Chapter 3 - General Management Principles for Transit Capital Projects

3.1 Introduction

This chapter contains the general principles for managing the transit capital project development process. Emphasis is given to those aspects that are not phase-dependent or apply to more than one phase, and thus can be applied throughout the project development process. These principles supplement the topics presented in Chapters 4 through 6, which are specifically related to the Design, Construction, and Testing/Start-Up Phases, respectively.

While the scope of discussion of these topics is meant to apply to the larger MCPs, it is also applicable to smaller transit capital projects. Smaller projects have far less organizational and financial resources available to address the project management principles, but nevertheless, need to define and assign responsibilities as part of their project development process. Any transit project beyond routine capital replacement can be complex and subject to intense public criticism if it is not successfully implemented. Therefore, grantee attention to managing the capital development is extremely important.

While the concept of "project management" encompasses the entire capital development process from system and project planning through operations and maintenance, "construction management" encompasses the Construction Phase activities of a transit project. The Guidelines are intended to define sound management approaches for the entire process of transit capital project development, encompassing both traditional project and construction management functions. No attempt will be made to differentiate these functions within these Guidelines although a grantee may find it convenient to establish the role of a "construction manager" to oversee the Construction Phase as well as to provide review and input to the related Design Phase activities. Agencies also retain "program managers" to act as extensions of their staff and oversee all phases of the project.

Professional organizations available as resources to promote the development and practice of project management and construction management include:

	The Project Management Institute (PMI) 4 Campus Boulevard Newtown Square, PA 19073 (610) 356-4600 http://www.pmi.org/
	The Construction Management Association of America (CMAA) 7918 Jones Branch Drive, Suite 540 McLean, VA 22102 (703) 356-2622 http://www.cmaanet.org/
	The Design-Build Institute of America (DBIA) 1010 Massachusetts Avenue, NW, Third Floor Washington, DC 10001-5402 (202) 682-0110 http://www.dbia.org/
	The Association for the Advancement of Cost Engineering (AACE) International 209 Prairie Avenue, Suite 100 Morgantown, WV 26501 (304) 296-8444 http://www.aacei.org

PMI addresses project management topics in a generic manner not necessarily related to capital projects, while CMAA focuses on issues affecting the construction of capital projects. DBIA is a relatively new organization and supports design-build and other alternative project delivery methods. AACE International serves cost management professionals: cost managers and engineers, project managers, planners and schedulers, estimators and bidders, and value engineers. All of these organizations have professional development activities and documentation resources that can be used to enhance the capabilities of management personnel involved in implementing transit projects.

The Construction Industry Institute (CII) was founded in 1983 to improve cost-effectiveness in construction by identifying needs, conducting research, and publicizing remedies to construction problems. CII is a consortium of leading owners and contractors who have joined together to find better ways of planning and executing capital construction programs. A list of CII publications can be obtained from:

The Construction Industry Institute 3925 West Braker Lane Austin, TX 78759-5316 (512) 232-3000 http://construction-institute.org/

Local User Councils (LUCs) that exist in most metropolitan areas gather data on local construction activities and problems, provide a forum for information exchange among agencies and contractors, and sponsor educational programs for project and construction managers. Membership and participation by the grantee in the nearest LUC is highly desirable. A list of LUCs and their local contacts is available from:

The Construction Users Roundtable (CURT) 4100 Executive Park Drive Cincinnati, OH 45241 (513) 563-4131 http://www.curt.construction.com/

MCPs are complex and require a formal management approach in order to achieve success. To better understand the processes involved in managing such projects, it is worthwhile to review some definitions:

• Project - can be considered to be any series of activities and tasks carrying a specific objective that must be accomplished within certain specifications; having defined start and end dates; having funding limits; and consuming resources such as time, money, labor, and materials.
• Project Management - involves planning and monitoring.
• Project Planning - encompasses the definition of work requirements, quantity of work, and resource requirements.
• Project Monitoring - involves a tracking process, comparing actual to predicted, analyzing impacts, and making adjustments.
• Successful Project Management - is having achieved the project objectives within budget and schedule and at the desired performance level (plan, specifications, quality), while using the assigned resources effectively and efficiently.

The management philosophy, project team attitude, and application of project resources are critical to the success of any project. They are established and fostered by the grantee/project manager and, if effective, permeate the entire project team. Hennepin County's Study for Light Rail included a succinct list of features necessary for the success of capital projects [Ref. 26]:

• Well Defined Project Concept - Clearly-defined project concept and mission - what, why, when, and at what cost.
• Strong Project Champion and Local Public Support - Both public and private sector local support, especially by those most directly affected by the project during construction and operations; strong and effective leadership to develop and maintain project consensus.
• Timely Implementation of a First Line or Initial Segment - A successful start-up that maintains public support and provides the basis for future financial commitments.
• Small Project Management Team - Cost-effective use of consultants to permit simple/direct lines of communication, timely/responsive decision-making, and minimal interference with contractors.
• Appropriate Risk Sharing - Clear identification and allocation of risks through the grantee's procurement/contracting policies and procedures.
• Early ROW Clearance - The grantee responsibility, either directly or through separate contracts, for ROW acquisition/clearance, including utility relocation prior to the beginning of construction.

3.2 Grantee and Project Organization

3.2.1 Grantee Authority, Requirements, and Organization

The grantee responsible for any transit capital project must possess the legal authority to carry out all the requirements necessary to effectively plan and implement the project. Statutory authority may be required to perform functions such as:

• Planning, design, construction, ownership, operation, and maintenance of public transit facilities.
• Local financing, including use of public funds, taxation, and issuing bonds.
• Receipt of Federal and state grants.
• Procurement and awarding contracts.
• Real estate acquisition and condemnation.

A review of existing statutes should be made to gain a full understanding of the authority of the grantee and any legal constraints that may affect the project. The purpose should be to identify requirements and constraints in an orderly and timely manner, dealing with them in the normal course of project advancement. Failure to recognize and accommodate legal requirements may jeopardize the entire project and, at the very least, severely impact the subsequent approval process and project schedule. The project sponsor must be diligent in maintaining an awareness of changes in the legislative/regulatory environment which may impose future constraints on a project. The ability to deal with those potential issues in the planning/design phase may save considerable time and effort during construction. In addition to state and local requirements, specific Federal statutes, rules, regulations, and circular listings, include, but are not limited to, the following topics:

• 13(c) (labor protection)
• The Americans with Disabilities Act (ADA)
• Brooks Act (qualifications based procurement method)
• Buy America
• Cargo Preferences
• Clean Air Act
• Copeland Anti-Kickback Act
• Davis-Bacon Act (wage rates and labor provisions)
• Disadvantaged Business Enterprise (DBE)
• Equal Employment Opportunity (EEO)
• Flood Insurance
• Land Acquisition and Relocation
• National Environmental Policy Act (NEPA)
• National Historic Preservation Act
• National Pollution Discharge Elimination System
• Occupational Safety and Health Regulations
• Procurement
• Rehabilitation Act (accommodations for persons with disabilities)
• System Safety and Security

When transit agencies undertake a capital project, the relationship of the project organization to the operating organization must be defined and the interface points between the two clearly established, as necessary to achieve quality, cost, and schedule goals. Through its governing board, the grantee is responsible for performing the following functions:

• Establishing policy
• Assuring financing of the project
• Approving funding applications
• Approving budgets, commitments, and expenditures
• Approving contract documents
• Approving award of contracts and contract changes
• Acquiring land
• Executing the project
• Determining operational readiness and certifying safety

A typical grantee's organization will have a general manager or executive director who will implement board policies through the day-to-day operations of the grantee. Often this individual is assisted by heads of such departments as engineering, construction, real estate, finance, procurement, legal, personnel, operations, and public affairs. Taking into account the grantee's organization, the project to be implemented, and the grantee's future role and responsibilities in the new project, there are a number of successful organizational approaches with regard to staffing the project that include:

• Developing an in-house staff to undertake the entire project.
• Utilizing existing state or local agencies, such as the DOT
• Delegation of responsibility to a general consultant for planning, designing, and constructing the facility, or assignment of the management of design, and construction to separate consultants.
• Utilization of contractors for alternative project delivery methods, such as D/B, turnkey, and DBOM.
• Combinations of the above approaches.

