    Aviation Security: Cost Estimates Related to TSA Funding of
    Checked Baggage Screening Systems at Los Angeles and Ontario
    Airports (30-MAR-07, GAO-07-445).

    To meet the mandate to screen all checked baggage for explosives
    by December 31, 2003, the Transportation Security Administration
    (TSA) placed minivan-sized explosive detection systems (EDS) and
    other screening equipment in airport lobbies. However, these
    interim lobby solutions have caused operational inefficiencies,
    in part because they require a large number of screeners.
    According to TSA, in-line baggage screening--where EDS machines
    are integrated with an airport's baggage conveyor system--can be
    a more cost-effective and efficient alternative to lobby-based,
    stand-alone equipment. For example, in-line systems can increase
    the efficiency of airport, airline, and TSA operations, and lower
    costs by reducing the number of screeners. Moreover, in-line
    explosive detection systems can enhance security because they
    reduce congestion in airport lobbies, thus removing a potential
    target for terrorists. However, installing in-line systems can
    have large up-front costs, related to the need for airport
    modifications. To help defray these costs, in 2003, Congress
    authorized TSA to reimburse airports up to 75 percent of the cost
    to install these systems by entering "letter of intent" (LOI)
    agreements. An LOI, though not a binding commitment of federal
    funding, represents TSA's intent to provide the agreed-upon funds
    in future years if the agency receives sufficient appropriations
    to cover the agreement. TSA has issued eight letters of intent to
    help defray the costs of installing in-line systems at nine
    airports as of February 2007, but none since February 2004. In
    September 2003, TSA and the City of Los Angeles signed an LOI and
    an attached memorandum of agreement (LOI/MOA) in which TSA agreed
    to pay an amount not to exceed 75 percent of the agreed upon
    estimated total project cost of $341 million (about $256 million)
    to install in-line checked baggage screening systems at both Los
    Angeles (LAX) and Ontario (ONT) International Airports. However,
    in December 2003, officials from the City of Los Angeles' airport
    authority--Los Angeles World Airports (LAWA)--informed TSA that
    aspects of the design concept were infeasible and that additional
    construction modifications would be needed. LAWA subsequently
    submitted a revised cost estimate to TSA in April 2005 and
    requested that TSA amend the LOI/MOA to increase the federal
    reimbursement by about $122 million. TSA has not amended the LOI
    to provide for additional reimbursements; however, as of February
    2007, TSA had obligated the $256 million for the City of Los
    Angeles LOI/MOA in accordance with the schedule agreed to in the
    LOI and had reimbursed LAWA for about $26 million in expenses.
    Senate Report 109-273 directs us to review the reasons for the
    differences between the original 2003 cost estimate and the
    revised 2005 cost estimate submitted by LAWA. In response and as
    agreed with committee offices, we identified the key factors that
    contributed to the differences between the two cost estimates. On
    January 23, 2007, we briefed staff of the Senate Subcommittee on
    Homeland Security, Committee on Appropriations, on the results of
    our work.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-445
        ACCNO:   A67628
      TITLE:     Aviation Security: Cost Estimates Related to TSA Funding
    of Checked Baggage Screening Systems at Los Angeles and Ontario
    Airports
         DATE:   03/30/2007
      SUBJECT:   Airport security
    	     Airports
    	     Allowable costs
    	     Baggage screening
    	     Cost analysis
    	     Cost control
    	     Cost overruns
    	     Homeland security
    	     Strategic planning
    	     Systems design
    	     Cost estimates

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    GAO-07-445

         * [1]Summary of Findings
         * [2]Scope and Methodology
         * [3]Agency Comments and Our Evaluation
         * [4]GAO Contact
         * [5]Acknowledgments
         * [6]GAO's Mission
         * [7]Obtaining Copies of GAO Reports and Testimony

              * [8]Order by Mail or Phone

         * [9]To Report Fraud, Waste, and Abuse in Federal Programs
         * [10]Congressional Relations
         * [11]Public Affairs

    Report to Congressional Committees

    United States Government Accountability Office

    GAO

    March 2007

    AVIATION SECURITY

    Cost Estimates Related to TSA Funding of Checked Baggage Screening Systems
    at Los Angeles and Ontario Airports

    GAO-07-445

    Contents

    Letter 1

    Summary of Findings 3
    Scope and Methodology 5
    Agency Comments and Our Evaluation 5
    Appendix I GAO Contact and Staff Acknowledgments 9
    Appendix II Briefing Slides 10
    Appendix III Comments from Los Angeles World Airports 32

    Abbreviations

    DHS Department of Homeland Security
    EDS explosive detection system
    GAO Government Accountability Office
    LAWA Los Angeles World Airports
    LAX Los Angeles International Airport
    LOI letter of intent
    LOI/MOA letter of intent/memorandum of agreement
    MOA memorandum of agreement
    ONT Ontario International Airport
    TSA Transportation Security Administration

    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.

