FEDERAL-AID 

HIGHWAYS

Improved Guidance 

Could Enhance States’ 

Use of Life-Cycle Cost 

Analysis in Pavement 

Selection

Report to Congressional Committees

June 2013

GAO-13-544

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-544, a report to 

congressional committees

June 2013

FEDERAL-AID HIGHWAYS

Improved Guidance Could Enhance States’ Use of 

Life-Cycle Cost Analysis in Pavement Selection 

Why GAO Did This Study

LCCA provides state transportation 

agencies with a tool to evaluate and 

select the most cost-effective type of 

pavement, one of the major cost 

components of many highway projects. 

Given the high demand for federal 

highway funding, the federal 

government has an acute interest in 

helping states use LCCA to make costeffective decisions when investing 

federal-aid highway funds. Accordingly, 

it is important that FHWA’s guidance 

on LCCA aligns with best practices. 

The Moving Ahead for Progress in the 

21st

GAO reviewed states’ LCCA practices 

and interviewed officials from 16 states 

(visiting 4), selected to provide 

information on a wide range of LCCA 

approaches and a wide geographical 

distribution. Information gathered from 

these states is not generalizable to all 

states. GAO also interviewed FHWA 

officials. GAO assessed the extent to 

which FHWA’s LCCA guidance, 

including software and documentation, 

conforms to best practices.

Century Act directed GAO to 

review LCCA best practices. GAO (1) 

described how state transportation 

agencies conduct and use LCCA and 

(2) assessed the extent to which 

FHWA’s LCCA guidance conforms to 

the GAO Cost Guide’s cost-estimating

best practices.

What GAO Recommends

To better ensure federal-aid highway 

funds are invested effectively, FHWA 

should update LCCA guidance to fully

incorporate the Cost Guide’s best 

practices. The Department of 

Transportation agreed to consider this 

recommendation and provided 

technical comments that were 

incorporated as appropriate.

What GAO Found

Thirteen of the 16 state transportation agencies GAO contacted used Life-Cycle 

Cost Analysis (LCCA) to select the pavement type (e.g., asphalt or concrete) for 

certain road construction and rehabilitation projects. Officials in all 13 states 

indicated that LCCA helped ensure that the agency selected the pavement that 

was most cost-effective over the long term, but states’ specific LCCA practices 

varied. In general, these states used LCCA for larger projects, but each state had 

unique criteria to determine which projects should be subject to an LCCA. 

Likewise, the broad categories of LCCA inputs—such as agency costs, timing of 

future road work, and discount rate—are similar, but state transportation 

agencies handled each of these inputs in different ways. For example, estimates

of when future roadwork would occur for a particular pavement type were based 

on state-specific factors, such as past experience with pavements and climate. 

Furthermore, state agencies used different criteria to decide if LCCA results 

clearly indicated a pavement type with the lowest life-cycle cost. In 9 of the 13 

states that used LCCA, the Federal Highway Administration’s (FHWA) LCCA 

guidance was an important influence on state practices, according to state 

transportation officials, and 7 states used LCCA software developed by FHWA.

FHWA’s LCCA guidance largely aligns with the GAO Cost Guide’s best practices 

for two of the four phases of the cost-estimating process and partially aligns with 

two other phases. FHWA’s guidance in the Initiation phase, which includes initial 

planning steps, aligns with best practices overall. Agency guidance covers about 

half of the best practices of the Assessment phase, but does not, for example, 

discuss the use of independent cost estimates for comparison and cross checks, 

an important quality step to ensure the estimate’s credibility. In the Analysis

phase, FHWA’s guidance does a good job explaining how to address the 

variability inherent in cost estimation, but could better address how LCCA should 

be documented for subsequent review. Lastly, in the Presentation phase, 

FHWA’s guidance does not include sufficient information on how to present 

LCCA results to management for decision-making and on when an LCCA should 

be updated. By better incorporating best practices in the guidance, FHWA could 

help states produce credible and accurate cost estimates and make more costeffective federal-aid highway fund investment decisions. 

Federal Highway Administration’s Guidance Compared to GAO Cost Guide’s Best 

Practices

View GAO-13-544. For more information, 

contact James R. McTigue, Jr., at 

(202) 512-2834 or McTigueJ@gao.gov. 
Page i GAO-13-544 Federal Aid Highways

Letter 1 

Background 4

States’ Life-Cycle Cost Analysis Practices Vary, Though They Are 

Often Informed by FHWA Guidance 9

FHWA LCCA Guidance Aligns with About Half of the CostEstimating Best Practices 15

Conclusions 23

Recommendation 24

Agency Comments 24

Appendix I Objectives, Scope, and Methodology 25

Appendix II GAO Contact and Staff Acknowledgments 29

Tables

Table 1: Federal Highway Administration (FHWA) Guidance and 

Assistance Available to States on Life-Cycle Cost Analysis 

(LCCA), 1998-Present 7

Table 2: GAO’s Cost-Estimating Process Best Practices 8

Table 3: Key Inputs for Conducting Life-Cycle Cost Analysis 

(LCCA) and GAO’s Summary of Selected State Practices 12

Figure

Figure 1: Summary of GAO’s Assessment of Federal Highway 

Administration Life-Cycle Cost Analysis Guidance 16

Contents 
Page ii GAO-13-544 Federal Aid Highways

Abbreviations 

AASHTO American Association of State Highway 

Transportation Officials 

ASCE American Society of Civil Engineers

FHWA Federal Highway Administration

LCCA Life-Cycle Cost Analysis 

OMB Office of Management and Budget 

TRB Transportation Research Board 

This is a work of the U.S. government and is not subject to copyright protection in the 

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without further permission from GAO. However, because this work may contain 

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necessary if you wish to reproduce this material separately.
Page 1 GAO-13-544 Federal Aid Highways

441 G St. N.W.

Washington, DC 20548

June 12, 2013 

The Honorable Barbara Boxer

Chairman

The Honorable David Vitter

Ranking Member

Committee on Environment and Public Works

United States Senate

The Honorable Lamar Smith

Chairman

The Honorable Eddie Bernice Johnson

Ranking Member

Committee on Science, Space, and Technology

House of Representatives

The Honorable Bill Shuster

Chairman

The Honorable Nick J. Rahall, II

Ranking Member

Committee on Transportation and Infrastructure

House of Representatives 

Billions of federal-aid highway dollars are obligated each year for projects 

in states for the construction and rehabilitation of road pavements. There 

are multiple pavement types and designs that can be used to construct or 

rehabilitate roads, and selecting the appropriate material and design to 

meet a specific road’s performance needs is a highly technical 

engineering task.1

 

1

GAO, Information on Materials and Practices for Improving Highway Pavement 

Performance, 

Pavement types, for example, include many 

combinations of asphalt, concrete, and advanced material alternatives. 

Through the federal-aid highway program, administered by the Federal 

Highway Administration (FHWA), the federal government provides about 

$40 billion in funding to state transportation programs each year. Thus, 

the federal government has a significant interest in helping state 

transportation agencies make informed and prudent pavement-type 

selection decisions, particularly as states face limited transportation 

funding, both from federal and state sources, and many are struggling to 

meet road-building and maintenance needs. Though federal-aid highway 

GAO-13-32R (Washington, D.C.: November 2012).

 
 

Page 2 GAO-13-544 Federal Aid Highways

funds are used by states for a wide range of project types—such as 

bridge building and repair, road maintenance, and safety projects—that 

do not involve large amounts of pavement, major road construction or 

reconstruction projects can include costly pavement components. As the 

interstate highway system ages, there is potential that these types of 

major projects may become more frequent. Life-Cycle Cost Analysis 

(LCCA) is an important economic tool to evaluate and help select the 

pavement-type for a particular project that will minimize costs over the 

long term, rather than just minimizing initial construction costs. 

Nevertheless, state transportation agencies may not use LCCA, or may 

not conduct it well, for a variety of reasons, including limited experience 

with LCCA, historical material preferences, and data limitations. 

