ROAD BLOCKS TO COST RECOVERY

Key Findings and Recommendations
on the Big Dig Cost Recovery Process

A Report of the Senate Committee on Post Audit and Oversight

December 2004

Massachusetts Senate
The Honorable Robert E. Travaglini
Senate President

Senator Marc R. Pacheco, Chair
Senator Susan C. Fargo, Vice Chair
Senator Robert A. Havern III
Senator Brian A. Joyce
Senator Richard T. Moore
Senator Steven C. Panagiotakos
Senator Robert L. Hedlund

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Senate Post Audit & Oversight Committee

Senator Marc R. Pacheco, Chairman

It shall be the duty of the Senate Committee on Post Audit and Oversight (established under Section 63 of Chapter 3 of the General Laws) to oversee the development and implementation of legislative auditing programs conducted by the Legislative Post Audit and Oversight Bureau with particular emphasis on performance auditing. The Committee shall have the power to summon witnesses, administer oaths, take testimony and compel the production of books, papers, documents and other evidence in connection with any authorized examination or review. If the Committee shall deem special studies or investigations to be necessary, they may direct their legislative auditors to undertake such studies or investigations.

Senate Post Audit and Oversight Bureau

Jesse L. Stanesa, Director

Valerie K. Frias, former General Counsel; Principal Author and Investigator

The Committee would like to acknowledge the contributions from Senator Pacheco's office, including Mary Wasylyk, Chief of Staff; Amanda Nastasia, Communications Director; and Jessica Nordstrom, Policy Analyst.

The Committee would also like to acknowledge the assistance of the offices of Secretary of the Commonwealth William Galvin, State Auditor A. Joseph DeNucci, Attorney General Thomas Reilly, and Inspector General Gregory Sullivan; the Massachusetts Turnpike Authority; the Massachusetts Highway Department; Donovan Hatem LLP; and the Massachusetts Turnpike Authority Independent Cost Recovery Team.

EXECUTIVE SUMMARY

The Senate Post Audit & Oversight Committee (Committee) has concluded an extensive investigation into the Big Dig cost recovery process, which included two days of public hearings in March and April, 2003. The Committee has found that over the 20 year history of the Central Artery/Third Harbor Tunnel (CA/T) Project and up until this Committee’s public hearings, prior Big Dig cost recovery programs had seen well over 11,000 change orders with only $35,707 in cost recovery. None of this recovery came from the largest firm involved in this project, Bechtel/Parsons Brinckerhoff (B/PB).  The Committee’s report includes findings which identify obstacles to cost recovery and recommendations to improve recovery and accountability in the future.

In light of numerous well-documented reports about CA/T Project cost overruns, errors and omissions by other state officers, the Committee focused its investigation on cost recovery. In the course of its investigation, the Committee conducted more than 100 interviews, reviewed Big Dig financial and accounting information, and held two days of public hearings, in which the Committee took sworn testimony from a variety of state officials, including the executive branch, the state’s constitutional office holders, the Massachusetts Turnpike Authority (MTA), and Bechtel/Parsons Brinckerhoff.  The Committee reviewed past cost recovery efforts and received testimony from current MTA Chairman Matthew Amorello regarding the MTA’s newly created Independent Cost Recovery Team.

For the past year, the Committee has reviewed obstacles to cost recovery, immediate strategies for recouping funds, and safeguards to ensure that the Commonwealth avoids repetition of past mistakes made in this area. The Committee focused on four critical areas as they relate to cost recovery:

·                    Integrated Project Organization

·                    Public Oversight of Current Cost Recovery Efforts

·                    Statutes of Limitation

·                    Owner-Controlled Professional Liability Wrap-up Program

Below are key findings and recommendations that identify ways to ensure public accountability and integrity not only with respect to the Big Dig, but also to future public works and construction projects.

Public Oversight of Current Cost Recovery Efforts

·                    Design and construction errors resulted in well over 11,000 change orders that substantially increased the cost and time of the CA/T Project.

·                    Up until this Committee’s hearings in 2003, cost recovery efforts on the CA/T Project had netted only $35,707.00.

·                    Bechtel/Parsons Brinckerhoff was rarely referred for cost recovery and until the Committee hearings, had not been held financially responsible for any of the 11,000 change orders, cost overruns or delays.

·                    Since its creation in 2003, the Independent Cost Recovery Team has secured $3.5 million in settlements, has filed a $149.5 million lawsuit against B/PB for financial mismanagement and has indicated its intent to file a $100 million lawsuit against B/PB for errors and omissions.

Integrated Project Organization

·                    In 1997, the CA/T Project adopted an integrated project organization (IPO), where state and private sector employees integrate with the goal of attaining a more seamless and cost effective organizational and management structure.

·                    The benefits of IPOs have been realized primarily in the private sector, and never on a public project that rivaled the CA/T Project in scope or cost.

·                    Public construction projects require a higher level of accountability, and certain safeguards are necessary to ensure efficient and responsible state government.

·                    No long-term planning or analysis of the legal, financial, or contractual obligations and/or consequences of an IPO as it related to the CA/T Project management was ever pursued.

·                    The resulting organizational scheme, intertwining the CA/T oversight function and private management function, resulted in a lack of cost recovery and accountability on the CA/T Project.

·                    B/PB employees may have been acting and/or continue to act essentially as state employees under the IPO.

·                    In stark contrast to the Big Dig, the MWRA's $4 billion Boston Harbor Clean-up Project, where final oversight authority was directed by a public management team, came in under budget, and handled cost recovery in an efficient and expeditious manner.

Statute of Limitations

·                    As the Big Dig has been underway for more than 20 years, several potential cost recovery actions against Bechtel/Parsons Brinckerhoff, sub-designers, and sub-contractors are now beyond the statutes of limitation for recovery of taxpayer money for mismanagement or other violations of law.

·                    Although lengthier statutes of limitation are allowed under law if the contracts are signed under seal, most public construction projects have not utilized this provision.

·                    If contracts related to the Big Dig had been required to be signed under seal pursuant to M.G.L. c. 260 sec. 1, the 20 year statute of limitations would be applicable.

Owner-Controlled Professional Liability Wrap-up Program

·                    Owner Controlled Insurance Policies (OCIPs) are insurance programs often utilized on large construction or public works projects. Generally, OCIPs allow the owner of a project (in this case, the CA/T Project) to save money through strategies such as negotiation of a better rate of insurance, selection of the insurance company or companies, the ability to manage risk more closely and the streamlining of claims administration.

