Why do New York rail construction projects cost so much? In essence, with a $5-$6 billion tag attached to Phase 2 of the Second Ave. Subway on the horizon (let alone the recent politicking over the fate of the Gateway Tunnel), this is the big question plaguing New York. With limited dollars not going nearly as far as they do the world over, the MTA’s cost problems are a significant barrier to New York City transit expansion.
For years, those watching the MTA have rung the alarm on the agency’s high construction costs. I’ve written about cost concerns and the ever-increasing budgets for big-ticket MTA capital projects for years, and I’m not alone. Alon Levy has, since this post in 2011, charted the absurd costs of U.S. rail construction in detailed comparisons with international peers, and Stephen Smith, via the @MarketUrbanism twitter feed, has beaten the cost drum. When challenged, MTA officials have acknowledged that construction costs, but no one has tackled the twin issues of cost transparency and cost control. No one, that is, until last week, when The Times ran a massive front-page story charting all the reasons why NYC transit construction are so high.
As the finale in the series that started with an in-depth look at our unfolding transit crisis, Brian Rosenthal, with help from Doris Burke and Alain Delaquérière, has done what the MTA or the New York State Comptroller should have done years ago: They scrutinized MTA spending and took a deep dive into the agency’s contracting practices, staffing policies and lack of productivity in a way that lays bare just how bad the MTA is at managing big-ticket construction projects or getting a good return on its dollar. The article is, essentially, the story of how institutionalized corruption has become the norm in New York City. I highly urge you to read the entire piece and peruse through my instant reaction Twitter thread from Friday. I’ll excerpt a bit here.
First, the lede in which no one knows what 200 people are doing as part of the East Side Access project, a $12.5 billion project that costs, as The Times notes, seven times more than similar work elsewhere:
An accountant discovered the discrepancy while reviewing the budget for new train platforms under Grand Central Terminal in Manhattan.
The budget showed that 900 workers were being paid to dig caverns for the platforms as part of a 3.5-mile tunnel connecting the historic station to the Long Island Rail Road. But the accountant could only identify about 700 jobs that needed to be done, according to three project supervisors. Officials could not find any reason for the other 200 people to be there.
“Nobody knew what those people were doing, if they were doing anything,” said Michael Horodniceanu, who was then the head of construction at the Metropolitan Transportation Authority, which runs transit in New York. The workers were laid off, Mr. Horodniceanu said, but no one figured out how long they had been employed. “All we knew is they were each being paid about $1,000 every day.”
At the outset, the article blames everyone and dives in from there. I haven’t seen a more succinct summary of the MTA’s problems than this excerpt:
Trade unions, which have closely aligned themselves with Gov. Andrew M. Cuomo and other politicians, have secured deals requiring underground construction work to be staffed by as many as four times more laborers than elsewhere in the world, documents show.
Construction companies, which have given millions of dollars in campaign donations in recent years, have increased their projected costs by up to 50 percent when bidding for work from the M.T.A., contractors say. Consulting firms, which have hired away scores of M.T.A. employees, have persuaded the authority to spend an unusual amount on design and management, statistics indicate.
Public officials, mired in bureaucracy, have not acted to curb the costs. The M.T.A. has not adopted best practices nor worked to increase competition in contracting, and it almost never punishes vendors for spending too much or taking too long, according to inspector general reports.
At the heart of the issue is the obscure way that construction costs are set in New York. Worker wages and labor conditions are determined through negotiations between the unions and the companies, none of whom have any incentive to control costs. The transit authority has made no attempt to intervene to contain the spending.
Meanwhile, when faced with the conclusions of The Times’ reporting, the MTA pointed to its favorite bogeyman — New York exceptionalism. Projects cost a lot in New York because things are expensive. MTA Chairman Joe Lhota pointed at ” aging utilities, expensive land, high density, strict regulations and large ridership requiring big stations.” In the reporters’ fact-based world, none of this would fly:
But the contractors said the other issues cited by the M.T.A. were challenges that all transit systems face. Density is the norm in cities where subway projects occur. Regulations are similar everywhere. All projects use the same equipment at the same prices. Land and other types of construction do not cost dramatically more in New York. Insurance costs more but is only a fraction of the budget. The M.T.A.’s stations have not been bigger (nor deeper) than is typical. “Those sound like cop-outs,” said Rob Muley, an executive at the John Holland engineering firm who has worked in Hong Kong and Singapore and visited the East Side Access project, after hearing Mr. Lhota’s reasons.
In Paris, which has famously powerful unions, the review found the lower costs were the result of efficient staffing, fierce vendor competition and scant use of consultants. In some ways, M.T.A. projects have been easier than work elsewhere. East Side Access uses an existing tunnel for nearly half its route. The hard rock under the city also is easy to blast through, and workers do not encounter ancient sites that need to be protected. “They’re claiming the age of the city is to blame?” asked Andy Mitchell, the former head of Crossrail, a project to build 13 miles of subway under the center of London, a city built 2,000 years ago. “Really?”
