Transportation Infrastructure: Cost and Oversight Issues on Major
Highway and Bridge Projects (01-MAY-02, GAO-02-702T).		 
                                                                 
GAO found problems with the costs and oversight of major highway 
and bridge projects because cost containment was not an explicit 
statutory or regulatory goal.  The Federal Highway Administration
(FHWA) did little to ensure that cost contentment was an integral
part of the states' project management. The Department of	 
Transportation's (DOT) Office of Inspector General and reviews by
state audit and evaluation agencies have also shown that	 
escalating costs and mismanagement of major projects continue to 
be a problem. FHWA and DOT have undertaken several efforts since 
1997 to improve the management and oversight of major highway and
bridge projects. Should Congress decide to address cost growth	 
and oversight of major highway and bridge projects, GAO's past	 
reviews have presented options, including measures to improve the
quality of initial baseline estimates and to track progress over 
the life of projects.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-702T					        
    ACCNO:   A03219						        
  TITLE:     Transportation Infrastructure: Cost and Oversight Issues 
on Major Highway and Bridge Projects				 
     DATE:   05/01/2002 
  SUBJECT:   Bridges						 
	     Cost control					 
	     Highway planning					 
	     Highway safety					 
	     Internal controls					 
	     Road construction					 
	     Transportation safety				 
	     National Highway System				 

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GAO-02-702T
     
Testimony Before the Subcommittee on Highways and Transit, Committee on
Transportation and Infrastructure, House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 2: 00 p. m. EDT Wednesday May 1,
2002

TRANSPORTATION INFRASTRUCTURE

Cost and Oversight Issues on Major Highway and Bridge Projects

Statement of JayEtta Z. Hecker Director, Physical Infrastructure Issues

GAO- 02- 702T

Page 1 GAO- 02- 702T

Mr. Chairman and Members of the Subcommittee: We are here today at your
request to discuss recent efforts by the U. S. Department of Transportation
(DOT) and the Federal Highway Administration (FHWA) to better oversee and
control the costs of major highway and bridge projects- 80 percent of which
are often paid by the federal government. 1 Given the needs to improve the
nation?s transportation infrastructure, it is important that major projects
be managed effectively and cost efficiently. A growing demand for resources
since September 11 only heightens the need to ensure their effective
management.

Managing major highway and bridge projects involves many factors other than
cost, including safety, quality, mobility, and environmental impact.
Nevertheless, given their magnitude, cost increases on major projects often
take center stage, especially in light of the growing competition for
federal dollars. My testimony today (1) summarizes our past work and recent
work by others on the cost and oversight of major highway and bridge
projects, (2) presents the results of our current work on efforts by FHWA
and DOT to improve the management and oversight of these projects, and (3)
describes options identified in our past and current work to enhance federal
oversight of these projects, should Congress determine that such action is
needed and appropriate.

In summary:  Over the past several years, we have identified problems with
the costs

and oversight of major highway and bridge projects. In 1997, we reported
that the overall amount of and reasons for cost increases on highway and
bridge projects could not be determined because data were not readily
available from FHWA or the states. We also reported that efforts by Congress
to obtain such information had met with limited success. We found, however,
on many of the projects for which we could obtain information, that costs
had increased, sometimes significantly, and that several factors accounted
for the increases. For example, initial cost estimates were not reliable
predictors of a project?s total cost or financing needs because they were
developed at the environmental review stage and

1 There is currently no standard definition of what constitutes a ?major?
project. The definition has been applied to projects with a total cost of as
little as $10 million and as much as $1 billion.

Page 2 GAO- 02- 702T

reliable cost estimates were not an objective at that stage. We further
reported that cost containment was not an explicit statutory or regulatory
goal of FHWA?s oversight; therefore, the agency had done little to ensure
that cost containment was an integral part of the states? project
management. Our work identified several options for enhancing the oversight
of major projects. Recent reports by DOT?s Office of Inspector General, as
well as reviews by state audit and evaluation agencies, have also shown that
the escalating costs and management of major projects continue to be a
problem.

