Category: Construction Costs
Quick Note: Los Angeles Spends $50,000 Per Bus Shelter
I saw a few months ago that Los Angeles was planning to equip its entire bus network with shelter, and rejoiced that such an underrated amenity finally gets the attention it deserves. Unfortunately, the cost of the program is now $50,000 per bus shelter; to lower the cost, the city is experimenting with a substandard shelter providing no protection from the elements for $10,000. In Victoria, as pointed out by one commenter on Twitter, a full shelter is around $15,000 in 2018 Canadian dollars, comparable to 2023 American ones.
Ordinarily, it would be a dog-bites-man story: of course the costs are at a premium of a factor of three over Canada (let alone a place that builds cheaply), it’s an American transit infrastructure project. But this one is significant because bus shelter is small in scope – it’s not a megaproject, and this means that rules of megaprojects do not apply to it.
For example, installing shelter at thousands of stops, as Los Angeles is doing, allows for repetition of a standard design that vendors can figure out on their own. This means that the usual privatization of decisionmaking should not be a problem. (It’s been pointed out to me that design-build works well for municipal parking garages, since they’re so streamlined at this point.)
Moreover, bus shelter, even repeated so many times, is still small enough scope that a small in-house team could handle it. LACMTA has been talking to us about how to scale up their in-house team, and we couldn’t give them concrete numbers, but I believe what they have for design review is in the teens, which is probably not enough for a subway extension but should be for a bus shelter program measured in the tens of millions of dollars or (with the cost blowouts factored in) very low hundreds of millions. Elsewhere, for example in Boston, we’ve seen agencies build small things affordably – Boston’s premium over Berlin for building infill commuter rail stations is a factor of maybe 1.5 – and fail at building large things such as urban rail expansion, because their design review team is sized for small and not large things.
Finally, there’s a problem with politicization, in which when politicians insert themselves into a piece of infrastructure, hoping to make it their legacy, it will end up raising costs with at best no and at worst negative benefit to users. Small items like this ordinarily do not have this problem, as they fly under the radar of politicians as well as surplus-extracting community groups.
So why is this so expensive?
I don’t know the details of this failure – all I know is a handful of links to the current cost. I suspect, judging by the tone used in press coverage, that it’s politicization. Note that the piece linked in the lead paragraph centers the issue of gender equity; this isn’t stupid (as the other link points out, bus shelter has a disproportionately positive impact on women), but it does suggest someone thought about the political implications of this. The piece also quotes the designers as having developed the new substandard option “with input from female riders,” suggesting some waste on community consultation.
If I’m right on this, then this suggests a great peril for any city that looks at small and large projects, finds that the small ones are more cost-effective, and decides to prioritize them over large ones. In a city that builds subway expansion and also installs bus shelter beneath anyone’s notice, the bus shelter may be achievable at reasonable cost. But as soon as the shelter turns into a splashy program, beloved by incompetent managers who figure it’s within their span of control and by politicians (who are by definition incompetent on managerial issues), it will acquire the same problems of politicization usually associated with megaprojects. In this case, it’s waste coming from community consultation. In other cases, it might be demands for neighborhood signatures, or intransigence by abutting property owners or by utilities figuring there is surplus to extract, or any of the other causes of cost overruns.
And in particular, downgrading your city’s investment plan just because the flashiest items have cost blowouts wouldn’t end the cost blowouts. If you can’t build subways, work on making yourself capable of building subways; avoiding that mess and building other things instead of subways would run into the same problems and soon you’d be paying $50,000 for a single bus shelter.
CNBC Video on Construction Costs
There’s a CNBC video about construction costs. It references our data a bunch, and I’d like to make a few notes about this.
Urban rail and GDP
CNBC opens by saying better urban rail would increase American GDP by 10%, sourcing the claim to our report. This isn’t quite right: our report references Hsieh-Moretti on upzoning in New York and the Bay Area; they estimate that relaxing zoning restrictions in those two regions to the US median starting in 1964 would have, assuming perfect mobility, raised American GDP by 9% in the conditions of 2009 (and the effect size should have grown since).
The relevance of transportation is that the counterfactual involves both regions growing explosively: New York employment grows by 1,010% more than in reality, so by a factor of about five compared with actual 1960s population and about 3.6 compared with actual 2009 (in 1969-2009, metro employment grew 35.4%), and likewise San Francisco would be 3.9 times bigger than in reality in 2009 and San Jose, having had much faster growth in the previous decades in reality, would have still been 2.5 times bigger. Hsieh-Moretti assume infrastructure expands to accommodate this growth. But if it can’t, then the growth in GDP is lower and the growth in consumer welfare is massively lower due to congestion externalities, hence our citation of Devin Bunten’s paper on this subject.
So the issue isn’t really that building subways would increase American GDP by 10%. It’s that building subways paired with transit-oriented development, the latter proceeding at levels that would raise regional population at a somewhat faster rate than in 1900-30, would do so. The issue of costs in the United States is only peripherally connected with the lack of transit-oriented development, an American peculiarity in which more housing is built in poorer regions than in the largest, richest metro areas. In contrast, Canada gets TOD right and yet is rapidly converging to American construction costs, Toronto’s reaching around US$1 billion/km per the latest estimates. Germany, conversely, is rather NIMBY, although its rich cities still build much more than New York or the Bay Area, and is capable of building subways just fine.
The portrayal of Second Avenue Subway
The portrayal looks mostly good. It points out the tension between Second Avenue Subway’s extreme cost per km and reasonable cost per rider, the latter comparing very favorably with Los Angeles and about on a par with Grand Paris Express. Second Avenue Subway Phase 1 was a bad project in the sense that it was severely overbuilt and poorly managed, but were it not possible to build it for cheaper (which it was), it would be a good value proposition, and even Phase 2 is marginal rather than bad. The issue is that New York’s cost-effectiveness frontier, at current costs, makes it capable of building a few km of subway per generation, whereas that of Paris, a city that isn’t especially cheap to build in, enables the 200 km Grand Paris Express.
