Episode 141 – Lessons Learned Digging a $570M Tunnel Under Seattle

Episode #141
Original Air Date: 11.15.2021

45 Minutes

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Our Guest This Episode: Keith Ward

The largest infrastructure project in the history of the Seattle Public Utilities is the Ship Canal Water Quality Project. This ambitious megaproject was initiated in 2014 to solve the problem of combined sewage overflow into the local waterway in the Greater Seattle area. Our guest Keith Ward is the project executive on this project, and he joins us to give insight into the lessons learned overseeing an 11-year initiative, estimating a $570 million budget, and building strong relationships with multiple stakeholders and project teams.

As Keith describes working with the two major stakeholders, he gives insight into the federal consent decree and how it impacts the ongoing project. Working successfully with 10 different organizations to deliver this project, Keith highlights the importance of relationship building by focusing on trust and transparency. We asked Keith about the funding for a $570 million budget that spans more than a decade. Keith walks us through the budget challenges they faced, and how they determined a new, revised budget. Keith highlights why the costs changed; the plan to save ratepayers long-term financing costs; and the budget estimating methods that worked best for this megaproject.

In large, long projects, there is always a high degree of uncertainty. Some of those risk events are opportunities. Hear how Keith and his team pivoted to seize an opportunity when the tunnel-boring machine (TBM) arrived, to conduct a contest which involved the community in selecting the TBM name. As we shared the story of Atlanta’s “Driller Mike,” listen in to hear the story about Seattle’s “MudHoney.”

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Favorite Quotes from Our Talk:

"... this is a megaproject.  This isn’t a $2 million project; right?  This is in another category.  So, and I think that’s one of the lessons learned is when you move into this megaproject, like over a half billion, the degree of uncertainty is huge, and you need to account for that."

- Keith Ward

"I would encourage younger project managers to really focus on developing their communication and leadership skills through courses.  ... Mentors, talking with peers, welcoming feedback from your teams, and then trying new things.  And then, ...keep an eye on your resiliency.  Take care of yourself. 

- Keith Ward

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The podcast by project managers for project managers. The largest infrastructure project in the history of the Seattle Public Utilities is the Ship Canal Water Quality Project. Keith Ward talks about the lessons learned overseeing this 11-year initiative. Hear about estimating and revising a $570 million budget, and building strong relationships with multiple stakeholders and project teams.

Table of Contents

01:37 … Keith’s Current SPU Role
02:26 … Ship Canal Water Quality Program
06:47 … Using Tunnels Instead of Tanks
08:37 … A Tunnel Boring Machine
11:39 … MudHoney
15:12 … Project Stakeholders
18:08 … Challenges with Multiple Teams
22:06 … Project Funding
23:20 … Federal Consent Decree
25:31 … Budget Estimating for a Megaproject
28:59 … When Costs Change
31:44 … Budget Setting Lessons Learned
32:54 … Monte Carlo Analysis
38:47 … Tracking a Lengthy Project
39:53 … Final Words of Advice
41:10 … Get in Contact with Keith
43:44 … Closing

KEITH WARD: …because I want people to learn from our lessons learned here. There’s a lot.  I’ve learned a lot personally, and it’s been a really eye-opening experience.  And I want to clarify, this is a megaproject.  This isn’t a $2 million project; right?  This is in another category.  So, and I think that’s one of the lessons learned is when you move into this megaproject, like over a half billion, the degree of uncertainty is huge, and you need to account for that.  That’s one of the kind of I would say über lessons learned. I’ve learned a lot personally, and it’s been a really eye-opening experience. 

WENDY GROUNDS:  Welcome to Manage This, the podcast by project managers for project managers.  I’m Wendy Grounds, and in the studio with me is Bill Yates.  I want to say a big thank you to our listeners who reach out to us and leave comments on our website or on social media.  We love hearing from you.  And it was actually from a listener that we have today’s guest.  Chris Stoll reached out, and he recommended our guest who we’re talking to today.  And we are very grateful to Chris, and we appreciate it when any of you reach out to us and send us ideas of guests.

So our guest today is Keith Ward.  He is currently the project executive of the Seattle Ship Canal Water Quality Project, and he’s going to go into some detail on that.

BILL YATES:  We’re going to talk about tunnel boring machines, federal consent decrees, and MudHoney.  Are you ready for this?

WENDY GROUNDS:  I’m ready for MudHoney.  Hi, Keith.  Welcome, and thank you for joining us today.

KEITH WARD:  So nice to be here.  Thanks, Wendy.

Keith’s Current SPU Role

WENDY GROUNDS:  We saw that you have been with the Seattle Public Utilities since 2002.  Can you tell us about the services they provide, and your role in the company?

