PLATFORM:An assessment of any project must include the cost to surrounding businesses and people
FIDDLING WITH an allen key in order to assemble a flat-pack coffee table is an almost universal experience for people across the developed world. But while the process of assembling a table usually involves little more than a puzzled examination of the instruction leaflet, the construction of the large out-of-town stores where such tables are bought is far more complex.
Ikea’s decision to build a store in Dublin has aroused a lot of emotion on both sides, but it has highlighted one issue that is of paramount importance to Irish business – the cost of public construction projects nearly always misjudges the true wider cost of that project to society and the economy.
Contracts for building roads and bridges are awarded to companies that have the expertise to do the job, but which are also keenly priced to give value to the taxpayer. Since it is far more expensive to pay workers to dig, build and weld at night-time and on weekends, it is cheaper to complete a project using labour that works Monday to Friday during the daytime.
However, we need to look at other costs beyond that of the cement and workers. A true assessment of the costs of any project – be it building a new Luas line or filling a pothole – must also include the cost to businesses and people who are inconvenienced by the build at the time.
If Mrs O’Leary has to leave home 20 minutes early because of the traffic jams caused by the road building, it is at a cost to her sleep and well-being. If she has to leave work early for the same reason to pick the kids up from school, then it is a cost to her employer as well.
In addition to the hassle caused by slow building, we must add the great benefits that are delayed by not completing the job sooner. A faster build does not just remove inconvenience and headaches for commuters, it actively adds to a countrys wealth.
A bridge built in three months rather than eight months will certainly cost more in labour on the bridge itself, but it means that five months of benefits will also be added to the economy. That’s five months of deliveries that could have been completed quicker, which would have allowed companies to do more business, hire more people and bring more tax revenues to the Exchequer. None of these benefits gets enough attention in deciding the timescale for such projects.
Thus a “cheaper” infrastructure contract can easily cost the economy large sums in either the disruption to existing business or the loss of potential new business. In many cases, the cost of inconvenience and the cost of deferred benefits exceed the additional sums it would cost to speed up a project.
I fear a restrictive and short-sighted logic on costs is evident in Dublin at the moment, where Ikea has been prevented from opening because the National Roads Authority (NRA) stipulated that an interchange on the M50 must first be altered to handle the increased traffic the store is expected to bring. I do not for one moment believe these improvements are unnecessary. They are desperately needed, but this project – and other infrastructural spending in the State – is costing us more than just the figure at the bottom of the contract. It is costing us in lost jobs and tax revenues.
Vast numbers of people from the Republic are going to Ikea in Belfast every weekend.
If the M50 interchange had been built more speedily, we would not be losing this revenue and we would have 500 new jobs. This is the opportunity cost of slow building.
It is certainly true that limits on the size of retail outlets have contributed to the delay of Ikea. But these limits were lifted at the start of 2005 and Ikea submitted plans for the stores in both Dublin and Belfast at the start of 2006. The store in Dublin may now not open its doors until later this year due to the delay in the completion of the interchange.
In the Brussels suburb of Anderlecht, Ikea opened a store in less than a year from the time it received planning permission. If we had worked with the speed of the Belgians, it would certainly have cost us more but we would have more years of sales, taxes, jobs and consumer convenience to show for it.
The requirements of our planning regulations are correct, but we must be careful to make sure we price any required infrastructure changes correctly, taking into account the benefits of completing more quickly or following a timetable that inconveniences people far less during the course of the build.
Recent news reports suggest that an attempt by the NRA to bring forward the completion of the interchange would have cost millions, but it is costing us millions in deferred tax, salaries and disruption to commuters and shoppers. This is not simply a problem for Ikea. The loss of potential revenues and the damage to existing commerce affects businesses and people all over Ireland, holding back employment, inconveniencing large numbers of people and crippling small businesses.
We must not lose sight of this lesson for future projects. The construction of the Luas extension, the building of Metro North, the upgrade of our heavy rail network, the N3, N4, N6 and other roads are all opportunities for us to adapt a more holistic approach to public works projects and take into consideration the real – though hard to quantify – costs of short-sighted contracting.
Better comprehension of the wider social and economic costs of major infrastructure projects is difficult, but it will bring benefits to the whole Irish economy.
Feargal Quinn is an independent member of Seanad Éireann and chairman of Eurocommerce
