designs prepared by each agency. For the Air- contractor can control preexisting site conditions, and Train JFK, the technical provisions and contract draw- there is a benefit in having the contractor strip its bid of ings were developed only to a 5 to 10 percent level of contingencies for these risks and have the owner pay design at the time of procurement.27 This eventually actual costs if a differing site condition is actually caused issues, particularly in finalizing the station de- found. It is axiomatic that, notwithstanding contract signs. However, the project team was driven to work language to the contrary, if a contractor encounters a through issues: "Everyone was motivated to make site condition risk that it did not price, it will file a things work. No one wanted to be the bad guy in terms claim and the parties will become adverse to each other. of stopping the project."28 Still, the project had $40 mil- The agencies in both of these case studies experienced lion in unresolved claims and changes as it neared con- this firsthand. clusion. Ultimately, these issues were solved through negotiations, thanks to the prevailing attitude to "make DB Projects things work." The three DB projects--BART Extension to SFIA, The SNJ Light-Rail Project (i.e., the River Line) had Largo Extension of the Blue Line, and Dulles Metrorail a different philosophy and outcome. At the time of pro- (Phase I)--varied in terms of scale and complexity. The curement, NJ Transit provided proposers with Manda- Largo Extension was one of three contracts associated tory and Reference Documents as a basis for developing with expanding service in the Washington, DC, metro- their fixed prices. NJ Transit made it clear and con- politan area and had a value of $210 million. This con- tended throughout the process that the Reference Doc- tract required trackwork and necessary appurtenances uments were for informational purposes only, so the but no station design. While the project was delivered accuracy of the information was not confirmed or vali- on time, the design-builder claimed that it had suffered dated. This position effectively required that proposers $30 million in loss of productivity. The project's pro- complete their own design development activities, con- curement process, to some extent, may have contributed duct their own site investigations, or assume the risks to this. The BAFO process resulted in the design- inherent in not doing so--risks such as unknown condi- builder shaving 4 months off of its schedule. While not tions or latent defects of existing facilities requiring directly stated by the project personnel interviewed, it enhancement or rehabilitation as part of the contract. is conceivable that this eliminated time needed by the Once the contract was awarded and work progressed, design-builder to deal with, among other things, bad existing site and facility conditions (as well as finalizing weather. detailed design) became issues for the contractor. Liti- The line and track DB contract for the BART Exten- gation ensued, but as counsel for NJ Transit noted, the sion was one of several contracts for extending service contract "was very onerous on the contractor and it was to the San Francisco Airport and had a value of $530 enforced."29 million. Like the Largo Extension, it required track- General lessons that may be drawn from these two work and necessary appurtenances but no station de- cases relate principally to the level of design detail and sign. This project, however, experienced substantial delays and cost overruns. Of note was the discovery of an endangered species on the project site, which caused 27 A. Cracchiolo & V. Simuoli, JFK AirTrain: Project Man- over 2 weeks of delay. More significant were the site agement Issues on a Large DBOM Project, ASCE 8TH ANNUAL conditions where soils were so rigid and hard that they CONFERENCE ON AUTOMATED PEOPLE MOVERS PROC., San bent steel pilings.30 As noted by a BART project repre- Francisco, CA (2001). 28 sentative at the time, "construction has gone pretty A.L. C. deCerreno, AirTrain JFK, Integrated Transporta- much as planned. But every day you have something tion and Land Use Planning: Facilitating Coordination Across and Among Jurisdictions 42, Rudin Center for Transportation that slows you down, you lose ground." Additional is- Policy and Management, NYU Wagner School of Public Ser- sues were encountered on other contracts associated vice, New York (2008). 29 Public Works Financing, supra note 25, at 4. 30 Cabanatuan & Wilson, supra note 20.