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

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The ability of state highway agency (SHA) management to control project cost escalation depends on strategic and structured project development processes. Right-of-way (ROW) costs are among the most difficult to control and, therefore, require disciplined estimating and man- agement procedures. Yet, in many agencies, “stove pipe” divisional structures lead to failure in communicating important project information affecting scope, design, and cost. Although these agency structures may not, in themselves, be the direct cause of project cost escalation problems, such structures hinder management at all levels in addressing adequately the foundational prob- lems that drive program and project cost increases. Agencies realize that project cost escalation is a major challenge and are working to improve their methods of doing business. This Guide seeks to aid agencies in avoiding or controlling cost escalation by providing a strategic approach to estimating project ROW cost. Background The challenge of accurately estimating project cost has been confirmed by many studies (U.S. General Accounting Office, 1997; Flyvbjerg et al., 2002). NCHRP Project 8-49 was insti- tuted by SHAs that recognized project cost escalation as a primary challenge to their success in maintaining and developing the national highway system. The initial phase of NCHRP Project 8-49 produced a guidebook (Anderson et al., 2007a) on highway cost estimating and cost esti- mate management. Transportation professionals nevertheless continued to stress that ROW cost estimating and management of ROW estimates are critical to achieving consistency and accuracy in project cost projections. FHWA data show that states spent $1,751,167,480 for ROW acquisitions during FY 2005 (FHWA, 2007a). At the TRB workshop, Controlling Project Cost Estimates: Managing the Risks, in March 2004, highway agency professionals made comments such as • “There was a huge funding shortfall once the DOT started developing more project details. This truly hurt the DOT’s reputation and credibility and triggered a very aggressive cost con- tainment program.” • “Detailed cost estimates must be developed for all major areas, including ROW and utilities.” • “Other wildcards are ROW and ITS.” A second phase of Project 8-49 specifically addressing the challenges of ROW cost estimating was, therefore, undertaken to produce this Guide. 7 C H A P T E R 1 Introduction

Industry Problem NCHRP Project 8-49, Phase I, stressed that accurate ROW cost estimating is vital to achiev- ing precision in predicting future project expenditures. The work found that 1. The actual cost of purchasing project ROW is frequently greater than the estimates of such cost produced during early stages of project development; 2. Management of the ROW estimating process can help improve program and project cost esti- mate consistency and accuracy; and 3. There is a critical need to establish structured ROW estimating processes. The report from the 2006 Right-of-Way Acquisition and Utility Relocation scan tour (Cam- bridge Systematics, 2006) highlighted the factors that plague estimators attempting to predict the future value of real estate: • Rising real estate values, • Rapid property development in planned program corridors, • Complications with relocation of utilities, and • Private property rights. These factors are often further complicated by the “human factor” related to acquiring property for transportation projects. The human dimension in dealing with property owners adds uncertainty and unpredictability when an agency is attempting to acquire a property. Individual property owner reactions to the proposed project and to the acquiring agency are difficult to predict. Further complicating ROW cost estimating and hindering the accuracy of estimates are state laws and environmental, social, and political factors unique to each state (Kockelman et al., 2004). Although admitting all of these issues, NCHRP Project 8-49, Phase II, revealed that few agencies apply ROW cost estimation methods and tools in a structured manner. Lack of Structured Processes NCHRP Report 574 (Anderson et al., 2007a), produced during the initial phase of NCHRP Project 8-49, defined a set of generic project development phases: planning, programming, pre- liminary design, final design, advertise and bid, and construction. The first four of these phases (see Table 1.1) are relevant to ROW cost estimation and ROW cost estimate management. Typ- 8 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Development Phases Typical Activities Planning Purpose and need; improvement or requirement studies; environmental considerations; right-of-way considerations; public involvement/participation; interagency conditions. Programming Environmental analysis; schematic development; public hearings; right-of- way impact; project economic feasibility and funding authorization. Preliminary Design Right-of-way development; environmental clearance; design criteria and parameters; surveys/utility locations/drainage; preliminary plans such as alternative selections; geometric alignments; bridge layouts. Final Design Right-of-way acquisitions; PS&E development – final pavement and bridge design, traffic control plans, utility drawings, hydraulics studies/drainage design, final cost estimates. Table 1.1. Development phases and activities (Anderson and Blaschke, 2004).

