Federal-Aid Highways: FHWA Needs a Comprehensive Approach to Improving Project Oversight
Published: 2005-01-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federal-aid highway program provides over $25 billion a year to states for highway and bridge projects, often paying 80 percent of these projects' costs. The federal government provides funding for and oversees this program, while states largely choose and manage the projects. Ensuring that states effectively control the cost and schedule performance of these projects is essential to ensuring that federal funds are used efficiently. We reviewed the Federal Highway Administration's (FHWA) approach to improving its federal-aid highway project oversight efforts since we last reported on it in 2002, including (1) FHWA's oversight-related goals and performance measures, (2) FHWA's oversight improvement activities, (3) challenges FHWA faces in improving project oversight, and (4) best practices for project oversight.
section_title: What GAO Found
paragraphs: FHWA has made progress in improving its oversight efforts since 2002, but it lacks a comprehensive approach, including goals and measures that guide its activities; workforce plans that support these goals and measures; and data collection and analysis efforts that help identify problems and transfer lessons learned. FHWA's 2004 performance plan established, for the first time, performance goals and outcome measures to limit cost growth and schedule slippage on projects, but these goals and measures have not been effectively implemented because FHWA has not linked its day-to-day activities or the expectations set for its staff to them, nor is FHWA fully using them to identify problems and target its oversight. FHWA undertook activities in response to concerns raised about the adequacy of its oversight efforts that have both promising elements and limitations. For example, while FHWA now assigns a project oversight manager to each major project (generally projects costing $1 billion or more) and identified skills these managers should possess, it has not yet defined the role of these managers or established agencywide performance expectations for them. While FHWA issued guidance to improve cost estimating and began collecting information on cost increases, it still does not have the capability to track and measure cost growth on projects. Finally, although FHWA received direction to develop a more multidisciplinary workforce to conduct oversight, it has not fully incorporated this direction into its recruiting and training efforts. FHWA faces challenges to improving its oversight that are in large part rooted in the structure of the federal-aid highway program and in FHWA's organization and culture. As such, they may be difficult to surmount. For example, because the program does not link funding to states with the accomplishment of performance goals and outcome measures, it may be difficult for FHWA to define the role and purpose of its oversight. Also, FHWA's decentralized organization makes it difficult to achieve a consistent organizational vision. Human capital challenges affecting much of the federal government have affected FHWA, particularly in its need to transform its workforce to meet its evolving oversight mission. FHWA faces an increased oversight workload in the years ahead as the number of major projects grows and if provisions Congress is considering to increase FHWA's responsibilities become law. Questions exist about FHWA's ability to effectively absorb these new responsibilities, overcome underlying challenges, and improve its oversight. We identified selected best practices that could help FHWA develop a framework for a comprehensive approach to project oversight. These include establishing measurable goals to objectively and quantifiably assess progress, making oversight managers accountable for the effective implementation of these goals, providing professional training, and collecting and transferring lessons learned.

section_title: Letter
paragraphs: The federal-aid highway program provides over $25 billion a year to states  for highway and bridge projects, often paying 80 percent of these projects’  costs. The program is federally financed and state administered; that is, the  federal government provides funding and oversees the program, while the  states largely choose and manage the projects. These projects can take  years of planning and environmental review, as well as the time spent in the  design and construction phases. With highway congestion projected to  worsen over the next 20 years and freight traffic expected to double,  widespread consensus exists on the need to maintain and improve the  nation’s surface transportation infrastructure. In the longer term, broader  fiscal challenges face the nation, including federal and state budget deficits  and a fiscal crisis looming as the baby boom generation retires, causing  mandatory commitments to Social Security and Medicare to consume a  greater share of the nation’s resources, squeezing funding available for  domestic discretionary programs. Thus, ensuring that states effectively  manage and control the cost and schedule performance of federally-aided  projects, and that federal funds are used efficiently and effectively, is  critical in light of these challenges.
The Federal Highway Administration (FHWA), under the Department of  Transportation (DOT), is responsible for overseeing the federal-aid  highway program through its headquarters in Washington, D.C., and  division offices located in every state, the District of Columbia, and Puerto  Rico. To carry out this role, FHWA reviews and approves the transportation  plans and environmental impact assessments that states periodically  prepare, reviews and approves states’ property acquisition activities; and  enforces a variety of requirements, such as civil rights laws, that states  accept as a condition of federal aid. FHWA also oversees the design and  construction of federally-aided projects, but this oversight has evolved over  the years and currently focuses on two broad areas: (1) for selected  projects, direct review and approval of state design plans, contract awards,  and construction progress; and (2) reviews of state management processes,  also known as process reviews, to ensure that the states have adequate  controls to effectively manage federally-assisted projects. FHWA also  enforces requirements for “major projects”—generally those projects  estimated to cost over $1 billion—such as reviewing and approving annual  finance plans required by law for these projects.
We and others have raised concerns regarding FHWA’s oversight of the  federal-aid highway program. For example, from 1997 to 2002, we  highlighted several problems, including the lack of a link between FHWA’s  oversight activities and its business goals; a lack of emphasis on FHWA’s  part to ensuring that containing costs is an integral part of states’ project  management; a lack of useful cost estimates, which typically have not been  reliable predictors of the total costs or financing needs of projects; and a  lack of information on the amount of and reasons for cost increases. In  particular, we have highlighted the challenges that major, multibillion- dollar projects pose. These projects are very costly and complex—they  require large commitments of public resources that may take several years  to garner; can involve complicated financing arrangements; can be  technically challenging to construct; and involve a wide range of social,  environmental, land-use, and economic challenges before and during  construction. To keep the projects on schedule and within budget, federal  and state officials must carefully oversee their development, planning, and  construction.
We also recognized actions Congress, DOT, and FHWA have taken to  improve FHWA’s oversight in response to concerns raised about its efforts.  For example, in 1998, Congress required that states submit to the Secretary  of Transportation an annual finance plan for major projects, which was  intended to help provide an advance warning system for increased costs for  large transportation projects receiving federal funds. In 2001, FHWA took  steps to improve its oversight of these major projects by, among other  things, establishing a major projects team to coordinate and implement  oversight policies for major projects and designating project oversight  managers to oversee these projects. In addition, for its reviews of state  management processes, FHWA also began to conduct more risk  assessments to identify and prioritize risk areas and allocate resources.
FHWA will face an increased oversight workload in the years ahead if  provisions Congress is considering become law and as the number of  federal-aid projects grows. In 2003, DOT proposed legislation for the  reauthorization of the Transportation Equity Act for the 21st Century (TEA- 21) that would increase FHWA’s oversight responsibilities by requiring  FHWA to annually review states’ financial management processes and to  periodically review how states plan and manage projects. The legislation  would also extend certain oversight requirements that currently pertain  only to major projects, to other large-dollar projects as well. This proposal  was largely adopted in bills that were separately approved by the House  and Senate in 2004, but which were not enacted before the adjournment of  the 108th Congress. In addition, during the course of our review, the number  of major projects FHWA is responsible for overseeing increased from 15 to  21, and that number is expected to nearly double to 40 in the next several  years.
At your request, we reviewed FHWA’s approach to improving its federal-aid  highway project oversight efforts since 2002, including (1) FHWA’s  oversight-related performance goals and measures, (2) FHWA’s oversight  improvement activities, (3) challenges FHWA faces in improving project  oversight, and (4) best practices for project oversight.
To determine FHWA’s approach to improving its oversight efforts since  2002, the last time we reported on this issue, we evaluated the agency’s  strategic and performance plans, and supporting documents. Furthermore,  we documented and analyzed the status of FHWA’s various project  oversight efforts. We interviewed officials at FHWA Headquarters and  selected FHWA division offices, state departments of transportation, and  others to document oversight implementation efforts and the challenges  FHWA faces in improving its project oversight. We also reviewed FHWA’s  use of financial information from its Financial Management Information  System (FMIS) to track and analyze trends in cost growth on projects. We  did not independently assess the reliability of FMIS data as the  Department’s Inspector General has reported on weaknesses in FHWA’s  financial management and reporting processes, most recently in November  2004 as part of the annual audit of DOT’s consolidated financial statements.  In addition, our work focused primarily on FHWA’s use of FMIS data for  oversight purposes, rather than relying on FMIS data to support our  findings and conclusions.
To provide information on project management best practices we  conducted a literature search to identify best practices related to project  oversight and evaluated their applicability to FHWA’s oversight efforts. We  conducted our work from August 2003 through December 2004 in  accordance with generally accepted government audit standards. Appendix  I provides the details of our scope and methodology.
subsections: section_title: Background
paragraphs: Federal funding for highways is provided to the states mostly through a  series of formula grant programs collectively known as the federal-aid  highway program. Periodically, Congress enacts multiyear legislation that  authorizes the nation's surface transportation programs, including  highways, transit, highway safety, research, and motor carrier programs. In  1998 Congress enacted TEA-21, which authorized $172.4 billion for the  federal-aid highway program from fiscal years 1998 through 2003. The  program expired on September 30, 2003, and it has been extended by six  short-term extensions, the most recent extending the program until May 31,  2005. During the 108th Congress, both the House and Senate approved  separate legislation to reauthorize the federal-aid highway program;  however, the reauthorization legislation was not been enacted before the  adjournment of the 108th Congress. The bill approved by the House  authorized $226.3 billion for the federal-aid highway program for fiscal  years 2004 through 2009, an increase of about 31 percent over TEA-21,  while the bill approved by the Senate authorized $256.4 billion, an increase  of about 49 percent. Because both bills contained funding increases, it is  likely that the number of federal-aid highway projects will rise in the next  several years.
