Meme Weeding: High Wages and Baumol’s Cost Disease
The Baumol effect is a mechanism for how the real costs of goods and services can rise over time: wages rise due to economy-wide productivity growth, including in sectors with no productivity growth, and this raises their overall real costs of production. The original example for Baumol was classical concerts – they use the same number of musicians as in the 19th century, but wages have increased from 19th-century levels. More generally, it’s also used to explain higher real costs of services as service productivity growth lags manufacturing productivity growth.
Unfortunately, I’ve also seen people use Baumol as a way of explaining rising infrastructure construction costs, for which it is not at all a good explanation. In fact, even though growth in average infrastructure costs over time is documented, there is very little cross-national correlation between GDP per capita and per-km subway construction costs. Notably, the Anglosphere’s very high construction costs affect not just very rich countries like the US and Singapore but also ones that are poorer than the Western European average, like New Zealand, Ireland (which has high GDP per capita due to corporate profits but unimpressive local wages), or increasingly the United Kingdom. Conversely, Nordic and Swiss wealth has not at all led to high construction costs, and until recently the Nordic countries and Switzerland had some of the world’s lowest tunneling costs.
Metro construction costs and GDP per capita
In an earlier version of the construction cost database, there was some positive correlation between GDP per capita and construction cost per km (about 0.23), but nearly all of it came from the fact that poorer countries tend to build more els and fewer subways; correcting for that, the correlation fell to about 0.04, and turned negative if New York and Singapore were dropped. We made a scattergram at the national level:
While looking at the scattergram, bear in mind that the poorest country as of 2020 on our list, Pakistan (the small gray circle touching the much larger gray circle of India), built an all-elevated line, and in general, substantially-elevated or even all-elevated lines are common in developing Asia, including Vietnam, Bangladesh, Indonesia, the Philippines, Thailand, and India. The only all-underground Indian line in our database, Mumbai Metro Line 3, cost $535 million/km in 2023 PPP dollars; Mumbai Line 11 and Chennai’s first-phase program are the only other two items that are majority-underground, both a bit more than $300 million/km.
At this point, even if we restrict our attention to Europe, the correlation between GDP per capita and construction costs per km isn’t clear. For example, Railway Gazette has just reported on the groundbreaking of the first metro line of Cluj-Napoca, to cost 13.7 billion lei/21 km, which is $8 billion in PPP terms, or $380 million/km. But then rounding up the bottom of the EU’s GDP per capita table is Bulgaria, with fairly low costs.
This is not supposed to happen if the Baumol effect is what’s going on. Grocery prices in developing countries are lower than at first-world discounters like Walmart or Aldi, even in PPP terms. Even at tourist traps, the prices are usually lower than where the tourists came from, not because retail and food service are atypically efficient in developing countries, but because these are labor-intensive industries and labor wages are lower in Thailand or China, let alone in India or Pakistan, than in the US or Germany.
The issue of the Anglosphere
The Anglosphere has atypically high construction costs. A dummy variable that takes the value 1 in the US, Canada, Australia, New Zealand, the United Kingdom, Singapore, Hong Kong, and (when it starts building) Ireland, and 0 elsewhere, has a correlation of 0.41 with per-km construction costs. In contrast, the tunnel percentage only has 0.15 correlation, due to the aforementioned effect of high-cost developing countries building els. I’ve heard the high Anglosphere costs blamed on a kind of areal Baumol effect: high pay in professional services drags the costs up, on the theory that the United Kingdom may be poorer than Germany and no richer than France, but at least it has productive London finance that drags engineering wages up, so Britain can’t just Germanize or Francize, right?
Well, no. British engineering wages are not at all high by Continental Western European standards. London finance pays a lot, but also has been stagnating for a while, and a number of professional service firms and regional HQs have left the country in response to Brexit to locate in the rump-EU, for which Amsterdam is a popular destination. British costs remain high, and if anything, they’re exploding again. The Bakerloo line extension is now projected to cost £5-8 billion in 2023 prices for what looks like 8 km, which is around $1.2 billion/km in PPP terms, somewhat more than the much more complex Crossrail and about twice as expensive as the comparably complex Northern line extension to Battersea.
Then-Singaporean minister of transport Khaw Boon Wan excused the meteoric growth in Singapore’s MRT construction costs on the grounds that the Singaporean economy had grown rapidly as well. But we’re seeing the same cost explosion in the slower-growing United Kingdom, and conversely we’re not seeing high costs in fast-growing South Korea. New Zealand, which has had okay growth but from low levels for a Western country and remains poorer than Italy, has these extreme costs as well. It’s not that the Anglosphere is rich; it’s that it’s the Anglosphere and builds inefficiently.
So why have costs grown?
While there is no correlation between subway tunneling costs and GDP per capita, there is an evident secular growth in costs over time. It’s not uniform everywhere – German costs are barely up compared with the 1970s and Italian costs are slightly down – but it’s huge in the Anglosphere and also evident elsewhere (for examples, in France and in the Nordic countries). So what’s going on?
Well, we’ve divided the New York cost premium into three tranches: labor (mostly overstaffing, not high wages), station and system design, and procurement and soft costs. All three show evidence of having gotten worse, the first in the Northeastern United States and the other two throughout the Anglosphere and sometimes also elsewhere.
Ad labor, staffing levels in New York are just higher than elsewhere. More workers are required to service a tunnel-boring machine in New York than in Istanbul, let alone richer European cities. This is, in theory, an eexample of the Baumol effect: higher wages raise the real cost in an industry without productivity growth. But in fact, there has been plenty of productivity growth in this industry, the Northeast just refuses to make use of it. Stockholm has been able to keep up and keep its labor share of the hard costs to the same 20-something% as Turkey and Italy; New York and other Northeastern US cities are in the 40-60% range instead. Swedish construction productivity has grown at slower rates than the overall Swedish economy, but American construction productivity has fallen.
Ad station and system design, we have pointed out that stations for Second Avenue Subway Phase 1 dug a cavern twice as long as necessary for the train, for the benefit of extensive back-of-the-house spaces, where in non-UK Europe and in China, the digs are typically a single-digit percent longer than the train. This is a general North American problem, also evident in Los Angeles and Vancouver, and I believe also in London. It’s also a new problem: in the 1980s, the overage in the United States was small, comparable to contemporary European levels. Then there’s the issue of poor standardization of materials, systems, and designs; we are uncertain whether this is a growing or longstanding problem, but it is smaller in magnitude than that of excessive station size, and in general, standardization is more important in a richer economy than a poorer one since the richer economy will have more reliance on big businesses with division of labor, which is also one of the speculated causes of the falling construction productivity (it’s a less standardized sector).
Finally, ad procurement, the invention of the globalized system in which state planning is outsourced to private consultancies, and with time even the supervision of the consultants is outsourced to consultants, is an Anglosphere special, dating from the 1990s onward. This system comprises design-build procurement (confusingly called progressive design-build in New York), very large contracts sometimes growing to $1 billion apiece, lump-sum rather than itemized contracts, and privatization of risk. It’s turned entire countries, like the United Kingdom, incapable of building more than about one line per generation. The Nordic countries have been affected as well, leading to sharp cost growth from very low levels to rather average ones. Canada went from fairly normal costs in the early 2000s to building the most expensive subway outside New York with the new Ontario Line cost overruns, and this can be traced to Toronto officials visiting Madrid, a city that sticks to traditional design-bid-build procurement, and coming back convinced that to imitate Madrid’s low costs Toronto should adopt design-build.
None of this is the Baumol effect or some general cost disease. When agency officials lose interest in building things and instead want to outsource their own jobs to consultants, it’s not Baumol; it’s experimenting with a new way of project delivery and then refusing to admit that it’s a failure. The same is true when nobody bothers to say no as each operating department demands more back-of-the-house space until half the station dig is about providing high-cost underground break rooms and storage rather than about providing space for trains and passenger circulation.
