L.A.'s Light-Rail Fiasco

The advantage is that you control the design. You want Craftsman-style light fixtures? You got it. Beveled mirrors in the guest bathroom? Done. The downside is that you run the risk that those items could inflate the bids. The architect doesn't care. He's working for you. As long as you're paying his fee, his incentive is to make you happy — not necessarily to keep the cost down.

And that's where design-build is different. In design-build, you ask for bids from builders up front. You pick the lowest one. Then the builder hires an architect.

PHOTO BY TIMOTHY NORRIS

Expo Line construction

PHOTO BY TIMOTHY NORRIS

Expo Line construction faces delays and cost overruns.

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More About

• Rick Thorpe
• Metropolitan Transportation Authority
• Expo Authority
• Transportation
• Public Transportation

Now the builder owns the risk. If his cost goes over the bid, he eats the loss. But if the cost stays under the bid, he pockets the difference.

The builder has every incentive to finish the job on time and on budget. You have given up some control. You might not get those beveled mirrors. But you probably are going to get a cheaper house, built faster. Because the architect and the builder are working together early in the design process, there's less chance for misunderstandings. Moreover, because the architect is working for the builder, he has to make the builder happy, which means delivering a cost-efficient design.

In a time of ever-shrinking public budgets, design-build has become the preferred means of constructing a transit project. Cost overruns occur less often. When Thorpe built the Pasadena, Eastside and Orange Line projects, he used design-build.

The MTA liked design-build, but Thorpe believed it had one big drawback: When builders bid on a project, they included a sizable cushion to compensate them for accepting the risk of cost overruns. That meant the builder could wind up with a windfall if costs stayed low.

On the Expo Line, Thorpe wanted to try something new. He tried to find a way to get the benefits of design-build — efficiency, timeliness, minimum risk — without handing the builder an undeserved payday. He came up with a hybrid model, which blended aspects of design-build with aspects of design-bid-build.

"He thought he was smart enough to find a new way to build a better mousetrap," says one employee of an Expo contractor.

Thorpe called his concept "negotiated design-build." It had two steps.

First, Thorpe would solicit bids from builders. The winner would be hired to design and build the line. So far, it's exactly like a design-build contract.

Here's where it differs. Though Thorpe wanted to negotiate a cost ceiling, or a "guaranteed maximum price," early in the process, the actual construction cost would be negotiated later, after the design was nearly complete. That's sort of how it works in a design-bid-build contract, only in that case there would be competition among multiple bidders. In Thorpe's scenario, there would be only one bidder — the contractor that had already been selected.

The advantage is that, as in a design-bid-build process, the design phase would resolve a lot of the unknowns and reduce the contractor's need to add a big cushion for uncertainty.

The disadvantage is that without other bidders, there isn't much pressure to hold down the cost. If the contractor demanded too much money, Expo reserved the right to put the construction work out to bid. But that would be a drastic step. In practice, it might not come to that.

Thorpe believed the advantages outweighed the drawbacks. As in design-build, the designers and the builder would be working together early in the process, which would lead to an efficient, cost-effective design. But by waiting to fix the final price, he also would limit the contractor's contingency.

The risk could be ironed out of the process.

On Oct. 18, 2004, a group of high-ranking transit officials from around the country were invited to MTA headquarters to discuss the contract innovation. They voiced an array of concerns.

Fred Ohene, from Las Vegas, suggested that a contractor could bid low in a deliberate effort to win the contract, then jack up the price at the final negotiation stage. At that point, there would be little MTA could do.

According to notes of the meeting, Thorpe acknowledged Ohene's concerns and said, "This was why MTA would like to get a guaranteed maximum price early on."

Veronique Hakim, of New York, suggested a guaranteed maximum would be difficult to get from a contractor.

Don Irwin, of Portland, echoed both of those concerns and worried that without a guaranteed maximum, "The agency could become 'locked in' and left with less flexibility to sever the contract and rebid the work."

Irwin and Hakim also questioned whether the MTA was doing enough up-front engineering. Irwin suggested that in a dense urban area, six to nine months of extra study beforehand would save a lot of grief in the end.

At the end of the day, Irwin left with a warning. Thorpe's approach was complex and was guaranteed to be challenged by the contractor, so the MTA needed to be sure it knew what it was doing.

Despite the warnings, Thorpe pressed ahead with the contract.

In February 2005, the MTA announced its plan to potential bidders. It was essentially unchanged from the version Thorpe had presented at the peer review meeting a few months before. When Thorpe presented the concept to the elected officials on the Expo board, they gave him the green light to solicit bids.