Two years into the implementation of the federal Infrastructure Investment and Jobs Act, construction companies that are looking to work on IIJA-funded projects face a tangled situation threaded with challenges and possibilities. Now about halfway through its lifespan, the $1.2-trillion IIJA—signed into law in November 2021 and due to expire in 2026—represents a wide-ranging investment in infrastructure, including more than $550 billion in spending above existing funding. But various complexities and bureaucratic processes have slowed its rollout in terms of contracts signed and projects physically underway.

For now, many contractors interested in cashing in on the spending package that is also known as the Bipartisan Infrastructure Law must navigate those complexities—along with factors such as inflation, labor shortages, federal, state and local regulations, and reporting, accounting and other requirements. Throw in the need to think through whether a company’s culture is a good fit for IIJA-related work, and it can make for a demanding process.

And, thanks to government-mandated project labor agreements pushed by the Biden administration that may accompany IIJA projects of a certain size, it’s that much more so for merit-shop contractors.

HITTING THE HIGHWAY

As part of the IIJA as well as the Inflation Reduction Act, which was signed into law in August 2022, the Biden administration has committed more than $425.3 billion in new funding to public-infrastructure and clean-energy projects from coast to coast. According to the White House, it has announced more than 40,000 specific projects in all 50 states , the District of Columbia, U.S. territories and tribal lands—everything from roads and bridges to lead-pipe replacement and high-speed internet.

But much—if not most—of that work has yet to break ground, because announced projects are simply ones that have been awarded funds in the form of formula grants, discretionary grants and other mechanisms, which then go to state governments, local municipalities or private developers.

That means the money has to trickle down through additional layers before it reaches the active-project level.

That said, some work is underway. For example, IIJA-supported highway-improvement projects, particularly those that have been awarded formula grant funding, have been making progress nationwide, according to the American Road & Transportation Builders Association, which notes that such projects have “moved forward in FY 2022 and year to date in FY 2023 using IIJA and other federal formula funds.”

In terms of highway projects, ARTBA reports, “nearly 90% of IIJA funds are dispersed by existing formula to states, with the remainder distributed through discretionary grant awards and other allocated programs.” Active projects that ARTBA is tracking include the Cedar Falls Main Street Reconstruction in Iowa, a $30-million project that includes $10 million in IIJA funding and broke ground in April 2023, and the Sumner Tunnel Rehabilitation in Boston, which began in 2022, with $120 million of its $160-million budget coming from IIJA money.

In Tennessee, Thompson Engineering has provided construction oversight for three highway projects that are supported by a combined total of $285.5 million in IIJA formula funding: $123.7 million to widen a section of State Route 115 around Knoxville; $70.6 million to reconfigure an Interstate 40 interchange; and $70.6 million to make improvements to the Interstate 75/Interstate 24 interchange in Chattanooga. Thompson CEO Kendall Kilpatrick notes that his merit-shop company has continued its standard approach in a changed federal funding environment. “While the funding sources change,” Kilpatrick says, “our strategy for obtaining work revolves around quality delivery and execution of our work, and that will never change.”

WHAT’S THE HOLDUP?

Thompson’s experience is encouraging. However, most announced projects of varying types are in the design or procurement phase, with contracts yet to be awarded to contractors. More are likely to be signed in 2025, with ground broken in the second half of that year and in 2026, according to Ben Brubeck, vice president of regulatory, labor and state affairs for Associated Builders and Contractors. “The public’s expectation that projects would be built immediately after the passage of these laws is a bit unfounded,” Brubeck says.

“We saw the same thing with the American Recovery and Reinvestment Act [of 2009]—a big splash followed by a much slower and more metered distribution of awards,” says Richard Meene, principal with the government contracting practice for business consulting and advisory firm CohnReznick. “This is because of the long award process, but also because of the flood of regulation that followed the funds.” And it’s all happening alongside “a ton of competing administrative volume from the CHIPS [and Science Act] and Inflation Reduction Act, as well as typical discretionary agency spending and grants.”

Additionally, as Simon Shekleton, senior vice president of transformation for the global transportation business line at AECOM, explains: “Owner agencies are overstretched in terms of their ability to push out and oversee work, whether that be procurement, mobilization or administrative oversight, and an aging public sector workforce will only compound this dynamic.”

At the two-year mark, Shekleton sees challenges and opportunities for contractors interested in IIJA-related projects. On one hand, “It’s important to recognize that the observed increase in project funding is not being matched by a proportional increase in construction-market capacity,” he says, “which may exacerbate inflation and labor shortages, particularly for skilled trades.” On the other hand, “an oversupply of construction opportunities allows for a correction of the contract terms and risk apportionment that have become overly punitive over the past decade.”

PART OF A PERFECT STORM

There’s also the reality that, beyond IIJA being an immense, multipronged law that needs a lot of time and effort to understand in and of itself, “funding” can mean different things for different infrastructure projects. “It might mean federal funding in some form toward a project,” Brubeck says, “as well as private projects that may receive tax credits later. Projects that are ‘announced’ don’t necessarily translate into more work for ABC members.” In fact, a recent survey “shows that few ABC companies have been awarded a contract or have broken ground yet, which suggests that a lot of work is still in the pipeline.”

To a certain extent, that makes sense. “Everyone knew going in [to the IIJA environment] that it would take a while to get things moving,” Brubeck says. “That’s the nature of the industry.”

And with IIJA funding directed mainly to states and localities, which apply for money through formula and new grant programs, those applications are part of a competitive process that can take months. “The new grant programs under the legislation are complicated for private developers as well as state and local governments,” Brubeck says. “These are not formulaic programming requests, so applicants have to figure out how to do this.”

