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NATIONAL NCHRP REPORT 625 COOPERATIVE HIGHWAY RESEARCH PROGRAM Procedures Guide for Right-of-Way Cost Estimation and Cost Management

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TRANSPORTATION RESEARCH BOARD 2009 EXECUTIVE COMMITTEE* OFFICERS CHAIR: Adib K. Kanafani, Cahill Professor of Civil Engineering, University of California, Berkeley VICE CHAIR: Michael R. Morris, Director of Transportation, North Central Texas Council of Governments, Arlington EXECUTIVE DIRECTOR: Robert E. Skinner, Jr., Transportation Research Board MEMBERS J. Barry Barker, Executive Director, Transit Authority of River City, Louisville, KY Allen D. Biehler, Secretary, Pennsylvania DOT, Harrisburg Larry L. Brown, Sr., Executive Director, Mississippi DOT, Jackson Deborah H. Butler, Executive Vice President, Planning, and CIO, Norfolk Southern Corporation, Norfolk, VA William A.V. Clark, Professor, Department of Geography, University of California, Los Angeles David S. Ekern, Commissioner, Virginia DOT, Richmond Nicholas J. Garber, Henry L. Kinnier Professor, Department of Civil Engineering, University of Virginia, Charlottesville Jeffrey W. Hamiel, Executive Director, Metropolitan Airports Commission, Minneapolis, MN Edward A. (Ned) Helme, President, Center for Clean Air Policy, Washington, DC Will Kempton, Director, California DOT, Sacramento Susan Martinovich, Director, Nevada DOT, Carson City Debra L. Miller, Secretary, Kansas DOT, Topeka Neil J. Pedersen, Administrator, Maryland State Highway Administration, Baltimore Pete K. Rahn, Director, Missouri DOT, Jefferson City Sandra Rosenbloom, Professor of Planning, University of Arizona, Tucson Tracy L. Rosser, Vice President, Corporate Traffic, Wal-Mart Stores, Inc., Bentonville, AR Rosa Clausell Rountree, Consultant, Tyrone, GA Steve T. Scalzo, Chief Operating Officer, Marine Resources Group, Seattle, WA Henry G. (Gerry) Schwartz, Jr., Chairman (retired), Jacobs/Sverdrup Civil, Inc., St. Louis, MO C. Michael Walton, Ernest H. Cockrell Centennial Chair in Engineering, University of Texas, Austin Linda S. Watson, CEO, LYNX­Central Florida Regional Transportation Authority, Orlando Steve Williams, Chairman and CEO, Maverick Transportation, Inc., Little Rock, AR EX OFFICIO MEMBERS Thad Allen (Adm., U.S. Coast Guard), Commandant, U.S. Coast Guard, Washington, DC Rebecca M. Brewster, President and COO, American Transportation Research Institute, Smyrna, GA George Bugliarello, President Emeritus and University Professor, Polytechnic Institute of New York University, Brooklyn; Foreign Secretary, National Academy of Engineering, Washington, DC James E. Caponiti, Acting Deputy Administrator, Maritime Administration, U.S.DOT Cynthia Douglass, Acting Deputy Administrator, Pipeline and Hazardous Materials Safety Administration, U.S.DOT LeRoy Gishi, Chief, Division of Transportation, Bureau of Indian Affairs, U.S. Department of the Interior, Washington, DC Edward R. Hamberger, President and CEO, Association of American Railroads, Washington, DC John C. Horsley, Executive Director, American Association of State Highway and Transportation Officials, Washington, DC Rose A. McMurry, Acting Deputy Administrator, Federal Motor Carrier Safety Administration, U.S.DOT Ronald Medford, Acting Deputy Administrator, National Highway Traffic Safety Administration, U.S.DOT William W. Millar, President, American Public Transportation Association, Washington, DC Lynne A. Osmus, Acting Administrator, Federal Aviation Administration, U.S.DOT Jeffrey F. Paniati, Acting Deputy Administrator and Executive Director, Federal Highway Administration, U.S.DOT Steven K. Smith, Acting Deputy Administrator, Research and Innovative Technology Administration, U.S.DOT Jo Strang, Acting Deputy Administrator, Federal Railroad Administration, U.S.DOT Robert L. Van Antwerp (Lt. Gen., U.S. Army), Chief of Engineers and Commanding General, U.S. Army Corps of Engineers, Washington, DC Matthew Welbes, Executive Director and Acting Deputy Administrator, Federal Transit Administration, U.S.DOT *Membership as of February 2009.

