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D4COST Software


Public Sector vs Private Sector
Construction Projects — “Apples to Apples?” 
By Joe Macaluso

Public sector construction projects are more costly than private sector construction projects, why? That's easy; it’s because of inefficient government bureaucracies. That's how most of us would respond to the question. But first of all is it even a fair question? And secondly, if so is it true?

Is it a fair question? Can we do an "apples to apples" comparison? Typical government projects include things like environmental remediation, institutional buildings (courthouses, prisons, schools, etc.), infrastructure projects (subway systems, massive water tunnels, etc.) These projects have one or more of three distinguishing characteristics:

  1. They're projects that need to stand the test of time. We all expect our institutional buildings to last generations, and the same for infrastructure. To do this requires high quality long lasting materials, and a more intensive design process, which includes ways to design-in durability. Durability is something that is not easy for the untrained eye to see, but it adds cost.

  2. They're projects that must stand up to high usage and be used by the general public, with limited maintenance. This requires durable materials, and a design that resists damage due to high use and vandalism. There's no "bling" in "bullet-proof" construction, but again, it adds cost.

  3. They're unique projects because of their context, special function, or sheer size. This requires specialty products, custom design, and special means and methods of construction. There's no such thing as an "off-the shelf" 10 foot high water valve. Construction often needs to be done on, or around working facilities. Start/stop scheduling, mobilization/re-mobilization, and off-hour work schedules are frequently necessary, but inefficient ways to work. Closing down a subway system for a week? Good luck with that! This uniqueness of design, materials, and construction is something that you're usually not even aware of, and often hidden from view, but you guessed it, adds cost.

So, we've looked a little at the difficulty in comparing public sector vs. private sector type of projects. We pointed out that often public sector projects can’t be directly compared to private sector projects because they are often different types of projects. But, there are projects that can be compared apples to apples, maybe not Macintosh to Macintosh, but at least Macintosh to say, Granny Smith. These include schools, and multi-family housing projects. How do these projects compare? There are several prerequisites that are often part of public sector projects that are not required for private sector projects. They include but are not limited to:

  • Multiple contract laws

  • Minority/Woman/Local Based Enterprise participation requirements

  • Prevailing wage rate requirements

  • Certified payrolls and other public reporting requirements and regulations

There are legitimate arguments pro and con for any of them, but I’m not going to get into the politics here. The bottom line is that on a typical public sector project several of them are applicable, and they do increase costs. Let’s take them one at a time.

Multiple contract laws require the owner to have separate contracts for the general contractor, plumbing contractor, HVAC contractor, and electrical contractor as opposed to one contract for General Contractor with the other trades, contracting directly with the general contractor. It was intended to reduce the possibility of corruption, but has generally been proven to complicate project management, inhibit co-ordination, and increase the amount of disputes since it eliminates a “central command in the field”. The cost associated with these laws is very controversial, but I would peg them to add between 5% and 30% to total project costs.

Minority/Woman based/Local Enterprise business participation requirements are intended to offer disadvantaged businesses a chance to participate in public works construction. These programs must be administered, and any type of administration adds costs to a project. Very roughly I would peg these costs to add between 1% and 2% to overall project costs.

Prevailing wage rates, essentially equate to union scale wages. Here the comparison is difficult because many private sector projects are union scale projects, so in these cases there would effectively be no difference in cost. I would guess and say that union scale projects cost about 5% to 10% more than “open shop” projects (figuring labor accounting for 60% of total project costs). I can be off on this since 99% of my estimates are based on union wages. The argument for union labor and I agree, is that union tradespeople are generally better trained and safer than non-union labor.

You the public have the right to know how your money is being spent. This however requires a fair amount of record keeping and general administration. This equates to additional costs, which I would guess adds somewhere between 2% and 5% to overall project costs.

So there you have it, no surprise here. In my humble estimator’s opinion public sector projects do cost a significant amount more than private sector projects. Is it because of corruption, waste or incompetency? No, the public sector doesn’t have a lock on any of those factors. Think of Enron, Tyco’s Dennis Kozlowski’s decadent parties, and all those multimillion dollar bonuses given to bad CEOs in spite of poor performance. It’s because of the special requirements placed upon public sector projects. Are these requirements worth the cost? That’s the subject of another discussion.

The opinions expressed here are solely those of the author.

About the author: Joe Macaluso is a Construction Cost Consultant and author of Understanding Construction Costs: How to Review Estimates available in print and e-book format.

Copies can be obtained in print and e-book at Amazon

http://www.amazon.com/Understanding-Construction-Costs-Review-Estimates/dp/1495957063/ref=asap_bc?ie=UTF8; in print at Staples

http://www.staples.com/Understanding-Construction-Costs-How-to-Review-Estimates/product_1331132 ; or e-book only at "iTunes"

http://www.staples.com/Understanding-Construction-Costs-How-to-Review-Estimates/product_1331132 "and Google play"

https://play.google.com/store/books/details/Joseph_Macaluso_Understanding_Construction_Costs?id=bz7iBAAAQBAJ&hl=en .

Follow Joe Macaluso on LinkedIn at https://www.linkedin.com/in/macalusojoe.

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