Project Delivery and Overengineering are the Same Problem

Project Delivery and Overengineering are the Same Problem

I have not been posting much lately. The proximate reason is that I spent most of October finalizing with Borners the text of the London construction costs report; there’s still another round of edits but they’re quite small. I don’t want to preview the argument in the report yet, but I do want to talk about one thing that jumped to me while looking at the cost history of London. In New York, we broke down the cost premium into three components, each stacking on the others: labor (primarily overstaffing) raised overall costs by a factor of 1.5, project delivery problems by a factor of a bit more than 2, overdesign of systems and stations combined to a factor of almost 3. Ever since then, almost four years ago, we have tried tackling procurement and poor design separately, having some successes on the latter while nothing has gotten better and much has gotten worse on the former. But what’s emerging out of what we’re seeing in London is that really, the procurement and design premiums are the same problem.

To be clear, “the same problem” should not be taken literally. Stations can be designed to be twice as large as they need to be even under a system of solid project delivery, and vice versa. However, their causes are deeply intertwined, and historically, in London (but not New York), they emerged at the same time.

New York’s cost history is unique, in the sense that high New York costs go back to the IND era of the 1930s. Already then, there was a cost premium of a factor of about 4 over London and Paris. The cost premium over Paris has further increased then, though that over London has not, London itself having a rapid increase in costs starting in the 1990s. The IND’s project delivery did not to our knowledge have any special problems, but it was severely overdesigned, with full-length mezzanines, underground flying junctions, and wide curves under streets requiring demolishing corner buildings; Sixth Avenue Line was particularly expensive as it had to be built around and under PATH and carve a new avenue through the already gentrifying Greenwich Village.

But elsewhere in the Anglosphere, even to some extent in the United States, costs exploded later. British costs were lower than Continental European costs in the era of the Victoria and Jubilee lines, and Canadian costs were similarly low. And in the UK and as far as we can tell also in Canada, the procurement and design cost premiums increased at the same time. The Jubilee line extension was already showing the procurement problems and frictions that would later come to a head on Crossrail, and also had if anything even more oversize stations than Crossrail relative to train size. Then at Crossrail, both of the problems that we thought separate were fully exhibited. On the project delivery side, there were extreme contingencies (all used up), premiums due to different parts of the project not talking to each other, and general issues with fragmentation. And on the design side, the station dig volumes were enormous: the central Crossrail stations excavated 150,000-200,000 cubic meters each, compared with 85,000 for Odenplan on Citybanan, serving trains only 10% shorter than the eventual plan for the Elizabeth line.

Some of this can be readily explained by the same causes. Crossrail, like the American projects for which we have data, has an atypically high share of systems costs relative to civils. Normally the ratio of systems to civils, in France, Italy, and Sweden, is around 1:2.5; Second Avenue Subway and Crossrail were both nearly 1:1. In London, there was an obvious problem of difficult systems integration, as different project requirements set by different organizations that didn’t talk to one another enough and didn’t prioritize value engineering forced ever more expensive solutions. The same problem of fragmentation and lack of coordination also leads to project delivery issues, as there is insufficient supervision of the contracts, which are increasingly obscured behind design-build mechanisms.

But station sizing is harder to explain except through a push and pull among different organizations that want their own requirements. London and New York both have the same topline results of stations being too large (though this is less true in New York going forward than it was for Second Avenue Subway Phase 1), but the exact set of departments and requirements varies – New York had a problem with back office space for different departments, London likes to excavate big digs for architectural purposes so while the stations are equally overpriced they at least look somewhat nice.

(You may wonder what about labor. The answer is that we never tried to seriously tackle it. It’s an extremely localized problem to the Northeastern United States, and even California, otherwise fully New Yorkized in its costs relative to urban construction difficulties, doesn’t have it.)

One cause for pessimism here is that evidently, while we did manage to pressure New York into saving some money on Second Avenue Subway Phase 2, the savings did not stick with the 125th Street subway proposal, which costs twice as much, makes the procurement problems worse by doubling down on design-build and similar privatization of project delivery (design-build being particularly important to MTA President Janno Lieber), and swaps the overly long station digs of Phase 1 for overly deep ones instead without resolving the underlying problem.