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A Megaproject True Story

A Megaproject True Story

 

You don’t have to look very far to find megaprojects to illustrate the causes of failure we have been discussing.

 

The contracting team Purple Line Transit Constructors, building the Purple Line light rail in Washington D.C. announced plans to quit the project this summer. The construction team has said it will terminate its $2 billion design-build contract with Purple Line Transit Partners, the umbrella group that holds the $5.6 billion partnership with the state, to build the light-rail line and then operate it for 30 years.

 

A Long Megaproject Story

 

The Purple Line, a 16-mile light rail which would connect Montgomery and Prince George’s counties, was initially scheduled to begin carrying passengers in March 2022, but apparently the work has been delayed by more than 2½ years.

 

  1. Failure to Secure Public Approval

 

Problems have plagued the Purple Line for years. Initially, an ultimately unsuccessful lawsuit filed by opponents of the project stalled the start of construction by 11 months. Purple Line Transit Partners says the state also lagged in providing right of way and changed design requirements for a new culvert and a crash wall between the Purple Line and CSX tracks.

 

  1. Contentious Payment

 

In its latest report, the construction team said the project was 976 days (more than 2½ years) behind schedule and $755 million, or 37%, over budget because of problems beyond its control. “We haven’t made a penny” on the Purple Line construction, said a spokesman for the construction group. “We’re losing money, bleeding money every day we work.” “There’s no way we could survive,” he said of the construction firms. “We have to get paid for the work we put in place.”

 

A Maryland judge recently ruled that the companies managing the Purple Line’s construction may quit over disputes with the state about $800 million in unpaid cost overruns, requiring transportation officials to find a new way to complete and pay for the megaproject.

 

The ruling allows for the unraveling of the Purple Line’s 36-year public-private partnership, one of the first on a U.S. light-rail project. It also would upend a major transit project designed to remake the auto-centric D.C. suburbs and attract economic development around the line’s 21 stations.

 

  1. Complex Institutional Structure

 

Under a public-private partnership, the line was to be designed and built over six years and then operated and maintained for 30 years.

 

The construction partners would finance part of the construction, allowing the state to repay their debt over time. This type of arrangement is usually designed to provide the state with a way to build expensive infrastructure by reducing government funding upfront and sharing many of the risks of a complex construction project with the private sector.

 

  1. Procurement Issues

 

The initial contract that controlled this megaproject was subjected to litigation with the following results:

 

  • Judge Jeffrey M. Geller stated that the original contract was clear, direct and absolute and either the state or Purple Line Transit Partners could terminate it after delays exceeded one year, without the other’s consent. Geller said the state has no right to contest the contract termination, and he also rejected the MTA’s arguments that allowing Purple Line Transit Partners and its construction contractor to quit would cause the state irreparable harm and go against the public interest. He said the costs that state officials complained about having to incur if Purple Line Transit Partners leaves appear self-inflicted because they had stubbornly refused to discuss a transition plan after the companies announced their intention to quit.

 

Conclusion

 

As we follow the unfortunate progression of the Purple Line project we see our previously identified megaproject risk factors emerge from the details. It is almost as if some megaprojects are doomed from the start.

 

  • These types of procurement usually place most of the risk in the contractor’s column and on a megaproject, even a Fortune 500 company may have difficulty shouldering that much risk.
  • Litigation solutions to performance problems often exacerbate the risks.
  • Complex institutional structures don’t always procure intended outcomes for all stakeholders.
  • Big money, long range, public infrastructure projects require public support and commitment. Failure to achieve this at the outset is problematic where megaprojects are concerned.