Appeal: Honolulu Ignored $700 Million in Extra Rail Costs for Taxpayers
A true cost analysis of the 30-year life cycle of the rail cars shows the city might spend an extra $700 million of taxpayers’ money with Ansaldo, the company the city of Honolulu in March awarded a more than $1 billion rail contract.
That was the gist of testimony from an expert witness hired by losing bidder Sumitomo to bolster its appeal of the contract award. William Rennicke, a partner at the international consultant firm Oliver Wyman, performed the analysis and said Sumitomo would have won the contract if evaluators had properly interpreted the city’s instruction to consider “life cycle” costs.
“If you don’t look at the entire life of that transaction, and you focus your decisions or your evaluations on only a subset … you can get very severe distortions from what is ultimately reality,” Rennicke told Senior Hearings Officer David Karlen Wednesday in the first day of the evidentiary portion of the appeal at the state Department of Commerce and Consumer Affairs.
The city’s Request For Proposals (RFP) mentioned “life cycle” costs but also instructed bidders to specify the costs over the “proposed baseline schedule” — the life of the contract, which only covers the design-build period and 14 years of operations and maintenance.
Looking only at the costs for that period led evaluators to reward Ansaldo heavily for its lower design-build costs even though Sumitomo had scored higher on the technical portion of the evaluation. But Rennicke said that using the term “life cycle” means you need to evaluate the costs for the full life of the asset.
In cross-examination, Joe Stewart, an attorney hired by the city for the appeals process, picked apart Rennicke’s report. Stewart point out that it left out factors like energy consumption and capital asset replacement over the life of the project, and that it failed to differentiate between dollar figures determined with and without inflation.
Ansaldo’s attorney, David Minkin, pointed to the section of the Hawaii Administrative Rules that prohibits procurement evaluators from considering any criteria not laid out in the RFP. He said the RFP didn’t define life cycle costs.
Rennicke said the term is so well-known in the industry that a formal glossary definition wouldn’t be necessary in the RFP. A powerpoint that he prepared as part of his expert report for Sumitomo pointed to the U.S. Department of Transportation’s .
Rennicke was just the first expert witness for the petitioner. Attorney Robert Fricke said in his opening statement that two others would be called, one who would speak to the issue of an error in Ansaldo’s proposed train control system that could lead to safety issues. Sumitomo will also attempt to convince Karlen that evaluators didn’t properly consider Ansaldo’s work history in deciding the realism of their proposed price.
“This is a case about errors, significant errors made in the procurement process,” Fricke said. “Errors that are too large to ignore, too big to walk away from.”
The city and Ansaldo can each call their own expert witnesses and attorneys for both parties reserved their opening statements until later in the case.
Karlen said he hoped to finish at least one more witness from Sumitomo on Wednesday. The appeal will resume at 8 a.m. Thursday, and is expected to continue into next week.
