FTA Market Conditions Research Recommendations for Improving Transit Industry Cost Estimation
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FTA Market Conditions Research Recommendations for Improving Transit Industry Cost Estimation FEBRUARY 2019 FTA Report No. 0130 Federal Transit Administration PREPARED BY Rizwan Shah, Haley S. Orvedal, and Matthew Gilstrap Guidehouse (formerly PwC Public Sector LLP) Maya Sarna FTA, Office of Program Management COVER PHOTO Courtesy of Edwin Adilson Rodriguez, Federal Transit Administration DISCLAIMER This document is disseminated under the sponsorship of the U.S. Department of Transportation in the interest of information exchange. The United States Government assumes no liability for its contents or use thereof. The United States Government does not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the objective of this report. FTA Market Conditions Research Recommendations for Improving Transit Industry Cost Estimation FEBRUARY 2019 FTA Report No. 0130 PREPARED BY Rizwan Shah, Haley S. Orvedal, and Matthew Gilstrap Guidehouse (formerly PwC Public Sector LLP) 1730 Pennsylvania Avenue NW Washington DC 20006 Maya Sarna FTA Office of Program Management SPONSORED BY Federal Transit Administration U.S. Department of Transportation 1200 New Jersey Avenue, SE Washington, DC 20590 AVAILABLE ONLINE https://www.transit.dot.gov/about/research-innovation FEDERAL TRANSIT ADMINISTRATION i FEDERAL TRANSIT ADMINISTRATION i Metric Conversion Table SYMBOL WHEN YOU KNOW MULTIPLY BY TO FIND SYMBOL LENGTH in inches 25.4 millimeters mm ft feet 0.305 meters m yd yards 0.914 meters m mi miles 1.61 kilometers km VOLUME fl oz fluid ounces 29.57 milliliters mL gal gallons 3.785 liter L ft3 cubic feet 0.028 cubic meters m3 yd3 cubic yards 0.765 cubic meters m3 NOTE: volumes greater than 1000 L shall be shown in m3 MASS oz ounces 28.35 grams g lb pounds 0.454 kilograms kg megagrams T short tons (2000 lb) 0.907 Mg (or “t”) (or “metric ton”) TEMPERATURE (exact degrees) o 5 (F-32)/9 o F Fahrenheit Celsius C or (F-32)/1.8 FEDERAL TRANSIT ADMINISTRATION i FEDERAL TRANSIT ADMINISTRATION ii REPORT DOCUMENTATION PAGE Form Approved OMB No. 0704-0188 Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for reviewing instruc- tions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC 20503. 1. AGENCY USE ONLY 2. REPORT DATE 3. REPORT TYPE AND DATES COVERED February 2019 Research, 1995-2015 4. TITLE AND SUBTITLE 5. FUNDING NUMBERS FTA Market Conditions Research: Recommendations for Improving Transit Industry Cost Estimation 6. AUTHOR(S) Rizwan Shah, Haley S. Orvedal, and Matthew Gilstrap, Guidehouse Maya Sarna, FTA Office of Program Management 7. PERFORMING ORGANIZATION NAME(S) AND ADDRESSE(ES) 8. PERFORMING ORGANIZATION Guidehouse (formerly PwC Public Sector LLP) REPORT NUMBER 1730 Pennsylvania Avenue NW Washington DC 20006 FTA Report No. 0130 9. SPONSORING/MONITORING AGENCY NAME(S) AND ADDRESS(ES) 10. SPONSORING/MONITORING U.S. Department of Transportation U.S. Department of Transportation AGENCY REPORT NUMBER Federal Transit Administration Research and Innovative Technology Administration Office of Research, Demonstration and Innovation 1200 New Jersey Ave., SE East Building Washington, DC 20590 FTA Report No. 0130 1200 New Jersey Avenue, SE Washington, DC 20590 11. SUPPLEMENTARY NOTES [https://www.transit.dot.gov/about/research-innovation ] 12A. DISTRIBUTION/AVAILABILITY STATEMENT 12B. DISTRIBUTION CODE Available from: National Technical Information Service (NTIS), Springfield, VA 22161. Phone 703.605.6000, Fax 703.605.6900, email [[email protected]] TRI-20 13. ABSTRACT The purpose of this report is to evaluate transit cost estimates vs. bid pricing across 1995–2015, which spans two significant periods of economic turmoil and a large range of project conditions. Federal funding for transit capital projects is based on cost estimates provid- ed by project sponsors and is reviewed by FTA, usually before construction bids are received. Accurate estimating is required to reliably establish these Federal grants. Anecdotal evidence exists and shows that overall economic conditions or patterns of project conditions may affect the ability of cost estimators to accurately forecast project costs. The national significance of the research is the improvement of cost estimating by the transit industry. 