Testimony of Hope Cohen to City Council Contracts Committee

Thank you, Chairperson James and members of the council, for this opportunity to testify in favor of the reforms proposed for city capital contracting. I am Hope Cohen, Deputy Director of the Manhattan Institute's Center for Rethinking Development.

We recently published a report on the costs of construction in New York City and their impact on housing affordability. (I have few copies with me and am happy to provide more to others who are interested.) Along with a variety of more targeted findings, the research served to remind us that government has the bad habit of making things even more difficult and expensive for itself than for private entities, particularly with regard to contracting. During a construction boom this means that the public sector puts itself at a disadvantage in competing with the private sector for scarce contractor and subcontractor firms.

The classic New York State example of this is the Wicks Law. Since 1912, it has required the state and its municipalities to directly retain prime contractors for electrical, plumbing, and HVAC work, instead of directly retaining only a general contractor-as do other states, private entities, and the federal government. The general contractor would then oversee subcontractors performing those and all other kinds of work. For nearly 50 years, Wicks applied to all public contracts having a value of at least $50,000. The law's effect has been both to add costs and foster situations in which the several contractors on a job blame each other for errors and delays. Attempts to amend or eliminate Wicks go back years. This past spring, as part of its budget enactment, the state finally approved some modifications. Now for Wicks to apply, contracts must have a value of $3 million in New York City, $1.5 million in the downstate suburbs, and $500,000 upstate. There is also provision for eliminating the threshold altogether for projects governed by comprehensive contracts, known as project labor agreements, which define wages and work rules for the multiplicity of contractors and building trades on a major job. One set of the contracting changes you are examining today implements these Wicks modifications. It is long overdue and absolutely essential.

Other changes are nitty-gritty process improvements-such as scoping capital projects before bidding them out and sharing bid information across agency boundaries. It is simply amazing that we've been attaching dollar figures to projects all this time without the scoping that is necessary for accurate cost estimates. It is difficult to estimate correctly even with proper scoping. Without it, is it any wonder that projects end up costing many times their originally stated price and finishing years late?

Finally, there are changes proposed for processing change orders and for project delays that are the fault of the city. Contractors bidding for city work add a premium to their prices to offset costs they anticipate-but cannot estimate-that result from the inconvenience, headaches, and delays (including delays in payment) of working with the city bureaucracy. So the city pays more for construction than a private entity would for equivalent work. In boom times those headaches dissuade some contractors from bidding at all-thus limiting supply and competition and making construction even more expensive for the city. These proposed changes are aimed at this problem and should also absolutely be adopted.

Finally, I'd like to make a warning to preempt possible new expenses that the public sector would take upon itself in subsidizing housing construction. For decades small developers (both profit-making and non-profit) have depended on non-union labor to build low- and mid-rise housing outside Manhattan's core. A major factor in keeping costs down, non-union labor made possible much of the affordable housing that exists today. There is now a movement to require private projects built with government subsidies (that is, "affordable" or "subsidized" housing) to pay construction workers the "prevailing wage," which is essentially the union-level wage for their particular work.

Let me be clear. Such wages must be paid on public works projects already, but advocates for prevailing wage would also impose it on private projects that use public money. Imposing this requirement would add directly to building cost, thus decreasing the amount of housing that can be built with each dollar of subsidy. This is not before you for consideration today, but I wanted to bring it to your attention earlier rather than later.

Thank you for your invitation, time, and interest.