More on Cost Comparisons

Some of my past posts on cost comparisons are getting play on mainstream publications including Slate, Salon, The Economist, and The Atlantic Cities, and one of the consistent points I see is that the difference between the US and most of the rest of the first world is so glaring that projects that are locally considered boondoggles suddenly look good.

A list containing multiple projects at over a billion dollars per kilometer can legitimize anything below it. Thus projects approaching half a billion per kilometer look downright reasonable. In reality, Tokyo Metro said that there will not be further subway construction, and I have read elsewhere that it repeated this promise in advance of its impending IPO. And in Amsterdam, an inquiry into the North-South Line’s factor-of-2 cost overrun concluded the project should have never been built.

It seems that there’s an Overton window analog, in which higher costs legitimize the previous decade’s work, making it look good when at the time it was criticized for poor cost control. In fact, this could explain the decades-long trend toward increasing real costs – an explanation that is usually given in terms of rising wages and worker safety rules, but in reality poor countries build subways for not much less money than non-Anglophone rich countries.

I contend that the best practice should still be to compare with the average, rather than with either the worst (London Crossrail, Amsterdam North-South Line, Munich Stammstrecke 2) or the best (most projects in Spain). Being more expensive than one city could be a fluke. Being five or more times more expensive than upward of 90% of subway projects is less excusable.

Most interesting to me in this discussion is the explanations for US/Europe cost differences. Although most people regrettably keep comparing the US to China, never mind that European and Chinese costs are similar, some stay on target and avoid explanations that assume the entire first world is like the US. One comment on The Economist follows:

Observations on the public construction process, having seen it in action relatively up close:

1. Failure to embrace technology except in the most expensive cases. We are behind in construction techniques overall. We will bring in European methods when the case is made they are necessary. These methods therefore tend to be used when the expense is higher. This means we don’t upgrade technology overall, just at the costly fringes. Examples come from the methods used to construct the new tunnels in Boston; one used a method developed mostly by the Dutch because our domestic methods weren’t up to it.

2. Our project management is not equivalent. European large scale construction projects run more just-in-time. Even really big ones require very large things to be built and then to arrive on a schedule. Our system can’t handle that so we build in lots of slack expecting stuff will come late and will need to be adjusted – sometimes substantially – to fit the need. That is very costly.

3. Our system is very bad at prioritizing. My experience with this is mostly at the state and local level. I have seen very competent people working at both levels. They exist in a morass of work that needs to be done. They don’t have the resources to do things properly. They have to put repair, snow, etc. way, way, way ahead of planning.

4. My overall comment is this: Europeans understand they exist in a high cost environment so they squeeze out the inefficiency to be competitive. They focus on value-added design and on efficiency in planning and scheduling. We don’t.

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25 Responses to More on Cost Comparisons

  1. anonymouse says:

    Good project management can make a huge difference, and there’s no way to really build that project management expertise except through experience, and that can be hard to get when expansion only comes in occasional spurts. It really requires an organization that can keep people and institutional memory around for a while. LA Metro is one such organization, and it shows in their relatively on-time and on-budget completion of the Gold Line extension. The Expo Line, on the other hand, is being managed by a separate joint powers authority, and is both way behind schedule and way overbudget. But it could be worse: the California High Speed Rail Authority just outsources everything, including the project management, so it’ll be the consultants deciding how much things should cost and how long they should take, leading to massive conflicts of interest and probably the eventual downfall of the project.

  2. JJJ says:

    “but in reality poor countries build subways for not much less money than non-Anglophone rich countries.”

    Anybody have updated info on the cost of Mexico Citys new line 12? It’s 24km long and includes a mix of tunnels and viaducts, and multiple transfer points.

    It’s a year behind schedule, so Im wondering how the budget has gone.

    Mexico City built their excellent BRT system for very little money, compared to anything over here, so I think there are significant savings in developing countries.

    • Andre Lot says:

      Part of the reason BRTs are less expensive in poorer countries are these:

      (1) wages are much lower, as BRT is a labor-intensive transit mode

      (2) there is less overall car usage and car ownership so that pressure against taking lanes from car traffic is lower

      (3) land acquisition can be messy/corrupt, but definitively cheaper

      (4) buses, which require much more man-hour maintenance per seat per 100.000km, rely on cheaper not-so-skilled mechanics instead of engineers replacing parts.

