STATEMENT OF
MARY E. PETERS, ADMINISTRATOR
FEDERAL HIGHWAY ADMINISTRATION
UNITED STATES DEPARTMENT OF TRANSPORTATION
ON MAJOR PROJECT MANAGEMENT: SOLUTIONS FOR MAJOR SUCCESS
BEFORE THE
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
SUBCOMMITTEE ON HIGHWAYS AND TRANSIT
UNITED STATES HOUSE OF REPRESENTATIVES
MAY 1, 2002
Mr. Chairman, Members of the Subcommittee, thank you for this opportunity to
provide testimony on the Federal Highway Administration's role in the management
of major highway projects. Today I would like to give you an overview of the
management challenges we face, the actions we are taking to address our
oversight responsibilities, and the opportunities reauthorization may provide to
improve our performance in this area.
Both President Bush and Secretary Mineta have expressed their commitment to
ensuring that the resources entrusted to the Federal government are well managed
and wisely used. And this is my commitment as well. At my confirmation hearing
last year, I promised Congress that I would work to further improve and
strengthen oversight and accountability for the public funds entrusted to the
Federal Highway Administration, including the responsibility to accurately and
completely estimate and disclose costs at the onset of all projects, as well as
to monitor progress and expenditures during the life of projects to ensure we
get what we are paying for. I am working, and want to continue to work with you
in reauthorization, to make good on that promise. Congress and the public
rightfully hold FHWA accountable for ensuring that Federal highway programs are
both efficient and effective, and are consistent with applicable laws,
regulations, and policies.
INTRODUCTION
The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and the
Transportation Equity Act for the 21st Century (TEA-21)
revolutionized the Nation's approach to surface transportation. ISTEA
established new principles for the implementation of the Nation's surface
transportation programs: building partnerships with local and State officials to
advance the strategic goals for transportation capital investment; flexibility
in the use of funds; a commitment to strengthening the intermodal connections of
the Nation's transportation system; expanded investment in, and deployment of,
new information technologies for transportation services; and a heightened
sensitivity to the impacts that transportation has on our quality of life and on
the shape and character of America's communities. TEA-21 built upon the
programmatic initiatives contained in the earlier legislation and, through its
financial provisions, provided greater equity among States in Federal funding
and record levels of transportation investment.
Along with the increased funding that you provided us in these landmark
pieces of legislation came increased stewardship responsibilities for FHWA and
for the State Departments of Transportation (DOTs).
The Federal-aid highway program differs from other transportation programs,
and from most other Federal programs, in having authorizing law that provides a
framework for distributing the majority of Federal-aid funding back to the
States and specifies that the States will determine which projects will be
funded and the amount of investment in each project. According to section 145(a)
of title 23, United States Code, the authorization of the appropriation of
Federal-aid highway funds "shall in no way infringe on the sovereign rights of
the States to determine which projects shall be federally financed." The
oversight mechanisms we have developed, in contrast for example to those of the
Federal Transit Administration (FTA), must recognize that the recipients of the
major portion of our program funds are sovereign States, which receive those
funds mostly by way of statutory formula apportionments. Moreover, under ISTEA
and TEA-21, there is an increasingly great diversity in the type of projects
that a State may select for investment.
ISTEA and TEA-21 further extended States' authorities by allowing them to
assume the Secretary of Transportation's responsibilities for design, plans,
specifications, estimates, contract awards, and inspection of non-Interstate
National Highway System (NHS) and non-NHS Federal-aid projects. The States now
assume most of these project approval authorities in accordance with section
106(c) of title 23, United States Code, but FHWA is still ultimately accountable
for ensuring that projects undertaken with Federal funds are developed in
compliance with Federal laws and requirements, as subsection (d) makes clear.
In accordance with the changes in Federal and State project management roles
authorized in Federal law, we have modified our oversight approach to give State
and local officials greater responsibility for projects off the Interstate and
National Highway Systems; FHWA oversight has evolved to focus primarily on
process management oversight in lieu of specific project oversight. We are
actively working with the States to increase their capabilities so that each
State DOT is adequately equipped to manage the responsibilities linked with the
use of Federal funds, as required in section 302 of title 23 U.S.C., and to
verify that each agency has adequate internal control processes in place to
effectively self-manage Federally-assisted projects. The FHWA oversight and
independent verification activities are similar to the quality assurance portion
of quality control programs prevalent in many construction and materials
programs.
This shift to programmatic oversight of title 23 requirements has also
allowed us to make more effective use of limited Federal resources. With a staff
of approximately 2900, we are responsible for the overall management of a $32
billion program in FY 2002. Through program oversight, we can support
well-managed State processes for all projects, while fulfilling our duty to
ensure that all transportation projects are developed with environmental
considerations, extensive public involvement, and safety and operational
improvements.
MAJOR PROJECT OVERSIGHT
Although TEA-21 directed extensive delegation of approval authorities to the
States for most Federal-aid projects, FHWA's oversight role on larger projects
was enhanced. Section 1305(b) requires that projects with an estimated total
cost of $1 billion or more submit an annual Finance Plan, based on detailed
estimates of the cost to complete the project and on reasonable assumptions of
future cost increases.
