ACTIONS NEEDED TO 

MITIGATE RISKS 

ASSOCIATED WITH THE 

ACCESS TO THE REGION'S

CORE PROJECT

Federal Transit Administration

Report Number: MH-2010-066

Date Issued: May 17, 2010
U.S. Department of Transportation

Memorandum

Office of the Secretary

of Transportation

Office of Inspector General

Subject: ACTION: Actions Needed to Mitigate Risks 

Associated with the Access to the Region's Core 

Project

Federal Transit Administration

Report No. MH-2010-066

Date: May 17, 2010

From:

Joseph W. Comé 

Assistant Inspector General

for Surface and Maritime Program Audits

Reply to 

Attn. of: JA-40

To: Federal Transit Administrator

This report presents the results of our assessment of the Federal Transit 

Administration’s (FTA) oversight of the Access to the Region’s Core (ARC) 

project in New York and New Jersey—one of the largest transit infrastructure 

projects in the United States. Project costs are currently estimated at more than 

$9 billion and FTA plans to commit a total of $3 billion through its New Starts

program

1

—the largest amount slated to date for any transit project in that program. 

In August 2009, FTA approved an early systems work agreement to expedite 

ARC, allowing the New Jersey Transit (NJT) Corporation, the project’s sponsor 

and manager, to incur costs of $1.35 billion, prior to meeting all Federal New 

Starts requirements, and initiate construction activities. FTA also awarded 

$130 million in American Recovery and Reinvestment Act (ARRA) funds to NJT 

for ARC project activities. 

Given the considerable investment in ARC and the risks inherent in a project of 

this magnitude, we evaluated FTA’s oversight. Specifically, we (1) determined 

whether project risks were identified and strategies were implemented to mitigate 

the risks; (2) identified any challenges faced in ensuring sufficient funding was 

available for the project; and (3) assessed NJT’s controls for combating fraud, 

waste, and abuse. To conduct our work, we evaluated FTA and NJT project 

documents related to costs, schedule, financing, fraud, engineering, and other 

 

1 The purpose of the New Starts program is to provide Federal financial support for locally planned and operated 

public transit. Federal support is in the form of competitive, discretionary capital investment grants in local fixed 

guideway transit projects, such as commuter rail, light rail, heavy rail, bus rapid transit, trolleys, and ferries. 
2

issues; reviewed applicable regulations, law, and guidance; and interviewed key 

officials. We conducted our work from January 2009 through March 2010 in 

accordance with generally accepted government auditing standards for 

performance audits. Additional details of our objective, scope, and methodology 

are described in exhibit A.

RESULTS IN BRIEF

FTA’s ARC oversight activities provide reasonable assurance that significant cost,

schedule, and funding risks have been identified, and FTA has taken proactive 

steps to increase its oversight of ARC—as evidenced by requiring a project 

execution plan. However, as of January 2010, FTA did not have finalized project 

documents from NJT—the project management plan, project execution sub-plans, 

master schedule, and financial plan—that describe strategies for mitigating 

identified risks. The lack of finalized documents hinders FTA’s ability to oversee 

NJT's mitigation actions. For example, without a completed master schedule and 

its supporting schedule management plan, FTA lacks a tool for assessing NJT's 

ability to meet important project benchmarks, such as the issuance of specific 

construction contracts. Meeting such benchmarks is critical to keeping the project 

on schedule and within its budget. Delays in developing one key set of 

documents, the seven sub-plans, were due, in large part, to the lack of agreement 

between FTA and NJT as to what constitutes compliance with the requirements of 

the overarching project execution plan. In addition, NJT was inexperienced in 

dealing with this new process. FTA acknowledged that some of the project 

execution plan's processes were new to NJT and the industry as a whole, and that 

developing such plans required thoughtful consideration. Yet, FTA has not issued 

formal guidance on this process for other sponsors to follow on future major 

projects, as has been done with other New Starts program requirements, such as 

for financial plans. In addition, FTA identified several long-term risks that the

project faces, which if left unresolved, could lead to schedule delays or cost 

increases. This underscores the need for FTA to continue its proactive oversight 

of these risks. For example, one risk relates to obtaining the rights for access to 

properties not owned by NJT in order to complete geotechnical and environmental 

investigations. Delays in obtaining these rights would impact NJT's ability to 

complete ARC's final design in a timely manner.

FTA must also ensure that NJT addresses certain ARC funding resource 

challenges. ARC depends on several Federal, state, and local funding sources, 

including $3 billion from the Port Authority of New York & New Jersey (Port 

Authority). As of January 2010, full Federal funding had yet to be approved, and 

the long-term availability of local funding was uncertain. FTA will need to 

perform a financial capacity assessment on the availability of the local funding to 

be provided. If one or more of these funding sources is delayed or is not available 
3

in the expected amounts, the project schedule could be delayed because NJT might 

not be able to cover costs on its own, resulting in NJT postponing certain project 

activities.

Finally, the project’s management controls are insufficient to detect fraud and 

ensure contractor integrity—in part because FTA did not request NJT to document 

its fraud prevention program in the project management plan, a practice FTA has

used on other Region II major projects. Further, NJT opted not to use an 

independent private-sector inspector general (IPSIG)2

We are making a series of recommendations to ensure that ARC oversight fully 

addresses the heightened risks associated with proceeding under an early systems 

work agreement and meets ARRA requirements. On May 3, 2010, FTA 

responded to our draft report. FTA concurred with five of our recommendations 

and partially concurred with the sixth. We consider the actions FTA has taken and 

plans to take as being fully responsive to our recommendations. A complete 

discussion of FTA's comments and our response begins on page 16.

on the project—despite 

evidence that an IPSIG can help identify problems in real time, such as internal 

control weaknesses, contractor integrity and ethics lapses, and infiltration of 

organized crime. The Office of Inspector General (OIG) and other agencies have 

cited using IPSIGs as a best practice on large construction projects in New York 

and New Jersey, such as the New York Metropolitan Transportation Authority's 

(MTA) Fulton Street Transit Center. 

BACKGROUND

Through ARC, NJT plans to construct a 9-mile commuter rail line between 

Secaucus, New Jersey, and Manhattan, New York, that runs adjacent to Amtrak’s 

Northeast Rail Corridor (see figure 1). The project includes construction of two 

new tunnels under the Hudson River, a new underground passenger rail station 

adjacent to New York’s Pennsylvania Station in midtown Manhattan, a storage 

yard, and the purchase of passenger rail vehicles and specialized dual-powered 

locomotives. NJT’s total estimated cost for the project is $9.23 billion, which

includes the cost of all rail car purchases to provide full-capacity3

 

2 An IPSIG is an independent firm with legal, auditing, and investigative skills, employed by an organization to ensure 

compliance with relevant laws and regulations and to prevent, uncover, and report unethical and illegal conduct.

service in 2030. 

The baseline cost estimate is $8.7 billion, which reflects the cost of rail car 

purchases needed for initial service scheduled for December 2017.

3 The total number of rail cars needed to meet the project’s forecasted ridership in 2030. The $8.7 billion baseline 

estimate includes the cost of 110 of the total 196 rail cars and locomotives to be purchased.
4

Figure 1. Map of the ARC Project

Source: NJT.

FTA’s Region II Office in New York City is responsible for providing oversight 

of NJT’s management of the project. Region II receives support from a project 

management oversight contractor (PMOC) in evaluating NJT’s technical 

capability and capacity and from a financial management oversight contractor 

(FMOC) in assessing NJT’s financial capability to construct, operate, and maintain 

the project. FTA’s oversight role includes ensuring that potential project risks, 

such as NJT’s inability to access committed funds, are identified up front and that 

NJT takes action to mitigate these risks. Allowing ARC to proceed with an early 

systems work agreement without meeting all New Starts full funding grant 

agreement requirements adds to its inherent cost and schedule risks—heightening 

the need for FTA to effectively oversee NJT’s management of the project. For 

example, one of the inherent risks is that delays in FTA's awarding a full funding 

grant agreement4

 

4 Full funding grant agreements are multi-year contractual agreements between FTA and a project’s sponsor that 

formally define scope, cost, and schedule. These agreements also establish the maximum level of Federal financial 

assistance and outline the terms and conditions of Federal financial participation.

for the entire $3 billion may hinder the project's progress 

because it could result in NJT postponing the timely award of key construction 
5

contracts due to the lack of a Federal funding commitment to cover these costs.