      • JJJ says:

        “(2) there is less overall car usage and car ownership so that pressure against taking lanes from car traffic is lower”

        We’re talking about Mexico City here. This statement is so false it should be deleted from the internet.

        Also, Im talking about construction costs, not operations.

        • Beta Magellan says:

          While I couldn’t find any up-to-date statistics on automobile ownership rates in Mexico City in half a minute of Googling, it’s worth noting that having a lot of cars on the road doesn’t necessarily imply a high auto ownership rate. According to Cervero’s The Transit Metropolis, private automobiles only accounted for less than 30% of trips in 1994 (by which time the city already had a reputation for gridlock) and Hoy no Circula was introduced in the late eighties, when the percentage of trips was likely slightly lower.

          • JJJ says:

            While you’re correct that car ownership rates are much lower than the US, it’s important to note that those with means do own cars, usually multiple cars (to get around hoy no circula). Of course, like in america, wealthy = political power, so there was a lot of pressure against taking away car lanes.

            Also mexico city is quite sprawled out, a big factor being the earthquake+ground consistency (versus brazilian cities that are very vertical). That means more cars being forced onto few arteries.

      • Alon Levy says:

        In the main example cities for cost-effective BRT, either the main streets are extremely wide (Bogota) or the mayor who implemented BRT had enough power and the will to take lanes from car traffic over motorists’ objections (Curitiba).

    • Nathanael Nerode says:

      What excellent BRT system? Does Mexico City actually have bus lanes? News to me. Please do provide information if true.

    • Alon Levy says:

      Last time I checked, the number I saw for Mexico City worked out to $250 million per kilometer. I don’t have the references bookmarked, though.

  3. Alex B. says:

    Of those 4 reasons listed in the Economist comment, I’d be curious about unpacking them a bit more to find their root causes.

    Starting with the last comment: They focus on value-added design and on efficiency in planning and scheduling. We don’t.

    Ok, so why don’t we?

    On new technologies – why haven’t we adopted them? Is there some sort of bias in our financing mechanisms towards proven, if inferior methods?

    On project management – what are some of the systemic factors at play with this? I’ve never quite been able to get a handle on how infrastructure construction costs in the US compare to private-sector construction costs for buildings, as an example.

    On prioritization – this is definitely a systemic issue. It raises questions about governance, funding, etc.

    • Andre Lot says:

      Though exceptions must be made for UK and Italy (for very different reasons in each place), generally the agencies managing infrastructure plans in Western Europe have more staff and more acquired competencies. None of them engages in direct construction anymore, but most of them have some critical mass of technical competencies to play around when designing projects.

      Delays do happen, but they are not the only reason for massive cost increases. Sometimes delays are unavoidable (crane collapses, geological “surprises”, very unstable weather on “construction season” etc), but often delays are more a symptom of something else than a cause on itself.

      One of the reasons are uncertain funds that create all sort of uncertain schedule, which requires redundancy and stretching of the critical path of a project.

      • Beta Magellan says:

        In addition to the fact that in Europe there’s a greater number of transit and rail projects in the pot (and much more attention paid to continual modernization), I wonder if the difference in competence is also partly due to the different histories in civil service in Western Europe in the US—in Western Europe, civil services arose before modern democracy, whereas in the US it came after. Thus European civil servants—including planners and state engineers—have a degree of independence from the political process that they don’t necessarily have here, where it’s not unusual for departments and agendas to be wiped nearly clean with each election—as Alon says, we have transport politics in the States, not transport policy.

        • Andre Lot says:

          I don’t think it is related at all.

          US has some quite good agencies within their fields (FAA, BLM, NPS, FBI). What happens, in my opinion, is the lack of permanence of a critical workforce that can accumulate knowledge.

          In most states, transit authorities are appendages of the local DOTs. Staff numbers increase or decrease heavily depending on budget priorities of new mayors/governors every couple years or so.

          Moreover, and here things come just as a personal insight, I think the practice of maintaining just shell structures and outsourcing every aspect of the project design, supervision and management doesn’t work well.

          I’m all for using private resources and I hate the idea of overpaid unionized transit workers making 6 figures/year to drive a train and, laughable, a bus. However, if some staff is to be kept on a permanent basis, that should not be those doing repetitive front-line jobs, but some planning capacity.

