Policy & Regulation

State Project Cost Overruns Signal Future Public Contract Risks for Businesses

·5 min read·👀 Watch

Executive Summary

Recent state government project delays and significant cost increases, exemplified by the Capitol reflecting pool renovation, indicate systemic inefficiencies that could impact future public works contracts and permitting timelines. Businesses relying on or interacting with state infrastructure projects should monitor public contracting trends and potential impacts on project bids and development schedules.

  • Real Estate Owners & Developers: Expect potential delays and increased costs in state-facilitated development or infrastructure projects.
  • Investors: Increased risk perception for state-contracted projects, potentially affecting valuations.
  • Tourism Operators: Infrastructure project delays can indirectly affect visitor experience and access.
  • Entrepreneurs & Startups: Longer permitting and approval times for state-related ventures.
  • Agriculture & Food Producers: Delays in logistics or infrastructure impacting export/import operations.
  • Action: Watch public contract bidding trends and permit processing times for State of Hawaii projects.
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Watch & Prepare

Medium Priority

Continued delays and cost increases in public projects signal ongoing issues that might impact future bidding opportunities, permit processes, or tourism infrastructure, requiring businesses to adjust expectations or explore alternative scenarios.

Monitor Department of Accounting and General Services (DAGS) announcements regarding new public contract bids and project completion reports. If average project cost overruns for major state initiatives exceed 15% or project delays consistently surpass 6 months, re-evaluate risk assessments for any business operations dependent on state infrastructure or contracts.

Who's Affected
Real Estate OwnersInvestorsTourism OperatorsEntrepreneurs & StartupsAgriculture & Food Producers
Ripple Effects
  • →Escalating state project costs → Reduced state budgets for other public services or new initiatives → Slower development of critical infrastructure (e.g., broadband, transportation) → Increased barrier to entry and higher operating costs for businesses statewide
  • →Consistent public project overruns → Increased skepticism from taxpayers and businesses → Pressure to streamline procurement processes → Potential for rushed processes that may not prioritize long-term value or risk mitigation
  • →State project delays → Postponement of attractive public spaces or amenities → Diminished quality of life and local appeal → Reduced ability to attract and retain skilled labor, impacting all sectors including tourism and tech
Aerial view of a construction site in Rochester, showcasing dirt excavation and heavy machinery.
Photo by Tom Fisk

State Project Cost Overruns Signal Future Public Contract Risks for Businesses

Recent state government projects are experiencing significant delays and escalating costs, raising concerns about the efficiency and predictability of public infrastructure development and contracting in Hawaii. The prolonged renovation of the state Capitol reflecting pools, now facing a year-long extension and a $7 million cost increase to $47 million, serves as a recent case study of these persistent challenges.

The Change

The project to reimagine the Capitol reflecting pools as a waterless art installation, initially slated for completion by the end of the previous year, is now projected to extend into the following year. This delay is accompanied by a substantial cost overrun, with the final budget now estimated at $47 million, a $7 million increase from prior projections. This situation highlights recurring issues in the Department of Accounting and General Services (DAGS) in delivering state public works projects on time and within budget.

Who's Affected

  • Real Estate Owners & Developers: Businesses involved in or dependent on state infrastructure projects, including new developments or public space renovations, should anticipate longer timelines and increased budgetary uncertainty. Delays in state projects can have cascading effects on private development schedules that rely on or interface with public works, potentially leading to increased carrying costs and revised financial projections.

  • Investors: Investors in companies that contract with the State of Hawaii, or those analyzing the broader economic climate for Hawaii, should note the increased risk associated with state-led initiatives. Consistent cost overruns and delays can signal underlying management or logistical issues, potentially impacting the predictability of returns on investments tied to state infrastructure or development.

  • Tourism Operators: While not directly involved, tourism operators can be indirectly affected. Major infrastructure projects, even those meant for public enhancement, can cause disruptions during construction phases, potentially impacting visitor access or the aesthetic appeal of key areas. Delays in planned upgrades to public spaces could also mean missed opportunities to enhance the visitor experience.

  • Entrepreneurs & Startups: Startups, particularly those seeking government contracts or operating in sectors that require state permits or infrastructure, may face extended waiting periods and higher indirect costs. The unpredictability in state project timelines can create significant hurdles for scaling businesses that rely on timely development and operational approvals.

  • Agriculture & Food Producers: For this sector, delays in public infrastructure can impact logistics. If port improvements, road upgrades, or other state-facilitated transportation projects are postponed or exceed budget, it could affect the timely export of goods or the import of necessary supplies, ultimately impacting supply chains and profitability.

Second-Order Effects

  • Escalating state project costs → Reduced state budgets for other public services or new initiatives → Slower development of critical infrastructure (e.g., broadband, transportation) → Increased barrier to entry and higher operating costs for businesses statewide.
  • Consistent public project overruns → Increased skepticism from taxpayers and businesses → Pressure to streamline procurement processes → Potential for rushed processes that may not prioritize long-term value or risk mitigation.
  • State project delays → Postponement of attractive public spaces or amenities → Diminished quality of life and local appeal → Reduced ability to attract and retain skilled labor, impacting all sectors including tourism and tech.

What to Do

This situation calls for a cautious approach, as the implications for future public contracts and development are still unfolding.

  • Real Estate Owners & Developers: Factor potential buffer time and contingency funds into project timelines and budgets for any ventures that depend on or interact with state government permits or infrastructure projects. Review past state project performance data when evaluating bids or partnership opportunities.

  • Investors: Closely monitor the State of Hawaii's Department of Accounting and General Services (DAGS) project execution reports and bid outcomes. Increased frequency of significant cost overruns or delays should be considered a negative indicator for investments tied to state contracts.

  • Tourism Operators: Be aware of ongoing or planned state infrastructure projects in tourist-heavy areas. Communicate proactively with stakeholders about potential disruptions and adjust marketing or operational plans accordingly.

  • Entrepreneurs & Startups: When relying on state permits or anticipating state-related infrastructure, build substantial contingency into your operational plans. Explore private sector alternatives or partnerships if state-dependent timelines appear too uncertain.

  • Agriculture & Food Producers: Assess the risk of potential delays in transportation or port infrastructure upgrades managed by the state. Diversify logistics partners or explore alternative export/import routes if vulnerabilities are identified.

Action Details: Monitor Department of Accounting and General Services (DAGS) announcements regarding new public contract bids and project completion reports. If average project cost overruns for major state initiatives exceed 15% or project delays consistently surpass 6 months, re-evaluate risk assessments for any business operations dependent on state infrastructure or contracts.

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