In 2007, DART was $1 B short for building a new suburban rail line out to Irving and Rowlett. One of the reasons for this budgetary shortage was high inflation in heavy construction sector in 2004, 2005 and 2006. a) In order not to have this type of budgetary shortfall, should DART sign fixed cost, inflation- dependent cost or alterable cost contracts with the construction companies? Explain.

b) Would a construction company prefer a fixed cost contract or an inflation-dependent cost contract? Explain. c) Even with the inflation taken into account, we cannot explain all of $1 B shortage. Moreover, con- struction projects almost always cost more and last longer than they were initially planned for. Is it possible that the cost and/or duration of these projects are conciously underestimated? Who would benefit from this underestimation?