The Issue of Consultants
Henry Grabar at Slate just wrote about our construction costs report. He centers the issue of consultants; the article is called Consultants Gone Wild, and he includes quotes from Eric and from our report about the contrast between in-house capacity and the privatization of the state to private engineering firms. I was asked for a followup, since the exact wording of our synthesis does not explicitly say “consultants” very much. And yet, Henry is broadly correct; the overuse of consultants is a problem, and should be restrained in most cases in favor of a professional civil service, unencumbered by politicization or an overclass of political appointees.
The formula for high New York construction costs
Based on around 100 interviews and many diagrams and reports, we managed to decompose the New York construction cost premium over low-cost countries, which is about a full order of magnitude, into the following items:
- The stations are overbuilt by a factor of 3, which contributes an overall factor of 2 cost premium
- The systems are not standardized, which contributes a factor of about 2.3 cost premium for the systems and 1.35 overall
- Labor costs (including supervisors and other white-collar workers) are 50% of hard costs in New York where they should be about 25%, contributing a factor of 3 premium on labor costs and 1.5 overall
- Procurement problems including the privatization of risk, change order risk, agency micromanagement of contractors, general red tape, and profit stemming from too little competition double overall costs
- Soft costs are depending on what one counts either 21% on top of hard costs where they should be 7%, or 46% where they should be 20%
Where are the consultants?
On its face, nothing in the above formula says “consultants.” At most, the soft costs can be attributed to them – but the comparison cases involve some use of external consultants as well, they just charge 7-8% of the hard costs in fees rather than 21%. So what gives?
So, first of all, the difference between 21% and 7% is significant. It’s in fact more significant than 1.21/1.07, because the 21% is on top of an inflated base cost, some of whose items (namely, labor) don’t create more work for the consultants, so in effect some of the labor premium should be thought of as an extra consultant premium that is allocated to the hard costs.
The reason for this difference is poor oversight capability. In most cases, some use of external consultants is unavoidable: in Spain, famous in the comparative cost community for its low costs, ADIF projects employ consultants, who charge 5% extra, and then a small force account adds a few percent on top of that. The difference is that competent managers can competently supervise consultants. The use of consultants in Italy, France, Spain, Turkey, and Sweden coexists with strong internal capacity by agencies led by technocrats and professionals.
In contrast, the American (and British) way is to privatize the state to consultants root and stem. The agency managers are generalists who look down on technical people and treat the consultants as an infinite resource, who they can ask to study everything. Eric is quoted as saying “They studied everything” of Second Avenue Subway: every conceivable possibility was studied just in case, and there was nobody in charge who knew enough about planning or engineering to prune the search tree and save some money. In effect, what we’re seeing is unusually low office productivity, in tandem with low blue-collar laborer productivity in tunneling.
The connection with procurement
Okay, so the soft cost factor is still only about 1.2, which is nowhere near enough to explain an order of magnitude’s worth of cost difference.
However, procurement is another factor of 2, and has much of the same cause. The same technically illiterate overclass (Janno Lieber, Jamie Torres-Springer, etc.) that treats consultants as an infinite resource also abuses contractors with red tape. This overclass leashes the technical experts – the planners, engineers, even the economists who study these issues and conclude transparent itemization produces lower final costs – and won’t let them make quick decisions about contracts. This leads to the red tape and micromanagement that the contractors, consultants, and technical agency staff constantly complain about.
Because this overclass can’t adjudicate geotechnical disputes and doesn’t trust those who can, it prefers mechanisms that privatize risk to huge design-build contracts, a system that we call the globalized system in the synthesis and the Sweden report and has led to a large increase in absolute costs wherever it was tried (which is approximately every place legible to the Anglo-American overclass, which is unemployable in a place like Germany or Italy or France, where the pipeline to managerial jobs is local). Then, when costs rise, those political appointees react by including a large contingency factor, at times rising to 40-50%, nearly all of which will be spent.
