New York spends $12bn extending Manhattan rail route by 3.5 miles

'Nobody knew what those people were doing, if they were doing anything'

A tunnel of the East Side Access project - estimated to cost $3.5 billion for each new mile of track (Spencer Platt/Getty)

An accountant discovered the discrepancy while reviewing the budget for new train platforms under Grand Central Terminal in Manhattan.

The budget showed that 900 workers were being paid to dig caverns for the platforms as part of a 3.5-mile tunnel connecting the historic station to the Long Island Rail Road. But the accountant could identify only about 700 jobs that needed to be done, according to three project supervisors. Officials could not find any reason for the other 200 people to be there.

“Nobody knew what those people were doing, if they were doing anything,” said Michael Horodniceanu, who was then the head of construction at the Metropolitan Transportation Authority, which runs transit in New York. The workers were laid off, Horodniceanu said, but no one figured out how long they had been employed. “All we knew is they were each being paid about $1,000 (£739) every day.”

The discovery, which occurred in 2010 and was not disclosed to the public, illustrates one of the main issues that has helped lead to the increasing delays tormenting millions of subway riders every day: The leaders entrusted to expand New York’s regional transit network have paid the highest construction costs in the world, spending billions of dollars that could have been used to fix existing subway tunnels, tracks, trains and signals.

The estimated cost of the Long Island Rail Road project, known as East Side Access, has ballooned to $12bn (£8.9bn), or nearly $3.5bn (£2.6bn) for each new mile of track — seven times the average elsewhere in the world. The recently completed Second Avenue subway on Manhattan’s Upper East Side and the 2015 extension of the No. 7 line to Hudson Yards also cost far above average, at $2.5bn (£1.8bn) and $1.5bn (£1.1bn) per mile, respectively.

For years, The New York Times found, public officials have stood by as a small group of politically connected labour unions, construction companies and consulting firms have amassed large profits.

Trade unions, which have closely aligned themselves with Governor Andrew Cuomo and other politicians, have secured deals requiring underground construction work to be staffed by as many as four times more labourers than elsewhere in the world, documents show.

Construction companies, which have given millions of dollars in campaign donations in recent years, have increased their projected costs by as much as 50 per cent when bidding for work from the MTA, contractors say.

Consulting firms, which have hired away scores of MTA employees, have persuaded the authority to spend an unusual amount on design and management, statistics indicate.

Public officials, mired in bureaucracy, have not acted to curb the costs. The MTA has not adopted best practices nor worked to increase competition in contracting, and it almost never punishes vendors for spending too much or taking too long, according to inspector general reports.

“It’s sad, really,” said Lok Home, owner of the Robbins Co., which manufactured much of the tunnelling equipment used for East Side Access. “Because if they controlled the costs, they could do twice as many expansion projects and still have more money for maintenance.”

Asked about The Times’ findings, union leaders and construction executives insisted that no money had been wasted. They said tunnelling was difficult and dangerous work that must be well-funded.

The MTA, for its part, did not dispute the findings.

Joseph J Lhota, who was chairman of the authority in 2012 and returned to the job in June, said he had recently appointed working groups to study costs and the procurement process.

New York’s struggles come as transit construction is booming around the world. At least 150 projects have been initiated since 1990, according to a recent study by Yale University researcher David Schleicher.

The approximate average cost of the projects - both in the US and abroad - has been less than $500 million per track mile, the study concluded.

“There was one glaring exception,” Schleicher said. “New York.”

That exception has not gone unnoticed. Independent online journalist Alon Levy first noted the MTA’s high construction costs, and 28 City Council members urged officials to research the issue in October.

Lhota responded by defending the costs. He said in a letter, “There are unique challenges that contribute to high construction costs in New York City in general, and for MTA projects in particular.”

Lhota listed 10 explanations, including ageing utilities, expensive land, high density, strict regulations and large ridership requiring big stations.

