The Loma Prieta earthquake, measuring 7.1 on the Richter scale, struck northern California on October 17, 1989, causing many deaths and widespread property damage. It also severely damaged several major transportation structures in the Bay Area, including the Embarcadero Freeway, the Bay Bridge, and the Cypress Viaduct. To help the area cope with the earthquake’s impact on transportation, the Congress appropriated $1 billion in federal transportation emergency relief assistance in fiscal year 1990 and an additional $315 million in fiscal year 1994. California allocated over three-fourths of this assistance to the Cypress Viaduct project. The emergency relief program, administered by FHWA, provides financial assistance to states and local highway agencies to help repair federal-aid highways seriously damaged during natural disasters—hurricanes, earthquakes, volcanoes, and floods—or by catastrophic failures. As a kind of insurance against catastrophe, the program provides states with funding above and beyond their regular federal highway funding. The program’s funds are not subject to a state’s yearly funding limit and thus pay for projects that do not have to compete against other needs within the state. By law, FHWA can provide a state with up to $100 million in emergency relief funding for each natural disaster found eligible for funding. However, the Congress has passed special legislation lifting this cap for specific disasters. The criteria for administering emergency relief funds are set out in 23 C.F.R. section 668. In addition, FHWA’s Emergency Relief Manual provides FHWA’s division offices, located in each state, with the operating procedures for implementing the program. These offices process state highway agencies’ applications for funding and make decisions on the eligibility of specific projects. During the first 180 days following a disaster, the program covers up to 100 percent of emergency repairs to restore essential highway traffic service and protect remaining facilities. In addition, for the Cypress Viaduct replacement project, the Congress made all repairs during the first 180 days 100 percent eligible for emergency relief funding. For permanent restoration work or repairs after the first 180 days, the federal share of costs varies with the type of federal-aid highway. For projects on the interstate system, the federal share generally is 90 percent of eligible costs. The Cypress Viaduct project reestablishes a link in the Bay Area’s freeway system, which connects the East Bay area (including Oakland) with San Francisco via the Bay Bridge and with Interstate 80 to the north. The project replaces the 1.5-mile connection that was lost during the earthquake with roughly 5 miles of new freeway segments, providing direct access to both the Bay Bridge and Interstate 80. It also includes several new interchanges and improves access to the Port of Oakland. It realigns the original freeway to the west, taking it out of a residential neighborhood and into active rail yards (see fig. 1). The project comprises seven separate major construction projects, each covering a specific segment of the work and ranging in value from $22 million to $162 million. (App. I shows the location, scope, and status of each segment of the project.) Although the emergency relief program is designed to assist states in quickly repairing highways to predisaster conditions, several factors have slowed the replacement of the Cypress Viaduct. Part of the delay in constructing the project has resulted from public opposition to replacing the old, doubled-decked structure in its original location. In response to public concerns, Caltrans identified several alternative alignments that it studied in a 2-year environmental review. In 1991, Caltrans and FHWA decided to replace the destroyed 1.5-mile structure, which had bisected a residential area, with a new 5-mile structure running through active rail yards. Further delays occurred because Caltrans needed additional time to negotiate right-of-way issues with the railroads and because constructing the highway amid the rail yards created logistical problems. As of March 1996, FHWA had obligated nearly $1 billion to the project, or about 35 percent of all the emergency relief obligations FHWA has made nationwide since 1989. These obligations also represent over 95 percent of the emergency relief funding for the project. To date, Caltrans has awarded contracts for all of the major construction projects. As table 1 shows, the seven projects are at various stages: one project is complete, five are under way, and one is just beginning. According to Caltrans officials, taken as a whole, the project is about one-third complete. As of March 1996, Caltrans estimated that it will not complete the entire project until 1998. However, by offering contractors incentives for early completion, Caltrans expects to complete one major portion of the project in 1997. Completing this portion will allow traffic using Interstate 880 access to the Bay Bridge, thus reestablishing a critical link lost during the earthquake. Although it will take Caltrans about 9 years from the time of the earthquake to complete the entire project, most of the delays occurred before construction began. Immediately following