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NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM NCHRP REPORT 625 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Stuart Anderson TEXAS TRANSPORTATION INSTITUTE College Station, TX Keith Molenaar UNIVERSITY OF COLORADO Boulder, CO AND Cliff Schexnayder DEL E. WEB SCHOOL OF CONSTRUCTION ARIZONA STATE UNIVERSITY Tempe, AZ Subject Areas Planning and Administration · Highway and Facility Design Research sponsored by the American Association of State Highway and Transportation Officials in cooperation with the Federal Highway Administration TRANSPORTATION RESEARCH BOARD WASHINGTON, D.C. 2009 www.TRB.org

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NATIONAL COOPERATIVE HIGHWAY NCHRP REPORT 625 RESEARCH PROGRAM Systematic, well-designed research provides the most effective Project 8-49(2) approach to the solution of many problems facing highway ISSN 0077-5614 administrators and engineers. Often, highway problems are of local ISBN: 978-0-309-11780-7 interest and can best be studied by highway departments individually Library of Congress Control Number 2009903134 or in cooperation with their state universities and others. However, the © 2009 Transportation Research Board accelerating growth of highway transportation develops increasingly complex problems of wide interest to highway authorities. These problems are best studied through a coordinated program of COPYRIGHT PERMISSION cooperative research. Authors herein are responsible for the authenticity of their materials and for obtaining In recognition of these needs, the highway administrators of the written permissions from publishers or persons who own the copyright to any previously American Association of State Highway and Transportation Officials published or copyrighted material used herein. initiated in 1962 an objective national highway research program Cooperative Research Programs (CRP) grants permission to reproduce material in this employing modern scientific techniques. This program is supported on publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, a continuing basis by funds from participating member states of the FMCSA, FTA, or Transit Development Corporation endorsement of a particular product, Association and it receives the full cooperation and support of the method, or practice. It is expected that those reproducing the material in this document for Federal Highway Administration, United States Department of educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission Transportation. from CRP. The Transportation Research Board of the National Academies was requested by the Association to administer the research program because of the Board's recognized objectivity and understanding of NOTICE modern research practices. The Board is uniquely suited for this purpose as it maintains an extensive committee structure from which The project that is the subject of this report was a part of the National Cooperative Highway Research Program conducted by the Transportation Research Board with the approval of authorities on any highway transportation subject may be drawn; it the Governing Board of the National Research Council. Such approval reflects the possesses avenues of communications and cooperation with federal, Governing Board's judgment that the program concerned is of national importance and state and local governmental agencies, universities, and industry; its appropriate with respect to both the purposes and resources of the National Research Council. relationship to the National Research Council is an insurance of The members of the technical committee selected to monitor this project and to review this objectivity; it maintains a full-time research correlation staff of report were chosen for recognized scholarly competence and with due consideration for the specialists in highway transportation matters to bring the findings of balance of disciplines appropriate to the project. The opinions and conclusions expressed research directly to those who are in a position to use them. or implied are those of the research agency that performed the research, and, while they have been accepted as appropriate by the technical committee, they are not necessarily those of The program is developed on the basis of research needs identified the Transportation Research Board, the National Research Council, the American by chief administrators of the highway and transportation departments Association of State Highway and Transportation Officials, or the Federal Highway and by committees of AASHTO. Each year, specific areas of research Administration, U.S. Department of Transportation. needs to be included in the program are proposed to the National Each report is reviewed and accepted for publication by the technical committee according Research Council and the Board by the American Association of State to procedures established and monitored by the Transportation Research Board Executive Committee and the Governing Board of the National Research Council. Highway and Transportation Officials. Research projects to fulfill these needs are defined by the Board, and qualified research agencies are The Transportation Research Board of the National Academies, the National Research Council, the Federal Highway Administration, the American Association of State Highway selected from those that have submitted proposals. Administration and and Transportation Officials, and the individual states participating in the National surveillance of research contracts are the responsibilities of the National Cooperative Highway Research Program do not endorse products or manufacturers. Trade Research Council and the Transportation Research Board. or manufacturers' names appear herein solely because they are considered essential to the object of this report. The needs for highway research are many, and the National Cooperative Highway Research Program can make significant contributions to the solution of highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement rather than to substitute for or duplicate other highway research programs. Published reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from: Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet at: http://www.national-academies.org/trb/bookstore Printed in the United States of America

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COOPERATIVE RESEARCH PROGRAMS CRP STAFF FOR NCHRP REPORT 625 Christopher W. Jenks, Director, Cooperative Research Programs Crawford F. Jencks, Deputy Director, Cooperative Research Programs Lori L. Sundstrom, Senior Program Officer Eileen P. Delaney, Director of Publications Hilary Freer, Senior Editor Andrea Briére, Editor NCHRP PROJECT 8-49(2) PANEL Field of Transportation Planning--Area of Forecasting G. Scott Rutherford, University of Washington, Seattle, WA (Chair) Nigel Blampied, California DOT, Sacramento, CA Christopher D. Crachi, New York State DOT, Latham, NY Greg Davis, Florida DOT, Tallahassee, FL Daryl James Greer, Kentucky Transportation Cabinet (Retired), Versailles, KY Timothy A. Henkel, Minnesota DOT, St. Paul, MN Cheryl A. "Cherie" Kyte, Glendale, CA Robert J. Munchinski, H.W. Lochner, Inc., Bellevue, WA Jeffrey M. South, Illinois DOT, Springfield, IL Gerald Solomon, FHWA Liaison Kimberly Fisher, TRB Liaison

