The Money Pit
- 11 May, 2001 10:26
Could IT have prevented the largest, most expensive, most complex public works project in the history of the United States from becoming a byword for poor and possibly felonious project management?
The story broke on February 1, 2000: the Big Dig was not just over budget, it was wildly, insanely, frighteningly and perhaps feloniously over budget. The front-page headline in the Boston Herald read: "Big Cost of Big Dig Could Grow by $US1.4B" ($A2.7b)*. The "B" was for billion. People were outraged; no one was surprised. The Big Dig has been a fact of Boston life for a decade. Since ground was first broken in 1991, the city has been torn up, dug up and burrowed under. The Central Artery/Tunnel Project (the Big Dig's official name) was designed to replace the old six-lane, 1.5-mile (2.44km) elevated Central Artery. When it opened in 1959, the Artery was supposed to accommodate 75,000 vehicles a day. Today, more than 190,000 motorists from Boston's northern and southern suburbs sit in hellish traffic for up to 10 hours, Monday to Friday.
When the Big Dig is completed (target date: 2004), the elevated highway that has divided neighbourhoods, scarred the city and hidden the waterfront for over 40 years will be gone, replaced by an eight-to-10-lane express-way running beneath the streets of Boston. There will also be a tunnel underneath the Fort Point Channel, another beneath Boston Harbour, two bridges over the Charles River, and 27 acres (10.9 hectares) of public and commercial space where the Artery once stood.
Throughout the 90s, as Boston watched the tall cranes gather and the deep holes grow, it was obvious that an enormous amount of money was being spent. Back in 1982, Massachusetts politicians lowballed the estimated cost of the project to secure funding through the federal Surface Transportation and Technical Corrections Act. The politicians said it would cost $US2.2 billion ($A4.2b). Today, the price tag is $US14.1 billion ($A27.1b) - most of it coming out of taxpayers' wallets - and climbing.
Of course, that $US14 billion pays for a lot. The Dig is the largest and most technologically complex public works project in US history - bigger than the Panama Canal or the Hoover Dam. In the course of the Big Dig:
200 separate construction and design contracts will be awarded. 161 lane miles (259km) of highway are being laid in a 7.5-mile (12km) corridor.
15 million cubic yards (19.6m cubic metres) of dirt and 2.5 million cubic yards (3.3m cubic metres) of clay are being dug up and replaced with enough concrete (3.8 million cubic yards (5m cubic metres)) to build a footpath 1 metre wide and 10cm thick from Boston to San Francisco and back three times.
47km of gas, electric, telephone, sewer, water lines and other utility lines (maintained by 31 different companies) are being re-routed.
4800 trees and 33,000 shrubs will be planted.
A tunnel is being constructed 120 feet (37 metres) below street level; in some areas it is just 3 feet (1 metre) below an existing subway tube.
A casting basin big enough to hold three Titanics was built by draining a portion of the Fort Point Channel in order to create a dry environment in which to construct the tunnel; then the basin was flooded to float the tunnel into place.
A 1457-foot-long (444 metres) cable stay bridge is being built that will come within two-and-a-half feet (0.76 metres) of the FleetCenter (where the Boston Celtics and Bruins play).
The challenge was to do all this in the middle of an old and densely populated city without disrupting the subway and Amtrak trains running above the new underground highway, without exacerbating painful commutes, without driving residents nuts and without destroying local businesses. Project officials cite these necessities as the reason why the cost has skyrocketed, and, indeed, they are not lying.
Nor are they telling the whole truth.
Cost overruns are endemic to the construction business. They can result from hundreds of causes - bad weather interrupts a day's work; contractors underestimate the number of labourers for a job; soil is either harder or softer than anticipated.
IT has no power over the weather or soil. But IT can help conscientious project managers keep contractors accountable for their work and ensure that the work being done each day is in line with the master schedule and track costs. So if a contractor discovers a hidden water main, the removal of which may cause a delay or necessitate adding another crew to remove it, the project manager can adjust the schedule and the budget to compensate for the costs associated with this additional work.
"You can't take on a project that size without technological support," says Kurt Keidel, a management consultant with New York City-based Pricewater-houseCoopers. "The coordination issues are phenomenal. Technology is used to plan thousands and millions of activities on a project like this," he says.
Was the Big Dig's problem weak technology? Poor support?
CIO (US) wanted to know whether a lack of IT might have been a factor in turning the Big Dig into the largest money pit in the history of the nation. What we discovered was not a lack of good IT but a lack of good project management.