 FHWA and DOT have undertaken several efforts since 1997 to improve the
management and oversight of major highway and bridge projects. First, FHWA
implemented a legislative requirement that projects expected to cost $1
billion or more have annual finance plans, including detailed cost
estimates. So far, three projects have approved finance plans and FHWA has
identified five additional projects that will soon require finance plans. 2
While indications are that the finance plan requirement has improved the
oversight of some major projects, many multibillion- dollar corridor
projects representing a substantial investment of federal funds will not be
covered by the requirement because the projects will be constructed as a
series of smaller projects that will cost less than $1 billion each. In
addition, projects of importance for reasons other than cost- such as
national or regional significance- may not be included. Second, in December
2000, a DOT task force made several recommendations to, among other things,
improve the skills and qualifications of staff overseeing major projects and
to conduct more rigorous financial reviews of such projects. The task force
also recommended legislation to clarify FHWA?s statutory authority and to
resolve a potential ambiguity between the states? authority to oversee
design and construction activities on certain projects and FHWA?s
responsibility to oversee multibillion dollar

?megaprojects.? DOT did not formally implement the task force?s
recommendations, according to officials, because of the turnover in key
positions and need to reevaluate policy that came with the change in
administrations in January 2001, and because of higher priorities brought on
by the events of September 11, 2001. Third, on the basis of a report by an
FHWA task force, FHWA announced a new policy in June 2001 to introduce
greater risk- based oversight into its day- to- day activities. It did

2 FHWA also requires finance plans for projects funded under the
Transportation Infrastructure Finance and Innovation Act. Currently, two
projects authorized under the act have approved finance plans, and FHWA has
identified two additional projects that will require finance plans.

Page 3 GAO- 02- 702T

so, in part, because it believed that statutory changes in FHWA?s oversight
role since 1991 had resulted in internal confusion and wide variation in
interpretations of that role. However FHWA has not yet incorporated the new
policy into its performance goals or developed mechanisms to measure and
report its results. As a result, FHWA could not say whether the internal
confusion and variation in interpretations of the agency?s oversight role
identified by the task force had been resolved. While both DOT?s and FHWA?s
task forces have identified needed improvements in FHWA?s oversight of major
projects, neither has addressed many of the concerns we have raised in the
past. For example, recent congressional efforts to obtain information about
cost growth on major projects have continued to meet with limited success
because accurate and complete data to determine the extent of and reasons
for cost growth on major highway and bridge projects are not available.

 Whether solutions to the problem of cost growth on major highway and
bridge projects warrant greater federal oversight is ultimately a policy
decision for Congress. Such a decision would require Congress to determine
the appropriate federal role- balancing the states? desire for flexibility
and more autonomy with the federal government?s interest in ensuring that
billions of federal dollars are spent efficiently and effectively. Should
Congress decide to address cost growth and oversight of major highway and
bridge projects, our past reviews have presented options, including measures
to improve the quality of initial baseline estimates and to track progress
over the life of projects. The DOT task force?s recommendations also
included ideas that could be explored. Finally, our current work has
identified three additional options, should Congress decide that major
highway and bridge projects would benefit from greater federal oversight.
Each of these options entails costs and challenges that must be weighed
against their potential benefits.

FHWA provides funding to the states for roadway construction and improvement
projects through various programs collectively known as the federal- aid
highway program. 3 Most highway program funds are distributed to the states
through annual apportionments according to

3 Most of the funding for these programs is derived from highway user taxes
such as excise taxes on motor fuels, tires, and the sale of trucks and
trailers, and taxes on the use of heavy vehicles. Background

Page 4 GAO- 02- 702T

statutory formulas; once apportioned, these funds are generally available to
each state for eligible projects. The responsibility for choosing projects
to fund generally rests with state departments of transportation and local
planning organizations. The states have considerable discretion in selecting
specific highway projects and in determining how to allocate available
federal funds among the various projects they have selected. For example,
section 145 of title 23 of the United States Code describes the federal- aid
highway program as a federally assisted state program and provides that the
federal authorization of funds, as well as the availability of federal funds
for expenditure, shall not infringe on the states? sovereign right to
determine the projects to be federally financed.

