L.A.'s Light-Rail Fiasco

Rick Thorpe thought he found a way to cut costs and eliminate risk. Then reality hit.

December 2, 2010

Over the last year, a series of train bridges has risen at La Brea Avenue, La Cienega Boulevard and the corner of Venice and Robertson boulevards. They're all part of the Expo Line, the first train to the traffic-choked Westside since the days of the Pacific Electric.

They're also a symbol of everything that can go wrong on a massive public works project. The Expo Line is a staggering $260 million over budget — 40 percent above the initial price — and it may open as much as two years behind schedule.

The reasons behind the fiasco are as numerous as they are complex. But at its core, it's a simple story: Somebody had a clever new idea, and it backfired.

In this case, that somebody is Rick Thorpe, CEO of the Exposition Metro Line Construction Authority and one of the leading lights in light rail. He sold elected officials on a new type of contract, which he said would bring the project in cheaper and faster than it could be done by traditional means.

Colleagues from other transit agencies warned that the idea might not work. In the name of holding down costs, it could inadvertently create incentives that would drive costs up. But Thorpe pressed ahead anyway, and the elected officials charged with overseeing the line put their faith in his expertise.

Now, four years into the project, the results are plain.

"It just doesn't work," says Dan Peterson, an arbitrator with 50 years of experience in public works projects. "They're trying to save 20 cents and it's costing them $20 million."

The project is limping to the finish line at an especially inopportune moment. Just as L.A. transit planners are lobbying Washington for money to build a dozen projects over the next decade, the Expo Line has become an embarrassing public failure.

Rick Thorpe has ruddy cheeks and white hair. He is smart, with a disarming manner that can leave you convinced that he knows exactly what he is talking about, and that you would, too, if you could keep up.

According to his detractors, his intelligence can verge on hubris. "It's a terrible burden to be the smartest guy in the room," jokes one contractor, who asked not to be identified in order to avoid jeopardizing job opportunities for his firm.

As CEO of the Expo Authority, Thorpe oversees a staff of 15 and earns a salary of $334,000. He makes more than the CEO of the Metropolitan Transportation Authority, who is responsible for 8,000 employees.

Such are the prerogatives of a star.

Thorpe was there at the beginning of the rail-line boom. In the late 1970s, when most cities were still thinking in terms of freeways and subways, Thorpe helped build the San Diego Trolley — the first latter-day light-rail line in the country.

The best thing about it was the price. It was so cheap that other cities started to see light rail as the perfect answer for tightening budgets.

From there, Thorpe went to Salt Lake City, where he built the TRAX system in time for the 2002 Winter Olympics.

When he came to Los Angeles, he had been building such projects longer than anybody — always on time and on budget — and he brought a reputation as the best light-rail builder in the country.

It was a dark hour for public transit in L.A. In the face of spiraling costs and crushing debt, the MTA had halted construction on two subways and a light-rail line to Pasadena. The voters made it official in 1998, passing a measure that put an end to subway construction, seemingly forever.

But over the next decade, Thorpe helped L.A. believe in rail again. As CEO of a small agency tasked with building the Gold Line to Pasadena, Thorpe succeeded where the MTA had failed, completing it on time and on budget in 2003.

Hired away by the MTA, he completed two more projects under budget: the Orange Line busway in the San Fernando Valley and the Gold Line extension to the Eastside.

"He's done three projects for the MTA, which have been nothing short of outstanding," says Supervisor Zev Yaroslavsky, who authored the 1998 anti-subway measure. "I remember the '90s when we had construction managers that couldn't find a pot to piss in. ... [They] weren't up to his class."

In 2008, voters demonstrated their restored confidence in the MTA by passing Measure R, a half-cent sales tax that will fund a dozen projects, including the Wilshire subway.

When the Legislature set up a special agency to build the Expo Line to Culver City, Thorpe was recruited to be its CEO. He kept his MTA job, splitting his time between the MTA and Expo. He also splits time between L.A. and Park City, Utah, where his family lives and where he returns every weekend. According to his calendars, he tends not to have meetings on Monday mornings — apparently due to the commute.

To understand how Thorpe screwed up the Expo Line, you have to understand how public works projects manage risk.

Traditionally, transit projects have been built using a method called "design-bid-build."

Imagine you're building a house. You hire an architect to draw up the design. Then you submit those plans to builders, who give you a bid. You pick the lowest one, and the chosen contractor starts to build. Design, bid, build.

