Infrastructure

The U.S. overspends on its transportation infrastructure compared to its international peers, and a team of university researchers wanted to understand why.

Their investigation found that lack of DOT staff capacity and a dearth of contractor competition in the market are key drivers of high project costs. 

State and local governments expended $266 billion on highways alone in 2022, and on a per-project basis, that spending is over three times as high as other upper- and middle-income countries, the researchers found. It’s not just American road projects that are expensive: A 2021 Eno Center for Transportation study found U.S. rail projects cost more and take longer to complete than similar builds in other countries, especially those that involve extensive tunneling.

To suss out why highway construction costs are so high in the U.S., Zachary Liscow of Yale University, Will Nober of Columbia University and Cailin Slattery of the University of California, Berkeley, surveyed infrastructure procurement practices, talked to state DOT employees and road builders and collected and analyzed project-level data across the country.

They presented their 2023 paper, “Procurement and Infrastructure Costs,” last month at Washington, D.C.-based policy think tank Brookings’ 2024 Municipal Finance Conference.

The paper is the first to use cross-state evidence to understand what role procurement practices play, according to the researchers. They found project quality and prices are not uniform across the country: There is notable variation in procurement practices, costs and road quality across the 50 states. 

Lack of DOT capacity drives up costs

Simply put, the researchers found better staffed DOTs build roads more cheaply.

There has been a “striking decrease in state DOT employment over the last 20 years, especially in the wake of the Great Recession,” the authors found, and many state DOTs now have limited capacity. One result of this situation is an increased reliance on consultants when building projects, which is correlated with higher costs.

Indeed, the researchers found a one standard deviation increase in reported consultant costs is associated with an almost 20%, or $70,000, increase in cost per lane-mile. States with higher DOT employment per capita have lower infrastructure costs: A one standard deviation increase in DOT employment per capita is correlated with 16% lower costs.

Survey respondents attribute a lack of detail in project plans to both a lack of time or experience of DOT engineers, and the use of consultants. When there is not enough specificity in plans, the risk to the contractor increases, which drives up bids. Plus, whenever the scope of a project changes, this initiates a costly and time-consuming renegotiation process, which is a major contributor to cost hikes. 

“We find that DOTs that provide more details at the time of the bid-letting have lower costs, while states with more change orders, which are often the result of poor planning, have higher costs,” according to the study.

The researchers found one additional change order correlates with $25,000 in additional cost per lane-mile at the mean, while costs are lower when the DOT provides both detailed project plans and predicted unit costs.

The researchers also collected data on individual California DOT engineers and found that a substantial amount of the variation in the cost of a resurfacing project can be explained by which engineer is assigned to it. Replacing an expensive construction engineer, at the 95th percentile of the cost distribution, with a median engineer would reduce costs by 5.3% on average, which works out to $24,000 per mile or $220,000 per average project. 

Lack of competition leads to expensive projects

Road projects also suffer from a lack of competition among builders, a factor procurement officials and subcontractors alike frequently cited to the researchers. Most states have fewer construction firms than a decade ago, and most state DOTs report doing little bidder outreach.

A 12% increase in bidder outreach is correlated with a 17.6% decrease in costs, which translates to a mean decrease of $65,000 per lane-mile and $1 million at the project level. 

Researchers also examined external data on the highway construction industry, and found that concentration in the industry seems to be rising. 

“Most states have experienced a loss of construction firms, and an increase in size of the remaining firms, in the last 10 years,” according to the paper.

They found that an additional bidder on a project is associated with 8.3% lower costs, or a savings of about $30,000 per lane-mile, which translates to $460,000 for the average project.

Lastly, the researchers found that limits on the amount of work that can be subcontracted is also correlated with higher costs. 

“Restrictions on subcontracting can decrease competition by limiting the set of potential prime contractors that can complete the project,” the authors wrote.

Dive Brief:

• The EPA on Aug. 7 announced its plan to implement a new label program to help purchasers identify more climate-friendly construction materials for federal building, highway and infrastructure projects, according to an agency news release. 
• The label program will define what constitutes “clean” construction materials in support of the Biden administration’s Buy Clean Initiative, a procurement policy that aims to leverage the federal government’s massive purchasing power to grow the market for American-made, lower-carbon building materials.
• Production of construction materials accounts for more than 15% of annual global greenhouse gas emissions, which drive climate change, per the EPA.

