How to Build a Subway — Let Me Count the Ways

As everyone knows, the public sector wastes huge amounts of money on overblown, out-of-control projects, or at least that’s the prevailing view in some quarters. One major side-effect of Ottawa’s participation in funding the York subway extension (or TYSSE: Toronto-York Spadina Subway Extension), in an insistence on value-for-money and the maximum participation by the private sector.

Leaving aside that the TTC doesn’t actually build anything itself, and contracts out a vast amount of the design/engineering work, there is a perception that (a) subway construction projects could be better run and (b) there is (even more) opportunity for private sector participation.

A report on this week’s TTC agenda discusses the various options for delivering this project and includes some revealing information about the pros and cons of various approaches. I will leave it to those who are interested to read the full text, but a few things caught my eye.

First off, there are many ways and degrees in which a private sector company or consortium can be involved in large projects like this all the way from complete design, finance, construction and operation down to a basic contractor who bids on a job, builds a box and leaves.

In the review of options, the variants where operation rested with a private entity were rejected outright because the TYSSE is part of an existing, operating, public-sector subway line. Experience elsewhere suggests that private operation tends to occur only when a new, free-standing line is built such as the Canada line in Vancouver.

Financing options are not discussed at length, but this issue always turns on the question of whether a private partner can provide capital at a lower cost than a public agency. This also involves some creative accounting. A privately owned line (and its associated capital debt) does not appear on the public books. This scheme is commonly used to hide debts (think Enron), although generally accepted accounting practices for governments make this more difficult to pull off. Even if a government is not technically exposed to the debt, the last thing any (well almost any) provincial government will do is to let a subway line close because its owner is bankrupt.

We have heard a lot lately about borrowing from large investment pools such as pension funds. Whether this is done on a government basis or by an arm’s length agency, somehow the interest and debt must be paid. Either this is a direct charge against current operations, or it is transferred to a government through a subsidy arrangement (no doubt with an appropriate management fee).

As for construction, the difference between the two main options depends on whether the TTC designs it all and contractors just build it, or if the TTC says “build me a subway station” and the contractors design to a general set of specs and deliver a finished product. A working group from the construction industry reported that their preference is to leave the design to the TTC for contracts under $100-million, or where there will be multiple contractors (possibly including the TTC itself) onsite. This relieves the contractor of having to manage (and assume risk of) portions of the work not under his control.

For large contracts, it may be worth a contractor’s while to bring the design work in house provided that the job is fairly generic and does not require skills in special systems peculiar to transit. For example, building an empty box that will become a subway station or tunnel structure is a fairly straightforward task while design and co-ordination of the many subsystems fitted within the structure are complex and outside of their regular scope of work.

One point not mentioned here is that the industry’s skill base depends strongly on what they do most of the time. An important observation about Madrid in recent studies is that their continuous program of system expansion allows the industry to develop expertise and continuity of staff that would not otherwise be possible. In Toronto, there are only so many subways to go around among the major players, and we don’t build them very often.

Finally, there is a breakdown of the TYSSE’s estimated cost — $2.09-billion in 2006 dollars, or $2.633-billion assuming completion by 2015. This date could slip if various governments spend time squabbling about whether the project passes a private sector sniff test, adding to the cost.

For all you readers who have wanted a subway station of your very own, we see station costs of $73-to-$100-million depending on the complexity. Of particular note is a 26% contingency. This rather generous $400-million slush fund (a cool half-billion with inflation) will allow considerable overruns while keeping the project “on budget”. At this point, I will be generous and hope that this is for “things we haven’t thought of in the preliminary design”, but at some point this needs to be nailed down. I doubt we will ever know how much contingency everyone builds into their estimates (public or private partner) and yet there is probably more money on the table in this one line than in any savings, real or imaginary, from increased private sector participation.

I should mention the rolling stock. The estimate shows 56 cars, although it is physically impossible to buy them in this quantity as they now come in married sets of 6. Even with these cars, the TTC will not have enough “Toronto Rockets” to completely replace the existing fleet on the Yonge-University-Spadina line, and another car order will be needed. Thunder Bay will be churning out cars for years.

The TYSSE will be interesting if, for nothing else, showing us whether there is money to be saved on subway projects with greater private sector know-how at work. Alas, we won’t have an answer to the question for about 7 years, and we will have spent $2.5-billion finding out.