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FOREWORD By Lori L. Sundstrom Staff Officer Transportation Research Board This procedures guide presents practical and effective approaches for developing right- of-way (ROW) cost estimates and for then tracking and managing ROW cost during all phases of project development, including planning, programming, and preliminary and final design. It is a resource for managers, practitioners, and decisionmakers interested in developing and managing realistic and accurate estimates of ROW cost from the earliest ROW cost estimate made during planning through to the management of ROW acquisition cost during final design. Construction project cost escalation, from planning through construction, is a funda- mental problem facing state highway agencies (SHAs). As projects progress through the planning, programming, and design stages of development, the accuracy and precision of project cost estimates vary widely, for various reasons. NCHRP Report 574: Guidance for Cost Estimation and Management for Highway Projects During Planning, Programming, and Preconstruction presents multiple strategies for controlling cost escalation across the spec- trum of planning, programming, and design activities. Building on NCHRP Report 574, this project provides an in-depth analysis and a guidebook designed to give SHAs specific guid- ance on how they can improve the consistency and accuracy of ROW estimates. External factors that influence ROW include real estate market conditions and the effect of inflation. Rapid increases in the value of properties in areas where commercial and resi- dential growth is occurring has sparked large increases in the cost of acquiring property for highway expansion. Growth areas in smaller communities also experience similar increases in the cost of acquiring property. Court settlements can influence the value of subsequent property acquisitions. Internal factors, such as poor estimating, inconsistent application of contingencies, and the lack of risk assessment procedures related to error and omissions in cost estimates, have all played a role in project cost increases related to ROW, especially in the case of early estimates developed during planning and programming. The objectives of this research were to (1) further refine ROW-specific cost estimation techniques, management methods, and tools and (2) provide specific guidance to SHAs on how to implement such techniques, methods, and tools. The research team led by the Texas Transportation Institute explored (1) the challenges faced by SHAs, transit agencies, and other transportation organizations in developing realistic cost estimates for ROW and (2) the difficulty of tracking and managing those estimates to produce accurate and reliable information at all stages of project development. This procedures guide is designed to provide users with processes and practical tools to help manage the cost of ROW and reduce unintended or unanticipated project cost escalation.

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CONTENTS 1 Summary 7 Chapter 1 Introduction 7 Background 8 Industry Problem 11 Procedures Guide Development 11 Use of the Guidebook 12 Chapter Summary 14 Chapter 2 Integrated Estimating Process 14 Transportation Project Development Phases 14 Timeline of Cost Estimating and Cost Management 16 Cost Estimating Process 16 Cost Management Process 17 A Strategic Approach 20 Inflation Adjustments 21 ROW Cost Management 21 Supportive Institutional Environment 21 Management Support for ROW Estimating 22 Chapter Summary 23 Chapter 3 Agency-Level Process Overview 23 Introduction 23 Agency-Level Process Flowchart 26 ROW Cost Estimating and Cost Estimation Management 30 ROW Cost Management 34 Chapter Summary 35 Chapter 4 Conceptual ROW Cost Estimation 35 Introduction 36 Conceptual ROW Cost Estimation Flowchart 36 Determine Conceptual ROW Estimate Basis Step 39 Prepare Conceptual ROW Base Estimate 42 Determine Conceptual ROW Risk and Set Contingency 45 Review Conceptual ROW Cost Estimate 47 Approve and Communicate Conceptual ROW Cost Estimate 48 Chapter Summary 49 Chapter 5 Baseline ROW Cost Estimate 49 Introduction 49 Baseline ROW Cost Estimation Flowchart 51 Determine Baseline ROW Estimate Basis 53 Prepare Baseline ROW Base Estimate 57 Determine Baseline ROW Risk and Contingency

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62 Review Baseline ROW Cost Estimate 65 Approve and Communicate Baseline ROW Cost Estimate 66 Chapter Summary 67 Chapter 6 Update ROW Cost Estimate 67 Introduction 68 Update ROW Cost Estimation Flowchart 68 Update ROW Estimate Basis Step 71 Update ROW Base Estimate 73 Update ROW Risks and Contingency 75 Review Updated ROW Cost Estimate 77 Approve and Communicate Updated ROW Cost Estimate 79 Chapter Summary 80 Chapter 7 ROW Cost Management 80 Introduction 81 ROW Cost Management Flowchart 83 Assess ROW Scope, Conditions, and Costs 84 Evaluate Potential Cost Impact 86 Adjust ROW Budget 87 Chapter Summary 88 Chapter 8 Conclusions 88 A Structured Approach 89 Collaborative Atmosphere 90 Challenges 91 References and Bibliography A-i Appendix A Tools B-1 Appendix B Definitions C-1 Appendix C Project Development Phases D-1 Appendix D Critical Review of the State of Practice E-1 Appendix E State of Practice

