We're up to Brief Note #3 from William Grindley. It's about cost-overruns. The leading expert on analysis of under-estimating construction costs and then watching them multiply is our friend from Oxford, Prof. Bent Flyvbjerg. He and his team have studied myriad rail projects around the world and discovered a remarkably consistent pattern. They always begin with low-ball cost projections in order to sucker us all in to support this project, only once we are committed, to watch the price multiply.
New Bay Bridge in San Francisco? From $2 to over $6 billion and counting. But, the most flagrant is the Boston Big Dig. Also began at around $2 billion, and today's numbers are around $22 billion. The the legal issues still aren't resolved. The unexpectedly high cost over-runs for the British-French 'Chunnel' required restructuring loans a number of times and it's still not resolved.
The CHSRA advertised themselves with the promise to the voters that it would cost $33 billion, everything included. Now, three years later, they admit to over $45 and other people who have used the rail authority's own numbers and done all the arithmetic, are talking $66 billion. It is a safe bet that once construction costs begin, it will skyrocket to over $100 billion.
Is that a problem? No, not if you have $100 billion. Unfortunately, the US Government and the California Government are very deeply in debt. Which is to say, there is no way that funding can be found, generated or borrowed to build this train.
There's barely enough in hand right now for the CHSRA to start it; and start it they are determined to do. Why? Because it's not about building a rail system. It's about getting and spending dollars. This project will be the largest pork-barrel ever seen in the US. We have no idea what "waste, fraud and abuse" really mean until we watch this project unfold. The lead construction company for the Boston Big Dig was Parsons Brinckerhoff. These are the same folk who will now go through your pocket books for high-speed rail in California.
ON COST OVERRUNS WHILE BUILDING MEGAPROJECTS
Brief Note #3 – June 6th 2011
From the authors of The Financial Risks Of California’s Proposed High-Speed Rail Project and six Briefing Papers. Available at http://www.cc-hsr.org/
Finding: Megaprojects overrun their original capital cost estimates.
Background: A 2003 study of more than 200 large-scale transport projects showed the average cost overrun to be 45%. Some examples: The Channel tunnel was 80% over original estimates and bankrupted the private companies that were to be its operators”1
Germany’s Inter-City Express (ICE) between Cologne and Frankfurt construction costs were 85% higher while the cost to build the Nuremberg-Munich link of ICE were 42% higher.2
Boston’s Big Dig, managed by the same Parsons Brinckerhoff presently employed by the CHSRA, cost more than three times its original estimate.
A DOT study concluded the median of total cost overruns for ten rail projects was 61%, ranging from -10% to +106%.3
The yet-unfinished Oakland Bay Bridge is now more than five times its original estimate.
Recent findings from the Authority’s own alternative analysis data suggests a steep rise in estimated costs – from $33Billion in 2008 to $43Billion in 2009 to a presently estimated $66Billion price tag for the LA-SF Phase One, a one-year increase of about 60%.4 The May 2011 LAO report came to a similar conclusion.5
Conclusions: Two years after Prop1A and two years before construction in the relatively-easy-to-build-in Central Valley, construction costs are already twice the 2008 estimate and more than half again as large as 2009. The construction costs of the project are only likely to escalate further; ultimately raising ticket prices in order to service the State’s debt exposure in what was claimed to be a system paid for by its users.6
The State needs to be indemnified from faulty cost estimates and should demand a financially guaranteed, fixed price construction contract before proceeding further.
1. Op.cit Flyvbjerg, Bent; Bruzelius, Nils and Rothengatter, Werner: Megaprojects And Risk, An Anatomy of Ambition; Cambridge University Press, 2003; pg. 12
2. Ibid pg. 40-41
3. Pickrell, Don: Urban Rail Transit Projects: Forecast Versus Actual Ridership and Costs (Washington, DC: US Department of Transportation, Urban Mass Transportation Administration, 1990).
4. See Californians Advocating Responsible Rail Design (CARRD) – Capital Cost Estimate; February 2011 at http://www.calhsr.com/uncategorized/what-will-high-speed-rail-cost/ and Big Trouble For California’s High-Speed Train at http://www.cc-hsr.org/
5. High-Speed Rail Is at a Critical Juncture, Mac Taylor, Legislative Analyst, May 10, 2011; pg. 12
6. The Official Voter Information Guide of the Tuesday, November 4, 2008 California General Election: http://www.voterguide.sos.ca.gov/past/2008/general/argu-rebut/argu-rebutt1a.htm