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New year, new challenges for IIJA

New year, new challenges for IIJA

As the Infrastructure Investment and Jobs Act enters its second year, the landscape for civil work looks challenging in many ways. A volatile economy, battered supply chains and high demand for labor will all make it difficult for contractors to meet demand.

Amid the uncertainty, the IIJA provides a welcome stable infusion of $1.2 trillion in funding to a variety of construction sectors over five years. The legislation will boost a wide range of infrastructure work, from bridges to broadband, as well as bolster industries focused on low-carbon and American-made materials.

However, there are a number of headwinds that could hamper the rollout of federal infrastructure work in 2023, and overcoming them requires careful planning.

“It’s a once-in-a-lifetime opportunity that all came together, but the biggest concern is: Is this going to become a perpetual raindrop that does not hit the ground? We need to make sure that things are all aligned so that it hits the ground sooner than later,” said American Society of Civil Engineers Senior Vice President K.N. “Guna” Gunalan.

Here are some of the likely challenges ahead.

Lack of subcontractor capacity

Large contractors will be able to adapt as needed to win these new federal jobs, according to Certified Public Accountant Jack Callahan, construction industry leader with New York City-based tax and advisory firm CohnReznick. The challenge will be for the primes to find enough subcontractors to staff them. The IIJA stipulates a certain number of MWBEs to meet its inclusion goalswhich adds to the difficulty of finding enough of the right subs.

CPA Jack Callahan, construction industry leader with CohnReznick.

Permission granted by CohnReznick

“You’ve got a very large diversity, equity and inclusion requirements built into these contracts. When you look at billion-dollar programs, and you look at 20% participation goals in there: Where do you find that many contractors with that much capacity to perform in what many cases are going to be highly complex, heavy civil infrastructure jobs?” said Callahan. “I think the large primes that have spent a lifetime gearing up will tackle this work, but where are they going to find the subcontractors, both from the traditional side and the diverse side?”

Still, Callahan thinks there are simple ways for contractors to improve their chances of finding the people they need — namely, pay bills on time and treat subcontractors professionally.

Inflation

The country saw 40-year-high levels of inflation in June that hit certain building materials especially hard, such as lumber and cement. While prices for some key construction inputs have moderated, others are still elevated or remain volatile. Difficulty predicting prices means it’s harder to plan projects, and to assess and assign risk, said Gunalan.

The projects that move forward amid high prices will translate to less infrastructure bang for the federal buck. In light of this dynamic, some projects, such as the Des Moines International Airport, are adopting a phased approach since inflation has made it too expensive to conduct all of the work at once.

ABC Chief Economist Anirban Basu.

Permission granted by ABC

In addition, some state and local decision makers may be trying to time the market and push projects to later when prices are lower, according to Associated Builders and Contractors Chief Economist Anirban Basu. That could reduce the overall pace of building that the Biden administration hoped to achieve.

Materials delays and shortages

Although supply chains have bounced back somewhat since the early part of the pandemic, COVID-19-related shocks look set to continue and obtaining certain materials in a timely fashion will likely still prove challenging in 2023. This strain may be particularly noticeable in the spring, when construction season begins in the Midwest and Northeast, according to Callahan.

What’s more, the infrastructure act’s Buy America provision requires contractors to use a certain amount of U.S.-made materials, but since the country’s manufacturing capacity is still low and demand is set to skyrocket, it may take the limited number of American plants a long time to fulfill orders. Production of green materials, needed to fulfill Buy Clean requirementsis similarly in its early stages.

In light of these challenges and high levels of economic uncertainty, Christopher Livingstone, managing director of project finance and consulting with CohnReznickthinks there will be a great deal of negotiation between primes, subs, suppliers and jurisdictions. Cooperation, communication and flexibility will be key to getting the most value from the federal funds.

Christopher Livingstone is managing director of project finance and consulting with CohnReznick.

Permission granted by CohnReznick

“We’ve got a great opportunity to use these dollars to make meaningful change,” said Livingstone. “We need to think very carefully up front about how we do that and what the best way to do that is, and some of that is to use new approaches.”

Labor crunch

The infrastructure workforce has big gaps in hiring, training and retention, a December 2022 report from nonpartisan think tank Brookings Institution found, especially among younger students, women and people of color. The IIJA will only drive demand higher. Ken Simonson, chief economist with Associated General Contractors of America, expects the dearth of labor to be a key problem in 2023.

“I expect labor availability to remain the no. 1 challenge for most contractors, with continuing high job opening rates and rising wages,” Simonson said.

Ken Simonson, chief economist with Associated General Contractors of America.

Courtesy of AGC

The IIJA also stipulates a certain number of roles be filled through apprenticeships, and Callahan questions whether there are enough people who want to take part at this time, and whether unions have had enough time to gear up a pipeline of candidates for these roles.

“We all have labor challenges as is today, but as you look at some of these mandates and the actual stipulation of how they play down to the prime contractors and subcontractors, is the union workforce robust enough to meet all of these requirements?” said Callahan.

Slow tech adoption

Since the IIJA is being carried out in part by state agencies, it will likely draw contractors who have not worked on federal jobs before and are not familiar with their unique stipulations, such as security clearance and cybersecurity requirements. That means these builders will need to get educated on federal compliance, and quickly.

“It’s [a matter of] having a team of people to reach out to and making sure that before you bid the job, you understand what all the ramifications might be and getting the skill set and tools you need to build up for it,” said Callahan.

Construction is notoriously slow to adopt technologyand Callahan thinks that’s holding many contractors back. More tech investment can free up scarce workers for other roles, and tools like BIM can make complex projects more organized and transparent. To that end, the IIJA contains $550 million to promote the use of construction tech on its jobs.

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Greg Aftayev

Greg Aftayev is a Journalist at Flaunt Weekly Covering Tech News.

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