No matter what organizational approach is chosen, the grantee is responsible for the effective management of the project. The project staff is typically organized in a matrix form of organization which has found increasing application in engineering and construction activities. A matrix organizational form is often defined as using the dual reporting relationship as further explained below.

Figure 3-1 depicts a matrix organization in which line departments with functional responsibilities are shown vertically and project organizations with project responsibilities are shown horizontally. Thus, a staff person has dual reporting responsibilities to the functional manager and to the project manager. Figure 3-2 further develops this concept to define the project office into which staff can be assigned on a temporary basis while remaining functionally affiliated. This matrix organization is utilized on finite duration projects, such as MCP, where dual focal points of equal importance are required - technical and cost/schedule. Personnel assigned to the project report to the project manager regarding work priorities (what must be done), and to a functional manager for the technical adequacy (how work is to be done). The matrix form of organization permits the integration of technical specialists and firms who may participate on several individual projects to effectively contribute, along with others, to the accomplishment of the project objectives for which the organization is responsible.

Figure 3-1. Matrix Organization

Figure 3-2. Matrix Organization with a Project Office

As a transit capital project evolves throughout its phases, from planning to implementation, the objectives will become refined and the organizational participation will vary greatly, depending on the specific requirements of each phase. Thus, the overall project management framework must be flexible to accommodate the needs of each phase.

3.2.2 Project Organization, Staffing, and Training

The goal of the project organization at any given time should be the effective and efficient accomplishment of the project objectives for that phase. This may necessitate the involvement of different personnel and contractors from phase to phase and may even require different lead public agencies and project managers.

As a project evolves, however, there is a need for continuity to assure the achievement of the overall objectives. Critical in the structuring of any organization is the flow of authority and responsibility from the grantee through the project manager, functional area managers, and contractor managers, to each assigned project participant. Variations in the size and complexity of a transit capital project and the capability of the grantee will influence the use of outside consultants and contractors and the project organizational structure. The size, qualifications, and availability of existing staff resources must be considered in relation to the human resource requirements and duration of the project. For the small bus operator planning a new maintenance facility or the system developing a single fixed guideway segment, it may be prudent to contract for technical studies, design, and project management services, rather than hiring an entire staff. In the case of a large fixed guideway system development, consultants may be utilized initially, with staff capabilities developed gradually to replace the consultants. Agencies also have the option to give greater responsibility to contractors by utilizing alternative project delivery methods, which will be discussed later.

The obvious benefit of using contracted support services is the ability to immediately terminate their involvement and associated expense when the need is fulfilled. Even when an outside organization is used, the grantee must have in place an organization to maintain overall control of the project, provide for timely decision-making, and maintain appropriate communication channels with all participants. Clearly, any organizational arrangement that would result in duplication of effort, or that would tend to undermine authority, should be avoided. The organizational structure and work scopes for both grantee staff and outside contractors must clearly define their respective responsibilities.

Organizing and staffing during each of the project development phases should adhere to the following guidelines, which should be addressed in detail in the PMP:

• Adequate recipient staff organization, complete with well-defined reporting relationships, statement of functional relationships, job descriptions, and job qualifications. Charts should be developed for each phase and should cover all project functions. Key personnel in all organizations should be identified and their principle duties, reporting relationships, assigned responsibilities, and delegated authority should be clearly defined. Staffing levels should be indicated, and job qualifications provided. The organization chart could be accomplished by a tabular staffing plan that shows percent utilization, start date, and release date information.

• A description of the organizational structures, management skills, and staffing levels required throughout the construction phase is required to be included in the PMP.
• Interface points within and outside the project organization should be identified.
• Grantee and contractor organization charts showing the organizational placement of personnel assigned to the project and the interface points should be required for all major project participants.
• A staff mobilization plan that incorporates a schedule of milestone events should be developed.
• The philosophy governing the development of the project organization should be stated, and the decision to use contractors or in-house services should be explained.

It should be recognized that for large, multi-segment, fixed guideway projects (new construction or modernization), a grantee may simultaneously be in several project development phases (such as Planning, PE, Final Design, Construction, Testing and Start-Up, and Revenue Service) of individual system segments. Detailed project organization charts should be prepared for each phase to show all of the actors and their reporting relationships.

Project management should be sensitive to the appropriate human resource and training needs of the project team members in the unique aspects of the project being undertaken. The grantee should include specific staff management capabilities and training requirements in contract documents. Areas of training could include:

• Project control requirements
• Project team roles and responsibilities, especially with non-conventional project development approaches
• Project partnering and claims avoidance techniques
• Environmental sensitivities and mitigation requirements
• Risk management and construction safety awareness
• Community impact mitigation requirements and approaches
• Safety and operational concerns when working adjacent to an existing fixed guideway transit system

3.2.3 Work Breakdown Structure

As a means of organizing the project to allow for effective control, the grantee should establish a detailed Work Breakdown Structure (WBS) encompassing all of the work elements for a project. The WBS represents the organization of work as it is divided in manageable work packages. It displays and defines the products to be developed or produced, and relates the elements of work to be accomplished to each other and to the end product. It may identify project phase, contractor, line segment, and other organizing information. It is normally prepared in a hierarchical or multi-tiered fashion with the lower tiers being defined during design and project execution. A number, or alpha-numeric identification, is assigned to every WBS element. The WBS should be developed to meet the needs of project management, not merely the needs of the control functions or other specialties. A hierarchy of system physical components should be established, however, either within the WBS or separately so that work packages applicable to each configuration item can be identified and followed. Tasking in the PMP or other project master or subordinate plans should be to WBS elements. Figure 3-3 shows the hierarchy of the WBS used for a Los Angeles Metro Rail project.

In construction, the WBS concept can be applied to project tasks by considering several similar functions or a logical grouping of tasks as a "work package" that is assigned to a management unit. A management unit is the individual or portion of the organization responsible for supervising design, procurement, and construction tasks included in the work package. By breaking down work into packages, it becomes easier to manage a large complex undertaking such as a transit project. The grantee and the project manager must use care in applying WBS techniques only to those situations where there are sufficient supervisory personnel representing the grantee to monitor and check performance of each package. Additionally, each work package must be priced and scheduled into the overall project schedule and budget.

Figure 3-3. Example of a Work Breakdown Structure for the LA Metro Rail Project [Ref. 27]
Click here for a text-only version

3.3 Financial Requirements/Resources

For a project to be viable, it is important that it be based upon realistic cost estimates, and a realistic plan for financing both the capital and O&M costs. Historically, in many situations, capital costs for transit projects have been funded primarily by the Federal government (FTA) with matching funds provided by state and local government sources. Operating costs have traditionally been funded by farebox revenues with the support of Federal, state, and local governments.

Recently, the Federal share of funding for capital projects has been decreasing (see Section 2.2.8) and state and local governments have increased their share of the funding for capital projects. FTA has also encouraged a number of creative financing arrangements including private sector participation to support both capital and operating costs, and in some cases, project implementation and ownership. As the funding sources for transit projects become more numerous and complex, management of them becomes more important. Furthermore, as Federal funding is subject to annual appropriations, alternative plans need to be developed in case the Federal share is reduced or delayed.

Guidance for Transit Financial Plans [Ref. 15]

FTA provided the guidance referenced above regarding the development of grantee financial plans. These plans are to adhere to the outline set forth below. Key issues related to the elements of the financial plan are discussed in the following sections and included in Figure 3-4.

Figure 3-4. Components of a Financial Plan
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3.3.1 Capital Plan

The first element of the financial plan is the capital plan, which documents the grantee's capital spending plans and funding sources, and describes in detail the strategy to fund the construction of the proposed project. The capital plan is composed of three elements: (1) the grantee's 20-year forecast capital spending and funding sources, (2) the proposed project cost estimates, and (3) the proposed project funding sources. The capital plan documentation should confirm the stability, reliability, and availability of all capital funding sources and describe the grantee's capital spending plans 20 years into the future.

3.3.1.1 Project Capital Plan

A cost estimate and schedule are required at each phase of project development, but the format of the cost estimate changes. In AA and PE, project cost estimates and schedules are presented as increasingly detailed unit cost breakdowns of the proposed project. When a project proceeds to final design and an FFGA is sought, the cost estimates are allocated to specific contracts that specify the escalated annual cost and schedule, and are based on quantity and takeoffs and unit prices. These cost estimates are updated periodically and tracked as the project continues through the design and construction process.

