McGraw-Hill Construction Design-High-Rolling Monorail Unlocks Las Vegas Strip

By Paul Rosta The author is a correspondent for the McGraw-Hill
Cos. He lives in Los Angeles, where he regularly
reports on construction industry issues.

Las Vegas’ newest wonder boasts no fabulous stage shows, high-stakes games of chance, or exotic themed attractions. Instead, the glitzy desert city is about to get a public transit system befitting its reputation for spectacle. Early next year, a fully automated $650-million monorail will start whisking visitors quickly through the heart of this fast-growing metropolis.

Behind the 36 sparkling rail cars and their four-mile-long elevated concrete guideway stands an innovative private financing package and a turnkey design-build-operate strategy. In a probable first for a U.S. public transit project, "the private sector stepped up and basically built this," says Todd Walker, spokesman for Transit Systems Management, the monorail’s program manager.

"That just doesn’t happen on a transportation project, where you have the private sector come in and build a project of this magnitude," says Jim Cramer, project manager for Ft. Worth, Texas-based Carter & Burgess Inc., the design-build team’s engineering consultant.

To a large extent, it was the financing that drove design-build delivery for the monorail, say project officials. In a scheme compared by project team members to toll road construction, the monorail is funded solely by revenue bonds that cover all construction, equipment, systems and financing costs. The bonds will be repaid by advertising at the stations and from fares paid by a projected 20 million passengers annually.

For such a financing plan to win the confidence of the bond market, "costs must be known up front," says Tom Stone, president of Transmax Group, a Las Vegas-based consulting firm that worked with TSM to develop the monorail. That requirement pointed to design-build and its power to guarantee a price in advance, Stone says.

Because the unorthodox financing strategy limited the availability of funding during preliminary design, the monorail "probably could not have been done on any other basis than design-build," says Dave Malutich, area manager for Granite Construction Co., the design-build team’s general contractor. Watsonville, Calif.-based Granite joined with majority partner Bombardier, the team’s Montreal-based supplier of train vehicles and systems for the project.

"There’s nobody that is going to step up and plunk down $15 million to $20 million to design a job like this and then find out you can’t finance it," Malutich explains. Instead, the team got "enough preliminary design work done that we felt comfortable putting a guaranteed price on it."

Although the futuristic monorail seems bound to lure tourists, transportation officials are counting on it to be much more than just another attraction. "The monorail is primarily intended to improve mobility and air quality in our resort corridor," says Jacob Snow, general manager of the Regional Transportation Commission of Southern Nevada. After years of staggering growth and a concentration of service jobs in the Las Vegas resort corridor, "we are on the edge of stultifying gridlock and we need to do something about it," he says.

If successful, the project could anchor a proposed 18.5-mile line linking the resort district to downtown Las Vegas and McCarran International Airport. Bombardier and Granite also will team on the monorail’s next phase–a $450-million, 2.5-mile extension that will draw on federal funding as well as the revenue bonds that funded the first phase. Depending on when Congress releases $300 million in grants and loans, construction on the next phase should begin in 2004 or 2005, says TSM’s Walker.

The new line is the offshoot of a privately funded, two-station monorail that links the MGM and Bally’s resorts on the Las Vegas strip. That shuttle, completed by Bombardier and Granite in 1995, carries an estimated 5 million passengers annually and provided a successful test of a longer route. The new segment expands the monorail with stops at four more hotels plus the Las Vegas Convention Center.

The innovative financing and delivery emerged from a search for alternatives to developing and funding large-scale public transportation projects, says J.F. Finn, senior associate with the Santa Monica office of Gensler, the design-build team’s project architect. In 1997, the Nevada legislature authorized Clark County to award a franchise for a monorail to a consortium of major Las Vegas resorts. The Las Vegas Monorail Co. owns and operates the system under supervision of a five-member board appointed by the governor. TSM serves as the company’s program manager, overseeing design, construction and daily operations. After several years of discussions and preliminary design, the Bombardier/Granite team received a notice to proceed for a design-build-operate-maintain contract from Las Vegas Monorail Co. in September 2000.

The complex financing package is split into several levels– $450 million in AAA-rated bonds, or "first-tier" debt; $150 million in second-tier bonds; and $56 million in bonds held by the sponsoring hotels and the contractors. The design-build team’s stake in the funding provides "an incentive for them to build on time and on budget" and makes other bondholders more comfortable, says Walker.