Projects subject to this requirement have been labeled "major" or "mega"
projects. However, within FHWA, we also include in the major project category
those projects designated "major" projects by senior management due to their
complexity or a high level of interest by the public, Congress, or the
Administration. Finance plans may be required for such projects even though
their estimated total cost is less than $1 billion.
Over the past 10 years, the number of projects greater than $1 billion has
grown and, at present, we have identified 14 active major projects across the
country, including six that are at the stage of requiring an initial Finance
Plan.
FHWA now has the benefit of "lessons " from some of the early major
projects--construction of the Boston Central Artery/Tunnel (CA/T) project,
reconstruction of I-15 in Salt Lake City, and the management of the Alameda
Corridor--and we are putting these lessons to work. We have seen that the
primary cost drivers of major projects, from the PS&E (Plans,
Specifications, and Estimates) stage to completion of construction, are: (1)
inflation, since many of these projects take years to complete; (2) phasing of
the projects to use available funds; and (3) regional and national economic
trends, since these projects are such large economic investments and typically
stretch the available technology and industry abilities. We know that the most
common factor leading to cost increases and delays for all major projects,
especially in 2001-2002, has been the annual adjustment of project schedules to
fit actual revenues available. Currently, as a result of the national economic
situation and revenue shortfalls, States are readjusting their statewide
programs, in some cases stalling major projects.
While cost overruns and schedule delays on major projects occasionally occur,
we have seen notable successes as well. The Alameda Corridor project in Los
Angeles, California, was a huge success in being completed on schedule and
within budget. Also, the I-15 reconstruction project in Salt Lake City, Utah,
was completed ahead of schedule, well before the opening of the 2002 Winter
Olympic Games. Although the CA/T has been the subject of many controversies, it
has resulted in important engineering and technological advances. Engineering
innovations included new solutions for tunnel ventilation systems that have also
been used to reduce the costs on the Cumberland Gap Tunnel project. When
complete, the CA/T will link air, sea, rail, bus, and subway facilities, to
facilitate local and regional economic growth, while providing environmental
benefits, reducing traffic congestion, and improving traffic safety.
Based on our experiences with major projects, we continue to believe that
effective FHWA program oversight is the best foundation for major
project oversight.
ACTIONS TAKEN
Our approach to improving management of major projects has been to continue
to strengthen our oversight of all programs, while issuing certain specific
requirements for major projects within the framework of existing laws and taking
into account that each major project is unique in its complexity, sponsoring
agencies, and contracting plans. This approach is consistent with the overall
delivery of the FHWA program as a Federally-assisted, State-administered
program.
FHWA Stewardship and Oversight Policy. Implementation of the restated
FHWA Stewardship and Oversight Policy (issued June 2001) underpins all of our
major project oversight actions. A key element in implementing the policy is to
emphasize that all Federally-funded projects are subject to Federal oversight,
even where State agencies have title 23 project approval authorities. FHWA has
also committed to conducting risk assessments with States to identify strengths,
areas needing improvement, and then prioritizing oversight activities
accordingly. FHWA will trust, but verify. We must have confidence in the quality
of a State's products and processes, or we must work with the State to achieve
appropriate improvement.
The Plan for Oversight and Management of Major Transportation Projects
(issued October 5, 2001), provides that improved management of major projects
will rely on the sound implementation of the restated FHWA Stewardship and
Oversight Policy, FHWA technical assistance and technology deployment,
dissemination of best practices information, industry and agency partnership
activities, and specific initiatives for major projects in response to
recommendations of the DOT Task Force on the Oversight of Large Infrastructure
Projects (Report issued December 2000). The Division offices have lead
responsibility for the delivery of FHWA programs and are assisted in oversight
of major projects by the Major Project Team within FHWA Headquarters. The
Divisions are building on a foundation already in place that consists of
existing FHWA/State Stewardship agreements, the documented State project
development and financial procedures, and the FHWA Financial Plan Guidance
(issued May 2000). In addition, once a project is identified as a "major
project" based on Division Office information, the Major Project Team begins
tracking the project and increases FHWA Headquarters involvement following the
environmental clearance of the selected alternative. Each major project will be
reviewed at this stage for unique features, or unique relationships between the
project sponsors, that require additional documentation to clarify
responsibilities and ensure that sound planning and management is
implemented.
In response to the TEA-21 major project finance plan requirement, FHWA issued
Financial Plan Guidance and, since then, the Division Offices and Headquarters
have applied this guidance in the review of finance plans on seven projects. Key
major project finance plan requirements include: project cost estimates must be
prepared in "year of expenditure" dollars; agency accountability must be
increased for the proposed financing in the plan; significant changes to the
project scope in the annual finance plan must be accurately disclosed. FHWA
requires annual updates to the plans and obtains independent verification of the
financial data provided by the States in these plans.
Major Project Team. In FY 2000, a Major Project Team was established in
FHWA Headquarters to provide specialized oversight and assistance to our
Division offices in States with a major project. The Division office is most
directly responsible for FHWA's oversight responsibilities on a major project.