    United States Government Accountability Office
    Washington, DC 20548

    March 30, 2007

    The Honorable Robert C. Byrd
    Chairman
    The Honorable Thad Cochran
    Ranking Minority Member
    Subcommittee on Homeland Security
    Committee on Appropriations
    United States Senate

    The Honorable David E. Price
    Chairman
    The Honorable Harold Rogers
    Ranking Minority Member
    Subcommittee on Homeland Security
    Committee on Appropriations
    House of Representatives

    To meet the mandate to screen all checked baggage for explosives by
    December 31, 2003, the Transportation Security Administration (TSA) placed
    minivan-sized explosive detection systems (EDS) and other screening
    equipment in airport lobbies.^1 However, these interim lobby solutions
    have caused operational inefficiencies, in part because they require a
    large number of screeners. According to TSA, in-line baggage
    screening--where EDS machines are integrated with an airport's baggage
    conveyor system--can be a more cost-effective and efficient alternative to
    lobby-based, stand-alone equipment. For example, in-line systems can
    increase the efficiency of airport, airline, and TSA operations, and lower
    costs by reducing the number of screeners. Moreover, in-line explosive
    detection systems can enhance security because they reduce congestion in
    airport lobbies, thus removing a potential target for terrorists.

    However, installing in-line systems can have large up-front costs, related
    to the need for airport modifications. To help defray these costs, in
    2003, Congress authorized TSA to reimburse airports up to 75 percent of
    the cost to install these systems by entering "letter of intent" (LOI)
    agreements.^2 An LOI, though not a binding commitment of federal funding,
    represents TSA's intent to provide the agreed-upon funds in future years
    if the agency receives sufficient appropriations to cover the agreement.

    ^1See 49 U.S.C. S 44901(d).

    TSA has issued eight letters of intent to help defray the costs of
    installing in-line systems at nine airports as of February 2007, but none
    since February 2004. In September 2003, TSA and the City of Los Angeles
    signed an LOI and an attached memorandum of agreement (LOI/MOA) in which
    TSA agreed to pay an amount not to exceed 75 percent of the agreed upon
    estimated total project cost of $341 million (about $256 million) to
    install in-line checked baggage screening systems at both Los Angeles
    (LAX) and Ontario (ONT) International Airports. However, in December 2003,
    officials from the City of Los Angeles' airport authority--Los Angeles
    World Airports (LAWA)--informed TSA that aspects of the design concept
    were infeasible and that additional construction modifications would be
    needed. LAWA subsequently submitted a revised cost estimate to TSA in
    April 2005 and requested that TSA amend the LOI/MOA to increase the
    federal reimbursement by about $122 million. TSA has not amended the LOI
    to provide for additional reimbursements; however, as of February 2007,
    TSA had obligated the $256 million for the City of Los Angeles LOI/MOA in
    accordance with the schedule agreed to in the LOI and had reimbursed LAWA
    for about $26 million in expenses.

    Senate Report 109-273 directs us to review the reasons for the differences
    between the original 2003 cost estimate and the revised 2005 cost estimate
    submitted by LAWA.^3 In response and as agreed with committee offices,^4
    we identified the key factors that contributed to the differences between
    the two cost estimates. On January 23, 2007, we briefed staff of the
    Senate Subcommittee on Homeland Security, Committee on Appropriations, on
    the results of our work (see app. II).

    ^2See Consolidated Appropriations Resolution, 2003, Pub. L. No. 108-7, S
    367, 117 Stat. 11, 423-24. See also 49 U.S.C. S 44923.

    ^3See  S. Rep. No. 109-273, at 44 (2006) (accompanying H.R. 5441, as
    passed by the Senate; subsequently enacted into law as the Department of
    Homeland Security Appropriations Act, 2007, Pub. L. No. 109-295, 120 Stat.
    1355 (2006)).

    ^4Our Congressional Protocols state that GAO will work with the majority
    and minority of the designated committee to clarify the scope of work,
    reporting objectives, and time frames.

