Federal-Aid Highways: Cost and Oversight of Major Highway and	 
Bridge Projects--Issues and Options (08-MAY-03, GAO-03-764T).	 
                                                                 
Improving the oversight and controlling the costs of major	 
highway and bridge projects is important for the federal	 
government, which often pays 80 percent of these projects' costs.
Widespread consensus exists on the need to fund such projects,	 
given the doubling of freight traffic and worsening congestion	 
projected over the next 20 years, yet growing competition for	 
limited federal and state funding dictates that major projects be
managed efficiently and cost effectively. The Federal Highway	 
Administration (FHWA) provides funding to the states for highway 
and bridge projects through the federal-aid highway program. This
funding is apportioned to the states, and state departments of	 
transportation choose eligible projects for funding. FHWA	 
provides oversight to varying degrees, and, under the		 
Transportation Equity Act for the 21st Century (TEA-21), FHWA and
each state enter into an agreement documenting the types of	 
projects the state will oversee. This statement for the record	 
summarizes cost and oversight issues raised in reports and	 
testimonies GAO has issued since 1995 on major highway and bridge
projects and describes options that GAO has identified to enhance
federal oversight of these projects, should Congress determine	 
that such action is needed and appropriate.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-764T					        
    ACCNO:   A06851						        
  TITLE:     Federal-Aid Highways: Cost and Oversight of Major Highway
and Bridge Projects--Issues and Options 			 
     DATE:   05/08/2003 
  SUBJECT:   Bridges						 
	     Construction costs 				 
	     Cost control					 
	     Highway planning					 
	     Public roads or highways				 
	     Road construction					 
	     Federal aid for highways				 
	     Federal aid to states				 
	     Federal funds					 
	     Funds management					 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-03-764T

Testimony Before the Subcommittee on Transportation, Treasury and
Independent Agencies, Committee on Appropriations, House of
Representatives

United States General Accounting Office

GAO Hearing held on May 8, 2003 Statement Submitted on May 8, 2003
FEDERAL- AID HIGHWAYS

Cost and Oversight of Major Highway and Bridge Projects* Issues and
Options

Statement for the Record by JayEtta Z. Hecker, Director, Physical
Infrastructure Issues

GAO- 03- 764T

GAO and others have reported that cost growth has occurred on major
highway and bridge projects; however, overall information on the amount of
and reasons for cost increases is generally not available because neither
FHWA nor state highway departments track this information for entire
projects. GAO has found that costs grow, in part, because initial cost
estimates, which are generally developed to compare project alternatives
during a required environmental review phase, are not reliable predictors
of

projects* total costs. In addition, FHWA approves the estimated costs of
major projects in phases, rather than agreeing to the total costs at the
outset. By the time FHWA approves the total cost of a major project, a
public investment decision might, in effect, already have been made
because substantial funds could already have been spent on designing the
project and

acquiring property. FHWA*s implementation of a TEA- 21 requirement that
states develop annual finance plans for major projects estimated to cost
$1 billion or more has improved the oversight of some major projects, and
FHWA is incorporating more risk assessment in its day- to- day oversight
activities. Should Congress determine that enhancing federal oversight of
major

highway and bridge projects is needed and appropriate, GAO has identified
options, including improving information on the cost performance of
selected major projects, improving the quality of initial cost estimates,
and enhancing and clarifying FHWA*s role in reviewing and approving major
projects. Adopting any of these options would require balancing the
states* sovereign right to select projects and desire for flexibility and
more autonomy with the federal government*s interest in ensuring that
billions of federal dollars are spent efficiently and effectively. In
addition, the additional costs of each of these options would need to be
weighed against its potential benefits.

Major Federal- aid Highway Projects

Source: Art Explosion. Improving the oversight and controlling the costs
of major

highway and bridge projects is important for the federal government, which
often pays 80 percent of these projects* costs.

