Our audit regarding the management of seismic program costs highlights the following:
- » The legislatively mandated oversight of the seismic program successfully minimized potential delays and controlled costs.
- Oversight Committee decisions resulted in hundreds of millions of dollars in cost avoidance and savings.
- The comprehensive risk management implemented for the seismic program ultimately avoided more than $455 million in potential costs and seven years of potential delays.
- » Large-scale transportation infrastructure projects have posed challenges for public entities and state statutes do not generally require all state and local sponsors of such projects to institute oversight and risk management.
- A lack of mandated oversight and risk management could result in project delays and cost escalations.
- » Expenses related to the repair or replacement of components accounted for a small portion of the Bay Bridge project's overall cost.
- » Although the seismic program will end roughly on budget in 2019, borrowing and maintenance costs are significant and will continue for decades.
Results in Brief
The Toll Bridge Seismic Retrofit Program (seismic program), and particularly the work completed within the program to replace a section of the San Francisco—Oakland Bay Bridge (Bay Bridge), is one of the most expensive and controversial transportation infrastructure programs in California history. It is also a valuable lesson on how a major project experienced rapid cost escalations before the implementation of robust oversight and risk management brought them under control.
By 2005 the projected costs of the seismic program had soared far beyond the initial estimates of $2.6 billion to $8.7 billion. In response to the seismic program's growing price tag, we recommended in a 2004 audit report that the California Department of Transportation (Caltrans) increase its risk management of the program. Following our review, the Legislature imposed certain requirements on Caltrans and the seismic program that included the establishment of an oversight committee, known as the Toll Bridge Program Oversight Committee (Oversight Committee), which is required to provide program management and approve significant change orders. Beginning in 2005, this legislatively mandated oversight of the seismic program successfully minimized potential delays and controlled costs. For example, the Oversight Committee cites its decision to alter the method used to demolish the old east span of the Bay Bridge (east span) as saving $94 million and cutting the demolition time by four years. In aggregate, our review indicates that Oversight Committee decisions resulted in hundreds of millions of dollars in cost avoidance and savings. The seismic program also benefitted from a 2005 state law requiring Caltrans to implement comprehensive risk management for the program that would inform Oversight Committee decisions. Caltrans documentation indicates that this approach ultimately avoided more than $455 million in potential costs and seven years of potential delays related to the seismic program.
Large-scale transportation infrastructure projects—federal law defines a major highway project as one costing over $500 million—such as the seismic program have posed challenges for public entities in California, and we identified no state statute that generally requires all state and local sponsors of large transportation infrastructure projects to institute oversight and risk management similar to what it requires in the seismic program. With more than $600 billion in anticipated infrastructure projects contemplated in the next several decades in just three of the State's largest metropolitan areas, a lack of mandated oversight and risk management could result in project delays and cost escalations. For example, San Francisco's Transbay Terminal experienced cost increases of $1.1 billion before instituting additional oversight through a cost review committee and increased involvement by the San Francisco Department of Public Works to manage construction. Without additional mandated oversight and risk management, future projects will face significant risk of similar cost increases that must be borne by the State and local governments, and ultimately the taxpayers who support them.
Our review also suggests that expenses related to the repair or replacement of components accounted for a small portion of the Bay Bridge project's overall cost. Specifically, we determined that the project has resulted in at least $86 million worth of work to address defects—using a definition of defect based on project management best practices. Our review noted instances in which Caltrans had to pay to repair or replace a component after a contractor had installed it, as well as problems with fabrication that ultimately led to additional costs. For example, Caltrans spent more than $22 million remediating issues involving broken bolts—widely reported in the media—intended to anchor portions of the east span. However, our identification of costs associated with remediation of defects does not indicate the presence of current safety issues on the bridge, as multiple panels of engineers and construction experts have concluded that critical components of the bridge are safe. Further, although $86 million represents a significant investment of funds, in the context of the overall $6.6 billion Bay Bridge project it amounts to only 1.5 percent of the total cost.
Although the seismic program will end roughly on budget in 2019, borrowing and maintenance costs are significant and will continue for decades. Funding for the seismic program includes a mix of state, federal, and, overwhelmingly, regional bond funds backed by tolls paid by drivers crossing the seven state-owned San Francisco Bay Area (Bay Area) toll bridges. As of June 2017, the Bay Area Toll Authority (Toll Authority) held $9 billion in bond debt for the seismic program and other transportation projects, and will pay approximately $9 billion in interest over the life of those bonds—as far out as 2056. Routine and long-term maintenance costs on bridges in the Bay Area amounted to more than $100 million in fiscal year 2016–17, and while the Toll Authority anticipates that those costs will continue to increase over time, it projects it will have sufficient revenue to meet its obligations well into the future.
To ensure that large transportation infrastructure projects throughout the State benefit from appropriate oversight, the Legislature should require that all publicly funded major transportation infrastructure construction projects that are estimated to cost $500 million or more form oversight committees subject to open meeting laws. When practical, each oversight committee should include individuals from at least three major agencies involved in the project, with roles that reflect financial interests as well as project execution and oversight. Further, when possible, each committee should include at least five members to support the ability of its members to conduct day‑to‑day business without violating open meeting law requirements. The oversight committees should act as the authorities for critical decisions and have sufficient staff to support decision-making.
To ensure that oversight committees and the agencies involved in large transportation infrastructure projects engage in sufficient and appropriate risk management, the Legislature should also require all publicly funded transportation infrastructure projects with a total estimated cost of $500 million or more to develop and use risk management plans throughout the course of the projects.
The Metropolitan Transportation Commission agreed with our recommendations and provided its perspective on our recommendations to the Legislature.