Home MTA Construction The steep costs of capital construction

The steep costs of capital construction

by Benjamin Kabak

Apologies for the silence on Monday. I was out of town for the weekend and forgot to put up a note on Friday’s post along with the service advisories. I did get to experience the rains and storms along the outer bands of Tropical Storm Isaac. It’s dumping an impressive amount of rain down south.

The 7 line extension is just one of the city’s many overly expensive transit expansion projects. (Photo by Benjamin Kabak)

So over the years, as I’ve followed the progress of the MTA’s current (and future) megaprojects, I’ve returned regularly to the issue of cost. It’s no secret that the current subway and rail construction costs in New York City are out of control. The projects are billions of dollars over budget as well as years behind schedule, and that doesn’t even begin to account for the fact that these budgets are bloated to begin with.

Here’s a sampling of the problem: On Manhattan’s West Side, we’re getting a one-stop subway extension from 41st St. and 8th Ave. to 34th St. and 11th Ave. (with some tail tracks) for $2.1 billion. The project is set to wrap up a few months late, and we lost a golden opportunity to build a station at 40th St. and 10th Ave. over half a billion dollars. The Second Ave. Subway promises to deliver two miles of subway for nearly $4.5 billion. It is up to four years late depending upon which scoping document you read. East Side Access is an unmitigated cost disaster.

Meanwhile, New York’s projects are orders of magnitude more expensive that similar projects throughout the globe. Forgetting China where costs have crept up, New York’s subway construction costs trump any other comparable city’s. So why? That’s the question Stephen Smith tried to tackle in a piece on Bloomberg View last week. It’s worth a full read, but I’ll excerpt.

A huge part of the problem is that agencies can’t keep their private contractors in check. Starved of funds and expertise for in-house planning, officials contract out the project management and early design concepts to private companies that have little incentive to keep costs down and quality up. And even when they know better, agencies are often forced by legislation, courts and politicians to make decisions that they know aren’t in the public interest.

Comparing American transit-construction practices with those abroad yields a number of lessons. Spain has the most dynamic tunneling industry in the world and the lowest costs. In 2003, Metro de Madrid Chief Executive Officer Manuel Melis Maynar wrote a list describing the practices he used to design the system’s latest expansion. The don’t-do list, unfortunately, reads like a winning U.S. transit-construction bingo card.

Perhaps the most ostentatious violation of Melis’s manual of best practices is expensive architecture in stations. “Design should be focused on the needs of the users,” he wrote, “rather than on architectural beauty or exotic materials, and never on the name of the architect.”

American politicians have different priorities. The Port Authority of New York and New Jersey is spending $3.8 billion on a single subway station at the World Trade Center designed by Santiago Calatrava, a Spanish architect known for his costly projects. If New York could build subways at the prices that Paris and Tokyo pay, $3.8 billion would be enough to build the entire Second Avenue subway, from Harlem to the Financial District.

So that, you might be saying, is nothing new. What about the causes? Smith pinpoints a number of culprits. First up is the problem of a conflict of interests. U.S. transit agencies love their consultants, and the consultants can then bid on their own projects. Cross-pollination, in which transit officials move back and forth between the private sector jobs, also leads to inflated budgets and excess spending. Finally, lowest-price bidding systems often lead to project budgets that do not and cannot align with reality or a lack of quality control. Somehow, the new South Ferry station cost $500 million and is already still leaking. No one can be held responsible without timely and costly lawsuits.

Escaping this morass isn’t easy. It will require a full-scale overhaul of the contracting system and contracting laws. Plus, Smith doesn’t even touch work-rule laws in the piece which are clearly another source of extraneous spending and bloated budgets. Larry Littlefield, a frequent SAS commenter and former Transit budget analyst, sees some hope, albeit just a faint glimmer. “Remember how fast and how cheap they rebuilt the 1 train after 9/11? That’s what they’re capable of,” he said. “But it just doesn’t happen otherwise.”

In times of crisis, the MTA can do it right. The 1 train returned to service far faster than it should have, and the IND 8th Ave. line was up and running after far quicker than otherwise expected following a 2005 signal fire. But the big-ticket items that we need to improve transportation throughout the region are suffering. Bring down the costs, and the system can expand. It’s not an easy path to follow.

