Massachusetts MBTA ran into problems managing construction projects under the terms of the deals it signed. Why do government owners have problems with contracting styles common to private work?

 Contractors All Thrown off After Study
The MBTA found that after years of planning for the Green Line extension project that the construction costs were way above budget. A clearly worded report based on an independent study by Berkley Research Group led the MBTA to cancel the existing deals with its contractors. The prior arrangements, in practice, failed to cabin costs.

Schedule Requirements Made Collaborative Contracting Sensible
The T chose its team before the designs were finished. It hired the architect and builder separately. Using the Construction Manager/ General Contractor style of contracting, the T awarded the work based on qualifications and price. The project was to be done in phases with a series of parts, each with its own capped price (Guaranteed Maximum Prices or GMPs).

This is a sensible way to build as shown by the fact that most large private jobs use it and schedule pressures supported the choice. Things move more quickly with collaborative overlap with CM/GC contracts. Private construction owners don’t wait for 100% design plans before bidding out the construction part. The independent study cited flawed application of the CM/GC delivery model especially in the absence of a reliable budget.

As each portion of the MBTA job got to the Guaranteed Maximum Price, the total project costs ballooned. Problems arose from qualifications to the guarantees, and the failure to use open book accounting. Also, while markups were capped, the total budget figure was not. Failure to exercise oversight using open book cost accounting and the failure to design to the budget were seen as especially flawed practices. These contract traps shifted budget risk to the MBTA and to the Massachusetts taxpayers.

Reasonable Method of Contracting Badly Applied on the MBTA
The contracts didn’t require the team to hold down costs and budget capping options were not chosen. This large overrun on an important project led critics and even the MBTA to blame the CM/GC contracting method. The independent study spreads the blame more broadly but did find that the contracts did not go far enough to cap costs and insist on budget limits. The MBTA said it has to reduce costs by “aggressively adjusting its design”.

I hope government construction does not ratchet back to the old slow design-bid-build ways as a result of this fiasco. Modern contracting methods can produce better projects. Someone needs to be able to cut scope if the true costs rise. Everyone needs to know and honor the budget constraints.