The California High Speed Rail Authority has posted the first construction contract, as well as the bid package from eventual winner Tutor Perini + Parsons + Zachry.
There are literally thousands of pages of information, but we noticed a few things.
The Tutor JV failed to initially include financial information that would have highlighted Tutor’s financial woes, Parsons had to provide a guarantee for the project and Curt Pringle is again working for Parsons, helping them secure transportation projects throughout the state.
The only substantial missing documentation in the entire Tutor / Zachry/ Parsons bid package? The financial disclosures regarding material changes to the firm’s financial positions.
We raised a big fuss about the fact that Tutor Perini’s financial position went downhill during the procurement process. The proposal process required all members of the bidding team to include either :
1) a “No Material Change Certification – The Proposal shall include a statement from the Chief Financial Officer or Treasurer of the Proposer stating that there has not been a Material Change, and none are anticipated…”
2) a Material Change Disclosure – “If there has been, or there is anticipated to be, a Material Change in the financial condition, corporate form, market capitalization, or potential liabilities of the Proposer, or in the event the Proposer is a joint venture or LLC then the joint venture member or LLC member, or to any Guarantor since the SOQ submission, then the Chief Financial Officer or Treasurer of the affected entity must provide:
– Statement describing each Material Change in detail,
– The likelihood that the Material Change will continue during the period of performance of Project development, and
– The projected full extent of the changes likely to be experienced in the periods ahead.
Reference to financial statements or notes to financial statements is not sufficient for purposes of meeting this requirement.
In addition, the Chief Financial Officer or Treasurer of the affected entity must provide an estimate of impact on the revenues, expenses and the change in capital structure (debt and equity) for each Material Change. Where a Material Change will have a negative impact on the financial condition of the affected entity, then the Proposal must include a discussion of the measures that would be undertaken to insulate the Project from any recent or
anticipated Material Changes”
Along with the financial change information, any credit rating changes were to be included.
“Material Change” was a defined term in the the same document:
Material Change – Any material changes in financial condition, corporate form, market
capitalization, or potential liabilities that may affect an entity’s ability to complete the
Project for any entity for which financial statements are provided in the Proposal.
As we pointed out, Tutor Perini experienced several of the red flags listed as examples of material changes. As the Authority has pointed out, just having one of these occur does not mean that a firm would not have the financial capacity to complete the project. As part of the proposal process, the contractor would have had the chance to make the case that these were one-off events or not as serious as they might look.
Proposals were due January 18, 2013. On January 31, 2013, the Authority sent the Tutor JV a letter: your financial disclosure information is missing. You have two days to make this right.
Clearly the Authority knew something was amiss with Tutor Perini. They asked Parsons and Zachry to certify that they had had not financial changes. They did not ask Tutor Perini to do the same thing.
They did ask both Parsons and Tutor Perini to submit any recent rating agency actions or certify they didn’t have any.
Unless there is a document missing from the bid package posted online, Tutor Perini neither certified that they hadn’t had a material change nor had to submit an explanation/ excuse / whatever for the material changes they did have. They left these out of the bid package and the Authority never asked.
In fact, Parsons turns out to have been a guarantor for the whole JV. Ron Tutor made a big show about how financially sound his company is. Typically it is the well-capitalized construction firm that will take financial responsibility for the project. In this case, it is the engineering firm with only 25% ownership of the JV that is guaranteeing the construction firm. It is also extraordinary that this fact was not brought to light at the highly charged board meeting where Tutor’s financial capacity was the topic de jour. The credit rating reports eventually submitted by Tutor Perini highlight the “thin cushion” the companyhas against “unexpected shocks.”
On February 7, Parsons decided to walk back a little from a certification that they had made in the original bid packet about lobbying. It turns out there was a familiar name helping them with California transportation projects: Curt Pringle. (see the last page of the proposal clarification document)