The Major Project Team, which was fully staffed beginning in FY 2001, has
developed a process for tracking the active major projects; provides assistance
to Divisions on risk assessment and oversight decisions in the areas of finance,
environment (working with our Office of Environment and Planning), and Owner
Controlled Insurance Programs (OCIP); and assists in independent cost estimate
studies and value engineering activities. The Major Project Team and Divisions
also do extensive outreach to educate the States on the Finance Plan
requirements and sound management of these large, complex projects. In addition
to a focus on finance plans, the Major Project Team provides technical
assistance to the States on information tracking for more responsiveness to
change issues that arise on these projects. A financial tracking system that can
integrate data from two States into one information process is under development
for use on the Woodrow Wilson Memorial Bridge Replacement Project.
Information/Technology Transfer. The Major Project Team issues a
newsletter every six months, summarizing important major project management
issues and sharing best practices, and has begun development of the FHWA Project
Management Resource Manual, the first chapters of which have been posted on the
FHWA website. The Manual provides information on applicable Federal regulations,
project management training, and other reference materials as well as on best
practices. Plans are underway to convene regular meetings of major project
managers from around the country to discuss common challenges and solutions.
FHWA is also disseminating information and technology through industry meetings
and Division outreach, and providing one-on-one assistance to State staff in the
early stages of planning and managing a major project. Overall, our approach has
become more proactive in assisting States on process evaluation and sharing
worthwhile practices.
OneDOT and Industry Partnership Activities. Within the DOT, the FHWA
Major Project Team is working closely with the Federal Transit Administration
(FTA) and the Transportation Infrastructure Finance and Innovation Act (TIFIA)
Joint Program Office to effectively conduct DOT oversight on jointly-funded
major projects and to share effective management practices. For example, the
reconstruction of the I-25 corridor in southeast Denver, combined with the
expansion of the rapid transit system, utilizes both the FTA Project Management
oversight model and FHWA's traditional working relationship with the Colorado
DOT. On TIFIA projects FHWA has been involved in analyzing potential delivery
risks prior to construction and in implementing effective information systems to
keep all parties informed on project status. FHWA will continue to work with
these DOT partners to streamline the Federal oversight processes and manage the
Federal interest in the projects.
We are also working with the American Association of State Highway and
Transportation Officials (AASHTO) on analysis of construction cost increases and
trends. A preliminary survey has given insights into some of the reasons for
cost increases, which include: changed conditions, scope not clearly defined,
plan errors, claims, utility delays, and weather damage. The PS&E stage
comes late in the project development process. Effective cost containment must
begin earlier with effective processes for scope definition, contract letting
schedules, utility coordination, and right-of-way (ROW) clearance. We are
supporting industry research initiatives that will result in dissemination of
best practices and new tools, such as the Transportation Research Board (TRB)
Forum on project planning focused on expediting delivery and reducing
construction impacts.
Additional Administrative Actions. As additional large-budget, complex
projects are contemplated, a balance must be achieved between addressing the
needs of major projects and the majority of the Federal-aid program that is
vested in smaller projects. In 1998-1999, FHWA undertook a major restructuring
in order to move program decision authorities closer to its primary customers,
the States, and to focus high-level technical expertise in its regional Resource
Centers.
In addition to the work by FHWA staff, I have begun meeting quarterly with
the Department of Transportation Inspector General to discuss major project
issues and overall program issues, as well as possible reauthorization
initiatives.
REAUTHORIZATION
The upcoming reauthorization of the Federal-aid highway program gives us an
opportunity to refine the appropriate Federal role not only in funding but in
overseeing infrastructure projects, particularly the high-budget projects. As
the Secretary has directed, we will focus on the management and performance of
the system as a whole, while ensuring appropriate oversight for both project
management and program performance.
We will look for ways to encourage well-managed State programs, without
adding additional layers of Federal requirements. Our oversight procedures must
harmonize with our efforts to streamline project approvals and expedite project
delivery.
The bottom line is: improve oversight and accountability for the expenditure
of public funds, without negatively impacting the ability of States and local
governments to deliver their programs. Together with Congress, we will define
what our role should be and how we carry out our responsibilities.
CONCLUSION
Overall, the Federal-aid Highway Program shaped by ISTEA and TEA-21 is
working well in supporting our Nation's economic growth and improving the
quality of life for all our citizens. But, as President Bush has said, "good
beginnings are not the measure of success. What matters in the end is
completion. Performance. Results." The challenge facing us is to maintain our
high-quality highway network, the critical link in the national intermodal
transportation system, while achieving our goals to increase safety, ensure
national security, improve mobility, and promote environmentally responsible and
efficient project delivery. Assuring that the resources entrusted to the
Federal-aid Highway Program are managed wisely and appropriately is essential to
our success in meeting this challenge. I am dedicated to fulfilling this
responsibility.
Mr. Chairman and Members of the Committee, this concludes my statement. I
again thank you for the opportunity to testify today and I will be pleased to
answer any questions you may have.
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