Large-scale projects have a calamitous history of cost overrun (source: Flyvbjerg)

There’s broad acknowledgement that the cost of proposed major transport infrastructure in Australia is astronomical compared to what seemingly similar projects cost in many other developed countries.

For example, Melbourne’s proposed 8 km Mernda rail extension is estimated to cost $0.4-0.7 billion. The proposed rail line from Collingwood to Doncaster Park and Ride is costed at $3-5 billion, with a further $1 billion required to extend it to the Doncaster activity centre.

The proposed Melbourne Metro tunnel is currently costed at $9-11 billion; there’s pressure though for the Government to spend more – perhaps as much as $1 billion – to provide another station at Sth Yarra.

Just why proposed projects cost so much in Australian cities isn’t clear. I’ve discussed some possible explanations before; see Why do subways cost so much more here than elsewhere? and Why is infrastructure so bloody expensive?

Candidates include the modern preference for PPP financing, the high and rising expectations of the community, poor project management, differences in labour productivity, the resources boom, and characteristics of the electoral and legal systems of high-cost countries.

Yet there’s no shortage of voices insisting the problem is the other way around; estimates of costs put forward by governments and proponents, the argument goes, are way too high.

For example, in September 2013 I discussed a claim that the proposed Melbourne Metro tunnel should cost around $3 billion rather than the circa $9 billion the Government of the day was quietly acknowledging at the time (see Infrastructure: does getting the facts right matter anymore?).

So what’s going on here? Why do some groups and individuals insist on pushing costs that are so at variance with reality? I think there are a number of reasons.

One is that it’s politically convenient. If you reckon the real cost of building a rail line to Doncaster is a mere $1.2 billion rather than the $3 – $5 billion estimated in a formal study, then that increases the pressure on governments to build it.

Another reason is poor selection of benchmarks. WA’s Mandurah rail line is often cited because the WA Government built the 71 km of line for around $2 billion in today’s dollars. But it’s never good practice to extrapolate from a single project, especially one that has the characteristics of an outlier.

I’ve discussed before the special conditions that distinguish the Mandurah line from the seemingly similar proposal for a rail line to Doncaster (they both involve some construction in a freeway median). They include differences in site conditions, in geological conditions, and the number of underground stations and bridges (see If WA can build rail lines cheaply why can’t the other states? and Is this rail line too good to be true?).

Perhaps the most important reason is less well recognized. It’s the often unconscious assumption that a project would cost a lot less if it were designed and built in a certain way. It’s encapsulated in the frequent charge that official estimates are “gold-plated”.

This view ignores the reality that projects have to win community support, get approved, and attract funding. There are many other sections of the community whose support will only be forthcoming if certain facilities are provided or objections are accommodated.

For example, the Victorian Government could provide a high level of public transport service to the residents of Mernda at a tenth of the current estimated cost if it built bus rapid transit rather than rail. Or it could reduce the cost of the rail solution significantly if it were prepared to provide level crossings rather than full grade separations in this outer suburban area (see Is Mernda rail about good policy or smart politics?).

Critics of cost estimates often also have limited understanding of the technical issues that have to be addressed. That applies particularly in the early stages of projects when there are still many unknowns. Costs tend to increase as more information – the stuff glossed over in the early optimism – is brought to light.

For example, Melbourne’s South Morang rail extension was initially promised at an estimated cost of $8 million by the Bracks Government but ultimately cost around $250 million (or $562 million depending on whose counting).

The estimated cost of Melbourne Metro increased significantly as more and more investigations were done. Around $40 million was spent proving the project up before the Napthine Government dropped it. Now that it’s reinstated Metro, the Andrews Government will spend 3-4 years on further investigations before it makes a serious start on construction.

Inadequate information isn’t the fault of those who’re unconvinced by official costings though; it’s due to the reluctance of politicians and bureaucrats to provide comprehensive and timely information to the public.

No doubt there are exceptions, but the key problem with major infrastructure proposals isn’t that governments, bureaucrats and consultants deliberately and routinely inflate costs in order to make projects look unrealistic. The reverse is patently the case, as Bent Flyvbjerg has shown (see Why do the worst infrastructure projects get built?).

The key problem is why projects are so costly in Australia (and other anglophone countries); that’s an important theme I’ll return to shortly.