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Alex C August 28, 2012 - 12:51 am

Cut grift from capital construction in America? But then how will politicians and private contractor bosses be able to afford 3rd vacation homes? Won’t someone think of their poor souls?

Stephen Smith August 28, 2012 - 1:33 am

I did labor in the second half, but there’s nothing new there for you – I just used that quote you got from Horodniceanu on capital costs and focused the rest on ops (mostly commuter RR overstaffing).

Larry Littlefield August 28, 2012 - 7:06 am

In this coming recollapse of the subway system, labor is less to blame than debt, at least within NYCT.

But that is only because when they went on strike to get a 20/50 pension, they didn’t get it this time (yet). Although it was passed by the state legislature, without a single no vote, more than once.

nycpat August 29, 2012 - 12:15 pm

To say that the TWU went on strike for 20/50 is simply not true. As you say the legislature passed it more than once. If it was a strike against Pataki’s past and future vetos don’t you think both sides would have explicitly said so?

Jonathan August 28, 2012 - 1:43 am

That’s a very good article, though I wish he hadn’t fallen for the red herring of criticizing spending on architecture. That’s not the source of the problem. Most new stations in Europe are very well designed. Calatrava designs everything over there, and Norman Foster designed all the subway stations in Bilbao (which were as cheap as in Madrid). Otherwise, it makes very good points. Rather than talking about how unique and different New York is–as if there aren’t plenty of cables and sewers under streets in Paris or Madrid–the MTA should be actively emulating European transit authorities that build for literally an order of magnitude less money per kilometre. There is a gap in spending on infrastructure between the U.S. and Europe, but the gap in the standard of American infrastructure would be a lot smaller if we got as much for our money on this side of the Atlantic.

Nyland8 August 28, 2012 - 7:16 am

I think the World Trade Center station is a bad example of architectural ostentation escalating the costs of MTA capital construction projects. For the most part, our train stations are relatively austere.

And I believe it was funded by federal dollars in the wake of the events of 9/11/01, which makes WTC sort of a statistical outlier.

But Benjamin’s point is well taken about not having a station at 40th & 10th. In fact, in a sane world, the tailing tracks should be extended, and another station should go down to 23rd. OR wrapping the 7 Train around to the south side of Penn Station! Why pull a perfectly good TBM out of the ground, when so much of the costs of all these projects is in the mobilization?

Bolwerk August 28, 2012 - 9:23 am

I think they were referring to the Calatrava monstrosity that is going up to serve PATH riders. It’s definitely ugly and over-built. What the PATH has now is perfectly good, and the money being blown on the Calatrava design could be used to extend PATH elsewhere. Not building that thing could literally save billions of dollars.

Overbuilding is sometimes a symptom of federal funding rules. Feds don’t offer operating subsidies to transit agencies; only capital funding. However, they offer massive one-off pots in these cases, so the TAs take as much as they can get, never knowing when they’ll get more. Of course, the price of that is compliance with federal rules for all kinds of things, which also drive costs up. Since the tools in charge of this city don’t perceive it to be our money (of course, it is), they’re happy to just take it without a thought.

That said, Jonathan is probably right. I doubt architecture by itself has much to do with costs. It’s more like over-engineering that is the problem, not “over-architecturing.” Calatrava’s WTC monstrosity might be an exception, given the architecture depends on complicated engineering and materials that have been quickly rising in cost over the years.

Boerumhillscott August 28, 2012 - 2:40 pm

You must not use PATH regularly if you say what they have at WTC today is perfectly good.

It is horribly overcrowded at rush hour, with long lines and lots of pushing and shoving at the stairways.
There is also no connection to any subway without a long escalator to the street and a walk on crowded subways.

I think the Calatrava design is massive overkill, but the WTC PATH station today needs replacment from the platform stairways up.

lawhawk August 28, 2012 - 3:34 pm

I’m a regular rider on PATH and it had those issues in the pre-9/11 iteration as well as the current temporary setup.

The problem is worse with the temporary stairs because several are blocked/obstructed by ongoing construction. The PATH hill existed with the pre-9/11 design, and you had to cross concourses to get to the N/R before the attacks as well.

Once the new PATH terminal is completed, you will again be able to make those connections without having to go outside (and going through a new retail corridor/mall.

