oversight

Federal-Aid Highways: Cost and Oversight of Major Highway and Bridge Projects--Issues and Options

Published by the Government Accountability Office on 2003-05-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         United States General Accounting Office

GAO                      Testimony
                         Before the Subcommittee on
                         Transportation, Treasury and Independent
                         Agencies, Committee on Appropriations,
                         House of Representatives
Hearing held on
May 8, 2003
Statement Submitted on
May 8, 2003
                         FEDERAL-AID HIGHWAYS
                         Cost and Oversight of Major
                         Highway and Bridge
                         Projects—Issues and
                         Options
                         Statement for the Record by
                         JayEtta Z. Hecker, Director,
                         Physical Infrastructure Issues




GAO-03-764T
                                                  May 8, 2003


                                                  FEDERAL-AID HIGHWAYS

                                                  Cost and Oversight of Major Highway and
Highlights of GAO-03-764T, a statement
for the record for the Subcommittee on            Bridge Projects—Issues and Options
Transportation, Treasury, and
Independent Agencies, House
Committee on Appropriations




Improving the oversight and                       GAO and others have reported that cost growth has occurred on major
controlling the costs of major                    highway and bridge projects; however, overall information on the amount of
highway and bridge projects is                    and reasons for cost increases is generally not available because neither
important for the federal                         FHWA nor state highway departments track this information for entire
government, which often pays 80                   projects. GAO has found that costs grow, in part, because initial cost
percent of these projects’ costs.
Widespread consensus exists on
                                                  estimates, which are generally developed to compare project alternatives
the need to fund such projects,                   during a required environmental review phase, are not reliable predictors of
given the doubling of freight traffic             projects’ total costs. In addition, FHWA approves the estimated costs of
and worsening congestion                          major projects in phases, rather than agreeing to the total costs at the outset.
projected over the next 20 years,                 By the time FHWA approves the total cost of a major project, a public
yet growing competition for limited               investment decision might, in effect, already have been made because
federal and state funding dictates                substantial funds could already have been spent on designing the project and
that major projects be managed                    acquiring property. FHWA’s implementation of a TEA-21 requirement that
efficiently and cost effectively.                 states develop annual finance plans for major projects estimated to cost $1
                                                  billion or more has improved the oversight of some major projects, and
The Federal Highway                               FHWA is incorporating more risk assessment in its day-to-day oversight
Administration (FHWA) provides
funding to the states for highway
                                                  activities.
and bridge projects through the
federal-aid highway program. This                 Should Congress determine that enhancing federal oversight of major
funding is apportioned to the                     highway and bridge projects is needed and appropriate, GAO has identified
states, and state departments of                  options, including improving information on the cost performance of
transportation choose eligible                    selected major projects, improving the quality of initial cost estimates, and
projects for funding. FHWA                        enhancing and clarifying FHWA’s role in reviewing and approving major
provides oversight to varying                     projects. Adopting any of these options would require balancing the states’
degrees, and, under the                           sovereign right to select projects and desire for flexibility and more
Transportation Equity Act for the                 autonomy with the federal government’s interest in ensuring that billions of
21st Century (TEA-21), FHWA and                   federal dollars are spent efficiently and effectively. In addition, the
each state enter into an agreement
documenting the types of projects
                                                  additional costs of each of these options would need to be weighed against
the state will oversee.                           its potential benefits.

This statement for the record                     Major Federal-aid Highway Projects
summarizes cost and oversight
issues raised in reports and
testimonies GAO has issued since
1995 on major highway and bridge
projects and describes options that
GAO has identified to enhance
federal oversight of these projects,
should Congress determine that
such action is needed and
appropriate.

www.gao.gov/cgi-bin/getrpt?GAO-03-764T.