The advantage is that you control the design. You want Craftsman-style light fixtures? You got it. Beveled mirrors in the guest bathroom? Done. The downside is that you run the risk that those items could inflate the bids. The architect doesn't care. He's working for you. As long as you're paying his fee, his incentive is to make you happy — not necessarily to keep the cost down.

And that's where design-build is different. In design-build, you ask for bids from builders up front. You pick the lowest one. Then the builder hires an architect.

Now the builder owns the risk. If his cost goes over the bid, he eats the loss. But if the cost stays under the bid, he pockets the difference.

The builder has every incentive to finish the job on time and on budget. You have given up some control. You might not get those beveled mirrors. But you probably are going to get a cheaper house, built faster. Because the architect and the builder are working together early in the design process, there's less chance for misunderstandings. Moreover, because the architect is working for the builder, he has to make the builder happy, which means delivering a cost-efficient design.

In a time of ever-shrinking public budgets, design-build has become the preferred means of constructing a transit project. Cost overruns occur less often. When Thorpe built the Pasadena, Eastside and Orange Line projects, he used design-build.

The MTA liked design-build, but Thorpe believed it had one big drawback: When builders bid on a project, they included a sizable cushion to compensate them for accepting the risk of cost overruns. That meant the builder could wind up with a windfall if costs stayed low.

On the Expo Line, Thorpe wanted to try something new. He tried to find a way to get the benefits of design-build — efficiency, timeliness, minimum risk — without handing the builder an undeserved payday. He came up with a hybrid model, which blended aspects of design-build with aspects of design-bid-build.

"He thought he was smart enough to find a new way to build a better mousetrap," says one employee of an Expo contractor.

Thorpe called his concept "negotiated design-build." It had two steps.

First, Thorpe would solicit bids from builders. The winner would be hired to design and build the line. So far, it's exactly like a design-build contract.

Here's where it differs. Though Thorpe wanted to negotiate a cost ceiling, or a "guaranteed maximum price," early in the process, the actual construction cost would be negotiated later, after the design was nearly complete. That's sort of how it works in a design-bid-build contract, only in that case there would be competition among multiple bidders. In Thorpe's scenario, there would be only one bidder — the contractor that had already been selected.

The advantage is that, as in a design-bid-build process, the design phase would resolve a lot of the unknowns and reduce the contractor's need to add a big cushion for uncertainty.

The disadvantage is that without other bidders, there isn't much pressure to hold down the cost. If the contractor demanded too much money, Expo reserved the right to put the construction work out to bid. But that would be a drastic step. In practice, it might not come to that.

Thorpe believed the advantages outweighed the drawbacks. As in design-build, the designers and the builder would be working together early in the process, which would lead to an efficient, cost-effective design. But by waiting to fix the final price, he also would limit the contractor's contingency.

The risk could be ironed out of the process.

On Oct. 18, 2004, a group of high-ranking transit officials from around the country were invited to MTA headquarters to discuss the contract innovation. They voiced an array of concerns.

Fred Ohene, from Las Vegas, suggested that a contractor could bid low in a deliberate effort to win the contract, then jack up the price at the final negotiation stage. At that point, there would be little MTA could do.

According to notes of the meeting, Thorpe acknowledged Ohene's concerns and said, "This was why MTA would like to get a guaranteed maximum price early on."

Veronique Hakim, of New York, suggested a guaranteed maximum would be difficult to get from a contractor.

Don Irwin, of Portland, echoed both of those concerns and worried that without a guaranteed maximum, "The agency could become 'locked in' and left with less flexibility to sever the contract and rebid the work."

Irwin and Hakim also questioned whether the MTA was doing enough up-front engineering. Irwin suggested that in a dense urban area, six to nine months of extra study beforehand would save a lot of grief in the end.

At the end of the day, Irwin left with a warning. Thorpe's approach was complex and was guaranteed to be challenged by the contractor, so the MTA needed to be sure it knew what it was doing.

Despite the warnings, Thorpe pressed ahead with the contract.

In February 2005, the MTA announced its plan to potential bidders. It was essentially unchanged from the version Thorpe had presented at the peer review meeting a few months before. When Thorpe presented the concept to the elected officials on the Expo board, they gave him the green light to solicit bids.

One of the bidders was Brutoco Engineering & Construction, a Fontana-based firm with a lot of experience on MTA projects. Mike Murphy, the company president, described the proposed Expo Line contract as "an awkward thing to work through."

"I have never seen one with that exact delivery method," he says. "It took us months to understand exactly what they were trying to get to. ... We weren't real comfortable with it."