The video goes over our comparison of station to tunnel costs, and connects this with various forms of surplus extraction; Eric gives examples of how cities demand betterments and do general micromanagement and threaten to withhold permits unless they get what he calls bribes. It gets the picture well for how important actors, up to and including the mayor of New York, just treat infrastructure as an opportunity to grab surplus for other priorities.
There are a few errors, all minor:
- The visualization of Second Avenue Subway has it running down First Avenue in Midtown and Downtown Manhattan, which was certainly not in the original plan and I think still is not.
- The video states the cost of Grand Paris Express at $38 billion, I think out of converting euros to dollars at exchange rate, whereas in PPP terms it’s $47 billion in 2012 prices and $60 billion in 2022 dollars, either way about 10 times the absolute cost of Second Avenue Subway Phase 1 for 10 times the projected ridership and 70 times the overall length. But the costs per rider are correct, at least.
- I’m not sure why, but the Madrid numbers are stated to be around $200 million/km, which is a cost that I don’t think exists there – costs in our database don’t include the latest lines there, but the ongoing expansion program is 40.5 km for 2 billion euros, which in PPP terms is around $70 million/km, I think all underground.
- The section on soft costs says that they were 21% of Second Avenue Subway’s overall costs, compared with a norm of 5-10% elsewhere. This is not quite true – they were 21% of the hard costs (and the same is true of the 5-10% figure); their share of overall costs was therefore a bit lower.
Carmen Bianco and Robert Puentes
Three people are extensively interviewed in the video. The first is Carmen Bianco, who was New York City Transit head in 2013-5. The second is Eric. The third is Eno’s Robert Puentes. The interviews are pretty good (by which I mean those with Bianco and Puentes – I of course find what Eric says good I’m the least impartial judge on this). There’s also a short quote from Bent Flyvbjerg about construction productivity, which isn’t quite true (productivity is rising in Sweden, just at lower rates than general growth).
Puentes talks about standardization, comparing the custom-designed stations in the United States with the standardized ones in Copenhagen. He also talks about the benefits of utilitarian stations and connects this with standardization – American subway and light rail stations aren’t particularly nice (the overbuilding goes to crew break rooms and crossovers, not passenger facilities), but one way local political actors get to feel important is making each station a bit different, and I’m glad he highlights this connection between overbuilding and poor standardization. But I think he somewhat errs in that he says that one cause of this among a few is that American cities build little subway tunneling. Copenhagen, after all, built its first line in the 1990s and early 2000s (using consultants, since there was no preexisting in-house staff and no political appetite to staff up); it just made the right design decision to standardize, which has helped it build a subway even at not especially low costs, in a fairly small city.
Then there’s Bianco, who I think appears talking more than anyone else, even Eric. He gives the standard list of problems in New York: it’s a dense city with a lot of complex underground infrastructure, utility relocation is difficult, and so on. At least on camera, he doesn’t make excuses. It’s just, complex historic utilities are not unique to New York, and I don’t know to what extent he understands that New York can learn this from Italian cities (or from London, which I believe has very good underground utility mapping). I assume Bianco isn’t generally great about this since he was in charge in 2013-5 and didn’t reform this system, but he doesn’t come off as repulsive, and it’s plausible that he’s more reasonable knowing not what he may not have 10 years ago.
I Gave a Followup Talk at TransitCon
Hayden Clarkin’s online conference TransitCon just happened, and I was drafted at the last minute to give a talk about construction costs. Here are the slides; for the most part, they’re a compressed version of slides that regular readers have seen before, except done in Beamer rather than Google Slides.
Cognizant of the fact that most people at TransitCon would have heard of me and our research and many would have read the reports or at least seen me, Eric, Marco, or Elif talk about them, I rushed through the description of our report. Instead of just going over trodden ground, I added slides at the end describing new issues we’d learned about since writing the synthesis, which was in a fairly advanced draft in late summer 2022 already. This fell into two categories: new obstacles, and reactions of people in power.
The new obstacles slide talks about the issue of last-minute squeaking (in the “squeaky wheel gets the grease” aphorism, which can and should be changed to “squeaky wheel gets replaced”). The most glaring examples of gross surplus extraction for Second Avenue Subway and the Green Line Extension all happened fairly early in the process.
In contrast, since then, Eric has spent so much time working in Seattle he could given time make an entire case out of its ongoing problems, and there, some of the extraction has been late in the project: one suburb’s fire department demanded construction in excess of the normal fire codes or else it wouldn’t certify the stations in its jurisdiction as fire-safe. In Dallas, the city itself is grabbing surplus: it’s demanding betterments and holding up the DART Silver Line until it gets them, adding $150,000 a day to the cost of the project. These two examples are both late in the process, after the Full Funding Grant Agreement has been signed; but once there is a political commitment, a local actor can still hope to grab surplus by demanding unreasonable changes.
But it’s really better to view this issue as one of top-level cowardice and unwillingness to take responsibility. The solution in Seattle is not hard: dissolve the department and have it taken over by the state or by Seattle proper. But whoever does that in effect takes ownership of every single fire in the suburb, and this requires taking more responsibility than American politicians and their appointees are used to.
The reaction of people in power plays to how they treat obstacles. I wrote a title for that slide, The Self-Hating State, and then deleted it and replaced it with the less toothy Public Officials and Consultants. But in effect what we see when we present the results to sympathetic federal and state officials who want to do better (i.e. not the MTA) is that most government officials don’t like the government very much. Their eyes glaze over the sort of technical and economic points that their counterparts here talk about, and instead they talk about how consultants have more long-term experience, when most of what the consultants know is how poorly-managed projects are built and where they do have positive knowledge (like the standardization of construction in Copenhagen) they’re not listened to.