14. SUBJECT TERMS 15. NUMBER OF PAGES Cost estimating, transit capital cost, construction bids 32 16. PRICE CODE 17. SECURITY CLASSIFICATION 18. SECURITY CLASSIFICATION 19. SECURITY CLASSIFICATION 20. LIMITATION OF ABSTRACT OF REPORT OF THIS PAGE OF ABSTRACT Unclassified Unclassified Unclassified TABLE OF CONTENTS 1 Executive Summary 5 Section 1 Introduction 5 Purpose 5 Document Structure 7 Section 2 Study Approach 9 Section 3 Data Findings 9 New Starts Project Sample Selection 11 Drivers for Cost Growth and Schedule Overruns 12 Project Stakeholder Interviews 13 Market Impacts on Procurement 13 External Perspective: Validation and Benchmarking 15 Section 4 Recommendations and Next Steps 15 Recommendation Focus Areas 18 Next Steps 20 Appendix: Data Sources 24 Acronyms/Abbreviations FEDERAL TRANSIT ADMINISTRATION iv LIST OF TABLES 2 Table ES-1 Enhance Accuracy of Grantee Cost Estimating 3 Table ES-2 Enhance Grantee Cost Management and Cost Control 4 Table ES-3 Enhance Grantee Emphasis on Creating an Environment of Continuous Improvement 9 Table 3-1 FTA New Starts Portfolio Budget Performance, 1976–2016 10 Table 3-2 CIG Project Research Sample 11 Table 3-3 Cost Category Cost Variance ($ Millions, YOE) 13 Table 3-4 Case Study Procurement Summary 14 Table 3-5 Summary of External Benchmarks 15 Table 4-1 Enhance Accuracy of Grantee Cost Estimating 17 Table 4-2 Enhance Grantee Cost Management and Cost Control 18 Table 4-3 Enhance Grantee Emphasis on Creating an Environment of Continuous Improvement 20 Table A-1 Light Rail Project Data Sources 21 Table A-2 Heavy Rail Project Data Sources 22 Table A-3 Commuter Rail Project Data Sources 23 Table A-4 Bus Rapid Transit Project Data Sources FEDERAL TRANSIT ADMINISTRATION v EXECUTIVE The Federal Transit Administration (FTA) Office of Program Management (TPM) initiated a research study in Summer 2017 to review the cost estimating SUMMARY methodologies and cost control measures of select Capital Investment Grant (CIG) program New Starts projects. The ultimate research objectives were to determine drivers behind cost growth from the transit industry perspective and to identify tools, processes, and recommendations for improving Grantees’ cost estimation and risk management practices. To inform these objectives, first, TPM worked with FTA stakeholders to select 16 completed (or under construction) CIG projects across 4 modes of transit to perform a quantitative analysis focused on identifying cost growth trends at the Standard Cost Categories (SCCs) level. It then worked with FTA headquarters to select a subset of eight projects for which it conducted interviews to identify common themes that influenced cost growth or schedule delays. Then, as part of the external review, a wide variety of literature sources related to capital project performance and best practices were surveyed and individuals from several private companies, including a national oil company and a global manufacturing and engineering firm, were interviewed. Discussions with oil & gas, power & utilities, and United Kingdom (UK) transit professionals also helped inform the benchmarking and recommendations. Based on the findings and insights from the activities highlighted above, three overarching recommendation focus areas for Grantees were identified: • Enhance Accuracy of Cost Estimating • Enhance Cost Management and Cost Control • Enhance Emphasis on Creating an Environment of Continuous Improvement The following tables summarize key observations noted as a result of this study and potential outcomes with each. FEDERAL TRANSIT ADMINISTRATION 1 EXECUTIVE SUMMARY Table ES-1 Enhance Accuracy of Grantee Cost Estimating Observation Current State Potential Outcome Grantees should place more • FTA currently facilitates the • Formally conduct or facilitate emphasis on cost estimation best capital cost workshop and more regular workshops focused practices and lessons learned. lessons learned database, but on how to develop and structure both are acknowledged to be in estimates. need of improvement. • Require workshop attendance to • Interviews revealed that move to subsequent stage gates. information/data sharing specific • Highlight specific issues (e.g., to cost estimating would assist tunneling, freight agreements, Grantees. etc.) to draw attention to known challenges from other FTA projects. • Poll Grantees to determine best way to facilitate data sharing. Grantees can improve • FTA provides limited, indirect • Highlight consideration of tactical consistency in cost estimate guidance related to cost items such as material cost approaches estimating. adjustment clauses, independent • Cost estimates developed by economic advisor review, etc. to Grantees vary