Bring back the bureaucrats
I hesitate to say back because the United States never really had an apolitical civil service; in the 1950s already it had thousands of political appointees forming an overclass. But the rest of the Anglosphere only lost its mind in the last generation, in my lifetime. I’m encouraged especially by some things I’m hearing in the United Kingdom, which seems interested in moving on, perhaps because it was the first place to adopt the globalized system, perhaps because it has less cultural cringe than Canada or Australia (if anything, Britain’s problem is the opposite: excessive pride), perhaps because it is more proximate to Continental Europe with its lower construction costs.
In such environments, what’s needed isn’t to literally get rid of consultants. But the role of consultants must shrink. The state must hire a large in-house team, sized based on the magnitude of expected projects, and retain the team in the long run to enable public-sector learning. This team can use consultants but must be able to do the work itself if needed, and should be technical enough to know how to answer questions about the scope of work and avoid both micromanagement and underspecification.
Ironically, the consultants themselves prefer it that way. Yes, they get more money out of a project run as poorly as American procurement is than out of one run as well as in our non-Anglo comparison cases. But they also have to do more work and take more risk, and the projects rarely actually end and provide a sense of closure. They charge more money precisely because it’s such bad work, and governments should take heed and build in-house state capacity to make sure the oversight can be smoother and more technical.
I think your New York formula leaves out the chaotic US system of building and especially of relocating underground utilities. I am told that if you open up the street in Manhattan you see no dirt, just a tangle of wires and pipes. Then each utility company (the number multiplied in recent decades by competing cable TV & internet providers) independently digs, moves their cable, and puts the asphalt back. A rail project has to pay everyone’s bills with little real control over the costs (as I understand it, highway projects usually can make the utilities pay). This drives a lot of the preference for deep tunneling rather than cut-and-cover.
Also, how much of the large station cavities is due to fire protection standards?
Are those fire safety standards valuable?
And yeah changing them is potentially politically brave – but if you’d lower costs I’m not sure it’d be unpopular.
1. Turkey has the same fire code as the US and Spain substantially uses the same fire code too. The issue isn’t the code, or even how it’s interpreted; nothing there requires full-length mezzanines.
2. Utilities can be coordinated if the people in charge care; they don’t.
3. The cost of utility relocations for the 96th Street cut-and-cover dig was noticeable but second-order.
Mightn’t coordination with Con Edison be a problem since they’re a private company and not a government entity and thus might lack an incentive to cooperate?
They’re so heavily regulated they might as well be public. And DEP is literally public and is intransigent as well.
No other country seems to have as much difficulty regulating its private sector as the US, apart from very weak states like Nigeria.
Filling the space between the platforms and the street with air costs a lot less than filling it dirt. None of the utilities have been able to find someone with Superman’s x-ray vision to tell them where all the undocumented changes are. If documentation exists.
The information all exists, it just lives in unorganized files for the use of people who are actively hostile to being legible to the public. Nothing sending a few senior managers and political appointees to the soup kitchens wouldn’t fix.
It may in your version of Sim City but in the real world there are all sorts of stuff that never got written down.
If the information doesn’t exist it needs to. Those who have stuff underground really do not want you to accidentally dig and break it. Which is why it is free to call and get it located. It might be hard, but that isn’t an excuse to not go find it.
I don’t what the laws are in NYC, but in the states I’m aware of if you call a week before you dig, you are not liable for anything you break underground. It would be easy for NYC to extend that law to if you call they have a month to provide 3d maps of where things are underground accurate to 1 meter. Sure it is hard to figure that out, but that is the problem of those who have stuff underground to figure out, and if their past didn’t leave that ability then they need to figure it out, it is their problem as they need to know where they stuff is too for other internal planning purposes.
“It may in your version of Sim City but in the real world there are all sorts of stuff that never got written down.”
You are actually correct that there is a lot of uncertainty in underground utilities, however:
1) This is not an issue unique to NYC, London, Tokyo, Paris, etc. all have sewers, running water and internet in their buildings and manage to build things more cheaply.
