Keystone Contractor April Cover

The One Trillion Dollar Challenge: The Tough Road Ahead

Excerpt from The Keystone Contractor Magazine

Isett’s President & CEO, Kevin Campbell, was asked to provide insight for the featured article in April’s issue of The Keystone Contractor. “The One Trillion Dollar Challenge” focuses on the Infrastructure Investment and Jobs Acts, the ways in which it will impact the industry, and the increasing challenges with attracting the right workforce. Campbell’s comments are bolded below, and you can read the entire April issue here. Reposting of the entire magazine is done in coordination with Keystone Contractor Magazine, the magazine of the Keystone Contractors Association, of which Isett is a member.

The night the infrastructure bill was approved, Plum Contracting Inc. President Ali Mills was watching the votes as they were cast. “It was an exciting time for
us. Then the next day you think, ‘what does this mean for us?’ There are going to be a lot of challenges to it,” said Mills, whose Greensburg firm does a lot of work for PennDOT and the Pennsylvania Turnpike Commission. Those challenges include labor shortages, long lead times to obtain materials, and volatile materials and fuel prices. “It’s a little nerve-wracking. But you still must be excited,” Mills said.

The Act includes $11.3 billion for highways; $1.6 billion for bridges; $2.8 billion for public transportation; $355 million for airports; and $171 million for electric vehicle charging stations. It also includes $100 million for broadband internet; $1.4 billion for water and wastewater infrastructure; $26 million for cybersecurity; $49 million for protection against wildfires; and $3.5 billion for home weatherization. The bill will benefit the entire highway construction industry, said Richard Barcaskey, executive director of the Constructors Association of Western Pennsylvania (CAWP).

His members are ready to go while preparing to navigate the challenges. “The good news is Congress passed an infrastructure bill. The bad news is the pandemic has made it even harder to attract men and women to a career in the trades,” Barcaskey said. “And then the bigger question, ‘does inflation and the cost of materials eat away at the increased funding?’” Many firms already have their hands full with work and will have to find ways to take on additional projects.

Our business has never been stronger, and the impact of the infrastructure bill didn’t even get here yet,” said Kevin Campbell, president and CEO of Barry Isett & Associates, an engineering and consulting firm based in Allentown. “From an engineering standpoint, it’s what we’re here for. We say our purpose is to enrich our communities. Every project we work on improves the quality of life. That’s what this is all about. That’s what we’re here for. We’ll work through the challenges. It’s not going to happen overnight. We’re excited to have several good years in front of us.”

A big challenge will be for the state to come up with the matching funds necessary to tap the federal money, said state House Speaker Representative Bryan Cutler, a Republican from Lancaster County. About $930 million in matching funds are estimated to be needed to tap the highway and bridge funding. The Motor License Fund, most of which comes from fuel taxes, may not be sufficient. Some of that money historically has been diverted to pay for the state police. Even with that diversion being reduced, “I still think there’s going to be a gap there,” Cutler said.

Pennsylvania Transportation Secretary Yassmin Gramian said about $360 million of the matching funds are accounted for. The governor and legislators will have to work out a plan for the rest. She hopes the Legislature will consider options raised last year by the Transportation Revenue Options Commission formed by the governor. Suggestions include phasing out fuel taxes and replacing them with a vehicle-miles-traveled tax; expanding tolling; doubling the cost of annual vehicle registration; increasing the tax rate on vehicle sales; increasing fees on vehicle rentals and leases; imposing a fee on taxis and ride-sharing services such as Uber and Lyft; and charging a $1 fee for every package delivery.

Cutler said the funding strategies must address the increase in electric vehicles. Owners benefit from the state’s road network without paying much in fuel taxes that pay for the network. Competition for building materials also is going to be a challenge as infrastructure projects start simultaneously coast-to-coast. “I think one of the other potential problems is, quite honestly, as all of this comes online across the nation, I think that unfortunately will just further exaggerate many of the supply chain issues that we’re seeing,” Cutler said. “What happens when everybody asks for new steel, new asphalt, and new concrete for their bridges?” As projects get underway in Pennsylvania, the economy should be invigorated as jobs are created. Every billion dollars spent in the construction industry results in the creation of 5,000 high-quality construction jobs, said Jennifer Berrier, Pennsylvania secretary of labor & industry. And every new construction job results in the creation of one ancillary job, such as in retail or hospitality. Filling those spots will take some work. Pennsylvania has an aging labor force and a low labor force participation rate.

The construction industry recently had a collective 2,000 job postings on online job boards, Berrier said. And that doesn’t account for every opening that companies are trying to fill. “The industry is going to need to ramp up. It’s already looking for workers, but as opportunities arise with these federal funds, that demand will increase exponentially,” she said. “I think there’s going to be a need for construction businesses to attract and retain thousands of workers over the next decade.” Construction has competition for entry-level workers with other sectors that pay comparable healthy starting wages, she said.