FHWA administers the federal-aid highway program and distributes most  highway funds to the states through annual apportionments established by  statutory formulas contained in law. Once FHWA apportions these funds,  they are available to be obligated for construction, reconstruction, and  improvement of highways and bridges on eligible federal-aid highway  routes and for other purposes authorized in law. About 1 million of the  nation's 4 million miles of roads are eligible for federal aid; including the  161,000 mile National Highway System, of which the 47,000 mile Interstate  Highway System is a part. While FHWA administers the program, the  responsibility for choosing projects generally rests with state departments  of transportation and local planning organizations. The states have  considerable discretion in selecting specific highway projects and in  determining how to allocate available federal funds among the various  projects they have selected. For example, section 145 of title 23 of the  United States Code describes the federal-aid highway program as a  federally-assisted state program and provides that the federal authorization  of funds, as well as the availability of federal funds for expenditure, shall  not infringe on the states’ sovereign right to determine the projects to be  federally financed.
A highway or bridge construction or repair project usually has four stages:  (1) planning, (2) environmental review, (3) design and property acquisition,  and (4) construction. FHWA reviews and approves long-term and short- term state transportation plans and programs, environmental documents,  and the acquisition of property for all highway projects. However, its role  in overseeing the design and construction of projects varies. On selected  projects, FHWA exercises what is often considered “full” oversight,  meaning that FHWA (1) prescribes design and construction standards, (2)  approves design plans and estimates, (3) approves the selection of the  contract award, (4) periodically inspects the progress of construction, and  (5) renders final acceptance on projects when they are completed.  However, relatively few projects are subject to this full FHWA oversight.  The last two authorizations, the Intermodal Surface Transportation  Efficiency Act of 1991 (ISTEA) and TEA-21, devolved an increasing amount  of responsibility to the states. Under current law FHWA exercises full  oversight of certain high-cost interstate system projects, while states  oversee design and construction on other federal-aid projects.
The stages of a highway or bridge project and the corresponding state role  and FHWA approval actions are shown in figure 1.
The types of projects for which FHWA exercises full oversight as compared  with state oversight are shown in table 1.
According to FHWA, the agency retains the responsibility to oversee all  federally-aided highway and bridge projects, including projects for which  FHWA does not exercise oversight over the design and construction  phases. FHWA conducts oversight of state transportation programs  through a variety of means, including process reviews—reviews of state  management processes to ensure that states have adequate controls to  effectively manage federally-assisted projects. States and FHWA execute  stewardship and oversight agreements to define their respective oversight  responsibilities.
TEA-21 contains an additional oversight requirement for so-called “major  projects”—generally those estimated to cost at least $1 billion. Since TEA- 21 was enacted in 1998, states must submit finance plans to DOT annually  for such projects, based on detailed estimates of the costs to complete the  project and on reasonable assumptions about future increases in such  costs. FHWA developed guidance that requires states to include in these  finance plans a total cost estimate for the project, adjusted for inflation and  annually updated; estimates about future cost increases; a schedule for  completing the project; a description of construction financing sources and  revenues; a cash flow analysis; and a discussion of other factors, such as  how the project will affect the rest of the state’s highway program. FHWA  approves these plans as a condition of federal aid. As of November 2004, 11  of the 21 current major projects had finance plans. Approved finance plans  will be required for the other projects prior to FHWA authorizing federal  funds for construction. FHWA forecasts that another 19 major projects,  estimated to cost from $34 billion to $60 billion, will be starting over the  next several years and will also require finance plans.
Over the past several years, we and others have identified problems with  FHWA’s oversight of major projects and other large highway and bridge  projects. For example, in 1997, we reported that the overall amount of and  reasons for cost increases on highway and bridge projects could not be  determined because data were not readily available from FHWA or the  states. We found, however, on many of the projects for which we could  obtain information, that costs had increased, sometimes significantly, and  that several factors accounted for the increases. In addition, initial cost  estimates were not reliable predictors of a project’s total cost or financing  needs because they were developed at the environmental review stage, and  their purpose was to compare project alternatives, not to develop reliable  cost estimates. We further reported that cost containment was not an  explicit statutory or regulatory goal of FHWA’s oversight; therefore, the  agency had done little to ensure that cost containment was an integral part  of the states’ project management. In our May 2002 testimony before the  Highways, Transit, and Pipelines Subcommittee of your Committee, we  reported that FHWA had begun to improve its oversight by implementing  Congress’ finance plan requirements for major projects and introducing  risk-based decision making into its oversight of states’ processes on other  projects. However, we also reported that FHWA had not yet developed  performance goals or measurable outcomes linking its oversight activities  to its business goals, and that goals and strategies for containing costs  could improve accountability and make cost containment an integral part  of how states manage projects over time. Furthermore, we stated that  opportunities existed for improving the quality of cost estimating and  developing reliable and accurate information on the extent and nature of  projects’ cost performance to help direct federal oversight efforts. Our  work identified several options for enhancing the oversight of major  projects. Reports by DOT’s Office of Inspector General, as well as reviews  by state audit and evaluation agencies, have also shown that the escalating  costs and management of major projects continue to be a problem. For  example, the Inspector General has issued several reports on FHWA’s  oversight and stewardship of major projects, such as the Central  Artery/Tunnel project in Massachusetts and the Woodrow Wilson Bridge in  Virginia and Maryland. More recently, the Inspector General reported signs  of improvement in FHWA’s stewardship over major projects but identified  improvements needed in eight areas, including developing more reliable  cost estimates, managing project schedules better, strengthening efforts to  prevent and detect fraud, and refocusing FHWA’s efforts on project  management and financial oversight.
Partly in response to concerns that we and others have raised, in addition  to the provisions Congress enacted in TEA-21, DOT also took further  action. In 2000 the Secretary of Transportation established a task force to  review oversight mechanisms and processes for major transportation  projects across DOT. Among other things, the task force recommended that  DOT improve the skills and qualifications of staff overseeing major projects  and conduct more rigorous financial reviews of such projects. Although  DOT did not formally implement the task force’s recommendations, FHWA  responded to the task force report by establishing a major projects team in  Washington, D.C., to assist FHWA’s division offices in reviewing financial  plans and overseeing major projects and by assigning project oversight  managers to each of the major projects. In addition, in 2003, DOT proposed  new legislation as part of its TEA-21 reauthorization proposal requiring that  (1) states submit a project management plan as well as an annual financial  plan for any project with an estimated total cost of $1 billion or more or any  other project at the discretion of the Secretary; (2) states develop financial  plans for any project receiving over $100 million in federal funds; (3) FHWA  perform annual reviews of state transportation programs’ financial  management and periodic reviews of state project delivery systems for  planning and managing projects; and (4) DOT develop minimum standards  for estimating project costs and perform periodic reviews of state practices  for estimating costs and awarding contracts. This proposal was largely  adopted in bills that were separately approved by the House and the Senate  in 2004 but that were not enacted before the adjournment of the 108th  Congress.
To meet the requirements of the Government Performance and Results Act  of 1993 (GPRA), DOT establishes goals and outcome measures for the  programs under its jurisdiction, including the federal-aid highway program,  through its strategic and performance plans. GPRA requires agencies to  complete strategic plans in which they define their missions, establish  outcome-oriented goals, and identify the strategies that will be needed to  achieve those goals. GPRA also requires agencies to prepare annual  performance plans to articulate goals for the upcoming fiscal year that are  aligned with their long-term strategic goals. The establishment of goals and  measures is a valuable tool for guiding an agency’s strategies and resource  allocations and for establishing accountability for the outcomes of its day- to-day activities. As our prior work has shown, measuring performance  allows organizations to track the progress they are making toward their  goals and gives managers crucial information on which to base their  organizational and management decisions. When an agency’s day-to-day  activities are linked to outcome measures, these measures can create  powerful incentives to influence organizational and individual behavior. In  prior work, we found that leading agencies that successfully link their  activities and resources also seek to establish clear hierarchies of  performance goals and measures. Under these hierarchies, an agency links  the goals and outcome measures for each organizational level to successive  levels and ultimately to the agency’s strategic goals. Without this link,  managers and staff throughout the organization will lack straightforward  roadmaps showing how their daily activities can contribute to attaining  organization wide strategic goals.
section_title: FHWA Established Some Oversight Goals and Measures but Has Not Effectively Implemented Them
paragraphs: FHWA established measurable, outcome-oriented goals and measures  related to cost and schedule performance for the first time in its 2004  performance plan, but FHWA has not effectively implemented these goals  and measures in order to improve oversight. Specifically, FHWA has not  linked its day-to-day oversight activities to its goals for major projects, and  it has not yet used its goals and measures for nonmajor projects to examine  the performance of states or particular projects. FHWA also uses estimates  developed relatively late in a project’s development as its baseline for  measuring its performance on achieving cost and schedule goals; thus, it  does not task itself with controlling cost and schedule slippage during the  early stages of a project’s development.
subsections: section_title: FHWA Recently Established Goals and Measures
paragraphs: In December 2000, DOT issued a task force report concluding that a  significant effort was needed to improve the oversight of major projects  and recommending that DOT incorporate goals for its oversight efforts into  its performance plans as well as into the plans of FHWA. In 2002, we  reported that FHWA had not yet developed performance goals or  measurable outcomes linking its oversight activities to its business goals  and that goals and strategies for containing costs could improve  accountability and make cost containment an integral part of how states  manage projects over time.