In the late 1980s, Bechtel Group, the $US12 billion San Francisco-based engineering and construction giant, part of the Bechtel/Parsons Brinkerhoff (B/PB) joint venture overseeing the construction on the Big Dig, developed Synergy, an application specifically designed to manage the Dig's finances. Synergy evolved into the Dig's Oracle Construction Information System (CIS), which was developed from 1991 to 1995 after construction began, according to Peter Zuk, the Big Dig's former project director. (Zuk is now vice president of global construction for Level 3 Communications in Denver.) The CIS consists of an Oracle database and software from Primavera Systems, Timberline Software and Microsoft, as well as a procurement tracking system developed by Bechtel in-house. The database runs on an Alpha server with 2GB of RAM and 13 hard drives with 210GB of storage. The Oracle CIS handles every aspect of the project including requests for information, changed orders, submission of design specs, accounting, budgeting, engineering, forecasting, reporting, scheduling, staffing, tracking and procurement. During peak construction, it processes $US3 ($A5.8) million worth of work every 24 hours.
"We looked at off-the-shelf software packages, but because the project is so big - and because so many constituents are involved - we found they weren't robust enough to handle the specific needs of the Big Dig," says Bechtel's Walter Erb, who came aboard the project as IT manager in 1995. "One contract can have 14 funding sources," says Robert Norman, Bechtel's MIS supervisor, who worked on developing the Oracle CIS. "It's impossible to use an off-the-shelf package. There is nothing in the world that will cope with the vulgarities of a project this size," he adds.
The CIS tracks the Big Dig's 150 separate construction contracts and 50 to 60 design contracts, which are funded by 20 different sources. The two primary sources of funding are the federal government, as represented by the US Department of Trans-portation Federal Highway Administration (FHWA), which has ultimate oversight of the project and is covering as much as 70 per cent of the $US14 billion cost, and the Common-wealth of Massachusetts, which is kicking in the remainder. Thomas Arcand, CIO of the Massachusetts Turnpike Authority, which is in charge of overseeing B/PB, says that the financial data identifying which organisation funds which portions of the project is kept separate in the system for auditing purposes so that officials can track the funding as it progresses. So, from the time CIS was first introduced in the mid-1990s, project mana-gers have received regular reports on what was being spent compared with what was originally bid for each of those 150 construction contracts, of which 30 or more proceed simul-taneously.
And, according to the project officials, the system worked.
Erb says: "The Oracle database was instrumental in keeping track of where cost overruns were and giving good indications as to where reductions could be made. At any time you can run a report [from the Oracle CIS] to see where we are cost-wise."
Former project director Zuk says: "The information system gave accurate scheduling and cost information from which we could make decisions about whether or not to accelerate contracts to avoid slippage on [project] milestones."
And acting project director Michael Lewis, who has worked on the Dig since 1992 and previously served as the deputy project director, says that project managers use the information system to determine how certain problems may affect the critical path schedule and how to readjust the schedule if necessary.
What this all means is that project officials should have known if, when and where an overrun had occurred.
And, in fact, they did.
Even before the first shovel was thrust into the ground, the estimate for the Big Dig had already far exceeded the original 1982 $US2.2 billion figure, according to reports from the state Office of the Inspector General (OIG), the Massachusetts Office of the State Auditor, the federal General Accounting Office (GAO) and the FHWA. When construction began in 1991, the cost of the project was projected at $US5 billion ($A9.6). And the estimates escalated each year, as revealed in each new report issued by the state, the GAO and FHWA.
There didn't seem to be any limit to how much the Big Dig might cost. Between 1991 and 1994 the estimates rose from $US5 billion to $US9.6 billion ($A18.5b). The money pit was beginning to assume epic proportions, and the Chairman of the Massachusetts Turnpike Authority, James Kerasiotes, decided to do something about it. In 1994 Kerasiotes, a political appointee of then-Governor William Weld, declared that the project's budget would be capped at $US10.8 billion ($A20.8b) - or merely five times the original estimate.
Kerasiotes ordered that any new costs would have to be balanced against reductions in the original construction specs. According to acting project director Lewis, "If there were any cost increases, the project had to find a corresponding cost decrease to keep the budget at cost neutral."
For example, to compensate for new expenses, Kerasiotes decided that the tiles on the walls of the Ted Williams Tunnel would not go from the bottom of the floor to the tippity-top of the ceiling; they would cover only two-thirds of the walls. According to the Dig's public affairs office, that would save $US25 million ($A48).
