Rising Costs Affecting MA Infrastructure Projects

THURSDAY, JUNE 16, 2022


Several public projects in New England are experiencing cost increases due to inflation, with some projects doubling or tripling in cost compared to original estimates. From bridge replacements to Massachusetts Turnpike renovations, contractors are being impacted by cost increases for materials.

James Kirby, president and CEO of Commercial Construction Consulting in Boston, told The Engineering News-Record that construction costs, which were already in single-digit increase in the Boston area before the pandemic, have now broken into the double digits.

“They are making headlines,” Kirby said. “You are looking at 20% over two years. That is a staggering amount of money for any project, but when you are dealing with projects in the billions, that is a lot more zeroes.”

The largest reported jump in estimated costs for the area include replacement plans for the Bourne and Sagamore bridges over the Cape Cod Canal. In 2019, the price tag to demolish and replace the two 85-year-old spans ranged from $1.4 billion to $1.65 billion.

However, Massachusetts Department of Transportation Secretary Jamey Tesler reported in May that the U.S. Army Corps of Engineers now expects the price will “likely be in the range or possibilities from close to $3 billion to close to $4 billion.”

“When you include additional time for construction and the start of construction and the rate of inflation that we have to project, as we are seeing inflation on a lot of our work and a lot of our bids and in the overall economy, there is going to be a significant increase in what we collectively thought the cost estimates would be for this project,” Tesler said.

According to reports, the federal government was initially expected to cover the costs of demolition and construction. Earlier this month, the state and USACE applied for $1 billion in federal funding through the first round of the Multimodal Project Discretionary Grant Opportunity, a $2.9 billion grant made possible through the bipartisan infrastructure law.

In an email to the Cape Cod Times, Bryan Purtell, Corps Public Affairs Officer, said the cost estimate would continue to be refined based on “...current inflation, supply chain, fuel, and other cost increase impacts associated with a worldwide pandemic that were not predicted in the original 2020 cost estimate.” 

“The range of possible cost is growing,” he said. “In the long run, this will be determined when it is funded, when it is in construction and what the actual rate of inflation will be.”

Another project being impacted by inflation in the state is the Allston Multimodal Project, a replacement plan for the Allston Viaduct that carries the Massachusetts Turnpike from the Allston Interchange to the Commonwealth Avenue Bridge. Crews plan to construct eight Turnpike lanes, four tail tracks, four lanes of Soldiers Field Road and a pedestrian boardwalk over the Charles River, all at the same level.

Construction costs have reportedly increased 17.6% from the estimate last fall, boosting the project amount to $2 billion or over $300 million more than originally anticipated.

Kirby told reporters that cost estimates on publicly funded projects can be more difficult, nothing there aren’t as many comparable projects to compare costs with. Additionally, there is a tendency to underestimate the costs in the beginning since full scope costs and challenges aren’t always visible at the start of a project.

Richard Dimino, President and CEO of A Better City, said one factor in the rising price-tag for the now $2 billion revamp of the Allston Turnpike is that state officials began digging deeper into the plans.

“While the general inflation rate has been going up, the construction and transportation index inflation rates tend to go up faster and higher,” Dimino said. “That is a challenge for construction.”

Similar Concerns Across the Country

In April, the Texas Department of Transportation announced that its road infrastructure projects are also being impacted by construction material shortages and cost increases, causing delays and driving up project expenses.

“Due to recent circumstances affected by world events, there has been significant volatility in the market for various construction materials,” wrote TxDOT Director, Construction Division, Duane Milligan in a memorandum in April.

“We have seen the availability of some materials become very limited or the material lead time has increased significantly. We have also seen significant increases (over 100% in some cases) in some material prices.”

According to the agency’s project tracker, TxDOT is working on more than 15,700 projects totaling $157 billion. About half of the projects are reportedly underway or scheduled to start soon. Factors like rising petroleum costs, COVID-related shutdowns, increase for material demand and a worker shortage are all driving up prices for road-building materials like steel and concrete. 

A TxDOT spokesperson told reporters that it was too soon to say how inflation and material shortages could affect the timing or cost of the I-35 Capital Express project, a plan to widen the interstate by adding additional lanes. The current estimated cost of the expansion is $5.7 billion with $4.9 billion of that paying for the central portion from Ben White Boulevard to U.S. Highway 290 East.

Requiring some 30 acres of land through Austin, and the median sales prices of a home in the area reportedly topping $600,000, land acquisition will likely drive up these costs as well.

Two light-rail projects in the city, including a downtown subway, have been pushed to cost over $10 billion due to inflation and other design changes, which is a 40% increase over initial estimates. While an expansion in tunnel length also drove up costs, officials also noted that costs increased due to construction material inflation and real estate.

Simonson added that while more steel-making capacity is coming online over the next year or so, a shortage of construction workers could also complicate both projects.

At the end of May, new estimates for the Soo Locks project in Michigan were released, revealing the project could cost double or triple the original estimated cost. Lawmakers say that the increase is due to inflation, labor costs and supply chain issues.

According to The Detroit News, the U.S. Army Corps of Engineers is still working on an updated cost estimate but have briefed members of the Michigan delegation. A final figure could reportedly come in as high as $3 billion, which is more than triple the initially authorized $922 million for the project in 2018.

