Federal Transit Administration Could Improve Information on Estimating Project Costs

Report #GAO-19-562

From GAO, July 22, 2019

Rail transit projects are inherently complicated, take years to plan and construct, and can cost hundreds of millions to billions of dollars.

We looked at the factors affecting the cost of these projects. As part of our work, we selected 4 rail transit projects as case studies and interviewed the people involved in them from industry and government. We identified approaches that can help project sponsors—usually state and local government agencies—manage costs, including improving their cost estimation.

We recommended ways the Federal Transit Administration can help project sponsors increase the reliability of their cost estimates.

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Honolulu-Related Text from Report

Because FTA’s New Starts grant agreements provide a fixed amount of federal funding, project cost overruns are generally assumed by the sponsor of the project and not the federal government. For example, in 2016 in New York City, the Metropolitan Transportation Authority completed construction of the first phase of the Second Avenue Subway, a 2.3 mile heavy rail project, for a total cost of $5.57 billion. This project exceeded the estimated total cost described in the fiscal year 2008 FTA grant agreement by more than $700 million.28 On another project in Hawaii, cost estimates have risen from $5.1 billion specified in the fiscal year 2013 construction grant agreement to over $8 billion in fiscal year 2019 for a 20.1 mile elevated light rail project sponsored by the Honolulu Authority for Rapid Transportation. These projects and several others are discussed in greater detail in this report….

Factors associated with construction in urban environments affect rail transit project costs, according to some stakeholders we interviewed. For example, some stakeholders said that the number of utilities—such as power lines and water mains—located in the construction site may affect a project’s costs by necessitating that the sponsor arrange for their relocation. According to one report we reviewed, relocation of utilities for the Honolulu Rail Transit Project cost $391 million through January 2017.33 Representatives of one industry organization said that contractors often must wait for utility providers to perform relocations, which can add delays and costs to a project. Some stakeholders also said that the accessibility of the construction site may influence how a contractor can carry out construction activities and thus affect the project’s costs. For example, representatives of a transportation association we interviewed said that building transit projects in dense urban environments can require fitting construction and staging into small physical spaces, as shown in figure 4. They also said that sponsors may face difficulties acquiring land for those purposes. The project’s site may also limit working hours, including timing construction activities around community noise concerns and the schedules of other entities—such as other transit lines—operating in the area, according to the representatives….

33 In November 2018, the Honolulu Authority for Rapid Transportation estimated that the total cost of the project would be $9.188 billion. Office of the Auditor, State of Hawai’i, Audit of the Honolulu Authority for Rapid Transportation: Report 1 (Honolulu, Hawaii: January 2019)….

Cost Estimating Information for Sponsors Is Distributed across Multiple FTA Documents

We found that FTA does not provide sponsors with a centralized, authoritative source that integrates cost estimating best practices. As previously discussed, FTA’s publicly available documentation provides overarching cost estimating information, but that information is dispersed across 14 documents, many of which are characterized as procedures for FTA’s oversight contractors, not for sponsors. By contrast, the Federal Railroad Administration (FRA), another of DOT’s modal administrations that distributes funding via grants and loans for intercity passenger rail projects and other purposes, developed consolidated cost estimating guidance for its sponsors, to help sponsors improve an estimate’s reliability and ensure successful project delivery. FRA published the guidance on its website and refers applicants to the guidance in its Notices of Funding Availability/Opportunity and in its grant and loan agreements.72 According to federal standards of internal control, FTA should communicate quality information externally so that external parties, such as sponsors, can help achieve the project’s objectives.

