New Report on Construction Costs Misses the Mark
In the last few years, ever more serious and powerful actors have begun investigating the fact of high American infrastructure construction costs. First it was Brian Rosenthal’s excellent New York Times exposé, and then it was the Regional Plan Association’s flop of a study. At the same time, I was aware that the congressional Government Accountability Office, or GAO, was investigating the same question, planning to talk to sources in the academic world as well as industry in order to make recommendations.
The GAO report is out now, and unfortunately it is a total miss, for essentially the same reason the RPA’s report was a miss: it did not go outside the American (and to some extent rest-of-Anglosphere) comfort zone. Its literature review is if anything weaker than the RPA’s. Its interviews with experts are telling: out of nine mentioned on PDF-p. 47, eight live in English-speaking countries. Even when more detailed information about non-English-speaking countries is readily available, even in English, the GAO report makes little use of it. It is a lazy study, and people who ideologically believe the American federal government does not work should feel confident citing this as an example.
Cost comparisons
Brian himself already notes one of the reasons the report is so weak: Congress mandated a comparative study, but the report made no international comparisons at all. Instead, the report offered this excuse (PDF-p. 27):
The complexity of rail transit construction projects and data limitations, among other things, limits the ability to compare the costs of these projects, according to the stakeholders we interviewed. As highlighted above, each project has a unique collection of specific factors that drive its costs. According to FTA officials, each proposed transit project has its own unique characteristics, physical operating environment, and challenges. Some stakeholders said that the wide disparity in the relative effect of different cost factors renders cost comparisons between projects difficult. For example, representatives of an international transit organization said that because of the large number of elements that can affect a project’s costs and the differences in what costs are included in different projects’ data, projects should be compared only at a very granular level and that aggregate cost comparisons, such as between the costs per mile or costs per kilometer of different projects, are likely flawed. Some stakeholders also said that project costs should not be compared without considering the projects’ contexts, such as their complexity. For example, one academic expert contended that project costs cannot be compared without considering the context of each project, and that analysis of projects should focus on leading practices and lessons learned instead.
There is a big problem with the above statement: disaggregated costs for many aspects of urban rail construction do exist. The Manhattan Institute’s Connor Harris has done a lot of legwork comparing tunnel boring machine staffing levels and wages in New York and in Germany, and found that New York pays much higher wages but also has much higher staffing levels, 25-26 workers compared with 12. I have done some work looking at station costs specifically, and at the cost of installing elevators for wheelchair accessibility.
There is a lot of detailed comparative research about the costs of high-speed rail; the report even references one such meta-study undertaken within Europe, but omits the study’s analysis of causes of cost differences and instead asserts that it shows that comparing different projects is hard. In the interim, California contracted Deutsche Bahn to do a post-mortem of its elevated high-speed rail costs, which found that California needlessly built larger structures than necessary, explaining its cost premium over Germany.
Instead of probing these disaggregated estimates, the GAO preferred to say that they are too hard and move on.
Sanity checks
Even without disaggregation, there are some good sanity checks one can make about construction costs. The most important is that big projects – major subway expansions, regional rail tunnels, high-speed rail – cost an appreciable amount of the government’s budget. The budget for the 200-kilometer Grand Paris Express project is €35 billion, plus another €3 billion in contributions for related suburban rail extensions such as that of the RER E. There may be future cost overruns, but they will be reported in the media, just as the current overrun has been; it is extremely difficult to hide cost overruns measured in tens of billions in a Paris-size city, and even in a China-size country it may not be easy.
Is it plausible that GPX is inherently easier to build than New York’s $1+ billion/km subway tunnels? Yes. It’s equally plausible that it is inherently harder. Second Avenue Subway runs under a wide, straight throughfare, a situation that simplifies construction. In Israel, the ministry of transportation has long mentioned the ease of tunneling under wide, straight boulevards in connection with plans to extend the second line of the Tel Aviv subway to North Tel Aviv under Ibn Gabirol, and admitted this even when it opposed the extension on land use grounds.
