A paper first published in The Manhattan Institute's City Journal, Autumn 2007 © The Manhattan Institute. Reprinted with permission.
Published here March 2008.

Introduction | The Original Concept | A New Approach: Mitigation | A Clever Political Strategy
Successful Innovative Technology | Cost and Questionable Accounting | Misplaced Responsibility
Allocation of Project Risk and Responsibility | Political Power, a Warning | Conclusion

Cost and Questionable Accounting

Leave it to Massachusetts, though, to turn the Big Dig's reputation from resounding success to humiliating failure - first in terms of the project's cost. From day one, even after accounting for politicians' erring on the low side to gain public approval, the Big Dig was fated to cost more than its 1982 price tag of $2.6  billion.

That number didn't include much of the project's mitigation, including big changes like the billion-plus extra to remake the Zakim Bridge. Nor did it include the real costs of staying on schedule. The Big Dig often let its contractors start work on pieces of the project before designs for other key parts were complete. This approach, part of the project's philosophy of getting things done now and asking questions later, meant expensive changes to contracts. By the early 1990s, as the state added new work, and as its consultants and contractors looked underground to see what was actually there, the Big Dig's price tag had ballooned to nearly $8 billion.

True, critics aren't being entirely fair when they compare the project's final cost, $14.8 billion, with the initial estimate. $2.6 billion in 1982 is $5.6 billion today, thanks to inflation. And inflation has similarly distorted the cost of the many expensive changes made to the project. That's because the more realistic cost estimates that accounted for those changes were also calculated in then-current dollars, rather than in the dollars that the state eventually had to pay. Still, there's a lesson here for managers of other infrastructure projects: be careful with that first number, because it can become a permanent benchmark against which to measure success or failure.

Perhaps it is understandable that inflation and massive increases in scope would swell the project's price tag. But the Big Dig's planners truly failed the public through a deliberate decision: for years, they used dubious accounting methods that hid true costs.

In 1994, two years into construction, Bechtel and Parsons' officials compiled convincing evidence that the Big Dig would cost nearly $14 billion in completion-year dollars, far more than public officials were disclosing. According to former state inspector general Bob Cerasoli, who supervised a 2001 report on the Big Dig's finances, the consultants took their findings to the state. But the state didn't tell the public, so alarming Bechtel that its president flew to Boston to see then-governor William Weld. Afterward, according to Cerasoli's report, "state managers directed state and [Bechtel and Parsons] staff to ... maintain the fiction of an ... $8 billion project." ... "They did so by applying a largely semantic series of exclusions, deductions, and accounting assumptions that covered up the $6 billion difference," often with the knowledge of federal highway officials.

Some state officials thought that if they delayed disclosing money woes, the public would be so thrilled with early improvements like the Ted Williams Tunnel, which opened in 1995, that they wouldn't pay attention to boring finances. But as an internal "pros and cons" document noted, if the state didn't inform bondholders, it risked fraud charges - and, in fact, federal securities regulators later reprimanded Weld's Big Dig boss, James Kerasiotes, for "misleading" investors. Even more pressing, the state needed actual money to continue its project, so it had to come clean despite worries that "we could become the central controversy of the next year in Massachusetts." It was after the state finally confessed, that the feds imposed their permanent funding cap on the project.

Massachusetts's desire to insulate the public from the Big Dig's costs also led to a fateful decision by Governor Weld. Weld needed a ready source of money for the project, without hiking taxes or cutting spending elsewhere. So he transferred the Big Dig's assets to the Massachusetts Turnpike Authority, an unaccountable public entity akin to New York's Metropolitan Transportation Authority, in return for some of the authority's future toll revenue, which would back Big Dig bonds. This costly trade added a new layer of bureaucracy to the project, which needed, more than anything, one elected person to be ultimately accountable. After last year's fatal ceiling collapse, Mitt Romney, governor for nearly four years, could point to the fact that his predecessor's appointee still ran the Big Dig.

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