FHWA Reports Construction Inflation Costs

MONDAY, NOVEMBER 27, 2023


The U.S. Department of Transportation’s Federal Highway Administration recently announced that inflation has caused certain highway project costs to increase 53.8% from 2020 to the first quarter of this year.

The increase was recorded in the latest data release from the FHWA, which for two decades has kept a National Highway Construction Cost Index (NHCCL) using data on successful bids on state highway construction projects. 

Project Inflation

According to Transport Topics, the sharp increase was compared to the fourth quarter of 2020, which found that the cost for these projects was sitting at around $2.86 billion.

The report states the average price charged is calculated for each item in each state, with price changes combined into a national index. Information included in the index comments on specific items in projects, including materials like steel and asphalt, as well as other factors such as labor costs, profit and overhead.

“The NHCCI reached a new all-time high in the first quarter of 2023; increasing 2.7% from the previous quarter. The second quarter of 2022 (11.9%) grew faster than any other quarter in this 2.5-year span,” noted the Bureau of Transportation Statistics in its NHCCI “2023 Year-in-Review.”

The Bureau stated that highway construction costs rose steadily in the first three months this year, part of an upward trend extending back through the 10 previous quarters.

“Over the 10 quarters [from the fourth quarter of FY2020 through the first quarter of FY2023], highway construction costs grew 53.8%,” explained the BTS.

One of the main causes of higher prices this year was reportedly construction component costs for concrete, grading/excavation and asphalt.

A Sept. 12 analysis on this data, conducted by an FHWA economist, noted that factors aside from construction material input prices may be also be adding to the inflation seen this year.

As an example, the economist added that looking at asphalt, costs for “labor, transportation or price markup may be driving that portion of the cost increase as opposed to the cost of the material itself."

“Compared to the historical quarterly average of 1.4% growth, this [2.7% increase] is still higher than average inflation but less than the high inflation observed during 2021 and 2022, where average quarterly growth was 5.2%. This suggests that the elevated inflation in 2021 and 2022 may have been driven by supply chain disruptions and fluctuating oil prices,” the FHWA economist stated.

The U.S. Census Bureau also took a look at public highway construction, releasing figures on Nov. 1 that reportedly showed $98 billion was spent on non-residential public construction of highways and streets this year through September, up 15.5% compared to the same period last year.

In its “Value of Construction Put in Place in the United States” report, the Census Bureau data for the public highway and street category came to a total of $84.9 billion from January 2022 through September 2022. 

Construction costs reportedly affect how much governments invest in new roads, highways and bridges, specifically in using the flow of federal funds from the bipartisan infrastructure law of 2021.

Since it began, the infrastructure law has reportedly pledged $350 billion from FY 2022 through 2026 to states and other municipalities for highway and bridge construction projects.

Inflation Woes Continue

In June 2022, rising costs for materials were reportedly 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 had surged 8.6% in May 2022 year-over-year, the highest rate since 1981.

According to reports, the price hikes were 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 had also been feeling the effects from raw material shortages since 2021, 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, was 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, was 69% higher, with a several year delay. Additionally, the Federal Reserve Bank of St. Louis reported that asphalt paving and tar mixtures were up 14% in May 2022, prices for fabricated steel plate up 23% and ductile iron pipes and fittings were nearly 25%.

Passed in November 2021, 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 wasn’t going as far as they hoped, including the roughly 25% increase in regular highway program state funding.

The Associated Press reported 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.

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 had issued a notice of a temporary public interest waiver regarding construction materials through the recent Buy America standards through Nov. 10, 2022.

Cities across the country had 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 a newer bid showed that pipe costs had risen to nearly $90-a-foot and gate valves to nearly $4,100.

   

Tagged categories: Bridges; Bridges; Building materials; Department of Transportation (DOT); DOT; Federal Highway Administration (FHWA); Government; Government contracts; Infrastructure; Infrastructure; Market data; Market trends; NA; North America; Ongoing projects; Program/Project Management; Research; Research and development; Roads/Highways; Supply and demand; Transportation; Upcoming projects

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