Delegation of Authority

Title: Delegation of Authority

Phase(s): Pre-Preliminary Engineering

Category: Cost

Date: January 17, 1995

1. Background
On a major capital project there will be a number of design and construction changes, with construction changes encompassing the larger dollar value. Capital costs per route mile for recently built rail systems range from $10 to $36M, with the average just under $20M. To adequately and quickly handle change requests, the level of dollar value approval must be established. It is very likely that an agency can expect to process as many as 1,500-2,000 change requests for a construction project of $225-$300M.

For older, established transit systems, design and construction costs for major rehabilitation or additions may also reach or exceed $100M. Change requests for rehabilitation projects often exceed those of new starts due to the complexity of rebuilding while maintaining revenue service.

In managing a large capital investment program, Bi-State Development Agency began by ensuring that its governing board clearly understood the needs and complexities of a major capital project. The fact that changes/modifications to contracts will occur must be accepted by the board. It must also be communicated to the board that the FTA requires a Project Management Plan (PMP) that must satisfy FTA requirements and agency needs and meet the fiduciary responsibility of the governing agency board. A trust relationship must develop and exist between the board and agency staff that provides a balance between responsibility and authority and accountability for the given authorities. The board must be comfortable in its delegation of authority to the staff (as described in the PMP) for change request/order approval. The chain of delegation from the board down through the appropriate agency management levels will clearly delineate the responsibilities and working relationship of the agency contract/procurement activity and the agency’s project management staff. This delineation is required by FTA but is also needed to ensure that these two entities work closely together and that prescribed procurement practices are followed.

The implementation of the St. Louis MetroLink delegation of authority worked well for its project and is worth examining as a "Lesson Learned."

2. The Lesson
"Time is money." Change requests/orders consume a great amount of time during a project. Quickly dealing with changes at the appropriate authority level is a major factor in saving time and associated dollars.

BSDA management was able to establish trust or "partnering" relationship between its board and the staff. This was accomplished by frequent board briefings, up-front identification of problems, and a clear understanding of the board's role -- fiduciary and policy responsibilities -- and that of the staff -- complete the project on schedule and within budget.

As part of the trust and partnering between the board and staff, a delegation of responsibility, authority and accountability for each level of staff management was established, published in the PMP and implemented. The chart below shows this delegation for the St. Louis MetroLink project: 

 Approval Level   Single Change Value ($)   % Contingency, Aggregate
 Board   N/A   > 100%
 Executive Director  >$250,000   >75%
 Deputy Executive Director  $100k - $250k   75%
 Dir. Eng./Construction   $50k - $100k   50%
 Project Engineer   $25k - $50k   25%
 Resident Engineer     $25,000  25%

Each project contract had a contingency assigned. The level of approval authority for changes then became a combination of single change dollar value and a summation of the percent of contingency allowed on that particular contract.

The role of the procurement office was also clearly defined in the change request/order procedure. The staff was informed that the contracts they would manage were legal documents binding on BSDA and could not be changed or modified without the knowledge and approval of procurement. This procurement check required a change cost analysis to be prepared by the project staff. Procurement then examined the change and cost analysis for two key elements:

1. Is the change to the contract scope of work?
2. If so, determine whether the change should be bid out or cost negotiated with the contractor. If contractor negotiation is the choice (clearly the fastest way), price is determined, and the change order is approved and issued by the appropriate staff level.

The delegation of authority levels are aligned based on the principle of: "authority at the level most knowledgeable and aligned with the responsibilities." The contractor needs to know that those administering his work have the respect and authority to do their job.

With this delegation of authority, it is necessary to ensure effective cost controls and cost reporting mechanisms to transit boards and others with fiduciary accountability to build confidence and comfort with the decision to delegate.

The results of this BSDA delegation process are evident in the following distribution of change order approvals:

 Approval Level

  % of Changes   $Value (millions)
 Resident Project Engineers  89.9%   $19.78
 Dir. Eng./Const.:  4.6%   $1.01
 Dep. Exec. Dir./GM  3.3%   $0.73
 Exec. Dir.   2.2%   $0.48
 Total    (8.5% of original contracts)  $22.00

The levels of authority and dollar values assigned by St. Louis worked well and efficiently dealt with changes, kept contractors on schedule, and reduced claims to a minimum. Each agency/authority may need differing levels of change authority delegation, but the St. Louis MetroLink experience is worth understanding and can be useful for both new starts and capital projects on established systems.

3. Applicability
This approach to delegation can be used by both older, established transit agencies wishing to rehabilitate or expand their rail systems and the new-start agency faced with its first large, complex capital project. It may be even more applicable to assisting the established agency that is faced with dollar levels that are outdated or inadequate for today's projects and concepts such as partnering.

4. References
BSDA Project Management Plan
FTA Project Management Oversight Regulations
BSDA Resident Engineer's Manual
BSDA Procurement Directives