It’s a comforting story for Americans, Brits, and Singaporeans to tell themselves that their infrastructure costs are so high as a byproduct of their wealth. It happens to be entirely false. It’s not even interestingly wrong; it’s just plain wrong, ignorant of the explosion in station size, of the failures of the globalized system of project delivery, and (in New York) of labor productivity innovations elsewhere. The Anglosphere is not expensive because it’s ahead in anything, but rather because it’s behind. And as we see in the United Kingdom, it doesn’t even require American or Singaporean wealth to be totally incurious of Continental European success.
Pedestrian Observations 
Construction projects in the US and UK have been hijacked to pursue political goals that are explicitly addressed in other societies through formal social democratic redistributive social spending. Since that happens much less in the US and UK, public projects provide an opportunity to redistribute wealth and power through the granting of construction contracts. US public construction has become a ‘spoils’ system of measuring out work to various ethnopolitical interests. Adding lots of bureaucracy, subcontracting, and responding to ‘community input’ are all examples of ‘social democracy by the backdoor’ in the UK and US.
The UK doesn’t have higher inequality than France or Germany, and has noticeably less inequality than Italy. Meanwhile, Singapore, probably somewhat more unequal than the US, has absolutely no backdoor socialism – the high costs there are not about redistributing income to community leaders, who are not at all empowered.
Wealth is also redistributed in the UK and US along with the other countries you mention. It’s just done in different ways, including through a ‘spoils’ approach to public infrastructure. The high costs are about redistributing wealth to political constituencies, not because they have power but because they don’t. It’s a pay off from the corporate interests that do have power to keep weak political constituencies quiet and from causing trouble. It’s ‘the price of doing business’ in a system that doesn’t explicitly allow for social democratic redistribution.
In New York procurements benefit industry insiders and aristocrats of labor like operating engineers and other powerful union locals. The social benefits to more marginalized groups are a very small element of the cost and not the primary driver. Great example being the subway cleaning contracts given out by Cuomo using his subway emergency powers, they were a huge payback to one of his donors. The MTA exists as a welfare/pork barrel program for its employees, favored contractors and construction locals, not to deliver a benefit to the public. All this stuff about cost reform and importing better project management will not change a single thing in New York until that fundamental issue of corruption is addressed.
this is a basic feature of govt here, NYPD and FDNY are other good examples, they exist to secure benefits for their officers and staff, delivering a worthwhile service to the public is a secondary consideration.
Union members ARE “marginalized groups” in the scheme of an American politics’ domination by corporate power. They are exercising power through public infrastructure projects because that’s the only lever of power available to them. Thanks for offering support for my argument.
Union members are not marginalized in NY. Only Hawaii has a higher percentage of workers in or represented by a Union. Corporations and LLCs have a political donation limit, unions do not.
We are all “marginalized” in an economy and society dominated by global capital. Unions have very little political power in Washington and only limited power in Albany. That’s why they demand so much from NYC and MTA. They have leverage there that they don’t have otherwise. We have nothing like the Labour Party in the UK or the German Social Democrats that explicitly depend on union support.
@Matt
Unions have enormous political power in Albany. The Democrats completely control NY and unions are a core Democratic voter and donor base. Why else did the NY State Assembly pass a law that restricted political contributions by corporations but not unions?
Influence in Washington fluctuates with administration, but with both Obama and Biden top union leaders regularly visit the White House. That doesn’t exactly say ‘limited political power.’
The better argument is that US unions, like the Democratic Party, no longer represent the working class. Government workers, more likely to be white collar or highly compensated (police/fire), make up about half of US union members. Private sector workers tend to be higher skilled and well compensated (i.e. electricians) rather than median wage or below working class (i.e. sales, food prep).
Sales, food prep etc are almost always private sector workers. The few in the public sector get better pay and benefits.
Labor unions are corporations. Not for profit corporations but corporations. I’m just a lowly bookkeeper I’ll leave it up to accountants or lawyers decide which kind on nonprofit but corporations.
Unions have some power in Albany but it’s peanuts compared to Wall Street.
If unions had real power, they’d be part of a larger labor coalition that would unionize large sections of private workforces. Unions are a tiny group working a particular niche in a larger system that doesn’t have room for genuine redistributive politics.
@Matt
If unions had real power, they’d be part of a larger labor coalition . . . . Unions are a tiny group working a particular niche in a larger system that doesn’t have room for genuine redistributive politics.
Unions do have real power, you just don’t like who they choose to represent. More broadly, you are frustrated with the shift in US politics over the last 16 years. Democrats are now the party of big business, Republicans are now the party of the working class. In 2016 the occupational field most likely to vote for Clinton was Business/Finance, even higher than Arts/Entertainment/Media. The occupational fields most likely to support Trump were Construction, Transportation and Installation/Maintenance/Repair. There is a large labor coalition of plumbers, truck drivers and air conditioning techs, but they don’t see the AFL-CIO or SEIU as promoting their interests.
Unions don’t choose to represent working class issues because they don’t have the power to do so. Trump’s popularity with these workers shows their frustration and weakness, not their strength. They squeeze all they can out of public infrastructure projects because there is no where else for them to turn. The parties are dominated by corporate interests, as you say.
Unions don’t represent working class issues because their members, by and large, are not working class. It isn’t that they don’t have power, in NY they have the power to do almost whatever they want and routinely have legislation passed to promote their interests. Also, workers are not the ones squeezing funds out of public infrastructure, this whole conversation started with you saying that unions are a marginalized group that turns to public infrastructure extraction because they have no other power. Now unions don’t represent working class issues, but the lawsuits filed by the union are somehow how the workers squeeze things out of public infrastructure, because they have no power, but they somehow have the power to bring projects promoted by the all powerful corporate interests to a halt with their lawsuits (or conversely, the power to get the corporate dominated political machine to give them money out of the infrastructure budget).
Unions are marginalized / unions don’t represent the working class. The working class has no power / the working class has the power to extract spoils from projects. The government is dominated by corporate interests that do not want social democratic redistributive spending / government uses infrastructure to pursue is social democratic agenda on the side. Your arguments are all over the map.
Unions political power is Albany is but one measure of union power. Unions leverage their power in Albany because they don’t have any larger economic or political power in american society, as they once did. They don’t have larger ambitions because that would squander the limited power they have without achieving anything. Their laser focus on public services is a measure of their weakness in the economy. They use their modest niche power to extract a middle class life from public spending, including public infrastructure projects. The working class sits out this entire process. Redistributing money to middle class union members is redistributive. The government is dominated by corporate interests that want public infrastructure. It’s this single point of shared interests that gives unions leverage and they use that leverage because they have no other leverage anywhere else. Public infrastructure becomes the one place in which corporate interests and public unions confront each other. This confrontation simply doesn’t occur otherwise in the US. That one one point of leverage explains infrastructure costs.
I really don’t understand why you keep repeating that when it is clearly not true. Maybe the differences get magicked away using some PPP trickery? Further, the actual inequality is worse than these Econo data indicate, ie. it is not a country of equal opportunity which one can see in the admissions to top universities, or health outcomes and especially in the makeup of those in positions of power. In 2019 (report on “Elitist Britain 2019”) “29% of MPs still come from a private school background, four times higher than the electorate they represent. The House of Lords is even less representative, with 57% of its members having been educated privately.” Private schools educate about 7% of the population.” It rises to 61% of the Sunk cabinet which is actually less than many previous conservative cabinets such as the 91% of Thatcher’s first cabinet in 1979! The current opposition and presumed incoming government next month has only 9% of its MP in the same status.
