Why Building U.S. Highways Is So Expensive
A study found that the U.S. overspends on transportation infrastructure due to limited staff in state departments of transportation (DOTs) and a lack of contractor competition, leading to higher project costs. The reliance on consultants and insufficient project planning also contribute to cost increases, while better bidder outreach and higher DOT employment are linked to lower costs.
According to SmartCitiesDive, the U.S. overspends on its transportation infrastructure compared to its international peers, and a team of university researchers wanted to understand why. Their investigation found that lack of staff capacity in state departments of transportation and a dearth of contractor competition in the market are key drivers of high project costs.
State and local governments expended $266 billion on highways alone in 2022, and on a per-project basis, that spending is over three times as high as other upper- and middle-income countries, the researchers found. It’s not just American road projects that are expensive: A 2021 Eno Center for Transportation study found U.S. rail projects cost more and take longer to complete than similar builds in other countries, especially those that involve extensive tunneling.
There has been a “striking decrease in state DOT employment over the last 20 years, especially in the wake of the Great Recession,” the authors found, and many state DOTs now have limited capacity. One result of this situation is an increased reliance on consultants when building projects, which is correlated with higher costs. The researchers found a one standard deviation increase in reported consultant costs is associated with an almost 20%, or $70,000, increase in cost per lane-mile. States with higher DOT employment per capita have lower infrastructure costs: A one standard deviation increase in DOT employment per capita is correlated with 16% lower costs.
Survey respondents attribute a lack of detail in project plans to both a lack of time or experience of DOT engineers, and the use of consultants. When there is not enough specificity in plans, the risk to the contractor increases, which drives up bids. Plus, whenever the scope of a project changes, this initiates a costly and time-consuming renegotiation process, which is a major contributor to cost hikes.“We find that DOTs that provide more details at the time of the bid-letting have lower costs, while states with more change orders, which are often the result of poor planning, have higher costs,” according to the study.
Road projects also suffer from a lack of competition among builders, a factor procurement officials and subcontractors alike frequently cited to the researchers. Most states have fewer construction firms than a decade ago, and most state DOTs report doing little bidder outreach. A 12% increase in bidder outreach is correlated with a 17.6% decrease in costs, which translates to a mean decrease of $65,000 per lane-mile and $1 million at the project level. “Most states have experienced a loss of construction firms, and an increase in size of the remaining firms, in the last 10 years,” according to the paper.