Category: Construction Costs

Our Construction Costs Report

This is awkward.

I was hoping to already release the Transit Costs Project report, but we ran into difficulties after we released and then immediately unreleased; we sent the report to the MTA for feedback, we got feedback, and then we went on a binge of edits. This led to a long cycle of almosts; I thought it would be done at the end of December, then 10 days ago, then tomorrow. The revisions were not huge – there are people who read the original version and the gap between what they’ve seen and what we’re about to release is real but is also far from the difference between complete knowledge (which we don’t have and most likely never will) and complete ignorance.

We still have minor edits to do, but they’re small, on the order of less than a full day’s work for all three of us, and we can promise that the full report – including the New York report and the synthesis of all reports combined – will be out on February 6th.

Separately, I’m going to be in New York for about a month after, mostly for non-work reasons. The timing is that there’s an election in Berlin on the 12th, a redo of the city election from 2021 (oddly, not electing for a full term but for the remainder of the term that began in 2021), in which I hope the Greens do better if only so that they’re slightly ahead of SPD and not slightly behind and can replace the scandalized Franziska Giffey as mayor. If I can vote by mail, I’ll be in New York starting a little before the election; if I can’t, I’ll be starting a little later. This will include at least one more in-person event to present our findings and our recommendations for the region and the MTA, at a time to be determined but likely in the second half of February.

There’s a lot of stuff we didn’t get into the report, because of lack of space; we could have info-dumped and made the synthesis novel-length, but some things had to go (and I will defend every decision to exclude things, and if they turn out to have been necessary, then blame me for being wrong about it). So even if you read the reports you should definitely come to events and ask me specific questions about things that are related to construction costs, such as other projects in the same cities we studied, or issues of the interplay between costs and benefits, or how this applies to urban rail construction going forward.

High Costs are not About Precarity

I’ve seen people who I think highly of argue that high construction costs in the United States are an artifact of precarity. The argument goes that the political support for public transportation there is so flimsy that agencies are forced to buy political support by spending more money than they need. This may include giving in to NIMBY pressure to use costlier but less impactful (or apparently less impactful) techniques, to spread money around with other government agencies and avoid fighting back, to build extravagant and fancier-looking but less standardized stations, and so on. The solution, per this theory, is to politically support public transportation construction more so that transit agencies will have more backing.

This argument also happens to be completely false, and the solution suggested is counterproductive. In fact, the worst cost blowouts are for the politically most certain projects; Second Avenue Subway enjoyed unanimous support in New York politics.

Cost-effectiveness under precarity

Three projects relevant to our work at the Transit Costs Project have been done exceptionally cost-effectively in an environment of political uncertainty: the T-bana, the LGV Sud-Est, and Bahn 2000.

T-bana

The original construction of the T-bana was done at exceptionally low cost. We go over this in the Sweden report to some extent, but, in short, between the 1950s and 70s, the total cost of the system’s construction was 5 billion kronor in 1975 prices, which built around 100 km, of which 57% are underground. In PPP 2022 dollars, this is $3.6 billion, or $35 million/km, not entirely but mostly underground. This was low for the time: for example, in London, the Victoria line was $122 million/km and the Jubilee line was $172 million/km (source, p. 78), and Italian costs in the 1960s and 70s were similar, averaging $129 million/km before 1970.

The era of Social Democrat dominance in Swedish politics on hindsight looks like one of consensus in favor of big public projects. But the T-bana itself was controversial. When the decision was made to build it in the 1940s, Stockholm County had about 1 million people; at the time, metros were present in much larger cities, like New York, London, Paris, Berlin, and Tokyo, and it was uncertain that a city the size of Stockholm would need such a system. Its closest analog, Copenhagen, did not build such a system until the 1990s, when it was a metro region of 2 million. It was uncertain that Stockholm should need rapid transit, and there were arguments for and against it in the city. Nor was there any transit-first policy in postwar Sweden: urban planning was the same modernist combination of urban renewal, automobile scale, and tower-in-a-park housing, and outside Stockholm County, the Million Program projects were thoroughly car-oriented.

Construction costs in Sweden are a lot higher now than they were in the 1950s, 60s, and 70s. Nya Tunnelbanan is $230 million/km, compared with a post-1990s Italian average of $220 million; British costs have exploded in tandem, so that now the Underground extensions clock at $600 million/km. Our best explanation is that the UK adopted what we call the globalized system of procurement, privatizing planning functions to consultants and privatizing risk to contractors, which creates more conflict; the UK also has an unusually high soft cost factor. From American data (and not just New York) and some British data, I believe that the roughly 2.5 cost premium of the UK over Italy is entirely reducible to such soft costs, procurement conflict, risk compensation, and excessive contingency. And yet, Sweden itself, with some elements of the same globalized system, maintains a roughly Italian cost level, albeit trending the wrong way.

And today, too, the politics of rail expansion in Sweden are uncertain. There was controversy over both Citybanan and Nya Tunnelbanan, neither of which passed a cost-benefit analysis (for reasons that I believe impugn the cost-benefit analysis more than those projects); it was uncertain that either would be funded. Controversy remained over plans to build high-speed rail connecting Stockholm with Gothenburg and Malmö, and the newly-elected right-wing government just canceled them in order to prioritize investment in roads. Swedish rail projects today remain precarious, and have to justify themselves on cost and efficiency grounds.

LGV Sud-Est

Like nearly all other rich countries, France was hit hard by the 1973 oil crisis; economic growth there and in the US, Japan, and most of the rest of Western Europe would never be as high as it was between the end of WW2 and the 1970s (“Trente Glorieuses“). On hindsight, France’s response to the crisis models can-go governance, with an energy saving ad declaring “in France we don’t have oil, but we have ideas.” The French state built nuclear power plants with gusto, peaking around 90% of national electricity use – and even today’s reduced share, around 70%, is by a large margin the highest in the world. At the same time, it built a high-speed rail network, connecting Paris with most other provincial cities at some of the highest average speeds outside China between major cities, reaching about 230 km/h between Paris and Marseille and 245 km/h between Paris and Bordeaux; usage per capita is one of the highest in Europe and, measured in passenger-km, not too bad by East Asian standards.

But in fact, the first LGV, the LGV Sud-Est, was deeply controversial. At the time, the only high-speed rail network in operation was the Shinkansen, and while France learned more from Japan than any other European country (for example, the RER was influenced by Tokyo rail operations), the circumstances for intercity were completely different. SNCF had benefited from having done many of its own experiments with high-speed technology, but the business case was murky. SNCF had to innovate in running an open system, with extensive through-running to cities off the line, which Japan would only introduce in the 1990s with the Mini-Shinkansen.

Within the French state, the project was controversial. Anthony Perl’s New Departures details how there were people within the government who wanted to cancel it entirely as it was unaffordable. At the end, the French state didn’t finance the line, and required SNCF to find private loans on the international market, though it did guarantee those loans. It also delayed the line’s opening: instead of opening the entire line from Paris to Lyon in one go, it opened two-thirds of it on the Lyon side in 1981 and the last third into Paris in 1983, requiring trains to run on the classical line at low speed between Paris and Saint-Florentin for two years; in that era, phased opening was uncommon, and lines generally opened to the end at once, such as between Tokyo and Shin-Osaka.