While FHWA approves state transportation plans, environmental impact
assessments, and the acquisition of property for highway projects, its role
in approving the design and construction of projects varies. Relatively few
projects are subject to ?full? oversight in which FHWA prescribes design and
construction standards, approves design plans and estimates, approves
contract awards, inspects construction progress, and renders final
acceptance on projects when they are completed. Under the Transportation
Equity Act for the 21st Century (TEA- 21), FHWA exercises full oversight of
certain high- cost Interstate system projects. 4 On projects that are not
located on the Interstate system but are part of the National Highway
System, 5 the states may assume responsibility for overseeing the design and
construction of projects unless the state or FHWA determines that this
responsibility is not appropriate. For projects not located on the National
Highway System, states are required to assume oversight responsibility for
the design and construction of projects unless they determine that it is not
appropriate for them to do so. TEA- 21 requires FHWA and each state to enter
into an agreement documenting the types of projects for which the state will
assume these oversight responsibilities.

A major highway or bridge construction or repair project usually has four
stages: (1) planning, (2) environmental review, (3) design and property

4 For other types of Interstate system projects, states may assume
responsibilities for projects to resurface, restore, and rehabilitate
Interstate roadways, as well as for Interstate construction or
reconstruction projects estimated to cost less than $1 million.

5 Designated in 1995, the 160,000- mile National Highway system consists of
the Interstate Highway System and other principal arterial routes that serve
major population centers, international border crossings, national defense
requirements, and interstate and interregional travel needs. Other highways
and roads make up the remaining 4 million miles of roads in the United
States.

Page 5 GAO- 02- 702T

acquisition, and (4) construction. The state?s activities and the
corresponding FHWA approval actions are shown in figure 1.

Figure 1: Stages of a Highway or Bridge Project

In TEA- 21, Congress required states to submit annual finance plans to DOT
for highway and bridge projects estimated to cost $1 billion or more.
Congress further required each finance plan to be based on detailed
estimates of the cost to complete the project, and on reasonable assumptions
about future increases in such costs.

Page 6 GAO- 02- 702T

Over the past several years, we have identified problems with the costs and
oversight of major highway and bridge projects. For example, in our 1997
report on managing the costs of major highway and bridge projects, 6 we
reported that overall information on the amount of and reasons for cost
increases on major projects was not available because neither FHWA nor state
highway departments tracked this information over the life of projects. In
addition, congressional efforts to obtain information had met with limited
success. In September 1994, the Chairman of the Subcommittee on Oversight of
Government Management and the District of Columbia, Senate Committee on
Governmental Affairs, asked FHWA to identify the 20 active highway projects,
estimated to cost $100 million or more, that had experienced the highest
percentage cost growth and to identify the amounts of and the reasons for
this cost growth. Lacking consolidated data, FHWA field officials had to
compile this information manually, and in April 1995, FHWA provided the
subcommittee with information on 20 projects in 17 states whose estimated
total cost ranged from $205 million to $2.6 billion and whose cost increases
ranged from around 40 percent to around 400 percent. However FHWA?s
information on the reasons for cost growth was incomplete and generally
unreliable. For example, FHWA was unable to identify reasons for cost growth
on 2 of the 20 projects, and the reasons cited for cost growth on a third
project included the caveat ?wild guess only.? On the projects that FHWA
reported the reasons for cost growth, it did so in 74 different categories,
which made a comparative analysis of projects in different states nearly
impossible. In contrast to the federal- aid highway program, our 1997 report
found that, for acquisitions of major capital assets, the Office of
Management and Budget requires federal agencies to prepare baseline cost and
schedule estimates and to track and report the acquisitions? cost
performance. These requirements apply to programs managed by and
acquisitions made by federal agencies, but they do not apply to the
federalaid highway program, a federally assisted state program.

While overall data on cost growth were not readily available, costs
increased on many of the major highway projects that we examined for the
1997 report. For 30 ongoing projects initially estimated to cost over $100
million, the costs increased from the initial estimates on 23 and decreased
or remained the same on 7. The cost increases ranged from 2 to 211 percent.
In the six states we visited, we found that although many

6 Transportation Infrastructure: Managing the Costs of Large- Dollar Highway
Projects

(GAO/ RCED- 97- 47, Feb. 27, 1997). Problems Identified

with the Costs and Oversight of Major Highway and Bridge Projects

Page 7 GAO- 02- 702T

factors can cause costs to increase, several factors worked together to
increase costs on the projects we reviewed. Most cost increases occurred
during the design phase, in part, because the initial cost estimates were
not reliable predictors of the total costs or financing needs. Rather, these
estimates were developed for the environmental review- whose purpose was to
compare project alternatives, not to develop reliable cost estimates. In
addition, each state used its own methods to develop its estimates, and the
estimates included different types of costs, since FHWA had no standard
requirements for preparing cost estimates. For example, one state we visited
included the costs of designing a project in its estimates, while two other
states did not. We also found that costs increased on projects in the states
we visited because (1) the initial estimates were modified to reflect more
detailed plans and specifications as projects were designed and (2) the
projects? costs were affected by, among other things, inflation and changes
in scope to accommodate economic development over time.