I think this aspect of inequality is a factor in why outsourcing has become more rampant, and why cost to the public is not prioritised. I’ve note before that the top management of CrossRail, both executive and non-executive, were 100% entitled, ie. deep establishment. This was until the final phase (2019) when they brought in the sole non-establishment Mark Wild to sort out the mess. Doubtless Wild will be rewarded with at least an OBE before long but he still doesn’t have a Wiki entry. Not like the founding chairman who ran the show for the first decade: Sir Christopher Benson OAM DL FRICS was a British chartered surveyor and company director, chairman of major companies and public bodies, and a High Sheriff of Wiltshire. … He was privately educated at the King’s School of Worcester …
https://data.oecd.org/inequality/income-inequality.htm
Country…………≥2017………≥2022Denmark………..0.263……….0.268Sweden………….0.282……….0.268Finland…………..0.266……….0.273Norway…………..0.262……….0.285Canada…………..0.307……….0.292Netherlands……0.285……….0.297France……………0.291………..0.298Germany…………0.294……….0.303Australia…………0.330……….0.318Spain……………..0.341………..0.320Switzerland…….0.296……….0.320Italy………………..0.328……….0.330Japan……………..0.339……….0.339UK………………….0.351………..0.354USA………………..0.391………..0.395
https://data.oecd.org/inequality/income-inequality.htm
Country…………≥2017………≥2022
Denmark………..0.263……….0.268
Sweden………….0.282……….0.268
Finland…………..0.266……….0.273
Norway…………..0.262……….0.285
Canada…………..0.307……….0.292
Netherlands……0.285……….0.297
France……………0.291………..0.298
Germany…………0.294……….0.303
Australia…………0.330……….0.318
Spain……………..0.341………..0.320
Switzerland…….0.296……….0.320
Italy………………..0.328……….0.330
Japan……………..0.339……….0.339
UK………………….0.351………..0.354
USA………………..0.391………..0.395
I wonder what all these numbers have to do with the contracting practices and internal accounting of American public infrastructure.
Alon raised the issue, ie. the relationship between national wealth & inequality and infrastructure costs. My only quibble was with his claim that the UK had similar inequality as many EU nations (it doesn’t; it is worse and on factors not revealed by these particular econo-stats.)
The thing shared by the top two Anglosphere nations, UK & US, is that they have a very narrow selection of citizens (background, wealth, education, life experience) who end up in powerful decision-making positions. In the UK it is beyond argument that it is a consequence of private schools and Oxford-Cambridge. The US has its almost direct equivalents though perhaps with somewhat more equal opportunity for talented individuals. Though the problem is that via Oxbridge or Ivy League, the vast majority are subverted by this system, eg. the preponderance of PPE degrees amongst those powerful decision makers (including the likes of Bill Clinton & Buttigieg and three recent Australian PMs–Hawke, Abbott, Turnbull, not to mention the Dirty Digger himself, Rupert Murdoch). At the very top, including all the consultancies, there is no diversity of thinking or disagreement about the way things are run. Even as the house is burning down.
This is an example of the maxim that the fish rots from the head …
Funny enough Joe Biden is the first president, since forever, who is not an Ivy Leaguer. The situation in the UK reached an absolute nadir:
Interestingly the likely next PM, Keir Starmer, went to a grammar school then a redbrick university (Leeds) though he did post-grad at Oxford (law not PPE, like Blair still a bit suss). Only 9% of his MPs have a private school background. He also has had a career in serving the public in a meaningful way. The problem is that Starmer appears very timid and seems unlikely to bring any real change on a timescale that would be impactful (but we can hope).
Canada and Australia have much higher income mobility than the UK and US.
You’ve misunderstood my point, Michael. I’m talking about political power, not economic inequality.
@Matt: You’ve misunderstood my point, Michael. I’m talking about political power, not economic inequality.
You must not have read any of the post. It’s ALL about political power. What do you think sustains the economic inequality in the UK??
Starmer has been pretty ruthless on a number of issues. He has pushed campaigning in the target seats much much more than any previous leader.
He is also the only prime minister in a long time who has actually run a large organisation. The last one who arguably did (but didn’t very well) was Churchill.
It’s not political inequality. Japan is led by political dynasties, and South Korea’s government is heavily tied to Chaebol megacorporations; in both cases these are a fair bit worse than whatever happens in the West. The first has medium construction costs, and the second has some of the lowest in the world.
For Japan, most Wikipedia articles of recent Prime Ministers mention how they’re from political families, especially the longer-serving ones like Abe.
https://en.wikipedia.org/wiki/List_of_prime_ministers_of_Japan#Prime_ministers
For Korea, Chaebol leaders keep getting convicted for corruption, yet the government keeps pardoning them (even from the always-light sentences) and supporting their companies.
https://en.wikipedia.org/wiki/Chaebol#Government_ties,_corruption,_and_abuse_of_power
If you don’t trust Wikipedia, you can talk to Google or a friend from those countries and get more-or-less the same info.
Except that social redistributive spending in the UK is far higher than the US. The UK has the NHS, which means the state is paying for health care costs instead of people paying out of pocket. Public housing is 1-2% of US housing, but 17% of UK.
@Onux:
Yes, but not nearly as much as the Northern Europeans (the French have the highest spend which may indeed be too much). This is reflected in outcomes: see the tiny selection of reports (below) that describe these shortcomings. As someone who lived a decade in each of UK and France I would say French healthcare is clearly superior but (shock, horror) I have never said the UK system is terrible (but in the decades since, it does appear to have got worse; perhaps exaggerated but see Ben Whishaw in 2022’s This Is Going To Hurt–it does actually hurt to watch it!). Some of this is due to lack of funding (and high staff shortages) but also of culture, and inefficiencies. The inefficiency has been made much worse by outsourcing of many previously in-house services (sounds familiar!) by the mechanism of PFI, which is covert privatisation, and is attractive to governments (devised by John Major and introduced by Blair) because the expenditure is taken off the government’s books and becomes a debt to be serviced by the recipient (a hospital trust etc). Something only a PPE could both imagine as a clever ‘solution’ or as something that would work.
At least most Brits are aware of these shortcomings (and many have experienced far superior care in France and Spain), whereas most Americans aren’t aware of their far worse healthcare outcomes and continue to believe it is the best in the world.
https://www.theguardian.com/society/article/2024/jun/13/deadly-cancer-treatment-delays-routine-nhs
Deadly cancer treatment delays now ‘routine’ in NHS, say damning reports
Studies sound alarm at state of cancer care with hundreds of thousands waiting months to start essential treatment
Andrew Gregory, 13 Jun 2024
https://www.theguardian.com/society/article/2024/jun/19/uk-children-shorter-fatter-and-sicker-amid-poor-diet-and-poverty-report-finds
UK children shorter, fatter and sicker amid poor diet and poverty, report finds
Food Foundation says height of five-year-olds falling, child obesity up by a third and type 2 diabetes by a fifth Andrew Gregory, 19 Jun 2024
https://www.theguardian.com/business/2023/apr/27/britain-poor-record-health-costs-economy-43bn-year-long-term-sickness-earnings
Britain’s poor record on health costs economy £43bn a year, says report Thinktank urges ministers to make reducing long-term sickness health equivalent of drive for net zero
Larry Elliott, 27 Apr 2023
Yes, but not nearly as much as the Northern Europeans (the French have the highest spend which may indeed be too much).
Matt’s original thesis was that costs in the US and UK are so high because of a lack of social spending. But UK social spending is much closer to other European countries than the US. And the cheapest Euro countries for construction as Alon has noted are southern European countries (Spain, etc.) not the N. Euro countries with the highest social spending. Thus Matt’s thesis is not well supported.
The NHS has only done badly since 2010. In 2010 it was the best in the world.
@Matthew Hutton: In 2010 it was the best in the world.
Just because Blair recovered some of the ground that the NHS lost under the Thatcher-Major period doesn’t mean it was the best of anything. No doubt that the austerity and neglect and privatising-by-sleuth became unbearable from Cameron (2010) onwards. But some of today’s headlines could be 20 or 30 years old; for example about the cancer diagnosis and treatment backlogs. This is especially terrible because in a defined fraction of patients it can mean a death sentence. And even worse, awful suffering from cancer therapy that will prove useless for the very fact that it was delivered too late, ie. needlessly turning the last part of people’s lives into an utter misery.
I remember in the late 1990s (when I was resident) there was a detailed investigation (Sunday Times IIRC) into breast cancer, directly comparing UK experience with France and Spain (because there are plenty of Brits living there so meaningful comparisons can be made). British women were amazed at the timeliness of the response in those European places: how, after her visit during which the breast cancer was diagnosed as serious, a surgical appointment was made there and then, for less than one week ahead. In the UK the average wait was ridiculous, measured in months; medical statistics can now predict accurately the impact of such tardiness and the excess British deaths were measured in the tens of thousands not just some ‘trivial’ difference one could quibble over.