To facilitate the use of LCCA in pavement-type selection decisions, 

FHWA issued interim guidance in 1998 and has since provided LCCA 

software—called RealCost—that states can use to conduct LCCA, among 

other guidance and assistance. Because FHWA has a pivotal role in 

assisting states in the execution of the federal-aid highway program, it is 

important that FHWA’s guidance on LCCA aligns with best practices for 

cost estimation. Congress, FHWA, and state transportation agencies may 

benefit from a better understanding of the LCCA practices currently used 

by states and what federal actions, if any, could better support these 

practices and ensure federal transportation investments are made wisely.

We conducted this study in response to a mandate adopted in the Moving 

Ahead for Progress in the 21st Century Act, the most recent federal 

surface transportation authorization act.2 The mandate called for a GAO 

examination of LCCA best practices and recommendations on specific 

technical elements of LCCA conduct. We designed our review to identify 

any potential opportunities for FHWA to advance the state of LCCA 

practices, recognizing that there may not be one correct approach to 

addressing the technical elements of LCCA. Specifically, this report (1) 

describes how state transportation agencies currently conduct and use 

LCCA and (2) assesses the extent to which FHWA’s guidance for 

conducting LCCA conforms to best practices identified in GAO’s Cost 

Estimating and Assessment Guide (Cost Guide).3

 

2

Pub. .L. No. 112-141, § 52,003(a), 126 Stat. 405, 875 (2012), codified as positive law at 

23 U.S.C. § 503(b)(3)(D)(ii). 

The Cost Guide

consolidates best practices that federal cost-estimating organizations and 

3

GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs. GAO-09-3SP (Washington, D.C.: March 2009).
 

Page 3 GAO-13-544 Federal Aid Highways

industry use to develop and maintain reliable cost estimates throughout 

the life of a government acquisition program. These criteria are applicable 

to FHWA’s guidance because both the GAO Cost Guide and FHWA’s

guidance describe cost estimation processes for capital investment 

decision making. 

To determine how state transportation agencies conduct LCCA for 

federally funded highway projects, we visited 4 states to interview FHWA 

division office officials, state transportation agency officials, and 

representatives from the asphalt and concrete pavement industry 

associations and conducted telephone interviews with state transportation 

agency officials in 12 additional states. We selected states based on 

criteria that allowed us to gather information from state transportation 

agencies with a wide range of LCCA approaches and a wide 

geographical distribution. The results of our interviews are not 

generalizable to all states. Additionally, we reviewed states’ pavement 

selection and design manuals in the 16 selected states and reviewed 

relevant literature on LCCA from researchers, industry, and professional 

organizations. To assess FHWA’s guidance, we identified the key LCCA 

guidance provided by FHWA to state transportation agencies and 

compared the guidance to GAO’s Cost Guide best practices.4

We conducted this performance audit from August 2012 to June 2013 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 

We 

determined whether FHWA’s guidance aligns (provided complete 

evidence that satisfies the best practice), substantially aligns (provided 

evidence that satisfies a large portion of the best practice), partially aligns 

(provided evidence that satisfies about half of the best practice), 

minimally aligns (provided evidence that satisfies a small portion of the 

best practice), or does not align with these best practices (provided no 

evidence that satisfies any of the best practice). Finally, to inform all our 

objectives, we conducted interviews with appropriate FHWA officials, 

pavement industry stakeholders, and other relevant groups. See 

appendix I for more details on our scope and methodology.

 

4

We reviewed the FHWA guidance Life-Cycle Cost Analysis in Pavement Design, 

Pavement Division Interim Technical Bulletin, Publication No. FHWA-SA-98-079 

(September 1998); the most recent, publicly available, draft FHWA Life-Cycle Cost 

Analysis – RealCost User Manual v. 2.5 (October 2010); and FHWA, Life-Cycle Cost 

Analysis Primer (August 2002).
 

Page 4 GAO-13-544 Federal Aid Highways

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.

LCCA is a type of economic analysis that evaluates the long-term 

financial costs of a capital investment—such as highway construction—by 

comparing estimates of both initial cost and likely future costs of different 

investment alternatives. By considering all of the costs associated with 

each alternative over the life of the investment, as opposed to considering 

only initial investment costs, the lowest overall cost alternative can be 

determined. In brief, LCCA involves developing alternative investment 

scenarios that meet project objectives, estimating the timing and costs of 

activities associated with constructing, using, and maintaining each 

alternative over a set analysis period, and discounting future costs into 

present dollar terms. Finally, initial and discounted future costs for each 

alternative are summed and compared. Costs that are considered include 

direct costs incurred by the transportation agency (agency costs), such as 

the cost of materials, and costs that other individuals or entities may incur

due to the investment. For example, in addition to direct costs, a state 

transportation agency may chose to consider the costs of motorists being 

delayed during the construction of the different alternatives. LCCA does 

not evaluate the benefits—such as increased mobility—of different 

alternatives and, consequently, should only be used to compare 

alternatives that provide equivalent benefits. Other types of economic 

analysis may be used to compare alternatives which have differing 

benefits.5

LCCA can be applied to investments in road infrastructure because there 

are multiple pavement design and pavement-type alternatives that can 

meet the level of performance needed in road projects. Using standard 

design tools, engineers can design a road using different pavement types 

that are functionally equivalent in terms of lanes, traffic capacity, ability to 

 

 

5

GAO, Highway and Transit Investments: Options for Improving Information on Projects’ 

Benefits and Costs and Increasing Accountability for Results, GAO-05-172 (Washington, 

D.C.: January 2005). 

Background 
 

Page 5 GAO-13-544 Federal Aid Highways

handle heavy trucks, and other factors.6 For example, a new road could 

be built with a variety of asphalt or concrete designs; LCCA provides a 

method to compare the costs of a concrete or asphalt design, or the costs 

of different designs using differing types of the same material. The 

agency cost of these alternatives may vary in terms of prices for 

materials, labor, and future maintenance, rehabilitation, and 

reconstruction work. For example, the initial construction costs of a 

concrete road may be higher than an asphalt design, but may require less 

frequent maintenance and rehabilitations. Further, alternatives may 

impose different user costs upon motorists due to, for example, traveltime delays associated with initial construction and future roadwork, and, 

as noted above, these costs may also be included in LCCA.7

As part of its responsibilities to ensure federal funds are used effectively, 

FHWA encourages the use of LCCA in pavement-type selection 

decisions.

 

8

 

6

State transportation agencies often use guidance developed by the American Association 

of State Highway Transportation Officials (AASHTO) to design pavements. In 2011, 

AASHTO released a new software program (Pavement ME Design). Many states are in 

the process of evaluating this software and a few states have adopted this software for 

routine pavement design. The new software may indicate a different thickness of 

pavement material should be used that, in turn, would change the total cost of materials 

for that design. This software must be calibrated for conditions in individual states 

because, for example, the same design may perform differently in different climatic 

conditions and differently based on the available construction materials and stone in the 

state. Additionally, the Practical Guide to Cost Estimating released by AASHTO in 2013 

provides states with guidance on how to develop cost estimates for highway projects.

However, there is no current requirement that LCCA be 

conducted or used to select among pavement types used on federally 

7

Any costs or activities that are expected to be the same for all alternatives—such as lane 

painting—may be excluded from an LCCA. Consequently, a life-cycle cost estimate may 

not include all the costs of a project. Likewise, environmental costs, such as noise and 

emissions, are generally not included in LCCA for pavement-type selection because of the 

difficulty in monetizing these factors, though public agencies may have an interest in 

minimizing such costs. 

8

We have previously reported on the benefits and risks for the federal-aid highway 

program due to FHWA’s partnership with state transportation agencies. To advance the 

federal-aid highway program, FHWA engages in a range of activities, including providing 

technical assistance and developing solutions to indentified problems—to encourage the 

effective and efficient use of federal-aid highway funding. GAO, Highway Infrastructure: 

Federal-State Partnership Produces Benefits and Poses Oversight Risks, GAO-12-474

(Washington, D.C.: April 2012). 
 

