Focus Capital Investment Grants on Improved Project Delivery 

This piece is part of IFP’s Transit Abundance Playbook, a collection of proposals for reducing American transit construction costs.

Summary

The largest and most expensive transit capital projects in the US often receive at least part of their funding from the Federal Transit Administration’s Capital Investment Grants (CIG) program. Although CIG provides invaluable funding and oversight, the program’s structure has become extremely rigid, interfering with a project sponsor’s ability to adopt proven methods for delivering transit capital projects on time, on budget, and at a reasonable price. 

To ensure CIG selects projects that can be built and put into revenue service expeditiously and cost-effectively, substantial changes need to be made throughout the CIG process. These include: (1) de-proceduralizing requirements to streamline project delivery and promote innovation; (2) encouraging and funding early investments in right-of-way and early works projects; (3) requiring a commitment to accelerated local and state permitting timelines before a Full Funding Grant Agreement (FFGA) is signed; and (4) loosening rigid procurement approaches to ensure best value in the selection and use of delivery teams. These changes will set projects up for success well before full construction begins.

Problem

Excessive emphasis on procedural compliance impairs transit project delivery. The CIG New Starts and Core Capacity programs are designed to move a pipeline of transit capital projects through meticulous review, starting with Project Development (in which federal environmental review is completed), followed by Engineering, and finally to construction sometime after the signing of an FFGA with the Federal Transit Administration (FTA). However, both statutory and regulatory requirements have become more numerous, complicated, and rigid since their codification in 1988, creating what the American Public Transportation Association (APTA) has called a “bureaucratic maze.” CIG’s requirements counterproductively lengthen and complicate the project selection process and, more importantly, impede the ability to deliver projects expeditiously, cost-effectively, and at (or below) the cost anticipated in the FFGA.

Efficient project delivery requires flexibility, iteration, and proper evaluation of risks. Four challenges illustrate how the current CIG program structure undermines project delivery by overemphasizing procedural requirements and neglecting risk identification and mitigation:

1. CIG program requirements are rigid and misaligned with project success. According to APTA, a transit project sponsor must comply with nearly 60,000 words of statute, regulation, and guidance. Despite their length, these many requirements do not sufficiently emphasize cost-effectiveness and early risk assessment, without which it is less likely that a project will be delivered within the cost and schedule set in the FFGA. CIG requirements are too detailed and often more about checking boxes than ensuring standards are met. For example, CIG financial oversight focuses on the financial capacity of the transit agency, rather than verifying early and often that the agency has developed a realistic cost estimate and viable financial plan for the project (and that the agency can execute on that financial plan and meet its other financial obligations).
   
   State transportation departments using formula funding — or even grant funding — to construct major bridge and highway projects (those involving $500 million or more in federal assistance) are subject to far fewer requirements and a more flexible process. The requirements Federal Highway Administration (FHWA) projects do face are generally focused on ensuring that the project has sound financial and project delivery plans in place: agencies partner with the state Department of Transportation (DOT) on a Cost and Schedule Risk Assessment to better understand project risks before submitting an initial financial plan. The resulting oversight process is more flexible and collaborative than the FTA CIG process and focuses on surfacing and addressing potential delivery risks early.
   
2. CIG follows a linear “waterfall” process with strict sequencing in which many steps require waiting for the completion of others. Transit agencies cannot receive any federal CIG funding until after an FFGA is signed; at most, FTA can issue project sponsors a letter of no prejudice during the Engineering phase, which allows sponsors to proceed “at risk” with initial construction activities using non-federal funds and get reimbursed later if an FFGA is executed. In contrast, non-CIG projects can leverage parallel processing: while engineering, design, or permitting is underway and before the main construction project is put out for bid, project sponsors can acquire properties needed for right-of-way, relocate utilities, and undertake other early works that can de-risk a project. Highway and bridge megaprojects, especially those built with formula funding, frequently involve making early investments well ahead of procurement for the primary construction contract. 
   
3. The full federal, state, and local permitting timeline for transit projects is far too long, bloating project schedules and costs. FTA requires the National Environmental Policy Act (NEPA) process to be completed by the end of the Project Development Phase and before a project sponsor can enter the Engineering Phase. While the federal NEPA process needs reform, that alone will not fix the permitting timeline for CIG-funded transit projects. Projects must also complete state and local permitting and non-NEPA federal permitting (along with design and engineering and other tasks) during the two-year Engineering Phase; in practice, state and local permitting often create delays during this phase. In addition, it often takes a year or more after signing an FFGA to start construction. NEPA documents are thus in place two or more years before construction begins on CIG-funded projects.
   
