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Tunnel contract: State is the one on the hook

City Councilmember Nick Licata steps back from the fray and gets at a central fact of the tunnel cost-overrun speculation.

The political rhetoric around the tunnel planned to replace the Alaskan Way Viaduct is marked by a preference for using a very thin slice of reality to spin the discussion. So, it is a notable exception to the practice of overlooking the details for Seattle City Council's Nick Licata to go to the fundamentals of the contract that would be signed for designing and building a waterfront tunnel.

Licata points out in a new edition of his "Urban Politics" electronic newsletter that the contract would be with the state, not the city of Seattle. There is no way that such a contract could bind the city to paying the contractor. And would any of us sign a contract to do work for a company with the provision that an uninvolved third party is responsible for paying us?

The contract reality undercuts the hysteria-making comments by tunnel opponents who say Seattle residents will pay for any cost overruns. Also worthy of undercutting is the make-believe line by tunnel supporters who say the risk of cost overruns is eliminated, as opposed to lessened, by the design-build contract.

Licata also goes a little deeper, to raise potentially problematic points. The state does have a limit to what it will pay for the overall waterfront work with no specification that the existing Alaskan Way Viaduct will be torn down on Olympia's dime. He suggests that detail should be worked out.

As noted last week, a new oversight committee (with state, county, city, and Port of Seattle representatives) has a chance to dig carefully into the facts and — ideally — start communicating realistically with the public about the risks and benefits. Licata hasn't been one of the principal leaders on the issue but he is moving the discussion a small step forward.

Licata's council web page doesn't usually have the latest comments posted immediately, so here's the full e-mail version.

The question that has dominated the discussion of the deep bore tunnel replacement for the Alaskan Way Viaduct has been: who will pay for any cost overruns? The answer is the State with regards to the contract for the tunnel. The reason is that the contractor that wins the design-build contract for the tunnel will be signing a contract with the State of Washington, not the City of Seattle. The contract will oblige WSDOT to cover risks associated with the tunnel. The City of Seattle will not be contractually obligated to cover cost overruns for the tunnel.

Think about it for a moment, the contractor could care less who pays the bill, as long as they get paid. They are not going to sign a contract in which this is left in doubt. Since the City is not a party to the contract, there would be no legal standing for either WSDOT or the contractor to look to the city to cover any of the bill spelled out in the contract.

That said, what does the $2.8 billion cap that the State legislature set on the entire tunnel project mean? The cap is real in the sense that the Governor cannot spend more state money than the legislature has approved. So let's assume that the $1.96 billion tunnel goes over budget; the State is on the hook, not the contractor. The state could pay them and still be under the $2.8 billion cap. However, what happens to the other parts of the overall tunnel project?

The most important project element for Seattle is taking down the current Viaduct to free up the waterfront to pedestrians. The State funding toward viaduct removal and rebuilding Alaskan Way is $290 million, but the State could use this money to cover any additional tunnel costs. The City could argue that the State was still obligated to do the project, but if the money isn't there, the State Legislature would have to approve funding, which would put Seattle in a weak position. This problem could be solved by the State and the City agreeing in advance to put aside the money for the waterfront, thus creating a separate locked box for it.


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