City Hall

But Cost Overruns are Impossible!

By Erica C. Barnett January 10, 2011

Proponents of the deep-bore tunnel have argued adamantly that not only is the city not responsible for any cost overruns, but there won't be any cost overruns. The centerpiece of their argument is that the contract is a design-build contract, which holds the contractor responsible for designing and building the entire project within the project budget.

At PubliCola's forum on the tunnel last month, for example, council transportation committee chair Tom Rasmussen called design-build contracts "a very successful way of making sure that projects come in within budget." And tunnel project manager Ron Paananen, with the state department of transportation, has argued that design-bid build contracts are less likely to run into the kind of overruns and litigation that plagued tunnel team member Tutor-Perini because they hold contractors strictly responsible for keeping costs in line than traditional "low-bid" contracts.

Except, of course, when they don't. According to a report last year in the New York Observer, a design-build subway project being built in New York City by Dragados, a member of the winning deep-bore tunnel team, is now $1.77 billion over budget and five years behind schedule.  The project, originally budgeted at $6.35 billion, was supposed to be finished by 2013. The latest estimate puts the tunnel at $8.12 billion, with a completion date of 2018.

And let's not forget: Regardless of the type of contract, 90 percent of megaprojects go over budget. Remember the monorail?
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