5 thoughts on “How to Build a Subway — Let Me Count the Ways

  1. It would be great if after the Spadina extension is complete that the city of Toronto uses the wealth of experience to keep building more rapid transit infrastructure like Madrid has been doing. We would have a large pool of engineers and tradespeople that could built subways and LRT’s more cheaply because the skills are already in place. I think that Montreal is thinking of extending the Blue Line east now that the Laval extension is complete.

    Another city that is largely ignored is Los Angeles. It had zero kms. of subway line before 1985 and now they have already surpassed Toronto’s amount of subway kms. LA had, and still has, a major traffic problem and the smog to go along with it and they have done something proactive about it. They invested heavily in public transit and it is paying off. And the cost per kilometer is more expensive then Toronto’s and much more then Madrid’s because they have to build underground infrastructure that can withstand a minor earthquake that they experience fairly often. So Toronto shouldn’t try and use expense as the reason not to build if LA has been able to overcome an even bigger hurdle.

    I think Toronto should try and emulate both LA and Madrid in building rapid transit infrastructure to properly serve the whole GTA’s 5 million plus population. Come on Toronto make this investment for our economy, environment and all income levels of our population.


  2. Building a private or semi-private line for the sake of adding the word “private” in there is pointless. There is no reason that a PPP subway should fail, but if one is to be built, we need to be doing so for the right reasons.


  3. Not to get into a pissing contest but LA’s actual “rapid transit” is 17.4 miles or 28 km. (according to Wikepedia with a combined subway/LRT of 73.1 miles or 117.6 km. Toronto subway/SRT is listed at 42.7 miles or 68.3 km. The quaint old streetcar system is 305.8 km or 190 miles.

    LA’s Red and Purple line have a average weekday ridership of 126,000. This is less than the combined total for the King and Queen Streetcar and Dufferin bus!

    The LA system is “the ninth busiest heavy rail system in the US”, which given LA is the second largest CMA (at 12m 2006) rather a sad statement. The LRT system fairs only slightly better with 134,000 boardings, I haven’t crunched the numbers but I suspect less than the TTC streetcar system.

    Although LA started with nothing but they did reuse some existing Pacific Electric r-o-w for the Blue Line (LRT).

    The privately owned PE LRT system that the private owners had the “wisdom” to abandon when it wasn’t making any money. The existing LA subway is heavily subsidized by California and the federal government, something that definitely does not apply to the TTC!

    Toronto is paying it’s share of the freight for public transit with the highest fare box recovery of large North American cities, time for the other players to step up to the plate.

    On February 28, 2008, Metro announced the approval to install ticket barriers. It is estimated that Metro loses 5.5 Million US dollars a year because of the honour system method. These barriers will also improve security at all the stations, provide better ridership statistics and create the ability to have zone fares. The barriers will be installed at all subway stations, select LRT stations and all stations opening in the future. The installation will take 12 to 18 months.

    With a $1.25 US fare how much would the TTC lose a year?

    Steve: In round numbers, the TTC’s total fare revenue for 2007 was $774-million. For the sake of argument, if we assume an average adult fare of $2 (this is probably a bit high when the effect of passes is included) and assume the dollar at par, then on a straight substitution basis, we would lose $290-million. However, this lower fare would encourage some additional ridership especially off peak when there is spare capacity. That would have an impact both on the revenue and expense sides of the books, but a change that big is way beyond the usual model of fare and ridership elasticity and I can’t hazard a guess at the net dollar impact.


  4. Is there ANY WAY to actually stop this overblown project? Your views and my views are similar in the sense that the money spent here could be better spent on Transit City. I’m pretty sure there would be some “value” in that in the sense that it too will boost property values, though not at the same scale as the Sorbara Line would.

    Steve: Given that all the money is now committed by every government imaginable, I think this thing is a done deal. Sad, but a done deal.


  5. Though this is an old section,I hope people are still reading it. It can be argued that a subway is not needed to Vaughan, it can even be argued that a subway is not needed to York University, however since its being built, wouldn’t have been cheaper to build the subway at grade past Steeles considering nothing but open fields are there.

    Steve: Anyone with an RSS feed will pick up new comments no matter what thread they are on. As for the subway extension, of course it’s a joke. It exists only because the former Finance Minister’s riding happens to be in Vaughan where the terminal is. And it should have been on the surface as much as possible (easier to do with LRT). However, York Region wants a subway and without the intrusion of surface operation. What York Region wants, York Region gets.


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