With Kerasiotes's edict, everyone heaved a sigh of relief. Matters were now under control, and the money pit faded from the public's consciousness as Bostonians focused on traffic jams and wondered at the gaping excavation sites opening like sores around the city.
But the Big Dig's finances did not fade from the screens of various state and federal inspectors, auditors and investigators.
Boston, We Have a Problem.
The Massachusetts office of the state Auditor issued a series of 10 reports from November 1, 1989, to December 31, 1999, chronicling oversights in the design of the Fort Point Channel tunnel, which in 2002 will connect the Massachusetts Turnpike with the Ted Williams Tunnel. Out of a total of $US288 million ($A554m) that the auditor identified as "unnecessary, excessive and avoidable project costs," he attributed $US19 million ($A365m) to inadequate management oversight in the design of the tunnel, which led to costly delays. The report blamed B/PB for not providing engineering and design reports to its subcontractors in a timely manner and for not heeding their advice on the design of the tunnel. The report also blamed the Commonwealth of Massachusetts for failing to manage B/PB.
Michael Bertoulin, Bechtel's milestone manager of the Fort Point Channel portion of the turnpike extension, blames subcontractors for failing to provide complete information other contractors needed to complete their own engineering and design reports. He also says the subcontractor's suggestions for changing the design of the tunnel would have been too time-consuming and costly.
(Bechtel's public affairs department told CIO that Matt Wiley, project program manager for the Central Artery/Tunnel Project, would not be available for comment.) The Massachusetts OIG also issued a series of reports from 1993 through 1999; it identified compliance problems with state regulations, unclear contract specifications and a continuing failure to apply rigorous cost containment measures on contracts as contributors to the massive cost overruns.
A 1997 report from the GAO suggested that the finance plan that the project had submitted to the FHWA in 1996 did not provide adequate information to assess the Big Dig's ultimate cost. The GAO recommended that the state secretary of transportation include in a new finance plan "a revised estimate of the project's costs and funding needs that more closely reflects the state's actual experience with its cost containment program and a contingency plan for financing the project if costs increase further or if the sources of financing are not sufficient".
Translation: the GAO was neither content with Kerasiotes' budget cap nor his cost containment strategies. The GAO wanted to know more. It wanted the specifics of when and where increases and reductions were being made.
The GAO didn't get them. The finance plans that the Big Dig submitted for fiscal years 1998 and 1999 did not satisfy the GAO. Nor in the government's view did they comply with federal law that requires that the plan provide a detailed estimate of the cost to complete the remaining elements of the project, including reasonable projections of future cost increases. According to a draft report from the US Department of Transportation's Office of Inspector General dated October 7, 1999, the 1998 finance plan "did not disclose significant cost information about the project, such as construction cost increases or that contract awards were exceeding budget". The annual finance plan for 1999 that was submitted two months late on January 7, 2000, didn't include this information either. There also was no indication in this plan of a potential cost overrun, according to an FHWA report.
In spite of the fact that the CIS tracked all this information, project officials did not provide these specifics in the finance plans that they submitted to the GAO and the FHWA.
Then, on February 1, 2000, Kerasiotes, reportedly fearing an account in the Boston press, launched a pre-emptive strike by informing the media of a potential $US1.4 billion cost overrun beyond his $US10.8 billion cap. According to the FHWA, the state had not forewarned the FHWA of a potential cost overrun of such magnitude "in any document provided to the division office, in the [finance] plan or in discussions prior to the conditional acceptance of the plan".
(Kerasiotes has declined to respond to the FHWA charges, telling CIO: "Since April 11, I haven't had any comment on the project or the issues raised, and I'm not going to change my course at this point.") Because of the sudden news of the overrun, the FHWA established a multidisciplinary federal task force to analyse the oversight of the project.
The task force found that the FHWA, which is responsible for ensuring that tax dollars going to this project are used responsibly and lawfully, failed to fulfil its oversight role. It also concluded that senior management of the Big Dig had evidence of the $US1.4 billion overrun prior to submitting their finance plan on January 7, 2000, and that project officials intentionally withheld this knowledge.
The task force recommended a change in the financial review process and in the delegation of authority for accepting the finance plan. It concluded that the existing methods of reporting the status of the project, a report called the "Project Management Monthly" (PMM), didn't provide "a clear, accurate and timely picture of the total potential project cost exposure or cash flow needs".
