Changing the bid process: abuse of power and a bad idea

How is the California High Speed Rail Authority different from other agencies like Caltrans?

It has a lot, lot more power. The Authority can move highways, build a railroad, move utilities, exercise eminent domain, enter into design-build contracts, issue debt and pretty much do whatever it wants with virtually none of the limitations that other agencies have. This was by design. Developing an 800 mile high speed rail system was not going to be easy. The agency had to have a lot of power, without all the usual bureaucratic constraints. Details on the Authority and their power can be found here.

What are some checks and balances on the Authority’s power?

The most important one is that the Authority is very, very specifically defined as the nine member appointed Board who must do all their deliberations and decision-making in public. It is not the agency head, it is not the chairman of the board, it is not the Governor. All the powers that are given to the Authority stay with the nine member Authority.

What is the power of the CEO?

By law, the CEO (formerly the Executive Director) of the Authority can only do four things:

1) Recommend “exempt” employees (the highly paid ones) to the Governor

2) Fire those “exempt” employees

3) Do what the board tells him/her to do, specifically “to administer the affairs of the authority as directed by the authority”. The Board will give specific authorizations. This is the general delegation in place for most of the bidding process

4) Hire staff to help do what the board tells him/her to do, if the Board says so

What is the power of the Authority Board Chair?

By statute, the only power involves running the actual meeting. In 2010, new board policies also gave the Board chair the ability to create advisory committees and more power to control the agendas at public Board meetings (Policies and Procedures as of Feb 2012). Any delegation of Authority power to a committee still has to be made by the Board.

Was the CEO authorized to make changes to the RFP bidding process?

No. The Board did not authorize an RFP with the bidding process that was eventually used to select a bidder. In public statements, CEO Jeff Morales said he did it to try and save hundreds of millions of dollars for California. Best practices for design-build are clear – technical scores need to be heavily weighted.

The original bidding process was the result of at least a years work by Jeff Morales’s former employer, Parsons Brinckerhoff, and was reviewed by a multitude of consultants and agencies.  Either PB left hundreds of millions of dollars on the table and their contract should not have just been renewed at the May 2013 board meeting or Mr. Morales was rolling the dice with taxpayer money, trying to lower the upfront sticker price but costing more in the long-run.

Either way, the lack of understanding by Mr. Morales of the basic rules of the road at the Authority is disturbing.

Could Authority Board chair Dan Richard delegate the rights he was given by the board to Mike Rossi?

No. In March 2012, the Board approved the basic term sheet for the contract that would govern Construction Package #1. The CEO was authorized to make non-substantive changes to these terms, in consultation with the Board Chair. Because the Board Chair has the power to set meeting agendas, this provided an important check of the CEO’s determination of “non-substantive”.  If the Board Chair thought they were actually substantive, he could bring it to the full board.

Unfortunately,the Board Chair had a conflict of interest with one of the bidding teams and could not participate in the RFP discussions. According to Mr. Richard, he delegated his responsibility to Mike Rossi. He said he chose Mr. Rossi because Mr. Rossi was the head of the finance committee. This is a problem for two reasons. First, Mr. Richard had no rights to delegate this responsibility (which makes sense as no other board member can put an item on the agenda – a rule dating back from disputes between former board chair Curt Pringle and Judge Quentin Kopp). Second, it is the executive/ administrative committee that has responsibility for procurement. They are in charge of spending money while the finance committee is in charge of bond issuance and getting the money.

All of this occurred outside of board meetings and outside of the public eye. Every single one of our Public Records Act requests to understand what happened have been stymied.

The law is very, very clear. Anytime the word Authority appears in any document, it means the 9 member board – not the CEO, not the Chairman. Agencies like Caltrans are not Authorities and work differently. The head of Caltrans can operate more freely, but within a very small box that the Legislature has defined.  If the Authority wants to be an agency, it must accept a lot more legislatively defined limits on its power. In the meantime, it should follow the law and its own policies.

 Bottom line: Either the Authority is ignorant of the fundamental democratic principles that govern their power, or they are abusing their power — neither of which is comforting.

Besides the disregard for the rule of law, what is the problem with changing the rules mid-way through the process?

There are two problems. First, a bidder with a very low technical score (68.5%) won the first construction project. This is a complicated project, with jacked-box construction and a myriad of coordination issues with dozens of agencies and utility providers. Every road that crosses Fresno will be impacted. This is only the first phase of project construction. There will be a trackwork contractor to install Amtrak-compatible systems, followed at some point by a high speed rail elements contractor who will install electrification, soundwalls, signaling and the stations. The selected contractor must account for all of this future work. It also means that there will be three different construction firms pointing fingers at each other if something doesn’t work as planned. No wonder no insurance company would underwrite a 7 year warranty.

Second, by the time the bidding change was made, part of the competition was already over.  The Authority used an innovative process called “Alternative Technical Concepts” (ATC).  Bidders had the opportunity to propose changes to the project. These might cut construction costs, or might raise costs, but ultimately significantly lower operating costs, improve safety, or decrease impacts to communities etc.  These improvements would be valuable and were encouraged by assuring “the ATC developer that it would benefit in the proposal process from its efforts.” [ Authority staff memo on bidding process June 2013]. ATCs could explicitly be used in the technical evaluation.

The Authority staff held two series of meetings with bidders in June 2012 to discuss ATC submittals. The final deadline for submission by bidders ended up being July 7, 2012.

By the time the bidding process was changed on August 22, a significant part of the technical evaluation was done. Authority staff like CEO Jeff Morales had to know which bidding teams were at least initially in the lead and which ones were at the back of the pack.

You can’t change the rules once the horses have left the gate.

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