The most important sanity check is that in a world with several dozens of cities with a wide variety of wealth levels, land use patterns, geologies, and topographies, no city has managed to match or even come close to New York’s construction costs. New York is not special enough to be an edge case in all or even most relevant geographic variables – it is dense but no denser than Seoul or Paris, it is wealthy but no wealthier than London or Paris or Munich and barely wealthier than Stockholm, it has hard rock but less hard than Stockholm (and in Stockholm the gneiss is cited as a cost saver – bored tunnels do not require concrete lining), etc.
Moreover, the cities that have the highest construction costs outside New York are almost without exception in the same set of countries: the US, Canada, Britain, Singapore, Australia. What’s likelier – that there is some special geographic feature common to the entire Anglosphere (including Quebec) but absent from all other developed countries, or that there is a shared set of legal and political traditions that developed in the last 50 years that impede cost-effective construction? Instead of probing this pattern, the GAO preferred to wash its hands and refuse to compare projects across countries.
Internal comparisons
In lieu of making international comparisons, the GAO has engaged in extensive internal comparison. It cites aspects that have raised the costs of Second Avenue Subway above other American subway projects, such as overdesign for stations. Apparently, it’s completely legit to compare two different cities’ construction if they’re in the same country.
Over and over again, it references its own domestic standards. The GAO has 12 design standards, e.g. on PDF-pp. 51-52 and 56-60; the report mentions that existing cost estimation methodologies by the Federal Transit Administration, or FTA, meet 7 of them; thus, it exhorts transit agencies to meet the other 5 standards.
The only problem is that there is no evidence supplied that those design standards are really useful. After all, the United States has very high costs, so why should anyone trust its standards? Even domestically, the report makes no effort to bring up successful examples of low overall costs coming from following prescribed standards. Seattle recently opened a light rail tunnel built for around $400 million per kilometer, a cost that would get most European project managers fired but that is still the lowest for an American urban rail tunnel built in this century. But the report never brings up Seattle at all, never mind that New York would salivate over the prospect of tunneling at Seattle’s cost.
The real internal comparisons then are not between different cities in the United States. Rather, they’re between different stages of cost estimation for the same project. There is published literature on cost overruns, most famously by Bent Flyvbjerg and his research group. The report cites Flyvbjerg. Moreover, one of the nine academic experts it consulted is Don Pickrell, who published a seminal paper on American cost overruns and ridership shortfalls in 1990. Pickrell was influential enough that a 2009 review found that not only had cost and ridership projections improved greatly in the intervening two decades, but also there was an improvement in ridership estimate quality attributable to Pickrell’s paper.
The GAO report is not the best source on cost overruns, but it is not completely useless there. Unfortunately, it remains useless when it comes to discussing absolute costs, a different topic from relative increases. Flyvbjerg’s original paper found that the US did not have higher cost overruns than Europe; but absolute costs in the US are several times as high. Flyvbjerg’s paper found that urban rail has higher cost overruns than road projects; but when a rail tunnel and a road tunnel are built in the same city, the road tunnel is more expensive by a factor of 1.5-2.5, at least in the four-city pilot I reported in 2017, owing to the need to build bigger bores with ventilation to carry heavy car traffic.
Lazy analysis, lazy synthesis
Americans who think of themselves as reformers like to point out real problems to solve, but then propose solutions that they made up without any connection with their analysis. The RPA study is one such example: even though one of its sources (namely, former Madrid Metro CEO Manuel Melis Maynar’s writeup about low Spanish costs) explicitly calls for separation of design and construction, its recommendations include a greater reliance on design-build. The same design-build recommendation appeared in a 2008 report in Toronto comparing the costs of the Sheppard subway, opened in 2002, with those of subways in Madrid; construction costs in Toronto have since tripled, while those of Madrid have barely risen.
To the GAO report’s credit, it does not recommend design-build. It even mentions the biggest drawback of design-build: it shifts cost risk to the private contractor, who compensates by demanding more public money up front. Nonetheless, it does not follow through and does not make the correct recommendation on this subject – namely, that cities and states should cease using this approach. It buries a recommendation for in-house expertise alongside a fad for peer review of projects.
Instead of lazily proposing design-build, the GAO lazily proposes two barely relevant tweaks (PDF-p. 43):
- The FTA administrator should ensure that FTA’s cost estimating information for project sponsors is consistent with all 12 steps found in GAO’s Cost Estimating and Assessment Guide and needed for developing reliable cost estimates.