Even more frustrating is their reaction to red tape. They take it as a given that the government must involve red tape; the same red tape in the private sector is invisible to them, such as when Seattle-area construction involves multiple jurisdictions each with its own consultants. But more fundamentally, these are people who can rewrite regulations, formally or informally, to make things easier; they just consider a government that works unthinkable.
More on Consultants
We’ve gotten a lot of criticism from various quarters about our analysis and conclusions at the Transit Costs Project. The focus for this post is a criticism that isn’t usually made in public but looks like the biggest one among people in power in the American federal government: the issue of consultants. Writing in Slate about our report, Henry Grabar identified consultants as the ultimate reason the United States can’t build. This should be nuanced in that consultants are one of a few primary reasons, but the broad outline of the complaint is right: the overuse of consultants is a serious problem and must be replaced with large in-house bureaucracies in explicit rejection of the privatization of the state. And yet, there’s pushback. Why, and why is it wrong?
The current situation
In the English-speaking world today, the dominant view of infrastructure is that private companies are inherently more efficient than the state. In service of this ideology, large state organizations were left to rot and then privatized. The historic sequence is generally that as efficiency levels fall, political interest in investing in organizational capacity declines, and in-house organizations take the blame.
American and British societies both believe that specialist experts are inherently suspect and must always lower their gaze in the presence of a generalist who is paid and otherwise treated as a master of the universe, and thus those organizations would receive overclass appointees (US version) or generalist civil servants (UK version) who constantly belittle them and also have little ability to reform them from the inside. It’s remarkable how non-technical the members of the American overclass Eric and I have talked to are; one of them asked us straight out why we didn’t talk to more lawyers in our report where we talked to engineers, planners, procurement experts, and other specialists.
The result of this sequence is that usually at the time of privatization – say, when New York’s MTA let go of its 1,600 strong capital construction department in the early 2000s and downsized by about an order of magnitude – what is left is a hulk, easy pickings for the privatizer. What is left of that is even more of a hulk. The upshot is that in places that rely on consultants in lieu of in-house expertise, the quality of current public-sector leadership (that is, the various state political appointees, most federal political appointees, and even some permanent staff with pure management background) is low. The consultants are individually more competent than them, and this is readily apparent to anyone who’s talked with both sets of people; even the political appointees themselves get it and think their expertise is in managing the consultants.
What the consultants know
When the state doesn’t really like itself and privatizes key functions to consultants, the consultants look more competent. One federal official – not a political appointee, to be clear – told us straight out that the consultants have experience since they work on so many projects, domestically and internationally.
The problem is that what the consultants know is how things work on projects that use consultants. This is how an experienced consultant can say something as obviously wrong as “The standard approach to construction in most of Europe outside Russia is design-build.” Is this even remotely true? No. Parts of Europe are transitioning to design-build under British influence, universally seeing cost increases as they do so, but even in the Nordic countries and France this process is in its infancy, and in nearly all of the rest of Western Europe it’s not done at all. The upshot is that the US/UK consultant sphere is an expert on how to build public transportation in the failed US/UK way, and its international experience is largely (not entirely) US/UK-style badness.
But Americans are an incurious people. Even the ones who are aware of European and rich-Asian success in infrastructure and urbanism only really interact with it as tourists. So they can’t distinguish a government-built program like the TGV or nearly every European subway system from the few that are more consultant-driven like the Copenhagen Metro (at the time of its construction, Scandinavia’s highest-cost metro – though the rest of the Nordic world is catching up in both privatization and costs).
What’s more, the American preference for generalist knowledge means that what they see of the Copenhagen Metro is much more its use of unconventional financing than its use of driverless trains at very high frequency or its standardization of station components. Thus, looking at a metro that for all its expense by its regional standards was also cheaper than anything in the US going back to the 1970s, they take notes and imitate all the bad and none of the good.
The interaction between consultants
Okay, so in theory, if consultants’ recommendations are followed exactly and a turnkey system is built, in theory it should still be possible to imitate the medium costs of Denmark.
But in practice, the hallmark of consultants is private competition. This means there are different firms, and even though they are all broadly similar, they compete and each has a slightly different way of doing things and may have different recommendations for a specific project. And then each government agency in the United States hires a different consultant and the consultants clash and there is no way to resolve the conflict.
Seattle’s cost explosion in the last 10 years, going from semi-reasonable costs for U-Link to a world record for a majority-above-ground project for Ballard-West Seattle, comes from a somewhat different place from what we’ve seen in New York and Boston. For example, New York and Boston both have ample surplus extraction by local actors, but the extraction there happened before the plans were finalized and the Full Funding Grant Agreement was made; in the Seattle suburbs, one municipal fire department has demanded changes even after the FFGA and threatened not to certify the project. The issue of consultants there is likewise a new problem: a complex project – I think the Pacific Northwest intercity rail program but I forget – requires intergovernmental coordination and the different agencies hired different consultants, leading to substantial inter-contractor contention. The argument for privatizing state planning to large design-build contracts is that they avoid this contention, but here it’s recreated by the very presence of competition.
Nor is replacing competition with a single private consultant going to solve the situation. The private sector’s norms of how to deliver value depend on competition; all benchmarks used for how to successfully deliver to the customer are honed based on how to beat or at least match other firms that could get the contract if the firm fails. A private monopolist combines the worst aspects of the public sector (no competition) with those of the private sector (fundamentally adversarial relationship with the customer). As soon as a project is large enough that multiple agencies are involved, forcing them to all use the same consultant, even if the initial choice does feature competition between WSP, AECOM, Arup, and other such firms, means that for the duration of the project there’s such lock-in it has the same problems as a literal monopoly.
