Procedures Guide for Right-of-Way Cost Estimation and Cost Management (2009)

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E-1 This appendix discusses the methodology and findings of Tasks 1 and 2 of the research effort. The purpose of Task 1 was to complete a comprehensive literature review relative to ROW cost estimating while Task 2 involved examining and documenting successful ROW cost estimation and cost management practices. The literature review completed by the research team for NCHRP Project 8-49 served as the foundation for additional searches of published information concerning ROW estimation. It was necessary to update the original literature review because there has been additional work around the country directed at estimation accuracy since the NCHRP Project 8-49 literature review was conducted. The present literature review specifically targets ROW issues. Therefore, the main objective of Task 1 was to identify documented practices in the area of cost estimation and cost estimate management specifically relevant to the ROW component of project development. This review primarily focused on current literature and established the basis for the later stages of the research. The main objective of Task 2 was to gain an overview of SHA ROW practice. Additionally, the practices of several other agencies engaged in estimating the cost of future ROW purchases were examined. Consequently, successful SHA and local public agency practices in estimating and managing ROW costs were examined in detail. The research team assembled data on state-of- practice cost estimating and cost estimate management techniques, including process steps and tools in relation to the project development phases presented in Chapter 1. Literature Review The objective was to identify documented practices in the area of cost estimation and cost estimate management specifically relevant to the ROW component of project development. The literature review included locating and reviewing information found in technical papers, reports, and documents. The sources were • General internet search engines; • The Transportation Research Board’s TRIS Online; • Academic databases, such as LexisNexis and Engineering Village 2; • The ASCE Civil Engineering database; • Selected SHA websites; and • Presentations and papers posted on AASHTO’s Subcommittee on Right-of-Way and Utilities website. The literature review concentrated on documenting and comparing factors and variables that affect ROW cost estimating such as project type, property value prior to the project, anticipation A P P E N D I X E State of Practice

of future land use change, timeline, information available at the time of the estimate, and type of acquisition. Information related to the ROW cost estimation and cost management processes and tools in the literature were surveyed. The accumulated information was reviewed, analyzed, and summarized. Although there is an abundance of literature on appraisal and acquisition of ROW, the research team discovered only a limited amount of information that specifically related to ROW cost estimation and cost estimate management. ROW Cost Estimation and Management The initial NCHRP Project 8-49 research identified ROW costs to be a critical highway proj- ect cost escalation driver. This was further confirmed by the literature review. ROW cost estima- tion is a complex undertaking dependent on a magnitude of parameters that are difficult to quantify, even in the case of an identifiable date only a few years in the future. ROW cost esti- mates must capture all costs that affect the expense of acquiring the needed property. This is exceedingly difficult due to the uncertainties involved in many aspects of ROW acquisition. It is typically necessary to capture deterministic values for each parcel in the following categories: • Land; • Property improvements; • Damages to property in partial takings; • Utility relocation; and • Relocation assistance. The literature particularly stresses the difficulty in estimating ROW cost due to uncertainty in real estate appreciation and the issue of damages resulting from a partial take. Land values con- stantly fluctuate and future values are difficult to assess, especially in the case of estimates com- pleted during the earliest stages of project development. Damages are affected by the size and shape of the remainder area, location of the remaining access points, reductions in highest and best use, and length of remaining frontage (Buffington et al., 1995). In addition, takings by eminent domain or condemnation must be considered when develop- ing an estimate—that process increases the cost of an acquisition because of legal fees and the court’s sympathy toward a land owner. Eminent domain proceedings add cost uncertainty because real estate value is determined by judges or juries instead of by definitive market information. Almost 80 percent of all acquisitions are completed without condemnation (CTC Associates and WisDOT, 2006) leaving about 20 percent of parcels, on average, that proceed to eminent domain. However, the percentage of properties proceeding to eminent domain increases when owner’s legal fees are paid by the SHA (FHWA, 2006). The US Supreme Court case of Kelo versus City of New London, which was decided on June 23, 2005 (Kelo, 2005), affected eminent domain expense throughout the nation (Cambridge Sys- tematics, 2006). The Kelo case involved the use of eminent domain by the city of New London, Connecticut, for a community redevelopment project that benefited a private entity. The Court ruled 5 to 4 that the city’s action was permissible under the Takings Clause of the Fifth Amend- ment. Following wide criticism of the ruling, during the period immediately following the rul- ing and through July 31, 2006, 29 states enacted changes to their eminent domain laws in one or more of three ways: (1) restricting the use of