Top 5 stories from Construction Dive

Dive Brief:

• Project abandonments surged 10.7% over the past month, according to Cincinnati-based ConstructConnect’s Project Stress Index, a measure of construction projects that have been paused, abandoned or have a delayed bid date.
• Delayed bid activity posted no change in June, while work put on hold decreased 6.6%. Overall, the Project Stress Index increased 1.5% last month.
• “Among abandoned projects, it is very possible that this number is being fueled by only a few severely impacted subcategories,” said Michael Guckes, chief economist at ConstructConnect. “Chief among suspects are private offices which continue to gravely struggle against current financial market conditions.”

Dive Insight:

The latest stress data continues to emphasize the differences in public and private construction projects, said Guckes.

On the private side, projects put on hold fell about 11.5% year over year. 

However, despite the overall decrease, developers in Boston recently paused work on a life sciences project due to an oversupply of space and slow demand in the region, according to Banker & Tradesman. Boston-based developer Leggat McCall Properties began work in 2022, but halted activity due to market conditions.

LG Energy Solutions also last month temporarily paused a portion of its $5.5 billion battery manufacturing complex in Queen Creek, Arizona. The battery company pegged the decision to “market conditions,” the company’s global communications team said in a statement.

Public projects put on hold, which include infrastructure work, increased 5.2% compared to the same week a year ago, according to ConstructConnect. 

Earlier this month, Amtrak’s redevelopment group hit pause on the $175 million Baltimore Penn Station redevelopment, according to The Baltimore Sun. Penn Station Partners, Amtrak’s redevelopment group, placed the project on hold amid cost-related delays that will likely change the final price tag, according to officials.

Abandoned projects

Meanwhile, public abandoned projects increased 3.6% year over year, while private project abandonments soared 48.7%, said Guckes.

“Public abandonments are near 2021 levels which is a relief in today’s volatile construction economy,” said Guckes. “Unfortunately, in the private realm, abandonments continue to be a significant problem for contractors who will find it hard to manage work flows and keep their crews busy while being subject to the risk of projects being abandoned.”

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.

It’s been a hot summer.

The U.S. has faced multiple heat waves. Monday was the hottest-ever recorded day on the planet, beating the record set just the day before, AP News reported. For many workers, that’s meant laboring in intense climates. 

It’s also been a summer full of new developments in politics and regulations.

On July 2, OSHA published a proposed rule, a quickly formed standard — compared to previous rules — in response to rising temperatures. It aims to better protect indoor and outdoor workers in all industries from extreme heat.

But just a few days prior, the Supreme Court overturned the Chevron doctrine, which required federal courts to give deference to federal agencies’ reasonable interpretation of ambiguous statutes. This development led many to wonder whether OSHA could even enforce a heat rule, should it be challenged. Nonetheless, SCOTUS declined to hear a challenge to OSHA’s authority on July 2, USA Today reported.

Meanwhile, this fall’s presidential election could call into question the proposed heat rule’s adoption as well. Should former President Donald Trump win, he could potentially stop the standard when his own Cabinet takes over, multiple sources told Construction Dive.

Although these developments seem like they could be a deterrent to the new standard going into effect, legal experts say it still matters, regardless of whether it gets finalized.

“I think there are plenty of good, solid, legal reasons that this will never take effect, but my take is so what?” said Phillip Russell, OSHA and employment lawyer, litigator and advisor for Washington, D.C.-based firm Ogletree Deakins. “My perspective on this is that the content of this proposed standard has useful information for employers right now.”

Regardless of what happens with the OSHA heat standard, the text of it is a resource that contractors can use to bolster their safety practices. The best action now, lawyers told Construction Dive, is for construction pros to familiarize themselves with the rule, write or update their own company heat safety plan based on the proposal and follow it.

What’s in the proposal?

Under the proposed rule, employers must have a Heat Injury and Illness Prevention Plan. That plan would go into effect for a heat trigger — when temperatures reach 80 degrees F or a wet bulb globe temperature equal to the NIOSH Recommended Alert Limit. The rule also calls for more actions to protect workers for a high heat trigger — when temperatures reach 90 degrees or hotter.

Requirements within that HIIPP include initial training for workers, access to water and shade, a designated heat safety coordinator and clear communication of the plan in every language spoken on the job.

