National Review of State Cost Estimation Practice
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National Review of State Cost Estimation Practice

Filetype[PDF-1.01 MB]

  • English

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    • Edition:
      Final Report
    • Abstract:
      This national review of state cost estimation practice is a follow up activity to the U.S. Department of Transportation Office of Inspector General (OIG) Audit Report Number MH-2013-012, “FHWA Has Opportunities to Improve Oversight of ARRA High Dollar Projects and the Federal-aid Highway Program” and the Government Accountability Office (GAO) Report No. GAO-09-751, Federal-aid Highways: FHWA has Improved Its Risk Management Approach, but needs to improve its Oversight of Project Costs, July 2009. The OIG review focused on the ARRA program which occurred during the economic downturn in 2008-2010. During this period a nationwide pattern of increased competition and lower bids was realized. Since State DOTs typically rely on historical bid data for use in preparing project cost estimates, the State’s engineer’s estimate (EE) lagged market conditions. The bids received during this time period were 10 to 30 percent below the EE. While low bids are typically considered beneficial from a funding standpoint, large variance from the EE may be more indicative of a cost estimating process that does not reflect market conditions. Overestimation of project costs causes inefficient use of public funds that could be used on other projects. Maintaining and applying a standard documented process is essential to support the approving authority for estimates of project cost. The Divisions must approve estimates of project costs submitted by State DOTs. The State DOT’s estimate of project cost must be documented and provide the best estimate of costs. The State DOT is also required to maintain a process to adjust project cost estimates to reflect current costs and maintain a process to document a cost analysis of contract changes that is approved by the Division. The review team conducted a nationwide survey of cost estimation practice and procedures used by State DOTs. The review focused on the documentation of the cost estimate development process, market conditions and risks, and the bid review and analysis process. The review identified ways to improve the consistency and accuracy of the cost estimation process through observations and recommendations.
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