Dive Insight:

The EPA’s label program will prioritize steel, glass, asphalt and concrete: There are significant opportunities to reduce climate pollution from these materials and they represent the vast majority of construction products purchased with federal funds, per the release.

Buy Clean takes into account the life-cycle emissions associated with the production of construction materials, and the program will offer a tiered rating system. Materials that earn the label will be listed in a central, publicly accessible registry, making it easier to identify and purchase them, according to the release. The EPA developed the program with input from a slew of federal agencies, including the Transportation Department. 

“The use of lower carbon materials, that have the durability of conventional materials while lowering greenhouse gas emissions, is one pathway that FHWA is pursuing to help us achieve President Biden’s goal of net zero emissions by 2050,” said Federal Highway Administration Associate Administrator for Infrastructure Hari Kalla in the release.

The agency anticipates that labeling requirements for each product type will be periodically reviewed and updated every two to four years to respond to and drive market shifts and help users meet sustainability objectives, according to the release. 

The EPA also issued several supporting documents to help implement the program, including Product Category Rule Criteria, which are guidelines for developing environmental product declarations to communicate environmental impacts of products. Other documents published Aug. 7 outline key remaining data gaps, provide a methodology for assessing life cycle data quality and describe other federal data quality improvement activities.

The label program is funded via $100 million from the Biden administration’s Inflation Reduction Act. Buy Clean stems from Biden’s December 2021 executive order, which directs the federal government to green its procurement practices and take other actions to achieve a net-zero emissions economy by 2050.

Colorado is building the country’s largest dam since 2000, at a time when dams are more likely to be coming down than going up. 

Bozeman, Montana-based general contractor Barnard Construction and Swiss engineering firm Walo are building the Chimney Hollow Reservoir along the Front Range of the southern Rocky Mountains, with the goal of providing Northern Colorado residents more reliable access to water. The reservoir, a major component of the larger Windy Gap Firming Project, will store up to 90,000 acre-feet of water, according to Barnard — the volume of about 45,000 Olympic swimming pools. 

The dam and reservoir will supplement water supply for six Front Range communities of about 825,000 people, said Jeff Stahla, public information officer at Northern Water, one of 12 project participants.

When complete, the dam will be 350 feet tall, according to Northern Water, making it the third-largest dam in the state and one of the tallest on the Colorado Front Range. The dam is only the second asphalt core dam to be built in the U.S., though that building technique has been popular in Europe since the 1960s.

Stalled dam finally moves forward

This is the largest dam to be built in the U.S. since the Seven Oaks Dam, a 550-foot structure constructed in California in 2000. Today, dams are more likely to be removed, with 80 coming down in 2023, according to American Rivers. In fact, there are few places left to build new dams in the U.S., per High Country News.

Some of Colorado’s Front Range communities haven’t had their own water storage. Instead, their water has been stored in another reservoir, and when there isn’t space for their water, they don’t get access to it — a problem the project aims to address. 

The path towards building the dam and reservoir hasn’t always run smoothly. The project first started the permitting process in 2003, but faced lawsuits from environmental groups who wanted to stop it from transferring water from the Colorado River. Eventually Northern Water settled with those groups for $15 million. 

The project broke ground in August 2021 and is expected to finish in summer 2025. It’s slated to cost $570 million for the dam itself, with another $150 million for work being done at the source of the water on the west side of the continental divide, said Stahla. Rate payers for the participating providers who will get that water are funding the project.

Dam reaching new heights

Typically dams on the Colorado Front Range have been made with clay, but there’s not enough fine-grained clay material in the reservoir’s footprint, said Stahla. So instead, it has an asphalt core.

The Chimney Hollow dam will look like other dams with a rock and gravel-filled shell, but inside will be a hydraulic asphalt mix. This isn’t like road asphalt, though. It’s not brittle, but has a very high bitumen with very small aggregate that “provides that watertight ability and a little flexibility when it’s at the center of the dam,” Stahla said. 

While it’s only the second asphalt dam in the U.S. — the other is the Silver Basin Dam and Reservoir in Arizona — there are more than 200 asphalt core dams in the world. European engineers started using this technique to build reservoirs in the Alps, where there is also a lack of clay. That expertise is one of the reasons why Walo is part of the team.

After construction, it will take about three years for the reservoir to fill with water, according to Northern Water. 