eminent domain to certain situations; (2) requir- ing additional procedures when using eminent domain; and/or (3) defining or redefining certain terms associated with eminent domain (U.S. Government Accountability Office, 2006). Federal legislation was also passed in 2006 to address the issue of using Federal funds in eminent domain. Section 726 of The Transportation, Treasury, Housing and Urban Development, The Judiciary, and Independent Agencies Appropriations Act of 2006 established that federal funds can only be uti- lized for public use where “public use” excludes economic redevelopment (Towcimak, 2006). E-2 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Public use is further clarified with the wording that is should “not be construed to include eco- nomic development that primarily benefits private entities” (Transportation, 2006). While the language of the 2006 Appropriations Act was applicable only to projects funded by the act there is similar language in the 2008 Act (PL. 110-161). New compensation requirements benefiting property owners have also been passed by some states since the Kelo decision (Feldman, 2007). These state acts address • Acquisition costs, including appraisal fees, attorney fees, and expert witness fees; • Relocation costs, including actual costs of rebuilding structures and compensating business for loss of business; and • “Supercompensation” payments, meaning paying a certain percentage over fair market value. The accuracy of an estimate is also affected by time constraints placed on completing the estimate, the quality of information available, and project and parcel complexity. Accuracy suf- fers under estimate preparation time constraints because the estimator has a limited amount of time to research the project and appraisal data. Similarly, the quality of available information can have a negative effect on the estimate because the estimate can only be as accurate as the information upon which it is based. In an attempt to improve ROW cost estimates, several tools and models for ROW cost estimation have been developed. Recently a cost estimation model was developed by Kockelman et al. (2004) in cooperation with TxDOT. Based on data from TxDOT and a commercial property database (CoStar), three models were developed. The accuracy of these models in predicting parcel acquisition cost was acceptable in the case of agricultural and vacant parcels, but the model lacked accuracy in the area of commercial and residential takings. Although the models were not accurate predictors in these areas, the authors argue that the tool may be used in budgeting for gross total ROW cost in a TxDOT District (Kockelman 2004). Early ROW estimates are often only gross approximations arrived at by using a percentage of the estimated construction cost (CTC Associates and WisDOT, 2006) or some other order- of-magnitude estimating technique. Project definition is frequently nebulous during the plan- ning phase of project development; therefore, ROW boundaries at this point are not well defined. Furthermore, there may be multiple project alternatives being considered during the planning stage of project development. Alignment changes are likely, and these may significantly affect the ROW cost estimate. It was reported that early public involvement in the form of public meetings is beneficial because it allows the SHA to gauge the level of support for a project. This can serve as an indica- tor of the rate of condemnations and even the amount of contingency to include in the estimate (CTC Associates and WisDOT, 2006). A larger ROW cost contingency might be necessary if pub- lic support is absent because this may be an indicator as to the number of condemnation parcels that can be expected. Selected SHA websites, including those of California, Florida, Georgia, Minnesota, Ohio, Wisconsin, and Virginia, were searched for procedures and manuals on cost estimation of ROW and other aspects of ROW procurement. Much of the material found on the SHA web- sites related to appraisal and acquisition of property, including procedures and forms used throughout the process. Caltrans devotes a chapter of its Right of Way Manual (Right, 2007) to ROW cost estimating. This information can be found on line at www.dot.ca.gov/hq/ row/rowman/manual/ch4.pdf (Estimating, 2007). The manual specifically discusses aspects of the estimate and general estimate information. The Ohio DOT has a specific procedure for estimating cost of ROW (2300 Cost Estimation . . . 2007). This procedure is tied to the Ohio DOT project development process. Appendix E E-3

ROW Appraisal and Acquisition It should be emphasized that much of the literature focuses on the appraisal and acquisi- tion of the parcels rather than directly discussing cost estimation and cost estimate manage- ment. Kockelman discusses how the dollar amount for appraised property values is established through three methods: (1) the Sales Comparison Approach; (2) the Income Approach; and (3) the Cost Approach (Kockelman et al., 2004). These approaches vary in methodology and application. The Sales Comparison Approach in which comparable sales in the area establish the base dollar value of the property is, by far, the most common approach. The Income Approach is typically used in commercial or investment properties. It attempts to estimate the income that will be realized from the property. The Cost Approach is used when comparable sales cannot be found in the area and calculates the cost of replacement minus any deprecia- tion of the existing structure. The Uniform Act of 1970 (Uniform, 1997) governs the treatment of property owners for all federally funded projects by providing a set of procedures and standards for ROW acquisition. The major implementation of this act is that all property owners be justly compensated for their property and receive relocation assistance. Condemnations are a concern