KEITH WARD:  Sure.  So Seattle Public Utilities is kind of four utilities in one.  And I’ll kind of use the term “SPU” sometimes.  I’ll bounce back and forth.  We deliver essential water and waste services to about 1.5 million people in the Greater Seattle area.  So really our four services are drinking water, drainage and wastewater, and solid waste services.  I’ve had a variety of roles, mostly in project delivery, at SPU since coming onboard 2002.  My current role is the project executive on the Ship Canal Water Quality Project, which is the largest infrastructure project in the history of the organization.

Ship Canal Water Quality Program

BILL YATES:  Now, that we want to get into.  This Ship Canal Water Quality program, why was this initiated?  What’s the problem that it’s trying to address?

KEITH WARD:  Yeah.  It’s a problem that’s common to many kind of older cities.  We don’t think of Seattle as always an older city.  But a lot of our infrastructure was built over a hundred years ago.  So this project was initiated in 2014 to solve the problem of what we call “combined sewage overflow.”  So back a hundred years ago there was no treatment for sewage, and they just basically installed one pipe in the street, and it went to the closest water body.  And that was common across the United States; right?

BILL YATES:  It’s hard to imagine, but that was it; right?  That was the solution.

KEITH WARD:  Exactly.  And those caused all kinds of problems with cholera and all kinds of different issues.  So this pipe has to convey both sewage and storm water from the streets and houses.  And it’s really the storm water that’s one of the biggest problems because in large storm events all this storm water or drainage comes into these pipes, which now we’ve hooked all these pipes up to tunnels, which eventually go to a wastewater treatment plant that the county owns.  So on a dry day, or a small storm, all this gets treated, and then it’s discharged, just like we want.

But on really large flows, large rain events, it overwhelms the system.  And we either have to back up into residence and businesses or have it come out of the street, or we have – the City of Seattle has 82 overflow points across the city.  King County, our partner, has 35.  We need to basically overflow this.  And that can be harmful to fish, wildlife, and swimmers.  So both agencies, the City of Seattle and King County, are under federal consent decrees to reduce the number of these overflows.  And like I said, most agencies across the nation have been or are under similar consent decrees to fix these historical problems.

So the Ship Canal is a local waterway and the focus of this project.  Currently, combined sewage overflows occur about 104 times per year on average.  And in 2020 these overflows represented about 56 million gallons of this polluted storm water and sewage out of our 85 million gallons total.  So this project will protect our waterways, keeping this polluted storm water and sewage out and improve public health by bringing these overflows down to less than one per overflow.  So basically we have six overflow locations.  We’re going to take them from 104 down to six.  And that will keep an average of more than 75 million gallons of combined sewage overflow out of this local waterway.  So that’s the problem that we’re trying to fix.

And then let me just explain really quick the project itself.  And had I been involved earlier, I would have called the Ship Canal Water Quality Program because it’s really a program of four major construction projects.  In over a seven-year period we will end up constructing a 2.7-mile long, 18’10” diameter storage tunnel.  And this diameter is about the same as your standard transit tunnel.  So if you’ve ever been on a subway tunnel, that’s about an 18’10, kind of what we call your “bread and butter.”  And what will provide about 30 million gallons of storage capacity that we can put this combined sewage overflow into during these storm events.

In order to get it down into this deep tunnel, we have to install five deep drop shafts at five neighborhood sites across the city.  These are vertical shafts that bring it down in and allow us to get in for maintenance.  And then we actually have to connect some flows around these shafts into the shafts, so we’re going to actually have two additional tunnels.  So we actually have three tunnels overall in the project, about a 650-foot long and 2,000-foot long tunnels.  One of these is underneath the Ship Canal.  That’s currently actually being mined right now. 

And once we finish all of our tunnels, we will basically, in our shaft that we’re using for all the tunneling, when they’re finished we will build a 12-million gallon per day pump station that will basically drain the tunnel when the treatment plant is ready so that we can get ready for the next storm.  So that’s the entire program.

Using Tunnels Instead of Tanks

BILL YATES:  I’ve just got to bring this up because Seattle is a beautiful city, one of the most beautiful cities certainly in the U.S., if not in the world.  There’s water all around it.  There’s Puget Sound, there’s Lake Washington, the ocean.  It’s just gorgeous.  And I think about what you’re doing, you’re preserving the beauty of Seattle and the water that is there.  So you guys chose tunnels instead of tanks, which I appreciate because, you know, no matter what kind of artwork you put on it, a tank is still a tank.  Talk about the complexity that was added by choosing tunnels instead of tanks.

KEITH WARD:  Sure.  These were early decisions between the two agencies and when they decided to kind of come together.  Started back in 2013.  So we have different tools in our toolbox to solve this problem.  When you get really large volumes like this, you need to go to what we call “storage” or “tanks.”  These generally in an urban environment would be underground concrete tanks.  So we were kind of looking at installing at each of these six locations underground storage tanks.  But you need a lot of property to do that.  So we would have had to condemn private property, and there would have been a lot of construction impacts, much more than when you’re doing a tunnel.

