Ongoing Inflation Impacting Infrastructure Projects

THURSDAY, JUNE 23, 2022


Rising costs for materials are continuing to impact infrastructure projects across the United States, shrinking the effect of the bipartisan infrastructure law with officials scaling back, delaying projects and prioritizing needs. According to the U.S. Department of Labor, consumer prices across the board have surged 8.6% in May year-over-year, the highest rate since 1981.

According to reports, the price hikes are driven by a variety of factors, including worldwide supply chain backlogs, strong consumer and business spending in the country and Russia’s invasion of Ukraine. The coating industry has also been feeling these effects from raw material shortages since last year, with the COVID-19 pandemic and various weather events playing a hand in the shortages.

For example, the price of a foot of water pipe in Tucson, Arizona, is up 19%, the cost of a ton of asphalt in a small Massachusetts town is up 37% and the estimate to build a new airport terminal in Des Moines, Iowa, is 69% higher, with a several year delay. Additionally, the Federal Reserve Bank of St. Louis reports that asphalt paving and tar mixtures were up 14% in May, prices for fabricated steel plate up 23% and ductile iron pipes and fittings were nearly 25%.

Passed in November, the Infrastructure Investment and Jobs Act included $1.2 trillion for rebuilding the nation’s deteriorating roads and bridges, as well as funding new climate resilience and broadband initiatives, among other projects. However, officials now say that the funding isn’t going as far as they hoped, including the roughly 25% increase in regular highway program state funding.

“Those dollars are essentially evaporating,” said Jim Tymon, Executive Director of the American Association of State Highway and Transportation Officials. “The cost of those projects is going up by 20%, by 30%, and just wiping out that increase from the federal government that they were so excited about earlier in the year.”

The Associated Press reports that in Casper, Wyoming, the low bid to rebuild a major intersection and construct a new bridge over the North Platte River came in at $35 million this spring, but was 55% over a state engineer’s estimated. Instead, the bid was rejected and state officials delayed the project to reevaluate options.

“If this inflation keeps the way it is, we will have to roll projects from one year into the next, into the next, into the next,” said Mark Gillett, Chief Engineer of the Wyoming Department of Transportation.

Gillett had hoped the federal Infrastructure Investment and Jobs Act would finance a boom in highway and bridge construction. “But it’s just not going to go as far as we had hoped,” he said.

U.S. Rep. Sam Graves, the ranking minority member on the House Transportation and Infrastructure Committee, contends the infrastructure law itself is contributing to inflation by pouring more federal money into an economy already flush with trillions of dollars in federal pandemic aid.

“They are borrowing more money so they can spend more money, (which) is driving inflation, which is cutting down on the projects that they’re actually wanting to do,” said Graves.

However, senior advisor for the bipartisan infrastructure bill Mitch Landrieu told reporters that the law “actually positions us for lowering costs for families in the short- and long-term,” pointing out the Made in American requirements for steel, iron and other construction materials to strengthen supply chains and lower costs. The U.S. Department of Transportation recently issued a notice of a temporary public interest waiver regarding construction materials through the recent Buy America standards through Nov. 10, unless extended.

Cities across the country are having to evaluate their projects and budgets due to the inflation. A four-phase water main replacement project in Tuscon, Arizona, originally estimated in September 2020 that ductile iron pipe cost $75-a-foot and a gate valve cost $3,000, but the most recent bid showed that pipe costs had risen to nearly $90-a-foot and gate valves to nearly $4,100.

“To sum it up, we’re doing less work for the same amount of money,” said Tucson’s chief water engineer, Scott Schladweiler.

Tacoma, Washington, is seeing similar setbacks, delaying its planned water main replacements.

“Some of them are getting delayed, some of them are being reduced in scope, and it’s forcing us to re-evaluate some of the budgets that we’ve set forth,” said Ali Polda, principal engineer in the city’s water department.

Other public utilities also will have to choose between scaling back work and passing along costs to customers, said Michael Arceneaux, acting CEO of the Association of Metropolitan Water Agencies.

“In the end, it’s going to be the rate payers that suffer,” he said, “because the projects have to get done, and funding will have to come from the rate payers.”

Rising Material Costs

According to an analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data by the Associated Builders and Contractors, construction and nonresidential input prices both rose 2.3% in May.

According to the latest report, construction input prices are up 21.4% from a year ago—a slight decrease from April, which reported 23.7% higher from a year ago. In March, ABC found that construction input prices 24.4% higher from a year ago and 39.1% higher from February 2020.

Nonresidential input prices dropped 2.1% from April, reporting 21.9% 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. The largest price increases were in natural gas (+39.7%) and unprocessed energy materials (+16.3%)—the same two subcategories reported in April.

For the month of May, crude petroleum was the only category in which prices decreased, down 1.6%. For the year, however, crude petroleum is up 59.0%. For the second month in a row, Softwood lumber remains as the only category where prices decreased for the year, down 21.7% from 12 months ago. Since February 2020, softwood lumber prices are up 98.2%.

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.

Several public projects in New England are also experiencing cost increases due to inflation, with some projects doubling or tripling in cost compared to original estimates. 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.

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.”

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.” 

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.

   

Tagged categories: Building materials; Economy; Government; Government contracts; Infrastructure; Infrastructure; Market; Market trends; NA; North America; Ongoing projects; Program/Project Management; Supply and demand; Upcoming projects

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