Single-point responsibility ensured that there would be "no potential for cost overruns that would have to go back to the resorts and the taxpayers," says Transmax’s Stone. Bombardier/Granite’s contract, currently valued at about $345 million, includes a $27.4-million contingency account, says TSM President Cam Walker. "When you’re going to private-sector markets for capital, it’s very important to control risk and put dollars" in potentially risky areas, he says. "I’m happy to say we didn’t touch the construction contingency, we didn’t touch the owner’s contingency."

Bombardier’s operations and maintenance contract calls for three five-year renewable terms. "They’re warranteeing the system by operating and maintaining it," Todd Walker explains. To further boost investor confidence, Las Vegas Monorail Co. retained two additional oversight consultants, Las Vegas-based G.C. Wallace Inc. for engineering and Booz Allen for the system and vehicles, Stone explains.

Stone contends that single-point responsibility with the design-build contractor was the best way to handle the monumental job of handling dozens of contracts and thousands of interfaces among contractors, designers, subcontractors and consultants. "By placing control, definition and execution of these elements in one place, nothing falls through the cracks," Stone says. "There’s no finger-pointing."

To Cam Walker, TSM’s president, the biggest challenge "was the fact that we are building something that is four miles long." Tasks included securing over 50 permits, negotiating with private property owners and building the stations, guideway and operations and maintenance facility. "From a design-build perspective, it was very helpful that all that was wrapped up in one contract," he says.

Once the design-build team gets the green light, "time is everything," Malutich says. "All the money’s been borrowed at the start of the project, so you want that project’s duration to be as short as possible," he adds. Cramer speculates that "if we weren’t doing this under a design-build concept, construction would probably just be getting going."

Malutich describes the project as "a real fire drill" because permitting, construction and design all had to happen simultaneously. As soon as Granite placed the superstructure, "the Bombardier people [would] come in and install all the systems. That’s probably been the most strikingly effective part of it," says Stone.

For the construction and design team, design-build made the job both harder and easier, says Malutich. It was harder "because there was so much going on" simultaneously, he says. Yet it also was easier because the process makes it possible to catch potential problems early, he adds.

"I think it’s a fact that design-build is not the cheapest way to design a job, or necessarily even to build a job," Malutich says. But any inefficiencies that may result from the accelerated pace "are way offset by the benefit of having the project done earlier," he says. With conventional procurement, "I’d say that you’d easily be looking at 12 to 18 months’ added time," he estimates.

Fast tracking also created significant challenges for the design team. Because property agreements were still under negotiation while the designers developed the stations, the team "had to try to guess at what the requirements for each station were going to be," says Gensler’s Finn. Bombardier continued development of the system’s highly sophisticated control and communications systems during station design, so "the final requirements [for the stations] were constantly under refinement," Finn says.

During construction, the design-build process provided the flexibility to deal quickly with unexpected conditions. The foundation design for the project’s 54,000-sq-ft operations and maintenance building originally called for spread footings. When excavation revealed less competent material in one corner of the footprint, engineers quickly redesigned the foundation with drilled caissons.

The episode illustrates that "when you’re sitting right there with the engineer, when something does go wrong or is different from what you expect, you can react pretty quickly," Malutich says. "It’s very critical to have everyone on site and essentially in the same office," he says. "There’s just no substitute for being able to walk down the hall and grab the right guy by the collar and make him address what’s on your mind."

Although design-build helped ensure that the modification made no dent in the project schedule, Cramer says the event also illustrates a potential limitation. The funding available before the notice to proceed allowed design to reach only about the 10% level, he says. "Given my druthers, the design would have been a lot more advanced prior to that", he says. For example, further geotechnical investigation might have headed off surprises like the building foundation.

From the owner’s perspective, design-build undoubtedly proved a success, says TSM’s Todd Walker. He reports that change orders of just a few dozen were a fraction of the hundreds that would ordinarily be expected on a large-scale transportation project. Cam Walker concurs. "I’m extremely pleased with the execution of our design-build contract and the ability of it to limit the claims and the issues that need to be resolved in the partnering process," he says. "I’m happy to say we have no claims out there."