In addition, we found that FHWA?s project approval process consisted of a
series of incremental actions that occurred over the years required to plan,
design, and build a project. For many major projects, constructed by the
state as a series of smaller projects, FHWA approved the estimated cost in
segments, when individual project segments were ready for construction,
rather than agreeing to the total cost of the entire project at the outset.
By the time FHWA approved the cost of a major project, a public investment
decision might effectively have been made because substantial funds would
already have been spent on designing the project and acquiring property, and
many of the increases in the project?s estimated costs would already have
occurred.

Finally, we reported in 1997 that cost containment was not an explicit
statutory or regulatory goal of FHWA?s full oversight. On projects where
FHWA exercised full oversight, it focused primarily on helping to ensure
that the applicable safety and quality standards for the design and
construction of highway projects were met. According to FHWA officials,
controlling costs was not a goal of their oversight and FHWA had no mandate
in law to encourage or require practices to contain the costs of major
highway projects. While FHWA influenced the cost- effectiveness of projects
when it reviewed and approved plans for their design and construction, we
found it had done little to ensure that cost containment was an integral
part of the states? project management.

Page 8 GAO- 02- 702T

Recent reports by DOT?s Office of Inspector General have cited continued
problems with managing costs on major projects and highlighted the
challenges for FHWA to effectively oversee them. Since 1997, the Inspector
General has issued several reports on FHWA?s oversight and stewardship of
major projects, including the Central Artery/ Tunnel and the Woodrow Wilson
Bridge. Among other things, the Inspector General recommended improvements
in the Central Artery/ Tunnel project?s cost management and insurance
programs. In a January 2001 report on DOT?s management challenges, the
Inspector General concluded that FHWA had focused on engineering at the
expense of transportation planning, project cost control, and assurance that
funds were spent appropriately. In February 2002, the Inspector General
reported signs of improvement in FHWA?s stewardship over major projects, but
found that FHWA needed to better institutionalize its oversight efforts and
proactively strengthen its oversight and stewardship processes.

Recent reviews by state audit and evaluation agencies have also highlighted
concerns about the cost and management of major highway and bridge programs.
For example:

 In July 2000, Virginia?s Joint Legislative Audit and Review Commission
reviewed the Virginia Department of Transportation?s 6- year transportation
development plan because of concerns that road construction projects were
facing large cost overruns or were encountering delays. The commission
concluded that cost estimates prepared during the design phase were
substantially below the final costs and that final construction costs for
projects exceeded the amounts budgeted by substantial amounts. The
commission estimated that the $9 billion 6- year plan might understate the
cost of projects by $3.5 billion. The commission found that several factors
appear to explain why project cost estimates are well below final project
costs. These factors include not anticipating changes, expanding the scope
of projects, not adjusting estimates for inflation, and not consistently
including amounts for contingencies. The study also found that major design
errors and the failure to detect significant field conditions contributed to
construction costs that exceeded the amounts budgeted for construction. 7

7 Joint Legislature Audit and Review Commission of the Virginia General
Assembly, Review of Construction Costs and Time Schedules for Virginia
Highway Projects, House Document No. 31 (Richmond: Jan. 9, 2001). DOT?s
Inspector General

and State Audit and Evaluation Agencies Cite Continuing Problems

Page 9 GAO- 02- 702T

 In February 2000, the Colorado state auditor?s office concluded that the
state department of transportation needed to enhance its project management
and oversight capability. The state auditor reviewed the department?s
policies and practices relating to cash and project management and found
that the department did not have a database for monitoring the design and
preconstruction phase of projects, even though 70 percent of total project
time was spent on preconstruction. In addition, the department did not have
a system to provide comprehensive, timely, or accurate information on the
status of construction projects and contracts. 8

