Audit: Dallas transit knew in early ’07 about soaring cost of rail plans

11:41 PM CST on Tuesday, February 12, 2008
By MICHAEL A. LINDENBERGER / The Dallas Morning News

DART’s top executives knew for nearly a year that running rail lines to Irving and Rowlett could cost nearly $1 billion more than the agency’s financial plan envisioned, an internal audit released Tuesday said.

But DART president Gary Thomas decided against sharing that information with board members, the report by internal auditor Albert Bazis said.

“In spite of the early indicators of cost increases and the financial plan projections, there was no adjustment made to the 2008 financial plan because of the decision to look for cost reductions,” Mr. Bazis’ report said.

Mr. Thomas and his key lieutenants knew as early as mid- to late 2006 that costs would be significantly higher than the $988 million budgeted for the projects, the audit said. At that time, senior executives raised the possibility of informing the board of the changes, but Mr. Thomas decided against doing so, according to the report and interviews Tuesday with those executives.

The board ordered the audit in November, almost immediately after Mr. Thomas dropped what several members described as a “bombshell” by announcing that the costs for the two rail projects could be as high as $1.9 billion.

The report states that Mr. Thomas knew as early as February 2007 that the $988 million figure was off by as much as $900 million – and that he decided against telling board members at the time.

On Tuesday, the DART president defended that decision as a prudent one.

“At the time, it seemed like the most rational, logical decision, given the information I had,” said Mr. Thomas, who had just received the audit and had not read it.

“How would it have helped to have told the board earlier than I did? The numbers would have still been the same,” Mr. Thomas said. “I had a responsibility to make sure that the numbers were real and that we had done our due diligence.”

Instead, he ordered staff to review the estimates and find ways to reduce the costs through what is called “value engineering” – basically making changes to the rail plans, which can be enormously complex with hundreds or even thousands of engineering details.

In the weeks since the $900 million announcement was made in November, staffers have identified about $185 million in savings on the projects – a decision that was the culmination of a months-long review, Mr. Thomas said. DART plans to borrow heavily to keep those and two Dallas projects on schedule.

But on Tuesday, board members responding to Mr. Bazis’ report said any efforts Mr. Thomas had decided to take to reduce those costs did not relieve him of responsibility for sharing the numbers with the board.

“There is no way that any amount of value engineering could have added up to $900 million,” said board member William M. Velasco II of Dallas, who pointed to the stated savings of $185 million as proof.

Instead, he and other board members said, their own credibility has suffered as elected officials and others have demanded answers.

“Over the past six weeks, I have been inundated with calls from people who I know asking me, ‘What is happening down at DART?’ ” Mr. Velasco said. “The people that appointed me to the board expected me to do a better job as a board member. My personal integrity has taken a hit. I was hoping today to get answers.”

‘Who knew what, when’
The purpose of the audit, Mr. Bazis said Tuesday, was to determine “who knew what, when.”

But several board members said his audit did not go nearly far enough in assessing blame.

“There are no names named in this report,” Mr. Velasco said. “I was expecting names to be named.”

More important, several members said, the report makes clear that Mr. Thomas and his top assistants knew about the rising costs long before the board was told, but does not explain why Mr. Thomas decided to keep silent.

“This is a very, very serious matter,” board member Angie Chen Button of Garland said.

Mr. Velasco said he welcomes Mr. Bazis’ supplement, but said he will continue to push for an outside audit of the decisions as well.

The report does make clear that board members had been told long ago that costs were rising on the Irving and Rowlett projects, but members were not told with any detail how big those changes would be.

In July 2006, consultants hired to do preliminary design for the Irving and Rowlett projects had told senior staff members that the costs would be much higher than budgeted, according to the audit.

The next month, board member John Carter Danish of Irving pressed for answers from staff about reports he had heard that the costs were going to be much higher than anticipated.

In response, Mr. Thomas replied that no detailed estimate of the costs had been completed, the audit report said.

Discussions with staff
In interviews later Tuesday, two senior executives who report to Mr. Thomas said managers had discussed with him at least twice – once in 2006 and again early last year – the possibility of giving the board more details about the cost estimates. In both cases, they each said, Mr. Thomas decided against doing so.

“That is something you are going to have to ask Gary,” said Doug Allen, executive vice president for program development. “We all had talked about the differences [between the cost estimates], but that was the decision he made.”

The rising costs also led Chief Financial Officer Sharon Leary to suggest adjusting the agency’s financial plan to reflect those costs – a move that would have required board discussion. She, too, said Mr. Thomas decided against doing so.

“After he explained his position, it actually made sense to me,” she said Tuesday. “He wanted us to make sure we were dealing with the right numbers.”

Mr. Thomas declined to say whether he had made a mistake.

“In hindsight, it is always easier to say you should have done this or done that,” he said. “But I am not allowed that luxury.”

Shaw contract
Also Tuesday, DART general counsel Hyattye O. Simmons told board members that a contract between former chairman Lynn Flint Shaw and Deloitte Services LLP did not appear to violate the board’s ethics policies.

“This was not a DART contract,” he said, stressing that there was no evidence that the $20,000 contract had influenced Ms. Shaw’s work on the board.

The contract came to light last month when the agency’s external auditors, Deloitte & Touche, revealed that Deloitte Services – an affiliated firm – had signed a contract with Ms. Shaw for consulting work.

Ms. Shaw resigned last month shortly after the contract was revealed, though she maintained she had done nothing wrong other than failing to disclose the contract.

Ms. Button and others said the larger fault rests with Deloitte & Touche, their longtime auditors, for failing to realize until too late that an affiliated firm had signed a contract with a board member.

KEY AUDIT FINDINGS
•Early signs that the budgeted amounts for the Irving and Rowlett lines were too low began surfacing in 2004.

•By summer 2006, staff knew the difference could be hundreds of millions of dollars.

•By February 2007, the cost estimates were judged to be off by as much as $900 million.

•DART president Gary Thomas first revealed the full amount of the cost differences in November.

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