Currently, measures to aid the project could potentially be covered in the Water Resources Development Act that will be voted on by lawmakers this summer. This could enable construction to continue under the existing authorization through fiscal year 2025, providing some flexibility for the project.

“We recognize that funding a larger amount for the New Lock at the Soo is a challenge that could potentially result in schedule impacts,” said Soo Locks Spokeswoman Carrie Fox. “The Corps of Engineers is partnering with industry and federal partners to find collaborative solutions aimed at addressing the impact to the costs of our programs and projects.”

The Army Corps is currently bidding out final phases of the project, while crews are working on wrapping up the first phase of work and continuing phase two. Phase two, which involves reinforcing concrete approach walls, began last summer and will take a couple years to complete.

“We are accounting for those changing market conditions, to include materials, equipment, and labor,” Fox said. “In order to be responsible, the U.S. Army Corps of Engineers is in the process of delivering to Congress a new cost estimate for reauthorization consideration.”

Most recently, at the beginning of the month, officials from the Pennsylvania Department of Transportation expressed concern that inflation and material shortages will limit the impact and benefits of funding from the bipartisan infrastructure law. Problems affecting these projects include cost and availability of construction materials, rising fuel costs and the availability of workers.

Cheryl Moon-Sirianni, a District Executive for PennDOT, told The Pittsburgh Post-Gazette that low bids for contracts have been coming in 10% to 20% higher than the department anticipated.

“We’re seeing higher costs, supply chain issues, and our contractors are also having problems getting laborers and especially night work laborers,” added Christina Gibbs, spokeswoman for PennDOT’s District 10. “We’re working through the challenges as best as we can to keep projects moving forward at this time. I don’t currently have an exact percentage of bid increases, but we are definitely seeing an increase in costs.”

While lack of materials hasn’t delayed projects yet, contractors have reportedly had to be flexible and switch to other aspects of a job when they can’t get material or products they need in. Additionally, crews willing to work overnight or make late deliveries of concrete and asphalt are becoming harder to find across the state.

Pittsburgh officials also faced obstacles when deciding on the construction material of the replacement bridge for the Fern Hollow Bridge, which collapsed in January. Construction began on the new bridge last month with the pouring of concrete for the first caissons to support two sets of columns that look like double capital Ts.

Moon-Sirianni said at the time that that a shortage of steel “absolutely” played a role in choosing precast concrete, with specialty steel potentially adding 18 months to two years to construction. “It would have taken substantially longer to get steel and even longer to get specialty steel,” she said.

Rising Material Costs

According to a recent analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data by the Associated Builders and Contractors, construction input prices are up 23.7% higher from a year ago—a slight decrease from March, which reported 24.4% higher from a year ago and 39.1% higher from February 2020. Nonresidential input prices are dropped 1% from March, reporting 24.0% higher prices year-over-year.

In looking to the 11 subcategories of construction materials, the association reported that input prices were up in 10 of them for the month. Softwood lumber was the only category in which prices decreased, falling 17.7% for the month and down 5.5% from last year. The largest price increases were in natural gas (16.9%) and unprocessed energy materials (10.3%).

“There are some economists who believe that inflation has peaked,” said ABC Chief Economist Anirban Basu. “Even if that were true, stakeholders should not expect dramatic declines in inflation in the near term given an array of factors placing upward pressure on prices: the Russia-Ukraine war, COVID-19, a shrunken labor force, elevated transportation costs and abundant demand for goods. Today’s PPI release indicates that producers continue to ask for and receive elevated prices for their limited production. These high input prices will continue to circulate through the economy as production continues, whether in the form of manufactured goods, buildings or infrastructure.”

Other products rising more than 1% in March include: fabricated structural metal products (2.0%); iron and steel (1.2%); steel mill products (2.4%); nonferrous wire and cable (1.3%); concrete products (1.8%); and crude petroleum (4.5%).

“According to ABC’s Construction Confidence Index, many contractors report that demand for their services remains sufficiently robust for them to pass along the bulk of their cost increases to project owners,” said Basu. “But at some point, the economy could weaken to the point that purchasers of construction services become less willing to pay elevated prices.

“The Federal Reserve is now in the middle of what will likely prove a lengthy monetary tightening process, and higher borrowing costs are rendering project starts less likely, all things being equal. That said, certain segments are likely to power through this dynamic, should it happen. That includes public construction, given the recent passage and ongoing implementation of a large-scale American infrastructure package. It should be noted that recent inflation has reduced the return taxpayers will get per dollar spent on infrastructure.”

In looking at the price index specifically, AGC notes the following increases year-over-year:

  • Diesel fuel, up 86.5%;
  • Aluminum mill shapes, up 44.8%;
  • Architectural coatings and paint, up 32.1%;
  • Plastic construction, up 29.9%;
  • Roofing asphalt and tar products, up 20.8%; and
  • Truck transportation of freight, up 27.4%.

AGC officials went on to note in its report that the best way to keep costs from rising was to allow contractors to buy materials from the widest possible range of suppliers. In addition, officials suggested the elimination of measures that artificially inflate the cost of products.

   

Tagged categories: Building materials; Construction; Department of Transportation (DOT); Economy; Funding; Government; Government contracts; Infrastructure; Infrastructure; Market trends; NA; North America; Ongoing projects; Program/Project Management; U.S. Army Corps of Engineers; Upcoming projects

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