2) As Henry Miller notes in every jurisdiction there is an 811 number you can call to have utilities found an marked before you dig, even if there is not an up-to-date master database. The time and effort to do this does not place any sort of cost burden on projects, either public (sewer repair/replacement) or private (building construction/foundations). There is no reason it should for subway construction, especially since the route and station locations are known years before construction.
Knowing where a station will be years before should make stations cheaper: When someone needs to dig where a station will be they get a notice that there is a station planned there and they cannot dig in the area. You can’t just fix a break in the water main, you have to relocate that pipe since you already have to dig it up. Or you can’t put your cables there at all unless you do so in such a way that we can dig in the new station around them (I don’t know what is practical, but I have some ideas). Of course the subway should reserve some budget so digging up a future station box enough that the utilities can go around it (that is move the dirt away from a 2 meter box around that area, and cover with a temporary bridge)
Your reasons why advance planning should make stations cheaper are technically correct but unlikely to ever be true in practice. Station location may be known for a few years before construction, but infrastructure is decades old. The chances that cables are planned to go in right before a station is built and can be “relocated” ahead of time are incredibly slim, the chance that a leak happens right at a station location in between planning and construction are even slimmer. In the second case it also probably wouldn’t be cheaper to dig up the whole street moving the water main and then dig it all up again right after to put in the station and move everything else (to say nothing of the delay to people who get their water from that broken water main!) Better to just fix the leak now like normal and move all of the utilities when the station is built.
Utility relocation is a real cost (much more expensive than utility installation, since relocating in-service lines requires expensive double-work and cutovers to the keep water and electricity flowing to those using them during construction) however as Alon noted it isn’t large enough to drive the cost premium seen in New York, and as I note it isn’t unique to NYC. The main reason I brought up station planning was to deflate Adirondacker’s argument that “lack of records” makes utility relocation or special or significant cost. There is more than enough time to examine what records do exist, determine where the knowledge gaps are, then go out with sensors to find pipes or wires or dig test holes so there are no surprises.
Sure it will only be 1% of stations, and we are not talking much cheaper. However NYC should have a vague plans of where the subway will expand over the next 10 years, it isn’t hard to watch those locations.
The claim was that the dastardly utility companies have detailed information they don’t want to share. I didn’t say anything about the cost of discovering what is actually under the pavement.
“I didn’t say anything about the cost of discovering what is actually under the pavement.”
Yes you did. Your very first post on the topic of why NY costs might be so high (responding ultimately to Ben Ross’ comment about utility congestion) had this exact quote:
“None of the utilities have been able to find someone with Superman’s x-ray vision to tell them where all the undocumented changes are.”
This is as clearly saying something about the cost of discovering something under the pavement.
Does Supeman charge by the hour, by the block or piece work? Or does he do it for fun like leaping tall buildings in a single bound.
“Filling the space between the platforms and the street with air costs a lot less than filling it dirt.”
This is so incredibly backwards it is if you said “Fire is colder than ice” or “The Empire State Building is shorter than Madison Square Garden”. The reality is exactly opposite. In the context of subway station construction it is cheaper to fill space in with dirt than with air. The reason is that if you are constructing a full length mezzanine you are not filling the space “with air” you are filling it with concrete and steel (for the walls and roof, since air won’t hold back dirt or hold up the street above), with electrical equipment (lights, wires, smoke detectors, and the transformers and panels to run them), with plumbing (floor drains, pipes for fire sprinklers), with flooring (the cost of 9 sqft of terrazzo alone is probably more than the cost of dumping 5 cu yds of dirt over it) and with finishes (paint, tile, signage, etc.)
There may be limited cases where filling with air might compete with backfill (i.e. leaving an empty concrete box above the platforms where structural considerations require the concrete to keep things from collapsing; the Washington Metro with its high ceilings *but no full length mezzanine* above the platforms comes to mind) but go anywhere in the world, get a quote for filling a 10’x10′ hole with dirt and compare it to the cost of 100 sqft of building and I guarantee the cheaper one won’t be a building.