 In January 2002, the Connecticut auditors of public accounts reported that
the state department of transportation?s use of change orders substantially
increased costs through major revisions in the scope of projects. The
auditors also reported that some of these revisions should have been
contemplated during the design phase. According to the report, more complete
project planning would help to avoid the need for construction change
orders. Furthermore, the auditors reported that the use of change orders
requires negotiation after a contract has been awarded, thereby negating the
advantage for the state that comes from the competitive bidding process and
increasing costs. 9

 In February 2000, the Texas state auditor?s office found that increases in
workload had strained the state department of transportation?s ability to
manage the design process and minimize cost overruns and delays. The
auditor?s office reported that while the amount of construction had
increased by 93 percent since fiscal year 1996, staffing in the design area
had increased by 15 percent. Thus, the report concluded that the state might
not be able to maintain effective controls over a highway design function
that appeared to be at capacity. 10

8 State of Colorado Office of the State Auditor, Department of
Transportation Cash and Project Management Performance Audit (Denver: Feb.
2000). 9 State of Connecticut Auditors of Public Accounts, Auditor?s Report
Department of Transportation for the Fiscal Years Ended June 30, 1999 and
2000 (Hartford: Jan. 10, 2002).

10 Texas State Auditor?s Office, An Audit Report on the Department of
Transportation?s Highway Design Function, Report No. 00- 014 (Austin: Feb.
2000).

Page 10 GAO- 02- 702T

FHWA and DOT have undertaken several efforts to improve the management and
oversight of major highway and bridge projects since our 1997 report. FHWA
has implemented TEA- 21?s requirement for finance plans for highway and
bridge projects estimated to cost $1 billion or more, and both DOT and FHWA
have recently undertaken initiatives to improve the oversight of major
projects. While DOT and FHWA have made progress in addressing FHWA?s
oversight of major projects, not all large highway projects will have
finance plans, and more remains to be done to implement DOT?s and FHWA?s
recent initiatives.

FHWA implemented TEA- 21?s requirement that states develop annual finance
plans for any highway or bridge project estimated to cost $1 billion or
more. Specifically, FHWA developed guidance that requires state finance
plans to include a total cost estimate for the project, adjusted for
inflation and annually updated; estimates about future cost increases; a
schedule for completing the project; a description of construction financing
sources and revenues; a cash flow analysis; and a discussion of other
factors, such as how the project will affect the rest of the state?s highway
program. As of April 2002, three federal- aid highway projects over $1
billion had approved finance plans- the Central Artery/ Tunnel in
Massachusetts, the I- 25/ I- 225 Southeast Corridor in Colorado, and the I-
95 Woodrow Wilson Bridge project between Virginia and Maryland. FHWA has
identified five other $1 billion projects that will soon require finance
plans. In addition, FHWA also requires projects funded through the
Transportation Infrastructure Finance and Innovation Act to have finance
plans. 11

There are indications that the finance plan requirement has produced
results. For example, in Massachusetts, projections of funding shortfalls
identified in developing the Central Artery/ Tunnel project?s finance plan
helped motivate state officials to identify new sources of state financing
and implement measures to ensure that funding was adequate to meet expenses
for the project. In addition, DOT?s Office of Inspector General has found
that state managers have been fully informing the public of

11 The Transportation Infrastructure Finance and Innovation Act program was
authorized under TEA- 21 to provide federal credit assistance, including
direct loans, loan guarantees, and lines of credit, to major transportation
projects of national or regional significance. This assistance is limited to
33 percent of a project?s total estimated cost. Currently, two projects
authorized under the act have approved finance plans, and FHWA has
identified two additional projects that will require finance plans. FHWA and
DOT Have

Made Efforts to Improve Oversight but More Remains to Be Done

FHWA Has Implemented TEA- 21?s Finance Plan Requirement

Page 11 GAO- 02- 702T

projected increases in project costs during the past 2 years. The Inspector
General also recently concluded that the cost estimates on the project were
generally reasonable and that financing sources were adequate to complete
the project.