when acquiring property because they can increase costs and delay the project. Condemnation rates (or the percentage of properties that move to condemna- tion proceedings) vary from state to state. The FHWA notes that the percentage of parcels pro- ceeding to condemnation can be reduced by (1) the use of mediation methods between the prop- erty owners and public agency; (2) the use of well-trained ROW agents handling acquisitions who are authorized to negotiate settlements; and (3) the use of quick settlements in lieu of allow- ing the property owner a long period of time to consider the offer (FHWA Office of Real Estate Services, 2006). Hakimi and Kockelman (2006) discuss best acquisition processes while considering the uniqueness of each state in terms of political, social, environmental, and other factors. They recommend that the public should be contacted early in the process and that states should update laws and statutes to outline compensable items so as to streamline the acquisition process. Additionally, special acquisition techniques, such as land exchange, land consolida- tion, and advanced acquisition, should be used. Such techniques may not be available in all states; however, such techniques should be considered to the extent allowed under state law. A few such techniques are outlined in the “European Right of Way and Utilities Best Practices” report (European, 2002). In summary, the method of ROW appraisal and acquisition can affect the accuracy and con- sistency of cost estimation and cost estimate management. Appraisal and acquisition methods must be understood by those who prepare ROW cost estimates. The appraisal and acquisition methods should be integrated into the overall project development process. As noted in the literature review of cost escalation factors completed in the NCHRP Project 8-49 research, in- accuracies and/or delays in ROW acquisitions can affect project cost escalation profoundly. Literature Review Summary The literature review provided a basis for further research. ROW appraisals and acquisitions constitute much of the ROW literature. The ROW cost estimation literature that was discovered was limited to several statistical estimating models, discussion of the effect of the Kelo case, and several piecewise descriptions of the line items of an estimate. It provided selected information on the effects of condemnations, land appreciation, and damages. E-4 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Research Methodology In addition to the literature review, a series of onsite and telephone interviews were conducted with agencies across the United States. The goal of these interviews was to collect data on cur- rent successful ROW cost estimation and cost estimate management practices. Seven SHAs and two local public agencies were interviewed. Interview Protocol An interview protocol was developed to guide data collection during interviews. The objec- tive of the interview protocol was to capture successful practices, including ROW cost estima- tion process steps and tools. It was modeled after the interview protocol used for NCHRP Proj- ect 8-49. Questions were developed based on findings of the literature review. In particular, the literature review findings identified problem areas that needed to be addressed through the interviews. The interview protocol covered six areas and consisted of 15 questions. The areas of interest to this research were similar to those in the original NCHRP Project 8-49, but were more spe- cific to ROW issues. The interview questions examined six areas within ROW cost estimation and cost estimating management: 1. Determining ROW Requirements; 2. ROW Cost Estimate Preparation; 3. ROW Cost Estimate Reviews; 4. ROW Cost Estimate Communication; 5. ROW Cost Estimate Management; and 6. State Laws and Other Factors that Affect the ROW Process. The six areas of interest governed the organization of the interview protocol. Section 1 of the protocol explored the process steps and tools used by the SHAs to determine ROW require- ments. Based on these steps and tools, Section 2 examined how ROW estimators produced esti- mates for the defined ROW requirements. More specifically, it addressed policies and procedures guiding estimate preparation, the elements of each estimate, how environmental issues were handled in the estimate, whether risk and uncertainty were considered, and if contingency was applied to the estimate. Estimate review processes and practices were the focus of Section 3 of the protocol. Section 4 addressed the issue of estimate communication and included training of estimators and communication of estimating procedures. Section 4 also covered the issue of con- tacting property owners. Section 5 of the protocol focused on how differences were reconciled between estimates, the procedures for handling changes in ROW requirements, and triggers for an update to ROW cost estimates. The effect of state laws and other factors such as environmen- tal, political, and social issues on the ROW process and estimates were addressed in Section 6. The effects of acquisition techniques such as advanced acquisition, incentive offers, and other non-standard techniques on estimating ROW costs were also explored in Section 6. The protocol was prefaced by several introductory pages that confirmed the interview time and date, described the background of the research, and provided instructions and interview expectations. The background material covered previous NCHRP Project 8-49 findings relative to ROW, including a discussion of the typical project development phases relevant to ROW and the basis for the ROW research. The instruction and interview expectation sections outlined such aspects of the interview as the phased approach to be employed relative to each of the questions during the interview and other details. Included in the interview package were the project devel- opment phase flowcharts for planning, programming, preliminary design, and final design that had been developed during the earlier NCHRP Project 8-49 work. These flowcharts were Appendix E E-5