So that led us to start thinking about, first of all, a tunnel, and then a share tunnel.  And the cost ended up being about the same.  We ended up going down the share tunnel route because it would be much less impact for the local communities, less condemnation.  And actually, because it’s over three miles, it gives us more operational flexibility because what we’re starting to see is kind of storm patterns changing where we get these micro storms.  So on one end of the tunnel we may get a really hard storm, and on the other end it’s not as bad.  So instead of just having one tank, we can put more into the tunnel at that specific location.

A Tunnel Boring Machine

WENDY GROUNDS:  We did a podcast a while back with the Atlanta Watershed Project.  They described using a tunnel-boring machine to work through the tunnels that they’re building here in Atlanta.  So now I know you guys are using a tunnel-boring machine, as well, to make your tunnels.  Won’t you just briefly describe for our listeners how a tunnel-boring machine works?

KEITH WARD:  So yes.  We actually will end up using three tunnel-boring machines to make our three tunnels.  But by far our most important is our 2.7-mile-long tunnel.  And each tunnel-boring machine is slightly different, but I’ll explain our biggest.  It’s just unbelievably fascinating and amazing.  And I am not a tunneler by trade.  But I just, every day I learn more.

I think what’s also fascinating are the logistics.  So if you think about a tunnel-boring machine, it’s actually a whole system.  It’s 450-feet long, so it includes not only the machine that mines, in our case soil, we’re going through very hard soil, not rock, but also behind it are 11 support cars.  And these build the tunnel behind the machine because the machine pushes itself off the completed tunnel to move forward.  These cars also provide power, ventilation, and many other things that keep the tunneling going.

In order to remove the soil, we’re actually going to be installing a railroad in the tunnel, behind the tunnel-boring machine, which will bring the soil back to our 90-foot deep launch shaft.  And then we have a 50-ton crane that goes down and picks up the soil, brings it to the surface.  And at night about 30 trucks a day will remove it for disposal.  So all those logistics have to be happening.  We’re going to be going through soils that have been overlaid by glaciers.  Seattle was kind of compacted by glaciers about 15,000 years ago.  But we have a lot of different soil and groundwater conditions.  So this machine was specifically designed for those soil and groundwater conditions.

And one concern that always comes up is settlement, voiding and those kind of things.  So we’ve heavily instrumented the machine, and we’ve installed devices in the ground along the tunnel alignment so that we can see real-time if there’s any issues.  And then we also have tunneling experts that are working for us as the owners’ team in the tunnel-boring machine at all times.  So right now, this time today, we’re about 450 feet into our 13,000 linear foot long tunnel.  So we’re just starting our tunneling journey.

BILL YATES:  That’s amazing.  So 450 feet in, and the TBM itself is about 450 feet.  So it’s just getting under.

KEITH WARD:  Exactly.  And, you know, one of the kind of challenging things that I didn’t realize is our shaft that everything is coming in and out of is only an 80-foot diameter.  So they couldn’t start with the entire tunnel-boring machine together, so they have parts of it up at the surface and parts of it down in the shaft, and they have these umbilicals going back and forth.  So it’s fascinating.

BILL YATES:  That’s amazing, yeah.


WENDY GROUNDS:  So a fun fact, with the guys here in Atlanta, they called their tunnel-boring machine Driller Mike.  They named it after rapper Killer Mike, I think it was.


WENDY GROUNDS:  And we want to hear the story behind your tunnel-boring machine.  You guys also had a naming event for your machine.

KEITH WARD:  Yes.  And you can see that I’m smiling every time I think about this.  And this is where I would say from a project delivery standpoint, we talk about risk events that are threats and risk events that are opportunities.  This wasn’t on our risk register, but this was a huge opportunity that we kind of have to pivot and seize the day.  So when our tunnel-boring machine arrived from Germany earlier this year, we knew we wanted to conduct some kind of contest to involve the community in selecting the name.

So in March and April, we invited people to submit names via social media in an online form.  And then eventually we were going to shortlist them to five names, and then have the community pick the five names.  So the TBM’s name is called MudHoney, and it was selected by a popular vote.  And we were really blown away by the amount of interest and fun that this generated.  An example is we got over 1,200 name submissions.


KEITH WARD:  Most of them were pretty hilarious.  They weren’t that serious, just going through them.  And there were stories about why people picked the names.  We then involved a team to bring them down to five finalist names like Daphne, Molly the Mole, Boris the Plunger, Sir Digs-a-Lot, which is actually a play on Sir Mix-a-Lot, which is a local rapper.


KEITH WARD:  And MudHoney.  And one of the crazy things, I actually had to get in contact with Sir Mix-a-Lot’s agent, the rapper, to make sure it was okay for us to do this.  So that was an interesting thing.

BILL YATES:  Who would expect that as a day on the job; right?

KEITH WARD:  No, totally.

BILL YATES:  I mean, right.

KEITH WARD:  And that was a lot of fun.  In the end, we got about 34,000 votes on those five names.  MudHoney came in at 26,000, with Sir Digs-a-Lot as a runner-up with 6,000.

