07-25-2024, 10:55 PM
(07-25-2024, 04:11 PM)the_conestoga_guy Wrote: This system is supposed to protect municipalities because if the project goes over-budget, then the contractor is on the hook for the extra cost. I'd prefer a system where the contractors are only paid for the work that they complete, but I'm not sure how such a system could be implemented.
If somebody can complete work more inexpensively than others, why shouldn’t they earn profit from it? Suppose roads regularly cost $1M/km to be built by existing contractors, then somebody comes along and starts bidding $0.9M/km, wins all the jobs, and delivers excellent results. Who cares if their costs are only $0.8M/km due to their clever methods? They’re still saving the government money compared to what was happening before.
In a competitive market, anybody who is able to do the work is able to bid and undercut anybody who is overcharging. Don’t forget, too, that a paving company has a lot of capital tied up in equipment so they need to make a significant profit in order to justify that. Otherwise they could just sell the equipment and buy T-bills and do just as well with less risk.
The government is perfectly free to buy paving machines and hire paving employees. I tend to think they should do more work in-house than they do, but I recognize that some things are better contracted out to specialty companies.