·                    OCIPs are generally considered a cost savings measure and an efficient way to pay out valid claims. However, in the case of the CA/T Project, to date, approximately $10 million has been paid in premiums and not a cent has been paid out of the OCIP to cover a claim.  Further, additional costs have been incurred for legal fees and Program Management review fees.[1] Those fees have been paid directly by the Insureds since there is a $500,000 deductible on each claim before OCIP coverage is triggered.[2]

·                    There are no fewer than four lawsuits pending that implicate the OCIP program generally, its joint defense model, or a lack of coverage under the program. Such lawsuits could cost the Commonwealth and the Sub-Design Consultants (SDCs) millions of dollars to litigate.[3]

·                    The Committee concludes that the Professional Liability OCIP Wrap-Up Program has not benefited the Commonwealth and has hamstrung current cost recovery efforts.

·                    In the case of the CA/T Project Professional Liability OCIP Wrap-up Program, the owner, the CA/T Project itself, relinquished and/or lacked the proper and more typical "owner control" associated with closer administration of and involvement in such programs.

·                    The only named OCIP assigned joint defense counsel is also private counsel to Bechtel Corporation.

·                    The OCIP Manual requires all claims to be handled in accordance with a joint defense approach, but names only a single law firm as approved joint defense counsel. Under this program, the joint defense counsel has the responsibility to "investigate, defend, or otherwise protect the interests of all Named Insureds involved in any incident, circumstance, event or claim reported.”[4]

·                    The OCIP joint defense approach requires all Named Insureds to waive their rights to assert claims against other Named Insureds to the extent of the available coverage and to be represented jointly by the OCIP assigned counsel with other Named Insureds.

·                    The OCIP Program and its insurance companies owe the same duty of loyalty to all SDCs as they do to Bechtel/Parsons Brinckerhoff.

1.         As there has been in excess of $160 million in litigation filed by the Commonwealth against B/PB and SDCs, and months of fact-investigation on potential new claims, the Committee recommends that the Office of the Attorney General (AG) should henceforth take over all further cost recovery efforts.  Although the Committee had previously recommended an independent cost recovery panel, it is the opinion of the Committee that, as the direct result of the extensive time, resources, and costs incurred over the past year, a new commission would likely result in duplication of effort, as well as added time and expense to the Commonwealth’s cost recovery process.

Cost recovery efforts are currently divided between the MTA and the AG, which represents the Commonwealth in all negotiations. Considering the magnitude of the recovery and the resources of the private sector firms involved, the Commonwealth must be represented by one voice with the power necessary to act with authority, strength and independence.  It is the opinion of the Committee that the one voice on cost recovery should be the Office of the Attorney General of the Commonwealth.

This recommendation can be accomplished in one of the following two ways:

a.       Through an agreed upon Memorandum of Understanding (MOU) between the Office of the Attorney General and the MTA which effectuates the AG’s control over the cost recovery process.

b.      Through passage of legislation that effectuates the Office of the Attorney General’s control over the cost recovery process.

2.         Referral of the "special state employee" question, as it relates to B/PB and other CA/T contractors, to appropriate authorities for any necessary opinions and action, as this issue has not been thoroughly reviewed since the inception of the IPO.

3.         Referral of the IPO structure to appropriate authorities for review and possible action as it relates to the rights, responsibilities, and liability of the CA/T Project, Massachusetts Turnpike Authority (MTA), B/PB, any sub-contractor or the state under the work programs, common law principles or other applicable law.

4.         Amendment of M.G.L. c. 29, sec. 29A, the statute that requires public oversight of consultants, to include independent authorities, such as the MTA.

5.         Amendment of M.G.L. c. 260, sec. 1 to require that all public construction contracts valued at greater than $250,000 be signed under seal, subjecting them to a 20 year statute of limitations rather than the current three or six year periods.

6.         Referral of the OCIP Professional Liability Wrap-Up Program for review by the appropriate authorities, including the Attorney General, the Inspector General and the Division of Insurance, to assess whether the OCIP violates any law, regulation, professional standard or is otherwise in contravention of public policy.

7.         Filing of legislation by the Committee requiring future OCIPs on public construction projects valued at more than $10 million be reviewed and approved by the Office of the Attorney General, Inspector General and Division of Insurance to ensure that a) the policy is in the best interest of the Commonwealth; and b) joint defense programs are vetted for any real or perceived conflict of interest.

8.         Based on the Committee’s investigation, past reports or errors and omissions by constitutional officers, and recent admissions of culpability for breaches in the CA/T tunnel walls[5], Governor Romney’s Administration should use its statutory authority under M.G.L. c. 29, sec. 29F to initiate proceedings to debar Bechtel/Parsons Brinckerhoff from future state contracts. Under this provision, the Massachusetts Secretary of Transportation and Construction currently has the power to conduct a hearing to determine if substantial evidence exists to debar a vendor. The Secretary may consider for debarment any of the following acts:

(i) willfully supplying materially false information incident to obtaining or attempting to obtain or performing any public contract or subcontract; (ii) willful failure to comply with record-keeping and accounting requirements prescribed by law or regulation; (iii) a record of failure to perform or of unsatisfactory performance in accordance with the terms of one or more public contracts, provided that such failure to perform or unsatisfactory performance has occurred within a reasonable period of time preceding the determination to debar and provided further that such failure to perform or unsatisfactory performance was not caused by factors beyond the contractor's control; (iv) a record of health and safety or environmental violations of a sufficient frequency and severity so as to evidence a pattern of noncompliance with existing state and federal laws, or any rules and regulations applicable thereto; (v) any other cause affecting the responsibility of a contractor which the secretary or the commissioner determines to be of such serious and compelling nature as to warrant debarment.  

9.         The State Auditor and Inspector General shall, at their discretion, provide updates to the Legislature, including the Ways & Means committees, Post Audit and Oversight committees, and other appropriate legislative committees, about the compliance of state agencies with completed audits and recommendations.

The Central Artery/Third Harbor Tunnel Project (CA/T Project), more commonly known as the Big Dig, is one of the largest, most complex, and most expensive public works projects in the history of this country. The project was conceived to manage dramatic increases in traffic and link Boston's highway system.[6] Planning for the Big Dig first began in 1982 and federal funding and project scope was approved in 1987.[7]

The project was initially scheduled to be completed by 1998 at a price tag of $2.6 billion.[8] Adjustments for inflation, environmental mitigation, changes to the project's scope, accounting changes, and other variables, including mismanagement, waste and abuse, have increased the project's current estimated final cost to $14.6 billion.[9] It is now scheduled to be completed in the Fall of 2005. This project is funded largely through federal appropriation with significant financial support from the Commonwealth and the MTA.

The Big Dig was originally managed by the Massachusetts Highway Department (MHD), the state agency responsible for state highway construction and maintenance. In 1985, the joint venture of Bechtel Corporation and Parsons Brinkerhoff Quade & Douglas, Inc. (“Bechtel/Parsons Brinckerhoff”) began work on the project as a management consultant.[10] B/PB worked with MHD as a consultant until 1998 when the Integrated Project Organization (IPO) was established.[11] Since then, the CA/T Project has been owned and managed by the Massachusetts Turnpike Authority (MTA), and is part of the Metropolitan Highway System (MHS). Design and construction management consulting is still provided by B/PB as part of the IPO.

