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
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.
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.
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
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
in print at Staples
; or e-book only at "iTunes"
"and Google play"
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