According to FTA officials, they expect grantee organizations—the project sponsors—to have sufficient expertise to develop a cost estimate in accordance with industry leading practices. Those officials said that sponsors may enroll in the training courses on transit project management offered by FTA through the National Transit Institute and that sponsors usually hire consultants to help them with their cost estimates, although some sponsors may employ staff with that expertise. In addition, FTA officials said that they do not expect sponsors to use FTA’s oversight procedures as cost estimating guidance, but some sponsors review them to know what the oversight contractors will be looking for in their reviews. However, as previously discussed, a sponsor may not have prior experience building rail transit projects and may not know that FTA’s oversight procedures provide useful information for sponsors’ cost estimation. Moreover, an overreliance on contractors’ expertise can present problems as well. For example, FTA and its oversight contractors expressed concern with the Honolulu Authority for Rapid Transportation’s overreliance on its contractors, in 2014, 2016, and 2018—and urged the transit agency to transition key management positions to its own employees to improve the agency’s ownership and strengthen its control of the project….

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What GAO Found

Rail transit construction project sponsors, typically state or local government entities, have a vested interest in controlling costs. Stakeholders GAO interviewed identified a variety of factors that affect a rail transit construction project's costs (see figure).

Types of Factors That Affect Rail Transit Project Construction Costs

Project sponsors and other stakeholders identified various approaches sponsors have used to manage a project's costs. These approaches align with key project management principles GAO identified: (1) ensuring management capability; (2) making informed procurement decisions; (3) managing risk; and (4) managing stakeholder relationships. For example, sponsor officials and a contractor's representative from one GAO case study said they managed risk by cooperating to purchase steel materials early in the project to reduce the risk of additional steel price increases.

The Federal Transit Administration's (FTA) cost estimating information for sponsors aligns with many best practices, but FTA could improve the information's usefulness. GAO found that taken together, FTA's cost estimating information substantially or fully met 7 of the 12 cost estimating steps outlined in GAO's Cost Estimating and Assessment Guide (Cost Guide) but did not align with 5 of the steps. For example, the documents did not discuss sensitivity analyses—an assessment of each factor's effect on cost. Doing so could help sponsors better identify which cost factors are most likely to influence a project's overall costs if assumptions change, thereby improving an estimate's reliability and better informing sponsors' decisions. In addition, sponsors may have difficulty identifying critical cost estimating information because it is distributed across 14 different documents available to sponsors, 11 of which are intended for FTA's oversight contractors. By improving the content and organization of cost estimating information, FTA would help project sponsors increase the reliability of their cost estimates and reduce the risk of cost overruns.

Why GAO Did This Study

Rail transit projects are complex, and challenge sponsors to maximize limited resources. To help project sponsors build new or extend existing transit projects, Congress appropriated about $2.65 billion for FTA's 2019 Capital Investment Grants program.

Congress included a provision in a committee report for GAO to evaluate factors affecting the costs to build transit projects. This report examines: (1) stakeholders' views on factors that affect rail transit project costs, (2) stakeholders' views on approaches sponsors have used to manage costs, and (3) the extent to which FTA's cost estimating information for sponsors aligns with best practices in GAO's Cost Guide . GAO interviewed academic, construction, and other stakeholders identified through a literature search and referrals. GAO conducted case studies of four U.S. rail transit projects that received FTA grants and that were selected to obtain variation in transit mode, location, and other characteristics, and compared their approaches to GAO-identified key project management principles. GAO also interviewed FTA officials and compared FTA's cost estimating information with GAO's best practices.

What GAO Recommends

FTA should (1) ensure that FTA's cost estimating information is consistent with all 12 steps in GAO's Cost Guide for developing reliable cost estimates and (2) provide a central, accessible source of cost estimating information for project sponsors. FTA partially concurred with the first and concurred with the second recommendation. GAO believes FTA should fully implement both recommendations.

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Recommendations for Executive Action

1. Status: Open

   Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

   Recommendation: The FTA administrator should ensure that FTA's cost estimating information for project sponsors is consistent with all 12 steps found in GAO's Cost Estimating and Assessment Guide and needed for developing reliable cost estimates. [Recommendation 1]

   Agency Affected: Department of Transportation: Federal Transit Administration

2. Status: Open

   Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

   Recommendation: The FTA Administrator should provide a central, easily accessible source with all of FTA's cost estimating information to help project sponsors improve the reliability of their cost estimates. [Recommendation 2]

   Agency Affected: Department of Transportation: Federal Transit Administration

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