FHWA has made some improvements over the past several years in  developing goals and performance measures related to cost and schedule  performance of federal-aid highway projects. In its fiscal year 2002  performance plan, FHWA included a strategic goal of organizational  excellence that had among its many strategic objectives the aim to improve  organizational performance. Since that time, from fiscal year 2003 to fiscal  year 2005, FHWA’s performance plans have specifically identified under the  organizational excellence heading a general oversight goal to improve  project oversight and stewardship so as to realize more cost efficient  federal-aid funds administration and project management and more  effective use of funds in terms of return on investment. In its fiscal year  2004 performance plan, DOT for the first time established goals and  outcome measures specifically related to achieving cost and schedule  targets for its transportation projects. FHWA incorporated these goals and  measures into its performance plan for highway projects, establishing, for  the first time, goals and measures for major projects that are outcome  oriented and measurable and clearly define containing project costs and  schedules as an integral part of FHWA’s oversight mission. Figure 2 shows  the goals and associated measures articulated in FHWA’s fiscal year 2004  performance plan.
section_title: FHWA Has Not Effectively Implemented its Goals and Measures
paragraphs: While linking day-to-day activities to goals and measures is an important  element of implementing goals and measures by ensuring that they are  being used as a framework to guide the activities, we found no evidence  that FHWA has linked the day-to-day activities of its division offices to its  goal and measure for major projects. In our visits to the three division  offices that were overseeing a major project, we found a lack of  documented goals, strategies, or measures showing how the division  offices’ activities supported and furthered the goals and measures  articulated in FHWA’s 2004 performance plan. While each division office  had developed its own individual unit fiscal year 2004 performance plan,  there was no link in these plans between the division offices’ activities and  FHWA’s goal and measure for major projects: that is, to meet 95 percent of  schedule milestones and cost estimates for major projects or to miss them  by less than 10 percent. Furthermore, in these three division offices, the  project oversight managers were not specifically tasked, as part of their  duties and responsibilities, with implementing or furthering the articulated  cost and schedule performance goals for major projects.
This absence of a link between activities and goals and measures was in  noticeable contrast to the link that the division offices had established  between their activities and the three areas of work that FHWA has  designated as its “vital few” priorities. FHWA’s vital few priorities, which  consist of safety, congestion mitigation, and environmental stewardship  and streamlining, are areas that FHWA has determined are key priorities  and that it accordingly highlights in its performance plans as areas where  the agency has identified performance gaps that must be addressed if  FHWA is to be successful. Perhaps in line with this emphasis, FHWA has  developed a better link between its division offices’ activities related to  these vital few priorities and its goals related to these vital few priorities.  For example, all seven of the division offices we visited had unit plans that  linked their activities to all three of FHWA’s vital few priorities. This link  was established through listing specific unit-level activities and measures  that were designed to meet unit goals that mirrored the national  performance plan’s goals for its vital few priorities. For example, for the  vital few priority of safety, FHWA’s fiscal year 2004 performance plan set a  performance goal of reducing highway fatalities to no more than 1.38 per  100 million vehicle miles traveled. The fiscal year 2004 performance plan  for one division office tasked itself with five performance objectives to  address this national goal, including such objectives as improving accident  rates involving roadway departures, increasing the capability of FHWA and  state engineers in highway safety design, and reducing pedestrian  fatalities. One or more division-level performance measures and several  specific activities were identified for each of these five division objectives,  and performance expectations set for key division staff identified which of  these activities they were responsible for performing.
In addition to not linking its activities to its goal for major projects, FHWA  has also not yet used its goals and outcome measures to help it identify and  correct problems on the vast majority of projects that are not considered  major projects. In 2004, FHWA did not develop numerical goals or outcome  measures related to nonmajor projects, nor did it assess the cost and  schedule performance of projects on a state-by-state or project-by-project  basis in order to gain a clear picture of whether certain states or projects  have more cost or schedule overruns than others in order to target its  oversight activities. Instead, FHWA officials told us that while FHWA’s  major projects team recently started developing this state-by-state  information, FHWA relies on the division offices to monitor costs of  individual contracts and take action as appropriate. However, these  officials could not say with certainty whether their division offices were  carrying out this monitoring function, or what kinds of corrective measures  were being applied. FHWA officials also said that the agency relies on  FHWA’s division offices to execute formal oversight agreements with the  states to ensure that they are working to control costs. However, none of  the oversight agreements of the seven division offices we visited reflected  an agreement between FHWA and the states to do this. As we concluded  our review, FHWA officials stated that in response to issues we raised,  FHWA would begin sharing information with its division offices and begin  discussing appropriate solutions or actions the divisions can take to  address incidences of cost growth.
For fiscal year 2005, FHWA made its cost-related goal for nonmajor  projects more specific by adding the outcome measure that the total  percentage of cost growth for all construction projects over $10 million will  be less than 10 percent above the estimated cost when the project went to  construction. FHWA’s preliminary information indicates that the agency is,  in the aggregate, meeting its goal; however, sharing information with its  division offices about variations in state contract costs could help FHWA  target its oversight efforts. For example, FHWA's information also shows  that about 1 in 5 of the 492 contracts approved for construction in fiscal  year 2003 exceeded the 10 percent threshold in fiscal year 2004. One  contract exceeded the threshold by 160 percent. Our analysis of FHWA’s  information also shows that some states may be more effectively  controlling the costs of federal-aid highway contracts than others. For  example, in one state, 6 of 9 contacts over $10 million had exceeded the  threshold, while in another state, all of the contracts were under the  threshold. While opportunities exist for FHWA to use this information to  better target its oversight efforts, it faces challenges in doing so in light of  weaknesses recently reported by the DOT Inspector General’s Office in its  financial management and reporting processes.
section_title: FHWA Does Not Measure its Performance over the Full Life of Projects
paragraphs: FHWA uses cost and schedule estimates developed relatively late in a  project’s development—at the point at which the project is ready to go to  construction—as a baseline for measuring its performance. We have  discussed our concerns with FHWA’s use of later estimates as its baseline  measure in earlier work. We have recognized that developing early  estimates is difficult; however, we have pointed out that using this late  estimate as a baseline for measuring cost growth provides a misleading  picture of actual cost growth. This is because cost estimates developed  much earlier in the project—for example, at the environmental review  stage—are used to make the public investment decision regarding the  project. By the time the project goes to construction, a public investment  decision effectively has been made, as substantial funds will have been  spent on designing the project and acquiring property, commitments will  have already been made to the public, and much of the increases in a  project’s costs may have already occurred.
Moreover, by measuring its performance only after construction begins,  FHWA is not tasking itself with or establishing any accountability for  controlling cost growth during the part of the process where it exercises  direct oversight responsibility. Rather, it has focused its goals on the phases  of the project where it exercises less oversight. This is because while  FHWA is responsible for reviewing and approving certain state  transportation plans, environmental impact assessments, and the  acquisition of property for all projects, its role in approving the design and  construction of projects varies.
section_title: FHWA’s Oversight Activities Have Promising Elements and Limitations
paragraphs: FHWA and its major projects team undertook a number of activities to  improve its oversight efforts, which the major projects team documented in  its workplan summary (see app. II). Activities undertaken in response to  prior concerns included increasing the use of project oversight managers,  issuing guidance to states for improving cost estimates throughout the life  of projects, developing some information on cost growth of major and  other large projects, incorporating more risk assessments into its reviews  of state management processes, and attempting to address congressional- committee direction to develop a multidisciplinary approach to its  oversight. FHWA’s activities in these areas have promising elements and  limitations.
subsections: section_title: FHWA Established Competencies for Project Oversight Managers but Did Not Establish Roles or Consistent Performance Expectations
paragraphs: FHWA has taken some positive steps in its use of project oversight  managers for major projects, but it has not yet defined the role of project  oversight managers or established agency wide performance expectations  for them. Currently, FHWA has assigned project oversight managers to 14  of the 21 active major projects, compared with 7 project oversight  managers and 14 major projects in 2002. An FHWA official said that 6  project oversight manager positions would be advertised soon for the other  projects and would be filled within 6 months. In August 2002, it issued a  core competency framework to identify the technical, professional, and  business skills that project oversight managers should possess and to serve  as a guide for selecting and developing these managers. This core  competency framework defines the skills and supporting behaviors of  project oversight managers in areas such as project and financial  management, contract administration, and program laws, and it specifies  the desired proficiency level for each competency at each grade level.