Remember during Brexit that many expats Brits in Spain were very worried that they might be forced back on the NHS instead of the Spanish health system which they all rated as excellent.
Incidentally, for those who can’t see how this has anything to do with infrastructure and its costs, they are driven by the same cause: austerity and unwillingness to preempt these issues; an aversion to planning, and itself due to the narrow political class making these decisions. A lot of the NHS problems arise from the UK not educating enough doctors and nurses, which is an explicit policy that relies upon foreign-trained medical professionals. With Brexit that penny-pinching is coming home to roost big time, with no easy solutions.
Then there is preventative healthcare which the UK has always spent less on than peer countries (generally considered France, Germany, Nordics but today the comparison is shifting to less prosperous EU countries like Poland and Greece). A part of this is the state of the UK’s housing stock which is poorly rated, partly or a lot related to lack of building new housing: see today’s Bloomberg CityLab [Jun 2024]: UK’s Housing Crisis Needs a London-Sized City to Fix It
This goes back to Thatcher. As does education policy like state schools selling off their playing fields, resulting in British children having even less sporting opportunities and having even poorer fitness and health compared to their Euro neighbours. All feeds into health.
Yeah but Micheal the NHS was also significantly cheaper than those other systems.
@Matthew Hutton:
OK, if you want to say it is the best performing per cost %GDP etc, then I agree. It also has to cope with a sicker population and the result of focussing on treatment rather than prevention.
In absolute terms, nah. Plus, it was Blair who began the outsourcing thing, ie. so-called internal market, that has been so terrible for operations, budgets and morale. It has been estimated that the PFI system will end up costing the NHS some £80bn by the time it is repaid. Some hospitals are spending one sixth of their budgets on the repayments.
And the kind of deep cultural problems evident in the 90s don’t suddenly disappear in the 2000s. It’s why Starmer faces a truly wicked problem because it is requires two or three terms.
(We won’t mention education. I mean some people can’t spell names:-)
The Works Progress Administration provided jobs to 3 million destitute Americans during the New Deal. Local administrations partially financing the Grand Paris Express or the Nimes-Montpellier HSR bypass mandated that up to 10% of the salaried positions had to be given to unqualified unemployed applicants as “contrats d’insertion”. Today’s US “social democracy by the back door” which stipulates that the work must be done by a well-connected and expensive unionized work-force and managed by an army of consultants and lawyers is a sad corruption of the idea.
If I were to try a “master strategy” of convincing the anglosphere to adopt more efficient construction costs, I would start with a country like Singapore. On average the civil service and political leaders are more capable than in NYC and you probably have to convince fewer stakeholders on how to build lower-cost transit.
Whereas NYC or London probably requires more shaming through the media.
Singapore is so wrapped up in its cultural cringe that it won’t fix this until the UK or US does.
If Starmer wants to win elections going forward, especially a third term THE project he has to deliver is improvements to the Liverpool-Hull railway.
That will have to be delivered relatively cheaply and quickly so it has an ROI and so it is finished in maybe 5-8 years.
I have always had a difficult time understanding the third leg of the stool, “procurement and soft costs”. The first two make sense. Overstaffing in labor I understand as the number of person-hours worked to accomplish a specific goal is (let’s say) twice as much, so even for the same scope of work and salary/wage, my payroll doubles. Station and design I understand to mean that the scope of work is (again let’s say) double (although the extra work is unnecessary), so if I had the same staffing and salary/wage, I’d spend twice as much.
Then we get to soft costs, which I understand to mean the ratio of total costs (including costs not associated with specific project tasks, such as administration) to specific-task costs. But this is ambiguous to me, because it could mean, on the one hand, that I’m simply paying administrator salaries. Then a low soft-cost country might pay 10 people to dig and 2 to administrate, and a high soft-cost country might pay 10 people to dig and 14 to administrate, doubling project costs (you can adjust for difference of salary if needed). But in that case it’s really the same as overstaffing (administrators are staff too), it’s just that the overstaffing is actually even worse and you’ve cut it into two bins to make it look palatable. Alternatively, it could be that “soft costs” reflect returns to capital for the construction or consultancy firms. Or, it could be a mixture of these, or it means something different.
The implications of the difference seem pretty important to me, though. In the second case, we’re basically being fleeced, but in the first case it’s just an issue of getting labor productivity up (including administrative labor).
It’s not exactly returns to capital. The consultancies and contractors hate doing business with American agencies, and share their experiences with peers; they charge extra just for the headache of having politicians and political appointees constantly go back on implicit agreements or sometimes even explicit ones, and for the headache of being told “study everything” without any specification of what to do. So, in a way, yes, it’s about having way too many people doing white-collar administrative and planning work, but the reason for this inefficiency is not that white-collar work is inherently less productive in this field in this part of the world, but that the quality of public-sector project management is atrocious and the globalized system makes it worse.
“having way too many people doing white-collar administrative and planning work” is a way in which US infrastructure projects satisfy the implicit demands for redistribution of resources.
I guess construction projects have some redistribution effect, yes, but it sounds more like a situation where people in the right place at construction companies are taking the opportunity to keep their staff employed, than that this is the only outlet for an expression of the popular will for redistribution. So I don’t expect that increasing safety net or redistribution programs would lower costs for transit projects. That’s not to say it’s necessarily a bad idea, but if it is a good idea it’s because it solves separate problems.
Companies keeping their staff employed is a form of redistribution. It’s public money going to ordinary workers who would not otherwise have access to that money. It’s redistribution to the middle class instead of the working class, but it’s redistribution.
Your statement that “the quality of public-sector project management is atrocious” in the Anglosphere has me wondering — is it really a _project_ management problem, where the management will find ways to inflate costs and time even with an absolutely fixed scope and goal/feature list? Or is this really a problem that lies upstream, in the form of bad _product_ management that can’t stop moving the goalposts?
I ask this because bad _product_ management seems to be endemic to large portions of Anglosphere governance, even outside our little transit-shaped slice of the world. For instance, it’s why government IT is such a mess, as pointed out by Jennifer Palhka in *Recoding America*, and also has strong impacts on the effectiveness of service delivery more generally. (It also plays into anti-taxer memetics about government inefficiency and waste.)
As a result, putting pressure on government to adopt better _product_ management practices may be our best lever to push the cost of building transit downwards (in addition to the positive effects it has on the functioning of the rest of government).
Gov.uk is a big recent UK government success to be fair.
One of the best things the Conservatives have done.
Some factors that the last category breaks into:
1) Put yourself in the shoes of the contractor bidding for a fixed-price contract, at a point where cost uncertainty is still massive. There’s an unnervingly high chance that costs end up running over by 20% or more (with a ridiculously fat tail, out past 100%+ blowout), which simply kills your company. So the question basically boils down to “how much would you be willing to play Russian roulette for?” — how much does the company charge for the, say, 10% chance that it will be bankrupted by the contract? There is an actual answer, and it gets added to the bid.
2) Excess scope of administrative work, breaking down into further buckets.
– Nowadays it is deemed politically unacceptable to justify any decision with “in my judgment, that’s better”. You have to do a lot of excess work to make every decision look as though it weren’t a decision, but a necessary consequence of objective constraints (e.g. engineering standards). Incidentally: much excess physical scope is because the process cannot throw away any “constraint” no matter how stupid.
– If you cannot count on politicians respecting agreements, you will avoid some choices that could have reduced cost, but would expose you to a world of pain if they went back on their word at the wrong time. You will also spend a lot of effort on contingency plans for your own use (even if you don’t quite write them down, because it would be embarrassing if you were later found out to have thought about this).
– Community meetings. You hope that they are merely useless (because you did your work building that edifice of “objectively necessary” — and that the nimby/OPM demands don’t get to bounce via the politicians into hard requirements), but you have to nonetheless employ people to go there, sit patiently while being shouted at by imbeciles, and carefully index the archives/recordings so that you can promptly answer later questions about them. And to write a report tallying up their moronic concerns, and for each one a polite yet bulletproof justification as to why it should be ignored.
