Marcia and I were talking about the "Big Dig" in the Geo Conference. Here is the latest "dirt" on the Big Dig, in case anyone is curious about typical Boston politics.
The Big Dig has a website at
http://www.bigdig.com
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From "The Boston Globe",
http://www.boston.com/globe
SPOTLIGHT REPORT
Big Dig team kept silence on overruns
Underwriters got no warning; signs show year-long
pattern
By Brian C. Mooney, Globe Staff, 2/24/2000
Despite internal tracking reports indicating Big Dig costs were at least
$500 million over budget, the project's director last fall assured bond
underwriters that there were no cost overruns.
The assertions by Patrick J. Moynihan, project director, at a meeting
last Sept. 13 appear to be part of a pattern of concealment and even
deception, dating back more than a year, on the part of Big Dig
officials.
The subterfuge surrounding the cost overruns collapsed Feb. 1, when
Massachusetts Turnpike Authority Chairman James S. Kerasiotes, czar of
the project, admitted publicly that the estimated cost of the Central
Artery/Ted Williams Tunnel project will increase by $1.4 billion to
$12.2 billion.
The US Securities and Exchange Commission is investigating whether
inaccurate information was included in bond offerings late last year by
the state and the Massachusetts Bay Transportation Authority. Any SEC
sanction would be an embarrassing blow to a state that has struggled for
a decade to restore its fiscal credibility on Wall Street.
In an interview this week, Jeremy Crockford, the project's chief
spokesman, acknowledged for the first time that the project was $500
million over budget as of last June. He said: ''$500 million was showing
as an exposure.''
Crockford also conceded that while the project routinely tried to offset
those amounts with cuts in other areas, many of them were speculative
or, as another Big Dig official said, ''were falling off the table.''
But Moynihan strenuously denied yesterday that he gave misleading
information to bond underwriters last fall.
''I don't recall any specific questions being raised as to specific
overruns,'' said Moynihan, who assumed the director's post in January
1999 and made an updated review of project costs a priority. ''In
reference to any suggestions to overruns, I was referring to the fact
that if we had cost pressures, we believed we had offsets, and that to
the extent we did not, we were always in the position that the Turnpike
Authority was in a position to cover them. I'm not going to go to a
meeting like that and provide information that is not complete or
accurate, or speculate.''
But several sources who attended the Sept. 13 ''due diligence'' meeting
before issuance of a $500 million state bond offering nine days later,
quoted Moynihan as stating flatly there were no cost overruns on the
giant construction project. Besides several lawyers and state officials,
a representative of the lead bond underwriter, Goldman Sachs, attended
the meeting at the State House. Several of those present took notes.
''He shocked us by saying there were no cost overruns, but said if there
were to be any, the Turnpike Authority could pay for them out its own
resources,'' said one source, whose account was confirmed by two others
who were present at the meeting.
The offering's official statement reflected Moynihan's account and the
now-discredited $10.8 billion net project cost estimate. The SEC is
also expected to delve into a $200 million MBTA transportation bond
issue last December. That offering also made no mention of any cost
overruns.
At the time of his meeting on the September bond issue, Moynihan knew,
or should have known, that the Big Dig's own cost monitoring was
consistently flagging projected overruns on a monthly basis throughout
1999 and that the project was running out of potential cuts to offset
those increases.
Moreover, the overrun estimates were artificially low because they
failed to include credible or up-to-date projections in some areas and
omitted other big-ticket items, among them an extra $260 million in fees
for Bechtel/Parsons Brinckerhoff, the Big Dig's management consultant,
and most of $300 million in additional costs for intensified
construction work to keep the project on schedule. Those amounts were
finally included in the $1.4 billion overrun figure coughed up by
Kerasiotes on Feb. 1.
Moynihan's statement at the bond meeting was neither the first nor last
time the project served up dubious, incomplete or inaccurate references
to the skyrocketing costs.
Last fall, when the inspector general's office of the US Department of
Transportation estimated construction costs could soar another $942
million over budget, Moynihan fired off a scorching counterattack,
upbraiding the federal watchdog's methodology and scoring ''factual
errors, misstatements, and misleading calculations.'' At the time,
Moynihan's office knew the project was way over budget and well on its
way to calculating the $1.4 billion excess.