Capital cost deliverables describe the cost estimation process and segment costs by major cost category (e.g., guideway, facilities, systems, and vehicles). Cost estimates include soft-costs such as the following:

• Real estate/ROW acquisition and relocation
• Utility relocation
• Project management
• Engineering, design, and specialized studies
• Construction management
• Environmental impact mitigation
• Public involvement
• Testing and start-up
• Insurance
• Project financing
• Contingency allowances
• Escalation from the date of the estimate to the date of implementation

The capital plan documents the current cost estimate for the proposed project, describing each major cost component. A simple project cost estimate is developed in AA. This cost estimate, typically including high contingencies to reflect uncertainties in scope, is used for the financial plan before a project enters PE. During PE, the scope of the project is more accurately determined and additional detail added to the cost estimate. As the project moves toward implementation, confidence in the capital cost estimates and schedules increases, while cost contingencies decrease.

Construction cost indices are useful in estimating costs. Two national sources for cost indices are Engineering News Record and F.W. Dodge Reports, both of which are published by McGraw-Hill, Inc. Local cost data are typically published by various construction groups. State agencies and associations publish unit cost data for various construction items. These data are beneficial because local labor rates for various crafts are used, together with labor availability in the area. However, in many instances, they fail to account for some of the cost line items that are unique to transit. FTA studies of transit capital costs have documented actual costs by categories for several transit projects:

Light Rail Transit Capital Cost Study [Ref. 28]

Fixed Guideway Capital Costs, Heavy Rail and Busway/HOV Lane [Ref. 29]

The Transit Capital Cost Index Study [Ref. 30]

These studies provide cost information for labor, materials, and equipment, and they also provide normalized cost information to account for cost differences by project date and city. Referral to these studies will also assist transit agencies in developing local cost estimates by cost component.

The capital cost estimates are initially produced in present day dollars and escalated to the year-of-expenditure. Costs are typically escalated based on distinct inflation forecasts for, at a minimum, material and equipment costs, ROW acquisition, labor cost, and general price inflation. Information on inflation indices is contained in the Transit Capital Cost Index report. Costs in constant dollars are budgeted according to the construction schedule. These costs are then escalated to the year-of-expenditure.

Projects in final design are broken into contract units, each with a distinct schedule and cost estimate. A specific contingency amount should be allocated to each contract at the time of award. An unallocated contingency amount may be maintained at the project level. The initial escalated cost estimate divided into contract units is called the Baseline Project Budget and is developed by the grantee before an FFGA is signed. This estimate may be derived from estimated contract costs escalated to year-of-expenditure or mid-point of construction. Each contract will be awarded and tracked by the grantee throughout the Construction Phase.

The cost estimates change as bids for each of the contracts come in higher or lower than the baseline. If the contingency fund is not sufficient to accommodate higher bids, changes to project scope may be required to stay within budget, and could lead to contract amendments. These changes in project costs are tracked on a separate schedule that provides the current budget forecast for the project. As the current budget forecast changes, the capital plan may need to be revised to ensure that the grantee maintains a sound financial position. Grantees are subject to financial spot reviews by FTA to ensure they have the financial capacity to complete the project according to the terms of the FFGA, as well as to operate and maintain the existing transit system and service levels.

3.3.1.2 Force Account

Capital project work conducted by grantee in-house forces to support the work of private contractors is classified as "Force Account" by FTA Circular 5010.1C [Ref. 8]. Force Account work is eligible for Federal funding if properly documented and "warranted" in terms of:

• Cost savings
• Exclusive expertise
• Safety and efficiency of operations
• Union agreements

3.3.1.3 Subsequent Modernization Cost

The estimated cost to periodically modernize and replace capital equipment and facilities is considered a capital expense, and a sound financial plan should include this cost to assure that the resources will be available to maintain the capital investment. The estimated cost should be based on replacement cycles for the various elements. A capital replacement or sinking fund with regular contributions could be used to assure that funds will be available. Such a fund could be used for needed capital modernization or as a match for an anticipated state or Federal grant.

3.3.1.4 Contingencies

Cost contingencies provide reserves against the risk of cost increases during the development of the project. These contingencies must be separately identified in the project's financial plan and included in the capital cost estimates. The capital cost documentation should include a description of all the cost escalation risks and identify the range of potential cost impacts. Contingencies can be established as a specific amount or as a percentage of a budget estimate to cover:

• Areas of the budget estimate not fully defined as well as cost and quantity uncertainties
• Escalation which exceeds that predicted for material, labor, equipment, services, and rates of exchange
• Overruns in items of time and cost in critical areas during project execution
• Unforeseen or changed conditions, design revisions, and estimating inaccuracies

Useful information on cost escalation risks is contained in Risk Assessment in Fixed Guideway Construction [Ref. 31].

As a project moves through the engineering and design process, cost increases due to the refinement of design are less likely and, consequently, the contingency is reduced. Typical contingencies start at 18 to 25 percent of project costs in the project planning phase, drop to 10 to 15 percent of project costs at the PE phase, and can be reduced after that, especially after construction contracts have been signed. After an FFGA is signed, the project sponsor is responsible for any cost increases and for fulfilling the terms of the FFGA. Reduced service, delayed construction, or reductions in project scope are not acceptable contingency plans. If concerned about project risks and the adequacy of contingencies, FTA may require the creation of a capital reserve account of potential revenue sources to offset potential cost overruns in excess of the sources identified in the FFGA.

3.3.1.5 Capital Funding

FTA New Start Funding is provided through 49 USC 5309. Section 5309 funding also supports fixed guideway modernization, bus, and bus related projects. Other capital funding sources include the Urbanized Area Formula Program 49 USC 5307, Non-Urbanized Area Formula Program 49 USC 5311, and Flexible Funding Transfers. Flexible funds can be used for highway, transit, or other transportation projects, as determined by the regional MPOs and state governments. Examples of such funds are the Surface Transportation Program (STP) and the Congestion Mitigation and Air Quality (CMAQ) fund. A number of transit agencies have been successful in tapping into these flexible funds for transit projects.

Given that the availability of FTA funds is limited and the demand is high, it is advantageous to have a capital plan in place that identifies all potential sources of funding including Federal and non-Federal sources.

The project capital plan identifies the proposed sources of funds for constructing the proposed project and details the non-Federal share of project costs. The information submitted regarding funding sources provides documentation for FTA to determine the degree of commitment of each funding source and helps ensure that local match requirements are met. As the project advances in the development and implementation process, the level of commitment of non-Federal funds increases. To enter PE, a financial plan must identify a "realistic" funding strategy for providing the local share. During PE, the project sponsor is expected to secure committed funds so that the majority of non-Federal funds are committed before the project may advance to final design. All non-Federal funds must be formally approved and programmed to fund the non-Federal share of the proposed project before FTA will recommend or approve a project for an FFGA.

The capital plan summarizes the non-Federal and Federal shares of project costs and references evidence of funding commitment. Evidence of commitment may include legislative documentation, resolutions approving funding, account balances, a bonding prospectus and grantee debt covenants, signed joint development agreements, and legally binding agreements with state/local agencies committing funds.

The text accompanying the capital plan must clearly identify all local, state, Federal, and private funding sources, including the name, originating level of government, total dollar amount anticipated, amount currently expended, and the share of total project capital costs in year-of-expenditure dollars. The total dollar amount across funding sources must equal or exceed the project's total capital cost, including contingencies.

