Bids on Bay Bridge to start this week. Project costs could be staggering

After four delays in 15 months, Caltrans intends to open bids Wednesday on a contract to build the self-anchored suspension segment, the architecturally striking 525-foot tower and cables.

This contract will test the taxpayers' wallets more than any of the other 16 contracts in the $2.9 billion project, and it may not produce many California jobs.

The suspension span requires 67,000 tons of specially fabricated steel, the bulk of it in chunks so large that the manufacturer must load completed pieces directly onto barges.

Under federal law that governs the use of highway dollars, Caltrans must hire a contractor that will use U.S.-produced steel unless foreign competitors can beat the price by at least 25 percent.

Former Gov. Gray Davis in January 2000 mingled federal dollars in the bridge budget, triggering the jobs provision after lobbying from unions.

While many support the decision as a way to save American jobs and keep taxpayers' dollars at home, the order forced Caltrans to redo complex bid documents for a bridge that had been 75 percent designed with overseas fabricators in mind.

Overnight, Caltrans lost unencumbered access to a worldwide steel market that has constructed 22 self-anchored suspension bridges, although none approach the size of the new eastern span.

Instead, it found itself with an inadequate domestic market that has never built a span of this type and lacks facilities to fabricate the steel required for its unique design.

Eight days before bids open, only two domestic steel fabricators have completed the audit necessary to bid on the tower. One firm did so for the deck bid.

Fewer bidders usually means less competition and higher costs.

Contrary to Davis' argument in 2000, the shift will produce few, if any, California jobs. Only one of the steel fabricators on the bid list operates in California.

Meanwhile, structural steel costs have shot up 70 percent in the past year largely due to heavy worldwide demand, said steel analyst John Anton with Global Insight, an industry forecast firm based in Washington, D.C.

He expects total project costs for bridges to rise 20 percent to 50 percent over estimates based on last year's prices.

Caltrans engineers estimated in February 2003 that the self-anchored segment would cost $740 million, with half or more of that cost related to steel.

If Anton is right, the suspension span contract could top $1 billion and bust open the agency's budget.

Disagreement

Don't blame steel prices or "Buy America" for the cost of this bridge, argue Bay Area steel industry representatives.

They estimate the added cost to buy plate steel, which fabricators will use to build the bridge components, at less than $30 million.

The bulk of the cost overruns will stem from its complex design and insurance for the high-risk project, said Dick Persons, a Moraga manufacturer's representative who sells U.S. plate steel to fabricators.

"I've heard rumblings that this bid will top $1 billion and that the fabricated steel component could be as high as $250 million. That leaves a lot of money in this bid unrelated to steel."

As for "Buy America," domestic steel costs roughly the same as foreign steel on today's market, said Alfred Bottini, president of XKT Engineering, a Vallejo firm planning to bid on the tower.

"Everyone always talks about Buy America, but it's not a factor in this bid. You can't even buy steel plate overseas right now because the U.S. dollar is so weak. Offshore firms have no reason to dump steel in the U.S."

Whatever the reason, officials at the Bay Area toll Authority have grown worried enough to discuss with lawmakers the takeover of the bridge construction finances, which the state now manages.

"We have been able to raise extra money for other bridge cost overruns, such as the Benicia bridge, through innovative financing," said authority spokesman Randy Rentschler. "If there's an overrun on the Bay Bridge, we may be able to duplicate our success. But until Wednesday, we don't even know if we have a problem or the size of the problem."

A chronic problem

Cost overruns for new, repaired and replacement Bay Area bridges have made headlines for years.

But the new eastern span is arguably the most critical earthquake safety project among the spans.

During the 1989 Loma Prieta earthquake, a piece of the upper deck shook loose and a woman was killed. Every seismic engineer ever asked has said the bridge will fail next time a similar-scale earthquake hits the structure.

After a political saga that dragged out 13 years, Caltrans broke ground on a new span in January 2002. The contractor has nearly reached the halfway mark on the concrete skyway segment that will connect the suspension span to Oakland.

While physical signs of progress unfold in the Bay, Caltrans engineers struggled with the signature element of this bridge, the self-anchored suspension span.

State leaders told them to hurry and build it, but some of the same officials imposed new rules that complicated the bidding.

"The governor (Davis) was told that it would cost more (under Buy America), but no one knew how much more," said one of the governor's then-advisers. "He didn't seem to care about cost. The state had plenty of money then."

Caltrans needed to know.

After Davis announced the policy shift, the agency commissioned a study of the domestic steel industry from a national transportation consulting firm.

The agency has refused to release the report, saying its engineers used it to prepare cost estimates for the pending contract.

Caltrans bridge engineer Brian Maroney, who has worked on this span since its inception, said the change required the design team to revamp portions of the bid documents.

That's not uncommon. Bid conditions change all the time, he said.

"Clearly, we had to adjust who we were reaching out to," Maroney said. "Where we once looked at a worldwide market, we now had to focus our attention on the domestic market."

Keep money at home

Until Davis' decision, overseas firms supplied large amounts of steel used to build and repair Bay Area bridges. Steel used to retrofit the western span of the Bay Bridge came from Brazil, for example.

It was the new Carquinez suspension span that drew the ire of state labor leaders.

The $187.8 million low bid from FCI Constructors of the United States and Cleveland Bridge Co. of the United Kingdom included steel deck from Japan; cable wires and cable bands from England; and wrapping wire from Belgium.

