Quick Update on Where We are on New York Costs

The New York report is still a few months to go (the next ones to release on our list will be Istanbul and Italy), but from interviews, we can get a rough estimate of where the problems are. I want to stress rough and there are still extra sanity checks we need to do, both locally to New York and in comparisons. But a picture of the breakdown of what’s going wrong is starting to emerge.

Procurement

Procurement issues roughly double costs. This includes everything related to contracting, including the change order regime, the lack of competition between contractors for large projects, the qualify-to-bid system, risk compensation by contractors, and so on.

This is not quite the same as the change order problem seen in California, where Tutor Perini infamously bids low and overcharges on change orders; New York has regulations to prevent that, but the cure is sometimes worse than the disease. Overspecified contracts reduce flexibility and increase costs; normal design-bid-build systems let the building contractors make small modifications based on meter-scale geology and short-term changes in material prices, but New York is inflexible. The design-build solution is more flexible but removes a layer of public oversight and increases private-sector risk, so costs do not go down.

There is a blacklisting system, called disbarment, but it’s too onerous and goes further than just finding repeat offenders like Tutor and blacklisting them, so contractors bid higher to avoid the appearance of cost overrun. Some of this is not seen in Second Avenue Subway – disbarment is a Cuomo policy that was not present then, and must therefore be seen as part of the per-km cost increase from phase 1 to phase 2 even though phase 2 is easier.

Utilities

Roughly everyone involved in infrastructure construction in New York has told us some variation of the story that New York has complex underground utilities and getting around them is a challenge. This is not exactly what is going on – there’s stuff underground in Paris too – but is correct on the level of agency turf battles. All of the following problems are institutional, coming from our sources:

  • Utilities such as Con Ed and DEP don’t maintain up-to-date databases of what’s precisely down there, so every time there’s a project, there’s a surprise, like an electric cable that was laid around the footprint of a car that was parked during construction rather than moving as it was supposed to.
  • The knowledge that the utilities have is closely-guarded because who is the MTA to tell them to divulge secret information like where the pipes are?
  • The MTA doesn’t run interference for its own contractors, so the contractors are on their own when dealing with the utilities, not just for underground work but also routine things like elevator installation and elevated station repairs.
  • The utilities demand that their own workers supervise changes to their infrastructure. There is no state- or city-level coordination of infrastructure construction and maintenance.
  • The utilities use subway capital money as OPM for their own wishlists for larger pipelines and upgraded infrastructure.

Finally, there is a fear-itself problem: dealing with utility relocation is so painful that the MTA avoids it even when doing so would be cheaper than digging deeper. I cannot give a precise estimate for the impact of utilities writ large, but a factor of 2, counting the fear-itself factor (which is large), is about reasonable.

Labor

Labor productivity in New York is low, and wages are elevated due to the use of local workers (in Stockholm the tunnel workers come from all over Sweden, and wages and benefits are high but somewhat less than in New York). This covers both blue- and white-collar labor: many different agencies, departments, and regulators demand to have their own supervisor down there looking at the work being done.

This is the part where I’m least certain of the impact. The reason is that labor productivity numbers beyond patterns that have been covered amply before are hidden behind layers of subcontracting – there is far less transparency on this in the US than in any other country we have looked at. Moreover, management-labor relations are so strained that planner interviews are not a perfectly reliable source; figuring out how much of the overstaffing problem was about too many white-collar supervisors and not just sandhogs took a while.

The impact of labor is best explained as, US infrastructure breaks down as 40-50% labor, vs. 20% in Turkey; I don’t have a breakdown in Sweden yet, where wages are high but labor efficiency is very high to reduce costs. In isolation, some labor costs scale with everything else. For example, contractor risk is added as an overhead on top of everything and is not part of the breakdown between labor, materials, and equipment. Likewise, delays induced by unexpected utilities require paying overtime during the wait, so labor costs scale to some extent. However, using the wrong material because the contract micromanaged what the contractors could use would be seen as material costs.

Design issues

Design is clearly an important factor but is even harder to quantify than labor. This does not include the preference for mined stations over cut-and-cover stations in SAS phase 1 – that was partly fear of utility work – and station costs were at a far larger premium than tunneling. It’s better to look at the project work for the 96th Street station, which was as expensive as the mined 72nd and 86th Street stations, and was an unusually large dig (7 blocks long) due to unusual but understandable geological issues. But even so, the station was costlier than it should have been based on dig volume.

Some design problems are defensive. Two notable ones:

  • TBMs have to work 24/7 to avoid a cave-in. However, due to either real or predicted neighborhood complaints about noise, trucks did not remove the muck overnight. The overnight storage chamber for the muck cost $20 million. I do not know if this made things better; my personal experience in Berlin is that the worst time for truck noise is 6-9 am and this doesn’t help with sleeping.
  • The MTA spent a lot of effort on shoring up a building that was damaged due to ground settlement in construction. The building was subsequently demolished anyway to make room for a taller building for transit-oriented development.