– Hopefully implying very little construction scope: you have to write studies on how the project impacts the local flora and fauna, and write mitigation plans. No, you can’t say “who cares, this project substitutes for so so many VMT, it’s absolutely worth disturbing the Podunk Parklet insect ecosystem for”, your planning/construction company has to hire/contract some biologists to study Podunk Parklet and its insects.
Yeah, point 1 is counterintuitive, in that if contractors are constantly building projects late and overbudget you’d naively think that fixed contracts would be helpful (on the assumption the contractors are delaying to milk the agency for money) but actually as you said it shifts risk to the entity that’s worse equipped to deal with it.
The second category are good examples of hidden labor costs, but it isn’t obvious to me that those costs scale with total payroll. In other words if the overstaffing were reduced, or the station volumes decreased, I don’t know why the costs of community meetings and environmental studies would become less expensive. The idea in the cost report was that there’s three multiplicative cost increase components, not additive ones.
On the one hand, I think you are being too strict with distinguishing additive and multiplicative. If you zoom in close, each bit of excess staffing (“a hundred years ago they negotiated a deal about elevator operators, thus today they still have elevator operators”) and of excess scope (“they tacked an underground supervillain lair onto the station”) looks additive. But as a headline, the reasonable thing is to divide actual per alternative. Which one is it really? Yes.
On the other hand, I think there are political-ish processes that run on somewhat multiplicative components. Imagine, for a moment, that everything else followed good practices, and this caused EISs and community meetings to consume half the total budget (and even more of the timelines). This fact would reach the ears of some politicians, and because it would stick out sufficiently, they would bother to make a cheaper process. (I suppose this thesis is not exactly convincing just after the congestion charge debacle.) However, between the overstaffing, overscoping, bad risk allocation, etc. the cost of EISs and community meetings is only a small fraction of the total cost, thus politicians don’t see why it would be worth pissing off the relevant constituency over such a proportionately small item. The actual price (in dollars) does not change, it just becomes more/less salient as there is less/more other cruft around. And in turn, the excess cost from the EISs, overscoping, and bad risk allocation makes it not worth sweating the proportionately small item of overstaffing; the overstaffing and EISs and (…) makes it not worth fretting about the overscoping; and the overstaffing, overscoping and EISs makes the price of bad risk allocation not look like a prominent issue.
Or to turn it around: I think it is fairly reasonable to expect that, in practice, these excess administrative costs do scale with the total project cost, because there is a “fixed” (at time T; evidently increasing over time) multiplier relative to the actual thing being built where their expense goes from “fair enough” to “now hold on a second”.
And there is a simpler mechanism that operates on the headline cost: if a project costs too much, it doesn’t get built. Even when there is no literal budget, there is a swing in the public sentiment between “we just built a subway a few years ago (and it went poorly), it would be the definition of madness to try the same bad idea so soon” and “hey we haven’t built a subway in forty years, perhaps it would be time to try”.
The reason I am so focused on the difference of additive and multiplicative, and on specific groupings, is that a 3 factor multiplicative model (roughly, costs are 8x because each factor is double) is very bad from the perspective of trying to fix things. It suggests that the potential benefit from any one improvement strategy is limited. It’s evidently not so easy to reach world-leading status on any one of these factors, and the fact that even making what’s basically a miracle happen, and improving one factor from world-trailing to world-leading, you’d still be at a factor 4 disadvantage overall, and still even above-average in costs. Going from world-trailing to not-so-bad (1.5x world leading) would only take you to factor 6 disadvantage.
Alternatively, in a 2 factor model, where current costs are 2x world-leading in project scope and 4x world-leading in labor allocation inefficiency, if you focus on the second factor and make a miracle, you get down to factor 2 overall, and even a not-so-bad gets you to factor 3 overall. So if you can lump together some of the causes, then a reform effort potentially hits a lot of targets at once: why are we paying for this environmental review staff member, for that redundant TBM operator, for this consultant, etc.
You can’t reduce your supermarket bill by changing how you group the purchased items into bags. The more details you encompass under a “factor”, the more difficult it gets to make a “miracle” with that factor.
Here’s my favorite introduction to this principle.
To be specific: there are different forces pushing back against the cost-minimizing desire to keep headcount low. Some are very direct from interest groups (e.g. utilities insisting you have their representative, on your dime, present whenever you dig). Some, the local politician insists you provide a stage (“legitimacy display”) on which their clients, the local notables, can act out their delusions of grandeur. Some, because you would get beaten in court like a drum if you didn’t. Some, because the local politician is a rhino chasing weekly approval ratings, and it’s in your obvious interest to prevent/mitigate trampling damage to your project.
It’s not even about the podunk parklet insect ecosystem. There are environmental protection laws, including for endangered species, everywhere even vaguely modern. When these laws are enforced by an environmental protection agency staffed with scientists who can say “this area needs a wildlife bypass, that area needs mitigations,” the compliance costs are very low. The US Army Corps of Engineers studied the $3 billion South Coast Rail proposal, which would pass via two protected wetlands, and added a requirement for electrification on the grounds that diesel would disturb the ecosystem, and otherwise only mandated low-to-mid double-digit millions’ worth of mitigations over something like 10 km; the state didn’t want to electrify so instead it chose to build the line via a route that bypasses the wetlands and is slower than the bus.
Rather, the problem is when environmental decisions are made by lawsuit. This is a longer, more uncertain process, in which the counterparty is typically motivated by NIMBY, anti-growth, or anti-government concerns and wants to extract maximum value from you. In Los Angeles, after the LACMTA coerced the rolling stock vendor to set up a plant in the region as a precondition to get the contract, the union sued on environmental pretexts but agreed to drop the lawsuit if the vendor agreed for the plant to be unionized. Usually it’s not so nakedly transactional, but the counterparty will add new things to sue over if they think you’re weak; it’s rather like negotiating with Hamas – the price of the hostages is always a little bit more than what the state just offered.
Lawsuits, environmental reviews, and construction and production requirements are all examples of implicit redistribution of wealth through infrastructure contracting. They are redistribution to the middle classes rather than to the working classes, but they are redistributive nonetheless.
Please find a more efficient way of redistribution. “Digging ditches and filling them in”, or paying construction workers (and equipment manufacturers, etc.) to build stuff that is flagrantly unnecessary, is much less efficient than paying them the same money without requiring them to do anything (and thus leaving them free to also do other work for a different customer). Which in turn is less efficient than paying them to also build an additional subway line (or several) in the same time with the same equipment. The middle class could receive so much more benefit from redistributing the same amount of “input” state wealth if they went about it in a smarter fashion.
Likewise, paying lawyers to do nothing would be a much better use of their time than having them hold up projects at unpredictable times for unpredictable durations. Oh, you already signed a contract about leasing equipment? It’s going to gather dust unless you find someone you can sublease it to (and while you can do that with bulldozers, good luck finding anyone who wants a TBM on short notice). Oh, you already hired people? Fire them, furlough them, find another client they can work for, your project is not allowed to put shovels in the ground until the lawsuit settles.
Likewise, if you want to keep the total municipal budget the same by introducing a head tax and reducing the real estate tax, be my guest. I think this would cause house prices (but not rents) to increase, so you would have some room to upzone areas so that house prices end up in the same place they would have done anyway (but rents are lower). Young professionals, clearly a part of the middle class, would be especially grateful, without any harm to homeowners’ bottom line. Heck, those whose land gets upzoned would see a possibly severalfold increase in its value.
You do have to make sure you don’t piss off the people along the way too too much as elections are lost otherwise.
You don’t necessarily need all the regulations and lawsuits are particularly bad, but you need something.
I agree completely, Basil Marte. I’m describing what is not what I’d like to see.
The post on standardization a couple days ago greatly reduces risk and makes a fixed price bid possible.
If you want to build a single family house that is similar to every other one, then any contractor can give you a bid that will be within a thousand of the final price. I know contractors who do this and they all report the same thing: when they build a house for the market they come in at their bid every time, but when they build a house for someone else change orders will add at least $30,000 to the price. The key to this accurate bid is standard – you get 8 or 9 foot walls (US) because materials come from the factory at the correct size, if you want 8.5 foot walls that will cost much more and contractors are not comfortable with bidding that.