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SUMMARY Procedures Guide for Right-of-Way Cost Estimation and Cost Management Background Historically, many transportation projects have been underestimated (U.S. General Account- ing Office, 1997; Flyvbjerg et al., 2002). Approximately 50 percent of the recent large transporta- tion projects in the United States have overrun their initial budgets. This cost escalation problem is complex and difficult to address because the time between the initiation of a project and the completion of construction often spans many years. State Highway Agencies (SHAs) have recog- nized that project cost escalation is a pervasive problem and have sought solutions through research efforts supported by AASHTO and NCHRP. NCHRP Project 8-49 focused on project cost escalation and produced a Guidebook that describes a strategic approach to highway cost esti- mating and cost estimate management (NCHRP Report 574--Anderson et al., 2007a). NCHRP Report 574 provides SHAs with guidance for structuring their estimating and cost management processes to achieve estimate consistency and accuracy. NCHRP Report 574 also addresses esti- mating issues during the planning, programming, preliminary design, and final design phases of project development. The report does not address estimating for change orders or cost manage- ment during construction. NCHRP Report 574 provides appropriate strategies, methods, and tools to develop, track, and document realistic cost estimates during project development. NCHRP Project 8-49 and other estimating studies identified right-of-way (ROW) cost esti- mating and management of ROW cost as critical to achieving consistency and accuracy in proj- ect cost projections. Although NCHRP Project 8-49 addressed ROW cost estimating to a limited extent, the project's scope did not allow for an in-depth treatment of this specialized area. This report provides a more in-depth analysis of the problems and practices of ROW cost estimating and cost management. Problem The NCHRP Project 8-49 findings, based on a critical review of estimating literature, recent esti- mating research, and current estimating practice, suggest that a component of project cost escala- tion is related to ROW cost. Specific findings related to ROW from the NCHRP Project 8-49 research are as follows: · Actual expenditures for project ROW are frequently greater than the cost estimate produced during the initial phase of project development due to factors such as poor estimating methods (difficulty with damages and condemnations), inconsistent application of contingency, and dif- ficulty in accounting for future appreciation and other market conditions. 1

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2 Procedures Guide for Right-of-Way Cost Estimation and Cost Management · Management of these influencing factors and the ROW estimating process can contribute significantly to cost estimate consistency and accuracy throughout project development. · There is an opportunity to develop ROW-specific cost estimating process steps based on suc- cessful SHA practices from around the country. · There is a need to provide specific guidance on how to minimize controllable influencing factors and implement strategies, methods, and tools such that ROW estimates are improved. These findings established the initial basis and need for this research project. As part of this project, some SHAs were interviewed about their ROW estimating practices. From those inter- views it was clear that 1. Cost escalation is a common occurrence related to ROW (confirming the first statement from the previous list). 2. The ROW cost estimation and cost estimate management processes generally lack structure and definition as compared with the other areas of cost estimation. 3. There is a lack of integration and communication between those responsible for ROW cost estimating and those responsible for the overall project cost estimate. These three issues are further compounded by uncertainties specific to ROW estimating, which include · Future highest and best use of the property; · Damages due to partial takings of properties; · Subsequent development of the property during the time between the cost estimate and actual acquisition; · The number of parcels that proceed to Eminent Domain and the associated costs of such takings; and · Inadequate project scope definition and information on parcels during the planning and programming phases of project development. Complicating the uncertainties listed above is the human factor related to acquiring property for highway projects. The "human factor" can be defined as the uncertainty and unpredictability related to dealing with property owners when a public agency is attempting to acquire a property. The reac- tion of individuals affected by the proposed project is difficult to predict. Moreover the effects of all these factors are intensified because of appreciating land values. Therefore, this research developed a structured process approach for ROW estimating that addresses these important issues. A critical component to achieving accurate cost projections for transportation projects is an agency's approach to ROW cost estimating and the management of ROW estimates. The ability of an SHA to develop accurate ROW cost estimates and to effectively manage ROW cost depends on integrating a structured estimating and estimate management process into the project devel- opment process from concept through construction. Following a process approach to estimating and cost management ensures that the financial effects of both design and ROW decisions are always visible to the project development team. Yet, in many agencies, "stove pipe" divisional structures lead to failures to communicate important information affecting project scope, design, and cost. Such agency structures are not specifically the cause of project cost escalation problems; however, they fail to enable staff and management to address adequately the foundational prob- lems that drive project cost escalation. A Structured Approach Successful estimating is not so much about "computers and data" per se, as it is about an orga- nizational culture and an environment that supports those charged with producing the estimate. If ROW cost escalation is an agency problem, changes in agency policy that influence how ROW