In addition, the speed of tunneling in New York is notably low. I do not know why, nor do I know the net cost impact of it, though at this point I suspect that by itself it’s a secondary issue to defensive design; we are investigating further.

The biggest question of the impact of design questions is to what extent the mined stations for SAS phase 1 were defensive against community impact (as mentioned by some of our sources) as opposed to utilities work. But, again, phase 2 stations are cut-and-cover except 125th Street, and costs are higher as procurement keeps getting worse.

Fire safety is another aspect. Contrary to what too many New Yorkers have told us, the American fire code in NFPA 130 is not unique to the United States. China uses the same code, as does Turkey; Spain uses a very similar code. However, the interpretation of the code leads to visible scope that does not exist elsewhere, including full-length mezzanines and obtrusive ventilation structures.

Everything together

Procurement and utilities together explain a factor of 4 cost difference. The rest is more hazily estimates; labor gets us to a factor of 5-6 (and it will get more precise in the next few months). Design is the big question mark of whether we can promise a factor of 7 or 15 reduction in costs.

Second Avenue Subway is a factor of 7-8 too expensive relative to the global average, but the global average isn’t necessarily the baseline – much of it includes Anglosphere subway with some of the same problems as New York, and non-Anglo examples near the average, such as Paris, have their own visible problems with costs by comparison with lower-cost examples. The baseline is not the lowest-cost places either – they tend to do unique things like building very short platforms (though Stockholm and some of the extensions in Italy clock at 140 meters to New York’s 180, and Istanbul has lines at 180). But a baseline around $150 million/km is reasonable to aim for. So a factor of 15 reduction relative to SAS phase 2 is exactly what we look for, and a factor of 7 still gets New York to be better than Germany and Japan and close to Paris.

So we’re getting close. Not quite there yet – but something that looks like an actionable recipe, provided reasonably competent political leadership looks achievable.

40 comments

  1. Eric2

    Very interesting. Sounds like great work.

    Do the various issues really scale geometrically? I would have guessed the various sources of overrun are more independent of each other. For example, if the MTA pays double for a piece of machinery, that doesn’t mean the labor costs to operate the machinery will then be double.

    • Alon Levy

      Some do, some don’t. Procurement is a multiplier on top of everything – risk, profit, MWB red tape, micromanagement, etc. Utility issues involve delays, unexpected changes, and defensive design, all of which can be presumed to have the same split of labor, materials, and equipment as everything else, so they do act as a multiplier.

  2. Eric2

    Also, is there a nonlinear component to costs? I get the feeling that each project’s cost serves as a baseline for the next project. As in, the contractors/MTA think “we got away with charging X for the last project, so why would we charge any less than X this time”. This suggests that costs are not a fixed multiple of what they could/should be.

    • Alon Levy

      It’s possible, but that’s not what we’ve heard directly. What we’ve heard is that there just aren’t enough contractors who have the institutional energy to deal with the MTA, due to qualification rules and also general micromanagement problems, so if a few of them are busy doing other work, the MTA is stuck with too few and they’ll bid high because there’s no competition. I don’t want to rule out a ratchet like what you describe, and I suspect such a ratchet does exist as far as overdesign goes, but at least per our sources no such ratchet exists for procurement problems.

  3. df1982

    Just out of interest, have you ever watched The Yards? It’s probably the only Hollywood film that deals with MTA corruption. Obviously it sensationalises things but it leaves one feeling very pessimistic about things ever changing in that area.

    • Alon Levy

      I haven’t! I should.

      I will say, none of the sources I’ve spoken to about a country or city they’ve worked in have complained about corruption, and I think this is also true of those who’ve spoken to Eric. All complaints about corruption were about stereotypes of other places, e.g. a German or a Swede might complain about corruption in Southern Europe or Turkey, but people actually working on infrastructure in Italy do not view it today as corrupt (40 years ago, yes, that was a different story), and neither do people working on infrastructure in New York.

      Nor is this out of some fear of speaking out. I’ve heard complaints about consultants, MTA management, unions, regulators, unnamed politicians, utilities, and Cuomo. (But the interview in which I was told about the disbarment issue happened after Cuomo’s resignation.) All of this is done anonymously, but it’s telling that none of the complaints is about direct bribery or about the mafia. Improper behavior is legal politicking, e.g. currying favor with Cuomo under the tutelage of loyalist political appointees (and New York’s cost problem predates the birth of Mario Cuomo).

      • Tiercelet

        Predates the birth of Mario Cuomo? Wow–is this a typo, or are you saying NYC has had outsized transit construction costs since the 1930s?