Commercial buildings are similar – build a suburban office building that looks like every other one and they can give you accurate bids. I know that commercial buildings have more flexibility in some areas, and are built differently, but they are still standardized enough in specific styles that you can get accurate bids so long as you accept the standard fittings, but if you want to make changes costs can go up fast.
There needs to be standard stations. This should be flexible enough to handle places where a few lines meet (cross platform transfers designed in). It probably won’t be flexible enough for when you have dozens of lines meeting (no grand central station), but it should cover most situations.
we have a conservative govt here in ontario that wants to build transit projects (good!) but doesnt seem concerned at all with the absurdly high costs it takes to build it (bad!). People would build a statue of doug ford if he could hire someone competent to run metrolinx that knew how to build big transit projects for a reasonable price.
btw, your link for the new updated ontario line costs has 2 urls. This is the url which isn’t correct: https://globalnews.ca/news/10579363/ontario-line-cost-increase/https:/www.thestar.com/news/gta/2020/06/24/metrolinx-considering-a-route-for-the-yonge-subway-extension-to-richmond-hill-that-would-take-it-above-ground.html
A criticism I have heard of the Transit Costs Project is that it does not take into account land costs and accounting methods (i.e. what is counted as a project cost). What is your response to these claims?
As someone who works on refurbishment in domestic construction in the UK I say ‘hell yeah!’ to the analysis of procurement and D&B and the role in inflating costs.
Public agencies here are obsessed by construction procurement frameworks as the solution to everything when the costs are huge in comparison to more direct procurement or direct works approaches. Staff expertise is hollowed out in favour of external consultants who are hugely expensive.
In terms of Design and Build, I think in the UK institutional clients simply don’t consider design as ‘a thing’. Mentally they even omit the ‘Design’ from D&B. I think it’s seen as an additional, unnecessary cost.
Sadly, it leads to tragedies like the Grenfell Tower fire, where ‘design’ was value engineered out of the project with an assumption that various checklist style assessments and checks and balances would ensure safety and quality. Sadly, that was very clearly not the case. We’ve just clocked up the 7th anniversary of the tragedy, with the enquiry ongoing and any serious reflection on the root causes more distant than ever.
The cost explosionstarts with the desire for patronage distribution overriding utility ofthe final result. Two current projects are illustrative.
In San Jose, a short stretch of subway will be deep bored at $12.7b when a shallow ditch (think the IRT–first NY Subway) would not only be cheaper, faster to build, but also more useful. Side platforms w/fare control a short flight below the sidewalk is less time wasted from sidewalk to traindoor. Bonus savings, fewer spoils to truck away, less concrete to pour, cheaper escalators/elevators to install, and less electricity to power them.
In Chicago, CTA is starting an extension of the Red Line (Dan Ryan median route) from the current terminal to precisely the location of a long abandonned station on theMetra/NICTD EMU commuter line. A new platform, and increased frequency of service on the existing tracks could see service up aand running within a year at vastly lower cost. Whynot? The huge multi-year project willline patronage pockets, and the other solution would involve breaking the artificialbarrier between CTA and Metra a serious class/race wall.
It’s a one-way ratchet. As we can see over the past 4 decades it has got worse at every cycle. Politicians get captured. Experts in government feel undervalued and seduced by big money from the consultancy game; and once that road is crossed they are very unlikely ever to return. It is much more difficult to rebuild civil service expertise than to destroy it. Even well-meaning politicians are unlikely to attempt it when the repair time exceeds a political cycle and they won’t get any credit, ever, let alone when it matters to them.
In the Anglosphere we have reached the point that we even outsource the oversight of the private sector to the private sector. As the meme goes, what could possibly go wrong?
Alon has frequently used definitions of “design-build” and “design-bid-build” that differ from my experience, so I will present a different paradigm of contracting methods.
Bid-Build. This is almost always referred to as “plans and specs”. Here, the drawings (‘plans’) and written specifications (‘specs’) for a project are prepared by an independent group, either a set of architects and engineers hired for the job, or in house staff. These are put out to market, contractors submit bids, and a contractor is chosen to build the project.*
Design-Bid-Build. A contractor is chosen to design the project, then a bid is solicited from them for the cost to build their design. Either the contractor is guaranteed the work, or they have to be within a percentage of an independent estimate, or the work is bid openly but the designer-contractor gets a percentage advantage in the bid process (otherwise no contractor would sign up to design a project someone else builds). This is the contracting method that Alon identifies as problematic. There is no incentive for the contractor to design efficiently (just the opposite, the more they increase the design the more money they will get for construction) and if they get a percentage over other bids that drives cost even higher.
Design-Build. A contractor is chosen up front to design and build the project for a fixed price. Either the D-B contractor bids all work lump sum, or they split design and construction cost with design at a capped percentage of construction. The D-B contractor is incentivized to reduce cost, since they will not get more money for an expensive design but do get to pocket savings. Done correctly this is easily the best method. The owner gets cost certainty. You do not get ‘starchitect’ syndrome of designers drawings expensive things they do not have to pay for. Drawing quality is better, the owner does not need an ‘errors and omissions’ budget, because the D-B contractor owns E&O (an acceptable risk if they control design production). Placing design in the hands of the actual builders means technical staff who know how it works making plans, instead of ivory tower engineers.
Although it is the best, Design-Build needs careful planning. The owner must be careful how they set project requirements (called ‘programming’ as opposed to ‘design’). If you under program, you can pay for a High Speed Trainset and get a streetcar (“Your requirements were a standard gauge rail vehicle with overhead power…”). If you under program you can pay for the design twice and lose D-B efficiency (the RFP for Caltrain electrification “Design”-Build contract specified the location of each catenary pole, the definition of a finished design if there ever was one). This can be a difficult balance but is perfect for permanent in-house engineering as Alon recommends. D-B contracting also requires thought how to handle change orders. No owner gives complete design freedom to a D-B contractor, there is always some level of owner review and changes. It is common to pre-budget for some risk (like E&O) in a contingency budget the D-B contractor can use until exhausted (sometimes with shared savings if not) which also requires thought out contract language – as Alon always notes, unforeseen conditions risk should always be carried by the owner.
There are other methods. In Guaranteed Maximum Price (GMP) the owner pays the actual cost of subcontracts, up to a limit beyond which the contractor does. Owner’s like this because they get the savings but not risk. GMP sometimes has a fixed fee instead of percentage markup for this reason, so the contractor isn’t shorted profit if the owner changes to a cheaper design. Time and Material work (T&M, also called ‘tags’) is pay as you go for cost incurred, like GMP with no limit. It has uses but is generally the worst method for anything, since the tags will never stop coming. In Target Value Design the Bid-Build process is inverted. Instead of issuing plans and specs and requesting bids, with TVD the owner issues a cost and solicits designs. TVD is usually used for semi-commodity work (“I want to build $50M worth of apartments and don’t care what they look like.”) Hybrid methods are common; a major D-B project may have fixed cost but the owner approves individual subcontracts like GMP (so the contractor doesn’t spend early on HVAC when the owner wants money left for nicer finishes), subcontract bid savings may go to the contractor but contingency savings to the owner or vice versa, all projects have a mechanism for T&M if needed, overall project may be plans & specs but the back of house mechanical/electrical can be D-B, etc.
*In public work, Bid-Build/Plans and Specs contracts were traditionally sealed bid with lowest bid winning. This was an early 20th century innovation to end the practice of the Mayor’s cousin getting all the contracts. Sealed bid resulted in two problems. First was that if Walmart was low bidder on a subway project they got the job even if wildly unqualified, resulting in failed projects or far higher cost after problems were fixed by others. Second was Tutor-Perini disease, contractors began to specialize in gov’t work and game the system with two estimating departments – one to win the low bid and the other to set how many change orders could be milked out of the design. As a result, the early 21st century has seen a shift to graded bids, where contractors are scored on experience and engineering (to weed out unqualified or bad faith bidders), then sealed bids are opened and cost added to the scoring (this is what private companies do as a matter of course, without a formal grading process to avoid corruption allegations).