    Summary of Findings

    A key reason for the difference between the 2003 total project cost
    estimate and the revised 2005 estimate to install in-line baggage
    screening systems at LAX and ONT was that the 2003 estimate was developed
    at an early stage in the design process and was therefore based on
    preliminary data and assumptions that were subject to change.
    Consequently, the estimate did not adequately foresee some of the costs of
    retrofitting new systems into existing buildings or allow for sufficient
    space for the EDS machines, baggage inspection rooms, and conveyor belts.
    LAWA officials stated that they were under a tight timeframe to apply for
    the LOI because TSA had told them that federal funding was limited and
    that 17 other airports were competing for the funding. The 2003 total
    project cost estimate used concepts and construction estimates developed
    in about 12 weeks by Boeing, TSA's contractor. LAWA relied on designs and
    estimates developed by Boeing and its subcontractors to determine the
    total project cost estimate because the company had expertise in
    integrating EDS equipment into airports. According to TSA and LAWA
    officials, both TSA and Los Angeles signed the LOI/MOA knowing the
    preliminary nature of the cost estimate.

    According to construction industry guidance, an estimate's accuracy
    depends on the quality of information known about the project at the time
    the estimate is prepared.^5 The 2003 estimate was made at the "concept
    development" stage where the final project cost can be expected to range
    from 50 percent under to 100 percent over the estimated cost, according to
    this guidance. The 2005 revised estimate was made at the "design
    development" stage where the range of the final project cost estimate can
    be expected to be more accurate--from 20 percent under to 30 percent over
    the estimated cost.

    In December 2003, LAWA presented TSA with a summary of inadequacies it had
    found in the original Boeing concept and the associated potential cost and
    scheduling impacts. LAWA then began an engineering study to update the
    in-line system concepts at LAX and ONT, the results of which it presented
    to TSA in September 2004. TSA reviewed these updated concepts and
    determined that they would meet its performance requirements; however,
    TSA's review did not address cost issues. LAWA used these updated concepts
    to develop its 2005 estimate, which was based on more definitive
    information about terminal design requirements than the 2003 estimate.
    According to LAWA, new construction and excavation included in the 2005
    designs increased the estimated costs. Among the design changes, LAWA
    determined that the placement of EDS machines in the 2003 concepts was
    infeasible in five of nine of the LAX terminals and both ONT terminals. In
    addition, the 2005 estimate included 20 additional baggage inspection
    rooms, 9 rooms for on-screen resolution of EDS alarms, and 10 computer
    rooms at LAX and ONT terminals. The 2005 estimate also included over $11
    million in computer networking costs and costs associated with on-screen
    resolution of EDS alarms, which the 2003 estimate did not foresee. TSA
    also highlighted two additional factors that caused differences between
    the two estimates--cost increases due to the delay in beginning
    construction of the project and the escalation of construction costs
    between 2003 and 2005. LAWA also determined that TSA's contractor and
    subcontractor made a mathematical error in the 2003 concept development
    estimate: construction costs were only included for one of the two baggage
    screening facilities and neither of the connected tunnels at ONT. TSA
    officials told us in January 2007 they were not able to substantiate this
    error.

    ^5Improving Early Estimates Research Team, Improving Early Estimates: Best
    Practices Guide, Construction Industry Institute, September 1998.

    Further, according to LAWA, system redesigns were required because TSA's
    guidance on in-line baggage screening systems changed between the 2003 and
    2005 estimates, leading to higher estimates. Because few in-line systems
    were in use at the time of the September 2003 LOI/MOA, only limited
    information on the capabilities of the in-line EDS machines, including
    actual bags screened per hour and false alarm rates, was available for
    modeling the systems. In June 2006, TSA produced the Recommended Security
    Guidelines for Airport Planning, Design and Construction to guide future
    construction of in-line checked baggage screening systems based on its
    past experiences. TSA also expects to release more detailed guidelines for
    in-line system planning and design in a few months.

    The LOI/MOA affords TSA flexibility to amend the agreement to account for
    changed circumstances. However, under the terms agreed to in the LOI/MOA,
    TSA has no obligation to amend the LOI/MOA or to reimburse the City of Los
    Angeles for any additional costs beyond those agreed to in the LOI/MOA,
    and TSA officials have stated that the agency does not have plans for such
    reimbursement.

