Transportation Infrastructure: Managing the Costs of Large-Dollar Highway
Projects (Chapter Report, 02/28/97, GAO/RCED-97-47).

Pursuant to a congressional request, GAO reviewed the Federal Highway
Administration's (FHwA) oversight of large-dollar highway projects,
focusing on: (1) whether large-dollar highway projects experience cost
growth; (2) how FHwA approves large-dollar projects and agrees to their
costs; and (3) how FHwA ensures that project costs are controlled and
that federal funds are efficiently used.

GAO found that: (1) cost growth has occurred on many of the large-dollar
projects that GAO examined, however, the amount of and reasons for these
increases beyond the initial cost estimates on large-dollar highway
projects cannot be determined because data to track this information
over the life of projects are not readily available from FHwA or state
highway departments; (2) as of August 1996, costs on 23 of 30 ongoing
projects initially estimated to cost more than $100 million had
increased from their initial estimates, while estimates on seven
projects had decreased or had remained the same; (3) FHwA's project
approval process consists of a series of incremental actions that occur
over the period of years required to plan, design, and build a project;
(4) FHwA approves the estimated cost of a large-dollar project in
segments, rather than agreeing to the total cost of the project from the
outset; (5) by the time FHwA approves the cost of a large-dollar
project, a public investment decision may have effectively been made
because substantial funds will already have been spent on designing the
project and the project's estimated costs will have already occurred;
(6) while many factors can cause costs to increase, several factors
worked together to increase costs beyond the initial estimates for
projects in the six states visited: (a) initial estimates are
preliminary and not designed to be reliable predictors of a project's
costs; (b) initial estimates are modified to reflect more detailed plans
and specifications as a project is designed; and (c) a project's costs
are affected by, among other things, inflation and changes in scope to
accommodate economic development that occurs over time; (7) FHwA has
done little to ensure that cost containment is an integral part of the
states' project management; (8) FHwA influences the cost-effectiveness
of projects by its review and approval of design and construction plans
and through daily interaction with state departments of transportation;
(9) some states GAO visited have initiated project management practices
that focus on cost containment; (10) however, FHwA, has not been
proactive in working with states to evaluate these practices and
disseminate information on them to help other states enhance their cost
management practices; and (11) the debate has already begun on the
appropriate federal role in funding and overseeing federal-aid highway *

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-97-47
     TITLE:  Transportation Infrastructure: Managing the Costs of 
             Large-Dollar Highway Projects
      DATE:  02/28/97
   SUBJECT:  Highway planning
             Bridges
             Cost control
             Environmental impact statements
             Public roads or highways
             Federal aid for highways
             Road construction
             Cost effectiveness analysis
             State-administered programs
             Intergovernmental fiscal relations
IDENTIFIER:  Interstate Highway System
             Central Artery/Tunnel Project (Boston, MA)
             FHwA Interstate Construction Program
             California
             Woodrow Wilson Bridge (VA)
             Salt Lake City (UT)
             Oakland Cypress Viaduct (CA)
             Arkansas
             Maryland
             Michigan
             Texas
             DOT Fiscal Management Information System
             National Performance Review
             FHwA Federal-Aid Highway Program
             FHwA Highway Bridge Replacement and Rehabilitation Program
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Oversight of Government
Management, Restructuring and the District of Columbia, Committee on
Governmental Affairs, U.S.  Senate

February 1997

TRANSPORTATION INFRASTRUCTURE -
MANAGING THE COSTS OF LARGE-DOLLAR
HIGHWAY PROJECTS

GAO/RCED-97-47

Managing the Costs of Highway Projects

(342908)


Abbreviations
=============================================================== ABBREV

  DOT - Department of Transportation
  EIS - environmental impact statement
  FHWA - Federal Highway Administration
  FMIS - Fiscal Management Information System
  GAO - General Accounting Office
  ISTEA - Intermodal Surface Transportation Efficiency Act
  NHS - National Highway System
  NEPA - National Environmental Policy Act
  OMB - Office of Management and Budget
  PS&E - plans, specifications, and estimates
  STIP - Statewide Transportation Improvement Program
  TRNSPORT -

Letter
=============================================================== LETTER


B-270823

February 28, 1997

The Honorable Sam Brownback
Chairman, Subcommittee on Oversight of
 Government Management, Restructuring
 and the District of Columbia
Committee on Governmental Affairs
United States Senate

Dear Mr.  Chairman: 

In reponse to the request of the former Chairman of the Subcommittee,
this report addresses the Federal Highway Administration's oversight
of large-dollar highway projects. 

We are sending copies of the report to the Secretary of
Transportation; the Administrator, Federal Highway Administration;
and other interested parties.  Copies are available to others upon
request. 

If you have any questions concerning this report, please contact me
at (202) 512-2834. 

Sincerely yours,

John H.  Anderson, Jr.
Director, Transportation Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

Each year, the federal government distributes nearly $20 billion to
the states for the construction and repair of the nation's highways. 
To meet the nation's transportation needs, states are planning or
building large-dollar projects to both replace aging infrastructure
and build new capacity.  These large-dollar projects represent a
substantial investment of federal and state funds.  Moreover, because
the Department of Transportation projects a $16 billion annual
shortfall in funding from what is needed just to maintain the
condition and performance of the nation's highways at the 1993 level,
it is essential that highway projects be well managed to ensure that
costs are accurately estimated and controlled and that federal and
state funds are efficiently used. 

Concerned about reports of increases in the costs of ongoing
large-dollar highway projects, the former Chairman, Subcommittee on
Oversight of Government Management and the District of Columbia,
Senate Committee on Governmental Affairs, asked GAO to assess the
effectiveness of the Federal Highway Administration's (FHWA)
oversight of the costs of large-dollar highway and bridge projects. 
The Subcommittee defined large-dollar projects as those projects with
a total estimated cost of over $100 million.  In particular, the
Subcommittee asked GAO to (1) determine if large-dollar highway
projects experience cost growth, (2) identify how FHWA approves
large-dollar highway projects and agrees to their costs, and (3)
identify how FHWA ensures that project costs are controlled and that
federal funds are efficiently used.  GAO also presents information on
practices to manage the costs of projects that are being used in some
of the six states that GAO visited and, because of the upcoming
reauthorization of highway programs in 1997, observations on the
federal role for managing the costs of large-dollar projects. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

Because FHWA does not maintain a national database that would provide
the total number of active federal-aid projects with a total
estimated cost of over $100 million, GAO reviewed environmental
impact statements that had been filed with the Environmental
Protection Agency between 1988 and 1993 to identify 30 active
projects that were receiving federal funds.  These projects were
estimated initially to cost between $101 and $695 million and were in
various stages of development. 

A highway or bridge construction or repair project has four stages: 
(1) planning, (2) environmental review, (3) design and property
acquisition, and (4) construction.  After an initial cost estimate is
developed for the overall project in connection with the
environmental review stage, a large-dollar project is usually divided
into smaller, more manageable, segments for design and construction. 
The federal government generally provides funds for 80 percent of the
total costs of a federal-aid project.  While states are responsible
for planning, selecting, designing, and constructing the project,
FHWA is responsible for ensuring that applicable federal laws and
regulations are met and for approving the expenditure of federal
funds. 

The extent of direct oversight by FHWA for a project depends on its
cost, location, and type of work.  Generally, FHWA has "full"
oversight responsibility for new construction or reconstruction
(replacing rather than rehabilitating a road) projects on the
National Highway System with an estimated cost of $1 million or
more.\1 This oversight includes approving design and construction
specifications, periodically inspecting construction sites, and
formally accepting completed projects.  States have the authority to
exempt other projects from this type of oversight.  FHWA oversees and
administers funding for federally aided projects through its 52
division offices, located in each state, the District of Columbia,
and Puerto Rico. 


--------------------
\1 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 4
million miles of roads in the United States. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

Cost growth has occurred on many of the large-dollar highway projects
that GAO examined.  However, the amount of and reasons for increases
beyond the initial cost estimates on large-dollar highway projects
cannot be determined because data to track this information over the
life of projects are not readily available from FHWA or state highway
departments.  GAO developed limited data showing that as of August
1996, costs on 23 of 30 ongoing projects initially estimated to cost
over $100 million had increased from their initial estimates, while
estimates on 7 projects had decreased or had remained the same. 
However, determining if some portion of the cost increases on those
projects GAO reviewed could have been minimized is difficult because
of the lack of reliable data. 

FHWA's project approval process consists of a series of incremental
actions that occur over the period of years required to plan, design,
and build a project.  FHWA approves the estimated cost of a
large-dollar project in segments when those project segments are
ready for construction, rather than agreeing to the total cost of the
project from the outset.  By the time FHWA approves the cost of a
large-dollar project, a public investment decision may have
effectively been made because substantial funds will already have
been spent on designing the project and acquiring property, and much
of the increases in the project's estimated costs will have already
occurred.  While many factors can cause costs to increase, GAO found
several factors that worked together to increase costs beyond the
initial estimates for projects in the six states visited:  (1)
initial estimates are preliminary and not designed to be reliable
predictors of a project's cost, (2) initial estimates are modified to
reflect more detailed plans and specifications as a project is
designed, and (3) a project's costs are affected by, among other
things, inflation and changes in scope to accommodate economic
development that occurs over time as a project is designed and built. 