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84 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Tips Determine a standard percentage change, increase or decrease, to guide decisionmaking con- cerning the need to recommend a cost adjustment to the current budget (e.g., overall increase of 5 percent over or under the budget). Outputs If the forecasted ROW cost differs significantly from the budget, either by an increase or a decrease, a potential cost adjustment to the current baseline budget can be recommended by the ROW team. These changes should be supported by analyses using the ROW Cost Estimat- ing System and data found in the Updated ROW Cost Estimate File. Evaluate Potential Cost Impact Once the appraisal and acquisition process begins, actual acquisition and other expenditures are recorded against purchased parcels. The process objective of the Evaluate Potential Cost Impact step is to identify potential changes to the latest updated budget based on a new fore- casted cost of right-of-way derived from a projection of the actual acquisition costs. Project Complexity Similar to the first process step, project complexity influences the level of effort required to evaluate the forecasted ROW costs versus the current budget. In addition, the amount of docu- mentation for tracking actual costs will correspondingly increase in the case of projects having complicated ROW requirements--complex projects. Actual Acquisition Cost Inputs Actual parcel expenditures are recorded as acquisition proceeds. Actual expenditures would include all costs related to acquiring the real estate (i.e., all estimate elements). The latest updated budget, including changes from the Assess ROW Scope, Conditions, and Cost process, is the other input. Process Step Description The ROW estimator should 1. Compare the actual ROW cost for a parcel against the latest updated cost estimate for that parcel. First, determine if all actual costs are known for the parcel. If so, then determine the deviation between the total actual costs and the budgeted amount for the parcel. If only part of the actual costs is known for a parcel, estimate the remaining costs required to complete the parcel acquisition. The expended costs plus the estimated costs to complete the acquisi- tion is the total forecasted cost for the parcel. Compare the forecasted parcel cost with the lat- est updated parcel cost estimate (this could be a database summary that highlights differences greater than a set value). When there is a substantial deviation between the forecasted parcel cost and the updated cost estimate for the parcel, document the deviation. 2. Determine the cost impact to the total ROW budget from changes in the forecasted cost for the individual parcel. Summarize all parcel costs expended to date and all forecasted parcel costs. Compare the total forecasted cost (sum of all parcel forecasts) with the total budget with amendments. Determine whether a substantial difference exists between the total updated budget and total forecasted cost.

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ROW Cost Management 85 Tools The ROW Cost Estimate System (Tool R2.8) contains a workbook (tab) that is used to track actual ROW costs as parcels are acquired. Within the worksheets of the system, cells should be provided by category for inserting estimated costs to complete an acquisition. This workbook should, both electronically and in printed format, be able to provide the difference between the parcel forecasted cost and the latest updated parcel cost estimate. A simple example of this type of worksheet is shown in Figure 7.1. This example is taken from the FDOT Right-of-Way Work Program Cost Estimating System (see R2.8). A ROW Formal Database (Tool R2.9) would be another tool that supports the steps of this process. These types of systems can track the cost of each parcel from appraisal through acquisition and provide reports for management informa- tion and decisions. Such a database is additionally a source of recent historical data and market trends for land values when preparing future ROW estimates. The TxDOT uses a Geographic Information System (GIS)-based electronic tracking database to track the status of ROW acquisitions for its projects. The database stores information by par- cel number and owner names and includes information on easements, rights-of-entry, special commissioner assignments, review status (e.g., date received, date approved), acquisition cost, and other pertinent information. (Cambridge Systematics, 2006) GIS-based tools to track the status of individual properties, including the color-coded map- ping systems used in Texas and Minnesota, are an easy and effective way to ascertain the status of individual parcel acquisitions. The cross reference of GIS, property maps, and property owner names helps not only during the acquisition process but also for future property management and disposal of excess land. (Cambridge Systematics, 2006). Tips Use actual expenditures as the basis for identifying overall cost trends related to ROW acqui- sitions. Actual land values can be determined and used to estimate the probable cost of the remaining acquisition actions. Administrative costs for relocating property owners based on early purchases can also be used to update estimated administrative cost. Perform updates early but probably not before 20 to 25 percent of the actual acquisition costs have been recorded. Effective pursuit of innovative data management processes requires agency investment in per- sonnel, document management systems, equipment, electronic monitoring, and training. Doc- ument management systems become more critical as knowledgeable employees leave, taking institutional history with them. MnDOT invested significant resources in turning its old ROW maps and utility permits into an electronic format, but believes that the investment has made data-gathering more efficient and effective. (Cambridge Systematics, 2006) Outputs This step can identify potential changes, resulting from forecasts projecting higher ROW costs, to the current budget. Conversely, this step might also reflect the effect of a declining real estate market with a potential project cost savings as a result. These changes would be highlighted in the ROW Cost Estimate System and would serve to guide management decisions. If a cost increase is forecasted, the project development team should be responsible for devel- oping and presenting solutions that will bring the ROW cost within the budgeted amount. As NCHRP Synthesis 292 recommended; "Delegate authority for project decisions to project per- sonnel, rather than retaining authority at a more remote level." Or, stated another way, make the project development team responsible for managing the budget (Waters, 2000).