FHWA has also taken steps to provide guidance and tools for project  oversight managers, including an online resource manual and other  guidance on reviewing project management plans and finance plans. It also  made major projects team staff available to assist the project oversight  managers in completing their reviews of such plans, and it sponsored  annual meetings for project oversight managers to share experiences.  Additionally, FHWA identified external training opportunities to help  managers reach or improve their core competency skills. FHWA sent a  listing of these opportunities to project oversight managers via email and  invited these staff to enlist in courses that interested them. For the future,  FHWA’s 2004 major projects team work plan summary envisions a variety  of additional activities to improve the effectiveness of project oversight  managers, including working with universities and training vendors to  establish a skill set development and certification program to ensure that  all project oversight managers acquire the same critical skills and to  establish a career path for them. According to FHWA, having a career path  would make the position of project oversight manager a more attractive  career option because it would provide opportunities to work with more  challenging projects and provide promotion opportunities so that managers  could advance within FHWA while staying in the project management  track.
However, there are limitations with FHWA’s efforts so far. While the core  competencies define the skills that project oversight managers are  expected to possess, they do not define what the managers should do to  oversee a major project. FHWA has not yet articulated the role of project  oversight managers or established agency wide performance expectations  for them. In prior work, we established that setting performance  expectations that are linked to goals is important, as a specific alignment  between performance expectations and organizational goals helps  individuals see the connection between their daily activities and  organizational goals.
According to FHWA officials, project oversight managers are assigned to  the division offices, and each division office defines what its project  oversight manager does. At the three division offices we visited that had  major projects and project oversight managers, none had set performance  expectations for the project oversight manager that specifically tasked the  project oversight manager with achieving the goals and outcome measures  for the major projects. Project oversight managers and division officials  stressed the project oversight managers’ close, hands-on involvement with  the state transportation agencies in the project, on an almost daily basis.  For example, project oversight managers and other division office staff  help state transportation agencies prepare finance and project  management plans, get involved in design, participate in community  outreach, and brief local political leaders on major projects. However, the  extent to which the activity of the project oversight managers supported  DOT’s cost and schedule goals was not clear.
Finally, without clear roles, responsibilities, and performance expectations  for project oversight managers that are clearly linked to FHWA’s goals, it is  unclear what training is most needed to enable project oversight managers  to improve their performance and meet the agency’s goals. Our guidance  for assessing training efforts cites the need for training efforts to be an  integral part of the strategic and performance planning process and to  focus on reaching the agency’s goals, rather than being implemented ad  hoc.Currently, the training opportunities FHWA offers to project  oversight managers are identified by the major projects team and are  voluntary. There is no program of required courses—staff can choose  which courses they would like to take, or take no courses at all. In March  2004, the head of FHWA’s major projects team sent an e-mail to the  oversight managers advising them of available training. To date, three  project oversight managers and one other division office engineer have  each volunteered to take one or two courses.
FHWA officials told us they eventually plan to establish a certification  program for project oversight managers and to introduce a project  oversight manager skills-set or career path to make project management a  more attractive career option by setting out opportunities for more  challenging projects, and providing promotion opportunities. However, as  of December 2004, FHWA does not have a time frame for implementing its  plans, and officials told us these activities would not be implemented  without additional resources.
section_title: FHWA Provided Guidance to States on Developing Cost Estimates but this Guidance is Voluntary and Covers Only Major Projects
paragraphs: In another positive step since 2002, FHWA has provided guidance to state  transportation agencies to assist them in applying sound cost estimating  practices, including guidance in developing more realistic early cost  estimates. However, this guidance is voluntary and covers only major  projects, and we found evidence that there is some resistance by FHWA  officials to focusing on developing earlier cost estimates. In past work, we  have identified problems related to FHWA’s lack of accurate cost estimates  for projects. For example, in 1997, we found that cost increases occurred  on projects, in part, because the initial cost estimates were not reliable  predictors of the total costs or financing needs. Rather, these estimates  were developed for the environmental review—the purpose of which is to  compare project alternatives, not to develop reliable cost estimates. In  addition, each state used its own methods and included different types of  costs in developing its estimates, since FHWA had no standard  requirements for preparing cost estimates. Since that time, in 2003, FHWA  surveyed its division offices on cost estimating practices in their states and  found a variety of approaches to developing cost estimates, including  manually compiling estimates from historical data, using estimated  quantity or cost per mile calculations, or utilizing various externally or  internally developed software; one state reportedly lacked any formal  process. Similarly, the American Association of State Highway and  Transportation Officials (AASHTO) reported widely varying practices  among the states in developing cost estimates.
In June 2004, FHWA issued guidance that articulated the importance of  developing realistic early cost estimates that would be more stable as a  project progresses. Specifically, FHWA’s guidance stated that it is important  that care be taken to present an achievable estimate even in the early  stages of project development, because logical and reasonable cost  estimates are necessary to maintain public confidence and trust throughout  the life of a major project. Moreover, the guidance recognized that cost  increases over and above the early planning and environmental estimates  for major transportation projects have become of increasing concern to  congressional and political leaders, federal and state top managers, and  auditing agencies. In addition to recognizing the difficulty of developing  more accurate cost estimates early in the project, this guidance includes  such components as what should be included in an estimate, how it should  be approved, factors to include in contingencies, and other information.  This guidance may help states move towards more consistent and reliable  cost estimates during the earlier planning phases when decisions are being  made about whether or not to go forward with the project, as well as the  project’s potential design and construction.
FHWA also established help teams that travel to states that ask for  assistance in creating better estimates. For example, in March 2003 FHWA  was asked by the Kentucky and Indiana transportation departments for  help in reviewing the accuracy and reasonableness of the initial cost  estimate to complete the Ohio River Bridges project. This project includes  two new bridges over the Ohio River that would link eastern Louisville,  Kentucky, and Clark County, Indiana, with additional interchange  improvements. FHWA staff helped state officials identify the need for  revised cost estimates and more realistic completion dates based on such  factors as more realistic right-of-way costs, needed environmental  mitigation, revised contingencies, and updated inflation rates. A team of  federal and state staff working with consultants recommended that the  total cost estimate of the project be revised from $1.6 billion to $2.5 billion  and that its expected completion date be revised from 2017 to 2020. State  officials accepted these recommendations.
While these cost estimating guidance and assistance efforts represent a  positive step, it is too early to tell whether they will actually improve cost  estimating efforts in most states. Furthermore, there are indications that  there is some resistance among FHWA officials and states to emphasizing  the importance of more accurate early estimates in practice. For example,  some FHWA officials with whom we spoke said that costs cannot be  accurately estimated early because issues such as public opposition to a  project or unforeseen environmental mitigation procedures that are  determined necessary are likely to drive up the cost of a project. They said  early estimates should not be used as a basis for monitoring project costs.  Other FHWA officials believed that the estimate developed at the  conclusion of the design phase, as the project is ready for construction, is  the only realistic estimate to be used as a baseline. Some FHWA officials  told us that resolving concerns about cost estimates is more a matter of  managing public expectations, so that the public understands that early  estimates are not reliable and cannot be counted on, and that the actual  cost will exceed early estimates. AASHTO also believes that accurately  estimating costs at the early stages of a project can be a challenge.  According to a May 2004 AASHTO report, property acquisition needs and  environmental and regulatory requirements may not be fully known early  on, becoming clear only as the project progresses. Public input can  contribute to additional features being added to projects, known as “scope  creep,” and litigation can delay a project, adding to costs because of  inflation.
We recognize that many challenges exist to developing more realistic early  estimates that more accurately reflect the expected cost of a project.  However, as we have also reported, relying on estimates prepared as a  project is ready to move to construction is too late in the process, as  substantial funds may have already been spent on designing the project and  acquiring property, and a public investment decision may, in effect, already  have been made. FHWA’s guidance recognizes that steps can be taken to  take uncertainties into account when developing early cost estimates  through such means as developing contingencies. Some states have begun  taking action to improve the reliability of early cost estimates. For  example, Washington State’s Cost Estimate Validation Process uses project  teams to identify risk factors, along with costs and mitigation strategies for  each factor. These results are then entered into a computer-based modeling  program that produces a range and a project cost estimate at the 90 percent  confidence level, rather than a single dollar cost estimate.