Widespread consensus exists on the need to fund such projects, given the
doubling of freight traffic and worsening congestion projected over the
next 20 years, yet growing competition for limited federal and state
funding dictates

that major projects be managed efficiently and cost effectively. The
Federal Highway Administration (FHWA) provides funding to the states for
highway and bridge projects through the federal- aid highway program. This
funding is apportioned to the states, and state departments of

transportation choose eligible projects for funding. FHWA provides
oversight to varying degrees, and, under the Transportation Equity Act for
the 21st Century (TEA- 21), FHWA and each state enter into an agreement
documenting the types of projects

the state will oversee. This statement for the record summarizes cost and
oversight issues raised in reports and testimonies GAO has issued since
1995 on major highway and bridge projects and describes options that

GAO has identified to enhance federal oversight of these projects, should
Congress determine that

such action is needed and appropriate.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 764T. To view the full
testimony, including the scope and methodology, click on the link above.
For more information, contact JayEtta Hecker at (202) 512- 2834 or
heckerj@ gao. gov. Highlights of GAO- 03- 764T, a statement

for the record for the Subcommittee on Transportation, Treasury, and
Independent Agencies, House Committee on Appropriations May 8, 2003

FEDERAL- AID HIGHWAYS Cost and Oversight of Major Highway and Bridge
Projects* Issues and Options

Page 1 GAO- 03- 764T

Mr. Chairman and Members of the Subcommittee: We appreciate the
opportunity to offer this statement for the record concerning efforts by
the Federal Highway Administration (FHWA) to oversee and control the costs
of major highway and bridge projects* 80 percent of which are often paid
by the federal government. 1 With freight traffic expected to double and
congestion projected to worsen over the next 20 years, widespread
consensus exists on the need to maintain and improve the nation*s surface
transportation infrastructure. Given that both

the federal government and state governments are facing budget deficits in
the hundreds of billions of dollars in the coming years, it is even more
important that major highway and bridge projects be managed efficiently
and cost effectively. While effectively managing these projects involves
many factors other than cost* including safety, quality, mobility, and
environmental impact* cost increases on major projects often take center
stage, especially in light of the growing competition for federal dollars.

My statement today is based on a body of work we have performed and
products we have issued since 1995 on the costs and oversight of major
highway and bridge projects. (See the list of related GAO products at the
end of this statement.) Today*s statement (1) summarizes these cost and
oversight issues, (2) discusses FHWA*s recent efforts to improve the

management and oversight of these projects, and (3) describes options we
have identified that might enhance federal oversight of these projects,
should Congress determine that such action is needed and appropriate.

In summary:  We have reported* as has the Department of Transportation*s
(DOT)

Inspector General and various state audit and evaluation agencies* that
cost growth has occurred on many major highway and bridge projects.
However, overall information on the amount of and reasons for cost
increases on major projects is generally not available because neither
FHWA nor state highway departments track this information over the life of
projects. While many factors can cause costs to increase, we have found,
on projects we have reviewed, that costs increased, in part, because
initial cost estimates were not reliable predictors of the total costs or
financing needs of projects. Rather, these estimates were generally

1 There is currently no standard definition of what constitutes a *major*
project. The definition has been applied to projects ranging from those
with a total cost of as little as $10 million to those estimated to cost
$1 billion or more.

Page 2 GAO- 03- 764T

developed for the environmental review* whose purpose was to compare
project alternatives, not to develop reliable cost estimates. In addition,
we reported in 1997 2 that FHWA had done little to ensure that containing
costs

was an integral part of the states* project management, in part because
FHWA believed it had no mandate to either encourage or require states to
adopt such practices. Finally, we have noted that FHWA generally approves
the estimated cost of a major project in phases, when individual project
segments are ready for construction, rather than agreeing to the total
cost of the entire project at the outset. By the time FHWA approves the
total cost of a major project, a public investment decision might, in
effect, already 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 might already have
occurred.

 Since 1998, FHWA has taken a number of steps to improve the management
and oversight of major projects, including implementing a requirement of
the Transportation Equity Act for the 21st Century (TEA21) that states
develop, and that the Secretary approve, annual finance plans for any
highway or bridge project estimated to cost $1 billion or more. As of May
2003, FHWA had approved finance plans for 10 federalaid highway projects
and expected finance plans to be prepared 5 additional projects in the
future. 3 As I testified in May 2002, 4 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. Other steps
FHWA has taken to improve its oversight include introducing greater risk-
based oversight into its day- to- day activities and attempting to resolve
conflicting interpretations of its oversight role that it believes have
occurred since 1991, when the states began assuming greater responsibility
for approving the design and construction of many projects.