While FHWA has implemented TEA- 21?s finance plan requirement, some major
corridor projects will not be covered by the requirement because they will
be constructed as a series of smaller projects that will cost less than $1
billion each. FHWA has identified 43 planned projects that will have total
costs that meet or exceed the $1 billion threshold. While 21 of these
projects will require finance plans some time in the future, the remaining
22 are corridor projects that will be built in ?usable segments?- separate
projects costing less than $1 billion each- and therefore will not require
finance plans. According to FHWA officials, states plan these longterm
projects in segments because it is very difficult for them to financially
plan for projects extending many years into the future. Nevertheless, these
major projects represent a large investment in highway infrastructure. For
example, planned corridor projects that will not require finance plans total
almost $5 billion in Arkansas, about $12.3 billion in Texas, about $5.3
billion in Virginia, and about $4.2 billion in West Virginia. In addition,
the $1 billion threshold does not consider the impact of a major highway and
bridge project on a state?s highway program. For some states, even a project
that costs less than $1 billion accounts for a larger percentage of the
state?s federal funding than a project that costs over $1 billion in another
state. In Vermont, for instance, a $300 million project would represent a
larger portion of the state?s federal highway program funding than a $1
billion dollar project would in California.

Finally, the $1 billion threshold may not include projects that are
important for reasons other than cost, such as projects that have national
or regional significance and projects important to, or needed to meet border
security or national defense needs. For example, a project to rebuild the
Springfield interchange on Interstate 95 in Virginia- one of the busiest
interchanges on the Interstate Highway System that helps carry major
passenger vehicle and freight traffic along the East Coast- has not been
required to have a finance plan. However, its cost estimate has grown from
$395 million in 1997 to $685 million in 2002, and FHWA has listed it among
the major projects it is closely monitoring.

Page 12 GAO- 02- 702T

DOT and FHWA have undertaken several additional efforts to improve the
management and oversight of major highway and bridge projects. First, in
December 2000, DOT issued a task force report concluding that a significant
effort was needed to improve the oversight of transportation megaprojects -
including highway and bridge projects that would cost at least $1 billion,
involve a high level of public or congressional interest, or significantly
affect a state?s overall transportation program. The task force made 24
departmentwide recommendations, including recommendations to improve DOT?s
internal processes by establishing an executive council to oversee major
projects, instituting regular reporting requirements, and incorporating
goals and outcomes for DOT?s oversight efforts into the performance plans
required by the Government Performance and Results Act of 1993 (GPRA) for
the department, as well as into the plans of FHWA and DOT?s other operating
administrations. The task force made several human- capital- related
recommendations, including establishing a professional cadre of megaproject
managers with required core competencies, training, and credentials. It also
proposed a set of recommendations to be applied to recipients of DOT funds,
including requiring project management plans, instituting project management
oversight reviews, and designating ?at- risk? projects.

According to the DOT task force report, implementation of 7 of its 24
recommendations would require legislation. The task force recommended that
DOT consider these in its proposals for the surface transportation program?s
reauthorization and other legislation. For example, the task force
recommended legislation to clarify FHWA?s authority to oversee all proposed
megaprojects. While the task force believed that FHWA had adequate authority
to ensure the proper expenditure of federal funds on federal- aid highway
projects, it noted that states assume responsibility for the design and
construction of any projects that are not part of the National Highway
System (unless they conclude it would be inappropriate to do so). Hence, the
task force noted, FHWA could be precluded from exercising full oversight of
some planned multibillion- dollar projects that will not be constructed on
the National Highway System. In addition, the task force recommended
establishing a separate funding category for preliminary engineering and
design- those activities that generally accomplish the first 20 to 35
percent of a project?s design. The task force concluded that a separate
funding category would allow a new decision point to be established. Initial
design work could proceed far enough so that a higher- quality, more
reliable cost estimate would be available for decisionmakers to consider
before deciding whether to complete the design and construction of a major
project- and before a substantial federal investment had already been made.
The task force also DOT and FHWA Have

Developed Oversight Initiatives

Page 13 GAO- 02- 702T

recommended legislation to expand the use of negotiated procurements and to
fund independent project management oversight reviews and professional
training and credentials for project managers.

According to officials from FHWA and DOT?s Office of the Secretary, the DOT
task force?s recommendations were not formally implemented because of the
turnover in key positions and the need to reevaluate policy that came with
the change in administrations in January 2001 and because of higher
priorities brought on by the events of September 11, 2001. FHWA officials
told us, however, that they believe some actions the agency has taken- such
as establishing an oversight team for major projects, designating an
oversight manager for each project, and publishing a quarterly newsletter on
major project oversight- are responsive to the task force?s recommendations.

