Matti Siemiatycki is associate professor in the department of geography and planning at the University of Toronto.
Over the next few months, the federal government will embark on the largest program of sustained infrastructure spending in a generation. This is good news for communities across Canada. When the right projects are selected, infrastructure delivers solid returns on investment. It creates jobs, supports economic growth and productivity, improves the environment, and enhances social inclusion.
However, as project spending ramps up, Ottawa and its provincial and municipal partners in these efforts must take measures to avoid a chronic problem that plagues infrastructure projects the world over: cost overruns.
Many projects blow through their budgets by tens or even hundreds of millions of dollars (think the Spadina subway extension in Toronto, extension of the Montreal Métro to Laval, the BC Place Stadium roof replacement in Vancouver).
This problem is not unique to Canada. New research by Bent Flyvbjerg at Oxford University documents that cost overruns are a global epidemic on large infrastructure projects. For transportation, a sector that Ottawa has identified as a priority, Prof. Flyvbjerg's sweeping international study found that cost overruns occurred on nine out of 10 megaprojects. The average cost was 28-per-cent higher than predicted; rail and transit projects had the largest overruns, with costs escalating by an average of 45 per cent. Prof. Flyvbjerg's studies show that large cost overruns also plague energy and information-technology megaprojects.
Cost overruns are problematic because they hit tight government budgets and draw money from other priority projects. They also undermine public confidence in the ability of government to manage taxpayer dollars, putting at risk support for further investment in much-needed infrastructure.
What are the causes and cures for such construction cost overruns? Technical reasons include frequent scope changes and change orders, difficulties co-ordinating work between multiple contractors, unexpected site conditions, and rising material and labour costs.
It might be expected that project budgeting would improve over time as managers gain more experience and learn from past mistakes. This hasn't been the case. Rather, the tendency to be optimistic about future outcomes leads forecasters to consistently underestimate the cost of completing a project. And project promoters may deliberately underestimate the initial costs of their projects to gain approval, knowing that, once started, few projects are cancelled even as costs soar.
Here are five solutions for infrastructure cost overruns:
First, project managers should apply the data-analytic tools that have revolutionized professional sports and business to better monitor project performance and report on cost overruns.
Second, with more rigorous performance measurement, governments can design procurement systems that reward the best-performing companies and contractors to ensure more predictable outcomes.
Third, staff overseeing megaprojects must be better trained in the most current management skills, including contract management and dispute resolution.
Fourth, data about previous projects can be used to inform more precise cost forecasting.
Fifth, public-private partnerships that bundle facility design, construction and project financing into a single contract can make it easier for governments to control costs and deadlines.
Although some governments already use these approaches, there are barriers to their widespread adoption. Skills training, improved data collection, and employing advanced forecasting technologies have significant upfront costs. And powerful parties involved in project delivery might push back against measures that clarify the frequency and magnitude of cost overruns and seek to enhance accountability for project failures.
But the intense news media coverage and public outcry about failures in project management show that the inertia about accepting cost overruns is changing. As the federal government gets set to allocate billions of dollars for infrastructure spending in coming years, it is must take steps to ensure that every dollar is well spent.
Matti Siemiatycki is the author of Cost Overruns on Infrastructure Projects: Patterns, Causes, and Cures, for the Institute on Municipal Finance and Governance.