Prior rights: Sometimes the utility company has them, sometimes the transportation agency has them. Generally, whoever was there first (i.e. probably not the subway, unless somehow that is tied to the ROW on the surface – maybe by relocating an existing rail line underground?).
Basically whoever has prior rights can force the other party to move their infrastructure to accommodate their needs. If that’s the agency, then the utility company has to pay to move their line. If that’s the utility, then the agency has to pay to move the line (per the utility’s requirements). However, in neither case does the utility have much incentive to make the process easy.
If there’s Federal money involved, all these relocations need to be hashed out before the job is advertised including specific relocation plans for all the utilities.
Are the consultants who do the early ridership estimates on the crayon drawings doing a good job? There are two newly-finished pieces of US transit that should be reviewed for projections-versus-reality —> East Side Access and Central Subway (SF).
American ridership estimates from about 2000 to 2019 were on average accurate; I’d give new lines a few years to see what happens post-corona.
Transit ridership forecasts are carefully overseen by FTA, with the goal of making them consistent rather than accurate. That’s because they are a big element in the award of competitive grants and they don’t want competitors to game the system by overstating predictions. One effect is to penalize routes that serve universities because the modeling is based on home-to-work trips and largely omit home-to-school trips and undercount home-to-work trips to universities which have a higher mode share than other workplaces. Evidence here: https://ggwash.org/view/36332/the-purple-line-will-likely-beat-ridership-forecasts
This is in contrast to highway traffic forecasts, which are routinely inflated. In fact, in toll roads I’m familiar with the agencies used a high traffic forecast in their environmental study (to justify the project) and a lower traffic forecast in their revenue estimate.
As a consultant in an different field I feel pretty comfortable in saying that most public sector clients should do the work they send my way in-house
Great post! As a consultant, I approve this message.
I wrote something similar here in regards to healthcare costs.
…did you just call Nazi Germany an egalitarian social model? What?
(No, it’s not true even if you pretend Jews didn’t exist. Economic inequality in Nazi Germany was high and rising. Like most you-have-to-hand-it-to-them defenses of the Nazis, the idea that there was any kind of economic egalitarianism in the Third Reich is bullshit.)
One the sources cited in Slate quote the California HSR consultant cost as $427,000 vice and in-house cost of $131,000. Could you imagine the level of talent a public institution would attract if they had the authority to acquire and retain engineers for a total cost even approaching that $400,000 figure?
Given a competent political and bureaucratic infrastructure, you could conceivably attract and retain the best of the best while still cutting overall labor costs by 25-30% compared to consultants. Hell, to use other US services as a baseline, federal gov’t pay tops out at $152,000 + locality + benefits. You could pay everyone in the building like they run a billion-dollar DC agency, and still find a few billion left over to get the extension from Central Valley to SF/LA/SD done a decade sooner than planned.
Just pie in the sky dreaming, I know.
If federal government pay tops out at $152k+extras it’s probably pretty close to $400k once you include locality pay, holiday, sickness, pension and other benefits.
The standard rule of thumb for UK salaries is that you double the salary to get the total cost of employment. While that includes office rent, which a contractor will still use, public sector pensions and sickness etc are particularly generous.
Okay, but your average ambitious person wants money now, not a pension in 30 years.
Couldn’t agree with you more. The question is how you achieve it in the real world?
And especially how you get the unions to support it?
Even in America, with some of the highest STEM salaries in the nation, $150,000/year is a hefty salary for engineers. According to the US Bureau of Labor Statistics, the 90% percentile for Civil Engineer is $133,000. Paying $150,000 + gov’t benefits puts you somewhere well north of that mark.
Are there truly a breadth of civil jobs out there paying significantly higher total comp? Even if there are not, I would take an organization staffed by the top 10% of engineers vs. the current miasma of consultants whose compensation on-average likely does not approach that $150,000/year figure.