Bolwerk August 28, 2012 - 3:48 pm

I suspect most of the problem around there is similar to the problem with Flushing. The services should probably just be extended to where those people are trying to go, which could feasibly be accomplished for the $3.8B or whatever is being squandered on the Calatrava design.

Jeff August 29, 2012 - 8:12 am

This is a pointless debate. Most of the Transportation Hub money is not being spent on the Calatrava premium, but into systems that serve the entire WTC complex. That enormous space would be there regardless of whether there is an expensive PATH station or not, and all of these space would need to be built regardless of the PATH station. And the PA would have been the only agency willing or capable of doing that.

So no, there is no option of extending the PATH elsewhere on the table.

Bolwerk August 29, 2012 - 10:04 am

Nobody said there was an option. I was just pointing out the problem, which a $3.8B headhouse won’t fix.

I agree they should utilize the space, but I doubt the headhouse does that in a way that meaningfully generates revenue. It’s a bureaucrat-developer ego trip.

David Brown August 28, 2012 - 6:56 am

I had to go to 4th Avenue on the (F) on Saturday, so I got a good look at the Culver Viaduct and and also passed both sides of the Smith & 9th St Station (I came from Lower Manhattan). They have a sign saying cost $336m and completion, 2013 Second Quarter. They also have signs saying Smith & 9th is closed until Fall 2012. I do not see this station reopening anytime soon (Particularly on the Brooklyn Bound Platform). What I think is happening, is the MTA is so scared of being ripped apart by politicians and other critics, that they build Taj Majal type stations in order to coddle them (See Broadway-Lafayette), despite the cost involved. Smith & 9th has been closed for a year and a half, and that is flat out unnecessary, and it not only hurts the people in Red Hook, but it is money that could have been spent somewhere else ( (F) Train stops at East Broadway and West 4th St come to mind).

Larry Littlefield August 28, 2012 - 7:03 am

Part of the problem is “capital money is less green.” Since we aren’t paying for it (yet), there is no public pressure to get more. People don’t understand the real cost. Which in economics terms is “opportunity cost.”

Like the rest of the Second Avenue Subway.

David Brown August 28, 2012 - 8:35 am

I agree about “Opportunity Costs”, but that goes to the MTA failing to make a case for what they are doing. In addition, an opportunity cost missed was the MTA failing to take advantage of low interest rates, the Obama Stimulus (“Shovel Ready” Projects), and low commodity prices

David Brown August 28, 2012 - 8:27 am

Another problem that I have with the MTA, is they fail to make the case for their projects, and seem to have no use for ordinary common sense. The LIRR to Grand Central of course is the worst of them all. There are already alternatives for getting to and from the East Side of Manhattan. Woodside, and taking the (7) Train, and Hunterspoint Avenue during rush hours, come to mind. Hunterspoint Avenue is an asset that is the most underutilized on the LIRR. Why not could they not fix up the Station, and use trains from there as a shuttle to Jamaica during non-Rush Hours(It is not like tracks 4 & 5 are being used at that time)? A combination of that, (7) Train improvements, and Jamaica Station improvements (Including the needed switching) would have beaten the cost of East Side Access, and even more important, been already finished. Perhaps if they would not waste money on projects like this, they could have generated more good will and trust with taxpayers and politicians alike?

Eric F August 28, 2012 - 8:57 am

That’s because East Side Access is a capacity expansion project with an incidental terminus dispersion benefit. Most people think that the idea behind East Side Access is to get LIRR riders to GCT. That’s just a useful side benefit. The real point is to massively increase LIRR capacity into Manhattan. They just figured out a way to do that which can be way more useful than simply amping up slots in Penn Station.

Bolwerk August 28, 2012 - 9:13 am

If it’s only a capacity expansion project, it’s one that just so happens to segue with the desires of LIRR riders for one-seat rides relatively free of minorities. I have a hard time buying the capacity thing, given that it seems rather incremental; isn’t something like 70% of LIRR traffic leaving Penn?

ESA is mainly about patronage. Even if it has some merits, they’re trumped by things like the SAS.

Eric F August 28, 2012 - 10:29 am

There’s no “only” in a project like that, but the impetus for it is capacity expansion. Similarly, the ARC tunnel would have had side benefits (and detriments), but it was motivated by capacity expansion. The problem for both is that the ability to simply expand capacity into the existing terminus is constrained so the new capacity goes somewhere else.