Cost containment is not an explicit statutory or regulatory goal of
FHWA's "full" oversight.  As such, FHWA has done little to ensure
cost containment is an integral part of the states' project
management.  FHWA influences the cost-effectiveness of projects by
its review and approval of design and construction plans and through
daily interaction with state departments of transportation.  Some
states GAO visited have initiated project management practices that
focus on cost containment.  These practices include preparing, early
in a project, estimates that better represent what the project's
total cost might be, establishing goals for project cost performance,
and tracking progress against these goals.  However, FHWA has not
been proactive in working with states to evaluate these practices and
disseminate information on them to help other states enhance their
cost management practices.  Moreover, because of the reauthorization
of highway programs in 1997, the debate has already begun on the
appropriate federal role in funding and overseeing federal-aid
highway projects, particularly those that receive substantial federal
funds. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      COST GROWTH HAS OCCURRED ON
      LARGE-DOLLAR PROJECTS; BUT
      DATA ARE LIMITED
-------------------------------------------------------- Chapter 0:4.1

FHWA does not track the cost performance of large-dollar projects
because its information system for highway projects is designed to
record funds obligated for segments of federally funded projects,
rather than to capture complete project-related estimates and costs. 
In addition, although some states have systems that can potentially
be used to track cost estimates and reasons for cost increases over
the life of a project, FHWA and state officials told GAO that states
do not maintain this information, and none of the states that GAO
contacted did so. 

Because data were not available, to obtain an indication of the
extent of large-dollar projects' cost growth, GAO identified 30
active projects receiving federal funds whose total costs were
estimated to exceed $100 million.  GAO developed data showing that 23
of the 30 projects had costs that increased beyond the initial
estimates.  These increases ranged from 2 to 211 percent, with about
half of the projects' costs increasing by more than 25 percent.  Cost
estimates on the remaining seven projects either decreased or
remained the same. 


      FHWA APPROVAL PROCESS IS
      INCREMENTAL
-------------------------------------------------------- Chapter 0:4.2

When FHWA agrees to the estimated cost of a project segment, a
substantial investment of federal funds to design and acquire
property for that segment may have already occurred.  For example,
$1.3 billion, or about 13 percent, of the estimated $10.4 billion
cost of the Central Artery/Tunnel project in Boston, Massachusetts,
is for the design and property acquisition stages of the project. 
Property acquisition can also substantially affect the public.  One
new construction project, I-105 in California, displaced 18,200
people before construction could begin. 

In addition, most of the cost growth that occurs on a project happens
before construction begins.  For example, costs on the nearly
complete I-595 project in Maryland have increased by over $200
million from the initial cost estimate--from about $188 million to
about $390 million.  State officials provided data showing that about
$160 million of that $200 million increase--around 80
percent--occurred before the construction stage.  One reason for cost
increases is that while initial cost estimates are developed in
connection with the environmental review stage, a complete estimate
of the total costs of a project is not an objective of the
environmental review.  Rather, estimates developed at this stage are
limited and are not intended to be reliable predictors of a project's
total cost or financing needs.  They are based on a "rough footprint"
that identifies the type of highway or bridge and the number of lanes
and interchanges and are rough estimates based on historic per-mile
costs and square footage costs for that state.  Also, costs increase
during the design process as preliminary design concepts are refined
into detailed plans and specifications.  For example, detailed soil
investigations and environmental testing can reveal engineering or
other problems that were not known earlier and that can substantially
increase costs.  Furthermore, because a large construction project
takes several years to progress through the environmental and design
stages to construction, its costs can increase as changes occur to
address, among other things, increased economic development and
environmental or other new laws.  Projects may also be "stretched
out" to accommodate federal and state funding cycles, thus increasing
costs if for no other reason than the effects of inflation. 


      FHWA'S OVERSIGHT OF
      LARGE-DOLLAR PROJECTS DOES
      NOT FOCUS ON COST
      CONTAINMENT
-------------------------------------------------------- Chapter 0:4.3

The primary goal of FHWA's oversight is to ensure that federal-aid
highway projects managed by state departments of transportation meet
applicable federal safety and quality standards.  In this capacity,
FHWA influences the cost-effectiveness of projects and can increase
or decrease project costs.  For example, in Arkansas, FHWA's
suggestion that the state use smaller drainage structures on the U.S. 
71 new construction project reduced the project costs by about $2.6
million.  Conversely, FHWA's request that Massachusetts upgrade the
design for tunnel reconstruction on one segment of the Central
Artery/Tunnel project to meet interstate speed and safety design
standards added $46 million to the project's costs. 

With no statutory requirement to focus on project costs, FHWA has
generally not established requirements nor encouraged states to put
management procedures or mechanisms in place to contain costs.  In
1995, however, the Secretary of Transportation announced that, for
any project estimated to cost over $1 billion, state highway
departments would be required to develop a finance plan describing
the total cost of that project and the sources of funding over the
life of the project.  Such a plan helps to focus attention on project
costs so that decisions can be made to reduce costs or to obtain
additional financing if costs increase.  To date, the requirement has
applied only to the Central Artery/Tunnel project in Boston,
Massachusetts, and to the reconstruction of Interstate 15 in Salt
Lake City, Utah.  GAO is currently reviewing the most recent Central
Artery/Tunnel project finance plan to determine how funding shortages
will be addressed.  A finance plan has not been completed for the
I-15 project in Utah. 

GAO found several positive practices that states had initiated to
focus more specifically on containing project costs.  These practices
included improving the quality of initial cost estimates,
establishing cost performance goals and strategies, and using
external review boards to approve cost increases.  Although it
disseminates information to state departments of transportation on a
wide variety of technical and research topics, GAO found that FHWA
does not evaluate and disseminate among all the states information on
their best cost management practices.  Being more proactive in this
regard could provide states with strategies that could contain
project costs and promote more cost-effective project management. 

Moreover, while specific cost management practices will certainly not
preclude all increases in project costs, they could help foster a
culture that emphasizes cost containment without impinging on safety
or quality.  They could also give states an early warning of the need
to develop cost control or financing solutions before problems occur. 
For example, while GAO is currently assessing the progress made by
the Central Artery/Tunnel project to achieve its cost containment
goals, the project's most recent finance plan stated that managing
the project to cost performance goals has allowed the project to
emphasize cost control on a day-to-day basis, control proposed
changes, and identify potential cost increases early. 


      OBSERVATIONS ON THE FEDERAL
      ROLE IN PROJECT COST
      MANAGEMENT
-------------------------------------------------------- Chapter 0:4.4

As reauthorization of highway programs approaches in 1997, debate has
already begun about the federal role in funding and overseeing
highway projects.  Some argue that the federal role should be reduced
by returning the majority of revenues from federal gas taxes back to
the states, which would give states more flexibility in using these
revenues and reduce the cost and time involved in complying with
federal requirements.  Others believe that continuing the existing
federal role is appropriate to ensure that the national objective of
preserving our interconnected highways is accomplished. 

Ultimately, the Congress and the administration will decide on the
most appropriate federal role in large-dollar highway projects.  Cost
management of these projects is just one part of the federal
government's role.  If appropriate, expanding that part could take
the form of requiring the states to enhance their cost management
practices by using some of the same strategies some states already
use, such as establishing baseline cost estimates as well as goals
and strategies for cost performance.  Such strategies have the
potential to promote more effective and efficient use of limited
federal and state highway dollars and control the cost growth that
could adversely impact the funding available for other projects.  A
more active role for FHWA in overseeing state management of project
costs is another scenario.  FHWA's involvement could help to ensure
the reasonableness of cost estimates and financing plans as well as
the progress in meeting cost performance goals. 


   RECOMMENDATION
---------------------------------------------------------- Chapter 0:5

GAO recommends that the Secretary of Transportation direct the
Administrator, FHWA, to work with the states to evaluate information
on the best state practices concerning cost management and to
disseminate this information to all states to enhance their ability
to manage costs on large-dollar highway projects. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

We provided copies of a draft of this report to DOT and FHWA for
their review and comment.  FHWA officials who reviewed the draft,
including the Associate Administrator for Program Development,
generally concurred with the information contained in the report and
agreed with the recommendation. 


INTRODUCTION
============================================================ Chapter 1

Under the federal-aid highway program, billions of dollars are
distributed annually to the states for construction and repair of
highways, bridges, and other activities.  Federal funding is
channeled through federal-aid projects--a state enters into a project
agreement with the federal government for the planning, design, or
construction stages of a highway project.  In these agreements, the
federal government agrees to pay for a portion of the project as
specified in law--usually 80 percent--while the state agrees to
provide the remaining needed funds and to undertake the project in
accordance with applicable federal laws, regulations, and standards. 
The Federal Highway Administration (FHWA) oversees the state's
management of these projects and administers funding through its 52
division offices located in each state, the District of Columbia, and
Puerto Rico. 


   THE FOCUS OF THE FEDERAL-AID
   HIGHWAY PROGRAM HAS CHANGED
---------------------------------------------------------- Chapter 1:1

From 1956 until the early 1990s, the focus of the federal-aid highway
program was construction of the 44,000 mile Interstate Highway
System--now a component of the National Highway System.\2 The
Interstate Highway System was built on a "cost-to-complete"
basis--projects received federal funding annually through the
Interstate Construction Program based on the estimated costs of
building the specific projects needed to complete the Interstate
System.  State highway departments were required to build the system
in accordance with federally-endorsed design and construction
standards.  FHWA exercised "full" project oversight over interstate
construction projects, approving design and construction
specifications, periodically inspecting construction sites, and
formally accepting the final product. 

The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA)
brought about major changes to the federal-aid highway program.  The
Congress acknowledged that the Interstate Highway System was nearly
complete and authorized final funding for the Interstate Construction
Program which was distributed in fiscal year 1995.  Consequently,
because this category of project-specific funding is no longer
available, most projects receiving federal aid compete within a state
for other categories of federal funding that are provided by formula
annually to each state. 

