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
Because our system does not allow it.
Politicians announce that they will build a new…..(school, airport, bridge, whatever) none of them have ever worked a real job and know what things cost. None of them have to actually pay from their pocket the money for the project, all they care about is getting reelected. They make a big announcement that they will build X.
Government puts out a tender, which is them saying they want a Company to build something for an amount of money. Private companies bid on the project fully aware that the government people are incompetent.
The project gets halfway done, and the company starts demanding more money to finish it knowing that the government will cave in to their demands. The government promised, and was reelected on the promise of a new X. The company knows this going in. All the suppliers and trade unions know this and use the situation to make demands of their own.
The individuals in the government are not held personally accountable for the dollars they control. That is why large projects costs spiral out of control.
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