Although its 2018 business plan asserted that the early start of construction in the Central Valley resulted in unforeseen or underestimated costs, the Authority had long been aware that there were risks associated with its decisions to begin construction without completing key preconstruction tasks and that these decisions could lead to significant additional costs. For example, a plan that consultants prepared for the Authority in 2011 identified land acquisition, utility relocation, and external stakeholder coordination as risks that would require mitigation. Similarly, the Authority's chief engineer confirmed that the Authority knew in 2013 that it had not acquired sufficient land, and although it had a plan to secure the needed land, it also knew that its ability to use its bond funding for that purpose was uncertain because of legal challenges. The Authority noted in a March 2013 report to the Legislature that delays in acquiring property could affect costs and deadlines, and it disclosed in the same report that it had not yet entered into the necessary agreements with utility companies, which could lead to additional costs and delays. The Authority was also aware that it would need to work closely with Union Pacific to coordinate construction work on and around its right-of-way, yet the 2013 report noted that it had not yet executed an agreement with the railroad. It acknowledged that if the Authority could not reach such an agreement, design work in progress or already completed might be affected, leading to potentially significant cost increases or schedule delays.
| The Authority reported total cost estimates when beginning construction in 2013 that were unreasonably low. | Nonetheless, the Authority did not account for the potential costs of these risks in its estimates until recently. As a result, it reported total cost estimates when beginning construction in 2013 that were unreasonably low. In fact, the Authority's May 2018 business plan was the first to assign costs to known program risks, even though we identified concerns with the Authority's risk management processes in our 2012 audit report.3 In that report, we found that although the Authority had identified risks that could affect the system's cost and schedule-such as the lack of a finalized agreement with Union Pacific-it was not promptly and effectively addressing these risks. |
A 2013 report by the U.S. Government Accountability Office (GAO) expressed similar concerns about the Authority's risk management, specifically identifying that the Authority had not completed a risk analysis to determine how the risks it had identified, such as right-of-way delays, would affect cost estimates. For example, according to the report, the Authority acknowledged the risk that its acquisition of 100 of 400 properties it needed for construction Project 1 would be delayed. However, the Authority did not include the possible effect of this delay in its reported cost estimates. The GAO consequently determined that the Authority only partially met best practices intended to help ensure the credibility of its cost estimates.
Although the Authority has acknowledged that beginning construction when it did resulted in inaccurate cost estimates and contributed to additional costs, it has not yet taken sufficiently detailed steps to ensure a similar situation does not occur on future segments. For example, the Authority's director of design and construction told us that the Authority planned to address these planning issues at a high level in a new program management plan that it was developing. We reviewed the program management plan, published in October 2018, and confirmed that it discusses the need to ensure land acquisition and utility relocations do not adversely affect construction timelines. However, it does not explain in detail about how the Authority will do so. Similarly, the Authority's recently released comprehensive schedule delineates that these "early work" tasks should begin before the design and construction phase on future segments, but the schedule does not establish specific benchmarks the Authority must achieve before procuring a construction contractor-though we note that the Authority does not plan to procure another construction contractor until 2020.
When discussing the Authority's future plans, its chief engineer stated that the uncertain nature of the Authority's funding makes it continually reliant on the terms of available funding sources. The chief engineer stated that if the Authority were to receive another grant with short timeframes like those of the Recovery Act grant agreement, it might have to reevaluate its plans. He further stated that the decision to begin construction when the Authority did was partially driven by a desire to show visible progress as various groups were trying to stop the program, raising concerns that future external pressures may drive the Authority to make similarly poorly planned decisions again.
Although we acknowledge that the Authority must secure additional funding to complete the high-speed rail system, we disagree that it should accept similar levels of risk brought on by beginning construction before it adequately performs planning. Looking past the Central Valley, the next planned construction segments, between San Francisco and Gilroy and then over the Pacheco Pass between the South Bay and the Central Valley, will present new challenges beyond what the Authority has faced in the Central Valley, including performing construction in dense urban areas and boring 15 miles of tunnels through the mountains. It is therefore imperative that the Authority formalize the lessons it indicates that it has learned in the Central Valley and that it implement a process to incorporate those lessons into its future planning.
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3 California High-Speed Rail Authority Follow-Up: Although the Authority Addressed Some of Our Prior Concerns, Its Funding Situation Has Become increasingly Risky and the Authority's Weak Oversight Persists, January 2012, Report 2011‑504.