included to bridge the terminology differences that exist among agencies and address some of the factors limiting this research, which were discussed in Chapter 1. Interview Participants The seven SHAs interviewed were California, Florida, Georgia, Minnesota, Washington State, Wisconsin, and Virginia. These SHAs were selected based on input provided in Phase I of NCHRP Project 8-49. Each appeared to have systematic and relatively successful ROW cost estimation practices from which the research could benefit. As noted in the methodology, interviews were completed with participants from both the central office and with ROW administrators in districts/regions around the state. In addition to interviewing SHAs, the City of Phoenix Street Transportation Department and the O’Hare Modernization Program Office of the City of Chicago were interviewed to provide further perspectives on ROW cost estima- tion and cost estimate management. A list of interview participants by position from each agency is provided in Table E.1. Interview Process Because of the complexity of the ROW cost estimation process and the information being col- lected from SHAs, onsite interviews were the main activity used for data collection. The option of a survey was ruled out because surveys would not provide adequate information describing the ROW cost estimation process. Most issues could not be answered with yes/no or multiple- choice answers. It was necessary to acquire in-depth information about the cost estimation process that included some elaboration and explanation on the part of the interview participants. Onsite interviews provided the opportunity to clearly communicate specifics about the process and provide the detail necessary for developing the ROW cost estimation and cost estimate man- agement flowcharts. Interviews were conducted with SHAs and other organizations having experience with ROW acquisition. The interview process focused on the four phases of project development to provide a frame of reference for linking the application of successful ROW practices to the project devel- opment timeline. This enabled effective data collection and helped to identify differences as project development progresses. Contacts were acquired through Phase I of the NCHRP Proj- ect 8-49 Project, and the FHWA Office of Real Estate Services also provided suggestions. Eigh- teen formal SHA interviews (Anderson et al., 2007b) were conducted during the earlier phase of the NCHRP Project 8-49. Experience from the previous research and recommendations pro- vided the research team with valuable contacts possessing considerable experience and knowl- edge of successful practices. Some SHAs, especially large states, are highly decentralized and rely on the districts/regions within the state to manage projects and perform estimates. Therefore, when interviewing SHAs, the research team attempted to capture perspectives from both cen- tral office ROW administrators and other administrators in districts/regions around the state. This provided diverse perspectives on ROW cost estimation and related issues. The first step in the interview process was to contact the agencies. Upon initial contact with the potential interview participants, the interview protocol was transmitted by email to the par- ticipants several days prior to the scheduled interview. This enabled the participants to review the protocol and prepare for the interview. Interviews were set up in 2- to 3-hour blocks to allow ample time to cover the entire process from the first planning estimate to the activities required during final design. In most cases, the interview was conducted by two individuals from the research team. One member would typically act as facilitator while the other took detailed notes. Both team mem- E-6 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Appendix E E-7 Highway Agency Interview Participants California Senior ROW Agent – Headquarters Office Senior ROW Agent – Headquarters Office Senior ROW Agent – North Region Senior ROW Agent – North Region Senior ROW Agent – District 3 ROW Manager – South Region Senior ROW Agent – South Region Associate ROW Agent – South Region ROW Agent – South Region ROW Estimator – South Region ROW Estimator – South Region Georgia Appraisal & Review Manager Manager, ROW Cost Estimates Florida Manager, Appraisal & Appraisal Review Director, Office of ROW Deputy State Manager, Appraisal & Cost Estimating State Cost Estimating Administrator District One Cost Estimates Administrator (Bartow/Lakeland) District Seven Cost Estimates Administrator (Tampa) Minnesota ROW Program Manager – Central Office Assistant Director, R/E & Policy Development – Central Office ROW Engineer – District 1 ROW Engineer – District 2 ROW Engineer – District 3 ROW Engineer – District 4 ROW Engineer – District 5 ROW Engineer – District 6 ROW Engineer – District 7 ROW Engineer – District 8 ROW Engineer – Metro Washington State Assistant Director for Appraisal and Appraisal Review Program Appraisal Specialist, Oly mpia Region Appraiser, Oly mpia Region Wisconsin Real Estate Supervisor – SE Region Real Estate Supervisor – SE Region Real Estate Supervisor – NW Region Real Estate Supervisor – District 3 Real Estate Supervisor – District 5 Division Realty Office – FHWA Virginia Assistant Director ROW Manager City of Chicago Projects Administrator Relocation Manager Director of Public Affairs City of Phoenix Traffic engineering Supervisor Acting Assistant Real Estate Administrator Table E.1. Agency interview participants. bers took an active part in the interview. The first 15 minutes of the interview typically consisted of introductions, a summary of the research background and framework, the objective of the research, and statement of the research team’s expectations of the interview. Additionally, the status of the project and findings of previous interviews were summarized to provide the partic- ipants with the current status and direction of the research project. Following the introductory portion of the interview, the participants were probed for information regarding the SHA’s proj- ect development process and any special terminology. This served to give the research team a basis for further questions and to relate participant answers to project development phases (plan- ning, programming, preliminary design, and final design). Then, the facilitator would guide the interview toward the first ROW estimate completed during planning. From this point on, a dis- cussion proceeded in which interview participants would tell the “story” behind the SHA’s ROW

