A look at the $1.2 trillion infrastructure bill and what it means for the construction industry
The Infrastructure Investment and Jobs Act (IIJA), signed into law last November, includes $1.2 trillion in infrastructure investments, distributed through existing and new programs.
This bipartisan legislation became law as the U.S. economy seeks to recover from the protracted COVID-19 pandemic shutdowns and supply chain disruptions of recent years. It also addresses a persistent underinvestment in the nation’s infrastructure that has resulted in some long-standing, dangerous conditions.
But the devil is in the details, as is often the case. One key question involves how the newly available resources can be efficiently deployed to all of the involved constituents.
According to industry sources, construction professionals are reaching out to local design engineers and municipalities to gauge upcoming projects to get a sense of how their state transportation and infrastructure programs may change in response to the additional funding. At the same time, they are mobilizing their own technical solutions to be able to hit the ground running when dollars finally materialize. Unfortunately, they are also bracing for an increased strain on construction’s existing labor shortage and supply chain challenges.
The details are continuing to emerge about IIJA. All states will receive funding, although some will receive more than others based on factors such as population and the current state of their infrastructure. States could receive anywhere from $2 billion to $45 billion in non-grant funding for projects spanning needs such as broadband, bridge replacements and repairs, electric vehicle charging networks, and public transportation. Not surprisingly, California, Texas, Pennsylvania, and New York will get some of the larger total amounts, while places like Alaska, Vermont, and Wyoming will lead the nation in funding per capita.
Following is a list of the IIJA’s prime objectives:
Repair/rebuild roads and bridges. It is estimated that some 45,000 bridges and 20% of highways and major roads in the U.S. are in need of significant upgrades. Many are truly “poor” and represent an increasing risk to life and limb—the recent collapse of the Forbes Street Bridge in Pittsburgh, Pennsylvania provided a stark reminder of this. The IIJA will make the single largest investment in repairing the nation’s bridges since the construction of the interstate highway system. The bill also includes the installation of a national network of electric vehicle (EV) chargers, which will support the emerging electric vehicle industry and the move away from our dependence on fossil fuels.
The largest investment in public transit in U.S. history. The legislation includes $39 billion of new investment intended to modernize transit in general—including buses, rail cars, stations, and thousands of miles of track and related technologies. Transportation in the U.S. is the largest single source of greenhouse gas emissions and, as such, is a focus of the IIJA. A specific focus on passenger rail will help to close the gap with other countries, such as China, that have a demonstrable lead in terms of high-speed rail. Rail funding for these purposes is slated to be $66 billion, and represents a commitment to changing the nature of transportation in the U.S.
Upgrade airports and ports to support the demands of the supply chain. Decades of neglect have rendered us vulnerable to the supply chain disruptions that are bedeviling our economy in the (hopefully) latter days of the COVID-19 pandemic. The legislation invests $17 billion in port infrastructure and waterways, and $25 billion in airports. These investments are critical to maintaining U.S. competitiveness by removing bottlenecks and facilitating commerce. The pandemic has revealed the extent of our dependence on foreign suppliers, which is a vulnerability that must be addressed. Also, long-overdue upgrades can reduce emissions and contribute to the overall goal of mitigating the negative implications of climate change.
Upgrade the U.S. power infrastructure. This $65 billion investment is focused on clean energy transmission on a reliable grid. According to the Department of Energy, power outages cost the U.S. economy as much as $70 billion annually, so the upgrades promise an immediate financial benefit.
Strengthen the resilience of the U.S. infrastructure. The bill provides $50 billion to protect against droughts, heat, floods, and wildfires, including a major investment in weatherization. This is an area that is crying out for innovation and new tech solutions.
The legislation also includes provisions for ensuring that every American has access to reliable high-speed internet service, provides for funds to clean up Superfund and brownfield sites and address a multitude of legacy pollution sites in the U.S., and expands access to clean drinking water for locations across the country. One key component will be the elimination of lead service pipes, particularly in tribal and disadvantaged communities.
How Will the Funds Be Spent?
What is currently unclear is how the availability of these funds will be prioritized among different types of projects. Some preliminary guidance has been provided by a Federal Highway Administration (FHWA) policy memo on Dec. 16, 2021. It is important to note that, of the $1.2 trillion in available funds, only $550 billion represents new funding, while the remaining funds are earmarked for the continuation of programs previously authorized under the Fixing America’s Surface Transportation (FAST) Act.
Those seeking funds for new projects would do well to recognize some of the key themes and objectives of the legislation:
The Environment. The IIJA is the first major federal program to be crafted with an express goal of addressing climate change. In addition to altering the trajectory of energy generation and utilization for the immediate and long-term future, the program is also focused on eliminating existing sources of pollution and environmental damage. This can cover a lot of ground, and many different proposed projects can have environmental implications.
