5 ms·

Why aren't contracts to build the projects tightly written to avoid cost ballooning? When a service is to be provided at a certain cost, it should be provided

Why aren't contracts to build the projects tightly written to avoid cost ballooning? When a service is to be provided at a certain cost, it should be provided at certain cost. Some contingencies should be built in (if something gets discovered that was unexpected) but how on earth does every municipal project seem to have so much invested in budget oversight and contractors overbilling or needing overtime to make things happen. If someone is painting my house, I get a quote for the job and the date it will be completed. I don't find myself paying them more unless its for something outside of what we specified together and they quoted. Building on government contracts should be solid money but it seems like every time the taxpayer gets fleeced and the end result is barely functional/impactful.

lotsofpulp 5y ago
It is easy to say, and tough to do. Big projects have almost unlimited liability. The entities involved can get taken to court for pollution concerns, environmental concerns, get caught up in local politics. And once something is in the courts, the whole timeframe is completely up in the air. One of the places I lived had Walmart wanting to build a Walmart Supercenter, and convert their current Walmart into a Sams Club. The non Walmart grocery store (which was garbage in terms of quality and service) and a Sams Club competitor tied up Walmart in court over the status of some endangered garden snake. It was obvious nonsense, but it would have taken so long to untangle legally that Walmart said screw it and moved on.
vkk8 5y ago
This is what I'm also wondering. What is the point of making a contract in the first place if the price quoted is not binding? If the provider needs more material or manpower or whatever than expected, then it should be their fucking problem and not the clients. The possibility of unexpected stuff happening should, of course, also be taken into account in the initial price quote since the provider should be much better at estimating the probability of something happening than the client.
- g_p 5y ago
  The problem when dealing with government or public works is that the provider simply isn't better at estimating that probability, since they aren't empowered to bulldoze ahead. The contractor can accurately price in (and insure against) technical risks like the risk of accidentally striking a cable while digging, and they can mitigate this as well (looking at the quality of cable mapping data, using detectors etc.) What the contractor can't factor in is all the (local) government politics and bureaucracy. Where things fall on the financial year calendar, whether they will have to spend the money before or after April, whether they will have to pause works because a resident legally challenges the works, whether the client has even asked for the right thing, or if it will emerge while planning the work that they have made major errors etc. When dealing with a well-specified, fixed-scope piece of work, you are right - the provider should eat that. When dealing with an uninformed non-expert customer (i.e. most public sector or government contracts), nobody in their right mind would take on that risk, except some of the big government outsourcing contractors, who would all quote insane prices based on past "actual costs" after factoring in all the nonsense from previous work.
  - 7952 5y ago
    And there will be bias. The contractor will be optimistic about their own abilities and excited about the project. The client will become emotionally attached to the end goal. And everyone will underestimate the overhead of communication. Human factors apply and cannot be engineered away.
intrepidhero 5y ago
Firm fixed contracts seem like the way to go, until you try it. What happens is you get a bunch of contractors in a bidding war trying to undercut each other until the actual bid is below cost. That's not sustainable so what happens then? The winner will cut every possible corner to try to make a profit margin and read the contract in the narrowest way possible so they can hit the government with a fat change order. Quality of the product takes a nose dive and final cost still isn't controlled. On the other hand, time and materials contracts have exactly the problems you would expect. I honestly don't know how these things should be done so that taxpayers get the most value for their dollars. But I do know it's more complex than just "fixed price contracts."
- mjevans 5y ago
  Maybe have the military operate as a contractor as well and any 'profits' they'd make go towards the general federal budget? At the least it's then a bid by an open party with incentives that should be aligned to public service to compare all the other bids against.
- dymk 5y ago
  Where's the evidence that contractors will bid below-cost? Even if some do, they'll just go out of business, and the contractors who know how to do basic math will live another day.
  - notreallyserio 5y ago
    Meanwhile you end up with a bridge half-built because the cheapest contractor went bust. (I don't know if contractors bid below cost.)
    - dymk 5y ago
      Which seems like an improvement, given the current failure mode is projects get cancelled after a billion dollars are spent on them anyways. At least it was partially finished.
vkou 5y ago
> Why aren't contracts to build the projects tightly written to avoid cost ballooning? Because no legitimate construction firm will take on a project where they are saddled with 100% liability for overruns. Not without very generously padding their estimated costs, that is. Which will make them lose the initial bid. A fly-by-night operator may want to take that project, and when things go sour, they'll leave you with a half-built bridge, and an empty shell of a corporation that you won't squeeze a dollar out of.
- dsr_ 5y ago
  One alternative would be to have a public works department which does the work itself. It would hire people, plan, write specs, buy or lease equipment, buy materials, do the work. That, however, would be socialism, so it can't be done, even though it's done on a smaller scale in every US city for issues starting at road repair and going on up.
  - vkou 5y ago
    This would be a good alternative, but it has a cold-start problem. We don't build enough because building is expensive, and building is expensive because we don't build enough. When we don't build enough, a crown corporation dedicated to building is not going to have enough consistent work to justify its existence.
    - diordiderot 5y ago
      What if maintaining capability justified the existence
      - vkou 5y ago
        Then it will be axed the moment a 'small government' type gets elected.
  - cmckn 5y ago
    I think there's a real argument for the efficiency of outsourcing many aspects of public works projects. But I think you make a good point, that doing things in-house is sometimes the right move. Obviously this applies to more than turnpikes :)
tastyfreeze 5y ago
Moving away from cost-plus contract funding is something that is needed but is an enormous fight. Every government contractor loves cost-plus. Bid low on cost to get the contract then just keep amending the contract with added cost. I agree that all government contracts should be fixed bid. It is wholly the contractor's responsibility to determine if they can be profitable on the contract or not. We should not be on the hook for added cost.
- nradov 5y ago
  It's fine for most infrastructure projects to be firm fixed price (with bonus incentives for early completion or higher quality). But there are other projects for which cost plus is the only viable option. Sometimes there's so much technical risk and uncertainty that no sane contractor would even submit a fixed price bid.
PeterisP 5y ago
As the article goes into detail, a big factor of costs ballooning is that the municipalities explicitly ask for much more stuff than initially planned - as you say "unless its for something outside of what we specified together and they quoted", which is the exact thing happening in the examples provided by the article. You ask for A, get quoted $X; but if then after the public input (which, as the article states, can't be avoided or its suggestions refused, because votes and politics) you decide that you actually want A+B+C+D+E+F+G (it's not an exaggeration, it's common for the "add-ons" to require multiple times more work than the initially requested thing) then you're not getting that for $X no matter how you write the contract. If someone is painting your house and halfway through the process you discuss with your family that it needs to be a different color (redoing the already painted parts) and the kids room also needs to be painted, and oh, they should fix the porch before painting it, that's going to result in cost ballooning far above the quote.