cost estimation process. As the interview drew to a close, issues not yet covered were addressed using the interview protocol as a checklist. The members of the research team would typically use the time following the interview to make additional notes on general impressions of the inter- view. All details were recorded in the interview protocol under the related questions. In lieu of proceeding straight through the interview questions one by one, most interviews began with general discussions, which led to specific topics within the context of ROW cost esti- mation and cost estimate management. This practice was adopted during the first interview with the Minnesota DOT. That interview served as a “test” dialogue for the newly developed proto- col. Consequently, the protocol questions served more as a checklist to ensure that all issues were covered. Shortly following the interview, an interview report was prepared which consisted of filling out the protocol based on the interview notes. This allowed the team to capture and under- stand the process for ROW cost estimation and cost estimate management used by the SHAs throughout all phases of project development. In addition to the on-site interviews, conference calls via telephone were used to follow up on any issues unclear after the initial interview. Documents Collected SHA ROW estimating tools were documented during interviews, and any documents describ- ing the tools or examples of the tools that the agency used were requested at the time of the inter- views or in follow-up emails and telephone calls. The documents gathered ranged from cost estimate maps used to determine ROW requirements to cost estimate spreadsheets used in com- pleting estimates. Screenshots of ROW tracking and estimate systems were also requested and provided by the SHAs. The SHAs were always asked for copies or web addresses of manuals, poli- cies, and procedures that supported their ROW cost estimation and cost estimate management processes. State-of-Practice Characteristics Critical issues relating to ROW estimating were identified during the interviews as those most difficult to estimate or issues that may have a significant effect (good or bad) on creating an accu- rate estimate. Based on the responses of the interview participants, the most notable critical issues include (not presented in an order of importance or priority rank) • Condemnations • Damages • Inflation and other market conditions • Risk analysis and assigned contingency • Scope definition • Estimating tools • Estimator experience and knowledge Condemnations Estimating the costs of condemnations is very difficult because of two major factors. First, there is the issue of determining the number of condemnations, or what percentage of parcels will move to condemnation proceedings. The FHWA Office of Real Estate Services’ report on state condemnation practices (2006) indicated that approximately 80 percent of acquisitions are completed without condemnation while FHWA online data reported a 12.5 percent condemna- tion rate for 2004 and a 12 percent condemnation rate for 2005 (FHWA, 2007). This variable is study specific and may vary drastically between projects, between regions/districts, or even E-8 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

within regions/districts. As discussed previously in the literature review, the condemnation rate is heavily dependent on state laws governing the process and whether the public agency is respon- sible for paying acquisition costs of the property owner such as appraisals, expert witnesses, and other legal fees (FHWA Office of Real Estate Services, 2006). The second issue is the actual cost of the condemnation proceedings. Condemnation expenses include engineering, appraiser, and economists’ fees plus attorney and court costs, and the final condemnation award amount. The fee portion, together with legal costs, may add significantly to the cost of a condemnation proceeding. Additionally, states have specific laws concerning con- demnations. In one state it is the financial responsibility of the acquiring agency to reimburse the property owner for an independent appraisal if such is requested by an owner. This stipula- tion is a result of the Supreme Court Kelo decision. Condemnations may cost a project more than just money: the proceedings may cost the project valuable time. Proceedings can delay a project schedule. Time delays then affect estimated construction cost. The cost and rate of con- demnations is heavily dependent on state laws and social factors that exist in a particular local. Damages Damages due to partial takings of a property were indicated by agencies to be one of the most difficult aspects of ROW estimating. The definition of the term under 23 CFR Ch. I (4–1–02 Edition) § 710.105 Definitions is Damages means the loss in value attributable to remainder property due to sever- ance or consequential damages, as limited by State law, that arise when only part of an owner’s property is acquired. Damages are primarily an issue in acquiring