To view the full testimony, including the scope
and methodology, click on the link above.
For more information, contact JayEtta Hecker
at (202) 512-2834 or heckerj@gao.gov.             Source: Art Explosion.
    Mr. Chairman and Members of the Subcommittee:

    We appreciate the opportunity to offer this statement for the record
    concerning efforts by the Federal Highway Administration (FHWA) to
    oversee and control the costs of major highway and bridge projects—80
    percent of which are often paid by the federal government.1 With freight
    traffic expected to double and congestion projected to worsen over the
    next 20 years, widespread consensus exists on the need to maintain and
    improve the nation’s surface transportation infrastructure. Given that both
    the federal government and state governments are facing budget deficits in
    the hundreds of billions of dollars in the coming years, it is even more
    important that major highway and bridge projects be managed efficiently
    and cost effectively. While effectively managing these projects involves
    many factors other than cost—including safety, quality, mobility, and
    environmental impact—cost increases on major projects often take center
    stage, especially in light of the growing competition for federal dollars.

    My statement today is based on a body of work we have performed and
    products we have issued since 1995 on the costs and oversight of major
    highway and bridge projects. (See the list of related GAO products at the
    end of this statement.) Today’s statement (1) summarizes these cost and
    oversight issues, (2) discusses FHWA’s recent efforts to improve the
    management and oversight of these projects, and (3) describes options we
    have identified that might enhance federal oversight of these projects,
    should Congress determine that such action is needed and appropriate.

    In summary:

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


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



    Page 1                                                                          GAO-03-764T
    developed for the environmental review—whose purpose was to compare
    project alternatives, not to develop reliable cost estimates. In addition, we
    reported in 19972 that FHWA had done little to ensure that containing costs
    was an integral part of the states’ project management, in part because
    FHWA believed it had no mandate to either encourage or require states to
    adopt such practices. Finally, we have noted that FHWA generally
    approves the estimated cost of a major project in phases, when individual
    project segments are ready for construction, rather than agreeing to the
    total cost of the entire project at the outset. By the time FHWA approves
    the total cost of a major project, a public investment decision might, in
    effect, already have been made because substantial funds would already
    have been spent on designing the project and acquiring property, and
    many of the increases in the project’s estimated costs might already have
    occurred.

•   Since 1998, FHWA has taken a number of steps to improve the
    management and oversight of major projects, including implementing a
    requirement of the Transportation Equity Act for the 21st Century (TEA-
    21) that states develop, and that the Secretary approve, annual finance
    plans for any highway or bridge project estimated to cost $1 billion or
    more. As of May 2003, FHWA had approved finance plans for 10 federal-
    aid highway projects and expected finance plans to be prepared 5
    additional projects in the future.3 As I testified in May 2002,4 while
    indications are that the finance plan requirement has improved the
    oversight of some major projects, many multibillion-dollar corridor
    projects representing a substantial investment of federal funds will not be
    covered by the requirement because the projects will be constructed as a
    series of smaller projects that will cost less than $1 billion each. Other
    steps FHWA has taken to improve its oversight include introducing greater
    risk-based oversight into its day-to-day activities and attempting to resolve
    conflicting interpretations of its oversight role that it believes have
    occurred since 1991, when the states began assuming greater
    responsibility for approving the design and construction of many projects.



    2
     Transportation Infrastructure: Managing the Costs of Large-Dollar Highway Projects
    (GAO/RCED-97-47, Feb. 27, 1997).
    3
     FHWA also requires finance plans for projects that funded under the Transportation
    Infrastructure Finance and Innovation Act. Currently, 3 additional projects funded under
    the act have approved finance plans.
    4
     U.S. General Accounting Office, Transportation Infrastructure: Cost and Oversight
    Issues on Major Highway and Bridge Projects, GAO-02-702T (Washington, D.C.: May 1,
    2002).



    Page 2                                                                      GAO-03-764T
                 Finally, FHWA has taken actions to respond to a DOT task force report on
                 the management and oversight of major transportation projects,5 such as
                 developing and publishing core competencies for managers overseeing
                 major projects. However, FHWA has not yet developed goals or
                 measurable outcomes linking its oversight activities to its business goals in
                 its performance plan, as an FHWA task force recommended in 2001. As I
                 testified in May 2002, until FHWA takes these actions, it will be limited in
                 its ability to judge the success of its efforts or to know whether conflicting
                 interpretations of the agency’s roles have been resolved.