lotsofpulp 5y ago

It is easy to say, and tough to do. Big projects have almost unlimited liability. The entities involved can get taken to court for pollution concerns, environmental concerns, get caught up in local politics. And once something is in the courts, the whole timeframe is completely up in the air. One of the places I lived had Walmart wanting to build a Walmart Supercenter, and convert their current Walmart into a Sams Club. The non Walmart grocery store (which was garbage in terms of quality and service) and a Sams Club competitor tied up Walmart in court over the status of some endangered garden snake. It was obvious nonsense, but it would have taken so long to untangle legally that Walmart said screw it and moved on.

vkk8 5y ago

This is what I'm also wondering. What is the point of making a contract in the first place if the price quoted is not binding? If the provider needs more material or manpower or whatever than expected, then it should be their fucking problem and not the clients. The possibility of unexpected stuff happening should, of course, also be taken into account in the initial price quote since the provider should be much better at estimating the probability of something happening than the client.

g_p 5y ago
The problem when dealing with government or public works is that the provider simply isn't better at estimating that probability, since they aren't empowered to bulldoze ahead. The contractor can accurately price in (and insure against) technical risks like the risk of accidentally striking a cable while digging, and they can mitigate this as well (looking at the quality of cable mapping data, using detectors etc.) What the contractor can't factor in is all the (local) government politics and bureaucracy. Where things fall on the financial year calendar, whether they will have to spend the money before or after April, whether they will have to pause works because a resident legally challenges the works, whether the client has even asked for the right thing, or if it will emerge while planning the work that they have made major errors etc. When dealing with a well-specified, fixed-scope piece of work, you are right - the provider should eat that. When dealing with an uninformed non-expert customer (i.e. most public sector or government contracts), nobody in their right mind would take on that risk, except some of the big government outsourcing contractors, who would all quote insane prices based on past "actual costs" after factoring in all the nonsense from previous work.
- 7952 5y ago
  And there will be bias. The contractor will be optimistic about their own abilities and excited about the project. The client will become emotionally attached to the end goal. And everyone will underestimate the overhead of communication. Human factors apply and cannot be engineered away.

