With about $131 billion in the federal economic-stimulus package targeted for public construction, a massive amount of money now is flowing to federal and state agencies. Lessons learned from past experiences with big-ticket construction efforts for rebuilding Iraq, responding to Hurricane Katrina and delivering Boston’s Central Artery/Tunnel project could keep some of that money from going to waste.
The $787.2-billion American Recovery and Reinvestment Act of 2009 (ARRA), signed into law on Feb. 17, is an economic-stimulus package of unprecedented size and scope. Moving projects quickly and creating jobs is key, but so is accountability. For the construction industry there is about $49 billion for transportation projects, $31 billion for energy-related activities, $31 billion for building and related housing and $20 billion for water and environmental effort. “Investments should provide long-term benefits, and the stimulus should maintain strong transparency,” says Brian T. Pallasch, a lobbyist for the American Society of Civil Engineers, Washington, D.C.
“The emphasis on speed could put many owners in a position where they don’t feel they can afford to question or challenge change orders,” says Bruce D’Agostino, president of the Construction Management Association of America, McLean, Va. “The danger is that large numbers of routine change orders are going to pass unexamined. That can’t help but increase costs and foster inefficiency.” He notes program management is an ideal solution for dealing with a large but short-lived increase in capital spending.
Those insights were learned the hard way in Iraq, New Orleans and Boston. “The government should create a special inspector general to report on stimulus construction spending,” says Stuart W. Bowen Jr., Special Inspector General for Iraq Reconstruction (SIGIR). “There was no SIG for the $112-billion Katrina effort, and we just formed one last year for [the $32 billion spent in] Afghanistan. The challenge is to create the SIG and then aggressively monitor the work.”
Iraq was a hard lesson in contracting. From mid-2002 to late 2008, about $50 billion was pumped into Iraq for relief and reconstruction. According to a recent report, “Hard Lessons: The Iraq Reconstruction Experience,” issued by SIGIR, electricity and oil output did not meet plan, while water and health projects faltered due to overuse of cost-plus contracts, high contractor overhead expenses, excessive contractor fees and unacceptable delays. Waste, not fraud, was the primary problem, but security issues and personnel turnover also made the program troublesome.
As the nation-building program evolved, the focus shifted from a large infrastructure reconstruction effort to one that combined local-government-capacity building with a building program. Large projects were aimed at improving service delivery, but very little effort was made to improve government capacity, leading to a crisis in sustainability. “The deterioration of poorly maintained infrastructure projects after transfer to Iraqi control could end up constituting the largest source of waste in the U.S. reconstruction program. Such a program should be an essential component of future contingency relief and reconstruction operations,” states the report, which also notes that programs should be geared to indigenous priorities.
Another major problem in Iraq was the lack of executive authority. Confusing lines of non-integrated command and the absence of effective integrated management were central to program failures. Conversely, outsourcing management should be limited because it complicates lines of authority.
This implies that a domestic stimulus czar is a good idea. SIGIR recommends that relief and reconstruction operations use a single set of simplified, uniform rules—a stripped down Federal Acquisition Regulation (FAR) along with a well-trained corps of experienced contracting officers who are trained to oversee the work. He says a diverse pool of precompeted, prequalified contractors should be used to deliver the work.
Today, SIGIR serves as the model for the Special Inspector General, Troubled Assets Relief Program, the Bush administration’s $1-trillion effort to stem the banking meltdown. But SIGIR’s lessons also could provide a template for the Obama economic-stimulus plan. “Accountability is essential, and the first step is transparency,” says Bowen. “All players need to know somebody is watching performance and outcomes from the get-go. That is a true deterrent on the ground that ensures compliance with all federal laws.” He believes a stimulus inspector general should report to the stimulus czar. “A SIG is the first line of defense against fraud and waste, and it promotes better behavior,” Bowen says.
Following the disastrous impact of Hurricane Katrina, Congress approved $112 billion of relief funding, and the Federal Emergency Management Agency (FEMA) so far has pumped $50 billion into the Gulf Coast area. About $8 billion was used for individual assistance, including temporary housing and housing repair and replacement activities. Over 143,000 families received temporary housing, which according to FEMA was the largest such operation in U.S. history. Almost $500 million was allocated for 417 mitigation projects in four states. Yet, New Orleans still has problems, and according to Bowen, the only useful report on the relief effort came from a Senate committee that bemoaned a lack of oversight.
While FEMA has no special IG, the Dept. of Homeland Security IG monitors its operations. And FEMA officials have learned lessons. They have enhanced staff training and continuity, customized databases and promoted transparency and state collaboration, including Web-based award data and improved logistics. “This is not the FEMA of two years ago, as our response to recent disasters has demonstrated,” it says.
