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.