In addition to the DOT task force?s effort, in March 2001, FHWA issued a
report of its own stewardship and oversight task force. The FHWA task force
concluded that changes in the agency?s oversight role mandated by the two
highway program authorizations enacted since 1991 had resulted in internal
confusion and wide variation in interpretations by FHWA personnel of the
agency?s roles in overseeing projects. For example, the task force found
that because many projects were classified as exempt from FHWA?s oversight,
inconsistencies in oversight had resulted. According to FHWA officials, some
of its field offices were taking a ?hands

off? approach to these projects. The task force recommended that FHWA revise
its policy on stewardship and oversight to recognize that, while states have
assumed responsibility for approving the design and construction of many
projects, FHWA is ultimately accountable for the efficient and effective
management of federal funds and for ensuring that the federal highway
program is delivered in a manner consistent with applicable laws,
regulations, and policies. The task force also recommended incorporating its
new policy into the performance goals in its GPRA- required performance plan
to provide a direct link between FHWA?s oversight activities and business
goals. Finally, the task force recommended using the performance plan to
monitor progress.

In response to its task force?s recommendations, FHWA directed its field
offices in June 2001 to conduct risk assessments within their states to
identify areas of weakness, set priorities for improvement, and work with
the states to meet those priorities. FHWA further instructed its division
offices to revise and update the program oversight agreements that TEA- 21
requires FHWA to maintain with each state to reflect these initiatives.
While this new policy has the potential to improve its oversight of major

Page 14 GAO- 02- 702T

projects, FHWA did not set goals or timetables for completing these actions
and has not yet established procedures to measure and report on its results.
For example, in April 2002, FHWA officials did not know whether the risk
assessments it directed its field offices to conduct had been carried out,
what the results were, how many agreements with the states had been revised,
or what those revisions entailed. As a result, FHWA officials said they
could not report whether the problems of internal confusion and wide
variation in interpretations of the agency?s roles in overseeing projects
reported by its task force in 2001 had been resolved. In addition, our
review of a draft of FHWA?s soon- to- be- released FY 2003 performance plan
indicates that FHWA had not yet developed performance goals or measurable
outcomes linking its oversight activities to its business goals nor had it
developed the monitoring plan its task force had recommended.

Finally, neither DOT?s nor FHWA?s recent initiatives address many of the
concerns we have raised in the past. For example, accurate and complete data
to determine the extent of and reasons for cost growth on major highway and
bridge projects are not available today, and more recent congressional
efforts to gather complete and accurate information about the extent of and
the reasons for cost growth have met with limited success. In 2000, the
Chairman of the Subcommittee on Transportation, House Committee on
Appropriations, asked FHWA to provide information on how many major federal-
aid highway projects had experienced large cost overruns. Because FHWA did
not routinely record this information, officials reviewed records for over
1,500 projects authorized over a 4- year period. For the purposes of this
study, FHWA identified major projects as those that were expected to cost
$10 million or more to construct and had experienced cost increases of 25
percent or more. FHWA identified 80 such major projects, 12 of which were
part of the Central Artery/ Tunnel project in Massachusetts. However, FHWA
measured only the increase in costs that occurred after the projects had
been fully designed. Thus, cost increases that occurred during the design of
the project- where we have reported much of a project?s cost growth occurs-
were not reflected in FHWA?s data. In addition, in 2001, the American
Association of State Highway and Transportation Officials asked the states
to submit data on cost increases on around 400 major projects completed over
an 18- month period. However these data also measured only the increases in
costs that occurred after the projects had been fully designed.

Page 15 GAO- 02- 702T

Ultimately, it is up to Congress to decide whether efforts to control cost
increases on major highway and bridge projects warrant greater federal
oversight. Such a decision would require a determination of the appropriate
federal role- given both the states? desire for flexibility and more
autonomy and the federal government?s interest in ensuring that billions of
federal dollars are spent efficiently and effectively. In 1998, as Congress
faced reauthorization of the federal- aid highway program, we presented
options for enhancing FHWA?s role in overseeing the costs of major highway
and bridge projects. Should Congress, in reauthorizing TEA- 21, decide to
enhance FHWA?s role, these options would still be available. They include
the following:

 Have states prepare total cost estimates early in the life of major
projects to serve as a baseline for measuring cost performance over time.
Having early, more reliable cost estimates could assist policymakers in
understanding the extent of the proposed federal, state, and local
investment in these projects and assist program managers in reliably
estimating the total financing requirements.