To successfully complete tasks necessary to ensure the project is within budget 

and on schedule and meets full capacity service, NJT must coordinate with the 

following third parties.

• Port Authority provides ARC staffing and funding resources, and is 

responsible for acquiring access to property in New York.

• Amtrak works with NJT to address environmental, property acquisition, 

force account, and traction power issues. Amtrak will also provide a 

portion of the funding on the Portal Bridge project—a project that is critical 

for ARC to meet its expected service capacity.

• Con Edison provides NJT with access to its property in order to perform 

environmental investigations and NJT must acquire property from Con 

Edison for construction of the Manhattan Tunnels.

In January 2009, FTA approved ARC for entry into final design—the last 

milestone in FTA’s New Starts evaluation process before approval of a full 

funding grant agreement. Exhibit B depicts the New Starts planning and 

development process, and outlines key milestones in the project’s history. 

FTA LACKS FULLY DEVELOPED PROJECT DOCUMENTS FROM 

NJT THAT ARE KEY TO IDENTIFYING AND MITIGATING 

PROJECT RISKS

FTA’s ARC oversight activities provide reasonable assurance that significant cost 

and schedule risks have been identified. However, as of January 2010, FTA 

lacked finalized project documents from NJT—the project management plan, 

project execution sub-plans, master schedule, and financial plan—that describe 

strategies for mitigating identified risks. The lack of finalized documents hinders 

FTA’s ability to hold NJT accountable for taking risk mitigation actions. For 

example, without a completed master schedule and its supporting schedule 

management plan, FTA lacks a tool for assessing NJT's ability to meet important 

project benchmarks, such as the issuance of specific construction contracts. 

Meeting such benchmarks is critical to keeping the project on schedule and within 

its budget. Moreover, ARC faces known long-term "watch list" risks, such as 

property access rights, that require continued vigilant oversight by FTA because, if 

these "watch-list" items are left unresolved, they could lead to schedule delays or 

cost increases over time. 
6

FTA Implemented the Use of a Project Execution Plan To Identify 

Significant Project Risks

In January 2009, FTA and NJT agreed to the requirements of the project execution 

plan and its sub-plans, which provide reasonable assurance that processes are in 

place to identify risks related to costs, schedule, project management, project 

financing, construction quality, engineering, and other issues. FTA will need to

continue to use the project execution plan and its sub-plans to identify risks and 

monitor NJT's management of the project. In addition to the risks identified in the 

project execution plan, FTA’s PMOC and FMOC also identified technical and 

financial risks in their ongoing assessments. For example, the PMOC's September 

2009 monthly status report identified a risk of delays in obtaining the rights for 

access to properties in New York and New Jersey in order to complete 

geotechnical and environmental investigations. Lack of access could impede 

NJT's progress in completing the project’s final design. The FMOC, in its May 

2009 draft financial assessment report, highlighted risks to the availability of 

Federal and local funds that NJT needs to construct the project. NJT is aware of 

these risks and committed to undertaking a high degree of risk mitigation to keep 

the project on schedule and within budget. 

Lack of Fully Developed Project Documents from NJT Impedes FTA's

Oversight 

When construction began, NJT was still developing the project management plan, 

project execution sub-plans, master schedule, and financial plan—key documents 

FTA needs to oversee NJT's efforts to mitigate project risks. The project 

execution sub-plans are needed to identify mitigation strategies that will provide a 

level of assurance that NJT will address identified risks, allowing ARC to proceed 

through final design and be constructed on-budget and on-schedule. Despite 

lacking fully developed documents, FTA allowed the Manhattan Tunnels 

construction contract to proceed in June 2009 and approved an early systems work 

agreement in August 2009, in part to avoid delays and higher costs.

FTA requires a project management plan for all New Starts projects.

5

 

5 A sponsor's project management plan explicitly defines all tasks necessary to implement a major capital project. The 

plan should include organization's staffing, project budget, construction schedule, and quality assurance and quality 

control programs.

 However, 

ARC's project management plan is incomplete. FTA “conditionally” approved 

NJT’s ARC project management plan in May 2009, and notified NJT that many of 

the project execution sub-plans, which were incorporated by reference in the 

document, were not acceptable. In June 2009, NJT submitted a revised project 

management plan to address these deficiencies. In July 2009, FTA notified NJT 

that the June 2009 project management plan and sub-plans were still not fully 
7

compliant with the project execution plan's requirements. For example, the project 

management plan still lacked acceptable organizational charts and a discussion of

management controls. These plan elements are critical to FTA’s oversight of the 

project. Organizational charts are needed to show the responsibilities and 

relationships for NJT and Port Authority staffs; identified controls are needed to 

minimize the risk of not achieving the project execution plan's requirements; and a 

strategy for NJT staff involvement is needed to better ensure effective systems 

operations. When FTA approved NJT’s early systems work agreement in August 

2009,6 FTA stipulated that before executing the full funding grant agreement NJT 

must have a fully approved project management plan and provide evidence that it 

is operating in conformance with the plan. 

As of January 2010, NJT’s seven project execution sub-plans remained 

incomplete, despite the project moving forward. Table 1 describes the purpose of 

the seven sub-plans.

Table 1. ARC Project Execution Sub-Plans

Sub-Plan Purpose

Quality Management Ensures that all necessary programs are established and closely 

followed.

Cost Management Provides reliable cost information and requires cost estimates to 

be documented and maintained.

Schedule Management Provides reliable schedule information and requires schedules 

to be documented and maintained.

Risk Management Provides a formal, systematic approach for the management of 

costs and schedule against a baseline by identifying project 

risks and a framework for mitigating risks to avoid their 

potential impacts. 

Cost and Schedule 

Contingency Management

Ensures that there are sufficient cost and schedule 

contingencies available at key milestones for the completion of 

the project.

Secondary Cost and

Schedule Mitigation 

Capacity

Provides additional cost and schedule plans and assesses NJT’s 

capacity to handle risk events or mitigation activities that are 

project-phase specific.

Geotechnical Risk 

Mitigation Capacity

Identifies geotechnical-specific cost and schedule risks and 

mitigation strategies.

 

6 There are few statutory requirements for awarding an early systems work agreement, and FTA has not issued related 

regulations or written guidance. The Secretary may legally make such an agreement if a project’s Record of 

Decision has been issued and there is reason to believe that: (1) a full funding grant agreement will eventually be 

made and (2) the terms of the agreement will promote the project’s ultimate completion more rapidly and at less cost.
8

The continued lack of the risk management sub-plan is of concern, particularly 

since FTA rejected NJT’s earlier risk management sub-plan because it did not 

meet requirements and omitted a key deliverable, the geotechnical risk allocation 

plan.7

 When FTA allowed the procurement of the design/build contract for the 

Manhattan Tunnels work to proceed—just 5 months after approving entry into 

final design in January 2009—the entire project execution plan processes were not 

in place to mitigate schedule slippages and cost increases. FTA officials

acknowledged that this was an unusual step for a project of this size; but they 

believed it was the best way to proceed so that the project could be completed on 

schedule and within budget. In our view, this decision provides little incentive for 

NJT to address FTA's concerns, and inhibits FTA’s ability to hold NJT

accountable for completing risk mitigation actions. Ultimately, the full impact of 

project risks and the effectiveness of NJT’s mitigation efforts will not be known 

until after FTA fully approves all required sub-plans and NJT implements them.

