- Big Dig Officials Gave FHWA Full Disclosure
B/PB managers insisted that local FHWA officials be told about all deductions, assumptions and exclusions that had been used to reduce B/PB's cost projection. Records show that B/PB and Big Dig officials did so. A key local FHWA official recently confirmed in an interview with this Office that B/PB and Big Dig officials made local FHWA officials aware of such assumptions and exclusions in detail. Records confirm that in 1995, local FHWA officials knew about all the assumptions that had been used to reduce the total cost estimate. When asked if he felt deceived by the announcement of the overrun in February 2000, the local FHWA official told this Office that "through regular Project reporting we were shown the assumptions" and that he did not feel deceived.
- What FHWA Knew
To review the state's Cost and Schedule Update - Revision 6 (CSU-Rev.6) budget of $8 billion in 1995, FHWA assembled an eight-member team of agency specialists. This team published a report that concluded that the Big Dig had prepared a well-documented and reasonable CSU-Rev.6 budget.6 This Office's review of the report and FHWA back-up material shows that local FHWA officials knew about the "assumptions" cited previously. FHWA records did not include B/PB's original $14 billion estimate but they did identify all exclusions, deductions and other accounting assumptions.
As a result of their 1995 review, local FHWA officials directed Big Dig officials to add back: approximately $1 billion in exclusions to the CSU-Rev.6 estimate; $315 million in future escalation; $255 million for an air rights credit;7 $90 million as a 10 percent design contingency; and to raise the change order estimate from seven percent to 10 percent. These add-backs raised the estimate from $8 billion to $10.4 billion. Aside from these changes, however, local FHWA officials allowed the other exclusions, deductions, and accounting assumptions to remain.
- FHWA Responsibility for the Overrun
Once local FHWA officials learned of, modified, and sanctioned the use of these multi-billion dollar accounting assumptions during the 1994-1995 CSU-Rev.6 budget review process, the accounting assumptions became a permanent, tacit feature of the budget. In February 1995, the Project Director stated: "There is not one action taken by Massachusetts and identified [by the General Accounting Office (GAO)] that was not taken without the review and approval of the FHWA." Big Dig officials never again expressly spelled out these accounting assumptions in subsequent Finance Plans because, according to Big Dig officials, all cognizant federal agencies had already acknowledged the use of these assumptions. The record bears out this conclusion. According to records and statements, local FHWA officials knew that the assumptions continued to underlay the definition of total costs for to-go contracts. Local FHWA officials did not question these assumptions despite the historical results of post-1994 contract awards disproving the validity of these assumptions. FHWA officials here and in Washington, D.C. reviewed all Finance Plans issued after December 1994 and had 15 local staff assigned to the Big Dig.
Local FHWA officials knew that the to-go assumptions had failed to live up to expectations because FHWA officials literally signed off on all contract awards and post-award contract change orders as part of its oversight responsibility. For example, although B/PB's estimate had been fully documented by hundreds of pages of detailed back-up cost data during the CSU-Rev.6 review, local FHWA officials knowingly agreed to downsize B/PB's cost estimates on four future construction contracts by $553 million. When the Big Dig awarded the four contracts shortly thereafter - for almost exactly the cost estimated by B/PB - the results should have demonstrated to local FHWA officials the fallacy of the CSU-Rev.6 assumptions. But instead of requiring Big Dig officials to stop using the assumptions altogether, local FHWA officials allowed Big Dig officials to continue using the to-go assumptions for remaining contracts. Local FHWA officials informed this Office that they knew the assumptions continued to be used for to-go contracts.
While FHWA required Big Dig officials to include actual bid results for awarded contracts in the total cost figure, it never stopped Big Dig officials from continuing to use the minimizing accounting assumptions on to-go contracts. The record also shows that FHWA knew that the total cost figure did not include exclusions such as management costs after 2002. In fact, in January 1996, the FHWA Administrator (and future U.S. Secretary of Transportation) told Big Dig officials to add these management costs back into the total cost figure. The remaining assumptions shrunk the CSU-Rev.6 budget by $3 billion dollars from B/PB's 1995 official estimate. By 1999, following the award of billions of dollars in contracts, the assumptions still affected remaining contracts by $2 billion.
Put another way, once local FHWA officials gave their approval to the use of these accounting assumptions in 1995, they became part of the "semantic" definition of the Big Dig's total cost. The accounting assumptions became a multi-billion dollar minimizing factor for every cost estimate that followed.
- The Federal Position
This Office reviewed the March 2000 FHWA Task Force Report concerning the causes of the overrun; the report ultimately led to the FHWA imposing a $8.55 billion administrative funding cap on the Big Dig. FHWA took this action with the acquiescence of the State's elected officials and the Turnpike Chairman.