intrepidhero 5y ago

Firm fixed contracts seem like the way to go, until you try it. What happens is you get a bunch of contractors in a bidding war trying to undercut each other until the actual bid is below cost. That's not sustainable so what happens then? The winner will cut every possible corner to try to make a profit margin and read the contract in the narrowest way possible so they can hit the government with a fat change order. Quality of the product takes a nose dive and final cost still isn't controlled. On the other hand, time and materials contracts have exactly the problems you would expect. I honestly don't know how these things should be done so that taxpayers get the most value for their dollars. But I do know it's more complex than just "fixed price contracts."

mjevans 5y ago
Maybe have the military operate as a contractor as well and any 'profits' they'd make go towards the general federal budget? At the least it's then a bid by an open party with incentives that should be aligned to public service to compare all the other bids against.
dymk 5y ago
Where's the evidence that contractors will bid below-cost? Even if some do, they'll just go out of business, and the contractors who know how to do basic math will live another day.
- notreallyserio 5y ago
  Meanwhile you end up with a bridge half-built because the cheapest contractor went bust. (I don't know if contractors bid below cost.)
  - dymk 5y ago
    Which seems like an improvement, given the current failure mode is projects get cancelled after a billion dollars are spent on them anyways. At least it was partially finished.

vkou 5y ago

> Why aren't contracts to build the projects tightly written to avoid cost ballooning? Because no legitimate construction firm will take on a project where they are saddled with 100% liability for overruns. Not without very generously padding their estimated costs, that is. Which will make them lose the initial bid. A fly-by-night operator may want to take that project, and when things go sour, they'll leave you with a half-built bridge, and an empty shell of a corporation that you won't squeeze a dollar out of.

dsr_ 5y ago
One alternative would be to have a public works department which does the work itself. It would hire people, plan, write specs, buy or lease equipment, buy materials, do the work. That, however, would be socialism, so it can't be done, even though it's done on a smaller scale in every US city for issues starting at road repair and going on up.
- vkou 5y ago
  This would be a good alternative, but it has a cold-start problem. We don't build enough because building is expensive, and building is expensive because we don't build enough. When we don't build enough, a crown corporation dedicated to building is not going to have enough consistent work to justify its existence.
  - diordiderot 5y ago
    What if maintaining capability justified the existence
    - vkou 5y ago
      Then it will be axed the moment a 'small government' type gets elected.
- cmckn 5y ago
  I think there's a real argument for the efficiency of outsourcing many aspects of public works projects. But I think you make a good point, that doing things in-house is sometimes the right move. Obviously this applies to more than turnpikes :)

tastyfreeze 5y ago

Moving away from cost-plus contract funding is something that is needed but is an enormous fight. Every government contractor loves cost-plus. Bid low on cost to get the contract then just keep amending the contract with added cost. I agree that all government contracts should be fixed bid. It is wholly the contractor's responsibility to determine if they can be profitable on the contract or not. We should not be on the hook for added cost.

nradov 5y ago
It's fine for most infrastructure projects to be firm fixed price (with bonus incentives for early completion or higher quality). But there are other projects for which cost plus is the only viable option. Sometimes there's so much technical risk and uncertainty that no sane contractor would even submit a fixed price bid.

PeterisP 5y ago

As the article goes into detail, a big factor of costs ballooning is that the municipalities explicitly ask for much more stuff than initially planned - as you say "unless its for something outside of what we specified together and they quoted", which is the exact thing happening in the examples provided by the article. You ask for A, get quoted $X; but if then after the public input (which, as the article states, can't be avoided or its suggestions refused, because votes and politics) you decide that you actually want A+B+C+D+E+F+G (it's not an exaggeration, it's common for the "add-ons" to require multiple times more work than the initially requested thing) then you're not getting that for $X no matter how you write the contract. If someone is painting your house and halfway through the process you discuss with your family that it needs to be a different color (redoing the already painted parts) and the kids room also needs to be painted, and oh, they should fix the porch before painting it, that's going to result in cost ballooning far above the quote.