Highway Cost Overruns

Numerous state highway programs have suffered cost overruns, say the Gannett papers (which include USA Today). What’s striking from the story, however, is how small and rare the cost overruns really are.

The papers found overruns in 19 states, but they focused on projects that actually had overruns and did not reveal how many projects had no overruns. Of the overruns they found, many were less than 2 percent, most were less than 5 percent, and only three–in New Jersey, New York, and Ohio–were more than 10 percent. The unweighted average was around 7 percent. Since Gannett did not discuss any projects that had zero overruns, the real average must be much less.

This contrasts sharply with rail transit cost overruns, which have steadily averaged around 40 percent. Nearly 10 years ago, Bent Flyvbjerg reported that transit cost overruns in the United States averaged 41 percent while highway overruns averaged 8 percent. More recent research has found similar rail overruns, but the Gannett analysis suggests that highway overruns remain well under 10 percent.

Why would rail overruns be so much greater than highway overruns? The most important answer is that highways are largely paid for out of user fees, and decisions are made by professional engineers overseen by appointed commissions. Rail projects are largely paid for out of taxes and decisions are made by politicians and, sometimes, voters who must be persuaded that the projects are reasonable. It would make sense for rail advocates to underestimate costs until they sell their ideas, then–after the decision has been made–suddenly “discover” higher costs.

The Gennett papers, and highway critics in general, often point to Boston’s Big Dig as an example of an outrageous highway cost overrun. But the Big Dig was not really a highway project; it was a city beautification project. The goal was not to expand highway capacity but to turn an elevated highway into a tunneled highway. Since the Federal Highway Administration would not pay for a city beautification project, the politicians–led by Tip O’Neill–had to step in, which meant the project had to be sold politically. (To placate the FHwA, the project ended up including a small capacity increase.) Perhaps not coincidentally, the original project cost estimate was made by Parsons Brinckerhoff, the company also responsible for many rail cost underestimates.

“Transportation costs too much,” argues a blogger who calls himself The Transportationist, which I suppose isn’t any more ridiculous than calling yourself the Antiplanner. The Transportationist lists several good reasons why transportation costs too much, including the fact that–despite spending hundreds of millions of dollars on transportation planning–no one really does benefit-cost analyses. But he misses the point about user fees: projects funded out of user fees are more likely to be efficient, partly because the agencies or private parties receiving those fees know the fees are limited and partly because they want to spend them in ways that will generate more fees (which means in ways that benefit users enough that the users are willing to pay for them).

Share

9 thoughts on “Highway Cost Overruns

  1. Adam

    Why are you not comparing projects of similar scale? The HIGHEST listed cost for any project in the Gannett survey (not “anaylsis”, since there were no formal inclusion criteria and no attempt to be comprehensive) was under $100 million, and many if not most were under $50 million. The AVERAGE cost of the rail projects reviewed in the Dantata paper was $809 million. Many of the highway projects were stimulus-funded or of a scale that they were clearly completed within a year or two. The average project length for the rail projects was right around a decade, with several projects running more than two.

    Yet you discount the cost-overruns on the Big Dig, the only project you mention in your post that is of the same size, duration, and scale as the rail projects cited.

    Perhaps it would be more helpful if the Antiplanner would compare apples to apples, instead of dreaming up unrelated and undocumented reason like user fees to explain the differences among projects that clearly were not similar to begin with.

  2. C. P. Zilliacus

    The Antiplanner wrote:

    “Transportation costs too much,” argues a blogger who calls himself The Transportationist, which I suppose isn’t any more ridiculous than calling yourself the Antiplanner.

    Full disclosure – I know David Levinson, a/k/a The Transportationist, somewhat personally.

    Funny, I know The Antiplanner as well.

    The Transportationist lists several good reasons why transportation costs too much, including the fact that–despite spending hundreds of millions of dollars on transportation planning–no one really does benefit-cost analyses.

    However, planning is not going away, and indeed, travel demand forecasting is an absolute prerequisite for any project that involves user fees.

    But returning, as I have before, to Maryland’s Route 200 (InterCounty Connector) toll road, it’s fair to ask why state and federal taxpayers had to fund three major (and expensive) studies of the highway (once in the late 1970’s and early 1980’s, once in the 1990’s and again in the middle part of the 2000’s) before reaching a record of decision. Certainly elected officials (including more than a few elected officials who were opposed to building the project) deserve some of the blame, as did federal environmental regulators, at least some of which were hell-bent on getting the project cancelled any way that they could.

    But he misses the point about user fees: projects funded out of user fees are more likely to be efficient, partly because the agencies or private parties receiving those fees know the fees are limited and partly because they want to spend them in ways that will generate more fees (which means in ways that benefit users enough that the users are willing to pay for them).

    User-fee funded highway projects don’t seem to have the disregard for cost that we have frequently observed in rail transit projects (and ably documented by Bent Flyvbjerg) – perhaps because so many people (including those elected officials) regard rail transit projects as somehow “moral,” which means that the costs of building and operating them somehow don’t matter.

