Feature

September/October 2009

Against the Current

Stimulus-funded projects are slow in coming and are not stemming the tide of construction unemployment

By Angelle Bergeron

The approximately $135 billion of the American Recovery and Reinvestment Act dedicated for construction projects is like “a very strong swimmer swimming against a very strong current,” says Ken Simonson, chief economist for the Associated General Contractors of America.

The industry can’t expect a lone swimmer to turn back the 20-year tide of insufficient funding for the nation’s infrastructure nor rescue the more than one million construction jobs lost in the past year, says Stephen Sandherr, AGC’s chief executive officer.

Other construction industry experts agree the stimulus funds aren’t enough to make a huge difference—yet.

Only 10% of total ARRA construction funds are going toward infrastructure, even though the Obama administration used the average “D” grade from the 2009 American Society of Civil Engineers’ Infrastructure Report Card to garner public support for the program, says D. Wayne Klotz, ASCE president. Based on that report card, it will take $2.2 trillion over the next five years to bring U.S. infrastructure up to an acceptable grade.

Klotz calls the ARRA funds a “first step” but decries America’s annual infrastructure spending as abysmal compared to competing countries. He says the funding is sufficient to operate only a “patch-and-pray system.”

Although the “stimulus was never intended to be and is not the solution to the infrastructure challenges this country faces, it’s an absolute no-brainer why we should find ways to build things,” Klotz says. “When you build things, you get double benefits of putting people to work and having performing assets.”

Thus far, ARRA has not managed to put many people to work in construction. According to an AGC member survey released on July 30, the stimulus has had little effect on contractor hiring but has helped some contractors retain employees and purchase equipment (http://newsletters.agc.org/newsandviews/2009/07/30/agc-releases-stimulus-survey-results). By the end of summer, the unemployment rate in construction was 18.2%, nearly double the overall national unemployment rate of 9.7%.

Employee retention is critical in the current market in which contractors “need to be liquid, downsizing accordingly and prepared to invest when the market recovers,” says Don Weaver, executive vice president of Weaver Bailey Construction, an El Paso, Ark., member of Arkansas Chapter AGC. “A company is only as good as the people who work for you. We are taking work with no markup because we are spending everything to keep from laying our people off.”

Colorado Dept. of Transportation is using $2.2 million in ARRA funds for CCA-member Castle Rock Construction Co., Centennial, Colo., on work that includes the 96th Avenue roundabout. (Photo Courtesy of Colorado DOT)

Sandherr cautions AGC members not to have “unsustainably high expectations” about the benefits of the stimulus. In addition to low funding for infrastructure, he says, the industry is suffering from “low demand for commercial facilities, dwindling orders for new office buildings, declining state and local revenue and current economic conditions, including tight credit markets. The stimulus will keep our industry alive, but it will not turn around a $1-trillion construction industry overnight.”

Some contractors complain the only speedy distribution of ARRA funds has been in small maintenance projects in the transportation sector. That is likely because highway departments have had such a backlog for so many years that many contracts met the shovel-ready criteria, says Paul Diederich, president of Industrial Builders, West Fargo, N.D., and member of AGC of North Dakota. “We have so many rotomill-paving projects because they are easy to design, and we can get them on the streets rather quickly,” he says.

Outside the transportation arena, little of the ARRA authorized construction dollars have resulted in actual construction work, Sandherr says. “But these are the early days,” he says. “If we survey members again in six months, I think we will see pretty much every type of public construction—and across the whole country.”

Not Shovel-Ready

While the U.S. Army Corps of Engineers has $4.6 billion in ARRA construction funds, it has only obligated $715 million and paid out $84 million. Likewise, the General Services Administration has only obligated $656 million and paid out $12 million of its $5.9 billion in ARRA construction funds. The U.S. Environmental Protection Agency has put to use only a half percent of the $6 billion in stimulus funds available for clean-water and drinking-water programs.

Only 10% of total ARRA construction funds are going toward infrastructure improvements, including road and bridge work. (Photo Courtesy of ASCE)

“If they were designing projects, they weren’t shovel-ready,” says J. Doug Pruitt, AGC of America president and chairman and CEO of Sundt Construction, Tempe, Ariz., a member of Arizona Builders’ Alliance, in voicing a widespread complaint about the inability of the Corps and GSA to quickly move projects and create jobs.

Tim Creson, senior vice president of Austin Bridge & Road, Irving, Texas, an AGC of Texas Highway, Heavy, Utilities & Industrial Branch member, adds, “We’ve been told the Corps will look at alternative delivery methods to get out projects, but we haven’t seen that yet.”

Additionally, many of the government contracts are going to large contractors under Multiple Award Task Order Contracts and other, preapproved federal contracting vehicles. General contractors may ultimately get some of that work as subcontractors, as Weaver Bailey Construction did recently under awards at Little Rock Air Force Base.

But it makes it difficult to see what is on the horizon, Weaver says. “When I look at my region on FedBizOpps, I don’t see anything indicative that there is any work for me,” he says. “Procurement can be complex, and it will take a while to get these projects out there.”

The shortage of work and slow pace of awards also help to feed larger bidding pools with lower bid amounts, says Art Daniel, president and CEO of AR Daniel Construction Services, Cedar Hill, Texas, an AGC of Texas Highway, Heavy, Utilities & Industrial Branch member, which performs water and wastewater work.

“We bid a project a few weeks ago that had a $1.5-million estimate by the engineers,” Daniel says. “Normally, on a project like that, you would have 15 to 20 contractors look at plans and six would put in bids. There were over 40 contractors, 27 bids and the winning bid was 27% lower than estimates.”