Tackling Systematic Cost Overruns in Infrastructure Projects
PARIS, Feb. 4, 2015—Systematic cost-overruns in major capital infrastructure projects have significant implications for public policy decision makers: Projects that cost more than planned create budget pressures and this can translate into political difficulties. A tendency for projects to cost, on average, more than expected indicates a problem with the estimation method or the decision making process.
Research carried out at the International Transport Forum suggests there are in fact additional drivers of cost-overruns in public investment appraisal.
- The functional relationship between the past development of prices on the construction market, bidder behaviour and current prices on the construction market is sufficient to explain the persistence of cost-overruns through time even in the absence of other explanations.
- The usefulness of simple calculatory provision (‘uplift’) for expected cost overrun is questionable.
- For informing decisions on the choice between direct public procurement and a public-private partnership solution, using the uplift as an input for a cost comparison is also questionable.
- The accuracy of future cost estimates also depends on past construction market developments and bidder behavior.