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
Most public projects are low bid – the participating bidders don’t know what everyone else is bidding, lowest bid wins. In that setting the contractor bids can be wildly different from each other, sometimes an order of magnitude.
Estimates try to predict what that low bid will be, but it’s very difficult when even the people trying to win the job are pricing things that different from each other.
Some items – like paving a road- are commodities and are very easy to get close based on the quantity of yards, tons, etc.
Others, like a unique building or some work that could be done using specialty equipment are really hard to guess what the contractor plans to do.
Finally, timing is everything. Sometimes a contractor already doing a job down the street could save money mobilizing. Maybe the contractors in the area that do the type of work are all busy and would only take the job at a premium. And maybe the permits for the project took longer than anticipated and the project costs another year of inflation in prices.
TLDR it’s not easy
Source – engineer that is responsible for estimates and public bids
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