With infrastructure spending looming, the U.S. Department of Labor is reviewing wages. In March, it announced it is considering an update to the regulations that implement the Davis-Bacon Act to better reflect the needs of workers in the construction industry. The goal is to speed up prevailing wage updates to ensure pay is staying on track with actual wages. “Federal dollars should be used to create good jobs in local communities all across our country,” said U.S. Secretary of Labor Marty Walsh. “These proposed regulations are good for workers, good for building high-quality infrastructure, and for ensuring we have a strong construction industry, as we rebuild America.”

The state must partner with apprenticeship programs so they can expand and increase their capacity to meet coming needs, Berrier said, and help grow pre-apprenticeship opportunities that feed into apprenticeships. The state Department of Labor & Industry is finalizing the availability of grant money to help the construction industry prepare for its workforce development needs, Berrier said. Plum Contracting is trying to build the next generation of project managers through an internal mentoring program. Senior superintendents are coaching and developing younger workers who have shown leadership skills and a leadership mindset to “form them into what we need them to be to run projects.” Performing work for PennDOT requires a workforce that is specially trained, Mills said. “Being a contractor for government agencies means producing projects and adhering to strict rules and regulations. We have to follow specifications from PennDOT and the federal government.” Mills added, “It’s not easy work and there’s a lot to it. We have to put our name on it, and we have to follow the rules.” Buchart Horn, Inc., an international engineering and architecture firm headquartered in York, is recruiting additional staff in anticipation of the coming projects. It hopes to tap work across the spectrum of the infrastructure bill, from roads and bridges to airports and water and wastewater treatment systems. Buchart Horn already is working to install electric vehicle charging stations in Pittsburgh and hopes to be involved with that part of the bill, too.

Jamie Keener, Buchart Horn’s director of market development, said, “People are preparing for it. It’s a little hard to carry overhead for too long, not knowing when funding is ultimately going to be released to support the work. I believe everybody realizes they need to be well positioned to take advantage of this opportunity.” This is the third consecutive year that recruitment has been the number one initiative for Barry Isett & Associates, Campbell said. “I think our growth is just going to be limited by the number of people we can hire,” he said. This amount of infrastructure funding hasn’t been seen in a generation, Campbell said: “You can’t just snap your fingers and all of a sudden create the workforce to get all this work done.” As work comes in, construction industry firms must be realistic about what they can do and be honest with clients about scheduling limitations. “You don’t want to say ‘no.’ So, you tell the client ‘yes,’ but it’s going to be a few months. It’s managing client expectations,” Campbell said. Maintaining a healthy work environment for team members also must be a priority.

PennDOT is concerned about the industry being able to develop its future workforce. But it doesn’t anticipate that there will be a shortage of workers to carry out the infrastructure bill. Project lettings are expected to rise from about $2 billion annually to about $2.5 billion over the five years. While that’s a substantial increase, it is not unheard of. Pennsylvania was at that level about five years ago, said Melissa Batula, PennDOT’s executive deputy secretary. “It’s not of a size that our contracting force hasn’t already been able to adapt to,” she said. “We’ve been there. It’s not something new.”

Another looming challenge is how to project costs in order to make realistic bids. “A lot of these projects are going to last more than a year, so where are we going to be in a year and how do you bid a job to know where gas prices are going to be next year, or where material prices are going to be next year?” said Mills. “So of course, people are going to be padding their bids to kind of try to figure out how to stay afloat when they are bidding these jobs and then building these jobs.”

Plum Contracting still is trying to catch up from costs it had to absorb when the price of plastic pipe that its subcontracting division uses for drainage projects more than doubled in just a few months last year after an ice storm knocked resin plants offline in Texas. “Even though we were seeing huge increases, we were just eating those costs,” Mills said. We were not able to go back to PennDOT to tell them, ‘hey, our material prices are no longer good.’ “We’re still trying to catch up from that. I can only imagine with this where it’s going to take us.”

Batula said PennDOT is aware of the risk that contractors face when bidding, and it has plans in place to try to protect them. It is indexing fuel costs in contracts, so prices will be adjusted if they rise or fall by more than a certain percentage. And contractors can opt into escalation clauses for steel prices. The infrastructure legislation will provide the first opportunity in more than a decade for long-term planning of infrastructure work, Barcaskey said. In addition to one-time transportation funding, it also includes a five-year reauthorization of surface transportation funding. For about the past 15 years, Congress has mostly passed only annual reauthorizations. Ideas for where to spend the money already should be brewing, Keener said, as municipalities have weighed how to spend funds from the American Rescue Plan Act: “That really got people starting to think about what projects they’d be wanting to do.” Keener, who has experience as an economic developer and land use planner, hopes the infrastructure bill will be “a difference-maker.”

“When we design infrastructure projects, we must be mindful of sustainability as well. It’s not just about spending the money and building a bunch of infrastructure.” Keener believes Pennsylvania’s construction industry is ready for the challenges it faces to implement the infrastructure plan. “I’m confident that we’re going to get it done in Pennsylvania. We typically do.”