In Estonia, each kilometer of Rail Baltica railway costs less than in Latvia and even below the European average, and construction is progressing faster. In April 2024, Estonia fundamentally changed its approach to Rail Baltica implementation by adopting Finland’s modern model for managing large-scale projects, according to Jānis Ošlejs, economic and business advisor to Latvia’s Minister of Transport and CEO of concrete flooring manufacturer Primekss, in a comment to the LETA news agency.
Meanwhile, Latvia still follows an outdated and inefficient project implementation model used in some older European countries, Ošlejs argues.
He explains that in billion-euro infrastructure projects like Rail Baltica, the contract model and alignment of interests between parties have a significant impact on outcomes: total costs, quality, and project timelines.
Until now, Latvia has opted for the traditional “Design-Bid-Build” (DBB) approach. Estonia, in contrast, has transitioned to the alliance model, also known as Integrated Project Delivery (IPD). According to Ošlejs, the difference between the two is fundamental — in mindset, risk distribution, and contractor motivation.
The results speak for themselves: in Estonia, the cost of rural sections of Rail Baltica ranges between 5 to 7 million euros per kilometer, while in Latvia it reaches 10–15 million euros per kilometer.
Ošlejs explains that the DBB model separates the designer, the builder, and the client.
Each party has its own contract, interests, and responsibilities.
Design comes first; then, a tender is announced, and the cheapest bidder wins. In contrast, the alliance model brings together the client, designer, and builder into one team with a shared target budget. Profits (bonuses) or losses (penalties) are shared collectively.
In the DBB model, the builder enters the project only after the design is finalized — unable to fix mistakes or costly design decisions. Ošlejs stresses that in complex projects like Rail Baltica, flaws are inevitable — whether due to design errors or unforeseen on-site conditions like soil issues or uncharted utility networks. To avoid losses, contractors typically add a “risk buffer” to their prices.
From the builder’s perspective, this is standard risk pricing. But the client ends up paying more, and no one is incentivized to build better or cheaper.
“Moreover,
each project change becomes an easy opportunity for contractors to demand extra payment from the government.
There’s little incentive to solve problems early — letting them escalate into profitable change orders,” Ošlejs adds.
In Finland, the alliance model has gained enormous popularity. Over the past few years, 150 major projects have been delivered using this approach, including over half of Finland’s large infrastructure projects: tramlines, rail projects, the new Helsinki-Vantaa airport terminal, hospitals, and more. These projects have been completed on time and within budget, Ošlejs points out.
That’s thanks to the alliance model, where all stakeholders — the client, designers, and builders — work together from the start to find optimal solutions.
Ošlejs explains that the alliance approach is based on a jointly developed target budget. This is not just a contract sum, but a shared understanding of how much the project should cost, based on data, Building Information Modeling (BIM), market prices, and efficiency assessments.
If the project stays under budget, all parties receive a bonus.
If it exceeds the target, all share the cost overrun. This encourages collaboration and joint problem-solving.
In the alliance model, the builder isn’t just executing a costly design but works with the designer to simplify and reduce costs — for example, replacing a bridge with an embankment, using alternative foundations, or optimizing construction sequencing. Also, there’s no profit in “extras,” since all changes are discussed and approved jointly. The builder earns more by preventing problems, not by capitalizing on them.
Estonia introduced the alliance model for Rail Baltica with Finnish consultant Vision. Contracts were signed based on the “Best for the Project” principle.
As a result, multiple kilometers were grouped under a single contract to achieve economies of scale. Builders and designers collaborate on optimization — avoiding redesigns and misalignments. The project budget is under strict control. According to Ošlejs, Estonian costs are four times lower than the EU average (about 26 million €/km) and at least 40%–50% lower than in Latvia.
He notes that Finland and Estonia rely on Vision’s structured methodology for negotiation and solution development.
This model benefits everyone — the government gets a cheaper product, and builders profit through optimization rather than inflated prices.
Ošlejs believes Latvia can achieve the same outcomes and save billions. “What Estonia has done is no magic — the geological conditions are similar, the same contractors are available. There’s no reason why one kilometer of Rail Baltica in Latvia’s rural areas should cost more than in Estonia,” he states.
He argues that all Latvia needs to do is adopt Estonia’s proven project management practices and implement the cost-saving ideas already developed there.
As reported earlier, according to RB Rail’s latest figures, the first phase of Rail Baltica could cost up to 14.3 billion euros in the Baltics — including 5.5 billion euros in Latvia — though technical optimization could bring potential savings of up to 500 million euros, with other savings also possible.
Total project costs across the Baltics could reach 23.8 billion euros, according to a recent cost-benefit analysis. The previous 2017 estimate put the overall cost at 5.8 billion euros.
The Rail Baltica project aims to build a European standard gauge railway line from Tallinn to the Lithuanian-Polish border, connecting the Baltic states to the broader European rail network. The plan includes a new 870-kilometer-long railway line with a track gauge of 1,435 mm and a maximum train speed of 240 km/h.
Read also: Railway on hold – temporary platforms to be built in Riga due to Rail Baltica delays