Cronyism on an Industrial Scale to Blame for Inflated New York Subway Costs


Just before year end, the New York Times dropped a bombshell report on what they term “the most expensive mile of subway on earth.”

An extensive investigation by the Times finally starts to get at the heart of why construction costs on the New York subway are vastly higher than anywhere else in the world.

The inescapable conclusion is that a major culprit is industrial scale cronyism (or featherbedding, or corruption, or whatever you want to call it) infecting nearly every aspect of the system: employees, contractors, and consultants:

Trade unions, which have closely aligned themselves with Gov. Andrew M. Cuomo and other politicians, have secured deals requiring underground construction work to be staffed by as many as four times more laborers than elsewhere in the world, documents show.

Construction companies, which have given millions of dollars in campaign donations in recent years, have increased their projected costs by up to 50 percent when bidding for work from the M.T.A., contractors say.

Consulting firms, which have hired away scores of M.T.A. employees, have persuaded the authority to spend an unusual amount on design and management, statistics indicate.

Public officials, mired in bureaucracy, have not acted to curb the costs. The M.T.A. has not adopted best practices nor worked to increase competition in contracting, and it almost never punishes vendors for spending too much or taking too long, according to inspector general reports.

Here are some further highlighted excerpts.

The budget showed that 900 workers were being paid to dig caverns for the platforms as part of a 3.5-mile tunnel connecting the historic station to the Long Island Rail Road. But the accountant could only identify about 700 jobs that needed to be done, according to three project supervisors. Officials could not find any reason for the other 200 people to be there.

“Nobody knew what those people were doing, if they were doing anything,” said Michael Horodniceanu, who was then the head of construction at the Metropolitan Transportation Authority, which runs transit in New York. The workers were laid off, Mr. Horodniceanu said, but no one figured out how long they had been employed. “All we knew is they were each being paid about $1,000 every day.”

Massive overstaffing driving by union contracts:

Mike Roach noticed it immediately upon entering the No. 7 line work site a few years ago. Mr. Roach, a California-based tunneling contractor, was not involved in the project but was invited to see it. He was stunned by how many people were operating the machine churning through soil to create the tunnel.

“I actually started counting because I was so surprised, and I counted 25 or 26 people,” he said. “That’s three times what I’m used to.”

The staffing of tunnel-boring machines came up repeatedly in interviews with contractors. The so-called T.B.M.s are massive contraptions, weighing over 1,000 tons and stretching up to 500 feet from cutting wheel to thrust system, but they largely run automatically. Other cities typically man the machine with fewer than 10 people.

It is not just tunneling machines that are overstaffed, though. A dozen New York unions work on tunnel creation, station erection and system setup. Each negotiates with the construction companies over labor conditions, without the M.T.A.’s involvement. And each has secured rules that contractors say require more workers than necessary.

The unions and vendors declined to release the labor deals, but The Times obtained them. Along with interviews with contractors, the documents reveal a dizzying maze of jobs, many of which do not exist on projects elsewhere.

There are “nippers” to watch material being moved around and “hog house tenders” to supervise the break room. Each crane must have an “oiler,” a relic of a time when they needed frequent lubrication. Standby electricians and plumbers are to be on hand at all times, as is at least one “master mechanic.” Generators and elevators must have their own operators, even though they are automatic. An extra person is required to be present for all concrete pumping, steam fitting, sheet metal work and other tasks.

In New York, “underground construction employs approximately four times the number of personnel as in similar jobs in Asia, Australia, or Europe,” according to an internal report by Arup, a consulting firm that worked on the Second Avenue subway and many similar projects around the world.

Contractors with incentives to drive up costs, with zero cost containment:

Even though the M.T.A. is paying for its capital construction with taxpayer dollars, the government does not get a seat at the table when labor conditions are determined. Instead, the task of reining in the unions falls to the construction companies — which often try to drive up costs themselves.