One of the conclusions of the Task Force report is that local FHWA officials failed to adequately perform their duties because they acted more as partners with Big Dig officials than overseers. This Office concurs with this conclusion, but disagrees strongly with the other opinions of the Task Force and FHWA officials that Big Dig officials committed a "breach of faith," "tarnished" the federal-state partnership, and demonstrated disrespect for the federal oversight process by failing to make full disclosure to FHWA officials about the overrun. The U.S. Secretary of Transportation stated in March 2000: "This stands as one of the most flagrant breaches of the integrity of the Federal/State partnership in the history of the Federal-aid highway program."
This Office concludes that this finding is inaccurate. This Office concludes that local FHWA officials performed an extensive review of Big Dig costs in early 1995. As stated earlier, according to FHWA documents, a FHWA team with substantial engineering, finance, and administrative experience in FHWA contract administration issued a report in May 1995 accepting the CSU-Rev.6 budget. The team's report stated: "Emphasis was directed to the engineering aspects of the estimate development. But attention was necessarily focused on the basis, assumptions and exclusions that are relevant." This report, and its back-up material, shows that FHWA officials knew in 1995 that the cost estimate included more than two hundred minimizing assumptions. As partners in the process, local FHWA officials had little incentive to question the assumptions.
When asked by this Office, a senior FHWA staff person who participated in the 1995 review of CSU-Rev.6 stated that he had informed members of the March 2000 FHWA Task Force about the 1995 review. He further stated that he did not feel deceived when Big Dig officials announced the budget shortfall. Moreover, the FHWA Division Administrator for Massachusetts stated in February 2000 press reports that FHWA had not been "kept in the dark" and always had access to data and Big Dig officials.
This Office concludes that the FHWA Task Force omitted a significant aspect of the story when it conducted its investigation. Specifically, it failed to investigate, or chose to gloss over, the role of FHWA officials themselves in the overrun scandal. Records clearly show that Big Dig officials did not keep FHWA officials in the dark before 1998, as the Task Force concluded. Local FHWA officials remained aware of and condoned the low cost estimates beginning in 1995 thereby assisting Big Dig officials soften the sticker shock effect of the budget for public relations purposes. This Office concludes that the FHWA Task Force should have disclosed to Congress what it knew about FHWA's 1995 review of CSU-Rev.6. Instead, the Task Force stated that: "Prior to the enactment of TEA-21 [Transportation Equity Act for the 21st Century] in 1998, the role of the FHWA did not include a review of the aggregate construction cost of projects." Most significantly, this Office concludes that the Task Force failed to tell Congress and the public about the set of disclosures made by Big Dig officials to local FHWA officials in 1994-1995.
This Office calls for a re-examination of the funding cap that has harmed the citizens of Massachusetts by saddling them with billions of dollars in additional debt. According to a recent assessment by Moody's Investor Services: "The Commonwealth's credit strengths are tempered somewhat by a heavy debt load. Debt levels rank third highest among the 50 states . . . Debt burden will remain high, given continued large capital commitments and construction risks associated with the Central Artery Project."
In November 1999, the U.S. Department of Transportation's Inspector General (DOTIG) issued a draft report estimating that the cost of the Big Dig could be as high as $12.7 billion - a figure approximately $1.4 billion less than the currently-announced $14.1 billion figure. In 1999, the Project Director wrote a now-infamous letter responding to the DOTIG. The letter stated that the DOTIG's report contained "factual errors, misstatements and misleading calculations." The letter also stated that the report espoused "a backward looking management technique that is unworkable and shows a fundamental lack of understanding of how a multi-billion megaproject needs to be managed." But the most telling line of his letter states:
Needless to say, it is surprising that you now choose to critique the Project's finance plan methodology and the cost/funding assumptions after all other cognizant federal agencies have acknowledged and relied on them for several years. [Emphasis added in bold].
In an April 2000 press release, Big Dig officials also stated that the "budget has consistently followed accounting practices accepted by FHWA" and that all costs had been clearly shown in the Finance Plans and in the Project Management Monthly Reports. In light of the overwhelming documentary evidence, this Office concludes that the Director's rebuttal - while universally derided at the time by federal investigative agencies - remained well-founded to the extent that the record clearly shows that FHWA officials and the GAO did in fact know of and authorized use of the Project's finance plan methodology and the cost/funding assumptions - that is, the accounting assumptions - beginning in 1995. For example, GAO reported as early as June 1995 that actual budget growth remained higher than planned and that zero cost growth for design had been assumed for construction contracts.8 In 1996, GAO began reporting that costs could increase significantly if the accounting assumptions in CSU-Rev.6 failed to meet expectations. In 1996 and 1997, GAO reported that some of the failed assumptions could increase costs as high as $12.8 billion. This is nearly the figure offered by the DOTIG in its November 1999 report. GAO also reported that cost growth continued to far exceed CSU-Rev.6 growth estimates. Clearly, GAO and FHWA remained aware of a looming budget crisis.9