Institutional knowledge at agencies that build infrastructure shapes up to be an important factor behind how well they handle projects. Good agencies build up a knowledge base over time that lets them see what works and what doesn’t, and this way they’re capable of making in-house planning decisions, and even when they use consultants, they make sure to learn what the consultants have taught them and implement those lessons in the future. In our Italian, Turkish, and (soon to be released) Swedish cases, the agencies have all built up this knowledge over decades.
Denmark provides an interesting test case for this, because Copenhagen opened its metro in 2002 (Helsinki: 1982; Oslo: 1966, Stockholm: 1950), and so it’s possible to compare it with the other Nordic capitals. The construction costs in Copenhagen are notably higher: the City Circle Line (built 2009-19) cost 25,300 DKK for 15.5 km, which in 2022 PPP dollars is around $280 million/km, and the soon-to-open M4 extension to Sydhavn is 9,100 DKK for 4.5 km, or $330 million/km; in contrast, we have the following costs for the other Nordic capitals:
|City||Line||Length||Years||Cost||Cost/km (2022 PPP)|
|Oslo||Løren||1.6||13-16||1.33b NOK||$110 million|
26.4b NOK, ’21
|Stockholm||Nya Tunnelbanan||19||20-30||32b SEK, ’16||$235 million|
|Helsinki||West Metro phase 1||13.5||09-17||1.171b€||$145 million|
|Helsinki||West Metro phase 2||7||14-23||1.159b€||$275 million|
All of these costs are higher than you may have seen in past posts – this is mostly an inflation artifact (and in particular, you should mentally increment all costs by 25% if you remember them in mid-2010s dollars). But it’s notable that in both Oslo and Helsinki, real costs are sharply up; the Fornebu Line is more complex than the Løren Line, but much of its complexity is an engineering choice to deep-mine the stations.
In Stockholm there’s no similar comparison, but Citybanan cost, also in 2022 PPP dollars, $365 million/km, and a factor of 1.5 is an unusually low premium for city center regional rail carrying 250 meter trains over regular metro trains; the RER premium in Paris looks like a factor of 2, and the Munich S-Bahn tunnel was budgeted at a factor of 2 premium over a current U-Bahn extension and has since announced a factor of 2 overrun over that, for which it has been widely mocked in the German press. It’s plausible that when the regional rail premium is netted out properly, Stockholm has in fact seen a large real increase in costs, which matches the history of Nya Tunnelbanan’s cost overrun, from 23 to 32 billion kronor.
Denmark is seeing a real cost increase as well, but a much smaller one. In effect, what’s happening is that Copenhagen started building its metro in the 1990s at higher cost than Nordic norms, and in the generation since then, costs in the other Nordic countries have converged to Danish costs.
So what’s going on?
Some hints can be found in the details of the most recent Danish extension, M4 to Sydhavn. The soft cost multiplier over hard costs is higher than one would find elsewhere, and the contingency is 30% at the contract award, an unusually high figure; 20% is more typical, or even less at contract award (but more during earlier planning). Moreover, the entire project was awarded as a single design-build contract to a joint venture of Vinci and Hochtief, with hard costs worth 460M€.
The entire Nordic world is trying to transition to that style of contracting. This is inspired by British and Dutch models of privatization, which the state, academic, and consultant studies I’ve read while writing the Stockholm report view positively. The procurement strategy for Trafikverket in Sweden calls for transitioning to a so-called “pure client” model for the next big rail investment, Gothenburg’s West Link, like Citybanan not included on the above table as it is a regional rail through-running tunnel. The emerging model in the Nordic countries, which I call globalized in the report since it aims at international competitiveness attracting global contracting firms, can be compared with the traditional model as follows:
|Itemized contracts||Fixed price contracts|
|Smaller contracts (hundreds of millions of kronor)||Larger contracts (billions of kronor)|
|Product procurement (“how to build”)||Functional procurement (“what to build”)|
|Public client risk||Private contractor risk|
The Nordic project I’m most familiar with, Nya Tunnelbanan, does not use the globalized system; it uses elements of both the globalized and the traditional systems, but the trend is to be more globalized. Moreover, the Fornebu Line uses design-bid-build; its problem is partly that the private risk allocation encourages defensive design. If the builder strictly follows the design, all liability is on the designer, otherwise it’s on the builder; thus, the builder strictly follows the design, and because geotechnical surprises are inevitable during tunneling, the designer is overly cautious and tries to anticipate every potential problem rather than seeing what is actually necessary while the tunnel is dug. The traditional system has problems, especially when the risk allocation is improper like this. What’s more, the preference for larger contracts over smaller ones comes from ongoing industry consolidation – there just aren’t enough domestic contractors anymore, and pan-European ones, let alone global ones, are not going to enter an unfamiliar market for a $100 million contract. Unfortunately, the move to privatization of risk under the pure client model does not improve things, and is associated with higher costs.
I am less familiar with the Copenhagen Metro than with the Stockholm Metro, but from reading both how the expansion is done and what Eno is saying about its model (it did a case there but not in Stockholm), Denmark was an early adopter of the globalized system. Eno even pointed out that it uses design-build to showcase that low-construction cost cities use it successfully.
So the Denmark effect is real – this does appear to be a matter of experience. Having never built a metro before – the last urban rail tunnel in Denmark, the S-tog, opened in 1934 – Copenhagen never had the institutional knowledge of how to use the traditional system, so it opted for (elements of) the globalized system, which was not how the other Nordic countries did things but was what British consultants recommended. Note that this does not mean higher costs (that is, around global average, rather than far less) were inevitable in Denmark – it could have adopted the traditional system by leaning on intra-Nordic connections, which are extensive. But perhaps in the 1990s, and certainly in the 2000s, even the other Nordic countries started to come to believe in greater privatization of risk.
The tragedy is that we can see, in real time, how good institutional knowledge is forgotten. Nya Tunnelbanan is, by itself, a pretty straightforward case of cost overrun. But in the context of parallel trends in Helsinki and Oslo, and perhaps an imputation of how much more complex Citybanan was, the situation is different. Real costs increased over time – this was not a mere matter of cost underestimation. Moreover, they increased during a time of ongoing, successful construction of metro projects – the lines that have opened all have healthy ridership, encouraging plans to build even more. And yet, the real problems with the traditional system have led to the adoption of what appears to be a worse procurement system, supported every step of the way by the same agencies that used to compete for world records for low-cost construction.