Title: Reliability of Capital Cost Estimates Resulting from Early Planning Studies

Phase(s): Pre-Preliminary Engineering and Preliminary Engineering

Category: Cost

Date: N/A

1. Background

The evolution of the technical development of an urban rail transit project generally begins with a planning study. In recent years, a Major Investment Study (MIS) replaced the Federal Transit Administration (FTA) requirement for an Alternatives Analysis (AA). Previously, the AA was combined with the preparation of a Draft Environmental Impact Statement (DEIS) that required a level of engineering sufficient to identify the feasibility of alternative alignments. This was generally considered to be approximately 10% of the design, or conceptual engineering. Within broad federal parameters, the content of a MIS is, on the other hand, subject to local requirements only. These requirements are usually established by the local Metropolitan Planning Organization (MPO) in coordination with the project sponsor.

The project sponsor may require that the study contain only that information that will enable its governing body to make a decision on whether or not to proceed with the project. At a minimum, this information consists of a recommended transportation mode and general alignment. To support these recommendations, the study should identify transportation improvements that are required to reduce existing and future traffic congestion, improve mobility options, and provide transportation alternatives in a corridor previously selected as one with the highest travel demand. The study content should further include an evaluation of ridership potential, alternative routes and technologies, land use and economic development impacts, environmental factors and public preferences.

The project sponsor may require that a capital cost estimate be included for the various alternative alignments and technology recommended. However, since little or no engineering is performed during a MIS, such estimates can only be based on recent experience of other properties unless the project sponsor has undertaken similar projects in the recent past.

A case in point is the City of Phoenix, Arizona. Phoenix, with the support of the cities of Tempe and Mesa, commissioned a MIS for the Central Phoenix/East Valley Corridor, having identified this as the highest travel demand corridor in the region. The study identified LRT as the appropriate travel mode. Several alternative alignments were studied for the 20-mile LRT Corridor and a Minimum Operable Segment (MOS) of 13 miles within the Corridor was identified. A capital cost estimate was required.

The San Diego LRT system was used as the cost model for the CP/EV LRT Project. Unit prices for track, facilities, and Light Rail Vehicles (LRV) were obtained from San Diego based on its then recent construction experience. The capital cost estimate was based on some fundamental assumptions of route alignment that involved substantial lengths of line within the Union Pacific Railroad (UPRR) right-of-way. This portion of the alignment lent itself to a simple ballasted track structure. The remainder of the MOS alignment, approximately ¼of the total, was assumed to be in street, using a retained ballast track structure. The MIS also featured a San Diego type 75’ LRV.

The CP/EV MIS Capital Cost Estimate for the 13-mile MOS was $390.0 million, and included escalation to the mid-point of construction on an assumed schedule of development that projected revenue service commencing in 2003. Review of the MIS documentation suggests that these unit costs may not have been escalated from the time they were incurred (about 1996) to the date of the final MIS draft (1998). Insufficient funding, coupled with scheduling constraints that placed the City of Phoenix under pressure to include the Project in TEA-21 legislation, prevented the City from performing engineering studies that would have been needed to validate the proposed alignment and the assumptions that had been made with regard to track structure. The region’s policy makers did not require the level of detail necessary to validate these assumptions in order to make a decision on the Locally Preferred Alternative (LPA). At this point, all indications are that the primary goal with respect to completing the MIS was to get the project included in the TEA-21 program and, to that end, it was a success.

During the conceptual engineering/DEIS phase, the City of Phoenix and the Regional Public Transportation Authority (RPTA), its designated federal grant sub-recipient, determined that, contrary to its earlier indications, the UPRR would not agree to use of its right-of-way for LRT purposes. This was mainly due to FRA restrictions on the joint use of LRT and freight rail in railroad rights-of-way, a potential track relocation caused by the planned airport expansion, and a changed management philosophy that favors freight operations with the potential for future expansion. This forced the LRT alignment into the public streets. Input during the Public Involvement Program gave strong indication that costlier paved track sections were far preferable to the open street cuts with retained ballast. Additional requirements, including a 7.3-mile, or 56% lengthening of the MOS to improve operability and ridership; a low-floor LRV of 90’ to accommodate revised passenger load projections, instead of the 75’ high-floor vehicle used in the MIS estimate, a significantly greater number of LRVs; and a longer schedule of development to achieve revenue service all put further upward pressure on capital costs. The current project schedule is projecting a Revenue Service Date in the 3rd Quarter of 2006, three years later than considered in the initial MIS and the revised10% design estimate cost is approximately $1.1 billion; 2.82 times the MIS capital cost estimate of $390.0 million.

2. The Lesson

Neither transit agencies nor the FTA should rely on capital cost estimates resulting from preliminary planning studies such as a MIS unless the alignment assumptions have:

1. Undergone sufficient engineering to validate their viability,
2. Been thoroughly tested in the public involvement process,
3. Have generally been documented as feasible by those entities, such as railroads, over which the transit agency has no control, and
4. Been cost escalated with adequate project contingency to cover unforeseen events.

Such capital cost estimates should be thoroughly reviewed by qualified professionals for methodology and applicability of unit costs before the estimate becomes a published number. When this estimated cost is ultimately determined to be severely understated, it may lead to public disenchantment with the project, and almost always has a deleterious effect on the preliminary financial planning performed by FTA to include the project in a federal funding program with established congressional limits.

In the Phoenix case described, cost was not a factor in local decision making to proceed with the Locally Preferred Alternative, nor does it appear that the citizens of the participating cities were unduly disturbed by the required increase in local financial commitment. However, the extent of federal funds availability for the current size of the project and its projected cost is not yet known. The potential exists for the need of a much greater local funding commitment than currently anticipated.

3. Applicability

This Lesson could apply to all major capital projects that require capital cost estimates to accompany preliminary planning studies. Agencies that are extending or augmenting an existing transit mode should be capable of developing a more reliable initial cost estimate as a result of previous planning, engineering, construction and operation experience. However, where no such experience exists, the cost estimates that are developed for the MIS effort may require greater diligence to support financial resource planning.

4. References

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