- The FTA Administrator should provide a central, easily accessible source with all of FTA’s cost estimating information to help project sponsors improve the reliability of their cost estimates.
In other words, the report makes no recommendation about how to reduce costs, only about how to tell the public in advance that costs will be unaffordably high.
Why are these reports so bad?
This is not the first time a serious group releases an incurious study of American construction costs. What gives?
I suspect the answer has to be a combination of the following problems:
- Reform factions often have a lot of internal ideas about how to improve things based on what they already know. They will cite new information if they feel like they must do so to save face, but they will not let new evidence change their conclusions. A little knowledge can be dangerous.
- Finding information from outside the US, especially outside the English-speaking world, puts Americans (and Canadians) at a disadvantage. They know few to no foreigners, have little experience with cities abroad except as tourists, and do not speak foreign languages. Even when machine translation is decently accurate, which it is in the engineering literature in European languages, they are intimidated by the idea of dealing with non-English material. The process of learning is humbling, and some people prefer to remain proud and ignorant.
- Open-ended analysis does not always lend itself to easy explanations or easy solutions. Even when solutions do present themselves, they may not flatter the people in power. Ten years ago I did not think senior management at American transit organs should be fired; today I think mass layoffs of the top brass, especially the political appointees, are somewhere between very useful and essential.
All three problems interact. For example, senior management is even less likely to be multilingual than junior staffers, who may be second-generation immigrant heritage speakers of a foreign language; thus, anything relying on foreign material disempowers the high-ups in favor of up-and-comers. The quick-and-easy-and-wrong solutions reformists seize upon if they find a little bit of knowledge let outfits like the GAO feel more powerful without actually challenging any obstructive politician or interest group, and if those solutions fail, they can always keep churning reports about implementation.
Last year, I did not know whether the GAO was capable of providing a blueprint for improving American infrastructure at lower cost. I assumed good faith because I had no reason not to. With this report, it is clear to me as well as to other observers of American public transit that the GAO is not so capable. Instead of doing what was in the country’s best interest, the people who commissioned and wrote the report delivered the minimal product that would get them kudos from superiors who do not know any better. They could have learned, or made a serious effort to learn, but that might challenge their assumptions or those of the high political echelons, and thus they preferred to say nothing and propose to do nothing.
Pedestrian Observations 
Depressing. Of course the rest of the Anglosphere will reference this wishy-washy report when they want to do their own handwaving over all their infrastructure clusterfks. Or worse, why they shouldn’t even think about doing such transit projects at all.
I feel a shoutout could be given to Matthew Yglesias (now Vox, formerly writer for Slate and Atlantic Cities) who has been following this story for years. On the current GAO report he previously wrote (emphases are mine):
https://www.vox.com/policy-and-politics/2017/5/24/15681560/gao-report-transit-construction-costs
Someone killed a congressional inquiry into America’s sky-high transit construction costs The life and death of great American GAO reports.
Matthew Yglesias, 24 May 2017.
Some people in the United States Senate had the smart idea that the federal government ought to do something similar and included language in their appropriations bill commissioning a Government Accountability Office study of the issue. It’s normally the kind of thing that’s an uncontroversial measure, but the language was stripped out when the bill had to be reconciled with the House’s language as part of the big government funding deal earlier this year.
That led to a search for when, exactly, the GAO was going to be directed to report on this.
Poking around got me to the Senate’s original text contained this language calling for a GAO study of transit construction costs:
Nobody seems to want to officially claim credit for killing this or to point the finger at exactly who did it, since for better or worse mass transit construction costs aren’t anyone’s top priority on Capitol Hill. But there was an effort to get the federal government to take a look at this, and then someone else squelched it.
…………………(end citation of Yglesias)
It seems pretty obvious that various private-sector vested interests in the US don’t want those comparisons with nations who cost-effectively manage such transit projects, not least the more direct management and supervisory role of government. They don’t want a bar of it. Because the US political system is dependent on and driven by donations, it is easy-peasy to kill such stuff before it makes the light of day. The GAO is supposed to be above such malign influence but obviously not.