BILL YATES:  How about that.

KEITH WARD:  And Mudhoney is a local grunge band.  They’re still together.  They were really popular in the ‘90s in the Seattle area.  And it really celebrates kind of Seattle’s music and history.  And, Pearl Jam promoted MudHoney on their Instagram.  So they had a million followers.  So what happened is once we realized how much interest there was, we really needed to pivot and really seize this opportunity.  We ended up in two days hiring an artist, getting MudHoney put onto the machine.  And then days before the machine was lowered into the shaft, we invited the band out.  They came out.  They signed the machine.  We got a lot of media.  So it was really, really good.

BILL YATES:  That is so cool.  It is so similar to the path that Atlanta had, as well.  That is so interesting.  There are so many benefits to involving the community, and it had to just thrill you and the team to see the excitement that built around that.

KEITH WARD:  Yeah, totally.  And, you know, I mean, people ask why did we do this.  And I think actually part of the reason I think we got so many fun names is just what’s been going on the last year and a half.  People needed an outlet, with COVID and all that.  And I think this was one of those.  Also we’re a public utility.  All this is being paid for by our rate payers in the city and the county.  So we really wanted to promote the water quality benefits.  This was a way to do that, really, the naming was, and really let people see what they’re getting for the money that they’re paying on this project.

Project Stakeholders

WENDY GROUNDS:  One of the things we wanted to do with you on this podcast is take a deeper dive in the lessons learned from this project. And you have talked with us about leading multiple teams. You’ve had a lot of stakeholders, a lot of clients that you’ve been working with. Could you describe who the major stakeholders or your clients are on this project?

KEITH WARD:  One of the – and I would say there are two major stakeholders or clients on this project.  The first is actually our partner King County Wastewater Treatment Division.  And I often call them King County.  So again, they have two of our six overflow locations as part of this project.  The other is actually the communities that we’re working in.  And related to the county and the city, both agencies have a lot at stake on this project.  They’re under these federal consent decrees.  We’re talking hundreds of millions of dollars in investment by each agency.

So going back prior to this project starting, these agencies didn’t always work well together.  And I want to give credit actually before the project to some operation staff who started working together, which then got people thinking like actually we could deliver this megaproject together.  But it was rocky the first couple years as we started to work together, trust and relationship building.  A lot of our focus has been transparency.  So Seattle Public Utilities is the lead.  So what I tell people is my paycheck comes from the city, but I’m working for two clients, the city and the county.

And the transparency, the good, the bad, the great has been really important for us.  We now have a really strong relationship based on trust, years of trust and working together.  And we’re now able to look at other ways that these two really large agencies can work together on other projects.  And, you know, one of the things I like most about my job, being a long-term city employee, is I’ve learned so much about my partner agency and their culture.  I’ve learned a lot about project delivery from them.  They have a very rich project delivery experience.

The other key stakeholders are the communities.  We’re working active construction in these five different sites somewhere between three to seven years.  So it’s not like we just show up for six months and leave.  And there we’ve really worked hard to try to decrease impacts.  But when you’re talking this size project, you can’t get rid of them all.  So we spend a lot of time working with residences, businesses about what’s coming, what are their needs.  We try to build that into the design and working with our contractors.  And then also trying to be very clear about what are some impacts that are coming right away so that we can work with them and plan around them.

So with our project managers, my expectation is they know on a first-name basis almost every person or business living around each one of our sites.  And then we can work with them to kind of try to meet their needs as best we can.

Challenges with Multiple Teams

BILL YATES:  Keith, how many consultant teams and contractors are you working with on this program?

KEITH WARD:  So that’s an important thing.  Most of this project is going to be delivered by consultants and contractors.  So we have four large consultant teams.  They’re providing engineering services on several of our projects.  We’re actually designing one of our projects in-house.  They provide overall program support to manage this megaproject, construction management services because we’re not a tunneling agency or a large pump station agency, and then outreach.

Eventually we’ll have four different contractors building out this program.  One has already completed their work to get our tunnel launch site ready.  We’re in the midst of a $255 million contract with the Lane Construction Company for our storage tunnel and shafts.  And then next year, in 2022, which is actually a program risk, we will be bidding out our remaining two projects.  So those two new contractors will be entering our teams.

WENDY GROUNDS:  What are some of the challenges that you faced with so many teams and contractors on the project, you know, some of the lessons that you’ve learned on overcoming the challenges of this project?

KEITH WARD:  You know, overall, if I add up the math, there are 10 different organizations that have to work together to successfully deliver this project.  You know, we realized that early on, in about 2017, as we were kind of reestimating the project and looking at it.  So each of those organizations have their own culture and values.  And so we stepped back, and we did some really good work, and I’m really proud of working with at that time just our consultants and our two owner agencies to develop with the leaders our shared values.  These are values that we should all expect everyone to be operating under for this project.