Construction was extraordinarily inexpensive. In PPP 2022 dollars, it cost $8.4 million/km. This is, by a margin, the lowest-cost high-speed rail line ever built that I know about. The Tokaido Shinkansen cost 380 billion yen, or in PPP 2022 dollars $40 million/km, representing a factor of two cost overrun that forced JNR’s head to resign. Spain has unusually low construction costs, and even there, Madrid-Seville was $15.7 million/km. SNCF innovated in every way possible to save money. Realizing that high-speed trains could climb steeper grades, it built the LGV Sud-Est with a ruling grade of 3.5%, which has since become a norm in and around Europe, compared with the Shinkansen’s 1.5-2%; the line has no tunnels, unlike the classical Paris-Lyon line. It built the line on the ground rather than on viaducts, and balanced cut and fill locally so that material cut to grade the line could be used for nearby fill. Thanks to the line’s low costs and high ridership, the financial return on investment for SNCF has been 15%, and social return on investment has been 30% (source, pp. 11-12).

This cost-effectiveness would never recur. The line’s success ensured that LGV construction would enjoy total political backing. The core features of LGV construction are still there – earthworks rather than viaducts, 3.5% grades, limited tunneling, overcompensation of landowners by about 30% with land swap deals to defuse the possibility of farmer riots. But the next few lines cost about $20 million/km or slightly less, and this cost has since crept up to about $30 million/km or even more. This remains low by international standards (but not by Spanish ones), but the trend is negative.

SNCF is coasting on its success from a generation ago, secure that funding for LGVs and state support in political contention is forthcoming, and the routing decisions have grown worse. In response to NIMBYism in Provence, the French state assented to a tunnel-heavy route, including a conversion of Marseille from an at-grade terminal to an underground through-station, akin to Stuttgart 21, which has not been done before in France, and the resulting high costs have led to delays on the project. Operations have grown ever more airline-style, experimenting with low-cost airline imitation to the point of reducing fare receipts without any increase in ridership. One of the French consultants we’ve spoken with said that their company’s third-party design costs are 7-8% of the hard costs, which figure is similar to what we’ve seen in Italy and to the in-house rate in Spain – but the same consultant told us that there is so much bloat at SNCF that when it designs its own projects, the costs are not 7% but 25%, a figure in line with American rates.

Bahn 2000

Switzerland has Europe’s strongest passenger rail network by all measures: highest traffic measured by passenger-km per capita, highest modal split for passenger-km, highest traffic density. Its success is well-known in surrounding countries, which are gradually either imitate its methods or, in the case of Germany, pretending to do so. It has achieved its success through continuous improvement over the generations, but the most notable element of this system was implemented in the 1990s as part of the Bahn 2000 project.

The current system is based on a national-scale clockface system (“Takt”) with trains repeating hourly, with the strongest links, like the Zurich-Bern-Basel triangle, running every half hour. Connections are timed in those three cities and several others, called knots, so that trains enter each station a few minutes before the connection time (usually the hour) and depart a few minutes after, permitting passengers to get between most pairs of Swiss cities with short transfers. Reliability is high, thanks to targeted investments designed to ensure that trains could make those connections in practice and not just in theory. Further planning centers adding more knots and expanding this system to the periphery of Switzerland.

Switzerland is famous for its consensus governance system – its plural executive is drawn from the four largest parties in proportion to their votes, with no coalition vs. opposition politics. But the process that led to the decision to adopt Bahn 2000 was not at all one of unanimity. There had been plans to build high-speed rail, as there were nearly everywhere else in Western Europe. But they were criticized for their high costs, and there was extensive center-right pressure to cut the budget. Bahn 2000 was thus conceived in an environment of austerity. Many of its features were explicitly about saving money:

  • The knot system is connected with running trains as fast as necessary, not as fast as possible. Investments in speed are pursued only insofar as they permit trains to make their connections; higher speeds are considered gratuitous.
  • Bilevel trains are an alternative to lengthening the platforms.
  • Timed overtakes and meets are an alternative to more extensive multi-tracking of lines.
  • Investment in better timetabling and systems (the electronics side of the electronics-before-concrete slogan) is cheaper than adding tunnels and viaducts.

Swiss megaprojects have to go to referendum, and sometimes the referendums return a no; this happened with the Zurich U-Bahn twice, leading to the construction of the S-Bahn instead. All Swiss planners know in a country this small and this fiscally conservative, any extravagance will lead to rejection. The result is that they’ve instead optimized construction at all levels, and even their unit costs of tunneling are low; thanks to such optimization, Switzerland has been able to build a fairly extensive medium-speed rail system, with more tunneling per capita than Germany (let alone France), and with two S-Bahn trunk tunnels in Zurich, where no German city today has more than one.

The American situation

The worst offenders in the United States are not at all politically precarious. There is practically unanimous consensus in New York about the necessity of Second Avenue Subway. At no point was the project under any threat. There is an ideological right in the city, rooted less in party politics and more in the New York Post and the Manhattan Institute, with a law-and-order agenda and hostility to unions and to large government programs, but at no point did they call for cancellation; the Manhattan Institute’s Nicole Gelinas has proposed pension cuts for workers and rule changes reducing certain benefits, but not canceling Second Avenue Subway.

At intercity scale, the same is true of Northeast Corridor investment. The libertarian and conservative pundits who say passenger rail is a waste of money tend to except the Northeast Corridor, or at least its southern half. When the Republicans won the 2010 midterm election, the new chair of the House of Representatives Transportation Committee, John Mica (R-FL), proposed a bill to seek private concessionaires to run intercity rail on the corridor. He did not propose canceling train service, even though in the wake of the same election, multiple conservative governors canceled intercity rail investments in their state, both high-speed (Florida) and low-speed (Wisconsin, Ohio).

In fact, both programs – New York subway expansion and the Northeast Corridor – are characterized by continuity across partisan shifts, as in more established consensus governance systems. The Northeast Corridor is especially notable for how little role ideological or partisan politics has played so far. New York has micromanagement by politicians – Andrew Cuomo had his pet projects in Penn Station Access and the backward-facing LaGuardia air train, and now Kathy Hochul has hers in the Interborough Express – but Second Avenue Subway was internal, and besides, political micromanagement is a different problem from political precarity.

And neither of these programs has engaged in any cost control. To the contrary, both are run as if money is infinite. The MTA would surrender to NIMBYs (“good neighbor policy”) and to city agencies looking to extract money from it. It built oversize stations. It spent money protecting buildings from excessive settlement that have been subsequently demolished for redevelopment at higher density.

The various agencies involved in the Northeast Corridor, likewise, are profligate, and not for lack of political support. Connecticut is full of NIMBYs; one of the consultants working on the plan a few years ago told me there was informal pressure not to ruffle feathers and not to touch anything in the wealthiest suburbs in the state, those of Fairfield County. In fact, high-speed rail construction would require significant house demolitions in the state’s second wealthiest town, Darien – but Darien is so infamously exclusive (“Darien rhymes with Aryan,” say other suburbanites in the area) that the rest of the region feels little solidarity with it.