Recognizing NJT's inexperience with the processes involved in developing and 

implementing a project execution plan, FTA provided guidance to NJT on the 

development of sub-plans. Region II officials believe they provided NJT with 

adequate guidance on the principles involved in developing acceptable sub-plans. 

However, according to NJT, delays in completing the project execution sub-plans 

are due largely to the lack of clear FTA guidance on documentation requirements.

8

When NJT asked FTA for guidelines to follow in developing its project execution 

plan, FTA suggested that NJT follow the general criteria found on FTA’s web site 

and contact the New York MTA for guidance because it was one of the first New 

Starts sponsors to develop a project execution plan. According to NJT officials, 

neither source provided relevant guidance. In a July 2009 memorandum 

recommending approval of the early systems work agreement, FTA acknowledged 

that some of the project execution plan's processes were new to NJT and the 

industry as a whole, and that developing such plans required thoughtful 

consideration. However, FTA has not issued a formal guidance document on 

preparing such plans. The lack of guidance has not only resulted in NJT 

generating multiple drafts for FTA's review; but FTA staff has had to rely on

professional judgment, based on lessons learned from other large projects, to

determine what was acceptable. 

 

7 The geotechnical risk allocation plan formally documents NJT’s approach to risk allocation for the geotechnical 

scope of work between the contractor and NJT. This geotechnical plan is critical, given the extensive tunnel work 

involved in the project. 8 A table in FTA’s guidance on the full funding grant agreement process refers to a specific regulation or policy 

document for each step in the process, except the step related to the project execution plan, which recommends 

contacting a FTA regional office.
9

The project’s master schedule and financial plan were also incomplete when the 

early systems work agreement was approved in August 2009. Our engineering 

team reviewed the latest master schedule and several contract-level schedules that 

FTA and NJT provided. The team concluded that the project lacked a baseline 

master schedule with planned activity benchmarks and durations that could be 

compared against the ongoing activities for the purpose of measuring the project's 

progress. Additionally, the durations and dates for activities in the master 

schedule did not correlate with the durations and dates that contract-level 

schedules reported for the same activities. Without a master schedule that ties 

together the work of all contracts and its supporting schedule management plan—

which is needed to provide reliable schedule information—NJT's ability to identify 

and track the time and resources used to complete each project task is impaired. 

Accordingly, FTA does not have an important oversight tool it needs to assess 

NJT's efforts in managing delays and controlling cost growth.

In August 2009, FTA estimated that potential project delays ranged from 9 months 

to 22 months—based on the degree of risk assigned to project activities. Yet these 

estimates are based on schedule data from January 2008—the same data FTA used 

to approve the early systems work agreement. According to our engineering team,

the outdated data would not allow FTA to measure whether critical activities were 

on schedule or whether estimated delays have increased. According to FTA, NJT 

will not be required to submit an updated master schedule until 90 days prior to 

applying for a full funding grant agreement—a date that is unknown at this time. 

While FTA concluded that NJT’s draft financial plan was sufficient to enter final 

design and support the early systems work agreement, FTA identified actions and 

made 10 subsequent recommendations that would need to be finalized before a full 

funding grant agreement is awarded. FTA also stressed that NJT must update the 

draft financial plan prior to applying for a full funding grant agreement or as part 

of the next annual New Starts rating cycle (for the fiscal year 2011 budget process) 

to reflect any changes in assumptions that occur. The FMOC’s recommendations 

include making the financial plan consistent with the baseline cost estimate that 

FTA and NJT agreed to; NJT executing agreements with the Port Authority and 

the New Jersey Turnpike Authority (Turnpike Authority) regarding distribution of 

responsibilities for cost overruns; and developing a cash flow management plan. 

Moreover, because FMOC's financial capacity assessment was based on NJT's 

financial data through June 2008, it may not reflect current economic conditions

considering the upheavals in U.S. financial markets and the broader economy that 

have occurred since that time. 

Long-Term Cost and Schedule Risks Require Close Monitoring

FTA has identified “watch list” risks that could have a significant impact on 

project costs and schedules over the long term and, therefore, require continued
10

close monitoring. First, NJT will need to complete its financial plan and 

coordinate with Amtrak to facilitate the timely completion of the Portal Bridge—

critical for ARC’s ability to reach full operational capacity in 2030. The current 

Portal Bridge, owned and operated by Amtrak, is an essential rail crossing for both 

NJT and Amtrak systems in New Jersey. The purpose of the project is to improve 

system reliability and provide additional rail capacity for NJT and Amtrak. NJT’s 

draft financial plan shows a $728 million commitment from NJT for the Portal 

Bridge project and assumes Amtrak will provide the remaining funding needed—

approximately $472 million. In August 2009, FTA reiterated to NJT that it will 

need to identify a complete and reasonable financial plan for the $1.2 billion 

replacement of the Portal Bridge in New Jersey prior to executing the full funding 

grant agreement. In September 2009, NJT and Amtrak reached an agreement on 

each entity's obligations for the Portal Bridge's next phases. However, the 

agreement notes that these obligations are subject to funding availability. 

Second, environmental and geotechnical investigations have to be conducted on 

the 423 properties NJT needs to acquire by 2012 for ARC to continue to move 

forward. According to an August 2009 PMOC report, NJT’s consultant engineers 

stated that if critical environmental and geotechnical data were not available in 

time to meet the 2012 deadline, the project’s final design would need to be redone 

when the data are provided. The PMOC further noted in a September 2009 

monthly report that delays in obtaining the rights for access to properties in New 

York and New Jersey to complete geotechnical and environmental investigations 

would delay design activities, which are on the critical path to project completion.

Finally, ARC’s timely completion relies on procuring and testing 22 dual-powered 

locomotives, which will be needed to serve projected full capacity ridership in 

2030. The first pilot locomotive, scheduled for delivery in July 2011, will be 

tested at a Federal Railroad Administration (FRA) testing facility in Colorado and 

on NJT’s rail system. Accordingly, effective coordination with FRA is essential to 

ensuring needed testing occurs in a timely manner and the locomotives meet all 

applicable requirements and FRA safety standards.

UNCERTAIN FUNDING PRESENTS PROJECT IMPLEMENTATION 

AND COMPLETION CHALLENGES

FTA must ensure that NJT addresses several project funding challenges before 

executing a full funding grant agreement. The ARC’s complex financing structure 

relies on future funding from various Federal, state, and local agencies. As of 

January 2010, full Federal funding had yet to be approved, and the long-term 

availability of local funding was uncertain. If one or more of these funding 

sources is disapproved or unavailable in the amounts assumed in the draft financial 

plan, NJT will be challenged to keep the project progressing as scheduled.
11

Until its estimated completion in 2017, ARC will need substantial funding from 

various sources, as shown in table 2. The early systems work agreement commits 

only a portion of the total Federal funding that NJT’s draft financial plan assumes.

In the past, FTA warned NJT that its assumptions for annual New Starts 

appropriations were significantly higher than Congress has historically given to 

any single transit project and exceeded levels FTA previously discussed with NJT. 

FTA and NJT are still in the process of agreeing on the final funding projections 

that will be used in the full funding grant agreement, according to FTA. Also, the 

full funding grant agreement may be significantly delayed. FTA may not have 

sufficient commitment authority—the overall level of New Starts funding 

authorized by Congress—to execute a full funding grant agreement until a new 

surface transportation authorization law is enacted. According to FTA, the fiscal 

year 2010 appropriations act (Pub. L. No. 111-117) allows the Secretary to issue 

new full funding grant agreements outside the normal commitment authority 

calculation during fiscal year 2010 only, which ends on September 30, 2010. 

Whether this exception to the normal limits on commitment authority may extend 

into fiscal year 2011 or beyond will depend on the terms of future legislation.