ISTEA also changed the nature of federal oversight.  Prior to ISTEA,
FHWA had begun to move away from "full" oversight, which focused on
specific projects, to oversight of each state's ability to manage and
oversee construction projects.  ISTEA devolved even greater authority
to the states by allowing a large number of projects to be exempted
from "full" FHWA oversight.  As a result, generally new construction
projects or reconstruction projects--removing and replacing the
roadway instead of rehabilitating existing pavement--on the National
Highway System with an estimated cost of $1 million or more require
"full" FHWA oversight.\3 Appendix I describes in greater detail the
legal requirements and states' choices concerning federal oversight
of highway projects. 

Within the "full" oversight category, FHWA realized the need to be
more involved on very costly projects.  As a result, the Secretary of
Transportation announced in February 1995 that FHWA would require
states with federally assisted projects estimated to cost over $1
billion to submit a finance plan to FHWA describing the costs of the
project and how it would be financed.  At that time Massachusetts was
the only state required to submit a finance plan, for the Central
Artery/Tunnel project.  FHWA is now requiring a finance plan from
Utah for the reconstruction of Interstate 15 in Salt Lake City. 
However, as of December 1996, FHWA had not provided guidance to the
states on what stage of a project a finance plan is required or the
factors that should be included in the plan. 


--------------------
\2 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. 

\3 A preexisting provision of law--certification acceptance--allows
states to avoid full review of projects not on the Interstate Highway
System by a certification by the state if FHWA finds that projects
being carried out under state laws, regulations, directives, and
standards will accomplish the policies and objectives of federal law. 


      A CONTINUED NEED EXISTS FOR
      LARGE-DOLLAR PROJECTS
-------------------------------------------------------- Chapter 1:1.1

Although the Interstate Highway System is substantially complete,
states continue to plan large-dollar projects to meet highway
reconstruction and new capacity needs.  Some of these projects can
involve substantial federal and state funds.  For example, between
1988 and 1993, the states filed 38 draft environmental impact
statements with the Environmental Protection Agency for projects
estimated to cost more than $100 million.  As of 1994, over 24
percent of bridges on the Interstate System were structurally or
functionally deficient, meaning they required significant maintenance
or were not sufficiently wide or high enough to serve the current
traffic demand.  Reconstruction or replacement can be expensive--for
example, a project to replace the Woodrow Wilson Bridge and adjacent
interchanges on Interstate 95 near Washington, D.C., is estimated to
cost around $1.5 billion.\4

FHWA estimates that around 35 percent or 15,000 miles of the nation's
40-year old Interstate Highway System is in poor or mediocre
condition and will require reconstruction immediately or within the
next 5 years.  In Utah, reconstructing and widening of Interstate 15
is estimated to cost more than $1 billion.  In addition, many states
and regions are planning new capacity.  For example, in passing ISTEA
in 1991, the Congress found that many regions of the nation were not
adequately served by the Interstate System or comparable highways and
identified 21 high-priority corridors to be developed on the National
Highway System to help meet the demands for increased capacity. 
Also, some states continue to sponsor ambitious infrastructure
development programs.  For example, Arkansas is constructing U.S. 
Route 71 throughout the state; the next phase--from Texarkana to Fort
Smith--is now estimated to cost $1.4 billion.  Most of these
large-dollar projects are new construction or major reconstructions
of highways on the National Highway System and will fall under "full"
FHWA oversight. 


--------------------
\4 Because the Woodrow Wilson Bridge is a federally owned bridge, it
will be managed differently than a conventional highway project that
receives federal aid.  However, it illustrates the potential costs
for future projects to replace bridges.  The estimated cost of
replacing the bridge alone, without any of the work on the
interchanges, is over $400 million. 


   HOW TO BUILD A FEDERAL-AID
   HIGHWAY
---------------------------------------------------------- Chapter 1:2

Applying for and receiving federal reimbursement designates a project
as federal-aid.  A state has wide latitude in defining a project
throughout the four stages of project development--planning,
environmental review, design and property acquisition, and
construction.  Once planning and environmental review are completed,
large-dollar projects are frequently divided into smaller, more
manageable segments for design and construction.  For example, if a
state is building a 20-mile highway, it may apply for federal funds
for the planning and environmental review for the entire 20 miles as
one federal-aid project, while breaking the project into four 5-mile
segments for the design and construction stages.  In this report,
"project" is used to refer to an entire project, while "segment"
refers to a portion of that project. 

FHWA has a role throughout the four stages of the project development
process; this role ranges from approving a state's long-range
transportation plan to approving a change to a specific construction
contract.  Chapter 3 provides the details about FHWA's role for each
of the stages. 


      PLANNING STAGE
-------------------------------------------------------- Chapter 1:2.1

Each state is required through ISTEA and earlier authorizing
legislation to prepare both a statewide long-range transportation
plan and a short-range statewide transportation improvement program
(STIP).  The long-range plan identifies the state's transportation
needs and proposed projects for at least the next 20 years, but may
not identify specific projects.  For example, while the plan may
discuss a highway corridor that is likely to become heavily congested
within the next 15 years, it may not identify a specific solution. 
In contrast, the STIP covers a shorter timeframe--usually 3
years--and describes specific projects or project segments, including
the scope and estimated costs.  FHWA requires the states to identify
sources of financing that will adequately fund both the statewide
transportation plan and the STIP. 

Since October 1993, FHWA and the Federal Transit Administration have
jointly implemented a new planning tool--the major investment
study--to assist state and local transportation decision makers as
ISTEA shifted more of the transportation planning and decision making
to the state and local level.  The major investment study is used
where states are considering high-cost and high-impact transportation
alternatives.  State and local transportation officials use this tool
to evaluate multi-modal alternatives to a transportation problem and
provide the necessary information to further define specific projects
or segments that need to be included in the STIP.  This process can
occur prior to or in conjunction with the environmental review
process. 


      ENVIRONMENTAL REVIEW STAGE
-------------------------------------------------------- Chapter 1:2.2

Before detailed plans and designs for a proposed highway can be
developed, the state's highway agency must first identify and assess
the environmental consequences of alternative proposals and make this
information available to public officials and citizens, as required
by the National Environmental Policy Act (NEPA) of 1969.  For
projects that will significantly affect the environment, NEPA
requires the preparation of an environmental impact statement (EIS),
which, among other things, identifies project alternatives and the
environmental mitigation efforts required for each alternative and
allows an opportunity for public comments.  Before the project can
proceed to the design and property acquisition stage, FHWA must
approve the EIS and issue a record of decision that, among other
things, describes the preferred alternative and why it was chosen. 


      DESIGN AND PROPERTY
      ACQUISITION STAGE
-------------------------------------------------------- Chapter 1:2.3

After the preferred alternative is selected, a large-dollar project
is generally broken into multiple segments.  Engineers then prepare
design plans and specifications for each segment, including such
features as type and thickness of pavement, the width of shoulders,
and the placement of noise walls.  These plans and specifications
include a listing of necessary materials and construction methods and
are prepared in sufficient detail to allow a contractor to construct
the project.  The specifications are also used to develop a project
segment cost estimate precise enough to predict federal and state
financial obligations and to effectively review and compare
construction bids received. 


      CONSTRUCTION STAGE
-------------------------------------------------------- Chapter 1:2.4

After completing the design stage, the state advertises for bids to
construct that segment of the project.  Once the state has received
bids from construction contractors, it awards the construction
contract, usually to the lowest responsive bidder.  After the
contract is awarded, any changes that require changing the scope of
the original contract or significantly increasing costs are usually
documented in a change order. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:3

Concerned about increases in costs of ongoing large-dollar highway
projects, the former Chairman of the Senate Subcommittee on Oversight
of Government Management and the District of Columbia, Committee on
Governmental Affairs, asked us to examine cost growth on large-dollar
projects and the federal government's oversight of them. 
Specifically, we were asked to (1) determine if large-dollar highway
projects experience cost growth, (2) identify how FHWA approves
large-dollar highway projects and agrees to the costs, and (3)
identify how FHWA ensures that project costs are controlled and that
federal funds are efficiently used. 

To determine if large-dollar projects experience cost growth, we
examined data prepared in 1995 by FHWA at the request of the Senate
Subcommittee on Oversight of Government Management and the District
of Columbia, Committee on Governmental Affairs on the cost
performance of 20 ongoing highway construction projects in 17 states. 
Estimated total costs for these projects ranged between $205 million
and $2.6 billion per project.  FHWA identified these projects as
those with the largest cost increases from the initial cost estimate
for the total project. 

Because FHWA had specifically chosen the 20 projects that had
experienced a large percentage of cost growth, we wanted to examine a
universe of large-dollar projects where we did not know whether their
costs had increased.  Therefore, we examined cost growth on 38
additional projects that had an environmental impact statement filed
between January 1, 1988 and October 1, 1993 and had an initial cost
estimate of more than $100 million.  For these 38 projects located in
19 states, we surveyed FHWA officials to determine the current cost
estimates for the individual projects, eliminated 8 projects either
because the project had not been undertaken or was undertaken without
using federal funds, and determined how much costs had grown since
the initial estimate on the remaining 30 projects in 15 states. 

We obtained information on the reasons for cost growth from FHWA and
from state departments of transportation on seven projects.  Five of
these projects were on the list of 20 projects that FHWA had provided
information on to the Senate Subcommittee on Oversight of Government
Management and the District of Columbia.  These projects were U.S. 
71 in Arkansas, I-105 in California, I-595 in Maryland, M-59 in
Michigan, and U.S.  183 in Texas.  In addition, we examined the
I-90/I-93 Central Artery/Tunnel project in Massachusetts and the
I-880 Cypress Viaduct reconstruction project in California.  We
selected these projects to provide geographic diversity and to
include a mix of large-dollar new construction and reconstruction
projects at various stages of completion.  To obtain information
about information systems at state highway departments for tracking
the projects' costs, we discussed state practices with state
transportation officials in the six states we visited and in
Colorado, Indiana, Iowa, Maine, Minnesota, Nebraska, Oregon--states
identified as having advanced project information systems. 