In addition, the rule says that new workers or workers who are unaccustomed to the heat must have time to acclimatize to high temperatures. That’s one reason the rule will likely face challenges, said Will Burton, Greensboro, North Carolina-based partner in Philadelphia-headquartered law firm Fox Rothschild.

Employers could call into question the science behind acclimatization, along with the temperature triggers, Russell also noted.

In addition, one section of the rule states, “The employer must allow and encourage employees to take paid rest breaks … if needed to prevent overheating.” Russell called that “problematic from a legal perspective.”

There’s also a question, Russell noted, of whether heat falls under OSHA’s purview of ensuring that employers provide a safe workplace or if it is a broader health issue.

Even still, the rule is an valuable resource, lawyers say.

“I think it would behoove any employer to go ahead and get into compliance with whatever the proposed rule is,”said Ashley Brightwell, partner in Atlanta-based Alston & Bird’s labor and employment group.

Compliance with heat

For over two years, OSHA has had a National Emphasis Program in place to reinforce its “Water, Rest, Shade” guidance for workers in high temperatures. Under the agency’s general duties clause, employers are required to provide workers with an environment free from hazards, and to this point, heat has fallen under that.

That meant a lack of specificity, Brightwell said. Sure, employers know they need to keep workers safe from the heat. But precisely how OSHA expects them to do so, hasn’t been crystal clear.

“In many ways [the proposed rule] has been a positive development,” she said. “There has been all kinds of confusion about what is required and discrepancies in when OSHA will cite and what they will cite for.”

Brightwell called the proposed rule “a good road map” for employers to use in crafting their own heat safety plan. At the very least, she said, companies have a better sense regarding what OSHA expects of them when it comes to protecting workers from heat.

Burton called out that the agency published the rule in a different way than usual.

“At this point OSHA has taken in essence an unusual step of publishing a preview of a rule before it is published in the Federal Register,” he noted. “OSHA already has some level of authority to regulate [heat] under the general duty clause. It would be wise to take appropriate steps on some level to have heat-related considerations part of your overall safety plan, even if the rule is never finalized.” 

Burton noted that soaring summer temperatures aren’t going to just go away, and neither will OSHA, which will likely still use the general duties clause if the proposal isn’t adopted.

Russell, whose office is in Florida, said he has active heat inspections right now. The 80 degree temperature threshold would mean a large portion of work days in the state would fall into the HIIPP zone.

“I’m already seeing these questions from compliance officers,” Russell said of his clients. “How this is useful is that employers that want to understand how OSHA is going to handle heat inspections currently, they should look at the NEP and the proposed standard.”

The U.S. continues to gain ground on other countries’ manufacturing dominance a year after President Joe Biden signed the $52 billion CHIPS and Science Act in August 2022.

The renewed push to revive American manufacturing after decades of offshoring has led to over $898 billion in private company investment, according to the White House. The multibillion-dollar investments scattered across the country range from biotechnology facilities and chip fabrication plants to electric vehicle battery factories and clean energy projects.

Some major manufacturing projects added to this page over the past four weeks include a $1.4 billion Natron Energy manufacturing facility in Rocky Mount, North Carolina, a $680 million LS GreenLink project in Chesapeake, Virginia, and a $575 million Soulbrain TX semiconductor plant in Taylor, Texas.

The map also lists the contractors working on these projects when they are available. Some of the notable wins since the last update include:

• Taunton Development Corp. Construction’s award on Rhino Capital’s $11.5 million manufacturing facility in Taunton, Massachusetts.
• Force Construction’s contract on Toyota Material Handling’s $100 million project in Columbus, Indiana.

Through June, manufacturing construction spending increased 19.1% in 12 months, according to an Associated Builders and Contractors analysis. On a seasonally adjusted annual rate, spending in the sector hit approximately $235.53 billion in June.

The CHIPS Act provides $52.7 billion for American semiconductor research, development, manufacturing and workforce development. This consists of $39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems, $13.2 billion in research and development and workforce development and $500 million to strengthen global supply chains, according to the Biden administration. The CHIPS Act also provides a 25% investment tax credit for capital expenses for manufacturing of semiconductors and related equipment.

“Public dollars are flooding into the manufacturing and infrastructure sectors,” said Branch. “[That’s] leading to significant growth over the last year.”

Additionally, several mega manufacturing projects remain in the pipeline for this year. That should keep construction starts in the sector elevated for the foreseeable future, said Branch.

Construction Dive staff contributed to this report.

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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