NIMBYs aside, there has not been any effort at coordinating the different agencies in the Northeast along anything resembling the Swiss Takt system. This is not about precarity, because this is not a precarious project; this is about total ignorance and incuriosity about best practices, which emanate from a place that doesn’t natively speak English and doesn’t trade in American political references.

The Green Line Extension

Boston’s GLX is a fascinating example of cost blowouts without precarity. The history of the project is that its first iteration was pushed by Governor Deval Patrick (D), with the support of groups that sued the state for its delays in planning the project in the 1990s, as a court-mandated mitigation for the extra car traffic induced by the construction of the Big Dig. Patrick instituted a good neighbor policy, in which everything a community group wanted, it would get. Thus, stations were to become neighborhood signatures, and the project was laden with unrelated investments, called betterments, like a $100 million 3 km bike lane called the Somerville Community Path.

At no point in the eight years Patrick was in power was there a political threat to the project. It was court-mandated, and the extractive local groups that live off of suing the government favored it. The Obama administration was generous with federal stimulus funding, and the designs were rushed in order to use stimulus funding to pay for the project’s design, which would be done by consultants rather than with an expansion of in-house hiring. It’s in this atmosphere of profligacy that the project’s cost exploded to, in today’s money, around $3.5 billion, for 7 km of light rail in existing rights-of-way (albeit ones requiring overpass reconstruction).

The project did fall under political threat, after Charlie Baker (R) won the 2014 election. Baker’s impact on Massachusetts governance is fascinating, in that he unambiguously cut its budget significantly in the short run, but also had both before (as budget director in the 1990s) and during (through his actions as governor) wrecked the state’s long-term ability to execute infrastructure, setting up a machine intended to privatize the state and avoiding any in-house hiring. Nonetheless, the direct impact of precarity on GLX was to reduce scope: the betterments were removed and the stations were changed from too big to too small. The final cost was $2.3 billion, or around $2.8 billion in 2022 dollars, and half of that was sunk cot from the previous iteration.

There was no expectation that the project would be canceled – indeed, it was not. A Republican victory was unexpected in a state this left-wing. Then, as Baker was taking office, past governors from both parties expressed optimism that he would get not just GLX done but also the much more complex North-South Rail Link tunnel. Nor did contractors have their contracts yanked unexpectedly, which would get them to bid higher for risk compensation. Baker cold-shouldered not jut NSRL but also much smaller investments in commuter rail, but at no point was anyone stiffed in the process. No: the Patrick-era project was just poorly managed.

Project selection

As one caveat, I want to point out a place where precarity does lead to poor project cost-effectiveness: the project selection stage, in the context of tax referendums, especially in Southern California. None of this leads to high per-kilometer costs – Los Angeles’s are exactly as bad as in the rest of the United States – but it does lead to poor project selection, as an unintended consequence of anti-tax New Right politics.

The California-specific issue is that raising taxes requires a referendum, with a two-thirds vote. Swiss referendums are by simple majority, or at most double majority – but in practice most referendums that have a popular vote majority, even a small one, also have a double majority when needed, and in the last 15 years I believe the only two times they didn’t had the double majority veto overturning a 1.5% margin and a 9% margin.

California’s requirement of a two-thirds majority was intended to stop wasteful spending and taxation, but has had the opposite effect. In and around San Francisco, the voters are sufficiently left-wing that two-thirds majorities for social policy are not hard to obtain. But in Southern California, they are not; to build public transportation infrastructure, Los Angeles and San Diego County governments cannot rely on ideology, but instead cut deals with local, non-ideological actors through promising them a piece of the package. Los Angeles measures for transit expansion are, by share of money committed, largely not about transit expansion but operations, new buses, or leakage to roads and bridges; then, what does go to transit expansion is divvied by region, with each region getting something, no matter how cost-ineffective, while core improvements are neglected and so are cross-regional connections (since the local extractive actors aren’t going to ride the trains and can’t tell a circumferential project is useful for them).

This is not a US-wide phenomenon. It’s not even California-wide: this problem is absent from the Bay Area, where BART decided against an expansion to Livermore that was unpopular among technically-oriented advocates, and would like to build more core capacity if it could do so for much less than a billion dollars per km. New York does not have it at all (for one, it doesn’t require two-thirds majorities for budgeting).

At intercity scale, this precarity does cause Amtrak to maximize how many states and congressional districts it runs money-losing daily trains in. But wasting money on night trains and on peripheral regions is hardly a US-only problem – Japan National Railways did that until well past privatization, when its successors spun off money-losing branch lines to prefecture-subsidized third sector railways. This is not at all why there is no plan for Northeastern intercity rail that is worth its weight in dirt: Northeastern rail improvements have been amply funded relative to objective need (if not relative to American costs), and solid investments in the core coexist with wastes of money on the periphery of the network in many countries.

The issue of politicization

The precarious, low-cost examples all had to cut costs because of fiscal pressure. However, in all three, the pressure did not include any politicization of engineering questions. Sweden was setting up a civil service modeled on the American Bureau of Public Roads, currently the Federal Highway Administration, which in the middle of the 20th century was a model of depoliticized governance. France and Switzerland have strong civil service bureaucracies – if anything SNCF is too self-contained and needs reorganization, just not if it’s led by the usual French elites or by people from the airline industry.

Importantly, low-cost countries with more clientelism and politicization of the state tend to be more deferential to the expertise of engineers. Greece has a far worse problem of overreliance on political appointees than the United States, let alone the other European democracies; but engineering is somewhat of an exception. Hispanic and Portuguese-speaking cultures put great prestige on engineering, reducing the extent of political micromanagement, even in countries without strong apolitical civil service bureaucracies. Even in Turkey, the politicization of public transportation is entirely at macro level: AKP promises to prioritize investment in areas that vote for it and has denied financing to the Istanbul Metro since the city flipped to the opposition (the city instead borrows money from the European Investment Bank), but below that level there is no micromanagement.

The American examples, in contrast, show much more political micromanagement. This is part of the same package as the privatization of state planning in the globalized system; in the United States often there was never the depoliticization that most of the rest of the developed and middle-income world had, but on top of that, the tendency has been to shut down in-house planning departments or radically shrink them and replace them with consultants. The consultants are then supervised by political appointees with no real qualifications to head capital programs, and the remaining civil servants are browbeaten not to disagree with the political appointees’ proclamations.

Those political appointees rarely measure themselves by any criteria of infrastructure utility. Even in New York they and the managers don’t consistently use the system; in Los Angeles, they use it about as often as the executive director of a well-endowed charity eats at a soup kitchen. To them, the cost is itself a measure of success – and this is true of other agencies, which treat obtaining other people’s money as a mark of achievement and as testament to their power. This behavior then cascades to local advocacy groups, which try to push solutions that maximize outside funding and are at bet indifferent and at worst actively hostile to any attempt at efficiency.

Just giving more support to agencies in their current configuration is not going to help. To the contrary, it only confirms that profligacy gets rewarded. A program of depoliticization of the state is required in tandem with expanding in-house hiring and reversing the globalized system, and the political appointees and the managers and political advocates who are used to dealing with them don’t belong in this program.