“ESA is mainly about patronage”. No, it’s mainly about moving trains. Public education is mainly about educating. Government health care is mainly about the provision of health care. How the “about” gets executed is a curse equally applicable to everything government does these days.

Bolwerk August 28, 2012 - 10:43 am

They could have gotten almost free or perhaps even profitable capacity expansion by arranging a through running agreement with NJT. The motivation was, as you put it when you don’t like something, spending other people’s money to please a few political constituencies. Funny you should mention ARC, since at least in that case the beneficiaries would have been the ones paying for it.

Actually moving trains – more importantly, people – can be achieved with more things like the SAS. Or more subway capacity to Queens for suburbanites to transfer to, as the case may be. The costs under the current regime are still outrageous, but at least those costs are made up for by the relative efficiency of NYCTA over LIRR.

Justin Samuels August 29, 2012 - 2:39 am

I’ve worked in LI in the past and used the LIRR to get to work. Occasionally I go take it in Queens, and I see other non whites on it too. You know, there are non white people outside of NYC………..

SEAN August 28, 2012 - 9:25 am

Are you kidding about ESA? It maybe costly, but it is nessessary to get rail riders closer to jobs in that area of Manhattan without the anoiance of transfering to the 7 at Woodside or the E in Jamaica. Have you ridden those lines durring rush hour & tried to transfer? It can be quite a challenge with crowd levels at those locations, Jamaica in particular.

ESA will defuse the crowds to some degree & will allow for new riders. Also it will be easy to transfer between MNR & LIRR by simply going downstairs as aposed to going to Penn or taking the 7 to the E & boarding in Jamaica. Yeah you could board in Woodside, but the cost is the same as Penn station.

Bolwerk August 28, 2012 - 9:38 am

It’s not necessary at all. Those people chose to live in the butt of Long Island and commute to a difficult-to-reach part of NYC. The SAS was a much more “necessary” project that wasn’t off the ground when ESA was approved.

Eric F August 28, 2012 - 10:31 am

Why should NYC be difficult to reach? I don’t get that. Government should be making places easy to reach. Why not extend that to say that people who chose to live in the Kamchatka-like far east of Manhattan shouldn’t have easier access to subways heading south?

Bolwerk August 28, 2012 - 11:05 am

Now you want big government socializing making places easy to reach? :-O

It’s not a question, to me, of who should have easy rides and who shouldn’t. It’s just a matter of what kind of return we get on the investment. The “Kamchatka-like far east of Manhattan” (I’m guessing you mean Second to York or so?) actually gets a subway system that has a chance at being kind of cost-effective. It will be stupidly expensive on the capital cost side, but made up for by high ridership. OTOH, ESA might make sense at 1/4 the capital cost – and should be 1/10 the capital cost – but even then will be a sink when it has to deal with operational costs greatly exceeding NYCTA’s.

Eric F August 28, 2012 - 1:56 pm

When it comes to increasing mobility by digging huge tunnels: I’m all for big government.

Larry Littlefield August 28, 2012 - 10:09 am

I see East Side Access as a key project for the future of suburban Long Island, a place which has lost market share among younger generations as a place to live to virtually every part of the NY Metro area.

The problem is the LIRR, and its unions, provide bad value. People complain about the TWU, but no one mentions the LIRR, but the difference in performance is huge.

There is a grifter culture killing Long Island. It is driving the non-grifters away, and has been for 30 years.

Spendmore Wastemore August 28, 2012 - 11:25 am

“There is a grifter culture killing Long Island. It is driving the non-grifters away, and has been for 30 years.”

Here, the roots of all else.

Larry Littlefield August 28, 2012 - 11:30 am

I get the feelign that the political culture that wrecked NYC just moved out there and took over, after changing from “Democrat” to “Republican.”

And they still pretty much control lots of lower level political offices back here, too, as “Democrats.”

Bolwerk August 28, 2012 - 4:00 pm

Partisanship in NYS usually seemed to fall along ethnic or regional divisions, at least at the grassroots voter level. For instance, there wasn’t exactly a vast ideological divide between blue collar Irish and blue collar Italians, but the former were Democrats loyal to Tammany and the latter were Republicans. Both probably saw their last political hurrah getting Giuliani in office.

Nathanael August 30, 2012 - 5:58 pm

Grifter culture. Indeed.