The way forward
If it’s not possible to successfully deliver infrastructure megaprojects through competition among private consultants or through a private monopoly, it follows that delivery must be done through the public sector. This means a public sector that is staffed up with thousands of permanent professional hires. Small cities can use big cities’ agencies or a federal agency as a public-sector consultant; in all cases, this must be domestic rather than international, since the social mission that makes many public monopolists good vanishes at the border and turns into predatory monopolistic behavior (for example, by SNCF toward other national railways).
Metropolitana Milanese, the infrastructure builder that also provides public-sector consulting services for the rest of Italy, has around 1,300 employees. The Anglo world can imitate that – never literally import the firm, but set up a similar construct, with advice by MM, RATP, and other public-sector engineering firms about how to do so and even some early hires. This needs to be done publicly and ostentatiously, to make it clear what’s going on for the sake of transparency and to lock in good changes. Instead of regulators who nudge, the state needs people who do; there is no alternative.
New York’s MTA Hates Transparency
The New York Post just published its piece, by Nolan Hicks, doing some construction cost comparisons. Nolan spoke to me multiple times on the subject of finding proper comparisons to New York’s subway station construction; he settled on the single most difficult Roman station, at the Colosseum, as well as a more prosaic station at Grand Paris Express and one on the Battersea extension in London. The goal was to look at the issue of New York’s overbuilt stations, with their full-length mezzanines and excessive back office space; New York’s stations turn out to be three to four times too expensive in his analysis.
So far, so good. But then there’s the official response to the story, which tells me that MTA head Janno Lieber is bad at his job – presuming that he views his job as about delivering good service, rather than stonewalling and kissing ass.
The Post quotes Lieber as saying, “you have to be careful with that subculture” and “those people get a lot of their cost information from the internet.” This is not too different from what he said when asked about our report by Jose Martinez: he got aggressive, said that we “group sourced” our data, and disclaimed responsibility for things that happened long ago, in the 2000s (Lieber at the time worked on the new World Trade Center).
People on Twitter are roasting Lieber about the phrases “that subculture” and “those people,” but I mind those appellations a lot less than what they are about. Lieber is in effect complaining that we use public sources for costs, which we access via the Internet, the same way we talk to other people in 2023. Using the Internet, for example, I can poke around for Swedish construction contracts, which are transparent with published lists of bidders and the winning bid, or I can look for historic German construction costs as reported in official channels and reputable media, and Marco can look for the same in Italy including publicly itemized costs, and Elif can look for the same in Turkey. What Lieber means when he says “information from the Internet” is really “articles in trade media and newspapers of record and detailed government reports, calibrated with some in-depth case studies to ensure we didn’t miss anything important.”
It jars him, perhaps because he’s used to secrecy. The idea that a report about the cost overruns of Grand Paris Express would just be out there, while the project was still going on, available to the public to review, may confuse Americans who are used to their country’s much lower level of transparency. In the US, everything requires affirmatively filing a freedom of information request that agencies can and often will deny on flimsy grounds. In Sweden, everything is online and I’ve been able to learn exactly how things work there from talking to not many people thanks to the wealth of public information about procurement strategy and individual contracts. The same is true of the issue of back office space and overbuilt station boxes – the MTA has not released blueprints, whereas in Sweden they’re available to the public in 3D.
Perhaps this is why Lieber talks to reporters with aggression and derision that fit would-be autocrats trying to put democratic media in its place. The idea that people would put all this information out there, voluntarily, seems weird to both, in the same way that a politician in an autocracy might find it jarring that politicians in democracies are subject to free media scrutiny.
This culture of secrecy cascades to itemized contracts. In our work, we’ve found that low-construction cost countries itemize their most complex rail infrastructure contracts, and the items are public. In the United States, contracts are fixed-price, and when agencies have itemized estimates as private benchmarks, they keep them from the public as a trade secret. MTA Construction and Development head Jamie Torres-Springer defended this system in November, saying that if the MTA revealed the numbers, contractors might use them as a floor.
Torres-Springer clearly stated a doctrine of the institutional culture that he and Lieber know. We can rate, overall, whether this culture is worth retaining, through seeing whether New York can build. It, of course, cannot. Lieber takes credit for delivering some projects for less than the budgeted amount, but the budget was inflated with large contingency figures; when someone promises to build something for $70 million and delivers it for $65 million, you don’t give credit for going under budget when other systems deliver it for $12 million. (These are all rough costs of making a subway station that is not a transfer wheelchair-accessible using three elevators in New York and some comparison cases respectively.)
Meanwhile, other systems, outside the high-cost Anglosphere (update 3-28: here is Ontario engaging in the same repulsive behavior toward Global News on the costs of the Ontario Line), can deliver. Germany doesn’t want to build much infrastructure unfortunately, but when it wants, it gets it done at reasonable if not low costs – and those costs are barely higher now in real terms than they were in the 1970s, having inched from maybe 150 million euros per km of subway to 200. Paris is building 200 km of mostly underground driverless metro, for about the same cost as one five-year MTA capital plan. Istanbul builds many metro lines all at once and may be the world’s top city in total route-length built this decade if Chinese investment slows down – Turkey is not a rich country but it has figured out how to build cheaply so that it can afford it. Seoul is expanding so rapidly, using so many different networks, that I can’t even track how much it builds. Italy not only can keep building infrastructure despite not having much money, but also managed to cut its real costs by adopting transparency as a core principle in the 1990s; contra Torres-Springer, contractors use published itemized costs as an anchor and not a floor.
But New York is the city that can’t, in the state that can’t. It treats a three-station subway expansion as a generational project. It clings to its way of doing things in face of obvious evidence that this way does not work; when it wants to do something different, it privatizes the state to consultants and huge design-build contractors, which has consistently raised costs wherever it is implemented. It’s not even aware of how success looks. Its leadership is rather like a Russian general who, seeing the army throw countless soldiers to take individual blocks of Bakhmut, population 70,000, insists things are going great and there is no need for anyone to learn anything about NATO standards, before ordering another wave of assault.