    Scope and Methodology

    To review key factors that contributed to the differences between the 2003
    and 2005 cost estimates, we reviewed TSA and LAWA documents used in
    developing the cost estimates, including design plans, reports, briefings,
    and emails. We interviewed officials from TSA and LAWA, as well as TSA
    contractors and other relevant officials who participated in the
    cost-estimation process to learn about the factors that contributed to the
    increased estimate of the cost of in-line checked baggage screening
    systems at LAX and ONT. We visited LAX and ONT to obtain a first-hand
    perspective of the modifications needed to install the in-line EDS systems
    at both airports. Additionally, we examined industry guidance on
    estimating costs for construction projects. We did not independently
    verify the 2003 or 2005 cost estimates.

    We conducted our work in accordance with generally accepted government
    auditing standards from October 2006 through March 2007.

    Agency Comments and Our Evaluation

    We provided a draft of this report to LAWA and the Department of Homeland
    Security (DHS) for review and comment. LAWA provided written comments
    which we have included in their entirety in appendix III. DHS provided no
    written comments. TSA provided e-mail comments. In addition, LAWA and TSA
    provided technical comments concerning facts in the report which we
    incorporated as appropriate.

    In its March 8, 2007, comments, LAWA wrote that it believes the draft did
    not paint an accurate or complete picture of the facts. In general, LAWA
    raised three points: (1) TSA has the authority to revise the LOI to
    reflect accurate cost figures and explicitly anticipated doing so during
    the LOI/MOA development process, (2) the report fails to assign specific
    responsibility for initial designs and any errors, as directed by the
    Report of the Senate Appropriations Committee, and (3) the report does not
    recognize that LAWA responded to TSA urgency in completing the agreements
    and, as a result, used preliminary design and cost estimates as the basis
    for entering into the LOI/MOA.

    We do not agree with LAWA's comments. With respect to its first point, it
    is true that the LOI/MOA agreements afford TSA flexibility to amend the
    agreements to account for changed circumstances. As stated in our report,
    however, under the terms of the LOI/MOA and in accordance with the law,
    TSA is under no obligation to amend the LOI/MOA or to reimburse LAWA for
    any costs beyond those agreed upon in the LOI/MOA. To date, as noted in
    our report, TSA has not indicated any intent to amend the LOI/MOA
    agreements to provide LAWA with additional funding for this project.

    LAWA states that it did not believe it would be held financially
    responsible for increases in eligible and allowable costs due to reasons
    beyond its control. When subsequent estimates revealed that the project
    costs would exceed the LOI/MOA-estimated amount, LAWA requested an
    amendment to the LOI to receive a 75 percent federal reimbursement of the
    $485 million revised estimate.

    LAWA also commented that a senior TSA official provided written assurances
    that the agency "would have the opportunity to cover an increase in costs
    due to design changes" and referenced an April 2004 e-mail from a TSA
    official to LAWA in support of this assertion. LAWA noted that it relied
    on this and other assurances from TSA, "reinforced in various
    discussions," at the time it concluded the LOI/MOA process.

    While the April 2004 e-mail cited above did note that LAWA would not "be
    held to estimates that do not prove to be right on the mark," this
    particular statement was made at least seven months after TSA and LAWA had
    concluded the LOI/MOA process and entered into the agreements.
    Furthermore, the MOA clearly provides that the agreement signed by both
    parties constitutes the "complete integration of all understandings
    between the parties." More generally, it provides that any prior,
    contemporaneous, or subsequent changes, whether written or oral, have no
    force or effect, and that any changes or modifications to the MOA must be
    in writing, signed by the TSA Contracting Officer, and duly executed by
    the City of Los Angeles to have such force or effect. Neither LAWA nor TSA
    presented any documentation suggesting that steps prescribed in the MOA
    had been (or were anticipated to be) taken to amend the LOI/MOA with
    respect to the reimbursable amount.

    LAWA also stated that the report does not reflect the extensive and
    protracted discussions LAWA had with TSA, leaving the impression that LAWA
    simply presented a new set of design concepts to TSA in September 2004.
    Our objective in this report, as agreed with congressional offices, was to
    identify the key factors that contributed to the differences between the
    2003 and the 2005 cost estimates. As such, we reported that LAWA reported
    the findings of its engineering study in September 2004 and that TSA
    approved the concepts. We believe this statement sufficiently demonstrates
    the agreement between TSA and LAWA on the revised designs.

    In its second point, LAWA suggests that the GAO report avoids assigning
    responsibility to TSA or its contractors and, as a result, "failed to
    answer the Senate Committee's direction to provide a detailed explanation
    of the reasons for any differences the original estimate, including
    identification of and the party responsible for any material mistakes,
    omissions, and infeasible design concepts in the original estimate."