I’ve said before that people have a strong tolerance for a *certain level* of skimming, but only as long as the projects are *still getting done*. Few people mind if 1% is being skimmed off. When you get a Tweed Courthouse situation, where the building is several times over budget and *HASN’T BEEN FINISHED YET*, then this is a problem.

Now, grifter culture and psychology will reliably end up in this situation if you don’t stop it, because the goal of the grifter is to get something for *nothing* — in contrast to the goal of the ordinary skimmer, which is merely to get more than he deserves.

David Alexander August 28, 2012 - 5:11 pm

I suspect the idea of living in an illegal basement apartment for $1500 a month to work in a sub-par job isn’t ideal, hence why young people either flee to somewhere cheaper or stay at home with their parents.

Matthias August 29, 2012 - 2:06 pm

Are LI rents really that high? $1500 can get you a pretty decent place in Manhattan.

Nathanael August 30, 2012 - 5:41 pm

Depends what part of LI you’re talking about.

petey August 28, 2012 - 10:17 am

“The LIRR to Grand Central of course is the worst of them all. There are already alternatives for getting to and from the East Side of Manhattan. Woodside, and taking the (7) Train, and Hunterspoint Avenue during rush hours, come to mind.”

i’ve done these, and LIC too (and of course going to the loathed penn station and wending across), and i’m telling you i never will again (nor will tens of thousands others) when ESA is available. even if it’s built just for the convenience it’s well worth it.

Eric F August 28, 2012 - 10:35 am

No doubt. I imagine the circuitous route the LIRR will take to get to GCT will make the ride a bit slower, than the straight shot into Penn, but that will beat by a mile, the daily slog imposed upon those who currently must trudge their ways back east.

Bolwerk August 28, 2012 - 11:25 am

According to an ad bragging about ESA, the MTA is claiming something like 45 minutes/day saved for 80k people. That’s 60,000 hours or 2,500 days of time saved every day.

At least economically speaking, one of the few positives for this project: that’s a lot of labor time.

David Brown August 28, 2012 - 1:14 pm

I make that miserable reverse trip from Long Island to NYC everyday. There are plenty of projects that could improve conditions for us including extra tracks in Mineola, and a reopened Station at Republic, that would be more cost effective than ECA. Not to mention the fact that it will be 5 years (At best) until we can take advantage of ECA.

Alex C August 28, 2012 - 3:49 pm

The MTA tried the extra tracks thing, your friendly Long Island neighbors protested it fiercely.

Nathanael August 30, 2012 - 5:42 pm

Indeed. The LIRR “Main Line third track” project has been suspended due to NIMBYism.

john smith August 28, 2012 - 4:27 pm

All the “alternatives” you mention involve taking the 7.

Have you ever taken the 7 during rush hour?

That’s the worst “alternative” I’ve ever heard in my life.

Alon Levy August 29, 2012 - 7:12 am

I have. The eastern end is miserable, but then the train empties at 74th, and although it starts filling up again, in Woodside it’s still much better, and it again loses a lot of people to the N/Q at QBP.

Henry August 29, 2012 - 10:18 pm

If you take an express, it’s crowded all the way until Queensoboro.

It should be noted, however, that the middle cars of the 7 are generally the least crowded due to the lack of middle exits at stations.

Bolwerk August 28, 2012 - 9:00 am

Probably the most obvious, low-hanging fruit for reform is simply requiring contractors who go over-budget to pay for the overruns. Take away the incentive to run over-budget.

BoerumBum August 28, 2012 - 9:43 am

Yeah, nothing improves the quality of estimates like fixed-fee contracts…

Bolwerk August 28, 2012 - 11:32 am

I don’t think they should be fixed-fee. The flip side to what I said is it would make sense to reward getting things done sooner by paying more, perhaps at a rate like .25 the penalty rate per day. Real world experience shows that is always better than spending money on overruns due to lateness, since there is logically a limit on how early something can be done.

Seriously: I bet most of the tardiness and overruns would just stop.

Jeff August 29, 2012 - 10:08 am

I bet you would be wrong.

They already have this type of contract – its called a GMP or Guaranteed Maximum Price contract.

The problem is there will always be unforeseen circumstances with construction, and so all bids will contain large portions of contingency money. The risks to contractors in GMP contract would inevitably INCREASE price of bids and not decrease, and by a lot.

