Supply chain problems and materials shortages are turning into headaches for contractors bidding or working on government infrastructure projects. Now, some construction associations say they’ve found a source of funds to help cope with pandemic-induced delays and higher costs, if the U.S. Treasury Dept. will agree.
In a Nov. 29 letter to Treasury Secretary Janet Yellen, the Associated General Contractors of America, American Association of State Highway and Transportation Officials, American Road & Transportation Builders Association, American Traffic Safety Services Association and 15 other groups ask the department to clarify that state and local government recipients of $350 billion in American Rescue Plan (ARP) Act funds can use the money to “mitigate the effects of supply chain shortages, such as for material price increases and the effects they are having on project costs.”
The groups' request follows President Joe Biden’s Nov. 15 signing of the Infrastructure Investment and Jobs Act, which includes an estimated $1 trillion in funding for projects over five years. The Biden administration has touted the package's expected economic benefits, but the construction trade groups warn the current problems could undercut those gains.
“It certainly will make it harder for those infrastructure investments to have the kind of economic benefit that most people want and expect out of the bipartisan infrastructure bill,” says Brian Turmail, AGC of America's vice president of public affairs and strategic initiatives, speaking about the delays and supply cost increases.
Surveys of the groups’ members have shown that contractors and suppliers are experiencing cost increases of 15%. In some cases, prices have doubled or tripled for items such as manufactured steel, the letter states. Also, lead times for materials have “dramatically increased as well, and prospects for the coming year are worse.”
Treasury has already specified in its interim final rule for the COVID-19 aid program that the funds may be used for some infrastructure, including water, sewer and broadband projects.
As ENR previously reported, some industry officials have said they also believe road projects would qualify for the funds under the rule’s broad wording.
Some states have already earmarked some of their money for other types of projects not specified in Treasury documents on the funding, such as Alabama’s plan to use $400 million in ARP funds to build and renovate prisons. In Oregon, state legislators have approved a plan to put $1.2 billion in ARP funds toward local infrastructure grants.
The ARP Coronavirus State and Local Recovery Funds should be used to “mitigate the fiscal effects stemming from” the coronavirus pandemic. The Treasury’s FAQ on the aid funds says that money from the program can be used for other infrastructure maintenance or construction, but notes that “a general infrastructure project typically would not be considered a response to the public health emergency and its negative economic impacts unless the projects responds to a specific pandemic-related public health need … or a specific negative economic impact of the pandemic.”
A Treasury Dept. spokesperson didn’t immediately respond to an ENR request for comment about the letter.
The clarification that the industry groups seek would allow states to use the recovery funds to address the increased costs associated with the supply chain problems. It would also prevent construction firms from taking a loss as the result of doing public-sector work, Turmail says.
“They’re making good-faith estimates on the cost of materials, and then they’re finding, because of the supply chain problems, that those estimates aren’t close to the actual cost for the materials,” he says.