To identify how FHWA approves large-dollar projects and agrees to
costs and to identify how FHWA ensures that the costs of projects are
controlled and that federal funds are efficiently used, we reviewed
federal laws and regulations and interviewed FHWA officials in
Washington, D.C., and the six states visited.  We also reviewed
project documentation at FHWA and the states we visited as well as
their regulations and procedures.  We discussed the states' project
development process and FHWA's role with state transportation
officials.  We also interviewed FHWA and state transportation
officials about federal and state initiatives to contain costs and
help ensure efficient use of highway funds and discussed
dissemination of state practices to other states and FHWA offices. 

We performed our work from May 1996 through December 1996 in
accordance with generally accepted government auditing standards. 


DATA TO TRACK COST GROWTH NOT
READILY AVAILABLE, BUT COSTS GREW
FOR MANY OF THE PROJECTS FOR WHICH
WE COLLECTED DATA
============================================================ Chapter 2

The amount of and reasons for cost increases beyond the initial cost
estimates for large-dollar highway projects cannot be determined
because data to track this information over the life of a project are
not readily available from FHWA or state highway departments.  FHWA's
information system for highway projects records funds obligated for
segments of projects that are federally funded rather than recording
complete project-related costs and estimates; it also does not
document the reasons for cost growth.  Furthermore, FHWA officials
said states do not track cost increases from the initial estimate or
determine the reasons for these increases as part of normal project
management; this was supported by highway officials in 13 states. 
However, limited data shows that cost growth has occurred on many of
the large-dollar projects for which we collected data. 


   DATA ON LARGE-DOLLAR PROJECTS
   ARE NOT READILY AVAILABLE
---------------------------------------------------------- Chapter 2:1

FHWA's information system for highway projects--the Fiscal Management
Information System (FMIS)--cannot be used to determine the amount of
and reasons for cost increases on large-dollar highway projects. 
FMIS records the obligation and subsequent expenditure of federal
funds for specific project segments rather than recording total cost
estimates or tracking total project costs over the life of a project. 
This way of recording obligations allows FMIS to only capture project
data for segments where a state uses federal funds.  For example, if
a state highway department uses state funds to design a project and
does not request federal funds until construction, then FMIS will not
capture those earlier costs associated with the design stage. 

In addition, FMIS records a project's segments as separate projects
and does not link them to the total project unless the states provide
additional data for each segment.  For example, on projects with
multiple segments, states must enter data from related projects--such
as state, project number, and appropriation code--for each segment. 
On large-dollar projects with many segments, this process can be
cumbersome.  FMIS also records projects that use multiple federal
highway funding categories as separate projects.  For example, if two
categories, such as the Bridge Program and National Highway System,
are used for a single project segment, then FMIS considers that
segment to be two separate projects.  Officials said that FHWA is
currently considering modifications which may improve FMIS' ability
to link related projects. 

According to FHWA officials, states do not track estimates of total
project costs and the reasons for cost growth.  In addition, the 13
states we talked to--the 6 we visited and the 7 others we
contacted--do not track this information as part of normal project
management.  Since most large-dollar projects are financed by
segment, some state officials did not see the benefit in tracking
cost growth of total project costs. 

Because neither FHWA nor the states track estimates or record the
reasons for changes in project costs, FHWA manually reconstructed
this information from the project files at either FHWA's division
offices in the states or at state highway departments to respond to a
request from the Senate Governmental Affairs Committee, Subcommittee
on Oversight of Government Management and the District of Columbia. 
In September 1994, the Subcommittee asked FHWA to identify the 20
largest highway projects nationwide that had experienced the greatest
amount of cost growth from their initial cost estimates.  In April
1995, FHWA provided this information on 20 projects in 17 states
whose estimated total costs ranged from $205 million to $2.6 billion
and whose increases ranged from around 40 percent to nearly 400
percent.\5

However, the information FHWA provided on the reasons for these cost
increases--the only such data available that we could find--was often
incomplete and generally unreliable.  FHWA was not able to provide
information on the reasons for cost growth on 2 of the 20 projects.\6
Reasons for cost growth on another project included the caveat "wild
guess only." On the 18 projects for which FHWA reported reasons for
cost growth, it did so in 74 different categories, which made a
comparative analysis of projects in different states nearly
impossible.  For example, FHWA reported the amount of cost growth
attributable to inflation in 7 states, but the amount of cost growth
attributable to inflation in the remaining 11 states could not be
determined from the data provided.  Also, the amount of cost growth
attributable to increases in scope on the 18 projects could not be
determined from the data provided. 


--------------------
\5 This excludes one outlier.  One project reported cost growth of
1,530 percent over the original EIS cost estimate.  Cost growth over
a supplemental EIS cost estimate prepared in 1988 was 120 percent. 

\6 FHWA stated that data was not available for one project and could
not be reconstructed for the other project because the scope had
significantly changed after the initial estimate. 


   MANY LARGE-DOLLAR HIGHWAY
   PROJECTS EXPERIENCE COST GROWTH
---------------------------------------------------------- Chapter 2:2

Data that we collected show that while cost growth has occurred on 23
of 30 large-dollar projects, about half of the projects had increased
more than 25 percent.  We identified all projects estimated to cost
more than $100 million (38 in all) with draft environmental impact
statements filed with the Environmental Protection Agency between
1988 and 1993.  Thirty of those projects in 15 states are still
active and receiving federal funds.  We found that current estimates
on 23 of the 30 projects had increased, while estimates on 7 projects
decreased or remained the same.  As shown in Figure 2.1, cost
increases on the 23 projects that experienced cost growth ranged from
2 to 211 percent, with about half of the projects increasing by more
than 25 percent.  Of the seven projects for which estimates decreased
or remained the same, estimates for three decreased by less than 10
percent, estimates for three decreased by more than 25 percent, and
estimates for one remained the same.  Because neither FHWA nor the
states keep data on reasons for cost increases, we could not identify
the reasons for increases or decreases. 

   Figure 2.1:  Cost Increases on
   Projects Over $100 million

   (See figure in printed
   edition.)

Source:  FHWA division offices and GAO analysis. 

In addition to information received from state highway departments
about cost increases on the 30 projects, our recent work on two
large-dollar transportation projects also demonstrates significant
cost increases beyond the initial estimate.  For example, we reported
that the Central Artery/Tunnel project in Boston, Massachusetts,
which was originally estimated to cost $2.6 billion in 1985, is now
estimated to cost $10.4 billion at completion.\7 In addition,
reconstruction of the Cypress Viaduct in Oakland, California, which
was originally estimated to cost $695 million as of 1991, is now
estimated to cost $1.1 billion at completion.\8


--------------------
\7 Transportation Infrastructure:  Central Artery/Tunnel Project
Faces Continued Financial Uncertainties (GAO/RCED-96-131, May 10,
1996). 

\8 Emergency Relief:  Status of the Replacement of the Cypress
Viaduct (GAO/RCED-96-136, May 6, 1996). 


   SOME STATE SYSTEMS COULD
   CAPTURE COST PERFORMANCE DATA
---------------------------------------------------------- Chapter 2:3

Although the states we talked to are not tracking cost performance
information over the life of projects, we found that some state
highway departments have information systems that could be modified
or linked with other systems to track cost estimates, cost growth,
and reasons for cost growth.  For example, the American Association
of State Highway and Transportation Officials (AASHTO) in conjunction
with more than 20 states developed TRNSï¿½PORT, a transportation
information management system.\9 Although originally developed to
analyze bids to detect bid collusion, TRNSï¿½PORT has since been
expanded to include cost estimating, proposal development, contract
award, and construction management.  Thirty-one states are currently
using the system.  Further, other states have purchased cost-tracking
systems from software developers. 

We contacted officials in 11 of the 31 states that use TRNSï¿½PORT and
they said they do not use the system to track cost estimates, actual
costs, and reasons for cost growth over the life of the project as
part of normal project management.  Some officials we talked to said
they do not track this information because they are not sure of the
benefit.  However, other officials we spoke with plan to modify
TRNSï¿½PORT or link it with other information systems to track this
information in the future. 


--------------------
\9 TRNSï¿½PORT was previously named the Bid Analysis Management System. 


FHWA APPROVES PROJECTS
INCREMENTALLY AND AGREES TO COSTS
AT CONSTRUCTION
============================================================ Chapter 3

The FHWA project approval process consists of a series of incremental
actions that occur over the period of years needed to plan, design,
and build a project.  There is no federal approval of, or agreement
to, the total cost at the outset of a project; rather, FHWA approves
the estimated cost of a large-dollar project in segments when those
segments are ready for construction.  However, by the time FHWA
approves the costs of a large-dollar project, a public investment
decision may have effectively been made because substantial funds
will already have been spent on project design and acquiring property
and much of the increases in the project's estimated costs will have
already occurred.  While many factors can cause costs to increase, we
found several factors that worked together to increase costs beyond
the initial estimates for projects in the six states visited:  (1)
initial estimates are preliminary and not designed to be reliable
predictors of a project's cost, (2) initial estimates are modified to
reflect more detailed plans and specifications as a project is
designed, and (3) a project's costs are affected by, among other
things, inflation and changes in scope to accommodate economic
development that occurs over time as a project is designed and built. 


