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The $1.2-Trillion Question

How can construction companies prepare for increased infrastructure spending? In a roundtable conversation, leading industry executives discuss sourcing government business, complying with multilayered regulations, dealing with the workforce shortage and more.
By Christopher Durso
March 1, 2022
Topics
Markets

It’s a big number, the $1.2 trillion that the Infrastructure Investment and Jobs Act will be pouring into the economy and throughout the construction industry over the next 5 to 10 years. So big that it can be hard for a contractor—especially a small business—to figure out how to get a piece of the many road, bridge, rail, port, broadband and other civil projects involved.

Where to start? With people who have been there. Constructive Executive convened an infrastructure roundtable featuring leaders from a handful of companies with extensive experience working on government projects. They shared their thoughts on unraveling this $1.2-trillion knot, including how to identify and bid on infrastructure contracts, what you can do to prepare your workforce and why government work can be uniquely challenging. Our roundtable is composed of:

Mario Burgos
President and CEO
Burgos Group

Peggy Del Fabbro
CEO
M. Davis Inc.

Peter J. Hortman
Vice President/Transportation Division Leader
Thompson Engineering

Sheila A. Ohrenberg
President
Sorella Group

We also talked to an executive whose company doesn’t complete infrastructure work but who still expects to be affected by the boom:

Rob Strobel
President and CEO
Lithko Contractors

This is just the beginning of what is sure to be a very long, complicated conversation, but CE will be with you for all $1.2 trillion of it.

Are you excited about the prospect of increased infrastructure spending?

Peter J. Hortman: We are excited about the increased investment in infrastructure. It’s been more than 60 years since the Eisenhower administration’s initial Federal Aid Highway Act, which created the interstate system. Since that initial investment, much of the state and local transportation infrastructure has aged and deteriorated. The opportunity to repair and upgrade the transportation network is critical to every aspect of our economy.

Sheila A. Ohrenberg: I am excited for the United States, where we’re able to build or rebuild our crumbling infrastructure, which is much needed. As far as the construction industry, I’m a little concerned about the supply chain and how that’s going to play out, with all of this money funneling into the construction industry when we already have supply-chain challenges. And the skilled workforce shortage is going to be extremely challenging if we’re going to increase construction spending throughout the United States.

What percentage of your current project load is related to infrastructure or government contracts, if any?

Hortman: Thompson Engineering provides full lifecycle services to both public- and private-sector clients. Our services include engineering, environmental, drilling and testing, construction, as well as architecture and building envelope services. Approximately 65% of our current backlog of work is tied to a government contract.

Mario Burgos: Burgos Group is a federal contractor, so 100% of our current project load is related to government contracts. We graduated from the Small Business Administration’s 8(a) program in December 2018 and have continued to pursue federal contracts as a small-business contractor.

Ohrenberg: The majority of the work that we perform is in the government sector, including infrastructure. By volume, it’s about 80%, with several large airport projects.

Do you anticipate your company capitalizing on the new infrastructure spending?

Hortman: We look forward to continuing to assist each of our federal, state and local partners. Our first priority will be to ensure that we are meeting the needs of our existing clients, but will undoubtedly be reaching out to others with whom we have not yet had the opportunity to work.

Burgos: Yes, we believe our company is uniquely positioned to capitalize on the new infrastructure spending. Burgos Group has spent the last three years focused on identifying, bidding and capturing large indefinite delivery indefinite quantity (IDIQ) construction contracts with agencies we believe are critical in delivering on infrastructure spending. Those agencies include the U.S. Army Corps of Engineers, Federal Aviation Administration and General Services Administration, to name a few. We now have over $12 billion in multiyear IDIQ contract vehicles in place that can be utilized for the upcoming infrastructure spending.

Ohrenberg: We do. We’re experienced with infrastructure and with government work, and we see a lot of projects that have probably been on hold for a while or that they never thought were going to come to fruition. So, we definitely plan on continuing to pursue the type of work that we’re qualified to perform.

How do you recommend construction companies go about identifying, bidding on and/or capturing new infrastructure business?