In order to ensure accountability, the Federal Highway Administration (FHWA) required that a cost recovery process be initiated as a condition of federal funding.[12]  In 1994, a Cost Recovery Committee was established under the direction of the CA/T Project Director.[13]  This Committee met infrequently through the 1990s and, by 2002, had produced only $35,707 in cost recoveries, despite more than 11,000 project change orders.

In October 2001, cost recovery responsibilities were shifted from the CA/T Project Director to the Massachusetts Turnpike Authority.[14]  In February 2003, Matthew Amorello, Chairman of the Massachusetts Turnpike Authority, established the Independent Cost Recovery Team and designated retired Judge Edward Ginsburg as the Chair.  The Team is mandated to review past and present errors, omissions and other legal claims associated with the project and to negotiate settlements or litigate cases in the best interests of the Commonwealth.[15]  Since its inception, the Team has made an effort to pursue cost recovery in a focused and aggressive manner. It has reviewed 748 cost recovery issues and has closed 69 (9%) issues as a result of settlement and 485 (65%) issues due to lack of merit or not meeting required recovery guidelines. The Team has recovered $3.5 million, has filed a $149.5 million suit against B/PB for its “failures in connection with its preparation of estimates of the Project’s costs”[16] and has its stated intent to file a $100 million lawsuit in connection with other project mismanagement.

Over the life of this project, the Commonwealth’s Auditor and Inspectors General have written more than 35 reports covering 12 years of investigation. These reports document the hundreds of millions, if not billions, of dollars in cost overruns, project mismanagement, and the more than 11,000 change orders that increased project costs.  

At over $14.6 billion, the Big Dig is among the most expensive public works projects in the history of the United States.  Until very recently, the Big Dig has been marred by a disturbing lack of accountability, casting doubt over the ability of private corporations to responsibly manage public contracts.  The Senate Post Audit & Oversight Committee used this investigation to identify past and current barriers to cost recovery and to recommend a strategy to restore the confidence of Massachusetts' citizens and return their hard earned tax dollars.

In March 2003, the Committee took its first critical step by beginning a very public dialogue into the many behind-the-scenes aspects of the Big Dig.  During two days of public hearings, the Committee made a pact with the taxpayers and residents of the Commonwealth to deconstruct and examine the many hidden facets of this project in the hope that one day future generations will look to this public works achievement with pride and a renewed confidence in their state government. The findings and, in particular, the recommendations of this Committee are the culmination of the promise made to the citizens on March 31, 2003.

During the Committee's investigation, testimony and further investigative efforts showed that design and construction errors resulted in over 11,000 change orders that substantially increased the cost and time of the CA/T Project.  Additionally, the joint venture of Bechtel/Parsons Brinckerhoff was rarely referred for CA/T Project cost recovery efforts.  To date, the joint venture has not been held financially responsible for cost recovery on any of the 11,000 change orders, cost overruns or delays associated therewith.

THE SENATE POST AUDIT & OVERSIGHT COMMITTEE INVESTIGATION, HEARINGS & METHODOLOGY

Termed "historic" by the Secretary of the Commonwealth and the Inspector General of the Commonwealth, the Senate Post Audit and Oversight Committee conducted the first legislative hearings of their kind in the 20 year history of the CA/T Project. The hearings, which took place on March 31, 2003 and April 2, 2003, focused on, among other things, mismanagement, design and construction errors, and cost recovery related to the CA/T Project.

Those who testified in person and/or provided written testimony included:

·                    Matthew J. Amorello, Chairman of the Massachusetts Turnpike Authority

·                    Kurt Dettman, former Chief Counsel CA/T Project

·                    Michael Powers, General Counsel, Massachusetts Turnpike Authority

·                    Michael Lewis, Project Director at the CA/T Project

·                    James Kerasiotes, former Massachusetts Turnpike Authority Chairman

·                    Peter Zuk, former CA/T Project official

·                    Patrick Moynihan, former CA/T Project official

·                    Gregory Sullivan, Inspector General of the Commonwealth

·                    William F. Galvin, Secretary of the Commonwealth

·                    A. Joseph DeNucci, Auditor of the Commonwealth

·                    Douglas Foy, Chief of Commonwealth Development

·                    Daniel A. Grabauskas, Secretary, Executive Office of Transportation and Construction

·                    Jeffrey Stearns, Deputy Treasurer, Office of the Treasurer of the Commonwealth Timothy Cahill

·                    William Edwards, Budget Director, Bechtel/Parsons Brinckerhoff

·                    Matthew Wiley, CA/T Project Director, Bechtel/Parsons Brinckerhoff

·                    Anthony Lancellotti, CA/T Project Engineering Manager

·                    Judge Edward Ginsburg, Massachusetts Turnpike Authority Independent Cost Recovery Team

·                    Richard Goldstein, Massachusetts Turnpike Authority Independent Cost Recovery Team

·                    William Horne, Massachusetts Turnpike Authority Independent Cost Recovery Team

·                    Deloitte & Touche LLP

·                    Abbie Goodman, American Council of Engineering Companies of Massachusetts

·                    Mary Richards, President, Massachusetts Organization of State Engineers and Scientists

At these hearings, the Committee heard testimony from the Commonwealth's Auditor, Inspector General, Secretary, representatives of the executive branch, and the Massachusetts Turnpike Authority, who all raised concerns regarding the previous cost recovery efforts of the CA/T Project. Those parties, in addition to Bechtel/Parsons Brinckerhoff, testified that a unified strategy, led by one individual group or panel with the necessary authority, resources, and integrity, would be able to oversee and manage expeditious and comprehensive cost recovery efforts on behalf of the Commonwealth, ensuring that the public interest remains at the forefront in all cost recovery efforts.

In the midst of those hearings, B/PB attempted to thwart the Committee's request of the MTA to review independent CA/T project audits spanning the years 1990-2001. These audits provided valuable insight into the billing practices of B/PB and the financial arrangements between B/PB and the CA/T Project. On April 3, 2003, B/PB filed a lawsuit seeking to prevent the MTA from providing the Committee with the audits, claiming a proprietary privilege. It was the position of the Committee that it was unnecessary to subpoena these documents, as they were audits done for a public agency in regards to a public works project of the Commonwealth. The Attorney General of the Commonwealth, representing the Committee, and the MTA aggressively and appropriately defended against B/PB’s lawsuit. The trial court agreed with the Committee and the MTA, halting B/PB’s efforts to derail the Committee's investigation. In an opinion dated April 10, 2003 Judge Alan van Gestel ruled that:

"[P]ublic interest [in releasing the DCAA audits] is immense. A Committee of the Legislative Branch is seeking the documents in its oversight capacity.... The CA/T Project, on which Bechtel and Parsons Brinckerhoff serve jointly as the Project Manager, is one of the largest public works projects ever undertaken. And the Project, jointly managed by Bechtel and Parsons Brinckerhoff, is publicly known - and judicially noted - to be billions of dollars over budget. These facts must be prominent in the mind of the Court." Judge van Gestel went further and posited that "[t]he DCAA Audits, now in the possession of the MTA and the MHD, are not secret ... and ...[i]ndeed, may already have reached public records status. More to the point... [i]n the case of the particular audits in question, they certainly are information submitted as ... a condition of receiving a governmental contract or other benefit. Thus, such a tender [of the DCAA audits to the Senate Post Audit & Oversight Committee] is not a violation of the law under any construction presented here.”[17] 

Based on this ruling, the Massachusetts Turnpike Authority immediately released the un-redacted audits to the Committee for review.