             •   Our past work, including my testimony of May 2002, presented options for
                 enhancing FHWA’s role in overseeing the costs of major highway and
                 bridge projects, should Congress, in reauthorizing TEA-21, determine that
                 such action is needed and appropriate. These options include improving
                 information on the cost performance of selected major highway and
                 bridge projects, improving the quality of initial cost estimates, and
                 enhancing and clarifying FHWA’s role in reviewing and approving major
                 projects. Each of these options entails a commitment of additional
                 resources and poses costs and challenges that must be weighed against
                 the option’s potential benefits. Adopting one or more of these options
                 would require Congress to determine the appropriate federal role—
                 balancing the state’s sovereign right to select its projects and desire for
                 flexibility and more autonomy with the federal government’s interest in
                 ensuring that billions of federal dollars are spent efficiently and
                 effectively.


                 FHWA provides funding to the states for roadway construction and
Background       improvement projects through various programs collectively known as the
                 federal-aid highway program.6 Most highway program funds are
                 distributed to the states through annual apportionments according to
                 statutory formulas; once apportioned, these funds are generally available
                 to each state for eligible projects. The responsibility for choosing projects
                 to fund generally rests with state departments of transportation and local
                 planning organizations. The states have considerable discretion in
                 selecting specific highway projects and in determining how to allocate



                 5
                  Report of the ONE DOT Task Force on Oversight of Large Transportation Infrastructure
                 Projects; December 2000
                 6
                  Most of the funding for these programs is derived from highway user taxes, such as excise
                 taxes on motor fuels, tires, and the sale of trucks and trailers, and taxes on the use of heavy
                 vehicles.



                 Page 3                                                                          GAO-03-764T
available federal funds among the various projects they have selected. For
example, section 145 of title 23 of the United States Code describes the
federal-aid highway program as a federally assisted state program and
provides that the federal authorization of funds, as well as the availability
of federal funds for expenditure, “shall in no way infringe on the sovereign
right of the states to determine which projects shall be federally financed.”

While FHWA approves state transportation plans, environmental impact
assessments, and the acquisition of property for highway projects, its role
in approving the design and construction of projects varies. Relatively few
projects are subject to “full” oversight, in which FHWA prescribes design
and construction standards, approves design plans and estimates,
approves contract awards, inspects construction progress, and renders
final acceptance on projects when they are completed. Under TEA-21,
FHWA exercises full oversight only of certain high-cost Interstate system
projects.7 For other federally assisted projects, there are two options.
First, for a project that is not located on the Interstate system but is part of
the National Highway System,8 a state may assume responsibility for
overseeing the project’s design and construction unless the state or FHWA
determines that this responsibility is not appropriate for the state. Second,
for a project that is not part of the National Highway System, the state is
required to assume responsibility for overseeing the project’s design and
construction unless the state determines that this responsibility is not
appropriate for it. Under both options, TEA-21 requires FHWA and each
state to enter into an agreement documenting the types of projects for
which the state will assume oversight responsibilities.

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




7
 States may assume responsibilities for other types of Interstate system projects, including
projects to resurface, restore, and rehabilitate Interstate roadways, and those Interstate
construction or reconstruction projects estimated to cost less than $1 million.
8
 Designated in 1995, the 160,000-mile National Highway System consists of the Interstate
Highway System and other principal arterial routes that serve major population centers,
international border crossings, national defense requirements, and interstate and
interregional travel needs. Other highways and roads make up the remaining 4 million
miles of roads in the United States.



Page 4                                                                        GAO-03-764T
Figure 1: Stages of a Highway or Bridge Project




Source: GAO.

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




                                         Page 5                                                       GAO-03-764T
                         Our work has raised issues concerning the cost and oversight of major
Issues Identified with   highway and bridge projects, including the following:
the Costs and
                         Cost growth has occurred on many major highway and bridge projects.
Oversight of Major •     For example, on 23 of 30 projects initially expected to cost over $100
Highway and Bridge       million, our 1997 report identified increases ranging from 2 to 211
                         percent—costs on about half these projects increased 25 percent or more.9
Projects                 In addition, the DOT Inspector General has recently identified cost
                         increases on major projects such as the Wilson Bridge, Springfield
                         Interchange, and Central Artery/Tunnel projects. As I testified in 2002,
                         reviews by state audit and evaluation agencies have also highlighted
                         concerns about the cost and management of major highway and bridge
                         programs.10 For example in January 2001, Virginia’s Joint Legislative Audit
                         and Review Commission found that final project costs on Virginia
                         Department of Transportation projects were well above their cost
                         estimates and estimated that the state’s 6-year, $9 billion transportation
                         development plan understated the costs of projects by up to $3.5 billion.
                         The commission attributed these problems to several factors, including
                         not adjusting estimates for inflation, expanding the scope of projects, not
                         consistently including amounts for contingencies, and committing design
                         errors.11

