The US Leads the Way in High Costs

Our current project timeline includes posting the dataset of urban rail lines and their construction costs in a month. This means looking at various spreadsheets and checking them item by item. Part of it is checking for mistakes, which do unfortunately occur for some items. Sometimes even the sources have mistakes – for example, most sources for the Sinbundang Line in Seoul say it cost 1.169 trillion won (e.g. here, a bit higher in PDF-p. 60 here, and my now-linkrotted original source), but one says 1.69 trillion, which I’m fairly certain is a typo. However, the biggest source of errors in my file is that the majority of lines I included were under construction as of 2018, so cost overruns and schedule slips remain possible. And unfortunately, while a number of projects have significantly higher costs, the US is especially rich in cost overruns.

The case of Los Angeles is the most infuriating. It is not the highest-cost American city, not even close – nothing is within a factor of 2 of dislodging Second Avenue Subway Phase 2 from its throne. However, it’s making a strong bid for the second highest. The third phase of the Purple Line extension in the Westside, connecting Century City (reached in the second phase) with UCLA and the VA Hospital in Westwood, is $3.6 billion for 4.2 km. Costs have been creeping up from what used to start with a 2, and now this is $857 million per kilometer. This is in year-of-expenditure dollars, so in 2020 money it’s more like $800 million per km.

The contrast to what LA looked like in the 2000s is huge. In 2010-11, it looked like the lowest-cost US city; it was still really expensive to tunnel in, but it seemed more like $300-400 million per km. But things keep getting worse. If Canada and Australia and Singapore and Britain today are like the US 10-15 years ago, the US is pulling ahead, eager to be #1 in everything.

Of note, this is an environment with high and stable funding levels. Transit funding in Los Angeles is bonded through 2060. Contracts in Los Angeles are let on a lowest-cost basis; sometimes there’s a technical score, but officials at LA Metro told Eric and me that unless the weight of the technical score is very high, around 70%, then in practice the contract will go to the lowest bidder. Now, it is not true that all low-cost countries have high technical score weights like Spain does; Turkey in particular uses lowest cost, and uses its high construction rates to discipline bidders into behaving, since shoddy work will risk their ability to get future contracts. Nonetheless, in Los Angeles the great extent of construction does not involve any such discipline. Metro prefers dealing with familiar contractors, even if their record is poor.

Americans, as a culture, would rather die than be more like another nation. Taiwan’s last domestic corona infection was on April 12th, the US averages 60,000 such infections a day. The sort of change required to make Americans forget about 2 generations of learned public-sector helplessness is immense, and will not come spontaneously (and no, your chosen revolutionary movement won’t do it – revolutionaries are selected for incompetence).

The upshot is that the share of current senior managers who have anything to contribute to improving public transportation in the US is very low. Not zero, but still very low. The process selects the least imaginative, least technically apt, and least curious people. Whether it’s best practices that do not look outside the Boston-Seattle-San Diego-Miami quadrilateral, or grants that have language that makes it clear foreign knowledge is unwelcome, or hiring practices that exclude immigrants on visas, everything about the process in the US screams it. It’s not a coincidence that the US has the world’s highest construction costs, and when other countries begin to catch up often thanks to adoption of American practices, the US keeps staying ahead.

22 comments

  1. numble

    Some comments:
    The weight of the bids for Purple Line section 1 was Project Management 25%, Technical 35%, Price 40%. The bid was awarded to Skanska which had a higher cost bid but a higher technical score. http://media.metro.net/board/Items/2014/07_july/20140717conitem56.pdf

    A large portion of the cost increase on Purple Line Section 3 is a result of changes imposed by the Federal Transit Administration under the Trump administration. Compare the budgets of Section 3 (awarded under Trump) and Section 2 (awarded at end of Obama administration) for projects of similar lengths–Compared to Section 2, Section 3 has a $485m more in contingency reserve funds and $300m more in finance charges. A large part of these increases are likely a result of new rules imposed by the Trump FTA which rated projects poorly for CIG grants if they used federally subsidized TIFIA loans (which happen to have lower finance charges) as a result, compared to Section 2, Section 3 uses no TIFIA loans and uses private market loans). The Trump FTA also imposed new rules requiring transit projects to maintain higher contingency reserves. The policies were deliberately done to reduce the numbers of projects that can qualify for CIG funding, as the Trump administration’s policy goal is to eliminate the CIG program (which it can’t do if Congress keeps allocating funding to the program). These policies are detailed here (there is also a lot of discussion elsewhere): https://transportation.house.gov/news/press-releases/defazio-norton-slam-trump-administration-efforts-to-slow-down-transit-projects

