Nearly halfway through construction, Maryland’s $2 billion Purple Line project has teetered on the verge of collapse since May.

Unless an agreement on who will pay $755 million in cost overruns is reached with the state by Aug. 22, both the construction contractor and the consortium of companies managing the 16-mile light-rail project have said they will quit.

The walk-offs threatened this spring might seem sudden, but problems on Maryland’s largest transportation project have been brewing since before the contract was signed in 2016.

Maryland officials signed the 36-year partnership with the companies even as an environmental lawsuit filed by opponents loomed. A judge’s ruling in the case ended up pushing back construction by almost a year, putting it behind schedule before the first bulldozers revved up.

The Purple Line was initially scheduled to begin carrying passengers in March 2022. However, the contractor has said that, because of the lawsuit and other delays, that won’t happen until late 2024, unless work is accelerated.

Moreover, project watchers say, a remarkably low-bid construction contract chosen amid state cost pressures might have left the Purple Line more vulnerable to escalating prices.

Some local officials say the state erred in allowing early disputes to fester unresolved while the contractor filed major time extensions, ultimately seeking more than 2½ years of additional time to complete the work. That, they say, compounded delays, soured the relationship with the Maryland Transit Administration and created the $755 million gap that some worry is now too wide to close.

A rail project once touted as a national model of how governments could partner with the private sector to build expensive infrastructure has instead ended up at risk of being abandoned mid-construction and becoming a cautionary tale. Any lessons learned will come as public-private partnerships have gained popularity with cash-strapped governments, and as Maryland pursues new agreements to add up to $10 billion worth of toll lanes to the Capital Beltway and Interstate 270.

Scott Zuchorski, head of the North America Infrastructure group for Fitch Ratings, said the private sector will ask what went wrong on the Purple Line when considering whether to invest in future Maryland projects.

“I’d think they’d be digging in to understand what happened here,” he said.

A 'very clear' focus on cost

Like many megaprojects, the 16-mile Purple Line has been controversial from the start.

Public officials in Montgomery and Prince George’s counties viewed light rail as a way to attract economic development and improve public transportation in older, auto-centric suburbs. Opponents called it a boondoggle that would cause irreversible environmental damage.

One previous opponent was Maryland Gov. Larry Hogan (R). While campaigning for his first term, Hogan criticized the transit proposal as too expensive, saying state money would be better spent on expanding roads. Hogan eventually agreed to build the Purple Line after heavy lobbying by the Washington area’s politically influential business community.

After requiring the bid teams to find further cost savings, the state selected the lowest bidder, a consortium called Purple Line Transit Partners.

The companies’ bid fell $490 million below the next-lowest proposal and ranked third out of the four on technical merits, according to a 2016 state summary.

A former Maryland official involved in the Purple Line contract negotiations said the state had planned to seek a “best value” contract based on price, technical expertise and innovation. But Hogan’s transportation secretary, Pete K. Rahn, lasered in on price.

“Pete Rahn said, ‘We’re not paying more than X,’ ” said the former official, who spoke on the condition of anonymity to maintain business relationships. “It put an artificial lens on the review process. One contractor’s price proposal was so below everyone else.”

Others closely following the project said they noticed.

“It was very clear they were looking at cost as being the number one, if not only, criteria,” said Casey Anderson, chair of the Montgomery planning board. “When you see an outlier low bid like that, you’d hope someone is asking what’s behind it.”

Unless the government assures that an unusually low price is realistic, industry experts say, it can leave a project more exposed to “change order” claims, in which the contractor tacks on additional expenses after construction is underway.

Rahn resigned in December, saying he wanted to return home to his family in New Mexico. In a recent interview, he said state officials determined that the winning bid’s lower price was “reasonable” and its technical merits “acceptable,” making it the best value overall.

It was significantly less expensive than the others, Rahn said, because the companies found cost-saving innovations, such as using a longer single-car light-rail vehicle rather than multicar trains.

“A lot of analysis went into their bid,” Rahn said. “If we thought they were playing games, we wouldn’t have taken their bid. There was no indication we’d have the kind of issues we’re seeing now.”

A spokesman for Hogan did not respond to questions.

Erin Henson, spokeswoman for the Maryland Department of Transportation (MDOT), declined to answer questions about the bid process or sources of delays and overruns, saying they were “subject to litigation.”

Purple Line Transit Partners and its construction contractor also declined to answer questions.

Zuchorski said he believes the Purple Line’s problems go beyond a low bid, which is often blamed when a project goes over budget. He said the construction companies — Fluor, Lane Construction and Traylor Bros. — are “experienced, reputable firms.”

“I wouldn’t just pin it on being the lowest bidder,” Zuchorski said.

The construction contractor has said the four main drivers of the delays and related cost increases have been beyond its control and are the state’s responsibility. In addition to the lawsuit delays, the contractor has said the state has lagged in buying right of way and has revised requirements for obtaining state environmental permits. The companies say CSX also has changed design specifications for a crash wall along the Purple Line tracks.

MDOT has rejected most of the claims, saying they are inaccurate, exaggerated, too late or the contractor’s fault.

A 'model' partnership soured

The Purple Line’s public-private partnership was supposed to reduce the chances of cost overruns. It would do so by assigning to the private sector some of the construction risks — such as the potential for flawed designs or escalating labor costs — that it was considered best equipped to handle.

“Such risk transfer results in a lower overall risk of schedule delays and, as a result, a lower risk to [the state] of cost overruns,” the MTA wrote to the General Assembly in a 2016 report.

The private consortium would design and build the rail line over six years, help finance its construction, and then operate and maintain it for 30 years.