DOT’s proposed legislation for the reauthorization of TEA-21 in 2003  included provisions empowering the Secretary to develop minimum  standards for estimating project costs and to perform periodic reviews of  state practices for estimating project costs. These provisions were adopted  in bills that were separately approved by the House and the Senate in 2004  but that were not enacted before the adjournment of the 108th Congress.  According to FHWA officials, if these provisions are adopted, the  provisions may require them to move beyond voluntary guidance and issue  regulations covering states’ practices for estimating costs.
section_title: FHWA Has Started to Collect Some Cost Information, but it still Lacks the Capability to Determine the Extent of and Reasons for Cost Growth on Projects
paragraphs: FHWA has started to collect some cost information on some projects, but it  still lacks the capability to determine the extent of and reasons for cost  growth on projects so that it can better focus its oversight efforts. In 1997  we reported that cost growth occurred on projects, but the extent could  not be determined because FHWA’s information system for highway  projects could not track total costs over the life of a project. In 2002, we  testified that this information was still not available and noted that recent  congressional attempts to gather complete and accurate information about  the extent of and the reasons for cost growth had met with limited  success. In response to these concerns and requests from Congress for  data, FHWA has begun to collect project cost data, but it has not  substantially improved its ability to monitor total costs on projects.
FHWA has undertaken two efforts to collect information on the cost  performance of federally financed projects. First, it has started tracking  information on cost growth of major projects. The small number of these  projects allows the tracking to be done manually on a table containing cost  and schedule information for key aspects of each major project. Second,  FHWA has developed aggregated cost information on construction  contracts over $10 million on a state-by-state basis. FHWA has done this by  comparing the current estimated costs of all contracts over $10 million in  each state with the engineering estimate developed before the contract was  awarded. However, as mentioned earlier, the state-by-state information  FHWA has developed has not yet been used to measure performance or  target its oversight efforts.
In spite of this progress, FHWA still does not have the capability to measure  the extent of and reasons for cost growth on projects. FHWA’s principal  vehicle for tracking project costs is its financial management system. This  system is an accounting system, not a project information system, and it  tracks federal reimbursements by contract rather than by project. Because  one project can include many contracts over many years, and the system  does not automatically link contracts to projects, FHWA has little easily  accessible information to help it determine the total overall costs of each  project, other than the major projects it tracks individually outside of its  financial management system. In one case, FHWA division staff told us that  because FHWA’s financial management system does not track costs by  project, the division developed its own spreadsheet to track project costs.
Our recent work confirmed FHWA’s continued difficulty with tracking cost  growth on projects. We randomly selected 14 contracts from 7 division  offices and asked FHWA’s division offices to identify the project related to  each contract. We then requested consolidated cost information on the 14  projects. FHWA took an average of more than 3 months—and up to 6  months—to provide us this information for 12 of the 14 projects, and it was  unable to provide us complete cost information on the other 2 projects.  (See app. I for more details.) The primary reason for FHWA’s difficulty in  providing us with this information was that FHWA and state staff could not  easily or electronically compile information on a project-by-project basis.  For example, one division office said it had to develop and run special  transaction reports and manually extract the information we wanted  because the support files for the information were at different locations,  including a state district office, state transportation agency offices, and  comptroller offices. Another told us it had to take the extra step of either  combining or separating contracts in order to compile information by  project, which resulted in more “hand work.” Another said that files on  contracts for one project were kept in different locations depending on the  stage of the project that the contract was related to. As a result, quite a bit  of staff time was tied up as they attempted to get information from multiple  departments of the state transportation agency. FHWA’s continued  difficulties in maintaining accurate and complete data to determine the  extent of cost growth on projects limit its ability to evaluate why cost  growth occurs, identify problems and solutions, target its oversight efforts,  and transfer lessons learned.
section_title: FHWA Has Established Risk Assessments, but These Risk Assessments Are Not Always Used
paragraphs: FHWA expects its division offices to use some form of risk assessment to  help guide its reviews of state management processes, also known as  process reviews. However, risk assessments are not always being used  consistently or effectively. As we reported in 2002, FHWA issued a policy in  June 2001 encouraging its division offices to prioritize the risks in the  transportation programs in their states and to direct their oversight efforts  based on these results. The policy did not require a specific risk assessment  approach but allowed division offices flexibility in developing an approach  with their state agencies. FHWA considered its establishment of risk  assessment practices at the division offices to be the first of a two-phased  approach that would lead to an overall risk management program for  FHWA, which was still under consideration within FHWA’s leadership as of  November 2004.
Each of the seven division offices we visited had developed a risk  assessment approach, and five out of seven of the offices were using these  risk assessments to guide their process reviews. However, at two division  offices, the results had not been used to direct their process reviews. Staff  at one division office we visited reported that although they had been doing  risk assessments for a few years, they did not use the results to target state  activities for review. Instead, they targeted state activities for review by  meeting with state officials to draw up an intuitive list of state operations  for process reviews. Similarly, another division office had drafted a risk  assessment approach, but it had not yet tried to use it. Division office staff  were skeptical that it would yield better results than their own more  intuitive approach to identifying which state program operations warranted  a process review.
In addition, in November 2004 the DOT Inspector General reported that  FHWA's risk assessments were voluntary and did not provide a systematic  approach for assessing program risks throughout the agency. The Office of  Inspector General (OIG) reported that risks assessments varied  significantly in the scope and methodology used and how the assessment  results were rated and classified. As a result, some major programs were  not reviewed, and risk assessment results were not reliable or comparable  across states. To improve FHWA's process for managing risk, the OIG  recommended that FHWA require all division offices to conduct risk  assessments and that it issue guidance to division offices to ensure risk  assessments are conducted more strategically and with a disciplined  methodology. The OIG further recommended that FHWA analyze trends  within individual risk assessments to identify agency wide issues and  problems and establish a systematic follow-up process to ensure that  oversight attention is given to high-risk areas. FHWA was in the process of  reviewing and responding to the OIG’s recommendations when we  concluded our review.
section_title: FHWA Has Begun to Take Steps to Develop a Multidisciplinary Approach to Oversight, but its Efforts so Far Have Been Limited
paragraphs: In February 2003, in the Conference Committee Report for the DOT fiscal  year 2003 continuing appropriations, the conferees expressed continuing  concern about FHWA’s management of major projects, and in particular, a  concern that FHWA’s traditional engineering focus had inhibited oversight  in such areas as financing, cost control, and schedule performance.  Accordingly, FHWA was directed to evaluate the range of disciplines and  skills within its staff and to develop a strategy for achieving a more  multidisciplinary approach towards its oversight activities, including  identifying staff with such skills as financing and cost estimation.
However, FHWA’s human capital plan does not incorporate strategies for  developing a workforce to support a more multidisciplinary oversight  approach. In prior work, we noted that the process of strategic workforce  planning addresses two critical needs: (1) aligning an organization’s human  capital program with its current mission and programmatic goals; and (2)  developing long-term strategies for acquiring, developing, and retaining  staff to achieve programmatic goals. To some extent, FHWA’s human  capital plan does this for the agency’s current vital few priorities of safety,  congestion mitigation, and environmental stewardship. But the agency’s  oversight mission is not truly incorporated into the plan. FHWA’s human  capital plan acknowledges the congressional-committee direction FHWA  received to develop a more multidisciplinary approach to oversight. The  plan states that this approach will require the development or acquisition of  new skills, specifically in the areas of financing, funds accountability,  project-level cost control, schedule performance, process management,  and transportation planning. However, FHWA’s human capital plan does not  relate these needed skills to the skills possessed by its present workforce,  nor does it address how these skills will be developed or acquired. Instead,  FHWA’s human capital plan is essentially a plan for replacing individuals in  its current key occupations whom it expects to lose through attrition over a  5-year period.
Additionally, strategies for developing a multidisciplinary approach were  not reflected in FHWA’s guidance to its division offices for developing their  workforce plans. This year, FHWA required its division offices and other  units to prepare a workforce plan for the upcoming 3-to-5 year period  identifying anticipated skill gaps in their workforce. However, the guidance  FHWA provided did not mention the multidisciplinary skills that FHWA had  identified in its human capital plan. As we have pointed out in prior work,  when planning for the future, leading organizations go beyond simply  replacing individuals and engage in broad, integrated planning and  management efforts that focus on strengthening both current and future  organizational capacity. This is particularly important for FHWA, as its  traditional engineering focus has drawn congressional committee concern  that has led to direction to develop a multidisciplinary approach towards  its oversight activities.
Similarly, FHWA’s recruiting efforts do not incorporate strategies for  developing a more multidisciplinary approach to project oversight. Like its  human capital plan, FHWA’s recruitment plan for 2003 through 2005 is  primarily a plan for hiring to fill the agency’s traditional occupations. The  recruitment plan does not set any specific goals or objectives for acquiring  needed multidisciplinary skills that FHWA articulated in its human capital  plan, such as project level cost control, schedule performance, process  management, and transportation planning. Under the recruiting plan, the  development of a multidisciplinary approach is addressed through FHWA’s  professional development program (PDP). FHWA’s PDP, which historically  focused on engineers, is a 2-year program that provides developmental  assignments and on-the-job and classroom training for entry-level staff.  Officials told us that PDP staff are now being given assignments allowing  them to develop a broader range of skills at the start of their careers,  including assignments to division offices with major projects. They also  note that over recent years FHWA has been hiring fewer engineers for its  PDP programs and more staff from other backgrounds.
