Eli5: why are estimated budgets for big construction projects always wrong and end up spending more than expected? Why can’t we get better at these estimates?
In: Economics
Every such project is a one-off and in the US, at least, governments are loath to undertake any kind of large public works project. How many times was Boston’s “Big Dig” built? Once, of course. It was a really fantastic idea that, before it was even halfway built, became a particularly egregious example of poor management, lack of long-term thinking, incompetence in both government and the private sector, and corruption. It will be on anyone’s mind for generations whenever a big public project is proposed, and that alone will prevent a lot of projects from getting off the ground. As a result, any lessons that could be learned are likely to be forgotten by the time anyone else decides to bury a freeway under a major US city.
New York’s Second Avenue Subway is another good example in certain different ways. A major driving factor there is that it’s been almost a century since any significant subway construction was undertaken in New York City. As a result, there were no experienced contractors to bid on most major aspects of the project, and so it’s not a big surprise that bids turned out to be nonsense. Even if records from the 1930s were perfect, today’s construction has many more requirements for health and safety; there’s more stuff buried underneath the city than back then; and the customer wants a nicer finished product.
A final major factor is political. Let’s say today’s administration has a Big Idea for a public works project. Step One is to convince the voters that the project is a good idea and get funding. This may happen before today’s administration gets voted out. If not, the project probably doesn’t happen. In the event that the new administration takes up the Big Idea (or in the event that some outside force makes the project a must-have), Step Two is putting together an RFP and getting bids. Again, it could take until everyone involved is out of a job, and then the project probably dies. In the increasingly unlikely event of Step Three, the least realistic bid is accepted, and the project begins. By now, it’s years later and the project requirements are guaranteed to have changed: increased population needs increased capacity; the big airlines merged and now the airport serves 40% fewer passengers and doesn’t need that runway; the FAA changes regulations and now there’s a need for TWO new runways. Could be any number of things that have made the Big Idea almost unrecognizable, and all the bids are now bullshit, but if you try to start over at Step One, then literally nothing will EVER get done. The best option is to soldier on and suck it up on the cost overruns and hope you’re either out of office before word gets out, or hope you come into office at the right time to shit on the last guy and pretend to “right the ship.” Everyone who’s else, who’s NOT the face of the administration, has a really bad taste in their mouth and will work to discourage any future Big Ideas.
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