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The Weak Spot of Infrastructure BCA: Cost Overruns in Seven Road and Railway Construction Projects

Published online by Cambridge University Press:  03 August 2022

Jan-Eric Nilsson Open the ORCID record for Jan-Eric Nilsson [Opens in a new window]
Jan-Eric Nilsson*
Affiliation:
Department of Transport Economics, Swedish National Road and Transport Research Institute, SE-581 95Linkoping, Sweden
*
*Corresponding author: e-mail: jan-eric.nilsson@protonmail.com
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Abstract

This article describes the process from first proposals in the early 1990s to project completion many years later for seven large Swedish road and railway projects. The purpose is to find reasons for the massive cost overruns as well as explanations for why projects are brought to completion despite much higher costs than when the decision to build was made. Cost overruns are set in an institutional context to highlight the interplay among national, regional, and local policymakers. National investment programs are seen as promises by other parts of society, irrespective of whether project costs increase during the process toward procurement and implementation. Another aspect is that the infrastructure manager’s administrative framework currently makes it impossible to compare costs in contracts with final cost, meaning that there is no institutionalized learning process in place. Design preparations and the estimation of costs for new projects must therefore be done without an understanding of what has been working well in the implementation of previous projects. While Benefit-Cost Analysis (BCA) played no role in the planning of the seven projects, the article sends a stark warning that early cost estimates provide poor input for assessing project rate of return.

Keywords

biascontract rigiditycost–benefit fallacycost overrunsinfrastructureinstitutionstime inconsistency

JEL classification

R42: Government and Private Investment Analysis • Road Maintenance • Transportation Planning D78: Positive Analysis of Policy Formulation and Implementation H43: Project Evaluation • Social Discount Rate H54: Infrastructures • Other Public Investment and Capital Stock D61: Allocative Efficiency • Cost–Benefit Analysis
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 13 , Issue 2 , Summer 2022 , pp. 224 - 246
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Society for Benefit-Cost Analysis

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