California considered developing a high‑speed rail network for many years; as early as 1981, the State evaluated working with Japanese partners to construct a high‑speed rail line in Southern California. However, planning did not begin in earnest until the mid‑1990s. In 1996, the California Intercity High‑Speed Rail Commission, which had investigated whether a high‑speed train system could be possible in California, issued a report concluding that high‑speed rail in the State was feasible. Following that report, the Legislature formed the California High‑Speed Rail Authority (Authority), which is responsible for planning, building, and operating high‑speed, intercity passenger rail service in the State. If completed, the high‑speed rail system promises to transform how people travel in California and would be the first bullet train in the nation.
A part of the California State Transportation Agency, the Authority is overseen by board of directors (board). The Governor appoints five of the board's voting members, and the Legislature selects the other four, along with appointing one senator and one assemblymember to serve as nonvoting members. The board supervises the Authority's employees, who numbered more than 190 as of June 2018. In addition, since 2006 a consulting firm has helped manage the high‑speed rail project by acting in a role that the Authority labels rail delivery partner (RDP consultants). As of June 2018, the RDP consultants had 485 staff working on the project. Figure 1 summarizes key events in the Authority's history, as well as projected completion dates for portions of the eventual rail system.
The Authority has secured a total of $12.7 billion in funding and has identified an additional $15.6 billion in possible future funding for the high‑speed rail system. Although the Authority completed some preliminary planning tasks in the years following its creation, it did not have a dedicated revenue stream until November 2008, when voters approved Proposition 1A, which provided funding for the system. Also known as the Safe, Reliable High‑Speed Passenger Train Bond Act for the 21st Century, Proposition 1A allowed for the issuance of $9.95 billion in state general obligation bonds, $7.5 billion of which is for the system's planning and construction. Two years later, the State secured federal funding for the project through the American Recovery and Reinvestment Act (Recovery Act), which provided $2.6 billion through a matching grant.
Timeline of High-Speed Rail Development
Source: State law, state election records, federal grant agreements, and the Authority's business plans, contracts, and press releases.
In 2011, the State received an additional $929 million in federal grant funding, bringing the total federal support to $3.5 billion. The Authority also receives a continuous appropriation of 25 percent of revenues from the State's Greenhouse Gas Reduction Fund, which is funded by the State's cap‑and‑trade program. As of December 2017, this funding stream had provided the Authority $1.7 billion, and the Authority projects it will receive between $4 billion and $4.5 billion in future revenues from the fund through 2030. The Authority also projects receiving an additional $3.9 billion to $11.1 billion if it is able to use federal loan programs or public‑private partnerships to borrow against future cap‑and‑trade revenue.
The Authority presented its most recent cost estimate for the system—$77.3 billion—in its 2018 business plan. The Authority stated in the 2018 business plan that it would continue to pursue all possible options for funding the project, including additional federal grants and private sector partnerships. However, these funding sources have not yet materialized. The Authority is also exploring additional funding scenarios with local governments in the cities and counties where it plans to build stations. In recognition of the expected economic impact of the new rail stations, the local governments that partner with the Authority would use future property tax revenues to help support the development of such stations within their jurisdictions. Although recent state legislation has expanded these types of funding options and the Authority has worked with cities to evaluate their feasibility, it is still in the early stages of this planning. Similarly, the Authority has researched the prospect of receiving advertising and station parking revenue in the future.
System Planning and Construction
According to its 2000 business plan, the California high‑speed rail system was originally conceived as a stand‑alone, dedicated system spanning over 700 miles and connecting some of the State's largest cities, including San Diego, Los Angeles, San Francisco, and Sacramento. Early plans for the system also called for stations throughout the Central Valley, including in Bakersfield and Fresno. Since that initial vision, the Authority's plans have changed dramatically. Most notably, in its 2012 revised business plan, the Authority introduced the concept of blending—the practice of sharing existing infrastructure with other rail operators instead of constructing dedicated infrastructure for high‑speed trains—which partially offset the system's rising cost estimates. Although previous business plans had considered opportunities to integrate the system with other railways, the 2012 plan was the first time the Authority formally introduced blending into the system by deciding to share the corridor between San Francisco and San Jose with an existing regional carrier, Caltrain. Since then, the Authority has incrementally adopted blended options elsewhere in the system, including between Burbank and Los Angeles and—as it announced in its 2018 business plan—between San Jose and Gilroy. Figure 2 details how planned blending has expanded across portions of the system over time. We further discuss the projected cost savings associated with blending, as well as the service implications, in Chapter 1 of this report.
The Authority's System Plans for Phase 1 Have Evolved Over Time
Source: The Authority's published business plans, budgets, and planning documents.
