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CONSTRUCTION KNOWLEDGE BLOG

February 13, 2012

Expensive Lessons that Teach No One
Filed under: Construction — Tags: — nedpelger

I read an ENR article about some design flaws in the World Trade Center NYC projects adding millions of dollars to the cost. I’m always curious about how those type problems arise and get resolved.

Apparently One World Trade Center will be a 104 story tower developed by the Port Authority of NY and NJ. The future Manhattan skyline is shown below. As the construction nears completion, they realized that a temporary subway station blocks the access for the loading docks into the new building. So temporary loading docks must be built (at a cost of several million dollars) that will be used until the temporary subway station can be dismantled.

Of course, no one takes full responsibility for those type of staging scenarios (and I know they are dreadfully easy to miss) and the taxpayer simply pays more. As I read more, though, that trend seemed to intensify.

The cost for the project increased by 22% to $3.8B USD. A $700M increase in times of almost no inflation seems another bitter pill for taxpayers. One World Trade Center is only 60% leased and the developer struggles to find tenants. Other related buildings in the World Trade Center complex also aren’t finding tenants and the scope of the projects, including the # of stories being built, are getting reduced.

I understand the complexity of deciding the right thing to build. When private developers make those decisions, they risk their future financial well-being on the results. The intensity (and often effectiveness) of their efforts increases as the real possibility of financial ruin looms. While America’s lenient bankruptcy laws allow private developers to take big risks without worry of sending their families into complete destitution, the pain of bankruptcy still deters.

Government entities as developers simply don’t face the same downsides. The decision makers may care intensely, but in the end the agency survives and everyone generally still has their jobs.

In my early days in construction, I remember a couple of my bosses telling me stories that made a surprising point. A bid was won that they later discovered had a substantial downside error. There was a debate about throwing in the bid, but a decision made to just live with the numbers and manage it as intensely as possible. Often those sure-fire financial loser projects turned into winners because every detail was managed so well.

I believe in the¬†efficacy of intense construction management. I believe private entities have a much higher likelihood of managing construction projects with intense levels of efficiency. I guess that’s why I’m a private market enthusiast who owns my own business and encourages other like-minded folks to give it a try.

When we make expensive mistakes (which we all do) at least we tend to learn from them.

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