A seven-year project to rebuild the Highway 51-Highway 29 corridor through Wausau cost $309 million by the time it was finished — more than twice the original estimate made by state officials, a Wausau Daily Herald investigation revealed.
In 2001, state transportation officials and lawmakers billed the reconstruction plan as a $151.5 million project to improve both speed and safety in the area. But their estimate left out aspects of the project that cost tens of millions of dollars, and the number did not account for the hundreds of contract changes that would be made from the time the work started in 2003 until it wrapped up in late 2010, the newspaper learned.
The story behind the cost discrepancy illustrates the flawed system Wisconsin used to plan and approve major construction projects a decade ago — a method that lawmakers say was changed in 2005 and again this year.
Highway projects: Oversights left to states
A committee of state lawmakers that reviewed plans for the 51/29 project before it could proceed was told that for $151.5 million, the state would add soaring overhead ramps, rebuild bridges and widen highways from four lanes to six. That figure, however, didn’t include a final environmental study, design costs or real estate purchases needed to complete the construction, nor did it account for cost increases that commonly arise during major highway projects.
“The price of materials and of real estate went up so dramatically in that time, and I don’t think (either factor) was given enough consideration in the initial estimate,” said state Rep. Jerry Petrowski, R-Stettin, who was among those who testified in support of the Highway 51/29 project in 2001. “The project scope also so dramatically changed from that time, with millions of dollars of work on Highway R, the McCleary Bridge, the Highway N interchange.”
The Daily Herald review of Wisconsin Department of Transportation records, kept in 93 document-storage boxes at a facility in Wisconsin Rapids, is part of a larger Gannett news investigation examining highway construction costs all over the country. That project found the federal government spends about $40 billion a year on state highway construction but rarely tracks how many projects are over budget or how much money goes toward construction cost overruns.
Compared with some states, Wisconsin does well at managing construction costs. Contractors in Wisconsin request additional payment using forms known as contract modifications, a process that increased actual construction costs on the Highway 51 project by more than $8 million, or about 4.6 percent — at the low end of cost overruns discovered by Gannett reporters.
However, the overall cost of the Highway 51 project soared with little warning for taxpayers after its initial approval by state officials.
Audit spots troubles
Major highway projects can take years to be developed, moving from DOT approval to approval by a panel of state lawmakers, the entire Legislature and the governor. One of those steps, presentation to the state’s Transportation Projects Commission, requires the DOT to give the commission members estimates of a project’s total cost.
Until this year, the project estimates given to the commission excluded a large portion of major highway project expenses, including property purchases essential to completion and expected inflation of prices for steel, concrete and other materials.
That flaw forced the DOT to delay introducing major highway projects to the commission in 2002 because increasing costs for ongoing roadwork placed too much pressure on the department’s budget. The delay pushed lawmakers to ask for an audit of the entire major highway program, including work on Highway 51.
By the time of the 2003 audit, costs of the Highway 51 project were up to $220 million, a $68.5 million jump partially blamed on a decision to increase the speed limit on highway ramps. The speed limit changes forced a redesign of the ramps and required additional materials to change the angles and grading on the pavement, an expense of about $30 million.
By 2010, when state and federal lawmakers lauded the project at a ceremony in Wausau, the cost had climbed by another 40 percent, to about $309 million. The final figure included a $36 million congressional earmark designated for repairs on local roads and additional funding secured by the DOT through the major highway project’s biannual budget requests to the state.
State auditors who conducted the 2003 audit found that the DOT’s flawed process did more than muddy the actual cost of major projects. Allowing lawmakers to base construction decisions on preliminary cost estimates jeopardized work needed elsewhere in Wisconsin, auditors wrote.
The audit’s conclusion sparked an effort to pass a state law requiring the DOT to provide all expected costs to state lawmakers. The changes started in 2005, too late to affect the Highway 51 project, and another change took effect this year, requiring the DOT to factor expected inflation of construction materials costs into project estimates.
Joe Nestler, director of the DOT’s Bureau of State Highway Programs, said state law now requires the DOT to complete an environmental study before the commission can recommend that the Legislature and governor enumerate a major highway project.
“Back when major highway projects started, that would have been the case that design costs were not typically included in the estimates,” Nestler said. “It was more of a brick-and-mortar estimate of construction costs. Today’s estimates are all-encompassing.”
A 2003 law also requires the DOT to provide six-month updates on highway project expenses, a dramatic change from the former system, when auditors struggled to obtain total costs for ongoing projects.
Pat Goss, a former deputy secretary with the DOT who now works as executive director of the Wisconsin Transportation Builders Association, said the changes ensure more accurate cost estimates.
But it’s difficult to say what the impact of a more accurate estimate would have been on the Highway 51 project, if it had been required in 2001.
“As I recall, that was a six- or seven-year project,” Goss said. “Your best estimates aren’t going to predict (an) increase in construction costs in that time span. (The DOT is) doing the best they can. They’ve made modifications to the system, and it’s certainly a lot better than it was in 2002, 2003.”
Petrowski also said he’s not sure whether a higher cost estimate in the initial phases would have caused lawmakers to reject the Highway 51 project. He remembers discussion centering not on costs, but on traffic backups that regularly developed on local roadways in Rib Mountain and Wausau before the reconstruction.
Kristin McHugh, a spokeswoman for the DOT’s north central region based in Wisconsin Rapids, said the Wisconsin Construction Price index, used to calculate material and labor costs, increased 55 percent from 2001 to 2011.
Chuck Rasmussen, planning and program manager for the north central region, said the increase in construction prices never was factored into the cost estimate given to officials considering the Highway 51 project in 2001. Rasmussen said he’s confident DOT staff members did their “level best” to manage the Highway 51 project and perform only the work that was needed by transit and local officials and the general public who use the highway.
“We’ve had a huge effort on this project to ensure businesses and the public understood the corridor and that we understood what their needs were,” he said. “We wanted to find that combination of the functionality (the DOT) needed and the desires of the community.”
Petrowski said community input weighed heavily into the project’s design, adding elements as time went on and changing others.
“Local governments and the people that lived here were looking for those changes to make our community the best it could be and be suited for the future,” he said. “Nobody likes spending more money. In this case, the initial scope of the project was so much smaller than what it ended up as.”
‘DOT is saving’
DOT officials and others in the construction industry say they believe the state has significantly improved cost estimates for major highway projects in the past decade.
The Transportation Projects Commission approved further study on six major highway projects this year. When estimates are developed for those jobs, DOT staff members will factor in all the elements left out of the Highway 51 estimate in 2001, including inflation for construction materials and labor, real estate purchases and design costs.
Petrowski, now a member of the commission, said the changes have given state lawmakers a better perspective on major projects, especially the expected inflation for steel, concrete and asphalt.
“I think they’ve put in a lot of cautions to try to estimate more accurately,” Petrowski said.
Rasmussen said any project undertaken by the DOT is influenced primarily by money available. Designs shift in response to inflation, funding needs at other DOT projects and community requests, he said.
“We work to manage major projects from the highest need in the state,” he said. “We have all the constraints and check marks there to follow the law.”
The agency also will continue filing six-month updates on the projects, letting lawmakers and taxpayers track spending as construction progresses.
Goss, the former DOT deputy secretary, said that availability of information even could drive down costs for the transportation agency.
“Anytime you have more information out there on a regular basis, the better it is for taxpayers,” he said. “What we’ve seen is, in large part due to very stiff competition among Wisconsin contractors, the DOT is saving. Contractors ultimately are bidding on contracts and getting them done under what the DOT estimated.”