Federal-Aid Highways: Federal Highway Administration Could Further Mitigate Locally Administered Project Risks

Highlights

What GAO Found

Newly available data from the Federal Highway Administration (FHWA) show the extent and some characteristics of locally administered projects, but other key data are not being collected. From July 2012 to June 2013, local agencies administered about 12 percent or $3.8 billion of the $31 billion in federal-aid funding obligated during that period. The federal share was less than $250,000 for over half of the projects. However, FHWA neither collects information on which local agencies are administering federal-aid projects nor the capabilities of those agencies--information that would allow FHWA to identify the extent and magnitude of its risks and more effectively target its oversight of the states.

Project administration by local agencies presents three risks:

Noncompliance with federal requirements is a well-documented risk area and GAO's analysis, derived from multiple sources, revealed a range of concerns including quality of construction and inadequate contract administration. FHWA has made efforts to mitigate this risk by providing training and guidance, among other things. While state departments of transportation (state DOTs) are required to determine whether local agencies have adequate systems and controls to properly manage federal funds, FHWA has not provided clear direction on how to implement this requirement. FHWA promotes, but does not require, a mechanism such as a certification program. FHWA has not developed minimum and uniform qualification criteria for state DOTs to use to assure local agencies are qualified to administer federal projects. Without such criteria, the effectiveness of existing or developing mechanisms may be limited.

The risk of ineffective oversight stems from a diffused oversight structure for locally administered projects. FHWA is accountable for ensuring federal funds are used efficiently and effectively. States are responsible for ensuring that projects are properly administered and local agencies have adequate systems to undertake federal-aid projects and sufficient controls to properly manage project funds. GAO's review identified deficiencies in some state DOTs' oversight practices, and FHWA is developing a tool to assess the quality of state DOT oversight. FHWA expects to finalize this tool by mid-2014.

Inefficient use of federal funds can occur when the cost of complying with federal requirements is high relative to a project's cost. While FHWA has taken steps to improve the efficiency of federal-aid projects, it has not explored or issued guidance targeted to local agencies on how they can maximize administrative flexibilities, despite internal and external recommendations to do so. Some local agency officials GAO interviewed stated they do not pursue federal funding for projects under certain dollar thresholds because the cost involved outweighs the benefits; however, others choose to do so due to a lack of funding alternatives. FHWA has not examined potential thresholds at which federal funds may no longer be cost-effective, but it is well-positioned to undertake such an analysis.

Many of the local officials GAO interviewed reported a variety of challenges experienced when administering federal-aid projects. For example, they noted significant time, effort, and costs to administer federal-aid projects. However, local agency officials believe that the benefits of federal funding for local infrastructure outweigh the challenges of complying with federal requirements.

Why GAO Did This Study

FHWA provides funding to states to build and maintain the nation's roadways and bridges. States may then make federal funding available to a local public agency, such as a city or a county, to administer projects. FHWA estimates that 7,000 local public agencies administer such projects. FHWA has identified locally administered projects as an agency-wide, high-risk oversight area. GAO was asked to review FHWA's oversight of locally administered projects. GAO examined: (1) what is known about federal-aid projects local agencies administer; (2) what risks are presented by local agencies administering federal-aid projects and what is being done to mitigate risks; and (3) what challenges local agencies report in administering federal-aid projects. GAO conducted site visits to three states based on federal obligations and other factors. GAO analyzed FHWA obligation data, reviewed relevant documentation, and interviewed FHWA, state, and local agency officials.

Recommendations

GAO recommends that FHWA (1) collect data about which local public agencies are administering federal-aid projects, (2) collect information from state DOTs on local agencies capabilities, (3) identify and disseminate minimum and uniform criteria for qualifying local agencies, and (4) explore administrative flexibilities and potential dollar thresholds under which it may not be cost effective for local agencies to administer federal-aid projects. The Department of Transportation did not take a position on GAOs recommendations.

