On Nov. 15, 2021, President Joe Biden signed the Infrastructure Investment and Jobs Act (IIJA), a $1 trillion bipartisan infrastructure bill, into law. According to a White House Briefing Room fact sheet, “[t]he legislation will help ease inflationary pressures and strengthen supply chains by making long overdue improvements for our nation’s ports, airports, rail and roads.”
The IIJA is an extension of the typical government highway bill at roughly four times the normal funding levels, with some interesting new allocations to categories not previously addressed, such as $65 billion invested into broadband.
While the construction industry seems to be universally in favor of the increased investment in infrastructure and the opportunities that will be created, the influx of funds for projects may exacerbate stresses on material availability, inflation and labor shortages.
According to the Associated General Contractors of America (AGC), there were unprecedented price increases for a wide range of goods and services used in construction which increased costs by 26.3% from June 2020 to June 2021.
Material availability and pricing seem to be headed in a better direction in the early part of 2022, however, infrastructure projects have the potential to draw huge needs for goods such as steel and concrete, likely boosting demand for plate and long products such as rebar.
There will also almost certainly be an increased demand for skilled labor for infrastructure funded projects, which will provide further stress to the construction labor force.
A June 2021 survey from the U.S. Chamber of Commerce found that 88% of commercial construction contractors reported moderate-to-high levels of difficulty finding skilled workers, and more than a third had to turn down work because of labor deficiencies.
The forthcoming infrastructure bill projects exacerbate the challenge of not only how to replace the construction workers who are retiring or leaving jobs, but to grow the workforce to meet the growing demands.
While it will take some time for IIJA funds to work their way to states, companies that want to participate in the bipartisan-funded programs should prepare now to ensure compliance with federal requirements and project optimization. Areas to consider, adopt or expand include:
- Federal Procurement & Contracting Requirements — Receiving and spending federal funds requires compliance with federal procurement, contracting and auditing requirements. Note that governmental entities are required to comply with the federal Uniform Guidance as well as any state pass through requirements that may be applicable.
- Supplier Diversity Programs — Now is the time to ensure that your entity has established any required diversity programs including Disadvantaged Business Enterprise (DBE), Historically Underutilized Business (HUB) or Minority and Women Owned Business (MWBE) certification programs. A diversity program may take many forms including outreach, mentor-protégé programs or numeric goals that could require constitutional analysis for implementation. Adopting policies and educating your vendor pool early on will ensure legal compliance and increased participation.
- Prevailing Wages & Labor Compliance — Under federal and state law, government owners are required to adopt and utilize a prevailing wage based on either the Davis-Bacon Act and Related Acts or a local wage survey. Owners will likely be using this as an opportunity to review and update wages in preparation for their first procurements. Many will look at utilization of other labor compliance mechanisms such as subcontractor payment monitoring, worksite safety, or drug and alcohol enforcement. Now would be a good time to ensure that your programs align with what will be required from the state and local government entities.
- Construction Delivery Methods — Governmental entities should consider utilizing alternative construction delivery methods in addition to traditional bidding. Approaches such as design-build and construction-managers-at-risk may offer a better value for implementing new construction projects. While there will be a major influx of funds to governmental entities, they will likely still have constraints on their labor pool to manage the funds and projects. Consider seeking opportunities for education and assistance on alternative methods and the benefits they can provide.
- Public-Private Partnerships — With newly available funds, now is the time for government owners to considers ways to supplement and stretch project funds. Many governmental entities are likely to consider adopting public-private partnership (P3) guidelines for a range of infrastructure projects that can be utilized in tandem with federal funds thus stretching their project dollars and impact.
The impact of these projects will be felt by all contractors regardless of whether they participate in federally funded projects, whether in the form of continued short-term material supply, inflation and labor challenges, or the promised long-term benefits an improved nationwide infrastructure should bring.
Among the ways that contractors who may be indirectly impacted by the infrastructure bill can protect themselves is to try and negotiate material escalation clauses into contracts and to proactively participate in programs intended to boost the skilled trades labor pipeline.
If a material escalation clause is not an option, contractors can seek to incorporate other strategies, such as locking in suppliers early at fixed prices and limiting how long bids can remain open before being subject to price adjustments.
It seems that bipartisan support for any government programming is in short supply these days. The united positivity of the infrastructure bill brings with it not only tremendous opportunity for growth and success, but also shared challenges for an already struggling industry.
With all that the construction industry weathered in both 2020 and 2021, I am confident that contractors will be up to the task, especially if they spend a little time preparing.