One thing we can see from your nice explanations is that the customer/owner (government) needs an in-house team with the expertise and experience to assess all of it, suggest/impose changes etc. Clearly institutional memory is critically important. With the deliberate degradation of civil services, since at least Reagan/Thatcher, one can understand–if never forgive the insane stupidity–why they are forced to outsource even this owner supervision to the private sector.
It’s not actually used in low-construction cost countries, and it has turned medium-cost countries into extreme-cost ones (Canada) and low-cost countries into medium-cost ones (the Nordic countries).
Yes, but are they using Design-Build as I defined it above (fixed price up front for design and construction together) or Design-Bid-Build (first you get paid to design it, then you’ll bid on how much it will take to build your design that you padded).
Also, are they really doing design build where the D-B contractor works off of a programming document or basis of design, and the contractor gets to make decisions about space layout, flooring types, etc., or are they calling it “design build” because those words have a lot of cachet due to D-B success in the private sector but really just doing more traditional bidding with extra steps, paying double for the design (first the consultant, then the ‘design’-bidder) and higher direct costs due to de facto inflexibility (c.f. the example of the ‘design’-build Caltrain electrification where the RFP was basically a complete design to the level of specifying catenary pole placement).
Note that a tightly controlled Bid-Build/Plans & Specs job can achieve the same cost efficiencies as a D-B job, you just need designers/managers who act as if they are going to lose money if the design is overbuilt, and who either know enough about high cost systems such has HVAC and electrical (or know enough to ask) so that they can design them to be efficiently installed (i.e. cheaply).
As Michael said, it really comes back to a good in-house team.
They do two contracts; the second contract may combine final design and construction, but it’s separate from the first design contract and is not given to the same company.
Who is doing two contracts? If it’s the low cost agencies then a separate design contract and a separate construction contract is Bid-Build / Plans & Specs as I defined it above. My question was if the countries who have seen high cost rises are really doing Design-Build (with a single contract and fixed price* for the total project, and contractor flexibility to determine design/layout based on programming requirements) or if they are just saying the words ‘design-build’ while following a Design-Bid-Build (contractor gets to bid price of construction after they design it) or poorly managed Bid-Build.
Note that there is no magic bullet for contracting and project management. Any type of contract structure can be done well or poorly (well, T&M is almost always a poor choice). Also as you have noted, certain things that affect price are outside of the contract paradigm. NYC’s choice to overbuild the 2nd Av Subway stations to put office space below ground would have been an issue no matter how you issue the contracts – if the owner is asking for something expensive it will cost more. Your great point about itemizing costs ahead of time to avoid gouging on change orders is also independent of contract type.
*Fixed within the constraints of the project parameters. Owner requested changes to add scope would obviously be a change order and cost more. As I noted many contracts have contingent funds or mechanisms for sharing savings from low subcontract bids that can affect the final cost.
If you itemize everything you end up with hundreds and hundreds of pages itemizing things.
How did Robert Moses build all ‘his’ freeways, parkways, bridges and tunnels? Was it still the days when government actually built stuff themselves rather than private contractors? (Probably not.) I assume he kept tight control on costs, not least because he considered it was “his” money he was spending and there was almost no limit to the amount of stuff he wanted to build and thus needed to finance (mostly thru toll income, which he treated as ‘his’ prerogative to control; he subverted the transfer of that income to the MTA).
Of course one of the most significant things about Moses was that he had a post-grad MA in government administration (Wadham College, Oxford!). Wiki says: A committed idealist, Moses developed several plans to rid New York of patronage hiring practices, including authoring a 1919 proposal to reorganize the New York state government …
Moses used private contractors for the actual construction, however, it appears that he had a larger in-house staff for design and management spread among his various commissions than is normal in the US today. It also appears that he had access to government workers for ancillary functions such as surveying – a famous anecdote was that he used employees from the NY State Fisheries Board or some such group to lay out a freeway using the justification that the freeway led to a beach, and once at the beach some people would fish, so surveying the highway was a legal use of funds allocated to “development of fisheries.”
The main way Moses got things done was just by getting things done. He pushed people relentlessly and didn’t wait for approval to act. During a major rebuild of NY city parks a huge snowstorm was forecasted – he didn’t approve a delay and had workers onsite as 14″ of snow fell to stay on schedule. He started projects with inadequate funding and once foundations were done he would give politicians a tour to convince them to increase the budget so the work wouldn’t stop. If a group planned hearings about removing trees he would sign a contract to cut the trees down before the meeting – once done what was the point of the hearing? If a judge issued an injunction against a proposed building, he would go ahead and tear up the site to install roads, sewers, etc. (they’re not part of the ‘building’) – once done what was the point of not finishing?
Note that all things tended to be built faster back then – subways, dams, the Empire State Building, etc. In addition to no environmental reviews/lawsuits prior to start, safety standards were lax – it was routine for construction projects to have deaths and people didn’t object to a policies that sped up work but put people at risk. A lot of his work happened during the Great Depression, when high unemployment / low wages meant that it was cheap to put a painter in every room, work nights and weekends, etc.
Moses actually did not necessarily keep tight control on costs, he had a vision and wanted to build to his standard. As mentioned he would spend the whole budget on foundation and structure, then ask/cajole/threaten politicians for more money to avoid embarrassment from an incomplete project. He would go to the city government and tell them the state “could” fund part of a project so would the city fund the rest, then he would go to the state and tell them the city “guaranteed” funding part of the project so would the state fund the rest – voila, he now had a full budget. When funding ran low on the West Side improvements, he didn’t bring costs into control, he just didn’t build a lot of the amenities north of 125th Street where poor and minority people lived – parks below 125th were built to his full standards.
Moses didn’t subvert the transfer of toll revenue to the MTA, the MTA didn’t exist when Moses was doing his work. On the contrary the legislature’s vote to add the Triborough Bridge Authority to the brand new MTA (and thus give that toll income to the MTA) is generally taken to be the end of the Moses era.
@Onux.
Good overview. More or less as I imagined. The last great Victorian builder. Getting projects built quickly is a big deal in containing costs and cost blowouts. The interminability of British projects is a big part of their problem. Of course at the same time, while today environmental concerns may be especially cumbersome, no one wants a return to the bulldozer unaccountable style of Moses. (Hmm, reminds me that Jacques Chirac’s nickname as Paris mayor in the 70s was le bulldozer, especially when he got totally fed up with the delays on the Big Dig of Chatelet-Les-Halles. He threatened that if they didn’t finalise the plan soon then he would step in and do it for them. It might be part of the reason why it was … aesthetically disappointing?)
That’s what I was referring to. Whether MTA existed or not, Moses had control of the extremely lucrative Triborough toll income for years and the last thing he would have condoned was any of it going to transit. As you say, losing it was a sign his power over politicians and the city was over.
Unsecurity about future could be another cost driver. I have impression, that transit construction in US and UK has steep cycles, sometimes there is a lot of construction, than nothing happens. If construction has long tetm plan and is done continuously, building companies can plan ahead and optimise.
No hard data thou, any idea, how to test this hypothesis?
I think the UK has been pretty consistent about building something for a while now.
What?
I think you are confusing the excruciating long timescales of building anything, with “pretty consistent” building! The UK culture conforms exactly to what Michal Formanek is talking about. Always decades late in deciding to proceed with a project, then a orgiastic spending of money especially as the project painfully approaches the end goal. When I lived there it was M25 (decades overdue and instantly out-of-date and unfit for purpose when it opened; I have never driven it without huge tracts of it being semi-closed with orange cones awaiting works) and of course the 12 year delay in building HS1 after Eurostar began service*. Crossrail was first proposed in the 1940s (in fact the first suggestion was 1937 IIRC). Let’s not even mention HS2 which should have been begun in the 80s. Austerity and an aversion to properly planning for the future has predictable awful consequence. As experts within then British Rail have lamented, comparing themselves with their Continental equivalents, it was an aversion to even having adequate planning divisions within BR and presumably all other relevant government or public authorities.
