The best industry practice, outlined by Madrid Metro’s Manuel Melis Maynar, is to award contracts by a combination of cost, construction speed, and a technical score judged by an in-house oversight team. Moreover, in Madrid there is separation between design and construction, in order to permit construction teams to make small changes as they go along without being wedded to their own plans. With this system, Melis built a wave of metros for an underground construction cost of, in today’s terms, $80 million per kilometer (almost all but not 100% underground), including rolling stock, which I have attempted to exclude from other lines whenever possible.
The American practice is to award contracts by cost alone. This leads to one of two problems, depending on the coast.
In California, the problem is, in two words, Tutor-Perini. This contractor underbids and then does shoddy work requiring change orders, litigated to the maximum. Ron Tutor’s dishonesty is well-known and goes back decades: in 1992 Los Angeles’s then-mayor Tom Bradley called him the change order king. And yet, he keeps getting contracts, all of which have large cost overruns…
In New York, this is not a problem, as the state makes sure to avoid shoddy work through overexacting specs, down to specifying the materials to be used. Unfortunately, this kind of micromanagement reduces flexibility, increasing construction costs in two ways. First, the direct effect raises the hard costs of construction, by about 15-25% plus overheads and contingency according to many contractors interviewed for Brian Rosenthal’s New York Times article on the subject. And second, since many contractors are turned off by the red tape, there is less competition – the 7 extension had just a single bidder – and thus contractors can demand an extra profit on top.
That was an excellent post on why American costs of construction are so high. Has much in common with defense acquisition, it appears. The author also encourages international comparisons:
I’ve lived in enough countries that I tend to prefer cross-national comparisons to find the best way to run transportation and deal with other political issues. American political culture tends to be exceptionalist and shy away from such comparisons, and New York political culture even more so; to the extent I’ve said things others have not, it’s often because I was willing to look at what other cities around the first world do.
Pointer from Tyler Cowen.
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