Report 2018-108 Recommendation 2 Responses

Report 2018-108: California High‑Speed Rail Authority: Its Flawed Decision Making and Poor Contract Management Have Contributed to Billions in Cost Overruns and Delays in the System's Construction (Release Date: November 2018)

Recommendation #2 To: High-Speed Rail Authority, California

Before executing its next construction contract, the Authority should establish formal prerequisites for beginning construction to prevent avoidable cost overruns and project delays. At a minimum, these prerequisites should identify specific benchmarks related to land acquisition, utility agreements and relocations, and agreements with external stakeholders, including impacted local governments and other railroad operators.

Annual Follow-Up Agency Response From November 2020

The Authority has established formal prerequisites for beginning construction to prevent avoidable cost overruns and project delays. The prerequisites identify specific benchmarks related to land acquisition, utility agreements and relocations, and agreements with external stakeholders, including impacted local governments and other railroad operators. The Authority is using the prerequisites to plan and prepare for new construction beyond the existing Central Valley construction projects.

The provided Stage Gate Procedure, which has been incorporated into the Program Controls Manual, provides guidance to ensure that each construction project passes through a robust review process before the project can advance to the next stage.

Moreover, the diagrams in the procedure illustrate the process of ensuring that certain preconstruction activities (ROW, utility relocation, environmental and other governmental permits) are sufficiently advanced to enable construction to start without a contractor being subsequently impeded or delayed.

In addition, as evidence that the Authority is using the Stage Gate Procedure to plan and prepare for new construction beyond the existing Central Valley construction projects, the provided Bakersfield Extension (LGA) schedule has been developed (specific dates within the schedule may change, depending on funding availability). The schedule is evidence of a project-specific plan that ensures preconstruction activities are sufficiently advanced prior to proceeding to the next stage of project delivery. Adherence to the plan will ensure that construction contractors are not impeded or delayed by Authority-caused delays.

This recommendation to establish formal prerequisites for beginning construction to prevent avoidable cost overruns and project delays has been fully implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

We evaluated the Authority's stage gate process during previous reporting cycles. At that time, the Authority did not provide evidence of using the process for a project that would be applicable to all relevant components of our recommendation. As part of its current response, the Authority has for the first time demonstrated use of the stage gate process on such a project, albeit one that is not finalized. Specifically, the schedule indicates that the Authority will complete 85 percent of needed land acquisition before directing the contractor to begin construction, and that all utility relocations will be complete soon thereafter. Although the Authority notes in its response that specific dates may shift, if the Authority adheres to these thresholds, it should help prevent further avoidable cost overruns like those we identified during our audit.

1-Year Agency Response

The Authority provided documentation in September related to the Track and Systems procurement to demonstrate the utilization of the stage gate process, including the risk-informed contingency assessment. This documentation is evidence that the stage gate process, which establishes formal prerequisites for beginning construction to prevent avoidable cost overruns and project delays, has been used (as applicable to the Track & Systems contract).

California State Auditor's Assessment of 1-Year Status: Partially Implemented

We evaluated the Authority's creation of its stage gate process as part of our 6-month assessment. At that time, we concluded that the Authority's new policy indicates that a detailed plan should be in place to ensure prerequisites are met before procuring a construction contractor; however, the policy the Authority provided did not itself include such a plan or any of the specific thresholds listed in the recommendation. At the time, the Authority explained to us that it would not be able to develop such a plan until the path of its next construction segment,including environmental clearance, has been finalized.

In its 1-year response, the Authority indicates that it has implemented the stage gate procedure with the track and systems contract it is preparing to procure. However, the documentation the Authority provided in support of its claim of full implementation acknowledges that key aspects of the stage gate process are not relevant because the work being contracted will take place on top of current construction in the Central Valley. As such, the use of the stage gate process for this construction, while potentially beneficial, does not address the types of delay and costs issues we discuss in our audit report and does not demonstrate that the Authority has established the benchmarks that our recommendations references would be required "at minimum" for implementation. In order to demonstrate full implementation of this recommendation, the Authority will need to plan and prepare for new construction beyond the existing Central Valley construction projects.

6-Month Agency Response

The Authority has developed a stage gate process to ensure that each construction project passes through a robust review process before the project can advance to the next stage.

Moreover, the stage gate process ensures that certain pre-construction activities (right-of-way, utility relocation, environmental and other governmental permits) are sufficiently advanced before construction can start, this will prevent any future contract from being subsequently impeded or delayed by Authority activities.

Seven gates have been identified for a typical design-build project, with key deliverables and governance committee approvals for each gate to be successfully completed before the project can proceed to the next stage.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

Our review of the stage gate process the Authority has developed indicates that a detailed plan should be in place to ensure prerequisites are met before procuring a construction contractor; however, the documentation provided does not itself include such a plan or any of the specific thresholds listed in the recommendation. The Authority explained to us that it will not be able to develop such a plan until the path of its next construction segment, including environmental clearance, has been finalized. As such, the Authority has not provided any additional data about anticipated thresholds or risk analyses since the time of the its 60-day response. Without developing and setting actual thresholds to ensure the Authority does not once again prematurely begin construction, which are central components of the recommendation, the Authority has not yet substantiated full implementation.

60-Day Agency Response

The Authority developed draft Baseline project work plans composed of discretely defined tasks. These tasks are linked together based on project delivery sequencing. Work plans are a tool to identify critical junctures and project milestones, or benchmarks including land acquisition, utility agreements and relocations, and agreements with external stakeholders, which will be used to make recommendations to the Business Oversight Committee and Project Delivery Committee - and then to the Board -- prior to execution of future construction contracts. The draft work plans are being circulated for review.

California State Auditor's Assessment of 60-Day Status: Pending

The Authority provided a schedule for an upcoming system segment that included the same types of sequencing analyses we reviewed during our audit and which we discuss on pages 30 and 31 of the audit report. The draft documents also included benchmark figures for some but not all portions of the segment, and some but not all of the issue areas we identify in our response. Further, it is not yet clear what analyses the Authority conducted to arrive at these specific benchmarks. When the Authority claims full implementation, we will be looking for evidence of relevant and complete risk assessments for all applicable benchmarks the Authority has set. We will also look for documentation in Authority policy that it is committed to meeting those prerequisite benchmarks before executing its next construction contract.

All Recommendations in 2018-108

Agency responses received are posted verbatim.