How Grantees looking for FTA funding can Improve Their Capital Cost Deliverables.
Published March 1, 2022, 1:25 a.m. by sdanquah@gmail.com
How Transportation Agencies looking for Grants from Federal Transit Administration (FTA) can Improve Their Capital Cost Deliverables.
Executive Summary
With Urban population growing, coupled with increasing competing needs, the FTA Capital Investment Grant (CIG) program for funding major transit capital investments, including heavy rail, commuter rail, light rail, streetcars, and Bus Rapid Transit (BRT), helps transportation agencies fund major transit programs across the country.
Delivering capital cost estimates that meets the FTA requirements can sometimes be challenging to transportation agencies who, sometimes, use third parties to provide estimate for their capital program. To improve their cost deliverables, grantees must understand the requirements in FTA Oversight Procedures (OP) 33[1] and other Oversight Procedures provided by the FTA to the PMOC for reviewing grantees’ cost estimates. Grantees must:
- provide the appropriate documentation to support their cost estimates.
- provide estimates that are credible, defensible, free of mechanical errors and congruent with design documents.
- provide estimates that have the appropriate levels of contingencies and escalation allowances.
The objective of this paper is to examine the grantee capital cost estimate submission in the context of the FTP OP 33 and provide insights into key estimate deliverable requirements.
With Urban population growing, coupled with increasing competing needs, any funding for a transportation agency helps the agency in addressing challenges in funding their transportation needs. The FTA Capital Investment Grant (CIG) program for funding major transit capital investments, including heavy rail, commuter rail, light rail, streetcars, and Bus Rapid Transit (BRT), helps transportation agencies fund major transit programs across the country.
Transportation agencies seeking funding (Grantees) must follow and meet certain requirements. Federal transit law requires such agencies to complete a series of steps over several years. For New Starts and Core Capacity projects, the law requires completion of two phases in advance of receipt of a construction grant agreement – Project Development, and Engineering. For Small Starts projects, the law requires completion of one phase in advance of receipt of a construction grant agreement – Project Development[2]. In addition, grantees’ proposals and deliverables must meet certain requirements.
As part of the approval process, the FTA, through a Project Management Oversight Contractor (PMOC) reviews key deliverables to ensure that they meet requirements for the program. One such deliverables is the capital cost estimate.
The capital cost estimate is the total cost needed to bring the transit program into operation. It includes Right of Way acquisition, construction cost, cost of busses or train cars, development cost, design fees, and all other cost to get the project into operation. The FTA provides grantees a project management tool to help then deliver capital cost estimates. This tool is the Standard Cost Category (SCC) worksheet.
Implemented in 2005, the SCC provides a consistent format for the reporting, communicating, estimating, and managing of capital costs for Small Starts[3], New Starts[4] and Core Capacity programs[5]. The SCC workbook is multi-tab excel worksheet which captures the cost components of a grantee transit program. All grantees are required to present their estimates summary in the SCC. All tabs in the workbook are essential and must be filled out. The Build Main Tab offers the grantee a one-page sheet to capture the entire costs of the program in both the base year and the Year of Expenditure [6](YOE).
Delivering capital cost estimate that meets the SCC requirements can sometimes be a challenge for transportation agencies who use third parties to provide estimate for their capital program. The SCC cost breakdown structure is different from what most estimators are used to and how construction projects are procured. Grantees’ estimates sometimes, fail to meet FTA requirements.
To improve their cost deliverables, grantees must understand the requirements in FTA Oversight Procedures (OP) 33[7] and other Oversight Procedures provided by the FTA to the PMOC to review grantees submissions. The OP 33 is the capital cost review and highlights important oversight procedures, requirements and guidelines that are to be followed and used by the PMOC to review grantees capital cost estimates. The objective of the review is to assess the soundness, consistency, and reliability of the grantee cost estimate for procurement, cost control, and project management.
The objective of this paper is to examine the grantee capital cost estimate submission in the context of the OP 33 and provide insights into key estimate deliverable requirements.
Section 2: Capital Cost Estimate Deliverables.
Cost deliverables provide explanations to support capital cost estimates. At minimum, a good estimate should include basis of estimate documentation that communicates estimate intent, clarifies assumptions, methodology, and special inclusions and allowances in the estimate. The cost deliverables help the PMOC assess the soundness, consistency, and reliability of the grantee cost estimate. Per the OP 33, the following deliverables are required for the capital cost review.
- Summary of O&M Cost Assumptions/Productivities.
- Capital cost estimate in original and SCC format.
- Capital cost estimate backup data (take-offs, cut sheets, work breakdown structure, calculations, and recapitulation) for the purpose of traceability or mapping.
- Capital cost estimating methodology memo.