a portion of a business. Assigning a cost to damages can be very subjective and, many times, the accuracy of the estimated cost is depend- ent on the experience of the estimator. Real Estate Inflation and Other Market Conditions Assessing the potential effect of inflation/appreciation and other related real estate market conditions is a challenge. This is an issue in preparing cost estimates during every project devel- opment phase. Property values increase at rates different than the inflation rates for construc- tion materials and labor. Properties in highly urban areas or areas where there is substantial growth potential may be subject to substantial increases in the market value of land. The results of the interviews in this project were consistent with the interviews and data collection in Phase I of NCHRP Project 8-49 concerning inflation and other market conditions. Risk Analysis and Assigned Contingency The majority of agencies interviewed made no attempt to conduct a formal detailed risk analy- sis of items that could affect ROW cost, although most agencies did assign contingency amounts in some manner. A detailed risk analysis can be defined as a systematic method of identifying and evaluating risks using a formalized agency procedure. The majority of agencies reported that they did not specifically address risk analysis in a formalized and documented procedure. Only two SHAs reported performing detailed risk analyses where specific project risks are identified and then addressed by some application of contingency. Risks affecting ROW derive from the schedule, property appreciation, condemnations, damages, and other issues that exhibit uncer- tainty or may be unknown. Moreover, the use of contingencies was an issue throughout the SHAs interviewed. Four SHAs reported the regular practice of applying a contingency to their Appendix E E-9

ROW estimates: the two aforementioned states using detailed risk analysis and two others who explicitly assign a contingency. Other SHAs may apply contingency values subjectively based on the estimator’s opinion or judgment about the cost estimate. Scope Definition and Estimating Tools Determining a project’s ROW requirements early in the development process is problematic, particularly during the planning phase (e.g., 10 to 20 years out from the estimated construction letting year). Phase I of NCHRP Project 8-49 found that actual cost of project ROW is frequently greater than the estimated cost projected during the early stages of project development. Two primary factors can explain this: (1) inadequate scope definition and (2) the absence of effective tools and methods to complete ROW cost estimates. ROW estimates made during the planning phase of project development are often based solely on a percentage of estimated construction costs. Agencies using this method maintain that the cost benefit is not substantial enough to invest staff effort in more detailed ROW estimates at this early stage because (1) limited project scope information is available, (2) there are multiple alignments to consider, and (3) there will be inevitable changes to the project as scope is refined as the project moves through develop- ment. This is not the case, however, with the Cities of Chicago and Phoenix, which finance their projects with bond money and therefore must have accurate cost estimates before going to the bond market. Both cities work hard to define project scope in detail early in project development and to develop accurate early ROW cost estimates. Estimator Experience and Knowledge Estimator experience was consistently noted as heavily affecting the quality and accuracy of ROW cost estimates. In achieving estimate accuracy, the estimator’s knowledge of the project area and market plays a role in many subtle ways. SHAs are facing issues related to personnel turnover, especially related to employees with 15 to 20 or even 30 years of experience in ROW cost estimating. These people are quickly reaching retirement and when they depart, invaluable experience and knowledge will be lost. Overview of Current Practice A ROW cost estimate is produced during each of the first three phases of project develop- ment: planning, programming, and preliminary design. Before preparing the estimates, ROW requirements must be provided by planners or the project design team to establish the basis of the estimate. Following preliminary design, appraisals and acquisition typically commence. Typically, no further cost estimates are generated at final design, but ROW cost management should continue as purchases are executed. ROW cost management occurs during final design and is completed by comparing actual costs reflected in the appraisals and acquisitions to the estimated costs. If actual costs exceed the estimated amount, the project manager is notified and action is taken to either request additional funds or to make design changes that might reduce ROW cost. Additional ROW needs are sometimes identified during construction. When this occurs, the staff members responsible for ROW cost management must work closely with the agencies construction and design sections to minimize the effect of these new ROW requirements. The following subsections discuss the current and general state of practice relative to each of the project development phases. Current practices are discussed in a general manner that out- lines the overall state of practice in the SHAs interviewed. Later in this appendix, specific suc- cessful practices will be covered and critical review of these practices is presented. E-10 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Determining ROW Requirements The basis of a ROW cost estimate is the ROW requirements and this is dependent on the level of project scope definition. Even in the case of a planning-level ROW cost estimate where the estimate is based on a percentage of estimating construction