In fact, yesterday, Moynihan admitted that ''by mid-December, we had an
internal assessment in the $1.4 billion range.''
Despite drawing that conclusion, Moynihan still forwarded a 1999 finance
plan to Governor Paul Cellucci's office Dec. 23 that sidestepped the Big
Dig's bottom line. Cellucci aides were stunned to find it omitted - for
the first time - any estimate, old or updated, of the project's final
price tag. It did, however, include a cover letter from Moynihan
suggesting the final cost could rise.
''That waved a huge red flag,'' said Andrew Natsios, Cellucci's
secretary of administration and finance. He immediately told Cellucci,
who became alarmed and instructed Natsios to alert bond rating agencies.
Cellucci and other state officials had met with rating agencies early
that month, seeking an upgrade in the state's credit rating. On Jan. 6,
state officials contacted the agencies to inform them that Big Dig costs
were increasing, though the dimensions of the problem remained a closely
held secret of project officials until Feb. 1.
Moynihan defends the omission, saying the report, as required,
accurately reflected the financing needs, as of the previous June, and
that the Federal Highway Administration knew an updated estimate of
potential overruns was in the works.
This story ran on page A01 of the Boston Globe on 2/24/2000.
� Copyright 2000 Globe Newspaper Company.
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From The Boston Herald,
http://www.bostonherald.com
Feds' $ hunt could lead to quarry
by Jack Meyers
Thursday, February 24, 2000
As a team of federal auditors descends on Boston today to
figure out how the Big Dig's price tag shot up by $1.4 billion,
they could start with the most basic requirement of the
massive project: getting rid of the dirt.
Records show on that task alone - trucking out millions of
tons of dirt dug out of downtown Boston - the project has
come in nearly $80 million over budget.
And the mounds of sand and muck also tell another story -
how Bay State politics turned Big Dig dirt into gold for the well
connected, while taxpayers face toll hikes to cover the
project's ballooning cost.
At the front end of the dirt operation, the company hired to
manage the giant mounds, Modern Continental Construction
Co., saw revenues from its contract double - from $76.8
million to $155 million in a 3-year period.
At the back end, Artery managers paid a politically connected
group of developers to accept the dirt, which they are turning
into a windfall - a 27-hole golf course and sports complex in
Quincy expected to generate at least $75 million for the group
over the next 50 years.
Anatomy of a cost overrun
The heart of the Central Artery's dirt operation is Subaru Pier,
a huge walled-off parking lot in the desolate northeast corner
of South Boston. It was run for three-and-a-half years by
Cambridge-based Modern Continental, which has emerged as
the Big Dig's biggest contractor.
Modern Continental was a relatively small construction firm at
the outset, but a steady stream of big-ticket Big Dig contracts
has transformed the company into a multi-national
powerhouse.
It probably hasn't hurt that while Modern was winning almost
$2 billion in Artery contracts, its owner, Lelio ``Les'' Marino,
was becoming one of the most active political fund-raisers in
the state, raising money for key political players with influence
over the management of the Big Dig.
In September 1995, the chairman of the Massachusetts
Turnpike Authority and boss of the Artery, James J.
Kerasiotes, awarded Modern Continental the $76.8 million
contract to handle the Artery's dirt and to set up a separate
site to build sections of tunnel for the submerged Artery.
It was a critical contract, because Subaru Pier was where
almost every other Artery contractor deposited their dirt.
But it also seemed relatively simple. No fancy engineering. No
danger of hitting underground utilities. Just moving piles of dirt
around what had been a huge parking lot and testing it for
contaminants.
No part of the Big Dig, it appeared, could be more
straightforward.
But something happened to send costs on the contract - and
payments to Modern Continental - soaring.
Kerasiotes has described Modern Continental to reporters as
his ``favorite'' contractor for aggressively lowballing bids to
win jobs, and in the process driving the bids of other
companies down. But Modern also has a reputation for making
up for its low bids by getting contract amendments put in
later.
Subaru Pier was just such a case.
Modern Continental officials submitted the low bid on the
contract, but to pull it off, the firm took a big gamble.
