Mike Lindblom at the Seattle Times has the full story:

As a bid deadline nears and pressure mounts, Washington state has sweetened its Highway 99 tunnel contract by offering a pair of bid teams $230 million in concessions.

The changes reflect a view by construction executives that the real costs are higher on this world-record project than the state projected several months ago.

And:

They’re designed to reduce the companies’ risk, so bids are more likely to meet the target price of $1.1 billion, published many months ago.

“Both teams, and maybe the two teams that dropped out, expressed concern the [state’s cost target] is too low. They couldn’t figure out how to bid the project at that amount or lower,” Page said.

So far, the tunnel has “only” a $60 million cost-overrun. These new sweeteners will come out of the project’s existing contingency fund. But that in itself is somewhat troubling at this stage. Over at Seattle Transit Blog, John Jensen nails it:

…it’s slightly concerning that the engineer’s estimates are already unrealistic in a period where construction bids routinely come in under budget. Imagine what happens in 2014 or so, when construction is beginning in earnest and the change orders come pouring in.

  • Postscript: 10/22/10: Michael van Baker’s analysis at SunBreak is mandatory reading:

    You know that phrase, “money quote”? This time it’s literal:

    “Both teams, and maybe the two teams that dropped out, expressed concern the [state’s cost target] is too low. They couldn’t figure out how to bid the project at that amount or lower,” Dick Page told the Seattle Times, explaining WSDOT’s decision to spend down its $415 million cash reserve by $230 million in concessions to the two bidding teams.

    …what we’re seeing is that contingency and risk have eaten up half that fund [in] a year before a single clod of earth has been moved. That’s not a good sign; what’s also not a good sign is that you can’t seem to find a single tunnel proponent who is bothered by it..

    So is this bit at Publicola:

    …tunnel project manager Ron Paananen said, without explanation, the state would “recoup $50 million from the city of Seattle for utility relocations in parts of the 1.7-mile tunnel corridor, a figure that wasn’t budgeted earlier.”

    So is that $50 million on top of the $248 million the city has already pledged to pay to move utilities during tunnel construction? We tried to find out.

    City staffers, including transportation department spokesman Rick Sheridan, weren’t sure. “It’s unclear what WSDOT is referring to when they refer to $50 million that wasn’t budgeted for,” Sheridan said. Other city staff were similarly unsure.