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




                         9
                         GAO/RCED-97-47
                         10
                             GAO-02-702T.
                         11
                          Joint Legislature Audit and Review Commission of the Virginia General Assembly, Review
                         of Construction Costs and Time Schedules for Virginia Highway Projects, House
                         Document No. 31 (Richmond: Jan. 9, 2001).



                         Page 6                                                                   GAO-03-764T
    over a 4-year period.12 FHWA’s information, however, measured only the
    increases in costs that occurred after the projects were fully designed.
    Thus, cost increases that occurred during the design of a project—where
    we have reported that much of the cost growth occurs—were not reflected
    in FHWA’s data. In contrast to the federal-aid highway program, the Office
    of Management and Budget requires federal agencies, for acquisitions of
    major capital assets, to prepare baseline cost and schedule estimates and
    to track and report the acquisitions’ cost performance. These requirements
    apply to programs managed by and acquisitions made by federal agencies,
    but they do not apply to the federal-aid highway program, a federally
    assisted state program.

•   While many factors can cause costs to increase, we have found, on
    projects we have reviewed, that costs increased, in part, because initial
    cost estimates were not reliable predictors of the total costs or financing
    needs of projects. Rather, these estimates were generally developed for
    the environmental review—whose purpose was to compare project
    alternatives, not to develop reliable cost estimates. In addition, each state
    used its own methods to develop its estimates, and the estimates included
    different types of costs, since FHWA had no standard requirements for
    preparing cost estimates. For example, one state we visited for our 1997
    report included the costs of designing projects in its estimates, while two
    other states did not.13 We also found that costs increased on projects in the
    states we visited because (1) initial estimates were modified to reflect
    more detailed plans and specifications as projects were designed and (2)
    the projects’ costs were affected by, among other things, inflation and
    changes in scope to accommodate economic development over time.

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


    12
     For the purposes of this analysis, FHWA identified major projects as those that were
    expected to cost $10 million or more to construct and had experienced cost increases of 25
    percent or more. FHWA identified 80 such major projects, 12 of which were part of the
    Central Artery/Tunnel project in Massachusetts.
    13
     GAO/RCED-97-47.



    Page 7                                                                      GAO-03-764T
                         it had done little to ensure that cost containment was an integral part of
                         the states’ project management.

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


                         Since 1998, FHWA has taken a number of steps to improve the
Efforts by FHWA to       management and oversight of major projects. FHWA implemented TEA-
Improve the              21’s requirement that states develop an annual finance plan for any
                         highway or bridge project estimated to cost $1 billion or more.
Management and           Specifically, FHWA developed guidance that requires state finance plans
Oversight of Major       to include a total cost estimate for the project, adjusted for inflation and
                         annually updated; estimates about future cost increases; a schedule for
Projects                 completing the project; a description of construction financing sources
                         and revenues; a cash flow analysis; and a discussion of other factors, such
                         as how the project will affect the rest of the state’s highway program. As of
                         May 2003, FHWA had approved finance plans for 10 federal-aid highway
                         projects and expected finance plans to be prepared for 5 additional
                         projects at the conclusion of those projects’ environmental review phase.14
                         In addition, FHWA established a major projects team that currently tracks
                         and reports each month on these 15 projects, and has assigned—or has
                         requested funding to assign—a full-time manager to each project to
                         provide oversight. These oversight managers are expected to monitor their
                         project’s cost and schedule, meet periodically with project officials, assist
                         in resolving issues and problems, and help to bring “lessons learned” on
                         their projects to other federally assisted highway projects.