The press is ahead of the curve on this, since it does not need to kiss ass. I’ve been a source for New York media and for US-wide wonk networks for years, and the great majority of journalists I’ve spoken with, veterans and newcomers, generalists and specialists, have been curious and intelligent and could tell me important things I didn’t know before, including, in particular, reporters on this beat at all major city papers, such as Nolan. I sadly cannot say the same of MTA management: the career civil servants are good below the managerial level, the managers are hit-or-miss, and the political appointees are more miss than hit. The way the latter try to pull rank on good journalists like Martinez and Nolan is supercilious, authoritarian, and just plain nasty.
And if New York wants to avoid looking as ridiculous as that Russian general, it had better learn how successful cities do it, and invite in people who are intimately familiar with these cities to take in-house leadership jobs to implement the required reforms. This means, among other things, fostering a culture of openness and transparency. No more putdowns of journalists who ask hard questions, no more hiding behind NDAs and trade secrets, no more black boxes with no itemization beyond “this contract is $1 billion.” It’s easier than for Russia – the American field-grade officers who could do every Russian general’s job better don’t at all have Russia’s interests at heart, whereas the Continental European and East Asian transit managers who New York can bring it can be hired to have the MTA’s interests at heart, just as Andy Byford was. Learn from the best and face the reality that right now New York is the worst.
The Issue of Curiosity
We’ve been talking to a lot of Americans in positions of power when it comes to transportation investment about our cost reports, and usually the conversations go well, but there’s one issue that keeps irking me. They ask good questions about corner cases, about some specific American problems (which we do want to revisit soon), about our prognosis for the future. But they don’t usually express curiosity about the non-American cases – and even journalists who write investigative pieces sometimes insist on only using London and Paris as proper comparanda for New York. This is not everyone, and I do know of some civil servants who are interested and have made sure to read the Italy, Stockholm or Istanbul cases. But it is a large majority of Americans we talk to, including ones who are clearly interested in doing better – even they think acquiring fluency in how things work in low-cost countries is irrelevant and are far more passionate about all the barely relevant groups that can block change than about how Stockholm, Milan, and other such cities build cost-effective infrastructure.
Incuriosity and consultants
I recently saw a transit manager in North America who I’d previously had tepidly positive opinion of tell me, with perfect confidence, that “The standard approach to construction in most of Europe outside Russia is design-build.”
To be very clear, this is bunk. Design-build is not used in Southern Europe or in the German-speaking world. Ant6n has only been able to find one such contract in Germany, for the signaling of Stuttgart 21. There’s more use of design-build in France, the Low Countries, and the Nordic countries, and the tendency is toward doing more of it, but,
- The process of privatization of the state is in its infancy in these countries – for example, Nya Tunnelbanan is mostly procured as build contracts
- Costs in the Nordic countries are rising rapidly, albeit from very low levels, and this also seems to be happening in France – this minority of Europe that uses design-build (which, again, correlates with other elements of state privatization) isn’t seeing good results
- As a consequence of the above two points, the current and former civil servants in those countries that I’ve spoken with are familiar with the more traditional system of project delivery and don’t generally think it is inferior to alternative systems that reduce the role of the state and increase that of private consultants, and thus they are familiar with how to do traditional project delivery well
- Even with the ongoing privatization of the Nordic and French states, more institutional knowledge is retained in the public sector, to ensure it can supervise the consultants, in contrast with the American and British models, where the consultants are supervised by other consultants and the in-house public-sector employees lack the technical knowledge to do proper oversight
So why did this person think design-build is standard, where the majority of Western Europe by population does not use it?
The answer is incuriosity. This person is a generalist Anglo consultant. What they know of Europe is what Anglo consultants know. They never stopped to think if perhaps places that build infrastructure cost-effectively publicly would ever have any reason to be legible to international English-speaking consultancies. Why would they? Infrastructure construction is almost entirely at the level of countries, not the European Union; the weakness of cross-border rail planning is so notable that I know a green activist devoted specifically to that issue. If you’re building in and for Germany, you have no real reason to publish in English trade journals or interact with British or American consultants. Another consultant that Eric and I spoke with had the insight to point out, when we asked about a comparison of High Speed 2 with the TGV, that their company gets no work in France since France does it in-house, but the transit manager who shall remain unnamed did not.
The good ones
I am sad to say that, for the most part, the mark of a good American transit manager, official, or regulator isn’t that they display real willingness to learn. Too few do. Rather, the mark is that they don’t say obviously false things with perfect confidence; they recognize their limits.
This is frustrating, because many of these people genuinely want to make things better – and at the federal level this even includes some political appointees rather than career civil servants. The typical cursus honorum for federal political appointees involves long stints doing policy analysis, usually in or near the topic they are appointed to, or running state- or city-level agencies; I criticize some of them for having failed in their previous jobs, but that’s not the same as the problem of a generalist overclass that jumps between entirely different fields and has no ability to properly oversee whichever field whose practitioners have had the misfortune to be subjected to its control.
The good ones ask interesting questions. Some are easy to answer, others are genuine challenges that require us to think about our approach more carefully. And yet, three things bother me.
They are not technical
Traditional American business culture looks down on technical experts, treating them as people who will forever work for a generalist manager – and this is a culture that treats working for someone else as a mark of inferiority.
The most innovative American industries don’t do this – software-tech and biotech both expect workers to be technical, and the line workers do not often respect managers who are technically illiterate; tech and biotech entrepreneurs likewise have a technical background (Mark Zuckerberg coded Facebook’s prototype, Noubar Afeyan is a biochemical engineering Ph.D., etc.), and Elon Musk, one of the less technical ones, still has a physics degree, wrote code in the 1990s, and goes to great pain to affect being part of the culture of tech workers.