cost, the ROW estimate is depend- ent on the planner’s ability to develop a reasonable scope definition to confirm the percentage applied. Typically, scope definition is clarified as the project development process proceeds from the initial planning phase to final design and construction. The need for a project is typically defined in the initial project development phase of planning where scope definition is often nothing more than a statement of purpose and need. The scope at this point is expressed in very general or broad terms and usually consists of only an approx- imate number of lanes or a width or several potential alignments, with little definitive support- ing information available. A ROW estimator typically is not involved at this stage, and it was found that ROW estimates are often completed within the agency’s Planning Division and are not the responsibility of the ROW Division. As previously stated, a percent of the estimated con- struction cost is often used at this point in the process. At the programming phase of project development, the scope of the project has been further defined and usually an alignment relating to ROW needs has been determined. In the case of most SHAs, the ROW division or group will receive a request from the project manager for a ROW cost estimate. This request is often accompanied by an aerial map or other visual repre- sentation of the project site with approximate ROW boundaries indicated. This aerial map defines the ROW requirements for the project. The total area to be acquired may also be indi- cated. In some cases, SHAs reported that rough parcels would be indicated along with parcel areas, but this is not common practice at programming. ROW requirements during preliminary design are reflected in an updated aerial map or a pre- liminary drawing provided by the design engineers. The map typically shows the refined ROW boundaries, defines each parcel, shows parcel boundaries, and provides the areas required for each parcel. Final ROW plans exist at the final design phase in which all ROW requirements are explicitly defined as parcels. No further estimates are completed at this point as ROW appraisals begin, followed by acquisition of parcels. It is likely that some changes may occur during final design that will affect the ROW requirements; while such changes are typically minor in extent, they can affect ROW cost significantly. In that case, new ROW plans may be released and reconciliation of the cost changes occurs, if necessary. General ROW Cost Estimating Practices During Planning During planning, ROW estimates in many SHAs are usually based on percentages of construc- tion costs. Historical ROW costs from general databases or ROW cost from comparable projects may also be used to produce this early estimate. Construction costs for planning estimates, as outlined in NCHRP Report 574, are frequently based on lane-mile cost factors and prepared by planners. If ROW is required, the estimate for this project cost component often does not involve the ROW division. Planners also prepare the ROW estimate. In general, planning estimates are used for long-term budgeting. The ROW amount defined in the planning estimate appears to have minimal bearing on later estimates. General ROW Cost Estimating Practices During Programming When preparing the programming estimates, a field visit to the project location is usually com- pleted by the estimator. The ROW estimator assigned to complete this early estimate generally Appendix E E-11

will either walk or drive the project and note pertinent details such as improvements to be removed, potential damages due to partial takings, and the general topography of the project area. Improvements to be removed include any structure, pavement, outdoor sign, or any other enhancement to the property that is necessary to remove before construction begins. A determi- nation must be made by the estimator related to the current use of the property because the land values may be drastically different for each use. The estimator must determine whether the use of the property is residential, commercial, industrial, or agricultural. The ROW estimator will prepare the estimate based on the ROW requirements per the aerial map and any data obtained during the project site visit. SHAs typically have a cost estimate sheet or checklist to ensure that all elements affecting ROW costs are considered. This is the case for the estimates completed during programming, which usually sets the baseline budget (the estimate by which all other estimates are compared for cost management purposes). A cost estimate sheet will have line items for all elements to be included in the estimate. Typically, the major estimate elements are (1) land, (2) improvements, (3) relo- cation costs, (4) damages, and (5) condemnations. Land values are established by comparable sales in the general project area using resources such as the tax assessor’s records, area realtors, or commercial realtor databases. At this point in project development, the estimate is normally completed on a gross area basis. Therefore, the estimator is looking to establish a value to apply to the total ROW area on a price per acre or price per square-foot basis, depending on property use. Improvements to the raw land and the condition of the existing site improvements must be included in the cost estimate. In addition to justly compensating land owners for their proper- ties, improvements (e.g., buildings, outdoor signs, and parking lots) must be included in the compensation. Relocation costs for all displaced individuals and their belongings are included in the estimate. Most SHAs appear to have reasonable data for estimating relocation costs and apply a set dollar amount, based on recent historical costs and depending on the type of displacement (business, residential owners, or residential tenants). Damages are hard to estimate in