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

(GAO/ RCED- 97- 47, Feb. 27, 1997). 3 FHWA also requires finance plans for
projects that funded under the Transportation Infrastructure Finance and
Innovation Act. Currently, 3 additional projects funded under

the act have approved finance plans. 4 U. S. General Accounting Office,
Transportation Infrastructure: Cost and Oversight Issues on Major Highway
and Bridge Projects, GAO- 02- 702T (Washington, D. C.: May 1, 2002).

Page 3 GAO- 03- 764T

Finally, FHWA has taken actions to respond to a DOT task force report on
the management and oversight of major transportation projects, 5 such as
developing and publishing core competencies for managers overseeing major
projects. However, FHWA has not yet developed goals or measurable outcomes
linking its oversight activities to its business goals in its performance
plan, as an FHWA task force recommended in 2001. As I testified in May
2002, until FHWA takes these actions, it will be limited in its ability to
judge the success of its efforts or to know whether conflicting

interpretations of the agency*s roles have been resolved.  Our past work,
including my testimony of May 2002, presented options for

enhancing FHWA*s role in overseeing the costs of major highway and bridge
projects, should Congress, in reauthorizing TEA- 21, determine that such
action is needed and appropriate. These options include improving
information on the cost performance of selected major highway and bridge
projects, improving the quality of initial cost estimates, and enhancing
and clarifying FHWA*s role in reviewing and approving major projects. Each
of these options entails a commitment of additional resources and poses
costs and challenges that must be weighed against the option*s potential
benefits. Adopting one or more of these options would require Congress to
determine the appropriate federal role* balancing the state*s sovereign
right to select its projects and desire for flexibility and more autonomy
with the federal government*s interest in ensuring that billions of
federal dollars are spent efficiently and effectively. FHWA provides
funding to the states for roadway construction and

improvement projects through various programs collectively known as the
federal- aid highway program. 6 Most highway program funds are distributed
to the states through annual apportionments according to 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 5
Report of the ONE DOT Task Force on Oversight of Large Transportation
Infrastructure Projects; December 2000 6 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- 03- 764T

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 in no way infringe
on the sovereign right of the states to determine which projects shall 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 TEA-
21, FHWA exercises full oversight only of certain high- cost Interstate
system projects. 7 For other federally assisted projects, there are two
options. First, for a project that is not located on the Interstate system
but is part of the National Highway System, 8 a state may assume
responsibility for overseeing the project*s design and construction unless
the state or FHWA determines that this responsibility is not appropriate
for the state. Second, for a project that is not part of the National
Highway System, the state is required to assume responsibility for
overseeing the project*s design and construction unless the state
determines that this responsibility is not appropriate for it. Under both
options, TEA- 21 requires FHWA and each state to enter into an agreement
documenting the types of projects for which the state will assume
oversight responsibilities.

A major highway or bridge construction or repair project usually has four
stages: (1) planning, (2) environmental review, (3) design and property
acquisition, and (4) construction. The state*s activities and FHWA*s
corresponding approval actions are shown in figure 1.

7 States may assume responsibilities for other types of Interstate system
projects, including projects to resurface, restore, and rehabilitate
Interstate roadways, and those Interstate construction or reconstruction
projects estimated to cost less than $1 million. 8 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- 03- 764T

Figure 1: Stages of a Highway or Bridge Project

Source: GAO. 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 costs to complete the project and on reasonable
assumptions about future increases in such costs.

Page 6 GAO- 03- 764T

Our work has raised issues concerning the cost and oversight of major
highway and bridge projects, including the following:

 Cost growth has occurred on many major highway and bridge projects. For
example, on 23 of 30 projects initially expected to cost over $100
million, our 1997 report identified increases ranging from 2 to 211
percent* costs on about half these projects increased 25 percent or more.
9 In addition, the DOT Inspector General has recently identified cost

increases on major projects such as the Wilson Bridge, Springfield
Interchange, and Central Artery/ Tunnel projects. As I testified in 2002,
reviews by state audit and evaluation agencies have also highlighted
concerns about the cost and management of major highway and bridge
programs. 10 For example in January 2001, Virginia*s Joint Legislative
Audit and Review Commission found that final project costs on Virginia
Department of Transportation projects were well above their cost estimates
and estimated that the state*s 6- year, $9 billion transportation
development plan understated the costs of projects by up to $3.5 billion.
The commission attributed these problems to several factors, including not
adjusting estimates for inflation, expanding the scope of projects, not
consistently including amounts for contingencies, and committing design

errors. 11  Although cost growth has occurred on many major highway and
bridge projects, overall information on the amount of and reasons for cost
increases on major projects is generally not available because neither
FHWA nor state highway departments track this information over the life of
projects. Congressional efforts to obtain such information have met with
limited success. For example, in 2000 the former Chairman of this
subcommittee asked FHWA to provide information on how many major federal-
aid highway projects had experienced large cost overruns. Because FHWA
lacked a management information system to track this information,
officials manually reviewed records for over 1,500 projects authorized

9 GAO/ RCED- 97- 47 10 GAO- 02- 702T. 11 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). Issues Identified with

the Costs and Oversight of Major Highway and Bridge Projects

Page 7 GAO- 03- 764T

over a 4- year period. 12 FHWA*s information, however, measured only the
increases in costs that occurred after the projects were fully designed.
Thus, cost increases that occurred during the design of a project* where
we have reported that much of the cost growth occurs* were not reflected
in FHWA*s data. In contrast to the federal- aid highway program, the
Office

of Management and Budget requires federal agencies, for acquisitions of
major capital assets, 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 federal- aid highway program, a federally
assisted state program.

 While many factors can cause costs to increase, we have found, on
projects we have reviewed, that costs increased, in part, because initial
cost estimates were not reliable predictors of the total costs or
financing needs of projects. Rather, these estimates were generally
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 for our 1997
report included the costs of designing projects in its estimates, while
two other states did not. 13 We also found that costs increased on
projects in the states we visited because (1) 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 1997, we reported 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

12 For the purposes of this analysis, 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.

13 GAO/ RCED- 97- 47.

Page 8 GAO- 03- 764T

it had done little to ensure that cost containment was an integral part of
the states* project management.

 Finally, we have noted that FHWA*s oversight and project approval
process consists of a series of incremental actions that occur over the
years required to plan, design, and build a project. In many instances,
states construct a major project as a series of smaller projects, and FHWA
approves the estimated cost of each smaller project when it is ready for
construction, rather than agreeing to the total cost of the major project
at the outset. In some instances, by the time FHWA approves the cost of a
major project, a public investment decision may, in effect, already have
been made because substantial funds have already been spent on designing
the project and acquiring property, and many of the increases in the
project*s estimated costs have already occurred.

Since 1998, FHWA has taken a number of steps to improve the management and
oversight of major projects. FHWA implemented TEA21*s requirement that
states develop an annual finance plan 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 May
2003, FHWA had approved finance plans for 10 federal- aid highway projects
and expected finance plans to be prepared for 5 additional projects at the
conclusion of those projects* environmental review phase. 14 In addition,
FHWA established a major projects team that currently tracks and reports
each month on these 15 projects, and has assigned* or has

requested funding to assign* a full- time manager to each project to
provide oversight. These oversight managers are expected to monitor their
project*s cost and schedule, meet periodically with project officials,
assist in resolving issues and problems, and help to bring *lessons
learned* on their projects to other federally assisted highway projects.

14 FHWA also requires finance plans for projects that funded under the
Transportation Infrastructure Finance and Innovation Act. Currently, 3
additional projects funded under the act have approved finance plans.
Efforts by FHWA to

Improve the Management and Oversight of Major Projects

Page 9 GAO- 03- 764T

As I testified in 2002, 15 there are indications that the finance plan
requirement has produced positive 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. However, some
major corridor projects will not be covered by the requirement. FHWA has
identified 22 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
long- term 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. 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 represent in California.