Page 6 GAO-13-544 Federal Aid Highways

funded highway projects.9 Accordingly, FHWA’s LCCA guidance and 

assistance to state transportation agencies is advisory. Furthermore, 

FHWA recommends LCCA be used as a decision support tool—not for 

planning or programming projects—within the framework of each state’s 

own pavement management processes. As shown in table 1, FHWA first 

issued printed LCCA guidance in 1998 with an interim technical bulletin, 

which was followed by additional guidance and LCCA software. Each 

piece of guidance covers slightly different aspects of LCCA, at different 

levels of detail, and reflects the state of FHWA’s guidance at the time of 

publication. For example, FHWA’s 1998 Life-Cycle Cost Analysis in 

Pavement Design interim technical bulletin and the 2002 Life-Cycle Cost 

Analysis Primer pre-date the release of FHWA’s RealCost software and 

associated User Manual and, consequently, do not reference or discuss 

these tools. FHWA has been in the process of updating the 1998 interim 

bulletin since 2009. FHWA also provides LCCA training, which, like other 

FHWA training, is typically offered based on state interests and requests. 

Collectively, FHWA’s guidance and assistance is intended to provide 

state transportation agencies with sufficient information and tools to 

conduct and use LCCA to make cost-effective pavement-type selection 

decisions. Furthermore, the Office of Management and Budget (OMB) 

provides federal agencies with guidance about many of the technical 

aspects of conducting economic analyses, such as LCCA. For example, 

OMB has issued guidance related to the selection of a discount rate.10

 

9

The Intermodal Surface Transportation Efficiency Act of 1991, Pub. L. No. 102-240, 

§ 1024(a), 105 Stat. 1914, 1958 (1991), codified as positive law at 23 U.S.C. § 134(f)(12), 

had an LCCA requirement, but this requirement was dropped by the Transportation Equity 

Act for the 21st Century, Pub. L. No. 105-178, 1203(f)(1), 112 Stat. 107, 174 (1998), which 

replaced 23 U.S.C. § 134(f). Federal-aid highway projects on the National Highway 

System with total costs above $50 million for highway projects and $40 million for bridge 

projects are required to have value engineering analysis, a type of economic analysis 

designed to identify more efficient and less costly engineering approaches to executing a 

project. Value engineering analysis may include LCCA. There is also no federal 

requirement that states use LCCA for bridge projects.

10Office of Management and Budget, Circular A-94 and associated clarification 

memorandums, including M-12-06 and an unnumbered correspondence to agencies 

dated September 20, 2012 on inflation, discounting, and life-cycle cost time periods. 
 

Page 7 GAO-13-544 Federal Aid Highways

Table 1: Federal Highway Administration (FHWA) Guidance and Assistance 

Available to States on Life-Cycle Cost Analysis (LCCA), 1998-Present

FHWA guidance and assistance Description

Life-Cycle Cost Analysis in 

Pavement Design interim technical 

bulletin (1998)

Describes how LCCA can be used to inform 

pavement-type selection and how to conduct LCCA. 

Currently being revised.

Life-Cycle Cost Analysis Primer

(2002)

Summarizes LCCA techniques and benefits.

RealCost LCCA software (first 

released in 2002, most recent 

version 2011) 

Facilitates the conduct of LCCA by providing a 

computational tool.

RealCost LCCA User Manual

(updated in 2010)

Explains how to use RealCost software and 

discusses LCCA concepts and practices.

LCCA training by FHWA Provides training on a variety of LCCA concepts and 

tools, including RealCost.

Source: GAO analysis of FHWA materials.

In 2009, GAO issued the Cost Guide to provide guidance on best 

practices for cost estimation to address a gap in federal guidance about

processes, procedures, and practices needed for ensuring credible cost 

estimates.11 These best practices delineate the process that should be 

followed to develop a reliable, high-quality cost estimate, including 

appropriate consideration of life-cycle costs. These best practices 

represent an overall process of established, repeatable methods that 

result in high-quality cost estimates that are comprehensive and accurate 

and that can be easily and clearly traced, replicated, and updated. Each 

of the practices is important for ensuring that high-quality cost estimates 

are developed and delivered in time to support important decisions. The 

Cost Guide delineates a four phase process with 12 constituent steps 

(table 2).

 

11GAO-09-3SP. 
 

Page 8 GAO-13-544 Federal Aid Highways

Table 2: GAO’s Cost-Estimating Process Best Practices

Phase Best practice Summary of tasks within best practices

Initiation Define estimate’s purpose Determine purpose, scope, required level 

of detail of estimate, as well as who will 

receive estimate.

Develop estimating plan Determine cost estimating team, schedule, 

and outline tasks in writing.

Assessment Define program 

characteristics

Identify technical characteristics of planned 

investment, quality of data needed, and 

plan for documenting and updating 

information.

Determine estimating 

structure 

Define the elements of the cost estimate, 

including best method for estimating costs 

and potential cross-checks, and 

standardized structure.

Identify ground rules and 

assumptions

Define what the estimate will include and 

exclude, key assumptions (such as life 

cycle of investment), schedule or budget 

constraints, and other elements that affect 

estimate. Assumptions should be 

measurable, specific, and consistent with

historical data. Assumptions should be 

based on expert, technical judgment and 

approved by management.

Obtain data Create data collection plan, identify 

sources, collect valid and useful data, 

analyze data for cost drivers and other 

factors, and assess data for reliability and 

accuracy.

Develop a point estimate 

and compare it to an 

independent cost estimate

Develop cost estimation model and 

calculate estimate, in constant dollars for 

investments that occur over multiple years, 

and other cross checks and validation, and 

compare estimate to an independent 

estimate and previous estimates. Update 

as more data are available.

Analysis Conduct sensitivity analysis Test the sensitivity of cost elements to 

changes in input values, ground rules, and 

assumptions.

Conduct risk and 

uncertainty analysis

Determine which cost elements pose 

technical, cost, or schedule risks; analyze 

those risks; and recommend a plan to track 

and mitigate risks. A range of potential 

costs, based on risks and uncertainties, 

should be identified around a point 

estimate.
 

Page 9 GAO-13-544 Federal Aid Highways

Phase Best practice Summary of tasks within best practices

Document the estimate Document all steps used to develop the 

estimate so it can be recreated, describing 

methodology, data, assumptions, and 

results of risk, uncertainty, and sensitivity 

analysis.

Presentation Present estimate to 

management for approval

Develop briefing on results, including 

information on estimation methods and 

risks, making content clear and complete 

so those unfamiliar with analysis can 

comprehend estimate and have confidence 

in it.

Update the estimate to 

reflect actual costs and 

changes

As technical aspects of project change, the 

complete cost estimate should be regularly 

updated and, as project moves forward, 

cost and schedule estimates should be 

tracked.

Source: GAO.

Most of the selected states we reviewed use LCCA in some capacity to

help ensure the long-term cost-effectiveness of investment decisions. 

Thirteen of the 16 states included in our review used it in some capacity.12

 

12A Transportation Research Board (TRB) project surveyed state transportation agencies 

and reported that 29 of 35 states that responded to its survey use LCCA for new 

construction or reconstruction projects. Transportation Research Board of the National 

Academies, National Cooperative Highway Research Program, Report 703: Guide for 

Pavement Type Selection (Washington, D.C.: 2011).