Peggy Del Fabbro: Educate yourself on what is included in the infrastructure bill. The term “infrastructure” is broad and covers a lot of different areas. Money is being allocated for specific projects in each state. In addition to repairs to roads and bridges, projects include funds for new electrical vehicle charging stations, improvements to water infrastructure, development of airports and more.

Burgos: First, it is important to understand that, when it comes to infrastructure spending, the money will likely flow out in two primary ways. There is the money that flows from federal agencies to the states for infrastructure investment through agencies like the Department of Transportation; there are also funds that get invested directly by the agencies themselves. For example, airport infrastructure investment dollars might come from funds allocated to the FAA and budgeted for sustainment, renovation and modernization costs. Or they may flow directly from the DOT to municipality-owned and -operated airports.

Doing research into the historical flow of infrastructure money is the best indicator of where to find the future opportunities. Once you have figured that out, it is important to engage directly with those agencies long before the solicitation is released. If you are a small business, like we are, then responding to the sources sought requests from various agencies can have a very real impact on the acquisition strategy used by the agency (e.g., full and open competition versus set aside for small businesses).

Ohrenberg: Mentoring is so important—making sure that they have relationships with other companies that have already worked in the government field. Your surety company that already has experience with infrastructure can be a great resource. Ask a lot of questions, and find somebody that is willing to mentor you and explain some of the processes, because they are definitely different.

Is there anything different about infrastructure work that companies should keep in mind?

Burgos: The magnitude of infrastructure project opportunities can get really big, really fast. The Miller Act requires a payment and performance bond from all general contractors for any project over $150,000, and nearly all general contractors will require their subcontractors to bond back for their portion of their work. For a general contractor, a bid bond will also be required at time of bid, and it is not uncommon for awards decisions to take months, if not years. You will want to make sure that you have adequate bonding capacity and determine what impact tying up bonding may have on other segments of your business.

Ohrenberg: Yes, there is. Typically working in the private sector, there’s a lot of feeling and there can be some emotion if you’re a business owner and you’re building a building. It’s going to be personal for you: “Hey, I don’t think that these colors are going to match.” Plus, there are some decisions that can be made on the spot. With government contracting, it just doesn’t work that way. It is, “Here’s what’s in the plans and specs, and this is what you’re expected to do,” and you just do it. There’s not a lot of leeway there.

And there are specific challenges related to materials. I’m not experienced with highway work, but I am experienced with airports and military projects that will be funded in this package, and there are some specific products that you may have to go outside of your norm to procure. That’s one of the challenges with any new project that you’re not typically bidding on—you could have manufacturers that you typically work with, and now they’re introducing you to five more that may not necessarily be in the United States. So, you may have to worry about importing and credit applications and prepayments and things like that.

Are there unique legal or regulatory issues associated with this type of work?

Burgos: Unforeseen conditions are par for the course in construction. Generally speaking, federal construction firm-fixed-price contracts shift a much greater burden of the risk from the customer to the contractor than is normal in private industry contracts. Consider for a moment that the Federal Acquisition Regulations, which govern federal contracts, consist of 37 chapters and thousands of pages. While not all relevant parts of the FAR are incorporated into a government contract, the number of pages that are dwarfs the size of a normal AIA or other contract written between an owner and contractor.

For example, under the FAR 43.103(b)(2), the government can issue unilateral modifications to contracts for change orders forcing the contractor to perform the work. The government, as part of that unilateral modification, can instruct the contractor to complete the work and then file for a request for equitable adjustment (REA) to be reimbursed for incurred costs. The REA process does not guarantee a contractor will be paid for costs, and it is not uncommon for REAs to turn into a lengthy—i.e., years—claims process.

Ohrenberg: Typically, on any kind of government work, you’re going to be dictated by the FAR. They really take precedence over anything else at the federal level. Then, with this package, they’re going to allocate some of the funding to state and local governments, which introduces another challenge: If the money is coming from the federal government, then you’re going to have federal regulations, because they’re giving the money to those entities. But if the contract is through the local, city or state government, then you’re going to have those regulations to abide by as well.

For example, with FAR, you have certified payroll and your bonding requirements are going to be different. Depending on the entity that you’re working with, there may be local workforce requirements that the federal government doesn’t have. But the federal government may have specific reporting requirements—daily reports or monthly reports, related to how they’re collecting data.