    There doesn’t seem to be an indication that LA Metro does not punish past shoddy work in future contracting. LA Metro’s formal evaluation criteria takes into account past performance, and the contractors that have had cost overruns in recent projects (Skanska, Walsh, Shea, Kiewit, Traylor) have not won new awards. Tutor Perini, despite being LA-based and the major transit contractor in the US, was basically shut out for almost 30 years on LA projects and only won its first bid by beating Swedish/ Japanese and American/Austrian JVs that both had recent record of shoddy performance (Regional Connector and Crenshaw Line) and had bids that were $500m and $900m higher than Tutor’s bid (https://metro.legistar.com/View.ashx?M=F&ID=4934049&GUID=97A86CD9-2A06-4D74-9350-5E815818C4F4). If Tutor performs poorly on its current contracts worth $4 billion, it would probably be held against them on the future slate of transit projects (which are an estimated $14 billion for the next 5 years), which is probably why Tutor has been ahead of schedule and drawing less than anticipated contingency funds on its projects.

    • Nathanael

      At this point I’d just exclude this section of the Purple Line from LA numbers, because it has absolutely ludicrous geological conditions (are there any other subways through tar? like, anywhere?) and some of the worst NIMBYs on the planet; it’s an outlier.

      Any excess costs on the Crenshaw line, Regional Connector, etc., are worth looking at.

      • yuuka

        I would go as far as to say that if they can deliver on time, within the initial budget, and without much controversy *in spite of* crappy ground conditions, they’ve proven their worth and deserve to be considered somewhat favorably for future projects.

      • Alon Levy

        Marmaray and the U5 extension and Crossrail and Rome Metro Line C are in my database, and so is the Purple Line. Los Angeles is not unique in having construction difficulties.

        • Nathanael

          It is unique in its *type* of construction difficulties, which I would expect to lead to higher contingency funding and higher bids. After the explosion and tunneling ban, everyone involved was going to be pricing in extra insurance.

          “Compared to Section 2, Section 3 has a $485m more in contingency reserve funds ”

          Are you sure that’s *all* due to Trump rules and not concern about PR if something blows up? Of course, with any luck they’ll end up still having the funds at the end, and we can assess the price then.

          Also, I would love to see the legal budget for this segment — and many others actually, but this one must have been fighting the best-funded NIMBYs in the US, even more so than the Purple Line in Maryland.

          To know whether special pleading for this line is valid or not, I’m sure you’re taking a look at the Crenshaw Line and Downtown Connector tunneling. Is that at Purple Line prices too, or back to 2010 levels?

    • yuuka

      I can almost hear Alon sharpening his knives.

      Though you forgot to convert the TCL extension from HKD to USD, in USD it’s only about $2.5 billion, but that’s still practically SAS-level. Even after you factor in the need to four-track the line around the proposed Tung Chung East station, and extend the turnback at Hong Kong station, it still doesn’t look very good.

      • Tonami Playman

        Thanks I forgot to convert it. That makes the Tun Chung line extension US$1.9 billion/km. Higher than phase of SAS at US$1.4 billion/km, but still lower than the proposed cost of phase 2 at US$2.5 billion/km.

        Compared to these the Sha tin to Central link is only US$ 688 million/km, but yeah I have clue wtf is going on in HK with the every increasing costs.