When the contract was bid, most of the dirt moving through
Subaru Pier was earmarked for Spectacle Island in Boston
Harbor, but as a precaution, Artery managers required the
winning bidder to have a backup site to dump the dirt and to
put a price tag for that alternative in its bid.
Modern Continental's price tag for the backup: a nominal one
cent per ton. While that appeared to save the project a lot of
money, company officials were taking a huge risk, betting
heavily that an alternative dumping ground would never be
needed.
Competitors protested, but Artery managers - looking for
ways to make their budget numbers look good - let Modern
roll the dice.
Later, when it was clear Modern Continental was wrong,
Artery managers didn't penalize the firm. They made sure it
became a winner anyway.
By early 1997, halfway through the contract, Subaru Pier was
a mess. Spectacle Island had been shut down and a million-ton
mountain of dirt was burying Subaru Pier, hindering operations.
When Artery officials demanded Modern implement its backup
plan, Modern's brass refused to do it for the penny-per-ton
price they had used to win the contract.
The standoff went on for weeks - with Modern using the
Artery's own dirt as a hostage. The pressure built as a cascade
of financial claims from other contractors flowed into Artery
offices. Dirt by the ton, meanwhile, arrived daily at Subaru.
By May 1997, state highway officials feared the pier would
literally collapse into the harbor.
Finally, the Massachusetts Highway Department blinked,
granting Modern Continental a series of multimillion-dollar
change orders to truck the dirt to Rhode Island, Connecticut,
and several in-state landfills at more than $10 per ton.
Modern's bid ``was crazy as usual but (state officials)
renegotiated the deal,'' said one angry competitor, who spoke
on condition of anonymity.
Said a Modern Continental subcontractor, ``There were huge
change orders flying around Subaru Pier.''
Artery spokesman Jeremy Crockford said the cost increases
reflected a ``very complicated situation'' involving Subaru Pier
operations.
Artery officials at the time said change orders were justified
because Modern had a good chance of winning even more
money by appealing the case. Modern also agreed to drop
another potentially sizable financial claim against the project as
part of a settlement, records show.
Andrew Paven, a spokesman for Modern Continental, said the
change orders were part of a larger settlement struck
between the Artery and the firm. That deal was fully reviewed
by the Artery's dispute resolution board for fairness to
taxpayers and the contractor, he said.
Payment, not penalty
In the end, Big Dig officials rewarded the company with a
15-month contract extension worth more than $40 million,
according to Artery records obtained by the Herald.
By the March 1999 end of the contract, its price had
mushroomed from $76.8 million to $155 million.
Records obtained by the Herald show that of the $43.3 million
in change orders granted through June of 1998, more than
$40 million - 93 percent - were for Subaru Pier. The most
recent records are not yet available.
Adding to the price tag of Modern's contract were sweetheart
``cost-plus'' amendments and special pet projects, none of
which were subjected to the rigors of the marketplace.
For example, Modern closed and capped Boston's Gardner
Street landfill in West Roxbury under a no-bid amendment
attached to the Subaru Pier pact.
Through June of 1998, Central Artery officials had paid Modern
$12 million on the job and the capping had not even been
done yet, records indicate. The city's own cost estimate was
about $7 million, officials said at the time.
The project had little to do with the Central Artery, but it made
for good politics. Mayor Thomas M. Menino got a landfill
capped with a park put on top. Kerasiotes scored points with
Menino, sticking the Big Dig with the tab.
Marino, the owner of Modern Continental, also knew how to
play politics on the Big Dig. He regularly corralled his many
subcontractors to attend politicians' fund-raisers, converting
his business leverage into political muscle.
Marino has been an avid fund-raiser for both Gov. William F.
Weld and his successor, Paul Cellucci. Kerasiotes, who has
been the Big Dig's overseer since Weld's first term, serves at
the pleasure of the governor and his turnpike board
appointees. Marino has also organized lucrative fund-raising
events for Menino.
It has been a recipe for success. In the 1980s, Modern was a
relatively small, strictly local contractor.