   FHWA APPROVAL PROCESS IS
   INCREMENTAL
---------------------------------------------------------- Chapter 3:1

FHWA approval of a project or a segment occurs incrementally
throughout the planning, environmental review, design and property
acquisition, and construction stages.  During the planning stage,
FHWA approves concepts that identify new projects that are needed. 
According to FHWA officials, the agency acts in partnership with the
states to identify these needs.  For example, FHWA may participate in
a major investment study that identifies the need for additional
highway capacity to relieve congestion in a particular corridor or
approve a state transportation plan that identifies a proposed
highway project or segment.  However, FHWA officials emphasize that
the agency's participation in planning and approval of state
transportation plans does not constitute approval of a specific
project or segment or commitment on the part of the federal
government to finance it. 

In the environmental approval stage, FHWA approves an EIS and issues
a record of decision describing, among other things, the preferred
alternative and why it was selected.  In the record of decision, FHWA
approves the location and layout of the specific project and
documents the environmental mitigation efforts required to design and
build it.  The record of decision also allows a state to apply for
and receive federal reimbursement to design the project and acquire
the property needed to build it.  Although cost estimates are
included in the EIS, these estimates are used only to compare
alternatives.  FHWA's issuance of the record of decision does not
constitute approval of the costs estimated for the selected
alternative or a commitment by the federal government to finance the
project. 

During the design stage of a project under "full" FHWA oversight, if
a state wants to use design standards other than the
federally-approved AASHTO design standards, FHWA must fully approve
all exceptions to ensure that safety and quality features are not
adversely affected.  FHWA must also approve all property acquisition,
including the cost of the property, and ensure that the legal
requirements regarding persons relocated by highway projects are
satisfied.\10 In addition, FHWA may have formal approval at selected
points during the design stage, as specified by the state.  For
example, in one state FHWA formally approved designs when the plans
were 30 and 90 percent complete, while in another state FHWA
participated with state officials for the most part informally
throughout the design stage.  FHWA approval of property acquisition
actions is a commitment of the federal government to finance the cost
of acquiring the property; however, this decision, as well as design
exceptions and other actions taken during this stage does not
constitute approval of the costs of constructing the project or a
commitment by the federal government to fund it. 

After the design stage is complete, the state prepares a bid package
consisting of the plans, specifications, and estimates (PS&E) for
each project segment for FHWA's approval.  This document contains the
detailed design plans and list of materials needed for a contractor
to construct the project segment as well as a detailed cost estimate. 
The cost estimate in the PS&E becomes part of the project
authorization--the agreement between FHWA and the state that permits
the project to go out for bid.  According to FHWA officials, FHWA's
approval of the PS&E and authorization begins the process of FHWA's
agreeing to the costs of the project segment.  The project
authorization is considered a contractual commitment by the federal
government and thus FHWA's agreement to finance the project
segment.\11 However, the cost of the project segment is not
established until bids are received and a contract for the work is
awarded.  Once the state receives the contractor's bids, FHWA reviews
them to ensure the bid process was fair and competitive and formally
concurs with the state's decision on who to award the contract to. 
FHWA's concurrence includes agreement to the contract price and thus
its concurrence to the project segment's cost.  A project agreement
is then executed between FHWA and the state to identify the location,
scope, and estimated cost of the project segment, the conditions of
the state's acceptance of federal funds, and the amount of federal
funds to be obligated. 

During the last stage, construction, FHWA periodically reviews the
progress of construction.  FHWA must also review and approve "major"
contract change orders that change the scope of the work or exceed a
certain dollar threshold.  This threshold is not specified in federal
law or regulation and varies by state.  If the costs of the project
segment increase and exceed the ceiling in the project agreement,
FHWA must approve the increase upon a request from the state for an
amendment to the agreement.  As construction proceeds, progress
payments are submitted by the state and approved by FHWA.  When
construction is complete, FHWA conducts a final inspection and
certifies through final acceptance that the project was constructed
in reasonable close conformance with the PS&E and subsequent changes. 
At that time the state submits to FHWA the project segment's final
voucher--the request for reimbursement for all costs for that project
segment.  These costs may include some incurred through minor change
orders that FHWA did not review and approve.  FHWA's approval of the
final voucher allows the state to receive full and final federal
reimbursement for all project segment costs specified in the project
agreement. 


--------------------
\10 These requirements are contained in the Uniform Relocation
Assistance and Real Property Acquisition Policies Act of 1970, and
FHWA is required to ensure the act is followed whether the project is
exempt from direct oversight or not. 

\11 There are some exceptions.  For example, in an advance
construction project, the state begins the project using state funds
only with the intent of converting the project to a federal-aid
project at a later date.  To preserve this option, the project
segment must meet the same federal requirements and be processed
through a project agreement in the same manner as other federal-aid
highway projects.  However, the state cannot receive federal
reimbursement until the project is formally converted to a
federal-aid project.  Until this conversion occurs, FHWA's approval
of an advance construction project does not constitute its commitment
to finance the project segment. 


   SUBSTANTIAL FEDERAL INVESTMENTS
   CAN OCCUR BEFORE CONSTRUCTION
---------------------------------------------------------- Chapter 3:2

Although FHWA does not approve the estimated cost of a project
segment or agree to finance it until construction is ready to begin,
a substantial investment of federal and state funds can occur on a
large-dollar project before this approval occurs.  FHWA's approval of
a record of decision in the environmental process allows a state to
request and receive federal reimbursement to design the project and
to acquire the property needed to build it.  These activities must be
completed before construction on a project segment can begin. 

On a large-dollar project, design activities can be substantial. 
Large-dollar projects may require the services of a design consultant
and several years to design.  For example, on the Central
Artery/Tunnel project, construction segments have averaged almost 3
years, but taken up to 6 years, to design.  Design activities are
estimated to account for nearly $900 million (about 8 percent) of the
total estimated cost of the project.  In addition, all property
needed for a project must be acquired before FHWA can approve a
project for construction.  Large-dollar projects--both new highway
construction and reconstruction projects that add lanes--can require
that substantial amounts of property be acquired for highway
rights-of-way.  Property acquisition can be costly.  To add lanes to
M-59 in Michigan, property acquisition costs were about one-half of
the nearly $300 million that was estimated for total project costs. 
Property acquisition can also result in a substantial impact on the
public.  One new construction project--I-105 in California--displaced
18,200 people and required the state to acquire 5,800 housing units. 
Michigan's M-59 project displaced 136 residences and 69 businesses. 


   MOST COST GROWTH OCCURS BEFORE
   CONSTRUCTION
---------------------------------------------------------- Chapter 3:3

While FHWA's data systems do not track project costs over time, FHWA
and state officials in states we visited agreed that most of the cost
growth that occurs on projects happens before construction begins. 
For example, costs on the nearly complete I-595 project in Maryland
have increased from an initial cost estimate of $188 million to about
$390 million.  However, state officials provided data showing that
about $160 million of that $200 million increase--around 80
percent--occurred before the construction stage. 

While many factors influence project costs, we found several factors
that worked together to increase costs for projects in the six states
we visited:  (1) initial estimates are preliminary and not designed
to be reliable predictors of a project's cost, (2) preliminary design
concepts are refined into detailed plans and specifications as a
project is designed, and (3) the length of time to progress through
the environmental, design and property acquisition, and construction
stages. 


      INITIAL COST ESTIMATES ARE
      NOT RELIABLE
-------------------------------------------------------- Chapter 3:3.1

An initial estimate for the total cost of a project is generally
developed at the outset of a project in connection with the
environmental review process.  However, developing a complete project
cost estimate that reliably predicts a project's total cost is not
the objective at the environmental stage.  The purpose of the initial
cost estimate is to compare project alternatives; as such, the
purpose is to develop cost estimates to the same level of specificity
so all project alternatives can be evaluated on an equal basis.  The
estimates we reviewed did not factor in the time required to
construct a project and thus did not include the effects of
inflation.  As officials in one state highway agency told us, it is
not important to have an accurate cost estimate, but rather to ensure
that assumptions used for all the alternatives' estimates are the
same. 

According to FHWA and state highway officials, initial cost estimates
are preliminary and based on a "rough footprint" of the proposed
project alternatives that broadly identifies the type of highway or
structure to be built, the alignment, and the number of lanes and
interchanges.  Alternatives are based on generally no more than 30
percent of design.  Cost estimates are calculated based on historic
state data on the per-mile cost of highways, square-footage cost of
bridges and other structures, and per-acre cost of land.  Preliminary
data specific to the project may also be included, particularly where
environmental impacts are expected, such as wetlands mitigation and
restoration. 

FHWA has no requirements for preparing cost estimates.  We found that
each state we visited used its own standards or methods and database
for compiling estimates during the environmental review stage.  As a
result, the estimates we reviewed differed substantially in the cost
categories they included.  For example, one state we visited included
the costs of designing the project while two others did not. 


      PROJECT COSTS ARE GREATLY
      REFINED DURING THE DESIGN
      STAGE
-------------------------------------------------------- Chapter 3:3.2

During the design stage, costs can increase as preliminary project
concepts are refined into the detailed plans and specifications
needed by a contractor to construct a project segment.  For example,
per-mile highway costs are revised to reflect more detailed pavement
design specifications, such as describing the thickness of the
pavement needed, while detailed ground surveys reveal the exact grade
of the highway.  Per-acre costs to acquire property are replaced with
detailed real estate appraisals establishing a fair market price. 

In refining the "rough footprint" during the design stage, cost
estimates are also refined and can increase--sometimes substantially. 
In two of the states we visited, soil structures were found to be
insufficiently stable to support the highway structures originally
planned.  For example, on the U.S.  71 project in Arkansas, soil
problems were identified by detailed testing performed during the
design stage--no soil borings had been drilled for the initial
estimate.  The state had to build an additional bridge because
unstable soil made supporting the highway with fill dirt, as
originally anticipated, difficult. 