Brutoco bid high, and didn't get the contract.

"When it got down to negotiations, we felt it was more risk than the other team did," Murphy explains.

The other team was Flatiron/Fluor/Parsons (FFP), a joint venture that won the contract in the spring of 2006. It bid $420 million, which represented about two-thirds of the project's total budget of $640 million.

The bid amount was called an allowance — essentially, it was an estimate — with the actual price to be determined through later negotiations.

The design work began that spring, with construction to start the following year. The line was scheduled to open in the summer of 2010.

That date has come and gone, and the project is still far from completion. Most of the things that could go wrong did, and most of that led back to that negotiated design-build contract.

For one thing, just as the outside experts had warned, Thorpe never got a guaranteed maximum price from FFP.

Thorpe said that was because FFP demanded too much of a cost cushion, or contingency, for accepting the full risk of the project.

The Expo Authority broke the contract into 20 "packages" and negotiated a price for each one as the need arose. Soon it became clear that the piecemeal negotiations would result in a much higher total price than the $420 million bid. So in late 2007, Thorpe prevailed on the MTA to boost the project's total budget from $640 million to $808 million. Part of that was due to the rising cost of materials, but it also was attributable to refinements in the design — the rail equivalent of beveled mirrors and Craftsman-style light fixtures.

Today, the FFP contract is worth about $585 million and it's projected to rise to $596 million by the time the project is complete.

How could that happen? Weren't the contractor and the designer working together to create a cost-effective design?

As it turns out, they were not. The tight link between designer and builder — the key to design-build — was broken.

FFP's first project manager was Ray Hughes, a Flatiron executive with extensive experience building bridges and highways. Several officials on both sides of the dispute described him as gruff and confrontational. When he saw something he didn't like, he wrote a letter. It was a way of documenting the issue for a future claim rather than resolving it.

Hughes is a construction guy, and his skill set didn't match the needs of the early phase of the project, which required someone to oversee the design work.

"The designer and the design group was basically doing design with limited supervision from the project manager," says Eric Olson, Expo's chief project officer. "The designers were given free rein to go and design whatever they saw fit."

On a more traditional project, that would have been FFP's problem. A standard design-build contract would have had a fixed construction price, giving Hughes a powerful incentive to whip the designers into shape to hit that price.

But here, the construction price hadn't been negotiated yet, so there was no incentive. It was still Expo's problem. Hughes seemed to have figured that out. In the words of a colleague, Hughes "was playing the contract well. He was saying, 'We're going to bury the [Expo Authority] on this. They don't know what they're doing.' "

Asked to comment, Hughes responds with a statement from FFP that called him a "very capable project manager."

The Expo Authority maintains that FFP's lack of design oversight is the primary reason for the delays.

Thorpe and his colleagues at Expo saw the issue as a personnel problem, and not as a flaw in the contract. Either way, they were powerless to solve it.

"We don't have the ability to fire him because he doesn't work for us," Thorpe says in an extensive interview with L.A. Weekly. "We can express our opinions."

By 2008, Thorpe had expressed his opinion enough that Tom Rademacher, the president of Flatiron, flew out from the company headquarters in Colorado to replace Hughes and the chief designer from Parsons, Tom Wilson.

By then, other factors were contributing to the delays, and personality conflicts had taken their toll.

The Expo Authority had leased space on the 34th floor of the AON tower downtown, sharing the floor with FFP, an arrangement that was intended to facilitate communication.

From the early going, that didn't seem to work. Whenever either side had something important to say, they put it in a letter.

"I never witnessed any screaming," Olson says. "There were times when it was tense."

Both sides agree that the first two years were critical, and that once deadlines started to slip it was almost impossible to recover. FFP declined to make officials available for on-the-record interviews, but in a statement, the company says the project was "challenging from the very beginning."

In background interviews, some FFP officials blame Thorpe's absence from the Expo Authority — for the first three years, he was still working half-time at the MTA — for some of the delays.

"Rick is a classic micromanager," says one FFP official. "Everybody there is scared to make decisions."

Thorpe rejects both criticisms, saying his subordinates were empowered to make decisions on their own.

In its statement, FFP also blames inadequate preliminary design — another point Portland engineer Don Irwin had raised back at the peer review meeting.

"There was also a lack of agreement between a number of third parties ... and the [Expo] Authority as to what the final product should be," FFP says in the statement. "Therefore, the design was constantly being revised due to the differing views of the authority and these third parties."