  2. The Greater Marin

    I had a conversation with my city’s engineering department which was particularly instructive. Apparently, fixing a single crosswalk curb cut costs somewhere between $5,000 to $7,000, but the department is discouraged from doing maintenance and small sidewalk projects due to the headaches of dealing with contractors who are often entirely incompetent.
    The grant-based nature of much of the small-bore work American cities do (building bike lanes, fixing sidewalks, etc.) means that there is no reliable funding source for hiring in-house work either because competitive grants are a primary funding source for all small non-automotive transportation work, from bike lanes to sidewalks to bus stops to bus system design.
    In other words, project management, project cost control, and actual project work are skills that are siloed into the private and public sectors and there is no incentive to actually cut overall costs because the immediate savings fall to the grantmaking agency and the short-term costs of building up capacity within the municipality are borne by the municipal government.

    • Alon Levy

      The weird thing is, the US does do small things okay sometimes, like the high platform projects at SEPTA, and to some extent the MBTA. But these are also funded internally by big agencies on an ongoing basis, with in-house project management, rather than by competitive grant.

      • Herbert

        Most public contracts in Europe have to be published Europe wide for companies throughout the EU to apply…

      • RossB

        The greatest fallacy in American governance is that a public-private partnership would result in a cheaper, better outcome. From the military industrial complex, the prison industrial complex, the security industrial complex and now, quite likely the green industrial complex, it has largely been controlled by self serving capitalists interested more in profits than the greater good. Without a doubt there are people caught up in the middle who have altruistic goals. But they are simply cogs in the wheel that largely lines the pockets of various profiteers.

        Here is a fun fact: The original budget for Healthcare.gov website was $93.7 million. It eventually cost $1.7 billion. For a website. In America. In contrast, by 2010, Wikipedia had raised about $25 million (in total, from their inception). By then they had over a million articles in English, French and German. A small team — the size that has run Wikipedia from the very beginning — could have built the ObamaCare website quicker for way less than the original budget. But that would require the government to actually pay a team of software engineers to work for the U. S. government (in something not military related). Some of them would have good benefits, like a pension, or a decent dental plan. They would make the whole thing open source (of course) which would make the thing more secure, and more reliable. It would have been built a lot sooner, without all of the original issues. But it would have required actually having faith in government employees, which is completely antithetical to the ruling party.

        Another example: despite, at one time, having the most advanced medical record system, and most cost effective health care system in the world (by some measure) the Republican Party has systematically tried to destroy the Veterans Administration and seek to hand over much of the responsibility to private hospitals and clinics.

        It is no wonder so many public-private partnerships cost so much. There are too many people who want it to. Either they are profiting from the excess, or demagogues who want to destroy every public works project.

        • Nathanael

          “The greatest fallacy in American governance is that a public-private partnership would result in a cheaper, better outcome. ”
          Yep. What RossB said. This is a poison. Contracting is OK sometimes, but… usually, do it inhouse. Anything more privatized than that is a license to rip off the taxpayers, unless it’s like the Chunnel, “bankruptcy financing” of a project by ripping off optimistic private investors. Either way it is bad.

    • Nathanael

      My city established a permanent sidewalk funding stream through property tax, *and* does the sidewalk work in-house. It seems to be going great. 🙂

  3. Reedman Bassoon

    What do you do if you only get one bid for your job?
    ————-
    From a transcript of a Tutor-Perini conference call in early 2019:

    “We have now got three straight large projects for the MTA, a $1,400 million tunnel and a $1 billion for a station. Three straight contracts the total $3 billion for the LAMTA, $1,400 million job in Newark where we are the only bidder.

    And as I advised our owners, if you don’t make these contracts far more contractor friendly you are not going to get bids even including us. And the fact of the matter is an owner today is fortunate if he gets two bids and really extraordinary if he gets three. So that’s the market we are in.”

  4. Pingback: Monday’s Headlines Served Up Right Here – Streetsblog USA
    • Nathanael

      Not enough in-house expertise. In this case, not enough in-house expertise to realize that Tutor Perini should never be hired. Note that after Section 1, they never hired Tutor Perini again… they learned.

    • Nathanael

      Not enough in-house expertise. Specifically, not enough to know that they shouldn’t hire Tutor Perini.

      After this contract, they didn’t hire Tutor Perini. So I guess they learned.

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