California Bullet-Train Contract Imperiled by Regulators

The California High-Speed Rail Authority, the only bullet-train builder in the U.S., may have to renegotiate a $1 billion construction contract after a federal regulator refused to grant early approval for a 114-mile segment.

The Surface Transportation Board in Washington, which previously gave the go-ahead for a 24-mile section of the line north of Fresno, rejected the state’s request for a further 114 miles between Fresno and Bakersfield. The high-speed rail authority said it needed the additional approval because it had awarded a contract for 29 miles of the line, consisting of the full first section and 5 miles in the second section.

The decision is the latest setback for California’s $68 billion plan to build a bullet-train network between San Francisco and Los Angeles. A judge last month said the state had to rewrite its business plan before it can issue $8 billion in municipal bonds to help finance the project.

The contractor “is constructing 29 miles and there are a number of those miles that haven’t been environmentally cleared, so he is not allowed to start construction there,” said Lisa Maria Alley, a spokeswoman for the Sacramento-based rail authority.

The state in August signed a $1 billion contract with a joint venture among Tutor Perini Corp., Zachary Construction Corp. and Parsons Corp. Without conditional approval for all 29 miles, the state said it may need to slice 5 miles out of the contract and renegotiate the terms. That could increase costs and delay the project, the authority said.

“The fact that the authority contractually agreed to notify its contractor by a certain date that construction can proceed is not a sufficient basis for the board to carry out its independent statutory obligation in a piecemeal fashion,” the board said in decision dated Dec. 3 and made public today. “No construction may begin until after the environmental review is completed and the board issues its final decision.”

Jeff Morales, chief executive officer of the rail authority, said it would work with the federal board on its request and continue on the section already approved.

The state is buying land and rights-of-way needed for the project, which is slated to begin running three-hour trips between the California cities by 2029. The rail authority is getting ready to seek bids for a second $2 billion contract.

California is the only state looking to build a high-speed rail network. Congress cut off funds for such projects in 2012. The federal government had already allocated more than $3 billion to the California authority.

Before it's here, it's on the Bloomberg Terminal.