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Audit cites high costs, limited bidders for mandated in-state ferry construction

By KYLEE ZABEL Bainbridge Island Review By Kylee Zabel, Reporter WNPA Olympia News Bureau
January 27, 2013 · 9:19 AM
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OLYMPIA — Lawmakers in Olympia have begun to address the measures that prevent Washington shipyards from participating in Washington State Ferry construction projects as the fleet continues to age.

Recommendations from the Washington State Auditor’s Office suggest that regulatory provisions hinder competition for construction bidding, among other limitations.

A Vessel Construction Costs Audit, performed by the State Auditor’s office beginning in 2011, indicates costs are typically more expensive when WSF is the buyer, compared to other ferry construction projects around the U.S.

How much more is noted in one comparison the audit illustrated, where the cost to build the Chetzemoka ($87 million in 2011 dollars), the first installment of the Kwa-di Tabil-class ferries in 2009, was double the amount it cost to build Wood’s Hole, Martha’s Vineyard & Nantucket’s M/V Island Home vessel ($48 million in 2011 dollars), upon which the design of the Chetzemoka was based.

On average, state-constructed ferries cost from $7.5 million to $42.2 million more than comparable ferries built elsewhere, according to estimates made over the past 20 years.

Part of this cost difference, as stated by the audit and Assistant Secretary David Moseley of WSF, was due to the 18-month time period allotted to build the boat.

An average of 27 months is typically needed to construct a vessel of that size, according to the audit report.

Additionally, the audit recognized that, when ferries are constructed in a series, the cost of a second and third vessel significantly decreases.

WSF has budgeted $279.4 million dollars for the first two Olympic-class vessels, Tokitae and Samish.

The two boats, currently under construction, are on schedule and under budget, WSF reports. Their completion is expected by spring of 2014 and early 2015, respectively. Their service routes have yet to be determined.

The cost of the first boat is set at $146 million and the second at $132 million.

However, the audit found other reasons for increased costs to build WSF ferries.

One major cause is the regulatory environment in the state’s shipbuilding industry, which includes the “Build in Washington” laws and the “Apprenticeship Act.”

The Build in Washington laws are a series of stipulations created by the Legislature during the procurement of the Jumbo Mark II ferries in 1997 that required the ferries to be built within the boundaries of Washington state.

Since these boats were completed, lawmakers have continued to add this proviso with each new ferry project.

Among the other ferry systems the auditors visited to compare with WSF was the Alaska Marine Highway System.

While Washington’s system is much more extensive, Alaska does not have the same requirement that ferries must be built in-state.

Instead, Alaskan officials express a preference for in-state construction, but have the opportunity to look outside the state if they believe they can get a better price.

Legislators here are currently looking at the other options highlighted by the audit to help lower costs for future ferry vessels.

“We want to keep our jobs in-state, if we can. And I believe in-state competition is super and we need that,” said Rep. Jan Angel (R-26th District, Port Orchard).

Angel believes Washington needs to try to keep as many jobs reserved for Washington residents as reasonable and make sure that taxpayers’ dollars are spent in-state.

However, if there is a better price out there, Washington should perhaps be open to out-of-state bids, she said, adding, “I think we need some flexibility.”

Fred Kiga, head of government affairs for VIGOR Industrial — the only company eligible to construct the new Olympic-class ferries in Washington — disagrees.

“It’s not clear that sending vessel construction out of state would reduce the overall cost of our ferries,” he said.

Kiga said the state would lose other jobs, as well, if the state went outside Washington for its ferries.

“It is undeniable that sending this work out of state would mean Washington’s economy would lose the $180 million and economic activity generated by each boat. We’d just be sending taxpayer money to another state. Washington’s maritime sector would be less competitive in the future,” he said.

Rep. Judy Clibborn (D-41st District, Mercer Island) agrees. “We did the build-in-Washington purposely because when we went into the shipyards and saw the aging population and the struggle for them to get new employees [we thought] we could create competition between the three shipyards, all of which were having a problem with an aging workforce,” she said.

The audit also suggested revisiting the State Apprenticeship Program, commonly referred to as the Apprenticeship Act.

The act requires that 15 percent of the labor for public works projects be accomplished by those enrolled in state-approved apprenticeship programs.

When bidding opened on the latest Olympic-class-ferries project, only one shipyard was capable of doing so: Seattle-based VIGOR Industrial.

The major financial concern is that apprentice work increases construction costs.

According to the audit, 10 to 15 percent more hourly labor costs are added due to the supervision needed for workers still being trained.

While those at some Washington shipyards do not find conflict with the act itself, they do believe the Legislature should revisit provisions within the act to make it less complicated to have their apprentice programs become state-approved.

Members of the panel formed by the audit have suggested that, instead of the Apprenticeship Act, WSF should include clauses in the construction contract requiring “certified, skilled workers” be assigned to the project. This would enable all interested shipyards to bid.

Kiga said, “Your apprenticeship requirement of the ferry program is not a burden. In fact, it is a win for the maritime sector in Washington state as a whole. Training the next generation is critical to sustain the health, competitiveness and future of our industry.”

Clibborn points out that the audit was inconclusive in saying that WSF should stop the procurement of the third Olympic-class vessel, which is expected to be funded this session.

When asked by Republican members of the House Transportation Committee if the audit was able to provide evidence that, if the Legislature modified the regulatory provisions limiting competition, it would be of economic benefit to the state, the audit presenters were not able to provide a definitive response.

According to the Washington State Department of Transportation, there are seven major shipyards operating in Washington state: VIGOR Industrial, Nichols Brothers, Dakota Creek Industries, Lake Union Drydock, Foss Seattle Shipyard, J.M. Martinac Shipbuilding Corporation and Fairhaven shipyard. Four of those have approved apprenticeship programs but only VIGOR Industrial and Dakota Creek Industries have the physical capacity to build the 144-car Olympic-class vessels. Dakota Creek is not state-certified.

Kylee Zabel is a reporter with the WNPA Olympia News Bureau.

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