State transportation officials in all 13 of these states indicated that the 

goal of LCCA was to help ensure that the agency makes long-term, costeffective investment decisions. Some state officials also noted that LCCA 

can help the state transportation agency communicate to stakeholders—

pavement industry representatives, state legislators, and taxpayers—that 

States’ Life-Cycle Cost 

Analysis Practices 

Vary, Though They 

Are Often Informed 

by FHWA Guidance

State Life-Cycle Cost 

Analysis Practices Vary
 

Page 10 GAO-13-544 Federal Aid Highways

it is making sound decisions. For example, according to transportation 

officials in Florida, LCCA results have helped communicate to the 

legislature that higher initial cost projects may offer long-term value for 

some road projects. Officials in some states, however, noted that budget 

constraints made it difficult to pursue higher initial cost projects even if 

those projects made sense in the long term. Conversely, 3 of the state 

transportation agencies we examined do not use LCCA as part of their 

pavement-type selection process. State transportation officials for these 

states explained that it was not a consideration in pavement selection 

decisions for several reasons, including initial cost constraints, 

engineering reasons for pavement selection, and institutional resistance 

to consideration of pavement-type alternatives not historically used in the 

state.

In general, selected states use LCCA for larger projects, be they new or 

reconstruction projects, but states had different specific policies for 

determining which projects should have an LCCA conducted. In the 

states we reviewed, these policies included conducting an LCCA when a 

project dollar threshold is met, such as when pavement material costs 

exceed $2 million, when a project adds new capacity, or when a specified 

amount of pavement material would be used, among others. Because a 

state may have few projects that meet the state’s threshold, LCCA may 

be used infrequently. Officials in 6 states indicated that fewer than five 

LCCAs were typically conducted each year. However, when LCCAs are 

conducted, the projects tend to be among the state’s largest or most 

expensive transportation projects. For example, the California 

Department of Transportation used LCCA to help select the pavement 

type for a major interstate improvement project between San Francisco 

and Sacramento, with life-cycle costs estimated to be over $50 million for 

each project alternative. 

Of the 13 states we reviewed that conduct LCCAs, 10 perform LCCA 

early during project design (e.g., when 30 percent of design work is 

completed), but practices varied among states about reviewing and 

updating LCCAs later during the project. By making a pavement selection 

early, transportation officials from 3 states indicated that they are able to 

make decisions about right-of-way acquisitions or other project elements 
 

Page 11 GAO-13-544 Federal Aid Highways

that are contingent on the selection of a pavement-type.13

State transportation agencies generally consider the same categories of 

inputs in their analysis, but state agencies handle each of these inputs in 

different ways. Key categories of inputs include agency costs, timing of 

future roadwork, user costs, analysis period, discount rate, and the 

treatment of the risk and uncertainty that are associated with these inputs. 

For example, we found that states use different analytic approaches in 

regard to risk and uncertainty; 9 states conducted deterministic LCCA and 

4 conducted probabilistic LCCA of the 13 we reviewed.

When an LCCA 

is completed early in project design, 2 or 3 years may pass before project 

construction. In 5 of the 10 states that indicated that LCCAs were 

conducted early, officials indicated that LCCAs were not updated later 

during design; officials in the other 5 of these 10 states indicated they had 

procedures to update LCCA, noting that pavement decisions can be 

reevaluated and changed, if warranted. The 3 remaining states performed 

LCCA later in the design process. Some state officials reported that 

completing an LCCA takes agency staff anywhere from a couple days to 

several months, depending on the project’s complexity, the data collection 

needed to conduct the analysis, and the sophistication of the LCCA 

technical approach used. 

14

 

13For new construction projects, or reconstruction projects that involve changes in road 

location, the state may need to acquire additional land, or right—of—way, to build a 

project. In some cases, the amount of land needed may be contingent on the pavement 

design selected for the project.

Table 3 provides 

additional information about key inputs and the variation in state 

practices. The fact that states do not treat all key inputs similarly does not 

necessarily indicate that one state’s LCCA is of a higher quality than 

another because there could be more than one legitimate approach to 

14Two different computational approaches can be used in LCCA—deterministic and 

probabilistic. The methods differ in the way they address the variability associated with the 

LCCA input values. In the deterministic approach, the analyst assigns each LCCA input 

variable a fixed, discrete value that is used to compute a single life-cycle cost estimate for 

the alternative under consideration. The deterministic approach, however, does not 

address simultaneous variation in multiple inputs, and does not convey the degree of 

uncertainty associated with the life-cycle cost estimates. The probabilistic approach entails 

defining individual input variables by a frequency/probability distribution, rather than by 

discrete values. It represents a risk analysis of the life-cycle costs of a particular design 

alternative. A probabilistic analysis provides a much greater understanding of the 

variability associated with inputs, its effects on projected life-cycle costs, and how it can be 

managed to increase the reliability of results and the confidence in identifying the most 

economical alternative.
 

Page 12 GAO-13-544 Federal Aid Highways

addressing these inputs. Some variations may reflect that state agencies 

used LCCA inputs that make sense given their state’s particular historical 

experiences, circumstances, and needs. We found that estimates used in 

LCCA of when future roadwork would occur for a particular pavement 

type and design were based, for example, on past experience with the 

durability of the materials and climatic conditions, among other influences 

on the pavement life within the state. 

Table 3: Key Inputs for Conducting Life-Cycle Cost Analysis (LCCA) and GAO’s Summary of Selected State Practices

Input and description Importance for LCCA Summary of state practices

Agency Costs: Estimated cost of 

initial construction project and of 

expected future road work

Estimating costs is fundamental to 

accurate LCCA, particularly as 

material prices fluctuate over time.

All 13 states considered agency costs, but sources 

varied, including historical statewide bid prices, 

regional prices, and engineers’ estimates. Cost 

estimates for each project alternative were developed 

either by project engineers, cost estimation 

specialists, or based on general cost estimates for 

projects of certain types.

Timing of Future Road Work:

Estimate of when future road work 

will be needed for each design 

alternative. Timing determines how 

many rehabilitations or 

reconstructions fall in the analysis 

period. 

Comparing differences in the cost of 

future work between alternatives is 

essential for deciding if a higher initial 

cost option is cost effective over a 

project’s life cycle.

All 13 states estimated future needed road work. We 

found timing ranged from 3 to 35 years after the 

original project, depending on, for example, traffic 

volume, climate, material, and design. Estimates were 

based on the state’s historical experience with similar 

roadways, engineering judgment regarding design and 

material properties, or pavement industry estimates. 

User Costs: Costs that are not paid 

by the agency but are incurred by the 

traveling public in the form of delay or 

vehicle operating costs, for example. 

Costs incurred by users can, in some 

cases, be large. By including these 

costs in selecting a pavement-type, an 

agency may decide to procure a more 

costly pavement type or make 

changes in construction timing (e.g., 

day time vs. night construction) to 

lower user costs.

Eight states considered user costs—3 included only 

travel time delays, 5 included vehicle operating costs, 

and 1 included crash costs. Four of these 8 gave user 

costs equal weight to agency costs in their LCCAs. Of 

the 5 states that did not consider user costs, 2 

indicated that the affect on users might be considered 

in making a final pavement-type selection outside of 

the LCCA framework. FHWA’s RealCost or statespecific data may be used to determine the value of 

travel time delay reductions.

Analysis Period: Length of time over 

which estimated future costs of 

different alternatives are analyzed

Longer periods will typically include 

more occurrences of future road work. 

The correct length analysis period 

allows for the LCCA to reflect the longterm cost differences associated with 

each alternative.

In all 13 states, analysis periods ranged from 25 to 55 

years, per state policy decisions or FHWA guidance, 

but generally were set to include a least one 

occurrence of major future road work for each 

alternative.
 

Page 13 GAO-13-544 Federal Aid Highways

Input and description Importance for LCCA Summary of state practices

Discount Rate: Discounting 

incorporates the time value of money 

and allows future costs to be 

compared with current costs in terms 

of present value. 

The higher the discount rate, the lower 

the present value of anticipated future 

costs and the less impact future costs 

have on LCCA results.

Among the 13 states, discount rates ranged from 0.1 

to 5 percent, per Office of Management and Budget 

(OMB) or FHWA guidance, state interpretation of 

OMB or FHWA guidance, or state economic policy.a

Treatment of risk and uncertainty:

Analysis inputs in LCCA are based, 

to some extent, on estimates that 

may prove incorrect. To address 

such risk and uncertainty, inputs can 

be specified as a range of probable 

values rather than as point estimates. 