ically, a ROW cost estimate is produced during each of the first three phases of project devel- opment: Planning, Programming, and Preliminary Design. Following preliminary design, appraisals and acquisition commence and no further cost estimates are generated, but cost man- agement should continue as purchases are executed. To support development of the ROW estimating guidance presented here, current agency ROW cost estimation and management practices were documented in a series of interviews con- ducted with agencies across the nation (Anderson et al., 2007b). These interviews explored the steps and tools the agencies used to determine project ROW requirements and to estimate the future cost of obtaining real estate. Topical areas of the interviews were 1. Determination of ROW requirements, 2. Cost estimate preparation, 3. Cost estimate reviews, 4. Cost estimate communication, 5. Cost estimate management, and 6. State laws and other factors that affect the ROW process. Most of the interviews were semi-structured discussions using a prepared interview protocol. The protocol served as a checklist to ensure that all issues were discussed in reference to the four project development phases. These conversations revealed that (1) most agencies lack structured ROW estimating processes and (2) there is very little formal management of the ROW estimat- ing process. Table 1.2 provides a sample of the comments from the interviews. These comments highlight the unstructured nature of the ROW cost estimating and manage- ment processes. Although these comments are not representative of all agencies, the comments indicate fundamental reasons why ROW cost estimates escalate over the course of project devel- opment. The researchers found that structured processes are generally not in place and con- cluded that this lack of structure contributes greatly to the cost escalation manifested during ROW acquisition. Introduction 9 Development Phases Comments General In this study, no program was found that had standardized ROW estimating and cost management across the agency. Planning There is no interaction between planners and ROW. ROW estimating is completed by the planning group. Some sort of contingency is usually added using factors. ROW has little idea where the Planning number comes from (Planning number is not used by ROW). Programming Factors are applied for schedule contingency, administrative/court cost, and market appreciation (predetermined factors are used but the interviewee was unsure where these came from). Estimates are updated only when there are changes to design and when requested by the design team. Preliminary Design (detailed cost estimate) Estimates are completed for the whole project; estimate is not developed parcel by parcel. Preliminary cost estimate has no bearing on the detailed cost estimate. Final Design When approximately 60% of acquisitions are completed, the ROW team leader will check to see if the acquisitions are on budget; if not, the team leader will request more money. Table 1.2. Sample comments from right-of-way interviews with agencies.

Cost Escalation A transportation agency’s program and project cost estimates set expectations both internally and externally. The public demands that agencies be fiscally accountable, and the project cost esti- mate is normally the benchmark for that accountability. Unfortunately, the estimate made at the earliest stage of project development often serves as the benchmark for the public’s expectations, and the uncertainty in these early estimates is not always communicated to internal and exter- nal stakeholders. Project real estate acquisition spending should track within a reasonable range of the ROW cost estimates that were the basis for the establishment of the project budget. However, agen- cies are substantially underestimating the cost of right-of-way because (1) early estimates of ROW cost are often not made by professionals in the agency’s ROW division; (2) early esti- mates are usually based on limited information; (3) ROW personnel, who prepare later esti- mates, often have limited time to do so; and (4) typically ROW estimates are prepared years in advance of actual ROW acquisition. The cost of acquiring project real estate is almost always higher than the estimated cost. Published reports of ROW cost escalation are common. Although the external factors identified during the 2006 Right-of-Way Scan (Cambridge Systematics, 2006) are causes of ROW cost escalation, factors internal to the SHAs also con- tribute to the cost differences between early estimates and the cost to deliver the ROW real estate. The interviews revealed that, in many agencies, there is a lack of integration and com- munication between staff responsible for delivering a project and staff in the ROW section of the agency. Lack of Integration Between ROW Staff and Project Management ROW cost estimates are based on the ROW requirements; these requirements depend on how exactly the Project Manager and designers can formulate the project scope. Typically, scope definition is clarified as project development proceeds from planning phase to final design and construction. During planning, scope definition is often in flux. In addition to the difficulty of developing a precise cost estimate at this stage of project development given min- imal scope definition, in most agencies, planning ROW estimates are completed in the agency’s Planning Division without the benefit of active ROW staff participation. Conse- quently, the ROW cost identified in the planning estimate has minimal bearing on later ROW cost estimates. When a project moves into the programming phase of development, it should undergo a rig- orous scoping process. During programming, the alignment identified should be reasonably close to the project’s final alignment. At most SHAs, ROW staff will receive a request at this point from the project manager for a ROW cost estimate. In many agencies, the request has an accom- panying aerial map showing the project alignment. Approximate ROW boundaries may be iden- tified on the map. When preparing the programming estimate, a field visit to the project loca- tion is usually completed by the estimator. Integration with the project team can be enhanced when there is a formal review process by the ROW estimator and the project team. However, none of the SHAs interviewed had procedures for conducting a formal ROW estimate review. Reviews of completed estimates during any of the project development phases typically were lim- ited to a visual scan by the estimator’s supervisor. Once the project moves into preliminary design, ROW requirements are often described to the ROW Section on an updated aerial map or a preliminary drawing provided by the design engineers. These maps/drawings typically show the ROW boundaries and may even show par- 10 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