And those values, just to give you an example, are accountability, empathy, integrity, adaptability and flexibility, safety, wellness, and leadership.  So for each of these values there are actions that you can expect to see if someone is doing these values.  And we spent a lot of time continuously reinforcing these, kind of like when we start meetings, we have meeting moments, and we kind of go over the six values periodically.

We are using an outside partnering expert to help us certainly on our really large construction projects.  But even with our consultant teams I’ve never done this before.  We’re talking about partnering because we have eight- to 10-year relationships with these organizations.  And I really believe strongly that this work, which takes effort, has really allowed us to overall increase our productivity, decrease our claims, rework schedule issues, and really move forward.

Our work with Lane right now is just incredible.  We’re working hand in hand with them to deliver this project.  And it’s tough.  You run into problems every day.  But we just continually keep working through them.  And then I was just going to say, you know, safety and wellness for me as a leader is something I’m really passionate about.  And I’m really happy to report so far we have about three quarters of a million hours worked on the project.  To date we have no lost time due to injuries.  And the wellness, you know, with the pandemic and all, we’ve really been focusing on that a lot.

BILL YATES:  That’s fantastic.  Keith, I applaud the effort and just the thoughtfulness put into this.  Many times you think of a contractor or a partner as somebody that, okay, you know, we’re going to work with this group for six months, maybe a year and a half, and then we go our separate ways.  We all have our responsibilities in our different cultures, different motivations.  But you’re right, I mean, this is such a megaproject.  It’s a long-term program.  So the thought of, okay, let’s go into this as one team, how can we be healthy as a team made up of 10 organizations, that’s a great approach, great lesson learned. 

Project Funding

So how was this project funded?  Where’s the money coming from?

KEITH WARD:  Oh, yeah, we need money.


KEITH WARD:  So both Seattle Public Utilities and King County Wastewater Treatment Division are public utilities.  So we generally fund our capital projects by a mix of cash from our rates and also long-term debt.  Affordability is a huge focus for both of our organizations.  And both agencies have really pushed the envelope to look at ways that we can decrease our rates to our ratepayers.  So for this project we’ve gone out together and secured over $408 million of low-interest federal loans out of our $570 million budget.  As opposed to going out to the municipal bond market, those low-interest rate loans will save our ratepayers about $118 million in long-term financing costs.

So this is a huge big win for us.  It took time and energy when you’re trying to deliver a project to go out and get loans and things like that.  But it’s really the right thing for our ratepayers because rates have had to up for both agencies to pay for this megaproject and other projects in our combined sewage overflow program.

Federal Consent Decree

WENDY GROUNDS:  You have mentioned the federal consent decree.  Can you describe what that is and how it impacted your project?

KEITH WARD:  Sure.  So the federal consent decree, really this project falls under the 1972 Clean Water Act by the EPA.  And what happens is the EPA generally delegates administrative authority to each different state.  So in the state of Washington, we have a performance requirement that we need to bring our overflows down to no more than one overflow per year on a 20-year moving average at each overflow location.  So that’s our performance requirement:  bring it down to a frequency of less than one per year.  Along with that are some schedule milestones that we have to hit.  The biggest and most important is we have to have the entire system constructed and to be able to operate it by the end of 2025, about four and a half years from now.

So if you think about it from a project management standpoint, our performance requirement is locked in.  We can’t change that.  Our schedule is locked in, and we can’t change that.  So really that’s what we’re managing towards.  And we’re trying to keep costs under control, and risks, you know, you think about the triangle and quality to still meet those.  Those are kind of our main key things that we need to hit.  So we’ve been doing a lot of, I would call it “value engineering,” or thinking about innovative ways to deliver the project, to try to keep costs down.  One example was we actually were able to bring the depth of the tunnel up in elevation by figuring out a different way to get over another tunnel.  There’s a lot of tunnels in Seattle.


KEITH WARD:  And that decreased the amount of, of course, depth that we had to do for these drop shafts to go down to the tunnel.  The other thing is trying to be open to new ideas.  Our contractor, when they launched MudHoney, they used a technique which has never been done in the United States.  And we talked with them about that.  We interviewed other owners.  And it’s been very successful.  The machine launched perfectly right out of the shaft.  That can be a challenge.  And so we’re trying to think of innovation and be open to innovation, as well.

Budget Estimating for a Megaproject

BILL YATES:  Keith, I’m kind of blown away, looking at this program.  And, all right, 570 million USD for a budget, you know we’re standing here today in 2021, and this goes way back.  So if I’m asked to estimate a program of this magnitude and this length, an 11-year mega program, how do I come up with a dollar amount and then go get funding for it?  So walk us through what you understand was the original budget, and then where we are today, and help us understand what kind of estimating methods or tips do you have based on some of that?

KEITH WARD:  Yeah, I’m so glad you asked this question because I want people to learn from our lessons learned here.

BILL YATES:  Yeah, yeah.