"American taxpayer dollars should pay for jobs at home," said Bob Balgenorth, president of the State Building and Construction Trades Council of California. "Sending our money overseas might save a few bucks in the short-term, but what will it cost our economy and our society? Where will our young people work if we have outsourced all the jobs?"

Labor successfully shepherded a bill through the Legislature that mandated the use of domestic suppliers on all state-funded work. Davis called it too broad and vetoed it.

But he cut a deal with the unions: Allow the Carquinez bid to stand unchallenged and he would guarantee U.S. primacy in three remaining bridge projects, including the new Benicia and eastern spans, and the retrofit of the Richmond-San Rafael bridge.

"I told the governor at one point that if people thought their toll money was going to Japan, I didn't think people would support it," said international and California ironworker executive Dick Zampa. The state would later name the new Carquinez span after Zampa's legendary iron worker father, Alfred Zampa.

Davis takes action

Davis delivered on his promise through "Buy America," a 1982 law that mandates the use of U.S.-produced steel and other components in highway projects funded even partially with federal dollars.

To trigger the provision, Davis ordered the mingling of federal dollars in the state's toll bridge earthquake safety program.

In addition to the new eastern span and retrofit of the western half of the Bay Bridge, the program includes earthquake retrofitting of the Benicia, Carquinez, Richmond-San Rafael and San Mateo bridges.

The contractor may use foreign steel but only if the price beats the domestic bid by 25 percent.

Federal officials may also issue waivers to Buy America. Caltrans has obtained five such exemptions for specialty products such as the high-strength steel wire for the cables and a large steel saddle that will hold the cables at the top of the tower.

"Use of federal funds will ensure that the greatest number of jobs remain in California," the Davis administration said in a Jan. 28, 2000, press release about the Carquinez bridge contract.

Until that point, the bridge work relied solely on local tolls and state gas tax proceeds.

In other words, Caltrans didn't need a federal cash infusion at the time. That changed as cost overruns mounted.

The current $642 million federal contribution of dollars the state routinely receives for bridge repairs now represents 13 percent of the $5.1 billion toll bridge replacement and repair budget.

Local jobs?

Despite claims to the contrary, the shift may not generate any steel jobs in California although it potentially produces work in other states.

Four years ago, Cleveland Bridge Co. proposed building two California steel fabrication plants in anticipation of the new Bay Bridge, including one in Contra Costa County. The plants never materialized.

No steel fabricator in the state has the facilities or port access needed to manufacture and ship the steel deck, and only a couple could construct the tower.

Of the potential tower fabricators, only XKT Engineering of Vallejo had secured permission to bid as of Wednesday.

It employs about 100 people and would hire an additional 50 to 75 if it prevails on the tower bid, its spokesman said. The firm has fabricated steel for the Richmond-San Rafael and Golden Gate bridge retrofits and the new skyway segment of the Bay Bridge.

The nearest West Coast fabricators capable of building and shipping the 86-foot-wide deck sections operate along the Columbia River between Oregon and Washington.

A consortium there called Bay Bridge Fabricators recently unveiled plans to invest $33 million into plant upgrades at the Port of Vancouver if it wins the bid to build the steel decks. Its members include Oregon Iron Works, Thomas Metal Fab, Universal Structural, and Fought & Company.

Other U.S. firms that had applied as of Wednesday for Caltrans' mandatory pre-approval to bid on steel components include Kiewit Offshore Services of Texas and Wirerope Works of Pennsylvania.

But come Wednesday afternoon at 2 p.m. in a basement conference room in Sacramento, this bid could become the opening heard around the world.

Plenty of foreign companies sought permission to bid, including Mitsubishi, IHI and Nippon Steel of Japan, Samsung of South Korea, and the China Railway Turnout Bridge.

Overseas firms face a steep competitive disadvantage. To prevail, they must shave a quarter off the price tag, or $185 million, based on Caltrans' cost estimate.

Tick-tock

Caltrans' Toll Bridge Program chief Dan McElhinney expects at least two, possibly three, general contractors to submit bid packages, which will include quotes based on both foreign and domestic fabricators.

More would have been better, although he refused to speculate whether "Buy America" discouraged bidders.

If the low bid substantially surpasses the estimate, Caltrans will have a serious financial problem and few options.

The agency would probably not save money if it abandoned the self-anchored suspension span and built a utilitarian connector, as some have suggested.

An analysis shows that the state would lose at least two years on the schedule while it designed a replacement piece and conducted environmental reviews, said Bay Area Toll Authority engineer Rod McMillan. The state would also lose millions of dollars it has spent on design and the foundation construction under way on Yerba Buena Island.

But where Caltrans will find the money to finish this bridge is an open question.

The agency has burned through most of the $448 million in its emergency bridge cash account. It has enough cash to award this bid, but may not have the funds to finish the remaining work on the bridge, including the segments that link the span to Yerba Buena Island and Oakland.

The state highway account is broke. Bay Area voters have already hiked tolls to $3, which will go into effect July 1.

Technically, the mess will end up in the Legislature's lap.

In September 2001, lawmakers reluctantly passed a law that awarded Caltrans more money for Bay Area bridges and ordered the agency to report all overruns to the Legislature.

Former Caltrans Director Jeff Morales repeatedly assured legislators at the time that he would not be back to ask for more cash. Morales, a Davis appointee, resigned earlier this year after Schwarzenegger took office.

"I don't have any good answers at this point," said Sen. Tom Torlakson, D-Antioch, who helped cut the 2001 financing deal. "Caltrans told us they were going to take care of it. If that's no longer the case, we'll have to try again."

Reach Lisa Vorderbrueggen at 925-945-4773 or [email protected].