One of President Biden’s top legislative wins, his signature infrastructure funding bill, is being negatively impacted by the bane of his presidency: record-high inflation.
The law increased bridge, road, and other project development funding by $550 billion to help address the poor condition of all types of infrastructure across the United States.
The issue: Due to inflation, that $550 billion isn’t worth what it was just a few short months ago.
Inflation’s impact on infrastructure funding
Inflation, which reached a 40-year high of 9.1% in June, has already cut billions of dollars from the original value of the bill. This forces states across the U.S. to delay, rethink, or cancel projects as costs increase at a historic pace.
For example, in North Carolina, officials will add new projects to their bridge and other long-term infrastructure plans only if they replace existing ones.
Inflation is having a significant impact on companies in the bridge construction industry. They are forced to compete for fewer, more costly projects than expected when the infrastructure bill was signed into law. On top of this, inflation will cut into the profits that they expected to earn on current contracts unless terms can be changed, which is typically challenging to do on government-funded initiatives.
Today’s inflationary price increases are on top of the materials prices that were already on the rise.
The price of diesel and gasoline has also hit record highs in the last year. These fuel costs are added on to everything that must be trucked to factories that manufacture components of bridges and to construction sites.
This isn’t the end of the stress that bridge construction businesses are under. The workers needed to build and rehabilitate bridges are hard to find, and those available are demanding — and getting — higher pay.
How government agencies are responding to inflation
Municipalities and states find it challenging to continue with the projects that they already have on the docket. Examples of delayed, reduced, and canceled initiatives include:
- Rather than canceling a badly-needed road rebuilding effort in Lansing, Michigan, officials decided to cut its scope in half.
- Beavercreek, Ohio, delayed a planned $1.3-million road paving project after its lowest bid was $2.3 million.
- In Kettering, Ohio, work on local roads will cost about $2.8 million, which is almost 30% higher than the initial estimates made just a year ago.
- A primary — and badly needed — interstate reconstruction initiative in the Atlanta, Georgia, area could be delayed or cut back because of rising costs.
- In Raleigh, North Carolina, improvements to a 2.3-mile stretch of road estimated at $31 million in 2017 have increased 70% since, forcing a one-year delay in construction. This project is not only being impacted by inflation, but it’s also a victim of the increase in real estate prices happening across the United States. Local officials cannot afford to buy the properties needed to expand sections of the road.
How bridge industry businesses can combat inflation
The one positive in all the negativity for companies in the bridge and road development sector is that the funding in the infrastructure bill is good for five years, which means it could still be around after inflation is back under control. These companies may not enjoy the fast windfall that they expected when the bill was passed, but it could earn them revenue over a longer term and give them more time to staff up at more reasonable costs.
The Congressional Budget Office expects inflation and record-low unemployment to continue through the rest of 2022 and possibly begin to ease next year, allowing plenty of time for infrastructure funds to be used more efficiently and effectively. Many believe that efforts to control inflation made by the Federal Reserve and increased industrial production could result in more reasonable supply prices. Plus, more normal post-pandemic immigration patterns and additional people entering the job market could lower unemployment levels.
The most important thing that businesses in the bridge and road construction industry can do now and into the foreseeable future is include clauses in their contracts that allow them to increase project prices when the increases aren’t their fault and pass costs on to municipalities and other project sponsors. Due to these unprecedented times, many are finding that bridge project stakeholders are open to renegotiating existing contracts. Some include clauses that enable a contract to be reconsidered to address inflation every three or six months while projects are in development.
It’s also a good idea to purchase supplies early in the planning process to avoid paying higher prices later. Typically, this isn’t a smart move because of warehousing costs, but some suppliers may allow you to lock in what you will need in the future and keep items at their business location until you retrieve them. It’s up to you to do the math to determine the most cost-effective ways to procure supplies during these challenging times.
It could also be wise to rent instead of buy equipment right now when there are shortages and prices are high. For example, a company like Bridge Masters can rent you cutting-edge lifts on an as-needed basis.
In many cases today, small projects are grouped together, and large ones are split into smaller pieces. This provides a way to bid on bridge initiatives and manage them cost-effectively. Similar small projects developed at once can benefit from supplies purchased in bulk. Workers can be hired once and moved from project to project. When large initiatives are broken into segments, it’s simpler to move ahead with what’s working and then re-estimate and rework the parts impacted by inflation and worker shortages.
It’s essential for companies working on bridge projects to ensure that they protect their financial interests. Many municipalities are still not addressing the impact that inflation is having on bridge and road construction efforts. However, more and more are every day, and they’re willing to renegotiate contracts, rethink how projects are bid, and find ways to make them more efficient and cost-effective.
