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Good Reason for Optimism
The upswing in confidence among transportation contractors that 2023 will be a good year for them is the direct result of increased federal funding. Money may not make the world go around, but it does fuel the construction industry’s growth. And since the $1.2 trillion infusion of federal money under the Infrastructure Investment and Jobs Act (IIJA) is earmarked specifically for infrastructure improvements, transportation contractors have every reason to be optimistic about the near-term growth of their particular construction market sector. (The outlook for other sectors, such as retail, office, hospitality, and multifamily residential construction, which don’t have the benefit of federal funding from IIJA, is not as rosy.)
What Transportation-Related Projects Are Being Funded by IIJA?
First, it’s important to understand that the funds authorized by IIJA are mostly allocated to individual states. States then decide what infrastructure projects will be funded within their jurisdiction. The Department of Transportation (DOT) also received $125 billion to allocate to its own projects.
Projects aiming to improve roads and bridges are the most commonly funded through IIJA and other federal legislation and state budget appropriations. The American Road and Transportation Builders Association (ARTBA) released a report in February 2023 stating that one-third of all bridges in the United States need repair or replacement. A total of 224,000 bridges need repair, with 43,578 of them structurally deficient and considered to be in poor condition yet still in heavy use.
Concerns Remain Despite an Optimistic Outlook
In January 2023, the Associated General Contractors of America (AGC) released a report on its survey of more than 1,000 members. The report noted that relatively few respondents (5%) had yet worked on an IIJA-funded project, while about an equal number had bid on one but not yet been awarded a contract, and slightly more said they had been awarded a contract but had not yet started work. Those numbers should increase dramatically throughout 2023 and into 2024 as the IIJA funding process continues to roll out.
However, more of the respondents to an industry survey conducted by Roads & Bridges magazine expressed dissatisfaction with the protracted rollout of IIJA than described themselves as content or very satisfied with it. But while disappointment over the pace of the rollout has damped some confidence, other unrelated factors also affect how optimistic transportation contractors are about the outlook for the remainder of 2023 and beyond.
There are still supply chain issues that mean some materials needed for road and bridge construction may have longer than anticipated lead times and/or may cost more than estimated. Cement and steel are two materials essential to infrastructure construction that could be problematic from a procurement standpoint.
The current shortage of skilled labor is another issue for transportation contractors. With an aging workforce and fewer young people choosing a career in construction, the construction labor pool is much smaller than a decade ago. As a result, transportation contractors are taking steps to be more competitive in the labor marketplace by offering higher wages, better benefits, and training. They’re also recruiting differently, with a greater emphasis on workforce diversity.
Contractors also are feeling some uncertainty about the state of the U.S. economy in 2023. High prices and interest rate increases obviously are a concern in an industry where costs often must be estimated and bids submitted months before starting a project.
Still, most transportation contractors remain optimistic despite such potential challenges. A strong majority (89%) of the Roads & Bridges survey respondents said they expect the transportation construction business to be excellent, good, or very good in 2023. And with regard to the overall health of their own companies, most (70%) expressed confidence that it would be good or very good, while another 27% thought it would be average.
Transportation contractors planning to bid on IIJA-funded projects need to be working to build their bonding capacity. Government-funded projects require bid bonds, performance bonds, and payment bonds at a minimum. Projects accomplished through public/private partnerships (P3s) are likely to have the same bonding requirements. It’s never too soon to establish a strong relationship with a surety bond agent and build a per-bond and aggregate bonding capacity that supports long-term business growth.
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