And in subway construction, which has so much uncertainty and risks, you’re probably going to get a total of zero bids if you choose to go that route anyway.

Bolwerk August 29, 2012 - 11:26 am

A GMP usually doesn’t involve rewards for finishing early or under-budget. All I’m talking about is punishing delays, and rewarding punctuality. Right now, they do the opposite.

And, subway construction of course has risks and unforeseen circumstances, but saying it’s something that is subject to “so much uncertainty and risks,” is kind of exaggerating the situation. There aren’t many risks that aren’t quantifiable and can’t be budgeted for. Whatever problems that cause cost overruns there are generally seem to be related to the human capital.

Nathanael August 30, 2012 - 5:47 pm

The problem with NY contracting was pinpointed to me at one point. It’s the excessively detailed nature of the contracts.

In a lot of places, you can write a contract which says “Make sure the station doesn’t leak”, and then if the station leaks, the courts will happily force the contractor to eat the costs of fixing it.

There is also generally room for small amounts of change to the design without an extra-cost change order.

Somehow, none of that is possible in NY. You end up with myriads of little change orders, and then when the station leaks, the contractor says “wasn’t in my contract to prevent the station from leaking”.

Um, whatever. That’s just not how contracts should work. But apparently the extreme rigidity of the bidding system in NY means that this is always how public contracts work in NYC.

There’s something else going wrong with the bidding system. Everywhere else, the chosen bid is the “lowest *responsible* bid”, giving the agency some leeway to blacklist contractors with a record of bad behavior. In NYC, that seems to not happen…

What’s especially bad about the bidding and contracting system in NY? I’m not sure. I haven’t studied the state laws in great detail, let alone the court interpretations of said state laws. But it is quite noticeable that the bidding system doesn’t seem to be working the way it does in other states, let alone other countries.

Alon Levy August 31, 2012 - 8:07 am

In Madrid, the contracts include detailed unit costs so that if a change is needed, the cost is already predetermined.

AK August 28, 2012 - 9:06 am

If the incentives for keeping costs down are not in place, what can we do to implement them? For one, we could create a spending/tax mechanism that provided MORE money for transit if projects came in on time and on budget. To the unions: your workers want a steady stream of projects? Better get it done on time/on budget. To contractors– your shareholders want to maximize profits? Accept a slightly lower margin for greater volume. To the public (which is prepared to spend money on transit IF they think the dollars are used efficiently)– we will not waste your money on undisciplined glamour projects. Etc.

This is the #1 issue facing America’s infrastructure (the ballooning costs affect not just transit, but roads (see the costs of the new Tappan Zee), energy grids, water tunnels, etc) and without solving it, we will never have the funds, even as the richest nation on earth, to do what needs to be done.

Bolwerk August 28, 2012 - 9:32 am

Simplification is another obvious option. Take cut and cover; I’m beating a dead horse with this, but there are only a handful of firms in the world that can bore the SAS and only a few of them have the resources to comply with U.S. construction rules. Almost any medium-size construction firm can have a part to play in a cut and cover project.

It has other side-benefits that should play well, like offering opportunities to local firms. Some of the work might even trickle down to small businesses. Utility relocation may require utilities, and engineering requires engineers, but there is no reason why a small business with a staff of under 20 and a capitalization in the very low seven figures can’t be subconstracted to dig what ultimately amounts to a giant ditch. (Well, okay, they probably aren’t gonna be union labor….)

Henry August 29, 2012 - 10:21 pm

Even cut and cover the old-fashioned way isn’t really necessary – I might be wrong on this, but I’m pretty sure that parts of the Big Dig in Boston were done using prefabbed tunnel segments. If that’s used, then the construction process is basically dig, put concrete in, cover up.

BoerumBum August 30, 2012 - 11:32 am

Are you sure that the Big Dig is what we should look to as an example of high-quality construction?

LLQBTT August 28, 2012 - 9:53 am

Perhaps then the ‘Emergency Procurement’ rules should be adapted in some form for huge capital projects as an exception to the otherwise onerous procurement process that already exists.

Larry Littlefield August 28, 2012 - 10:13 am

The MTA is not, I believe, required to take the low bidder in every case, although that is the CYA option.

