Report 2018-108 Recommendation 4 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 #4 To: High-Speed Rail Authority, California

To enable policymakers and the public to track the Authority's progress toward meeting the federal grant deadline of December 2022, the Authority should, by January 2019, begin providing quarterly updates to the Legislature detailing the progress of the three Central Valley construction projects using an earned value model that compares construction progress to the projected total completion cost and date. The Authority should base these updates on the most current estimates available.

Annual Follow-Up Agency Response From October 2023

Working with our federal partners, we completed a thorough and lengthy negotiation of our grant agreement scope and schedule resulting in an amendment to our federal grant, which preserves the federal funding and extends the period of performance from December 2022 to December 2028. Amendment 7 to Agreement Number FR-HSR-0009-10-01-06 is included with our status submission. The updated schedule and budget was highlighted in the 2023 Project Update Report submitted to the Legislature in March 2023. Quarterly reporting to the Legislature on the Authority's progress toward meeting the December 2028 completion date will commence for the reporting of Quarter 4 of 2023 and be submitted in January 2024.

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

At the time the Authority ceased its quarterly reporting, we were still working with Authority staff to ensure that its reporting sufficiently enabled policymakers and the public to track the Authority's progress. In implementing Recommendation #5, the Authority has secured later deadlines for the completion of the project, but our recommendation remains relevant. The Authority indicates that it will restart its reporting in January 2024.

Annual Follow-Up Agency Response From November 2022

Working with our federal partners, we completed a thorough and lengthy negotiation of our grant agreement scope and schedule resulting in an amendment to our federal grant, which preserves the federal funding. Amendment 7 to Agreement Number FR-HSR-0009-10-01-06 will be provided upon finalization. One of the key areas of agreement was to generally conform the ARRA Amendment 7 to Amendment 4 to Agreement Number FR-HSR-0118-12.

As reported to the Board in the October 2022 meeting, our construction schedules are being finalized and construction is anticipated to be completed for Construction Package 4 in spring of 2023, and in mid-2026 for Construction Packages 1 and 2-3.

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

This recommendation remains partially implemented. Although the amendment the authority references in its response, once finalized, may change the current deadline for completing construction on the system's initial segments, it does not in and of itself remove the need for regular, quality reporting to the Legislature. This is consistent with our previous assessment of the authority's progress. Once the amendment is in place, we will reassess the authority's plans for its reporting.

Annual Follow-Up Agency Response From October 2021

Working with our federal partners, we completed a thorough and lengthy negotiation of our grant agreement resulting in an amendment to our federal grant. Amendment 4 to Agreement Number FR-HSR-0118-12 dated June 15, 2021, has been submitted separately. One of the key areas of agreement was an updated deadline of December 2026.

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

After submitting its response, the Authority clarified that it has amended one of its two relevant federal grant agreements and is working with the federal government to amend the other. Therefore, it still must amend the other grant before the relevant 2022 deadline will be affected.

If and when that happens, there will continue to be value in the Legislature and other stakeholders being able to monitor the Authority's progress toward completion of the Central Valley projects, including its progress toward meeting its new deadline. As we explain in our previous assessments of this recommendation, the public reporting the Authority has performed to date does not allow policymakers or the public to easily determine whether progress is accelerating or decelerating. Therefore, we continue to assess this recommendation as partially implemented.

Annual Follow-Up Agency Response From November 2020

The Authority provides quarterly updates to the Legislature detailing the progress of the three Central Valley construction projects using an earned value model that compares construction progress to the projected total completion cost and date. The Authority bases these updates on the most current cost estimates available.

The Authority's presentation of data within its status reports shows the trends of construction progress (whether accelerating or decelerating) by using historical information. The ARRA Status Report provided includes a spending rate chart comparing the previous 12 months of spending to the previous 3 months of spending, as well as the required spending to meet the ARRA requirements. Moreover, the monthly Central Valley Status Report provided includes fully detailed graphs that include historical data and forecasts of project cost and progress. These graphs include earned value charts for overall program and ARRA scope of work, historical labor utilization, historical and planned expenditures, right of way parcels delivery status (planned and actual), and planned and actual structures and guideway construction status. This detailed data allows policymakers and the public to easily determine the status and progress of the projects as the ARRA deadline approaches.

Specifically, regarding tracking progress towards meeting the ARRA deadline within the reports, please see "Spending Rate to Date versus Spending Rate Required to Meet Baseline Completion Dates ($M/month)" on page 5 of the ARRA Status Report and "Remaining Expenditures to Achieve ARRA (DB + CP 5) - $ Millions" on page 11 of the Central Valley Status Report.

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

The Authority continues to use the same reporting format that we evaluated during the six-month and one-year reporting cycles. As we concluded then, the Authority's current presentation of the data does not allow policymakers or the public to easily determine whether progress is accelerating or decelerating as the Authority approaches the federal grant deadline of December 2022.