To evaluate those arguments, The Times took the list to more than 50 contractors, many of whom had worked in New York as well as in other cities. The Times also interviewed nearly 100 current and former MTA employees, reviewed internal project records, consulted industry price indexes and built a database to compare spending on specific items. And The Times observed construction on site in Paris, which is building a project similar to the Second Avenue subway at one-sixth the cost.

The review found evidence for one of the issues cited by the MTA: Because most countries have nationalised health care, projects abroad do not have to fund worker health insurance. That might explain a tenth of the cost differences, contractors said.

But the contractors said the other issues cited by the MTA were challenges that all transit systems face. Density is the norm in cities where subway projects occur. Regulations are similar everywhere. All projects use the same equipment at the same prices. Land and other types of construction do not cost dramatically more in New York. Insurance is more costly but is only a fraction of the budget. The MTA’s stations have not been bigger (nor deeper) than is typical.

The reasons for the MTA’s high costs start with the sheer number of people employed.

Mike Roach noticed it immediately upon entering the No 7 line work site a few years ago. Roach, a California-based tunnelling contractor, was not involved in the project but was invited to see it. He was stunned by how many people were operating the machine churning through soil to create the tunnel.

“I actually started counting because I was so surprised, and I counted 25 or 26 people,” he said. “That’s three times what I’m used to.”

The staffing of tunnel-boring machines came up repeatedly in interviews with contractors. The so-called TBMs are massive contraptions, weighing more than 1,000 tons and stretching as much as 500 feet from cutting wheel to thrust system, but they largely run automatically. Other cities typically man the machine with fewer than 10 people.

It is not just tunnelling machines that are overstaffed, though. A dozen New York unions work on tunnel creation, station erection and system setup. Each negotiates with the construction companies over labor conditions, without the MTA’s involvement. And each has secured rules that contractors say require more workers than necessary.

The unions and vendors declined to release the labour deals, but The Times obtained them. Along with interviews with contractors, the documents reveal a dizzying maze of jobs, many of which do not exist on projects elsewhere.

There are “nippers” to watch material being moved around and “hog house tenders” to supervise the break room. Each crane must have an “oiler,” a relic of a time when they needed frequent lubrication. Standby electricians and plumbers are to be on hand at all times, as is at least one “master mechanic.” Generators and elevators must have their own operators, even though they are automatic. An extra person is required to be present for all concrete pumping, steam fitting, sheet metal work and other tasks.

In New York, “underground construction employs approximately four times the number of personnel as in similar jobs in Asia, Australia, or Europe,” according to an internal report by Arup, a consulting firm that worked on the Second Avenue subway and many similar projects around the world.

The labour deals negotiated between the unions and construction companies also ensure that workers are well paid. The agreement for Local 147, the union for the famed “sandhogs” who dig the tunnels, includes a pay rate for most members of $111 per hour in salary and benefits. The pay doubles for overtime or Sunday work, which is common in transit construction. Weekend overtime pays quadruple — more than $400 per hour.

Other trades are not paid as much but get overtime more frequently on MTA projects, driving up costs.

Union officials pushed back against the idea that their members are overpaid. The construction unions, after all, arose in response to exploitative bosses who underpaid and endangered workers. More than a dozen people died building New York’s subway, and many more have perished since. Even today, workers labour in dirty and uncomfortable conditions to build marvels.

“Construction workers deserve every penny they make and more,” said Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York. “We live in New York. It’s very expensive to live here. We take great pride in the work that we do. And the work rules are there to make sure we stay alive.”

But statistics suggest that the labour deals multiply costs while doing little to boost safety. During the Second Avenue subway project, for example, there were 5.5 safety incidents for every 200,000 work hours, according to federal data. The national average is 3.2. The Silver Line in Washington, which cost just $300m (£221m) per mile, had an even lower rate of incidents.

When complete - East Side Access will serve approximately 162,000 customers per day (Spencer Platt/Getty)

Some labour leaders said they were willing to negotiate the work rules to increase efficiency.

