Can California afford to modernize infrastructure?

150 150 Ed Coghlan

The Presidio Parkway project in San Francisco is expected to be completed in 2014. (Photo Credit: Presidio Parkway)

As we have travelled around California, people who are concerned about the economy are telling us some interesting things. One is that we need to invest in the improvement and expansion of the state’s infrastructure.

But these same Californians also understand that we don’t have the money, at least in the traditional sense of having government pay for it. So they have been talking about some alternatives.

It’s a critical discussion. Consider these facts:

The Think Long Committee Report on California’s economy, which is one of several studies you can find on this site, says the state has over $760 billion in deferred infrastructure. This means projects that need to be updated or expanded or developed in areas like public transit, highways, roads, water, freight rail, airport and electrical grid have gone wanting, mostly because it’s believed we can’t afford them.

The Bay Area Council Economic Institute calculated an infrastructure investment of between $250 and $750 billion could create an estimated 3.4 million to 10.1 million jobs.

Geoff Yarema is the Chair of the Infrastructure Practice at the Nossaman Group, says that California must more aggressively consider creative alternatives that are already being used elsewhere.

Public works projects come with varying degrees of complexity. For instance, he says repaving 20 miles of freeway is a relatively simple, albeit not inexpensive project, but replacing the Gerald Desmond Bridge in Long Beach is very complex.

“The more complex the project, the higher the chance for cost overruns and delays in completion,” Yarema said. “But it doesn’t have to be that way.”

He said that a “design-build” contract puts more responsibility and risk on the contractor who is required to give both a firm price guarantee and a date of completion. And if the contractor doesn’t live up to it, it is the contractor, and not the public agency, who pays the difference.

“Not surprisingly, we’ve had projects where contractors deliver projects early and under budget,” Yarema pointed out.

Another area of concern for Yarema, and others who pay attention to the infrastructure challenges in California, is maintenance, because of inadequate focus on lifecycle cost efficiency.

“A form of contract that pays the private sector only if the infrastructure performs the way it is supposed to—from safety, quality and availability perspectives—can deliver strong value for money to the taxpayer,” he said.

To achieve that, an “availability payment” contract requires the same contractor that builds a project to also maintain it over many years for an annual cost determined up front and competitively. If something does not perform as promised, payments are reduced. Traditionally, that incentive is not a feature built into public works contracts.

When bids are opened on this type of contract, as was the case recently for part of the $1 billion Presidio Parkway Project in San Francisco, public officials often find that the bids come in lower than were estimated. Of course, this type of project will also have its detractors, as a recent story in the Bay Citizen indicates. It is why finding a solution to our infrastructure deficit is not going to be easy.

This much is certain: The state needs to update its aging infrastructure. New approaches to  meeting that challenge will be discussed at the first California Economic Summit on May 11 in Santa Clara. In addition, Summit participants will be tackling how to better prepare the state’s workforce for the 21st century and how to encourage more innovation in the state and look at our regulatory structure.

What are some of your ideas to help improve California’s ability to create jobs and improve our ability to compete in the global economy?


Ed Coghlan

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