AGC of America

Funding, Risk Allocation Driving P3 Delivery of Mega-Projects

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Public-private partnerships, P3s, continue to emerge as the preferred delivery mechanism for multi-year, multi-billion transportation and infrastructure ventures.

Associated General Contractors of America Vice President of Public Affairs & Strategic Initiatives Brian Turmail says ongoing mega-projects such as the $3 billion Fargo-Moorhead Red River Diversion and the $5 billion LaGuardia Airport Terminal B are relying upon P3 project delivery to bring these large-scale, big-dollar ventures to completion.

“Funding is often a big driver for P3s because they allow owners to move forward with a project without having to secure full financing on their own,” said Turmail. “However, P3 projects can be risky because they are often run by internationally based financiers who do not know or understand construction. These financiers produce contracts that are typically very long – hundreds of pages – non-standard and pass all the risks of the project to the construction teams.”

An international slate of project partners is heading both the Fargo-Moorhead Red River Diversion Project and LaGuardia’s new terminal. The former project is represented by the P3 of ACCIONA (the parent company of Spain’s Acciona Energy), Shikun & Binui USA (the domestic subsidiary of the Israeli-based infrastructure and real estate firm) and North American Construction Group, a Canadian heavy construction and mining contractor. LaGuardia’s P3 includes Parisian global investor and asset manager Meridiam, Swedish Skanska Infrastructure Development and Vancouver-based Vantage Airport Group.

P3 projects are also often complex, says Turmail, carrying more risk than smaller-scale efforts. “The quantities involved for these massive projects have very expensive ramifications when the assumptions are off, even by a little,” he said. “They fail sometimes due to overly optimistic revenue projection from parties bidding out the work.”

P3 projects are also risky because of their multi-year development and construction timeframes, Turmail says. Construction of the Red River Diversion Project, for example, involves building a 30-miles diversion channel to divert floodwaters around the metro area during severe floods and will take 10 years to complete. The project is estimated to wrap in 2027. The 1.3 million-square-foot Terminal B at LaGuardia Airport began construction in mid-2016 and will complete later this year.

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Missouri Adds Construction Jobs, Bloomsdale Excavating Doubling Workforce

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Missouri is the fourth-highest state to add construction jobs over the past two years, according to the Associated General Contractors of America.

AGC Chief Economist Ken Simonson said Missouri added 9,500 jobs between February 2020 and February 2022, a 7.4 percent increase in the state’s construction workforce. Missouri’s construction employment increase trails Florida (14,100 jobs), Utah (13,600 jobs) and Tennessee (11,400 jobs).

Nationwide, seasonally adjusted construction employment in February 2022 topped the February 2020 level in 32 states and lagged in 18 states and the District of Columbia, according to Simonson.

“For the month of February (2022) alone, construction employment increased in 39 states, declined in nine states and D.C. and was unchanged in Alaska and Louisiana,” he said.

In Bloomsdale, Mo., Bloomsdale Excavating Company, Inc. is contributing to construction employment statistics. President Scott Drury said the firm hired nearly 20 individuals in February and March and plans to hire 20 more this season.

“For a company of our size, this is significant,” said Drury. “We’re going to essentially double our workforce within a three-month period.”

Many of the new hires are crafts people, he said. Bloomsdale has been successful in recruiting union-skilled equipment operators and laborers, thanks to the robust apprenticeship programs run by the International Union of Operating Engineers Local 513 and the Missouri and Kansas Laborers District Council.

“We’re landing more projects in 2022,” Drury said. “With the supply chain issues, we’re trying as best we can to stay away from material-heavy projects.”

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Materials Price Increases, Choked Supply Hampering Projects

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

The price of construction materials spiked nearly 20 percent in 2021 overall despite moderating in December, according to Associated General Contractors of America Chief Economist Ken Simonson.

“Costs may not rise as steeply in 2022 as they did last year but they’re likely to remain volatile, with unpredictable prices and delivery dates for key materials,” he said. “That volatility can be as hard to cope with as steadily rising prices and lead times.”

