The Change Order Machine

The origin point

A CEO with an incentive

Jeff Morales started as CHSRA's CEO on June 18, 2012. He came directly from the position of Senior Vice President at Parsons Brinckerhoff — the Authority's own program manager, involved with California HSR since the 1990s. Former Board Chair Quentin Kopp warned publicly: "I wouldn't take a chance, as good as he may be, with somebody who's working for the project manager."

The Authority consulted the state Attorney General and FPPC, which concluded no legal conflict existed. Neither opinion has been made public.

The rule change

On March 1, 2012 — before Morales arrived — the Board approved a two-step evaluation for CP1: rank bidders by technical merit alone, eliminate the bottom two, then combine scores for the remaining three. Board Chair Dan Richard recused himself because he had consulted for Parsons, a member of one bidding consortium. The Board granted the CEO authority over only "non-substantive" changes.

Exactly 65 days after Morales started, the 4th RFP Addendum was issued, fundamentally altering the selection process. All technically qualified bidders would now have their prices opened — eliminating the two-step process the Board had approved five months earlier.

The Board was not notified. When the LA Times broke the story in April 2013, CHSRA confirmed the change was made in July 2012 but "did not provide details of the internal process used to alter the criteria." The Authority has never disclosed who drafted the addendum.

The five bidders

Under the Board-approved process, only the top three technical scorers would have advanced. The rule change let the lowest-rated bidder win on price.

Ferrovial had built one-quarter of Spain's entire HSR network. Tutor Perini had zero high-speed rail experience. The rule change converted a process that would have selected among three internationally experienced teams into one where the lowest-priced, lowest-rated bidder won.

No losing bidder filed a formal protest. Several subsequently won other CHSRA contracts — Dragados won CP2-3, Ferrovial won CP4 — suggesting they chose continued engagement over confrontation.

The independent oversight that was eliminated

The same year CP1 was awarded, CHSRA eliminated TY Lin International — the independent Program Manager Oversight consultant, specifically hired to oversee Parsons Brinckerhoff's work. No replacement was established until the OIG was created a decade later.

The mechanism: threshold avoidance

Three thresholds, three incentives

CHSRA established a tiered oversight architecture for change orders:

The architecture creates structural incentives. A $20.8 million scope item triggers BOC review. Four change orders of $5 million each do not.

The Hedges memo

The most concrete evidence comes from CHSRA's own Board meeting materials.

The total scope: $20.8 million — just above the $20M BOC threshold. Split into four to five orders averaging $4-5 million each, every individual order falls well below. This is not inference. It is an explicit plan, documented in official Board materials, describing the division of a single identifiable scope of work into sub-threshold increments.

Could this reflect legitimate operational phasing? Utility work does occur in stages. But the memo doesn't describe a phasing rationale. It describes a splitting plan with dollar figures that happen to fall below the oversight trigger.

The statute's existence confirms the practice is common enough to warrant specific legislation. If the Hedges memo's splitting was done to avoid the BOC threshold, it could constitute a violation of PCC §20116.

This is not without precedent. In December 2024, a San Francisco Public Utilities Commission audit found the agency had divided larger projects into smaller ones executed under job-order contracts, maintaining no central database for change orders on projects under $10 million. LAUSD's OIG found a project that "appeared to have been split to bypass the individual job order limit."

The $18.6 million threshold game

A separate data point from the State Auditor's 2018 report: a construction contractor requested more than $21 million for unanticipated bridge construction. The PCM oversight firm estimated $7.4 million. CHSRA approved $18.6 million — 251% of the PCM's recommendation — and just below the $20M BOC threshold.

Whether the final figure was shaped by the threshold or by legitimate negotiation cannot be determined from available records. But the pattern is notable: the contractor asks for an amount above the threshold, the independent estimate is far lower, and the approval lands precisely in the gap between the estimate and the trigger.

The contractors' track records

The contractors on the two worst-performing packages arrived with documented histories of aggressive change order practices and fraud.

Dragados (CP2-3: $1.23B bid → $3.69B actual)

Dragados bid exactly $1,234,567,890 — sequential digits — undercutting the next competitor by $506 million with "cost-saving" proposals that systematically failed. This is the classic buy-in/get-well pattern: bid impossibly low to win, then recover costs through change orders. The package tripled in cost.

Tutor Perini (CP1: $985M bid → $4.05B actual)

Tutor Perini has been publicly labeled a "change order artist" and was called out by a Pennsylvania state senator for "change-order scheming." In San Francisco, Tutor cost the city $765 million more than expected over 12 years. A former Perini Civil Division president was convicted of DBE fraud and money laundering conspiracy. Tutor Perini had the lowest technical score of five bidders and zero high-speed rail experience.

