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 [email protected].
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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