Cost Control cp

LCCA would increase transparency, cost efficiency, and solve the deficit

Senator David Vitter (R-LA) introduced legislation this week that would require a comprehensive life-cycle cost analysis (LCCA) to be conducted for major infrastructure projects that receive at least $5 million in federal funding. This is great news for American taxpayers because it will drive down costs, maximize efficiency, and maximize taxpayer dollars. It's also great news for supporters of smart infrastructure investment because it will help fund more projects and ensure that we're building infrastructure to last. This bill couldn't come at a better time - wasteful federal spending is out of control and much of our nation's infrastructure is crumbling. We have roads over 60 years old and a highway system that was built for a country of 150 million Americans (now trying to support 300 million). In a press release announcing the introduction of the legislation, Senator Vitter said, "the status quo of only looking at the initial cost of our nation's infrastructure projects is simply not acceptable... We need to cut government spending, but cutting programs isn't enough. We need to spend taxpayer dollars more efficiently on infrastructure projects and we need to be honest about long-term costs." (View the full press release at http://vitter.senate.gov/public/index.cfm?FuseAction=PressRoom.PressReleases&ContentRecord_id=c57e47e6-0a92-199f-8e92-63e051354d85) Here are the specifics of the Fiscal Accountability and Transparency in Infrastructure Spending Act: Requires an LCCA of at least 50 years for major infrastructure projects. Results of LCCAs must be published online within 72 hours to give taxpayers a transparent look at the real costs of projects. Roads and highways are to be built with real world conditions in mind, utilizing AASHTO's Mechanistic Empirical Pavement Design Guide (MEPDG), which allows engineers to input local conditions (like traffic and weather) into their designs. This prevents roads from being overdesigned and has already saved millions in limited use at the state DOT level. And officials are encouraged to use alternate design and bidding processes to increase competition and decrease costs. This approach has spurred innovative designs and driven down costs across several states.

LCCA partners with the Office of Management and Budget to issue a public circular—this is the actual bill text

112^th Congress, Legislative branch of the United states Federal Government, (Congress, S. 615, 112^th Congress: First Session, March 17, 201,http://www.gpo.gov/fdsys/pkg/BILLS-112s615is/pdf/BILLS-112s615is.pdf)//AG

SEC. 3. LIFE-CYCLE COST ANALYSIS. (a) Requirement To Obtain Life-Cycle Cost Analysis- Not later than 1 year after the date of the enactment of this Act, each agency shall obtain a life-cycle cost analysis based on the standards developed by the Office of Management and Budget pursuant to subsection (c) for each major infrastructure project prior to obligating funds. (b) Sources of Life-Cycle Cost Analysis- The life-cycle cost analysis required under subsection (a) may be obtained from State or local governments, or private sector entities. (c) Guidance(1) DEVELOPMENT- Not later than 6 months after the date of the enactment of this Act, the Director of the Office of Management and Budget, in consultation with the American Association of State Highway and Transportation Officials, shall issue a circular that provides guidance to agencies on implementing the requirements under subsection (a). (2) REQUIREMENTS- In developing the circular required under paragraph (1), the Director shall-(A) provide the public with notice and opportunity to comment before issuing the circular; (B) consider the principles contained in section 2 of Executive Order 12893, `Principles for Federal Infrastructure Investments' (January 31, 1994; 59 Fed. Reg. 4233); and (C) require that any analysis obtained pursuant to subsection (a)-(i) be conducted over at least a 50-year valuation period; and (ii) use actual material life and maintenance cost data. (d) Transparency- Any life-cycle analysis obtained by an agency pursuant to subsection (a) shall be posted on the agency's Web site not later than 72 hours after it is received.

Solvency: Block Grants

Establishing penalties for cost-overruns is CRITICAL – the possibility of eliminating the plan is necessary to establish accountability – REGARDLESS of who implements the plan

Flyvbjerg 2k9

(Bent, professor of planning at Aalborg University, Denmark. He is founder and director of the university’s research program on large-scale infrastructure planning, “Survival of the unfittest: why the worst infrastructure gets built—and what we can do about it,” Oxford Review of Economic Policy, Volume 25, Number 3, 2009, pp.344–367, pg online @ http://www.sbs.ox.ac.uk/centres/bt/Documents/UnfittestOXREPHelm3.4PRINT.pdf //um-ef)

