CONGRATULATIONS AMERICA! YOU PASSED (BARELY…)
Every 4 years, The American Society of Civil Engineers (ASCE) publishes their Report Card for America’s infrastructure, last published in 2013. Let’s hope that America was able to intercept the mail the day that report card came because it wasn’t great. In fact, America’s infrastructure received a grade D+ from the ASCE. Congratulations? Technically that’s a passing grade, but far from the honor roll!
The 2017 edition of the Infrastructure Report Card will be published later this year. [Update: The 2017 Infrastructure Report Card will be released on March 9, 2017.] levelset has put together an infographic (below, right) that summarizes some of the information from 2013’s Report Card, and…well, you can see for yourself. Grades that bad will usually get you kicked out of school!
And it’s not like our infrastructure has improved over the last 4 years. We’ve had 4 more years of normal wear and tear, 4 more years worth of natural disasters and weather events, plus, 4 more years of population growth and shifts within the country. Long story short: our infrastructure has probably only gotten worse over the last 4 years, and if the baseline was a grade of D+, then it’s going to be interesting to see what grade we receive from the ASCE in March 2017.
What Are We Looking At?
The ASCE’s report estimates that $3.6 trillion needs to be invested in America’s infrastructure by 2020, and that’s just to get the average up to a solid ‘B.’ Yes, this is a huge amount of money, but even scarier is the fact only 55% of the total amount (or about $1.9T, give or take $100 billion or so) has been “committed” (see note, below). That leaves a whopping $1.62T worth of project funding still to be found.
Note: the ASCE’s exact meaning of the term “committed” is not entirely clear. For example, in some states, a public project could be considered committed if it has been earmarked by the state legislature. In other states, the legislature may only need to “pledge” or “consider budgeting” funds for a project to be considered committed. The bottom line is that it remains to be seen how many of these projects actually proceed at the fully funded level.
What Does the Mean for the Construction Industry?
The political, funding and feasibility questions surrounding these infrastructure projects make it very difficult to make predictions with any sort of certainty. Nevertheless, it’s likely that some of the following should happen:
Infrastructure spending will go up, but it may not be soon
This problem has been decades in the making. Elective – or “nice to have” – projects might be a tough sell, but there are plenty of absolutely essential projects (“essential” meaning that lives are literally at stake…like a failing dam or a heavily traveled bridge that is in danger of collapsing) that need to happen. But infrastructure project timelines are measured in years, not in months or quarters. And sometimes those project timelines are measured in decades, as was the case with Boston’s Big Dig, which was first conceived in 1982, actively worked on between 1991 and 2006, with work finally concluding on December 31, 2007. Whew!
Also, each and every public project is, at least in part, a political undertaking, requiring extensive coordination and cooperation from all levels of government (federal, state, local) and most of the branches (executive and legislative). Which leads to the next point about politics…
The volatility in the current political climate will make it more difficult to get these projects going
Getting a significant public project off the ground is tough to do in the best of times, politically speaking. But when the political climate is as divided and dysfunctional as it is currently, well, that only makes a tough task even tougher. Yet, America’s crumbling infrastructure is not going to wait for our political leaders to remember how to work together. And when a crucial piece of infrastructure – like a dam or a floodwall – fails, the pressing need to get the project done will hopefully render any latent political divisions less important.
Update (4/24/17): White House Tamps Down Expectations About Timing of $1T Infrastructure Plan | The Hill
Alternative funding mechanisms (P3 projects for example) will become more prevalent
Currently, there are 37 states that allow for some form of P3 Project. And Levelset has written about P3 Projects as well. A few years ago, insurance giant AIG called the United States the “world’s largest emerging P3 Market.” As with almost every other assumption, it’s difficult to say how prominent a role P3 projects will end up playing for large American infrastructure projects in the years to come. But it certainly seems like the use of P3s is going to increase.
Practical Considerations for the Small-to-Medium Sized Business Owner (SMBs)
Bonding is Important and is Probably Essential
It’s a good idea to explore bonding and surety requirements, and if you haven’t already, establish relationships with bonding companies so that if a project with a bonding requirement comes up, you’ll be ready to bid for the business.
Getting Paid is Also Important and is Definitely Essential
A Few Tips on Getting Public Project Work:
Keep an eye out for new infrastructure project announcements
The newly elected Trump Administration released their list of 50 Priority Infrastructure Projects before the end of their first week in office. US Senate Democrats also have their own list, as do many states including California and Texas.
“Relationships are critical!”
So says Coy Henderson, levelset’s Manager of Strategic Relationships and Business Development. He suggests that construction companies, “harness the power of industry networking groups, and maintain regular contact with the GCs in your area.” It’s not uncommon for large infrastructure projects to require a significant portion of the work be completed by local contractors. If you already have good relationships with GCs in place, you’ll “be top of mind when a GC with newly awarded infrastructure project contract is looking to fulfill the local business requirement.”