*As you must know, I have commented a lot on this:
https://pedestrianobservations.com/2017/07/24/faster-than-conventional-rail-where-could-it-work/#comment-24946
[Nicholas Faith]:
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Honestly I don’t know why so many on this blog are still arguing about the wrong things when it is clear that government indifference–or overt corruption–lies at the heart of these problems, as caricatured by Thatcher’s pet Portillo, a grotesque irony given how after losing his seat and finding a second life in television rail travel, including the Eurostar he was so indifferent to earlier when he actually had the power to do something! Incidentally Portillo is also a prime example of how the elite schools do their job in the UK: despite his father being a forced exile from Franco Spain; he was a politically active academic, even featured in Alejandro Amenábar’s 2019 historical film While at War partly based (claimed plagiarism of) on the 1941 work Unamuno’s Last Lecture by Luis Portillo (Michael P’s father). Luis must have been appalled at Michael’s obstinate and ignorant rightwing political career, but it was a direct result of sending him to those infamous private (public, FFS!) schools: they are designed to subvert everyone and they work only too well. Note the difference to two prominent French politicians whose fathers were also socialists fleeing from Francoist Spain: Anne Hidalgo (current Partie-Socialist mayor of Paris) and Manuel Valls, Partie-Socialist PM of France (2014-2016). But then even the Right in France believe in advance planning and then supervising government contracts etc.
Yeah but Michael we upgraded our existing lines to a much higher standard than the French did – and Britain is also a lot smaller so a high speed line is less useful.
@Matthew Hutton:
If you say so, though I am unsure of what you mean.
No, cancel that. Travelling in both countries one doesn’t get the impression you imply. Perhaps on non-mainline services but of course it is the TGV network that carries most people in France and by definition it has to be built to the highest standards. Further, maybe the UK did what you say and spent too much on unnecessary stuff and that is why the cost of rail travel is about twice that of France (and many EU countries), probably even more on a km basis?
Also, HS2 is not primarily being built for speed & time benefits but to relieve the WCML. So your point about liddle England is quite moot. Another wicked problem that Starmer inherits without any easy or quick solutions.
@Michael if it is purely about capacity, then you could four track almost all of the Chiltern Mainline and run more services on the Aylesbury Chiltern/Metropolitan line as that line doesn’t have that many trains.
The Chiltern mainline is easy to four track except between Denham and Gerrards Cross and parts of the line in the High Wycombe area (excluding High Wycombe station itself which had passing tracks that have now been removed. None of those parts of the line currently have any stops.
But I mean if you did a tunnel under high Wycombe and a new tunnel/bridge over the M25 in the Gerrards cross area the whole of the Chiltern main line could be 4 tracked as least as far as where the grand central goes off north of Haddenham and Thame Parkway.
I don’t know about any of that, but I suppose I assume that if it were really feasible then why was it never done. Perhaps it was, way back in the early 80s when BR was working on its Tilt Train? Or is it just yet another cobbled-together non-solution in the way the first Dover-Waterloo Eurostar route was a poor substitute for over 12 years until HS1 was built? The WCML is over a century old and it seems trying to 4-track it would have the same problems trying to keep the WCML functional while repairing it (massive service interruptions on weekends and other unplanned outages). A very British situation.
The HS2 plan seems acceptable. If it could have been built for the same as the approximately comparable 430km of the two French lines then nearing completion (2013 when HS2 was given the go-ahead, LGV Est Phase 2 and LGV Sud-Ouest Atlantique), at £9bn the whole psycho-drama would be irrelevant. Or even twice the French cost. But it is at about 13x to 14x that cost, and no one will say it is a stable price. For reasons no one can explain.
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London to Edinburgh or Glasgow is about 700km. All the major cities of France, except Toulouse & Nice, are within that distance of Paris, eg. Marseilles is 660km and Montpellier is 750km. And by comparison, the vast bulk of the UK population is within a single narrow corridor making HSR very efficient, in the manner of Japan (where the HSR is not 4-tracked). I’d grant you that the 125mph (200kph) intercity trains were a reasonable response; if Thatcher hadn’t cancelled the Tilt Train project, and it was funded properly, they might have achieved something similar to full HSR.
Obviously also you need a central London solution, most likely using the surface line from Ruislip to Old Oak Common that already exists with a tunnel from Old Oak Common to Paddington/Euston.
In terms of the solution from where we are now you definitely extend HS2 as far as Norton Bridge, and in Birmingham likely do an Antwerpen Centraal style station with services terminating outside central Birmingham, perhaps in Wolverhampton, Dudley, Shrewsbury or Worcester.
This thinking is a big problem in Europe. HSR rail within any country in Europe is of minimal benefit over regular speed rail. However Europe is more than one country and crossing those lines would be a lot more useful. You should be able to go high speed rail from Northern Scotland to southern Italy (with some transfers) – sure that distance is far enough that it is more reasonable to fly, but the trip should be doable – there is plenty of population in between.
@henry, ignoring capacity, a London Euston-Preston-Glasgow Central Pendelino would do the journey in 4 hours or maybe a few minutes more on the classic line as it stands.
With the full HS2 including the Goulbourne link that journey was only planned to be 3 hours 40, without that link it is probably 3h50 or worse.
If you build HS2 only with phase one or Norton Bridge or even Crewe the fastest London-Glasgow service you could do would probably be with 140mph Pendelinos using the new infrastructure on HS2 and then them continuing on the classic network as well.
The only way to speed that up any more would be to buy some tilting Shinkansen off the Japanese.
Within continental Europe Paris-Vienna say is 768 miles by road, at 100mph average which is achieved on British trains that journey would take 7h40. The current journey time for the first train of the day is 10h40 and most of the others are slower.
If you want to improve that trip up the best is probably to get the sections that are under 125mph up to 125mph – and to run a two hourly through Paris-Vienna EMU trains without changes.
I do wonder if you got some tilting Shinkansen whether just with phase 1 you could do London-Preston-Glasgow in 3h40 or thereabouts.
At the scales of France, Italy, Germany, and Spain, domestic HSR is already very useful. Even in the least HSR-y of these four countries, getting Berlin-Munich from six hours to four was a big change, and if they ever make that three then it will induce even more ridership on the network.
To be fair doing Munich-Berlin in 3h46 or a little more is merely the Germans catching up with what the British are already doing with our victorian infrastructure. London-Edinburgh is already faster in actual service and London-Manchester is pretty close.
That’s 160 km/h average speed – is the ECML really that fast?
Average London-Edinburgh is 4h30m to cover ~533km, or 118kph. The non-stop “Flying Scotsman” morning train does the trip (southbound only) in 4h00m, or 133kph. This is still very fast for a legacy line – on opening day the Tokaido Shinkansen did 515km in 4h00m, or 129kph.
However, I see Berlin to Munich as 504km, so doing it in 3h46m is 134kph not 160kph, or about the same as the best ECML run.
Berlin-Munich is around 630 km via Halle, more via Leipzig.
At the scales of France, Italy, Germany, and Spain, domestic HSR is already very useful.
To add to that, London to Edinburgh is 533km, London to Glasgow is 555km. For comparison, Boston to Philadelphia is 518km and DC to New Haven is 484km. I can’t think of anyone saying HSR from DC to CT or Bos-Phila wouldn’t be successful – let alone the shorter trips of DC-NY or Bos-NY – so HSR should be also very useful at the slightly shorter UK distances.
I gave London to Glasgow/Edinburgh as ≈700km. Google says 660km which is almost identical to Paris-Marseilles. The 530km you use is the flying distance.
@michael, why didn’t they consider upgrading the Chiltern mainline or giving Buckinghamshire a station? The absolute obsession with speed and also incompetence.
Interesting, LNER gives the distance on its website as the straight line distance, when I would think that a railroad website would give the rail distance. You are correct, the ECML is 633 km long, which puts average speed across all services at 140kph and non-stop average at 158 kph. As noted, the Tokaido Shinkansen fastest service averaged 129kph on opening day, and 172kph a year later when brought to full service, which means the British are doing very well indeed with their legacy infrastructure.