Infrastructure Boom Will Mean Opportunities and Risks for Construction Firms
The consensus that our nation’s aging infrastructure is in serious need of repair and the need to rebuild is broadly accepted by legislators, business leaders and the American public.
There is general agreement that our neglected transportation infrastructure (roads, railways and airports), energy production and transmission networks, pipelines, telecommunication systems and water supply and sanitation systems are in need of monumental investment.
The situation is so concerning that the American Society of Civil Engineers (ASCE) recently gave America’s aging infrastructure a D+ grade for being in “poor to fair condition,” noting that much of the country’s most vital infrastructure exists in “below standard” condition.
The infrastructure crisis is having an increasingly negative impact on U.S. business and economic vitality. By the year 2020, the ASCE estimates that America’s “aging and unreliable” infrastructure will have cost U.S. companies of all sizes more than $1.2 trillion in lost sales and business activity, including the impact of worsening supply chain and business continuity risks. ASCE further predicts that from 2016 to 2025, U.S. households could incur an average of $3,400 per year in losses connected to under-investing in aging infrastructure. The ASCE’s current estimate of the cost to restore critical U.S. infrastructureto an acceptable state of repair is approximately $3.6 trillion.
The good news is that there is a renewed momentum toward rebuilding our nation’s crumbling infrastructure. Both President Donald Trump and congressional leaders have proposed spending $1 trillion over the next 10 years to upgrade the nation’s infrastructure. This investment can be the beginning of a much more robust infrastructure rebuilding initiative going forward.
For contractors, such a boom will bring many opportunities to expand business activities and participate in the rebuilding of America. But with any surge in new projects will come a variety of challenges and risks for contractors and employees.
Right out of the gate, one challenge facing many contractors is a significant shortage in experienced construction workers across the U.S. According to a March 2017 Bloomberg analysis, expenditures of $100 billion per year for 10 years will require the hiring of more than 500,000 additional construction workers and skilled trades professionals, a number that Bloomberg analysts doubt will be achievable short-term. Compounding the talent crunch is the fact that infrastructure activity generally accounts for about 25 percent of all construction spending. The rest is accounted for by residential and private commercial construction. Infrastructure contractors will no doubt face stiff competition for talent.
One obvious answer will be to recruit and train workers without prior construction experience, a process with its own inherent risks. Zurich construction workers’ compensation claim data between 2003 and 2013 revealed that employees on the job less than one year had a disproportionate number and cost of lost-time injuries. Simply, construction work is generally more dangerous than most other job categories. New workers are more likely to be injured due to lack of experience in potentially dangerous environments. In addition, newer workers may lack the physical conditioning required for immediate heavy work tasks.
At the other end of the experience continuum, an infrastructure boom may entice workers laid off during the construction slump of the recession to return to the profession. However, if they have been out of the field for any length of time, these workers could themselves be physically deconditioned, resulting in the potential for increased lost-time claims.
In either case, pre-placement/post-offer employment tests (POET) can help identify and potentially screen out candidates with prior injuries or who lack the physical conditioning to perform heavy work. A POET may consist of both a medical exam and a functional assessment of workers’ capabilities to perform the tasks for which they were hired. Testing can also provide a baseline health status that can be invaluable in determining whether or not an employee is able to return to work at the level of physical activity for which they were hired. Prior to the implementation of any POET program, employers should consult with legal counsel for assistance in design and implementation and compliance with employment practices law under the Americans with Disabilities Act (ADA) and any local jurisdictions.
An additional consideration associated with any new infrastructure program can be the risk associated with continuity of project financing and hence the ability to complete the project under the terms of an existing contract. Political shifts, weather, catastrophic events and other factors can influence projects in ways that may be difficult to foresee.
Upon acceptance of a bid for any public infrastructure project, it is important for a contractor to secure a well-crafted surety program. Surety bonds can help to ensure the completion of projects that may involve challenging working conditions as well as many different subcontractors and types of workers. Performance bonds are designed to protect the interests of taxpayers and private investors in the event of default by the major contractor. They also provide economic security to local subcontractors and suppliers.
Participating in the rebuilding of America’s vital infrastructure will be both an exciting and profitable undertaking for construction firms across the nation. With careful attention to effective management practices at all stages of a project, contractors may also strengthen their own reputations and prospects for additional work for years to come.