Musings of the Technical Bard

Recently, a number of politicians have talk about how stimulus money can be directed towards infrastructure projects that are “shovel-ready”, meaning that they are essentially read to start construction.  The mayor of Calgary, Dave Bronconnier, defined this the other day as projects ready to start construction within 120 days.

First off, 120 days is four months.  This recession could be largely over in four months.

Second – I am horrified if any level of goverment has an significant projects (>$10 million) that have completed sufficient engineering and design, let alone procurement of materials to be ready to start construction within 120 days.  This would mean that they would need to have at least 80% of the engineering complete by the time a shovel hits the ground, and probably 25% or more done today to ensure that the scope is well enough defined to get a reasonable idea of the cost and schedule required.  Since engineering generally costs 8-12% of the cost of a project, this means that for each $10 million in capital costs, the city has already spent about $250,000 on engineering for a project they can’t fund?  That sounds like a waste of my tax dollars.   And if that is the case, is the engineering ongoing, or is it partially complete and on the shelf?  If it’s ongoing, they the city should have already planned how this was to be funded or else they are really wasting my money.  And if it is “on the shelf”, they will need to re-engage the engineering contractor (or a new contractor) to finish the work.  From my experience you can kiss the first 60 days away if that is the case.

Third – before the city can start construction, or even paying for completion of engineering or procurement of materials, they will need certainty they are getting the money.  Is the federal or provincial government going to release the money that quickly?  They won’t even be finished fighting over which province gets the money, let alone cut a cheque to an individual municipality.   When the Chretien government started the massive infrastructure projects of the 1990s, it took years for some of those projects to get off the ground.

Finally, any major infrastructure project (>$100 million) isn’t a three month project.  It’s a year or more in construction.  And since most contracts have 60-90 day payment clauses, the money being spent on these projects is significantly weighted to the back end of the schedule.  So, if we had a project that was so-called “Shovel-ready” in 120 days, and we could actually get the money to the project by then, and it takes a year or more for the project to be completed – most of the money will be spent in 2010…  When the recession will likely already be over.  So what have we gained?   Now, there is the risk that contractors will need to be paid in advance, due to the credit market making it difficult for firms to finance the work in progress – although I think that if I have government contract a bank shouldn’t have any problem lending me money.  But if the government starts paying in advance, the cost of these projects will likely rise above any budget because it is harder to control a pre-paid contractor than one who needs to perform well to get the money.

If I’m a city government, I do have something to gain.  I believe that most of these “Shovel-Ready” projects are projects that are already being executed, and that even if the feds try to say “new projects”, the cities will find a way to “expand” the projects so they are new”.  This means that the cities gain the ability to grow projects with federal money, or they can get the feds to pay for current projects and save their own money for future projects.  Either way, little new economic growth can come of this.

In conclusion, government stimulus through “infrastructure projects” can clearly be discounted as being of any benefit to the economy or have any chance of helping stave off recession.