        • Nilo

          Yes. Alon claims costs started elevating during the construction of the IND system.

      • Richard Mlynarik

        I definitely will call “corruption” the mecahnism by which consultants and agency insiders rig “alternatives analysis” and “project study reports” to promote one favoured and most expensive version of one particular project.

        They sandbag the environmental documents they are “forced” (don’t throw my in the briar patch of producing lots of reports at public expense!) and they explicitly coach/gladhand/pay off local decision-makers (both elected figures and agency “public servants”) to back the worst outcome. The outcomes are always terrible for the public, and they always grotesquely enrich private actors — if this isn’t “corruption” of the public sector and of the public process I don’t know what to call it.

        I mean just look at this two-track, one-road grade separation (ie “a rail overpass”) project on a bullshit little nothing shuttle train line with super low freqency service and pathetic ridership: it’s optimistically advertised — promoted! — as costing over US $300 million! Somehow building a bridge turned into a huge road excavation and road rebuilding exercise, larded with Other People’s Money, undertaken for “safety”. Can’t argue with Safety! Somehow somebody decided that the tracks had to be placed 1.7m too low. Somehow somebody determined that it would be technical infeasible for the tracks to be elevated any higher. Somehow somebody coached the “local communty” and “local elected officials” that elevating tracks 24 feet instead of 18 feet (over a road that is basically a freeway offramp) would result in “unacceptable” noise and visual impacts. Somehow somebody inserted design criteria (vertical curves designed for 60mph US freight, even though the corridor-wide freight speed limit is 50mph or below) that were advertised as making a higher rail elevation “infeasible” … but in fact didn’t even do that — the lies are so bald and so blatant they don’t even bother to get the simplest arithmetic right.

        And now everybody’s job is to earmark $300 or $350 million or however much it takes — and it is guaranteed to take more, because everybody involved has been yelling that cost is object — to get this “safety” project funded and under construction. The consultants and agency staff will, as usual, bundle the whole disaster into one mega-contract with huge barriers to entry for which only the same-every-time two or firms with the same handful of sub-contractors will bid.

        This is corrupt, and it dives project costs through the roof. Raising a low-use rail line over a road is a $50 million project, not a $350 million one.

  4. Phake Nick

    >TBMs have to work 24/7 to avoid a cave-in. However, due to either real or predicted neighborhood complaints about noise, trucks did not remove the muck overnight. The overnight storage chamber for the muck cost $20 million. I do not know if this made things better; my personal experience in Berlin is that the worst time for truck noise is 6-9 am and this doesn’t help with sleeping.

    Didn’t Tokyo just have a cave-in because they don’t operate their TBMs 24/7?

  5. Reedman Bassoon

    One labor related comment/question:
    — Before any project in NY goes out for bids, the labor unions sit down with government and pre-establish the wages and staffing for various jobs. This is done so that no contractor can put in a lower-bid by cutting wages or staffing. Does this process exist in the rest of the world?

    • Alon Levy

      Wages, yes, absolutely. We have sectoral collective bargaining in nearly all of WEurope; I think the only exceptions are Britain (can’t tell if it’s Maggie or older than that), Switzerland (not much of a strong-union country), and Greece (which had it until it got rid of it in early-2010s austerity). There are published wage schedules here, in Italy, in Spain, in Sweden, etc.

      Staffing, I don’t know. I’ve been told contractors in Sweden make sure to maximize labor efficiency because when you pay a miner 70,000 SEK/month cash plus a similar amount in payroll taxes and benefits, you make sure to employ as few of these as you safely can. I do not know the extent to which collective bargaining in Sweden mandates staffing levels, but will ask.

      • Richard Gadsden

        For the UK, sectoral collective bargaining is Maggie – the system was originally done through the “Trades Boards”, which were replaced by “Wages Councils” in 1945 and mostly abolished in 1986 – the last few went in 1993 (the last survivors were only those that had set a minimum wage below a certain level, ie only low-wage, unskilled work).

        The UK-wide minimum wage (1998) was partly justified as a replacement for the wages councils.

  6. adirondacker12800

    TBMs have to work 24/7 to avoid a cave-in.
    They don’t. They break down.

    • Alon Levy

      They need to be shored up during breakdowns. Hence, no overnight breaks, or even lunch breaks (NY sandhogs have to stagger their lunchtimes).

      • adirondacker12800

        Broken machines by definition aren’t working. There are lots of people who have to stagger their breaks. Why is that so amazing?

        • Alon Levy

          Because in the drill-and-blast era, the sandhogs would all take lunch break together; it was a change for them to stagger their breaks for SAS phase 1.

          • adirondacker12800

            They are doing different kind of work so they have a different crew rotation. Amazing, That still doesn’t change that when the machine breaks down, it’s not running.