Some state agencies updated their discount rate 

routinely (e.g. annually or biennially) whereas others 

did not have a formal practice to update the rate.

Addressing risk and uncertainty in 

LCCA can provide a more reliable 

analysis and more robust pavementtype selection decisions, but adds 

technical complexity. 

Nine of 13 states used point estimates calculated in a 

deterministic LCCA analysis, and some stated it was 

because the deterministic analysis was simpler to 

conduct or easier to communicate results. Four of 13 

states conducted some form of probabilistic analysis, 

varying at least some of the technical inputs. All of the 

selected states that conducted probabilistic analysis 

used FHWA’s RealCost software to do so.

Source: GAO analysis of Federal Highway Administration and state data.

a

OMB provides annual updates to discount rates recommended for use in economic 

analysis. FHWA’s 1998 guidance on LCCA cites OMB as a source for information on 

selecting an appropriate discount rate, noting that historical rates applicable to LCCA 

ranged from 3 to 5 percent. In recent years, OMB has recommended rates ranging from 

about 1 to 3 percent for long-term capital investment due to declines in 30 year Treasury 

bill rates, upon which OMB’s discount rates are based.

The accuracy and appropriateness of the inputs used is important for 

LCCA results to be credible. In some states and nationally, there is 

debate among states and pavement industry stakeholders about many of 

these inputs because they can determine the final LCCA result. One 

approach used in some states to help ensure the accuracy of inputs was 

to involve pavement industry stakeholders in LCCA review. For example, 

Colorado and Florida had formal processes to solicit industry comments 

on LCCAs prior to making pavement-type selection decisions. Other state 

agencies had other approaches with industry stakeholders. Washington 

and California, for example, collaborated with industry stakeholders, to 

varying degrees, regarding overall LCCA policies and procedures, rather 

than on project-level LCCA inputs. 

Lastly, state agencies used different criteria to decide if LCCA results 

clearly indicated a lowest life-cycle cost pavement-type and had different 

approaches for documenting LCCA results. Seven of the 13 state 

transportation agencies that we interviewed that conduct LCCA for 

pavement-type selection concluded that the assessed alternatives were 

“equal” (as opposed to clearly identifying a lowest life-cycle cost 

alternative) when the estimated life-cycle cost of different alternatives 

were within 5 to 20 percent of one another. By contrast, one state defined 

the preferred alternative strictly as having the lowest life-cycle cost. In 10 
 

Page 14 GAO-13-544 Federal Aid Highways

of the 13 states we reviewed, when LCCA results indicated a clear 

preferred alternative, state officials said that the transportation agency 

usually selected that pavement. When the LCCA does not result in a clear 

preferred alternative, final pavement selection was generally based either 

on a range of factors that were not considered within the LCCA or through 

an alternative bidding process, in which the agency accepts bids for both 

pavement types. For example, the agency may consider the ease of 

maintenance or the duration of construction for pavement alternatives to 

minimize workers’ exposure traffic and increase safety, or the agency 

may opt for the alternative with the lowest initial cost. Additionally, state 

agencies document the results of an LCCA and the agency’s decisions in 

different ways. We found no standard template for reporting LCCA 

results. LCCA documentation is important so that, decision makers fully 

understand the strengths, assumptions, or limitations of the analysis. 

Further, when stakeholders have a clear understanding for the basis of a 

pavement-type selection, decisions will not seem arbitrary or unfounded.

Selected states often used FHWA’s guidance in developing their LCCA 

policies. In the 13 states we reviewed that conduct and use LCCA, 

FHWA’s guidance was a central influence on state policy for 9 states, 

according to state transportation officials. FHWA support was especially 

important as some state transportation agencies initially developed LCCA 

policies and procedures. For example, in 3 of the 4 states we visited, 

state transportation officials stated that assistance from FHWA personnel 

or information provided in FHWA’s guidance was central to the LCCA 

policies and procedures established by the state agency. Many states 

reported that FHWA has provided valuable training on LCCA or useful 

LCCA tools (e.g., RealCost). Additionally, peer exchanges sponsored by 

FHWA, in which officials from multiple states could share their 

experiences, were noted by officials in 4 states as helpful. Furthermore, 

officials in 2 of the 4 states we visited indicated that FHWA assistance 

could be particularly helpful to state agencies that are interested in 

incorporating LCCA into their pavement-type selection process. Officials 

we interviewed in all 13 states that conducted LCCA indicated that they 

would consider any new or additional FHWA guidance on LCCA. Specific 

areas in need of clarification cited by state officials included technical 

clarifications about discount rate and user costs, among others.

FHWA LCCA guidance, assistance, and tools also are used by many—

but not all—of the states we reviewed when conducting and using LCCA 

to make pavement-type selections for specific projects. In some states, 

FHWA officials are active in pavement-type selection, such as when the 

State Practices Are Often 

Informed by FHWA 

Guidance
 

Page 15 GAO-13-544 Federal Aid Highways

results of an LCCA are close between alternatives. For example, for 

federal-aid highway projects in Colorado, when the cost of alternatives is 

within 10 percent, a selection committee that includes a representative 

from FHWA is convened to review the project and make a selection. The 

FHWA representative reviews the state analysis and provides comments 

on technical inputs, adherence to the state’s LCCA policy, and factors not 

considered in the LCCA that may affect pavement selection. In other 

states, FHWA staff may have little involvement in project-level analysis, 

but may, for example, participate in the review or revision of the state’s 

LCCA policy or process. In addition, FHWA tools are central to how many 

of our selected states conducted their LCCAs. Specifically, 7 of the 13 

states we reviewed used FHWA’s RealCost software, with one using a 

customized version for the state. In general, many state officials indicated 

that RealCost was very helpful software, though some noted that the 

many inputs required in RealCost made it too complicated, and 

consequently, they preferred to do LCCA on simpler tools developed by 

the state.

FHWA’s LCCA guidance largely aligns with best practices for two of the 

four phases of the cost-estimating process and partially aligns with two 

other phases. As we have previously found,15 there are a number of best 

practices that can help ensure credible and reliable cost estimates. 

FHWA’s LCCA guidance includes many elements of those best 

practices.16 In particular, FHWA’s guidance in the initiation and analysis 

phases aligns or substantially aligns with best practices, but only partially 

aligns with best practices in the assessment and presentation phases 

(see fig. 1).17

 

15

As discussed earlier in this report, FHWA’s guidance is a

central influence on state policies, so inclusion of cost-estimating best

GAO-09-3SP. 

16GAO’s Cost Guide, which is based on input from cost community experts and extensive 

research of best practices for estimating program schedules and costs, indicates that a 

high-quality, valid, and reliable cost estimate should be well documented, comprehensive, 

accurate, and credible. As discussed earlier in this report, the cost estimation process 

contains 12-steps which occur within four overarching phases: initiation, assessment, 

analysis, and presentation. 

17We reviewed the FHWA guidance Life-Cycle Cost Analysis in Pavement Design, 

Pavement Division Interim Technical Bulletin, Publication No. FHWA-SA-98-079

(September 1998); the most recent, publicly available, draft FHWA Life-Cycle Cost 

Analysis–RealCost User Manual v. 2.5 (October 2010); and the FHWA Life-Cycle Cost 

Analysis Primer (August 2002).

FHWA LCCA 

Guidance Aligns with 

About Half of the 

Cost-Estimating Best 

Practices 
 

Page 16 GAO-13-544 Federal Aid Highways

practices in FHWA’s LCCA guidance is important to facilitate the best use 

of LCCA.

Figure 1: Summary of GAO’s Assessment of Federal Highway Administration LifeCycle Cost Analysis Guidance 
 

Page 17 GAO-13-544 Federal Aid Highways

FHWA’s guidance aligns with the best practices for the first phase of cost 

estimating by defining the cost estimate’s purpose and substantially 

aligns with describing how to develop an estimating plan. As stated in the 

Cost Guide, guidance on the work to be performed in this phase is 

important to help states understand why the estimates should be 

conducted, the level of detail required in the estimate, and the time 

required to prepare the estimate. 