3.3.1.6 Alternative Funding Source

As competition increases for limited Federal funds, FTA has encouraged transportation entities to seek alternative funding sources for transit services and facilities. These and other alternative non-Federal transportation funding sources can be used to fund project capital and O&M costs. Candidate techniques have been documented in:

Alternative Financing for Urban Transportation: The State of the Practice [Ref. 32].

and are listed below with locations in which their application has been studied:

• Taxing
  • State Sales Tax and Sales Tax on Fuel (State of California)
  • Motor Vehicle Excise Tax (State of Washington)
  • Local Option Transportation Taxes (State of Florida)
  • Sales Tax (Maricopa County, Arizona)
  • Beer Tax (Birmingham, Alabama)
  • Payroll Tax (Portland, Oregon)
  • Tax Increment Financing (Prince Georges County, Maryland)
  • Lottery (State of Pennsylvania)
• Assessments
  • Transit Assessment District (Denver, Colorado)
  • Special Benefit Assessment Districts (Los Angeles and Miami)
• Fees
  • Transit Impact Fee (San Francisco, California)
• Negotiated Investments
  • Development Bonuses (New York, New York)
  • System Interface Program (Washington, DC)
  • Transfer Center Investment (Portland, Oregon)
• Private Donations and Initiatives
  • Merchant Subsidy (Cedar Rapids, Iowa)
  • Bus Shelter Development (St. Louis, Missouri)
  • Transportation Corporations (State of Texas)
  • Rail Station Construction (Secaucus, New Jersey)
• Use of Property and Property Rights
  • Joint Development Program (Washington, DC)
  • Joint Development of Transportation Center (Cedar Rapids, Iowa)
  • Negotiated Land Leases (Tacoma, Washington)
  • Leasing Facilities (Santa Cruz, California)
• Private Development and Provision of Facilities and Services
  • Privately Financed People Movers (Tampa, Las Vegas, and Irving, Texas)
  • Contracted Bus Service and Maintenance (Johnson County, Texas)
  • Contracted Transit Service (Snohomish County, Washington)
  • Transportation Zones (San Gabriel Valley, LA County, CA)
• Public Private Partnership in Fixed Guideway Corridor Development
  • Rail Transit Corridor Development (Fairfax County, Virginia)
  • Corridor People Mover Development (Orange County, Florida).

3.3.1.7 Innovative Financing Techniques

In addition to traditional and alternative funding sources, transit agencies also have available a number of alternative financing techniques which can help to pay for capital projects and/or which can smooth over an uneven or discontinuous flow of funds from the ultimate funding sources. These techniques are documented in a number of references including:

Introduction to Public Finance and Public Transit [Ref. 33].

How to Evaluate Opportunities for Cross-Border Leasing and Certificates of Participation in Public Transportation [Ref. 34].

Cross-border leasing is a foreign tax benefit device that provides an "up-front" cost savings to a public agency which is requiring rolling stock. It was found, for example, that the use of cross-border leases was typically able to save 1.5 to 5.0 percent of the cost of the new or used locomotives, rail cars, or buses being leased. Other lease financing arrangements can also be cost effective since transit agencies can usually borrow at tax exempt rates, while they can invest at better rates.

Transportation Infrastructure Financing and Innovation Act (TIFIA) loan guarantees are another source of project financing that should be considered. TIFIA provides Federal credit assistance to major transportation investments (including transit capital projects) and is designed to fill market gaps and leverage private investments by providing supplemental and subordinated capital. Additional TIFIA program information is available at http://tifia.fhwa.dot.gov/.

More important than the cost savings available from leasing arrangements, however, are the savings which can be realized by using private borrowing to speed up acquisition or construction schedules, and hence avoid inflation's impact. The private financial markets provide financing instruments that can be used by transit agencies to borrow funds both to smooth the flow from tax based funding sources, and to allow project schedules to accelerate. FTA will support tax-exempt transit financing through advanced construction provisions of the Federal Transit Act as amended.

Under advanced construction authority, FTA may approve a grantee's use of local funding for a capital project prior to receipt of FTA capital grant funds. Advanced construction can be used when the grantee can demonstrate cost savings which come from advanced funding of a project. Any source of local funds can be used including cash, loans, short term notes, or bonds. Interest costs are eligible for FTA reimbursement. Advanced construction is a tool to overcome cash shortfalls.

Following are some of the financial instruments available to transit agencies for borrowing the funds needed for advanced construction or to handle other cash flow shortfalls:

• Bonds are relatively long term debt of 13 months or more. The issuer of the bonds agrees to pay the holder a specified rate of interest and the principal on the bond at a specified time.
• Notes are relatively short term (13 months or less) financial instruments and are issued in a variety of forms including:
  • Bond Anticipation Notes are issued to provide an interim source of financing for a project that will eventually be financed through a bond issue. Tax and Revenue Anticipation Notes are issued in anticipation of tax receipts and other revenues.
  • Grant Anticipation Notes are issued in anticipation of grant funds.
  • Tax Exempt Commercial Papers (TECP) have a maximum maturity of 270 days and are generally used until permanent financing for a program can be obtained.

3.3.1.8 Funding Source Forecasts

For each funding source, the capital plan must clearly indicate whether the source is an existing source, such as an active local tax from which revenues are currently collected, or a new source requiring legislative approval, referendum, or other governmental action. For existing sources, the plan outlines the conditions of the funding agreement (e.g., funding formula, percent share of total revenues, etc.) and at least five years of historical revenue data including the amount available for transit uses. For major funding sources (sources that contribute more than 25 percent of the agency-wide or NSP capital or operating funds), the plan includes 10 years of historical revenue data. For new sources, the plan indicates when legislative approval or public referendum is expected and the date the source would become effective. For all sources, the plan must contain a 20-year revenue forecast, documentation of any sunset clauses, and provisions to cover project funding beyond the sunset date.

For all revenue projections, the financial plan uses conservative rates of growth that do not exceed historical experience for that source.

3.3.1.9 Borrowing, Debt Levels, and Ratings

If the financial plan includes debt, a debt proceeds and service plan is included in the financial plan documentation. This schedule presents outstanding debt levels, the gross amount of each debt issuance, net proceeds from each issuance, bond rating for each issuance, debt service requirements, and interest rates for the past five years and 20 years into the future. This schedule monitors on a yearly basis the most restrictive debt covenant of the grantee, such as debt service ratio requirements, outstanding debt ceiling, or limits on debt expenditures during a specific time period. In addition, the most recent bonding prospectus is included as supporting documentation.

3.3.1.10 Federal Funding Shortfalls

In some cases, grantees may assume a specific level of Federal funding in PE, but receive less in the FFGA. Grantees should be prepared to move the full scope of the project forward even if Federal funds are less than expected. Evidence of financial capacity to provide additional non-Federal funds could be in the form of cash balances, additional debt capacity, or commitments of additional funds from new or existing funding sources. Service reductions and deferred maintenance are not acceptable methods of freeing up additional funds.

After an FFGA has established the Federal share, Federal appropriations may fall short on an annual basis. For instance, the Federal commitment to the FFGA funding levels may be satisfied over six years rather than the planned four-year period. The capital plan presents strategies for implementing the project if the annual appropriations are less than planned, including short term financing to cover annual funding shortfalls. The capital plan should show adequate cash reserves, construction reserves, or debt capacity to complete the full scope of the proposed project if annual appropriations are lower than expected. Service reductions on the existing system, construction delays, or reducing the scope or features of the project are not acceptable methods of providing additional funds.

3.3.1.11 Agency-Wide Capital Plan

The components of the project capital plan are summarized and incorporated into the agency-wide capital plan. The grantee plan presents capital funding and spending for each individual funding source and each individual capital project for the past five years and planned during the next 20 years. Capital plan documentation includes project names and descriptions, total capital costs and schedules, and proposed Federal funding contributions for each existing, proposed, or planned project. Projects included in the long-range plan and transportation improvement program for the metropolitan area are identified. The agency-wide capital plan also includes bus and rail fleet acquisitions, replacement, and major rehabilitation consistent with the fleet management plans prepared by the grantee.

3.3.1.12 Project Budget

A budget covering the project management organization, appropriate consultants, property acquisition, utility relocation, systems demonstration staff, audits, and such miscellaneous payments as the recipient may be prepared to justify. The PMP is required to contain a budget for the project that must include both hard and soft costs, including those noted above.

The FTA has a required format for cost reporting for FTA funded projects. This system is called GMIS (Grants Management Information System). While most transit projects to date have used other internal systems for tracking costs, they have had to translate these costs into the GMIS system to meet FTA reporting requirements. The GMIS system uses a six digit number to identify the transit mode (bus, rail, or other), type of purchase (rolling stock, transit way or lines, terminals, support facilities, electrification or power, signals and communication, administration, etc.), and project phase or other detail. This FTA reporting requirement should be taken into consideration when developing the cost reporting schemes for the project.