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



                         Page 8                                                                      GAO-03-764T
As I testified in 2002,15 there are indications that the finance plan
requirement has produced positive results. For example, in Massachusetts,
projections of funding shortfalls identified in developing the Central
Artery/Tunnel project’s finance plan helped motivate state officials to
identify new sources of state financing and implement measures to ensure
that funding was adequate to meet expenses for the project. However,
some major corridor projects will not be covered by the requirement.
FHWA has identified 22 corridor projects that will be built in “usable
segments”—separate projects costing less than $1 billion each—and
therefore will not require finance plans. According to FHWA officials,
states plan these long-term projects in segments because it is very difficult
for them to financially plan for projects extending many years into the
future. Nevertheless, these major projects represent a large investment in
highway infrastructure. For example, planned corridor projects that will
not require finance plans total almost $5 billion in Arkansas, about $12.3
billion in Texas, about $5.3 billion in Virginia, and about $4.2 billion in
West Virginia. In addition, the $1 billion threshold does not consider the
impact of a major highway and bridge project on a state’s highway
program. In Vermont, for instance, a $300 million project would represent
a larger portion of the state’s federal highway program funding than a $1
billion dollar project would represent in California.

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

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


15
 GAO-02-702T.



Page 9                                                           GAO-03-764T
a “hands off” approach to these projects. The policy stipulates that while
states have responsibility for the design and construction of many
projects, FHWA is ultimately accountable for the efficient and effective
management of all projects financed with federal funds and for ensuring
compliance with applicable laws, regulations, and policies.

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

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

In addition, 7 of the task force’s 24 recommendations would have required
legislation. For example, the task force recommended establishing a
separate funding category for preliminary engineering and design—those
activities that generally accomplish the first 20 to 35 percent of a project’s
design. The task force concluded that a separate funding category would
allow a new decision point to be established. Initial design work could


16
 GAO-02-702T.



Page 10                                                           GAO-03-764T
                           proceed far enough so that a higher-quality, more reliable cost estimate
                           would be available for decisionmakers to consider before deciding
                           whether to complete the design and construction of a major project—and
                           before a substantial federal investment had already been made.


                           In my testimony of May 2002, I presented options for enhancing FHWA’s
Options to Enhance         role in overseeing the costs of major highway and bridge projects, should
Federal Oversight of       Congress, in reauthorizing TEA-21, determine that such action is needed
                           and appropriate. Each of these options would be difficult and possibly
Major Projects             costly; each represents a commitment of additional resources that must be
                           weighed against the option’s potential benefits. Adopting any of these
                           options would require Congress to determine the appropriate federal
                           role—balancing the states’ sovereign right to select its projects and desire
                           for flexibility and more autonomy with the federal government’s interest in
                           ensuring that billions of federal dollars are spent efficiently and
                           effectively. These options include the following:

                       •   Have FHWA develop and maintain a management information system on
                           the cost performance of selected major highway and bridge projects,
                           including changes in estimated costs over time and the reasons for such
                           changes. While Congress has expressed concern about cost growth on
                           major projects, it has had little success obtaining timely, complete, and
                           accurate information about the extent of and the reasons for this cost
                           growth on projects. Such information could help define the scope of the
                           problem with major projects and provide insights needed to fashion
                           appropriate solutions.

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

                       •   Have states track the progress of projects against their initial baseline cost
                           estimates. Expanding the federal government’s practice of having its own
                           agencies track the progress of the acquisition of major capital assets
                           against baseline estimates to the federally assisted highway program could
                           enhance accountability and potentially improve the management of major
                           projects by providing managers with real-time information for identifying
                           problems early, and for making decisions about project changes that could



                           Page 11                                                           GAO-03-764T
    affect costs. Tracking progress could also help identify common problems
    and provide a better basis for estimating costs in the future.


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

•   Expand FHWA’s finance plan requirement to other projects. While
    Congress has decided that enhanced federal oversight of the costs and
    funding of projects estimated to cost over $1 billion is important, projects
    of importance for reasons other than cost may not, as discussed earlier,
    receive such oversight. Should Congress believe such an action would be
    beneficial, additional criteria for defining projects would need to be
    incorporated into FHWA’s structure for overseeing the costs and financing
    of major projects.

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

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



    Page 12                                                         GAO-03-764T
           For further information on this statement, please contact JayEtta Z.
Contacts   Hecker (heckerj@gao.gov) or Steve Cohen (cohens@gao.gov).
           Alternatively, they may be reached at (202) 512-2834.




           Page 13                                                        GAO-03-764T
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