A major example of that arose from community opposition to running trains at-grade past two high schools, Dorsey and Foshay Learning Center. FFP received numerous notices to stop and start work on the crossing at Farmdale Avenue, adjacent to Dorsey High. In August 2007, the designers were told to plan for a sound wall along the Dorsey High baseball field. In November, Expo issued a stop-work order on the wall. In January, Expo told the designers to start work again. In March, the work was suspended again.

It went on like that for another two years, while a community group called Fix Expo protested Expo's plans before the California Public Utilities Commission. The CPUC, which has authority over street crossings, held off on approving the Farmdale crossing until June 2010. Expo's solution is a new station at Farmdale Avenue, along with other safety enhancements that will cost an extra $30 million.

FFP officials grumbled that Expo should have had the approvals in hand before construction started.

Another obstacle was the L.A. Department of Water and Power. Before the rail line could be built, power lines would have to be moved out of the way.

This is a basic requirement of any urban rail project, and an obvious source of potential delays because neither the Expo Authority nor FFP could control DWP's schedule.

Beginning in 2007, Expo held meetings every other week with DWP staff to coordinate the relocation of power lines. Throughout that year, as DWP showed no signs of progress, there were increasingly urgent messages pleading with the DWP to get to work. The utility coordinator began bringing brownies to the meetings in an effort to win over DWP staffers.

DWP's focus at the time was on opening downtown's L.A. Live entertainment complex. Thorpe ultimately persuaded Mayor Antonio Villaraigosa's office to intervene. When the DWP got around to burying its power lines at La Cienega Boulevard, it was a year behind schedule.

This issue, too, was exacerbated by the negotiated design-build contract. Though the DWP was the obvious culprit, the key question as far as the contract was concerned was who would end up bearing the cost of the delay, Expo or FFP.

Expo argued that the contractor had accepted the risk of delay when it negotiated the individual contract packages.

But FFP argued that because Expo had routinely rejected its requests for risk premiums, FFP had never accepted that risk.

The disagreement was astonishing. The fundamental purpose of Thorpe's innovative contract was to get the contractor to accept the risk without padding its bid. Now the contractor was arguing that it never accepted the risk.

If FFP's interpretation was correct, the Expo Authority really didn't have a design-build contract at all. Some officials said it functioned in reality like a "cost-plus" contract, a basic arrangement familiar to anyone who has had a car repaired. The owner reimburses the repair shop for its costs plus its profit, and the owner keeps all the risk. If you've ever gone in for an oil change and walked out with a $1,500 transmission bill, you know how that can go wrong.

Expo wanted "a cost-plus contract without it really being cost-plus," says Peterson, the public works arbitrator. "Now they're out in the middle of L.A. and they're at the mercy of the utilities. They got no push, no control."

Hughes was forced out in early 2008. The new project manager, Bob Schraeder, was more cooperative than Hughes, but problems lingered. In 2008, FFP adjusted its schedule to reflect the DWP delays. Expo officials felt blindsided. The project had appeared to be on time, and now all of a sudden it was nine months late.

The Expo Authority had already threatened to use its nuclear option under the contract: taking the construction work away from FFP and bidding it out to other firms. That was Expo's only leverage, but bringing in a new contractor would have put the project even further behind and led to even greater costs in the hand-off to a new contractor.

Under the contract, Expo couldn't use its leverage to keep costs down without driving costs up.

Ultimately, only a small portion of the project — the quarter-mile bridge at Venice and Robertson — was given to a different firm.

In early 2009, Schraeder became ill and was hospitalized. In the fall, a third project manager was appointed: William Jensen, a man with a reputation for closing out troubled projects. Contractors say it is depressing work that requires finishing the job as fast as possible while simultaneously documenting every disagreement in preparation for a claim against the owner.

Expo officials credit Jensen for finally dedicating enough manpower to the project.

"When he got in here, they started making major changes," Olson says. "They started staffing up."

The two sides now are engaged in a highly adversarial claims process. FFP submitted a claim for the DWP delays in 2009. The first request went to an arbitration hearing last spring. In May, the three-member Dispute Review Board provided for under the contract ruled unanimously that Expo was responsible for the delays because risk had never shifted to the contractor.

Expo was on the hook for $20 million. Its innovative contract hadn't worked.

Thorpe, who believes the board had misinterpreted the contract, responded by dissolving the panel before it could hear two more claims. FFP's alternatives now are to settle the dispute or file a lawsuit.

