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Establishing the SSC Laboratory near Dallas, Texas, proved much more difficult than anticipated. As Central Design Group leaders did not participate in construction, SSC Director Roy Schwitters turned increasingly to engineers from the US military-industrial complex to fill key posts, leading to clashes with high-energy physicists. A major SSC redesign resulted in cost overruns greater than $2 billion, as the estimated cost grew from $5.9 billion to $8.25 billion. This major cost increase soured relations with DOE officials, especially Secretary James D. Watkins, who began installing trusted lieutenants into SSC leadership positions, such as Edward Siskin as General Manager; it abetted perceptions of an alien, military-industrial culture at the lab. This cost overrun provided ammunition for Congressional SSC opponents, who began accusing the DOE and physicists of project mismanagement. These claims were partly valid, for SSC managers had been laggard in establishing and validating the required computerized project-management control system.

Public clients today procure billions of USD of infrastructure globally without a full view of tradeoffs between different procurement performance objectives. The fact that data on some dimensions of project performance are publicly observable can create bias in procurement and contracting choices against those that are not. For example, cost overruns bear reputational concerns and are easily measured. It is harder to determine whether a project was relatively “expensive.” We explore the predictions of auction and contract theory about the outcomes of procurement choices and assess them against empirical evidence. We find the evidence does not match the predictions well, especially for more complex projects. For example, the evidence indicates that Design and Build contracts and PPPs could be disproportionately costlier than simpler contracts. We identify two ways to inform procurement decisions better. First, systematic infrastructure cost and performance benchmarking is needed, which include procurement choices as an explanatory variable. Second, auction and contract theory alone do not explore all the choices affecting procurement outcomes. Issues of bidder selection, delivery model, and contract power are preceded by questions of make-or-buy and contract scope. Both choices require stepping away from auction and contract theory and learning from new institutional economics theories.

This chapter focuses on a topic of growing importance to infrastructure governance: cost overruns, when a project ends up exceeding its anticipated budget. The chapter presents the results of a linear regression analysis of the construction costs involved with 401 electricity infrastructure projects built between 1936 and 2014 in fifty-seven countries. Included in this sample are dozens of hydroelectric dams, nuclear reactors, thermoelectric power plants, utility-scale solar facilities, wind farms, and transmission projects that collectively required more than $800 billion of investment and constituted more than 325,000 megawatts of capacity. The chapter shows that larger projects such as hydroelectric dams and nuclear power plants are highly correlated with cost overruns, and that wind farms and solar facilities are negatively correlated. This finding implies that smaller, more flexible, decentralised systems have a suite of (possibly undervalued) factors that make them less prone to the risk of an overrun.

Recognizing that US taxpayers would not cover the entire SSC cost, the Bush Administration began trying to internationalize the laboratory by seeking large foreign contributions. But the only serious prospect was Japan, which was initially hesitant to commit to such a partnership. In 1990, before the extent of the cost overrun was fully recognized, the US House of Representatives capped the federal SSC contribution at $5 billion while requiring at least 20 percent foreign contributions. When estimated total costs grew to $8.25 billion, this stipulation meant that a total of $1.7 billion was needed from other countries. That summer, amendments to terminate the SSC were defeated by comfortable margins in both House and Senate despite worsening public perceptions of the project. But thus chastened, high Administration officials redoubled their efforts that fall to secure a billion-dollar Japanese commitment but obtained only a promise to consider partnering in the SSC laboratory.

This chapter examines corruption in the construction of the Erie Canal in New York using evidence on cost overruns for major governmental projects and news reports from newspapers from 1815 to 1975. The analysis reveals that while there was obviously some fraud and mismanagement, the public authorities carried out the work at costs relatively close (by the standards of public projects) to those projected at the point of authorization. This chapter also describes how the Erie Canal project inspired unprecedented public investment in transportation infrastructure.

Reactions to the SSC termination ranged across a wide spectrum from stunned to regretful to laudatory. While high-energy physicists deplored the Congressional slaying, other scientists endorsed it. After initial shock subsided, DOE commissioned a 1994 report from the High-Energy Physics Advisory Panel to suggest how this scientific community could recover from such a devastating blow. It recommended that the United States join with CERN in an international collaboration to build the Large Hadron Collider, which happened in 1997, and that the nation proceed apace with smaller projects at Fermilab and SLAC. There were many reasons for the SSC demise, but three stand out: (1) the continuing cost overruns and perceptions of project mismanagement; (2) the absence of major foreign contributions; and (3) changing scientific priorities as the nation transitioned out of the Cold War. Basic physics research that might lead to fundamental discoveries and national prestige had fallen from favor.

TVA was not the only public power vehicle sponsored by President Roosevelt. He sought to replicate the TVA concept elsewhere, including the Pacific Northwest, where he wanted to harness the vast hydroelectric power of the Columbia River. Political opponents, among them investor-owned utilities, saw TVA as a mortal threat and fought to limit the scope of other public vehicles. Bonneville Power Authority (BPA), organized as a federal marketing agency to sell hydroelectric power produced by dams on the Columbia River, was by law simply a merchant of power produced by others without rights to own the sources of that power. BPA nonetheless became a primary provider of low-cost electricity to power-dependent, municipal utilities, which in 1957 formed Washington Public Power Supply System (WPPSS) to consolidate public power initiatives in the Pacific Northwest. Spurred by forecast power shortages, WPPSS joined forces with BPA in the 1960’s to promote a hugely ambitious nuclear power program. Since it could not build or own the power plants required, BPA chose as a surrogate WPPSS, which agreed to finance, construct and operate five nuclear plants but lacked the managerial capacity to deal with complex nuclear technology. BPA guaranteed financing for three of the plants, and WPPSS raised money for the remaining two on the strength of contracts with participating local utilities, also BPA’s customers. The funding medium was municipal bonds, of which WPPSS became over a decade the nation’s largest issuer. Many buyers were individuals, much like the customers for the securities of Insull’s holding companies. The nuclear program encountered huge cost overruns, delays, and technical failures. Forecasts of the imminent power shortage, an article of faith at BPA and WPPSS, proved wildly wrong. In the event, WPPSS defaulted on the non-guaranteed bonds, and only one of five nuclear plants ever reached completion. Donald P. Hodel, BPA’s administrator during five critical years ending in 1977, dismissed environmental critics as “prophets of shortage,” suppressed reports questioning the foreseen power shortage, and coerced local utilities to support two of the nuclear plants by causing BPA to issue a notice of insufficiency, an official pronouncement that threatened energy curtailment unless plants four and five were built as planned. The failed nuclear program saddled BPA’s ratepayers with huge cost increases, and bondholders also suffered major losses. Hodel meanwhile made a fortuitous and timely departure, later serving as President Reagan’s Secretary of Energy and the Interior. The debacle raised searching doubts about the governance of politicized bureaucracies. WPPSS operated free of local control; but BPA, unlike TVA, was not self-governing and remained exposed to the variable winds of political pressure linked to federal subsidies. Faced with the prospect of power shortages, BPA relied on WPPSS to do indirectly what it could not do directly, lost control of its agent, and presided over the resulting regional disaster. In the wake of this monumental failure, the public power movement sustained a serious reversal. At the same time, alternative environmentally oriented approaches to the nation’s energy future took root in the ashes and gained a wider audience.