  7. plaws0

    A reminder to readers that NFPA 130 (or any other NFPA standard) has exactly zero legal force … unless … the authority having jurisdiction says it does. And, of course, many do.

    If NFPA 130 was actually A Problem(tm), whoever the AHJ over the subways was could wave it away (or waive it!). There are good reasons not to, of course, as the NFPA is hardly a malevolent transit-hating entity, and I’m equally sure it’s not the problem, but it’s a good thing to keep in mind.

    That said … who *would* be the AHJ for the subway? The MTA runs the system but does the city still own the subway as was the case at least at one time? Has the state adopted all NFPA standards as law in any case, regardless of the city’s needs/wants? Many cities just adopt all or part of their standards as law, i.e., the NEC for new buildings, because they don’t have to write the legislation themselves, which is good since smaller cities are unlikely to be competent to do so, but also because NFPA Standards are pretty well done.

    Looking forward to the final report!

    • Alon Levy

      My recollection (certainty level: lower than anything in the main post) is, there’s a liability issue in case NFPA 130 isn’t followed. But, again, Turkey follows the same law and has something like 15-20 times lower per-km costs than New York, of which a factor of maybe 1.5 can be attributed to lower wages; Turkish contractors are exporting their expertise to Northern and Eastern Europe, so there’s a real cost saving there.

      • plaws0

        It wouldn’t be germane to the project, probably, but it would be interesting to run that alleged liability to ground. It’s probably “a thing that everyone knows” that ends up not actually being true. I’m going to assume that whoever owns the subway (City or State via MTA) is “self-insured” with respect to liability claims … so it’s not like their insurance company will refuse a claim because they didn’t follow NFPA 130 because there is no policy because no one will take the bet. But I don’t know. Maybe there is.

        • Onux

          There are several issues when it comes to NFPA 130:

          1) Even if self insured, the liability can express itself at trial for wrongful death. “The MTA deliberately ignored the fire code to save money, causing my client’s child to die” is a tort lawyer’s dream, and the punitive damages a jury could award would likely far exceed any construction savings.

          2) As you noted the AHJ is likely not the subway. If NFPA 130 is codified in law, then the local Fire Marshal can order projects not to open if they are not compliant, and the retrofits to bring them to code would certainly be far more expensive then building it right the first time.

          3) Even if the MTA is its own certifying authority, if NFPA is codified as law, then advocating for the MTA to ignore the law to save money is not an ethical position. You cannot even argue civil disobedience to an unjust law since in a democracy, by definition, the government should always be bound by the law (sovereignty resides with the people, not with a bureaucracy that can chose what laws it follows), and because there is no moral case for ignoring a code designed to save lives.

          • Jon

            What competent engineer will seal a waiver of NFPA 130 without loads of political, legal and expertise-driven justification? The answer is nobody, at least at an outside firm, will seal something that radically departs from NFPA 130. If MTA were to self-design then they might get somewhere with not using NFPA 130, with the attendant tort liability.

  8. Matthew A da Silva

    Fantastic work! When thinking about political pathways towards change, it really seems that procurement process reform provides the most cost relief in proportion to the political capital required to achieve it. Labor reform, given the thorny politics, sticks out to me as not worth it until all the other reforms are well-underway.

  9. Patrick Jensen

    I remember the representative for the Luxembourg Tram project at at a Light Rail Day 2019 telling that one of the reasons their light rail project was so expensive was that the utility databases in Luxembourg were in similarly bad condition. Crews pretty much had to dig up streets and catalogue what they found.

    Given how much additional design work utility relocations can be, I can see why you’d want to design around the entire issue. It becomes further complicated when you have utilities that can only be worked on by specialists who are in short supply, e.g. high-voltage electricity, district heating or gas lines. These easily become an additional constraint in scheduling.

    I suspect China’s love for building HSR on viaducts even on the flat North Chinese Plain is related to this, since there are a massive amount of roads, ditches, canals, sewers, farming plots, power lines to relocate or redistribute.

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  11. seb

    Grand Paris Express costs suffer also from deep stations. Even thought they are nearly all cut and cover, they are deep to very deep. When asked why, they always respond: utilities, building fundaments, geology and surface disruption. The idea, when you dug so deep, you don’t have to worry what’s above you, but the amount they are excavating is enormous and costly. In France, there needs to be a security exit/entry every 800 meters, they also become more costly which deeper tracks. And platform access times reduces the utility of the metro.
    Have you already plotted cost of stations vs. cubic meter station size ?

    • Alon Levy

      We haven’t don a direct plot of this, but we’re trying to take that into account; some sub-databases, like Italy’s, look at dig volume to figure out station costs per m^3. The problem is that for most of the database we don’t even have reliable breakdowns of costs by stations vs. tunnels vs. systems.

  12. Frederick

    Is there any data on legal costs of different countries and the average delay time due to legal procedure?

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