Autumn on Lake Audobon

Autumn on Lake Audobon
Autumn on Lake Audubon, Photo by Alison Kamat

Friday, May 16, 2014

Why costs often creep on public-works projects, Washington Post, May 14, 2014

WaPo's Antonio Olivo and Katherine Shaver have written an excellent article on the escalating prices of public works projects that everyone, including state legislators and county supervisors should take to heart.  And the rest of us should remember this article and its lessons every time a new proposal--for a bridge, an indoor tennis facility, an aquatics center, etc..--is offered up that sounds too good to be true.  It almost certainly will be, and you can count on actual construction costs and even operating costs to double these initial estimates.

But let's take a look at what Olivo and Shaver have to say:
What do Metrorail’s Silver Line, the Columbia Pike streetcar in Arlington County and the Intercounty Connector in Maryland have in common?
They have turned out to cost far more than initially projected. And, as often happens in such cases, the public is outraged over the bill.

The script — most recently playing out in Arlington County after officials revealed that the price tag for the streetcar is $100 million more than first estimated — is fairly common.
With fanfare, officials unveil plans for a new subway line, bridge or other infrastructure improvement that, they promise, will make life easier or generate new tax revenue without breaking the budget.
Then, months or years later, they’ll sheepishly admit that the project will stretch the budget a little. And local residents revolt. . . .
To get a project up and running, public officials may lowball a cost estimate at the outset, then ask for forgiveness and patience later, said William Ibbs, a professor of construction management at the University of California at Berkeley who has worked as an adviser on transportation projects worldwide, including Boston’s “Big Dig” highway-tunnel project, which was $12 billion over budget when it was finished nine years behind schedule in 2007.
That’s particularly the case during an economic downturn, when local officials hope to create jobs and contractors are especially eager to get work.
“I’m not saying they’re committing fraud, but let’s say they’re overly optimistic,” Ibbs said about public officials whose initial cost estimates are on the low end of likely. “They’ll get the work going and then the public will be reluctant to cancel a project because they’ve spent all this money so far.” . . .
Once a project gets approval, planners and engineers dive deeper into its feasibility with a more-refined analysis that takes into account planned stops along a transit route or overall soil conditions, said Whit Blanton, an Orlando-based transportation planner. 
Construction delays and increases in a project’s scope can also lead to cost creep, said John D. Porcari, a former Maryland transportation secretary who recently served as deputy U.S. transportation secretary. On a $2.5 billion project, inflation alone can add $60 million to $70 million for each year construction doesn’t occur, he said.
Delays stem most often from permitting problems, changes to a project’s design and shifts in political administrations, when newly arrived public officials want more time to review a project, Porcari said. The costs of major expenses such as labor, construction materials and real estate also are difficult to pin down until much of a project’s design has been completed. . . .
And there is much more.

We believe the line of explanatory analysis done by UC(B) Professor Ibbs above is the primary source of this under-estimating phenomenon.

For the record, let us note these price escalations on planned projects here in Reston:
  • The Soapstone Extension:   The bridge across the Dulles Corridor from Soapstone Drive to Sunset Hills was forceast in the RMAG report in early  2008 included $32MM for the bridge and $10MM for the roadway links for a total of $42MM.  A few weeks ago, the county's feasibility study put the design and construction costs now at $50MM-$60MM.  However, with the necessary land acquisition costs, the total cost of the project has now ballooned to $100MM-$150MM.   We anticipate the cost will reach at least $200MM before construction is completed sometime next decade.
  • The RCC Aquatic Center:  RCC has had its consultant Brailsford & Dunlavey estimate construction (& operating) costs for a new Reston aquatic center on three different occasions with 6 different designs/capabilities, so it is virtually impossible to show a specific total cost escalation from mid-2009 to its latest update in November 2013.  Nonetheless, taking the cost of design and construction (not land) on a gross square feet (GSF) basis, the trend for the earliest options most like the latest November 2013 option show the following:
    Reston Recreation Center Estimated Construction Costs
    2009-2013
In short, there has been a 35% increase in forecast construction costs per square foot over four years--and the project hasn't even reached the engineering feasibility stage yet.  The likely cost (not counting land) could easily double the latest forecast levels with an 85-90 thousand square foot aquatic center cost reach $70-80 million.  The experience of Arlington County with its planned Long Bridge aquatic center, now on hold because of escalating costs, is a cautionary tale.  The forecast cost for the 115,000 GSF facility  in mid-2013 was $62 million ($539 per GSF), a number that shot up to $82 million ($713 per GSF) when the bids came in late last year--and operating costs escalated even more.
All this is a lesson for wary taxpayers and it may be possible that public officials may also learn from this lesson.  We certainly hope so.

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