There’s an underlying assumption here that US costs are too high, who says? Maybe the rest of the world is unrealistically cheap and the systems constructed are death traps with shoddy work and poor design standards? The oft quoted miracle of Madrid , has any one studied what was awarded to the Contractors who lost their shirts delivering the project so cheaply? Have any of the studies ever looked at the profitability of the projects from a Contractors perspective, no they always look at the cost to the owner because it seems no one cares whether Contractors make money or not. However they are not charities and need to make money to survive. Any comparison between the US and countries such as China are straight up garbage, no one has any clue what the real costs are in China.
Contractors price risk when they bid the job. Not every agency does this but many will issue no quantities or method of measurement with the bid documents, meaning the Contractor has to take off the quantities as part of the bidding process. Other countries provide a bill of quantities and a standard method of measurement, making everyone’s life easier. And if you really want to get better estimates and prices Owners need to give the Contractors longer than 6 or 8 weeks to develop the bid costs, hell the Owners had 5 years to get to their estimate, and then they hurl 1000 drawings over the fence and 350 spec sections together with a GBR and GDR and give the Contractor say 2 months to develop a schedule and an estimate which he is then expected to stick to for the next 4 to 5 years or whatever. And then you wonder why outcome costs are high?????
Design Build requires the Owner to give up control over the design, I’m not sure what your comment about design build is about, I’m working on three DB right now as the Lead Designer and I can tell you that we are currently working at cost due to restrictions placed by the Client. There is no large up front payment. Design Build has other issues, clients usually have no clue how to bid and manage design build, they allow their reference design engineer way too much latitude to over design stuff and then allow them to protect their design rather than setting the minimum standards and allowing the design builder to bring innovations and concepts to the table. As for Agency staff being able to design, seriously that’s not even a starter in most agencies.
Unless you have the same regulatory framework, legal framework, environmental and safety standards, funding process, contractual mechanisms, labor regulations etc. any comparison of costs between countries is inherently flawed. Which means your comparison between TBM staffing and rates in Germany and the US is irrelevant unless you level it out for Purchasing Power Parity to account for different costs of living, tax frameworks, healthcare costs etc.
“Maybe the rest of the world is unrealistically cheap and the systems constructed are death traps with shoddy work and poor design standards?”
Actually, Europe has much safer trains than the US. In the US construction is more expensive AND the results are worse.
No, the entire rest of the world is not a death trap. Come on. As a sanity check, the accident death rate per passenger-km on mainline rail is around 3-4 times lower in Western Europe than in the US, and around 5-6 times lower in Japan than in Western Europe. There’s this big American mythology about safety, best articulated by a Caltrain official who, when pointed out how quickly Japanese trains turn at the terminal, responded, “Asians don’t value life the way we do.” Given comparative safety one would conclude that Americans do not value life the way Asians do.
Same thing with environmental standards, labor standards, etc. The first world’s highest-inequality large country should not go around preaching its labor standards in any kind of international comparison. (And if you include small countries, the highest inequality and most anti-worker regulations are in Singapore and Hong Kong, both of which have high construction costs; in Singapore the government makes excuses too. And Singapore even has low health care costs, unlike the US…)
Also, re the “who knows if the contractors lost their shirts” line: Madrid has been aggressively building out its Metro for a generation. If the contractors all took big losses in the 1990s, they’d come back and bid higher now. People keep not getting that Madrid didn’t build one short line cheaply, it’s built Europe’s third longest metro network cheaply in a repeated game.
In Spain the budget consists of, among other things:
-A baseline price (presupuesto base de licitación) wich covers materials, staffing, electricity, etc.
-Overhead (gastos generales), set by law at 13% of the baseline price.
-Profit margin (beneficio industrial), set at 6%.
So, unless they are very incompetent, contractors are supposed to always turn a profit on public contracts, since the baseline price is calculated by the design contractor based on market rates, not by public officials trying to squeeze them.
I’m no legal expert so I don’t know how public infra contracts are done in the rest of the world. I’d assume the system is similar in the rest of Western Europe, while American contracts are less itemized?