It’s Easy to Waste Money

As we’re finalizing edits on our New York and synthesis reports, I’m rereading about Second Avenue Subway. In context, I’m stricken by how easy it is to waste money – to turn what should be a $600 million project into a $6 billion one or what should be a $3 billion project into a $30 billion one. Fortunately, it is also not too hard to keep costs under control if everyone involved with the project is in on the program and interested in value engineering. Unfortunately, once promises are made that require a higher budget figure, getting back in line looks difficult, because one then needs to say “no” to a lot of people.

This combination – it’s easy to stay on track, it’s easy to fall aside, it’s hard to get back on track once one falls aside – also helps explain some standard results in the literature about costs. There’s much deeper academic literature about cost overruns than absolute costs; the best-known reference is the body of work of Bent Flyvbjerg about cost overruns (which in his view are not overruns but underestimations – i.e. the real cost was high all along and the planners just lied to get the approval), but the work of Bert van Wee and Chantal Cantarelli on early commitment as a cause of overruns is critical to this as well. In van Wee and Cantarelli, once an extravagant promise is made, such a 300 km/h top speed on Dutch high-speed rail, it’s hard to walk it back even if it turns out to be of limited value compared with its cost. But equally, there are examples of promises made that have no value at all, or sometimes even negative value to the system, and are retained because of their values to specific non-state actors, such as community advocacy, which are incorrectly treated as stakeholders rather than obstacles to be removed.

In our New York report, we include a flashy example of $20 million in waste on the project: the waste rock storage chamber. The issue is that tunnel-boring machines (TBMs) in principle work 24/7; in practice they constantly break down (40% uptime is considered good) and require additional maintenance, but this can’t be predicted in advance or turned into a regular cycle of overnight shutdowns, and therefore, work must be done around the clock either way. This means that the waste rock has to be hauled out around the clock. The agency made a decision to be a good neighbor and not truck out the muck overnight – but because the TBM had to keep operating overnight, the contractor was required to build an overnight storage chamber and haul it all away with a platoon of trucks in the morning rush hour. The extra cost of the chamber and of rush hour trucking was $20 million.

Another $11 million is surplus extraction at a single park, the Marx Brothers Playground. As is common for subway projects around the world, the New York MTA used neighborhood parks to stage station entrances where appropriate. Normally, this is free. However, the New York City Department of Parks and Recreation viewed this as a great opportunity to get other people’s money; the MTA had to pay NYC Parks $11 million to use one section of the playground, which the latter agency viewed as a great success in getting money. Neither agency viewed the process as contentious; it just cost money.

But both of these examples are eclipsed by the choice of construction method for the stations. Again in order to be a good neighbor, the MTA decided to mine two of the project’s three stations, instead of opening up Second Avenue to build cut-and-cover digs. Mined stations cost extra, according to people we’ve spoken to at a number of agencies; in New York, the best benchmark is that these two stations cost the same as cut-and-cover 96th Street, a nearly 50% longer dig.

Moreover, the stations were built oversize, for reasons that largely come from planner laziness. The operating side of the subway, New York City Transit, demanded extravagant back-of-the-house function spaces, with each team having its own rooms, rather than the shared rooms typical of older stations or of subway digs in more frugal countries. The spaces were then placed to the front and back of the platform, enlarging the digs; the more conventional place for such spaces is above the platform, where there is room between the deep construction level and the street. Finally, the larger of the two station, 72nd Street, also has crossovers on both sides, enlarging the dig even further; these crossovers were included based on older operating plans, but subsequent updates made them no longer useful, and yet they were not descoped. Each station cost around $700 million, which could have been shrunk by a factor of three, keeping everything else constant.

Why are they like this?

They do not care. If someone says, “Give me an extra,” they do not say, “no.” It’s so easy not to care when it’s a project whose value is so obvious to the public; even with all this cost, the cost per rider for Second Avenue Subway is pretty reasonable. But soon enough, norms emerge in which the appearance of neighborhood impact must always be avoided (but the mined digs still cause comparable disruption at the major streets), the stations must be very large (but passengers still don’t get any roomy spaces), etc. Projects that have less value lose cost-effectiveness, and yet there is no way within the agency to improve them.

How Sandbagged Costs Become Real

Sandbagging is the practice of making a proposal one does not wish to see enacted look a lot weaker than it is. In infrastructure, this usually takes the form of making the cost look a lot higher than it needs to be, by including extra scope, assuming constraints that are not in fact binding, or just using high-end estimates for costs and low-end estimates for benefits. Unfortunately, once a sandbagged estimate circulates, it becomes real: doing the project cleanly without the extras and without fake constraints becomes politically difficult, especially if the sandbaggers are still in charge.

Examples of sandbagging

I’ve written before about some ways Massachusetts sandbags commuter rail electrification and the North-South Rail Link. In both cases, Governor Charlie Baker and the state’s Department of Transportation are uninterested in commuter rail modernization and therefore ensured the studies in that direction would put their fingers on the scale to arrive at the desired conclusion. As we will see, the electrification sandbag is one example of how sandbagged estimates can become real.

In New York, the best example is of sandbagging alternatives. Disgraced then-governor Andrew Cuomo wanted to build a people mover to LaGuardia Airport in the wrong direction, and to that effect, Port Authority made a study that found ways to sandbag other alignments; here at least there’s a happy ending, in that as soon as Cuomo left office, the process was restarted and the rapid transit options studied the most seriously are the better ones.

Another example I have just seen is in Philadelphia. There have long been calls for extending the subway to the northeast along Roosevelt Boulevard; Pennsylvania DOT has just released a cost estimate of $1-4 billion/mile ($600 million-$2.5 billion/km). The high end would beat both phases of Second Avenue Subway, in an environment that both is objectively easier to tunnel in and has a recent history of building and operating services much less expensively than New York.

How to sandbag public transportation

An obstructionist manager who does not care much for public transit, or doesn’t care about the specific project being proposed, has a number of tools with which they can make costs appear higher and benefits appear lower. These are not hard to bake into an official proposal. These include the following:

  • Invocation of NIMBYs as a reason not to build. The NIMBYs in question can be a complete phantom – perhaps the region in question is supportive of transit expansion, or perhaps there was NIMBYism in recent memory but the NIMBYs have since died or moved away. Or they can be real but far less powerful than the obstructionist says, with a recent history of the state beating NIMBYs in court when it cares.
  • Scope creep. Complex public transportation projects often require additional scope to be viable – for example, regional rail tunnels often require additional spending on surface improvements for the branches that are to use the tunnels. How much extra scope is required is a subtle technical question and there is usually room for creative innovation for how to schedule around bottlenecks (whence the Swiss slogan electronics before concrete). The obstructionist can take a maximalist approach for the scope and just avoid any attempt to optimize, making the costs appear higher.
  • Scope deflection. This is similar to scope creep in that the project gets laden with additional items, but differs from scope creep in that the items are what the obstructionist really wants to build, rather than lazy irrelevances.
  • Excessive contingency. Cost estimates are uncertain and the earlier the design is, the more uncertain they are. Adding 40% contingency is a surefire way to ensure the money will be spent, as is citing a large range of costs as in the above-mentioned case in Philadelphia.

