Monday, May 05, 2008

Bridges respond to incentives 

Ed Morrissey is right in pointing out that the private sector works in how the I-35W bridge might now be open in September rather than in December.
Perhaps at some point, people will learn to harness the power of the private sector more completely for future public efforts as well. If we started to apply this lesson to non-emergencies as well as emergencies, perhaps we would have fewer of the latter. When we incentivize success, we succeed. When we incentivize bureaucracy, we get red tape, delays, and frustration.
I hope the planners of the DeSoto bridge reconstruction are paying attention. They might want to invite Flatiron to bid on the project. (If they could also reopen the old Flatiron Tavern, it'd do this St. Cloudian's heart good after I get done recovering.)

What the STrib article made very interesting to me was how they structured the incentives in the I35 contract to get faster delivery from Flatiron:

Flatiron-Manson was awarded the project under a MnDOT formula taking into account construction costs, time to completion and factors such as aesthetics and public-relations efforts. At the time of the award in September, critics assailed the agency for choosing the most expensive contract and the longest construction time

Now, if the bridge is finished in 337 days instead of the 437 in Flatiron's proposal, the construction period will be shorter than any that were proposed -- but will widen the cost gap.

One of the four bidders, Maple Grove-based C.S. McCrossan, offered to build a steel bridge in 367 days at a cost of $177 million. The second-shortest time was proposed by the team of Ames/Lunda, also based in the Midwest, which proposed 392 days for $178 million. The fourth bidder, Walsh/American bridge, proposed the same time frame as Flatiron, 437 days, but a lower cost, $219 million.

...State officials said last fall that the bridge closure is costing Minnesotans $400,000 a day in travel-related expenses alone. The $200,000 daily incentive was arrived at by dividing that number in half.

Gutknecht says the estimate of $400,000 a day, which was based on drive times and fuel costs, is a minimum. "When we figured it out,'' he said, "fuel was quite a bit cheaper."

So the value to Minnesotans of having the bridge done sooner is higher now than before; those additional benefits will accrue to drivers. In some sense, the incentive's value is greater when the date of completion is further into the distance. Once you cross the 368th day, there's no incentive for the low local bidder McCrossan to move any faster, unless penalties were imposed. I don't know the terms on the other contracts in re: incentives, so let's assume they all had the $200k/day incentives. It changes how I think about the contracts.

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