Home MTA Construction Solving the MTA’s construction costs problem

Solving the MTA’s construction costs problem

by Benjamin Kabak

Why does the Second Ave. Subway cost so much? The answer must be out there.

I started this site in late 2006 when it became clear that the Second Ave. Subway would receive a $1.3 billion infusion of federal funds that would finally get the project off the drawing board and onto subway maps across the city. By the time I got around to discussing the project’s timeline in March 2007, the MTA had pushed an initial opening date of 2012 back a year. The MTA had hoped to wrap up Phase 1 by 2013 before moving onto Phase 2 in 2014. Phase 3 was to begin in 2015 and Phase 4 in 2017 as the full line was to be ready by 2020. Well, you know what they say about the best laid plans of mice and men.

As time wore on, the news got worse and worse. In late 2008, the MTA promised a 2015 completion date for SAS Phase 1, and in 2009, the authority had to push that date back again to 2016. Today, the authority continues to insist that the project will open in December 2016 even though the federal government anticipates an opening date as late as 2018 and costs as high as $5.7 billion.

The years have not been the only problem plaguing the Second Ave. Subway. In the early part of the 21st Century, Phase 1 of the subway was to cost $3.8 billion. Today, the MTA hopes to bring in at around $4.5 billion but had cut the third track to eliminate $1 billion from the project’s balance sheet. Six years out, the final cost of Phase 1 is no sure thing.

The Second Ave. Subway isn’t alone in this grand MTA venture. The Fulton St. Transit Center was supposed to open three years ago at a cost of $700 million, and now work won’t be complete in Lower Manhattan until 2014. It will cost $1.4 billion. Even the new South Ferry station, a relatively minor project, opened nearly 16 months late and $100 million over budget. That station has since sprung numerous leaks. This is project management at its worst.

So that’s my long-winded introduction to this evening’s news. As New York prepares for the holidays and people pack up, Barry Kluger, the MTA IG, has released a report — available here as a PDF — highly critical of the MTA’s capital construction management structure. The findings in the right are not a surprise. “The failure to complete mega-projects on time and within budget has raised serious concerns about how MTACC has managed these projects and indicates a need for more effective oversight from MTA,” it says.

The report itself is mostly mundane. Kluger talks about the interplay between MTA HQ, MTA Capital Construction, the MTA Board’s Capital Program Oversight Committee and the Independent Engineering Consultant brought on to advise the board on issues concerning the capital project. Essentially, too many cooks are in the kitchen, and project management and risk assessment efforts often get bogged down in the finer details of an overly bureaucratic.

Ultimately, Kluger’s report suggests fixes as exciting as delineating responsibilities, presenting reports in clear and concise manners and better setting expectations, priorities and evaluation criteria. For the MTA, this hardly groundbreaking news. In fact, Jay Walder urged Kluger to conduct this review, and the Authority has already begun to implement many of the suggestions the inspector general put forward to streamline mega-project management. If the agency can better assess risks, it can at least begin to understand why costs are on the rise.

For now, this MTA IG report is only the tip of an iceberg. As Kluger writes, “Upcoming work will explore other potential causes [of delays and costs increases], including those more fundamental and systemic in nature.” That’s going to be the meaty report. Why does it take so long to build a subway line in New York City? Why does it cost so much? As the MTA gears up to fight for money to close the $10 billion gap in its capital budget, those are questions the authority is going to need to answer. Better management might be a start, but it’s only just that.

Addendum: As Kluger’s report came out late on Wednesday, it has received a modest amount of media play from the usual suspects. In Transportation Nation’s coverage, Jim O’Grady claims that, of all the MTA projects, only the 7 line is on time and on budget. As I wrote just a few weeks ago, that’s simply not true. The line is a year behind schedule, and the only reason it’s ostensibly on budget is because the city axed an entire station at 41st St. and 10th Ave. — or close to half the project. That doesn’t strike me as a project that’s on time or on budget.

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Jerrold December 23, 2010 - 12:54 pm

Ben, what is the CURRENT situation regarding the South Ferry leaks?
I see that the article that it links to is from last February.
Has the problem been (figuratively and literally) “patched up” by now?

Sean December 23, 2010 - 7:58 pm

As a SI Ferry / 1 train user, the leaks have not been fixed. In fact the southern most stairs have to be closed off at times b/c of huge amounts of water/freezing water as recently as this past week. I can also see other leaks by the stains on the brand new walls.

Dan December 23, 2010 - 4:03 pm

There’s a fantasy here where the MTA is just throwing money away in such a horrific way on these projects that the savings will allow for better materials, better designers, and better builders. I can’t really imagine that such a scenario will present itself.

Certainly the rule requiring the MTA to choose the low bidder is part of the problem. Such a system must(I assume) generate low-ball bids that are nothing more than a fantasy which the MTA is more than happy to present to the public. It would be worth finding out if these projects cost more than they would have cost otherwise – could a more qualified contractor pricing the job properly produce better results for less? My guess is that these projects that are over budget by 100% are only that far over budget because the budgets were wrong.

But better quality is going to come with a bigger price. A friend of mine is working on a job where the PM for the SCA(School Construction Authority) is just not that good at his job. That has real consequences for the cost and schedule of projects. Project management on big budget jobs is complex and time consuming. It might cost more to get better teams of people on these projects. Would the public prefer projects that finish on time but cost slightly more? The MTA could be paying bigger salaries for really qualified managers but they’d get laughed at in the press for paying “gold plated” salaries to guys who wear hardhats.

Alon Levy December 24, 2010 - 8:07 pm

Dan, you’re misunderstanding the argument about the lowest-bid contractors. So first, go to this article and read up on the costs of tunneling in Madrid, which specifically mentions avoiding a lowest-bidder system as a cost saver. I’m not making things up here.

The problem with lowest-bid contractors isn’t just that they lowball costs. Those lowballed costs are still nearly a full order of magnitude higher than final budgets in Europe. The problem is that lowest-bid contractors tend to be the kind that’s too incompetent to get private-sector work, leading to much higher costs than more honest contractors would charge.

To fight this problem, New York has rules requiring public agencies to specify the exact bill of goods in each contract. This makes the bidding process byzantine, further ensuring that anyone who’s not a crook or an idiot stays in the private sector.

Nathanael January 2, 2011 - 7:16 pm

I’ve noticed from reading through the public meetings records of certain rail agencies outside New York State, that it is quite common to reject a bidder as unqualified or reject a bid as nonresponsive.

This seems to be exactly what doesn’t happen in New York State. With the exact-every-detail-specified rules as a non-functional “fix” to the non-functional system, as you say….

Murray Bodin December 23, 2010 - 9:57 pm

Michael H, now in charge of MTA construction, is doing an amazing job. He knows his stuff. I’ve heard him speak twice. He is doing things in a better way, things unheard of before.

And, he is a great cook. See NY Times article last week.

pete December 24, 2010 - 11:34 am

If this were a corporation, dozens of white collar/administrative workers would be sacked by now. And how on earth are contractors never held to their low ball bids? Or is it the problem that only 1 contractor ever bids on major mta construction contracts (Skanska)? How about a law that says if you don’t get 3 qualifying bids, it can’t be awarded. Then the MTA/government has to sit down with the construction industry and figure out why nobody bids on MTA jobs.


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