Critics blame soaring costs of Boston rail line on White-Skanska-Kiewit maximum price contract

Dive Brief:

After Massachusetts Bay Transportation Authority officials announced the Green Line light rail extension project in the greater Boston area could cost up to $1 billion more than initial estimates, critics are now blaming the contract procurement process for the budget woes.
The contractor, a consortium called White-Skanska-Kiewit, secured the contract through the maximum price process — which allows them to name a maximum price at each stage of the building process, rather than setting a fixed price for the entire project at the start.
T officials have said they plan to hire an outside audit to determine the cause of the ballooning costs. Currently, the transportation authority is still negotiating with the contractor. The transportation secretary has said the unexpectedly high price tag — which is now at a total of nearly $3 billion — could leave the state with no choice but to completely abandon the project.

Dive Insight:

The MBTA used the "construction manager/general contractor" procurement process for the rail extension contract, which involved the officials selecting a construction firm based on its performance on past projects. The building process was divided into phases, and the chosen contractor offered a maximum price for each of those phases.

This type of contract differs from the traditional process that involves choosing a construction company based almost entirely on their bid for the total project.

During a meeting with transportation officials, critics said the maximum price contract process gave the White-Skanska-Kiewit group the ability to dictate the price of each stage of construction without competing against other bidders.

However, Brian Perlberg, senior counsel with the Association of General Contractors of America, told the Boston Globe that even though many assume the standard bidding process is superior because it comes with a fixed cost, that price tag often changes as construction moves along.

The Boston Globe compared the cost of the Green Line extension with six similar light rail projects across the U.S. It found construction of the Boston project ranked the third-highest, at more than $638 million per mile.