4. CIG heavily favors procurement and delivery methods that reward bidders that promise low costs in their bids, rather than those that will deliver at the promised cost and bring value to the project.¹ CIG dates to an era when almost all project delivery was Design-Bid-Build. This procurement method involves taking a project to 100% design and then bidding out its construction, typically to the lowest bidder. But for transit agencies to leverage procurement best practices that can enhance project delivery, they need to be able to evaluate bids on the basis of value, rather than mere cost. 
   
   Procurement goes beyond establishing a project’s cost and timetable; it informs how the transit agency selects the project delivery team. While FTA has taken some limited steps to encourage more use of best-value procurement and allow project sponsors to use Design-Build teams, CIG-funded projects need even more flexibility in procurement and procurement timing. This would enable them to focus on hiring the best teams and securing the best value, rather than just the lowest cost. FTA can look to FHWA’s Special Experimental Project (SEP) as an example, which allows FHWA to approve alternative contracting methods for individual projects. FTA currently lacks this authority.

Solution

Congress should streamline and modernize the CIG statute to better select for project delivery speed, cost-effectiveness, risk identification and mitigation, and timely, on-budget delivery.

Four interventions would help improve project outcomes:

1. Congress and FTA should de-proceduralize CIG. To streamline project delivery and promote innovation, only key milestones and outcomes should be defined in statute, giving FTA and project sponsors maximum flexibility on how best to build the project to achieve those outcomes. Statutory language should also require FTA to review and reduce its CIG-related guidance.
   
   To ensure that implementing these changes does not undermine CIG streamlining, Congress should limit FTA’s ability to re-complicate the CIG process through issuance of additional guidance, which FTA staff and contractors tend to treat as requirements.
   
2. The CIG statute (49 U.S. Code § 5309) should revamp the post-NEPA Engineering Phase to focus on setting up the project for successful delivery, rather than on design and engineering alone. To start, the statute should allow project sponsors to make early investments with CIG funds.² It should also encourage project sponsors to parallelize local and state permitting and take early steps toward procurement (which is particularly important for best-value procurement methods such as Design-Build or progressive Design-Build), acquisition of right-of-way, utility relocation, and other “early works” construction projects. Early investments help projects avoid downstream issues — for example, early utility relocation prevents later disputes with third parties that can hold up transit construction. Moreover, incurring these costs earlier in the project timeline helps avoid construction cost inflation and accounts for expenses that bidders would otherwise “bid in” down the line. 
   
   Boston MBTA’s Green Line extension project demonstrates how early works can stop construction contractors from raising costs to account for uncertain future risks. MBTA expected that bidders would submit more costly bids if they had to do track relocation work near operating trains, so the agency did track relocation early on during the procurement process. As a result, bidders didn’t need to guess the cost premium for construction close to active train lines.
   
   Congress should authorize FTA to incentivize these early investments by allowing FTA to reimburse project sponsors with CIG funds for approved early works for up to 10% of the total estimated project cost, paid out during the Engineering Phase. While this creates a risk of federal investment in a project that won’t get built, that potential downside is outweighed by de-risking the far larger investment that will be made once an FFGA is signed. 
   
3. CIG should prioritize construction funding to states and cities committed to expediting their permitting for projects. CIG funding is in high demand and communities should be willing to create streamlined permitting processes for transit projects to secure CIG funds. For example, the City of Seattle has simplified its permitting processes for Sound Transit’s Ballard and West Seattle light rail projects, aiming to cut permitting time down to 120 days.
   
   Full Funding Grant Agreements should be limited to projects that FTA and Congress can be confident will move into construction expeditiously. For projects that have not completed local and state permitting during the Engineering Phase, FFGA signing should be made contingent on a binding, written commitment by the project proponent to specific, accelerated timelines to complete local and state permitting; when necessary, the CIG applicant should be required to document to FTA that state and local permitting agencies have the authority to undertake accelerated permitting for the project. Failure to meet those deadlines should be grounds for cancellation of the FFGA.
   
4. The CIG statute should be updated to encourage best-value procurement and project delivery methods. Among these changes, FTA should be authorized to issue waivers similar to those used in FHWA’s SEP program, allowing project proponents to follow state procurement procedures instead of federal ones in states where the procurement requirements ensure competition and accountability. Because best-value procurement and alternative project delivery methods often require significant action and investment well before construction begins, project proponents should be reimbursed for these early procurement costs with federal CIG funding during the Engineering Phase, before the FFGA is signed. 

Too many CIG projects take too long and cost too much. The time has come for statutory changes that promote more expeditious and cost-effective delivery of these critical but costly transit projects. Taken together, the proposed changes will allow CIG project sponsors to institute best practices that have been shown to improve cost discipline in transit projects around the world and in major bridge and highway projects here in the US.