KEITH WARD:  There’s a lot.  I’ve learned a lot personally, and it’s been a really eye-opening experience.  And I want to clarify, this is a megaproject.  This isn’t a $2 million project; right?  This is in another category.  So, and I think that’s one of the lessons learned is when you move into this megaproject, like over a half billion, the degree of uncertainty is huge, and you need to account for that.  That’s one of the kind of I would say über lessons learned.  The original baseline budget for this project was $423 million.  And there was a range that was put on top of that.

So what they did is they kind of used the American Association of Cost Engineering (AACE) ranges, like a Class 4 estimate you have for this kind of cone of uncertainty, right, you have early on in a project a very large range.  And as you get down to more detailed design it gets down.  The range was plus 30% minus 20%.  So that generated a point estimate of $423 million with a range between 338 million and 550 million.  Of course what does everyone remember?  The 423 million; right?  This is the lessons learned, right, it’s around communication as a project manager.

The agencies started negotiating how they were going to work together, a cost-sharing for this project.  Ultimately, and that started in 2013-2014, it was eventually ratified.  Actually it was approved by both counsels.  And it established a cost-share of about 65% for the city on the 423 million and about 35% for the county.  It also described the roles and responsibilities, ownership of the volumes, how much each agency got of the tunnel, and the long-term operation.  It’s important to note that that estimate was based on a 14-foot diameter tunnel.  And if you remember, we’re at 18’10.  So I’ll talk about what changed.

And it also, and Bill, you used the term “one team” a couple minutes ago.  It established the beginnings of a one-team culture and how we should work together.  We kind of took it further when we talked about these values.  So overall this budget was generated more on kind of parametric cost estimating based on tunneling and pump stations, very early level planning estimate.  And then we looked at we have our own cost estimating guide within the agencies, and we look at set percentages for allied costs or soft costs, labor costs, and folks use those.  Ultimately, though, it underestimated the degree of uncertainty and some risk events that eventually happened.

When Costs Change

BILL YATES:  About two years into the program, the cost changed.  Can you walk us through this scenario and how you guys got there?

KEITH WARD:  Overall I would say that cost changed for three main reasons:  climate change, the effects of climate change; regional construction market conditions in the Seattle area.  And then as I kind of said earlier that we underestimated the degree of uncertainty in our early planning level estimate.  So I’m going to kind of provide a little bit more detail on each of those three areas.  For climate change, when the facility was originally sized with a 14-foot diameter tunnel, we have to use the rainfall data that we have.  So we used historical rainfall data in the Seattle area from about 1978 to 2009.  And that came up with about 15 million gallons of storage, and a 14-foot diameter would meet that.

But more recently we’ve seen changes in our rainfall patterns.  And when we incorporated these changes along with looking at the uncertainties just in the model and how climate change may go in the future, we realized that we needed at least 22 million gallons of storage.  So a 14-foot diameter was not going to provide that.  So we had to increase from 14 to 18’10.  That ended up being a cost increase of about $25 million itself.

BILL YATES:  Wow.  So four feet in diameter is $25 million.  That’s a good metric to know.

KEITH WARD:  It is.  Well, and the great thing is we doubled, we went from 15 to 30 million gallons, but we didn’t double the cost of the project or of the tunnel.  So you have to get all those drop shafts and all those logistics ready, whether you’re doing a 14 or 18’10.  It’s just literally generally the size of the machine and how much soil you have to get rid of.

BILL YATES:  Right.  And MudHoney is 18, not 14.

KEITH WARD:  Exactly.  Exactly.  Yup.  18’10.

BILL YATES:  I just had to say MudHoney again.  That was it.

KEITH WARD:  I know.  When we talk with the tunneling team we don’t talk about the TBM.  We just say “MudHoney.”  The second area was regional construction market conditions.  Seattle Metropolitan area has been one of the hottest construction markets in the country for years.  And this really drove up all of our different materials – aggregate, concrete – and skilled labor.  So this alone increased our cost by about 47 million.  It was a huge contributor.

And then the other, as I said, were planning level estimates from earlier on.  And this is where it wasn’t so much that we got scope creep.  We actually were able to reduce some scope.  But we just underestimated the degree of uncertainty in those early estimates.  You know, so if you think about a plus-30, it should have been probably a larger range than a plus-30 at that point.  The scope did change from a 14 to an 18’10, but we can say that was 25 million.  So I think those are kind of the three main areas that I would say.

Budget Setting Lessons Learned

WENDY GROUNDS:  Keith, so can you walk us through your process, how you settled on a new budget, what were your lessons learned through this process.

KEITH WARD:  Sure, Wendy.  I just want to say a lot of this was a learning process for me, and I’ve learned a lot about estimating and communicating megaprojects.  So as I said, with these kind of projects there’s always a higher degree of uncertainty and more risks.  We knew we needed a different way to estimate and convey these uncertainty and risks rather than just a single point estimate with a range.  So we knew that the budget, 423 million, wasn’t going to be enough.