“By building this reservoir, it’s making firm the yield on this Windy Gap water right so that you can count on it from year to year,” Stahla said.
 

Edit note: This story has been changed to clarify the project's cost and funding sources and the location of the contractor.

Dive Brief:

• A policy will soon go into effect that aims to protect federally funded construction projects from heightened flooding caused by climate change, the Federal Emergency Management Agency announced Wednesday. 
• Starting Sept. 9 new projects and infrastructure rebuilt after a disaster with FEMA funding must be elevated at least 2 feet above the area flood level, using up-to-date data and accounting for likely impacts of climate change, per the new Federal Flood Risk Management Standard.
• Previous approaches to addressing flood risk, based on historical data, have become outdated, according to FEMA. The agency said the new policy is a flexible framework that allows it to consider the best available climate science in order to make projects and communities more resilient to flooding. 

Dive Insight:

Floods are the most common of all weather-related natural disasters, according to the National Oceanic and Atmospheric Administration, and more frequent and intense flooding increasingly threatens lives and structures. This week, Hurricane Beryl battered the Houston area, killing at least four people and inundating roads and neighborhoods.

“The human and economic cost of flooding is devastating and will only grow in the years ahead as the impacts of climate change grow more intense and reach more communities,” said Secretary of Homeland Security Alejandro Mayorkas in the release. “Taking forward-looking, effective steps to increase resilience before disaster strikes will save lives, property, critical infrastructure and taxpayer money.” 

FEMA’s new standards will increase the flood elevation and the floodplain in order to reflect both current and future flood risk. The requirement that jurisdictions account for flooding that is likely to occur in the future under climate change is new.

The Federal Flood Risk Management Standard would affect projects like schools, fire and police stations, sewers, roads and bridges. It applies to FEMA-funded actions involving new construction, substantial improvement or repairs to substantial damage, as well as to Hazard Mitigation Assistance projects involving structure elevation, dry floodproofing and mitigation reconstruction. 

Long-fought rule

First proposed in 2015, the rule marks a victory for engineering, environmental, taxpayer and insurance groups that fought to strengthen building standards in flood-prone areas, according to Scientific American. They argued that the former federal disaster policy encouraged jurisdictions to rebuild public facilities using the same standards that resulted in their destruction in the first place.

The rule will make taxpayer-funded projects far more resilient, protecting federal investments and reducing the risk of damage and loss, according to the release. FEMA officials said the policy will apply to about 35,000 projects over the next 10 years. 

Finalization of the rule complements other actions the Biden administration announced last week — including $1 billion for 656 FEMA projects to help with extreme heat, storms and flooding — in support of its National Climate Resilience Framework.

This feature is a part of “The Dotted Line” series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.

The way big construction projects get done continues to evolve. Public projects used to happen via traditional design-bid-build, but today, many states and jurisdictions increasingly allow a range of delivery methods, such as construction manager at risk. 

That flexibility brings benefits — and potential perils — for contractors.

Unlike in traditional design-bid-build, where the design and building processes are separate and sequential, the CMAR method requires the construction manager and design team to work simultaneously and collaborate early in the design process. 

Once the design is ready for bids, the owner and the construction team — often the same construction manager — enter into a contract, which typically sets a maximum cost for the project and puts much of the risk onto the construction manager, said James Strommen, of-counsel at Minneapolis-based law firm Kennedy & Graven.

“I think the belief is from the construction manager side, that they have much greater control over their subcontractors, and can — because they have taken the CM risk — really watch and supervise their subcontractors to keep the price at the guaranteed maximum price, which of course then benefits the owner [because] there's not constant change orders,” said Strommen.

The federal government began using CMAR and states followed suit to speed up projects and more effectively manage complex builds, said David Pugh, partner at Birmingham, Alabama-based law firm Bradley. 

Today, private entities increasingly finance public infrastructure, and states that are the most liberal in their use of alternative delivery methods also tend to be those aggressively pursuing public-private partnerships, said Pugh.

“For those projects to work, to be able to attract the private capital to those projects, you’ve got to have alternative delivery methods available,” Pugh said. “Private capital doesn't want to use the traditional design-bid-build method — too slow, too expensive, too little control.”

There are many different ways to set up CMAR contracts, from different fee structures to the number of GMPs associated with the project, said Mark Evans, partner at Columbus, Ohio-based law firm Bricker Graydon. For example, sometimes it makes sense to add an early site package GMP so earthwork and utility work can get underway while the design is being finalized. 