- Assumptions used for all escalation and contingency (allocated, unallocated, and hidden or latent) provisions.
- Before and After Study Documentation
These documentations are important for cost reviews and ensures that all scope elements are addressed and documented in the estimate.
Section 3: Basic Cost Estimate Review
There are different stages and milestones in performing and delivering estimates to FTA during the grant process. Each stage calls for specific estimating requirements, but the following are common requirements that grantee must address in their cost estimates.
- Grantee should provide their detailed estimates in original form and one in SCC. Grantee’s original estimate may be in excel or in any industry estimating software such as HCSS, or Sage Timberline.
- The estimate must be free of mechanical errors. FTA requires that the summary of the grantee’s estimate be transposed onto the SCC. The grantee’s original estimate must be consistent with the estimate in the SCC. The original estimate is reviewed for mechanical errors, meaning the sum of the individual parts correctly adds up to the whole or that there are no mechanical errors in the calculation of the total sum for activities. It is also reviewed for transposing errors. Transposing errors occur when the sum on the summary sheet of the original estimate is inconsistent with entries in the SCC.
- The estimate must be congruent with the design scope- the grantees estimate is reviewed with deign documents to see if there are gaps or is consistent with the scope of work as defined in design drawings, specifications, or basis of design documentations. Has the grantee fully addressed Right of Way Acquisition, Utility Relocations, and third-party coordination? The quantities in the estimate are also compared against independent quantities to assess the accuracy of the quantity survey supporting the grantee’s estimate.
- The estimate must be reliable for procurement, detailed enough for contract bid and contract close-out. How does the estimate compare with industry standard? Does the estimate have enough details, given the level of design, and the stage of the overall program?
- The estimate should include indirect costs and cost of temporary facilities
- The estimate should have appropriate levels of contingencies.
- Pricing must reflect current market prices and the estimate should include enough escalation to cover cost of activities into their year of expenditure
Section 4: Understanding the Capital Cost Structure of a Transit program.
The capital costs of a transit program are grouped under the following.
- Construction Cost
- Cost of land and Right of Way Acquisition
- Vehicles and Equipment
- Professional Services
- Contingencies
- Escalations
- Finance Charges
Section 5: The Construction Cost of a Transit Program
The construction costs are grouped under the following SCC
- 10: Guideway & Track Elements
- 20: Stations, Stops, Terminals, Intermodal
- 30: Support Facilities; Yards, Shops, Admin, Buildings
- 40: Sitework and Special Conditions
- 50: Systems
Section 6: Indirect Costs and Temporary Facilities
The indirect and temporary facilities cost covers the prime contractors cost for site temporary structures, supervisions, and general requirements. It includes the contractor’s fees, mobilization and demonization, bonds, and insurance. It includes all soft cost incurred by the General Contractor in the execution, management, and administration of the transit program.
The details of an indirect cost may include the following
- Project Supervision
- Project Engineering, not design work
- Site Administration staff
- Quality Control staff
- Temporary Building
- Temporary Utilities
- Permits
- Engineering and Testing
- Office Expenses
- General and Administration
- Fees and Profit
- Bonds and insurances
During the early stages of the program, it is acceptable to calculate the indirect costs as a percentage of the direct cost of works. But as the program develops and more information become available, it is better to estimate the cost based on the project schedule.
Section 7: Estimating Professional Services for Transit Programs
Professional services are included in SCC 80. The professional services include all the following fees
- Preliminary Engineering
- Final Design
- Project Management for Design and Construction
- Construction Administration and Management
- Professional Liability and Insurances
- Legal Expenses
- Surveys
- Start-up cost
During preliminary engineering, programs are conceptual, and the professional services fees are calculated as a percentage of the total construction cost. The percentage depends on program complexity, size, location, and other factors. What percentage to use has always been difficult for transit programs managers leading some to underestimate this cost.
In 2010, the Transit Cooperative Research Program (TCRP) carried out research on soft costs (Professional Fees) in major transit programs with the goal of producing a guide for project managers and project sponsors to better understand the cost of professional fees on the cost of transit programs.[8] Using survey as one method and calculating actual cost of past projects, they found the following.
|
|
SURVEY- Average of Midpoint Used
|
As-built Cost Data Average Actual
|
| |
|
|
|
Preliminary Engineering
|
2.60%
|
2.70%
|
|
Final Design
|
9.00%
|
9.70%
|
|
Project and Construction Administration
|
14.10%
|
15.10%
|
|
Insurance
|
3.50%
|
2.20%
|
|
Other Costs
|
2.90%
|
1.60%
|
| |
|
|
|
Total
|
32.10%
|
31.30%
|
Survey Results were based on 10 responses, Actual cost was based on 51 past projects after removing outliers
Program cost can vary significantly as evidenced in the actual cost from this study. The study found soft cot to range between 11% on the low side and 54% on the high side for the actual cost. For more details about the study see TCRP Report 138. You may get a copy at http://www.trb.org/Publications/Blurbs/163381.aspx
Section 8: Risk Management and Contingency Determination for Transit Program
Contingencies in capital program include allocated and unallocated. Allocated contingencies are applied at the SCC level, meaning they are assessed and included in the category in which they occur. This method of allocating contingency has advantages over the having one contingency for all systems
- The process allows estimators and managers to address contingency issues unique to a cost category. If a category is well designed and has enough information than others, its contingency is reduced.