How sandbags become real

Normally, the purpose of a sandbag is to block or delay the entire project; the scope deflection point is an exception to this. And yet, once a sandbagged estimate is announced, it often turns into the real cost. Philadelphia was recently planning subway expansion for not much more than the international cost, but now that numbers comparable to Second Avenue Subway are out there, area advocates should expect them to turn into the real cost, absent a strong counterforce, involving public dismissal and humiliation of people engaged in such tactics.

The reason for this is that cost control doesn’t always occur naturally, unless one is already used to it. It’s very easy to waste money on irrelevant extras, some with real value to another group (“betterments”), some without. Second Avenue Subway has stations that are two to three times as big as they needed to be, without any sandbagging – different requirements just piled up, including mechanical rooms, crew rooms with each department having its own space, and additional crossovers, and nobody said “Wait a minute, this is too much.” The station designs are also not standardized, again without a sandbag, and it’s very easy to promise neighborhood groups bespoke design just to make them feel important, even if the bespoke design isn’t architecturally notable or useful for passengers.

Likewise, if there’s any conflict between different users, for example different utilities and infrastructure providers in a city, then it takes some effort to rein it in and coordinate. The same situation occurs for conflict between different users of the same tracks on mainline rail: it takes some effort to coordinate timetables between local and long-distance rail services. The planning effort required is ultimately orders of magnitude cheaper than the cost of segregating the uses – hence the electronics before concrete maxim – but people who don’t care for coordination can find ways to define a project in a way that makes additional concrete (on mainline rail) or extra work with utilities (in urban subways) seem unavoidable.

Moreover, a betterment, non-standardized design, concrete-instead-of-electronics, or scope deflection occurs in context of other people’s money (OPM). If a light rail project pays for a municipality’s streetscaping, the municipality will not try to value-engineer any of it, resulting in unusually high costs.

In New York, one of the reasons for high accessibility costs on the subway, beyond the usual problems of procurement and utility conflict, is scope deflection. The agency doesn’t care about disabled people, and treats disability law as a nuisance. Thus it sandbags elevator installations by bundling them with other projects that it does care about, like adding more staircases or renewing the station finishes, and charging those projects to the accessibility bucket and telling judges how much it is spending on mandated accessibility.

Political advocacy is unwittingly one of the mechanisms for this cost blowout. Transit advocates tend to value transit more than the average person, by definition, and therefore are okay with pushing for projects at higher costs than are acceptable to most. Once a sandbagged budget is out there, such groups often say that even at the higher estimate the project is a bargain and should go ahead. And once there’s political support, it’s easy to spend money with nothing to show for it.

I Gave Two Talks About Construction Costs Yesterday

We gave two talks about construction costs yesterday, as I said in my invite earlier this week. There are no slides to upload, so I’ll just give brief overviews.

The 11 am talk had with Aaron Gordon as moderator and comprised me, Eric, Elif, and Marco, in front of an audience of about 40, including a few people in official capacity from the MTA or the more reform-oriented sections of politics. It was recorded, and the video has been uploaded via the Marron channel. The four of us went over our backgrounds and what brought us to this issue, and then we talked about what we’d done – we tallied around 200 personal interviews and correspondences and countless academic and gray studies reviewed – and what the conclusions are (see above link for some of them).

Audience questions were markedly friendly, and so were followup conversations Eric had with people at the MTA about this; Eric and I had spent the previous day catastrophizing about what if we’d encounter a hostile audience with questions insisting that no, New York can’t possibly be an order of magnitude more expensive to build subways in than our comparison cases, but none of that happened there.

The political response is also interesting. I’m not going to name names but I’ve found it striking that there’s interest in this from both politicians who ideologically identify with the radical left and the Democratic Socialists of America and ones who ideologically identify with the neoliberal movement (currently rebranding itself as New Liberals, in parallel with the New Democrat Coalition).

In a way, it’s not too surprising. Both groups are motivated by ideology and not by the petty concerns that lead to NIMBYism and to the politics of delay for its own sake. More subtly, while the term neoliberalism evokes a retreat from state methods and toward privatization, in practice the people who use the label today talk about state capacity all the time, they just have a vision of the state that centers efficiency. The sight of a New York that can, on its present capital budget, build 200 km of rail tunnel in 10 years while also completing investments in accessibility and high-capacity signaling is uplifting to such movements, even if those movements may disagree about driverless trains.

This does not mean everyone is on board, unfortunately. I can’t tell what exactly goes on at the MTA; clearly, there are some people there who are unhappy, although I can’t tell who except in the broadest, least certain outline. In politics, I will say that the people I’ve talked to are not nearly as well-known or powerful as Alexandria Ocasio-Cortez or the staff of Pete Buttigieg.

The 8 pm talk was much less formal and was just me in front of a crowd of about 25 that was more advocacy-oriented. It was from the start the secondary event, designed for people who would like to come but couldn’t make it during business hours. I expected 12 people and got 25, with an awkward signup process at the lobby of the building, for which I am grateful to security for being understanding. I managed to possess the AV system in the room with the help of an audience member and share my screen to showcase some more examples and talk more about our report, but there was no recording.

Audience questions covered a variety of topics: the applicability of our work to California High-Speed Rail (I went on a long rant about the problems of early commitment), how the different factors mentioned in the link at the start of this post interact, what the role of utilities is, etc.

A more interesting question, which I didn’t immediately have an answer to, was what advocates can do about it. People don’t vote based on subway construction costs, or at least not directly. I did bring up the political popularity of mani pulite and the anti-corruption reforms in Italy that have helped bring down costs, and, echoing more experienced activists who I’d asked, recommended that people raise the issue with their state legislator, member of City Council, or mayor if they’re in an inner suburb and not the city. In an American context, there is no criminal corruption that we’ve found, unlike in Italy in the 1970s and 80s, but instead of mani pulite, a popular process for making government more efficient is viable. Even people whose entire political career is built on wrecking the ability of the state to do anything talk about how It’s Time to Build or about Getting to Yes.

I want to say I’m optimistic based on what we saw, but not everything has gone as smoothly, and there are people in powerful positions who should not have them – they just didn’t show up this time. So we’ll see; I’ll know much more at the end of the year.

The Transit Costs Project Conclusion is Out!

Here it is. This is the result of many months and years of work, and a lot of editing, and it should not be viewed as my work but rather as joint work of mine with Eric Goldwyn, Elif Ensari, and Marco Chitti. People should read the report, which talks about how to build in-house capacity and institutional support that does not involve American-style micromanagement and politiciziation.

We’re going to present on this in person at NYU in a day and a half, on Wednesday 10/26, at 11 am (moderated by Aaron Gordon) and again at 8 pm for people who can’t make it during work hours; this is at Marron’s office at 370 Jay Street on the 12th floor, room 1201. (I’m also separately on this panel about through-running, online, 10/25 at 6 pm New York time.)

We’ve managed to decompose much of the cost premium of New York over low-to-medium-cost comparison cases, in the following manner:

Labor

Labor costs are a total of 20-30% in our comparison cases (Turkey, Italy, Sweden). Sweden is the most relevant, as the highest-wage example; Citybanan’s costs were 23% labor. In the Northeastern United States, labor is 40-60% of the cost. Picking 25% vs. 50% as the respective averages, this means that labor costs in the Northeast are three times what they should be, and the difference contributes to a factor of 1.5 cost difference. This includes both blue- and white-collar labor – this isn’t just overstaffing of unionized workers (although that exists too) but also different agencies such as utilities demanding that their own supervisors be in the tunnel during construction. In Boston, the overhead ratio was 40-65% higher on the Green Line Extension than the norm for Bostonian construction.