    The objective of the report, as agreed with the appropriate congressional
    offices in accordance with our Congressional Protocols, was to identify
    factors contributing to differences between the estimates. To the extent
    appropriate, we identified the roles and responsibilities of the various
    parties. Specifically, we noted that Boeing produced the conceptual
    designs that served as the basis for the 2003 estimate agreed to in the
    LOI/MOA. We noted that these designs had been developed at an early stage
    of the design process, which assumes costs that can differ greatly from
    final project costs. The report also states that LAWA had determined that
    Boeing had made a mathematical error in the Ontario estimate. Further, we
    determined that both TSA and LAWA had signed the LOI/MOA knowing of the
    preliminary nature of the cost estimate. Finally, as referenced in our
    scope and methodology and as agreed with the congressional offices, in
    identifying factors associated with the estimates, we did not
    independently verify the 2003 or 2005 cost estimates.

    In its third point, LAWA suggests the report does not recognize that LAWA
    responded to TSA urgency in completing the agreements and, as a result,
    used preliminary design and cost estimates as the basis for entering into
    the LOI/MOA.

    The report notes that "LAWA officials stated that they were under a tight
    timeframe because TSA had told them that federal funding was limited and
    17 other airports were competing for the funding." We identified this as a
    factor associated with the preliminary nature of the 2003 estimate. LAWA
    also commented that it was essentially required to accept the Boeing
    design and cost estimates. The report states that TSA and LAWA used the
    Boeing estimate to provide the basis for the estimate agreed to in the
    September 2003 LOI/MOA. Neither TSA nor LAWA provided evidence suggesting
    that TSA had required LAWA to accept the Boeing design and cost estimates.

    In its e-mail comments, TSA stated that concept development for in-line
    solutions at all of the airports with LOIs was a collaborative effort
    between TSA and the respective airport entity. TSA further stated that
    most of the LOI estimates were developed early in the concept development
    phase. We incorporated a comment into the report to acknowledge that TSA
    viewed the development of the concepts as a partnership; however, we did
    not review concept development at other airports.

    In its comments, TSA also states that there were only two changes in its
    guidance between 2003 and 2005. The first was the addition of the use of
    On-Screen Alarm Resolution Protocol during the alarm resolution process,
    which TSA acknowledged required redesign and associated cost increases.
    The second was the increase in the baggage throughput number per EDS which
    led to the deletion of 13 EDS machines from the quantity estimated in the
    2003 concepts. According to TSA, this would have a significant impact on
    lowering the overall project cost, which would be supported by decreasing
    required space, baggage handling system infrastructure (generally up to $4
    million per machine on average) and associated electrical, mechanical,
    data and other infrastructure.

    In its comments, TSA described two additional factors that caused
    differences between the two estimates-- cost increases due to the delay in
    beginning construction of the project and the escalation of construction
    costs between 2003 and 2005. We incorporated this comment into the report.

    Finally, TSA stated in its comments that it had reviewed the mathematical
    error LAWA determined Boeing made in the 2003 concept for ONT, and had not
    been able to validate that the error had been made. In our report we
    acknowledge that TSA was not able to substantiate the error.

    We will send copies of this report to the Secretary of Homeland Security
    and the Assistant Secretary, Transportation Security Administration, and
    interested congressional committees. We will send a copy of the report to
    LAWA and will also make copies available to others upon request. In
    addition, the report will be available at no charge on GAO's Web site at
    http://www.gao.gov. If you have any questions or need additional
    information, please contact me at (202) 512- 2757 or goldenkoffr@gao.gov.
    Contact points for our Offices of Congressional Relations and Public
    Affairs may be found on the last page of this report. Key contributors to
    this report are acknowledged in appendix I.

    Robert Goldenkoff
    Acting Director
    Homeland Security and Justice Issues

    Appendix I: GAO Contact and Staff Acknowledgments

    GAO Contact

    Robert Goldenkoff (202) 512-2757

    Acknowledgments

    In addition to the contact named above, Charles Bausell, Kevin Copping,
    Kimberly Cutright, Glenn Davis, Terrell Dorn, Maria Edelstein, Richard
    Hung, Julian King, Brian Lipman, Thomas Lombardi, Amanda Miller, and Linda
    Miller made key contributions to this report.

    Appendix II: Briefing Slides

    Appendix III: Comments from Los Angeles World Airports

    (440591)

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