In addition to implementing TEA- 21*s requirements, FHWA convened a task
force on the stewardship and oversight of federal- aid highway projects
and, in June 2001, issued a policy memorandum to improve its oversight.
The memorandum directed FHWA*s field offices 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. Soon
afterwards, FHWA convened a review team to examine its field offices*
activities, and in March 2003, it published an internal *best practices*
guide to assist the field offices in conducting risk assessments. FHWA
also began an effort during 2003 to identify strategies for assessing and
managing risks and for allocating resources agencywide.

FHWA*s policy memorandum further sought to address the task force*s
conclusion that changes in the agency*s oversight role since 1991 had
resulted in conflicting interpretations of the agency*s role in overseeing
projects. The task force found that because many projects were classified
as *exempt* from FHWA*s oversight, some of the field offices were taking

15 GAO- 02- 702T.

Page 10 GAO- 03- 764T

a *hands off* approach to these projects. The policy stipulates that while
states have responsibility for the design and construction of many
projects, FHWA is ultimately accountable for the efficient and effective
management of all projects financed with federal funds and for ensuring
compliance with applicable laws, regulations, and policies.

While FHWA has been moving forward to incorporate risk- based management
into its oversight through the use of risk assessments, it has not yet
developed goals or measurable outcomes linking its oversight activities to
the business goals in its performance plan, nor has it developed a
monitoring plan as its task force recommended in 2001. As I testified in
May 2002, 16 until FHWA takes these actions, it will be limited in its
ability to judge the success of its efforts or to know whether the

conflicting interpretations of its roles discussed above have been
resolved. Finally, FHWA has taken actions to respond to a DOT task force
report on the management and oversight of major projects. In December
2000, this task force concluded that a significant effort was needed to
improve the oversight of major transportation projects* including highway
and bridge projects. The task force made 24 recommendations, including
recommendations to establish an executive council to oversee major
projects, institute regular reporting requirements, and establish a
professional cadre of project managers with required core competencies,
training, and credentials. The task force*s recommendations were not
formally implemented for several reasons, including turnover in key
positions and the need to reevaluate policy following the change in
administrations in January 2001, and higher priorities brought on by the
events of September 11, 2001. However, FHWA believes it has been
responsive to the task force*s recommendations by establishing a major
projects oversight team, designating an oversight manager for each
project, and, most recently, developing and publishing core competencies
for managers overseeing major projects.

In addition, 7 of the task force*s 24 recommendations would have required
legislation. For example, 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

16 GAO- 02- 702T.

Page 11 GAO- 03- 764T

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.

In my testimony of May 2002, I presented options for enhancing FHWA*s role
in overseeing the costs of major highway and bridge projects, should
Congress, in reauthorizing TEA- 21, determine that such action is needed
and appropriate. Each of these options would be difficult and possibly

costly; each represents a commitment of additional resources that must be
weighed against the option*s potential benefits. Adopting any of these
options would require Congress to determine the appropriate federal role*
balancing the states* sovereign right to select its projects and desire
for flexibility and more autonomy with the federal government*s interest
in ensuring that billions of federal dollars are spent efficiently and
effectively. These options include the following:

 Have FHWA develop and maintain a management information system on the
cost performance of selected major highway and bridge projects, including
changes in estimated costs over time and the reasons for such changes.
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. Such information could help define the scope of the problem with
major projects and provide insights needed to fashion appropriate
solutions.

 Improve the quality of initial cost estimates by having states develop*
and having FHWA assist the states in developing* more uniform and reliable
total cost estimates at an appropriate time early in the development of
major projects. This option could help policymakers understand the extent
of the proposed federal, state, and local investment in these projects,
serve as a baseline for measuring cost performance over time, and assist
program managers in reliably estimating financing requirements.

 Have states track the progress of projects against their initial
baseline cost estimates. Expanding the federal government*s practice of
having its own agencies track the progress of the acquisition of major
capital assets against baseline estimates 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 identifying problems early, and for making decisions about
project changes that could Options to Enhance

Federal Oversight of Major Projects

Page 12 GAO- 03- 764T

affect costs. Tracking progress could also help identify common problems
and provide a better basis for estimating costs in the future.

 Establish performance goals for containing costs and implement
strategies for doing so as projects move through their design and
construction phases. Such performance goals could provide financial or
other incentives to the states for meeting agreed- upon goals. Performance
provisions such as these have been established in other federally assisted
grant programs and have also been proposed for use in the federal- aid
highway program. Requiring or encouraging the use of goals and strategies
could also improve accountability and make cost containment an integral
part of how states manage projects over time.