At the time, such partnerships were relatively new in the United States. The Purple Line would be the second U.S. transit project, behind a commuter rail line in Denver, to include private financing.

The $5.6 billion agreement — 876 pages of highly technical language — received little public scrutiny, even though it would become one of the largest, most complex and longest government contracts ever in Maryland. State lawmakers and legislative analysts who tried to scrutinize the deal said it was so opaque that they had to entrust the details to MDOT.

Richard S. Madaleno Jr., then vice chairman of the state senate’s Budget and Taxation Committee, said in 2016 that he was concerned MDOT “wasn’t talking about any of the risks” or providing a “transparent and thoughtful review of the contract.”

Madaleno, who is now Montgomery’s budget director, said recently that the state seemed to discount the potential “pitfalls” of an expensive, complex partnership.

“No one was talking [in 2016] about how this could ever go wrong,” Madaleno said, “because it was going to be a model for the rest of the country.”

A clause that received little, if any, public attention allows either side to terminate the contract if delays exceeded 365 days — the provision cited by the consortium when it threatened to walk away.

Four months after the contract’s signing, a ruling in the opponents’ 2014 environmental lawsuit would set in motion delays that the consortium would later say amounted to 266 days — almost three-quarters of the way to the one-year mark.

A 'gamble' that didn't pay off

In August 2016, a few months before Purple Line construction was scheduled to start, U.S. District Judge Richard J. Leon suspended the project’s federal environmental approval after agreeing with opponents that the ridership estimates needed to be redone. Without that approval, construction couldn’t begin.

The timing, project supporters say, was particularly bad because construction stalled just as work crews and specialized equipment were being mobilized from across the country.

When a lawyer for the state later complained that the costs of postponing construction were quickly mounting, the judge scolded Maryland officials. They had “rolled the dice,” Leon said, by signing the hefty contract without including a financial “escape clause” in case the lawsuit didn’t go their way.

“Why should the court . . . bail you out of a gamble that you took?” Leon said during a June 2017 court hearing.

An appeals court reinstated the federal approval, allowing construction to proceed, 11 months later. But by then, Purple Line supporters say, momentum had slowed, and the contractor had to resequence complex schedules to play catch-up.

Rahn said the state couldn’t have anticipated that the judge would set aside the environmental approval or that it would take so long for it to be restored.

“That was really out of left field,” he said.

The contractor would later say the judge’s ruling added $131 million in delay costs. The state has granted a 160-day extension but has refused to pay extra, saying the claim has “flaws that grossly overestimate” the impacts.

David Brown, a lawyer for the opponents, said the lawsuit isn’t to blame. The contractor’s 266-day claim, he said, is “wildly overblown.” He said the judge’s ruling delayed construction by two to three months at most because the contractor fell behind in completing preconstruction work, such as engineering, that was still allowed.

Prince George’s council member Deni Taveras (D-District 2), chair of the panel’s transportation committee, said the state should have resolved the lawsuit-related cost disputes before more piled up.

“I think [the state] probably didn’t have the best of negotiators at the front end to mitigate things at the beginning,” Taveras said. “We should have nipped it in the bud then instead of letting it drag on.”

Other local officials question whether the rail project in the Washington suburbs received sufficient oversight by the Maryland Transit Administration, which historically focused on operating buses and rail systems in Baltimore.

Montgomery Council member Evan Glass (D-At Large) said he grew frustrated trying to get answers from project officials amid mounting delays and costs.

“I’d ask very simple questions,” Glass said. “I’d ask if we were over budget and if we were on schedule, and they couldn’t answer either question. That dumbfounded me.”

While the lawsuit caused the early delays, Glass said, “that’s not the sole reason we’re in this mess. . . . We have to assure that contractors are working effectively and efficiently, and we have no way to gauge that.”

An uncertain future

The Purple Line’s construction has continued as the contractor and state officials have tried to reach a financial agreement. Neither side will comment on the negotiations.

“MDOT and MTA are holding the Purple Line team to their obligations outlined in the Purple Line [public-private partnership] agreement and pursuing all legal options available to the state,” Henson, of MDOT, wrote in an email. “While discussions continue, MDOT and MTA remain open to a reasonable settlement.”

In a written statement, Purple Line Transit Partners said the consortium had shown its “commitment to working collaboratively” with the state by its construction contractor staying on the job as negotiations continue.

“Reaching a settlement agreement would enable this much-needed project to begin serving the people of Maryland sooner than any alternative,” the consortium said.

If public filings are any indication, the talks have taken a tense turn. In back-and-forth notices, lawyers on both sides appear to be laying the groundwork for a possible court battle.

After the construction contractor threatened to quit, Purple Line Transit Partners filed its own notice that it would terminate the entire public-private partnership unless a financial agreement is reached.

Meanwhile, the construction companies have filed required notices to the state that they plan to lay off 718 workers Aug. 23, one day after the deadline for a deal.

In turn, the state has argued that any attempt by the concessionaire to walk away would violate the contract. The consortium has until Friday, the state’s notice said, to withdraw its termination notice, ensure its construction contractor remains on site or find a new one. After that, it said, the state could draw on the companies’ $906 million “performance security,” similar to an insurance policy, to complete the construction.

Taveras, who has two Purple Line stations in her district, said residents and struggling business owners living with the project’s ripped-up roads need it completed as soon as possible.

“They can’t leave us with a hole in the ground,” Taveras said. “We can’t afford for this project not to be finished.”

Eddy Palanzo contributed to this report.

An earlier version of this story misspelled the name of Prince George’s council member DeniTaveras (D-District 2). This story has been updated to correct the error.