So what makes MTA projects cost so much? One answer is overstaffing. As I have detailed before, the MTA staffs upwards of 25 people on TBM projects while most other nations use around 10 for similar work. But that’s just the tip of the iceberg:
The documents reveal a dizzying maze of jobs, many of which do not exist on projects elsewhere. There are “nippers” to watch material being moved around and “hog house tenders” to supervise the break room. Each crane must have an “oiler,” a relic of a time when they needed frequent lubrication. Standby electricians and plumbers are to be on hand at all times, as is at least one “master mechanic.” Generators and elevators must have their own operators, even though they are automatic. An extra person is required to be present for all concrete pumping, steam fitting, sheet metal work and other tasks.
In New York, “underground construction employs approximately four times the number of personnel as in similar jobs in Asia, Australia, or Europe,” according to an internal report by Arup, a consulting firm that worked on the Second Avenue subway and many similar projects around the world. That ratio does not include people who get lost in the sea of workers and get paid even though they have no apparent responsibility, as happened on East Side Access.
And then of course there is good old fashioned featherbedding. As Rosenthal details, the Sandhogs’ union gets a free perk just because the MTA uses TBMs, a technology that has been employed to dig subways for the better part of 50 or 60 years. As he writes, “One part of Local 147’s deal entitles the union to $450,000 for each tunnel-boring machine used. That is to make up for job losses from ‘technological advancement,’ even though the equipment has been standard for decades.”
Besides the obvious institutionalized corruption and back-patting, Rosenthal details how the MTA’s own practices lead to significantly higher costs. This is a key part:
Mr. Lhota, the M.T.A. chairman, agreed that leaving negotiations to unions and vendors may be problematic. “You’re right; in many ways, there’s this level of connection between the two,” he said. But the chairman said he did not know what could be done about it. Hiring nonunion labor is legal but not politically realistic for the M.T.A. The transit authority could get unions to agree to project-specific labor deals, but it has not.
The profit percentage taken by vendors also is itself a factor in the M.T.A.’s high costs. In other parts of the world, companies bidding on transit projects typically add 10 percent to their estimated costs to account for profit, overhead and change orders, contractors in five continents said. Final profit is usually less than 5 percent of the total project cost, which is sufficient given the size of the projects, the contractors said.
Things are much different in New York. In a series of interviews, dozens of M.T.A. contractors described how vendors routinely increase their estimated costs when bidding for work. First, the contractors said, the vendors add between 15 and 25 percent as an “M.T.A. Factor” because of how hard it can be to work within the bureaucracy of the transit authority. Then they add 10 percent as a contingency for possible changes. And then they add another 10-12 percent on top of all that for profit and overhead.
The MTA takes a laissez-faire relationship to its contractors’ agreements with labor unions and then sits back as the contractors build in extra costs (and profit margins) to their agreements. No wonder the contractors want the MTA capital plan to be as expensive as possible as high amounts of available dollars lead them to realize more profits. And the examples are endless. Rosenthal notes that other countries’ bidding processes lead to as many as eight bids on complex construction work whereas the MTA sees two that often come in far higher than estimated. MTA Board members meanwile, are keen to wash thier hands of graft:
More than a dozen M.T.A. workers were fined for accepting gifts from contractors during that time, records show. One was Anil Parikh, the director of the Second Avenue subway project. He got a $2,500 ticket to a gala, a round of golf and dinner from a contractor in 2002. Years later, shortly after the line opened, he went to work for the contractor’s parent company, AECOM. Mr. Parikh and AECOM declined to comment.
A Times analysis of the 25 M.T.A. agency presidents who have left over the past two decades found that at least 18 of them became consultants or went to work for authority contractors, including many who have worked on expansion projects. “Is it rigged? Yes,” said Charles G. Moerdler, who has served on the M.T.A. board since 2010. “I don’t think it’s corrupt. But I think people like doing business with people they know, and so a few companies get all the work, and they can charge whatever they want.”
Firms that donate to politicians and operate a revolving door between their offices and the public sector are the only ones to bid on complex projects and they do so at inflated costs. It’s graft, and whether it’s legal is a big open question mark in my mind. But don’t sleep on MTA ineptitude either; the agency after all hired three “operational readiness” consultants for East Side Access ten years before construction work is set to wrap on the project. The waste and the rot run deep.
As you read The Times piece, you may be wondering what happens next. After all, MTA officials have been on the record acknowledging these problems for years, but they never act. Horodniceanu talked about overstaffing on TBM projects years ago, and he never acted. A faction on the MTA Board recently started raising concerns over contracting dollars, but the full board still voted to approve all projects. And the $6 billion Second Ave. Subway phase looms large.
As I see it, two people could fix this mess. One is Andrew Cuomo. He could exert the leverage he has over the MTA and the labor unions to get both sides to come to the table on a solution. Unfortunately, he has shown no willingness to challenge union costs, and he has used the MTA for political show only. The other person is New York State AG Eric Schneiderman who could use his office’s legal powers to investigate these contracts and, if legally feasible, start prosecuting all of these players for fraud. That would be a big shock to the New York state construction graft industry but is a reach legally with standards for proving this type of corruption very high these days.
Are we stuck then? Is the only outcome a well-deserved Pulitzer nomination for Rosenthal and The Times and vindication for Stephen Smith, Alon Levy, and the thousands of transit nerds who have listened to them over the years? I hope something more comes out of this series of articles. The future of reasonably priced transit projects in NYC depends on it. But even with everything out in the open, corruption has a way of persevering absent a major shock to the system that enabled it in the first place.