Soft costs and design

In New York, and as far as we can tell across the Anglosphere, design and management add a hefty additional share. Of note, what counts as soft costs differs by country. For example, insurance is a soft cost in Italy, but in New York it’s bundled into the regular contracts. British cost breakdowns list contingency separately, but American ones do not. Taking just the project management and design contracts – what counts as soft costs for New York contracting – they add 21% on top of the other contracts. The norm in France and Italy is 5-10%. However, 21% is on top of an inflated base: while extra physical construction means a roughly proportionate increase in oversight costs, the extra labor costs do not, and so, relative to a right-size labor cost (that is, overall project cost falling by a factor of 1.5), this is 31%. This contributes a factor of about 1.2.

Procurement

Procurement problems, including lack of competition, poor management of the contractors (called “the [name of agency] factor” where this can be any American transit agency), change order litigation, risk compensation, and contingency, overall double New York’s overall construction costs. Some of this is recent enough to only have been instituted when Andrew Cuomo was governor, like debarment, a heavyhanded attempt to blacklist contractors who run over the estimated cost that leads to higher initial bids for risk compensation. But the privatization of risk goes back earlier and the closedness to working like in the rest of the world goes back much earlier. Moreover, the tendency to privatize risk and alternate between micromanaging contractors and not knowing how to supervise them at all appears pan-US.

As a note of caution, it’s perhaps best to think of procurement and soft costs together as contributing a factor of about 2.5: under different definitions from New York’s, for example those of Britain, some procurement problems like contingency and excessive contractor profit (due to risk compensation – this isn’t a freeroll for the contractors) are folded into the soft cost account.

Overbuilding

Subway stations should be built cut-and-cover, in a box barely longer than the longest train that is expected to run through them. Italian and French examples are maybe 5-10% longer than the train, and Odenplan on Citybanan is 17% (250 m box, 214 m trains). American stations are often oversize: Second Avenue Subway’s two mined stations are on average about 100% longer, and cut-and-cover 96th Street is almost 200% longer. Moreover, designs must be standardized across each project, whereas in the US they are not, to the point that there were two distinct escalator vendors for the three stations of Second Avenue Subway.

This is not seen as nicer passenger spaces – those stations still look pretty crummy compared with the standardized stations of the Nordic countries or Italy or Turkey. It goes without saying that non-standardized escalator placement does not make stations more pleasant. Moreover, the extra space is just used for back offices with full segregation between different functions and work teams that no legacy station has anywhere, or unnecessary crossovers; Odenplan looks much nicer without much superfluous digging. Political insistence on signature stations in the United States leads to waste without any improvement in user experience resulting from it.

This factor also absorbs conflict with utilities, which is seen in decisions to dig too deep and build mined stations, avoiding cut-and-cover even when the costs are more favorable. (Utility relocation costs should be reduced too, but those are second-order in New York.)

In New York, stations are 77% of the hard costs; systems and tunnels are 23%. Cutting station costs by a factor of 3 (or slightly more, counting utility conflict) means cutting overall costs by a factor of a little more than 2. In fact the overall cut should be bigger because there’s some overdesign in the systems as well. The paused, restarted, and budget-overrunning Paris Metro Line 1 extension budget is split as 30% stations, 55% tunnels and systems, but that’s for trains half the size of New York’s, and Länsimetro Phase 1, with trains three quarters the size of New York’s split about evenly between the two. With systems and tunneling made cheaper as well through scale and standardization, the overall cost difference is a factor of 2.5-3.

What does this mean?

It means you should read the report, linked at the very start of this post. But mostly it means the causes of high American (especially New York) costs are institutional, and fixable, without a revolutionary upending of the legal or social system. We can’t tell you how New York can build for the costs of Nuremberg or Turkey, both around $100 million per km, but $200 million per km, slightly higher than Italy and slightly lower than Sweden, is achievable. Moreover, because institutional problems with procurement and soft costs occur throughout (and also conflict with utilities, a bigger issue for smaller projects than subway expansion), the same reforms that should bring down tunneling costs should also bring down the costs of non-tunneling improvements like elevator accessibility and platform edge doors.

Eno’s Project Delivery Webinar

Eno has a new report out about mass transit project delivery, which I encourage everyone to read. It compares the American situation with 10 other countries: Canada, Mexico, Chile, Norway, Germany, Italy, South Africa, Japan, South Korea, and Australia. Project head Paul Lewis just gave a webinar about this, alongside Phil Plotch. Eno looks at high-level governance issues, trying to figure out if there’s some correlation with factors like federalism, the electoral system, and the legal system; there aren’t any. Instead of those, they try teasing out project delivery questions like the role of consultants, the contracting structure, and the concept of learning from other people.

This is an insightful report, especially on the matter of contract sizing, which they’ve learned from Chile. But it has a few other gems worth noting, regarding in-house planning capacity and, at meta level, learning from other people.

How Eno differs from us

The Transit Costs Project is a deep dive into five case studies: Boston, New York, Stockholm (and to a lesser extent other Nordic examples), Istanbul (and to a lesser extent other Turkish examples), and the cities of Italy. This does not mean we know everything there is to know about these cases; for example, I can’t speak to the issues of environmental review in the Nordic countries, since they never came up in interviews or in correspondence with people discussing the issue of the cost escalation of Nya Tunnelbanan. But it does mean knowing a lot about the particular history of particular projects.

Eno instead studies more cases in less detail. This leads to insights about places that we’ve overlooked – see below about Chile and South Korea. But it also leads to some misinterpretations of the data.

The most significant is the situation in Germany. Eno notes that Germany has very high subway construction costs but fairly low light rail costs. The explanation for the latter is that German light rail is at-grade trams, the easiest form of what counts as light rail in their database to build. American light rail construction costs are much higher partly because American costs are generally very high but also partly because US light rail tends to be more metro-like, for example the Green Line Extension in Boston.

However, in the video they were asked about why German subway costs were high and couldn’t answer. This is something that I can answer: it’s an artifact of which subway projects Germany builds. Germany tunnels so little, due to a combination of austerity (money here goes to gas subsidies, not metro investments) and urbanist preference for trams over metros, that the tunnels that are built are disproportionately the most difficult ones, where the capacity issues are the worst. The subways under discussion mostly include the U5 extension in Berlin, U4 in Hamburg, the Kombilösung in Karlsruhe, and the slow expansion of the tunneled part of the Cologne Stadtbahn. These are all city center subways, and even some of the outer extensions, like the ongoing extension of U3 in Nuremberg, are relatively close-in. The cost estimates for proposed outer extensions like U7 at both ends in Berlin or the perennially delayed U8 to Märkisches Viertel are lower, and not too different per kilometer from French levels.

This sounds like a criticism, because it mostly is. But as we’ll see below, even if they missed the ongoing changes in Nordic project delivery, what they’ve found from elsewhere points to the exact same conclusions regarding the problems of what our Sweden report calls the globalized system, and it’s interesting to see it from another perspective; it deepens our understanding of what good cost-effective practices for infrastructure are.