    The construction budget for Md. Route 200 was set at about $2.4 billion dollars in 2006. As delivered in 2011 (with the easternmost mile still to be constructed, to be completed in about 2014), the project has come in at about $2.5 billion.

    Did the influence of bondholders (who have funded over half the construction cost by purchasing Maryland Transportation Authority revenue bonds) have anything to do with the project coming in reasonably on-budget?

    Or was it just good, honest initial estimates of costs, combined with skilled construction project management?

    I don’t know the answer to those questions.

  3. Sandy Teal

    Adam raises some good points that the projects are not great comparisons.

    I think one difference between projects that have huge overruns and those that do not is that large aspirational/symbolic projects, like light rail and the Big Dig, are more likely to have huge overruns. The goals of the aspirational projects are more towards achieving an aesthetic end and project managers often choose higher cost solutions to problems that develop along the way.

  4. FrancisKing

    Highwayman wrote:

    “CPZ, rail lines have to go through all sorts of red tape & deal with NIMBYs too.”

    In your opinion, highwayman, is there likely to be more or fewer NIMBYs with a road project (8 lane highway) than a rail project (2 lanes of track)?

  5. FrancisKing

    At the cost of making Antiplanner irretrievably jealous, I’ve read the Transportationist blog which he identified, and I can agree with a large part of it.

    “My favorite example is the bus stop sign which says “bus stop”. While this is better than no bus stop sign, or one that said “Buses Don’t Stop Here”, it is still quite uninformative, it doesn’t say which bus stops here, when it stops, where it is going, what is the frequency, when it operates. Why don’t we have better bus service operations? In part because the scarce resources that could be devoted to that are instead spent on expensive new capital investments that serve a much smaller fraction of the population.”

    That pretty much hits the nail on the head. Why is it that we end up with cheap and nasty buses, and gold-plated light rail. What’s wrong with a properly designed bus system?

    “Signalized intersections (~$175K),”

    What is becoming increasing embarrassing is that (at least reasonably small) signalised junctions work better with the lights switched off/covered with a bag…

  6. jwetmore

    I am a regular reader of The Transportationist and recommend the blog readers of The Antiplanner. Be sure to look up his recent post on the Deconstruction of Busytown for a chuckle. His serious work on Access to Destinations is worthy of study also.

  7. Andrew

    While echoing Adams points about project size and duration, let me also ask the question at what point in time is the estimate being frozen to provide a comparison?

    This matters a great deal.

    Sometimes projects change during preliminary or final design, and they definitely run into changes during construction. We typically attempt to account for construction related changes with contingency in the budget, but if the perfect storm of wrong things happen, the contingency can just be blown away by events.

    Example: on one project I worked on, it was necessary to terminate one of the General Contractor’s for non-performance. The other four General Contractor’s were great, and brought their segments in on time and on budget. But because of this clown we fired, his portion of the project was delayed by 4 years, and the cost of that portion more than doubled as we were now over a barrel with respect to bringing in a new contractor and were not able to secure favorable bid prices on the rebid.

    The impact of inflation is also a huge deal on cost, as escalation at certain times has utterly destroyed construction budgets due top unfavorable and unexpected changes in material and labor prices. If you are comparing projects, they need to be over the same general time frame to make this a wash. In recent times, for example, any project that was bid around 2003 suffered big escalation costs in 2004-2006 in steel, concrete, and oil related purchases.

    Another difference is that many highwayprojects are reconstructions and expansions of existing infrastructure,while most railprojects are new systems or extensions of existing systems on new lines. Reconstruction faces different challenges to expansion, for example land acquisition related issues, and requirements from staging.

    A final difference is locational. Urban areas are more difficult to build in and present more unknowns than building in farmland. Unknown logisitic and underground issues are far more likely in urban areas, and these tend to drive up project costs and cause claims and change orders

    I think if you are going to fairly compare highway and rail projects, the projects need to be of similar type, magnitude and duration, and you need to be clear at what point you are claiming the project cost to be frozen.

    One final thought. Try as we might, sometimes the bidders come in with highbidsthat blow away the estimate,and other times they are so tight that Ihavehad bids come in 50% under budget! You also have contractors who are known to be claim oriented firms, and others who are not. You really never know what you are going to get until you open the envelopes and start seeing whatis uncovered when you put shovels in the ground.

  8. Andrew

    Another couple of thoughts.

    Only a planner would assume that just because you estimate something ahead of the bid that this is what the actual price and duration of the project will be. People with no experience in construction don’t have any business casting aspersions on the work of construction managers trying to bring projects in on time and budget. You literally have no idea what you are talking about until you work in the business for a few years on several different projects and with several different clients and contractors. Projects that are a disaster with one client or contractor might be a dream with a different client or contractor and with no change in the design! Estimates do not account for the vagaries of human nature and behavior in politically, legally, and financially charged environments.

Leave a Reply