 Have states track the progress of projects against their initial baseline
cost estimates. Expanding the federal government?s practice for its own
agencies to the federally assisted highway program could enhance
accountability and potentially improve the management of major projects by
providing managers with real- time information for the early identification
of problems and for making decisions about project changes that could affect
costs. Tracking progress would also help identify common problems and
provide a better basis for estimating costs in the future.

 Establish performance goals for containing costs and implementing
strategies for doing so as projects move through their design and
construction phases. Requiring or encouraging the use of goals and
strategies could improve accountability and make cost containment an
integral part of how states manage projects over time.

 Establish a process for the federal approval of major projects. Clearly,
this is the most far- reaching option; however, requiring federal approval
of major projects at the outset- including the approval of cost estimates
and finance plans- could provide greater certainty in state planning and
could help ensure successful financing by providing additional assurances to
those financial markets where less traditional forms of financing are
involved. Options to Enhance

Federal Oversight of Major Projects

Page 16 GAO- 02- 702T

The DOT task force?s report of December 2000 provides additional specific
options worthy of consideration, should Congress favor greater federal
oversight. For example, the task force?s recommendation on establishing a
separate funding category to accomplish initial design work on projects is
responsive to issues we have raised in the past and has the potential to
improve the reliability of initial baseline estimates and the cost
performance of major projects over time.

Finally, should Congress decide that major highway and bridge projects
warrant greater federal oversight, our current work has identified three
additional options. First, while Congress has expressed concern about cost
growth on major projects, it has had little success obtaining timely,
complete, and accurate information about the extent of and the reasons for
this cost growth on projects. One option to address this would be to have
FHWA develop and maintain information on the cost performance of particular
major highway and bridge projects, including changes in estimated costs over
time and the reasons for such changes. Such an undertaking would be
difficult and possibly costly, but it could help define the scope of the
problem and provide insights needed to fashion appropriate solutions.
Second, while Congress has decided that enhanced federal oversight of the
costs and funding of projects estimated to cost over $1 billion is
important, projects of importance for reasons other than cost may not, as
discussed earlier, receive such oversight. Thus, another option would be to
incorporate other projects into FHWA?s structure for overseeing the costs
and financing of major projects. Should Congress believe such an action
would be beneficial, additional criteria for redefining major projects would
be needed. The benefits of additional review over more projects would,
however, have to be weighed against the effect it would have on FHWA?s
finite resources. Finally, FHWA?s oversight role has changed since 1991;
today, FHWA conducts less day- to- day oversight of most highway projects,
while exercising greater oversight of certain larger projects. These changes
have created uncertainty within FHWA about its role and authority in
overseeing projects, as noted by both DOT?s and FHWA?s task forces. Our past
work has also shown that FHWA viewed its role in controlling costs on
projects as limited because it did not believe it had a statutory or
regulatory mandate to ensure that cost containment was a part of the states?
project management practices. Should FHWA and DOT continue to experience
uncertainty regarding FHWA?s role and authority, another option would be to
clarify FHWA?s role in reviewing the costs and management of major projects
and resolve any uncertainties that have been identified.

Page 17 GAO- 02- 702T

Mr. Chairman that concludes my prepared statement. I will be happy to answer
any questions you or the other members of the subcommittee have.

To perform our work, we reviewed prior GAO reports and testimonies on major
highway and bridge projects, reviewed applicable laws and regulations,
analyzed reports of the DOT and FHWA task forces and of state audit and
evaluation agencies, interviewed federal and state transportation officials,
and visited one state department of transportation. We conducted our work
from November 2001 through April 2002 in accordance with generally accepted
government auditing standards.

For further information on this testimony, please contact JayEtta Z. Hecker
([email protected] gao. gov) or Steve Cohen ([email protected] gao. gov). Alternatively, they
may be reached at (202) 512- 2834. Individuals making key contributions to
this testimony include John Bagnulo, Robert Ciszewski, Steve Cohen, Helen
Desaulniers, Elizabeth Eisenstadt, and John A. Rose. Scope and

Methodology Contacts and Acknowledgments

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