However, the government at all levels does do this. The overclass comprises lawyers and public policy grads; engineers, architects, and planners can be trusted civil servants but are expected to lower their gaze in the presence of an elite lawyer (and one such lawyer told us, again with perfect confidence, something that not only was wrong, but was wrong about American law in their field).
The upshot is that even the good ones don’t ask technical questions. I don’t remember having had to answer questions from even the most curious American officials about grouting, about egress capacity, about ventilation, about construction techniques. It’s rare to even see economic questions about managing public-sector risk, about the required size of an in-house construction agency, about how one implements traditional project delivery effectively; we volunteer some numbers but I don’t remember being asked “how many engineers does RATP employ?” (the answer is around 1,200 across all fields combined).
They nudge and do not do
The American federal government is uncomfortable with the notion of doing things directly. One is supposed to make general rules and nudge others. Even regulations take a nudge form – often instead of direct compulsion (say, installing a safety system), the federal government would nudge private actors by threatening to withhold funds or other support if they don’t do it.
One consequence is that federal agencies don’t really try to learn how to do things themselves. I caution that one official who I spoke with and have a good impression of reacted well when I pointed out how, in Sweden, there’s mobility among the civil servants between state and county governments, so some of the people who built Citybanan working for the Swedish state are now building Nya Tunnelbanan for Stockholm County. This official said they were working on a program that doesn’t quite do this but does something similar, which stands to be successful if done well; I don’t know if it will be done well but there was not enough time in that conversation to get enough detail and I reserve judgment even on the aspects I am more pessimistic about until I know more. So it’s possible that this criticism I have of the federal government is going to do away in the next few years, and if so, I do expect better federal infrastructure investment, perhaps for intercity rail on the Northeast Corridor, which is a federal-led program.
This is not purely an American problem. The EU has the same problem, which is related to the poor state of cross-border rail; even when the European public wants more integration (see, for example, polling on an EU army), eurocrats respond with soporific abstraction, not out of political fear of backlash, but because none of them can actually do anything more than a light nudge – the doers remain at the member state level. The difference between us and the US is that member states like Germany do have some doers around, whereas New York can’t do anything.
They still only look inward
This is the part that I am most worried about in the future. I’ve had to take interesting questions about policy from people who, again, I think well of – if I didn’t, I’d speak of them the way I do of the official in the section on consultants above.
And then none of these questions is about, say, how Italy has set up its bureaucracy for protection of monuments, ensuring there is no risk to millennia-old Roman ruins under the aegis of professional archeologists and historians rather than third-party lawsuits. There’s ample interest among Americans in how to do better, reaching the highest levels among the people I’ve directly talked to, but so far it’s based entirely on internal thinking. Foreign examples can inform them but are not to be investigated as closely. I do know of some officials who’ve read the non-American reports we’ve put out, but it’s not common even among the good ones.
The problem, I think, is twofold. First, Americans are used to being in charge in their interactions with foreigners, and Western Europeans are about the least impressed people in the world by American pride. Why look up to a country that we know has worse public transportation and is, on net, probably about comparable in overall living standards? (Yes, Americans, I am aware that your SUVs are larger.) The average Western European doesn’t think about the United States much and when they do they’re not awed, so the American who asks questions puts themselves in an inferior position, and this is hard to handle.
The second issue is that the public sector draws from within the country’s borders, in almost all cases. The pipelines into working for Deutsche Bahn are completely different from those into working for any American outfit. This means that an official in a country has weak ties to other countries. This, again, is also a European problem – there’s too little knowledge of France in Germany and vice versa, too little curiosity about Southern Europe in higher-cost Northern Europe, and too little curiosity about Asia with disastrous results. But the European railroads have exchange programs among them and even with Japanese railroads, and Americans don’t participate in either; the insularity I see in Germany when I mention the capabilities of high-speed trains in France and Japan is considerably less bad than what I see among the worst Americans and Britons.
We Gave a Talk About Our Construction Costs Report
Here are the slides; they are not in Beamer format but in Google Slides. They’re largely a summary of the New York report with analysis informed by the overview with more direct comparisons with other cities, and for example the recommendation section won’t tell you anything you didn’t know if you’ve read the overview or heard me talk about this issue before.
But I want to highlight one addition: the cost history of New York, on slides 5-8. Costs were elevated even in the 1930s; the references are JRTR for New York, Pascal Désabres for Paris, and Tube History for London. Midcentury New York costs are sourced to New York Magazine, with a Wikipedia article providing some references that match those numbers. The excessive costs of works in the 1930s ensured that the budget would not be sufficient to build desirable lines like Second Avenue Subway, an extension of the Nostrand Avenue Line to Sheepshead Bay, and a line under Utica; those costs kept growing into the 1950s and 60s, and the total amount of money at hand for Second Avenue Subway in the 1950s, about a fifth of the intended budget, would have built the entire line at the then-current costs of Milan or Stockholm. At even semi-reasonable costs, the budget identified for Second Avenue Subway in the late 1990s would have built the entire line, where instead it was cut into four phases with the money only sufficient to build the first.
The overall presentation was a bit stressful for me, especially at the beginning; the talk started at 3 in the afternoon and we finished the slide deck around 2:45. It was better afterward. One caution is that while the talk was recorded, it was a cellphone recording from the back, so Elif and I were not easy to hear. Another is that there were people I was hoping to talk to after the presentation that I didn’t get to; the attendance was on the order of 80 people, and we needed the full two hours we had the room booked for the presentation and Q&A afterward.