In its one-year response, the Authority stated that it would "work with the Chair of the Peer Review Group and key Legislative staff to develop a clear and concise presentation of the historical information". However, no changes have been made. The Authority's reference instead to separate and distinct projections contained in other reports is not a replacement for providing needed clear and unambiguous information to policy makers.

1-Year Agency Response

The Authority provided the third quarterly report to key legislative staff on October 1, 2019. The report uses the same template as the prior quarter, developed in consultation with the Peer Review Group and other key stakeholders, for comparability.

The Authority has continued to collaborate with the Chair of the Peer Review Group on any refinements to the Quarterly ARRA Report that may be implemented. Moving forward, as a sufficient history of costs and performance is established through the report, the Authority will work with the Chair of the Peer Review Group and key Legislative staff to develop a clear and concise presentation of the historical information.

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

The Authority notes in its response that its quarterly report from October 2019 uses the same template as the previous report, which we evaluated as part of the six-month status of this recommendations. As we concluded then, the Authority's current presentation of the data does not allow policymakers or the public to easily determine whether progress is accelerating or decelerating as the Authority approaches the federal grant deadline of December 2022. The Authority notes it is still working on including historical information.

6-Month Agency Response

The Authority is committed to producing a quarterly report that achieves the recommended purpose - to enable policymakers and the public to track the Authority's progress in meeting the federal grant deadline. To that end, following the release of the first Quarterly ARRA Report in January 2019, and with the valuable feedback received from key legislative staff and the State Auditor, the Authority has worked collaboratively with the Chairman of the Peer Review Group to develop a draft report template to be used moving forward. The draft report template contains clear and digestible dashboards illustrating, for each of the Construction Packages, the original and current budget (including cost risks), original and current schedule, and spending rate averages achieved in the previous three and twelve months compared to the spending rate required to meet established completion dates. The draft report template also includes a schedule status on all Phase I environmental documents.

On April 3, 2019, the draft report template was provided to key legislative staff and the State Auditor for review and consideration. The Authority and Chair of the Peer Review Group met with key legislative staff and the State Auditor on May 16, 2019 to review the report template and gain consensus on form and frequency, with the next Quarterly ARRA Report to be released on July 1, 2019 and every quarter thereafter. Minor technical revisions were made to the draft report template based on the feedback received during the May 16, 2019 meeting. While the draft report template largely addressed the elements requested, it was agreed amongst the meeting participants that additional collaboration would occur over the next quarter to further augment the report template for historical costs and performance.

Given the additional elements being developed over the next quarter, this recommendation is partially implemented with anticipated full implementation on October 1, 2019.

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

The Authority's July 2019 quarterly report improved upon the version we reviewed in January by including more up-to-date cost and progress data for the Central Valley construction projects. However, the Authority's current presentation of the data does not allow policymakers or the public to easily determine whether progress is accelerating or decelerating as the Authority approaches the federal grant deadline of December 2022. This is a core purpose of the recommendation we made to the Authority. In its response, the Authority indicates it will be working to include additional historical cost and performance information.

60-Day Agency Response

Using information from the monthly PDSR, and in consultation with the Peer Review Group, the Authority developed a Quarterly ARRA Status Report - including earned value, cost variance and schedule performance index. Additionally, to avoid confusion and redundancy, this new Quarterly Program Status Report incorporates elements of the biannual Peer Review Group report which will therefore be superseded by this new quarterly status report. The Quarterly ARRA Status Report includes detailed information on the progress of the three Central Valley construction projects. The Authority will post the new Quarterly ARRA Status Report to its website making it available to the public and the Legislature by the end of January 2019.

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

A report provided by the Authority on January 31, 2019 includes point-in-time information about the progress of the construction projects in the Central Valley, using components of an earned value model. However, the model on page 16 of the report, which is intended to demonstrate the Authority's progress toward meeting the federal grant deadline, is based on data from June 2018, and therefore does not represent an update to the analysis we provided in our audit report. Similarly, the report uses the Authority's June 2018 baseline budget as the measure of total expected costs for the projects, even though the report also lists "risks that may affect schedule and cost." Our recommendation is that the Authority should base its update reports on the most current estimates available. Therefore, going forward, we expect the Authority to base its model on more up-to-date information about actual progress, as well as its best, most recent estimate of project costs to the extent that those estimates diverge from the current baseline. Additionally, to allow policymakers to track progress over time, the Authority's future reporting should also depict historical costs and performance in order to demonstrate whether progress is accelerating or decelerating as the Authority approaches the federal grant deadline of December 2022.

All Recommendations in 2018-108

Agency responses received are posted verbatim.