          Many transit agencies, having to do “more with less”, have terminated almost all workforce related to long-term planning, project feasibility studies and so on. Then, whenever there is a new project, new consultants must be brought in and this take time, energy and doesn’t create an institutional memory on how to do things.

          Else, you end with situations where the constant budget wars created extremely risk-averse and change-averse mentality in the agency staff, where they will do anything possible to keep the status quo a means to keep their funding.

          • Adirondacker12800 says:

            Why shouldn’t bus drivers make 6 figure salaries?

          • Alon Levy says:

            Is there anywhere other than BART and Muni where bus drivers make 6-figure salaries? For the record, NYCT pays bus drivers about $50,000 on average and train drivers about $70,000.

          • Zmapper says:

            Are you going to personally pay for those 6 figure salaries, Adriondacker?

            Or put it this way: If bus drivers make $100,000 a year, the transit agency will only have enough money to operate until 7pm. If they make $60,000 a year (1.5 times the median wage), they could afford to operate until 10pm. Would you rather have service stop at 7pm or 10pm?

          • Zmapper says:

            Alon, a Madison Metro Transit employee was highest paid city government employee a while back: http://host.madison.com/wsj/news/local/govt_and_politics/article_24af32d4-13f4-11df-86b2-001cc4c002e0.html

            Skimming the payroll database for Fort Collins, the range of bus operator salaries in 2010 was between $251.64 (That can’t be right) to $52,000. I take it that smaller transit agencies don’t have much of a union problem, though I wonder how the salaries here compare to salaries in transit agencies located in heavy union states?

          • Alon Levy says:

            Occasionally you’ll see reports of individual employees who make a ton of money in overtime, but those are outliers. Likewise, some people just worked a few hours before transferring or quitting, and that’s why you see some people make just a few thousand per year.

            Here are averages of 2005 pay schedules on NYCT. You can also look at salaries on the Manhattan Institute’s database, which is a little bit less unsearchable than it used to be, and will now even tell you how many people there are in each job category and what their total compensation is (however, bus operators are inexplicably split between “bus operator” and “BUS OPERATOR”). Both links give the average salary as $63,000, the same as a train driver; for the record, the number for a bus driver seems a bit too high for me and the number for a train driver a bit too low. Neither issue is anywhere near the waste that comes from employing conductors (especially on commuter trains) or from having too few revenue hours per train driver.

    • Nathanael Nerode says:

      Uncertainty and unreliability in funding, causing need for slack in the schedule, is actually a very serious issue. Once an agency starts getting a steady stream of consistently funded projects, it gets better and better at project management.

    • MobilMan says:

      Re: New technologies
      Construction companies seem to be very much set in their ways and new ways of building things only seem to be adopted if there’s no other choice. ‘We do it this way because we have always done it this way!’ That goes not just for cookie cutter production home building but also for the high end as well. One example in New York is the Austrian Cultural Forum. The New York ‘construction mafia’ wouldn’t or couldn’t build to the architect’s specifications so they brought in Swedish bridge builders to do the work.
      That’s not to say American companies and governments are inherently incapable. But if good practices and outcomes are not demanded/required, if the vast majority doesn’t know anything better and accepts the established lower mediocrity as ‘normal’ then there is no hope of those entities rising to the challenge.

  4. PeakVT says:

    The link to Salon is broken.

    The emerging hypothesis in comments for the higher costs in the US seems to be: insufficient learning-by-doing on the part of US transit agencies. The limited expertise is caused primarily by intermittent and unpredictable funding, and a general lack of projects. (Another cause may be general cultural attitudes towards civil service in the US – poor. I also suggest balkanization of what little expertise is developed into different state and local agencies).

    The basic hypothesis seems testable to me, though it would require having access to very detailed cost accounting for a large number of projects.

    • Alon Levy says:

      Fixed, thanks.

      And you’re right, the pennypinching is certainly a big part of the problem. Agencies can’t develop their own in-house expertise when politicians press them to cut everything except basic operations, and demand business-style management without doing anything to create more competition among contractors. Private transit corporations get things for pretty cheap, because they aren’t bound by rigid procurement rules, freeing them to devise relationships of trust with good contractors as necessary to maximize profit. Public operators with a large public support sector that’s loyal to the agency can also do things cheaply, regardless of whether they do construction themselves or put it out to a competitive tender. It’s the PPPs that tend to combine the worst features of private and public operation.

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