Table 2. ARC Funding by Source1

(Dollars in Millions)

Funding Source Amount

State/Local Port Authority $3,000.00

New Jersey Turnpike Authority $1,250.00

Subtotal $4,250.00

Federal FTA New Starts (Total)2 $3,000.00

FHWA CMAQ/NHS Flex3 $1,319.98

ARRA $130.00

Subtotal $4,449.98

Total $8,699.98

Source: FTA's Annual Report on New Starts Funding Recommendations, Fiscal Year 2011 

1 The amounts shown in table 2 reflect those included in NJT's financial plan. 2 Of this amount, the early systems work agreement commits $395 million as the initial installment 

towards the $3 billion FTA intends to provide to ARC under a full funding grant agreement. 3 New Jersey Transportation Planning Authority proposed to flex $1 billion in Federal Highway 

Administration (FHWA) National Highway System (NHS) or Congestion Mitigation and Air Quality 

(CMAQ) program funds.

The long-term availability of local funding sources is also uncertain. FTA had 

concerns about the Port Authority’s and Turnpike Authority’s capacity to provide 
12

promised funding, totaling $4.25 billion, and delayed the financial capacity 

assessments for these funding sources. Such assessments are required before a full 

funding grant agreement can be awarded, but FTA determined that a detailed 

examination in August 2009 would not have been useful because of volatile credit 

market conditions, and decided to defer the assessments until closer to the time 

when ARC will be considered for the full funding agreement.9 FTA proceeded 

with an early systems work agreement without fully examining either Authority’s 

ability to provide the promised funds—potentially jeopardizing the timely 

completion of the project if the Port Authority or the Turnpike Authority cannot 

provide their share or cover any cost overruns.

In its fiscal year 2010 and 2011 New Starts rating assessments, FTA expressed 

concerns about the long-term availability of funding from the New Jersey 

Transportation Trust Fund Authority. Projections provided by the Trust Fund

indicate that all of its revenues are fully programmed to cover current and 

authorized debt service through fiscal year 2028. This leaves no funds for ARC

and other capital projects that are dependent on future allocations from the 

Transportation Trust Fund, including NJT's state-of-good-repair. The FMOC 

stated that NJT must provide a more precise plan as to how these funds will be 

made available, as well as its priorities for modifying the capital program should a 

lesser amount of funds be made available from the Transportation Trust Fund.

Despite these risks, NJT and other project partners had not reached an agreement 

on who will be responsible for cost overruns. Before executing a full funding 

grant agreement, FTA must assess NJT’s financial capacity to complete the project 

as designed and cover potential cost overruns. Specifically, FTA needs assurance

that the full funding grant agreement will be supported by an amended general 

project agreement between NJT and the Port Authority that clearly states how they

will allocate responsibility for cost overruns and cover the impact of any delays in 

receiving Federal New Starts funds. The current general project agreement, dated 

March 2009, states only that NJT and the Port Authority will work together in 

good faith to secure additional funds in the event of cost overruns. FTA also 

wants NJT to provide a final agreement with the Turnpike Authority, formalizing

its financial commitment to the project and addressing the respective roles and 

responsibilities of the agencies, including the Turnpike Authority’s participation in 

funding cost overruns.

 

9 In March 2008, FTA performed a brief review of the Port Authority’s financial capacity, but this was not a detailed 

examination that would fulfill FTA's full funding grant agreement requirements.
13

MANAGEMENT CONTROLS ARE INSUFFICIENT TO COMBAT 

THE RISK OF FRAUD, WASTE, AND ABUSE

Based on lessons learned from our past projects and fraud prevention work in

New York and New Jersey, we concluded that ARC's management controls are 

insufficient to detect fraud and ensure construction integrity. Our conclusion was 

based, in part, on the fact that FTA did not request NJT to document its fraud 

prevention program in the project management plan, as FTA had done on other 

major projects. Further, NJT opted not to use an independent private-sector 

inspector general (IPSIG)10

Fraud and Contractor Integrity Provisions Were Not Included in the 

Project Management Plan

on the project—despite evidence that an IPSIG can 

help identify problems, such as internal control weaknesses, contractor integrity 

and ethics lapses, and infiltration of organized crime, in real time. OIG and other 

agencies have cited using IPSIGs as a best practice on large construction projects 

in New York and New Jersey, such as the New York Metropolitan Transportation 

Authority's (MTA) Fulton Street Transit Center. In October 2009, the Governor of 

New Jersey, issued an executive order that required the State Comptroller to 

ensure the adequacy of internal controls and determine whether additional 

oversight is needed to keep the project within budget. Our assessment of the state 

executive order concluded that it did not provide sufficient details on the 

Comptroller's responsibilities for fraud prevention or investigations. Employing 

additional fraud controls is imperative to protect the significant Federal and local 

investment in ARC given the magnitude of construction contracts to be awarded, 

the emphasis ARRA places on fraud prevention, and the history of malfeasance in 

the construction industry in New York and New Jersey. 

FTA did not request NJT to include a chapter in ARC’s project management plan

that documents its fraud prevention program and clearly assigns responsibility for 

preventing, detecting, and following up on instances of fraud, waste, or abuse. In 

contrast, FTA did require Lower Manhattan Recovery Project sponsors, including 

the MTA and the Port Authority, to include a fraud section in their project 

management plans. In October 2006, FTA’s Lower Manhattan Recovery Office 

directed its project sponsors to revise their project management plans to describe

what actions they were taking to minimize opportunities for contractor fraud; and 

FTA stated that each sponsor must implement a proactive, structured program to 

protect the Federal investment from unscrupulous contractors. 

 

10 An IPSIG is an independent firm with legal, auditing, and investigative skills, employed by an organization to 

ensure compliance with relevant laws and regulations and to prevent, uncover, and report unethical and illegal 

conduct.
14

When we inquired whether FTA would apply similar fraud and contractor 

integrity requirements to the ARC's project management plan, FTA Region II staff 

told us no—that this was not the normal approach, and the Lower Manhattan

Recovery Project sponsors were required to have a fraud section because the 

projects were 100 percent federally funded. In our opinion, ARC should be 

required to meet the same standards that FTA placed on the Lower Manhattan 

Recovery Projects because of the similarity in the overall Federal funding 

provided, project complexity, and the potential fraud environment in New York 

and New Jersey. In addition, the Office of Management and Budget's (OMB)

ARRA implementation guidance directed agencies to be aggressive in mitigating 

instances of fraud, waste, and abuse on projects receiving ARRA funding, such as

ARC. Enhancing the project management plan to include documentation of a 

robust fraud program would be consistent with OMB’s guidance.

Use of Integrity Monitors To Help Combat Fraud Was Rejected

In a July 2006 testimony on lessons learned from large transportation projects,11

IPSIGs can be valuable in serving as the “eyes and ears” of management on the 

ground by helping to oversee what happens in real time, from procurement 

through completion of the various stages of construction. Moreover, IPSIGs can 

provide immediate feedback on corrective actions to address problems related to 

internal control weaknesses, contractor integrity and ethics, conflicts of interest, 

infiltration of organized crime, or deviation from standard procedures or 

regulatory guidelines. IPSIGs can also add value when they report their findings 

to an independent oversight entity experienced in fraud investigations, such as an 

agency's inspector general. The impact of the preventive measures employed by 

IPSIGs cannot be readily quantified, but deterring fraudulent behavior allows a 

project to be completed with fewer unnecessary and costly distractions.

we reported on the value of hiring integrity monitors, also known as IPSIGs, on 

major projects in geographic areas where the risk of fraud is high—as is the case 

in New York and New Jersey. Despite the benefits and widespread use of 

integrity monitors in New York and New Jersey, in September 2009, NJT officials 

informed us they were not using an IPSIG on ARC. Based on our years of 

monitoring major construction projects in the region, we believe NJT should 

reconsider its decision.

