Exogenous determinants of cost deviations and overruns in local infrastructure projects

There is a significant concern about cost deviations and overruns in public projects, particularly by the local governments. The magnitude of expenditure on these infrastructure projects justifies the search for cost deviation reasons, particularly cost overruns. The existing literature also identifies a tendency towards cost overruns in infrastructure projects. However, the analysis of cost overruns determinants has mostly focused on endogenous project characteristics. This research uses a dataset of 4,305 public infrastructure projects, of which 3,338 are local projects, carried out in Portugal between 1980 and 2012. Exogenous determinants (e.g. political, institutional and governance, and economic-related) are also considered in the analysis. An average cost overrun of 19% (9 billion Euros in volume, with a 1 billion Euros overrun) is identified. It is found that central governments incur on an average cost overrun of 23% and local governments on 6%. The analysis confirmed that projects developed by local governments tend to perform better regarding cost deviations and overruns and that exogenous determinants (particularly the political, institutional and governance environment ones) have a strong impact on cost deviations and overruns. These findings on exogenous factors can help local governments to make better management decisions, enhancing governance and institutional frameworks to improve the decision-making process when launching new infrastructure.