Although the initial cost estimate identifies environmental
mitigation costs, the extent of the mitigation for some projects in
the states we visited was not known until testing for the detailed
design was done.  On the reconstruction of I-880 in California, the
state's EIS had identified the need to clean up hazardous material
sites along the highway's alignment.  However, drilling and testing
for hazardous materials during the design stage revealed the presence
of more contaminated soil and groundwater than had been expected. 
The costs of controlling and disposing of these contaminants
increased the cost of this project by about $40 million.  In
Maryland, a noise study was performed for the EIS to estimate the
need for and costs of soundwalls for the I-595 reconstruction
project.  However, more detailed noise readings taken during the
design stage affected the size and length of the required soundwalls
and added $2.6 million to the project's costs. 


      PROJECT DEVELOPMENT OCCURS
      OVER TIME
-------------------------------------------------------- Chapter 3:3.3

Large-dollar highway projects usually take a number of years to move
through the environmental, design and property acquisition, and
construction stages.  Compounding the time involved is the approach
most states use for allocating funds.  This approach funds projects
over several budget years as states apply limited federal and state
funding to numerous highway and bridge projects concurrently.  This
incremental funding approach may result in all projects being
"stretched out," thus increasing individual project costs if for no
other reason than the effects of inflation. 

Stretching out a project also means that there is more time for land
costs to increase, planned economic development to occur, and the
passage of environmental or other laws or regulations that could
increase the project's costs.  One or more of these factors resulted
in increased costs on 6 of the 7 projects we reviewed.  For example,
increased property acquisition costs accounted for the majority of
the cost increases on two projects--U.S.  183 in Texas and M-59 in
Michigan.  State highway officials said that property acquisition
costs increased beyond what had been initially estimated because land
values increased before the acreage was purchased, either because of
market conditions or due to development. 

In the six states we visited, the scope of each project changed to
varying degrees to accommodate future development that was not
anticipated when the initial cost estimate was made.  In Maryland,
project costs increased by nearly $27 million to add or modify lanes
and interchanges to accommodate unanticipated growth in traffic,
including increased traffic generated by a research center that was
planned after the initial cost estimate was prepared for I-595.  FHWA
officials said modifying the ongoing project was more cost-effective
than making changes after the project was built.  Before construction
was complete on I-105 in California, a decision was made to add a
transitway in the highway's median, which added about $320 million to
the project's cost.  Part of the increased cost for some changes in
scope, such as additional lanes or interchanges, was caused by the
need to acquire additional property for the right-of-way. 

In two states we visited, increases in environmental mitigation costs
occurred due to changes in law or regulations.  For example, Maryland
enacted a new storm water management law that required the state
highway administration to control storm water runoff on projects so
that discharges to rivers and streams would not increase.  To comply
with this law, the state had to design and construct storm water
management ponds for runoff from the I-595 project which added nearly
$60 million to its cost.  In Texas, a new state regulation added
requirements for protecting a local aquifer from pollution.  The
state highway agency subsequently designed water treatment facilities
to filter roadway and storm water runoff from project sites crossing
the protected area.  These additional features cost an estimated $21
million. 


CONTROLLING COSTS IS NOT A FOCUS
OF FHWA OVERSIGHT
============================================================ Chapter 4

FHWA's primary goal on projects where it has "full" oversight is
ensuring that the applicable safety and quality standards contained
in law and regulations are met.  Cost management and cost containment
are not explicit statutory or regulatory goals of FHWA's oversight or
part of its organizational culture.  As a result, FHWA has few
requirements that ensure cost containment is an integral part of
large-dollar highway project management.  FHWA influences project
costs through its review and approval of design and construction
plans, and through day-to-day interaction with state departments of
transportation.  We found several cost management practices that
states had initiated to improve highway project management and to
focus more specifically on containing project costs.  These practices
included improving initial project cost estimates, establishing goals
for project cost performance, and tracking the progress of projects
against such goals.  However, FHWA has not been proactive in working
with states to evaluate these practices and disseminate information
on them to help other states enhance their cost management practices. 
Moreover, as debate begins on the reauthorization of highway programs
in 1997, a range of roles exist for FHWA's oversight of large-dollar
projects. 


   FHWA'S PRIMARY OVERSIGHT
   EMPHASIS IS SAFETY AND QUALITY
---------------------------------------------------------- Chapter 4:1

On projects where it exercises "full" oversight, FHWA's primary focus
is to help ensure that the applicable safety and quality standards
contained in laws and regulations for the design and construction of
highway projects are met.  For example, in reviewing design plans,
FHWA engineers use their best engineering judgement to determine
whether the design of the roadway meets the AASHTO standards for
speed, lane and shoulder width, and pavement design.  FHWA engineers
review safety features, such as guardrails, and whether unobstructed
"clear zones" and roadway lighting are sufficient.  If designs do not
meet the standards, FHWA must approve exceptions to the design
submitted by the state. 

According to FHWA officials, controlling costs is not a goal of their
oversight.  They did emphasize, however, that ensuring that projects
are designed and constructed in a cost-effective fashion is an
integral part of engineering judgement.  In the six states we
visited, we found several examples where FHWA's influence resulted in
states adopting more cost-effective approaches that decreased project
costs.  FHWA's review of the design for constructing U.S.  71 in
Arkansas showed that smaller drainage structures could be used to
accomplish the same objective at a lower cost.  The state
subsequently used the recommended smaller drainage structures on the
project and saved about $2.6 million.  In reviewing Maryland's plans
to construct new noise walls on an existing interstate highway, FHWA
noted that the state was also planning to widen the road a few years
later and, in most instances, the walls would have to be moved, and
its foundations destroyed and rebuilt to accommodate the widening
project.  FHWA recommended that the state construct the walls at the
location envisioned for the widening project.  State officials
resisted because it would require additional expenditures in the
short term to acquire the property needed.  FHWA contended this
approach was not cost effective and informed the state it would only
fund construction of the walls one time.  The state adopted FHWA's
approach which, according to FHWA officials, saved about $3 million. 

FHWA's review of design and construction plans can also result in
increased costs to meet federal standards for highway projects.  In
Massachusetts, FHWA contended that the state's plans for
reconstructing an existing tunnel on a segment of the Central
Artery/Tunnel project did not meet applicable Interstate speed and
safety design standards.  The modifications agreed to by the state
and FHWA added about $46 million to the project's cost.  In Texas,
FHWA denied the state's request for a design exception to retain an
existing twin bridge structure on the U.S.  183 reconstruction
project because it did not meet design speed safety standards. 
Replacing the structure added $4 million to the cost of the project. 

An FHWA official also stated that the availability of funding itself
is an incentive for states to control costs.  Since the end of the
Interstate Construction Program and the specific earmarking of funds
for Interstate projects, the states have an incentive to control
costs themselves because needs generally outweigh available funds. 


   FHWA HAS FEW FORMAL PROJECT
   COST MANAGEMENT REQUIREMENTS
---------------------------------------------------------- Chapter 4:2

While FHWA's formal review of safety and quality issues provides
opportunities to influence states' cost management of highway
projects, FHWA has no mandate to encourage or require practices to
contain costs of large-dollar highway projects.  Unlike direct
procurement programs, such as Department of Defense weapons
procurement, that have specific cost management requirements, the
federal-aid highway program is a federally assisted,
state-administered partnership.  As a result, FHWA has few
requirements that ensure cost containment is an integral part of
state highway project management. 

Several initiatives already underway at the federal level are
designed to help the federal government manage its operations and
projects in a cost effective way.  The Vice President's National
Performance Review in 1993, for example, identified widespread
concern about the need for the federal government to better manage
the planning, budgeting, and acquisition of fixed assets and
suggested improvements.  Furthermore, the Government Performance and
Results Act of 1993 generally requires that federal agencies target
resources and develop specific, measurable goals and plans to achieve
them.  For federal agencies acquiring large-dollar capital assets
such as buildings, equipment, and information systems, the Office of
Management and Budget (OMB) requires cost containment practices.  OMB
requires federal agencies to prepare baseline cost and schedule
estimates and to track how well actual costs and schedules perform
against that baseline.  If actual costs or schedules exceed the
estimate by more than 10 percent, agencies are required to report the
reasons for this to OMB and to identify corrective actions to bring
the project back within its baseline costs or schedule.  If estimates
indicate these baseline goals are not achievable, the agency may
revise them with OMB approval.  However, it must continue to report
the original baseline as well as the new goals.  These requirements
apply to programs managed by and acquisitions made by federal
agencies and not to federally assisted state programs.  Nevertheless,
these cost management concepts could be an appropriate model for
management of large-dollar highway projects. 

One federal requirement that many state officials cited as a formal
cost containment mechanism is value engineering.  As defined by
federal statute, value engineering analysis is a systematic review by
a team of persons not involved in the project to provide suggestions
during the design stage to reduce costs while maintaining or
improving the project's quality.  Since the mid-1970s, FHWA has
encouraged states through guidance and training to perform value
engineering on federally aided projects and has required its use on
projects it directly administers on federal lands.  However, FHWA has
never required the states to perform value engineering on highway
projects that receive federal funds.  In 1993, FHWA reported that
only 7 states had active value engineering programs accounting for
over 70 percent of all value engineering studies nationwide while
limited programs in 27 other states accounted for the remainder.  In
1995, the Congress required that all projects on the National Highway
System that have an estimated total cost of $25 million or more be
subject to value engineering analysis.  FHWA has not yet issued
guidance to the states to implement the law. 