3.3.2 Operating Plan

The grantee must supply an operating plan to document how the grantee intends to fund and operate the proposed project and the existing transit system. The operating plan documents five years of historical data and presents 20 years of projected system operating revenues and O&M costs to demonstrate the capability of the grantee to operate and maintain the proposed project while providing existing levels of transit service.

3.3.2.1 Operation and Maintenance Costs

System-wide O&M expenses typically increase after a transit project goes into revenue service requiring additional subsidies to continue operating and maintaining the transit system. FTA needs to determine whether the grantee has the financial capacity to fund these additional expenses without reducing existing service levels, deferring maintenance, or otherwise significantly, adversely impacting current service. Consequently, the operating plan must clearly identify how existing operations will be affected by the proposed project. For example, fixed guideway projects often result in significant service realignments. The operating plan details:

• How the project will impact existing operations, revenues, and O&M costs
• How bus routes will be realigned
• What bus routes will be dropped
• What new feeder routes are planned

The operating plan contains at least five years of historical and 20-year forecasts of O&M expenses for the existing transit system and the proposed project. The O&M expenses are supported by information regarding service characteristics of the grantee such as projected vehicle revenue miles, vehicles in service, and directional route miles.

Changes in O&M costs have three components: 1) inflation for labor and materials, 2) service/operating changes, and 3) changes in productivity. The plan documents the inflation assumptions, the planned system-wide operating and service characteristics, and productivity assumptions. The accompanying text documents the O&M cost estimation methodology, preferably resource cost build-up, and describes the service plans for the proposed project and existing transit system. The cost estimation documentation provides detail regarding operating labor, maintenance labor, fuel, supplies, administration, and other relevant cost categories used to calculate annual O&M costs. The output of this plan is an estimate of operating statistics that include vehicle-miles, vehicle-hours, peak vehicles, etc., which become inputs used to calculate O&M costs. With respect to service changes, there are two types of O&M costs - fixed costs and variable costs relative to service level. Fixed costs remain constant and are based on the physical transit facility, regardless of the service level. A variable cost item should be linked to the service characteristic to which it is most closely tied. A standard system of accounts should be used for the cost model consistent with FTA National Transit Database (NTD) requirements.

NTD information is available on the NTD Website at http://www.ntdprogram.com/.

During project planning, a unit of system facility, such as length of guideway or number of stations, could be considered a variable with associated maintenance cost per unit. Once the length and number of stations become known, the maintenance costs, that are unrelated to service level, can be calculated. An example of variable cost related to service level would be vehicle maintenance related to the number of miles traveled. Other vehicle cost factors such as inspections, which are performed periodically regardless of the number of miles traveled, are considered a fixed cost. Some modernization projects may reduce O&M costs that can be used to justify the capital investment. Others, such as adding air conditioning, can increase O&M costs due to increased electrical consumption and maintenance requirements. General guidance on estimating O&M costs is contained in:

Estimation of Operating & Maintenance Costs for Transit Systems [Ref. 35].

3.3.2.2 Operating/Maintenance Funding Considerations

The operating plan demonstrates the ability to rely on non-Federal funding sources to operate and maintain the entire transit system after the proposed project is in revenue service. The operation and maintenance of the proposed project is likely to place additional burden on the grantee's local funding sources. Transit agencies usually need to develop new funding sources or have existing sources that provide sufficient extra operating revenues to fund the proposed project.

The operating plan incorporates fare revenue forecasts for the proposed project and the existing transit system. Fare revenue forecasts are based on ridership forecasts and assumptions regarding fare levels. The plan also provides historical revenue figures and forecasts for all other operating revenue sources and the assumptions used to develop the revenue forecasts. Other sources of revenue typically involve advertising, leases, and concessions, including parking lot fees. Inflation assumptions are critical to revenue forecasts and are explicitly documented in the financial plan. Often, a source such as a local sales tax that is used for local capital funding may also be used for O&M expenses. The plan includes documentation proving that the proposed operating funds are committed to their intended purpose.

3.3.3 Cash Flow Analysis

The overall objective of the grantee financial plan is to demonstrate that the grantee has the financial resources to successfully construct the proposed project while adequately operating and maintaining the existing and planned transit system. The cash flow statement combines the results of the capital plan and the operating plan to summarize the year-by-year financial condition of the grantee throughout the 20-year analysis period. The goal of the cash flow analysis is to demonstrate that the grantee can meet its capital, operating, and maintenance commitments each year, including providing an allowance for contingencies.

Cash flow analysis is a valuable tool for project planning. Its application permits project sponsors to develop and test funding strategies, test alternative assumptions, and conduct risk analysis as part of the grantee's continuing financial planning activities. These include testing the impact of delays in Federal or other financing and the impact of bond offerings at different times and different amounts. The cash flow statement includes at least five prior years of actual costs and revenues to provide a clear picture of the historical financial position of the grantee and to substantiate the growth rates assumed in future years.

The cash flow statements must be structured in a way that reflects the grantee's restrictions on operating and capital funds. Many agencies have restrictions on the use of cash balances such as debt retirement, contractual obligations, lease deposits, uninsured losses, or reserve accounts for specific projects. If a grantee is subject to any of these restrictions, balances in these restricted accounts are identified in the cash flow statement and not included as "available" cash.

During the construction stage, the cash flow estimates are incorporated into a cash management process, to ensure that adequate funds are actually available to pay for all obligations as they become due.

3.4 Scheduling

3.4.1 Scheduling Principles

Logically, a project must be planned before it can be controlled. Techniques of planning and control have improved much over the past forty years with the advent of better computer software to enable the representation of work flow in networks, to plan resource use, to plan cash requirements for a project, to monitor actual performance, and to forecast future scenarios. While different methods exist including PERT or Program Evaluation and Review Technique (which predominates in research projects), the construction industry relies heavily on the use of the Critical Path Method (CPM).

The critical path is defined as the longest path of activities in the scheduling logic measured in time. Consequently, any critical path activity that is delayed, delays the project completion. Another important concept is "float". Activities not on the critical path have "float" or "slack". Total float is the difference between when an activity can start and when it must start. Free float or non-interfering float, if used, will not delay the early start of succeeding activities. An issue to be defined in contract documents is who owns float, the contractor or the grantee?

There are currently a number of powerful and user-friendly project management software programs available to handle CPM. Most of today's software providers support the Precedence Diagramming Method (PDM) or "activity-on-node" in which nodes represent the activities and the lines show the logic. Most agencies with large transit projects make use of these software programs to control their project schedules.

A CPM network diagram serves as a visual presentation of the sequence of activities needed to fulfill project requirements. As such, it should:

• Show graphically, in logical sequence, each of the activities necessary to complete the project or project phase.
• Identify the duration of each activity and identify all predecessor and successor activities.
• Show all interfaces. This includes any interdependencies and relationships with operations of other consultants, contractors, and suppliers. The information needed to show the interfaces with operations of other consultants, contractors, and suppliers should be furnished by the grantee.
• As an option, identify the resources needed to complete an activity using CPM scheduling. Resources include labor, major equipment, materials, and the funding required to support these resources. While resource loading is not required for scheduling, it is useful for control purposes and possibly to smooth resource utilization.

Given the above description for each activity to be scheduled, a CPM network diagram will provide the following information for each activity:

• Early start and late start dates
• Early finish and late finish dates
• Total float time

In addition, the CPM network will show the critical path for the project, which is the sequence of activities whose total duration determines the duration of the project as a whole. Further detail is provided below on the development of the project master schedule and the requirement for contractor schedules.