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86 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Adjust ROW Budget Once a potential budget deviation is identified, this process step documents the budget devi- ation and the actions by both the project development team and management. If a budget adjustment is necessary, such action will, in most SHAs, have to be coordinated with Program Management. Project Complexity Similar to the first and second process steps, project complexity influences the level of effort required to evaluate forecasted ROW costs versus the current budget. In addition, the amount of documentation for tracking actual costs will increase correspondingly because more cost items will probably be necessary for more complex projects. Inputs Specific potential cost changes in the ROW budget are identified in the ROW Cost Estimate System. The Updated ROW Cost Estimate File should be the repository for documenting the basis for estimated costs to complete the acquisition of each parcel and describing the reasons for potential changes to the current ROW budget. Process Step Description The ROW estimator should 1. Document changes, including changes to the estimate basis and assumptions. The Updated ROW Cost Estimate File is modified to include the basis for any potential changes to the cur- rent budget as a result of parcel forecasts that are either over or under the estimated values. 2. Notify the project development team of any potential budget modification, noting the rea- son for a ROW budget change, so that the team can respond appropriately. Tools The ROW Cost Estimate System provides the hardware for capturing potential cost changes, and the Updated ROW Cost Estimate File contains the basis for estimated costs to complete each parcel acquisition. A change management form is used to document the potential change in cost and the rationale behind the change (Tool B1.5). Tips Budget control is a collaborative process. ROW and other project development functions can- not operate in isolation, handing off their work product to the next downstream activity. Poten- tial deviations in acquisition costs must be documented because this is critical to providing the project development team with current information on actual acquisition costs are affecting the total ROW budget. Early notification of budget deviations provides the project development team and management with information for making informed decisions to address potential cost overruns. Outputs The output of this step is a documented forecast of expected ROW cost and an analysis of potential deviations from the ROW budget. This forecast should accompany the project team's

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ROW Cost Management 87 proposal for addressing cost deviation and maintaining project cost within budget. The forecast is supported by documentation in the ROW Cost Estimate System and in the Updated ROW Cost Estimate File. Chapter Summary ROW Cost Management during Final Design was the focus of this chapter. The general process for tracking and managing actual ROW expenditures against the latest updated cost estimate (or budget) was presented. A final check of the latest updated ROW cost estimate is made based on final ROW plans. This check compares current cost estimates for each parcel with the latest budget for each parcel. As the appraisal and acquisition process begins and actual expenditures for prop- erties occur, the total forecasted cost is updated periodically so as to reflect actual costs and costs to complete the purchase of remaining parcels. The total forecast is compared with the latest budget. Deviations are documented and actions taken as needed to manage ROW costs.

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CHAPTER 8 Conclusions SHAs face a major challenge in controlling project budgets over the time between project ini- tiation and the completion of construction. ROW costs are among the most difficult to control and, therefore, necessitate disciplined estimating and cost management procedures. Yet, in many agencies, the existence of stovepipe divisional structures lead to failure in communicating impor- tant project information affecting scope, design, and cost. The objective of this Guide is to assist SHAs in achieving better ROW estimate consistency and accuracy during planning and project development. It was developed after a focused review of current SHA ROW practices and an extensive examination of recent ROW estimation research. SHAs, representing all geographical sections of the country, provided input on their current practices and the problems they are experiencing. A critical review of the literature and SHA information served to identify viable and successful approaches to ROW cost estimation practice and ROW cost estimation management. A Structured Approach No single estimating technique or tool will ensure the development of accurate estimates. ROW cost estimation practice and cost estimation management require a structured approach and the completion of each step in the process. The cost estimation and estimation management process necessitates completion of five basic steps that are applicable to the process across each development phase. These cost estimation and management steps are usually performed sequen- tially and repeatedly as planning and project development proceeds: 1. Determine ROW estimate basis, 2. Prepare ROW base estimate, 3. Determine ROW risk and set contingency, 4. Review ROW Cost Estimate, and 5. Approve and communicate ROW Cost Estimate. To achieve accurate ROW cost estimates, it is necessary to 1. Complete every step in the estimation process during all phases of project development. 2. Document estimate basis, assumptions, and back-up calculations thoroughly. 3. Identify project risks and uncertainties early, and use these explicitly identified risks to establish appropriate contingencies. 4. Anticipate external cost influences and incorporate them into the estimate. 5. Perform estimate reviews to confirm that the estimate is accurate and fully reflects the project scope. 88