Stimulus-delivery officials also can learn from Boston’s Central Artery/Tunnel project. In January 2008, the U.S. Attorney and the Massachusetts Attorney General announced a $407.1-million settlement with CA/T project consultant Bechtel/Parsons Brinckerhoff. As part of the deal, which shielded the joint-venture firms from liability over Interstate tunnel leaks and a fatal plenum collapse, the members of B/PB each agreed to file separately to the Federal Highway Administration “lessons-learned” reports about operational problems delivering the project.
Faced with removing a 50-year-old viaduct running through the heart of the city without disrupting traffic, the joint venture oversaw the design and construction of a $15-billion, 7.5-mile bridge/tunnel complex linking two Interstate highways and Logan International Airport. At the same time, B/PB had to deal with evolving owners—from the Massachusetts Dept. of Public Works to the state highway deptartment to the state Turnpike Authority and finally an Integrated Project Organization (IPO). Political deadlines, differing subsurface conditions, scope growth and interest payments, among other factors, all contributed to cost growth. “At the time that the project owner decided to implement the IPO on the CA/T project, there was no significant precedent in the application of the IPO approach to public-sector construction or with respect to the potential impact that the IPO approach may have on issues of performance standards, the evaluation and determination of professional accountability of the private-sector engineering consultant or overall project objectives such as quality control,” notes PB in its report.
What Parsons Brinckerhoff (now PB Americas Inc.) learned was that accountability, particularly in cost recovery, suffered in that the IPO blurred the independent roles of the consultant and merged them with the owner. Integrating roles and responsibilities exposed both the consultant and owner to risks typically assigned to the other, such as design defects and project financing. “Clear roles and responsibilities definition are important not only in terms of accountability, but quality control and safety as well,” says PB in its report. Issues of allocating risk, determining professional-liability accountability and conflicts of interest also must be addressed, it says.
The IPO also strained independent professional judgment, in that shared responsibilities “diminished and compromised” the ability of the consultant to control its performance. One overriding concern was the need to structure the IPO to respect the professional obligations of the consultant in matters of public health, safety and welfare. Finally, shared decision-making causes problems because the consultant is not entitled to sovereign immunity and thus could face potential civil liability issues.
In its lessons-learned report, Bechtel says an IPO should have clearly defined responsibilities with sufficient authority and control, uniform work processes and procedures, and external oversight. Key decisions include “establishing a clear scope of work and responsibility for each party and ensuring that responsibilities, authority and accountability are well thought through and specifically defined in any contractual agreements,” it notes. Both Bechtel and PB declined to comment for this story.
The good news is that stimulus delivery will incorporate some of these ideas. ARRA requires the establishment of a Recovery Accountability and Transparency Board to coordinate government-wide policy and see that funds are disbursed in a fair, prompt, reasonable and transparent manner. Agency IGs already are working on anti-abuse strategies. Establishing and maintaining a user-friendly Website is a major priority. Board Chairman Earl E. Devaney noted in recent congressional testimony that the biggest challenges for transparency and accountability are data quality and a lack of procurement professionals. “I foresee the board actively detecting fraud trends, identifying best practices for conducting reviews and designing risk-based strategies to help focus the oversight community’s limited resources,” he says.
But the message is being heard. “The Federal Highway Administration is committed to ensuring all the requirements of the American and Recovery and Reinvestment Act, including those directed at maintaining accountability and transparency. In addition to its role in implementing ARRA, FHWA will continue to reach out to states with information on lessons learned and best practices from projects,” says the agency.
Still, construction attorney Barry B. LePatner, LePatner and Associates, New York City, advocates the creation of a stimulus czar, making fixed-price contracts mandatory, investing in advanced technologies and using contract stipulations to avoid wasted labor costs. “Shockingly, some 50% of all labor costs on a project are lost due to late deliveries, poorly coordinated subcontractors and other circumstances,” he says.
Fortunately, the industry is taking a proactive stance. “Before the stimulus law was passed, the American Road & Transportation Builders Association (ARTBA) was advocating including provisions aimed at ensuring transparency and accountability,” says Matthew J. Jeanneret, ARTBA senior vice president. “The new stimulus law has many transparency requirements: all project-related information on both White House and appropriate agency Websites; reports to Congress at 90-, 180-, 365- and 730-day intervals on how funds are used and jobs created; and the governor’s certifications of project merit, are all intended to both demonstrate the value of these investments and show no waste, fraud or abuse.”
Iraq, Katrina and CA/T faced some of the same issues the stimulus program will need to surmount: decentralized authority, massive funding, quick turnaround, differing goals and the expectation that the program will make a difference. The lessons learned show that a well-managed and monitored program can help reduce waste and restore taxpayer confidence.