Alternative procurement methods have not solved the problem.

I’d try a reverse Dutch Auction. Cut the estimated cost of a project in half, and put it out to bid. The price would be fixed, and contractors would compete not on “low bidder” but on the viability and quality of their proposals.

After a few months, if there is no interest, keep increasing the bid slowly until someone accepts with an acceptable plan. If the price is getting too high, table the project until a shift in the economy and/or the price of materials makes it attractive to contractors.

Bolwerk August 28, 2012 - 11:20 am

I rather doubt that idea does much. Construction costs aren’t especially volatile. The price of materials are pretty predictably going to climb as the west competes with emerging economies for resources. Times like these are almost optimal for these types of projects; high unemployment means labor should be cheap while borrowing costs are still low, and material costs aren’t going get lower.

The major reasons why projects are overpriced by a factor of 10 are still structural, and a reverse Dutch auction (good idea as it is) doesn’t do anything about those.

Larry Littlefield August 28, 2012 - 12:24 pm

It would do something about the upward spiral. The MTA has to budget for its projects, and those numbers are public. So the contractors use them as a floor.

The resulting bids set the precedence for even higher costs, which are incorporated into the next budget, etc.

Instead, the MTA would say it won’t do the project unless someone comes up with an acceptable proposal at half the cost. Only after holding out for some time will that be gradually increased. Shut the whole industry down for a year or two if needed.

Nathanael August 30, 2012 - 5:49 pm

I’m wondering if there’s something going on with the way the contracts are written. I’m not sure whether that qualifies as an “alternative procurement method” but there seem to be some problems with the contractors in NYC first nickel-and-diming, and then refusing to warranty their work; there has to be some way to get someone else to bid on such things.

Or perhaps the NYC construction contractors are threatening anyone else who considers bidding? We should check the history.

Alex C August 30, 2012 - 8:43 pm

The mob doesn’t see competition as favorable.

lawhawk August 28, 2012 - 10:30 am

Funny that you mention the Spanish tunnel experience.

Dragados and another Spanish company are involved in the MTA work – and there’s an ongoing spat between the two companies on the ESA project over who’s responsible for the cost overruns there.

Chris Ward, who warned of massive overruns with the WTC PATH and managed to hasten the construction of the 9/11 memorial was forced from office by Cuomo, and he’s now at Dragados.

Christopher August 28, 2012 - 11:05 am

Years ago Dukakis wrote a piece on infrastructure project management and why we were failing at it so spectacularly. I wish I remembered where I saw that piece; it was very good. I think it came out right around the time the Big Dig was finishing up.

John-2 August 28, 2012 - 11:25 am

Cutting the red tape and the threat of lawsuits if all the I’s aren’t dotted and the T’s not crossed is one of the major difficulties, added to the fact that the projects themselves are needed, but not vital, so that there’s really no overwhelming push to get them done on time and on budget.

The 1994 Northridge earthquake in California is the best current example. Caltrans had been saying for years it would take years to get a commuter rail line up to far northern Los Angeles County, and that was the accepted wisdom … until the quake took down the State Highway 14 interchange with I-5. Faced with the prospect of having drivers facing a shut down interchange and detours onto two-lane roads for months, the feds, state and county suspended all the requirements mandated for new transportation infrastructure, and the new commuter rail line it was supposed to take years to build was completed in one week.

Forty plus miles of new commuter rail line and stations. One week.

Obviously you can’t do anything that fast when you’re dealing with all-new underground construction as opposed to upgrading an existing line. But the point still holds. You want Alt G or East Side Access put into hyperdrive? Have some major catastrophe shut down one or more of the Hudson and East River tunnels into Penn Station, which would then focus the public’s ire on anything that delayed solving the newly-created problem. Without the fear of losing their jobs over a delayed transportation issue, politicians and the government bureaucracy in general are perfectly willing to partner with the big construction firms to allow work on those projects to proceed as slowly as possible.

Larry Littlefield August 28, 2012 - 12:28 pm

Another factor: progress payments. The original idea — pay the contractors as they go so they won’t have to borrow money, and the lower interest costs will yield a lower bid.

But once they already have 80 percent of their money, they can start screwing around and shifting workers to other jobs, threatening lawsuits over this or that, and hoping to bully the MTA into a change order for more money.

The road to hell is paved with good intentions.

