Now that changing cost trends—alternation between rapid escalation and decline in unit costs—for public transportation construction projects have returned to a more normal pattern, public transit agencies likely will not be able to count on industry unit costs as a means to control their budgets. This is a change from the recent past, when agencies and other public-sector sponsors of such investments could stretch available funds further as a result of the unit cost deflation that ensued just after the global financial crisis in the autumn of 2008.
For example, in early 2011 the City and County of Honolulu reported its rail project contracts awarded in the first few months of this past year were $165 million under the project budget. Although a procurement process based on “best value” (as opposed to low-bid) led to the award of both contracts, unit cost deflation in the construction industry also played a major factor.
In the coming year, public transit agencies will have to rely on other techniques to control costs, such as accelerating the project development process through the use of alternative project delivery methods and better management of environmental reviews.
Parsons Brinckerhoff’s (PB) Strategic Consulting Group has developed a cost index that specifically tracks unit costs in public transportation infrastructure projects. This measure—the PB Transit Construction Cost Index (PB TCCI)—has increased by approximately 6.1 index points or 4.4 percent in 2011 (i.e., year to date, as of November). During this period, steel prices increased 12 percent; other material costs, 5.5 percent; labor costs, 4.7 percent; and equipment costs, 3.7 percent. Other component prices increased less than 2.5 percent.
The November 2011 PB TCCI value is 4.5 percent higher than in July 2010.
A Return to ‘Normal’
The charts accompanying this article show that public transportation construction unit costs have returned to levels seen prior to the severe financial crisis and ensuing acceleration of the economic downturn. This, of course, can be explained by the drop in demand in the construction sector as many commercial and residential projects had to be delayed or canceled. Now that the recovery in the economy as a whole has begun to take hold, construction unit costs have increased; those for public transportation are no different.
The PB TCCI comprises the following cost components: steel mill products, ready-mixed concrete, machinery and equipment, construction labor, and other materials. Because vehicle acquisition is not a part of all transit capital projects and not a true construction cost, costs for rolling stock have been excluded from the index.
Average Public Transit Construction Costs
The resulting indices represent average transit construction costs for the nation as a whole. Cost inflation for specific regions, capital programs, and projects will vary from this index depending on project types and work mix, as well as the regional or local construction market (including local contractor and material supplier markets) and contractor margins, which are lower during construction downturns.
Cliff Henke, senior analyst, PB, Arcadia, CA, also contributed to this story.
Transit Construction Cost Index Components