Large St. Louis-based contractors say that during the pandemic’s infancy in mid-2020 until early 2021, they were able to place bulk orders for materials to be used for several planned projects. But increasing supply chain hurdles and scarcity of materials – such as roof joists and truss plates due to limited steel supply, framing lumber and engineered wood – are causing prolonged delays and wreaking havoc with project delivery amidst a tighter-than-ever pool of available skilled labor.

“Product is not coming online as quickly as projects are,” said industry expert Chris Bailey.

Bailey added that owners who put their construction projects on hold for two years are now signaling a green light to commence, but they’re getting sticker shock at revised project costs.

And as developers try to resurrect stalled deals, many are meeting with hesitation and more stringent requirements from investors and lenders.

AGC officials agree that rising materials prices threaten to undermine what is otherwise a strong outlook for the construction industry in 2022. AGC CEO Stephen Sandherr said the organization is urging the Biden administration to reconsider its plans to double tariffs on Canadian lumber and leave other trade barriers in place that artificially inflate the costs of key construction materials.

“Making lumber and other materials more expensive will not tame inflation, boost supplies of affordable housing or help the economy grow,” he said. “Instead, the administration should be removing tariffs and beating inflation.”

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Missouri’s Passage of Gas Tax Increase Allows Fed Infrastructure Match

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Passage of the $1.2 trillion Infrastructure Investment and Jobs Act bill, signed into law Nov. 15 by President Joe Biden, is a win for Missouri, says a regional transportation engineer, thanks to the state’s swiftness in passing a gas tax increase to raise enough dollars for the required federal match demanded by the federal spending bill.

Frank Weatherford, principal at TranSystems, credits Missouri lawmakers for passing a gradual gas tax increase – the first in 29 years – to allow the state to generate more than $500 million annually. Without passage of an increase, Missouri Dept. of Transportation officials predicted that the state would face an estimated $745 million annual funding shortfall for roads and bridges.

“We were very fortunate in Missouri that the legislature passed the gas tax increase (from 17 cents per gallon to 29.5 cents per gallon over five years) in order that we could match these new federal funds,” said Weatherford, “otherwise Missouri would have lost out on a four-to-one match. In a matter of weeks, Missouri pulled this off and made it happen. For states like ours where federal dollars are more than 50 percent of the state spend, it’s critical.”

Two subprograms contained in the new federal infrastructure bill, according to Weatherford, did not exist in previous federal transportation bills. They are: 1) A $6.4 billion carbon reduction program to allow for bicycle and pedestrian trails, transit and more, and 2) The PROTECT (Promoting Resilient Operations for Transformative, Efficient and Cost Saving Transportation) program, which channels $7.3 billion formula funding plus $1.4 billion in competitive grand funding to shore up and improve resilience of the transportation network – including highways, public transport, rail, ports and natural barrier infrastructure.

Stephen Sandherr, CEO of the Associated General Contractors of America, said passage of the federal infrastructure bill also provides needed investments to make infrastructure more resilient to extreme weather events.

“Because of the bill’s passage, state and local officials will be able to invest in a more efficient supply chain network and improve roads and bridges to make them safer and more reliable,” Sandherr said.

Missouri AFL-CIO President Jake Hummel agreed, saying the investment will boost the construction, steelmaking and concrete/asphalt production industries.

“This is a shot in the arm to not just the construction industry but also to the manufacturing base in the state of Missouri,” said Hummel.

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AGC Survey Reveals Weaknesses in 811 Utility Locating Processes

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

While 99 percent of professional excavators are familiar with their local 811 program requirements, three-fourths of respondents to a recent AGC of America survey identified the lack of accurate utility locating by facility owner/operators as the weakest element in the process.

The survey was completed by heavy water/wastewater, highway/bridge, telecom, gas transmission/distribution and energy infrastructure contractors.

In addition to the lack of accurate utility locating by facility owner/operators (78 percent of those responding), other weakest elements in the process, as identified by survey respondents, include utility owner/operator response time (56 percent) and wait time for facility owner/operator to clear a locate request (52 percent) as issues.