Lewis says that after the project was assessed in late 1999, the FHWA changed the requirements for reporting the project's finances, and subsequently the accounting system had to change. As it had done under Kerasiotes, the state could no longer apply insurance credits to the finance plan, nor could it employ its cost containment system that had concealed where extra costs were being incurred. Instead, all project costs would have to be identified.
Fixing the Hole.
Two months after the $US1.4 billion overrun made headlines, Massachusetts Governor Paul Cellucci fired Kerasiotes.
"The governor has acknowledged that one of the mistakes that Mr Kerasiotes made was that he was not more forthcoming with federal officials," says John Birtwell, Cellucci's press secretary. "When the feds came in," he continues, "they determined that there was a breakdown in communication between their own officials and state officials." Birtwell says that the feds removed some of their own people and asked the state to do the same. "The problem was at the Artery," says Birtwell, "and the problem was removed."
Now the project is the responsibility of former State Finance Secretary Andrew Natsios.
Natsios's first order of business was to get the project's finances straightened out. The state hired Deloitte & Touche to conduct a series of independent audits that, as of August, have fixed the cost of the project at $US14.1 billion. The state has also worked to improve communication and reporting procedures by enhancing the PMM, holding quarterly review meetings with senior executives and national FHWA officials, and conducting its own bottom-to-top assessment of the remaining project costs every six months.
The big dig had the technology to identify the outrageous cost overruns that have now made it the most expensive and controversial construction project in US history. The problem was not so much that they incurred these staggering costs (though that's clearly an issue with taxpayers and the Commonwealth of Massachusetts, which has to cough up extra funding), it's that project officials didn't communicate the information about the overruns to the FHWA. If they had, the state probably wouldn't be embroiled with the FBI, the Securities and Exchange Commission (SEC), the US Office of the Attorney General and Massachusetts Attorney General Tom Reilly's office. All have launched investigations into the Dig for fraud, corruption and administrative violations. The IT that was designed to track the project's cost and schedule is now being used to pinpoint exactly who knew about the overruns, what they knew and when they knew it.
If there's a lesson to be learned from the sordid tale of the Big Dig, it's this: report problems as they occur; report them accurately and truthfully. It is, as Shakespeare said, "a tangled web we weave when first we practise to deceive".
And an expensive one, too.
* (converted at $A1 = $US0.52)
The First Mistake.
Why the Central Artery never worked.
Today, more than 190,000 vehicles sit in traffic for up to 10 hours a day on the Central Artery, the stretch of Interstate 93 that cuts through downtown Boston. In spite of the fact that Massachusetts was ranked as the safest state in which to drive in a survey conducted in 1999 by the National Safety Council, four times as many accidents take place on the Central Artery than on any other urban interstate in the country. This is because the Central Artery, which was designed in 1948 and constructed in the 1950s, was intended to carry 75,000 automobiles a day.
In the beginning, the Central Artery was conceived of as one-half of a city-wide transportation system designed to accommodate the post-World War II influx of cars that was beginning to jam Boston's notoriously narrow and winding streets. The system consisted of the Central Artery and the Inner Belt. The elevated, six-lane Central Artery (three lanes stretching north and three lanes going south) was meant to serve local traffic with 27 on- and off-ramps along a 1.5-mile stretch of road. The Inner Belt, which would bypass downtown Boston by running through the South End and the Back Bay, would accommodate through traffic.
But the Inner Belt was never built. After more than 20,000 residents lost their homes and 1000 structures were demolished during nine years of construction on the Artery, citizens who would have been affected by construction of the Inner Belt vehemently opposed the project.
So the woefully inadequate Central Artery stands today, with cahs pahked bumpah ta bumpah (translation: cars parked bumper to bumper) along its cracked and crumbling surface, doing double duty: distributing traffic throughout downtown Boston and funnelling it to points north and south.
- M Levinson
Tracking the World's Biggest Project.
How the Big Dig's IT was supposed to workRobert Norman, Bechtel's MIS supervisor who helped develop the Big Dig's Construction Information System (CIS), explains how the system can track everything from the date a contract is first advertised for bid to when a contractor is paid.
Before a contract is even put on the market for companies to bid, project officials estimate the cost of the contract using Timberline software. Once officials accept a budget for the entire project, it is loaded into the budget control module of the Oracle CIS. They add any changes that they anticipate may come up in the course of executing the contract to the trending module.