Subsequent to the Committee’s hearings, the Committee continued its investigation into Big Dig cost recovery issues. This investigation has included over 100 interviews, review of tens of thousands of pages of relevant documents, and several site visits to the CA/T Project. The Committee has identified four primary areas of concern related to cost recovery for this investigation:

·                    Integrated Project Organization

·                    Public Oversight of Current Cost Recovery Efforts

·                    Statutes of Limitation

·                    Owner-Controlled Professional Liability Wrap-up Program

In 1997, pursuant to M.G.L. c. 81A, the Metropolitan Highway System created the Massachusetts Turnpike Authority and designated it as the future owner and operator of the CA/T facilities. Additionally, under M.G.L. c. 81A, the Massachusetts Turnpike Authority took over day-to-day management of the CA/T Project from MHD. Prior to 1997, MHD, like all state agencies, was prohibited under M.G.L. c. 29, sec. 29A from allowing a private contractor, in this case Bechtel/Parsons Brinckerhoff, to supervise state employees assigned to manage and oversee the project. As noted by former Inspector General Robert Cerasoli, however, that statute applies to state agencies, such as MassHighway, but not to independent authorities, such as the Massachusetts Turnpike Authority.

Under the Integrated Project Organization, state employees were integrated with employees of Bechtel/Parsons Brinckerhoff with the goal of creating a more seamless project management structure. It was to be a "dynamic, flexible and harmonious whole [to enable state employees and B/PB employees to work together cooperatively, without duplication of efforts] … designed to match staff members' technical skills to jobs without regard for the organization paying their salaries."[18]

 At the time, benefits of an IPO had been realized primarily in the private sector and were largely untested in the public sector where different levels of review and safeguards are necessary and paramount to ensure efficiency and accountability in state government. In many cases, public projects face strict mandates under state law that are inapplicable and not analogous to the private companies.[19]  The only other non-defense industry public project of this magnitude found by the Committee that used an IPO structure was the Trans-Alaska Pipeline Project in the 1970s. According to the Independent Turnpike Cost Recovery Team, Peter DeMay, the Project Manager on the Pipeline Project, reported that it was a mistake to do an IPO on that project.[20] Additionally, the Department of Defense has abandoned its use of IPOs, calling them unworkable on public contracts with private sector partners, according to Attorney William Horne of the Independent Cost Recovery team.[21]

According to counsel for Bechtel Corporation, B/PB and the Commonwealth ultimately did prepare the IPO documents. Bechtel's counsel further stated that the Federal Highway Administration had expressed its initial reservations about converting the Big Dig project to an IPO model.[22]  Those concerns were based in large measure on M.G.L. c. 268A, which governs conflicts of interest for public employees. Of particular focus was the issue of when a private employee is deemed a "special state employee," thus subjecting that individual to the conflict of interest strictures and proscriptions outlined in M.G.L. c. 268A for special state employees. After receiving assurances that the integrity of the project would not be compromised, the FHWA granted its approval to the IPO structure.[23]

In response to a Committee request, the Massachusetts Turnpike Authority made a determination that, "B/PB itself is not a special state employee under chapter 268A, but individual Bechtel or Parsons employees may be special state employees. The determination whether a person is a special state employee is one that is made on an individual basis. For several years the project has consulted with the State Ethics Commission and outside counsel to receive guidance on this question, particularly as it may apply to certain designated employees and ‘seconded’ employees."[24]  This Committee remains convinced and agrees with former Inspector General Robert Cerasoli that "the resulting organizational scheme has the potential to be an accountability nightmare... [and that] intertwining the CA/T oversight function with private management function is an invitation to fraud, waste and abuse."[25]

Several additional concerns have been identified about public accountability under the IPO structure. Once the IPO was in place, B/PB was responsible for identifying the causes of project cost overruns and delays associated with its own work.[26] Subsequently, B/PB did not publicly accept responsibility for a substantial cost overrun on the project until November 2004.[27] In 2000, Inspector General Cerasoli reported the IPO’s financial arrangement lacked proper cost-savings or timetable incentives to ensure accountability to the taxpayers.[28] The IPO also created organizational schemes in which a MassPike project director was reporting to both the MTA and B/PB, which created “divided loyalties and conflicting interests.”[29] Indeed, it is the strong belief of this Committee that the IPO and B/PB’s oversight role has allowed cavalier attitudes to prevail when it came to protecting the public interest and the taxpayer's dollars. For example, although the Auditor, Inspector General and others raised concerns about the management structure in various reports over the years, the warnings and recommendations contained therein went largely unaddressed.

The Committee, however, has substantially larger concerns with the IPO's effects on project management and its impact on the cost recovery process. Although there was some specific discussion on the implications of provisions of M.G.L. c. 268A, dealing with special employees of the Commonwealth and conflicts of interest associated therewith for any designated special state employee, there was a remarkable lack of discussion or any legal agreements made between B/PB and the Commonwealth on the significant issues related to adopting an IPO on a public contract. Based upon the Committee’s investigation, it appears the following critical questions were never addressed:

·                    What effects will this have on public accountability of the parties?

·                    Will it affect the legal relationships between B/PB, the Massachusetts Turnpike Authority and the state?

·                    If so, how - who will assume professional and contractual liability for the varying aspects of the project?

·                    How will the work programs (the contracts of the Big Dig) be impacted by the IPO?

·                    Will they have to be amended to mirror the realities of the new organizational structure?

·                    If not, is it not the case that your contractual obligations are out of step with the professional liability standards of the organizational structure adopted?

·                    What does it mean when the B/PB is acting effectively as the state, and the state as B/PB under the IPO?

It is the understanding of the Committee that these questions were never appropriately addressed prior to or subsequent to adopting the IPO.[30]

The state paid substantial fees to B/PB based on its purported expertise in managing large public contracts and working on public-private partnerships. With that greater knowledge and expertise should have come greater responsibility. This Committee has neither received, nor found evidence that B/PB took steps to identify and address any of these issues on behalf of its client, the Commonwealth of Massachusetts.