cel boundaries. With such detailed data, estimates often are prepared based on the estimated value of each parcel. Again, there is no regular practice of formally reviewing the estimates, and regular, formal communication between ROW staff and the Program Manager or the project design team is the exception. This Guide lays out steps for ROW estimating that integrate with the cost estimation and cost estimate management procedures outlined in NCHRP Report 574: Guidance for Cost Estimation and Management for Highway Projects During Planning, Programming, and Preconstruction. Procedures Guide Development This Guide was developed under the second phase of NCHRP Project 8-49, “Procedures for Cost Estimation and Management for Highway Projects During Planning, Programming, and Preconstruction.” Approaches for accurately estimating and managing project ROW cost are proposed based on this research. The inquiries and analysis to develop this Guide were conducted in two phases. The first phase focused on a state-of-practice examination of ROW cost estimating and cost estimating man- agement practices. The current state of estimating practice was characterized by an extensive review of the literature supported by interviews with various transportation agencies. Meetings to collect data on ROW cost estimation and cost estimate management practices were conducted throughout the nation by members of the research team. Seven SHAs, the O’Hare Modernization Program Office of the City of Chicago, and the City of Phoenix Street Transportation Department were interviewed. This was in addition to 18 formal SHA interviews (Anderson et al., 2007b) conducted during the earlier phase of NCHRP Project 8-49. A critical review of practices described in the literature and identified in the interviews formed the basis for developing the structured approach to ROW cost estimating and cost estimating management described herein. This structured ROW estimating process, which integrates with overall project estimating, addresses the major factors causing the under estimation of ROW cost. This approach seeks to address the issue identified in the 2006 Right-of-Way scan report; there needs to be an “Integration of the Right-of-Way and Design processes to decrease right- of-way costs and length of time to purchase right-of-way” (Cambridge Systematics, 2006). The structured process of this Guide links with the strategic estimating approach defined in NCHRP Report 574. The second phase of the research developed this Guide. A draft guide was prepared with a focus on addressing ROW cost escalation through the use of a structured estimating and esti- mate management process. This draft was critically reviewed by the NCHRP Project 8-49 Panel. Several members of the AASHTO Subcommittee on Right of Way and Utilities commented on portions of drafts of the Guide. The review provided a critique of the Guide’s content, structure, layout, and user-friendliness. Use of the Guidebook This Guide has been designed to provide transportation agencies with guidance on estimat- ing and managing project ROW cost. The Guide provides the knowledge and information necessary for SHAs to create “how to” approaches that fit within existing agency processes and culture. Introduction 11

The Guide is designed to provide information to various users in several ways. The chapters follow the generic project development phases found in most SHAs. A chapter is dedicated to each project development phase where a ROW estimate should be created; in those chapters, there is a discussion of each cost estimating step: 1. Determine estimate basis, 2. Prepare base estimate, 3. Determine risk and set contingency, 4. Review estimate, and 5. Approve and communicate. Similarly, in each chapter there is a discussion of each cost management step: 1. Approvals, 2. Communication, 3. Monitoring, 4. Impact of change, and 5. Adjust estimate. Organizational Level If ROW cost escalation is a significant problem for an agency, changes in agency policy that influence how ROW cost estimating and cost estimating management is performed may be nec- essary to produce consistent and accurate estimates throughout project development. If so, the executive managers who will create these policies should review Chapters 1, 2, 3, and 8 of the Guide. These chapters provide a basic structure and approach for developing agencywide poli- cies that will lead to improved ROW cost estimating and cost estimating management processes. Chapter 8 identifies key requirements for successful ROW cost estimating and cost estimating management from an agencywide perspective. These requirements promote a collaborative atmosphere that encourages change to meet the challenges associated with improved ROW cost estimating and cost management practices. Program and Project Level Program managers are often charged with implementing policy changes. If policy changes in cost estimating and cost estimating management are necessary, these managers should read Chapters 1, 2, 3, and 7 and the relevant Chapter 4, 5, or 6. For example, planning directors can focus on Chapter 4: Conceptual ROW Cost Estimation, which is directed at processes during the early phases of project development. Project Managers can focus on Chapters 5, 6, and 7, which describe processes for the programming, preliminary design, and final design phases of project development. When using Chapters 4, 5, 6, and 7, Appendix A is referenced frequently to support steps in the cost estimating and estimate management processes. Discipline leaders who are directly responsible for cost estimating and cost estimating man- agement processes should read Chapters 1, 2, and 3 for a global understanding and relevant Chapters 4, 5, and/or 6 according to their area of responsibility. Appendix A: Tools is referenced frequently with respect to tools that support the processes described in these chapters. Chapter Summary Project cost escalation, specifically ROW cost growth over the course of project development, is the major problem that this Guide addresses. As projects evolve from concept to detailed devel- 12 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

opment prior to construction, this problem is faced by every SHA, transit agency, and metro- politan planning organization (MPO) in the country. To address project cost escalation, agen- cies must adopt a structured approach to ROW cost estimating and rigorously complete each estimating step. This Guide was developed as part of NCHRP Project 8-49, “Procedures for Cost Estimation and Management for Highway Projects During Planning, Programming, and Pre- construction,” and serves as a complement to NCHRP Report 574. Introduction 13