Once the project receives all the bids for a given contract, the bid data is uploaded to the Oracle CIS, which produces documents summarising each bid. The state then awards the winning contract, and the contractor's bid is loaded into the commitment module.
As soon as the contract has been awarded, the contractor and the joint venture draw up submittals for what materials need to be furnished and when they need to be supplied. At this stage, costs can begin to diverge from the original bid.
Projecting the cost of potential changes in the scope of a contract, which the trending module enables project managers to do, is an important way to maintain control of its overall cost. Toronto-based Julian Giacomelli, an independent management consultant who has worked on several construction projects, says that contractors traditionally bid low because they know there will be a lot of changes in the scope of a project. These changes mean extra work and a way for them to increase their profits.
One of the major causes of delay on the Big Dig has been change orders resulting from unforeseen conditions that range from coming across utility lines that weren't on maps to discovering hidden archaeological sites to finding unexpectedly soft soil in East Boston and South Boston. Surprises like these necessitate changes to reflect having to add and pay for additional crews who, as Giacomelli says, can demand higher margins. In the case of the soft soil, construction crews had to figure out a way to freeze and solidify the earth so that they could dig the Ted Williams Tunnel through it. This delayed the opening of the tunnel and cost an additional $19 million ($A37 million).
Field engineers are required to inspect work to make sure it's getting done and to keep daily logs of all the activities on each site. The CIS contains a module in which field engineers can record the weather, the number of labourers on the job, and the equipment and materials used. These reports, of which there are 115,000 in the CIS, help determine the amount contractors are paid. Payments are made to most contractors every two weeks and are based on the work they finish. The pay estimate system determines which of the 20 different sources are funding this particular contract and, for the most part, makes certain that those funds are directed to the appropriate contractor.
- M Levinson
THE BIG TIMELINE. |
How to turn $US2.2 billion into $US14.1 billion in just 18 years 1982 Planning for the Central Artery/Tunnel Project officially begins. The total cost of the new underground Central Artery and Ted Williams Tunnel is projected at $US2.2 billion ($A4.2 billion).
Review of the project's impact on the environment begins.
The Big Dig contract is awarded to joint venture Bechtel/Parsons Brinkerhoff.
Congress approves the project's basic scope and contributes $US2.5 billion ($A4.8 billion) in funding. The estimated cost of the project rises to $US3.1 billion ($A6 billion).
Project management estimates that the project will cost $US4.4 billion ($A8.5 billion) and will be complete in 1998.
Ground breaking ceremony.
Congress passes the Intermodal Surface Transportation Efficiency (ISTE) Act that extends the federal government's financial support for the project through 1997.
Construction begins on the Ted Williams Tunnel. The cost of the project is now projected at $US5 billion ($A9.6 billion).
Articles in Boston Magazine report the Big Dig's cost at $US6.4 billion ($A12.3 billion).
Ted Williams Tunnel, which cost $US1.9 billion ($A3.7 billion), opens on December 15. Reports of the total cost of the project now range between $US8 billion ($A15.4 billion)and $US9.6 billion ($A18.5 billion). 1996 The General Accounting Office (GAO) sets the total cost of the project at $US10.4 billion ($A20 billion).
The federal government commits $US4.1 billion ($A7.9 billion) of the $US4.7 billion ($A9 billion) total it has set aside for the project.
In June, Congress passes the Transportation Equity Act for the 21st Century, which grants Massachusetts approximately $US520 million ($A1000 million) per year (approximately $US310 million ($A596 million) dollars less than the funding provided under the ISTE Act of 1991) for highway projects through fiscal year 2003.
In December, Peter Zuk resigns after a seven-year tenure as project director for the Big Dig.
Four-lane Leveritt Circle Connector Bridge over the Charles River opens.
The federal government has issued $US5.8 billion ($A11.2 billion) in funding to date. On April 11, Massachusetts Governor Paul Cellucci fires former Chairman of the Mass Turnpike Authority James Kerasiotes for hiding cost overruns. Andrew Natsios takes control of the project. 2000 The July audit sets the cost overruns at $US2.1 billion ($A4 billion). The cost of the project is now set at $US14.1 billion ($A27.1 billion).
The extension of I-90 (the Massachusetts Turnpike) to the Ted Williams Tunnel is completed. The northbound lanes of the underground Central Artery begin carrying traffic.
2003 The southbound lanes of the underground Central Artery open.
2004 The project concludes with the demolition of the old Central Artery. Boom!