almost every case. Estimating such costs requires judgment on the part of the estimator. A value must be assigned based on the size, shape, and use of the parcel remainder. The estimator’s experience and knowledge of the area are very important in establishing this amount. Condemnations are based on historical data and/or previous experience of the estimator in the project area. The condemnation rate (or the percentage of parcels that will proceed to condem- nation) must be estimated in addition to the actual costs of those parcels that may proceed to con- demnation. The condemnation rate differs drastically from state to state because of state laws adjudicating property rights and state laws governing condemnation proceedings. Condemna- tion rates are estimated based on recent project experience in the area, but estimating the con- demnation rates is still very subjective given that a human factor is always involved. The human factor can be defined as the uncertainty and unpredictability related to dealing with property own- ers when an agency is attempting to acquire their property. The reaction of individuals to an agency acquiring property is difficult to predict. If the condemnation rate is estimated accurately, the cost of condemnations will usually be accurate because they are primarily based on state laws. General ROW Cost Estimating Practices During Preliminary Design At the preliminary design phase of project development, the ROW cost estimate is further refined. In most cases, this is a completely new estimate developed by the ROW division person- E-12 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

nel, but it may be an update of a previously developed estimate. This varies by SHA. The estima- tor usually makes a project site visit to explore any issues not apparent from aerial photos or pre- liminary plans defining the ROW requirements. The project manager or project engineer will often accompany the ROW cost estimator to provide input on probable design scenarios that will affect the ROW requirements and cost, and the potential trade-offs between ROW and design may be discussed. Again, a cost estimate sheet is used in producing the estimate to ensure that all aspects of ROW cost are included in the estimate. The same line items included in the programming estimate sheet are examined for this estimate but now are examined in more detail (e.g., parcel informa- tion should be available by this point in project development). The preliminary design estimate is completed using parcel-by-parcel data where a cost is estimated for each individual parcel. This is the last cost estimate completed before the project is programmed in the State Transportation Improvement Program (STIP). Other than the estimates described here, update estimates may occur when major changes occur in project design. These changes, though, must be communicated to the ROW Division by the project manager or project engineer. Communication becomes important in this case. Many SHAs attempt to update estimates annually, but some SHAs noted that the size of their ROW offices or groups of individuals is too small for a comprehensive annual update. General ROW Practices During Final Design Final ROW plans are released during the final design phase—appraisals begin, followed by acquisition. No further cost estimates are prepared. ROW acquisition can begin in earlier phases through protective buying, hardship acquisition, and other early acquisition actions, but most SHAs responded that these were seldom used because of bureaucratic issues such as state laws restricting the length of time ROW can be held after purchasing and prior to construction on the property. In general, the ROW agents in charge of appraisals and acquisition will be aware of cost overruns, but requesting more funds seems to be the current practice instead of attempting to manage costs to a previously set budget. Estimate Review and Approval Practices Review of a completed estimate during any of the project development phases is typically lim- ited to a visual scan by the estimator’s supervisor. In specific cases where the cost of ROW is extremely high in value, a division head may be required to sign off on the estimate. The SHAs contacted had no formal and documented review process covering ROW cost estimates. ROW supervisors typically have many years of experience with ROW estimates and perform high-level reviews of the cost estimate by using “rules of thumb” and heuristics that they have developed through their years of estimating experience. This is completed by examining the major elements of the estimate that have a large effect on ROW cost. The supervisor then determines whether these elements of the estimate appear consistent with past cost experience and subsequently approves or disapproves. State Laws and Other Factors State laws and environmental, political, and social factors affect the ROW cost estimation process and affect ROW cost. The effects of these laws and factors vary by state. The Kelo versus City of New London case which went to the U.S. Supreme Court seems only to have affected Appendix E E-13

SHAs to a limited extent given that most highway agency practices were in conformance with the requirements prior to the case result. However, changes have been made to the eminent domain laws in several states. Interviews confirmed that some state legislatures have passed laws requiring the SHAs to reimburse property owners for private appraisals, attorney fees, and/or other acquisition costs up to a certain value. Furthermore, some states have tightened ROW con- demnation requirements in the areas of notification and time to respond to SHA actions. All states have a defined process for condemnation proceedings and, depending on the state, con- demnation actions can delay project construction starts. E-14 Procedures Guide for Right-of-Way Cost Estimation and Cost Management