“[CMAR] is definitely not a one-size-fit-all, which is good for the owner too, because they can customize it to fit their project and their needs. Whereas a hard bid, it's just a straight mechanical process,” said Evans.

Fewer conflicts

That shift away from the traditional design-bid-build method has seemingly contributed to fewer lawsuits from rejected bidders, since owners have a great deal of discretion in choosing their team, said Evans.

“In a bidding context, we used to have a lot of challenges to awards, where, you know, a bitter, disgruntled vendor, who was maybe the second lowest bidder, would challenge the debt award and try to get it returned. I have seen very few, if any, challenges of an award in a CMAR or a design-build context,” said Evans. 

That greater level of communication on CMAR projects can also help reduce conflict between parties on the project, according to Strommen.

“The argument over whether you should have seen it in the design or not, now it's going to cost more — I think those are ideally reduced dramatically on the CM at risk,” Strommen said. “Every owner would like that, because they have a budget and they want to stay in the budget.”

No project is without challenges, but the CMAR process opens up opportunities to head off potential conflict and make sure the project will get done in a way that’s mutually beneficial. Typically contractors can submit proposed changes to the agreement and negotiate with the owner, according to Evans. That is a key window for contractors to develop a contract that works well for them.

“Contractors really want to be very active on the front end and really dive into these contract terms, in the procurement phase if they have that opportunity, and really make sure the terms are not shifting too much risk on them,” said Evans.

CMAR contract strategies

One area for contractors to negotiate is the contingency, a bucket of money set aside to correct unforeseen problems that arise on the job. The contract defines what it can be used for and when it can be accessed. For example, CMARs may want to push to be able to use that money to fix an issue where they’re at fault, rather than just correcting damage by a third party.

“Another use of contingency that contractors typically would want to have access to is, if they are behind schedule, they can use contingency to accelerate the work to get back on schedule,” said Evans. “What that would look like is either bringing on additional labor or paying overtime hours to the guys that are already on the site.”

While price volatility has been much reduced, lingering COVID-19 impacts are creating extremely long lead times for switchgears for electrical systems, generators, some HVAC equipment and heat exchangers, according to Evans. 

Given these supply chain difficulties, CMARs would want to push to get an extension for unforeseeable, material delays in their excusable delays provisions of their contract, Evans said. An owner may agree to order materials in advance before the main CMAR is ready, a practice which, while common, means they’re out that money if the project later falls apart. 

“It's a risk to the owner, but I think it's pretty unavoidable right now just based on the current status of supply chain issues,” said Evans.

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The Dotted Line series is brought to you by AIA Contract Documents®, a recognized leader in design and construction contracts. To learn more about their 250+ contracts, and to access free resources, visit their website here. AIA Contract Documents has no influence over Construction Dive’s coverage within the articles, and content does not reflect the views or opinions of The American Institute of Architects, AIA Contract Documents or its employees.

Dive Brief:

• Halfway through the five-year Infrastructure Investment and Jobs Act, less than half — 38% — of the funding has been announced, according to the White House. That’s a 13.5% increase in the past 6 months, an indication that the process is ramping up but still lags. 
• To date, $454 billion of the IIJA’s $1.2 trillion has been announced for a range of projects like the Brent Spence Bridge between Cincinnati and Covington, Kentucky. Announced funding, captured from agency press releases, is preliminary and non-binding, whereas awarded funding represents actual obligations, per the White House. Half of the IIJA’s funding, or $550 billion, goes to new initiatives. 
• The White House also released an updated map of the more than 56,000 projects and awards that are identified or now underway at 4,500-plus localities around the country. That’s up 40% from 40,000 projects six months ago.

Dive Insight:

The IIJA and other federal funding has buoyed the infrastructure sector amid slowdowns elsewhere in the building industry in recent years. Infrastructure spending continues to build in 2024 as $1.8 trillion in federal grants, loans, tax credits and other financial incentives seep into the economy, according to analysis from S&P Global, a financial information provider. 

The largest portion of IIJA money is designated for road and bridge construction, according to White House data analyzed by CNBC, followed by rail, broadband, power and water projects. So far, improvements have launched on 165,000 miles of roads and more than 9,400 bridge repair projects are underway thanks to the IIJA, according to the White House.