” Seattle recently opened a light rail tunnel built for around $400 million per kilometer, a cost that would get most European project managers fired but that is still the lowest for an American urban rail tunnel built in this century.”
Los Angeles Metro Red Line phase 3, opened in 2000, cost 1.3 billion dollars. Length 10.1 km. three stations, longest tunnel reach is 5 km, beneath the Santa Monica Mountains.
It is definitely the cheapest per km/ Rail project in this century in the United States.
2000 is last century 🙂
Do you have a source? I’ve seen higher figures, e.g. the GAO 1996 estimate was $2.8 billion (link, PDF-pp. 8, 20), albeit including part of the Purple Line.
Straight from Metro, page 2
Click to access 6.0%20Preliminary%20Cost%20Report.pdf
The most amazing thing is how much costs decreased from phase to phase of the red line. But the first phase was built in the area of downtown with all the utilities problem the current regional connector project is having, and the per mile costs of the third phase are definitely driven down by the 5km tunnel reach under the santa monica mountains.
>The most amazing thing is how much costs decreased from phase to phase of the red line.
Apart from the long tunnel and the lack of utilities diversion in future phases, there may be another simple explanation for this – systems costs go down the more railway you have. Things like yards have “lumpy” costs, so if you can make the same yard serve more railway (and/or avoid building more in later phases) you can bring down the per km cost.
That is true, Also significant is that phase 2 of the red line was a PR and construction disaster. It’s very likely that as a result, metro administration, state oversight, federal oversight were amped up in the next phase, all of which had a massive effect on contractor and consultant rent seeking, further depressing costs relative to the first two phases.
New York pays much higher wages but also has much higher staffing levels, 25-26 workers compared with 12.
Unless sandhogs are making the same kind of money that wizards of Wall Street make, 12 of them, even for ten years of construction, don’t cost billions. It’s not blue collar workers blowing out the costs.
That is quite true, but it is an indication of the problem. Canary in the coal mine. If the excess of sandhogs relative to Europe & the rest of the world is about 2x then the factor for much more expensive consultants is closer to 50x-100x.
In some cases it might be closer to infinity. (Any number divided by zero …). In Rosenthal’s comparison of NYC’s SAS with Paris Metro 14 extension, it wasn’t clear if there were any consultants used by the French while he reported at least 500 in NY and softcosts at $2 billion (not all of which was attributable to consultants ….).
As a physicist will tell you, whenever infinity enters, or exits from, the equations you know something is seriously amiss. As a biologist I look at it as only natural, as an ecosystem changes often a successful parasite will flare up and be dominant if only briefly. Consultants are the parasites du jour of our (Anglosphere) infrastructure industry but then the ecosystem always fights back. Either that or the ecosystem is plunged into total collapse and the parasites die along with it.
New York sandhogs might actually be making the kind of money that junior Wall Street quants make. It’s physical labor, and in the US, workers in the trades are a labor aristocracy, earning more than their counterparts here even as overall working-class wages in the US are well below Northern European levels.
12 people at half million a year with overtime, generous benefits and lots of overhead is 6 million. For ten years is 60 million. Where’d the rest of it go?
How much did this cost the MTA?
Click to access Appendix%20B%20Upper%20Level%20Loop%20Alternative%20Analysis.pdf
It went to consultants of course, I imagine there were lots of six, seven and eight figure bonuses to the hundreds of consultants gettin’ paid on any given american project. How much bonus should each member of the board of directors of the consultant firm get per annum? I’m guessing probably 20 million each, wait, no, they meet twice a year, better make it 40 million per.
Gosh darn it, now look at that, costs sure must have escalated, teehee, wonder how that happened, lets put in a change order for another billion. no questions asked! high five!
Yeah but we’re not talking 12 people. I’m surprised nobody has mentioned the NYT piece from Dec. 28, 2017 “The Most Expensive Mile of Subway Track on Earth,” which alleged that on one NY project there were hundreds of people employed at $1k / day who evidently had no job whatsoever: https://www.nytimes.com/2017/12/28/nyregion/new-york-subway-construction-costs.html.
While I totally believe consultants are making bank on these jobs, the trades are also doing well too.