Recommendations for Executive Action

Agency Affected	Recommendation	Status
Department of Transportation	The Secretary of Transportation should direct the FHWA Administrator to collect data, on an ongoing basis, about which local public agencies are administering federal-aid projects.	Closed – Not Implemented In its comments on the draft report, and in the 60 day letter and subsequent discussions, DOT disagreed with the need to collect data on local public agencies. The Department has never requested that we close this recommendation. In a recommendation follow-up meeting on April 30, 2019, we sought additional information on FHWA's plans regarding this recommendation. At that time, and in subsequent discussions, DOT and FHWA indicated that the agency is not actively seeking to address the recommendation. Given the length of time that has elapsed and the fact that FHWA has neither taken, nor plans to take action to implement the recommendation, we believe it is appropriate to close it as not implemented. DOT's Office of Audit Relations agrees.
Department of Transportation	The Secretary of Transportation should direct the FHWA Administrator to collect information, on an ongoing basis, from state DOTs on local public agencies' capabilities.	Closed – Implemented In 2014 GAO reported that FHWA lacked information on whether local public agencies administering federal-aid projects were capable of administering federal-aid funds-that is they had adequate project delivery systems and accounting controls to properly manage project funds and comply with federal requirements. GAO reported that without timely and reliable information about the capabilities of local agencies, FHWA's ability to identify risks and more effectively target its oversight of state DOTs might be inhibited. GAO noted that information on the capabilities of local public agencies should be available from state DOTs, and that FHWA would need to develop a reliable and ongoing data collection process in order to obtain this data. Therefore, GAO recommended that the FHWA Administrator collect information, on an ongoing basis, from state DOTs on local public agencies' capabilities. Although FHWA did not develop an ongoing data collection process to assess the capabilities of local public agencies as GAO recommended, it did conduct a robust assessment of the local agencies' capabilities to administer federal-aid funds. Specifically, in November 2016, FHWA released the results of a compliance assessment review of projects administered by local public agencies. According to FHWA, the purpose of a compliance assessment review is to help provide reasonable assurance that federal-aid highway projects comply with key federal requirements by assessing a statistically valid sample of projects. FHWA reviewed a sample of 1,333 projects drawn to represent all the nearly 4,200 locally administered federal-aid highway projects authorized for construction between April 2014 and March 2015. This report assessed compliance with 28 federal requirements in 43 states and made 10 recommendations to, among other things, improve compliance in the future. Conducting this assessment allowed FHWA to (1) assess the project delivery systems and accounting controls of a statistically valid sample of local public agencies and their capabilities; (2) administer federal funds; identify and assess the extent and magnitude of its risks; (4) more effectively target FHWA's oversight in the future; and (5) make recommendations to help ensure compliance with federal requirements. Collectively, FHWA's actions have addressed the intent of GAO's recommendation.
Department of Transportation	The Secretary of Transportation should direct the FHWA Administrator to identify and disseminate minimum and uniform qualification criteria for state DOTs to determine whether local public agencies are capable and equipped to administer federal-aid projects.	Closed – Not Implemented In its comments on the draft report, and in the 60 day letter and subsequent discussions, DOT disagreed with the need for minimum and uniform qualification criteria for determining whether local public agencies are capable and equipped to administer federal-aid projects. In September 2014, DOT requested we close the recommendation based on publication of the LPA Order in August 2014 which established procedures for states to follow in determining the qualifications and capabilities of local public agencies. We determined those actions were not sufficient to close the recommendation because they did not establish the minimum and uniform qualification criteria we recommended. In a recommendation follow-up meeting on April 30, 2019, we sought additional information on FHWA's plans regarding this recommendation. At that time, and in subsequent discussions, DOT and FHWA indicated that the agency is not actively seeking to address the recommendation and does not have plans to address this recommendation in the future. Given the length of time that has elapsed and the fact that FHWA has neither taken, nor plans to take action to implement the recommendation, we believe it is appropriate to close it as not implemented. DOT's Office of Audit Relations agrees.
Department of Transportation	The Secretary of Transportation should direct the FHWA Administrator to explore opportunities to make administration of federal-aid projects by local public agencies more efficient by examining: (a) the circumstances in which issuing guidance on administrative flexibilities targeted at local agencies would be appropriate, and (b) a potential dollar threshold under which the use of federal funds may no longer be cost-effective.	Closed – Implemented In 2014, GAO reported that local public agencies (LPA) experienced challenges when administering federal-aid projects and complying with federal requirements. LPA officials reported that the benefits of federal funding for local infrastructure outweighed the challenges, such as the time and cost of complying with federal requirements, due to limited funding alternatives. However, GAO reported that the inefficient use of federal funds can occur when the cost of complying with federal requirements is high relative to a project's cost. While the Federal Highway Administration (FHWA) has taken steps to improve the efficiency of federal-aid projects, it has not explored or issued guidance targeted to local agencies on how they can maximize administrative flexibilities, despite internal and external recommendations to do so. Some LPA officials GAO interviewed stated they do not pursue federal funding for projects under certain dollar thresholds because the cost involved outweighs the benefits; however, others choose to do so due to a lack of funding alternatives. FHWA has not examined potential thresholds at which federal funds may no longer be cost-effective, but it is well-positioned to undertake such an analysis. Therefore, GAO recommended that FHWA explore opportunities to make the administration of federal-aid projects by LPAs more efficient by examining: (a) the circumstances in which issuing guidance on administrative flexibilities targeted at LPAs would be appropriate, and (b) a potential dollar threshold under which the use of federal funds may no longer be cost-effective. In 2018, GAO confirmed that FHWA took action to implement the intent of this recommendation. Although FHWA did not issue official guidance on administrative flexibilities specifically for LPAs, it did promote and share best practices regarding administrative flexibilities through its Every Day Counts (EDC) initiative. FHWA launched EDC in 2009 which focuses on accelerating project delivery and deploying proven innovations that facilitate greater efficiency at the state and local levels, to address the challenges presented by limited budgets. Although the program itself is not targeted specifically at LPAs, between 2013 and 2016, one of EDC's focus areas was LPA project initiatives. The EDC website provides examples of LPAs that have used existing administrative flexibilities and additional resources. Also, under EDC, FHWA organized regional meetings which included a session targeted to LPAs. Further, the 2015 enactment of the Fixing America's Surface Transportation Act codified FHWA's EDC initiative which (1) reinforces FHWA's overall efforts to improve project delivery, and (2) ensures that the program will continue into the future. Although FHWA did not identify a potential threshold under which the use of federal funds may no longer be cost-effective, it recognizes a potential benefit of such a threshold and has taken action in the regard. Specifically, FHWA encourages state transportation agencies and LPAs to use state funding to fund local projects while reserving federal funding for statewide projects. FHWA shares an email template with these agencies that outlines the benefits of swapping state or local funding for federal-aid funding in cases where the costs of compliance with federal requirements might exceed the benefit. Collectively, FHWA's actions have addressed the intent of GAO's recommendation, which was to help FHWA improve the cost effectiveness and efficiency of federal-aid projects administered by LPAs.

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Topics

Transportation

Construction contractsData collectionContract administrationFederal fundsFederal aid for highwaysHighway researchInternal controlsLocal governmentsLocally administered programsNoncompliancePublic roads or highwaysRisk assessmentRoad constructionTransportationGovernment agency oversightRequirements definition