Road and Bridges. While some supporters focus on the environmental aspects, there are many who view the IIJA as primarily a “traditional infrastructure” package. Streets and roads, bridges, and other transportation projects will get much of the attention and the funding. These projects will be very visible to the public, but there is significant consensus that our physical infrastructure needs the upgrade. Collapsing bridges and deteriorating roadways have made an impression on the public’s perceptions.
The environmental and “traditional” objectives aren’t mutually exclusive, however, as improved public transportation, expanded commercial rail options, and deployment of advanced technology throughout our network of bridges and tunnels should also benefit the environment.
Union and Minority Jobs. There is no question that the current administration supports labor unions and historically underrepresented workers, and would be more likely to fund projects with specific advantages for those constituencies. The vast majority of infrastructure act funds will be covered by Davis-Bacon Act worker protections. In addition, project labor agreements, while not a strict requirement for receiving a contract, will be encouraged in most cases.
The Disadvantaged Business Enterprise (DBE) programs that already exist at the U.S. Department of Transportation and the Federal Transit Administration will likely work to ensure that funds are awarded to businesses led by women and people of color. Within the act itself are provisions for a Minority Business Development Agency inside the Department of Commerce to help DBE companies get access to contracts, capital, and grants.
Public-Private Partnerships (P3). The Infrastructure Act mentions public-private partnerships more than 40 times. A P3 is defined as a long-term contract between a private party and a government agency that can be used to finance, build, and operate projects. These partnerships work well when private sector innovation and technology combine with well-designed public sector incentives to complete work on time and within budget.
P3 delivery programs have been in use for the past 20 years, and many lessons have been learned about crafting those incentives (and penalties) and about properly defining responsibilities. Nevertheless, great care should be taken with such proposals in order to ensure that the public’s best interests are being addressed.
Construction Technology Solutions
The construction industry has been slow to embrace technology for many reasons. In addition to the difficulty in making large capital investments while earning narrow margins, contractors can be reluctant to disrupt their existing business relationships. Nevertheless, there is plenty of revived support for tech such as modular building solutions, despite some recent high-profile failures in that space.
The story of Katerra Construction Company, a tech-driven modular construction company that filed for bankruptcy in June 2021 is one of great ambition and possible overreach. Katerra’s experience should provide a blueprint for others, helping to avoid the pitfalls as they seek to advance the modular approach in the next few years.
Money is likely to be made available for other tech such as visual-based inspection technology, 3D modeling, 3D printing for components (or entire buildings), drones, digital twin technology, BIM solutions, and any and all cutting-edge solutions that light up the imagination and survive government scrutiny.
A variety of federal agencies will oversee the surge in infrastructure funding and are charged with administering new grants and creating new programs. Local and state government agencies, including water utilities and transportation departments, must identify and execute projects in their areas. That may include hiring new people and sometimes mobilizing their own financial resources. There is a trend toward appointing state-specific infrastructure “czars” to help with overseeing the distribution and application of new funds.
Challenges
The construction industry has long been concerned about the aging workforce in America. As more projects are being planned, and expansion is being viewed as inevitable, a substantial number of experienced workers are reaching retirement age. There is a dramatic shortage of younger, qualified workers in most of the construction specialties.
What this means is that contractors are likely to rush inexperienced employees into crucial supervisory positions, resulting in an increase in serious injuries and fatalities. There is also the risk of degraded work quality.
The projected boom in construction funding will also potentially worsen existing supply chain woes, which means bids may need to be padded out to account for increases, and expensive construction delays could threaten the viability of some projects.
The construction industry may be compelled to adapt, breaking up the tech logjam and moving the industry into the next phase of development. For example, delivery systems that include increased use of off-site or modular construction can help address workforce, quality control, and supply chain issues while prompting innovations in support of those changes.
Insurers and risk management professionals must mindful of changes and increases in risks associated with the infrastructure program. Emerging concerns include:
The Biden administration released its first version of a 465-page IIJA guidebook on Jan. 31. It is intended to help state, local, and tribal governments navigate programs included in the $1.2 trillion infrastructure law. The guidebook provides information on the more than 375 programs included in the law.
The IIJA will provide a lot of job opportunities in the next few years and, on the roads and bridges it will support, will likely tie up a lot of traffic in the immediate future. Decisions made in the next few years promise to alter the American landscape for years to come, both physically and from a policy and public safety standpoint.
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Bob Haskell is product line manager, construction, at AXA XL. robert.haskell@axaxl.com
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