- The process allows risk managers the opportunity to assess risk on cost category basis.
- It helps to establish the most likely, optimistic, and pessimistic cost allowing risk practitioners to carry out quantitative risk analysis on the project.
Unallocated contingencies are applied as an umbrella contingency covering the entire cost of the program. These are contingencies that could impact the whole program and cannot be allocated to one cost category. Example of these could include construction contingency, and management reserve
At the early planning phase of the project, the estimator, using his experiences and professional judgement, can assign generalized appropriate contingency levels. The following are FTA generalized contingency levels recommendation based on historical data[9]. This contingency includes the allocated and unallocated contingencies
- At Entry into Engineering, 25%
- At Readiness to Bid Construction, 15%.
- At Start of Construction, 10%.
- At 50% physically complete for construction, 5%.
Contingency determination is critical to the success of capital projects. Thus, FTA and the PMOC pay attention to contingency levels and the assumptions underlying the choice. The FTA or the PMOC may conduct risk assessment to evaluate the adequacy of the overall contingency levels.
Grantees should not hide contingencies in the cost of activities. Contingencies should be made visible. Latent contingencies distort the amount of contingency for a given SCC category after application of allocated contingency.
Section 9: Escalation
Escalation contingency is an allowance calculated based on an annual escalation rate and the time and duration of the estimate. The annual escalation rates are determined by many factors including.
- Cost of materials and equipment
- Labor availability
- The volume of Construction in the Market
- The consumer price index
ENR and other publications publish the annual Construction Cost Index which is used by many transportation agencies to determine the annual escalation rate on their transit programs. Some transportation agencies publish their escalation rates based on historical bid data. Bid prices reflect current labor and material prices and all other market conditions and are better predictor of escalation rates.
For more information on how to calculate escalation using the cashflow, see the SCC template, inflation tab. Sample of the template can be downloaded at the FTA website
https://www.transit.dot.gov/funding/grant-programs/capital-investments/new-starts-scc-workbook
Calculating Escalation
Grantees use projected cash flows to calculate escalation. The expected cashflows for SCC elements within the projects from the time of the estimate to their expected year of expenditure are established. Escalation is calculated from the base year of the estimate to the year of expenditure. Because the method uses cash flows from the base year, it is possible for grantees to underestimate the impact of escalation if they allocate more of a category cashflow in the beginning period, than the actual spend, and overestimate escalation if more cashflow is allocated towards the end of the project, than actual spend. To accurately calculate escalation, grantee cashflow and its distribution must reflect actual spend schedules.
Conclusion
Economic and social development depends on transit programs for the free movement of people and goods. But transit programs are major investments, sometimes requiring large sums of money and considerable period for its completion. For appropriate returns, the estimate supporting the capital project must be congruent with design documents and must reflect the market conditions. Grantees looking for grants from the FTA to fund their transit programs must follow the FTA OP guidelines to deliver their cost estimates and other deliverables.
By Seth Danquah
Seth Danquah is a certified cost consultant, and a Project Management Professional (PMP) with over 20 years’ experience in the construction industry. He has worked on numerous capital improvement projects including aviation, transit program, transportation projects, school, and other public and private capital investments. He is capable of providing cost advisory on large programs from the early stages of the program to its completion
He is the president and owner of Danquah Group, a management consulting firm that provides training and support in project management, cybersecurity, and business application development.
[2] www.transit.dot.gov/cig
[3] Small starts, according to the FTA is Fixed guideway or corridor-based BRT < $300 million and seeking <$100 million in CIG funds
[4] New Starts, according to the FTA is Fixed guideway > $300 million or seeking >$100 million in CIG funds
[5] Expands capacity by > 10% in an existing fixed guideway corridor that is at capacity today or will be in five years
[6] The Year of expenditure cost is the Base year cost escalated to the year in which expenditure on an activity will be made
[8] TCRP Report 138, Estimating Soft Costs for Public Transportation, Fixed Guideway Projects
[9] https://www.transit.dot.gov/sites/fta.dot.gov/files/docs/regulations-and-guidance/58901/op40c-risk-and-contingency-review-sept-2015.pdf
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