3.4.2 Project Schedules

Schedules are the management tools that managers at all levels of the project organization use to maintain accountability for the variety of activities taking place. In addition, schedules permit managers to anticipate upcoming activities, to review project progress (i.e., planned vs. actual accomplishment), and make decisions to modify work plans, as necessary, to meet essential milestones. A variety of schedules and scheduling techniques are available to manage projects of the type common to public transportation, including:

• Major Program Table - Used to measure significance of completed projects on the service targets set for the transportation system; may, over several ongoing projects, directly influence service levels; can be used to integrate construction activities; revisions are approved by the project manager, or higher, as appropriate.
• Program Schedule - Maintained by the local transportation authority to reflect project milestones and development periods; generally in a bar chart format; details all major projects in the system; may be broken into operating areas for comparison purposes; project manager, executive manager of engineering, or other designated individual with overall system engineering responsibility has authority to revise this schedule.
• Master Project Schedule - Normally updated monthly, includes comprehensive CPM/PERT/Gantt or comparable scheduling schema, and constitutes the working schedule for the projects(s). The project manager, with the assistance of the resident engineer(s) and the various contractors, is responsible for its development and maintenance or updating.
• Special Schedules, Project Engineering Schedule, Project Construction Schedule, and Project Training Schedule - These various schedules, as their names imply, accomplish definitive scheduling functions, and are tailored to guide specific activities occurring during project execution; frequency of revision and responsible individuals may vary by project type.
• Status Reports - Status reports, while not technically schedules, do reflect information that is used to make decisions related to schedule issues and, therefore, could affect the outcome of the project or its phases.

Internal plan implementation and reporting requirements. Procedures for schedule control should be included in the PMP to support this requirement. Following are five elements that make up schedule control.

• Schedule Baseline or Baseline Project Master Schedule - A project schedule must be established which includes all of the activities that must be performed to complete the project, duration of the activities, and resources required to accomplish those activities.

A construction schedule must be contained in the PMP.

• Monitoring/reporting system - Regular task status reporting by a WBS element is a necessity. Activity commencement, activity completion, and the accomplishment of other milestones included in the schedule baseline must be monitored. At a minimum, monthly progress reports should be required in contracts.

• Performance measurement system - Using the data from the monitoring/ reporting system, a means should be provided for comparing actual work performed with the scheduled work to be performed and for analyzing any variances that may occur. This comparison should result in the submission of timely status reports to responsible managers (See Chapter 3.4.6).

Periodic updates of the plan, especially related to project budget and project schedule, and

The recipient's commitment to make monthly submission of project budget and project schedule to the Secretary are required to be part of the PMP.

• Schedule forecast - A system should be provided for routinely forecasting the expected schedule for completion of work packages and the total project.
• Schedule review and update - Work package schedule forecasts should be made available to the immediately responsible managers. A continuous review of progress against the schedule should be done so that resource reallocation or other corrective action can be undertaken as early as possible. Schedule impacts on other work packages should initiate timely alerts to higher level managers. Reviews of the project schedule should be conducted by project management on a regular basis in order to identify developing trends, as well as point out potentially significant problems in the schedule forecast. Schedule updates should be made only by the person specifically assigned that authority. The official project schedule at any point in time is known as the Project Master Schedule.

3.4.3 Master Integrated Schedule

The grantee must be able to manage and control the Project Master Schedule. This schedule should be developed in the early planning stages of the project and should include the various project phases culminating in revenue service. More detailed schedules for each of these should be developed as the project progresses, and the detailed schedules should be integrated into the Project Master Schedule. As the detailed schedules are integrated, they may show where the Project Master Schedule will have to be changed to eliminate logical inconsistencies, and to achieve the external schedule requirements. The detailed schedules should show all significant project activities, especially all that could possible affect the critical path, including bidding and procurement, system integration, testing, and start-up.

A baseline Project Master Schedule should be developed during the Design Phase that will require minimal revision as the project progresses. In order for a reasonably accurate Project Master Schedule to be developed, experienced engineering design, project control, and construction management personnel should determine the time requirements of the activities within each work package required to implement the scope of work. The design schedule needs to be closely monitored and updates incorporated into the Project Master Schedule.

Considerable experience may be required to understand the complexities of the work, particularly where underground construction is occurring, where there is the need to maintain transit service during construction activity, or where there are numerous contractor interfaces. In addition, expertise from those responsible for real estate and permitting should be used to determine realistic schedules for real estate acquisition and permitting time. Finally, the expertise of those responsible for the project budget should be used to determine any budgeting issues, such as cash flow, which might impact the Project Master Schedule.

3.4.4 The Construction Schedule

Most large transit construction projects require contractors to provide detailed schedules or schedule information for their work to the projects controls group in compatible format with the scheduling software used by that group. The information needed for evaluation of progress, including labor loading charts and equipment schedules, should be specified in project directives and contract documents. On a monthly basis, project organizations should submit a schedule update and supporting data to the control office. The updated network diagram should be prepared in accordance with the following:

• All activities should be updated and reported on as of the same date.
• The updated logic schedule report should discuss completed activities, any revision of the logical sequence of the activities, and the critical path of activities based on the current update.
• The supporting data for the updated schedule should include a listing of the actual starting dates for each activity in progress and actual starting and completion dates for all completed activities. In addition, an analysis of changes to expected completion dates should be included that identifies which activities contributed to the changed completion date and why.
• The supporting data also should contain all information needed to indicate the current status of the project, such as design policy memoranda or other technical data issued by the grantee or its representative; design/development progress in prime contracts and specialty procurement contracts which necessitates revision to current contracts; changes required by utility companies or local agencies during the course of construction; finalization or revision of agreements between the grantee and public agencies; revisions to ROW agreements; and revisions necessary to accommodate changed or unforeseen field conditions or changes at interfaces of adjacent contracts.

The following referenced report for FTA provides useful guidelines for coordinating and monitoring contractor schedules on a transit construction project that should be incorporated into contract specifications:

Review of Project Management Control Systems on Selected FTA Funded Projects [Ref. 36].

• Control of the schedule during the Procurement and Construction Phases of a project is generally the most difficult and has a greater chance of impacting the project completion. Part of the reason is that there are usually several contractors that are performing work on different elements of the project often with overlapping work areas involving different trades. Controlling or monitoring the schedule performance of more than one contractor involves significantly more effort than monitoring the status of a single design consultant's work.
• Contractor schedules should be easily compatible with the scheduling software utilized by the grantee. Contractors should be required to submit copies of the schedule in electronic format. Ease of integration is important to maintaining the Project Master Schedule with up to date contractor schedule data. All updates prepared by the contractors can be integrated and checked for impacts to other project elements within the Project Master Schedule. When contractor's monthly CPM updates are submitted, all milestone dates should be checked to determine that they are within the contract parameters and whether the dates scheduled are attainable based on the contract status.
• Schedules are generally submitted in more than one part. One part consists of a schedule indicating the work to be performed during the first 60 to 90 days of the contract. This submittal is usually required to be presented within two weeks of notice-to-proceed.
• Between 45 and 60 days, an additional schedule submittal is made that encompasses the full contract duration and includes a breakdown of all activities to a level of detail specified in the contract documents. Updates and narrative reports concerning the updates and schedule status are usually required on a monthly basis.
• Receiving the initial CPM submittals and updates in a timely manner is important to the development and maintenance of the Project Master Schedule. Enforcement provisions within the contract scheduling specifications help agencies ensure the information flow necessary to keep the Project Master Schedule up to date and are a useful tool for managing the project. The most common enforcement provision gives grantees the option to withhold progress payments pending submittal of acceptable CPM schedules and updates in accordance with the contract. Progress payments are generally based on updates of the contractor's cost loaded CPM schedule, and without an acceptable schedule status update, progress payments cannot be made. An alternative schedule submittal enforcement provision is the Santa Clara Valley Transportation Authority (VTA) model that requires a separate bid item with specified minimum bid amounts for schedule submittal. Portions of this bid item are withheld and forfeited for lack of, or for untimely, schedule submittals.
• The WBS on which the bid and contract's schedule is based needs to be adequate for the project. The optimum level of detail is dependent upon the complexity and needs of a particular project. Cost loading of the contractor's CPM schedule is tied to the bid breakdown which is generally tied to the WBS.
• Requiring cost loaded CPM schedules provides an increased ability to monitor the status of a particular contract. The larger the contract, the more useful and practical the process, and the greater the benefits derived. The cost loaded CPM schedule permits monitoring of the progression of the work and the corresponding expenditures. Likewise, the forecasted completion date for the contract and cost to complete can be monitored. For a smaller project, the requirement for a cost loaded schedule could prove difficult and cumbersome to prepare, maintain, and administer. It requires generally full time expert scheduling personnel on both the contractor and construction management staff.
• It is a matter of grantee preference to award contracts on a lump sum or unit price basis. Cost loading a lump sum contract CPM requires allocating percentages of the various bid line items to particular activities. The monitoring and updating is based on incremental percentages of each item that make up the lump sum bid price. To facilitate progress payments, it is helpful to require that activities be 100 percent completed before being eligible for the release of payment. This has the effect of shortening the contractor's activity durations so as to promote payments that closely match the work in place. Verification of 100 percent completion of activities is also easier than estimating or measuring incremental portions thereof.
• On unit price contracts, the activities are tied to costs associated with unit price quantities. Quantity overruns and underruns have to be closely monitored and taken into account so that accurate indications of the project status are maintained.
• Requiring the use of CPM scheduling enables the grantee to maintain its Project Master Schedule. Each Project Master Schedule has a critical path of its own that must be closely monitored in order to complete the project within the established time restraints. Each Project Master Schedule has a critical path that may traverse activities on several individual contracts throughout the total project duration. The grantee's designation or recognition of critical project elements is important in the project control process.
• Where elements of a particular WBS within individual contracts or contract completion dates are crucial to the execution of a project, contract milestones must be established and incorporated into the contract documents. These include milestones required in order for the work by other follow-on contracts to proceed. These crucial project milestone dates normally become the basis for the critical path of the individual contracts. The essence of the benefits of contractor CPM schedule requirements is the ability of the grantee to monitor the progress of the contractor on the critical path. Progress on the critical path means progress toward contract milestone or completion dates that may ultimately have an impact on the project completion if not successfully met. In summary, the contractor's schedule allows for monitoring of the contract's critical path which may or may not have an ultimate effect on the project completion date depending on the critical path of the Project Master Schedule.
• Being able to integrate the individual contractor's schedule into the Project Master Schedule is of benefit to the grantee. In order that the software utilized by the contractor in developing its computer driven CPM schedule will be compatible with that used by the grantee, the grantee can specify the software to be used, within reason. The grantee should also require contractors to provide electronic copies of all schedule submittals. This will facilitate the easy integration of the contractors' initial CPM schedule submittals and subsequent updates into the Project Master Schedule.
• Monitoring the contractor's CPM schedule includes monitoring its critical path. Where critical path activities fall behind by a specified number of calendar days of meeting a milestone or the contract completion date, a recovery schedule should be required for the contractor to establish a plan for accelerating or adjusting its schedule in order to meet the specified milestone or contract completion date.
• All milestones or contract completion dates critical to the project completion should have commensurate penalties (liquidated damages) established for failure to meet the contractually mandated schedule. To truly enforce liquidated damages, there should be a bonus clause for early completion of commensurate value.