The other principal component of FHWA’s response to congressional  committee direction to develop a multidisciplinary approach to project  oversight is training, but the agency has made limited progress in  developing new courses to bring new skills to its workforce. Only two new  training courses were being developed specifically to address needed  skills—a course on project cost estimation and a course on project  management for managers in division offices. As of November 2004, both  courses were being pilot tested. As we noted earlier, it is important for  training to be an integral part of an agency’s performance planning process  to ensure that it contributes to reaching agency goals. However, in its fiscal  year 2005 performance plan, FHWA allows divisions the discretion to  decide whether or not to participate in multidisciplinary training for its  project oversight managers and professional development program staff. In  addition, as noted earlier, FHWA has identified and offered external  training courses to project oversight managers, but to date only a few  managers and other key division staff have expressed an interest. Even so,  FHWA human resources officials we spoke to told us they believed that the  congressional committee’s direction to develop a multidisciplinary  approach to project oversight has been largely met through their already  existing training efforts. These efforts include making courses available on  risk assessment techniques, conducting process reviews, and implementing  financial management improvements.
In addition to FHWA’s limited progress in developing strategies for meeting  this congressional-committee direction, FHWA has not fully embraced the  need to develop a more multidisciplinary approach to oversight. FHWA  human resources officials we spoke to believed the concern that FHWA’s  workforce is centered on engineering at the expense of other project  oversight skills is based on a misperception—that is, not recognizing that  FHWA engineers take on many other tasks not strictly related to  engineering. Furthermore, two division office officials we spoke to in the  course of our work questioned the need for FHWA to focus on  multidisciplinary skills. One division administrator commented that  “multidisciplinary” means that a person can do many things, and therefore  that division’s staff was already multidisciplinary. The deputy administrator  in another division questioned what was meant by multidisciplinary skills,  believing there was no guidance from headquarters on this.
section_title: FHWA Faces Challenges to Improving Oversight
paragraphs: FHWA’s efforts to improve oversight face several challenges. These  challenges stem from the structure of the federal-aid highway program and  the culture of partnership that has resulted between FHWA and the states.  These challenges also stem from FHWA’s decentralized organization,  human capital challenges that mirror those faced throughout government,  and FHWA’s perception that it has received conflicting signals on its  oversight role over the years. Because these challenges are in large part  rooted in FHWA’s organization and culture, and in the structure of the  program it administers, they may be difficult to surmount.
subsections: section_title: Structure of the Federal-Aid Highway Program
paragraphs: Because the federal-aid highway program is a state-administered, federally  assisted program, it provides states broad flexibility in deciding how to use  their funds, which projects to pick, and how to implement them.  Furthermore, states are exempt from FHWA oversight on design and  construction of many projects. Although DOT has articulated goals and  outcome measures for the federal-aid highway program, such as improving  safety and reducing the growth of traffic congestion, FHWA must  implement and achieve these goals through a program over which it  exercises limited control. Our past work across government programs has  shown that in programs that have limited federal control, agencies face  challenges to ensure that federal funds are efficiently and effectively  used. We have also found that these challenges can be successfully  overcome, in some cases, by ensuring that the program has clear goals and  strong analytical data to measure program results. However, as stated  earlier, FHWA’s efforts both to implement its goals and to collect and  analyze data on project costs have fallen short.
Exacerbating this challenge is the fact that, as our August 2004 report  highlighted, the federal-aid highway program does not have the  mechanisms to link funding levels with the accomplishment of goals and  outcome measures that DOT has articulated. We have also reported that  although a variety of tools are available to help measure the potential  performance outcomes, such as those that measure the costs and benefits  of transportation projects, such potential outcomes often do not drive  investment decisions, as many political and other factors influence project  selections. For example, the law in one state requires that most highway  funds, including federal funds, be distributed equally across all of the  state's congressional districts. Consequently, the structure of the federal- aid highway program provides no way to measure how funding provided to  the states is being used to accomplish particular outcomes, such as  reducing congestion or improving safety, and little assurance that projects  most likely to accomplish goals and outcome measures articulated by DOT  will be funded. The absence of such a link may make it more difficult for  FHWA to define its role, the purpose of its oversight, and what its oversight  is designed to accomplish.
In August 2004, we reported that policy makers may wish to consider  realigning the federal-aid highway program's design, structure, and funding  formulas to take into account the program’s goals and to include greater  performance and outcome oriented features. We also said that such  consideration could include the appropriate roles of the federal and state  governments, including what type of administrative structure for  overseeing the federal-aid highway program would best ensure that the  performance goals are measured and accomplished. Our report provided  Congress with a matter for congressional consideration and said that the  proposed National Commission to assess future revenue sources to  support the Highway Trust Fund might be an appropriate vehicle through  which to examine these options.
section_title: Culture of Partnership
paragraphs: Consistent with the structure of a state administered, federally assisted  program, FHWA has developed a culture of partnership with the states.  This culture of partnership dates back to the Federal-Aid Road Act of 1916,  when the program was funded through a 50 percent federal and 50 percent  state matching share. This partnership approach recognizes that states  select, plan, and build projects, while FHWA ensures that federal laws and  other requirements are followed by maintaining a close, hands-on  involvement with state transportation agencies in delivering projects.  FHWA and state officials believe that over the years this partnership has  helped to build trust and respect between state transportation agencies and  FHWA and ensure that priorities such as safety and the environment are  addressed, and has resulted in projects being built more economically and  efficiently.
However, there is a potential down side to this partnership approach. When  a project overseer becomes an active partner in a project, an arms-length,  independent perspective can be lost. In fact, FHWA’s partnership approach  to project oversight has failed in the past. FHWA had an oversight manager  on the Central Artery/Tunnel Project in Boston, Massachusetts, a project  that experienced widely-reported cost increases, growing from around $2.3  billion in the mid-1980s to almost $15 billion by 2004. In March 2000, an  FHWA task force charged with reviewing FHWA’s oversight of the project  found that FHWA had been caught unaware earlier that year when the state  revealed an estimated $1.4 billion cost increase. The task force attributed  this to FHWA’s over reliance on trust between itself and the state, reporting  that FHWA’s partnership approach failed to achieve independent and  critical oversight of the project.
FHWA officials acknowledged that independence is critical to effective  oversight and also acknowledged the need to closely monitor the  performance and independence of their project oversight managers on an  ongoing basis. However balancing the role of overseer and partner can be  difficult. In one state we visited, the division’s oversight manager for a  major project had business cards that identified him as a member of the  state’s project team—with the project’s logo, Website, and e-mail address  printed on the card—rather than as a federal employee. Only his position  title on the card, “FHWA Project Administrator,” identified him as an FHWA  employee, rather than as a state employee. Ensuring that FHWA oversight  personnel maintain an independent perspective is especially critical given  the current lack of linkage between FHWA’s performance goals and the  roles and expectations of its project managers.
Another potential challenge presented by FHWA’s culture of partnership  with the states is that it may have prevented FHWA from considering other  models for project oversight—including some models in use within DOT.  For example, the Federal Transit Administration (FTA) uses competitively  selected engineering firms as oversight contractors to monitor major mass  transit projects costing over $100 million. During the project’s design, the  contractor reviews the grantee’s plan for managing the project and  determines whether the grantee has the technical capability to complete  the project. Once FTA approves the plan, the contractor monitors the  project to determine whether it is progressing on time, within budget, and  according to plan. In prior work, we noted that FTA’s project management  oversight program benefited both the agency and the grantees carrying out  the projects. As another example, DOT established a Joint Program Office  to help carry out the Transportation Infrastructure Finance and Innovation  Act Program, which provides credit assistance to states and other project  sponsors for surface transportation projects. This office reviews and  evaluates proposed projects for participation in the program, reviews  financial plans and progress reports during project construction, monitors  the project sponsor’s credit, and coordinates site visits and other oversight  activities with DOT field offices.
section_title: FHWA’s Organization
paragraphs: FHWA administers the federal-aid highway program through a  decentralized division office structure and delegates much of FHWA’s  decisionmaking and program implementation to those offices. Therefore,  FHWA’s division administrators enjoy wide latitude to implement their  programs. FHWA has had a field office in every state since 1944, and,  according to FHWA and state officials, this arrangement gives maximum  flexibility to the people closest to the customer and to the issues to make  decisions best suited to particular needs and situations. According to  FHWA officials, this decentralization of decisionmaking and program  implementation to the division offices increased after 1998 and the passage  of TEA-21, which eliminated FHWA’s nine regional offices.
While this flexibility may have benefits, decentralization presents  challenges for the implementation of a consistent national leadership  vision and strategies. These long-standing organizational arrangements  may have contributed to such conditions as the lack of uniform  performance expectations for project oversight managers, widely varying  methods used to develop cost estimates for projects, and different  approaches to doing risk assessments. Some limitations are by design. For  example, while FHWA’s fiscal year 2005 performance plan discusses  multidisciplinary skill training for its oversight managers and professional  development program staff, it also specifically grants division  administrators the discretion about whether to participate. FHWA officials  acknowledged the challenges of consistently implementing national level  goals and programs among the many division offices.
section_title: Human Capital
paragraphs: Our 2003 update to our High-Risk Series of reports recognizes that strategic  management of human capital continues to be a high-risk area government  wide. Although considerable progress has been made since we first  designated human capital a government wide high-risk area in 2001, federal  human capital strategies are not yet appropriately constituted to drive the  transformation that is needed across the federal government. Among the  challenges agencies face are the need to improve their ability to acquire,  develop, and retain talent, and the need to better and more fully integrate  these and other human capital efforts with agencies’ missions and program  goals.
