Lack of contractor oversight is expected to push project costs to $77bn © State of California
Lack of contractor oversight is expected to push project costs to $77bn © State of California

Contract management must improve on 'bullet train to nowhere'

27 November 2018

A lack of contractor control has been blamed in an auditor’s report for California’s bullet train project seeing billions of dollars of cost overruns and significant delays.

In a report state auditor Elaine Howle said the California High‑Speed Rail Authority, in an effort to beat deadlines for spending federal grant funds, began awarding contracts long before it had finished planning or assessing potential risks to cost and schedule.

And a lack of oversight of contractors was firmly blamed for pushing up costs at the project which, while it has secured $28bn in funding, is now anticipated to cost a likely $77bn.

The train has been mooted as an alternative to expanding airports and building new freeways to meet growing demand, especially for travel between the state’s key areas such as Silicon Valley and the Central Valley as well as San Francisco and Los Angeles.

But delays and cost overruns have led to it being dubbed “the bullet train to nowhere”.

The authority needs to improve its contract management to control soaring costs, the auditor said.

The project currently has 56 contract managers who generally do not serve in contract management roles full time. Much of the oversight of large contracts is in the hands of outside consultants.

Few contract managers were able to provide evidence of reviewing monthly invoices for accuracy, none maintained tracking logs of deliverables, and most were unable to demonstrate how they ensured the quantity and quality of the contracted work.

Reforms carried out as a result of internal audits in 2015 and 2016, which identified significant deficiencies with contract management practices, had proved ineffective, the audit found.

The Contract Management Support Unit (CMSU), which was set up as a result of those audits to oversee contracting, had “performed only weak and inconsistent oversight”.

Authority contract managers were supposed to use standardised checklists to ensure contractors were only billing what is allowed under contract, but few could provide evidence of those reviews.

“For nearly all the contracts we reviewed, the only documented information about the timeliness and status of deliverables came from the contractors themselves, leaving us unable to determine how the authority ensured it received the quantity and quality of work for which it paid,” said the report.

This meant auditors were unable to ascertain how the authority identified and resolved problems with deliverables.

Auditors also found that the authority often amended its contracts to add time or additional funds.

Often, when doing so, it relied on the contractors' own estimates and projections of the associated costs and delays.

In some instances the authority approved the amendments based wholly on the information the contractors reported to it.

And while construction of the high‑speed rail system would have a major effect on the State's environment, the authority’s monitoring and measurement of these impacts needed to be improved.

The auditor said that to improve its contract management the authority should establish a process for hiring and assigning full‑time, experienced contract managers.

The CMSU should establish a schedule to monitor contract manager compliance, and help ensure the unit's integrity by staffing it with full‑time contract managers who are state employees.

Holding contract managers accountable for performing the duties that the authority's policies assign to them, was essential.

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