This article was first written when the Infrastructure Investment & Jobs Act (IIJA) – an ambitious and unparalleled five-year investment of over $973 billion in America’s infrastructure – had passed the U.S. Senate and was pending in the U.S. House of Representatives. The legislative process is like “making sausage,” as the old adage goes, so best to not watch the process and just focus on the result. We now have a result: the so-called “Bipartisan Infrastructure Deal” has passed both houses and will be signed into law. Now, 2021 will be the year of a significant down payment of over $1 trillion on America’s current and future infrastructure needs. Aside from the country’s unquestionable need for significant repair investments and new projects, the IIJA is predicted to provide jobs and a needed economic boost.
Utility contractors will likely benefit when the IIJA is signed into law. While much of the IIJA’s investment is in transportation infrastructure and “formula” funding (such as large additional appropriations for the FAST Act for surface transportation), other significant IIJA investments are directed beyond transportation and are funded more in the nature of block grants to states, loan assistance, or competitive grants. The result will likely be more discretionary projects and more money in the hands of state and local policy makers. Key areas of additional and new funding involving utility work include a variety of sectors:
- Drinking Water and Wastewater Infrastructure Act (S. 914): This over $35 billion water investment (over five years) was passed by the U.S. Senate in April 2021 and with slight amendments is now part of the IIJA. Water investments will primarily be made through state revolving funds, enabling local entities to seek grants from drinking and clean water SRFs authorized for $2.4 billion for FY 2022 and increasing to $3.25 billion by FY 2026. Significant monies are also set aside for capitalization grants, mostly for local governments to identify and replace lead service lines. Other smaller investments include $280 million for municipal grants for sanitary sewer overflow and stormwater reuse projects.
- Broadband Infrastructure: The IIJA includes a $65 billion investment towards “universal service” for broadband, of which about $40 billion will be distributed via block grants to states. While there may be a preliminary focus for connecting “anchor institutions” like schools, hospitals, and libraries to broadband, the IIJA requires states to give priority to “unserved” areas without broadband of 25/3 Mbps and then “underserved” areas without broadband of 100/20 Mbps. As with other IIJA funding there will be federal oversight, but decisions on how to meet mandates for unserved and underserved areas will likely fall to state and local government, including more rural communities.
- Power Infrastructure: The IIJA includes $73 billion for the electric grid and power projects. The U.S. Department of Energy will offer $50 million in competitive grants to local entities to carry out construction or replacement of electric power transmission lines, increasing capacity and projects connecting to an existing infrastructure corridor. Another $5 billion DOE program would provide grants for localities that operate, transmit, or distribute electricity or fuel to make improvements to the electric grid and limit impacts from natural disasters and extreme weather.
The IIJA, when enacted, will likely bring significant work for utility contractors, but probably not overnight. However, utility contractors can take steps now to prepare their companies for projects that may come from the passage of the IIJA. Three primary considerations for utility contractors to watch for when the IIJA is signed into law will be the role of local public entities, competition, and contract terms.
Local Involvement: While some aspects of these investments will retain federal oversight, much of this work will be planned, let and managed by state and local public entities. These projects are also unlikely to just appear in the near term. Discretionary grant components of the IIJA would start to kick in next year, but the true ramp up of funding is not expected until a few years thereafter. Many potential IIJA projects are unlikely to be “shovel-ready,” and may require lead time for local entities to apply for funding, plan and design, and procure the work. This time lapse may allow input into the process by stakeholders at the local levels, including decisions regarding the types, locations, scale and timing of projects. Larger scale projects may be appealing to potentially decrease cost and project duration, but smaller projects may better spread the work around and achieve similar results. Stakeholders may likewise find opportunities to forward alternative project delivery vehicles such as design build or P3, or incorporation of the use of innovative construction technologies. Early involvement by utility contractors may provide insight into local capacities and needs.
Competition: Since this work will primarily be competitively procured, familiarity with local procurement rules and bid processes is advisable and necessary. Following the 2009 American Recovery and Reinvestment Act, some commercial builders shifted into pursuit of public works projects, and public works contractors entered new markets to obtain work. Competition may similarly increase for new work made available by the IIJA. Utility contractors also need to consider not only what to bid and where, but each local entity’s particular procurement policies. Key considerations for utility contractors when entering a new jurisdiction, or even facing increased competition locally, include: prequalification and licensure requirements for public work; local preferences (where applicable); local requirements for hiring workforce (prevailing wage, local hiring, job training requirements); and subcontractor participation requirements (e.g., local, disadvantaged, or women-owned). Non-local contractors will need to address long lead items such as licensure and prequalification well in advance. Contractors who predominantly perform private work will need to become familiar with increased obligations for bidding, compliance, bonding, and workforce (just to name a few) inherent in public work.
Contract Terms: Careful consideration should be given to local public works contracts and their terms, particularly if the work is in a new jurisdiction. Local public works contracts derive from a variety of sources and while there are similarities, there is no one standard form and terms can vary widely. In today’s world, special focus should be given to provisions addressing additional time and/or compensation due to shortages of material, labor, and supplies. Shortages remain a part of the current environment and include materials such as concrete and resin; supplies such as fuel and equipment; and labor. Unlike most private work, it may be more difficult to build in contingencies to account for potential shortages or price increases over the life of a project, particularly if bids are based on unit prices and there is significant competition. Escalation clauses, which provide for increases in certain unit prices or particular materials in the event certain thresholds are met, should also be examined for what events trigger an escalation in price, and what type of documentation is required. Above all utility contractors should review provisions related to project time and the ability to obtain time extensions. Public entities frequently include (and in some jurisdictions are required to include) provisions for liquidated damages for untimely completion.
The IIJA is a historic, long overdue investment. Utility contractors should take the time to prepare for the potential for more work, new markets, and the challenges ahead.
About the Author: Elysha Luken is a partner in the Fort Lauderdale, Florida, office of Smith, Currie & Hancock, LLP, and is a Florida Bar Board Certified Construction Attorney. Luken specializes in representing contractors on public and private projects, including bid protests, contractor licensing, drafting contracts and subcontracts, construction lien and bond claims, and contractor claims for delay and additional compensation. She may be reached at firstname.lastname@example.org. Learn more: www.smithcurrie.com.