Other FTA sponsors have used IPSIGs in conjunction with their inspectors 

general, and stepped up their counter-fraud efforts in recent years. For example, 

MTA—another large FTA sponsor in New York, with a capital budget of nearly 

 

11 OIG Testimony Number CC-2006-056, “Lower Manhattan Reconstruction: Lessons Learned from Large 

Transportation Projects,” July 13, 2006. OIG reports and testimonies are available on our website: 

www.oig.dot.gov.
15

$28 billion—has recognized the serious risks posed by fraud on transportation 

projects in the region. MTA uses IPSIGs on some of its larger projects, including 

those receiving ARRA funding, and MTA officials have publicly touted the 

benefits of this approach to enhancing in-house oversight capabilities.

CONCLUSION

The ultimate success of ARC in meeting cost and schedule targets will depend, to 

a large degree, on FTA's ability to ensure that NJT takes effective and timely risk 

mitigation actions for the duration of this complex project. FTA's decision to 

award an early systems work agreement may keep the project within budget and 

on schedule but is not without significant risk. The fact that project construction 

was allowed to begin before NJT satisfactorily addressed the concerns FTA and its 

oversight contractors previously raised underscores the need for FTA to continue 

providing an enhanced level of oversight. While FTA has taken proactive steps to 

increase its oversight of ARC—as evidenced by requiring a project execution plan

and developing a roadmap for NJT to follow in order to receive a full funding 

grant agreement—more action is needed to complete oversight documents and 

implement fraud controls that are designed to protect the significant Federal 

investment, including the ARRA funds that ARC received. The President and 

Congress have called for unprecedented levels of accountability and transparency 

in the ARRA program. Accordingly, we are making a series of recommendations 

to advance FTA's efforts to have a full complement of oversight tools to hold NJT 

accountable for carrying out a high degree of risk mitigation and for exhibiting 

sound management practices.

RECOMMENDATIONS 

We recommend that the Federal Transit Administrator identify FTA's planned 

actions to:

1. Work with NJT to promptly finalize the project management plan, project 

execution sub-plans, and financial plan;

2. Ensure that NJT continues to coordinate with other stakeholders to address the 

watch list risk items in a timely and effective manner;

3. Obtain amended project agreements between NJT and the Port Authority and 

the Turnpike Authority regarding distribution of responsibilities for any future 

cost overruns;

4. Work with NJT to update the project's master schedule and ensure it ties 

together the work of all contracts;
16

5. In light of new ARRA oversight requirements, include a fraud and contractor 

integrity chapter in the project management plan and assess whether NJT has 

adequate management controls in place to prevent fraud, waste, and abuse on 

ARC; and

6. Issue written guidance on developing a project execution plan for major New 

Starts projects, including all of the required elements.

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE

We provided a draft of this report to FTA for review and comments on March 17, 

2010. FTA provided us its formal comments on May 3, 2010, and technical 

clarifications on April 20, 2010, which we incorporated, as appropriate. FTA’s 

complete comments are included as the appendix to this report. 

FTA’s comments expressed concern that some of the draft report's conclusions did 

not clearly recognize risk factors that FTA had previously identified or that FTA

has repeatedly advised NJT that fulfillment of project requirements and procedures 

are necessary before executing an ARC full funding grant agreement. FTA also 

stated that the award of the early systems work agreement was in accordance with 

authorized statute and is a legitimate part of project development within the New 

Starts process. For example, FTA noted that its decision to grant the early systems 

work agreement to NJT was made in part to avoid delays and higher costs, even 

though the completed project execution plan and sub-plans were not delivered. In 

addition, FTA commented that it has provided appropriate guidance and 

assistance, via meetings, letters and emails, to NJT, and is convinced that any 

delays in receiving finalized documents are due to a combination of project 

complexity; grantee inexperience; and, at times, NJT's unwillingness to develop 

policies and procedures consistent with FTA’s programmatic requirements. 

We believe that our report presented an accurate assessment of ARC’s status. In 

response to FTA's comments, we revised the report, as appropriate, to further 

emphasize FTA's efforts to provide proactive oversight of ARC and to note that 

NJT has not provided acceptable documents to FTA. Further, we do not challenge 

the legal basis of the early systems work agreement, nor do we question the 

appropriateness of using this statutory provision to help keep the project within 

budget and on schedule. However, we continue to believe that the decision to 

award the early systems work agreement and to allow NJT to incur significant 

Federal costs—while NJT has not complied with full funding grant agreement 

requirements—has risks associated with it. Specifically, FTA's oversight toolbox 

does not contain the fully developed project management plan and finalized 

project execution sub-plans tools, even though construction is proceeding.
17

FTA concurred with five of our recommendations and partially concurred with the 

sixth. FTA stated that it has taken or is planning to take the following actions on 

specific recommendations.

Recommendation 1: Concur. FTA commented that it has emphasized that the 

ARC project will not be considered for a full funding grant agreement unless all 

required plans are completed to FTA’s satisfaction. FTA will continue to work 

with NJT to develop the project management plan, project execution sub-plans, 

and a financial plan. FTA emphasized that development of these plans is the sole 

responsibility of NJT and the prompt completion of these plans will depend on 

actions taken by NJT. FTA stated that it would provide a comprehensive and 

expeditious review of the plans developed by NJT and offer feedback and 

recommendations for improvements as needed. FTA expects to receive all of the 

required information from NJT in the 3rd Quarter of fiscal year 2010.

OIG Response: We consider the actions planned by FTA to be responsive to the 

recommendation and acceptable. However, the recommendation will remain open 

until FTA provides us with the information it receives from NJT so we can review 

it to ensure FTA's actions were fully responsive to our recommendation.

Recommendation 2: Concur. FTA commented that the timely completion of 

watch list items is critical to ensuring that the ARC project remains within budget 

and on schedule, and that timeliness is largely contingent on NJT taking prompt, 

effective, and constructive action. FTA stated that it will continue to monitor 

NJT’s actions and provide oversight to ensure that NJT is adequately 

accomplishing this coordination.

OIG Response: We agree with the actions FTA has taken and plans to take to 

continue its monitoring of the watch list items. These actions meet the intent of 

the recommendation and are sufficient to close it.

Recommendation 3: Concur. FTA commented that NJT has verbally informed 

FTA that NJT, not the Port Authority or the Turnpike Authority, will be 

responsible for cost overruns or delays in the receipt of Federal funds during 

construction. FTA believes that amended project agreements are not expected to 

be necessary. According to FTA, NJT has been informed that when it submits a 

revised financial plan in support of the full funding grant agreement, it must 

include adequate details on how NJT plans to cover cost overruns and/or delays in 

the receipt of Federal funds, should they occur, and that if there is any need to rely 

on funding from other parties, any necessary supporting agreements to that effect 

must be included with the plan. 
18

OIG Response: We agree with the actions FTA is taking and plans to take to 

address the intent of our recommendation. However, the recommendation will 

remain open until FTA provides us with NJT's financial plan to ensure that FTA's

actions were fully responsive to our recommendation.

Recommendation 4: Concur. FTA reiterated that NJT must submit a master 

schedule, and FTA will use this schedule in its deliberations with NJT as it 

negotiates a full funding grant agreement. FTA reiterated that NJT is responsible 

for developing the master schedule. 

OIG Response: We agree with the actions FTA is taking and plans to take to 

address the intent of our recommendation. However, the recommendation will 

remain open until FTA submits NJT's approved master schedule for us to review 

to ensure the actions taken were fully responsive to our recommendation.

Recommendation 5: Concur. FTA agreed that the size and complexity of the 

ARC project requires additional efforts to prevent fraud, waste, and abuse. FTA 

will require that the ARC project management plan, and all mega-projects, include 

provisions to account for fraud and contractor integrity regardless of whether the 

projects receive ARRA funding. In other comments, FTA agreed that project 

sponsors of ARC and other mega-projects should consider using IPSIGs. FTA 

stated that, while it does not have the legal authority to require NJT to utilize an 

IPSIG, FTA will recommend that NJT use an IPSIG on ARC.