(i) Transparency and public control In order to achieve accountability through transparency and public control, the following would be required as practices embedded in the relevant institutions (the full argument for the measures may be found in Flyvbjerg et al. (2003, chs 9–11)). National-level government should not offer discretionary grants to local agencies for the sole purpose of building a specific type of project (a.k.a. ‘categorical grants’). Such grants create perverse incentives. Instead, national government should simply offer ‘block grants’ to local governments, and let local political officials spend the funds however they choose to, but make sure that every dollar they spend on one type of project reduces their ability to fund another. Cost–benefit analysis and other types of ex ante appraisal should be shifted from promoters to more neutral ground, for instance with the Treasury, in order to reduce risks of agency problems. Forecasts and business cases should bemade subject to independent peer review.Where projects involve large amounts of government funds, such review may be carried out by national or state auditing offices, such as the General Accounting Office in the USA or the National Audit Office in the UK, who have the independence and expertise to produce such reviews. Forecasts should be benchmarked against comparable forecasts, for instance using reference class forecasting as described in the previous section. For publicly funded projects, forecasts, peer reviews, and benchmarkings should be made available for public scrutiny, including by the media, as they are produced, including all relevant documentation. Public hearings, citizen juries, and the like should be organized to allow stakeholders and civil society to voice criticism and support of forecasts. Knowledge generated in this way should be integrated in project management and decision-making. Scientific and professional conferences should be organized where forecasters would present and defend their forecasts in the face of colleagues’ scrutiny and criticism. Projects with inflated benefit–cost ratios should be reconsidered and stopped if recalculated costs and benefits do not warrant implementation. Projects with realistic estimates of benefits and costs should be rewarded. Professional and occasionally even criminal penalties should be enforced for managers and forecasters who consistently and foreseeably produce deceptive forecasts (Garett and Wachs, 1996). When I first began suggesting, in lectures for project managers, promoters, and forecasters, that deception and criminal penalties may be concepts relevant to our professions, I would get headshakes, sighs, and the occasional boo. Enron and Iraq changed that, almost overnight. Today people listen and the literature has become replete with books and articles that hammer out the links between lying, forecasting, and management. For instance, a recent book about risk, the planning fallacy, and strategic misrepresentation bluntly states: ‘Anyone who causes harm by forecasting should be treated as either a fool or a liar. Some forecasters cause more damage to society than criminals’ (Taleb, 2007, p. 163). Law-making has followed suit, most prominently with the 2002 Sarbanes–Oxley Act, which stipulates up to 20 years in prison for a knowingly false forecast intended to impede, obstruct, or influence the proper administration of affairs. There is little doubt that penalties like this influence behaviour. The point is that malpractice in project management should be taken as seriously as it is in other professions, e.g. medicine and law. Failing to do this amounts to not taking the profession of project management seriously. (ii) Competition and market control In order to achieve accountability via competition and market control, the following would be required, again as practices that are both embedded in and enforced by the relevant institutions. The decision to go ahead with a major infrastructure project should, where at all possible, be made contingent on the willingness of private financiers to participate without a sovereign guarantee for at least one-third of the total capital needs.7 This should be required whether projects pass the market test or not—that is, whether projects are subsidized or not or provided for social justice reasons or not. Private lenders, shareholders, and stock-market analysts would produce their own forecasts or conduct due diligence for existing ones. If they were wrong about the forecasts, they and their organizations would be hurt. The result would be added pressure to produce realistic forecasts and reduced risk to the taxpayer. Forecasters and their organizations must share financial responsibility for covering cost overruns and benefit shortfalls resulting from misrepresentation and bias in forecasting. The participation of risk capital would not mean that government reduces control of major infrastructure projects. On the contrary, it means that government can more effectively play the role it should be playing, namely as the ordinary citizen’s guarantor for ensuring concerns about safety, environment, risk, and a proper use of public funds. Whether infrastructure projects are public, private, or public–private, they should be vested in one and only one project organization with a strong governance framework and strong contract-writing skills. The project organization may be a company or not, public or private, or a mixture. What is important is that this organization has the capacity to (i) set up and negotiate contracts that will effectively safeguard its interests, including in equity risk allocation, and (ii) enforce accountability vis-`a-vis contractors, operators, etc. In turn, the directors of the organizationmust be held accountable for any cost overruns, benefit shortfalls, faulty designs, unmitigated risks, etc. that may occur during project planning, implementation, and operations.

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