“We can figure out a way,” said Richard Fitzsimmons, business manager for Local 147, who said that he often sees the construction companies insisting on workers that are not needed. “I’m the union, and sometimes I’m saying to myself, ‘What the hell are they even doing?'”

But, Fitzsimmons added, “we will never negotiate with the safety of our members.”

Even though the MTA is paying for its capital construction with taxpayer dollars, the government does not get a seat at the table when labor conditions are determined. Instead, the task of reining in the unions falls to the construction companies — which often try to drive up costs themselves.

The profit per centage taken by vendors also is itself a factor in the MTA’s high costs.

In other parts of the world, companies bidding on transit projects typically add 10 per cent to their estimated costs to account for profit, overhead and change orders, contractors in five continents said. Final profit is usually less than 5 per cent of the total project cost, which is sufficient given the size of the projects, the contractors said.

Things are much different in New York. In a series of interviews, dozens of MTA contractors described how vendors routinely increase their estimated costs when bidding for work.

First, the contractors said, the vendors add between 15 and 25 per cent as an “MTA Factor” because of how hard it can be to work within the bureaucracy of the transit authority. Then they add 10 per cent as a contingency for possible changes. And then they add another 10-12 per cent for profit and overhead.

Denise Richardson, the executive director of the General Contractors Association, which represents construction companies on MTA projects, said the surcharges are needed because the vendors assume huge risks on transit projects and often are forced to pay for mistakes made by the authority. At the end of the day, she said, the companies make a relatively small profit.

The MTA’s high costs are not limited to the companies that build the tunnels. Projects start burning through cash long before construction begins.

On average, “soft costs” — preliminary design and engineering, plus management while construction is underway - make up about 20 per cent of the cost of transit projects in America, according to a 2010 report by the Transportation Research Board. The average is similar in other countries, contractors said.

The latest federal oversight report for the Second Avenue subway projected soft cost spending at $1.4bn (£1bn) - one-third of the budget, not including financing expenses. MTA officials said that number was high because it included some costs for design of later phases of the line. But experts said it was still shocking.

“The crazy thing is it’s so high even with everything else,” said Larry Gould, a transit consultant and former MTA subway planner. “If we have three or four times as many workers, how can the per centage for soft costs be so high?”

Soft costs for East Side Access are expected to exceed $2bn (£1.47bn). The project plan called for the hiring of 500 consultants from a dozen different companies, according to a 2009 federal oversight report.

Across the Atlantic Ocean, Paris is working on a project that brings the inefficiency of New York into stark relief.

The project, called the Line 14 extension, is similar to the Second Avenue subway. Both projects extend decades-old lines in the hopes of reducing systemwide overcrowding. Both involved digging through moderately hard soil just north of the city centre to make a few miles of tunnel and a few stations about 80 feet underground. Both used tunnel-boring machines made by the same company. Both faced strict regulations, high density and demands from neighbours, which limited some construction to 12 hours per day.

But while the Second Avenue Subway cost $2.5bn (£1.84bn) a mile, the Line 14 extension is on track to cost $450 million a mile.

On a recent afternoon at a Line 14 construction site, an official expressed disbelief that New York was spending so much.

“We thought ours was expensive,” said Laurent Probst, managing director of Île-de-France Mobilités, which controls transit in the French capital.

France’s unions are powerful, but Probst said they did not control project staffing. Isabelle Brochard of RATP, a state-owned company that operates the Paris Metro and is coordinating the Line 14 project, estimated there were 200 total workers on the job, each earning $60 (£44) per hour. The Second Avenue subway project employed about 700 workers, many making double that (although that included health insurance).

The tunnel-boring machine chewing through dirt north of Pont Cardinet — a secondhand machine, Brochard noted — was staffed by a dozen laborers who bounced between the control room, the cutting wheel and the sides of the machine.

The small number of workers has not slowed the Paris project. The line, which will run driverless trains every 85 seconds, is set to open by 2020, six years after groundbreaking. The Second Avenue subway, by contrast, took a decade to build.

The New York Times