- Big Dig Officials Failed to Obey Their Statutory Mandate
Big Dig officials failed to inform the State Legislature of the true cost of the Big Dig. The Legislature established a reporting requirement in 1997: "We believe this bill answers the challenge set forth by the Federal Highway Administration to implement a strategy for payment of the Commonwealth's share of future CA/T Project costs. . ." M.G.L. Chapter 3, Section 17 of the Acts of 1997 states:
The secretary of the executive office of transportation and construction and the chairman of the authority shall submit a report to the joint committee on transportation and the house and senate committees on ways and means. . . every six months. . . which shall include, but not be limited to, the status and schedule of the construction of the central artery tunnel project; an analysis of the commonwealth's ability to fund the state's share of the central artery tunnel project; the amount of federal funds available for the central artery tunnel project and the statewide program, so-called; the effect of this chapter in meeting the operation, administration and financial needs of such central artery tunnel project and statewide program; the financial status of the turnpike, including all revenues generated and the cost of maintenance and operation and any special legislation, recommendations or resources required to meet the needs of the metropolitan highway system, the turnpike and the statewide program.
Big Dig officials could not have prepared these mandated reports without B/PB's assistance. Therefore, Big Dig officials included these reports as a contract deliverable for B/PB under its contract with the Commonwealth. B/PB prepared the information in the semi-annual Finance Plans pursuant to the Legislative mandate.
- The Discovery of the Overrun
Big Dig officials have stated publicly that the discovery of the overrun in late 1999 resulted from a bottom-to-top review of costs and they were as shocked as the public by the discovery of a significant cost overrun. However, the evidence clearly shows that Big Dig officials knew about the overrun long-before the budget crisis of late 1999.
By early 1999 Big Dig officials knew that they faced a serious cash-flow crisis. When a new Project Director took charge in January 1999, B/PB officials immediately presented him with a highly confidential document entitled "Estimate Evolution Chart." In this document, B/PB detailed the history of its cost estimates. The earliest estimate described on the chart is one B/PB had presented to Big Dig officials in December 1994 for $13.25 billion, excluding change orders of more than 11 percent. Related documents explained that B/PB estimated that change orders in excess of 11 percent at that time would be $526 million. Thus, according to the Estimate Evolution Chart and back-up materials, B/PB demonstrated that it had presented an estimate of almost $13.8 billion in December 1994. Later, B/PB also presented to the Director a table of "key budget development assumptions" that had been imposed on them by Big Dig officials in 1995 for the CSU-Rev.6 budget. This table showed how the assumptions had been proven wrong and explained their net budget effect, which by 1999 had become more than $2.1 billion.
A June 1999 draft letter written by the Project Director to his predecessor, details his reaction to B/PB's briefings:
I can't tell you how disappointed I am. Many of the cost exposures go back to unrealistic assumptions made during the development of the Rev.6 Project Master Schedule of 1994. You had four years to work with the Chairman to find additional revenue sources or introduce reasonable options to reduce the scope of the project. That opportunity has now virtually been eliminated. I will continue to work to contain project costs but we have been left a tool bag10 that is virtually empty.
In another document, he details the adverse effects of the inaccurate accounting assumptions: "In summary, we are facing forward-looking challenges that could exceed $1.3 billion." He concludes: "I will continue to watch for my retirement date when I can leave the problems of the project to others as my predecessor did to me."
- Big Dig Cost Disclosure
Between 1995 and the beginning of 1999, B/PB and Big Dig officials followed a very consistent pattern in their financial reporting. Each month they reported overruns on bid results and likely increases in yet-to-be-awarded contracts in the Project Management Monthly (PMM) report. By 1999, for example, Big Dig officials had disclosed $1 billion in actual overruns and $750 million in likely over-runs. Month after month, the total cost figure stayed about the same at $10.8 billion in the PMM reports because Big Dig officials used disclosed offsets, like expected insurance rebates and estimated future savings from announced cost-savings initiatives, to balance the bottom line. The bottom line remained balanced at $10.8 billion even with the aforesaid billion-dollar increase in contracts.
Big Dig officials did not disclose in the PMM reports, however, that the accounting assumptions still underpinned all to-go contract costs. By 1999, these assumptions no longer had the $3 billion impact they had in 1995 because the accounting assumptions applied only to to-go contracts and by 1999 many contracts had already been completed or awarded. But by 1999, the effect of the accounting assumptions still added up to a huge sum. Interestingly, the cost offsets disclosed in the PMM reports did not conform to the accounting assumptions applied to to-go costs. For example, when adding right-of-way costs to the budget, Big Dig officials used the initial state payment (pro-tanto). But when taking a credit for the future sale of 185 Kneeland Street (state property), officials used a full market value estimate for Boston office space as provided by a real estate firm.
By 1999, the cumulative effect of these accounting assumptions - including excluded management costs and land-taking costs -- added up to nearly $2 billion in costs not shown in the PMM reports. In effect, the real baseline for costs starting in late 1994 had been $14 billion. The application of credits and offsets to increasing costs between 1995 and 1999 merely prevented costs from burgeoning beyond the $14 billion estimate.