Therefore, it is the conclusion of the Committee that because these larger liability issues were apparently never addressed, adverse behavioral issues ensued. As a direct consequence, there was an absence of the "arms length" transactional relationship that typifies a project owner/engineering consultant relationship. This resulted in a project that lacked adequate public oversight, putting cost recovery on a back burner in favor of state and B/PB employees ‘getting along to go along’ under the IPO, and B/PB's stunning lack of referral of itself to the cost recovery process. To date, B/PB has not been held financially responsible for any cost recovery on the over 11,000 change orders, cost overruns or delays associated with the project -- this while they acted as the project's engineering and design manager for nearly 20 years. Thus, the Committee recommends amending M.G.L. c. 29, sec. 29A to include independent authorities so that never again will a private consulting company police itself and have such control over a public project.

IPO FINDINGS

1.         The benefits of Integrated Project Organizations have been realized primarily in the private sector, and never on a public project that rivaled the CA/T project in scope or cost.

2.         Public construction projects require heightened scrutiny and certain safeguards to ensure efficient and accountable state government. Insufficient safeguards, or no such safeguards, were implemented on the CA/T Project.

3.         Based on interviews and a lack of documentary evidence to the contrary, the Committee concludes that no long-term planning and analysis of the legal, financial, contractual or ethical obligations and/or consequences of an IPO as it related to the CA/T Project management were ever pursued.

4.         The resulting organizational scheme, intertwining the public and private sector oversight functions, resulted in a lack of cost recovery on the CA/T Project.

5.         The IPO has had detrimental effects on the accountability of cost recovery efforts to the public by CA/T Project officials and administrators.

6.         The IPO has resulted in unclear and murky legal relationships between B/PB, MTA and the Commonwealth.

7.         There has been a serious lack of accounting or reconciling for the impact of the IPO on the work programs (contracts) of the CA/T Project.

8.         The Committee is concerned that B/PB employees may have been acting and/or continue to act as state employees under the IPO.

10.       In stark contrast to the Big Dig, the MWRA's $4 billion Boston Harbor Clean-up Project, where final oversight authority was directed by a public management team, came in under budget, and handled cost recovery in an efficient and expeditious manner.

RECOMMENDATIONS

1.         Referral of the "special state employee" question, as it relates to B/PB and other CA/T contractors, to appropriate authorities for opinions and any necessary action as this status has not been thoroughly reviewed since the inception of the IPO.

2.         Referral of the IPO to appropriate authorities for review and possible action as it relates to the rights, responsibilities, and liability of the CA/T Project, MTA, B/PB, any sub-contractor or the state under the work programs, common law principles or other applicable law.

3.         Amendment of M.G.L. c. 29 sec. 29A, the statute that requires public oversight of consultants, to include independent authorities, such as the MTA.

PUBLIC ACCOUNTABILITY AND OVERSIGHT OF THE

INDEPENDENT TURNPIKE COST RECOVERY TEAM AND COST RECOVERY PROCESS

The Commission, comprised of public and private sector individuals, would have monitored the efforts of the Independent Cost Recovery Team and replaced the MTA Board for approving settlements. If cost recovery efforts were unsuccessful after eight months, the Commission had the option to expand its role and replace the current Team. S2044 did not advance in the Legislature during the 2003-2004 legislative session as initial recovery efforts by the Team had begun.

In the past year, the Independent Cost Recovery Team has reviewed 748 cost recovery issues. The Team has recovered $3.5 million, has filed a $149.5 million suit against B/PB for its “failures in connection with its preparation of estimates of the Project’s costs”[31] and has stated its intention to file a $100 million lawsuit in connection with other design faults and project mismanagement. It has also contracted with leading engineering firms and consultants to perform analyses of CA/T design errors. Using these construction experts, more than $46 million in additional claims related to design defects attributable to SDCs and B/PB have been identified. Based on these claims, the Team has already filed $13.9 million in lawsuits against 10 SDCs. Engineering experts are currently investigating a series of recent tunnel leaks and panel breaches, as well as previous project cost overruns and construction failures.

Given the substantial task of pursuing cost recovery on a $14.6 billion project, much progress has been made by the Team. The Committee, however, expected more recoupment at this point, and recommends a more authoritative body represent the Commonwealth as we approach the critical stages in the cost recovery process. While the Committee strongly endorsed an independent panel when S2044 was filed, there have been significant changes in the cost recovery landscape over the past year. At the time, there was minimal progress by the Team, and the Committee’s proposed bi-partisan panel would have been able to facilitate cost recovery efforts with no disruption of the Team’s efforts.

Now, as a result of the Team’s investment of time and resources and the stage of pending cost recovery litigation, the Committee has concerns that a new commission would cause substantial delays and new expenses. Cost recovery on the CA/T Project, the biggest public works initiative in U.S. history, requires significant expertise, research and fact-development. The Team has already paid approximately $3 million in fees to internationally recognized engineering experts to assist in pending and planned litigation.[32] It has taken these experts months of on-site analysis during the fact-development process and more than 100,000 pages of documents have been produced by the Commonwealth in preparing this litigation. A new commission would likely perform new analysis to support its recovery process resulting in a significant delay and additional costs.

Additionally, at this juncture in the cost recovery process a new commission may create procedural problems to existing efforts and litigation. First, any new commission that replaces the existing process would likely require significant start-up time to establish procedural rules, hire staff, and obtain the requisite understanding of CA/T Project engineering and cost recovery. Second, the Team’s financial mismanagement lawsuit is scheduled for a trial date in October 2005. Additionally, lawsuits pending in Suffolk Superior Court against the SDCs are expected to be scheduled for trial in late 2005. It is possible the court could delay these dates until a new cost recovery commission completes its findings. Third, if witnesses are subpoenaed by a new commission while testifying in existing litigation, it creates the probability that they will be required to testify in multiple forums.

Finally, and perhaps most importantly, a new commission at this stage would create an impractical model for cost recovery. There is a need for the Commonwealth to speak with one authoritative voice in the cost recovery process. Currently, all negotiations and settlements are subject to the approval of the Office of the Attorney General, which represents the Commonwealth and MHD, and the Independent Cost Recovery Team, which represents the MTA. The Committee heard repeated testimony in support of a process led by one party, with the authority to negotiate on behalf of the Commonwealth. While the Team has made progress in recovery, it lacks the authority and resources of the Office of the Attorney General, and, most importantly, lacks authority to resolve matters on behalf of the Commonwealth. By leading the cost recovery process, the Office of the Attorney General will speak with the force of the Commonwealth, thereby increasing the state’s leverage in any negotiations or litigation, and expediting recovery on behalf of the taxpayers.