So what we ended up doing, spending about nine months completely reevaluating the scope of the project, the schedule, the risks, and the cost for each of our component projects in the entire program.  One of the biggest challenges was, because of the consent decree, we had a fixed deadline.  So we were trying to deliver and keep moving forward with our designs and construction while off to the side reestimating everything.  And it was really all hands on deck.  We got a lot of consultant support, but you still need the estimators and the designers.  We really worked with cost estimating experts that we brought in to co-locate with us who really followed the American Association of Cost Estimating Methodology and Recommended Practices.

And what we ended up doing is four main steps.  So we worked with each of the project teams to bring together all of their cost estimates and scopes into a common format and develop a basis of estimate for each project.  So we really didn’t actually have common formatting between our different consultants and our cost estimators.  And then what we ended up doing is making sure that we generally had as much as everything covered and looked at maybe in some cases we found multiple teams were budgeting for multiple pieces of scope, and that was adding costs.  We tried to pull those out.  And what we ended up doing is bringing all this together.

And in 2018 when we finished this effort, we estimated if we did the entire project in that year, it would be $464 million.  But of course we’re going to have to do this between 2018 and 2019 and 2025.  And I’ll get to that in a second around escalation.  The other thing we did is we conducted a lot of risk and schedule workshops with subject matter experts in the different fields, including the design and construction of tunnels and pump stations, just to verify.  And we learned a lot more about our risks that could impact schedule or costs.  We also work with experts to develop a new escalation rate for the overall project based on, as I said, those regional construction market conditions because they were much higher than we originally estimated.

When the original $423 million estimate was developed, we used an escalation rate overall of about 1.6%.  When we finished this work, this reevaluation work, we realized it needed to be 3.9%.  So overall, if we take that $464 million in one year and spread it out over the remaining years, just the escalation was $60 million alone.  And what we found out is the impact of schedule delays.  We found out that if we delayed any critical path of the project, it was an additional $1.3 million of escalation alone.  So that really garnered all of our elected officials and our executives to really support this project even more and to keep us on track.  So we were able to convey the impact of schedule delays.

And then lastly we brought all this together, our base cost, our uncertainties, our risks, into a Monte Carlo analysis.  And you’ve probably talked about this with other people.  I just want to say this is a special kind of analysis for a larger project.  It really allows you to develop kind of a probability curve eventually for your cost estimates.  So you can get different cost estimates for different cost confidences.  And that allowed us to basically talk with our key stakeholders, where did we want to budget this project?  And it was a negotiation.

Of course my role is to successfully deliver it.  So I need to have enough budget to be fairly confident.  But you don’t want to be 100% confident because then you’re tying up all this money for all these other projects.  Ultimately settled on a budget of $570 million at a 65% confidence.  And I’m happy to report that we’re slightly higher confidence of that.  We’re about a 65-67% right now, so we’re still on track for that.

BILL YATES:  That’s fantastic.

KEITH WARD:  Most agencies budget on a megaproject between 50 and 80%.

Monte Carlo Analysis

BILL YATES:  Okay, yeah.  That is awesome.  So Monte Carlo analysis is usually a computer simulation.  You know, you never do this by hand.  Computer model runs through thousands of iterations to come up with, just like you said, it’s like, okay, there are two variables.  There’s confidence, you know, what’s the likelihood; and then what is the result.  And in this case it’s the budget, the 570 million.  So, you know, many people can relate to this as, okay, what about my personal finances?  When can I retire?  So if somebody runs a simulation and says, okay, if you want to have a million dollars in savings when you retire, how likely is it that you’re going to hit that? 

And then based on what you’re making today and what you have in the market, this is the likelihood that you’ll hit that target.  So to your point, the 570 million and the 65% confidence rate, you have to know those two keys so then you as the manager of this can, okay, now I’ve got my marching orders, now I know what I need to abide by.

KEITH WARD:  Exactly.  And every month I report our confidence on that budget.  Also because we looked at the schedule impact of our risk events we’re able to also evaluate the confidence to successfully complete it by our regulatory milestone.  So right today we’re 74% confident that we can complete the project by the end of 2025.  So we watch cost and schedule confidence.  Of course most people look at cost.  But, you know, we’re focusing on both.

One lessons learned of all this that continually is in front of me is when you go to estimating and communicating a confidence-based budget, most people are not used to this.  And it’s taken a lot of time talking with elected officials, board members, the media about what this means.  But you’re also able to say what risk events are in the amount of the budget that you’re not budgeting.  So I can say which risk events will definitely push us over the 570 in that 35% possibility that we won’t meet our budget.  But it’s been a constant thing because most people when we reduce scope, and we take money out of the project, they want to drop the project budget.  But we don’t want to – we basically want to improve our confidence by keeping that funding in the project in our contingency, up to a certain point.