OIG Response: We agree with the actions FTA plans to take to address the intent 

of our recommendation. However, we request that FTA provide us with a revised 

ARC project management plan that contains fraud and contractor integrity

provisions and a copy of its recommendation to NJT to use an IPSIG. Our

recommendation will remain open until FTA submits this documentation for us to 

review to ensure that the actions taken were fully responsive to our

recommendation. 

Recommendation 6: Concur, in part. FTA recognized the importance of its 

project development requirements, as well as the documentation necessary to 

fulfill these requirements. According to FTA, there are lessons learned from the 

ARC project development process that FTA intends to build into proposed project 

management requirements. FTA also stated that it is proceeding with the 

development of a Notice of Proposed Rulemaking on Project Management (49 

C.F.R. Part 633) that will capture lessons learned from the ARC project and other 

capital projects. During the course of this effort, FTA will be seeking to identify 

whether there are tools that could enable it to further enhance both grantee project 

management and FTA’s oversight processes, especially for mega-projects. FTA 

responded that it is looking at how to best incorporate some of the tools that are in 
19

the ARC project execution plan into standard processes and will subsequently 

develop any necessary guidance. 

OIG Response: We recognize that the ARC is unique due to its technical 

complexity and the amount of funds invested, but we continue to believe that a 

more formalized guidance document would have assisted NJT in developing 

acceptable project documents. We agree with the actions FTA plans to take to 

address the intent of our recommendation. Based on FTA’s comments, we 

consider these actions as meeting the intent of the recommendation and sufficient 

to close it.

ACTION REQUIRED

In accordance with Department of Transportation Order 8000.1C, we request that 

FTA provide us with target action dates for submitting supplemental 

documentation for recommendations 1, 3, 4, and 5 within 30 calendar days of the 

date of this report. 

We appreciate the courtesies and cooperation of FTA representatives during this 

audit. If you have any questions concerning this report, please call me at 

(202) 366-5630 or Thomas Yatsco, Program Director, at (202) 366-1302. 

#
20

Exhibit A. Objective, Scope, and Methodology

EXHIBIT A. OBJECTIVE, SCOPE, AND METHODOLOGY

Our objective was to evaluate FTA’s oversight. Specifically, we (1) determined 

whether project risks were identified and strategies were implemented to mitigate 

the risks; (2) identified any challenges faced in ensuring sufficient funding; 

and (3) assessed NJT’s controls for combating fraud, waste, and abuse. We 

evaluated FTA’s oversight of ARC, based on the OIG Framework for Evaluating 

FTA’s Oversight of Major Transit Projects. The key components of this 

framework evaluated whether: 

• baseline cost and schedule estimates are realistic; 

• the Federal share of the funding is available and whether reliable local 

funding source(s) exist to cover the non-Federal share of project costs; 

• the project has a clear, transparent, organizational structure and the project 

sponsor is exhibiting sound project management practices; 

• disagreements about project design and alignment have been resolved and

any needed third party agreements have been reached or negotiations are 

progressing in a productive manner; 

• the project meets the New Starts evaluation criteria and FTA guidance and 

requirements for federally funded projects; 

• project management oversight contractors and financial management 

oversight contractors have conducted comprehensive, independent reviews 

of the project in accordance with FTA’s guidance and requirements; and

• FTA and the project sponsor have agreed to mitigation strategies to address 

key project risks identified by FTA’s oversight contractors. 

We reviewed FTA documents and New Starts criteria related to ARC’s oversight. 

Also, we reviewed FTA’s budgets and staffing levels and a FTA Headquarters 

workforce assessment. We reviewed the PMOC monthly reports; FMOC 

assessments; FTA’s grant agreements and amendments; NJT’s ARRA and early 

systems work agreement applications; and ARC’s project execution plan, project 

management plan, and Risk Register. These documents highlight the costs, 

funding, and schedule status of ARC and provide an update on the risks related to 

the project. 

We conducted interviews with officials from FTA’s Headquarters and Region II 

offices, NJT, and key stakeholders, including the Port Authority and Amtrak. Our 

audit was conducted at FTA Region II in New York, New York, and NJT in 
21

Exhibit A. Objective, Scope, and Methodology

Newark, New Jersey. Team members were continuously alert to current events 

impacting ARC as reported by local media and for indications of fraud, waste, and

abuse.

OIG engineers assisted in the evaluation of FTA’s oversight of ARC. They 

reviewed PMOC products, evaluated the risk mitigation plans developed by NJT, 

and reviewed the project’s cost and schedule estimates. 

In addition, within the context of the audit objective, the Government 

Accountability Office Government Auditing Standards for internal controls

requires auditors to assess whether internal controls have been properly designed 

and implemented by the organization for the purpose of protecting its resources 

against waste, fraud, and inefficiency.

We conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform 

the audit to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. The audit was conducted between January 2009 

and March 2010.
22

Exhibit B. Timeline of ARC’s Progress in FTA’s New Starts Process

EXHIBIT B. TIMELINE OF ARC'S PROGRESS IN FTA'S NEW 

STARTS PROCESS

Selected Locally 

Preferred Alternative 

(LPA) March 2006

Entered Preliminary 

Engineering (PE)

August 2006

Construction began on 

Tonnelle Ave. June 

2009; In November 

2009, cost proposals 

for the Manhattan 

Tunnels Design/Build 

contract were due and 

were opened.

Early systems work 

agreement

August 2009

Latest draft 

financial plan 

December 2008

Record of Decision 

(ROD) 

January 2009

Entered final design 

(FD) January 2009

Latest schedule 

based on 

January 2008 data
23

Exhibit C. Contributors to This Report

EXHIBIT C. CONTRIBUTORS TO THIS REPORT

Thomas Yatsco Program Director

Name Title

George Lavanco Project Manager

Regan Maund Senior Analyst 

Joseph Tschurilow Auditor

Rosa Scalice Auditor

Michael Dzandza Auditor

Rodolfo Pérez Engineer Advisor

Anne-Marie Joseph Senior Engineer

Aron Wedekind Engineer

Harriet Lambert Writer-Editor
24

Appendix. Agency Comments

APPENDIX. AGENCY COMMENTS

Memorandum

U.S. Department

of Transportation

Federal Transit

Administration

Subject: ACTION: FTA Management Response to Office of 

Inspector General (OIG) Draft Report, "Actions Needed 

to Increase FTA's Oversight and Mitigate Risks 

Associated with the Access to the Region's Core 

Project."

Date: May 03 2010

From: Peter Rogoff, Administrator

Federal Transit Administration

Reply to

Attn. of: Timothy P. Steinitz, 

202-366-3996

To: Joseph W. Comé

Assistant Inspector General 

for Surface and Maritime Program Audits

Existing Federal Transit Administration (FTA) processes are designed to ensure that all 

necessary elements are in place before a Full Funding Grant Agreement (FFGA) is approved 

or funding is provided for the Access to the Region’s Core (ARC) Project. Given the size, 

complexity, and importance of the ARC project to the economy of the New York / New 

Jersey region and the northeastern United States, FTA continues to work closely with the 

project sponsor and manager, the New Jersey Transit Corporation (NJT), to monitor the ARC 

project and to ensure that NJT meets the requirements of FTA’s New Starts and Project 

Management Oversight (PMO) programs. 