Since 1995, FHWA has become more involved in the cost management and
oversight of the Central Artery/Tunnel project in Boston,
Massachusetts.  FHWA has required the state to prepare and
periodically update a plan that identifies the costs of the project
and how the state intends to successfully finance it to completion. 
In 1996, at FHWA's request, the state began tracking the cost
performance of the project against its cost estimate and providing a
monthly report to FHWA.  FHWA has also required the state to provide
up-front state funding or bonding authority for the full value of the
contracts it plans to finance over a period of years to help to
ensure that revenue sources will be sufficient when bills come due. 
FHWA officials told us that the Central Artery/Tunnel project is
unique because of its $10.4 billion estimated cost and the
substantial funding shortfalls projected over the next few years.  In
October 1996, FHWA also required a finance plan for the I-15
reconstruction project in Salt Lake City, Utah.  FHWA officials said
they would determine the appropriate level of involvement on other
projects on a case-by-case basis, according to each project's costs
and financing needs. 


   SOME STATE MANAGEMENT PRACTICES
   FOCUS ON COST, BUT BEST
   PRACTICES ARE NOT BEING SHARED
---------------------------------------------------------- Chapter 4:3

Some of the states we visited had practices in place similar to some
elements of the OMB federal requirements to help control a project's
costs and its overall cost-effectiveness.  These practices included
(1) improving the quality of initial cost estimates, (2) establishing
cost performance goals and strategies, and (3) using external review
boards to approve cost increases.  However, FHWA has not been
proactive in disseminating information about these practices among
states. 


      QUALITY OF INITIAL ESTIMATES
      CAN BE IMPROVED
-------------------------------------------------------- Chapter 4:3.1

Two of the six states we visited are seeking to improve the quality
of their initial cost estimates to make them more representative of
the final costs of projects.  Officials in Maryland told us that
their goal was to ensure that initial estimates differed from the
final costs by no more than 10 percent.  To help achieve this goal,
initial cost estimates included contingency factors to account for
cost increases that usually occur as a project is designed.  For
example, Maryland would include a 35 to 40 percent contingency in the
estimates for bridge and other structures to account for changes that
might arise from detailed design studies done after the initial
estimate.  However, because the state did not track and report costs
and cost increases from the start of a project to its completion, we
could not verify whether the state was meeting its goal or assess the
validity of the contingency factors used. 

California has instituted a series of project management practices,
including a process to improve the quality of its initial project
cost estimates.  According to the state's guidelines,

     "The reliability of project cost estimates at every stage in the
     project development process is necessary for responsible fiscal
     management.  Unreliable cost estimates result in severe problems
     [and] .  .  .  affects [the state highway administration's]
     relations with .  .  .  the Legislature, local and regional
     agencies, and the public, and results in loss of credibility."

The state's guidance provides a detailed methodology to help control
cost increases.  For example, the state develops a project study
report to help it avoid unforeseen items of work before a project
proceeds into the final design phase.  The guidance describes cost
categories that should be included in an initial cost estimate, such
as the length of a project, inflation, and overhead, as well as a 25
percent contingency as a proxy for future unknown costs. 

According to FHWA officials, the accuracy of an initial project cost
estimate compared to the final project cost is directly related to
the amount of design.  As discussed in chapter 3, additional
environmental and engineering studies are conducted during the design
stage, removing uncertainties and allowing for a more accurate cost
estimate.  This can, however, create a dilemma for state
transportation departments because the state must look at several
alternatives during the environmental process.  Developing all
alternatives to a higher level of design can be costly.  If federal
dollars are used to support the environmental process, the NEPA
implementing regulations require that all alternatives be designed to
the same level because designing one project to a higher level could
prejudice the selection process. 


      ESTABLISHING COST
      PERFORMANCE GOALS AND
      STRATEGIES
-------------------------------------------------------- Chapter 4:3.2

One of the six states we visited, Massachusetts, established specific
cost performance goals in 1995 for the design and construction phases
of the $10.4 billion Central Artery/Tunnel project.  Project
officials set two goals:  (1) limit increases in the estimated cost
of construction during the "final design" process to zero,\12 and (2)
limit cost increases during the construction phase to 7 percent of
the contract's bid value. 

To accomplish the latter goal, the state instituted a
"design-to-cost" program, under which contractors design their
segments of the project within an agreed baseline budget for the
construction cost.  The design contractor is required to submit
periodic interim designs as well as a final design.  If an estimate
in any of the submittals exceeds the agreed baseline budget (assuming
that the state has not requested changes to the contract), that
contractor is required to redesign the project--at the contractor's
own expense--so that the estimated construction cost remains within
the baseline budget.  Project officials and contractors told us that
the design-to-cost program has generally made them much more
cost-conscious.  They said this approach has been particularly
helpful on a large project like the Central Artery/Tunnel project in
which multiple state, local, and federal agencies review--and can
influence--the project's designs. 

In 1996 we reported that Massachusetts did not have a formal program
or specific strategy to limit cost increases during the construction
phase and that experience with the design-to-cost program had been
limited and the results mixed.\13 The state has recently initiated an
action plan to control construction costs, and we are currently
assessing the state's progress in meeting its design and construction
cost containment goals for the project. 


--------------------
\12 In the Central Artery/Tunnel project, the state's management
consultant does "preliminary design," up to about 25 percent of
design.  A design contractor then does the "final design" phase for
the remainder. 

\13 Transportation Infrastructure:  Central Artery/Tunnel Project
Faces Continued Financial Uncertainties (GAO/RCED-96-131, May 10,
1996). 


      ENTITIES OUTSIDE STATE
      HIGHWAY ADMINISTRATIONS
      REVIEW HIGHWAY PROJECT COSTS
-------------------------------------------------------- Chapter 4:3.3

Two of the six state highway administration programs we examined were
subject to state external review boards--organizations outside state
highway administrations that review and approve cost increases. 
Michigan had an external review board for certain changes to all
state contracts, including change orders over $100,000.  California's
transportation expenditures were governed by an independent
transportation commission that approved all projects, budgets, and
changes; any change in a project cost exceeding 20 percent required
the commission's approval.  Officials from both states stated that
they scrutinize potential cost increases more closely to avoid
appearing before the review boards.  However, we found that when a
change was brought before the independent entities, cost increases
were rarely denied because, according to state officials, the
additional costs had been thoroughly examined by the state and were
deemed necessary. 

In Maryland, the highway administration uses a post-project
consultant review to evaluate cost increases on projects.  According
to state officials, the consultant examines all project change orders
over $100,000, identifies common problems that caused costs to
increase, and makes recommendations to avoid these costs in future
projects.  For example, in response to one of these reviews, the
state required more soil sampling at an earlier stage for all of its
highway projects to try and control cost increases attributed to not
having a good understanding of the soils. 


      FHWA DOES NOT PROACTIVELY
      DISSEMINATE COST MANAGEMENT
      INFORMATION
-------------------------------------------------------- Chapter 4:3.4

FHWA has many different mechanisms for disseminating information to
state departments of transportation, such as written guidance,
technical conferences, training classes, case studies on best
practices, a web site on the Internet, as well as letters and
memorandums.  Through these channels, FHWA disseminates a range of
technical information and best state practices on a wide variety of
topics, including highway research results, successes with the Major
Investment Study Process, and computer software to compare projects
from different modes, such as air and rail, for investment decisions. 

FHWA has used these mechanisms to encourage some initiatives that
have the potential to improve the cost-effectiveness of highway
projects.  For example, FHWA has promoted and gathered information on
states' experiences with management initiatives, such as
design/build, warranties, and partnering, and shared this information
with other states.  Warranties have been used on a limited basis to
hold a contractor more accountable for the work performed, thereby
improving quality and reducing maintenance costs.  In partnering, the
state and contractor sign a list of common goals, such as to
construct the project with no loss of time due to accidents, before
construction begins.  Officials in several states told us that
partnering has proven useful to reduce contractor claims and law
suits as well as bring the job in on time and within budget. 

While FHWA's dissemination network is in place and is being used to
share information, we found that FHWA has not actively evaluated the
project management practices in the states discussed above and used
its network to highlight "best practices" for other states.  For
example, a California official told us that while the state is
sharing information on its efforts to improve the quality of initial
project cost estimates with other states, FHWA has not asked for
information on the state's program.  In Maryland, where outside
consultants were providing reports on the causes of cost increases in
completed projects, FHWA did not receive copies of those reports. 


   CONCLUSIONS AND RECOMMENDATION
---------------------------------------------------------- Chapter 4:4

Although FHWA disseminates information to state departments of
transportation on a wide variety of technical and research topics,
GAO found that FHWA does not evaluate and disseminate information on
state best cost management practices among all states.  Being more
proactive in this regard could encourage states to undertake cost
management strategies that have the potential to promote
cost-effective project management and result in more effective use of
limited federal and state highway dollars. 

To enhance states' ability to manage costs on large-dollar highway
projects, we recommend that the Secretary of Transportation direct
the Administrator, FHWA to work with states to evaluate and
disseminate information on best state practices concerning cost
management to all states. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 4:5

We provided copies of a draft of this report to DOT and FHWA for
their review and comment.  FHWA officials who reviewed the draft,
including the Associate Administrator for Program Development,
generally concurred with the information contained in the report and
agreed with the recommendation. 


OBSERVATIONS
============================================================ Chapter 5

The nation's highways and bridges are vital to its economy and
national defense.  Because of limited resources available to build
and maintain them, it is essential that highway and bridge projects
be well managed.  Because large-dollar projects generally take longer
to build and usually have more significant environmental and
community impacts than the majority of federal-aid highway projects,
they have greater potential to experience substantial cost increases
and lengthy construction delays.  These cost increases can
potentially overwhelm other highway projects and erode the already
limited funds available to meet overall highway needs.  Effective
project management related to containing costs can help ensure that
cost growth resulting from schedule delays and other factors are
minimized and that our transportation capital investment dollars are
spent wisely and efficiently. 