A number of people asked us if anything was changing. Eric seems more optimistic that people are listening. I’m less so; we’re talking to some people at government agencies but I can’t tell how important they are (I do not speak Washingtonian and cannot tell from the name and title of someone I talk to where they are on the spectrum of “someone who follows me on social media” to “Pete Buttigieg’s closest confidant”). At the MTA, things are not changing for the better; union head John Samuelsen is under the impression that French employers don’t have to pay pensions, MTA Construction and Development head Jamie Torres-Springer thinks the Second Avenue Subway stations have higher ridership than the stations of Citybanan, MTA head Janno Lieber is in full denial mode, and so on. The excuses might be getting more sophisticated, but, fundamentally, an American manager whose gut reaction to any kind of global benchmarking is to assert with perfect confidence that European employers don’t have to pay benefits needs to be fired and retrained, not given advice on how to come up with more plausibly-sounding excuses. Lieber and Torres-Springer are worth negative billions of dollars to the city and the state while they remain employed.
While some things are improving, the procurement problems are getting worse due to the growing privatization of the state, and, fundamentally, none of those people is willing to admit their mistake. There are some ongoing experiments in New York with itemized costs, but only as part of a PPP privatization, and only as pilots, where the place where itemizing costs and technical scoring are the most helpful is in the biggest and most complex contracts. Government-by-pilot doesn’t work any more than any of the other gimmicks that dimwitted political appointees use to avoid taking responsibility for decisions.
I’m Giving a Talk in New York on 3/3
We’re launching the Transit Costs Project conclusion and New York case this Friday at 3 pm. Unlike the October panel, this will not be moderated – Eric, Elif, and I will just talk about our report and take questions from the audience. While the talk will almost certainly be recorded, if you’re in the area you should still come in-person in order to be able to ask questions and interact.
As in our October event, the location is room 1201 of 370 Jay Street in Brooklyn, right on top of the subway stop that carries its name with A/C, F, and R service, and not far from other Downtown Brooklyn stops like Borough Hall on the 2/3/4/5, DeKalb Avenue on the B/Q, and Hoyt-Schermerhorn on the G. The building has access control so please tell us your name and email on this RSVP form so that security will know you can get in. If you crash the event you may still be allowed in but I won’t know until the day of, so do RSVP if you think you may attend; technically the room is capped at 180 people, around half seated, but I don’t expect to fill to even seated capacity, so don’t worry about taking someone else’s place.
The Issue of Consultants
Henry Grabar at Slate just wrote about our construction costs report. He centers the issue of consultants; the article is called Consultants Gone Wild, and he includes quotes from Eric and from our report about the contrast between in-house capacity and the privatization of the state to private engineering firms. I was asked for a followup, since the exact wording of our synthesis does not explicitly say “consultants” very much. And yet, Henry is broadly correct; the overuse of consultants is a problem, and should be restrained in most cases in favor of a professional civil service, unencumbered by politicization or an overclass of political appointees.
The formula for high New York construction costs
Based on around 100 interviews and many diagrams and reports, we managed to decompose the New York construction cost premium over low-cost countries, which is about a full order of magnitude, into the following items:
- The stations are overbuilt by a factor of 3, which contributes an overall factor of 2 cost premium
- The systems are not standardized, which contributes a factor of about 2.3 cost premium for the systems and 1.35 overall
- Labor costs (including supervisors and other white-collar workers) are 50% of hard costs in New York where they should be about 25%, contributing a factor of 3 premium on labor costs and 1.5 overall
- Procurement problems including the privatization of risk, change order risk, agency micromanagement of contractors, general red tape, and profit stemming from too little competition double overall costs
- Soft costs are depending on what one counts either 21% on top of hard costs where they should be 7%, or 46% where they should be 20%
Where are the consultants?
On its face, nothing in the above formula says “consultants.” At most, the soft costs can be attributed to them – but the comparison cases involve some use of external consultants as well, they just charge 7-8% of the hard costs in fees rather than 21%. So what gives?
So, first of all, the difference between 21% and 7% is significant. It’s in fact more significant than 1.21/1.07, because the 21% is on top of an inflated base cost, some of whose items (namely, labor) don’t create more work for the consultants, so in effect some of the labor premium should be thought of as an extra consultant premium that is allocated to the hard costs.
The reason for this difference is poor oversight capability. In most cases, some use of external consultants is unavoidable: in Spain, famous in the comparative cost community for its low costs, ADIF projects employ consultants, who charge 5% extra, and then a small force account adds a few percent on top of that. The difference is that competent managers can competently supervise consultants. The use of consultants in Italy, France, Spain, Turkey, and Sweden coexists with strong internal capacity by agencies led by technocrats and professionals.
In contrast, the American (and British) way is to privatize the state to consultants root and stem. The agency managers are generalists who look down on technical people and treat the consultants as an infinite resource, who they can ask to study everything. Eric is quoted as saying “They studied everything” of Second Avenue Subway: every conceivable possibility was studied just in case, and there was nobody in charge who knew enough about planning or engineering to prune the search tree and save some money. In effect, what we’re seeing is unusually low office productivity, in tandem with low blue-collar laborer productivity in tunneling.
The connection with procurement
Okay, so the soft cost factor is still only about 1.2, which is nowhere near enough to explain an order of magnitude’s worth of cost difference.
However, procurement is another factor of 2, and has much of the same cause. The same technically illiterate overclass (Janno Lieber, Jamie Torres-Springer, etc.) that treats consultants as an infinite resource also abuses contractors with red tape. This overclass leashes the technical experts – the planners, engineers, even the economists who study these issues and conclude transparent itemization produces lower final costs – and won’t let them make quick decisions about contracts. This leads to the red tape and micromanagement that the contractors, consultants, and technical agency staff constantly complain about.
Because this overclass can’t adjudicate geotechnical disputes and doesn’t trust those who can, it prefers mechanisms that privatize risk to huge design-build contracts, a system that we call the globalized system in the synthesis and the Sweden report and has led to a large increase in absolute costs wherever it was tried (which is approximately every place legible to the Anglo-American overclass, which is unemployable in a place like Germany or Italy or France, where the pipeline to managerial jobs is local). Then, when costs rise, those political appointees react by including a large contingency factor, at times rising to 40-50%, nearly all of which will be spent.