 Expand FHWA*s finance plan requirement to other projects. 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. Should Congress believe such an action would be
beneficial, additional criteria for defining projects would need to be
incorporated into FHWA*s structure for overseeing the costs and financing
of major projects.

 Clarify FHWA*s role in overseeing and reviewing the costs and management
of major projects. Changes in FHWA*s oversight role since 1991 have
created conflicting interpretations about FHWA*s role, and our work has
found that FHWA questions its authority to encourage or require practices
to contain the costs of major highway projects. Should uncertainties about
FHWA*s role and authority continue, another option would be to resolve the
uncertainties through reauthorization language.  Establish a process for
the federal approval of major projects. This option,

which would require federal approval of a major project at the outset,
including its cost estimate and finance plan, would be the most
farreaching and the most difficult option to implement. Potential models
for such a process include the full funding grant agreement process that
the Federal Transit Administration uses for major transit projects, and
the DOT task force*s December 2000 recommendation calling for the
establishment of a separate funding category for initial design work and a
new decision point for advancing projects. Establishing such a federal
approval process could have the potential to improve the reliability of
the initial baseline estimates and the cost performance of major projects
over time.

Page 13 GAO- 03- 764T

For further information on this statement, please contact JayEtta Z.
Hecker (heckerj@ gao. gov) or Steve Cohen (cohens@ gao. gov).
Alternatively, they may be reached at (202) 512- 2834. Contacts

Page 14 GAO- 03- 764T 14

Transportation Infrastructure: Cost and Oversight Issues on Major Highway
and Bridge Projects. GAO- 02- 702T. Washington, D. C.: May 1, 2002.

Surface Infrastructure: Costs, Financing, and Schedules for Large- Dollar
Transportation Projects. GAO/ RCED- 98- 64. Washington, D. C.: February
12, 1998.

DOT*s Budget: Management and Performance Issues Facing the Department in
Fiscal Year 1999. GAO/ T- RCED/ AIMD- 98- 76. Washington, D. C.: February
12, 1998.

Transportation Infrastructure: Managing the Costs of Large- Dollar Highway
Projects. GAO/ RCED- 97- 27. Washington, D. C.: February 27, 1997.
Transportation Infrastructure: Progress on and Challenges to Central

Artery/ Tunnel Project*s Costs and Financing. GAO/ RCED- 97- 170.
Washington, D. C.: July 17, 1997.

Transportation Infrastructure: Central Artery/ Tunnel Project Faces
Financial Uncertainties. GAO/ RCED- 96- 1313. Washington, D. C.: May 10,
1996.

Central Artery/ Tunnel Project. GAO/ RCED- 95- 213R. Washington, D. C.:
June 2, 1995. Related GAO Products

(544072)

This is a work of the U. S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

The General Accounting Office, the audit, evaluation and investigative arm
of Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of
the federal government for the American people. GAO examines the use of
public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO*s commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO*s Web site (www. gao. gov) contains abstracts
and fulltext files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as *Today*s Reports,* on its
Web site daily. The list contains links to the full- text document files.
To have GAO e- mail

this list to you every afternoon, go to www. gao. gov and select
*Subscribe to daily E- mail alert for newly released products* under the
GAO Reports heading.

The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to: U. S. General Accounting Office 441 G Street NW, Room LM
Washington, D. C. 20548 To order by Phone: Voice: (202) 512- 6000

TDD: (202) 512- 2537 Fax: (202) 512- 6061

Contact: Web site: www. gao. gov/ fraudnet/ fraudnet. htm E- mail:
fraudnet@ gao. gov Automated answering system: (800) 424- 5454 or (202)
512- 7470 Jeff Nelligan, managing director, NelliganJ@ gao. gov (202) 512-
4800

U. S. General Accounting Office, 441 G Street NW, Room 7149 Washington, D.
C. 20548 GAO*s Mission Obtaining Copies of

GAO Reports and Testimony

Order by Mail or Phone To Report Fraud, Waste, and Abuse in Federal
Programs Public Affairs
*** End of document. ***