Typically, construction companies meet with each trade union every three years to hammer out the labor deals. The resulting agreements apply to all companies, preventing contractors from lowering their bids by proposing less generous wages or work rules. That is not a problem in the private sector, where the possibility of nonunion labor can force unions to be more competitive, or in parts of the public sector that involve more potential bidders. But in the small world of underground construction, experts say there is little cost containment.

Tim Gilchrist, a transportation adviser to Govs. Eliot L. Spitzer and David A. Paterson, noted all costs are passed on to the M.T.A. “Nobody at the negotiating table is footing the bill,” he said.

Critics pointed out that construction companies actually have an incentive to maximize costs — they earn a percentage of the project’s costs as profit, so the higher the cost, the bigger their profit.

The profit percentage taken by vendors also is itself a factor in the M.T.A.’s high costs.

In other parts of the world, companies bidding on transit projects typically add 10 percent to their estimated costs to account for profit, overhead and change orders, contractors in five continents said. Final profit is usually less than 5 percent of the total project cost, which is sufficient given the size of the projects, the contractors said.

Things are much different in New York. In a series of interviews, dozens of M.T.A. contractors described how vendors routinely increase their estimated costs when bidding for work.

Lack of competition in bidding:

Lack of competition is also a problem for the M.T.A. A Times analysis of roughly 150 contracts worth more than $10 million that the authority has signed in the past five years found the average project received just 3.5 bids.

“In other cities, you get eight bids for projects,” said Gary Brierley, a consultant who has worked on hundreds of projects in the last 50 years, including the No. 7 line extension and the Second Avenue subway. “In New York, you get two or three, and they know that, so they’ll inflate their bids if they think they can get away with it.”

One of the most important contracts in recent years, for the construction of the Second Avenue tunnel, got just two bids. M.T.A. engineers had estimated the contract would cost $290 million, but both bids came in well above $300 million, and the authority did not have much leverage. Ultimately, it awarded the deal for about $350 million — 20 percent above its estimate.

Massive overhead and soft costs:

On average, “soft costs” — preliminary design and engineering, plus management while construction is underway — make up about 20 percent of the cost of transit projects in America, according to a 2010 report by the Transportation Research Board. The average is similar in other countries, contractors said.

Not in New York.

The latest federal oversight report for the Second Avenue subway projected soft cost spending at $1.4 billion — one-third of the budget, not including financing expenses. M.T.A. officials said that number was high because it included some costs for design of later phases of the line. But experts said it was still shocking.

“The crazy thing is it’s so high even with everything else,” said Larry Gould, a transit consultant and former M.T.A. subway planner. “If we have three or four times as many workers, how can the percentage for soft costs be so high?”

The long-rumored “Parsons Brinckerhoff tax” and the revolving door:

Both the Second Avenue subway and East Side Access projects hired the same main engineering firm: WSP USA, formerly known as Parsons Brinckerhoff. The firm, which designed some of New York’s original subway, has donated hundreds of thousands to politicians in recent years, and has hired so many transit officials that some in the system refer to it as “the M.T.A. retirement home.”

The firm was the only vendor to bid on the engineering contract for the Second Avenue subway, records show. On East Side Access, it is sharing the contract with STV Inc., which recently hired the former M.T.A. chairman Thomas F. Prendergast. The contract was initially for $140 million, but it has grown to $481 million.

The M.T.A. is partly to blame. Officials have added to the soft costs by struggling to coordinate between vendors, taking a long time to approve plans, insisting on extravagant station designs and changing their minds midway through projects. In 2010, they hired a team of three consultants to work full time on East Side Access “operational readiness” — getting the tunnel ready to open — even though contractors knew construction would not end for another decade.

Janno Lieber, who joined the M.T.A. as chief development officer in April, acknowledged there were parts of the authority’s project management approach that have been “broken” and “self-defeating.” Changing plans midway through projects is a “huge issue,” as is over-customization of designs and poor management of consultants, he said.

Definitely click through to read the whole thing, which should be a strong contender for Pulitzer Prize this year.

This piece originally appeared on Urbanophile.

Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian,, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Photo Credit: MTA/CC