The intent of thinking about this is not to retain that one magic silver bullet employee whose true valuable is incalculable. The engineer with the golden slide rule is nice to have, but that is the kind of role that would still be alright to bring in on consultancy.
I don’t think the any of the European railways are running at the 90th percentile, and certainly the Americans are not.
No way it should be possible for any amateurs like me to out-think the any of the professionals, and yet here we are.
To be fair some of the issues are cultural, but still.
I’d argue that the multiple decreases as total compensation increases. The pension goes up, of course, but the other variables that factor into an employee’s cost become a smaller portion of the pie. The employer health insurance contribution is the same regardless if someone is a GS-1 or GS-15.
Do I know what that ratio is? No, I haven’t found a good analysis of it yet. OPM or BLS likely has one buried on their website, but the first try at searching was unsuccessful.
Also as a final aside on the pension problem: Under the current program, US federal pensions are partially funded by the gov’t employees to the tune of ~4% of their salary. That does not cover the total pension value. But, for long careers it suppresses the total cost to government of the pension by quite a bit.
FWIW, in the late-19th-century era of the “sewer socialist” municipal governments, we didn’t have an “apolitical civil service” in the US, but what we often *did* have, at the municipal level, was an expectation that the political appointees would actually become subject matter experts, or at least be people who cared enough about the field to make an effort to become technically literate and listen to the subject matter experts.
They may have been political appointees, but they were expected to actually roll up their sleeves and learn the field — the mayor may have appointed his actual nephew, but if his nephew didn’t spend the time learning how to build effective sewers cost-efficiently, he was out. The overclass *knew* that when they got these jobs they were coming in technically illiterate and that they were expected to *actually become technically literate*.
Consider Andrew Adonis in the UK. I found a quote which stated, bluntly “He’s best known as the father of HS2 but is also widely seen as one of the few transport secretaries to actually care about the sector.” The contrast of that with the other transport secretaries who *didn’t* care… aaargh, well, you see my point.
For another weird example, consider the success with rail projects of Napoleon III, who was an authoritarian dictator, but *actively liked learning technical subjects* related to science and industry and tried to appoint experts.
The contrast with the behavior of the permanently ignorant political appointees we usually get couldn’t be larger. We really are getting a lot of people in power who fundamentally remain technically illiterate and have a hostility to learning or changing, or perhaps simply an inability to.
I’m trying to figure out why this happens. It seems like the political incentive structure is all about buttering up the right people in a way which leads to “failing upwards”. A rather extreme example is Thomas Downs, who I think actually does care about public transit, but who has been an unmitigated (and sometimes catastrophic) failure in every public transit job he’s had — for which he has routinely been rewarded with more public transit jobs, for *decades* (failing at renovating DC Union Station, almost driving Amtrak bankrupt, wrecking NJT performance and operations, among other disasters, then finishing his career off by being on the board of WMATA and “overseeing” it while its trains all caught fire and crashed)
Robert Moses was appointed by Gov Al Smith to a variety of positions. Moses was well educated and motivated “I hate the phrase “urban planner”. I am an “urban do-er”. Some people would say he was too good at his job.
Moses was definitely a talented do-er. The problem was WHAT things he did, specifically building massive amounts of expensive infrastructure for private cars while letting transit decay. If his do-ing had consisted of building more transit (along with the parks) history would have judged him much more favorably.
(Also, he was a racist. He built hundreds of playgrounds, but not one in a black neighborhood. When the mayor forced him to build just one in a black neighborhood, he decorated it with pictures of monkeys rather than the usual imagery. Source: Caro)
He was not in fact good at his job! By the 1950s, the planners and engineers in the United States already recognized that cars-only was a bad idea. Thomas MacDonald was worried about the poor state of the railways and was transitioning to cars-and-trains urbanism, for which Eisenhower replaced him with someone more pliable. Even then, the FHWA was interested in buses as a way of transporting people at higher capacity and proposed bus lanes, with the usual anti-rail mode warfare that we see from latter-day BRT proponents.