• Define estimate’s purpose: Aligns. FHWA describes the LCCA 

purpose and process in detail, in both FHWA’s Life-Cycle Cost 

Analysis Primer (Primer) and FHWA’s Life-Cycle Cost Analysis in 

Pavement Design, Pavement Division Interim Technical Bulletin

(Technical Bulletin). The documents describe when a LCCA should be 

completed, what the purpose of the LCCA is, and what a LCCA 

should include. FHWA’s Life-Cycle Cost Analysis—RealCost User 

Manual (User Manual) also describes the purpose of a LCCA 

consistent with the description in the Technical Bulletin. 

• Develop estimating plan: Substantially aligns. FHWA presents the 

steps to develop a LCCA estimating plan—such as establishing 

pavement alternatives, estimating agency and user costs, and 

analyzing results—in detail in both the Primer and Technical Bulletin

documents. The description of the process states that the scope and 

level of detail should be identified. However, we found that the 

guidance did not include a proposed schedule for when these steps 

should be completed. Without adequate time to develop a competent 

estimate, a team may be unable to deliver an estimate of sufficiently 

high quality. According to the Cost Guide, a schedule ensures that an 

estimating team has sufficient staff time to perform the estimate.

FHWA’s guidance partially aligns with best practices in the second phase 

of the cost estimation process. In this phase, we found that FHWA 

provided guidance that substantially aligned with best practices on how to 

develop an estimating structure and how to identify ground rules and 

assumptions, which can help state transportation agencies better 

understand LCCA and how to conduct LCCAs more efficiently. However, 

the guidance partially aligned with best practices of defining the 

program’s characteristics, obtaining data, and developing a point estimate 

for comparison with an independent cost estimate. Providing additional 

guidance in these three areas, consistent with best practices, could help 

ensure the technical execution of an LCCA is optimal.

Initiation 

Assessment 
 

Page 18 GAO-13-544 Federal Aid Highways

• Define program characteristics: Partially aligns. FHWA’s LCCA 

guidance identifies the type of technical information needed, such as 

route; location; annual average daily traffic, including the percentage 

of which is trucks; speed limit; and other details to define the project 

characteristics required to perform a LCCA, but the guidance does not 

include adequate discussion on developing plans for updating 

technical information to stay current with the project requirements. If 

the technical information is not updated, then as the project changes, 

the estimate may no longer be credible. For example, if the cost of a 

pavement-type alternative used in the LCCA is based on initial 

technical information assumptions, and those assumptions change

after the LCCA is completed, resulting in the pavement being 

designed to a different thickness with a different cost, then an 

alternate pavement type may be more cost-effective but not identified 

unless the LCCA is updated.

• Determine estimating structure: Substantially aligns. FHWA’s LCCA 

guidance contains cost categories identifying which cost elements are 

to be collected, including costs to the transportation agency and user 

costs. However, FHWA’s LCCA guidance does not provide enough 

information on how to create the estimating structure, or what it 

should look like, both of which are elements of the best practice in the 

Cost Guide.

18

• Identify ground rules and assumptions: Substantially aligns. FHWA’s

LCCA guidance states that the ground rules and assumptions for an 

estimate should be identified, reasonable, and conform to accepted 

practices. However, it does not mention that assumptions should be 

developed in coordination with the technical community and approved 

by management, both of which are elements of the best practice. 

Coordination with the technical community and management’s 

acceptance of these ground rules and assumptions is important, 

because the rejection of even one of these assumptions can influence 

The use of a standardized estimating structure allows 

the collection of data to be standardized and shared across 

organizations, and facilitates the comparison of cost elements across 

projects, all of which makes the estimating process more efficient. 

 

18The cost estimating structure (referred to as the work breakdown structure in the GAO 

Cost Guide) is a framework for defining the detailed work necessary to complete the 

project. It provides a basis for identifying the resources and tasks required for developing 

a project cost estimate.
 

Page 19 GAO-13-544 Federal Aid Highways

the cost estimate and the resulting decisions made based on the cost 

estimate. The assumptions also play an important role in the 

execution of sensitivity and risk analysis used to determine the 

possible variability of the estimate and can also be beneficial in 

helping management fully understand the estimate. 

• Obtain data: Partially aligns. FHWA’s LCCA guidance states the 

importance of obtaining and using historical data, but it does not 

include guidance on validating that the data are reliable, statistically 

analyzing the data to determine whether it applies to the given 

estimate, or continually collecting, protecting and storing data for 

future use. These factors in data quality affect the estimate’s overall 

credibility. The Cost Guide states that collecting valid and useful 

historical data is a key step in developing a sound cost estimate. In 

our selected states, we found that states generally used historical 

data, when available, for items such as construction costs and the 

length of time before the pavement is to be rehabilitated; however, 

pavement industry officials in 2 of the 4 states we visited commented 

that they were not confident in the application of that data in LCCAs in 

their state. Officials in 2 of the 4 states we visited also noted that in 

some cases they were not confident in how the data were being 

selected for use and that there could be some bias in the estimates. 

For example in one state—where their regional offices perform the 

LCCA and a headquarters staff member reviews it—officials stated 

that they have found that one of the department’s regions has some 

bias in their estimates of the length of the service life of pavement 

rehabilitations and initial costs that reflects a desire to utilize a specific 

pavement type. Guidance on how to validate that data are reliable and 

appropriate for an LCCA could help state transportation agencies 

improve the credibility of their estimates. 

• Develop point estimate and compare it to an independent estimate: 

Partially aligns. FHWA’s LCCA guidance emphasizes the different 

methods for estimating the life-cycle costs and tools to automate 

portions of the process when developing a point estimate of the lifecycle cost. However, no mention was made of using either an 

independent estimate for comparison or cross checks for the point 

estimate’s major cost drivers. The Cost Guide states that independent 

estimates are important to ensure confidence in LCCAs by making 

sure the LCCA cost estimates are credible, reasonable, objective, and 

unbiased. The extent to which the selected states we reviewed had 

independent estimates varied. For example, one state’s transportation 

agency officials stated that LCCAs prepared by their regional offices 
 

Page 20 GAO-13-544 Federal Aid Highways

are independently reviewed by both the central office and on some 

occasions by pavement industry representatives, and that these 

reviews were very important to ensuring that the LCCAs were 

accurate and based on reasonable inputs. Another state 

transportation agency we reviewed does not conduct an independent 

estimate; however, each year, agency officials conduct a compliance 

review of approximately 25 percent of their projects to see if the staff 

followed official policy and processes. However, this review would not 

result in a revised LCCA, only additional staff training and other 

corrective actions to improve future LCCAs. Guidance on using 

independent LCCA cost estimates and cross checks of major LCCA 

cost drivers could help state transportation agencies ensure their 

estimates are credible, objective, and unbiased.

FHWA’s guidance substantially aligns with the best practices in this 

phase; however, improvements could be made in defining how LCCA 

results should be documented. Without clear guidance on how to 

document LCCAs, states may not obtain all the benefits of the process. 

The Cost Guide states that good documentation enables the LCCA to be 

easily updated and replicated and can help establish an estimate’s 

validity and credibility, as well as support the agency’s decision making. 

Good documentation can also help demonstrate the agency’s 

commitment to good financial decisions. 

• Conduct sensitivity analysis and conduct risk and uncertainty analysis: 

Aligns with both. FHWA did a good job of identifying practices that 

address the risk and uncertainty in the analysis to ensure that state 

transportation agencies can determine how sensitive their analysis is 

to the inputs used in the model. For example, FHWA’s RealCost 

software enables users to conduct probabilistic LCCAs where 

technical inputs are specified as ranges of values instead of single 

values, allowing the analysis to better quantify risk and uncertainty 

inherent in the cost estimation process. The Cost Guide notes that

guidance on quantifying risk and uncertainty is important, because 

these analyses provide a way to assess the possible variability 

(range) of the estimated costs and this range allows the estimator to 

demonstrate to decision makers a level of confidence in achieving the 

most likely cost. 