Workers in the trades in some places. Tunnel miners elsewhere in the US make similar wages to their German counterparts. I have numbers for southeastern Michigan and northern and central California, and two areas of southeastern Wisconsin, and could probably dig up more if I looked. (Michigan and Wisconsin are right-to-work states, but pre-RTW wages aren’t appreciably different.) The quote from the California engineer in Rosenthal’s article also suggests that other US cities don’t have New York’s featherbedding problems. Even within the Northeast, the one tunnel project on ConnDOT’s wish list, the Heroes Tunnel widening, has moderately-inflated-but-within-standard-US-range costs instead of the order-of-magnitude cost inflation of the above-ground projects.
Incidentally, featherbedding isn’t a matter of “managers want it changed but the unions won’t allow it”: the head of the General Contractors Association of New York straightforwardly denied to me last year that New York uses more tunneling workers than Europe, and stuck to her guns on this even when I quoted Horodniceanu’s NYC/Madrid comparison.
You’re missing the point by a country mile. Which is that none of that worker- or union-led “featherbedding’ can possibly account for more than a few percent of these absurd cost blowouts.
Indeed the continued focus on such a sterile and pointless diversionary argument is a big part of the problem. A refusal to look, or a denial, of where the real problem lies. It isn’t the workers.
Actual metro invoices on the regional connector
https://www.dropbox.com/s/senrpj50uq7tp36/C0980%20PP%20No.%2046.pdf?dl=0
This breaks down the actual line item cost of tunneling.
1.7 km of twin 7.3m diameter tunnels were built:
1.7 km of tunnels cost 60.4M
1.7 km of invert tunnel concrete at 2.7M
1.7 km of tunnel walkway at 2.4 M
1.7 km of tunnel finishes at 8.9M
1.7 km of cross passages at 1.6M
That adds up to $75,400,000 for 1.7 km of twin tunnels for a per km cost of $44,350,000 per km (for a pair of 7.3m diameter tunnels, universal LA metro standard tunnel size for HRT or LRT)
Where’s the multi-billion dollar project of the regional connector money going?
Station palaces, mostly, as they are generally 350 million to 600 million apiece in los angeles.
This is a current ongoing project, so metro knows that this is what tunneling costs, for the actual tunnel reach portion, without any stations.
So if you want to calculate how much it would cost to tunnel the long 10.1 km under-mountains reach between stations on metro’s proposed Sepulveda line, you should take the above 44.35 million/km and get a construction cost of $447,935,000 for the 10.1 km tunnel reach.
But metro is instead proposing that they take a cost of $343,750,000/km (their concurrent purple line cost with stations included) and apply that to the 10km reach instead, saying it will cost 3.4 billion to mine that portion.
This is insane.
Well, it’s what for-profit companies do. It’s in their nature, as the saying goes.
The thing that is missing is that someone, some authority representing the ultimate payee–the taxpayer via the government–needs to do their job, which is to audit such claims and reject them where necessary. Again, as Rosenthal reported on the MTA project, at most meetings there was not a single person, sitting around the table as decisions were made, who was representing the public interest. Increasingly the government incredibly outsources that function too, to private consultants! Oh, and let’s not forget that when things result in huge scandals, cost blowouts, deadlines missed and underperformance etc then they go and employ the exact same consultants (well one of the big four who monopolise this around the world) to do an enquiry and audit!
Another US transit cost benchmark:
[BART presently has open-air escalators that lead to its stations. The escalators frequently fail (the #1 reason is human excrement). BART is going to upgrade all the entrances with escalators with canopies and lockable gates, along with LED lighting and security cameras.. The cost:}
$91.3 million, to install 21 canopies, about $4.5 million per canopy. The cost includes the two that were already installed as a pilot at the entrances to Civic Center and Powell Street stations. BART estimates each canopy will cost $3.3 million in construction costs and $1.2 million in soft costs, such as design and project management. The seemingly high price tag was attributable to the market conditions and the specialized design as well as other needs like the hiring of police officers for security during construction, BART officials said.
https://www.sfexaminer.com/news/supes-ok-hell-of-a-lot-of-money-for-bart-canopies/
A similar reaction:
?
I thought I had attached this: https://www.enotrans.org/article/new-gao-report-finds-issues-posits-no-solutions/