There is also Executive Order 14063, issued by President Biden in February 2022 and effective as of Jan. 22, 2024, which mandates project labor agreements for—and by extension blocks merit-shop companies from—federal construction contracts of more than $35 million. In addition, the Biden administration is pushing federal agency grant recipients of more than $260 billion in IIJA funding to require PLAs where appropriate. Build Back America, an ABC-led coalition of construction trade associations, maintains that such pro-PLA policies inflate the cost of construction 12% to 20%, exacerbate the industry’s skilled-labor shortage, will lead to delays and deny opportunities to small and local construction firms and their skilled workforces not affiliated with unions.

But, as Brubeck sees it, merit shop or otherwise, all contractors are facing “a perfect storm in the industry right now. Materials costs have escalated by more than 40% since the start of the pandemic, so many governments are going back and realizing, ‘Wow, we can’t do what we wanted to do, because the prices have gone up so much.’”

Finally, even contract awards may be a double-edged sword—“exacerbated by high interest rates, so money is more expensive,” Brubeck says. “Then add the skilled-labor shortage—about 500,000 people in 2024—a shortage that’s probably going to get worse as a lot more of this public project funding comes out and actual labor is needed.”
Meene concedes that it’s a “very long process,” noting that, while “much progress was made in the areas of appropriation and allocation, more is ahead than is behind with regard to solicitation, negotiation and award.” Still, things are moving ahead. “Funding has been committed to agencies and efforts at a top level,” Meene says. “Discretionary budgeting to programs is occurring, as is an increasingly rapid rollout of solicitations. Awards have been made.”

COMPETING FOR CONTRACTS

Despite the challenges, there are some promising upsides for merit-shop companies looking for IIJA-funded work. For one thing, because “infrastructure was broadly defined” in the law, Meene says, “the opportunity set is wide.” To take advantage of that opportunity set, merit shops need to be prepared to compete in this new arena.

Know what you don’t know: Start by understanding that “union-shop contractors are probably somewhat more aligned with the government-funding compliance requirements because collective bargaining is really a governed process resulting in a legal agreement not dissimilar to regulations.” Some merit shops competing for IIJA work may be encountering this for the first time, including “rules, requirements, reporting and audits not typical to commercial-arrangement or right-to-work-state type project governance,” Meene says. “If you are coming into the federal supply chain and haven’t dealt with collective-bargaining type agreements, you’ll have more ground to cover in order to comply.”
Prepare to comply: In order to cover that ground, Meene suggests “seeking out training on the compliance requirements of federal awards and performing an analysis of your systems and business practices to make sure that you will be able to meet the compliance and reporting requirements.” Shekleton adds: “This compliance work is not trivial. Because the bill is focused on infrastructure and jobs, a careful analysis on the cash flow and public benefit is required.”

Don’t forget grants: Additionally, “be aware of all the [federal agency] grants and opportunities available, including those that require local [government and private developer] matching funds that could be sourced in innovative ways,” Shekleton says. “To this end, developing a grants strategy is just as if not more important than one singular grant application.”

Budget accordingly: “Before you propose an award,” Meene says, “think through the budget case.” Brubeck adds: “Contractors must thoroughly understand and budget the risks of new regulations and policies that will affect compliance costs, craft-labor productivity, subcontractor participation, project safety and possible project procurement and construction delays.”

You may be able to collect some of the costs of compliance in your bid, including accounting and reporting systems and personnel to perform project-specific accounting duties. “Many of these may be able to be included direct to the project or in rate allocations which are recovered on the project,” Meene says. “However, if you don’t know that at the start and build the budget with them in mind, the ability to include them after the fact is not likely available.”

Expect to be audited: Also understand that, as Meene puts it, “audits will be a thing.” He explains: “You are most likely to be audited directly by the entity from whom you received the award. If it’s a state government as a pass-through entity, they will be providing oversight, which may include audit. If it’s a federal award, you will see federal government auditors or their designated representatives.”

How do you prepare for that? “You should establish a chain of command and of communication as well as a process for audit facilitation,” Meene says, “to make sure that audits don’t disrupt your business execution.”
Know your impact: Enacted via Executive Order in January 2021, the Biden’s administration’s Justice40 Initiative establishes a goal that “40% of the overall benefits of certain federal investments flow to disadvantaged communities marginalized, underserved and overburdened by pollution.” Meene says: “Demonstrating how your project will benefit disadvantaged communities as defined by the Justice40 is great.”

2026 AND BEYOND

As the IIJA process continues, Meene thinks that in 2025 or 2029, the Biden administration—or a subsequent administration—“will focus on roads and bridges, broadband expansion and grid modernization.” While “a Democratic administration would likely focus more on renewable energy, ... a Republican administration might focus a bit more on building out or fortifying more traditional forms of transport like freight train lines and highways.”

Of course, the question facing every contractor—merit shop or not—is whether IIJA is the best fit for its company culture and capabilities.

“Organizations take a hard look and determine if they want to get involved or not,” Meene says. “Many decide it’s not the direction they want to go despite the availability of funds.”

At Thompson Engineering, Kilpatrick is looking forward to more IIJA-supported highway construction engineering and inspection work for state departments of transportation. “It’s very helpful to the industry to have this additional funding,” he says.

But Kilpatrick is also aware of the potential impact of the loss of IIJA in the future and what that could bring. “Once IIJA expires, the programs will return to their normal funding levels,” he says. “Obviously, we’re keeping an eye on that.”