The issue of contract sizing in the Transit Costs Project

Part of what we call the globalized system is a preference for fewer, larger contracts over more, smaller ones. Trafikverket’s procurement strategy backs this as a way of attracting international bidders, and thus the Västlänken in Gothenburg, budgeted at 20,000 kronor in 2009 prices or around $2.8 billion in 2022 prices, comprises just six contracts. A planner in Manila, which extensively uses international contractors from all over Asia to build its metro system (which has reasonable elevated and extremely high underground costs), likewise told us that the preference for larger contracts is good, and suggested that Singapore may have high costs because it uses smaller contracts.

While our work on Sweden suggests that the globalized system is not good, the worst of it appeared to us to be about risk allocation. The aspects of the globalized system that center private-sector innovation and offload the risk to the contractor are where we see defensive design and high costs, while the state reacts by making up new regulations that raise costs and achieve little. But nothing that we saw suggested contract sizing was a problem.

And in comes Eno and brings up why smaller contracts are preferable. In Chile, where Eno appears to have done the most fieldwork, metro projects are chopped into many small contracts, and no contractor is allowed to get two adjacent segments. The economic logic for this is the opposite of Sweden’s: Santiago wishes to make its procurement open to smaller domestic firms, which are not capable of handling contracts as large as those of Västlänken.

And with this system, Santiago has lower costs than any Nordic capital. Project 63, building Metro Lines 3 and 6 at the same time, cost in 2022 PPP dollars $170 million/km; Nya Tunnelbanan is $230 million/km if costs don’t run over further, and the other Nordic subways are somewhat more expensive.

Other issues of state capacity

Eno doesn’t use the broader political term state capacity, but constantly alludes to it. The report stresses that project delivery must maintain large in-house planning capacity. Even if consultants are used, there must be in-house capacity to supervise them and make reasonable requests; clients that lack the ability to do anything themselves end up mismanaging consultants and making ridiculous demands, which point comes out repeatedly and spontaneously for our sources as well as those of Eno. While Trafikverket aims to privatize the state on the British model, it tries to retain some in-house capacity, for example picking some rail segments to maintain in-house to benchmark private contractors against; at least so far, construction costs in Stockholm are around two-fifths those of the Battersea extension in London, and one tenth those of Second Avenue Subway Phase 1.

With their broader outlook, Eno constantly stresses the need to devolve planning decisions to expert civil servants; Santiago Metro is run by a career engineer, in line with the norms in the Spanish- and Portuguese-language world that engineering is a difficult and prestigious career. American- and Canadian-style politicization of planning turns infrastructure into a black hole of money – once the purpose of a project is spending money, it’s easy to waste any budget.

Finally, Eno stresses the need to learn from others. The example it gives is from Korea, which learned the Japanese way of building subways, and has perfected it; this is something that I’ve noticed for years in my long-delayed series on how various countries build, but just at the level of a diachronic metro map it’s possible to see how Tokyo influenced Seoul. They don’t say so, but Ecuador, another low-cost Latin American country, used Madrid Metro as consultant for the Quito Metro.

Quick Note: What’s a Megaproject?

I gave my webinar talk about the Stockholm case and uploaded the video here. I don’t want to repeat either the case or my presentation thereof, but rather just point to one thing I said during the Q&A, about what counts as a megaproject. At the time I thought it was just an extemporaneous answer, but Sandy Johnston highlit it in his livetweeting, and I think it has some deeper meaning.

The issue at hand is that the definition of what a megaproject is is relative to local capabilities and practices. Building 5 km of subway tunnel is a megaproject if you’re an American city or a small European capital, but not if you’re a large European or Asian city. What I mean by this definition is that the usual properties of megaprojects are relative to local capabilities in the following ways:

  • Megaprojects are hotly debated politically at the highest level – Crossrail and High Speed 2 were in the manifestos of both Labour and the Conservatives, and Grand Paris Express evolved with direct government involvement. In smaller cities, projects of similar levels of political importance are as one might expect smaller, like Citybanan (which is 6 km) and Nya Tunnelbanan (which is 19 km); in turn in Paris, extensions of the Métro totaling 19 km happen gradually without such political involvement.
  • Megaprojects are institutionally new. Grand Paris Express not only was decided by the government, as an expansion of Métro service almost as long as the preexisting system, but also stretched project management capacity to the point of collapse, setting up the cost overrun; thus, the current project is being built using institutionally novel techniques including a single-purpose delivery vehicle with some design-build aspect.
  • Megaprojects have a large, noticeable impact on the city or region if built; this can be an economic impact as with transport projects, but also a cultural impact, as with the Sydney Opera House, whose factor of 15 cost overrun is a case study in Bent Flyvbjerg’s oeuvre.

In a way, this means megaprojects are defined by cost. A 3 km expansion of the T-bana is not a megaproject, let alone a 3 km expansion of the Istanbul Metro, but a 3 km expansion of the New York City Subway is, because it’s a full order of magnitude costlier. A lower-cost city or country is one that builds more, simply because more projects are cost-effective, and thus it has more projects that are below the threshold of what counts as a megaproject and instead are routine extensions.

The Transit Costs Project hasn’t consciously made any comparison of megaprojects with technically similar non-megaproject transit expansion. The Istanbul case comes closest with its focus on Marmaray and smaller metro projects, but Istanbul Metro expansion writ large should be viewed as a megaproject (it’s certainly planned and politicized as such), and Marmaray is genuinely more technically difficult than just about any other urban rail project. A vulgar quantitative comparison across our database is probably infeasible – there are too few examples by definition, and, moreover, because megaprojects are in practice defined by cost, they’re likelier to be more expensive, even if their specific features do not raise costs.

That said, I do believe that megaprojects are likely to be costlier than equivalent non-megaproject extensions. Stockholm is not a good example for this because it isn’t doing incremental urban rail expansion, only megaprojects. But Paris is a good example, and the per-km cost rose dramatically in the wake of Grand Paris Express. In Barcelona, L9 is a very expensive megaproject; part of its mega- status comes from its worse-than-factor-of-3 cost overrun, but it’s also a large extension of the metro and its construction technique, a large-diameter tunnel boring machine, was new.

Berlin is more complex. We’ll need to wait to see which of the U-Bahn extensions under discussion are built, but those are liminally mega-, sharing some features of megaprojects (namely, political debate, consisting of modal warfare between U-Bahn and streetcar expansion) but not others (they’re not institutionally new and nobody claims they’re transformational for the city). That said, I tilt toward not viewing them as a megaproject, because the debate over them is more general modal warfare, in the same way I don’t think a project subject to debate over spending versus austerity or road versus public transport investment is a megaproject. The key political attribute is not that there’s any political debate, but rather that the political debate introduces politicization of technical decisions over alignment and construction methods; the modal warfare in urban Germany between streetcars and rapid transit is a proxy for much broader fight between consumption- and quality of life-oriented urbanism on the one hand (favoring streetcars and bike lanes) and production- and job access-oriented urbanism on the other (favoring rapid transit and also motorway construction).

The Sweden Cost Report is Launched!