Note 1: The Authority has not consistently planned to operate service between Los Angeles and Anaheim. As recently as 2014, the Authority did not plan to operate trains on this segment. The Authority now plans to operate high‑speed trains on this segment by sharing track with Metrolink. However, because these plans do not represent a shift from dedicated to blended infrastructure over time, this segment is not included in the above analysis.
Note 2: The Authority has consistently stated that it intends to eventually complete Phase 2, which will extend the system to San Diego (via the Inland Empire) and Sacramento after it finishes Phase 1 between San Francisco and Los Angeles. The maps above show Phase 1 only.
In the 2012 business plan, the Authority also announced that it would use a segmented approach to building the system, in part due to the lack of sufficient funding for the full system. The segmented plan initially called for the Authority to construct a segment between Merced and the Los Angeles basin on which it would operate high‑speed service before completing the rest of the system. However, in its 2016 business plan, the Authority changed course and stated that it planned to build first between San Jose and an interim station north of Bakersfield, an approach the Authority has named the Silicon Valley to Central Valley Line (Valley‑to‑Valley segment). In 2018, the Authority announced that it would expand the planned Valley‑to‑Valley segment to San Francisco in the north and downtown Bakersfield in the south; previously, the southern terminus had been Shafter, a small farming community north of Bakersfield. However, the Authority's 2018 business plan acknowledges that although it has the funds necessary to complete work in the Central Valley between Madera and Bakersfield, as well as between San Francisco and Gilroy, the funds will not be sufficient to complete the tunnels necessary to connect those two lines or extend the system south to Los Angeles. Figure 3 illustrates the Authority's current and projected funding as compared to the estimated cost of different segments.
The Authority Has Secured Funding to Finish Construction in the Central Valley but Not the Rest of the System
Source: The Authority's 2018 business plan.
* The Authority presents its unsecured funding in ranges. This graph uses the high end of its estimates; the Authority's low‑end estimates of unsecured future funding is $7.9 billion.
Construction of the system is now underway in the Central Valley. Current construction is focused on developing the initial infrastructure, such as bridges and viaducts. Future construction will lay the physical track and will install other needed support services and maintenance facilities. As Figure 4 shows, the Authority has divided its current construction into three projects, which this report refers to as Project 1, Project 2/3, and Project 4. The Authority has entered into contracts with different construction firms for the delivery of each project. These construction contracts represent $3.1 billion of the $5.6 billion in contracts that the Authority currently oversees. Chapter 1 of this report includes our review of each construction project, including its cost and status.
Current Construction Projects Are Between Madera and Bakersfield
Source: The Authority's maps and construction contracts.
Past Audits of the Authority’s Contract Management and Oversight
The Authority has been aware of shortcomings in its processes for managing its wide range of contracts for at least the past three years. It published internal audits in 2015 and 2016 that identified significant deficiencies in its contract management and oversight, including its failure to implement necessary policies and procedures, its lack of documentation of contract management activities, and its failure to establish sufficient oversight structures to ensure effective contract management. In February 2015, the Authority's Audits Office completed the first of these audits to determine whether the Authority was managing contracts in accordance with state and Authority expectations. The Authority conducted a follow‑up audit in May 2016 with the same focus.
The 2015 audit emphasized that a structured contract management process is necessary to define responsibilities for administering contracts and for monitoring and evaluating contractors' performance. However, the audit found that the Authority's contract managers did not always receive proper guidance and often lacked the technical expertise to thoroughly manage contracts. The audit also identified numerous instances in which poor communication between the RDP consultants and the Authority meant that the Authority's contract managers were uncertain whether invoices that the RDP consultants approved were for appropriate services and whether contractor work products were reasonable based on their costs.
Key Recommendations From the
Authority’s Internal Audits
- Develop effective, comprehensive contract management processes unique to the types of contracts that the Authority manages.
- Implement a formal system of review and oversight of contract managers.
- Establish performance standards for contract management.
- Develop individual contract work plans that include how the Authority will manage segmented responsibilities through a communication plan that identifies roles and responsibilities.
- Establish oversight for contract managers, along with clearly documented expectations and regular communication to ensure contract requirements are met.
- Ensure that persons performing contract management have sufficient information to determine if invoiced costs are reasonable and deliverables meet requirements.
Source: The Authority's February 2015 and May 2016 internal audits of contract management.
Released 15 months later, the 2016 audit confirmed that these contract management issues persisted and were widespread. After reviewing a wider range of contracts and contract managers, the Authority's auditors concluded that contract managers continued to delegate core contract management tasks to the RDP consultants, that roles and responsibilities for contract managers and the RDP consultants were not clearly defined, and that oversight of contract management was still insufficient. Further, this report highlighted that contract managers did not proactively document their expectations for work products, putting the Authority at risk of paying for inappropriate or unsatisfactory work.