I have a friend who worked as a construction superintendent in the private sector. He described the job as fighting every single day over nickels and dimes. With the contractors, not with other parts of his own organization.

Nathanael August 30, 2012 - 6:00 pm

To get a good result, you have to have in-house oversight, and by oversight, I mean a guy on the job breathing down the contractor’s neck 24 hours a day.

Salem August 29, 2012 - 11:36 am

I would love to see the breakdown of costs (particularly on something like the 2nd Ave line) to separate all these truths and fictions.

I think New York is very different than Madrid or Paris. It is much higher density — especially the East Side where the line is going. It also has very complicated geology. From what I’ve read the LIRR extension is stalled due to underground rivers and loose mud on the Queens side, where it needs to burrow under the busiest commuter rail switching yard in the country without disrupting service. Tokyo on the other hand seems like a place that would face very similar challenges.

Mostly I’d like to see the breakdown of labor vs. construction vs. financing, etc … For instance, could it be so expensive because we draw the projects out over many, many years? What about ADA compliance? We need to build elevators and those, underground are expensive. I was told the majority of the cost of the Fulton Street renovation was unavoidable due to ADA compliance. Does Madrid need to deal with that too?

Finally, I think it’s important to put things in perspective. The original subway was built in an era where fair wages and minimizing the externalities of disruptive construction techniques were not high priorities. This project is a form of Keynesian economic policy for the city, employing many people for years are decent wage rates, and keeping construction firms and factories at work across the state and country. That can’t be a terrible thing.

And the end result will last over a century if it’s done right. That’s millions of people each year benefitting from faster service. Mass transit moves massive numbers of people. That has the ability to reshape the city. It can bolster growth on the far East and West Sides (2nd Ave and 7 train ext’s) that can secure New York’s place as an economic powerhouse. Even applying a pretty perverse discount rate, it seems the benefits easily climb into the billions-of-dollars range.

David Brown August 29, 2012 - 12:11 pm

The problem with your application of Keynesian Economic Theory, is even under that theory, and ADA compliance, it has to make economic sense, and the MTA’s applications do not. If you look at Broadway-Lafayette St/Bleeker St, you see all kinds of artistic things that might look nice, but the priority should have been adding the elevators, Uptown (6) Train connection, ect, instead of spending $135m on it. Maybe if they would have spent 1/2 that money, it could have been used to fix up other stations, such as City Hall (J)or 138th St ((4) & (5)), or perhaps to add a connection at Broadway (G) to the (J) & (M), or Livonia Ave (L) to the (3)at Junius St?

Someone September 28, 2012 - 5:28 pm

Very interesting. Or maybe, they can at least fix up the Forest Hills (E)(F)(M)(R) station.

Henry August 29, 2012 - 10:25 pm

This would be a pretty compelling argument, except instead of digging tunnel through fragile catacombs (Paris) or winding through old neighborhoods (pretty much all of Europe), the SAS is being dug under a wide road with no significant obstructions.

W. K. Lis August 29, 2012 - 5:18 pm

Don’t forget about “warranties”. Used to be the case that once a project was finished, any problems would have to be paid for and fixed by the new owner. Today, they would be covered by a “warranty”. However, the costs of that “warranty” are actually included in the final cost of the project. Those “free” repairs are not “free”, but already paid for.

Nathanael August 30, 2012 - 5:52 pm

And yet the South Ferry Station is leaking and the contractor is refusing to fix it. So much for warranties of fitness.

No, the problem is more that contractors aren’t providing the sort of warranties that they used to provide even back in the 19th century.

Epson September 3, 2012 - 3:08 am

The contractor is not at fault. It’s MTA who did not specify waterproofing of that station. It was not on the contract.

paulb August 30, 2012 - 9:13 am

Perhaps the airing that these excessive costs, which put big, necessary public projects so out of reach, is getting will lead to some changes. But I don’t expect it, any more than I expect reform in medicine or education.

Nathanael August 30, 2012 - 5:53 pm

Reform in medicine in the US is guaranteed; the current “pricing” in medicine is openly fraudulent and it’s spiralling out of control to the point where people are just going abroad for health care. That’s such a huge mess that it will collapse completely if not reformed. After the collapse, reform becomes inevitable.

Contracting for public works in NYC is not yet bad enough to be like *that*.


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