Therefore, the Committee recommends the Office of the Attorney General take over the cost recovery process. There are two avenues through which this can be accomplished. First, the Office of the Attorney General can enter into a Memorandum of Understanding (MOU) with the Massachusetts Turnpike Authority. An example of an MOU is included in the Appendix. This MOU would effectuate the Office of the Attorney General’s control over the cost recovery process. If the MTA is unwilling to sign such an MOU, however, legislation can be adopted to effectuate the Office of the Attorney General’s control over the process. To ensure there is no disruption in the recovery process, a consolidation of cost recovery processes within the Office of the Attorney General should include the staff, documents, consultant relationships, and findings of the Team.

While these cost recovery efforts continue, however, B/PB maintains the right to compete for future public works contracts in Massachusetts. It was recently reported that B/PB remains a leading firm for public construction projects across the country despite the well-documented lawsuits for Big Dig mismanagement and errors and omissions.[33] The Committee has found that the executive branch currently has the power to debar B/PB from future state contracts following a public hearing and production of substantial evidence. M.G.L. c. 29, sec. 29F states that debarment may be imposed by any secretary or the Commissioner of the Division of Capital Asset Management if there is substantial evidence of any of the following acts:

(i) willfully supplying materially false information incident to obtaining or attempting to obtain or performing any public contract or subcontract; (ii) willful failure to comply with record-keeping and accounting requirements prescribed by law or regulation; (iii) a record of failure to perform or of unsatisfactory performance in accordance with the terms of one or more public contracts, provided that such failure to perform or unsatisfactory performance has occurred within a reasonable period of time preceding the determination to debar and provided further that such failure to perform or unsatisfactory performance was not caused by factors beyond the contractor's control; (iv) a record of health and safety or environmental violations of a sufficient frequency and severity so as to evidence a pattern of noncompliance with existing state and federal laws, or any rules and regulations applicable thereto; (v) any other cause affecting the responsibility of a contractor which the secretary or the commissioner determines to be of such serious and compelling nature as to warrant debarment.[34] 

This statute allows any secretariat, such as the Executive Offices of Transportation and Construction or Administration and Finance, to conduct such a hearing. Independent authorities such as the MTA, the State Auditor, and the Inspector General are precluded from holding such debarment proceedings. [35]

The executive branch should initiate these hearings against B/PB as the Committee’s investigation, coupled with numerous issues raised by the Auditor and Inspector General, identifies significant concerns with the B/PB performance on the Big Dig. Specifically, B/PB has rarely referred itself for any cost recovery issues over the life of the project. The Committee contends that B/PB never addressed basic liability and management issues related to the IPO. Also, B/PB has recently admitted culpability for panel breaches in the tunnel, the extent of which is currently being investigated. The initiation of B/PB debarment proceedings by the executive branch would determine whether or not this company should be restricted or prohibited from further participation in future state contracts.

PUBLIC OVERSIGHT FINDINGS

1.         Design and construction errors resulted in approximately 11,000 change orders to the CA/T Project that substantially increased the cost and time of the CA/T Project.

2.         Cost recovery efforts prior to the Committee’s 2003 hearings on the CA/T Project netted only $35,707.00.

3.         Documentation and testimony confirmed that the joint venture of Bechtel/Parsons Brinckerhoff was rarely referred for cost recovery efforts being initiated against the joint venture and that to date the joint venture has not been held financially responsible for cost recovery on any of the 11,000 change orders, cost overruns or delays associated therewith.

4.         The Massachusetts Turnpike Authority hired independent legal consultants beginning in February 2003 to spearhead cost recovery efforts. Significant strides have been made by the Independent Cost Recovery Team, including some recovery, a $149.5 million financial mismanagement suit, and a stated intention to file a $100 million errors and omissions suit.

5.         The Commonwealth's Auditor, Inspector General, Secretary of the Commonwealth, representatives of the Governor's office, Bechtel/Parsons Brinckerhoff and the Massachusetts Turnpike Authority all testified that a unified strategy, led by one individual group or panel with the necessary authority, resources, and integrity, would be able to oversee and manage expeditious and comprehensive cost recovery efforts on behalf of the Commonwealth, ensuring that the public interest remains at the forefront in all cost recovery efforts.

RECOMMENDATIONS

1.         As there has been in excess of $160 million in litigation filed by the Commonwealth against B/PB and SDCs, and months of fact-investigation on potential new claims, the Committee recommends that the Office of the Attorney General (AG) should henceforth take over all further cost recovery efforts.  Although the Committee had previously recommended an independent cost recovery panel, it is the opinion of the Committee that, as the direct result of the extensive time, resources, and costs incurred over the past year, a new commission would likely result in duplication of effort, as well as added time and expense to the Commonwealth’s cost recovery process.

Cost recovery efforts are currently divided between the MTA and the AG, which represents the Commonwealth in all negotiations.  Considering the magnitude of the recovery and the resources of the private sector firms involved, the Commonwealth must be represented by one voice with the power necessary to act with authority, strength and independence.  It is the opinion of the Committee that the one voice on cost recovery should be the Office of the Attorney General of the Commonwealth.

This transfer of power can be accomplished in one of the following two ways:

a.       Through an agreed upon Memorandum of Understanding (MOU) between the Office of the Attorney General and the MTA which effectuates the AG’s control over the cost recovery process.

b.      Through passage of legislation that effectuates the Office of the Attorney General’s control over the cost recovery process.

2.                  Governor Romney’s Administration should use its statutory authority under M.G.L. c. 29, sec. 29F to initiate proceedings for the debarment of Bechtel/Parsons Brinckerhoff from future state contracts. Under this provision, the Massachusetts Secretary of Transportation and Construction currently has the power to conduct a hearing to determine if substantial evidence exists to debar a vendor.

3.                  The State Auditor and Inspector General shall provide, at their discretion, updates, as necessary, to the Legislature, including the Ways & Means committees, Post Audit and Oversight committees, and other appropriate legislative committees, about the compliance of state agencies with completed audits and recommendations.   

STATUTES OF LIMITATION AND COST RECOVERY ON THE BIG DIG

Documentary evidence and testimony collected by the Committee show that the Work Programs, the contracts of the Big Dig, were not signed "under seal," an official designation and mark placed on public contracts that would subject those contracts to a lengthier statute of limitations. On projects the size of the Big Dig, it is likely that potential legal action may not become apparent for years after construction. Therefore, signing documents under seal is necessary to ensure that the Commonwealth would be adequately armed to bring those claims within 20 years rather than within the ordinary three or six year terms.

