The Honolulu rail authority is considering handing out up to $5 million in stipends for bidders that compete for a contract for a public-private partnership to build the last 4.1 miles of rail line into the city center.

If the Honolulu Authority for Rapid Transportation moves ahead with the plan, the unsuccessful bidders who submit proposals to complete the rail line and build the Pearl Highlands transit center could qualify for up to $2.5 million each to offset some of the cost of preparing the proposals they present to the city.

Bill Brennan, spokesman for the rail project, said in a written statement that the stipends are “good use of taxpayer money in that it encourages competition and sharper bids.”

The stakes are high, and the bidders are expected to incur significant costs as they prepare proposals to compete for the work.

The construction portion of the contract alone is expected to cost about $1.4 billion, and the winning bidder for the public-private partnership, or P3 agreement, also would earn billions of dollars more under a 30-year contract to maintain and operate the rail line.

“Bidders for a project of this size can be expected to spend $10 million or more on their proposals — win or lose, and at their risk,” Brennan said in a written statement. “The stipend is only meant to offset a portion of their bid costs and is typical in the industry.”

The city plans to make a final decision on the stipends by May 3, when it is scheduled to publicly release the solicitation for the second phase of the request for proposals for the P3 contract.

Brennan said HART previously considered providing $1 million stipends to the unsuccessful bidders for the P3 agreement, but received feedback from potential bidders that “this was too low and below typical market level stipends in the industry.”

HART’s own research into how the stipends were handled on other similarly sized projects found that a stipend of $2 million to $2.5 million per unsuccessful bidder would be more appropriate for the Honolulu project, he said.

The field of competitors for the contract will be narrowed down to three developers in the weeks ahead, which means the most the city would pay under the new stipend proposal would be $5 million, or $2.5 million per unsuccessful bidder.

In order to receive the stipend, Brennan said, unsuccessful bidders will have to agree to allow the city or HART to adopt and use any original concepts or ideas including design features that are proposed by bidders.

Ongoing investigation

Some have worried that the ongoing federal criminal investigation into the rail project could cause some potential bidders to abandon the Honolulu project, which might limit competition.

The $9.2 billion Honolulu rail line is the subject of a federal investigation involving the FBI and the U.S. attorney’s office. HART has been served with three federal grand jury subpoenas seeking tens of thousands of documents, but it is unclear exactly what triggered the federal inquiry.

HART Board of Directors Vice Chairman Terrence Lee questioned HART CEO Andrew Robbins about that possibility last month, wondering aloud “what impact is that going to have on our potential P3 bidders.”

“It’s going to elevate the risk of our project because of these criminal investigations,” Lee said. “If I were a CEO of one of these companies, thinking, ‘Well, am I going to spend $10 million to figure out how I’m going to bid on this project?’ and the rug may be pulled out from under them in some fashion.”

To advance the P3 initiative, HART entered into a $1.3 million contract with the United Kingdom-based law firm Ashurst LLP in August to help develop the request for proposals for the P3 plan, and expected to run through that money by the end of February.

HART asked the rail board in mid-February to add $3.4 million to that legal services contract, but the board balked and added only $1 million to the contract for the time being. The board also set up a committee to review the work plan for the law firm.

In all, staff said HART estimates it will spend $9.775 million for legal support services for the P3 initiative, according to HART Deputy Executive Director Nicole Chapman.