For FHWA, this government wide challenge manifests itself in a number of  ways, including the need to transform its workforce and culture to meet its  evolving mission. FHWA’s workforce partnered with the states to build the  Interstate Highway System from 1956 into the 1990s. FHWA needed  engineering skills to perform tasks, such as detailed reviews of design  plans and inspections of construction progress to ensure that national  uniformity in terms of design and safety was established throughout the  interstate system. These skills were especially important because,  according to FHWA and state officials, state transportation agencies did  not have the equivalent capability to do the job at that time. In recent years  Congress has recognized the increased capacity of state transportation  agencies and increasingly delegated approval authorities to the states,  including the authority over design and construction decisions for most  projects. As a consequence, FHWA’s oversight role and mission have  evolved to include, for example, greater reliance on broad reviews of state  management processes.
As FHWA’s oversight role and mission evolves, FHWA faces the challenge  of transforming its workforce and culture to evolve with this role and  mission. In our discussions with FHWA field staff, we noted reluctance  among some FHWA staff to focus on these broader reviews that FHWA  increasingly relies on because they see these as less important than the  traditional tasks of reviewing design plans and inspecting the progress of  construction. Division office officials in two states we visited told us that  change has been an issue for its more tenured staff. For example, the  Administrator at one office had begun to hire staff with a variety of skills,  while officials at the other office saw a need for more specialists, including  staff with financial expertise. Officials also said some staff have resisted  doing process reviews because they see it as functioning as auditors rather  than as partners with the state in delivering projects, which is how they  prefer to be seen. Overcoming these challenges will become even more  important in the years ahead should proposed legislation increasing  FHWA’s oversight responsibilities be enacted.
section_title: FHWA’s Perception of Conflicting Legislative Direction on Oversight Role and Responsibilities
paragraphs: In 2001, a FHWA task force concluded that changes in the agency’ s  oversight role mandated by highway program authorizations enacted in  1991 and 1998 had resulted in internal confusion and wide variation in  interpretations by FHWA personnel covering the agency’s roles and  responsibilities in overseeing projects. In 2002, we reported that FHWA  could not say whether it had resolved the internal confusion and variations  in interpretations of the agency’s oversight role identified by the task  force.
During our review we found that some confusion continues, as some of the  FHWA personnel we spoke to expressed the view that Congress has sent  mixed messages about the extent to which it would like to see FHWA  oversee projects. According to some division and headquarters FHWA  officials, federal laws over the years have required FHWA to withdraw from  direct oversight of most projects, while at the same time, legislation has  increased the oversight requirements for major projects, resulting in mixed  signals. Changes that were proposed by DOT and passed by the House and  the Senate in 2004 but not enacted before the adjournment of the 108th  Congress could, if reintroduced and enacted by the 109th Congress, help  clarify FHWA staff’s perception of their oversight role by, for example,  mandating reviews of state financial system, developing cost estimating  standards, and cascading requirements for major projects to other projects.  Enactment of these provisions would also provide Congress the  opportunity to provide a more detailed explanation of and purposes for  these provisions regarding FHWA’s role versus the states’ role in overseeing  cost and schedule performance of federal-aid highway projects in the  legislative history accompanying the reauthorization bill. As we stated in  our 2002 testimony, such clarification would be helpful.
section_title: Best Practices Can Help Improve Progress and Address Challenges to Improving Project Oversight
paragraphs: Reports and analyses published by us, OMB, and the National Research  Council suggest a set of best practices that agencies can benefit from in  conducting effective oversight of large infrastructure projects such as  those in the federal-aid highway program overseen by FHWA. While these  reports and analyses tend to focus more on overall project management,  there are elements in each of them that relate specifically to improving  project oversight. From our review of these reports and analyses, we  identified four best practices that are particularly applicable to FHWA’s  oversight efforts and that FHWA officials and decision makers can consider  to help effectively oversee large infrastructure projects and states’ financial  and management processes. While some of these best practices are  beginning to be reflected in FHWA’s activities, as a whole, they could  provide a framework for moving to a comprehensive approach to project  oversight. These best practices are 1) establishing measurable project  oversight goals and communicating these goals down through all levels of  the agency, 2) establishing project oversight manager role and  accountability based on oversight goals, 3) providing professional training  and a career path, and 4) learning lessons and transferring them.
subsections: section_title: Establishing Measurable Project Oversight Goals and Communicating These Goals through All Agency Levels
paragraphs: As we discussed earlier, agencies seeking to make oversight a priority  should establish measurable project oversight goals that help it carry out  its mission and define what its oversight is designed to accomplish—and  should communicate these goals down through all levels of the agency.  Having measurable goals gives managers the means to objectively and  quantifiably assess progress toward achieving certain outcomes. If an  agency relies only on general goals to guide its efforts, the agency will not  have any way of determining whether it achieves those goals since it has  not first identified a way to quantify or measure the outcome. Once these  goals are established, agencies should communicate these goals down to  all levels of the agency. One way to ensure that the goals are communicated  effectively is to link the agency’s day-to-day activities to these goals. Our  1998 report on leading practices in capital decision-making added that clear  communication of an organization’s vision and goals is a prerequisite for  success. Top-level officials develop the organization’s priorities and  communicate them downward to subunits within the organization. Based  on these goals, managers at all levels work to produce plans and activities  that outline their individual strategies for achieving top-level goals.
section_title: Establishing Project Oversight Manager Role and Accountability Based on Oversight Goals
paragraphs: Once an agency establishes its oversight goals, it should incorporate those  goals into its strategies and activities by making oversight managers  accountable for the effective implementation of the goals. We recently  recommended that Amtrak adopt policies and procedures for managing  infrastructure projects that, among other things, include mechanisms to  ensure accountability for a project’s success. We stated that such  mechanisms should clearly indicate the individuals responsible for  implementing the project, the expectations for their performance, the ways  their performance will be measured, and the potential consequences for  failing to meet expectations. In this report, we noted that some of the  railroads we had contacted tied pay and personnel decisions to  performance, holding project managers directly responsible for the  project’s success and failure. In other previous work, we have also noted  that how such pay for performance efforts are done, when they are done,  and the basis on which they are done can make all the difference in  whether such efforts are successful. In addition, in other prior work, in  2000, we found a number of emerging benefits from the use of results- oriented performance agreements for executives, including, among other  things, providing results-oriented performance information to serve as the  basis for executive performance evaluations.
section_title: Providing Professional Training and a Career path
paragraphs: Professional training enables oversight staff to understand their expected  roles in achieving the agency’s oversight goals. Having a view of a future  career is also desirable for the development of oversight staff. In 1999 the  National Research Council reported that the Department of Energy could  improve its project performance by developing skills, training  opportunities, and a career path in project management. The report added  that the agency needed to establish criteria and standards for selecting and  assigning project managers, including documentation of training, and  should require that all project managers be trained and certified. In prior  work, we have found that an agency’s training program should be linked to  achieving the agency’s strategic goals, while specific training for each  individual should be based on his or her developmental needs.
section_title: Lessons Learned and Transferred
paragraphs: Effective oversight also requires a proactive approach to establishing  evaluation mechanisms, collecting information, and transfering lessons  learned on an ongoing basis. Learning from past successes and mistakes  and sharing that information with decision makers, agency officials, and  project managers is a critical element for effective oversight. Our 1996  executive guide to help agencies implement GPRA reported that agencies  analyzing the gap between where they are and where they need to be to  achieve desired outcomes can target those processes that are in most need  of improvement, set realistic improvement goals, and select an appropriate  process improvement technique such as benchmarking. Benchmarking  compares an internal agency process with those of private and public  organizations that are thought to be the best in their fields. In addition,  our 1998 report on leading practices in capital decision making also found  that agencies could evaluate and compare results with goals by using  financial and non-financial criteria that link its overall goals and objectives.  In 2000, we reported that agencies conducting program evaluations  improved their measurement of program performance or understanding of  performance and how it might be improved. In addition, our Executive  Guide on Capital Decision-Making identified practices federal agencies can  implement to enhance their evaluation processes. In 1997, OMB stated in  its Capital Programming Guide that agencies should be able to document  and support the accomplishment of the respective agency goals. Agencies  can also evaluate the planning and procurement process to determine  whether a project accurately predicted the desired benefits 3 to 12 months  after it has become operational. The Guide added that conducting a project  post-implementation review that evaluates the success or failure of  projects serves as an assessment. The review compares actual results  against planned cost, returns, and risk. The results are used to calculate a  final return on investment, determine whether any additional project  modifications may be necessary, and provide lessons learned for changes  to the agency’s capital programming processes and strategy. Finally, the  National Research Council’s 1999 report stated that agencies such as the  Department of Energy should transfer knowledge gained about cost  estimating techniques, project review processes, change control  mechanisms, and performance metrics from one project to another.
section_title: Conclusions
paragraphs: FHWA has made progress since 2002 in improving its oversight efforts,  including its direct oversight of major projects and its broader reviews of  state management processes that are used to oversee states’ management  of most other projects. For example, FHWA’s actions to enhance the  capabilities of project oversight managers overseeing major projects and to  incorporate risk assessments into its reviews of state management  processes are both positive steps towards improving oversight. Most  significantly, FHWA has established, for the first time, goals and measures  that clearly make containing project costs and schedules an integral part of  how FHWA conducts its oversight.