For accuracy, the OIG report needs to more clearly enumerate and acknowledge FTA’s 

existing procedures, designed to control cost and schedule, which were in place as the ARC 

project entered the New Starts pipeline. These actions are taken by FTA to ensure that project 

requirements will be fully and appropriately implemented. As currently drafted, the reader is 

led to the erroneous conclusion that pending project issues are attributable to FTA’s lack of 

appropriate controls. Rather, the issues are primarily related to how rigorously the procedures 

are being implemented by the project sponsor. In fact, FTA has repeatedly advised NJT that 

fulfillment of project requirements and procedures are necessary before a FFGA will be 

considered for the ARC project. The draft report needs to clarify that core project 

management and cost control processes are clearly established within the parameters of the 

New Starts program. Moreover, the OIG should clarify that the issues identified in the report 

have come to light as a result of FTA applying its procedures and sharing that information 

with the OIG. 
25

Appendix. Agency Comments

 

FTA’s New Starts program is one of the largest discretionary programs in the Federal 

government and is subject to very strict statutory requirements that are reflected in detailed 

rules and guidance. In addition, this program receives a high level of oversight by program 

and subject matter experts. FTA is following clear steps and specific requirements for 

projects in the New Starts program to progress from stage to stage of the project development 

process. One of the benefits of the final design stage in the process is to allow the project to 

finalize appropriate project management documents suitable to the nature and scale of the 

project. FTA will ensure that such documents are in place by the time the FFGA is executed. 

The draft report is also inaccurate in its assessment that granting an Early Systems Work 

Agreement (ESWA) “removes any incentive for NJT to address FTA’s concerns” regarding 

the lack of a risk management sub-plan, and that this decision “potentially jeopardized” the 

project’s costs and schedules. Moreover, the draft report is also inaccurate in stating that FTA 

is “fast-tracking the ARC project outside the prescribed New Starts process.” First, the use of 

an ESWA is authorized in statute under the New Starts program, and is a legitimate part of 

project development within the New Starts process. It is a useful New Starts tool that is 

deployed only when needed to help projects maintain cost and schedule, including when there 

is a potential for issuing an FFGA. Second, because NJT is using design/build contracts, not 

granting an ESWA would definitely have jeopardized the ability of NJT to keep the project on 

schedule and within budget. The OIG says as much on page 6 of the draft report, stating that 

FTA’s decision to award an ESWA was made “in part to avoid project delays and higher 

costs.” FTA’s decision to grant an ESWA to NJT was based on that certainty, even though 

the completed Project Execution Plan (PEP) and sub-plans were not yet delivered. Third, 

significant incentive remains to develop the necessary project management tools, as an FFGA 

will only be issued with their satisfactory completion. Before being awarded an FFGA, NJT 

and FTA will complete an updated risk assessment to help define the cost and schedule for the 

project. FTA will assure that potential project risks, such as NJT’s ability to access 

committed funds, are identified up front and that NJT takes action to mitigate these risks. In 

summary, the ESWA was a necessary interim step intended to make long-term management 

and completion of the ARC project more efficient and less costly.

In accordance with its existing statutory and programmatic requirements and structure, FTA 

has ensured that appropriate project review and project management oversight, including 

mechanisms to inform the grantee of potential risks related to fraud, waste and abuse, are in 

place for this project. FTA can, and does, tailor its oversight processes to fit the type and size 

of the project, as well as to accommodate the experience and background of the project 

sponsor. FTA agrees that the size, scope and complexity of the ARC project require a special 

level of oversight, as reflected in its actions to date. FTA is committed to assisting NJT as it 

completes all necessary FFGA requirements and will continue to provide comprehensive 

oversight for the ARC project.

FTA recognizes that the project’s success will depend on strong and effective oversight by the 

FTA, but just as importantly, a positive, proactive, and constructive approach to project 

management by NJT. 
26

Appendix. Agency Comments

FTA Continues to Work Closely with NJT to Ensure Required Documents are 

Completed

FTA recognizes the importance of its project development requirements, as well as the 

documentation necessary to fulfill these requirements, and has been working to ensure that 

these requirements are fulfilled with regard to the ARC project prior to the award of an FFGA. 

The OIG draft report lends support to FTA’s efforts with regard to the need for NJT to 

provide FTA with fully developed project documents for the ARC project. Up to this point, 

NJT has failed to provide fully developed project documents to FTA in their initial and 

follow-on submittals. While it is useful to have a number of these submittals completed as 

early as possible, the deadline for completing many of these documents is tied to the award of 

the FFGA. To aid NJT’s efforts and to eliminate potential ambiguity, last October FTA 

provided NJT with a document checklist (or roadmap) of all the actions that need to be 

completed prior to the FFGA. This roadmap is updated periodically, with the latest update on 

March 10, 2010. The FTA Administrator and the Secretary recently used this checklist in 

discussions with the New Jersey Governor as a means of fully informing the Governor of the 

actions necessary for the project to proceed. FTA has provided appropriate guidance and 

assistance, via meetings, letters and email, to the grantee and is convinced that any delays in 

receiving finalized documents are due to a combination of project complexity, grantee 

inexperience and sometimes an unwillingness to develop policies and procedures consistent 

with FTA’s programmatic requirements. 

It is for these reasons that FTA disagrees with the OIG’s conclusion that FTA did not provide 

NJT adequate guidance in developing PEP sub-plans. FTA believes the issue lies with the 

grantee’s timely response to such guidance. FTA remains committed to providing assistance 

and guidance to NJT within the “go/no-go” project threshold and that programmatic 

requirements be fulfilled prior to awarding an FFGA to the ARC project. Finally, FTA is 

working to ensure that NJT completes a detailed baseline project schedule (tied to individual 

contract schedules) and a schedule management plan prior to awarding the FFGA. These 

actions are required as part of the roadmap and FTA agrees that completing these documents 

will be critical to assessing the project’s progress. In addition, schedule adherence will 

remain a key element of each quarterly review meeting as the project progresses.

There are lessons learned from the ARC project development process that FTA intends to 

build into proposed project management requirements. FTA is proceeding with the 

development of a Notice of Proposed Rulemaking on Project Management (49 CFR Part 633) 

that will capture lessons learned from the ARC project and other capital projects. During the 

course of this effort, FTA will be seeking to identify whether there are tools that could enable 

it to further enhance both grantee project management and FTA’s oversight tools and 

processes, especially for mega-projects (projects with capital costs over $1 billion) such as 

ARC. Although not specifically discussed in the Advanced Notice of Proposed Rulemaking, 

FTA is looking at how to best incorporate some of the tools that are in the ARC project PEP 

into standard processes and will subsequently develop any necessary guidance supporting 

these enhanced tools and processes that are included in the final rule. 

FTA will Conduct a Financial Capacity Assessment of ARC before Awarding an FFGA
27

Appendix. Agency Comments

It was FTA that identified the funding issues that are mentioned in the OIG draft report. NJT, 

through the roadmap, is well aware that it must develop a revised financial plan so that FTA 

can conduct an updated Financial Capacity Assessment before the ARC project will be 

considered for an FFGA. The draft report notes that FTA delayed performing reviews of the 

availability of the Port Authority of New York / New Jersey’s (Port Authority) and Turnpike 

Authority’s funding sources due to economic uncertainty in general and the bond markets in 

particular and admonishes that this review must be done. We agree as to the necessity of this 

review; however, quickly changing market conditions would render an early examination by 

FTA of these sources obsolete prior to a decision on the FFGA. FTA will perform this review 

at the point in the project sequence when it is appropriate and meaningful.

FTA has a strict process for conducting these financial assessments. While FTA awarded an 

ESWA to NJT without completing a new examination of the availability of Port Authority 

funds, the financial risk resides with NJT, which would be required to reimburse FTA should 

an FFGA for the ARC project not be awarded. Furthermore, as mentioned above, in February 

2010, the FTA Administrator and the Secretary spoke with New Jersey’s new Governor about 

the Department’s concerns regarding funding, the potential for cost overruns on this project,

and how any overruns would be funded. These concerns were reinforced in a March 26, 2010 

letter to the Governor. The Governor reiterated New Jersey’s commitment to the project in a 

letter dated April 7, 2010. Similar concerns were also expressed in a March 29, 2010 letter to 

the Port Authority. The Port Authority confirmed its commitment to the project in an 

attachment to the Governor’s April 7, 2010 letter to FTA.