As reauthorization of the federal-aid highway program approaches in
1997, discussion has already begun on how the federal programs should
be structured and what the federal role should be.  Balancing the
states' desire for flexibility and more autonomy with the federal
role of ensuring that taxpayers get the most bang for their federal
dollar, as well as safe, quality highways, is difficult.  FHWA's
"full" oversight approach does not focus on management of highway
project costs.  In contrast, cost management requirements promulgated
by OMB for the federal government on its own large-dollar projects
are very specific.  Further, from a broader perspective, the federal
government has been moving in the direction of managing programs by
establishing goals and measuring performance through such initiatives
as the Government Performance and Results Act of 1993. 

Ultimately, the Congress and the administration will have to decide
on the appropriate federal role.  Cost management of large-dollar
projects is just one part of a federal role in highway projects. 
Changing that part, if appropriate, could take the form of requiring
states to improve their cost management practices by using strategies
that some states already have in place.  Such strategies have the
potential to provide a cost-conscious discipline as well as an early
warning of possible problems.  For example, improving the quality of
a project's initial cost estimate so it more reliably represents the
total costs of a project could provide a more realistic baseline from
which to track costs and finance large-dollar projects, particularly
where multiple sources of financing are used. 

Some states have tried improving initial cost estimates by including
contingencies to represent potential future unknowns--the cost
increases that typically occur during the design phase as preliminary
concepts give way to detailed engineering plans needed to construct
the project.  Collecting data on common problems experienced by
projects could provide a basis for establishing such contingencies as
well as provide real-time information on which managers could make
decisions about project changes that could impact costs.  Another way
to improve initial estimates is to do a more detailed project design
at the environmental phase.  While this approach removes some of the
uncertainties that can only be addressed through the detailed design
stage, it more than likely would not be feasible for many projects
because of the cost.  Further, this approach can work at cross
purposes with an environmental process that seeks to see all
alternatives equally considered. 

Once an initial cost estimate is developed, establishing cost
performance goals based on this estimate and a strategy to accomplish
them would make cost awareness and cost containment an integral part
of how states manage a project over time.  This does not mean that an
initial cost estimate cannot be increased if contingencies were not
sufficient to cover increases generally expected through design
changes; however, any change and reason for it should be agreed to. 
Strategies, such as those being used on the Central Artery/Tunnel
project, have the potential to improve accountability for cost
increases and create a culture where cost control is part of
day-to-day activities. 

Increased federal oversight of state management of project costs is
another way to look at a federal role.  Such actions as establishing
standards for cost estimates, including what elements should be
included; evaluating the reasonableness of cost estimates and finance
plans; and monitoring cost growth and financing could help to ensure
that the large-dollar highway projects are being effectively and
efficiently managed. 


OVERSIGHT OF FEDERAL-AID HIGHWAY
PROJECTS
=========================================================== Appendix I

Under federal law, federally aided highway projects are managed and
constructed by the 52 state highway departments in the 50 states,
Puerto Rico, and the District of Columbia, in accordance with state
and federal law, subject to the inspection and approval of the
Secretary of Transportation.  The Secretary's responsibilities have
been delegated to the Federal Highway Administration (FHWA).  Federal
law and regulations detail FHWA's inspection and approval
responsibilities; as discussed in chapters 1 and 3, this "full" FHWA
oversight includes approving planning and environmental review
documents; reviewing design and construction specifications;
approving plans, specifications, and estimates (PS&Es); periodically
reviewing construction in progress; and inspecting and approving the
completed project. 

In 1973 the Congress added a provision to the law entitled
certification acceptance.  As subsequently amended, this provision
permits FHWA to discharge its oversight responsibilities to the
states for any projects that are not constructed on the Interstate
Highway System by accepting a state's certification that projects
being carried out under state laws, regulations, directives, and
standards will accomplish the policies and objectives of federal law. 
FHWA may allow either partial or complete exemption of project
processes under certification acceptance, and FHWA must still approve
certain aspects of the project, such as planning and highway safety. 

The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA)
devolved even greater authority to the states by allowing a larger
number of projects to be exempted from "full" FHWA oversight. 
Sections 1016(b) and (d) provided the following: 

  -- Projects that are not constructed on the National Highway System
     (NHS) would be designed, constructed, operated, and maintained
     in accordance with state--rather than federal--laws,
     regulations, and standards. 

  -- A state can request that FHWA no longer review PS&Es for any
     project not constructed on the NHS or for any NHS projects
     estimated to cost under $1 million.  After receiving any such
     request, FHWA may undertake such reviews only if requested to do
     so by the state. 

  -- A state may, on a project-by-project basis, waive FHWA review of
     PS&Es on any NHS project that involves resurfacing, restoration,
     or rehabilitation (but not reconstruction),\14 if the state
     certifies that all work will meet the standards approved by
     FHWA. 

The only projects that would not fall under the ISTEA exemption
provisions are new construction or reconstruction projects on the NHS
that are over $1 million.  However, because certification acceptance
applies to any projects that are not constructed on the Interstate
Highway System, the only projects which must unconditionally be
constructed under "full" oversight provisions are Interstate
construction or reconstruction activities over $1 million. 

In January 1992, the FHWA Executive Director issued guidance to
FHWA's field offices that interpreted and implemented ISTEA's
exemption provisions.  This guidance stated that states electing to
use ISTEA's exemption provisions would be exempt from FHWA's
oversight of design activities, PS&E approval, concurrence in award,
and review of construction activities.  The guidance also directed
FHWA field personnel to strongly encourage states to avail themselves
of the ISTEA exemption provisions. 

According to a 1995 FHWA report, most states have availed themselves
of ISTEA's oversight exemption options.  In the case of
non-Interstate NHS projects over $1 million, 32 out of 52 state
highway administrations construct these projects under full FHWA
oversight while 20 do so under certification acceptance.  Additional
information on the number of states choosing these provisions is
provided in Table I.1. 



                                                                      Table I.1
                                                       
                                                            States' Use of Full Oversight,
                                                       Exemption, and Certification Acceptance
                                                                      Provisions

                                            Interstate
                                           Construction
                                             Program                 NHS-Interstate System                 NHS-Not part of Interstate        Non-NHS
                                        ------------------  ---------------------------------------  --------------------------------------  --------
                                                                                    Resurfacing,                            Resurfacing,
                                                                                  restoration, and          New/          restoration, and
                                                            New/reconstruction     rehabilitation      reconstruction      rehabilitation
                                                            -------------------  ------------------  ------------------  ------------------
                                                            >$1             <$1       >$1       <$1      >$ 1      <$ 1      >$ 1      <$ 1
Oversight options                                           million     million   million   million   million   million   million   million
--------------------------------------  ------------------  ---------  --------  --------  --------  --------  --------  --------  --------  --------
Full oversight                          All                 All              14        19        13        32         8        14         7         2
                                        (required)          (required
                                                            )

NHS 3R (exempt project-by-project)      N.A.                N.A.           N.A.        31         4         0         0        25         2         0

Non-NHS and NHS <$1M (entire program    N.A.                N.A.             36         0        33         0        34         0        35        46
exempt)

Certification acceptance                N.A.                N.A.              0         0         0        20        10        13         8         4

=====================================================================================================================================================
Total                                   N.A.                N.A.             50        50        50        52        52        52        52        52
-----------------------------------------------------------------------------------------------------------------------------------------------------
Note:  The Interstate Highway System columns do not include Alaska
and Puerto Rico, which have no Interstate Highway System routes. 
Totals for projects not located on the Interstate Highway System
reflect the 50 states, the District of Columbia, and Puerto Rico. 

N.A.  = Not applicable. 

Source:  FHWA. 


--------------------
\14 Resurfacing, restoration, and rehabilitation refers to
maintaining an existing roadway or bridge, while reconstruction
involves tearing down and replacing an existing roadway or bridge. 


      ADDITIONAL ACTIONS BY FHWA
------------------------------------------------------- Appendix I:0.1

In 1991, just prior to the passage of ISTEA, FHWA adopted a Statement
of Operational Philosophy in response to their reduced role in
overseeing federal-aid highway projects as well as their increasingly
limited staff resources.  This statement recognized FHWA's increased
focus on areas of greatest risk and the need to devolve more direct
project oversight activities to states.  It stated in part, that

     ".  .  .  it is FHWA's policy to increasingly rely on the State
     transportation agencies to adequately perform and/or provide
     management and oversight of detailed, project-related
     activities.  In keeping with this policy, the use of process
     review/product evaluation procedures will be the agency's
     primary mode of operation in carrying out all of its program
     oversight responsibilities .  .  .  [This] does not however,
     preclude the use of other program monitoring techniques
     including project-specific activities when appropriate."

Process review/product evaluations are broad based reviews of state
highway administration operations conducted by FHWA in cooperation
with state officials.  These reviews range widely in topic from
pavement rideability testing to assessing how frequently contract
schedules are met.  FHWA's division offices develop multiyear plans
to review various areas of operation, emphasizing potential high-risk
areas. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION WASHINGTON,
D.C. 

Steve Cohen
Gary L.  Jones
Phyllis F.  Scheinberg
Sara B.  Vermillion

BOSTON, MASSACHUSETTS

Jason A.  Bromberg
Teresa D.  Dee
Lena B.  Natola

CHICAGO, ILLINOIS

Catherine A.  Colwell
David I.  Lichtenfeld

*** End of document. ***