Challenges for IIJA in 2023

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Challenges for IIJA in 2023

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Challenges at the Federal Level

Many have been questioning why, in 2023, they have not seen much construction activity due to the funding authorized by the Infrastructure Improvement and Jobs Act signed into law in November 2021. It goes without saying that getting any massive new endeavor off the ground is likely to involve some challenges, some of them perhaps unexpected or underestimated. The rollout of IIJA is no exception.

Consider the implementation and oversight challenges facing the U.S. Department of Transportation in administering the $660 billion in IIJA funding for fiscal years 2022 through 2026. It has taken some time for the Department to address such challenges as:

  • Identifying and mitigating risks, such as the increased risk of disadvantaged business enterprise (DBE) fraud, which can steal opportunities for legitimate DBEs to participate in IIJA-funded projects
  • Expanding, training, and retaining its own workforce to achieve the capacity to meet IIJA demands
  • Establishing IIJA application and award processes and DOT oversight procedures

With these challenges now largely under control, IIJA project awards and grant funds for 2023 are now being distributed to states, municipalities, territories, and tribal entities.

Challenges at the State and Local Levels

In their capacity as project owners and sponsors, states and other non-federal government entities have similar challenges with regard to program rollout, administration operation, and oversight, albeit on a smaller scale than what DOT is dealing with.

One particularly concerning challenge for them is the impact of inflation on project costs. Inflation eats into the buying power of IIJA grant money and any matching funds contributed by states or municipalities. One strategy has been adopting a phased approach to large projects like the Des Moines International Airport. Starting with a smaller commitment in 2023, and postponing the next project phase until 2024, when inflation is expected to be lower, enables project owners to stretch their IIJA funds further and get the most bang for their buck. It is also likely to reduce the overall building pace in the early years of IIJA.

Challenges for Contractors and Subcontractors

Many of the challenges contractors and subcontractors have been dealing with all along are magnified when competing for work on IIJA projects. A few key challenges are described below.

Challenging Participation Goals

Many larger construction companies have concerns about finding subcontractors capable of meeting the diversity, equity, and inclusion (DEI) requirements included in IIJA contracts. This is one challenging aspect of the significant shortage of skilled construction workers in the United States.

Labor Shortage

Labor availability is expected to be the greatest challenge for most contractors. The IIJA requires that a certain number of construction roles be filled through union apprenticeships, but it is unclear whether there will be enough candidates interested in entering the construction trades through this route.

The size of the construction labor pool has been shrinking as older workers retire and fewer young people are seeking careers in construction. As a result, contractors and subcontractors are changing their recruiting strategies and offering higher wages and better benefits in an effort to build sufficient capacity to grow their businesses and support their participation in IIJA projects.

Materials Cost and Availability

Inflation drove up the cost of many construction materials even farther due to the supply chain disruptions caused by the global pandemic. Though the costs of some key materials are starting to moderate as supply chains improve, others remain high and demonstrate a high degree of volatility. Forecasting what materials are likely to cost moving forward is more difficult than it was only a couple of years ago.

The cost and availability of construction materials are particularly concerning for contractors bidding on IIJA projects because of IIJA’s Buy America provision, which requires contractors to use a certain percentage of materials made in the United States. Requests for non-availability waivers may be considered for projects that cannot reasonably meet domestic content procurement requirements.

Federal Compliance Requirements

Many contractors hoping to bid on and win IIJA jobs lack experience working on federally funded projects. Federal construction jobs have unique compliance requirements, such as those related to security clearances and cybersecurity. Smaller companies may not be as technologically adept, for example with BIM, as they will need to be. IIJA includes $550 million to support the use of construction technology on IIJA-funded projects, so technology adoption should be a priority for such companies.

Bonding Capacity

Contractors and subcontractors without significant government contracting experience may not have an existing relationship with a surety bond agency that can help them obtain the construction bonds needed to work on IIJA projects. Therefore, establishing such a relationship prior to bidding is absolutely essential. Bid bonds, performance bonds, and payment bonds at a minimum, are prerequisites for being awarded an IIJA-funded contract.

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