In testimony before the Committee, Secretary of the Commonwealth William F. Galvin stated: "I was brought into the issue when I read of the fact that there apparently was to be a defense offered that the statute of limitations had expired, which I found incomprehensible. A review of the statute and a review of the facts suggested that the contracts that had been signed by the Turnpike Authority and by its predecessors in the construction were not sealed contracts and, therefore, the limited statute of limitations applied. I proposed ... an extension of the statute."[36]  A version of that extension was codified in Chapter 4: sec. 83 of the Acts of 2003 and reads as follows:

SECTION 83. (a) The general court finds that:

(1)           the reconstruction of the central artery and of the central artery north area and the construction of the Ted Williams tunnel, as those terms are defined in section 3 of chapter 81A of the General Laws, and related improvements, in this section called the project, represent the most expensive and complex public works project in the commonwealth's history;

(2)           evidence only recently available indicates that substantial breaches of agreements relating to the project may have occurred and significant further investigation is necessary before litigation can be commenced to recover funds owed the commonwealth, its authorities and agencies, and others;

(3)           the failure to recover substantial sums owed to the commonwealth would impose a significant burden on scarce public resources;

(4)           under these circumstances, it is fundamentally unfair to prevent the recovery of any of these funds wrongfully paid by the commonwealth and others; and

(5)           therefore, this section is reasonable and necessary to serve important public purposes.

(b)           Notwithstanding any general or special law or contract to the contrary, except chapter 258 of the General Laws, every action arising out of the planning, design, management or construction of the project, if the action is brought by the commonwealth or the United States, or by any of their agencies or authorities, or by any contractor or subcontractor of any of them, shall be brought not later than 10 years from the date that the cause of action arises or from the effective date of this section, whichever is later. This section shall apply regardless of when the action or claim accrued or was filed, and regardless of whether it may have lapsed or otherwise be barred by time under the laws of the commonwealth.

(c) Notwithstanding any general or special law or contract to the contrary, any sums owed to the commonwealth and recovered pursuant to this section shall be deposited in the Commonwealth Stabilization Fund, established pursuant to section 2H of chapter 29 of the General Laws. The Comptroller shall notify the house and senate committees on ways and means no later than 30 days after any such deposit in said Commonwealth Stabilization Fund.[37]

While constitutional questions have been raised about this provision, recent Supreme Judicial Court decisions suggest a carve-out provision for changing statues of limitations post facto.[38]  "In my view, there is no question that the Legislature had the authority to extend the Statute of Limitations.... The key finding [needs to be that] there is a public policy motive for an extension of the statute of limitations."[39]

Thus, although the new legislation seems to facilitate cost recovery on claims that may date back ten years, it has not been court tested. Regardless, it is the conclusion of the Committee that requiring all public construction contracts to be signed under seal (a) extends that period to 20 years rather than ten; and (b) applies to a broader universe of contracts, ensuring that the taxpayers of the Commonwealth are adequately protected to bring negligence, breach of contract or other legal claims against those who contract with the state but do not uphold their end of the bargain. The Committee Chairman will file legislation to enact this recommendation into law.

STATUTES OF LIMITATION FINDINGS

1.         Statutes of Limitation pose problems to cost recovery efforts on projects with significant scope, magnitude and duration, such as the CA/T Project.

2.         Although lengthier statutes of limitation are allowed under law, most public construction projects have not utilized that provision and are subject to either a three or six year statute of limitations for cost recovery actions and litigation related to breach of contract or tort law violations.

3.         Because the Big Dig has been underway for more than 20 years, several potential cost recovery actions against Bechtel/Parsons Brinckerhoff, sub-designers, and sub-contractors are now beyond the statutes of limitation for recovery of taxpayer money for violations of contract or law.

4.         Tolling agreements that effectively stop the clock on statutes of limitation were put in place on the CA/T Project in only a limited number of instances.

5.         Legislation that was proposed by the Secretary of the Commonwealth (a version of which was adopted in Chapter 4 of the Acts of 2003 that lengthens the statute of limitations on actions related to the Big Dig to ten years from the date the cause of action arises) will assist in cost recovery efforts on the Big Dig, but does not address other public contracts.

6.         If contracts related to the Big Dig had been required to be signed under seal pursuant to M.G.L. c. 260 sec. 1, the 20 year statute of limitations would be applicable.

RECOMMENDATIONS

1.         Amend M.G.L. c. 260 sec. 1 to require that all public construction contracts valued at greater than $250,000 be signed under seal, subjecting them to a 20 year statute of limitations.

THE PROFESSIONAL LIABILITY WRAP-UP OWNER CONTROLLED

Overhead costs for professional liability insurance on a construction or public works project is sometimes built into the work programs provided to contractors and sub-contractors who then self-insure for their own professional liability. Given the overhead rates and multiple policies involved, OCIPs are insurance programs often utilized on large construction or public works projects. Generally, OCIPs allow the owner of a project (in this case, the CA/T Project) to save money through strategies such as negotiation of a better rate of insurance, selection of the insurance company or companies, the ability to manage risk more closely and the streamlining of claims administration. Approximately half of the sub-design consultants (SDCs), along with B/PB, participate in the CA/T Project's Professional Liability OCIP Program.

Although the concept of different types of OCIPs on the CA/T Project was first discussed in approximately 1992,[40] the Professional Liability OCIP Program was first considered in the Fall of 1994. According to a letter from Bechtel's counsel, written in response to a May 22, 1998 letter from the CA/T Project Chief Counsel, Tom Sheppard, of Sheppard Riley Coughlin (SRC) and Patrick Tighe, of B/PB Risk Management approached Bechtel's counsel in the Fall of 1994 to assist them in determining whether it was feasible to develop a wrap-up professional liability insurance program that would provide coverage for the various professional Insureds involved in the CA/T Project and, if so, whether Bechtel's counsel could assist with ideas as to the parameters of such a program.[41] 

Bechtel's counsel ultimately assisted in the development of the Professional Liability OCIP Program. During the Fall of 1994, and through the inception of the policy, on or about April 21, 1995, Bechtel's counsel "participated in numerous meetings (probably in excess of 40) with SRC and B/PB, and with representatives of various professional liability insurers, MHD, FHWA, and engineering firms (involved with the CA/T Project) and their professional associations.... [E]fforts in those meetings and communications principally were directed to working with SRC and B/PB to develop the proposed scope of coverage to be afforded under the Policy, and related aspects of the Professional Liability program, as well as in explaining and ‘marketing’ the professional liability risk factors (and related contractual and project management controls) associated with the CA/T Project to the professional liability insurance industry... as well as ‘marketing’ the idea for this type of project-specific professional liability program to FHWA."[42]

As part of its investigation, the Committee reviewed the premiums paid for the Professional Liability OCIP Program. The Insureds, the SDCs and B/PB, paid $500,000 for a $5,000,000 layer of professional liability insurance that sat above the now-bankrupt Reliance Insurancelayer. All other premiums under the Professional Liability OCIP, approximately $9.5 million, were paid by the Massachusetts Highway Department. In the case of the CA/T Project Professional Liability OCIP Wrap-up Program, the owner, the CA/T Project itself, relinquished and/or lacked the proper and more typical "owner control" associated with closer administration of and involvement in such programs.[43]  In fact, according to Judge Edward Ginsburg, the owner, the CA/T Project, has been unable to obtain any records of claims submitted under the OCIP from the insurance companies as part of their cost recovery process.[44]

The OCIP Program is operated pursuant to an "OCIP Manual," the guidelines that set forth the parameters of coverage and administration of the program. The CA/T OCIP Manual requires all claims to be handled in accordance with a joint defense approach, but named only a single law firm as approved joint defense counsel. Under this program, joint defense counsel is required to "investigate, defend, or otherwise protect the interests of all Named Insureds involved in any incident, circumstance, event or claim reported.[45] The OCIP joint defense approach requires all Named Insureds to waive their rights to assert claims against other Named Insureds to the extent of the available coverage and to be represented jointly by the OCIP assigned counsel with other Named Insureds. The only named OCIP assigned joint defense counsel, who also serves as the OCIP Program Manager, is also private counsel to Bechtel Corporation.