However, despite promising results, FHWA’s efforts have also had  limitations. FHWA still lacks a comprehensive approach to ensuring that its  oversight of federal-aid highway projects supports the efficient and  effective use of federal funds. A comprehensive approach would avail itself  of best practices and would include (1) goals and outcome measures with  activities and performance expectations set for its staff that are linked to  these goals and measures; (2) an overall plan for FHWA’s oversight  initiatives and activities that responds to past concerns raised about its  program and is tied to its goals and measures; (3) workforce planning  efforts that support the goals, measures, and overall plan; (4) centrally  defined roles and responsibilities for key staff, such as oversight managers  for major projects; and (5) the capability to track and measure costs over  the life of projects in order to identify problems, help target resources, and  transfer lessons learned. Without such a comprehensive approach, FHWA  cannot ensure that its varied activities are resulting in tangible  improvements in the quality of its oversight and in the performance of  federal-aid projects. Furthermore, without a comprehensive approach,  FHWA is not able to articulate what it wants its oversight to accomplish,  the composition of its workforce to accomplish it, and how it will measure  whether its efforts have or have not been successful. Thus, it is limited in  its ability to ensure that its oversight efforts are meeting its organizational  goals, that these efforts address concerns that have been raised, and that  they result in more effective and efficient use of federal funds.
Although broader questions exist about the structure of the federal-aid  highway program and the role of FHWA, the agency will face considerable  increases in its oversight responsibilities in the years ahead, particularly if  the proposals made by DOT and considered by Congress become law.  Given the limitations present today, questions exist about the ability of  FHWA to effectively absorb these new responsibilities and to improve its  oversight of the federal-aid highway program in the years ahead. Moreover,  absent a comprehensive approach, FHWA is unlikely to be able to  overcome the structural, organizational, and cultural challenges it faces in  effectively overseeing the federal-aid highway program.
section_title: Recommendations
paragraphs: In order to establish a comprehensive approach to project oversight, we  recommend that the Secretary of Transportation direct the Administrator,  FHWA, to take the following four actions:   link FHWA’s day-to-day activities and the performance expectations set  for its staff to its goals and outcome measures;  develop an overall plan for its oversight initiatives that is tied to its goals  and measures, along with priorities and time frames, and that includes  workforce planning efforts that support these goals and measures;  improve the use and performance of project oversight managers by  centrally defining their role and responsibilities; and  develop the capability to track and measure costs over the life of  projects to help identify the extent of and reasons for problems, target  resources, and transfer lessons learned.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOT and met with FHWA officials,  including the Deputy Administrator, to obtain their comments on the draft.  FHWA officials generally agreed with the facts and conclusions in the  report and our characterization of the challenges FHWA faces in improving  its project oversight. FHWA officials emphasized that although we  highlighted potential drawbacks associated with both its culture of  partnership with the states and its decentralized organization, this  partnership and organization are also major strengths of the federal-aid  program that will allow the agency to absorb potential new responsibilities,  help overcome challenges, and improve program oversight in the future  through a more comprehensive approach. FHWA officials did not take a  position on our recommendations, but they stated that they would be  taking them under advisement. They also suggested some technical and  clarifying comments that we incorporated into the report as appropriate.
We are sending copies of this report to the Honorable Norman Mineta,  Secretary of Transportation. We will also make copies available to others  upon request. In addition, the report will be available at no charge on the  GAO Web site at http://wwwgao.gov.
If you have any questions about this report, please contact me at  siggerudk@gao.gov, or (202) 512-6570 or contact Steve Cohen at  cohens@gao.gov or (202) 512-4864. GAO contacts and acknowledgments  are listed in appendix III.
section_title: Scope and Methodology
paragraphs: We reviewed the Federal Highway Administration’s (FHWA) approach to  improving its federal-aid highway project oversight efforts since 2002,  including (1) FHWA’s oversight-related performance goals and measures,  (2) FHWA’s oversight improvement activities, (3) challenges FHWA faces in  improving project oversight, and (4) best practices for project oversight.
We reviewed FHWA’s oversight-related goals and measures by evaluating  Department of Transportation (DOT) and FHWA strategic and performance  plans, and supporting documents, from 2001 through 2004. We also  reviewed FHWA’s annual performance reports from 2002 and 2003 and  current OMB President’s Management agenda documents. We also  reviewed FHWA and DOT fiscal year 2005 budgets. As criteria in reviewing  this information we used GAO published guidelines and prior reports,  including GAO’s 2001 Performance Guide and GAO’s 2003 Results Oriented  Culture and GAO’s 2003 Human Capital reports.
To review FHWA’s oversight improvement activities we documented and  analyzed the status of FHWA’s various project oversight efforts since 2002  using FHWA’s FY 2004 Work Plan Summary from the major projects team  (see app. II). We also reviewed FHWA’s use of financial information from its  Financial Management Information System (FMIS) to track and analyze  trends in cost growth on projects. We did not independently assess the  reliability of FMIS data as the Department’s Inspector General has reported  on weaknesses in FHWA’s financial management and reporting processes,  most recently in November 2004 as part of the annual audit of DOT’s  consolidated financial statements. In addition, our work focused primarily  on FHWA’s use of FMIS data for oversight purposes, rather than relying on  FMIS data to support our findings and conclusions. In addition, to  document continued difficulty in tracking cost growth on projects, we  randomly selected 14 contracts from seven division offices, each of which  had an estimated total cost of between $25 million and $50 million. We then  asked FHWA’s division offices to identify the project related to each  contract (each contract was part of a different project, so there were 14  projects), and requested consolidated cost information on the 14 projects.  FHWA took an average of more than 3 months—and up to 6 months—to  provide us this information for 12 of the 14 projects, and it was unable to  provide us complete cost information on the other 2 projects. Finally, we  also interviewed officials at FHWA Headquarters, selected FHWA division  offices, state departments of transportation, and other officials to  document oversight implementation efforts.
We performed work at seven FHWA division offices and states located in  Colorado, Georgia, Missouri, Nevada, Pennsylvania, Washington, and  Wisconsin. We selected these 7 FHWA division offices and corresponding  states by selecting states that had a current or planned major project and  some that did not; states with large as well as relatively small federal-aid  highway programs in terms of funding; large and small FHWA division  offices as measured by the number of staff; and division offices and states  that FHWA and the American Association of State Highway and  Transportation Officials (AASHTO) officials had recommended because of  ongoing initiatives related to project oversight and management.
To document and review the challenges FHWA faces in improving its  project oversight we used our past work and interviewed FHWA  headquarters, division office and state transportation program officials. We  also interviewed AASHTO officials and state audit and evaluation  organizations across the country.
To address the use of best practices as a framework for the oversight of  large highway infrastructure projects, we conducted a literature search in  2004 to identify best practices related to oversight management. The  literature included our previous reports and guidelines on best practices  related to project management. It also included publications from the  Office of Management and Budget (OMB) that provided detailed guidance  to federal agencies on planning, budgeting, acquisition, and management of  capital assets and from the National Research Council addressing methods  the Department of Energy could implement to improve its project  management, including oversight of environmental restoration, waste  management, and construction projects. From this literature search, we  compiled the list of best practices that can provide FHWA with a  comprehensive approach and basic framework for effectively overseeing  highway projects. For the first practice of establishing measurable project  oversight goals we used information from two of our reports related to the  Government Performance and Results Act and another report related to  leading practices in capital decision-making. For the second practice of  establishing project oversight manager role and accountability based on  oversight goals, we used our report related to improving project  management for Amtrak and another of our reports on performance  agreements. For the third practice of providing professional training and a  career path, we used a National Research Council report on improving  project management at the Department of Energy. For the fourth practice  of learning lessons and transferring them, we used information from the  National Research Council report mentioned above, the GAO report on  leading practices in capital decision-making, another GAO report on  program evaluations, and OMB guidance in Circular A-11 and its Capital  Programming Guide.
section_title: FHWA FY 2004 Major Project Team Work Plan Summary
subsections: section_title: Conduct monthly project tracking activities
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgements
paragraphs: In addition to those named above, Sam Abbas, Catherine Colwell, Pat  Dalton, Don Kittler, Alex Lawrence, Sara Ann Moessbauer, John Rose,  Stacey Thompson, and Alwynne Wilbur made key contributions to this  report.