Powered by more than $2 billion in Artery and MBTA jobs,
Modern now has offices in New York, South Carolina, California
and Brazil. Marino has also launched a restaurant chain, built a
luxury marina and started a health care firm.
Quarry Hills bonanza
At the other end of the Artery's dirt pipeline is Quarry Hills in
Quincy, where as much as 10 million tons of Big Dig fill is being
dumped to make a golf course and sports complex.
And every truckload of dirt going into Quarry Hills brings
former Quincy Mayor Walter J. Hannon II and his partners
closer to making a private fortune developing public land with
public money.
Here's how it happened: In 1993, a group of developers that
included Hannon, his son, landfill operator Charles Geilich, and
developers William and Peter O'Connell, the latter a candidate
for Quincy mayor in 1989, struck a deal with the city of
Quincy.
The city agreed to give the group exclusive rights to the city's
176-acre landfill in a part of West Quincy called Quarry Hills.
The group, dubbed Quarry Hills Associates, then began
lobbying state officials to make Quarry Hills the Central
Artery's exclusive dump - for a fee.
After Quarry Hills Associates brought in lawyer and lobbyist
Robert Cordy, Gov. Weld's former chief legal counsel and later
a key adviser to Gov. Cellucci, a pact was signed in 1997.
Under the terms of the no-bid deal, the Artery paid Hannon's
group about $12 for every ton of dirt dumped, thereby
bankrolling the building of the entire complex for Quarry Hills
Associates - a firm with no track record, no assets and
virtually no capital at the time the pact was made.
Of course, the group did have a heavy dose of political juice. In
addition to Hannon being a former mayor close to top
Republicans, during much of the time he was trying to line up
the deal, he was on the Massport payroll.
The bottom line of the Quarry Hills deal is this: It will cost the
developers virtually nothing to build the sports complex, and
they will collect tens of millions of dollars free and clear over
the next 50 years.
State officials even threw in a sweetener later in 1997. Quarry
Hills Associates hoped to add an abutting 50-acre landfill in
Milton to the project, giving them more space to take in dirt,
which meant more Artery money.
In mid-1997, when procedural hurdles were jeopardizing the
Milton deal, the Metropolitan District Commission came to the
rescue.
The MDC's commissioners voted to license about 25 acres of
public land to Hannon's group for free for 10 years, giving the
developers added dump capacity and millions more in Artery
revenues.
A Herald request for MDC records regarding Quarry Hills
produced no minutes of the July 10, 1997 meeting, no record
of any debate, no public notices, no evidence of hearings, no
memos, no phone messages and no internal evaluation before
making that deal.
In the MDC files, only one document related to Quarry Hills is
dated prior to the vote. It was a Department of Environmental
Protection memo concluding agency staff should meet MDC
and Artery officials ``as soon as possible . . . to expedite the
permitting process necessary to commence the deposition of
excavate.''
Artery officials defend the deal, saying it saved as much as
$30 million over dumping at other sites. And, they say, it gave
the project a guaranteed dump site at a locked-in price - a
major benefit as other landfills are closed down.
That's not the end of the Quarry Hills story, however.
In 1998, Artery officials estimated they had about 400,000
tons of contaminated dirt on their hands that had to go into a
special type of landfill, one with an impermeable lining.
Quarry Hills seemed an unlikely place to look, given that no
such landfill existed there and Hannon's group wasn't prepared
to pay the estimated $1 million cost of building one.
So what did the Artery managers do?
They gave the developers the money.
Before a single truckful of contaminated dirt rumbled through
Quarry Hills' gates, Big Dig officials paid Hannon's firm millions
for the right to dump there. In essence, the Artery ``pre-paid''
the fees to dump the contaminated dirt - which amounted to
more than $6 million, sources said.
That left Quarry Hills Associates with an estimated $5 million
surplus.
Now it's 2000 and that special landfill the Artery paid for
several times over is mostly empty. Officials who spoke on
condition of anonymity say it will probably never be used for
much additional contaminated Artery dirt.
Meanwhile, Hannon, the former Quincy mayor, and his
partners are seeking permission from state officials to market
the idle site to private companies. They sold the landfill once to
the Big Dig for big money. Now, apparently, they want
permission to sell it again.