Faced with a looming $1-billion operating deficit by 2022 and the need for costly capital projects, New York City’s primary transportation agency is seeking a 10% fee cut on current projects from hundreds of engineers, technical advisors and other vendors.
Construction-related associations have protested as a group. Individually, each company has been deciding whether to continue to work for the Metropolitan Transportation Authority on the new terms.
The MTA has asked some firms to renegotiate contracts, the American Council of Engineering Companies of New York reported on its website. One firm has agreed to new terms, some have walked away from existing contracts and some believe the terms they are working under will hold if no new prices are agreed on, the council chapter stated.
“We think it’s shortsighted,” says Jay Simson, chief executive of the council chapter, in an interview. “The MTA is in a tough situation and has had some bad publicity, some self-inflicted.” He adds: “But it runs the largest transit system in the western hemisphere. They have their work cut out but we believe they should look at smarter design and not try to solve part of the financial problem on the backs of engineers.”
The required fee cut, announced in a letter to vendors in February, was to be applied to all invoices beginning April 1st. It isn’t clear how the legal considerations involved are being handled.
The MTA’s public affairs staff did not immediately respond to email and phone requests for comment.
The Wall Street Journal first reported the opposition by engineers.
Gov. Andrew Cuomo (D) is seen as the force behind the fee cut and other changes in New York State’s infrastructure and procurement practices.
Philip Plotch, assistant professor of political science at St. Peter's University, says that the demand for concessions is not entirely novel for Cuomo. In 2016, he pressured contractors to finish New York City’s Second Avenue Subway (in Manhattan) on time, “including paying things they weren’t expecting to pay for but did. They had a lot of pressure to meet the deadline,” says Plotch.
“So the idea that you can pressure the contractors is not a not a new thing for the governor,” he says.
Industry Reply to MTA Fee Cut
In a formal reply letter sent to the MTA in March, the engineering council's state chapter, together with the American Institute of Architects New York chapter and the New York Building Congress, noted that the MTA already reduces federal audited overhead rates and limits profit to about 8%. As a result, the letter argued, a 10% reduction will mean that firms will work at a loss or for little to no profit on many MTA projects. That “could lead to hardship for our smaller firms including MWBE firms who rely heavily on public work for their success,” the letter stated.
The demanded fee cut is being made to all vendors and contractors as part of an overhaul of the Metropolitan Transportation Authority, the umbrella authority that oversees city subways, busses, Long Island Railroad and Metro North Railroad. These entities are clients of big engineers such as WSP, AECOM and Parsons Corp. Dozens of mid-sized and smaller designers and consultants also work for the MTA.
Cuomo has made the keystone of the new MTA financing plan an electronic tolling system for drivers in New York City’s midtown business district—a huge legislative victory won from state lawmakers early this year. Cuomo and Mayor Bill De Blasio (D) jointly announced the MTA overhaul plan, but it bears Cuomo’s imprimatur. He has linked his public image to infrastructure and often appears at ribbon cuttings, such as in 2017 for the new cross-Hudson bridge north of New York City named for his father, and most recently, at the opening of a span of the new Kosciuszko Bridge between the boroughs of Brooklyn and Queens in New York City.
Centralized Construction Management
During the winter, in addition to the MTA’s required fee cut, Cuomo and De Blasio announced centralization of the separate construction management operations of the different MTA units and formation of a construction review team using faculty at Columbia and Cornell universities.
The implied criticism of the MTA’s existing engineers was plain. Review of the concept for renovating a critical subway tunnel between Manhattan and Brooklyn has been credited with cutting the time involved from more than a year to months, avoiding full-week shutdowns and saving millions with a plan for repairing and supporting cables damaged during Superstorm Sandy. At an April 17th meeting, Patrick Foye, chairman and president of the MTA, called the original tunnel renovation concept and design a major failure of imagination on the part of the city’s existing consulting engineers.
Foye referred to the MTA and its consultants and contractors as part of a “transportation industrial complex” where former employees of the MTA now work for engineers and contractors and sit across the negotiating table from their former MTA colleagues.
Design-Build Now Required
Still more changes are at hand. Under a state budget supported by Cuomo, the MTA must carry out out all major projects as “design-build” to transfer more cost and schedule risk to construction teams. The new rules also require the MTA to debar a contractor whose project slips more than 10% over budget and schedule. Exactly how blame or scope increases will be identified has not been publicly spelled out.
At the MTA board’s April 17 meeting, Foye lauded the new state debarment approach as one that would land a heavy blow on the “publicly traded, billion-dollar market capitalization engineering consultants” who regularly work for the MTA.
Before debarment issues are sorted out, however, comes the difficult business of what to do about changing prices in mid-contract.
The engineering company council’s state chapter must tread lightly around anti-trust laws when it comes to advising members about pricing their services. “You can choose to take whatever action is necessary,” the council chapter noted on the website. “But we strongly caution against you consulting with your fellow owners/managers at other companies to take actions that could be considered price fixing or anti-competitive.”
The first paragraph of this story was updated June 4 to reflect that the 10% fee cut sought by the MTA is from vendors and technical advisors but not specifically construction contractors.