To trim construction costs, Washington's Legislature should remove a requirement that all government-owned ferries be built in-state, concluded a state auditor's report released Thursday.
Those requirements would be lifted under specific circumstances: when not enough in-state bids are submitted to create meaningful competition, or when the price tags on those bids are judged to be too high. Washington has at least three shipyard companies theoretically capable of building ferries for the state.
The report also recommended modifying apprentice requirements on shipyards seeking ferry contracts in order to let more bid. Currently, only Vigor Shipyards — with five locations on Puget Sound and at Port Angeles — has a state-approved apprenticeship program. The others have their own apprentice programs, but don't meet the state's legal requirements.
Washington has the nation's largest ferry system, with 22 boats carrying 22 million people and 10 million vehicles a year among 20 terminals. Nine boats are between 40 and 65 years old, and are supposed to be replaced in the next 20 years.
Washington State Ferries' ships "are among the most expensive ferries purchased in the past 20 years compared to the amounts spent by other U.S. ferry operators," the report said.
The auditor's staff — aided by outside ferry construction experts — looked at 39 ferries built in the last 20 years, including six for Washington State Ferries. Converting all the costs for all 39 vessels to 2011 dollars, the study concluded that three Washington 202-car ferries were the three most expensive on the list. And three Washington 64-car ferries were the sixth, 10th and 11th most expensive. The actual dollar figures were not listed in the report.
The study also compared Washington's 64-car Chetzemoka to the Massachusetts-based Island Home, since the Washington vessel was copied from the Island Home's design. The final costs in 2011 dollars were $87.3 million for the Chetzemoka and $48.5 million for the Island Home. Both boats were the first of their class to be built in each state. The conventional wisdom is that construction of subsequent vessels with the same design is cheaper.
The biggest factor in the difference in the two boats' costs was orders for modifications during construction, the auditor's report said. At least $10 million in change orders went into the Chetzemoka's construction, compared to $624,000 in change orders for the Island Home.
Washington State Ferries has one144-car boat under construction for $147 million; the original cost estimate was $115.3 million and the state has already paid $136 million so far. Another 144-car boat is awaiting construction immediately afterward and is expected to cost less because of bugs worked out during construction of the first boat. A third 144-car boat is a possibility if additional transportation dollars are found.
As part of a reply to the report, the state Department of Transportation wrote that it "agrees that exploring alternatives to the Build In Washington law may result in shipyard competition to build ferries; however, further studies would be needed to determine if any savings resulting from competition, especially competition outside of Washington, would offset the benefits to the state of a stable shipyard work force and economic benefits of in-state jobs."
Rep. Judy Clibborn, D-Mercer Island and chairwoman of the House Transportation Committee, said she has heard complaints about the difficulty in meeting the state's current shipyard apprentice requirements. That matter will likely be addressed in the upcoming legislative session, she said.
Meanwhile, modifying the in-state-only shipyard requirement would be more complicated because that measure helps the state's economy, she said. Also, Clibborn said the first two 144-car vessels are already contracted for. If a third 144-car boat is added, it will likely be tacked onto Vigor's current contract because it would be cheaper to use an operation with two boats already under its belt rather than seeking new designs and a new shipyard for a third one, she said.
Washington State Ferries is flirting with the idea of building liquid-natural-gas-fueled ferries a few years from now; Clibborn speculated that could be the next time that the state would set up a new ferry-building contract.
The auditor's office and Washington State Ferries are clashing on whether the report makes valid apples-to-apples comparisons on the in-state and out-of-state ferry construction costs.
A Dec. 27 letter from Washington Transportation Secretary Paula Hammond and Stan Marshburn, director of the state Office of Financial Management, contended that the auditor's report did not take into account an accelerated construction schedule for the three 64-car vessels to deal with the sudden 2007 retirement of four 80-year-old ferries. That led to extra work shifts and to construction beginning before the design work was done, the letter said. Vigor led a three-company coalition to meet the accelerated construction schedule.
The letter also argued that the auditor's report did not account for regional differences in wages, the costs to comply with the state-approved apprenticeship requirements and the mandate to use only Washington shipyards.
The auditor's office replied that it accounted for "95 percent" of the differences in cost factors when it compared Washington's ferry construction with shipyards in other states. And it contended that the Chetzemoka and the Island Home's comparison was apples to apples.
The auditor's report made other recommendations to Washington State Ferries. These were to:
- Set fixed-price contracts to build ferries, and not allow costs to be added to them.
- Ensure the design of a vessel is complete before construction begins.
- Use a hired third party to be the states' watchdog and middleman in its dealing with a shipyard. This practice would remove temptation from the state to make change orders that would add costs, the report contended.
- Put all responsibility for equipment and delivery on the shipyard. Currently, the state provides some equipment, such as propulsion systems, to a shipyard. The practice could lead to cost-increasing change orders, the report contended.