Forty-three percent of respondents indicated that abandoned facilities are seldomly marked by utility owner/operators and treated as live lines. A total of 53 percent who responded found unmarked or mismarked facilities in response to a locate request as the most frequent cause of damages or near-miss events.

According to the AGC, the estimated U.S. economic impact from breakdowns in the 811 process is $30 billion annually through direct costs such as facility repair and through indirect costs such as property damage and medical expenses.

While the AGC of America national survey didn’t indicate specific costs tied to Missouri and Illinois, it did report that over the past two years, breakdowns in the 811 locating process have included a failure to respond to tens of thousands of locate requests as required by law. For example, over the past two years Minnesota reported 78,000 late or no-show responses, 30,000 in Arizona and 20,000 in Michigan.

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AGC Opposes PRO Act, Says Legislation Would Overturn 70 Years of Precedent

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

The Associated General Contractors continues to oppose the PRO (Protecting the Right to Organize) Act, H.R. 842, legislation seeking to change dozens of longstanding labor laws regarding collective bargaining.

AGC of America CEO Stephen Sandherr says the legislation, which the U.S. House of Representatives passed 225-206 back in March, remains in the U.S. Senate Committee on Health, Education, Labor and Pensions where it has been for nearly four months. Backed by the AFL-CIO, the bill provides for conditions that would strengthen unions’ leverage in collective bargaining with union construction companies and in efforts to unionize open-shop firms. H.R. 842, if passed in the Senate and signed into law by President Joe Biden, would also require employers to divulge private information about their employees and remove prohibitions on partial strikes, slowdown strikes and intermittent strikes.

“On its face, the PRO Act seems to be a rather limited application,” said Sandherr. “But in reality, the bill goes way beyond that. This is the most aggressive and ambitious menu of changes to federal labor law ever offered by the AFL-CIO. It would overturn over 70 years of precedent.”

Under H.R. 842, secondary boycotts – boycotts allowing unions to picket against any employer regardless of whether they are directly involved in a dispute with that union – would be allowed, according to Sandherr.

“This measure means many workers could be idled for a dispute in which they do not stand to benefit,” he said.

The PRO Act also includes a provision related to employee classification that takes aim at the use of independent contractors. “This would make it extremely difficult for entrepreneurial construction industry workers to establish their own businesses,” Sandherr said.

AGC of Missouri President Leonard Toenjes says unless the Senate’s filibuster rule is altered, the PRO Act will likely remain in committee.

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Construction Employment Stalls in April, Materials Costs Rise Again, Inventories Shrink

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

The level of construction employment remains virtually unchanged in St. Louis and across the U.S. as commercial and residential contractors contend with a prolonged scarcity of able workers and a still-choked building materials supply chain.

Associated General Contractors of America Chief Economist Ken Simonson says finding enough workers continues to be a feat, as reflected in workforce statistics from April. Augmenting the people shortage, he adds, are problems in getting stable prices and reliable deliveries of key materials.

“Contractors are experiencing unprecedented intensity and range of cost increases, supply-chain disruptions and worker shortages that have kept firms from increase their workforces,” said Simonson. “These challenges will make it difficult for contractors to rebound as the pandemic appears to wane.”

Construction employment in the U.S. during April totaled 7.45 million, matching March’s level but 2.6 percent below the most recent peak in February 2020. Simonson said the number of former construction workers (768,000) who were unemployed in April dropped by half from one year ago, and the sector’s unemployment rate fell from 16.6 percent in April 2020 to 7.7 percent last month.

“The fact that (construction) employment has stalled – despite strong demand for new homes, remodeling of all types and selected categories of nonresidential categories – suggests that contractors can’t get either the materials or the workers they need,” Simonson said, noting that many firms are reporting backlogs and rations of key materials.

Still in short supply, according to the Institute for Supply Management’s latest survey report, are steel and steel products (for five months now), PVC products (a three-month shortage), lumber and circuit breakers.

Price spikes continue relative to copper, wire, oriented strand board, lumber, wood products, resin products, PVC products, steel, diesel, aluminum, vinyl windows and roof shingles.

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