the earthquake, FHWA and Caltrans planned to replace the Cypress Viaduct as it existed prior to the earthquake, with a new double-decked structure. However, immediate replacement of the viaduct was not possible because the original structure had divided an Oakland neighborhood, and local residents objected to replacing the structure as it had been before the earthquake. For example, numerous residents objected to rebuilding in the pre-earthquake location because they said doing so would cause pollution and congestion and reduce growth. In addition, in December 1989 the Oakland City Council passed a resolution opposing any construction in the viaduct’s original corridor, stating that rebuilding would continue to divide the community and hinder its economic and social growth. Consequently, Caltrans had to identify several new alternative alignments for the structure. Because of the size and complexity of the alternative alignments proposed, Caltrans had to assess their impact in an environmental impact statement (EIS), which it prepared in 1990-91. In January 1992, FHWA finalized the environmental review by issuing a record of decision on the project. When, as a result of the environmental review, Caltrans and FHWA selected an alignment that shifted the project out of the residential neighborhood and into the area of active rail yards, Caltrans had to undertake extensive and protracted negotiations with the Southern Pacific and Santa Fe railroads to work out the details of removing and relocating the rail yards. Between 1992 and 1994, as it developed the final engineering plans for major segments of the project, Caltrans and the railroads were reaching agreement on how to relocate the existing rail yards, what type of track and railroad standards would be needed, and what the total cost of relocating the rail yards would be. In early 1994, while these negotiations continued, Caltrans began constructing two major segments of the project. However, Caltrans has periodically had to halt construction to allow trains to pass through the site. Project B, in particular, has experienced construction delays because of the need to accommodate rail traffic. According to Caltrans officials, project B, which is currently 18 percent complete, is the only major project that is experiencing problems with its schedule. However, they expect project B, as well as all of the other major projects, to meet the estimated completion dates shown in table 1. As of March 1996, Caltrans estimated that the total cost of replacing the Cypress Viaduct will be $1.13 billion. Of this amount, $1.01 billion, or about 90 percent, will be federally financed through the emergency relief program; California will finance the remainder. This estimate is significantly higher—as much as $824 million—than the previous estimates documented in a 1989 post-earthquake damage assessment and in the EIS completed in 1991. The increases have occurred because of significant changes in the project’s scope and refinements from the earlier estimates. The current estimate is also $210 million higher than the baseline cost estimates prepared during 1990-91, prior to FHWA’s approval of the current project’s design. Most of these increases have occurred because Caltrans incurred additional costs for construction, traffic management, and relocation of the rail yards once construction began. Furthermore, although Caltrans does not anticipate further cost growth, an increase could occur because major construction projects worth about $560 million are still in the early stages. On October 30, 1989, FHWA engineers, following the agency’s Emergency Relief Manual, inspected the collapsed Cypress Viaduct. On the basis of this inspection, they prepared a damage assessment, estimating that replacing the destroyed structure along its predisaster alignment would cost $306 million. This estimate was a conceptual estimate based on the inspection rather than on detailed engineering. It included the costs for items such as removing the old structure, managing traffic, building a new structure, and engineering. In the estimate, FHWA recognized that more detailed engineering would be required to refine the project’s estimated costs. However, after preparing this initial estimate, FHWA and Caltrans did not complete a detailed estimate for rebuilding the Cypress Viaduct as it existed prior to the earthquake. Instead, as noted earlier, public opposition to rebuilding the structure at its original location led Caltrans to prepare an EIS and ultimately to select a new alignment for the project. In the EIS, the costs for this alternative were estimated at $695 million, or about $400 million more than the estimate based on the damage assessment, primarily because of additional costs for acquiring rights-of-way and relocating the rail yards. Furthermore, the estimate in the EIS included only the capital costs—for construction, rights-of-way, and relocation of the rail yards—and excluded the costs for engineering and traffic management. As a result, it did not provide a comprehensive initial, or baseline, cost estimate for the project. According to Caltrans and FHWA officials, the estimate in the EIS did not include the noncapital costs because there was no requirement to present them.