Although joint defense approaches are not uncommon, the Committee notes that Judge Edward Ginsburg testified that it was his position that this particular joint defense program "smells bad."[46]  He stated that the basis for this assertion was that the OCIP defense counsel and OCIP Program Manager are the same firm, counsel who also represent the CA/T Project's private manager, Bechtel and whose named partner was instrumental in devising the Professional Liability OCIP for the CA/T Project along with B/PB and SRC representatives.[47]

OCIP FINDINGS

1.         The OCIP Program and the OCIP insurance companies owe the same duty of loyalty to all SDCs as they do to Bechtel/Parsons Brinckerhoff.

2.         The Independent Turnpike Cost Recovery Team has thus far identified approximately 748 cost recovery issues, but without the additional data from the OCIP counsel, it cannot be determined with certainty which, if any other party, has asserted claims against B/PB, the SDCs, or the OCIP.

3.         OCIPs are generally considered a cost savings measure and an efficient way to pay out valid claims. In the case of the CA/T Project, however, to date, approximately $10 million has been paid in premiums and not a cent has been paid out of the OCIP to cover a claim.  Further, additional costs have been incurred for legal fees and Program Management review fees.[48] Those fees have been paid directly by the Insureds since there is a $500,000 deductible on each claim before OCIP coverage is triggered.[49]

4.         There are no fewer than three lawsuits pending that implicate the OCIP program generally, its joint defense model, or a lack of coverage under the program. Such lawsuits could cost the Commonwealth and the SDCs millions of dollars to litigate.

5.         The Committee concludes that the Professional Liability OCIP Wrap-Up Program has not benefited the Commonwealth and has hamstrung cost recovery efforts to date.

RECOMMENDATIONS

1.         Referral of the OCIP Professional Liability Wrap-Up Program for review by the appropriate authorities, including the Attorney General, the Inspector General and the Division of Insurance, to assess whether the OCIP violates any law, regulation, professional standard or is otherwise in contravention of public policy.

2.         The Committee will file legislation requiring future OCIPs on public construction projects valued at $10 million or over be reviewed and approved by the Attorney General, Inspector General and Division of Insurance to ensure:

·        the policy is in the best interest of the Commonwealth; and

·        joint defense programs are vetted for any real or perceived conflict of interest.

APPENDIX

MEMORANDUM OF UNDERSTANDING

                The Massachusetts Turnpike Authority (“MTA”) and the Office of the Attorney General hereby agree as follows:

            WHEREAS, the Central Artery/Third Harbor Tunnel Project (CA/T Project) is one of the largest public construction projects ever undertaken; and

            WHEREAS, construction, design, project management and project oversight errors have resulted in significant additional costs to the CA/T Project; and

            WHEREAS, currently, the effort to investigate Bechtel/Parsons Brinckerhoff, the Section Design Consultants’ and various contractors’ role in the construction, design and project oversight errors has been the responsibility of the Cost Recovery Team; and

            WHEREAS, it is in the best interest of the Commonwealth for cost recovery efforts to be performed now by an independent agency, the Office of the Attorney General;

            NOW THEREFORE, the parties agree as follows:

1.                  Immediately upon execution of this agreement, the Cost Recovery Team and the MTA shall turn over to the Office of the Attorney General copies of all files and documents in its possession, custody or control and in the possession, custody or control of all experts, legal counsel and consultants retained by it that relate to its ongoing or past work and in the possession, custody or control of all experts and consultants retained by them that relate to its ongoing or past work and that would have been accessible upon request to MTA.

2.                  Upon the execution of the agreement, the Office of the Attorney General shall receive the full cooperation and assistance of the MTA, the Cost Recovery Team and their employees and agents, including experts, consultants and legal counsel to assist it with the cost recovery process.

3.                  Upon execution of this agreement, the Office of the Attorney General shall assume the management and control of all existing cost recovery matters in litigation. All outside legal counsel, experts and consultants in those civil actions shall report directly to the Office of the Attorney General. In addition, the MTA hereby authorizes the Office of the Attorney General to provide representation with respect to the review, study, investigation, negotiation, settlement or commencement and maintenance of litigation in connection with all cost recovery available to the Commonwealth and the MTA, including any claims that may be asserted against MTA, for the errors, omissions, mismanagement, fraud, negligence or any other legally actionable claim for liability related to the CA/T Project including, but not limited to, assessing the liability attributable to the joint venture of Bechtel/Parsons Brinckerhoff and any other consultant, management consultant, design consultant, contractor, subcontractor or individual associated with the CA/T Project. The Attorney General’s authority under this agreement to settle or litigate claims is identical to the powers and authority held by the Office under G.L. c. 12 § 3 and the common law.

4.                  Employees of the MTA and the Cost Recovery Team shall participate in the Cost Recovery process only at the direction and control of the Office of the Attorney General. Provided, however, that any MTA or Cost Recovery Team employee assisting the Office of the Attorney General with cost recovery efforts pursuant to this agreement shall not cause any such employee to be deemed a public employee under G.L. c. 258 or other General Law for any purpose.

5.                  MTA shall promptly the Office of the Attorney General with all funds previously or currently obligated, appropriated, allocated, budgeted, planned or otherwise made available or scheduled to be made available to its Cost Recovery Team, except for those funds necessary for the Cost Recovery Team to pay the salaries and benefits or two staff lawyers and one staff secretary position for the next three years. Such funds may be used by the Office of the Attorney General to hire the necessary lawyers, paralegals, support staff, experts and consultants as it deems necessary to investigate and to litigate claims and for such other necessary expenses such as travel and transcript costs that will incurred.

6.                  The Office of the Attorney General shall consult periodically with the MTA on the status of the cost recovery efforts undertaken by the Office. The MTA authorizes the Office of the Attorney General to negotiate the terms of settlements on cost recovery matters on its behalf. The Attorney General shall consult with the MTA before executing any settlement agreement relating to any cost recovery matter, but the Office of the Attorney General retains the final authority to settle claims or to initiate, continue, or decline to continue litigation of such claims, if the Office in its sole discretion deems such course to be in the public interest.