You can read it here. It evolved a lot during writing, partly because of the rising costs in the Nordic countries, partly because of the tension between the forward-looking rhetoric of what the report calls the globalized system and what interviewees with more practical involvement have said, partly because of the voluminous literature on models of capital construction and maintenance that only look at Northern Europe or the UK.

In a similar manner to the webinar about the Italian and Turkish cases, there is going to be a webinar about this one. The date is the 20th of September, 17:00 Central European Summer Time (UTC+2); here is the Zoom registration page. It will take the format of a short presentation, around half an hour, to be followed by a Q&A of indefinite duration, and I will try not to be mostly negative – even with the cost overruns, Nya Tunnelbanan is noticeably cheaper per km than the average 2020s subway, and there are a lot of commendable aspects of the Nordic model of infrastructure construction including at least one (labor efficiency) that is superior to the otherwise-cheaper Southern European models.

Nordic Costs and Institutional Knowledge

Institutional knowledge at agencies that build infrastructure shapes up to be an important factor behind how well they handle projects. Good agencies build up a knowledge base over time that lets them see what works and what doesn’t, and this way they’re capable of making in-house planning decisions, and even when they use consultants, they make sure to learn what the consultants have taught them and implement those lessons in the future. In our Italian, Turkish, and (soon to be released) Swedish cases, the agencies have all built up this knowledge over decades.

Denmark provides an interesting test case for this, because Copenhagen opened its metro in 2002 (Helsinki: 1982; Oslo: 1966, Stockholm: 1950), and so it’s possible to compare it with the other Nordic capitals. The construction costs in Copenhagen are notably higher: the City Circle Line (built 2009-19) cost 25,300 DKK for 15.5 km, which in 2022 PPP dollars is around $280 million/km, and the soon-to-open M4 extension to Sydhavn is 9,100 DKK for 4.5 km, or $330 million/km; in contrast, we have the following costs for the other Nordic capitals:

CityLineLengthYearsCostCost/km (2022 PPP)
OsloLøren1.613-161.33b NOK$110 million
OsloFornebu8.220-2916.2b NOK, ’18
26.4b NOK, ’21
$330 million
StockholmNya Tunnelbanan1920-3032b SEK, ’16$235 million
HelsinkiWest Metro phase 113.509-171.171b€$145 million
HelsinkiWest Metro phase 2714-231.159b€$275 million

All of these costs are higher than you may have seen in past posts – this is mostly an inflation artifact (and in particular, you should mentally increment all costs by 25% if you remember them in mid-2010s dollars). But it’s notable that in both Oslo and Helsinki, real costs are sharply up; the Fornebu Line is more complex than the Løren Line, but much of its complexity is an engineering choice to deep-mine the stations.

In Stockholm there’s no similar comparison, but Citybanan cost, also in 2022 PPP dollars, $365 million/km, and a factor of 1.5 is an unusually low premium for city center regional rail carrying 250 meter trains over regular metro trains; the RER premium in Paris looks like a factor of 2, and the Munich S-Bahn tunnel was budgeted at a factor of 2 premium over a current U-Bahn extension and has since announced a factor of 2 overrun over that, for which it has been widely mocked in the German press. It’s plausible that when the regional rail premium is netted out properly, Stockholm has in fact seen a large real increase in costs, which matches the history of Nya Tunnelbanan’s cost overrun, from 23 to 32 billion kronor.

Denmark is seeing a real cost increase as well, but a much smaller one. In effect, what’s happening is that Copenhagen started building its metro in the 1990s at higher cost than Nordic norms, and in the generation since then, costs in the other Nordic countries have converged to Danish costs.

So what’s going on?

Some hints can be found in the details of the most recent Danish extension, M4 to Sydhavn. The soft cost multiplier over hard costs is higher than one would find elsewhere, and the contingency is 30% at the contract award, an unusually high figure; 20% is more typical, or even less at contract award (but more during earlier planning). Moreover, the entire project was awarded as a single design-build contract to a joint venture of Vinci and Hochtief, with hard costs worth 460M€.

The entire Nordic world is trying to transition to that style of contracting. This is inspired by British and Dutch models of privatization, which the state, academic, and consultant studies I’ve read while writing the Stockholm report view positively. The procurement strategy for Trafikverket in Sweden calls for transitioning to a so-called “pure client” model for the next big rail investment, Gothenburg’s West Link, like Citybanan not included on the above table as it is a regional rail through-running tunnel. The emerging model in the Nordic countries, which I call globalized in the report since it aims at international competitiveness attracting global contracting firms, can be compared with the traditional model as follows:

TraditionalGlobalized
Design-bid-buildDesign-build
Itemized contractsFixed price contracts
Smaller contracts (hundreds of millions of kronor)Larger contracts (billions of kronor)
Product procurement (“how to build”)Functional procurement (“what to build”)
Public client riskPrivate contractor risk

The Nordic project I’m most familiar with, Nya Tunnelbanan, does not use the globalized system; it uses elements of both the globalized and the traditional systems, but the trend is to be more globalized. Moreover, the Fornebu Line uses design-bid-build; its problem is partly that the private risk allocation encourages defensive design. If the builder strictly follows the design, all liability is on the designer, otherwise it’s on the builder; thus, the builder strictly follows the design, and because geotechnical surprises are inevitable during tunneling, the designer is overly cautious and tries to anticipate every potential problem rather than seeing what is actually necessary while the tunnel is dug. The traditional system has problems, especially when the risk allocation is improper like this. What’s more, the preference for larger contracts over smaller ones comes from ongoing industry consolidation – there just aren’t enough domestic contractors anymore, and pan-European ones, let alone global ones, are not going to enter an unfamiliar market for a $100 million contract. Unfortunately, the move to privatization of risk under the pure client model does not improve things, and is associated with higher costs.

I am less familiar with the Copenhagen Metro than with the Stockholm Metro, but from reading both how the expansion is done and what Eno is saying about its model (it did a case there but not in Stockholm), Denmark was an early adopter of the globalized system. Eno even pointed out that it uses design-build to showcase that low-construction cost cities use it successfully.

So the Denmark effect is real – this does appear to be a matter of experience. Having never built a metro before – the last urban rail tunnel in Denmark, the S-tog, opened in 1934 – Copenhagen never had the institutional knowledge of how to use the traditional system, so it opted for (elements of) the globalized system, which was not how the other Nordic countries did things but was what British consultants recommended. Note that this does not mean higher costs (that is, around global average, rather than far less) were inevitable in Denmark – it could have adopted the traditional system by leaning on intra-Nordic connections, which are extensive. But perhaps in the 1990s, and certainly in the 2000s, even the other Nordic countries started to come to believe in greater privatization of risk.

The tragedy is that we can see, in real time, how good institutional knowledge is forgotten. Nya Tunnelbanan is, by itself, a pretty straightforward case of cost overrun. But in the context of parallel trends in Helsinki and Oslo, and perhaps an imputation of how much more complex Citybanan was, the situation is different. Real costs increased over time – this was not a mere matter of cost underestimation. Moreover, they increased during a time of ongoing, successful construction of metro projects – the lines that have opened all have healthy ridership, encouraging plans to build even more. And yet, the real problems with the traditional system have led to the adoption of what appears to be a worse procurement system, supported every step of the way by the same agencies that used to compete for world records for low-cost construction.