27
Sep

2011

Should It Be?

Post by Steven Dale

A strange thing happened during yesterday’s discussion of the spiralling costs of the London Thames Cable Car:

Like any time before when the topic of urban versus resort installations comes up, the de facto response is: Well, duh, of course it’s more expensive to build in cities and for government.

You’ve said it. I’ve said it. We’ve all said it. We’ll probably be saying it tomorrow.

But the question is this: Should it be?

We have no shortage of examples of tourist-oriented systems built in urban areas. Those systems are always more reasonably-priced than their transit-oriented brethren. And yet they both share the common variable of still being located in urban areas.

Why does the addition of a layer or two of bureaucracy justify an orders-of-magnitude extremely excessive cost increase for a product whose only real difference is said layer or two of bureaucracy?

Maybe that’s an incredibly naive question to ask. Maybe. But it’s also a question that needs to be asked.



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Economics / Thoughts
11
Comments

Comments

  1. LX
    September 27, 2011 – 12:48 pm
    Why does the addition of a layer of two of bureaucracy justify an orders-of-magnitude cost increase for a product whose only real difference is said layer or two of bureaucracy? I have my difficulties understanding this sentence (not my mother language). Could someone help me out describing or translating?
  2. Matt the Engineer
    September 27, 2011 – 1:51 pm
    Try this: Why does building a gondola in a city* by a government** multiply the cost by over 100***? * I assume he means conforming to the regulations that exist in a city, which would make this the first layer of bureaucracy ** This is the second layer of bureaucracy *** Each "order of magnitude" is 10^1. So increasing a $5 bill by an order of magnitude would make it a $50 bill. Increasing a $5 bill by two orders of magnitude would make it a $500 bill. Saying "orders of magnitude" implies at least multiplying by 100.
  3. Matt the Engineer
    September 27, 2011 – 2:17 pm
    I have some thoughts about this. First, architects. I have a feeling that mountain gondolas are designed mostly by engineers. Engineers put function high, high over form. In fact, let's just assume engineers don't consider form at all. Towers are steel poles designed with a minimum of material to meet strength requirements, built from standard steel tube material. Stations are off-the-shelf if possible, set on a minimum of ground work. Translation: everything is done to minimize cost without sacrificing function. Now a city gondola is probably designed mostly by architects. Generally, archictest are form over function. That boring metal stick we call a tower? We need to sheath it in a custom steel web, have it gently curve as it reaches toward the sky, and surround those ugly wheels with some smooth aluminum. And that's just a tower - the stations are custom buildings. Don't get me wrong, I appreciate form. I'd much rather live in a beautiful house, work in a beautiful building, and have beautiful smooth gondola bubbles flying past my window. But form is expensive. Curved, high-end materials are expensive. Materials that aren't just bolted together, but welded and formed, are expensive. Put an engineer in charge of a city project and it will look just like a mountain project. And probably cost around as much (well, increasing for the cost of land and increased city labor rates).
  4. Matt the Engineer
    September 27, 2011 – 2:45 pm
    Next, government: I actually work for a government, on capital-intensive projects. Compared to the private world our costs can be between 10% and 100% higher. I'd say on average the projects I've seen are closer to 20% higher than the private world. The main factors I see contributing to this are: 1. Higher standards. We make sure laborers are paid well, union rules are followed, equipment is efficient, etc. This factor applies to about every project. 2. Protectionism. In the US we have the "Buy American Act", which pushes us strongly toward American products. This strongly reduces competition, which drives up prices. This is the factor that leads to the 100% increase I mentioned. Overall, from my experience I wouldn't expect close to an order of magnitude increase just because it's a government project.
  5. Steven Dale
    September 27, 2011 – 2:55 pm
    My apologies entirely. I misused the term "orders of magnitude" completely. I've changed the post to reflect the fact.
  6. Matt the Engineer
    September 27, 2011 – 3:22 pm
    Finally, regulation: Permitting costs money. You're going to need to spend time and effort in design understanding regulations and complying with them, then more time and money having an inspector review your drawings and your construction. However, these costs are fairly small. RS Means 2011 lists between 0.5% and 2% of construction costs can be attributed to permitting. Location costs can be an issue. Just constructing something in a city can be expensive. Again, looking at RS Means, I'll compare NYC to somewhere in rurual New York. The difference is about 41%. That's huge. But not order-of-magnitude huge. How about the land you're building on itself? For a ski lift, you already own the land and it was probably cheap in the first place. On the Thames in London, land has to be a fortune. This might be a significant cost.
  7. Matt the Engineer
    September 27, 2011 – 3:24 pm
    I thought that was high. Thanks for the correction. [LX] Try this instead: Why does building a gondola in a city by a government excessively increase the cost?
  8. Sean
    September 27, 2011 – 10:21 pm
    I'm in agreement with Matt on all counts. And from my limited knowledge of the London project I think he has gone a long way towards understanding why this particular project has such a hefty price tag.
  9. LX
    September 28, 2011 – 4:19 am
    Well yes. That is all right. But starting at 25 million (privately funded) and then ending up at 60... and in the end it will be more than 300% -> more than 75 million. That planning behaviour seems to become the new chic - globally. Unfortunately governments are allowed to behave this way. As in case for London. 25 Million seemed incredibly cheap (just compare with the Koblenz Rheinseilbahn). The Rheinseilbahn also was planned to be temporary, revolutionary in design and as we heard the installation was planned for another place that was cancelled. I really would love to see the official cost sheets for the Thames Cable Car. But as you remember at first there was just the link between the two banks and the announcement of 25 mio. Afterwards there were first renderings of the stations, then of the towers -> cost increase to 40. Now that the tower design is "final" and probably (all) costs for the whole design (towers, station, cars) are calculable it went up to 60.
  10. Steven Dale
    September 28, 2011 – 5:40 am
    True, but there's no protectionism going on here. The simple reality is if you're buying a gondola system, you're buying from one of two suppliers, neither of which manufacture in England. I'm not arguing that government-procured projects won't be higher-priced; that's a given. 20-100% seems pretty standard to me. But a system such as this really shouldn't cost more than $20-40m USD. To see it come in at a price point 200-500% higher than it should be smacks of a problem.
  11. Steven Dale
    September 28, 2011 – 5:42 am
    I think the real crime here is that funds for rails are being used to build this, yet there's been no comment on whether London commuters will be able to transfer between it and the other transit in the area free of charge.

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