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Thursday, April 11, 2013

Low-Bid Process For Silver Line’s Phase II May Foster Hidden Costs, WAMU, April 11, 2013

By Martin DiCaro
The success of a megaproject can come down to a single decision: choosing the right contractor.
As the Metropolitan Washington Airports Authority (MWAA) prepares to embark on Phase II of a $5.5 billion rail extension to Dulles International Airport known as the Silver Line, five pre-qualified construction consortiums are facing an April 19 deadline to submit bids to build a transportation project largely financed by toll revenues from the Dulles Toll Road.
After receiving the bids next Friday, MWAA will announce the winner in May. Preliminary work is scheduled to begin later this year with a target of 2018 for completion of the Silver Line to Dulles and beyond into Virginia’s Loudoun County. Phase I of the project, which extends D.C.’s Metro to Reston — is scheduled to open later this year.
Some of the biggest names in the construction industry are competing for the Phase II contract, including Bechtel, the firm that is building Phase I. The lowest bidder wins Phase II.
“Before you go to a low bid, you do everything possible to make sure that you have a firm that is fully capable and fully understands the scope of work of the project involved,” said Patrick Nowakowski, the executive director of the Dulles Corridor Rail Project. “We don’t want to have firms leading the effort… who’ve never undertaken a megaproject.”
Nowakowski says using the low-bid procurement procedure ensures the lowest possible price for Fairfax and Loudoun County taxpayers and the toll road users.
“It’s all about price,” Nowakowski said.
Click here for the rest of this article.

Wow! The classic procurement error:  The lowest price is the  best deal.

No, it's not.  The best deal is the one that offers the greatest value.  That is a combination of price, design, work product, management, and more.

In fact, unless MWAA knows with certainty exactly everything that the completion of Phase 2 of the SIlver Line requires and all the costs are fixed--materials, labor, overhead, etc.--DTR users may expect to see contract costs escalate over the course of construction as unforeseen (even unforeseeable) costs are added to the tab.  I have never, ever seen that happen.  We can hope that the winning low bid actually allows room for price escalation below the $3 billion cost basis used in CDMSmith's latest toll forecast or Dulles tolls will escalate faster and farther than already projected. 

FWIW--MWAA has done a good job of keeping Phase 1 costs in line with the original contract--less than a 10% escalation over the original price so far.  That experience should also have been very useful in formulating the design and other requirements for Phase 2 so there should be few surprises.  We can hope that this is the case.

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