The Authority has repeatedly acknowledged the need to address its contract management deficiencies. Each internal audit report contained recommendations intended to address inadequate contract management policies and structures. The Authority's management concurred with these recommendations, which the text box summarizes. In response to the 2015 internal audit, management asserted that the Authority had contract management policies, procedures, roles, and responsibilities in place. However, it acknowledged that contract managers had not consistently adopted those policies and procedures. After the 2016 internal audit revealed ongoing widespread deficiencies, the Authority's management recognized that the implementation of existing contract management policies had not yet yielded the desired results.
Current Contract Management Policies and Procedures
In response to its 2015 and 2016 internal audits, the Authority established a contract administration organization in 2016, which included the Contract Management Support Unit (CMSU). The Authority tasked CMSU with developing revised and improved policies and procedures, governance structures, and training and other resources applicable to all contract management areas. In April 2017, the Authority approved nine new policies and procedures related to contract management. These policies cover key areas for contract management, including invoicing and payment, performance monitoring and reporting, and contract compliance. Additionally, the procedures outline processes to ensure that contract managers effectively manage contract documents, deliverables, risks, changes, and disputes. When we compared the 2017 policies with requirements in California's State Contracting Manual, we found that the Authority's policies were consistent with those requirements in areas related to controlling costs, such as prompt invoice review and comprehensive monitoring of contractor work products, referred to as deliverables.
We also found that the 2017 policies improved upon the Authority's previous policies by specifying required contract management processes and the documentation of those processes. That is, although both the 2014 contract manager handbook and the 2017 policies are broadly consistent with the State Contracting Manual, the 2017 policies emphasize specific process steps that contract managers must perform, require the use of tracking logs and other documents, establish a standardized file system for maintaining contract management documentation, and create a process for transferring files to new contract managers to preserve the consistency of contract oversight. Table 1 lists the documentation that the policies require contract managers to maintain to demonstrate how they are monitoring each contract. In these ways, the policies recognize both the deficiencies uncovered by the Authority's internal audits and the need to document processes to facilitate and demonstrate compliance.
CMSU’s Oversight Responsibilities
- Review and report on contract managers' compliance.
- Communicate noncompliance to appropriate supervisors.
- Follow up on concerns until completely resolved.
Source: The Authority's contract management policies and procedures.
Although the Authority as a whole is responsible for writing contracts in a manner that safeguards the State’s interests, its contract management policies identify contract managers as the personnel responsible for overseeing those contracts once executed. Further, the Authority’s 2017 policies and procedures assign CMSU oversight responsibility to help ensure contract managers’ compliance with policies, as the text box describes. The Authority also requires CMSU to collect feedback to help develop lessons learned and identify areas for continued improvement. In Chapter 2, we evaluate the Authority’s implementation of its new contract management policies and procedures.
|CONTRACT MANAGEMENT AREA||REQUIRED DOCUMENTATION||TO ENSURE CONTRACT VALUE, CONTRACT MANAGERS MUST . . .|
|Invoices||Invoice tracking log||Use this log to track the contract's invoices, expenditures, budget, and forecast. This process is essential to managing the contract and ensuring the contractor does not incur costs over the contract's limit.|
|Invoice approval checklist||Complete an approval checklist to verify that each invoice submitted for payment is true, correct, and in accordance with law for all contracts with value greater than $5 million.|
|Dispute tracking log||Use this log to track and document invoice dispute information and the status of the resolution process.|
|Deliverables||Deliverables tracking log||Use this log to document the contract deliverables' status and the determination of whether the deliverables are timely and meet the quality terms of the contract.|
|Deliverable acceptance notice||Use this notice to attest that a deliverable meets the acceptance criteria and to indicate acceptance of the final deliverable.|
|Recovery plan||Request this plan from the contractor if a contract deliverable has fallen behind schedule, does not meet contract requirements or documented acceptance criteria, or may require repeated work.|
|Performance and Amendments||Risk register||Use this register to identify risks, as well as strategies to accomplish contract objectives in the face of those risks.|
|Change tracking log||Assess any potential amendments to a contract for merit, and use this log to document the outcome of this assessment, the potential amendment's impact on the project's schedule and proposed cost, and a description of the issue or need for change.|
|Contract compliance assessment||Conduct assessments of contract requirements, including—at a minimum—insurance, small business utilization, deliverables, invoicing, schedule, change orders, and subcontracts.|
Source: The Authority's contract management policies and procedures.