• Document the estimate: Partially aligns. FHWA’s LCCA guidance 

states that good documentation of the estimate is an important part of 

an LCCA, but it does not provide guidance on what constitutes good 

documentation or state what documentation should be included. The 

Analysis 
 

Page 21 GAO-13-544 Federal Aid Highways

RealCost software creates good documentation of the data input into

the software and the results; it does not, however, provide good 

documentation of any costs or other inputs into the LCCA that are 

determined outside of RealCost. For example, if a state develops its 

own user costs and inputs them into RealCost, then RealCost only 

records the input number, not the various components that went into 

that cost. In another example, construction costs for each alternative 

are input into RealCost as a single cost. As a result, the underlying 

information (such as material prices and quantities of materials) 

included in that cost are not documented in RealCost and cannot be 

reviewed unless the agency takes additional steps to document those 

costs. A state agency may include this additional information in 

customized versions of RealCost, but FHWA does not provide 

guidance on what additional steps states that currently do not provide 

this documentation may consider or find helpful. Documenting an 

estimate is essential for validating and defending an estimate that is 

independently reviewed by stakeholders, especially if they question its 

credibility. Pavement industry officials in 2 of the 4 states we visited 

commented that due to the lack of available documentation, they are 

not able to fully review LCCAs and make a determination of the 

validity of the LCCAs. Guidance on what constitutes good 

documentation, and that documentation should be required, could 

help state transportation agencies ensure their estimates are valid, 

credible, and defendable.

FHWA’s guidance partially aligns with best practices in this final phase of 

the cost estimation process. We found that FHWA’s guidance included 

some aspects of presenting information to management and updating 

estimates; however, the guidance does not provide sufficient information 

on how LCCA results should to be presented to management and when 

an LCCA should be updated, in accordance with best practices in the 

Cost Guide. Presenting the LCCA estimate to management for approval 

is important, as is briefing management on how the estimate was 

developed, including the risks associated with underlying data and 

methods. It is also important to inform those conducting LCCAs that the 

cost estimates be updated as the project progresses to determine 

whether the preliminary information and assumptions remain relevant and 

accurate. Additional guidance on how to present the results of LCCA to 

management and when to update an LCCA may enhance the use of 

LCCA by states.

• Present estimate to management for approval: Minimally aligns. Our 

analysis of FHWA’s guidance showed that there were brief references 

Presentation 
 

Page 22 GAO-13-544 Federal Aid Highways

in the guidance to presenting information about the LCCA to 

management, but there were no discussions of what should be 

included in the presentation. We heard from one state transportation 

official that it would be beneficial to have guidance on how to present 

the results of a probabilistic LCCA analysis to management, because 

their management’s limited understanding of a probabilistic analysis 

was a barrier to their using it. State transportation agency officials in 

another state, which does not currently use LCCA, felt that guidance 

on how to communicate the results and benefits of using LCCA to 

their state legislators would be beneficial to their possibly adopting it 

as a tool. 

• Update the estimate to reflect actual costs and changes: Partially 

aligns. The Technical Bulletin supports using updated input values 

and information. For example, it refers to using updated data to 

determine user costs due to vehicle crashes in areas under 

construction. However, the Technical Bulletin and User Manual do not 

include a discussion about updating the estimate as a whole. 

According to the Cost Guide, updating the estimate gives decision 

makers accurate information for assessing alternative decisions.

Without updating estimates, state transportation agencies lack 

assurance that the LCCA results are still valid. As discussed above, 

10 of our 13 selected states complete their LCCA early in the project, 

and officials in 5 of these states indicated that they did not update 

their LCCAs close to the time the project is advertised for bids to 

construct the project. When the final LCCA is conducted too far in 

advance of the project being advertised for bids, material costs may 

change sufficiently to affect the selection of the most cost-effective 

pavement type. Officials in one state found it can be advantageous to 

update their LCCAs and reconsider a pavement material type 

selection closer to the completion of project design to determine 

whether the original assumptions or data have changed. This update 

can be very important in time periods where construction material 

costs are fluctuating or when the pavement designs changed 

significantly from the design at the time the LCCA was conducted, as 

the chosen material type may no longer be the most cost-effective. 

Guidance on when to update the complete LCCA estimate could help 

state transportation agencies provide more accurate information to 

their decision makers resulting in more cost-effective pavement-type 

selection decisions.

Providing consistent guidance that fully incorporates GAO’s 12 costestimating best practices could help ensure that states make accurate, 

cost-effective, and credible cost estimates. GAO’s Cost Guide was issued 
 

Page 23 GAO-13-544 Federal Aid Highways

in 2009, and was developed to address gaps in then-available costestimating guidance, so it is not unexpected that FHWA’s guidance that 

pre-dates the Cost Guide does not include all the best practices identified 

in the guide. While FHWA has updated its RealCost software and User 

Manual in recent years, FHWA has been in the process of updating the 

Technical Bulletin since 2009, but has not yet issued an updated version, 

which it had planned to do in 2011. FHWA officials stated that it has taken 

longer than expected to complete the update because they wanted to 

incorporate information from guidance that was under development by 

others into FHWA’s LCCA guidance. 

 

LCCA offers state transportation agencies an important tool for making 

sound, long-term, cost-effective investment decisions. While LCCA 

practices vary among states, so too do state processes for making 

decisions about road projects. Some variation in LCCA use is, therefore, 

to be expected and, to the extent that the technical elements of LCCA are 

handled well, some variation is not itself problematic. Nevertheless, 

correct execution of LCCA is important for LCCA results to be accurate 

and for decisions based on LCCA results to be justified. FHWA’s

guidance has been an important influence on states’ LCCA practices and, 

given the willingness of state transportation officials to consider future 

FHWA guidance, this influence should continue. 

Current FHWA guidance—which was issued as interim guidance in 1998 

and not yet finalized— includes some, but not all, best practices for cost 

estimation. Each of the 12 best practices, however, is important for 

assuring the credibility and accuracy of cost estimates and, ultimately, the 

cost-effectiveness of investment decisions. FHWA’s ongoing effort to 

revise its guidance on LCCA provides the agency with an opportunity to 

more fully incorporate GAO’s cost-estimating best practices, including 

those related to the data necessary to conduct LCCA, how to corroborate 

LCCA results independently, how to document and when to update LCCA 

results, and how to present LCCA results to decision makers. Particularly 

given FHWA’s role in overseeing the federal-aid highway program and in 

light of current infrastructure funding challenges, it is critical that FHWA 

do the utmost to aid states in making cost-effective investment decisions. 

Enhanced guidance that better incorporates all best practices for 

conducting LCCAs will better position states to do so. 

Conclusions 
 

Page 24 GAO-13-544 Federal Aid Highways

The Secretary of Transportation should direct the FHWA Administrator to 

issue updated LCCA guidance to fully incorporate the cost-estimating

best practices in GAO’s Cost Guide, including guidance regarding the 

following:

• input data quality and reliability,

• use of independent cost estimates,

• documentation of the analysis,

• how to present the analysis for management approval, and 

• describing when the estimate should be updated.

We provided a draft of this report to the Department of Transportation for 

comment. The department agreed to consider our recommendation. The 

department also provided technical comments that were incorporated as 

appropriate.

We are sending copies of this report to the Administrator of FHWA, the 

Secretary of the Department of Transportation, and interested 

congressional committees. In addition, the report will be available at no 

charge on the GAO website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-2834 or McTigueJ@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix II.

James R. McTigue, Jr. 

