Budgets Off Track and Out of This World

New York City accountants recently discovered that project budgets for a new train platform were seven times more expensive than comparative projects in similar cities worldwide. The New York project had 200 extra heads, not working, but apparently being paid $1,000.00 per day.

How does a project get approved with this much excess cost? According to Times researchers, labor unions were politically connected, and construction companies and consulting firms alike were amassing large profits while public officials stood by. Unions and construction companies defend their costs saying that this is dangerous work that must be well compensated.

Skyrocketing Consulting Costs

Metropolitan Transportation Authority (M.T.A.) runs transit in New York. Times statistics indicate that consulting firms, which have hired away many employees of M.T.A., have also persuaded the authority to spend an unusual amount of money on design and management.

Construction costs in New York are not set or managed by the authority. Worker wages and labor conditions are determined through negotiations between the unions and the construction companies, none of whom have any incentive to control costs. Additionally, the transit authority has made no attempt to intervene to contain the spending.

Officials have also added to “soft costs” by struggling to coordinate between vendors, taking a long time to approve plans, insisting on extravagant station designs, and changing their minds midway through projects. In 2010, they hired a team of three consultants to work full time on East Side Access “operational readiness” — getting the tunnel ready to open — even though contractors knew construction would not end for another decade. Some project managers report getting stacks and stacks of designs and recommendations from consultants including details that barely made sense to justify expenditure.

Leaders from M.T.A. have acknowledged there are parts of the authority’s project management approach that have been “broken” and “self-defeating.”

Lack of Competition

Times research cited lack of competition as an issue, also. Their analysis of roughly 150 contracts worth more than $10 million that the authority has signed in the past five years found the average project received just 3.5 bids. Other similar cities get eight bids for projects. These limited number of bids allow New York construction firms to inflate prices.

One of New York’s most important contracts in recent years, the one for the construction of the Second Avenue tunnel, got just two bids. Initially, M.T.A. engineers had estimated the contract would cost $290 million, but both bids came in well above $300 million, and the authority did not have much leverage. Ultimately, it awarded the deal for about $350 million — 20 percent above its estimate.

To get the full article, click this New York Times link.

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