How a pipeline project, purchased by the Trudeau government, went from an initial estimate of $5.4 billion to $30.9 billion, potentially leaving Canadian taxpayers on the hook.
How a pipeline project, purchased by the Trudeau government, went from an initial estimate of $5.4 billion to $30.9 billion, potentially leaving Canadian taxpayers on the hook.
Performance data for megaprojects speak their own language. Nine out of ten such projects have cost overruns. Overruns of up to 50 percent in real terms are common, over 50 percent not uncommon. Cost overrun for the Channel Tunnel, the longest underwater rail tunnel in Europe, connecting the UK and France, was 80 percent in real terms. For Boston’s Big Dig, 220 percent. The Sydney Opera House, 1,400 percent. Similarly, benefit shortfalls of up to 50 percent are also common, and above 50 percent not uncommon.
One may argue, of course, as was famously done by Albert Hirschman, that if people knew in advance the real costs and challenges involved in delivering a large project, nothing would ever get built — so it is better not to know, because ignorance helps get projects started. A particularly candid articulation of the nothing‐would‐ever‐get‐built argument came from former California State Assembly speaker and mayor of San Francisco Willie Brown, discussing a large cost overrun on the San Francisco Transbay Terminal megaproject in his San Francisco Chronicle column:
News that the Transbay Terminal is something like $300 million over budget should not come as a shock to anyone. We always knew the initial estimate was way under the real cost. Just like we never had a real cost for the [San Francisco] Central Subway or the [San Francisco‐Oakland] Bay Bridge or any other massive construction project. So get off it. In the world of civic projects, the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in [emphasis added].
Rarely has the tactical use by project advocates of cost underestimation, sunk costs, and lock‐in to get projects started been expressed by an insider more plainly, if somewhat cynically.
Maybe there needs to be the introduction of new mechanisms to deal with assessing the cost of very large projects.
It’s not possible. This is a function of the complexity of big projects, not some nefarious politicking. That is even if you completely remove any politicking out of the equation, large complex projects will still be grossly misestimated, likely on the lower side. Also I would discount anything coming from CATO.
What will the budget overrun be to establish that new mechanism?
Standard practice already dictates that you double the estimate, and then double it again. Aside from the Opera House, there are no real surprises in the examples given. 90% accuracy is good enough, no? Cost starts to outweigh the benefit if you want to reach for 100%.
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https://www.cato.org/policy-report/january/february-2017/megaprojects-over-budget-over-time-over-over#
Maybe there needs to be the introduction of new mechanisms to deal with assessing the cost of very large projects.
It’s not possible. This is a function of the complexity of big projects, not some nefarious politicking. That is even if you completely remove any politicking out of the equation, large complex projects will still be grossly misestimated, likely on the lower side. Also I would discount anything coming from CATO.
What will the budget overrun be to establish that new mechanism?
Standard practice already dictates that you double the estimate, and then double it again. Aside from the Opera House, there are no real surprises in the examples given. 90% accuracy is good enough, no? Cost starts to outweigh the benefit if you want to reach for 100%.