However, inflation has sapped the buying power of the law, according to S&P. Elevated prices for materials, wage increases and continued skilled trades worker shortages have resulted in the funding carrying less bang-for-the-infrastructure buck than what policymakers envisioned.

Many of the country’s infrastructure systems suffer from long standing underinvestment, according to the American Society of Civil Engineers. ASCE gave U.S. infrastructure a “C minus” on its most recent report card, with roads, bridges, airports and water systems rated in “poor” to “mediocre” condition. Many need updates to withstand the impact of more frequent and intense extreme weather due to climate change.

The goal of the IIJA is to start to address these repair and resilience gaps, and recent Biden administration investments have kept the state of infrastructure from getting worse, an ASCE study released in May found. 

Yet beyond inflation, changes in the infrastructure landscape — including supply chain problems, stricter emission standards in the energy sector and extreme weather — have raised baseline spending needs, ASCE found. The organization warns that progress realized from the IIJA will end along with the funding in 2026.

“In recent years, though funding levels have improved, the infrastructure needs for various sectors have grown and evolved,” ASCE wrote in its Bridging the Gap report. “These changes have effects on the anticipated investment needs and, therefore, the size of the funding gaps for each sector.”

Dive Brief:

• If at first you don’t succeed, submit your bid again. That’s what Los Angeles-based Tutor Perini did to ultimately win a $1.66 billion contract from the Honolulu Authority for Rapid Transportation, which shelved the project four years ago amid budget shortfalls and initial bids that came in too high during the COVID-19 pandemic. 
• Tutor Perini announced Aug. 15 that HART awarded it the contract for the City Center Guideway and Stations project in Honolulu, Segment 3 of the agency’s broader, approximately $10 billion elevated Skyline light rail initiative. Ron Tutor, the firm’s chairman and CEO, had said the contractor was resubmitting its bid on an earnings call last year. 
• Scope of work under the contract, which Tutor Perini expects to be executed in mid-September, includes design and construction of six stations and approximately 3 miles of elevated rail guideway that will terminate just east of downtown Honolulu. Chantilly, Virginia-based Parsons will serve as the design subcontractor on the job, Tutor Perini said in the news release.

Dive Insight:

This is at least the second go-around on the project for Tutor Perini, which was part of the Imua Transit Honolulu joint venture that submitted a $2.7 billion bid for the job in 2020. Parsons, as well as Granite Construction and Traylor Brothers, comprised the other members of the group at the time. 

Now, Tutor Perini and Parson will begin project design immediately after the contract is signed, with construction expected to start in the second half of 2025. The contractor estimated the project will reach substantial completion in 2030. 

On its project website, HART said that utility relocation work for Segment 3 on the project had already started in the downtown Honolulu area. 

As part of those efforts, HART decided in 2021 to shift a portion of the alignment to the “mauka,” or mountain, side of the corridor. Referred to as the “Makua Shift,” this approach will significantly reduce the amount of utilities that need to be relocated, while shortening the construction timeline, the agency said. 

On Segment 2 of the Skyline project, utility relocation resulted in expensive construction delays. A Shimmick/Traylor/Granite joint venture sued HART last year for $99 million and eventually reached a $60 million settlement with the agency. Completion on that segment is now slated for 2025. 

A history of delays

Tokyo-based Hitachi Rail Honolulu JV initially broke ground in 2011 on Segment 1 of the Skyline project, which included 11 miles of guideway and nine stations. That segment opened in 2023. 

Beset by numerous delays and cost hikes — including 56 change orders to the contract for Segment 2, according to Honolulu Civil Beat — the 18.9-mile, 19-station Skyline project was originally supposed to be completed in 2020 at a total cost of $3 billion. 

Due to cost overruns, HART has had to submit at least six recovery plans to the Federal Transit Administration to explain how it would finish the project given cost escalations. Indeed, the New York Times characterized it as one of the most expensive transportation efforts in the U.S.

According to HART, this contract will trigger the release of the next $250 million in federal funding under the project’s amended Full Funding Grant Agreement, executed on Feb. 2. HART has previously received approximately $931 million dollars under this grant.

Tutor, who has made a point on the firm’s earnings calls to highlight multiple instances where projects were pulled or paused after the company had submitted the low bid, said the firm is ready to get to work on Segment 3. 

“Tutor Perini has a long and successful history of building large, complex light rail projects in various cities in the United States, and we look forward to partnering with HART to see this project successfully delivered,” Tutor said in the release.