Director, Physical Infrastructure

Recommendation 

Agency Comments 
Appendix I: Objectives, Scope, and 

Methodology

Page 25 GAO-13-544 Federal Aid Highways

The 2012 Moving Ahead for Progress in the 21st Century Act (MAP-21)1

To examine how state transportation agencies are currently conducting 

and using LCCA to inform pavement-type selections for federally funded 

projects, we interviewed FHWA’s Office of Transportation Performance

Management, Office of Asset Management, and Office of Program 

Administration officials, and reviewed FHWA documentation regarding 

LCCA. We also interviewed officials from the American Association of 

State Highway and Transportation Officials (AASHTO), the American 

Society of Civil Engineers (ASCE), the Transportation Research Board 

(TRB), the research community, the concrete industry, and the asphalt 

industry at the national level. We collected, reviewed, and summarized 

documented pavement-type selection practices from pavement selection 

and design manuals for 16 selected states, practices that were then 

confirmed by officials from those states as current practices or corrected 

to reflect current practices. We also reviewed research and surveys 

regarding states use of LCCA for pavement-type selection that was 

conducted by researchers for TRB and state transportation agencies. In 4 

selected states—California, Colorado, Florida, and Washington—we 

visited and interviewed FHWA division office officials, state transportation 

agency officials, and industry association officials representing the 

asphalt paving and concrete paving industries in these states. The results 

on these interviews are not generalizable to all industry officials. In 12 

additional selected states—Arizona, Maine, Maryland, Michigan, 

Minnesota, Missouri, Nevada, North Dakota, South Carolina, Tennessee, 

Texas, and Wisconsin—we interviewed, via teleconference, state 

transportation agency officials regarding their state transportation 

department’s use, or non-use, of LCCA in pavement-type selection and 

LCCA practices. 

amended the United States Code to mandate that GAO conduct a study 

of the best practices for calculating life-cycle costs and benefits for 

federally funded highway projects. This report (1) describes how state 

transportation agencies currently conduct and use Life-Cycle Cost 

Analysis (LCCA) to inform pavement-type selections for federally funded 

highway projects; and (2) assesses the extent to which Federal Highway 

Administration’s (FHWA) guidance for conducting LCCA conforms to cost 

estimating best practices.

 

1

Pub. .L. No. 112-141, § 52,003(a), 126 Stat. 405, 875 (2012), codified as positive law at 

23 U.S.C. § 503(b)(3)(D)(ii). 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 26 GAO-13-544 Federal Aid Highways

We selected the 16 states to visit and interview based on the states 

having a variation of practices when performing LCCA. For example, we 

selected states that did and did not include user costs, states which used 

probabilistic and states which used deterministic means of calculating 

their life-cycle costs, and states with high and low discount rates. To 

identify states with a variation of LCCA practices, we used data from a 

2008 survey conducted by Applied Research Associates for use in 

National Cooperative Highway Research Program Report 703 issued in 

2011 as the basis for making these selections. The survey was limited to 

35 responses (including DC and Puerto Rico), but we found these data to 

be sufficient for use in the selection of states for a nongeneralizable 

sample because respondents included states with a broad range of LCCA 

practices. To ensure we did not omit any states that have LCCA practices 

which are important for us to include in our study, but did not respond to 

the survey, we reviewed the states in this survey against 

recommendations made to us during interviews of FHWA, researchers, 

professional organizations, and industry associations and considered for 

inclusion in the interview list those states which they believe to have 

advanced or noteworthy LCCA practices. Finally to make sure that there 

were no geographically based reasons for differences in the use of LCCA, 

we ensured that the selected states were geographically spread across 

the country. For the 4 states—of the 16—which we selected to visit, we 

selected only those which used LCCA and had been recommended by 

FHWA, researchers, professional and industry associations, as states 

that had an advance use of LCCA. The use of selected states does not 

allow us to generalize the findings of LCCA practices to all states.

To determine the extent to which FHWA guidance for conducting LCCA 

conforms to cost-estimating best practices we interviewed and analyzed 

documentation from the FHWA Office of Transportation Performance 

Management and Office of Asset Management. We also interviewed 

officials from AASHTO, ASCE, TRB, the concrete industry, and the 

asphalt industry at the national level. In 4 selected states (described 

above), we visited and interviewed FHWA division office officials, state 

transportation agency officials, and industry association officials 

representing the asphalt paving and concrete paving industries in these 

states; and from 12 additional selected states (described above) we 

interviewed, via teleconference, state transportation agency officials.

To assess the extent to which the FHWA guidance for LCCA is supported 

by a reliable cost estimating process, and if not reliably supported, why 

not, we compared FHWA’s Life-Cycle Cost Analysis in Pavement Design, 
Appendix I: Objectives, Scope, and 

Methodology

Page 27 GAO-13-544 Federal Aid Highways

Pavement Division Interim Technical Bulletin; Life-Cycle Cost Analysis—

RealCost User Manual; and Life-Cycle Cost Analysis Primer 2 with the 12 

steps of a high-quality cost estimate, identified in GAO’s Cost Estimating 

and Assessment Guide (Cost Guide).3

The Cost Guide, which includes input from cost community experts and 

extensive research of best practices for estimating program costs, 

indicates that a high-quality, valid, and reliable cost estimate should be 

well documented, comprehensive, accurate, and credible and contain the 

12 steps that high-quality, valid, and reliable cost estimates should follow. 

We reviewed the cost-estimating best practices mentioned in FHWA’s

LCCA guidance against these 12 steps and rated each step as being 

either: Aligns, Substantially aligns, Partially aligns, Minimally aligns, or 

Does not align. The ratings were determined as follows: Aligns: FHWA’s

guidance documents provided complete evidence that satisfies the best 

practice; Substantially Aligns: FHWA’s guidance documents provided 

evidence that satisfies a large portion of the best practice; Partially Aligns: 

FHWA’s guidance documents provided evidence that satisfies about half 

of the best practice; Minimally Aligns: FHWA’s guidance documents 

provided evidence that satisfies a small portion of the best practice; and 

Does Not Align: FHWA’s guidance documents provided no evidence that 

satisfies any of the best practice. After completing this review, a GAO 

cost analyst developed an assessment using this 5-point scale. A second 

analyst then verified this assessment of FHWA’s LCCA guidance. To 

establish the overall phase assessment rating, we assigned following 

values to each of the 12 step ratings: Aligns = 4, Substantially aligns = 3, 

Partially aligns = 2, Minimally aligns = 1, and Does not align = 0. We 

added the ratings for the steps in each phase and averaged them. The 

averaged phase ratings that were 0.5 to 0.99, 1.5 to 1.99, 2.5 to 2.99, 3.5 

to 3.99 were each rounded up to the next whole number, below those 

GAO’s Cost Guide, consolidates 

best practices that federal cost-estimating organizations and industry use 

to develop and maintain reliable cost estimates throughout the life of a 

government acquisition program. These criteria are applicable to FHWA 

guidance because both, the GAO Cost Guide and FHWA’s guidance, 

describe cost estimation processes for capital investment decision 

making. 

 

2

Life-Cycle Cost Analysis in Pavement Design, Pavement Division Interim Technical 

Bulletin, Publication No. FHWA-SA-98-079 (September 1998),; the most recent, publicly 

available, draft FHWA Life-Cycle Cost Analysis – RealCost User Manual v. 2.5 (October 

2010); and the FHWA Life-Cycle Cost Analysis Primer (August 2002).

3

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009).
Appendix I: Objectives, Scope, and 

Methodology

Page 28 GAO-13-544 Federal Aid Highways

ranges were rounded down to the next whole number, and those whole 

numbers were used to set the overall phase assessment rating.

We conducted this performance audit from August 2012 to June 2013 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.
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 29 GAO-13-544 Federal Aid Highways

James R. McTigue, Jr., (202) 512-2834 or mctiguej@gao.gov 

In addition to the contact named above, Heather MacLeod (Assistant 

Director), Sharon Dyer, Jennifer Echard, Bert Japikse, Delwen Jones, 

Terence Lam, Leslie Locke, Sara Ann Moessbauer, Joshua Ormond, 

Karen Richey, and John Stambaugh made key contributions to this 

report.

Appendix II: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(544185)
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