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Conclusions 89 Finally, it is important that, throughout the appraisal and acquisition process, the actual ROW expenditures are used as the basis for forecasting total ROW expenses. Comparing the forecast against the budget allows the project development team to respond to potential changes in cost. This cost management focus requires the following steps: 1. Assess ROW scope, conditions, and cost; 2. Evaluate potential cost effect; and 3. Adjust ROW budget. Although cost management is more difficult at this time, the project development team should start when the first property acquisitions are made so as to establish cost trends and monitor these trends as they affect total forecasted ROW costs relative to baseline budgets. Decisions can still be implemented that will influence the effective use of project and program funds. Collaborative Atmosphere The 2006 Best Practices in Right-of-Way Acquisition and Utility Relocation scan-tour report stated that a common trait of those agencies that "experienced considerable success in improv- ing their ROW acquisition and utility relocation processes" was a supportive institutional environment (Cambridge Systematics, 2006). Agency management should encourage a col- laborative atmosphere where actions that affect more than one discipline receive full consid- eration from all affected parties. Supporting divisions such as ROW should have open com- munication with the project development team and project manager because alignment and design decisions affect ROW cost. In this context, management should insist that ROW activ- ities are performed as much as possible in parallel with other functions, rather than waiting for a "hand-off" from an upstream function. Thus, management should do the following: 1. Create an environment for success · Dedicate resources to ROW estimator training and development of a ROW estimating pro- cedures manual. Trained ROW estimators can efficiently produce accurate estimates. · Dedicate resources to creating accurate ROW databases and provide staff resources to man- age the databases. 2. Create procedures for establishing a Baseline ROW Cost Estimate · Agencies must have procedures to support the establishment of a baseline ROW estimate for each project. The Baseline ROW Cost Estimate establishes a measure for project per- formance throughout project development. 3. Create processes to identify risk and for setting appropriate contingency · Early identification of ROW risk and uncertainty will help focus design efforts that miti- gate ROW cost. Setting a contingency amount that reflects these risks and uncertainties will allow for the appropriate understanding and communication of estimate accuracy. 4. Require ROW estimate reviews · A peer review of every ROW estimate and the use of a formal approval process after the review will improve accuracy and accountability. 5. Demand ROW estimate documentation · Documentation provides the information necessary for managing the project and making informed decisions. Management cannot properly correct a problem without knowing how an estimate was prepared or what changes were made during project development. 6. Create ROW cost control mechanisms · The Baseline ROW Cost Estimate, together with the documentation supporting estimate updates, will provide management with the information to make timely decisions.

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90 Procedures Guide for Right-of-Way Cost Estimation and Cost Management · Cost control continues throughout the appraisal and acquisition process as actual expen- ditures for right-of-way form the basis for comparing forecasted ROW costs with the updated baseline budget. 7. Support good communication practices · Identification and communication of a project's early stage uncertainty and the fact that unknowns can affect scope, costs, and time will help in managing project cost expectations. · The communication between disciplines of ROW estimate precision, uncertainty, and risks and to stakeholders can affect project success significantly. Challenges Implementing new concepts recommended in this Guide will involve facing the challenges that accompany change. Meeting those challenges will ultimately require a commitment by the agency's senior management to direct and support change. SHA executive management must provide the leadership to institute the practices described herein and provide members of their ROW staff with the resources to participate in training and AASHTO ROW activities that enhance their base of knowledge. The benefit of such commitment will be manifested in proj- ects that are consistently within budget and on schedule and that fulfill their need and purpose, as defined by their scope. This benefit will also improve program management by allowing for better allocation of funds to projects to meet the needs of the ultimate customer: the public.

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References and Bibliography Anderson, S. D., and B. C. Blaschke (2004). NCHRP Synthesis of Highway Practice 331: Statewide Highway Letting Program Management, TRB. http://onlinepubs.trb.org/onlinepubs/nchrp/ nchrp_syn_331.pdf Anderson, S., K. Molenaar, and C. Schexnayder (2007a). NCHRP Report 574: Guidance for Cost Estimation and Management for Highway Projects During Planning, Programming, and Pre- construction, TRB. http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_rpt_574.pdf Anderson, S., K. Molenaar, and C. Schexnayder (2007b). Final Report for NCHRP Report 574: Guidance for Cost Estimation and Management for Highway Projects During Planning, Pro- gramming, and Preconstruction, TRB, Web-Only Document 98, http://onlinepubs.trb.org/ onlinepubs/nchrp/nchrp_w98.pdf Cambridge Systematics (2006). U.S. Domestic Scan Program: Best Practices in Right-of-Way Acquisition and Utility Relocation. NCHRP Project 20-68, Transportation Research Board, http://onlinepubs.trb.org/onlinepubs/trbnet/acl/FR1_NCHRP2068_Right-of-Way_all-in- one.pdf Clark, F. D., and A. B. Lorenzoni (1997). Applied Cost Engineering, Marcel Dekker. Controlling Project Cost Estimates "Managing the Risk" (2004). TRB. http://www.transportation.org/ sites/planning/docs/planning%20 wed/gloria%20shepherd/Cost%20Estimation.pdf FHWA (2007a). Annual Right-of-Way Statistics website, FHWA, https://fhwapap04.fhwa.dot.gov/ arowsp/default.asp FHWA (2007b). Major Project Program Cost Estimating Guidance. FHWA, January, http://www. fhwa.dot.gov/programadmin/mega/cefinal.pdf Flyvbjerg, B., M. S. Holm, and S. Buhl (2002). "Underestimating Costs in Public Works Projects: Error or Lie?" Journal of the American Planning Association, Vol. 68, No. 3, pp. 279­292. Kockelman, K. M., et al. (2004). Right-of-Way Costs and Property Values: Estimating the Costs of Texas Takings and Commercial Property Sales Data, University of Texas, Austin. Texas DOT, FHWA. Merrow, E. W. (1988). Understanding the Outcomes of Mega Projects: A Quantitative Analysis of Very Large Civilian Projects. Santa Monica, CA: Rand. Molenaar, K. R., J. E. Diekmann, and D. B. Ashley (2006). "Guide to Risk Assessment and Allocation for Highway Construction Management," FHWA-PL-06-032, FHWA, U.S. DOT, AASHTO, and NCHRP, Washington, DC, October 2006, 73 pp. Montachusett Metropolitan Planning Organization--Annual Project List (2006). Mon- tachusett Regional Planning Commission, Massachusetts, www.mrpc.org/annual_listing_ of_mont_mpo.htm Ripley, P. W. (2004). "Contingency! Who owns and manages it!" 2004 AACE International Transactions, AACE, CSC.08.1-CSC.08.4. 91