Both prime contractors bid substantially below Authority estimates — Tutor Perini at $985M vs. estimates of $1.2-1.8B, Dragados-Flatiron at $1.23B vs. estimates of $1.5-2B — consistent with lowball bidding followed by aggressive change order recovery.

The approval chain

Unlimited CEO authority

The CEO can further sub-delegate to staff — "the appropriate, qualified Authority staff." The $25M threshold triggers a reporting requirement, not an approval requirement. The Board never votes on individual change orders. This is not delegation with limits. It is delegation without limits.

Who actually signed

At every level of the approval chain, the supposed checks on contractor change orders were performed by other contractors or by bodies operating without public transparency.

The PCM that evaluates change orders and makes cost recommendations is a paid contractor with financial incentives to maintain the project relationship. The Deputy COO who co-authored the March 2023 budget memo requesting $2.073 billion in additional expenditure authority was a WSP employee, not a state employee. The BOC's membership and meeting records have never been made public.

The Board found out five months later

The Board's approval in March 2023 was a ratification of spending that had already occurred, not an authorization of future spending. The Board had no practical ability to reject or modify change orders already executed and relied upon by the contractor.

The natural experiment

The program inadvertently created a controlled comparison. CP4 was awarded to Ferrovial — the highest technical scorer on CP1, the firm with 722 km of Spanish HSR experience — using best-value selection and an independent construction manager (HNTB, not WSP).

CP4's 86% growth — still a near-doubling — shows that even the best-performing package overran significantly. The problem is systemic. But the CP1 procurement decision made it dramatically worse.

The missing audit

A new state legislative audit was requested by Assemblymember Macedo in February 2026, but its scope is not yet defined.

The defense

The strongest innocent explanation: Rule changes during procurement are not uncommon in design-build, and the 4th addendum may have reflected legitimate concerns about over-weighting technical scores in a cost-constrained environment. The Hedges memo may reflect normal project management — utility work genuinely occurs in phases, and splitting by phase is standard practice. CP1's cost growth was partly attributable to premature construction before design completion, not procurement manipulation. Tutor Perini's low technical score reflected their unfamiliarity with the evaluation format, not a lack of competence. Both the AG and FPPC cleared Morales.

Where the defense fails:

The rule change was made without Board notification — despite the Board having specifically limited CEO authority to "non-substantive" changes. The Authority has never disclosed who drafted the addendum. The CEO's bonus was contractually tied to the outcome the rule change produced. The Hedges memo describes dollar-figure splitting, not phase-based scheduling. PCC §20116 prohibits splitting regardless of operational rationale if the purpose is to evade oversight. And the entity that cleared Morales (the FPPC) later spent 18 months investigating another WSP employee for the same structural conflict — suggesting the initial clearance was not dispositive.

CP4's performance — same state, same project, same era — demonstrates that the cost trajectory was not inevitable. The procurement method mattered. The choice of contractor mattered. The independence of the oversight firm mattered.

What we don't know

Sources

Tier 1 (Primary documents)

• Board Resolution #1228 — CEO bonus criteria
• 4th RFP Addendum, CP1 procurement, August 22, 2012
• CHSRA Board memo, August 2018 — COO Joe Hedges, Fresno utility change orders
• California Public Contract Code §20116
• Board Policy HSRA 11-001, Resolution #HSRA 21-09 — CEO delegation of authority
• FRA Compliance Review, June 4, 2025 — Finding #1, footnote 68
• California State Auditor Report 2018-108 — contract management findings
• DOJ settlement, Dragados USA (April 2012) — $7.5M DBE pass-through fraud

Tier 2 (Government reports)

• GAO Report 13-304, March 2013
• Spain CNMC ruling, ACS Group bid-rigging fine (2022) — €57.1M fine; Dragados parent company

Tier 3 (Investigative journalism)

• LA Times, April 18, 2013 — Weikel/Vartabedian, CP1 rule change reporting
• Mercury News, May 29, 2012 — Morales hiring
• ENR, April 16, 2013 — CP1 bid results
• ABC10 — $537M settlement reporting
• SD Union-Tribune: "Change-order artist fights back" — Tutor Perini history
• Construction Dive: PA senator calls out "change-order scheming"
• NBC Bay Area: Tutor Perini $765M in Bay Area overruns

Tier 4 (Analysis)

• CARRD: CP1 procurement timeline — full document analysis