"I think Rick is doing the very best he can do with what he's got," says Peterson, who served on the Dispute Review Board. "He is trying and he might be getting some bad advice from some of his consultants. He's got a political problem. He's got a project that's going to cost probably twice what the bid was. He's just doing the very best he can do."

Peterson says he believed the contracting method was primarily to blame.

"It's no good for anybody," he says. "I feel sorry for them. It's a real untenable situation."

Thorpe reports to a seven-member board established by the Legislature to oversee the project. It consists of two county supervisors, Yaroslavsky and Mark Ridley-Thomas; three L.A. council members, Herb Wesson, Bernard Parks and Jan Perry; Culver City Councilman Scott Malsin; and Santa Monica Councilwoman Pam O'Connor.

It appears that none of them has a full grasp of what went wrong on the project. There have been no investigations. Due to budget cuts, the MTA has even stopped providing audits of Expo's books.

At each meeting, the board approves a handful of change orders that boosts the project's cost, usually by unanimous consent and usually without asking questions.

Instead of pursuing what went wrong on the project, Parks has been pursuing its fiercest critic. In August, he engaged in a smear campaign against Damien Goodmon, the activist who heads Fix Expo and who has been calling for Thorpe to be fired.

At the August board meeting, Goodmon alleged that Parks had stepped down from the MTA board after an internal investigation found he had accepted illegal contributions from MTA contractors. Public records show Parks did indeed accept such contributions during his 2008 supervisorial campaign against Ridley-Thomas, but the MTA has refused to release the report. At the meeting, Parks denied that was the reason he stepped down, and said the complaints against him had been dismissed.

But his subsequent behavior suggested he was taking it more seriously. A few days later, Parks and Perry wrote to Sheriff Lee Baca asking for extra security at Expo meetings because Goodmon had been arrested for domestic abuse. (Goodmon, who has been absent from Expo meetings since those allegations were raised, did not return calls seeking comment.)

Jail records show that Goodmon was arrested, but he was never charged. It's hard to see Parks' letter as anything other than a smear against a vocal critic.

Ridley-Thomas has been the only board member to call for greater scrutiny of the Expo Authority. He has cited the project's rising cost as a source of concern, and called for an Expo inspector general. Although the councilman appears to be no fan of Thorpe, the inspector general idea seems to be just as much about going after his old rival Parks for accepting those campaign contributions. In any case, the proposal got watered down, with the board ultimately agreeing to reaffirm the authority of the MTA inspector general to look into anything if the need arises.

Thorpe, who didn't get this far without cultivating some political skills, has been untouched by all of this. He still has the confidence of the board.

"I know he has some critics, and I violently disagree with those critics," Yaroslavsky says. "I'm a big believer in him. There were issues on this project that were beyond his control."

Yaroslavsky accuses FFP of engaging in a "lobbying campaign" to undermine Thorpe with the board.

"It hasn't worked," he says.

The Expo Line now is scheduled to open sometime next summer, but it won't go all the way to Culver City because the Venice/Robertson bridge won't be finished until November 2011. The Farmdale station won't be ready either. That station might have to be built at night because trains run during the day, or to save those costs Expo might hold off on opening the entire line until 2012.

The project budget now sits at $899 million and is projected to go to $911 million. Expo officials are engaged in aggressive cost-cutting maneuvers to try to keep it from going any higher. To pay for the settlement with FFP — which sources on both sides expect will be in the $25 million to $30 million range — Expo might hold off on buying new trains until 2014.

The plan would be to use old trains and defer the expenditure of $47 million to Expo Phase 2. The second phase is scheduled to bring rail to the beach in Santa Monica by 2015 — 140 years after that feat was first accomplished with the Los Angeles and Independence steam train. Like other deadlines, however, that could turn out to be a moving target.

Thorpe maintains that the contract method was not to blame for the project's woes. The cost escalation, he said, was primarily due to higher materials costs and elements that were added to the project late. Those costs would not have been any lower with a more traditional design-build approach, he argues.

"I call this the perfect storm," he says. "I've been in this business 35 years. I've delivered 10 light-rail projects, all on time and under budget. This one has been a tough one, and it's been a tough one for a whole lot of reasons... It's probably been the most stressful time in my career."

Expo is not using "negotiated design-build" on Phase 2. Instead, it will go back to plain-vanilla design-build. The MTA is not planning to use Thorpe's innovative approach on any of the dozen projects funded by Measure R.

Thorpe, meanwhile, plans to stay on to build the Expo extension to Santa Monica.

"My contract was supposed to be over," he says. "I've never had this happen to me before. I want to go out on a high note."