The report also raises a concern about whether the unavailability of contingent commitment 

authority beyond Fiscal Year (FY) 2010 could delay the project. Whether this exception to 

the normal limits on commitment authority may extend into FY 2011, or beyond, will depend 

on the terms of future legislation – both an FY 2011 appropriations bill and the eventual 

legislation to extend or amend the authorization statute. Since the Federal New Starts share 

for this project is capped at $3 billion, halting the project because of the uncertainty with 

commitment authority could result in cost escalation, which would need to be borne by local 

taxpayers since any increase in cost must be paid for from higher local contributions. 

FTA Conducts Extensive Activity to Prevent Fraud, Waste and Abuse

FTA has strong and comprehensive processes in place to prevent fraud, waste and abuse on all 

projects receiving FTA funding, including those funded by the Recovery Act. FTA makes 

constructive use of all opportunities to reinforce its commitment to address these issues, both 

in writing and verbally. For example, FTA provides training opportunities for contractors and 

grantees to be aware of potential fraud. This topic is also addressed as a component of all 

agency grant reviews, Triennial Reviews, Project Management Oversight Contractor (PMOC) 

reviews and general financial audits.
28

Appendix. Agency Comments

As the OIG indicated in its recent report on Recovery Act Implementation,12 FTA is making 

efforts to combat fraud in Recovery Act funding. FTA is continuing this effort and invites 

representatives from the OIG to make presentations on ways to recognize and mitigate fraud, 

waste and abuse at all FTA-sponsored oversight conferences and workshops. These 

workshops are regularly attended by FTA staff, contractors and grantees.

FTA shares the OIG’s concerns about the lack of specific measures in place to monitor the 

ARC project’s efforts to prevent fraud and abuse. However, this concern arises not primarily 

because the ARC project includes Recovery Act funds, but because of the large Federal 

investment in this project. In July 2009, following a series of discussions between the FTA 

Administrator and former New Jersey Governor Jon Corzine, FTA transmitted an email to the 

Governor and the New Jersey comptroller commenting on a proposed Executive Order (EO) 

from the Governor which would provide for greater monitoring of the ARC project. FTA 

shared this draft EO with OIG, which recommended changes to the text of the EO and 

commented that no role was specifically identified for New Jersey’s OIG as part of this 

process. However, the OIG stated that while this was a matter of concern, it was a “state 

matter.” FTA forwarded recommended changes in the EO language, along with its own 

comments, which the Governor incorporated into the final EO.

While this draft report identifies utilizing an independent private-sector inspector general 

(IPSIG) as a best practice for projects receiving large amounts of Federal funding, this 

approach is not standard practice for New Starts projects. The OIG did note that the Fulton 

Street Transit Center project in Lower Manhattan did utilize an IPSIG and FTA agrees that 

this project and other mega-projects do require considerations for IPSIGs. While FTA does 

not have the legal authority to require NJT to utilize an IPSIG, as this is the State’s decision, 

FTA can, and will, recommend that NJT use an IPSIG for the ARC project.

In addition, while fraud and contractor integrity are covered collectively by FTA’s current rule 

on project management oversight (Part 633.25 (a) through (j)), FTA is currently updating this 

regulation and will include a specific provision on waste, fraud and abuse for all megaprojects seeking Federal funding. In the meantime, FTA agrees that the size and complexity 

of the ARC project, and other mega-projects, require that such measures be identified and will 

require that the project management plan (PMP) for the ARC project and other mega-projects 

include provisions to account for fraud and contractor integrity.

RECOMMENDATIONS AND RESPONSES

Recommendation 1: Work with NJ Transit to promptly finalize the PMP, PEP sub-plans, 

and financial plan.

Response: Concur. FTA emphasizes that the ARC project will not be considered for an 

FFGA unless all required plans are completed to FTA’s satisfaction. FTA will use the 

roadmap and continue to work with NJT to develop the PMP, PEP sub-plans and financial 

 

12 “DOT’s Implementation of the American Recovery and Reinvestment Act: Continued Management 

Attention is needed to Address Oversight Vulnerabilities,” MH-2010-024, November 30, 2009.
29

Appendix. Agency Comments

plan. FTA emphasizes that development of these plans is the sole responsibility of NJT. As a 

result, the prompt completion of these plans will depend on actions taken by NJT. FTA will 

provide a comprehensive and expeditious review of the plans developed by NJT and offer 

feedback and recommendations for improvements as needed. FTA expects to receive all of 

the required information from NJT in the 3rd Quarter of FY 2010.

Recommendation 2: Continue coordinating with other stakeholders to ensure timely 

completion of watch list items.

FTA Response: Concur. While timely completion of watch list items is critical to ensuring 

the ARC project remains within budget and on schedule, FTA again must emphasize that 

project management is the sole responsibility of the project sponsor (NJT) and that timeliness 

is largely contingent on NJT taking prompt, effective and constructive action. FTA will 

continue to monitor NJT’s actions and provide oversight and assistance to ensure that NJT is 

adequately accomplishing this coordination.

Recommendation 3: Obtain amended project agreements between NJT and the Port 

Authority and the Turnpike Authority regarding distribution of responsibilities for any future 

cost overruns.

FTA Response: Concur. NJT has verbally informed FTA that it, not the Port Authority or 

the Turnpike Authority, will be responsible for cost overruns or delays in the receipt of 

Federal funds during construction. Hence, amended project agreements are not expected to be 

necessary. NJT has been informed, however, that when it submits a revised financial plan in 

support of the FFGA request, it must include adequate details on how NJT plans to cover cost 

overruns and/or delays in the receipt of Federal funds, should they occur, and that if there is 

any need to rely on funding from other parties, any necessary supporting agreements to that 

effect must be included with the plan. This is in keeping with FTA’s normal practice for New 

Starts projects.

Recommendation 4: Work with NJT to update the project’s master schedule and ensure it 

ties together the work of all contracts.

FTA Response: Concur. FTA reiterates that NJT must submit a master schedule, and FTA 

will use this schedule in its deliberations with NJT as the proper cost and schedule to be 

included in the FFGA. As project sponsor, NJT is responsible for developing the master 

schedule, not FTA. While FTA will provide comprehensive and expeditious review of project 

planning documents from NJT, the project sponsor is responsible for completing and updating 

the master schedule.

Recommendation 5: In light of new Recovery Act oversight requirements, include a fraud 

and contractor integrity chapter in the PMP to assess whether NJT has adequate management 

controls in place to prevent fraud, waste, and abuse on ARC.

FTA Response: Concur. While fraud and contractor integrity are covered collectively by 

FTA’s current rule on project management oversight (Part 633.25 (a) through (j)), FTA agrees 

that the size and complexity of the ARC project requires additional efforts to monitor the 
30

Appendix. Agency Comments

project for potential fraud and abuse. FTA will require that the PMP for the ARC project, and 

all mega-projects, include provisions to account for fraud and contractor integrity regardless 

of whether or not the projects receive Recovery Act funding.

Recommendation 6: Issue written guidance on developing project execution plans for New 

Starts projects, including all of the required elements.

FTA Response: Concur, in part. As discussed above, FTA is considering the essential 

elements of PEPs and other project management strategies in its project management 

rulemaking currently underway (49 CFR Part 633, Project Management Oversight). FTA will 

pay special attention to specific needs applicable to mega-projects. While FTA will continue 

to provide technical assistance and guidance to NJT, it does not believe that standard written 

guidance will adequately address the unique needs and concerns applicable to individual New 

Starts projects.

* * * * *

Thank you for the opportunity to comment on the draft report. In addition to the comments 

above, FTA is attaching a number of technical edits and specific comments for the OIG’s 

consideration in finalizing its report. Please contact me at (202) 366-4040 with any questions 

or if we may be of further assistance.