How big of a problem might the industry’s shortage of skilled workers present when it comes to ramping up for the infrastructure boom?

Del Fabbro: The shortage of skilled workers is going to be a tremendous challenge when ramping up for the infrastructure boom. We are at a point in history where baby boomers are retiring at a much faster rate than the younger generation is entering the workforce. Combine that with generations in between not being encouraged to enter the skilled trades and we have a huge hurdle to overcome when it comes to filling our pipeline of skilled workers. This problem isn’t new and will continue to be a challenge for the construction industry as demand for work grows.

Hortman: This is the number-one challenge for the industry. There are not enough skilled civil engineers, tradesmen or machine operators to address demand.

Burgos: The industry shortage of skilled labor and the continued supply-chain disruptions are going to create significant challenges when it comes to ramping up for the infrastructure boom. Prices have been steadily escalating in all aspects of construction, from labor to materials to equipment.

Ohrenberg: The construction industry already has a skilled workforce shortage, and if there are project labor agreements on these projects, you are eliminating 75% of the construction workforce. How does that work? It just doesn’t. The challenge with that is, small businesses will have to have signed contracts for the work right at the beginning, but we’ve had some large infrastructure projects that were on our books for five years before we completed them. If you’re at the end of the project, then you’ve signed a contract, tied up your bonding capacity, and it’s on your books for four years before you even start. Well, if you sign a contract and wait four years to work, you have no idea what your workforce is going to look like, but you still have to complete the work, and unfortunately that’s going to put small businesses in a really tough situation—either paying more to find labor or unable to find labor at all.

How can construction companies prepare their workforce for new infrastructure projects?

Del Fabbro: Continue to train and support cross-training of employees. Invest in their futures with apprenticeship programs and training on how to use equipment that can make their job more efficient.

Ohrenberg: I think that there is some workforce that we have not necessarily tapped into. For example, we do a lot of work with individuals that are aging out of the foster-care system who, had we not worked with some of these programs, they never would have known that construction was a viable option as a career. And there are several programs throughout the country where they give some basic soft skills and do some basic construction training, and we build relationships with those groups and then hire individuals that may not be skilled, but you’re taking them on as a trainer. It’s twofold—you’re filling your workforce requirements and you’re helping individuals find a career.

Do you expect this infrastructure spending to have any long-term implications for or effects on the construction industry?

Hortman: As with any infrastructure investment, the lifecycle maintenance component must also be considered and accounted for.

Ohrenberg: I hope that we in the construction industry come up with better, easier ways to get things done. When we hire individuals that come from other industries, they say, “Wow, things seem so antiquated!” The construction industry seems to be slower to adapt to new ways of building and new ways of running businesses, so I’m hoping from a time-management and a project-management standpoint that we’ll have to learn to adapt. We have all this work, not enough people and not enough supplies, so how are we going to adapt?

Do you have a favorite infrastructure project that your company has previously worked on?

Hortman: We recently completed construction, engineering and inspection services on phase one of the I-75 interchange at I-24 in Chattanooga, Tennessee. This project greatly expanded capacity and included several operational improvements for drivers traveling through this interchange. CW Matthews was the contractor and performed excellent work. The Tennessee Department of Transportation is always an excellent partner.

Ohrenberg: I’m going to say the BNA Nashville International Airport. It was the first multimillion-dollar project that we worked on in Tennessee. It is so important to me and to our company because, in addition to our typical toilet partitions, Division 10 carpentry, it was our first large expansion joint project. We installed 7,700 lineal feet, which equals 21 football fields, all while navigating a global pandemic. This project led to opening an office in Nashville, and now it is one of our most successful markets. It was so significant to the city of Nashville and it’s such a beautiful airport, and as a small business, we got to be part of this ongoing growth.

by Christopher Durso

Chris leads Construction Executive’s day-to-day operations—overseeing all print and digital content, design and production efforts, and working with the editorial team to tell the many stories of America’s builders and contractors. An experienced association magazine editor, writer and publications strategist, he is a graduate of Saint Joseph’s University and lives in Arlington, Virginia.

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