Long Beach Port Staff Provides Breakdown On Cost Overruns
By Samantha Mehlinger - Staff Writer
November 5, 2013 – The Long Beach Board of Harbor Commissioners voted to increase the Gerald Desmond Bridge Replacement project budget by $163.2 million on October 21. Port of Long Beach staff broke down the causes for the overruns, explaining to the board how the originally projected budget of $950 million became $1.263 billion.
The new budget is a 15 percent increase from the April-approved budget of $1.1 billion, and a 33 percent increase from the original 2010 estimate of $950 million. A significant portion of cost overruns was caused by oilfield work necessary to clear the ground for the new bridge, according to port staff.
Douglas Sereno, director of program management for the Port of Long Beach, told harbor commissioners that the original 2010 estimate for oilfield-related work, including sealing or “abandoning” old wells and relocating them, was $105 million. That estimate increased in April 2013, when new assessments revealed $175 million was necessary to complete oilfield work. Now the budget for this process is $239.5 million.
According to Sereno, the April-approved budget for oilfield work was estimated based on a study of just one well, which indicated the cost per well should be about $450,000. “The actual cost since then has been nearly $2 million per casing,” Sereno said. A report from Sereno states that two other wells reached costs of $4.4 million and $7 million, respectively, for casing removal.
In order to clear the ground for the bridge’s support piles, which must be dug down about 200 feet below the surface, oil wells had to be abandoned much deeper than normal; typically, they are abandoned about five feet below the surface. This requires a new process called surface casing removal, in which a seven- to eight-foot steel cylinder is pushed down around a well, enabling crews to stabilize the ground around it to remove hundreds of feet of casing.
To account for contingency and risk assessment costs, another $68.5 million was included in the adjusted budget. Sereno said that these funds are only to be used if necessary. Steven Rubin, managing director of finance and administration for the port, interjected that the port has “70 percent confidence that we would incur that amount.”
In July 2012, the bridge replacement project budget was funded with $846 million in grants and $114 million in committed funds from the port. By April of this year, an additional $140 million was deemed necessary to complete the project. Now $303 million outside of committed port and grant funds is needed to complete the project. Sereno said the port is pursuing grants and loans to accommodate this cost.
Harbor Commissioner Rich Dines asked staff if any port projects must be delayed or cancelled due to cost overruns. Rubin responded that a 10-year cash flow analysis was conducted by staff to account for the project’s increased budget. Port staff concluded that any landsite development at Pier S must be deferred for at least 10 years and that the second phase of a slip fill project at Pier G would have to be delayed in order to fund any bridge project-related overruns.
Richard Cameron, acting managing director of environmental affairs and planning, commented, “This is part of doing business in an oilfield.”
The adjusted $1.263 billion budget passed unanimously.