40% Chance AWV Tunnel will go over budget


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On Monday afternoon, the city council was briefed by John Newby, P.E., CDM, a contracting expert hired by the council to help us better understand the risk involved in the deep-bore tunnel project.  I have talked a lot about cost overruns over the past year and was pleased to finally receive some tangible numbers about the probability that cost overruns occur.  By WSDOT’s own project estimation analysis, there is a 60% likelihood that the budget for this project will cover all the costs.  In other words, there is a 40% chance that there will be cost overruns.  Since then, we received more detail how likely different cost scenarios will play out.  This Cost Estimate Validation Process graph highlights different probabilities based on different cost overrun scenarios:

  • 40% chance of any cost overrun
  • 30% chance of a cost overrun greater than $90 million
  • 20% chance of a cost overrun greater than $150 million
  • 10% chance of a cost overrun greater than $290 million
  • 5% chance of a cost overrun greater than $415 million

WSDOT was quick to point out this estimation tool helps set the project budget, and guaranteed us they will actively managed the project, once people are digging, to prevent costs from getting out of hand. But, according to recent briefing from Thomas Neff, PhD, a world-renowned expert on major tunnel projects, and a former vice president at Parsons Brinkerhoff, this is an unprecedented project in both size and soil condition, and the risk assumed by the state and contractor is essentially impossible to calculate.

There are two ways WSDOT can manage the bids come in under the budget amount. Extend the completion date (which they did earlier this year to 2016), and reduce the scope of the project. My colleague, Councilmember Nick Licata, is raising similar concerns in asking WSDOT to form a lockbox for the $290 million currently dedicated to removal of the existing structure and waterfront street improvements, which would help ensure financial promises are kept.  Securing this commitment is a good move; however it still leaves the question of who pays that $290 million if it is in excess of the state’s $2.8 billion limit. 

Lastly, I’ve raised the issue of risk shifting in a previous blog, and today’s briefing from Dr. Neff reiterated my concerns. In design build projects such as these, it is critical that we understand who is responsible for what risks and that we understand the potential costs associated with those risks. If the state shifts more risk to the contractor, the contractor will increase their bid price to cover the greater likelihood that something goes wrong which they must pay to fix.  If the state is trying to lower the bid price, then they have an incentive to shift risk to the public.  This has the advantage of reducing risk for the contractor and hence the bid price, but it means that when things go wrong, the public will have to pay to fix them.  While it is not clear through what mechanism the public would pay for these overruns, the state intent is very clear – every penny over $2.8 billion will be paid by Seattle area property owners who benefit from this project.

When Council votes on the contract with the State this month, we should ensure that Seattle is protected from this 40% chance of cost overruns.

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Comment from John
Time July 16, 2010 at 1:51 am

These sound like pretty serious underestimates. I’m living in NYC right now, there are two major tunneling projects going on in the 4 billion dollar ballpark, the 2nd Avenue Subway and the East Side Access Project. They are both already over their budgets by around half a billion each, and they’re only halfway done; actually they only just started digging the 2nd Ave subway tunnel. Nothing terrible has happened to cause these overruns: there’s no stuck TBMs (yet) or anything, this is just from underestimates of the cost.

Are the chances of this turning into Seattle’s Big Dig (with costs doubling or worse) really less than 10%? Right now my median estimate of overruns (just looking at projects I’m aware of, such as the Seattle bus tunnel) is about $300m.

Comment from John Dempsey
Time July 16, 2010 at 4:44 am

I’m personally freaking out about this situation. I’m mortified at the real risk of a big bill. I don’t need a damn tunnel if it puts my retirement at risk. Seattle has always been so pragmatic and cost-conscious. Those days are gone. Are we high rollers now? It’s like the City is asking me, “Oh, hey, that big tunnel you want. Is it ok if you co-sign?” I co-sign for responsible children, not whole states. It’s an invitation to fail. Children don’t ask for massive tunnels! If you want me to co-sign, you can’t get a deep tunnel! You need to get a surface solution if you want me to co-sign anything.

I CAN DO THAT WITH A TEENAGER. Seattle can’t do that with the state??? IF YOU WANT ME TO ASSUME RISK, WHY DON’T YOU LOWER IT??? Or assume the risk yourself, you tunnel-happy nuts!

You see? It makes me emotional. There’s certainly something hinky going on, and THANK YOU MAYOR FOR FIGHTING!!! And you, Mr. O’Brien.

Comment from Freddie Brinster
Time February 19, 2011 at 12:16 am

I can’t accept the final rejection of a new viaduct.! Wouldn’t it be possible to relieve our angst about the tunnel to propose to the people of the city that we embark on a VIADUCT DESIGN CONTEST? It’s the kind of structure that lends itself to wonderfully imaginative solutions. Think what a Frank Gehry could do with this challenge. Or a Koolhaus – or maybe an ordinary citizen with a dream and a pencil!

The contest would be open to everybody but with artists and architects particularly urged to enter. It would not entail elaborate plans – just sketches and concepts.

There would be a few requirements. Such as that the structure be light and airy so it could be seen through by the folks who are currently being thrown into depression by the sight of the present structure. It would have to be earthquake proof – maybe made to sway instead of crumble. It would use new materials such as the recently invented sheets of graphite one atom thick that’s so strong it can’t be cut by scissors. Maybe it could be made of glass – or plastic water bottles. Don’t laugh! Supposedly we have enough them to string them to the moon and back. (In a design class I took many years ago one of the assignments was to build a structure out of paper that would hold our own weight – and everybody did it.)

The possibilities are endless and what we end up with could be as iconic as the St. Louis arch or the Eiffel tower. But if nothing is ever built we will still have had an enormously good time.

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