3.5 Controlling the Project

3.5.1 FTA Requirements

As part of the Federal grant making process, FTA has explicit requirements to control the major transit projects that it funds. These requirements can be satisfied by developing effective PMPs that are discussed throughout this document. Elements of sound control systems are described in the following sections, and are organized around the concept of a WBS (see Section 3.2.3).

3.5.2 Integrating Time and Cost

Project costs and the project schedule are integrated at a high level in the Cash Flow Analysis. This integration must be continued as project schedule becomes more detailed. During preliminary engineering of a fixed guideway project, the costs of the guideway may be evenly allocated over the anticipated construction period. As part of the development of the schedule and the construction contracts, the anticipated costs of each contract must be allocated in accordance with the proposed schedule and compared with the anticipated revenue stream. If funds are inadequate during any period, either the proposed schedule must be revised or steps taken to adjust the revenue stream (e.g., issuing of notes or bonds). A similar review should be conducted as bids on the contracts are received and before the contracts are executed.

The appropriate methodology for assuring the proper integration of schedule and cost is to relate cost control monitoring activities to the WBS-derived work packages. Responsibility should be assigned for developing baseline cost budgets to managers of work packages to maintain those baselines consistent with the WBS, schedule, and overall costs. Authority to revise the baselines should be identified. The work packages should be assigned identification in a coding system compatible with the project accounting system. This procedure will facilitate establishment of a computerized cost tracking and reporting system.

Reviews should also be undertaken with respect to the activities that comprise the critical path. Use of additional resources on critical path activities may add to costs, but may also shorten the project and lead to overall cost savings due to reduced overhead, borrowing, and inflation costs.

Special attention must be paid when Force Account activities (or support activities) are on the critical path, as management of these activities is generally separate from the management of contractor activities. Separate management may result in separate priorities, which could, in turn, result in the scheduling or diversion of the Force Account manpower to meet what its management considers a higher priority, such as maintaining the existing transit system, thereby delaying critical path activities. Such delays could result in exposure to claims for adjustments by private contractors as well as delays in the total project. The scheduling of Force Account activities should, therefore, be integrated into the total project schedule.

3.5.3 Controlling Costs

Proper cost estimating is key to controlling costs. When the National Research Council was asked to research the causes of increases in costs in construction projects, the Subcommittee on Management of Major Underground Construction Projects (Committee on Tunneling Technology) included in its recommendations the following:

Realistic cost estimates, based on the best available information, must be used from project inception. Recognizing that early estimates are based on many uncertainties and variables, and therefore that costs may be overlooked or underestimated, realistic factors for uncertainties and contingencies should be taken into account during early phases. Particular attention must be given to realistic estimating during the preliminary engineering phase because such estimates are usually the basis for project financing. Estimates need to be revised periodically to accommodate changing circumstances. [Ref. 37]

Cost control can be applied even during the period when cost estimates are being formulated. For Atlanta's rail transit, the Metropolitan Atlanta Rapid Transit Authority (MARTA) found that the use of clauses in design contracts for no-fee redesign was a very effective technique to restrain costs, if the estimate for the designers' final product exceeded an established cost limitation. This is often referred to as "design to cost." Initiating close coordination between designers and construction cost experts will also result in cost-controlled designs. The concept can be expanded to include consideration of O&M costs - life cycle costs - that include both initial capital and recurring future costs. Procurements that include O&M responsibilities, e.g., DBOM, permit contractors to optimize designs to minimize life cycle costs. Value Engineering (VE) offers another tool for considering the O&M implications of design decisions.

The following principles of cost control and features of a cost control program should be considered and incorporated as part of the project capital plan (Section 3.3.1.1):

• Because the baselines for cost control are necessarily projections into the future, allowances for inflation must be included. Inflation allowances should be specific to a cost category (construction labor, materials, services, etc.).
• A contingency fund should be established which may or may not include additional inflation allowances. A system should be provided for determining and distributing the contingency funds to provide for cost escalation caused by unanticipated inflation or such factors as changed site conditions, design revision, and estimating uncertainties. The contingency allowances can be held at the project level or, especially in larger projects, can be distributed to lower levels of management in the WBS. Strict control should be established over the disposition of funds from these accounts.
• All budget transfers should be documented. If a line item is projected to underrun its budget, funds should be removed from the category and moved into the contingency account. This is so even if the funds will be reallocated to another line item. All funding increases to line items should come from the contingency category. This will facilitate tracking of costs in the future.
• The participation of a cost engineer(s) throughout the life of the project should be considered.
• A program should be established for cost risk identification and management.
• Care should be taken in estimating the costs for ROW and real estate acquisition programs, construction management, and administration. A study of five recently completed rail transit projects found that at least three out of five projects experienced more than 20 percent cost growth in these categories after the estimates made during design. However, in some cases, increases in these costs lead to overall project savings. In three cases, major changes in alignments impacted design and ROW acquisition programs (two programs were impacted negatively and one positively). Reorganizations in two cases had major positive impacts on project control. In one case a major design change had a significant positive impact on project cost [Ref. 38].
• Depending on the item or service being procured and the applicable conditions, care should be exercised in selecting the proper contract type (firm fixed price, unit price, cost plus fixed fee, various incentive fee arrangements, etc.) to ensure cost-effectiveness. Selection of contract types to support alternative project delivery methods also can be considered.
• Contract package size and scope should be selected with proper regard for the management and financial resources available to the grantee to obtain the greatest efficiency and economy in using the resources. More contractor interfaces mean a more complex and difficult to manage project.
• A system should be established and responsibility assigned for predicting cash flow requirements and for providing for timely receipts and payments.
• Strict control of project expenditures is an inherent obligation of the project management team. The management team must have adequate delegated authority and flexibility in the management of expenditures, and the determination to use and control them. Authorization should be documented for capital expenditures, for issuance of work orders, and for additional work orders. Procedures should be established for verification of requested payments and processing of partial payments and final payments.
• Procedures should be developed and responsibility assigned for identifying, evaluating, and accommodating changes that may occur during project design and construction. This occurs under configuration management.
• Project management must adopt cost/schedule/progress monitoring and financial reporting systems with sufficient detail to enable key managers to make timely decisions. Top managers should take part in the development of the reporting system to ensure that the system meets their needs. The monitoring system should be geared to identify problems or necessary actions before they become critical (or historical) in order that problems may be avoided or actions taken in proper time.