Bring back the bureaucrats
I hesitate to say back because the United States never really had an apolitical civil service; in the 1950s already it had thousands of political appointees forming an overclass. But the rest of the Anglosphere only lost its mind in the last generation, in my lifetime. I’m encouraged especially by some things I’m hearing in the United Kingdom, which seems interested in moving on, perhaps because it was the first place to adopt the globalized system, perhaps because it has less cultural cringe than Canada or Australia (if anything, Britain’s problem is the opposite: excessive pride), perhaps because it is more proximate to Continental Europe with its lower construction costs.
In such environments, what’s needed isn’t to literally get rid of consultants. But the role of consultants must shrink. The state must hire a large in-house team, sized based on the magnitude of expected projects, and retain the team in the long run to enable public-sector learning. This team can use consultants but must be able to do the work itself if needed, and should be technical enough to know how to answer questions about the scope of work and avoid both micromanagement and underspecification.
Ironically, the consultants themselves prefer it that way. Yes, they get more money out of a project run as poorly as American procurement is than out of one run as well as in our non-Anglo comparison cases. But they also have to do more work and take more risk, and the projects rarely actually end and provide a sense of closure. They charge more money precisely because it’s such bad work, and governments should take heed and build in-house state capacity to make sure the oversight can be smoother and more technical.
Cost and Quality
From time to time, I see people assume that low-construction cost infrastructure must compromise on quality somehow. Perhaps it’s inaccessible: at a Manhattan Institute event from 2020, Philip Plotch even mentioned wheelchair accessibility as one factor leading to the increase in costs since the early 1900s; one of my long-term commenters on Twitter just repeated the same point. Perhaps the stations are cramped: I can’t count how many times I’ve heard the “transit riders deserve great stations” point from various Americans (there are several such examples in the thread in the last link alone), or for that matter from the people who built the Green Line Extension, and even Korean media got in on the action, falsely assuming that the spartan, brutalist stations of the Washington Metro were cheap (in fact, Washington is building an above-ground infill station for around an order of magnitude higher cost than Seoul’s cost for an underground infill station).
If you want to know what very low-cost metro construction looks like, recall that the existing about 104 km (about 57 underground) Stockholm Metro was built in the middle of the 20th century for $3.6 billion in 2022 dollars. Here’s how the stations look:
Stockholm is famous for its exposed rock: the hard gneiss forms natural arches, and the T-bana elected to paint it over from the inside, producing the bright blue-and-white contrast with dark blue leaf paintings depicted above at T-Centralen. The stations look drastically different from one another, with many examples available from UrbanRail.Net, Flickr user Dyorex, Flickr user Kotka Molokovich, and the travel site Walk Slow Run Wild.
Swedish construction costs today are several times higher, but remain below world average, and are nearly a full order of magnitude lower than in New York. The stations remain artistic, but this coexists with consistent, standardized engineering specs, modified based on local conditions only when necessary. Citybanan’s Odenplan is not at all spartan; the entire station, berthing 214 meter trains mined below the T-bana station by the same name, cost $250 million in 2022 dollars, which cost includes not just the station but also 2 km of mined tunnel. The data that I’ve seen while researching our Sweden case suggests that Nya Tunnelbanan station costs are dominated by civil infrastructure and not systems or finishes, which look like they’re about a quarter of overall station costs, rather than nearly half as in New York. Nice art is not expensive; for that matter, New York’s subway stations have pretty tiles, and this includes old stations predating the 1930s’ cost explosion.
Moreover, I doubt it was the case when the system was first built, but nowadays the entire T-bana is accessible to wheelchair users. In fact, a number of metro systems have made themselves fully accessible or are in the process of doing so, generally at low costs; I have some numbers from 2019, and the programs cited for Berlin and Madrid are behind schedule, but Berlin seems to be sticking to a budget of 2 million € for an ordinary station, and even taking into account inflation that Berlin needs one elevator per station and most cities need three, this isn’t quite $10 million per station, a cost similar to that of Madrid’s ongoing program. In New York, the cost cited for accessibility is $70 million per station.
What goes on here isn’t really a matter of high quality for high cost. In fact, when Eric, Elif, and I researched the New York case, we were stricken by how little of the problem concerned actual quality or safety regulations (for example, the fire code in New York in practice requires mezzanines at the depth of Second Avenue, but does not require them to be full-length). The oversize stations are neither grand public atria nor revenue-generating commercial spaces, but rather conventional stations flanked by excessive amounts of back office space. The lack of standardization concerns fittings, not art. The massive costs of New York elevator installation are barely about redundancy (a requirement driven by low but fixable reliability) and largely about utility conflicts, bad-and-worsening project delivery, and the soft costs crisis.
Making the user experience worse is an easy way to signal that one is cutting costs. It’s a combination of vice-signaling and prudence theater. It also has little to do with how actually low-cost infrastructure construction programs look like. They can be highly standardized even without the artistic component found in Sweden and Finland, and then people may complain that the system looks bland and corporate – but bland and corporate is not the same as spartan, it just means it looks like the 21st century and not the imagined 20th.
Good systems are certainly not willing to make compromises on human rights and build inaccessible infrastructure. In Seoul, there are massive protests by disabled people demanding that the Seoul subway go from 93% to 100% accessible and that the bus fleet immediately be transitioned to low-floor equipment, and meanwhile, New York and London both loiter around 25-30% accessibility. The conservative governments of the state and the city both dither, but past competence by Korea has led to high expectations by users, in the same manner that people in developed country protest inequality and poverty even fully knowing that it’s nowhere near as bad as in the third world. While I don’t know Seoul’s accessibility costs, I do know a deep-bored Line 9 extension with an undercrossing of Line 5 is budgeted at $180 million/km.