Congress appropriates funding for the Corps’ Civil Works Program. The Corps Allocates Funds for Operations and Maintenance Based on Economic Benefits and Risk but Lacks a Method of Tracking Deferred Maintenance for Inland Waterways

		The Corps Allocates Funds for Operations and Maintenance Projects Based on Economic Benefit and Risk

As part of its management of the inland waterways, the Corps budgets for  the costs of operations and maintenance (which are funded from one  appropriation account) and construction (funded from a separate  appropriation account) and develops an annual budget request to submit  to OMB. Lack of a Deferred Maintenance Measure for Inland Waterways Limits the Corps’ Ability to Identify and Communicate Estimated Maintenance Costs

According to Corps and ASA-CW officials, the Corps does not know how  much deferred maintenance exists for inland waterways, because there is  no agreed upon definition for deferred maintenance. Corps and ASA- CW officials identified several challenges related to developing a useful  definition with which to measure deferred maintenance:
Using the total cost to conduct all maintenance identified during the  budget formulation process may not be useful as a budget tool  because the Corps would not have the capacity to conduct all  identified maintenance in one fiscal year. Without a measure—or measures—of deferred maintenance for inland  waterways (1) that the Corps can use to budget for and manage the  inland waterways, (2) that reflects its priorities, and (3) that accurately  conveys a consistent and well-defined measure of deferred maintenance  that can be communicated to outside stakeholders, the Corps is limited in  its ability to identify preventive maintenance that could forestall more  costly maintenance or rehabilitation in the future and communicate its  estimated maintenance costs to OMB and the Congress. The Corps assesses the net economic benefits of inland-waterways  construction-project alternatives by comparing estimated direct costs  (e.g., construction costs to build a new lock chamber) to estimated  reductions in the waterway transportation costs (e.g., reduced travel costs  related to a reduction in the time it might take for a barge to pass through  a larger lock chamber). Incremental Funding of Inland-Waterways Construction Projects Contributes to Cost Overruns and Schedule Delays

Since at least 1995, all inland-waterways construction projects have been  funded incrementally, meaning that annual appropriations have covered a  portion of the project’s estimated costs. Corps reports and academic studies have found  that incremental funding has resulted in inefficient contracting for  construction projects, in part because funding is not guaranteed beyond  the current year and contractors must stop working once funds are  exhausted. For example, Corps  officials currently expect that the Kentucky Lock Addition project will  require at least $229 million more (about 19 percent above the original  estimated cost) as a direct result of inefficient contracting and be  completed 17 years later than planned. However, without some change in the way inland-waterways construction  projects are funded to either provide full funding or reduce the effects of  incremental funding by concentrating on fewer projects at one time,  current cost increases and schedule delays resulting from inefficient  contracting are likely to continue. Appendix IV: Objectives, Scope, and Methodology

In this report, we (1) assess how the Corps allocates funds for operations  and maintenance projects for the inland waterways system; (2) describe  how the Corps prioritizes and funds construction projects, and assess the  effect of the current-funding approach on projects’ costs and schedules;  and (3) present stakeholder opinions on proposed options to alter the  funding and management of inland waterways and any associated  limitations or trade-offs. To illustrate the effects of the current funding approach on costs and  schedules for inland-waterways construction projects, we developed a  simulation of the effects of various funding approaches on the total  funding requirements for a set of hypothetical construction projects.
Why GAO Did This Study

The Corps is primarily responsible for operating and maintaining the nation's inland waterways, including maintaining locks and dams as well as rehabilitating, modernizing, or constructing new infrastructure as needed. Persistent schedule delays and cost overruns for inland-waterways construction projects have prompted some in Congress to explore funding and management alternatives.
GAO was asked to review options to change the management of inland waterways. Among other things, this report assesses how the Corps allocates funds for operations and maintenance for the inland waterways, describes how the Corps funds construction projects, and assesses the effect of the current funding approach on projects' costs and schedules. GAO reviewed Corps documents and data; interviewed officials from Corps headquarters, six districts, and representatives of regional and national stakeholder groups—including commercial and recreational interests as well as contributors to relevant literature—selected to achieve a variety of viewpoints; and developed a simulation of the effect of various funding approaches on the total funding requirements and timelines for a set of hypothetical construction projects.

What GAO Found

The U.S. Army Corps of Engineers (Corps) allocates its appropriated funding for operations and maintenance projects for the inland waterways based on risk and economic benefits. However, the Corps does not know how much deferred maintenance exists for inland waterways because there is no agreed upon definition for deferred maintenance. Corps and ASA-CW officials identified several challenges related to developing a useful definition with which to measure deferred maintenance. For example, a single measure may not be useful to gauge the condition of the waterways because the effect of deferred maintenance projects on the reliability of the waterways will vary. However, without a measure or measures of deferred maintenance for inland waterways that (1) the Corps finds useful, (2) reflects its priorities, and (3) accurately conveys a consistent and well-defined measure of deferred maintenance, the Corps is limited in its ability to manage its maintenance efforts and accurately communicate its estimated maintenance costs to OMB and the Congress.
With regard to inland-waterways construction projects, the Corps prioritizes them based on expected costs and benefits. The Corps assesses the net economic benefits of inland-waterways construction projects' alternatives by comparing estimated direct costs (e.g., construction costs to build a new lock chamber) to estimated reductions in the waterway transportation costs (e.g., reduced travel costs related to a reduction in the time it might take for a barge to pass through a larger lock chamber). According to Corps officials and stakeholders, the current incremental-funding approach for prioritized projects, among other things, has resulted in schedule delays (as shown below) and cost increases. Although full upfront funding for capital projects is an important tool for effective management, inland-waterways construction projects have been funded incrementally, meaning the Corps requests—and Congress appropriates—annual funding that covers a portion of a project's estimated costs. Corps reports and academic studies have found that this approach results in increased project costs because the Corps must contract for construction in separable pieces. This approach is less efficient than contracting for the entire project at once. For example, Corps officials currently expect that the Kentucky Lock Addition project will cost at least $229 million more than the originally estimated cost as a direct result of this contracting approach. Without some change in the way inland-waterways construction projects are funded to either provide full funding or reduce the effects of incremental funding by concentrating funding on fewer projects at one time, current cost increases and schedule delays resulting from inefficient contracting are likely to continue.

What GAO Recommends

GAO is making two recommendations: that the Corps define and measure deferred maintenance for inland waterways and that it pursue changes to increase its ability to more efficiently use available funding for construction. The Department of Defense concurred with GAO's recommendations.