Here is a rule of thumb to remember when you hear about a proposed government project: If a politician says that it will cost $1, it will end up costing $2 or more. Call it Edwards’ Law.
A never‐ending stream of articles reveals the chronic cost overrun problems of government weapon systems, computer upgrades, highway projects, and many other things. The government said that a ship would cost $220 million, and it ended costing $440 million. The government said that a bridge would cost $1.4 billion, and it ended up costing $6.4 billion. The government said that an office consolidation would cost $1.1 billion, and it ended up costing $2.6 billion.
What is the hidden force behind Edwards’ Law? Are governments simply inept, or do they deliberately low‐ball initial cost estimates in order to get projects approved? After reading about dozens — probably hundreds — of such incidents over the years, I think the answer is both.
Regarding low‐balling, David Boaz pointed out to me this admission from former San Francisco Mayor Willie Brown:
“News that the Transbay Terminal is something like $300 million over budget should not come as a shock to anyone.”
We always knew the initial estimate was way under the real cost. Just like we never had a real cost for the Central Subway or the Bay Bridge or any other massive construction project. So get off it.
In the world of civic projects, the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved.
The idea is to get going. Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in.”
Based on Brown’s insight, Edwards’ Law can be reformulated: If a politician says that a project will cost $1, that’s just the down payment. The balance due will be at least another $1.
See here for more on cost overruns.