Oversight of cost overruns does not always help

In the United States, 42% of public infrastructure projects report delays or cost overruns. To mitigate this problem, regulators scrutinize project operations. We study the effect of oversight on delays and overruns with 262,857 projects spanning 71 federal agencies and 54,739 contractors. We identify our results using a federal bylaw: if the project’s budget is above a cutoff, procurement officers actively oversee the contractor’s operations; otherwise, most operational checks are waived. We find that oversight increases delays by 6.1%–13.8% and overruns by 1.4%–1.6%. We also show that oversight is most obstructive when the contractor has no experience in public projects, is paid with a fixed-fee contract with performance-based incentives, or performs a labor-intensive task. Oversight is least obstructive—or even beneficial—when the contractor is experienced, paid with a time-and-materials contract, or conducts a machine-intensive task.

That is from a new paper by Calvo, Cui, and Serpa, via the excellent Kevin Lewis.


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