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92 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Schexnayder, C. J., S. L. Weber, and C. Fiori (2003). Project Cost Estimating: A Synthesis of High- way Practice. Report for NCHRP Project 20-07/Task 152. http://cms.transportation.org/sites/ design/docs/Project%20Cost%20Estimating%20Report.pdf Shepherd, G. (2005). Information/Guidance: Planning Horizons for Metropolitan Long-Range Transportation Plans, FHWA, www.fhwa.dot.gov/planning/planhorz.htm Staff Report (2006). 2006 "Regional Transportation Improvement Program," San Luis Obispo Council of Government, Feb. 8, library.slocog.org/PDFs/Agency_Mtgs_Agendas/SLOCOG- Board/2006/February/B-3%20ADDEND%2006-07%20RTIP.pdf Stork, D. (2006). Right of Way Magazine, March/April. Touran, A., and P. J. Bolster (1994). Risk Assessment in Fixed Guideway Transit System Construc- tion, Jan. Federal Transit Administration. www.fta.dot.gov/library/planning/SSW/ssw.html. U.S. General Accounting Office (1997). Transportation Infrastructure: Managing the Costs of Large- Dollar Highway Projects, report GAO/RCED-97-47. http://ntl.bts.gov/lib/5000/5900/5978/ rc97047.pdf Waters, T. (2000). NCHRP Synthesis of Highway Practice 292: Innovative Practices to Reduce Delivery Time for Right-of-Way in Project Development, TRB, onlinepubs.trb.org/onlinepubs/ nchrp/nchrp_syn_292-a.pdf

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APPENDIX A Tools Contents A-1 Introduction A-3 B1 Budget Control A-3 B1.1 Budget by Corridor A-4 B1.2 Constrained Budget A-5 B1.3 Standardized Estimation and Cost Management Procedures A-7 B1.4 Summary of Key Scope Items (Original/Previous/Current) A-8 B1.5 Variance Reports on Cost and Schedule A-10 C1 Communication A-10 C1.1 Communication of Importance A-12 C1.2 Communication of Uncertainty A-13 D4 Document Estimate Basis and Assumptions A-13 D4.1 Right-of-Way Cost Estimate File A-16 E2 Estimate Review--External A-16 E2.1 Expert Team A-18 E3 Estimate Review--Internal A-18 E3.1 Formal Committee A-20 E3.2 Off-Prism Evaluation A-22 E3.3 In-House/Peer A-24 I2 Identification of Risk A-24 I2.1 Red Flag Items A-26 I2.2 Risk Charter A-30 I2.3 Risk Checklist A-31 R2 Right-of-Way A-31 R2.1 Acres for Interchange A-36 R2.2 Advanced Purchase (Right-of-Way Preservation) A-38 R2.3 Condemnation A-40 R2.4 Relocation Costs A-42 R2.5 Right-of-Way Estimator Training A-44 R2.6 Separate Right-of-Way Estimators A-47 R2.7 Cost Estimate Map A-i

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A-ii Procedures Guide for Right-of-Way Cost Estimation and Cost Management A-48 R2.8 Cost Estimate System A-57 R2.9 Formal Database A-62 R2.10 Purchase Values Database A-64 R3 Risk Analysis A-64 R3.1 Analysis of Risk and Uncertainty A-70 R3.2 Contingency--Identified A-74 R3.3 Contingency--Percentage A-77 R3.5 Programmatic Cost Risk Analysis