3.5.4 Controlling Project Configuration and Changes

Throughout all phases of the project, there is a need to have consistency in the manner in which various physical and technical aspects are defined and recorded. Descriptions of both physical and technical aspects are used to articulate the project definition. In the Design Phase and the Construction Phase, this project definition is used to ensure the project's original concept is followed and that the completed system will function as designed. Brief definitions of the physical and technical components of a project definition follow:

• Physical - Describes the total system in sufficient detail to permit preliminary design concepts to be prepared. Includes location descriptions, trackage layouts, facilities, interfaces with existing systems, proposed passenger vehicle configuration, above and below ground segments, landscaping, crossings, overpasses, and any other physical definitions of the system which will provide a full appreciation of the system's overall suggested characteristics.
• Technical - Defines the various interrelationships and functions of the system in sufficient detail to guide construction. Includes design/construction considerations and techniques, systems, connections/interfaces with existing systems and utilities, maintainability of the fixed facilities, system operations and characteristics, and any other data which explains or details system operations/performance.

A project's definition must evolve in an orderly manner throughout the project development process. To arrive at the physical definition, design criteria must be established early in the project as well as the desired performance characteristics of the completed project. Design/performance criteria should exist for the following elements:

• System-wide - capacity, safety, security, emergency procedures, system dependability, vehicle availability, ride quality, accessibility, comfort, convenience, aesthetics, environmental, etc.
• Subsystem - vehicles, control, communications, power distribution, fare collection, support equipment, etc.
• Fixed Facilities - guideway, stations, central control facility, maintenance and storage facilities, administration facilities, etc.

Once the project definition is established during design, it becomes the standard for accomplishing construction; more importantly it is the "blueprint" for describing how the system will look and function. The project's physical configuration provides specification detail for the project definition. The configuration baseline includes the drawings, lists, specifications, and reference documents that completely describe the project. Among the most important management considerations relating to the system configuration and performance are the following:

• Design Documentation - Once design criteria have been established, standards should be developed in each area. Each design task within an organization's area of responsibility should be scoped, planned, and scheduled in the same manner. Task statements which include requirements, assumptions, and a detailed list of deliverables should be prepared. The design tasks should result in the preparation of drawings and/or specifications for all items and systems.
• Interface Definition - A critical activity in the system definition process is the identification and documentation of system interfaces which may place constraints on its design or performance (e.g., power supplies, other utility and service interfaces, physical constraints). The preparation of interface drawings and specifications should be undertaken during the design process.
• Reliability and Maintainability - Evaluating system and equipment reliability and maintainability; developing System Reliability Plans and System Maintainability Plans; and the carrying out of Reliability and Maintainability Program activities have a significant impact on a system's configuration, detail design, and operation.
• Peer Review - A structured, independent review of an organization or project by a team of experts. Such reviews cover all design phases and categories, including organizational, project management, and aspects of project design, construction, operations, or maintenance. Typically they are limited to special topics or situations with a specified purpose, scope, format, and duration.
• Value Engineering (VE) - VE is a formal, systematic, investigative technique with potential for reducing both capital and O&M costs of major transit projects. VE reviews a product, system, or facility in order to identify and analyze the functions that it has been designed to perform. A project's total life cycle costs (costs incurred by constructing and utilizing the product as designed) are calculated, and alternative designs are generated to determine the most cost effective method of performing the identified functions, consistent with requirements for quality, reliability, maintainability, and safety. A VE study is a creative, multi-disciplined team effort that FTA requires at the end of PE. In some instances VE might be beneficial during final design or construction. A consultant with experience in conducting VE studies for transit projects may be used to manage the study, although a qualified team of professionals could also be selected to participate. Participants in the study are usually most effective if they have not been significantly involved in the design being studied. The Society of American Value Engineers (SAVE) provides certified training for VE. See Sections 4.6.6 and 5.1.7 for additional guidance on VE.
• Operation and Maintenance (O&M) Interface - It is important to incorporate O&M concerns in design and construction, particularly during the design phase. A continuous review by the owner, consultants, and O&M personnel ensures that the final design incorporates those features that are consistent with projected O&M needs and costs. Early development of system operating strategies and their corresponding projection of operating statistics, operating costs, and operating revenues, are essential elements in selection and design of the system configuration. A System Operating Plan and a System Maintenance Plan should be developed and the evolving design evaluated with respect to them. Consideration should be given to life-cycle costs and issues such as system continuity, safety, and reliability in relation to budgeted construction costs.
• Constructability Reviews - "Constructability is the optimum use of construction knowledge and experience in planning, design, procurement, and field operations to achieve overall project objectives" [Ref. 39]. Throughout PE and continuing through 80 percent design, it is important to review the constructability of the proposed project to avoid subsequent adverse cost and schedule impact. Constructability should be considered in the development of a contracting strategy and in the development of overall project schedules. Basic design approaches must consider major construction methods and site layouts should promote efficient construction as well as efficient operation and maintenance. Prior to final approval, a constructability review of the planned construction contract should be performed. These reviews can be included as part of more general design reviews.
• Design Reviews - To ensure that project objectives are being met, design reviews by the owner, consultants, and operational staff are held to focus on consistency with design criteria, possible errors and omissions, and constructability. The extent of the review or reviews is based on consideration of the consequences of failure, the owner's experience with the design organization's in-house checking capability, and aspects of the QA program.
• Test Program - Performance requirements should be translated into test requirements and then into specific test and inspection plans. Policy should be established for acceptance testing of materials, components, and systems. Specific responsibilities should be assigned for preparation of individual unit or equipment test and inspection plans, conduct of the tests, and approval of the results. When applicable, an overall system operational test plan should be prepared. To the greatest extent possible, all aspects of system operation, which determine whether the system performance is satisfactory, should be tested prior to acceptance.
• Contract Documentation - Design requirements must be reflected in the items constructed or purchased. As a result, detailed specifications should be prepared for procurement, and a thorough technical review of the final procurement documentation (Requests for Proposals as well as proposed contracts in final negotiation) should be conducted. Evaluation of bids should verify that the requirements are being properly addressed by the proposed contractors.
• Training - In its initial operational stages, system performance is influenced by the familiarity of personnel with the system. The more a new system differs from existing systems in operational and maintenance procedures, the more important it is to address expected manpower needs and training programs. For larger projects, the use of training mock-ups or simulators might be considered.

Configuration management consists of the evaluation, coordination, and approval or disapproval of changes in the configuration of a component, system, or process after its baseline has been defined. In an effective configuration management program, drawings are uniquely numbered and otherwise identified. Specifications follow a standard format and each paragraph is identified. Complete drawing lists are established and the total number of drawings, the titles of the drawings, the revision status, and the dates the drawings were approved are recorded. Procedures are established and changes to approved drawings or specifications should only be made in accordance with them. Permanent files are maintained of all contract documents that include historical information relating to all project changes. As the project is implemented, configuration management evolves to include the documentation of the completed improvement in terms of "as-built drawings." Configuration management ensures that the correct, approved status of the evolving design is known or is available to all project personnel using that information. If done properly, configuration management ensures that replacement equipment or components capable of meeting the original equipment requirements can be procured at a later date.

A change order procedure which includes a documented, systematic approach to the handling of construction change orders must be described in the PMP.

Procedures should be developed for identifying, evaluating, and accommodating changes that may occur during project design and construction. Procedures should specify clearly responsibility to initiate and approve changes, permit results to be achieved rapidly, provide for full evaluation of the impact of the changes, and specify the documentation of the changes. Prompt resolution of change issues will help reduce claims. Judicious delegation of monetary authority to approve change orders at the field level can expedite the change order process [Ref. 40]. A recent FTA research report found that construction risks can probably be decreased by allowing field personnel to exercise a maximum amount of discretionary judgment