23rd Annual FTA Engineers’ Meeting and Annual Oversight Meeting Attendees - Washington, DC


06-20-07

Administrator James S. Simpson
Federal Transit Administration
23rd Annual FTA Engineers’ Meeting and Annual Oversight Meeting Attendees
Washington, D.C.
June 20, 2007

I am pleased to speak to you on the one day when the Annual Engineers’ Meeting and the Annual Oversight Meeting overlap so that I can address all of you at the same time.

ENTREPRENUERIAL GOVERNMENT
A Hybrid organization means drawing on the best practices of both the public and private sectors. Entrepreneurial government means putting the customer at the top of the hierarchy and turning the organization upside-down. Entrepreneurial government also means being accountable.

At FTA, I have made Continuous Improvement part of the culture. That is why we recently applied to the National Institute of Standards and Technology to be considered for the prestigious Malcolm Baldridge Award, an opportunity which is only now available to public agencies. The application process is a means to an end – the end being a highly productive, customer-focused Federal agency. My goal is for FTA to win the award within two years.

Over the years, FTA has made good investment choices for Federal New Starts dollars due, in part, to our increased commitment to sound management practices. FTA's current portfolio (i.e., the number of projects in the construction phase) totals $21.5 billion and we are managing costs to within a half percent of the FFGA baseline and cost estimates. Based on my experience, in both the public and private sectors, that is unheard of.

In Bent Flyvbjerg’s book, Mega Projects and Risk, the difference between actual and estimated investment cost is often 50 – 100 percent; and for many projects, cost overruns end up threatening project viability. “A first step in reducing costs overruns is to acknowledge that a substantial risk for overrun exists and cannot be completely eliminated; but can be moderated.”

FTA has been at the forefront of managing mega-project risks. However, there is a fine line between managing risk and eliminating necessary elements of a project.

Accurate forecasts of the cost and ridership of proposed New Starts projects are crucial to the continued credibility of the New Starts program.  New Starts is a program lauded by the Government Accountability Office, the Office of Inspector General, Congress and others.  To keep it that way, we must continue producing high quality projects that provide mobility, environmental benefits and deliver what they promise to the taxpayers.

We are working hard to pay special attention during the planning process to ensure that transit agencies – and the contractors that work for them – produce objective data because that data becomes the basis for local decision making. Often it has been the case that the costs and ridership projections for New Starts projects at the end of Alternatives Analysis are dramatically rosier than those made later in the process. 

In order to protect the integrity of the decision-making process – at the crucial stage where local decision makers are selecting a preferred alternative and dismissing others – we need to do better at producing accurate forecasts.

Two things are taking place that are very positive. First, cost and ridership projections at the full funding grant agreement (FFGA) entry are being achieved once revenue operations commence. The fact that our portfolio of projects is coming in at no more than 0.5 percent above the FFGA estimates is clear evidence of this. Second, when comparing cost estimates for New Starts projects made at the end of
Alternatives Analysis to actual construction costs, we are finding a much higher degree of accuracy than in the past. 

The Congress has challenged FTA and the industry to get the numbers right by including several incentives in the most recently enacted authorizing legislation. For example, grantees are now able to retain the savings realized for those projects brought in under budget. By providing an incentive to the transit agency by allowing them to keep the savings, we believe that there will be increased effort to contain costs.

Also, the legislation gives the Secretary of Transportation the authority to increase the federal share for a new starts project that comes within 10 percent of the cost and ridership forecasts made at the end of Alternatives Analysis. This incentive is targeted explicitly to ensure the validity of forecasts used when the locally preferred alternative is being selected. 

REMARKS ADDRESSED TO THE ENGINEERS
As engineers and Project Management Oversight (PMO) contractors, you play a critical role in keeping the projects within budget by effectively managing the construction of multi-billion dollar Major Capital Projects. In fact, as I understand it, your Annual Meeting this year focused primarily on improvements to the PMO Program and the roles and responsibilities you each have from a headquarters, regional and PMOC perspective in accomplishing this goal.

As you know by now, FTA is in the process of preparing the solicitation for the next multi-year Project Management Oversight Contractor services, an estimated $200 million dollar contract. Another issue that you focused on was tools for effectively managing project scope, cost and schedule. I would just like to add three points.

First of all, be proactive in bringing projects in on time and within budget by being diligent in your quest for information from our grantees regarding aspects of the projects that are potential cost drivers. Secondly, we need to appreciate to a greater extent how greatly Federal delays and indecision can cost the industry. I guess you might say that I have a private sector mentality where it goes without saying that time is money!

Lastly, the Office of Engineering is leading the effort to procure a pilot New Starts case management system that will allow FTA and a select number of grantees to evaluate how we can collectively benefit from such a system. Ultimately, we expect feedback from this pilot to assist FTA in further developing the requirements for the procurement of a permanent system, as recommended by our New Starts
Program study consultant (Deloitte Consulting, LLC), that will allow FTA to better manage and communicate project information among ourselves and our grantees.

We must make risk programming an integral part of project management. Our goal is that risk forecasts must be rigorous enough to maintain their usefulness over the period of time from FFGA to the revenue operation date. Also, risk mitigation efforts must be integrated with contingency management within the overall project management effort.

REMARKS TO THE OVERSIGHT TEAM
And now, to the Annual Oversight Meeting attendees, I know that you are looking forward to the program that focuses on the theme “New Transit Programs and Guidance.”

This year’s oversight meeting provides you with information on the new and revised program requirements and guidance concerning Triennial, State Management, Financial Management and Procurement Systems oversight reviews. This meeting will also be a great opportunity for you to exchange ideas on how to further improve our oversight programs.

We will be discussing how FTA is working to improve our oversight programs through the Oversight Quality Design Initiative, a comprehensive review and enhancement of our core “grantee focused” oversight functions. FTA is committed to continual improvement of all its oversight activities, which range from providing technical support and training to grantees to providing FTA oversight staff with the tools and resources necessary to perform their jobs well.

The role of FTA grantee oversight is to promote continual improvement of how the agency’s grantees manage Federal funds. In this spirit, FTA has kicked-off the Oversight Quality Design Initiative (QDI) review to evaluate the overall FTA oversight program and business processes and generate recommendations for continuous process improvements. 

More specifically, the Initiative will review and analyze the purposes and effectiveness of FTA’s current oversight review programs, procedures and mechanisms. For example, the analysis will examine the Triennial Review program and develop a specific “plan-of-action” of feasible changes that can be implemented to improve that program’s ability to detect issues.

The review will also include a realistic timeframe to act as a guide for FTA to implement suggested changes for all of our oversight programs. Additionally, FTA will be looking at new oversight programs through this study including cooperative agreements. The final report will also develop suggestions for program areas that would benefit from additional or enhanced oversight.

CONCLUSION
We have one shot at building these projects; so we need to build them right, and we need to build them to last. 

Thank you.