The Federal Highway Administration (FHWA) oversees about $52 billion in Federal-aid Highway Program funds for fiscal year 2022. The Agency makes these funds available to State Departments of Transportation for highway and infrastructure projects. Modifications to a project’s contract specifications are frequently done through change orders, which are an important component of the Federal-aid Highway Program since they can affect projects’ cost, schedule, design details or specification requirements, or a combination of these key elements. Given the possible risks to program oversight posed by change orders, we initiated this audit to assess FHWA’s oversight of contract change orders.
What We Found
We found data limitations that could impact FHWA’s ability to monitor and oversee change orders. Furthermore, FHWA’s methodology for its compliance assessment program (CAP) reviews can lessen the reviews’ usefulness for oversight and monitoring of change orders. The Agency also lacks a consistent definition of change order as well as clear guidance on what constitutes a major change. Lastly, FHWA’s policy and guidance on change orders in its Contract Administration Core Curriculum (CACC) Manual are outdated, and its guidance for monitoring and tracking its change order reports and associated findings lacks clarity.
We made recommendations to help FHWA strengthen its oversight role and help to mitigate potential exposure to risks related to change orders. FHWA concurred with four recommendations and partially concurred with the other two. We consider all six recommendations resolved but open pending completion of planned actions.
No. 1 to FHWA
Enhance the Fiscal Management Information System or develop an agency-wide data management process to provide FHWA personnel with access to change order information for performing their oversight, which includes identifying and monitoring change orders.
No. 2 to FHWA
Evaluate and revise as necessary the Agency processes, including Compliance Assessment Program reviews, to include an oversight methodology that can generate accurate, statistically valid, and representative compliance results for change orders.
No. 3 to FHWA
Develop and implement guidance for use by FHWA and States that a. includes a consistent definition of "change order," b. delineates the differences between a major change and a significant change; and c. further clarifies what may constitute a major change.
No. 4 to FHWA
Update FHWA's Contract Administration Core Curriculum Manual, dated October 2014, to clearly reflect that FHWA may assign its change order approval responsibilities to State DOTs through Stewardship and Oversight Agreements.
No. 5 to FHWA
Develop and implement internal guidance for the Agency's Program Review Library to clearly define the terms "formal report" and "substantive report."
No. 6 to FHWA
Establish clear roles and responsibilities to verify that FHWA Division Offices monitor and track their reports and associated findings and recommendations related to change orders.