Tracking a Lengthy Project

BILL YATES:  Yeah.  And I think, Keith, what’s I think different with this program than many we talk about on this podcast is just a length of it, not just the budget, but the length.  And because of just how long it is, that’s where that confidence level comes in, you know, it comes in over and over, and you have to recompute it and make sure that you’re still on target with that.

KEITH WARD:  Exactly.  Yeah.  And we recalculate it probably about every six months.  We actually do risk workshops with our teams that are facilitated, and then we kind of update the previous model.  So we’re not looking at it all the time.  One of the things that we do spend a lot of time is every month we’re tracking any kind of potential or in-progress change from the kind of construction.  And we use that to kind of look at how that might be impacting our confidence.  And then we rerun the model every six months or so.

BILL YATES:  That’s the beauty.  Again, you know, you can almost think of it as an Excel model.  Once you have your data in there, unless something is changed, you just update with actuals, and you rerun it and let it go do its thing.

KEITH WARD:  Exactly.

BILL YATES:  So yeah, that’s great.

Final Words of Advice

WENDY GROUNDS:  Keith, before we let you go, do you have any final words of advice, something that you could share, some tips to our younger project managers who may be beginning their careers?  Do you have some good advice for them?

KEITH WARD:  I mean, I have to say this.  I’m an engineer by background.  And I really got into project management.  I didn’t realize it.  I think it’s the greatest field in the world.  Project and program management is so rewarding when you lead a team to successfully deliver a project.  But it can be really tough, and it really requires a lot of excellent communication and leadership skills.  And you also, I think, need to be prepared, or have a high degree of resiliency because it is tough.  Long haul, you know.

So I would encourage younger project managers to really focus on developing their communication and leadership skills through courses.  You know, I learned about the project management body of knowledge.  I wasn’t schooled in that early on.  That was a big eye-opener.  Mentors, talking with peers, welcoming feedback from your teams, and then trying new things.  And then, you know, keep an eye on your resiliency.  Take care of yourself.  Especially now, you know, it’s been hard on everyone.  And then when things happen, when those risk events start raining down, as we would say in Seattle, you’ll be ready for those.

Get in Contact with Keith

WENDY GROUNDS:  If our listeners want to reach out to you, where can they contact you?  And if they want to find out more about the SPU program, how can they find out more about that?

KEITH WARD:  Yeah.  So I’d love to hear from people.  I budget extra time for this.  I really learn from other people, so I encourage people to contact me, either at my email address, mailto:Keith.Ward@seattle.gov that’s probably the best way.  Also you can learn a lot more about the project by just kind of searching for “Ship Canal Water Quality Project.”  We have a really great website.  There’s construction videos that show what’s going on.  And if you can’t figure out a way to reach me you can always send an email to that email address, and they’ll get it to me.  And I’d love to hear what other owners and other project managers are working on in these types of projects.  So please reach out.

BILL YATES:  That’s great.  Keith, we’ll put these links in the show notes; the transcript, as well.  And I’ve got to agree with you, the videos that I was watching just, you know, in preparation of talking with you about the program, I think it’s raining, you know, you’ve got like a rain jacket on.  It’s Seattle, so it’s typically to have a little bit of mist or something.  So yeah, there’s some rain going on which kind of to me it’s like, okay, here’s the problem; right?  It’s literally falling right now.  What are we going to do with this?

KEITH WARD:  Exactly, yes.  And sometimes we have to tap into those lines that are filled with rain.  So we actually have to figure out when we’re going to do that like in the dryer summer months.  But yes.  Sometimes I’m wearing the rain jacket because I’m cold, and it’s not always raining.

BILL YATES:  Keith, thank you so much for sharing your time and really just your transparency on, you know, hey, these are the good things that we did, and these are some things that I learned from on this program.  It’s a massive program.  It’s a necessary program.  And really it hits me right in the heart because, again, I just love Seattle.  I love that area.  I actually just finished reading a book, “The Boys in the Boat:  Nine Americans and Their Epic Quest for Gold at the 1936 Berlin Olympics.”  So as you’re describing the bodies of water that you’re protecting, I’m literally picturing these guys rowing and practicing right there.

KEITH WARD:  Exactly, Bill.  And when I bike down our bike trail along our project site, I look to my left, and there are people rowing in the Ship Canal.  So, and I know exactly where that book took place.  It’s a great book.

BILL YATES:  Thank you again for your time and expertise, and thank you for the program you’re working on.  We appreciate it.

KEITH WARD:  Thanks so much for talking with me.  It was great.  Thanks, Wendy.  Thanks, Bill.


WENDY GROUNDS:  That’s it for us here on Manage This.  Thank you for joining us.  To subscribe to this podcast or see a complete transcript of the show, you can do that at our website, Velociteach.com.  And you just earned some Professional Development Units by listening to this podcast.  To claim them, go to Velociteach.com, choose Manage This Podcast from the top of the page, click the button that says Claim PDUs, and follow through the steps. Make sure not to use the autofill but type in Velociteach and the title, when you are submitting your PDUs. Until next time, keep calm and Manage This.

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